Facility Location Part 1

1. Facility LocationPart 1 byAnita Lee-Post

2. Learning objectives • Define facility location decision and its strategic impacts. • Describe the procedure for making facility location decisions. • Identify the criteria for selecting appropriate locations for a plant or service facility.

3. Learning objectivescontinued • Apply the center-of-gravity method to evaluate location alternatives based on load-distance. • Apply the transportation method to evaluate the cost impact of adding new sites to the network of existing facilities. • Apply the break-even analysis to evaluate different location alternatives based on costs.

4. Facility location • Facility Location Decision is: determining the best geographical location for a company’s facility (which can be an entire organization, a division, or any form of establishment for manufacturing and/or service activities).

5. Strategic impacts In terms of long-term impacts, location decision: • Requires long-term commitments in buildings and facilities. • Requires sizable financial investment in setting up a new facility.

6. Strategic impactscontinued In terms of competitive imperatives, location decision allows for: • Time-based competition if located near customers and/or suppliers. • Lowering of shipping costs if located near customers and/or suppliers. • Lowering wage costs if located near the appropriate labor pool. • Adequate supply of skilled labor if located near the appropriate labor pool.

7. Procedure for making facility location decisions • Identify dominant location criteria: What are the distinctive location factors that have a critical impact on the company’s strategic goal? • Develop location alternatives: What are the acceptable locations that satisfy the selected factors? • Evaluate location alternatives: Which is the best location among the acceptable alternatives?

8. Location factors Proximity to Customers Market Opportunity Total Costs Infrastructure Quality of Labor Suppliers Free Trade Zones Political Risk Government Incentives Environmental Regulation Community Attitude Cultural Issues

9. Dominating location factors Proximity to customers at First Security

10. Dominant locating factors continued Market opportunity at Wal-Mart • opening of first Wal-Mart in Rogers, Arkansas

11. Location alternatives evaluation methods Distance-based: center-of-gravity method • Given the locations of existing facilities (distance) and the volume of goods to be shipped between them (load) • Find the location of a single facility (e.g., a warehouse) that gives the best load-distance score (i.e., minimizes the total amount of loads moved weighted by the distance traveled) • Assuming inbound & outbound transportation costs are equal & irrespective of load size

12. Location alternatives evaluation methods Cost-based: transportation method • Given the supply availability of each factory (or source), the demand of each warehouse (or destination), and the costs per unit of goods to be shipped between them • Find a minimum-cost shipping schedule that satisfies demand requirements without exceeding supply • Assuming no cost on excess supply

13. Location alternatives evaluation methods Cost-based: break-even analysis • Given the fixed and variable costs at each location alternatives • Identify ranges of ouptut for which each location has the lowest total cost • Select the location that gives the lowest cost for the design capacity of the new facility