Facility Location Decisions
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Questions and Answers

What is a primary focus of manufacturing facility locations?

  • Increasing local market presence
  • Minimizing production, transportation, and inventory costs (correct)
  • Enhancing customer engagement
  • Maximizing employee satisfaction

Which factor can negatively impact skilled labor availability in an area?

  • Strong labor unions
  • Presence of high transportation facilities
  • Availability of civic amenities
  • Low levels of education and training institutions (correct)

How can transportation costs be affected by facility location?

  • Using local suppliers increases transportation costs
  • Optimal location can reduce transportation costs and delivery time (correct)
  • Location has no impact on transportation costs
  • Shipping from remote areas always costs more

What is a benefit of proximity to markets for a service facility?

<p>Faster response to customer demands (C)</p> Signup and view all the answers

Which of the following is NOT a factor affected by facility location in a supply chain?

<p>Employee job satisfaction (B)</p> Signup and view all the answers

What is the purpose of the Factor Rating Method in location decision making?

<p>To select the location alternative with the maximum product of ratings (C)</p> Signup and view all the answers

Which method is specifically used to find the optimal location for a distribution center while minimizing transportation costs?

<p>Centre of Gravity Method (B)</p> Signup and view all the answers

In the Centre of Gravity Method, how is the optimal location determined when shipping quantities are unequal?

<p>Using a weighted average approach based on shipping quantities (D)</p> Signup and view all the answers

What is the first step in the Factor Rating Method?

<p>List the relevant factors for the location decision (B)</p> Signup and view all the answers

What must be done after computing the product of ratings for each location in the Factor Rating Method?

<p>Sum the products for each location to identify the best alternative (A)</p> Signup and view all the answers

What is one of the primary objectives of making a location decision?

<p>To maximize the benefits and customer service (B)</p> Signup and view all the answers

Which factor is NOT typically considered in location decisions?

<p>Popularity of local cuisine (A)</p> Signup and view all the answers

What is a significant risk of making a poor location decision?

<p>Excessive transportation costs (C)</p> Signup and view all the answers

Why is the location decision considered a long-term commitment?

<p>It influences business strategy and operational effectiveness (D)</p> Signup and view all the answers

Which of the following is a consideration when selecting an international location?

<p>Export and import quotas (A)</p> Signup and view all the answers

Which type of site is characterized by cheaper land availability?

<p>Rural sites (A)</p> Signup and view all the answers

What is one consequence of not properly evaluating location alternatives?

<p>Loss of competitive advantage (C)</p> Signup and view all the answers

Which factor does NOT affect regional location decisions?

<p>Availability of coffee shops (C)</p> Signup and view all the answers

Which factor is primarily associated with the location decision for the automotive industry in Pune, Maharashtra?

<p>Proximity to suppliers of auto components (D)</p> Signup and view all the answers

What is a primary characteristic of the location decision for the retail sector in Mumbai?

<p>Dense population and high purchasing power (B)</p> Signup and view all the answers

Which of the following is a non-economic impact that can influence location decisions?

<p>Community attitude and image (B)</p> Signup and view all the answers

Which method is best for minimizing costs when evaluating location alternatives?

<p>Center of Gravity (D)</p> Signup and view all the answers

In the context of location decision variables, which factor relates to community and non-economic impacts?

<p>Community attitude and image (C)</p> Signup and view all the answers

Which combination of factors is considered when evaluating qualitative factors for facility location selection?

<p>Government policies and community perception (C)</p> Signup and view all the answers

Which of these is NOT a factor considered in the facility location decision-making process?

<p>Advertising strategies (A)</p> Signup and view all the answers

Which factor enhances the attractiveness of Pune for the automotive industry?

<p>Well-developed transport infrastructure (C)</p> Signup and view all the answers

What does Xc represent in the context of the centre of gravity method?

<p>X coordinate of the centre of gravity (B)</p> Signup and view all the answers

Which method aims primarily to minimize transportation costs by optimizing facility location?

<p>Load-Distance Method (C)</p> Signup and view all the answers

In the Load-Distance Method, what should be calculated first?

<p>Total load of all demand points (D)</p> Signup and view all the answers

How is the total Load-Distance (LD) score computed?

<p>Product of each demand point's load and distance from the facility, summed (A)</p> Signup and view all the answers

Which coordinates are required to perform calculations using the centre of gravity method?

<p>Both X and Y coordinates of locations (B)</p> Signup and view all the answers

When calculating Xc, what does the term ∑(XiVi) represent?

<p>Sum of the product of X coordinates and their respective volumes (A)</p> Signup and view all the answers

What is the primary purpose of identifying the centre of gravity in location analysis?

<p>To determine the optimal location for a facility (B)</p> Signup and view all the answers

Which distance measurement should be used if the geography requires navigating city blocks?

<p>Rectilinear distance (B)</p> Signup and view all the answers

What is the primary metric used to evaluate potential locations based on transportation costs?

<p>Total LD score for each candidate location (B)</p> Signup and view all the answers

Which of the following best describes the importance of accurate load estimates in location evaluation?

<p>They are essential for achieving meaningful results. (C)</p> Signup and view all the answers

What is a limitation of using simple distance measures for facility location analysis?

<p>It ignores cost variations associated with transportation. (C)</p> Signup and view all the answers

In qualitative factor analysis, what is the role of weights assigned to each factor?

<p>To indicate the relative importance of each factor. (D)</p> Signup and view all the answers

Why is rectilinear distance preferred over Euclidean distance in urban settings?

<p>It accounts for the grid patterns of city streets. (B)</p> Signup and view all the answers

When evaluating multiple facilities, which method may be necessary for effective decision-making?

<p>Additional optimization models (B)</p> Signup and view all the answers

What does a higher score represent in the weighted scoring method for evaluating locations?

<p>More preferred conditions (D)</p> Signup and view all the answers

What is a key factor that qualitative analysis does NOT account for when evaluating locations?

<p>Long-term transportation costs (C)</p> Signup and view all the answers

Flashcards

Facility Location

Choosing a place for a business's operations to maximize efficiency and profitability.

Location Decision Importance

A crucial part of strategic planning, impacting long-term success with significant financial and operational consequences.

Location Decision Reasons

Starting a new business, expanding, relocating due to costs, changing market demands, or other factors.

Location Decision Criteria

Key factors used to evaluate potential locations, including cost, customer service, and competitive advantage.

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Location Factors - International

Consideration of political stability, labour availability, and import/export quotas when choosing an international location.

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Location Factors - Local

Choosing a location based on availability of resources, labor, raw materials, customers, and infrastructure.

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Location Decision - Rural vs. Urban

Evaluating advantages and disadvantages of rural (cheaper land, lower taxes) vs. urban (skilled labor, infrastructure) locations.

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Location Decision Problem

Strategic business decision that influences costs, customer service, and competitive advantage, requiring careful evaluation of alternative sites.

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Manufacturing Facility Location

Minimizes production, transportation, and inventory costs, often near raw materials or distribution centers.

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Service Facility Location

Prioritizes customer accessibility and convenience, important for retail, banking, and healthcare.

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Distribution Facility Location

Focuses on efficient product delivery and optimizing transportation networks.

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Transportation Costs (Facility Location)

Optimized facility location reduces transportation costs and delivery time.

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Inventory Management (Facility Location)

Right facility location ensures faster replenishment and reduces stockouts.

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Factor Rating Method

A method for location decision-making. It considers multiple factors, rates their importance, and rates locations based on each factor, to choose the best location.

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Centre of Gravity Method

Finding the best location for a distribution centre to minimize total shipping costs, considering factors like markets, goods costs and transportation costs. It uses weighted averages if shipping quantities vary.

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Location Decision

Choosing the best geographical area for a business.

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Transportation Costs

Expenses incurred to move goods from one place to another. Minimizing these costs is a goal when choosing a distribution center location.

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Weighted Average

An average that considers different values' importance (weights). Used in the Centre of Gravity method when shipping quantities aren't equal for different locations.

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X Coordinate of Centre of Gravity

The horizontal position of the center of gravity, calculated by summing the products of each location's X coordinate and its volume, then dividing by the total volume.

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Y Coordinate of Centre of Gravity

The vertical position of the center of gravity, calculated by summing the products of each location's Y coordinate and its volume, then dividing by the total volume.

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Load-Distance Method

A method for finding the optimal facility location by minimizing the weighted distance between the location and its demand points.

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Demand Points

The locations where the facility's products or services are consumed or utilized.

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Load

The quantity of goods transported to or from a demand point.

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Euclidean Distance

The straight-line distance between two points.

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Rectilinear Distance

The distance between two points, measured along a grid, with movement only horizontally or vertically.

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Automotive industry example

Factory location in Pune, India is near auto parts suppliers, skilled workers, transport, & incentives.

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Retail sector example

Retail in Mumbai, India due to high customer traffic, good transport, and strong buying power.

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Location decision factors (economic)

Costs like raw materials, utilities, and capital, along with zoning, land, and construction costs.

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Location decision factors (non-economic)

Factors like community attitudes, environment, and social impacts that influence business location.

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Location Decision Variables

These include regional climate, competition, labor (cost & skills), raw materials, utilities, capital, and social impacts.

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Evaluating Location Alternatives

A process that uses both qualitative and quantitative methods to compare possible sites, including techniques like Factor Rating, AHP and Center of Gravity.

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Quantitative location methods

Methods like load-distance and center-of-gravity that focus on minimizing costs by optimizing location.

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What is the Least-Cost Location Method?

A simple method to determine the best location for a facility based on minimizing transportation costs. It calculates the total cost of transporting products from the facility to each customer or supplier location.

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How does the Least-Cost Location Method work?

It uses the concept of weighted distances. It multiplies the load (demand or weight) at each location by its distance from the facility. The location with the lowest sum of these weighted distances is the most cost-effective.

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What factors are considered in the Least-Cost Location Method?

Primarily transportation costs, which are calculated based on the distance between the facility and each point of demand or supply. It also assumes that transportation costs increase proportionally with distance.

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What are the key advantages of the Least-Cost Location Method?

It's a simple and easy-to-understand method that provides a clear, quantitative way to compare potential locations. It's also flexible and can be adapted to different types of loads.

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What are the limitations of the Least-Cost Location Method?

It only considers transportation costs, ignoring other factors like labor costs, property costs, or taxes. It also assumes static demand and transportation infrastructure, not accounting for unexpected changes.

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What is the Qualitative Factor Analysis Method?

A method for evaluating potential locations based on a variety of qualitative factors, such as access to talent, infrastructure, and proximity to customers. It involves assigning weights to each factor and scoring each location based on its performance in each area.

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How does the Qualitative Factor Analysis Method work?

It requires first identifying all relevant factors, then assigning weights based on their importance. Each location is assigned a score on a common scale for each factor, and these scores are multiplied by the corresponding weights. The total weighted score for each location determines its ranking.

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What are the benefits of using the Qualitative Factor Analysis Method?

It provides a more holistic evaluation by considering both quantitative and qualitative factors. It emphasizes factors that may be difficult to quantify, such as access to skilled labor or the quality of life in the area.

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Study Notes

Facility Location

  • Facility/plant location is a process of determining a suitable geographical site for a firm's operations to achieve maximum operating efficiency and effectiveness.

Need for Location Decisions

  • Location decisions are a crucial part of strategic planning for every organization.
  • They may seem like a one-time decision, however, they are significant for long-term success.
  • Reasons for making location decisions include:
    • Starting a new business
    • Business expansion
    • Relocating due to rising costs
    • Changes in market conditions
    • Social or economic factors

Objectives of Location Decisions

  • Maximize benefits
  • Balancing cost and customer service
  • Selecting a location suitable from acceptable locations to gain a competitive edge

Importance of Location Decisions

  • Long-term commitments are involved in location decisions.
  • A poor choice can result in issues like:
    • High transportation costs
    • Labor shortages
    • Loss of competitive advantage
    • High operating costs in service industries
  • Service industry locations can lead to customer loss if not strategically planned

General Procedure for Making Location Decisions

  • Establish criteria for location selection
  • Identify important factors for location
  • Develop alternative locations to consider
  • Evaluate each alternative location option

Factors Affecting Location Decisions

Deciding on International Location

  • Political stability
  • Export/import quotas
  • Exchange rates
  • Cultural and economic considerations
  • Natural resource availability
  • Labor costs

Regional Location Decisions

  • Raw material availability and proximity
  • Market proximity
  • Proximity to suppliers
  • Power availability
  • Transportation facilities
  • Climate suitability
  • Government policy
  • Competition among states

Selection of Community

  • Labor availability
  • Civic amenities for employees
  • Complementary industries
  • Financial and research facilities
  • Water availability
  • Fire fighting facilities
  • Local taxes and restrictions

Selection of Exact Site

  • Available land area
  • Soil characteristics
  • Topography
  • Land costs
  • Waste disposal
  • Community attitude

Rural Site

  • Cheap land availability
  • Low taxes
  • Cheaper labor costs
  • Easier to build smaller structures

Urban Site

  • Good transportation and communication facilities
  • Skilled labor availability
  • Civic amenities
  • Banking facilities
  • Availability of industries
  • Large markets
  • Educational and training institutions

Types of Facility Locations

  • Manufacturing facility location: Focuses on minimizing production, transportation, and inventory costs. Prioritizes proximity to raw materials or distribution centers.
  • Service facility location: Prioritizes customer accessibility and convenience (retail, banking, healthcare).
  • Distribution facility location: Focuses on efficient product delivery and optimizing transportation networks.

Impact of Facility Location on Supply Chain

  • Transportation costs: Optimized location reduces transportation costs and delivery time.
  • Inventory management: Correct location ensures faster replenishment and reduces stockouts.
  • Customer satisfaction: Proximity to markets leads to quicker response to demand.
  • Risk management: Diversifying locations mitigates risks like natural disasters.

Example of Facility Location in an Indian Context

  • Manufacturing: Automotive industry in Pune, Maharashtra (proximity to suppliers, skilled labor, infrastructure, incentives)
  • Service: Retail sector in Mumbai (high footfall, proximity to customers, transportation network, dense population, high purchasing power)

Location Decision Variables

  • Regional: Climate, competition
  • Site: Land costs, construction costs, waste disposal
  • Labor: Supply, skills, costs
  • Raw materials: Supply costs, utilities
  • Capital: Equity, debt, banking facilities
  • Community: Attitude, image
  • Non-economic: Ecological, environmental impact, social factors
  • Marketing: Distribution, storage, transportation

Methods for Evaluating Location Alternatives

  • Qualitative: Factor rating method, analytical hierarchy process (AHP)
  • Quantitative: Load-distance method, center of gravity method, transportation model, break-even analysis, clustering methods, GIS analysis.

Factor Rating Method

  • List the relevant location factors.
  • Assign importance scores to factors.
  • Rate each location based on each factor.
  • Calculate a weighted score for each location by multiplying factor scores by importance weights.
  • Select the location with the highest total weighted score.

Centre of Gravity Method

  • Finds the optimal location for a distribution center to minimize total transportation costs.
  • Considers factors like cost of goods, transportation, and distribution points.
  • Calculates the weighted average of the X & Y coordinates of delivery points.

Load-Distance Method

  • Minimizes transportation costs by calculating the weighted distance between a facility and demand/supply points.
  • Identifies demand points
  • Calculates the load (quantity to be transported) for each demand point
  • Measures distance to facility from each demand point
  • Calculates the total load-distance score for each potential location
  • Chooses the location with the lowest score as optimal.

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Facility Location for Midterm Exam PDF

Description

This quiz explores the critical aspects of facility location decisions within strategic planning for organizations. It highlights the rationale behind choosing a location and outlines the objectives and potential consequences of poor location choices. Understanding these factors is essential for achieving operational efficiency and long-term success.

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