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Facility Location StrategiesFacility Location Strategies

http://http://www.managementsupport.comwww.managementsupport.com

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Importance of LocationImportance of Location

• Up to 25% of the product’s selling cost

• Once a company commits to a location, many costs are fixed and difficult to change

• Energy

• Labor

• Location depends on the type of business

• Manufacturing – minimizing cost

• Retail and professional services – maximizing revenue

• Warehouse – cost and speed of delivery

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Location Decision Example – Location Decision Example – BMWBMW Country Decision FactorsCountry Decision Factors

Market location Market location

U.S. is world’s largest luxury car market U.S. is world’s largest luxury car market

Growing (baby boomers) Growing (baby boomers)

Labor Labor

Lower manufacturing labor costs Lower manufacturing labor costs

$17/hr. (U.S.) vs. $27 (Germany) $17/hr. (U.S.) vs. $27 (Germany)

Higher labor productivity Higher labor productivity

11 holidays (U.S.) vs. 31 (Germany) 11 holidays (U.S.) vs. 31 (Germany)

Other Other

Lower shipping cost ($2,500/car less) Lower shipping cost ($2,500/car less)

New plant & equipment would increase productivity (lower cost/car $2,000-3000)New plant & equipment would increase productivity (lower cost/car $2,000-3000)

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Costs: Tangible Vs. IntangibleCosts: Tangible Vs. Intangible Tangible costs – those that are readily identifiable and precisely measuredTangible costs – those that are readily identifiable and precisely measured

UtilitiesUtilities

LaborLabor

MaterialMaterial

TaxesTaxes

DepreciationDepreciation

Other costs that accounting can easily identifyOther costs that accounting can easily identify

Intangible costs – not easily quantifiableIntangible costs – not easily quantifiable

Quality of educationQuality of education

Public transportation facilitiesPublic transportation facilities

Community attitudes toward the industry and the companyCommunity attitudes toward the industry and the company

Quality and attitude of prospective employeesQuality and attitude of prospective employees

ClimateClimate

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Steps in Factor Rating MethodSteps in Factor Rating Method

Alternative AAlternative A Alternative BAlternative B

FactorFactor WeightWeight RatingRating ScoreScore RatingRating ScoreScore

Min. Operating CostMin. Operating Cost 2020 44 8080 33 6060

Max. FlexibilityMax. Flexibility 3030 33 9090 22 6060

Max. Space Max. Space utilizationutilization

1010 33 3030 55 5050

Min. Payback periodMin. Payback period 4040 11 4040 44 160160

TotalTotal 240240 330330

PercentPercent 240/330 240/330 = .7272= .7272

330/330 = 330/330 = 1.001.00