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13-1FacilityLocationDecisionsChapter13Experienceteachesthatmenaresomuchgovernedbywhattheyareaccustomedtoseeandpractice,thatthesimplestandmostobviousimprovementsinthemostordinaryoccupationsareadoptedwithhesitation,reluctance,andbyslowgraduations.

13-2FacilityLocationPLANNINGORGANIZINGCONTROLLINGTransportStrategy•Transportfundamentals•TransportdecisionsCustomerservicegoals•Theproduct•Logisticsservice•Oc.&info.sys.InventoryStrategy•Forecasting•Inventorydecisions•Purchasingandsupplyschedulingdecisions•Storagefundamentals•StoragedecisionsLocationStrategy•Locationdecisions•ThenetworkplanningprocessPLANNINGORGANIZINGCONTROLLINGTransportStrategy•Transportfundamentals•TransportdecisionsCustomerservicegoals•Theproduct•Logisticsservice•Oc.&info.sys.InventoryStrategy•Forecasting•Inventorydecisions•Purchasingandsupplyschedulingdecisions•Storagefundamentals•StoragedecisionsLocationStrategy•Locationdecisions•Thenetworkplanningprocess13-3LocationOverviewWhat'slocated?SourcingpointsPlantsVendorsPortsIntermediatepointsWarehousesTerminalsPublicfacilities(fire,police,andambulance stations)ServicecentersSinkpointsRetailoutletsCustomers/Users13-4LocationOverview(Cont’d)KeyQuestionsHowmanyfacilitiesshouldtherebe?Whereshouldtheybelocated?Whatsizeshouldtheybe?

WhyLocationisImportant

Givesstructuretothenetwork

Significantlyaffectsinventoryand transportationcosts

Impactsonthelevelofcustomerserviceto beachieved13-5MethodsofSolutionSinglewarehouselocationGraphicGrid,orcenter-of-gravity,approachMultiplewarehouselocationSimulationOptimizationHeuristicsLocationOverview(Cont’d)13-6NatureofLocationAnalysisManufacturing(plants&warehouses)Decisionsaredrivenbyeconomics.Relevantcostssuchastransportation,inventorycarrying,labor,andtaxesaretradedoffagainsteachothertofindgoodlocations.RetailDecisionsaredrivenbyrevenue.Trafficflowandresultingrevenueareprimarylocationfactors,costisconsideredafterrevenue.ServiceDecisionsaredrivenbyservicefactors.Responsetime,accessibility,andavailabilityarekeydimensionsforlocatingintheserviceindustry.13-7SomeLocationTheory/PracticeEarlyeconomicanalysisBidrentcurvesWeber’sclassificationofindustriesHoover’staperedtransportratesMathematicalapproachesLightanalysisChart,compass,rulertechniquesSpreadsheetsChecklistsContinuouslocationmethodsMathematicalprogramming13-8BidRentCurve13-9Weber’sClassificationofIndustries13-10Hoover’sTransportCurves13-11MethodappraisalAcontinuouslocationmethodLocatesonthebasisoftransportationcostsaloneTheCOGmethodinvolvesDeterminingthevolumesbysourceanddestination pointDeterminingthetransportationcostsbasedon $/unit/mi.Overlayingagridtodeterminethecoordinatesof sourceand/ordestinationpointsFindingtheweightedcenterofgravityforthegraph COGMethod13-12COGMethod(Cont’d)whereVi=volumeflowingfrom(to)pointIRi=transportationratetoshipVifrom(to)pointiXi,Yi=coordinatepointsforpointi

=coordinatepointsforfacilitytobelocated13-13COGMethod(Cont’d)ExampleSupposearegionalmedicalwarehouseistobeestablishedtoserveseveralVeteransAdministrationhospitalsthroughoutthecountry.ThesuppliesoriginateatS1

andS2andaredestinedforhospitalsatH1throughH4.Therelativelocationsareshownonthemapgrid.Otherdataare:NoterateisapermilecostPointiProd-uctsLocationAnnualvolume,cwt.Rate,$/cwt/mi.XiYi1S1ASeattle8,0000.020.67.32S2BAtlanta10,0000.028.63.03H1A&BLosAngeles5,0000.052.03.04H2A&BDallas3,0000.055.52.45H3A&BChicago4,0000.057.95.56H4A&BNewYork6,0000.0510.65.213-14COGMethod(Cont’d)Mapscalingfactor,K13-15COGMethod(Cont’d)SolvetheCOGequationsintableformiXiYiViRiViRiViRiXiViRiYi10.67.38,0000.02160961,16828.63.010,0000.022001,72060032.03.05,0000.0525050075045.52.43,0000.0515082536057.95.54,0000.052001,5801,100610.65.26,0000.05

300

3,180

1,560

1,2607,9015,53813-16COGMethod(Cont’d)Now,X=7,901/1,260=6.27Y=5,538/1,260=4.40ThisisapproximatelyColumbia,MO.Thetotalcostforthislocationisfoundby:whereKisthemapscalingfactortoconvertcoordinatesintomiles.13-17COGCOGMethod(Cont’d)13-18COGMethod(Cont’d)2,360,882Total660,4920.056,0005.210.66196,6440.054,0005.57.95160,7330.053,0002.45.54561,7060.055,0003.02.03271,8250.0210,0003.08.62509,4820.028,0007.30.61TCRiViYiXiiCalculatetotalcostatCOG13-19Note

Thecenter-of-gravitymethoddoesnotnecessarilygiveoptimalanswers,butwillgivegoodanswersiftherearealargenumbersofpointsintheproblem(>30)andthevolumeforanyonepointisnotahighproportionofthetotalvolume.However,optimallocationscanbefoundbytheexactcenterofgravitymethod.åååå==iiiiiiiiiniiiiiiiiin/dRV/dYRVY,/dRV/dXRVXwhere22)Y(Y)X(Xdninii-+-=andnistheiterationnumber.COGMethod(Cont’d)13-20SolutionprocedureforexactCOG

COGMethod(Cont’d)SolveforCOGUsingfinddiRe-solveforusingexactformulationUserevisedtofindreviseddiRepeatsteps3through5untilthereisnochangeinCalculatetotalcostsusingfinalcoordinates13-21

Amorecomplexproblemthatmostfirmshave.

Itinvolvestradingoffthefollowingcosts:-

Transportationinboundtoandoutboundfromthefacilities

-

Storageandhandlingcosts-

Inventorycarryingcosts-

Production/purchasecosts-

Facilityfixedcosts

Subjectto:-

Customerserviceconstraints-

Facilitycapacityrestrictions

Mathematicalmethodsarepopularforthistypeofproblemthat:-

Searchforthebestcombinationoffacilitiestominimizecosts-

Dosowithinareasonablecomputationaltime-

DonotrequireenormousamountsofdatafortheanalysisMultipleLocationMethods13-22LocationCostTrade-OffsNumberofwarehousesCostProduction/purchaseandorderprocessingInventorycarryingandwarehousingWarehousefixedInboundandoutboundtransportationTotalcost0013-23Amethodusedcommercially-Hasgoodproblemscope-CanbeimplementedonaPC-Runningtimesmaybelongandmemoryrequirementssubstantial-

Handlesfixedcostswell-

NonlinearinventorycostsarenotwellhandledAlinearprogramming-likesolutionprocedure canbeused(MIPROGinLOGWARE)MixedIntegerProgramming13-24ExampleThedatabasefortheillustratedproblemispreparedasfileILP02.DATinMIPROG.Theformisdictatedbytheproblemformulationinthetechnicalsupplementofthelocationchapter.Thesolutionistoopenonlyonewarehouse(W2)withresultingcostsof:CategoryCostProduction$1,020,000Transportation1,220,000Warehousehandling310,000Warehousefixed

500,000Total$3,050,000MIP(Cont’d)13-25MIP(Cont’d)AMultipleProductNetworkDesignProblemThesituation

13-26DynamicLocationRetailLocationMethods·

Thegenerallong-rangenatureofthelocationproblem-Networkconfigurationsarenotimplementedimmediately-Therearefixedchargesassociatedwithmovingtoanewconfiguration·

Weseektofindasetofnetworkconfigurationsthatminimizesthepresentvalueovertheplanninghorizon·

Contrastswithplantandwarehouselocation.-Revenueratherthancostdriven-Factorsotherthancostssuchasparking,nearnesstocompetitiveoutlets,andnearnesstocustomersaredominant·

Weightedchecklist

-

Goodwheremanysubjectivefactorsareinvolved

-

Quantifiesthecomparisonamongalternatelocations

AHypotheticalWeightedFactorChecklistforaRetailLocationExample(1)FactorWeight(1to10)aLocationFactors(2)FactorScore(1to10)b(3)=(1)´(2)WeightedScore8Proximitytocompetingstores5405Spacerent/leaseconsiderations3158Parkingspace10807Proximitytocomplementarystores8566Modernityofstorespace9549Customeraccessibility8723Localtaxes263Communityservice4128Proximitytomajortransportationarteries7

56

Totalindex39113-4813-28RetailLocation(Cont’d)·

Huff'sgravitymodel

-

Atake-offonNewton'slawofgravity.

-

"Mass"orretail"variety"attractscustomers,andthedistancefromcustomersrepelsthem.

-

Thebasicmodelis:

EPCSTSTCijijijijajijaji==å//

where

Eij=

expecteddemandfrompopulationcenterithatwillbeattractedtoretaillocationj

Pij=

probabilityofcustomersfrompointitravelingtoretaillocationj

Ci=

customerdemandatpointi

Sj

=

sizeofretaillocationj

Tij=

trave

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