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Cadena de suministroMtro. William H. Delano Frier
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Cadena de suministro | Profesor William H. Delano Frier
Module 4
Location Strategics
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Cadena de suministro | Profesor William H. Delano Frier
Facility Location
• Location Planning
• Models
• Qualitative
• Quantitative
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Cadena de suministro | Profesor William H. Delano Frier
Location Planning
• The need of a Location Planning
• Influence based on company´s organization andcontrol
• Reasons to change• Effectiveness and efficiency of conversion process
• Costs
• Available labor / Unions
• Production Volume / Capacity
• Distance to Suppliers and customers
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Cadena de suministro | Profesor William H. Delano Frier
Decision
• Long term decisions
• Not easily turned back
• They affect fixed and variable costs
• Transportation
• Taxes, salaries, rent
• Objective: Maximize benefit for the company
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Cadena de suministro | Profesor William H. Delano Frier
Decisions / Service
• Investment Approach
• Cost varies between plants
• The Facility is an important source of investment
• Directly affects customer contact
• Affects business volume
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Cadena de suministro | Profesor William H. Delano Frier
Decisions / Industry
• Cost Approach
• Income varies little between plants
• The location directly impacts the costs
• Shipments, production
• Cost varies between plants
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Cadena de suministro | Profesor William H. Delano Frier
Decision Sequence
Country Region /Community
Location
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Cadena de suministro | Profesor William H. Delano Frier
Alternative Evaluation / Methods
• Preliminary study
• Detailed Analysis
• Qualitative
• Factors
• Quantitative
• Breake-even point
• Gravity Center
•
Minisum• Minimax
• Transportation
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Cadena de suministro | Profesor William H. Delano Frier
Preliminary Study
Factors / Country
• Government
• Culture and Economy
• Market
• Labor availability,
attitude, productivity,
costs• Infrastructure
• Exchange Rate
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Cadena de suministro | Profesor William H. Delano Frier
Preliminary Study
Factors / Region• Objectives / Business
• Weather andEnvironment
• Community acceptance• Labor
• Energy Costs
• Government
• Closeness to Suppliersand Customers
• Land and Building
William Delano Frier
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Cadena de suministro | Profesor William H. Delano Frier
Preliminary Study
Factors / Location
• Size
• Cost• Transportation Services
• Closeness to services
•Environmental Impact
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Cadena de suministro | Profesor William H. Delano Frier
Detailed Analysis
• Qualitative Models
• System based on the factor evaluation
• Explains why a destintation is preferred
• Uses measurement factors with an adjustable
weight for each situation
• Decision is taken by consensus
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Cadena de suministro | Profesor William H. Delano Frier
Factor Evaluation
Factors Relative Weight Score Evaluation
Advantages granted by the state 4 8 32
Labor ability 3 2 6
Distance to customers 3 6 18
Distance to suppliers 5 2 10
Availability and water quality 1 3 3
Community acceptance 5 4 20
Education System Qualoty 4 1 4
Transportation System 3 10 30
Weather 2 7 14
Energetics 2 6 12
149
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Cadena de suministro | Profesor William H. Delano Frier
Detailed Analysis
• Quantitative Models
• Break-even Point Analysis
• Identifies the operation level needed in order to
recover all the costs.
• Depends on:
• Sales Price
• Operations Cost Structure
PE=
Incomes/unit - variable cost/unit
Fixed Costs
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Cadena de suministro | Profesor William H. Delano Frier
Break-even point analysis
• Graphical view of the relations between:
• Production Volumes
• Income
• Costs
• Fixed: Do not depend on the production level
•Variable : Vary proportionally based on volumeproduced
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Cadena de suministro | Profesor William H. Delano Frier
Break-even Point Analysis
CV
CF
CT
Losses
Profit
Total Income
V BE Volume Produced
$
0
High FC
Low VC
Location A
$
Volume Produced
V BE
CV
CF
CT
Total Income
Losses
Location B
High VC
Low FC
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Cadena de suministro | Profesor William H. Delano Frier
Break-even Point
• We are considering buiding a newplant and are looking at 3locations: Texcoco, Mexico Cityand Toluca
• The fixed costs / year are: $30k,$60k, & $110k respectively
• Variable costs / case are: $75, $45,& $25 respectively
• Price / case $120• Which is the best location for 2000
units?
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Break-even PointData
Texcoco D.F. Toluca
Fixed Costs 30000 60000 110000
Variable Costs 75 45 25
Volume 2000
Results
Breakeven Point Units Dollars
Texcoco vs DF 1000 105000
Texcoco vs Toluca 1600 150000
2500 172500
Volume Analysis @2000 units
Texcoco D.F. Toluca
Total Cost 180,000$ 150,000$ 160,000$
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Cadena de suministro | Profesor William H. Delano Frier
Break-even PointCost-volume analysis
0
50000
100000
150000
200000
250000
300000
350000
400000
450000
0 1000 2000 3000 4000 5000 6000
Units
$
Texcoco D.F. Toluca
TexcocoD.F
Toluca
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Center of Gravity
• Locates an optimal point to provide service to
multiple destinations
• Considers :
• Existing coordinates
• Example: Markets, suppliers
• Shipping volume
•
Distance traveled (or cost)• The cost/unit/km remains constant
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Cadena de suministro | Profesor William H. Delano Frier
Center of Gravity / Steps
• Obtain the coordinates from available web based
information
• Google Maps, INEGI, other
• Calculate coordinates X&Y for the center of gravity
• Determine center of gravity coordinates
•Minimize distribution costs
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Cadena de suministro | Profesor William H. Delano Frier
Center of Gravity / Methodology
dix = coordinate x of
location i
Wi = Number of
transactions of / for each
location
diy = Coordinate Y of location i
Coordinate X
Coordinate Y
i
i
iiix
x W
Wd
C
ii
i iiyy
W
WdC
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Cadena de suministro | Profesor William H. Delano Frier
Minisum Location Model
• Rectilinear distances – in right angles
• Considers the shipping volume
• Considers existing coordinates
• Movements are made:
• East - West, North - South
• Diagonal movements are not considered
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Cadena de suministro | Profesor William H. Delano Frier
Minisum Location Model
• Methodology
• Calculate the median of the total number of
shipments / movements
• Starting at the origin and traveling through the x
axis, find the value of coordinate x where the
number of total shipments is >= to M
• Starting at the origin and traveling through the y
axis, find the value of coordinate y where the
number of total shipments >= to M
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Minisum Location Model
• Exercise…
• Western University has purchased video equipment
that will be used by 6 campus buildings
• The location of the 6 buildings and number of
people that will use the equipment is:School Location People
Administration (5,13) 31
Education (8,18) 28
Engineering (0,0) 19
Humanities (6,3) 53
Laws (14,20) 32
Sciences (10,12) 41
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Cadena de suministro | Profesor William H. Delano Frier
Minisum Location Model
20
19
18
17
16
1514
13
12
11
10
9
8
7
6
5
43
2
1
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
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Cadena de suministro | Profesor William H. Delano Frier
Minisum Location Model
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Cadena de suministro | Profesor William H. Delano Frier
Minisum Location Model
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10
9
8
7
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5
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3
2
1
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
6,12
óptimo
Exercise…
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Cadena de suministro | Profesor William H. Delano Frier
Determining Cost
Transportation Cost
Ci = Cost of moving a shipment / person one distance unit
Li = Quantity of shipments / people moved
Di = Distance between location i and the new plant
iy-y+ii x x D
n
i
D L C iii
1
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Cadena de suministro | Profesor William H. Delano Frier
Total Movement Cost
• Median
• i=1 1* 31 * (abs(6-5) + abs(12-13)) = $62
• i=2 1* 28 * (abs(6-8) + abs(12-18)) = $224
• i=3 1* 19 * (abs(6-0) + abs(12-0)) = $342
• i=4 1* 53 * (abs(6-6) + abs(12-3)) = $477
• i=5 1* 32 * (abs(6-14) + abs(12-20)) = $512
• i=6 1* 41 * (abs(6-10) + abs(12-12)) = $164
• Total $1781
)6
1( y i y
i x i xC iL iC T
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Cadena de suministro | Profesor William H. Delano Frier
Minimax Location Model
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Cadena de suministro | Profesor William H. Delano Frier
Minimax Location Model
• Methodology
• Values to be defined:
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Cadena de suministro | Profesor William H. Delano Frier
Minimax Location Model
• Methodology
• All points in the line that
join (x1,y1) and (x2,y2)
are optimal.• The optimal solution to
the problem can be
expressed as follows:
2esobjetivofunciónladeóptimovalorEl
10
)1(*
)1(*
5
21
21
c
y y y
x x x
λ
λλ
λλ
The optimal value of the objective function
is c5/2
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Cadena de suministro | Profesor William H. Delano Frier
Minimax Location Model
• Example…..
• 6 locations with the
following coordinates:
(5,13), (0,0), (14,20),(8,18), (6,3), (10,12).
• Objective: Locate a new
building that minimizes
the maximum distance
to the current locations
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Cadena de suministro | Profesor William H. Delano Frier
Minimax Location Model
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1514
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8
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2
1
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Todos los puntos de la
recta son óptimos
12,5
1.5,15.5
• Exercise…
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Cadena de suministro | Profesor William H. Delano Frier
Lineal Programming
• Transportation Method
• Finite number of destinations and sources
• Volume
• Cost Origin-Destination
• Minimizes the Total Transportation Cost
• The final result determines:
• Optimal quantity to be shipped from source i todestination j
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Cadena de suministro | Profesor William H. Delano Frier
Global Distribution of Auto-Parts
(VW)
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