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IES 371 Engineering Management

Chapter 10: Location Week 11 August 17, 2005
Objectives  Identify the factors affecting location choices  Explain how to apply the various methods to location decisions

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Karndee Prichanont IES371 1/2005 Facility Location Competitive Advantages  The need to produce close to the customer due to time-based competition. trade agreements. The need to locate near the appropriate labor pool to take advantage of low wage costs and/or high technical skills.  2 .Dr. and shipping costs.

Dr. Karndee Prichanont IES371 1/2005 Issues in facility location     Proximity to Customers Business Climate Total Costs Infrastructure          Quality of Labor Suppliers Other Facilities Free Trade Zones Political Risk Government Barriers Trading Zones Environmental Regulation Host Community 3 .

20 14.50 4 4. Each factor is weighted from 0 to 1.1 5. Karndee Prichanont IES371 1/2005 Plant Location Methodology: Location Factor Rating 1 Procedures 1.30 80 65 95 Proximity to supplies 0.50 28.00 9.00 11.50 20. 2 3 Identify factors that are important in the location decision Prioritize the factor by its importance.25 64.95 15. 5 . Sum up the weighted score. Scores (0 to 100) Site 1 Site 2 Site 3 24.00 67.00 63. Community environment 0. The site with highest score is the most attractive See also Example S5.00 Subjective score (0 to 100) is assigned to each site for each factor Scores (0 to 100) Location Factors Weight Site 1 Site 2 Site 3 Labor pool & climate 0.15 4 Location Factors Labor pool & climate Proximity to supplies Wage rates Community environment 3.15 100 60 75 91 95 80 75 80 80 Wage rates 2.00 12.00 12.25 12.25 18.Dr.20 0.00 19.

y  yW i 1 n i n i i W i 1 i x.Dr. y = Coordinates of the new facility at center of gravity xi. the distances between them. The coordinates for the location of the new facility are computed as follows:   x  xW i 1 n i n i W i 1 . yi = coordinate of existing facility I Wi = Annual weight shipped from facility i See also Example S5. Involves formulas used to compute the coordinates of the twodimensional point that meets the distance and volume criteria stated above.2 5 . Karndee Prichanont IES371 1/2005 Plant Location Methodology: Center-of-Gravity Technique  Used for locating single facility that considers existing facilities. and the volumes of goods to be shipped between them.

900) D (250. Showroom A D Q # of Z-mobiles sold per month 1250 1900 2300 Y Q (790.580) A (100. Karndee Prichanont IES371 1/2005 Ex 1: Center-of-Gravity Technique  Several automobile showrooms are located according to the following grid which represents coordinate locations for each showroom.200) (0.0) X Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month? 6 .Dr.

a load-distance value (ld) is computed as follows: Select the location with lowest ld value n LD   l i d i i 1 di  xi  x 2   yi  y 2 x.Dr. Given that Warehouse site 1: x = 420 and y =450 Warehouse site 2: x = 250 and y =980 7 . Karndee Prichanont IES371 1/2005 Plant Location Methodology: Load-Distance Technique    Various locations are evaluated using a load-distance value. D. y = coordinates of the new facility xi. yi = coordinate of existing facility LD = the load-distance value li = the load expressed as weight. number of trips. or unit di = the distance between the new and existing facility Ex 2: From ex 1. For a single potential location. evaluate two possible different sites of warehouse to supply to showroom A. and Q.

Karndee Prichanont IES371 1/2005 Plant Location Methodology: Break-even analysis  Also refer to Supplement A – Decision Making Annual cost (thousands of dollars)  Basic steps for break-even analysis in facility location decisions: Determine variable costs and fixed costs Plot the total cost lines (sum of fixed costs and variable costs) for all alternatives in a single graph Identify the approximate ranges for sites with lowest total cost Solve algebraically for the breakeven points over the relevant ranges 1600 1400 1200 1000 (20. 1390) (20. 4.3 8 Q (thousands of units) . 10 12 14 16 18 20 22 14. 2. 1060) (20. 980) 800 600 400 200 0 A best 2 4 6 8 6.Dr. (20. 1200) A D B C 1.25 Break-even point B best C best Break-even point 3.

500 $1. Describe the appropriate decision plan for this company. Karndee Prichanont IES371 1/2005 Ex 3: Break-even analysis Ethel & Earl Griese narrowed their choice for a new oil refinery to 3 locations.100.Dr.000 $980 $240 $500 9 .000 $1. Fixed and variable costs are as follows.500. Locations Fixed cost per year Variable cost per unit Albany Baltimore Chattanooga $350.

Dr. Karndee Prichanont IES371 1/2005 Plant Location Methodology: Transportation Method  A quantitative approach based on linear programming To determine the allocation pattern that minimizes the cost of shipping products from 2 or more plants (source of supply) to 2 or more warehouses (destinations) This method is find the best shipping pattern between plants and warehouses for a particular set of plant locations with given capacities 10   .

Karndee Prichanont IES371 1/2005 Transportation Tableau Plants 1 Warehouses 2 3 4 Capacity Requirements 11 .Dr.

Omaha. while the plant in New York City has production capacity of 10. The shipment costs per case are as shown in the table. and 4.000 cases per month respectively. Omaha.000.Dr. 10. Karndee Prichanont IES371 1/2005 Ex 3: Transportation Method Fire Brand makes sauce in EL Paso and New York City.000 per month. The plant in El Paso has production capacity of 12. FROM / TO El Paso NYC Atlanta Omaha Seattle $4 $3 $5 $7 $6 $9 Determine the shipping pattern that will minimize transportation costs.000 cases / month. and Seattle are 8. The demand for Atlanta. Distribution centers are located in Atlanta. and Seattle. What are the estimated transportation costs associated with this optimal allocation pattern? 12 .000.