Chapter 7 Supplement

Facility Location Models

Operations Management - 5th Edition

Roberta Russell & Bernard W. Taylor, III

Beni Asllani
Copyright 2006 John Wiley & Sons, Inc. University of Tennessee at Chattanooga
 Lecture Outline

 Types of Facilities
 Site Selection: Where to Locate
 Location Analysis Techniques

Copyright 2006 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 2006 John Wiley & Sons, Inc. Supplement 7-3

 Factors in Heavy Manufacturing
Location
 Construction costs
 Land costs
 Raw material and finished goods
shipment modes
 Proximity to raw materials
 Utilities
 Labor availability
Copyright 2006 John Wiley & Sons, Inc. Supplement 7-4
 Factors in Light Industry
Location

 Transportation costs
 Proximity to markets
 Frequency of delivery required by
customer
 Land costs
 Easily accessible geographic region
 Education and training capabilities

Copyright 2006 John Wiley & Sons, Inc. Supplement 7-5

 Factors in Retail Location

 Proximity to customers
 Location is everything

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 Global Location Factors

 Government stability  Raw material availability

 Government regulations  Number and proximity of
suppliers
 Political and economic
systems  Transportation and
distribution system
 Economic stability and growth  Labor cost and education
 Exchange rates  Available technology
 Culture  Commercial travel
 Climate  Technical expertise
 Export import regulations,  Cross-border trade
duties and tariffs regulations
 Group trade agreements

Copyright 2006 John Wiley & Sons, Inc. Supplement 7-7

 Regional Location
Factors
 Labor (availability,
 Modes and quality of
education, cost, and
transportation
unions)
 Transportation costs
 Proximity of customers
 Community government
 Number of customers
Local business
 Construction/leasing regulations
costs
 Government services
 Land cost (e.g., Chamber of
Commerce)

Copyright 2006 John Wiley & Sons, Inc. Supplement 7-8

 Regional Location Factors
(cont.)
 Business climate  Infrastructure (e.g.,
 Community services roads, water, sewers)
 Incentive packages  Quality of life
 Government regulations  Taxes
 Environmental  Availability of sites
regulations  Financial services
 Raw material availability  Community inducements
 Commercial travel  Proximity of suppliers
 Climate  Education system

Copyright 2006 John Wiley & Sons, Inc. Supplement 7-9

 Location Incentives

 Tax credits
 Relaxed government regulation
 Job training
 Infrastructure improvement
 Money

Copyright 2006 John Wiley & Sons, Inc. Supplement 7-10

 Location Analysis Techniques

 Location rating factor

 Center-of-gravity

 Load-distance

Copyright 2006 John Wiley & Sons, Inc. Supplement 7-11

 Location Rating Factor

 Identify important factors

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

Copyright 2006 John Wiley & Sons, Inc. Supplement 7-12

 Location Factor Rating: Example
SCORES (0 TO 100)
LOCATION FACTOR WEIGHT Site 1 Site 2 Site 3
Labor pool and climate .30 80 65 90
Proximity to suppliers .20 100 91 75
Wage rates .15 60 95 72
Community environment .15 75 80 80
Proximity to customers .10 65 90 95
Shipping modes .05 85 92 65
Air service .05 50 65 90

Weighted Score for “Labor pool and climate” for

Site 1 = (0.30)(80) = 24

Copyright 2006 John Wiley & Sons, Inc. Supplement 7-13

 Location Factor Rating

WEIGHTED SCORES
Site 1 Site 2 Site 3
24.00 19.50 27.00
Site 3 has the
20.00 18.20 15.00
highest factor rating
9.00 14.25 10.80
11.25 12.00 12.00
6.50 9.00 9.50
4.25 4.60 3.25
2.50 3.25 4.50
77.50 80.80 82.05

Copyright 2006 John Wiley & Sons, Inc. Supplement 7-14

Factor
Rating
with
Excel

Copyright 2006 John Wiley & Sons, Inc. Supplement 7-15

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

Copyright 2006 John Wiley & Sons, Inc. Supplement 7-16

 Grid-Map Coordinates
y n n
 xiWi  yiWi
2 (x2, y2), W2 i=1 i=1
y2 x= n y= n
 Wi  Wi
1 (x1, y1), W1 i=1 i=1
y1
where,
x, y = coordinates of new facility
3 (x3, y3), W3 at center of gravity
y3 xi, yi = coordinates of existing
facility i
Wi = annual weight shipped from
facility i

x1 x2 x3 x

Copyright 2006 John Wiley & Sons, Inc. Supplement 7-17

 Center-of-Gravity Technique:
Example
y A B C D
700 x 200 100 250 500
C y 200 500 600 300
600 (135)
B Wt 75 105 135 60
500 (105)
Miles

400
D
300
A (60)
200 (75)
100

0 100 200 300 400 500 600 700 x

Miles

Copyright 2006 John Wiley & Sons, Inc. Supplement 7-18

 Center-of-Gravity Technique:
Example (cont.)
n
 xiWi
i=1 (200)(75) + (100)(105) + (250)(135) + (500)(60)
x= = = 238
n 75 + 105 + 135 + 60
 Wi
i=1

n
 yiWi
i=1 (200)(75) + (500)(105) + (600)(135) + (300)(60)
y= = = 444
n 75 + 105 + 135 + 60
 Wi
i=1

Copyright 2006 John Wiley & Sons, Inc. Supplement 7-19

 Center-of-Gravity Technique:
Example (cont.)
y A B C D
700 x 200 100 250 500
C y 200 500 600 300
600 (135)
B Wt 75 105 135 60
500 (105)
Center of gravity (238, 444)
Miles

400
D
300
A (60)
200 (75)
100

0 100 200 300 400 500 600 700 x

Miles

Copyright 2006 John Wiley & Sons, Inc. Supplement 7-20

 Center
of
Gravity
with
Excel

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 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 2006 John Wiley & Sons, Inc. Supplement 7-22

 Load-Distance Calculations
n
LD =  ld i 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 location i
di = 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 2006 John Wiley & Sons, Inc. Supplement 7-23

 Load-Distance: Example
Potential Sites Suppliers
Site X Y A B C D
1 360 180 X 200 100 250 500
2 420 450 Y 200 500 600 300
3 250 400 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 dD = 184.4

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 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
n
LD =  ld i i
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
Copyright 2006 John Wiley & Sons, Inc. Supplement 7-25
 Load-
Distance
with
Excel

Copyright 2006 John Wiley & Sons, Inc. Supplement 7-26

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Copyright 2006 John Wiley & Sons, Inc. Supplement 7-27