1

Technical Note 10

Facility Location

©The McGraw-Hill Companies, Inc., 2004

 2

OBJECTIVES

• Issues in Facility Location

• Various Plant Location Methods

©The McGraw-Hill Companies, Inc., 2004

 3

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

©The McGraw-Hill Companies, Inc., 2004

 4

Issues in Facility Location

• Proximity to Customers
• Business Climate
• Total Costs
• Infrastructure
• Quality of Labor
• Suppliers
• Other Facilities

©The McGraw-Hill Companies, Inc., 2004

 5

Issues in Facility Location

• Free Trade Zones

• Political Risk
• Government Barriers
• Trading Blocs
• Environmental Regulation
• Host Community
• Competitive Advantage

©The McGraw-Hill Companies, Inc., 2004

 6
Plant Location Methodology: Factor
Rating Method Example
Two refineries sites (A and B) are assigned the
following range of point values and respective points,
where the more points the better for the site location.
Sites
Major factors for site location Pt. Range A B
Fuels in region 0 to 330 123 156
Power availability and reliability 0 to 200 150 100
Labor climate 0 to 100 54 63
Living conditions 0 to 100 24 96
Transportation 0 to 50 45 50
Water supply 0 to 10 4 5
Climate 0 to 50 8 4
Supplies 0 to 60 5 50
Tax policies and laws 0 to 20 Best Site
5 20 is B
Total pts. 418 544
©The McGraw-Hill Companies, Inc., 2004
 7

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

©The McGraw-Hill Companies, Inc., 2004

 8

Plant Location Methodology: Centroid

Method

• The centroid 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

©The McGraw-Hill Companies, Inc., 2004

 9

Plant Location Methodology: Centroid

Method Formulas

Cx =
∑d V ix i
Cy =
∑d V iy i

∑V i ∑V i

Where:
Cx = X coordinate of centroid
Cy = X coordinate of centroid
dix = X coordinate of the ith location
diy = Y coordinate of the ith location
Vi = volume of goods moved to or from ith
location
©The McGraw-Hill Companies, Inc., 2004
 10

Plant Location Methodology: Example of

Centroid Method
• Centroid method example
– Several automobile showrooms are located according to the
following grid which represents coordinate locations for each
showroom
Y S ho wro o m No o f Z-Mo b ile s
Q s o ld p e r mo nth
(790,900)

D A 1250
(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?
©The McGraw-Hill Companies, Inc., 2004
 Plant Location Methodology: Example of
11

Centroid Method (Continued): Determining

Existing Facility Coordinates
Y
To begin, you must identify the Q
existing facilities on a two- (790,900)

dimensional plane or grid and D

(250,580)
determine their coordinates.
A
(100,200)

(0,0) X

S ho wro o m No o f Z-Mo b ile s

You must also have the
volume information on the
business activity at the
existing facilities.
s o ld p e r mo nth
A 1250
D 1900

Q 2300
©The McGraw-Hill Companies, Inc., 2004
 Plant Location Methodology: Example of 12
Centroid Method (Continued): Determining the
Coordinates of the New Facility
You then compute the new coordinates using the formulas:
100(1250) + 250(1900) + 790(2300) 2,417,000
Cx = = = 443.49
1250 + 1900 + 2300 5,450
200(1250) + 580(1900) + 900(2300) 3,422,000
Cy = = = 627.89
1250 + 1900 + 2300 5,450

You then take the coordinates and place them on the map:
Y
S ho wro o m No o f Z-Mo b ile s
Q New s o ld p e r mo nth
(790,900)
location
Z
D
(250,580) of facility A 1250
Z about
A D 1900
(100,200) (443,627)
(0,0) X Q 2300
©The McGraw-Hill Companies, Inc., 2004
 13

Question Bowl
Criteria that influences manufacturing plant
and warehouse location planning can
include which of the following?
b. Proximity to customers
c. Business climate
d. Infrastructure
e. Quality of labor
f. All of the above
Answer: e. All of the above

©The McGraw-Hill Companies, Inc., 2004

 14

Question Bowl
Criteria that influences manufacturing plant
and warehouse location planning can
include which of the following?
b. Political risk
c. Government barriers
d. Environmental regulation
e. All of the above
f. None of the above
Answer: d. All of the above

©The McGraw-Hill Companies, Inc., 2004

 15

Question Bowl
Which of the following are plant location
methods?
b. Transportation method of linear
programming
c. Factor-rating systems
d. Centroid method
e. All of the above
f. None of the above
Answer: d. All of the above

©The McGraw-Hill Companies, Inc., 2004

 16

Question Bowl
Which of the following methods of plant
location analysis considers the existing
facilities, the distances between them, and
the volumes of goods to be shipped?
b. Transportation method of linear
programming
c. Factor-rating systems
d. Centroid method
e. All of the above
f. None of the above
Answer: c. Centroid method
©The McGraw-Hill Companies, Inc., 2004
 17

Question Bowl
Which of the following methods of plant
location analysis is the most widely used
general location technique because it
combines diverse factors in an easy-to-
understand format?
b. Transportation method of linear
programming
c. Factor-rating systems
d. Centroid method
e. All of the above
f. None of the above
Answer: b. Factor-rating systems
©The McGraw-Hill Companies, Inc., 2004
 18

Question Bowl
The location decision for service facilities is
closely tied to which of the following?
b. Market selection decision
c. Material costs
d. Nearness to distributors
e. Nearness to high-skilled labor
f. None of the above

Answer: a. Market selection decision

©The McGraw-Hill Companies, Inc., 2004

 19

End of Technical Note 10

©The McGraw-Hill Companies, Inc., 2004