Facility Location
The process of determining geographic sites for a firms operations, which could include a manufacturing plant, a distribution center, and a customer service center.
Distribution Center
A warehouse or a stocking point where goods are stored for subsequent distribution to manufacturers, wholesalers, retailers, and customers.
Choosing a location to build manufacturing or service or warehouse facilities is a
strategic decision and has a significant impact on a company's competitive advantage.
How location decisions affect marketing
Marketing must assess how the location will appeal to customers; possibly opening new markets.
How location decisions affect human resources
Human resources must be attuned to the firms hiring and training needs.
How location decisions affect accounting and finance
Accounting and finance must evaluate costing.
How location decisions affect operations
Operations needs to be able to meet current customer demand and provide the right amount of customer contact.
Managers generally can disregard factors affecting location decisions that fail to meet at least one of the following two conditions:
1. The factor must be sensitive to location.
2. The factor must have a high impact on the company's ability to meet it's goals.
Managers can divide location factors into dominant and secondary factors. Dominant factors are derived from
competitive priorities such as cost, quality, time and flexibility and have a particularly strong impact on sales or costs.
Secondary factors also are important but
management may downplay or even ignore some of these secondary factors if other factors are more important.
Dominant factors in manufacturing include:
1. Favorable labor climate.
2. Proximity to markets.
3. Impact on environment.
4. Quality of life.
5. Proximity to suppliers and resources.
6. Proximity to the parent company's facilities.
7. Utilities, taxes, and real estate costs.
Favorable labor climate may be
the most important factor in labor intensive industries such as textiles, furniture, and consumer electronics.
Proximity to markets is important when
outbound transportation rates are high.
Impact on environment
As the focus on sustainability has increased, firms are looking to recognize the impact of location decisions on the environment.
Quality of life is a factor that
considers the availability of good schools, recreational facilities, cultural events, and an attractive lifestyle.
Proximity to suppliers and resources
is important when inbound transportation costs are high.
Proximity to the parent company's facilities
are important when coordination and communication is critical.
Other factors affecting location decisions include
room for expansion, construction costs, accessibility to multiple modes of transportation, the cost of shuffling people and materials between plants, insurance costs, competition from other firms for the workforce, local ordinances, community attitudes an
Dominant factors in services include
1. Impact of location on sales and customer satisfaction.
2. Proximity to customers.
3. Transportation costs and proximity to markets.
4. Location of competitors.
Site specific factors in service include
residential density, traffic flow, and site visibility.
Critical Mass
A situation whereby several competing firms clustered in one location attract more customers than the total number who would shop at the same stores at scattered locations.
Load Distance Method
A mathematical model used to evaluate locations based on proximity factors.
The load distance method assumes that
there is only one facility to be located, it must serve a predetermined set of nodes such as customers, suppliers in a logistic network, and it is independent of any other facility that may be in the network.
Euclidean Distance
The straight line distance, or shortest possible path, between two points.
Rectilinear Distance
The distance between two points with a series of 90 degree turns, as along city blocks.
Calculating a load distance score
1. Varies by industry.
2. Use the actual distance to calculate load distance score.
3. Use rectangular or Euclidean distances.
4. Find one acceptable facility location that minimizes the load distance score.
Center of Gravity
A good starting point to evaluate locations in the target area using the load distance model.
Break even analysis
Compare location alternatives on the basis of quantitative factors expressed in total costs.
Calculate break even analysis by
1. Determine the variable costs and fixed costs for each site.
2. Plot total cost lines.
3. Identify the approximate ranges for which each location has the lowest cost.
4. Solve algebraically for break even points over the relevant ranges.
Geographical Information System GIS
A system of computer software, hardware, and data that the firms personnel can use to manipulate, analyze, and present information relevant to a location decision.