OPERATION MANAGEMENT

Q1) What are various decision criteria for deciding a location for a business setup? Explain these
decision criteria with reference to a location decision for setting up a Healthcare setup (assume a
healthcare setup type of your choice).

ANSWER:-

From the previous discussion, it is clear that there are several factors that affect the location
decision. Therefore, a location planning exercise requires three steps:

1. Identify the set of factors that could influence the location decision.

2. Establish the relative importance of these measures for the location decision

. 3. Develop a methodology to assess the impact of these factors

In order to study the factors that affect a location decision in an organization, it is useful to
categorize them and understand how each of these are relevant to the location problem that shows
a four-part classifi cation of the various factors that affect the location decision

MARKET RELATED ISSUES

The first set of factors in comprise market-related issues. The existence of a market for the firm’s
products and services significantly influences the location decision. In general, it is very desirable to
locate the operating system close to either the market or the source of raw material and other
critical inputs for the system. Locating systems far away from these will often make the system
unviable due to large transportation and distribution costs arising out of bringing the product to the
market where it is ultimately consumed. Availability of raw material and other inputs also
significantly affect the overall cost of the system, and hence the profitability. In India, successive
governments have been trying to woo investors to backward and underdeveloped regions by
providing tax rebates and other sops. In spite of that, firms have not been attracted to these places.
This is due to the market-related issues of location planning and the absence of infrastructure
facilities. The importance of market-related issues is much more in the case of a service organization.
The other related issue is the size of the market. A large market provides several advantages to an
organization. It has higher demand for products and services. It also assures ample supply of key
human resources for the operating system. Large markets are very attractive locations, as we
currently see in the case of countries such as China and India. Furthermore, the nature of
competition also determines the suitability of a location. If a market is already saturated and there
are already several established firms competing for the market share, it requires considerable effort
to successfully establish operations in such a market.

COST RELATED ISSUES

Cost-related issues capture the desirability or otherwise of competing locations on the basis of the
cost of operating the system in alternative locations. Typically, logistics and distribution costs are
often considered for the analysis simply because these costs are direct, tangible, and easy to
measure and analyse. However, depending on the availability of data and sophistication of the
analysis, other costs, such as wages or input factor costs and tax and other tariff benefi ts could also
be included. Our earlier discussion on the hesitation of fi rms to locate their operating systems in far-
off and underdeveloped regions could be easily justifi ed by taking a cost-oriented approach to
location planning

Regulatory and Policy Issues

So far, we have looked at factors that apply to a limited geographical reach (such as a country).
However, when we analyse the feasibility of locations cutting across countries, other factors enter
into the analysis. First among them is the regulatory and policy climate of local governments. The
quality of the legal and judicial institutions in that area is one major element in decision making. For
example, countries that offer very little or no protection for intellectual property will be least
attractive for fi rms. In such a setting, the imitation of original research and interesting ideas will be
rampant and a vibrant grey market will thrive. On the other hand, good-quality governance,
availability of free markets, public finances, robust financial institutions and free access to markets
will increase the attractiveness of the location.

Other Issues Finally

other issues that influence a location decision include cultural, linguistic, and climatic aspects, along
with the overall quality of life. These factors provide a certain assurance to firms that operating
systems can work without much difficulty, as the key input for the system, in the form of human
resources, will be readily available