LOGO

PRESENTED BY:-

SHAUNAK NADIG – 44 ASHWINKUMAR POOJARY – 09MRINAL SANDBHOR – 31RACHIT GOR – 42ATANU MANDAL – 10E.G. PRASANT – 16

Facility Location

FLOW INTRODUCTION

TATA NANO PLANT LOCATION

INTEL PLANT LOCATION IN COSTA RICA

ANALYSING TECHNIQUES Factor Rating Method Cost Volume Analysis The Centre of Gravity Method Load distance Method Geographic Information System (GIS)

CONCLUSION

Location DecisionsFacility location is the process of

determining geographic sites for a firm’s operations.

Location decisions affect processes throughout the organization.

Marketing must assess how the location will appeal to customers; possibly opening new markets.

Human Resources must be attuned to the firm’s hiring and training needs.

Accounting and Finance must evaluate costing. Operations needs to be able to meet current

customer demand and provide the right amount of customer contact.

Factors Affecting Location Decisions

Managers must weigh many factors when assessing the desirability of particular locations.

The factor must be sensitive to location. The factor must have a high impact on the

company’s ability to meet its goals.

Steps in choosing location

Importance of location

Alternative location

Evaluate all locations

Select a location

Company Logo

Mahadevan (2007), “Operations Management: Theory & Practice”, © Pearson Education

Competitiveness of a locationThree tier model

Country CompetitivenessGovt. budget & regulation Quality of judicial & political institutions

Openness to Intl. trade & finance

Development of financial Mkt. Extent to which a national environment is Conducive or detrimental to business

Labour Sector Competitiveness Qlty ofMkt. Flexibility Infrastructure Quality of Tech.

Extent to which a business sector offers potential for growth and attractive return on investment

Company CompetitivenessAbility to design, produce, & mkt products

superior to competitors, Qlty. of business mgmt.

Types of Facilities Site Selection: Where to Locate

Copyright 2006 John Wiley & Sons, Inc. Supplement 7-7

Factors in Heavy Manufacturing Location

Construction costs Land costs Raw material and finished goods shipment modes Proximity to raw materials Utilities Labor availability

Types of Facilities

Heavy-manufacturing facilitieslarge, require a lot of space, and are

expensive

Light-industry facilitiessmaller, cleaner plants and usually less

costly

Retail and service facilitiessmallest and least costly

Factors in Light Industry Location

Transportation costs Proximity to markets Frequency of delivery required by customer Land costs Easily accessible geographic region Education and training capabilities

Factors in Retail Location

Proximity to customers Location is everything

TYPES OF FACILITIES

MANUFACTURING FACILITY

Physical proximity to customers is not necessary.

Being near to competitors may be desirable.

E.g.- Steel & furniture

SERVICE FACILITY

Physical proximity to customers is necessary.

Being near to competitors may not be desirable.

E.g.- Fast food restaurants

Market related issues Cost related issues Market for products and services Wage rates Raw Material availability Transportation costs Number and proximity of suppliers Taxes and other tariff issues Availability of skilled labour

Quality of Infrastructure

Regulatory & Policy issues Other issues Government & Economic stability Culture Quality of legal and other institutions Climate

Trading blocks and trading agreements Quality of Life

TATA NANO PLANT LOCATIONC A S E S T U D Y

OBJECTIVES

To setup a manufacturing plant in India with a view:-

To produce a vehicle that would be the least expensive production car in the world.

Aiming for a starting price of ` 100,000 or approximately US$ 2300.

India is the potential and leading market in automobile industry.

To compete with the foreign car manufacturers.

Why was Singur initially selected? Political Cheap Labour Concessional Power Subsidy on Land with

Soft Loan Tax Paybacks Competitors Connectivity to a metro

city, railway station anda national highway.

Durgapur Expressway

Why made TATA’s to leave Singur ?

Political Factors

Community Factors

Then why not these?

Sri LankaKerala and Andra PradeshJharkhand and Orissa

Why Pantnagar, Uttaranchal

Already has a plant of its own – AceConnected to many States.Connected to National Highway, railways

and international airportsConcession to power, electricity, tax etc.Water and Power SupplyFinancial IncentivesLess Competition due to other industries

Shift of TATA Nano Plant

fromSingur to Sanand

New Factory Location - Sanand

Gujarat – a proactive state General Population of the State in favor of

industrialization. Close proximity to the Ports and Seas Close Connectivity to National Highway Favorable Climate Community

FACILITY LOCATION of

Comparison in between Brazil and Costa Rica to set

up a plant location

Intel’s plans to operate an assembly and testing facility in Costa Rica

INTEL started it’s operation in Nov 13 ,1998

INTEL ‘S REQUIREMENT

Human resource Reasonable cost structure.

A “pro-business” environment.

Logistics and manufacturing lead time.

Fast track permit process.

Stable economic & political condition.

Costa Rica’s Competitiveness

Corporate tax rate

Labor flexibility

Advanced telecommunication

Advanced engineering education

Excellent infrastructure.

Contd…..

Geography & demography

Education (96% literacy rate)

Economic openness and liberalization (CAFTA)

BMW Case Study

ANALYSING TECHNIQUES

Factor Rating Method.

Cost Volume Analysis.

Centre of Gravity

Load distance Method

Geographic information System

FACTOR RATING METHOD

Popular because a wide variety of factors can be included in the analysis.

Six steps in the method :- 1.Develop a list of relevant factors called critical success factors 2.Assign a weight to each factor 3.Develop a scale for each factor 4.Score each location for each factor 5.Multiply score by weights for each factor for each location 6.Recommend the location with the highest point score

Critical success factor

weight Spartanburg Florida

Labour Cost 15 7 8

Promixity to Market 40 8 8

Land Cost 25 9 7

Transportation 20 8 7

COST-VOLUME ANALYSIS

When the fixed and variable costs for each site differ, Cost- volume analysis can be used to identify the location with the lowest cost.

Method of cost-volume analysis used for industrial locations.

Three 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 expected production volume

Example

Clean-Clothes Cleaners is considering four possible sites for its new operation. They expect to clean 10,000 garments. The table and graph below are used for the analysis.

ExampleTotal Production Cost = (Fixed Cost) + (variable unit

cost) x (annual production volume)

Example 9.6 Using Break-Even AnalysisLocation Fixed Cost Variable Cost Total Cost

A $350,000 $ 5(10,000) $400,000B $170,000 $25(10,000) $420,000C $100,000 $40(10,000) $500,000D $250,000 $20(10,000) $450,000

CALCULATION

Example

GRAPH OF COST Vs QUANTITY

ExampleThis graphic shows that annual production

cost changes with different production volumes.

If the expected annual production volume is below 4500 units, then choose site C.

If the expected annual production volume is between 4500 and 9000 units, then choose site B.

If the expected annual production volume is over 9000 units, then choose site C.

THE CENTRE OF GRAVITY METHOD

The Centre of Gravity Method

The center of gravity method is used to find a location that minimizes the sum of transportation cost in between new facility and old facilities.

Transportation cost is assumed to be a linear function of the number of units shipped and the traveling distance.

The Centre Of Gravity Method

The location of the firm’s existing facilities are converted into x and y coordinates.

If the quantities to be shipped to every location are equal, the coordinates of center of gravity are:-

The Centre Of Gravity Method

The Centre Of Gravity Method

The Centre Of Gravity Method

The Centre Of Gravity Method

If the quantities to be shipped to every location are not equal, the coordinates of center of gravity are:-

The Centre Of Gravity Method

Company Logo

The Centre Of Gravity Method

Cx : x coordinate for new location

Cy : y coordinate for new location

i: index for existing locations

n: total number of existing locations

xi: x coordinate of existing ith location

yi: y coordinate of existing ith location

Vi: Quantity to be shipped to destination

The COG Method-Basic Steps

Considera) Location of Marketb) Volume of goods shipped to those marketc) Shipping Cost

Place existing locations on a coordinate grid

Calculate X & Y co-ordinates for center of gravity

The COG Method-Basic Steps Contd..

Assume cost is directly proportional to straight line distance & volume shipped

Averages distances weighted by the amount to be shipped

Airline distance (diagonal of triangle):need not to consider the curvature of earths surface

City block distance (base +height of triangle)

Finds location of distribution center that minimizes distribution costs

The COG Method Example

To decide where to build a new DC for Motorola.

It needs to serve wholesalers in Reno, Dallas, and Chicago.

Locate these cities on an unscientific, rectangular grid.

Grid must maintain relative distances, but X and Y grids could be different.

The Center of Gravity Method

City DemandReno is at 17, 55 100Fort Worth is at 78, 20 90Chicago is at 110, 65. 120

Demand is TL/month

The Center of Gravity Method

12011090

120*110*90

ii

iiix

X W

WdC

7.70310

920,21

310

200,13020,7700,1

12090100

120*11090*78100*17

X

ii

iiix

X

C

W

WdC

7.48310

100,15

310

800,7800,1500,5

12090100

120*6590*20100*55

Y

ii

iiiy

Y

C

W

WdC

Compromise Solution

Closest town is Sharon Springs, KN Population 872mn 30 miles from I-70. Probably not a good choice

Salina, KN puts us at I-70 and I-35

North Platte NE is at I-80 and 83. Access to Dallas less convenient

Finalizing City

Go where other warehouses are More choice in pre-built buildings Cheaper, easier to build a new one More trucks to and from town, means more

carriers there, means cheaper rates. Backhaul situation

Get estimates of inbound, outbound trucking costs. Provide lists of loads per year to each

destination, from each source

The Center of Gravity Method

This method only considers the distances traveled. It does not consider the other factors such as the availability of roads on the selected location. Therefore, applying solely this method may not be applicable in every cases.

LOAD-DISTANCE TECHNIQUE

Load-Distance Technique

Compute (Load x Distance) for each site

Choose site with lowest (Load x Distance)

Distance can be actual or straight-line

Load-Distance Calculations

li di

i = 1

n

LD =

LD = load-distance value

li = load expressed as a weight, number of trips or unitsbeing shipped from proposed site and location i

di = distance between proposed site and location i

di = (xi - x)2 + (yi - y)2

(x,y) = coordinates of proposed site

(xi , yi) = coordinates of existing facility

where,

where,

Load-Distance: Example

Potential SitesSite X Y1 360 1802 420 4503 250 400

SuppliersA B C D

X 200 100 250 500Y 200 500 600 300Wt 75 105 135 60

Compute distance from each site to each supplier

= (200-360)2 + (200-180)2dA = (xA - x1)2 + (yA - y1)2Site 1 = 161.2

= (100-360)2 + (500-180)2dB = (xB - x1)2 + (yB - y1)2 = 412.3

dC = 434.2 dD = 184.4

Load-Distance: Example (cont.)

Site 2 dA = 333 dC = 226.7dB = 323.9 dD = 170

Site 3 dA = 206.2 dC = 200dB = 180.4 dD = 269.3

Compute load-distance

i = 1

n

li diLD =

Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(184.4) = 125,089

Site 2 = (75)(333) + (105)(323.9) + (135)(226.7) + (60)(170) = 99,791

Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555*

Geographic Information Systems and Location Decisions

Geographic information system (GIS) is a system of computer software, hardware, and data that the firm’s personnel can use to manipulate, analyze, and present information relevant to a location decision.

Features: Store databases

Display maps

Create models that can take information from existing datasets, apply analytic functions, and write results into new derived datasets.

Types of Data in GIS

Raster- Any type of digital image represented by reducible and enlargeable grids

Vector- Considering those features which geometrical shapes(Points, Lines, Polygons)

Data Acquisitions

Survey

GPS

Electromagnetic Spectrum

Laser Rangefinder

Photogrammetry

USES

Geography

Cartography

Remote sensing

Land surveying

Public utility management

Natural resource management

Precision agriculture

Urban planning

Emergency management

Navigation

Aerial video

Localized search engines

 

GIS and Site Selection in the Petroleum Industry

Petroleum Exploration

Production

Managing Facilities

Pipeline Management

Using GIS to Identify Starbucks Locations

The Starbuck store addresses within 20 miles of Hamilton, Ontario were obtained from the Starbucks Web site, and imported into MapPoint.

These store locations are denoted on maps by yellow dots. Then demographics that come with MapPoint were overlaid on the map.

On the first map, note that Oakville has more store locations than Hamilton even though it has lower population density, suggesting that store location is not being driven by population density alone.

The second map shows the demographics by average per capita household income. Note that in this case, the store locations are based in more affluent areas.

Starbucks locations

CONCLUSION

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