Location decision

Facilities location deals with questions such as: Where should our main operations be based? Should it be Maharasthra, Karnataka or Tamil Nadu? If Karantaka is most desirable should it be at Bangalore or Mysore? If Tamil Nadu is a close second to Karnataka, should the operations facility be located at Hosur which is in Tamil Nadu but is only 40 kilometers from Bangalore? Once such a decision is taken, say Mysore the organization has to live for a long time with the prospects and problems regarding the raw materials supplies, labor and all other resources and also markets that Mysore would present. Once the manufacturing plant has been erected, it is a long term commitment on the capacity created: Capacity not only in terms of the machinery and equipment but also in terms of arrangement and developments of raw materials resources, labor skills, market and distribution channels and the adjustments of raw materials resources, labor skills, market and distribution channels and the adjustments with the environment. Location of facilities for operations is, thus a long term capacity decision which involves a long term commitment about the geographically static factors that affect a business organization. Some changes and adjustments in capacity qualitatively and quantitatively at the location are always possible; however in most of the cases, it is not easy to change the location of the operations base once it has been established. For service organizations, location decision is as important if not more important as that for the manufacturing organizations.

The planning for ‘where’ to locate the operation facilities should start from ‘what’ are organization’s objectives, priorities, goals and the strategies required to achieve the same in the general socio-economic-techno-business-legal environment currently available and expected be available in the long term future. Unless the objectives and priorities of an organization are clear i.e. the general direction is clear, effective functional or composite strategies cannot be designed. And it is these strategies of which the location decision is a product.

For instance, a marketing strategy customer profile, products, markets, volumes price structures suggest a necessary technology strategy (technology, process, methods) sophistication to make the former viable. Similarly, a strategy considering resources materials as well as manpower (quantity, quality, users, availability – short and long term) will suggest suitable technological strategies; and a technological strategy would require a certain resources strategy (regional availability, procurement and development). Financial strategy feeds into all of these; and the reverse is also true. Plant facilities location is a product of all these strategic considerations. Volumes, technology, resources and organizational and social costs amount to an operations strategy of an organization.

Choice of Region ad Site: It may be noted that the consideration of (1) an organization’s strategies, (2) its already existing operating facilities if any, (3) the managerial control considerations in handling these multiple facilities, (4) the region specific environmental considerations economic and business environment users, suppliers competitors, legal and governmental regulatory and developmental environment social environment and natural geographical environment and the effect of locating operating facilities on the same and vice versa, (5) along with a broad consideration of value added ad the transportation costs would help in deciding on the region for locating the facility. The exact location of the site within the region chosen would depend on a detailed examination and comparison of the various resources (and conveniences) and their costs for a number of possible alternatives sites.

Situations that influence Location Decision:

The location decision can be for two different situations:

1. Location choice of the first time.
2. Location choice for an already established organization with one or more facilities existing.

Both the cases involve the kind of strategic considerations described earlier. However, the first case may be the simpler of the two; whereas the second case involves fitting of a new operational facility in the mosaic of the already existing facilities, an operational strategy that may have to seriously consider the legacy of the past – traditions, values, systems, customer profile, customer and societal perceptions, geographical ad time phased plans drawn earlier, etc., and also the multiplicity of the existing realities and future possibilities. So, perhaps the second case may be a little more complex. However, it is also possible that the unknowns may be more in the decision made for the first time. In any case, it needs to be understood that the two cases are different. For a company having a small presence in Middle East, it may make more sense to locate an additional facility in the same region of the world in order to strengthen the presence and bring in more focus. A high tech hospital chain for the metropolitan up-market may be better of by adding the next hospital facility in a similar metropolitan market segment.