Location Planning and Analysis

4.) Given, Current Facilities are insufficient so the company is considering three alternatives as:

Alternatives Fixed cost/ year Variable cost / boat

New location A $250,000 $500

Subcontract B $0 $ 2,500

Expand C $50,000 $1,000

We need to plot Total - cost lines in order to determine the lower cost.

Total cost is given by: Fixed cost + Output * Variable cost

At the different level of output the different output are shown in below table as:

New location Subcontract Expand

Output Total cost Total cost Total cost

0 250000 0 50000

100 300000 250000 150000

150 325000 375000 200000

200 350000 500000 250000

500 500000 1250000 550000

 Total cost line
1400000

1200000

1000000
Total Annual cost

800000
New location A
600000 Subcontract B
Expand existing C
400000

200000

0
0 100 200 300 400 500 600
Annual output

The approximately ranges for which the various alternatives will yield the lowest cost as shown

in the figure. The exact range can be determined by finding the output level at which lines B and

C cross and lines C and A cross.

For alternatives B and C

2500 Q = 50,000 + 1000*Q

Or, Q = 33.33 unit of Boat.

For alternatives A and C

250000 + 500 Q = 50000 + 1000 Q

Or, Q = 400 units of boat

Decision:

Subcontract has lowest total cost when Volume < 33.33 boats

Expand has the lowest total cost when 33.33 < Volume < 400 boats

New Location has the lowest total cost when Volume > 400 boats.

B.) Expand has the lowest total cost i.e. $200,000

C.) Quality, price, delivery time, flexibility volume, profit, risk and location etc. are some other

factor need to consider.

14) Given:

Destination x ,y coordinate Quantity

D1 1, 2 900

D2 2,4 300

D3 3,1 700

D4 4,2 600

D5 5,3 1200

Total quantity = 3700

While solving the problem with the center of gravity we need to find out central coordinate. That

is given by

X mean = ∑(x*Q) / ∑Q

= 1*900 + 2*300 + 3*700+4*600 + 5*1200 / 3700

 =3.24

Y mean = ∑(y*Q)/ ∑Q

= (2*900) + (4*300) + (1*700) + (2*600) + (3*1200) / 3700

= 2.3

Hence the center of gravity has the coordinates x= 3.24 and y= 2.3
 8 S: The Transportation Model

3.) Solution

For Toledo location

Input
matrix

A B C Supply
1 10 14 10 210
2 12 17 20 140
3 11 11 12 150
Toledo 18 8 13 160

Demand 220 220 220

Supply = Demand = 660

Cost Difference
Step using
VAM
A B C Supply I II III IV
1 10(*) 14 (*) 10 210 0 0 0 0
(210)
2 12 (140) 17 (*) 20 (*) 140 5 ←5 − −

3 11 (80) 11 (60) 12 (10) 150 0 0 0 1

Toledo 18 (*) 8 (160) 13 (*) 160 ←5 − − −

Demand 220 220 220

Cost I 1 3 2
difference
II 1 3 2
III 1 ↑3 2
IV 1 − ↑2
Total cost 10*210+12*140+11*80+11*60+12*10+8*160 = $ 6720

Solution
matrix

A B C Supply
1 * * 210 210
2 140 * * 140
3 80 60 10 150
Toledo * 160 * 160

Demand 220 220 220 Demand/Supply =

660

For Cincinnati location

Input
matrix

A B C Supply
1 10 14 10 210
2 12 17 20 140
3 11 11 12 150
Cincinnati 7 17 13 160

Demand 220 220 220

Supply = Demand = 660

 Cost Difference
Step using
VAM
A B C Supply I II III IV
1 10(*) 14 (*) 10 (210) 210 0 0 ←4 −

2 12 (60) 17 (80) 20 (*) 140 5 ←5 3 3

3 11 (*) 11 12 (10) 150 0 0 1 1

(140)
Toledo 7 (160) 17 (*) 13 (*) 160 ←6 − − −

Demand 220 220 220

Cost I 3 3 2
difference
II 3 3 2
III − 3 2
IV − 6 ↑8

Total cost: 10*210+12*60+17*80+12*10+11*140+7*160= $ 6960

Solution
matrix

A B C Supply
1 * * 210 210
2 60 80 * 140
3 * 140 10 150
Toledo 160 * * 160

Demand 220 220 220

Demand/Supply = 660

Decision: Toledo location would provide the lower transportation cost such that management
should select Toledo location for manufacturing.