1

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Technical Note 11
Facility Location

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OBJECTIVES

Issues in Facility Location

Various Plant Location Methods

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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

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Issues in Facility Location

Proximity to Customers
Business Climate
Total Costs
Infrastructure
Quality of Labor
Suppliers
Other Facilities

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Issues in Facility Location

Free Trade Zones
Political Risk
Government Barriers
Trading Blocs
Environmental Regulation
Host Community
Competitive Advantage

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Plant Location Methodology:

Factor Rating Method Example

Two refineries sites (A and B) are assigned the

following range of point values and respective points,
where the more points the better for the site location.
Sites
Major factors for site location

Fuels in region
Power availability and reliability
Labor climate
Living conditions
Transportation
Water supply
Climate
Supplies
Tax policies and laws

Pt. Range

0 to 330
0 to 200
0 to 100
0 to 100
0 to 50
0 to 10
0 to 50
0 to 60
0 to 20

123
150
54
24
45
4
8
5
5

Total pts. 418

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156
100
63
96
50
5
4
50
Best Site
Site
20 isBest
B

544

is B

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Plant Location Methodology:

Transportation Method of Linear
Programming

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

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Plant Location Methodology:

Centroid Method

The centroid method 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

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10

Plant Location Methodology:

Centroid Method Formulas
C
Cxx ==

dd VV

VV
ix
ix

ii

ii

C
Cyy ==

dd VV

VV
iy
iy

ii

ii

Where:
Cx = X coordinate of centroid
Cy = X coordinate of centroid
dix = X coordinate of the ith location
diy = Y coordinate of the ith location
Vi = volume of goods moved to or from ith
location
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Plant Location Methodology:

Example of Centroid Method

Centroid method example

Several automobile showrooms are located
according to the following grid which represents
coordinate locations for each showroom
S ho wro o m

Y
Q

No o f Z-Mo b ile s
s o ld p e r mo nth

(790,900)

1250

1900

2300

(250,580)

A
(100,200)
(0,0)

Question:
Question:What
Whatis
isthe
thebest
bestlocation
locationfor
foraanew
newZ-Mobile
Z-Mobile
warehouse/temporary
warehouse/temporarystorage
storagefacility
facilityconsidering
consideringonly
only
distances
distancesand
andquantities
quantitiessold
soldper
permonth?
month?
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12

Plant Location Methodology: Example of Centroid

Method (Continued): Determining Existing Facility
Coordinates
To
Tobegin,
begin,you
youmust
mustidentify
identifythe
the
existing
existingfacilities
facilitieson
onaatwotwodimensional
dimensionalplane
planeor
orgrid
gridand
and
determine
determinetheir
theircoordinates.
coordinates.

Y
Q
(790,900)

(250,580)

A
(100,200)
(0,0)

You
Youmust
mustalso
alsohave
havethe
the
volume
volumeinformation
informationon
onthe
the
business
businessactivity
activityat
atthe
the
existing
existingfacilities.
facilities.

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S ho wro o m

No o f Z-Mo b ile s
s o ld p e r mo nth

1250

1900

2300

2006 The McGraw-Hill Companies, Inc., All

13

Plant Location Methodology: Example of

Centroid Method (Continued): Determining the
Coordinates of the New Facility
You
Youthen
thencompute
computethe
thenew
newcoordinates
coordinatesusing
usingthe
theformulas:
formulas:
100(1250) + 250(1900) + 790(2300)
2,417,000
CCx == 100(1250) + 250(1900) + 790(2300) == 2,417,000 == 443.49
443.49
x
1250
5,450
1250 ++ 1900
1900 ++ 2300
2300
5,450
200(1250) + 580(1900) + 900(2300)
3,422,000
CCy == 200(1250) + 580(1900) + 900(2300) == 3,422,000 == 627.89
627.89
y
1250
5,450
1250 ++ 1900
1900 ++ 2300
2300
5,450

You
Youthen
thentake
takethe
thecoordinates
coordinatesand
andplace
placethem
themon
onthe
themap:
map:
Y

New
New
location
location
of
offacility
facility
ZZabout
about
(443,627)
(443,627)

Q
(790,900)

(250,580)

ZZ

A
(100,200)
(0,0)
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S ho wro o m

No o f Z-Mo b ile s
s o ld p e r mo nth

1250

1900

2300

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14

End of Technical
Note 11

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