GENERAL PROCEDURES FOR FACILITY LOCATION

Preliminary Screening --Sources of Information(Chambers of commerce) --Detailed Analysis Selection of exact site Transportation facilities ---Availability of water, power, gas and sewerage ---Soil characteristics----Drainage----Parking space Space for expansion----Accessibility by workers Cost of land----Existing buildings

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Location Decision Process

Facility Location is typically conducted hierarchically and involves the following basic decisions where appropriate .
1)Global Location 2)Regional Location 3)District or community Location 4)Local Site Selection

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Location Decisions
National Defense Community Administration and Attitude Schools, Churches, Parks, and Residential Area Space for Future Expansions

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REASONS FOR LOCATION CHANGES

Different situations for location change could be (i) a new plant is just being

started, (ii) a new branch of an existing plant is to be located, or (iii) a new location for an existing plant is being sought.
In addition to the need for greater capacity, there are other reasons for changing or adding locations: Changes in resources may occur. The cost or availability of labor, raw materials, and supporting resources (such as subcontractors) may change. The geography of demand may shift. As product markets change, it may be desirable to change facility location to provide better service to customers. Some companies may merge, making facilities location redundant.

New products may be introduced, changing the availability of resources and markets. Political and economic conditions may change.
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Behavioral impact in facility Location

Cultural Differences Job Satisfaction Consumer Considerations

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General Factors Influencing Location

Proximity to Good Highways Abundant Labor Supply Proximity to Markets Availability of Suitable Land and Land Cost Adequate Water Supply Nearness to Raw Materials and Suppliers Nearness to an Existing Plant Transportation Power SupplyClimate Water Disposal and Pollution---Taxes
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Factors that Affect Location Decisions

Regional Factors Location of Raw Materials (necessity, perishability, and transportation costs) Location of Markets (locate near the markets, distribution costs, the perishability of a finished product, GIS) Labor Factors (cost and availability of labor, wage rates in an area, labor productivity and attitudes toward work, and unions) Climate and Taxes

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Cost Volume Break even Analysis of Location

Revenues and costs are affected by facility location .Break even analysis helps relate costs and revenues to facility location .Revenue minus total cost at each location . 1)Estimate the fixed and variable cost associated with each location 2)Graph them for a representative volume 3)If revenues vary from one location to another ,the comparison should be made on the basis of total Revenue minus total cost at each location

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Fixed Costs and Variable costs

In economics, fixed costs are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be time-related, such as salaries or rents being paid per month, and are often referred to as overhead costs. In management accounting, fixed costs are defined as expenses that do not change as a function of the activity of a business, within the relevant period. For example, a retailer must pay rent and utility bills irrespective of sales. What is variable cost
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The Effect of Location on Fixed Costs

New or additional facilities entail fixed Costs . Normally Fixed costs are incurred only once . To be recovered from revenues over a period of Time New facilities involve costs for new construction ,purchase ,renovation . Once acquired more money is spent on fixtures and equipments . The magnitude of these costs depend on the Location .

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The Effect of Location on Revenues

In business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. Facilities location affects the revenue in both Goods and Services industry . Delivery Time and distance plays a crucial role in revenue Generation

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Reasons for Location Changes

Changes in resources may occur .The cost or availability of labor ,raw materials and supporting resources (Such as sub contractors)may change . The geography of demand may change Companies may merge ,making facilities redundant New products may be introduced ,changing the availability of resources and markets Political and economic conditions may change

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Labour and Demand factors

Labor supply Labor management Relations Ability to retain Labor force Availability of adequate labor skills Labor rates Location of competitors

Volume of traffic around location .

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Climate and Environment factors

Climate and Living conditions School facilities Universities and research facilities Community attitudes Health care facilities Property costs Cost of Living

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State and Local Legal and Political Factors

Taxation climate and Policies Local and Tax structures Opportunity for highway advertising Tax incentives and Abatements Health and safety laws

Regulatory agencies and policies .

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Utilities Factor
Adequate water supply Waste Disposal Power supply Fuel Availability Communications Capability Price/Cost

Utility Regulatory Laws and Practices .

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Transportation Factors

Closeness to sources of supply Closeness to markets Adequacy of transportation modes (Air,truck,train ,water) Costs of transportation Visibility of the facility from the highway Parking Capability Response time for emergency services .

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Methods Of Evaluating Location Alternatives

1. 2. 3. 4.

The Factor-Rating Method Locational Break-Even Analysis Center-of-Gravity Method The Transportation Method

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Factors Ratings
Factor ratings are used to evaluate location alternatives because (i) their simplicity helps decide why one site is better than another; (ii) they enable managers to bring diverse locational considerations into the evaluation process; and (iii) they foster consistency of judgment about location alternatives. The following steps are involved in factor rating: Develop a list of relevant factors. Assign a weight to each factor to indicate its relative importance (weights may total 1.00). Assign a common scale to each factor (e.g., 0 to 100 points), and designate any minimums. Score each potential location according to the designated scale, and multiply the scores by the weights. Total the points for each location, and choose the location with the maximum points.
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Example
An Automobile manufacturering company intends to open a new facility . The following table contains information on two potential locations. Which is the better alternative?

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Factor-Rating Example
Critical Success Factor
Labor availability and attitude People-to car ratio Per capita income Tax structure Education and health Totals

Weight

Scores (out of 100) Sanand Singur

Weighted Scores Sanand Singur

.25 .05 .10 .39 .21 1.00

70 50 85 75 60

60 60 80 70 70

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Factor-Rating Example
Critical Success Factor
Labor availability and attitude People-to car ratio Per capita income Tax structure Education and health Totals

Weight

Scores (out of 100) Sanand Singur

Weighted Scores Sanand Singur

.25 .05 .10 .39 .21 1.00

70 50 85 75 60

60 60 80 70 70

(.25)(70) = 17.5 (.05)(50) = 2.5 (.10)(85) = 8.5 (.39)(75) = 29.3 (.21)(60) = 12.6 70.4

(.25)(60) = 15.0 (.05)(60) = 3.0 (.10)(80) = 8.0 (.39)(70) = 27.3 (.21)(70) = 14.7 68.0
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Center-of-Gravity Method Place existing locations on a coordinate grid

Grid origin and scale is arbitrary Maintain relative distances

Calculate X and Y coordinates for center of gravity

Assumes cost is directly proportional to distance and volume shipped
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Centre of Gravity Method

The Center of gravity Method determines X and Y Coordinates (Location ) for a single facility . 1. 2. Place the locations to be supported on a coordinate system (like a graph). Calculate the center of gravity:

Cx = Xi Wi / Wi

& Cy = Yi Wi / Wi

Where: Cx =x coordinate of the center of Gravity Cy=y coordinate of the center of Gravity

xi = x-coordinate of location i. yi = y-coordinate of location i. Wi= quantity (load) of goods moved to/from location i.
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Transportation Model
Finds amount to be shipped from several points of supply to several points of demand Solution will minimize total production and shipping costs A special class of linear programming problems

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Service Location Strategy

1. Purchasing power of customer-drawing area 2. Service and image compatibility with demographics of the customer-drawing area 3. Competition in the area 4. Quality of the competition 5. Uniqueness of the firms and competitors locations 6. Physical qualities of facilities and neighboring businesses 7. Operating policies of the firm 8. Quality of management

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