Are you wondering how to keep your supply chain running smoothly, even during unexpected disruptions? One critical strategy is choosing the right facility locations.
Where you place warehouses, factories, and distribution hubs can make all the difference in how quickly and efficiently your supply chain responds to challenges.
According to a McKinsey report, only 2% of companies have visibility into risks beyond their immediate suppliers – where most disruptions actually begin.
By placing facilities closer to key markets or using multiple warehouses, companies can cut delivery times and reduce transportation costs. Let’s see how it can be achieved.
What is Strategic Facility Location?
Strategic facility location involves selecting the most effective sites for key facilities, such as warehouses, production plants, or distribution centers.
The goal is to align the locations with the company’s broader operational strategy, ensuring the supply chain functions efficiently and cost-effectively. It’s not just about choosing places based on proximity or convenience – it’s a deliberate, data-driven approach designed to enhance resilience and support business growth.
The right facility location can offer a competitive edge. For instance:
- Adaptability: Businesses with well-placed facilities can quickly shift operations if disruptions occur elsewhere.
- Customer satisfaction: Faster deliveries and fewer delays improve the overall customer experience, building brand loyalty.
How Facility Location Maximizes Supply Chain Resilience
Strategic facility location strengthens supply chain resilience by enabling businesses to anticipate and adapt to disruptions.
Here’s how strategic facility location enhances resilience:
1. Alternative Routes and Backup Capacity
Strategically placing multiple facilities across regions ensures operations can continue even if one location faces disruptions. This distributed setup allows companies to quickly switch to unaffected facilities, maintaining product flow.
Examples of Disruptions and Solutions:
- Transportation strike: Use alternative warehouses in unaffected areas to reroute shipments.
- Natural disaster: Shift production or distribution to backup facilities in different locations.
2. Reduced Dependency on Single Sources
Locating facilities near multiple suppliers ensures companies are not overly reliant on a single source. If one supplier faces disruptions, such as a shutdown or raw material shortage, businesses can shift orders to another supplier nearby.
According to Deliotte, 57% of manufacturers in China are now considering ““supplier + 1” strategy to not have to rely on a single supplier.
Key benefits of supplier diversification include:
- Continuity: Operations can continue without delays.
- Risk Mitigation: Lowers the impact of supplier-side disruptions.
- Increased flexibility: Easily adjust sourcing as needed.
3. Optimized Nearshoring and Regional Distribution
Nearshoring involves positioning facilities closer to key markets or suppliers, reducing risks associated with cross-border delays or geopolitical issues.
Key Benefits of Nearshoring:
- Faster deliveries: Close proximity to customers speeds up order fulfillment.
- Reduced geopolitical risks: Less exposure to international trade disruptions.
- Lower transportation costs: Shorter shipping distances minimize logistics expenses.
4. Improved Agility with Multiple Facilities
Having a network of facilities spread across various locations increases agility, enabling companies to respond faster to sudden market changes or operational challenges.
Agility in Action:
- Shift operations during disruptions: Reroute operations from affected areas.
- Adapt to changing demand: Quickly adjust inventory and production to match regional market needs.
- Maintain service levels: Ensure customers receive products without delays, even in emergencies.
- Safety Stock optimization: To keep the balance between inventory levels and service levels.
Benefits of Strategic Facility Location
Here are some benefits that businesses get by strategically placing their warehouses:
1. Faster Response to Customer Needs
Facilities located closer to customers ensure quicker deliveries, which is essential for industries with time-sensitive products. This not only boosts customer satisfaction but also builds loyalty by reducing delivery lead times.
- Improved customer satisfaction: Faster deliveries enhance the shopping experience.
- Competitive advantage: Quick order fulfillment keeps businesses ahead in fast-paced markets.
2. Reduced Transportation Costs
Strategically placed facilities near suppliers, production hubs, or customers help reduce transportation expenses. This setup minimizes fuel consumption and shipping costs, streamlining logistics operations.
- Lower fuel consumption: Shorter delivery routes save fuel.
- Avoid delays: Facilities along transportation networks ensure smoother shipping operations.
| Location Strategy | Impact on Transportation |
| Near Suppliers | Cuts inbound transportation costs. |
| Near Customers | Reduces last-mile delivery expenses. |
| Along Key Routes | Avoids bottlenecks and delays. |
3. Risk Diversification
Distributing operations across multiple locations reduces the risks of disruptions caused by strikes, natural disasters, or geopolitical conflicts. Companies can maintain operations by shifting activities to unaffected regions.
- Business continuity: Minimize operational downtime during disruptions.
- Mitigated risk: Avoid over-reliance on a single location or supplier.
4. Optimized Inventory Management
Facilities positioned close to demand centers allow companies to better manage inventory levels, balancing stock availability with operational costs. This minimizes storage expenses and ensures timely replenishments.
- Reduced storage costs: Avoid keeping excess stock at warehouses.
- Faster replenishment cycles: Ensure products are available when needed.
5. Support for Business Growth
Well-located facilities enable businesses to expand efficiently into new markets. With optimized logistics, companies can scale operations as demand increases without incurring significant additional costs.
- Easy market expansion: Reach new regions with minimal logistical expenses.
- Scalable operations: Grow business without sacrificing efficiency.
Quick Link: Sales and Operations Planning – Ways to Empower it with Optimization (S&OP+Optimization)
Which Factors Come Into Play While Selecting a Location?
Choosing the right location for a facility involves analyzing various factors that align with the company’s operational needs, cost structure, and strategic goals. Here are the key factors to consider:
| Factor | Description |
| Proximity to Markets and Customers | Reduces delivery times and enhances customer satisfaction, especially for time-sensitive products. |
| Access to Suppliers and Raw Materials | Ensures smooth production by minimizing supply delays and lowering transportation costs. |
| Transportation Infrastructure | Reliable access to ports, highways, and airports helps in streamlining logistics and avoiding delays. |
| Labor Availability and Costs | A skilled workforce boosts efficiency, while balanced labor costs maintain profitability. |
| Government Policies and Incentives | Tax incentives or subsidies offered by governments can reduce operational costs. |
| Real Estate and Utility Costs | Affordable land, rent, and utilities play a key role in minimizing long-term costs. |
| Risk of Natural Disasters and Political Stability | Selecting regions with low risks ensures continuity and minimizes disruptions. |
| Environmental and Sustainability Considerations | Access to renewable energy sources supports eco-friendly operations and sustainability goals. |
| Proximity to Competitors and Partners | Being close to competitors or partners can bring innovation and collaboration. |
Struggling with Inefficient Facility Locations? Try Sophus X
Is your supply chain facing delays and high costs because of outdated facility locations? Many businesses deal with this issue, but it doesn’t have to stay that way.
In our Site Selection service, we take a close look at your supply chain, checking shipping volumes, customer needs, and future demand. Whether it’s opening, closing, or combining locations, we’ll help you find the best setup for smoother operations.
Our services include:
- Evaluating your current facilities.
- Recommending the best places for new or existing sites.
- Optimizing routes and sourcing to save costs.
Get better results today. Contact us for a free demo or explore how we can make your operations more efficient and cost-effective!
