Operations Management For Competitive Advantage ninth edition 1

CHASE AQUILANO JACOBS

Operations Management
For Competitive Advantage
Technical Note 9

Facility Location
CHASE AQUILANO JACOBS ninth edition
©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 2

Chapter 9
Facility Location
 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 55
Water supply 0 to 10 34 14
Climate 0 to 50 8 4
Supplies 0 to 60 45 50
Tax policies and laws 0 to 20 Best Site
45 20 is B
Total pts. 528 558
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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: Center of

Gravity Method
 The center of gravity 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: Center of

Gravity Method Formulas
d V ix i
Cy =
d V iy i

V
Cx =
V i i

Cx = X coordinate of center of gravity

Cy = X coordinate of center of gravity

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 Center of Gravity Method
 Center of gravity 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: What is the best location for a new Z-Mobile

warehouse/temporary storage facility considering only distances
and quantities sold per month?
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Plant Location Methodology: Example of Center of

Gravity Method: Determining Existing Facility
Coordinates
Y
To begin, you must identify the Q
existing facilities on a two- (790,900)

dimensional plane or grid and D

(250,580)
determine their coordinates.
A
(100,200)

(0,0) X

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

You must also have the s o ld p e r mo nth
volume information on the
business activity at the A 1250
existing facilities.
D 1900

Q 2300

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Operations Management For Competitive Advantage ninth edition 12
Plant Location Methodology: Example of 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
(250,580) location A 1250

A D 1900
(100,200)

(0,0) X Q 2300
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