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Technical Note 11

Facility Location

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OBJECTIVES
 Issues in Facility Location

 Various Plant Location Methods

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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

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Issues in Facility Location

 Proximity to Customers
 Business Climate
 Total Costs
 Infrastructure
 Quality of Labor
 Suppliers
 Other Facilities

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Issues in Facility Location

 Free Trade Zones
 Political Risk
 Government Barriers
 Trading Blocs
 Environmental Regulation
 Host Community
 Competitive Advantage

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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 Pt. Range A B
Fuels in region 0 to 330 123 156
Power availability and reliability 0 to 200 150 100
Labor climate 0 to 100 54 63
Living conditions 0 to 100 24 96
Transportation 0 to 50 45 50
Water supply 0 to 10 4 5
Climate 0 to 50 8 4
Supplies 0 to 60 5 50
Best Site
Tax policies and laws 0 to 20 5 20 isBest
B
Site
is B
Total pts. 418 544
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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

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Plant Location Methodology:

Centroid Method
 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
 This methodology involves formulas
used to compute the coordinates of the
two-dimensional point that meets the
distance and volume criteria stated
above

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Plant Location Methodology:

Centroid Method Formulas

C

dd VV
ix ii 
dd VV iy ii
Cxx == ix
C
Cyy ==
iy

VV ii 
VV ii

Where:
Cx = X coordinate of centroid
Cy = X 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
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Plant Location Methodology:

Example of Centroid Method
 Centroid method example
– Several automobile showrooms are located
according to the following grid which represents
coordinate locations for each showroom
Y S ho wro o m No o f Z-Mo b ile s
Q s o ld p e r mo nth
(790,900)

D A 1250
(250,580)

D 1900
A
(100,200)
Q 2300
(0,0) X

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?
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Plant Location Methodology: Example of Centroid

Method (Continued): Determining Existing Facility
Coordinates
Y
To
Tobegin,
begin,you
youmust
mustidentify
identifythe
the Q
existing
existingfacilities
facilitieson
onaatwo-
two- (790,900)

dimensional
dimensionalplane
planeor
orgrid
gridand
and D
(250,580)
determine
determinetheir
theircoordinates.
coordinates.
A
(100,200)

(0,0) X

S ho wro o m No o f Z-Mo b ile s

You
Youmust
mustalso
alsohave
havethethe s o ld p e r mo nth
volume
volumeinformation
informationon onthe
the
business A 1250
businessactivity
activityatatthe
the
existing
existingfacilities.
facilities. D 1900

Q 2300
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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
1250 ++ 1900
1900 ++ 2300
2300 5,450
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
1250 ++ 1900
1900 ++ 2300
2300 5,450
5,450

You
Youthen
thentake
takethe
thecoordinates
coordinatesand
andplace
placethem
themon
onthe
themap:
map:
Y
S ho wro o m No o f Z-Mo b ile s
Q New
New s o ld p e r mo nth
(790,900)
location
location
ZZ
D
(250,580) of
offacility
facility A 1250
ZZabout
about
A D 1900
(100,200) (443,627)
(443,627)
(0,0) X Q 2300
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Question Bowl
Criteria that influences
manufacturing plant and
warehouse location planning can
include which of the following?
a. Proximity to customers
b. Business climate
c. Infrastructure
d. Quality of labor
e. All of the above

Answer: e. All of the above

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Question Bowl
Criteria that influences
manufacturing plant and
warehouse location planning can
include which of the following?
a. Political risk
b. Government barriers
c. Environmental regulation
d. All of the above
e. None of the above
Answer: d. All of the above
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Question Bowl
Which of the following are plant
location methods?
a. Transportation method of linear
programming
b. Factor-rating systems
c. Centroid method
d. All of the above
e. None of the above

Answer: d. All of the above

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Question Bowl
Which of the following methods of plant
location analysis considers the existing
facilities, the distances between them,
and the volumes of goods to be
shipped?
a. Transportation method of linear
programming
b. Factor-rating systems
c. Centroid method
d. All of the above
e. None of the above

Answer: c. Centroid method

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Question Bowl
Which of the following methods of plant
location analysis is the most widely
used general location technique
because it combines diverse factors
in an easy-to-understand format?
a. Transportation method of linear
programming
b. Factor-rating systems
c. Centroid method
d. All of the above
e. None of the above

Answer: b. Factor-rating systems

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Question Bowl
The location decision for service
facilities is closely tied to which of
the following?
a. Market selection decision
b. Material costs
c. Nearness to distributors
d. Nearness to high-skilled labor
e. None of the above

Answer: a. Market selection decision

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End of Technical
Note 11

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