Facility location planning

Presented by:
Sanket Kulkarni
(115098)
Sagar Shah
(11509
Soham Gokhale
(115103)

 It is branch of Manufacturing Planning &
Control
 Focuses on optimal placement of facilities to
reduce costs associated with transportation,
distribution and production
 Facility location refers to the location of
service organizations
 It’s also known as factory location in
production organization.

 The success of organization is dependent on
decision of facility location
 It is strategic decision of an organization

 Facility location is important for both new
and existing organizations
 Existing company may need facility location
for:
o Change in available resources
o Shift of demand
o To expand new target market
o Development of new technology
o Socio-political-Legal changes

 Facility location planning is more important
to new organizations
 It involves 3 strategic decisions
1. To select proper geographical region
2. To select specific site within this region
3. To find the actual site
Selection of
Region
Selection of
Locality
Selection of
Actual Site

 Adequate Supply of Raw materials.
 Proximity to the market – Minimum supply
time.
 Transport Facilities – Good capacity and
speedy transportation.
 Supply of Labor – Cheap Labor Supply.
 Power – Regular Power Supply for operation
machinery at full capacity.
 Supply of Capital – Required for Initial
promotion and Expansion

 Natural Factors – Land, Water,
Climate(Agriculture based Industries).
 Political Factors – Favorable Development
Policies.
 Government Subsidies – Exemptions,
Rebates and Subsidies.
 Historical and religious factors.

Selection of Location
Semi-UrbanRuralUrban

 Advantages of Urban Areas
-Good transportation, communication
services.
-Banking, Credit and Insurance facilities.
-Storage facilities.
-Availability of skilled, unskilled labor.
-Educational, Medical facilities.

 Disadvantages of Urban Area
-High Land Cost.
-High Labor Cost.
-High Attrition Rate.
-Municipal Restrictions, High Taxes.
-Strong Trade Unions.

 Advantages of Rural Areas
-Cheap Land and Labor.
-Low Labor attrition rate.
-Lesser Taxes, Municipal Restrictions.
-Sufficient Land available.
-Amicable relations between management
and Labor.

 Disadvantages of Rural Area
-Lack of Transportation.
-Warehouse facilities unavailable.
-High Distribution Costs.
-Shortage of Skilled Labor.
-Lack of Banking, Municipal facilities

 Advantages of Semi Urban Areas
-Cheap Land compared to Urban areas.
-Availability of Adequate Land.
-Lesser cost of Distribution as compared to
Rural areas.
 Disadvantages of Semi Urban Areas
- Conversion into Urban area with all its
merits, demerits.

 Facility location is strategic decision
regarding selecting a best plant location
 It is long term commitment of an
organization
 A best selection of facility is hub for success
of organization besides that wrong decision
may negatively affects the every step of an
organization
 For long term decisions there are some
procedures

 There are various quantitative and qualitative
analysis to find out the best alternatives
 The general procedures in facility location
includes
o Preliminary Screening
o Detailed Screening

 Detailed analysis includes both macro
analysis and micro analysis
 This is the way of analysisng best location by
using different qualitative and quantative
methods:

 Qualitative models are the techniques of
measuring non monitory factors of proposed
facility/plant location

 The quantitative models are used for
analyzing those factors which can be
measured in terms of money
 It is basically mathematical models which can
be multiple use

 This is the basic stage before selecting the
facility location
 It includes:
 Proximate to customers, market,raw
material(Depends on the company)
 Business climate
 Pest Environemnt
 Availability of labour materials etc.

 Company : Jubilant Life Sciences Limited.
 It is largest Custom Research and
Manufacturing Services (CRAMS) player and a
leading Drug Discovery and Development
Solution (DDDS) provider out of India.
 Jubilant Organosys Ltd., headquartered at
sector-16, Noida, near New Delhi in India.

 Jubilant Organosys Ltd. has five existing
facilities. The details of the facilities are given
in the table. The company wants to locate a
new facility so that the total transportation
cost is the minimum. The management of the
company wants to know about the best
possible location using the median and
centre of gravity method.

Existing Plant Annual Load
(Tons)
Coordinates Cost of 1ton per 1Km
distance (Rs.)
Kochi 350 9.58°N 76.14°E 4
Vadodara 480
22.18°N 73.12 °E
4
Renukoot 275 24.2°N 83.03°E 4
Ghaziabad 370
28.40°N 77.26°E
4
Ludhiana 200
30.55°N 75.54°E
4

- Median Method.
It is done on an assumption that the
movement of load is done on
rectangular/rectilinear pattern. It is useful for
single new facilities.
- Centre of Gravity Method.
It is an attempt to establish a ‘ Centre of
Gravity’ with respect to existing ancillary
facilities.

Transportation cost = distance*annual
load*cost of 1 unit by 1 distance.
Distance = | XJFC - Xmarket |+ |YJFC – Ymarket |

Total annual load for all markets = 1675
Median = 1675/2 = 837.5
Moving along X-axis:
XJFL coordinate = 76.14 (i.e. the x coordinate of Kochi).
Moving along Y- axis:
YJFC coordinate = 24.2 (i.e. the y coordinate of Renukoot).
Now, transportation cost if operating from coordinate
(76.14, 24.2) is calculated.

 Formulae:
X=  Xi Li /  Li
 Y =  Yi Li /  Li
 X= (76.14*350 + 73.12*480 + 83.03*275 + 77.26*370 +
75.54*200) / 1675
X = 76.58
 Y= (9.58*350 + 22.18*480 + 24.2*275 + 28.40*370 +
30.55*200) / 1675
Y = 22.25


For distance from my location to Kochi:
|76.14 -76.14| + | 24.2 -9.58| = 14.62
Transportation cost = 14.62*350*4 = 20468
For distance from my location to Vadodara:
|76.14 -73.12| + |24.2 -22.18|= 5.04
Transportation cost = 5.04*480*4 = 9676.80
For distance from my location to Renukoot:
|76.14 -83.03|+ |24.2 -24.2| = 6.89

 For distance from my location to Ghaziabad:
|76.14 -77.26| + |24.2 – 28.40| = 5.32
For distance from my location to Ludhiana:
|76.14 -75.54| + |24.2 – 30.55| = 6.95
Total transportation cost =
20468+9676.8+7579+7873.6+5560
= 51157.4


For distance from my location to Kochi:
|76.58 -76.14| + | 22.25 -9.58| = 13.11
For distance from my location to Vadodara:
|76.58 -73.12| + |22.25 -22.18|= 3.53

 For distance from my location to Renukoot:
|76.58 -83.03|+ |22.25 -24.2| = 8.4
For distance from my location to Ghaziabad:
|76.58 -77.26| + |22.25 – 28.40| = 6.83
For distance from my location to Ludhiana:
|76.58 -75.54| + |22.25 – 30.55| = 9.34
Total transportation cost
=18354+6777.6+9240+10108.4+7472
= 51952

 MEDIAN METHOD:
Coordinates (24.2, 76.14) and Transportation Cost for this
coordinate is 51157.4
 CENTRE OF GRAVITY METHOD:
Coordinates (22.25, 76.58) and Transportation Cost for this
coordinate is 51952
Thus it is seen that transportation Cost by Median method
is less than the Transportation Cost by Centre of Gravity
method
Thus the coordinates (24.2, 76.14) are used for establishing
the facility.

Facility location planning

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