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MANUFACTURING and OPERATIONS MANAGEMENT
3. Facility Location & Layout
Part One
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Chapter 3: Facility Location & Layout
Strategic Importance
A facility is something built or established to serve a purpose
Facilities management is a location of that decision for that facility and
the composition or internal layout of the facility once located.
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Chapter 3: Facility Location & Layout
Factory location has long term impact on business.
The location has to fulfill the business objectives and also
should be able to build the flexibility to remain competitive
in future to come.
There are numerous external factors which affects the
location potential and value for business. Therefore,
selection of location is one of the most important and
strategic decision.
Major investments of the business is induced duringbuilding the required infrastructure and it makes large
impact on manufacturing and economic feasibility.
Strategic Importance
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Site
LocationFactors
Chapter 3: Facility Location & Layout
Influencing Factors
egional
Location
Factors
GlobalLocation
Factors
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Chapter 3: Facility Location & Layout
Influencing Factors
Government stability Government regulations
Economic systems
Stability and growth
Financial Stability
Culture
Climate
Exim policies
Resource availability
Infrastructure
Labor cost and Education
Technology Risk
Technical expertise
Group trade agreements
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Chapter 3: Facility Location & Layout
Influencing Factors
Grouped into 5 factors:Economic performance:
Domestic economy, international trade, international
investment, employment, prices
Government efficiency:
Public finance, fiscal policy, institutional framework, businesslegislation, education
Business efficiency:
Productivity, labor market, finance, management practices,
impact of globalization
Infrastructure:
Basic infrastructure, technology infrastructure, scientific
infrastructure, health & environment, value system
Resources & Environment:
Human resource, material availability, logistics &
transportation, education system
Competitiveness of
Region:
Degree to which a
region, under free &
fair market conditions,
produces goods &services which meet the
needs of the intended
markets, while
maintaining reasonable
value system.
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Chapter 3: Facility Location & Layout
Influencing Factors
Grouped into 5 factors:
Local resources:
Land, man, machine, material, ..
Proximity / access to markets / customers:
Location benefit, minimizing logistics and travel time/cost.
Access to suppliers:
Availability of suppliers for required volume / cost ..
Quality of life:
Education, economy, social environment, culture, health,
public safety .
Local incentives:
Government policies, labor laws, environmental laws, tax
benefits, business cluster, land price & availability
Competitiveness of Site:
Degree to which a site
has the necessary
prerequisites to
establish uniform,
consistent and steadyflow of all inputs and
capability to serve the
end user within the
standard norms.
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Chapter 3: Facility Location & Layout
Framework: Global Site
PHASE I
Global
Strategy
PHASE II
Regional Facility
Configuration
PHASE III
Desirable Sites
PHASE IV
Location Choices
Competitive STRATEGY
INTERNAL CONSTRAINTS
Capital, growth strategy,
existing network
PRODUCTION TECHNOLOGIESCost, Scale/Scope impact, support
required, flexibility
COMPETITIVE
ENVIRONMENT
PRODUCTION METHODSSkill needs, response time
FACTOR COSTS
Labor, materials, site specific
GLOBAL COMPETITION
TARIFFS AND TAX
INCENTIVES
REGIONAL DEMAND
Size, growth, homogeneity,
local specifications
POLITICAL, EXCHANGE
RATE AND DEMAND RISK
AVAILABLEINFRASTRUCTURE
LOGISTICS COSTS
Transport, inventory,
coordination
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Chapter 3: Facility Location & Layout
Objective Comparison
Draw up a list ofpossible locations
Define the decision criteria Six common criteria used by companies
1. Cost of operating
2. Availability of the skills
3. Sales potential in the adjacent markets
4. Risk of doing the business
5. Attractiveness of living environments
6. Quality of infrastructure
Collect data for each location
Weight the criteria
Find risk data at available data information system
Rank locations according to weighted sum of their scores
Assess the dynamics of the labor pool Availability of skilled labor
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Chapter 3: Facility Location & Layout
Business Decision
Alternative1
: Purchase one large facility,requiring one large initial investment
Alternative 2: Add capacity incrementallyin smaller chunks as needed
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Location Analysis
Location analysis is a dynamic process where entrepreneur analyses and compares the appropriateness or
otherwise of alternative sites with the aim of selecting the best site for a given enterprise. It consists the
following:
Demographic Analysis: It involves study of population in the area in terms of total population (in no.), age
composition, per capita income, educational level, occupational structure etc.
Trade Area Analysis: It is an analysis of the geographic area that provides continued clientele to the firm. He
would also see the feasibility of accessing the trade area from alternative sites.
Competitive Analysis: It helps to judge the nature, location, size and quality of competition in a given trade
area.
Traffic analysis: To have a rough idea about the number of potential customers passing by the proposed site
during the working hours of the shop, the traffic analysis aims at judging the alternative sites in terms ofpedestrian and vehicular traffic passing a site.
Site economics: Alternative sites are evaluated in terms of establishment costs and operational costs under
this. Costs of establishment is basically cost incurred for permanent physical facilities but operational costs
are incurred for running business on day to day basis, they are also called as running costs.
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Chapter 3: Facility Location & Layout
Optimum Location
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Chapter 3: Facility Location & Layout
Factor Rating Method
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Chapter 3: Facility Location & Layout
Center of Gravity Method
X = [(75*60)+(90*40)+(160*70)+(250*80)+(260*50)]/(60+40+70+80+50)
X = 174
y = [(80*60)+(175*40)+(90*70)+(150*80)+(60*50)]/(60+40+70+80+50)
y = 110
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Chapter 3: Facility Location & Layout
Center of Gravity Method
(75, 80), 60
(90, 175), 40
(1
60, 90), 70
(250, 150), 80
(260, 60), 50
X = 174
y = 110
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Break Even MethodLocation Fixed Cost
aria le Cost Total Cost
A 350,000.00 5.00 400,000.00B 170,000.00 25.00 420,000.00
C 100,000.00 40.00 500,000.00
D 250,000.00 20.00 450,000.00
aria le cost is per unit of production for say 10,000 units.
A
B
C
D
Quantity / olume
Cost
C B A
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Chapter 3: Facility Location & Layout
Facility Layout
Fixed position Layout
Product Layout
Process Layout
Combination Layout
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Chapter 3: Facility Location & Layout
Fun with Mind Reading
Can you Read the mind .
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Chapter 3: Facility Location & Layout
Fun with Mind ReadingRead the Mind. . .
Please follow the instructions below carefully.
Think of a number between 1 and 10.
Multiply the number by 9.
Add the digits of your result.
Subtract 5 from your new number.
Find the alphabet that corresponds to your number, if1 = A, 2 = B, 3 = C,.
Think of a country that begins with your letter.
Write down your country.
Think of an animal beginning with the second letter of your country.
Think of the color of that animal.Write down the animal and its color.
Think of an animal that begins with the last letter of your country.
Think of a fruit that begins with the last letter of this second animal.
Write down the fruit and the animal.
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Chapter 3: Facility Location & Layout
Fun with Mind ReadingRead the Mind. . .
Denmark is an unlikely place to find
Orange Elephants and
Black Kangaroos