Facility location is the process of determining a geographic site for a firm’s operations. Managers of both service and manufacturing organizations must weigh many factors when assessing the desirability of a particular site, including proximity to customers and suppliers, labor costs, and transportation costs.
Location conditions are complex and each comprises a different Characteristic of a tangible (i.e. Freight rates, production costs) and non-tangible (i.e. reliability, frequency security, quality) nature.
Location conditions are hard to measure. Tangible cost based factors such as wages and products costs can be quantified precisely into what makes locations better to compare. On the other hand non-tangible features, which refer to such characteristics as reliability, availability and security, can only be measured along an ordinal or even nominal scale. Other non-tangible features like the percentage of employees that are unionized can be measured as well. To sum this up non-tangible features are very important for business location decisions.
It is appropriate to divide the factors, which influence the plant location or facility location on the basis of the nature of the organization as
Location factors can be further divided into two categories: Dominant factors are those derived from competitive priorities (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 them if other factors are more important.
General Locational Factors
Following are the general factors required for location of plant in case of all types of organisations.
Factors influencing plant location
Location economies of scale in the manufacturing sector have evolved over time and have mainly increased competition due to production facilities and lower production costs as a result of lower transportation and logistical costs. This led to manufacturing districts where many companies of related industries are located more or less in the same area. As large corporations have realized that inventories and warehouses have become a major cost factor, they have tried reducing inventory costs by launching “Just in Time” production system (the so called Kanban System). This high efficient production system was one main factor in the Japanese car industry for being so successful. Just in time ensures to get spare parts from suppliers within just a few hours after ordering. To fulfill these criteria corporations have to be located in the same area increasing their market and service for large corporations.
Capital becomes a main factor when it comes to venture capital. In that case young, fast growing (or not) high tech firms are concerned which usually have not many fixed assets. These firms particularly need access to financial capital and also skilled educated employees.
The various services like communications, banking services professional consultancy services and other civil amenities services will play a vital role in selection of a location.
These factors are also needed to be considered by location decisions as infrastructure is enormously expensive to build and for most manufacturing activities the existing stock of infrastructure provides physical restrictions on location possibilities.
Specific Locational Factors for Manufacturing Organization
Factors dominating location decisions for new manufacturing plants can be broadly classified in six groups. They are listed in the order of their importance as follows.
There are some other factors needed to be considered, including room for expansion, construction costs, accessibility to multiple modes of transportation, the cost of shuffling people and materials between plants, competition from other firms for the workforce, community attitudes, and many others. For global operations, firms are emphasizing local employee skills and education and the local infrastructure.
Specific Locational Factors for Service Organization
The factors considered for manufacturers are also applied to service providers, with one important addition the impact of location on sales and customer satisfaction. Customers usually look about how close a service facility is, particularly if the process requires considerable customer contact.
PROXIMITY TO CUSTOMERS
Location is a key factor in determining how conveniently customers can carry on business with a firm. For example, few people would like to go to remotely located dry cleaner or supermarket if another is more convenient. Thus the influence of location on revenues tends to be the dominant factor.
TRANSPORTATION COSTS AND PROXIMITY TO MARKETS
For warehousing and distribution operations, transportation costs and proximity to markets are extremely important. With a warehouse nearby, many firms can hold inventory closer to the customer, thus reducing delivery time and promoting sales.
LOCATION OF COMPETITORS
One complication in estimating the sales potential at different location is the impact of competitors. Management must not only consider the current location of competitors but also try to anticipate their reaction to the firm’s new location. Avoiding areas where competitors are already well established often pays. However, in some industries, such as new-car sales showrooms and fast- food chains, locating near competitors is actually advantageous. The strategy is to create a critical mass, 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. Recognizing this effect, some firms use a follow –the leader strategy when selecting new sites.
Retailers also must consider the level of retail activity, residential density, traffic flow, and site visibility. Retail activity in the area is important, as shoppers often decide on impulse to go shopping or to eat in a restaurant. Traffic flows and visibility are important because businesses’ customers arrive in cars. Visibility involves distance from the street and size of nearby buildings and signs. High residential density ensures nighttime and weekend business when the population in the area fits the firm’s competitive priorities and target market segment.
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Production And Operations Management Tutorial
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Plant Location And Layout
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Work Study (time And Motion Study)
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