7136889 facility location
TRANSCRIPT
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Facility Location
Suhas Rane
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Facility Location is a Strategic Decision
One time decisions
Difficult to reverse
Affect fixed, variable and distribution costs
Affect sales
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Your plant / facility may be .
Near the Raw Material sources
(Steel, Cement Plants )
Near to Market / Customers
(FMCG, Perishables Goods, Services)
Best facilities & infrastructure
(MIDC, Union Territories, SEZs)
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Country Factors
1. Political risks, governmentrules, attitudes, incentives
2. Cultural and economicissues
3. Location of markets4. Labor availability, attitudes,
productivity, costs
5. Availability of supplies,communications, energy
6. Exchange rates andcurrency risks
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Country Factors
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Region / Community Factors
1. Corporate desires2. Attractiveness of region
3. Labor availability, costs,
attitudes towards unions
4. Costs and availability of utilities
5. Environmental regulations
6. Government incentives and
fiscal policies7. Proximity to raw materials and
customers
8. Land/construction costs
MN
WI
MI
IL INOH
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Site Factors
1. Site size and cost
2. Air, rail, highway, and
waterway systems
3. Zoning restrictions
4. Nearness of services/
supplies needed
5. Environmental impact
issues
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Approach to Location
Profit maximization (Service industry)
Cost minimization (Manufacturing)
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Approach to Location
Service/Retail Location Goods Mfg. Location
RevenueFocus CostFocus
Volume/revenue
Drawing area; purchasing powerCompetition; advertising/pricing
Physical qualityParking, Access; Security,
Lighting; Appearance, Image
Cost determinantsRent, Management caliber
Operations policies
(hours, wage rates)
Tangible costs
Transportation cost of raw materialShipment cost of finished goods
Energy and utility cost; labor;
Raw material; taxes, and so on
Intangible and future costs
Attitude toward union
Quality of life
Education expenditures by state
Quality of state and localgovernment
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Approach to Location
Service/Retail/Prof. Locn. Goods-mfg. Location
Techniques Techniques
Regression models to determineimportance of various factors
Factor-rating method
Traffic counts
Demographic analysis of drawingarea
Purchasing power analysis of areaCenter-of-gravitymethodGeographic information systems
Transportation methodsFactor-ratingmethod
Locationalbreak-even
analysis
Crossover charts
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Hotel Location( Case : To open Chain of Hotels across the country )
Location is a strategically important decision in the
hospitality industry
Finally, the model considered only four variables
- Property Prices of the inn
- Median income levels
- State population per inn
- Location ofnearby businesses / industries/colleges
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Clustering
Industry LocationsReason forclustering
Textiles Surat, Ludhiana,
Tirupur
Automobiles
& Ancillaries
Pune- Chakan,
Pithampur, Manesar
Leather Kanpur, Agra,Chennai
BPO Mind-space
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Methods for Location
1. Factor Rating
2. Transportation model
3. Centroid Method4. Load Distance
5. Break-even Analysis
6. Qualitative Factor Analysis
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Factors Factor
Rating(1 to 5)
Location Rating
(1 to 10)
Rating Product
Location
ALocation
BLocation
ALocation
B
1) Proximity to Mkts 4 3 8 12 32
2) Tax advantage 5 6 7 30 35
3) Availability ofpower
3 7 8 21 2
4) Water availability 4 9 7 36 28
5) Community
attitude
2 6 3 12 6
6) Infrastructure
Development
2 6 5 12 10
7) Support industry 1 5 3 5 3
128 138
Location B is Preferred to A
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Centre of Gravity Method Problem
Retail Expected
Outlets Demand
A 80
B 100
C 120
D 130
E 100
F 150
G 90
Total Demand 770
Q. : Where should we set up a
centralized warehousing facility?
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Centre of Gravity Method
Y
-Distance(KM)
04
2
4
6
8
10
12
14
16
8 12 16 20
X- Distance (KM)
B
G
Center-of-gravity
D
F
A
C E
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Centre of Gravity Method
Retail
Outlet
XiDist
YiDist
Volume
(Vi) QTY
Vi Xi Vi Yi
A 4 10 80 320 800
B 3.5 15 100 350 1500
C 4 6 120 480 720
D 10 2 130 1300 260
E 16 6 100 1600 600
F 8 5 150 1200 750
G 14 13 90 1260 1170
Vi = 770 Vi Xi = 6510 Vi Yi = 8500
Xc=6510/770
= 8.45
Yc = 5800 /770
= 7.53
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Load Distance method
Used to minimise the load distance product for pre selected locations
Matrix Manufacturing is considering where to locate its warehouse in order
to service its four Ohio stores located in Cleveland, Cincinnati, Columbus,
Dayton. Two sites are being considered; Mansfield and Springfield, Ohio.
Use the load-distance model to make the decision.
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Load Distance method
Computing the Load-Distance Score for Springfield
City Load Distance ld
Cleveland 15 20.5 307.5
Columbus 10 4.5 45
Cincinnati 12 7.5 90
Dayton 4 3.5 14
Total Load-Distance Score(456.5)
Computing the Load-Distance Score for Mansfield
City Load Distance ld
Cleveland 15 8 120
Columbus 10 8 80
Cincinnati 12 20 240Dayton 4 16 64
Total Load-Distance Score(504)
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Break Even method
Cost-volume analysis method used for industrial locations
3 Steps in the method
1. Determine fixed and variable costs for each
location
2. Plot the cost for each location
3. Select location with lowest total cost for expectedproduction volume
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Cost-Volume-Profit (or Br. Even Analysis)
C
ost
Volume of Sales
TCA
FCA
Vo
Revenue
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Break Even Analysis Method
Location A : Annual fixed costs of Rs.3 L,
Variable Costs - Rs. 63 / unit,
Revenues Rs. 68 per unit.
Location B : Annual fixed costs Rs. 8 L
Variable costs Rs. 32 per unit,
Revenues are Rs. 68 per unit.
Exp. Sales volume 25000 units per year.
Which location is more attractive?
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Answer -Break Even Analysis Method
B E Volume = Fixed cost / (Contribution / unit)
VBE (A) = Rs 3 L / 68-63 = 60,000 units
VBE (B) = Rs 8 L / 68-32 = 22,222 units
At the expected demand of 25000 units,
A BRevenue 17,00,000 17,00,000
Variable Cost 15,75,000 8,00,000
Fixed Cost 3,00,000 8,00,000
Total Cost 18,75,000 16,00,000
Profit (Loss) (1,75,000) 1,00,000
Location B is more attractive, even if annual fixed cost is higher
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Transportation method
Finds amount to be shipped from several points of supply to severalpoints of demand
Solution will minimize total production and shipping costs
A special class of linear programming problems
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Transportation method
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Analytical Delphi Method(for complex multi-location decisions)
1. Coordinating Team (comprising Co-Employees &
External. Consultants ) uses questionnaire to illicit
information from Forecasting Panel.
2. Forecasting Panel - to identify Future Trends inenvironment, threats, opportunities. Process is
repeated several times till consensus is reached.
3. This information is given to Strategic Panel toidentify Long Term Strategic Goals & Objectives.
4. Various ALTERNATIVES are developed.
5. These alternatives are then prioritized
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Thank You