© Anita Lee-Post Facility Location Part 1 by Anita Lee-Post

© Anita Lee-Post Learning objectives 1.Define facility location decision and its strategic impacts. 2.Describe the procedure for making facility location decisions. 3.Identify the criteria for selecting appropriate locations for a plant or service facility. 1.Define facility location decision and its strategic impacts. 2.Describe the procedure for making facility location decisions. 3.Identify the criteria for selecting appropriate locations for a plant or service facility.

© Anita Lee-Post Learning objectives continued 4.Apply the center-of-gravity method to evaluate location alternatives based on load-distance. 5.Apply the transportation method to evaluate the cost impact of adding new sites to the network of existing facilities. 6.Apply the break-even analysis to evaluate different location alternatives based on costs. 4.Apply the center-of-gravity method to evaluate location alternatives based on load-distance. 5.Apply the transportation method to evaluate the cost impact of adding new sites to the network of existing facilities. 6.Apply the break-even analysis to evaluate different location alternatives based on costs.

© Anita Lee-Post Facility location Facility Location Decision is:Facility Location Decision is: determining the best geographical location for a company’s facility (which can be an entire organization, a division, or any form of establishment for manufacturing and/or service activities). determining the best geographical location for a company’s facility (which can be an entire organization, a division, or any form of establishment for manufacturing and/or service activities). Facility Location Decision is:Facility Location Decision is: determining the best geographical location for a company’s facility (which can be an entire organization, a division, or any form of establishment for manufacturing and/or service activities). determining the best geographical location for a company’s facility (which can be an entire organization, a division, or any form of establishment for manufacturing and/or service activities).

© Anita Lee-Post Strategic impacts In terms of long-term impacts, location decision: Requires long-term commitments in buildings and facilities.Requires long-term commitments in buildings and facilities. Requires sizable financial investment in setting up a new facility.Requires sizable financial investment in setting up a new facility. In terms of long-term impacts, location decision: Requires long-term commitments in buildings and facilities.Requires long-term commitments in buildings and facilities. Requires sizable financial investment in setting up a new facility.Requires sizable financial investment in setting up a new facility.

© Anita Lee-Post Strategic impacts continued In terms of competitive imperatives, location decision allows for: Time-based competition if located near customers and/or suppliers.Time-based competition if located near customers and/or suppliers. Lowering of shipping costs if located near customers and/or suppliers.Lowering of shipping costs if located near customers and/or suppliers. Lowering wage costs if located near the appropriate labor pool.Lowering wage costs if located near the appropriate labor pool. Adequate supply of skilled labor if located near the appropriate labor pool.Adequate supply of skilled labor if located near the appropriate labor pool. In terms of competitive imperatives, location decision allows for: Time-based competition if located near customers and/or suppliers.Time-based competition if located near customers and/or suppliers. Lowering of shipping costs if located near customers and/or suppliers.Lowering of shipping costs if located near customers and/or suppliers. Lowering wage costs if located near the appropriate labor pool.Lowering wage costs if located near the appropriate labor pool. Adequate supply of skilled labor if located near the appropriate labor pool.Adequate supply of skilled labor if located near the appropriate labor pool.

© Anita Lee-Post Procedure for making facility location decisions Identify dominant location criteria:Identify dominant location criteria: What are the distinctive location factors that have a critical impact on the company’s strategic goal? Develop location alternatives:Develop location alternatives: What are the acceptable locations that satisfy the selected factors? What are the acceptable locations that satisfy the selected factors? Evaluate location alternatives:Evaluate location alternatives: Which is the best location among the acceptable alternatives? Identify dominant location criteria:Identify dominant location criteria: What are the distinctive location factors that have a critical impact on the company’s strategic goal? Develop location alternatives:Develop location alternatives: What are the acceptable locations that satisfy the selected factors? What are the acceptable locations that satisfy the selected factors? Evaluate location alternatives:Evaluate location alternatives: Which is the best location among the acceptable alternatives?

© Anita Lee-Post Location factors 1.Proximity to Customers 2.Market Opportunity 3.Total Costs 4.Infrastructure 5.Quality of Labor 6.Suppliers 1.Proximity to Customers 2.Market Opportunity 3.Total Costs 4.Infrastructure 5.Quality of Labor 6.Suppliers 7.Free Trade Zones 8.Political Risk 9.Government Incentives 10.Environmental Regulation 11.Community Attitude 12.Cultural Issues

© Anita Lee-Post Dominating location factors Proximity to customers at First Security

© Anita Lee-Post Dominant locating factors continued Market opportunity at Wal-Mart opening of first Wal-Mart in Rogers, Arkansasopening of first Wal-Mart in Rogers, Arkansas Market opportunity at Wal-Mart opening of first Wal-Mart in Rogers, Arkansasopening of first Wal-Mart in Rogers, Arkansas

© Anita Lee-Post Location alternatives evaluation methods Distance-based: center-of-gravity method Given the locations of existing facilities (distance) and the volume of goods to be shipped between them (load) Given the locations of existing facilities (distance) and the volume of goods to be shipped between them (load) Find the location of a single facility (e.g., a warehouse) that gives the best load-distance score (i.e., minimizes the total amount of loads moved weighted by the distance traveled) Find the location of a single facility (e.g., a warehouse) that gives the best load-distance score (i.e., minimizes the total amount of loads moved weighted by the distance traveled) Assuming inbound & outbound transportation costs are equal & irrespective of load size Assuming inbound & outbound transportation costs are equal & irrespective of load size Distance-based: center-of-gravity method Given the locations of existing facilities (distance) and the volume of goods to be shipped between them (load) Given the locations of existing facilities (distance) and the volume of goods to be shipped between them (load) Find the location of a single facility (e.g., a warehouse) that gives the best load-distance score (i.e., minimizes the total amount of loads moved weighted by the distance traveled) Find the location of a single facility (e.g., a warehouse) that gives the best load-distance score (i.e., minimizes the total amount of loads moved weighted by the distance traveled) Assuming inbound & outbound transportation costs are equal & irrespective of load size Assuming inbound & outbound transportation costs are equal & irrespective of load size

© Anita Lee-Post Location alternatives evaluation methods Cost-based: transportation method Given the supply availability of each factory (or source), the demand of each warehouse (or destination), and the costs per unit of goods to be shipped between them Given the supply availability of each factory (or source), the demand of each warehouse (or destination), and the costs per unit of goods to be shipped between them Find a minimum-cost shipping schedule that satisfies demand requirements without exceeding supply Find a minimum-cost shipping schedule that satisfies demand requirements without exceeding supply Assuming no cost on excess supply Assuming no cost on excess supply Cost-based: transportation method Given the supply availability of each factory (or source), the demand of each warehouse (or destination), and the costs per unit of goods to be shipped between them Given the supply availability of each factory (or source), the demand of each warehouse (or destination), and the costs per unit of goods to be shipped between them Find a minimum-cost shipping schedule that satisfies demand requirements without exceeding supply Find a minimum-cost shipping schedule that satisfies demand requirements without exceeding supply Assuming no cost on excess supply Assuming no cost on excess supply

© Anita Lee-Post Location alternatives evaluation methods Cost-based: break-even analysis Given the fixed and variable costs at each location alternatives Given the fixed and variable costs at each location alternatives Identify ranges of ouptut for which each location has the lowest total cost Identify ranges of ouptut for which each location has the lowest total cost Select the location that gives the lowest cost for the design capacity of the new facility Select the location that gives the lowest cost for the design capacity of the new facility Cost-based: break-even analysis Given the fixed and variable costs at each location alternatives Given the fixed and variable costs at each location alternatives Identify ranges of ouptut for which each location has the lowest total cost Identify ranges of ouptut for which each location has the lowest total cost Select the location that gives the lowest cost for the design capacity of the new facility Select the location that gives the lowest cost for the design capacity of the new facility