Location, Logistics, and Distribution

1. Location, Logistics, and Distribution CHAPTER 12

2. Learning Objectives • Describe what a third-party logistics provider is. • Assess the major issues that need to be considered in locating a plant or warehouse facility. • Understand the centroid method for locating entities such as cell phone communication towers. • Know how a factor-rating system can be used to narrow potential location sites.

3. Logistics • Logistics: the art and science of obtaining, producing, and distributing material and product in the proper place and in proper quantities • International logistics: managing these functions when the movement is on a global scale • Third-party logistics company: an outside company used to handle logistics functions LO 1

4. Decisions Related to Logistics • How material will be transported • Truck: great flexibility • Ship: high capacity and low cost but slow • Plane: fast but expensive • Train: low cost but slow and variable • Pipeline: highly specialized and limited to liquids, gases, and solids in slurry form • Hand delivery: last step in many supply chains • Multimodial solutions are the norm LO 2

5. Logistics-System Design Matrix LO 2

6. Cross-Docking • Cross-docking: large shipments are broken down into small shipments for local delivery in an area • Minimizes inventory in the warehouse • Hub-and-spokesystems: the sole purpose of the warehouse (the hub) is sorting goods to consolidation areas, where each area is designed for shipment to a specific location LO 2

7. Issues in Facility Location • Proximity to customers: makes rapid delivery easier • Business climate: can include presence of similar-sized businesses, businesses in the same industry, and other foreign companies • Total costs: object is to minimize overall cost • Infrastructure: adequate road, rail, air, and sea transportation along with energy and telecommunications LO 2

8. Issues in Facility Location Continued • Quality of labor: educational and skill levels must match needs • Suppliers: proximity of important suppliers supports lean production • Other facilities: location of other facilities can influence a location decision • Free trade zones: a closed facility into which foreign goods can be brought without being subject to the normal customers requirements LO 2

9. Issues in Facility Location Continued • Political risk: risks in both the country of location and the host country influence the decision • Government barriers: barriers in many countries are being removed • Trading blocs: firms locate within a block to take advantage of new markets or lower total cost LO 2

10. Issues in Facility Location Continued • Environmental regulation: these impact a certain industry in a given location and must be included in the decision • Host community: host community’s interest is part of the evaluation process • Competitive advantage: the location should provide the company with a competitive advantage LO 2

11. Plant Location Methods • Factor-rating system • Centroid method LO 2

12. Factor-Rating System • Most widely used • List of factors is developed • Range of possible points assigned to each factor • Each site is rated against each factor • The sums of assigned points for each site are computed • The site with the most points is selected LO 5

13. Plant Location Methodology: Factor Rating Method Example Two refineries sites (A and B) are assigned the following range of point values and respective points, where the more points the better for the site location. Sites A B Major factors for site location Pt. Range 123 150 54 24 45 4 8 5 5 156 100 63 96 50 5 4 50 20 Best Site is B Total pts.418 544

14. Plant Location Methodology: Centroid Method • The centroid 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

15. Plant Location Methodology: Centroid Method Formulas Where: 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

16. Y Q (790,900) D (250,580) A (100,200) (0,0) X Plant Location Methodology: Example of Centroid Method • Centroid method example • Several automobile showrooms are located according to the following grid which represents coordinate locations for each showroom Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month?

17. Y Q (790,900) D (250,580) A (100,200) (0,0) X Plant Location Methodology: Example of Centroid Method (Continued): Determining Existing Facility Coordinates To begin, you must identify the existing facilities on a two-dimensional plane or grid and determine their coordinates. You must also have the volume information on the business activity at the existing facilities.

18. Y New location of facility Z about (443,627) Q (790,900) Z D (250,580) A (100,200) (0,0) X Plant Location Methodology: Example of Centroid Method (Continued): Determining the Coordinates of the New Facility You then compute the new coordinates using the formulas: You then take the coordinates and place them on the map:

19. Chapter 12 Any of Questions?