1 Chapter 11TN Facility Location  Issues in Facility Location  Various Plant Location Methods

2 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.

3 Issues in Facility Location  Proximity to Customers  Business Climate  Total Costs  Infrastructure  Quality of Labor  Suppliers  Other Facilities Free Trade Zones Political Risk Government Barriers Trading Blocs Environmental Regulation Host Community Competitive Advantage

4 Location Decisions  Long-term decisions  Difficult to reverse  Affect fixed & variable costs  Objective: Maximize benefit of location to firm

5 Factors Affecting Country © 1995 Corel Corp.

6 Factors Affecting Region/Community © 1995 Corel Corp.

7 Factors Affecting Site © 1995 Corel Corp.

8  Cost focus  Location is a major cost factor Industrial Location Strategies © 1995 Corel Corp.

9 Service Location Strategies  Revenue focus  Location is a major revenue factor © 1995 Corel Corp.

10 Factor Rating Method  Most widely used location technique  Useful for service & industrial locations  Rates locations using factors

11 Weighted Factor Rating Method Steps  List relevant factors  Assign importance weight to each factor (0- 1 with all weights adding to 1)  Give a score to each location by factor (1-10, etc.)  Multiply scores by weights for each factor & total  Select location with maximum total score

12 Factor Rating Method Example You’re an analyst for John Deere. You’re considering locating a new mfg. plant in Omaha (NE) or Denver (CO). Factor Wgt NE CO Mfg. costs.786 Cost of living.17 6 Labor avail Where should you locate? © 1995 Corel Corp.

13 Factor Rating Method Solution Omaha is best

14 Factor Rating Method Thinking Challenge You’re owner of a hot tub store. You’re considering relocating to Phoenix (AZ) or Santa Fe (NM). Factor Wgt AZ NM Population.4105 Competition.13 8 Life style.52 9 Where should you locate? © 1995 Corel Corp.

15 Solution PhoenixSanta Fe Factor WeightScoreWeighted Factor Score Weighted Factor Population Compensation Life Style Which location is best: _________________

16 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.

17 Plant Location Methodology: Center of Gravity Method (Centroid)  The center of gravity 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.

18 Plant Location Methodology: Center of Gravity Method Formulas C x = X coordinate of center of gravity C y = X coordinate of center of gravity d ix = X coordinate of the ith location d iy = Y coordinate of the ith location V i = volume of goods moved to or from ith location

19 Plant Location Methodology: Example of Center of Gravity Method Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month?  Center of gravity method example –Several automobile showrooms are located according to the following grid which represents coordinate locations for each showroom. ShowroomNo of Z-Mobiles sold per month A1250 D1900 Q2300 X Y A (100,200) D (250,580) Q (790,900) (0,0)

20 Plant Location Methodology: Example of Center of Gravity Method: Determining the Coordinates of the New Facility X Y A (100,200) D (250,580) Q (790,900) (0,0) You then compute the new coordinates using the formulas:

21 Thinking Challenge You’re a planner for Sears. You want to find the best location of a warehouse serving retail stores in: Seattle (50, 60) Aberdeen (20, 35) Spokane (160, 50) Monthly demand is: Seattle 494k units Aberdeen 18k units Spokane 171k units respectively. © 1995 Corel Corp.

22 Solution: Center of Gravity Method Grid  Calculate Cx and Cy.