LOCATION PLANNING AND ANALYSIS
Facility Location refers to the location of a service or manufacturing facility with respect to customers,
suppliers and other existing facilities such that it allows the company to gain a competitive and/or
strategic edge. In making a location decision, both tangible costs such as the cost of operating the
facility, cost of land (if it applies), cost of labor, taxes, utilities and the cost of inbound and outbound
transportation, and intangible costs such as availability of qualified labor, and labor climate must be
considered. Since the location decision usually involves making a large capital investment, it not only
impacts the firm’s ability to compete but also has long-term strategic implications. Therefore in making
the location decision, we should consider issues related to marketing, production, transportation and
other relevant costs as well as the strategy of the organization. The importance of various factors in
relation to the location decision will vary between service and manufacturing organizations but also from
industry to industry as well.
Answers to Discussion and Review Questions
Location decisions can have an impact on access to markets, costs (including
materials, labor, rent, construction, and transportation), quality of work life (e.g.,
community-related factors), and growth potential.
The fact that similar businesses are widely located underscores the futility of
searching for that “one best” location. On the other hand, however, it doesn’t necessarily
follow that little attention is needed in finding a suitable location. Many organizations that
have not been successful are no longer in business (e.g., service stations in poor locations,
motels bypassed by an expressway, and so on). Moreover, others currently in operation
might be much more profitable in another location. For certain businesses (e.g.,
restaurants) regional factors are not particularly significant, and even community-related
factors are of little importance. However, site-related factors are extremely important. By
the same token, there are numerous examples of firms that are less affected by community
or site factors than they are with regional factors (i.e., nearness to market, labor, or raw
Important community factors include the size of the community, public
transportation, schools, recreational facilities, libraries, restaurants, shopping centers,
cultural and entertainment selections, and so on.
Manufacturing and non-manufacturing organizations tend to approach location
decisions in a similar way, but the factors which are important to each tend to differ.
While both tend to take costs and profits into consideration, manufacturing firms are often
concerned with location of raw materials, transportation costs, availability of energy and
water, and similar factors. Non-manufacturing firms are often more concerned with
convenience, access to markets, traffic flow, and the like.