Importance of Location
Selection of a facility location is a strategic decision for any organization. Therefore, it has to be made after considering all the factors which have a bearing on it. Location decisions are important for several reasons. First, the location of a facility will fix the production technology and cost structure. For example, a manufacturing facility, which is located in an under-developed country, will choose a labor intensive process to utilize the availability of low-cost labor. In the same way, a manufacturing facility, which is located in a developed country will choose capital intensive manufacturing processes since the cost of labor is high in that region.
Second, the significance of facility location depends on the size and nature of the business. A small scale firm normally selects the location near to the local market. But for big firms, the amount of investment required largely depends on the location selected. Since these investments are irreversible in nature at least in the short-run, the management of the firm should be careful in selecting a site. For instance, an automobile manufacturing unit cannot be shifted from one place to other.
Third, the location of the facility affects the company's ability to serve its customers quickly and conveniently. For example, a nationwide commercial trucking business wants to locate a truck terminal. Since the trucking business is highly dependent on inter-state highways, the truck terminals must be located along highways or as close to highways as possible. Apart from the above reasons, the location decision is also important for a firm to withstand competition. Thus an optimum location that reduces the transportation costs of raw materials and goods, has low labor costs, and is nearer to the markets, always gives the company an edge over its competitors.
From the above discussion, we can understand that the location decisions are important for all the firms and such decisions require the careful attention of finance, personnel, marketing and other managers apart from operation managers who run the facilities.
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