FACILITY LOCATION
FACILITY LOCATION Once a firm has decided to open a new facility OR relocate an existing facility, It must decide where that facility should be located.
FACILITY LOCATION Once a firm has decided to open a new facility OR relocate an existing facility, It must decide where that facility should be located.
FACILITY LOCATION
Facility location pro bl em em involves t he he o r a n ew eval uation o f f va rio us us sit es es f o ew acility . f acility acto rs There a re re several f acto rs t hat in f f l l ue uenc e t he he Facility Location Deci sion:
ed to Resourc es Factors Relat ed
La bor ava ila bi bil it y, y, La bor cost , La bor Skills; Mat er ials Ava ila bi bil it y, y, Mat er ial cost , mat er ial qual it y; Equ ipmen t ava ila bi ipment ava bil it y, y, Equ ipmen ipment Cost; La nd nd ava ila bi bil it y, y, La nd nd su ita bi bil it y, y, La nd nd cost; Ener gy gy ava ila bi bil it y, y, ener gy gy cost; Wat er ava r ava ila bi bil it y, y, wat er qual it y, y, wat er cost .
ed to th e M ark Factors Relat ed ark et Pro ximi ximit y to th e s mark et , s ize fir m m s ize o f f th e mark et , pot en ent ial needs o f f th e mark et .
Factors Relat ed to th e Infrastructur e
Ava ila bil it y of F inanc ial Inst itut ions , Str en gth of F inanc ial Inst itut ions Govern ment Sta bil it y, Govern ment ta xes , Import and Export r estr ict ions . Qual it y of l if e, Cultural issu es , Environ mental r egulat ions , Trans portat ion ava ila bil it y, Trans portat ion cost And f inall y, Co mpet itors s ize, str en gth and att itud e in that r egion .
FACILITY LOCATION There are many analytical techniques that can be used in facility location decision. Some of these are : 1) Factor Rating 2) Cost-Profit-Volume analysis 3) Center of Gravity Method, and 4) Transportation and Simulation Models.
Method of Factor Rating
In factor rating method, first we must identify the Most Important Factors in evaluating alternative sites for the new facility. Then we should assign a weight between 0 and 100 to each of these factors.
Method of Factor Rating Each alternative location will then be rated based on these factor weights. The most weighted alternati ve is selected as the best alternative.
Example Samson Ltd. is considering three alternati ve sites for its new facility. After e valuating the firms Needs, the Managers have Narrowed the list of Important Selection Criteria down into three major Factors. - Availability of skilled labor - Availability of Raw materials, and - Proximity to the firms markets.
Example
Weights reflecting the relative importance of each factor ha ve been assigned as follows:
Example
Based
on these criteria, the three Alternative sites were scored between 0 and 100 points:
Example
Now we will multiply each score by its corresponding factor weight : Weighted scores are calculated as : (Site Score)x(Factor Weight )
Example
From these results, the largest total weight is for Site A. It appears to be the best location.
Example
What happens if we change the factor weights. Lets use the following factor weights: Skilled labor: 0.45; Raw Materials: Market : 0.15 0.40; and Then the following results are obtained :
Example
Example
In this case, Site C appears to be the best choice with largest weight score. Therefore, factor rating method is very sensitive to the weights assigned to each factor.
Example
Since factor weights, selected factors, and assigned scores are all determined subjectively, the managers should be very careful in selecting these items and numbers.
Cost-Profit-Volume Analysis When the fixed and variable costs for each site differ, Cost-profit-volum e analy sis can be u sed to identif y the location with the lowest cost.
Example
Foster Paper Ltd. is considering three alternative sites for its new production facility. The Annual Production Cost associated with each alternative is a linear function of the production volume. That is:
Example Total Production Cost = (Fixed Cost ) + (variable unit cost ) x (annual production volume)
Assume that The expected annual production volume is 250.000 units. And further assume that : (x: production volume = 250.000)
Example For Site A: Prod. Cost = 10.000.000 + 250 x For Site B: Prod. Cost = 25.000.000 + 150 x For Site C: Prod. Cost = 60.000.000 + 50 x
Based
on these information, Which site has the lowest cost?
Example
At a production volume of 250.000 units, site B has the lowest cost, because For Site A: Prod. Cost = 10.000.000 + 250 (250.000) = 72.500.000 For Site B: Prod. Cost = 25.000.000 + 150 (250.000) = 62.500.000 For Site C: Prod. Cost = 60.000.000 + 50 (250.000) = 72.500.000
Example
Example
This graphic shows that annual production cost changes with different production volumes. -If the expected annual production volume is below 150.000 units, then choose site A. -If the expected annual production volume is between 150.000 and 350.000 units, then choose site B. -If the expected annual production volume is over 350.000 units, then choose site C.
Center of Gravity Method
The center of gra vity method is used to find a location that Minimizes the Sum of Transportation Cost in between new facility and old facilities. Transportation cost is assumed to be a linear function of the Number of Units Shipped AND the Tra veling Distance.
Center of Gravity Method
The location of the firms existing facilities are converted into x and y coordinates. The following center of gra vity equations are Then used for calculating the x and y coordinates for the new facility:
Center of Gravity Method
Center of Gravity Method
Here,
Cx : x coordinate for new location Cy : y coordinate for new location i: index for existing locations n: total number of existing locations xi: x coordinate of existing ith location , and yi: y coordinate of existing ith location.
Example
Aldrich Manufacturing Company plans to build a Warehouse to serve its Distribution Centers in Columbus (Ohio), Frankfort (Kentucky), Nashville (Tennessee), and Richmond (Virginia ).
Example
Example
The number of units to be shipped monthly from Harrisburg to the Distribution Centers are shown in the following table: (Weighted Coordinates are calculated as: (Annual Shipping Volume ) (x or y coordinate))
Example
Example
Using the equations of center of gravity: Cx = 2,040,000 / 10,000 = 204 (x coordinate for new facility ) Cy = 1,185,000 / 10,000 = 118.5 (y coordinate for new facility ) The nearest city to (204, 118.5) Charleston at West Virgina.
Example
This method only considers the distances traveled. It does not consider the other factors such as the a vailability of roads on the selected location. Therefore, applying solely this method may not be applicable in e very cases.
Transportation Model A special form of linear programming, that is Transportation Model, can be used to compare the total transportation cost associated with each alternative site.
Transportation Model
The transportation model technique can be used to determine how many units should be shipped from each plant to each warehouse To Minimize Total Transportation Cost.
Example
Straub Ltd. has three plants running at full capacity in Des Moines, Racine, and Gary. These plants supply four Distribution warehouses in St. Paul, Milwaukee, Chicago, and Detroit.
Example
Straub plans to build a new plant. It has narrowed down the choice of sites to two possibilities: Kalamazoo and Duluth. We will now determine which site results in the lowest transportation Cost by using the unit transportation costs, warehouse demands, and plant capacities shown in the following:
Example
Example
Example
We will approach this problem in the following manner: We will first assume that the selected plant is the Kalamazoo plant, and calculate the total transportation cost.
Example
Later, we will assume the selected plant is Duluth. Then we will compare the transportation costs for both plants. Now, the first step is to find the Optimal number of units to ship between each plant-warehouse combination. This also gives the optimal transportation cost for the problem.
Example
We can use any of the computerized L P tools for finding the optimum values for this problem. Some of these include WINQSB, Lindo, OM Expert, and Excel. We use WINQSB to solve this transportation model. The result is as follows:
Example
Example
The total transportation cost will be $ 10,225 if the new plant is built in Kalamazoo. (This can be calculated simply by multiplying the shipment in each cell by its unit cost ) On the other hand, The optimal number of units to ship between each plant and Duluth Warehouse is found as follows :
Example
Example
The total transportation cost will be $13,825 if the new plant is built in Duluth. Therefore, the Kalamazoo plant will incur the lowest transportation cost.
Simulation
Models
Firms often Consider many variables and Factors when they choose a facility location.
Simulation
Models
These variables are often difficult to estimate and they also change in time. In these kinds of Dynamic Situations, Simulation may be the best modeling technique.
