FACILITY/PLANT LOCATION

FACILITY/PLANT LOCATION Motivating Factors

Growing Demand Shift in Demand To Remain Competitive Cost Changes New Products

Factors Impacting Facility Location

The need to produce close to the customer due to time-based competition, incentives and shipping costs. The need to locate near the appropriate labour pool to take advantage of low wage costs and/or high technical skills.

Factors for Facility Location

Qualitative factors: Proximity to Customers Business Climate Infrastructure Quality of Labour Suppliers Special Zones Political Climate Government Barriers Other Facilities

Factors for Facility Location contd...

Inter-state Barriers Environmental Regulation Quantitative factors : Total Costs Competitive Advantage Employee costs, Taxes Power/Fuel.

Facility/Plant Location - Spl. Zones for Location

1)

Under operation : Santacruz, Kandla, Cochin, Noida, Falta, Chennai, Visakhapatnam Zones under development : Kanpur, Greater Noida, Bhadohi, Paradeep, Gopalpur, Kulpi, Indore, Hassan, Kakinada, Dronagiri,Positra, Nanguneri

2)

Facility/Plant Location - Methods

1)

Alfred Webers Formula

Ratio

of Raw Material Weight/Finished Product = ?

A)

If the ratio > 1, Locate the plant near the source of raw material. B) Or else , evaluate other factors like labour, market.

Facility/Plant Location - Methods Decision on plant location should be based on 9M - Sir M. Visweswariaya. The 9 M s are : Money, Market, Material, Manpower, Motive power, Management, Machinery, Methods of communication , Momentum for an early start Quantitative and Qualitative factors : Evaluate Factor rating method.. Center of gravity method

Factor Rating
Steps

Identify and list down all the relevant factors for the location decision Establish the relative importance of each factor in the final decision Rate the performance of each candidate location using a rating mechanism Compute a total score for each location based on its performance against each factor and rank them in the decreasing order of the score

Example

A manufacturer of garments is actively considering five alternative locations for setting up its factory. The locations vary in terms of the advantages that it provides to the firm. Hence the firm requires a method of identifying the most appropriate location. Based on a survey of its senior executives the firm has arrived at six factors to be considered for final site selection. The ratings of each factor on a scale of 1 to 100 provide this information. Further, based some detailed analysis of both the qualitative and quantitative data available for each of the location, the rating for the locations against each factor has also been arrived at (on a scale of 0 to 100). Using this information obtain a ranking of the alternative locations.

Factor Ratings

F a c to rs R a t in g Factors Rating A v a ila b ilit y o f in fr a s tr u c tu 0e 9r 90 S iz e o f th e m a r k e t 6 0 Availability of infrastructure Size of the market 60 In d u s tr ia l r e la t io n s c lim a5te 0 Industrial relations climate 50 T a x b e n e f its a n d c o n c e s3s0io n s Tax benefits and concessions 30 A v a ila b ilit y o f c h e a p la b o u r Availability of cheap labour 30 30 N e a r n e s s to p o r t 6 5 Nearness to port 65
Sum of all factor ratings 325

Relative weights 0.28 0.18 0.15 0.09 0.09 0.20 1.00

Rating of each locations against the factor

F a c to rs L o c a tio1nL o c a t io nL2 c a tio nL3 c a tio nL4 c a tio n 5 o o o A v a ila b ility o f in fra s tr u c tu r e 0 2 40 60 35 55 S iz e o f th e m a rk e t 30 30 40 60 80 In d u s tria l re la tio n s c lim a te 8 0 30 50 60 50 T a x b e n e fits a n d c o n c e s s io n s 80 20 10 20 20 A v a ila b ility o f c h e a p la b o u r 0 7 70 45 50 50 N e a rn e s s to p o rt 20 40 90 50 60

Overall rating for location 3 = 60*0.28 + 40*0.18 + 50*0.15 + 10*0.09 + 45*0.09 + 90*0.20 = 54.77
Factors Availability of infrastructure Size of the market Industrial relations climate Tax benefits and concessions Availability of cheap labour Nearness to port Overall score for the locations Ranking of the locations Relative weights 0.28 0.18 0.15 0.09 0.09 0.20 Location 1 Location 2 Location 3 Location 4 Location 5 20 40 60 35 55 30 30 40 60 80 80 30 50 60 50 80 20 10 20 20 70 70 45 50 50 20 40 90 50 60 41.23 4 37.54 5 54.77 2 46.46 3 56.15 1

Plant Location Methodology: Center of Gravity Method The center of gravity method is used for locating single facilities that considers existing facilities, the distances between them, and the volumes of goods to be shipped between them. This methodology involves formulas used to compute the coordinates of the two-dimensional point that meets the distance and volume criteria stated above.

Example

A manufacturer of certain industrial component is interested in locating a new facility in a target market and would like to know the most appropriate place in the target market to locate the proposed facility. The manufacturer feels that there are no location constraints in the target market (i.e. any point in the target market is good enough). There are four supply points A, B, C and D in the locality that will provide key inputs to the new facility. The annual supply from these four points to the proposed facility is 200, 450, 175 and 150 tonnes respectively. While the coordinates in the parentheses show the distance from the origin of the target map of each of the supply point, the number that follows is the annual shipment (in tonnes) from these points to the proposed facility. Identify the most appropriate point in the grid map to locate the new facility.

Centre of Gravity Method

All the demand points (or the supply points, if raw material is supplied from several locations) are represented in a Cartesian coordinate system Therefore it is possible to identify the centre of gravity of the various demand (or supply) points Notations:
The number of demand (or supply) points in the grip map: n Co-ordinates of location i in the grid map: (xi,yi) Quantum of shipment between existing demand (or supply) point i and proposed facility: Wi Co-ordinates of the center of gravity in the grip map: (XC,YC)

XC =

( x ) *W
i i =1

W
i =1

YC =

( y ) *W
i i =1

W
i =1

Solution to Example Grid Map

600 500 400 300 200 100 100 200 300 400

Distance in Kilometres

A (125,550), 200 B (350,400), 450

f re o ) t Cen 6,376 (36 ty avi Gr

D (700,300), 150 C (450,125), 175

500

600

700

Distance in Kilometres