Location factor

A study has been made by A. V. Bridgwater [Chem. Eng., 86, 119-121 (Nov. 5, 1979)] of the geographical variations in capital costs. He concluded that because of trade and competition basic equipment costs do not vaiy significantlv in the industrialized countries of the western world. The main differences in construction costs at various international locations are due to variations in labor costs and productivity, the use of specialized equipment, and sundry local factors. Table 9-55 gives location factors for the construction of chemical plants of similar function in various countries (1993 values). The factors have been corrected by Bridgwater for location variations in labor costs and efficiency and converted at the average value of the exchange rate. 

TABLE 9-55 Location Factors for Chemical Plants of Similar Functions (1993 Values)... 

Overseas Construction Costs Although Table 9-55 gives location factors for the construction of chemical plants of similar function in various countries at 1993 values, these may vaiy differentially over a period of time owing to local changes in labor costs and productivity. Hence, it is often necessaiy to estimate the various components of overseas construction costs separately. Equipment and material prices will depend on local labor costs and the availability of raw materials. If the basic materials have to be imported, costs in the source area become important and import duties and freight charges must be added. 

Bridgwater, A. V., International Construction Cost Location Factors, Chemical Engineering, Nov. 5, 1979, pp. 119-121. 

Another important test location factor is the availability of water for irrigation and for preparation of the spray solution. The use of culinary water sources (either private or public water sources intended for human consumption) or groundwater (from wells) is usually less problematic than using water from surface sources (rivers, lakes, or canals). If surface water is used for the study, care must be taken to ensure that farm production activities upstream from the plot area have not contaminated the water supply with pesticides that could contaminate the plot area. Careful site selection will help avoid problems from the water available at the site. 

Location factors can be used to make allowance for the variation in costs in different countries see IChemE (1987). 

Brown developed guidelines for the preparation of order-of-magni-tude and study capital cost estimates based upon the Lang and Hand methods. Brown modified Lang and Hand methods for materials of construction, instrumentation, and location factors. He found that the modified Hand and Garrett module factor methods gave results within 3.5 percent. 

It was discussed above that two types of factors can influence our process or system controlled factors design factors in Taguchi s terminology) and uncontrolled factors noise factors. The latter are inherent to the experimentation and can only be estimated by replication of runs. If the variability between replications is too large, any conclusion drawn from our study may have no meaning at all. Further, their variability can be as important as the mean of the replicates. Noise factors must be identified properly and, if possible, simulated in our experimentation. Sometimes noise factors are actually uncontrolled and, in such a case, we must be able to simulate them by means of some alternative parameter controlled during the experiments. For instance, temperature inside an oven can be a noise factor, but we can measure it at different locations, and accordingly, the effect of temperature inside is simulated by a location factor. 

This very large length of more than 2 km, or about 1 mile and a quarter, can be divided into n connected tubes, each with a length of 2036.36/n m. In this case each tube section has the volumetric flow rate c/(per tube) = 0.003/n m3/(sec tube) and the number n can be 100 or 1000, for example, depending on the mechanical and locational factors. Alternatively the total length L = 2036 m can be achieved by a coiled reactor. The particular choice of apparatus is based on mechanical engineering factors. 

Both in German and English literature on industrial facility location, Alfred Weber s publication "On the location of industries" ("Uber den Stan-dort der Industrien", Weber 1909) is commonly cited as the origin of industrial location science (cf. Eiselt and Laporte 1995, p. 151 Brandeau and Chiu 1989, p. 645). Weber introduces the concept of location factors which he defines as "factors constituting a precisely defined advantage that... 

Another important field of research has been to identify factors influencing location decisions in order to develop a system of location factors (cf. Table 1 for exemplary location factors). Frequently cited systems were published for example by Ruschenpohler (1958) and Behrens (1971). Behrens grouped location factors into sourcing, transformation and sales... 

Within the set of location factors it is common to distinguish between quantitative and qualitative factors, often without properly defining the difference between them. In the course of this work, factors that have a directly measurable financial impact will be referred to as quantitative factors and all other location factors will be considered of qualitative nature. A further distinction can be drawn between qualifying and ranking factors (cf. Pellerin et al. 2003, p. 268) with the former specifying minimum requirements and the latter being used to rank feasible alternatives. 

Schmenner et al. (1987) explicitly study the relative importance of location factors at the state and actual location level. 

The network design phase already determined the countries where plants should be located or closed. Thus, site selection takes place within an individual country. As the location factors pertinent to the site selection phase are different from those used in the network design phase, the first step again is to establish the relevant location factors. These are mostly of qualitative nature but also include quantitative factors such as local factor cost differences, property and construction costs. Findings from industrial location science (cf. Chap. 2.2.2) can be used as a starting point to define the location factors, but industry-, company- and project-specific factors... 

If the number of alternatives identified is too large to perform a detailed evaluation for each, a pre-selection step should reduce the number of alternatives to 5-10 sites. A practical approach commonly used is a checklist approach to eliminate sites that do not meet a certain level defined for important location factors (cf. Wardrep 1985, p. 10). 

The term location factor was already introduced in Chapter 2.3.2 and a few examples were provided. To construct the objectives hierarchy for assessing chemical production sites, findings from empirical research containing... 

Depending on the application context only a subset of the location factors listed in Figure 29 is used. For example, in a value chain production network design project business strategy considerations and quantitative location factors are considered in the network design phase. Hence, typi-... 

The majority of the location factors shown in Figure 29 are self-explanatory. While no uniform scale is required when using the pairwise comparison approach in a site selection situation, it has proven helpful to create a joint definition of each attribute that also contains an indication of minimum requirements and ideal state together with all stakeholders involved in the site selection process. To this end, verbal scale descriptions were defined for all sub-objectives. The global scale to use the model for site controlling (see below) was then created based on these definitions. 

The objective weights obtained in the context of the site ranking also illustrate the relative importance of the various location factors for specialty chemicals industry as shown in Figure 34. However, these priorities depend on the type of business considered, the decision context, the scale used and the fact that minimum requirements are assumed to be achieved by all sites included in the analysis. In the application cases, cost performance was considered to be approximately twice as important as qualitative aspects. Within the set of qualitative factors development potential, production know-how and utility availability clearly dominated the site assessment. 

Minor importance Location factor 1 2 High importance 4 5 ... 

Fig. 34. Relative importance of selected location factors for specialty chemicals...

Once the investment expenditures for plants/production lines are established for a single country, they have to be localized to account for cost differentials between countries. To this end, location adjustment factors can be employed (cf. McMillan and Humphreys 1990). Location factors for chemical industry can for example be obtained from SRI Consulting. A comprehensive overview of commercial sources for cost, inflation and location factors is published in Remer and Mattos (2003). Kohn et al. (1997) discuss how to construct country-specific factors from the U.S.-based Chemical Engineering s Plant Cost index. 

Remer DS, Mattos FB (2003) Cost and scale-up factors, international inflation indexes and location factors. International Journal of Production Economics 84 1-16... 

Study estimate also called factored estimate . When studies are more advanced, the factored estimate may take into account the detailed equipment characteristics. Once the individual costs are determined, they may be multiplied by a number of factors for installation, piping and services, instrumentation and control and eventually by date and geographic location factors. Probable accuracy of estimate is about +25-30%. 

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