Factors Influencing Location Decisions in Operations Management

Although location decisions are made infrequently for most businesses, they can have a lasting impact on the business's profitability and success. Existing companies usually have to make location decisions when they are planning on expanding, which can include expanding an existing facility, adding new locations, or re-locating the existing locations.

Unlike other business processes that can be quickly and easily adjusted over time, changing location decisions can be an extremely time-consuming and costly initiative.

One of the biggest challenges in finding a suitable location for your facility is that it might be impossible to find one location that is arguably "better" than the other options. This is because there is a multitude of factors that can greatly influence an organization’s decision on where to locate its various operations.

In this article, we will outline a general procedure for making such decisions and identify some of the common factors and considerations pertaining to this topic.

Location Decision General Procedure

1. Identify evaluation criteria - The first step in the location decision-making procedure is to identify the criteria that will be used to evaluate the location options. For companies looking to relocate or expand their organizations, this can include things such as decreased costs, increased revenues, or decreased lead times.
2. Identify important factors - For all business organizations, there are factors that are important to consider when choosing a location. These factors will differ depending on the type of facility but there will usually be only a few important factors that will greatly impact the decisions. These factors include accessibility of raw materials, proximity to consumers, transportation costs, and space requirements.
3. Find location options - Once the evaluation criteria and important factors have been identified, it is time to generate a list of potential locations. The first step is to identify a country and region in which to set up the business. These decisions will be based on the factors identified in the previous step such as resource availability, governmental rules and restrictions, labor costs, and other cultural factors. 
4. Evaluate the location options - The last step is to evaluate all of the location options generated in step 3 based on the criteria identified in step 1. One technique that is commonly used for this step is to use a cost-profit-volume analysis. This process involves determining the fixed and variable costs associated with each location, plotting the total cost lines for all locations, and then determining which location will have the lowest cost of production. An alternative to this process is to determine which location will have the highest profit.

A Note on Offshoring and Global Outsourcing

With the rise of globalization, many organizations dispersed their manufacturing facilities and operations in various locations around the world. For many years, most companies were benefiting greatly from the reduced costs associated with transportation, labor, and raw materials.

While offshoring has offered many benefits to companies, there are also additional challenges and risks that come with it. The recent events of the COVID-19 pandemic have highlighted the risks associated with offshoring operations. As restrictions were imposed in facilities around the globe, the world has experienced a surge of shortages and delays.

In recent years, manufacturing facilities have seen a shift towards re-shoring their operations to reduce the complexity of the supply chain and allow companies to have greater control over their production process. In addition, rising labor costs in foreign countries, issues with long transportation times, and the rise of automation are making many companies to re-think their facilities' locations.

Multi-Plant Organizations

As we have seen in the above sections, it can be a real challenge to find a single location that meets your every needs. Some organizations will choose to have multiple plants that concentrate on different processes. These have the advantage of choosing the best location for each process. For example, initial material transformation processes will benefit from being close to the source of the raw materials while later assembly processes may benefit from being located closer to the end customers.

In this case, it is more important than ever to ensure good communication through all of a corporation's facilities. In order to coordinate across multiple manufacturing and shipping hubs, an Advanced Planning and Scheduling (APS) and an ERP system should be able to communicate with every facility in real-time.  Delays in communication can cause costly mistakes, production overruns, and shipping errors. 

With two breweries, we need PlanetTogether's analytics tools for increased visibility between our plants. If something happens in Fort Collins, we can now understand our capacity in Asheville, and vice versa. Having PlanetTogether for inter-plant communication is imperative.

BRIAN GOODWIN, MASTER SCHEDULER, NEW BELGIUM BREWING

That is why the ability to update schedules across multiple facilities, quickly add or change orders, and keep internal supply chains in sync becomes essential for optimized operations. Eliminating those delays should be the top priority for operations managers who are looking for ways to improve corporate performance and global planning.

PlanetTogether's Advanced Planning and Scheduling software allow manufacturers to perform concurrent planning and scheduling processes and see the impact in all of their facilities in one place. Making changes to the schedule in one plant will automatically be reflected in all of the others to keep things running smoothly and avoid delays in communication.

If demand for a particular item increases, the scheduling software is able to split the work between all available facilities to ensure that work is able to run in the most efficient manner possible.

Advanced Planning and Scheduling (APS) Software

Advanced Planning and Scheduling Softwares have become a must for modern-day manufacturing operations as customer demand for increased product assortment, fast delivery, and downward cost pressures become prevalent. These systems help planners save time while providing greater agility in updating ever-changing priorities, production schedules, and inventory plans. APS Systems can be quickly integrated with an ERP/MRP software to fill the gaps where these systems lack planning and scheduling flexibility, accuracy, and efficiency.

With PlanetTogether APS you can:

• Create optimized schedules that balance production efficiency and delivery performance
• Maximize throughput on bottleneck resources to increase revenue
• Synchronize supply with demand to reduce inventories
• Provide company-wide visibility to resource capacity
• Enable scenario data-driven decision making

The implementation of an Advanced Planning and Scheduling (APS) Software will take your manufacturing operations to the next level of production efficiency by taking advantage of the operational data you already possess in your ERP system. APS is a step in the right direction of efficiency and lean manufacturing production enhancement. Try out a free trial or demo!