1. Chapter 7 Supplement
Facility Location Models

2. Lecture Outline
• Types of Facilities
• Site Selection: Where to Locate
• Global Supply Chain Factors
• Location Analysis Techniques
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-2

3. Types of Facilities
• Heavy-manufacturing facilities
• large, require a lot of space, and are expensive
• Light-industry facilities
• smaller, cleaner plants and usually less costly
• Retail and service facilities
• smallest and least costly
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-3

4. Factors in Heavy
Manufacturing Location
• Construction costs
• Land costs
• Raw material & finished goods shipment modes
• Proximity to raw materials
• Utilities
• Means of waste disposal
• Labor availability
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-4

5. Factors in Light Industry Location
• Land costs
• Transportation costs
• Proximity to markets
• depending on delivery requirements
including frequency of delivery required by
customer
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-5

6. Factors in Retail Location
• Proximity to customers
• Location is everything
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-6

7. Site Selection: Where to Locate
• Infrequent but important • Location criteria for
• being “in the right place at the manufacturing facility
right time” • nature of labor force
• Must consider other • labor costs
factors, especially financial • proximity to suppliers and
considerations markets
• Location decisions made more • distribution and transportation
often for service operations costs
than manufacturing facilities • energy availability and cost
• Location criteria for service • community infrastructure
• access to customers • quality of life in community
• government regulations and
taxes
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-7

8. Global Supply Chain Factors
• Government stability • Climate
• Government regulations • Number & proximity of
suppliers
• Political & economic systems
• Transportation & distribution
• Economic stability & growth system
• Exchange rates • Labor cost & education
• Culture • Available technology
• Export/import regulations, • Commercial travel
duties & tariffs • Technical expertise
• Raw material availability • Cross-border trade
regulations
• Group trade agreements
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-8

9. Regional and Community
Location Factors in U.S.
• Labor • Modes and quality of
(availability, education, cost, transportation
and unions) • Transportation costs
• Proximity of customers • Community government
• Number of customers Local business regulations
• Construction/leasing costs • Government services (e.g.,
• Land cost Chamber of Commerce)
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-9

10. Regional and Community
Location Factors in U.S.
• Business climate • Infrastructure (road &
• Community services utilities)
• Incentive packages • Quality of life
• Government regulations • Taxes
• Environmental regs. • Availability of sites
• Raw material availability • Financial services
• Commercial travel • Community inducements
• Climate • Proximity of suppliers
• Education system
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-10

11. Location Incentives
• Tax credits
• Relaxed government regulation
• Job training
• Infrastructure improvement
• Money
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-11

12. Geographic Information Systems (GIS)
• Computerized system for
storing, managing, creating, analyzing, integrati
ng, and digitally displaying
geographic, i.e., spatial, data
• Specifically used for site selection
• Enables users to integrate large quantities of
information about potential sites and analyze
these data with many different, powerful
analytical tools
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-12

13. GIS Diagram
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-13

14. Location Analysis Techniques
• Location factor rating
• Center-of-gravity
• Load-distance
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-14

15. Location Factor Rating
• Identify important factors
• Weight factors (0.00 - 1.00)
• Subjectively score each factor (0 - 100)
• Sum weighted scores
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-15

16. Location Factor Rating
SCORES (0 TO 100)
LOCATION FACTOR WEIGHT Site 1 Site 2 Site 3
Labor pool and climate .30 80 65 90
Proximity to suppliers .20 100 91 75
Wage rates .15 60 95 72
Community environment .15 75 80 80
Proximity to customers .10 65 90 95
Shipping modes .05 85 92 65
Air service .05 50 65 90
Weighted Score for “Labor pool and climate” for
Site 1 = (0.30)(80) = 24
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-16

17. Location Factor Rating
WEIGHTED SCORES
Site 1 Site 2 Site 3
24.00 19.50 27.00
20.00 18.20 15.00
Site 3 has the
9.00 14.25 10.80
highest factor rating
11.25 12.00 12.00
6.50 9.00 9.50
4.25 4.60 3.25
2.50 3.25 4.50
77.50 80.80 82.05
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-17

18. Location Factor Rating With Excel
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-18

19. Location Factor Rating With OM Tools
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-19

20. Center-of-Gravity Technique
• Locate facility at center of movement in
geographic area
• Based on weight and distance traveled;
establishes grid-map of area
• Identify coordinates and weights shipped for
each location
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-20

21. Grid-Map Coordinates
y n n
xiWi yiWi
2 (x2, y2), W2 i=1 i=1
y2 x= n y= n
Wi Wi
1 (x1, y1), W1 i=1 i=1
y1
where,
x, y = coordinates of new facility at
3 (x3, y3), W3 center of gravity
y3 xi, yi = coordinates of existing facility i
Wi = annual weight shipped from
facility i
x1 x2 x3 x
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-21

22. Center-of-Gravity Technique
y
A B C D
700
C x 200 100 250 500
600 (135) y 200 500 600 300
B
W 75 105 135 60
500 (105)
Miles
400
D
300
A (60)
200 (75)
100
0 100 200 300 400 500 600 700 x
Miles
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-22

23. Center-of-Gravity Technique
n
xiWi
i=1 (200)(75) + (100)(105) + (250)(135) + (500)(60)
x= = = 238
n 75 + 105 + 135 + 60
Wi
i=1
n
yiWi
i=1 (200)(75) + (500)(105) + (600)(135) + (300)(60)
y= = = 444
n 75 + 105 + 135 + 60
Wi
i=1
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-23

24. Center-of-Gravity Technique
y
A B C D
700
C x 200 100 250 500
600 (135) y 200 500 600 300
B
W 75 105 135 60
500 (105)
Center of gravity (238, 444)
Miles
400
D
300
A (60)
200 (75)
100
0 100 200 300 400 500 600 700 x
Miles
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-24

25. Center-of-Gravity With Excel
Formula for
x coordinate
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26. Center-of-Gravity With OM Tools
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-26

27. Load-Distance Technique
• Compute (Load x Distance) for each site
• Choose site with lowest (Load x Distance)
• Distance can be actual or straight-line
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-27

28. Load-Distance Calculations
n
LD = li di
i=1
where,
LD = load-distance value
li = load expressed as a weight, number of trips or units
being shipped from proposed site and location i
di = distance between proposed site and location i
di = (xi - x)2 + (yi - y)2
where,
(x,y) = coordinates of proposed site
(xi , yi) = coordinates of existing facility
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-28

29. Load-Distance
Potential Sites Suppliers
Site X Y A B C D
1 360 180 X 200 100 250 500
2 420 450 Y 200 500 600 300
3 250 400 Wt 75 105 135 60
Compute distance from each site to each supplier
Site 1 dA = (xA - x1)2 + (yA - y1)2 = (200-360)2 + (200-180)2 = 161.2
dB = (xB - x1)2 + (yB - y1)2 = (100-360)2 + (500-180)2 = 412.3
dC = 434.2 dD = 184.4
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-29

30. Load-Distance
Site 2 dA = 333 dB = 323.9 dC = 226.7 dD = 170
Site 3 dA = 206.2 dB = 180.3 dC = 200 dD = 269.3
Compute load-distance
n
LD = li d i
i=1
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) = 99,789
Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555*
* Choose site 3
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-30

31. Load-Distance With Excel
=B7*C11+C7*C12+D7*C13+E7*C14
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-31

32. Load-Distance With OM Tools
Copyright 2011 John Wiley & Sons, Inc. Supplement 7-32

33. Copyright 2011 John Wiley & Sons, Inc.
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Copyright 2011 John Wiley & Sons, Inc. Supplement 7-33