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Location Planning &

Analysis

OUTLINE

•Objectives
 be able to determine some of the main reasons
for establishing of new plant
 be able to discuss the major factors that affect
location decisions
 be able to use the techniques for solving plant
location problems

•Examples and Assignment

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Main Reasons for Establishing

New Plant
•Need to manufacture and market a new
product
•Result of a review of existing plant – limited
capabilities, inefficiencies in production and
material handling
•Increasing in production, material, labour or
other costs

Major Factors that Affect

Location Decisions
• Location of raw materials or supplies
• Location of markets
• Labour
• Community – services, taxes, utilities,
environmental regulations, quality of life
• Land – size, site, cost
• Transportation – access road, air freight, railway
• Legal – zoning restrictions

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Comparison of Service and

Manufacturing Considerations

Manufacturing/Distribution Service/Retail

Cost Focus Revenue Focus

Transportation modes/costs Demographics: age, income, etc

Energy availability/costs Population/drawing area

Labor cost/availability/skills Competition

Building/leasing costs Traffic volume/patterns

Customer access/parking

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Globalization
•Facilitating Factors
• Trade agreements
• Technology
•Benefits
• Markets
• Cost savings
• Legaland regulatory
• Financial

Globalization
•Disadvantages
• Transportation costs
• Security
• Unskilled labor
• Import restrictions
• Criticisms

•Risks
• Political
• Terrorism
• Economic
• Legal
• Cultural

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Techniques for Solving Plant

Location Problem
•Factor Rating or Weighted Scores
•Centre of Gravity
•Break Even Analysis
•Cost-Profit-Volume Analysis

•Transportation Model – Linear

Programming

Factor Rating or Weighted

Scores
• List relevant factors e.g. raw materials, market
• Weigh the factors based on importance
• Develop scale for each factor
• Have management score for each factor
• Multiply the score by the weights
• Make recommendation based on max points score

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Example
Location
Factor Weight A B C

Raw Materials 0.4 80 70 80

Market 0.2 40 60 80
Transportation Cost 0.1 90 70 50
Labour Cost 0.2 70 70 50
Construction Cost 0.1 90 80 60

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Factor A B C

Raw Materials

Market

Transportation Cost

Labour Cost

Construction Cost

Total Point Score

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Tutorial 1

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Center of Gravity Method

• If quantities to be shipped to every location are equal, you can

obtain the coordinates of the center of gravity by finding the
average of the x-coordinates and the average of the y-
coordinates

x
x i

y
y i

n
where
xi  x coordinates of destination i
yi  y coordinates of destination i
n  Number of destinations

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Example: Center of Gravity

Method
Suppose you are attempting to find the center of
gravity for the problem depicted in Figure 8.1c.

Destination x y
D1
D2
D3
D4

Here, the center of gravity is

( ). This is slightly west of
D3 from Figure 8.1

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Center of Gravity Method

• When the quantities to be shipped to every location are unequal, you can
obtain the coordinates of the center of gravity by finding the weighted
average of the x-coordinates and the average of the y-coordinates

x
xQ i i

Q i

y
yQ i i

Q i

where
Qi  Quantity to be shipped to destination i
xi  x coordinates of destination i
yi  y coordinates of destination i

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Example: Center of Gravity

• Suppose the shipments for the problem depicted in Figure 8.1a are not all
equal. Determine the center of gravity based on the following information.

Weekly
Destination x y Quantity
D1 2 2 800
D2 3 5 900
D3 5 4 200
D4 8 5 1000

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Example: Center of Gravity

• The coordinates for the center

of gravity are ( ). You
may round the x-coordinate
down to 3.0, so the coordinates
for the center of gravity are
( ). This south of
destination D2 (3, 5).

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Tutorial 2

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Break Even Analysis

Profit= Q(R-V)-FC
Variable cost (V) = RM2 per unit, Fixed Cost (FC) =
RM6,000, Selling Price (R) = RM 7 per unit

a) How many must be sold to break even?

b) What would be the profit or loss be if 1,000 units are sold?
c) How many units must be sold to realize a profit of RM4,000?
d) If 2,000 unit can be sold, and profit target is RM5,000, what
is the price should be charged per roti John?

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V = RM2 per unit, FC = RM6,000, R = RM 7 per unit

a) How many must be sold to break even?

b) What would be the profit or loss be if 1,000 units are sold?

c) How many units must be sold to realize a profit of RM4,000?

d) If 2,000 unit can be sold, and

profit target is RM5,000, what is
the price should be charged per
unit?

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Cost-Profit-Volume Analysis
•Economic comparison
•Identifying fixed and variable costs
•Choose location with the lowest total costs
•Can be carried out mathematically or
graphically

Determine fixed and variable costs

Plot total costs
Determine lowest total costs

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Example

The owner of a millwork shop is considering 3 alternative

locations for a new plant. With the given fixed and variable
costs below, determine the best location. The shop expects to
sell a total of 65,000 units doors per year.

Location
Costs A B C
Fixed RM 700,000 RM 900,000 RM 1,200,000
Variable RM 26 RM 18 RM 15

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Total Costs = Fixed Cost + (Variable Cost x Quantity)

TCA =

TCB =

TCc =

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Now, plot the graph of Total Costs vs Quantity.

First, need to find the cross over of locations.
Cross over A & B,
TCA = TCB

Cross over B & C,

TCB = TCC

Cross over A & C,

TCA = TCC

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25,000, 45,455 & 100,000

Scale for Q must be more than 100,000 so set 110,000 so

that all crossovers will be in the graph

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Set Q=0, Q=50,000, Q=100,000

EASY TO
CALCULATE

TCc

Make sure y-axis cover up to 3,300,000

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TCC

Check crossover points kena pada

25,000, 45,455 & 100,000

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Buat pagar – 3 crossovers tadi hanya yang tiada TCC

line dibawah boleh buat pagar

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Buat pagar – 3 crossovers tadi hanya yang tiada TC C

TC
Namelinethe area inboleh
dibawah the pagar – choose the lowest line
buat pagar C
in the area

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Write the range based on the valid crossover & area

25,000 & 100,000 TCC
Location A < 25,000

25,000 < Location B <100,000

Location C > 100,000

For 65,000 units doors per year, LOCATION B is suitable..

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From the graph, we can conclude that to maintain lowest

total costs for each location;

• Location A is best for quantity below 25,000 units per

year
Location A < 25,000

• Location B is best for quantity between 25,000 to

100,000 units per year
25,000 < Location B <100,000

• Location C is best for quantity above 100,000 units per

year
Location C > 100,000

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Tutorial 3
AutoBC manufactures brake pads for a number of different
car manufacturers and assemblers. The company needs to
build a new plant for the additional demands. There are 3
sites to be considered. By using fixed and variable costs,
choose a site that will offer a cost effective solution. Expected
quantity to be sold is 12,000 units per year.

Site
Costs Tampin Rawang Shah Alam
Fixed RM 100,000 RM 150,000 RM 400,000

Variable RM 120 RM 75 RM 40

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Step-by-step to plot graph

• Define TC Equations
• Find the crossovers
• Find the Q scale (max Q on x-axis)
• Choose 3 suitable Qs to draw line
• Find the TC scale (max TC on y-axis)
• Plot one by one TC (label or use different color)
• Find crossover in the graph, match with the one you have
calculated
• Draw ‘pagar’ (only for crossover without line below)
• Name the area
• Write the RANGE

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Tutorial 4 Mac 2017

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Tutorial 5 Mac 2016

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Tutorial 6
Jan 2018

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