1. 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

2. 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.

3. 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
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4. 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.

5. 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.

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

8. 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.

9. 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.

10. 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.

11. 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
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12. Copyright 2014 John Wiley & Sons Canada, Ltd.
Location Incentives
Tax credits
Relaxed government regulation
Job training
Infrastructure improvement
Money
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13. 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.

14. Copyright 2014 John Wiley & Sons Canada, Ltd.
GIS Diagram
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15. Location Analysis Techniques
Location factor rating
Centre-of-gravity
Load-distance
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16. Location Factor Rating
Identify important factors
Weight factors ( )
Subjectively score each factor ( )
Sum weighted scores
Copyright 2014 John Wiley & Sons Canada, Ltd.

17. 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.

18. 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
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19. Location Factor Rating With Excel
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20. Location Factor Rating With OM Tools
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21. 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
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22. 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.

23. Centre-of-Gravity Technique
A B C D x y W 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.

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

25. Centre-of-Gravity Technique
A B C D x y W y
700
500
600
400
300
200
100 x A B C D
(135)
(105)
(75)
(60)
Miles
Centre of gravity (238, 444)
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26. Centre-of-Gravity With Excel
Formula for x coordinate
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27. Centre-of-Gravity With OM Tools
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28. 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.

29. 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,
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30. Copyright 2014 John Wiley & Sons Canada, Ltd.
Load-Distance
Potential Sites
Site X Y
Suppliers
A B C D X Y Wt
Compute distance from each site to each supplier
= ( )2 + ( )2
dA = (xA - x1)2 + (yA - y1)2
Site 1
= 161.2
= ( )2 + ( )2
dB = (xB - x1)2 + (yB - y1)2
= 412.3
dC = 434.2
dD = 184.4
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31. 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.

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

34. 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.