Facility Location

Reasons
 1.    It may arise when a new facility is to be established
 2.    In some case, the facility or plant operations and
subsequent expansion are restricted by a poor site,
thereby necessitating the setting up of the facility at a
new site
 3.    The growing volume of business makes it advisable
to establish additional facilities in new territories
 4.    Decentralization and dispersal of industries
reflected in the Industrial Policy resolution so as to
achieve an overall development of a developing country
 5.    it could happen that the original advantage of the
plant have been outweighed due to new developments
 6.    New economic, social, legal or political factors
could suggest a change of location of the existing plant
 Weight of localized material used in finished product
Material Index (MI) =

If,

MI > 1, location near to source of raw material

And if, MI < 1, locate nearer to market
Location study
 Territory Selection (first stage)–
1. Markets
2. Raw material and Supplies
3. Transportation Facilities
4. Manpower Supply
5. Infrastructure
6. Legislation and Taxation
7. Climate
 Site/ community selection –
1. Community Facilities
2. Community Attitudes
3. Waste disposal
4. Ecology and Pollution
5. Site Size
6. Topography
7. Transportation Facilities
8. Supporting Industries and Services
9. Land Costs
Techniques

        Equal Weights Method

        Variable Weights Method
        Weight-cum-Rating Method
        Factor-Point Rating Method
        Composite Measure Method
        Location Break-Even Analysis
 Quantitative Models for Facility
Location
        Median Model
        The Gravity Model
        Composite Location Measure Model –
2
        Bridgman's Dimensional Analysis
 Steel Plant – Located near raw material source
 Cement Plant – Located near raw material
source
 Fertilizer Industry – main feed gas, oil or
naphtha and coal, located near raw material
source
1. Mangalore Fertilizer, Madras Fertilizer, FACT at
Cochin, Hindustan fertilizer at Haldia – based on
imported on Naphtha and Gas
2. At Namroop, Thal Vaishet based on gas,
Ramagundam, Talcher and Sindri based on coal
 Machine-tool Industry – market and
infrastructure
Nuclear Power Plant
 a)    Countrywide screening – land,
water, seismotectonic areas
 b)    Region – hydrology, geology, land
use, meteorology, accessibility,
transmission lines, demography,
topography.
 c)    Candidate siting areas screening –
ecology and other factors
    Institutional – required service data or on line availability,
system reliability requirements, size and number of units/ sites,
search area boundaries
      Engineering – safety – geology (seismic), hydrology
(flooding and effluent disposal), demography, meteorology.
Functional: cooling water availability, geology (foundation,
soil characteristics), accessibility (people, materials and
components, transmission grid)
     Environmental – ecological Sensitivity (site transmission
corridors, site environs); terrestrial and aquatic, Land use:
(compatibility) dedicated lands, areas of historic and
archaeological significance, water quantities and quality,
climatology, demography, aesthetics
     Economic – Land costs, cooling system alternative, site
preparation costs, geology and topography, transmission line
corridors, site: dictated special engineering safeguards
    Socio-economic – Land owner dislocations, competitive use
of resources (water and land), community attitudes and public
acceptance, economic influence on existing life styles
Location Break-even Analysis
 The location of a tractor factory in a south Delhi site
will result in certain annual fixed costs, variable costs
and revenue. The figures would be different for a
south Bombay site. The fixed costs, variable costs
and price per unit for both sites are given below –
 Cost Data
Location site Fixed Costs Variable Costs Price Per Unit
South Delhi (S1) 4000000 30000 75898
South Bombay (S2) 6000000 24000 82000
Let us assume that the expected sales volume as
estimated by a market research team is 95.
Solution

 The break-even point is defined to be

the point or volume where the total
costs equal total revenue.
Fixed Costs
Break-even Volume (BE) =
(Revenue per unit – Variable Cost per Unit)
 At the south Delhi Location S1
BE = (4000000) / (75898 – 30000) = 87.1497 = 88 tractors
 And at the South Bombay Location S2
BE = (6000000) / (82000 – 24000) = 103.448 = 104 tractors
Calculation for profit or loss for the two sites at the expected
volume of 95 units.
  Cost Comparisons
South Delhi (S1) South Bombay (S2)
Costs Costs
Fixed 4000000 Fixed 6000000
Variable 2850000 Variable 2280000
Total Cost 6850000 8280000
 Revenue –
75898 x 95 = 7210310 82000 x 95 = 7790000
 Profit = (7210310 – 6850000) Loss = (7790000 – 8280000)
= 180155 = 490000