LOCATION DECISIONS

LOCATION DECISIONS
Factory Retail Centre ( Mall) Hospital Fire Tender Watch Tower Library in an academic campus Gymkhana

LOCATION PROBLEMS
Location of factories, departments , facilities The best location offers multiple advantages 1.Minimum cost advantage Sum of minimum costs (fixed and variable) Minimum fixed cost Minimum variable cost (input/output/both) 2.Maximum Profit advantage (volume / unit price) 3.Maximum coverage advantage 4.Minimum interference advantage 5.Various combinations of 1 to 5

LOCATION THEORY
Location theory is concerned with identifying that location , which by virtue of its location offers the greatest advantage. There are five well known theories Least cost theory Maximum profit theory Maximum coverage theory Minimum interference theory General Location Theory

1. 2. 3. 4. 5.

THERE ARE MANY PROBLEMS

A) Based on the number of facilities 1) Single facility location 2) Multi facility locations ( with or without interaction among themselves) B) Based on how the distance is measured 1) Straight line ( Euclidean) 2) Squared Euclidean 3) Rectilinear C) Based on the number of options available for locating the facility (discrete or continuous ) D) Based on where the location is (on a plane or in space)

Simple Examples
Some facilities are located at known places and to be served by a common facility. Where to locate the common facility ? Typical examples Machines centres ( already existing at known places ) to be supported by a tool crib . Where to locate the tool crib Departments are located at various places and where to locate the canteen ? Departments are located at specific places and where to locate the stores ? Retail outlets are located at various places and where to locate the supply warehouse ? Internet users are located at various places and where to locate the server ? Patrol ships are assigned different regions and where to locate the mother ship ?

There are many real life problems

A TYPICAL EXAMPLE

Example

Retail outlet j
1 2 3 4 5 6 7 8

Co-ordinates Xj 10 50 20 60 90 50 60 70 Yj 40 100 80 2 70 10 40 70

Cost/wt/dist Cj
0.025 0.030 0.030 0.040 0.040 0.020 0.020 0.025

Demand in wt. Dj
10 20 25 15 30 25 20 20

9
10

30
40

10
90

0.035
0.030

10
20

IF THE PROBLEM IS
To find a single source to supply all these outlets to minimize the total cost of transportation If the location of the source is defined as ( X , Y) We need to find X and Y to minimize the total cost of transportation TC A Simple formula

 Distance between the source to be located ( X,Y) and any outlet j is D jo The cost of transportation between the source to be located ( X,Y) and any outlet j is TCjo = D jo x Dj x Cj = D jo x Wj Where Wj = Dj x Cj The total cost of transportation between the source is the sum of TC jo , where j is equal to 1 to n

DIFFERENT CASES
PROBLEM 1: FIND THE LOCATION OF ONE WAREHOUSE TO CATER TO THESE DESTINATIONS, TO MINIMISE THE TOTAL COST OF SHIPPING. a) SQUARED EUCLIDEAN DISTANCE b)STRAIGHT LINE DISTANCE c)RECTILINEAR DISTANCE PROBLEM 2 : FIND THE OPTIMAL NUMBER AND LOCATION OF SOURCES

CASE1: SQUARED EUCLIDEAN DISTANCE

Djo = ( X-Xj) 2 + (Y-YJ)2

Therefore TC = Wj { ( X-Xj)2 + (Y-YJ)2 }

The problem is to find X and Y to minimse TC Differentiating TC partially wrt to X and Y, and equating to zero, we get optimum values of X and Y respectively . Call them as X* and Y*

THE OPTIMUM LOCATION

X* = ( Xj Wj ) / ( Xj ) , j = 1,n
Y* = ( Yj Wj ) / ( Yj ) , j = 1, n Since the point represented by X* & Y * is the centre of gravity, the optimum location is called as GRAVITY LOCATION

Co-ordinates Retail outlet j Xj 1 2 3 4 5 6 10 50 20 60 90 50 Yj 40 100 80 2 70 10

Cost/wt/dist Cj 0.025 0.030 0.030 0.040 0.040 0.020

Demand in weight.
Dj 10 20 25 15 30 25

Relative weight Wj = Cj x Dj 0.25 0.60 0.75 0.60 1.2 0.50

7
8 9 10

60
70 30 40

40
70 10 90

0.020
0.025 0.035 0.030

20
20 10 20

0.40
0.50 0.35 0.60

SIMPLE CALCULATION
Retail outlet j
1 2 3 4 5 6 Co-ordinates Xj 10 50 20 60 90 50 Yj 40 100 80 2 70 10 Relative weight Wj = Cj x Dj 0.25 0.60 0.75 0.60 1.2 0.50

Xj X Wj 2.5
30.0 15.0

Yj X Wj 10.0 60.0 60.0 1.2 84.0 5.0

36.0
108.0 25.0 24.0 35.0 10.5 24.0 310.0

7
8 90

60
70 30

40
70 10

0.40
0.50 0.35

16.0
35.0 3.5

10
SUM

40

90

0.60
5.75

54.0
323.70

THE OPTIMUM LOCATION

X = 310 / 5.75 = 53.9 or 54.0 Y = 323.7 / 5.75 = 56.3

CASE 2: EUCLIDEAN DISTANCE

Also called straight line distance TC= {( X-Xj)2 + (Y-Yj)2} , j= 1, n

The Problem is to find X and Y to Minimize TC Differentiate TC partially wrt X , equate to 0 and find X Differentiate TC partially wrt Y, equate to 0 and find Y

THIS WILL YIELD

X*= {(Xj.Wj / Djo)} / {(Wj / Djo)} Y*= {(Yj.Wj / Djo)} / {(Wj / Djo)} Here Djo is a function of both X and Y , the two unknowns. Therefore we cannot solve this problem directly We need to use iteration

THE ITERATION
1. Assume any initial values for X ad Y 2. Use this and find Djo 3. Use this Djo and find the first estimate of X and Y 4. Use this X &Y and find Djo again 5. Use this Djo and find the next estimate of X and Y 6. Repeat steps 4 and 5 until convergence TWO IMPORTANT QUESTIONS ARE :

TWO QUESTIONS
1. What is convergence ? Successive values of X and Y do not differ significantly 2. What are the suitable initial values? The X and Y corresponding to the GRAVITY LOCATION

DATA FOR CASE 2

Co-ordinates Retail outlet j Xj 1 2 3 10 50 20 Yj 40 100 80 Wj 0.25 0.60 0.75 Relative weight

4
5 6 7 8

60
90 50 60 70

2
70 10 40 70

0.60
1.2 0.50 0.40 0.50

9
10

30
40

10
90

0.35
0.60

CASE3: RECTILINEAR DISTANCE

TC = Wj (I X- XjI +IY-YjI, j =1, n The problem is to find X and Y to minimize TC This is a non differentiable function , but separable, therefore, Min Wj (I X- XjI and Min Wj (I Y- YjI

SOLUTION
This problem was solved using the Dual of the LP. The solution obtained revealed the following properties It is a median location The optimum X ( X*) is one of the current Xjs The optimum Y ( Y*)is one of the current Yjs But they need not be for the same j

HOW TO OBTAIN THE MEDIAN LOCATION ?

Deal with X* and Y* independently

PROCEDURE FOR FINDING OPTIMUM X ( X*)

Arrange Xjs in ascending order along with the respective weights Wjs Apply MAJORITY THEOREM to find X * As per MAJORITY THEOREM no more than half the weights is either on the right or the left of X* THEREFORE: Find the cumulative sum of Wjs , find the middle value and apply MAJORITY THEOREM to find X*

PROCEDURE FOR FINDING OPTIMUM Y ( Y*)

Arrange Yjs in ascending order along with the respective weights Wjs Apply MAJORITY THEOREM to find Y * As per MAJORITY THEOREM no more than half the weights is either above or below Y * Find the cumulative sum of Wjs , find the middle value and apply MAJORITY THEOREM to find Y*

DATA FOR CASE 3

Co-ordinates Retail outlet j Xj 1 2 3 10 50 20 Yj 40 100 80 Wj 0.25 0.60 0.75 Relative weight

4
5 6 7 8

60
90 50 60 70

2
70 10 40 70

0.60
1.2 0.50 0.40 0.50

9
10

30
40

10
90

0.35
0.60