You should be able to:

Explain the impact of facility decisions on a

supply chain. Identify the factors influencing facility location. Understand the impact of the Regional Trade Agreements on facility decisions. Use several location evaluation models. Understand the advantages of business clusters.

Location Strategies Critical Location Factors

Regional Trade Agreements & the World Trade Organization Competitiveness of Nations Government Taxes & Incentives Currency Stability Access & Proximity to Markets Customers Environmental Issues Labor Issues Right-to-work Laws Access to Suppliers & Cost Environmental Issues

Labor Issues Rightto-work Laws Access to Suppliers Utility Availability & Cost Quality-of-Life Issues Land Availability & Cost

Facility Location Models

The Weighted-Factor Model The Break-Even Model The Center-of-Gravity Model

Helpful On-Line Information for Location Analysis Business Clusters

Why is facility location so important

Facility location has a long-term impact on the

supply chain & must be part of the firms strategy. Companies can locate anywhere in the world due to increased globalization, technology infrastructure, transportation, communications, & open markets, Location still matters- clusters in many industries show that innovation & competition are geographically concentrated.

Dr. Kasra Ferdows suggests 6 location strategy roles: Low cost investment & labor costs. Plant mgmt involved in supplier selection & production planning. Firm uses government incentives & low exchange risk & tariff barriers to reduce taxes & logistics costs. Firm involved in product development, production planning, procurement decisions, & developing suppliers. Embedded network of suppliers, competitors, research facilities for materials, components & products. Firm is source of product & process innovation & competitive advantage of the entire organization.

World Trade Organization & Regional Trade Agreements

World Trade Organization (WTO) successor to the General Agreement on Tariffs/Trade (GATT). Functions include: Administering agreements, Forum for trade negotiations, Trade disputes, Monitor trade policies, Aid for Developing countries International organizations. Regional Trade Agreements: European Union (EU), North American Trade Agreement (NAFTA), Southern Common Market (MERCOSUR), Association of Southeast Asian Nations (ASEAN), Common Market of Eastern & Southern Africa (COMESA).

Degree to which a country, under free & fair market conditions, produces goods & services which meet the needs of the rest of international markets, while maintaining/expanding personal real income over time. Made up of 314 criteria, grouped into 4 factors:
Domestic economy, international trade, international

investment, employment, prices Public finance, fiscal policy, institutional framework, business legislation, education Productivity, labor market, finance, management practices, impact of globalization Basic infrastructure, technology infrastructure, scientific infrastructure, health & environment, value system

Government Taxes & Incentives

Several levels of government must be considered

when evaluating potential locations. Countries with high tariffs discourage companies from importing goods into the country. High tariffs encourage multinational corporations to set up factories to produce locally. Many countries have set up foreign trade zones (FTZs) where materials are imported duty-free as long as the imports are used as inputs to production of goods.

Currency Stability
Impacts business costs & consequently

location decisions.

Access & Proximity to Markets/Customers

The trend in manufacturing is to be

within delivery proximity of your customers. Logistics timelines & costs are the concerns, so that reinforces a clustering effect of suppliers & producers to places that offer lower cost labor & real estate. In the service industry, proximity to customers is even more critical.

Environmental Issues Global warming, air pollution, & acid rain are

increasingly debated as the price of industrialization. Trade liberalization creates need for environmental cooperation.
Labor Issues Labor availability, productivity, & skill. Unemployment & underemployment rates. Wage rates; turnover rates; labor force competitors. Right-to-Work Laws The right of employees to decide whether or not to join

or support a union.

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Access to Suppliers & Cost Supplier proximity influences the delivery of

materials & effectiveness of the supply chain.

Utility Availability & Cost Supply of electricity has not kept pace with the

high speed of development. In heavy industries the availability & cost of energy are critical considerations. Telecommunication costs have dropped dramatically. Many organizations now have back office operations & call centers internationally to serve the U.S. market.

Quality-of-Life Issues Defined as a feeling of well-being, fulfillment, or satisfaction resulting from factors in the external environment.

Education Economy Natural Environment Social Environment Culture/recreation Health Government/politics Mobility Public Safety

Land Availability & Costs As land & construction costs in big cities continue to escalate, the trend is to locate in the suburbs & rural areas.

A method used to compare the attractiveness of several locations along a number of quantitative & qualitative dimensions.

Identify the factors Assign weights to each factor. The weights sum to 1. Determine a score for each factor. Multiply the factor score by the weight, then sum the weighted scores The location with the highest total weighted score is the recommended location.

BrUseful location analysis technique when fixed & variable

costs can be determined. Involves the following steps; Identify the locations to be considered. Determine the fixed cost of land, property taxes, insurance, equipment, & buildings. Determine the unit variable cost, materials, utilities, & transportation costs. Construct the total cost lines. Determine the break-even points on the graph. Identify the range over which each location has the lower cost.

Break-even model- Example Location A B C Annual Fixed Cost $500,000 $750,000 $900,000 Unit Variable Cost $300 $200 $100 Breakeven Q $2,500 $1,500 $2,000

The Center-of-Gravity ModelInvolves mapping all of the market locations on an x, y-coordinate grid & then finding a central location that is closest to the markets with the highest demand.

Business Clusters

Geographic concentrations of interconnected

companies & institutions. Clusters encompass an array of linked industries & other entities important to competition. Research parks & special economic/industrial zones serve as magnets for business clusters. Reasons for success close cooperation, coordination, & trust among clustered companies fierce competition among rival companies companies recruit from local pool of skilled workers

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.

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