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Facility Location

The document discusses various factors and methods for determining the optimal location for facilities. It describes key considerations like proximity to customers and suppliers, availability of infrastructure and labor, and environmental factors. It then explains specific analytical methods for evaluating location options, including factor rating analysis, break-even analysis, transportation modeling, and centroid and median load distance methods. An example demonstrates applying the centroid and median load distance methods to determine the optimal location for a new warehouse based on existing production facility locations and load volumes.

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virender2
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269 views19 pages

Facility Location

The document discusses various factors and methods for determining the optimal location for facilities. It describes key considerations like proximity to customers and suppliers, availability of infrastructure and labor, and environmental factors. It then explains specific analytical methods for evaluating location options, including factor rating analysis, break-even analysis, transportation modeling, and centroid and median load distance methods. An example demonstrates applying the centroid and median load distance methods to determine the optimal location for a new warehouse based on existing production facility locations and load volumes.

Uploaded by

virender2
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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FACILITY LOCATION

Learning Objectives
• Understand the importance of locating facilities.
• Understand the causes leading to location decisions.
• Identify the factors that affect location decisions.
• Explain the factor rating analysis
X method
R and the forced
decision matrix.
• Choice of location based on economic analysis – break-
even analysis and transportation model.
• Understand load distance methods for solving location
problems.
Importance

• Strategic implications
• Determines production technology and
cost structure
• Large capital outlays that are not easily
reversible
• Provide timely and convenient service to
the customers
Factors

• Market Factors - Proximity to customers and


suppliers (raw materials).
• Availability of Labour
• Availability of Infrastructure
– Communications and Transport
– Services
– Amenities
• Land and Climate
Factors
• Safety and Environmental Considerations
• Regional Considerations
• Business Environment
– Political stability
– Economic state
– Foreign exchange rates, currency repatriation regulations,
import export barriers, and government incentives become
major factors when considering location of facilities globally.
– Socio-cultural factors
• Integration
Methods – Factor Rating Analysis

• Let us take the example of setting up a ready


made garments store specialising in casual
cotton clothing at a shopping mall. Four existing
malls A, B, C and D have been short-listed. The
factors that were considered important and
critical are proximity of a college (C), income(I),
availability of parking space(PS), quality and
number of stores already in the mall(QN),
proximity of other shopping complexes in the
area(P).
Methods – Factor Rating Analysis
Loc Attribute C I PS QN P Total Rank
Weightage 5/15 4/15 2/15 3/15 1/15
A Score 2 1 3 0 1
Wtd Score 10/15 4/15 6/15 0/15 1/15 21/15 II
B Score 0 2 1 2 3
Wtd Score 0/15 8/15 2/15 6/15 3/15 19/15 III

C Score 2 3 2 3 2
Wtd Score 10/15 12/15 4/15 9/15 2/15 37/15 I

D Score 2 0 0 1 0
Wtd Score 10/15 0/15 0/15 3/15 0/15 13/15 IV
Break-even Analysis
A sports goods firm intends to set up a unit to produce
tennis rackets. It is considering sites A, B and C for the
purpose. Cost data for the sites is given below.
Site Fixed Cost Variable Cost
A Rs 50000 Rs 135
B Rs 100000 Rs 110
C Rs 120000 Rs 120

If the selling price is Rs 300/- per racket and the annual


demand is 3000, Which site would you recommend ?
Break-even Analysis
Revenue at all sites is the same = 300 X 3000 = 900000

Location Fixed Cost Variable Total Cost Profit


Cost
A 50000 405000 455000 445000

B 100000 330000 430000 470000

C 120000 360000 480000 420000

Locate at Site B
Break-even Analysis
• At what volume of production would location A become viable?
Break Even Analysis

700000

600000

500000
Total Cost in Rs

400000

300000

200000

100000

0
0 1000 2000 3000 4000 5000
Production Volume

Location A Location B
Transportation Model
• Pre-mixed concrete is supplied to three project sites X, Y and Z from two
existing facilities located at A and B.

X Y Z Capacity

A 2 3 2 300
B 1 1 3 400
C or 3 2 1 200
D 1 3 4 200
Requirement 200 300 400
Load Distance Methods

• Centroid Method
– The center of gravity 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.
Load Distance Methods

x=
∑dW
=y
ix i ∑d W iy i

∑W ∑ i Wi
where x is the X coordinate of the centroid
y is the Y coordinate of the centroid
dix is the X coordinate of the ith location
diy is the Y coordinate of the ith location

Wi is the weight or load moved from or to the ith location.


Example
A company has five existing production facilities. The company is now
centralising its purchase system and establishing a warehouse which will supply
materials to the five facilities. Where should the warehouse be located?

X Coordinate Y Coordinate Load

A 25 40 450
B 350 400 350
C 325 75 1500
D 400 150 250
E 450 350 450
Solution
25 × 450 + 350 × 350 + 325 × 1500 + 400 × 250 + 450 × 450
x= = 307.9
450 + 350 + 1500 + 250 + 450
40 × 450 + 400 × 350 + 75 × 1500 + 150× 250+ 350× 450
y= = 155.1
450 + 350 + 1500 + 250 + 450
Grid Map for Example 9.4

450
400 350,400
B
350 450,350
300
E
250
200
150 308,155 400,150
100 F D
325,75
50 25,40
0 A C
0 100 200 300 400 500
Median Load Method
• Similar to centroid method
• Identify the median load.
• Find the X coordinates of the existing
facility that sends or receives the median
load.
• Find the Y coordinates of the existing
facility that sends or receives the median
load.
• Locate new plant at X,Y
Example
X Coordinate Y Coordinate Load

A 25 40 450
B 350 400 350
C 325 75 1500
D 400 150 250
E 450 350 450

Total Loads 3000. Median Load between 1500 and 1501.


Example
• Find the X Coordinate of the Median Load.
Consider the movement of loads in the X
direction. Beginning at the origin and moving
along the X axis consider the loads moved to
each location. From location A 450 loads are
moved, that is, loads 0‑450 are moved from A
(X= 25). The next location along the X axis is C.
From C 1500 loads are moved, that is loads
451-1950 are moved (X=325). Since the median
load falls in the interval 451-1951, the X
coordinate of the new warehouse is X=325.
Example
• Find the Y Coordinate of the Median Load.
Consider the movement of loads in the Y
direction. Beginning at the origin and moving
along the Y axis consider the loads moved to
each location. From location A 450 loads are
moved, that is, loads 0‑450 are moved from A
(Y= 40). The next location along the Y axis is C.
From C 1500 loads are moved, that is loads
451-1950 are moved (Y=75). Since the median
load falls in the interval 451-1951, the Y
coordinate of the new warehouse is Y=75.
• Locate Warehouse at (325,75).

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