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.
 Webers Classification of
Industries

CR (2004) Prentice Hall, Inc. 13-6

 Hoovers (1957)
tapered transportation rates
minimum costs at either production point or
market point
Total Cost

Outbound transportation cost

Inbound transportation cost

Material
source Market
Tapered transportation rates force location to the
source of materials OR to the market 7
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?

8
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

9
Location Decision Factors
Community
Regional Factors Considerations

Multiple Plant Site-related

Strategies Factors

8-10
Regional Factors
Location of raw materials
Location of markets
Labor factors
Climate and taxes

8-11
Community Considerations
Quality of life
Services
Attitudes
Taxes
Environmental regulations
Utilities
Developer support

8-12
Site Related Factors
Land
Transportation
Environmental
Legal

8-13
Multiple Plant Strategies
Product plant strategy
Market area plant strategy
Process plant strategy

8-14
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

8-15
Comparison of Service and
Manufacturing
Table 8.2 Considerations
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

8-17
Global Locations
Reasons for globalization
Benefits
Disadvantages
Risks
Global operations issues

8-18
Globalization
Facilitating Factors
Trade agreements
Technology
Benefits
Markets
Cost savings
Legal and regulatory
Financial
8-19
Globalization
Disadvantages
Transportation costs
Security
Unskilled labor
Import restrictions
Criticisms
Risks
Political
Terrorism
Legal
Cultural

8-20
Table 8.3