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Location Decision and Facilities Layout

The document outlines factors to consider for location decisions including reasons for location changes, factors affecting decisions, and techniques for analysis. It discusses key reasons like expansion, cost advantages, and raw material availability. Location factors mentioned include inputs, products, labor, transportation and government incentives. Techniques include preliminary screening, qualitative methods like comparative charts and factor rating, and quantitative models like break-even analysis and minimizing transportation costs.

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krpaudel54
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17 views12 pages

Location Decision and Facilities Layout

The document outlines factors to consider for location decisions including reasons for location changes, factors affecting decisions, and techniques for analysis. It discusses key reasons like expansion, cost advantages, and raw material availability. Location factors mentioned include inputs, products, labor, transportation and government incentives. Techniques include preliminary screening, qualitative methods like comparative charts and factor rating, and quantitative models like break-even analysis and minimizing transportation costs.

Uploaded by

krpaudel54
Copyright
© © All Rights Reserved
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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Outlines of chapter -4

 Reasons and Importance of location decisions


 Factors affecting location decision
 Techniques of location analysis
 Concept on layout
 Types of layout: Product layout , process layout , cellular layout , fixed
position layout;
 Designing process layout.
Location decision

• Location decision is a critical strategic decision that is made on operation


management relating to selecting the site for the establishment of the
physical unit of the production process.
• The selection of location is key decision as large investment made in
building, plant and machinery.
Reasons and importance of location decision
•Expansion: if the company wants to expand and diversify its activities, it
will have to search for a new location for setting up its new business unit.
•Cost advantage: if existing plant location is not near to market place, it
will increase the transportation cost. So, the company will search for new
plant location which is near the market for production.
•Availability of raw materials: A plant must be located at a place where
raw materials can be easily available.
•Increasing product demand: with the increase of demand of company
product, the company starts to search new location of plant.
Factor Affecting location decision

1. Nature of the input(raw materials)


It is beneficiary to located factory near to raw material. If the cost of
transportation of raw material is very high comparison to the
transportation of finished good , it is suitable to establish the factory
near to input resources.
2.Nature of products:
It is beneficial to locate the facility nearer to market or potential customer.
Service provider by hotel, school, hospital are usually near the market
because it is easy for customer to get this.
3. Availability of labour and their skill:
4. Transportation facilities: basis mode of transportation like road, air,railway
are based on the nature and size of product.
6. Special grants , regional tax and import barriers:
Government provide some kinds of tax reduction, low interest loan, special
grants to attract industry in location.
7. Opportunity for expansion:
the long range prospective of expansion opportunity may be consider while
making location decision. The location should be flexible enough to cover the
expansion program.
8. Availability of service:
Service like gas, electricity, water, communication etc also determine factor
affecting location decision.
Techniques of location layout analysis
The factors location includes the determination of alternative site of various
geographical regions. These alternative sie are subjected to various
qualitative and quantitative analysis to find out among them. The procdure
in facility location include.
1.Pliminary screening
2. Detailed analysis

1. Pliminary screening
 This is the first step of location decision which involve in identifying
all factors affecting location decision.
 The factors such as availability of input, proximate to customer,
business environment, infrastructure, government barrier.
2. Detail analysis
After preliminary screening, more detailed analysis is done. The detailed
analysis involves either qualitative or quantitative technique or both.
A. Qualitative technique:
I. Simple comparative chart analysis
II. Factor rating method
B. Quantitative models:
III. Centre of gravity method
IV. Cost-benefit Analysis
V. locational break even analysis
VI. Transportation Technique
A. Qualitative technique:
I. Simple comparative chart analysis
• This method is widely used for analyzing intangible factor affecting the
location decision. The following steps should be followed:
• Identified critical intangible factors affecting the location decion.
• Compare and rank all alternative locations on the basis of these factors
like good or bad, favorablew or unfavorable, important or not important,
etc.
• Select the best location for organization.
Intangible factors Location A Location B Location C
Labour supply suitable suitable unsuitable
Business climate good good worst
Community attitude Unfavorable favorable favorable
Union activities Important Less Important Important

Decision: On the basis of above simple comparative chart, location 'B' is


selected as the best location than 'A' and 'C'.
2. Factor/Point Rating Method
• Factor rating method is a kind of survey technique which
follows following steps:
1. Determine which factor are relevant(location of market,
water supply etc).
2. Assign a weight, typically the sum of weight should be 100.
3. Decide a common scale for all factors, usually 1 to 100.
4. miltiple the factor weight by the score of each factor
5. Choose the alternative that has highest composite score.
example

Factor weight Alt 1 Alt 2 Alt 1 weight Alt 2 weight


score score

transportation 0.10 100 60 0.10*100=10 6

Labour cost 0.40 70 90 28 36

Power supply 0.10 86 92 8.6 9.2

Gov rules 0.40 40 70 16 28

Total 1.00 62.6 79.2


composite
score

Decision: From above analysis, Alt 2 is the best because it has the maximum score i.e.
79.2
B. Quantitative models:
I. Centre of gravity method
• It is a technique used for analyzing alternative location on the basis of
distance.
II. cost-benefit Analysis
Simple cost benefit analysis can be used to select a location for facility. It can
be analyze as follow;
location Fixed cost Variable cost Total cost at 5000 units
per unit
A 200000 20 200000+20*5000=300000

B 50000 35 50000+35*5000=225000

C 1000000 30 100000+30*5000=250000

D 150000 25 150000+25*5000=275000

From the above table, we can see that location B provides the lowest total
cost at 5000 units per year, hence, location B is selected.
iii. Location Break even Analysis
• The point on which cost and income are equal is called breakeven point.
• Location BEP analysis is a method of determining the volume of
production where a company breaks with total costs and total revenue.

iv. Transportation method


• Minimization of Transportation cost is calculated on this method
• This helps to find the best shipping pattern between plants and
warehouse for a particular set of location.

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