Location and Layout Strategies

Location Strategies
Being in the right location is a key ingredient in an organization’s success. If a company selects the
wrong location, it may have adequate access to customers, workers, transportation, materials, etc.
Location often plays a significant role in a company’s profit and overall success. A location strategy is a
plan for obtaining the optimal location of a company by identifying company needs and objectives, and
searching for locations with offerings that are compatible with these needs and objectives. Generally,
this means that the firm will attempt to maximize opportunity while minimizing costs and risks. A
company’s location strategy should conform with, and be part of it, its overall corporate strategy.
Formulating a location strategy typically involves several factors that include facilities, feasibility,
logistics, labor, community and site, trade zones, political risk, government regulation, environmental
regulation, and incentives. Depending on the type of business, companies may also have to examine
other aspects of prospective locations and communities. Based on these considerations, companies are
able to choose a site that will best serve their needs and help them achieve their goals.
Different approaches and criteria in choosing the best location for the company:
1. Factor-Rating Method
2. Locational Breakeven Analysis
3. Center-of-Gravity Method
Factor-Rating Method
- This is a macro analysis technique. Factor-rating systems are among the commonly used
techniques for choosing a location, because they analyze diverse factors in an easily
comprehensible manner. It simply consist of a weighted list of the factors a company considers
the most important and a range of values for each factor. A company can rate each site with a
value from the range based on the costs and benefits offered by the alternative locations, and
multiply this value by the appropriate weight. These numbers are then summed to get an overall
factor rating and the company can finally compare the overall ratings of alternative sites. This
technique enables a company to choose a location systematically based on the best rating.
Locational Breakeven Analysis
- Few decisions have more long-lasting and critical-cost implications than plant location. Costs
affected by location decisions include transportation, energy, taxation, wages and raw materials.
One of the most important subjective factors in location analysis is the personal preference of
the owners and managers. In fact, personal preference may well dominate as a factor in the
location of single-plant enterprises. Multi-plant enterprises are much more likely to be
influenced primarily by objective and subjective economic factors. steps to be followed in a
facility location decision include defining the location goals and associated factors, identifying
the decision criteria (quantitative or qualitative), choosing a decision model (break-even, factor
rating, etc.) and selecting the location that best meets the criteria. Location decisions need to be
reviewed occasionally and they are not one-time decisions. Locational breakeven analysis is an
economic comparison of locational options based on a cost-volume examination. Location
decisions can be compared in graph form using alternative production/sales volumes. In order
to perform locational breakeven analysis it is essential to establish the fixed and variable costs
for each location, graph the costs for each location where costs are on the Y axis and
production/sales volume is on the X axis of the graph, and determine which location has the
lowest production/sales volume.
Center-of-Gravity Method
- This method is used to determine the location of a single distribution center that will minimize
distribution costs. It treats distribution cost as a linear function of the distance and quantity
shipped, which is assumed to be fixed, although an acceptable variation is that quantities are
allowed to change as long as their relative amounts remain the same. It is helpful in a limited
number of situations, primarily service entities, where geography and transportation costs are
important. The method includes the use of a map that shows the locations of destinations. The
map must be accurate and drawn to scale. A coordinate system is then overlaid on the map to
determine relative locations. Once done, coordinate for each destination can then be placed. If
the quantities to be shipped to every location are equal, the solution is straightforward, as you
can simply average the X and Y coordinates. When they are not (as is usually the case), a
weighted average must be applied, with the weights being the quantities to be shipped.
Layout Strategies
Facility layout and design is an important component of an organization’s overall operations, both in
terms of maximizing the effectiveness of production processes and meeting employee needs and/or
desires. Facility layout is defined as the physical arrangement of everything needed for the product or
service, including machines, personnel, raw materials, and finished goods. The criteria for a good layout
necessarily relate to people, materials, machines, and their interactions. Business owners need to
consider many operational factors when building or renovating a facility for maximum layout
effectiveness. These criteria include ease of future expansion or change, flow of movement, material
handling, space utilization, shipping and receiving, ease of communication and support, impact on
employee morale and job satisfaction, promotional value and safety. Facility layout must be considered
very carefully because we do not want to constantly redesign the facility. Some of the goals in designing
the facility are to ensure a minimum amount of material handling, to avoid bottlenecks, to minimize
machine interference, to ensure high employee morale and safety, and to ensure flexibility.
There are four (4) major layout patterns: product layout, process layout, cellular layout, and fixed-
position layout. Essentially, there are two (2) distinct types of layout, product and process layout.
Product layout is synonymous with assembly line and is oriented toward the products that are being
made. Process layout is oriented around the processes that are used to make the products. Generally,
product layout is applicable for high-volume repetitive operations, while process layout is applicable for
low-volume custom-made goods.
TO DO:
Read about:
a) Staffing Work Cells and
b) Balancing the Assembly Line

c) PERT-CPM

Location and Layout Strategies

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Location Strategies

Locational Breakeven Analysis

a) Staffing Work Cells and

b) Balancing the Assembly Line

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