Location, Logistics, and Distribution

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Learning Objectives

1. Describe what a third-party logistics provider is.2. Assess the major issues that need to be considered

in locating a plant or warehouse facility.3. Understand the centroid method for locating entities

such as cell phone communication towers.4. Know how a factor-rating system can be used to

narrow potential location sites.

Logistics

Logistics: the art and science of obtaining, producing, and distributing material and product in the proper place and in proper quantities

International logistics: managing these functions when the movement is on a global scale

Third-party logistics company: an outside company used to handle logistics functions

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Decisions Related to Logistics

How material will be transported Truck: great flexibility Ship: high capacity and low cost but slow Plane: fast but expensive Train: low cost but slow and variable Pipeline: highly specialized and limited to liquids,

gases, and solids in slurry form Hand delivery: last step in many supply chains

Multimodial solutions are the norm

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Logistics-System Design Matrix

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Cross-Docking

Cross-docking: large shipments are broken down into small shipments for local delivery in an area Minimizes inventory in the warehouse

Hub-and-spoke systems: the sole purpose of the warehouse (the hub) is sorting goods to consolidation areas, where each area is designed for shipment to a specific location

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Issues in Facility Location

Proximity to customers: makes rapid delivery easier Business climate: can include presence of similar-

sized businesses, businesses in the same industry, and other foreign companies

Total costs: object is to minimize overall cost Infrastructure: adequate road, rail, air, and sea

transportation along with energy and telecommunications

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Issues in Facility Location Continued

Quality of labor: educational and skill levels must match needs

Suppliers: proximity of important suppliers supports lean production

Other facilities: location of other facilities can influence a location decision

Free trade zones: a closed facility into which foreign goods can be brought without being subject to the normal customers requirements

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Issues in Facility Location Continued

Political risk: risks in both the country of location and the host country influence the decision

Government barriers: barriers in many countries are being removed

Trading blocs: firms locate within a block to take advantage of new markets or lower total cost

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Issues in Facility Location Continued

Environmental regulation: these impact a certain industry in a given location and must be included in the decision

Host community: host community’s interest is part of the evaluation process

Competitive advantage: the location should provide the company with a competitive advantage

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Plant Location Methods

1. Factor-rating system

2. Centroid method

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Factor-Rating System

Most widely used List of factors is developed Range of possible points assigned to each

factor Each site is rated against each factor The sums of assigned points for each site are

computed The site with the most points is selected

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Plant Location Methodology: Factor Rating Method Example

Fuels in region 0 to 330Power availability and reliability 0 to 200Labor climate 0 to 100Living conditions 0 to 100Transportation 0 to 50Water supply 0 to 10Climate 0 to 50Supplies 0 to 60Tax policies and laws 0 to 20

Two refineries sites (A and B) are assigned the following range of point values and respective points, where the more points the better for the site location.

1231505424454855

Major factors for site location Pt. Range

156100639650545020

SitesA B

Total pts. 418 544

Best Site is B

Best Site is B

Plant Location Methodology: Centroid Method

The centroid method is used for locating single facilities that considers existing facilities, the distances between them, and the volumes of goods to be shipped between them

This methodology involves formulas used to compute the coordinates of the two-dimensional point that meets the distance and volume criteria stated above

Plant Location Methodology: Centroid Method Formulas

C = d V

V x

ix i

i

C = d V

V x

ix i

i

Where:Cx = X coordinate of centroidCy = X coordinate of centroiddix = X coordinate of the ith locationdiy = Y coordinate of the ith locationVi = volume of goods moved to or from ith location

C = d V

Vy

iy i

i

C = d V

Vy

iy i

i

Plant Location Methodology: Example of Centroid Method

Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month?

Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month?

Centroid method example Several automobile showrooms are located

according to the following grid which represents coordinate locations for each showroom

S howroom No o f Z-Mo b ile s s o ld p e r mo nth

A 1250

D 1900

Q 2300X

Y

A(100,200)

D(250,580)

Q(790,900)

(0,0)

Plant Location Methodology: Example of Centroid Method (Continued): Determining Existing Facility Coordinates

To begin, you must identify the existing facilities on a two-dimensional plane or grid and determine their coordinates.

To begin, you must identify the existing facilities on a two-dimensional plane or grid and determine their coordinates.

X

Y

A(100,200)

D(250,580)

Q(790,900)

(0,0)

You must also have the volume information on the business activity at the existing facilities.

You must also have the volume information on the business activity at the existing facilities.

S ho wro o m No o f Z-Mo b ile s s o ld p e r mo nth

A 1250

D 1900

Q 2300

Plant Location Methodology: Example of Centroid Method (Continued): Determining the Coordinates of the New Facility

C = 100(1250) + 250(1900) + 790(2300)

1250 + 1900 + 2300 =

2,417,000

5,450 = x 443.49C =

100(1250) + 250(1900) + 790(2300)

1250 + 1900 + 2300 =

2,417,000

5,450 = x 443.49

C = 200(1250) + 580(1900) + 900(2300)

1250 + 1900 + 2300 =

3,422,000

5,450 = y 627.89C =

200(1250) + 580(1900) + 900(2300)

1250 + 1900 + 2300 =

3,422,000

5,450 = y 627.89

S ho wro o m No o f Z-Mo b ile s s o ld p e r mo nth

A 1250

D 1900

Q 2300X

Y

A(100,200)

D(250,580)

Q(790,900)

(0,0)

You then compute the new coordinates using the formulas:You then compute the new coordinates using the formulas:

ZZ

New location of facility Z about (443,627)

New location of facility Z about (443,627)

You then take the coordinates and place them on the map:You then take the coordinates and place them on the map:

Chapter 12

Any of Questions?