Production & Operations Management
Facility Location
FACILITY LOCATION
Prof. Ajith Kumar, XLRI Jamshedpur
XLRI, Jamshedpur
Prof. Ajith Kumar
Production & Operations Management
Facility Location
WHERE SHOULD OUR
FACILITIES BE
LOCATED?
XLRI, Jamshedpur
Prof. Ajith Kumar
2
Production & Operations Management
Facility Location
CALL CENTERS IN INDIA
❖ Availability of Englishspeaking manpower.
❖ Manpower is highly
trainable.
❖ Adequate technological
infrastructure.
Source: https://www.pixabay.com
❖ Much lower prices (wages) than in the country of origin.
❖ Government policies are friendly and supportive.
XLRI, Jamshedpur
Prof. Ajith Kumar
3
Facility Location
Production & Operations Management
FACTORS THAT INFLUENCE LOCATION
❖ Labour
1
2
▪ Availability.
▪ Wages.
❖ Geographical proximity
3
▪ to customers (markets).
4
▪ to vendors / suppliers.
5
▪ to a port / railhead / highway.
6
▪ to inputs (raw materials, knowledge, capital).
7
▪ to competitors / clusters.
8
▪ one’s own other facilities.
9
▪ utilities such as schools, colleges, shopping &
recreation.
XLRI, Jamshedpur
Prof. Ajith Kumar
4
Facility Location
Production & Operations Management
FACTORS THAT INFLUENCE LOCATION
❖Capital Investment
10
11
▪ Real estate prices.
▪ Facility set-up costs.
❖Operating costs (other than labour)
12
▪ Electricity, water, sewage, telephone, maintenance.
13
▪ Local property taxes.
▪ Materials and consumables.
14
❖Politics & Administration
15
16
▪ Government support (local / central).
▪ Stability.
XLRI, Jamshedpur
Prof. Ajith Kumar
5
Facility Location
Production & Operations Management
FACTORS THAT INFLUENCE LOCATION
❖Ecology & environment
17
18
19
▪ Benefit/harm to local geography (rivers, lakes, hills).
▪ Benefit/harm to local flora / fauna.
▪ Benefit/harm to local residents including tribes.
❖The law (local /central)
20
21
▪ Prohibition on manufacture / sale or a good or service.
▪ Concessions (sops) to promote the activity.
❖Socio-cultural
22
▪ Acceptance/resistance by the local society / culture.
XLRI, Jamshedpur
Prof. Ajith Kumar
6
Facility Location
Production & Operations Management
INDUSTRY CLUSTERS
Cluster: A regional concentration of related firms.
❖ Chennai + Bangalore & the NCR – automobile manufacturing.
❖ Gujarat – pharmaceuticals manufacturing.
❖ Bangalore – IT & ITES.
❖ Central & Eastern India – Mining and metal making
➢ companies, suppliers and service providers, as well as government agencies
and other institutions that provide education, information, research and
technical support to a regional economy.
➢ creates a competitive advantage for that network.
➢ becomes an enticement for similar industries and suppliers to those
industries to develop or relocate to a region.
Further reading: Porter M. E. (1998), Clusters and the New Economics of
Competition, Harvard Business Review, pp. 7-13.
XLRI, Jamshedpur
Prof. Ajith Kumar
7
Production & Operations Management
Facility Location
NUMERICAL METHODS
Used in location decisions
❖ Centroid method.
❖ Load-distance method.
❖ Factor-score (weighted-score) method.
OTHERS
❖ Analytic Hierarchy Process (AHP)
❖ DEMATEL
XLRI, Jamshedpur
Prof. Ajith Kumar
8
Production & Operations Management
Facility Location
CENTROID METHOD
A supplier to the telecom
industry provides fuel
for power generators.
More than 600 tons are
to be shipped each week
from a warehouse to
eight major customer
locations in and around
Hyderabad city.
Customer
Location
Begumpet
Kachiguda
Banjara Hills
Madhapur
Nampally
Tank Bund
Shamsabad Airport
Osmania University
Tons
Shipped
5
92
70
35
9
227
16
153
x, y
Coordinates
(7, 13)
(8, 12)
(11, 10)
(11, 7)
(12, 4)
(13, 11)
(14, 10)
(15, 5)
What is the best warehouse location for the supplier? It need
not be one of these eight locations.
XLRI, Jamshedpur
Prof. Ajith Kumar
9
Production & Operations Management
Facility Location
CENTROID METHOD
– Compute the x and the y coordinates of the centroid,
x* and y*, as the weighted averages of x- and ycoordinates of the respective points.
𝑥∗
σ𝑖 𝑤𝑖 𝑥𝑖
=
σ𝑖 𝑤𝑖
𝑦∗
σ𝑖 𝑤𝑖 𝑦𝑖
=
σ𝑖 𝑤𝑖
– We obtain (x*, y*) = (12.4, 9.2).
– It may not be possible to locate the facility exactly at
(12.4, 9.2), hence, locate it nearby where suitable.
XLRI, Jamshedpur
Prof. Ajith Kumar
10
Production & Operations Management
Facility Location
CENTROID METHOD
Is most suitable when:
– the decision maker wants to identify a location
that can be termed as some sort of a “center” of
multiple existing locations.
– there are no pre-identified points for the new
location, to choose from. An open canvas: “the
new location can be anywhere”.
– “centrality” is more important than actual distance
from the new location to existing locations.
XLRI, Jamshedpur
Prof. Ajith Kumar
11
Production & Operations Management
Facility Location
CENTROID METHOD
A firm wises to find a central location for its service.
Business forecasts indicate travel from the central location to
New York City on 20 occasions per year. Similarly, there will
be 15 trips to Boston, and 30 trips to New Orleans. The x, ycoordinates are (11.0, 8.5) for New York, (12.0, 9.5) for
Boston, and (4.0, 1.5) for New Orleans. What is the best
central location?
(x*, y*) = (8.0, 5.5)
find a suitable location nearby, for the facility
XLRI, Jamshedpur
Prof. Ajith Kumar
12
Facility Location
Production & Operations Management
LOAD-DISTANCE (ld) METHOD
• When distance (or time) is a primary criterion
– Select a location that minimizes the sum of the loads
multiplied by the distance traveled.
– Time may be used instead of distance.
• What is a “load”? Some examples–
–
–
–
Number of employees working at a facility
Number of customers visiting that mall per day.
Weight in tons shipped from or to that place per month.
Number of trips made per week.
XLRI, Jamshedpur
Prof. Ajith Kumar
13
Facility Location
Production & Operations Management
LOAD-DISTANCE (ld) METHOD
σ𝑖 𝑙𝑖 𝑑𝑖𝑗
𝑆𝑗 =
σ𝑖 𝑙𝑖
XLRI, Jamshedpur
NORMALIZED LOAD-DISTANCE SCORE
Sj = normalized load-distance score for location j.
li = load experienced at facility i.
dij = distance between i and j.
Prof. Ajith Kumar
14
Facility Location
Production & Operations Management
LOAD-DISTANCE (ld) METHOD
What is the distance between (30, 15) and (60, 75)?
Euclidean distance
B
60, 75
Rectilinear distance
A
30, 15
Distance by the best road available
XLRI, Jamshedpur
Prof. Ajith Kumar
15
Facility Location
Production & Operations Management
LOAD-DISTANCE (ld) METHOD
Can be used when:
– It is possible to list a set of options beforehand for
the new location and compute the distances from
each of them to the existing facilities.
• The distances can be of any of the three types.
– When there is no set of options beforehand for the
new location but the distance is always either
Euclidean or rectilinear.
• A search heuristic can be used to find the optimal
location.
XLRI, Jamshedpur
Prof. Ajith Kumar
16
Facility Location
Production & Operations Management
LOAD-DISTANCE (ld) METHOD
❖A large IIT campus
wants to set-up a
central photocopying
facility for the benefit
of its residents.
❖It has identified 3
potential locations on
the campus and has to
pick one.
P
Students’
Hostels
Computer
Center
Q
R
Central
Library
Classroom
Complex
Faculty
Residences
Administrative
Block
XLRI, Jamshedpur
Prof. Ajith Kumar
17
Facility Location
Production & Operations Management
LOAD-DISTANCE (ld) METHOD
❖ Q is the best location.
XLRI, Jamshedpur
Prof. Ajith Kumar
18
Facility Location
Production & Operations Management
LOAD-DISTANCE (ld) METHOD
An electronics vendor has a
chain of five retail outlets in the
city of Chandigarh in the
locations shown.
The
respective coordinates of these
locations and the demands
experienced by them, are
known.
The vendor has decided to rent
a space in the city for
warehousing his stock, to be
able to supply replenishments
to any of the four locations
when needed.
What is the
ideal
location
for
the
warehouse?
XLRI, Jamshedpur
3
5
4
1
2
Roads in Chandigarh city follow a grid layout.
Prof. Ajith Kumar
19
Facility Location
Production & Operations Management
LOAD-DISTANCE (ld) METHOD
X
Y
1
Demand
(units /
month)
320
10
10
2
60
20
4
3
4
200
22
28
The point (22, 15) gives the minimum load-distance score
400
26
15
5
80
Retail
outlet
XLRI, Jamshedpur
12
20
Prof. Ajith Kumar
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Facility Location
Production & Operations Management
LOAD-DISTANCE (ld) METHOD
3
5
4
1
(22, 15) is near Sec-19. A
space for warehouse can
be searched near Sec-19.
XLRI, Jamshedpur
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Prof. Ajith Kumar
21
Production & Operations Management
Facility Location
FACTOR SCORE METHOD
Is used when:
– there is not just one factor (criterion) but multiple
factors (criteria) that matter to the decision.
– in some cases, distance or time may not be
important.
XLRI, Jamshedpur
Prof. Ajith Kumar
22
Production & Operations Management
Facility Location
FACTOR SCORE METHOD
Arogya Sristhi is assessing three places in Chattisgarh – Raipur, Bhilai and
Korba – for setting up its next clinic. The following table shows the
locations, and their ratings along various factors that are important to the
decision. Each factor carries a weight. A Likert-type scale is used for the
assessment, on which, 1 = poor and 5 = excellent. Apply the factor-score
method to recommend the best site.
Factor
Wt
Rating
Korba
Bhilai
Raipur
Total patient km per month
25
4
2
2
Facility utilization
20
3
4
5
Average time per emergency trip
20
3
3
4
Expressway accessibility
15
4
2
2
Land and construction costs
10
1
4
3
Employee preferences
10
4
5
3
XLRI, Jamshedpur
Prof. Ajith Kumar
23
Production & Operations Management
Facility Location
FACTOR SCORE METHOD
Factor
Wt
Rating
Korba
Bhilai
Raipur
Total patient km per month
25
4
2
2
Facility utilization
20
3
4
5
Average time per emergency trip
20
3
3
4
Expressway accessibility
15
4
2
2
Land and construction costs
10
1
4
3
Employee preferences
10
4
5
3
WSKorba = (25  4) + (20  3) + (20  3) + (15  4) + (10  1) + (10  4) = 330
WSBhilai = (25  2) + (20  4) + (20  3) + (15  2) + (10  4) + (10  5) = 310
WSRaipur = (25  2) + (20  5) + (20  4) + (15  2) + (10  3) + (10  3) = 320
XLRI, Jamshedpur
Prof. Ajith Kumar
24
Production & Operations Management
Facility Location
THANK
YOU
XLRI, Jamshedpur
Prof. Ajith Kumar
25