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C
x
, C
y
= Gravity Center
d
ix
, d
iy
= coordinates de la ubicacin i
V
i
= Volume of goods moved from/to i
i
i iy
y
V
V d
= C
Transport cost are related to volume
Methods of Facility Location Selection
Centroid Methods
Factors Rating Analysis.
Economic Analysis.
Income independent upon location.
Income dependent upon location.
Transportation (Mathematical Programming Methods).
Set Covering.
No limitation of facilities.
Limitation of facilities.
Factor-Rating Method
Popular because a wide variety of factors can be included in the
analysis
Six steps in the 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
Factor-Rating Example
Critical Scores
Success (out of 100) Weighted Scores
Factor Weight France Denmark France Denmark
Labor
availability
and attitude .25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0
People-to
car ratio .05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0
Per capita
income .10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0
Tax structure .39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3
Education
and health .21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7
Totals 1.00 70.4 68.0
Table 8.3
Methods of Facility Location Selection
Centroid Methods
Factors Rating Analysis.
Economic Analysis.
Income independent upon location.
Income dependent upon location.
Transportation (Mathematical Programming Methods).
Set Covering.
No limitation of facilities.
Limitation of facilities.
Locational Break-Even Analysis Example
Three locations:
Akron $30,000 $75 $180,000
Bowling Green $60,000 $45 $150,000
Chicago $110,000 $25 $160,000
Selling price = $120
Expected volume = 2,000 units
Fixed Variable Total
City Cost Cost Cost
Total Cost = Fixed Cost + Variable Cost x Volume
Locational Break-Even Analysis Example
$180,000
$160,000
$150,000
$130,000
$110,000
$80,000
$60,000
$30,000
$10,000
A
n
n
u
a
l
c
o
s
t
| | | | | | |
0 500 1,000 1,500 2,000 2,500 3,000
Volume
Akron
lowest
cost
Bowling Green
lowest cost
Chicago
lowest
cost
Methods of Facility Location Selection
Centroid Methods
Factors Rating Analysis.
Economic Analysis.
Income independent upon location.
Income dependent upon location.
Transportation (Mathematical Programming Methods).
Set Covering.
No limitation of facilities.
Limitation of facilities.
Network Optimization Models
Allocating demand to production facilities
Locating facilities and allocating capacity
Which plants to establish? How to configure the network?
Key Costs:
Fixed facility cost
Transportation cost
Production cost
Inventory cost
Coordination cost
Conventional Network
Customer
Store
Materials
DC
Component
Manufacturing
Vendor
DC
Final
Assembly
Finished
Goods DC
Components
DC
Vendor
DC
Plant
Warehouse
Finished
Goods DC
Customer
DC
Customer
DC
Customer
DC
Customer
Store
Customer
Store
Customer
Store
Customer
Store
Vendor
DC
Demand Allocation Model
Which market is served
by which plant?
Which supply sources
are used by a plant?
x
ij
= Quantity shipped from
plant site i to customer j
0
. .
1
1
1 1
x
K x
D x
t s
x c
Min
ij
i
m
j
ij
j
n
i
ij
n
i
m
j
ij ij
Plant Location with Multiple Sourcing
y
i
= 1 if plant is located
at site i, 0 otherwise
x
ij
= Quantity shipped
from plant site i to
customer j
} 1 , 0 { ;
. .
1
1
1
1 1 1
y k y
y
K x
D x
t s
x c
y f Min
i
m
i
i
i
i
n
j
ij
j
n
i
ij
n
i
m
j
ij ij
i
n
i
i
Multi-echelon
Regional
Finished
Goods DC
Regional
Finished
Goods DC
Customer 1
DC
Store 1
National
Finished
Goods DC
Local DC
Cross-Dock
Local DC
Cross-Dock
Local DC
Cross-Dock
Customer 2
DC
Store 1
Store 2
Store 2
Store 3
Store 3
Methods of Facility Location Selection
Centroid Methods
Factors Rating Analysis.
Economic Analysis.
Income independent upon location.
Income dependent upon location.
Transportation (Mathematical Programming Methods).
Set Covering.
No limitation of facilities.
Limitation of facilities.
Define:
c
j
cost of locating facility at site j
a
ij
=
x
j
=
The set covering problem is to:
Set Covering Models
1 if facility located at site j can cover customer i
0 Otherwise
1 if facility located at site j
0 Otherwise
{
{
The set covering problem is to:
1
,
1
. .
1, 1..
0,1 , 1..
n
j j
j
n
i j j
j
j
Minimize c x
s t
a x i n
x j n