Chapter 7 Supplement Facility Location Models

Lecture Outline Types of Facilities Site Selection: Where to Locate Global Supply Chain Factors Location Analysis Techniques Copyright 2011 John Wiley & Sons, Inc.Supplement 7-2

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 2011 John Wiley & Sons, Inc.Supplement 7-3

Factors in Heavy Manufacturing Location Copyright 2011 John Wiley & Sons, Inc.Supplement 7-4 Construction costs Land costs Raw material & finished goods shipment modes Proximity to raw materials Utilities Means of waste disposal Labor availability

Factors in Light Industry Location Land costs Transportation costs Proximity to markets depending on delivery requirements including frequency of delivery required by customer Copyright 2011 John Wiley & Sons, Inc.Supplement 7-5

Factors in Retail Location Copyright 2011 John Wiley & Sons, Inc.Supplement 7-6 Proximity to customers Location is everything

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 labor 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 2011 John Wiley & Sons, Inc.Supplement 7-7

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 Labor cost & education Available technology Commercial travel Technical expertise Cross-border trade regulations Group trade agreements Copyright 2011 John Wiley & Sons, Inc.Supplement 7-8

Regional and Community Location Factors in U.S. 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) Copyright 2011 John Wiley & Sons, Inc.Supplement 7-9

Regional and Community Location Factors in U.S. 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 2011 John Wiley & Sons, Inc.Supplement 7-10

Location Incentives Copyright 2011 John Wiley & Sons, Inc.Supplement 7-11 Tax credits Relaxed government regulation Job training Infrastructure improvement Money

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 2011 John Wiley & Sons, Inc.Supplement 7-12

GIS Diagram Copyright 2011 John Wiley & Sons, Inc.Supplement 7-13

Location Analysis Techniques Copyright 2011 John Wiley & Sons, Inc.Supplement 7-14 Location factor rating Center-of-gravity Load-distance

Location Factor Rating Copyright 2011 John Wiley & Sons, Inc.Supplement 7-15 Identify important factors Weight factors ( ) Subjectively score each factor ( ) Sum weighted scores

Location Factor Rating Copyright 2011 John Wiley & Sons, Inc.Supplement 7-16 Labor pool and climate Proximity to suppliers Wage rates Community environment Proximity to customers Shipping modes Air service LOCATION FACTOR WEIGHT Site Site Site 3 SCORES (0 TO 100) Weighted Score for Labor pool and climate for Site 1 = (0.30)(80) = 24

Location Factor Rating Copyright 2011 John Wiley & Sons, Inc.Supplement Site Site Site 3 WEIGHTED SCORES Site 3 has the highest factor rating

Location Factor Rating With Excel Supplement 7-18 Copyright 2011 John Wiley & Sons, Inc.

Location Factor Rating With OM Tools Copyright 2011 John Wiley & Sons, Inc.Supplement 7-19

Center-of-Gravity Technique Copyright 2011 John Wiley & Sons, Inc.Supplement 7-20 Locate facility at center of movement in geographic area Based on weight and distance traveled; establishes grid-map of area Identify coordinates and weights shipped for each location

Grid-Map Coordinates Copyright 2011 John Wiley & Sons, Inc.Supplement 7-21 where, x, y =coordinates of new facility at center of gravity x i, y i =coordinates of existing facility i W i =annual weight shipped from facility i n WiWi i = 1 xiWixiWi i = 1 n x = n WiWi i = 1 yiWiyiWi i = 1 n y = x1x1 x2x2 x3x3 x y2y2 y y1y1 y3y3 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 Copyright 2011 John Wiley & Sons, Inc.Supplement 7-22 ABCD x y W y x A B C D (135) (105) (75) (60) Miles

Center-of-Gravity Technique Copyright 2011 John Wiley & Sons, Inc.Supplement 7-23 x = = = 238 n WiWi i = 1 xiWixiWi i = 1 n n WiWi i = 1 yiWiyiWi i = 1 n y = = = 444 (200)(75) + (500)(105) + (600)(135) + (300)(60) (200)(75) + (100)(105) + (250)(135) + (500)(60)

Center-of-Gravity Technique Copyright 2011 John Wiley & Sons, Inc.Supplement 7-24 ABCD x y W y x A B C D (135) (105) (75) (60) Miles Center of gravity (238, 444)

Center-of-Gravity With Excel Supplement 7-25 Copyright 2011 John Wiley & Sons, Inc. Formula for x coordinate

Center-of-Gravity With OM Tools Supplement 7-26 Copyright 2011 John Wiley & Sons, Inc.

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 2011 John Wiley & Sons, Inc.Supplement 7-27

Load-Distance Calculations Copyright 2011 John Wiley & Sons, Inc.Supplement 7-28 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 location i d i = distance between proposed site and location i d i = (x i - x) 2 + (y i - y) 2 (x,y) = coordinates of proposed site (x i, y i ) = coordinates of existing facility where,

Load-Distance Copyright 2011 John Wiley & Sons, Inc.Supplement 7-29 Potential Sites SiteXY Suppliers ABCD X Y Wt Compute distance from each site to each supplier = ( ) 2 + ( ) 2 d A = (x A - x 1 ) 2 + (y A - y 1 ) 2 Site 1 = = ( ) 2 + ( ) 2 d B = (x B - x 1 ) 2 + (y B - y 1 ) 2 = d C = 434.2d D = 184.4

Load-Distance Copyright 2011 John Wiley & Sons, Inc.Supplement 7-30 Site 2d A = 333d C = 226.7d B = 323.9d D = 170 Site 3d A = 206.2d C = 200d B = 180.3d D = 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) = 99,789 Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555* * Choose site 3

Load-Distance With Excel Supplement 7-31 Copyright 2011 John Wiley & Sons, Inc. =B7*C11+C7*C12+D7*C13+E7*C14

Load-Distance With OM Tools Supplement 7-32 Copyright 2011 John Wiley & Sons, Inc.

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