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FACILITY LOCATION factors and quantitative technique SUBMITTED BY- DEBOJIT NATH(23) SURAJIT NATH(25) AKASHDEEP DEB (38) SUBMITTED TO- Dr. DEBOMALYA GHOSH (Assistant professor)
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Page 1: FACILITY LOCATION

FACILITY LOCATION

factors and quantitative technique

SUBMITTED BY- DEBOJIT NATH(23)SURAJIT NATH(25)

AKASHDEEP DEB (38)

SUBMITTED TO- Dr. DEBOMALYA GHOSH(Assistant professor)

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WHAT IS FACILITY LOCATION ?Facility location is the process of determining geographic sites of a firm operations.Location choices can be critically important for firms value chain.

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• Q. Where should a plant or service facility be located?

• This is a top question on the strategic agendas of contemporary manufacturing and service firms, particularly in this age of global markets and global production. Dramatic changes in international trade agreements have made the world truly a “global factory,” allowing companies greater flexibility in their location choices. In practice, however, the question of location is very much linked to two competitive imperatives:

• 1 The need to produce close to the customer due to time-based competition, trade agreements, and shipping costs.

• 2 The need to locate near the appropriate labour pool to take advantage of low wage costs and/or high technical skills.

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example• White Castle is an American regional fast-

food hamburger restaurant chain in the Eastern United States, and the first of its kind in the US.

• White castle often locate restaurants near manufacturing plants because of the following reason

1. white castle’s strategy is to cater to blue -collar worker . As a result , it tends to locate to near the target population and away from the competitors , such as Wendy and McDonald’s

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FACTORS AFFECTING LOCATION DECISION

• Location factors divide into

Dominant factors

Secondary factors

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DOMINANT FACTORS IN MANUFACTURING

• The following six groups of factors dominate the decision firms, for making decision about the location of new manufacturing plants.

1. Favorable labor climate2. Proximity to market3. Quality of life4. Proximity to suppliers and resources 5. Proximity to parent company facilities 6. Utilities, taxes, & real estate costs

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Dominant factors in

manufacturing

Favourable labour climate.

Proximity to markets.

Proximity to suppliers and

resources

Quality of life.

Proximity to the parent company’s

facilities.

Utilities, taxes, and real estate costs.

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Favorable labor climate• A favorable labor climate may well be the most important factor

for labor- intensive firms in industries such as textiles, furniture and consumer electronics.

• Labor climate is a function of wage rates, training requirements, attitudes, towards work , work productivity and union strength.

• Example-• GE electronics decided to relocate the Energy Division from Shenectady New York to Atlanta Georgia came as a

surprise because GE had a 100- year history in New York dating back to the days of Thomas Edison the main reason -

for this change was that the GE’s customer are concentrate d in an around Atlanta

and the city has deep talent base of technologically oriented workers

Favorable labor climate

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Proximity to market• After determining where the demand for services and goods

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

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Quality of life• Good school, recreational facilities, cultural events, and an

attractive lifestyle contribute to quality of life. This factor can make the difference in location decisions

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Proximity to suppliers and resources

• Firms dependent on inputs of bulky, perishable, or heavy raw materials emphasize proximity to their suppliers and resources. In such cases, inbound transportation costs become a dominant factor, encouraging such firms to locate facilities near suppliers.

•  

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Proximity to parent company facilities

• In many companies, plant supply parts to other facilities or rely on other facilities for management and staff support. These ties require frequent coordination and communication, which can become more difficult as distance increases

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Utilities, taxes, & real estate costs

• Other location decision factors include utility costs (telephone, energy, and water), local and state taxes, financing incentives offered by local or state government, relocation costs, and land costs.

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DOMINANT FACTOR IN SERVICES

• Proximity to customers• Transportation costs and proximity to markets• Location of competitors• Site specific factors

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DOMINANT FACTORS

IN SERVICES

Proximity to

Customers

Transportation Costs

and Proximity to Markets

Location of Competitors

Site-Specific

Factors

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Proximity to customers

Location is the key factor in determining how conveniently customers can carry on business with a firm.

In addition, customer proximity by itself is not enough – the key is proximity to customers who will patronize the facility and seek its services.

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Transportation Costs and Proximity to Markets

For warehousing and distribution operations, transportation costs and proximity to markets are extremely important. With a warehouse nearby, many firms can hold inventory closer to the customer, thus reducing deliver time and promoting sales.

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Location of Competitors

 One complication related to estimating sales potential of different locations is the impact of competitors. Management must not only consider the current location of competitors but also try to anticipate their reaction to the firm’s new location.

Avoiding areas where competitors are already well established often pays off.

However, in some industries, such as new-car sales showrooms and fast-food chains locating near competitors is actually advantageous.  

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Site- Specific Factors  Retailers must consider • the level of retail activity, • residential density, and traffic flow and • site visibility. Retail activity in the area is important because shoppers often decide on impulse to go shopping or to eat in a restaurant. Traffic flows and visibility are important because businesses customers arrive in cars. Management consider possible traffic tie-ups, traffic volume and direction by time of day, traffic signals, intersections, and the positions of traffic medians. Visibility involves distance from the street and the size of nearby buildings and signs. A high residential density increases night-time and weekend business if the population in the area fits the firm’s competitive priorities and target market segment. 

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QUANTITATIVE TECHNIQUES

There are many analytical method which can be used in facility location decision.

Some of these are :

1. FACTOR RATING METHOD

2. COST-PROFIT-VOLUME ANALYSIS

3. CENTER OF GRAVITY METHOD

4. TRANSPORTATIONAND SIMULATION MODELS

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FACTOR RATING METHOD

• Factor-rating systems are perhaps the most widely used of the general location techniques because they provide a mechanism to combine diverse factors in an easy-to-understand format.

• In factor rating method, first we must identify the Most Important Factors in evaluating alternative sites for the new facility.

• Then we should assign a weight between 0 and 100 to each of these factors.

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• Each alternative location will then be rated based on these factor weights.

• The most weighted alternative is selected as the best alternative.

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