7136889 Facility Location

7/30/2019 7136889 Facility Location

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Facility Location

Suhas Rane


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Facility Location is a Strategic Decision

One time decisions

Difficult to reverse

Affect fixed, variable and distribution costs

Affect sales


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Your plant / facility may be .

Near the Raw Material sources

(Steel, Cement Plants )

Near to Market / Customers

(FMCG, Perishables Goods, Services)

Best facilities & infrastructure

(MIDC, Union Territories, SEZs)


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Country Factors

1. Political risks, governmentrules, attitudes, incentives

2. Cultural and economicissues

3. Location of markets4. Labor availability, attitudes,

productivity, costs

5. Availability of supplies,communications, energy

6. Exchange rates andcurrency risks


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Country Factors


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Region / Community Factors

1. Corporate desires2. Attractiveness of region

3. Labor availability, costs,

attitudes towards unions

4. Costs and availability of utilities

5. Environmental regulations

6. Government incentives and

fiscal policies7. Proximity to raw materials and

customers

8. Land/construction costs

MN

WI

MI

IL INOH


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Site Factors

1. Site size and cost

2. Air, rail, highway, and

waterway systems

3. Zoning restrictions

4. Nearness of services/

supplies needed

5. Environmental impact

issues


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Approach to Location

Profit maximization (Service industry)

Cost minimization (Manufacturing)


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Service/Retail Location Goods Mfg. Location

RevenueFocus CostFocus

Volume/revenue

Drawing area; purchasing powerCompetition; advertising/pricing

Physical qualityParking, Access; Security,

Lighting; Appearance, Image

Cost determinantsRent, Management caliber

Operations policies

(hours, wage rates)

Tangible costs

Transportation cost of raw materialShipment cost of finished goods

Energy and utility cost; labor;

Raw material; taxes, and so on

Intangible and future costs

Attitude toward union

Quality of life

Education expenditures by state

Quality of state and localgovernment


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Service/Retail/Prof. Locn. Goods-mfg. Location

Techniques Techniques

Regression models to determineimportance of various factors

Factor-rating method

Traffic counts

Demographic analysis of drawingarea

Purchasing power analysis of areaCenter-of-gravitymethodGeographic information systems

Transportation methodsFactor-ratingmethod

Locationalbreak-even

analysis

Crossover charts


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Hotel Location( Case : To open Chain of Hotels across the country )

Location is a strategically important decision in the

hospitality industry

Finally, the model considered only four variables

- Property Prices of the inn

- Median income levels

- State population per inn

- Location ofnearby businesses / industries/colleges


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Clustering

Industry LocationsReason forclustering

Textiles Surat, Ludhiana,

Tirupur

Automobiles

& Ancillaries

Pune- Chakan,

Pithampur, Manesar

Leather Kanpur, Agra,Chennai

BPO Mind-space


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Methods for Location

1. Factor Rating

2. Transportation model

3. Centroid Method4. Load Distance

5. Break-even Analysis

6. Qualitative Factor Analysis


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Factors Factor

Rating(1 to 5)

Location Rating

(1 to 10)

Rating Product

Location

ALocation

BLocation

ALocation

B

1) Proximity to Mkts 4 3 8 12 32

2) Tax advantage 5 6 7 30 35

3) Availability ofpower

3 7 8 21 2

4) Water availability 4 9 7 36 28

5) Community

attitude

2 6 3 12 6

6) Infrastructure

Development

2 6 5 12 10

7) Support industry 1 5 3 5 3

128 138

Location B is Preferred to A


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Centre of Gravity Method Problem

Retail Expected

Outlets Demand

A 80

B 100

C 120

D 130

E 100

F 150

G 90

Total Demand 770

Q. : Where should we set up a

centralized warehousing facility?


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Centre of Gravity Method

Y

-Distance(KM)

04

2

4

6

8

10

12

14

16

8 12 16 20

X- Distance (KM)

B

G

Center-of-gravity

D

F

A

C E


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Centre of Gravity Method

Retail

Outlet

XiDist

YiDist

Volume

(Vi) QTY

Vi Xi Vi Yi

A 4 10 80 320 800

B 3.5 15 100 350 1500

C 4 6 120 480 720

D 10 2 130 1300 260

E 16 6 100 1600 600

F 8 5 150 1200 750

G 14 13 90 1260 1170

Vi = 770 Vi Xi = 6510 Vi Yi = 8500

Xc=6510/770

= 8.45

Yc = 5800 /770

= 7.53


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Load Distance method

Used to minimise the load distance product for pre selected locations

Matrix Manufacturing is considering where to locate its warehouse in order

to service its four Ohio stores located in Cleveland, Cincinnati, Columbus,

Dayton. Two sites are being considered; Mansfield and Springfield, Ohio.

Use the load-distance model to make the decision.


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Load Distance method

Computing the Load-Distance Score for Springfield

City Load Distance ld

Cleveland 15 20.5 307.5

Columbus 10 4.5 45

Cincinnati 12 7.5 90

Dayton 4 3.5 14

Total Load-Distance Score(456.5)

Computing the Load-Distance Score for Mansfield

City Load Distance ld

Cleveland 15 8 120

Columbus 10 8 80

Cincinnati 12 20 240Dayton 4 16 64

Total Load-Distance Score(504)


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Break Even method

Cost-volume analysis method used for industrial locations

3 Steps in the method

1. Determine fixed and variable costs for each

location

2. Plot the cost for each location

3. Select location with lowest total cost for expectedproduction volume


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Cost-Volume-Profit (or Br. Even Analysis)

C

ost

Volume of Sales

TCA

FCA

Vo

Revenue


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Break Even Analysis Method

Location A : Annual fixed costs of Rs.3 L,

Variable Costs - Rs. 63 / unit,

Revenues Rs. 68 per unit.

Location B : Annual fixed costs Rs. 8 L

Variable costs Rs. 32 per unit,

Revenues are Rs. 68 per unit.

Exp. Sales volume 25000 units per year.

Which location is more attractive?


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Answer -Break Even Analysis Method

B E Volume = Fixed cost / (Contribution / unit)

VBE (A) = Rs 3 L / 68-63 = 60,000 units

VBE (B) = Rs 8 L / 68-32 = 22,222 units

At the expected demand of 25000 units,

A BRevenue 17,00,000 17,00,000

Variable Cost 15,75,000 8,00,000

Fixed Cost 3,00,000 8,00,000

Total Cost 18,75,000 16,00,000

Profit (Loss) (1,75,000) 1,00,000

Location B is more attractive, even if annual fixed cost is higher


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Transportation method

Finds amount to be shipped from several points of supply to severalpoints of demand

Solution will minimize total production and shipping costs

A special class of linear programming problems


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Transportation method


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Analytical Delphi Method(for complex multi-location decisions)

1. Coordinating Team (comprising Co-Employees &

External. Consultants ) uses questionnaire to illicit

information from Forecasting Panel.

2. Forecasting Panel - to identify Future Trends inenvironment, threats, opportunities. Process is

repeated several times till consensus is reached.

3. This information is given to Strategic Panel toidentify Long Term Strategic Goals & Objectives.

4. Various ALTERNATIVES are developed.

5. These alternatives are then prioritized


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Thank You

Documents

7136889 Facility Location