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Facility Location
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• Issues in Facility Location
• Various Plant Location Methods
OBJECTIVES
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Competitive Imperatives Impacting Location
The need to produce close to the customer due to time-based competition, trade agreements, and shipping costs
The need to locate near the appropriate labor pool to take advantage of low wage costs and/or high technical skills
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Issues in Facility Location
• Proximity to Customers
• Business Climate
• Total Costs
• Infrastructure
• Quality of Labor
• Suppliers
• Other Facilities
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Issues in Facility Location
• Free Trade Zones
• Political Risk
• Government Barriers
• Trading Blocs
• Environmental Regulation
• Host Community
• Competitive Advantage
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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 more the 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
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Plant Location Methodology: Transportation Method of Linear
Programming
Transportation method of linear
programming seeks to minimize costs of
shipping n units to m destinations or it
seeks to maximize profit of shipping n
units to m destinations
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Plant Location Methodology: Centroid Method
The centroid method is used for locating single
facility that considers existing facilities, the
distances between them, and the volumes of
goods to be shipped between them
This methodology involves formulae used to
compute the coordinates of the two-
dimensional point that meets the distance and
volume criteria stated above
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Plant Location Methodology: Centroid Method Formulae
C = d V
V x
ix i
i
C = d V
V x
ix i
i
Where:Cx = X coordinate of centroidCy = Y 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
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Plant Location Methodology: Example of Centroid Method
Question: What is the best location for a new Model warehouse / temporary storage facility considering only distances and quantities sold per month?
Question: What is the best location for a new Model 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)
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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
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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:
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Question Bowl
Criteria that influences manufacturing plant and
warehouse location planning can include which
of the following?
a. Proximity to customers
b. Business climate
c. Infrastructure
d. Quality of labor
e. All of the above
Answer: e. All of the above
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Question Bowl
Criteria that influences manufacturing plant and
warehouse location planning can include
which of the following?
a. Political risk
b. Government barriers
c. Environmental regulation
d. All of the above
e. None of the above
Answer: d. All of the above
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Question Bowl
Which of the following are plant location methods?
a. Transportation method of linear programming
b. Factor-rating systems
c. Centroid method
d. All of the above
e. None of the above
Answer: d. All of the above
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Question Bowl
Which of the following methods of plant location
analysis considers the existing facilities, the
distances between them, and the volumes of
goods to be shipped?
a. Transportation method of linear programming
b. Factor-rating systems
c. Centroid method
d. All of the above
e. None of the above
Answer: c. Centroid method
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Question Bowl
Which of the following methods of plant location analysis is the most widely used general location technique because it combines diverse factors in an easy-to-understand format?
a. Transportation method of linear programmingb. Factor-rating systemsc. Centroid methodd. All of the abovee. None of the above
Answer: b. Factor-rating systems
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Question Bowl
The location decision for service facilities is
closely tied to which of the following?
a. Market selection decision
b. Material costs
c. Nearness to distributors
d. Nearness to high-skilled labor
e. None of the above
Answer: a. Market selection decision
