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Facility Location
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Learning Objectives
Issues in Facility Location
Various Plant Location Methods
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Competitive Imperatives Impacting
Location The need to produce close to the customer
due to time-based competition, trade
agreements, and shipping costs.
The need to locate near the appropriate labor
pool to take advantage of low wage costs
and/or high technical skills.
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Issues in Facility Location
Proximity to Customers
Business Climate
Total Costs
Infrastructure
Quality of Labor
Suppliers
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Issues in Facility Location
Other Facilities
- Free Trade Zones
- Political Risk
- Government Barriers
- Trading Blocs
- Environmental Regulation
- Host community- Competitive Advantage
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Plant Location Methods:
Factor-Rating Systems (Example) Two refineries sites (A and B) are assigned the following range ofpoint values and respective points, where the more points the better
for the site location.
Major factors for site
Location
Pt. Range Site
A BFuels in region 0 to 330 123 156
Power availability and reliability 0 to 200 150 100
Labor climate 0 to 100 54 63
Living conditions 0 to 100 24 96
Transportation 0 to 50 45 55
Water supply 0 to 10 8 4
Climate 0 to 50 34 14
Supplies 0 to 60 45 50
Tax policies and laws 0 to 50 45 20
Total 528 558 Best site is B
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Plant Location Methods:
Transportation Method of Linear Programming
Transportation method of linear programming
seeks to minimize costs of shipping n units tom destinations or its seeks to maximize profit
of shipping n units tom destinations.
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Transportation Method (Example)
Suppose the Indian Pharmaceutical Company has four factories supplyingthe warehouses of four major customers and its management wants to
determine the minimum-cost shipping schedule for its monthly output to
these customers. Factory supply, warehouse demands, and shipping costs
per case for these drugs are shows below:
Factory Supply Warehouse DemandShipping Costs per Case (in Rupees)
From
To
Delhi
To
Chennai
To
Kolkata
To
Mumbai
Lucknow 15 Delhi 10 Lucknow Rs 25 Rs 35 Rs 36 Rs 60
Pune 6 Chennai 12 Pune 55 30 25 25
Amritsar 14 Kolkata 15 Amritsar 40 50 80 90
Coimbatore 11 Mumbai 9 Coimbatore 30 40 66 75
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Transportation Method (Example)
Transportation Matrix for Indian Pharmaceutical Problem
From To Delhi Chennai Kolkata Mumbai Factory supply
Lucknow 25 35 36 60 15
Pune 55 30 25 25 6
Amritsar 40 50 80 90 14
Coimbatore 30 40 66 75 11
Destination
requirements 10 12 15 9 46
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Plant Location Methods:
Centroid Method
The centroid method is a technique used for locating
single facilities that considers existing facilities, the
distances between them, and the volumes of goods
to be shipped between them.
This methodology involves formulas used to compute
the coordinates of the two-dimensional point that
meets the distance and volume criteria stated above.
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Plant Location Methods:
Centroid Method Formulas
C =d V
Vx
ix i
i
C d
y
iy i
i
Cx = X coordinate of centroid
Cy = X coordinate of centroid
dix = X coordinate of the ith location
diy = Y coordinate of the ith location
Vi = volume of goods moved to or from ith
location
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Plant Location Methods:
Centroid Method Example
The HiOctane Refining Company needs to locate an intermediate holding
facility between its refining plan in Gauhati and its major distributors. The
fig below shows the coordinate map. The amount of gasoline shipped to
or from the plant and distributors appears in table below.
Grid Map for Centroid Example
# Plant Distributor
200
500
300
500
400
Mumbai (25,450)
100 200 300 400
100
Lucknow (350,450)
New Delhi (450,350)
Calcutta (400,150)
# Gauhati (325,75)
*Centroid (308,217)
Locations Liter of PetrolPer month (000,000)
Gauhati
Calcutta
New DelhiLucknow
Mumbai
1,500
250
450350
450
Shipping Volumes
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Centroid Method Example:
Determining Coordinates of the centroid
You then compute the new coordinates using the formulas:
307.93000
923,750
4503504502501500
25(450)350(350)450(450)400(250)325(1500)Cx
216.73000
650,000
4503504502501500
)450(450)350(400350(450)150(250)75(1500)Cy
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