Component Technologies, Inc.

6. Although you are basically satisfied with the analysis thus far, you are concerned about the

A newly formed firm must decide on a plant location. There are two alternatives under consideration: locate near the major raw materials or locate near the major customers. Locating near the raw materials will result in lower fixed and variable costs than locating near the market, but the owners believe there would be a loss in sales volume because customers tend to favor local suppliers. Revenue per unit will be $185 in either case.

There are also demand conditions which consist of composition of home demand, size and pattern of home demand, rapid home market growth, and the push or pull of products into foreign and home countries. The overall state of demand conditions heavily influence the preparedness of a company to compete.

1.1 Introduction Facility Location is a geographic location of manufacturing/service facilities where transformation activities from inputs into the output are performed. Selecting a location of facilities is very crucial decision not only for manufacturing unit but also for service unit. Generally it is a strategic decision and involves lot of activities. It starts from identifying the suitable locations based on certain criteria and then evaluating all locations based on specific tools and techniques. Factor Rating Method, Break even analysis, Centre of Gravity Method, Simple Median Method and Transportation Techniques are available that would help the decision maker to identify the best suitable

The location of a business has a large impact of future sales and success. The potential location holds communities that are very close-knit and once loyalty is established sales can be maintained. The personal relationships with the customers are highly important in this area.

Yes, I think that this company should build a new plant that allows them to grow in the industry, even if they are unable to use the Industrial Revenue Bond, they will have other financing alternatives.

The calculation would indicate Rate (x) initial investment (6% x $42,900) = $2,574.00 and minus the initial investment ($2,574.00 - $42,900.00) totaling -$40,326.00. All in all, this can be compared to the second payment option presented by the EMR Company, which allows $2,784.00 payments over 5 years with the same discount rate of 6%. As a result, this generates an NPV of -$43,616.00 using the same calculation. It is beneficial to show the NPV calculation that showed two options of financing alternatives presented by the EMR Company and proved it was financially healthier to purchase the EMR with a larger initial investment of $42,900.00 which generated a greater NPV, (Wang et al., 2003).

The net present value (NPV) of each option has been calculated and included in Table 1, based on figures from the study group report. Unfortunately, these figures are flawed in the same manner as Wriston’s current performance and accounting mechanisms in that they don’t properly allocate revenue, nor do they recognize inherent manufacturing complexities. The plant closure option’s expected operational gain seems particularly suspect. A better valuation of the new plant options is perhaps

We valued the company using four different methods; Net Present Value, Internal Rate of Return, Modified Internal Rate of Return and Profitability Index. We began with the Net Present Value, or NPV, calculation. NPV values an investment’s profitability based on the projected future cash inflows and outflows of the investment, discounted back to present value using the WACC. The calculations for NPV are presented in Appendix 2. We started by separating cash inflows and outflows by each year. We used Bob Prescott’s estimates for the revenue per year and related operating costs of cost of goods sold as

1. Briefly analyse two reasons why a company such as Dell may wish to relocate its manufacturing operations to another country.

The new capital cost for Option A is $-3,580,000.00 and for Option B is $-3,150,000.00. The net present value for Option A with a discount rate of 12 percent, capital cost of $-3,580,000.00, and benefits generated a negative net present value. While Option B with the capital costs $-3,150,000.00, a discount rate of 12 percent and benefits equaled a net present value of $763,122.00.

We have decided about our manufacturing location based on our supplier's locations and their accessibility to be close to each other's and facilitates the delivery and shipping processes. Obviously, the price and quality are pre-requisites in choosing the suppliers, but the speed of delivery is also very important. The closer you are to your suppliers, the quicker your product can be on the market. Other considerations can be the ease of customer service, and the ability to speak to someone face-to-face at any given

Price- The price may need to be increased to support the expansion in to a new facility. I would recommend only an increase large enough to transition into the facility and then hold the price steady again until the effect of the price increase is evaluated. Once the full impact is understood, perhaps put an incremental increase in place with cost living increases. The goal is to make more profit by increasing volume as opposed to keeping the same volume and increasing price.

Other relevant studies show that problems related to the location of any facilities involve criteria which are not only quantitative and qualitative in nature, but their performances are contradicting each other (Tuzkaya et al., 2008). As such, it can be concluded from the existing literature that for the problem in hand for this paper, an MCDA approach will be relevant and useful. The last section confirms the use of MCDA as the problem solving tool for this paper. Two of the common MCDA methods are Multi-attribute Value Theory (MAVT) and the Multi-attribute Utility Theory (MAUT). Both of them bases their assumptions on some form preferential or utility independence as well as constant tradeoffs (Belton and Stewart, 2002). The advantage of these methods is that they are simple, transparent and allow the results and the recommendations to be documented easily. But then, because of the assumption of constant tradeoffs, they tend to give extreme results. Also the decision maker is either unwilling or may not be able to give information on their preferences, utilities and tradeoffs (Stewart and Losa, 2003). This is the case for this problem, since the paper is directed as a proposal to use MCDA for solving a location problem. In such case, the level of uncertainty and practicality involved, it would not be

The company has to decide between the two locations based on their virtues, availability and higher margin of profit.