location strategy – The OM Blog by Heizer, Render, & Munson

Guest Post: FedEx Network 2.0– The Real-World Challenges of Facility Closures and Location Strategy

Dr. Jon Jackson is Associate Professor of Operations Management and the MSBA Director in the School of Business at Providence College.

In 2022, FedEx announced its “Network 2.0” initiative, designed to streamline and integrate the resources of its Express, Ground, and Freight operations. This project was initially estimated to cost $2 billion, would result in the closure of 100 stations, and was targeted for completion by fiscal year 2027.

As of this month, February, 2026, FedEx has closed more than 200 stations, with projections indicating a total of 475 closures by the end of 2027 as part of the Network 2.0 initiative. This accounts for nearly 30% of the company’s facility footprint across the United States and Canada, writes Supply Chain Dive (Feb. 13, 2026).

As discussed in Ch. 8 (Location Strategies) in your Heizer/Render/Munson textbook, location strategy involves not only selecting new sites but also making tough calls about which existing facilities to consolidate or close. For FedEx, network streamlining was prompted by significant overlap between Express and Ground operations. Scott Ray, the COO-elect for U.S. and Canada surface operations explained, “The concept is pretty straightforward: Our customers don’t need both an Express and a Ground truck in the same neighborhood on the same day, and they don’t need to separate their Express and Ground packages for two separate pickups.”

One of the main challenges for FedEx during this transformation is maintaining high service levels amid such a significant network overhaul. The company has addressed this challenge by creating dedicated routes for high-priority services and customers, as well as factoring in market-level characteristics.

(A regularly updated list of FedEx station closures is available on Supply Chain Dive).

Classroom Discussion Questions

FedEx has already closed twice as many stations as originally projected in 2022. What factors could have led to this outcome? Do you see this as a cause for concern, or could it indicate greater-than-expected benefits?
In your local metro area, what factors should FedEx consider when deciding which stations might be closed, if any?

OM in the News: Orlando’s Theme Park Cluster

When organizations make location decisions (see Chapter 8), being near competitors (“clustering”) is often seen as a plus. Here in Orlando, the capital of theme parks, we take our cluster very seriously. After all, the parks are the main economic drivers and top employers. Disney’s 5 parks employ some 77,000 “cast members.” Universal Studios parks another 28,000, and SeaWorld has 22,100. Then there is Legoland, Gator Land, and others.

Riders on the Expedition Everest roller coaster at Walt Disney World’s Animal Kingdom park.

When the Universal Epic Universe theme park opens next year, it will add 750 acres populated by Harry Potter, Donkey Kong and dragons to the company’s Central Florida resort, which now includes 3 theme parks: Universal Studios, Islands of Adventure, and Volcano Bay Water Park.

Less than 10 miles down the road is Walt Disney World, the biggest part of Disney’s most important profit engine, and the stuff of dreams for tens of millions of visitors a year. Its 5 parks include: Magic Kingdom, Animal Kingdom, Epcot, Hollywood Studios, and Typhoon Lagoon Water Park.

The competition is intense, writes The Wall Street Journal (April 13-14, 2024). To understand the stakes for both companies, consider this: A common vacation itinerary includes 3-4 days at Disney World and 1-2 days at Universal. If Universal can now persuade families to spend one more day at its parks instead of at Disney, it could nab hundreds of millions of dollars in annual revenue. A family of four visiting Disney World for a 5-day, 4-night stay with Park Hopper tickets, a quick-service dining plan and a room in a moderate-tier hotel would spend upward of $5,000, not counting the cost of souvenirs or add-ons such as the Genie+ line-skipping service. Shortening the Disney leg by even a day would trim hundreds of dollars from their spending at the company’s parks and resorts.

When Walt Disney World opened in 1971, about 5 years after the death of the company’s namesake founder, adult admission cost $3.50. Visitors could roam Magic Kingdom—the only theme park on the property at the time—and take in dozens of free attractions and performances.

Attendance has since snowballed. Universal’s first theme park first opened in 1990. Islands of Adventure now attracts more than 11 million visitors a year, while Universal Studios has about 10.8 million guests. Disney’s Magic Kingdom, which has more than 17 million annual visitors, has long been the world’s most-visited theme park.

Classroom discussion questions:

Why is clustering important in theme parks?
Describe a different cluster, one close to your college or home.

OM in the News: Foxconn’s Big India Expansion

Apple has identified India as a prime destination as it seeks to diversify the sites where its products are assembled.

Apple’s main manufacturer, Foxconn Technology, is considering a major expansion in India, including assembling millions more iPhones and setting up new production sites as it seeks to further diversify beyond China, reports The Wall Street Journal (March 6, 2023). It aims to boost iPhone production to 20 million units annually by 2024 and triple the number of workers to as many as 100,000 at its existing plant near Chennai. The plant currently produces 6 million units.

Foxconn also plans to build: a new production facility in Karnataka, where it would make products including iPhones; a new production site in Hyderabad; and a silicon carbide fabrication plant for its semiconductor business. The Indian government has offered billions of dollars of incentives in recent years to lure global manufacturers to India, as part of a major push to boost advanced manufacturing jobs and decrease reliance on electronics imports.

Meanwhile, Apple has been pushing suppliers to diversify beyond China after many of them faced production disruptions in China multiple times during Covid lockdowns. Geopolitical tensions have been growing between the U.S. and China, as well as between Beijing and Taiwan, where Foxconn is based.

China has been the biggest manufacturing hub in the electronics supply chain for years, with Apple a major driver after building much of its supply chain and assembly in the country over the past two decades. Concerns over that reliance heightened after protests erupted at the world’s biggest iPhone production site in central China late last year over tight pandemic control policies and wages. Still, expanding into India won’t mean companies such as Apple and Foxconn leaving China. The supply-chain infrastructure that these companies have built over the past decades there can’t be easily replaced by other countries.

Despite strides in local automobile and smartphone production in recent years, India has long trailed regional rivals in advanced manufacturing due to concerns over the country’s challenging bureaucracy, protectionist rules and underdeveloped infrastructure. India, alongside Vietnam, has already been identified by Apple as a prime destination with the company seeking to diversify the sites where its products are assembled. Apple has told its suppliers to plan more actively for assembling its products beyond China.

Classroom discussion questions:

Why India and Vietnam? Why not the U.S?
Chapter 8 lays out key success factors that affect location decisions (see page 337). Which of these factors is Apple considering?

OM in the News: Why Apple Plans to Move Beyond China

Apple and China have spent decades tying themselves together in a relationship that, until now, has mostly been mutually beneficial, writes The Wall Street Journal (Dec. 3-4, 2022). But in recent weeks, Apple has accelerated plans to shift some of its production outside the long the dominant country in its supply chain. It is telling suppliers to plan more actively for assembling Apple products elsewhere in Asia, particularly India and Vietnam, and looking to reduce dependence on assemblers led by Foxconn.

Protesting workers being beaten at Chinese iPhone factory in November

Turmoil at a place called iPhone City helped propel Apple’s shift. At the giant city-within-a-city in Zhengzhou, China, as many as 300,000 workers work at a factory run by Foxconn to make iPhones and other Apple products. At one point, it alone made about 85% of the Pro lineup of iPhones.

The Zhengzhou factory was convulsed by violent protests and running at only about 20% capacity last month. Coming after a year of events that weakened China’s status as a stable manufacturing center, the upheaval means Apple no longer feels comfortable having so much of its business and supply chain tied up in one place. In the past, China has excelled at building hundreds of millions of gadgets, heavily due to its concentration of production engineers and suppliers.

Two causes threaten China’s historic economic strength. Some Chinese youth are no longer eager to work for modest wages assembling electronics for the affluent. They also seethe because of Beijing’s heavy-handed Covid-19 approach, itself a concern for Apple and many other companies. And 5 years of U.S.-China military and economic tensions and U.S. tariffs have come into play.

The risk of too much concentration in China has long been known to Apple, yet for years it did little to lessen it. China supplied a diligent workforce, political stability and a huge local market. Apple’s goal is to now ship 40% to 45% of iPhones from India. Vietnam is expected to shoulder more of the manufacturing for other Apple products such as AirPods, smartwatches and laptops. American companies’ confidence in China has fallen to a record low, with about a quarter saying they have at least temporarily moved parts of their supply chain out of China over the past year.

Classroom discussion questions:

What are the benefits and risks of Apple’s move?
Figure 8.1 in your Heizer/Render/Munson text (see page 337) lists 20 factors that affect location decisions. Which concern Apple operations managers?

OM in the News: The High Cost of Operating in California

In Chapter 8, Location Strategies, we talk about the Key Success Factors (KSFs) that firms need to achieve competitive advantage in selecting a location for their plants. It turns out that these KSFs are also the reason why some manufacturers are leaving California.

The Wall Street Journal (June 13, 2022) article, “Smithfield Foods, Citing High Costs of Operating in California, to Close Pork Plant,” explains why the largest pork processor in the U.S., is closing an 1,800-person plant in California and shrinking the size of its hog herd in the region. Smithfield says “the cost of doing business in the state wasn’t worth it,” citing higher taxes, utility costs and labor costs in the state compared with other areas where it operates.

The decision to close the plant comes as food suppliers are dealing with increased costs on items like livestock feed, transportation and packaging. Russia’s invasion of Ukraine, one of the world’s top grain-producing regions, has recently sent the price of livestock feed higher.

In California, the cost of utilities is 3.5 times higher per head to produce pork compared with the 45 other U.S. plants Smithfield operates. “It’s increasingly challenging to operate efficiently there,” said the company. “We’re striving to keep costs down and keep food affordable.”

Smithfield also said part of the reason it closed the facility was the regulatory environment in the state. Specifically, a state law passed by voters in 2018 and backed by the Humane Society, called Proposition 12. It requires breeding pigs to be able to lie down and turn around in spaces in which they are housed, essentially outlawing pork produced using small gestation stalls in most circumstances.

Pork producers and suppliers have resisted, saying such moves would raise meat prices by causing farmers to spend millions of dollars changing their operations, create supply-chain chaos and risk their pigs’ health.

The supply of hogs in the U.S. also isn’t expected to grow soon as higher feed, labor and material costs have weighed on pig farmers, making it too expensive for them to expand. For processors, if the supply of hogs isn’t increasing, it makes sense to cut high-cost plants that might not even be running at capacity.

Classroom discussion questions:

On the issue of hog comfort and safety (see the Ethical Dilemma in Chapter 7), what position do your students take?
What KSFs in Chapter 8 (see Figure 8.1) are driving Smithfield to leave California?

OM in the News: McDonald’s Un-Location Decision

Fewer people want to eat their meals at Walmart, writes The Wall Street Journal (April 10-11, 2021). For years Walmart and large restaurant chains like McDonald’s enjoyed a mutually beneficial relationship. The retailer delivered a steady stream of diners, and the eateries provided rental profits and a reason for shoppers to stick around stores. Walmart and McDonald’s first started working together around 1994. At one time, Walmart allowed McDonald’s to be the exclusive restaurant when it was present in a store.

But those bonds have frayed as more shopping goes online and fast-food restaurants depend more on drive-through windows for sales, a feature Walmart locations don’t have. The pandemic has made indoor dining unappealing—or prohibited—for many shoppers, accelerating the split.

mcdonald's

So McDonald’s is closing hundreds of restaurants located in the huge retailer’s stores, the last vestiges of a 30-year-old experiment between the companies. (At its peak, there were 1,000 McDonald’s restaurants inside Walmarts). The closures could pose a challenge for Walmart, which has long counted on revenue from restaurants leasing space inside its stores. That is different from some competitors such as Costco, which runs its own restaurant space selling inexpensive pizza and hotdogs. Retailers hope food service inside store walls draws shoppers to linger longer or give workers a place to eat while taking a break.

McDonald’s locations inside Walmart stores are generally less profitable than stand-alone restaurants, in part because they lack a drive-through, the main source of McDonald’s sales. And customers at times loaded up on refills and condiments, diluting margins. Even before the pandemic, Walmart shoppers increasingly preferred to shop and leave or buy online. Around a third of restaurant sales inside stores come from Walmart employees.

To compensate, Walmart plans to open more Domino’s, Taco Bell, Ben’s Soft Pretzels, and Ghost Kitchens Brands locations to fill the space.

Classroom discussion questions:

Why is McDonald’s un-locating?
Are there any downsides to replacing McDonald’s with chains like Domino’s or Pizza Hut?

OM in the News: Where to Locate the Next 1,000 Dollar General Stores

There are 14,000 one-story cinder block Dollar Generals in the U.S.—outnumbering by a few hundred even Starbuck’s domestic footprint. (Fold in the second-biggest dollar chain, Dollar Tree, and the number of stores, 27,465, exceeds the 22,375 outlets of CVS, Rite Aid, and Walgreens combined). And, writes Businessweek (Oct. 16, 2017), 1,000 Dollar Generals are opening this year as part of the $22 billion chain’s plan to expand rapidly in poor, rural communities where it has come to represent not decline but economic resurgence.

As retail stores were going under across the nation, the commercial real estate company, Cushman & Wakefield, was searching for bright spots in the industry. For 5 years running, Cushman realized, a dollar store had opened once every 4.5 hours, an average of more than 5 a day. “They see a need and are aggressively racing to meet that need for low-cost goods in places that are food deserts,” the firm says.

Dollar General’s sales per square foot have risen steadily in recent years, to $229– less than half of Walmart’s. Their gross profit margins were 31%, though, compared with 25% at Walmart. A Dollar General store also has lower startup costs; it spends about $250,000 for a new store, vs. the more than $15 million Walmart puts into a new Supercenter. The dollar chain thrives mostly on selling low-ticket items and basics, such as toilet paper, that help shoppers on tight budgets get through the week. (Dollar General hasn’t technically been a dollar store for decades, and only a quarter of its products sell for that amount today.)

In 2016, the firm detailed a site-selection strategy focused on small towns, dubbed “Anytown, USA.” It defined the core customer as: “Our Best Friends Forever”—an extremely cash-strapped demographic, with a household income less than $35,000, and reliant on government assistance, that shops at Dollar General to “stretch budgets.” These BFFs represented 43% of its sales. The company’s map shows 13,000 green dots as “remaining opportunities” for new stores—some in low-income urban neighborhoods, but most in small and very small towns.

Classroom discussion questions:
1. How does Dollar General’s location strategy differ from that of Walmart?

2. Are Walmart and Amazon threats to Dollar General?

OM in the News: Why GE Builds More Factories Overseas

The GE factory under construction in Marhaura is scheduled to produce 1,000 locomotives for Indian Railways.

GE could hardly have picked a less hospitable spot for its new locomotive factory—but then again, it didn’t have much choice. The land in Marhaura, India regularly floods in the rainy season. The facility required concrete pilings poured 82 feet below ground, on account of earthquakes. When finished, the factory—the centerpiece of a $200 million investment—will sit 600 miles southeast of Delhi in the state of Bihar, a place with a rich history of government corruption scandals.

“To win big contracts, GE is trading a global footprint designed for maximum efficiencies of scale for one that means greater face-to-face exposure in local markets,” writes The Wall Street Journal (June 30, 2017). The remoteness of the Marhaura factory adds cost and complexity to the locomotive project. This is GE in the age of localization—a series of factors that are forcing manufacturers to put down deeper local roots to win business.

Once-impoverished nations such as India, China and Indonesia are becoming economic powers and demanding that companies not just ship them goods, but invest/build locally, teach local workers new skills and share technological know-how. GE has established engineering and research centers in nations such as Poland, Mexico and Qatar, and flexible factories in countries such as Brazil and India, which can easily switch production lines in case political winds or market preferences change.

In 1982, 80% of GE’s revenue came from the U.S. Today, it’s only 30%. Back then, GE operated 135 factories in 25 foreign countries. Now it has 325 plants across 40 countries. Jobs have followed the changes. GE employs 104,000 workers in the U.S., compared 261,000 workers in 1982. In China, GE’s workforce has doubled in the past decade to 22,000.

Classroom discussion questions:

Discuss GE’s decision to locate in Marhaura–plusses and minuses.
What factors should a firm consider in global location decisions?

OM in the News: When Detroit Was a Cluster

VW's plant in Chattanooga TN — VW’s plant in Chattanooga TN

Clustering is an interesting topic when you are covering location decisions in Chapter 8. Indeed, here in Orlando, over 70,000 people are employed in the theme park cluster that includes Disney, Universal, Legoland, Sea World, Gatorland, and more. This week, Universal Studios announced record profits after sinking a quarter billion dollars into the Harry Potter exhibit–and is adding yet another 1,800 room hotel to its site. The Wall Street Journal (July 31, 2013) adds to the discussion with an article titled “Detroit Was a Cluster”.

“Clusters,” writes The Journal, “offer powerful advantages such as labor market pooling. But these potent synergies can be lost when special technological competence becomes outmoded.” With lean manufacturing, clustering has become more important in the auto industry, with suppliers required to be between one hour and one day’s drive of factories. A new cluster has formed, known as the “auto corridor” between I-75 and I-65, which still includes the upper Midwest but has pulled the industry’s center of gravity steadily south.

The reason is well known: The Japanese, Germans and Koreans located their plants in the South to avoid the United Auto Workers. Honda was the bellwether when in 1980 it picked Marysville, Ohio for its first plant. Honda was expected to be required to employ the UAW, but picked a site in rural Ohio with little union presence. The firm soon concluded that its production system would be impossible with union workers, and that a UAW workforce could be avoided without undue political consequence.

Even a decade ago, more than half of all auto production jobs were still in Ohio, Indiana and Michigan. Now it’s below 44%. Kentucky alone today claims 440 auto manufacturing-related businesses! The transplants made little secret of their motivation in passing up the substantial benefits of the then-cluster around Detroit. Every Toyota factory in the U.S. is non-union and all but one is in the South. Ditto Nissan, Mercedes, Hyundai, BMW and Kia.

Discussion questions:

1. What is a “right-to-work” state?

2. Why are so many auto suppliers and plants clustering in Kentucky?

OM in the News: Airbus Over Alabama

When you are teaching global location analysis in Chapter 8, what better way to start a discussion than Airbus’ decision this week to open a new $600 million facility in Mobile, Alabama. The Wall Street Journal (July 3, 2012) reports that the European jet maker’s US facility will turn out 40- 50 A320 jetliners yearly by 2018, with about 1,000 full-time employees. (State officials say they expect each job to produce at least 4 more in the local economy). Airbus now assembles A320s at plants in Germany, France and China.

Even without the global politics of airline manufacturing, the economic incentives for Airbus to build more plants in France are difficult. With a headcount of 1,000, the new plant surpasses France’s various thresholds for taking on a welter of worker “protections” and the burden of union bureaucracies. But it’s worth noting that Airbus didn’t just pick the U.S. over France, Germany, or China. It chose Alabama over the rest of the U.S. Not least, it’s that Alabama is one of 23 right-to-work states, which means workers are free to decide if they want to join a union. That not only makes that labor market markedly freer than France, but also struggling states across the U.S.. Airbus, of course, isn’t the first foreign enterprise to notice Alabama. The state also hosts Mercedes, Toyota, and other auto production facilities.

Alabama is also offering Airbus over $100 million in tax breaks and other incentives such as job training and infrastructure improvements. Jets are sold worldwide in dollars and since Airbus’ planes are manufactured with most costs in Euros, US manufacturing will help hedge against currency gyrations. ( Here is a 3 minute WSJ video on the subject).

Discussion questions:

1. Why is Airbus starting production in the US?

2. How was Alabama able to lure the company?

OM in the News: Where to Locate the Next McDonalds–in Your Hospital?

We all know that hospitals can be dangerous places to spend a few nights. Here are just a few statistics on annual deaths in US hospitals due to preventable errors (as cited from a variety of studies): 44,000-98,000 (Institute of Medicine, 1999); 195,000 (Health Grades, 2004); 180,000 Medicare patients (US Department of Health, 2008); and 99,000 (AHRQ, 2009). But what we would not expect as a reason for our demise to be hospital food. Maybe that is why a group of 1,900 doctors is starting a move to rid hospitals of our favorite fast food chain, McDonald’s, that has found a location strategy in a crowded market.

It turns out that 22 hospitals currently have contracts with the fast food industry leader, reports MarketWatch (April 10,2012), including the Cleveland Clinic and Children’s Memorial Hospital of Chicago. “Kids are being treated for diet-related conditions like diabetes on one floor in the hospital and given the wrong message by being offered the world’s most recognized junk food brand on another floor in the hospital,” says the former president of the American Diabetes Association “The practice earns McDonald’s an undeserved association with healthfulness among parents and children alike.”

A study in the Pediatrics demonstrated that allowing a McDonald’s to operate inside a hospital affects hospital guests’ consumption on the day of their visit, and boosts the perception of the “healthfulness” of McDonald’s food. To address this concern, the group just sent a letter to the 22 hospital administrators last week, noting: “It’s no surprise that McDonald’s sites stores in hospitals. For decades, McDonald’s has attempted to pose itself as part of the solution.”

In 2009, Dallas’ Parkland Health & Hospital System replaced a McDonald’s with a smaller chain offering healthier food. McDonald’s had been the only chain restaurant at the hospital for 20 years.

Discussion questions:

1. Do your students think locating McDonald’s in hospitals is an ethical issue?

2. Into what other types of facilities has the firm expanded?

Teaching Tip: Where Companies Locate and the Corruption Index

Today’s Wall Street Journal (Feb.10,2012) ran a very eye-catching 1/2 page ad, taken out by the Eurasian country, Georgia. Why would a multinational corporation locate in Georgia? “Because according to Transparency International we are one of the least corrupt countries in the world,” touts the ad.

And, indeed, as we discuss in Chapter 8, Location Strategies, corruption can create substantial economic inefficiency, as well as ethical and legal problems in the global arena. Transparency International’s annual corruption perceptions index (CPI) (www.transparency.org) is illustrated in Table 8.2 and excerpted here in today’s blog. This is an interesting topic to share with your students, and can lead to their tracking the success of other nations on this index, as well as on others (such as the World economic forum’s annual competitive index —see Table 8.1 and www.weforum.org).

The World Bank’s VP for Europe and Central Asia writes in the Journal: “Corruption is sometimes seen as as endemic, a product of traditional local culture, and, as such, inevitable. Georgia’s experience shows that the vicious cycle can be broken.” Georgia’s zero tolerance approach toward public-sector graft since its 2003 “Rose Revolution” places the country among some of the advanced European nations on the Transparency rankings. Georgia rose to 64th place out of 183 nations (from 68th last year) with a CPI score of 4.1. It is not quite in the league with the US, Canada, or New Zealand, but ahead of all four BRIC nations.