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Technical Note 10

Facility Location

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OBJECTIVES

• Issues in Facility Location

• Various Plant Location Methods

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Competitive Imperatives Impacting

Location

• The need to produce close to the

customer due to time-based competition,
trade agreements, and shipping costs

• The need to locate near the appropriate

labor pool to take advantage of low wage
costs and/or high technical skills

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Issues in Facility Location

• Proximity to Customers
• Business Climate
• Total Costs
• Infrastructure
• Quality of Labor
• Suppliers
• Other Facilities

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Issues in Facility Location

• Free Trade Zones

• Political Risk
• Government Barriers
• Trading Blocs
• Environmental Regulation
• Host Community
• Competitive Advantage

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Plant Location Methodology: Factor
Rating Method Example
Two refineries sites (A and B) are assigned the
following range of point values and respective points,
where the more points the better for the site location.
Sites
Major factors for site location Pt. Range A B
Fuels in region 0 to 330 123 156
Power availability and reliability 0 to 200 150 100
Labor climate 0 to 100 54 63
Living conditions 0 to 100 24 96
Transportation 0 to 50 45 50
Water supply 0 to 10 4 5
Climate 0 to 50 8 4
Supplies 0 to 60 5 50
Best Site
Tax policies and laws 0 to 20 5 20 isBest
B
Site
is B
Total pts. 418 544
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Plant Location Methodology:

Transportation Method of Linear
Programming

• Transportation method of linear

programming seeks to minimize costs of
shipping n units to m destinations or its
seeks to maximize profit of shipping n
units to m destinations

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Plant Location Methodology: Centroid

Method

• The centroid method is used for locating

single facilities that considers existing
facilities, the distances between them,
and the volumes of goods to be shipped
between them
• This methodology involves formulas used
to compute the coordinates of the two-
dimensional point that meets the distance
and volume criteria stated above

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Plant Location Methodology: Centroid

Method Formulas

C

dd VV
ix ii 
dd VV iy ii
Cxx == ix
C
Cyy ==
iy

VV ii 
VV ii

Where:
Cx = X coordinate of centroid
Cy = X coordinate of centroid
dix = X coordinate of the ith location
diy = Y coordinate of the ith location
Vi = volume of goods moved to or from ith
location
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Plant Location Methodology: Example of

Centroid Method
• Centroid method example
– Several automobile showrooms are located according to the
following grid which represents coordinate locations for each
showroom
Y S ho wro o m No o f Z-Mo b ile s
Q s o ld p e r mo nth
(790,900)

D A 1250
(250,580)

D 1900
A
(100,200)
Q 2300
(0,0) X

Question:
Question:What
Whatis
isthe
thebest
bestlocation
locationfor
foraanew
newZ-Mobile
Z-Mobile
warehouse/temporary
warehouse/temporarystorage
storagefacility
facilityconsidering
consideringonly
only
distances
distancesand
andquantities
quantitiessold
soldper
permonth?
month?
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 Plant Location Methodology: Example of
12

Centroid Method (Continued): Determining

Existing Facility Coordinates
Y
To
Tobegin,
begin,you
youmust
mustidentify
identifythe
the Q
existing
existingfacilities
facilitieson
onaatwo-
two- (790,900)

dimensional
dimensionalplane
planeor
orgrid
gridand
and D
(250,580)
determine
determinetheir
theircoordinates.
coordinates.
A
(100,200)

(0,0) X

S ho wro o m No o f Z-Mo b ile s

You
Youmust
mustalso
alsohave
havethethe s o ld p e r mo nth
volume
volumeinformation
informationon onthe
the
business A 1250
businessactivity
activityatatthe
the
existing
existingfacilities.
facilities. D 1900

Q 2300
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 Plant Location Methodology: Example of 13
Centroid Method (Continued): Determining the
Coordinates of the New Facility
You
Youthen
thencompute
computethe
thenew
newcoordinates
coordinatesusing
usingthe
theformulas:
formulas:
100(1250) + 250(1900) + 790(2300) 2,417,000
CCx == 100(1250) + 250(1900) + 790(2300) == 2,417,000 == 443.49
443.49
x 1250
1250 ++ 1900
1900 ++ 2300
2300 5,450
5,450
200(1250) + 580(1900) + 900(2300) 3,422,000
CCy == 200(1250) + 580(1900) + 900(2300) == 3,422,000 == 627.89
627.89
y 1250
1250 ++ 1900
1900 ++ 2300
2300 5,450
5,450

You
Youthen
thentake
takethe
thecoordinates
coordinatesand
andplace
placethem
themon
onthe
themap:
map:
Y
S ho wro o m No o f Z-Mo b ile s
Q New
New s o ld p e r mo nth
(790,900)
location
location
ZZ
D
(250,580) of
offacility
facility A 1250
ZZabout
about
A D 1900
(100,200) (443,627)
(443,627)
(0,0) X Q 2300
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End of Technical Note 10

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