FACILITY LOCATION

PROBLEMS

Factors Affecting Location Selection

Labour costs (including wages, unionization, productivity) Labour availability (including attitudes, age, distribution, and skills) Proximity to raw materials and suppliers Utilities (including gas, electric, water, and their costs) Site costs (including land, expansion, parking, drainage) Transportation availability (including rail, air, water, and interstate roads)

Steps in Factor Rating 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

Location Break-Even Analysis

Method of cost-volume analysis used for industrial locations Three steps in the method 1. Determine fixed and variable costs for each location 2. Plot the cost for each location 3. Select location with lowest total cost for expected production volume

Center of Gravity Method

Finds location of distribution center that minimizes distribution costs Considers 1)Location of markets 2)Volume of goods shipped to those markets 3)Shipping cost (or distance) Place existing locations on a coordinate grid 1) Grid origin and scale is arbitrary 2) Maintain relative distances Calculate X and Y coordinates for center of gravity 1) Assumes cost is directly proportional to distance and volume shipped 2) Gives location of distribution center 3)Minimizes transportation cost

A clothing chain is considering two different locations for a new retail outlet. They have identified the four factors listed in the following table as the basis for evaluation, and have assigned weights as shown on the left. The manager has rated each location on each factor, on a 100-point basis, as shown on the right. Factor Description Weight Barclay Chester

Average community Income

0.40

30

20

Community growth potential

Availability of public transportation Labor cost

0.25
0.15 0.20

40
20 10

30
20 30

What is the score for Barclay? a. 10.00 b. 24.50 c. 25.75 d. 27.00 e. 100.00

A full-service restaurant is considering opening a new facility in a specific city. The table below shows its ratings of four factors at each of two potential sites. Factor Affluence of local population Traffic flow Parking availability Growth potential WEIGHT 0.20 0.40 0.20 0.20 GARY MALL 30 50 30 10 BELTLINE 30 20 40 30

The score for Gary Mall is _____ and the score for Belt Line is ______. a. 120; 120 b. 22; 24 c. 18; 120 d. 34; 28 e. none of the above

A washing machine manufacturer is analyzing three possible locations-Buffalo, New York; Toledo, Ohio; and Orlando, Florida - to build an additional manufacturing facility. Research analyses indicate the annual fixed costs for the sites are respectively $45,000; $60,000; and $95,000. The variable unit costs respectively are $235; $205; and $185. The anticipated selling price for the washing machines is $350. The company is seeking the most economical location for an expected volume of 5,000 units annually. The total cost for each city at the expected volume of 5,000 units is calculated using the following formula: Total cost = Fixed cost + Variable cost x Total volume

Buffalo:Total cost = $45,000 + $235 x 5,000 = $1,220,000 Toledo:Total cost = $60,000 + $205 x 5,000 = $1,085,000 Orlando:Total cost = $95,000 + $185 x 5,000 = $1,020,000

Expected annual profits for each location can be calculated using the following formula: Total revenue = (Selling price x 5,000) - Total cost (Fixed cost + Variable cost x total volume) Buffalo:$1,750,000 - $1,220,000 = $530,000 Toledo: $1,750,000 - $1,085,000 = $665,000 Orlando:$1,750,000 - $1,020,000 = $730,000

Assuming a maximum production of 5,000 units, Orlando provides the lowest cost location at $1,020,000 and the highest annual profit of $730,000. At 500 units Buffalo and Toledo are both cheaper than Orlando. At 1,500 units Toledo is the cheapest location, but at 2,000 units of production Orlando becomes the cheapest. Therefore, the crossover points in the breakeven analysis are 500 and 1,500 units of production.

East Texas Seasonings is preparing to build one processing center to serve its four sources of seasonings. The four source locations are at coordinates shown below. Also, the volume from each source is provided. What is the center of gravity? X-coordinate Athens, Texas Beaumont, Texas Carthage, Texas Denton, Texas 30 20 10 50 Y-coordinate 30 10 70 50 Volume 150 350 100 200

a. center of gravity = 28 b. X = 22,000; Y = 24,000 c. X = 27.5; Y = 40 d. X = 28.125; Y = 31.25 e. none of the above

The new Health-care facility is targeted to serve seven census tractsin Delhi. The table given below shows the coordinates for the centre of each census tract,along with the projected populations, measured in thousands. Customers will travel fromthe seven census tract centres to the new facility when they need health-care. Two locationsbeing considered for the new facility are at (5.5, 4.5) and (7, 2), which are the centresof census tracts C and F. Details of seven census tract centres, co-ordinate distances alongwith the population for each centre are given below. If we use the population as the loadsand use rectilinear distance, which location is better in terms of its total load-distancescore? SL.NO 1 2 3 4 5 6 7 CENSUS TRACK A B C D E F G (X,Y) (2.5, 4.5) (2.5, 2.5) (5.5, 4.5) (5,2) (8 , 5) (7 , 2) (9 , 2.5) POPULATION 2 5 10 7 10 20 14

SOLUTION: Calculate the load-distance score for each location. Using the coordinates fromthe above table. Calculate the load-distance score for each tract.Using the formula DISTANCE

Census (x, y) Population Tract (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

Locate at (5.5, 4.5) Locate at (7, 2) Distance (d) Load-Distance distance (d) Load-distance 3+0=3 6 4.5 + 2.5 = 7 14 3+2=5 25 4.5 + 0.5 = 5 25 0+0=0 0 1.5 + 2.5 = 4 40 0.5 + 2.5 = 3 21 2+0=2 14 2.5 + 0.5 = 3 30 1+3=4 40 1.5 + 2.5 = 4 80 0+0=0 0 3.5 + 2 = 5.5 77 2 + 0.5 = 2.5 35 Total 239 Total 168 Summing the scores for all tracts gives a total load-distance score of 239 when the facilityis located at (5.5, 4.5) versus a load-distance score of 168 at location (7, 2). Therefore, thelocation in census tract F is a better location