IL 7151- FACILITIES DESIGN

Bhaarath.S.P
DOIE, AU, Ch-25
 In the past Facilities planning was considered to
be a Science.
 In today’s competitive world, facilities planning is
a strategy.
 The basic objective of an efficient system is to
ensure the smooth flow of work, material and
information through the system.
 Facility or Plant location is the process of
determining a geographic site for a firm’s
operations.
 The plant should be located where there is
minimum cost of production and distribution and
other factors such as room for expansion, living
conditions for plant operations, as well as the
surrounding community are taken into account.
 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,
labour costs, and transportation costs.

 The selection of location is a key-decision as large

investment is made in building plant and machinery.
It is not advisable or not possible to change the
location very often. So an improper location of plant
may lead to waste of all the investments made in
building and machinery.
• Establishment of a new venture.
• Expansion of existing business.
• Significant change in existing demand, supply and
marketing locations.
• Significant change in the cost structure.
• Government policies.
 Availability of land for present and future needs.
 Availability of inputs such as labour, raw materials.
 Closeness to the market places.
 Stability of demand.
 Availability of communication facilities.
 Availability of transportation.
 Availability of infrastructure facilities.
 Disposal of waste and effluent and their impacts.
 Government support, grant, subsidy, tax structure.
 Demographic factors like population, trained man
power, income level,etc.
The following factors need to be considered
while choosing the plant:
 Raw material availability.
 Markets.
 Energy availability.
 Climate.
 Transportation facilities.
 Human resource availability.
 Taxation and legal restrictions.
 Community factors.
 Expanding existing facilities.
 Building a new facility (for the beginners).
 Moving to another facility.
 Addition of one or more facilities to the existing
network in order to expand capacity.
 Closing of one or more facilities in order to
shrink capacity.
 Location decisions may arise for a variety of reasons:
Addition of new facilities.
 As part of a marketing strategy to expand
markets.
 Growth in demand that cannot be satisfied by
expanding existing facilities.
 Depletion of basic inputs requires relocation.
 Shift in markets.
 Cost of doing business at a particular location
makes relocation attractive.
Location decisions:
 Are long-term decisions
 Are closely tied to an organization’s strategies
 Low-cost
 Convenience to attract market share
 Effect capacity and flexibility
 Are difficult to reverse
 Represent a long-term commitment of resources
 Effect investment requirements,
 Effect operating costs (fixed and variable), (such as transportation
costs, taxes, wages, rent etc)
 Effect revenues,
 Effect operations
 Impact competitive advantage
 Important to supply chains
Location decisions are based on:
Cost or profit potential and customer service
Finding a number of acceptable locations from which to
choose
Position in the supply chain
End: accessibility, consumer demographics, traffic patterns,
and local customs are important
Middle: locate near suppliers or markets
Beginning: locate near the source of raw materials
Supply chain management issues such as supply chain
configuration
Centralized vs. decentralized distribution
 Cost focus
 Revenue varies little between locations.
 Location is a major cost factor.
 Location effects shipping & production costs (costs vary
greatly between locations.
 Revenue focus
 Costs vary little between market areas.
 Location is a major revenue factor.
 Factors such as Traffic volume, good transportation,
customer safety and convenience are most important.
 Location effects amount of customer contact.
 Locaiton effects volume of business.
 Government agencies
 Police & fire departments
 Post Office
 Retail Sales and Service
 Fast food restaurants, supermarkets, gas stations
 Drug stores, shopping malls
 Bakeries
 Other Services
 Doctors, lawyers, accountants, barbers
 Banks, auto repair, motels
 Decide on the criteria to use for evaluating location
alternatives.
 Identify important factors (such as location of
markets or raw materials).
 Develop location alternatives
- identify the country or countries for location.
- identify the general region for location.
- identify a small number of community
alternatives.
- identify site alternatives among the cummunity
alternatives.
 Evaluate the alternatives and make a selection.
Country Region/Community

Site

.
.
 Global factors Regional factors

Community considerations Site related factors

Key factors that have contributed to the attractiveness of
globalization:
Trade Agreements such as
North American Free Trade Agreement (NAFTA).
General Agreement on Tarriffs and Trade (GATT).
U.S.-China Trade Relations Act.
EU and WTO efforts to facilitate trade.
Technology
Advances in communication and information technology.
A wide range of benefits have accrued to
organizations that have globalized operations:
Markets
Cost savings
Legal and regulatory
Financial
Other
There are a number of disadvantages that may
arise when locating globally:
Transportation costs
Unskilled labor
Import restrictions
Criticism for locating out-of-country
Organizations locating globally should be aware of
potential risk factors related to:
Political instability and unrest
Terrorism
Economic instability
Legal regulation
Ethical considerations
Cultural differences
Managerial implications for global operations:
Language and cultural differences
Risk of miscommunication
Development of trust
Different management styles
Corruption and bribery
Level of technology and resistance to technological
change
Domestic personnel may resist locating, even temporarily
Primary regional factors:
Locating close to the raw materials
Necessity
Perishability
Transportation costs
Locating close to the markets
As part of a profit-oriented company’s competitive strategy
So not-for-profits can meet the needs of their service users
Distribution costs and perishability.
Labor factors
Cost of labor
Availability of suitably skilled workers
Wage rates in the area
Labor productivity
Attitudes toward work
Whether unions pose a serious potential problem
Other factors
Climate and taxes may play an important role in location
decisions
 Labor (availability,  Incentive packages
education, cost and  Governmental, legal
unions) regulations, policies and
 Proximity of barriers
customers
 Number of customers
 Environmental regulations
 Construction/leasing  Raw material availability
costs  Commercial travel
 Land costs
 Climate
 Modes and quality of
transportation  Infrastructure (cost and
 Transportation costs
availability of utilities)
 Quality of life
 GIS
A computer-based tool for collecting, storing, retrieving,
and displaying demographic data on maps
Aids decision makers in
Targeting market segments
Identifying locations relative to their market potential
Planning distribution networks
Portraying relevant information on a map makes it easier
for decision makers to understand
 Many companies actively attempt to attract new
businesses they perceive to be a good fit for the
community
 Businesses also actively seek attractive communities
based on such factors such as:
Quality of life
Services
Attitudes
Taxes
Environmental regulations
Utilities
Development support
Primary site location considerations are:
Land
Transportation
Environmental
Zoning
Legal
Other restrictions
 Customer base  Zoning restrictions
 Construction/ leasing  Safety/security
cost
 Site costs (land,  Competition
expansion, parking, etc.  Area business climate
 Quality of life issues in  Income level
the community
(education, health care,  Competitive advantage
sports, cultural activities  Utilities including gas,
etc.)
 Site size electric, water and their
 Transportation costs
 Traffic
 Single Plant Strategy
 Multiple Plant Strategy
- Product Plant Strategy
- Market Area Plant Strategy
- Process Plant Strategy
Product plant strategy
Entire products or product lines are produced in separate
plants, and each plant usually supplies the entire domestic
market.
Market area plant strategy
Plants are designated to serve a particular geographic
segment of the market.
Plants produce most, if not all, of a company’s products.
 Process plant strategy
 Different plants focus on different aspects of a process
 automobile manufacturers – engine plant, body stamping plant,
etc.
 Coordination across the system becomes a significant issue
 General-purpose plant strategy
 Plantsare flexible and capable of handling a range of
products
Nearness to raw materials is not usually a consideration.
Customer access is a
Prime consideration for some: restaurants, hotels, etc.
Not an important consideration for others: service call
centers, etc.
Tend to be profit or revenue driven, and so are:
Concerned with demographics, competition, traffic/volume
patterns, and convenience
 The objective of any location problem is to
maximize profit.
 In comparison with several potential locations on
an economic basis, only revenues and costs need
to be considered and this will vary from one
location to another.
 An economic analysis can be done by using
break-even analysis and it uses fixed costs and
variable costs.
1) Determine all relevant costs for each of the
locations.
2) Classify the costs for each location into annual
fixed costs(FC) and variable costs per unit(VC).
3) Plot the total costs associated with each location
on a single chart of annual cost versus annual
volume.
4) Select the location with the lowest total annual
cost(TC) at the expected production volume.
THANK YOU