Facility Location Planning
Location Planning
• Interrelated facility planning decisions:
1.
2.
Location of facilities: geographic placement
Number of facilities: facility types (manufacturing plants, distribution centers, retail
outlets, etc.) which make up distribution network
Size of facilities (capacity): refers to the overall cubic feet and throughput (volume)
rate which constrains all future facility operations.
3.
This must also consider the layout.
4.
Allocation of customers to facilities: order processing and fulfillment
•
•
Important factors affecting the decision include: proximity, facility volume,
transportation costs, customer importance, etc.
Facility location dependent upon objective(s)
Strategic Importance
1. Capital investment (machinery, technology,
land, buildings, etc.)
2. Long-term commitment
3. Impact on costs (operating efficiency)
4. Numerous criteria
Location Planning Process
1. Each problem is unique
2. Scope of problem: Two levels
• Level 1: Macro (national and regional), identifies a general location
based upon primary cost, customer service standards, technological
constraints, and dominant location factors; many possible locations
eliminated at this level
• (2) Level 2: Micro (local and specific), identifies an exact site within the
general location; incorporates considerations which are not easily
quantifiable
3. “Satisficing” solutions
Facility Location Methods of Analysis
1. Simple cost formulation combined with a
complex optimization procedure
2. Complex cost model combined with a simple
heuristic method to minimize the cost
function
Single-Site Facility Location Problems
1. Hoover’s Strategies: e.g., market-oriented,
production-oriented
2. Cost-Volume-Profit (Breakeven) Analysis
3. Transportation Method of Linear
Programming
4. Center of Gravity Approach
5. Others? E.g., Payback, NPV, IRR, etc.
Multiple-Site Facility Locations
• More complex decision-making problem due
to its interdependence; large number of
potential logistic system configurations; yet
more realistic and more common as even
many small firms have more than one facility.
• Some methods of analysis: optimization (e.g.,
LP), simulation methods, heuristic methods
Linear Scoring Rule (rating scale or
weighted checklist)
• Integrates both quantitative and qualitative factors
• LSR Concerns
1. weights are subjective and solution sensitive
2. scores are subjective and solution sensitive
3. all factors considered?
• Example
A paint manufacturer would like to locate a retail store. A list of important
location factors is presented below. Factor weights are assigned a number
from 1 to 10 according to their relative importance of each factor (10
being most important). Each location factor is scored on a scale from 1 to
10 (10 representing the most favorable status).
LSR Example
Factor
Weight
8
5
8
7
6
Location Factors
Proximity to competition
Rent/lease considerations
Parking Space
Proximity to complementary stores
Modernity of store space
Factor Weighted
Score
Score
5
40
3
15
10
80
8
56
9
54
Total Score: 245