SC Location Decisions

Supply Chain Location Decisions
Chapter 11
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall
11- 01
What is a Facility Location?
Facility Location
The process of determining
geographic sites for a firms
operations.
Distribution center (DC)

A warehouse or stocking
point where goods are
stored for subsequent
distribution to
manufacturers, wholesalers,
retailers, and customers.
11- 02
Location Decisions
Location decisions affect processes and departments
Marketing
Human resources
Accounting and finance
Operations
International operations
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 11 - 03
Location Decisions
Factors affecting location decisions
Sensitive to location
High impact on the companys ability to

meet its goals

Location Decisions
Dominant factors in manufacturing
Favorable labor climate
Proximity to markets
Impact on Environment
Quality of life
Proximity to suppliers and resources
Proximity to the parent companys facilities
Utilities, taxes, and real estate costs
Other factors
Location Decisions
Dominant factors in services
Impact of location on sales and customer
satisfaction
Proximity to customers
Transportation costs and proximity to markets
Location of competitors
Site-specific factors
What is a GIS?
GIS Geographical
Information System
A system of computer
software, hardware, and
data that the firms
personnel can use to
manipulate, analyze, and
present information
relevant to a location
decision.
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 11- 07

Locating a Single Facility
Expand onsite, build another facility, or

relocate to another site
Onsite expansion
Building a new plant or moving to a new retail

or office space
Comparing several sites

Selecting a New Facility
Step 1: Identify the important location factors and
categorize them as dominant or secondary.
Step 2: Consider alternative regions; then narrow to
alternative communities and finally specific sites.
Step 3: Collect data on the alternatives.
Step 4: Analyze the data collected, beginning with the
quantitative factors.
Step 5: Bring the qualitative factors pertaining to each
site into the evaluation.
Example 11.1
A new medical facility, Health-Watch, is to be located in Erie,
Pennsylvania. The following table shows the location factors,
weights, and scores (1 = poor, 5 = excellent) for one potential
site. The weights in this case add up to 100 percent. A
weighted score (WS) will be calculated for each site. What is
the WS for this site?
Location Factor Weight Score
Total patient miles per month 25 4
Facility utilization 20 3
Average time per emergency trip 20 3
Expressway accessibility 15 4
Land and construction costs 10 1
Employee preferences 10 5
Example 11.1
Location Factor Weight Score
The WS for this particular Total patient miles per month 25 4
site is calculated by Facility utilization 20 3
multiplying each factors Average time per emergency
trip
20 3
weight by its score and Expressway accessibility 15 4
adding the results: Land and construction costs 10 1
Employee preferences 10 5
WS = (25 4) + (20 3) + (20 3) + (15 4) + (10 1) + (10 5)

= 100 + 60 + 60 + 60 + 10 + 50
= 340
The total WS of 340 can be compared with the total

weighted scores for other sites being evaluated.
Application 11.1
Management is considering three potential locations for a
new cookie factory. They have assigned scores shown below
to the relevant factors on a 0 to 10 basis (10 is best). Using
the preference matrix, which location would be preferred?
Location The Sesame Ronalds

Weight
Factor Neighborhood Street Playhouse
Material Supply 0.1 5 9 8
Quality of Life 0.2 9 8 4
Mild Climate 0.3 10 6 8
Labor Skills 0.4 3 4 7

Application 11.1
Management is considering three potential locations for a
new cookie factory. They have assigned scores shown below
to the relevant factors on a 0 to 10 basis (10 is best). Using
the preference matrix, which location would be preferred?
Location The Sesame Ronalds

Weight
Factor Neighborhood Street Playhouse
Material Supply 0.1 5 0.5 9 0.9 8 0.8
Quality of Life 0.2 9 1.8 8 1.6 4 0.8
Mild Climate 0.3 10 3.0 6 1.8 8 2.4
Labor Skills 0.4 3 1.2 4 1.6 7 2.8
6.5 5.9 6.8

Applying the
Load-Distance (ld) Method
Identify and compare candidate locations
Like weighted-distance method
Select a location that minimizes the sum of

the loads multiplied by the distance the load
travels
Time may be used instead of distance

Applying the
Load-Distance (ld) Method
Calculating a load-distance score
Varies by industry
Use the actual distance to calculate ld score
Use rectangular or Euclidean distances
Different measures for distance
Find one acceptable facility location that minimizes
the ld score
Formula for the ld score

ld = lidi
i

Application 11.2
What is the distance between (20, 10) and (80, 60)?
Euclidean distance:
dAB = (xA xB)2 + (yA yB)2 = (20 80)2 + (10 60)2 = 78.1
Rectilinear distance:
dAB = |xA xB| + |yA yB| = |20 80| + |10 60| = 110

Application 11.3
Management is investigating which location would be best to
position its new plant relative to two suppliers (located in
Cleveland and Toledo) and three market areas (represented by
Cincinnati, Dayton, and Lima). Management has limited the
search for this plant to those five locations. The following
information has been collected. Which is best, assuming
rectilinear distance?
Location x,y coordinates Trips/year
Cincinnati (11,6) 15
Dayton (6,10) 20
Cleveland (14,12) 30
Toledo (9,12) 25
Lima (13,8) 40
Application 11.3
x,y
Location Trips/year
coordinates
Cincinnati (11,6) 15
Dayton (6,10) 20
Cleveland (14,12) 30
Toledo (9,12) 25
Lima (13,8) 40
Cincinnati = 15(0) + 20(9) + 30(9) + 25(8) + 40(4) = 810

Dayton = 15(9) + 20(0) + 30(10) + 25(5) + 40(9) = 920
Cleveland = 15(9) + 20(10) + 30(0) + 25(5) + 40(5) = 660
Toledo = 15(8) + 20(5) + 30(5) + 25(0) + 40(8) = 690
Lima = 15(4) + 20(9) + 30(5) + 25(8) + 40(0) = 590

Center of Gravity Method
A good starting point
Find x coordinate, x*, by multiplying each points
x coordinate by its load (lt), summing these
products li xi, and dividing by li
The center of gravitys y coordinate y* found the
same way
Generally not the optimal location

li xi li yi
i i
x* = y* =
li li
i i

Example 11.2
A supplier to the electric utility industry produces power
generators; the transportation costs are high. One market area
includes the lower part of the Great Lakes region and the upper
portion of the southeastern region. More than 600,000 tons are to
be shipped to eight major customer locations as shown below:
Customer Location Tons Shipped x, y Coordinates
Three Rivers, MI 5,000 (7, 13)
Fort Wayne, IN 92,000 (8, 12)
Columbus, OH 70,000 (11, 10)
Ashland, KY 35,000 (11, 7)
Kingsport, TN 9,000 (12, 4)
Akron, OH 227,000 (13, 11)
Wheeling, WV 16,000 (14, 10)
Roanoke, VA 153,000 (15, 5)
Example 11.2
Customer Tons x, y
Location Shipped Coordinates
What is the center of gravity Three Rivers, MI 5,000 (7, 13)
for the electric utilities Fort Wayne, IN 92,000 (8, 12)
Columbus, OH 70,000 (11, 10)
supplier? Using rectilinear Ashland, KY 35,000 (11, 7)
distance, what is the resulting Kingsport, TN 9,000 (12, 4)
loaddistance score for this Akron, OH 227,000 (13, 11)
Wheeling, WV 16,000 (14, 10)
location?
Roanoke, VA 153,000 (15, 5)
The center of gravity is calculated as shown below:

li = 5 + 92 + 70 + 35 + 9 + 227 + 16 + 153 = 607
i
li xi = 5(7) + 92(8) + 70(11) + 35(11) + 9(12) + 227(13)

i
+ 16(14) + 153(15) = 7,504
li xi
i 7,504
x* = = 12.4
li = 607
i
Example 11.2
Customer Tons x, y
Location Shipped Coordinates
What is the center of gravity Three Rivers, MI 5,000 (7, 13)
for the electric utilities Fort Wayne, IN 92,000 (8, 12)
supplier? Using rectilinear Columbus, OH 70,000 (11, 10)
Ashland, KY 35,000 (11, 7)
distance, what is the resulting Kingsport, TN 9,000 (12, 4)
loaddistance score for this Akron, OH 227,000 (13, 11)
location? Wheeling, WV 16,000 (14, 10)
Roanoke, VA 153,000 (15, 5)
li yi = 5(13) + 92(12) + 70(10) + 35(7) + 9(4) + 227(11)

i
+ 16(10) + 153(5) = 5,572
li yi
i 5,572
x* = = 9.2
li = 607
i

Example 11.2
Customer Tons x, y
What is the center of gravity Location Shipped Coordinates
Three Rivers, MI 5,000 (7, 13)
for the electric utilities
Fort Wayne, IN 92,000 (8, 12)
supplier? Using rectilinear Columbus, OH 70,000 (11, 10)
distance, what is the resulting Ashland, KY 35,000 (11, 7)
loaddistance score for this Kingsport, TN 9,000 (12, 4)

Akron, OH 227,000 (13, 11)
location? Wheeling, WV 16,000 (14, 10)
The resulting load-distance score is Roanoke, VA 153,000 (15, 5)
ld = lidi = 5(5.4 + 3.8) + 92(4.4 + 2.8) + 70(1.4 + 0.8) + 35(1.4

i
+ 2.2) + 90(0.4 + 5.2) + 227(0.6 + 1.8) + 16(1.6 +
0.8) + 153(2.6 + 4.2)
= 2,662.4
where di = |xi x*| + |yi y*|

Application 11.4
A firm wishes to find a central location for its service. Business
forecasts indicate travel from the central location to New York
City on 20 occasions per year. Similarly, there will be 15 trips to
Boston, and 30 trips to New Orleans. The x, y-coordinates are
(11.0, 8.5) for New York, (12.0, 9.5) for Boston, and (4.0, 1.5) for
New Orleans. What is the center of gravity of the three demand
points?
li xi [(20 11) + (15 12) + (30 4)]
i
x* = = 8.0
li = (20 + 15 + 30)
i
li yi
i [(20 8.5) + (15 9.5) + (30 1.5)]
y* = =
li (20 + 15 + 30)
= 5.5
i
Using Break-Even Analysis
Compare location alternatives on the basis of
quantitative factors expressed in total costs
Determine the variable costs and fixed costs for
each site
Plot total cost lines
Identify the approximate ranges for which each
location has lowest cost
Solve algebraically for break-even points over the
relevant ranges
Example 11.3
An operations manager narrowed the search for a new facility
location to four communities. The annual fixed costs (land,
property taxes, insurance, equipment, and buildings) and the
variable costs (labor, materials, transportation, and variable
overhead) are as follows:
Community Fixed Costs per Year Variable Costs per Unit

A $150,000 $62
B $300,000 $38
C $500,000 $24
D $600,000 $30

Example 11.3
Step 1:Plot the total cost curves for all the
communities on a single graph. Identify on
the graph the approximate range over which
each community provides the lowest cost.
Step 2:Using break-even analysis, calculate the

break-even quantities over the relevant
ranges. If the expected demand is 15,000
units per year, what is the best location?

Example 11.3
To plot a communitys total cost line, let us first compute the
total cost for two output levels: Q = 0 and Q = 20,000 units
per year. For the Q = 0 level, the total cost is simply the fixed
costs. For the Q = 20,000 level, the total cost (fixed plus
variable costs) is as follows:
Variable Costs Total Cost

Community Fixed Costs (Cost per Unit)(No. of Units) (Fixed + Variable)
A $150,000
B $300,000
C $500,000
D $600,000

Example 11.3
To plot a communitys total cost line, let us first compute the
total cost for two output levels: Q = 0 and Q = 20,000 units
per year. For the Q = 0 level, the total cost is simply the fixed
costs. For the Q = 20,000 level, the total cost (fixed plus
variable costs) is as follows:
Variable Costs Total Cost

Community Fixed Costs (Cost per Unit)(No. of Units) (Fixed + Variable)
A $150,000 $62(20,000) = $1,240,000 $1,390,000
B $300,000 $38(20,000) = $760,000 $1,060,000
C $500,000 $24(20,000) = $480,000 $980,000
D $600,000 $30(20,000) = $600,000 $1,200,000

Example 11.3
The figure shows the A
1,600
graph of the total cost
Annual cost (thousands of dollars)

(20, 1,390)
1,400
lines. (20, 1,200) D
1,200 B
A is best for low volumes (20, 1,060)
C
1,000
B for intermediate (20, 980)
800
volumes Break-even
600 point
C for high volumes.
400 Break-even
We should no longer 200
point
A best B best C best

consider community D, | | | | | | | | | | | |
because both its fixed 0 2 4 6 8 10 12 14 16 18 20 22
and its variable costs are 6.25 14.3

Q (thousands of units)
higher than community
Cs.
Example 11.3
The break-even quantity between A and B lies at the end of
the first range, where A is best, and the beginning of the
second range, where B is best.
(A) (B)
$150,000 + $62Q = $300,000 + $38Q
Q = 6,250 units
The break-even quantity between B and C lies at the end of

the range over which B is best and the beginning of the final
range where C is best.
(B) (C)
$300,000 + $38Q = $500,000 + $24Q
Q = 14,286 units
Example 11.3
The break-even quantity between A and B lies at the end of
the first range, where A is best, and the beginning of the
second range, where B is best.
No other break-even quantities are
needed. The break-even point
(A) (B) between A and C lies above the
$150,000 + $62Q = $300,000 + $38Q shaded area, which does not mark
either the start or the end of one
Q = 6,250 units of the three relevant ranges.
The break-even quantity between B and C lies at the end of the

range over which B is best and the beginning of the final range
where C is best.
(B) (C)
$300,000 + $38Q = $500,000 + $24Q
Q = 14,286 units
11 - 32
Application 11.5
By chance, the Atlantic City Community Chest has to close
temporarily for general repairs. They are considering four
temporary office locations:
Property Address Move-in Costs Monthly Rent
Boardwalk $400 $50
Marvin Gardens $280 $24
St. Charles Place $360 $10
Baltic Avenue $60 $60
Use the graph on the next slide to determine for what length of
lease each location would be favored?
Hint: In this problem, lease length is analogous to volume.

Application 11.5
500
Fs + csQ = FB + cBQ Boardwalk

FB Fs 400
St Charles Place
Q=
cs cB
$60 $360
Total Cost
= 300 Marvin
$10 $60 Gardens

300
= = 6 months Baltic Avenue
50 200
100
The short answer: Baltic
Avenue if 6 months or less,
St. Charles Place if longer | | | | | | | | |

0 1 2 3 4 5 6 7 8
Months
Locating a facility within a
Supply Chain Network
When a firm with a network of existing

facilities plans a new facility, one of two
conditions exists
Facilities operate independently
Facilities interact

Locating Within a Network
A five step GIS framework
Step 1: Map the data
Step 2: Split the area
Step 3: Assign a facility location
Step 4: Search for alternative sites
Step 5: Compute ld scores and check capacity

The Transportation Method
A special case of linear programming
Represented as a standard table, sometimes
called a tableau
Rows of the table are linear constraints that
impose capacity limitations
Columns are linear constraints that require a
certain demand level to be met
Each cell in the tableau is a decision variable,
and a per-unit cost is shown in each cell
Transportation Method for Location
Basic steps in setting up the initial tableau
Create a row for each plant and a column for each
warehouse
Add a column for plant capacities and a row for
warehouse demands
Each cell not in the requirements row or capacity
column represents a shipping route from a plant to a
warehouse.
The sum of the shipments in a row must equal the

corresponding plants capacity and the sum of
shipments in a column must equal the
corresponding warehouses demand
Warehouse
Plant San Antonio, TX Hot Spring, AR Sioux Falls, SD Capacity
(1) (2) (3)
5.00 6.00 5.40
Phoenix 400
7.00 4.60 6.60

Atlanta 500
900
Requirements 200 400 300
900

Dummy plants or warehouses
The sum of capacities must equal the sum of demands
If capacity exceeds requirements we add an extra column
(a dummy warehouse)
If requirements exceed capacity we add an extra row (a
dummy plant)
Assign shipping costs to equal the stockout costs of the
new cells
Finding a solution
The goal is to find the least-cost allocation pattern that
satisfies all demands and exhausts all capacities
Example 11.4
The optimal solution for the Sunbelt Pool Company, found
with POM for Windows, is shown below and displays the
data inputs, with the cells showing the unit costs, the
bottom row showing the demands, and the last column
showing the supply capacities.

Example 11.4
Below shows how the existing network of plants supplies the
three warehouses to minimize costs for a total of $4,580.
All warehouse demand is satisfied:

Warehouse 1 in San Antonio is fully supplied by Phoenix
Warehouse 2 in Hot Springs is fully supplied by Atlanta.
Warehouse 3 in Sioux Falls receives 200 units from
Phoenix and 100 units from Atlanta, satisfying its 300-unit
demand.
Example 11.4
Below shows the total quantity and cost of each shipment.
The total optimal cost reported in the upper-left corner of

the previous table is $4,580, or 200($5.00) + 200($5.40) +
400($4.60) + 100($6.60) = $4,580.

Example 11.4

Solved Problem 1
An electronics manufacturer must expand by building a
second facility. The search is narrowed to four locations, all
of which are acceptable to management in terms of
dominant factors. Assessment of these sites in terms of
seven location factors is shown in the following table.
For example, location A has a factor score of 5 (excellent) for

labor climate; the weight for this factor (20) is the highest of
any. Calculate the weighted score for each location. Which
location should be recommended?

Solved Problem 1
FACTOR INFORMATION FOR ELECTRONICS MANUFACTURER
Factor Score for Each Location

Location Factor Factor Weight A B C D
1. Labor climate 20 5 4 4 5
2. Quality of life 16 2 3 4 1
3. Transportation system 16 3 4 3 2
4. Proximity to markets 14 5 3 4 4
5. Proximity to materials 12 2 3 3 4
6. Taxes 12 2 5 5 4
7. Utilities 10 5 4 3 3

Solved Problem 1
Based on the weighted scores shown below, location C is the
preferred site, although location B is a close second.
CALCULATING WEIGHTED SCORES FOR ELECTRONIC MANUFACTURER

Weighted Score for each Location
1. Labor climate 20
2. Quality of life 16
3. Transportation system 16
4. Proximity to markets 14
5. Proximity to materials 12
6. Taxes 12
7. Utilities 10
Totals 100
Solved Problem 1
Based on the weighted scores shown below, location C is the
preferred site, although location B is a close second.
CALCULATING WEIGHTED SCORES FOR ELECTRONIC MANUFACTURER

Weighted Score for each Location
1. Labor climate 20 100 80 80 100
2. Quality of life 16 32 48 64 16
3. Transportation system 16 48 64 48 32
4. Proximity to markets 14 70 42 56 56
5. Proximity to materials 12 24 36 36 48
6. Taxes 12 24 60 60 48
7. Utilities 10 50 40 30 30
Totals 100 348 370 374 330
Solved Problem 2
The operations manager for Mile-High Lemonade narrowed the
search for a new facility location to seven communities. Annual
fixed costs (land, property taxes, insurance, equipment, and
buildings) and variable costs (labor, materials, transportation, and
variable overhead) are shown in the following table.
a. Which of the communities can be eliminated from further
consideration because they are dominated (both variable and
fixed costs are higher) by another community?
b. Plot the total cost curves for all remaining communities on a
single graph. Identify on the graph the approximate range over
which each community provides the lowest cost.
c. Using break-even analysis, calculate the break-even quantities
to determine the range over which each community provides
the lowest cost.
Solved Problem 2
FIXED AND VARIABLE COSTS FOR MILE-HIGH LEMONADE
Community Fixed Costs per Year Variable Costs per Barrel
Aurora $1,600,000 $17.00
Boulder $2,000,000 $12.00
Colorado Springs $1,500,000 $16.00
Denver $3,000,000 $10.00
Englewood $1,800,000 $15.00
Fort Collins $1,200,000 $15.00
Golden $1,700,000 $14.00

Solved Problem 2
Location costs (in millions of dollars)
10
8
Break-even
Golden
point
6
Break-even
4
point
2 Fort Collins Boulder Denver
| | | | | | |
0 1 2 3 4 5 6
2.67
Barrels of lemonade per year (in hundred thousands)

Solved Problem 2
a. Aurora and Colorado Springs are dominated by Fort
Collins, because both fixed and variable costs are higher
for those communities than for Fort Collins. Englewood is
dominated by Golden.
b. Fort Collins is best for low volumes, Boulder for

intermediate volumes, and Denver for high volumes.
Although Golden is not dominated by any community, it
is the second or third choice over the entire range.
Golden does not become the lowest-cost choice at any
volume.

Solved Problem 2
c. The break-even point between Fort Collins and Boulder is
$1,200,000 + $15Q = $2,000,000 + $12Q

Q = 266,667 barrels per year
The break-even point between Denver and Boulder is
$3,000,000 + $10Q = $2,000,000 + $12Q

Q = 500,000 barrels per year

Solved Problem 3
The new Health-Watch facility is targeted to serve seven census
tracts in Erie, Pennsylvania, whose latitudes and longitudes are
shown below. Customers will travel from the seven census-tract
centers to the new facility when they need health care. What is the
target areas center of gravity for the Health-Watch medical facility?
LOCATION DATA AND CALCULATIONS FOR HEALTH WATCH
Population Population
Census Tract Population Latitude Longitude
Latitude Longitude
15 2,711 42.134 80.041 114,225.27 216,991.15
16 4,161 42.129 80.023 175,298.77 332,975.70
17 2,988 42.122 80.055 125,860.54 239,204.34
25 2,512 42.112 80.066 105,785.34 201,125.79
26 4,342 42.117 80.052 182,872.01 347,585.78
27 6,687 42.116 80.023 281,629.69 535,113.80
28 6,789 42.107 80.051 285,864.42 543,466.24
Total 30,190 1,271,536.04 2,416.462.80
Solved Problem 3

Solved Problem 3
Next we solve for the center of gravity x* and y*. Because the
coordinates are given as longitude and latitude, x* is the longitude
and y* is the latitude for the center of gravity.
1,271,536.05
x* = = 42.1178
30,190
2,416,462.81
y* = 30,190 = 80.0418
The center of gravity is (42.12 North, 80.04 West), and is

shown on the map to be fairly central to the target area.

Solved Problem 4
The Arid Company makes canoe paddles to serve distribution centers
in Worchester, Rochester, and Dorchester from existing plants in
Battle Creek and Cherry Creek.
Arid is considering locating a plant near the headwaters of Dee Creek.
Annual capacity for each plant is shown in the right-hand column of
the tableau.
Transportation costs per paddle are shown in the tableau in the small
boxes.
For example, the cost to ship one paddle from Battle Creak to
Worchester is $4.37.
The optimal allocations are also shown. For example, Battle Creek
ships 12,000 units to Rochester.
What are the estimated transportation costs associated with this
allocation pattern?
Solved Problem 4
Destination
Source Capacity
Worchester Rochester Dorchester
$4.37 $4.25 $4.89
Battle Creek 12,000
$4.00 $5.00 $5.27

Cherry Creek 10,000
$4.13 $4.50 $3.75

Dee Creek 18,000
Demand 6,000 22,000 12,000 40,000

Solved Problem 4
Destination
Source Capacity
Worchester Rochester Dorchester
$4.37 $4.25 $4.89
Battle Creek 12,000
12,000
$4.00 $5.00 $5.27
Cherry Creek 10,000
6,000 4,000
$4.13 $4.50 $3.75
Dee Creek 18,000
6,000 12,000
Demand 6,000 22,000 12,000 40,000

Solved Problem 4
The total cost is $167,000
Ship 12,000 units from Battle Creek
Cost = $51,000
to Rochester @ $4.25
Ship 6,000 units from Cherry Creek
Cost = $24,000
to Worchester @ $4.00
Ship 4,000 units from Cherry Creek
Cost = $20,000
Ship 6,000 units from Dee Creek
Cost = $27,000
Ship 12,000 units from Dee Creek
Cost = $45,000
to Dorchester @ $3.75
Total = $167,000

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Supply Chain Location Decisions

Distribution center (DC)

Accounting and finance

High impact on the companys ability to

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 11 - 04

Transportation costs and proximity to markets

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 11- 07

Expand onsite, build another facility, or

Building a new plant or moving to a new retail

Comparing several sites

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 11 - 08

WS = (25 4) + (20 3) + (20 3) + (15 4) + (10 1) + (10 5)

The total WS of 340 can be compared with the total

Location The Sesame Ronalds

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 11 - 12

Location The Sesame Ronalds

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 11 - 13

Select a location that minimizes the sum of

Time may be used instead of distance

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 11 - 14

Formula for the ld score

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 11 - 15

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 11 - 16

Cincinnati = 15(0) + 20(9) + 30(9) + 25(8) + 40(4) = 810

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 11 - 18

Generally not the optimal location

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall 11 - 19

The center of gravity is calculated as shown below:

li xi = 5(7) + 92(8) + 70(11) + 35(11) + 9(12) + 227(13)

li yi = 5(13) + 92(12) + 70(10) + 35(7) + 9(4) + 227(11)

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loaddistance score for this Kingsport, TN 9,000 (12, 4)

ld = lidi = 5(5.4 + 3.8) + 92(4.4 + 2.8) + 70(1.4 + 0.8) + 35(1.4

where di = |xi x*| + |yi y*|

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Community Fixed Costs per Year Variable Costs per Unit

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Step 2:Using break-even analysis, calculate the

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Variable Costs Total Cost

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Variable Costs Total Cost

C $500,000 $24(20,000) = $480,000 $980,000

D $600,000 $30(20,000) = $600,000 $1,200,000

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Annual cost (thousands of dollars)

A best B best C best

and its variable costs are 6.25 14.3

The break-even quantity between B and C lies at the end of

The break-even quantity between B and C lies at the end of the

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When a firm with a network of existing

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Step 2: Split the area

Step 3: Assign a facility location

Step 4: Search for alternative sites

Step 5: Compute ld scores and check capacity

The sum of the shipments in a row must equal the

7.00 4.60 6.60

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All warehouse demand is satisfied:

The total optimal cost reported in the upper-left corner of

where di = |xi x| + |yi y|