Facility Location

Facility location decisions are Strategic,

Long-term and Non-repetitive in nature.
• Without sound and careful location
planning in the beginning itself,
the new facility may pose continuous
operating disadvantages, for the future
operations.
Location decisions are affected by many
factors, both internal and external to the
organization's operations.
• Internal factors include the
technology used, the capacity, the
financial position, and the work force
required.
• External factors include the
economic, political and social
conditions in the various localities.
The facilities location problem is concerned
primarily with the best (or optimal!)
location depending on appropriate criteria
of effectiveness.
• Most of the fixed and some of the
variable costs are determined by the
location decision.
• The efficiency, effectiveness, productivity
and profitability of the facility are also
affected by the location decision.
 Location decisions are based on a host of factors,
• Some are subjective, qualitative and intangible
while
• some others are objective, quantitative and
tangible.
Traditionally, location theorists have dealt with
industrial plant/factory location.
• However, the concept of plant location has
now been generalized into that of facility
location, since the facility could include a
production operation or service system.
When does a location decision arise?
The impetus to embark upon a facility location
study can usually be attributed to various reasons:
• It may arise when a new facility is to be
established.
• In expansion where original site is restricted
by a poor site, thereby necessitating the setting
up of the facility at a new site.
• The growing volume of business makes it
advisable to establish additional facilities in
new territories.
• Decentralization and dispersal of industries
reflected in the Industrial Policy resolution to
achieve an overall development of a developing
country would necessitate a location decision at
a macro level.
• It could happen that the original advantages of
the plant have been outweighed due to new
developments.
• New economic, social, legal or political factors
could suggest a change of location of the
existing plant.
Poor location could be a constant source of higher cost,
• higher investment,
• difficult marketing and transportation,
• dissatisfied & frustrated employees & consumers,
• frequent interruptions of production,
• abnormal wastages,
• delays and substandard quality,
• denied advantages of geographical specialization
and so on.
Once a facility is set up at a location, it is very difficult
to shift later to a better location because of numerous
economic, political and sociological reasons.
 Steps in the Facility Location Study
Location studies are usually made in two
phases namely,
(i)the general territory selection phase,
and
(ii)the exact site/community selection
phase amongst available in territory.
Important factors that influence the selection:
• Markets, Raw Materials and Supplies,
• Manpower Supply, Infrastructure,
• Legislation and Taxation,
• Climate, Community Facilities, Community
Attitudes, Ecology and Pollution,
• Site Size, Topography, soil structure and
Drainage,
• Land Costs
In general, the location for
• Large-scale industries should be in rural areas, which
helps in regional development also. It is seen that once
a large industry is set up (or even if a decision to this
effect has been taken), a lot of infrastructure develops
around it as a result of the location decision
• Medium scale industries, these could be preferably
in the suburban/semi-urban areas where the advantages
of urban and rural areas are available.
• Small-scale Industries, the location could be urban areas
where the infrastructural facilities are already available.
However, in real life, the situation is somewhat
paradoxical as people, with money and means, are usually
in the cities and would like to locate the units in the city
itself.
 Location Models

Various models are available which help to

identify the ideal location.
Some of the popular models are:
1. Factor rating method
2. Weighted factor rating method
3. Centre of gravity method
 Factor Rating Method
The process of selecting a new facility location involves a
series of following steps:
1) Identify the important location factors.
2) Rate each factor according to its relative
importance, i.e., higher the ratings is indicative of
prominent factor.
3) Assign each location according to the merits of the
location for each factor.
4) Calculate the rating for each location by multiplying
factor assigned to each location with basic factors
considered.
5) Find the sum of product calculated for each factor and
select best location having highest total score.
 ILLUSTRATION 1
Let us assume that a new medical facility, Health-care, is
to be in Sodo. The location factors, factor rating and
scores for two potential sites are shown in the following
table. Which is the best location based on factor rating
method?
Factor Rating
No Location factor
rating Location1 Location2
1 Facility utilization 8 3 5
2 Total patient per month 5 4 3
3 Average time per emergency trip 6 4 5
4 Land and construction costs 3 1 2
5 Employee preferences 5 5 3
Solution

NB: The total score for location 2 is higher than that of

location1. Hence location 2, is the best choice.
 Weighted Factor Rating Method
In this method to merge quantitative and
qualitative factors, factors are assigned
weights based on relative importance and
weight score for each site using a preference
matrix is calculated.
• The site with the highest weighted score is
selected as the best choice.
 ILLUSTRATION1:
Let us assume that a new medical facility,
Health-care, is to be in Boditi. The location
factors, weights, and scores (1=poor,
5=excellent) for two potential sites are shown in
the following table.
• What is the weighted score for these sites?
• Which is the best location?
SOLUTION: The weighted score for this
particular site is calculated by multiplying each
factor’s weight by its score and adding the
results:
• Weighted score of location 1
=25×3+25×4+25×3+15×1+10×5
=75+100+75+15+50 = 315
• Weighted score of location 2
=25×5+25×3+25×3+15×2+10×3
=125+75+75+30+30= 335
• Location 2 is the best site based on total
weighted scores.
 Centre of gravity method
For locating single facility that considers the
existing facilities, the distance between them,
and the volumes of goods that need to be
shipped are considered.
• It is used to locate intermediate or distribution
warehouses.
This method begins by locating the existing
locations on a coordinate grid system.
• The purpose is to establish relative
distance between locations.
The centre of gravity is found:
• by calculating the X and Y coordinates that will
result is
• the minimal transportation cost.
Example
A clothing manufacturing produces children's cloth at
four locations in northern Ethiopia.
• Relative locations have been determined, as shown
in the table below.
• The location of a central shipping point for bolts of
cloth must now be determined.
• Weekly quantities to be shipped to each location
are shown below.
Determine the coordinates of the location that will
minimize distribution costs.
X and Y coordinate are approximately 6 and 7.33
respectively. Therefore, the location of the intermediate
holding facility should be at (x, y) = (6, 7.33).
 Facility Layout
Facility layout is the arrangement of physical resources
within a facility, including equipment, workstations, and
storage areas, to:
• enhance productivity,
• improve workflow, and
• optimize space utilization.
Since a layout once implemented cannot be easily
changed and costs of such a change are substantial,
• The facilities layout is a strategic decision.
A poor layout will result in continuous
losses in terms of higher efforts for
material handling, more scrap and
rework, poor space utilization etc.
• Hence, need to analyse and design a
sound plant layout can hardly be over
emphasized.
• It is a crucial function that has to be
performed both at the time of initial
design of any facility, and during its
growth, development and diversification
The problem of plant layout:
• should be seen in relation to overall plant
design which includes many other functions
such as
• product design,
• sales planning,
• selection of the production process,
• plant size,
• plant location,
• buildings,
• diversification etc.
The layout problem occurs because of many
developments including:
change in product design
introduction of new product
obsolescence of facilities
changes in demand
market changes
competitive cost reduction
frequent accidents
adoption of new safety standards
decision to build anew plant.
 What is Layout Planning?
• Layout planning is deciding on the best physical
arrangement of all resources that consume space
within a facility. These resources might include: a desk,
a work centre, a cabinet, a person, an entire office, or
even a department.
• Decisions about the arrangement of resources in a business
are not made only when a new facility is being designed;
they are made any time there is a change in the
arrangement of resources, such as:
 a new worker being added,
 a machine being moved, or
 a change in procedure being implemented.
 an expansion in the facility or a space reduction
• Process layouts group resources based on
similar functions,
• product layouts arrange resources in sequence
for efficient production.
• Hybrid layouts combine process and product
layouts, combining intermittent and
continuous processing systems.
• Fixed-position layouts are ideal for complex
projects like construction or shipbuilding,
where a product remains stationary while
workers, tools, and materials move around it.
Process Layouts
Process layouts are layouts that group resources based
on similar processes or functions; A hospital is an
example of process layout. This type of layout is seen in
companies with intermittent processing systems where:-
• a large variety of items are produced in a low
volume.
• each with unique processing requirements,
• it is not possible to dedicate an entire facility to
each item.

It is more efficient to group resources based on their

function.
The products are then moved from one resource
to another, based on their unique needs.
• If the process layout has not been designed
properly, many products will have to be
moved long distances, often daily.
• This type of movement adds nothing to the
value of the product and contributes to waste.

The challenge in process layouts is to arrange

resources to maximize efficiency and minimize
waste of movement.
Unique Characteristics:

1.Resources used are general purpose.

2.Facilities are less capital intensive/less
automation; more labour intensive/rely on
higher-skilled workers.
3.Resources have greater flexibility
4.Processing rates are slower.
5.Material handling costs are higher.
6.Scheduling resources is more challenging.
7.Space requirements are higher.
– Improper design of process layouts
can result in costly inefficiencies, such
as high material handling costs.

– A good design can help bring order

to an environment that might
otherwise be very chaotic.
Product Layouts
Product layouts:
• Layouts that arrange resources in sequence
to allow for an efficient build up of the
product.
• are layouts that arrange resources in a
straight-line fashion to promote efficient
production.
They are called product layouts because all
resources are arranged to meet the production
needs of the product.
• This type of layout is used by companies that
have repetitive processing systems and
produce one or a few standardized products
in large volume.
• Examples of product layouts are seen on
assembly lines, in cafeterias, or even at a car
wash.
In product layouts the material moves
continuously and uniformly through a series of
workstations until the product is completed.
• The challenge in designing product layouts is to
arrange workstations in sequence and designate
the jobs by considering:-
• the logical order to produce the product,
• how fast production occurs and
• how many units can be processed in the
most efficient way possible in each station.
 Characteristics:
Resources are specialized
Facilities are capital
intensive
Processing rates are faster.

Material handling costs are

lower.
Space requirements for
inventory storage are lower.

Flexibility is low relative to

the market.
 Hybrid Layouts
Hybrid layouts combine aspects of both process
and product layouts where:
• part of the operation is performed using an
intermittent processing system and
• another part is performed using a
continuous processing system.
For example, Winnebago, which makes mobile
campers, manufactures the vehicle itself as well
as the curtains and bedspreads that go into the
camper.
• The vehicles are produced on a typical
assembly line, whereas
• The curtains and bedspreads are made in a
fabrication shop that uses a process layout.
Hybrid layouts are very common. Often, some
elements of the operation call for the
production of standardized parts, which can be
produced more efficiently in a product layout,
whereas other parts need to be made
individually in a process layout.
• Hybrid layouts are often created in an
attempt to bring the efficiencies of a product
layout to a process layout environment.
To develop a hybrid layout, we can try to
identify parts of the process layout operation
that can be standardized and produce them in a
product layout format
• One example of this is called group
technology (GT) or cell layouts; are hybrid
layouts that create groups of products
based on similar processing requirements.
 • First, families of products that is similar in
their processing characteristics and resource
requirements are identified.
• Managers can then create cells, or small
product layouts, that are dedicated to the
production of these families of products.
This approach brings greater efficiency to the
process layout environment.
For example, retail stores and grocery stores
use hybrid layouts. In these environments,
goods such as dairy items, meat, or produce are
stored based on their function.
 Fixed-Position Layouts
Fixed-position layout is a facility design where a
product remains stationary while workers, tools,
and materials move around it, ideal for complex
projects like construction or shipbuilding.
• Used when the product is large and cannot
be moved due to its size.
• Examples of fixed-position layouts include
building construction, dam or bridge
construction, shipbuilding, or large aircraft
manufacture.
All the resources for producing the product
including:
• equipment,
• labour,
• tools, and all other resources have to be
brought to the site where the product is
located.
The challenge with a fixed-position layout is:
• scheduling different work crews and jobs and
• managing the project.
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