Facility Location Planning in Business Essay

Objective: Identify factors that should be taken into consideration when selecting a facility.

Managing facilities for a business in such a manner that the organization is able to make optimum use of its resources for producing the services or products is now a prerequisite for taking on the competition and long term survival of the company.

David Kincaid (1994) argued that combining the specialized skills in facility management offers the opportunity to add value and benefit to the organization. Whenever a company plans to enter into new area, trying to strengthen the loose ends, looking for a new facility for manufacturing, service centre, sales planning etc. it requires evaluating the pros and cons of selecting a number of available alternative locations. In this process the best available geographic location is chosen for service or production facilities. In the real estate world the most important factor is location. Factors which in general, affect the location decisions are;

1. Normal growth diversification strategies, corporate desire, government incentives etc.
2. Global, regional or country specific triggers necessitating such a decision
3. Local level factors like changes in labor productivity, costs, clustering, exchange rates, tax rates etc.
4. The existing capacity falling less than adequate in fulfilling the market demands
5. Shifts observed in demands from customers or some demographic changes taking place within the vicinity of the existing facility.
6. Changes in the political, environmental, socio-cultural, technological, environmental, or legal factors at existing facilities or inducing offers from newer facilities.

The scope of Facility Management therefore extends in general from residential complexes to corporate headquarters. Construction of environment friendly ‘green buildings’, tourist resorts, leisure centers, airports, docks, hospitals and procurement of related services at each of these locations require efficient management of a range of facilities and hence the need for facility management.

Therefore in order to prepare roadmap for success the company needs to achieve optimum value configuration with the help of all concerned. Therefore, the present scope of facility management includes taking into account the Infrastructure facilities, the Human Resources and Technology development and procurement procedures and related costing. Tony Thomson (1990) argued that facility management is not just about construction, real estate, building operations etc. but it encapsulates the assistance being provided for long term strategic planning. This can be achieved with the help of a number of methods like;

Factor rating or factor Weight method

In this method a list is prepared of the relevant factors and then each factor is assigned a weight according to its importance in the production process. These factors are termed as critical success factors. The score of each factor is marked on a rating scale. Subsequently, the score is multiplied with the weights for each factor and each locations total weight is calculated. The location having scored maximum weight is then given maximum weightage in the final decision making process.

In fact assigning weights to each factor depends upon the type of industry, product or service as well. For example, for a liquor industry, the climatic conditions form a very crucial component, so it will be accorded a higher weight, but for an IT company, this may not be as important and might be accorded lesser weight. As an example the following table indicates some of the factors associated with two different locations, for Going, Inc.’s airline’s Service Division and their individual weights against each facility and then the final score.

Therefore Location-A is better suited for shifting the services of Going Inc.

Break-Even Analysis

In this method a break-even point is determined for the different locations in respect of the costs involved in producing the goods or services. For this method the fixed and variable costs are calculated for each location. The total costs of each location are then plotted on a graph. On this graph ranges of outputs are identified for different locations and the one with lowest cost is selected for shifting the facilities. The management of Going, Inc. wishes to make the company competitive enough to take on Bezna in respect of its Capacity, Quality rating, Flexibility rating, order accuracy rating, speed and manufacturing cost overheads. Therefore for the manufacturing arm of Going, Inc. the break even analysis can be carried out as follows.

Let us assume that there are three different locations;

The locations are subsequently analyzed by plotting the figures on graphs and then arriving at the final conclusion.

References

1. Kincaid, David (1994). ‘Integrated facility management’. Facilities, Vol. 12 No. 8. MCB University Press.
2. Thomson, Tony (1990). ‘The essence of facilities management’. Facilities, Vol 8/No 8/.