8-1: Discuss the factors that affect supply chain design and facility location decisions.

Many factors that influence supply chain design and location decisions are environmental factors—that is, they are conditions over which a firm has no control. How a company designs its supply chain and where it locates its facilities will ultimately depend on environmental factors as well as on a firm’s particular competitive strategy, such as its desire to grow its business, decrease it costs, or relocate near key resources.

8-2: List and describe the phases in the supply chain design and location decision-making process.

Four decision-making phases are related to designing supply chains and locating facilities. In the first phase, the firm establishes the basic design of its supply chain, including the number of stages in the supply chain, the activities that will be performed at each stage, and whether these activities will be performed in-house or outsourced. During the second phase, the configuration of the chain’s regional facilities is determined. This phase begins with an analysis of expected demand by country, the volume of the demand, and the nature of customer requirements. During the third phase, managers determine potential sites within each region for setting up these facilities. Then, at this stage, the firm assesses the availability of the necessary infrastructure, including suppliers, transportation services, utilities, availability of skilled workers, and the community attitude toward the location of the industry facility. During the fourth phase, location choices are made.

8-3: Describe and compare the analytical methods managers use to evaluate locations.

Using the factor rating method, managers list the most important factors for the location decision and then rate each location based on each of those factors to arrive at a total score for it. The location with the highest score is then chosen. A breakeven analysis can be used to determine the location that has the lowest total cost for a given volume range of production. The center-of-gravity method is a quantitative technique used to determine the location of a single warehouse or distribution center to minimize distribution costs. A geographic information system (GIS) is a computerized system that can store, correlate, and display data collected from a physical environment or a geographical location. GISs include detailed census and demographic data, maps, utilities, physical features such as rivers and mountains, major airports, colleges, and hospitals in every city, county, zip code and block in the country.

8-4: Identify the effect of sustainability and ethics on the location decisions of firms and supply chains.

The increased focus on sustainability has led companies to reevaluate such supply chain decisions as where they locate their facilities and how they design their supply chains. The region and site selection for a facility is particularly important when it comes to sustainability. For example, is it in the right location to protect natural resources? Is it located in a way that helps minimize transportation activities to reduce carbon emissions? Does it meet all applicable environmental laws and regulations? Closely related to sustainability issues are ethical dilemmas that companies face when locating their facilities. Companies that relocate facilities and domestic jobs can face bad publicity and a loss of goodwill from consumers. Relocating facilities in countries with poor environmental and labor regulations are also becoming issues for consumers.

8-5: Identify the factors that can influence the choice of global locations.

Global location planning, however, is a complex task because companies have to evaluate many factors that can influence the choice of a global location. Some of these foreign location factors include (a) host country market size, (b) total costs, (c) infrastructure, (d) labor availability, (e) free trade zones, (f) political risk, and (g) governmental regulations. In addition to these factors, companies must also consider the host country’s economy, the quality and availability of transportation in that country, and protection of intellectual property. Given these many factors and the risks involved in locating in a foreign country, companies typically choose locations in collaboration with economic development groups to keep the operating and start-up costs low.

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