Although you wouldn’t always think it, where to locate a business is a defining feature which managers have to make. It can have an impact on many different departments of a business and, therefore, on the profitability and chances of success for the whole firm. It is also important to remember that location decisions are:

Strategic, moving location is a long term decision and must be planned.

Not easily reversed as the costs of relocation are high

Taken at the highest management level they are not delegated to subordinates, this can cause problems with staff.

When are location decisions necessary?

There are a great number of situations and reason why a business might need to relocate or find a location. A few example situations are listed below:

Newly formed businesses will have to consider where to set up their first premises. This is often close to the owner’s area of residence because the owner normally knows the area well and feels most comfortable there because of the proximity to home, a good example of this is the body shop.

Expanding firms may need a new site to allow for growth or to set up a branch in a different location. McDonalds is a good example of this.

Firms faced with uncompetitive costs may have to find a cheaper location.

Businesses expanding abroad to become multinationals must select appropriate countries and locations within them.

Factors of location

When choosing a location the business must take into account the costs of moving or establishing their business in the location. Such things they have to consider are;

Labor Costs

Site and capital costs

Transport

Proximity to suppliers

Workforce disruption

Language factors

Exchange rates

Labor Cost relates to which country your in as places like India will accept lower pay for the same amount as work, although this may give the brand a bad image, unemployment is also a factor, in a high unemployment area you are likely to pick up the labor number you need as well as the ability to replace workers who leave. If the location has low unemployment the reverse will inevitably occur.

Site and capital costs are the costs that price the land will cost the amount of rent per Xyear’s or the costs of building from scratch. Capital costs come into play if the production methods the firm uses are transferable or not, if not the costs will increase in order to buy new capital equipment.
Transport is crucial for all businesses especially businesses that have perishable goods, if it takes you 5 days to get to the market place and the vegetables goes bad after 2 days is it smart to be that far away?

Proximity to suppliers is not always essential as you can always change suppliers but if the business has a trusted supplier and they run on Just-In-Time then the closer the better.
If the company has to move to a location that is not accessible to its current work force there is likely to be a great deal of upset in the workplace and the costs of making those people redundant need to be taken into account.

If a business decides to move abroad to a new country with a different currency they will need to know if in this new area if their currency better i.e. is the currency worth more then before or if its worth less (prices are more expensive in the new location).

Language doesn’t only refer to just French, Spanish, English, but to accents as well, some people are unable to under stand some accents because there not use to them and this can cause problems with communication.

Learning Note

Location is not normally the full basis of an essay but it is useful to note down the key points form the above article and apply it to case studies you have, although it might not be a full essay it is a useful area to know and apply to all types of questions, questioning the location of the firm in case studies is useful, especially if they do not state a real location, this way you can explore possibilities and adapt it to what you think whilst showing off your knowledge, for example, if it says the firms suffering from high labor turn over maybe its in a very low unemployment location so businesses are competing for labor with higher wages or perks.

To start off with, what is lean production? One definition of lean production is; a manufacturing performance improvement approach and philosophy that emphasizes the minimization of the amount of all the resources (including time). It involves identifying and removing non-value-adding activities in design, production, supply chain management, and dealing with the customers. Put simply it’s a way to cut costs by taking away/minimizing time consuming activities. Note that implementing lean production is difficult.

The lean manufacturing history is thought to stem from the research Ford carried out in 1986 on Toyota, the business strategies implemented reduced production times, giving lower costs per unit, but it also gave an increase to quality. The lean manufacturing success of Toyota sparked the beginning of a new production method.

A common mistake among students is to identify lean production with Just in Time (JIT), although it is a part of it, it is not the basis of the production method. When/if a business decides to become a lean producer there and 4 principles they must apply for the lean strategy to work:

Lean quality

Lean design

Lean people management

Lean component supply

Lean Design

The first of the lean techniques involves assessing and improving upon product development, or product modifications, so that the firm can quickly and efficiently adapt to the changing business environment. Computer aided design (cad software) is one of the most flexible and quickest method for firms to design new products quickly, and transfer new product ideas from the conception stage to the market, this can lead to first mover advantage. First mover advantages include such things as; A high, if not 100% market share in the product, brand loyal customers (since they can see you as the first, therefore the best) and allows the business to establish a foot-in-the-door effect, which is needed to focus customers on their specific product when the copy firms move in.

When lean companies look for speedy product development and launch, time-based management plays a crucial role. Time-based management is, essentially, minimizing the time between product design and product launch. It looks for the areas in the business where simultaneous engineering can take place (decision trees are a good example of this) which cuts costs by saving time and money.

Lean quality

Quality is an expensive area for business organisations, but there are greater costs when ignoring quality. Bad quality can lead to bad publicity, a poor brand image and a great loss of customer loyalty. On the human resource side of things, one of the best ways to increase quality is by training the employees in all aspects of the production, making them multi skilled and making them feel more empowered giving greater motivation. The importance of quality will also be reflected throughout a firm’s culture. Quality techniques include quality circles and kaizen groups: using both of these would be the best way to bring in ideas from employees, this brings greater employee motivation and productivity.

Lean people management

What is people management? People management is simply as it says, a way in which people involved in and outside the business are treated and used. Lean producers will aim to fully utilize all the skills and ideas of their workers. They will attempt to ensure that all their workers are fully trained and multi skilled in the businesses production methods. Empowerment and delegation are key to lean people management and they therefore create participation schemes to enable staff to contribute their ideas and experiences. This not only makes them feel valued, but also benefits the firm by getting ideas from experienced workers. This delegation of decision-making power makes workers feel more involved and, therefore, more committed to the business objectives of the firm. Motivation is key to productivity and therefore lower costs.

Lean Component supply

Just-in-time (JIT) is a system of stock management that involves only requesting a new supply of materials once there is a definite need. This is the moment students say ‘Good, JIT, I know all about that.’ But, in addition to understanding the benefits of JIT such as: saving money on space and insurance and removing the risk of holding stocks that may become damaged or obsolete (as with food), the opportunity costs also need to be considered. The firm will no longer be able to benefit from bulk-buying discounts (economies of scale) or be able to respond immediately to a customer order. The conditions necessary for JIT to work also have to be recognised. The firm must have reliable suppliers who are able to supply on demand with a short delivery time. Proximity is always good and accessibility is also important for a quick supply and delivery.

Conclusion

To summarize, the key aspects of lean production students should know that: Lean production is expensive, there are high start up costs and it cannot be applied to every business, most economies of scale advantages are lost and it can take a long time for the workforce to adapt to a such a change and some employees may reject the changes.