FACILITY LOCATION

Done by: Group#1

FACILITY LOCATION
Once a firm has decided to open a new facility OR relocate an existing facility, It must decide where that facility should be located.

FACILITY LOCATION

Facility location problem involves the evaluation of various sites for a new facility.

There are several factors that influence the Facility Location Decision:

Proximity to customers
Proximity to the firms customers, market, size of the market, and potential needs of the customers.

Business climate:
Includes: Similar sized businesses. Companies in same industry. Presence of foreign companies in case of international business. Pro-business government legislation and support for business facility locating.

Factors related to; Total availability and cost:

Labor availability, Labor cost, Labor Skills; Materials Availability, Material cost, material quality; Equipment availability, Equipment Cost; Land availability, Land suitability, Land cost; Energy availability, energy cost; Water availability, water quality, water cost.

Factors Related to the Infrastructure

Availability of Financial Institutions, Strength of Financial Institutions Government Stability, Government taxes, Import and Export restrictions. Quality of life, Cultural issues, Environmental regulations, Transportation availability, Transportation cost And finally, Competitors size, strength and attitude in that region.

Quality of labor: The educational and skill level of the labor must match the company`s need. Suppliers: High quality, competitive and loyal supplier is must. Free trade zones: Business can import components. Political risk: It influence location of business. Government barriers: Today it is mostly removed, because of business globalization. Environmental regulations: Environment of locating must be considered. Host community: Interest of host community is necessary in locating the plant.

There are many analytical techniques that can be used in facility location decision.
1) Factor Rating 2) Center of Gravity Method, and 3) Transportation and Simulation Models.

Method of Factor Rating

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. Each alternative location will then be rated based on these factor weights. The most weighted alternative is selected as the best alternative.

Example
Samson Ltd. is considering three alternative sites for its new facility. After evaluating the firms Needs, the Managers have Narrowed the list of Important Selection Criteria down into three major Factors. - Availability of skilled labor - Availability of Raw materials, and - Proximity to the firms markets.

Example

Weights reflecting the relative importance of each factor have been assigned as follows:

Example

Based on these criteria, the three Alternative sites were scored between 0 and 100 points:

Example

Now we will multiply each score by its corresponding factor weight: Weighted scores are calculated as: (Site Score)x(Factor Weight)

Example

From these results, the largest total weight is for Site A. It appears to be the best location.

Example

What happens if we change the factor weights. Lets use the following factor weights: Skilled labor: 0.45; Raw Materials: 0.40; and Market: 0.15 Then the following results are obtained:

Example

Example

In this case, Site C appears to be the best choice with largest weight score. Therefore, factor rating method is very sensitive to the weights assigned to each factor.

Transportation Model
A special form of linear programming, that is Transportation Model, can be used to compare the total transportation cost associated with each alternative site. The transportation model technique can be used to determine how many units should be shipped from each plant to each warehouse To Minimize Total Transportation Cost.

Example

Straub Ltd. has three plants running at full capacity in Des Moines, Racine, and Gary. These plants supply four Distribution warehouses in St. Paul, Milwaukee, Chicago, and Detroit.