Facility Location

By
Dr. Kuldeep Bhalerao
B.Tech.(Text.),DMM,MBA,UGC-NET(Mgt.),Ph.D.(Mgt.)

Bharati Vidyapeeth’s
Institute of Management Studies and Research,
Navi Mumbai-400 614
The controversy surrounding the Tata Nano project in the Singur
special economic zone (SEZ) in West Bengal highlights the
importance of location decisions for an organization. Ratan Tata’s
ambitious objective of building the world’s cheapest car became a
victim of a tussle between the CPI(M) leadership and the Trinamool
Congress. For the CPI(M), the Nano project could have been a
symbol of the new spirit of industrialization in the state. This was
important because, over the years, West Bengal had been losing out
to new hubs of corporate excellence such as Bangalore and
Hyderabad. For Trinamool Congress leader Mamata Banerjee,
however, it was an opportunity for gaining the goodwill of the
farmers as she felt that they had been given a raw deal when their
farmland had been acquired. Thus, location decisions seem to have
a political dimension in a country like India due to its growing
population and the paucity of land.
Facility Location
“Location decisions pertain to the choice of appropriate
geographical sites for locating various manufacturing
and/or service facilities of an organization”.

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Facility Location
• Location decisions are an integral part of designing a supply
chain for an organization as it determines the flow of
materials from the raw material suppliers to the factories,
and finally to the customers.
• Location decisions affect the overall profitability of a firm.

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Facility Location
• For instance, locating manufacturing facilities far away from
the market could raise the logistics and distribution costs.
• On the other hand, locating manufacturing facilities in
regions with high factor costs may make the firm
unattractive as the cost of manufacturing may turn out to
be high.
• Moreover, once location decisions are made, they are likely
to stay longer as huge investments are made. Therefore,
location decisions are strategic in nature.
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Factors Influencing Facility Location
• Proximity to Market
• Supply of Raw Material
• Transportation Facilities
• Infrastructure available
• Labor and Wages
• Govt. Policies
• Climatic Condition
• Supporting Industries
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Globalization of Operations
• The globalization of markets opens up new opportunities to
multinational corporations on issues related to location,
which they have not faced before.
1.Regulatory Issues
• The removal of entry barriers and reduction in the cost
of manufacturing due to tariff reductions will make
India an attractive destination to which manufacturing
bases can be shifted.
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Globalization of Operations
2. Factor Advantages
Developed countries in Europe and in the United States are
characterized by the high cost of labor. On the other hand,
developing countries offer significant advantages to a firm
due to the availability of cheap labor. Therefore, in location
planning, these advantages are likely to be considered.

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Globalization of Operations
2. Factor Advantages
The recent shifting of manufacturing bases to China and
India and the large-scale shifting of BPO activities to India are
primarily related to the factor cost advantages that these
countries offer to firms in the western world. For a similar
reason, the bulk of semiconductor and electronic appliances
manufacturing has been shifting to countries such as South
Korea, Taiwan and Malaysia
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Globalization of Operations
3.Expanding Markets in Developing Countries:
Developing countries such as India and China are
growing at an annual rate of six per cent and above. In
contrast, most developed countries witness very little
growth, amounting to less than two per cent. Let us
consider the automobile industry. In the United States,
for every 1000 individuals, nearly 797 own a car. On the
other hand, in India, only 41 out of 1000 own a car.
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Factors Affecting Facility Location

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Location Planning Methods
1. Location Factor Rating
Factor rating is a simple methodology to assess the
attractiveness of each potential location. This method
involves four steps in which the relevant factors are identified,
their relative importance established, the performance of
each location in each factor assessed, and, finally, all this
information is combined to rank the locations.

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Location Planning Methods
2. The Centre-of-gravity Method
The Centre-of gravity method merely indicates the ideal
location in the grid map that would ensure that the weighted
distances travelled on the whole is minimum.
However, location planners may have to include other practical
considerations before making a final decision. For instance, the
coordinates indicated by the centre-of-gravity method may point
to an infeasible site to set up a plant. In some cases, it may be
very expensive to acquire the land and develop the site.
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Location Planning Methods
3. The Load–Distance Method
The load–distance method enables a location planner to
evaluate two or more potential candidates for locating a
proposed facility visà-vis the demand (or supply) points.
The load–distance method provides an objective measure of
the total load distance for each of the potential candidates.
Choosing the location with best load distance among these
will satisfy the objective of identifying an appropriate location
for the proposed facility. KGB