chapter 9: location planning and...

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Islamic University, Gaza - Palestine

Department of Industrial Engineering

OM

Presented by

Dr. Eng. Abed Schokry


Chapter 9: Location Planning and Analysis

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Chapter 8: Learning OUTCOMES

• After completing this unit, You should be able to:

– List reasons why organizations need to make location decisions,

– Explain why location decisions are important,

– Discuss the options that are available for location decisions,

– Describe some of the major factors that affect location decisions,

– Outline the decision process for making these kinds of decisions,

– Use the techniques presented to solve typical problems,


The Need for Location Decisions

• Location decisions arise for a variety of reasons:– Addition of new facilities

• As part of a marketing strategy to expand markets

• Growth in demand that cannot be satisfied by expanding existing facilities

• Location decisions are strategically important:– Are closely tied to an organization’s strategies

– Effect capacity and flexibility

– Represent a long-term commitment of resources

– Impact competitive advantage

– Importance to supply chains


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Location Decisions: Objectives

• Location decisions are based on:

– Profit potential or cost and customer service

– Finding a number of acceptable locations from which to choose

– Position in the supply chain

– Web-based retail organizations are effectively location independent

– Supply chain management issues such as supply chain configuration


Factors - Location Related

• Land/Construction costs

• Community receptivity

• Local business climate

• Quality of life

• Government motivations

– tax breaks

– free trade zone

• Government barriers

– currency controls

– trading blocs

– local content

– environmental regulations

• Political Risks


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Factors - Resource/Cost Related

• Proximity to suppliers

• Quality/Availability of labour

• Transportation/Energy infrastructure

• Proximity to customers

• Inbound/Outbound distribution costs

• Other (company-owned) facilities

Competitive Advantage


Competitive Imperatives Impacting Location

• The need to produce close to the customer due to time-based competition, trade agreements, and shipping costs

• The need to locate near the appropriate labor pool to take advantage of low wage costs and/or high technical skills


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Issues in Facility Location (Summary)

• Proximity to Customers• Business Climate• Total Costs• Infrastructure• Quality of Labor • Suppliers• Other Facilities

• Free Trade Zones • Political Risk• Government Barriers• Trading Blocs• Environmental Regulation• Host Community• Competitive Advantage


Location Decision: General Procedure

• Steps:1. Decide on the criteria to use for evaluating location

alternatives,

2. Identify important factors, such as location of markets or raw materials,

3. Develop location alternatives,

a. Identify the country or countries for location,

b. Identify the general region for location,

c. Identify a small number of community alternatives,

d. Identify the site alternatives among the community alternatives,

4. Evaluate the alternatives and make a decision,


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Location: Identifying a Country


Location: Identifying a Region

• Primary regional factors:

– Locating near the raw materials

– Locating near of markets

– Distribution costs and perishability

– Labor factors

– Other factors

• Climate and taxes may play an important role in location decisions


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Location: Identifying a Community

• Many communities actively attempt to attract new businesses they perceive to be a good fit for the community

• Businesses also actively seek attractive communities based on such factors such as:– Quality of life

– Services

– Attitudes

– Taxes

– Environmental regulations

– Utilities

– Development support


Location: Identifying a Site

• Primary site location considerations are

– Land

– Transportation

– Zoning

– Other restrictions


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Service and Retail Locations

• Considerations:

– Nearness to raw materials is not usually a consideration

– Customer access is a

• Prime consideration for some: restaurants, hotels, etc.

• Not an important consideration for others: service call centers, etc.

– Tend to be profit or revenue driven, and so are

• Concerned with demographics, competition, traffic/volume patterns, and convenience


Evaluating Location Alternatives (Quantitative Tools)

• Center of Gravity Method

• Heuristics

• Mixed Integer Programming

Other methods:

• Single facility location or Multi-facility location

• Regression analysis

• Factor rating system

• Analytic Hierarchy Process (AHP)

• Competitive location

• Retail/Service location

• Supply chain network design

• Dynamic location models


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Location Analysis Techniques (Cont.)

• Factor Rating Method

– Essentially a judgmental method

– Other methods are more analytical

• Break-even Analysis, Cross-over Charts

• Load-distance (especially for manufacturing)

• Linear Programming

– Transportation Method


Locational Cost-Profit-Volume Analysis

• Locational Cost-Profit-Volume Analysis– Technique for evaluating location choices in economic

terms

– Steps:

1. Determine the fixed and variable costs for each alternative

2. Plot the total-cost lines for all alternatives on the same graph

3. Determine the location that will have the lowest total cost (or highest profit) for the expected level of output


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Factor Rating

• Factor Rating– General approach to evaluating locations that includes

quantitative and qualitative inputs

– Procedure:

1. Determine which factors are relevant,

2. Assign a weight to each factor that indicates its relative importance compared with all other factors,

3. Decide on a common scale for all factors,

4. Score each location alternative,

5. Calculate weighted factor sum for each alternative,

6. Choose the alternative that has the highest composite score.


Center of Gravity Method

• Center of Gravity Method– Method for locating a distribution center that minimizes

distribution costs.

• Treats distribution costs as a linear function of the distance and the quantity shipped,

• The quantity to be shipped to each destination is assumed to be fixed,

• The method includes the use of a map that shows the locations of destinations,

– The map must be accurate and drawn to scale.

• A coordinate system is overlaid on the map to determine relative locations,


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Center of Gravity Method


End of Chapter 9


chapter 9: location planning and...

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