1. FACILITY LOCATION

2. Definition Of Plant Location
A facility is a place where men, materials, money, machinery and equipment, etc., are brought together for manufacturing a product
According to Bethel Smith & Alwater location
“Plant location stands for that spot where in consideration of business as a whole, the total cost of production and delivering goods to all the consumers is the lowest”

3. Problems due to improper facility location planning
Sell off the facility to other companies (disinvestment)
Finding buyer companies for a facility at wrong location is difficult
The prices received are less than actual investment
Disinvestment is time consuming process
Relocate facility to new
Only machines & equipments can be relocated
Capital expenditure like land, building, etc have to be sold & is time consuming
More investment required for purchasing land, construction, train new workers form scratch
Close down the operations completely & liquidate the assets
Liquidation of assests is most painful for any organisation
finding the buyers & negotiation is tedious & time consuming
The prices received are less than actual investment
Facility set up without proper location planning
Continue operations at the existing location
Inherent problems lead to low profits
Competitors have plants at better locations
In long run company have plan again better location for competing competitors

4. OPERATIONAL STRATEGIES FOR MULTIPLE FACILITIES
Separate facilities for different products/Services
Separate facilities to serve different geographical areas
Separate facilities for different processes

5. Factors Affecting Location Decision
Proximity to raw material
Proximity to markets
Good transportation facilities
Proximity to sub contractors
Availability of power supply
Basic amenities
Govt. policies
Environment & community
Low construction cost
Availability of cheap labour
Residential complexes, school, hospitals Etc

6. Locating foreign Operations facilities
Trade Barrier
International customers
International competition
Exploitation of firm specific advantage
Power & prestige
Offensive in competitor’s home

7. Selection of Site
Urban
Rural
Suburban

8. Urban or City Area Advantages: Good transportation
Prompt communication services
Banking & credit facilities
Availability of skilled & unskilled labour
Development of training institute
Education, medical & recreational institutes
Disadvantages:
Cost of land is costly
Cost of labour is high
Trade union movement is strong in city
Sufficient land is not available

9. Rural Area Advantages : Land is available at cheaper rates
Rate of labor is lower
Taxes are lower
Large area can be purchased
Disadvantages
Transport facilities not available
Banking & credit facilities not available
Municipal facilities like water supply not available

10. Suburban Area Advantages:
Land available at cheaper rates as compared to urban area
Future expansion for future is possible
Skilled & unskilled labour is available
Infrastructure facilities like water, road, etc are developed
Disadvantages as of urban area

11. Objectives of location Decision
1) To expand the existing facility 2) To add new location while retaining existing one 3) Shut down at one location and move to another 4) Do nothing & maintain status quo

12. Facility Location Decision Process
Following process is followed for taking decision:
The objectives and basic requirements are defined
Some decision criteria are established
Alternatives are short listed
The remaining alternatives are compared on quantitative basis
Final selection of best location is done depending upon all of the above mentioned factors

13. Location Analysis Techniques
Factor rating technique
Total cost technique
Break even analysis technique
Dimensional analysis technique

14. 1. Factor Rating Technique
The factor affecting the facility location decision are all important for any type of industry.
At the same time, importance of each of these factors may vary for different plants.
For the requirement of new plant, all the factors are taken into account & these factors are rated from 1 to 5 to indicate importance attached to them(where 5 is most important & 1 is least important). These are called factor rating

15. Factor Ratings Technique
(Location Analysis Techniques)
Factor
Weight
(1-5)
Loc.-A
Rating
(1-10)
Score
(W x R)
Loc.-B
Tax advantages
Suitability of labor skills
Proximity to customers
Proximity to suppliers
Adequacy of water
Receptivity of community
Educational facilities
Rail/air transportation
Suitability of climate
Availability of power 4 3 5 1 2 10 7 6
Total Score

16. 1. Factor Ratings Technique
(Location Analysis Techniques)
Factor
Weight
(1-5)
Loc.-A
Rating
(1-10)
Score
(W x R)
Loc.-B
Tax advantages
Suitability of labor skills
Proximity to customers
Proximity to suppliers
Adequacy of water
Receptivity of community
Educational facilities
Rail/air transportation
Suitability of climate
Availability of power 4 3 5 1 2 10 7 6 20 15 30 14 12
150 40
154
Total Score

17. 2. Total Cost Analysis (Location Analysis Techniques)
Total Cost = Fixed Cost + Operational Cost
Fixed cost include expenditure on land, building, machines and other equipments etc.
Operational costs are the expenditure incurred on inputs, transformation process and the distribution of output.

18. 2. Total Cost Analysis (Location Analysis Techniques)
1-Land
2-Plant
3-Material
4-Construction
5-Distribution 5 5 4 4 5 5
Total costs 3 3 4 4 2 2 3 3 2 1 2 1 1 1 A B C D
Locations

19. (Location Analysis Techniques)
3. Breakeven Analysis
(Location Analysis Techniques)
Transportation
Labor
Material
Costs
Total Fixed Costs
Volume of Units

20. (Location Analysis Techniques)
3. Breakeven Analysis
(Location Analysis Techniques) E B C A D B
Total Costs A D E C
Volume of Output

21. (Location Analysis Techniques)
3. Breakeven Analysis
(Location Analysis Techniques) E B C A D B
Costs/ Sales A D
BEP E
Sales curve C
Volume of Output

22. (Location Analysis Techniques)
4. Dimensional Analysis
(Location Analysis Techniques)
Costs can be tangible or intangible & can be either in absolute terms or in relative terms
It is easy to select a plant when all costs are tangible in nature but there are intangible cost, which cann’t be expressed in absolute form like education facilities etc.
Dimensional analysis considers costs in absolute terms & relative terms
Weights of various factors are in power.

23. (Location Analysis Techniques)
4. Dimensional Analysis
(Location Analysis Techniques)
Relative merit of site A wrt site B: MA
[CA1] W1
[CB1]
[CA2] W2
[CB2]
[CA n] Wn
[CB n] =
X……. X MB MA If
is more than one then location B will be better than A. MB

24. (Location Analysis Techniques)
4. Dimensional Analysis
(Location Analysis Techniques)
Costs
Site
Labour
Power
Education facilities
(1-10)
Recreation facilities M
Rs. 2,00,000
Rs. 40,00,000 4 2 N
Rs. 1,00,000
Rs. 20,00,000 8
Weightage 1
Exercise: Which site is better?