Chapter 11 Facility Location

1. Chapter 11Facility Location • Issues in Facility Location • Various Plant Location Methods

2. Competitive Imperatives Impacting Location • The need to produceclose to the customer due to time-based competition, trade agreements, and shipping costs. • The need to locatenear the appropriate labor pool to take advantage of low wage costs and/or high technical skills.

3. Issues in Facility Location • Proximity to Customers • Business Climate • Total Costs • Infrastructure • Quality of Labor • Suppliers • Other Facilities

4. Issues in Facility Location • Free Trade Zones • Political Risk • Government Barriers • Trading Blocs • Environmental Regulation • Host Community • Competitive Advantage

5. Characteristics of Location Decisions • Long-term decisions • Very difficult to reverse • Affect fixed & variable costs • Transportation cost • As much as 25% of product price • Other costs: Taxes, wages, rent etc. • Objective: Maximize benefit of location to firm

6. Location Decision Sequence 2. Region/Community 1. Country 3. Site © 1995 Corel Corp. © 1995 Corel Corp. © 1995 Corel Corp.

7. Factors Affecting Country Decision • Government • Culture & economy • Market location & size • Labor • Productivity • Cost • Skills • Infrastructure • Exchange rate • Incentives © 1995 Corel Corp.

8. Factors Affecting Region/Community Decision • Corporate desires • Attractiveness • Labor • Utility costs • Local government incentives • Proximity to customers & suppliers • Land/construction $$$ © 1995 Corel Corp.

9. Factors Affecting Site Decision • Site size • Site cost • Transportation in/out • Proximity of services • Environmental impact © 1995 Corel Corp.

10. Manufacturing Location Strategies • Cost focus • Revenue varies little between locations • Location is a major cost factor • Affects shipping & production costs (e.g., labor) • Costs vary greatly between locations © 1995 Corel Corp.

11. Service Location Strategies • Revenue focus • Costs differences among locations are relatively less important • Location is a major revenue factor • Affects amount of customer contact • Affects volume of business © 1995 Corel Corp.

12. Some Location Methods • Factor weighting method • Center of gravity method © 1995 Corel Corp.

13. Location Methods:Factor Rating Method • Most widely used location technique • Useful for service & manufacturing locations • Rates locations using factors • Qualitative (intangible) factors • Example: Education quality, labor skills • Quantitative (tangible) factors • Example: Short-run & long-run costs

14. Weighted Factor Rating Method Steps 1. List relevant factors 2. Assign importance weight to each factor (0-1 with all weights adding to 1) 3. Give a score to each location by factor (1-10, etc.) 4. Multiply scores by weights for each factor & total 5. Select location with maximum total score

15. Factor Rating Method Example You’re an analyst for John Deere. You’re considering locating a new 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.

16. Omaha is best Factor Rating Method Solution

17. 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.

18. Santa Fe is Best Solution TOTAL

19. Location Methods:Factor Rating Method +/- + Easy to understand and compute - How do you pick weights? - How do you assign rankings?

20. Location Methods: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. + eliminates subjectivity - may give unrealistic answer

21. Location Methods:Centroid Method • The centroid 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.

22. Plant Location Methodology: Centroid Method Formulas Cx = X coordinate of the centroid Cy = X coordinate of the 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

23. 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?

24. Y Q (790,900) D (250,580) A (100,200) (0,0) X Plant Location Methodology: Example of Centroid Method: Determining the Coordinates of the New Facility You then compute the new coordinates using the formulas: New location Z

25. 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.

26. Centroid Method Grid Seattle(50,60)494k units 90 60 Spokane (160,50)171k units 30 Aberdeen (20,35)18k units 0 © 1995 Corel Corp. 0 30 60 90 120 150

27. Solution

28. Thinking Challenge Solution Warehouse at (77, 57): Wenatchee Nat’l Forest! Seattle(50,60)494k units 90 60 X Spokane (160,50)171k units 30 Aberdeen (20,35)18k units 0 © 1995 Corel Corp. 0 30 60 90 120 150