Facility Location

PRESENTED BY:-

SHAUNAK NADIG – 44
ASHWINKUMAR POOJARY – 09
MRINAL SANDBHOR – 31
RACHIT GOR – 42
ATANU MANDAL – 10
E.G. PRASANT – 16
LOGO
 FLOW
 INTRODUCTION

 TATA NANO PLANT LOCATION

 INTEL PLANT LOCATION IN COSTA RICA

 ANALYSING TECHNIQUES
 Factor Rating Method

 Cost Volume Analysis

 The Centre of Gravity Method

 Load distance Method

 Geographic Information System (GIS)

 CONCLUSION
 Location Decisions
 Facility location is the process of
determining geographic sites for a firm’s
operations.
 Location decisions affect processes
throughout the organization.
 Marketing must assess how the location will appeal
to customers; possibly opening new markets.
 Human Resources must be attuned to the firm’s
hiring and training needs.
 Accounting and Finance must evaluate costing.
 Operations needs to be able to meet current
customer demand and provide the right amount of
customer contact.
 Factors Affecting
Location Decisions
 Managers must weigh many factors when
assessing the desirability of particular locations.
 The factor must be sensitive to location.
 The factor must have a high impact on the
company’s ability to meet its goals.
 Steps in choosing location
 Importance of location

 Alternative location

 Evaluate all locations

 Select a location

Company Logo
 Competitiveness of a location
Three tier model

Country Competitiveness
Govt. budget & regulation Quality of judicial &
political institutions

Labour Sector Competitiveness Qlty of

Mkt. Flexibility Infrastructure Openness to
Quality Intl. trade &
Company Competitiveness of Tech. finance
Ability to design, produce, & mkt products
superior to competitors, Qlty. of business mgmt.

Extent to which a business sector offers potential for growth

and attractive return on investment

Development
of financial Mkt. Extent to which a national environment is
Conducive or detrimental to business

Mahadevan (2007), “Operations Management: Theory & Practice”, © Pearson Education

  Types of Facilities
 Site Selection: Where to Locate

Copyright 2006 John Wiley &

Supplement 7-7
Sons, Inc.
Factors in Heavy Manufacturing
Location
 Construction costs
 Land costs
 Raw material and finished goods shipment modes
 Proximity to raw materials
 Utilities
 Labor availability
Types of Facilities

 Heavy-manufacturing facilities
large, require a lot of space, and are expensive

 Light-industry facilities
smaller, cleaner plants and usually less costly

 Retail and service facilities

smallest and least costly
Factors in Light Industry
Location
 Transportation costs
 Proximity to markets
 Frequency of delivery required by customer
 Land costs
 Easily accessible geographic region
 Education and training capabilities
Factors in Retail Location

 Proximity to customers
 Location is everything
 TYPES OF FACILITIES

MANUFACTURING SERVICE FACILITY

FACILITY

 Physical proximity to  Physical proximity to

customers is not customers is necessary.
necessary.
 Being near to
 Being near to competitors may not be
competitors may be desirable.
desirable.
 E.g.- Fast food
 E.g.- Steel & furniture restaurants
Market related issues Cost related issues
Market for products and services Wage rates
Raw Material availability Transportation costs
Number and proximity of suppliers Taxes and other tariff issues
Availability of skilled labour
Quality of Infrastructure
Regulatory & Policy issues Other issues
Government & Economic stability Culture
Quality of legal and other institutions Climate
Trading blocks and trading agreements Quality of Life
 TATA NANO
PLANT LOCATION
C A S E S T U D Y
 OBJECTIVES
To setup a manufacturing plant in India with a view:-

 To produce a vehicle that would be the least

expensive production car in the world.

 Aiming for a starting price of ` 100,000 or

approximately US$ 2300.

 India is the potential and leading market in

automobile industry.

 To compete with the foreign car manufacturers.

Why was Singur initially selected?
 Political
 Cheap Labour
 Concessional Power
 Subsidy on Land with
Soft Loan
 Tax Paybacks
 Competitors
 Connectivity to a metro
city, railway station and
a national highway.
Durgapur Expressway
Why made TATA’s to leave Singur ?

 Political Factors

 Community Factors
 Then why not these?
Sri Lanka
Kerala and Andra Pradesh
Jharkhand and Orissa
 Why Pantnagar, Uttaranchal

 Already has a plant of its own – Ace

 Connected to many States.
 Connected to National Highway, railways
and international airports
 Concession to power, electricity, tax etc.
 Water and Power Supply
 Financial Incentives
 Less Competition due to other industries
 Shift of
TATA Nano Plant
from
Singur to Sanand
 New Factory Location - Sanand
 Gujarat – a proactive state
 General Population of the State in favor of
industrialization.
 Close proximity to the Ports and Seas
 Close Connectivity to National Highway
 Favorable Climate
 Community
 FACILITY LOCATION of

 Comparison in between Brazil and Costa Rica to set

up a plant location

 Intel’s plans to operate an assembly and testing

facility in Costa Rica

 INTEL started it’s operation in Nov 13 ,1998

 INTEL ‘S REQUIREMENT
 Human resource

 Reasonable cost structure.

 A “pro-business” environment.

 Logistics and manufacturing lead time.

 Fast track permit process.

 Stable economic & political condition.

 Costa Rica’s Competitiveness

 Corporate tax rate

 Labor flexibility

 Advanced telecommunication

 Advanced engineering education

 Excellent infrastructure.
 Contd…..
 Geography & demography

 Education (96% literacy rate)

 Economic openness and liberalization

(CAFTA)
BMW Case Study
 ANALYSING TECHNIQUES

 Factor Rating Method.

 Cost Volume Analysis.

 Centre of Gravity

 Load distance Method

 Geographic information System

 FACTOR RATING METHOD
 Popular because a wide variety of factors can be
included in the analysis.

 Six steps in the method :-

1.Develop a list of relevant factors called critical
success factors
2.Assign a weight to each factor
3.Develop a scale for each factor
4.Score each location for each factor
5.Multiply score by weights for each factor for
each location
6.Recommend the location with the highest point
score
Critical success weight Spartanburg Florida
factor

Labour Cost 15 7 8

Promixity to 40 8 8
Market
Land Cost 25 9 7

Transportation 20 8 7
COST-VOLUME ANALYSIS

When the fixed and

variable costs for
each site differ,
Cost- volume
analysis can be
used to identify
the location with
the lowest cost.
Method of cost-volume analysis
used for industrial locations.

Three steps in the method :-

1.Determine fixed and variable
costs for each location
2. Plot the cost for each location
3.Select location with lowest total
cost for expected production
volume
 Example

Clean-Clothes Cleaners is
considering four possible sites for
its new operation. They expect to
clean 10,000 garments. The table
and graph below are used for the
analysis.
 Example
Total Production Cost = (Fixed Cost) + (variable unit
cost) x (annual production volume)

ExampleCALCULATION
9.6 Using Break-Even Analysis
Location Fixed Cost Variable Cost Total Cost
A $350,000 $ 5(10,000) $400,000
B $170,000 $25(10,000) $420,000
C $100,000 $40(10,000) $500,000
D $250,000 $20(10,000) $450,000
Example
GRAPH OF
COST Vs
QUANTITY
 Example
 This graphic shows that annual production
cost changes with different production
volumes.

 If the expected annual production volume is

below 4500 units, then choose site C.

 If the expected annual production volume is

between 4500 and 9000 units, then choose
site B.

 If the expected annual production volume is

over 9000 units, then choose site C.
 THE CENTRE OF
GRAVITY METHOD
 The Centre of Gravity Method
The center of gravity method is
used to find a location that
minimizes the sum of transportation
cost in between new facility and old
facilities.

Transportation cost is assumed to

be a linear function of the number
of units shipped and the traveling
distance.
 The Centre Of Gravity Method
 The location of the firm’s existing facilities are
converted into x and y coordinates.

 If the quantities to be shipped to every location are

equal, the coordinates of center of gravity are:-
The Centre Of Gravity Method
The Centre Of Gravity Method
The Centre Of Gravity Method
 The Centre Of Gravity Method

If the quantities to be shipped to every

location are not equal, the coordinates
of center of gravity are:-
 The Centre Of Gravity Method

Company Logo
 The Centre Of Gravity Method
 Cx : x coordinate for new location

 Cy : y coordinate for new location

 i: index for existing locations

 n: total number of existing locations

 xi: x coordinate of existing ith location

 yi: y coordinate of existing ith location

 Vi: Quantity to be shipped to destination

 The COG Method-Basic Steps
 Consider
a) Location of Market
b) Volume of goods shipped to those market
c) Shipping Cost

 Place existing locations on a coordinate grid

 Calculate X & Y co-ordinates for center of gravity

 The COG Method-Basic Steps Contd..

 Assume cost is directly proportional to straight

line distance & volume shipped

 Averages distances weighted by the amount to be

shipped
 Airline distance (diagonal of triangle):need not

to consider the curvature of earths surface

 City block distance (base +height of triangle)

 Finds location of distribution center that

minimizes distribution costs
 The COG Method Example
 To decide where to build a new DC for Motorola.

 It needs to serve wholesalers in Reno, Dallas, and

Chicago.

 Locate these cities on an unscientific, rectangular

grid.

 Grid must maintain relative distances, but X and Y

grids could be different.
 The Center of Gravity Method

City Demand
 Reno is at 17, 55 100
 Fort Worth is at 78, 20 90
 Chicago is at 110, 65. 120

Demand is TL/month
 The Center of Gravity Method
d W ix i
17 * 100  78 * 90  110 * 120
CX  i

W i
i 100  90  120

1,700  7 ,020  13 , 200 21,920

CX    70 .7
 d W 90 * 110 * 120
ix i
 d iy W i
310 310

CX  i

CY  i

55 * 100  20 * 90  65 * 120

W 90 110 120
i
i W i 100  90  120

i C  5 ,500  1,800  7 ,800  15 ,100  48 . 7

Y
310 310
 Compromise Solution
 Closest town is Sharon Springs, KN
 Population 872mn

 30 miles from I-70.

 Probably not a good choice

 Salina, KN puts us at I-70 and I-35

 North Platte NE is at I-80 and 83.

 Access to Dallas less convenient
 Finalizing City
Go where other warehouses are
 More choice in pre-built buildings
 Cheaper, easier to build a new one
 More trucks to and from town, means more
carriers there, means cheaper rates.
 Backhaul situation
Get estimates of inbound, outbound
trucking costs.
 Provide lists of loads per year to each
destination, from each source
 The Center of Gravity Method
This method only considers the
distances traveled. It does not
consider the other factors such
as the availability of roads on
the selected location.
Therefore, applying solely this
method may not be applicable
in every cases.
LOAD-DISTANCE
TECHNIQUE
 Load-Distance Technique

Compute (Load x Distance) for

each site

Choose site with lowest (Load x

Distance)

Distance can be actual or

straight-line
 Load-Distance Calculations
n
LD =  ld i i

i=1
where,
LD = load-distance value
li = load expressed as a weight, number of trips or units
being shipped from proposed site and location i
di = distance between proposed site and location i
di = (xi - x)2 + (yi - y)2

where,
(x,y) = coordinates of proposed site
(xi , yi) = coordinates of existing facility
 Load-Distance: Example

Potential Sites Suppliers

Site X Y A B C D
1 360 180 X 200 100 250 500
2 420 450 Y 200 500 600 300
3 250 400 Wt 75 105 135 60

Compute distance from each site to each supplier

Site 1 dA = (xA - x1)2 + (yA - y1)2 = (200-360)2 + (200-180)2 = 161.2

dB = (xB - x1)2 + (yB - y1)2 = (100-360)2 + (500-180)2 = 412.3

dC = 434.2 dD = 184.4
 Load-Distance: Example (cont.)

Site 2 dA = 333 dB = 323.9 dC = 226.7 dD = 170

Site 3 dA = 206.2 dB = 180.4 dC = 200 dD = 269.3
Compute load-distance

n
LD = 
i=1
li di

Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(184.4) = 125,089

Site 2 = (75)(333) + (105)(323.9) + (135)(226.7) + (60)(170) = 99,791
Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555*
 Geographic Information
Systems and Location Decisions
 Geographic information system (GIS) is a system of
computer software, hardware, and data that the
firm’s personnel can use to manipulate, analyze, and
present information relevant to a location decision.

 Features:
 Store databases

 Display maps

 Create models that can take information from

existing datasets, apply analytic functions, and
write results into new derived datasets.
 Types of Data in GIS
 Raster- Any type of digital image represented by
reducible and enlargeable grids
 Vector- Considering those features which geometrical
shapes(Points, Lines, Polygons)
 Data Acquisitions

 Survey

 GPS

 Electromagnetic Spectrum

 Laser Rangefinder

 Photogrammetry
 USES
 Geography  Precision agriculture

 Urban planning
 Cartography
 Emergency
 Remote sensing management

 Navigation
 Land surveying
 Aerial video
 Public utility
management  Localized search
engines
 Natural resource  
management
 GIS and Site Selection
in the Petroleum Industry

Petroleum Exploration

Production

Managing Facilities

Pipeline Management
 Using GIS to Identify
Starbucks Locations
 The Starbuck store addresses within 20 miles of
Hamilton, Ontario were obtained from the Starbucks
Web site, and imported into MapPoint.

 These store locations are denoted on maps by yellow

dots. Then demographics that come with MapPoint were
overlaid on the map.

 On the first map, note that Oakville has more store

locations than Hamilton even though it has lower
population density, suggesting that store location is not
being driven by population density alone.

 The second map shows the demographics by average

per capita household income. Note that in this case, the
store locations are based in more affluent areas.
Starbucks
locations
CONCLUSION
THANK YOU