MANUFACTURING and OPERATIONS MANAGEMENT

3. Facility Location & Layout Part One

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Strategic Importance

A facility is something built or established to serve a purpose Facilities management is a location of that decision for that facility and the composition or internal layout of the facility once located.

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Strategic Importance

Factory location has long term impact on business. The location has to fulfill the business objectives and also should be able to build the flexibility to remain competitive in future to come. There are numerous external factors which affects the location potential and value for business. Therefore, selection of location is one of the most important and strategic decision. Major investments of the business is induced during building the required infrastructure and it makes large impact on manufacturing and economic feasibility.

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Influencing Factors

Global Location Factors

egional Location Factors

Site Location Factors

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Influencing Factors

             

Government stability Government regulations Economic systems Stability and growth Financial Stability Culture Climate Exim policies Resource availability Infrastructure Labor cost and Education Technology Risk Technical expertise Group trade agreements
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Influencing Factors Grouped into 5 factors: Economic performance: Domestic economy, international trade, international investment, employment, prices Government efficiency: Public finance, fiscal policy, institutional framework, business legislation, education Business efficiency: Productivity, labor market, finance, management practices, impact of globalization Infrastructure: Basic infrastructure, technology infrastructure, scientific infrastructure, health & environment, value system Resources & Environment: Human resource, material availability, logistics & transportation, education system
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Competitiveness of Region: Degree to which a region, under free & fair market conditions, produces goods & services which meet the needs of the intended markets, while maintaining reasonable value system.

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Influencing Factors

Competitiveness of Site: Degree to which a site has the necessary prerequisites to establish uniform, consistent and steady flow of all inputs and capability to serve the end user within the standard norms.

Grouped into 5 factors: Local resources: Land, man, machine, material, .. Proximity / access to markets / customers: Location benefit, minimizing logistics and travel time/cost. Access to suppliers: Availability of suppliers for required volume / cost .. Quality of life: Education, economy, social environment, culture, health, public safety . Local incentives: Government policies, labor laws, environmental laws, tax benefits, business cluster, land price & availability

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Framework: Global Site

Competitive STRATEGY
INTERNAL CONSTRAINTS Capital, growth strategy, existing network PRODUCTION TECHNOLOGIES Cost, Scale/Scope impact, support required, flexibility COMPETITIVE ENVIRONMENT

PHASE I Global Strategy

GLOBAL COMPETITION

TARIFFS AND TAX INCENTIVES

PHASE II Regional Facility Configuration

REGIONAL DEMAND Size, growth, homogeneity, local specifications

POLITICAL, EXCHANGE RATE AND DEMAND RISK

PRODUCTION METHODS Skill needs, response time

PHASE III Desirable Sites

AVAILABLE INFRASTRUCTURE

FACTOR COSTS Labor, materials, site specific

PHASE IV Location Choices

LOGISTICS COSTS Transport, inventory, coordination

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Objective Comparison

Draw up a list of possible locations Define the decision criteria

Six common criteria used by companies

1. Cost of operating 2. Availability of the skills 3. Sales potential in the adjacent markets 4. Risk of doing the business 5. Attractiveness of living environments 6. Quality of infrastructure

Collect data for each location Weight the criteria

 Find risk data at available data information system

Rank locations according to weighted sum of their scores Assess the dynamics of the labor pool

Availability of skilled labor

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Business Decision

Alternative 1: Purchase one large facility, requiring one large initial investment Alternative 2: Add capacity incrementally in smaller chunks as needed

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Location Analysis

Location analysis is a dynamic process where entrepreneur analyses and compares the appropriateness or otherwise of alternative sites with the aim of selecting the best site for a given enterprise. It consists the following: Demographic Analysis: It involves study of population in the area in terms of total population (in no.), age composition, per capita income, educational level, occupational structure etc. Trade Area Analysis: It is an analysis of the geographic area that provides continued clientele to the firm. He would also see the feasibility of accessing the trade area from alternative sites. Competitive Analysis: It helps to judge the nature, location, size and quality of competition in a given trade area. Traffic analysis: To have a rough idea about the number of potential customers passing by the proposed site during the working hours of the shop, the traffic analysis aims at judging the alternative sites in terms of pedestrian and vehicular traffic passing a site. Site economics: Alternative sites are evaluated in terms of establishment costs and operational costs under this. Costs of establishment is basically cost incurred for permanent physical facilities but operational costs are incurred for running business on day to day basis, they are also called as running costs.

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Optimum Location

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Evaluation Techniques  Factor rating method

Identify critical factors, assign weight based on the business domain and selection criterion. Gives scores to each of the factors for selective location. Find the best one for the given situation. The method to find the location of the warehouse in order to service the targeted customers / market in an optimal way. This approach requires that the analyst find the center of gravity of the geographical area being considered as location of the factory.

 Load-distance model

 Center of gravity approach

 Break-even analysis

This analysis computes the total cost of operation based on fixed and variable components to identify the most economical location for the factory. Focused on optimizing time and cost of transportation and logistics.

 Transportation method

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Factor Rating Method

Incotec Innovation and Performance

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Center of Gravity Method

(90, 175), 40 (250, 150), 80

(160, 90), 70 (75, 80), 60 (260, 60), 50

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Center of Gravity Method

X = [(75*60)+(90*40)+(160*70)+(250*80)+(260*50)]/(60+40+70+80+50)

X = 174
y = [(80*60)+(175*40)+(90*70)+(150*80)+(60*50)]/(60+40+70+80+50)

y = 110

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Center of Gravity Method

(90, 175), 40

X = 174 y = 110

(250, 150), 80

(160, 90), 70 (75, 80), 60 (260, 60), 50

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Fixed Cost 350,000.00 170,000.00 100,000.00 250,000.00 aria le Cost 5.00 25.00 40.00 20.00 Total Cost 400,000.00 420,000.00 500,000.00 450,000.00

Location A B C D

Break Even Method

aria le cost is per unit of production for say 10,000 units.

Cost

A B C D C B A

Quantity / olume
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Facility Layout

Fixed position Layout Product Layout Process Layout Combination Layout

Incotec Innovation and Performance

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Fun with Mind Reading

Can you Read the mind

Incotec Innovation and Performance

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Fun with Mind Reading

Read the Mind. . .

Please follow the instructions below carefully.
Think of a number between 1 and 10. Multiply the number by 9. Add the digits of your result. Subtract 5 from your new number.

Find the alphabet that corresponds to your number, if 1 = A, 2 = B, 3 = C, . Think of a country that begins with your letter. Write down your country. Think of an animal beginning with the second letter of your country. Think of the color of that animal. Write down the animal and its color. Think of an animal that begins with the last letter of your country. Think of a fruit that begins with the last letter of this second animal. Write down the fruit and the animal.
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Fun with Mind Reading

Read the Mind. . .

Denmark

is an unlikely place to find and

Orange Elephants Black Kangaroos

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