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IES 371

Engineering Management

Week 1110: Location


Chapter
August 17, 2005

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

1
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 Free Trade Zones
Business Climate Political Risk
Total Costs Government Barriers
Infrastructure
Trading Zones
Environmental Regulation
Quality of Labor
Host Community
Suppliers
Other Facilities
Dr. Karndee Prichanont IES371 1/2005

Plant Location Methodology:


Location Factor Rating 2 3
Procedures 1
Scores (0 to 100)
1. Identify factors that are important
in the location decision Location Factors Weight Site 1 Site 2 Site 3
Labor pool &climate 0.30 80 65 95
2. Prioritize the factor by its
Proximity to supplies 0.20 100 91 75
importance. Each factor is
weighted from 0 to 1.00 Wage rates 0.15 60 95 80
Community environment 0.15 75 80 80
Subjective score (0 to 100) is
4
3.
assigned to each site for each Scores (0 to 100)
factor
Location Factors Site 1 Site 2 Site 3
Labor pool &climate 24.00 19.50 28.50
4. Sum up the weighted score.
Proximity to supplies 20.00 18.20 15.00
5. The site with highest score is the Wage rates 9.00 14.25 12.00
most attractive
Community environment 11.25 12.00 12.00
64.25 63.95 67.50
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 two-


dimensional point that meets the distance and volume criteria
stated above.

The coordinates for the location of the new facility are computed as
follows:
n n x, y = Coordinates of the new facility
xW i i yW i i at center of gravity
x i 1
n
, y i 1
n xi, yi = coordinate of existing facility I
W
i 1
i W
i 1
i Wi = Annual weight shipped from
facility i
See also Example S5.2
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.

Y
Q Showroom # of Z-mobiles sold
(790,900) per month
A 1250
D
(250,580) D 1900
Q 2300
A
(100,200)

(0,0) X
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
x, y = coordinates of the new facility
LD l i d i
i 1
xi, yi = coordinate of existing facility
LD = the load-distance value
di xi x 2 yi y 2 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
1600 A
Basic steps for break-even analysis (20, 1390)

Annual cost (thousands of dollars)


in facility location decisions: 1400
(20, 1200) D
1. Determine variable costs and fixed 1200 (20, 1060) B
costs C
1000
2. Plot the total cost lines (sum of (20, 980)
fixed costs and variable costs) for 800 Break-even point
all alternatives in a single graph 600
3. Identify the approximate ranges for Break-even
400
sites with lowest total cost point
4. Solve algebraically for the break- 200
A best B best C best
even points over the relevant 0
ranges 2 4 6 8 10 12 14 16 18 20 22
6.25 14.3
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 Variable
Fixed cost
refinery to 3 locations. Locations cost per
per year
Fixed and variable costs unit
are as follows. Albany $350,000 $980
Baltimore $1,500,500 $240
Chattanooga $1,100,000 $500
Describe the appropriate
decision plan for this
company.
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
Dr. Karndee Prichanont IES371 1/2005

Transportation Tableau
Dr. Karndee Prichanont IES371 1/2005

Ex 3: Transportation Method
Fire Brand makes sauce in EL Paso
and New York City. Distribution FROM /
centers are located in Atlanta, TO Atlanta Omaha Seattle
Omaha, and Seattle. The
El Paso $4 $5 $6
shipment costs per case are as
shown in the table. NYC $3 $7 $9

The demand for Atlanta, Omaha, and


Seattle are 8,000, 10,000, and Determine the shipping pattern that
4,000 cases per month will minimize transportation costs.
respectively. The plant in El Paso What are the estimated
has production capacity of transportation costs associated with
12,000 cases / month, while the this optimal allocation pattern?
plant in New York City has
production capacity of 10,000
per month.