Introduction:

Facility layouts have many implications for the quality, productivity, and competitiveness of an
organization. The first task is to determine the feasibility of adding a new building to an existing site or
choose a new site. Location decisions have many strategic implications. First, examine overall trends in
location patterns and then consider the factors that influence location choices

FACTORS AFFECTING LOCATION DECISIONS

Facility Location – is the determination of a geographic site on which to locate a firm’s

operation. Managers must weigh many factors when assessing the desirability of a particular site.

1. The factor must be sensitive to location. The factor will influence choice only if management
is convinced that the degree of factor achievement will vary among the locations under
consideration.
2. Management must consider the difference in degree of factor achievement to be significant.

LOCATION FACTORS
1. Dominant Factors – are derived from competitors priorities (cost, quality, time, and
flexibility) and have a particularly strong impact on sales or costs.
2. Secondary Factors – are also important, but management may downplay or even ignore
some of them if others are relatively more important.

DOMINANT FACTORS IN MANUFACTURING

According to interviews and survey data, five groups of factors dominate locations decisions
for U.S. manufacturing plants . The percentage shown for each group represents the proportion
of respondents who picked it as a must when considering a new location.

1. Favorable labor climate ( 76%)

2. Proximity to markets ( 55%)
3. Quality of life (35%)
4. Proximity to suppliers and resources (31%)
5. Proximity to company’s other facilities (25%)

Favorable labor climate. For 76% respondents, a favorable labor climate was a dominant factor
in making location decisions. Labor climate is a function of wage rates, training requirements,
attitudes toward work, worker productivity, and union strength. Many executives believe that
weak unions or a low probability of union organizing efforts is a major advantage.

Proximity to markets. After determining where the demand for goods and service is greatest,
management must select a location for the facility that will supply the demand. Locating near
markets is particularly important when goods are bulky or heavy and outbound transportation
rates are high.

Quality of life . Respondents from all but one of the individual groups gave quality of life a
relatively low rating. The lone exception was high-tech executives , who rated it at the top of
their lists. For them, attracting and keeping a good engineering staff is more important than
 labor environment or transportation costs. Quality schools, recreational facilities, and an
attractive life-style can make a difference I their location decisions.

Proximity to suppliers and resources . Most respondents rated proximity to suppliers and
resources of relatively low importance. The exception was industries dependent on bulky or
heavy materials. In such cases inbound transportation costs become a dominant factor, forcing
these firms to locate facilities near suppliers.(for example, it is practical to locate paper mills
near forests and food processing facilities near farms.) Another advantage is the ability to
maintain lower inventories.

Proximity to the Parent Company’ s Facilities. In many companies, plants supply parts to other
facilities or rely on other facilities for management and staff support. These ties require
frequent coordination and communication, activities that can become more difficult as distance
increases.

Other important factors may emerge, depending on the situation.

1. Utility costs – (telephone, energy, water)
2. Local and estate taxes
3. Financing incentives offered by local or state government
4. Relocation costs
5. Land costs
6. Room for expansion
7. Construction costs
8. accessibility to multiple modes of transportation
9. insurance costs
10. competition from other firms for the work force
11. local ordinances(such as pollution or noise control)
12. community attitudes

Dominant Factors in services

Location – is a key factor in determining how conveniently customers can carry on

business with a firm.
Ex. Warehouse location
Proximity to markets – takes on greater importance for warehousing and
distributions operations. With a warehouse close by, many firms can hold inventory closer to
the customer.
Other cases , locating near competitors is actually more advantage.

A Systematic Selection Process

1. The process is triggered by a perception that opening a facility – such as anew retail
outlet or warehouse – in a new location will lead to increased profits. Those responsible
For the selection decision can be a staff team in a large corporation or the individual owner
of a small company.
2. Someone must identify the important factors and categorize them as dominant or
secondary.
 3. The analyst begins by considering alternative regions, then narrows the choices to
alternative communities and finally to specific sites. The analyst may thoroughly
evaluate 5 and 15 sites.
During the evaluation stage, the analyst collects data from various sources, including location
consultants, state development agencies, city and country planning departments chambers of
commerce, land developers, electric power companies, banks, and on-site visits.
4. The data collected are then analyzed, and the method used depends on whether a
factor is qualitative or quantitative.

A quantitative factor is more tangible and can be measured in dollars, such as annual transportation
costs or taxes. It is not realistic to measure qualitative factors , such as community attitudes or quality of
life.
For the quantitative factors, managers may request a projection of the dollar value of each one.
These cash flows maybe broken down into separate cost categories (such as inbound and outbound
transportation , labor construction, and utilities) and separate revenues sources ( such as stock , sales ,
and interest income.) These financial factors can be converted to a single measure of financial merit,
such as present value or payback.
Management then evaluates qualitative factors pertaining to each site. Some managers are
content with seeing only the expected performance on each factor. Others preferred to calculate a
weighted score for each site.
5. The end result is a report containing site recommendations, as well as a summary of the data
and analyses on which they are based.

Calculating the weighted score

A new medical facility, Healthy-Watch , is to be located in a fast-growing portion of a city. The
accompanying table shows the location factors ,weights, and scores (1=poor, 5= excellent)for
one potential site. The weights in this case add up to 100 percent . What is the weighted score
for this site?

Weighted location score for a medical facility ‘s site

weighted
score
Location factor weight (a) score (b) (axb)

Total patient miles per month 25 4 100

Facility utilization 20 3 60
average time per emergency
trips 20 3 60
expressway accessibility 15 4 60
land and construction costs 10 1 10
employee preferences 10 5 50
weighted location
score = 340