Facility Location

Inventory Transport
Customer
Service

Location
1
Importance of Location
 Gives structure to the network
 Significantly affects inventory and
transportation costs
 Impacts on the level of customer
service to be achieved

2
Facility location decisions
 Decisions
 Number of facilities
 Location of facilities
 Size of facilities
 Facilities
 Plants, ports, vendors, warehouses, DC,
retail outlets, service centers

3
Classifying location decisions
 Driving force (critical factor : trafic,labor
rate, transport cost, ….etc )
 Number of facilities
 Discrete vs. Continous choices
 Data aggregation
 Time horizon.
Central questions
 How many warehouses (or other facilities) should
there be in the logistics network? How large
should they be, and where should they be
located?
 Which customers should be assigned to a
warehouse? Which warehouse should be assigned
to each plant, vendor or port?
 Which products should be stocked in each
warehouse? Which products should be shipped
directly from plants, vendors, or ports to
customers?

5
The need for logistics network redesign
 Changing customer service requirements
 Shifting locations of customer and/or supply
markets
 Change in corporate ownership
 Cost pressures
 Competitive capabilities
 Corporate organizational change

6
Location Decision Factors
Community
Regional Factors Considerations

Multiple Plant Site-related

Strategies Factors

8-7
Regional Factors
 Location of raw materials
 Location of markets
 Labor factors
 Climate and taxes

8-8
Community Considerations
 Quality of life
 Services
 Attitudes
 Taxes
 Environmental regulations
 Utilities
 Developer support

8-9
Site Related Factors
 Land
 Transportation
 Environmental
 Legal

8-10
Multiple Plant Strategies
 Product plant strategy
 Market area plant strategy
 Process plant strategy

8-11
Service and Retail Locations
 Manufacturers – cost focused
 Service and retail – revenue focused
 Traffic volume and convenience most important
 Demographics
 Age
 Income
 Education
 Location, location, location
 Good transportation
 Customer safety

8-12
Comparison of Service and
Manufacturing Considerations
Table 8.2

Manufacturing/Distribution Service/Retail

Cost Focus Revenue focus

Transportation modes/costs Demographics: age,income,etc

Energy availability, costs Population/drawing area

Labor cost/availability/skills Competition

Building/leasing costs Traffic volume/patterns

Customer access/parking
Trends in Locations
 Foreign producers locating in U.S.
 “Made in USA”
 Currency fluctuations
 Just-in-time manufacturing techniques
 Microfactories
 Information Technology

8-14
Global Locations
 Reasons for globalization
 Benefits
 Disadvantages
 Risks
 Global operations issues

8-15
Globalization
 Facilitating Factors
 Trade agreements
 Technology
 Benefits
 Markets
 Cost savings
 Legal and regulatory
 Financial
8-16
Globalization
 Disadvantages
 Transportation costs
 Security
 Unskilled labor
 Import restrictions
 Criticisms
 Risks
 Political
 Terrorism
 Legal
 Cultural

8-17
Table 8.3

Foreign a. Policies on foreign ownership of production facilities

Government Local Content
Import restrictions
Currency restrictions
Environmental regulations
Local product standards
Liability laws
b. Stability issues
Cultural Living circumstances for foreign workers / dependents
Differences Religious holidays/traditions
Customer Possible buy locally sentiment
Preferences
Labor Level of training and education of workers
Work ethic
Possible regulations limiting number of foreign employees
Language differences
Resources Availability and quality of raw materials, energy,
transportation infrastructure