The Importance of Facility Location in Logistics and Supply Chain

Logistics and the supply chain involve many complex activities, which require optimal strategic decisions in order to operate efficiently and effectively. Logistics managers are under a great amount of stress as the industry is ever changing. Management needs to adjust and improve all activities being conducted. Facility location is a crucial element in the supply chain and has a great impact on the efficiency of numerous logistics activities. Facility locations involve numerous aspects, such as the location of manufacturing plants, assembly locations as well as distribution centres. The location of the facility plays an important role in the success of logistics networks.

The importance of facility location is gaining much attention in today’s day and age as companies are rapidly realizing the importance and advantages of a successful facility location as well as the disadvantages involved in the selection of an unsuccessful facility location. The main focus of logistics is to reduce costs, improve efficiency as well as customer service. Successful facility location decisions may lead to drastic cost reductions as well as an improvement in the customer service levels. An unsuccessful facility location decision may lead to inefficient operations and additional costs, which drastically affects the competency and effectiveness of the overall operation. Logistics managers are critically evaluating the performance of current facility locations.

Changing conditions in technology and growing competition in the business environment have forced organizations to invest in and focus on their logistics systems. Strategic decisions regarding the location of facilities such as plants, distribution centres and retailers have a strong impact on the profitability of supply chains. The first step in creating any supply chain is the geographic placement of production facilities, sourcing points, and stocking points. The location of facilities involves a commitment of resources to a long-term plan. The possible path by which the product flows through to the final customer is determined after the size, number, and location of facilities are determined. These decisions are of great significance to a firm since they represent the basic strategy for accessing customer markets, and will have a considerable impact on revenue, cost, and level of service

Well-planned location decisions enable efficient flow of materials through the distribution system, and lead to decreased costs and improved customer service.