Key questions for deciding where to locate the facility

Filed in archive Point of view on May 14, 2008

One of the issues many supply chain managers are facing, especially when designing or changing the supply chain network is where to locate the facilities. Well, I was thinking of creating a sample and simple! checklist on this. I myself think some of the most important criteria to make this decision are the answers to the following questions:

1) Are the sources of supply concentrated in a few geographic areas? (If yes, locating facility near them might lead to cost savings. A good example is facilities which make products using steel; it makes sense to be near the source of supply).

2) How high is the cost of shipment for products from the supply areas? (With rising fuel prices, this factor becomes more important).

3) Are customers located in a few geographical areas? (If the customer base is highly concentrated, then maybe it makes sense to make the products near them)

4) Do you follow a postponement strategy for most of your markets? (If we are following the postponement strategy, then it's good to be centralized in between final destinations to minimize the transport and cost to serve. Here I assumed that final destinations have roughly similar level of demand).

5) Are there other companies with which you could combine shipments and facilities?

6) Are the potential areas high risk in terms of natural disasters?

How about you? Do you have more elements to add to the preliminary list of mine?