BUS473: Supply Chain Management

Unit 4.1 : Type of Facilities

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 What is a Facility in a SC?

• Facility – processes or transforms inventory into another product, or it

stores the inventory before shipping it to the next facility
• Heavy manufacturing
• Auto plants, steel mills, chemical plants
• Light industry
• Small components manufacturing, assembly
• Warehouse & distribution centers
• Retail Shops
• Three primary facilities components
• Location
• Capacity
• Operational design
Facility Decisions
BUS473: Supply Chain Management

Unit 4.2: Critical factors considered

while facility selection

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Factors for selecting Facility locations

• Cost • Land ownership

• Overland transportation
• Rail transport
• Stay close to customers
• Near the source of raw materials
/ production plants
• Utilities
• Drainage
• Waste transfer / waste
management
• Incentives from the warehouse
located first
• Labor and Wages
• Rate of return on investment
• Payback period
• Net present value
• Load distance analysis
BUS473: Supply Chain Management

Unit 4.3 Location Model

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Location Analysis Techniques

• Location rating factor Method

• Center-of-gravity Method
• Load-distance Method
Location Rating Factor Method

• Identify important factors

• Weight factors (0.00 - 1.00)
• Subjectively score each factor (0 - 100)
• Sum weighted scores
 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 Site 1 for Labour Pool and Climate = (0.30)(80) = 24

Location Factor Rating
WEIGHTED
SCORES (0 TO 100) SCORES
LOCATION FACTOR WEIGHT Site
Site 11 Site
Site 22 Site
Site 33
Labor pool and climate .30 24.00
80 19.50
65 27.00
90
Proximity to suppliers .20 20.00
100 18.20
91 15.00
75
Wage rates .15 9.00
60 14.25
95 10.80
72
Community environment .15 11.25
75 12.00
80 12.00
80
Proximity to customers .10 6.50
65 9.00
90 9.50
95
Shipping modes .05 4.25
85 4.60
92 3.25
65
Air service .05 2.50
50 3.25
65 4.50
90
77.50 80.80 82.05

Weighted Score Site 1 = (24+20+9+11.25+6.5+4.25+2.5) = 77.50

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
 Grid-Map Coordinates
y

2 (x2, y2), W2
y2
xi, yi = coordinates of
1 (x1, y1), W1
y1 existing facility i
3 (x3, y3), W3 Wi = annual weight
y3
shipped from facility i

x1 x2 x3 x
Center-of-Gravity Technique
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
 Grid-Map Coordinates
n n
y
 xW  yW
i i
y2
2 (x2, y2), W2 i=1 i=1
i i
x= n y= n
y1
1 (x1, y1), W1 W W
i
i=1 i=1
i
3 (x3, y3), W3
y3
where,
x, y = coordinates of the new facility at center
of gravity
xi, yi = coordinates of existing facility i
x1 x2 x3 x
Wi = annual weight shipped from facility i
Center-of-Gravity Technique
y A B C D
n
700 x 200 100 250 500
xiWi C(200)(75) + (100)(105)
i=1 y + (250)(135)
200 500 600
+ (500)(60) 300
x=600 = (135) Wt 75 105 135 = 23860
n B 75 + 105 + 135 + 60
500  Wi (105)
i=1
Miles

400
D
300n (60)
A
 yiWi
200
i=1 (75)
(200)(75) + (500)(105) + (600)(135) + (300)(60)
y= n
= = 444
100 75 + 105 + 135 + 60
 Wi
i=1
0 100 200 300 400 500 600 700 x
Miles
Center-of-Gravity Technique
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
Load-Distance Technique
• A mathematical model used to evaluate locates
based on proximity factors.
• The objective is to select the location that
minimizes the total weighted loads moving into
and out of the facility
• Compute Load x Distance for each site
• Choose site with lowest Load x Distance
• Distance can be actual or straight-line
How to measure Distance
• Actual Distance: Measured Distance (eg.
Street Miles)
• Euclidean: Straight-line estimates of Distance
dAB = (xA - xB)2 + (yA - yB)2

• Rectilinear Distance: movements are allowed

only vertically and horizontally

dAB = |xA – xB |+ |yA - yB|

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Load-Distance Calculations
n

LDij =

j=1
lij dij

where,
LDij= load-distance value from site i to all existing facility j’s
lij = load expressed as a weight, number of trips or units
being shipped from proposed site i and location j
dij = distance between proposed site i and location j
dij = (xi - xj)2 + (yi - yj)2
where,
(xi,yi) = coordinates of proposed site i
(xi , yj) = coordinates of existing facility j
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 Ioad75 105 135 60

Compute distance from each site to each supplier using Euclidean Method

Site 1 d1A = (xA - x1)2 + (yA - y1)2 = (200-360)2 + (200-180)2 = 161.2

d1B = (xB - x1)2 + (yB - y1)2 = (100-360)2 + (500-180)2 = 412.3

d1C = 434.2 d1D = 184.4

 Load-Distance: Example (cont.)
Site 2 d2A = 333 d2B = 323.9 d2C = 226.7 d2D = 170
Supplier Supplier Supplier Supplier
Site 3 d3A = 206.2 d3B = 180.4 d3C = 200 d3D = 269.3 A B C D

Compute load-distance Site 1 161.2 412.3 434.2 184.4

Site 2 333 323.9 226.7 170
n
Site 3 206.2 180.4 200 269.3
LDij =

j=1
lijdij Weight 75 105 135 60

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
Distance Measuremenet Method Straight Line (Euclidean)

Distance to Proposed Sites Load-Distance

Suppliier Cooridnates Site 1 Site 2 Site 3 Site 1 Site 2 Site 3
Load X 360 420 250
Supplier X Y (weight) Y 180 450 400
Supplier A 200 200 75 161.25 333.02 206.16 12,093 24,976 15,462
Supplier B 100 500 105 412.31 323.88 180.28 43,293 34,008 18,929
Supplier C 250 600 135 434.17 226.72 200.00 58,612 30,607 27,000
Supplier D 500 300 60 184.39 170.00 269.26 11,063 10,200 16,155
Total 125,062 99,791 77,546

Distance Measuremenet Method Rectilinear Distance

Distance to Proposed Sites Load-Distance

Suppliier Cooridnates Site 1 Site 2 Site 3 Site 1 Site 2 Site 3
Load X 360 420 250
Supplier X Y (weight) Y 180 450 400
Supplier A 200 200 75 180.00 470.00 250.00 13,500 35,250 18,750
Supplier B 100 500 105 580.00 370.00 250.00 60,900 38,850 26,250
Supplier C 250 600 135 530.00 320.00 200.00 71,550 43,200 27,000
Supplier D 500 300 60 260.00 230.00 350.00 15,600 13,800 21,000
Total 161,550 131,100 93,000
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