Facility Location - Factors Influencing the Location

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.


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.

  1. 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.

  2. 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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