Facility Location Strategies http://www.managementsupport.com

Importance 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 The process we describe here can be used for any situation you face. When you are using the process to select a strategy, the decision statement is the goal and the criteria comes from the cultural success factors and obstacles. The alternatives are the different approaches that are available to you. This logic path assures objectivity and ensures that we cover all essential data. Making good decisions depends on the quality of our: Selection of a goal that describes the decision, Definition of the specific factors that must be satisfied, Evaluation of the available alternatives, and Our understanding of the consequences of those alternatives.

Location Decision Example – BMW Country Decision Factors Market location U.S. is world’s largest luxury car market Growing (baby boomers) Labor Lower manufacturing labor costs $17/hr. (U.S.) vs. $27 (Germany) Higher labor productivity 11 holidays (U.S.) vs. 31 (Germany) Other Lower shipping cost ($2,500/car less) New plant & equipment would increase productivity (lower cost/car $2,000-3000)

Costs: Tangible Vs. Intangible Tangible costs – those that are readily identifiable and precisely measured Utilities Labor Material Taxes Depreciation Other costs that accounting can easily identify Intangible costs – not easily quantifiable Quality of education Public transportation facilities Community attitudes toward the industry and the company Quality and attitude of prospective employees Climate

Steps in Factor Rating Method Alternative A Alternative B Factor Weight Rating Score Min. Operating Cost 20 4 80 3 60 Max. Flexibility 30 90 2 Max. Space utilization 10 5 50 Min. Payback period 40 1 160 Total 240 330 Percent 240/330 = .7272 330/330 = 1.00