Location Analysis Decision-making
Need to identify factors that are
important for the location decision being
made
Relevant factors will be influenced by
Typeof facility
Geography involved
1
Types Of Facilities
Heavy manufacturing
auto plants, steel mills, oil refineries
Light industry
smallcomponents manufacturing,
assembly and packaging
Warehouse & distribution centers
Retail & service
2
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
3
Factors In Warehouse Location
Transportation costs
Proximity to markets
4
Factors In Retail & Service Location
Proximity to customers
Accessibility for customers
Attractiveness of facility
5
Location Decision Sequence
Country Region/Community
Site
© 1995
Corel Corp. © 1995 Corel Corp.
© 1995
Corel Corp.
6
Global Location Factors
Government stability Number and proximity of
Government regulations suppliers
Political & economic systems Transportation & distribution
Economic stability & growth system
Labor cost & education
Exchange rates
Available technology
Culture
Commercial travel
Climate
Technical expertise
Export import regulations
Cross-border trade
Duties & tariffs
regulations
Raw material availability
Group trade agreements
Position of global markets
7
Ranking of Most Competitive Countries (IMD World
Competitiveness*)
8
Regional Location Factors
Labor (availability, Taxes
education, cost & Incentive packages
attitude) Governmental
Proximity of customers regulations
Construction/leasing Environmental
costs regulations
Land costs Raw material availability
Modes and quality of Climate
transportation Infrastructure
Transportation costs Education system
Proximity of suppliers
9
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.
10
Location Decision Example
In 1992, BMW
decided to build its
first major
manufacturing
plant outside
Germany in
Spartanburg, South
Carolina.
© 1995 Corel Corp.
11
Country Decision Factors
Market location Other
U.S. is world’s largest
luxury car market Lower shipping
Growing (baby boomers)
cost ($2,500/car
Labor
less)
Lower manufacturing labor New plant &
costs
$17/hr.
(U.S.) vs. $27 equipment would
(Germany)
increase
Higher labor productivity
11 holidays (U.S.) vs. productivity (lower
31 (Germany) cost/car $2,000-
3000)
12
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
13
Location Evaluation Methods
Factor-rating method
Centerof gravity
method
Transportation model
14
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
15
Steps in Factor Rating Method
Listrelevant factors
Assign importance weight to each
factor (0 - 1)
Develop scale for each factor (1 - 100)
Score each location using factor scale
Multiply scores by weights for each
factor & total
Select location with maximum total
score
16
Location Factor Example
Scores (0 to 100)
Location Factor Weight Site 1 Site 2 Site 3
Labor pool and climate .30 80 65 90
Proximity to suppliers .20 100 91 75
Wage rates .15 60 95 72
Community environment .15 75 80 80
Proximity to customers .10 65 90 95
Shipping modes .05 85 92 65
Air service .05 50 65 90
17
Location Factor Example
Weighted Scores
Location Factor Site 1 Site 2 Site 3
Labor pool and climate 24.00 19.50 27.00
Proximity to suppliers 20.00 18.20 15.00
Wage rates 9.00 14.25 10.80
Community environment 11.25 12.00 12.00
Proximity to customers 6.50 9.00 9.50
Shipping modes 4.25 4.60 3.25
Air service 2.50 3.25 4.50
Total Score 77.50 80.80 *82.05
18
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
19
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
20
Center of Gravity Method
Equations
X Coordinate
dix = x coordinate of
d ix Wi
Cx i location i
Wi
i Wi = Volume of goods
moved to or from
Y Coordinate location i
d iy Wi
Cy i diy = y coordinate of
Wi location i
i
21
Center-of-Gravity Example
y A B C D
700 X 200 100 250 500
Y 200 500 600 300
600 C
Wt 75 105 135 60
500 B
400
o Center
300 D
200 A
100
0 100 200 300 400 500 600 700 x
22
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.
23
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
24
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 <
Total demand at all of the destinations,
the problem will be infeasible.
(Resolve model with Kansas City supply set
equal to 100 tons)
25
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
26
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.
27
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
28
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?
29
