8 |Operations Management 1

Unit 8. Location Planning and Analysis

1.0 Learning Outcomes: At the end of the lesson the students are expected to:

1. Differentiate between quality and quantitative approaches for

location planning.
2. Calculate the appropriate location of the plants using simple
mean and center of gravity methods.

1.1 Introduction:
Location planning and analysis is a strategic tool on how to locate the
facility with emphasis on efficiency and productivity. Locating a facility
requires long-term planning considering the cost of the facility, labour,
demand, supply chain and other legal requirements. Here in this study,
we are going to discuss the qualitative and quantitative decisions in
locating a facility.

1.2 Discussion and Assessments

QUALITATIVE APPROACH FOR LOCATION PLANNING

What the needs for location decisions?

Marketing Strategy – The location of facility is also a market strategy because

it is good for the company where the materials are near to the
facility, labour demand are there and other incentives from the
government are awarded such lower taxes.

Cost of Doing Business – The cost of doing business when locating a facility
should be less like transportation costs is minimal, materials and
labour in order to reduce the production cost.
Growth – When the company is growing, sometimes you want to expand
your business to other areas like for example in SM corporation
where they are now have malls in China. Likewise, Jollibee have
expanded their business in other countries.
Depletion of Resources – when resources are depleting, the best decision is to
choose location that adequate resources to continue production of
goods and services.

What are the natures of location decisions?

It is a strategic importance of the company or organizations because
you need to consider the costs or long-term commitment, impact on
investments, revenues, operations and supply chains.

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 8 |Operations Management 2

The objectives of facility location is basically it has potential profit,

locate a strategic location better than the others and identify several locations
from which to choose.
Location decision have other options as well such as to expand the
existing facilities, add new facilities or move to other locations

How to make location decisions?

Of course, you need to decide on what criteria or suitable requirements
for your facility. Identify the important factors such as labor, demand,
materials and legal requirements. Develop a location alternatives based on
some constraints and the evaluate these alternatives to make your selection
effective.

What are factors that affect decisions?

There are four (4) decisions factors that needs to consider in location planning
these are;
 Regional factors - because the raw materials are
adequate. The area has healthy markets such as
banks, commercial establishments etc. The
labor in the area is available and climate is
excellent. Likewise, the taxes are low.

 Community considerations- Also in location

decisions, you need to consider the community
in terms of quality of life, service areas, culture
and attitudes, taxes, environmental
considerations, different utilities and developer
support.

 Site related factors – This also affects the

location decisions because you need to
consider the topography of the land,
transportation, environmental and other legal
requirements.

 Multiple plant strategies – You are going decide what type of

facilities you need to establish such as product plant strategy,
market area strategy or process plant strategy. The decision depends
if its satisfy the demand of the customers.

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 8 |Operations Management 3

What is the comparison between service and manufacturing consideration?

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

What is now the trend in locations?

 Foreign Government - there are policies for
foreign ownership of production facilities
such as local content, currency restrictions,
environmental regulations, local product
standards and stability Issues.
 Cultural Differences – these refers to living
circumstances for foreign
workers/dependents religious
holidas/traditions
 The customer preferences whether they have the ability to buy locally
made products.
 Labor – this refers to the level of training and education of workers and
work practices. Of course, regulations of limiting the number of foreign
employees and language differences.
 Resources – The trends now is the availability of raw materials, energy
and transportation.

QUANTITATIVE APPROACH IN LOCATION PLANNING

METHODS OF FACILITY LOCATION USING SIMPLE MEDIAN METHOD

This is used for single-facility location problems with rectilinear distance or

the horizontal and vertical movement.

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 8 |Operations Management 4

Procedure on how to do the median simple method

 Find the relative grid position of all existing and perspective locations
in terms of x and y coordinates.
 Find the load at each location. This can be the number of people served
or the amount of goods to be transported.
 Arrange the x and y coordinate in the ascending order with their
respective loads in 2 different tables.


D (15,15) = 100

C (13,13) = 300

10
B (3,8) = 200

A (10,4) = 250

0 10

Assume the green line is the map of Catbalogan City and enclose with
the x and y plane. The grid is used to locate the existing facility of the
city using the x and y coordinates. Assume each grid is one kilometer
distance and each point represents the location of existing company or
industry with the assigned demand such as the volume of customers or
products and services produce.

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 8 |Operations Management 5

Create table for X table and arrange the in ascending order based
coordinate.
Facility X Coordinate Load Cumulative
Note:
B 3 200 200
If the total is odd number then
A 10 250 450 use this formula = ( N/2+1)
C 13 300 750 If the total is even number
then, (N/2)
D 15 100 850
Total (N) 850
N/2 425

To Solve for X
 Divide the total 850/2 = 425, Find the closest range from load to
cumulative. In this case, Facility which has the range from 250 – 450 and
425 is within the range.
 Therefore, X median is 10

Next Step Solve for Y-axis

Create the table for Y axis and arrange in ascending order based
coordinate.
Facility Y- Coordinate Load Cumulative
A 4 250 250
B 8 200 450
C 13 300 750
D 15 100 850
Total (N) 850
N/2 425

Therefore the axis of Y is 8.

The location for the new plant is (X10, Y8). Look at the graph below.

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 8 |Operations Management 6

Plot the coordinates

D (15,15) = 100

C (13,13) = 300 Suitable Location of

Facility using Median
Method
10
B (3,8) = 200
(10,8)

A (10,4) = 250

10

EXERCISE NO.1
Assuming there are 5 existing plants in Catbalogan City which have materials
relationship to the new plan. The location of 5 existing plants are at (5,4), (6,7),
(11,8), (2,9) and (15,3). The amount of materials of the new plant to be
transported to these existing plants are 530, 1150, 480, 940 and 850
respectively. Compute the location of the new plant to determine the
minimum distance using the table below.

Existing X- Y- Weights
Plants Coordinate Coordinate (tons)
1 2 3 480
2 5 4 530
3 6 7 850
4 11 8 940
5 15 9 1150

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 8 |Operations Management 7

EXERCISE NO.2
Suppose you are going to locate a new plant to supply these existing plants
P1, P2, P3, P4 with the grid position and load. Calculate using median method
to minimize the transportation cost. Use the table below.

Existing X- Y- Load
Plants Coordinate Coordinate
1 50 40 600
2 20 30 500
3 60 70 800
4 80 10 200

CENTER OF GRAVITY METHOD

Another method of location planning is the center of gravity; this is also called
the Grid or Centroid Method. The purpose of which is to minimize the
weighted distance between the warehouse and its supply distribution points.
In calculating the center of gravity, you need to consider the existing location
of plants, volume of goods and services, transportation distance and cost.

STEPS IN CALCULATING THE CENTER OF GRAVITY

 Locate the existing plants in a coordinate system.

 Find the relative position of all existing plants.
 Identify the volume or load of each location.
 Use the Center of Gravity formula for x-axis and y-axis

Formula for finding the center of gravity for X and Y axis.

∑ 𝑋𝑖 𝑉𝑖 ∑ 𝑌𝑖 𝑉𝑖
𝑋𝐶 = ∑ 𝑉𝑖 𝑌𝐶 = ∑ 𝑉𝑖

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 8 |Operations Management 8

Assume the red spots are the existing plants. Each plant location
has a designated volume of demand for example materials or services.

F(5,15)100 E(12,15)200

D(4,12) 150
C(12,11)/350

10
A(8,7)500
B(12,6)700

10
Create a table for X- axis and its load

Plants 𝑋𝑖 𝑉𝑖 𝑋𝑖 𝑉𝑖
Coordinate (Load
A 8 500 4000
B 14 700 9800
C 12 350 4200
D 4 150 600
E 12 200 2400
F 5 100 500
Total 2000 16500

∑ 𝑋𝑖 𝑉 𝑖 21500
𝑋𝐶 = ∑ 𝑉𝑖
=
2000

X = 10.75

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 8 |Operations Management 9

Plants 𝑌𝑖 𝑉𝑖 𝑌𝑖 𝑉𝑖
Coordinate (Load
A 7 500 3500
B 6 700 4200
C 11 350 3850
D 12 150 1800
E 15 200 3000
F 15 100 1500
Total 2000 16500

∑ 𝑌𝑖 𝑉𝑖 17850
𝑌𝐶 = ∑ 𝑉𝑖
=
2000

Y = 8.925

E(12,15)200

D(4,12) 150
C(12,11)/350

10
A(8,7)500
B(12,6)700
CENTER OF
GRAVITY

(10.75,8.925)

10

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 8 |Operations Management 10

Exercise No. 3 Locating the Facility using Center of Gravity

On the table below, there are eight (8) manufacturers for Toyota parts in
different locations with X and Y coordinates with the corresponding volumes.
Using the center of gravity find the appropriate location to minimize the
transportation cost or the distance travel.

Manufacturing Xi Yi Volume
Plants (km) (km) (Vi)
1 3.5 7.5 12
2 4 5.5 25
3 7 8 15
4 12 10 13
5 13 6 40
6 10 2 30
7 15 14.5 20
8 12 2 50

Exercise No.4

Assuming the province of Samar will establish a new Hospital to serve the
population of the seven municipalities along carline of the 2nd district of the
province. Use the table below with the existing location of the municipalities
and population as the volume. Calculate the appropriate location for the new
facility to minimize the travel of the people to avail the health services.

Manufacturing Xi Yi Volume
Plants (km) (km) (Vi)
Jiabong 10 12 10000
Motiong 12 15 9000
Paranas 25 30 11000
Hinabangan 40 45 8500
Calbiga 55 60 15000
Sta.Rita 65 75 21000
Basey 80 90 13000

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 8 |Operations Management 11

1.3 References:
Kumar, S., Suresh, S., (2009) Operations Management, New Age
International Publisher, ISBN (13) : 978-81-224-2883-4
Rowbotham, F., Galloway, L. Azhhashemi, M. (2007) Operations
Mangement Context. Elseview, SBN–13: 978-0-7506-8198-8
Gupta, S., StarrM.,(2014) Production and Operations Management
Systems, CRC Press
Kumar, S., Suresh, S., (2008) Production and Operations Management with
Skill Development, Caselets and Cases, New Age International Publisher,
ISBN : 978-81-224-2425-6

Samar State University- College of Industrial Technology, for inquiries you can contact me @ 0936-762-1839 or send it to ronie.velasco@ssu.edu.ph.