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Technical Note 11 Facility Location

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OBJECTIVES
Issues in Facility Location

Various Plant Location Methods

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Competitive Imperatives Impacting Location
The need to produce close to the customer due to time-based competition, trade agreements, and shipping costs The need to locate near the appropriate labor pool to take advantage of low wage costs and/or high technical skills
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Issues in Facility Location
Proximity to Customers Business Climate Total Costs Infrastructure Quality of Labor Suppliers Other Facilities

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Issues in Facility Location
Free Trade Zones Political Risk Government Barriers Trading Blocs Environmental Regulation Host Community Competitive Advantage

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Plant Location Methodology: Factor Rating Method Example
Two refineries sites (A and B) are assigned the following range of point values and respective points, where the more points the better for the site location.
ites Major factors for site location t. Range A B

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Fuels in region Power availability and reliability Labor climate Living conditions Transportation Water supply Climate Supplies Tax policies and laws
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0 to 330 0 to 200 0 to 100 0 to 100 0 to 50 0 to 10 0 to 50 0 to 60 0 to 20

123 150 54 24 45 4 8 5 5

156 100 63 96 50 5 4 50 20 Best ite
544 is B

Total pts. 418

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Plant Location Methodology: Transportation Method of Linear Programming

Transportation method of linear programming seeks to minimize costs of shipping n units to m destinations or its seeks to maximize profit of shipping n units to m destinations
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Plant Location Methodology: Centroid Method
The centroid method is used for locating single facilities that considers existing facilities, the distances between them, and the volumes of goods to be shipped between them This methodology involves formulas used to compute the coordinates of the two-dimensional point that meets the distance and volume criteria stated above
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Plant Location Methodology: Centroid Method Formulas
Cx =

§d V §V
ix i

i

Cy

§d §

iy i

i

Where: Cx = X coordinate of centroid Cy = X coordinate of centroid dix = X coordinate of the ith location diy = Y coordinate of the ith location Vi = volume of goods moved to or from ith location
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Plant Location Methodology: Example of Centroid Method
Centroid method example
± Several automobile showrooms are located according to the following grid which represents coordinate locations for each showroom
Y Q
(790,900)

S ho ro o m

No o f Z-Mo b ile s s o ld p e r mo nth 1250 1900 2300

D
(250,580)

A D Q
X

A
(100,200) (0,0)

Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month?
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Plant Location Methodology: Example of Centroid Method (Continued): Determining Existing Facility Coordinates
To begin, you must identify the existing facilities on a twodimensional plane or grid and determine their coordinates.
Y Q
(790,900)

D
(250,580)

A
(100,200) (0,0)

X

You must also have the volume information on the business activity at the existing facilities.

S ho ro o m

No o f Z-Mo b ile s s o ld p e r mo nth 1250 1900 2300

A D Q

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Plant Location Methodology: Example of Centroid Method (Continued): Determining the Coordinates of the New Facility
You then compute the new coordinates using the formulas:
Cx
Cy =

100(1250) + 250(1900) + 790(2300) 1250 + 1900 + 2300

2,417,000 5,450

443.49

200(1250) 580(1900) 900(2300) 3,422,000 = = 627.89 1250 1900 2300 5,450

You then take the coordinates and place them on the map:
Y Q
(790,900)

D
(250,580)

Z

A
(100,200) (0,0) McGraw-Hill/Irwin

Ne location of facility Z about (443,627)
X

h

r

f s l er 1250 1900 2300

ile s th

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Question Bowl
Criteria that influences manufacturing plant and warehouse location planning can include which of the following? a. Proximity to customers b. Business climate c. Infrastructure d. Quality of labor e. All of the above Answer: e. All of the above
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Question Bowl
Criteria that influences manufacturing plant and warehouse location planning can include which of the following? a. Political risk b. Government barriers c. Environmental regulation d. All of the above e. None of the above Answer: d. All of the above
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Question Bowl
Which of the following are plant location methods? a. Transportation method of linear programming b. Factor-rating systems c. Centroid method d. All of the above e. None of the above Answer: d. All of the above
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Question Bowl
Which of the following methods of plant location analysis considers the existing facilities, the distances between them, and the volumes of goods to be shipped? a. Transportation method of linear programming b. Factor-rating systems c. Centroid method d. All of the above e. None of the above Answer: c. Centroid method
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Question Bowl
Which of the following methods of plant location analysis is the most widely used general location technique because it combines diverse factors in an easy-to-understand format? a. Transportation method of linear programming b. Factor-rating systems c. Centroid method d. All of the above e. None of the above

Answer: b. Factor-rating systems
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Question Bowl
The location decision for service facilities is closely tied to which of the following? a. Market selection decision b. Material costs c. Nearness to distributors d. Nearness to high-skilled labor e. None of the above Answer: a. Market selection decision

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End of Technical Note 11

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