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Chapter 11TN Facility Location

Chapter 11TN Facility Location. Issues in Facility Location Various Plant Location Methods. Competitive Imperatives Impacting Location. The need to produce close to the customer due to time-based competition, trade agreements, and shipping costs.

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Chapter 11TN Facility Location

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  1. Chapter 11TNFacility Location • Issues in Facility Location • Various Plant Location Methods

  2. Competitive Imperatives Impacting Location • 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.

  3. Issues in Facility Location • Proximity to Customers • Business Climate • Total Costs • Infrastructure • Quality of Labor • Suppliers • Other Facilities • Free Trade Zones • Political Risk • Government Barriers • Trading Blocs • Environmental Regulation • Host Community • Competitive Advantage

  4. Location Decisions • Long-term decisions • Difficult to reverse • Affect fixed & variable costs • Objective: Maximize benefit of location to firm

  5. Factors Affecting Country © 1995 Corel Corp.

  6. Factors Affecting Region/Community © 1995 Corel Corp.

  7. Factors Affecting Site © 1995 Corel Corp.

  8. Industrial Location Strategies • Cost focus • Location is a major cost factor © 1995 Corel Corp.

  9. Service Location Strategies • Revenue focus • Location is a major revenue factor © 1995 Corel Corp.

  10. Factor Rating Method • Most widely used location technique • Useful for service & industrial locations • Rates locations using factors

  11. Weighted Factor Rating Method Steps • List relevant factors • Assign importance weight to each factor (0-1 with all weights adding to 1) • Give a score to each location by factor (1-10, etc.) • Multiply scores by weights for each factor & total • Select location with maximum total score

  12. Factor Rating Method Example You’re an analyst for John Deere. You’re considering locating a new mfg. plant in Omaha (NE) or Denver (CO). Factor Wgt NE COMfg. costs .7 8 6Cost of living .1 7 6 Labor avail. .2 10 8 Where should you locate? © 1995 Corel Corp.

  13. Factor Rating Method Solution Omaha is best

  14. Factor Rating Method Thinking Challenge You’re owner of a hot tub store. You’re considering relocating to Phoenix (AZ) or Santa Fe (NM). Factor Wgt AZ NMPopulation .4 10 5Competition .1 3 8 Life style .5 2 9 Where should you locate? © 1995 Corel Corp.

  15. Solution Phoenix Santa Fe Factor Weight Score Weighted Factor Weighted Factor Score Population Compensation Life Style Which location is best: _________________

  16. Plant Location Methodology: Transportation Method of Linear Programming • Transportation method of linear programming seeks to minimize costs of shipping n units to m destinations or its seeks to maximize profit of shipping n units to m destinations.

  17. Plant Location Methodology: Center of Gravity Method (Centroid) • The center of gravity method is used for locating single facilities that considers existing facilities, the distances between them, and the volumes of goods to be shipped between them. • This methodology involves formulas used to compute the coordinates of the two-dimensional point that meets the distance and volume criteria stated above.

  18. Plant Location Methodology: Center of Gravity Method Formulas Cx = X coordinate of center of gravity Cy = X coordinate of center of gravity dix = X coordinate of the ith location diy = Y coordinate of the ith location Vi = volume of goods moved to or from ith location

  19. Plant Location Methodology: Example of Center of Gravity Method • Center of gravity method example • Several automobile showrooms are located according to the following grid which represents coordinate locations for each showroom. Y Showroom No of Z-Mobiles Q sold per month (790,900) A 1250 D (250,580) D 1900 A (100,200) Q 2300 (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?

  20. Y Q (790,900) D (250,580) A (100,200) (0,0) X Plant Location Methodology: Example of Center of Gravity Method: Determining the Coordinates of the New Facility You then compute the new coordinates using the formulas:

  21. Thinking Challenge You’re a planner for Sears. You want to find the best location of a warehouse serving retail stores in: Seattle (50, 60) Aberdeen (20, 35) Spokane (160, 50) Monthly demand is: Seattle 494k units Aberdeen 18k units Spokane 171k units respectively. © 1995 Corel Corp.

  22. Solution:Center of Gravity Method Grid • Calculate Cx and Cy.

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