Business Strategy: Facility Location Decisions

Facility Location

Facility location decisions are part of the company’s strategy. It is a branch of operations research and computational geometry concerned with the optimal placement of facilities. It is the process of determining geographic sites for a firm’s operations. They usually involve long and costly studies locations before the eventual site is selected. It requires large investment that cannot be redeemed. Facility location decisions affect the competitive capacity of the company. Location decisions affect not only costs but the company’s income.

For instance:– Facility location affects product delivery time and level of customer service, for a manufacturing business because it affects sales. Market proximity is critical for a

It helps organizations which is newly formed and also for the existing companies who wants to expand for growth. It is needed for a new organization because it will help in strategic decisions such as select a geographical location, select a site which is within a region, and finally find a suitable site For existing company in order to expand new target market, political and legal changes, change in resources.

Factors Affecting Location Decision It Should Be Near To the Market and Raw Materials

The most important factor affecting the location of a firm is the nearness to the market. Every business wants to be near to its customers. This is especially true for retail businesses. In case of manufacturing firm it is more economical to locate near to the source of raw material. This results in low transportation cost. If the output of the firms is more expensive to transport than its input, it is a bulk decreasing industry and is more likely to locate near to the

Government may give special incentives to firms which locate in underdeveloped or high unemployment areas of the country. These incentives may be in the form of Tax holidays, subsidies, cheap land etc. A firm in order to harness these incentives may locate in these regions.

Other factors that affect location decision

Labor Productivity

This factor is very important while deciding which location labor has a lower wages demand. However, lower wages is not the only consideration, Labor’s productivity is also need to be included into the consideration. As example, say there are choices for Canon which are Kuala Lumpur and Shah Alam. Canon needs to pay RM50 to each worker of 25 Canon productions in Kuala Lumpur, while worker in Shah Alam requires RM50 for 30 Canon productions.

Exchange Rates and the Currency Risks

This factor is particular important for location decisions. Exchange rates allow to decide which location to choose. However, there are certain risks for the currency in every country. Risks are like the war, natural disaster and inflation can makes the currency increase or decrease.