chapter 10 facility location in a global environment
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Chapter 10 Facility Location in a Global Environment. IDS 605 M. Busing Spring 1999. Facility Location. Facility Location is the placement of facility with respect to customers, suppliers and other interacting facilities. It should consider: Operating costs Customer convenience - PowerPoint PPT PresentationTRANSCRIPT
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Chapter 10Chapter 10Facility Location in aFacility Location in aGlobal EnvironmentGlobal Environment
IDS 605IDS 605
M. BusingM. Busing
Spring 1999Spring 1999
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Facility LocationFacility Location
Facility Location is the placement of facility with respect to customers, suppliers and other interacting facilities. It should consider:» Operating costs» Customer convenience» Transportation costs» Access to key related services
such as banking and
educational opportunities» Strategic factors
Transparency 10.1
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Location as a Strategic DecisionLocation as a Strategic Decision
1. Long-term commitment
2. Linked to customer base
3. Regional facility supplies specific area
4. Product facility supplies globally
5. Combination of regional and product facilities
Transparency 10.2
Regional or Global
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Factors Affecting theFactors Affecting theLocation DecisionLocation Decision
Strategic nature of decision
Quantitative factors Government incentives Qualitative factors
Transparency 10.3
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Data for Site inData for Site inIndianapolis, Indiana Indianapolis, Indiana (Slide 1 of 2)(Slide 1 of 2)
(Exhibit 10.1)Transparency 10.4a
Labor
Material
Utilities
Transportation
WeldingElectricalGeneral assemblySheet metalThreaded fastenersElectrical wireNatural gasElectricityIn railMotor carrierMotor carrierOut motor carrier
$10.00/hr.$12.00/hr.$9.00/hr$.40/lb.$2.00/100$.06/lineal ft.$4.00/1,000 cu. ft.$.06/kilowatt hr.$.03/lb. (sheet metal)*$.04/lb. (fasteners)$.04/lb (wire)$20/unit (finished)
Type Rate Projected usage
Variable Production Costs
0.5 hrs./unit0.3 hrs./unit1.1 hrs./unit100 lbs./unit20/unit70 lineal ft./unit500 cu. ft./unit200 kilowatt hrs./unit100lbs./unit5 lbs./unit4 lbs./unit1
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Data for Site inData for Site inIndianapolis, Indiana Indianapolis, Indiana (Slide 2 of 2)(Slide 2 of 2)
Facility OverheadInitial Investment
Special Considerations
(Exhibit 10.1)Transparency 10.4b
Land acquisition costsBuilding constructionPlant start-up costsInitial employee training
Tax abatementLow-interest loansSupplementary training expenses
$2,100,000$175,000,000
$25,000,000
Type Rate Projected usage
Variable Production Costs
*Rates are given from a specific origin to a specific destination, so distance has been accounted for.
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Pro Forma Operating BudgetPro Forma Operating Budgetfor One Year for One Year (Slide 1 of 2)(Slide 1 of 2)
(Exhibit 10.2)Transparency 10.5a
Labor Welding Electric Assembly Total labor costsMaterial Sheet metal Fasteners Wire Total material costsUtilities Natural gas Electricity Total utility costs
($10.00/hr.)(.5 hrs./unit)(45,000 units)($12.00/hr.)(.3 hrs./unit)(45,000 units)($9.00/hr.)(1.1 hrs./unit)(45,000 units)
($.40/lb.)(100 lbs./unit)(45,000 units)($2.00/100)(20/unit)(45,000 units)($.06/lin.ft.)(70 lin.ft.)(45,000 units)
($4.00/1,000 cu./ft.)(500 cu./ft/unit)(45,000 units)($.06/kwh)(200 kwh/unit)(45,000 units)
$ 225,000162,000445,500
$ 832,500
$1,800,00018,000
189,000$2,007,000
$ 90,000540,000
$ 630,000
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Pro Forma Operating BudgetPro Forma Operating Budgetfor One Year for One Year (Slide 2 of 2)(Slide 2 of 2)
Transportation Sheet metal Fasteners Wire Finished product Total transportation costsVariable costs
Facility overhead *
Grand total
(Exhibit 10.2)Transparency 10.5b
($.03/lb.)(100 lb./unit)(45,000 units)($.04/lb.)(5lb./unit)(45,000 units)($.04/lb.)(4lb./unit)(45,000 units)($20.00/unit)(45,000)
$ 135,0009,0007,200
900,000$1,051,200
$4,520,700
2,100,000
$6,620,700
*Some overhead costs can be variable, but to simplify the discussion in this case, we will assume all overhead costs are fixed.
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Factors in Location AnalysisFactors in Location Analysis (Slide 1 of 2) (Slide 1 of 2)
Transparency 10.6a
LOCATIONCountryDistance in miles from: Los Angeles Chicago Memphis
POPULATION 1990 1980 1970 City County
MUNICIPAL SERVICESType of local governmentComprehensive city plan: Date completed Underway Under considerationNumber of full-time fire department personnel:Number of full-time city policemen:Percent of city streets paved: %
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Factors in Location AnalysisFactors in Location Analysis (Slide 2 of 2) (Slide 2 of 2)
COMMERCIAL SERVICES Machine shop in city: Yes No NumberType of newspaper in city Daily WeeklyRadio stations Yes No NumberBANKING SERVICESTRANSPORTATION SERVICESTrain Community served by railroad(s): Yes No Name(s) of railroad(s):
Motor carrier Highway bus service available Yes No Number of highways serving city: Federal StateBarge:City adjoins navigable river: Yes NoBarge dock available Yes NoChannel depth: feet. Length of season: Transparency 10.6b
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Including theIncluding theQualitative FactorsQualitative Factors
Integrate qualitative factors» Determine which
factors are relevant to the problem
» Weigh each factor» Rate each site for
each factor
Transparency 10.7
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Examples of Indianapolis and Examples of Indianapolis and Lexington Lexington (Slide 1 of 2)(Slide 1 of 2)
Indianapolis Lexington Weight Raw Score Raw Score
Recreational activities 20 8 7University research facilities 40 8 8Union activities 40 4 7Banking services 80 7 6Available labor pool 60 7 5
Transparency 10.8a
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Examples of Indianapolis and Examples of Indianapolis and Lexington Lexington (Slide 2 of 2)(Slide 2 of 2)
Indianapolis Lexington Weighted score Weighted score
Recreational activities 160 140 University research facilities 320 320Union activities 160 280Banking services 560 480Available labor pool 420 300
Total 1,620 1,520
Transparency 10.8b
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Analyzing Spatial RelationshipsAnalyzing Spatial Relationships
Load-Distance Method measures proximity to customers, suppliers, interacting facilities
Transportation Problem relates to the cost of transporting materials to and from multiple facilities
Transparency 10.9
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Distance from FacilityDistance from Facilityto Customerto Customer
(Exhibit 10.3)Transparency 10.10
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Health Care UnitHealth Care UnitLocation ProblemLocation Problem
(Exhibit 10.4)Transparency 10.11
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Locating a Health Care Center Locating a Health Care Center Using the “Load-Distance Using the “Load-Distance
Method” Method” (Slide 1 of 3)(Slide 1 of 3)
Population coordinates
Code ai xi yi (ai )(xi) (ai)(yi)
10111 30,000 3 2 90,000 60,00010112 25,000 2 4 50,000 100,00010113 11,000 1.5 5.5 16,500 60,50010114 8,000 3 7 24,000 56,00010115 18,000 3.5 5 63,000 90,00010116 24,000 4.5 3.5 108,000 84,00010117 12,000 5.25 6.25 63,000 75,000
Total 128,000 414,500 525,500
Zip
Transparency 10.12a
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Locating a Health Care Center Locating a Health Care Center Using the “Load-Distance Using the “Load-Distance
Method” Method” (Slide 2 of 3)(Slide 2 of 3)
where xf = Distance along the x axis from the origin to the center of gravity yf = Distance along the y axis from the origin to the center of gravity ai = The activity level (load) from the i th location to the proposed facility Xi = the coordinate on the x axis for the i th customer location yi = the coordinate on the y axis for the i th customer location
xf
a x
a
i ii
n
ii
n
1
1( )
yf
a y
a
i ii
n
ii
n
1
1( )
Transparency 10.12b
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Locating a Health Care Center Locating a Health Care Center Using the “Load-Distance Using the “Load-Distance
Method” Method” (Slide 3 of 3)(Slide 3 of 3)
The coordinates of the center of gravity are:
xf = yf = 414,500 525,500
128,000 128,000
= 3.24 = 4.11
Transparency 10.12c
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Transportation ProblemTransportation Problem
Cost of moving materials between multiple destinations
Vogel’s Approximation Method
To evaluate two locations, solve the transportation problem for each location
OR
Transparency 10.13
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Transportation Matrix forTransportation Matrix forProton Consulting ServiceProton Consulting Service
(Exhibit 10.5)Transparency 10.14
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First Assignment forFirst Assignment forProton Consulting ServiceProton Consulting Service
(Exhibit 10.6)Transparency 10.15
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Second Assignment forSecond Assignment forProton Consulting ServiceProton Consulting Service
(Exhibit 10.7)Transparency 10.16
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(Exhibit 10.8)Transparency 10.17
Third Assignment forThird Assignment forProton Consulting ServiceProton Consulting Service
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Final Transportation Matrix forFinal Transportation Matrix forProton Consulting ServiceProton Consulting Service
(Exhibit 10.9)Transparency 10.18
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Location Decision Affects Other Location Decision Affects Other Operating Decisions Operating Decisions
Alternative to on-site expansion
On-site expansion is problematic» Material handling and
storage
» Complex production flow
» Strained communication
» New technology delayed
» Use of old equipment
» Layering of expanded responsibilities
Transparency 10.19
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International Dimensions ofInternational Dimensions ofLocation DecisionLocation Decision
Reasons for locating in foreign countries » Comparative
Advantage» Closeness to market» Political relationships» Availability of
resources
Transparency 10.20
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Location Analysis forLocation Analysis forService OperationsService Operations
Concepts and techniques discussed so far apply to service operations
Service issues:» Minimize response time:
Emergency medical services
» Provide minimum coverage: Fire Protection
» Mobile location: Police or security units
Transparency 10.21