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Facility Location
Facility location is the process of identifying the best geographicallocation for a service or production facility, in order to be efficient andeffective; economically and operationally.
Fertilizer Plant Steel Plant Textile Mill Bank Petrol Pump Library
Long Term Consideration Profitability or Success in objectives achievements
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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
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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 beerin GOA -- Losses
Shifted to Vashi near Mumbai
Success at last
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Facility Planning
How muchlong-range capacity is needed
Whenmore capacity is needed
Wherefacilities should be located
(location)
Howfacilities should be arranged (layout)
7-4
Facility planning answers:
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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 decisionsaffect: Operating efficiency
Economy of scale
Ease of scheduling
Maintenance costs
Profitability!
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A Sequence of Decisions
National Decision
Regional Decision
Community Decision
Site 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; . . . . .
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Factors Affecting
the Location Decision
Economic Site acquisition, preparation and construction
costs
Labor costs, skills and availability
Utilities costs and availability
Transportation costs
Taxes
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Factors Affecting
the Location Decision
Non-economic
Labor attitudes and traditions
Training and employment services
Communitys attitude
Schools and churches
Recreation and cultural attractions
Amount and type of housing available
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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
Light Manufacturing
Availability and cost of labor
Warehousing
Proximity to transportation facilities Incoming and outgoing transportation costs
. . . more
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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
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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
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Some Reasons the
Facility Location Decision Arises
Changes in the environment
Regulations and laws
Attitude of the community
Changes in technology
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Analyzing Service Location Decisions
Consumer BehaviorResearch
Market Research
Data Gathering for
Each Location Alternative
Revenue Projections for
Each Location Alternative
Why do customers buy ourproducts and services?
Who are our customers?
What are their characteristics?
What are the economic projections?
What is the time-phased revenue?
Profit Projections for
Each Location Alternative
What are the projected revenues
less time-phased operating costs?
Where are our customers concentrated?
What are their traffic/spending patterns?
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Analyzing Industrial Facility Locations
Factors that tend to dominate the industrial-
facility location decision are:
Transportation costs
Labor cost and availability
Materials cost and availability
Utilities cost
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Analyzing Industrial Facility Locations
Locating a Single Facility
A simple way to analyze alternative locations isconventional 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
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Qualitative Factors in Location
Decisions
Often-important qualitative factors include
Housing
Climate
Community activities
Education and health services
Recreation
Churches Union activities
Community attitudes
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Village, Town Or Cities
In Villages, Sites are not readily available But if, they are at a cheaper
ratesTaxes are negligible, Spacious & Open space availableLow wages for unskilled But higher for skilled labourWaste disposalLack of civic amenities for staff, transportation problems
In Town, offer the advantages of both rural as well as citiesLess costly compared to city, Transportation; Skilled labourCivic amenities
In city, municipality services available, transportation, entertainmentLocal market (CONSUMERS), Banking, FinanceSupporting Industries, Skilled labour at economical ratesBut, Pollution restrictions, Unions, Taxes, Land Cost
City Small Plants
Rural Very big Plant
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Developments in 21st century making Site selection easier
Improvements in Transportation; Communication & speed ofservices
Reduction in wage differentials between regionsMobility of workers & ManagementImprovement in construction methodsGovernment policies removing variations in regional imbalancesTechnological improvements less labor more; outputAir-conditioning equipmentExpansion of markets and thus fuelling demandTV programme & advertisement industriesRealty Shows; IPL; World CupSports as Olympics; CWG; Asiad; National GamesBeauty competitions and demand creation & Fashion Industry
State government and special facilitiesPersonal & Emotional reasonsDisposal waste and environmental awareness
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LOCATIONAL MODELS
1. Factor Rating Method2. Point Rating Method3. Break Even Analysis4. Qualitative Factor Analysis