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Facility Location Planning

Facility Location Planning. Location Planning. Interrelated facility planning decisions: Location of facilities: geographic placement Number of facilities: facility types (manufacturing plants, distribution centers, retail outlets, etc.) which make up distribution network

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Facility Location Planning

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  1. Facility Location Planning

  2. Location Planning • Interrelated facility planning decisions: • Location of facilities: geographic placement • Number of facilities: facility types (manufacturing plants, distribution centers, retail outlets, etc.) which make up distribution network • Size of facilities (capacity): refers to the overall cubic feet and throughput (volume) rate which constrains all future facility operations. This must also consider the layout. 4. Allocation of customers to facilities: order processing and fulfillment • Important factors affecting the decision include: proximity, facility volume, transportation costs, customer importance, etc. • Facility location dependent upon objective(s)

  3. Strategic Importance • Capital investment (machinery, technology, land, buildings, etc.) • Long-term commitment • Impact on costs (operating efficiency) • Numerous criteria

  4. Location Planning Process • Each problem is unique • Scope of problem: Two levels • Level 1: Macro (national and regional), identifies a general location based upon primary cost, customer service standards, technological constraints, and dominant location factors; many possible locations eliminated at this level • (2) Level 2: Micro (local and specific), identifies an exact site within the general location; incorporates considerations which are not easily quantifiable 3. “Satisficing” solutions

  5. Facility Location Methods of Analysis • Simple cost formulation combined with a complex optimization procedure 2. Complex cost model combined with a simple heuristic method to minimize the cost function

  6. Single-Site Facility Location Problems • Hoover’s Strategies: e.g., market-oriented, production-oriented • Cost-Volume-Profit (Breakeven) Analysis • Transportation Method of Linear Programming • Center of Gravity Approach • Others? E.g., Payback, NPV, IRR, etc.

  7. Multiple-Site Facility Locations • More complex decision-making problem due to its interdependence; large number of potential logistic system configurations; yet more realistic and more common as even many small firms have more than one facility. • Some methods of analysis: optimization (e.g., LP), simulation methods, heuristic methods

  8. Linear Scoring Rule (rating scale or weighted checklist) • Integrates both quantitative and qualitative factors • LSR Concerns • weights are subjective and solution sensitive • scores are subjective and solution sensitive • all factors considered? • Example A paint manufacturer would like to locate a retail store. A list of important location factors is presented below. Factor weights are assigned a number from 1 to 10 according to their relative importance of each factor (10 being most important). Each location factor is scored on a scale from 1 to 10 (10 representing the most favorable status).

  9. LSR Example Factor FactorWeighted WeightLocation FactorsScoreScore 8 Proximity to competition 5 40 5 Rent/lease considerations 3 15 8 Parking Space 10 80 7 Proximity to complementary stores 8 56 6 Modernity of store space 9 54 Total Score: 245

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