Page 240 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Unit 12: Facility Location

(f) Decrease deliveries. Notes
(g) Affect the promptness of service.
(h) Affect the selling price of the product – the transportation cost often makes the
product expensive.
Assembly-type industries, in which raw materials are gathered together from various
diverse locations and are assembled into a single unit, often tend to be located near the
intended market. This becomes especially important in the case of a custom-made product,
where close customer contact is essential.

2. Location of materials: Access to suppliers of raw materials, parts, supplies, tools, equipment,
etc., are very often considered to be of paramount importance. The main issue here is the
promptness and regularity of supply from suppliers and the level of freight costs incurred.
In general, the location of materials is likely to be important if:
(a) Transportation of materials and parts represent the major portion of unit costs.

(b) Material is available only in a particular region.
(c) Material is bulky in the raw state.
(d) Material bulk can be reduced in various products and by products during processing.
(e) Material is perishable and processing increases the shelf life.

Keeping in mind those materials may come from a variety of locations; the plant would
then be located such as to minimize the total transportation costs. Transportation costs are
not simply a function of distance – they can vary depending on the specific routes as well
as the specific product classifications.

Example: A Delhi-Patna consignment would be much more expensive than a
Delhi-Mumbai consignment, though the distances are similar. Sea freight from an Australian
port to an Indian port is comparable to the sea freight from an Australian port to an English port,
though the distances are not comparable.

3. Transportation facilities: Adequate transportation facilities are essential for the economic
operation of a production system. These can include – road, rail waterways airports. The
bulk of all freight shipments are made by rail since it offers low costs, flexibility and speed.
For companies that produce or buy heavy and bulky low-value-per-ton commodities as
are generally involved in import and export activities, shipping and location of ports may
be a factor of prime importance in the plant location decision. Truck transport for intercity
transport is increasing as is airfreight and executive travel.

Traveling expenses of management and sales personnel should also be considered in the
equation.
4. Labour supply: Manpower is the most costly input in most production systems. An ample
supply of labour is essential to any enterprise. The following rule of thumb is generally
applied:

(a) The area should contain four times as many permanent job applicants than the
organization will require.
(b) There should be a diversification between industry and commerce-roughly 50/50.

Organizations often take advantage of a location with an abundant supply of workers.
Labour costs and/or skills are often a very important consideration for locating a facility.

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