Best Location Determination Strategy
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Question: Strategize the best location for new hubs for the service arm and the best location and set up strategies for the manufacturing arm. In your calculations, consider methodologies such as:
• Center of gravity
• Location break-even analysis
• Transportation method (linear programming).
Explain the principle on which you make these recommendations.
Answer: Preface: Determination of right location is very much crucial for any organization success in general. When an organization did selection of the right strategy it is more likely for it to get success as the optimum location of the organization will provide it good connectivity with the market, with customers, vendors and other utilities and support service delivery channels. Whenever the location is not optimized and if it is not located in the right location, it is more likely for the organization to get into more expenses, loss of market share as well loss of profits as well. Hence determination of the right location for the organization is very much significant for business operational success(Malakooti,2013). It is true for any organization for both the manufacturing as well as service arm functional locations. In any case the following part of the discussion will provide overview of different strategies that can be employed for location determination in principle and with appropriate insights into the calculations as applicable.
Production facility location: Weighted method is employed for ranking manufacturing stations based on availability of the facilities for running the manufacturing plant. Some of the key resources required and considered weightage of the same in selection of the facility location include the following,
• Power availability and the cost of the power at the given location
• Location feasibility and climatic conditions
• Transportation feasibility and the cost of the transportation
• Government policy and its vulnerability to the establishment of the manufacturing station
• Labor availability and cost of the labor
• Competition prevailing in the region
• Civic amenities availability for the workers
• Existence of complementary and competing industries in the location
• Finance and research amenities in the location
• Availability of water and fire fighting facilities
The principle of weighted methodology consisting in evaluating the relative advantages among the alternatives available for the plant set-up. Once there are few alternatives available, each of these alternatives will be evaluated for the criteria in accordance with the relative ranking and relative weight (Wang, 2016). Based on cumulative scores, the best location will be identified for location setting.
Services facility location: In case it is a services layouts like ware house, storage layouts, retail layouts, Office layouts etc the focus is more on the layout of the same and consideration of the other factors like in the facility layout do not take place. Service facility locations are normally decides based on the particular function they are intended for. A typical warehouse or storage layout will be fixed based on the proximity to the material loading and unloading tracks. Flexibility to reach the production divisions as well as the delivery divisions. Office layout and locations are weighted based on feasibility to obtain the essential services for functioning like tele-communications, internet, feasibility for workers to reach homes etc. Relative weightage of each of these features will decide the right choice of selection. Further the relative ranking of each of these factors will decide the choice among of the alternatives.
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Center Of Gravity Method: Center of gravity method is mainly related with the selection of the best facility in accordance with the geographical co-ordinates of the same. For example the location with the best opportunity to minimize the transportation costs will be the selection criteria for the location. Suppose if there are multiple locations on different transportation routes, the facility that corresponds to minimum transportation costing will be the one as the ultimate choice as per center of gravity method (Xia and Wei, 2010).
Location Break Even Analysis: Location break even analysis consists in evaluating the impact of the location selection(kamf et al.,2015) based on the costs associated with the particular location and the total sales of the products. Suppose for a given location if there are two costs, the fixed costing and the variable costing. The fixed costing will be fixed for the given location and the variable costing will vary in accordance with the total volume of the production. For a selected final volume of production, the total cost production at each location will be computed by estimation of the fixed and variable costing factors. Variable costing factor will change with production volume while fixed costing will not change with the production volume. The total costing at each location will finally decide the selection of the right location for fixing the plant. Fig-1 in the Appendix will show the range of demand values at which particular location will be optimum choice.
Transportation Method (Or Linear Programming Method): Transportation or linear programming method (Vanderbei, 2015) is employed to optimize the locations based on the total cost of transportation. For example if there are multiple locations of production for each location layout. The total transportation expenses involved for each layout will be optimized using the linear programming methodology. The cost associated with each location will be expressed in terms of the cost parameters of its different sources and relative computation of the least cost location will be performed and this will be selected for the final location. Apart from least cost method, Vogel method of approximation and the North-west corner methods are employed to find the initial feasible solution set. Later the best optimized solution will be computed using the Stepping stone method or modified distribution method (MDM) by checking the optimality of the initial feasible solution and optimizing the same.
Conclusion: Selection of the right location is crucial for maximizing the benefits and for minimizing the total expenses in any production facility or for any services facility. Weighted maximization method, centre of gravity method, Location break even method and transportation methods are some of the commonly employed methods for selecting the right location for given configuration of choices for the same. Though the priorities and relative weightages differ from location to location in each of the choices stream, the apparent procedure employed for selection of the right location in each of the choice streams is same for any problem case. However the accuracy of the final selection is limited by the accuracy of the inputs available for each estimation process.
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