Locating Production

Locating Production and Service Facilities

Need for facility location Planning: Revenues and costs are both

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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: 

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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.