OPERATIONS MANAGEMENT: Creating Value Along the Supply Chain, Canadian Edition Robert S. Russell, Bernard W. Taylor III, Ignacio Castillo, Navneet Vidyarthi CHAPTER 7 Supplement Facility Location Models

Copyright 2014 John Wiley & Sons, Inc. Learning Objectives Explain the major categories of facilities and the factors important in facility location. Explain the general considerations of the facility site selection process for services and manufacturing facilities. Discuss the factors a company should consider when selecting facility site and explain how geographic information systems (GIS) can be used as a site selection tool. Use three quantitative tools for facility site selection. Copyright 2014 John Wiley & Sons, Inc.

Copyright 2014 John Wiley & Sons Canada, Ltd. Lecture Outline Types of Facilities Site Selection: Where to Locate Site Selection: Factors to Consider Location Analysis Techniques Copyright 2014 John Wiley & Sons Canada, Ltd.

Copyright 2014 John Wiley & Sons Canada, Ltd. 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 Retail and service facilities smallest and least costly Copyright 2014 John Wiley & Sons Canada, Ltd.

Factors in Heavy Manufacturing Location Construction costs Land costs Raw material & finished goods shipment modes Proximity to raw materials Utilities Means of waste disposal Labour availability Copyright 2014 John Wiley & Sons Canada, Ltd.

Factors in Light Industry Location Land costs Transportation costs Proximity to markets depending on delivery requirements including frequency of delivery required by customer Copyright 2014 John Wiley & Sons Canada, Ltd.

Factors in Retail Location Proximity to customers Location is everything Copyright 2014 John Wiley & Sons Canada, Ltd.

Site Selection: Where to Locate Infrequent but important being “in the right place at the right time” Must consider other factors, especially financial considerations Location decisions made more often for service operations than manufacturing facilities Location criteria for service access to customers Location criteria for manufacturing facility nature of labor force labour costs proximity to suppliers and markets distribution and transportation costs energy availability and cost community infrastructure quality of life in community government regulations and taxes Copyright 2014 John Wiley & Sons Canada, Ltd.

Global Supply Chain Factors Government stability Government regulations Political & economic systems Economic stability & growth Exchange rates Culture Export/import regulations, duties & tariffs Raw material availability Climate Number & proximity of suppliers Transportation & distribution system Labour cost & education Available technology Commercial travel Technical expertise Cross-border trade regulations Group trade agreements Copyright 2014 John Wiley & Sons Canada, Ltd.

Regional and Community Location Factors in Canada Labour (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) Copyright 2014 John Wiley & Sons Canada, Ltd.

Regional and Community Location Factors in Canada Business climate Community services Incentive packages Government regulations Environmental regs. Raw material availability Commercial travel Climate Infrastructure (road & utilities) Quality of life Taxes Availability of sites Financial services Community inducements Proximity of suppliers Education system Copyright 2014 John Wiley & Sons Canada, Ltd.

Copyright 2014 John Wiley & Sons Canada, Ltd. Location Incentives Tax credits Relaxed government regulation Job training Infrastructure improvement Money Copyright 2014 John Wiley & Sons Canada, Ltd.

Geographic Information Systems (GIS) Computerized system for storing, managing, creating, analyzing, integrating, and digitally displaying geographic, i.e., spatial, data Specifically used for site selection Enables users to integrate large quantities of information about potential sites and analyze these data with many different, powerful analytical tools Copyright 2014 John Wiley & Sons Canada, Ltd.

Copyright 2014 John Wiley & Sons Canada, Ltd. GIS Diagram Copyright 2014 John Wiley & Sons Canada, Ltd.

Location Analysis Techniques Location factor rating Centre-of-gravity Load-distance Copyright 2014 John Wiley & Sons Canada, Ltd.

Location Factor Rating Identify important factors Weight factors (0.00 - 1.00) Subjectively score each factor (0 - 100) Sum weighted scores Copyright 2014 John Wiley & Sons Canada, Ltd.

Location Factor Rating Labor pool and climate Proximity to suppliers Wage rates Community environment Proximity to customers Shipping modes Air service LOCATION FACTOR .30 .20 .15 .10 .05 WEIGHT 80 100 60 75 65 85 50 Site 1 91 95 90 92 Site 2 72 Site 3 SCORES (0 TO 100) Weighted Score for “Labor pool and climate” for Site 1 = (0.30)(80) = 24 Copyright 2014 John Wiley & Sons Canada, Ltd.

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 4.60 3.25 80.80 Site 2 27.00 15.00 10.80 9.50 4.50 82.05 Site 3 WEIGHTED SCORES Site 3 has the highest factor rating Copyright 2014 John Wiley & Sons Canada, Ltd.

Location Factor Rating With Excel Copyright 2014 John Wiley & Sons Canada, Ltd.

Location Factor Rating With OM Tools Copyright 2014 John Wiley & Sons Canada, Ltd.

Centre-of-Gravity Technique Locate facility at centre of movement in geographic area Based on weight and distance traveled; establishes grid-map of area Identify coordinates and weights shipped for each location Copyright 2014 John Wiley & Sons Canada, Ltd.

Copyright 2014 John Wiley & Sons Canada, Ltd. Grid-Map Coordinates where, x, y = coordinates of new facility at centre of gravity xi, yi = coordinates of existing facility i Wi = annual weight shipped from facility i  n Wi i = 1 xiWi x = yiWi y = x1 x2 x3 x y2 y y1 y3 1 (x1, y1), W1 2 (x2, y2), W2 3 (x3, y3), W3 Copyright 2014 John Wiley & Sons Canada, Ltd.

Centre-of-Gravity Technique A B C D x 200 100 250 500 y 200 500 600 300 W 75 105 135 60 y 700 500 600 400 300 200 100 x A B C D (135) (105) (75) (60) Miles Copyright 2014 John Wiley & Sons Canada, Ltd.

Centre-of-Gravity Technique x = = = 238 n  Wi i = 1 xiWi yiWi y = = = 444 (200)(75) + (500)(105) + (600)(135) + (300)(60) 75 + 105 + 135 + 60 (200)(75) + (100)(105) + (250)(135) + (500)(60) Copyright 2014 John Wiley & Sons Canada, Ltd.

Centre-of-Gravity Technique A B C D x 200 100 250 500 y 200 500 600 300 W 75 105 135 60 y 700 500 600 400 300 200 100 x A B C D (135) (105) (75) (60) Miles Centre of gravity (238, 444) Copyright 2014 John Wiley & Sons Canada, Ltd.

Centre-of-Gravity With Excel Formula for x coordinate Copyright 2014 John Wiley & Sons Canada, Ltd.

Centre-of-Gravity With OM Tools Copyright 2014 John Wiley & Sons Canada, Ltd.

Load-Distance Technique Compute (Load x Distance) for each site Choose site with lowest (Load x Distance) Distance can be actual or straight-line Copyright 2014 John Wiley & Sons Canada, Ltd.

Load-Distance Calculations  li di i = 1 n LD = LD = load-distance value li = load expressed as a weight, number of trips or units being shipped from proposed site and location i di = distance between proposed site and location i di = (xi - x)2 + (yi - y)2 (x,y) = coordinates of proposed site (xi , yi) = coordinates of existing facility where, Copyright 2014 John Wiley & Sons Canada, Ltd.

Copyright 2014 John Wiley & Sons Canada, Ltd. Load-Distance 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 dA = (xA - x1)2 + (yA - y1)2 Site 1 = 161.2 = (100-360)2 + (500-180)2 dB = (xB - x1)2 + (yB - y1)2 = 412.3 dC = 434.2 dD = 184.4 Copyright 2014 John Wiley & Sons Canada, Ltd.

Copyright 2014 John Wiley & Sons Canada, Ltd. Load-Distance Site 2 dA = 333 dC = 226.7 dB = 323.9 dD = 170 Site 3 dA = 206.2 dC = 200 dB = 180.3 dD = 269.3 Compute load-distance i = 1 n  li di 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) = 99,789 Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555* * Choose site 3 Copyright 2014 John Wiley & Sons Canada, Ltd.

Load-Distance With Excel =B7*C11+C7*C12+D7*C13+E7*C14 Copyright 2014 John Wiley & Sons Canada, Ltd.

Load-Distance With OM Tools Copyright 2014 John Wiley & Sons Canada, Ltd.

Copyright 2014 John Wiley & Sons Canada, Ltd. Copyright © 2014 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (The Canadian Copyright Licensing Agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein. Copyright 2014 John Wiley & Sons Canada, Ltd.