IES 371 Engineering Management Chapter 10: Location

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IES 371 Engineering ManagementChapter 10
Location

• Week 11
• August 17, 2005
• Objectives
• Identify the factors affecting location choices
• Explain how to apply the various methods to
  location decisions

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Facility Location Competitive Advantages

• 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

• Free Trade Zones
• Political Risk
• Government Barriers
• Trading Zones
• Environmental Regulation
• Host Community

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Plant Location MethodologyLocation Factor Rating
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• Procedures
• Identify factors that are important in the
  location decision
• Prioritize the factor by its importance. Each
  factor is weighted from 0 to 1.00
• Subjective score (0 to 100) is assigned to each
  site for each factor
• Sum up the weighted score.
• The site with highest score is the most
  attractive

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See also Example S5.1
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Plant Location MethodologyCenter-of-Gravity
Technique

• Used for locating single facility that considers
  existing facilities, the distances between them,
  and the volumes of goods to be shipped between
  them.
• Involves formulas used to compute the coordinates
  of the two-dimensional point that meets the
  distance and volume criteria stated above.
• The coordinates for the location of the new
  facility are computed as follows

x, y Coordinates of the new facility at
center of gravity xi, yi coordinate of
existing facility I Wi Annual weight
shipped from facility i
See also Example S5.2
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Ex 1 Center-of-Gravity Technique

• Several automobile showrooms are located
  according to the following grid which represents
  coordinate locations for each showroom.

Question What is the best location for a new
Z-Mobile warehouse/temporary storage facility
considering only distances and quantities sold
per month?
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Plant Location MethodologyLoad-Distance
Technique

• Various locations are evaluated using a
  load-distance value.
• For a single potential location, a load-distance
  value (ld) is computed as follows
• Select the location with lowest ld value

x, y coordinates of the new facility xi, yi
coordinate of existing facility LD the
load-distance value li the load expressed
as weight, number of trips, or unit di the
distance between the new and existing facility
Ex 2 From ex 1, evaluate two possible different
sites of warehouse to supply to showroom A, D,
and Q. Given that Warehouse site 1 x 420 and y
450 Warehouse site 2 x 250 and y 980
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Plant Location MethodologyBreak-even analysis

• Also refer to Supplement A Decision Making
• Basic steps for break-even analysis in facility
  location decisions
• Determine variable costs and fixed costs
• Plot the total cost lines (sum of fixed costs and
  variable costs) for all alternatives in a single
  graph
• Identify the approximate ranges for sites with
  lowest total cost
• Solve algebraically for the break-even points
  over the relevant ranges

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Ex 3 Break-even analysis

• Ethel Earl Griese narrowed their choice for a
  new oil refinery to 3 locations. Fixed and
  variable costs are as follows.
• Describe the appropriate decision plan for this
  company.

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Plant Location MethodologyTransportation Method

• A quantitative approach based on linear
  programming
• To determine the allocation pattern that
  minimizes the cost of shipping products from 2 or
  more plants (source of supply) to 2 or more
  warehouses (destinations)
• This method is find the best shipping pattern
  between plants and warehouses for a particular
  set of plant locations with given capacities

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Transportation Tableau
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Ex 3 Transportation Method

• Fire Brand makes sauce in EL Paso and New York
  City. Distribution centers are located in
  Atlanta, Omaha, and Seattle. The shipment costs
  per case are as shown in the table.
• The demand for Atlanta, Omaha, and Seattle are
  8,000, 10,000, and 4,000 cases per month
  respectively. The plant in El Paso has production
  capacity of 12,000 cases / month, while the plant
  in New York City has production capacity of
  10,000 per month.

Determine the shipping pattern that will minimize
transportation costs. What are the estimated
transportation costs associated with this optimal
allocation pattern?