FACILITY LOCATION
Learning Objectives
Understand the importance of locating facilities. Identify the factors that affect location decisions. Choice of location based on Rating methods - factor Rating method, Point rating Method , Qualitative Factor Analysis Choice of location based on economic analysis break-even analysis and transportation model. Choice of Location based on load distance methods - Centroid Method and Median Load Method
Importance of Facility Location
Strategic implications Determines production technology and cost structure Large capital outlays that are not easily reversible
Factors affecting facility Location
Market Factors - Proximity to customers and suppliers (raw materials) Availability of Labour Availability of Infrastructure
Communications and Transport Services Amenities
Land Soil, Size, Topography and Climate Disposal of Waste
Factors affecting facility Location
Safety and Environmental Considerations Regional Considerations
Integration with existing Set up
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
Methods of Choice of Location
Break Even Analysis Transportation Theory Centroid Method Median Load Method Factor Rating Method Point Rating Method Factor Analysis Method
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 A B Rs 50000 Rs 100000 Variable Cost Rs 135 Rs 110
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 A
Fixed Cost 50000
Variable Cost 405000
Total Cost Profit 455000 445000
B
C
100000
120000
330000
360000
430000
480000
470000
420000
Locate at Site B
Break-even Analysis
At what volume of production would location A become viable?
Break Even Analysis
700000 600000
Total Cost in Rs
500000 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 A B C or D Requirement 2 1 3 1 200
Y 3 1 2 3 300
Z 2 3 1 4 400
Capacity 300 400 200 200
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.
d W x W
ix i
d W y W
iy i
where x is the X coordinate of the centroid y is the Y coordinate of the centroid
d ix is the X coordinate of the ith location
d iy 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
25
40
450
B
C
350
325
400
75
350
1500
D
E
400
450
150
350
250
450
Solution
x 25 450 350 350 325 1500 400 250 450 450 307.9 450 350 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
450 400 350 300 250 200 150 100 50 0 0 100 200 300 400 500
A C F B
350,400
E
450,350
308,155 325,75
400,150
25,40
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 B C D E 25 350 325 400 450 40 400 75 150 350 450 350 1500 250 450
Total Loads 3000. Median Load between 1500 and 1501.
Grid Map for Example 9.4
450 400 350
300 250 200 150 400,150 325,75
350,400 450,350
100 50 0
0 100 200 300
25,40
400 500
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 4511950 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 4511950 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).
Factor Rating Method
Let us take the example of setting up a ready made garments store specializing 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). Rate each Factor (Say from 1 to 5) according to its relative importance. Rate Each Location ( say from 1 to 3) according to its merit on each factor
Factor Rating method
Loc A Attribute Weightage Score Wtd Score B Score Wtd Score C Score Wtd Score D Score Wtd Score 5 2 10/15 0 0/15 2 10/15 2 10/15 C 4 1 4/15 2 8/15 3 12/15 0 0/15 I 2 3 6/15 1 2/15 2 4/15 0 0/15 PS 3 0 0/15 2 6/15 3 9/15 1 3/15 QN 1 1 1/15 3 3/15 2 2/15 0 0/15 13/75 IV 37/75 I 19/75 III 21/75 II P Total Rank
Point Rating Method
Factors Rated Future Availability of fuel Maximum Points 300 Location A 200 Location B 250
Transportation facility
Water Supply Labor Availability
200
100 250
150
100 220
150
100 200
Pollution Regulation
Site Topography Living Conditions Total
30
50 150 1080
20
40 100 830
20
30 125 875
Qualitative Factor Analysis Method
Develop a list of relevant qualitative factors. Assign a weight to each factor to indicate its relative importance ( weights total should be 1). Assign a common scale to each factor ( say 0 to 100) and assign points to all locations. Multiply the score with weights. Total the points for each location
Factor Analysis Method
Relevant factor Assigne d Weight 0.35 0.25 Score Location A Score Location B Weighted Score Location A 17,5 27.5 Weighted Score Location B 14 20
Environmental lssues Raw Material supplies
50 70
40 80
Labor Availability
Cost of Living Quality Markets Total
0.20
0.05 0.05 0.10 1.00
60
80 50 70
70
70 60 90
12
4 2.5 7 60.5
14
3.5 3 9 63.5
Thanks
