7 Keys to Facility Location

Computer models can help you make the decision on where to locate your supply chain facility. But they can't make the decision for you. Ensuring that you make the right choice for your particular situation requires a deep understanding of the seven factors in effective facility location-land, labor, capital, sources, production, markets, and logistics.

A hundred-mile move in another direction, and millions of dollars saved. A location a few hundred yards off, and millions of dollars squandered.

The first example describes the recent experience of a fast-growing regional clothing retailer whose executive team fine-tuned the decision on where to locate a new distribution center. The second example refers to another company's siting of a new warehouse close to a rail line-but with no rail spur to the warehouse itself.

Site location matters. Indeed, it has become a more critical decision for supply chain leaders as supply chains have stretched, companies have expanded, and transportation costs have soared. Today, a poor location decision can have much greater and more immediate effects on operating efficiencies and cash flow.

Yet it is surprising how few of the executives responsible for the location of a new distribution center (DC) or production facility can explain the basic principles behind choosing the location. In fact, it is alarming that more and more business leaders are relying on the results of sophisticated computer analyses to make their location decisions without fully understanding the underlying logic-or its potential impact on their supply chains.

Having been involved in a number of facility location and facility network analysis projects over the last 30 years, I am impressed with the great strides made in network analysis computer models. From the rather primitive mainframe models of the 1970s, we have progressed to the sophisticated, zip code-based models of today that operate on notebook computers. But the speed and ready availability of computing power should be seen not as the solution to complex location puzzles. It should only ever be the means for solving those puzzles.

Just as in other operations activities, the computers should not be "making" facilities-location decisions. Executives should be looking to the location network analysis tools for more than a flat recommendation on where to build a new building. They should be demanding reports...