Facility Facility LocationLocation

Lecture Outline

• Types of facilities• Site selection: where to locate• Location analysis techniques

Types of Facilities

• Heavy-manufacturing facilities– large, require a lot of space, and are expensive

• Light-industry facilities– smaller, cleaner plants and usually less costly

• Retail and service facilities– smallest and least costly

Factors in Heavy Manufacturing Location

• Construction costs• Land costs• Raw material and finished goods shipment

modes• Proximity to raw materials• Utilities• Labor availability• E.g. machines, engines parts

Factors in Light Industry Location

• Transportation costs• Proximity to markets• Frequency of delivery required by customer• Land costs• Easily accessible geographic region• Education and training capabilities• E.g. Manufacture of clothes, furniture,

consumer electronics and home appliances

Factors in Retail Location

• Proximity to customers• Location is everything

Global Location Factors

• Government stability• Government regulations• Political and economic

systems• Economic stability and

growth• Exchange rates• Culture• Climate• Export import regulations,

duties and tariffs

• Raw material availability • Number and proximity of

suppliers• Transportation and

distribution system• Labor cost and education• Available technology• Commercial travel• Technical expertise• Cross-border trade

regulations• Group trade agreements

Regional Location Factors

• Labor (availability, education, cost, and unions)

• Proximity of customers• Number of customers• Construction/leasing

costs• Land cost

• Modes and quality of transportation

• Transportation costs• Community

government Local business regulations

• Government services (e.g., Chamber of Commerce)

Regional Location Factors (cont.)

• Business climate• Community services• Incentive packages• Government regulations• Environmental regulations• Raw material availability• Commercial travel• Climate

• Infrastructure (e.g., roads, water, sewers)

• Quality of life• Taxes• Availability of sites• Financial services• Community inducements• Proximity of suppliers• Education system

Location Incentives

• Tax credits• Relaxed government regulation• Job training• Infrastructure improvement• Monitory support by Government

Location Analysis Techniques

• Location rating factor

• Center-of-gravity

• Load-distance

Location Rating Factor

Identify important factorsIdentify important factors Weight factors (0.00 - 1.00)Weight factors (0.00 - 1.00) Subjectively score each factor (0 - Subjectively score each factor (0 -

100)100) Sum weighted scoresSum weighted scores

Location Factor Rating: Example

Labor pool and climateLabor pool and climateProximity to suppliersProximity to suppliersWage ratesWage ratesCommunity environmentCommunity environmentProximity to customersProximity to customersShipping modesShipping modesAir serviceAir service

LOCATION FACTORLOCATION FACTOR

.30.30

.20.20

.15.15

.15.15

.10.10

.05.05

.05.05

WEIGHTWEIGHT

8080100100

60607575656585855050

Site 1Site 1

6565919195958080909092926565

Site 2Site 2

9090757572728080959565659090

Site 3Site 3

SCORES (0 TO 100)SCORES (0 TO 100)

Weighted Score for “Labor pool and climate” for Weighted Score for “Labor pool and climate” for Site 1 = (0.30)(80) = 24Site 1 = (0.30)(80) = 24

Location Factor Rating

24.0020.00

9.0011.25

6.504.252.50

77.50

Site 1

19.5018.2014.2512.00

9.004.603.25

80.80

Site 2

27.0015.0010.8012.00

9.503.254.50

82.05

Site 3

WEIGHTED SCORES

Site 3 has the highest factor rating

Locate facility at center of Locate facility at center of geographic area geographic area

Based on weight and distance Based on weight and distance traveled establish grid-map of areatraveled establish grid-map of area

Identify coordinates and weights Identify coordinates and weights shipped for each locationshipped for each location

Center-of-Gravity Technique

Grid-Map Coordinates

where,where,xx, , y y ==coordinates of new coordinates of new facility at center of gravityfacility at center of gravityxxii, y, yii ==coordinates of existing coordinates of existing

facility facility iiWWii = =annual weight shipped annual weight shipped

from facility from facility ii

nn

WWii

i = i = 11

xxiiWWii

i = i = 11

nn

x =x =

nn

WWii

i = i = 11

yyiiWWii

i = i = 11

nn

y =y =

xx11 xx22 xx33 xx

yy22

yy

yy11

yy33

1 (1 (xx11, , yy11), ), WW11

2 (2 (xx22, , yy22), ), WW22

3 (3 (xx33, , yy33), ), WW33

Center-of-Gravity Technique: Example

AA BB CC DD

xx 200200 100100 250250 500500yy 200200 500500 600600 300300WtWt 7575 105105 135135 6060

yy

700700

500500

600600

400400

300300

200200

100100

00 xx700700500500 600600400400300300200200100100

AA

BB

CC

DD

(135)(135)

(105)(105)

(75)(75)

(60)(60)

MilesMiles

Mil

esM

iles

Center-of-Gravity Technique: Example (cont.)

x = = = 238n

Wii = 1

xiWii = 1

n

n

Wii = 1

yiWii = 1

n

y = = = 444(200)(75) + (500)(105) + (600)(135) + (300)(60)

75 + 105 + 135 + 60

(200)(75) + (100)(105) + (250)(135) + (500)(60)

75 + 105 + 135 + 60

Center-of-Gravity Technique: Example (cont.)

AA BB CC DD

xx 200200 100100 250250 500500yy 200200 500500 600600 300300WtWt 7575 105105 135135 6060

yy

700700

500500

600600

400400

300300

200200

100100

00 xx700700500500 600600400400300300200200100100

AA

BB

CC

DD

(135)(135)

(105)(105)

(75)(75)

(60)(60)

MilesMiles

Mil

esM

iles

Center of gravity Center of gravity (238, 444)(238, 444)

Load-Distance Technique

• Compute (Load x Distance) for each site• Choose site with lowest (Load x Distance)

Load-Distance Calculations

li di

i = 1

n

LD =

LD = load-distance value

li = load expressed as a weight, number of trips or unitsbeing shipped from proposed site and location i

di = distance between proposed site and location i

di = (xi - x)2 + (yi - y)2

(x,y) = coordinates of proposed site

(xi , yi) = coordinates of existing facility

where,

where,

Load-Distance: Example

Potential SitesPotential SitesSiteSite XX YY11 360360 18018022 420420 45045033 250250 400400

SuppliersSuppliersAA BB CC DD

XX 200200 100100 250250 500500YY 200200 500500 600600 300300WtWt 7575 105105 135135 6060

Compute distance from each site to each supplierCompute distance from each site to each supplier

= (200-360)= (200-360)22 + (200-180) + (200-180)22ddAA = (x = (xAA - x - x11))22 + (y + (yAA - y - y11))22Site 1Site 1 = 161.2= 161.2

= (100-360)= (100-360)22 + (500-180) + (500-180)22ddBB = (x = (xBB - x - x11))22 + (y + (yBB - y - y11))22 = 412.3= 412.3

ddCC = 434.2 = 434.2 ddDD = 184.4 = 184.4

Load-Distance: Example (cont.)

Site 2Site 2 ddAA = 333 = 333 ddCC = 226.7 = 226.7ddBB = 323.9 = 323.9 ddDD = 170 = 170

Site 3Site 3 ddAA = 206.2 = 206.2 ddCC = 20 = 20ddBB = 180.4 = 180.4 ddDD = 269.3 = 269.3

Compute load-distanceCompute load-distance

i = 1i = 1

nn

lli i ddiiLD =LD =

Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(434.4) = 125,063Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(434.4) = 125,063

Site 2 = (75)(333) + (105)(323.9) + (135)(226.7) + (60)(170) = 99,791Site 2 = (75)(333) + (105)(323.9) + (135)(226.7) + (60)(170) = 99,791

Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555*Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555*

* Choose site 3* Choose site 3