UBS, GURGAON

Executive MBA Program

Course on Operations Management (EMB – 108)

Handout on Numerical Techniques: Facility Location and Layout

(Prepared by: A. Ramachandran, Course Instructor)

Single-facility location techniques

1. Factor rating method

Example: A new medical facility is to be located in a town. The following table shows the
various factors, and the corresponding weights and scores (1 = poor, 5 = excellent) on each
factor, for two potential sites (A and B, say). The weights add up to 100 percent. Which of the
two sites would you recommend?

Factors for location (Fi) Weight Score

(Wi) A B
F1: Total patient miles per month 25 4 5
F2: Facility utilization 20 3 4
F3: Average time per emergency trip 20 3 1
F4: Expressway accessibility 15 4 3
F5: Land and construction costs 10 1 4
F6: Employee preferences 10 5 5

The total weighted score for each site is computed as shown below:

Factors for location (Fi) Weight Weighted score

(Wi) A B
F1: Total patient miles per month 25 100 125
F2: Facility utilization 20 60 80
F3: Average time per emergency trip 20 60 20
F4: Expressway accessibility 15 60 45
F5: Land and construction costs 10 10 40
F6: Employee preferences 10 50 50
Total 100 340 360

Note that for a given site (A, say), the weighted score for the ith factor (i = 1, say) is 25x4=100,
and, similarly, for site B it is 25x5=125. The total weighted score values for the two sites are 340
and 360, respectively. Clearly, we would recommend site B for the location of the new medical
facility.

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Handout on Numerical Techniques: Facility Location and Layout (prepared by
A. Ramachandran, Course Instructor) 1
2. Load-distance score method

Example: Suppose the medical facility is meant to serve seven corporation wards in the town.
The following table gives the coordinates of the center of each ward, along with projected
population (in ‘000). Customers will travel from the seven ward centers to the new facility when
they need healthcare. Two locations being considered for the new facility are at (5.5, 4.5) and
(7,2), which are at the centers of wards C and F. If we use the population as the loads and use
rectilinear distance, which location is better in terms of its total load-distance score?

Ward Coordinates of ward center Population (‘000)

(x,y) l
A (2.5, 4.5) 2
B (2.5, 2.5) 5
C* (5.5, 4.5) 10
D (5, 2) 7
E (8, 5) 10
F* (7, 2) 20
G (9, 2.5) 14
*
indicates that it is a candidate location.

We compute the total load-distance score for each candidate location as shown below, using
rectilinear distance:

Ward Coordinates Population Distance d if ld for Distance d if ld

of ward (‘000) we locate at C C we locate at F for F
center (x,y) l (5.5, 4.5) (7, 2)
A (2.5, 4.5) 2 3+0=3 6 4.5 + 2.5 = 7 14
B (2.5, 2.5) 5 3+2=5 25 4.5 + 0.5 = 5 25
C * (5.5, 4.5) 10 0 + 0 = 0 0 1.5 + 2.5 = 4 40
D (5, 2) 7 0.5 + 2.5 = 3 21 2+0=2 14
E (8, 5) 10 2.5 + 0.5 = 3 30 1+3=4 40
*
F (7, 2) 20 1.5 + 2.5 = 4 80 0+0=0 0
G (9, 2.5) 14 3.5 + 2 = 5.5 77 2 + 0.5 = 2.5 35
Total 239 160

Note: Rectilinear distance between A and C is given by

dAC, rect = abs (2.5 – 5.5) + abs (4.5 – 4.5) = 3 + 0 = 3.
Similarly, dAF, rect = abs (2.5 – 7) + abs (4.5 – 2) = 4.5 + 2.5 = 7.

[The abs function refers to the absolute value of the argument.

E.g. abs (-10) = 10; abs (10) = 10.]

Since load-distance score for F is less than that for C, location F is preferable to location C.

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Handout on Numerical Techniques: Facility Location and Layout (prepared by
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[Note: The Euclidean distance between A and C is given by
dAC, Euc = sqrt ((2.5 – 5.5)2 + (4.5 – 4.5)2) = sqrt (32) = 3.
Similarly, dBC,Euc = sqrt ((2.5 – 5.5)2 + (2.5 – 4.5)2) = sqrt (32 +22) = sqrt (13) = 3.6, approx.
But dBC,rect = 3 + 2 = 5.
Hence, dPQ,Euc <= dPQ,rect for any point (P, Q).]

3. Center of gravity method

Consider the medical facility location example above. The center of gravity method works as
follows:

Ward xi yi Popn. (li) li x i liyi

A 2.5 4.5 2 5 9
B 2.5 2.5 5 12.5 12.5
C 5.5 4.5 10 55 45
D 5 2 7 35 14
E 8 5 10 80 50
F 7 2 20 140 40
G 9 2.5 14 126 35
68 453.5 205.5

The center of gravity CG (x*, y*) is given by

x* = Σ (lixi)/ Σ (li) = 453.5/68 = 6.67; y* = Σ (liyi)/ Σ (li) = 205.5/68 = 3.02

6.00

5.00

4.00

3.00 Series1

2.00

1.00

0.00
0.00 2.00 4.00 6.00 8.00 10.00

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Handout on Numerical Techniques: Facility Location and Layout (prepared by
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4. Break-even analysis method

Example: A firm has narrowed the search for a new facility location to three candidate locations.
The annual fixed costs (in Rs. ‘000) and unit variable costs (in Rs.) of production for each
candidate location are:

Location Fixed cost per year Unit variable cost

(Rs. ‘000) (Rs.)

A 150 62
B 300 38
C 500 24

a. Plot the total cost curves for all the three locations on the same graph. Identify on the graph
the approximate range over which each location provides the lowest cost. (Assume a
maximum output level of 20,000 units per year.)
b. Using break-even analysis, compute the break-even quantities over the relevant ranges.
c. If the expected demand is 15,000 units per year, identify which is the best location.

(a) The three lines are:

TC (A) = 150 + 62 X
TC (B) = 300 + 38 X
TC (C) = 500 + 24 X, where

X = Output level in thousand units; and TC stands for total cost, fixed cost being measured in
thousand rupees.

Taking output level Q on x-axis (up to 20), and total cost on y-axis, the three lines can be plotted.
The graph (not to scale herein) may look like this:

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Handout on Numerical Techniques: Facility Location and Layout (prepared by
A. Ramachandran, Course Instructor) 4
 TC (A)
TC
TC (B)

TC (C)

A best B best C best

0 6.25 14.3 Q

From the graph, from zero to 6.25 thousand units, location A is best (i.e., least total cost). From
6.25 to 14.3 thousand units, B is best. Beyond 14.3, C is best.

(b) Point of intersection of TC (A) and TC (B) gives the break-even quantity for first range:
i.e., 150,000 + 62 X = 300,000 + 38 X, yielding X = 6250 units.

Similarly, TC (B) and TC (C) intersect at X= 14,286 units.

(c) For an estimated demand = 15,000 units, location C is best, as it is more than 14,286.

A (simple?!) facility layout problem

The layout of a work center is being designed for the production of a single product. The center
must house three sections, A, B, and C. Two options, viz. Op. I and Op. II, are being considered,
as shown below:
12’
Op. I
A B

12’
Op. II
C B

A
15’
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Handout on Numerical Techniques: Facility Location and Layout (prepared by
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(Note: the figures above are not to scale; and, the distances are in feet.)

The workload flows between the three sections are as given below. It costs Rs.2 per load-foot to
transport the product. Evaluate the two options for the layout on the basis of load-distance.
Which option do you think is better?

A B C
A x 30 25
B 20 x 40
C 15 50 x

The problem is solved as follows:

Option I:-

Physical Physical Workload

movements distance units
in feet
AB 12 30
BA 12 20
AC 12 25
CA 12 15
BC 15 40
CB 15 50

Total load-feet = 12(30+20+25+15) + 15(40+50) = 12(90) + 15(90) = 27(90) = 2430 feet-units.

Option II:-

Physical Physical Workload

movements distance units
in feet
CB 12 50
BC 12 40
CA 12 15
AC 12 25
AB 15 30
BA 15 20

Total load-feet = 12(50+40+15+25) + 15(30+20) = 12(130) + 15(50) = 1560+750 = 2410 feet-

units.

Obviously, Op. II is better! (And the cost per load foot information is irrelevant!)

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Handout on Numerical Techniques: Facility Location and Layout (prepared by
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