Location factors

16 05 2011

Location factors are the sum of all factors that an enterprise considers when choosing a location, for setting up a new plant, office, warehouse or distribution centre.

Thereby the location factors are decisive responsible for the attractiveness of potential or actually used sites for companies and influence them in their choice of location.

The location factors could be divided into two groups. On the one hand the hard location factors and on the other hand the soft location factors.

Hard location factors are quantifiable and can be involved directly in the balance sheet of a company. They can be used to measure profitability. In some cases the hard location factors are prerequisite for the establishment of a company. For example, the proximity to a sufficiently source of water as a coolant supplier is necessary for a power plant.

Among others the following are hard factors which have to be considered by the decision for a location:

  • Infrastructure
  • Subsidies
  • Taxes
  • Access to resources
  • Lease Costs
  • Labor Costs
  • Customs duties
  • Buying power
  • Market transparency
  • Competitors
  • Market entry barriers
  • Climate etc.

One the other hand soft location cannot be integrated into the accounting of a company, but they are becoming more and more important for choosing a location. Soft factors are among others the following for instance:

  • Research and development partners
  • Political situation
  • Economic climate
  • Residential environment
  • Quality of environment
  • Medical care
  • Education
  • Leisure time facilities etc.

Coming closer to the optimum locations for warehouses there are two main questions to be considered. Firstly how many distribution centers do the company need to serve their customers and how could they minimize the costs of warehousing by finding the optimum location. Therefore have a look on the following video, which handles this problem and analysis the following five cost impacts:

  • Cost of storage
  • Innventory holding cost
  • Linehaul cost
  • Customer delivery costs
  • System cost

As you see the challenge is to find the optimum number of facilities which minimize the total cost curve and still maintains the customer service.

Furthermore some distribution centers or storages have some special requirements to the location. Especially handling hazardous materials needs special locations. For example nuclear waste handling and storage have high requirements to the storage location but also to the transportation and the whole logistics process as you see in the video below:

Sources:

http://www.handelswissen.de/data/themen/Marktpositionierung/Standort/Standortfaktoren/index.php

http://wirtschaftslexikon.gabler.de/Archiv/5808/standortfaktoren-v6.html

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