Facility Location Models

Lecture Outline

• Types of Facilities

• Site Selection: Where to Locate

• Global Supply Chain Factors

• Location Analysis Techniques

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

Supplement 7-3

Factors in Heavy Manufacturing Location

Supplement 7-4

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

Factors in Light Industry Location

• Land costs

• Transportation costs

• Proximity to markets• depending on delivery requirements including

frequency of delivery required by customer

Supplement 7-5

Factors in Retail Location

Supplement 7-6

• Proximity to customers• Location is everything

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

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

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

Global Supply Chain Factors

• Government stability

• Government regulations

• Political & economic systems

• Economic stability & growth

• Exchange rates

• Culture

• Export/import regulations, duties & tariffs

• Raw material availability

• Climate • Number & proximity of

suppliers• Transportation & distribution

system• Labor cost & education• Available technology• Commercial travel• Technical expertise• Cross-border trade

regulations• Group trade agreements

Supplement 7-8

Regional and Community Location Factors in U.S.

Labor (availability, education, cost, and unions)

Proximity of customers Number of customers Construction/leasing costs Land cost

Modes and quality of transportation

Transportation costs Community government

Local business regulations Government services (e.g.,

Chamber of Commerce)

Supplement 7-9

Regional and Community Location Factors in U.S.

Business climate Community services Incentive packages Government regulations Environmental regs. Raw material availability Commercial travel Climate

Infrastructure (road & utilities)

Quality of life Taxes Availability of sites Financial services Community inducements Proximity of suppliers Education system

Supplement 7-10

Location Incentives

Supplement 7-11

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

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

Supplement 7-12

GIS Diagram

Supplement 7-13

Location Analysis Techniques

Supplement 7-14

• Location factor rating

• Center-of-gravity

• Load-distance

Location Factor Rating

Supplement 7-15

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

Location Factor Rating

Supplement 7-16

Labor pool and climateProximity to suppliersWage ratesCommunity environmentProximity to customersShipping modesAir service

LOCATION FACTOR

.30

.20

.15

.15

.10

.05

.05

WEIGHT

80100

6075658550

Site 1

65919580909265

Site 2

90757280956590

Site 3

SCORES (0 TO 100)

Weighted Score for “Labor pool and climate” for Site 1 = (0.30)(80) = 24

Location Factor Rating

Supplement 7-17

24.0020.00

9.0011.25

6.504.252.50

77.50

Site 1

19.5018.2014.2512.00

9.004.603.25

80.80

Site 2

27.0015.0010.8012.00

9.503.254.50

82.05

Site 3

WEIGHTED SCORES

Site 3 has the highest factor rating

Location Factor Rating With Excel

Supplement 7-18

Location Factor Rating With OM Tools

Supplement 7-19

Center-of-Gravity Technique

Supplement 7-20

• 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

Grid-Map Coordinates

Supplement 7-21

where,x, y =coordinates of new facility at center of gravityxi, yi =coordinates of existing facility iWi =annual weight shipped from facility i

n

Wi

i = 1

xiWi

i = 1

n

x =

n

Wi

i = 1

yiWi

i = 1

n

y =

x1 x2 x3 x

y2

y

y1

y3

1 (x1, y1), W1

2 (x2, y2), W2

3 (x3, y3), W3

Center-of-Gravity Technique

Supplement 7-22

A B C D

x 200 100 250 500y 200 500 600 300W 75 105 135 60

y

700

500

600

400

300

200

100

0 x700500 600400300200100

A

B

C

D

(135)

(105)

(75)

(60)

Miles

Mile

s

Center-of-Gravity Technique

Supplement 7-23

x = = = 238n

Wii = 1

xiWii = 1

n

n

Wii = 1

yiWii = 1

n

y = = = 444(200)(75) + (500)(105) + (600)(135) + (300)(60)

75 + 105 + 135 + 60

(200)(75) + (100)(105) + (250)(135) + (500)(60)

75 + 105 + 135 + 60

Center-of-Gravity Technique

Supplement 7-24

A B C D

x 200 100 250 500y 200 500 600 300W 75 105 135 60

y

700

500

600

400

300

200

100

0 x700500 600400300200100

A

B

C

D

(135)

(105)

(75)

(60)

Miles

Mile

s Center of gravity (238, 444)

Center-of-Gravity With Excel

Supplement 7-25

Formula for x coordinate

Center-of-Gravity With OM Tools

Supplement 7-26Copyright 2011 John Wiley & Sons, Inc.

Load-Distance Technique

• Compute (Load x Distance) for each site

• Choose site with lowest (Load x Distance)

• Distance can be actual or straight-line

Copyright 2011 John Wiley & Sons, Inc. Supplement 7-27

Load-Distance Calculations

Supplement 7-28

li di

i = 1

n

LD =

LD = load-distance value

li = load expressed as a weight, number of trips or unitsbeing shipped from proposed site and location i

di = distance between proposed site and location i

di = (xi - x)2 + (yi - y)2

(x,y) = coordinates of proposed site

(xi , yi) = coordinates of existing facility

where,

where,

Load-Distance

Supplement 7-29

Potential SitesSiteX Y1 3601802 4204503 250400

SuppliersA B C D

X 200100250500Y 200500600300Wt 75 10513560

Compute distance from each site to each supplier

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

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

dC = 434.2 dD = 184.4

Load-Distance

Supplement 7-30

Site 2 dA = 333 dC = 226.7dB = 323.9 dD = 170

Site 3 dA = 206.2 dC = 200dB = 180.3 dD = 269.3

Compute load-distance

i = 1

n

li diLD =

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

Load-Distance With Excel

Supplement 7-31

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

Load-Distance With OM Tools

Supplement 7-32