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Facility Location. COB 300C – Fall 2002. Facility Location. Facility Location is the placement of facility with respect to customers, suppliers and other interacting facilities. It should consider: Operating costs Customer convenience Transportation costs Access to key related services
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Facility Location COB 300C – Fall 2002
Facility Location • Facility Location is the placement of facility with respect to customers, suppliers and other interacting facilities. It should consider: • Operating costs • Customer convenience • Transportation costs • Access to key related services such as banking and educational opportunities • Strategic factors
Location as a Strategic Decision 1. Long-term commitment 2. Linked to customer base 3. Regional facility supplies specific area 4. Product facility supplies globally 5. Combination of regional and product facilities Regional or Global
Factors Affecting theLocation Decision • Strategic nature of decision • Quantitative factors • Government incentives • Qualitative factors
Including theQualitative Factors • Integrate qualitative factors • Determine which factors are relevant to the problem • Weigh each factor • Rate each site for each factor
Examples of Indianapolis and Lexington (Slide 1 of 2) Indianapolis Lexington Weight Raw Score Raw Score Recreational activities 20 8 7 University research facilities 40 8 8 Union activities 40 4 7 Banking services 80 7 6 Available labor pool 60 7 5
Examples of Indianapolis and Lexington (Slide 2 of 2) Indianapolis Lexington Weighted score Weighted score Recreational activities 160 140 University research facilities 320 320 Union activities 160 280 Banking services 560 480 Available labor pool 420 300 Total 1,620 1,520
Analyzing Spatial Relationships • Load-Distance Method measures proximity to customers, suppliers, interacting facilities • Transportation Problem relates to the cost of transporting materials to and from multiple facilities
Locating a Health Care Center Using the “Load-Distance Method” (Slide 1 of 3) Population coordinates Zip Code ai xi yi (ai )(xi) (ai)(yi) 10111 30,000 3 2 90,000 60,000 10112 25,000 2 4 50,000 100,000 10113 11,000 1.5 5.5 16,500 60,500 10114 8,000 3 7 24,000 56,000 10115 18,000 3.5 5 63,000 90,000 10116 24,000 4.5 3.5 108,000 84,000 10117 12,000 5.25 6.25 63,000 75,000 Total 128,000 414,500 525,500
Locating a Health Care Center Using the “Load-Distance Method” (Slide 2 of 3) where xf = Distance along the x axis from the origin to the center of gravity yf = Distance along the y axis from the origin to the center of gravity ai = The activity level (load) from the i th location to the proposed facility Xi = the coordinate on the x axis for the i th customer location yi = the coordinate on the y axis for the i th customer location
Locating a Health Care Center Using the “Load-Distance Method” (Slide 3 of 3) The coordinates of the center of gravity are: 414,500 525,500 xf = yf = 128,000 128,000 = 3.24 = 4.11
Transportation Problem • Cost of moving materials between multiple destinations • Vogel’s Approximation Method • To evaluate two locations, solve the transportation problem for each location OR
Transportation Example • New facility capacity = 5000 units/month • We must choose either Des Moines, Iowa or Montgomery, Alabama • Transportation costs per unit for Des Moines and Montgomery to each customer location are provided • We are interested in total transportation cost for Des Moines versus Montgomery
Transportation Example (cont’d) • Supply Lexington - 12,420 Milan - 9,380 DesMoines - 5,000 (proposed) or Montgomery - 5,000 (proposed)
Transportation Example (cont’d) • Demand Baton Rouge - 6,740 Bismarck - 8,400 Tampa - 5,050 Youngstown - 5,670
Total Transportation Cost for Des Moines 6740($14)+4740($16)+940($0)+3400($15)+ 310($17)+5670($9)+5000($11) = $332,500
For Next Class Figure Transportation Cost for Montgomery • Which is best choice based on Vogel’s Approximation? • Are there other factors to consider? • Montgomery’s Transportation Costs: • Montgomery to Baton Rouge: $9 per unit • Montgomery to Bismarck: $19 per unit • Montgomery to Tampa: $12 per unit • Montgomery to Youngstown $15 per unit
Location Example - Load Distance • Location of a warehouse in Germany • Method: Load-Distance Method (a.k.a.: center-of-gravity method) • Customer locations (coordinates) and demands in units per year are given
Location? • Central Germany
Other Factors to Consider? • operating costs • required investment • government incentives • qualitative factors • overall strategy of organization
Location Decision Affects Other Operating Decisions • Alternative to on-site expansion • On-site expansion is problematic • Material handling and storage • Complex production flow • Strained communication • New technology delayed • Use of old equipment • Layering of expanded responsibilities
International Dimensions ofLocation Decision • Reasons for locating in foreign countries • Comparative Advantage • Closeness to market • Political relationships • Availability of resources
Location Analysis forService Operations • Concepts and techniques discussed so far apply to service operations • Service issues: • Minimize response time: Emergency medical services • Provide minimum coverage: Fire Protection • Mobile location: Police or security units
