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Davis-location is the function of determining where

the plant should be located for max. operating
economy and effectiveness.
 Facility location is the process of identifying the
best geographic location for a service or
production facility
Factors affecting location decisions:
1 input related factors: raw materials, human
resources, capital and technology
2 output related factors: marketing, economic
impacts
3 other factors: climate, political stability,
government regulation
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 Proximity to source of supply:

 Reduce transportation costs of perishable or
bulky raw materials
 Proximity to customers:
 E.g.:high population areas
 Proximity to labor:
 Local wage rates, attitude toward unions,
availability of special skills
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 Community considerations:
 Local community’s attitude toward the facility
(e.g.: prisons)
 Site considerations:
 Local zoning & taxes, access to utilities, etc.
 Quality-of-life issues:
 Climate, cultural attractions, commuting time,
etc.
 Other considerations:
 Options for future expansion, local
competition, etc.
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Objectives
To expand existing facility
To add new location while retaining
existing one.
Shut down at one location and move to
another
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Issues in Facility Location

Free Trade Zones: closed facility into
which foreign goods can be brought
without being subject to custom
requirements.
 Political Risk
 Government Barriers
 Trading Blocs
 Environmental Regulation
 Competitive Advantage
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Plant Location Methodology: Factor Rating
Method Example
Two refineries sites (A and B) are assigned the
following range of point values and respective points,
where the more points the better for the site location.
Sites
Major factors for site location Pt. Range A B
Fuels in region 0 to 330 123 156
Power availability and reliability 0 to 200 150 100
Labor climate 0 to 100 54 63
Living conditions 0 to 100 24 96
Transportation 0 to 50 45 50
Water supply 0 to 10 4 5
Climate 0 to 50 8 4
Supplies 0 to 60 5 50
Tax policies and laws 0 to 20 Best Site
5 20 is B
Total pts. 418 544
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Plant Location Methodology: Transportation

Method of Linear Programming

 Transportation method of linear

programming seeks to minimize
costs of shipping n units to m
destinations or its seeks to
maximize profit of shipping n units
to m destinations
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Plant Location Methodology:

Centroid Method
 The centroid method is used for
locating single facilities that considers
existing facilities, the distances
between them, and the volumes of
goods to be shipped between them
 This methodology involves formulas
used to compute the coordinates of the
two-dimensional point that meets the
distance and volume criteria stated
above
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Plant Location Methodology: Centroid

Method Formulas

Cx =
∑d V ix i
Cy =
∑d V iy i

∑V i ∑V i

Where:
Cx = X coordinate of centroid
Cy = X coordinate of centroid
dix = X coordinate of the ith location
diy = Y coordinate of the ith location
Vi = volume of goods moved to or from ith
location
Plant Location Methodology: Example
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of Centroid Method
 Centroid method example
 Several automobile showrooms are
located according to the following
grid which represents coordinate
locations for each showroom
S ho wro o m No o f Z-Mo b ile s
Y s o ld p e r mo nth
Q
(790,900)
A 1250
D
(250,580)
D 1900
A
(100,200)
(0,0) X Q 2300

Question: What is the best location for a new Z-Mobile

warehouse/temporary storage facility considering only
distances and quantities sold per month?
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Plant Location Methodology: Example of Centroid Method

(Continued): Determining Existing Facility Coordinates
Y
To begin, you must identify the Q
existing facilities on a two- (790,900)

dimensional plane or grid and D

(250,580)
determine their coordinates.
A
(100,200)

(0,0) X

S ho wro o m No o f Z-Mo b ile s

You must also have the
volume information on the
business activity at the
existing facilities.
s o ld p e r mo nth
A 1250
D 1900

Q 2300
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Plant Location Methodology: Example of Centroid Method

(Continued): Determining the Coordinates of the New
Facility
You then compute the new coordinates using the formulas:
100(1250) + 250(1900) + 790(2300) 2,417,000
Cx = = = 443.49
1250 + 1900 + 2300 5,450
200(1250) + 580(1900) + 900(2300) 3,422,000
Cy = = = 627.89
1250 + 1900 + 2300 5,450

You then take the coordinates and place them on the map:
Y
S ho wro o m No o f Z-Mo b ile s
Q New s o ld p e r mo nth
(790,900)
location
Z
D
(250,580) of facility A 1250
Z about
A D 1900
(100,200) (443,627)
(0,0) X Q 2300