Facility Location

Presented by :-
Fedora- 76
Sharon-111
Manisha-114
Malcolm-89
Roshan-106
 Flow of Presentation
• Introduction
• Location Decision Factor
• Manufacturing Facility Location
• Service Facility Location
• Global Locations
• Evaluating Location Alternatives
• Conclusion
 Need for Location Decisions

• Marketing Strategy
• Cost of Doing Business
• Growth
• Depletion of Resources
South Bombay
 More traffic
 More centers
 Cost of Doing Busine
ss
• Revenue in excess of $18.6 billion USD in its fiscal year
2008
• Nike outsources most of its manufacturing to Asia
• Indonesian workers make $2.46 a day
• Vietnamese workers make $l.60 a day
• Chinese workers make $1.75 a day
• You pay over $100 for shoes that cost less than five doll
ars to make.
• NIKE can afford to pay endorsers like Michael Jordan, Ti
ger Woods and Monica Seles a combined total of over 60
million dollars to brand themselves with the swoosh.
 Nature of Location Decisions
• Strategic Importance of location decisions
– Long term commitment/costs
– Impact on investments, revenues, and operations
– Supply chains
• Objectives of location decisions
– Profit potential
– No single location may be better than others
– Identify several locations from which to choose
• Location Options
– Expand existing facilities
– Add new facilities
– Move
LOCATION DECISION FACTO
RS
Regional Factors Community
Consideration

SITE RELATED FACTORS

 REGIONAL FACTORS
• Location of raw materials

• Location of markets

• Labor factors

• Climate and taxes

COMMUNITY CONSIDERATION

• Quality of life
• Attitudes
• Taxes
• Environmental regulations
• Utilities
• Development support
 SITE RELATED FACTORS
• Land

• Transportation

• Environmental

• Legal
MULTIPLE PLANT STRATEGIES

• Process Plant Strategy

• Product Plant Strategy

• Market Area Plant Strategy

Parle Bisleri Pvt Ltd
 BISLERI’S FACTORY LOCATION
1) Availability of Raw Material

2) Nearness to the market

3) Availability of power

4) Transport facility

5) Suitability of Climate
BISLERI’S FACTORY LOCATION
Selection Of community

• Availability of labour

• Civic Amenities for workers

SERVICE FACILITY LOCATION
 SERVICE FACILITY LOCATION
Profit or revenue focused

Concerned with demographics

 FACTORS CONSIDERED
 Customer access

 Traffic

 Transportation

 Government services

 Perishable services
 FACTORS CONSIDERED

 Competition

 Parking

 Consumer Convenience
COMPARISION OF SERVICE & M
ANUFACTURING
Manufacturing Service

Cost Focus Revenue focus

Transportation modes/costs Demographics: age, income

etc
Energy availability/costs Population/drawing area

Labor cost/availability/skills Competition

Building/leasing costs Traffic volume/patterns

Customer access/parking
 Global Locations

Globalization is a process of interaction and inte

gration among the people, companies, and gov
ernments of different nations, a process driven
by international trade and investment and aide
d by information technology.
Facilitating Factors for Globalizatio
n

• Trade Agreements – Reduced barriers to i

nternational trade

• Technology – Communication and informa

tion sharing
 Benefits

• Markets
• Cost Savings
• Legal and Regulatory
• Financial
• Sources of Ideas
 Disadvantages

• Transportation Costs
• Security Costs
• Unskilled Labor
• Import Restrictions
• Unfair Practices
 Risks

• Political
• Terrorism
• Economic
• Legal
• Cultural Differences
Methods for Evaluating Location
s:-
• Transportation model
• Locational cost Profit Volume analysis
• Factor rating Method
• Centre of Gravity Method
 Transportation Model
The Intuitive Lowest Cost
Approach
The procedure involves these steps:
• Identify the cell with the lowest cost.
• Allocate as many units as possible to that cell, a
nd cross out the row or column (or both) that is
exhausted by this.
• Find the cells with the next lowest cost from am
ong the feasible cells.
• Repeat steps (2) and (3) until all units have bee
n allocated.
 Transportation model
Shipping
costs from
Warehouses factory 1 to
warehouse B
A B C D
Supply
4 7 7 1 100
F
1
a
c 12 3 8 8 200

t
2 8 10 16 5 150
o
r
y 80 90 120 160
3 450
450
Obtaining an IBFS
Obtaining an IBFS
Obtaining an IBFS
Obtaining an IBFS
Locational Cost-Profit Volume A
nalysis
• An economic technique for evaluating location choices; it
can be done numerically or graphically.
• Steps:
1. Determine the fixed and variable costs for each alt
ernative
2. Plot the total-cost lines for all alternatives on the sa
me graph
3. Determine the location that will have the lowest tot
al cost (or highest profit) for the expected level of o
utput
Locational Cost-Profit Volume Anal
ysis
For a cost analysis, compute the total cost for each
alternative location:

Total Cost  FC  v  Q
where
FC  Fixed cost
v  Variable cost per unit
Q  Quantity or volume of output
 Example
F
ixed V
aria
b le To
tal
Co
sts Co s
ts C
osts

A $
250,0
00 $11(1
0,0
00) $36
0,0
00
B 1 0
0,000 3
0(10,0
00) 400,0
00
C 1 5
0,000 2
0(10,0
00) 350,0
00
D 2 0
0,000 3
5(10,0
00) 550,0
00
 Example

• $(000)
• 800 • D
• 700 • B
• 600 • C
• 500 • A
• 400 • A SUPERIOR
• 300 • C SUPERIOR
• B SUPERIOR
• 200 • 0 • 2 • 4 • 6 • 8 • 10 • 12 • 14 • 16
• 100
At 8000 units
•
Location C0is a • ANNUAL OUTPUT (000
suitable choice. UNITS)
 Factor Rating:-
• A technique that can be applied in decisio
ns personal & professional.
• Involves qualitative & quantitative inputs, v
aring form one situation to another.
• Provides rational basisfor evealuation & co
mparisonamong alternatives.
• Helps decision makers to incorporate their
personal opinions in the decision process.
Steps involved in the procedure:
Determine the factors.
Assign a weight in relative importance.
Decide on a minimum acceptable score
on each factor if necessary.
Score each alternative.
Multiply the factor weight by the score for
each factor & sum for each location
alternative.
Choose the alternative with the highest
score.
Example:
• Derive the appropriate city for facility locati
on using the factor rating method.
Factors given are as follows:
1. Political Stability (PSt) -40
2. Climate(Cl) -20
3. Power & water(PW) - 50
4. Raw material(RM) -40
5. Tranportation(TR) -30
Locati Factor PSt CL PW RM TR
on
Pune 8 9 6 7 9

Daman 7 8 5 6 8

Goa 8 9 5 5 6

Bangalore 6 9 9 3 5

Chennai 8 6 8 3 4
• Pune: {8(40)+9(20)+6(50)+7(40)+9(30)}/(4
0+20+50+40+20)=7.5
• Daman=6.5
• Goa=6.27
• Bangalore=6.33
• Chennai=6

Hence Pune is the appropriate choice.

 Centre of Gravity Method:
• Used to minimize shipping cost & travel ti
me.

• Used by community planners of fire , safet

y , public centers.

• Technique used to save on travel time to a

nswer emergency calls.
Steps for calculation:
• For a given Plant Placing option, multiply t
he demand and distance of a particular de
mand point.
• Add these products for a particular plant pl
acing option
• Select the option with the minimum total.
 Example: Find the appropriate Plant pla
cing option from the given data.
Distance Quantity D1 D2 D3 = D4 ∑DiLi
of the demande =200 =500 1000 =250
Plants d at
from the respectiv
fixed e
demand centers
points.\l/ 

P1 200 50 100 5 166250

P2 50 100 25 10 87500

P3 25 10 300 350 397500

As ∑DiLi is minimum for P2 , therfore P2 is the

appropriate option.
Thank You