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When location is everything

Wim Pijpers is a partner and Paul Volleman is a senior consultant at Buck Consultants International.

The EU describes itself as a family of democratic European countries, committed to working together for peace and prosperity. The bloc can also be seen as a land of opportunity, particularly after its recent 10-member expansion

It could be argued that competition is now driven mainly by costs with large organisations constantly reviewing their network of operations. But for a CEO keen to expand internationally or consolidate operations, questions abound. Where? How? Should we move to a low-cost location like our competitors? Should we fully outsource our manufacturing or customer care activities and focus on product development? Which emerging markets do we enter? Does this fit our business model?
 
These are strategic questions which all have implications for the future of a business. Another question could be, how do you proceed before deciding on a greenfield project? 'Scenario development' is one answer. This is a powerful tool for assessing, in a wider perspective, other options such as expansion, consolidation or outsourcing.

Location, location, location
The location of a new facility can have an impact on both operations and a company's tolerance for risk, so before undertaking a site selection process it is critical that the investment project is linked to long-term business objectives and a firm's real estate strategy. Choosing the wrong location can be an expensive mistake.

Sound location searches typically involve six stages. Globally, the process is the same and moves from a long list of regions through to a short list of potential final choices.

Site selection projects inevitably involve in-depth assessment of two key factors: costs and quality. Weighing up costs means considering many factors including labour, transportation, occupancy, local incentives and taxes. Measuring quality means an assessment of the local labour force, its availability, flexibility and multilingual capabilities, for example. The assessment also involves an investigation of the supplier base, the local business climate, infrastructure and quality of life.

Each type of investment project has its own specific set of location requirements. The needs of a customer contact centre will be different from a software development centre. That said, the ideal location for a European logistics centre is not likely to be the same as that of a European shared services centre. Even within a group of medical technology plants there are important differences in requirements such as delivery times, supplier base, job profiles and required permits.

The identification and weighting of the individual factors can be identified in interactive sessions of the project team. The result of these exercises (see graph, above) shows that Location E is the cheapest to operate this customer contact centre for the next five years, while Location A has the highest quality score. Location B is a good mix of moderate cost and high quality.

Weighting allows for 'what-if' scenarios. For example, what if total labour costs are actually increasing by 10% a year and not 5% as assumed? What happens if your organisation fails to qualify for investment subsidies? There are other scenarios. What if your organisation acquires another, and consequently requires more agents? What shared service activities could be added to the centre?

When all locations have been assessed and a shortlist of sites or buildings has been drawn up, a third dimension – site feasibility – comes into play. These practical issues can give rise to further considerations:

- Will there be difficulty recruiting key personnel?
- What are the time requirements to train new personnel?
- Will there be delays to securing building permits?
- Can the buildings easily be converted to our specifications?
- Can a flexible rental period be negotiated?
- What is our exit strategy?

Multiple site versus single site
Finding a suitable location is no longer just about finding a greenfield site for a specific activity. Projects today can comprise elements of consolidation, expansion and the integration of new or merged business units. A greenfield operation is only one option. This means that a company, as part of its overall reorganisation, consolidation and ex­pansion effort, must identify different scenarios and assess them from a financial, quality and strategic point of view.

If an industrial company is keen to slash operational costs without compromising on customer service levels, then it must review its global location pattern of manufacturing plants. Various options emerge. The first is that the organisation manufactures its products at a location close to the company's key markets and customers. A second option would be for production to be located in 'lowest-cost' locations. The third option is an 'intermediate' solution where, for example, production of high-tech components is carried out close to important markets, while low-cost, high-volume component production is shifted to a low-cost location. Lastly, a mix of production strategies could be undertaken with a varying degree of outsourcing levels.

In any case, an in-depth assessment of the scenarios is the only way to define the best long-term strategy. The same holds true for companies that review their international logistics activities with a view to optimising their supply chain. Running through scenarios is the only way to clarify all available options to stakeholders.

Distinctions can be made between slow-moving and fast-moving products, and between spare parts and end-products – even between various product families. Companies must weigh-up their options of having their own facilities or using a third party provider to streamline processes.

European and regional solutions
In the customer service arena, in addition to single-site pan-European models (one central call centre covering all of Europe), multi-site, hub-and-spoke models and hybrid configurations are being developed.

The decentralised, non-coordinated model is a regional network solution where every region, cluster of countries or language group has its own service centre. The centralised contact centre serves the whole region and service is provided from a single office to maximise economies of scale and ensure consistency in service.

A co-ordinated or regional structure means regional, language-based centres are supported by one Europe-wide IT support platform. The hub-and-spoke (distributed) model, means distinctions are made between the functions performed in one centre – a central distribution centre – and the spoke centres (regional distribution or language-based call centres).

Naturally, the choice between the four depends on the tasks to be performed, what a client requires, economies of scale, existing operations, service-level requirements amongst other factors. But in the past few years organisations have drifted towards regional, network-based set-ups.

Making choices is seldom straightforward. Matters can become complicated when locations under consideration are at existing sites of a competing organisation or involve, for example, the incorporation of a customer service operation at a manufacturing plant, logistics centre or new location.

In some markets a company may even opt to use a specialised third party call centre provider. This complicates matters and can require compromise. It is not uncommon to consider as many as 10 scenarios.

Globalisation demands mobility
Given the increasing sophistication of the business landscape, it stands to reason that site selection will become an increasingly complicated undertaking, particularly for a business with an international outlook and aggressive, long-term growth strategy. Globalised economies mean successful business projects must have a strong aspect of mobility and today it is not un­common for organisations to measure the markets as disparate as the Philippines or South Africa against the UK for a single project. Consequently, strategic and tactical planning is more essential than ever.

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