5. Facilities Location Decisions

7/30/2019 5. Facilities Location Decisions

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Facilities Location Decisions


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A location planning exercise requires three

steps:

Identification of factors which influences

location decision

Establishing the relative importance of these

measures for location decision

Develop a methodology to assess the impactof these factors


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Factors affecting location decision

Market related issues

Market for product and services

Raw material availability

Number and proximity of suppliers

Availability of skilled labour

Quality of infrastructure

Cost related issues

Wage rates

Transportation costs

Taxes and other tariff

Regulatory and Policy issues

Government and economic stability

Quality of legal and other institutionsTrading blocks and trading agreements

Other issues

Culture

ClimateQuality of life


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LOCATION PLANNING METHODS

Location Decisions:

One facility multiple candidates (eg: To

choose a location for opening a new plant

out of six alternatives available)

Multiple facility multiple candidates (eg: To

choose four locations for four warehouses

out of 10 alternatives available)


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I. Location Factor Rating

Four steps: Identify relevant factors

Establish relative importance Rating each factor in the scale of 0 to 100.

Normalization of ratings to obtain the relative weights

Rate the performance of each location in eachfactor using a rating mechanism

Compute the total score for each location, based

on its performance against each factor and rankthem in the decreasing order of the score


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Example:

A manufacture of garments is actively considering five alternativelocations for setting up its factory. The firm arrived at six factors forfinal site selection. The ratings of each factor (on a scale of 0 to 100) areprovided. Also the ratings of the locations against each factor (on ascale of 0 to 100) are given. Use this information to rank the locations.

Factors RatingLocations

I II III IV V

Availability of infrastructureSize of the marketIndustrial relationsTax benefitsAvailability of cheap labourNearness to port

906050303065

203080807020

403030207040

604050104590

356060205050

558050205060


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II. Centre of Gravity Method

Use of distance measure to evaluate the impact of aproposed location

This approach is beneficial in situations of locating thefacility close to the demand points (or supply points, ifraw material is supplied from several locations)

In the centre of gravity method, all demand points arerepresented in a Cartesian coordinate system

Each demand point will also have weights, whichindicate the quantum of demand per unit time

In this context, it is possible to identify the centre ofgravity of the various demand points

Locating the new facility at this point will be mostappropriate


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Let the number of existing demand (or supply) points be n

Coordinates of location iin the grid map be (xi, yi) Quantum of shipment between existing demand (or supply) point i

and the proposed facility be Wi.

Coordinates of the centre of gravity in the grid map be (Xc, Yc)

Coordinates of the centre of gravity are given by:

n

i

i

n

i

ii

c

W

Wx

X

1

1

and

n

ii

n

i

ii

c

W

Wy

Y

1

1


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Example:

A manufacturer of a certain industrial component is interested inlocating a new facility in a target market. There are four supplypoints A, B, C and D, in the locality that will provide key inputs tothe new facility

A(125, 550), 200 B(350, 400), 450C(450, 125), 175 D(700, 300), 150

The coordinates within parentheses show the distance from theorigin and the number following is the annual supply. Plot the

supply points on a two-dimensional grid map of the target marketand identify the most appropriate point to locate the new facility.


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III. Load-distance Method

Enables a location planner to evaluate two or

more potential candidates for locating a

proposed facility vis--vis the demand (or

supply) points Load-distance measure for each candidate is

computed and the candidate with minimum

load-distance value is selected


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The number of existing demand (or supply) points be n

Index used for demand (or supply) points be i

Coordinates of demand point iin the grid map be (xi, yi)

Quantum of shipment between existing demand (or supply) point iandthe proposed facility be Wi.

The number of candidates for the proposed facility be m

Index used for candidates for the proposed facility bej

Coordinates of candidatejin the grid map be (Xj, Yj)

The distance between an existing demand (or supply) point iand acandidatejfor the proposed facility is given by

22 )()(jijiij YyXxD

The load-distance for a candidatejfor the proposed facility is

n

i

iijijWDLD

1


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Example

Consider the above example. The location coordinates ofthe four candidates (1 to 4) are given as:

1(300, 500) 2(200, 500) 3(500, 350) 4(400, 200).

What is the best location for the proposed new facility?


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IV Transportation Model

Selection of multiple locations instead of just

one.

Decision regarding which demand points will

be served by each of the locations and towhat extent so that total transportation cost

is minimum


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Example:

Market 1 Market 2 Market 3 Market 4 Market 5 Supply

Warehouse A 100 70 50 30 40 2900

Warehouse B 30 95 40 125 50 2300Warehouse C 75 20 65 40 30 3700

Warehouse D 20 40 95 85 80 1100

Demand 2000 1500 1200 2800 2500 10000


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Final Allocation Table

Market 1 Market 2 Market 3 Market 4 Market 5 Supply100 70 50 30 40

Warehouse A2800 100

2900

30 95 40 125 50Warehouse B

900 1200 2002300

75 20 65 40 30

Warehouse C 1500 2200 370020 40 95 85 80

Warehouse D1100

1100

Demand 2000 1500 1200 2800 2500 10000

Total cost of transportation = Rs 2,91,000

Documents

5. Facilities Location Decisions