Location Planning and Analysis

OPERATIONS MANAGEMENT
LECTURE 6A

Need for Location Decisions

Marketing Strategy
Cost of Doing Business
Growth
Depletion of Resources

Need for Location Decisions

Strategic Importance of location decisions

Long term commitment/costs

Impact on investments, revenues, and operations

Supply chains

Need for Location Decisions

Objectives of location decisions

Profit potential

No single location may be better than others

Identify several locations from which to choose

Need for Location Decisions

Location Options

Expand existing facilities

Add new facilities

Move

Making Location Decisions

Decide on the criteria
Identify the important factors
Develop location alternatives
Evaluate the alternatives

Identify general region

Identify a small number of community alternatives

Identify site alternatives

Evaluate and make selection

Location Decision Factors

Regional Factors

Multiple Plant
Strategies

Community
Considerations

Site-related
Factors

8-7

a. Regional Factors
Location of raw materials
Location of markets
Labor factors
Climate and taxes

b. Community Considerations
Quality of life
Services
Attitudes
Taxes
Environmental regulations
Utilities
Developer support

c. Site Related Factors

Land
Transportation
Environmental
Legal

d. Multiple Plant Strategies

Product plant strategy
Market area plant strategy
Process plant strategy

Service and Retail Locations

Manufacturers cost focused
Service and retail revenue focused

Traffic volume and convenience most important

Demographics

Age
Income
Education

Location (Comparison among locations)

Good transportation
Customer safety

Comparison of
Service and Manufacturing Considerations

Manufacturing/Distribution

Service/Retail

Cost Focus

Revenue Focus

Transportation modes/costs

Demographics: age, income, etc.

Energy availability, costs

Population/drawing area

Labor cost/availability/skills

Competition

Building/leasing costs

Traffic volume/patterns
Customer access/parking

Evaluating Locations
Center of Gravity Method
Decision
The

based on minimum distribution costs

Center of movement in a geographic area

based on transport weight and distance.

This

technique is a quantitative method for

locating a facility such as a warehouse

Center of Gravity Model

Linear transportation cost issue

x
x

Weighted center of gravity model locates facility closest to demand & supply
sites with heaviest annual shipments (reducing distribution costs)
x

xW
W
i

yW
W
i

where,
x, y = coordinates of new facility at center of gravity
xi, yi = coordinates of existing facility i
Wi = annual weight shipped from facility i (Quantity)
n = number of facilities

Center of Gravity Technique: Example

A burger restaurant purchases ingredients from four

different food suppliers. The company wants to construct a
new central distribution center to process and package the
ingredients before shipping them to their various
restaurants. The locations of the four suppliers A, B, C and
D, and annual numbers of trailers load (quantity) that will
be transported to the distribution center are shown:

Center of Gravity Technique: Example/Ques.

y
700
600

Miles

500

C
(135)

B
(105)

400
300
200

x
y
Wt

D
(60)

A
(75)

100
0

100 200 300 400 500 600 700 x

Miles

A
200
200
75

B
100
500
105

C
250
600
135

D
500
300
60

Center of Gravity Technique: Example

xW
i 1
n

( 200)(75) (100)(105) (250)(135) (500)( 60)

238
75 105 135 60

( 200)( 75) (500)(105) (600)(135) (300)( 60)

444
75 105 135 60

i 1

yW
i 1
n

W
i 1

Center of Gravity Technique: Example

Thus, the suggested coordinates for the new distribution

center location are x = 238 and y = 444. However, it should

be kept in mind that these coordinates are based on
straight-line distances, and in real situation actual roads
might follow more circuitous routes.

Center of Gravity Technique: Example

y
700
600

Miles

500

C
B

(105)

400
300
200

(135)

x
y
Wt

Center of gravity (238, 444)

D
(60)

(75)

100
0

A
200
200
75

100 200 300 400 500 600 700 x

Miles

B
100
500
105

C
250
600
135

D
500
300
60