Navneet DwivediPGDM-Operations and Supply Chain

Warehouse location: Centre

of Gravity

It includes answering few fundamental questions like:◦How many facilities should be there

◦Where should they be located◦What size should they be

Warehouse Location : a strategic business decision

Manufacturing (Plant or warehouse): decisions are driven by economies. Trade off between transportation cost, inventory carrying cost, labour cost, taxes etc.

Retail: decisions are driven by revenue. Traffic flow and resulting revenue are primary location factor.

Service: decision are driven by service factors. Response time, accessibility and availability.

Nature of location analysis

1. Factor Rating Method

2. Centre of Gravity Method

Single Facility Location

Factor Rating MethodFactors

Weightage(1 to 10)

Score(out of 10)

Weighted Score(weightage*score)

Proximity to competing stores 8Space rent/lease considerations 5Parking space 8Proximity to complementary stores 7Modernity of store space 6Customer accessibility 9Local taxes 3Community service 3Proximity to major transportation 8

Total Score

The centre of gravity (COG) or weighted centre technique is a quantitative method for locating a facility such as warehouse, at the centre of movement in a geographic area based on weight and distance.

Centre of Gravity Method

COG in general…

COG

Determining the volumes by source and destination point

Determining the transportation costs based on Rs/unit/km

Overlaying a grid to determine the coordinates of source and/or destination points

Finding the weighted centre of gravity for the graph

COG method involves

1

4

2

3

g

x

y𝑋𝑔=

𝑥1𝑤1+𝑥 2𝑤2+𝑥 3𝑤3+𝑥 4𝑤 4𝑤 1+𝑤2+𝑤3+𝑤4

𝑌𝑔=𝑦1𝑤1+𝑦 2𝑤2+ 𝑦3𝑤 3+𝑦 4𝑤 4

𝑤1+𝑤 2+𝑤3+𝑤 4

COG= G(Xg, Yg)0,0

Point PRODUCTS LOCATION RATE @ (Rs/Unit/Kg) Xi Yi VOLUME

S1 A MUMBAI 9 2.5 4 8000S2 B DELHI 9 3.5 6.5 10000H1 A & B JAIPUR 8 2.75 5.5 5000H2 A & B VISAKHAPATNAM 7 5 4.25 3000H3 A & B CHENNAI 8 3 1.5 6000H4 A & B GUWAHATI 9 7.5 5.5 4000

Example:Suppose a regional medical warehouse is to be established to serve several hospitals throughout the country. The supplies originate at S1 and S2 and are destined for hospitals at H1,H2,H3and H4. The relative locations are given below.

2 3 4 5 6 7 80

1

2

3

4

5

6

7

8

9

10

S2

S1

H1

H2

H4

H3

Point RATE @ (Rs/Unit/Kg) Xi Yi VOLUME Wi Xi*Wi Yi*Wi

S1 ₹ 9.00 2.5 4 8000 ₹ 72,000.00 180000 288000

S2 ₹ 9.00 3.5 6.5 10000 ₹ 90,000.00 315000 585000

H1 ₹ 8.00 2.75 5.5 5000 ₹ 40,000.00 110000 220000

H2 ₹ 7.00 5 4.25 3000 ₹ 21,000.00 105000 89250

H3 ₹ 8.00 3 1.5 6000 ₹ 48,000.00 144000 72000

H4 ₹ 9.00 7.5 5.5 4000 ₹ 36,000.00 270000 198000

Total ₹ 3,07,000.00 1124000 1452250

Xg=

= =3.66

Yg=

= =4.73

COG = (Xg,Yg) = (3.66,4.73)

2 3 4 5 6 7 80

1

2

3

4

5

6

7

8

9

10

S2

S1

H1

H2

H4

H3

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