Facility Location

A.Ramesh
Department of Management Studies
ramesh.anbanandam@gmail.com

Reference Books
Silver, Ed, David Pyke, and Rein Peterson, Inventory Management and
Production Planning and Scheduling, 3rd Edition, John Wiley & Sons, 1998.
Ballou, Ronald, Business Logistics: Supply Chain Management, 3rd edition,
Pearson Prentice Hall, 2003.
Cachon, Gerard and Christian Terwiesch, Matching Supply with Demand:
An Introduction to Operations Management, 3rd edition, McGraw-Hill,
2011.
Chopra, Sunil and Peter Meindl, Supply Chain Management, Strategy,
Planning, and Operation, 5th edition, Pearson Prentice Hall, 2013.
Daganzo, Carlos, Logistics Systems Analysis, 4th edition, Springer-Verlag,
2004.
Nahmias, Steven, Production and Operations Analysis, 5th edition,
McGraw-Hill, 2004.

Location Decisions are strategic

Liable to affect the entire organization

Operative over long time spans
Difficult to reverse
Capital intensive

Hierarchy of Location Problems

Location of plant
Plant layout (location of department)
Physical arrangements of machines
Work place layouts (location of tools or
raw materials.

 The term facility location emphasize the

generalized approach that handles the variety
of above mentioned problems.

Location Decisions are dynamic

Owing to changing technology, competition,
change of consumer taste, decisions are like
New plants
Expansion
Decentralization
Plant shut down
are constantly under review

Important factors for plant location

Market
Raw materials
Pure material
Weight losing material
Ubiquitous

Transportation
Power
Climate and fuel
Labor and wages
Laws and taxation
Community attitude
Water and waste
Govt. Incentives

Facility Location Methods

Break-even analysis
Varignons frame
Transportation method
Factor rating method- Multi objective
consideration in location decisions

Annual operating expenses

Consist of
Materials
Transportation
Real estate taxes
Fuel costs
Sundry state expenses
Electric power
water

Fixed and variable cost

Annual
Cost
70,000
60,000
50,000
40,000
30,000
20,000
10,00
0
1000 2000 3000 4000 5000 6000
Quantity

VARIGNONS FRAME FOR FL

Mechanical analogue for finding the best

location of a manufacturing plant
(Varignons frame)

 In the absence of friction common knot P of (m+n)

strings comes to equilibrium at least cost location
R1 ,R2are locations of raw materials
M1,M2 ..are location of raw materials
Euclidean (straight line travel)
There are m+n weights
W=(no. of annual trips between P and that point ) X
(cost per unit distance)

TRANSPORTATION METHOD
FOR FL

Multi Plant Operation

An example of plant addition
A

P2

P1

B
X
C
D

Z
Y

 Owing to increase of weekly demand to

72,000 there is a capacity deficit of 25,000 per
week and it is felt that a capacity 25,000 could
be set up X,Y or Z.

A
B
C
D
E
Capacity
Unit production
cost

P1

P2

Weekly
furcated
demand

0.42

0.32

0.64

0.48

0.46

10,000

Optimum
Production Distribution Solutions
P1

P2

10

10

15

16

16

Distribution Cost =

026,450

19

Production Cost =

192,500

Total Cost

218,950

19

27

10

12

20

25

72

Optimum
Production Distribution Solutions
P1

P2

10

10

15

15

16

Distribution Cost =

026,960

19

Production Cost =

193,750

Total Cost

220,710

19

27

10

12

20

25

72

Optimum
Production Distribution Solutions
P1

10

10

15

P2

15

10

16

Distribution Cost =

026,400

19

Production Cost =

192,000

12

12

Total Cost

218,400

25

72

12

27

20

Locational dynamics
Suppose the third plant is set up at site Z
After some time demand drops from 72,000 to
56,000 per week.
Which plant to shut down?
Which to run at partial capacity?
(these are again location decisions)

Alternatives for investigation

Run all plants at partial capacity

Shut down plant 1, use over time in others
Shut down plant 2, use over time in others
Shut down plant Z, use over time in others

Data
A

Warehouse demands

9000

13000

11000

15000

8000

Plant

P1

P2

Over time production

cost
O.T Capacity

3.37

3.33

3.27

7000

5000

6000

12,000

9,000

13,000

4,000

6,000

Fixed cost (per week)

-------While operating

--------While shut down 5,000

OPTION 1
Run all plants at partial capacity
P1

P2

13

13

11

11

15

11

36

20

25

72

14

27

OPTION 2
Shut down plant 1, use over time in others

P2

2
OT

Z
OT

11

13

27

25

11

15

56

OPTION 3
Shut down plant 2, use over time in others

P1

1
OT

Z
OT

11

13

27

25

11

15

56

OPTION 4
Shut down plant Z, use over time in
others

EVALUATION OF SHUTDOWN OPERATIONS

OPTION 1

OPTION 2

OPTION 3*

OPTION 4

Fixed cost

34000

27,000

29,000

27,000

Variable
cost(distribution
cost)

169650

177730

1731701

178400

Total Cost

203,650

204730

202150

205400

 Facility Locations Problem

Multi objective consideration in

location decisions
Factors affecting locations are
Subjective(labour attitudes) /objective (cost)
Intangible / tangible

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

Fuels in region
Power availability and reliability
Labor climate
Living conditions
Transportation
Water supply
Climate
Supplies
Tax policies and laws

Pt. Range

0 to 330
0 to 200
0 to 100
0 to 100
0 to 50
0 to 10
0 to 50
0 to 60
0 to 20

123
150
54
24
45
4
8
5
5

Total pts. 418

156
100
63
96
50
5
4
50
Best Site
Site
20 isBest
B

544

is B

Decision matrix approach

A decision matrix approach with proper
evaluation of weights of factors, normalization
of scores can help in ranking alternative
locations
This is demonstrated through a case study

Relevant Factors for Plant Location

A- Nearness to raw materials source

B- Availability and dependability of power
C- Transport facilities
D- Labor supply
E- Employee facilities
F- competition for the market
G- nearness to market
H- Govt incentives
I- cost of land

Decision matrix approach

E1 p1 j w j
j 1

E2 p2 j w j
j 1

Em pmj w j
j 1

Applying Pareto Principle

B
A A-2

A-1

A-3

A-3

F-1

A-2

A-2

A-3

B C-1

B-1

B-3

F-2

G-2

H-2

I-1

C C-1

C-3

F-2

G-1

H-1

C-1

D D-3

F-3

G-2

H-2

I-2

E F-3

G-3

H-3

I-3

F F-1

F-1

F-1

G H-2

I-1

Major difference

Medium difference

Minor difference

H H-2

Decision matrix approach

Notatio
n
A

Factor

Total Points

Nearness to raw materials

source
Availability and dependability
of power

16

Transport facilities

0.09

Labor supply

0.04

Employee facilities

0.00

competition for the market

14

0.20

nearness to market

0.11

Govt incentives

12

0.17

cost of land

0.10

Total

70

1.00

Weightage Factor

0.23
4
0.06

Decision matrix for alternatives

comp
Availabili
Empl etitio nearn
Nearness to
ty and
Labor
Govt cost
Transport
oyee n for ess to
raw materials dependab
suppl
incen of
facilities
facilit the mark
source
ility of
y
tives land
ies mark et
power
et
D

Total
Points

Alternative
Locations

0.23

0.06

0.09

Roorkee

90

80

100

50

100

50

70

60

90

73.4

Haridwar

80

100

80

70

100

60

60

70

60

70.9

Saharanpur

100

80

90

70

100

50

80

80

100

81.1

Dehradun

90

50

80

90

80

100

90

90

50 84.7***

Rishikesh

50

60

90

100

50

70

100 100

60

75.2

Rudrapur

55

65

50

60

100

80

50

50

70

60.45

Nainital

60

50

80

100

60

90

60

60

60

68.8

0.04 0.00 0.20 0.11 0.17 0.10

SINGLE FACILITY LOCATION

Problem statement
m existing facilities at locations P1(a1,b1), P2(a2,b2)Pm(am,bm)
New facilities is to be located at point X(x,y)
d(X,Pi) = appropriately defined distance between X and Pi
Euclidean , rectilinear, squared Euclidian

The objective is to determine the location x so as to minimize

transportation related costs n
wi d ( xi , pi )
i 1

Where wi weight associated with ith existing facility(product

of cost per distance & the expected no. of annual trips between
Xi and Pi

Commonly used distances

Rectilinear distance
When distance between two facilities is measured along path
that is orthogonal to each other, then that distance is termed as
rectilinear distance.
Suppose two facilities are located at points represented by
( X 1 , Y 1 ) and at ( X 2 , Y 2 ) , then the rectilinear distance
between the facilities will be :
|X1-X2|+|Y1-Y2|

Commonly used distances

Euclidean distance

When distance is measured along straight-line path between the two

facilities, then that distance is termed as Euclidean distance.
Suppose two facilities are located at points represented by ( X 1 , Y 1 ) and
at ( X 2 , Y 2), then the Euclidean distance between the facilities will be
{(X1-X2)2+(Y1-Y2)2}1/2

Commonly used distances

Squared Euclidean distance
(X1-X2)2+(Y1-Y2)2
Radiation related problems- Radiation loss is
proportional to square of the distance
Satellite location problem

Median Location method

-Rectilinear Distance

Example 1(rectilinear distance)

Median Location
A service facility to serve 5 offices located at
(0,0), (3,16),(18,2),(8,18) and (20,2) is to be
set up. The no. of cars transported per day
between the new facility and the offices are
equal to 5,22,41,60 & 34 respectively.
What location for the service facility will
minimize the distance cars are transported per
day?

Solution (x coordinate)
Existing
facility
1
2
4
3
5

x- coordinate
value
0
3
8
18
20

X*=8

Weight
5
22
60
41
34

Cumulative
weight
5
27 < 81
87 > 81
128
162

Solution (y coordinate)
Existing
facility

y- coordinate
value

Weight

Cumulative
weight

3,5

41+34

80 < 81

16

22

102 > 81

18

60

162

Y*=16

Centroid Method
Squared Euclidean
The centroid 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

Plant Location Methodology: Centroid

Method Formulas
C
Cxx ==

dd VV

VV
ix
ix

ii

ii

C
Cyy ==

dd VV

VV
iy
iy

ii

ii

Where:
Cx = X coordinate of centroid
Cy = Y coordinate of centroid
dix = X coordinate of the ith location
diy = Y coordinate of the ith location
Vi = volume of goods moved to or from ith
location

Example of Centroid Method

Centroid method example
Several automobile showrooms are located according to the
following grid which represents coordinate locations for each
showroom
S ho wro o m

Y
Q

No o f Z-Mo b ile s
s o ld p e r mo nth

(790,900)

1250

1900

2300

(250,580)

A
(100,200)
(0,0)

Question:
Question:What
Whatis
isthe
thebest
bestlocation
locationfor
foraanew
newZ-Mobile
Z-Mobile
warehouse/temporary
warehouse/temporarystorage
storagefacility
facilityconsidering
consideringonly
only
distances
distancesand
andquantities
quantitiessold
soldper
permonth?
month?

Example of Centroid Method (Continued):

Determining Existing Facility Coordinates
To
Tobegin,
begin,you
youmust
mustidentify
identifythe
the
existing
existingfacilities
facilitieson
onaatwotwodimensional
dimensionalplane
planeor
orgrid
gridand
and
determine
determinetheir
theircoordinates.
coordinates.

Y
Q
(790,900)

(250,580)

A
(100,200)
(0,0)

You
Youmust
mustalso
alsohave
havethe
the
volume
volumeinformation
informationon
onthe
the
business
businessactivity
activityat
atthe
the
existing
existingfacilities.
facilities.

S ho wro o m

No o f Z-Mo b ile s
s o ld p e r mo nth

1250

1900

2300

Plant Location Methodology: Example of Centroid Method

(Continued): Determining the Coordinates of the New
Facility
You
Youthen
thencompute
computethe
thenew
newcoordinates
coordinatesusing
usingthe
theformulas:
formulas:
100(1250) + 250(1900) + 790(2300)
2,417,000
CCx == 100(1250) + 250(1900) + 790(2300) == 2,417,000 == 443.49
443.49
x
1250
5,450
1250 ++ 1900
1900 ++ 2300
2300
5,450
200(1250) + 580(1900) + 900(2300)
3,422,000
CCy == 200(1250) + 580(1900) + 900(2300) == 3,422,000 == 627.89
627.89
y
1250
5,450
1250 ++ 1900
1900 ++ 2300
2300
5,450

You
Youthen
thentake
takethe
thecoordinates
coordinatesand
andplace
placethem
themon
onthe
themap:
map:
Y

New
New
location
location
of
offacility
facility
ZZabout
about
(443,627)
(443,627)

Q
(790,900)

(250,580)

ZZ

A
(100,200)
(0,0)

S ho wro o m

No o f Z-Mo b ile s
s o ld p e r mo nth

1250

1900

2300

Example 2
A service facility to serve 5 offices located at
(0,0), (3,16),(18,2),(8,18) and (20,2) is to be
set up. The no. of cars transported per day
between the new facility and the offices are
equal to 5,22,41,60 & 34 respectively.
What location for the service facility will
minimize the distance cars are transported per
day?

Example 2 (Squared Euclidean)

centroid location
w .a

x*
w
i

w .b

y*
w
i

w .b 0 x5 3x 22 18 x 41 8 x60 20 x34

x*

12.12
162
w
i

w .b 0 x5 16 x 22 2 x 41 18 x60 2 x34

y*

9.77
162
w
i