How do you find strategic locations?

Definition: Location Decision in operation

With these helpful tips, you can identify management is finding an ideal
the best place to locate your expanding geographical region to install a Facility
business. or Plant. It is a vital component in
facility planning as it greatly impacts
1. Decide on a business location type. the organization’s Profitability, Cost and
2. Make sure the business location is Success.
within your budget.
3. Consider your brand. In other words, the decision about the
4. Think about vendors and suppliers. area for locating a facility is the
5. Find a safe location. Location Decision. It is also termed as
6. Go where there is demand. Facility Location and Site Selection.
7. Think about recruiting efforts.

What are the strategic location benefits Location Decision

of business?

Here are some benefits of choosing a

strategic office location, namely:

1. Simplify Marketing.
2. Increasing Company Profit.
3. Reducing Operational Costs.
4. Providing Easy Access
Here, the term Facility refers to a Plant,
1. What is the strategic importance of Industry, Factory or Manufacturing Unit.
location planning and analysis?
Depending on the business and market
Location planning decisions are crucial conditions, the organizations can have all
for any business. Placing your Stores, facilities under single or multiple units.
It includes both the location of the plant
Branches, or any other contact places at
and the facilities within the plant.
the most suitable locations will help your
company strive. Location Data and Generally, the location decision is taken
Analytics will help you to avoid costly to set up a new plant, relocate or expand
mistakes. the existing plant.

Why is location decision a strategic The decision depends on several factors

decision? that impact the business in the short and
long run. These factors may be the
The perfect location decision is without industry’s size, nature and product.
doubt selecting the best possible place
The goal behind selecting a suitable
among a given set of alternatives and location is to create accessibility to:
constraints with the objectives of either 1. Customers
maximizing profit or minimizing cost (Dubé 2. Workers
et al, 2016). Location decision is 3. Transportation
critical since it can impact on a 4. Materials, etc
company's growth, success, and failure.
Installation of facilities involves
2. What are the 5 major factors massive investment and cannot be changed
frequently. Due to poor location
affecting location decision?
decisions, relocating to another place may
lead to a heavy investment loss.
Location decision can be affected by
number of factors like – Facility location has a significant impact
a) cost-volume analysis with respect to on different types of costs. These costs
fixed and variable costs of the various include Direct, Indirect, Fixed and
options. Variable costs. The organization aims to
b) Proximity to market. deliver products at minimum cost to its
c) Proximity to supply base. customers.
d) Local tax structure. Therefore, the industrialists are going
for a strategic and logical approach to
What are the reasons for location choose the best location. It also helps in
decisions? the smooth and efficient working of the
organization.
The top five factors identified that may
strongly influence international location Objectives of Facility Location
decisions generally are, in decreasing A good site location helps in reducing
order of importance: costs and amplifies the profit earned. The
1.costs; industries invest their valuable time in
2.infrastructure; search of an ideal site for the following
3.labour characteristics; purposes: –
4.government and political factors;
5.economic factors. Revenue Potential from that Site
Availability of Resources  Availability of Resources: The plant
Tax advantages must be located close to the
Reducing Cost and Production Time suppliers of the raw materials. This
Convenient Transportation Facilities is because, it minimizes the
Suitable Environment for Employees transportation cost, time and overall
Meet the Maximum Demands of Customers cost of production.
Maximum Space Utilization  Proximity to Consumers: The
organizations offering services may
Criteria choose to locate facilities near
Facility location is a critical decision their target customers. Thus,
area and cannot depend on a single providing them with an advantage over
criterion. Essential criteria for similar service providers.
selecting the location of a site are as
 Climate Conditions: Manufacturing of
follows: –
some products demands specific
climatic conditions. For this reason,
Costs: The cost perspective is an
industries are set up in areas
essential criterion concerning the
where suitable climatic
location of a facility. Any wrong decision
condition exists.
will adversely impact the company’s
finances.  Proximity to Market: The companies
Competition: Effective location decision producing customized or assembled
helps in achieving a competitive advantage products are located near their
in the markets. As industries can control target market. Consequently,
costs and offer products at reasonable it reduces the time required for
prices to consumers. product assembly and delivery.
Hidden Effects: The plant’s location  Regulatory and Policy Issues: The
affects many factors in the long run in a political policies differ in
direct or indirect manner. To remain different geographical boundaries.
competitive, organizations must So, the organizations prefer
strategically locate their facilities. locations inside open economies
having favourable policies.
 Labour Supply: Before installing the
Factors Affecting Location Decision plant, companies assess the
Numerous factors might affect the location availability of skilled labour. Also,
decision. The suitable location is they ensure the availability of basic
determined by analyzing various factors, necessities for the employee’s
parameters and issues. Some of the factors survival.
are listed below:  Free Trade Zones: Free Trade Zones
are areas in which one can conduct
business free from customs duty.
Factors Affecting Location Decision Thus, it is an essential factor when
selecting a site location.
Numerous factors might affect the location  Infrastructure: Before the
decision. The suitable location is installation, industries must assess
determined by analyzing various factors, the availability of infrastructure in
parameters and issues. Some of the factors that region. It may include
are listed below: connectivity via Rail, Roads, Air and
Sea.
 Taxes: The tax rates vary within and
across the regions. This factor
directly impacts the organizations.

Location Decision Process

Step 1: Investigation

Firstly, the organizations investigate

their requirements regarding their
location. They conduct an internal SWOT
analysis and decide whether to move,
expand or install a new setup.

 Product and Industry: The nature of

the product impacts the facility’s
location. For instance, poultry farms
are established on the outskirts of
the city.
Step 2: Identification Company Competitiveness

Post investigation, they try to identify In the last tier of this model, the
the potential locations for locating the companies analyze their competitors. It is
facility. For example, installing the the analysis of the company’s abilities to
facility in the Domestic or Foreign beat the competition. The parameters
regions. include:

Step 3: Evaluation  Efficiency in business management

 Company’s capabilities to design and
The next step in the location decision market the products better than
process is evaluating the potential competitors.
locations. The evaluation process may
include a detailed comparison of all the Location Planning Techniques
alternatives available.
Following are the location analysis
step 4: Selection techniques that help in the selection of
an ideal location:
Companies conduct a thorough analysis of
the location and government policies in 1. The Factor Rating Method
the selected region. Also, an in-depth 2. Location Break-Even Analysis
evaluation of the merits and demerits of 3. Weighted Scoring Method
the chosen area. Therefore, choosing the 4. Center of Gravity Method
most appropriate location of the facility 5. Transportation Method
for installation. 6. Load-distance Method

Globalization of Operations
Three-Tier Model for Assessing Location
Competitiveness Nowadays, companies are not restricted
just to local markets. But, they are
This model depicts the levels of heading towards international markets to
competitiveness regarding the facility’s offer their products. Consequently, the
location. globalization of operations is taking
place.

The companies in the developed countries

are identifying the potential markets in
the developing countries. Moreover, they
are looking forward to countries with open
economies and free trade zones.

6.The Strategic Importance of Layout

Decisions

Layout is one of the key decisions that

determines the long-run efficiency of
operations. Layout has strategic
Country Competitiveness implications because it establishes an
organization’s competitive priorities in
It is the topmost level that analyses the regard to capacity, processes,
company’s competitiveness in different flexibility, and cost, as well as quality
countries. The main parameters for the of work life, customer contact, and image.
analysis include: An effective layout can help an
organization achieve a strategy that
supports differentiation, low cost, or
 Government Rules, Policies, and response. Benetton, for example, supports
Budgets pertaining to the country. a differentiation strategy by heavy
 Openness to international trade. investment in warehouse layouts that
 Availability of finances. contribute to fast, accurate sorting and
shipping to its 5,000 outlets. Walmart
store layouts support a strategy of low
cost, as do its warehouse layouts.
Sector Competitiveness

The second layer in the model

constitutes sector competitiveness. It
helps in analyzing the attractiveness of
the sector to operate. It includes:

 The pool of talent or availability of

skilled labour.
 Analysis of the quality of
infrastructure.
 Quality of the technology.