Presentation on theme: "Facility Location Facility location is the determination of the geographical site(s) in which to locate a firm’s operations. Globalisation Factors to consider."— Presentation transcript:
1Facility LocationFacility location is the determination of the geographical site(s) in which to locate a firm’s operations.GlobalisationFactors to considerQuantitative tools for analysislocating a single facilitylocating within a network of facilitiesLocation decisions must be co-ordinated with production planning and distribution strategies
2Location Theory - Early History Weber’s classification of industries (1909)Weight-losing processlocate close to raw materialse.g. steel makingWeight-gaining processincorporate “ubiquitous” raw materials e.g. air, waterlocate near marketsHoover’s (1957) tapered transportation ratestapered transportation ratesminimum costs at either production point or market point
3Factors - Location Related Facility LocationFactors - Location RelatedLand/Construction costsCommunity receptivityLocal business climateQuality of lifeGovernment incentivestax breaksfree trade zoneGovernment barrierscurrency controlstrading blocslocal contentenvironmental regulationsPolitical RisksJanny Leung
4Factors - Resource/Cost Related Proximity to suppliersQuality/Availability of labourTransportation/Energy infrastructureProximity to customersInbound/Outbound distribution costsOther (company-owned) facilitiesCompetitive Advantage
5Quantitative Tools Center of Gravity Method Mixed Integer Programming SimulationHeuristicsOther methodsSingle facility locationMulti-facility locationSupply chain network designDynamic location models
6Single Facility Location Given a set of demand points, each located at (xi,yi) with a specified volume Vi to be moved to a facility (at transportation rate Ri ),locate a single facility to minimise total transportation costs.Find (X,Y) toMinimise Vi Ri diwheredi = [(Xi - X)2 + (Yi - Y)2]1/2
7Centre of Gravity Method Grid methodcentroid methodLocate facility at:
8Concerns/Assumptions of Centre-of-Gravity Model continuousdemand concentrated at a pointtransportation costs proportional to Euclidean distancefixed cost of establishing facility ignoredstaticsimpleuseful “first-cut” solution
9Multi-Facility Location How many sites?Where to locate each?Capacities?Which customers assigned to each site?Which products to stock/produce at each site?
10Multiple Centre-of-Gravity Approach Pre-assign demand points to each facility (i.e. cluster customers that are closest together).For each cluster, locate one facility at centre of gravity.With facility locations fixed, re-assign customers to closest facility.Find centres of gravity for new clusters.Repeat cluster-assign until no further change.
11Linear and Mixed Integer Programming LP useful in calculating distribution costsMixed Integer Programming can `optimize’ site selection and distribution plan simultaneouslyDetailed cost estimates needed
12p-median ProblemLocate p facilities so as to minimise the sum of fixed cost for establishing facilities and transportation costs from demand points to assigned facility.Ballou (Logware):demand point co-ordinates givenassume out-and-back along Euclidean distance
14Heuristic Methods = Rules of Thumb Kuehn & Hamburger (1963)ADDNo facilities open initiallyFor each facility not currently used: evaluate the savings in total cost if opened (reduced transportation costs less fixed cost)Add facility that gives maximum (positive) savingsDROPAll (Selected set of) facilities open initiallyFor each facility currently used: evaluate the savings in total cost if closed (fixed cost less increased transportation costs)Drop facility that gives maximum savings
15Multi-Facility Multi-Product Location-Allocation Problem Find the number and location of the facilities to minimise the total (fixed and variable) costs of moving all products through the logistics network, subject to:available supply at each plant cannot be exceeded for each productdemand for all products metthroughput of each facility cannot exceed its capacityminimum throughput of a facility must be achieved before it can be openedall products from same customers must be met from one facility.
20Relevant Costs for Location Decision production/purchase costswarehouse storage and handlingwarehouse fixed costscost for carrying inventorystock order and customer ordering costswarehouse inbound and outbound transportation costsTradeoffs? (Figure 13-8, Ballou)
21Facility LocationSelective EvaluationModified multiple centre-of-gravity to include inventory and fixed costsform clusters of `markets’find centres of gravityre-assign `markets’evaluate total costs (including transportation, inventory and fixed costs)Can be used to determine the number of warehouses that best tradeoffs transportation, inventory and fixed costs(See Ballou, p )Janny Leung
22Guided Linear Programming Relevant costs include both fixed and variable costsAccurate model requires a mixed-integer programComputationally intensiveApproximation: distribute the fixed cost over the throughput (unknown until problem solved)Problem then becomes a linear programming which is much easier to solveAllocate fixed costs according to approximate throughput, solve LP, re-adjust fixed cost allocation, re-solve LP, etc.(See Ballou, p )
23Simulation MethodsOptimisation models are often “approximation” of “real-world” problemsaccurate problem descriptionincorporate time-related aspectsintegrate inventory and geographical concernsonly evaluativecandidate solutions must be providedno optimality guaranteeSub-optimal solution to accurately described problem
24Appraisal of Multi-Location Methods Mathematical Programming based methods gaining popularityinexpensive and robust decision support toolExtensions:non-linear cost structurediscontinuous cost structureintegrated inventory and transportation issuesrevenue effects
25Other methods Regression analysis Factor rating system Analytic Hierarchy Process (AHP)Covering modelsGame theoryLocation-allocation modelsgoal programmingmixed integer programming
26Logistics Network (Supply Chain) Planning (Multi) product flow from source to demand pointsnumber, size and location of production facilitiesnumber, size and location of distribution centresassignment of products and customers to DC’sassignment of DC’s to production siteschoice of transportation modesinventory policies:frequency of replenishmentorder size
27Complexities Spatial and temporal aspects Data collection and aggregationCosts allocation and approximationfixedstorage (related to inventory levels)handling (related to throughput)transportation cost non-linearinventory-throughput relationship non-linear
28Integrated Decisions Iterative approach Location Transportation (Allocation)InventoryIterative approachSolve approximations of each problem in sequenceUpdate approximations and iterate