Facility Location Planning

Location Planning
Interrelated facility planning decisions:
1. Location of facilities: geographic placement
2. Number of facilities: facility types (manufacturing plants, distribution centers,
retail outlets, etc.) which make up distribution network
3. Size of facilities (capacity): refers to the overall cubic feet and throughput
(volume) rate which constrains all future facility operations.
This must also consider the layout.
4.

Allocation of customers to facilities: order processing and fulfillment

. Important factors affecting the decision include: proximity, facility volume,

transportation costs, customer importance, etc.

. Facility location dependent upon objective(s)

Strategic Importance
1. Capital investment (machinery,
technology, land, buildings, etc.)
2. Long-term commitment
3. Impact on costs (operating
efficiency)
4. Numerous criteria

Location Planning Process

1. Each problem is unique
2. Scope of problem: Two levels
. Level 1: Macro (national and regional), identifies a
general location based upon primary cost, customer
service standards, technological constraints, and
dominant location factors; many possible locations
eliminated at this level
. (2) Level 2: Micro (local and specific), identifies an exact
site within the general location; incorporates
considerations which are not easily quantifiable

3. Satisficing solutions

Facility Location Methods of Analysis

1. Simple cost formulation combined
with a complex optimization
procedure
2. Complex cost model combined with
a simple heuristic method to
minimize the cost function

Single-Site Facility Location

Problems
1. Hoovers Strategies: e.g., marketoriented, production-oriented
2. Cost-Volume-Profit (Breakeven)
Analysis
3. Transportation Method of Linear
Programming
4. Center of Gravity Approach
5. Others? E.g., Payback, NPV, IRR, etc.

Multiple-Site Facility
Locations
More complex decision-making problem
due to its interdependence; large
number of potential logistic system
configurations; yet more realistic and
more common as even many small
firms have more than one facility.
Some methods of analysis: optimization
(e.g., LP), simulation methods, heuristic
methods

Linear Scoring Rule (rating scale or

weighted checklist)
Integrates both quantitative and qualitative factors
LSR Concerns
1. weights are subjective and solution sensitive
2. scores are subjective and solution sensitive
3. all factors considered?

. Example
A paint manufacturer would like to locate a retail store. A list of
important location factors is presented below. Factor weights are
assigned a number from 1 to 10 according to their relative
importance of each factor (10 being most important). Each location
factor is scored on a scale from 1 to 10 (10 representing the most
favorable status).

LSR Example
Factor
Factor Weighted
Weight
Location Factors
Score
Score
8
Proximity to competition
5
40
5
Rent/lease considerations
3
15
8
Parking Space
10
80
7
Proximity to complementary stores
8
56
6
Modernity of store space
9
54
Total
Score:
245