Enrollment No.

: MBISMCT11118178

MBA Information Systems 1st Year Assignment

Annamalai University

6: Production and Materials Management

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Question #1: What are the types of plant layout, how plant layout
has been done in the sugar factory?
Answer:-

Meaning of Plant Layout

Plant layout implies the physical arrangement of machines, equipment and
other industrial facilities on the factory floor in such a manner that they may
be handled efficiently. It may be defined as a technique of locating machines,
process and plant services within the factory so as to achieve the right
quantity and quality of output at the lowest possible cost of manufacturing.
As a floor plan of production facilities, plant layout indicates the space
allotted for material movement, storage and all supporting facilities for
overall economy in production. It involves supporting facilities for overall
economy in production. It involves a judicious arrangement of production
facilities so that work flows in as direct a path as possible.
The overall objective of plant layout is to design a physical arrangement
that most economically meets the required output quantity and quality.
Riggs
Plant layout ideally involves allocation of space and arrangement of
equipment in such a manner that overall operating costs are minimized. J.
L. Zundi

Importance of Plant Layout

An optimum layout would permit an uninterrupted flow of work through the
factory. It ensures best possible utilisation of machines, workers and space. A
plant layout study is required to create an arrangement that will minimise
unit production costs. Such a study involves a careful analysis of all factors
affecting layout. Plant layout is important decision as it represents a longterm commitment. An ideal plant layout should provide the optimum
relationship among output, floor area and manufacturing process. It
facilitates the production process, minimizes material handling, time and
cost, and allows flexibility of operations, easy production flow, makes
economic use of the building, promotes effective utilization of manpower,
and provides for employees convenience, safety, comfort at work, maximum
exposure to natural light and ventilation. It is also important because it
affects the flow of material and processes, labour efficiency, supervision and
control, use of space and expansion possibilities etc.

Objectives of Plant Layout

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The various objectives of good plant layout are as follows:
To minimise handling and transportation of materials
To ensure economic utilization of available floor space
To minimise work-in-progress inventory by eliminating bottle-necks
To ensure efficient control over the various processes of production
To maximise convenience and safety of workers
To obtain more efficient utilisation of machinery, equipment and other
facilities
To minimise cost of production

Types of Plant Layout

There are four broad categories of plant layout.
1. Product Layout
2. Process Layout
3. Fixed Position Layout
4. Group Layout
1. Product layout
Also known as or flow, sequential, or line layout, all plant facilities
machines, men and materials are arranged according to the sequence of
operations required to produce a specific product. A continuous
production system usually utilizes a product layout.
Characteristics of Product Layout
Layout by product is associated with mass and large batch production and
has the following characteristics:
Little material-handling necessary.
Good machine utilization.
Low work-in-progress.
Production control facilitated and Minimum floor space required.
Machine breakdown disrupts production.
Effective use of labour, i.e. minimum training, job specialization, etc.
Evaluation of Product Layout
The evaluation of product layout is simple to make because the
advantages of product layout are essentially the same as the
disadvantages of the process layout and vice versa.
Advantages of Product Layout
Lower total materials handling cost.
Less total production time.
Less work-in-process.
Greater simplicity of production control, fewer controls and records
needed.
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Lower accounting cost, and less supervision.
Disadvantages of Product Layout
Decreased flexibility.
Increased investment in equipment and machines.
Frequently greater difficulty in expanding production beyond the
capacities of the lines in layout by product, and
Greater difficulty in securing specialization in supervision.
Stability of Product Layout
The manufacturing units involving continuous manufacturing process,
producing few standardized products continuously on the firms own
specifications and in anticipation of sales would prefer product layout e.g.
chemicals, sugar, paper, rubber, refineries, cement, automobiles, food
processing and electronics etc.
2. Process Layout
In the process/functional layout, all facilities for performing the same or
similar functions are grouped together, i.e. lathes, milling machines, drill
presses etc. are found in separate areas. a part being worked on them
travels from one area to another according to the established sequence of
operations through which it must be put, and where the proper machines
are located for each operation.
Characteristics of Process Layout
Layout by process is associated with jobbing in small batch production
with these features:
Allows specialized supervision;
Facilitates provision of services;
Failure of machines or absence of workers does not disrupt production
excessively;
Good machine utilization;
Operations may be missed and bad jobs delayed because of the
necessary flexibility of control;
High work-in-progress.
Advantages of Process Layout
Lower initial capital investment in machines and equipments.
There is high degree of machine utilization, as they are not blocked for
a single product.
The overhead costs are relatively low.
Change in output design and volume easily adapted to the output of
variety of products.
Breakdown of one machine does not result in complete work stoppage.
Supervision can be more effective and specialized.
There is a greater flexibility of scope for expansion.
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Disadvantages of Process Layout
Material handling costs are high due to backtracking.
More skilled labour is required resulting in higher cost.
Time gap or lag in production is higher.
Work in progress inventory is high needing greater storage space
More frequent inspection is needed which results in costly supervision.
Suitability of Process Layout
Process layout or functional layout is suitable for job order production
involving non-repetitive processes and customer specifications and non
standardized products, e.g. tailoring, light and heavy engineering
products, made to order furniture industries, jewellery.

3. Fixed Position Layout

In this type of layout, the major product being produced is fixed at one
location. Equipment labour and components are moved to that location.
All facilities are brought and arranged around one work centre. This type
of layout is not relevant for small scale entrepreneur.
Advantages of Fixed Position Layout
It saves time and cost of movement of work from one workstation to
another.
The layout is flexible to change in job design and operation sequence.
It is more economical when several orders in different stages of
progress are being executed simultaneously.
Adjustments can be made to meet shortage of materials or absence of
workers by changing the sequence of operations.
Disadvantages of Fixed Position Layout
Production period being very long, capital investment is very heavy
Very large space is required for storage of material and equipment
near the product.
As several operations are often carried out simultaneously, there is
possibility of confusion and conflicts among different workgroups.
Suitability Fixed Position Layout
Manufacture of bulky and heavy products such as locomotives, ships,
boilers, generators, wagon building, aircraft manufacturing, etc.
Construction of building, flyovers, dams.
Hospital, the medicines, doctors and nurses are taken to the patient
(product).
4. Group/Combined Layout

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Certain manufacturing units may require all three processes namely
intermittent process (job shops), the continuous process (mass production
shops) and the representative process combined process (i.e.
miscellaneous shops).
In most of industries, only a product layout or process layout or fixed
location layout does not exist. Thus, in manufacturing concerns where
several products are produced in repeated numbers with no likelihood of
continuous production, combined layout is followed. Generally, a
combination of the product and process layout or other combination are
found, in practice, e.g. for industries involving the fabrication of parts and
assembly, fabrication tends to employ the process layout, while the
assembly areas often employ the product layout. In soap, manufacturing
plant, the machinery manufacturing soap is arranged on the product line
principle, but ancillary services such as heating, the manufacturing of
glycerine, the power house, the water treatment plant etc. are arranged
on a functional basis.

Factors that influence Plant Layout

The following factors should be considered while planning the layout of a
plant
Factory Building: The nature and size of the building determines the
floor space available for layout. While designing the special requirements,
e.g. air conditioning, dust control, humidity control etc. must be kept in
mind.
Nature of Product: product layout is suitable for uniform products
whereas process layout is more appropriate for custom-made products.
Production Process: In assembly line industries, product layout is
better. In job order or intermittent manufacturing on the other hand,
process layout is desirable.
Type of Machinery: General purpose machines are often arranged as
per process layout while special purpose machines are arranged
according to product layout
Repairs and Maintenance: machines should be so arranged that
adequate space is available between them for movement of equipment
and people required for repairing the machines.
Human Needs: Adequate arrangement should be made for cloakroom,
washroom, lockers, drinking water, toilets and other employee facilities,
proper provision should be made for disposal of effluents, if any.
Plant Environment: Heat, light, noise, ventilation and other aspects
should be duly considered, e.g. paint shops and plating section should be
located in another hall so that dangerous fumes can be removed through
proper ventilation etc. Adequate safety arrangement should also be
made.
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Thus, the layout should be conducive to health and safety of employees. It
should ensure free and efficient flow of men and materials. Future expansion
and diversification may also be considered while planning factory layout.

Plant Layout of Sugar Industry

Plant layout of sugar production unit is based on the Product Layout. The
process of sugar plant layout is a creative one in so far as it helps minimize
movement of machines and personnel, facilitate the manufacturing process,
and reduce the cost of production. While the techniques employed in making
a layout are normal work-study techniques. There are certain criteria which
should be satisfied by a good plant layout for the Sugar factory, which are:
1. Maximum Flexibility: A good layout will be one which can be rapidly
modified to meet changing circumstances.
2. Maximum Coordination: Layout requires to be considered as a whole
and not in parts. It should clearly state the interrelationships between
different machines, departments, and personnel and should provide for
coordinated efforts.
3. Maximum use of Volume: Maximum use should be made of the volume
available. This principle is particularly true in stores, where raw material
(sugar cane) can be stacked at considerable heights without
inconvenience, especially if lift-trucks are used.
4. Maximum Visibility: All men and materials should be readily observable
at all times there should be not hiding places into which goods can be
mislaid. This criterion is sometimes difficult to fulfil particularly when an
existing plant is taken over.
5. Maximum Accessibility: All servicing and maintenance points should be
readily accessible. Sugar plant should be near to main road as well as
closed to the farm land from where raw sugar cane and final product can
be transported.
6. Minimum Distance: All movements should be both necessary and
direct. Handling materials adds to the cost of the product but does not
increase its value.
7. Minimum Discomfort: Poor lighting, excessive sunlight, heat, noise,
vibrations, and smells should be minimized and if possible counteracted.
8. Minimum Handling: The best handling is no handling, but where
handling is unavoidable it should be reduced to a minimum by the use of
conveyors, lifts, chutes, hoists and trucks.
9. Inherent Safety, Maximum Security, Visible Routes: All layouts
should be inherently safe, and no person should be exposed to danger.
Definite lines of travel should be provided and, if possible, clearly marked,
no gangways should ever be used for storage purposes, even temporarily.
Procedure for Designing a Sugar Plant Layout
The steps which are logically necessary in order to prepare a satisfactory
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plant layout are:
1. Obtain basic production data, starting with a list of operations to make a
product, the machines to be used or processes to be employed, and the
sequence or route to be followed.
2. Prepare an assembly chart, obtaining and analyzing and coordinating the
basic production data, so that a flow process chart can be derived
showing the path taken by materials and labour/machine requirements.
3. Calculate equipment requirements needed to produce the particular
production rate, making allowance for machine capacity, machine
utilization etc.
4. Materials-handling plan containing decisions on whether the movement of
materials between machines, work stations, or process plant is to be by
means of conveyors, cranes, hoists etc. materials-handling is a very
significant cost factor in production and this aspect of production should
receive very serious considerations at this stage.
5. Space allocation study: Since site considerations chiefly relate to the case
of transfer of materials between the various operations, factors related to
materials-handling dominate at this stage.
6. Prepare fist draft layout plan. This will involve using the site plan and
incorporating on it the various machines and materials-handling
equipments needed as a result of the initial assembly chart and flow
process chart.
7. Prepare first draft flow diagram. This will show whether the flow diagram
is good and free from complex movements.
8. Revise layout and prepare revised flow diagram as necessary until the
best arrangement is obtained.
9. Plan individual machines, work stations, or plant in relation to access for
work in process, for repair and maintenance of plant and for services such
as electricity, gas, high-pressure air, etc. it is also necessary to ensure
that there is adequate illumination.
10. Plan materials-handling equipment in detail, as related to the
individual machines, work stations, or process plant.
11. Plan and locate all service supplies to each part of the layout.
12. Prepare master plan
The main advantages of designing a plant for one's own operation and longterm use is that it affords the opportunity of reviewing what is the most
economic solution to the opposing requirements of:
Minimum capital cost
Lowest operating and maintenance costs
Highest sucrose recovery
Highest labour productivity
Least operational downtime
The opportunity of evaluating these factors under operating conditions
makes the difference between a good design and an over-expensive, or
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cheap and nasty alternative plant layout.
Design philosophies which would guide decisions on present versus future
needs had to be established at the outset. It was decided that layouts should
enable maximum productivity output per man - to be realised in the future,
but that investment in automation should follow current evaluations.
The general principles of the plant requirements were fairly easy to establish:
Cane handling should be minimised;
Extraction should be as high as economically justified;
Boilers must burn whole bagasse, bagasse pith and coal;
The process plant must be steam efficient to minimise requirements as
export bagasse potential existed;
It must be possible to make high grade export sugar from the relatively
poor quality cane available in the area; and
Overall sugar recoveries should be good, but again only as high as was
economically justifiable.

Flow Diagram for Cane Sugar Production

Question #4: What are the factors influencing plant location?

Explain with an example.
Answer:-

Introduction
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The performance of an enterprise is considerably affected by its location. The
location of an industry is as important as the choice is for the location of a
business or a shop in a city or locality. Unscientific and unplanned
industrialization is harmful not only to the industrial unit but also to the
social and economic structure of the country as a whole.
Nearly sixty years before, much importance was not given to the selection of
appropriate location and the decisions in this regard were mainly governed
by the individual preferences of the entrepreneurs and social customs. This
resulted in failure of any organization which otherwise could have been
successful. Government also with the objective of establishing socialistic
pattern of society became instrument all in the selection of site for various
industries in undeveloped areas by providing various investment benefits
and other incentives. All this encouraged a large number of industrialists to
follow a more scientific a logical approach towards the selection of site for
establishing their industries.
The degree of significance for the selection of location for any enterprise
mainly depends on its size and nature. Sometimes, the nature of the product
itself suggests some suitable location. A small scale industry mainly selects
the site where in accordance with its capacity the local market for the
product is available. It can easily shift to other place when there is any
change in the market. But for large scales industries requiring huge amount
of investment there are many considerations other than the local demand
into the selection of proper plant location. These plants cannot be easily
shifted to other place and an error of judgment in the selection of site can be
very expensive to the organization.

Importance of Location
The location of a plant is an important entrepreneurial decision because it
influences the cost of production and distribution to a great extent. In some
cases, you will find that location may contribute to even 10% of cost of
manufacturing and marketing. Therefore, an appropriate location is essential
to the efficient and economical working of a plant. A firm may fail due to bad
location or its growth and efficiency may be restricted. The selection of
location is of paramount importance both for new and already established
enterprises.
The location choice is vital for any new firm for its success. Because
fundamental objective of an enterprise is to maximize its profits which can
be done either by increasing sales or by decreasing cost of production. If an
enterprise is located near its potential market then the organization can have
better and up to date understanding of the market and thus can formulate
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more effective production and marketing strategies to increase sales. The
reduction in cost of production is possible when a firm is located at a place
where all kinds of production economies w.r.t. input factors are available. The
relocation of already existing enterprises may be necessary due to dynamic
nature of plant location.
For example: materials that are produced in bulk quantities, such as cement,
mineral acids and fertilizers, where the cost of the product per ton is
relatively low and the cost of transport is a significant fraction of the sales
price, the plant should be located close to the primary market. This
consideration will be less important for low volume production, high-priced
products; such as pharmaceuticals. In an international market, there may be
an advantage to be gained by locating the plant within an area with
preferential tariff.

Factors Influencing Plant 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, labor costs, and
transportation costs. Location conditions are complex and each comprises a
different Characteristic of a tangible (i.e. Freight rates, production costs) and
non-tangible (i.e. reliability, Frequency security, quality) nature. Location
conditions are hard to measure. Tangible cost based factors such as wages
and products costs can be quantified precisely into what makes locations
better to compare. On the other hand non-tangible features, which refer to
such characteristics as reliability, availability and security, can only be
measured along an ordinal or even nominal scale. Other non-tangible
features like the percentage of employees that are unionized can be
measured as well. To sum this up non-tangible features are very important
for business location decisions. It is appropriate to divide the factors, which
influence the plant location or facility location on the basis of the nature of
the organization as:
1. General location factors, which include controllable and uncontrollable
factors for all type of organizations.
2. S pe c i fi c
lo ca ti on
fa ct or s ,
s p e c ifi c a l ly
re q ui re d
fo r
m a nu fa ct ur in g a nd s e r vi ce organizations.
Location factors can be further divided into two categories: Dominant factors
are those derived from competitive priorities (cost, quality, time, and
flexibility) and have a particularly strong impact on sales or costs. Secondary
factors also are important, but management may downplay or even ignore
some of them if other factors are more important.

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Following are the general factors required for location of plant in case of all
types of organizations.

Controllable Factors
1. Proximity to markets
2. Supply of materials
3. Transportation facilities
4. Infrastructure availability
5. Labour and wages
6. External economies7.Capital.
Uncontrollable Factors
7. Government policy
8. Climate conditions
9. Supporting industries and services
10. Community and labor attitudes
11. Community Infrastructure.
Controllable Factors
1.

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 is advisable to locate the facilities close to the market.
Locating nearer to the market is preferred if
The products are delicate and susceptible to spoilage.
After sales services are promptly required very often.
Transportation cost is high and increase the cost significantly.
Shelf life of the product is low. Nearness to the market ensures a
consistent supply of goods to customers and reduces the cost of
transportation.
2.
Supply of raw material:
It is essential for the organization to get raw material in right qualities and
time in order to have an uninterrupted production. This factor becomes
very important if the materials are perishable and cost of transportation is
very high. General guidelines suggested by Yaseen regarding effects of
raw materials on plant location are:
When a single raw material is used without loss of weight, locate
the plant at the raw material source, at the market or at any point in
between.
When weight loosing raw material is demanded, locate the plant at
the raw material source.
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When raw material is universally available, locate close to the
market area.
If the raw materials are processed from variety of locations, the
plant may be situated so as to minimize total transportation costs.
Nearness to raw material is important in case of industries such as
sugar, cement, jute and cotton textiles.
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. There are five basic modes of
physical transportation, air, road, rail, water and pipeline. Goods that are
mainly intended for exports demand a location near to the port or large
airport. The choice of transport method and hence the location will
depend on relative costs, convenience, and suitability. Thus transportation
cost to value added is one of the criteria for plant location.
Infrastructure availability:
The basic infrastructure facilities like power, water and waste disposal,
etc., become the prominent factors in deciding the location. Certain types
of industries are power hungry e.g., aluminum and steel and they should
be located close to the power station or location where uninterrupted
power supply is assured throughout the year. The non-availability of
power may become a survival problem for such industries. Process
industries like paper, chemical, cement, etc., require continuous. Supply
of water in large amount and good quality, and mineral content of water
becomes an important factor. A waste disposal facility for process
industries is an important factor, which influences the plant location.
Labour and wages:
The problem of securing adequate number of labor and with skills specific
is a factor to be considered both at territorial as well as at community
level during plant location. Importing labor is usually costly and involve
administrative problem. The history of labor relations in a prospective
community is to be studied. Prospective community is to be studied.
Productivity of labor is also an important factor to be considered.
Prevailing wage pattern, cost of living, industrial relation and bargaining
power of the unions forms is important considerations.
External economies of scale:
External economies of scale can be described as urbanization and location
economies of scale. It refers to advantages of a company by setting up
operations in a large city while the second one refers to the settling
down among other companies of related Industries. In the case of
urbanization economies, firms derive from locating in larger cities rather
than in smaller ones in a search of having access to a large pool of labor,
transport facilities, and as well to increase their markets for selling their
products and have access to a much wider range of business services.
Location economies of scale in the manufacturing sector have evolved

3.

4.

5.

6.

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over time and have mainly increased competition due to production
facilities and lower production costs as a result of lower transportation
and logistical costs. This led to manufacturing districts where many
companies of related industries are located more or less in the same area.
As large corporations have realized that inventories and warehouses have
become a major cost factor, they have tried reducing inventory costs by
launching Just in Time production system (the so called Kanban
System). This high efficient production system was one main factor in the
Japanese car industry for being so successful. Just in time ensures to get
spare parts from suppliers within just a few hours after ordering. To fulfill
these criteria corporations have to be located in the same area increasing
their market and service for large corporations.
7.
Capital:
By looking at capital as a location condition, it is important to distinguish
the physiology of fixed capital in buildings and equipment from financial
capital. Fixed capital costs as building and construction costs vary from
region to region. But on the other hand buildings can also be rented and
existing plants can be expanded. Financial capital is highly mobile and
does not very much influence decisions. For example, large Multinational
Corporations such as Coca-Cola operate in many different countries and
can raise capital where interest rates are lowest and conditions are most
suitable. Capital becomes a main factor when it comes to venture capital.
In that case young, fast growing (or not) high tech firms are concerned
which usually have not many fixed assets. These firms particularly need
access to financial capital and also skilled educated employees.
Uncontrollable Factors
8.

Government policy:
The policies of the state governments and local bodies concerning labor
laws, building codes, safety, etc., are the factors that demand attention.
In order to have a balanced regional growth of industries, both central and
state governments in our country offer the package of incentives to
entrepreneurs in particular locations. The incentive package may be in the
form of exemption from a sales tax and excise duties for a specific period,
soft loan from financial institutions, subsidy in electricity charges and
investment subsidy. Some of these incentives may tempt to locate the
plant to avail these facilities offered.
9.
Climatic conditions:
The geology of the area needs to be considered together with climatic
conditions (humidity, temperature). Climates greatly influence human
efficiency and behavior. Some industries require specific climatic
conditions e.g., textile mill will require humidity.
10.
Supporting industries and services:
Now a day the manufacturing organization will not make all the
components and parts by itself and it subcontracts the work to vendors.
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So, the source of supply of component parts will be the one of the factors
that influences the location. The various services like communications,
banking services professional consultancy services and other civil
amenities services will play a vital role in selection of a location.
11.
Community and labor attitudes:
Community attitude towards their work and towards the prospective
industries can make or mar the industry. Community attitudes towards
supporting trade union activities are important criteria. Facility location in
specific location is not desirable even though all factors are favoring
because of labor attitude towards management, which brings very often
the strikes and lockouts.
12.
Community infrastructure and amenity:
All manufacturing activities require access to a community infrastructure,
most notably economic overhead capital, such as roads, railways, port
facilities, power lines and service facilities and social overhead capital like
schools, universities and hospitals. These factors are also needed to be
considered by location decisions as infrastructure is enormously
expensive to build and for most manufacturing activities the existing
stock of infrastructure provides physical restrictions on location
possibilities.
Location Factors for Manufacturing Organization
Factors dominating location decisions for new manufacturing plants can be
broadly classified in six groups as follows.
1. Favorable labor climate:
A favorable labor climate may be the most important factor in location
decisions for labor-intensive firms in industries such as textiles furniture
and consumer electronics. Labour climate includes wage rates, training
requirements attitudes toward work, worker productivity and union
strength. Many executives consider weak unions or as low probability of
union organizing efforts as a distinct advantage.
2. Proximity to markets:
After determining where the demand for goods and services is greatest,
management must select a location for the facility that will supply that
demand. Locating near markets is particularly important when the final
goods are bulky or heavy and outbound transportation rates are high. For
example, manufacturers of products such as plastic pipe and heavy
metals all emphasize proximity to their markets.
3. Quality of life:
Good schools, recreational facilities, cultural events, and an attractive
lifestyle contribute to quality of life. This factor is relatively unimportant
on its own, but it can make the difference in location decisions.
4. Proximity to suppliers and resources:
In many companies, plants supply parts to other facilities or rely on other
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facilities for management and staff support. These require frequent
coordination and communication, which can become more difficult as
distance increases.
5. Utilities, taxes, and real estate costs:
Other important factors that may emerge include utility costs (telephone,
energy, and water), local and state taxes, financing incentives offered by
local or state governments, relocation costs, and land costs.
Location Factors for Service Organization
Dominant Factor: The factors considered for manufacturers are also
applied to service providers, with one important addition - the impact of
location on sales and customer satisfaction. Customers usually look about
how close a service facility is, particularly if the process requires
considerable customer contact.
1. Proximity to Customers:
Location is a key factor in determining how conveniently customers can
carry on business with a firm. For example, few people would like to go to
remotely located dry cleaner or supermarket if another is more
convenient. Thus the influence of location on revenues tends to be the
dominant factor.
2. Transportation Costs and Proximity to Markets
For warehousing and distribution operations, transportation costs and
proximity to markets are extremely important. With a warehouse nearby,
many firms can hold inventory closer to the customer, thus reducing
delivery time and promoting sales.
3. Location of Competitors
One complication in estimating the sales potential at different location is
the impact of competitors. Management must not only consider the
current location of competitors but also try to anticipate their reaction to
the firms new location. Avoiding areas where competitors are already well
established often pays. However, in some industries, such as new-car
sales showrooms and fast-food chains, locating near competitors is
actually advantageous. The strategy is to create a critical mass, whereby
several competing firms clustered in one location attract more customers
than the total number who would shop at the same stores at scattered
locations. Recognizing this effect, some firms use a follow the leader
strategy when selecting new sites.
Secondary Factors: Retailers also must consider the level of retail activity,
residential density, traffic flow, and site visibility. Retail activity in the area is
important, as shoppers often decide on impulse to go shopping or to eat in a
restaurant. Traffic flows and visibility are important because businesses
customers arrive in cars. Visibility involves distance from the street and size
of nearby building sand signs. High residential density ensures night time
and weekend business when the population in the area fits the firms
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Enrollment No.: MBISMCT11118178

competitive priorities and target market segment.
For Example:
L e t u s a s s u m e t h a t a n e w m e d i c a l f a c i l i t y , H e a l t h - c a re , i s t o
b e located in Delhi. The location factors, factor rating and scores for two
potential sites are shown in the following table. Which is the best
location based on factor rating method?
Sl.
Location Factor
Factor
Rating
No
Rating
Location 1
Location2
1 Facility utilization
8
3
5
2 Total patient per month
5
4
3
3 Average time per
6
4
5
emergency trip
4 Land and construction
3
1
2
costs
5 Employee preferences
5
5
3
Solution:
Sl.
Location Factor
No

1
2
3
4
5

Facility utilization
Total patient per month
Average time per
emergency trip
Land and construction
costs
Employee preferences

Factor
Rating
(1)
8
5
6

Location 1
Rating Total
(2)
=
(1),
(2)
3
24
4
20
4
24

Location 2
Rati Total
ng
=
(3)
(1),
(3)
5
40
3
15
5
30

5
Total

25
96

3
Total

15
106

The total score for location 2 is higher than of location 1. Hence location 2
is the best.

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