05 - Facility Location

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Operations Management

Summer 2014

BS-III

Instructor: Dr. Rizwan Ahmed

Facility Location



Lecture Outline

• Types of facilities

• Site selection: where to locate

•

Location analysis techniques



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

• Distribution centers

– Need to be close to road/rail links, main

markets/customer segments; need big space

•

Retail and service facilities – smaller and least costly

• Back office



Factors in Facility Location

Factors

Relative Importance of Factors in Facility Location

Heavy

Industry

Light Industry Distribution

Centers

Retail &

Services

Back Office

Construction

costs

High Medium Medium Low Low

Land costs High Medium Medium Low Very low

Transportationcost High Medium High Low Very low

Utilities cost Very High High Low Medium Medium

Proximity to

required

transportation

modes

High Medium High Low Low

Proximity to RawMaterials

High Medium N/A N/A N/A

Proximity to main

markets/segment

Medium High High High N/A

Proximity to

Customers

Low Medium Medium Very High Low

Labor availability High High Medium Low Medium



Global Location Factors (PEST

Factors)• Government stability

• Government regulations

• Political and economicsystems

• Economic stability andgrowth

• Exchange rates

• Culture

• Climate• Export import regulations,

duties and tariffs

• Raw material availability

• Number and proximity ofsuppliers

• Transportation and

distribution system• Labor cost and education

• Available technology

• Commercial travel

• Technical expertise• Cross-border trade

regulations

• Group trade agreements



Regional Location Factors

• Labor (availability,

education, cost, and

unions)

• Proximity ofcustomers

• Number of customers

•

Construction/leasingcosts

• Land cost

• Modes and quality of

transportation

• Transportation costs

• Communitygovernment Local

business regulations

•

Government services(e.g., Chamber of

Commerce)



Regional Location Factors (cont.)

• Business climate

• Community services

• Incentive packages

•

Government regulations• Environmental

regulations

• Raw material availability

• Commercial travel• Climate

• Infrastructure (e.g., roads,

water, sewers)

• Quality of life

•

Taxes• Availability of sites

• Financial services

• Community inducements

• Proximity of suppliers• Education system



Location Incentives

• Tax credits

• Relaxed government regulation

•

Job training• Infrastructure improvement

• Money



Location Analysis Techniques

• Location rating factor

• Center-of-gravity

• Load-distance



Location Rating Factor

Qualitative approach, quantitative decision

Identify important factors

Give Importance weight to each factor(from 0.00 - 1.00)

Give suitability score to each location w.r.tto each factor (from 0 - 100)

Calculate weighted score (weight * score)

Sum weighted scores



Location Factor Rating: Example

Labor pool and climate

Proximity to suppliersWage rates

Community environment

Proximity to customers

Shipping modes

Air service

LOCATION FACTOR

.30

.20.15

.15

.10

.05

.05

WEIGHT

80

10060

75

65

85

50

Site 1

65

9195

80

90

92

65

Site 2

90

7572

80

95

65

90

Site 3

SCORES (0 TO 100)

Weighted Score for “Labor pool and climate” for

Site 1 = (0.30)(80) = 24



Location Factor Rating

24.0020.00

9.00

11.25

6.50

4.252.50

77.50

Site 1

19.5018.20

14.25

12.00

9.00

4.603.25

80.80

Site 2

27.0015.00

10.80

12.00

9.50

3.254.50

82.05

Site 3

WEIGHTED SCORES

Site 3 has thehighest factor rating



Locate facility at center of

geographic area w.r.t supplier or

markets

Based on weight and distance

traveled

Identify coordinates and weights

shipped to/from each location

Center-of-GravityTechnique



Grid-Map Coordinates

where,

x , y = coordinates of new facility

at center of gravity

x i , y i

= coordinates of supplier i

W i = annual weight shipped from

facility i

n

W ii = 1

x i W ii = 1

n

x = n

W ii = 1

y i W ii = 1

n

y =

x 1 x 2 x 3 x

y 2

y

y 1

y 3

1 (x 1, y 1), W 1

2 (x 2, y 2), W 2

3 (x 3, y 3), W 3



Center-of-Gravity Technique:

Example• The Burger Doodle restaurant chain purchases

ingredients from four different food suppliers.

• The company wants to construct a new central

distribution center to process and package the

ingredients before shipping them to their various

restaurants.

• The suppliers transport ingredient items in 40-foot truck

trailers, each with a capacity of 38,000 pounds.

• The locations of the four suppliers, A, B, C, and D, and

the annual number of trailer loads that will be transported

to the distribution center are shown in the following

figure:



Center-of-Gravity Technique:Example

A B C D

x 200 100 250 500

y 200 500 600 300

Wt 75 105 135 60

y

700

500

600

400

300

200

100

0 x 700500 600400300200100

A

B

C

D

(135)

(105)

(75)

(60)

Miles

M i l e s



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

x = = = 238n

W ii = 1

x i W ii = 1

n

n

W ii = 1

y i W ii = 1

n

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

75 + 105 + 135 + 60

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

75 + 105 + 135 + 60



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

A B C D

x 200 100 250 500

y 200 500 600 300

Wt 75 105 135 60

y

700

500

600

400

300

200

100

0 x 700500 600400300200100

A

B

C

D

(135)

(105)

(75)

(60)

Miles

M i l e s Center of g ravi ty (238, 444)



Load-Distance Technique

• A Variation of Centre of Gravity Method

• You have a number of suppliers or

markets• And a number of proposed sites

• How to choose which site?

• Compute (Load x Distance) for each site& supplier

• Choose site with lowest (Load x Distance)

• Distance can be actual or strai ht-line



Load-Distance Calculations

l i d i

i = 1

n

LD =

LD = load-distance value

l i = load expressed as a weight, number of trips or units

being shipped from proposed site and supplier location i

d i = distance between proposed site and supplier location i

d i = (x i - x )2 + (y i - y )

2

(x ,y ) = coordinates of a proposed site

(x i , y i ) = coordinates of a supplier location

where,

where,



Load-Distance: Example

Potential Sites

Site X Y

1 360 180

2 420 450

3 250 400

Suppliers

A B C D

X 200 100 250 500

Y 200 500 600 300

Wt 75 105 135 60

Compute distance from each site to each supplier

= (200-360)2 + (200-180)2dA = (xA - x1)2 + (yA - y1)

2Site 1 = 161.2

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

2 = 412.3

dC = 434.2 dD = 184.4



Load-Distance: Example (cont.)

Site 2 dA = 333 dC = 226.7dB = 323.9 dD = 170

Site 3 dA = 206.2 dC = 200dB = 180.4 dD = 269.3

Compute load-distance

i = 1

nli diLD =

Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(434.4) = 125,063Site 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

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05 - Facility Location