Question

1. Discuss the implications of facility location decisions on a supply chain.

2. Discuss the critical factors influencing facility location.

Answer 1

1. Supply chain and logistics management involves a lot of intermediate factors that help in the efficient functioning of the whole business. Facility location is one such crucial element which has a great impact on the efficiency of numerous logistics activities. Facility location includes various setups like the location of the plant, assembly location, location of distribution centers, etc.

Some of the major implications that the location of a facility can have are on the supply chain as well as on the business are:

• In the case of logistics, the location of the facility is the major determinant of profitability. The decision on where to manufacture, assemble, store and consolidate before shipping can have a great impact on the profit of supply chain entities. Minor mistakes in the decision can turn the chances of gaining profit into a loss.
• The decision of facility location involves a substantial amount of fixed assets like equipment and machinery. Thus the impact of facility location will not be a short term one, but will last as long as the business exists, be it the easiness to conduct business or the difficulty faced.
• The setting up of associated facilities like plant location, manufacturing facility, assembly location, location of distribution centers are also interdependent.

2. Some of the critical factors that affect the decision of facility location in the supply chain are as follows:

• Proximity to the market will help the business to provide the customers with goods and services at the right time of requirement. This helps in attracting more customers. In areas of concentrated business, it is usually advisable to have the location of the facility close to the market.
• The nature of the product is another factor that affects the location decision. If the products spoil easily or they require maintenance frequently, it is usually preferred to have the facility close to the market. Also if the cost of transportation is higher, to look into the profit side, the facility is set up close to the market.
• The facilities will mostly be located in the areas in which there is an abundant and uninterrupted supply of raw materials. In case if the raw materials are perishable and costly, there is no choice left but to arrange the facility close to the source of raw material. For example industries like cotton, jute, sugar, cement, etc.
• If the goods are intended to be transported by exporting to other countries, the location of the facility should be located near to the airport, seaport.
• The availability of basic infrastructure also is a prominent factor in deciding the location. This includes power, water, waste disposal, etc. Facilities will require uninterrupted power supply all throughout the year and such plants should not be located in a remote area which experiences intermittent power disruptions.
• Continuous supply of labor should be there from the locality. Importing labor can cause excess cost and administrative problem. Productivity of the labor will be more if they are from the local community near the plant location.
• Various government policies such as restriction of setting up industrial areas, building laws, codes of safety, etc. could be factors that affect the plant location. Also when the government provides incentives to invest in certain areas, there will be a higher probability of companies setting up plant facilities in such zones.
• Certain products would require specific climatic conditions, i.e. temperature, humidity,, etc. These are also factors that affect the facility location.

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