SELECTIO N O F LO CATIO N

SELECTIO N O F LO CATIO N

When Federal Express opened its Asian hub in Taiwan in 1998, and doubled its flights to China, it set the stage for its new round the world flights linking its Paris and Memphis package hubs to Asia When Mercedes announced its plans to build its first major overseas plan in Vance, Alabama, it completed a year of competetion among 170 sites in 30 states and two countries When Hard Rock Caf opened in Moscow in late 2002, it ended 3 years of advance preparation of a Russion food supply chain. IT IS ALL ABO UT STRATEGIC LO CATIO N
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SELECTIO N O F LO CATIO N

SELECTIO N O F LO CATIO N Federal Express

Location greatly affects both fixed and variable costs Once committed to a location, many cost issues are firmly in place and difficult to change / reduce. It has a major impact on the overall risk and profit of the company For instance, transportation costs alone can total as much as 25% of the products selling price. Other costs that may be influenced by location include taxes, wages, raw material costs, and rents
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Central hub concept Enables service to more locations with fewer aircraft Enables matching of aircraft flights with package loads Reduces mishandling and delay in transit because there is total control of packages from pickup to delivery

SELECTIO N O F LO CATIO N Location Option When to do location selection ? 1) e xpanding an existing facility instead of moving 2) maintaining current sites while adding another facility elsewhere 3) closing the existing facility and moving to another location 4) totally new location

SELECTIO N O F LO CATIO N Sequence of Selection Often begins with choosing a country in which to operate. T hen, choose which region/community Finally, choose specific site within that community / region

SELECTIO N O F LO CATIO N Factors That Affect Location Decisions Labour Productivity Exchange Rates and Currency Risks Costs Attitudes Proximity to Markets Proximity to Suppliers Proximity to Competitors (Clustering)

SELECTIO N O F LO CATIO N Factors That Affect Location Decisions Labour Productivity Wage rates are not the only factor to consider Lower productivity may increase total costs

Labour cost per day Productivity (unit per day)

= cost per unit

Employees with poor training, poor education or poor work habits may not be a good buy even at low wages
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SELECTIO N O F LO CATIO N Factors That Affect Location Decisions Exchange Rates and Currency Risks Can have significant effects on cost structures Rates change over time Although wage rates and productivity may make a country seem economical, unfavorable exhange rates might negate any savings

SELECTIO N O F LO CATIO N Factors That Affect Location Decisions Costs Tangible - easily measured costs such as utilities, labor, materials, taxes, depreciation and others Including government incentives Everything has to be factored into the overall cost of a location. Intangible - less easy to quantify. Include quality of education, public transportation, community attitudes, quality and attitude of prospective employees, climate etc

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SELECTIO N O F LO CATIO N Factors That Affect Location Decisions Attitudes National, state, local governments toward private and intellectual property, zoning, pollution, employment stability Worker attitudes towards turnover, unions, absenteeism Different cultures --- different attitudes towards punctuality, legal, and ethical issues

SELECTIO N O F LO CATIO N Factors That Affect Location Decisions Proximity to Markets Very important to locate near customers especially for services organizations like drugstores, restaurants, post offices, or barbers etc easy to increase revenue. Manufacturing organizations may find it useful to be close to customers when transporting finished good is expensive or difficult (perhaps because they are bulky, heavy or fragile).

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SELECTIO N O F LO CATIO N Factors That Affect Location Decisions Proximity to Suppliers Firms locate near their raw materials and suppliers because; Perishability Transportation costs Bulk Bakeries, dairy plants, and frozen seafood processors deal with perishable raw material, so they often locate close to suppliers JIT system also requires suppliers to be close by
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SELECTIO N O F LO CATIO N Factors That Affect Location Decisions Proximity to Competitors (Clustering) Called clustering Often driven by resources such as natural,information, capital, talent information, capital, talent Found in both manufacturing and service industries

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SELECTIO N O F LO CATIO N Factors That Affect Location Decisions Labour

SELECTIO N O F LO CATIO N Factors That Affect Location Decisions Labour

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SELECTIO N O F LO CATIO N Selection of Location for Service Industry While the focus in manufacturing industry location analysis is on minimizing cost, the focus in the service industry is on maximizing revenue. Selection of location has many impacts on revenue too. This means the location focus for service industry should be on determining the volume of business and revenue.

SELECTIO N O F LO CATIO N Selection of Location for Service Industry Eight major factors Purchasing power of customer-drawing area Service and image compatibility with demographics of the customer-drawing area Competition in the area Quality of the competition Uniqueness of the firms and competitorslocations Physical qualities of facilities and neighboring businesses Operating policies of the firm
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Quality of management

SELECTIO N O F LO CATIO N Selection of Location for Service Industry management

SELECTIO N O F LO CATIO N Selection of Location for Service Industry management

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SELECTIO N O F LO CATIO N Selection of Location for Service Industry management

SELECTIO N O F LO CATIO N (Q UANTIT ATIVE ANALYSIS)

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SELECTIO N O F LO CATIO N

SELECTIO N O F LO CATIO N Special Notes on Distance Measurement

Two types of selection Single location selection Multiple location selection

The distance measures involved in a facility location problem are an important element in formulating an analytical model Can be categorized as Rectilinear distances are measured along paths that are orthogonal and perpendicular to each other Euclidean distances are measured along the straight line path between two points Flow path distance distances are measured along the actual path traversed between two points
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SELECTIO N O F LO CATIO N Methods of Evaluating Location Alternatives 1. Factor rating method 2. Locational Break Even Analysis 3. Centre of Gravity Analysis 4. MiniSum (a bit similar to centre of gravity model) 5. single facility minimax location problem 6. multiple facilities of the same type

SELECTION OF LOCATION Factor Rating Method

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SELECTIO N O F LO CATIO N Factor Rating Method Popular because a wide variety of factors can be included in the analysis Six steps 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
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SELECTIO N O F LO CATIO N Factor Rating Method Model

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SELECTIO N O F LO CATIO N Locational Break Even Analysis Method of cost-volume analysis used for used for industrial locations

SELECTION OF LOCATION Locational Break Even Analysis

Three steps in the method Determine fixed and variable costs for each location Plot the cost for each location Select location with lowest total cost for expected production volume

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SELECTIO N O F LO CATIO N Locational Break Even Analysis Method of

SELECTIO N O F LO CATIO N Locational Break Even Analysis Factor rating method Locational Break Even Analysis Centre of Gravity Analysis Transportation Model

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SELECTIO N O F LO CATIO N Center of Gravity Analysis Finds location of distribution center that minimizes distribution costs

SELECTION OF LOCATION Center of Gravity Analysis

Considers Location of markets Volume of goods shipped to those markets Shipping cost (or distance)

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SELECTIO N O F LO CATIO N Center of Gravity Analysis Place existing locations on a coordinate grid Grid origin and scale is arbitrary Maintain relative distances Calculate X and Y coordinates for center of gravity Assumes cost is directly proportional to distance and volume shipped

SELECTIO N O F LO CATIO N Center of Gravity Analysis Factor rating method Locational Break Even Analysis Centre of Gravity Analysis Transportation Model

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SELECTIO N O F LO CATIO N Center of Gravity Analysis Factor rating method Locational Break Even Analysis Centre of Gravity Analysis Transportation Model

SELECTIO N O F LO CATIO N Center of Gravity Analysis Factor rating method Locational Break Even Analysis Centre of Gravity Analysis Transportation Model

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SELECTIO N O F LO CATIO N Center of Gravity Analysis Factor rating method Locational Break Even Analysis Centre of Gravity Analysis Transportation Model

SELECTION OF LOCATION Minisum

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SELECTIO N O F LO CATIO N Minisum T o minimize the sum of the weighted distances be tween the ne w facility and the other existing facilities One example ; A new machine is to be installed in a maintenance department. Suppose there are five existing machines that have a material handling relationship with the new machine. T he existing machines are located at P1 = (1,1), P2 = (5,2), P3 = (2,8), P4 = (4,4), P5 = (8,6). T he cost per unit distance travelled is the same between the new machine and each existing machine. T he number of trips per day between the new machine and the existing 41 machines are 5,6,2,4, and 8, respectively

SELECTIO N O F LO CATIO N Minisum use the following notation X = (x, y) location of the new facility P = (a i, b i) location of existing facilities i, i = 1,2,m wi d (X,Pi) weight associated with travel between the new facility and existing facility i distance between the new facility and existing facility i

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SELECTIO N O F LO CATIO N Minisum T he objective is to minimize cost of travel Minimize f (X) = wi d (X, Pi) Satisfy median >= wi / 2 T he distance is measured by the sum of the absolute difference in their coordinates (rectilinear distance) d (X,Pi) = x-a i + y -b i

SELECTIO N O F LO CATIO N Minisum solution steps Arrange x coordinate in sequence (smallest value at the top followed by the bigger values downward) Arrange the weight according to the sequence of x coordinates done in the first step Total up all the weights according to the sequence done in the the first step Stop when total cumulative weight first becomes equal or more than the median. The corresponding x coordinate is the optimum x coordinate, x*
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SELECTIO N O F LO CATIO N Minisum x coordinate solution = 5

machine 1 3 4 2 5 coordinate 1 2 4 5 8 weight 5 2 4 6 8 25
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SELECTIO N O F LO CATIO N Minisum y coordinate solution = 4

w 5 7 11 17 25 < 25/2 > 25/2 4 5 3 4 6 8 4 8 2 15 23 25
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machine 1 2

coordinate 1 2

weight 5 6

w 5 11 < 25/2 > 25/2

SELECTIO N O F LO CATIO N Minisum the total weighted distance resulting from the location x = (5,4) is f(5,4) = 5( 5-1 + 4 -1 ) + 6( 5-5 + 4-2 ) + 2( 5-2 + 4 - 8 ) + 4( 5 4 + 4 - 4 ) + 8( 5 -8 + 4 6 ) = 105

SELECTIO N O F LO CATIO N Minisum

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SELECTIO N O F LO CATIO N Minisum que stion In the previous example, suppose it is not possible to place the new machine at a point other than the following candidate sites; Q1 = (5,6), Q2 = (4,2), Q3 = (8,4). Which would be preferred ? answe r Computing the value of f(x) for X = Qk where k = 1,2,3 yields f (5,6) = 45 + 24 + 10 + 12 + 24 = 115 f (4,2) = 20 + 6 + 16 + 8 + 64 = 114 f (8,4) = 50 + 30 + 20 + 16 + 16 = 132 hence, the best site would be Q2.
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SELECTIO N O F LO CATIO N Minisum que stion In the previous example, suppose there is already an obstacle at location (5,4). Where else can the new machine be located ?

answe r In general, one can construct iso-cost contour lines as an aid in determining an appropriate location for the new facility It can be done manually, or by using a suitable software tool.

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SELECTIO N O F LO CATIO N Minimax

To obtain a solution which minimizes the maximum cost resulting from a given location solution

SELECTION OF LOCATION single facility minimax location problem

Example, consider the problem of locating health outreach clinics in rural areas. In such a situation, clinics might be located so that the maximum distance a patient must travel to a clinic is minimized Or, location of storerooms in a manufacturing plant that minimizes the maximum distance employees must travel to reach a storeroom. in solving a minimax location problem, costs other than the maximum cost are not considered

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SELECTIO N O F LO CATIO N single facility minimax location problem

SELECTIO N O F LO CATIO N single facility minimax location problem

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SELECTIO N O F LO CATIO N single facility minimax location problem Factor rating method Locational Break Even Analysis Centre of Gravity Analysis Transportation Model

SELECTIO N O F LO CATIO N single facility minimax location problem Factor rating method Locational Break Even Analysis Centre of Gravity Analysis Transportation Model

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SELECTIO N O F LO CATIO N single facility minimax location problem

SELECTIO N O F LO CATIO N single facility minimax location problem

P5

P2 P6 P7 P4

P3 P1

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SELECTIO N O F LO CATIO N single facility minimax location problem

SELECTIO N O F LO CATIO N single facility minimax location problem

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SELECTIO N O F LO CATIO N single facility minimax location problem

SELECTIO N O F LO CATIO N single facility minimax location problem

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SELECTIO N O F LO CATIO N Minimax FACULTY OF MECHANICAL ENGINEERING point (3,5) is 8 distance units from P1, P3, P4, and P8 Point (6,2) is 8 distance units from P1, P5 and P8 T he remaining points on the line segment are 8 distance units from P1 and P8 THE END

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UNIVERSITI TEKNOLOGI MALAYSIA

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