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					         Chapter 11
Logistics and Facility Location
                                           11-2




What is Logistics?


           • The movement of goods
             through the supply chain

           • “the art and science of
             obtaining, producing, and
             distributing material and
             product in the proper place
             and in proper quantities”
                                               11-3



Decisions Related to Logistics




       • How to best transport goods
           – Modes of transportation
               • Truck, ship, rail pipelines
           – Warehouses
               • Consolidation
               • Cross Docking
               • Hub-and-Spoke systems
       • Facility Location
                                      11-4




Issues in Facility Location


         •   Proximity to Customers
         •   Business Climate
         •   Total Costs
         •   Infrastructure
         •   Quality of Labor
         •   Suppliers
         •   Other Facilities
                                     11-5




Issues in Facility Location


      •   Free Trade Zones
      •   Political Risk
      •   Government Barriers
      •   Trading Blocs
      •   Environmental Regulation
      •   Host Community
      •   Competitive Advantage
                                                                               11-6


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     Pt. Range     A           B
Fuels in region                      0 to 330      123         156
Power availability and reliability   0 to 200      150         100
Labor climate                        0 to 100      54          63
Living conditions                    0 to 100      24          96
Transportation                       0 to 50       45          50
Water supply                         0 to 10       4           5
Climate                              0 to 50       8           4
Supplies                             0 to 60       5           50
Tax policies and laws                0 to 20                       Best Site
                                                   5           20 is B
                                         Total pts. 418    544
                                                              11-7



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
                                                    11-8




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
                                                                                 11-9



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
            Y                                    S ho wro o m   No o f Z-Mo b ile s
                                  Q                              s o ld p e r mo nth
                                 (790,900)

                         D
                                                        A             1250
                     (250,580)

                                                        D             1900
                     A
                 (100,200)
                                                        Q             2300
             (0,0)                           X
  Question: What is the best location for a new Z-Mobile
  warehouse/temporary storage facility considering only
  distances and quantities sold per month?
                                                                                      11-10




Plant Location Methodology: Example of Centroid Method (Continued):
Determining Existing Facility Coordinates

                                             Y
To begin, you must identify the                                             Q
existing facilities on a two-                                            (790,900)

dimensional plane or grid and                              D
                                                       (250,580)
determine their coordinates.
                                                       A
                                                   (100,200)

                                               (0,0)                                  X

                                        S ho wro o m           No o f Z-Mo b ile s
You must also have the                                          s o ld p e r mo nth
volume information on the
business activity at the                       A                     1250
existing facilities.
                                               D                     1900

                                               Q                     2300
                                                                                              11-11


Plant Location Methodology: Example of Centroid Method (Continued):
Determining the Coordinates of the New Facility
You then compute the new coordinates (details not given):


                                          C x = = 443.49
                                          C y = 627.89

You then take the coordinates and place them on the map:
 Y
                                                        S ho wro o m   No o f Z-Mo b ile s
                           Q              New
                          (790,900)                                     s o ld p e r mo nth
                                          location
              D
                      Z
          (250,580)
                                          of facility          A             1250
                                          Z about
          A                                                    D             1900
      (100,200)                           (443,627)
  (0,0)                               X                        Q             2300
                    11-12




End of Chapter 11




                    1-12

				
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