The Facility Location

Any firm will have to make a decision on where to establish its headquarters at some point. Such a decision is influenced by a variety of elements, depending on the nature of the organization’s operations. A suitable location will reduce expenses, allowing the business to achieve its goals while maximizing returns. This paper explores the motives that can lead a manufacturing company to establish a new facility, the metrics that can be used to pick a desired facility location, and offers Grand Rapids, Michigan as an ideal location for a new business. The purpose of the paper is help decision makers with information about all the factors to consider and their implications for them to make an informed decision. Key words: factors, facility, metrics.

Facility Location

All organizations have to make the decision of where to locate their premises. This decision is based on so many factors, depending on the nature of operations of the organization. A good location will minimize costs thus enabling the organization to achieve its goals at optimum returns (Burke, Lake & Paine, 2009).

Motivations That Cause an Organisation to Initiate a Facility Location or Relocation

There are several reasons that motivate an organization to relocate their premises. Typically, an existing organization will seek a new location for its operation premises majorly because of capacity. When operations have expanded, there is demand for a new location to support either a new branch start-up or a new location for an existing plant. A change in resources needed to produce products and services may require relocation from the current site to a site near the source of resources to manage costs. This situation is normally brought about by innovation in the way products, and services are produced, for instance, from labor intensive to capital intensive production methods or either pre-processing or transportation costs.

Availability and affordability of resources (such as raw materials, labor, and other supporting resources) also affect an organization’s demand for a new location since they have a direct implication on production and supply costs. Market dynamics may also have a stake in location decision since if a plant produces unique goods consumed by customers who are located in a particular geographical unit; it will be prudent to move closer to the customers to manage operational costs arising from such factors as supply logistics for unique goods. Structural changes such as mergers and assimilations may occur making current locations redundant. Other motivations for a new location may include the introduction of new products and services which may necessitate a change in production location owing to availability and location of markets and cost of resources required to produce and sell the new products and services (Heragu, 2006).

Differences of a Facility Location between a Service Organization and a Manufacturing Organization

For a company that is in the manufacturing industry, it will need a physical production facility because it offers tangible services. The entire production process will need premises, and depending on the product, other additional premises such as warehouses and showrooms might be needed. If it were a service company, it would not need a physical production facility and such additional facilities since service organizations do not have a lot of physical inventory but rather a service center where customers come for services. However, depending on the services offered, the location may be very flexible since some services do not need to be offered in person so the provider can operate from any location. Therefore, the cost implication concerning acquiring or leasing premises and the accompanying utilities is very low for a service industry than a manufacturing industry ((Ragsdale, 2017).

For service organizations, factors such as taxation and market dynamics have little or no effect when deciding to move the organization’s location. A manufacturing organization will require massive resources such as land to build large factories to cater for the entire production line, and the utilities required such as water, electricity and sewerage lines. Availability of these resources will be regulated by relevant authorities using taxation and legislative approaches, depending on the impact they will cause on the surrounding communities as well as their impact on the environment. A service industry, depending on its service, will require a significantly smaller point of service centers for its customers who will be spread across the organization’s market segment (Tulsian, Tulsian & Pandey, 2008).

Metrics to Use When Selecting a New Location for a Production Facility

Depending on location, applicable taxes and business tariffs may be high or low. Some government authorities offer tax exemptions to attract businesses while in some areas, strict taxation measures are used to regulate the start-up of particular businesses given their implication on the environment. It is therefore important that taxes and tariffs applicable at the desired location be adequately evaluated to determine their expected effect on overall costs to the organization before moving (Chary, 2009).

Different market segments offer different prices for the same product or service. A location decision has to analysis future demand metrics to arrive at expected sales volumes for the organization’s products and services. A good metric on the different available demographic target markets has to be developed to rank and identify the best market. If the market around the desired new location does not present an appealing demand, then this may impact the decision to go ahead with the location change. Customers demand reliable supply of products at reasonable prices. If the facility is poorly located, supply patterns will be irregularly, and supply logistics will be expensive, consequently affecting the consumer price. Therefore, the facility has to be situated near customers to lower the transportation and supply costs (Barnes, 2008).

Metrics related to the cost of acquiring or leasing the new facility has major cost implications for the organization. This situation affects both short-term and long-term expenses. The new location could be having premises that will require renovation and design changes to bring them to the required shape to seamlessly support the operations of the organization. If no premises or utilities exist at the desired new location, it means that the organization may have to incur huge costs to set up premises and utilities, a factor that will greatly influence the decision to move or not (Ragsdale, 2017). Utilities such as water, electricity, and sewerage lines are also considered. These and other supportive resources such as subcontractors are essential since, without them, the process of setting up a new facility will be very costly. A sound evaluation is necessary to ensure that factors that seem insignificant do not present a huge cost that can potentially hinder the planned facility location project.

Selected Location after Consideration of Above Metrics

Based on the above metrics that can be used to select a location for a new production facility, I will choose Grand Rapids as the best city to build a new facility in the United States. Grand Rapids is the largest metro city in Michigan, after Detroit. The city has a rapid population growth, an implication that people prefer to live in this city. It also has a high job growth rate and is said to be the most affordable cities to live in the United States. It has diverse business activities and industries. For instance, the city has a renowned furniture industry and other important industries such as automobile, health, IT, aerospace and manufacturing (Garoogian, 2007).

These factors, coupled with supportive authorities make Grand Rapids city ideal for a new venture since operational cost arising from factors such as statutory deductions and labor expenses will be low. Labor is readily available and essential utilities such as electricity and water are present and relatively cheaper. Also, the city has well developed supportive businesses such as the banking industry necessary for seamless business operations.

References

Barnes, D. (2008). Operations management: An international perspective. London: Thomson.

Burke, W. W., Lake, D. G., & Paine, J. W. (2009). Organization change: A comprehensive reader. San Francisco: Jossey-Bass.

Chary, S. N. (2009). Production and operations management. New Delhi: Tata McGraw-Hill.

Garoogian, D. (2007). America’s top-rated cities: A statistical handbook. Millerton, NY: Grey House Pub.

Heragu, S. S. (2006). Facilities design. New York: iUniverse, Inc.

Ragsdale, C. T. (2017). Spreadsheet modeling and decision analysis: A practical introduction to business analytics.

Tulsian, P. C., Tulsian, P. C., & Pandey, V. (2008). Business organisation and management. New Delhi: Pearson Education.