Facilities Location

Operations Management
Shrikumar M
 HSL – An introduction
• Himatsingka Seide Ltd, Bangalore HQ
specializes in drapery fabrics, upholstery fabric
and bed linen fabric.
• Founded in 1985. Turnover of Rs 1906 Crores in
2015-’16
• Currently employs over 5000 people
• Spread across Asia, Europe and North America
• 100% export oriented unit
• Famous consumers: White House, Buckingham
Palace, fashion houses in US and Europe
Global Operations Network of HSL
Weaving M/c from
Switzerland

Cotton/linen
Retail orders Weaving and
yarn brought
from US / dyeing done in
from China &
Europe Bangalore
Brazil

Retailer receives
Freight to
delivery in 4-8
Mumbai port
weeks
 Location Decision Trade-Offs
• Distance from market Vs Cost of setting up
factory close the market

• Efficient distribution system Vs Responsive

distribution system (Stdization vs flexibility)

• Single location – manufacture all products Vs

multiple locations (manufacture smaller
volumes close to customer)
 Factors affecting markets
• GST
▫ Single tax across the country will affect location of
offices and factories
• Increase in FDI , removal of cap on FDI
• Regional trading blocs, free trade zones, trade
treaties – EU, SAARC, ASEAN
• Lower cost of manufacturing, lower labour cost.
▫ Manufacturing and BPO operations from
US/Europe to India & China.
• Expanding markets in developing countries
 India Vs China (2017-18) from WB
Parameter INDIA CHINA
RANK 100 78
Starting a Biz 156 93
Construction Permits 181 172
Getting Electricity 29 98
Registering Property 154 41
Getting Credit 29 68
Protecting Minority 4 119
Investors
Paying Taxes 119 130
Trading across borders 146 97
Enforcing Contracts 164 5
Resolving insolvency 103 56
Source: The World Bank
(http://www.doingbusiness.org/data/exploreeconomies/)
 Starting a biz (2017-18)

Parameter INDIA CHINA

Procedure 12 days 7 days
Time to register a firm 29.5 days 22 days
Cost (% of income per 17.6% 0.6%
capita) All fees
Paid-in capital (% of 0% 0%
income per capita)
 Location Planning Methods
1. Location Factor Rating

2. The Centre-of-Gravity Method

3. The Load-Distance Method

4. The Transportation Model

 Location Factor Rating
• Step 1: Identify the relevant factors

• Step 2: Establish the relative importance of each

factor

• Step 3: Rate the performance of each candidate

location using a rating mechanism

• Step 4: Compute the total score for each location

and arrange in descending order
 Location Factor Rating
Factors Rating Relative Importance
Availability of Infrastructure 90 0.26
Size of the market 70 0.20
Availability of cheap labour 60 0.17
Tax concessions 30 0.09
Availability of credit 30 0.09
Nearness to port 70 0.20
Sum of all factors ratings 350
 Location Factor Rating
Factors Location 1 Location 2 Location 3
Availability of 40 50 60
Infrastructure
Size of the market 30 40 30
Availability of cheap 50 30 40
labour
Tax concessions 60 50 40
Availability of credit 30 40 60
Nearness to port 60 40 50
 Location Factor Rating
Factors Rel Wts Location 1 Location 2 Location 3
Availability of 0.26 40 50 60
Infrastructure
Size of the market 0.20 30 40 30
Availability of cheap 0.17 50 30 40
labour
Tax concessions 0.09 60 50 40
Availability of credit 0.09 30 40 60
Nearness to port 0.20 60 40 50
Overall score 45 42 47
Ranking 2 3 1
 Centre-of-Gravity Method
• Used when proximity to market is a dominant
factor.
• Step 1: Grid map of target market: All demand (or
supply) points represented in cartesian coordinates.
Each demand (or supply) point has weights.
• Step 2: Multiply all x, y coordinates with respective
point weights. Add x and y products separately.
• Step 3: Calculate the coordinates of the desired
location with formula:
Xc = Sum of product of x coordinates with
weight/sum of all the weights.
Yc = Sum of product of y coordinates with
weight/sum of all the weights.
Exercise 1
Demand Point (XY) Weights
coordinates
A (125, 550) 200
B (350, 400) 450
C (700, 300) 350
D (450, 125) 175
 The Load-Distance Method
• Evaluate 2 or more target locations vis-a-vis demand
or supply points.
• Make a grid map of the target market of demand
points (x,y, weights) and target locations(x,y).
• Calculate the distance from each demand (or
supply) point to the candidate location by the
Pythagoras formula.
• Calculate LD by summing up product of distance
and weights of all demand points to each target
location.
• The candidate location with least LD is chosen.
Exercise 2
Demand Points (Coordinates) Candidate (Coordinates)
Weights Locations
A (125,550) 200 1 (300,500)
B (350,400)450 2 (200,500)
C (450,125) 175 3 (500,350)
D (700,300) 150 4 (400,200)
 Exercise 3
• A chain of stores trading in a host of retail goods for
urban customers is planning to set up operations in
a metro city. The exact location of the new outlet is
to be decided. In order to do that the company
conducted a market survey and found five pockets of
consumption in the city. The distance coordinates of
these five pockets from a reference point in the grid
map pertaining to the city are Zone 1 (15,22), Zone 2
(10,40), Zone 3 (35,15), Zone 4 (50,5) and Zone 5
(40,35). The annual demand for the goods (in
tonnes) in the zones are 200,130,80,170 and 120
respectively.
• What is the centre of gravity for setting up
operation?
• If cost of transporting goods is INR 300 per tonne,
what is the cost implication of locating at the CoG?
Exercise 4
• The chain store officials found that locating the
operations in the CoG point is costly. The
operational costs of renting and maintaining the
site would be INR Rs 25 lacs pa. In view of this,
they have identified 3 other candidate locations
whose cost of ops will be lesser by 10%, 25%, and
18% respectively. The locational coordinates for
the 3 are (20,40), (40,25) and (35,45)
respectively. Does it make sense to set up
operations in any of these 3 locations?