Facility Location Models

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APPENDIX
Operational
Decision-Making Tools:
Facility Location Models
LEARNING OBJECTIVES
< Ty
Types
T
y
of Facilities
< SSite Selection: Where to Locate
<G
Global Supply Chain Factors
< LLocation Analysis Techniques
he physical location of business facilities can have a significant impact on the success of a
company. In this supplement we will briefly discuss some of the factors that are important in
locating facilities. We will focus on several quantitative methods for facility location, including
location factor ratings, the center-of-gravity technique, and the load-distance technique.
Types of Facilities
The type of facility is a major determinant of its location. The factors important in determining
the location of a manufacturing plant are usually different from those important in locating a service facility or a warehouse. In this section we discuss the major categories of facilities and the
different factors that are important in the location desired.
Heavy manufacturing facilities are plants that are large, require a lot of space, and are expensive to construct, such as automobile plants, steel mills, and oil refineries.
Factors in the location decision for plants include construction costs, land costs, modes of
transportation for shipping heavy manufactured items and receiving bulk shipments of raw materials, proximity to raw materials, utilities, means of waste disposal, and labor availability. Sites for
manufacturing plants are normally selected where construction and land costs can be kept at a
minimum and raw material sources are nearby in order to reduce transportation costs. Access to
railroads is frequently a factor in locating a plant. Environmental issues have increasingly become
a factor in plant location decisions.
Light-industry facilities are perceived as cleaner plants that produce electronic equipment and components, computer products, or assembled products like TVs; breweries; or pharmaceutical firms.
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610 Appendix
Distribution centers for The Gap in Gallatin, Tennessee, Target in Augusta City, Virginia, and
Home Depot in Savannah, Georgia, each encompass more than 1.4 million square feet of space
about 30 times bigger than the area of a football field! The UPS Worldwide Logistics warehouse
in Louisville, Kentucky, includes 1.3 million square feet of floor space. Because of their role as
intermediate points in the supply chain, transportation costs are often an important factor in the
location decision for warehouses. The proximity to markets is also a consideration, depending on
the delivery requirements, including frequency of delivery required by the customer.
Retail and service facilities are usually the smallest and least costly. Examples include retail
facilities such as groceries and department stores, among many others, and such service facilities
as restaurants, banks, hotels, cleaners, clinics, and law offices. However, there are always exceptions, and some service facilities, such as a hospital, a company headquarters, a resort hotel, or a
university academic building, can be large and expensive. One of the most important factors for
locating a service or retail facility is proximity to customers. It is often critical that a service facility be near the customers it serves, and a retail facility must be near the customers who buy from
it. Construction costs tend to be less important, although land or leasing costs can be high. For retail operations, for which the saying location is everything is meaningful, site costs can be very
high. Factors like zoning, utilities, transportation, environmental constraints, and labor tend to be
less important for service operations, and closeness to suppliers is not usually as important as it is
to manufacturing firms, which must be close to materials and parts suppliers.
Site Selection: Where to Locate

When we see in the news that a company has selected a site for a new plant, or a new store is
opening, the announcement can appear trivial. Usually it is reported that a particular site was
selected from among two or three alternatives, and a few reasons are provided, such as good
community, heavy customer traffic, or available land. However, such media reports do not reveal
the long, detailed process for selecting a site for a business facility. It is usually the culmination
of a selection process that can take several years and the evaluation of dozens or hundreds of
potential sites.
Decisions regarding where to locate a business facility or plant are not made frequently, but
they tend to be crucial in terms of a firms profitability and long-term survival. A mistake in location is not easily overcome. Business success often is being in the right place at the right time.
For a service operation such as a restaurant, hotel, or retail store, being in the right place usually
means in a location that is convenient and easily accessible to customers.
Location decisions for services tend to be an important part of the overall market strategy for
the delivery of their products or services to customers. However, a business cannot simply survey
the demographic characteristics of a geographic area and build a facility at the location with the
greatest potential for customer traffic; other factors, particularly financial considerations, must be
part of the location decision. Obviously, a site on Fifth Avenue in New York City would be attractive
for a McDonalds restaurant, but can enough hamburgers and french fries be sold to pay the rent?
In this case, the answer is yes.
Location decisions are usually made more frequently for service operations than manufacturing facilities. Facilities for service-related businesses tend to be smaller and less costly,
although a hospital or hotel can require a huge investment and be very large. Services depend
on a certain degree of market saturation; the location is actually part of their product. Where to
locate a manufacturing facility is also important, but for different reasons, not the least of which
is the very high expense of building a plant or factory. Although the primary location criterion
for a service-related business is usually access to customers, a different set of criteria is important for a manufacturing facility. These include the nature of the labor force, and labor costs,
proximity to suppliers and markets, distribution and transportation costs, energy availability and
cost, the community infrastructure of roads, sewers, and utilities, quality of life in a community,
and government regulations and taxes.
Appendix B: Operational Decision-Making ToolsFacility Location Models 611
When the site selection process is initiated, the pool of potential locations for a manufacturing or service facility is, literally, global. In todays international marketplace, countries around
the world become potential sites. The site selection process is one of gradually and methodically
narrowing down the pool of alternatives until the final location is determined. In the following
discussion, we identify some of the factors that companies consider when determining the country,
region, community, and site at which to locate a facility.
Global Supply Chain Factors

U.S. companies frequently locate in foreign countries to be closer to newly emerging markets and
to take advantage of lower labor costs. Trade agreements between countries have reduced trade
barriers around the world and created new markets like the European Community (EC), Eastern
Europe, and Asia.
Foreign firms have also begun to locate in the United States to be closer to their customers. For
both U.S. and foreign companies, the motivation is the sameto reduce supply chain costs and better serve their customers. Relatively slow overseas transportation requires multinational companies
to maintain large, costly inventories to serve their foreign customers in a timely manner. This drives
up supply chain costs and makes it economical for companies to relocate closer to their markets.
While foreign markets offer great opportunities, the problems with locating in a foreign country
can be substantial, making site location a very important part of supply chain design. For example,
although China offers an extremely attractive market because of its huge population, growing economy, and cheap labor force, it has an inefficient transportation and distribution system, and numerous government regulations. Markets in Russia and the former Soviet states are attractive; however
they can also be risky because of government regulations, theft, and logistics. Lack of familiarity
with standard business practices and corruption can threaten success for foreign companies.
Some of the factors that multinational firms must consider when locating in a foreign country
include the following:
Government stability
Government regulations
Political and economic systems
Economic stability and growth
Exchange rates
Culture
Climate
Export and import regulations, duties,
and tariffs
Raw material availability

Number and proximity of suppliers
Transportation and distribution systems
Labor force cost and education
Available technology
Commercial travel
Technical expertise
Cross-border trade regulations
Group trade agreements
REGIONAL AND COMMUNITY LOCATION FACTORS

IN THE UNITED STATES
Labor is one of the most important factors in a location decision, including the cost of labor, availability, work ethic, the presence of organized labor and labor conflict, and skill and educational
level. Traditionally, labor costs have been lower and organized labor has been less visible across
the South and Southwest. While labor conflict is anathema to many companies, in some cases
labor unions have assisted in attracting new plants or in keeping existing plants from relocating by
making attractive concessions.
The proximity of suppliers and markets are important location factors. Manufacturing companies
need to be close to materials, and service companies like fast-food restaurants, retail stores, groceries,
and service stations need to be close to customers and distribution centers. Transportation costs can be
significant if frequent deliveries over long distances are required. The closeness of suppliers can determine the amount of inventory a company must keep on hand and how quickly it can serve its own
customers. Uncertainty in delivery schedules from suppliers can require excessive inventories.
612 Appendix
It is important for service-related businesses to be located near their customers. Many businesses
simply look for a high volume of customer traffic as the main determinant of location, regardless of
the competition. An interstate highway exit onto a major thoroughfare always has a number of competing service stations and fast-food restaurants. Shopping malls are an example of a location in which
a critical mass of customer traffic is sought to support a variety of similar and dissimilar businesses.
Another important factor, infrastructure, is the collection of physical support systems of a
location, including the roads, water and sewer, and utilities. If a community does not have a good
infrastructure, it must make improvements if it hopes to attract new business facilities. From a
companys perspective, an inadequate infrastructure will add to its supply chain costs and inhibit
its customer service.
Factors that are considered when selecting the part of the country and community for a facility are summarized as follows:
Labor (availability, education, cost,
and unions)
Proximity of customers
Number of customers
Construction/leasing costs
Land cost
Modes and quality of transportation
Transportation costs
Community government
Local business regulations
Government services
(e.g., Chamber of Commerce)
Financial services
Community inducements
Business climate
Community services
Incentive packages
Government regulations
Environmental regulations
Raw material availability
Commercial travel
Climate
Infrastructure (e.g., roads, water, sewers)
Quality of life
Taxes
Availability of sites
Proximity of suppliers
Education system
LOCATION INCENTIVES
Besides physical and societal characteristics, local incentives have increasingly become a major
important factor in attracting companies to specific locations. Incentive packages typically include
job tax credits, relaxed government regulations, job training, road and sewage infrastructure improvements, and sometimes just plain cash. These incentives plus the advantages of a superior
location can significantly reduce a companys supply chain costs while helping it achieve its strategic goal for customer service.
States and communities cannot afford to overlook incentives if they hope to attract new companies and jobs. However, they must make sure that the amount of their investment in incentive
packages and the costs they incur for infrastructure improvements are balanced against the number of new jobs developed and the expansion of the economy the new plant will provide. Incentives are a good public investment unless they bankrupt the locality. While some small
communities are successful in attracting new businesses, they are left with little remaining tax
base to pay for the infrastructure improvements needed to support the increased population drawn
by job demand. Thus, states and communities, much like businesses, need a strategy for economic
development that weighs the costs versus the benefits of attracting companies.
GEOGRAPHIC INFORMATION SYSTEMS

One tool that is used in the facility location and site selection process is a geographic information
system or GIS. A GIS is a computerized system for storing, managing, creating, analyzing, integrating, and digitally displaying geographic (i.e., spatial) data. A GIS is both a database system and a set
of operations for working with and analyzing this data. As a tool specifically used for site selection,
it allows the user to interactively search and analyze the type of data and information (i.e., location
factors) we discussed in the previous sections that might be related to the site selection process,
Figure B.1
A GIS Diagram
l re
ura
Nat
rces
sou
ers
Layers
of spatial
data
tom
Cus
t
Cos
ort
nsp
Tra
atio
or
Lab
atio
La
Loc
titu
de
de
gitu
Lon
such as population, labor, income, infrastructure customer base, climate, taxes, and transportation.
A GIS used for site selection will incorporate quantitative models (like the ones presented later in
this chapter and text) and statistical analysis to help analyze the data.
Figure B.1 provides a simple schematic diagram of how a GIS for site selection might be constructed. Each layer (or spatial map) in this diagram contains information about one characteristic
(or attribute) of the location being analyzed. Each layer that might relate to the site selection process is precisely overlaid on the other layers so that their corresponding geographic (spatial, locations) are exactly matched to each other. The bottom layer is a geographic grid that serves as a
frame of reference (e.g., latitude and longitude), to which all the other layers are precisely matched.
Once these layers of data have been entered into the GIS, information about the layers can be
compared and analyzed in combination. For example, transportation routes can be considered relative to the location of plants, distribution centers, and shippers, as well as labor markets and natural resources, such as water. Such comparative analyses are frequently in the form of digital
computer displays as well as three-dimensional graphs and displays. The GIS may provide just
statistical analyses for use in the decision-making process, or it may incorporate one or more
quantitative models to provide a recommended decision about a site.
The advantage of a GIS is that it enables the user to integrate large quantities of information
about potential facility sites and then analyze these data with a number of different, powerful
analytical tools. The ability to consider hundreds of separate layers of spatial information and
then combine it with other layers of information is the main reason GIS has become such a popular tool for location analysis and site selection.
GIS has come to be used extensively for utilities and infrastructure planning and management, including such things as energy use, cable and pipe networks, gas lines, electrical usage and
networks, and transportation, as well as real estate analysis, demographic and marketing analysis,
and various government applications such as emergency services and analyzing tax bases. GIS is
also used in business applications. For example, GIS has been used to select distribution centers
or hubs based on spatial data for shipping times, customer locations, and transportation routes.
Bank of America, upon entering the New York City market, used a GIS to show the distribution of
its own branch network relative to deposit potential in the New York market area; from this, they
614 Appendix
determined where their market coverage was strong or weak. Levi Strauss used a GIS to create a
geographic network of its existing retailers, potential retailers, and the customer base each served,
so it could make sure that new stores that joined its retail network would not adversely affect sales
in existing stores. Edens & Avant, one of the nations leading retail real estate companies, has a
GIS-based website that enables retailers to locate space in their inventory (at various shopping
malls, etc.) that specifically matches their site selection criteria.
Today there are hundreds of commercial software systems that offer GIS capabilities for different applications, including site selection, and numerous consulting and software firms that specialize in the development of GIS for specific applications. The list of websites for this supplement
includes links to several GIS software systems and some of the major companies that specialize in
GIS development and applications.
Location Analysis Techniques

We will discuss three techniques to help make a location decisionthe location rating factor,
the center-of-gravity technique, and the load-distance technique. The location factor rating
mathematically evaluates location factors, such as those identified in the previous section. The
center-of-gravity and load-distance techniques are quantitative models that centrally locate a proposed facility among existing facilities.
LOCATION FACTOR RATING

The decision where to locate is based on many different types of information and inputs. There is
no single model or technique that will select the best site from a group. However, techniques are
available that help to organize site information and that can be used as a starting point for comparing different locations.
In the location factor rating system, factors that are important in the location decision are
identified. Each factor is weighted from 0 to 1.00 to prioritize the factor and reflect its importance.
A subjective score is assigned (usually between 0 and 100) to each factor based on its attractiveness
compared with other locations, and the weighted scores are summed. Decisions typically will not
be made based solely on these ratings, but they provide a good way to organize and rank factors.
< EXAMPLE B.1

LOCATION
FACTOR RATING
The Dynaco Manufacturing Company is going to build a new plant to manufacture ring bearings (used
in automobiles and trucks). The site selection team is evaluating three sites, and they have scored the
important factors for each as follows. They want to use these ratings to compare the locations.
Scores (0 to 100)
Location Factor
Weight
Site 1
Site 2
Site 3
Labor pool and climate
0.30
80
65
90
Proximity to suppliers
0.20
100
91
75
Wage rates
0.15
60
95
72
Community environment
0.15
75
80
80
Proximity to customers
0.10
65
90
95
Shipping modes
0.05
85
92
65
Air service
0.05
50
65
90
<
SOLUTION
The weighted scores for each site are computed by multiplying the factor weights by the score for
that factor. For example, the weighted score for labor pool and climate for site 1 is
(0.30)(80) 24 points
The weighted scores for each factor for each site and the total scores are summarized as follows:
Weighted Scores
Location Factor
Site 1
Site 2
Site 3
Labor pool and climate
24.00
19.50
27.00
Proximity to suppliers
20.00
18.20
15.00
9.00
14.25
10.80
11.25
12.00
12.00
Proximity to customers
6.50
9.00
9.50
Shipping modes
4.25
4.60
3.25
Air service
2.50
3.24
4.50
Total score
77.50
80.80
82.05
Wage rates
Community environment
Site 3 has the highest factor rating compared with the other locations; however, this evaluation
would have to be used with other information, particularly a cost analysis, before making a
decision.
LOCATION FACTOR RATING WITH EXCEL

AND OM TOOLS
Exhibit B.1 shows the Excel spreadsheet for Example B.1. Notice that the location score for Site 1
is shown in cell E12 and the formula for the computation of the site 1 score (embedded in E12) is
shown on the formula bar at the top of the spreadsheet.
Exhibit B.2 shows the OM Tools spreadsheet for Example B.1
EXHIBIT B.1
EXCEL FILE
Formula for Site 1 Score
616 Appendix
EXHIBIT B.2
OM TOOLS
CENTER-OF-GRAVITY TECHNIQUE
In general, transportation costs are a function of distance, weight, and time. The center-of-gravity
or weight center technique is a quantitative method for locating a facility such as a warehouse at
the center of movement in a geographic area based on weight and distance. This method identifies
a set of coordinates designating a central location on a map relative to all other locations.
The starting point for this method is a grid map set up on a Cartesian plane, as shown in
Figure B.2. There are three locations, 1, 2, and 3, each at a set of coordinates (xi, yi) identifying its
location in the grid. The value Wi is the annual weight shipped from that location. The objective is
to determine a central location for a new facility.
The coordinates for the location of the new facility are computed using the following formulas:
n
a xi W i
i1
n
a Wi
a yi W i
i1
n
a Wi
i1
i1
where
x, y coordinates of the new facility at center of gravity
xi, yi coordinates of existing facility i
Wi annual weight shipped from facility i
Figure B.2
Grid Map Coordinates
y
y2
y1
2 (x2, y2), W2
1 (x1, y1), W1
3 (x3, y3), W3
y3
x1
x2
x3
< EXAMPLE B.2

The Burger Doodle restaurant chain 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 its various restaurants. The suppliers transport ingredient items in
40-foot truck trailers, each with a capacity of 38,000 lbs. The locations of the four suppliers, A, B,
C, and D, and the annual number of trailer loads that will be transported to the distribution center,
are shown in the following figure:
y
700
600
Miles
500
C
B
(135)
(105)
400
300
200
(60)
(75)
100
0
100 200 300 400 500 600 700 x

Miles
Using the center-of-gravity method, determine a possible location for the distribution center.
SOLUTION
A
xA 5 200
xB 5 100
xC 5 250
xD 5 500
yA 5 200
yB 5 500
yC 5 600
yD 5 300
WB 5 105
WC 5 135
WA 5 75
WD 5 60
a xi W i
iA
D
a Wi
iA
(200)(75) 1 (100)(105) 1 (250)(135) 1 (500)(60)

75 1 105 1 135 1 60
238
a yi W i
iA
D
a Wi
iA
(200)(75) 1 (500)(105) 1 (600)(135) 1 (300)(60)

75 1 105 1 135 1 60
444
Thus, the suggested coordinates for the new distribution center location are x 5 238 and y 5 444.
However, it should be kept in mind that these coordinates are based on straight-line distances, and
in a real situation actual roads might follow more circuitous routes.
THE CENTER-OFGRAVITY TECHNIQUE
618 Appendix
CENTER-OF-GRAVITY TECHNIQUE WITH EXCEL

AND OM TOOLS
Exhibit B.3 shows the Excel spreadsheet for Example B.2. The formula for computing the
x-coordinate in cell C13 is shown on the formula bar at the top of the spreadsheet.
Exhibit B.4 on the next page shows the OM Tools spreadsheet for Example B.2.
LOAD-DISTANCE TECHNIQUE
A variation of the center-of-gravity method for determining the coordinates of a facility location is the load-distance technique. In this method, a single set of location coordinates is
not identified. Instead, various locations are evaluated using a load-distance value that is a measure of weight and distance. For a single potential location, a load-distance value is computed
as follows:
EXCEL FILE
EXHIBIT B.3
Formula for x coordinate
EXHIBIT B.4
LD a li di
i1
where
LD 5 the load-distance value
li 5 the load expressed as a weight, number of trips,
or units being shipped from the proposed site to location i
di 5 the distance between the proposed site and location i
The distance di in this formula can be the travel distance, if that value is known or can be determined from a map. It can also be computed using the following formula for the straight-line distance between two points, which is also the hypotenuse of a right triangle:
di 2(xi 2 x) 2 1 (yi 2 y) 2
where
(x, y) coordinates of proposed site
(xi, yi ) coordinates of existing facility
The load-distance technique is applied by computing a load-distance value for each potential
facility location. The implication is that the location with the lowest value would result in the
minimum transportation cost and thus would be preferable.
< EXAMPLE B.3

Burger Doodle wants to evaluate three different sites it has identified for its new distribution
center relative to the four suppliers identified in Example B.2. The coordinates of the three sites
under consideration are as follows:
Site 1: x1 360, y1 180
Site 2: x2 420, y2 450
Site 3: x3 250, y3 400
SOLUTION
First, the distances between the proposed sites (1, 2, and 3) and each existing facility (A, B, C,
and D), are computed using the straight-line formula for di:
Site 1: dA 2(xA 2 x1 ) 2 1 (yA 2 y1 ) 2
2(200 2 360) 2 1 (200 2 180) 2
161.2
dB 2(xB 2 x1 ) 2 1 (yB 2 y1 ) 2
2(100 2 360) 2 1 (500 2 180) 2
412.3
dC 2(xC 2 x1 ) 2 1 (yC 2 y1 ) 2
2(250 2 360) 2 1 (600 2 180) 2
434.2
(Continued)
THE LOAD-DISTANCE
TECHNIQUE
620 Appendix
<
dD 2(xD 2 x1 ) 2 1 (yD 2 y1 ) 2
2(500 2 360) 2 1 (300 2 180) 2
184.4
Site 2: dA 333, dB 323.9, dC 226.7, dD 170
Site 3: dA 206.2, dB 180.3, dC 200, dD 269.3
Next, the formula for load distance is computed for each proposed site:
D
LD (site 1) a li di
iA
(75)(161.2) 1 (105)(412.3) 1 (135)(434.2) 1 (60)(184.4)

125, 063
LD (site 2)
LD (site 3)
(75)(333) 1 (105)(323.9) 1 (135)(226.7) 1 (60)(170)

99, 789
(75)(206.2) 1 (105)(180.3) 1 (135)(200) 1 (60)(269.3)
77, 555
Since site 3 has the lowest load-distance value, it would be assumed that this location would also
minimize transportation costs. Notice that site 3 is very close to the location determined using the
center-of-gravity method in Example B.2.
LOAD-DISTANCE TECHNIQUE WITH EXCEL

AND OM TOOLS
Exhibit B.5 shows the Excel spreadsheet for Example B.3. The formula for computing the
distance from supplier location A to site 1 is embedded in C11 and is shown on the formula bar at
the top of the spreadsheet. The formula for computing the location-distance formula for site 1 is
shown in the callout box attached to cell C17.
EXHIBIT B.5
EXCEL FILE
=B7*C11+C7*C12+D7*C13+E7*C14
EXHIBIT B.6
OM TOOLS
Exhibit B.6 shows the OM Tools spreadsheet for Example B.3.
S U M MARY
Facility location is an often overlooked but important aspect of a companys strategic plan. What kind of facility to build and where to locate
it are expensive decisions. A location decision is not easily reversed if
it is a bad one. For a service operation, the wrong location can result
in too few customers to be profitable, whereas for a manufacturing
operation, a wrong location can result in excessive costs, especially

for transportation and distribution, and high inventories. The quantitative tools presented in this supplement are not usually sufficient
for making an actual location decision, but they do provide the
means for helping in the location analysis and decision process.
K E Y FORMULAS
Center-of-Gravity Coordinates
Load-Distance Technique
a xi W i
i1
n
a Wi
i1
a yi W i
i1
n
a Wi
i1
LD a li di
i1
di 2(xi 2 x) 2 1 (yi 2 y) 2
S O LV E D PROBLEM S
CENTER-OF-GRAVITY TECHNIQUE
A company is going to construct a new warehouse served by suppliers A, B, and C. The locations of the three suppliers and the annual
number of truck carriers that will serve the warehouse are shown in
the following figure:
622 Appendix
600
500
Determine the best site for the warehouse using the center of gravity
technique.
(170)
SOLUTION
Miles
400
300
(140)
200
B
100
0
a xiWi
iA
C
(150) (140) 1 (300) (110) 1 (400) (170)

140 1 110 1 170
(250) (140) 1 (100) (110) 1 (500) (170)

140 1 110 1 170
a Wi
(110)
iA
290.5
100 200 300 400 500 600
Miles
a yiWi
iA
C
a Wi
iA
311.9
xA 5 150
xB 5 300
xC 5 400
YA 5 250
YB 5 100
YC 5 500
WA 5 140
WB 5 110
WC 5 170
The suggested coordinates for the new warehouse are x 5 290.5 and
y 5 311.9.
Q U E S T I ONS
B-1. How are the location decisions for service operations and manufactur-
B-6. Assume that you are going to open a Starbucks in your community.
ing operations similar, and how are they different?

Indicate what you perceive to be general location trends for service
operations and manufacturing operations.
Describe the positive and negative factors for a company contemplating locating in a foreign country.
What would be the important location factors that McDonalds might
consider before opening a new restaurant?
Select a major (light or heavy) manufacturing facility in your community or immediate geographic area (within a radius of 100 miles), and
identify the factors that make it a good or poor site, in your opinion.
Select three sites. Perform a location factor analysis for each and select
the best site.
B-7. Select four fast-food restaurants (e.g., McDonalds, Burger King, Wendys, Dominos, etc.) in your town, and develop a scoring model including decision criteria, weights, and grades to rank the restaurants
from the best to worst.
B-2.
B-3.
B-4.
B-5.
P R O B L E MS
B-1. Exotech Computers manufactures computer components such as chips,
circuit boards, motherboards, keyboards, LCD panels, and the like and
sells them around the world. It wants to construct a new warehouse/
distribution center in Asia to serve emerging Asian markets. It has
identified sites in Shanghai, Hong Kong, and Singapore and has rated
the important location factors for each site as follows:
Scores (0 to 100)
Location Factor
Weight
Shanghai
Hong Kong
Singapore
Political stability
0.25
50
80
90
Economic growth
0.18
90
80
75
Port facilities
0.15
60
95
90
Container support
0.10
50
80
90
Scores (0 to 100)
Location Factor
Weight
Shanghai
Hong Kong
Singapore
Land and
construction cost
0.08
90
50
30
Transportation/
distribution
0.08
50
80
70
Duties and traffic
0.07
70
90
90
Trade regulations
0.05
70
95
95
Airline service
0.02
60
80
70
Area roads
0.02
60
70
80
Recommend a site based on these location factors and ratings.
B-2. Arsenal Electronics is going to construct a new $1.2 billion semiconductor plant and has selected four towns in the Midwest as potential sites.
The important location factors and ratings for each town are as follows:
Scores (0 to 100)
Location Factor
Cane
Creek Dunnville
Weight
Abbeton
Bayside
Work ethics
0.18
80
90
70
75
Quality of life
0.16
75
85
95
90
Labor laws/
unionization
0.12
90
60
60
70
Infrastructure
0.10
60
50
60
70
Education
0.08
80
90
85
95
Labor skill and

education
0.07
75
65
70
80
Cost of living
0.06
70
80
85
75
Taxes
0.05
65
70
55
60
Incentive package
0.05
90
95
70
80
Government
regulations
0.03
40
50
65
55
Fairfax Dupont Tysons Alexandria Manassas

Weights Forest Gardens Terrace Commons
Farms
Distance to
job
0.05
85
67
95
75
65
Condo floor
plan
0.05
80
78
86
92
90
Complex
size
0.05
65
60
92
89
70
B-4. Balston Healthcare operates three hospitals and a number of clinics in
Environmental
regulations
0.03
65
60
70
80
Transportation
0.03
90
80
95
80
Space for expansion
0.02
90
95
90
90
Urban proximity
0.02
60
90
70
80
its citywide network. It is planning to open a new wellness center and

clinic facility that focuses on geriatric clients in one of four suburbs.
The following table shows the weighted criteria for each location:
Scores (0 to 100)
Recommend a site based on these location factors and ratings.
B-3. Robin Dillon has recently accepted a new job in the Washington,
DC, area and has been hunting for a condominium to purchase.
From friends and coworkers, she has compiled a list of five possible
condominium complexes that she might move into. The following
table indicates the weighted criteria that Robin intends to use in her
decision-making process and a grade indicating how well each complex satisfies each criterion.
Condominium Complexes
Location
Criteria
Condominium Complexes
Location
Criteria
Fairfax Dupont Tysons Alexandria Manassas

Weights Forest Gardens Terrace Commons
Farms
Location Factors
Weight
Ashcroft Brainerd Crabtree Dowling
Elderly population
0.55
75
80
65
75
Income level
0.15
65
75
90
85
Land availability
0.10
90
70
90
80
Average age
0.10
80
70
80
75
Public transportation
0.05
95
55
75
95
Crime rate
0.05
95
70
85
90
Recommend a site for the new Balston Healthcare facility based on

these weighted location factors and scores.
B-5. As part of an aggressive expansion plan, StarTrack Coffee is planning to
open three new retail stores in the city. The table shows the location factors
it considers important indicators of future profitability, and how each location has been graded by management according to each one of these factors.
Location Factors
Land and
Pedestrian Construction
Traffic
Cost
Location
Business
Density
Shopping
Density
Vehicle
Traffic
75
81
55
75
63
62
56
83
67
82
73
45
71
70
74
81
69
77
65
66
77
86
75
65
82
64
75
65
80
91
89
86
67
73
67
91
90
64
80
65
56
64
77
69
82
Purchase
price
0.30
92
85
75
62
79
Neighborhood
location
0.18
76
63
95
90
80
Proximity
to Metro
train
0.12
Shopping
0.10
65
80
98
92
75
10
66
68
81
72
87
Security
0.10
75
78
90
95
83
11
67
81
75
66
85
Recreational
facilities
0.05
96
90
82
81
93
12
83
73
77
70
90
78
75
76
85
60
624 Appendix
Use your own judgment to determine weights for each of the location
factors and recommend the three new store sites. Are there other location factors that you think might be important?
B-6. Federated Electronics, Ltd., manufactures display screens and monitors
for computers and televisions, which it sells to companies around the
world. It wants to construct a new warehouse and distribution center in
Asia to serve emerging markets there. It has identified potential sites in
the port cities of Shanghai, Singapore, Pusan, Kaohsiung, and Hong
Kong. The following table shows the factors in the location decision and
the grade of each location for each factor.
Port Scores (0 to 100)
Location Factors
Shanghai Singapore Pusan
Kaohsiung
Hong
Kong
Facility cost
65
75
80
90
55
Labor rates
75
70
85
95
60
Labor availability
70
65
85
80
70
Infrastructure
80
80
65
70
95
Transportation
75
65
75
75
90
Container availability
70
80
65
75
85
Expansion/modernization
80
75
90
80
95
Scores (0 to 100)
Location
Factors
Bangladesh India
Philippines
China Pakistan Turkey
Language/
communication
80
95
80
60
75
65
Logistics
70
75
75
70
60
80
Port access
60
90
85
95
65
60
Export regulations
85
85
80
75
65
70
Risk
50
90
80
85
55
95
Use your own judgment to attach weights to each of the location factors and recommend the preferred supplier.
B-8. The Burger Doodle restaurant chain uses a distribution center to prepare the food ingredients it provides its individual restaurants. The
company is attempting to determine the location for a new distribution center that will service five restaurants. The grid-map coordinates of the five restaurants and the annual number of 40-foot trailer
trucks transported to each restaurant are as follows:
Coordinates
Restaurant
Annual truck shipments
Political stability
65
70
85
80
90
100
300
35
Duties, tariffs, and

fees
75
80
80
90
70
210
180
24
250
400
15
Trade regulations
65
75
80
80
75
300
150
19
400
200
38
The weights indicating the importance of each location factor are not
included. Determine what you think these weights should be and recommend the best location for the new distribution center.
B-7. The Western Jeans Company is going to select a new overseas supplier for
denim jeans. The company has identified suppliers in Bangladesh, India,
the Philippines, China, Pakistan, and Turkey. The following table shows
the location factors that the company views as important in the selection
process and managements grade for each of these factors.
Scores (0 to 100)
Location
Factors
Bangladesh India
Philippines
China Pakistan Turkey
Wage rate
90
75
90
85
80
70
Infrastructure
60
65
70
65
65
75
Suppliers
55
80
65
90
70
75
Labor sustainability
50
80
65
70
60
80
Environmental
sustainability
60
75
70
55
60
75
Government
stability
50
95
80
90
55
95
Quality
program
75
90
80
70
80
90
Water supply
90
90
80
75
70
80
a. Determine the least-cost location using the center-of-gravity

method.
b. Plot the five restaurants and the proposed new distribution center
on a grid map.
B-9. The Burger Doodle restaurant chain in Problem B-8 is considering
three potential sites, with the following grid-map coordinates, for its
new distribution center: A(350, 300), B(150, 250), and C(250, 300).
Determine the best location using the load-distance formula, and plot
this location on a grid map with the five restaurants. How does this location compare with the location determined in Problem B-8?
B-10. Mega-Mart, a discount store chain, wants to build a new superstore in
an area in southwest Virginia near four small towns with populations
between 8,000 and 42,000. The coordinates (in miles) of these four
towns and the market population in each are as follows:
Whitesburg
Altonville
Camburg
Milligan
x 5 12
x 5 18
x 5 30
x 5 32
y 5 20
y 5 15
y 5 7
y 5 25
w 5 26,000
w 5 12,000
w 5 18,300
w 5 9700
Determine the best site using the center-of-gravity technique.
B-11. An army division in Iraq has five troop encampments in the desert, and
the division leaders want to determine the best location for a supply
depot to serve the camps. The (x, y) coordinates (in miles) of the
camps, A, B, C, D, and E, and the daily amount of supplies (in tons)

required at each camp are as follows:
Coordinates
Belcamp, Maryland; however, it has decided to construct a new

distribution center for its stores west of the Mississippi River, and
it will either continue to use its Belcamp facility to supply its
stores in the east or open a new facility in the east. The following
table shows Saforas monthly truck shipments to 12 major eastern
and Midwest cities where the majority of Saforas stores are
clustered.
Camp
Daily tonnage (1,000s)
110
120
85
70
300
110
520
350
75
City
300
450
60
Boston
24
400
600
100
New York
32
Philadelphia
17
Washington, DC
20
Miami
25
Determine the best site for the supply depot using the center-of-gravity
technique.
B-12. In Problem B-11, suppose the division commanders are limited to
three possible sites for the supply depot because of airfield locations
and enemy troop concentrations. The coordinates (in miles) of these
three potential sites are site 1 (400, 250), site 2 (100, 200), and site 3
(200, 500). Using the load-distance technique, determine the best site
for the supply depot.
B-13. Somerset Furniture Company imports furniture components and pieces
from several manufactures in China and then assembles the finished
furniture pieces and adds hardware at a distribution center before shipping the finished pieces of furniture on to its customers warehouses in
several states. Furniture shipments arrive from China (in containers) at
three U.S. ports in the United StatesNew Orleans, Savannah, and
Norfolk. These containers are then transported to Somersets distribution center for final furniture assembly before they are shipped in
truckloads to five customer warehouses. The (x, y) coordinates of the
ports and warehouses and the annual container truckload shipments are
shown in the following table:
Coordinates
x
Annual Truckloads
New Orleans
1100
700
41
Savannah
2700
1400
27
Norfolk
2800
2200
34
200
1200
18
1400
1500
20
700
2300
32
1200
2700
24
2100
2600
18
Port/Warehouse
Determine the best site for Somersets distribution center using the
center-of-gravity technique.
B-14. In Problem B-13, suppose Somerset furniture is considering three possible sites for its distribution center, which are the most economical in
terms of land and building cost. The coordinates for the three potential
sites are site A (1,700, 800), site B (2,400, 1,700), and site C (1,800,
2,200). Using the load-distance technique, determine the best site for the
distribution center.
B-15. The Safora Company is a national chain of beauty products and cosmetic stores. It supplies all of its stores from a distribution center in
Monthly Truckloads
New Orleans
12
Atlanta
14
Charlotte
10
Nashville
Pittsburgh
11
Chicago
20
Detroit
15
Determine the best site if Safora decides to build a new eastern distribution center using the center-of-gravity technique.
B-16. Using the load-distance technique, compare the best site for Saforas
distribution center determined in problem B-15 with the existing
Belcamp, Maryland, site and explain which one you would select.
B-17. The Safora Company in problem B-15 also wants to build a new western distribution center. The following table shows Saforas monthly
truck shipments to 12 major cities west of the Mississippi where the
majority of Saforas stores are clustered:
City
San Diego
Los Angeles
Monthly Truckloads
9
25
San Francisco
15
Seattle
15
Phoenix
Houston
Las Vegas
11
Dallas
10
Denver
13
Kansas City
11
St. Louis
15
Determine the best location to build a new western distribution center

using the center-of-gravity technique.
626 Appendix
C A S E STUDY
Selecting a European Distribution Center Site for
American International Automotive Industries
American International Automotive Industries (AIAI) manufactures auto and truck engine, transmission, and chassis parts for
manufacturers and repair companies in the United States,
South America, Canada, Mexico, Asia, and Europe. The company transports to its foreign markets by container ships. To
serve its customers in South America and Asia, AIAI has
large warehouse/distribution centers. In Europe, it ships into
Hamburg and Gdansk, where it has contracted with independent distribution companies to deliver its products to customers throughout Europe. However, AIAI has been displeased
with a recent history of late deliveries and rough handling of its
products. For a time, AIAI was not overly concerned since its
European market wasnt too big and its European customers
didnt complain. In addition, it had more pressing supply chain
problems elsewhere. In the past ve years, since trade barriers
have fallen in Europe and Eastern European markets have
opened up, its Europeans business has expanded, as has new
competition, and its customers have become more demanding
and quality conscious. As a result, AIAI has initiated the process
to select a site for a new European warehouse/distribution center.
Although it provides parts to a number of smaller truck and

auto maintenance and service centers in Europe, it has seven
major customersauto and truck manufacturersin Vienna,
Leipzig, Budapest, Prague, Krakow, Munich, and Frankfurt. Its
customers in Vienna and Budapest have adopted manufacturing processes requiring continuous replenishment of parts and
materials.
AIAIs European headquarters is in Hamburg. The vicepresident for construction and development in Dayton, Ohio,
has asked the Hamburg ofce to do a preliminary site search
based on location, geography, transportation, proximity to
customers, and costs. The Hamburg ofce has identied ve
potential sites in Dresden, Lodz, Hamburg, Gdansk, and Frankfurt.
The Hamburg ofce has forwarded information about each of
these sites to corporate headquarters, including forecasts of
the number of containers shipped annually to each customer
as follows: Vienna, 160; Leipzig, 100; Budapest, 180; Prague,
210; Krakow, 90; Munich, 120; and Frankfurt, 50. When the vicepresident of construction in Dayton received this information,
he pulled out his map of Europe and began to study the sites.
Assist AIAI with its site selection process in Europe. Recommend a site from the ve possibilities, and indicate what other
location factors you might consider in the selection process.
R E F E R E NCES
Bowersox, D. J. Logistics Management, 2nd ed. New York: Macmillan,
1978.
Johnson, J. C., and D. F. Wood. Contemporary Logistics, 6th ed.

Upper Saddle River, NJ: Prentice Hall, 1996.
Francis, R. L., and J. A. White. Facilities Layout and Location: An

Analytical Approach. Upper Saddle River, NJ: Prentice Hall, 1987.
Schmenner, R. W. Making Business Location Decisions. Upper

Saddle River, NJ: Prentice Hall, 1982.
Fulton, M. New Factors in Plant Location. Harvard Business

Review (MayJune 1971), pp. 417, 166168.

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Site Selection: Where to Locate

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Appendix B: Operational Decision-Making ToolsFacility Location Models 611

Global Supply Chain Factors

Raw material availability

REGIONAL AND COMMUNITY LOCATION FACTORS

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GEOGRAPHIC INFORMATION SYSTEMS

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Appendix B: Operational Decision-Making ToolsFacility Location Models 613

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Location Analysis Techniques

LOCATION FACTOR RATING

< EXAMPLE B.1

Labor pool and climate

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Appendix B: Operational Decision-Making ToolsFacility Location Models 615

Labor pool and climate

LOCATION FACTOR RATING WITH EXCEL

Formula for Site 1 Score

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Appendix B: Operational Decision-Making ToolsFacility Location Models 617

< EXAMPLE B.2

100 200 300 400 500 600 700 x

(200)(75) 1 (100)(105) 1 (250)(135) 1 (500)(60)

(200)(75) 1 (500)(105) 1 (600)(135) 1 (300)(60)

THE CENTER-OFGRAVITY TECHNIQUE

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CENTER-OF-GRAVITY TECHNIQUE WITH EXCEL

Formula for x coordinate

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Appendix B: Operational Decision-Making ToolsFacility Location Models 619

< EXAMPLE B.3

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(75)(161.2) 1 (105)(412.3) 1 (135)(434.2) 1 (60)(184.4)

(75)(333) 1 (105)(323.9) 1 (135)(226.7) 1 (60)(170)

LOAD-DISTANCE TECHNIQUE WITH EXCEL

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Appendix B: Operational Decision-Making ToolsFacility Location Models 621

Exhibit B.6 shows the OM Tools spreadsheet for Example B.3.

operation, a wrong location can result in excessive costs, especially

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(150) (140) 1 (300) (110) 1 (400) (170)

(250) (140) 1 (100) (110) 1 (500) (170)

ing operations similar, and how are they different?

Duties and traffic

Recommend a site based on these location factors and ratings.

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Appendix B: Operational Decision-Making ToolsFacility Location Models 623

Labor skill and

Fairfax Dupont Tysons Alexandria Manassas

B-4. Balston Healthcare operates three hospitals and a number of clinics in

Space for expansion

its citywide network. It is planning to open a new wellness center and

Recommend a site based on these location factors and ratings.

Fairfax Dupont Tysons Alexandria Manassas

Ashcroft Brainerd Crabtree Dowling

Recommend a site for the new Balston Healthcare facility based on

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Shanghai Singapore Pusan