Site and Location Analysis

Location analysis is an important decision and should not be taken lightly. The physical location
of business functions is an important part in the supply chain strategy of any company. Location
should be defined by strategy, not only in foreign but also in domestic locations.
Reasons why companies are investing outside their home countries include:
improved market access
reduced operating costs
sources of raw materials
consolidated operations
development of new product lines
improved productivity
develop new technologies
improved labor force access
reduce risk
Traditional approaches emphasize quantitative data of cost-based variables like land costs,
transport costs, exchange rates, taxes etc. Due to changes in the global business environment
such as the rise of regional trading blocs and changes in the production systems and technology
etc, new trends in manufacturing location analysis are evolving. Regional trading blocs like
NAFTA, ASEAN, etc., creates incentives for companies to have manufacturing presence in those
regions to take advantage of free trade and avoid regulatory barriers if you are currently
exporting to that bloc.
Quality of life for employees is becoming an important factor as well, particularly for
Knowledge based industries such as telecommunications, computers, entertainment, and
biotechnology that are a part of the New Economy. Companies that compete on innovation are
finding that certain locations are more advantageous than others in maintaining their strategy.

When conducting a location analysis companies frequently use investment or merchant banks,
accounting firms, investment promotion agencies, economic development agencies, specialized
site selection firms and general management consulting firms. While engaging these specialized
resources may be helpful, it is still the responsibility of the firm to make location decisions.
Factors affecting the choice of location
For almost all sizable corporations, the evaluation of proposed business site includes a systematic
consideration of its cost and benefits relative to the alternatives. Companies thinking about the
capital appropriations requested for the site, typically include a raft of figures and qualitative
considerations. As much as can be quantified is construction or purchase/renovation costs,
equipment costs, labor and fringe benefit costs, tax systems, exchange rates, working capital
requirements such as inventories, materials, and accounts receivable, freight in and freight out
expenses. Even after these have been taken into account, the direct financial differences between
qualifying sites may be insignificant, which means that intangible or qualitative factors may
sway the final decision.
Often what makes the location decision uncomfortable is not the final steps of evaluation, but
rather the beginning steps of the process to locate the potential site. A site selection checklist is a
useful device. It suggests many factors which could have a bearing on the location decision.
The following list is limited to early stages of the location search, when a suitable site is
identified

Region Vs Site Selection

The site selection process is usually conducted in stages beginning with a general region and
ending with the selection of a specific site within that region. It is important for policy makers to
differentiate regional, community and/or site specific factors, because the effectiveness of
different policy instruments varies at different stages of the search. Provides the following
examples of regional and site specific attributes:

The first task of the location search team is to understand the reasons for any new plant, how it is
expected to fulfill the companys goal, how it fits together with other company plants, and which
cost could be expected to vary with different choices of location. In other words, does this
location decision fit with the company's strategy.
Government Regulation
Some heavy manufacturers site choices are completely at the mercy of government regulatory
judgments. The location of their next plant will ultimately be dictated by the government.
Three major costs of government regulation on the plant location decision process:
1. Cost of compliance - includes expenses for pollution equipment, production process changes,
land for lagoons and clarifiers, test facilities, and the personnel to manage the pollution control
activities of the company
2. Capital gains and losses - an advantageous location is more apt to be successfully expanded
on-site and for a lower cost than an un-advantageous site.
3. Time delays: delays in the approval process as well as for environmental rulings must also be
factored into the time frame of the decision. For some companies, delays can be measured in
years, not weeks or months, and the impact of these delays on the economics of a manufacturing
project can be enormous.

The FDI survey also lists the top 20 critical location factors. Access to customers leads the field,
ranked as "very important" by 77 percent of the companies. The second most often cited factor is
a stable social and political environment, followed by ease of doing business and reliability and
quality of utilities (all cited by a majority of respondents).

Importance of Quality of Life in Site Selection

Quality of life lags other traditional factors generally stated as reasons for locating to a specific
site, such as cost and market access. However, QOL is growing in its importance. Previous
factors, which would not be considered important, are now considered quite significant as the
Indian economy now shifts to a more high-tech and knowledge intensive focus. There is a
growing dependency on skilled labor and less on unskilled, cheap labor. Skilled labor generally
prefers to work in a region with a high quality of life in order to have access to amenities to suit
their lifestyle.

Areas more likely to attract such skilled labor are more likely to succeed in the future. To do so,
employers need to consider the offer of appealing QOL perks. Such perks include, but are not
limited to:
Recreational amenities
Cultural opportunities
Environmental quality
Climate and affordable living costs
Large estates in gated communities
Low property taxes
Good public school systems
Little agreement occurs over which factors contribute most to certain areas being more
conducive for site locations than others.
Other factors are broken down as follows:
1991 Site-Selection Magazine Survey of Indian Economic Development Professionals
Reasonable cost of living 48%
Proximity to colleges and universities
Nature-oriented recreational opportunities
Quality of K-12 education
Survey of 50 Indiana Communities
Education
Infrastructure
Health and safety
Public services

 Community life
Quality of Life Factors: Location Decisions of Firms or Workers?
Some argue that QOL factors do not have a very large influence on business location decisions.
Others argue that QOL factors influence business location decisions through labor force
preferences. Due to skills gaps in the India, corporations are finding it more and more difficult to
find areas with a labor force that is sufficient enough to staff their firms facilities. They are then
drawn to areas that can attract and retain scarce and highly skilled talent. Realizing what it takes
to attract and retain skilled workers, companies make it a business decision to take quality of life
factors into consideration in the location decision.
Evaluation of risks:
Location analysis should also evaluate risks, more so in the case of foreign locations. The
obvious factors are physical security of staff, war and civil disturbance, currency inconvertibility,
breach of contract, government refusal or inability to enforce laws, expropriation or
nationalization.
Government regulations also need to be scrutinized. An example is Coca Colas Indian
operations. Coca-Cola Corporation was operating as a branch since the early 1950s. Coca-Cola
was directed to continue its operations on condition that its branch would be converted into an
Indian company with 40 percent foreign . Instead of complying with FERA, Coca-Cola decided
to wind up its operations in India. It re-entered India in 1993 following relaxation and opening
up of market by the Indian Government.
Location Analysis
For an effective and efficient supply chain, location decisions for a facility may be the most
critical and most difficult decisions. Facility location decisions are fixed and difficult to change
even in the intermediate term.
Change in customer demands, transportation cost or component prices will not change the
location of a facility. Inefficient locations for facilities can result in excess costs incurred
throughout the lifetime of the facilities.
Long-term Planning

Long term conditions for which a facility will operate will be subject to considerable uncertainty
at the time of decision proposals. Recognizing the inherent uncertainty associated with future
conditions is important.
Fixed Charge Facility Location
Location of the facilities and the shipment pattern between the facilities and the customers
should minimize the combined facility location and shipment costs subject to a requirement that
all customer demands be met.
Integrated Location/Routing Models
This gives the relationship between facility location, customer allocation to facilities and vehicle
routing. The objective here is to minimize the sum of fixed facility location costs, the shipment
costs from the supply point to the facilities, the variable facility throughput costs and the routing
costs to the customers.
Integrated Location/Inventory Models
Location model with risk pooling effect minimizes the sum of fixed facility location costs, direct
transportation costs to the customers.
Site Selection and Analysis
Choosing a site on which to locate a new home is not a simple task. Countless factors natural,
man-made, social and economic must be examined. Where we choose to build and how we
build on a site have an impact on the local and global environments, ongoing costs (utility bills,
maintenance) and our physical and psychological well-being. With todays rapid growth,
dwindling resources and increasing pollution threats, concern for human and environmental
health are causing us to take a closer look at our building practices, starting with the building
site. Whether selecting a site or working with an existing site, and whether the site is urban,
suburban or rural, there are many aspects that can be examined with respect to how green, that
is how healthy for people and the planet, the home on that site can potentially be.
Location, Location, Location

Selecting a building site close to work, schools, shopping, etc. will minimize travel distances and
time. Short distances, sidewalks, bike paths and bus stops will allow for healthier modes of
transportation and the avoidance of excessive costly, polluting automobile trips. A lot in an
established neighborhood located close to town is a particularly good choice for many people.
This land has already been dedicated to residential development, so more natural land does not
have to be destroyed and the costly roads and utilities are already in place.
Avoiding environmentally sensitive areas helps protect some of the features that makes many
areas so special our creeks, lakes, aquifer, tree-covered hills, wildlife, native wildflowers &
plants. Flat to moderately sloped sites are preferable to steeply sloped lots, as soil erosion, loss
of hillside vegetation and damage to waterways are more difficult to avoid when building on
steep slopes.
Site Repair is a special approach to selection of a building site that can have economic and
aesthetic benefits for the prospective homeowner while restoring the local environment rather
than burdening it. This involves choosing a site that has been abused (stripped of vegetation,
eroded, invaded by exotic (non-native) vegetation, etc.) for the location of the home. Placement
of the new home on the scarred area often leaves the more beautiful areas to be looked out
upon and enjoyed.
Design For The Climate, Flora, Fauna & Soils
The chosen building site can greatly affect the comfort and energy efficiency of the home built
upon it. A south-facing slope or good southern exposure on a lot which allows for the long sides
of the building to face north and south will facilitate the utilization of our prevailing summer
breezes and desirable winter solar heat gain. A hot, bare site will require a greater investment in
wide overhangs, shading devices such as awnings or trellises, and shade trees to keep utility bills
down and comfort levels up.
Examination of a particular sites unique characteristics is important. The top of a hill may be too
windy, drying and exposed to the hot sun. A valley may be too damp, windless, foggy or subject
to flooding. Location and type of trees should be evaluated for summer shading assistance,

summer breeze channeling or blocking, winter wind blocking, and winter solar heat gain
penetration.
A lot that allows for placement of the house on a relatively flat area and in a natural clearing will
minimize disruption of the natural vegetation. This will avoid erosion, discourage growth of
invasive exotic vegetation, and be less expensive than massive reconstruction. Minimizing
disruption of natural drainage patterns is generally less expensive up front and avoids costly
maintenance of elaborate constructed drainage systems. When native trees and vegetation must
be removed, they can often be replanted elsewhere on or off the site. Respecting existing wildlife
trails and habitat will enhance wildlife observation enjoyment.
Minimization of Raw Materials
One of the best ways to minimize the use of raw materials is to select a site that already has a
home on it, and remodel as necessary. At times it makes sense to move an existing home to a
new site. Some sites may offer sources of usable building materials such as wood, stone, clay and
sand which, if carefully and thoughtfully considered, can be a sound alternative to importation.
One of the best ways to minimize the amount (and cost) of building materials required is to keep
the size of the home reasonable. With thoughtful design a small home can be very comfortable,
functional and respectful of privacy. Smaller, more affordable lots should not be overlooked.
Social/Psychological/Functional
How the site feels inviting or forbidding, hot or cool, open or intimate may affect how
much the new homeowners take advantage of outdoor living spaces. Maximum use of patios,
decks, natural clearings, or other outdoor rooms can result in the need for less indoor square
footage that needs to be constructed then heated and cooled, not to mention the psychological
and physical benefits of being outdoors. A prospective building site should be examined for
existing tree groupings, landforms or structures that will aid in creating pleasant, usable outdoor
spaces. Off site conditions which may affect outdoor livability or indoor living with open
windows (such as traffic noise, odors or pollution) should be considered before selecting a site.

Many site selection and home design decisions that are good for the environment also have direct
positive benefits on the occupants health, well-being and budget. Helping to preserve our
environment through more thoughtful site selection and home design is one very important step
toward a continued high quality of life.
Benefits for your company

Identify the population in a given area (who they are and what they purchase);

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What realtors say about residential real estate also applies to many small businesses--that the
three most important considerations are location, location, location. Location is especially
important for businesses in the retail and hospitality trades because they rely a great deal on
visibility and exposure to their target markets. But location is also important for service and
manufacturing ventures, which have such costs as advertising, promotion, and distribution that
are a direct result of where they're located.
Service businesses may not have the foot traffic and high visibility requirements of retailers, but
their location has to be convenient for customers and their employees need adequate parking.
Manufacturers are concerned with keeping operating cost down, and that means locating near
key suppliers in areas accessible for pick-ups and deliveries.
When choosing the best location for your business, your first step is to target the right
community. You can analyze the community you're thinking about by considering the following
questions:

Is the population base large enough to support your business?

Does the community have a stable economic base that will promote a healthy
environment in which your business can grow?

Does the demographic profile closely match that of the market you wish to serve?

What are the community attitudes or outlook?

It's also important for you to understand the demographic profile of your potential customers in
order to properly evaluate a community for location. To see if the community you're considering
offers a population with the demographic traits necessary to support your business, look at the
community's:

Purchasing power. Find out the degree of disposable income within the community.

Residences. Are homes rented or owned?

Means of transportation. Do prospective customers in the area own vehicles, ride buses
or bicycles, and so on?

Age ranges. Does the community consist primarily of young people still approaching
their prime earning years, young professionals, empty nesters, or retirees?

Family status. Are there lots of families in the area or mostly singles?

Leisure activities. What type of hobbies and recreational activities do people in the
community participate in?

Choosing a Site
According to studies, poor location is among the chief causes of all business failures. In
determining a site for a retail operation, you must be willing to pay for a good location. The cost
of the location often reflects the volume and/or quality of the business you will generate. Never
select a site merely because the facility is open and available or because the rent is low. Keep in
mind that there is a direct correlation between low rent and high advertising expenses. Base your
selection of a site on the market information you've obtained and the potential of the area to
generate income for your company.
The most important consideration for choosing a site for a service business is convenience for
customers. Service businesses that deal directly with customers, like nail salons, travel agencies

and dry cleaners, don't need to locate in high-rent districts; they just need to be conveniently
located on the beaten path and visible to their customers. Service businesses that are rarely
visited by customers, like TV repair shops and pest control operators, can be farther afield. But
these types of businesses have to make an ongoing effort to let customers know they're there-hence, the value of display advertising in the newspaper or Yellow Pages.
Manufacturers will usually be restricted to industrial areas by the zoning ordinances of most
towns and cities. The main criteria for manufacturers is the suitability of shipping and loading
facilities, the distance to key suppliers of raw materials and markets, the availability of cheap
fuel, and the skill of the support staff in the local area.
Like manufacturers, wholesalers are restricted by zoning laws within most cities. Their main
criterion is proximity to local markets, since they don't want delivery to take too much time,
especially if the product is perishable, or costs too much. If costs in either time or money are
eventually passed on to customers in the form of higher prices, customers could wind up looking
for other suppliers.
You'll want to consider the following factors when searching for a location for your business:
Restrictive ordinances. You may encounter unusually restrictive ordinances that detract from an
otherwise ideal site, such as limitations on the hours of the day when trucks are permitted to load
or unload. Cities and towns are composed of areas--from a few blocks to many acres in size-zoned for only commercial, industrial, or residential development. Within each zone are often
further restrictions. A commercial zone may permit one type of business but not another, so make
sure to check the zoning regulations of any potential location before pursuing a specific site or
spending a lot of time and money on a market survey.
History of the site. Learn about the recent history of each site you're considering before you
make a final selection. There are sites--in malls and big shopping centers, as well as in
independent locations--that have been occupied by a succession of businesses that failed.
Businesses most often fail because of poor management, but sometimes choosing the wrong
location is a factor. Find out how the site you're considering affected the businesses of previous
tenants or owners.

How much rent your business can afford to pay. Your first-year profit-and-loss projections
will tell you the amount of sales your business will most likely generate. To judge your rental
expenses (leased space plus any add-on costs) relative to your sales, divide the total amount you
expect to pay annually by net sales (gross sales minus returns and discounts). Multiply that
number by 100 and compare the percentage with those of similar businesses to see how you'll
fare.
Terms of the lease. Occasionally, an otherwise ideal site may have unacceptable leasing terms.
The time to negotiate leasing terms is before you sign the lease.
The rent-advertising relationship. Your advertising budget is closely related to your choice of
site and the proposed rent. Malls often allocate a lot of money to advertising, in addition to that
spent by so-called "Big Box" and department stores. If you locate in a mall with big department
"anchor" stores or have Staples as your neighbor, your cash register will likely be ringing up
sales the first day you open your doors, with no advertising effort on your part. Of course, your
rental expenses will be proportionately higher than those for an independent location.
Proximity to other businesses. Your business neighbors can influence your volume of business.
Their presence can work for you as well as against you. Make sure your neighbors attract
customers with a similar demographic profile as yours. For example, a shop selling upscale
house wares isn't going to benefit by being in the same mall as the tattoo parlor and biker bar.
Anticipated sales volume. For some types of retailers, exclusivity is key when it comes to small
shopping districts or malls--only one company offering a particular type of goods or services can
successfully locate in each area without sparking an ongoing "whose price is lowest" battle.
Usually, there's not that much business to spread around. But if the foot traffic is high, if there's a
strong market demand, and/or if the business sells a broad range of goods or services, there
might be enough business to go around for everybody.
Accessibility to prospective customers. When determining accessibility, sit in your car and judge
traffic patterns (both on foot and in cars) at different times of the day. Try to determine what
hours your business needs to keep in order to be most convenient for customers. Revisit the site
on different days to observe any changes in the pattern. Do some informal market research by

interviewing people passing by the site you are considering. Do they feel a need for your type of
business at this location? Would they patronize it? What kinds of goods or services would they
be interested in buying? Where do they now shop for these goods and services?
Customer parking facilities. Does the site provide easy, adequate parking and access for
customers? Is it well lit? Is there sufficient security? What is the condition of the parking area?
Will it need expansion, resurfacing, or striping, possibly at additional cost to tenants? Keep in
mind that even large shopping centers and business parks sometimes do not have adequate
parking for all their customers. If you plan to locate in a mall or business park, evaluate the
parking conditions over a period of days at different times and judge whether or not they are
acceptable.
Side of the street. Market research has demonstrated that the "going-home" side of the street is
usually preferable to the "going-to-work" side. People are more likely to stop at stores on the
way home than when they are in a hurry to get to work on time. Also, the sunny side of the street
is generally less desirable for retail operations than the shady side, especially in warm climates.
Research shows that rents are higher on the shady side in high-priced shopping areas.