Assignment No.1: Facility Location Analysis.

Subject: Operations Management

Name: Kaustubh Hinge Roll No: 9516

Professor: Mr. M K Gandhi Date: 2.2.2010

Introduction: the write up presents in brief the ‘Facility Location Analysis’ with the help of an
actual example. The case considered for the same is that for a company named: ‘Manas-
Lumax Automotive Systems Pvt Ltd’. It is a medium scale unit, a joint venture between two
parties – Manas & Lumax, and is chiefly into supply of the different plastic and rubber
components to big automobile manufacturing companies. The company recently set up its new
manufacturing unit in Talegaon MIDC, and hence was selected for the study.

We will try to understand the procedure of the location planning by touching upon some main
criteria which are considered important while selecting the location of a business facility.

Recently with the rapid rate of development, two main parameters - globalization and time-
based competition - have fundamentally altered the way companies do business. Globalization
has created a "borderless organization" in which production and

Base is geographically dispersed while time-based competition (defined as the speed with
which products are manufactured, delivered to market, and serviced) has led to exacting
customer demands for a wide variety of products with short lead times.
In making this decision, the external factors described earlier - globalization and time-based
competition - often impose opposing influences on the firm, and these influences are not readily
apparent when the initial plant location decision is made. For example, a firm that sets up a
manufacturing plant in a third world country to take advantage of lower labor costs may find its
time-based performance eroded because of poor infrastructure or non-availability of skilled
personnel. The location decision is thus a strategically important managerial challenge that
significantly impacts the long-term performance of global firms, and in particular, long-term
operational performance of global supply chains.

The geographical location of the plant contributes a lot to the success of any business unit.
Utmost care and judgment is required for selecting the plant site, and many different factors
must be considered while selecting the plant site. The plant site should be ideally located where
the cost of production and distribution can be at a minimum level .Also there has to be a good
scope for plant expansion and a conducive environment, safe living conditions for easy
operations. But other factors, such as safe living conditions for plant personnel as well as the
surrounding community are also important.
Now we will see what different points are considered while deciding on the facility
location, with the example selected for the study – ‘Manas-Lumax Automotive Pvt Ltd’

 Proximity to market & proximity to source of raw material / understand the business
and find the customers: the main clientele of the company are the automobile
manufacturers in India. Pune is one of the cities where there is heavy concentration of almost
all the major players in this industry and hence locating the unit in Pune made provided a
close proximity to the market. As far as the source of raw material is considered, as the unit
is located in the MIDC area there are many traders who offer a good deal for the supply of
the raw material, which mainly is plastic granules, powders and some chemicals and dyes.

 Get a flavor of the community / availability of skilled labour / availability of amenities

etc.: Before deciding to set up a unit, it is essential to investigate the community. It is
important to try to find out how receptive the established business community is to your
business where it is planned to set up the unit. As this unit is in the relatively mature MIDC,
the community aspects in the consideration like labour, amenities, community attitude etc.
are very well suited for setting up a new unit. Also as Talegaon is close to two highly
developed cities of Mumbai and Pune, availability of the intellect and skill as well amenities
is probably at the best possible level in the country.

 Accessibility / infrastructure / nearness to highways / internal roads: as this company

plans to operate on the vendor basis for other parent companies, it is important to ensure
smooth and uninterrupted flow of the material to the parent company. For this a good
network of internal roads as well nearness to highways is desired. Talegaon MIDC is a well
planned MIDC and has a good network of internal roads and also it is very close to old
Mumbai-Pune High way, Express way, Pune-Bangalore High way hence it offers a very
good accessibility to the site.
 Availability of services- Electricity, water, fuel, drainage, disposal of waste etc: for
any business employing modern equipments, this point becomes very important. As far
power is concerned, we cannot say that the picture very good, but still compared to other
areas the power is available regularly and at relatively cheaper rates in Talegaon. Water,
fuel availability is also satisfactory.
 Cost of land / balancing cost with other factors: this is a most important factor as it
deals with money, one can say that this parameter is in one pan and all the others in other
pan while balancing the factors considered. For the example considered, though the land
price is not very cheap in Talegaon MIDC, the rates are not exorbitantly high too, also when
the other benefits are in the offering. Obviously, the cost of the location is important to
consider, but one should look at the big picture as well. For example, no matter how
attractive the price of a site might be, if your customers can’t get there easily, or if the
infrastructure can't support the necessary wiring for your Internet Company, the business
probably won't last very long. Spending more on a good location will probably pay off in the
long run with lots of business.

 Some advantages & disadvantages of the location selected by Manas-Lumax:

Advantages
Situated in Well Planned MIDC Area
Good Proximity to the market
Developed infrastructural facilities
availability of intellectual manpower
Close to big cities – Mumbai & Pune
Good availability of skilled labour
Well connected network of roads
Disadvantages
Comparatively higher Input costs
Relatively high land rates
and Manpower cost and cost of other amenities is
high
No Taxation rebates in Pune
Higher labor cost
Less availability of additional land for future
expansion.

 Recommended procedure for selection of location for the business unit:

To avoid the setbacks faced by the firm at later stages due to consequences arising out of
wrong or improper selection of the location for the business unit, a lot of planning has to go in
before one finalizes on location. As huge capital is invested into this proposition, significant
amount of time has to be dedicated beforehand for deliberating on various parameters and
striking a balance between them. Before a location for a plant is sought, long-range forecasts
should be made anticipating the future needs of the company. These should be based on the
company’s expansion policy, the anticipated diversification of products, the changing market,
the changing source of raw materials, and any other foreseeable influences. Careful attention
should be given to all the economic factors that influence the need for the new plant and the
size and location of the plant. The use of such forecasting techniques as linear and exponential
regression is not uncommon.
Many mathematical techniques are available at this aid, few are as follows:

1. Cost-benefit ratio analysis or cost-profit-volume analysis.

2. Break even analysis.
3. Factor rating technique / point rating method.
4. Transportation model.
5. Location evaluation methods like – center of gravity method, Delphi technique.etc.

In general while planning for selecting a location a company should follow the procedure given
below, it gives a fair grounds for ensuring a good location and envisaging the sustenance of the
unit in future:

1. Establish the need for a new plant.

2. Establish the requirements (i.e. product to be made, equipment and buildings needed,
utilities and transportation necessary, number of employees, etc.)
3. Determine the best geographical area for the plant on the basis of the company’s business
needs, both cost wise and with due consideration to all the benefits offered by the site.
4. Evaluate different parameters influencing the business activities under consideration.
5. Screen many communities within the general area decided on
6. Shortlist a few communities for detailed study.
7. Select the best location by striking a balance between the cost and benefits offered using
various techniques available.
8. Build the plant.

Summary: with the help of the example, we saw how different parameters are considered while
selecting the location for the business facility, a manufacturing concern for our study. we
enlisted some advantages & disadvantages of the selected location and then tried to jot out a
plan of action for location planning. Thought their number of considerations and criteria involved
in the study we tried to touch upon a few important ones. Dynamic environment in which the
business operates today keep on changing the scenario and throws up newer parameters which
influence the decision. At the end a best possible balance between various parameters and cost
should be tried to achieved to fix-up on a location.