Facility Location

Production & Operations Management

FACILITY LOCATION

Prof. Ajith Kumar, XLRI Jamshedpur

XLRI, Jamshedpur Prof. Ajith Kumar

 Facility Location
Production & Operations Management

WHERE SHOULD OUR

FACILITIES BE
LOCATED?

XLRI, Jamshedpur Prof. Ajith Kumar 2

 Facility Location

CALL CENTERS IN INDIA

Production & Operations Management

 Availability of English-
speaking manpower.
 Manpower is highly
trainable.
 Adequate technological
infrastructure. Source: https://www.pixabay.com

 Much lower prices (wages) than in the country of origin.

 Government policies are friendly and supportive.

XLRI, Jamshedpur Prof. Ajith Kumar 3

 Facility Location

FACTORS THAT INFLUENCE LOCATION

Production & Operations Management

 Labour
1  Availability.
2  Wages.
 Geographical proximity
3  to customers (markets).
4  to vendors / suppliers.
5  to a port / railhead / highway.
6  to inputs (raw materials, knowledge, capital).
7  to competitors / clusters.
8  one’s own other facilities.
9  utilities such as schools, colleges, shopping &
recreation.
XLRI, Jamshedpur Prof. Ajith Kumar 4
 Facility Location

FACTORS THAT INFLUENCE LOCATION

Production & Operations Management

Capital Investment
10  Real estate prices.
11  Facility set-up costs.

Operating costs (other than labour)

12  Electricity, water, sewage, telephone, maintenance.
13  Local property taxes.
14  Materials and consumables.

Politics & Administration

15  Government support (local / central).
16  Stability.
XLRI, Jamshedpur Prof. Ajith Kumar 5
 Facility Location

FACTORS THAT INFLUENCE LOCATION

Production & Operations Management

Ecology & environment

17  Benefit/harm to local geography (rivers, lakes, hills).
18  Benefit/harm to local flora / fauna.
19  Benefit/harm to local residents including tribes.

The law (local /central)

20  Prohibition on manufacture / sale or a good or service.
21  Concessions (sops) to promote the activity.

Socio-cultural
22  Acceptance/resistance by the local society / culture.

XLRI, Jamshedpur Prof. Ajith Kumar 6

 Facility Location

INDUSTRY CLUSTERS
Production & Operations Management

Cluster: A regional concentration of related firms.

 Chennai + Bangalore & the NCR – automobile manufacturing.
 Gujarat – pharmaceuticals manufacturing.
 Bangalore – IT & ITES.
 Central & Eastern India – Mining and metal making

 companies, suppliers and service providers, as well as government agencies

and other institutions that provide education, information, research and
technical support to a regional economy.

 creates a competitive advantage for that network.

 becomes an enticement for similar industries and suppliers to those
industries to develop or relocate to a region.

Further reading: Porter M. E. (1998), Clusters and the New Economics of

Competition, Harvard Business Review, pp. 7-13.
XLRI, Jamshedpur Prof. Ajith Kumar 7
 Facility Location

SOME NUMERICAL METHODS

Production & Operations Management

Used in location analysis

 Centroid method.
 Load-distance method.
 Factor-score (weighted-score) method.

 These are only some simple techniques, for illustration.

 Numerous other methods & techniques can be used to help
make location decisions such as multi-criteria decision
making techniques, integer linear programming and so on.

XLRI, Jamshedpur Prof. Ajith Kumar 8

 Facility Location

CENTROID METHOD
Production & Operations Management

A supplier to the telecom Customer Tons x, y

industry provides fuel Location Shipped Coordinates
Panchkula 5 (7, 13)
for power generators.
Nayagaon 92 (8, 12)
More than 600 tons are Shoe Island 70 (11, 10)
to be shipped each week Elante Mall 35 (11, 7)
from a warehouse to Mohali 9 (12, 4)
eight major customer Sector 16 227 (13, 11)
locations in and around Airport 16 (14, 10)
Chandigarh. Punjab University 153 (15, 5)

What is the best warehouse location for the supplier? It need

not be one of these eight locations.

XLRI, Jamshedpur Prof. Ajith Kumar 9

 Facility Location

CENTROID METHOD
Production & Operations Management

– Compute the x and the y coordinates of the centroid,

x* and y*, as the weighted averages of x- and y-
coordinates of the respective points.

– We obtain (x*, y*) = (12.4, 9.2).

– It may not be possible to locate the facility exactly at

(12.4, 9.2), hence, locate it nearby where suitable.

XLRI, Jamshedpur Prof. Ajith Kumar 10

 Facility Location

CENTROID METHOD
Production & Operations Management

Is most suitable when:

– the decision maker wants to identify a location
that can be termed as some sort of a “center” of
multiple existing locations.
– there are no pre-identified points for the new
location, to choose from. An open canvas: “the
new location can be anywhere”.
– “centrality” is more important than actual distance
from the new location to existing locations.

XLRI, Jamshedpur Prof. Ajith Kumar 11

 Facility Location

CENTROID METHOD
Production & Operations Management

A firm wises to find a central location for its service.

Business forecasts indicate travel from the central location to
New York City on 20 occasions per year. Similarly, there will
be 15 trips to Boston, and 30 trips to New Orleans. The x, y-
coordinates are (11.0, 8.5) for New York, (12.0, 9.5) for
Boston, and (4.0, 1.5) for New Orleans. What is the best
central location?

(x*, y*) = (8.0, 5.5)

find a suitable location nearby, for the facility

XLRI, Jamshedpur Prof. Ajith Kumar 12

 Facility Location

LOAD-DISTANCE (ld) METHOD

Production & Operations Management

• When distance (or time) is a primary criterion

– Select a location that minimizes the sum of the loads
multiplied by the distance traveled.
– Time may be used instead of distance.

• What is a “load”? Some examples-

– Number of employees working at a facility
– Number of customers visiting that mall per day.
– Weight in tons shipped from or to that place per month.
– Number of trips made per week.

XLRI, Jamshedpur Prof. Ajith Kumar 13

 Facility Location

LOAD-DISTANCE (ld) METHOD

Production & Operations Management

NORMALIZED LOAD-DISTANCE SCORE

Sj = normalized load-distance score for location j.
li = load experienced at facility i.
dij = distance between i and j.

XLRI, Jamshedpur Prof. Ajith Kumar 14

 Facility Location

LOAD-DISTANCE (ld) METHOD

Production & Operations Management

What is the distance between (30, 15) and (60, 75)?

Euclidean distance B
60, 75

Rectilinear distance
A
30, 15

Distance by the best road available

XLRI, Jamshedpur Prof. Ajith Kumar 15

 Facility Location

LOAD-DISTANCE (ld) METHOD

Production & Operations Management

Can be used when:

– It is possible to list a set of options beforehand for
the new location and compute the distances from
each of them to the existing facilities.
• The distances can be of any of the three types.

– When there is no set of options beforehand for the

new location but the distance is always either
Euclidean or rectilinear.
• A search heuristic can be used to find the optimal
location.

XLRI, Jamshedpur Prof. Ajith Kumar 16

 Facility Location

LOAD-DISTANCE (ld) METHOD

Production & Operations Management

A large IIT campus P

wants to set-up a
central photocopying Computer
Students’
Hostels

facility for the benefit Center

of its residents. Q

It has identified 3 Central

Library

potential locations on R

the campus and has to

Classroom
pick one. Faculty
Complex
Residences
Administrative
Block

XLRI, Jamshedpur Prof. Ajith Kumar 17

 Facility Location

LOAD-DISTANCE (ld) METHOD

Production & Operations Management

 Q is the best location.

XLRI, Jamshedpur Prof. Ajith Kumar 18

 Facility Location

LOAD-DISTANCE (ld) METHOD

Production & Operations Management

An electronics vendor has a

3
chain of five retail outlets in the
city of Chandigarh in the
locations shown. The 5
respective coordinates of these
locations and the demands
4
experienced by them, are
known. 1

The vendor has decided to rent

a space in the city for 2

warehousing his stock, to be

able to supply replenishments
to any of the four locations Roads in Chandigarh city follow a grid
when needed. What is the layout.
ideal location for the
warehouse?

XLRI, Jamshedpur Prof. Ajith Kumar 19

 Facility Location

LOAD-DISTANCE (ld) METHOD

Production & Operations Management

Demand
Retail
(units / X Y
outlet
month)
1 320 10 10
2 60 20 4
3 200 22 28
The point (22, 15) gives the minimum load-distance score
4 400 26 15
5 80 12 20

XLRI, Jamshedpur Prof. Ajith Kumar 20

 Facility Location

LOAD-DISTANCE (ld) METHOD

Production & Operations Management

2
(22, 15) is near Sec-19. A
space for warehouse can
be searched near Sec-19.
XLRI, Jamshedpur Prof. Ajith Kumar 21
 Facility Location

FACTOR SCORE METHOD

Production & Operations Management

Is used when:
– there is not just one factor (criterion) but multiple
factors (criteria) that matter to the decision.
– in some cases, distance or time may not be
important.

XLRI, Jamshedpur Prof. Ajith Kumar 22

 Facility Location

FACTOR SCORE METHOD

Production & Operations Management

Arogya Sristhi is assessing three places in Chattisgarh – Raipur, Bhilai and

Korba – for setting up its next clinic. The following table shows the
locations, and their ratings along various factors that are important to the
decision. Each factor carries a weight. A Likert-type scale is used for the
assessment, on which, 1 = poor and 5 = excellent. Apply the factor-score
method to recommend the best site.

Rating
Factor Wt
Korba Bhilai Raipur
Total patient km per month 25 4 2 2
Facility utilization 20 3 4 5
Average time per emergency trip 20 3 3 4
Expressway accessibility 15 4 2 2
Land and construction costs 10 1 4 3
Employee preferences 10 4 5 3

XLRI, Jamshedpur Prof. Ajith Kumar 23

 Facility Location

FACTOR SCORE METHOD

Production & Operations Management

Rating
Factor Wt
Korba Bhilai Raipur
Total patient km per month 25 4 2 2
Facility utilization 20 3 4 5
Average time per emergency trip 20 3 3 4
Expressway accessibility 15 4 2 2
Land and construction costs 10 1 4 3
Employee preferences 10 4 5 3

WSKorba = (25  4) + (20  3) + (20  3) + (15  4) + (10  1) + (10  4) = 330

WSBhilai = (25  2) + (20  4) + (20  3) + (15  2) + (10  4) + (10  5) = 310

WSRaipur = (25  2) + (20  5) + (20  4) + (15  2) + (10  3) + (10  3) = 320

XLRI, Jamshedpur Prof. Ajith Kumar 24