• The need to produce close to the customer due to time-based competition, trade agreements, and shipping costs.
• The need to locate near the appropriate labor pool to take advantage of low wage costs and/or high technical skills.
The problem of facility location is faced by both new and existing businesses. Criteria that influence facility location include proximity to customers, business climate, total costs, availability and quality of infrastructure, quality of labor, suppliers, other available facilities, free trade zones, political risk, government barriers, trading blocs, environmental regulations, the host community and finally competitive advantage.
The evaluation of alternative regions, sub-regions, and communities is termed macro analysis, while the evaluation of specific sites in the selected community is termed micro analysis. Techniques used to support macro analyses include factor-rating systems, linear programming, and center of gravity method. A detailed cost analysis would accompany each of these methods and they must be related to business strategy.
Factor-rating systems are the most widely used location techniques as they combine diverse factors in an easy-to-understand format. The transportation method is a special linear programming method while the center of gravity methods is another popular location solution method that focuses on minimizing shipping costs and distances.
While it is usually less expensive to establish a service facility than a manufacturing facility, service facilities have unique issues to consider. When choosing a location for a service facility it is important to maintain close contact with the customer. Frequently, regression models are used to assist with site selection.
The criteria for selecting appropriate locations have evolved beyond the singular focus on minimizing cost or distance. Today a number of quantitative and qualitative issues impact location decisions. A company's long-term success depends on its managers' ability to make a comprehensive synthesis of the various dimensions of the multifaceted location problem.
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Source: Operations Management: Chase, Jacobs, Aquilano.
