Location and scale

• An optimal location is a location that offers the best combination of quantitative and qualitative factors.
• There are three key characteristics of choosing a location, they include:

  1. They are strategic: the location chosen will be for a long time and it will have an impact on the whole business.
  2. Difficult to reverse: if the wrong location is chosen, it will be hard to reverse due to the high cost of changing locations.
  3. Taken at the highest levels of management: choosing a suitable location for the business is not a small task, so, it is taken by senior managers and directors. It is never delegated to subordinates.
• For a site to be considered the best, it must maximise profits for the business in the long term. Realistically, it is very hard for a business to choose a good location because there are many different factors to consider.
• Selecting the best site for a business should be a compromise between conflicting benefits and drawbacks.
• An optimal location is likely to be a compromise that balances the following:

  • High rent charges with potential high sales and customer engagement.
  • Low rent charges with a lack of suitable workforce supply.
  • Quantitative and qualitative factors.
  • The opportunities for government grants with the risk of lack of sales because of the low average incomes in these areas.
• Quantitative factors: Issues a business should consider that can be measured in financial or numerical terms.
• Qualitative factors: Issues a business should consider that can not be measured in financial or numerical terms.
• Offshoring: The location of one business process from one country to another
• Re-shoring: This refers to moving the business process from one country back to its original country.
• Scale of operations: This refers to the maximum output that can achieved by a business with it the resources it has (inputs).
• Quantitative factors that determine location and relocation decisions include:

  • The site and other fixed costs like buildings.
  • Labor costs.
  • Transport costs.
  • Potential revenue.
  • Government grants.
• A greenfield lot is one that has not been built on before.
• The following techniques can be used to assist location decision-making:

  • Profit estimates.
  • Investment appraisal.
  • Break-even analysis.
• Profit estimates:

  This involves comparing the potential revenues and costs of each potential location. The location with the highest annual potential profit can be selected.

  Limitation: Annual profit forecasts alone are of limited use. They need to be compared with the capital cost of buying and developing the site
• Investment appraisal:

  Location decisions require a lot of capital investment. This technique can be used to identify the locations with the highest investment returns over several years.

  Limitation: This method requires estimates and calculations spanning over several years for each potential location which can be very time-consuming.
• Break-even analysis:

  This can be used to calculate the forecast break-even point of two or more possible locations. The lower this break-even point is the less risk of making a loss in this location. This technique is very significant to businesses that pay high rent charges.

  Limitation: This technique should be used with caution.
• Qualitative factors that determine location and relocation decisions:

  • Safety
  • Space for further expansion
  • Managers preferences
  • Ethical considerations
  • Infrastructure
• Reasons and impact of offshoring:

  • Reducing costs.
  • Qualified labor.
  • Accessing global markets.
  • Governments.
• The acronym RQAG stands for Reducing costs, Qualified labor, Access to Global markets, Governments.
• Reasons and impact of re-shoring:

  • Language barriers.
  • Culture.
  • Supply chain problems.
  • Reduction in quality.
• The acronym LSCR stands for Language barriers, Supply chain problems, Culture, Reduction in quality.