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Chapter 2C- Facility Location Techniques

Chapter 2C- Facility Location Techniques

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Location Analysis Methods

Supply Chain Management
Chapter 2 Lecture 4 Part 2: Facility Location Techniques

Analysis should follow 3 step process:
Step 1: Identify dominant location factors Step 2: Develop location alternatives Step 3: Evaluate locations alternatives

Factor rating method Center of gravity approach
Load-distance model

Break-even analysis Transportation method Simulation Methods

Factor-Rating Method
Most widely used location technique Useful for service & industrial locations Rates locations using factors
Intangible (qualitative) factors
Example: Education quality, labor skills

Steps in Factor Rating Method
List relevant factors Assign importance weight to each factor (0 - 1) Develop scale for each factor (1 - 100) Score each location using factor scale Multiply scores by weights for each factor & total Select location with maximum total score

Tangible (quantitative) factors
Example: raw materials, utilities

1

50 4.80 Site 3 27.20 .00 4.00 11.00 20.00 9.00 19.30 .50 73.00 9.00 4.00 14.25 13.50 77.05 Site 1 80 100 60 75 65 85 50 Site 2 65 91 95 80 90 92 65 Site 3 90 75 72 80 95 65 90 Location Factor Rating WEIGHTED SCORES Site 1 24.75 RYK 21.30)(80) = 24 Light Industry: PP Bags Plant Karachi/ RYK or Sharjah : Example SCORES (0 TO 100) LOCATION FACTOR Ready to occupy site Availability of power Low Taxes Political situation Proximity to customer Wage rates Shipping modes WEIGHT .05 Site 3 has the highest factor rating Weighted Score for “Labor pool and climate” for climate” Site 1 = (0.15 .25 6.25 2.00 69.00 4.10 .05 .Location Factor Rating: Example SCORES (0 TO 100) LOCATION FACTOR Labor pool and climate Proximity to suppliers Wage rates Community environment Proximity to customers Shipping modes Air service WEIGHT .00 15.25 12.50 18.00 4.75 Location Factor Rating … And the industry goes to Sharjah!! Weighted Score for “Ready to Move Site” for Site” KHI = (0.10 .50 3.25 9.20 .00 9.25 80.15 .00 11.05 KHI 70 70 60 65 80 80 80 SHJ 90 95 95 90 50 80 80 RYK 70 70 60 75 95 90 90 Light Industry: PP Bags Plant Karachi/ RYK or Sharjah : Example WEIGHTED SCORES KHI 21.15 .00 9.00 86.00 9.00 9.50 82.00 10.75 SHJ 27.20 14.25 4.50 Site 2 19.30 .50 5.60 3.75 8.80 12.15 .00 14.05 .00 4.50 4.50 4.00 14.30)(70) = 21 2 .

at “points” – Assumes linear rate structure – Assumes straight-line routes – Based on variables costs only – Static approach . Sukkur has scores of 8. 6 and 5 in these areas. Multan has scores of 6. Which location is the best? A. D. etc. which is in turn is twice as important as climate.not dynamic – Not an “optimizing” approach 3 . 6 and 6 in these areas and Lahore has score of 3. 5 and 2 in these areas. Example: Lahore Multan Karachi Sukkur Solution: “Grid” Method for Facility Location Procedure – Raw material and/or finished goods points on a grid – Equation to find Center of Gravity Advantages 84 74 68 – Simplicity – Heuristic. 7 and 9 in these areas. but excellent “first cut” solution Limitations – Assumes demand. Karachi has scores of 7. B.Problem Labor cost is twice as important as utility cost. C.

Center of Gravity Method Steps Place existing locations on a coordinate grid Grid has arbitrary origin & scale Maintains relative distances Volume to be shipped Shipping distance (or cost) Shipping cost/unit/mile is constant Calculate X & Y coordinates for ‘center of gravity’ Gives location of distribution center Minimizes transportation cost 4 .Center-of-Gravity Technique Locate facility at center of geographic area Based on weight and distance traveled establish grid-map of area gridIdentify coordinates and weights shipped for each location Grid Location 0 100 200 300 400 500 600 700 Center of Gravity Method Finds location of single distribution center serving several destinations Used primarily for services Considers Location of existing destinations Example: Markets. retailers etc.

y3).) C 250 600 135 D 500 300 60 n i=1 x= n C B (105) D A (75) (60) (135) x y Wt A 200 200 75 B 100 500 105 ∑ xiWi = (200)(75) + (100)(105) + (250)(135) + (500)(60) = 238 75 + 105 + 135 + 60 i=1 n ∑ Wi y= i=1 n ∑ yiWi = (200)(75) + (500)(105) + (600)(135) + (300)(60) = 444 75 + 105 + 135 + 60 i=1 ∑ Wi 5 . y = coordinates of new facility at center of gravity xi. W3 (x 2 (x2. yi = coordinates of existing facility i Wi = annual weight shipped from facility i x1 x2 x3 x Center-of-Gravity Technique: Example y 700 600 500 Miles 400 300 200 100 0 100 200 300 400 500 600 700 x Miles Center-of-Gravity Technique: Example (cont. W1 (x 3 (x3. y2). W2 (x x= i=1 n y= ∑ yiWi i=1 n ∑ Wi i ∑ Wi i=1 ∑ Wi i=1 y1 Y Coordinate ∑ d iy Wi y3 Cy = i ∑ Wi i where. y1). x.Center of Gravity Method Equations X Coordinate ∑ d ix Wi Grid-Map Coordinates y n n Cx = i dix = x coordinate of location i Wi = Volume of goods moved to or from location i diy = y coordinate of location i ∑ xiWi y2 1 (x1.

444) D (60) Center of Gravity with Excel (75) Center-of-Gravity Technique This method only considers the distances traveled. applying solely this method may not be applicable in every case. It does not consider the other factors such as the availability of roads on the selected location.) y 700 600 500 Miles 400 300 200 100 0 100 200 300 400 500 600 700 x Miles C B (105) (135) x y Wt A 200 200 75 B 100 500 105 C 250 600 135 D 500 300 60 A Center of gravity (238. Therefore.Center-of-Gravity Technique: Example (cont. Load-Distance Technique Compute (Load x Distance) for each site Choose site with lowest (Load x Distance) Distance can be actual or straight-line 6 .

791 99.y1)2 (xB x1)2 + (yB y1)2 = = (200-360)2 + (200-180)2 = 161.4 dC = 200 dD = 269.) Site 2 dA = 333 dB = 323. (x.2 dD = 184.y)2 Load-Distance: Example Potential Sites Site X Y 1 360 180 2 420 450 3 250 400 A 200 200 75 Suppliers B C 100 250 500 600 105 135 D 500 300 60 ∑ ld i i i=1 X Y Wt Compute distance from each site to each supplier Site 1 dA = dB = (xA .555* 77.2) + (105)(180.x1)2 + (yA .3) + (135)(434.Load-Distance Calculations n LD = where.3) = 77.3 (100(500- where.3 Compute load-distance load- n LD = ∑ld i i i=1 Site 1 = (75)(161.2 (200(200(100-360)2 + (500-180)2 = 412.4 Load-Distance: Example (cont.7) + (60)(170) = 99.x)2 + (yi . yi) = coordinates of existing facility dC = 434.y) = coordinates of proposed site (xi .555* LoadDistance with Excel * Choose site 3 7 . number of trips or units being shipped from proposed site and location i distance between proposed site and location i (xi .2 dB = 180.791 Site 3 = (75)(206.9) + (135)(226.3) + (135)(200) + (60)(269.2) + (105)(412.063 Site 2 = (75)(333) + (105)(323.9 dC = 226.7 dD = 170 Site 3 dA = 206. LD = li di di = = = load-distance value load expressed as a weight.2) + (60)(434.4) = 125.

Bremerton. You’re considering a new manufacturing plant in Akron. Fixed costs per year are $30k. The price per case is $120. or Chicago.000 $700. C. Bowling Green.000.000 $250. D. What is the best location for an expected volume of 2.000 $1.Break-Even Analysis Break-even analysis can be used for location analysis especially when the costs of each location are known Step 1: For each location.000 Remember the break even equations used for calculation total cost of each location and for calculating the breakeven quantity Q. Variable costs per case are $75. The fixed and variable cost at each location are given below.000 $1. Virginia Beach and Tulsa. $45. Fixed Cost $500.000. & $25 respectively. $60k.000 $200. Which location can most economically service the four submarines per year? Location A. 8 .000 $100. & $110k respectively. B.000 Locational Break-Even Analysis Method of cost-volume analysis used for industrial locations Steps Determine fixed & variable costs for each location Plot total cost for each location Select location with lowest total cost for expected production volume Must be above break-even Locational Break-Even Analysis Example-1 You’re an analyst for AC Delco. determine the fixed and variable costs Step 2: Plot the total costs for each location on one graph Step 3: Identify ranges of output for which each location has the lowest total cost Step 4: Solve algebraically for the break-even points over the identified ranges Problem The US Navy is considering four ports for their submarine service: San Diego.000 cases per year? © 1995 Corel Corp. Total cost = F + cQ Total revenue = pQ Break-even is where Total Revenue = Total Cost San Diego Bremerton Virginia Beach Tulsa Variable Cost/ submarine $300.

Annual Cost 150000 Chicago 100000 Bow ling en Gre 50000 0 0 Akron lowest cost Bowling Green lowest cost Chicago lowest cost 500 1000 1500 2000 2500 3000 Volume From the graph you can see that the two lowest cost intersections occur between C & B (4667 units) and B & A (9000 units) The best alternative up to 4667 units is C. and above 9000 units the best site is A Transportation Model Finds amount to be shipped from several sources to several destinations Used primarily for industrial locations Type of linear programming model Objective: Minimize total production & shipping costs Constraints Production capacity at source (factory) Demand requirement at destination Transportation Model The transportation model technique can be used to determine how many units should be shipped from each plant to each warehouse To Minimize Total Transportation Cost.Locational Break-Even Crossover Chart 200000 ron Ak Example-2 using Break-even Analysis: Clean-Clothes Cleaners is considering four possible sites for its new operation.000 garments. 9 . between 4667 and 9000 units the best is B. They expect to clean 10. The table and graph below are used for the analysis.

Study Questions 1. In these kinds of Dynamic Situations. These variables are often difficult to estimate and they also change in time. Describe the grid technique. and how does it lead to the making of a decision? What are its strengths and limitations? The end 10 . What are the steps in the process of logistics network design? Of these steps. What is the purpose. Simulation may be the best modeling technique. Simulation Models Simulation models allow managers to examine a range of Scenarios AND are well suited to open-ended problems. 3. However. 2.Simulation Models Firms often Consider many variables and Factors when they choose a facility location. developing a simulation model may take considerable time and effort. Also. which are most relevant to the task of selecting a specific site for a logistic facility? Discuss the factors that cause a company to analyze the design of a logistics network or to reconsider the location of a particular facility. the determination of the parameters in a simulation is also a challenging task.

Indiana Des Moines.Example Straub Ltd. Example 11 . warehouse demands. and Gary. Wisconsin Gary. Paul. These plants supply four Distribution warehouses in St. has three plants running at full capacity in Des Moines. Racine. Wisconsin Milwaukee. and plant capacities shown in the following: Kalamazoo. Michigan Duluth. Iowa St. and Detroit. Minnesota. Illinois Example Straub plans to build a new plant. Milwaukee. Minnesota. Racine. Detroit. Paul. It has narrowed down the choice of sites to two possibilities: Kalamazoo and Duluth. Chicago. We will now determine which site results in the lowest transportation Cost by using the unit transportation costs. Michigan Chicago.

Now. 22 Example Later. Some of these include WINQSB. 12 . we will assume the selected plant is Duluth. and Excel. and calculate the total transportation cost. This also gives the optimal transportation cost for the problem. the first step is to find the Optimal number of units to ship between each plant-warehouse combination. Lindo.Example Example We will approach this problem in the following manner: We will first assume that the selected plant is the Kalamazoo plant. OM Expert. Example We can use any of the computerized LP tools for finding the optimum values for this problem. Then we will compare the transportation costs for both plants.

The optimal number of units to ship between each plant and Duluth Warehouse is found as follows: Transportation Problem.Transportation Problem.Kalamazoo Example Example The total transportation cost will be $10.Duluth 13 . (This can be calculated simply by multiplying the shipment in each cell by its unit cost) On the other hand.225 if the new plant is built in Kalamazoo.

825 if the new plant is built in Duluth. Selection of Location for Manufacturing Plant 0 100 200 300 400 500 600 700 14 .Example Example The total transportation cost will be $13. Therefore. the Kalamazoo plant will incur the lowest transportation cost.

2600 W1 B'Pur 539 370 150 W2 Sh'wal 625 460 700 W3 F'abad 605 495 350 W4 Sgodha 578 522 550 W5 G'wala 658 550 450 W6 P'war 545 622 300 W7 Sukkur 400 265 100 CHOOSE KARACHI 15 .Grid Locations Potential Manufacturing Sites X Y Karachi 300 92 Lahore 665 502 Multan 545 405 Raw Material Supply and Warehouses Location RM KHI X 280 Y 85 WT.

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