Facility Location

Macro Level View

R P M
R P M
R P M
Facility Location Decision Factors
Regional Factors
Site-related
Factors
Multiple Plant
Strategies
Community
Considerations
Factors Cont
Availability of raw materials
Availability of water, fuel, power
Availability of transportation facilities
Dependability & Skill of the labour available
Market area to be served by the plant
Availability of external plant services
Health Facilities
Educational facilities
Climatic condition of the region
Laws and codes of the region
Local Taxes
Facility Location for International firm
Facilities
Location
Country factors
Resource availability
Cost
Infrastructure
Culture of Land

Product factors
Serving universal needs
Eg: Calculators, Computers
Value to Weight ratio-
Refers to the share of
transportation cost to
total costs
Eg: Electronic components



Organisational Issues
Business strategy
Organisation structure
Inventory managemnet


Technology factors
Type of Technology
Cost imparted
Feasibility to perform
activity from multiple
locations

Government Policies
FDI
Extent of indegenisation
Import restrictions
Stability issues
Labour legislations

Comparison of Manufacturing and
Service Considerations
Manufacturing/Distribution Service/Retail
Cost Focus Revenue focus
Transportation modes/costs Demographics: age,income,etc
Energy availability, costs Population/drawing area
Labor cost/availability/skills Competition
Building/leasing costs Traffic volume/patterns
Customer access/parking
Evaluating Locations
Cost-Profit-Volume Analysis
Factor Rating
Center of Gravity Model


Cost-Profit-Volume Analysis

Determine fixed and variable costs
Plot total costs
Determine lowest total costs
Cost-Volume Analysis
Fixed and variable costs for four potential locations
Location Fixed
Cost
Variable
Cost
A
B
C
D
$250,000
100,000
150,000
200,000
$11
30
20
35

Solution
Fixed
Costs
Variable
Costs
Total
Costs
A
B
C
D
$250,000
100,000
150,000
200,000
$11(10,000)
30(10,000)
20(10,000)
35(10,000)
$360,000
400,000
350,000
550,000
Factor Rating

Factor rating approach can be used for any
decision based on quantitative & qualitative data


Factor Rating
Step 3: Score each site on each factor
Step 4: Total the weighted scores for each location
Step 1: List the factors
Step 2: Weight the factors
Factors Weights Kochi Bangalore
Business Climate
Quality of Life
Proximity to
higher education
Totals 1.00




Weighted center of gravity model locates facility closest to
demand & supply sites with heaviest annual shipments
(reducing distribution costs)
Center of Gravity Model
In Summary
Cost-Profit-Volume
Decision based on the highest profit
Factor Rating
Decision based on quantitative and qualitative inputs
Center of Gravity Method
Decision based on minimum distribution costs