Facility Location

Issues in Facility Location

Various Plant Location Methods

1
 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.
2
 Issues in Facility Location

• Proximity to Customers • Free Trade Zones

• Business Climate • Political Risk
• Total Costs • Government Barriers
• Infrastructure • Trading Blocs
• Quality of Labor • Environmental
• Suppliers regulations
• Other Facilities • Host Community
• Competitive Advantage

3
PLANT LOCATION METHODS
Major Decision Categories are:
1. Market Region
2. Sub-region
3. Community
4. Site
Evaluation of Alternatives:
1. Macro Analysis
2. Micro Analysis
4
 MACRO ANALYSIS TECHNIQUES

• Factor Rating Systems

• Linear Programming
• Center of Gravity
• Detailed Cost Analysis
• Analytic Delphi Method

5
Plant Location: Factor Rating

Factor Rating Systems provide a

mechanisms to combine diverse factors in
an easy to understand format.

Each site is rated against each factor and a

point value is selected from its Assigned
Range

The Site with the highest points will be

selected.
6
CENTER OF GRAVITY METHOD
This method is a technique for locating single facilities
that considers the existing facilities, the distance
between them, and the volumes of goods to be shipped.

This method assumes that inbound and outbound

transportation costs are equal, and it does not include
special shipping costs for less than full loads.

This method begins by placing the existing locations

on a co-ordinate grid system. This purpose is to
establish relatives distance between locations
7
 Determining the Coordinates

The Formula:
Cx =
d V ix i  d V
iy i
Cy 
V i V i

Cx = X coordinate of center of gravity

Cy = Y coordinate of center of gravity
dix = X coordinate of the ith location
diy = Y coordinate of the ith location
Vi = volume of goods moved to or from ith
location
8
 Center of gravity method: example
Several automobile showrooms are located according to the following
grid which represents coordinate locations for each showroom.

Y Showroom No of Z-Mobiles
Q sold per month
(790,900)

D
A 1250
(250,580)
D 1900
A
(100,200)
Q 2300
(0,0) X

Determine the best location for a Z-Mobile warehouse.

9
 Determining the Coordinates
100(1250) + 250(1900) + 790(2300) 2,417,000
Cx = = = 443.49
1250 + 1900 + 2300 5,450

200(1250) + 580(1900) + 900(2300) 3,422,000

Cy = = = 627.89
1250 + 1900 + 2300 5,450

Y
Showroom No of Z-Mobiles
Q
(790,900) sold per month
Z
(444, 628)
D
(250,580) A 1250

A D 1900
(100,200)

(0,0) X Q 2300 10
 Analytic Delphi Method
This Method address the more complex location decision by
incorporating tangible and intangible factors into the decision
making process.

This method involves using a combination of three Teams:

1. A Coordinating Team
2. The Forecasting Team

3. A Strategic Team

Each of the teams take on different roles in the decision-making

process.

11
 Steps of Delphi Model
1. Form two Delphi panels.

2. Identify threats and opportunities.

3. Determine direction and strategic goals of the

organization.

4. Develop alternatives.

5. Prioritize alternatives (Value-judgment)

This systematic approach identifies trends, developments,

and opportunities, while considering the organization’s
strengths and weaknesses. In addition, this approach
brings the firms strategic goals and objectives into this
important decision process. 12