1 Slides used in class may be different from slides in student pack Chapter 11 Facility Location  Issues in Facility Location  Various Plant Location Methods

2 Slides used in class may be different from slides in student pack Competitive Imperatives Impacting Location  The need to produce close to the customer due to time-based competition, trade agreements, and shipping costs.  The need to locate near the appropriate labor pool to take advantage of low wage costs and/or high technical skills.

3 Slides used in class may be different from slides in student pack Issues in Facility Location  Proximity to Customers  Business Climate  Total Costs  Infrastructure  Quality of Labor  Suppliers  Other Facilities

4 Slides used in class may be different from slides in student pack Issues in Facility Location  Free Trade Zones  Political Risk  Government Barriers  Trading Blocs  Environmental Regulation  Host Community  Competitive Advantage

5 Slides used in class may be different from slides in student pack Characteristics of Location Decisions  Long-term decisions  Very difficult to reverse  Affect fixed & variable costs –Transportation cost »As much as 25% of product price –Other costs: Taxes, wages, rent etc.  Objective: Maximize benefit of location to firm

6 Slides used in class may be different from slides in student pack Location Decision Sequence 1. Country 2. Region/Community 3. Site © 1995 Corel Corp.

7 Slides used in class may be different from slides in student pack Factors Affecting Country Decision  Government  Culture & economy  Market location & size  Labor –Productivity –Cost –Skills  Infrastructure  Exchange rate  Incentives © 1995 Corel Corp.

8 Slides used in class may be different from slides in student pack Factors Affecting Region/Community Decision  Corporate desires  Attractiveness  Labor  Utility costs  Local government incentives  Proximity to customers & suppliers  Land/construction $$$ © 1995 Corel Corp.

9 Slides used in class may be different from slides in student pack Factors Affecting Site Decision  Site size  Site cost  Transportation in/out  Proximity of services  Environmental impact © 1995 Corel Corp.

1010 Slides used in class may be different from slides in student pack  Cost focus –Revenue varies little between locations  Location is a major cost factor –Affects shipping & production costs (e.g., labor) –Costs vary greatly between locations Manufacturing Location Strategies © 1995 Corel Corp.

1 Slides used in class may be different from slides in student pack Service Location Strategies  Revenue focus –Costs differences among locations are relatively less important  Location is a major revenue factor –Affects amount of customer contact –Affects volume of business © 1995 Corel Corp.

1212 Slides used in class may be different from slides in student pack Some Location Methods  Factor weighting method  Center of gravity method © 1995 Corel Corp.

1313 Slides used in class may be different from slides in student pack Location Methods: Factor Rating Method  Most widely used location technique  Useful for service & manufacturing locations  Rates locations using factors –Qualitative (intangible) factors »Example: Education quality, labor skills –Quantitative (tangible) factors »Example: Short-run & long-run costs

1414 Slides used in class may be different from slides in student pack Weighted Factor Rating Method Steps 1. List relevant factors 2. Assign importance weight to each factor (0-1 with all weights adding to 1) 3. Give a score to each location by factor (1-10, etc.) 4. Multiply scores by weights for each factor & total 5. Select location with maximum total score

1515 Slides used in class may be different from slides in student pack Factor Rating Method Example You’re an analyst for John Deere. You’re considering locating a new plant in Omaha (NE) or Denver (CO). Factor Wgt NE CO Mfg. costs.786 Cost of living.17 6 Labor avail Where should you locate? © 1995 Corel Corp.

1616 Slides used in class may be different from slides in student pack Factor Rating Method Solution Omaha is best

1717 Slides used in class may be different from slides in student pack Factor Rating Method Thinking Challenge You’re owner of a hot tub store. You’re considering relocating to Phoenix (AZ) or Santa Fe (NM). Factor Wgt AZ NM Population.4105 Competition.13 8 Life style.52 9 Where should you locate? © 1995 Corel Corp.

1818 Slides used in class may be different from slides in student pack Solution TOTAL Santa Fe is Best

1919 Slides used in class may be different from slides in student pack Location Methods: Factor Rating Method +/- + Easy to understand and compute - How do you pick weights? - How do you assign rankings?

2020 Slides used in class may be different from slides in student pack Location Methods: Transportation Method of Linear Programming  Seeks to minimize costs of shipping n units to m destinations or its seeks to maximize profit of shipping n units to m destinations. + eliminates subjectivity - may give unrealistic answer

2121 Slides used in class may be different from slides in student pack Location Methods: Centroid Method  The centroid is used for locating single facilities that considers: –existing facilities, –the distances between them, and –the volumes of goods to be shipped between them.  This methodology involves formulas used to compute the coordinates of the two- dimensional point that meets the distance and volume criteria stated above.

2 Slides used in class may be different from slides in student pack Plant Location Methodology: Centroid Method Formulas C x = X coordinate of the centroid C y = X coordinate of the centroid d ix = X coordinate of the ith location d iy = Y coordinate of the ith location V i = volume of goods moved to or from ith location

2323 Slides used in class may be different from slides in student pack Plant Location Methodology: Example of Centroid Method Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month?  Centroid method example –Several automobile showrooms are located according to the following grid which represents coordinate locations for each showroom. X Y A (100,200) D (250,580) Q (790,900) (0,0)

2424 Slides used in class may be different from slides in student pack Plant Location Methodology: Example of Centroid Method: Determining the Coordinates of the New Facility X Y A (100,200) D (250,580) Q (790,900) (0,0) You then compute the new coordinates using the formulas: Z New location

2525 Slides used in class may be different from slides in student pack Thinking Challenge You’re a planner for Sears. You want to find the best location of a warehouse serving retail stores in: Seattle (50, 60) Aberdeen (20, 35) Spokane (160, 50) Monthly demand is: Seattle 494k units Aberdeen 18k units Spokane 171k units respectively. © 1995 Corel Corp.

2626 Slides used in class may be different from slides in student pack Centroid Method Grid Seattle (50,60) 494k units Aberdeen (20,35) 18k units Spokane (160,50) 171k units © 1995 Corel Corp.

2727 Slides used in class may be different from slides in student pack Solution

2828 Slides used in class may be different from slides in student pack Thinking Challenge Solution Seattle (50,60) 494k units Aberdeen (20,35) 18k units Spokane (160,50) 171k units Warehouse at (77, 57): Wenatchee Nat’l Forest! X © 1995 Corel Corp.