T6- LOCATION STRATEGIES

Content Introduction to Location Strategy

  • Importance: Location decisions significantly affect a company’s long-term success.

  • Impact on Costs: Determines fixed (e.g., rent) and variable costs (e.g., labor).

  • Long-Term Commitment: Hard to change; needs careful consideration.

  • Strategic Options: 1) Expand existing sites, 2) Maintain and add new sites, 3) Close and relocate.

  • Complex Globalization: Market economies, communication, transport, and labor costs complicate decisions.

  • Geographic Information Systems (GIS): Location analysis tools help us understand populations and combine maps with other information like demographics.

Key Success Factors (KSF) and Evaluation Methods

  • KSF Identification: Political risks, culture, market, labor, resources, and costs.

  • Evaluation Methods: Methods like factor-rating, cost-volume analysis, GIS-based methods.

  • Service Considerations: Analyze purchasing power, local demographics, competition, and the physical environment.

  • Service Location Decision: Look at strategic alignment regarding outsourced services.

Strategic Importance of Location

  • Critical Decision: Affects organizational success; essential long-term choice.

  • Cost Influence: Locations impact fixed costs (land/rent) and variable costs (labor/transport).

  • Relocation Challenges: Expensive and disruptive to change locations; careful investment needed.

Factors Affecting Location Decisions

  • Globalization Complexity: Factors influencing location include economies, communication, transportation, and labor costs.

  • Key Success Factors (KSF): Political risks, culture, market demands, and labor costs.

  • Country Level Decisions: Consider political stability, labor conditions, and supply complexity.

  • Labor Productivity: Measures the output per hour of labor; higher productivity indicates efficiency, affecting costs and competitiveness

  • Exchange Rates & Currency Risks: The value of one currency against another; currency risks arise from fluctuations affecting prices and profits in international transactions

  • Costs: Includes fixed costs (e.g., rent) that remain constant and variable costs (e.g., labor) that change with production; crucial for pricing and profitability.

  • Political & Cultural Values: Political values relate to stability and regulations impacting business operations, while cultural values influence consumer behavior and interactions.

  • Proximity to Markets: Closeness to customers reduces transportation costs and enhances responsiveness to market demands.

  • Proximity to Suppliers: Nearby suppliers lower transportation costs and improve delivery times, enhancing operational efficiency.

  • Proximity to Competitors: Geographic closeness to competitors increases rivalry but can also offer clustering benefits such as shared resources and innovation.

KSF Decision Levels

  • Country Level: Political climate, market location, economic factors.

  • Regional Level: Corporate desires, regional attraction, and labor availability.

  • Site Level: Site size, proximity to services, zoning restrictions.

Methods for Evaluating Location Alternatives

  • Factor-Rating Method

    • Steps:

      • 1) List relevant factors

      • 2) Assign weights

      • 3) Rate locations

      • 4) Multiply and sum scores

        Purpose: Determine optimal location based on weighted evaluations.

  • Locational Cost-Volume Analysis: Economic comparison of location alternatives

    • Steps:

      • 1) find fixed and variable costs for each location

      • 2) plot costs for each location based on production volume

      • 3) select location with lowest total cost for exp. production volume

  • Center-of-Gravity Method: Find optimal distribution center by minimizing transportation costs. (Plot locations, calculate x/y coordinates for cost-efficiency.)

  • GIS Transportation Model: Assesses the most efficient paths and routes to minimize transportation costs while satisfying supply and demand requirements.

  • Service Location Strategies: Maximize operational benefits through strategic location decisions.

    • Purchasing Power: Assess the spending capacity of potential customers by analyzing local income, spending patterns, and demographics.

    • Service Compatibility & brand image with customer’s area demographics: Ensure the service and brand align with local demographics, considering age, education, lifestyle, and cultural values.

    • Competition in the area: Evaluate the quantity and intensity of competition, identifying direct and indirect competitors along with their strengths, weaknesses, and market share.

    • Quality of Competition: Analyze not only the number of competitors but also their service standards, reputation, customer base, and profitability.

    • Uniqueness of Location: Identify unique factors that differentiate the company's location from competitors, including visibility, access, environment, and history.

    • Physical Qualities: Assess the physical features of facilities, such as size, design, layout, lighting, parking, and security, as well as the presence of complementary

    • Operational Policies: The company's hours of operation, pricing, service quality, and customer service must align with the location and target market, ensuring attractiveness to potential customers and meeting their expectations.

    • Quality of Management: Effective management is critical for success, particularly in service industries, as it impacts service quality, customer satisfaction, employee motivation, and business profitability.

Global Service Models

  • Offshoring: Moving tasks abroad for cost efficiency.

  • Onshoring: Outsourcing within the same country (e.g., US to another state).

  • Reshoring: Returning outsourced work back to the home country

  • Nearshoring: Collaborating with nearby countries for efficiency.

  • Outsourcing: Hiring third parties to perform tasks traditionally done in-house

  • Insourcing: A company internalizes services or processes that it previously outsourced

  • Strategic Alliances: Agreements between 2+ companies to combine resources, strengths, & capabilities in order to achieve shared objectives

Service Level Agreements (SLAs)

  • Definition: SLAs describe the expected level of service and compliance metrics.

  • Components: Performance indicators, availability requirements, penalties for non-compliance.

  • Customer-Based SLA: Customizes service levels for a specific client.

    • Example: A bank has SLAs for different departments, prioritizing online banking support over internal support.

  • Service-Based SLA: Sets a uniform service standard for all clients.

    • Example: A cloud provider guarantees 99.9% uptime for all customers.

  • Multi-Level SLA: Used in large organizations with various service tiers.

    • Example: A telecom company has distinct SLAs for retail, corporate, and government clients.

Geographic Information Systems (GIS)

  • Description: Technology that integrates spatial data for location analysis.

  • Functions: Data visualization, urban planning, service optimization.

  • Future Growth: Increasing relevance due to sustainability and analytical needs.

  • Benefits of GIS:

    • Informed decision-making: Combines art and science to evaluate impacts on various areas.

    • Problem-solving: Provides more information for addressing issues, especially in marginalized communities.

    • Data visualization: Enhances understanding of complex data through visual representations, such as maps.

    • Anticipated planning: Enables proactive problem-solving and effective solution planning.