FACILITY LOCATION: A REVIEW ON CRITICAL FACTORS AND ITS OTHER SIDES OF BUSINESS ACTIVITIES
Deepak Hajoary1
*(Management Studies, Bodoland University Kokrajhar, India)
Email: hajoary.deepak@gmail.com
I.
I.INTRODUCTION
Location is a decision for any organization for sustainability. Location can effect company’s locating a plant and its external unavoidable elements for any organization. It is a strategic decision which has to be decided before setting a plant. The decision for plant can have long effects on company’s performance. A careful research has to be carried out to get deep knowledge of locating a plant. The factors for every location problem is unique and depends on which country it will locate. There is difference of factors for selecting a plant within country and outside the country. The companies will always go for low cost operations and government policies in that country. The decision maker has to collect first hand information and it’s very difficult for the decision maker to take quick decision Location is a strategic decision for any business organizations and planning need to be done for finding a new plant locations. As it involves company’s cost, assessment has to be made before making any steps for its new facility. The decision can have huge impact for any business organizations. The purpose of selecting a new location will depend on diversification strategy.
II.LITERATURE REVIEW
Langevin and Riople (2005)states that there is direct relationship between locations decision and supply chain management. Some decisions can be changed over a short period of time while transportation and inventory related decisions can be changed over a period of very short time.While location decisions are fixed and can’t be changed easily,Bumb in 2002 stated the four elements of facility locations and pointed out that demand optimization of cost is very important. Mahadevan (2007) stated that the expansion of locations has its downside and advantage
AUTHOR SIGNIFICANCE
Epping 1982 Firms needs long term investment
Epping 1982 Today’s best location cannot be tomorrows best strategy
Weber 1929 Proposed three decision factors
1.Transportation cost
2.labor cost
3. Agglomeration forces
(August Losch1939 Locate in free economy
Canel and Khumawala 1996). Companies faces new problems in international facilities like political, social, economic, and cultural differences
Bass, McGragor and Walters 1977 Factors important are accessibility,
basic services available, environment, site costs, industrialization, labor and staff
availability, host taxes and incentives, area reputation,
Tong (1979) Factors affecting firm
Transportation services
Labor attitudes
Space for expansions
Nearness to markets
Availability of a site
Epping (1982) Availability of transportation facilities for moving raw material and finished
goods
Availability of labor
Personal considerations
Masood Badri, Donald Davis and Donna Davis (1995) Transportation related factors
Labor related factors
Raw materials related factors
Market related factors
Utilities related factors
Tax structure related factors
Climate related factors
Community related factors
Political situation of foreign country related factors
Global competition and survival related factors
Government regulations related factors
Economic related factors
Chamnong and Colin (1995) Market
Transportation
Labor
Site consideration
Raw materials and services
Utilities
Government concerns
Community environment
Kupke and Pearce (1998) close to the central business district
to have direct access to main roads.
McCarthy (2003) costs, labor characteristics,
infrastructure, proximity to suppliers, proximity to markets/customers, proximity to
parent company’s facilities, proximity to competition, quality of life, legal and regulatory framework, economic factors, government and political factors, social and cultural factors, characteristics of a specific location.
III.IMPORTANCE FOR LOCATION DECISIONS
Firms go for location decisions either to expand or set up new facility for its business.Location decisions plays crucial potential role for firms to meet the existing demand for its customers. The decision for location can hamper the future operations if it fails to meet the requisite criteria for setting up business units. The industry investment cannot be ignored while selecting new plant. Companies go for location due to following three major reasons
1.A company may go for new locations as a part of business expansion strategy
2.A new start up trying to open new company
3.Companies goes for foreign location as a part of its policies.
IV GLOBALIZATION
The expansion of new markets and new plants has been possible due to globalization in modern times. The globalization of markets is a platform for any business organization to gain customers worldwide.
The globalization of operations is possible due to following points.
1. Regulatory Issues: Attracts to set up manufacturing plant due to favorable regulatory issues
2.Factor advantage: There are country specific factors to attract multinational companies. Low labor cost has forced most companies to go for economies of scale in that country. Companies are setting its plants in India and China due to its low cost operations.
3.Expanding in developed countries:globalizatio of operations is also due to countries economic growth. several firms are targeting Asian countries due to economic growth.
V.CRITERIA FOR MAKING LOCATION DECISIONS
1.Understand the criteria to set up business unit
2.Studying the critical factors for locations
3.Making options for locations
4.Identifying and assessing options to select the best one.
VI.GLOBAL LOGISTICS/GLOBAL SUPPLY CHAIN
The Council of Logistics Management (CLM) defines logistics as:
The firm has to changed its logistics strategy if its distributing its products in global market.The domestic logistics process has to be designed to meet global customers..Firms have to understand supply chain network for its new facility locations. The companies go for new location in across borders to take advantage of resources and customers.
VII.OBJECTIVES OF SHIFTS AND REASONS FOR LOCATION
Market Cost Risk Infrastructure
Objectives Expansion
Explore business opportunity Low cost operation
Cheap labor Less risk
Risk lesser than other countries Facility world class
Reasons for locating Good customer base Can operate with target amount Can take risk in that country Suitable for the plant
VIII.FACTORS AFFECTING FACILITY LOCATION
Factors Reason
Proximity to customers Reduces cost of transportation, can meet demand easily
Proximity to raw material Easy access to raw materials, cost saving
Good Transportation facilities Needs for any firm. Without this infrastructure firm cannot operate
Availability of power supply Needs in production
Basic amnesties Should have water supply
Government policies Have support from government
Environment and community consideration Plant should not disturb community
Proximity to subcontractor Support from them
Land Easy availability of land
Construction cost Labor cost low in that region
Availability of labor Easy availability of skillful labor
Resident complex, schools etc. Proper facilities for the employees.
IX.LOCATING FOREIGN OPERATIONS FACILITIES
FACTORS REASON
Trade barriers Government may imposed huge tax on products
International customers If the country has good customer base
International competition If another company already exist in that country then the firm can start operations
Regulations If regulations are flexible
Low cost Main reason for choosing the location
Firm advantage Can have advantage there
Economies of scale Easy management
Synergy Experience can lead to establish new firm in foreign land
Foreign Direct Investment Favorable Foreign Direct Investment
X.EVALUATING LOCATION ALTERNATIVES
Location factors are used to identify the most favorable locations for its plants. There are many locations models and the following are few location models below.
1.Factor Rating Model:
This model selects the location with highest rating scores
2.Weighted Factor Rating Model:
This model selects the location with highest weighted rating scores
3.Load-Distance Method
4.Centre of Gravity
This method is used to identify a distribution centre that can optimize transportation cost
5.Break Even Analysis
The method helps managers to evaluate alternatives based on cost associated with each locations.
XI.DISCUSSION OF SOME INTERNATIONAL COMPANIES
There are many international countries operating globally. The reason for the companies going international is the company can operate smoothly. It has support from government in that country. India is also a country where numerous foreign companies has tied up with Indian companies and operationg.KFC ,Wallmart,Toyota is foreign company and it has many centre around India.Wallmart .manufacturing or service industry will always go for locations strategy.The companies will optimize its cost by making a single facility its central warehouse. and distribute from that central warehouse. Virtual operations have become central point of importance for some organizations. Mostly for some companies the works are managed through electronically. Companies can used “hub and spoke’ model for interconnecting its various plants to minimize cost and better information sharing.
XII CONCLUSIONS
Location of facilities is very important decision for any kinds of business whether manufacturing or service sector. The barriers will arise due to political issues and plants will be in huge loss. It is the sole responsibility of strategic decision makers to make efficient decisions for the plants. For any plant or business organizations, the main focus of evaluation is the responsibility of managers who can make the company grow in the right direction.The location analysis will be main problems and can change any business organizations to grow in the business environment
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