Facility location decisions are crucial in capacity planning and facility layout. They impact costs, efficiency, and competitiveness. Companies must consider economic, supply chain, political, social, and environmental factors when choosing where to set up shop.

Location choices affect the entire supply chain. They influence transportation costs, lead times, and inventory levels. Smart facility placement can improve customer service, reduce risks, and enable advanced practices like just-in-time inventory. Companies use various methods to evaluate and compare potential locations.

Facility Location Factors

Economic and Supply Chain Considerations

• Economic factors impact facility location decisions
  • Labor costs vary by region (higher in urban areas, lower in rural areas)
  • Tax incentives offered by local governments (tax breaks, subsidies)
  • Infrastructure availability affects operational costs (roads, utilities, ports)
• Proximity to key stakeholders influences transportation costs and efficiency
  • Raw materials sources (mines, farms, forests)
  • Suppliers of components or services
  • Customer markets and distribution centers
• Competitor locations and market saturation affect potential
  • Avoid oversaturated markets with many competitors
  • Identify underserved areas with growth opportunities
  • Analyze competitor strengths/weaknesses in different regions

Political, Social, and Environmental Factors

• Political and legal factors impact feasibility and costs
  • Government regulations on business operations
  • Trade policies and tariffs on imports/exports
  • Environmental laws and emissions standards
• Social and cultural factors affect workforce and operations
  • Availability of skilled labor in the area
  • Language barriers with local population
  • Cultural norms and work practices
• Geographical and environmental factors influence facility design
  • Climate conditions (temperature extremes, humidity)
  • Natural disaster risks (earthquakes, floods, hurricanes)
  • Topography and land availability for construction

Technological Infrastructure

• Access to high-speed internet crucial for modern operations
  • Fiber optic networks for fast data transmission
  • Reliable cellular coverage for mobile workforce
• Power supply reliability impacts productivity
  • Consistent electricity without brownouts/blackouts
  • Backup power systems may be needed in some areas
• Availability of advanced technologies supports efficiency
  • Automation and robotics capabilities
  • Cloud computing and data center access
  • Specialized equipment for industry needs

Location Impact on Supply Chains

Transportation and Inventory Effects

• Facility location directly impacts transportation costs
  • Shorter distances to suppliers/customers reduce shipping expenses
  • Access to multiple transportation modes (road, rail, air, sea) provides flexibility
• Lead times affected by proximity to supply chain partners
  • Closer facilities enable faster order fulfillment
  • Longer distances may require increased safety stock
• Inventory levels influenced by facility network design
  • Centralized distribution may reduce overall inventory but increase transportation
  • Decentralized model can lower transportation costs but increase total inventory

Supply Chain Strategies and Risk Management

• Strategic facility placement enables improved customer service
  • Locating near major markets reduces delivery times
  • Multiple facilities can provide redundancy and backup
• Number and distribution of facilities impact network efficiency
  • Too few facilities may result in higher transportation costs
  • Too many facilities increase fixed costs and complexity
• Facility location affects distribution strategy implementation
  • Centralized distribution works well with few, large facilities
  • Decentralized distribution requires multiple smaller facilities
• Location choices influence supply chain risk management
  • Diversifying locations can mitigate disruption risks (natural disasters, geopolitical events)
  • Clustering facilities may increase efficiency but also vulnerability

Technology and Innovation Capabilities

• Facility location impacts implementation of advanced practices
  • Just-in-time inventory management requires proximity to suppliers
  • Vendor-managed inventory programs benefit from co-location
• Access to technology hubs and innovation centers
  • Silicon Valley for software and electronics
  • Research triangle for biotechnology
  • Automotive clusters for vehicle manufacturing

Evaluating Location Alternatives

Quantitative Methods

• Center of gravity method optimizes based on weighted distances
  • Calculates ideal location considering volume and distance to demand points
  • Formula: $X = \frac{\sum_{i=1}^n d_ix_iw_i}{\sum_{i=1}^n d_iw_i}, Y = \frac{\sum_{i=1}^n d_iy_iw_i}{\sum_{i=1}^n d_iw_i}$
• Transportation method of linear programming minimizes costs
  • Optimizes distribution network to minimize total transportation expenses
  • Uses algorithms to solve complex multi-source, multi-destination problems
• Break-even analysis compares costs of different locations
  • Calculates point at which one location becomes more economical
  • Considers fixed and variable costs for each potential site

Qualitative and Hybrid Methods

• Factor rating methods assess locations based on weighted criteria
  • Assign importance weights to factors (1-10 scale)
  • Score potential sites on each factor (1-100 scale)
  • Calculate total weighted scores to compare alternatives
• Geographic Information Systems (GIS) analyze spatial data
  • Map potential locations in relation to various factors
  • Overlay different data layers (population density, transportation networks)
  • Perform complex spatial analyses and visualizations
• Delphi technique utilizes expert opinions for evaluation
  • Gather input from diverse group of experts
  • Conduct multiple rounds of anonymous feedback and refinement
  • Reach consensus on subjective or complex factors
• Simulation models assess performance under various scenarios
  • Create computer models of potential facility networks
  • Test different configurations and demand patterns
  • Evaluate robustness and flexibility of location choices

Facility Location Decision Framework

Strategic Alignment and Market Analysis

• Establish clear objectives aligned with organizational strategy
  • Cost reduction goals
  • Market expansion plans
  • Sustainability initiatives
• Conduct thorough market analysis of potential locations
  • Current and projected demand patterns
  • Customer demographics and preferences
  • Competitive landscape and market share potential

Financial and Risk Assessment

• Perform detailed cost-benefit analysis for each alternative
  • Initial investment costs (land, construction, equipment)
  • Ongoing operational expenses (labor, utilities, taxes)
  • Revenue projections and ROI calculations
• Assess regulatory environment and potential risks
  • Political stability of region
  • Legal constraints on business operations
  • Environmental factors and natural disaster risks

Resource Evaluation and Future Planning

• Evaluate availability and quality of local resources
  • Workforce skills and education levels
  • Supplier networks and capabilities
  • Transportation and logistics infrastructure
• Incorporate flexibility and scalability considerations
  • Potential for future expansion at the site
  • Adaptability to changing market conditions
  • Technological upgradability of the facility

Multi-Criteria Decision Model

• Develop model integrating quantitative and qualitative factors
  • Assign weights to criteria based on organizational priorities
  • Use analytical hierarchy process (AHP) for complex decisions
  • Conduct sensitivity analysis to test robustness of results
• Involve cross-functional team in decision-making process
  • Operations, finance, HR, and marketing perspectives
  • Consider both short-term and long-term implications
  • Seek executive approval and stakeholder buy-in