LOGISTIC MANAGEMENT LECTURE 4: LOCATING FACILITIES-NETWORK MODEL

Network Model
Sometimes it is difficult to relate the two approaches we have described to actual road layout and geographic features.
There are, however, many databases of road networks that automatically find the best routes between two points.
These electronic maps of road networks allow another approach to location, which is based on actual road layouts. A
huge number of models have been built for this kind of analysis, so we will illustrate typical approaches by two standard
models, known as the single median problem and the covering problem.

Single median problem

Imagine a network of towns connected by roads. There are demands for some product in each town, and you want to
locate a depot to deliver to these towns. In principle the best location could be anywhere on the network, and might be
on a roadside rather than in one of the towns. However, a standard analysis6 shows that the best location is always in
a town. This makes the problem much easier, as we only have to compare locations in each town and identify the one
that gives the best value for some measure of performance. A common measure is average travel distance or time,
and finding the shortest is called the single median problem.
The easiest way to find the single median starts with a matrix of the shortest distances between towns. In practice, we
can find this from route planning software, or using some surrogate measure such as the straight-line or rectilinear
distance. To find the shortest average distance, we have to combine these distances with the loads carried. So, we
multiply the distances by the demands at each town, to get a matrix of the weight-distances. Then we add these for
each town, and find the lowest overall value.
Example:
Ian Bruce delivers goods to eight towns, with locations and demands as shown in the figure below. He wants to find
the location for a logistics center that minimizes the average delivery time to these towns. Where should he start
looking?
This is a single median problem, so we start with a matrix showing the minimum distances between each town, as
shown in Figure 5.13. This matrix also shows the weight to be moved in column B. If we take one column, say C, this
shows the distance from a center located in AL to each other town. If we multiply this distance by the corresponding
weight in column B, we get the weight-distance for each town. Then adding these down, the column gives the total
weight-distance for a logistics center in AL, shown in Row 12.

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Weight-distance of a centre at AL = (10 × 0) + (15 × 15) + (25 × 22) + (20 × 24) + (20 × 31) + (10 × 28) + (10 × 32) +
(15 × 36) = 3015

Repeating this calculation for each of the other towns allows us to compare the costs across Row 12. As you can see,
town EN has the lowest total cost, and is the single median. Ian should start looking for a location around this town.

Covering problem
Sometimes the average distance or time to a facility is less important than the maximum time.Classic examples of this
are fire engines and ambulances which try to respond to emergencies within a maximum time. In the same way,
suppliers often guarantee deliveries within one working day. This is an example of the covering problem.
There are two versions of the covering problem. In the first version, we are looking for the single location that gives the
best service to all towns – in other words we want the location that gives the lowest value for the maximum time needed
to reach any town. If, say, we choose location A the longest time to reach any customer is 4 hours, but if we choose
location B the longest time to reach any customer is only 3 hours – so location B is clearly better. To solve this problem,
we simply compare the longest journey times from each location, and choose the location with the shortest of these.
The second version of the covering problem specifies a level of service that must be achieved. This might need an
ambulance to arrive within ten minutes, or a parcel to be delivered within four hours. The problem is then to find the
number of facilities needed to achieve this, and their best locations.
For both of these problems the best location might, in principle, be at any point of the road network. However, we can
again use the standard finding that the best location is always in one of the towns. This is a common result for network
problems, and it makes them much easier to solve.
Figure on the next page shows part of a road network, with the travel time (in minutes) shown on each link. Where
would you locate a depot to give best customer service? How many depots would be needed to give a maximum
journey of 15 minutes?
We could, of course, do the calculations for this covering problem, finding the maximum time for each town and
identifying the best, and then finding the combination of towns that gives service times of less than 15 minutes. There
is no need for this, as a lot of software solves network problems and Figure 5.15 shows a printout from a simple
package.

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As you can see, if a single location is needed the package recommends town C, giving a maximum journey of 25
minutes. If this is too much, facilities at A and I will reduce the maximum journey to 15 minutes.

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Location Planning
Locating facilities is always difficult, and it is important enough for organizations to look at every available analysis
before reaching a conclusion. An important point is that this hierarchy of location decisions should fit into the logistics
strategy. If the logistics strategy calls for short delivery times, then facilities must be in locations that can achieve this;
if the strategy calls for low costs, facilities will probably be centralized to get economies of scale.
We can describe a useful approach for coordinating location decisions with other decisions about the supply chain. For
this, we start by recalling what we want the supply chain to do, then examine the current supply chain’s performance,
identify any problems and design ways of overcoming these. To be more specific, we can use the following procedure:
1. Examine the overall aims, looking at the logistics strategy and other plans to identify the aims and goals of
logistics in terms of customer service, costs, timing, and so on.
2. Do a logistics audit, describing the details of the current logistics system, including the location of facilities,
network connecting these, measures of performance, and industry benchmarks.
3. Identify mismatches, where there are differences between the aims (from step 1) and actual performance
(from step 2).
4. Examine alternatives for overcoming the mismatch, looking in general terms to see where and how the
structure of the supply chain can be improved.
5. Location decisions, having set the general features of the supply chain, look in detail at the facilities needed.
Use appropriate models to find the best locations and sizes for these facilities.
6. Confirm the locations, making sure that the locations identified in step 5 really are best, and work with the
structure identified in step 4.
7. Implement and monitor the solutions, doing whatever is needed to execute the changes and continuing to
check performance.
References:
Andel T. (1996) Site location tools, Transport and Distribution, June, 77–81.
Gooley T.B. (1998) The geography of logistics, Logistics Management Distribution Report, 37(1), 63–6.
Scutellà, M. C. (2015) Logisitcs Lecture Notes Retrieved from
http://didawiki.cli.di.unipi.it/lib/exe/fetch.php/magistraleinformaticaeconomia/log/4-location.pdf

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