Facility location decisions

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 smallest and least costly

Retail and service facilities

Factors in Heavy Manufacturing Location

Construction costs Land costs Raw material and finished goods shipment modes Proximity to raw materials Utilities Labor availability

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

Factors in Retail Location

Proximity to customers Location is everything

Location Rating Factor

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

Location Factor Rating: Example

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

Weighted Score for Labor pool and climate for Site 1 = (0.30)(80) = 24

Location Factor Rating

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

Location Incentives
Tax credits Relaxed government regulation Job training Infrastructure improvement Money

Copyright 2006 John Wiley & Sons, Inc.

Supplement 7-15

Location Analysis Techniques

Center-of-gravity (Infinite set) Load-distance (Finite set) Single facility location Multiple facility location Set Covering Technique Location rating factor Brown and Gibsons Technique

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

i=1 x=

xiWi y= Wi

i=1

yiWi

y2 1 (x1, y1), W1

i=1

i=1

Wi

y1

y3

3 (x3, y3), W3

where, x, y = coordinates of new facility at center of gravity xi, yi = coordinates of existing facility i Wi = annual weight shipped from facility i

x1

x2

x3

Center-of-Gravity Technique: Example

y 700

C
600 500

B (105)

(135)

x y Wt

A 200 200 75

B 100 500 105

C 250 600 135

D 500 300 60

Miles

400 300 200 100 0

D A (75) (60)

100 200 300 400 500 600 700 x Miles

Center-of-Gravity Technique: Example (cont.)

x=
i=1 n

xiWi Wi

(200)(75) + (100)(105) + (250)(135) + (500)(60) = = 238 75 + 105 + 135 + 60

i=1 n

y=
n

i=1

yiWi

i=1

Wi

(200)(75) + (500)(105) + (600)(135) + (300)(60) = = 444 75 + 105 + 135 + 60

Center-of-Gravity Technique: Example (cont.)

y 700

C
600 500

B (105)

(135)

x y Wt

A 200 200 75

B 100 500 105

C 250 600 135

D 500 300 60

400 300 200 100 0

Center of gravity (238, 444) D (60)

Miles

(75)

100 200 300 400 500 600 700 x Miles

Load-Distance Technique

Compute (Load x Distance) for each site Choose site with lowest (Load x Distance) Distance can be actual or straight-line

Load-Distance Calculations
LD =
where, LD = li di di = = = load-distance value load expressed as a weight, number of trips or units being shipped from proposed site and location i distance between proposed site and location i (xi - x)2 + (yi - y)2

ld
i

i=1

where, (x,y) = coordinates of proposed site (xi , yi) = coordinates of existing facility

Load-Distance: Example
Potential Sites Site X 1 360 2 420 3 250 Y 180 450 400 A 200 200 75 Suppliers B C 100 250 500 600 105 135 D 500 300 60

X Y Wt

Compute distance from each site to each supplier Site 1 dA = dB = (xA - x1)2 + (yA - y1)2 = (200-360)2 + (200-180)2 = 161.2 (100-360)2 + (500-180)2 = 412.3

(xB - x1)2 + (yB - y1)2 =

dC = 434.2

dD = 184.4

Load-Distance: Example (cont.)

Site 2 dA = 333 dB = 323.9 dC = 226.7 dD = 170 dD = 269.3 Site 3 dA = 206.2 dB = 180.4 dC = 200

Compute load-distance

LD =

ld
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

Load-distance on a network

Copyright 2006 John Wiley & Sons, Inc.

Supplement 7-29

Load-distance on a network
DEMAND 1 10 1 0 15 2 4
40 60

30 3 3
90 150

20 4 8
160 120

10 5 5
50 40

10 6 6
50 50

SUM 420

2 3 4
5 6

4 3 8
5 6

0 5 6
4 5
75 90
60 75

5 0 5 2
9

6 5 0
3 8

4 2 3
0 9

5 9 8
9 0

400 315 430

320 655

30 80
50 60

100

20 30

90 80
90

150
60 70

60 160

90

Copyright 2006 John Wiley & Sons, Inc.

Supplement 7-30

Load-distance technique for location of multiple facilities

Copyright 2006 John Wiley & Sons, Inc.

Supplement 7-31

Set covering problem

To cover all areas from A to G, suggest the location of minimum number of facilities (can be a distribution center, a mobile tower etc.) from among five possible locations V to Z. Assume, a facility can cover an area within a distance of 30.
A V W X 5 33 18 B 11 35 39 C 20 17 41 D 33 10 12 E 27 53 33 F 36 41 22 G 33 18 31

Y
Z

13
35

6
47

43
41

25
44

38
15

33
51

20
43
Supplement 7-32

Copyright 2006 John Wiley & Sons, Inc.

Set covering problem

Construct coverage matrix in 0-1 from If any column has all zeros, that area cannot be covered and requires strategic action If any coulmn has only one 1, that row must receive facility. Delete that row and all columns having 1 in that row. Perform similar operations on the residual matrix
Copyright 2006 John Wiley & Sons, Inc. Supplement 7-33

Brown and Gibsons method

Used for considering objective as wellas subjective factors togather by evaluating the location measure of the site

Copyright 2006 John Wiley & Sons, Inc.

Supplement 7-34

Copyright 2006 John Wiley & Sons, Inc.

Supplement 7-35

Copyright 2006 John Wiley & Sons, Inc.

Supplement 7-36

Copyright 2006 John Wiley & Sons, Inc.

Supplement 7-37

Copyright 2006 John Wiley & Sons, Inc.

Supplement 7-38

Copyright 2006 John Wiley & Sons, Inc.

Supplement 7-39

Copyright 2006 John Wiley & Sons, Inc.

Supplement 7-40