Facility Location

Location Decision
Relevant Factors

Market related issues Cost related issues

Market for products and services Wage rates
Raw Material availability Transportation costs
Number and proximity of suppliers Taxes and other tariff issues
Availability of skilled labour
Quality of Infrastructure
Regulatory & Policy issues Other issues
Government & Economic stability Culture
Quality of legal and other institutions Climate
Trading blocks and trading agreements Quality of Life
 Location Planning Methods

• One facility – Multiple Candidates

– Location factor rating
– Centre of Gravity Method
– Load Distance Method
• Multiple Facility – Multiple Candidates
– Transportation Model
 Location factor rating
Steps

• Identify and list down all the relevant factors

for the location decision
• Establish the relative importance of each factor
in the final decision
• Rate the performance of each candidate
location using a rating mechanism
• Compute a total score for each location based
on its performance against each factor and rank
them in the decreasing order of the score
A manufacturer of garments is actively considering five alternative locations for
setting up its factory. The locations vary in terms of the advantages that it
provides to the firm. Hence the firm requires a method of identifying the most
appropriate location. Based on a survey of its senior executives the firm has
arrived at six factors to be considered for final site selection. The ratings of each
factor on a scale of 1 to 100 provide this information. Further, based some detailed
analysis of both the qualitative and quantitative data available for each of the
location, the rating for the locations against each factor has also been arrived at
(on a scale of 0 to 100). Using this information obtain a ranking of the alternative
locations.

Factor Ratings Rating of each locations against the factors

Factors Rating
Availability of infrastructure 90 Factors Location 1 Location 2 Location 3 Location 4 Location 5
Size of the market 60 Availability of infrastructure 20 40 60 35 55
Size of the market 30 30 40 60 80
Industrial relations climate 50
Industrial relations climate 80 30 50 60 50
Tax benefits and concessions 30 Tax benefits and concessions 80 20 10 20 20
Availability of cheap labour 30 Availability of cheap labour 70 70 45 50 50
Nearness to port 65 Nearness to port 20 40 90 50 60
 Relative
Factors Rating weights
Availability of infrastructure 90 0.28
Overall rating for location 3 = 60*0.28 + 40*0.18
Size of the market 60 0.18
Industrial relations climate 50 0.15
+ 50*0.15 + 10*0.09 + 45*0.09 + 90*0.20 = 54.77
Tax benefits and concessions 30 0.09
Availability of cheap labour 30 0.09
Nearness to port 65 0.20

Sum of all factor ratings 325 1.00

Relative
Factors weights Location 1 Location 2 Location 3 Location 4 Location 5
Availability of infrastructure 0.28 20 40 60 35 55
Size of the market 0.18 30 30 40 60 80
Industrial relations climate 0.15 80 30 50 60 50
Tax benefits and concessions 0.09 80 20 10 20 20
Availability of cheap labour 0.09 70 70 45 50 50
Nearness to port 0.20 20 40 90 50 60

Overall score for the locations 41.23 37.54 54.77 46.46 56.15
Ranking of the locations 4 5 2 3 1
 Centre of Gravity Method
• All the demand points (or the supply points, if raw material is supplied
from several locations) are represented in a Cartesian coordinate system
• Each demand (or the supply point) will also have weight indicating the
quantum of shipment
• Therefore it is possible to identify the centre of gravity of the various
demand (or supply) points
• Notations:
– The number of demand (or supply) points in the grip map: n
– Co-ordinates of location i in the grid map: (xi,yi)
– Quantum of shipment between existing demand (or supply) point i and
proposed facility: Wi
– Co-ordinates of the center of gravity in the grip map: (XC,YC)
n n

 ( x ) *W
i 1
i i  ( y ) *W i i
i 1
XC  n
YC  n

W
i 1
i W i
i 1
• A manufacturer of certain industrial component is interested in locating a
new facility in a target market and would like to know the most
appropriate place in the target market to locate the proposed facility. The
manufacturer feels that there are no location constraints in the target market
(i.e. any point in the target market is good enough).
• There are four supply points A, B, C and D in the locality that will provide
key inputs to the new facility. A two-dimensional grid map of the target
market in which we would like to locate a new facility with distance
coordinates of the four supply points is available.
• The annual supply from these four points to the proposed facility is 200,
450, 175 and 150 tonnes respectively.
• The situation is graphically shown in the two-dimensional plot in the
figure. While the coordinates in the parentheses show the distance from the
origin of the target map of each of the supply point, the number that
follows is the annual shipment (in tonnes) from these points to the
proposed facility.
• Identify the most appropriate point in the grid map to locate the new
facility.
 600
Distance in Kilometres

A (125,550), 200
500
B (350,400), 450
400

300 a v ity
of Gr D (700,300), 150
t re
200 Cen 6,376)
(36 C (450,125), 175
100

100 200 300 400 500 600 700

Distance in Kilometres
 Load Distance Method
• Enables a location planner to evaluate two or more potential candidates for locating a
proposed facility vis-à-vis the demand (or supply) points
• Provides an objective measure of total load-distance for each candidate

• Notations
– Number of demand (or supply) points in the grid map: n
– Index used for demand (or supply) points: i
– Co-ordinates of demand (or supply) point i in the grid map: (xi,yi)
– Quantum of shipment between demand (or supply) point i and proposed facility:
Wi
– Number of candidates for the proposed facility: m
– Index used for the candidates for the proposed facility: j
– Co-ordinates of candidate j in the grid map: (Xj,Yj)
– Distance measure for Cartesian coordinates between demand (or supply) point i
and a candidate j for the proposed facility: Dij
– The load – distance for candidate j for the proposed facility: LDj

Dij  ( x i  X j ) 2  ( y i  Y j ) 2

n
LD j  D
i 1
ij * Wi
• Suppose the manufacturer came to know that there are constraints
in locating the new facility.
• Based on an initial survey of possible sites for the proposed facility,
the manufacturer identified four candidates.
• The figure has the location coordinates of the four candidates
(numbered 1 to 4).
• What is the best location for the proposed new facility?

Existing Supply Points Candidates for proposed facility

xi yi Wi Xj Yj
A 125 550 200 1 300 500
B 350 400 450 2 200 500
C 450 125 175 3 500 350
D 700 300 150 4 400 200
D A1  ( x A  X 1 ) 2  ( y A  Y1 ) 2  (125  300) 2  (550  500) 2  (1752  (50) 2  182.00

Dij values
1 2 3 4
A 182.00 90.14 425.00 445.11
B 111.80 180.28 158.11 206.16
C 403.89 450.69 230.49 90.14
D 447.21 538.52 206.16 316.23

LDj values
1 2 3 4
224474.41 258801.57 227410.05 245000.8
A major drug store chain wishes to build a new warehouse to serve the
whole Midwest. At the moment, it is looking at three possible locations.
The factors, weights, and ratings being considered are given below:
Which city should they choose?
   
Ratings
Factor Weights Peoria Des Moines Chicago
20 4 7 5
Nearness to
markets

5 8 8 4
Labor cost
15 8 9 7
Taxes
10 10 6 10
Nearness to
suppliers
Our main distribution center in Phoenix, AZ is due to be replaced with a much
larger, more modern facility that can handle the tremendous needs that have
developed with the city’s growth. Fresh produce travels to the seven store
locations several times a day making site selection critical for efficient
distribution. Using the data in the following table, determine the map coordinates
for the proposed new distribution center.
  Store Locations Map Coordinates (x,y) Truck Round Trips per Day
Mesa (10,5) 3
Glendale (3,8) 3
Camelback (4,7) 2
Scottsdale (15,10) 6
Apache Junction (13,3) 5
Sun City (1,12) 3
Pima (5,5) 10
A company is planning on expanding and building a new plant in one of three
countries in Middle or Eastern Europe. The general manager, Patricia Donegal,
has decided to base her decision on six critical success factors: As given below.
Using a rating system of 1 (least desirable) to 5 (most desirable) she has arrived at
the following ratings (you may, of course, have different opinions). In which
country should the plant be built?
 

Critical Success Factor Turkey Serbia Slovakia

Technology availability and support 4 3 4
Availability and quality of public education 4 4 3
Legal and regulatory aspects 2 4 5
Social and cultural aspects 5 3 4
Economic factors 4 3 3
Political stability 4 2 3
Assume that Patricia decides to use the following weights for the
critical success factors:
Technology availability and support 0.3
Availability and quality of public education 0.2
Legal and regulatory aspects 0.1
Social and cultural aspects 0.1
Economic factors 0.1
Political stability 0.2
Would this change her decision?
Balfour’s is considering building a plant in one of
three possible locations. They have estimated the
following parameters for each location:
For what unit sales volume should they choose each
location?
Location Fixed Cost Variable Cost

Waco, Texas $300,000 $5.75

Tijuana, Mexico $800,000 $2.75

Fayetteville, Arkansas $100,000 $8.00