Definition: Location Decision in operation management is finding an ideal geographical region to install a Facility or Plant. It is a vital component in facility planning as it greatly impacts the organization’s Profitability, Cost and Success. Show
In other words, the decision about the area for locating a facility is the Location Decision. It is also termed as Facility Location and Site Selection. Here, the term Facility refers to a Plant, Industry, Factory or Manufacturing Unit. Depending on the business and market conditions, the organizations can have all facilities under single or multiple units. It includes both the location of the plant and the facilities within the plant. Generally, the location decision is taken to set up a new plant, relocate or expand the existing plant. The decision depends on several factors that impact the business in the short and long run. These factors may be the Industry’s size, nature and product. The goal behind selecting a suitable location is to create accessibility to:
Installation of facilities involves massive investment and cannot be changed frequently. Due to poor location decisions, relocating to another place may lead to a heavy investment loss. Facility location has a significant impact on different types of costs. These costs include Direct, Indirect, Fixed and Variable costs. The organization aims to deliver products at minimum cost to its customers. Therefore, the Industrialists are going for a strategic and logical approach to choose the best location. It also helps in the smooth and efficient working of the organization. Content: Location Decision
Objectives of Facility LocationA good site location helps in reducing costs and amplifies the profit earned. The industries invest their valuable time in search of an ideal site for the following purposes: –
CriteriaFacility location is a critical decision area and cannot depend on a single criterion. Essential criteria for selecting the location of a site are as follows: –
Factors Affecting Location DecisionNumerous factors might affect the location decision. The suitable location is determined by analyzing various factors, parameters and issues. Some of the factors are listed below:
Location Decision ProcessStep 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. Step 2: Identification Post investigation, they try to identify the potential locations for locating the facility. For example, installing the facility in the Domestic or Foreign regions. Step 3: Evaluation The next step in the location decision process is evaluating the potential locations. The evaluation process may include a detailed comparison of all the alternatives available. step 4: Selection Companies conduct a thorough analysis of the location and government policies in the selected region. Also, an in-depth evaluation of the merits and demerits of the chosen area. Three-Tier Model for Assessing Location CompetitivenessThis model depicts the levels of competitiveness regarding the facility’s location. Country Competitiveness It is the topmost level that analyses the company’s competitiveness in different countries. The main parameters for the analysis include:
Sector Competitiveness The second most layer in the model constitutes the sector competitiveness. It helps in analyzing the attractiveness of the sector to operate. It includes:
Company Competitiveness In the last tier of this model, the companies analyze their competitors. It is the analysis of the company’s abilities to beat the competition. The parameters include:
Location Planning TechniquesFollowing are the location analysis techniques that help in the selection of an ideal location:
Globalization of OperationsNowadays, companies are not restricted just to local markets. But they are heading towards international markets to offer their products. Consequently, the globalization of operations is taking place. The companies in the developed countries are identifying the potential markets in the developing countries. Also, they are looking forward to the countries with open economies and free trade zones. Hence, globalization of operations is becoming one of the crucial aspects of the business’s location decision. Disadvantages of Poor Location DecisionFollowing are the disadvantages of selecting a poor location of the facility:
Sugar Mills Tea Factories Crude Oil Companies ConclusionTo conclude, facility location is the strategical and logical decision about the factory’s geographical location. There are a variety of factors that affects this decision. The organization must make efficient location decisions as it impacts the business’s finances. How are service location decisions different from manufacturing location decisions?Location decisions are usually made more frequently for manufacturing facilities than service operations. Location decisions for service-related businesses tend to be more costly than for manufacturing facilities. Location decisions are usually made more frequently for service operations than manufacturing facilities.
What are various strategies for effective facility location?1.1) Land Availability. ... . 1.2) Raw Material Supply. ... . 1.3) Availability of Labor. ... . 1.4) Nearness to Market Areas. ... . 1.5) Availability of Better Communication Facilities. ... . 1.6) Availability of Infrastructure Facilities. ... . 1.7) Availability of Transport. ... . 1.8) External Economies of Scale.. What are service location strategies?A location strategy is a plan for obtaining the optimal location for a company by identifying company needs and objectives, and searching for locations with offerings that are compatible with these needs and objectives.
What factors influence location strategy for facility location?Let us discuss these in some details.. (i) Availability of Raw Materials:. (ii) Proximity to Market:. (iii) Infrastructural Facilities:. (iv) Government Policy:. (v) Availability of Manpower:. (vi) Local Laws, Regulations and Taxes:. (vii) Ecological and Environmental Factors:. (viii) Competition:. |