Operations Management

Summer 2014
BS-III

Instructor: Dr. Rizwan Ahmed
Facility Location
Lecture Outline
Types of facilities
Site selection: where to locate
Location analysis techniques

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
Distribution centers
Need to be close to road/rail links, main
markets/customer segments; need big space
Retail and service facilities
smaller and least costly
Back office

Factors in Facility Location

Factors
Relative Importance of Factors in Facility Location
Heavy
Industry
Light Industry Distribution
Centers
Retail &
Services
Back Office
Construction
costs
High Medium Medium Low Low
Land costs

High Medium Medium Low Very low
Transportation
cost
High Medium High Low Very low
Utilities cost
Very High High Low Medium Medium
Proximity to
required
transportation
modes
High Medium High Low Low
Proximity to Raw
Materials
High Medium N/A N/A N/A
Proximity to main
markets/segment
Medium High High High N/A
Proximity to
Customers
Low Medium Medium Very High Low
Labor availability
High High Medium Low Medium
Global Location Factors (PEST
Factors)
Government stability
Government regulations
Political and economic
systems
Economic stability and
growth
Exchange rates
Culture
Climate
Export import regulations,
duties and tariffs
Raw material availability
Number and proximity of
suppliers
Transportation and
distribution system
Labor cost and education
Available technology
Commercial travel
Technical expertise
Cross-border trade
regulations
Group trade agreements
Regional Location Factors
Labor (availability,
education, cost, and
unions)
Proximity of
customers
Number of customers
Construction/leasing
costs
Land cost
Modes and quality of
transportation
Transportation costs
Community
government Local
business regulations
Government services
(e.g., Chamber of
Commerce)
Regional Location Factors (cont.)
Business climate
Community services
Incentive packages
Government regulations
Environmental
regulations
Raw material availability
Commercial travel
Climate
Infrastructure (e.g., roads,
water, sewers)
Quality of life
Taxes
Availability of sites
Financial services
Community inducements
Proximity of suppliers
Education system
Location Incentives
Tax credits
Relaxed government regulation
Job training
Infrastructure improvement
Money

Location Analysis Techniques
Location rating factor

Center-of-gravity

Load-distance
Location Rating Factor
Qualitative approach, quantitative decision
Identify important factors
Give Importance weight to each factor
(from 0.00 - 1.00)
Give suitability score to each location w.r.t
to each factor (from 0 - 100)
Calculate weighted score (weight * score)
Sum weighted scores
Location Factor Rating: Example
Labor pool and climate
Proximity to suppliers
Wage rates
Community environment
Proximity to customers
Shipping modes
Air service
LOCATION FACTOR
.30
.20
.15
.15
.10
.05
.05
WEIGHT
80
100
60
75
65
85
50
Site 1
65
91
95
80
90
92
65
Site 2
90
75
72
80
95
65
90
Site 3
SCORES (0 TO 100)
Weighted Score for Labor pool and climate for
Site 1 = (0.30)(80) = 24
Location Factor Rating
24.00
20.00
9.00
11.25
6.50
4.25
2.50
77.50
Site 1
19.50
18.20
14.25
12.00
9.00
4.60
3.25
80.80
Site 2
27.00
15.00
10.80
12.00
9.50
3.25
4.50
82.05
Site 3
WEIGHTED SCORES
Site 3 has the
highest factor rating
Locate facility at center of
geographic area w.r.t supplier or
markets
Based on weight and distance
traveled
Identify coordinates and weights
shipped to/from each location
Center-of-Gravity
Technique
Grid-Map Coordinates
where,
x, y = coordinates of new facility
at center of gravity
x
i
, y
i
= coordinates of supplier i
W
i
= annual weight shipped from
facility i

n
W
i
i =1

x
i
W
i
i =1
n
x =

n
W
i
i =1

y
i
W
i
i =1
n
y =
x
1
x
2
x
3
x
y
2
y
y
1
y
3
1 (x
1
, y
1
), W
1
2 (x
2
, y
2
), W
2
3 (x
3
, y
3
), W
3
Center-of-Gravity Technique:
Example
The Burger Doodle restaurant chain purchases
ingredients from four different food suppliers.
The company wants to construct a new central
distribution center to process and package the
ingredients before shipping them to their various
restaurants.
The suppliers transport ingredient items in 40-foot truck
trailers, each with a capacity of 38,000 pounds.
The locations of the four suppliers, A, B, C, and D, and
the annual number of trailer loads that will be transported
to the distribution center are shown in the following
figure:

Center-of-Gravity Technique:
Example
A B C D
x 200 100 250 500
y 200 500 600 300
Wt 75 105 135 60
y
700
500
600
400
300
200
100
0 x
700 500 600 400 300 200 100
A
B
C
D
(135)
(105)
(75)
(60)
Miles
M
i
l
e
s

Center-of-Gravity Technique:
Example (cont.)
x = = = 238
n
W
i
i =1

x
i
W
i
i =1
n

n
W
i
i =1
y
i
W
i
i =1
n
y = = = 444
(200)(75) + (500)(105) + (600)(135) + (300)(60)
75 + 105 + 135 + 60
(200)(75) + (100)(105) + (250)(135) + (500)(60)
75 + 105 + 135 + 60
Center-of-Gravity Technique:
Example (cont.)
A B C D
x 200 100 250 500
y 200 500 600 300
Wt 75 105 135 60
y
700
500
600
400
300
200
100
0 x
700 500 600 400 300 200 100
A
B
C
D
(135)
(105)
(75)
(60)
Miles
M
i
l
e
s

Center of gravity (238, 444)
Load-Distance Technique
A Variation of Centre of Gravity Method
You have a number of suppliers or
markets
And a number of proposed sites
How to choose which site?
Compute (Load x Distance) for each site
& supplier
Choose site with lowest (Load x Distance)
Distance can be actual or straight-line
Load-Distance Calculations

l
i
d
i
i = 1
n
LD =
LD = load-distance value
l
i
= load expressed as a weight, number of trips or units
being shipped from proposed site and supplier location i
d
i
= distance between proposed site and supplier location i
d
i
= (x
i
- x)
2
+ (y
i
- y)
2
(x,y) = coordinates of a proposed site
(x
i
, y
i
) = coordinates of a supplier location
where,
where,
Load-Distance: Example
Potential Sites
Site X Y
1 360 180
2 420 450
3 250 400
Suppliers
A B C D
X 200 100 250 500
Y 200 500 600 300
Wt 75 105 135 60
Compute distance from each site to each supplier
= (200-360)
2
+ (200-180)
2
d
A
= (x
A
- x
1
)
2
+ (y
A
- y
1
)
2
Site 1
= 161.2
= (100-360)
2
+ (500-180)
2
d
B
= (x
B
- x
1
)
2
+ (y
B
- y
1
)
2
= 412.3
d
C
= 434.2 d
D
= 184.4
Load-Distance: Example (cont.)
Site 2 d
A
= 333 d
C
= 226.7 d
B
= 323.9 d
D
= 170
Site 3 d
A
= 206.2 d
C
= 200 d
B
= 180.4 d
D
= 269.3
Compute load-distance
i = 1
n
l
i
d
i
LD =
Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(434.4) = 125,063
Site 2 = (75)(333) + (105)(323.9) + (135)(226.7) + (60)(170) = 99,791
Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555*
* Choose site 3