factory location
TRANSCRIPT
Selection of factory location
The selection of a place for locating a factory is one of the problems, perhaps the most important ,which is faced by an entrepreneur while launching a new enterprise.
An ideal location may not , by itself ,guarantee success , but it certainly contributes to the smooth & efficient working of an organisation.
Once a mistake is being made in locating a factory is become extremely difficult & costly to correct it, specially where large plants are concerns.
Need for the selection of the locationWhen the business is newly
started.The existing business unit has
outgrown its original facilities & expansion is not possible. hence a new location has to be found
The volume of business or the extent of market necessitates the establishment of branches.
When a company thinks that there is a possibility of reducing manufacturing cost shifting from one location to another location.
Other social & economic reason: inadequate labor supply ,shifting of the market.
Steps in location selectionWith in country or outsideSelection of regionSelection of the locality or
community.Selection of exact site.
Deciding on domestic or international location-facility
should be located domestically/internationally
Selection of regionAvailability of raw material. A firm that depends on heavy raw materials
locates nearer to availability of raw material. Bihar & up in sugarcane industryNearness to market A company that want to reduce the
transportation cost locates near markets.Availability of power-eg iron & steel industry
in Germany. jamshedpur in india.
Transport
Suitability of climate-suitability of climate is very important for setting up location facilities-humid climate for cotton & jute industry.
Government policy-any firm that is looking for subsidy or incentives has to locate factory in states which provide them.
Licensing policyInstitutional finance & govt
subsidy .
Competition between states
Selection of communityAvailability of labour .-an
adequacy of labour supply at reasonable wages is very essential for the smooth functioning.
Civic amenities for workers.- availability of civic amenities for workers also plays
role in facility location. Clubs,theatres,parks.
Existence of complementary & competing industries.- favourable
Labour marketBank become familiar.A group of plant attract a variety
of repair plants.
Finance & research facilities.Availability of water & fire
fighting facilities.-influences the location decision.
Local taxes & restriction-they imposed charges for the supply of water ,electricity,& other facilities. industrlist should prefer an area where such taxes & restrictions are less.
Momentum of early start-railway,banking,repair & maintenance.
Personal factors
Selection of the siteSoil & size & topographyDisposal of waste-leather &
chemical industries locate where there is a provision of disposal of waste.
Location modelsFactor rating methodPoint rating methodBreak –even analysisQualitative factor analysis
Factor rating method
Factor rating are used to evaluate alternative locations
Steps involved areList the most relevant factors in
the location decision.Rate each factor ( from 1 to
5)according to its relative importance.
Rate each location (from 1 to10) according to its merits on each factor.compute the product of rating by multiplying the factor by location rating for each factor
Compute the sum of the products of ratings for each location./selection
factor Factorrating
Location rating Product of rating
Location A Location B Location A Location B
1.Tax advantage2.Suitability of Labour skills3.Proximity of Customer4.Adequacy of water5.Receptivity of Community6.Proximity To supplier7.Quality ofEducational system8.Access to rail air transportation9.Climate10.power
43
3
5
1
5
4
3
22
82
6
2
3
4
1
10
76
63
5
4
3
3
2
8
94
326
18
10
3
20
4
30
1412
249
15
20
3
15
8
24
188
Total score 149 144
Point rating methodIn selecting a site or
location ,companies have several objectives but not are equal important.
The relative weight a company assigns to each objective or to each location factor may be represented by the number of points a perfect site would receive in each category.
Each potential site is then evaluated with respect to every factor.
The site with highest points considered is better.
factor MaximumPossible points
Points assigned to location
Location A Location B
1.Future availabilityOf fuel2.Transportation3.Water supply4.Labour 5.PollutionRegulations6.Site7.Living condition
300
200
10025030
50150
200
150
10022020
40100
250
150
10020020
30125
1080 830 875
Locational break -even analysisStepsDetermine all relevant costs that
vary with each locationCategorize the cost for each
location into annual fixed costs(FC) & VC & calculate the TC for the desired volume of production per annum.
Plot the total costs associated with each location on the single chart or graph
Select the location with the lowest annual cost at the expected production volume per annum.(Q).
TOTAL COST=(fixed cost per annum)+(variable cost per unit)*(quantity produced)
Qualitative factor analysis methodDevelop a list of relevant factors.Assign weight to each factor to
indicate its relative importance.Assign a common scale to each
factor (0 to 100) & designate any minimum point to be scored by each location
Score each potential location according to the designed scale.
Total points of each location/selection