Page 131 - DMGT501_OPERATIONS_MANAGEMENT

Unit 5: Facility Location

Explain procedures for location decisions Notes
Discuss factor rating method
Explain centre of gravity method
Describe least cost method

Introduction

Where will the production happen? How to choose the facility location? Is there any ideal
facility location? These are the questions that arise in every manager's mind while setting up a
new plant or shifting an existing plant. There are many other detailed issues related to plant
location that confront a production manager. Let us study the different aspects of this decision,
which is becoming increasingly important in the current context.

5.1 Need for a Facility Location Planning

Facilities location may be defined as selection of suitable location or site or place where the
factory or plant or facilities to be installed, where plant will start functioning.

The development of a location strategy depends upon the type of firm being considered. Industrial
location analysis decisions focus on minimising costs; retail and professional service organisations
typically have a focus of maximising revenue. Warehouse location, on the other hand, may be
determined by a combination of cost and speed of delivery. The objective of location strategy is
to maximise the benefit of location to the firm.
Facility planning has developed, in the past decade, into a major thriving business sector and
discipline. One of the major reasons for new facilities is the global economic boom that has been
accompanied by an enhancement of capacity worldwide.
In addition to the global economic boom, there are several other reasons for changing or adding
locations:
1. The cost or availability of labour, raw materials, and supporting resources often change.
These changes in resources may spur the decision.
2. As product markets change, the geographical region of demand may shift. For example,
many international companies find it desirable to change facility location to provide
better service to customers.
3. Companies may split, merge, or be acquired by new owners, making facilities redundant.
4. New products may be introduced, changing the requirement and availability of resources.

5. Political, economic and legal requirements may make it more attractive to change location.
Many companies are moving facilities to regions where environment or labour laws are
more favourable.

Well-planned facilities enable an organization to function at its most efficient and effective
level, offering real added value improvements to the organization's core business.

5.2 Nature of Location Decisions

One of the most important long-term cost and revenue decisions company makes is where to
locate its operation. Location is a critical element in determining fixed and variable costs for
both industrial and service firms. Depending on the product and type of production or service

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