1. 1 IES 371 Engineering Management Chapter 10: Location Week 11 August 17, 2005 Objectives  Identify the factors affecting location choices  Explain how to apply the various methods to location decisions

2. Dr. Karndee Prichanont IES371 1/2005 2 Facility Location Competitive Advantages  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. Dr. Karndee Prichanont IES371 1/2005 3 Issues in facility location  Proximity to Customers  Business Climate  Total Costs  Infrastructure  Quality of Labor  Suppliers  Other Facilities  Free Trade Zones  Political Risk  Government Barriers  Trading Zones  Environmental Regulation  Host Community

4. Dr. Karndee Prichanont IES371 1/2005 4 Plant Location Methodology: Location Factor Rating Procedures 1. Identify factors that are important in the location decision 2. Prioritize the factor by its importance. Each factor is weighted from 0 to 1.00 3. Subjective score (0 to 100) is assigned to each site for each factor 4. Sum up the weighted score. 5. The site with highest score is the most attractive 1 23 4 5 See also Example S5.1

5. Dr. Karndee Prichanont IES371 1/2005 5 Plant Location Methodology: Center-of-Gravity Technique  Used for locating single facility that considers existing facilities, the distances between them, and the volumes of goods to be shipped between them.  Involves formulas used to compute the coordinates of the two- dimensional point that meets the distance and volume criteria stated above.  The coordinates for the location of the new facility are computed as follows: x, y = Coordinates of the new facility at center of gravity x i, y i = coordinate of existing facility I W i = Annual weight shipped from facility i See also Example S5.2

6. Dr. Karndee Prichanont IES371 1/2005 6 Ex 1: Center-of-Gravity Technique Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month? 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) Showroom# of Z-mobiles sold per month ADQADQ 1250 1900 2300

7. Dr. Karndee Prichanont IES371 1/2005 7 Plant Location Methodology: Load-Distance Technique  Various locations are evaluated using a load-distance value.  For a single potential location, a load-distance value (ld) is computed as follows:  Select the location with lowest ld value x, y = coordinates of the new facility x i, y i = coordinate of existing facility LD = the load-distance value l i = the load expressed as weight, number of trips, or unit d i = the distance between the new and existing facility Ex 2: From ex 1, evaluate two possible different sites of warehouse to supply to showroom A, D, and Q. Given that Warehouse site 1: x = 420 and y =450 Warehouse site 2: x = 250 and y =980

8. Dr. Karndee Prichanont IES371 1/2005 8 Plant Location Methodology: Break-even analysis  Also refer to Supplement A – Decision Making  Basic steps for break-even analysis in facility location decisions: 1. Determine variable costs and fixed costs 2. Plot the total cost lines (sum of fixed costs and variable costs) for all alternatives in a single graph 3. Identify the approximate ranges for sites with lowest total cost 4. Solve algebraically for the break- even points over the relevant ranges Q (thousands of units) 0 200 400 600 800 1000 1200 1400 1600 246810121416182022 A best B bestC best Break-even point 6.2514.3 A D B C (20, 1390) (20, 1200) (20, 1060) (20, 980) Break-even point Annual cost (thousands of dollars)

9. Dr. Karndee Prichanont IES371 1/2005 9 Ex 3: Break-even analysis Ethel & Earl Griese narrowed their choice for a new oil refinery to 3 locations. Fixed and variable costs are as follows. Describe the appropriate decision plan for this company. Locations Fixed cost per year Variable cost per unit Albany Baltimore Chattanooga $350,000 $1,500,500 $1,100,000 $980 $240 $500

10. Dr. Karndee Prichanont IES371 1/2005 10 Plant Location Methodology: Transportation Method  A quantitative approach based on linear programming  To determine the allocation pattern that minimizes the cost of shipping products from 2 or more plants (source of supply) to 2 or more warehouses (destinations)  This method is find the best shipping pattern between plants and warehouses for a particular set of plant locations with given capacities

11. Dr. Karndee Prichanont IES371 1/2005 11 Transportation Tableau

12. Dr. Karndee Prichanont IES371 1/2005 12 Ex 3: Transportation Method Fire Brand makes sauce in EL Paso and New York City. Distribution centers are located in Atlanta, Omaha, and Seattle. The shipment costs per case are as shown in the table. The demand for Atlanta, Omaha, and Seattle are 8,000, 10,000, and 4,000 cases per month respectively. The plant in El Paso has production capacity of 12,000 cases / month, while the plant in New York City has production capacity of 10,000 per month. FROM / TOAtlantaOmahaSeattle El Paso $ 4$ 4$ 5$ 6 NYC $ 3$ 7$ 9 Determine the shipping pattern that will minimize transportation costs. What are the estimated transportation costs associated with this optimal allocation pattern?