Facility location
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This document discusses various aspects of strategic facility location decisions. It begins by explaining that location decisions are strategic, long-term, capital-intensive, and difficult to reverse. It then outlines a hierarchy of location problems from the plant level down to individual workstations. Important factors in choosing a location include market access, raw materials, transportation, and costs. The document analyzes a case study of choosing a new plant location and later deciding whether to shut down an existing plant in response to changing demand.
Facility location
- 1. Location decisions are strategic:- Liable to affect the entire organization Operative over longer time spans Difficult to reverse Capital intensive
- 2. HIERARCHY OF LOCATION PROBLEMS Location of ‘plant’ Plant lay out (location of ‘Depts’) Physical arrangements of M/cs Work place layout (location of ‘tools’ or ‘raw materials’)
- 3. The term ‘facility location’ emphasizes the generalized approach that handles the variety of above mentioned problems.
- 4. LOCATION DECISIONS ARE DYNAMIC Owing to changing technology, competition, change of consumer tastes, decisions like new plants Expansion Decentralization Plant shut down Are constantly under review.
- 5. IMPORTANT FACTORS IN LOCATION Market Raw materials Transportation Power Climate and fuel Labour and wages Laws and taxation Community services Water and waste Government incentives
- 6. Raw materials • Pure materials Weight losing materials Ubiquities
- 7. ANNUAL OPERATION EXPENSES Consist of:- o Materials o Transportation o Real estate taxes o Fuel costs o Sundry state taxes o Electric power.
- 8. FIXED AND VARIABLE COST ANNUAL COST • LOCATION A LOCATION B • VOLUME OF PRODUCTION
- 9. MECHANICAL ANALOGUE FOR FINDING BEST LOCATION OF A MANUFACTURING PLANT (also known as Varignon’s Frame after the inventor)
- 10. In the absence of friction the common knot P of (m+n) strings comes to equilibrium at least cost location. { here we draw an analogy between Min potential energy & Min travel cost} ASSUMPTIONS _ R1, R2……Rn locations of raw material sources. _ M1, M2 ….Mn locations of markets. _ Euclidean (straight line travel) _ each weight (there are m+n in all) _ Wi- No: of annual trips between P and that pt X (cost per unit distance)
- 11. MULTI OBJECTIVE CONSIDERATIONS IN LOCATION DECISIONS FACTORS AFFECTING LOCATION ARE:- SUBJECTIVE OBJECTIVE (labour attitudes) eg: costs INTANGIBLE TANGIBLE INCOMMENSURATE UNITS
- 12. A decision matrix approach with proper evaluation of weights of factors. Normalization of scores can help in ranking alternative locations. (THIS IS DEMONSTRATEDTHROUGH A CASE STUDY)
- 13. MULTI PLANT OPERATION-AN EXAMPLE OF PLANT ADDITION P1 existing plant P2 existing plant A,B,C,D,E- ware houses X,Y,Z-possible locations for new plant P1 P2 A B C D E X Z Y
- 14. Owing to increase of weekly demand to 72000 there is a capacity deficit of 25000 per week and it is felt that a plant of capacity 25000 could be set up X, Y or Z
- 15. DATA SHEET P1 P2 X Y Z Weekly Forecast of market demand A 0.42 0.32 0.44 0.44 0.41 10000 B C D E CAPACITY UNIT PROD
- 16. OPTIMUM PRODUCTION- DISTRIBUTING SOLUTIONS Product cost= 192500 Distn cost=26450 Total=218950 P1 P2 X A 10 10 B 8 7 15 C 16 16 D 19 19 E 10 2 12 27 20 25 72
- 17. OPTIMUM PRODUCTION- DISTRIBUTING SOLUTIONS Product cost= 193750 Distn cost=26960 Total=220710 P1 P2 Y A 10 10 B 15 15 C 8 8 16 D 19 19 E 10 2 12 27 20 25 72
- 18. OPTIMUM PRODUCTION-DISTRIBUTING SOLUTIONS Product cost= 192000 Distn cost=26400 Total=218400 Hence choose plant at site Z(since Z cost is minimum) P1 P2 Z A 10 10 B 15 15 C 10 6 16 D 12 7 19 E 12 12 27 20 25 72
- 19. LOCATIONAL DYNAMICS Suppose third plant is set up at site z After some time demand drops from 72000 to 56000 per week. Which plant to shut down? Which plant to run at partial capacity? (these are location decisions)
- 20. ALTERNATIVES FOR INVESTIGATION 1. Run all plants at partial capacity 2.shut down P1 .use overtime in others 3. shut down P2. use overtime in others 4. shut down Z. use overtime in others.
- 21. PROBLEM DATA:- ware house demands A-9000, B-13000, C-11000, D-15000, E-8000 PLANTS P1 P2 Z Over time production cost 3.37 3.33 3.27 O.T capacity 7000 5000 6000 Fixed costs (per week) (Don’t depend on production volume) While operating 12000 9000 13000 While shut down 5000 4000 6000
- 22. EVALUATING SHUT DOWN OPTIONS P1 P2 Z A 9 9 B 13 13 C 11 11 D 14 1 15 E 8 8 F 11 5 16 27 20 25 72
- 23. EVALUATING SHUT DOWN OPTIONS P2 Z OT2 OTz A 9 9 B 8 5 13 C 11 11 D 9 6 15 E 8 8 20 25 56
- 24. EVALUATING SHUT DOWN OPTIONS P1 Z OT1 OTz A 6 3 9 B 13 13 C 11 11 D 14 1 15 E 8 8 F 7 2 27 25 7 6 65
- 25. EVALUATING SHUT DOWN OPTIONS P1 p2 OT1 OT2 A 9 9 B 9 4 13 C 3 8 11 D 15 15 E 3 5 8 F 3 3 27 20 7 5 65
- 26. EVALUATING SHUT DOWN OPTIONS Min cost for alternative 3 . Hence shut down plant 3 1 2 3 4 FIXED VARIABLE 34000 169650 27000 177730 29000 173750 27000 178400 TOTAL COST 203650 204730 202150 205400
- 27. summary The strategic importance of location decisions Hierarchy of location decisions Analogue model for facility location Important factors in plant location A case study on new plant location and shut down under dynamic conditions.