Professional Documents
Culture Documents
Facility Location
Facility Location
Facility Location
Problems
Relocate facility to Sell off the Close down the Continue operations
a new location facility to other operations completely at the existing
companies and liquidate the location
(Divestment) assets
Selection of Poor Facility Location
Facility Set up without proper location planning
9
Deciding on Domestic or
International Location
• Here factors to be considered are :-
– Political Stability
– Legal regulation
– Ethical Considerations
– Terrorism
– Export and Import Quotas
– Currency and Exchange rates
– Cultural and Economic peculiarities
– Natural and Physical conditions
– Labour talent, attitudes, productivity and cost
– Incentives, Government Rules etc.
Selection of Region
• Here factors to be considered are :-
– Availability of Raw Materials
– Nearness to market
– Availability of Power
– Transport Facilities
– Suitability of Climate
– Government Policy
– Competition between states
– Environment Regulations
– Government Incentives
– Land / Construction Cost
Selection of Locality
• Here factors to be considered are :-
– Availability of labor
– Cost of labor
– Whether unions pose a serious potential problem
– Civic amenities for workers
– Existence of complementary and competing
industries
– Finance and Research facilities
– Availability of water and fire-fighting facilities
– local taxes and restrictions
Selection of the site
• Here factors to be considered are :-
– Soil, size
– Disposal of waste
– Site Size and Cost
– Air, Railway, etc.
– Zoning Restrictions
– Environmental Impact
Village, Suburban or City
Site
Village Site - Advantages
• Land available at cheaper rates
• Taxes are negligible
• Spacious layout and open space
• Low wages for unskilled labour
• Fewer labour troubles
• Avoidance of danger from fire and other hazards
resulting from operations of neighboring units
• Absence of restrictions on smoke and disposal of
waste
Village site - Drawbacks
• Lack of supply of skilled labor
• Higher wages for skilled labor as they are to
mobilized from elsewhere
• Lack of civic amenities for employees
• Lack of transport facilities
City Site - Advantages
• Transport facilities are not a problem
• Labor of all types is available in plenty
• Municipal services for water, sewage disposal, public
health and education are available
• All type of technical and commercial institutions and
universities for the training of the staff and workers
are available
• Facilities for contracting out a portion of work are
available
• Availability of banking, repair and related services
• A large local market
City Site - Drawbacks
• Exorbitant cost of land
• House taxes, water taxes, etc are very high
• Labor unions are strong and labor unrest is frequent
• High cost of labor
• Because of limited space, factory buildings are
awkwardly shaped, ill-lighted and ill-ventilated
• Several restrictions have been imposed in regard to
smoke and the disposal of effluents
Suburban Site
• They offer advantages of both village and city site
• They are less costly
• All rail and road facilities are available
• Labor can be drawn from nearby city or villages
Location Strategies for Service Facilities
Strategy Implications Examples
Spatial Provider is the lone service •Retail Outlets for Amul, local dairy, Vegetable
Monopoly provider in the region. shops , all basic service providers for basic needs,
repairing shops
Agglomeration Provider locates itself near to its •Normally this strategy is followed by a strong
Strategy competitors. Brand.
•They normally do not take risk involve in Spatial
Monopoly Strategy.
Complementar When customer come for one •Restaurants near to movie Theater, Pharmacy
y Services service, they also access some Shops and Path labs near Doctors.
other service. •Without losing customers to each other
complementing each others business.
Accessibility Customer are able to reach and •Design of roads and pathways make some
leave the site easily. locations more accessible to customers.
•Patrol Stations and Restaurants with drive thru
windows are majorly on left side of the highway.
Visibility Site is visible from a distance. •Gift shop at the end of an escalator, Xerox shops
or cyber café in front of college entrance .
Public service They are grouped together so •Local government service facilities are normally
facilities that customer can visit many of located near their customers and most often in
the in one trip. groups.
Location Methods
Factor Rating Method
Factor Factor Rating Location Rating Product of Rating
(Rate on 1 to 5) (Rate on 1 to 10)
Location A Location B Location A Location B
1 4 8 6 32 24
2 3 2 3 6 9
3 3 6 5 18 15
4 5 2 4 10 20
5 1 3 3 3 3
6 5 4 3 20 15
7 4 1 2 4 8
8 3 10 8 30 24
9 2 7 9 14 18
10 2 6 4 12 8
Total Score 149 144
Point Rating Method Example
Two refineries sites (A and B) are assigned the following
range of point values and respective points, where the
more points the better for the site location.
Sites
Major factors for site location Pt. Range A B
123 156
150 100
54 63
24 96
45 50
4 5
8 4
5 50
5 20 Best Site
is B
Total pts. 418 544
Qualitative factor Analysis- Weighted Average
Tax 0.35 85 80
Suppliers 0.20 70 80
Total Wt. 1.0
Centroid Method
• The centroid method is used for locating single
facilities that considers existing facilities, the
distances between them, and the volumes of
goods to be shipped between them
• This methodology involves formulas used to
compute the coordinates of the
two-dimensional point that meets the distance
and volume criteria stated above
Centroid Method Formulas
Where:
Cx = X coordinate of centroid
Cy = Y coordinate of centroid
dix = X coordinate of the ith location
diy = Y coordinate of the ith location
Vi = volume of goods moved to or from ith
location
Example of Centroid Method
Several electronics showrooms are located
according to the following grid which represents
coordinate locations for each showroom
Y
Q
(790,900)
D
(250,580)
A
(100,200)
(0,0) X
You then take the coordinates and place them on the map:
Y
Q
(790,900)
D
(250,580)
A
(100,200)
(0,0) X
• A retail chain wants to construct a warehouse to serve four retail stores.
The location of retail stores and the amount that will be moved to them
are given below in table. Use Centroid (Centre of Gravity Method) to
determine the location of the warehouse.
• ( 249,447)
Load Distance Technique
• Load Distance Technique is a variation of the
center-of-gravity for determining the coordinates
of a facility location.
• In this method, a single set of location coordinate
is not identified, instead, various location are
evaluated using a load-distance value that is a
measure of weight and distance
Load Distance Technique
• A retail chain wants to construct a warehouse to serve four retail stores.
The location of retail stores and the amount that will be moved to them
are given below in table.
Retail Store A Retail Store B Retail Store C Retail Store D
Breakeven Point
Total Cost = Total Revenue
• From the graph you can see that the two lowest cost intersections occur between C
& B (4667 units) and B & A (9000 units)
• The best alternative up to 4667 units is C, between 4667 and 9000 units the best is
B, and above 9000 units the best site is A
An operations Manager narrowed the search for a new facility location to four
sites. The annual fixed costs and the variable costs are as follows:
Location Fixed Cost / Year (Rs.) Variable Cost per Unit (Rs.)
A $150,000 $62
B $300,000 $38
C $500,000 $24
D $600,000 $30
Plot the total cost curves for all the communities on a single graph. Identify on
the graph the approximate volume range over which each site provide the
lowest cost.
Using break even analysis, calculate the break even quantities over the
relevant ranges. If the expected demand is 15000 units per year, which is the
best location?
Total Cost = (Fixed Cost per annum) + (Variable Cost per Unit) X (Quantity Produced)
Find the most economical location for an expected
volume of 2,000 units/year.
Location Fixed Cost / Year (Rs.) Variable Cost per Unit (Rs.)
A 25000 50
B 50000 25
C 80000 15
Total Cost = (Fixed Cost per annum) + (Variable Cost per Unit) X (Quantity Produced)
Find the most economical location for an expected
volume of 2,00,000 units/year.
Location Fixed Cost / Year (Rs.) Variable Cost per Unit (Rs.)
A 300000 10
B 1600000 17
C 1800000 14
Total Cost = (Fixed Cost per annum) + (Variable Cost per Unit) X (Quantity Produced)
Tata Motors Limited, Sanand Plant
• Tata Motors Limited, formerly known as TELCO (TATA Engineering and
Locomotive Company), is a multinational corporation headquartered in
Mumbai, India. It is India's largest passenger automobile and commercial
vehicle manufacturing company. Part of the Tata Group, and one of the
world's largest manufacturers of commercial vehicles.
• The Tata Nano was introduced at the 9th auto expo by Tata Motors in New
Delhi, India on Jan. 10, 2008.
• Tata Nano is made for medium class family it is Small, affordable and great
Stylish Car.
• The car itself is expected to boost the Indian Economy as well as expand
the Indian car market by 65%, according to rating agency CRISIL.
• Tata Motors has its manufacturing base in Jamshedpur, Pantnagar,
Lucknow, Pune.
FACTORS AFFECTING PLANT LOCATION OF TATA NANO AT
SANAND
• Nearness to Markets - A plant being near to the market can catch a big share of the market and
can also provide quick service to the customers.
• Setting up the Nano plant in Gujarat is advantageous for the group because nearly 50 % of the car
parts are produced in Rajkot
• The extensive coastline of the state could be beneficial for imports and exports.
• And proximity of Mundra port will allow them to export cars to the markets easily.
• Mundra Port would allow them to import steel and other raw materials at very low cost even
from overseas. Transporting the same over land would cost thrice as much.
• The strategic location of Sanand,
– some 30 km from Ahmedabad and
– its proximity to the Ahmedabad-Rajkot highway made the new site attractive
– close to the Charodi railway station
• Located near the city of Ahmedabad, Sanand is about 70 kilometers (40 miles) from a recently
rebuilt international airport. Sanand is linked to Ahmedabad and Kutch by state highway 17.
• Sanand is connected by a modern highway to Mundra Port, a fully operational and one of the
fastest growing, recently expanded sea ports in southeast Asia.
• In addition to modern highways, Sanand-Viramgam has an operational broad gauge railway
network connecting it to major industrial centers located in Gujarat.
FACTORS AFFECTING PLANT LOCATION OF TATA NANO AT
SANAND
• Labour should be easily available. TATA has got skilled and unskilled labour very easily at sanand.
As Sanand is going to be next industrial hub labour availability will be much easier.
• The location was near to Ahmedabad, where the best engineering workforce can be found.
• Tata has plan a ultra mega power project of 4,000 mw that the Tatas are setting up at Mundra
port . The Tatas could draw on power from their own plant in Mundra
• It is essential that the electricity should be remain available continuously 24/7, in proper quantity
and at reasonable rates. Gujarat is a power sufficient state well connected with the GEB Grids.
• With the success of Narmada project ion Gujarat , water has been sufficiently available in Gujarat.
• The overall climate in Gujarat has been extremely favorable to industry
• Tata paid Rs 900/sqm (US$ 81,000 per acre) to Gujarat Government for the land in Sanand. Which
is much lesser then the market price.
• The general population of the state is in favour of industrialization. This play a huge role in setting
up the factory. As people in Gujarat are very optimistic towards the industrialization it
contributed a lot to its success.
• When the Tata Motors team visited Andhra Pradesh, they were confronted by agitated farmers
who did not want to part with their land. That was scary for the Tata folk. Maharashtra
automatically became the choice, but the Tatas got mixed signals from several quarters. And they
finally selected sanand.
• Gujarat has also agreed to match all the incentives offered by West Bengal government.
FACTORS AFFECTING PLANT LOCATION OF TATA NANO AT
SANAND
• Special advantage of sanand location:-
• Sanand offers the following incentives to TATA
• Income Tax Incentives
• 10 year corporate tax holiday on export profit – 100% for initial 5 years and 50% for the next 5
years
• Exemption from dividend distribution tax
• Indirect Tax Incentives
• Zero customs duty
• Zero excise duty
• Exemption from central sales tax
• Exemption from service tax