Introduction
Academic papersFAn
An AHP decision model
for facility location
selection
Jiaqin Yang and
Huei Lee
The authors
Jiaqin Yang is Associate Professor in the Department of
Management, University of North Dakota, Grand Forks,
North Dakota, USA.
Huei Lee is Associate Professor in the Department of
Management and Marketing, Lamar University, Beaumont,
Texas, USA.
Abstract
Presents an AHP (analytical hierarchy process) decision
model for facility location selection from the view of
organizations which contemplate locations of a new
facility or a relocation of existing facilities. The AHP model
provides a framework to assist managers in analysing
various location factors, evaluating location site alterna-
tives, and making final location selections. The primary
principle of the AHP model is to match decision-makers’
preferences with location site characteristics. The model
requires that a number of potential sites have been
proposed. Alternatives are then evaluated and compared
under both quantitative and qualitative factors to allow
managers to incorporate managerial experience and
judgement in the solution process. Uses an example
problem to illustrate the solution process. Addresses
managerial implications for future research.
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Volume 15 · Number 9/10 · September/October 1997 · pp. 241–254
© MCB University Press · ISSN 0263-2772
241
Facility location decision involves organiza-
tions seeking to locate, relocate or expand
their operations. The facility location decision
process encompasses the identification, analy-
sis, evaluation and selection among alterna-
tives. Plants, warehouses, retail outlets, termi-
nals, and storage yards are typical facilities to
be located. Site selection starts normally with
the recognition of a need for additional capac-
ity. A decision is then made to start the search
for the “best” location.
Facility location decision has drawn
increased attention from both academic and
business communities in the past two
decades. Many large corporations even do
sufficient site selections to warrant a full-time
executive for these functions. Facility location
problems have attracted researchers with
diverse backgrounds such as economics,
industrial engineering, and geography (Ghosh
and Harche, 1993).
It has been well recognized that facility
location selection has important strategic
implications for the operations to be located,
because a location decision normally will
involve long-term commitment of resources
and be irreversible in nature. Specifically, the
location choice for a manufacturing facility
may have a significant impact on the firm’s
strategic competitive position in terms of
operating cost, delivery speed performance,
and firm’s flexibility to compete in the
marketplace. For example, selecting a pro-
duction facility location that will allow the
company to achieve proximity to suppliers has
become a critical strategic advantage in the
recent marketplace, since proximity to suppli-
ers is important to JIT (Just-In-Time) pro-
duction systems and flexible distribution
systems for reduced inventories and improved
delivery performance. Therefore, the final
selection of a facility location must contribute
to the success of corporate strategic plans for
financing, marketing, human resource, and
production objectives (Mount, 1990).
The increased attention to business logis-
tics has also contributed to the interest in
location decision (Ballou and Masters, 1993).
Location decision, inventory management,
transportation system design, and customer
service level requirement are four major
components of logistic planning. These com-
ponents should be planned collectively due to
their close interrelations. Location decision
 An AHP decision model for facility location selection
Jiaqin Yang and Huei Lee
research is also promoted by various public
and private interest groups which have a high
stake behind location selection decisions
(Galbraith, DeNoble and Estavillo, 1990). In
the private sector, for instance, location deci-
sions concern many stakeholders including
venture capitalists, financial investors, indus-
trial site developers, as well as hotel and con-
vention centre managers. In contrast, the
primary public interest about location deci-
sions is from local governments or their eco-
nomic development agencies, who view
attracting new business as a key to the eco-
nomic wellbeing of their region and commu-
nities.
Facility location selection is a typical multi-
criteria decision-making (MDM) problem in
which managerial preference among perfor-
mance criteria plays a key role in the final
decision. To assess the decision-maker’s
preference explicitly with a preference model,
many efforts have been made to develop the
theory and methodology for preference
assessment. In the current literature, the most
preferred approaches are multi-attribute
utility theory (MAUT) and analytic hierarchy
process (AHP) (Falkner and Benhajla, 1990;
Saaty, 1990).
The AHP approach was developed in early
1970s in response to military contingency
planning, scarce resources allocation, and the
need for political participation in disarma-
ment agreements (Saaty, 1980). All these
problems rely heavily on measurement and
tradeoff of intangibles in a multicriteria
process. The AHP is a structured method to
elicit preference opinion from decision mak-
ers. Its methodological procedure can easily
be incorporated into multiple objective pro-
gramming formulations with interactive
solution process. The AHP approach involves
decomposing a complex and unstructured
problem into a set of components organized
in a multilevel hierarchic form (Saaty, 1982).
A salient feature of the AHP is to quantify
decision makers’ subjective judgements by
assigning corresponding numerical values
based on the relative importance of factors
under consideration. A conclusion can be
reached by synthesizing the judgements to
determine the overall priorities of variables
(Saaty, 1994a).
An AHP location decision model is devel-
oped in this research. The location decision is
addressed from the perspective of the organi-
zations seeking a site for a new facility, or a
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relocation of an existing facility. Both qualita-
tive and quantitative location factors are
considered in the model. The model is illus-
trated through an example problem.
This paper consists of five sections. The
next section presents findings from selected
literature on facility location. There then
follows a description of the AHP model devel-
oped in this paper, and an illustration of the
solution procedure through an example prob-
lem. Finally, managerial implications are
discussed.
Literature review
A selected literature is reviewed in this sec-
tion. First, the recent trends in facility loca-
tion selection are discussed. Key location
factors that have been identified in recent
literature are then addressed. Finally, an
overview of reported facility location models
and solution procedures are summarized.
Recent trends in facility location
selection
There are two major trends in recent facility
location selection. First, there has been an
increased interest in locating a new facility
abroad to gain potential competitive edge in a
more global marketplace. Second, small to
medium-sized communities, traditionally in a
“disadvantageous” position, have been
becoming more attractive to many businesses
as new facility locations, as the new trans-
portation and communication technologies
are diminishing the traditional distance barri-
er in location selection consideration.
‘…The consideration of locating
production facilities abroad is
primarily motivated by the fact that in
the last two decades, traditional trade
barriers have been tumbling down…’
The consideration of locating production
facilities abroad is primarily motivated by the
fact that in the last two decades, traditional
trade barriers have been tumbling down with
the creation of multilateral international trade
blocks involving several countries, such as:
NAFTA (North American Free Trade Agree-
ment), EC (European Community), and PR
(Pacific Rim). The suggested benefits from
 An AHP decision model for facility location selection
Jiaqin Yang and Huei Lee
locating the operations abroad include: low
cost land, skilled but relative cheaper labours,
closeness to raw materials, early access to
potential markets, and favourable trade regu-
lations by host nations as localized industries.
Major difficulties from locating a facility
abroad have also been addressed, such as:
additional costs due to cultural traditions,
language barriers, business climate differ-
ences, political pressure, as well as difficulty in
dealing at a distance with administrative and
legal procedures. Locating a facility in a for-
eign country is obviously a strategic decision
for a firm in balancing possible risks and
potential benefits and opportunities (Gal-
braith et al., 1990).
‘…New technologies including improved
highway transportation system and
advanced computer and
telecommunication techniques have
changed facility location
consideration…’
New technologies including improved high-
way transportation system and advanced
computer and telecommunication techniques
have changed facility location consideration.
Improved highway system reduces the trans-
portation costs for shipping goods between
traditional remote locations and major indus-
trial distribution centres. New telecommuni-
cation technologies expand business bound-
aries by increasing the distance over which
labour, product, capital, and everything else
can be moved around. These new technolo-
gies have redefined the notion of time and
distance in business and thus have changed
the character, scale, and location of business
operations. As a result, the business world is
experiencing the “end of geography” (ADR,
1993) implying that many businesses are no
longer tied to their original locations, once
considered too remote for potential develop-
ment. With the new technologies, for exam-
ple, distance is no longer a major concern for
delays in customer service, information shar-
ing, and financial transactions. So firms can
open new branches far from their base to take
advantage of proximity to markets and distri-
bution channels.
In summary, the increased attractiveness to
locate abroad and the impact of new
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technologies on facility location consideration
have made the facility location selection
become more strategically important and the
location decision process become more com-
plex.
Location factors
The suitability of a specific site for proposed
facility operations depends largely on what
location factors are selected and evaluated, as
well as their potential impact on corporate
objectives and operations. There are a large
number of location factors that have an influ-
ence on location decisions. Unimportant
factors, including those which are not sensi-
tive to location site and those that the differ-
ence in degree of factor achievement is
insignificant, will be first identified and elimi-
nated from the consideration. The location
factors that have been widely used in industri-
al location research generally can be grouped
into the following categories: Market, Trans-
portation, Labour, Site considerations, Raw
materials and services, Utilities, Governmen-
tal regulations, and Community environment,
as shown in Table I (Levine, 1991).
Location factors have been also addressed
based on the uniqueness of industry type,
facility type, and product life-cycle stage
(HBS, 1989). For example, labour intensive
industries will emphasize more on labour-
related factors such as labour availability and
rate, while high-tech industries will look at
factors that attract highly skilled labours such
as quality of life concerns. Management also
will prioritize factors differently for locating a
new manufacturing facility from locating a
distribution centre. In terms of the product
life-cycle stage, during the new product devel-
opment stage, facilities will often be located in
major R&D centres where facility costs are
usually high but be justified with the prompt
new product introduction. In comparison,
after reaching the growth stage, facilities are
preferred to locate close to major markets to
minimize transportation costs and delivery
time.
The relative importance of location factors
is also changing as the decision process stages
proceed (Haigh, 1990). In the early stage of
identifying preferred geographical areas, only
a few priority items are considered to identify
those regions that satisfy most important
criteria, such as the availability of labour or
proximity to market. When reaching the stage
of selecting specific locations, site-specific
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Jiaqin Yang and Huei Lee Volume 15 · Number 9/10 · September/October 1997 · 241–254

Table I Major facility location factors Table II A general ranking of location factors

1 Access to markets/distribution centres A Pivotal

Cost of serving markets Worker productivity
Trends in sales by areas Receptivity to business and industry
Ability to penetrate local market by plant presence Market access
Skills/technical/professional workers
2 Access to supplies/resources
Transportation access
Transportation costs
Trends in supplier by area B Vital
Living amenities
3 Community/government access Market growth potential
Ambience/cost of living Preference of company executive
Co-operation with established local industry Industrial building available
Community pride Water supply
Housing/churches Unskilled/semi-skilled workers
Schools and colleges
C Important
4 Competitive considerations Proximity to services
Location of competitors Energy supplies
Likely reaction to the new site Attitude towards business and industry taxes
5 Environmental factors Energy costs
Community attitude Raw materials/supplies accessibility
Waste water facilities
State/local governmental regulations
D Secondary
6 Labour
Cost of property and construction
Prevailing wage rates
Personal income tax structure
Extent and militancy of unions in the area
Attitudes on environmental control
Productivity
Financial health of region
Availability Financial incentives
Skill levels available Proximity to other company facilities
7 Taxes and financing
State income tax/local property and income taxes
Unemployment and compensation premiums factors that impact on the ease of doing busi-
Tax incentive concessions ness in a particular area, such as labour atti-
Industrial pollution control revenue bonds tude, business climate, and quality of life. Such
factors cannot readily be expressed in numeri-
8 Transportation cal values and evaluated by quantitative mod-
Trucking service els. Location selection problems become more
Rail service complex when qualitative factors are consid-
Air freight service ered, because subjective judgements must then
9 Utilities services be adopted.
Quality and price of water and sewerage One major concern in facility location
Availability and price of electric and natural gas selection is to allow adequate time to investi-
Quality of police, fire, medical services gate a variety of potential sites. The collection
of information on potential sites and location-
al factors can be a huge burden on a compa-
factors such as land costs and access to roads ny’s resources. Research is thus critical to
may dominate. In the final stage of evaluating arrive at a sound choice in location decision.
a few selected communities, some qualitative Companies should be aware of various infor-
factors may tip the scales in favour of one mation sources for different location factors.
community over another. A general ranking of
location factors is presented in Table II. Location solution process and decision
Location factors, based on the measurabili- models
ty, can also be addressed from quantitative and Facility location decision involves the deter-
qualitative categories. The quantitative type mination of a geographic site to locate a firm’s
can be measured in numerical values, such as operations. Firms typically approach the
the cost of lands and tax incentives. The quali- location decision as a two-stage process
tative type incorporates non-quantifiable (SME, 1993). The first stage establishes the
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 An AHP decision model for facility location selection
Jiaqin Yang and Huei Lee
site requirements and the relative importance
of these requirements. In the second stage,
these criteria are applied to sites under con-
sideration and unqualified locations are elimi-
nated until the most suitable one is found.
Feasibility study defines objectives and selects
a solution methodology. Macro-economic
analysis consists of a preliminary screening to
identify geographical areas that warrant fur-
ther investigation. In evaluation stage, specific
sites within a selected geographical area are
examined to narrow choices. Site selection is
the final step, involving a detailed analysis of
the selected sites based on a thorough investi-
gation of all related location factors.
‘…Various location decision models have
been developed to conduct
comparative evaluation of potential
location sites through examining
related location factors and site
requirements…’
Various location decision models have been
developed to conduct comparative evaluation
of potential location sites through examining
related location factors and site requirements.
In addition to traditional mathematical
models (e.g. mixed integer programming and
decision analysis), new solution methodolo-
gies have been applied in recent facility loca-
tion research, such as simulation models,
expert systems, and neural network tech-
niques (Benjamin, Chi, Gaber and Riordan,
1995; Ghosh and Harche, 1993; Kathawala
and Gholamnezhad, 1987). A detailed review
on recent solution procedures for facility
location problem has been summarized in
Houshyar and White (1997).
There are also limitations in the current
location decision model literature. First,
application-oriented solution procedures that
are practical to handle large real-world prob-
lems are rare due to the complexity involved.
Second, qualitative location factors are basi-
cally not incorporated in the majority of
reported location decision models. But in
many cases, qualitative factors are the primary
concerns in the location selection. Finally,
most reported location decision models are
deterministic in nature and thus lack the
dynamic solution capability necessary to deal
with rapid changes in today’s location
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decision problems. In particular, the current
location decision model literature lacks a
framework that can present and organize all
related location factors (both quantitative and
qualitative) into a solution structure and
analyse these location factors with specific site
requirements. That is the primary motivation
of this research.
An AHP location decision model
The analytic hierarchy process (AHP) has
been proposed in recent literature as an
emerging solution approach to large, dynam-
ic, and complex real world multi-criteria
decision-making problems. The AHP has
been used in a wide variety of complex deci-
sion-making problems, such as the strategic
planning of organizational resources (Saaty,
1990), the evaluation of strategic alternatives
(Tavana and Banerjee, 1995), or the justifica-
tion of new manufacturing technology
(Albayrakoglu, 1996). An earlier survey
provided over 200 known applications of the
AHP (Zahedi, 1986). Up-to-date successful
applications of the AHP have been reported in
marketing, finance, education, public policy,
economics, medicine, and sports (Saaty,
1990, 1994a, 1994b). The AHP has been
applied in a variety of formats such as: the
design tool for large-scale systems or
composite ratio scales (Weiss and Rao, 1987),
the instrument for pairwise comparison in the
application of artificial neural networks (Sun,
Stam, and Steuer, 1996), or the primary
structure of decision-support systems (Tavana
and Banerjee, 1995). As a convenient
methodology, the AHP approach has been
used to determine goal priorities and objective
function weights in a goal LP formulation
(Gass, 1986), to examine the weighting vector
within the reference framework and search
reference direction in a visual interactive
system (Korhonen, 1987), and to identify
objective coefficient and parameter values in
multiple-objective LP problems (Korhonen
and Wallenius, 1990). In addition, the soft-
ware package that implements the original
AHP (Saaty, 1980, 1988), Expert Choice, has
been promoted in recent publications (Expert
Choice, 1992).
Selecting a facility location, in most real
world applications, is a complex process
involving multiple facilities (to be located),
multiple sites (to be considered), multiple
criteria (to be evaluated), and multiple stages
 An AHP decision model for facility location selection
Jiaqin Yang and Huei Lee
(to be conducted). In addition, location
decisions are conducted in a dynamic fashion.
That is, key factors may change over time due
to unexpected events (e.g. an emerging energy
crisis may cause fuel and power costs to
assume greater importance over other fac-
tors). Furthermore, under multiple criteria
comparison, more often no single location site
could dominate all other alternatives under
consideration in a clear-cut fashion. Instead,
each site candidate may have an appealing
advantage in its favour; as such the final selec-
tion will be the result of a compromise, other
than an “optimal” decision. In this regard,
facility location decision problem is a particu-
larly suitable application of the AHP solution
approach. Carlsson and Walden (1995) report
an example of applying the AHP model
(Saaty, 1980) in the location selection process
for a grand new ice-hockey arena in a river
valley of Finland. Owing to the conflicting
political pressure from the parties involved in
the decision, the AHP model was used in a
group decision-making environment and the
third ranked site (not the “optimal” one) was
actually chosen under final political compro-
mise.
‘…Pairwise comparison is a key step in
the AHP location model to determine
priority weights of location factors and
provide a rating for site candidates
based on qualitative factors…’
Three major steps in the AHP solution
approach are (Saaty, 1994b):
(1) Problem decomposition – the problem is
decomposed into elements (which are
grouped on different levels to form a
chain of hierarchy) and each element is
further decomposed into sub-elements
until the lowest level of the hierarchy.
(2) Comparative analysis – the relative impor-
tance of each element at a particular level
will be measured by a procedure of pair-
wise comparison. The decision makers
provide numerical values for the priority
of each element using a rating scale.
(3) Synthesis of priorities – the priority weights
of elements at each level will be computed
using eigenvector or least square analysis.
The process is repeated for each level of
the hierarchy until a decision is finally
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reached by overall composite weights. A
detailed description of the AHP method-
ology can be found in Saaty (1994a).
Some concerns have been raised regarding the
AHP for the arbitrary ranking occurred when
two or more alternatives have similar or quasi-
similar characteristics, or the rank reversal
caused by the addition or deletion of alterna-
tives (Dyer, 1990; Perez, 1995; Tversky and
Simonson, 1993). These undesirable effects,
however, do not invalidate the AHP method
(Harker and Vargas, 1987; Saaty and Vargas,
1993). In fact, almost all ordinal aggregation
methods exhibit rank reversal (Perez, 1995).
It has been shown that the rank reversal will
not be a troublesome issue in real world appli-
cations because it is very rare to encounter
two alternatives with very similar characteris-
tics, or special precautions (e.g. grouping
similar alternatives) can easily be taken to
avoid any rank reversal (Saaty, 1994b). Saaty
(1994a) further argued that the AHP avoids
the rank reversal by dealing directly with
paired comparisons of the priority of impor-
tance, preference, or likelihood of pairs of
elements in the decision hierarchy, that is just
the natural method that people follow in
making actual decisions. Specifically, three
steps have been identified in terms of ranking
preservation:
(1) allow rank to reverse by using the distrib-
utive model of the relative measurement
approach;
(2) preserve rank by using the ideal mode (in
case of irrelevant alternatives); and
(3) preserve rank absolutely by using the
absolute measurement mode (Saaty,
1994a).
Pairwise comparison is a key step in the AHP
location model to determine priority weights
of location factors and provide a rating for site
candidates based on qualitative factors. The
procedure focuses on two factors at a time
and their relation to each other, so decision
makers will be more comfortable to offer
relative than absolute preference information.
The relative importance of each factor is rated
by a measurement scale to provide numerical
judgements corresponding to verbal judge-
ments. The instrument used in this research is
a discrete scale, from 1 to 10 with 1 represent-
ing the equal importance of two factors and
10 being the highest possible importance of
one factor over another (Saaty, 1994a). The
 An AHP decision model for facility location selection
Jiaqin Yang and Huei Lee
priority weights are then presented in a com-
parison matrix.
To determine priority weights is an impor-
tant step in pairwise comparison. Three
methods have been suggested in the literature
to calculate such priority weights, including
normalized eigenvalues (EM), logarithmic
least squares, and least squares methods.
While it has proved that the suggested three
methods will generate identical solutions in
terms of result consistency, the EM is recom-
mended when the data are not entirely consis-
tent (Saaty and Vargas, 1984). Approximation
of the eigenvector can also be used, such as
using the geometric mean (Saaty, 1988).
The solution process of the AHP location
decision model is depicted in Figure 1. With a
number of potential sites proposed for a
facility location consideration, the AHP
model starts with identifying pertinent loca-
tion factors. These factors are then structured
into a hierarchy descending from an overall
objective to various criteria and subcriteria in
successive levels.
Important guidelines for selecting perti-
nent factors and constructing the hierarchy
structure have been suggested:
(1) representing the problem as thoroughly as
possible, but not so thoroughly as to lose
sensitivity to change in the elements;
(2) considering the environment surrounding
the problem;
(3) identifying the issues or attributes that
contribute to the solution; and
Figure 1 Solution process of the AHP location model
Step 0: Facility location project
(facility need identified and justified)
Step 1: Identify pertinent facility
location factors
Step 2: Develop priority weights
Step 3: Collect data and rank each
potential location
Step 4: Analyse comparative results
Step 5: Identify preferred site(s)
Step 6: Final recommendations
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(4) clarifying the necessary participants
associated with the problem (Saaty,
1990).
Organizing objectives and attributes in a
hierarchy serves two purposes:
(1) provides an overall view of the complex
relationship inherent in the situation; and
(2) helps decision makers assess whether the
issues in each level are of the same order
of magnitude, so homogeneity in compar-
isons is preserved.
The priority weights of structured location
factors are then determined through pairwise
comparison to reflect the judgements and
relative preferences of different stakeholders.
Not surprisingly, the priority weights may
vary from stakeholder to stakeholder. When
there are several levels of factors and subfac-
tors, the weight vectors of higher level factors
are first computed. The weight of the corre-
sponding higher level element is then used to
weight the factors at the lower level in the
hierarchy (composite weight). The procedure
is repeated by moving downward along the
hierarchy, computing the weight of each
element at a particular level and using these to
determine composite weights for succeeding
levels. When multiple decision makers are
involved in developing the priority weights,
achieving consensus may be difficult. Weight
analysis can be used to assess the extent of
differences and the potential impact on final
decision. For instance, the means and vari-
ances can be calculated and the significance of
the differences among sets of weights can be
statistically tested.
To conduct a comparative analysis, two
data sets:
(1) the ranks of each location factor by the
decision makers; and
(2) the scores of each site for each location
factor;
will be collected for all candidate sites. Each
candidate site will be rated according the
structured location factors (quantitative and
qualitative). Quantitative factors are mea-
sured by their corresponding values (i.e.
dollars) while the qualitative factors will be
measured by the (1 to 10) rating scale instru-
ment. The sites are first compared and priori-
tized based on each factor of the lowest level
in the hierarchy. Qualitative analysis is
conducted based on the pairwise comparison
of all the sites relative to each factor and
 An AHP decision model for facility location selection
Jiaqin Yang and Huei Lee
subfactor. The numerical rating values of
each factor are normalized considering all
other ratings of the factors at the same level of
the hierarchy. The ratings of qualitative fac-
tors are the eigenvalues of the pairwise com-
parison matrix. The results of both quantita-
tive and qualitative analysis will be combined
for each factor at the lowest possible level in
the hierarchy. The priority weights of each
factor are the eigenvalues in the correspond-
ing eigenvector of each matrix. This eigenvec-
tor is weighted with the weight of the higher
level element which was used as the criterion
in making the pairwise comparison. The
procedure is repeated by moving downwards
along the hierarchy, computing the weights of
each element at every level and using these to
determine composite weights for succeeding
levels. If the factors at a particular level do not
have any subfactors, their priorities remain
unchanged in the next level of the hierarchy.
The overall priority scores for each location
candidate are the sum of individual products
of rating scores by the corresponding priority
weight for each location factor from the lowest
level in the hierarchy.
‘…The composite indices of the previous
matrix represent the consistency of the
data in the matrix with regard to the
eigenvalues…’
The consistency of the data may also be inves-
tigated during the analysis. The composite
indices of the previous matrix represent the
consistency of the data in the matrix with
regard to the eigenvalues. In the final step of
the proposed AHP location decision model,
the site that has the highest overall priority
score is identified as the preferred site. The
location decision process ends when the
decision makers provide their final recom-
mendations for the most suitable location(s)
with the analysis results.
Four key assumptions underlying the
application of the proposed AHP location
decision model are:
(1) The need to search for a facility location
has been justified. The selection task is
complex enough to require consideration
of the model, and that sufficient resources
are available to conduct a thorough analy-
sis.
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(2) Decision makers involved in the solution
process should have strong insights or
preferences about one or more geographi-
cal regions prior to the selection process,
in order to select a reasonable number of
site candidates.
(3) The decision makers have a good under-
standing of the operations and are knowl-
edgeable about the location variables so
that their evaluation will reflect the prefer-
ence of the company as a whole.
(4) The decision makers will provide their
managerial judgements and specialized
knowledge as the input to be integrated
into the solution process.
An example problem
An example problem is used to illustrate the
AHP location decision model. Assuming three
potential sites (Sites 1, 2, and 3) have been
proposed for location consideration, four key
location factors that are most pertinent to
facility location selection problems (Levine,
1991) are selected in the example problem.
Each key factor is then disaggregated into
three major subfactors, which are further
described in more detailed characteristics that
apply to each factor. The four key factors and
12 subfactors (two levels) are then structured
into a decision hierarchy, as shown in Figure 2
and Table III. Table III also indicates if the
corresponding factor is quantifiable or not.
For example, Factor A1 is the Market growth
potential and can be measured by the expected
percentage of market growth over the next two
or three year period, considered as a quantita-
tive measure. Among 12 subfactors, five are
quantifiable but another seven are not. (Note:
the degree of detail and the number of levels
can certainly vary with the complexity of the
decision, the amount of available resources,
and the desire of decision makers.)
Two data sets: (1) location factor data of
each site (both quantitative and qualitative);
and (2) decision makers’ ratings on each site;
are needed in the AHP location model. For
demonstration purposes, simulated data are
developed from several actual location deci-
sion problems (Rose and Yang, 1996). The 12
location factors described in Table III are
used as decision criteria. The priority weights
of each location factor are computed by using
pairwise comparison between each factor at a
particular level (for the detailed results, see
Appendix). Data analysis and matrix
 An AHP decision model for facility location selection Facilities
Jiaqin Yang and Huei Lee Volume 15 · Number 9/10 · September/October 1997 · 241–254

Figure 2 Hierarchical representation of location factors composite weights computation. The overall
priority score for each location candidate is
Market growth potential computed by multiplying the rating score of
Market Proximity to market
the site concerning the given factor by the
priority weight of corresponding factor and
Proximity to raw materials summarizing these products. As shown in
Table V, Site 2 is the preferred location
Land transportation because it has the highest score (0.7559)
among the three candidate sites. Site 1 is the
Transportation Water transportation
next best location with the next highest score
Air transportation (0.4834).
Location
site
Cost of labour
Table IV Composite priorities of factors and subfactors
Labour Availability of skilled workers
A B C D Composite
Availability of semi-skilled workers Factor 0.0639 0.3817 0.1427 0.4115 priority
A 0.0639 0.0639
Housing A1 0.1842 0.0117
A2 0.4826 0.0308
Community Education
A3 0.3331 0.0213
Business climate B 0.3817 0.3817
B1 0.3748 0.1430
B2 0.4493 0.1715
Table III Location factors and subfactors B3 0.1758 0.0671
Factor Quantifiable C 0.1427 0.1427
A Market C1 0.1566 0.0223
A1 – Market growth potential Y C2 0.4783 0.0682
A2 – Proximity to market N C3 0.3650 0.0521
A3 – Proximity to raw materials N D 0.4115 0.4115
B Transportation D1 0.9502 0.9029
B1 – Land transportation N D2 0.0175 0.0166
B2 – Water transportation N D3 0.0322 0.0305
B3 – Air transportation N
C Labour Table V Overall rating of three sites
C1 – Cost of labour Y Factor Priority
C2 – Availability of skilled labour Y (j ) (wj ) Site 1 Site 2 Site 3
C3 – Availability of semi-skilled labour Y
A
D Community
A1 0.0117 0.123 0.614 0.263
D1 – Housing Y
A2 0.0308 0.4783 0.3650 0.1566
D2 – Education N
A3 0.0213 0.6707 0.2855 0.0437
D3 – Business climate N
B
B1 0.1430 0.1210 0.8681 0.0108
calculation are conducted with a mathemati- B2 0.1715 0.8147 0.0175 0.1676
cal software specialized in matrix computa- B3 0.0671 0.0171 0.0628 0.9199
tion, called GAUSSIAN. It provides the C
eigenvalues of a matrix. (Note: The software C1 0.0223 0.423 0.332 0.246
package of the AHP – Expert Choice (Expert C2 0.0682 0.606 0.151 0.242
Choice, 1992), is certainly recommended for C3 0.0521 0.315 0.209 0.475
D
real world large-sized problems). Composite
D1 0.9029 0.230 0.615 0.154
weights of location factors are computed by
D2 0.0166 0.1563 0.6338 0.2098
multiplying the weight of the subfactor by the
D3 0.0305 0.5691 0.1864 0.2443
weight of the factor directly above in the
Score: = wj.rij 0.4834 0.7559 0.2975
hierarchy. Table IV presents the results of
249
 An AHP decision model for facility location selection
Jiaqin Yang and Huei Lee
Summary and managerial implications
Facility location selection problem can be
directed either towards an organization in
search of a site to locate/relocate its facility
or a community trying to attract new busi-
nesses to its area. This paper presents an
AHP location decision model for the organi-
zations seeking a site for a new facility, or a
relocation of an existing facility. The solution
procedure is illustrated through a simplified
example problem. The result of the example
problem demonstrates that the proposed
AHP model can provide a framework to
assist decision makers in analysing various
location factors, evaluating location site
alternatives, and making final location selec-
tions. Through organizing all location fac-
tors into a chain of hierarchy from an overall
objective to various criteria and subcriteria
in successive levels, the AHP location deci-
sion model offers the flexibility to match the
preferences of the majority of stakeholders
involved in the decision with specific site
characteristics, as well as to incorporate
decision makers’ managerial experience and
judgement.
‘…The primary motivation is to develop
a decision model that will stratify
normally complex and numerous
locational factors into a hierarchy and
help decision makers focus on key
areas of usually large-scaled location
selection problems…’
This research is initiated by a request from a
local business consulting firm for advice on
facility location projects. The primary moti-
vation is to develop a decision model that
will stratify normally complex and numerous
locational factors into a hierarchy and help
decision makers focus on key areas of usually
large-scaled location selection problems.
The data sets used in the example problem
are derived with simplification from the data
sets provided by this local consulting firm
from their location selection projects. For
that specific project, the firm’s management
was very satisfied with the proposed AHP
model, for its ability to organize the great
number of location factors and especially its
flexibility to incorporate their managerial
inputs into the final site selection process.
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For example, with their first input (not
updated) about market, labour, and business
climate, Site 1 is the “preferred” location
with a highest overall score of 0.785, while
Site 2 only scored 0.624. After updated
information about new market growth esti-
mates and the availability of skilled labour
and changes in the business climate prefer-
ences among the three sites, however, Site 1
is replaced by Site 2 as the most preferred
“location” with the new highest score of
0.7559 (as shown in Table V) compared to
Site 1 score of 0.4834. To test the model, the
firm’s management has attempted to change
the input, both quantitative values (i.e.
labour cost) and subjective qualitative rat-
ings (e.g. business climate), based on the
sensitivity analysis of market growth poten-
tial and managerial priority shifting among
factors under consideration. Each time, the
AHP model is able to react accordingly in
either changing its final site recommendation
(or not change). Based on the feedback from
this firm, the managerial implications from
the proposed AHP location decision model
are summarized below. (Note: The detailed
results from this firm’s application will be
presented in another report later.)
First, the AHP location decision model
will assist managers to identify all informa-
tion sources for required input data. Under
an organized hierarchical structure, the AHP
model will prepare the managers well in
advance for their information need, collec-
tion timing, potential cost, and specific
sources. The manager of the consulting firm
reported several facility location selection
cases where, due to the lack of data prepara-
tion, when the managers asked for some
extra information in their location considera-
tion, they were told that the requested infor-
mation was not available for various reasons;
such as: the time needed to collect the infor-
mation was longer than expected; or the
information currently available was out of
date (e.g. three years old) and the updated
information would not be available until (six
months later); or the information asked was
either confidential or unreasonably expen-
sive to acquire. Consequently, several site
selections had to be made based on subjec-
tive estimates, and a few later became regret-
table and costly mistakes.
Another managerial implication is in rela-
tion to a more relevant and systematic evalua-
tion about site candidate characteristics and
 An AHP decision model for facility location selection
Jiaqin Yang and Huei Lee
location factor requirements. In practical
location selection problems, a difficult task
for managers is to evaluate and compare
consistently those qualitative location factors.
A common complaint (or explanation) from
practitioners is that it is unfair or impossible
to ask an individual to offer a consistent
judgement or comparison on those qualita-
tive location factors (e.g. community atti-
tude vs the quality of life) because an
“absolute” subjective consistency is beyond
the nature of human beings. In a practical
sense, the proposed AHP location model is
very attractive to managers because its pair-
wise comparison procedure will allow man-
agers only to offer relative other than
absolute preference assessment, one at a
time, on those qualitative factors. The proce-
dure will then scale these relative compar-
isons uniquely to ensure the consistency of
these values. In fact, a built-in inconsistency
checking mechanism has been established
within the AHP to identify all inconsistencies
at very early stages of the solution process
(Saaty, 1994a). It is believed that this special
capacity makes the proposed AHP location
model extremely appealing and practical to
industrial managers.
‘…An excellent application of such a
relative and systematic evaluation is
the assessment of environmental
factors in location selection
consideration…’
An excellent application of such a relative
and systematic evaluation is the assessment
of environmental factors in location selection
consideration. As environmental factors have
become more important in firms’ facility
location search and most of those environ-
mental factors can only be measured qualita-
tively, it has been highly promoted that the
pairwise comparison procedure in the AHP
location model will be able to capture the
relative importance for every pair of environ-
mental factors in a trustworthy manner and
prioritize those environmental factors from a
more reasonable and consistent basis.
More importantly, perhaps, the applica-
tion of the proposed AHP location decision
model will also provide significant manageri-
al insights to the various interest groups who
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have a stake at the location decisions, such as
local governments, economic development
agencies and industrial site developers. If the
attraction of new companies is a goal,
members of these groups should understand
the location decision process, as well as the
differentiating factors used by an industrial
organization contemplating location/reloca-
tion of its operations. This understanding
will enable a better allocation of efforts and
resources to encourage (discourage) differ-
ent types of industry to locate (from locat-
ing) in a specific area. That is, the AHP
approach can be adapted to help specific
parties identifying what their area has to
offer and the types of industries it can best
support. The business consulting firm
involved in this research reports two cases, in
both of which a small community was able to
win the site selection for a larger manufac-
turing facility (involving 500+ job opportu-
nities and millions of tax revenue for local
government) from among a large number of
competing communities. The two successes
have been mainly attributed to the fact that
the community had successfully identified
the major locational advantage it possessed,
for that specific manufacturing facility,
which the competition did not, and prepared
their package accordingly.
The methodological approach of organiz-
ing all locational factors into a chain of hier-
archy in the proposed AHP location model
has also received positive confirmation from
the practice. One advantage of such a hierar-
chical structure is to provide a framework in
which it is critical to seek input about the
factors and subfactors within the hierarchy
from different levels of managers in the
organization. Another frequently mentioned
advantage is that such a hierarchical struc-
ture can easily be incorporated into an inter-
active solution procedure which allows more
active participation of the managers involved
in the solution process. It has been reported
that using the AHP procedure to estimate
the initial “relative” weights or preferences
about related locational factors requires very
little training for managers, and the use of
software “Expert Choice” can even allow
managers to make pairwise comparisons
(and “what-if ” analysis) on the screen (while
complex mathematical manipulations are
performed by computers) (Saaty, 1994b).
The flexibility to meet industrial unique-
ness and the high acceptability to managers
 An AHP decision model for facility location selection
Jiaqin Yang and Huei Lee
have been addressed as other practical man-
agerial implications from the proposed AHP
location decision model. Its high acceptabili-
ty can be attributed to the fact that the man-
agers are required to participate actively in
the solution process. The flexibility to indus-
trial uniqueness comes from the fundamen-
tal nature of hierarchical structure. Different
industries (or industry groups) view facility
location selection from different perspec-
tives. While service operations (e.g. a fast-
food chain) will use its location as a competi-
tive weapon, manufacturing operations (e.g.
a food processing plant) will consider its
location more for transportation cost reduc-
tion. Similarly, different industries (or differ-
ent industry groups) have different location
selection strategies. For example, a commu-
nity that has a good work ethic reputation
will be preferred for a labour-intensive oper-
ations facility, but a location site that is near
to a research university or industrial research
centres will certainly be more attractive for a
high-tech industrial facility. In short, each
industry (or industry group) may have a
unique priority consideration in the facility
location selection process. The application of
the AHP location decision model will allow
industrial managers to structure their
“uniqueness” into the priority weights com-
putation to reflect the desired unique priori-
ty consideration.
‘…Future research extension could also
examine the effect of changing input
parameters, such as measurement
values and importance weights of
location factors…’
Finally, this research project can be extended
in several directions. First, extra research
effort should be conducted to investigate the
impact of industry-unique location factors.
Future research extension could also exam-
ine the effect of changing input parameters,
such as measurement values and importance
weights of location factors. As any changes in
decision makers’ preferences could affect the
desirability of a specific location, another
research need is the sensitivity analysis on
the effect of changes in decision makers’
preferences. For example, if the final ranking
of alternatives changes greatly with slight
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Volume 15 · Number 9/10 · September/October 1997 · 241–254
variations in input values, it may suggest
further research to obtain more accurate
estimates. Sensitivity analysis can also be
used in assessing the impact of alternative
scenarios. Another extension is to apply the
proposed AHP model within a particular
industry or within an industry group, as
such; the industry-specific importance
weights could then be developed to reflect
the primary location factors within a specific
industry.
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A 1 2 1/3 1/8 0.0639
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C 3 2 1 1/4 0.1427
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D 8 1/5 4 1 0/4115
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Saaty, T.L. (1982), Decision Making for Leaders: The A1 A2 A3 Priority weight
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A2 5 1 8 0.4826
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Saaty, T.L. and Vargas, L.G. (1984), “Comparison of C3 1/3 4 1 0.3650
eigenvalue, logarithmic least squares, and least
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Saaty, T.L. and Vargas, L.G. (1993), “Experiments on rank D1 1 5 8 0.9502
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 An AHP decision model for facility location selection Facilities
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Table AII Ratings on quantitative factors Table AIII Ratings on qualitative factors

a) A1: market growth potential Site 1 Site 2 Site 3 Ratings

Ti Ratings A2
Factor A1 (100/A1) (Ti / Σ Ti ) Site 1 1 1/4 5 0.4783
Site 1 15 6.66 0.123 Site 2 4 1 6 0.3650
Site 2 3 33.33 0.614 Site 3 1/5 1/6 1 0.1566
Site 3 7 14.28 0.263
A3
b) C1: cost of labour
Site 1 1 3 2 0.6707
Ti Ratings Site 2 1/3 1 5 0.2855
Factor C1 (100/C1) (Ti / Σ Ti) Site 3 1/2 1/5 1 0/0437
Site 1 5.5 18.18 0.423 B1
Site 2 7 14.28 0.332
Site 1 1 1/4 8 0.1210
Site 3 9.5 10.52 0.246
Site 2 4 1 1/3 0.8681
c) C1: availability of skilled labour
Site 3 1/8 3 1 0.0108
Ti Ratings
B2
Factor C2 (100/C2) (Ti / Σ Ti )
Site 1 1 3 5 0.8147
Site 1 200 0.50 0.606
Site 2 1/3 1 1/7 0.0175
Site 2 800 0.125 0.151
Site 3 500 0.20 0.242 Site 3 1/5 7 1 0.1676

d) C3: availability of semi-skilled labour B3

Site 1 1 1/2 1/7 0.0171
Ti Ratings
Site 2 2 1 1/4 0.0628
Factor C3 (100/C3) (Ti / Σ Ti )
Site 3 7 4 1 0.9199
Site 1 1,200 0.083 0.315
Site 2 1,800 0.055 0.209 D2
Site 3 800 0.125 0.475 Site 1 1 1/7 3 0.1563
e) D1: housing Site 2 7 1 1/2 0.6338
Site 3 1/3 2 1 0.2098
Ti Ratings
Factor D1 (100/D1) (Ti / Σ Ti ) D3
Site 1 1 8 1/3 0.5691
Site 1 8 12.50 0.230
Site 2 3 33.33 0.615 Site 2 1/8 1 4 0.1864
Site 3 12 8.33 0.154 Site 3 3 1/5 1 0.2443

254