Customers Drive Location: An Investigation Into Logistics

¶ … Customers Drive Location: An Investigation into Logistics Planning Most people believe that a company's location strategy is internally driven, because the company itself chooses its location. However, this approach to location ignores the fact that companies choose locations with their customers in mind; businesses are located where the company believes it will find customers to frequent the business. Furthermore, businesses tend to be either located in close proximity to suppliers, or where they can have ready access to supplies.

This paper will look at a specific industry, beverage manufacturing, specifically The Coca Cola Company, and compare the location decisions of the manufacturing company, distributors, and retail locations. It is important for the company to have defined objectives that it can break into pieces that can be accomplished, rather than trying to run a global company from a single location; instead, the company must identify quantitative, measurable results (Hill, 2000).

It will examine how much influence the customer of each of these types of businesses has on the location decision, and how those locations affect the logistics at each level. Discussion The Coca Cola Company is a major global corporation. It is among the top three most widely recognized brands in the world and has either an established or a developing presence in literally every nation in the world.

While the company is very proud of its Atlanta roots, it would obviously be impractical to produce all of its products at its Atlanta facility. Shipping charges alone would make Coca Cola unaffordable outside of the United States and very expensive in many parts of the United States. Therefore, what The Coca Cola Company has had to consider is: "What is the most cost-effective and service effective way to provide service?" (Cohen et al., 2006).

Coca Cola's solution is to use both company-owned and independent bottling plants to produce the product in various locations, and then ship product to local distributors, who take product to the retailers. Proximity is important at every level of the process. In fact, "closeness to market is now of major importance to corporations as they consider where to locate their facilities" (Cranmer & Wegfahrt, 2006). Of course, proximity has different meanings for different levels of the distribution process.

"Proximity to major markets will have a different connotation depending on the function or facility type being located, as follows: Manufacturing facilities may interpret proximity to market as a close physical presence to the consumer, or close to another manufacturer producing finished goods for their just-in-time inventory delivery. Warehouse/distribution facilities may view proximity to market as meaning closeness to a certain shipping port for exporting/importing goods on a more direct basis.

Office facilities could interpret proximity to market as the same time zone for delivering service-oriented activities" (Cramner & Wegfarht, 2006). There are a number of reasons that proximity is so important when choosing facilities location, but the two major factors are time and money. Transporting products takes time and increases the likelihood of temporary local shortages if there are delays in the transportation process.

Perhaps even more important is that transportation is expensive, and as fuel prices continue to rise, transportation will only continue to get more expensive in the near future. However, one of the issues for Coca Cola's local bottling plants is that they have to focus on the cost of water at the bottling plant. Each bottle of Coca Cola actually takes about three times the water of the product it sells to manufacture the beverages, therefore water costs are high.

As a result, the bottling plants have to consider proximity to a supplier (source of water) and its local customers. In the United States, when water is both relatively cheap and readily transported to different locations for production, location is not as important as it is in other countries where water is not provided in the same manner. The distributors are generally going to locate near the bottling plants, some of which handle their own local distribution, and others that sell directly to distributors.

Beverage distributors need to consider their special role in the hierarchy of the customer supply chain. "A geographical hierarchy organizes stocking locations (nodes) by echelon to capture material and information flows associated with fulfilling demand in the service-supply chain. The inventory stocking policy for all parts and location combinations determines the availability of the service-supply chain to meet these demands. This deployment of resources and the rules and procedures for matching supply with demand drives the performance metrics for lead time and customer service (Cohen et al., 2006).

Once people are selling in the retail division, customers absolutely drive location strategy. Retailers, many of whom market a number of products in addition to Coca Cola, are located in places where people are likely to seek beverages. "Although a company's location criteria and business model change over time, it is really the customers who establish broad location strategy…Simply stated, the customer sets the.