1. FACILITY LOCATION
Piyush Sharma
13101002

2. LOCATION ANALYSIS
Three most important factors in real estate:
1. Location
2. Location
3. Location
Facility location is the process of identifying the best
geographic location for a service or production facility

3. FACTORS AFFECTING LOCATION DECISIONS
 Proximity to source of supply:
Reduce transportation costs of perishable or
bulky raw materials
 Proximity to customers:
High population areas, close to JIT partners
 Proximity to labor:
Local wage rates, attitude toward unions,
availability of special skills (silicon valley)

4. MORE LOCATION FACTORS
 Community considerations:
Local community’s attitude toward the facility (prisons,
utility plants, etc.)
 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.

5. GLOBALIZATION –
SHOULD FIRM GO GLOBAL?
Globalization is the process of locating facilities around
the world
 Potential advantages:
Inside track to foreign markets, avoid trade barriers, gain access
to cheaper labor
 Potential disadvantages:
Political risks may increase, loss of control of proprietary
technology, local infrastructure (roads & utilities) may be
inadequate, high inflation
 Other issues to consider:
Language barriers, different laws & regulations, different business
cultures

6. MAKING LOCATION DECISIONS
Analysis should follow 3 step process:
1. Identify dominant location factors
2. Develop location alternatives
3. Evaluate locations alternatives
Procedures for evaluation location alternatives
include
Factor rating method
Load-distance model
Center of gravity approach
Break-even analysis
Transportation method

7. FACTOR RATING EXAMPLE

8. A Load-Distance Model Example: Matrix Manufacturing is considering
where to locate its warehouse in order to service its four Ohio stores located
in Cleveland, Cincinnati, Columbus, Dayton. Two sites are being considered;
Mansfield and Springfield, Ohio. Use the load-distance model to make the
decision.
 Calculate the rectilinear distance:
 Multiply by the number of loads between each site and the four cities
miles4515401030dAB 

9. CALCULATING THE LOAD-DISTANCE SCORE
FOR SPRINGFIELD VS. MANSFIELD

 The load-distance score for Mansfield is higher than for
Springfield. The warehouse should be located in Springfield.
Computing the Load-Distance Score for Springfield
City Load Distance ld
Cleveland 15 20.5 307.5
Columbus 10 4.5 45
Cincinnati 12 7.5 90
Dayton 4 3.5 14
Total Load-Distance Score(456.5)
Computing the Load-Distance Score for Mansfield
City Load Distance ld
Cleveland 15 8 120
Columbus 10 8 80
Cincinnati 12 20 240
Dayton 4 16 64
Total Load-Distance Score(504)

10. THE CENTER OF GRAVITY
APPROACH
 This approach requires that the analyst find the center of gravity
of the geographic area being considered
 Computing the Center of Gravity for Matrix Manufacturing
 Is there another possible warehouse location closer to the C.G. that
should be considered?? Why?
10.6
41
436
l
Yl
Y;7.9
41
325
l
Xl
X
i
ii
c.g.
i
ii
c.g. 




Computing the Center of Gravity for Matrix Manufacturing
Coordinates Load
Location (X,Y) (li) lixi liyi
Cleveland (11,22) 15 165 330
Columbus (10,7) 10 165 70
Cincinnati (4,1) 12 165 12
Dayton (3,6) 4 165 24
Total 41 325 436

11. BREAK-EVEN ANALYSIS
 Break-even analysis computes the amount of goods
required to be sold to just cover costs
 Break-even analysis includes fixed and variable costs
 Break-even analysis can be used for location analysis
especially when the costs of each location are known
Step 1: For each location, determine the fixed and
variable costs
Step 2: Plot the total costs for each location on one
graph
Step 3: Identify ranges of output for which each location
has the lowest total cost
Step 4: Solve algebraically for the break-even points
over the identified ranges

12. BREAK-EVEN ANALYSIS
 Remember the break even equations used for calculation
total cost of each location and for calculating the
breakeven quantity Q.
Total cost = F + cQ
Total revenue = pQ
Break-even is where Total Revenue = Total Cost
Q = F/(p-c)
Q = break-even quantity
p = price/unit
c = variable cost/unit
F = fixed cost

13. EXAMPLE USING BREAK-EVEN ANALYSIS: CLEAN-CLOTHES
CLEANERS IS CONSIDERING FOUR POSSIBLE SITES FOR ITS
NEW OPERATION. THEY EXPECT TO CLEAN 10,000 GARMENTS.
THE TABLE AND GRAPH BELOW ARE USED FOR THE ANALYSIS.
Example9.6UsingBreak-EvenAnalysis
Location FixedCost VariableCost TotalCost
A $350,000 $5(10,000) $400,000
B $170,000 $25(10,000) $420,000
C $100,000 $40(10,000) $500,000
D $250,000 $20(10,000) $450,000

14. THE TRANSPORTATION METHOD
 Can be used to solve specific location problems
 Is discussed in detail in “Management Science”
 Could be used to evaluate the cost impact of
adding potential location sites to the network of
existing facilities
 Could also be used to evaluate adding multiple
new sites or completely redesigning the network