Page 175 - Operations Strategy

150 CHAPTER 4 • CAPACiTy sTRATEgy
of ocean transportation as well as the chance that supply chains could be disrupted
by environmental disasters or geopolitical events. Also, goods can spend weeks in
transit, slowing down the whole supply chain and reducing the chance of respond-
ing flexibly to changing market demand. Innovation is also an issue. Although the
technological support available in China and India is increasingly sophisticated,
some firms are discovering that innovation is smoother when manufacturing is in
the same place as research. Of course, firms could move their research out to the
‘offshored’ location, but that may increase the risk of intellectual property ‘leakage’
to suppliers.
Perhaps more fundamentally, offshoring was often predicated on the idea that
the ‘non-core’ activities that were offshored were not vital to a firm’s success – an
assumption that is being re-evaluated. Surely, it is increasingly argued, activities such
as developing new IT applications and providing high-quality customer care are in fact
a ‘core’ part of any business. Certainly, customer frustration at dealing with Indian
contact centres, whether justified or not, is contributing to the return of customer
interaction jobs.

The nature of location decisions
Although all location decisions will involve some, or all, of the market requirement and
operations resource factors outlined above, the nature of the decision itself can vary
significantly. Locating new fast-food restaurant franchises is a very different type of
decision from locating a new electronics factory, for example. The differences between
these two location decisions (or indeed any other location decisions) can be character-
ised on two dimensions: the objectives of the location decision and the number of loca-
tion options available. In many high-contact operations, such as fast-food restaurants,
retail shops and hotels, both costs and revenue are spatially variable. In other words,
both the market and resource sides of the reconciliation process are significant. So, for
example, locating a fast-food restaurant in an out-of-the-way location may allow it to
operate with very low costs but its ability to attract customers (and therefore revenue)
will be, likewise, very low. A more attractive location will undoubtedly be more expen-
sive but would also attract higher custom. Most low-contact operations have revenues
that are relatively invariant to location. Costs, however, will vary with location. Thus,
location is largely one of cost minimisation, this being an approximation for profit
maximisation
The other major dimension of the location decision is concerned with the num-
ber of options between which a choice will be made. The electronics manufacturer
may first decide on a relatively large geographic region, such as ‘Hungary’. Once that
broad decision is made, the number of possible sites is very large indeed – in fact, for
all practical purposes, infinite. The decision process involves narrowing the num-
ber of options down to a smaller representative number that can be systematically
evaluated against a common set of criteria. Many high-contact operations, however,
are not located in this way. More likely, a company will first of all decide on a rela-
tively limited area. For example, ‘We wish to locate one of our franchises in Budapest.’
Once this decision is made the search begins for a suitable site. The choice then is
between any site that may be immediately available or, alternatively, waiting until a
more attractive site becomes available. Each decision is, in effect, a yes/no decision
of accepting a site or, alternatively, deferring a decision in the hope that a better one
will become available.

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