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OPERATIONS MANAGEMENT
(MBA-I, A-Batch)
Prasanna K (042)
Objective:
Evaluating the location decisions for a FMCG industry.
Location selection:
Before the plant location is sought, long range forecasts should be made anticipating
the needs of the company based on company’s expansion policy, diversification of products,
changing market, the changing source of raw materials and any other foreseeable influences.
Given below are the few steps that should be followed before setting up a new plant.
2. Government Policies
Investment friendly government policies also play a major role in the choice of a
location. Certain state governments come up with various incentives and provide subsidies
for certain products that are manufactured. These factors need to be considered before
zeroing in on a particular state.
3. Transportation
The company should be located in an area where adequate transportation facilities of
the desired type are available. The costs of shipping the product or bringing in raw materials
are significant factors for many companies, and the reduced freight rates available in some
areas should be weighed against other operating costs to determine the predominant
consideration. There should be proper availability for transportation with cold storage and
air cooled van so that the beverages can be stored in a cool dry atmosphere.
4. Power Supply
Every company has the need for electric power, but only to those companies using
tremendous quantities are these items of major importance in choosing the plant site. An
adequate supply of power at low rates is available in most areas: seldom is it necessary for
the company to develop its own. However, some companies prefer to maintain a power
station in a standby condition to take care of any emergencies that may arise. Power supply
also plays a major role for freezing and maintaining a constant temperature for the
beverages to prolong their life.
5. Pollution Control
During recent years, there has been a wave of public sentiment in regard to pollution
control. This led to the establishment of the Federal Environmental Protection Agency and
the setting of deadlines on air and water controls to protect the public health. The
combination of new laws and social pressure has had great impact on many companies,
particularly the heavily polluting industries (e.g. public utilities, steel, oil, paper, chemicals)
6. Taxes
The kinds and amounts of taxes levied by a state or community should be considered in
locating a plant. Taxes become one of the operating costs; the kinds of taxes and the basis
for fixing them should be thoroughly investigated. As an enticement to get plants to locate
there, some states and territories (particularly Puerto Rico) offer companies tax exemptions
for a stipulated period of time. This has influenced many companies to locate in these areas.
7. Climate
Seldom does the climate influence the location of a plant. In those companies requiring
controlled temperature, humidity, and ventilation, it is possible to install equipment to
maintain the required conditions. Sometimes the personal preferences of the company
executives who will be working in the plant influence the location of a plant in a particular
climate.
8. Infrastructure
Infrastructure is the collection of physical support systems including road network,
water and sewer and utilities. The level to which the government is investing in
development the infrastructure of the state should be considered.
3. Labor supply
Obviously a company cannot operate without employees, and the nature of the
labor market should be investigated to ensure that an adequate supply of qualified
employees is available in the area. It is necessary to some organizations that skilled
craftsmen be hired to fill many of the positions, and it is desirable to locate the plant in
an area where a sufficient number are available.
4. Nearness to Market
The cost and time required for transporting the product to the customer is very
important. For this reason it is desirable that the company be located near the center of
its market. This is particularly true when the manufacturing process increases the bulk
of the products as it is in this FMCG Company. The Lead time for supply should be as
small as possible to quench the demand of the client.
5. Nearness to raw materials
Companies using bulky or perishable materials find it desirable to be near a readily
available source of their materials. The food industry has this problem with its canning
factories, meatpacking plants, and creameries.
6. Transportation Facilities
The location should be easily accessible to the main highways. The railroad facilities
should be adequate to ensure prompt receipt and shipment of goods. Airports and shipping
ports should be at a reasonable distance. The transportation facilities should be reliable and
smooth with as less delay as possible.
8. Zoning restrictions
Whether the zoning restrictions will interfere with the company’s building plans or
operations should be taken into consideration.
9. Soil Characteristics
Whether the soil bearing characteristics are suitable for supporting the building and
Equipment and whether it will provide adequate drainage should also be considered.
10. Drainage
Whether the area will drain away all surface water so that the buildings will not become
an island in the middle of a flooded area during heavy rains should be taken into account.
An FMCG can incur huge losses if this is not taken into account. The waste coming out from
the beverage industry should be properly drained out in a right fashion.
Weighted score:
Location Factor Site1 Site2 Site3
Labour supply 12 10.5 10.5
Nearness to market 9 8 8
Nearness to Raw 10.5 9 10.5
materials
Availability of 14 12 10
water,power , gas &
sewers
Zoning Restrictions 6 5 7
Proximity to 16 18 20
rail,road,ports & airport
Accessibility by workers 2.5 3 3.5
Space for expansion 2 2.5 3
Total score 72 68 72.5
As the score of the site 3 is more as compared to other sites, the manufacturing plant should be
constructed at this location
The location of the warehouse can be determined by considering the location of existing
manufacturing facility and the new proposed manufacturing facility. To determine the location
of the warehouse we use a location analysis technique called CENTER OF GRAVITY.
The center of gravity method is used to determine the location of a single distribution
center that will minimize distribution costs. It treats distribution cost as a linear function of the
distance and the quantity shipped, which is assumed to be fixed, although an acceptable
variation is that quantities are allowed to change as long as their relative amounts remain the
same. It is helpful in a limited number of situations – primarily service entities – where
geography and transportation costs are important; as opposed to the critical factor method,
which is more qualitative and general.
x=
y=
,
=coordinates of the existing location.
=annual weighted shipped from facility i .
Conclusion:
After considering the various factors and scrutinizing them with miniscule details we as
a group zeroed down onto the site 3 on basis of the statistical data provided above, however
before launching and finalizing the project, there should be a proper discussion with Project
Managers who have built such projects and if there are any more factors which influence the
site preference, they should definitely be taken into consideration. Thus the location selection
decision is a very important aspect that plays a very vital role in survival and success of the
business.
Bibliography:
• www.ibef.org: http://www.ibef.org/artdisplay.aspx?cat_id=444&art_id=7933
• http://www.naukrihub.com/india/fmcg/scope
• http://farfromneutral.com/kaizen/center-of-gravity-method/
• Operations Management –Along the supply chain :Russell &Taylor.