This is a facility location or plant location

1. Operations Management For Competitive Advantage
©The McGraw-Hill Companies, Inc., 2001
CHASE AQUILANO JACOBS
ninth edition 1
Facility Location
Operations Management
For Competitive Advantage
CHASE AQUILANO JACOBS
ninth edition
Technical Note 9

2. Operations Management For Competitive Advantage
©The McGraw-Hill Companies, Inc., 2001
CHASE AQUILANO JACOBS
ninth edition 2
Chapter 9
Facility Location
 Issues in Facility Location
 Various Plant Location Methods

3. Operations Management For Competitive Advantage
©The McGraw-Hill Companies, Inc., 2001
CHASE AQUILANO JACOBS
ninth edition 3
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.

4. Operations Management For Competitive Advantage
©The McGraw-Hill Companies, Inc., 2001
CHASE AQUILANO JACOBS
ninth edition 4
Issues in Facility Location
 Proximity to Customers
 Business Climate
 Total Costs
 Infrastructure
 Quality of Labor
 Suppliers
 Other Facilities

5. Operations Management For Competitive Advantage
©The McGraw-Hill Companies, Inc., 2001
CHASE AQUILANO JACOBS
ninth edition 5
Issues in Facility Location
 Free Trade Zones
 Political Risk
 Government Barriers
 Trading Blocs
 Environmental Regulation
 Host Community
 Competitive Advantage

6. Operations Management For Competitive Advantage
©The McGraw-Hill Companies, Inc., 2001
CHASE AQUILANO JACOBS
ninth edition 6
Plant Location Methodology: Factor
Rating Method Example
Fuels in region 0 to 330
Power availability and reliability 0 to 200
Labor climate 0 to 100
Living conditions 0 to 100
Transportation 0 to 50
Water supply 0 to 10
Climate 0 to 50
Supplies 0 to 60
Tax policies and laws 0 to 20
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.
123
150
54
24
45
34
8
45
45
Major factors for site location Pt. Range
156
100
63
96
55
14
4
50
20
Sites
A B
Total pts. 528 558
Best Site
is B

7. Operations Management For Competitive Advantage
©The McGraw-Hill Companies, Inc., 2001
CHASE AQUILANO JACOBS
ninth edition 7
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.

8. Operations Management For Competitive Advantage
©The McGraw-Hill Companies, Inc., 2001
CHASE AQUILANO JACOBS
ninth edition 8
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.

9. Operations Management For Competitive Advantage
©The McGraw-Hill Companies, Inc., 2001
CHASE AQUILANO JACOBS
ninth edition 9
Plant Location Methodology: Center of
Gravity Method Formulas
C =
d V
V
x
ix 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
C =
d V
V
y
iy i
i



10. Operations Management For Competitive Advantage
©The McGraw-Hill Companies, Inc., 2001
CHASE AQUILANO JACOBS
ninth edition 10
Plant Location Methodology: Example
of Center of Gravity Method
Question: What is the best location for a new Z-Mobile
warehouse/temporary storage facility considering only distances
and quantities sold per month?
 Center of gravity method example
– Several automobile showrooms are located according to the
following grid which represents coordinate locations for each
showroom.
Showroom No ofZ-Mobile s
s old pe r month
A 1250
D 1900
Q 2300
X
Y
A
(100,200)
D
(250,580)
Q
(790,900)
(0,0)

11. Operations Management For Competitive Advantage
©The McGraw-Hill Companies, Inc., 2001
CHASE AQUILANO JACOBS
ninth edition 11
Plant Location Methodology: Example of Center of
Gravity Method: Determining Existing Facility
Coordinates
Showroom No ofZ-Mobile s
sold pe r month
A 1250
D 1900
Q 2300
X
Y
A
(100,200)
D
(250,580)
Q
(790,900)
(0,0)
To begin, you must identify the
existing facilities on a two-
dimensional plane or grid and
determine their coordinates.
You must also have the
volume information on the
business activity at the
existing facilities.

12. Operations Management For Competitive Advantage
©The McGraw-Hill Companies, Inc., 2001
CHASE AQUILANO JACOBS
ninth edition 12
Plant Location Methodology: Example of Center of
Gravity Method: Determining the Coordinates of
the New Facility
C =
100(1250) + 250(1900) + 790(2300)
1250 + 1900 + 2300
=
2,417,000
5,450
=
x 443.49
C =
200(1250) + 580(1900) + 900(2300)
1250 + 1900 + 2300
=
3,422,000
5,450
=
y 627.89
Showroom No ofZ-Mobile s
sold pe r month
A 1250
D 1900
Q 2300
X
Y
A
(100,200)
D
(250,580)
Q
(790,900)
(0,0)
You then compute the new coordinates using the formulas:
Z New
location