pom facility location
TRANSCRIPT
Facility Location
Objective of Location Strategy
Maximize the benefit of location to the
firm
Industrial Location Decisions
Cost focus
-Cost of construction, land cost-Modes of transport, cost of transport -Proximity to raw materials, labor availability-Distribution centers
Retail and Service Location DecisionsRevenue focus-Proximity to customers-Affects volume of business
Warehouse Location Decisions
-Combination of cost and speed of delivery.
In General- Location Decisions Are• Long-term decisions
• Difficult to reverse
• Affect fixed & variable cost
Sequence of Location decisionsSelect a country in which to operateFocus on a region of the chosen countryChose a specific site within a region
Country
© 1995 Corel Corp.
Region/Community
© 1995 Corel Corp.
Site
© 1995 Corel Corp.
Location Decision Sequence
Country
© 1995 Corel Corp.
Region/Community
© 1995 Corel Corp.
Site
© 1995 Corel Corp.
Factors Affecting Choice of CountryGovernment rules, attitudes, political risk, incentives,
stability of government.Economics issues.Potential Market Availability of supplies, communications, energy.Exchange rates and currency risksClimateExport/import regulations
Factors Affecting Regional Location Decisions
Attractiveness of region (culture, taxes, climate, etc.)Labor availability, costs, attitudes towards unionsAvailability of siteEnvironmental regulations of state & town.Proximity to raw materials & customersLand/construction costsCosts and availability of utilitiesBusiness climate
Factors Affecting Site Decisions
Site size and costAir, Rail, Highway, and Waterway systemsNearness of services/supplies neededEnvironmental impact issues
Factors Affecting Location Decision
Market Related Issues-Market for products and ServicesRaw material availabilityNumber and proximity of suppliersAvailability of skilled labor
Cost related issues-Wage ratesTransportation costsTaxes and other tariff issuesLand cost, Labor cost, Raw material cost
Regulatory & Policy IssuesGovernment & economic stabilityQuality of legal and other institutionsTrading blocs and trading agreements.
Other issues-CultureClimateQuality of Life
Location Evaluation MethodsFactor-rating methodLocational break-even
AnalysisCenter of gravity methodLoad distance methodTransportation model
Factor Rating Method Assessing the attractiveness of each potential location.Steps-1. Identify & list all relevant factors called critical success
factors2. Establish the relative importance of each factor in final
decision by assigning weights.3. Develop a scale for each factor ( 1 to 10, or 1 to 100)4. Have management score each location for each factor,
using scale as in step 3.5. Multiply the score by weights for each factor and total
the score for each location.6. Make recommendation based on maximum point score
Illustration
A manufacturer of garments is actively considering 5
alternative locations for setting up his factory. The locations
vary in terms of their advantages to the firm. Based on a
survey, the firm had arrived at 6 factors to be considered for
the final location selection. The ratings of each factor on a
scale of 1 to 100. Using this information obtain a ranking of
the alternative solutions and suggest the best alternative.
Factor Ratings
Factors Rating
1. Availability of infrastructure 90
2.Size of the Market 60
3.Industrial Relations Climate 50
4.Tax Benefits & Concessions 30
5.Availability of cheap labor 30
6.Nearness to port 65
Rating of each location against each factor
Factors Loc.1 Loc.2 Loc.3 Loc.4 Loc.5
1 20 40 60 35 55
2 30 30 40 60 80
3 80 30 50 60 50
4 80 20 10 20 20
5 70 70 45 50 50
6 20 40 90 50 60
SolutionEstablishing the relative importance through Normalization
Factors Rating Relative weights
1 90 90/325 = 0.28
2 60 60/325 = 0.18
3 50 0.15
4 30 0.09
5 30 0.09
6 65 0.20
Sum of all factor ratings
325 1.00
Computing the performance of each location
Overall Rating for location 1 = 20*0.28 +30*0.18+ 80*0.15 + 80*0.09 + 70*0.09 + 20*0.20 = 41.23
Similarly for Loc. 3 =60*0.28 + 40*0.18 + 50*0.15 + 10*0.09 +
45*0.09 + 90*0.20 = 54.45
Factors Wt Loc 1 Loc 2 Loc 3 Loc 4 Loc 5
1 .28 20 40 60 35 55
2 .18 30 30 40 60 80
3 .15 80 30 50 60 50
4 .09 80 20 10 20 20
5 .09 70 70 45 50 50
6 .20 20 40 90 50 60
Overall
Score
41.23 37.54 54.77 46.46 56.15
Ranking 4 5 2 3 1
Illustration
Critical scores (out of 100)Factor weight France DenmarkF1 .25 70 60F2 .05 50 60F3 .10 85 80F4 .39 75 70F5 .21 60 70
Locational Break-Even Analysis
Method of cost-volume analysis to make an economic comparison.
StepsDetermine fixed & variable costs for each locationPlot total cost for each location (Cost on vertical axis,
Annual Volume on horizontal axis)Select location with lowest total cost for expected
production volume
Locational Break-Even Analysis
You’re an analyst considering a new manufacturing plant in Akron, Bowling Green, or Chicago. Fixed costs per year are $30k, $60k, & $110k respectively. Variable costs per case are $75, $45, & $25 respectively. The selling price per case is $120. What is the best location for an expected volume of 2,000 cases per year?
SolutionFor Akron,Total cost = $30,000 + $75* 2000 = $180,000
For Bowling Green,Total cost = $60,000+ $45*2000 = $150,000
For Chicago,Total cost = $160,000
Location Break-Even Crossover Chart
0
50000
100000
150000
200000
0 500 1000 1500 2000 2500 3000
Volume
Ann
ual C
ost
Akron
Chicago
Bowling Green
Bowling Green lowest cost
Chicago lowest cost
Akron lowest cost
With an expected volume of 2000 units per year, Bowling green provides the lowest cost location.
Expected Profit=Total Revenue – Total Cost = $120 * 2000 - $150,000 =$90,000/year.
Crossover points are 1000 & 2500 units.
Center of Gravity/Centroid Method
X Coordinate
ii
iiix
x W
WdC
Y Coordinate
ii
iiiy
y W
WdC
dix = x coordinate of location i
Wi = Volume of goods moved to or from location i
diy = y coordinate of location i
Given locations of showrooms on grid
A (100,200)D (250,580)Q (790,900)
Showroom No. of z-mobiles sold per monthA 1250D 1900Q 2300
What is the best location for a new Z-mobile warehouse
Q D
A
©The McGraw-Hill Companies, Inc., 2004
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Determining the Coordinates of the New Facility
C = 100(1250) + 250(1900) + 790(2300)
1250 + 1900 + 2300 =
2,417,000
5,450 = x 443.49
C = 200(1250) + 580(1900) + 900(2300)
1250 + 1900 + 2300 =
3,422,000
5,450 = y 627.89
X
Y
A(100,200)
D(250,580)
Q(790,900)
(0,0)
You then compute the new coordinates using the formulas:
Z
New location of facility Z about (443,627)
Illustration: The Burger Doodle restaurant chain purchases ingredients from four different food suppliers. The companyWants to construct a new central distribution center to process and package ingredients before shipping them to their various Restaurants. The suppliers transport ingredient items in truck trailers. The locations of the four suppliers, A, B, C and D, and the annual number of trailer loads that will be transported to the distribution center are given below. Using center-of-gravityDetermine a possible location for the distribution center. Number of TrailersA (200,200) 75B(100,500) 105C(250,600) 135D(500,300) 60
Load Distance MethodEnables a location planner to evaluate two or more
potential candidates for locating a proposed facility vis-à-vis the demand (or supply) points .
Provides an objective measure of total load-distance for each candidate.
22 )()( jijiij YyXxD
The distance measure for the Cartesian coordinates between an existing demand point i and a candidate j for the proposed facility
The load distance for a candidate j for the proposed facility
n
iiijj WDLD
1
*
Suppose the manufacturer came to know that there are constraints in locating the new facility.
Based on an initial survey of possible sites for the proposed facility, the manufacturer identified four candidates.
The figure has the location coordinates of the four candidates (numbered 1 to 4).
What is the best location for the proposed new facility?
Solution Grid Map
100 200 300 400 500 600 700
100
200
300
400
500
600
Distance in Kilometers
Dis
tanc
e in
Kil
omet
ers A (125,550), 200
B (350,400), 450
C (450,125), 175
D (700,300), 150
1 (300,500)
2 (200,500) 3 (500,350)
4 (400,200)
Candidate for proposed facility
Existing Demand (or supply) point
Existing Supply Points Candidates for proposed facility
xi yi Wi Xj Yj A 125 550 200 1 300 500 B 350 400 450 2 200 500 C 450 125 175 3 500 350
D 700 300 150 4 400 200
00.182)50(175()500550()300125()()( 22222
12
11 YyXxD AAA
Dij values
1 2 3 4 A 182.00 90.14 425.00 445.11 B 111.80 180.28 158.11 206.16 C 403.89 450.69 230.49 90.14
D 447.21 538.52 206.16 316.23
LDj values
1 2 3 4
224474.41 258801.57 227410.05 245000.8
Transportation Model
Finds amount to be shipped from several sources to several destinations
Type of linear programming modelObjective: Minimize total production & shipping
costsConstraints
Production capacity at source (factory)Demand requirement at destination