CHAPTERFI

VE
FACI
LITYLOCATI
ON
5.
1.I
ntr
oduct
ion
Pl
antl
ocat
ionort
hef
aci
l
iti
esl
ocat
ionpr
obl
em i
sani
mpor
tantst
rat
egi
clev
eldeci
sion
maki
ng f
oran or
gani
zat
ion.One oft
he key f
eat
ures ofa conv
ersi
on pr
ocess
(
manuf
act
uri
ng sy
stem)i
sthe ef
fi
ciency wi
th whi
ch t
he pr
oduct
s(ser
vices)ar
e
t
ransf
err
edt
othecust
omer
s.Thi
sfactwi
l
lincl
udet
hedet
ermi
nat
ionofwher
etopl
ace
t
hepl
antorf
aci
l
ity
.Thesel
ect
ionofl
ocat
ioni
sakey
deci
sionasl
argei
nvest
menti
s
madei
nbui
l
dingpl
antandmachi
ner
y.I
tisnotadv
isabl
eornotpossi
blet
ochanget
he
l
ocat
ionv
eryof
ten.Soani
mpr
operl
ocat
ionofpl
antmayl
eadt
owast
eofal
lthe
i
nvest
ment
smadei
nbui
l
dingandmachi
ner
y,equi
pment
.

Bef
oreal
ocat
ion f
ora pl
anti
s sel
ect
ed,l
ong r
ange f
orecast
s shoul
d be made
ant
ici
pat
ingf
utur
eneedsoft
hecompany
.Thepl
antl
ocat
ionshoul
dbebasedont
he
company
’sexpansi
onpl
anandpol
i
cy,di
ver
sif
icat
ionpl
anf
ort
hepr
oduct
s,changi
ng
mar
ketcondi
ti
ons,t
hechangi
ngsour
cesofr
awmat
eri
alsandmanyot
herf
act
orst
hat
i
nfl
uencet
hechoi
ceoft
hel
ocat
iondeci
sion.Thepur
poseoft
hel
ocat
ionst
udyi
sto
f
ind an opt
imum l
ocat
ion one t
hatwi
l
lresul
tint
he gr
eat
estadv
ant
age t
othe
or
gani
zat
ion.

5.
2.Theneedf
orLocat
ionDeci
sions
Thepr
obl
em off
aci
l
ityl
ocat
ioni
scommont
onew andexi
sti
ngbusi
nesses.Exi
sti
ng
or
gani
zat
ion becomes i
nvol
ved i
nlocat
ion deci
sion f
ora v
ari
etyofr
easons.The
f
oll
owi
ngar
esomeoft
her
easonsf
orsuchdeci
sions(
othert
hant
heneedf
orgr
eat
er
capaci
ty)
.
1.Oppor
tuni
tyf
orExpandi
ngMar
ketShar
e:Fr
om suchasbanks,f
astf
oodchai
ns,
super
mar
ket
s,andr
etai
lst
oresv
iewl
ocat
ionaspar
tofmar
ket
ingst
rat
egy
,and
t
heyl
ookf
orl
ocat
ionst
hatwi
l
lhel
pthem t
oexpandt
hei
rmar
ket
s.Basi
cal
l
y,t
he
l
ocat
iondeci
si
onsi
nthosecasesr
efl
ectaddi
ti
onalnew l
ocat
iont
o ex
ist
ing
suppl
i
ers.
2.Busi
nessGr
owt
hinDemand:Asi
mil
arsi
tuat
ionoccur
swhenanor
gani
zat
ion

1
 exper
iencesagr
owt
hindemandf
ori
tspr
oduct
sorser
vicet
hatcannotbe
sat
isf
iedbyexpansi
onatanexi
sti
ngl
ocat
ion.Theaddi
ti
onofanewl
ocat
iont
o
compl
ementanexi
sti
ngsy
stem i
sof
tenar
eal
i
sti
cal
ter
nat
ive.
3.Depl
eti
on ofBasi
cresour
ces:Some f
ir
ms become pr
esent
ed wi
thl
ocat
ion
deci
sionbecauseoft
hedepl
eti
onofbasi
cinput
s.Forexampl
efi
shi
ngand
l
oggi
ngoper
ati
onsar
efor
cedt
orel
ocat
eduet
othet
empor
ari
l
yexhaust
ionsof
f
ishorf
orestatagi
venl
ocat
ion.Mi
ningandpet
rol
eum or
gani
zat
ionf
acet
he
samesor
tofsi
tuat
ion,
alt
houghusual
l
yov
eral
ongert
imehor
izon.
4.Shi
fti
nMar
ket/
demand:I
fthedemandf
ort
hepr
oductdoesnotexi
sti
nthe
exi
sti
ngl
ocat
ion,
iti
sagoodr
easont
oconsi
derandf
indoutabet
terl
ocat
ion.
5.Oper
ati
ngCost
s:Costofdoi
ngbusi
nessi
napar
ti
cul
arl
ocat
ionr
eachesapoi
nt
wher
eot
herl
ocat
ionbegi
nst
olookmor
eat
tr
act
ive.I
nthi
scase,t
hecompany
mayshi
ftt
oacostef
fect
ivel
ocat
ion.
6.Mer
geOfCompani
es:Mer
gerofcompani
eschangest
heowner
shi
pti
tl
esand
mayr
equi
rechangei
nmanagementandoper
ati
onoft
hemer
gingf
ir
ms,
andt
hen
l
eadi
ngt
olocat
iondeci
sions.
7.I
ntr
oduct
ionofNew Pr
oduct
:Thi
smayr
equi
ret
o anew r
esour
ce,l
aboror
mat
eri
alwhi
chmaynotexi
sti
ntheexi
sti
ngl
ocat
ion.Ther
efor
e,f
ir
msmakea
l
ocat
iondeci
si
ont
opr
oduceasel
lthei
rnewpr
oduct
.

5.
3Char
act
eri
sti
csofLocat
ionDeci
sion
1.Locat
ion deci
sions ent
aila l
ong-
ter
m commi
tment
,whi
ch makes mi
stakes
di
ff
icul
tto ov
ercome.I
naddi
ti
on,l
ocat
iondeci
sionof
tenhasani
mpacton
oper
ati
ngcost
sbot
hfi
xedandv
ari
abl
esandr
evenuesaswel
lasanoper
ati
on.
Exampl
e,apoorchoi
ceofl
ocat
ionmi
ghtr
esul
tinexcessi
vet
ranspor
tat
ioncost
,
shor
tageofqual
i
fied l
abor
,lossofcompet
it
iveadv
ant
age,shor
tageofr
aw
mat
eri
alsandl
ocat
ionofcust
omer(
oper
ati
onpr
obl
em)
.
2.Locat
iondeci
sionr
equi
rest
hesel
ect
ionofl
ocat
ionf
orm anumberofaccept
abl
e
l
ocat
ioni
nst
eadofi
dent
if
yingt
he“
Onebest
”locat
ion.I
fonesi
tei
scl
ear
ly
super
iort
o al
lot
her
sin al
lrespect
s,t
hel
ocat
ion deci
sion i
san easyone.
Howev
er,sev
eralsi
te candi
dat
es,each wi
thi
ts st
rengt
hs and weaknesses
emer
geasgoodchoi
ceandt
hel
ocat
iondeci
sionbecomesat
radeof
fdeci
sion.

2
 3.Locat
iondeci
sioni
nvol
vesf
ouropt
ionst
hatmanger
scanconsi
deri
nlocat
ion
pl
anni
ng.Thesear
e:
A. Expandi
nganexi
sti
ngf
aci
l
ity–Theseopt
ionscanbeat
tract
ivei
fther
eis
adequat
eroom f
orexpansi
on,especi
all
yift
hel
ocat
ionhasdesi
rabl
e
f
eat
urest
hatar
enotr
eadi
l
yav
ail
abl
eel
sewher
e.Expansi
oncost
sar
e
of
tenl
esst
hant
hoseofot
heral
ter
nat
ives.
B. Addi
ti
on new l
ocat
ion.Anot
heropt
ion i
sto add new l
ocat
ion whi
l
e
r
etai
ning exi
sti
ng ones,asi
tisdonei
n manyr
etai
loper
ati
ons.The
adv
ant
age oft
hisopt
ion ar
e:i
tdr
aws/
att
ract
scust
omer
swho ar
e
al
readyl
ooki
ngf
oranexi
sti
ngbusi
ness,
andusedasadef
ensi
vest
rat
egy
desi
gned t
o mai
ntai
n a mar
ketshar
e orpr
eventcompet
it
orsf
rom
ent
eri
ngamar
ket
.
C. Shut
ti
ngdown. Thet
hir
dopt
ioni
stoshutdownatonel
ocat
ionand
mov
etoanot
her
.Anor
gani
zat
ionmustwei
ght
hecostofamov
eandt
he
r
esul
ti
ngbenef
it
sagai
nstt
hecost
sandbenef
it
sandr
emai
ningi
nan
exi
sti
ng l
ocat
ion.Thi
s opt
ion i
s consi
der
ed when mar
ket shi
ft
s,
exhaust
ionofr
awmat
eri
alsandt
hecostofoper
ati
onof
tencausef
ir
ms
t
oser
iousl
yconsi
dert
hisopt
ion.
D. Doi
ngnot
hing.I
fisadet
ail
edanal
ysi
sofpot
ent
iall
ocat
ionsf
ail
sto
uncov
erbenef
it
sthatmake one oft
he pr
evi
ous t
hree al
ter
nat
ives
at
tract
ive,
afi
rm maydeci
det
omai
ntai
nast
atusof atl
eastf
ort
het
ime
bei
ng
5.
4.Fact
orsThatAf
fectLocat
ionDeci
sions
Manyf
act
orsi
nfl
uencel
ocat
iondeci
sions.Manager
smusti
dent
if
yther
elev
antf
act
ors
t
omakedeci
sionst
hati
nvol
veasequenceofdeci
sions.Thi
ssequencecani udea
ncl
nat
ional
,ar
egi
onal
,acommuni
tyandsi
tedeci
sions.

Fi
rstmanagementmustdeci
dewhet
hert
hef
aci
l
itywi
l
lbel
ocat
edi
nter
nat
ional
l
yor
domest
ical
l
y.(
Wher
eint
hewor
ldpol
i
tical
,mi
l
itar
y,soci
alandeconomi
cinst
abi
l
itycan
makesuchdeci
si
onr
isky
.)

3
 Rel
ati
vei
mportanceofl
ocat
ionf
act
orsi
nty
pesofout
goi
ngt
ranspor
tat
ioncost
Ret
ail
i
ngfaci
l
iti
es
Faci
l
ities af
fect
ing Mini
ng Li
ght War
ehousi
n Ret
ail
i
ng Customer Local Heal
th
deci
sion quar
ryi
ng manuf
act
uri
n g serv
ice f
or government and
Heavy g prof
it serv
ice emergen
manufact
uri
ng cy
ser
vice
1.Pr oximi tyto C C B A A A A
const i
tuent s
2.Labour B A B B A B B
av ail
abi li
tyand
cost
3. Degr ee of A A B B B C B
uni onizat i
on
4. A B B B B B B
Const ruct i
on
andl andcost s
5.Pr oximi tyto A B A B C C C
transpor tati
on
faci l
i
t i
es
6. I ncomi ng A B A B C C C
transpor tati
on
cost
7. Out going B B A C C C C
transpor tati
on
cost
8.Ut il
iti
esand A B C C C C C
av ail
abi li
tyand
cost
9.Pr oximi tyto A B C C C C C
raw mat erial
s
andsuppl ies
10. Zoni ng A B C C B C C
rest r
ict i
on of
gov er nment al
i
mpact

4
Wher
e:Ai
sver
yimpor
tant
Bi
mpor
tant
Cl
essi
mpor
tant

Ty
pesofFaci
l
iti
esandThei
rDomi
nantLocat
ionFact
ors
Eacht
ypeoff
aci
l
ityunderconsi
der
ati
onhasaf
ew domi
nantf
act
orst
hatul
ti
mat
ely
det
ermi
nei
tsl
ocat
iondeci
sion.
A)Mi
ning,Heav
yManuf
act
uri
ng.Theyar
ecapi
tali
ntensi
ve,cov
erl
argegeogr
aphi
c
ar
eas,use gr
eatquant
it
ies ofheav
y and bul
ky r
aw mat
eri
als,pr
oduct
ion
pr
ocessesr
eleasedl
argeamountofwast
es,t
otalf
ini
shedout
put
swei
ghtmuch
l
esst
hanr
aw mat
eri
ali
nput
,enor
mousut
il
it
iesar
eabsor
bedandpr
oduct
sar
e
shi
ppedt
oaf
ewcust
omer
s.
B)Li
ghtManuf
act
uri
ng/
Maki
ng el
ect
roni
ccomponent
s,smal
lmechani
calpar
ts,
assembl
yet
c.
 Donotnecessar
ylocat
enearei
therr
awmat
eri
alormar
ket
.
 Theyshi
ppr
oduct
stoaf
ewr
egi
onal
war
ehousesofwhol
esal
ers
 Av
ail
abi
l
ityandcostofl
abori
simpor
tant
C)War
ehouses.Domi
nantf
act
ors ar
ethose af
fect
ing i
ncomi
ng and out
goi
ng
t
ranspor
tat
ioncostr
etai
l
ingf
aci
l
iti
es
D)Ret
ail
i
ngf
aci
l
iti
es: Thest
udi
esi
nvol
vet
hei
dent
if
icat
ionoft
argetcust
omer
because i
tshoul
d be l
ocat
ed nearconcent
rat
ion ofcust
omer
s.Resi
dent
ial
concent
rat
ion,t
raf
fi
cdat
aonnear
byst
reet
sgr
owt
htr
endsandofcommuni
ti
es
andsubur
bs,
spendi
ngl
evel
andot
herdemogr
aphi
cinf
ormat
ion.
E)Faci
l
iti
esf
orcust
omerser
viceor
gani
zat
ionssuchasdr
ycl
eani
ng,
banks,
hot
els,
wel
dingshops,
phot
opr
ocessor
sli
ker
etai
l
ingshopst
argett
hiscust
omer
s
 Candi
schar
gel
argequant
it
iesofwast
epaper
,chemi
cal
andspentsuppl
i
es,
F)Local
gov
ernmentser
vice
 Of
tengr
oupedt
oget
hersot
hatconst
it
uent
scaneconomi
zei
nthei
rti
me,
ef
for
t,andt
ranspor
tat
ioncost
 Ar
egr
oupedt
oal
l
owi
nter
agencyi
nter
act
ions
G)Heal
thandemer
gencyser
vices(
Fir
est
ati
on,
ambul
ances,
hospi
tal
s,et
c)

5
  l
owestov
eral
lresponset
imesbet
weent
heconst
it
uentandt
heser
vice
 Mi
nimi
zepr
oper
tyandl
ossofl
i
fe
 Thet
ypeoff
aci
l
ity
 Thenumberofi
tspr
oduct
sandser
vices
 Thenat
ureofi
tsdai
l
yact
ivi
ti
es

St
epsi
nsi
teSel
ect
ion
Thef
oll
owi
ngar
ethedi
ff
erentst
agesi
nvol
vedi
nthesi
tesel
ect
ionpr
ocess:
1.Sel
ect
ionoft
her
egi
oni
nwhi
cht
hepl
anti
stobeest
abl
i
shed
2.Af
tersel
ect
ingt
her
egi
on,
thenextst
epi
stosel
ectal
ocal
i
tywi
thi
nther
egi
on.
3.Sel
ect
ionofsi
tef
orpl
antconst
ruct
ion
4.Fi
nal
inv
est
mentdeci
sion
A.Regi
onal
Fact
ors
1.Pr
oxi
mit
ytoCust
omer
s.Al
ocat
ioncl
oset
othecust
omeri
simpor
tantbecause
oft
heev
eri
ncr
easi
ngneedt
obecust
omerr
esponsi
ve.Thi
senabl
esf
ast
er
del
i
ver
yofgoodst
ocust
omer
s.I
naddi
ti
on,
itensur
est
hatcust
omer
s’needsar
e
i
ncor
por
atedi
ntot
hepr
oduct
sbei
ngdev
elopedandbui
l
t.
2.Busi
nessCl
i
mat
e.A f
avor
abl
ebusi
nesscl
i
mat
ecani
ncl
udet
hepr
esenceof
si
mil
arsi
zedbusi
ness,t
hepr
esenceofcompani
esi
nthesamei
ndust
ry,andi
n
t
hecaseofi
nter
nat
ionall
ocat
ion,andt
hepr
esenceofot
herf
orei
gncompani
es.
Gov
ernmentl
egi
slat
ionandl
ocalGov
ernmenti
nter
vent
iont
ofaci
l
itat
ebusi
ness
l
ocat
ingi
nanar
eaet
c.ar
eal
sof
act
ors.
3.Tot
alCost
s.Theobj
ect
ivei
stosel
ectasi
tewi
tht
hel
owestt
otalcost
.Thi
s
i
ncl
udesr
egi
onalcost
s,i
nbounddest
ruct
ioncost
s,andanout
bounddi
str
ibut
ion
cost
scompr
iset
her
egi
onalcost
s.I
naddi
ti
on,t
her
ear
ehi
ddencost
sthatar
e
di
ff
icul
tto measur
esuch asl
ossofcust
omerr
esponsi
venessar
isi
ng f
rom
l
ocat
ingawayf
rom t
hemai
ncust
omerbase.
4.I
nfr
ast
ruct
ure.Adequat
eroad,r
ail
,ai
randseat
ranspor
tat
ioni
svi
tal
.Ener
gy&
t
elecommuni
cat
ions r
equi
rement
s mustal
so be met
.In addi
ti
on,t
he l
ocal
gov
ernmentwi
l
li
ngnesst
oinv
esti
nupgr
adi
ngi
nfr
ast
ruct
uret
othel
evelr
equi
red

6
 maybeani
ncent
ivet
osel
ectaspeci
fi
clocat
ion.
5.Qual
i
tyofLabor
.Theeducat
ionalandski
l
llev
elsoft
hel
aborpoolmustmat
ch
t
he company
’s needs.Pr
imar
ylaborconsi
der
ati
on r
elat
es t
othe costand
av
ail
abi
l
ityofl
abor
,wager
elat
esi
nanar
ea,l
aborpr
oduct
ivi
ty,at
ti
tude,and
t
owar
dswor
k.
6.Suppl
i
ers.Ahi
ghqual
i
tyandcompet
it
ivesuppl
i
erbasemakesagi
venl
ocat
ion
sui
tabl
e.
7.Locat
ionofr
awmat
eri
als.Fi
rm’
slocat
ionnearoratt
hesour
ceofr
awmat
eri
als
f
ort
hreepr
imar
yreasons;
necessi
ty,
per
ishabi
l
ity
,andt
ranspor
tat
ioncost
s
Forexampl
e,mi
ningandf
rost
yfi
rmsmustl
ocat
eatt
hesour
ceofnecessi
ty.
Thosef
ir
mst
hatpr
oduceshor
tshel
f–l
i
fepr
oduct
stakeper
ishabi
l
ityaspr
imar
y
cr
it
eri
awhenconsi
derl
ocat
ion.
B.Communi
tyConsi
der
ati
ons
Fr
om a companyst
andpoi
nt,a numberoff
act
orsdet
ermi
ne t
he desi
rabi
l
ityofa
communi
tyasapeacef
ori
tswor
ker
sandmanager
stol
i
ve.Theyi
ncl
ude:
 Facil
it
ies f
oreducat i
on,shi
ppi
ng,recreati
ontransport
ati
on,r
eli
gious
workshop,ent ertai
nment,the qual
it
yofpol i
cy,f or
e and medi cal
servi
ces
 att
it
ude towar dst hecompany
 Thesizeofthecommuni t
y
 Costandav ail
abi l
it
yofuti
li
ti
es
 Envir
onment alregulat
ions
 Taxesand
 Exi
stenceofdev el
opmentsupportorincenti
ve.
C.Si
teRel
atedFact
ors.
Thepr
imar
yconsi
der
ati
onsr
elat
edt
osi
tesar
eland,
transpor
tat
ion,
andzoni
ngorot
her
r
est
ri
cti
ons.Becauseoft
hel
ong-
ter
m commi
tmentusual
l
yrequi
red,
landcost
smaybe
secondar
ytoot
hersi
te-
rel
atedf
act
ors,
suchasr
oom f
orf
utur
eexpansi
on,
cur
rentut
il
it
y
andsewercapaci
ti
es-andanyl
i
mit
ati
onsont
heset
hatcoul
dhi
nderf
utur
egr
owt
h-and
suf
fi
cientpar
kingspacef
orempl
oyeesandcust
omer
s.I
naddi
ti
on,f
ormanyf
ir
m’s
accessr
oadsf
ort
rucksorr
ail
spur
sar
eimpor
tant
.

5.
5.Ser
vicel
ocat
ionVsmanuf
act
uri
ngf
aci
l
iti
es

7
Whi
l
ethef
ocusi
nindust
ri
al-
sect
orl
ocat
ionanal
ysi
sisonmi
nimi
zi
ngcost
,thef
ocusi
n
t
heser
vicesect
ori
sonmaxi
mizi
ngr
evenue.Thi
sisbecausemanuf
act
uri
ngcost
stend
t
ovar
ysubst
ant
ial
l
ybet
weenl
ocat
ions,buti
nser
vicef
ir
ms’l
ocat
ionof
tenhasmor
e
i
mpactonr
evenuet
hancost
.Ther
efor
e,f
ort
heser
vicef
ir
m aspeci
fi
clocat
ionof
ten
i
nfl
uencesr
evenuemor
ethani
tdoescost
.Thi
smeanst
hatt
hel
ocat
ionf
ocusf
or
ser
vicef
ir
msshoul
dbeondet
ermi
ningt
hev
olumeofbusi
nessandr
evenue.