FACILITY LOCATION DECISION

Factors influencing the Decision

 Proximity to Customers
 Free Trade Zones
 Business Climate  Political Risk
 Total Costs  Government Barriers
 Infrastructure  Trading Zones
 Environmental Regulation
 Quality of Labor
 Host Community
 Suppliers
 Other Facilities
 7 factors to consider in Determining location

1. Labour Supply: Is there enough qualified workers

2. Transportation: rail, road, air travel, Pipelines etc….
3. Markets: locate near your customers to minimize transport
cost
4. Power Supply and Water: manufacturers require large
amounts of power and water
5. Raw Materials: In order to reduce transport costs, factories
located close to the stuff they make their products with
6. Site: Must be large amounts of land
7. Government: government incentives , taxes, and grants
available
 Plant Location Methodology:
Location Factor Rating
2 3
Procedures 1 Scores (0 to 100)
1. Identify factors that are important in Location Factors Weight Site 1 Site 2 Site 3
the location decision
Labor pool & climate 0.30 80 65 95
Proximity to supplies 0.20 100 91 75
2. Prioritize the factor by its
Wage rates 0.15 60 95 80
importance. Each factor is weighted
from 0 to 1.00 Community environment 0.15 75 80 80

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3. Subjective score (0 to 100) is assigned Scores (0 to 100)
to each site for each factor Location Factors Site 1 Site 2 Site 3
Labor pool & climate 24.00 19.50 28.50
4. Sum up the weighted score. Proximity to supplies 20.00 18.20 15.00
Wage rates 9.00 14.25 12.00
5. The site with highest score is the Community environment 11.25 12.00 12.00
most attractive
64.25 63.95 67.50
5
4
 Plant Location Methodology:
Center-of-Gravity Technique
• Used for locating single facility that considers existing facilities, the distances
between them, and the volumes of goods to be shipped between them.

• Involves formulas used to compute the coordinates of the two-dimensional

point that meets the distance and volume criteria stated above.

• The coordinates for the location of the new facility are computed as follows:

n n

 xW i i  yW i i x, y = Coordinates of the new facility

x i 1
n
, y i 1
n
at center of gravity

W W
xi, yi = coordinate of existing facility I
i i Wi = Annual weight shipped from
i 1 i 1 facility i

6
 Ex 1: Center-of-Gravity Technique

– Several automobile showrooms are located according to

the following grid which represents coordinate locations
for each showroom.

Y
Q Showroom # of Z-mobiles sold
(790,900) per month
A 1250
D
(250,580) D 1900
Q 2300
A
(100,200)

(0,0) X
Question:
What is the best location for a new Z-Mobile warehouse/temporary
storage facility considering only distances and quantities sold per
month? 7
 Center of Gravity Method:
Determining the Coordinates of the New Facility

You then compute the new coordinates using the formulas:

100(1250) + 250(1900) + 790(2300) 2,417,000

Cx = = = 443.49
1250 + 1900 + 2300 5,450

200(1250) + 580(1900) + 900(2300) 3,422,000

Cy = = = 627.89
1250 + 1900 + 2300 5,450

Y
S ho wro o m No o f Z-Mo b ile s
Q
(790,900) s o ld p e r mo nth
Z New
D location
(250,580)
A 1250

A D 1900
(100,200)

(0,0) X Q 2300
 Plant Location Methodology:
Load-Distance Technique
• Various locations are evaluated using a load-distance value.
• For a single potential location, a load-distance value (ld) is
computed as follows:
• Select the location with lowest ld value
n
LD   l i d i x, y = coordinates of the new facility
i 1 xi, yi = coordinate of existing facility
LD = the load-distance value
di  xi  x 2   yi  y 2 li = the load expressed as weight, number of trips, or unit
di = the distance between the new and existing
facility
Ex 2: From ex 1, evaluate two possible different sites of warehouse
to supply to showroom A, D, and Q. Given that
Warehouse site 1: x = 420 and y =450
Warehouse site 2: x = 250 and y =980
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 Practice Problem
1.Solve the following problem data using Centre of gravity Method.
2. Solve the following problem data using Load (Euclidean) distance
Method
 Plant Location Methodology:
Break-even analysis
• Also refer to Supplement A – Decision
Making 1600 A
•

Annual cost (thousands of dollars)

Basic steps for break-even analysis in 1400
(20, 1390)
facility location decisions: (20, 1200) D
1200 (20, 1060) B
1. Determine variable costs and fixed costs
C
1000
2. Plot the total cost lines (sum of fixed (20, 980)
costs and variable costs) for all 800 Break-even point
alternatives in a single graph 600
3. Identify the approximate ranges for sites 400
Break-even
point
with lowest total cost
200
4. Solve algebraically for the break-even A best B best C best
points over the relevant ranges 0
2 4 6 8 10 12 14 16 18 20 22
6.25 14.3
Q (thousands of units)

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EXERCISE PROBLEM