Locating Production and Service Facilities

Need for facility location Planning: Revenues and costs are both

affected by facility location. A technique called Break-Even Analysis helps relates costs and revenues to facility Location.

Break-Even Analysis is a graphical and algebraic representation of the relationships among volume of output, cost, revenues.

As the volume of output increases cost and revenues also increases.

Cost are of two categories like:

Fixed

Variable

The break-even point depends on

Selling price of the product

Operating cost structure

Break-Even with discontinuous Revenue and Cost:

Revenue and cost may be non-linear rather than linear functions of output volume.

Major purpose is to reveal organization’s cost and revenue.

The effect of Location on Costs and Revenues: Revenues:

revenue depend on having the facility near potential customers.

Fixed cost:

incurred only once which must be recovered out of revenues if the investment is to be profitable.

Variable cost:

This cost is too depend on location.

Reasons for location changes: Availability of labour Geography of demand may shift. Companies may merge New products may be introduced Political and economic conditions may

change.