6.01 facility location (1pp).pdf

7/23/2019 6.01 Facility Location (1pp).pdf

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Facility Location and Facility

Layout


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Strategic Importance Supply-chain management is critical

Facility locationintrinsically related to SCM Examples:

FedEx: While opening a hub for Asia in Philippines1995

it had to evaluate several sites Linking its American (Memphis) and European (Paris) Hubs

BTW, the facility was closed and the new hub since 2009 isin Guangzhou, Southern China

Mercedes first overseas plant in Vance, Alabama

Evaluated 170 sites in 30 states and 2 countries

Hard Rock Caf location in Moscow in 2002 Took 3 years of advance planning

Russian Food Supply Chain


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Facility Location

Global Nature of Location Decision

Objective: Maximize the benefit of locationto a firm Marketing Strategy: New Markets

Global Growth: New Markets and supply chainconsiderations

Cost of Doing Business: Attractive alternatives torelocate business elsewhere


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Location Options

Expand existing facility

Add new location while retaining existinglocation

Close existing operation and move to anew location


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Location Decision Factors

Country Factors

Site-related FactorsRegional Factors

Community Considerations


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Site Selection Factors (Country andRegion)

Government stability Government regulations Political and economic systems Economic stability Exchange rates Culture Climate Export and import regulations,

duties and fees

Raw material availability Number and proximity of suppliers Transportation system Labor pool and cost Available technology Commercial travel Technical expertise

Labor (availability, cost and unions) Proximity of customers Number of customers Construction/leasing costs Land costs Modes and quality of transportation Transportation costs

Government regulations Environmental regulations Raw material availability Commercial travel Climate Utilities

Region

Country


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Site Selection Factors -(Community andSite)

Community government Local business regulations Environmental regulations Government services Business climate Community services Transportation system Proximity of customers Concentration of customers

Taxes Construction/leasing costs Land cost Availability of sites Financial Services Labor pool Community inducements Proximity of suppliers

Communi ty

Customer base Construction/leasing cost Land cost Site size Transportation Utilities

Zoning restrictions Traffic Safety/security Competition Area business climate Income level

Site


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Some Facts: Location Decisions

Globalization: A two way street for Americans

Labor costs and productivity issues Worker skills: e.g. call centers and CPA jobs to India.

Government Incentives: Alabama gave $169K per job intax incentives to Mercedes in 1993

Sunbelt is growing Attitudes with respect to: pollution, zoning, intellectualproperty, unionism, turnover, absenteeism, punctuality,bribe, ethics, etc.

Proximity

Markets Suppliers

Competition (clustering)


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Evaluating Locations

Factor Rating (The Scoring Model)

Decision based on quantitative and qualitativeinputs

Center of Gravity Method

Decision based on minimum distribution costs

Transportation Model Decision based on movement costs of raw

materials or finished goods


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Location Factor Rating

Labor pool and climate

Proximity to suppliersWage rates

Community environment

Proximity to customers

Shipping modesAir service

.30

.20

.15

.15

.10

.05

.05

80

100607565

8550

65

91958090

9265

90

75728095

6590

Location Factor Weight Site 1 Site 2 Site 3

Scores (0 to 100)

More


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Location Factor Rating(Weighted Scores)

Labor pool and climate

Proximity to suppliersWage rates

Community environment

Proximity to customers

Shipping modesAir service

Total Score

24.00

20.009.00

11.256.50

4.252.50

77.50

19.50

18.2014.2512.009.00

4.603.25

80.80

27.00

15.0010.8012.00

9.50

3.254.50

82.05

Location Factor Site 1 Site 2 Site 3

Weighted Scores


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Center of Gravity Technique

y2

y

y1

y3

x1 x2 x3 x

1 (x1, y1), W1

2 (x2, y2), W2

3 (x3, y3), W3

where,

x, y= coordinates of the new facility

at center of gravity

xi

, yi

= coordinates of existing facility i

Wi= annual weight shipped from

facility i

n

Wi

i = 1

xiWii = 1

n

x =

n

Wi

i = 1

yiWii = 1

n

y =


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Ex: Locate a warehouse to serve thefollowing four cities with given demand

Location Demand

` (Millions)

_______________________________

Dallas 1

LA 3

New York 3Chicago 2


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Ex: Locate a warehouse to serve thefollowing four cities with given demand

Location Demand (Millions) Coordinates

(Weights)

_____________________________________

Dallas 1 (8,3)

LA 3 (0,4)New York 3 (14,8)

Chicago 2 (10,7)


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Center of Gravity Location

Cx = (1*8+3*0+3*14+2*10)/(1+3+3+2)

= (8+0+42+20)/9 = 70/9 = 7.78

Cy = (1*3+3*4+3*8+2*7)/(1+3+3+2)= (3+12+24+14)/9 = 53/9 = 5.89

Location Coordinate = (7.78, 5.89)


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Transportation Method

Ex: W.A.T., Inc - Currently maintainsplants in Atlanta and Tulsa to supply tomajor distribution centers in Los Angeles

and New York City. Because of anexpanding demand, WAT Inc. has decidedto open a new plant and has narrowed the

choice to one of the two cities--NewOrleans and Houston. Use the followingto arrive at a solution.


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Production & Shipping Cost/Unit Capacity

--------------------------------------------

From\To LA NY----------------------------------------------------------------------------------

Atlanta 14 11 600

Tulsa 9 12 900

Houston* 10 7 500*

New Orleans* 9 11 500*

----------------------------------------------------------------------------------

Demand 800 1200

* Proposed sites


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Least Cost Cell Allocation

Quick and dirty way to find a reasonablygood (but not necessarily an optimal)solution.

For cost minimization problems,

1. Identify least cost cell and allocated themaximum feasible quantity to that cell.

2. Cross out rows and columns that haveexhausted demand/capacity.

3. In case of tie between cells with leastcost, select the cell that canaccommodate the maximum quantity.


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Transportation Table

From/To-> Capacity

Demand


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Transportation Table

From/To-> Capacity

Demand


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Demand Centers are LA & NYC

From/To-> LA NYC Capacity

Demand 800 1200


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Decision?

Based on the cost locate the facility inHOUSTON

6.01 facility location (1pp).pdf

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