This document discusses various aspects of strategic facility location decisions. It begins by explaining that location decisions are strategic, long-term, capital-intensive, and difficult to reverse. It then outlines a hierarchy of location problems from the plant level down to individual workstations. Important factors in choosing a location include market access, raw materials, transportation, and costs. The document analyzes a case study of choosing a new plant location and later deciding whether to shut down an existing plant in response to changing demand.

1. Location decisions are strategic:-
Liable to affect the entire organization
Operative over longer time spans
Difficult to reverse
Capital intensive

2. HIERARCHY OF LOCATION
PROBLEMS
 Location of ‘plant’
 Plant lay out (location of ‘Depts’)
 Physical arrangements of M/cs
 Work place layout (location of ‘tools’ or ‘raw
materials’)

3.  The term ‘facility location’ emphasizes the generalized
approach that handles the variety of above mentioned
problems.

4. LOCATION DECISIONS ARE
DYNAMIC
 Owing to changing technology, competition, change
of consumer tastes, decisions like
 new plants
Expansion
Decentralization
Plant shut down
Are constantly under review.

5. IMPORTANT FACTORS IN LOCATION
 Market
 Raw materials
 Transportation
 Power
 Climate and fuel
 Labour and wages
 Laws and taxation
 Community services
 Water and waste
 Government incentives

6. Raw materials
• Pure materials
 Weight losing materials
 Ubiquities

7. ANNUAL OPERATION EXPENSES
 Consist of:-
o Materials
o Transportation
o Real estate taxes
o Fuel costs
o Sundry state taxes
o Electric power.

8. FIXED AND VARIABLE COST
ANNUAL
COST
• LOCATION A
LOCATION B
• VOLUME OF PRODUCTION

9. MECHANICAL ANALOGUE FOR
FINDING BEST LOCATION OF A
MANUFACTURING PLANT
 (also known as Varignon’s Frame after the inventor)

10. In the absence of friction
the common knot P of
(m+n) strings comes to
equilibrium at least cost
location.
{ here we draw an analogy
between
Min potential energy
&
Min travel cost}
ASSUMPTIONS
_ R1, R2……Rn locations of
raw material sources.
_ M1, M2 ….Mn locations of
markets.
_ Euclidean (straight line
travel)
_ each weight (there are m+n
in all)
_ Wi- No: of annual trips
between P and that pt X
(cost per unit distance)

11.  MULTI OBJECTIVE CONSIDERATIONS IN
LOCATION DECISIONS
FACTORS AFFECTING LOCATION ARE:-
SUBJECTIVE OBJECTIVE
(labour attitudes) eg: costs
INTANGIBLE TANGIBLE
INCOMMENSURATE UNITS

12.  A decision matrix approach with proper evaluation of
weights of factors. Normalization of scores can help in
ranking alternative locations.
 (THIS IS DEMONSTRATEDTHROUGH A CASE
STUDY)

13. MULTI PLANT OPERATION-AN
EXAMPLE OF PLANT ADDITION
P1 existing plant
P2 existing plant
A,B,C,D,E- ware houses
X,Y,Z-possible locations for
new plant
P1
P2
A
B
C
D
E
X
Z
Y

14.  Owing to increase of weekly demand to 72000 there is
a capacity deficit of 25000 per week and it is felt that a
plant of capacity 25000 could be set up X, Y or Z

15. DATA SHEET
P1 P2 X Y Z Weekly
Forecast
of
market
demand
A 0.42 0.32 0.44 0.44 0.41 10000
B
C
D
E
CAPACITY
UNIT
PROD

16. OPTIMUM PRODUCTION-
DISTRIBUTING SOLUTIONS
Product cost= 192500 Distn cost=26450 Total=218950
P1 P2 X
A 10 10
B 8 7 15
C 16 16
D 19 19
E 10 2 12
27 20 25 72

17. OPTIMUM PRODUCTION-
DISTRIBUTING SOLUTIONS
Product cost= 193750 Distn cost=26960 Total=220710
P1 P2 Y
A 10 10
B 15 15
C 8 8 16
D 19 19
E 10 2 12
27 20 25 72

18. OPTIMUM PRODUCTION-DISTRIBUTING SOLUTIONS
Product cost= 192000 Distn cost=26400 Total=218400
Hence choose plant at site Z(since Z cost is minimum)
P1 P2 Z
A 10 10
B 15 15
C 10 6 16
D 12 7 19
E 12 12
27 20 25 72

19. LOCATIONAL DYNAMICS
 Suppose third plant is set up at site z
 After some time demand drops from 72000 to 56000
per week.
 Which plant to shut down?
 Which plant to run at partial capacity?
(these are location decisions)

20. ALTERNATIVES FOR INVESTIGATION
 1. Run all plants at partial capacity
 2.shut down P1 .use overtime in others
 3. shut down P2. use overtime in others
 4. shut down Z. use overtime in others.

21. PROBLEM DATA:- ware house demands A-9000, B-13000,
C-11000, D-15000, E-8000
PLANTS P1 P2 Z
Over time production cost 3.37 3.33 3.27
O.T capacity 7000 5000 6000
Fixed costs (per week)
(Don’t depend on production volume)
While operating 12000 9000 13000
While shut down 5000 4000 6000

22. EVALUATING SHUT DOWN OPTIONS
P1 P2 Z
A 9 9
B 13 13
C 11 11
D 14 1 15
E 8 8
F 11 5 16
27 20 25 72

23. EVALUATING SHUT DOWN OPTIONS
P2 Z OT2 OTz
A 9 9
B 8 5 13
C 11 11
D 9 6 15
E 8 8
20 25 56

24. EVALUATING SHUT DOWN OPTIONS
P1 Z OT1 OTz
A 6 3 9
B 13 13
C 11 11
D 14 1 15
E 8 8
F 7 2
27 25 7 6 65

25. EVALUATING SHUT DOWN OPTIONS
P1 p2 OT1 OT2
A 9 9
B 9 4 13
C 3 8 11
D 15 15
E 3 5 8
F 3 3
27 20 7 5 65

26. EVALUATING SHUT DOWN OPTIONS
Min cost for alternative 3 . Hence shut down plant 3
1 2 3 4
FIXED
VARIABLE
34000
169650
27000
177730
29000
173750
27000
178400
TOTAL COST 203650 204730 202150 205400

27. summary
 The strategic importance of location decisions
 Hierarchy of location decisions
 Analogue model for facility location
 Important factors in plant location
 A case study on new plant location and shut down
under dynamic conditions.