4 Facility Location

7/31/2019 4 Facility Location

1/19

Facility Location

Facility location is the process of identifying the best geographicallocation for a service or production facility, in order to be efficient andeffective; economically and operationally.

Fertilizer Plant Steel Plant Textile Mill Bank Petrol Pump Library

Long Term Consideration Profitability or Success in objectives achievements
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2/19

Why to seek Plant Location?

Business newly started

Expansion of existing facilities

Branches or Franchises Lease expired & to plan for re-location

To minimise costs

Socio-economic reasons Shifting of markets
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3/19

M/s Samrat Thermo Plastic Industries, Mixers &Grinders manufacturers in Raipur, In MP

75% raw materials bringing from Mumbai 75% finished products to Pune & Mumbai

Result : Had to shift entire plant to Pune

Associated Breweries & Distilleries, brewing beerin GOA -- Losses

Shifted to Vashi near Mumbai

Success at last
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4/19

Facility Planning

How muchlong-range capacity is needed

Whenmore capacity is needed

Wherefacilities should be located

(location)

Howfacilities should be arranged (layout)

7-4

Facility planning answers:
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5/19

Facility Planning

The capital investment in land, buildings,technology, and machinery is enormous

A firm must live with its facility planning

decisions for a long time, and these decisionsaffect: Operating efficiency

Economy of scale

Ease of scheduling

Maintenance costs

Profitability!
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6/19

A Sequence of Decisions

National Decision

Regional Decision

Community Decision

Site Decision

Political, social, economic stability;

Currency exchange rates; . . . . .

Climate; Customer concentrations;

Degree of unionization; . . . . .

Transportation system availability;

Preference of management; . . . . .

Site size/cost; Environmental impact;

Zoning restrictions; . . . . .
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7/19

Factors Affecting

the Location Decision

Economic Site acquisition, preparation and construction

costs

Labor costs, skills and availability

Utilities costs and availability

Transportation costs

Taxes


8/19

Factors Affecting

the Location Decision

Non-economic

Labor attitudes and traditions

Training and employment services

Communitys attitude

Schools and churches

Recreation and cultural attractions

Amount and type of housing available


9/19

Facility Types and Their

Dominant Locational Factors

Mining, Quarrying, and Heavy Manufacturing Near their raw material sources Abundant supply of utilities Land and construction costs are inexpensive

Light Manufacturing

Availability and cost of labor

Warehousing

Proximity to transportation facilities Incoming and outgoing transportation costs

. . . more


10/19

Facility Types and Their

Dominant Locational Factors

R&D and High-Tech Manufacturing

Ability to recruit/retain scientists, engineers, etc.

Near companies with similar technology interests

Retailing and For-Profit Services

Near concentrations of target customers

Government and Health/Emergency Services

Near concentrations of constituents


11/19

Some Reasons the

Facility Location Decision Arises

Changes in the market

Expansion

Contraction

Geographic shift

Changes in inputs

Labor skills and/or costs

Materials costs and/or availability Utility costs

. . . more
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12/19

Some Reasons the

Facility Location Decision Arises

Changes in the environment

Regulations and laws

Attitude of the community

Changes in technology
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13/19

Analyzing Service Location Decisions

Consumer BehaviorResearch

Market Research

Data Gathering for

Each Location Alternative

Revenue Projections for


Why do customers buy ourproducts and services?

Who are our customers?

What are their characteristics?

What are the economic projections?

What is the time-phased revenue?

Profit Projections for


What are the projected revenues

less time-phased operating costs?

Where are our customers concentrated?

What are their traffic/spending patterns?
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14/19

Analyzing Industrial Facility Locations

Factors that tend to dominate the industrial-

facility location decision are:

Transportation costs

Labor cost and availability

Materials cost and availability

Utilities cost
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15/19

Analyzing Industrial Facility Locations

Locating a Single Facility

A simple way to analyze alternative locations isconventional cost analysis

Pros ease of communication and understanding Cons time value of money ignored and

qualitative factors not considered

Locating Multiple Facilities

More sophisticated techniques are often used: Linear programming, computer simulation, network

analysis, and others


16/19

Qualitative Factors in Location

Decisions

Often-important qualitative factors include

Housing

Climate

Community activities

Education and health services

Recreation

Churches Union activities

Community attitudes
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17/19

Village, Town Or Cities

In Villages, Sites are not readily available But if, they are at a cheaper

ratesTaxes are negligible, Spacious & Open space availableLow wages for unskilled But higher for skilled labourWaste disposalLack of civic amenities for staff, transportation problems

In Town, offer the advantages of both rural as well as citiesLess costly compared to city, Transportation; Skilled labourCivic amenities

In city, municipality services available, transportation, entertainmentLocal market (CONSUMERS), Banking, FinanceSupporting Industries, Skilled labour at economical ratesBut, Pollution restrictions, Unions, Taxes, Land Cost

City Small Plants

Rural Very big Plant


18/19

Developments in 21st century making Site selection easier

Improvements in Transportation; Communication & speed ofservices

Reduction in wage differentials between regionsMobility of workers & ManagementImprovement in construction methodsGovernment policies removing variations in regional imbalancesTechnological improvements less labor more; outputAir-conditioning equipmentExpansion of markets and thus fuelling demandTV programme & advertisement industriesRealty Shows; IPL; World CupSports as Olympics; CWG; Asiad; National GamesBeauty competitions and demand creation & Fashion Industry

State government and special facilitiesPersonal & Emotional reasonsDisposal waste and environmental awareness


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LOCATIONAL MODELS

1. Factor Rating Method2. Point Rating Method3. Break Even Analysis4. Qualitative Factor Analysis

Documents

4 Facility Location