Location Planning

LOCATION DECISIONS ARISE WHEN

• NEW FACILITY IS ESTABLISHED

• EXPANSION OF EXISTING FACILITY
• GROWING VOLUME OF BUSINESS
• DISPERSAL OF INDUSTRY DUE TO INDUSTRIAL
POLICY
• POLITICAL, LEGAL, SOCIAL CHANGE
• SHIFT IN GEOGRAPHY OF DEMAND
 FACTORS AFFECTING TERRITORY SELECTION

• MARKETS
• RAW MATERIAL AND SUPPLIES
• TRANSPORTATION FACILITIES
• MANPOWER SUPPLY
• INFRASTRUCTURE
• LEGISLATION AND TAXATION
• CLIMATE
FACTORS AFFECTING SITE SELECTION

• COMMUNITY FACILITIES
• WASTE DISPOSAL
• COMMUNITY ATTITUDE
• ECOLOGY AND POLLUTION
• SIZE OF SITE
• TOPOGRAPHY
• TRANSPORTATION FACILITIES
• SUPPORTING INDUSTRIES AND SERVICES
• COST OF LAND
 LOCATION SELECTION

Based on subjective factors Based on cost

• Equal weight method

• Variable weight method Production cost Transportation cost
• Weight cum rating method
• Factor point rating
• CVP analysis • Median model
• Gravity model
• Transportation model
 EQUAL WEIGHT METHOD

factors sites S1 S2 S3 S4

F1 2 5 9 2

F2 3 3 8 3

F3 6 2 7 3

Site rating 11 10 24 8
 VARIABLE WEIGHT METHOD

factors sites Maximum S1 S2 S3 S4

points
F1 300 200 250 250 50

F2 100 50 70 80 100

F3 150 5 50 10 40

Site rating 255 370 340 190

 WEIGHT CUM RATING METHOD

factors sites Weights S1 S2 S3 S4

F1 5 2 5 9 2

F2 3 3 3 8 3

F3 2 6 2 7 3

Site rating 31 38 83 25
 FACTOR POINT RATING

Poor Fair Adequate Good Excellent

F1 Water supply -15 -12 0 6 10

F2 Community -3 -1 0 1 2
facility

F3 Community -6 -3 0 3 6
attitude
 FACTOR POINT RATING

S1 S2 S3 S4
Factors Sites

F1 Adequate Fair Good Adequate

0 -12 6 0

F2 Adequate Poor Excellent Fair

0 -3 3 1
F3 Adequate Adequate Adequate Adequate
0 0 0 0
Site rating 0 -15 9 -1
A manufacturer of garments is actieel considering 5
aeternatie eocatons fro setng up its factorl. The
eocatons iarl in terms of their adiantages to the
frm. Hence, the frm requires a method of
identfling the most appropriate eocaton. Based on
a suriel, the frm had arriied at 6 factors to be
considered for the fnae state seeecton. The ratngs
of each factor on a scaee of 1 to 100. Using this
informaton obtain a ranking of the aeternatie
soeutons.
 Factor ratngs
Factors Rating
1. Availability of infrastructure 90
2.Size of the Market 60
3.Industrial Relations Climate 50
4.Tax Benefits & Concessions 30
5.Availability of cheap labor 30
6.Nearness to port 65
Ratng of each eocaton against each factor

Factors Loc.1 Loc.2 Loc.3 Loc.4 Loc.5

1 20 40 60 35 55
2 30 30 40 60 80
3 80 30 50 60 50
4 80 20 10 20 20
5 70 70 45 50 50
6 20 40 90 50 60
Factors Rating Relative
weights
1 90 90/325 = 0.28
2 60 60/325 = 0.18
3 50 0.15
4 30 0.09
5 30 0.09
6 65 0.20
Sum of all 325 1.00
factor ratings
• Oieraee Ratng for eocaton 1
= 20*0.28 +30*0.18+ 80*0.15 + 80*0.09
+ 70*0.09 + 20*0.20
= 41.23

Simiearel for Loc. 3

=60*0.28 + 40*0.18 + 50*0.15 + 10*0.09 + 45*0.09
+ 90*0.20
= 54.45
Factors Wt Loc 1 Loc 2 Loc 3 Loc 4 Loc 5
1 .28 20 40 60 35 55
2 .18 30 30 40 60 80
3 .15 80 30 50 60 50
4 .09 80 20 10 20 20
5 .09 70 70 45 50 50
6 .20 20 40 90 50 60
Overall 41.23 37.54 54.77 46.46 56.15
Score
Rankin 4 5 2 3 1
 CVP ANALYSIS

Fixed cost F
Variable cost V
Unit price P

At the break even point

Revenue = Cost

P*Q=F+V*Q
Q = F
P-V
You’re an anaelst for AC Deeco. You’re considering a
new manufacturing peant in Akron, Boweing Green,
or Chicago. Fixed costs per lear are $30k, $60k, &
$110k respectieel. Variabee costs per case are $75,
$45, & $25 respectieel. The seeeing price per case is
$120. What is the best eocaton for an expected
ioeume of 2,000 cases per lear?
• For Akron,
Totae cost = $30,000 + $75* 2000
= $180,000

For Boweing Green,

Totae cost = $60,000+ $45*2000
= $150,000

For Chicago,
Totae cost = $160,000
 200000

150000

Annual Cost 100000

50000 Akron lowest Bowling Green lowest Chicago

cost cost lowest cost

0
0 500 1000 1500 2000 2500 3000

Volume
• With an expected ioeume of 2000 units per lear,
Bowling green provides the lowest cost locaton.

• Expected Proft=Totae Reienue – Totae

Cost
= $120 * 2000 - $150,000
=$90,000/lear.

 Crossoier points are 1000 & 2500 units.

Transportaton Probeem
• How much shoued be shipped from seierae sources
to seierae destnatons
• Sources: Factories, warehouses, etc.
• Destnatons: Warehouses, stores, etc.
• Transportaton modees
• Find eowest cost shipping arrangement
• Used primariel for existng distributon slstems
A Transportaton Modee Requires
• The origin points, and the capacitl or suppel per period at each
• The destnaton points and the demand per period at each
• The cost of shipping one unit from each origin to each destnaton
Transportaton Probeem
Soeuton Steps
• Defne probeem
• Set up transportaton tabee (matrix)
• Summarizes aee data
• Keeps track of computatons
• Deieeop inital soeuton
• Northwest corner ruee
• Find optmal soeuton
• Stepping stone method
Transportaton Tabee
To Factory
From (A) (B) (C) Capacity
5 4 3
(D) 100
8 4 3
(E) 300
9 7 5
(F) 300
Warehouse
Requirements 300 200 200 700
 MEDIAN MODEL

Path of movement of a load is along rectilinear path

D = |x2-x1| + |y2-y1|

.
L = load transported
x2 y2
C = cost of transportation
S2
per unit

.S1
x1 y1

Cost = C*L*D
Total cost = C*L*D

M
 MEDIAN MODEL

• Identify the median value of total number of loads moved

• Find the x coordinate value of the existing facility that sends or receives the
median load
• Find the y coordinate value of the existing facility that sends or receives the
median load
• The determined x and y values are the optimal location for the new facility
Suppose the manufacturer came to
know that there are constraints in
locating the new facility.
Based on an initial survey of possible
sites for the proposed facility, the
manufacturer identified four candidates.
The figure has the location coordinates
of the four candidates (numbered 1 to
4).
What is the best location for the
proposed new facility?
 Candidate for proposed facility

Existing Demand (or supply) point

600

Distance in Kilometers
A (125,550), 200
500
1 (300,500)
B (350,400), 450
400
2 (200,500) 3 (500,350)
300
D (700,300), 150
200
4 (400,200)
C (450,125), 175
100

100 200 300 400 500 600 700

Distance in Kilometers
 Existing Supply Points Candidates for proposed facility
xi yi Wi Xj Yj
A 125 550 200 1 300 500
B 350 400 450 2 200 500
C 450 125 175 3 500 350
D 700 300 150 4 400 200

Dij values
1 2 3 4
A 182.00 90.14 425.00 445.11
B 111.80 180.28 158.11 206.16
C 403.89 450.69 230.49 90.14
D 447.21 538.52 206.16 316.23

LDj values
1 2 3 4
224474.41 258801.57 227410.05 245000.8
 GRAVITY MODEL

Path of movement of a load is along diagonal path

D = (x2-x1) + (y2-y1)

.
L = load transported
x2 y2 C = cost of transportation
S2 per unit

S1
.
x1 y1

Cost = C*L*D
Total cost = C*L*D

M
 GRAVITY MODEL

X = Li * Xi

M
Li

M
Y = Li * Yi
M

Li
M