Facility Location COB 300C – Fall 2002

Facility Location 4 Facility Location is the placement of facility with respect to customers, suppliers and other interacting facilities. It should consider: –Operating costs –Customer convenience –Transportation costs –Access to key related services such as banking and educational opportunities –Strategic factors

Location as a Strategic Decision 1. Long-term commitment 2. Linked to customer base 3. Regional facility supplies specific area 4. Product facility supplies globally 5. Combination of regional and product facilities Regional or Global

Factors Affecting the Location Decision 4 Strategic nature of decision 4 Quantitative factors 4 Government incentives 4 Qualitative factors

Including the Qualitative Factors 4 Integrate qualitative factors –Determine which factors are relevant to the problem –Weigh each factor –Rate each site for each factor

Examples of Indianapolis and Lexington (Slide 1 of 2) Indianapolis Lexington Weight Raw Score Raw Score Recreational activities University research facilities Union activities Banking services Available labor pool

Examples of Indianapolis and Lexington (Slide 2 of 2) Indianapolis Lexington Weighted score Weighted score Recreational activities University research facilities Union activities Banking services Available labor pool Total 1,620 1,520

Analyzing Spatial Relationships l Load-Distance Method measures proximity to customers, suppliers, interacting facilities l Transportation Problem relates to the cost of transporting materials to and from multiple facilities

Distance from Facility to Customer

Health Care Unit Location Problem

Locating a Health Care Center Using the “Load-Distance Method” (Slide 1 of 3) Population coordinates Code a i x i y i (a i )(x i ) (a i )(y i ) , ,000 60, , , , , ,500 60, , ,000 56, , ,000 90, , ,000 84, , ,000 75,000 Total 128, , ,500 Zip

Locating a Health Care Center Using the “Load-Distance Method” (Slide 2 of 3) where xf = Distance along the x axis from the origin to the center of gravity yf = Distance along the y axis from the origin to the center of gravity a i = The activity level (load) from the i th location to the proposed facility X i = the coordinate on the x axis for the i th customer location y i = the coordinate on the y axis for the i th customer location

Locating a Health Care Center Using the “Load-Distance Method” (Slide 3 of 3) The coordinates of the center of gravity are: xf = yf = 414, , , ,000 = 3.24 = 4.11

Transportation Problem 4 Cost of moving materials between multiple destinations 4 Vogel’s Approximation Method 4 To evaluate two locations, solve the transportation problem for each location OR

Transportation Example 4 New facility capacity = 5000 units/month 4 We must choose either Des Moines, Iowa or Montgomery, Alabama 4 Transportation costs per unit for Des Moines and Montgomery to each customer location are provided 4 We are interested in total transportation cost for Des Moines versus Montgomery

Transportation Example (cont’d) 4 Supply Lexington - 12,420 Milan - 9,380 DesMoines - 5,000 (proposed) or Montgomery - 5,000 (proposed)

Transportation Example (cont’d) 4 Demand Baton Rouge - 6,740 Bismarck - 8,400 Tampa - 5,050 Youngstown - 5,670

Total Transportation Cost for Des Moines 6740($14)+4740($16)+940($0)+3400($15)+ 310($17)+5670($9)+5000($11) = $332,500

For Next Class Figure Transportation Cost for Montgomery 4 Which is best choice based on Vogel’s Approximation? 4 Are there other factors to consider? 4 Montgomery’s Transportation Costs: –Montgomery to Baton Rouge: $9 per unit –Montgomery to Bismarck: $19 per unit –Montgomery to Tampa: $12 per unit –Montgomery to Youngstown $15 per unit

Location Example - Load Distance 4 Location of a warehouse in Germany 4 Method: Load-Distance Method (a.k.a.: center-of-gravity method) 4 Customer locations (coordinates) and demands in units per year are given

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Location? 4 Central Germany

Other Factors to Consider? 4 operating costs 4 required investment 4 government incentives 4 qualitative factors 4 overall strategy of organization

Location Decision Affects Other Operating Decisions 4 Alternative to on-site expansion 4 On-site expansion is problematic –Material handling and storage –Complex production flow –Strained communication –New technology delayed –Use of old equipment –Layering of expanded responsibilities

International Dimensions of Location Decision 4 Reasons for locating in foreign countries –Comparative Advantage –Closeness to market –Political relationships –Availability of resources

Location Analysis for Service Operations l Concepts and techniques discussed so far apply to service operations l Service issues : »Minimize response time: Emergency medical services »Provide minimum coverage: Fire Protection »Mobile location: Police or security units