Facility Location

Learning Objectives
• Issues in Facility Location

• Various Plant Location Methods

 Competitive Imperatives Impacting
Location
• The need to produce close to the customer
due to time-based competition, trade
agreements, and shipping costs.

• The need to locate near the appropriate labor

pool to take advantage of low wage costs
and/or high technical skills.
 Issues in Facility Location
• Proximity to Customers
• Business Climate
• Total Costs
• Infrastructure
• Quality of Labor
• Suppliers
 Issues in Facility Location
• Other Facilities
- Free Trade Zones
- Political Risk
- Government Barriers
- Trading Blocs
- Environmental Regulation
- Host community
- Competitive Advantage
 Plant Location Methods:
Factor-Rating Systems (Example)
• Two refineries sites (A and B) are assigned the following range of
point values and respective points, where the more points the better
for the site location.
Major factors for site Pt. Range Site
Location A B

Fuels in region 0 to 330 123 156

Power availability and reliability 0 to 200 150 100
Labor climate 0 to 100 54 63
Living conditions 0 to 100 24 96
Transportation 0 to 50 45 55
Water supply 0 to 10 8 4
Climate 0 to 50 34 14
Supplies 0 to 60 45 50
Tax policies and laws 0 to 50 45 20
Total 528 558
Best site is B
 Plant Location Methods:
Transportation Method of Linear Programming

• Transportation method of linear programming

seeks to minimize costs of shipping n units to
m destinations or its seeks to maximize profit
of shipping n units to m destinations.
 Transportation Method (Example)
• Suppose the Indian Pharmaceutical Company has four factories supplying
the warehouses of four major customers and its management wants to
determine the minimum-cost shipping schedule for its monthly output to
these customers. Factory supply, warehouse demands, and shipping costs
per case for these drugs are shows below:
Shipping Costs per Case (in Rupees)
Factory Supply Warehouse Demand
To To To To
From Delhi Chennai Kolkata Mumbai
Lucknow 15 Delhi 10 Lucknow Rs 25 Rs 35 Rs 36 Rs 60

Pune 6 Chennai 12 Pune 55 30 25 25

Amritsar 14 Kolkata 15 Amritsar 40 50 80 90

Coimbatore 11 Mumbai 9 Coimbatore 30 40 66 75

 Transportation Method (Example)

Transportation Matrix for Indian Pharmaceutical Problem

From To
Delhi Chennai Kolkata Mumbai Factory supply
Lucknow
25 35 36 60 15
Pune
55 30 25 25 6
Amritsar
40 50 80 90 14
Coimbatore
30 40 66 75 11
Destination
requirements 10 12 15 9 46
 Plant Location Methods:
Centroid Method
• The centroid method is a technique used for locating
single facilities that considers existing facilities, the
distances between them, and the volumes of goods
to be shipped between them.

• This methodology involves formulas used to compute

the coordinates of the two-dimensional point that
meets the distance and volume criteria stated above.
 Plant Location Methods:
Centroid Method Formulas

d V ix i
Cy =
d V
iy i
Cx =
V i
V i

Cx = X coordinate of centroid

Cy = X coordinate of centroid

dix = X coordinate of the ith location

diy = Y coordinate of the ith location

Vi = volume of goods moved to or from ith

location
 Plant Location Methods:
Centroid Method Example
• The HiOctane Refining Company needs to locate an intermediate holding
facility between its refining plan in Gauhati and its major distributors. The
fig below shows the coordinate map. The amount of gasoline shipped to
or from the plant and distributors appears in table below.
Grid Map for Centroid Example
Shipping Volumes
500
• Mumbai (25,450) Locations Liter of Petrol
Per month (000,000)
400 • Lucknow (350,450)
New Delhi (450,350) • Gauhati 1,500
300 Calcutta 250
New Delhi 450
Lucknow 350
*Centroid (308,217) Mumbai 450
200
• Calcutta (400,150)
100
# Gauhati (325,75)

100 200 300 400 500

# Plant • Distributor
 Centroid Method Example:
Determining Coordinates of the centroid
• You then compute the new coordinates using the formulas:

325(1500) 400(250) 450(450) 350(350) 25(450) 923,750

Cx = = = 307.9
1500  250  450  350  450 3000

75(1500) 150(250) 350(450) 400(350)  450(450) 650,000

Cy = = = 216.7
1500  250  450  350  450 3000