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Chapter 11TN Facility Location. Issues in Facility Location Various Plant Location Methods. Competitive Imperatives Impacting Location. The need to produce close to the customer due to time-based competition, trade agreements, and shipping costs.
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Chapter 11TNFacility Location • Issues in Facility Location • Various Plant Location Methods
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.
Issues in Facility Location • 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 Decisions • Long-term decisions • Difficult to reverse • Affect fixed & variable costs • Objective: Maximize benefit of location to firm
Factors Affecting Country © 1995 Corel Corp.
Factors Affecting Region/Community © 1995 Corel Corp.
Factors Affecting Site © 1995 Corel Corp.
Industrial Location Strategies • Cost focus • Location is a major cost factor © 1995 Corel Corp.
Service Location Strategies • Revenue focus • Location is a major revenue factor © 1995 Corel Corp.
Factor Rating Method • Most widely used location technique • Useful for service & industrial locations • Rates locations using factors
Weighted Factor Rating Method Steps • List relevant factors • Assign importance weight to each factor (0-1 with all weights adding to 1) • Give a score to each location by factor (1-10, etc.) • Multiply scores by weights for each factor & total • Select location with maximum total score
Factor Rating Method Example You’re an analyst for John Deere. You’re considering locating a new mfg. plant in Omaha (NE) or Denver (CO). Factor Wgt NE COMfg. costs .7 8 6Cost of living .1 7 6 Labor avail. .2 10 8 Where should you locate? © 1995 Corel Corp.
Factor Rating Method Solution Omaha is best
Factor Rating Method Thinking Challenge You’re owner of a hot tub store. You’re considering relocating to Phoenix (AZ) or Santa Fe (NM). Factor Wgt AZ NMPopulation .4 10 5Competition .1 3 8 Life style .5 2 9 Where should you locate? © 1995 Corel Corp.
Solution Phoenix Santa Fe Factor Weight Score Weighted Factor Weighted Factor Score Population Compensation Life Style Which location is best: _________________
Plant Location Methodology: Transportation Method of Linear Programming • Transportation method of linear programming seeks to minimize costs of shipping n units to m destinations or its seeks to maximize profit of shipping n units to m destinations.
Plant Location Methodology: Center of Gravity Method (Centroid) • The center of gravity method is 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.
Plant Location Methodology: Center of Gravity Method Formulas Cx = X coordinate of center of gravity Cy = X coordinate of center of gravity dix = X coordinate of the ith location diy = Y coordinate of the ith location Vi = volume of goods moved to or from ith location
Plant Location Methodology: Example of Center of Gravity Method • Center of gravity method example • Several automobile showrooms are located according to the following grid which represents coordinate locations for each showroom. Y Showroom No of Z-Mobiles Q sold per month (790,900) A 1250 D (250,580) D 1900 A (100,200) Q 2300 (0,0) X Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month?
Y Q (790,900) D (250,580) A (100,200) (0,0) X Plant Location Methodology: Example of Center of Gravity Method: Determining the Coordinates of the New Facility You then compute the new coordinates using the formulas:
Thinking Challenge You’re a planner for Sears. You want to find the best location of a warehouse serving retail stores in: Seattle (50, 60) Aberdeen (20, 35) Spokane (160, 50) Monthly demand is: Seattle 494k units Aberdeen 18k units Spokane 171k units respectively. © 1995 Corel Corp.
Solution:Center of Gravity Method Grid • Calculate Cx and Cy.