Facility Location is the right location for the manufacturing facility, it will have sufficient access to the customers, workers, transportation, etc. For commercial success, and competitive advantage following are the critical factors:
Overall objective of an organization is to satisfy and delight customers with its product and services. Therefore, for an organization it becomes important to have strategy formulated around its manufacturing unit. A manufacturing unit is the place where all inputs such as raw material, equipment, skilled labors, etc. come together and manufacture products for customers. One of the most critical factors determining the success of the manufacturing unit is the location.
Facility location determination is a business critical strategic decision. There are several factors, which determine the location of facility among them competition, cost and corresponding associated effects. Facility location is a scientific process utilizing various techniques.
Location Selection Factors
For a company which operates in a global environment; cost, available infrastructure, labor skill, government policies and environment are very important factors. A right location provides adequate access to customers, skilled labors, transportation, etc. A right location ensures success of the organization in current global competitive environment.
Industrialization
A geographic area becomes a focal point for various facility locations based on many factors, parameters and issues. These factors are can be divided into primary factors and secondary factors. A primary factor which leads to industrialization of a particular area for particular manufacturing of products is material, labor and presence of similar manufacturing facilities. Secondary factors are available of credit finance, communication infrastructure and insurance.
Errors in Location Selection
Facility location is critical for business continuity and success of the organization. So it is important to avoid mistakes while making selection for a location. Errors in selection can be divided into two broad categories behavioral and non-behavioral. Behavioral errors are decision made by executives of the company where personal factors are considered before success of location, for example, movement of personal establishment from hometown to new location facility. Non-behavioral errors include lack of proper investigative practice and analysis, ignoring critical factors and characteristics of the industry.
Location Strategy
The goal of an organization is customer delight for that it needs access to the customers at minimum possible cost. This is achieved by developing location strategy. Location strategy helps the company in determining product offering, market, demand forecast in different markets, best location to access customers and best manufacturing and service location.
Factors Influencing Facility Location
If the organization can configure the right location for the manufacturing facility, it will have sufficient access to the customers, workers, transportation, etc. For commercial success, and competitive advantage following are the critical factors:
Customer Proximity: Facility locations are selected closer to the customer as to reduce transportation cost and decrease time in reaching the customer.
Business Area: Presence of other similar manufacturing units around makes business area conducive for facility establishment.
Availability of Skill Labor: Education, experience and skill of available labor are another important, which determines facility location.
Free Trade Zone/Agreement: Free-trade zones promote the establishment of manufacturing facility by providing incentives in custom duties and levies. On another hand free trade agreement is among countries providing an incentive to establish business, in particular, country.
Suppliers: Continuous and quality supply of the raw materials is another critical factor in determining the location of manufacturing facility.
Environmental Policy: In current globalized world pollution, control is very important, therefore understanding of environmental policy for the facility location is another critical factor.
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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.
One of the biggest headaches an entrepreneur faces is choosing the right business location. This is one step that most entrepreneurs approach with a pinch of salt and if you are a small business startup it becomes even more challenging. A good business location not only helps you reduce your expenditure but also is critical to your business success and sales as it many times makes or breaks your company.
While many prefer to settle for a cheap location as they don’t believe location is that important as long as you provide the right product, others say even if your product is good, it will not help if you are selling it at the wrong location.
Here are 9 factors that every entrepreneur must consider when selecting a perfect business location:
1) Demographics
When selecting a business location, demographics plays a crucial role in your product as it can have a big influence on your choice of business location.
You always need to keep in mind the type of product or service your business offers and the status of the customers when it comes to business location.
For example, if your business is based on selling school supplies, your demographic research for the right business location should keep in mind that it is within a school’s vicinity or university/college area.
Majority of your customers would be students or teachers, and your best bet for having high sales would be a location which is either close to student hostel, or within the university/school itself.
2) Style of Operation (+ Psychographics)
When looking for the right business location, always ask yourself if your operation is going to be formal and elegant in nature or if your business would be kicked-back and casual in its working?
This mindset of your work should be consistent with your business location as it will help with your particular style and image of the business.
For example if your business is based on high-end fashion, your business location would be on or near Downtown or High Street area where people who can afford it visit, if you start such store in an area full of college student or university, even though they would be really interested, they would not have a budget or money to buy your product.
Similarly, if your fashion apparel is targeting college students and you build your store on Downtown or High street area your rent would be high and visitors too high profile to even consider buying your products.
The reason I also add psychographics to this point is that the mindset of your customers or the aura of a particular region would also play a huge factor in such situation when you consider your business location.
3) Nearness to Market and Foot Traffic
Along with psychographics you also need to keep in mind your business location’s nearness to market and foot traffic.
For any retail businesses, foot traffic is extremely important as you don’t want to be tucked away in a corner where shoppers are likely to pass you and your store.
Similarly, even online your business needs to be located in a high-traffic area.
Not every location or site is right for your business and thus needs to researched well. For example things bought in bulk will sell on IndiaMart better than on sites like Amazon, similarly, things bought in less quantity would sell on Amazon better than on IndiaMart where they might cost much higher as storage cost might make the cost go higher.
Also, ask yourself, are your customers’ resellers or end users? Answering this question will help you determine the best area to locate your business.
4) Accessibility and Basic Infrastructure
When you consider the accessibility of your business location, it should keep everything in mind and not just the customers.
Your business location should easily be accessible to customers, employees, and even your suppliers.
Your business infrastructure is equally important, for example, if your business is on a busy street with easy to access via cars and trunks, it can help to a great extent. You also need to keep in mind if you have a parking lot where your customers and suppliers can park.
Just being on a busy street would not help as your customer would not prefer to drive all the way to your business and then park a kilometre away.
5) Competition
Always keep in mind that you are not the only one in that business and would always have competition in one form or other.
Similarly, other businesses will also keep the above-mentioned points in mind when looking for their perfect business location.
Thus, don’t just select a location because it fits with regards to your customers, but also keep in mind your competitions.
Always check competing companies located nearby and how popular they are. You can always catch the overflow from the existing business but do check why they exist and if they will affect your business.
Also, note that a nearby competitor is only going to make your marketing job tougher so look elsewhere if the possibility exists.
6) Zoning/Permit Issues
Every country and every area is zoned for certain things and when looking for a business location you need to keep the zoning and permit issues in mind as well.
A certain area or zone might be perfect from all the above-mentioned point of view but not possible from permit prospective.
You don’t want to get everything sorted only squared away and then discover that the area isn’t zoned for your business type. So always check with your local zoning authorities to make sure that you’ll be able to do business in the location of your preference before signing any other contract.
7) Proximity to other Businesses & Services
While it’s important to scout for competition, it’s also important to scout for other businesses and services in the proximity of your selected business location.
Take a look at what other businesses and services are providing in the area of your choice as it might help boost your business.
Further, see if you can benefit from nearby businesses by the customer traffic they generate. For example, if you are running a 24/7 food joint in an area which is close to a stadium or a club or a pub, then even at night you will have many customers coming in as they would be looking for a cheaper option.
Similarly, you can collaborate with such places to provide the customers discount coupons to your business when they buy a certain thing at these clubs, pus or stadiums, this will further direct traffic to your business.
8) Image and History of the Site
While it might not seem as important as image or history of a certain area might also affect your business traffic. While demographics in the area might suite to your liking, there might be other unknown facts that might work against you.
Always ask about previous tenants and if people who provided similar business have been in the area.
For example, if you’re opening a restaurant where five restaurants have already started and failed, you may be starting off with an insurmountable handicap as many might assume its the same restaurant or think you might suffer the same fate.
While there might be many more reasons why the previous businesses failed, your customers might know it and think something is wrong with the area and that you will go the same way as the previous tenants did.
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9) Utilities and other Costs
When you consider a business location, you always need to keep in mind your budget and your profit margin.
You cannot spend high on rent, which will take away a major portion of your earning, and not consider the cost of other utilities while considering your business location.
If they’re not included, ask the utility company for a summary of the previous year’s usage and billing for the site as it will provide you with an idea of how much it will cost you.
The above will also help you develop an accurate move-in budget as compared to moving in blind with regards to utility costs.
Conclusion
Remember, the right business location is as crucial as the business facility that you provide and require you to devote as much time as you can to find the perfect spot.
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