LOCATION MANAGER

The importance of the location

Facility Location requires large investment that can not be recovered.

Facility Location decisions affect the competitive capacity of the company.

The facility location decisions affect not only costs but the companys
income:

For a service business, market proximity is critical to determine the capacity to

attract customers.
For a manufacturing business, facility location affects product delivery time and
level of customer service, which affects sales.

Regarding costs, facility location affects a great variety of them:

Land costs.
Labor costs.
Raw materials.
Transportation and distribution

Factors to have in mind

Availability of basic infrastructures

Proximity to raw materials and markets
Qualified workers
Laws & regulations
Economic and financial helps
Transports and communications

General procedure to decide where to be located

Creation of a multifunctional team to perform the study.

Preliminary analysis.

Study of the companys strategies and the policies of the company.

Due to the big quantity of factors affecting Facility Location, the company
should determine which is the criteria to evaluate the different alternatives.

Search of Location Alternatives.

Establishment of a group of location candidates.

Evaluation of Alternatives.

The multifunctional team must distinguish between: Dominant factors

(essential); Secondary factors (desirable).

Information gathering from each location to be measured against each of

the factors considered.

Selection of Facility Location.

Through qualitative and quantitative analysis, the different alternatives will

be compared against each other, to determine several valid locations.
Objective: Look for several acceptable locations, to let senior management
to decide taking into account subjective factors.

TRENDS AND FUTURE STRATEGIES

Most of the Facility Location factors vary with time:

The accelerated changes in the economic environment are impacting

the frequency of Facility Location decisions.

Changes in the economic environment:

International level competition among companies.

Location in countries different than the origin of the company are a common
situation for big companies.
Appearance of new markets and unification of others.
Increase of competition pressure.
Logistics factors are more important and complex.
Companies are reviewing their facility locations in order not to loose
competitiveness.
Industry processes automation
Transportation and IT development.
J.I.T. Systems.

Methods to help in the decision making

1. FACTOR RATING METHOD

- A wide variety of factors can be included in the analysis
- Six steps:
1. Develop a list of relevant factors
2. Assign a weight to each factor to reflect its relative importance in
the company objective.
3. Develop a scale for each factor
4. Have management score for each factor
5. Multiply the score by the weight for each factor and the total
score each location
6. Make a recommendation based on the maximum point score.

2.CENTRE OF GRAVITY METHOD

- The center-of-gravity technique is a quantitative method
for locating a facility such as a warehouse at the center of
movement in a geographic area based on weight and
distance.
This method identifies a set of coordinates designating a
central location on a map relative to all other locations.
- The coordinates for the location of the new facility are
computed using the following formulas:

3.LOCATIONAL BREAK-EVEN
ANALYSIS
- Cost-volume analysis used for location.
- Steps:
1.
2.
3.
4.

Determine fixed & variable costs for each location.

Find break-even point.
Plot cost for each location.
Select location with lowest total cost for expected
production volume.

Example:

4.Set covering model

The set covering

problem is to:

Step 1:

If cj = 0, for any j = 1, 2, ..., n, set xj = 1 and remove all constraints

in which xj appears with a coefficient of +1.

Step 2:

If cj > 0, for any j = 1, 2, ..., n and xj does not appear with a +1

coefficient in any of the remaining constraints, set xj = 0.

Step 3:

For each of the remaining variables, determine cj/dj, where dj is the

number of constraints in which xj appears with a +1 coefficient.
Select the variable k for which ck/dk is minimum, set xk = 1 and
remove all constraints in which xj appears with a +1 coefficient.
Examine the resulting model.
If there are no more constraints, set all the remaining variables to 0
and stop. Otherwise go to step 1.

Step 4