Facility Location JOASH MAGETO. Facility Location is a Strategic Decision. One time decisions Difficult to reverse It affects fixed, variable and distribution costs Affect sales. Your plant / facility may be …. Near the Raw Material sources (Steel, Cement Plants )
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One time decisions
Difficult to reverse
It affects fixed, variable and distribution costs
Political risks, government rules, attitudes, incentives
Cultural and economic issues
Location of markets
Labor availability, attitudes, productivity, costs
Availability of supplies, communications, energy
Exchange rates and currency risks
Region / Community Factors
Attractiveness of region
Labor availability, costs, attitudes towards unions
Costs and availability of utilities
Government incentives and fiscal policies
Proximity to raw materials and customers
Site size and cost
Air, rail, highway, and waterway systems
Nearness of services/ supplies needed
Environmental impact issues
Profit maximization (Service industry)
Cost minimization (Manufacturing)
Service/Retail Location Goods Mfg. Location
Revenue Focus Cost Focus
Drawing area; purchasing power
Parking, Access; Security,
Lighting; Appearance, Image
Rent, Management caliber
(hours, wage rates)
Transportation cost of raw material
Shipment 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 local government
Approach to Location
Service/Retail/Prof. Locn. Goods-mfg. Location
Regression models to determine importance of various factors
Demographic analysis of drawing area
Purchasing power analysis of area
Geographic information systems
Approach to Location
( Case : To open Chain of Hotels across the country )
Require neither face-to-face contact nor movement of materials
Have very broad location options
Traditional variables are no longer relevant
Cost and availability of labor may drive location decisions
Total Demand 770
Q. : Where should we set up a
centralized warehousing facility?
X- Distance (KM)
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.
Cost-volume analysis method used for industrial locations
3 Steps in the method –
3. Select location with lowest total cost for expected production volume
Volume of Sales
Revenues sh. 68 per unit.
Variable costs sh. 32 per unit,
Revenues are sh. 68 per unit.
Exp. Sales volume 25000 units per year.
Which location is more attractive?
Revenue 1,700,000 1,700,000
Variable Cost 1,575,000 800,000
Fixed Cost 300,000 800,000
Total Cost 1,875,000 1,600,000
Profit (Loss) (175,000) 100,000
Location B is more attractive, even if annual fixed cost is higher
Finds amount to be shipped from several points of supply to several points of demand
Solution will minimize total production and shipping costs
A special class of linear programming problems
1. Coordinating Team (comprising Co-Employees &
External. Consultants ) uses questionnaire to illicit
information from Forecasting Panel.
2. Forecasting Panel - to identify Future Trends in environment, threats, opportunities. Process is repeated several times till consensus is reached.
3. This information is given to Strategic Panel to
identify Long Term Strategic Goals & Objectives.
4. Various ALTERNATIVES are developed.
5. These alternatives are then prioritized