Location Analysis

LOCATION ANALYSIS

                 If a firm wished to locate facilities closest to its potential customers, using one or more warehouses in their logistics network, a number of sites would be possible. The site-selection decision can be approached from macro and micro perspectives. The macro perspective examines the issue of where to locate warehouses geographically within a general area so as to improve the sourcing of materials and the firm’s market offering (improve service and/or reduce cost). The micro perspective examines factors that pinpoint specific locations within the large geographic areas.

MACRO APPROACHES:

In one of the best-known macro approaches to warehouse location, three types of location strategy have been identified:

1. Market positioned,
2. Production positioned, and
3. Intermediately positioned.

Market Positioned Strategy:

The market-positioned strategy locates warehouses nearest to the final customer. This maximizes customer service levels and enables a firm to utilize transportation economies – from plants or sources to each warehouse location. The factors that influence the placement of warehouses near the market areas served include transportation costs, order cycle time, the sensitivity of the product, order size, local transportation availability, and levels of customer service offered.

Production Positioned Strategy:

The production-positioned strategy locates warehouses in close proximity to sources of supply or production facilities. These warehouses generally cannot provide the same level of customer service as market-positioned warehouses; they serve as collection points or mixing facilities for products manufactured at a number of different plants.

For multiproduct companies, transportation economies result from consolidation of shipments. The factors that influence the placement of warehouses close to the point of production are perishability of raw materials, number of products in the firm’s product mix, assortment of products ordered by customers, and transportation consolidation rates.

Intermediately Positioned Strategy:

The intermediately positioned strategy places warehouses at a midpoint location between the final customer and the producer. Customer service levels are typically higher for intermediately positioned warehouses than they are for the production-positioned facilities and lower than for market-positioned facilities. A firm often follows this strategy if it must offer high customer service levels and if it has a varied product offering manufactured at several plant locations.

MICRO APPROACHES:

From a micro perspective, more specific site-selection factors must be examined. If a firm wants to use private warehousing, it must consider:

• Quality and variety of transportation carriers serving the site.
• Quality and quantity of available labor.
• Labor rates.
• Cost and quality of industrial land.
• Potential for expansion.
• Tax structure.
• Building codes.
• Nature of the community environment.
• Costs of construction.
• Cost and availability of utilities.
• Cost of money locally.
• Local government tax allowances and inducements to build.

If the firm wants to use public warehousing, it will be necessary to consider:

• Facility characteristics.
• Warehouse services.
• Availability and proximity to motor carrier terminals.
• Availability of local cartage.
• Other companies using the facility.
• Availability of computer services and communications.
• Type and frequency of inventory reports.

The site-selection process is interactive, progressing from the general to the specific. It may be formalized or informal, centralized at the corporate level, decentralized at the divisional or functional level, or some combination of each. It is important that management follow some type of logical process that recognizes many trade-offs when making a location decision.

LOCATION APPLICATIONS

Plant and distribution center location is a common problem faced by logistics managers. Increased production economies of scale and reduced transportation cost have focused attention on distribution centers. In recent years location analysis has been further extended to include logistics channel design as a result of global sourcing and marketing considerations. Global operations increase logistics channel decision complexity, design alternatives, and related logistics cost. As a result, the importance of location analysis has increased substantially.