Plant Location and Layout

Chapter 08 - Location Planning and Analysis
CHAPTER 08
LOCATION PLANNING AND ANALYSIS
Solutions
1. Given: We have the following information shown below for two plant location alternatives:
Omaha Kansas City

R $185 $185
v $36 $47
Annual FC $1,200,000 $1,400,000
Expected annual 8,000 12,000
demand (units) (Q)
Determine the expected profits per year for each alternative:
Profit = Q(R – v) – FC
Omaha: 8,000($185 – $36) – $1,200,000 = -$8,000
Kansas City: 12,000($185 – $47) – $1,400,000 = $256,000
Conclusion: Kansas City would produce the greater profit.
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Education.
2. Given: We have the following information shown below for three potential locations for a new
outlet:
A B C
R $2.65 $2.65 $2.65
v $1.76 $1.76 $1.76
Monthly FC $5,000 $5,500 $5,800
a. Determine the monthly volume necessary at each location to realize a monthly profit of
$10,000 (round to 1 decimal).
Location A Volume:
Location B Volume:
Location C Volume:
b. Determine the expected profits at each facility given the expected monthly volumes:
A = 21,000 per month, B = 22,000 per month, & C = 23,000 per month.
Profit = Q(R – v) – FC
Location A: 21,000($2.65 – $1.76) – $5,000 = $13,690 per month

Location B: 22,000($2.65 – $1.76) – $5,500 = $14,080 per month
Location C: 23,000($2.65 – $1.76) – $5,800 = $14,670 per month
Conclusion: Location C would yield the greatest profits.
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Education.
3. Given: There are two alternatives for which costs and revenue are listed below:
A B
R $17,000 $17,000
v $14,000 $13,000
Annual FC $800,000 $920,000
a. Find the volume at which the two locations have the same total cost (TC).
TC = FC + VC
TC = FC + (Q x v)
TC (Location A) = $800,000 + $14,000Q

TC (Location B) = $920,000 + $13,000Q
Set the two cost equations equal and solve for Q:
$800,000 + $14,000Q = $920,000 + $13,000Q

$14,000Q – $13,000Q = $920,000 – $800,000
$1,000Q = $120,000
Q = $120,000 / $1,000
Q = 120 units
b. Range over which A and B would be superior:
Location A has the lowest fixed costs; therefore, it is preferred at lower volumes.
Conclusion:
Location A Preferred: 0 < 120 units
Location B Preferred: > 120 units
4. Given: There are three alternatives for which costs are given below:
A (new) B (sub) C (expand)

v $500 $2,500 $1,000
Annual FC $250,000 --- $50,000
a. Step 1: Determine the total cost equation for each alternative.
TC = FC + VC
TC = FC + (Q x v)
A: TC = $250,000 + $500Q
B: TC = $2,500Q
C: TC = $50,000 + $1,000Q
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Step 2: Graph the alternatives.
500
400 A (new location)
TC
($000)
300
[250] C (expansion)
200 B (sub-
contract)
100
[50]
0 33.3 100 200 300 400

B C A
No. of Boats/yr.
Step 3: Determine over what range each alternative is preferred.
Looking at the graph, we can tell that Alternative B is preferred over the lowest range,
Alternative C is preferred over the middle range, and Alternative A is preferred over the
highest range.
First, we find the indifference (break-even) point between Alternatives B & C by setting their
total cost equations equal to each other and solving for Q.
B: TC = $2,500Q
C: TC = $50,000 + $1,000Q
$2,500Q = $50,000 + $1,000Q

$2,500Q – $1,000Q = $50,000
$1,500Q = $50,000
Q = $50,000 / $1,500
Q = 33.33 units
Second, we find the indifference (break-even) point between Alternatives C & A by setting
their total cost equations equal to each other and solving for Q.
C: TC = $50,000 + $1,000Q
A: TC = $250,000 + $500Q
$50,000 + $1,000Q = $250,000 + $500Q

$1,000Q – $500Q = $250,000 – $50,000
$500Q = $200,000
Q = $200,000 / $500
Q = 400 units
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Conclusion:
Alternative B preferred: < 33.33 units
Alternative C preferred: > 33.33 units to < 400 units
Alternative A preferred: > 400 units
b. Expected volume of 150 boats:
Based on the graph, Alternative C would yield the lowest total cost (TC) at a volume of 150
boats.
c. Other factors that might be considered when deciding between the expansion and
subcontracting alternatives include subcontracting costs will be known with greater certainty,
subcontracting provides a secondary (backup) source of supply, and expansion offers more
control over operations.
5. Rework Problem 4b using this additional information: Alternative A (New Location) will have an
additional $4,000 in fixed costs per year. Alternative B (Subcontracting) will have $25,000 in
fixed costs per year. Alternative C (Expansion) will have an additional $70,000 in fixed costs per
year.
Step 1: Change the costs in the table.
A (new) B (sub) C (expand)

v $500 $2,500 $1,000
Annual FC $254,000 $25,000 $120,000
Step 2: Determine the total cost equation for each alternative.
TC = FC + VC
TC = FC + (Q x v)
A: TC = $254,000 + $500Q
B: TC = $25,000 + $2,500Q
C: TC = $120,000 + $1,000Q
Step 3: Find TC for 150 units.
A: TC = $254,000 + $500(150) = $329,000

B: TC = $25,000 + $2,500(150) = $400,000
C: TC = $120,000 + $1,000(150) = $270,000
Conclusion: Alternative C (Expand) would yield the lowest total cost for an expected volume of
150 boats.
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6. Given: Expected annual volume (Q) = 10,000 units. There are three lease alternatives for which
costs are given below:
Memphis Biloxi Birmingham

Lease building &
equipment $40,000 $60,000 $100,000
Transportation $50,000 $60,000 $25,000
v $8 $4 $5
Step 1: Determine fixed cost (FC) for each alternative & add FC to table.
FC = Lease cost + transportation cost.
Memphis Biloxi Birmingham

Lease building &
equipment $40,000 $60,000 $100,000
Transportation $50,000 $60,000 $25,000
Annual FC $90,000 $120,000 $125,000
v $8 $4 $5
Step 2: Determine the total cost equation for each alternative.
TC = FC + VC
TC = FC + (Q x v)
Memphis: $90,000 + $8Q

Biloxi: $120,000 + $4Q
Birmingham: $125,000 + $5Q
Step 3: Find TC for 10,000 units.
Memphis: $90,000 + $8(10,000) = $170,000

Biloxi: $120,000 + $4(10,000) = $160,000
Birmingham: $125,000 + $5(10,000) = $175,000
Conclusion: The Biloxi alternative yields the lowest total cost for an expected annual volume of
10,000 units.
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Education.
7. Given: There are two alternative shop locations for which costs are shown below:
City Outside
R $90 $90
v $30 $40
Monthly FC $7,000 $4,700
a. (1) Monthly profit for Q = 200 cars:
Step 1: Determine total profit equation for each alternative.
Total profit = Q(R – v) – FC
City: Q($90 – $30) – $7,000

Outside: Q($90 – $40) – $4,700
Step 2: Determine total profit for each alternative at the expected monthly volume.
City: 200($90 – $30) – $7,000 = $5,000

Outside: 200($90 – $40) – $4,700 = $5,300
Conclusion: Outside location yields the greatest profit if monthly demand is 200 cars.
(2) Monthly profit for Q = 300 cars:
City: 300($90 – $30) – $7,000 = $11,000

Outside: 300($90 – $40) – $4,700 = $10,300
Conclusion: City location yields the greatest profit if monthly demand is 300 cars.
b. Determine the indifference (break-even point) between the two locations.
Set their total profit equations equal to each other and solve for Q:
Q($90 – $30) – $7,000 = Q($90 – $40) – $4,700

$60Q – $7,000 = $50Q – $4,700
$60Q – $50Q = -$4,700 – (-$7,000)
$10Q = $2,300
Q = $2,300 / $10
Q = 230 cars
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Education.
8. Given: We are provided the location factors below for four different types of organizations.
Factor Local bank Steel mill Food warehouse Public school

Convenience for
customers
Attractiveness of
building
Nearness to raw
materials
Large amounts
of power
Pollution
controls
Labor cost and
availability
Transportation
costs
Construction
costs
Student answers will vary regarding how they rate the importance of each factor in terms of
making location decisions using L = low importance, M = moderate importance, and H = high
importance. One possible set of answers is given below.
Factor Local bank Steel mill Food warehouse Public school

Convenience for
customers H L M–H M–H
Attractiveness of
building H L M M–H
Nearness to raw
materials L H L M
Large amounts
of power L H L L
Pollution
controls L H L L
Labor cost and
availability L M L L
Transportation
costs L M–H M–H M
Construction
costs M H M M–H
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Education.
9. Given: We are given factors, weights, and factor rating scores for three locations. Scores range
from 1 – 100 (best).
Location Score
Factor Wt. A B C
Convenience .15 80 70 60
Parking .20 72 76 92
Display area .18 88 90 90
Shopper traffic .27 94 86 80
Operating costs .10 98 90 82
Neighborhood .10 96 85 75
1.00
Multiply the factor weight by the score for each factor and sum the results for each location
alternative.
Weight x Score
Factor Wt. A B C
Convenience .15 .15(80) = 12.00 .15(70) = 10.50 .15(60) = 9.00
Parking .20 .20(72) = 14.40 .20(76) = 15.20 .20(92) = 18.40
Display area .18 .18(88) = 15.84 .18(90) = 16.20 .18(90) = 16.20
Shopper traffic .27 .27(94) = 25.38 .27(86) = 23.22 .27(80) = 21.60
Operating costs .10 .10(98) = 9.80 .10(90) = 9.00 .10(82) = 8.20
Neighborhood .10 .10(96) = 9.60 .10(85) = 8.50 .10(75) = 7.50
1.00 87.02 82.62 80.90
Conclusion: Based on composite score, Location A seems to be the best.
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Education.
10. Given: We are given factors, weights, and factor rating scores for three locations. Scores range
from 1 – 100 (best).
Location Score
Factor Wt. East #1 East #2 West
Initial Cost 8 100 150 140
Traffic 10 40 40 30
Maintenance 6 20 25 18
Dock space 6 25 10 12
Neighborhood 4 12 8 15
Multiply the factor weight by the score for each factor and sum the results for each location
alternative.
Weight x Score
Factor Wt. East #1 East #2 West
Initial Cost 8 8(100) = 800 8(150) = 1200 8(140) = 1120
Traffic 10 10(40) = 400 10(40) = 400 10(30) = 300
Maintenance 6 6(20) = 120 6(25) = 150 6(18) = 108
Dock space 6 6(25) = 150 6(10) = 60 6(12) = 72
Neighborhood 4 4(12) = 48 4(8) = 32 4(15) = 60
1518 1842 1660
Conclusion: Based on composite score, Location East #2 seems to be the best.
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Education.
11. Given: We are given factors and factor rating scores for three locations. Scores range from 1 – 10
(best).
Location Score
Factor A B C
Business services 9 5 5
Community services 7 6 7
Real estate cost 3 8 7
Construction costs 5 6 5
Cost of living 4 7 8
Taxes 5 5 4
Transportation 6 7 8
a. Assume that the manager weights each factor equally.
Because there are seven factors, each factor will have a weight of 1/7. Therefore, we can
sum the scores and divide by 7 to determine the weighted score for each alternative.
Factor A B C
Business services 9 5 5
Community services 7 6 7
Real estate cost 3 8 7
Construction costs 5 6 5
Cost of living 4 7 8
Taxes 5 5 4
Transportation 6 7 8
Total 39 44 44
Total / 7 5.57 6.29 6.29
Conclusion: Location B or C is best, followed by Location A.
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Education.
b. Two of the factors (business services and construction costs) are given weights that are
double the weights of the other factors.
We will give these two factors weights of 2/9 and the other five factors weights of 1/9.
Then, we will multiply each factor’s rating by that factor’s weight.
Factor Location Score Weight Weight x Score

Business Services 9 5 5 2/9 18/9 10/9 10/9
Community Services 7 6 7 1/9 7/9 6/9 7/9
Real Estate Cost 3 8 7 1/9 3/9 8/9 7/9
Construction Costs 5 6 5 2/9 10/9 12/9 10/9
Cost of Living 4 7 8 1/9 4/9 7/9 8/9
Taxes 5 5 4 1/9 5/9 5/9 4/9
Transportation 6 7 8 1/9 6/9 7/9 8/9
1.0 53/9 55/9 54/9
Conclusion: Location B is best, followed by Location C, and then Location A.
12. Given: A toy manufacturer produces toys in five locations and will ship raw materials from a
new, centralized warehouse. The monthly quantities to be shipped to each location are identical.
The coordinates for all five locations are shown below.
Location X Y
A 3 7
B 8 2
C 4 6
D 4 1
E 6 4
We know that the quantities to be shipped to each location are identical so we can eliminate
quantities from consideration. The correct formulas for the center of gravity are shown below:
∑
̅
∑
̅
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Education.
Sum the values in each coordinate’s column.
Location X Y
A 3 7
B 8 2
C 4 6
D 4 1
E 6 4
Sum 25 20
n = 5 locations.
∑
̅ (round to 1 decimal)
∑
̅ (round to 1 decimal)
Conclusion: The new warehouse should be located at 5.0, 4.0.
13. Given: A clothing manufacturer produces clothes at four locations. The manufacturer must
determine the location of a central shipping point. The coordinates and weekly shipping quantities
to the four locations are shown below.
Weekly
Location X Y Quantity (Q)
A 5 7 15
B 6 9 20
C 3 9 25
D 9 4 30
The correct formulas for the center of gravity are shown below:
∑
̅
∑
∑
̅
∑
Sum the values in the quantity column.
Weekly
Location X Y Quantity (Q)
A 5 7 15
B 6 9 20
C 3 9 25
D 9 4 30
Sum 90
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Education.
∑ ( ) ( ) ( ) ( )
̅ ∑
(round to 1 decimal)
∑ ( ) ( ) ( ) ( )
̅ ∑
Conclusion: The central shipping point should be located at 6.0, 7.0.
14. Given: A company handling hazardous waste wants to minimize shipping cost for shipments to a
disposal center from five stations that it operates. The coordinates for each of the five stations and
the volumes shipped to the new disposal center are shown below.
Volume in Tons
Location X Y per Day (Q)
1 10 5 26
2 4 1 9
3 4 7 25
4 2 6 30
5 8 7 40
∑
̅
∑
∑
̅
∑
Sum the values in the quantity column.
Volume
Tons per
Location X Y Day (Q)
1 10 5 26
2 4 1 9
3 4 7 25
4 2 6 30
5 8 7 40
Sum 130
∑ ( ) ( ) ( ) ( ) ( )
̅ ∑
∑ ( ) ( ) ( ) ( ) ( )
̅ ∑
Conclusion: The disposal center should be located at 6.0, 6.0.
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15. Given: A company is considering two locations for a distribution center: L1 & L2. The five
shipment destinations and the monthly shipments (Q) to all five destinations are shown below.
Destination Q
D1 900
D2 300
D3 700
D4 600
D5 1200
Step 1: Use the map to determine the coordinates of each destination (use a ruler if necessary).
Add those coordinates to the table. Then, sum the values in the quantity column.
Destination X Y Q
D1 1 2 900
D2 2 4 300
D3 3 1 700
D4 4 2 600
D5 5 3 1200
Sum 3700
Step 2: Determine the center of gravity for the optimal location for the distribution center.
∑ ( ) ( ) ( ) ( ) ( )
̅ ∑
∑ ( ) ( ) ( ) ( ) ( )
̅ ∑
Step 3: Use the map to determine the coordinates for L1 & L2. Use a ruler if necessary.
L1 coordinates ≈ 2.6, 2.4

L2 coordinates ≈ 3.5, 2.5
Step 4: Determine the distance between each proposed location and the center of gravity.
Distance between two points = |Difference in X coordinates| + |Difference in Y coordinates|
Distance between L1 & Center of Gravity |2.6 – 3.2| + |2.4 – 2.3| = 0.6 + 0.1 = 0.7
Distance between L2 & Center of Gravity |3.5 – 3.2| + |2.5 – 2.3| = 0.3 + 0.2 = 0.5
Conclusion: L2 is closer to the center of gravity and is the better site.
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Education.
Case: Hello Walmart?
[This is a good case for in-class discussion. Three groups can be formed: one to take the position of
residents, one to take the position of small businesses, and one to take the position of Walmart.]
1. Owners of small businesses:

Pro: Restaurants and other businesses that do not compete directly with Walmart generally would
welcome the additional traffic that Walmart would attract.
Con: Businesses that compete directly would not fare well unless they provided a product or
service value that would offset Walmart’s lower price.
2. Residents:
Pro: Another shopping option, lower prices, and other, non-competing businesses that would be
attracted by the increased traffic that Walmart would generate.
Con: Increased traffic and noise, construction inconveniences, loss of small-town atmosphere,
and loss of local businesses and jobs.
Walmart responses: The company would be a “good neighbor,” supporting the community
and providing jobs for low-skilled and handicapped workers. Construction would create
construction jobs and generate taxes and revenues for the community. Shoppers would benefit
from Walmart’s low prices. In addition, there would be an increase in the tax base.
Enrichment Module
A. Distance Measurement
B. Center of Gravity Method with Predetermined Sites
C. Factor Scoring Model
D. Emergency Facility Location
A. Distance Measurement
The companies measure distance when making two important decisions:
1. Facility Layout Decision:
Distances are estimated/measured in determining the best layout of equipment or departments
within a manufacturing facility such as a plant, a distribution facility such as a warehouse, or
a service facility such as a department store. Distance is an important input in determining the
best possible layout that minimizes the total distance traveled between departments or
workstations.
2. Facility Location Decision:
Distance measurement also is a very important input measure in determining the best location
for a new service or a manufacturing facility, relocation of an existing facility, or elimination
of an existing facility.
In most instances, distance measurements are used to estimate the distances between existing
warehouses or plants and the newly proposed potential location sites. The estimated distance
measures then are used to estimate the transportation costs. Transportation cost is considered
a critical factor in the facility location decision.
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Education.
Distance Measurement Methods:

There are four methods of measuring distance:
1. Empirical Method
2. Rectilinear Method
3. Euclidean Method
4. Weighted Average Method
1. Empirical Method:
The empirical method is the most accurate distance measure. Using the empirical method,
distance can be measured in one of two ways. The first type of empirical measurement is the
actual recorded travel distance, where a driver records the distance based on a vehicle
odometer reading. The second type of empirical measurement of distance is estimation from a
map. When there are no actual travel data available, then the map estimation can be very
useful. However, the actual travel data obviously provides a more accurate measure of
distance than the map estimation.
The main advantage of using either empirical method is that they generally provide the most
accurate distance measures. On the other hand, the disadvantage is that it can be very time
consuming to gather the data and use it as a part of a computerized layout or a location
technique, especially if there are many existing and/or proposed locations.
2. Rectilinear Method
This mathematical method is very easy to compute and lends itself to easy implementation of
computerized layout or location techniques. Rectilinear method requires the use of a two
dimensional space with a horizontal axis, X, and a vertical axis, Y. Rectilinear distance often
is called “Manhattan” distance because it requires going around the block when no straight-
line route is available.
If A and B are the locations in question, the Rectilinear distance between A and B is given by
the following formula:
Dr = X A  X B  YA  YB
Where:
Dr = Rectilinear distance measure between location A and location B;
XA = X coordinate of location A;
XB = X coordinate of location B;
YA = Y coordinate of location A;
YB = Y coordinate of location B.
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Education.
Example Problem—Calculation of the Rectilinear Distance:

When answering this question, refer to textbook, Chapter 8, Problem 13.
a. Determine the Rectilinear distance between location A and B.

b. Determine the Rectilinear distance between location A and D.
c. Determine the Rectilinear distance between location B and D.
Solution to Example Problem—Measurement of Rectilinear Distance:

a. The Rectilinear distance between location A and B is:
Dr = X A  X B  YA  YB
Dr = 5  6  7  9  3
b. The Rectilinear distance between location A and D is:
Dr = X A  X D  YA  YD
Dr = 5  9  7  4  7
c. The Rectilinear distance between location B and D is:
Dr = X B  X D  YB  YD
Dr = 6  9  9  4  8
The main advantage of this method is the ease of calculations, while the disadvantage is that
it generally overestimates the distance. Because of its propensity to overestimate distance,
Rectilinear distance is sometimes referred to as the pessimistic distance measurement
method. Rectilinear measure of distance is more commonly used in solving facility layout
problems.
3. Euclidean Method
This mathematical method is based on the Pythagorean Theorem. Euclidean distance
measures distance “as the crow flies” and is most applicable when a straight-line route is
possible.
The following formula for the hypotenuse of a right triangle provides us with the Euclidean
distance:
C2 = A2 + B2 or C = A2  B 2
C is the side of a right triangle opposite the right angle, and A and B are the right degree sides
of a right degree triangle.
The Euclidean distance method also requires the use of a two dimensional space with a
horizontal axis, X, and a vertical axis, Y.
If F and G are the locations in question, then the Euclidean distance between F and G is given
by the following formula:
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Education.
De   X F  X G 2  YF  YG 2
Where:
De = Euclidean distance measure between location F and location G;
XF = X coordinate of location F;
XG = X coordinate of location G;
YF = Y coordinate of location F;
YG = Y coordinate of location G.
Example Problem—Calculation of the Euclidean Distance:

Refer to textbook, Chapter 8, Problem 13.
a. Determine the Euclidean distance between location A and B.
b. Determine the Euclidean distance between location A and D.
c. Determine the Euclidean distance between location B and D.
Solution to Example Problem—Calculation of the Euclidean Distance:
De   X A  X B   YA  YB 
a. 2 2
De  5  62  7  92
De  5  2.236
b. De   X A  X D 2  YA  YD 2
De  5  92  7  42
De  16  9
De  25  5
c. De   X B  X D 2  YB  YD 2
De  6  92  9  42
De  9  25
De  34  5.831
The Euclidean distance is the direct or the shortest distance between two given sites.
Therefore, for any given pair of sites, the Euclidean distance provides the most direct or the
straight-line connection. In most cases, however, there is no straight route between a pair of
locations. Therefore, the Euclidean measure provides an optimistic measure of distance and
in most cases underestimates the true distance.
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Education.
4. Weighted Average Method

As we discussed in the previous sections, the Rectilinear method is a conservative,
pessimistic measure of distance, and the Euclidean method is an optimistic measure of
distance. Both Euclidean and Rectilinear measures of distance are frequently the only
standard distance options used as a part of many layout and location software programs.
However, some managers prefer the weighted average method that provides a compromise
distance between the optimistic Euclidean and the pessimistic Rectilinear methods.
If A and B are the locations in question, then the weighted average distance between A and B
is given by the following formula:
Dwa  (we )  ( De )  (wr )  ( Dr )
Where:
Dr = Rectilinear distance measure between location A and location B;
De = Euclidean distance measure between location A and location B;
wr = weight associated with the Rectilinear distance;
we = weight associated with the Euclidean distance.
 w 1
i i
wi  0
Example Problem—Calculation of the Weighted Average Distance:

Refer to textbook, Chapter 8, Problem 13 and the two examples given earlier in this section.
Assume that the pessimistic (Rectilinear) weight is 0.4 and the optimistic (Euclidean) weight
is 0.6.
a. Determine the weighted average distance between location A and B.
b. Determine the weighted average distance between location A and D.
c. Determine the weighted average distance between location B and D.
Solution to Example Problem—Weighted Average

a. The weighted average distance between location A and B is:
DWA = (0.4)(3) + (0.6)(2.236) = 2.5416
b. The weighted average distance between location A and D is:

DWA = (0.4)(7) + (0.6)(5) = 5.8
c. The weighted average distance between location B and D is:

DWA = (0.4)(8) + (0.6)(5.831) = 6.7
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Education.
Exercise Problems
1. Refer to textbook Problem 15 in Chapter 8, and measure the Rectilinear distance between
destination 1 and destination 5.
2. Refer to textbook Problem 15 in Chapter 8, and measure the Euclidean distance between
3. Refer to textbook Problem 15 in Chapter 8, and measure the Weighted Average distance
between destination 1 and destination 5 (wr = 0.3 and we = 0.7).
4. Refer to textbook Problem 15 in Chapter 8 and measure the Rectilinear distance between
5. Refer to textbook Problem 15 in Chapter 8, and measure the Euclidean distance between
6. Refer to textbook Problem 15 in Chapter 8, and measure the Weighted Average distance
between destination 1 and destination 3 (wr = 0.5 and we = 0.5).
Solutions to Exercise Problems

1. Dr  1  5  2  3  5
2. De  17  4.1231
3. DWA  (0.3)(5)  (0.7)(4.1231)  4.3862
4. Dr  1  3  2  1  3
5. De  5  2.2361
6. DWA  (0.5)(3)  (0.5)(2.2361)  2.6181
B. Center of Gravity Method with Predetermined Sites:

(Weighted Distance Technique)
The center of gravity method in its original form identifies a central location relative to its
distance to other existing locations and the amount of goods shipped to and from other existing
locations. However, the center of gravity method in its original form is unable to evaluate specific
location alternatives. If we have narrowed the choice of the new location to a few known specific
sites, then the weighted distance technique can evaluate these known locations.
For each candidate site, a weighted distance value is computed using the following formula:
n
WD   wi d i
i
where:
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WD = weighted distance value for a given site

wi = weight associated with existing location i
di = the distance between existing site i and the proposed location
For a typical facility location problem, wi (weight) represents the amount of goods or units
shipped between the proposed location and the existing location i.
For a facility layout problem, wi (weight) represents the number of trips between the existing
location i and the proposed location.
Distance is calculated using either Rectilinear, Euclidean or Weighted Average methods. The site
with the lowest weighted-distance would be selected, because the lowest weighted-distance
usually results in the lowest transportation costs.
Problem 1
Based on the destination locations and quantities given in textbook problem 15, the company is
considering two locations for a new plant. The coordinates of the first plant location are: (x = 2, y
= 3) and the coordinates of the second location are: (x = 4, y = 3).
a. Determine the Euclidean distance from the first proposed plant location to all of the
destination locations.
b. Determine the Rectilinear distance from the first proposed plant location to all of the
c. Determine the Euclidean distance from the second proposed plant location to all of the
d. Determine the Rectilinear distance from the second proposed plant location to all of the
e. Determine the Weighted Distance value for the first and second proposed plant locations
based on Euclidean distance and decide where the new plant should be located.
f. Determine the Weighted Distance value for the first and second proposed plant locations
based on Rectilinear distance and decide where the new plant should be located.
Solution to Problem 1
Destination X coordinate Y coordinate Q

D1 1 2 900
D2 2 4 300
D3 3 1 700
D4 4 2 600
D5 5 3 1200
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a. Plant Site 1—Euclidean Distance

From Plant Site 1 (P1) to Destination j (Dj)
Euclidean Distance ( P1  D1 )  (2  1) 2  (3  2) 2  2  1.414

Euclidean Distance ( P1  D2 )  (2  2) 2  (3  4) 2  1  1
Euclidean Distance ( P1  D5 )  (2  5) 2  (3  3) 2  9  3
b. Plant Site 1—Rectilinear Distance

Rectilinear Distance( P1  D1 )  2  1  3  2  2
c. Plant Site 2—Euclidean Distance

Euclidean Distance( P2  D1 )  (4  1) 2  (3  2) 2  10  3.162
Euclidean Distance( P2  D4 )  (4  4) 2  (3  2) 2  1  1
Euclidean Distance( P2  D5 )  (4  5) 2  (3  3) 2  1  1
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d. Plant Site 2—Rectilinear Distance

e. Weighted Distance Values Based on Euclidean Distances

P1 = Plant 1
P2 = Plant 2
k = # of existing locations
k
w d
i 1
i i
WDP1 = 900(1.414) + 300(1) + 700(2.236) + 600(2.236) + 1,200(3) = 8,079.4

WDP2 = 900(3.162) + 300(2.236) + 700(2.236) + 600(1) + 1,200(1) = 6,881.8
Because 6,881.8 < 8,079.4, choose proposed Plant Location 2.
f. Weighted distance values based on Rectilinear distances

WDP1 = 900(2) + 300(1) + 700(3) + 600(3) + 1,200(3) = 9,600
WDP2 = 900(4) + 300(3) + 700(3) + 600(1) + 1,200(1) = 8,400
Because 8,400 < 9,600, choose proposed Plant Location 2.
C. Factor Scoring Model

This simplistic selection procedure has many areas of application. The two most common areas of
application are: 1) Facility Location; 2) Product Selection.
Factor Scoring is a very flexible method that considers both tangible and intangible factors. It has
the capability to consider multiple decision criteria simultaneously.
Steps of the Factor Scoring Model:

1. Develop a list of (factors) criteria to be considered. The decision maker should consider these
factors important in evaluating each decision alternative.
2. Assign a weight to each factor that describes the factor’s relative importance.
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Let wi = the weight for factor i, where i = 1, 2, ….., F

F = the number of factors considered.
The higher the weight, the more important the criterion.
We will use a five-point scale to establish the relative importance of the factors considered.
The following table provides an interpretation of the weight scale:
Factor Weight Interpretation Table
Importance Weight
Very important 5
Somewhat important 4
Average importance 3
Somewhat unimportant 2
Very unimportant 1
For example, if a factor has a weight of 4, it is somewhat more important than the average
factor.
If a factor has a weight of 1, relative to the other factors being considered, the factor in
question is very unimportant.
3. Determine a list of decision alternatives. Let dj = decision alternative j and assign a rating for
each factor/decision alternative combination.
Let rij = the rating for factor i and decision alternative j.
Where j = 1, 2,……, D and
D = number of decision alternatives considered.
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For the purposes of rating each decision alternative/factor combination, we use the following
9-point scale.
Level of Satisfaction Rating

Extremely High 9
Very high 8
High 7
Slightly High 6
Average 5
Slightly Low 4
Low 3
Very Low 2
Extremely Low 1
For example, a score of 7 for a given decision alternative would indicate that the decision
maker (manager) rates this decision alternative (location) high with respect to a given factor.
4. Compute the factor score for each decision alternative. Let Sj = factor score
F
S j   wi rij
i
5. Sequence the decision alternatives from the highest score to the lowest score. The decision
alternative with the highest factor score is the recommended decision alternative. The
decision alternative with the second highest factor score is the second choice decision
alternative and so on.
Three popular areas of application for the Factor Scoring model are product selection, facility
location, and job selection. Product selection and facility location are company-related
problems while the job selection is an individual problem. An example for each of the three
applications is provided in the following pages.
PRODUCT SELECTION EXAMPLE

An appliance manufacturing company is considering expanding its product line. It has sufficient
capital to introduce only one of the three following products:
1. Microwave Ovens
2. Refrigerators
3. Stoves
Management thinks that the following decision criteria should be used in selecting the product:
1. Manufacturing capability/cost
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2. Market demand
3. Unit profit margin
4. Long term profitability/growth
5. Transportation costs
6. Useful life
The company has determined the following weights for the decision criteria (factors):
FACTOR WEIGHT
Manufacturing capability/cost 4
Market demand 5
Unit profit margin 3
Long term profitability/growth 5
Transportation costs 2
Useful life 1
The decision factor ratings for each criteria are given in the following table:
DECISION FACTOR RATINGS

FACTOR MICROWAVE REFRIGERATOR STOVE
1 4 3 8
2 8 4 2
3 6 9 5
4 3 6 7
5 9 2 4
6 1 5 6
Based on the information provided, determine the factor scores for all three products. What is the
best choice for the appliance manufacturing company? What is the second best choice?
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FACILITY LOCATION EXAMPLE

Due to a significant sustained increase in demand, the ITM fastener manufacturing company has
decided to build a new plant. After an initial study, it has narrowed its choices to four locations:
1. Albany, New York
2. Indianapolis, Indiana
3. Akron, Ohio
4. Mason, Georgia
ITM also identified the following as being important factors in terms of the facility location
decision:
1. Transportation costs
2. Construction/land costs
3. Labor climate
4. Availability of qualified labor
5. Production costs
On a five-point scale, the company has determined the following weights for these factors:
FACTOR WEIGHTS
FACTOR WEIGHTS
Transportation costs 5
Construction/land costs 3
Labor climate 1
Availability of qualified labor 2
Production costs 4
The decision factor ratings for each criterion are given in the following table:
DECISION FACTOR RATINGS

FACTOR ALBANY INDIANAPOLIS AKRON MASON
1 3 8 6 1
2 5 4 7 8
3 3 5 2 9
4 8 7 6 2
5 4 5 6 7
Determine the factor scores for all four locations. What is the recommended site? If the first site
is not available, what is the second choice?
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JOB SELECTION EXAMPLE

Assume that you are a senior student majoring in Marketing. You have been involved in the job
search process for the last few months. At this time you have three job offers from three different
firms. Your potential job titles and locations of the jobs are presented below:
1. Pharmaceutical Sales—Chicago
2. Marketing Research—St. Louis
3. Advertising/Promotions—San Diego
The salaries of the jobs are as follows:
1. Chicago: $37,000
2. St. Louis: $30,000
3. San Diego: $40,000
The following table provides additional information about each job and company:
COMPANY/JOB CHARACTERISTICS
CHARACTERISTIC CHICAGO ST. LOUIS SAN DIEGO
Culture Formal Mix Informal
Job Security High Medium Low
Future Earnings &
Limited Medium High
Advancement Potential
Job Expectations Reasonable Medium Very High
a. Determine the weights for all the listed factors (5 being very important and 1 being very
unimportant) and rate the importance of the factors from one to five.
FACTOR # FACTORS WEIGHT

1 Type of Job
2 Salary
3 Culture
4 Job Security
5 Future Earnings & Advancement Potential
6 Job Expectations
7 Location Proximity to Family & Friends
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b. Complete the following table indicating your decision factor ratings for each criteria.
FACTOR # CHICAGO ST. LOUIS SAN DIEGO

1
2
3
4
5
6
7
c. Determine the factor score for each location.

d. Based on your answer to part c, indicate the best choice and the second best choice.
Solutions to Example Problems
SOLUTION TO PRODUCT SELECTION PROBLEM

Smicro = 4(4) + 5(8) + 3(6) + 5(3) + 2(9) + 1(1)
Smicro = 16 + 40 + 18 + 15 + 18 + 1 = 108
Srefrigerator = 4(3) + 5(4) + 3(9) + 5(6) + 2(2) + 1(5)
Srefrigerator = 12 + 20 + 27 + 30 + 4 + 5 = 98
Sstove = 4(8) + 5(2) + 3(5) + 5(7) + 2(4) + 1(6)
Sstove = 32 + 10 + 15 + 35 + 8 + 6 = 106
Therefore, the first choice is the microwave oven and the second choice is the stove.
SOLUTION TO FACILITY LOCATION PROBLEM

SAlbany = 5(3) + 3(5) + 1(3) + 2(8) + 4(4) = 65
SIndianapolis = 5(8) + 3(4) + 1(5) + 2(7) + 4(5) = 91
SAkron = 5(6) + 3(7) + 1(2) + 2(6) + 4(6) = 89
SMason = 5(1) + 3(8) + 1(9) + 2(2) + 4(7) = 70
Indianapolis is the first choice and Akron is the second choice.
D. Emergency Facility Location

The factors considered in deciding where to locate a facility differ drastically among different
types of facilities depending on the type of facility considered and the location of the existing
facilities. For example, in deciding where to locate a distribution warehouse, a firm would
consider a number of factors including the location of the existing warehouses, the location of
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the manufacturing facilities that would supply the warehouse, and the location of existing stores
that the warehouse would supply. On the other hand, if we were deciding the location of a new
restaurant franchise, we would consider the location of existing restaurants, both competitive
eateries as well as other branches of the franchise. We also would consider the population of the
surrounding communities and, more importantly, the forecasted demand from each community.
The factors considered in locating service facilities tend to be different than the factors considered
in locating manufacturing facilities. In addition, there is further variation among the location
factors depending on the type of service provided. In this section, we will solve emergency
facility problems, where the most important factor (objective) is saving human lives. One way to
minimize loss of life in the context of emergency facility location is through minimization of
emergency response time. The response time is defined as the amount of time between receiving
the emergency call and an emergency vehicle arriving at the site of emergency.
The emergency facility objectives (methods) can be categorized as follows:
1. Minimization of maximum response time
2. Minimization of average response time
3. Minimization of weighted average response time
In minimizing the maximum response time, we are concerned about the worst-case scenario
response. In minimizing the average response time, the chosen location will be the site with the
lowest average response time, even though the worst-case response may not be desirable. These
first two objectives may be acceptable if the need or the demand for emergency vehicles do not
differ among the different communities served. However, in many cases the demand for vehicles
will differ among different locations. A retirement community or a community with a high crime
rate experiences higher demand for emergency vehicles than a safer and younger community. The
third category, minimizing weighted average response time, specifically considers variable
demand for emergency vehicles.
To utilize any of the above methods, we must first determine the feasible sites that require
emergency service, and then we must decide on the proposed sites that can be used to locate the
emergency facility. Finally, the response time between each site needs to be represented as a
network with nodes and arcs where each node represents a community or location while each arc
represents the estimated response time between two locations.
A two-stage procedure is used in determining the location of an emergency facility using any of
the three methods introduced above. The first stage is the same for all three methods and consists
of determining the shortest route (response time) between each of the nodes in the emergency
network. There are formal algorithms for determining the shortest route, however we will assume
that the networks are simple enough to obtain all of the shortest routes using simple intuition. The
second stage of the procedure depends on which method is utilized. The following section
summarizes the second stage for each method.
Minimization of maximum response time:
After determining the maximum response time from each proposed location, we simply choose
the location with the smallest of the maximum response times.
Minimization of average response time:
After determining the average response time from each proposed location, we simply choose the
location with the smallest average response time.
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Minimization of weighted average response time:

First, we determine the weighted-average response time using the following formula:
Let :
w j  weight of location j (# of trips to location j)
tij  shortest responsetime from location i to location j
WATi  weighted averageresponsetime from location i
k  number of locations served
l  number of proposed locations

k
w t
j1
j ij
WATi  k
for all i  1,2,...l
w
j1
j
The best way to develop a further intuitive understanding for emergency vehicle location is
through solving problems. Therefore, in the next section we provide three simple example
problems.
Problem 1
The local hospital in northeast Ohio has just received approval from its executive board to build a
new emergency facility. The facility will serve six communities in northeast Ohio. The response
times in minutes are given in the network figure below.
Network Diagram 1
7
2 4
8
6 5
1 10
11
5
9 3
4
3 7 6
a. Based on the emergency response network given above, determine the location of the
emergency facility that minimizes the maximum response time.
b. Based on the emergency response network given above, determine the location of the
emergency facility that minimizes the average response time.
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c. Assume that community 4 is a retirement community and community 6 is a high crime area.
Therefore, these communities experience higher demand for emergency vehicles than the
other communities do. Based on historical data from last year, the average number of weekly
emergency trips to the six communities is given in the following table.
Average Number of Weekly Emergency Trips
Community 1 Community 2 Community 3 Community 4 Community 5 Community 6
8 trips 5 trips 10 trips 20 trips 12 trips 24 trips
Use the weighted average response time criteria and the # of trips as the respective weights
and determine the best location for the emergency center.
Problem 2
The city of Hampton is in the process of making a decision on where to locate a fire department
that will serve the entire city. The city is divided into seven communities. The network of cities
with fire truck response times is given in the following figure.
Network Diagram 2
5
2 4 10
4 6
8 2
1 9 7
7 6
3
7
3 6
5
a. Determine the best location for the fire station based on the objective of minimizing the
maximum response time.
b. Determine the best location for the fire station based on the objective of minimizing the
average response time.
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Problem 3
The mayor of a small town is planning to select one of three sites as the location for its
ambulance facility. The town consultant has determined the following response times from each
of the proposed locations to the four main areas of the town that must be served (North, South,
East, and West).
Area Served
Proposed Site North South East West
A 4 8 10 6
B 9 5 7 3
C 11 6 2 7
a. If the mayor selects the site for the ambulance facility based on minimizing the maximum
response time, which site should be selected?
b. If the mayor selects the site for the ambulance facility based on minimizing the average
response time, which site should be selected?
c. The number of ambulance trips to each of the four areas in the past year has been: North =
120; South = 280; East = 80; and West = 340. Use the weighted average response time and
determine the best site location for the mayor.
Shortest Response Time Matrix
To
Average
Longest Response
From 1 2 3 4 5 6 Response Time Time
1 0 8 9 15 10 13 15 9.17
2 8 0 10 7 6 9 10 6.67
3 9 10 0 9 4 7 10 6.50
4 15 7 9 0 5 8 15 7.33
5 10 6 4 5 0 3 10 4.67
6 13 9 7 8 3 0 13 6.67
a. Using the longest response time criteria, we can choose community 2, 3, or 5 (minimum
maximum response time of 10 minutes).
b. The calculation of average response time to community 5 is:
10  6  4  5  0  3
 4.67 min .
6
Using the average response time method, we select location 5 (4.67 minutes is the smallest
average response time).
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c.
8(0)  5(8)  10(9)  20(15)  12(10)  24(13)

WAT1   10.91
8  5  10  20  12  24
8(8)  5(0)  10(10)  20(7)  12(6)  24(9)
WAT2   7.49
8  5  10  20  12  24
8(9)  5(10)  10(0)  20(9)  12(4)  24(7)
WAT3   6.56
8  5  10  20  12  24
8(15)  5(7)  10(9)  20(0)  12(5)  24(8)
WAT4   6.29
8  5  10  20  12  24
8(10)  5(6)  10(4)  20(5)  12(0)  24(3)
WAT5   4.08
8  5  10  20  12  24
8(13)  5(9)  10(7)  20(8)  12(3)  24(0)
WAT6   5.25
8  5  10  20  12  24
Select location 5 because it has the lowest weighted average response time (4.08 minutes).
Shortest Response Time Matrix
To
Average
Longest Response
From 1 2 3 4 5 6 7 Response Time Time
1 0 4 7 9 13 15 17 17 9.29
2 4 0 8 5 14 11 13 14 7.86
3 7 8 0 9 6 9 11 11 7.14
4 9 5 9 0 9 6 8 9 6.57
5 13 14 6 9 0 3 5 14 7.14
6 15 11 9 6 3 0 2 15 6.57
7 17 13 11 8 5 2 0 17 8.00
a. Using the longest response time criteria, we choose location 4 because the minimum longest
response time is 9 minutes.
b. The calculation of average response time to location 6 is:
15  11  9  6  3  0  2
 6.57 min .
7
Using the average response time method, we select location 4 or 6 (6.57 minutes is the
smallest average response time).
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a. Maximum response times from proposed locations A, B, and C are 10, 9, and 11,
respectively. Choose site B because it has the lowest maximum response time.
b. Average response times from proposed locations A, B, and C are 7, 6, and 6.5, respectively.
Therefore, because 6 < 6.5 < 7, choose site B.
c.
120(4)  280(8)  80(10)  340(6)
WATA   6.78 min .
120  280  80  340
120(9)  280(5)  80(7)  340(3)
WATB   4.95 min .
120  280  80  340
120(11)  280(6)  80(2)  340(7)
WATC   6.76 min .
120  280  80  340
Choose site B because it has the lowest weighted average response time (4.95 minutes).
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Chapter 08 - Location Planning and Analysis

Omaha Kansas City

Determine the expected profits per year for each alternative:

Conclusion: Kansas City would produce the greater profit.

Location A: 21,000($2.65 – $1.76) – $5,000 = $13,690 per month

Conclusion: Location C would yield the greatest profits.

TC (Location A) = $800,000 + $14,000Q

Set the two cost equations equal and solve for Q:

$800,000 + $14,000Q = $920,000 + $13,000Q

b. Range over which A and B would be superior:

A (new) B (sub) C (expand)

a. Step 1: Determine the total cost equation for each alternative.

Step 2: Graph the alternatives.

400 A (new location)

0 33.3 100 200 300 400

Step 3: Determine over what range each alternative is preferred.

$2,500Q = $50,000 + $1,000Q

$50,000 + $1,000Q = $250,000 + $500Q

b. Expected volume of 150 boats:

Step 1: Change the costs in the table.

A (new) B (sub) C (expand)

Step 2: Determine the total cost equation for each alternative.

Step 3: Find TC for 150 units.

A: TC = $254,000 + $500(150) = $329,000

Memphis Biloxi Birmingham

Memphis Biloxi Birmingham

Step 2: Determine the total cost equation for each alternative.

Memphis: $90,000 + $8Q

Step 3: Find TC for 10,000 units.

Memphis: $90,000 + $8(10,000) = $170,000

a. (1) Monthly profit for Q = 200 cars:

Step 1: Determine total profit equation for each alternative.

Total profit = Q(R – v) – FC

City: Q($90 – $30) – $7,000

City: 200($90 – $30) – $7,000 = $5,000

(2) Monthly profit for Q = 300 cars:

City: 300($90 – $30) – $7,000 = $11,000

b. Determine the indifference (break-even point) between the two locations.

Q($90 – $30) – $7,000 = Q($90 – $40) – $4,700

Factor Local bank Steel mill Food warehouse Public school

Factor Local bank Steel mill Food warehouse Public school

Conclusion: Based on composite score, Location A seems to be the best.

Conclusion: Based on composite score, Location East #2 seems to be the best.

a. Assume that the manager weights each factor equally.

Conclusion: Location B or C is best, followed by Location A.

Factor Location Score Weight Weight x Score

Conclusion: Location B is best, followed by Location C, and then Location A.

Sum the values in each coordinate’s column.

Conclusion: The new warehouse should be located at 5.0, 4.0.

Sum the values in the quantity column.

Conclusion: The central shipping point should be located at 6.0, 7.0.

Sum the values in the quantity column.

Conclusion: The disposal center should be located at 6.0, 6.0.

L1 coordinates ≈ 2.6, 2.4

Distance between two points = |Difference in X coordinates| + |Difference in Y coordinates|

Conclusion: L2 is closer to the center of gravity and is the better site.

Case: Hello Walmart?

1. Owners of small businesses:

Distance Measurement Methods:

Example Problem—Calculation of the Rectilinear Distance:

a. Determine the Rectilinear distance between location A and B.

Solution to Example Problem—Measurement of Rectilinear Distance:

Example Problem—Calculation of the Euclidean Distance: