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Chapter 11 Facility Location. Issues in Facility Location Various Plant Location Methods. Competitive Imperatives Impacting Location. The need to produce close to the customer due to time-based competition, trade agreements, and shipping costs.

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chapter 11 facility location
Chapter 11Facility Location
  • Issues in Facility Location
  • Various Plant Location Methods
competitive imperatives impacting location
Competitive Imperatives Impacting Location
  • The need to produceclose to the customer due to time-based competition, trade agreements, and shipping costs.
  • The need to locatenear the appropriate labor pool to take advantage of low wage costs and/or high technical skills.
issues in facility location
Issues in Facility Location
  • Proximity to Customers
  • Business Climate
  • Total Costs
  • Infrastructure
  • Quality of Labor
  • Suppliers
  • Other Facilities
issues in facility location1
Issues in Facility Location
  • Free Trade Zones
  • Political Risk
  • Government Barriers
  • Trading Blocs
  • Environmental Regulation
  • Host Community
  • Competitive Advantage
characteristics of location decisions
Characteristics of Location Decisions
  • Long-term decisions
  • Very difficult to reverse
  • Affect fixed & variable costs
    • Transportation cost
      • As much as 25% of product price
    • Other costs: Taxes, wages, rent etc.
  • Objective: Maximize benefit of location to firm
location decision sequence
Location Decision Sequence

2. Region/Community

1. Country

3. Site

© 1995 Corel Corp.

© 1995 Corel Corp.

© 1995 Corel Corp.

factors affecting country decision
Factors Affecting Country Decision
  • Government
  • Culture & economy
  • Market location & size
  • Labor
    • Productivity
    • Cost
    • Skills
  • Infrastructure
  • Exchange rate
  • Incentives

© 1995 Corel Corp.

factors affecting region community decision
Factors Affecting Region/Community Decision
  • Corporate desires
  • Attractiveness
  • Labor
  • Utility costs
  • Local government incentives
  • Proximity to customers & suppliers
  • Land/construction $$$

© 1995 Corel Corp.

factors affecting site decision
Factors Affecting Site Decision
  • Site size
  • Site cost
  • Transportation in/out
  • Proximity of services
  • Environmental impact

© 1995 Corel Corp.

manufacturing location strategies
Manufacturing Location Strategies
  • Cost focus
    • Revenue varies little between locations
  • Location is a major cost factor
    • Affects shipping & production costs (e.g., labor)
    • Costs vary greatly between locations

© 1995 Corel Corp.

service location strategies
Service Location Strategies
  • Revenue focus
    • Costs differences among locations are relatively less important
  • Location is a major revenue factor
    • Affects amount of customer contact
    • Affects volume of business

© 1995 Corel Corp.

some location methods
Some Location Methods
  • Factor weighting method
  • Center of gravity method

© 1995 Corel Corp.

location methods factor rating method
Location Methods:Factor Rating Method
  • Most widely used location technique
  • Useful for service & manufacturing locations
  • Rates locations using factors
    • Qualitative (intangible) factors
      • Example: Education quality, labor skills
    • Quantitative (tangible) factors
      • Example: Short-run & long-run costs
weighted factor rating method steps
Weighted Factor Rating Method Steps

1. List relevant factors

2. Assign importance weight to each factor (0-1 with all weights adding to 1)

3. Give a score to each location by factor (1-10, etc.)

4. Multiply scores by weights for each factor & total

5. Select location with maximum total score

factor rating method example
Factor Rating Method Example

You’re an analyst for John Deere. You’re considering locating a new plant in Omaha (NE) or Denver (CO).

Factor Wgt NE COMfg. costs .7 8 6Cost of living .1 7 6 Labor avail. .2 10 8

Where should you locate?

© 1995 Corel Corp.

factor rating method thinking challenge
Factor Rating Method Thinking Challenge

You’re owner of a hot tub store. You’re considering relocating to Phoenix (AZ) or Santa Fe (NM).

Factor Wgt AZ NMPopulation .4 10 5Competition .1 3 8 Life style .5 2 9

Where should you locate?

© 1995 Corel Corp.

location methods factor rating method1
Location Methods:Factor Rating Method +/-

+ Easy to understand and compute

- How do you pick weights?

- How do you assign rankings?

location methods transportation method of linear programming
Location Methods:Transportation Method of Linear Programming
  • Seeks to minimize costs of shipping n units to m destinations or its seeks to maximize profit of shipping n units to m destinations.

+ eliminates subjectivity

- may give unrealistic answer

location methods centroid method
Location Methods:Centroid Method
  • The centroid is used for locating single facilities that considers:
    • existing facilities,
    • the distances between them, and
    • the volumes of goods to be shipped between them.
  • This methodology involves formulas used to compute the coordinates of the two-dimensional point that meets the distance and volume criteria stated above.
plant location methodology centroid method formulas
Plant Location Methodology: Centroid Method Formulas

Cx = X coordinate of the centroid

Cy = X coordinate of the centroid

dix = X coordinate of the ith location

diy = Y coordinate of the ith location

Vi = volume of goods moved to or from ith

location

plant location methodology example of centroid method

Y

Q

(790,900)

D

(250,580)

A

(100,200)

(0,0)

X

Plant Location Methodology: Example of Centroid Method
  • Centroid method example
    • Several automobile showrooms are located according to the following grid which represents coordinate locations for each showroom.

Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month?

slide24

Y

Q

(790,900)

D

(250,580)

A

(100,200)

(0,0)

X

Plant Location Methodology: Example of Centroid Method: Determining the Coordinates of the New Facility

You then compute the new coordinates using the formulas:

New location

Z

thinking challenge
Thinking Challenge

You’re a planner for Sears. You want to find the best location of a warehouse serving retail stores in:

Seattle (50, 60)

Aberdeen (20, 35)

Spokane (160, 50)

Monthly demand is:

Seattle 494k units

Aberdeen 18k units

Spokane 171k units respectively.

© 1995 Corel Corp.

centroid method grid
Centroid Method Grid

Seattle(50,60)494k units

90

60

Spokane (160,50)171k units

30

Aberdeen (20,35)18k units

0

© 1995 Corel Corp.

0

30

60

90

120

150

thinking challenge solution
Thinking Challenge Solution

Warehouse at (77, 57): Wenatchee Nat’l Forest!

Seattle(50,60)494k units

90

60

X

Spokane (160,50)171k units

30

Aberdeen (20,35)18k units

0

© 1995 Corel Corp.

0

30

60

90

120

150