0d4163. facility planng -40
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Amity Business School
Amity Business School
Exchange rates and currency risksExchange rates and currency risks
Can have a significant impact on costCan have a significant impact on coststructurestructure
Rates change over timeRates change over time
CostsCosts
TangibleTangible -- easily measured costs such aseasily measured costs such asutilities, labour, materials, taxesutilities, labour, materials, taxes
IntangibleIntangible -- less easy to quantify andless easy to quantify andinclude education, public transportation,include education, public transportation,community, qualitycommunity, quality--ofof--lifelife
Factors That Affect Facility Location Decisions
Amity Business School
Exchange rates and currency risksExchange rates and currency risks
Can have a significant impact on costCan have a significant impact on coststructurestructure
Rates change over timeRates change over time
CostsCosts
TangibleTangible -- easily measured costs such aseasily measured costs such asutilities, labour, materials, taxesutilities, labour, materials, taxes
IntangibleIntangible -- less easy to quantify andless easy to quantify andinclude education, public transportation,include education, public transportation,community, qualitycommunity, quality--ofof--lifelife
Facility Locationdecisions basedon costs alone
can createdifficult ethical
situations
Factors That Affect Facility Location Decisions
Amity Business School
Political risk, values, and culturePolitical risk, values, and culture
National, state, local governmentsNational, state, local governmentsattitudes toward private and intellectualattitudes toward private and intellectualproperty, zoning, pollution, employmentproperty, zoning, pollution, employmentstability may be in fluxstability may be in flux
Worker attitudes towards turnover, unions,Worker attitudes towards turnover, unions,absenteeismabsenteeism
Globally cultures have different attitudesGlobally cultures have different attitudestowards punctuality, legal, and ethicaltowards punctuality, legal, and ethicalissuesissues
Factors That Affect Facility Location Decisions
Amity Business School
Proximity to marketsProximity to markets
Very important to servicesVery important to services
JIT systems or high transportation costsJIT systems or high transportation costsmay make it important to distributersmay make it important to distributers
Proximity to suppliersProximity to suppliers
Perishable goods, high transportationPerishable goods, high transportationcosts, bulky productscosts, bulky products
Factors That Affect Facility Location Decisions
Amity Business School
Proximity to competitorsProximity to competitors
Called clusteringCalled clustering
Often driven by resources such as natural,Often driven by resources such as natural,information, capital, talentinformation, capital, talent
Found in both manufacturing and serviceFound in both manufacturing and serviceindustriesindustries
Factors That Affect Facility Location Decisions
Amity Business School
Clustering of Companies
Industry Locations Reason for clustering
Wine making
Auto Parts
Napa Valley (US)
Bordeaux region
(France)Chennai, Dewas
Gurgaon
Natural resources of land
and climate
Customer presence
Software firms Silicon Valley,
Boston, Bangalore
(India)
Talent resources of bright
graduates in
scientific/technical areas,
venture capitalists nearby
Race car builders Huntington/NorthHampton region
(England)
Critical mass of talentand information
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Amity Business School
Amity Business School
Industry Locations Reason for clustering
Theme parks(Disney World,
Universal Studios)
Orlando, Florida A hot spot for entertainment, warm
weather, tourists, and
inexpensive labour
Electronics firms Northern Mexico
NOIDA, Taiwan,
Malayasia
NAFTA, duty free export to
US, EU
Computer
hardware
distributers
Singapore, Taiwan High technological
penetration rate and per
capita GDP,
skilled/educated workforce
with large pool ofengineers
Clustering of Companies
Amity Business School
Industry Locations Reason for clustering
Fast food chains(Wendys,
McDonalds,
Burger King, and
Pizza Hut)
Sites within 1 mile ofeach other
Stimulate food sales,high traffic flows
General aviation
aircraft (Cessna,
Learjet, Boeing)
Wichita, Kansas
France
Mass of aviation skills
Orthopedic
devices
Warsaw, Indiana
Chennai
Ready supply of skilled
workers, strong market
Clustering of Companies
Amity Business School
Location Planning Methods
One Service Facility Multiple Candidates
Location factor rating
Centre of Gravity Method
Load Distance Method
Multiple Service Facility Multiple
Candidates
Transportation Model
Amity Business School
Factor-Rating Method
Popular because a wide variety of factors can bePopular because a wide variety of factors can beincluded in the analysisincluded in the analysis
Six steps in the methodSix steps in the method
1.1. Develop a list of relevant factors called critical successDevelop a list of relevant factors called critical successfactorsfactors
2.2. Assign a weight to each factorAssign a weight to each factor
3.3. Develop a scale for each factorDevelop a scale for each factor
4.4. Score each location for each factorScore each location for each factor
5.5. Multiply score by weights for each factor for eachMultiply score by weights for each factor for each
locationlocation6.6. Recommend the location with the highest point scoreRecommend the location with the highest point score
Amity Business School
Factor-Rating Example
CriticalCritical ScoresScoresSuccessSuccess (out of 100)(out of 100) Weighted ScoresWeighted ScoresFactorFactor Weight Weight FranceFrance DenmarkDenmark FranceFrance Denmark Denmark
LabourLabouravailabilityavailability
and attitudeand attitude .25.25 7070 6060 (.25)(70) = 17.5(.25)(70) = 17.5 (.25)(60) = 15.0(.25)(60) = 15.0PeoplePeople--toto--
car ratiocar ratio .05.05 5050 6060 (.05)(50) = 2.5(.05)(50) = 2.5 (.05)(60) = 3.0(.05)(60) = 3.0
Per capitaPer capitaincomeincome .10.10 8585 8080 (.10)(85) = 8.5(.10)(85) = 8.5 (.10)(80) = 8.0(.10)(80) = 8.0
Tax structureTax structure .39.39 7575 7070 (.39)(75) = 29.3(.39)(75) = 29.3 (.39)(70) = 27.3(.39)(70) = 27.3
EducationEducationand healthand health .21.21 6060 7070 (.21)(60) = 12.6(.21)(60) = 12.6 (.21)(70) = 14.7(.21)(70) = 14.7
TotalsTotals 1.001.00 70.470.4 68.068.0
Amity Business School
Example 1 A hotel is actively considering five alternative locations for setting up its
facility. The locations vary in terms of the advantages that it provides to thefirm. Hence the firm requires a method of identifying the most appropriatelocation. Based on a survey of its senior executives the firm has arrived atsix factors to be considered for final site selection. The ratings of eachfactor on a scale of 1 to 100 provide this information. Further, based somedetailed analysis of both the qualitative and quantitative data available for
each of the location, the rating for the locations against each factor has alsobeen arrived at (on a scale of 0 to 100). Using this information obtain aranking of the alternative locations.
Factors Rating
Availability of infrastructure 90
Size of the market 60
Industrial relations climate 50
Tax benefits and concessions 30
Availability of cheap labour 30
Nearness to port 65
Factors Location1 Location2 Location3 Location4 Location 5
Availability of infrastructure 20 40 60 35 55
Size of the market 30 30 40 60 80
Industrial relat ions c limate 80 30 50 60 50
Tax benef its and concessions 80 20 10 20 20
Availability of cheaplabour 70 70 45 50 50
Nearness to port 20 40 90 50 60
Factor Ratings Rating of each locations against the factors
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Amity Business School
Amity Business School
Solution to Example 1.
Factors RatingRelativeweights
Availability of infrastructure 90 0.28
Size of the market 60 0.18
Industrial relations climate 50 0.15
Tax benefits and concessions 30 0.09
Availability of cheap labour 30 0.09
Nearness to port 65 0.20
Sum of all factor ratings 325 1.00
Factors
Relative
weights Location 1 Location 2 Location 3 Location 4 Location 5
Availability of infrastructure 0.28 20 40 60 35 55
Size of the market 0.18 30 30 40 60 80
Industrial relations climate 0.15 80 30 50 60 50
Tax benefits and concessions 0.09 80 20 10 20 20
Availability of cheap labour 0.09 70 70 45 50 50
Nearness to port 0.20 20 40 90 50 60
Overall score for the locations 41.23 37.54 54.77 46.46 56.15
Ranking of the locations 4 5 2 3 1
Overall rating for location 3 =60*0.28 + 40*0.18 + 50*0.15 +10*0.09 + 45*0.09 + 90*0.20= 54.77
Amity Business School
Locational Break-Even Analysis
Method of costMethod of cost--volume analysis used forvolume analysis used forindustrial locationsindustrial locations
Three steps in the methodThree steps in the method
1.1. Determine fixed and variable costs forDetermine fixed and variable costs foreach locationeach location
2.2. Plot the cost for each locationPlot the cost for each location
3.3. Select location with lowest total cost forSelect location with lowest total cost forexpected production volumeexpected production volume
Amity Business School
Locational Break-Even Analysis Example
Three locations for a Burger Shop:Three locations for a Burger Shop:
DamanDaman Rs.30,000Rs.30,000 Rs.75Rs.75 Rs.180,000Rs.180,000
NOIDANOIDA Rs.60,000Rs.60,000 Rs.45Rs.45 Rs.150,000Rs.150,000
GurgaonGurgaon Rs.110,000Rs.110,000 Rs.25Rs.25 Rs.160,000Rs.160,000
FixedFixed VariableVariable Total TotalCityCity Cost Cost Cost Cost Cost Cost
Total Cost = Fixed Cost + (Variable Cost x Volume)Total Cost = Fixed Cost + (Variable Cost x Volume)
Selling priceSelling price = Rs.120= Rs.120
Expected volumeExpected volume = 2,000= 2,000 unitsunits
Amity Business School
Locational Break-Even Analysis Example
Rs.180,000Rs.180,000
Rs.160,000Rs.160,000 Rs.150,000Rs.150,000
Rs.130,000Rs.130,000
Rs.110,000Rs.110,000
Rs.80,000Rs.80,000
Rs.60,000Rs.60,000
Rs.30,000Rs.30,000
Rs.10,000Rs.10,000
Annualcost
Annualcost
| | | | | | |
00 500 500 1,000 1,000 1,500 1,500 2,000 2,000 2,500 2,500 3,000 3,000
VolumeVolume
DamanDamanlowestlowestcostcost
NOIDA lowestNOIDA lowestcostcost
GurgaonGurgaonlowestlowestcostcost
Amity Business School
Centre-of-Gravity Method
Finds location of distribution CentreFinds location of distribution Centrethat minimizes distribution coststhat minimizes distribution costs
ConsidersConsiders
Location of marketsLocation of markets
Volume of goods shipped to thoseVolume of goods shipped to thosemarketsmarkets
Shipping cost (or distance)Shipping cost (or distance)
Amity Business School
Centre-of-Gravity Method Place existing locations on aPlace existing locations on a
coordinate gridcoordinate grid
Grid origin and scale is arbitraryGrid origin and scale is arbitrary
Maintain relative distancesMaintain relative distances
Calculate X and Y coordinates forCalculate X and Y coordinates forCentre of gravityCentre of gravity
Assumes cost is directlyAssumes cost is directlyproportional to distance andproportional to distance andvolume shippedvolume shipped
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Amity Business School
Amity Business School
Centre-of-Gravity Method
xx -- coordinate =coordinate =
ddixixQQii
QQiiii
ii
ddiyiyQQii
QQiiii
ii
yy -- coordinate =coordinate =
wherewhere d dixix == xx--coordinate of location icoordinate of location i
ddiyiy == yy--coordinate of location icoordinate of location i
QQii == Quantity of goods moved toQuantity of goods moved toor from location ior from location i
Amity Business School
Centre-of-Gravity Method
NorthNorth--SouthSouth
EastEast--WestWest
120120
9090
6060
3030
| | | | | |
3030 60 60 90 90 120 120 150 150ArbitraryArbitraryoriginorigin
GurgaonGurgaon (30, 120)(30, 120)
MumbaiMumbai(130, 130)(130, 130)
ChennaiChennai(90, 110)(90, 110)
HyderabadHyderabad(60, 40)(60, 40)
Amity Business School
Centre-of-Gravity Method
Number of ContainersNumber of ContainersStore LocationStore Location Shipped per MonthShipped per Month
GurgaonGurgaon (30, 120)(30, 120) 2,0002,000
ChennaiChennai(90, 110)(90, 110) 1,0001,000
MumbaiMumbai(130, 130)(130, 130) 1,0001,000
HyderabadHyderabad(60, 40)(60, 40) 2,0002,000
xx--coordinate =coordinate =(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)
2000 + 1000 + 1000 + 20002000 + 1000 + 1000 + 2000
== 66.766.7
yy--coordinate =coordinate =
(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)
2000 + 1000 + 1000 + 20002000 + 1000 + 1000 + 2000
== 93.393.3
Amity Business School
Centre-of-Gravity MethodNorthNorth--SouthSouth
EastEast--WestWest
120120
9090
6060
3030
| | | | | |
3030 60 60 90 90 120 120 150 150ArbitraryArbitraryoriginorigin
GurgaonGurgaon (30, 120)(30, 120)MumbaiMumbai(130, 130)(130, 130)
ChennaiChennai(90, 110)(90, 110)
HyderabadHyderabad(60, 40)(60, 40)
Centre of gravityCentre of gravity(66.7, 93.3)(66.7, 93.3)+