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

2. 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.

3. 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, )

4. 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

5. 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