WA R E H O U S E O P E R AT I O N
M A N A G E M E N T:
TOPIC:
FA C I L I T Y L O C AT I O N
GROUP 7 FGR
Facility Location
It refers to choosing the locations for distribution
centers, warehouses, and production facilities to
facilitate logistical effectiveness and efficiency. The
major factors influencing decisions are markets and
resource availability; most facilities are located near
one or the other. Labor and transport services are two
other key factors in facility location. Also,
advantages in technology and communications have
had considerable influence on locational decisions in
recent years.
Facility location can therefore be defined as the siting of facilities which could be
structures, men, material, machines in such a manner that yields an optimum benefit to
the firm and its stakeholders.
Facility location can therefore be defined
as the siting of facilities which could be
structures, men, material, machines in
such a manner that yields an optimum
benefit to the firm and its stakeholders.
General factors influencing facility location
- Raw materials, component parts, labor and
markets all influence where to locate a
manufacturing, processing, or assembly facility.
Warehouses, distribution centers, and cross-
docking facilities exist to facilitate the
distribution of products.
What Is Facility Location/Planning And Why Is It Needed?
-As the name might suggest, it is the process of finding and establishing the
ideal geographical location for a facility.
- A facility in this case is generally a structure dedicated to a certain aspect of
your business, be it sales or manufacturing or storage.
-This also includes facilities that provide a certain set of goods and/or services.
-The process is focused on placing these establishments in areas that would
drive up the chances of commercial success and give that specific facility a
competitive edge.
WAREHOUSE LOCATION
One of the primary issues when constructing a warehouse is
where to build it. The warehouse's location is an influencing
factor in its construction and, even more importantly, on the
strategy of the company. Therefore, it can be crucial to the
success or failure of the business.
The process of deciding on the location of a warehouse will
be longer and more complicated the larger the company and,
therefore, the larger its distribution system. In any event,
this process must always consider four basic factors:
production, demand, costs, and competition.
For each of these elements two different aspects must be
considered—financial and commercial—to create as
realistic an analysis as possible. Bearing this in mind, the
analysis must include a range of variables.
First, in regards the product, an assessment must be carried out on the type and total
quantity of the product to be stored.
In terms of costs, these relate to infrastructure (land, buildings, and equipment), direct
and indirect labour, transport and handling costs, and parallel costs of the activity, as
well as services and insurance policies that must be bought.
In terms of demand, one must estimate the quantity and location of consumers, the
number and size of orders, the demand curve, the relative importance of proximity, and
the speed of delivery.
Lastly, with regards to competition, one must examine the location of their warehouses,
and the efficiency and services provided by them.
T
he analysis to determine the location of the warehouses must be carried out by
examining these variables and the four parameters discussed in the following paragraphs.
For example, the characteristics of the product, the manufacturing capacity of the
industry and the specific features of the distribution network required.
Importance of Facility Location
Facility Location is an important factor in the supply chain that significantly
impacts on the efficiency and effectiveness of many supply networks and the
organization at large. Location decisions are strategic in character, long-term
in nature, and non-repetitive in nature. Without good and thorough site
planning from the start, the new facilities may have ongoing operational issues
in the future.
Poor Location decision not only affects the growth of the firm but impedes
on the growth and development of the nation. The location decision should be
made with great care, as any error that results in a poor location can be a
constant source of higher costs, higher investment, difficult marketing and
transportation, dissatisfied and frustrated employees and consumers, frequent
interruptions of production, abnormal wastages, delays, and substandard
quality, among other things.
Facility location significantly impacts on revenue, costs, and service levels to customers. It is
thus a classical optimization problem for determining the sites for factories, service outlets and
warehouses. Facility location decision is made by selecting the best option among a set of
possible sites depending on the nature or type of business. The choice of facility location is
strategically guided by profit maximization or minimization of all costs associated with the choice
of location.
Facility Location planning
Facility location is connected with capacity
decisions. Capacity expansion considerations
instantly raises the twin issue of where to
expand in order to tie in effectively with the
distribution network of facility location.
Facility location of operations is a long-term
capacity decision which involves huge and
long term commitment about the
geographically fixed factors that affects
business organizations. The selection of
location is therefore a key-decision of
production and operations managers as large
investment is made in building plant and
machinery.
Importance of location decision
Location study helps to find the optimal location of organization
facility or plant that will result in the greatest advantage to the
organization.
Location plays a huge role in attracting and retaining the best
employees, that gives a competitive edge over the firm’s rival
A good location decision helps in avoiding waste of all the
investments made in plant and machinery equipment.
A good location decision helps to optimize performance of the
firm by minimizing its total cost of production.
It also ensures safety for its workforce
Locating a facility in the right place can give access to
customers and also enable the firm enjoy incentives provided by
government.
Placing a facility in the right
location makes all the
difference in bringing that “The growth of a business directly depends on its
competitive edge.” location. You can only have a successful business
where people have a need that has to be met and
somewhere accessible.”
A Step-By-Step Guide On How To Identify T he Facility
Location
Step 1: Come up with a location analysis
Before setting out to find your future business locality, you need to assess
the different factors that could affect the location’s decision. This gives you
an initial idea about the limitations and boundaries within which you can do
your search and it helps narrow down the entire process. There are two
types of factors that you need to consider:
Controllable factors: Uncontrollable factors:
-Proximity to the market. - Government policies.
-Supply of raw materials. - Unpredictable or unfavourable climate
conditions.
-Access to transportation.
-The lack of supporting industries or
-The availability of supporting infrastructure. infrastructure in the area.
-Ability to pay labour wages and the availability of - The community’s perception of the
said labour in the area. business.
-Availability of finances to run the facility. - Any competitors that exist or may come
The type of industry you are active in. to exist in that location anywhere in the
near future.
Step 2: Find the ‘centre of gravity’
Simply put, it is finding the right location relative to other locations.
A centre of gravity in this context means to reduce the cost of
transportation by determining the ideal location for the facility.
The cost of transportation depends mainly on the distance the
materials and products need to be moved, the weight of the items
and the time it takes to move it. By mapping out the location of the
different suppliers in the area, the distance to the market and the
distance to the facility from the suppliers, the centre-of-gravity
technique allows you to find the most centralised location that
would bring down overall transportation costs.
Step 3: Establish a backup plan
It is not a guarantee that even after all your research and analysis that
your first choice will be finalised. As mentioned before there are
unexpected and uncontrollable factors that may affect the end-decision
and cause last-minute ripples. Having said that, you should come up
with a couple of alternative locations, based on the same two steps
mentioned above.
Keeping the criteria uniform ensures that the backup locations will
more or less be ideal for the new facility once finalised.
Step 4: Time to make a decision
Once you have all the information at your disposal, make the
choice and get to work. Remember, the location you choose
should complement the type of industry the business is involved
in.
Step 5: Visualise and execute
This step revolves around the actual
manifestation of the idea. Turn the plans for
the facility into a visual three-dimensional
model or display based on the location and
size of the area the facility is to be set up in.
This process helps you evaluate the
effectiveness of the facility and where
improvements can be made before the
business is operational.
Types Of Facilities To Consider When Planning
There are generally three categories into which facilities can be
categorised. Consider these divisions and see which area your new
business establishment falls into, as each section comes with its own set
of challenges and advantages.
1.Heavy Manufacturing facilities
2.Light industry facility
3.Light industry facility
Heavy manufacturing facilities:
An industry that refers to large-scale production that
uses massive capitalization, heavy machinery, and
complicated processes is called a heavy industry. This
industry includes aerospace, shipbuilding,
infrastructure construction, mining, oil and gas
exploration and refineries, steel production, chemical
plants, etc
Heavy manufacturing facilities:
These are the large commercial factories that you see
on TV. They occupy an enormous amount of space and
are very heavy on the cost in terms of maintenance and
energy expenditure. You also have to hire a large
number of people to help operate these behemoths. If
your business falls into these categories you should
prepare a significant budget to run the business for a
minimum of 18 months where you might not see a
profit.
Light industry facility: On the other end of the
manufacturing spectrum, we have these light
industries that operate on a much smaller scale. They
specialise in products that are not so capital intensive,
for example, matchboxes, spectacles, small electronic
gadgets, kitchen utensils and so on.
Due to their smaller size, they have smaller
maintenance and operating costs as well. These types
of facilities are more customer-oriented as opposed to
the large-scale mass production of the heavy
industrial facilities. It would make more sense to have
them located closer to your customer base and local
retail stores where the products can be purchased.
Light industry refers to a diverse range of industrial
sub-sectors in areas like food processing, textiles,
consumer goods, vehicles and machinery which
have less demanding energy needs than heavy
industries such as steelmaking and chemicals.
Retail and service facilities: The last broad category to
consider is retail or service facilities. These are essentially
all your grocery stores, supermarkets, bakeries and
restaurants. Compared to the other two categories, this
type of facility is the smallest and least costly, relatively
speaking. Being that its main function is to service the
customer directly, it should be located right where the
customers are.
Urban and suburban areas are great locations for these
types of establishments. It also means that you need to
select an area based on the amount of competition you
may face there.
Facility location is an important aspect of production and operations management.
Where to locate a new plant or facility is an expensive decision that is not frequently
made. Therefore, caution must be made not to site facilities in non-attractive or less
optimal locations, as this will affect the efficiency levels of the production and
distribution system of any organization, and in-turn its survival. In determining an
optimal facility location, it is observed that the least cost or highest profit may not
always be feasible, this is because in real life situations, there are some limitations to
choosing the most appropriate allocation. Due to such challenges, there may be need
for trade-offs. Hence, the optimal assignment represents the most feasible situation
where all the facilities have been suitably assigned locations.
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