FACILITY LOCATION

Purpose:

The main function is to determine where the plant

should be located for maximum operating economy and
effectiveness
Need for selection of location :
a)When the business is newly started;
b)The existing business unit has outgrown its original
facilities and expansion is not possible; hence a new
location has to be found;
c)The volume of business or the extent of market
necessitates the establishment of branches;
d)A lease expires and the landlord does not renew the lease
e)Other social or economic reasons; for instance,
inadequate labour supply, shifting of the market etc.
 Location Theories
Primary – Material and
Labour
Agglomerating factor
Alferd Weber
Secondary – Banking
Credit, Insurance,
Communication, Rents.
Degglomerating factors

Andreas Predohl New Location offers added

advantage
Factors affecting the selection of location:
1.
2.Improvements in transportation and communication
facilities and speed of services
3.Reduction in wage differentials between regions
4.Mobility of workers and management.
5.Improvements in construction methods and designs for
plant buildings which make them less expensive to
build.
5.
6.Vigorous policy by the Government to remove regional
imbalances in industrial development, thus making all
regions almost equal in attraction.
7.Improvements in processing and machine designs that
reduce the relative number of employees required for a
given output.
8.Availability of air-conditioning equipment to counteract
adverse climatic conditions for employees and processes.
9.Expansion of markets for almost all goods and services so
that more enterprises are needed to meet the demands.
 Errors in selection of Location

1.Lack of thorough investigation and consideration of factors

involved.
2.Personal likes and prejudices of key executives or owners
overriding impartially established facts.
3.Reluctance of key executives to move from traditional
established home ground to new and better locations.
4.Moving to congested areas already or about to be over
industrialised.
5.Preference for acquiring an existing structure (usually at
an imagined bargain) that is improperly located or not
designed for the most efficient production.
6.Choice of community with low cultural and educational
standards, so that key administrative and technical
personnel eventually accept employment elsewhere.
 Steps in Location

a)Within the country or outside

b)Selection of the region
c)Selection of the locality or community
d)Selection of the exact site
 b) Selection of Region
1.Availability of raw material
a.Weight Losing Materials
b.Non Weight Losing Materials
2.Nearness to market
3.Availability of power
4.Transport facilities
5.Suitability of climate
6.Government policies
a.Licensing Policy
b.Freight rate policy
c.Establishing a unit in the public sector in a remote
area and developing it to attract other industries
d.Institutional finance and government subsidies

8.Competition between states

 c) Selection of the locality or community
1.
2.Availability of labour
3.Existence of complementary and competing industries
a.An industrial unit in collaboration with other similar
units, can secure materials on better terms than it
can do it by itself. The concentration of such
similar establishments helps to increase the variety
of materials that can be offered by suppliers
b.The concentration of similar industries at one place
improves the labour market for both
c.
c.In specialised canters, banks become familiar and
granting of loans become easy
d.A group of plants will attract variety of ancillary
plants such as foundries, machine shops, tool
makers etc..
e.The reputation built by the existing units will be
shared by the new units in the same area
3.Civic amenities for workers
4.Finance and Research facilities
5.Availability of water and fire fighting
6.Local Taxes and Restrictions
7.Momentum of an early start
a)Transport facilities are developed as railways and
other agencies find it economical to serve
b)Facilities for repairs and maintenance begin to be
provided by specialist firms
c)Banking facilities become available
d)Labour possessing various skills are attracted
e)Above facilities will automatically attract more
industries
8.Personal Factors
d) Selection of the exact site

1.Soil, Size and Topography

2.Disposal of waste
3.Mid of good environment
Relative importance of location
factors
1.Village Site
2.Sub-Urban site
3.City Site
 Village Site Advantages
1.Land is available at cheaper rates
2.The rates and taxes are negligible
3.Spacious lay-out available and open spaces are possible
4.Advantages of single-storey buildings are available
5.Low wages for unskilled workers but high wages for
skilled workers because they have to be mobilised from
elsewhere
6.Fewer labour troubles
7.Avoidance of danger from fire and other hazards resulting
from the operations of neighboring units
8.Avoidance of undesirable neighbors
9.Absence of restrictions on smoke and disposal of waste.
 Village Site Disadvantages

A village site raises such problems as:

1.Lack of supply of skilled workers

2.Lack of civic amenities for employees
3.Lack of transport facilities
 Sub-Urban Site Advantages

1.Suburban sites offer a compromise between the city and

the village and have the tags of both.
2.They are less costly.
3.All the rail and road transport facilities are available
4.labour can be drawn from the nearby city or villages
5.quarters for workers are provided by the local
authorities or by private entrepreneurs
6.facilities as parks, schools and clubs can easily be
provided, for land is available at fairly cheap rates.
 City Site Advantages
1.Transport facilities are no problem;
2.Labour is available in plenty
3.Municipal services for water, sewage disposal, public
health and education are available
4.All type of technical and commercial institutions and
universities for the training of the staff and workers
are available
5.Banking, repair and related services are available
6.Facilities for contracting put a portion of the work are
available.
7.A large local market is available
8.High advertising value is available
 City Site Disadvantages

1.The cost of land is exorbitant

2.House taxes, water taxes, sanitation taxes and other
similar taxes and rates are fairly high;
3.Labour unions are many and labour unrest is frequent.
4.The cost of labour is high
5.Because of limited space, factory buildings are
awkwardly shaped, ill-lighted and ill-ventilated
6.Several restrictions have been imposed in regard to
smoke and the disposal of effluents.
 Location Models

1. Factor Rating Method.

2. Point Rating Method.
3. Break-even Analysis.
4. Quantitative Factor Analysis
 Factor Rating Method.

Advantages

1.Simple
2.Enables bringing diverse locational considerations
in to the evaluation process
3.Foster consistency of judgment about location
alternatives
Procedure
1.
2.List the most relevant factors in the location decision.
3.Rate each factor (say from 1 very low and to 5 for every
high) according to its relative importance, i.e., a factor
rating is given to each factor, based on its importance,
the higher the ratings the more important is the factor.
4.Rate each locations (say 1 for very low and 10 for very
high) according to its merits on each factor .
5.Compute the product ratings by multiplying the factor
rating by the location rating of the each factor.
6.Compute the sum of the product ratings for each location
Factor ratings and location ratings for location alternatives
Factor Factor Location Rating Product of rating
Rating Locatio Location Location Location
1. Tax advantage 4 n8 A B
6 A
32 B
24
2. Suitability of labour 3 2 3 6 9
skill
3. Proximity to customers 3 6 5 18 15
4. Proximity to suppliers 5 2 4 10 20
5. Adequacy of water 1 3 3 3 3
6. Receptivity of 5 4 3 20 15
community
7. Quality of educational 4 1 2 4 8
system
8. Access to rail and air 3 10 8 30 24
transportation
9. Suitability of climate 2 7 9 14 18
10. Availability of power 2 6 4 12 8
Total score 149 144
 Point rating method
•Assigning points to the various sites based on
the
importance given by the organization .
•At first maximum points for each factor is
decided and then points are decided for each
site.
•Thus the site with the highest point is considered
to be the superior of all the sites.
•One disadvantage of this method is both tangible
and intangible costs are rated at the same time
Points assigned to alternative locations
Factors rated Maximum Points assigned to
possible points locations
Location A Location B
Future availability of fuel 300 200 250
Transportation flexibility 200 150 150
and growthof water supply 100
Adequacy 100 100
Labour availability 250 220 200
Pollution regulations 30 20 20
Site topography 50 40 30
Living conditions 150 100 125
Total 830 875
 Locational Break-Even Analysis
a)Determine all relevant costs that vary with each location
b)Categorize the costs for each location into annual fixed
costs(FC) and variable cost per unit(VC) and calculate the
total cost(TC) for the desired volume of production per
annum, for each location.
c)Plot the total costs associated with each location on a single
chart or graph of annual cost versus annual production
volume
d)Select the location with the lowest total annual cost(TC) at
the expected production volume per annum(Q)
 Qualitative Factor analysis Method
a)Develop a list of relevant factors

b)Assign a weight to each factor to indicate its relative

importance(Weights may total up to 1.0)

c)Assign a common scale to each factor say 0 to 100 and

designate any minimum point to be scored by any location
a)
d)Score each potential location according to the designated
scale and multiply the scores by the weights to arrive at the
weighted scores
a)
e)Total the points for each location, and choose the location
with the maximum points
XYZ company is evaluating four locations for a new plant
and has weighted the relevant scores as given below.
Scores have been assigned with values indicative of
preferred conditions. Using these scores, develop a
qualitative factor comparison for the four locations

Relevant Factor Assigned weight

Scores for locations
A B C D
Production cost 0.35 50 40 60 30
Raw material supply 0.25 70 80 80 60
Labour availability 0.20 60 70 60 50
Cost of Living 0.05 80 70 40 80
Environment 0.05 50 60 70 90
Markets 0.10 70 90 80 50
Total score 1.00
 Solution

Factor Weighted Score for locations

A B C D
Production cost 17.5 14.0 21.0 10.5
Raw material supply 17.5 20.0 20.0 15.0
Labour availability 12.0 14.0 12.0 10.0
Cost of Living 4.0 3.5 2.0 4.0
Environment 2.5 3.0 3.5 4.5
Markets 7.0 9.0 8.0 5.0
Total score 60.5 63.5 66.5 49.0