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

Supplement 7-4
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
• Proximity to customers
• Location is everything

Supplement 7-6
 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
Copyright 2011 John Wiley & Sons, Inc.
 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
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,  Modes and quality of
education, cost, and unions) transportation
 Proximity of customers  Transportation costs
 Number of customers  Community government
 Construction/leasing costs Local business regulations
 Land cost  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
• Tax credits
• Relaxed government regulation
• Job training
• Infrastructure improvement
• Money

Supplement 7-11
 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

• Location factor rating

• Center-of-gravity
• Load-distance

Supplement 7-14
 Location Factor Rating
• Identify important factors
• Weight factors (0.00 - 1.00)
• Subjectively score each factor (0 - 100)
• Sum weighted scores

Supplement 7-15
 Location Factor Rating
SCORES (0 TO 100)
LOCATION FACTOR WEIGHT Site 1 Site 2 Site 3
Labor pool and climate .30 80 65 90
Proximity to suppliers .20 100 91 75
Wage rates .15 60 95 72
Community environment .15 75 80 80
Proximity to customers .10 65 90 95
Shipping modes .05 85 92 65
Air service .05 50 65 90

Weighted Score for “Labor pool and climate” for

Site 1 = (0.30)(80) = 24

Supplement 7-16
Location Factor Rating
WEIGHTED SCORES
Site 1 Site 2 Site 3
24.00 19.50 27.00
20.00 18.20 15.00
Site 3 has the
9.00 14.25 10.80
highest factor rating
11.25 12.00 12.00
6.50 9.00 9.50
4.25 4.60 3.25
2.50 3.25 4.50
77.50 80.80 82.05

Supplement 7-17
Location Factor Rating With Excel

Supplement 7-18
Location Factor Rating With OM
Tools

Supplement 7-19
 Center-of-Gravity Technique
• 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

Supplement 7-20
 Grid-Map Coordinates
y n n
∑ xiWi ∑ yiWi
2 (x2, y2), W2 i=1 i=1
y2 x= n y= n
∑ Wi ∑ Wi
1 (x1, y1), W1 i=1 i=1
y1
where,
x, y = coordinates of new
3 (x3, y3), W3 facility at center of gravity
y3 xi, yi = coordinates of existing
facility i
Wi =annual weight shipped
from facility i

x1 x2 x3 x

Supplement 7-21
 Center-of-Gravity Technique
y
A B C D
700
C x 200 100 250 500
600 (135) y 200 500 600 300
B
W 75 105 135 60
500 (105)
Miles

400
D
300
A (60)
200 (75)
100

0 100 200 300 400 500 600 700 x

Miles

Supplement 7-22
 Center-of-Gravity Technique
n
∑ xiWi
i=1 (200)(75) + (100)(105) + (250)(135) + (500)(60)
x= = = 238
n 75 + 105 + 135 + 60
∑ Wi
i=1

n
∑ yiWi
i=1 (200)(75) + (500)(105) + (600)(135) + (300)(60)
y= = = 444
n 75 + 105 + 135 + 60
∑ Wi
i=1

Supplement 7-23
 Center-of-Gravity Technique
y
A B C D
700
C x 200 100 250 500
600 (135) y 200 500 600 300
B
W 75 105 135 60
500 (105)
Center of gravity (238,
Miles

400 444) D
300
A (60)
200 (75)
100

0 100 200 300 400 500 600 700 x

Miles

Supplement 7-24
Center-of-Gravity With Excel

Formula for
x coordinate

Supplement 7-25
 Center-of-Gravity With OM Tools

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

 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
n
LD = ∑ ld i i

i=1
where,
LD = load-distance value
li = load expressed as a weight, number of trips or units
being shipped from proposed site and location i
di = distance between proposed site and location i
di = (xi - x)2 + (yi - y)2
where,
(x,y) = coordinates of proposed site
(xi , yi) = coordinates of existing facility

Supplement 7-28
 Load-Distance

Potential Sites Suppliers

SiteX Y A B C D
1 360 180 X 200 100 250 500
2 420 450 Y 200 500 600 300
3 250 400 Wt 75 105 135 60

Compute distance from each site to each supplier

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

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

dC = 434.2 dD = 184.4

Supplement 7-29
 Load-Distance
Site 2 dA = 333 dB = 323.9 dC = 226.7 dD = 170
Site 3 dA = 206.2 dB = 180.3 dC = 200 dD = 269.3

Compute load-distance
n
LD = ∑ li di
i=1
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

Supplement 7-30
Load-Distance With Excel

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

Supplement 7-31
Load-Distance With OM Tools

Supplement 7-32