Lecture Operations management: Creating value along the supply chain (Canadian edition) - Chapter 7S

OPERATIONS MANAGEMENT:
Creating Value Along the Supply Chain,
Canadian Edition
Robert S. Russell, Bernard W. Taylor III, Ignacio Castillo, Navneet Vidyarthi

CHAPTER 7 Supplement
Facility Location Models


Learning Objectives

— Explain the major categories of facilities and the

factors important in facility location.
— Explain the general considerations of the facility site
selection process for services and manufacturing
facilities.
— Discuss the factors a company should consider
when selecting facility site and explain how
geographic information systems (GIS) can be used
as a site selection tool.
— Use three quantitative tools for facility site selection.

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Supplement 7-2


Lecture Outline

—Types of Facilities

—Site Selection: Where to Locate
—Site Selection: Factors to Consider
—Location Analysis Techniques

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Supplement 7-3


Types of Facilities

—Heavy-manufacturing facilities
—large, require a lot of space, and are
expensive
—Light-industry facilities
—smaller, cleaner plants and usually less

costly
—Retail and service facilities
—smallest and least costly

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Supplement 7-4


Factors in Heavy
Manufacturing Location
—Construction costs
—Land costs

—Raw material & finished goods shipment

modes
—Proximity to raw materials
—Utilities
—Means of waste disposal
—Labour availability
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Supplement 7-5


Factors in Light Industry Location

—Land costs
—Transportation costs
—Proximity to markets
—depending on delivery requirements

including frequency of delivery required by
customer

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Supplement 7-6


Factors in Retail Location

—Proximity to customers

—Location is everything

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Supplement 7-7


Site Selection: Where to Locate
—Infrequent but important
—being “in the right place at
the right time”
—Must consider other

factors, especially
financial considerations
—Location decisions made
more often for service
operations than
manufacturing facilities
—Location criteria for
service
—access to customers

—Location criteria for

manufacturing facility
—nature of labor force
—labour costs
—proximity to suppliers

and markets
—distribution and
transportation costs
—energy availability and
cost
—community infrastructure
—quality of life in

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Supplement 7-8


Global Supply Chain Factors
—Government stability
—Government

—Climate
—Number & proximity of

regulations
suppliers
—Political & economic
—Transportation &
systems
distribution system
—Economic stability &
—Labour cost &
growth
education

—Exchange rates
—Available technology
—Culture
—Commercial travel
—Export/import
—Technical expertise
regulations, duties
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—Cross-border
trade 7-9
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Wiley &
Supplement


Regional and Community Location
Factors in Canada
—Labour (availability,

—Modes and quality of

education, cost, and
unions)
—Proximity of customers
—Number of customers
—Construction/leasing
costs
—Land cost

transportation

—Transportation costs
—Community
government Local
business regulations
—Government services
(e.g., Chamber of
Commerce)

Copyright 2014 John Wiley &

Supplement 7-10


Regional and Community Location
Factors in Canada
—Business climate
—Community services
—Incentive packages
—Government

regulations
—Environmental regs.
—Raw material
availability
—Commercial travel
—Climate

—Infrastructure (road &

utilities)

—Quality of life
—Taxes
—Availability of sites
—Financial services
—Community
inducements
—Proximity of suppliers
—Education system

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Supplement 7-11


Location Incentives
—Tax credits
—Relaxed government regulation
—Job training
—Infrastructure improvement
—Money

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Supplement 7-12


Geographic Information Systems (GIS)
—Computerized system for storing, managing,

creating, analyzing, integrating, and digitally

displaying geographic, i.e., spatial, data
—Specifically used for site selection
—Enables users to integrate large quantities of
information about potential sites and analyze these
data with many different, powerful analytical tools

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Supplement 7-13


GIS Diagram

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Supplement 7-14


Location Analysis Techniques
—Location factor rating
—Centre-of-gravity
—Load-distance

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Supplement 7-15


Location Factor Rating
—Identify important factors

—Weight factors (0.00 - 1.00)
—Subjectively score each factor (0 - 100)
—Sum weighted scores

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Supplement 7-16


Location Factor Rating

SCORES (0 TO 100)
LOCATION FACTOR
Labor pool and climate
Proximity to suppliers
Wage rates
Community environment
Proximity to customers
Shipping modes
Air service

WEIGHT

Site 1

Site 2

Site 3

.30

.20
.15
.15
.10
.05
.05

80
100
60
75
65
85
50

65
91
95
80
90
92
65

90
75
72
80
95
65
90

Weighted Score for “Labor pool and climate” for
Site 1 = (0.30)(80) = 24
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Supplement 7-17


Location Factor Rating
WEIGHTED SCORES
Site 1

Site 2

Site 3

24.00
20.00
9.00
11.25
6.50
4.25
2.50
77.50

19.50
18.20
14.25
12.00
9.00

4.60
3.25
80.80

27.00
15.00
10.80
12.00
9.50
3.25
4.50
82.05

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Site 3 has the highest
factor rating

Supplement 7-18


Location Factor Rating With Excel

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Supplement 7-19


Location Factor Rating With OM Tools

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Supplement 7-20


Centre-of-Gravity Technique
—Locate facility at centre of movement in geographic

area
—Based on weight and distance traveled;
establishes grid-map of area
—Identify coordinates and weights shipped for each
location

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Supplement 7-21


Grid-Map Coordinates
y

n

n
xiWi

i=1

2 (x2, y2), W2

y2

yiWi

x=

i=1
y=

n

n

Wi

y1

i=1

1 (x1, y1), W1

Wi
i=1

where,

3 (x3, y3), W3

y3

x1

x2

x3

x, y = coordinates of new
facility at centre of gravity
xi, yi = coordinates of existing
facility i
Wi = annual weight shipped
from facility i

x

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Supplement 7-22


Centre-of-Gravity Technique
y
700
600

Miles

500

(135)

B
(105)

400
300
200

x
y
W

C

A
200
200
75

B
100
500
105

C
250
600
135

D
500
300
60

D
(60)

A
(75)

100
0

100 200 300 400 500 600 700 x
Miles
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Supplement 7-23


Centre-of-Gravity Technique

n

xiWi

x=

i=1

n

(200)(75) + (100)(105) + (250)(135) + (500)(60)
=
= 238
75 + 105 + 135 + 60

Wi

i=1
n

yiWi

y=

i=1

=

n

(200)(75) + (500)(105) + (600)(135) + (300)(60)
= 444
75 + 105 + 135 + 60

Wi

i=1

Copyright 2014 John Wiley &

Supplement 7-24


Centre-of-Gravity Technique
y
700
600

Miles

500
400
300
200

A
x
200
C
(135)
y
200
B
W
75
(105)
Centre of gravity (238,
444) D

(60)
A

B
100
500
105

C
250
600
135

D
500
300
60

(75)

100
0

100 200 300 400 500 600 700 x
Miles

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Supplement 7-25