site and location analysis.docx

7/25/2019 Site and Location Analysis.docx

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Site and Location Analysis

Location analysis is an important decision and should not be taken lightly. The physical location

of business functions is an important part in the supply chain strategy of any company. Location

should be defined by strategy, not only in foreign but also in domestic locations.

Reasons why companies are investing outside their home countries include:

improved market access

reduced operating costs

sources of raw materials

consolidated operations

development of new product lines

improved productivity

develop new technologies

improved labor force access

reduce risk

Traditional approaches emphasize uantitative data of cost!based variables like land costs,

transport costs, e"change rates, ta"es etc. #ue to changes in the global business environment

such as the rise of regional trading blocs and changes in the production systems and technology

etc, new trends in manufacturing location analysis are evolving. Regional trading blocs like

$%&T%, %'(%$, etc., creates incentives for companies to have manufacturing presence in those

regions to take advantage of free trade and avoid regulatory barriers if you are currently

e"porting to that bloc.

)uality of life for employees is becoming an important factor as well, particularly for

*nowledge based industries such as telecommunications, computers, entertainment, and

biotechnology that are a part of the +$ew (conomy. -ompanies that compete on innovation are

finding that certain locations are more advantageous than others in maintaining their strategy.


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hen conducting a location analysis companies freuently use investment or merchant banks,

accounting firms, investment promotion agencies, economic development agencies, specialized

site selection firms and general management consulting firms. hile engaging these specialized

resources may be helpful, it is still the responsibility of the firm to make location decisions.

Factors affecting the choice of location

&or almost all sizable corporations, the evaluation of proposed business site includes a systematic

consideration of its cost and benefits relative to the alternatives. -ompanies thinking about the

capital appropriations reuested for the site, typically include a raft of figures and ualitative

considerations. %s much as can be uantified is construction or purchase/renovation costs,

euipment costs, labor and fringe benefit costs, ta" systems, e"change rates, working capital

reuirements such as inventories, materials, and accounts receivable, freight in and freight oute"penses. (ven after these have been taken into account, the direct financial differences between

ualifying sites may be insignificant, which means that intangible or ualitative factors may

sway the final decision.

0ften what makes the location decision uncomfortable is not the final steps of evaluation, but

rather the beginning steps of the process to locate the potential site. % site selection checklist is a

useful device. 1t suggests many factors which could have a bearing on the location decision.

The following list is limited to early stages of the location search, when a suitable site is

identified


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Region Vs Site Selection

+The site selection process is usually conducted in stages beginning with a general region and

ending with the selection of a specific site within that region. 1t is important for policy makers to

differentiate regional, community and/or site specific factors, because the effectiveness of

different policy instruments varies at different stages of the search. 2rovides the following

e"amples of regional and site specific attributes:


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The first task of the location search team is to understand the reasons for any new plant, how it is

e"pected to fulfill the company3s goal, how it fits together with other company plants, and which

cost could be e"pected to vary with different choices of location. 1n other words, does this

location decision fit with the company4s strategy.

Government Regulation

'ome heavy manufacturers3 site choices are completely at the mercy of government regulatory

5udgments. The location of their ne"t plant will ultimately be dictated by the government.

Three ma5or costs of government regulation on the plant location decision process:

6. -ost of compliance ! includes e"penses for pollution euipment, production process changes,

land for lagoons and clarifiers, test facilities, and the personnel to manage the pollution control

activities of the company

7. -apital gains and losses ! an advantageous location is more apt to be successfully e"panded

on!site and for a lower cost than an un!advantageous site.

8. Time delays: delays in the approval process as well as for environmental rulings must also be

factored into the time frame of the decision. &or some companies, delays can be measured in

years, not weeks or months, and the impact of these delays on the economics of a manufacturing

pro5ect can be enormous.


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The survey also lists the top 79 critical location factors. %ccess to customers leads the field,

ranked as very important by ;; percent of the companies. The second most often cited factor is

a stable social and political environment, followed by ease of doing business and reliability and

uality of utilities owever, )0L is growing in its importance. 2revious

factors, which would not be considered important, are now considered uite significant as the

1ndian economy now shifts to a more high!tech and knowledge intensive focus. There is a

growing dependency on skilled labor and less on unskilled, cheap labor. 'killed labor generally

prefers to work in a region with a high uality of life in order to have access to amenities to suit

their lifestyle.


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%reas more likely to attract such skilled labor are more likely to succeed in the future. To do so,

employers need to consider the offer of appealing )0L perks. 'uch perks include, but are not

limited to:

Recreational amenities

-ultural opportunities

(nvironmental uality

-limate and affordable living costs

Large estates in gated communities

Low property ta"es

?ood public school systems

Little agreement occurs over which factors contribute most to certain areas being more

conducive for site locations than others.

0ther factors are broken down as follows:

6@@6 'ite!'election Aagazine 'urvey of 1ndian (conomic #evelopment 2rofessionals

Reasonable cost of living B CDE

2ro"imity to colleges and universities

$ature!oriented recreational opportunities

)uality of *!67 education

'urvey of F9 1ndiana -ommunities

(ducation

1nfrastructure

>ealth and safety

2ublic services


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-ommunity life

Quality of Life Factors: Location Decisions of Firms or or!ers"

'ome argue that )0L factors do not have a very large influence on business location decisions.

0thers argue that )0L factors influence business location decisions through labor force

preferences. #ue to skills gaps in the 1ndia, corporations are finding it more and more difficult to

find areas with a labor force that is sufficient enough to staff their firm3s facilities. They are then

drawn to areas that can attract and retain scarce and highly skilled talent. Realizing what it takes

to attract and retain skilled workers, companies make it a business decision to take uality of life

factors into consideration in the location decision.

#valuation of ris!s:

Location analysis should also evaluate risks, more so in the case of foreign locations. The

obvious factors are physical security of staff, war and civil disturbance, currency inconvertibility,

breach of contract, government refusal or inability to enforce laws, e"propriation or

nationalization.

?overnment regulations also need to be scrutinized. %n e"ample is -oca -ola3s 1ndian

operations. -oca!-ola -orporation was operating as a branch since the early 6@F9s. -oca!-ola

was directed to continue its operations on condition that its branch would be converted into an

1ndian company with C9 percent foreign . 1nstead of complying with &(R%, -oca!-ola decided

to wind up its operations in 1ndia. 1t re!entered 1ndia in 6@@8 following rela"ation and opening

up of market by the 1ndian ?overnment.

Location Analysis

&or an effective and efficient supply chain, location decisions for a facility may be the most

critical and most difficult decisions. &acility location decisions are fi"ed and difficult to change

even in the intermediate term.

-hange in customer demands, transportation cost or component prices will not change the

location of a facility. 1nefficient locations for facilities can result in e"cess costs incurred

throughout the lifetime of the facilities.

Long$term %lanning


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Long term conditions for which a facility will operate will be sub5ect to considerable uncertainty

at the time of decision proposals. Recognizing the inherent uncertainty associated with future

conditions is important.

Fi&ed 'harge Facility Location

Location of the facilities and the shipment pattern between the facilities and the customers

should minimize the combined facility location and shipment costs sub5ect to a reuirement that

all customer demands be met.

Integrated Location(Routing )odels

This gives the relationship between facility location, customer allocation to facilities and vehicle

routing. The ob5ective here is to minimize the sum of fi"ed facility location costs, the shipment

costs from the supply point to the facilities, the variable facility throughput costs and the routing

costs to the customers.

Integrated Location(Inventory )odels

Location model with risk pooling effect minimizes the sum of fi"ed facility location costs, direct

transportation costs to the customers.

Site Selection and Analysis

-hoosing a site on which to locate a new home is not a simple task. -ountless factors B natural,

man!made, social and economic B must be e"amined. here we choose to build and how we

build on a site have an impact on the local and global environments, ongoing costs


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'electing a building site close to work, schools, shopping, etc. will minimize travel distances and

time. 'hort distances, sidewalks, bike paths and bus stops will allow for healthier modes of

transportation and the avoidance of e"cessive costly, polluting automobile trips. % lot in an

established neighborhood located close to town is a particularly good choice for many people.

This land has already been dedicated to residential development, so more natural land does not

have to be destroyed and the costly roads and utilities are already in place.

%voiding environmentally sensitive areas helps protect some of the features that makes many

areas so special B our creeks, lakes, auifer, tree!covered hills, wildlife, native wildflowers G

plants. &lat to moderately sloped sites are preferable to steeply sloped lots, as soil erosion, loss

of hillside vegetation and damage to waterways are more difficult to avoid when building on

steep slopes.

+'ite Repair is a special approach to selection of a building site that can have economic and

aesthetic benefits for the prospective homeowner while restoring the local environment rather

than burdening it. This involves choosing a site that has been abused


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Aany site selection and home design decisions that are good for the environment also have direct

positive benefits on the occupants3 health, well!being and budget. >elping to preserve our

environment through more thoughtful site selection and home design is one very important step

toward a continued high uality of life.

Henefits for your company

1dentify the population in a given area


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#oes the demographic profile closely match that of the market you wish to serve

hat are the community attitudes or outlook

1t4s also important for you to understand the demographic profile of your potential customers in

order to properly evaluate a community for location. To see if the community you4re considering

offers a population with the demographic traits necessary to support your business, look at the

community4s:

%urchasing po.er/&ind out the degree of disposable income within the community.

Residences/%re homes rented or owned

)eans of transportation/#o prospective customers in the area own vehicles, ride buses

or bicycles, and so on

Age ranges/#oes the community consist primarily of young people still approaching

their prime earning years, young professionals, empty nesters, or retirees

Family status/%re there lots of families in the area or mostly singles

Leisure activities/hat type of hobbies and recreational activities do people in the

community participate in

-hoosing a 'ite

%ccording to studies, poor location is among the chief causes of all business failures. 1n

determining a site for a retail operation, you must be willing to pay for a good location. The cost

of the location often reflects the volume and/or uality of the business you will generate. $ever

select a site merely because the facility is open and available or because the rent is low. *eep in

mind that there is a direct correlation between low rent and high advertising e"penses. Hase yourselection of a site on the market information you4ve obtained and the potential of the area to

generate income for your company.

The most important consideration for choosing a site for a service business is convenience for

customers. 'ervice businesses that deal directly with customers, like nail salons, travel agencies


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and dry cleaners, don4t need to locate in high!rent districtsI they 5ust need to be conveniently

located on the beaten path and visible to their customers. 'ervice businesses that are rarely

visited by customers, like TM repair shops and pest control operators, can be farther afield. Hut

these types of businesses have to make an ongoing effort to let customers know they4re there!!

hence, the value of display advertising in the newspaper or Kellow 2ages.

Aanufacturers will usually be restricted to industrial areas by the zoning ordinances of most

towns and cities. The main criteria for manufacturers is the suitability of shipping and loading

facilities, the distance to key suppliers of raw materials and markets, the availability of cheap

fuel, and the skill of the support staff in the local area.

Like manufacturers, wholesalers are restricted by zoning laws within most cities. Their main

criterion is pro"imity to local markets, since they don4t want delivery to take too much time,

especially if the product is perishable, or costs too much. 1f costs in either time or money are

eventually passed on to customers in the form of higher prices, customers could wind up looking

for other suppliers.

Kou4ll want to consider the following factors when searching for a location for your business:

Restrictive ordinances/Kou may encounter unusually restrictive ordinances that detract from an

otherwise ideal site, such as limitations on the hours of the day when trucks are permitted to load

or unload. -ities and towns are composed of areas!!from a few blocks to many acres in size!!

zoned for only commercial, industrial, or residential development. ithin each zone are often

further restrictions. % commercial zone may permit one type of business but not another, so make

sure to check the zoning regulations of any potential location before pursuing a specific site or

spending a lot of time and money on a market survey.

0istory of the site/Learn about the recent history of each site you4re considering before you

make a final selection. There are sites!!in malls and big shopping centers, as well as in

independent locations!!that have been occupied by a succession of businesses that failed.

Husinesses most often fail because of poor management, but sometimes choosing the wrong

location is a factor. &ind out how the site you4re considering affected the businesses of previous

tenants or owners.


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0o. much rent your 1usiness can afford to pay/Kour first!year profit!and!loss pro5ections

will tell you the amount of sales your business will most likely generate. To 5udge your rental

e"penses


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interviewing people passing by the site you are considering. #o they feel a need for your type of

business at this location ould they patronize it hat kinds of goods or services would they

be interested in buying here do they now shop for these goods and services

-ustomer parking facilities. #oes the site provide easy, adeuate parking and access for

customers 1s it well lit 1s there sufficient security hat is the condition of the parking area

ill it need e"pansion, resurfacing, or striping, possibly at additional cost to tenants *eep in

mind that even large shopping centers and business parks sometimes do not have adeuate

parking for all their customers. 1f you plan to locate in a mall or business park, evaluate the

parking conditions over a period of days at different times and 5udge whether or not they are

acceptable.

'ide of the street. Aarket research has demonstrated that the going!home side of the street is

usually preferable to the going!to!work side. 2eople are more likely to stop at stores on the

way home than when they are in a hurry to get to work on time. %lso, the sunny side of the street

is generally less desirable for retail operations than the shady side, especially in warm climates.

Research shows that rents are higher on the shady side in high!priced shopping areas.

site and location analysis.docx

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