FACILITY LOCATION Introduction Transportation / location tradeoffs Types of location problems Modes of transportation and routing Location models Sources: [1] Chapter 6, [3] Chapter 7’s supplement IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATION – introduction 2 Product (with its characteristics): has been selected (thru product selection and design + process design) Production facility: its capacity (size as well) has been determined to meet the demand (thru capacity planning and forecasting) IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATION – introduction 3 Next: determine the most economical way to obtain the product and deliver it to customers. This includes considerations like: Location of the facility relative to locations of the suppliers and potential customers, and possible means of transportation Layout of the facility IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATION – introduction 4 FACILITIES (tesisler): buildings and structures where operations take place. Essential in operations planning, since facilities impact operations due to many factors. The topic of obtaining and distributing materials and products: LOGISTICS. LOGISTICS management: supply, storage, and movement of materials, personnel, equipment and products within the organization and between the organization and its environment. Our focus will be: supply and distribution aspects of logistics IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATION – introduction 5 Distribution cost in sales: ranges from 10% (in mechanical equipment industry) to 30 % (in food industry) Hence Locate with care Operate supply and distribution with care IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATION – transportation / location tradeoffs 6 Logistics tradeoffs: In service systems without a facilitating good: Locate in the vicinity of the customers (medical clinics, parks, dry cleaners) Reach the customers by phone, internet (impact of ICT) (banks): locate independent of the customers Transport the services (concerts, plays, blood donor vehicles) IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATION – transportation / location tradeoffs 7 Logistics tradeoffs: In service systems with a facilitating good: Product distributed to the customers (internet shopping, express pizza delivery, Amazon.com) Locate in the vicinity of the customers (restaurants) In goods manufacturing firms: Tradeoff between location and logistics costs (minimize overall logistics costs) IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATION – transportation / location tradeoffs 8 Locating the manufacturing facility closer to the inputs Processing natural resources as raw materials: Large loss in size / weight during processing. inbound transportation cost > outbound transportation cost to the recipients (mining, steel production) Perishable inputs (fish processing, canning) Economies of scale for the product in terms of operating costs Locating the manufacturing facility closer to the customers Immobile product (projects: dams, roads, buildings, bridges). All inputs carried to the construction site. To improve customer service primarily (tire manufacturers close to car manufacturers) IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATION – transportation / location tradeoffs 9 Example: Federal Express Package delivery - in business for over 40 years 650 planes, 42,000 vans Central hub concept Bring packages to Memphis from throughout the world going to cities for which Federal Express does not have direct flights Enables service to more locations with fewer aircrafts Enables matching of aircraft flights with package loads Reduces mishandling and delay in transit because there is total control of packages from pickup to delivery IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATIONtypes of location problems 10 Types of location problems: Number and types of facilities Single facility vs Multiple facilities (the same type or not) o Locating one additional facility with N existing facilities o Locating or relocating N facilities at once (or thru time) Number of facilities in the multiple facilities case: known or unknown (more complex) Number of products Single product vs. multiple products IE 323 Lecture Notes - 5 23-25/10/2023 Single-channel multifacility case: FWRC 11 IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATIONtypes of location problems 12 Types of location problems: Alternative sites (select best N sites from M possible alternatives) Number of stages Specified site (discrete) alternatives vs. unspecified site alternatives (usually continuous) Multiple stages. Intervening stages between the production faciliy and the recipients, as warehouses, distribution centers, wholesalers. Single-channel vs. multi-channel wrt. the distribution pattern Number of criteria Single vs. multiple Cost and service criteria IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATION modes of transportation and routing 13 The five major modes of transportation: Water – least expensive mode, long trips with bulky, nonperishable items; but slow and limited accessibility Rail – shorter hauls than water, small as well as large items, good accessibility, specialized services (e.g. liquids, cattle,..), inexpensive Truck – short hauls with small volumes to specialized locations Air – small, high-value and/or perishable items (e.g. Electronic components, important paperwork), high speed of delivery for long distances Pipeline (natural gas,..) IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATION modes of transportation and routing 14 Transportation planning is complex, taking all pros and cons of each mode of transportation into consideration. Major considerations (factors) in transportation decisions (Table 6.1): Cost/unit, total shipment cost, full truckload or less-thantruckload, shipping time, perishability of product during shipment, risk of failure in delivery promises, protection of goods from theft, weather conditions, size of the product, availability of insurance.. Routing problem: Number of vehicles, types and their capacities (fleet of vehicles) Route of each vehicle IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATION modes of transportation and routing 15 Routing problem: One vehicle serving all recipients on one route: travelling salesperson problem (TSP) Fleet of vehicles: several vehicles serving all recipients thru several routes - vehicle routing problem (VRP) Usually minimize the distance travelled or the cost in VRP and TSP Other considerations: balancing the workload among the vehicles; minimizing the idle or delay time. IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATION three-stage location process 16 Regional/international stage: Community stage Factors to be considered: proximity to customers and suppliers, labor supply, availability of inputs, environment Many of the considerations at the regional / international stage considered again at this stage Site stage: the actual location of the facility is selected. Size, adjoining land, zoning, community attitudes, drainage, soil, availability of water, sewer, and utilities, waste disposal, transportation accessibility, local market, development costs. Cash flow analysis of each candidate site is conducted: labor cost, taxes, cost of land, cost of utilities and transportation. IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATION location models 17 Some models may help in finding out better sites. All models can be used for any of the stages. Rate-Volume-Distance Transportation Cost Model Simply the product of the transportation rate (T), the volume (V), and the distance (D) over all locations (TVD model). T: cost for the type of transportation needed: ₺/unit volume (weight)/unit distance –e.g. 5 ₺/ ton-km. V: volume (weight) being transported D: distance from the facility to the recipients’ demand locations i: recipient index. i=1,…, n C: total cost IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATION location models 18 Rate-Volume-Distance Transportation Cost Model n C Ti Vi Di i 1 Example: Select the best location for a warehouse, among alternative sites A and B, for supplying the demand of the recipients below: W/H site A B recipient 1 2 3 1 2 3 IE 323 Lecture Notes - 5 Ti (₺/ton-km) 10 12 10 10 13 10 Vi (tons) 2 4 5 2 4 5 Di (km) 30 22 9 25 26 7 23-25/10/2023 FACILITY LOCATION location models 19 Example (cont’d): TVD model Cost (A) = 10 x 2 x 30 +12 x 4 x 22 + 10 x 5 x 9 = 2106 ₺ Cost (B) = 10 x 2 x 25 + 13 x 4 x 26 + 10 x 5 x 7 = 2202 ₺ Location A has the least cost. W/H Location recipient A 1 2 3 B 1 2 3 IE 323 Lecture Notes - 5 Ti (₺/ton-km) 10 12 10 10 13 10 Vi (tons) 2 4 5 2 4 5 Di (km) 30 22 9 25 26 7 23-25/10/2023 FACILITY LOCATION location models 20 If locating on a single line: Di dependent on the chosen facility site on the straight line. D2 1 V1 T1 2 V2 T2 4 3 V3 T3 D4 D3 V4 T4 D1 IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATION location models 21 The optimal is at one of the localities. Find the jth location such that 1 n Ti Vi Ti Vi and i 1 2 i 1 j 1 1 n Ti Vi Ti Vi . i 1 2 i 1 j D2 1 V1 T1 IE 323 Lecture Notes - 5 2 V2 T2 4 3 V3 T3 D1 D4 D3 V4 T4 23-25/10/2023 FACILITY LOCATION location models 22 Example: i 1 2 3 4 TiVi TiVi 600 600 375 975 480 1455 * 864 2319 2319 1/2 TiVi = 1159.5 No distance was calculated. 2D Space: Make an incremental analysis: a hopeful initial site is selected. Then it is moved slightly north, south, east and west. Total cost comparison is made. The process is repeated until no more improvement. 23-25/10/2023 Ti 3 2.5 3.2 2.7 IE 323 Lecture Notes - 5 Vi 200 150 150 320 FACILITY LOCATION location models 23 Center of gravity method : is another alternative method on 2-D, finding the weighted average distance from some base point. If there are no rate or volume weights, then the center of gravity is just the average distance for the set of recipient locations. If the volumes or the rates differ among recipient sites, then a mean is calculated based on the volume or rate-weighted distances. If both the volumes and the rates differ among recipient sites, then their products become the weights. The mean is found by dividing by the sum of weights. IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATION location models 24 Center of gravity method : Assume xi and yi are the coordinates of the recipients. y1 T1V1 N T2V2 y2 X* T3V3 y3 i 1 N i xi i T V i 1 i i Y* T V i 1 N i yi i T V i 1 i i x2 x3 x1 T V N This optimizes the quadratic objective function: T V x x * N Min i 1 i i IE 323 Lecture Notes - 5 i 2 yi y * 2 . Q: what is good about quadratic? 23-25/10/2023 FACILITY LOCATION location models 25 Weighted Score Model : the most general approach of all. offers a method to combine different concerns like cost measures, profit measures, other quantitative and qualitative measures in one combined model. A weight is assigned to each factor (criterion) depending on its importance to the manager. The more important the criterion, the higher its weight. A score is assigned to each location alternative on each factor. Higher score better result. Weight (Wi) x score (Si): weighted score on factor i. Add up the weighted scores for each alternative. IE 323 Lecture Notes - 5 23-25/10/2023 FACILITY LOCATION location models 26 Weighted Score Model : The location with the highest weighted score is the best location site. N total weighted score Wi S i i 1 example: Quebec city used the weighted score model in relocating its blood bank. How would you assign the importance weights? IE 323 Lecture Notes - 5 23-25/10/2023 Example: clinic location 27 IE 323 Lecture Notes - 5 23-25/10/2023