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OPERATIONS MANAGEMENT:
Creating Value Along the Supply Chain,
Canadian Edition
Robert S. Russell, Bernard W. Taylor III, Ignacio Castillo, Navneet Vidyarthi
CHAPTER 7 Supplement
Facility Location Models
Learning Objectives
 Explain the major categories of facilities and the
factors important in facility location.
 Explain the general considerations of the facility site
selection process for services and manufacturing
facilities.
 Discuss the factors a company should consider
when selecting facility site and explain how
geographic information systems (GIS) can be used
as a site selection tool.
 Use three quantitative tools for facility site selection.
Copyright 2014 John Wiley & Sons, Inc.
Supplement 7-2
Lecture Outline
 Types of Facilities
 Site Selection: Where to Locate
 Site Selection: Factors to Consider
 Location Analysis Techniques
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-3
Types of Facilities
 Heavy-manufacturing facilities
 large, require a lot of space, and are
expensive
 Light-industry facilities
 smaller, cleaner plants and usually less
costly
 Retail and service facilities
 smallest and least costly
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-4
Factors in Heavy
Manufacturing Location
 Construction costs
 Land costs
 Raw material & finished goods shipment
modes
 Proximity to raw materials
 Utilities
 Means of waste disposal
 Labour availability
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-5
Factors in Light Industry
Location
 Land costs
 Transportation costs
 Proximity to markets
 depending on delivery requirements
including frequency of delivery required by
customer
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-6
Factors in Retail Location
 Proximity to customers
 Location is everything
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-7
Site Selection: Where to Locate
 Infrequent but important
 being “in the right place at the
right time”
 Must consider other
factors, especially financial
considerations
 Location decisions made
more often for service
operations than
manufacturing facilities
 Location criteria for service
 access to customers
 Location criteria for
manufacturing facility
 nature of labor force
 labour costs
 proximity to suppliers and





markets
distribution and
transportation costs
energy availability and cost
community infrastructure
quality of life in community
government regulations
and taxes
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-8
Global Supply Chain Factors
 Government stability
 Government regulations
 Political & economic





systems
Economic stability &
growth
Exchange rates
Culture
Export/import
regulations, duties &
tariffs
Raw material availability
 Climate
 Number & proximity of







suppliers
Transportation &
distribution system
Labour cost & education
Available technology
Commercial travel
Technical expertise
Cross-border trade
regulations
Group trade agreements
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-9
Regional and Community
Location Factors in Canada
 Labour (availability,
 Modes and quality of
education, cost, and
unions)
 Proximity of customers
 Number of customers
 Construction/leasing
costs
 Land cost
transportation
 Transportation costs
 Community
government Local
business regulations
 Government services
(e.g., Chamber of
Commerce)
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-10
Regional and Community
Location Factors in Canada
 Business climate
 Infrastructure (road &
 Community services
 Incentive packages

 Government





regulations
Environmental regs.
Raw material
availability
Commercial travel
Climate





utilities)
Quality of life
Taxes
Availability of sites
Financial services
Community
inducements
Proximity of suppliers
Education system
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-11
Location Incentives
 Tax credits
 Relaxed government regulation
 Job training
 Infrastructure improvement
 Money
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-12
Geographic Information Systems
(GIS)
 Computerized system for storing, managing,
creating, analyzing, integrating, and digitally
displaying geographic, i.e., spatial, data
 Specifically used for site selection
 Enables users to integrate large quantities of
information about potential sites and analyze these
data with many different, powerful analytical tools
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-13
GIS Diagram
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-14
Location Analysis Techniques
 Location factor rating
 Centre-of-gravity
 Load-distance
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-15
Location Factor Rating
 Identify important factors
 Weight factors (0.00 - 1.00)
 Subjectively score each factor (0 - 100)
 Sum weighted scores
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-16
Location Factor Rating
SCORES (0 TO 100)
LOCATION FACTOR
Labor pool and climate
Proximity to suppliers
Wage rates
Community environment
Proximity to customers
Shipping modes
Air service
WEIGHT
Site 1
Site 2
Site 3
.30
.20
.15
.15
.10
.05
.05
80
100
60
75
65
85
50
65
91
95
80
90
92
65
90
75
72
80
95
65
90
Weighted Score for “Labor pool and climate” for
Site 1 = (0.30)(80) = 24
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-17
Location Factor Rating
WEIGHTED SCORES
Site 1
24.00
20.00
9.00
11.25
6.50
4.25
2.50
77.50
Site 2
19.50
18.20
14.25
12.00
9.00
4.60
3.25
80.80
Site 3
27.00
15.00
10.80
12.00
9.50
3.25
4.50
82.05
Copyright 2014 John Wiley & Sons Canada, Ltd.
Site 3 has the highest
factor rating
Supplement 7-18
Location Factor Rating With
Excel
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-19
Location Factor Rating With OM
Tools
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-20
Centre-of-Gravity Technique
 Locate facility at centre of movement in geographic
area
 Based on weight and distance traveled;
establishes grid-map of area
 Identify coordinates and weights shipped for each
location
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-21
Grid-Map Coordinates
y
n

x=
y=
Wi
i=1
1 (x1, y1), W1
yiWi
i=1
n

y1

xiWi
i=1
2 (x2, y2), W2
y2
n
n

Wi
i=1
where,
x, y = coordinates of new facility at
3 (x3, y3), W3
centre of gravity
xi, yi = coordinates of existing facility i
Wi = annual weight shipped from
facility i
y3
x1
x2
x3
x
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-22
Centre-of-Gravity Technique
y
700
x
y
W
C
600
Miles
500
(135)
B
(105)
400
300
200
A
200
200
75
B
100
500
105
C
250
600
135
D
500
300
60
D
(60)
A
(75)
100
0
100 200 300 400 500 600 700 x
Miles
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-23
Centre-of-Gravity Technique
n
 xiWi
x=
i=1
n
 Wi
(200)(75) + (100)(105) + (250)(135) + (500)(60)
=
= 238
75 + 105 + 135 + 60
i=1
n

y=
i=1
yiWi
n
 Wi
(200)(75) + (500)(105) + (600)(135) + (300)(60)
=
= 444
75 + 105 + 135 + 60
i=1
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-24
Centre-of-Gravity Technique
y
700
C
600
Miles
500
(135)
B
(105)
400
300
200
A
x
y
W
A
200
200
75
B
100
500
105
C
250
600
135
D
500
300
60
Centre of gravity (238, 444)
D
(60)
(75)
100
0
100 200 300 400 500 600 700 x
Miles
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-25
Centre-of-Gravity With Excel
Formula for
x coordinate
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-26
Centre-of-Gravity With OM Tools
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-27
Load-Distance Technique
 Compute (Load x Distance) for each site
 Choose site with lowest (Load x Distance)
 Distance can be actual or straight-line
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-28
Load-Distance Calculations
n
LD =
 ld
i
i
i=1
where,
LD =
load-distance value
li =
load expressed as a weight, number of trips or units
being shipped from proposed site and location i
distance between proposed site and location i
di
=
di
=
(xi - x)2 + (yi - y)2
where,
(x,y) = coordinates of proposed site
(xi , yi) = coordinates of existing facility
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-29
Load-Distance
Potential Sites
Site
X
1
360
2
420
3
250
Y
180
450
400
A
200
200
75
X
Y
Wt
Suppliers
B
C
100
250
500
600
105
135
D
500
300
60
Compute distance from each site to each supplier
Site 1 dA =
(xA - x1)2 + (yA - y1)2
=
(200-360)2 + (200-180)2 = 161.2
dB =
(xB - x1)2 + (yB - y1)2
=
(100-360)2 + (500-180)2 = 412.3
dC = 434.2
dD = 184.4
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-30
Load-Distance
Site 2 dA = 333
dB = 323.9 dC = 226.7 dD = 170
Site 3 dA = 206.2 dB = 180.3 dC = 200
Compute load-distance
dD = 269.3
n
LD =
 ld
i
i
i=1
Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(434.4) = 125,063
Site 2 = (75)(333) + (105)(323.9) + (135)(226.7) + (60)(170) = 99,789
Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555*
* Choose site 3
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-31
Load-Distance With Excel
=B7*C11+C7*C12+D7*C13+E7*C14
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-32
Load-Distance With OM Tools
Copyright 2014 John Wiley & Sons Canada, Ltd.
Supplement 7-33
Copyright
Copyright © 2014 John Wiley & Sons Canada, Ltd. All rights
reserved. Reproduction or translation of this work beyond
that permitted by Access Copyright (The Canadian Copyright
Licensing Agency) is unlawful. Requests for further
information should be addressed to the Permissions
Department, John Wiley & Sons Canada, Ltd. The purchaser
may make back-up copies for his or her own use only and not
for distribution or resale. The author and the publisher
assume no responsibility for errors, omissions, or damages
caused by the use of these programs or from the use of the
information contained herein.
Copyright 2014 John Wiley & Sons Canada, Ltd.
7-34