Facility Location

By
Shashikant H.Zarekar, PE(24),091040031, B.Tech Prod, V.J.T.I Mumbai

Overview

Involves the long-term commitment of large amount of capital under conditions of considerable uncertainty. Determines a permanent framework of operating constraints. Significant impact on investment requirements, operating costs, revenues and operations. Has significant consequences on the competitive position of the firm.

Need for location decision

Significant changes in the level of demand. Significant changes in the geographical distribution of demand.

Changes in the costs or quality requirement of critical production inputs.

Significant changes in the real-estate value of existing or adjacent sites. Depletion of resources.

Strategic importance of location decision

To become the low cost producer of final products. To increase profits by planning to capture the increased market share. To base location of the facilities based on customer convenience.

To base location of a facility based on where it fits in the entire supply chain. (Beginning, Middle or end of the chain)

Location options

Expand existing facilities Add new facilities while retaining the existing ones. Move to a new location Doing nothing

Making Location Decisions

Decide on the criteria Identify the important ones Develop location alternatives Evaluate the alternatives Make selection

Factors influencing Location Decision

Regional Factors Community Consideration s

Multiple Plant Strategies

Site-related Factors

Regional Factors

Location of raw materials Location of markets Labor factors Infrastructure Climate and taxes

Community Considerations

Quality of life Services (Medical, police, fire services etc.) Attitude of the people Taxes Environmental regulations Utilities (cost and availability)

Site Related Factors

Land (cost, degree of development required, soil characteristics etc.) Transportation Environmental Legal

Multiple Plant Strategies

Product plant strategy Market area plant strategy Process plant strategy

Comparison of Service and Manufacturing Considerations

Manufacturing/Distribution Cost Focus Transportation modes/costs Energy availability, costs Labor cost/availability/skills Building/leasing costs Service/Retail Revenue focus Demographics: age,income,etc Population/drawing area Competition Traffic volume/patterns

Customer access/parking

Issues in global locations

Trading Blocks Political Risk Foreign Government

-Policies on foreign ownership of production facilities -Import restrictions -Currency restrictions -Local product standards -Environmental Regulations

Cultural differences Resources Labor

-Possible regulation limiting no. of foreign employees

-Language differences

Evaluating Locations

Transportation Model

Decision based on movement costs of raw materials or finished goods

Cost-Profit-Volume Analysis - Decision based on fixed cost, variable cost and the level of
output produced at a particular location.

Center of Gravity (or Centroid) Method

Decision based on minimum distribution costs

Factor Rating

Decision based on quantitative and qualitative inputs

Analytic Hierarchy Process

Highlights

Capacity planning is deciding on the maximum output rate of a facility. Location analysis is deciding on the best location for a facility. Capacity planning and location decisions are often made at the same time because they are inter-related. The analysis steps for both capacity and location analysis are assessing needs, developing alternatives, and evaluating alternatives.

Highlights

To choose between capacity planning alternatives managers may use a modeling tool like decision trees Key factors in location analysis include proximity to customers, transportation, source of labor, community attitude, and proximity to supplies. Location analysis tools include factor ratings, the load-distance model, the center of gravity approach, break-even analysis, and the transportation method.

Thank you