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Facility Location

Definition

Facility location is the process of identifying the best geographic location for a service or production facility. In other words Facility location or Plant location is a function of determining the location for a plant for maximum operating economy and effectiveness.

Facility Location/Plant Location

A plant location on pure economic considerations will ensure an easy and regular supply of raw materials, labour force, efficient plant layout, proper utilization of production capacity, and reduced manufacturing.

Reason for plant location


Establishment of a new venture Expansion of existing business Expansion of demand or volume of business Re-location of existing plant Merging of companies Changes in political, economical and social condition Significant changes in the cost structure

Factors Influence Plant Location/ Facility Location

Facility location is the process of determining a geographic site for a firms operations. Managers of both service and manufacturing organizations must weigh many factors when assessing the desirability of a particular site, including proximity to customers and suppliers, labour costs, and transportation costs. It is appropriate to divide the factors, which influence the plant location or facility location on the basis of the nature of the organisation as General locational factors Specific locational factors

General Locational Factors


1. CONTROLLABLE FACTORS Proximity to markets Supply of materials Transportation facilities Infrastructure availability Labour and wage External economies Capital

General Locational Factors


2. UNCONTROLLABLE FACTORS Government policy Climate conditions Supporting industries and services Community and labour attitudes Community Infrastructure

Proximity to markets

Every company is expected to serve its customers by providing goods and services at the time needed and at reasonable price organizations may choose to locate facilities close to the market or away from the market depending upon the product. When the buyers for the product are concentrated, it is advisable to locate the facilities close to the market.

Supply of raw material

It is essential for the organization to get raw material in right qualities and right time in right order to have an uninterrupted production. This factor becomes very important if the materials are perishable and cost of transportation is very high.

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Transportation facilities
Speedy

transport facilities ensure timely supply of raw materials to the company and finished goods to the customers. The transport facility is a prerequisite for the location of the plant.

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Infrastructure availability

The basic infrastructure facilities like power, water and transport, etc., become the prominent factors in deciding the location.

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Labour and wages

The problem of securing adequate number of labour and with skills specific is a factor to be considered both at territorial (region) as well as at community level during plant location.

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UNCONTROLLABLE FACTORS
1. Government policy The policies of the state governments and local bodies concerning labour laws, building codes, safety, etc., are the factors that demand attention.

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UNCONTROLLABLE FACTORS
2. Climatic conditions:
The geology of the area needs to be considered together with climatic conditions (humidity, temperature). Climates greatly influence human efficiency and behaviour. Some industries require specific climatic conditions e.g., textile mill will require humidity.

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UNCONTROLLABLE FACTORS
3. Supporting industries and services:
Now a day the manufacturing organisation will not make all the components and parts by itself and it subcontracts the work to vendors. So, the source of supply of component parts will be the one of the factors that influences the location.

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UNCONTROLLABLE FACTORS
5. Community and labour attitude Community attitude towards their work and towards the prospective industries can make the industry. Community attitudes towards supporting trade union activities are important criteria.

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UNCONTROLLABLE FACTORS
6. Community infrastructure and amenity:
All manufacturing activities require access to a community infrastructure, most notably economic overhead capital, such as roads, railways, port facilities, power lines and service facilities and social overhead capital like schools, universities and hospitals.

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Decisions Making Process in Facility Location/ Facility Location Models


1. Qualitative Factor analysis models Factor Rating Method Weighted factor rating method Point rating Method 2. Quantitative Factor analysis models Return on Investment Break even analysis Dimensional Analysis

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Factor Rating Method


The process of selecting a new facility location involves a series of following steps: Identify the important location factors. Rate each factor according to its relative importance, i.e., higher the ratings is indicativeof prominent factor. Assign each location according to the merits of the location for each factor. Calculate the rating for each location by multiplying factor assigned to each location with basic factors considered. Find the sum of product calculated for each factor and select best location having highesttotal score.

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Weighted factor rating method

Factors are assigned weights based on relative importance and weightage score for each site using a preference matrix is calculated.The site with the highest weighted score is selected as the best choice.

Point Rating Method

All objectives of plant location dont have equal weightage. When relative importance of each objective is represented by the number of points, is called point rating method

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Break even analysis

Break even analysis implies that at some point in the operations, total revenue equals total cost. Break even analysis is concerned with finding the point at which revenues and costs agree exactly. It is called Break-even Point.

Alternative location x,y,z have a cost structures shown to produce a product expected for selling at Rs. 120 per unit. Find the most economical location for an expected volume of 2,500 units 1 year and determine the range of annual volume of production for which , each of the locations x,y, and z would be most economical or potential
Location X Y Z FC/year (Rs.) 40,000 60,000 90,000 VC/ unit (Rs.) 60 40 25

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Dimensional analysis
C1M, C2M , C3M CZM are the different costs associated with a site M on the Z different cost items N N N N C , C , C , C are the different costs 1 2 3 Z associated with a site N, and W W W WZ are the weightages given to these 1, 2, 3 . cost items, then the relative merit of site M and site N is given by:

(C1M / C1N) W1 x (C2M / C2N) W2 x (C3M / C3N) W3 x (CzM / CzN) WZ If this is > 1, it means site N is superior; and vice versa.

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ILLUSTRATION

Potential locations X, Y and Z have the cost structures shown below. The ABC company has a demand of 1,30,000 units of a new product. Three potential locations X, Y and Z having following cost structures shown are available. Select which location is to be selected and also identify the volume ranges where each location is suited?