Location.ppt

8/13/2019 Location.ppt

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IES 371Engineering Management

Chapter 10: Location

Week 11August 17, 2005

ObjectivesIdentify the factors affecting location choicesExplain how to apply the various methods to location decisions


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Dr. Karndee Prichanont IES371 1/2005

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Facility Location

Competitive Advantages The need to produce close to the

customer due to time-basedcompetition, trade agreements,

and shipping costs.

The need to locate near theappropriate labor pool to take

advantage of low wage costsand/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

Free Trade Zones

Political Risk

Government Barriers

Trading Zones

Environmental Regulation

Host Community


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Plant Location Methodology:

Location Factor RatingProcedures

1. Identify factors that areimportant in the locationdecision

2. Prioritize the factorby itsimportance. Each factor isweighted from 0 to 1.00

3. Subjective score(0 to 100) isassigned to each site for each

factor

4. Sum up the weighted score.

5. The site with highest score isthe most attractive

Location Factors Weight Site 1 Site 2 Site 3

Labor pool & climate 0.30 80 65 95

Proximity to supplies 0.20 100 91 75

Wage rates 0.

15 60 95 80

Community environme 0.15 75 80 80

Scores (0 to 100)

Location Factors Site 1 Site 2 Site 3

Labor pool & climate 24.

00 19.

50 28.

50

Proximity to supplies 20.00 18.20 15.00

Wage rates 9.00 14.25 12.00

Community environment 11.25 12.00 12.00

64.25 63.95 67.50

Scores (0 to 100)

1 2 3

4

5See also Example S5.1


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Center-of-Gravity Technique Used for locating single facility that considers existing facilities,the

distancesbetween them, and the volumesof goods to be shippedbetween them.

Involves formulas used to compute the coordinates of the two-dimensional point that meets the distance and volume criteriastated above.

The coordinates for the location of the new facility are computed asfollows:

n

i

i

n

i

ii

n

i

i

n

i

ii

W

Wy

y

W

Wx

x

1

1

1

1 ,

x, y = Coordinates of the new facilityat center of gravity

xi, yi = coordinate of existing facilityI

Wi = Annual weight shipped from

facility i

See also Example S5.2


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Ex 1: Center-of-Gravity Technique

Question:What is the best location for a new Z-Mobilewarehouse/temporary storage facility considering onlydistances and quantities sold per month?

Several automobile showrooms are located according to thefollowing grid which represents coordinate locations for eachshowroom.

X

Y

A

(100,200)

D(250,580)

Q(790,900)

(0,0)

Showroom # of Z-mobiles soldper month

A

D

Q

1250

1900

2300


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Load-Distance Technique Various locationsare evaluated using a load-distancevalue.

For a single potential location, a load-distance value (ld)iscomputed as follows:

Select the location with lowest ld value

221

yyxxd

dlLD

iii

n

i

ii

x, y = coordinates of the new facility

xi, yi = coordinate of existing facility

LD = the load-distance value

li

= the load expressed as weight, number of trips, or unit

di = the distance between the new and existing facility

Ex 2:From ex 1, evaluate two possible different sites ofwarehouse to supply to showroom A, D, and Q. Given that

Warehouse site 1: x = 420 and y =450

Warehouse site 2: x = 250 and y =980


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Plant Location Methodology:Break-even analysis

Also refer to Supplement A

Decision Making

Basic steps for break-even analysis

in facility location decisions:

1. Determine variable costsand fixedcosts

2. Plot the total cost lines (sum of

fixed costs and variable costs)forall alternatives in a single graph

3. Identify the approximate ranges for

sites with lowest total cost

4. Solve algebraically for the break-

even points over the relevant

rangesQ(thousands of units)

0

200

400

600

800

1000

1200

1400

1600

2 4 6 8 10 12 14 16 18 20 22

A best B best C best

Break-even point

6.25 14.3

A

D

B

C

(20, 1390)

(20, 1200)

(20, 1060)

(20, 980)

Break-evenpointAnnualcost(thousandsofdollars)


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Ex 3: Break-even analysisEthel & Earl Griese narrowed

their choice for a new oilrefinery to 3 locations.Fixed and variable costsare as follows.

Describe the appropriatedecision plan for thiscompany.

Locations Fixed costper year

Variablecost per

unitAlbanyBaltimore

Chattanooga$350,000

$1,500,500$1,100,000

$980$240$500


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Plant Location Methodology:Transportation Method A quantitative approach based on linear

programming

To determine the allocation pattern that

minimizes the cost of shipping products from 2

or more plants (source of supply) to 2 or more

warehouses (destinations)

This method is find the best shipping patternbetween plants and warehouses for a particular

set of plant locationswith given capacities


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Transportation Tableau

Requirements

Plants Capacity


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Ex 3: Transportation MethodFire Brand makes sauce in EL Paso

and New York City. Distribution

centers are located in Atlanta,

Omaha, and Seattle. The

shipment costs per case are as

shown in the table.

The demand for Atlanta, Omaha, andSeattle are 8,000, 10,000, and4,000 cases per monthrespectively. The plant in El Paso

has production capacity of12,000 cases / month, while theplant in New York City hasproduction capacity of 10,000per month.

FROM /TO Atlanta Omaha Seattle

El Paso $4 $5 $6NYC $3 $7 $9

Determine the shipping pattern thatwill minimize transportation costs.What are the estimated

transportation costs associated withthis optimal allocation pattern?

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Location.ppt