5.4 Location Flashcards
Characteristics of location decisions
- strategic in nature
- difficult to reverse
- taken at the highest levels of management and not delegated
Qualitative factors influencing location decisions
- safety
- room for expansion
- managers’ preferences
- labour supply
- ethical considerations
- environmental concerns
- infrastructure
Quantitative factors influencing location decisions
- site and other capital costs
- labour costs
- transport costs
- market potential
- government grants
Techniques used to assist in location decision
- profit estimates
- investment appraisal
- break-even analysis
Reorganizing production
If a business receives orders that it cannot easily fulfil because of lack of capacity it is common to contract another business to undertake some or all of the additional work.
Outsourcing
Using another business (a ‘third party’) to undertake a part of the production process rather than doing it within the business using the firm’s own employees.
Subcontracting
The practice of assigning to another business (the subcontractor) part of a contract.
Advantages of outsourcing and subcontracting
- allows the business to concentrate on core activities
- quality output despite the business lacking specific skills
- cuts production costs
Potential drawbacks of outsourcing and subcontracting
- loss of job within the business
- quality issues
- customer resistance
- security
Insourcing
The use of an organization’s own people and resources to accomplish a certain function or task which would otherwise have been outsourced.
Offshoring
Hiring of a subcontractor to do the work overseas, usually to lower costs and to take advantage of the vendor’s local expertise.
Types of offshoring
- production offshoring
- services offshoring
