Operations Management - Location

Revision notes on operations management - location. Suitable for A2 Business Studies.

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  • Created on: 25-03-08 16:29
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Operations Management ­ Text Book
One of the first issues facing a new business will be where to locate it operations. This
can involve high levels of investment and have a major impact on competitiveness. These
decisions may involve several different elements; first which country, then which region
and finally which specific plot of land. The decision on where to locate will affect a
firms costs (e.g. in terms of its overheads and ongoing running costs); it will also have an
impact on its access to markets and the quality of the product, which will affect its
The Decision on Where to Locate
The decision on where to locate will be a combination of quantitative and qualitative
factors. This means it is a combination of factors which can be measured such as the
expected impact on costs and revenues (these are quantitative) as well as other factors,
which are less easy to quantify, such as the beauty of the surroundings and the quality
of life within the area.
Factors affecting a firm's location may include the following;
The Costs of a Particular Location Relative to Other Options.
For example the cost of land itself will vary from area to area; so will the cost of
labour and services such as electricity. Taxation rates can also vary significantly
from country to country. The decision to locate can therefore have a significant
impact on a firms profit.
The Availability of Government Grants and Incentives.
If, for example, a government offers low rents or lower taxes to attract firms
this can obviously act as an incentive to locate there. Governments often use a
push-and-pull technique to get firms to locate in particular regions. Incentives
such as grants help to pull firms to an area; refusing permission to build in other
areas push firms to locate where the government wants them to be.
The Infrastructure of the Region.
The availability of energy sources and transport facilities will affect the ease,
speed and cost of production. The importance of such factors will vary between
industries, e.g. transport facilities are crucial to a wholesaler but less significant
to an online insurance business.
The Nature of the Business Itself.
The extent to which a firm has freedom over the location decision depends in
part on what it actually does. A self-employed website designer for example can
work from home. A fact food restaurant needs to be located somewhere near its
customers etc.
The Location of the Market
In some cases such as retailing, it will often be important to be close to the
market. A central high street location is more likely to attract business than a
site located miles away from the main shopping areas. In other industries such as
telephone banking it is not so important to be close to the customer.
Market Access.
The location of a firm may affect its ability to trade in particular markets. Firms
outside of the EU for example must pay a tax (a tariff) to sell their goods within
the EU, where as firms located within the EU do not have to pay this tax.
Exchange Rates
In recent years the UK has a very strong pound; this made it expensive for the
UK-based producers to export. On the other hand it meant UK firms had a strong
purchasing power overseas, which led to some firms relocating.

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Political Stability.
The political climate can have an impact on the appeal of certain areas.
A firm may locate in a particular area because of the resources it offers.…read more

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In reality the
decision may not be that straightforward ­ e.g. one option may have a quicker
payback but a lower average rate of return.
Qualitative Factors
Although firms are likely to examine the potential impact on revenues and costs of
selecting a particular site the decision may also be affected by less measurable factors
such as whether the location itself appeals to the managers and the quality of life in the
area.…read more

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There are costs of notifying customers and suppliers and administrative costs
such as changing the firm's literature to include the new address.
A new location may also be part of an expansion process: a firm could be building new
production facilities or opening a new outlet, for example. The acquisition of new
premises inevitably brings with it issues of management structure and control.…read more

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­ they may prefer to move to a location where they
are familiar with the culture or language, fore example. Second they must consider the
possible impact on quality. A cheaper location may not have the same access to
high-quality resources. Third a firm's location may impact on its revenue; a high street
location may be an expensive option for a retailer but attract far more customers and
so prove more profitable.…read more

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Operations Management ­ Class Notes
Location decisions
Circumstances When Location Decisions have to be made
A New business
Existing businesses may wish to expand
A cost cutting motive
New market developments e.g.…read more

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Why Become Multinational?
Benefit from lower costs overseas
Less regulation e.g. fewer health and safety laws
A greater pool of labour (cheaper & more flexible)
Benefit from market opportunities overseas
Close to overseas customers ­ cheaper transport costs
Overcome protectionist trade barriers e.g. very difficult to trade in China unless
you're set up there or have a partnership with a local firm.
Weaken trade union power ­ if issues in one country halt production, production
is still going on abroad.…read more


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