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Facility Location

Facility location is the process of identifying the best geographical location for a service or production facility, in order to be efficient and effective; economically and operationally.

Fertilizer Plant Steel Plant Textile Mill Bank Petrol Pump Library

Long Term Consideration Profitability or Success in objectives achievements

Why to seek Plant Location?

Business newly started Expansion of existing facilities Branches or Franchises Lease expired & to plan for re-location To minimise costs Socio-economic reasons Shifting of markets

M/s Samrat Thermo Plastic Industries, Mixers & Grinders manufacturers in Raipur, In MP 75% raw materials bringing from Mumbai 75% finished products to Pune & Mumbai Result : Had to shift entire plant to Pune Associated Breweries & Distilleries, brewing beer in GOA -- Losses Shifted to Vashi near Mumbai Success at last

Facility Planning
Facility planning answers: How much long-range capacity is needed When more capacity is needed Where facilities should be located (location) How facilities should be arranged (layout)


Facility Planning
The capital investment in land, buildings, technology, and machinery is enormous A firm must live with its facility planning decisions for a long time, and these decisions affect:
Operating efficiency Economy of scale Ease of scheduling Maintenance costs Profitability!

A Sequence of Decisions
National Decision Political, social, economic stability; Currency exchange rates; . . . . . Climate; Customer concentrations; Degree of unionization; . . . . . Transportation system availability; Preference of management; . . . . . Site size/cost; Environmental impact; Zoning restrictions; . . . . .

Regional Decision

Community Decision

Site Decision

Factors Affecting the Location Decision

Site acquisition, preparation and construction costs Labor costs, skills and availability Utilities costs and availability Transportation costs Taxes

Factors Affecting the Location Decision

Labor attitudes and traditions Training and employment services Communitys attitude Schools and churches Recreation and cultural attractions Amount and type of housing available

Facility Types and Their Dominant Locational Factors

Mining, Quarrying, and Heavy Manufacturing
Near their raw material sources Abundant supply of utilities Land and construction costs are inexpensive
Availability and cost of labor

Light Manufacturing Warehousing

Proximity to transportation facilities Incoming and outgoing transportation costs

. . . more

Facility Types and Their Dominant Locational Factors

R&D and High-Tech Manufacturing
Ability to recruit/retain scientists, engineers, etc. Near companies with similar technology interests

Retailing and For-Profit Services

Near concentrations of target customers

Government and Health/Emergency Services

Near concentrations of constituents

Some Reasons the Facility Location Decision Arises

Changes in the market
Expansion Contraction Geographic shift

Changes in inputs
Labor skills and/or costs Materials costs and/or availability Utility costs

. . . more

Some Reasons the Facility Location Decision Arises

Changes in the environment
Regulations and laws Attitude of the community

Changes in technology

Analyzing Service Location Decisions

Consumer Behavior Research Market Research Data Gathering for Each Location Alternative Revenue Projections for Each Location Alternative Profit Projections for Each Location Alternative Why do customers buy our products and services? Who are our customers? What are their characteristics? Where are our customers concentrated? What are their traffic/spending patterns? What are the economic projections? What is the time-phased revenue? What are the projected revenues less time-phased operating costs?

Analyzing Industrial Facility Locations

Factors that tend to dominate the industrialfacility location decision are:
Transportation costs Labor cost and availability Materials cost and availability Utilities cost

Analyzing Industrial Facility Locations

Locating a Single Facility
A simple way to analyze alternative locations is conventional cost analysis
Pros ease of communication and understanding Cons time value of money ignored and qualitative factors not considered

Locating Multiple Facilities

More sophisticated techniques are often used:
Linear programming, computer simulation, network analysis, and others

Qualitative Factors in Location Decisions

Often-important qualitative factors include
Housing Climate Community activities Education and health services Recreation Churches Union activities Community attitudes

Village, Town Or Cities

In Villages, Sites are not readily available But if, they are at a cheaper rates Taxes are negligible, Spacious & Open space available Low wages for unskilled But higher for skilled labour Waste disposal Lack of civic amenities for staff, transportation problems
In Town, offer the advantages of both rural as well as cities Less costly compared to city, Transportation; Skilled labour Civic amenities In city, municipality services available, transportation, entertainment Local market (CONSUMERS), Banking, Finance Supporting Industries, Skilled labour at economical rates But, Pollution restrictions, Unions, Taxes, Land Cost City Small Plants Rural Very big Plant

Developments in 21st century making Site selection easier Improvements in Transportation; Communication & speed of services Reduction in wage differentials between regions Mobility of workers & Management Improvement in construction methods Government policies removing variations in regional imbalances Technological improvements less labor more; output Air-conditioning equipment Expansion of markets and thus fuelling demand TV programme & advertisement industries Realty Shows; IPL; World Cup Sports as Olympics; CWG; Asiad; National Games Beauty competitions and demand creation & Fashion Industry State government and special facilities Personal & Emotional reasons Disposal waste and environmental awareness


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Factor Rating Method Point Rating Method Break Even Analysis Qualitative Factor Analysis