Facility Location and Facility

Layout

Strategic Importance
Supply-chain management is critical
Facility locationintrinsically related to SCM
Examples:
FedEx: While opening a hub for Asia in Philippines
1995
it had to evaluate several sites
Linking its American (Memphis) and European (Paris) Hubs
BTW, the facility was closed and the new hub since 2009 is
in Guangzhou, Southern China

Mercedes first overseas plant in Vance, Alabama

Evaluated 170 sites in 30 states and 2 countries

Hard Rock Caf location in Moscow in 2002

Took 3 years of advance planning
Russian Food Supply Chain

Facility Location
Global Nature of Location Decision
Objective: Maximize the benefit of location
to a firm
Marketing Strategy: New Markets
Global Growth: New Markets and supply chain
considerations
Cost of Doing Business: Attractive alternatives to
relocate business elsewhere

Location Options
Expand existing facility
Add new location while retaining existing
location
Close existing operation and move to a
new location

Location Decision Factors

Country Factors

Community Considerations

Regional Factors

Site-related Factors

Site Selection Factors (Country and

Region)
Country

Government stability
Government regulations
Political and economic systems
Economic stability
Exchange rates
Culture
Climate
Export and import regulations,
duties and fees

Raw material availability

Number and proximity of suppliers
Transportation system
Labor pool and cost
Available technology
Commercial travel
Technical expertise

Region

Labor (availability, cost and unions)

Proximity of customers
Number of customers
Construction/leasing costs
Land costs
Modes and quality of transportation
Transportation costs

Government regulations
Environmental regulations
Raw material availability
Commercial travel
Climate
Utilities

Site Selection Factors -(Community and

Site)
Community

Community government
Local business regulations
Environmental regulations
Government services
Business climate
Community services
Transportation system
Proximity of customers
Concentration of customers

Taxes
Construction/leasing costs
Land cost
Availability of sites
Financial Services
Labor pool
Community inducements
Proximity of suppliers

Site

Customer base
Construction/leasing cost
Land cost
Site size
Transportation
Utilities

Zoning restrictions
Traffic
Safety/security
Competition
Area business climate
Income level

Some Facts: Location Decisions

Globalization: A two way street for Americans

Labor costs and productivity issues
Worker skills: e.g. call centers and CPA jobs to India.
Government Incentives: Alabama gave $169K per job in
tax incentives to Mercedes in 1993
Sunbelt is growing
Attitudes with respect to: pollution, zoning, intellectual
property, unionism, turnover, absenteeism, punctuality,
bribe, ethics, etc.
Proximity
Markets
Suppliers
Competition (clustering)

Evaluating Locations
Factor Rating (The Scoring Model)
Decision based on quantitative and qualitative
inputs

Center of Gravity Method

Decision based on minimum distribution costs

Transportation Model
Decision based on movement costs of raw
materials or finished goods

Location Factor Rating

Scores (0 to 100)
Location Factor
Weight
Labor pool and climate
.30
Proximity to suppliers
.20
Wage rates
.15
Community environment .15
Proximity to customers .10
Shipping modes
.05
Air service
.05

Site 1
80
100
60
75
65
85
50

Site 2
65
91
95
80
90
92
65

Site 3
90
75
72
80
95
65
90

More

Location Factor Rating

(Weighted Scores)
Weighted Scores
Location Factor
Labor pool and climate
Proximity to suppliers
Wage rates
Community environment
Proximity to customers
Shipping modes
Air service

Site 1
24.00
20.00
9.00
11.25
6.50
4.25
2.50

Site 2
19.50
18.20
14.25
12.00
9.00
4.60
3.25

Site 3
27.00
15.00
10.80
12.00
9.50
3.25
4.50

Total Score

77.50

80.80

82.05

Center of Gravity Technique

n

xiWi

i=1
y2

2 (x2, y2), W2

x=

y1

1 (x1, y1), W1

i=1

x2

x3

Wi

Wi

i=1

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

3 (x3, y3), W3
y3

x1

y=

yiWi

i=1

Ex: Locate a warehouse to serve the

following four cities with given demand
Location

Demand (Millions) Coordinates

(Weights)

___________________________________
__
Dallas
1
(8,3)
LA
3
(0,4)
New York
3
(14,8)
Chicago
2
(10,7)

Transportation Method
Ex: W.A.T., Inc - Currently maintains
plants in Atlanta and Tulsa to supply to
major distribution centers in Los Angeles
and New York City. Because of an
expanding demand, WAT Inc. has decided
to open a new plant and has narrowed the
choice to one of the two cities--New
Orleans and Houston. Use the following
to arrive at a solution.

Production & Shipping Cost/Unit

--------------------------------------------

Capacity

From\To
LA
NY
---------------------------------------------------------------------------------Atlanta
14
11
600
Tulsa
9
12
900
Houston*
10
7
500*
New Orleans*
9
11
500*
---------------------------------------------------------------------------------Demand
800
1200
* Proposed sites

Least Cost Cell Allocation

Quick and dirty way to find a reasonably

good (but not necessarily an optimal)
solution.

For cost minimization problems,

1. Identify least cost cell and allocated the
maximum feasible quantity to that cell.
2. Cross out rows and columns that have
exhausted demand/capacity.
3. In case of tie between cells with least
cost, select the cell that can
accommodate the maximum quantity.

Total Cost =

Total Cost =

Facility Layout

The Need for Layout Decisions

Inefficient operations
Changes in the design
of products or services

For Example:

High Cost
Bottlenecks

Accidents
The introduction of new
products or services
Safety hazards

The Need for Layout Designs

(Contd)
Changes in
environmental
or other legal
requirements

Changes in volume of
output or mix of
products
Morale problems

Changes in methods
and equipment

Layout: Definition
Physical Arrangement Of Resources
Needed To Produce Goods And Services
(Machines, raw materials, personnel, wip,
finished goods, material handling systems,
etc.)

Objectives:
Better Material Movement
Reduced Bottlenecks
Avoid Machine Interference
Boost Morale
Safety
Support Flexibility
Efficient Utilization Of Space
Etc.
Facility Layout and Material Handling system should be
designed concurrently

MATERIAL HANDLING SYSTEM

DEFINITION: The entire network of
transportation in the facility.
Receives Material,
Stores,
Moves Between Processes,
Deposits Products For Shipping.

EXAMPLES:

Conveyors, cranes, elevators, motorized

trucks, automated guided vehicles, etc.

Types of Layouts (depends on process

Technology)
PRODUCT LAYOUT (FLOW SHOP)
ASSEMBLY LAYOUT. Arrangement of processes
facilitates progressive steps in production.
Layout that uses standardized processing operations
to achieve smooth, rapid, high-volume flow

PROCESS LAYOUT (JOB SHOP)

Similar functions are grouped together
Layout that can handle varied processing
requirements

Types of Layouts (Continued)

FIXED POSITION LAYOUT
Layout in which the product or project remains
stationary, and workers, materials, and
equipment are moved as needed

GROUP TECHNOLOGY/CELLULAR
LAYOUT
A combination of process and product
layout. It attempts to combine the benefits
of both the product layout as well as the
process layouts. More on this later.

A Product Layout
In

Out

A Process Layout
Lathe Department

Milling
Department

Drilling Department

Grinding
Department
Receiving and
Shipping

P
P
Painting Department

Assembly

A Comparison of Product and Process Layouts

PRODUCT LAYOUT

1. Description
2. Type of Process

3. Product
4.
5.
6.
7.
8.

Demand
Volume
Equipment
Workers
Inventory

9. Storage space
10.Material handling

Sequential arrangement
of machines
Continuous,
mass production,
mainly assembly
Standardized
made to stock
Stable
High
Special purpose
Limited skills
Low in-process,
high finished goods
Small
Fixed path
(conveyor)
more

PROCESS LAYOUT

Functional grouping
of machines
Intermittent, job shop,
batch production,
mainly fabrication
Varied,
made to order
Fluctuating
Low
General purpose
Varied skills
High in-process,
low finished goods
Large
Variable path
(forklift)

A Comparison of Product and Process Layouts,

continued
PRODUCT LAYOUT

11. Aisles
12.Scheduling
13.Layout decision
14.Goal
15.Advantage

Narrow
Part of balancing
Line balancing
Equalize work at
each station
Efficiency

PROCESS LAYOUT

Wide
Dynamic
Machine location
Minimize material
handling cost
Flexibility

10

PRODUCT LAYOUT
Machines are arranged in the sequence of
operations needed for production. (e.g.
Assembly lines)
ASSEMBLY LINE BALANCING: aim is
to assign all tasks to a series of
workstations so that each workstation is
synchronized and idle time is minimized.

TERMS:
CYCLE TIME: Time between units
coming off the end of an assembly line.
(Cycle time is the maximum time allowed at each
workstation to complete its set of tasks on a unit.)

TASKS: Small element of work that

cannot be conveniently fragmented
further.
TASK TIME: Time needed to complete
one unit of task by a well trained worker.

STEPS IN LINE BALANCING

1. Draw precedence diagram
2. Find cycle time (c)
C = PRODUCTION TIME/DAY
OUTPUT UNITS/DAY

3. Find NT (Theoretical Minimum Number

Of Workstations)
NT = SUM OF TASK TIMES (T)
CYLCE TIME (C)

11

STEPS IN LINE BALANCING

(Contd.)

4. Select and use assignment heuristic.

1. THE LARGEST-OPERATION-TIME
(Assign tasks in the order of longest
operation time first).
2. THE LARGEST-NUMBER-OFFOLLOWING-TASKS
Assign tasks in the order of largest number of
following tasks.

5. Determine efficiencies
6. Rebalance (if desired and necessary)

Example-1
Making dry-board
eraser requires the
following tasks.
How will meet your
production goal of
producing 60
erasers per hour.

Station

Task

Task Time

Time
(second
s)

Task

Task Description

Print and Cut

Labels

30

Cut high-density
foam

55

Cut felt piece

25

Glue all piece

together

60

Box for shipping

30

Time Left

Tasks Ready

Efficiency

12

EXAMPLE-2
Given in the following table are the steps necessary for
final assembly of an electronic organ. Suppose that
the production goal is 200 organs per 8-hour shift.
Determine
1) longest cycle time.
2) minimum number of stations (theoretical),
3) task assignments to workstations,
4) efficiencies of each work station and overall
efficiency. (Use the longest-operations-time-first
heuristic, break any tie using the largest-numberof-following-task heuristic)

Homework: Repeat the problem using rule #2

(break ties using rule #1)

Station

Task

Task Time

Time Left

Tasks Ready

Efficiency

13

Example 3
Refer to Problem-2. Suppose the
production goal has been changed to 400
organs per 8-hour shift.
How will it affect:
the cycle time?
Number of station?

Do you see any problem?

How will deal with the situation?

Station

Task

Task Time

Time Left

Tasks Ready

Efficiency

Example 4
Repeat the problem 2 using rule #2
(break ties using rule #1)

14

D
G

Task

E
I

B
F

J
K

Station

Task

Task Time

Time Left

Tasks Ready

# of
following
Task

Efficiency

Process Layout
Block Diagramming
Objective is to minimize material handling
costs
Departments with
High interaction--should be located closely
Low interaction--could be located away from each
other

Departments with high interactions with many

department should be centrally located

15

 Locate 6 Departments in an office space

that is arranged in a 2X3 grid:

A
B
C
D
E
F

Executive Office
Stress Laboratory
Group Dynamics Lab
Research Writing lab
Marketing Office
Word processing/ Mail Room

Example: Given the following Locate the 6 departments (A-F)

in a 2 X 3 grid.

16

Scoring
Dept Pairs
Distance
===========================
Adjacent
0
Separated by 1 dept
1
Separated by 2 dept.
2
-----

Process Layout (Second Technique)

Systematic Layout Planning (SLP)
Often, qualitative factors (rather than
numerical flow between departments) are
more relevant in a process layout

Steps
1. Develop relationship chart
2. Develop initial relation diagram
3. Develop initial layout (ignore space and building
constraints)
4. Develop final layout.

17

Example
Layout a Department Store with 5
Departments
1. Credit Department
2. Toy Department
3. Wine Department
4. Camera Department
5. Candy Department

Closeness Values

Relationship Chart

18