IDENTIFYING AN OPTIMAL FACILITY LOCATION FOR A FACTORY

Abstract

This purpose of this research was to help a Thai lime-burning company to find an alternative factory location for its expanding business, which would minimize the transportation cost. Such factories usually locate next to the raw material source, but the current location was 20 km from the raw material source, and on average 200 km away from its customers.

Facility location models, including the center of gravity method and Alfred Weber’s theory, were used, and with the help of the load distance method, the best alternative location was chosen. The result was that the new location could save up to 5 million baht per year on transportation cost. The additional cost of moving the existing facility to the new location was calculated, for fixed and variable costs. The NPV, IRR and Payback period were also calculated. All the results were favorable for investing in the new location, with a payback period of nearly four years. Finally, qualitative factors concerning the new location were explored through interviews, and reveal another perspective, but overall, the qualitative factors are in favor of the new location.