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Facility Location

Operations
Operations Management
Management
Instructor:
Instructor: Dr.
Dr. Rizwan
Rizwan Ahmed
Ahmed

Lecture Outline
Types of facilities
Site selection: where to locate
Location analysis techniques

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

Distribution centers
Need to be close to road/rail links, main
markets/customer segments; need big space

Retail and service facilities


Prime location, smaller and least costly

Back office

Factors in facility Location

Political and economic


systems
Government stability
Regulations
(governance, economics,
Taxes, environmental
Economic stability and
growth
Exchange rates
Climate
Export import
regulations, duties and
tariffs
Cross-border trade
regulations
Group trade agreements
Business Climate
Banking Financial
services infrastructure

Proximity of customers
Number of customers
Raw material availability
Proximity to suppliers or
supply sources
Labor (availability,
education, cost, and
unions)
Available technology
Technical expertise

Culture
Local preferences
Climate

Infrastructure (e.g.,
roads, water, sewers)
Modes and quality of
transportation
Transportation costs
Commercial travel
Land / construction/
leasing costs
Availability of sites

Factors in Facility Location


Importance
Factors

Relative Importance of Factors in Facility Location


Heavy
Industry

Light Industry

Distribution
Centers

Retail &
Services

Back Office

Construction
costs
Land costs

High

Medium

Medium

Low/Medium

Low

High

Medium

Medium

Low/Medium

Very low

Transportation
cost
Utilities cost
Proximity to
required
transportation
modes

High

Medium

High

Low

Very low

Very High
High

High
Medium

Low
High

Medium
Low

Medium
Low

High

Medium

N/A

N/A

N/A

Medium

Medium/High

High

Very high

Very low

Low

Medium

Medium

Very High

Very Low

High

High

Medium

Medium

Medium

Proximity to Raw
Materials/supplier
Proximity to main
markets/segment
Proximity to
Customers
Proximity to
Labor

Location Analysis Techniques


Location rating factor
Center-of-gravity
Load-distance

Location Rating Factor


Qualitative approach, quantitative decision
Identify important factors
Give Importance weight to each factor
(from 0.00 - 1.00)
Give suitability score to each location w.r.t
to each factor (from 0 - 100)
Calculate weighted score (weight * score)
Sum weighted scores

Location Factor Rating: Example


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

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

Site 3 has the


highest factor rating

Center-of-Gravity Technique
Locate facility at center of
geographic area w.r.t
Major suppliers or supply sources
Main customers or markets
Based on weight and distance
traveled
Identify coordinates and weights
shipped to/from each location
(based on estimates or historical
data)

Grid-Map Coordinates
y

y1

xW

i=1

2 (x2, y2), W2

y2

x=

i=1

i=1
y=

1 (x1, y1), W1

yW

i=1

where,

3 (x3, y3), W3

y3

x1

x2

x3

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

Center-of-Gravity Technique:
Example
The Burger Doodle restaurant chain purchases ingredients
from four different food suppliers.
The company wants to construct a new central distribution
center to process and package the ingredients before
shipping them to their various restaurants.
The suppliers transport ingredient items in 40-foot truck
trailers, each with a capacity of 10 tons.
The locations of the four suppliers, A, B, C, and D, and the
annual number of trailer loads that will be transported to
the distribution center are shown in the following figure:

Center-of-Gravity Technique:
Example
y
700
600

Miles

500

C
(135)

B
(105)

400
300
200

x
y
Wt

D
(60)

A
(75)

100
0

100 200 300 400 500 600 700 x


Miles

A
200
200
75

B
100
500
105

C
250
600
135

D
500
300
60

Center-of-Gravity Technique:
Example (cont.)
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

i=1

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


=
= 444
75 + 105 + 135 + 60

Center-of-Gravity Technique:
Example (cont.)
y
700
600

Miles

500

C
(135)

B
(105)

400
300
200

x
y
Wt

B
100
500
105

Center of gravity (238, 444)


D
(60)

(75)

100
0

A
200
200
75

100 200 300 400 500 600 700 x


Miles

C
250
600
135

D
500
300
60

Load-Distance Technique

A Variation of Centre of Gravity Method


You have a number of suppliers or markets
And a number of proposed sites
How to choose which site?
Compute (Load x Distance) for each site & supplier
Choose site with lowest (Load x Distance)
Distance can be actual or straight-line

Load-Distance Calculations
n

LD =

ld
i

i=1
where,
LD =

load-distance value

li

load expressed as a weight, number of trips or units


being shipped from proposed site and supplier location i
distance between proposed site and supplier location i

di

di

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

where,
(x,y) = coordinates of a proposed site
(xi , yi) = coordinates of a supplier location

Load-Distance: Example
Potential Sites
Site
X
Y
1
360
180
2
420
450
3
250
400

A
200
200
75

X
Y
Wt

Suppliers
B
C
100
250
500
600
105
135

D
500
300
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

dD = 184.4

Load-Distance: Example (cont.)


Site 2 dA = 333

dB = 323.9 dC = 226.7 dD = 170

Site 3 dA = 206.2 dB = 180.4 dC = 200

dD = 269.3

Compute load-distance

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) = 99,791
Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555*

* Choose site 3