Chapter 7 Supplement

Facility Location Models

 Lecture Outline

• Types of Facilities
• Site Selection: Where to Locate
• Global Supply Chain Factors
• Location Analysis Techniques

Copyright 2011 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
• Retail and service facilities
• smallest and least costly

Copyright 2011 John Wiley & Sons, Inc. Supplement 7-3

 Factors in Heavy
Manufacturing Location
• Construction costs
• Land costs
• Raw material & finished goods shipment modes
• Proximity to raw materials
• Utilities
• Means of waste disposal
• Labor availability

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 Factors in Light Industry Location

• Land costs
• Transportation costs
• Proximity to markets
• depending on delivery requirements
including frequency of delivery required by
customer

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 Factors in Retail Location

• Proximity to customers
• Location is everything

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 Site Selection: Where to Locate
• Infrequent but important
• being “in the right place at the
right time”
• Must consider other factors,
especially financial
considerations
• Location decisions made more
often for service operations
than manufacturing facilities
• Location criteria for service
• access to customers
Copyright 2011 John Wiley & Sons, Inc.
• Location criteria for
manufacturing facility
• nature of labor force
• labor costs
• proximity to suppliers and
markets
• distribution and transportation
costs
• energy availability and cost
• community infrastructure
• quality of life in community
• government regulations and
taxes
Supplement 7-7
 Global Supply Chain Factors

• Government stability • Climate

• Government regulations • Number & proximity of
suppliers
• Political & economic systems
• Transportation & distribution
• Economic stability & growth system
• Exchange rates • Labor cost & education
• Culture • Available technology
• Export/import regulations, • Commercial travel
duties & tariffs • Technical expertise
• Raw material availability • Cross-border trade
regulations
• Group trade agreements

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 Regional and Community
Location Factors in U.S.
• Labor (availability, • Modes and quality of
education, cost, and unions) transportation
• Proximity of customers • Transportation costs
• Number of customers • Community government
• Construction/leasing costs Local business regulations
• Land cost • Government services (e.g.,
Chamber of Commerce)

Copyright 2011 John Wiley & Sons, Inc. Supplement 7-9

 Regional and Community
Location Factors in U.S.
• Business climate • Infrastructure (road &
• Community services utilities)
• Incentive packages • Quality of life
• Government regulations • Taxes
• Environmental regs. • Availability of sites
• Raw material availability • Financial services
• Commercial travel • Community inducements
• Climate • Proximity of suppliers
• Education system

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 Location Incentives

• Tax credits
• Relaxed government regulation
• Job training
• Infrastructure improvement
• Money

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Geographic Information Systems (GIS)

• Computerized system for storing, managing,

creating, analyzing, integrating, and digitally
displaying geographic, i.e., spatial, data
• Specifically used for site selection
• Enables users to integrate large quantities of
information about potential sites and analyze
these data with many different, powerful
analytical tools

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 GIS Diagram

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 Location Analysis Techniques

• Location factor rating

• Center-of-gravity
• Load-distance

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 Location Factor Rating

• Identify important factors

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

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

Weighted Score for “Labor pool and climate” for

Site 1 = (0.30)(80) = 24

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 Location Factor Rating

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

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 Location Factor Rating With Excel

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 Location Factor Rating With OM Tools

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 Center-of-Gravity Technique

• Locate facility at center of movement in

geographic area
• Based on weight and distance traveled;
establishes grid-map of area
• Identify coordinates and weights shipped for
each location

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 Grid-Map Coordinates
y n n
 xiWi  yiWi
2 (x2, y2), W2 i=1 i=1
y2 x= n y= n
 Wi  Wi
1 (x1, y1), W1 i=1 i=1
y1
where,
x, y = coordinates of new facility at
3 (x3, y3), W3 center of gravity
y3 xi, yi = coordinates of existing facility i
Wi = annual weight shipped from
facility i

x1 x2 x3 x

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 Center-of-Gravity Technique
y
A B C D
700
C x 200 100 250 500
600 (135) y 200 500 600 300
B
W 75 105 135 60
500 (105)
Miles

400
D
300
A (60)
200 (75)
100

0 100 200 300 400 500 600 700 x

Miles

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 Center-of-Gravity Technique
n
 xiWi
i=1 (200)(75) + (100)(105) + (250)(135) + (500)(60)
x= = = 238
n 75 + 105 + 135 + 60
 Wi
i=1

n
 yiWi
i=1 (200)(75) + (500)(105) + (600)(135) + (300)(60)
y= = = 444
n 75 + 105 + 135 + 60
 Wi
i=1

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 Center-of-Gravity Technique
y
A B C D
700
C x 200 100 250 500
600 (135) y 200 500 600 300
B
W 75 105 135 60
500 (105)
Center of gravity (238, 444)
Miles

400
D
300
A (60)
200 (75)
100

0 100 200 300 400 500 600 700 x

Miles

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 Center-of-Gravity With Excel

Formula for
x coordinate

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 Center-of-Gravity With OM Tools

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 Load-Distance Technique

• Compute (Load x Distance) for each site

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

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 Load-Distance Calculations
n
LD =  ld i i
i=1
where,
LD = load-distance value
li = load expressed as a weight, number of trips or units
being shipped from proposed site and location i
di = distance between proposed site and location i
di = (xi - x)2 + (yi - y)2
where,
(x,y) = coordinates of proposed site
(xi , yi) = coordinates of existing facility

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 Load-Distance

Potential Sites Suppliers

Site X Y A B C D
1 360 180 X 200 100 250 500
2 420 450 Y 200 500 600 300
3 250 400 Wt 75 105 135 60

Compute distance from each site to each supplier

Site 1 dA = (xA - x1)2 + (yA - y1)2 = (200-360)2 + (200-180)2 = 161.2

dB = (xB - x1)2 + (yB - y1)2 = (100-360)2 + (500-180)2 = 412.3

dC = 434.2 dD = 184.4

Copyright 2011 John Wiley & Sons, Inc. Supplement 7-29

 Load-Distance
Site 2 dA = 333 dB = 323.9 dC = 226.7 dD = 170
Site 3 dA = 206.2 dB = 180.3 dC = 200 dD = 269.3

Compute load-distance
n
LD =  ld i 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) = 99,789
Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555*

* Choose site 3

Copyright 2011 John Wiley & Sons, Inc. Supplement 7-30

 Load-Distance With Excel

=B7*C11+C7*C12+D7*C13+E7*C14

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 Load-Distance With OM Tools

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