Plant Location by Aijaz Aryan

1. Aijaz Ahmed Rather
I.K Gujral P.T University

2. Facility can be broadly defined as
buildings where People , Material, and
Machines come together for a stated
purpose - Typically to make a tangible
product or provide service.
The Facility must be properly managed to
achieve its stated purpose while satisfying
several objectives.

3. Heavy manufacturing facilities.
Light industry facilities.
Retail and Service facilities.

4. Process of determining
geographic sites for a firm’s
operations .

5.  Location determines operating & capital
costs .
 Allocation of capacity to respective market
area.
 Impact on plant design.
 Tax benefits.

6.  Determine firm’ profitability and long term
survival.
 Delivery of products to customers in service
sector.
 Proximity to suppliers and markets.

7.  Availability of Raw Materials.
 Nearness to potential Market.
 Nearness to source of operating requirements.
 Supply of Labour.
 Transport and communication facilities.
 Integration with other companies.
 Suitability of land & climate.
 Safety requirements.

8.  The factor must be sensitive to location.
 The factor must have high impact on the
company 'ability to meet its goals.

9.  Evaluation of various geographic areas and
selection of optimum area.
 Choice of particular site.

10.  Objective is to reduce total cost and
maximize profits.
 Total Cost= Fixed cost+ Variable cost

11. Location
analysis
Quantitative
analysis
Qualitative
Analysis

12.  Appropriate for choice of location for single
plant.
 Based on location cost summary chart.
 A comparative chart of total costs involved in
setting up a plant of desired size is prepared.

13. 0
2
4
6
8
10
12
14
Category 1 Category 2 Category 3 Category 4
Series 3
Series 2
Series 1
Total
Cost
Location

14.  Choice of location depends upon
minimization of operational cost.
 Operational costs are linearly related to the
distance involved.
 Transport costs associated with various
alternatives as a basis of location decisions.

15. Specificatio
ns of
subassembl
ies/product
Quantit
y
moved/
year
Transpo
rt cost
/unit
k.m. in
Location
cost
factor
(ii)*(iii)
Location
grid
Row Col
E F
(IV)*E (IV)*F
X 7000 10 70000 8 8 560000 560000
Z 6000 8 48000 11 11 528000 528000
W 5000 15 75000 1 11 75000 825000
P 4000 15 60000 15 15 900000 900000
Total 25300 Total 2063000 281300

16.  Least cost Grid Row=2063000 = 8.16
253000
Least Cost Grid column=28130000 = 11.11
253000

17.  Used to contrast the objective cost factors of
individual locations.
 It involves contrast between operating costs
and value of capital required at different
levels of output.

18.  In location analysis , a location at which the
break even volume is low is preferred.
 FC and VC may be different at different
locations options and have different values
of BE.

19.  List the most relevant factors in location
decision.
 Rate each factor from 1 (very low) to 5 (very
high) acc. to relative importance.
 Each location is rated 1 (very low) to 5 (very
high) acc. to its merits on each
characteristics.
 Finally factor rating is multiplied by location
rating for each factor and sum of products
yield the total score.

20. Factor Rating
Close proximity to markets 3
Close proximity to suppliers 5
Transportation facilities 4
Basic Amenities 2
Acceptance of leather factory by local
people
4
Availability of cheap land 3
Low construction cost 1
Easy availability of cheap & skilled labor 3

21. FACTOR FACTOR
RATING
LOCATION RATINGS
LUCKHNOW NOIDA GORAKHPUR
Proximity to markets 3 4 (12) 6 3
proximity to suppliers 5 10 (50) 5 4
Transportation facilities 4 9 (36) 10 5
Basic Amenities 2 6 (12) 7 6
Acceptance of leather factory by
local people
4 8 ( 32) 3 7
Availability of cheap land 3 7 (21) 2 8
Low construction cost 1 5 (5) 1 6
Easy availability of cheap & skilled
labor
3 3 (9)
177
8
140
4
131

22. It is a mathematical model used to
evaluate locations based on proximity
factors.
The objective is to set a location that
minimizes the total weighted loads moving
in and out of the facility.