FACILITY LOCATION
Prepared by Şevkinaz Gümüşoğlu
using different references about POM
Facility location problem involves the
evaluation of various sites for a new
facility or relocate an existing facility.
• Location decisions are strategic nature. Once a firm
has decided to open a new one or relocated an
existing one ,it must be decides where that facilitiy
should be located. Decisions like :
• New plant ( continent, country,region, city, land)
• Expansion
• Decentralisation
• Shut down plant
• To run partial capacities
• To run over time capacities .
You can handle them with using some
analytical &mathematical model.
• How you would determine the best facilities
Location.
• Finding best location manufacturing plant is
related with long term decision and these activity
too expensive
• Seting up the machine & equipment facilities are
related with mid term & short term decision.
We must carry out to determine optimal decision
among the possible locations with relevent
factors.
Different facilities lacations
Facilities Location Decision for Natural Gas
Site Selection: Where to Locate
• Location criteria for
• being “in the right place at the
manufacturing facility
• Infrequent but important
right time”
• Must consider other factors,
especially financial
considerations
• Location decisions made more
often for service operations
than manufacturing facilities
• Location criteria for service
• access to customers
Copyright 2011 John Wiley & Sons, Inc.
R.Taylor
• nature of labor force
• labor costs
• proximity to suppliers and
markets
• distribution and transportation
costs
• energy availability and cost
• community infrastructure
• quality of life in community
• government regulations and
taxes
Supplement 7-6
LOCATION
Location problems can be characterized by choice among multiple
sites.
Each location decision tends to be different. In some cases, the
decision criterion is cost. In others it is revenue, vehicle response time,
or multiple criteria.
Some location problem include distribution costs from multiple plants
and warehouses, other do not.
Since there are many different types of location problems, the following
classification framework has been developed.
1.Single-facility location
A factory or warehouse
Government facilities
Hospital
Electric power plant
2.Location of multiple factories and warehouse
( min. prod. and distribution cost )
Multiple factories
Multiple warehouses
Multiple factories and warehouses
3.Location of competitive retail stores
Banks
Department stores
Supermarkets
Restaurants
4.Emergency-services location
(minimize response time)
Ambulance
Fire station
Police station
Location decisions are crucial to both new and existing facilities
because they interest to organize the long-term cost,
employment, and marketing patterns. Location (and relocation)
opportunities should be reviewed as
• labor conditions
• raw-material supplies (pure, weight losing,ubiquities material)
• market demands change
especially to in the manufacturing plant.
Firms can respond to the change by maintaining their statusquo, by expanding or closing existing facilities, or by developing
new ones.
No locational procedures can ensure that an optimal location is
chosen.
Avoiding a some trouble location is perhaps more important
than finding an ideal site
Numerous firms have encountered unexpected problems with
 zoning restrictions
 water supply
 waste disposal
 labor unions
 transportation costs
 tax laws
 community attitudes about pollution
In order to avoide some important problems , a systematic analysis
(including the use of comprehensive checklist) is strongly
recommended.
Firms often do a quantitative analysis first to establish the alternative
locations, then follow with an exhaustive review of qualitative (less
tangible) factors.
.
Single Facility Location
Many location require the selection of a site for a single facility. These
include the location of a factory, a warehouse, and a government office.
A crucial assumption in these problem is that the revenue, costs or
other facility characteristics.
Most facility location problems involve multiple criteria. Multiple decision
criteria can be simplified into two types: cost and non-cost factors. The
most factors can be measured objectively. The non-cost factors include
various intangible.
The types of tangible costs usually involved in a location problem
include:
1.Cost of land, buildings, and equipment
2.Transportation costs
3.Utilities costs
4.Taxes and insurance
5.Labor cost
.
The non-cost factors which should be considered
include:
1.Supply of labor
2.Labor and union relations
3.Community attitudes
4.Goverment regulations
5.Quality of life(climate, schools, living, recreation)
6.Environmental impact
7.Corporate strategy
These factors may be intangible, they can be
systematically evaluated and logically considered together
with the tangible factors. One way to combine all these
factors is to develop a rating scale for each one which
reduces management judgment to a quantifiable score.
Example: we are considering two different cities
Richmond, Birmingham for the location of a
medium-sized Red Bakery Firm. The bakery will
produce an assortment of bakery goods on site
and will sell directly to retail customers as well as
whole sale do grocery stores, restaurants, etc. The
factors shown in Table-1 have been evaluated for
two cites.
The total score can be computed for each site. This is done
by first converting the rating for each non-cost factor to a
numerical score.
The conversion for the example is shown in Table-2 using a
10-point scale
.
Return on investment is normalized to a ten-point maximum scale, the
some as the subjective ratings.
The next step is to develop a weighting scheme among the factors by
rating, subjectively, the importance of each factors in relation to the
others. In this one,100 points have been assigned to all the factory.
However, it is not necessary. If an additive scale is used, it is
appropriate to multiply the weight by the factor scores to arrive at a total
score for each factor.
The procedure which has been described can be summarized as
follows:
Where
Sj : Total score for location j
Wi : Weight for factor i
Fij : Factor score for factor i on location j
n : Number of locations
m : Number of factors
The location with the highest total score is then the
best choice.
The total scores are as follows:
S1 =15(8)+5(6)+5(10)+5(2)+10(8)+60(6)
S2 =15(10)+5(4)+5(8)+5(6)+10(6)+60(10)
S1 =650 S2 =900
This scoring system, therefore, indicates that
alternative 2, Birmingham, is preferred.
Location Factor Rating
SCORES (0 TO 100)
LOCATION FACTOR
Labor pool and climate
Proximity to suppliers
Wage rates
Community environment
Proximity to customers
Shipping modes
Airport service
WEIGHT
Site 1
Site 2
Site 3
.30
.20
.15
.15
.10
.05
.05
80
100
60
75
65
85
50
65
91
95
80
90
92
65
90
75
72
80
95
65
90
Weighted Score for “Labor pool and climate” for
Site 1 = (0.30)(80) = 24
Copyright 2011 John Wiley & Sons, Inc.,
R.Taylor
Supplement 7-17
Location Factor Rating
WEIGHTED SCORES
Site 1
Site 2
Site 3
24.00
20.00
9.00
11.25
6.50
4.25
2.50
77.50
19.50
18.20
14.25
12.00
9.00
4.60
3.25
80.80
27.00
15.00
10.80
12.00
9.50
3.25
4.50
82.05
Copyright 2011 John Wiley & Sons,
Inc.,R.Taylor
Site 3 has the
highest factor rating
Supplement 7-18
Locational Break-event analysis:
Example: Potential locations at Albany, Baker and Casper
have the cost structures shown in Table for a product
expected to sell for $130.
a)Find the most economical location for an expected to sell
volume of 6.000 units per year.
b)What is the expected profit if the site selected in (a) is
used ?
c)For what output range is each location best?
.
a)
A: TC:$150.000+$75(6.000) =$600.000
B: TC:$200.000+$50(6.000) =$500.000 *
C: TC:$400.000+$25(6.000) =$550.000
Therefore the most economical location is B
b) Expected profit (using B )
P=$130 (6.000)-$500.000=$280.000/Yr
c) From the graph, use A for volumes up to 2000, B for
2000-8000 and C for volumes greater than 8000 units.
Location decisions goal is;
Types of Facilities
• Heavy-manufacturing facilities
• large, require a lot of space, and are expensive
• Light-industry facilities
• smaller, cleaner plants and usually less costly
• Retail and service facilities
• smallest and least costly
Copyright 2011 John Wiley & Sons, Inc.
Supplement 7-22
Factors in Heavy
Manufacturing Location
•
•
•
•
•
•
•
Construction costs
Land costs
Raw material & finished goods shipment modes
Proximity to raw materials
Utilities
Means of waste disposal
Labor availability
Copyright 2011 John Wiley & Sons, Inc.
Supplement 7-23
Factors in Light Industry Location
• Land costs
• Transportation costs
• Proximity to markets
• depending on delivery requirements
including frequency of delivery required by
customer
Copyright 2011 John Wiley & Sons, Inc.
Supplement 7-24
Global Supply Chain Factors
•
Government stability
•
Government regulations
Political & economic systems
•
Economic stability & growth
Exchange rates
•
Culture
•
Export/import regulations, •
duties & tariffs
•
• Raw material availability
•
•
•
•
•
•
•
•
Copyright 2011 John Wiley & Sons, Inc.
Climate
Number & proximity of
suppliers
Transportation & distribution
system
Labor cost & education
Available technology
Commercial travel
Technical expertise
Cross-border trade
regulations
• Group trade agreements
Supplement 7-25
Location Incentives
•
•
•
•
•
Tax credits
Relaxed government regulation
Job training
Infrastructure improvement
Money
Copyright 2011 John Wiley & Sons, Inc.
Supplement 7-26
Location of Multiple Factories and
Warehouses
Transportation Linear Programming
Transportation adds no value to a product other than place utility.
However, the transportation costs for raw materials and finished goods
are often significant and merit special analysis.
Before deciding on a plant location, management may want to know
which plants will be used to produce what quantities and to which
distribution warehouses all quantities should be shipped.
If the location problem can be formulated as one of minimizing a
transportation cost, subject to satisfying overall supply and demand
requirements.
Facilities Location for the source-destination problem
n
n
MinZ   CijXij
i 1 j 1
To use the transportation linear-programming format, the
demand requirements and supply availabilities are
formulated in a rectangularmatrix. The transportation costs
between the supply and demand points are placed in the
upper corner of each cell.
Supply is allocated to meet demand. The solution
procedure is an iterative one that begins which an initial
solution that is feasible but not necessarily optimal.The
solution is progressively tested and improved upon until an
optimal solution is reached.The optimal solution satisfies
demand at the lowest total cost. Several methods of
obtaining initial and optimal solution have been developed:
Copyright 2011 John Wiley & Sons, Inc.
Example 1:
Rent’R Cars is a multi-site car rental company in the city. Its trying out a
new ”return the car to the location most convenient for you” policy to
improve costumer service. But this means that the company has to
constantly move cars around the city to maintain required levels of the
vehicle availabilty. The supply and demand for economy cars , and the
total cost of moving these vehicle between sites are shown below:
From
Supply (car)
To
Demand (car)
1.Cincinati
300
A.New York
150
2.Atlanta
200
B.Dallas
250
3.Pittsburg
200
C.Detroit
300
Unit
Cost
Table
A
B
C
1
$16
$18
$11
2
$14
$12
$13
3
$13
$15
$17
Linear Programming Model
Xij
i=1,2,3
j=A,B,C
n
n
MinZ   CijXij
Objective Function
i 1 j 1
Minimize
Z=16X1A+16X1B+11X1C+14X2A+12X2B+13X2C+13X3A+15X3B+17X3C
Subject to:
X1A+X1B+X1C ≤300
X2A+X2B+X2C ≤200
X3A+X3B+X3C≤200
Supply Constraints
X1A+X2A+X3A=150
X1B+X2B+X3C=250
X1C+X2C+X3C=300
Demand Constraints
Xij≥0
FOR EACH ROW AND COLUMN
REMAıNıNG UNDER
CONSıDERATıON, CALCULATE ıTS
DİFFERENCES
• BETWEEN SMALLEST AND NEXT-TO- THESMALLEST UNıT COST(CİJ) STıL REMAıNıNG
ıN THAT ROW OR COLUMN (opportunity cost)
• In that row or column having the largest
difference, select the variable having the smalest
remaining unit cost.
Example 2:
•
Warehouse
• Factory
1
2
3
•
1
19
30
50
•
2
70
30
40
•
3
40
8
70
• Demand 5
8
7
Solving: Nort-west: $1015
VAM
: $779
Steping stone : $743
4
Supply
10
7
60
9
20
18
14
34