Center of gravity method

In the center of gravity method, the best location of a facility is determined based on
the geographic location of the goal (destination) points, the volume shipped, and the
transportation cost. This method is widely used for locating distribution centers where
the main concern is to minimize shipping costs associated with the company's own
activity.
This method assumes that inbound and outbound transportation costs are equal and
does not include special shipping costs for less than full loads. In any case, and despite
these limitations, an important point that must always be kept in mind for correct
decision-making about location is allowing yourself to cross-reference the different
results achieved by the various existing methods and not only based on a single result.
coming from a single method.
From the combination of decision methods, we find that for the application of the
center of gravity method, we must start from the load-distance model. Testing
different locations with this latter model is relatively simple if a systemic search
process is applied. A good starting point is precisely the center of gravity of the target
area and perform the following successive steps:
1. Existing locations are placed on a grid system with coordinates (their selection
is completely arbitrary). The goal is to establish relative distances between
locations. In international decisions the use of longitude and latitude
coordinates can be useful.
2. The center of gravity is found by calculating the x and y coordinates, resulting in
the minimum transportation cost. The x coordinate of the center of gravity,
designated x*, is determined by using the x coordinates (xi) and dividing the
result by the sum of the loads (  li). The y coordinate, designated y*, is found
in the same way, but using the y coordinates in the numerator. The
corresponding formulas are:

❑
∑ li∗x i
i
x∗¿ ❑
∑ li
i
 ❑
∑ li∗ y i
i
y∗¿ ❑
∑ li
i

Generally, this location is not optimal for rectilinear or Euclidean distance

measurements, but it is still an excellent starting point. Normally, what is done is to
calculate the load-distance scores for the different locations in the chosen area, until
the analyst feels sufficiently satisfied that his solution is considerably close to the
optimal one.
Breakeven point analysis method
Breakeven analysis helps a manager compare various location alternatives on the basis
of quantitative factors that can be expressed in terms of total cost. This analysis is
particularly useful when the manager wants to define the ranges within which each
alternative turns out to be the best. The basic steps to find the solution both
graphically and algebraically are as follows:

1. Determine the variable costs and fixed costs for each site. Remember that
variable costs are the part of the total cost that varies directly proportional to
the volume of production and that fixed costs are the part of the total cost that
remains constant, regardless of production levels.

2. Plot on a single graph the total cost lines (the sum of variable costs and fixed
costs), for all the sites considered.

3. Identify the approximate range in which each location provides the lowest cost.

4. Solve algebraically to find equilibrium points over the relevant ranges.

BALANCE POINT EXAMPLE

John Kros, owner of Carolina Ignitions Manufacturing, needs to expand his capacity. It
is considering three locations Akron, Bowling Green and Chicago to open a new plant.
The company wants to find the most economical location for an expected volume of
2,000 units per year.
Method: Kros decides to conduct a location breakeven analysis. To do this, determine
that the respective annual fixed costs for each location are $30,000; $60,000 and
$110,000; and that the variable costs are $75, $45 and $25 per unit, respectively. The
expected selling price of each ignition system produced is $120.

Solution:
For each of the three locations, Kros can graph the fixed costs (for a volume of zero
units) and the total cost (fixed costs + variable costs) of the expected production
volume. These lines were graphed in the following figure:

For Akron:
Costo total=$ 30000+ $ 75∗( 2000 ) =$ 180000
For Bowling Green:
 Costo total=$ 60000+ $ 45∗( 2000 )=$ 150000
For Chicago:
Costo total=$ 110000 +$ 25∗(2000 )=$ 160000

With an expected volume of 2,000 units per year, Bowling Green provides the lowest
cost location. The expected profit is:

Ingreso total−costototal =$ 120∗( 2000 ) −$ 150000=$ 90000 por año

The crossing point for Akron and Bowling Green is:

30000+75 ( x )=60000+ 45(x )

30 ( x )=30000
x=1000

and the crossing point for Bowling Green and Chicago is:

60000+ 45 ( x )=110000+25 (x)

20 ( x )=50000
x=2500

As with any other Operations Management model, location breakeven results can be
sensitive to the input data.

 For volume less than 1000 units, Akron would be preferable

 For a volume greater than 2500 Chicago would provide the greatest profit
EXAMPLE OF CENTER OF GRAVITY

Quain's Discount Department Stores, a chain of four large convenience stores, has
stores located in Chicago, Pittsburgh, New York and Atlanta; They currently receive
their supplies from an old and inadequate warehouse in Pittsburgh, where the chain's
first store was opened. The company wants to find some “central” location in which to
build a new warehouse.

Quain will apply the center of gravity method. To do this, collect data on demand rates
in each store in the following table:

Number of containers shipped per

Store location
month
Chicago 2000
Pittsburgh 1000
NY 1000
atlanta 2000

The current locations of their stores are shown in the figure below

Chicago:
d 1 x =30
d 1 y =120
Q1=2000
Pittsburgh:
d 1 x =90
d 1 y =110
Q1=1000

NY:
d 1 x =130
d 1 y =130
Q1=1000

Atlanta:
d 1 x =60
d 1 y =40
Q1=2000

Solution:

Using the data collected from the table and figure for each of the other cities, and the
given equations we will find:

x coordinate of the center of gravity:

( 30 ) ( 2000 ) + ( 90 ) ( 1000 ) + ( 130 ) ( 1000 ) +(60)(2000) 400000

CCG ( x )= = =66 , 7
2000+1000+1000+2000 6000

y coordinate of the center of gravity:

( 120 ) ( 2000 ) + ( 110 )( 1000 ) + ( 130 )( 1000 ) +(40)(2000) 560000

CCG ( x )= = =93 , 3
2000+1000+1000+2000 6000
This location (66.7, 93.3) is shown by a cross in the figure giving us our center of gravity

By overlaying a map of the United States over this graph, we find that this location is
near the center of Ohio. The company may want to consider Columbus, Ohio, or a
nearby city as the appropriate location. But it is important to have both north-south
and east-west interstate highways near the selected city for faster delivery times.

Page 298 heizer multiproducts

BIBLIOGRAPHY

- Jay Heizer, Barry Render / Balance Point and Center of Gravity Method /
Principles of Operations Management; p.324,326
- Roberto Carro Paz, Daniel González Gómez / Balance point and center of
gravity method / Location of facilities; p.15,17

- Lee Krajewski, Larry Ritzman, Manoj Malhotra / Breakeven Point and Center of
Gravity Method / Operations Management; p.433,434