The most important strategic decision for success of any

organization:
Location
Location
Location
Facility location is function of determining where the plant
should be located for maximum operating efficiency and
effectiveness.
Where to locate facility ?????
Near to customer
Near to factor of production
Near to market
Near to raw material
Consideration of factors for selection of location. Factors for
determining location for manufacturing sector unit is different
than service sector.
When business is newly started
The existing business unit has outgrowth and expansion is
not possible hence a new location has to be found
Market necessitate the establishment of new branch
A Lease expires and the landlord does not renew it
Possibility of reducing manufacturing cost by relocating
Other social or economical reasons
Types of facility is major determinant of location. Factors
important in determining location of manufacturing plant
are different from those important in locating a services
facility.
Heavy manufacturing facilities:
Large, requires a lot of space and are expensive.
Automobile, steel mills and oil refineries
Light manufacturing facilities:
Smaller and less costly
Electronic equipment and components, computer products,
assemble product like TV, pharmaceutical firm
Retail and service facilities:
Smallest and least costly, restaurant, banks, hotels, clinics etc.
TYPES OF FACILITY FACTORS TO BE CONSIDER

Heavy manufacturing
facilities
Construction cost
Land cost
Mode of transportation
Proximity to raw materials
Utilities
Means of waste disposal
Labor availability

Light manufacturing
facilities
Transportation cost
Proximity to market
Frequency of delivery
Utilities
Labor availability
TYPES OF FACILITY FACTORS TO BE CONSIDER


Retail and service
facilities
Proximity to customers
Construction cost
Land /leasing cost
Utilities
Zoning
Transportation
Environment constrains
Labor availability

1. Within the country or outside
2. Selection of the region
3. Selection of the locality or community
4. Selection of the exact site

Available
technology
Labor force
cost and
education
Transport
ation and
distributi
on
system
Number and
proximity to
suppliers
Raw material
avilability
Export &
import
regulations,
duties &
tariffs
Climate
Culture
Exchange
rate
Economical
stability and
growth
Political and
economical
system
Governmen
t stability
&
regulation

International
Facility
Location
Commercial
travels
Cross boarder
trade
regulation s
Group trade
agreements
Good (modern,
quality )
transportation
facilities
Close
Proximity to
the raw
material
Close
Proximity
to
Markets /
customers
Residential
complexes,
schools,
hospitals,
clubs, etc.

Availability
of cheap &
skillful ,
labor
Less
construction
costs
Easy
availability
of cheap
land

Proximity to
sub-
contractors

Environment
and
community

Government
policies
Basic
amenities

Availability
of power
supply
Facility
Location
Transportation
cost
Financial
services
Research
Facilities
1. Location factor rating Method:
2. Weighted factor rating Method
3. Center of gravity technique:
4. Load distance technique:
5. Break even Analysis:
Location factor rating method involves giving rating to each
factors based on its importance.
STEPS:
1. List the most important factors in the location decision.
2. Rate each factor according to its relevant importance. (1 to 10)
3. Rate each location according to it merits on each factor. (1 to 10)
4. Compute total score by multiplying the factor rate to the location
rating for each factors.
5. Compute the sum of the total score for each location.
6. Decision: select the location which has the maximum sum of
total weighted score.



A Dynaco manufacturing is going to build a new plant to
manufacturing ring bearings (used in automobile and
truck). The site selection team is evaluating three sites, and
they have scored the important factors for each as follow.
They want to use these ratings to compare the location.



Location factor Factor
Rating
Site 1
Rating
Site 2
Rating
Site 3
Rating
Labor pool and climate
8 8 6.5 9
Proximity to suppliers
5 10 9 7.5
Wages rates
6 6 9.5 7
Community environment
7 7.5 8 8
Proximity to customers
6 6.5 9 9.5
Shipping modes
9 8.5 9.5 6.5
Air services
6 5 6.5 9
Solution: weighted score for each site are computed by
multiplying the factor weight by the score for that factor.
Weighted score for factor = (FR * Rate of each factor)









Total score
Location factor Site 1 Site 2 Site 3
Labor pool and climate
64 52 72
Proximity to suppliers
50 45 37.5
Wages rates
36 57 42
Community environment
52.5 56 56
Proximity to customers
39 54 57
Shipping modes
76.5 85.5 58.5
Air services
30 39 54
Total score
348 388.5 377
Location factor rating method involves giving rating to
each factors based on its importance.
STEPS:
1. List the most important factors in the location decision.
2. Weight each factor according to its relevant importance.
3. Rate each location according to it merits on each factor.
4. Compute weighted score by multiplying the factor weight to
the location rating for each factors.
5. Compute the sum of the weighted score for each location.
6. Decision: select the location which has the maximum sum
of total weighted score.



EX: A Dynaco manufacturing is going to build a new plant
to manufacturing ring bearings (used in automobile and
truck). The site selection team is evaluating three sites, and
they have scored the important factors for each as follow.
They want to use these ratings to compare the location.



Location factor Weight Site 1 Site 2 Site 3
Labor pool and climate
0.30 80 65 90
Proximity to suppliers
0.20 100 91 75
Wages rates
0.15 60 95 72
Community environment
0.15 75 80 80
Proximity to customers
0.10 65 90 95
Shipping modes
0.05 85 92 65
Air services
0.05 50 65 90
Solution: weighted score for each site are computed by
multiplying the factor weight by the score for that factor.
Weighted score for factor = (Weight * score of each factor)









Weighted score
Location factor Site 1 Site 2 Site 3
Labor pool and climate
24 19.5 27
Proximity to suppliers
20 18.20 15
Wages rates
9 14.25 10.80
Community environment
11.25 12 12
Proximity to customers
6.5 9 9.50
Shipping modes
4.25 4.60 3.25
Air services
2.5 3.25 4.50
Total score
77.50 80.80 82.05
Centre of gravity is based primarily on cost considerations.
This method can be used to assist managers in balancing cost
and service objectives.
The centre of gravity method takes into account
The locations of plants and markets,
the volume of goods moved,
Transportation cost
The Centre of Gravity is defined to be the location that
minimizes the weighted distance between the warehouse
and its supply and distribution points, where the distance
is weighted by the number of tones supplied or consumed.

Step 1:
Place existing warehouse, fulfillment center, and distribution
center locations in a coordinate grid (graph).
Place the grid on an ordinary map.
The relative distances must be noted.
Step: 2
Calculate the X and Y coordinates for existing plant location.


Suppose there are three warehouse and company want
to find out the location for new warehouse:










Step: 2
Calculate the X and Y coordinates.
Warehouse 1 (200,50) (x = 200, y = 50)
Warehouse 2 (300, 100) (x = 300, y = 100)
Warehouse 3 (100,150) (x = 100, y = 150)
Step: 3
Identify the weighted factor:
Warehouse 1 has a daily outbound goods volume of 2,500 units
Warehouse 2 has a daily outbound goods volume of 1,300 units
Warehouse 3 has a daily outbound goods volume of 5,000 units

Location (x,y) W (supply in units)
W1 (200,50) 2500
W2 (300,100) 1300
W3 (100,50) 5000
Step:4
Calculate the centre of gravity use following formula.






Cx= (200 x 2,500) + (300 x 1,300) + (100 x 5,000) / (2,500 +
1,300 + 5,000) = 158
Cy= (50 x 2,500) + (100 x 1,300) + (150 x 5,000) / (2,500 + 1,300
+ 5,000) = 114
Centre of gravity for new warehouse is = (x,y ) = (158,114)

Location (x,y) W (supply in units)
W1 (200,50) 2500
W2 (300,100) 1300
W3 (100,50) 5000
Centre of gravity for new warehouse is = (x,y ) = (158,114)

Ex:





Cx = (200*75)+(100*105)+(250*135)+(500*60)
75+105+135+60
= 238
Cy = (200*75)+(500*105)+(600*135)+(300*60)
75+105+135+60
= 444 (238.444)
Location A B C D
1
Xa = 200 Xb = 100 Xc = 250 Xd = 500
2
Ya = 200 Yb = 500 Yc = 600 Yd = 300
3
Wa = 75 Wb = 105 Wc = 135 Wy = 60
It a method of evaluating different location based on the load
being transported and the distance.

Potential new sites
Location X Y
1 X1 = 360 Y1 = 180
2 X2 =420 Y2 =450
3 X3 =250 Y3 =400
Location A B C D
1
Xa = 200 Xb = 100 Xc = 250 Xd = 500
2
Ya = 200 Yb = 500 Yc = 600 Yd = 300
3
Wa = 75 Wb = 105 Wc = 135 Wy = 60
Formula:

LD =


LD = the load-distance value.
Li = the load expressed as a weight, number of trips, or
units being shipped from the proposed site to location.
Di = the distance between the proposed site and existing
location.

D
i
= (Xe Xn)
2
+ (Ye Yn)
2

Site: 1
Da = ( 200 360)
2
+ (200 180)
2 =
161.2

Db = (100 360)
2
+ (500 180)
2 =
412.3

Dc = (250 360)
2
+ (600 180)
2 =
434.2

Dc = (500 360)
2
+ (300 180)
2 =
184.4

Site: 2 Da= 333, Db = 323.9, Dc = 226.7 Dd = 170
Site:3 Da= 206.2, Db = 180.3, Dc = 200 Dd = 269.3

LD =

LD site:1 = (75*161.2)+(105*412.3)+(135*434.2)+(60*184.4)
= 1,25,063
LD site:2 = (75*333)+(105*323.9)+(135*226.7)+(60*170)
= 99,789
LD site:3 = (75*206.2)+(105*180.3)+(135*200)+(60*269.3)
= 77, 555
Site 3 has lowest load distance vale. It would be assumed that this
location would minims the transportation cost.








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.



Total Cost
line
Fixed cost
line


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?

SOLUTION:
Solve for the crossover between X and Y:
10X + 150,000 = 8X + 350,000
2X = 200,000
X = 100,000 units
Solve for the crossover between Y and Z:
8X + 350,000 = 6X + 950,000
2X = 600,000
X = 300,000 units

Therefore, at a volume of 1,30,000 units, Y is the
appropriate strategy.
From the graph (Fig. 2.4) we can interpret that location X
is suitable up to 100,000 units,
location Y is suitable up to between 100,000 to 300,000
units and location Z is suitable if the
demand is more than 300,000 units.