FACILITY LOCATION

PLANNING
PRODUCTION FACILITIES
SERVICE FACILITIES
STORAGE FACILITIES

GENERAL FACTORS
NEARNESS TO MARKET
NEARNESS TO RAW MATERIALS
INFRASTRUCTURE
COMMUNAL FACILITIES
LEGAL AND GOVT. POLICIES
IR ENVIRONMENT
GOVT. INCENTIVES
SOCIETY
LABOUR AVAILABILITY
POLLUTION CONTROL NORMS
GEOGRAPHICAL FACTORS
ISSUES IN LOCATION PLANNING
RURAL VS URBAL LOCATION
ROLE OF FINANCIAL INSTITUTIONS
SUPPLIERS PROXIMITY
INTERACTION WITH SOCIETY AND ITS
EFFECTS
SAFETY ISSUES

ROLE OF CENTRAL AND STATE
GOVT.
INDUSTRIAL POLICY
INVESTMENT SUBSIDY
TAX HOLIDAYS
CONCESSIONAL FINANCE
PROMOTION OF IND. ESTATES AND
IND.PARKS
OBJECTIVE OF BALANCED REGIONAL
DEVELOPMENT
INFRASTRUCTURE
Dominant Factors in
Manufacturing
Favorable labor climate. May be most important
factor in labor-intensive industries
Proximity to markets. Important when outbound
transportation rates are high.
Quality of life. Good schools, recreational facilities,
cultural events and attractive lifestyle.
Proximity to suppliers and resources. Important
when inbound transportation costs are high.
Proximity to the parent companys facilities.
Important when coordination and communication is
critical.
Utilities, taxes, and real estate costs.
Dominant Factors
in Services
Proximity to customers. How conveniently
customers can carry on business with a firm.
Transportation costs and proximity to markets.
Especially for warehousing and distribution
operations.
Location of Competitors. Estimating the sales
potential and impact of competition.
Critical mass is a situation 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.
Site-Specific Factors. Including residential
density, traffic flow, and site visibility.
QUANTITATIVE MODELS FOR
LOCATION PLANNING
DIMENSIONAL ANALYSIS
FACTOR RATING METHOD
CENTER OF GRAVITY MODEL
LOCATIONAL COST ANALYSIS
LOCATIONAL BREAK EVEN ANALYSIS
BRIDGEMANS DIMENSIONAL
ANALYSIS
If all the costs were tangible and quantifiable in
rupee value, the comparison and selection of a
site is very easy. The least cost site is selected
using cost analysis and break-even analysis.
But in most cases, there are many intangible
costs, which may be better expressed, in relative
terms than in absolute terms. For instance,
educational facility for children or lack of it at a
site is difficult to quantify in absolute terms. But
their relative merits can be compared more
easily.
DIMENSIONAL ANALYSIS (Cont.)
Bridgemans Dimensional analysis consists of
computing these relative merits for each of the
cost items, giving each of the ratios an
appropriate weightage by means of the power to
which it is raised, and multiplying these weighted
ratios in order to come up with a comprehensive
figure on the relative merit of the two alternative
sites. This method is used to compare two sites
at a time. If you want to compare more sites, one
has to go by order. That is by comparing first two
sites, then compare the best site with next site
and so on.
DIMENSIONAL ANALYSIS
(CONT.)
C1M, C2M, C3MCzM are the different costs
associated with a site M on the zdifferent cost items.
C1N, C2N, C3NC zN are the different costs
associated with a site N
W1, W2, W3,Wz are the weightages given to these
cost items,
The relative merit of site M and N is given by:
[C1M /C1N] W1 X [C2M /C2N] W2 X [ CzM /C zN ]
Wz
If this is less than ONE, it means site N is superior; and
vice versa.
Giving appropriate rating using 1-10 scale one can
compare non-cost factors like community facilities.
Factor-Rating Method
Popular because a wide variety of factors
can be included in the analysis
Six steps in the method
1. Develop a list of relevant factors called critical success factors
2. Assign a weight to each factor
3. Develop a scale for each factor
4. Score each location for each factor
5. Multiply score by weights for each factor for each location
6. Recommend the location with the highest point score
Factor-Rating Example
Critical Scores
Success (out of 100) Weighted Scores
Factor Weight France Denmark France Denmark
Labor
availability
and attitude .25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0
People-to-
car ratio .05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0
Per capita
income .10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0
Tax structure .39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3
Education
and health .21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7
Totals 1.00 70.4 68.0
Table 8.4
Locational
Break-Even Analysis
Method of cost-volume analysis used for
industrial locations
Three steps in the method
1. Determine fixed and variable costs for each location
2. Plot the cost for each location
3. Select location with lowest total cost for expected production
volume
Locational Break-Even
Analysis Example
Three locations:
Akron $30,000 $75 $180,000
Bowling Green $60,000 $45 $150,000
Chicago $110,000 $25 $160,000
Fixed Variable Total
City Cost Cost Cost
Total Cost = Fixed Cost + (Variable Cost x Volume)
Selling price = $120
Expected volume = 2,000 units
Locational Break-Even
Analysis Example

$180,000

$160,000
$150,000

$130,000

$110,000


$80,000

$60,000


$30,000

$10,000

A
n
n
u
a
l

c
o
s
t

| | | | | | |
0 500 1,000 1,500 2,000 2,500 3,000
Volume
Akron
lowest
cost
Bowling Green
lowest cost
Chicago
lowest cost
CENTER OF GRAVITY METHOD
This method is a technique for locating
single facilities that considers the existing
facilities.
It is often used to locate intermediate or
distribution warehouses.
This method begins by placing the
existing locations on a coordinate grid
system. The purpose is to establish
relative distances between locations.
. Using longitude and latitude
coordinates might be helpful in
international decisions.

The center of gravity or new
facility coordinates is found by
calculating
X and Y coordinates that result
in the minimal transportation
cost.
Cx = ( dixVi )/ Vi
Cy = ( diyVi)/ Vi

Where
Cx = X coordinate of new location
Cy = Y coordinate of new location
dix = X coordinate of the ith location
diy = Y coordinate of the ith location
Vi = Volume of goods moved
to or from the ith location
Geographical Information Systems
and Location Decisions
Geographical information system (GIS) is a system of
computer software, hardware, and data that the firms
personnel can use to manipulate, analyze, and present
information relevant to a location decision. It can be used
to:
Store databases
Display maps
Create models that can take information from existing datasets,
apply analytic functions, and write results into new derived
datasets.
Together, these three functionalities of data storage,
map displays, and modeling are critical parts of an
intelligent GIS, used to a varying extent in all GIS
applications.
Using GIS to Identify
Starbucks Locations
The Starbuck store addresses within 20 miles of Hamilton,
Ontario were obtained from the Starbucks Web site, and
imported into MapPoint.
These store locations are denoted on maps by yellow dots.
Then demographics that come with MapPoint were overlaid
on the map.
On the first map, note that Oakville has more store locations
than Hamilton even though it has lower population density,
suggesting that store location is not being driven by
population density alone.
The second map shows the demographics by average per
capita household income. Note that in this case, the store
locations are based in more affluent areas.


Population density per square
kilometer for each census
subdivision.
Starbucks
locations

Per Capita Household
Income Map
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
Location Strategies
Service/Retail/Professional Location Goods-Producing Location
Revenue Focus Cost Focus
Volume/revenue
Drawing area; purchasing power
Competition; advertising/pricing

Physical quality
Parking/access; security/lighting;
appearance/image

Cost determinants
Rent
Management caliber
Operations policies (hours, wage rates)
Tangible costs
Transportation cost of raw material
Shipment cost of finished goods
Energy and utility cost; labor; raw
material; taxes, and so on

Intangible and future costs
Attitude toward union
Quality of life
Education expenditures by state
Quality of state and local government
Location Strategies
Service/Retail/Professional Location Goods-Producing Location
Techniques Techniques
Regression models to determine
importance of various factors
Factor-rating method
Traffic counts
Demographic analysis of drawing area
Purchasing power analysis of area
Center-of-gravity method
Geographic information systems
Transportation method
Factor-rating method
Locational break-even analysis
Crossover charts
Location Strategies
Service/Retail/Professional Location Goods-Producing Location
Assumptions Assumptions
Location is a major determinant of
revenue
High customer-contact issues are critical
Costs are relatively constant for a given
area; therefore, the revenue function is
critical
Location is a major determinant of cost
Most major costs can be identified
explicitly for each site
Low customer contact allows focus on
the identifiable costs
Intangible costs can be evaluated
Onsite Expansion,
New Location, or Relocation
Managers must first decide whether to expand onsite, build another
facility, or relocate to another site.
Onsite expansion has the advantage of keeping people together,
reducing construction time and costs, and avoiding splitting up
operations.
However, as a firm expands a facility, at some point diseconomies of
scale set in.
A new plant allows it to hire more employees, install newer, more-
productive machinery and better technology, and reduce
transportation costs.
Most firms that choose to relocate are small (comprised of less than 10
employees).
More than 80 percent of all relocations are made within 20 miles of
companies original locations, which enables the firms to retain their
current employees.