FACILITY LOCATIONLocation decisions are strategic:-

Liable to affect the entire organizationOperative over longer time spansDifficult to reverseCapital intensive

HIERARCHY OF LOCATION PROBLEMSLocation of ‘plant’Plant lay out (location of ‘Depts’)Physical arrangements of M/csWork place layout (location of ‘tools’ or ‘raw

materials’)

The term ‘facility location’ emphasizes the generalized approach that handles the variety of above mentioned problems.

LOCATION DECISIONS ARE DYNAMICOwing to changing technology, competition,

change of consumer tastes, decisions like new plantsExpansionDecentralizationPlant shut downAre constantly under review.

IMPORTANT FACTORS IN LOCATIONMarketRaw materialsTransportationPowerClimate and fuelLabour and wagesLaws and taxationCommunity servicesWater and wasteGovernment incentives

Raw materials• Pure materialsWeight losing materialsUbiquities

ANNUAL OPERATION EXPENSESConsist of:-o Materials o Transportationo Real estate taxeso Fuel costso Sundry state taxeso Electric power.

FIXED AND VARIABLE COSTANNUALCOST

• LOCATION A

LOCATION B

• VOLUME OF PRODUCTION

MECHANICAL ANALOGUE FOR FINDING BEST LOCATION OF A MANUFACTURING PLANT(also known as Varignon’s Frame after the

inventor)

In the absence of friction the common knot P of (m+n) strings comes to equilibrium at least cost location.

{ here we draw an analogy between Min potential energy &Min travel cost}

ASSUMPTIONS

_ R1, R2……Rn locations of raw material sources.

_ M1, M2 ….Mn locations of markets.

_ Euclidean (straight line travel)

_ each weight (there are m+n in all)

_ Wi- No: of annual trips between P and that pt X (cost per unit distance)

MULTI OBJECTIVE CONSIDERATIONS IN LOCATION DECISIONS

FACTORS AFFECTING LOCATION ARE:-SUBJECTIVE OBJECTIVE(labour attitudes) eg: costs

INTANGIBLE TANGIBLE

INCOMMENSURATE UNITS

A decision matrix approach with proper evaluation of weights of factors. Normalization of scores can help in ranking alternative locations.

(THIS IS DEMONSTRATEDTHROUGH A CASE STUDY)

MULTI PLANT OPERATION-AN EXAMPLE OF PLANT ADDITION

P1 existing plant

P2 existing plant

A,B,C,D,E- ware houses

X,Y,Z-possible locations for new plant

P1

P2

A

B

C

D

E

X

Z

Y

Owing to increase of weekly demand to 72000 there is a capacity deficit of 25000 per week and it is felt that a plant of capacity 25000 could be set up X, Y or Z

DATA SHEETP1 P2 X Y Z Weekly

Forecast of market demand

A 0.42 0.32 0.44 0.44 0.41 10000

B

C

D

E

CAPACITY

UNITPRODCOST

OPTIMUM PRODUCTION-DISTRIBUTING SOLUTIONSProduct cost= 192500 Distn cost=26450 Total=218950

P1 P2 X

A 10 10

B 8 7 15

C 16 16

D 19 19

E 10 2 12

27 20 25 72

OPTIMUM PRODUCTION-DISTRIBUTING SOLUTIONSProduct cost= 193750 Distn cost=26960 Total=220710

P1 P2 Y

A 10 10

B 15 15

C 8 8 16

D 19 19

E 10 2 12

27 20 25 72

OPTIMUM PRODUCTION-DISTRIBUTING SOLUTIONSProduct cost= 192000 Distn cost=26400 Total=218400Hence choose plant at site Z(since Z cost is minimum)

P1 P2 Z

A 10 10

B 15 15

C 10 6 16

D 12 7 19

E 12 12

27 20 25 72

LOCATIONAL DYNAMICSSuppose third plant is set up at site zAfter some time demand drops from 72000 to

56000 per week.Which plant to shut down?Which plant to run at partial capacity?(these are location decisions)

ALTERNATIVES FOR INVESTIGATION1. Run all plants at partial capacity2.shut down P1 .use overtime in others3. shut down P2. use overtime in others4. shut down Z. use overtime in others.

PROBLEM DATA:- ware house demands A-9000, B-13000, C-11000, D-15000, E-8000PLANTS P1 P2 Z

Over time production cost 3.37 3.33 3.27

O.T capacity 7000 5000 6000

Fixed costs (per week)(Don’t depend on production volume)

While operating 12000 9000 13000

While shut down 5000 4000 6000

EVALUATING SHUT DOWN OPTIONS

P1 P2 Z

A 9 9

B 13 13

C 11 11

D 14 1 15

E 8 8

F 11 5 16

27 20 25 72

EVALUATING SHUT DOWN OPTIONS

P2 Z OT2

OTz

A 9 9

B 8 5 13

C 11 11

D 9 6 15

E 8 8

20 25 56

EVALUATING SHUT DOWN OPTIONS

P1 Z OT1

OTz

A 6 3 9

B 13 13

C 11

11

D 14 1 15

E 8 8

F 7 227 25 7 6 65

EVALUATING SHUT DOWN OPTIONS

P1 p2

OT1

OT2

A 9 9

B 9 4 13

C 3 8 11

D 15 15

E 3 5 8

F 3 3

27 20 7 5 65

EVALUATING SHUT DOWN OPTIONSMin cost for alternative 3 . Hence shut down plant 3

1 2 3 4

FIXED VARIABLE

34000169650

27000177730

29000173750

27000178400

TOTAL COST

203650 204730 202150 205400

summaryThe strategic importance of location

decisionsHierarchy of location decisionsAnalogue model for facility locationImportant factors in plant locationA case study on new plant location and shut

down under dynamic conditions.