o.m.- facility location

8/9/2019 O.M.- Facility Location

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Facility Location


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Learning Objectives

Issues in Facility Location

Various Plant Location Methods


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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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Proximity to Customers

Business Climate

Total Costs

Infrastructure

Quality of Labor

Suppliers


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Other Facilities

- Free Trade Zones

- Political Risk

- Government Barriers

- Trading Blocs

- Environmental Regulation

- Host community- Competitive Advantage


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Plant Location Methods:

Factor-Rating Systems (Example) Two refineries sites (A and B) are assigned the following range ofpoint values and respective points, where the more points the better

for the site location.

Major factors for site

Location

Pt. Range Site

A BFuels in region 0 to 330 123 156

Power availability and reliability 0 to 200 150 100

Labor climate 0 to 100 54 63

Living conditions 0 to 100 24 96

Transportation 0 to 50 45 55

Water supply 0 to 10 8 4

Climate 0 to 50 34 14

Supplies 0 to 60 45 50

Tax policies and laws 0 to 50 45 20

Total 528 558 Best site is B


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Transportation Method of Linear Programming

Transportation method of linear programming

seeks to minimize costs of shipping n units tom destinations or its seeks to maximize profit

of shipping n units tom destinations.


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Transportation Method (Example)

Suppose the Indian Pharmaceutical Company has four factories supplyingthe warehouses of four major customers and its management wants to

determine the minimum-cost shipping schedule for its monthly output to

these customers. Factory supply, warehouse demands, and shipping costs

per case for these drugs are shows below:

Factory Supply Warehouse DemandShipping Costs per Case (in Rupees)

From

To

Delhi

To

Chennai

To

Kolkata

To

Mumbai

Lucknow 15 Delhi 10 Lucknow Rs 25 Rs 35 Rs 36 Rs 60

Pune 6 Chennai 12 Pune 55 30 25 25

Amritsar 14 Kolkata 15 Amritsar 40 50 80 90

Coimbatore 11 Mumbai 9 Coimbatore 30 40 66 75


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Transportation Method (Example)

Transportation Matrix for Indian Pharmaceutical Problem

From To Delhi Chennai Kolkata Mumbai Factory supply

Lucknow 25 35 36 60 15

Pune 55 30 25 25 6

Amritsar 40 50 80 90 14

Coimbatore 30 40 66 75 11

Destination

requirements 10 12 15 9 46


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Centroid Method

The centroid method is a technique used for locating

single facilities that considers existing facilities, the

distances between them, and the volumes of goods

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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Centroid Method Formulas

C =d V

Vx

ix i

i

C d

y

iy i

i

Cx = X coordinate of centroid

Cy = X coordinate of centroid

dix = X coordinate of the ith location

diy = Y coordinate of the ith location

Vi = volume of goods moved to or from ith

location


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Centroid Method Example

The HiOctane Refining Company needs to locate an intermediate holding

facility between its refining plan in Gauhati and its major distributors. The

fig below shows the coordinate map. The amount of gasoline shipped to

or from the plant and distributors appears in table below.

Grid Map for Centroid Example

# Plant Distributor

200

500

300

500

400

Mumbai (25,450)

100 200 300 400

100

Lucknow (350,450)

New Delhi (450,350)

Calcutta (400,150)

# Gauhati (325,75)

*Centroid (308,217)

Locations Liter of PetrolPer month (000,000)

Gauhati

Calcutta

New DelhiLucknow

Mumbai

1,500

250

450350

450

Shipping Volumes


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Centroid Method Example:

Determining Coordinates of the centroid

You then compute the new coordinates using the formulas:

307.93000

923,750

4503504502501500

25(450)350(350)450(450)400(250)325(1500)Cx

216.73000

650,000

4503504502501500

)450(450)350(400350(450)150(250)75(1500)Cy

o.m.- facility location

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