wk3 plant location

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FACILITY/PLANT LOCATIONFACILITY/PLANT LOCATION



FACILITY/PLANT LOCATION

Motivating Factors

• Growing Demand

• Shift in Demand

• To Remain Competitive

• Cost Changes

• New Products



Factors Impacting Facility Location

• The need to produce close to the customer due to

time-based competition, incentives and shipping

costs.

• The need to locate near the appropriate labour

pool to take advantage of low wage costs and/or

high technical skills.



Factors for Facility Location

Qualitative factors:• Proximity to Customers• Business Climate

• Infrastructure• Quality of Labour • Suppliers• Special Zones• Political Climate• Government Barriers• Other Facilities



Factors for Facility Location contd...

• Inter-state Barriers• Environmental Regulation

Quantitative factors :• Total Costs• Competitive Advantage

Employee costs,

Taxes

Power/Fuel.



Facility/Plant Location - Spl. ZonesFacility/Plant Location - Spl. Zones

for Locationfor Location

1) Under operation : Santacruz, Kandla,Cochin, Noida, Falta, Chennai,

Visakhapatnam

2) Zones under development : Kanpur,Greater Noida, Bhadohi, Paradeep,

Gopalpur, Kulpi, Indore, Hassan, Kakinada,Dronagiri,Positra, Nanguneri



Facility/Plant Location - MethodsFacility/Plant Location - Methods

Decision on plant location should be basedon “9M” - Sir M. Visweswariaya.The 9 M s are : Money, Market, Material,

Manpower, Motive power, Management,

Machinery, Methods of communication ,Momentum for an early start Quantitative and Qualitative factors :

Evaluate Factor rating method..Center of gravity method



Factor RatingFactor Rating

StepsSteps Identify and list down all the relevant

factors for the location decision Establish the relative importance of each

factor in the final decision Rate the performance of each candidatelocation using a rating mechanism

Compute a total score for each location

based on its performance against eachfactor and rank them in the decreasingorder of the score



ExampleExample A manufacturer of garments is actively considering five

alternative locations for setting up its factory.

The locations vary in terms of the advantages that itprovides to the firm. Hence the firm requires amethod of identifying the most appropriate location.

Based on a survey of its senior executives the firm hasarrived at six factors to be considered for final siteselection. The ratings of each factor on a scale of 1 to 100provide this information.

Further, based some detailed analysis of both thequalitative and quantitative data available for each of the location, the rating for the locations against each

factor has also been arrived at (on a scale of 0 to100). Using this information obtain a ranking of thealternative locations.



F a c t o r s R a t in g

A v a i la b il it y o f in f r a s t ru c tu r e9 0S iz e o f t h e m a r k e t 6 0

I n d u s t r ia l r e l a t io n s c l im a t e5 0

T a x b e n e f it s a n d c o n c e s s io n3 0

A v a i la b il it y o f c h e a p la b o u r 3 0

N e a r n e s s to p o r t 6 5

Factor Ratings

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



Rating of each locations against the factorRating of each locations against the factor

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

F a c to rs L o c a t io n1 L o c a t i o n 2L o c a t io n 3L o c a t io n 4L o c a t io n 5

A v a i la b il it y o f i n f r a s t r u c t u r e2 0 4 0 6 0 3 5 5 5S iz e o f th e m a rk e t 3 0 3 0 4 0 6 0 8 0

I n d u s t r ia l r e l a t io n s c l im a t e 8 0 3 0 5 0 6 0 5 0

T a x b e n e f its a n d c o n c e s s i o n s8 0 2 0 1 0 2 0 2 0

A v a i la b il it y o f c h e a p l a b o u r 7 0 7 0 45 5 0 5 0

N e a rn e s s to p o r t 2 0 4 0 9 0 5 0 6 0



Plant Location Methodology: Center of Gravity

Method

• The center of gravity 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.



ExampleExample A manufacturer of certain industrial component is

interested in locating a new facility in a target market

and would like to know the most appropriate place in thetarget market to locate the proposed facility. Themanufacturer feels that there are no location constraintsin the target market (i.e. any point in the target marketis good enough).

There are four supply points A, B, C and D in thelocality that will provide key inputs to the newfacility.

The annual supply from these four points to the proposedfacility is 200, 450, 175 and 150 tonnes respectively.

While the coordinates in the parentheses show thedistance from the origin of the target map of eachof the supply point, the number that follows is theannual shipment (in tonnes) from these points tothe proposed facility.

Identify the most appropriate point in the grid map tolocate the new facility.



Solution to ExampleSolution to Example

Grid MapGrid Map

100 200 300 400 500 600 700

100

200

300

400

500

600

Distance in Kilometres

DistanceinKilo

metres

A (125,550), 200

B (350,400), 450

C (450,125), 175

D (700,300), 150

C e n t r

e o f G r

a v i t y

( 3 6 6, 3 7 6 )

wk3 plant location

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