1. Location Analysis Decision-making
Need to identify factors that are important for the location decision being made
Relevant factors will be influenced by
Type of facility
Geography involved

2. Types Of Facilities Heavy manufacturing Light industry
auto plants, steel mills, oil refineries
Light industry
small components manufacturing, assembly and packaging
Warehouse & distribution centers
Retail & service

3. Factors In Manufacturing & Light Industry Plant Location
Labor availability, cost and attitude
Raw material & finished goods shipment modes
Proximity to raw materials
Utilities
Construction costs
Land costs

4. Factors In Warehouse Location
Transportation costs
Proximity to markets

5. Factors In Retail & Service Location
Proximity to customers
Accessibility for customers
Attractiveness of facility

6. Location Decision Sequence
Country
© 1995 Corel Corp.
Region/Community
Site

7. Global Location Factors
Government stability
Government regulations
Political & economic systems
Economic stability & growth
Exchange rates
Culture
Climate
Export import regulations
Duties & tariffs
Raw material availability
Position of global markets
Number and proximity of suppliers
Transportation & distribution system
Labor cost & education
Available technology
Commercial travel
Technical expertise
Cross-border trade regulations
Group trade agreements

8. Ranking of Countries in the 2010 - 2011 Global Competitiveness Report (World Economic Forum*)
1 Switzerland
2 Sweden
3 Singapore
4 U.S.
5 Germany
6 Japan
7 Finland
8 Netherlands
9 Denmark
10 Canada
11 Hong Kong
12 United Kingdom
13 Taiwan, China
14 Norway
15 France
16 Australia
17 Qatar
18 Austria
19 Belgium
20 Luxembourg
* Competitiveness Report/index.htm

9. Regional Location Factors
Labor (availability, education, cost & attitude)
Proximity of customers
Construction/leasing costs
Land costs
Modes and quality of transportation
Transportation costs
Proximity of suppliers
Taxes
Incentive packages
Governmental regulations
Environmental regulations
Raw material availability
Climate
Infrastructure
Education system

10. Factors Affecting Site
Site size and cost
Air, rail, highway, and waterway systems
Zoning restrictions
Nearness of services/supplies needed
Environmental impact issues
© 1995 Corel Corp.

11. Location Decision Example
© 1995 Corel Corp.
In 1992, BMW decided to build its first major manufacturing plant outside Germany in Spartanburg, South Carolina.
BMW’s decisions

12. Country Decision Factors
Market location
U.S. is world’s largest luxury car market
Growing (baby boomers)
Labor
Lower manufacturing labor costs
$17/hr. (U.S.) vs. $27 (Germany)
Higher labor productivity
11 holidays (U.S.) vs. 31 (Germany)
Other
Lower shipping cost ($2,500/car less)
New plant & equipment would increase productivity (lower cost/car $2, )

13. Region/Community Decision Factors
Labor
Lower wages in South Carolina (SC)
About $17,000/yr. (SC) vs. $27,051/yr. (US)
Based on 1993 metropolitan averages for all workers
Government incentives
$135 million in state & local tax breaks
Free-trade zone from airport to plant
No duties on imported components or on exported cars

14. Location Evaluation Methods
Factor-rating method
Center of gravity method
Transportation model

15. Factor-Rating Method Most widely used location technique
Useful for service & industrial locations
Rates locations using factors
Intangible (qualitative) factors
Example: Education quality, labor skills
Tangible (quantitative) factors
Example: Short-run & long-run costs
This technique might be viewed as an extension of the Critical Success Factors methodology where the factors are weighted and rated.

16. Steps in Factor Rating Method
List relevant factors
Assign importance weight to each factor (0 - 1)
Develop scale for each factor ( )
Score each location using factor scale
Multiply scores by weights for each factor & total
Select location with maximum total score

17. Location Factor Example
Scores (0 to 100)
Location Factor
Weight
Site 1
Site 2
Site 3
Labor pool and climate
Proximity to suppliers
Wage rates
Community environment
Proximity to customers
Shipping modes
Air service
.30
.20
.15
.10
.05 80
100 60 75 65 85 50 65 91 95 80 90 92 90 75 72 80 95 65

18. Location Factor Example
Weighted Scores
Location Factor
Site 1
Site 2
Site 3
Labor pool and climate
Proximity to suppliers
Wage rates
Community environment
Proximity to customers
Shipping modes
Air service
Total Score
24.00
20.00
9.00
11.25
6.50
4.25
2.50
77.50
19.50
18.20
14.25
12.00
9.00
4.60
3.25
80.80
27.00
15.00
10.80
12.00
9.50
3.25
4.50
*82.05

19. Center of Gravity Method
Finds location of single distribution center serving several destinations
Used primarily for services & warehousing
Considers
Location of existing destinations
Example: Markets, retailers etc.
Volume to be shipped
Shipping distance (or cost)
Shipping cost/unit/mile is constant

20. Center of Gravity Method Steps
Place existing locations on a coordinate grid
Grid has arbitrary origin & scale
Maintains relative distances
Calculate X & Y coordinates for ‘center of gravity’
Gives location of distribution center
Minimizes transportation cost

21. Center of Gravity Method Equations
X Coordinate
dix = x coordinate of location i
Wi = Volume of goods moved to or from location i
diy = y coordinate of location i
Y Coordinate

22. Center-of-Gravity Example
A B C D X Y Wt y
700
500
600
400
300
200
100 C B o
Center D A x
700
500
600
400
300
200
100

23. Location Analysis Technique
Transportation Method
Identify a location for a new facility so that the location minimizes the company’s overall cost of production and transportation for the supply chain.
To perform this analysis, one must be able to model a given set of facilities and identify the shipping strategy that will minimize the total shipping costs.

24. Balanced Transportation Models
A transportation problem is balanced if
Total supply at all of the sources =
Total demand at all of the destinations
The mill problem is currently balanced with Total Supply = Total Demand = 600 tons
In this case, all of the units are shipped from the sources and all of the destinations receive their demand

25. Unbalanced Transportation Models
If Total supply at all of the sources >
Total demand at all of the destinations,
the problem is feasible. There will be unshipped units at some of the source locations though.
(Resolve model with Kansas City supply set equal to 200 tons)
If Total supply at all of the sources <
the problem will be infeasible.
(Resolve model with Kansas City supply set equal to 100 tons)

26. Solving an Infeasible Unbalanced Transportation Model
The model needs to be balanced in order to identify an optimal shipping strategy. An extra source must be added into the model to supply the current shortage.
Extra capacity needed = Total demand at all destinations – Total supply at all current sources
To create this additional source of supply/capacity, either
Acquire a new facility and include it in the network design and spreadsheet model’s table structure or
add a Dummy source into the model’s table structure

27. Solving the Mill Transportation Problem when Kansas City has only 100 tons capacity
In this problem, the total demand exceeds the total supply by 600 – 550 = 50 tons
Insert a dummy grain elevator with a capacity of 50 tons and a unit shipping cost of $0 to each mill. Edit the spreadsheet model and Solver dialog box to include this new imaginary source.
The identified optimal solution will identify how many tons to ship from each grain elevator to each of the mills. The tons shipped from the dummy elevator are units that will not actually be distributed; these are the amounts that the receiving mills will be short in the eventual distribution.

28. Building a new grain elevator when Kansas City has only 100 tons capacity
In this problem, the total demand still exceeds the total supply by 600 – 550 = 50 tons
Insert a possible location for a new grain elevator with a capacity of at least 50 tons along with the identified unit shipping costs from this location to each mill. Edit the spreadsheet model and Solver dialog box to include the new grain elevator at this location.
The identified optimal solution will identify how many tons to ship from each grain elevator, including the additional elevator at the new location, to each of the mills so as to minimize total costs

29. HHN, Inc. Cabinet Problem
Read the HHN, Inc. Cabinet problem
Is the current transportation problem with the three plants and four market areas balanced?
How would you identify whether Beijing or Fountainbleu is a better location for a fourth plant?