Facilities location decisions determine where a firm locates the most crucial facilities critical

Beena Shaji

May 2, 2024, 2:20 PM

Submitted

Hello Sir and class

Facilities location decisions determine where a firm locates the most crucial facilities critical to its supply chain. An adequate facilities location strategy can significantly reduce operating costs and create sustainable competitive advantages for a business. Specific locations can lower overall operating costs due to easy access to raw materials, labor, and the target market (Ortiz et al., 2018). By selecting locations that minimize total operating costs, firms can have a more flexible pricing strategy that can lead to sustainable competitive advantages. Choosing locations that ease market access can also create more efficient supply chains.

Key stakeholders impacted by a facility’s location decision include shareholders due to the impact these decisions have on profitability. Location decisions also determine the ease with which a company can attract and retain employees needed for its operations. Customers, as key stakeholders, are also impacted by location decisions due to the impact they have on price and ease of access to products. Facilities located close to customers can make it easier for customers to make purchases without incurring additional costs.

A key advantage of operating in a domestic location is that local consumers benefit from more accessible and lower-cost purchases of goods due to eliminating logistics costs. The risks associated with operating abroad are also avoided. On the downside, a domestic location may mean higher labor costs and, in some cases, higher raw material costs. On the other hand, operating from an international location is advantageous due to cost savings that can be realized from the availability of low-cost labor and cheaper raw materials in some cases (Lee et al., 2019). A firm can also access a more significant market as it is not limited to its domestic market. On the downside, the firm’s supply chain ends up becoming more complicated and can be vulnerable to geopolitical challenges that may take place in the foreign country.

References

Ortiz, C., Contreras, I., & Laporte, G. (2018). Multi-level facility location problems. European Journal of Operational Research, 267(3), 791-805.

Lee, J. Y., Gaur, A. S., Pattnaik, C., & Singh, D. (2019). Internalization advantage and subsidiary performance: The role of business group affiliation and host country characteristics. Journal of International Business Studies, 50, 1253-1282.

REPLY

NENorine Eixenberger replied toBeena ShajiMay 4, 2024, 9:33 AMUnread

Great comments Beena. I also think that when a company has some of its production in different countries, it encourages locals to buy. They may feel better about purchasing product made in their country. I know many Toyota and other Japanese car dealers use this sales approach when justifying to buyers that cars are locally manufactured. I have personally experienced this when looking at a foreign car. What are your thoughts on this?

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