IES 371 Engineering Management

Chapter 10: Location Week 11 August 17, 2005

Objectives Identify the factors affecting location choices Explain how to apply the various methods to location decisions

Dr. Karndee Prichanont

IES371 1/2005

Facility Location Competitive Advantages

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.

Dr. Karndee Prichanont

IES371 1/2005

Issues in facility location

Proximity to Customers Business Climate Total Costs Infrastructure

Quality of Labor
Suppliers Other Facilities

Free Trade Zones Political Risk Government Barriers Trading Zones Environmental Regulation Host Community

Dr. Karndee Prichanont

IES371 1/2005

Plant Location Methodology: Location Factor Rating 1 Procedures

1.

Identify factors that are important in the location decision Prioritize the factor by its importance. Each factor is weighted from 0 to 1.00 Subjective score (0 to 100) is assigned to each site for each factor

Scores (0 to 100) Location Factors Weight Site 1 Site 2 Site 3 Labor pool & climate 0.30 80 65 95 Proximity to supplies 0.20 0.15 100 60 75 91 95 80 75 80 80 Wage rates

2.

Community environment 0.15

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Location Factors Labor pool & climate Proximity to supplies Wage rates Community environment

3.

Scores (0 to 100) Site 1 Site 2 Site 3 24.00 19.50 28.50 20.00 9.00 11.25 64.25 18.20 14.25 12.00 63.95 15.00 12.00 12.00 67.50
4

4.

Sum up the weighted score.

The site with highest score is the most attractive
See also Example S5.1

5.

Dr. Karndee Prichanont

IES371 1/2005

Plant Location Methodology: Center-of-Gravity Technique

Used for locating single facility that considers existing facilities, the distances between them, and the volumes of goods to be shipped between them. Involves formulas used to compute the coordinates of the twodimensional point that meets the distance and volume criteria stated above. The coordinates for the location of the new facility are computed as follows:

xW
i 1 n i

W
i 1

yW
i 1 n i

W
i 1

x, y = Coordinates of the new facility at center of gravity xi, yi = coordinate of existing facility I Wi = Annual weight shipped from facility i
See also Example S5.2
5

Dr. Karndee Prichanont

IES371 1/2005

Ex 1: Center-of-Gravity Technique

Several automobile showrooms are located according to the following grid which represents coordinate locations for each showroom.
Showroom A D Q # of Z-mobiles sold per month 1250 1900 2300

Y Q
(790,900)

D
(250,580)

A
(100,200) (0,0)

Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month?

Dr. Karndee Prichanont

IES371 1/2005

Plant Location Methodology: Load-Distance Technique

Various locations are evaluated using a load-distance value. For a single potential location, a load-distance value (ld) is computed as follows: Select the location with lowest ld value
n

LD l i d i
i 1

di

xi x 2 yi y 2

x, y = coordinates of the new facility xi, yi = coordinate of existing facility LD = the load-distance value li = the load expressed as weight, number of trips, or unit di = the distance between the new and existing facility

Ex 2: From ex 1, evaluate two possible different sites of warehouse to supply to showroom A, D, and Q. Given that Warehouse site 1: x = 420 and y =450 Warehouse site 2: x = 250 and y =980

Dr. Karndee Prichanont

IES371 1/2005

Plant Location Methodology: Break-even analysis

Also refer to Supplement A Decision Making

Annual cost (thousands of dollars)

Basic steps for break-even analysis in facility location decisions: Determine variable costs and fixed costs Plot the total cost lines (sum of fixed costs and variable costs) for all alternatives in a single graph Identify the approximate ranges for sites with lowest total cost Solve algebraically for the breakeven points over the relevant ranges

1600 1400 1200 1000 (20, 1060) (20, 1390) (20, 1200)

A D B C

1.

2.

(20, 980)
800 600 400 200 0 A best 2 4 6 8 6.25 Break-even point B best C best Break-even point

3.

4.

10 12 14 16 18 20 22 14.3
8

Q (thousands of units)

Dr. Karndee Prichanont

IES371 1/2005

Ex 3: Break-even analysis
Ethel & Earl Griese narrowed their choice for a new oil refinery to 3 locations. Fixed and variable costs are as follows. Describe the appropriate decision plan for this company.

Locations

Fixed cost per year

Variable cost per unit

Albany
Baltimore Chattanooga

$350,000 $1,500,500 $1,100,000

$980 $240
$500

Dr. Karndee Prichanont

IES371 1/2005

Plant Location Methodology: Transportation Method

A quantitative approach based on linear programming

To determine the allocation pattern that minimizes the cost of shipping products from 2 or more plants (source of supply) to 2 or more warehouses (destinations) This method is find the best shipping pattern between plants and warehouses for a particular set of plant locations with given capacities
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Dr. Karndee Prichanont

IES371 1/2005

Transportation Tableau
Plants 1 Warehouses 2 3 4 Capacity

Requirements

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Dr. Karndee Prichanont

IES371 1/2005

Ex 3: Transportation Method
Fire Brand makes sauce in EL Paso and New York City. Distribution centers are located in Atlanta, Omaha, and Seattle. The shipment costs per case are as shown in the table. The demand for Atlanta, Omaha, and Seattle are 8,000, 10,000, and 4,000 cases per month respectively. The plant in El Paso has production capacity of 12,000 cases / month, while the plant in New York City has production capacity of 10,000 per month. FROM / TO El Paso NYC Atlanta Omaha Seattle

$4 $3

$5 $7

$6 $9

Determine the shipping pattern that will minimize transportation costs. What are the estimated transportation costs associated with this optimal allocation pattern?

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