1. Location planning and analysis

2. Need for Location Decisions
Marketing Strategy
Cost of Doing Business
Growth
Depletion of Resources

3. Nature of Location Decisions
Strategic Importance
Long term commitment/costs
Impact on investments, revenues, and operations
Supply chains
Objectives
Profit potential
No single location may be better than others
Identify several locations from which to choose
Options
Expand existing facilities
Add new facilities
Move

4. Making Location Decisions
Decide on the criteria
Identify the important factors
Develop location alternatives
Evaluate the alternatives
Make selection

5. Location Decision Factors
Community Considerations
Regional Factors
Site-related Factors
Multiple Plant Strategies

6. Regional Factors Location of raw materials Location of markets
Labor factors
Climate and taxes

7. Community Considerations
Quality of life
Services
Attitudes
Taxes
Environmental regulations
Utilities
Developer support

8. Site Related Factors
Land
Transportation
Environmental
Legal

9. Multiple Plant Strategies
Product plant strategy
Market area plant strategy
Process plant strategy

10. Comparison of Service and Manufacturing 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

11. Trends in Locations Foreign producers locating in another country
“Made in” effect
Currency fluctuations
Just-in-time manufacturing techniques
Microfactories
Information Technology

12. 3+1 methods to evaluate location alternatives
Locational Cost-Profit-Volume Analysis
Factor rating
The Center of Gravity method
The transportation model

13. Locational Cost-Profit-Volume Analysis
Numerical and graphical analysis are both feasible. We focus on the graphical one.
The steps:
Determine the fixed and variable costs for each location
Plot the total-cost lines for all location alternatives on the same graph
Determine which location will have the lowest total cost for the expected level of output. Alternatively, determine which location will have the highest profit.

14. Assumptions of the CPV Analysis
Fixed costs are constant for the range of probable output
Variable costs are linear for the range of probable output
The required level of output can be closely estimated
Only one product is involved

15. The total cost curve TC = FC + VC = FC + v*Q Total cost = VC + FC
Q (volume in units)
Total cost = VC + FC
Total variable cost (VC)
Fixed cost (FC)

16. Alternatively, the total profit is
TP = Q * (R – v) – FC

17. A simple problem from the text-book
Location
Fixed cost (FC)
Variable cost per unit (v) A
250,000 11 B
100,000 30 C
150,000 20 D
200,000 35

18. Plotting the total-cost lines

19. Calculate the break-even output levels
For B and C:
100, *Q = 150, *Q
Q = 5,000
For C and A:
150, *Q = 250, *Q
Q = 11,111

20. Which location is the best?
The expected long-term volume
Best location
> 11,111 A
5,000 < Exp. vol. < 11,111 C
< 5,000 B

21. Another problem for the same method
Location
Fixed cost (FC)
Variable cost per unit (v) A
10000 30 B
20000 20 C
35000 15 D
25000 40

22. The plot

23. Factor rating Can be used for a wide range of problems The procedure:
Determine the relevant factors
Assign a weight to each factor, indicating its importance (usually 0-1)
Decide on a common scale of the factors and transform them to that scale
Score each location alternative
Multiply the factor weight by the score for each factor and sum the results for each location
Choose the alternative with the highest composite score

24. Example form the text-book

25. The Center of Gravity method
Its aim is to determine the location of a facility that will minimize the shipping cost or travel time to various destinations.
Frequently used in determining the location of schools, firefighter bases, public safety centres, highways, distribution centres, retail businesses…

26. Assumptions
The distribution cost is a linear function of the distance and the quantity shipped
The relative quantity shipped to each destination is fixed in time

27. Map and coordinates
A map is needed that shows the locations of destinations
A coordinate system is overlaid on the map to determine the coordinates of each destination
The aim is to find the coordinates of the optimal location for the facility, as a weighted average of the x and y coordinates of each destinations, where the weights are the shipped quantities. This is the centre of gravity.

28. A sample problem

30. The formulas

31. The solution

33. The transportation model
A special case of the linear programming model

34. The transportation problem
…involves finding the lowest-cost plan for distributing stocks of supplies from multiple origins to multiple destinations that demand them.

35. The optimal shipping plan
The transportation model is used to determine how to allocate the supplies available at the origins to the customers, in such a way that total shipping cost is minimized.
The optimal set of shipments is called the optimal shipping plan.
There can be more optimal shipping plans.
The plan will change if any of the parameters changes significantly.

36. A possible transportation problem situationD S

37. Defining the classic transportation problem
The goods have more shipping points (suppliers) and more destinations (buyers).
Prices are fixed.
The sum of the quantities supplied and the sum of quantities demanded are equal. There are no surpluses nor shortages.
ai and bj are both positive (there are no reverse flow of goods)
the dependent variables are the transported quantities form origin i to destination j: xij ≥ 0
All of the supplies should be sold and all of the demand should be satisfied.
Tha aim is to minimize the total transportation cost:
Homogeneous goods.
Shipping costs per unit are constant.
Only one route and mode ofg transportation exists between each origin and each destination.

38. Typical areas of transportation problems
Suppliers of components and assembly plants.
Factories and shops.
Suppliers of raw materials and factories.
Food processing factories and food retailers.

39. Informations needed to built a model
A list of the shipping points with their capacities (supply quantities).
A list of the destinations with their demand.
Transportation costs per unit from each origin to each destination
Question: what if prices of the good are differ form supplier to supplier?

40. Surplus
If the total supply is greater than the total demand, than we have to add a ‘phantom’ destination to the model the demand of which is equal to the surplus.
The transportation cost to this phantom destination is 0 from every supplier.
De quantities shipped to this virtual customer will be those that will not be bought by anybody.

41. Shortages
The formal solution is the same as it was in the case of a surplus (with 0 transportation costs):
But: mathematics are less adequate in the case of shortages than in the case of surplusses, because of the consequences.

42. The transportation tableC D
Supply 1
4 (unit
cost) 7
100 2 12 3 8
200 10 16 5
150
Demand 80 90
120
160
450=
=450

43. Solving transportation problems
Never try without a computer
There can be many equivalent solutions (with the same total cost).

44. Creating models and solving them

47. Thanks for the attention!