Business Planning
Location and distribution are important factors that can enhance or hamper company’s performance. Thus, improperly located retail stores may decrease customer exposure, while inefficiencies in the distribution network may prevent the company from delivering products to their customers in time. Therefore, it is crucial to evaluate all the necessary business characteristics, in order to identify the best location and distribution for a particular company.
Physical location of the points-of-sale is one of the fundamental decisions that managers should make for their business. Despite retail stores are an important customer interface, they also represent a significant margin of the operating expenditures. Therefore, an alternative to creating home based stores is developing a virtual business, which has a number of advantages. Firstly, online business has low operating costs and does not require high initial infrastructure investments. Secondly, virtual stores do not need high stock level and a sophisticated distribution network, since all the products can be delivered from a centralized location. Thus, the company that pursues a virtual business reduces not only the cost of inventory, but also reduces the risk of incorrectly forecasting demand patterns. Lastly, online business tends to target a large consumer group without discriminating them based on their geographical location. High customer penetration can be achieved without significant expenditures on advertising and promotion. However, this kind of business possesses certain drawbacks. First of all, it is not optimal for products that people buy on impulse and do not want to wait for. Thus, food and clothes are usually purchased in stores rather than online. In addition to that, virtual business can only target a limited number of potential buyers, since people who are do not actively use internet are not exposed to marketing and advertising campaigns. Lastly, the decision about establishing an online business should be based on a thorough cost-benefit analysis, which would consider all the advantages and disadvantage of a virtual business compared to a home based one. Thus, if products are very cheap compared to the price of their deliver, if they are heavy or if the demand for them is based on impulse, it is more beneficial to establish home based business structures.
In order to make a business operational, it is necessary to analyse the most appropriate location and distribution strategies. Thus, the location of both points-of-sale (for home based businesses) and distribution centres should take into account the potential demand in the area, the proximity to suppliers/distributors and the presence of adequate infrastructure. Thus, the nearness of a railroad or an airport to the company site enables easier access for suppliers and customers as well as decreases the cost of transportation. The selected location should also provide access to human resources, who possess experience and qualifications required for this business. Selecting the most appropriate location should also take into consideration political factors. Thus, it is crucial to discuss with the local government the possibility of establishing a business in the area.
Moreover, for big companies that operate in more than just location the decision to place business and distribution should consider the possible synergies among units. Thus, close proximity can allow easier transfer of resources and tighter managerial control, which allow developing economies of scale and scope. In addition to that, synergies can be also sought by placing the business in the areas, which specialize in a particular activity. Such clusters often become a source of competitive advantage due to the sharing of common infrastructure, idea exchange and the development of knowledge and expertise required for the success of the business.
Location and distribution planning for a particular company requires a profound analysis of the business dynamics, market environment and customer preferences. Therefore, a well-planned location can give the company advantage over competitors and serve as a source for sustainable development and profitability.
References
Abrams, R., & Kleiner, E. (2003). The successful business plan, secrets & strategies.
(4th ed.). Palo Alto, CA: Planning Shop.
