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Relevance of Facility Location Decisions. Types & Causes of Facility Location. General Process for Facility Location. Trends and Future Strategies. Methods for Facility Location Selection.
Facility Location decisions are part of the companys strategy. Infrequent but expensive. Reasons for the importance:
Facility Location requires large investment that can not be recovered. Facility Location decisions affect the competitive capacity of the company.
All areas of the company are affected by Facility Location: Operations, but also Business Development, Human Resources, Finance, etc.
The facility location decisions affect not only costs but the companys income:
For a service business, market proximity is critical to determine the capacity to attract customers. For a manufacturing business, facility location affects product delivery time and level of customer service, which affects sales.
Topics
Importance of Facility Location. Causes & Types of Facility Location. Issues at Location General Process for Facility Location. Trends and Future Strategies. Locating Service Facilities Methods for Facility Location Selection.
Centroid Methods Factors Rating Analysis. Economic Analysis. Transportation (Mathematical Programming Methods). Set Covering.
An expanding market.
It will require the addition of more capacity at a certain geographic point, either in an existent facility or in a new one.
Introduction of new products or services. A contracting demand, or changes in the location of the demand.
It may require the shut down and/or relocation of operations. Example: Extraction companies.
It means the creation of a new modern plant somewhere else. To increase the level of service, it can force the company to increase capacity of certain plants or relocate some of them.
Change in other resources, like labor conditions or subcontracted components, or change in the political or economic environment in a certain region. Mergers and acquisitions.
Some facilities may appear as redundants, or bad located with respect to others.
Location Alternatives
Only possible if exists enough space. Attractive alternative when the current facility location is good enough for the company. Lower costs than other options Sometimes is a more advantageous option than the previous one (if there are problems related to lose of focus on the companys objectives).
Shut down of a facility and (or not) starting of a new one somewhere else.
Moving production from one plant to other.
Topics
Importance of Facility Location. Causes & Types of Facility Location. Issues at Location General Process for Facility Location. Trends and Future Strategies. Locating Service Facilities Methods for Facility Location Selection.
Centroid Methods Factors Rating Analysis. Economic Analysis. Transportation (Mathematical Programming Methods). Set Covering.
Proximity to Customers Business Climate Total Costs Infraestructure Quality of Labor Suppliers Other Facilities Political Risks Government Barriers Trading Blocks Environmental Regulation Host Community Competitive Advantage
Topics
Importance of Facility Location. Causes & Types of Facility Location. Issues at Location General Process for Facility Location. Trends and Future Strategies. Locating Service Facilities Methods for Facility Location Selection.
Centroid Methods Factors Rating Analysis. Economic Analysis. Transportation (Mathematical Programming Methods). Set Covering.
Competitive STRATEGY
GLOBAL COMPETITION
INTERNAL CONSTRAINTS Capital, growth strategy, existing network PRODUCTION TECHNOLOGIES Cost, Scale/Scope impact, support required, flexibility COMPETITIVE ENVIRONMENT
REGIONAL DEMAND Size, growth, homogeneity, local specifications POLITICAL, EXCHANGE RATE AND DEMAND RISK
AVAILABLE INFRASTRUCTURE
Levels of Decisions.
Market Region
Market Potential Market Share Operating Cost
Transport Cost (RM) Taxes Raw material costs Labor Cost and Availability Access to market/materials Material Cost Labor Cost and Availability Taxes Availability of public services Availabilty of sites Community amenities Access to transport Network Site Characterics Taxes Availability of public services Land and acquisition costs Construction Costs
Subregion
Community
Sites
Study of the companys strategies and the policies of the company to translate them into Facility Location requirements. Due to the big quantity of factors affecting Facility Location, the company should determine which is the criteria to evaluate the different alternatives (transportation needs, land, supplies, labor, infrastructures, services, environmental conditions).
The multifunctional team must distinguish between: Dominant factors (essential); Secondary factors (desirable).
Establishment of a group of location candidates. Information gathering from each location to be measured against each of the factors considered. Through qualitative and quantitative analysis, the different alternatives will be compared against each other, to determine several valid locations. Objective: Look for several acceptable locations, to let senior management to decide taking into account subjective factors.
Topics
Importance of Facility Location. Causes & Types of Facility Location. Issues at Location General Process for Facility Location. Trends and Future Strategies. Locating Service Facilities Methods for Facility Location Selection.
Centroid Methods Factors Rating Analysis. Economic Analysis. Transportation (Mathematical Programming Methods). Set Covering.
The accelerated changes in the economic environment are impacting the frequency of Facility Location decisions.
International level competition among companies. Location in countries different than the origin of the company are a common situation for big companies. Appearance of new markets and unification of others. Increase of competition pressure. Logistics factors are more important and complex. Companies are reviewing their facility locations in order not to loose competitiveness.
Labor costs become less important: countries with lower labor costs become less attractive. Labor qualification, flexibility and mobility become more important factors. However, labor costs are still a main factor in some industries and in certain manufacturing processes of others: Relocation to Mexico, Taiwan, Singapore, etc.
Helps in the internationalization of the operations: higher geographical diversity in location decisions. Tendency to localize close to the markets: emphasis in customer service, direct customer contact, fast development of new products, fast delivery Due to flexible technologies, companies have the possibility of starting up more plants at a smaller size. Some industries are forcing their suppliers and customers to locate their facilities in a close area to reduce transportation costs and supply at a higher frequency.
J.I.T. Systems.
Topics
Importance of Facility Location. Causes & Types of Facility Location. Issues at Location General Process for Facility Location. Trends and Future Strategies. Locating Service Facilities Methods for Facility Location Selection.
Centroid Methods Factors Rating Analysis. Economic Analysis. Transportation (Mathematical Programming Methods). Set Covering.
Because of the variety of service firms and the relatively low cost of establishing a service facility compared to one for manufacturing, new service facilities are far more common than new factories and warehouses. Services typically have multiple sites to maintain close contact with customers. The location decision is closely tied to the market selection decision. Market affects the number of sites to be built and the size and characteristics of the sites. Whereas manufacturing location decisions are often made by minimizing costs, many service location decision techniques maximize the profit potential of various sites.
Mix
Regional FG Local WIP
Cost
Low Low
Response Time
Hi
Customer DC
Response Time
Number of Facilities
Total Costs
Cost of Operations
Number of Facilities
Topics
Importance of Facility Location. Causes & Types of Facility Location. Issues at Location General Process for Facility Location. Trends and Future Strategies. Locating Service Facilities Methods for Facility Location Selection.
Centroid Methods Factors Rating Analysis. Economic Analysis. Transportation (Mathematical Programming Methods). Set Covering.
Centroid Method
150 120
N/S
2.000
Cx =
d V V
ix i
Cy =
d V V
iy i
Cx , Cy = Gravity Center dix , diy = coordinates de la ubicacin i Vi = Volume of goods moved from/to i
Factor-Rating Method
Popular because a wide variety of factors can be included in the analysis Six steps in the method Develop a list of relevant factors called critical success factors Assign a weight to each factor Develop a scale for each factor Score each location for each factor Multiply score by weights for each factor for each location Recommend the location with the highest point score
Factor-Rating Example
Critical Success Factor
Labor availability and attitude People-to car ratio Per capita income Tax structure Education and health Totals Weight
70 50 85 75 60
60 60 80 70 70
(.10)(85) = 8.5 (.10)(80) = 8.0 (.39)(75) = 29.3 (.39)(70) = 27.3 (.21)(60) = 12.6 (.21)(70) = 14.7 70.4 68.0
Table 8.3
Annual cost
500
1,000
1,500
2,000
2,500
3,000
Volume
Fixed facility cost Transportation cost Production cost Inventory cost Coordination cost
Which plants to establish? How to configure the network?
Conventional Network
Vendor DC Materials DC Finished Goods DC Customer DC Customer Store Customer Store Plant Warehouse Components DC Vendor DC Final Assembly Finished Goods DC Customer DC Customer DC Customer Store Customer Store Customer Store
Vendor DC
Component Manufacturing
n m
s.t.
i 1 m
xij D j xij K i
j 1
xij 0
yi = 1 if plant is located at site i, 0 otherwise xij = Quantity shipped from plant site i to customer j
n m
s.t.
i 1 n
xij D j xij K i y i
j 1 m
i 1
y i k ; y i {0,1}
Multi-echelon
Local DC Cross-Dock
Local DC Cross-Dock Customer 2 DC Local DC Cross-Dock Store 1 Customer 1 DC
Store 1
Store 2 Store 2 Store 3 Store 3
{
{
1 0
xj
1 0
Minimize s.t .
c
j 1
xj
a
j 1
i, j
x j 1,
i 1..n j 1..n
x j 0,1 ,
Step 4
Example:
A rural country administration wants to locate several medical emergency response units so that it can respond to calls within the county within eight minutes of the call. The county is divided into seven population zones. The distance between the centers of each pair of zones is known and is given in the matrix below. Imagine that the one that has to make the decision does not want to place a emergency unit on B or D
Example:
1 0 8 50 9 50 30 8 2 4 0 13 11 8 5 5 3 12 15 0 8 4 7 9 4 6 60 8 0 10 9 7 5 15 7 6 9 0 3 25 6 10 2 5 10 2 0 27 7 8 3 9 3 27 27 0
[dij]=
1 2 3 4 5 6 7
Example 4:
The response units can be located in the center of population zones 1 through 7 at a cost (in hundreds of thousands of dollars) of 100, 80, 120 110, 90, 90, and 110 respectively. Assuming the average travel speed during an emergency to be 60 miles per hour, formulate an appropriate set covering model to determine where the units are to be located and how the population zones are to be covered and solve the model using the greedy heuristic.
Solution:
Defining
1 0 if zone is center can be reached from center of zone j within 8 minutes otherwise
aij =
and noting that dij > 8, dij <= 8 would yield aij values of 0, 1, respectively the following [aij] matrix can be set up.
Solution:
Minimize Subject to:
100x1+80x2+120x3+110x4+90x5+90x6+110x7 x1 + x2 + x4 + x1 + x2 + x5 x3 + x4 + x5 x3 x2 x2 x1 x1 + , x2 x2 + + + , x3 x3 x3 + + + , x4 x4 + , x4 + x5 x5 x5
+ + + + ,
x6 x6 x6 x6 x6
x7 x7
x7
=1 =1 =1
=1 =1
=1
x7 x7
=1
{0,1}
Greedy Heuristic
Step 1: Since each cj > 0, j = 1, 2, ..., 7, go to step 2. Step 2: Since xj appears in each constraint with a +1 coefficient, go to step 3.
Greedy Heuristic
Step 3:
c1 100 = = 33.3 d1 3
c2 80 = = 16 d2 5 c3 120 = = 30 d3 5 c4 110 = = 27.5 d4 4
c5 90 = = 22.5 d5 4
c6 90 = = 22.5 d6 4 c7 110 = = 27.5 d7 4
Greedy Heuristic
Since the minimum ck/dk occurs for k = 2, set x2 = 1 and remove the first two and the last three constraints. The resulting model is shown below. Minimize Subject to: 100x1+120x3+110x4+90x5+90x6+110x7 x3 + x4 + x5 + x6 =1 x3 + x4 + x7 =1 x1 , x3 , x4 , x5 , x6 , x7 {0,1}
Greedy Heuristic:
Step 4: Since we have two constraints go to step 1. Step 1: Since c1 > 0, j = 1, 3, 4, ..., 7, go to step 2 Step 2: Since c1 > 0 and x1 does not appear in any of the constraints with a +1 coefficient, set x1 = 0.
Greedy Heuristic
Step 3: c3 d3 c4 d4 c5 d5 c6 d6 = = =
120
2 110 2 90 1
c7 = 60 d7 =
110
1
110
55
90
90 1
90
Greedy Heuristic
Since the minimum ck/dk occurs for k = 4, set x4 = 1 and remove both constraints in the above model since x4 has a +1 coefficient in each. The resulting model is shown below. Minimize Subject to: 120x3+90x5+90x6+110x7 x3 , x5 , x6 , x7 =0
Greedy Heuristic:
Step 4: Since there are no constraints in the above model, set x3 = x5 = x6 = x7 = 0 and stop. The solution is x2 = x4 = 1; x1 = x3 = x5 = x6 = x7 = 0. Cost of locating emergency response units to meet the eight minute response service level is 80 + 110 = 190.