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Location of Optimal Facility:Stone Horse Supply

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Explain what factors should be taken into consideration when determining an optimal facility's location. Please read the following scenario.

SCENARIO:

In early 1975, brothers John and Michael Phillips founded the Stone Horse Supply Company. John and Michael, both horse riders and horse owners, had developed a horse feed to keep their own horses healthier and happier and found it in demand from other locals and neighbors. In response to that growing local demand, John and Michael converted their small home operation into a rented building in town and went forward with the business of manufacturing and selling specialized horse feeds.

Through the late 1980s and throughout the 1990s, the Rock Horse Food Supply Company enjoyed modest prosperity, providing niche products to the local area with their products selling in most of the nearby counties. However, in early 2006, the situation began to dramatically change. In early 2006, John and Michael were contacted by a representative of the largest chain of stores in the region. One of the officers of the large chain was a horse owner who had been buying the special horse feed for his horse. The officer felt that, because she enjoyed the product so much and knew that other local customers had used the product, perhaps the product could have success on a statewide, or even national, scale.

Since its onset, John and Michael had run their business on virtually a manual basis. Suppliers were mostly local with sourcing decisions based on the supplier's proximity. Forecasting and ordering from suppliers were completed through phone calls and faxes with new orders based on manual counts rather than any systematic process. Stone Horse Supply Company often found itself either with excess material or expediting material in from suppliers at the last minute to keep from missing a customer deadline. Likewise, Stone Horse Supply Company was in the same facility it had started in, a smaller facility that had an unusual layout that John and Michael had made minor modifications to through the years to adapt to problems encountered during those years.

While John and Michael were excited about the prospect of the company and its product becoming a mainstream product with vastly increased sales, they both knew that they were already struggling to meet current customer demand, and that the current methods used to run the company would be insufficient as it entered this next phase. More specifically, John and Michael were concerned about the company's ability to order and maintain the correct inventories to meet the new sales projections, or if many of its suppliers could meet the higher volumes. John and Michael also were concerned about how they would get the materials to Stone Horse Supply Company because they currently used a single company truck to pick up most of the local materials. Finally, John and Michael were deeply concerned about inventory levels and the cash required for maintaining those inventories, because they were already experiencing excess cost and issues in this area.

Having decided to move forward, John and Michael's company faced many questions in regard to the new sales opportunity. Both John and Michael knew that while the technology they had to offer was superior to any other product of that type currently on the market, they also knew their company needed help in developing a supply chain strategy to ensure that this fantastic new sales opportunity did not overwhelm the company and end in failure.

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Solution Preview

Here you go - I hope this helps. Good luck!

John and Michael Phillips need to consider many factors as they expand Stone Horse Supply Company, including determining an optimal facility location. Clearly, their current situation is not working with its small facility and unusual layout. In making this decision, some important factors the brothers should consider should include if they want to rent or own. This will be impacted by how much money the brothers have to spend and the commitment they wish to make with the new facility. Initially, however, determining the right location is key. To do this, John and Michael Phillips need to consider the source of their raw materials as well as the location of their current customers and the likely geographical distribution of their future customers. The brothers need to locate their production and distribution facility in a place that is equidistant for these factors, or most economically sound, based upon these factors. In addition, the costs involved in operating in a particular area should be considered. These costs may include local taxes, cost of land, utility costs, as well as transportation. The brothers must also consider the cost and available of labor and the atmosphere of the local community. Where a facility is located can have a large effect on the profitability of the business. Initially, the brothers should consider the general territory, and then narrow the selection down to the exact site selection.

An initial study must be made to determine where the raw materials needed to make Stone Horse Supply horse feed are available and the cost of transporting these materials to various locations under consideration for the facility. Currently, the brothers are relying on a single company ...

Solution Summary

This solution is based upon a case study for Stone Horse Supply Company and evaluates what factors should be taken into consideration when determining an optimal facility's location. It is very thorough, and includes APA references.

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