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					Facilities Planning - Unit   12
Facilities Location Planning and Analysis
Hierarchy of Facility Planning

                                      Facility
                                     Location
                                                 Structural Design

      Facility
     Planning
                                      Facility        Layout
                                      Design          Design

    Source for Figure: Tompkins and White,       Handling System
    Facilities Planning, 2nd edition, Wiley          Design




                                                        Facilities Location Planning and Analysis - 2
 Need for Location Decisions
   Marketing Strategy
   Cost of Doing Business
   Growth
   Depletion of Resources




Plant location decisions are made by corporate executrices / plant owners


                                                  Facilities Location Planning and Analysis - 3
Nature of Location Decisions
  Strategic Importance
     Long term commitment/costs
     Impact on investments, revenues, and operations
     Supply chains
  Objectives
     Profit potential
     No single location may be better than others
     Identify several locations from which to choose
  Options
     Expand existing facilities
     Add new facilities
     Move




                                            Facilities Location Planning and Analysis - 4
Making Location Decisions
    Decide on the criteria
    Identify the important factors
    Develop location alternatives
    Evaluate the alternatives
    Make selection

Qualitative and Quantitative methods are used to evaluate
and select locations for facilities




                                        Facilities Location Planning and Analysis - 5
Location Decision Factors
    Regional Factors    Community Considerations




                       Site-related Factors



                                 Facilities Location Planning and Analysis - 6
Location Decision Factors
Regional Factors

   Location of raw materials
   Location of markets
   Labor factors
   Climate and taxes




                                Facilities Location Planning and Analysis - 7
Location Decision Factors
Community Considerations

 Quality of life
 Services
 Attitudes
 Taxes
 Environmental regulations
 Utilities
 Developer support




                              Facilities Location Planning and Analysis - 8
Location Decision Factors
Site Related Factors

   Land
   Transportation
   Environmental
   Legal




                            Facilities Location Planning and Analysis - 9
Location Decision Factors




                            Facilities Location Planning and Analysis - 10
Location Factors - Types of Facilities
 Mining, Quarrying, Heavy manufacturing
      auto plants, steel mills, chemical plants

 Light industry
      small components manufacturing, assembly

 Warehouse & distribution centers
 Retailing
 Customer service for profit
 Local government services
 Health and emergency services



                                                   Facilities Location Planning and Analysis - 11
Location Factors vs. Types of Facilities




                            Facilities Location Planning and Analysis - 12
   Layout Levels
                                               Space Planning
                 Level          Activity                         Environment           Output
                                                    Unit


                    I        Site Location &                      World or
                                                    Sites
                 Global         Selection                         Country




                   II                           Buildings or
                             Site Planning                          Site
                 Supra                          Site Features


                               Building
                   III                          Work cells or
                             Department or                        Building
              Macro Layout                      Departments
                             Block Layout


                                               Workstations or
                   IV         Work cell of                         Cells or
                                                 Work cell
              Micro Layout    Department                         Departments
                                                 Features


                   V
                              Workstation      Tool & Fixture
               Sub Micro                                         Workstation
                               Design            Locations
                Layout



From: http://www.strategosinc.com/facility_plan_levels.htm                 Facilities Location Planning and Analysis - 13
Facilities Location Planning
Decision Support Tools

    Factor rating method
    Load-distance model
    Center of gravity approach
    Break-even analysis
    Transportation method (covered in details in
     Operation Research course)




                                         Facilities Location Planning and Analysis - 14
Decision Support Tools
Location Rating Factor – Example 1
   Identify important factors
   Weight factors (usually 0.00 - 1.00 or 0.00 - 100)
   Subjectively score each factor
   Sum weighted scores




                                                   Facilities Location Planning and Analysis - 15
Decision Support Tools
Location Rating Factor – Example 2

                                      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




                                       Facilities Location Planning and Analysis - 16
Decision Support Tools
Location Rating Factor – Example 2 continued

                               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


                                       Facilities Location Planning and Analysis - 17
Decision Support Tools
Location Rating Factor – Example 3
A payroll processing company has recently won several major contracts in the Midwest
region of the United States and Central Canada and wants to open a new, large facility
to serve these areas.

Because customer service is so important, the company wants to be as near its
“customers” as possible. A preliminary investigation has shown that Minneapolis,
Winnipeg, and Springfield, Illinois are the three most desirable locations, and the
payroll company has to select one of these.

A subsequent thorough investigation of each location with respect to eight important
factors generated the raw scores and weights. Using the location scoring method,
determine the best location for the new payroll processing facility.




                                                             Facilities Location Planning and Analysis - 18
Decision Support Tools
Location Rating Factor – Example 3

              Factors and weights for three locations

                                                         Score

 Weight           Factor                 Minneapolis   Winnipeg         Springfield

  0.25    Proximity to customer              95           90                  65
  0.15    Land and construction prices       60           60                  90
  0.15    Wage rates                         70           45                  60
  0.10    Property taxes                     70           90                  70
  0.10    Business taxes                     80           90                  85
  0.10    Commercial travel                  80           65                  75
  0.08    Insurance costs                    70           95                  60
  0.07    Office services                    90           90                  80



                                                         Facilities Location Planning and Analysis - 19
Decision Support Tools
Location Rating Factor – Example 3 continued

                       Weighted scores for three locations
                                                  Weighted Score
             Factor                 Minneapolis     Winnipeg         Springfield

     Proximity to customer             23.75          22.50             16.25
     Land and construction prices      9.00           9.00              13.50
     Wage rates                        10.50          6.75               9.00
     Property taxes                    7.00           9.00               7.00
     Business taxes                    8.00           9.00               8.50
     Commercial travel                 8.00           6.50               7.50
     Insurance costs                   5.60           7.60               4.80
     Office services                   6.30           6.30               5.60

     Sum of weighted scores            78.15          76.65             72.15

                                                              Facilities Location Planning and Analysis - 20
Decision Support Tools
Location Rating Factor – Example 4




                                     Facilities Location Planning and Analysis - 21
Decision Support Tools
Load Distance Model


  Compute the distance from
   each site to each supplier
   (Distance can be actual or
   straight-line)
  Compute load-distances
  Choose site with lowest load-
   distance




                                   Facilities Location Planning and Analysis - 22
Decision Support Tools
Load Distance Model
                                        n
                           LD =        ld   i     i

    where,                             i=1
    LD =      the load-distance value
    li   =    the load expressed as a weight, number of trips or units
              being shipped from the proposed site and location i
    di   =    the distance between the proposed site and location i

    di   =     (xi - x)2 + (yi - y)2

    where,
    (x,y) =   coordinates of proposed site

    (xi , yi) = coordinates of existing facility


                                                       Facilities Location Planning and Analysis - 23
  Decision Support Tools
  Load Distance Model - Example

   Potential Sites                               Suppliers
  Site X          Y                          A     B       C                     D
  1     360 180                     X        200   100     250                   500
  2     420 450                     Y        200   500     600                   300
  3     250 400                     Wt       75    105     135                   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


                                                     Facilities Location Planning and Analysis - 24
Decision Support Tools
Load Distance Model - Example continued
       Site 2 dA = 333       dB = 323.9 dC = 226.7 dD = 170
       Site 3 dA = 206.2 dB = 180.4 dC = 200            dD = 269.3

     Compute load-distance
                                n
                    LD =      l d  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 *




                                                      Facilities Location Planning and Analysis - 25
Decision Support Tools
Center-of-Gravity Technique

  Locate facility at center of
   geographic area
  Based on weight & distance
   traveled
  Establish grid-map of area
  Identify coordinates &
   weights shipped for each
   location




                                  Facilities Location Planning and Analysis - 26
 Decision Support Tools
 Center-of-Gravity Technique: Grid-Map and Coordinates


y                                                         n                              n

             2 (x2, y2), W2
                                                         xW     i       i             yW      i       i

                                                         i=1                           i=1
y2                                              x=                           y=
                                                          n                              n
     1 (x1, y1), W1                                      W          i                 W           i

y1                                                       i=1                           i=1

                           3 (x3, y3), W3       where,
                                                 x, y = coordinates of the new
y3
                                                         facility at center of gravity
                                                xi, yi = coordinates of existing
                                                         facility i
                                                  Wi = annual weight shipped
                                                         from facility i
             x1       x2      x3            x
                                                              Facilities Location Planning and Analysis - 27
Decision Support Tools
Center-of-Gravity Technique - Example

     y                                    A     B             C             D
   700                           X       200    100           250           500
   600              C            Y       200    500           600           300
                                 Wt      75     105           135           60
   500      B
   400
                o   Center

   300                       D
   200          A
   100

     0   100 200 300 400 500 600 700 x


                                               Facilities Location Planning and Analysis - 28
 Decision Support Tools
 Center-of-Gravity Technique – Example continued
     n
     xW   i       i

     i=1                   (200)(75) + (100)(105) + (250)(135) + (500)(60)
x=                     =                                                                = 238
     n                                  75 + 105 + 135 + 60
     W        i

     i=1
     n
     yW   i       i

     i=1                   (200)(75) + (500)(105) + (600)(135) + (300)(60)
y=                     =                                                                = 444
     n
     W
                                        75 + 105 + 135 + 60
               i

     i=1


                                                         Facilities Location Planning and Analysis - 29
 Decision Support Tools
 Break-Even Analysis

Total cost = fixed costs + variable costs
(quantity):

TC  F  VC Q
Revenue = selling price (quantity)

 R  SP Q
Break-even point is where total costs = revenue:

TC  R or F  VC Q  SP Q
          F
or Q 
       SP  VC



                                                   Facilities Location Planning and Analysis - 30
Decision Support Tools
Break-Even Analysis – Example 1

A firm estimates that the fixed cost of producing a line of
footwear is $52,000 with a $9 variable cost for each pair
produced. They want to know:
   If each pair sells for $25, how many pairs must they
     sell to break-even?
   If they sell 4000 pairs at $25 each, how much money
     will they make?




                                         Facilities Location Planning and Analysis - 31
Decision Support Tools
Break-Even Analysis – Example 1 continued

  Break-even point:
          F     $52,000
    Q                  3250 pairs
       SP  VC $25  $9

  Profit = total revenue – total costs
    P  SP Q  F  VC Q 
     $254000  $52,000  $94000
     $12,000



                                          Facilities Location Planning and Analysis - 32
Decision Support Tools
Break-Even Analysis – Outsourcing

 Total Cost of Outsourcing :
 TCBuy  FCBuy  VCBuy  Q 
 Total Cost of Insourcing:
 TCMake  FCMake  VCMake  Q 
 Indifference Point :
 FCBuy  VCBuy  Q   FCMake  VCMake  Q 


                                    Facilities Location Planning and Analysis - 33
Decision Support Tools
Break-Even Analysis – Outsourcing Example


 Bill & Nancy plan to open a small bagel shop.
    The local baker has offered to sell them bagels at 40 cents
        each. However, they will need to invest $1,000 in bread racks
        to transport the bagels back & forth from the bakery to their
        store.
    Alternatively, they can bake the bagels at their store for 15
        cents each if they invest $15,00 in kitchen equipment.
    They expect to sell 60,000 bagels each year.


 What should they do?




                                                 Facilities Location Planning and Analysis - 34
Decision Support Tools
Break-Even Analysis – Outsourcing Example continued


    Indifference Point Calculation :
    FCBuy  VCBuy  Q   FCMake  VCMake  Q 
    $1,000  $0.40  Q   $15,000  $0.15  Q 
    Solve for Q : Q  56,000

  Interpretation:
      They anticipate selling 60,000 bagels (greater than the
        indifference point of 56,000).
      Therefore, make the bagels in-house.



                                               Facilities Location Planning and Analysis - 35
Decision Support Tools
Break-Even Analysis: Cost-Volume Analysis Example

 Fixed and variable costs for four potential locations


     Location                Fixed Cost                     Variable Cost
        A                    $250,000                               $11
        B                     100,000                                30
        C                     150,000                                20
        D                     200,000                                35




                                                         Facilities Location Planning and Analysis - 36
Decision Support Tools
Break-Even Analysis: Cost-Volume Analysis Example

         Fixed           Variable                    Total
         Costs            Costs                      Costs

A     $250,000        $11(10,000)               $360,000
B      100,000         30(10,000)                400,000
C      150,000         20(10,000)                350,000
D      200,000         35(10,000)                550,000



                                     Facilities Location Planning and Analysis - 37
Decision Support Tools
Break-Even Analysis: Cost-Volume Analysis Example

$(000)
 800                                                                                D
 700
 600                                                                                B
 500                                                                                C
 400                                                                                A
 300                                                      A Superior
 200                          C Superior
 100       B Superior
   0
       0   2      4       6       8        10        12           14            16

                        Annual Output (000)
                                                Facilities Location Planning and Analysis - 38
Supplement – Supply Chain Management
and Global Location Factors




                              Facilities Location Planning and Analysis - 39
Supply Chain Management
 Facilities, functions, activities for producing &
  delivering product or service from supplier to
  customer

 Planning, managing, acquiring, producing,
  warehousing, distribution, delivery




                                          Facilities Location Planning and Analysis - 40
Supply Chain Management
Facilities
                    Plants
                    Warehouses
                    Distribution centers
                    Service centers
                    Retail operations




                            Facilities Location Planning and Analysis - 41
Supply Chain Management
Transportation and Distribution

      Rail
      Truck
      Air
      Water
      Pipeline
      Computer
      Mail
      Telephone
      In person


                                  Facilities Location Planning and Analysis - 42
Supply Chain Management
Transportation and Distribution - Railroads


  150,000 miles in US
  Low cost, high-volume
  Improving flexibility
      intermodal service
      double stacking




                                         Facilities Location Planning and Analysis - 43
Supply Chain Management
Transportation and Distribution - Trucks

  Most used mode in US
  Flexible, small loads
  Part of TQM supplier-
   customer relationship
  Single sourcing reduces
   number of trucking
   firms serving a
   company




                                           Facilities Location Planning and Analysis - 44
Supply Chain Management
Transportation and Distribution - Airfreight


 Rapidly growing segment of
  transportation industry
 Lightweight, small items
 Quick, reliable, expensive
 Often combined with trucking
  operations
      UPS, FEDEX




                                          Facilities Location Planning and Analysis - 45
Supply Chain Management
Transportation and Distribution - Waterways
  One of oldest means of
   transport
  Low-cost, high-volume,
   slow
  Bulky, heavy and/or large
   items
  Standardized shipping
   containers improve service
  Combined with trucking &
   rail for complete systems




                                       Facilities Location Planning and Analysis - 46
Supply Chain Management
Transportation and Distribution - Pipelines

   Primarily for oil & refined oil products
   Slurry lines carry coal or kaolin
   High capital investment
   Low operating costs
   Can cross difficult terrain




                                               Facilities Location Planning and Analysis - 47
Supply Chain Management
Uncertainties

Major goal of distribution is speed.
Factors that can create obstacles to this goal:
 Wrong forecasts
 Late deliveries
 Poor quality
 Machine breakdowns
 Canceled orders
 Erroneous information



                                         Facilities Location Planning and Analysis - 48
Supply Chain Management
Global Location Factors

  Raw material availability
  Number and proximity of
   suppliers
  Transportation & distribution
   system
  Labor cost & education
  Available technology
  Commercial travel
  Technical expertise
  Cross-border trade
   regulations
  Group trade agreements


                                   Facilities Location Planning and Analysis - 49
Supply Chain Management
Global Location Factors - continued

 Government stability
 Government regulations
 Political & economic systems
 Economic stability & growth
 Exchange rates
 Culture
 Climate
 Export import regulations
 Duties & tariffs




                                      Facilities Location Planning and Analysis - 50
Supply Chain Management
Global Location Factors - continued
 Potential advantages:
    Inside track to foreign
      markets, avoid trade barriers,
      gain access to cheaper labor
 Potential disadvantages:
    Political risks may increase,
      loss of control of proprietary
      technology, local
      infrastructure (roads &
      utilities) may be inadequate
 Other issues:
    Language barriers, different
     laws & regulations, different
     business cultures


                                       Facilities Location Planning and Analysis - 51
Supply Chain Management
Global Supply Chain Specialists

  Duty specialists
  Freight forwarders
  Customs house brokers
  Export packers
  Export management
   companies
  Export trading companies




                                  Facilities Location Planning and Analysis - 52
Trends in Locations

  Foreign producers locating in U.S.
     “Made in USA”
     Currency fluctuations
  Just-in-time manufacturing techniques
  Micro-factories
  Information Technology




                                           Facilities Location Planning and Analysis - 53

				
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