session-sdc 4 facility location

7/28/2019 Session-SDC 4 Facility Location

1/28

Facility Location


2/28

Definition

Facility location is the process of identifying the

best geographic location for a service or production

facility. In other words Facility location or Plant

location is a function of determining the location

for a plant for maximum operating economy and

effectiveness.


3/28

Facility Location/Plant Location

A plant location on pure economic considerations will ensure

an easy and regular supply of raw materials, labour force,

efficient plant layout, proper utilization of production

capacity, and reduced manufacturing.

3


4/28

Reason for plant location

Establishment of a new venture

Expansion of existing business

Expansion of demand or volume of business

Re-location of existing plant Merging of companies

Changes in political, economical and social condition

Significant changes in the cost structure

4


5/28

Factors Influence Plant Location/ Facility Location

Facility location is the process of determining a geographic

site for a firms operations. Managers of both service and

manufacturing organizations must weigh many factors when

assessing the desirability of a particular site, including

proximity to customers and suppliers, labourcosts, andtransportation costs. It is appropriate to divide the factors,

which influence the plant location or facility location on the

basis of the nature of the organisation as

General locational factors Specific locational factors

5


6/28

General Locational Factors

1. CONTROLLABLE FACTORS

Proximity to markets

Supply of materials

Transportation facilities Infrastructure availability

Labour and wage

External economies

Capital

6


7/28

General Locational Factors

2. UNCONTROLLABLE FACTORS

Government policy

Climate conditions

Supporting industries and services Community and labour attitudes

Community Infrastructure

7


8/28

Proximity to markets

Every company is expected to serve its customers by providing

goods and services at the time needed and at reasonable price

organizations may choose to locate facilities close to the

market or away from the market depending upon the product.

When the buyers for the product are concentrated, it isadvisable to locate the facilities close to the market.

8


9/28

Supply of raw material

It is essential for the organization to get raw material in right

qualities and right time in right order to have an

uninterrupted production. This factor becomes very important

if the materials are perishable and cost of transportation is

very high.

9


10/28

Transportation facilities

Speedy transport facilities ensure timely supply of

raw materials to the company and finished goods to

the customers. The transport facility is a

prerequisite for the location of the plant.

10


11/28

Infrastructure availability

The basic infrastructure facilities like power, water and

transport, etc., become the prominent factors in deciding the

location.

11


12/28

Labour and wages

The problem of securing adequate number of labour and with

skills specific is a factor to be considered both at territorial

(region) as well as at community level during plant location.

12


13/28

UNCONTROLLABLE FACTORS

1. Government policy-

The policies of the state governments and local bodies

concerning labour laws, building codes, safety, etc., are the

factors that demand attention.

13


14/28

14

2. Climatic conditions:

The geology of the area needs to be considered together withclimatic conditions (humidity, temperature). Climates greatlyinfluence human efficiency and behaviour. Some industries

require specific climatic conditions e.g., textile mill will requirehumidity.



15/28


15

3. Supporting industries and services:

Now a day the manufacturing organisation will not make all thecomponents and parts by itself and it subcontracts the work tovendors. So, the source of supply of component parts will be the

one of the factors that influences the location.


16/28


5. Community and labour attitude-

Community attitude towards their work and towards the

prospective industries can make the industry. Community

attitudes towards supporting trade union activities are important

criteria.

16


17/28


17

6. Community infrastructure and amenity:

All manufacturing activities require access to acommunity infrastructure, most notably economic

overhead capital, such as roads, railways, portfacilities, power lines and service facilities and socialoverhead capital like schools, universities andhospitals.


18/28

Decisions Making Process in Facility Location/

Facility Location Models

1. Qualitative Factor analysis models

Factor Rating Method

Weighted factor rating method

Point rating Method2. Quantitative Factor analysis models

Return on Investment

Break even analysis

Dimensional Analysis

18


19/28

Factor Rating Method

The process of selecting a new facility location involvesa series of following steps:

Identify the important location factors.

Rate each factor according to its relative importance,

i.e., higher the ratings is indicativeof prominent factor. Assign each location according to the merits of the

location for each factor.

Calculate the rating for each location by multiplying

factor assigned to each location with basic factorsconsidered.

Find the sum of product calculated for each factor

and select best location having highesttotal score.

19


20/28


21/28

Weighted factor rating method

Factors are assigned weights based on relativeimportance and weightage score for each site using

a preference matrix is calculated.The site with thehighest weighted score is selected as the best

choice.

21


22/28
http://c/Users/Public/Documents/facility%20Location%20Models.xlsx


23/28

Point Rating Method All objectives of plant location dont have

equal weightage. When relative

importance of each objective isrepresented by the number of points, is

called point rating method


24/28

25
http://c/Users/Public/Documents/facility%20Location%20Models.xlsx


25/28

Break even analysis

Break even analysis implies that at some point in theoperations, total revenue equals total cost. Break

even analysis is concerned with finding the point atwhich revenues and costs agree exactly. It is called

Break-even Point.

25


26/28

Alternative location x,y,z have a cost structures shown to

produce a product expected for selling at Rs. 120 per unit.

Find the most economical location for an expected volume of

2,500 units 1 year and determine the range of annual volume

of production for which , each of the locations x,y, and z

would be most economical or potential

Location FC/year (Rs.) VC/ unit (Rs.)

X 40,000 60Y 60,000 40

Z 90,000 25

27


27/28

Dimensional analysis

C1M, C

2M , C

3MC

ZM are the different costs

associated with a site M on the Zdifferent cost items

C1

N , C2

N , C3

N, CZ

N are the different costs

associated with a site N, andW

1,W

2,W

3 .W

Zare the weightages given to these

cost items, then the relative merit ofsite M and

site N is given by:

(C1M / C1

N) W1x (C2M / C2

N) W2x (C3M / C3

N) W3x (CzM /

Cz

N) WZ

If this is > 1, it means site N is superior; and vice versa.

27

28


28/28

ILLUSTRATION

Potential locations X, Y and Z have the coststructures shown below.

The ABC company has a demand of 1,30,000 unitsof a new product. Three potential locations X, Y

and Z having following cost structures shown areavailable. Select which location is to be selectedand also identify the volume ranges where each

location is suited?

28