Chapter 8: Facility Location
Facility location refers to choosing the locations for distribution centers, warehouses, and
production facilities to facilitate logistical effectiveness and efficiency.
There are several overarching factors that can influence facility location decisions:
- Cost Considerations arise because many consumers have become sensitized to buy
products only when prices are low, due in part to lingering effects from the
recession1.
some organizations have adopted nearsourcing, in which companies reconfigure
their logistics networks to bring some production facilities closer to key consumer
markets.
- Customer Service Expectations, they increase over time.
- Location of Customer or Supply Markets; improvements in transport and technology
allow consumers to migrate relatively easily from one region or country to another.
economic growth is another variable that influences the location of customer
markets; organizations sometimes expand their geographic scope to serve more
customers.
- The sustainability concept; a key sustainability issue involves the sourcing of products
and an emerging concept involves a locavore strategy, that is, purchasing locally
grown or produced foods.
For materials that lose no weight in processing, known as pure materials, the processing
point can be anywhere near the raw material source and the market.
If materials lose considerable weight in processing, known as weight-losing products, then
the processing point should be near the point where they are mined or harvested, largely to
avoid the payment of unnecessary transportation charges.
If the raw materials gain weight in processing, known as weight-gaining products, then the
processing point should be close to the market.
The wage difference partly explains the popularity of the maquiladora plants, assembly
plants that provided much needed jobs for Mexicans in the mid-1960s.
Countries with low-cost labor may be house a multitude of sweatshops, which can be viewed
as organizations that exploit workers and that do not comply with fiscal and legal obligations
toward employees.
Right-to-work laws mean that an individual cannot be compelled to join a union as a
condition of employment (US).
Employees who are sent to other countries for extended periods of time are known as
expatriate workers.
Of particular interest to logisticians and supply chain managers is the inventory tax,
analogous to personal property taxes paid by individuals.
Transportation availability refers to the number of transportation modes (intermodal
competition) as well as the number of carriers within each mode (intramodal competition)
that could serve a proposed facility.
When looking at facility location considerations, early business logistics textbooks discussed
the agglomeration concept, which “refers to the net advantages which can be gained by a
sharing of common locations by various enterprises”.
although agglomeration continues to be a key factor in facility location, it is better
known today as the industry cluster concept.
1
The recession from 2007-2009
Facility location refers to choosing the locations for distribution centers, warehouses, and
production facilities to facilitate logistical effectiveness and efficiency.
There are several overarching factors that can influence facility location decisions:
- Cost Considerations arise because many consumers have become sensitized to buy
products only when prices are low, due in part to lingering effects from the
recession1.
some organizations have adopted nearsourcing, in which companies reconfigure
their logistics networks to bring some production facilities closer to key consumer
markets.
- Customer Service Expectations, they increase over time.
- Location of Customer or Supply Markets; improvements in transport and technology
allow consumers to migrate relatively easily from one region or country to another.
economic growth is another variable that influences the location of customer
markets; organizations sometimes expand their geographic scope to serve more
customers.
- The sustainability concept; a key sustainability issue involves the sourcing of products
and an emerging concept involves a locavore strategy, that is, purchasing locally
grown or produced foods.
For materials that lose no weight in processing, known as pure materials, the processing
point can be anywhere near the raw material source and the market.
If materials lose considerable weight in processing, known as weight-losing products, then
the processing point should be near the point where they are mined or harvested, largely to
avoid the payment of unnecessary transportation charges.
If the raw materials gain weight in processing, known as weight-gaining products, then the
processing point should be close to the market.
The wage difference partly explains the popularity of the maquiladora plants, assembly
plants that provided much needed jobs for Mexicans in the mid-1960s.
Countries with low-cost labor may be house a multitude of sweatshops, which can be viewed
as organizations that exploit workers and that do not comply with fiscal and legal obligations
toward employees.
Right-to-work laws mean that an individual cannot be compelled to join a union as a
condition of employment (US).
Employees who are sent to other countries for extended periods of time are known as
expatriate workers.
Of particular interest to logisticians and supply chain managers is the inventory tax,
analogous to personal property taxes paid by individuals.
Transportation availability refers to the number of transportation modes (intermodal
competition) as well as the number of carriers within each mode (intramodal competition)
that could serve a proposed facility.
When looking at facility location considerations, early business logistics textbooks discussed
the agglomeration concept, which “refers to the net advantages which can be gained by a
sharing of common locations by various enterprises”.
although agglomeration continues to be a key factor in facility location, it is better
known today as the industry cluster concept.
1
The recession from 2007-2009
