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Facility location

Facility location

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Facility location

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  1. Facility location

  2. Facilities They include manufacturing and assembly centers, warehouses, distribution centers (DCs), transshipment points, transport terminals, retail outlets, mail sorting centers, garbage incinerators, dump sites, etc. Transport services move materials between facilities using vehicles and equipment such as trucks, tractors, trailers, crews, pallets, containers, cars and trains.

  3. Types of Facilities The type of facility is a major determinant of its location. We consider two types: • Warehouses and Distribution Centres (DC) • Retail and Service

  4. Warehouses and DC Warehouses are an intermediate point in the supply chain where products are held for distribution. Normally, a warehouse is a building that is used to receive, handle, store, and then ship products. Light assembly and packaging may sometimes be done in a warehouse, and some warehouse operators will provide sales support and personnel. Some companies that market primarily through the internet, like, operate exclusively in a warehouse-like environment. 

  5. Coordination Consolidation Unitization Transshipment Sorting Kitting Sequencing Packaging Commercialization Storage Tracking and tracing Warehouse Functions

  6. Coordination Different types of traffic modes arrive at the warehouse, and they arrive at different points of time. In order to become an efficient node in the transport network, some kind of coordination of the vehicles must be made. This coordination should primarily mean an adjustment of the times of arrival and departure for different means of transport. This can be made either by the help of highly controlling time tables or in such a way that the goods is stopped at the warehouse. The capacities of the different traffic modes must be coordinated in order to avoid delays in the warehouse, a large incoming flow of goods with a small capacity for outgoing deliveries or a small incoming flow of goods with a large capacity for outgoing deliveries.

  7. Consolidation • Combining two or more shipments in order to realize lower transportation rates. • Inbound consolidation from vendors is called make-bulk consolidation; outbound consolidation to customers is called break-bulk consolidation. • Forwarder usually put many consignments into one lot, then tender to carrier for forwarding.

  8. Level of consolidation Pallet Container Pallet

  9. Unitization • Assembly and packing of a number of items, either the same or different, into a standardized or compact unit for ease of handling by the mechanical equipment. • The size or dimensions of the unit load can vary according to requirements and to the means of transport and packaging container available. • The palletized cargo, container load and carload are examples of a unitized load. • The unitized load facilitates the loading, unloading and inventory of shipment, and improves the cargo security against theft, pilferage and damage.

  10. Kitting • Light assembly of components or parts into defined units. • The selecting, packaging and delivery of unassembled parts, with the goal of minimizing production/installation time.

  11. Transshipment In the warehouse the goods are transshipped from one traffic mode to another. This should be done during a short period of time and often between two means of transportation with very different characteristics. For example from long-distance vehicles to distribution vehicles or from ships to road traffic modes. This demands a design of the warehouse that varies with the existing type of transshipment.

  12. Sorting For several different reasons, the flow of goods in the warehouse can consequently be stopped. When this happens, it is suitable to perform such value-adding operations that are possible to perform in other places than at the consignor’s. The goods can for example be sorted, on the basis of many different criteria.

  13. Storing The storing of goods can have a various time extension. The goods passing through the warehouse from one traffic mode to another must normally be stopped for a shorter period of time, short-time storing, in order for the arrival and departure times for the means of transportation to be given a certain amount of freedom. Other types of goods use the warehouse as a long-time storing, from where the goods are delivered at customers´ requests.

  14. Traffic 00 02 04 06 08 10 12 14 Hour Traffic variability A big problem for the effective use of resources in the warehouse

  15. Location factors Factors important in influencing the location of a warehouse include:   • Environmental conditions • Utilities if refrigeration is required • Security • Transport costs • Proximity to markets, especially if frequency of delivery is high Construction and land costs, labour availability, proximity to raw materials, and waste disposal are less important for location of warehouses. 

  16. Retail and Service   Retailers are business firms engaged in offering goods and services directly to consumers. In most—but not all—cases, retail outlets are primarily concerned with selling merchandise. Typically, such businesses sell individual units or small groupings of products to large numbers of customers. A minority of retailers, however, also garner income through rentals and services.

  17. Location factors For retail, location is everything: • Proximity to customers • Land costs in prime locations Prime land in downtown and retail areas tend to be high. Construction costs and labour tend to be less important for service operations. Closeness to suppliers may be important, but not as much as for manufacturing facilities. 

  18. Site Selection Site selection is a very long and involved process because the choice of a poor location can be very costly. Sometimes, hundreds of sites are evaluated before a final site is chosen. There are several techniques for narrowing the choices down to a cognitively manageable level. First is the identification of global, domestic, and site-specific location factors, then the application of quantitative techniques for location analysis.  

  19. Global Locations While locating plants overseas is often attractive for access to low cost labour and large markets, such locations can also be troublesome for a variety of reasons. Confiscation of a plant by a government attempting to nationalize its economy is perhaps one of the most damaging events related to international location. Other events, however, could also be detrimental to a plant located overseas. For example, poor infrastructure, political instability, and cultural acceptance of bribery may create uncertainty and the need for costly change.

  20. Government stability Government regulations Political and economic systems Economic stability and growth Exchange rates Culture Climate Export and import regulations, duties, and tariffs Raw material availability Number and proximity of suppliers Transportation and distribution systems Labour force cost and education Available technology Commercial travel Technical expertise Cross-border trade regulations Group trade agreements Global factors

  21. Number of customers Proximity of suppliers Construction/leasing costs Land costs Availability of sites Modes and quality of transport Transport cost Climate Raw material availability Commercial travel Infrastructure ( roads, water and sewer, utilities) Incentive packages Governmental regulations Community Government Government services Local business regulations Business climate Community services Taxes Financial services Community inducements Education systems Quality of life Regional Location Factors

  22. Customer base Construction/leasing cost Land cost Site size Transport Utilities Zoning restrictions Traffic Safety/security Competition Area business climate Income level and other demographic characteristics Site Location Factors

  23. Location Incentives Incentives are a good public investment. The new businesses need infrastructure improvements to support the increased activities and populations drawn by freight and job demand. Thus, states and communities, much like businesses, need a strategy for economic development that weighs the costs versus the benefits of attracting companies. Location incentives include: • Tax credits • Relaxed government regulation • Job training • Infrastructure improvement • Money

  24. Classification of Location Problems The classification below is logistics-oriented: • Single or multi-period time horizon • Facility typology and number • Single or multi-commodity problems • Interaction among facilities • Single (only inbound or outbound commodities are relevant) or multiple-echelon problems (both inbound and outbound commodities are relevant)

  25. Influence of transport Most location models assume that transport cost between two facilities, or between a facility and an user, is computed as a suitable transportation rate multiplied by the freight volume and the distance between the two points. Such an approach is appropriate if vehicles travel by means of a direct route. However, if each vehicle makes collections or deliveries to several points, then a transport rate cannot easily be established. In such cases the routes followed by the vehicles should be taken explicitly into account when locating the facilities (location-routing models).

  26. Optimal location of a warehouse A A, B and C are customers to be serviced ___ Network O Intersection 0 B C

  27. It depends on the service Two ways to service customers: • Each customer requires a full-load supply and, therefore, the optimal location of the DC is equal to the point O. • A single vehicle can service all points and hence the facility can be located at any point of the triangle ABC perimeter.

  28. Location Analysis Techniques Site selection can be a complex process, so several quantitative techniques have been developed to assist decision-makers in narrowing choices down to a manageable level or in choosing from among several similarly desirable choices. Three techniques are:  • Location factor rating • Centre-of-gravity • Euclidean model

  29. Location Factor Rating  The location factor rating technique may be used when many sites are available, and each site has some appealing characteristics. The purpose of the technique is to "score" each site to be somewhat objective about the location decision. The steps in using the technique are:  • Identify important location factors. • Weight the factors on importance for project success. • Subjectively score each factor (1-100). • Sum weighted scores. • Use the score with other factors to make a final decision.

  30. Centre-of-Gravity Technique The centre-of-gravity technique can be used when multiple suppliers or customer bases exist at different geographic locations, and it is economically sensible to locate centrally to service all of them. In general, transport costs are a function of distance, weight, and time. The centre-of-gravity technique is a quantitative method for locating a facility, such as a warehouse, at the centre of movement in a geographic area, based on weight and distance.

  31. The steps Locate facility at centre of geographic area • Based on "weight," (weight, volume, or sales) and transport costs • Establish a grid-map of the area. • Identify coordinates (x, y) and weights W shipped for each location. • Calculate the centre of gravity x = Sj=1Wjxj / Sj=1Wj y = Sj=1Wjyj / Sj=1Wj

  32. Facility location using transport costOne terminal with several suppliers and customers Tki, Tlm transport cost SVki = SVLm

  33. The Euclidean model The model is concerned with the selection of the best location(s) for establishing facilities based on cost or other criteria. Facilities may include warehouses, plants, stores, cross-docking facilities, terminals and customer sites. The model considers a new facility location to minimize the total movement cost.

  34. Minimize total movement cost It can be represented as follow: Minimize Sj=1krjvj[(xj – a)2 + (yj – b)2]1/2 j = 1,2,.. m existing facilities each having a flow of vj and coordinates (x, y) rj is the unit transport cost to location j The new facility P has coordinates (a, b)

  35. The minimization problem The equation represents an unconstrained minimization problem that can be solved by means of simple derivative calculus. Taking partial derivatives with respect to a and b, setting them equal to zero and solving for a and b one obtains the following a = (Sxjrjvj /dj)(Srjvj /dj)-1 1 b = (Syjrjvj /dj)(Srjvj /dj)-1 2 dj represents the distance between the new facility location and the existing facility j dj = K[(xj – a)2 + (yj – b)2]1/2 3

  36. The iterative process Since the location of the new facility is not known, an iterative procedure is used to solve this problem. The procedure converges to the optimal solution. The procedure is known as the center-of-gravity approach since equations are similar to those used in mechanics.

  37. The steps 1. determine (a, b) initially using the following equations: a = (Sxjrjvj)(Srjvj )-1 b = (Syjrjvj)(Srjvj)-1 • with (a, b) as the new facility location compute djby using equation 3 • solve for (a, b) by using equations 1 and 2 • check if the coordinates (a, b) have changed by more than a specified small value. If yes, go to step 2; if no, stop, the optimal solution has been found.

  38. Locating Several Facilities Fixed Number of Facilities to Consider Put the facilities in relation to location factors Step 1: Assign the Customers to the facilities Step 2: Find the best location for each facility given the assignments (see previous method) Repeat Step 1 and Step 2 ….

  39. Assign Customers to Facilities Uncapacitated (facilities can be any size) • “Greedy” approach: Assign each customer to closest facility Capacitated • Use Optimization in the assignments • This is typically a simple linear integer program

  40. Single-Echelon Single-Commodity The SESC location problem assumptions: • the facilities to be located are homogeneous (e.g. they are all regional warehouses); • either the material flow coming out orthe material flow entering such facilities is negligible; • all material flows are homogeneous and can therefore be considered as a single commodity; • transport cost is linear or piecewise linear; • facility operating cost is piecewise linear or, in particular, constant.

  41. The model The problem can be modelled through a graph G(V1UV2, A). The vertices V1 stand for the potential facilities, the vertices in V2 represent the customers, and the arcs in A = V1×V2 are associated with the material flows between the potential facilities and the demand points.

  42. The variables Let dj, j V2, be the demand of customer j qi, i , the capacity of the potential facility i ui, i  V1, a decision variable that accounts for operations in potential facility i; sij, i V1, j V2, a decision variable representing the amount of product sent from site i to demand point j Cij (sij ), i V1, j V2, the cost of transporting sij units of product from site i to customer j Fi(ui ), i V1, the cost for operating potential facility i at level ui.

  43. The problem is expressed in the following way