ISEN 601 Location Logistics Dr. Gary M. Gaukler Fall 2011

Facility Location and SCM Goal of supply chain management: Produce and distribute the right quantities to the right locations at the right time while minimizing system wide costs and satisfying customer service level requirements

Facility Location and SCM SCM encompasses: –Financial transactions –Physical storage & transportation –Information management Supply chain flows: We are mostly concerned with the physical flows in this course

Facility Location and SCM Generic sample supply chain:

Facility Location and SCM In this course: Facility location = Location of distribution facilities e.g.: where to place a new DC in continental US? Hence we will talk about demand at a facility, and the facility’s distance to the customer etc.

Facility Location and SCM Facility Location plays an important role in designing the supply chain: –Where to place plants, warehouses, etc. Supply chain designs change: –New markets –Changes in customer demand –New technologies  Facility location is an important and recurring activity!

ProLogis: Industrial Real Estate

Aside: ProLogis

Facility Location What metrics do we use? How do we decide whether one location is better than another? HardSoft

Facility Location In our mathematical analyses, we will disregard the soft factors –Use soft factors ahead of time to pare down the candidate set, or –Use soft factors to decide among multiple solutions It’s important to understand that our mathematical methods are just one tool that should be used to do facility location –Our methods do not provide the answer Examples: –Google server farm location –Toyota truck assembly plant location

Facility Location So why bother with quantitative models at all?

Facility Location - Tradeoffs Number of facilities vs. response time

Facility Location - Tradeoffs Number of facilities vs. inventory cost

Facility Location - Tradeoffs Number of facilities vs. transportation cost

Setup of a Facility Location Problem Locate new facilities Considering: –Interaction with existing facilities –Customer demands –Customer locations –Potential locations of new facilities –Capacity considerations Focus on “where to put the new facility”

Classes of Facility Location Problems Continuous Location Models –Customers anywhere on plane –New facilities anywhere on plane –Demand point = aggregated area demand –Distance calculations important Euclidean distance Rectilinear distance –In general, “quick and dirty” models

Classes of Facility Location Problems Continuous Location Models –Single Facility Minisum Minimize sum of weighted distances from NF to customers –Single Facility Minimax Minimize maximum weighted distance from NF to customers

Classes of Facility Location Problems Continuous Location Models –Multi-facility Minisum Like SFMS, but place more than one NF –Location-Allocation Like MFMS, but also determine optimal interaction between NFs

Classes of Facility Location Problems Network Location Models –Customers are on network nodes –NFs located on network nodes –Distances implicitly given by network –Network = tree or general network –Types of models: Covering (“each customer is within 2 hours of a warehouse”) Center (~ minimax principle) Median (~ minisum principle)

Classes of Facility Location Problems Discrete Location Models –Uncapacitated / capacitated warehouse location models –Candidate NF locations –Facilities can split demand –Cost of opening warehouse vs. service coverage

Single Facility Minisum Ex: locating a machine in a shop, locating a warehouse in a sales region Objective: minimize total cost –Total cost depends on location of NF Notation: –m existing facilities, with facility j located at P j = (a j, b j ) –X location of NF, X = (x,y)

Single Facility Minisum Notation: –t j = number trips per month between j and NF –v j = avg velocity between j and NF –c j = cost of transportation per unit time –d(X,P j ) = distance between j and NF So, monthly cost of moving material between j and NF is:

Single Facility Minisum Define: –Weight w j = cost of interaction per unit distance So, total cost is: Goal: