Professional Documents
Culture Documents
Dr. R K Singh
Professor (Operations) 1
MDI, Gurgaon
Location Strategy
Country Competitiveness
Govt. budget & regulation Quality of judicial &
political institutions
Development
of financial Mkt. Extent to which a national environment is
Conducive or detrimental to business
3
Location Decision
Relevant Factors
4
Location Planning Methods
One facility – Multiple Candidates
Location factor rating
Centre of Gravity Method
Load Distance Method
Multiple Facility – Multiple Candidates
Transportation Model
5
Location factor rating
Steps
Identify and list down all the relevant
factors for the location decision
Establish the relative importance of each
factor in the final decision
Rate the performance of each candidate
location using a rating mechanism
Compute a total score for each location
based on its performance against each
factor and rank them in the decreasing
order of the score
6
Example
A manufacturer of garments is actively considering five alternative
locations for setting up its factory. The locations vary in terms of
the advantages that it provides to the firm. Hence the firm
requires a method of identifying the most appropriate location.
Based on a survey of its senior executives the firm has arrived at
six factors to be considered for final site selection. The ratings of
each factor on a scale of 1 to 100 provide this information.
Further, based on some detailed analysis of both the qualitative
and quantitative data available for each of the location, the rating
for the locations against each factor has also been arrived at (on a
scale of 0 to 100). Using this information obtain a ranking of the
alternative locations.
Factors Rating
Availability of infrastructure 90 Factors Location 1 Location 2 Location 3 Location 4 Location 5
Size of the market 60 Availability of infrastructure 20 40 60 35 55
Size of the market 30 30 40 60 80
Industrial relations climate 50
Industrial relations climate 80 30 50 60 50
Tax benefits and concessions 30 Tax benefits and concessions 80 20 10 20 20
Availability of cheap labour 30 Availability of cheap labour 70 70 45 50 50
Nearness to port 65 Nearness to port 20 40 90 50 60
7
Solution to Example.
Relative
Factors Rating weights
Availability of infrastructure 90 0.28
Overall rating for location 3 = 60*0.28 +
Size of the market 60 0.18
Industrial relations climate 50 0.15
40*0.18 + 50*0.15 + 10*0.09 +
Tax benefits and concessions 30 0.09 45*0.09 + 90*0.20 = 54.77
Availability of cheap labour 30 0.09
Nearness to port 65 0.20
Relative
Factors weights Location 1 Location 2 Location 3 Location 4 Location 5
Availability of infrastructure 0.28 20 40 60 35 55
Size of the market 0.18 30 30 40 60 80
Industrial relations climate 0.15 80 30 50 60 50
Tax benefits and concessions 0.09 80 20 10 20 20
Availability of cheap labour 0.09 70 70 45 50 50
Nearness to port 0.20 20 40 90 50 60
Overall score for the locations 41.23 37.54 54.77 46.46 56.15
Ranking of the locations 4 5 2 3 1
8
Centre of Gravity Method
All the demand points (or the supply points, if raw material is
supplied from several locations) are represented in a Cartesian
coordinate system
Each demand (or the supply point) will also have weight indicating
the quantum of shipment
Therefore it is possible to identify the centre of gravity of the
various demand (or supply) points
Notations:
The number of demand (or supply) points in the grip map: n
Co-ordinates of location i in the grid map: (xi,yi)
Quantum of shipment between existing demand (or supply) point i
and proposed facility: Wi
Co-ordinates of the center of gravity in the grip map: (XC,YC)
n n
( x ) *W
i 1
i i ( y ) *W i i
i 1
XC n
YC n
W
i 1
i W i
9
i 1
Example.
A manufacturer of certain industrial component is interested in
locating a new facility in a target market and would like to know
the most appropriate place in the target market to locate the
proposed facility. The manufacturer feels that there are no location
constraints in the target market (i.e. any point in the target
market is good enough).
There are four supply points A, B, C and D in the locality that will
provide key inputs to the new facility.
The annual supply from these four points to the proposed facility is
200, 450, 175 and 150 tonnes respectively.
The situation is graphically shown in the two-dimensional plot in
the figure. While the coordinates in the parentheses show the
distance from the origin of the target map of each of the supply
point, the number that follows is the annual shipment (in tonnes)
from these points to the proposed facility.
Identify the most appropriate point in the grid map to locate the
new facility.
10
Solution to Example.
Grid Map
600
Distance in Kilometres
A (125,550), 200
500
B (350,400), 450
400
300
D (700,300), 150
200
C (450,125), 175
100
13
Solution to Example.
DA1 ( x A X 1 ) 2 ( y A Y1 ) 2 (125 300 ) 2 (550 500 ) 2 (175 2 (50 ) 2 182 .00
Dij values
1 2 3 4
A 182.00 90.14 425.00 445.11
B 111.80 180.28 158.11 206.16
C 403.89 450.69 230.49 90.14
D 447.21 538.52 206.16 316.23
LDj values
1 2 3 4
224474.41 258801.57 227410.05 245000.8
14
Using
Break-Even Analysis
Break-even analysis can help a
manager compare location alternatives on the
basis of quantitative factors that can be
expressed in terms of total cost.
1. Determine the variable costs and fixed
costs for each site.
2. Plot the total cost lines—the sum of
variable and fixed costs—for all the sites
on a single graph
3. Identify the approximate ranges for which
each location has the lowest cost.
4. Solve algebraically for the break-even
points over the relevant ranges. 15
Break-Even Analysis
16
Step 1.Plot the total cost curves for all
Fixed Costs Total Costs
the communities on a single graph.
Community per Year (Fixed + Variable)
Identify on the graph the approximate
range over which each community A $150,000 $1,390,000
provides the lowest cost. B $300,000 $1,060,000
Annual cost (thousands of dollars) C $500,000 $ 980,000
D $600,000 $1,200,000
1600 A
(20, 1390)
1400
(20, 1200) D
1200 (20, 1060) B
C
1000
(20, 980)
800
Break-even point
600
400 Break-even
point
200
A best B best C best
0
2 4 6 8 10 12 14 16 18 20 22
6.25 14.3
17
© 2007 Pearson Education Q (thousands of units)
Break-Even Solution
(A) (B)
$150,000 + $62Q = $300,000 + $38Q
Q = 6,250 units
(B) (C)
$300,000 + $38Q = $500,000 + $24Q
Q = 14,286 units
18
Multi-facility location problem
Transportation Model
Locating distribution centers for nation-wide
distribution of products is one typical example
belonging to this category
Decisions variables in a multiple location – multiple
candidate problem
Identifying k out of n candidates for locating facilities
Which of the demand points will be served by each of
these locations and to what extent
the problem is one of managing network flows of
satisfying a set demand points using a combination of
supply points
The transportation model is ideally suited for solving
this combinatorial optimisation problem
19
Multiple facilities location problem
Transportation table (Example)
Market 1 Market 2 Market 3 Market 4 Market 5 Supply
100 70 50 30 40
Warehouse A 2900 Problem
30 95 40 125 50
Warehouse B 2300
75 20 65 40 30
Warehouse C 3700
20 40 95 85 80
Warehouse D 1100
20
Location Strategies
21
Location Strategies
22
Location Strategies
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How Hotel Chains Select Sites
Location is a strategically important
decision in the hospitality industry
A five star Hotel started with 35
independent variables and worked to
refine a regression model to predict
profitability
The final model had only four variables
r2 = .51
Price of the inn 51% of the
profitability is
Median income levels predicted by
State population per inn just these four
variables! 24
Location of nearby colleges
The Call Center Industry
28
Facilities Location