Facility Location JOASH MAGETO

1. Facility Location JOASH MAGETO

2. Facility Location is a Strategic Decision One time decisions Difficult to reverse It affects fixed, variable and distribution costs Affect sales

3. Your plant / facility may be …. • Near the Raw Material sources • (Steel, Cement Plants ) • Near to Market / Customers • (FMCG, Perishables Goods, Services) • Best facilities & infrastructure • (MIDC, Union Territories, SEZs)

5. Country Factors Political risks, government rules, attitudes, incentives Cultural and economic issues Location of markets Labor availability, attitudes, productivity, costs Availability of supplies, communications, energy Exchange rates and currency risks

6. Country Factors

7. MN WI MI OH IL IN Region / Community Factors Corporate desires Attractiveness of region Labor availability, costs, attitudes towards unions Costs and availability of utilities Environmental regulations Government incentives and fiscal policies Proximity to raw materials and customers Land/construction costs

8. Site Factors Site size and cost Air, rail, highway, and waterway systems Zoning restrictions Nearness of services/ supplies needed Environmental impact issues

9. Approach to Location Profit maximization (Service industry) Cost minimization (Manufacturing)

10. Service/Retail Location Goods Mfg. Location Revenue Focus Cost Focus Volume/revenue Drawing area; purchasing power Competition; advertising/pricing Physical quality Parking, Access; Security, Lighting; Appearance, Image Cost determinants Rent, Management caliber Operations policies (hours, wage rates) Tangible costs Transportation cost of raw material Shipment cost of finished goods Energy and utility cost; labor; Raw material; taxes, and so on Intangible and future costs Attitude toward union Quality of life Education expenditures by state Quality of state and local government Approach to Location

11. Service/Retail/Prof. Locn. Goods-mfg. Location Techniques Techniques Regression models to determine importance of various factors Factor-rating method Traffic counts Demographic analysis of drawing area Purchasing power analysis of area Center-of-gravity method Geographic information systems Transportation methods Factor-ratingmethod Locational break-even analysis Crossover charts Approach to Location

12. Hotel Location ( Case : To open Chain of Hotels across the country ) • Location is a strategically important decision in the hospitality industry • Finally, the model considered only four variables • - Property Prices of the inn • - Median income levels • - State population per inn • - Location of nearby businesses / industries/ colleges

13. Telemarketing Location Require neither face-to-face contact nor movement of materials Have very broad location options Traditional variables are no longer relevant Cost and availability of labor may drive location decisions

14. Clustering

15. Clustering

16. Methods for Location • Factor Rating • Transportation model • Centroid Method • Load Distance • Break-even Analysis • Qualitative Factor Analysis

17. Factor rating method

18. CENTRE OF GRAVITY • The center of gravity method is used to determine the location of a single distribution center that will minimize distribution costs. It treats distribution cost as a linear function of the distance and the quantity shipped, which is assumed to be fixed, although an acceptable variation is that quantities are allowed to change as long as their relative amounts remain the same. • It is helpful in a limited number of situations – primarily service entities – where geography and transportation costs are important; as opposed to the critical factor method, which is more qualitative and general. • The method includes the use of a map that shows the locations of destinations. The map must be accurate and drawn to scale. A coordinate system is then overlaid on the map to determine relative locations. Once done, coordinates for each destination can then be placed. • If the quantities to be shipped to every location are equal, the solution is straightforward, as you can simply average the x and y coordinates. When they are not (as is usually the case), a weighted average must be applied, with the weights being the quantities to be shipped. The center of mass of a system of particles is defined as the average of their positions weighted by their masses: • As an example, consider six locations that require a central warehouse; each are plotted on a map with the following x and y values, followed by their importance (weights):

19. Centre of Gravity Method – Problem Retail Expected OutletsDemand A 80 B 100 C 120 D 130 E 100 F 150 G 90 Total Demand 770 Q. : Where should we set up a centralized warehousing facility?

20. Centre of Gravity Method 16 • B 14 • G 12 10 • A 8 • Center-of-gravity • E 6 • C Y-Distance (KM) • F 4 • D 2 0 4 8 12 16 20 X- Distance (KM)

21. Centre of Gravity Method

22. Load Distance method Used to minimise the load distance product for pre selected locations Matrix Manufacturing is considering where to locate its warehouse in order to service its four Ohio stores located in Cleveland, Cincinnati, Columbus, Dayton. Two sites are being considered; Mansfield and Springfield, Ohio. Use the load-distance model to make the decision.

23. Load Distance method

24. Break Even method Cost-volume analysis method used for industrial locations 3 Steps in the method – • Determine fixed and variable costs for each location • Plot the cost for each location 3. Select location with lowest total cost for expected production volume

25. Revenue Cost-Volume-Profit (or Br. Even Analysis) TCA FCA Cost Vo Volume of Sales

26. Break Even Analysis Method • Location A : Annual fixed costs of sh 0.3m, Variable Costs - sh. 63 / unit, Revenues sh. 68 per unit. • Location B : Annual fixed costs sh. 0.8m, Variable costs sh. 32 per unit, Revenues are sh. 68 per unit. Exp. Sales volume 25000 units per year. Which location is more attractive?

27. Answer -Break Even Analysis Method • B E Volume = Fixed cost / (Contribution / unit) • VBE (A) = sh 300000 / 68-63 = 60,000 units • VBE (B) = sh 800000 / 68-32 = 22,222 units • At the expected demand of 25000 units, A B Revenue 1,700,000 1,700,000 Variable Cost 1,575,000 800,000 Fixed Cost 300,000 800,000 Total Cost 1,875,000 1,600,000 Profit (Loss) (175,000) 100,000 Location B is more attractive, even if annual fixed cost is higher

28. Transportation method Finds amount to be shipped from several points of supply to several points of demand Solution will minimize total production and shipping costs A special class of linear programming problems

29. Transportation method

30. Analytical Delphi Method(for complex multi-location decisions) 1. Coordinating Team (comprising Co-Employees & External. Consultants ) uses questionnaire to illicit information from Forecasting Panel. 2. Forecasting Panel - to identify Future Trends in environment, threats, opportunities. Process is repeated several times till consensus is reached. 3. This information is given to Strategic Panel to identify Long Term Strategic Goals & Objectives. 4. Various ALTERNATIVES are developed. 5. These alternatives are then prioritized

31. Thank You