The planning and location of facilities is an important consideration for firms. In addition to entrepreneurs locating firms and other enterprises in areas that will have low production costs, there are other major considerations that are significant in locating facilities (Walker, 2018).
Top on the determinants list is the availability of raw materials. It is important to locate a firm near raw material source since this gives a guarantee that the cost of transportation will reduce and consequently reduce the cost of production. Since raw materials in some cases can be highly perishable or bulky, it is advisable to have a firm using such material near their source.
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According to Walker (2018), production of goods and services would have no value if consumption is not there. Consequently, a facility that is located near its market for goods and services will have an advantage making the market a huge determinant for locating firms. While considering market availability, a need for assessing the potential for growth, competitors’ locations as well as the susceptibility of products to be spoilt while on transit are important issues that should be considered under market.
Infrastructural facilities are another significant factor influencing facility location. Supporting facilities such as transport, water, power, and communication play a pivotal role in selecting the location of an industry. The reliability and adequacy of the infrastructural facilities assist in decision making since a facility needs to be situated where available support services are both adequate and reliable with least cost (Zhang, 2017).
Presence of required labor in various trades is yet another significant factor worth consideration. The availability of skilled manpower and presence of technical training facilities would prove useful to a firm. In addition, it is vital to consider the labor relations, absenteeism and activity of trade unions before setting location since these factors have an impact on the relation of workers and the entrepreneurs.
Models of assessing location considerations
Factor rating method
Several models have been put forward to help entrepreneurs in assessing the location of their facilities. One important model is the Factor rating method that requires that all factors important in determining the location of a facility be identified and rated according to importance (Zhang, 2017). Upon rating, each location is assigned according to the benefits accruing and finding the summing the product of calculated factors. The location that will yield the highest score is the optimal location.
Weighted factor rating model
The weighted factor rating model is another model used in assessing locations where qualitative and quantitative factors are weighted according to their relative significance and their score calculated by way of preference matrix (Walker, 2016). The location that will have the highest score is consequently selected as the best.
Center of gravity model
According to Walker (2016), using the center of gravity model is basically involving cost considerations. In the center of gravity model, the markets, transportation costs, and volume of goods transported are taken into account. The center of gravity in this model refers to the point with the minimal weighted distance between the distribution points and the warehouse. Since the center of gravity model applies coordinates, the managers will easily find the optimal location using the center of gravity as the starting point.
Break-even analysis model
Managers while finding optimal sites for their facilities can employ the break-even analysis model. The break-even analysis model involves selecting the location that will have total costs equaling total revenues.
References
Walker, P. (2016). The Theory of the Firm: An overview of the economic mainstream . Milton: Taylor and Francis.
Walker, P. (2018). A brief prehistory of the theory of the firm .
Zhang, W. (2017). An Entrepreneurial/Contractual Theory of the Firm . New York: Springer.
