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McGraw-Hill/Irwin

Technical Note 11

Facility Location

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Issues in Facility Location

Various Plant Location Methods

OBJECTIVES

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Competitive Imperatives

Impacting Location The need to produce close to the

customer due to time-basedcompetition, trade agreements, andshipping costs

The need to locate near the

appropriate labor pool to takeadvantage of low wage costs and/orhigh technical skills

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Issues in Facility Location

Proximity to Customers

Business Climate

Total Costs

Infrastructure Quality of Labor

Suppliers

Other Facilities

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Issues in Facility Location

Free Trade Zones Political Risk

Government Barriers

Trading Blocs

Environmental Regulation

Host Community

Competitive Advantage

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Plant Location Methodology: Factor

Rating Method Example

Fuels in region 0 to 330Power availability and reliability 0 to 200

Labor climate 0 to 100

Living conditions 0 to 100

Transportation 0 to 50

Water supply 0 to 10

Climate 0 to 50

Supplies 0 to 60

Tax policies and laws 0 to 20

Two refineries sites (A and B) are assigned thefollowing range of point values and respective points,

where the more points the better for the site location.

123150

54

24

45

4

8

5

5

Major factors for site location t. Range

156100

63

96

50

5

4

50

20

ites

A B

Total pts. 418 544

Best ite

is B

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Plant Location Methodology:

Transportation Method of Linear

Programming

Transportation method of linearprogramming seeks to minimize

costs of shipping n units to m

destinations or its seeks tomaximize profit of shipping n units

to m destinations

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Plant Location Methodology:

Centroid Method

The centroid method is used for

locating single facilities that considers

existing facilities, the distances

between them, and the volumes ofgoods 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

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Plant Location Methodology:

Centroid Method Formulas

C =d V

Vx

ix i

i

Where:

Cx = X coordinate of centroid

Cy = X coordinate of centroid

dix = X coordinate oftheith locationdiy = Y coordinate oftheith location

Vi= volume of goods movedto or from ith

location

C d

y

iy i

i

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Plant Location Methodology:

Example ofCentroid Method

Question: What is the best location for a new Z-Mobile

warehouse/temporary storage facility considering only

distances and quantities sold per month?

Centroid method example Several automobile showrooms are located

according to the following grid which represents

coordinate locations for each showroom

Sho room No of Z-Mobile ss old p e r month

A 1250

D 1900

Q 2300X

Y

A

(100,200)

D(250,580)

Q(790,900)

(0,0)

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Plant Location Methodology: Example ofCentroid

Method (Continued): Determining Existing Facility

Coordinates

To begin, you must identify the

existing facilities on a two-

dimensional plane or grid and

determine their coordinates.

X

Y

A(100,200)

D(250,580)

Q(790,900)

(0,0)

Y

ou must also have thevolume information on the

business activity at the

existing facilities.

Sho room No of Z-Mobile s

s old pe r month

A 1250

D 1900

Q 2300

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Plant Location Methodology: Example ofCentroid

Method (Continued): Determining the Coordinates

of the New Facility

C 100(1250) + 250(1900) + 790(2300)

1250 + 1900 + 2300

2,417,000

5,450x 443.49

C =

200(1250) 580(1900) 900(2300)

1250 1900 2300 =

3,422,000

5,450 =y 627.89

h r f - ile s

s l e r th

1250

1900

2300X

Y

A(100,200)

D(250,580)

Q(790,900)

(0,0)

You then compute the new coordinates using the formulas:

Z

Ne

locationof facility

Z about

(443,627)

You then take the coordinates and place them on the map:

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Question Bowl

Criteria that influencesmanufacturing plant and

warehouse location planning can

include which of the following?a. Proximity to customers

b. Business climate

c. Infrastructure

d. Quality of labore. All of the above

Answer:e.All oftheabove

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Question Bowl

Criteria that influencesmanufacturing plant and

warehouse location planning can

include which of the following?a. Political risk

b. Government barriers

c. Environmental regulation

d. All of the abovee. None of the aboveAnswer:d.All oftheabove

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Question Bowl

Which of the following are plantlocation methods?

a. Transportation method of linear

programmingb. Factor-rating systems

c. Centroid method

d. All of the above

e. None of the above

Answer:d.All oftheabove

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Question Bowl

Which of the following methods of plantlocation analysis considers the

existing facilities, the distances

between them, and the volumes of

goods to be shipped?a. Transportation method of linear

programming

b. Factor-rating systems

c. Centroid methodd. All of the above

e. None of the aboveAnswer: c. Centroid method

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Question Bowl

Which of the following methods of plantlocation analysis is the most widelyused general location techniquebecause it combines diverse factors

in an easy-to-understand format?a. Transportation method of linearprogramming

b. Factor-rating systemsc. Centroid methodd. All of the abovee. None of the above

Answer:b. Factor-rating systems

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Question Bowl

The location decision for servicefacilities is closely tied to which of

the following?

a. Market selection decision

b. Material costsc. Nearness to distributors

d. Nearness to high-skilled labor

e. None of the aboveAnswer:a. Marketselectiondecision

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End of Technical

Note 11