Chapter 7 SupplementFacility Location Models
Lecture Outline•   Types of Facilities•   Site Selection: Where to Locate•   Global Supply Chain Factors•   Location Analy...
Types of Facilities• Heavy-manufacturing facilities      • large, require a lot of space, and are expensive• Light-industr...
Factors in Heavy                       Manufacturing Location•   Construction costs•   Land costs•   Raw material & finish...
Factors in Light Industry Location• Land costs• Transportation costs• Proximity to markets   • depending on delivery requi...
Factors in Retail Location• Proximity to customers• Location is everythingCopyright 2011 John Wiley & Sons, Inc.          ...
Site Selection: Where to Locate• Infrequent but important               • Location criteria for      • being “in the right...
Global Supply Chain Factors• Government stability        •            Climate• Government regulations      •            Nu...
Regional and Community                    Location Factors in U.S.• Labor                           •      Modes and quali...
Regional and Community                    Location Factors in U.S.•   Business climate                     • Infrastructur...
Location Incentives•   Tax credits•   Relaxed government regulation•   Job training•   Infrastructure improvement•   Money...
Geographic Information Systems (GIS)• Computerized system for  storing, managing, creating, analyzing, integrati  ng, and ...
GIS DiagramCopyright 2011 John Wiley & Sons, Inc.                 Supplement 7-13
Location Analysis Techniques• Location factor rating• Center-of-gravity• Load-distance Copyright 2011 John Wiley & Sons, I...
Location Factor Rating•   Identify important factors•   Weight factors (0.00 - 1.00)•   Subjectively score each factor (0 ...
Location Factor Rating                                                  SCORES (0 TO 100)  LOCATION FACTOR                ...
Location Factor Rating                            WEIGHTED SCORES                          Site 1         Site 2   Site 3 ...
Location Factor Rating With ExcelCopyright 2011 John Wiley & Sons, Inc.   Supplement 7-18
Location Factor Rating With OM ToolsCopyright 2011 John Wiley & Sons, Inc.   Supplement 7-19
Center-of-Gravity Technique• Locate facility at center of movement in  geographic area• Based on weight and distance trave...
Grid-Map Coordinates y                                                                 n                     n            ...
Center-of-Gravity Technique            y                                                     A     B     C           D    ...
Center-of-Gravity Technique            n                    xiWi          i=1                (200)(75) + (100)(105) + (250...
Center-of-Gravity Technique            y                                                      A       B     C           D ...
Center-of-Gravity With Excel                                         Formula for                                         x...
Center-of-Gravity With OM ToolsCopyright 2011 John Wiley & Sons, Inc.   Supplement 7-26
Load-Distance Technique• Compute (Load x Distance) for each site• Choose site with lowest (Load x Distance)• Distance can ...
Load-Distance Calculations                                               n                                     LD =       ...
Load-Distance        Potential Sites                                      Suppliers        Site    X                 Y    ...
Load-Distance             Site 2 dA = 333             dB = 323.9 dC = 226.7 dD = 170             Site 3 dA = 206.2 dB = 18...
Load-Distance With Excel                                         =B7*C11+C7*C12+D7*C13+E7*C14Copyright 2011 John Wiley & S...
Load-Distance With OM ToolsCopyright 2011 John Wiley & Sons, Inc.   Supplement 7-32
Copyright 2011 John Wiley & Sons, Inc.      All rights reserved. Reproduction or translation of this      work beyond that...
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  1. 1. Chapter 7 SupplementFacility Location Models
  2. 2. Lecture Outline• Types of Facilities• Site Selection: Where to Locate• Global Supply Chain Factors• Location Analysis TechniquesCopyright 2011 John Wiley & Sons, Inc. Supplement 7-2
  3. 3. Types of Facilities• Heavy-manufacturing facilities • large, require a lot of space, and are expensive• Light-industry facilities • smaller, cleaner plants and usually less costly• Retail and service facilities • smallest and least costlyCopyright 2011 John Wiley & Sons, Inc. Supplement 7-3
  4. 4. Factors in Heavy Manufacturing Location• Construction costs• Land costs• Raw material & finished goods shipment modes• Proximity to raw materials• Utilities• Means of waste disposal• Labor availabilityCopyright 2011 John Wiley & Sons, Inc. Supplement 7-4
  5. 5. Factors in Light Industry Location• Land costs• Transportation costs• Proximity to markets • depending on delivery requirements including frequency of delivery required by customerCopyright 2011 John Wiley & Sons, Inc. Supplement 7-5
  6. 6. Factors in Retail Location• Proximity to customers• Location is everythingCopyright 2011 John Wiley & Sons, Inc. Supplement 7-6
  7. 7. Site Selection: Where to Locate• Infrequent but important • Location criteria for • being “in the right place at the manufacturing facility right time” • nature of labor force• Must consider other • labor costs factors, especially financial • proximity to suppliers and considerations markets• Location decisions made more • distribution and transportation often for service operations costs than manufacturing facilities • energy availability and cost• Location criteria for service • community infrastructure • access to customers • quality of life in community • government regulations and taxesCopyright 2011 John Wiley & Sons, Inc. Supplement 7-7
  8. 8. Global Supply Chain Factors• Government stability • Climate• Government regulations • Number & proximity of suppliers• Political & economic systems • Transportation & distribution• Economic stability & growth system• Exchange rates • Labor cost & education• Culture • Available technology• Export/import regulations, • Commercial travel duties & tariffs • Technical expertise• Raw material availability • Cross-border trade regulations • Group trade agreementsCopyright 2011 John Wiley & Sons, Inc. Supplement 7-8
  9. 9. Regional and Community Location Factors in U.S.• Labor • Modes and quality of (availability, education, cost, transportation and unions) • Transportation costs• Proximity of customers • Community government• Number of customers Local business regulations• Construction/leasing costs • Government services (e.g.,• Land cost Chamber of Commerce)Copyright 2011 John Wiley & Sons, Inc. Supplement 7-9
  10. 10. Regional and Community Location Factors in U.S.• Business climate • Infrastructure (road &• Community services utilities)• Incentive packages • Quality of life• Government regulations • Taxes• Environmental regs. • Availability of sites• Raw material availability • Financial services• Commercial travel • Community inducements• Climate • Proximity of suppliers • Education systemCopyright 2011 John Wiley & Sons, Inc. Supplement 7-10
  11. 11. Location Incentives• Tax credits• Relaxed government regulation• Job training• Infrastructure improvement• MoneyCopyright 2011 John Wiley & Sons, Inc. Supplement 7-11
  12. 12. Geographic Information Systems (GIS)• Computerized system for storing, managing, creating, analyzing, integrati ng, and digitally displaying geographic, i.e., spatial, data• Specifically used for site selection• Enables users to integrate large quantities of information about potential sites and analyze these data with many different, powerful analytical toolsCopyright 2011 John Wiley & Sons, Inc. Supplement 7-12
  13. 13. GIS DiagramCopyright 2011 John Wiley & Sons, Inc. Supplement 7-13
  14. 14. Location Analysis Techniques• Location factor rating• Center-of-gravity• Load-distance Copyright 2011 John Wiley & Sons, Inc. Supplement 7-14
  15. 15. Location Factor Rating• Identify important factors• Weight factors (0.00 - 1.00)• Subjectively score each factor (0 - 100)• Sum weighted scoresCopyright 2011 John Wiley & Sons, Inc. Supplement 7-15
  16. 16. Location Factor Rating SCORES (0 TO 100) LOCATION FACTOR WEIGHT Site 1 Site 2 Site 3 Labor pool and climate .30 80 65 90 Proximity to suppliers .20 100 91 75 Wage rates .15 60 95 72 Community environment .15 75 80 80 Proximity to customers .10 65 90 95 Shipping modes .05 85 92 65 Air service .05 50 65 90 Weighted Score for “Labor pool and climate” for Site 1 = (0.30)(80) = 24Copyright 2011 John Wiley & Sons, Inc. Supplement 7-16
  17. 17. Location Factor Rating WEIGHTED SCORES Site 1 Site 2 Site 3 24.00 19.50 27.00 20.00 18.20 15.00 Site 3 has the 9.00 14.25 10.80 highest factor rating 11.25 12.00 12.00 6.50 9.00 9.50 4.25 4.60 3.25 2.50 3.25 4.50 77.50 80.80 82.05Copyright 2011 John Wiley & Sons, Inc. Supplement 7-17
  18. 18. Location Factor Rating With ExcelCopyright 2011 John Wiley & Sons, Inc. Supplement 7-18
  19. 19. Location Factor Rating With OM ToolsCopyright 2011 John Wiley & Sons, Inc. Supplement 7-19
  20. 20. Center-of-Gravity Technique• Locate facility at center of movement in geographic area• Based on weight and distance traveled; establishes grid-map of area• Identify coordinates and weights shipped for each locationCopyright 2011 John Wiley & Sons, Inc. Supplement 7-20
  21. 21. Grid-Map Coordinates y n n xiWi yiWi 2 (x2, y2), W2 i=1 i=1y2 x= n y= n Wi Wi 1 (x1, y1), W1 i=1 i=1y1 where, x, y = coordinates of new facility at 3 (x3, y3), W3 center of gravityy3 xi, yi = coordinates of existing facility i Wi = annual weight shipped from facility i x1 x2 x3 xCopyright 2011 John Wiley & Sons, Inc. Supplement 7-21
  22. 22. Center-of-Gravity Technique y A B C D 700 C x 200 100 250 500 600 (135) y 200 500 600 300 B W 75 105 135 60 500 (105) Miles 400 D 300 A (60) 200 (75) 100 0 100 200 300 400 500 600 700 x MilesCopyright 2011 John Wiley & Sons, Inc. Supplement 7-22
  23. 23. Center-of-Gravity Technique n xiWi i=1 (200)(75) + (100)(105) + (250)(135) + (500)(60) x= = = 238 n 75 + 105 + 135 + 60 Wi i=1 n yiWi i=1 (200)(75) + (500)(105) + (600)(135) + (300)(60) y= = = 444 n 75 + 105 + 135 + 60 Wi i=1Copyright 2011 John Wiley & Sons, Inc. Supplement 7-23
  24. 24. Center-of-Gravity Technique y A B C D 700 C x 200 100 250 500 600 (135) y 200 500 600 300 B W 75 105 135 60 500 (105) Center of gravity (238, 444) Miles 400 D 300 A (60) 200 (75) 100 0 100 200 300 400 500 600 700 x MilesCopyright 2011 John Wiley & Sons, Inc. Supplement 7-24
  25. 25. Center-of-Gravity With Excel Formula for x coordinateCopyright 2011 John Wiley & Sons, Inc. Supplement 7-25
  26. 26. Center-of-Gravity With OM ToolsCopyright 2011 John Wiley & Sons, Inc. Supplement 7-26
  27. 27. Load-Distance Technique• Compute (Load x Distance) for each site• Choose site with lowest (Load x Distance)• Distance can be actual or straight-lineCopyright 2011 John Wiley & Sons, Inc. Supplement 7-27
  28. 28. Load-Distance Calculations n LD = li di i=1 where, LD = load-distance value li = load expressed as a weight, number of trips or units being shipped from proposed site and location i di = distance between proposed site and location i di = (xi - x)2 + (yi - y)2 where, (x,y) = coordinates of proposed site (xi , yi) = coordinates of existing facilityCopyright 2011 John Wiley & Sons, Inc. Supplement 7-28
  29. 29. Load-Distance Potential Sites Suppliers Site X Y A B C D 1 360 180 X 200 100 250 500 2 420 450 Y 200 500 600 300 3 250 400 Wt 75 105 135 60 Compute distance from each site to each supplierSite 1 dA = (xA - x1)2 + (yA - y1)2 = (200-360)2 + (200-180)2 = 161.2 dB = (xB - x1)2 + (yB - y1)2 = (100-360)2 + (500-180)2 = 412.3 dC = 434.2 dD = 184.4Copyright 2011 John Wiley & Sons, Inc. Supplement 7-29
  30. 30. Load-Distance Site 2 dA = 333 dB = 323.9 dC = 226.7 dD = 170 Site 3 dA = 206.2 dB = 180.3 dC = 200 dD = 269.3 Compute load-distance n LD = li d i i=1Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(434.4) = 125,063Site 2 = (75)(333) + (105)(323.9) + (135)(226.7) + (60)(170) = 99,789Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555* * Choose site 3Copyright 2011 John Wiley & Sons, Inc. Supplement 7-30
  31. 31. Load-Distance With Excel =B7*C11+C7*C12+D7*C13+E7*C14Copyright 2011 John Wiley & Sons, Inc. Supplement 7-31
  32. 32. Load-Distance With OM ToolsCopyright 2011 John Wiley & Sons, Inc. Supplement 7-32
  33. 33. Copyright 2011 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.Copyright 2011 John Wiley & Sons, Inc. Supplement 7-33

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