PERANCANGAN TATA LETAK FASILITAS (IEH3L3)

WEEK 3:
FACILITY LOCATION

Team Teaching:
Ika Puspita
Mira Rahayu
Augustina A. R
Ilma Mufidah

Prodi S1 Teknik Industri

Fakultas Rekayasa Industri
Universitas Telkom
1
 Nature of Location Decisions

Strategic • Long term commitment/costs

• Impact on investments, revenues, and operations
Importance • Supply chains

• Profit potential
Objectives • No single location may be better than others
• Identify several locations from which to choose

• Expand existing facilities

Options • Add new facilities
• Move

2
Making Location Decisions
1. Decide on the
criteria

2. Identify the
important factors

3. Develop location
alternatives

4. Evaluate the
alternatives

5. Make selection

3
 Location Decision Factors
Community
Regional Factors Considerations

Multiple Plant Site-related

Strategies Factors

4
 Regional Factors

Location of raw materials

Location of markets

Labor factors

Climate and taxes

5
 Community Considerations
Quality of life

Services

Attitudes

Taxes

Environmental regulations

Utilities

Developer support

6
 Site Related Factors
Land

Transportation

Environmental

Legal

7
 Multiple Plant Strategies
Product plant
strategy

Market area
plant strategy

Process plant
strategy
8
 Comparison of Service and
Manufacturing Considerations
Manufacturing/Distribution Service/Retail
Cost Focus Revenue focus

Transportation modes/costs Demographics: age,income,etc

Energy availability, costs Population/drawing area

Labor cost/availability/skills Competition

Building/leasing costs Traffic volume/patterns

Customer access/parking

9
 What factors should we consider?

Skilled workforce Environmental Cost of utilities,

laws / cost of labor, taxes, rent,
compliance etc.

Suppliers close by Quick delivery to Competitors close

– fast & cheap customers, not by?
access necessarily
geographically close
Source: http://attalikapmcs.com, http://naturenl.ca, to customers
https://www.advancingmanufacturingct.com/, 10
http://www.selma-nc.com/public-utilities,
https://www.123rf.com/,
 Location Decisions

Long-term decisions

Difficult to reverse

Affect fixed & variable costs

https://www.franchisedirect.com

• Transportation costs (25% of price)

• Other costs: taxes, wages, rent

Objective: maximize benefit of location

to firm

11
Service Location Considerations
Revenue changes a
Cost probably doesn’t
huge amount,
change nearly as much,
depending on the
by location
location.

Traffic has to be people

who would want to buy
You need traffic All malls have high rent
your products when
they are there.

Source: http://www.shopandproduct.com Source: http://www.textraveler.com

12
 Cost Focus
Revenue does not vary
much, depending on the
location.
• Customers don’t care if your
warehouse is in Sparks or
Sacramento
Impacts
Location is a major cost shipping, Varies
labor, greatly by
consideration production location
cost

13
 Cost Minimization

Identify the costs that will vary

most with the location you choose.
• Transportation, taxes, labor,
• Facility construction cost, utilities

Other considerations

• Proximity (kedekatan) of services,

suppliers
https://www.vectorstock.com
• Quality of life
• Government incentives

14
 Process Overview
Identify general Usually based on
region to locate mostly on transp.
in costs

Identify a list of Choose cities Estimate labor

with good transp. cost & availability,
candidate cities Access facilities costs

Select metro Find cost of

area, identify building or
candidate leasing individual
properties. properties

15
 Location methods

Minimize demand-weighted distance

• Center of Gravity – minimizing demand-weighted distances of
one facility
• Ardalan – minimize transportation of multiple facilities, but
must locate by customers
• (P-Median Problem, Maximum Covering)

Factor Weighting – consider qualitative factors

Break-even – Consider fixed & variable costs

Statistical – Linear Regression – profit maximizing

16
 Distribution Center Location

Minimize demand- How many to

Where to build?
weighted distance: build?

distance to each customer

times
the volume of shipments
to the customer

17
 1. Center of Gravity

d W ix i
Compute X and Y coordinates
separately
CX  i

W i
i
dix is the X coordinate of location i.

d W
diy is the Y coordinate of i.
iy i
CY  i

W
Wi is the X demand at i.
i
i CX and CY are the coordinates of the
DC.

18
 Example

You need to decide where to build a

new DC for Motorola.

It needs to serve wholesalers in Reno,

Dallas, and Chicago.

Locate these cities on an unscientific,

rectangular grid.

Grid must maintain relative distances,

but X and Y grids could be different.

19
100

80

60

40

20

0
0 20 40 60 80 100 120 140 160
20
City Demand
• Reno is at 17, 55 100
• Fort Worth is at 78, 20 90
• Chicago is at 110, 65. 120

• Demand is TL/month
 d W ix i
17 *100  78 * 90  110 *120
CX  i

W i
i 100  90  120

1,700  7,020  13,200 21,920

CX    70.7
310 310
i diyWi 55 *100  20 * 90  65 *120
CY  
Wi i
100  90  120

5,500  1,800  7,800 15,100

CY    48.7
310 310
22
100

80

60

40

20

0
0 20 40 60 80 100 120 140 160
 Finalizing City
• Go where other warehouses are
– More choice in pre-built buildings
– Cheaper, easier to build a new one
– More trucks to and from town, means more carriers there,
means cheaper rates.
– Backhaul situation
• Get estimates of inbound, outbound trucking costs.
– Provide lists of # loads per year to each destination, from
each source
 Example 2
• You need to decide where to locate a DC in
South Dakota
X Y Demand
• Pierre 78 47 50
• Watertown 150 65 8
• Sioux Falls 160 25 90
• Rapid 12 42 60
100

80

60

40

20

0
0 20 40 60 80 100 120 140 160
 d W ix i
78 * 50  150 * 8  160 * 90  12 * 60
CX  i

W i
i 50  8  90  60

3,900  1,200  14,400  720 20,220

CX    97.2
208 208

d W iy i
47 * 50  65 * 8  25 * 90  42 * 60
CY  i

W i
i 50  8  90  60

2,350  520  2,250  2,520 7,640

CY    36.7
208 310
100

80

60

40

20

0
0 20 40 60 80 100 120 140 160
 2. Ardalan Heuristic
Need a matrix of distances or costs from each
customer location to every other location

Demand at each location

Weight – give higher weight to more important

customers – their pain of traveling a longer distance
is worth more.

Only consider locating where customers are

Identify the one best place to locate at, then the

second one to add, then the third, etc.
 Example 1
• Minimize weighted distance traveled
To
From A B C D Dem Weight
A 0 11 8 12 10 1.1
B 11 0 10 7 8 1.4
C 8 10 0 9 20 0.7
D 9.5 7 9 0 12 1.0
Expected demand at each location

Weight represents importance of serving

location (bigger = more important)

Step 1: Multiply distances * weights * demand

A to B: 11 * 1.1 * 10 = 121
Step 2. Add up values in columns
From A B C D
A 0 121 88 132
B 123.2 0 112 78.4
C 112 140 0 126
D 114 84 108 0

349.2 345 308 336.4

Choose smallest value as first site.
From A B C D
A 0 121 88 132
B 123.2 0 112 78.4
C 112 140 0 126
D 114 84 108 0

349.2 345 308 336.4

3. If larger, set each cost equal to cost in same row in
the chosen column
From A B C D
A 0 88 88 88
B 112 0 112 78.4
C 0 0 0 0
D 108 84 108 0

220 172 308 166.4

Get rid of previously chosen column.
Sum, choose smallest sum.
From A B D
A 0 88 88
B 112 0 78.4
C 0 0 0
D 108 84 0
220 172 166.4
Repeat 3 & 4 until enough sites chosen.
From A B D
A 0 88 88
B 78.4 0 78.4
C 0 0 0
D 0 0 0
78.4 88 166.4
Repeat 3 & 4 until enough sites chosen.
From A B
A 0 88
B 78.4 0
C 0 0
D 0 0
78.4 88
 Ardalan Summary

What we decided is that if we only want to build one

location, it should be in C.

If we want to build two, they should be in C and D. If

we add a third one, it should be in A.
 Ardalan Summary

Assumes that we have to locate in the same city as

one of our customers, which is not always the case.

However, it can be used to find more than one

location.

Center of Gravity does not try to locate in the same

city as one of the customers, but can only set one site.
 3. P-Median Problem

Minimize average weighted distance to customers,

when locating P facilities, where P>=1.

Can consider 100s of locations.

Complex to solve – there is software for this.

 4. Maximum Covering Problem
A facility can “cover” a customer if the customer is within X miles
of the facility.

Try to find the best location, and minimum number of facilities to

cover all demands.

Cover a table with plates.

Math also very hard.

 Incremental or clean-slate approach

Take into account existing

facilities

What is the best location to

add, given the existing Unfortunately, only P-
facilities? Median or Maximum
Covering can deal with these.
What is the best to add, if
we were to close down one
of the current facilities?
 5. Factor Rating Method

1. List relevant factors, assign a

weight

Develop a scale for each factor

Most widely used method

2. Score each factor using the scale

Useful for service or industrial
facilities: can include
3.Multiply scores by weights, add up
intangible, qualitative factors
4. Choose location with highest total
score

5. Kind of like “Miss America”

 Example
We consider the following
We need to decide where factors
to build a new coffee
roasting plant. There are Transp: annual trucking costs in $k
two possible locations:
Texas and Colorado Lease: annual costs in $k

Labor availability: scale 1-10,

unemployment, related industries

Quality of life: scale 1-10: outdoor

activities, cultural, sports, education
Using a scoring system we developed, we have
the following.
Factor Weight TX CO
Transportation 0.4 900 1,023
Plant Lease Cost 0.3 45 39
Labor availability 0.2 10 8
Quality of Life 0.1 7 9.5
 Normalizing Scores

All factors must be scored on the same scale, like

1-10 or 0-1.0

Costs need to be re-scaled

• Lowest cost site gets a 10.
• More expensive site gets 39/45 * 10 or 900/1,023 * 10
 Example

TX CO
Factor Wt Raw Wtd Raw Wtd
Tr 0.4 10 4.00 8.80 3.52
Plant 0.3 8.7 2.61 10 3.00
Labor 0.2 10 2.00 8 1.60
Q Life 0.1 7 0.70 9.5 0.95
TOTAL 9.31 9.07
TX is best
 Possible Approach
Use Ardalan to find out which general regions to
locate in (state / county).

Use factor weighting to choose city.

Ardalan has disadvantage of choosing weights --

difficult to set levels.
 6. Break-Even Analysis
Determine fixed and variable 1. Transportation costs
costs for each location

2. Labor costs
Fixed cost: how much it
would cost to open a facility
there
3. Taxes
Variable cost: how much
total costs would increase as 4. Increased construction
production increases costs
 Locating Service Facilities
Using Linear Regression
• 1. Collect data about your
current facilities
• 2. Use regression to
determine which variables
have a significant impact on
profits
• 3. Choose new facilities
which have these
characteristics http://www.theauditoronline.com
 Method Comparison

Factor weighting
Ardalan
Center of gravity considers many
Minimizes
minimizes other important
weighted Breakeven: fixed
average distance aspects of
distances for & variable costs.
for one facility location, but does
more than one
only. not minimize
facility.
distance.