BBA – IV Semester

Facility Location
Facility:- Any type of set-up that an organization requires to run its operation and product
and deliver the intended service to the customer.

Location;- Place or region where the above-mentioned facility may be established.

Therefore, the decision of Facility location = Where to establish the set-up?

Location Decision/ Facility Location in operation management is

finding an ideal geographical region to install a Facility or Plant.
It is a vital component in facility planning as it greatly impacts
the organization’s Profitability, Cost, and Success.
Location of Facilities/ Location
Planning
 Location Decision or Facility Location
Location planning is the process of strategically
choosing the best geographic sites for facilities within a
supply chain network. This decision has far-reaching
implications, as the location of facilities can impact
transportation costs, lead times, customer service, and
overall supply chain performance.

In other words, the decision about the area for locating a

facility is the Location Decision. It is also termed Facility
Location and Site Selection.

Every firm must use location planning techniques. There

are many options for location planning. Corporations
choose from expanding an existing location, shutting
down one location and moving to another, adding new
locations while retaining existing facilities, or doing
nothing. Various methods are used to decide the best
location or alternatives for the corporation. Methods
include identifying the country, general region, a small
Need for appropriate Facility Location

Organizations require appropriate facility locations:

(i) When they start new Ventures or expand existing ones.
(ii) To address challenges like resource scarcity, lease renewals, social-cultural, legal,
political issues promoting the relocation.
 Importance of
Location Decision

Nature & Size of Production technology and cost

Business structure

Customer Competition
Service

Physical Factors Tax Benefits

Now let's discuss the above points highlighting the

importance of location decisions.
1. Nature & size of business:- Plant location depends on the size or
nature of the plant. A small-scale firm normally selects a location near
the market because if they don’t like the location later on then they can
relocate. But for a big company, the amount of investment is large. So,
they have to be very careful will locating the location.
2. Production technology and cost structure:- The location of the
plant will decide the type of production technology management adopt
and the structure of the cost. For example;- if management installs its
parts in an underdeveloped country, it will choose a labor-intensive
process to take benefit of the availability of low labor cost.
3. Customer Service:- The location of the plant affect the company’s
ability to serve its customer quickly and speedily. For example; In the
case of dairy milk products that are delivered daily to their customers. In
this case, the location of the plant must be near to deliver the milk
products on time.
4. Competition:- The importance of location decisions also helps the
company to take a competitive advantage. An optimum location that
reduces the transportation cost, is available to the near market, has low
labor cost, etc. always gives the company an advantage as compared to
its competitor.
5. Physical factors:- One other importance of plant location decision is
that it helps the company to look over the other accepts also.
For example; Heating, Ventilation requirements, disposal of company
waste properly, etc
5. Tax Benefit:- The government may announce some tax benefits for
starting a business in rural areas. This may motivate entrepreneurs to
start their business units in remote areas.
At last,
 Location Planning decisions are very important for all types of
business units. This is because it affects the cost, selling price,
and demand of the product. It is a non-recurring heavy
expenditure. Large companies take the help of different
professionals like lawyers, accountants, environmentalists, etc. to
select the proper plant location.

 Location plays an important role in ensuring the satisfaction of

staff and customers, financial health, operational efficiency, and
meeting business needs. Thorough research and strategic
planning are crucial for any business contemplating location
decisions.

 It identifies location as one of the most important strategic

decisions a firm can make, with long-term impacts on costs. Key
factors discussed include proximity to markets and
suppliers/materials, costs of labor, land, and transportation, and
government incentives.

 There can be several reasons to open an office in a new location:

relocation of services, rapid growth of an organization, closing
another location, and sometimes the need to save money.
 FACTORS AFFECTING LOCATION DECISIONS
The production function is associated with converting input to the desired
output using the appropriate technology, i.e., the conversion process. The
inputs are fed to the conversion process, while the outputs are marketed.
Thus, the important factors of production functions are inputs, conversion
process, and output. A good location decision is an optimizing input,
conversion process, and output. However, the location is a long-term
commitment. Therefore due care should be given to other various factors
like an opportunity for expansion, product diversification, state legislation,
etc.
1. Primary Factors Affecting Plant Location:
The primary factors are the nature of the input, the nature of the
output, and the nature of the technology employed.

Nature of the Input (Raw Material): In some cases, it is beneficial

to locate the factory (plant) near to raw material. If the cost of
transportation of raw materials is very high compared to the
transportation of finished goods, it is suitable to establish a factory
near input resources. For example, the cement factory is established
near the sources of lime because the major input is very bulky lime.
Similarly, sugar factory is established nearer to sugar cane farms.
Other examples are oil refineries, steel industries, and paper
industries which are established nearer to the source of raw material.

Nature of Output (Product or Service): In some cases, it is

beneficial to locate the facility nearer to the market or potential
customer. Services produced by hotels, golf courses, churches,
temples, schools, and hospitals, are usually located near the market
or the recipients because these services cannot be transported or
kept in stock. These facilities should be located within reach of
consumers.
In a manufacturing organization, when the products have the potential
to be damaged or spoiled in the course of transportation, it is
beneficial to establish a plant nearer to the market. Furthermore, a
plant being nearer to the market can catch a big share of the market
and can render quick service to the customer. In some cases, the
transportation of the final product to market may be costly compared
to the transportation of raw materials to industry, and transportation
cost has a significant effect, in this case, it is beneficial. to establish a
plant nearer to the market. For example, soft drink companies like
Coca-Cola and Pepsi are established nearer to the market.
2. Secondary Factors Affecting Plant Location:-
Apart from the above-stated three primary factors, other factors affect
the location decisions. which are generally called secondary factors.
However, it is to be highlighted that any factor can be primary or
secondary depending on the type of plant, its products, technology, etc.
It means that the primary factor for some type of industry might be a
secondary factor for others. For example, a pure source of water is the
primary factor for the mineral water industry, but it is a secondary factor
for the ghee industry. Some secondary factors are:
Availability of Labor and their Skill: Stable labor forces of the right
kind, adequate size (number), and reasonable rates with proper attitude
towards work are a few factors that govern the plant location to a major
extent. The purpose of management is to faceless boycotts, strikes, or
lockouts and to achieve lower labor costs per unit of production. The intra
and inter-country movement of labor has made labor available at any
place and point in time.
Transportation and Communication Facilities: The significance of
transportation varies with the type of industry. The basic modes of
transportation like air, road, rail, water, and pipelines are preferred based
on the nature of the raw material and finished goods. If the
transportation costs are a major part of the total cost, then it is
considered the controlling factor in the determination of the site.
Conversely, if they have little influence on total cost, then it is of almost no
importance. A similar fashion applies to the availability of communication
facilities. In today's GIS technology, communications facilities are less
important than in past days. However, the cost of transportation and
communication should be properly analyzed before selecting a site.
Availability of Services: Services like gas, electricity, water, drainage,
waste disposal, and other external amenities like shops, community
services, medical systems, etc. are also the determining factors affecting
location decisions.
Suitability of Land and Climate: The topography (geography) of the
land also affects plant location. Similarly, climatic conditions, eg, rainfall,
humidity, and average temperature are also critical factors in determining
location decisions.
Opportunity for Expansion: The long-range perspective of expansion
opportunity must be considered while making a location decision. The
location should be flexible enough to cover the expansion program.
Political, Cultural, and Economic Situation and Regional
Regulations: Political instability may risk to the business. A socio-cultural
situation like women and foreign worker’s restriction of working should be
considered. The economic condition of the locality is an important factor to
be considered for a business like gambling, casinos, insurance companies,
or private educational institutions. Similarly, the study must be made of
local regulations before determining the location decisions.
Special Grants, Regional Tax, and Import-Export Barriers: Some
local authorities and central government offer special grants, low-
interest loans, low rent or taxes, and other inducement in the hope of
attracting certain industries to a particular location. Location of
companies to foreign countries to avoid export difficulties is now a
commonly accepted practice.

After identifying the several key location requirements management

should find the alternative locations that are consistent with these
requirements. These alternative locations are subjected to qualitative
and quantitative analysis before determining the exact location
decisions.
METHODS OF EVALUATING
LOCATION ALTERNATIVES

1. FACTOR-RATING METHOD
Factor-Rating Method:- Factor rating is a procedure or technique to
evaluate multiple alternatives based on several selected factors. The
factors discussed in previous topics are common and more or less
essential for all, but the degree of importance may vary according to the
type of organization, i.e., production process. Hence, operations managers
can use the weightings of these factors according to significance for them,
to make location decisions more objective. This method of location
alternatives evaluation is called a factor-rating method. This method is
most widely used for location decisions because it provides a mechanism
to combine diverse intangible factors into an easily understandable
format. The factor rating method goes through the steps explained as
follows:

Step 1: Identify and note down all the relevant critical location factors to
the proposed plant or business organization.

Step 2:- Assign "rate" to each factor, to reflect its relative importance in
the company's objectives. Generally, these factors are rated from 1-5. A
rating of 5 is given to the most critical factor, and 1 is given to the least
important one. These are called factor ratings.
Step 3:- Take the attractive location alternatives from preliminary
screening. Assign the rate to the alternative for each factor according to
the benefits, a particular location option offers. Generally, these rates
vary from 1 - 10. A rating of 10 is given to the most beneficial factor at
that specific location. Similarly, a rating of 1 is given to the least helpful
factor at that location. These ratings are called the location rating.
Note: No specific benchmark for factor rate and location rate
determination. This depends on the analytical skill of the decision-maker.

Step 4:- Factor rating calculated in step 3 and the similar location rating
calculated in step 4 are multiplied, and the cumulative total rating for
each alternative location is calculated and designated as the score.

Step 5:- Select the location with the highest total score.

For example; location selection for a factory based on the tabulated

information:
 2. Load Distance Score
The load-distance model is a procedure (mathematical model) for
evaluating location alternatives based on distance. The distance can be
measured by proximity to the market, suppliers other resources, or
other facilities that are considered important. The objective of this
model is to select the locations location that minimize the total amount
of loads moved weighted by distance traveled the distance between
two points is expressed by assigning the points to grid coordinates on a
map. An alternative approach is to use time rather than distance.

Distance Measures
Suppose that a new warehouse is to be located in Kathmandu. The
shipments will be from various suppliers including one from Pokhara. If
the new warehouse were located at Hetauda, what would be the
distance between the two facilities? For the load-distance method, a
rough calculation that is either Euclidean distance measure is used.
Euclidean distance is the straight-line distance, or shortest possible
path, between two points.
Y

A(10,15)

B(30,10)

X
O
Point A on the grid represents the supplier's location in Pokhara- and
point B represents the possible warehouse location at Hetuada. The
distance between points A and B is the length of the hypotenuse of a
right-angled triangle, or
dAB = SQ.(XA- XB+ (YA - YB)
Where
dAB= distance between points A and B
XA= X-coordinate of point A (10) YA= Y-coordinate of point A (15)
XB = X-coordinate of point B (30) YB=Y-coordinate of point B (10)
Whereas, Rectilinear distance measures the distance between two
points with a series of 90° turns as city blocks. Essentially, this distance
is the sum of the two dashed lines representing the base and side of the
triangle in the figure. The distance traveled in the X-direction is the
absolute value of the difference in X-coordinates. Adding this result to
the absolute value of the difference in the Y-coordinates gives:
dAB = |XA - XB| + [YA - YBl
 Example:-01

A supplier to the electric utility industry has a heavy production &

transportation cost, the consumer’s location, tons shipped, coordinates,
and cost rate are given below:-
Customer’s Location Tons Shipped X,Y (Coordinates) Rate (RS)
A 5,000 (200,300) 4
B 4,000 (500,200) 2
C 5,000 (100,100) 2
D 3,000 (400,400) 3

Which location is the best location under the load

distance method ?
 Concept of Layout
To arrange various things in a planned
manner.
The arrangement of people,
equipment, materials, and
methods to create products in
order of process in a continuous
flow.
 Layout Strategy
• Planning an optimum arrangement of facilities, arranging man,
machine, and materials to ensure a prompt, hassle-free, and
uninterrupted production process at the lowest possible cost.

• Layout Strategy is an important component of a business’s overall

operations, both in terms of maximizing the effectiveness of the
production process and meeting the needs of employees.

• The basic operation of layout is to ensure a smooth flow of work,

material, and information through a system.

• Layout strategy in operations management refers to the deliberate

arrangement of physical resources within a facility to optimize
efficiency, productivity, and customer satisfaction.
 Strategic Importance of Layout Decision
Layout is one of the key decisions that determines the long-run efficiency
of operations. The layout has numerous strategic implications because it
establishes an organization's competitive priorities regarding capacity,
processes, flexibility, and cost, as well as the quality of work life,
customer contact, and image. An effective layout can help an organization
achieve a strategy that supports differentiation, low cost, or response. For
example, a few months back Bhat-Bhateni Super Market and
Departmental store, Naxal changed its cash counter’s layout for the 2 nd
floor (clothing floor) keeping in mind the natural flow for the customer to
pay their bills. The earlier layout has the cashier needing to move a
certain distance for swipe debit/ credit cards increasing the time per
transaction. The newly designed layout eliminated the motion of the
cashier for swiping cards resulting in reduced transaction time. Here in
this example, layout design has contributed to shortening the processing
time of bill payment.
In all cases, layout design must consider how to achieve the
following:
1. Higher utilization of space, equipment, and people
2. 2. Improved flow of information, materials, or people
3. 3. Improved employee morale and safer working conditions
4. 4. Improved customer/client interaction
5. 5. Flexibility (whatever the layout is now, it will need to change).

In our increasingly short life cycle, mass-customized world, layout

designs need to be viewed as dynamic. This means considering
small, movable, and flexible equipment. Store displays need to be
movable, office desks and partitions modular, and warehouse racks
prefabricated. To make quick and easy changes in product models
and production rates, operations managers must design flexibility in
layouts. To obtain flexibility in layout, managers cross-train their
workers, maintain equipment, keep investments low, place
workstations close together, and use small, movable equipment. In
some cases, equipment on wheels is appropriate, in anticipation of
the next change in product, process, or volume.
Types Layout Decision
Types of Layout
Decision

Product or Line Process or Functional

Layout Layout
Fixed Position or Location Combine or Hybrid
Layout Layout
Now let's discuss the above points highlighting the types of
layout decisions.
1. Product or Line Layout:- In this layout, the machines are arranged
in a line depending upon the sequence required for the product. The
material moves from one to the next machine without any
backtracking. The output of one track becomes the input of the next
machine. It is used for the mass production of standardized products.
Product layout, or line layout, occurs when the equipment and workers
are placed in order of production sequence. Assembly lines are a good
example of a product layout because people are arranged in order of
the production process.
Machine-01 Machine-02 Machine-03 Machine-04

Product or Line Layout

 Advantages and Disadvantages of Product
Layout
Advantages of Product Layout:-
1. Lower manufacturing cost per unit.
2. A smooth and continuous flow of work.
3. Lesser inventory and work-in-progress.
4. Optimum use of floor space.
5. Simple and effective inspection of work and simplified production
control.

Disadvantages of Product Layout:

6. Higher initial capital investment in the special-purpose machine.
7. Absence of backtracking.
8. The breakdown of one machine will disturb the production process.
9. Lesser flexibility of physical resources.
2. Process or Functional Layout:- In this type of layout, the machines
of a similar type are arranged together in one place according to their
functional process. This type of layout is used for batch production. For
example, The college is divided into different departments. The teacher
belonging to a specific department can be found in their respective
departments. Students move from one to another department as per
their timetable.

Machine-01 Machine-02 Machine-03 Machine-04

Process or Functional Layo
 Advantages and Disadvantages of Product
Layout
Advantages of Process Layout:
1. Lower initial capital investment is required.
2. There is a high degree of machine utilization, as a machine is not
blocked for a single product.
3. The breakdown of one machine doesn’t disturb the production
process.
4. Supervision can be more effective and specialized.
5. Greater flexibility of resources.
Disadvantages of Process Layout:
6. More skilled labor is required.
7. High work-in-progress inventory.
8. A greater shortage of space is required due to the large quantity
required.
9. More frequent inspection is needed which results in costly supervision.
4. Fixed position or Location Layout:- In a fixed position layout, work
or project is complex and large in size because it involves working on big
projects like a power plant, a ship, a rocket, or an aircraft, etc. All those
products are fixed in one place, but man, equipment, machines, and
materials are moved from one place to another to finish the project.
Fixed Position Layout
 Advantages and Disadvantages of Fixed
Position Layout
Advantages of Fixed Position Layout:
1. The investment in this layout is very small.
2. The layout is flexible as if any rearrangement of men and materials
required it can be done easily.
3. The project takes a long time to finish the job so if there is any shortage of
materials or men, it can be met later
Disadvantages of Fixed Position Layout:
4. Highly skilled manpower is required.
5. As the production period is very long, so the capital investment is very
high.
6. Very large space is required for the shortage of materials and equipment
near the product.
7. Due to several operations being carried out, so there is the possibility of
confusion and conflicts.
3. Combined or Hybrid Layout:- A combination of process and product
layout is known as combined or hybrid layout. In many organizations,
some parts are made with machines of a similar type and arranged in one
place according to their process. In contrast, in another, the machines are
arranged in a line depending upon the sequence required for the product.