Facility Location. Operations Management Dr. Ron Tibben-Lembke. Location Decisions. Long-term decisions Difficult to reverse Affect fixed & variable costs Transportation costs (25% of price) Other costs: taxes, wages, rent Objective: maximize benefit of location to firm.
Dr. Ron Tibben-Lembke
Identify the costs that will vary most with the location you choose.
NY / NJ $3,600
Wilmington DE $3,950
36 days (door)
37 days (door)
New Orleans $3,200
Columbus $3000, 21days
Cincinnati $2925, 21d
Louisville $3050, 20d
Murray $3350, 22d
Memphis $2900, 18.5d
Atlanta $3300, 23d
Close 1 existing RDC
The distance from A to A is shown as 0, but there is no reason we couldn’t put the actual mileage in.
Carriers might charge more on popular routes, so costs may not be symmetrical.
Cost to serve A from D is $12.
Cost to serve D from A is $9.5.
If we only build one facility, we should build it in C, and the total transportation costs will be 268. (This is in dollars, or truckload miles, or whatever the units in the table were.)
Notice that even if we built a facility in B or D, it will continue to be cheaper to serve A from C.
In the next step, we will make use of that.
Why do we do that?
Before, the first row said
“0, 110, 80, 120.”
We’ve decided to build in C
If we build in A, B, or D, how much will we spend to haul to A? No matter what, we’ll spend 80.
If we locate in D, we’ll serve B from D, but otherwise, we’ll serve B from C, because it’s cheaper.
This means that if we locate #2 in D (and we already decided to locate one in C), total costs will be $136. How?
A served at cost of $80 by C.
B served at cost of $56 by D.
C served at cost of $0 by C.
D served at cost of $0 by D.
This is why we needed to change the costs above.
If we locate the third facility in A, we will have facilities in C, D, and A. B is the only city without a DC, and it will be served at a cost of $56.
What happens if we do the method one more time?
After we get rid of the now-unnecessary column A, there is only column B, with total costs of 0.
Does that make sense? Well, yes: every city gets served by the DC located in that city, so if the cost of serving a city from that city is 0, then yes, it makes sense.
(Using Distances of 150, 200, 250,250)
Number of Facilities
Plant Lease Cost0.34539
Quality of Life0.179.5
TX is best, but not by a huge amount
Using Linear Regression
You have 3 DCs, and need to deliver product to 4 customers.
Find cheapest way to satisfy all demand