5.1 Location Strategy: A Critical Decision
Although operations managers may not be directly involved in selecting a new site, determining the geographic location of operations is a crucial strategic decision every organization must make systematically across all sectors. This choice has long-term implications for profitability, as it involves substantial capital investment that accounts for a significant portion of operating costs. In the retail industry, for instance, where companies purchase or lease physical spaces, location expenses can constitute over 40% of total operating expenditures.
Factors Influencing Location Decisions
The factors influencing location decisions vary depending on whether the organization is engaged in manufacturing or service provision. Service-oriented businesses like fast-food chains, banks, ATMs, and movie theatres must be near their customer base. In contrast, manufacturers operating at the production end of the supply chain, such as those in agriculture, mining, or soap manufacturing, are less constrained by customer proximity and are instead driven by factors like access to raw materials and the availability of affordable labour.
Consequently, an organization’s location decision is shaped by numerous factors, considering:
The nature of the industry (manufacturing or service)
The type of product or service offered
The Rise of E-Commerce and Its Impact
It is essential to consider the establishment of web-based retail industries and their tremendous growth. Services provided by companies like Amazon and numerous other players can be accessed from anywhere, at any time of the day. As a result, these companies’ provision of services is much less dependent on location decisions. Numerous service companies are adopting strategies to reduce operating costs by eliminating the need for traditional brick-and-mortar facilities. Banks encourage customers to access various services through their websites; clothing can be purchased online, and other needs can be fulfilled through e-commerce platforms. However, this trend is predominantly applicable to service-oriented companies. Manufacturing organizations still need to produce goods, so making location decisions is a critical strategic consideration.
Prioritizing Location Factors for Optimal Performance
The decision of where to locate an organization’s facilities is influenced by numerous factors. However, the relative importance of these factors varies depending on the specific situation and how the facility location impacts the organization’s overall performance. When a company needs to establish a new manufacturing facility, for instance, several key factors come into play to determine the optimal location that minimizes operating costs while ensuring a high level of responsiveness to the market.
“Factors Affecting Location Decisions” from Operations Management by Vikas Singla is licensed under a Creative Commons Attribution Non-Commercial license.—Modifications: used section 14.5.0 Factors Affecting Location Decisions, 3rd paragraph of Introduction; rewritten.
“8 Facility Location” from Introduction to Operations Management Copyright © by Hamid Faramarzi and Mary Drane is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.—Modifications: used introduction paragraph.
