Importance of Location Planning

The problem that affects all organizations is the following: if they work in the wrong location,
their performance is poor, but moving can be very difficult. The only solution, of course, is to
choose the best location in the first place.
The right location will not guarantee success, but the wrong location will certainly guarantee
failure. This is why you do not find night clubs in residential areas where a lot of people are
retired; big patrol stations on country lanes where they cannot attract passing customers, factories
in city centres where their costs are too high, or oil refineries far away from ports as their
transport would cost too much.
Location decisions are invariably difficult. Families often have problems finding somewhere to
live that satisfies all their needs, but this is trivial compared with a decision about where to open
a new logistics centre, hospital, university, amusement park, airport, factory or any other major
facility. Because the decisions are difficult, you can see many examples of organisations that
locate in the wrong place and go out of business. Some organisations forget that location
decisions are for the long term and are tempted by short-term benefits, such as development
grants, temporary rent reductions or tax breaks. Such sweeteners can be attractive, but they rarely
form the basis of good decisions.
Frequent mistakes:
● Unprepared site selection team
Successful companies are able to bring multi-disciplinary teams together to enable and
implement an effective location strategy. They have found that to limit risk and avoid surprises,
it is critical to address certain technical, analytical, and financial elements early in the site
selection study. An effective team will possess core competencies in the areas of human
resources, cost accounting, logistics, tax, engineering, construction, and in some cases,
environmental issues. Neglecting to assemble the right mix of stakeholders and experts early in
the process increases the risks of project delays and poor location selection.
● Incorrect search area
Manufacturing site selection usually begins with a general region of interest due to transportation
issues, human capital needs, or other market dynamics. Problems will arise and valuable time
will be lost if this geography is not carefully validated with the new facility’s overall operating
objectives and criteria.
● Narrowing the search area too rapidly
After the search area is determined, companies are often tempted to quickly eliminate large
chunks of geography to accelerate the process. Whole states or countries might be eliminated
that, with some analytical consideration, could have been favorable alternatives. This can be
avoided by correctly prioritizing the project’s critical location factors – those aspects of the
desired solution that can be quantified and measured. These can include transportation,
demographic, labor, tax, and in some cases, utility infrastructure requirements. With an agreed-
upon methodology for elimination, the critical location factors should be used to reduce the areas
of consideration thoughtfully and objectively. If areas exhibit borderline characteristics, it is
generally wise to retain them, not eliminate them, for the next round of analysis.
 ● Failure to consider all the issues
No two location searches are identical: each has its own unique set of critical location factors,
specifications, needs, timing and risks. A common error during the site selection process is to
consider only easily quantified aspects such as labor costs, real estate, or taxes. In reality, each
location will present a host of variable tradeoffs, opportunities, strengths, and weaknesses. Some
will be financial (cost-based) while others will be qualitative (risk-oriented). Knowing which
issues will most contribute to the project’s ultimate success and evaluating them completely in
each candidate area is critical to uncovering the best location solution.
● Incomplete labor market analysis
Unemployment and average hourly earnings statistics, the “usual suspects” in any labor study,
are only general indicators of workforce availability and cost. However, the market for
employees in any area is affected by dozens of other factors that should be quantified and
interpreted during the site selection process. These include population demographics, union
characteristics, turnover, absenteeism, recent plant openings and closing, and others. Labor
market studies are often complex, and very detail-oriented exercises that address two objectives:
to limit the location risks inherent with human capital, and to provide a solid basis for human
resources strategy and implementation once the final selection is made.
● Failure to consider community trends
No location exists in a vacuum; towns, counties, states, and regions are in a dynamic state of
evolution that affects most aspects of business operations. Labor and real estate markets, utility
services, political factors, community image, and demographic characteristics can and do change
from year to year. Evaluation of statistics is important, but datasets do not capture the dynamics
and context behind the numbers. Making the right long-term location decision is generally more
difficult than understanding today’s costs and conditions.
● Poor or absent technical site review
When considering candidate sites for a new manufacturing operation, it is critical to conduct a
technical site study of several of the finalists to limit construction risk and quantify hidden
development costs. Every year, projects experience unforeseen circumstances such as adverse
geo-technical conditions, floodplain issues, and various permitting hurdles that could have been
avoided. It is crucial to understand and measure environmental risk, timing, obstacles to
development, and geographically variable construction costs. At a minimum, obtain available
environmental studies, soil borings, zoning regulations, development codes and covenants,
wetlands studies, floodplain information, and utility maps for each site under consideration.
● Breach of confidentiality
Why is project confidentiality important during the site selection process? It protects owners
from unwanted attention and distractions, both external and internal, that can influence the
outcome of the study. Management may be sensitive to premature, out-of-context leaks that can
reach competitors, land speculators, and employees. This means that the site selection team must
take precautions to not reveal the corporate identity or nature of the business to third parties who
may not have the firm’s best interests in mind. When the location analysis is complete, a
carefully planned and executed announcement strategy will help ensure that the project is
properly communicated and accepted from political, financial, and human resources
perspectives.

Summary
Successful manufacturers have discovered that using location as a competitive advantage can
enable the facility network to yield additional financial gains. However, the analytical process of
site selection should not be completed just by a few statistics, an available bargain property for
rent, or hastily accepted incentives.
Leading a corporate site selection requires a unique set of capabilities. A site selection team must
have the ability to logically analyze numerous factors, a savvy (common sense) to negotiate and
build consensus with management of a company, and the judgment to remain unbiased
throughout the process. As the complexity of location strategy increases, knowledge of logistics,
human resources, real estate, tax, financing, infrastructure, construction, and environmental
considerations has become more important. If, while armed with these competencies, the site
selection team is able to avoid the mistakes, they will be better able to deliver a location outcome
that can position the manufacturer for many years of success.

Sources:
1. D. Waters, Operations Strategy, Thomson Learning, London, UK, 2006
2. http://www2.deloitte.com/content/dam/Deloitte/us/Documents/process-and-
operations/us-cons-siteselection-12-mistakes-120110.pdf