Chapter 9 and 10: Facility Location and Facility

Layout
Issues in Facility Location
The problem of facility location is common to new
and existing business. This planning is critical to a
companys eventual success.
- Manufacturing and service companies location
decisions are guided by a variety of criteria
defined by competitive imperatives. Criteria that
influence manufacturing plant and warehouse
location planning are discussed next. 1
Criteria for Facility Location
Proximity to customers A location close to the customer
is important because of the ever-increasing need to be
customer-responsive. This enables faster delivery to
customer and ensures that customers need are
incorporated into the products being developed and built.
Business climate A favorable business climate can
include the presence of similar sized business, the
presence of companies in the same industry, and in the
case of international locations, the presence of other
foreign companies. Pro-business government and local
government intervention to facilitate business locating in
an area via subsidies, tax abatement, and other support 2

are also factors.

 Total costs The objective is to select a location with
the lowest total cost. This include regional costs,
inbound distribution costs, and outbound distribution
costs. Land construction, labor, taxes, and energy costs
comprise the regional costs. In addition, there are
hidden costs that are difficult to measure (excessive
moving of preproduction material between locations
before final delivery to the customers, loss of customer
responsiveness arising from locating away from the
main customer zone, etc.)

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 Infrastructure Adequate road, rail, air, and sea
transportation is vital. Energy and telecommunications
requirements must also be met. In addition, the local
governments willingness to invest in upgrading
infrastructure to the levels required may be an incentive
to select a specific location.
Quality of labor The educational and skill levels of the
labor pool must match the companys needs. Even more
important are the willingness and ability to learn.
Suppliers A high-quality and competitive supplier base
makes a given locations suitable. The proximity of
important suppliers plants also supports lean production
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methods.
 Other facilities The location of other plants or
distribution centers of the same company may
influence a new facilitys location in the network.

Free trade zone A free trade zone is typically a

closed zone into which foreign goods can be brought
without being subject to the necessary customs
requirements. Manufacturers in free trade zone can
use imported components in the final product and
delay payment of customs duties until the product is
shipped into the host country.
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 Political risk The fast-changing geopolitical scenes in
numerous nations present exciting, challenging
opportunities. But the extended phase of
transformation that many countries are undergoing
makes the decision to locate in those areas extremely
difficult. Political risks in both the country of location
and host country influence location decisions.

Government barriers Barriers to enter and locate in

many countries are being removed through
legislation. Yet many non-legislative and cultural
barriers should be considered in location planning. 6
 Environmental regulation The environmental regulations
that impact a certain industry in a given location should be
included in the location decision. Besides measurable cost
implications, this influences the relationship with the local
community.
Host community The host communitys interest in having
the plant in its midst is a necessary part of the location
decision.
Competitive advantage An important decision for
multinational companies is the nation in which to locate
the home base for each distinct business. A company can
have different home bases. 7
Plant Location Methods
-Evaluation of alternative regions, sub regions, and
communities is commonly termed macro analysis.
Evaluation of specific sites in the selected community is
termed micro analysis.

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Macro Analysis
Factor-rating system It is perhaps the most widely used of
the general technique because it provides a mechanism to
combine diverse factors in an easy to understand format.
First, factors that affect selection of a site has to be listed.
Then, a range of point values for each factor is decided.
Now a days, a weightage parameter can be included for
each factor.
Then, each site is rated against each factor. That mean, a
point value is assigned for each site. If weightage is used,
then it is multiplied with the assigned point value.
Then, all the values are summed up.
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The site with the highest value is selected.
Center of Gravity Method
-This is a technique for locating single facilities
that considers the existing facilities, the
distances between them, and the volume of
goods shipped.
This is often used to locate used intermediate or
distribution warehouse.
In its simplest form, this method assumes that
inbound and outbound transportation costs are
same. 10
Basic Production Layout Formats
-The formats by which departments are
arranged in a facility are defined by the
general pattern of work flow.

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Process Layout
A process layout (also called job shop or functional
layout) is a format in which similar equipments or
functions are grouped together, such as all lathe
machines in one area, all stamping machines in
another area, etc.
A part being worked on then travels, according to
established sequence of operations, from area to
area, where the proper machine is located. This type
of layout is seen in hospitals, offices, factories that
produce huge varieties of products, etc.
The most common approach to develop a process
layout is to arrange departments consisting of like 12
processes in a way that optimizes their relative place
ment.
Product Layout
It is one in which equipments or machines or work
processes are arranged according to the progressive
steps by which the product is made. The path for each
product is a straight line. Production line for shoes,
cars, production floor in garment factories, chemical
plants all have product layouts.

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Group technology layout
-A group technology (cellular) layout groups dissimilar
machines into work centers (or cells) to work on
products that have similar shapes and processing
requirements.
A GT layout is similar to process layout in that cells are
designed to perform a specific set of processes, and it
is similar to product layout in that cells are dedicated
to a limited range of products.

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Fixed position layout
In a fixed position layout, the product remains at one
location and required manufacturing equipments
are moved to the product location. Shipyards,
construction sites, aerospace industries, etc. have
fixed position layout.

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Material requirements planning (MRP)
MRP systems have been installed almost universally in
manufacturing firms, even considered small. The
reason is that MRP is a logical, easily
understandable approach to the problem of
determining the number of parts, components, and
materials needed to produce each end item. It also
provides the time schedule specifying when each of
these materials, parts and components should be
ordered.
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Bill of Materials (BOM)
BOM file contains the complete product description,
listing not only the materials, parts, and
components but also the sequence in which the
product is created. The BOM file is one of the input
to develop MRP structure.

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