MB0044-Production and Operations Management

Unit-5 Location Strategies

Program

: MBA

Semester

: II

Subject Code

: MB0044

Subject Name

: Production and Operations Management

Unit number

:5

Unit Title

: Location Strategies

Lecture Number

:5

Lecture Title

: Location Strategies

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MB0044-Production and Operations Management

Unit-5 Location Strategies

Production and Operations Management

Objectives:
After studying this unit, you should be able to:
Describe facility management
Discuss the facility planning process
Explain the methods for selecting a plant location
Analyse the features and importance of different layouts

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MB0044-Production and Operations Management

Unit-5 Location Strategies

Lecture Outline

Introduction

Facility Location Process

Location Decision Sequence

Rating Methods

Summary

Check Your Learning

Activity

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MB0044-Production and Operations Management

Unit-5 Location Strategies

Introduction
Location identification is an important strategic decision made by the top
management.

Location strategies are based on the following:

The companys expansion plan and policy
Diversification plan for the products
Changing market conditions
The changing sources of raw materials

In this session, you will learn about various methodologies used to select
the location of plant, the flexibility in location choice, the trends and
practices across the globe and the techniques used to determine the
location for a particular type of industry.

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MB0044-Production and Operations Management

Unit-5 Location Strategies

Facility Location Process

The general factors that influence the plant location are:
Availability of land
Availability of inputs
Closeness to market places

Communication facilities
Infrastructure
Transport

Government support
Housing and recreation

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MB0044-Production and Operations Management

Unit-5 Location Strategies

Facility Location Process (cont.)

The special factors that influence the plant location are:

Economic stability outside investments

Cultural factors

Wages

Joint ventures support of big time players

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MB0044-Production and Operations Management

Unit-5 Location Strategies

Location Decision Sequence

National level

1
Regional level

2
Community level

3
4

Site level

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MB0044-Production and Operations Management

Unit-5 Location Strategies

Rating Methods
The rating methods which determine the most likely location are:

Rating plan method

Factor rating method
Point rating method
Break-even analysis
Centre of gravity method

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MB0044-Production and Operations Management

Unit-5 Location Strategies

Rating Methods (cont.)

Rating plan method

Ratings depend on the
perception of the
management
The location with the
maximum rating is
chosen

Factor rating method

Each of the factors for
the location is rated
The rating of the
competitive locations
are considered
The products of the
rating are added
The location which gets
the maximum product
of rating is selected

Point rating method

A fraction of a suitably
selected total rating is
apportioned
The points that can be
allocated to the
locations are assessed
The totalled ratings are
compared
The location is selected

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MB0044-Production and Operations Management

Unit-5 Location Strategies

Rating Methods (cont.)

Break-even analysis
The total costs for different locations on estimated amounts per annum are
compared and the location that costs the least is selected.

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MB0044-Production and Operations Management

Unit-5 Location Strategies

Rating Methods (cont.)

Centre of gravity method
Centre of gravity method is used mainly when:

Transportation costs, either for distribution of products or collection of

materials from different suppliers, is the main criterion

Production rates are high

The volume and weights of materials that have to be moved are huge

Time taken, either to receive material from suppliers or delivery to

customers, is critical

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MB0044-Production and Operations Management

Unit-5 Location Strategies

Summary

Location identification is an important strategic decision made by the

top management.
The general factors that influence the plant location include availability
of land and inputs, closeness to market places, communication
facilities, transport, infrastructure and government policies.
The special factors that influence the plant location include economic
stability, cultural factors, wages and joint ventures.
While making location decisions, first the country of choice is selected.
Then the regional and community level choices are done. Finally the
site level decisions are made.
The methods which determine the most likely location are:
o Rating plan method
o Factor rating method
o Point rating method
o Break-even analysis
o Centre of gravity method

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MB0044-Production and Operations Management

Unit-5 Location Strategies

Check Your Learning

1. Name the special factors that influence the plant location.
Ans: The special factors that influence the plant location are economic

stability, cultural factors, wages and joint ventures.

2. When is the centre of gravity method mainly used?
Ans: Centre of gravity method is used mainly when:
Transportation costs, either for distribution of products or
collection of materials from different suppliers, is the main
criterion
Production rates are high
The volume and weights of materials that have to be moved are
huge
Time taken, either to receive material from suppliers or delivery
to customers, is critical

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Unit-5 Location Strategies

Activity
Mr. Shyam Manohar is planning to start a seafood processing industry in
India. He has four options to locate the plant - Chennai, Kolkata, Goa and
Cochin. Analyse the factors that will influence his decision.

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