Page 171 - Operations Strategy

146 CHAPTER 4 • CAPACiTy sTRATEgy
inconvenient for its customers. Not only would those visiting the hospital need
to travel long distances, but those being attended to in an emergency would have
to wait longer than necessary to be brought in for admission. Because of this, hos-
pitals are located close to centres of demand. Similarly, with other public services
location has a significant effect on the ability of an operation to serve its customers
effectively. Likewise, other high-customer-contact operations, such as restaurants,
stores, banks and so on, have revenues that are directly affected by how easily cus-
tomers can access the service. Also, speed and dependability issues are becoming
more important in many parts of the manufacturing industry. Locating close to cus-
tomers can be a competitive advantage, or even a prerequisite for some customers.
It is increasingly common for large manufacturers to demand that their suppliers
build local plants, so as to ensure regular, fast and dependable supply. These may
even be physically adjoining, so that a supplier is able to deliver products through
a ‘hole in the wall’ to its customers.

Land and facilities investment
If the operation is considering purchasing the land for its site, this may be an important
factor. If the operation is leasing the land then it is usually regarded as a supply-side
cost factor. Certainly both land and rental costs vary between countries and cities.
Companies sometimes locate where they already have available land, or even unused
buildings, in order to avoid the investment costs.
In some location decisions, investment in the infrastructure needed to support the
main operations facility can be as significant, if not more so, than the investment in
the operation itself. At a simple level, infrastructural investment may include such
things as building access roads, improving waste disposal, or building power genera-
tion support.
At a more extensive level, a company located in an under-developed part of the world
may need to invest in road, or even rail, links. It may even be necessary to invest signifi-
cantly in the local supply industry, either providing sites for suppliers or encouraging
such things as producer cooperatives. Indeed, part of the deal that may be struck with
the local government of the site may include a commitment to develop infrastructures.

example Counting clusters 8
Similar companies with similar needs often cluster together in the same geographical area.
Why? For a number of reasons. Michael Porter of Harvard Business School, the famous strategy
professor and an authority on industrial clusters, says that firms’ geographical proximity helps
to promote economies of scale, learning and productivity, as well as boosting innovation and
encouraging the growth of new supplier firms. This is a winning combination, according to
Professor Porter, and accounts for the existence of such clusters around the world. Here are just
a few examples.
Financial services are clustered in a relatively few centres globally. Even after the turbu-
lence of recent years, London, New York, Hong Kong, Singapore, Tokyo, Chicago and Zurich
dominate the industry. According to Deutsche Bank, ‘Big is beautiful – and will remain so.’ It
is far easier to build on existing market strength than start afresh. Banks have to trade with

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