Chapter 7 Supplement

Facility Location Models

Lecture Outline

Types of Facilities
Site Selection: Where to Locate
Global Supply Chain Factors
Location Analysis Techniques

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-2

Types of Facilities
Heavy-manufacturing facilities
large, require a lot of space, and are expensive

Light-industry facilities
smaller, cleaner plants and usually less costly

Retail and service facilities

smallest and least costly

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-3

Factors in Heavy
Manufacturing Location

Construction costs
Land costs
Raw material & finished goods shipment modes
Proximity to raw materials
Utilities
Means of waste disposal
Labor availability

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-4

Factors in Light Industry Location

Land costs
Transportation costs
Proximity to markets
depending on delivery requirements
including frequency of delivery required by
customer

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-5

Factors in Retail Location

Proximity to customers
Location is everything

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-6

Site Selection: Where to Locate

Infrequent but important

Location criteria for

being in the right place at the
manufacturing facility
right time

Must consider other factors,

especially financial
considerations
Location decisions made more
often for service operations
than manufacturing facilities
Location criteria for service
access to customers

Copyright 2011 John Wiley & Sons, Inc.

nature of labor force

labor costs
proximity to suppliers and
markets
distribution and transportation
costs
energy availability and cost
community infrastructure
quality of life in community
government regulations and
taxes

Supplement 7-7

Global Supply Chain Factors

Government stability

Government regulations
Political & economic systems

Economic stability & growth

Exchange rates

Culture

Export/import regulations,
duties & tariffs

Raw material availability

Copyright 2011 John Wiley & Sons, Inc.

Climate
Number & proximity of
suppliers
Transportation & distribution
system
Labor cost & education
Available technology
Commercial travel
Technical expertise
Cross-border trade
regulations
Group trade agreements
Supplement 7-8

Regional and Community

Location Factors in U.S.
Labor (availability,

education, cost, and unions)

Proximity of customers

Number of customers
Construction/leasing costs

Land cost

Copyright 2011 John Wiley & Sons, Inc.

Modes and quality of

transportation
Transportation costs
Community government
Local business regulations
Government services (e.g.,
Chamber of Commerce)

Supplement 7-9

Regional and Community

Location Factors in U.S.

Business climate
Community services
Incentive packages
Government regulations
Environmental regs.
Raw material availability
Commercial travel
Climate

Copyright 2011 John Wiley & Sons, Inc.

Infrastructure (road &

utilities)
Quality of life
Taxes
Availability of sites
Financial services
Community inducements
Proximity of suppliers
Education system

Supplement 7-10

Location Incentives

Tax credits
Relaxed government regulation
Job training
Infrastructure improvement
Money

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-11

Geographic Information Systems (GIS)

Computerized system for storing, managing,
creating, analyzing, integrating, and digitally
displaying geographic, i.e., spatial, data
Specifically used for site selection
Enables users to integrate large quantities of
information about potential sites and analyze
these data with many different, powerful
analytical tools

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-12

GIS Diagram

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-13

Location Analysis Techniques

Location factor rating
Center-of-gravity
Load-distance

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-14

Location Factor Rating

Identify important factors

Weight factors (0.00 - 1.00)
Subjectively score each factor (0 - 100)
Sum weighted scores

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-15

Location Factor Rating

SCORES (0 TO 100)
LOCATION FACTOR
Labor pool and climate
Proximity to suppliers
Wage rates
Community environment
Proximity to customers
Shipping modes
Air service

WEIGHT

Site 1

Site 2

Site 3

.30
.20
.15
.15
.10
.05
.05

80
100
60
75
65
85
50

65
91
95
80
90
92
65

90
75
72
80
95
65
90

Weighted Score for Labor pool and climate for

Site 1 = (0.30)(80) = 24

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-16

Location Factor Rating

WEIGHTED SCORES
Site 1

Site 2

Site 3

24.00
20.00
9.00
11.25
6.50
4.25
2.50
77.50

19.50
18.20
14.25
12.00
9.00
4.60
3.25
80.80

27.00
15.00
10.80
12.00
9.50
3.25
4.50
82.05

Copyright 2011 John Wiley & Sons, Inc.

Site 3 has the

highest factor rating

Supplement 7-17

Location Factor Rating With Excel

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-18

Location Factor Rating With OM Tools

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-19

Center-of-Gravity Technique
Locate facility at center of movement in
geographic area
Based on weight and distance traveled;
establishes grid-map of area
Identify coordinates and weights shipped for
each location

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-20

Grid-Map Coordinates
y

i=1

2 (x2, y2), W2

y2

x=

i=1

1 (x1, y1), W1

xiWi

i=1
y=

y1

Wi

yiWi

i=1

Wi

where,

3 (x3, y3), W3

y3

x1

x2

Copyright 2011 John Wiley & Sons, Inc.

x3

x, y =
coordinates of new
facility at center of gravity
xi, yi = coordinates of existing
facility i
Wi =annual weight shipped
from facility i

Supplement 7-21

Center-of-Gravity Technique
y
700
600

Miles

500

(135)

B
(105)

400
300
200

x
y
W

A
200
200
75

B
100
500
105

C
250
600
135

D
500
300
60

D
(60)

A
(75)

100
0

100 200 300 400 500 600 700 x

Miles

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-22

Center-of-Gravity Technique
n

xiWi

x=

i=1
n

Wi

(200)(75) + (100)(105) + (250)(135) + (500)(60)

= 75 + 105 + 135 + 60
= 238

i=1
n

y=

yiWi

i=1
n

Wi

(200)(75) + (500)(105) + (600)(135) + (300)(60)

= 75 + 105 + 135 + 60
= 444

i=1

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-23

Center-of-Gravity Technique
y
700
600

Miles

500

C
(135)

B
(105)

400
300
200

x
y
W

A
200
200
75

B
100
500
105

C
250
600
135

D
500
300
60

Center of gravity (238,

444) D
(60)

(75)

100
0

100 200 300 400 500 600 700 x

Miles

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-24

Center-of-Gravity With Excel

Formula for
x coordinate

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-25

Center-of-Gravity With OM Tools

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-26

Load-Distance Technique
Compute (Load x Distance) for each site
Choose site with lowest (Load x Distance)
Distance can be actual or straight-line

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-27

Load-Distance Calculations
n

LD =

ld
i

i=1
where,
LD =

li

load-distance value

di

=
load expressed as a weight, number of trips or units
being shipped from proposed site and location i
=
distance between proposed site and location i

di

(xi - x)2 + (yi - y)2

where,
(x,y) = coordinates of proposed site
(xi , yi) = coordinates of existing facility

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-28

Load-Distance
Potential Sites
SiteX Y
1 360 180
2 420 450
3 250 400

Suppliers
A B C D
X 200 100 250 500
Y 200 500 600 300
Wt 75 105 135 60

Compute distance from each site to each supplier

Site 1 dA =

(xA - x1)2 + (yA - y1)2

(200-360)2 + (200-180)2 = 161.2

dB =

(xB - x1)2 + (yB - y1)2

(100-360)2 + (500-180)2 = 412.3

dC = 434.2

Copyright 2011 John Wiley & Sons, Inc.

dD = 184.4

Supplement 7-29

Load-Distance
Site 2 dA = 333

dB = 323.9 dC = 226.7 dD = 170

Site 3 dA = 206.2 dB = 180.3 dC = 200

Compute load-distance

dD = 269.3

LD =

l i di

i=1

Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(434.4) = 125,063

Site 2 = (75)(333) + (105)(323.9) + (135)(226.7) + (60)(170) = 99,789
Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555*

* Choose site 3
Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-30

Load-Distance With Excel

=B7*C11+C7*C12+D7*C13+E7*C14

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-31

Load-Distance With OM Tools

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-32

Copyright 2011 John Wiley & Sons, Inc.

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information herein.

Copyright 2011 John Wiley & Sons, Inc.

Supplement 7-33