Social enterprise factory location and allocation model: Small scale manufacturing for East Africa

Abstract

The manufacturing location decision for social enterprises that work in the context of sustainable development is rarely based on a quantitative, analytical process. As a result, decisions may be far from profit-maximizing. Location and allocation optimization models have the potential to improve decisions and thus enable such enterprises to scale up their business as well as their impact. We develop and explain a single-period single-factory model, and also a two-echelon location and allocation model, to provide enterprises with information about optimal factory locations, and with future demand allocations and capacity-changing decision information. We apply the models to a company that manufactures and distributes solar cookers in East Africa. Our results illustrate that quantitative location and allocation models can significantly affect social enterprises by improving profitability. The case study shows strong cost-reduction potential of local manufacturing in developing countries due to high transportation costs for small production volumes. We discuss this model-recommended decision by weighing it against associated opportunities and risks. This paper aims to enable and encourage social and sustainability-oriented manufacturing enterprises to apply operations research methods in their strategic factory location decision-making.