Plant / Facility Location

Aditya K Biswas
 OBJECTIVES

• To understand the Factors & Issues in

Facility Location Planning

• Various Plant Location Methods

Competitive Imperatives Impacting Location

• The need to produce close to the

customer due to time-based
competition, trade agreements, and
shipping costs (also customer relations)

• The need to locate near the appropriate

labor pool to take advantage of low
wage costs and/or high technical skills
 Some Issues in Facility Location

• Proximity to Customers
• Business Climate
• Total Costs
• Infrastructure
• Quality of Labor
• Suppliers
• Other Facilities
 Issues in Facility Location
• Free Trade Zones (SEZ, EPZ, STP .. )
• Political Risk
• Government Barriers
• Trading Blocs
• Environmental Regulation
• Host Community
• Competitive Advantage
 6

Strategic Planning
• Environment Scanning
– Financials (cost)
– Economic considerations
– Govt & Politics
– Natural Resources and Environment
– Education, Health & Demography
• SWOT analysis
• Plant Location plan to be aligned with the
strategic decisions for business
 7

Some Cases
• Starbucks Coffee shops in US
• Wall Marts in US
• City Centers / Big Bazaar / INOX
• Bank Branches / ATM all over India
• Mobile Towers
• TATA Nano
• Chemical Hub
• Atomic Energy Plant
• Large Software Development Centers
 8

Quantitative methods for Plant /

Facility Location planning
 Plant Location Methodology: Factor 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
Fuels in region 0 to 330 123 156
Power availability and reliability 0 to 200 150 100
Labor climate 0 to 100 54 63
Living conditions 0 to 100 24 96
Transportation 0 to 50 45 50
Water supply 0 to 10 4 5
Climate 0 to 50 8 4
Supplies 0 to 60 5 50
Best Site
Tax policies and laws 0 to 20 5 20 isBest
B
Site
is B
Weighted factors can be used Total pts. 418 544
Plant Location Methodology: Transportation Model of
Linear Programming

• Transportation method of linear

programming seeks to minimize costs of
shipping n units to m destinations or its
seeks to maximize profit of shipping n
units to m destinations
Plant Location Methodology: 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
 Plant Location Methodology: Centroid
Method Formulas

C

dd VV
ix ii 
dd VV
iy ii
Cxx == ix
C
Cyy ==
iy

VV ii 
VV ii

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
 Plant Location Methodology: Example of
Centroid Method
• Centroid method example
– Several automobile showrooms are located according to
the following grid which represents coordinate locations
for each showroom
Y S ho wro o m No o f Z-Mo b ile s
Q s o ld p e r mo nth
(790,900)

D A 1250
(250,580)

D 1900
A
(100,200)
Q 2300
(0,0) X

Question:
Question:What
Whatis
isthe
thebest
bestlocation
locationfor
foraanew
newZ-Mobile
Z-Mobile
warehouse/temporary
warehouse/temporarystorage
storagefacility
facilityconsidering
consideringonly
only
distances
distancesand
andquantities
quantitiessold
soldper
permonth?
month?
 Plant Location Methodology: Example of Centroid Method
(Continued): Determining Existing Facility Coordinates
Y
To
Tobegin,
begin,you
youmust
mustidentify
identifythe
the Q
existing
existingfacilities
facilitieson
onaatwo-
two- (790,900)

dimensional
dimensionalplane
planeor
orgrid
gridand
and D
(250,580)
determine
determinetheir
theircoordinates.
coordinates.
A
(100,200)

(0,0) X

S ho wro o m No o f Z-Mo b ile s

You
Youmust
mustalso
alsohave
havethethe s o ld p e r mo nth
volume
volumeinformation
informationon onthe
the
business A 1250
businessactivity
activityatatthe
the
existing
existingfacilities.
facilities. D 1900

Q 2300
 Plant Location Methodology: Example of Centroid Method
(Continued): Determining the Coordinates of the New Facility
You
Youthen
thencompute
computethe
thenew
newcoordinates
coordinatesusing
usingthe
theformulas:
formulas:
100(1250) + 250(1900) + 790(2300) 2,417,000
CCx == 100(1250) + 250(1900) + 790(2300) == 2,417,000 == 443.49
443.49
x 1250
1250 ++ 1900
1900 ++ 2300
2300 5,450
5,450
200(1250) + 580(1900) + 900(2300) 3,422,000
CCy == 200(1250) + 580(1900) + 900(2300) == 3,422,000 == 627.89
627.89
y 1250
1250 ++ 1900
1900 ++ 2300
2300 5,450
5,450

You
Youthen
thentake
takethe
thecoordinates
coordinatesand
andplace
placethem
themon
onthe
themap:
map:
Y
S ho wro o m No o f Z-Mo b ile s
Q New
New s o ld p e r mo nth
(790,900)
location
location
ZZ
D
(250,580) of
offacility
facility A 1250
ZZabout
about
A D 1900
(100,200) (443,627)
(443,627)
(0,0) X Q 2300
 16

Dimensional Analysis
• We can compare relative merits of locations
M & N taking ratios of relevant cost factors (z)
with appropriate weightage index and
multiplying. ( Compare with Analytical
Hierarchical Processing model of OR )
• If (C1M/C1N)^w1*….*(CZM/CZN)^wz is > 1 we
conclude that Location M is better than
Location N
 17

Brown & Gibson Model

• Critical factors – water, electricity, land, road
• Objective factors – R / M cost
• Subjective factors – Recreation facilities
• For each plan site i calculate the location
measure as:
LMi = CFMi*[D*OFMi+(1-D)SFMi]
• CFM will be 0 or 1
 18

END