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Facility Location Models. Location Strategy  One of the most important decisions a firm makes  Increasingly global in nature  Long term impact and.

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Presentation on theme: "Facility Location Models. Location Strategy  One of the most important decisions a firm makes  Increasingly global in nature  Long term impact and."— Presentation transcript:

1 Facility Location Models

2 Location Strategy  One of the most important decisions a firm makes  Increasingly global in nature  Long term impact and decisions are difficult to change  The objective is to maximize the benefit of location to the firm

3 Location Decisions  Long-term decisions  Decisions made infrequently  Decision greatly affects both fixed and variable costs  Once committed to a location, many resource and cost issues are difficult to change

4 Location Decisions Country Decision Critical Success Factors 1.Political risks, government rules, attitudes, incentives 2.Cultural and economic issues 3.Location of markets 4.Labor availability, attitudes, productivity, costs 5.Availability of supplies, communications, energy 6.Exchange rates and currency risks

5 Location Decisions Region/ Community Decision Critical Success Factors 1.Corporate desires 2.Attractiveness of region 3.Labor availability, costs, attitudes towards unions 4.Costs and availability of utilities 5.Environmental regulations 6.Government incentives and fiscal policies 7.Proximity to raw materials and customers 8.Land/construction costs MN WI MI IL IN OH

6 Location Decisions Site Decision Critical Success Factors 1.Site size and cost 2.Air, rail, highway, and waterway systems 3.Zoning restrictions 4.Nearness of services/ supplies needed 5.Environmental impact issues

7 Factors That Affect Location Decisions  Labor productivity  Wage rates are not the only cost  Lower productivity may increase total cost Labor cost per day Productivity (units per day) = cost per unit A = $1.17 per unit $70 60 units Z = $1.25 per unit $25 20 units

8 Factors That Affect Location Decisions  Exchange rates and currency risks  Can have a significant impact on cost structure  Rates change over time  Costs  Tangible - easily measured costs such as utilities, labor, materials, taxes  Intangible - less easy to quantify and include education, public transportation, community, quality-of-life

9 Factors That Affect Location Decisions  Attitudes  National, state, local governments toward private and intellectual property, zoning, pollution, employment stability  Worker attitudes towards turnover, unions, absenteeism  Globally cultures have different attitudes towards punctuality, legal, and ethical issues

10 Factors That Affect Location Decisions  Proximity to markets  Very important to services  JIT systems or high transportation costs may make it important to manufacturers  Proximity to suppliers  Perishable goods, high transportation costs, bulky products

11 Types Of Facilities Heavy manufacturing Heavy manufacturing Auto plants, steel mills, chemical plants Auto plants, steel mills, chemical plants Light industry Light industry Small components mfg, assembly Small components mfg, assembly Warehouse & distribution centers Warehouse & distribution centers Retail & service Retail & service

12 Factors in Heavy Manufacturing Location Construction costs Construction costs Land costs Land costs Raw material and finished goods shipment modes Raw material and finished goods shipment modes Proximity to raw materials Proximity to raw materials Utilities Utilities Labor availability Labor availability

13 Factors in Light Industry Location Construction costs Construction costs Land costs Land costs Easily accessible geographic region Easily accessible geographic region Education & training capabilities Education & training capabilities

14 Factors in Warehouse Location Transportation costs Transportation costs Proximity to markets Proximity to markets

15 ปัจจัยในการเลือกทำเล ที่ตั้งคลังสินค้า สุทิศา สรรพกิจไพศาล, การขนส่งทางบก 2. การขนส่งทางรถไฟ 3. อยู่ใกล้กับลูกค้า 4. อยู่ใกล้แหล่งวัตถุดิบ / โรงงานผลิต 5. สาธารณูปโภค 6. การระบายน้ำ 7. การถ่ายเทของเสีย / การจัดการของเสีย

16 ปัจจัยในการเลือกทำเล ที่ตั้งคลังสินค้า สุทิศา สรรพกิจไพศาล, การเป็นเจ้าของที่ดิน 9. แรงจูงใจจากคลังสินค้าที่ตั้งอยู่ก่อน 10. แรงงานและค่าจ้าง 11. อัตราผลตอบแทนจากการลงทุน 12. ระยะเวลาคืนทุน 13. มูลค่าเงินปัจจุบันสุทธิ 14. การวิเคราะห์ระยะทางกับภาระงาน (Load distance analysis)

17 Location Analysis Techniques Location rating factor Location rating factor Center-of-gravity Center-of-gravity Load-distance Load-distance Break Even Break Even LP and Non-LP LP and Non-LP

18 Location Rating Factor Identify important factors Identify important factors Weight factors ( ) Weight factors ( ) Subjectively score each factor ( ) Subjectively score each factor ( ) Sum weighted scores Sum weighted scores

19 Location Factor Rating Labor pool and climate Proximity to suppliers Wage rates Community environment Proximity to customers Shipping modes Air service LOCATION FACTOR WEIGHT Site Site Site 3 SCORES (0 TO 100) Weighted Score Site 1 = (0.30)(80) = 24

20 Location Factor Rating Labor pool and climate Proximity to suppliers Wage rates Community environment Proximity to customers Shipping modes Air service LOCATION FACTOR WEIGHT Site Site Site 3 SCORES (0 TO 100) Site Site Site 3 WEIGHTED SCORES Weighted Score Site 1 = (0.30)(80) = 24

21 Locate facility at center of geographic area Locate facility at center of geographic area Based on weight and distance traveled Based on weight and distance traveled Establish grid-map of area Establish grid-map of area Identify coordinates and weights shipped for each location Identify coordinates and weights shipped for each location Center-of-Gravity Technique

22 Grid-Map Coordinates where, x, y =coordinates of the new facility at center of gravity x i, y i =coordinates of existing facility i W i =annual weight shipped from facility i  n WiWiWiWi i = 1  xiWixiWixiWixiWi n x =  n WiWiWiWi i = 1  yiWiyiWiyiWiyiWi n y = x1x1x1x1 x2x2x2x2 x3x3x3x3x y2y2y2y2y y1y1y1y1 y3y3y3y3 1 (x 1, y 1 ), W 1 2 (x 2, y 2 ), W 2 3 (x 3, y 3 ), W 3

23 Center-of-Gravity Technique ABCD x y Wt y x A B C D (135) (105) (75) (60) Miles Miles

24 Center-of-Gravity Technique y x A B C D (135) (105) (75) (60) Miles Miles ABCD x y Wt x = = = 238 n  WiWi i = 1  xiWixiWi n  n WiWi  yiWiyiWi n y = = = 444 (200)(75) + (500)(105) + (600)(135) + (300)(60) (200)(75) + (100)(105) + (250)(135) + (500)(60)

25 Center-of-Gravity Technique ABCD x y Wt y x A B C D (135) (105) (75) (60) Miles Miles Center of gravity (238, 444)

26 Load-Distance Technique Compute Load x Distance for each site Choose site with lowest Load x Distance Distance can be actual or straight-line

27 Supplemen t 7-27 Load-Distance Calculations  l ij d ij j = 1 n LD ij = LD ij = load-distance value from site i to all existing facility j’s l ij = load expressed as a weight, number of trips or units being shipped from proposed site i and location j d ij = distance between proposed site i and location j d ij = (x i - x j ) 2 + (y i - y j ) 2 (x i,y i ) = coordinates of proposed site i (x i, y j ) = coordinates of existing facility j where, where,

28 Load-Distance: Example Potential Sites SiteXY Suppliers ABCD X Y Wt Compute distance from each site to each supplier = ( ) 2 + ( ) 2 d 1A = (x A - x 1 ) 2 + (y A - y 1 ) 2 Site 1 = = ( ) 2 + ( ) 2 d 1B = (x B - x 1 ) 2 + (y B - y 1 ) 2 = d 1C = d 1D = 184.4

29 Load-Distance: Example (cont.) Site 2 d 2A = 333 d 2C = d 2B = d 2D = 170 Site 3 d 3A = d 3C = 200 d 3B = d 3D = Compute load-distance j = 1 n  l ij d ij LD ij = Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(434.4) = 125,063 Site 2 = (75)(333) + (105)(323.9) + (135)(226.7) + (60)(170) = 99,791 Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555* * Choose site 3

30 Break-Even Analysis  Method of cost-volume analysis used for industrial locations  Three steps in the method 1.Determine fixed and variable costs for each location 2.Plot the cost for each location 3.Select location with lowest total cost for expected production volume

31 Break-Even Analysis Three locations: Chonburi$30,000$75$180,000 Lumphoon$60,000$45$150,000 Songkla$110,000$25$160,000 Selling price = $120 Expected volume = 2,000 units FixedVariableTotal CityCostCostCost Total Cost = Fixed Cost + Variable Cost x Volume

32 Break-Even Analysis – $180,000 $180,000 – – $160,000 $160,000 – $150,000 $150,000 – – $130,000 $130,000 – – $110,000 $110,000 – – $80,000 $80,000 – – $60,000 $60,000 – – $30,000 $30,000 – – $10,000 $10,000 – – Annual cost ||||||| 05001,0001,5002,0002,5003,000 Volume lowest cost Songkla cost curve Chonburi cost curve Lumphoon cost curve


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