Problem in Faciltity Location
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Transcript of Problem in Faciltity Location
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FACILITY LOCATION
PROBLEMS
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Factors Affecting Location Selection Labour costs (including wages, unionization, productivity)
Labour availability (including attitudes, age, distribution, and skills)
Proximity to raw materials and suppliers
Utilities (including gas, electric, water, and their costs)
Site costs (including land, expansion, parking, drainage)
Transportation availability (including rail, air, water, and interstate
roads)
Steps in Factor Rating Method Develop a list of relevant factors called critical success factors
Assign a weight to each factor
Develop a scale for each factor Score each location for each factor
Multiply score by weights for each factor for each location
Recommend the location with the highest point score
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Location Break-Even AnalysisMethod of cost-volume analysis used for industrial
locationsThree steps in the method
1. Determine fixed and variable costs for each location
2. Plot the cost for each location
3. Select location with lowest total cost for expectedproduction
volume
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Center of Gravity Method
Finds location of distribution center that minimizes distribution
costsConsiders
1)Location of markets
2)Volume of goods shipped to those markets
3)Shipping cost (or distance)
Place existing locations on a coordinate grid1) Grid origin and scale is arbitrary
2) Maintain relative distances
Calculate X and Y coordinates for center of gravity
1) Assumes cost is directly proportional to distance andvolume shipped
2) Gives location of distribution center
3)Minimizes transportation cost
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A full-service restaurant is considering opening a new facility in a specific city. The table
below shows its ratings of four factors at each of two potential sites.
The score for Gary Mall is _____ and the score for Belt Line is ______.
a. 120; 120
b. 22; 24
c. 18; 120d. 34; 28
e. none of the above
Factor WEIGHT GARY MALL BELTLINE
Affluence of local population 0.20 30 30
Traffic flow 0.40 50 20
Parking availability 0.20 30 40
Growth potential 0.20 10 30
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A washing machine manufacturer is analyzing three
possible locations-Buffalo, New York; Toledo, Ohio; and
Orlando, Florida - to build an additional manufacturingfacility.
Research analyses indicate the annual fixed costs for the
sites are respectively $45,000; $60,000; and $95,000. The
variable unit costs respectively are $235; $205; and $185.The anticipated selling price for the washing machines is
$350.
The company is seeking the most economical location for
an expected volume of 5,000 units annually.The total cost for each city at the expected volume of
5,000 units is calculated using the following formula:
Total cost = Fixed cost + Variable cost x Total volume
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Buffalo:Total cost = $45,000 + $235 x 5,000 = $1,220,000
Toledo:Total cost = $60,000 + $205 x 5,000 = $1,085,000
Orlando:Total cost = $95,000 + $185 x 5,000 = $1,020,000
Expected annual profits for each location can be calculated
using the following formula:
Total revenue =
(Selling price x 5,000) - Total cost (Fixed cost + Variable cost
x total volume)
Buffalo:$1,750,000 - $1,220,000 = $530,000
Toledo: $1,750,000 - $1,085,000 = $665,000Orlando:$1,750,000 - $1,020,000 = $730,000
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Assuming a maximum production of 5,000 units, Orlando
provides the lowest cost location at $1,020,000 and the
highest annual profit of $730,000.
At 500 units Buffalo and Toledo are both cheaper than
Orlando. At 1,500 units Toledo is the cheapest location,
but at 2,000 units of production Orlando becomes thecheapest. Therefore, the crossover points in the
breakeven analysis are 500 and 1,500 units of production.
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East Texas Seasonings is preparing to build one processing center to serve its four sources of
seasonings. The four source locations are at coordinates shown below. Also, the volume from
each source is provided. What is the center of gravity?
a. center of gravity = 28
b. X = 22,000; Y = 24,000
c. X = 27.5; Y = 40
d. X = 28.125; Y = 31.25
e. none of the above
X-coordinate Y-coordinate Volume
Athens, Texas 30 30 150
Beaumont, Texas 20 10 350
Carthage, Texas 10 70 100
Denton, Texas 50 50 200
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The new Health-care facility is targeted to serve seven census tractsin Delhi. The table
given below shows the coordinates for the centre of each census tract,along with the
projected populations, measured in thousands. Customers will travel fromthe seven
census tract centres to the new facility when they need health-care. Two locationsbeing
considered for the new facility are at (5.5, 4.5) and (7, 2), which are the centresof census
tracts C and F. Details of seven census tract centres, co-ordinate distances alongwith thepopulation for each centre are given below. If we use the population as the loadsand use
rectilinear distance, which location is better in terms of its total load-distancescore?
SOLUTION:
Calculate the load-distance score for each location. Using the coordinates fromthe abovetable. Calculate the load-distance score for each tract.Using the formula DISTANCE
SL.NO CENSUS TRACK (X,Y) POPULATION
1 A (2.5, 4.5) 2
2 B (2.5, 2.5) 5
3 C (5.5, 4.5) 10
4 D (5,2) 7
5 E (8 , 5) 10
6 F (7 , 2) 20
7 G (9 , 2.5) 14
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