1. Facility Location Models

2. Location Strategy One of the most important decisions a firm makes
Increasingly global in nature
Long term impact and decisions are difficult to change
The objective is to maximize the benefit of location to the firm

3. Location Decisions Long-term decisions Decisions made infrequently
Decision greatly affects both fixed and variable costs
Once committed to a location, many resource and cost issues are difficult to change

4. Critical Success Factors
Location Decisions
Country Decision
Critical Success Factors
Political risks, government rules, attitudes, incentives
Cultural and economic issues
Location of markets
Labor availability, attitudes, productivity, costs
Availability of supplies, communications, energy
Exchange rates and currency risks

5. Region/ Community Decision Critical Success Factors
Location Decisions
Region/ Community Decision
Critical Success Factors
Corporate desires
Attractiveness of region
Labor availability, costs, attitudes towards unions
Costs and availability of utilities
Environmental regulations
Government incentives and fiscal policies
Proximity to raw materials and customers
Land/construction costs MN WI MI IL IN OH

6. Critical Success Factors
Location Decisions
Site Decision
Critical Success Factors
Site size and cost
Air, rail, highway, and waterway systems
Zoning restrictions
Nearness of services/ supplies needed
Environmental impact issues

7. Factors That Affect Location Decisions
Labor productivity
Wage rates are not the only cost
Lower productivity may increase total cost
Labor cost per day
Productivity (units per day)
= cost per unit A
= $1.17 per unit
$70
60 units Z
= $1.25 per unit
$25
20 units

8. Factors That Affect Location Decisions
Exchange rates and currency risks
Can have a significant impact on cost structure
Rates change over time
Costs
Tangible - easily measured costs such as utilities, labor, materials, taxes
Intangible - less easy to quantify and include education, public transportation, community, quality-of-life

9. Factors That Affect Location Decisions
Attitudes
National, state, local governments toward private and intellectual property, zoning, pollution, employment stability
Worker attitudes towards turnover, unions, absenteeism
Globally cultures have different attitudes towards punctuality, legal, and ethical issues

10. Factors That Affect Location Decisions
Proximity to markets
Very important to services
JIT systems or high transportation costs may make it important to manufacturers
Proximity to suppliers
Perishable goods, high transportation costs, bulky products

11. Types Of Facilities Heavy manufacturing Light industry
Auto plants, steel mills, chemical plants
Light industry
Small components mfg, assembly
Warehouse & distribution centers
Retail & service

12. Factors in Heavy Manufacturing Location
Construction costs
Land costs
Raw material and finished goods shipment modes
Proximity to raw materials
Utilities
Labor availability

13. Factors in Light Industry Location
Construction costs
Land costs
Easily accessible geographic region
Education & training capabilities

14. Factors in Warehouse Location
Transportation costs
Proximity to markets

15. ปัจจัยในการเลือกทำเลที่ตั้งคลังสินค้า
สุทิศา สรรพกิจไพศาล, 2550
1. การขนส่งทางบก
2. การขนส่งทางรถไฟ
3. อยู่ใกล้กับลูกค้า
4. อยู่ใกล้แหล่งวัตถุดิบ / โรงงานผลิต
5. สาธารณูปโภค
6. การระบายน้ำ
7. การถ่ายเทของเสีย / การจัดการของเสีย

16. ปัจจัยในการเลือกทำเลที่ตั้งคลังสินค้า
สุทิศา สรรพกิจไพศาล, 2550
8. การเป็นเจ้าของที่ดิน
9. แรงจูงใจจากคลังสินค้าที่ตั้งอยู่ก่อน
10. แรงงานและค่าจ้าง
11. อัตราผลตอบแทนจากการลงทุน
12. ระยะเวลาคืนทุน
13. มูลค่าเงินปัจจุบันสุทธิ
14. การวิเคราะห์ระยะทางกับภาระงาน (Load distance analysis)

17. Location Analysis Techniques
Location rating factor
Center-of-gravity
Load-distance
Break Even
LP and Non-LP

18. Location Rating Factor
Identify important factors
Weight factors ( )
Subjectively score each factor ( )
Sum weighted scores

19. 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 Site 1 = (0.30)(80) = 24

20. 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)
24.00
20.00
9.00
11.25
6.50
4.25
2.50
77.50
19.50
18.20
14.25
12.00
4.60
3.25
80.80
27.00
15.00
10.80
9.50
4.50
82.05
WEIGHTED SCORES
Weighted Score Site 1 = (0.30)(80) = 24

21. Center-of-Gravity Technique
Locate facility at center of geographic area
Based on weight and distance traveled
Establish grid-map of area
Identify coordinates and weights shipped for each location

22. Grid-Map Coordinates  x1 x2 x3 x y2 y y1 y3 1 (x1, y1), W1Wi
i = 1
xiWi
x =
yiWi
y =
where,
x, y = coordinates of the new facility at center of gravity
xi, yi = coordinates of existing facility i
Wi = annual weight shipped from facility i

23. Center-of-Gravity Technique
700
500
600
400
300
200
100 x A B C D
(135)
(105)
(75)
(60)
Miles
A B C D x y Wt

24. Center-of-Gravity Technique
700
500
600
400
300
200
100 x A B C D
(135)
(105)
(75)
(60)
Miles
A B C D x y Wt
x = = = 238 n  Wi
i = 1
xiWi
(200)(75) + (100)(105) + (250)(135) + (500)(60)  n Wi
i = 1
yiWi
y = = = 444
(200)(75) + (500)(105) + (600)(135) + (300)(60)

25. Center-of-Gravity Technique
700
500
600
400
300
200
100 x A B C D
(135)
(105)
(75)
(60)
Miles
Center of gravity (238, 444)
A B C D x y Wt

26. Load-Distance Technique
Compute Load x Distance for each site
Choose site with lowest Load x Distance
Distance can be actual or straight-line

27. Load-Distance Calculations
lij dij
j = 1 n
LDij =
LDij= load-distance value from site i to all existing facility j’s
lij = load expressed as a weight, number of trips or units
being shipped from proposed site i and location j
dij = distance between proposed site i and location j
dij = (xi - xj)2 + (yi - yj)2
(xi,yi) = coordinates of proposed site i
(xi , yj) = coordinates of existing facility j
where,

28. Load-Distance: Example
Potential Sites
Site X Y
Suppliers
A B C D X Y Wt
Compute distance from each site to each supplier
= ( )2 + ( )2
d1A = (xA - x1)2 + (yA - y1)2
Site 1
= 161.2
= ( )2 + ( )2
d1B = (xB - x1)2 + (yB - y1)2
= 412.3
d1C = 434.2
d1D = 184.4

29. Load-Distance: Example (cont.)
Site 2
d2A = 333
d2C = 226.7
d2B = 323.9
d2D = 170
Site 3
d3A = 206.2
d3C = 200
d3B = 180.4
d3D = 269.3
Compute load-distance
j = 1 n 
lijdij
LDij =
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) = 99,791
Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555*
* Choose site 3

30. Break-Even Analysis
Method of cost-volume analysis used for industrial locations
Three steps in the method
Determine fixed and variable costs for each location
Plot the cost for each location
Select location with lowest total cost for expected production volume

31. Expected volume = 2,000 units
Break-Even Analysis
Three locations:
Chonburi $30,000 $75 $180,000
Lumphoon $60,000 $45 $150,000
Songkla $110,000 $25 $160,000
Selling price = $120
Expected volume = 2,000 units
Fixed Variable Total
City Cost Cost Cost
Total Cost = Fixed Cost + Variable Cost x Volume

32. Break-Even Analysis Annual cost Volume – $180,000 – $160,000 –
$180,000 –
$160,000 –
$150,000 –
$130,000 –
$110,000 –
$80,000 –
$60,000 –
$30,000 –
$10,000 –
Annual cost
| | | | | | |
,000 1,500 2,000 2,500 3,000
Volume
Lumphoon cost curve
Chonburi cost curve
Songkla cost curve
lowest cost
lowest cost
lowest cost