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Technical Note 10

Facility Location

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• Issues in Facility Location

• Various Plant Location Methods

OBJECTIVES

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Competitive Imperatives Impacting Location

• The need to produce close to the customer due to time-based competition, trade agreements, and shipping costs

• The need to locate near the appropriate labor pool to take advantage of low wage costs and/or high technical skills

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Issues in Facility Location

• Proximity to Customers• Business Climate• Total Costs• Infrastructure• Quality of Labor • Suppliers• Other Facilities

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Issues in Facility Location

• Free Trade Zones • Political Risk• Government Barriers• Trading Blocs• Environmental Regulation• Host Community• Competitive Advantage

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Plant Location Methodology: Factor Rating Method Example

Fuels in region 0 to 330Power availability and reliability 0 to 200Labor climate 0 to 100Living conditions 0 to 100Transportation 0 to 50Water supply 0 to 10Climate 0 to 50Supplies 0 to 60Tax policies and laws 0 to 20

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.

1231505424454855

Major factors for site location Pt. Range

156100639650545020

SitesA B

Total pts. 418 544

Best Site is B

Best Site is B

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Plant Location Methodology: Transportation Method of Linear

Programming

• 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

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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

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Plant Location Methodology: Centroid Method Formulas

C = d V

V x

ix i

i

C = d V

V x

ix i

i

Where:Cx = X coordinate of centroidCy = X coordinate of centroiddix = X coordinate of the ith locationdiy = Y coordinate of the ith locationVi = volume of goods moved to or from ith location

C = d V

Vy

iy i

i

C = d V

Vy

iy i

i

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Plant Location Methodology: Example of Centroid Method

Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month?

Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month?

• Centroid method example– Several automobile showrooms are located according to the

following grid which represents coordinate locations for each showroom

S howroom No o f Z-Mo b ile s s o ld p e r mo nth

A 1250

D 1900

Q 2300X

Y

A(100,200)

D(250,580)

Q(790,900)

(0,0)

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12Plant Location Methodology: Example of Centroid Method (Continued): Determining

Existing Facility CoordinatesTo begin, you must identify the existing facilities on a two-dimensional plane or grid and determine their coordinates.

To begin, you must identify the existing facilities on a two-dimensional plane or grid and determine their coordinates.

X

Y

A(100,200)

D(250,580)

Q(790,900)

(0,0)

You must also have the volume information on the business activity at the existing facilities.

You must also have the volume information on the business activity at the existing facilities.

S ho wro o m No o f Z-Mo b ile s s o ld p e r mo nth

A 1250

D 1900

Q 2300

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13Plant Location Methodology: Example of Centroid Method (Continued): Determining the

Coordinates of the New Facility

C = 100(1250) + 250(1900) + 790(2300)

1250 + 1900 + 2300 =

2,417,000

5,450 = x 443.49C =

100(1250) + 250(1900) + 790(2300)

1250 + 1900 + 2300 =

2,417,000

5,450 = x 443.49

C = 200(1250) + 580(1900) + 900(2300)

1250 + 1900 + 2300 =

3,422,000

5,450 = y 627.89C =

200(1250) + 580(1900) + 900(2300)

1250 + 1900 + 2300 =

3,422,000

5,450 = y 627.89

S ho wro o m No o f Z-Mo b ile s s o ld p e r mo nth

A 1250

D 1900

Q 2300X

Y

A(100,200)

D(250,580)

Q(790,900)

(0,0)

You then compute the new coordinates using the formulas:You then compute the new coordinates using the formulas:

ZZ

New location of facility Z about (443,627)

New location of facility Z about (443,627)

You then take the coordinates and place them on the map:You then take the coordinates and place them on the map:

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End of Technical Note 10