Operations Management / Supply Chain Management

Module 07: Location Strategies

Regardless of the decision – new apartment, new house, wedding site, vacation site, school, business opening – it always comes down to three words:  Location, Location, Location.  Every day on the news or in the newspaper you can find a story about business leaders trying to decide where to locate a new distribution center, plant, customer service center, data center or whatever.  In fact, which location is one of the most important decision leaders face.  And, by the way, in this day and age we are talking about the necessity of a global view.  Location decisions are made infrequently and definitely entail consideration of many different factors.  Two primary ones are financially based – the impact on fixed and variable costs.  So, location decisions are generally long-term in nature.  Once committed to a location, many resource and cost issues are difficult to change.

The basic objective of a location strategy is to maximize the benefits to the firm.  Options may include: the expansion of existing facilities; maintaining existing facilities but adding other sites; or closing existing facilities and relocating operations.  You can probably think of recent examples from your own experience or in the news.

Location decisions that focus primarily on low cost require careful consideration. Once in place, location-related costs are fixed in place and difficult to reduce.  Determining the optimal facility location is a good investment that should pay off for years in the future.  Some key considerations for different types of decisions are listed below:
If Company Leaders are considering Location from a Country perspective, the following elements may be important:
  • Political risks, government rules, attitudes, incentives
  • Cultural and economic issues
  • Location of markets
  • Labor talent, attitudes, productivity, costs
  • Availability of supplies, communications, energy
  • Exchange rates and currency risks

 

If Company Leaders are considering Location from a Region / Community perspective, the following elements may be important:

  • Corporate desires
  • Attractiveness of region
  • Labor availability and costs
  • Costs and availability of utilities
  • Environmental regulations
  • Government incentives and fiscal policies
  • Proximity to raw materials and customers
  • Land/construction costs

 

If Company Leaders are considering Location from a Site perspective, the following elements may be important:

  • Site size and cost
  • Air, rail, highway, and waterway systems
  • Zoning restrictions
  • Proximity of services/ supplies needed
  • Environmental impact issues

In a subsequent Section we will see how these parameters can be utilized and framed into a very structured decision analysis.