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Factors and Quantitative Technique: Submitted To-Dr. Debomalya Ghosh (Assistant Professor)

The document discusses various factors that affect facility location decisions for manufacturing and service companies, including labor availability and costs, proximity to markets and suppliers, quality of life, and taxes. It also outlines quantitative techniques used in evaluating potential facility locations, such as factor rating methods that assign weights to important criteria to compare alternative sites. The optimal location choice aims to minimize costs and maximize access to necessary resources and customers.

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Akashdeep Deb
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216 views24 pages

Factors and Quantitative Technique: Submitted To-Dr. Debomalya Ghosh (Assistant Professor)

The document discusses various factors that affect facility location decisions for manufacturing and service companies, including labor availability and costs, proximity to markets and suppliers, quality of life, and taxes. It also outlines quantitative techniques used in evaluating potential facility locations, such as factor rating methods that assign weights to important criteria to compare alternative sites. The optimal location choice aims to minimize costs and maximize access to necessary resources and customers.

Uploaded by

Akashdeep Deb
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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FACILITY LOCATION

factors and quantitative technique

SUBMITTED BY-
SUBMITTED TO-
DEBOJIT NATH(23)
Dr. DEBOMALYA GHOSH SURAJIT NATH(25)
(Assistant professor)
AKASHDEEP DEB (38)
WHAT IS FACILITY LOCATION ?
Facility location is the process of
determining geographic sites of a
firm operations.Location choices can
be critically important for firms value
chain.
• Q. Where should a plant or service facility be located?

• This is a top question on the strategic agendas of contemporary manufacturing and service
firms, particularly in this age of global markets and global production. Dramatic changes in
international trade agreements have made the world truly a “global factory,” allowing companies
greater flexibility in their location choices. In practice, however, the question of location is very
much linked to two competitive imperatives:

• 1 The need to produce close to the customer due to time-based competition, trade agreements,
and shipping costs.

• 2 The need to locate near the appropriate labour pool to take advantage of low wage costs and/or
high technical skills.
example
• White Castle is an American regional fast-food
hamburger restaurant chain in the Eastern United
States, and the first of its kind in the US.

• White castle often locate restaurants near


manufacturing plants because of the following reason

1. white castle’s strategy is to cater to blue -collar


worker . As a result , it tends to locate to near the
target population and away from the competitors ,
such as Wendy and McDonald’s
FACTORS AFFECTING LOCATION DECISION

• Location factors divide into

 Dominant factors

 Secondary factors
DOMINANT FACTORS IN MANUFACTURING

• The following six groups of factors dominate the decision firms, for making decision about
the location of new manufacturing plants.
1. Favorable labor climate
2. Proximity to market
3. Quality of life
4. Proximity to suppliers and resources
5. Proximity to parent company facilities
6. Utilities, taxes, & real estate costs
Favourable labour
climate.

Utilities, taxes, and Proximity to


real estate costs. markets.

Dominant
factors in
manufacturing

Proximity to the
parent company’s
facilities. Quality of life.

Proximity to
suppliers and
resources
Favorable labor climate

Favorable labor climate


• A favorable labor climate may well be the most important factor for labor-
intensive firms in industries such as textiles, furniture and consumer
electronics.

• Labor climate is a function of wage rates, training requirements, attitudes,


towards work , work productivity and union strength.
• Example-
• GE electronics decided to relocate the Energy Division
 from Shenectady New York to Atlanta Georgia came as a surprise
because GE had a 100- year history in New York dating back to the days
of Thomas Edison the main reason -
 for this change was that the GE’s customer are concentrate d in an
around Atlanta
 and the city has deep talent base of technologically oriented workers
Proximity to market
• After determining where the demand for services and goods is greatest,
management must select a location for the facility that will supply that
demand. Locating near markets is particularly important when the final
goods are bulky or heavy and outbound transportation rates are high.
Quality of life
• Good school, recreational facilities, cultural events, and an attractive
lifestyle contribute to quality of life. This factor can make the difference in
location decisions
Proximity to suppliers and resources

• Firms dependent on inputs of bulky, perishable, or heavy raw materials


emphasize proximity to their suppliers and resources. In such cases,
inbound transportation costs become a dominant factor, encouraging such
firms to locate facilities near suppliers.
•  
Proximity to parent company facilities

• In many companies, plant supply parts to other facilities or rely on other


facilities for management and staff support. These ties require frequent
coordination and communication, which can become more difficult as
distance increases
Utilities, taxes, & real estate costs

• Other location decision factors include utility costs (telephone, energy, and
water), local and state taxes, financing incentives offered by local or state
government, relocation costs, and land costs.
DOMINANT FACTOR IN SERVICES

• Proximity to customers
• Transportation costs and proximity to markets
• Location of competitors
• Site specific factors
Proximity
to
Customers

DOMINANT Transportati
Site- FACTORS on Costs
Specific and
Factors IN Proximity to
Markets
SERVICES

Location of
Competitors
Proximity to customers

Location is the key factor in determining how conveniently customers


can carry on business with a firm.

In addition, customer proximity by itself is not enough – the key is


proximity to customers who will patronize the facility and seek its services.
Transportation Costs and Proximity to Markets

For warehousing and distribution operations,


transportation costs and proximity to markets are
extremely important. With a warehouse nearby, many
firms can hold inventory closer to the customer, thus
reducing deliver time and promoting sales.
Location of Competitors

 One complication related to estimating sales potential of different locations


is the impact of competitors. Management must not only consider the current
location of competitors but also try to anticipate their reaction to the
firm’s new location.

Avoiding areas where competitors are already well established often pays off.

However, in some industries, such as new-car sales showrooms and fast-food


chains locating near competitors is actually advantageous.  
 
Site- Specific Factors
Retailers must consider
• the level of retail activity,
• residential density, and traffic flow and
• site visibility.
Retail activity in the area is important because shoppers often decide on impulse to go
shopping or to eat in a restaurant. Traffic flows and visibility are important because
businesses customers arrive in cars. Management consider possible traffic tie-ups,
traffic volume and direction by time of day, traffic signals, intersections, and the
positions of traffic medians. Visibility involves distance from the street and the size of
nearby buildings and signs. A high residential density increases night-time and
weekend business if the population in the area fits the firm’s competitive priorities and
target market segment.
 
QUANTITATIVE TECHNIQUES

There are many analytical method which can be used in facility location
decision.

Some of these are :

1. FACTOR RATING METHOD

2. COST-PROFIT-VOLUME ANALYSIS

3. CENTER OF GRAVITY METHOD

4. TRANSPORTATIONAND SIMULATION MODELS


FACTOR RATING METHOD

• Factor-rating systems are perhaps the most widely used of the general location
techniques because they provide a mechanism to combine diverse factors in an
easy-to-understand format.
• In factor rating method, first we must identify the Most Important Factors in
evaluating alternative sites for the new facility.
• Then we should assign a weight between 0 and 100 to each of these factors.
• Each alternative location will then be rated based on these factor weights.
• The most weighted alternative is selected as the best alternative.

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