Chapter 7 S

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

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 Factors in Light Industry Location
• Land costs
• Transportation costs
• Proximity to markets
• depending on delivery requirements
including frequency of delivery required by
customer

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 Factors in Retail Location
• Proximity to customers
• Location is everything

Copyright 2011 John Wiley & Sons, Inc. Supplement 7-6

Factors in Facility Location Planning

Availabilit
Good y of power
Basic
transportatio supply
ameniti
n facilities es

Close
Proximity Governmen
to the raw t policies
material

Facility
Close
Locatio Environmen
Proximi
n t and
ty to
Plannin community
Markets
g

Residential
complexes, Proximity
schools, to sub-
hospitals, contractor
clubs, etc. s

Easy
Availabilit
availability
y of cheap
Less of cheap
& skillful
constructio land
labor
n costs
Factors in International Location Planning

Trade
Offensive in barriers
competitor’
Internationa
s home
l customers
country

Power &
International
prestige
competition

International
Synerg Facility Regulation
y Location s
Planning

Economies
Additional
of scale
resources

Exploitation
of firm
Low costs
specific
advantages Incentives
 Site Selection: Where to Locate
• Infrequent but important
• being “in the right place at the
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.
• Location criteria for
manufacturing facility
• 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 7-9
Three Stage Location Decision
• Regional level
• Availability of raw materials
• Being near customers (imperative for services)
• Availability of labor
• Availability of utilities
• Taxes
• Legal restrictions by countries
• Local level
• Economic incentives such as lower taxes
• Compatible industry (will have competent suppliers)
• Community
• Transportation
• Government policy
• Concern for the environment
• Site
• Access to utilities
• Space to expand (local govt reserves space for companies)
• Being with other industries (utilities can be provided to them from a
centrally-managed factory)
 Location Incentives
• Tax credits
• Relaxed government regulation
• Job training
• Infrastructure improvement

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

 Location Analysis Techniques

• Location factor rating

• Center-of-gravity
• Load-distance

Copyright 2011 John Wiley & Sons, Inc. Supplement 7-13

 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 7-14

 Location Factor Rating
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 2011 John Wiley & Sons, Inc. Supplement 7-15

 Location Factor Rating

WEIGHTED SCORES
Site 1 Site 2 Site 3
24.00 19.50 27.00
20.00 18.20 15.00
Site 3 has the
9.00 14.25 10.80
highest factor
11.25 12.00 12.00 rating
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 2011 John Wiley & Sons, Inc. Supplement 7-16

 Location Factor Rating With Excel

Copyright 2011 John Wiley & Sons, Inc. Supplement 7-17

 11-18

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.
Sites
Major factors for site location Pt. Range A B
Fuels in region 0 to 330 123 156
Power availability and reliability 0 to 200 150 100
Labor climate 0 to 100 54 63
Living conditions 0 to 100 24 96
Transportation 0 to 50 45 50
Water supply 0 to 10 4 5
Climate 0 to 50 8 4
Supplies 0 to 60 5 50
Best Site
Tax policies and laws 0 to 20 5 20 isBest
B
Site
is B
Total pts. 418 544
 Center-of-Gravity (centroid) 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 7-19

 11-20

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
 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
3 (x3, y3), W3 facility at center of gravity
y3 xi, yi = coordinates of existing
facility i
Wi =annual weight shipped
from facility i

x1 x2 x3 x

Copyright 2011 John Wiley

Supplement 7-21
& Sons, Inc.
 Center-of-Gravity Technique
y
A B C D
700
C x 200 100 250 500
600 (135) y 200 500 600 300
B
W 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 2011 John Wiley

Supplement 7-22
& Sons, Inc.
 Center-of-Gravity Technique
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= n
= = 444
75 + 105 + 135 + 60
 Wi
i=1

Copyright 2011 John Wiley

Supplement 7-23
& Sons, Inc.
 Center-of-Gravity Technique
y
A B C D
700
C x 200 100 250 500
600 (135) y 200 500 600 300
B
W 75 105 135 60
500 (105)
Center of gravity (238,
Miles

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

0 100 200 300 400 500 600 700 x

Miles

Copyright 2011 John Wiley

Supplement 7-24
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 Center-of-Gravity With Excel

Formula for
x coordinate

Copyright 2011
Supplement
John Wiley
7-25& Sons, Inc.
 Center-of-Gravity With OM Tools

Copyright 2011
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John Wiley
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 11-27

Plant Location Methodology: Example of Centroid Method

• Centroid method example
– Several mobile showrooms are located
according to the following grid which
represents coordinate locations for each
showroom
Y S ho wro o m No o f Z-Mo b ile s
Q s o ld p e r mo nth
(790,900)

D A 1250
(250,580)

D 1900
A
(100,200)
Q 2300
(0,0) X
Question:
Question:What
Whatisisthe
thebest
bestlocation
locationfor
foraanew
newZ-Mobile
Z-Mobile
warehouse/temporary
warehouse/temporarystorage
storagefacility
facilityconsidering
consideringonly
onlydistances
distancesand
and
quantities
quantitiessold
soldper
permonth?
month?
 11-28

Plant Location Methodology: Example of Centroid Method (Continued):

Determining Existing Facility Coordinates

Y
To
Tobegin,
begin,you
youmust
mustidentify
identifythe
the Q
existing
existingfacilities
facilitieson
onaatwo-
two- (790,900)

dimensional
dimensionalplane
planeororgrid
gridand
and D
(250,580)
determine
determinetheir
theircoordinates.
coordinates.
A
(100,200)

(0,0) X

S ho wro o m No o f Z-Mo b ile s

You
Youmust
mustalso
alsohave
havethethe s o ld p e r mo nth
volume
volumeinformation
informationon onthe
the
business A 1250
businessactivity
activityatatthe
the
existing
existingfacilities.
facilities. D 1900

Q 2300
 11-29

Plant Location Methodology: Example of Centroid Method (Continued):

Determining the Coordinates of the New Facility
You
Youthen
thencompute
computethe
thenew
newcoordinates
coordinatesusing
usingthe
theformulas:
formulas:
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

You
Youthen
thentake
takethe
thecoordinates
coordinatesand
andplace
placethem
themon
onthe
themap:
map:
Y
S ho wro o m No o f Z-Mo b ile s
Q New
New s o ld p e r mo nth
(790,900)
location
location
ZZ
D
(250,580) of
offacility
facility A 1250
ZZabout
about
A D 1900
(100,200) (443,627)
(443,627)
(0,0) X Q 2300
 Load-Distance Technique

• Compute (Load x Distance) for each site

• Choose site with lowest (Load x Distance)
• Distance can be actual or straight-line
• Method for evaluating various facility
locations using a value that is a measure
of weight and distance.

Copyright 2011 John Wiley & Sons, Inc. Supplement 7-30

 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 2011 John Wiley & Sons, Inc. Supplement 7-31

 Example

• A company wants to evaluate three different

sites it has identified for its new distribution
centre relative to the four suppliers identified.
The co-ordinates of the three sites considered
are given. Which site would be the best one that
can be selected based on load-distance
technique?

Copyright 2011 John Wiley & Sons, Inc. Supplement 7-32

 Load-Distance

Potential Sites Suppliers

SiteX 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

Copyright 2011 John Wiley & Sons, Inc. Supplement 7-33

 Load-Distance
Site 2 dA = 333 dB = 323.9 dC = 226.7 dD = 170
Site 3 dA = 206.2 dB = 180.3 dC = 200 dD = 269.3

Compute load-distance
n
LD =  l i di
i=1
Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(184.4) = 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 7-34

 Load-Distance With Excel

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

Copyright 2011 John Wiley & Sons, Inc. Supplement 7-35

 Load-Distance With OM Tools

Copyright 2011 John Wiley & Sons, Inc. Supplement 7-36

Different breakeven volumes for four location options for
different FC and VC values

TC

Cost/
Cost/
Revenue
VC (High) Revenue
(Rs)
(Rs)

FC (Low)

VBE VBE
Volume of Production (units) Volume of Production (units)

Location 1 Location 2
TR

TC
Cost/ Cost/
Revenue VC (Low) Revenue
(Rs) (Rs)

FC (High)

VBE VBE
Volume of Production (units) Volume of Production (units)

Location 3 Location 4