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Unit 12: Facility Location

Warehouses and Distribution Centers Notes

Warehouses are a category of their own. Products are not manufactured or assembled within
their confines, nor are they sold from them. They represent an intermediate point in the logistical
inventory system where products are held in storage. Normally a warehouse is simply a building
that is used to receive, handle and then ship products. They generally require only moderate
environmental conditions and security and little labour, although some specialised warehouses
require a more controlled environment, such as refrigeration or security for precious metals or
drugs. Because of their role as intermediate points in the movement of products from the
manufacturer to the customer, transportation and shipping costs are the most important factors
in the location decision for warehouses. The proximity to customers can also be an important
consideration, depending on the delivery requirements, including frequency of delivery required
by the customer. Construction and land costs tend to be of less importance as does labour
availability. Since warehouses require no raw materials, have no production processes and
create no waste, factors such as proximity to raw materials, utilities and waste disposal are of
almost no importance.

Retail and Service

Retail and service operations generally require the smallest and least costly facilities. Examples
include such service facilities as restaurants, banks, hotels, cleaners, clinics and law offices and
retail facilities such as groceries and department stores, among many others. The single most
important factor for locating a service or retail facility is proximity to customers. It is usually
critical that a service facility be near the customers who buy from it. Construction costs are
generally less important (especially when compared with a manufacturing plant); however,
land or leasing costs can be important. For retail operations, for which the saying “location is
everything” is very meaningful, site costs can be very high. Other location factors that are
important for heavy and light manufacturing facilities, such as proximity to raw materials,
zoning, utilities, transportation and labour, are less important or not important at all for service
and retail facilities.
Though factory layout is the focal point of facility design in most cases and it dominates the
thinking of most managers, yet factory layout is only one of several detail levels. It is useful to
think of facility planning at four levels, these are:

1. Global (Site Location)
2. Macro (Site Planning)
3. Micro (Facility and Building Layout)
4. Sub-Micro (Workstation Design)

Ideally, the design progresses from global to sub-micro in distinct, sequential phases. At the end
of each phase, the design is ‘frozen’ by consensus. Moving in a sequential manner helps
management in the following manner:
1. Settling the more global issues first.
2. It allows smooth progress without continually revisiting unresolved issues.
3. It prevents detail from overwhelming the project.

Based on strategic importance, the macro layout is accepted to be the most critical and strategically
important aspect of facility planning. However, all the stages have their own importance and
significance.

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