IE 443

Facility Layout
FACILITIES IN THE MANUFACTURING CONTEXT
• In the manufacturing context, a facility is a place
where raw materials, processing equipment, and
people come together to make a finished product.
Logistics Management
• Logistics management can be defined as the management of the
transportation and distribution of goods.
Goods
• Raw materials
• Subassemblies obtained from suppliers
• Finished goods shipped from plants to warehouses or customers
• Logistics management includes all distribution and transportation
activities from suppliers through to customers.
• Logistics management is the management of a series of macro-level
transportation and distribution activities with the main objective of
delivering the right amount of material at the right place at the right
time at the right cost using the right methods.
• The decisions typically encountered in logistics management concern
facility location, transportation and goods handling and storage.
Location Problems: Logistics management problems can be classified into three categories:

• Location Problems involve determining the location of one or more

new facilities in one or more of several potential sites. The number
of sites must at least equal the number of new facilities being located.
• The cost of locating each new facility at each of the potential sites is
assumed to be unknown.
• It is the fixed cost of locating a new facility at a particular site plus the
operating and transportation cost of serving customers from this
facility-site combination.
Allocation Problems:
• Allocation Problems assume that the number and location of facilities
are known and attempt to determine how each customer is to be
served.
• That is, given the demand for goods at each customer center, the
production or supply capacities at each facility, and the cost of serving
each customer from each facility, the allocation problem determined
how much each facility is to supply to each customer center.
• Location – Allocation Problems:
• Location – Allocation Problems involve determining not only how
much each customer is to receive from each facility but also the
number of facilities along with their locations and capacities.
Classification of Facility Location
Problems
• Facility Location problems can be classified as:
• Single-Facility Location Problems
Single-Facility location problems deal with the optimal
determination of the location of a single facility.
• Multifacility Location Problems
Multifacility location problems deal with the simultaneous
location determination for more than one facility.
• Generally, single-facility location problems are location problems, but
multifacility location problems can be location as well as location-
allocation problems.
• Another classification of location problems is based on whether the
set of possible locations for a facility is finite or infinite
• Continuous Space Location Problem
If a facility can be located anywhere within the confines of
a geographic area, then the number of possible locations
is infinite, and such a problem is called a Continuous
Space Location Problem.
• Discrete Space Location Problem
Discrete Space Location Problems have a finite feasible set
of sites in which to locate a facility.
• Because facilities can be located anywhere in a two-dimensional
space, sometimes the optimal location provided by the continuous
space model may be infeasible. For example, a continuous space
model may locate a manufacturing facility on a lake!
Facility Location Problem

• The facility location problem consists of selecting

a site for new facilities that will minimize the
production and distribution cost of products
and/or services to potential customers.
Reasons for considering
Location Problems
• Significant changes in the level of demand,
• Significant changes in the geographical distribution of demand,
• Changes in the cost or quality requirements of critical production
inputs (labor, raw materials, energy or others),
• Significant increases in the real-estate value of existing or adjacent
sites or in their taxation,
• Need to change as a result of fire or flood for reasons of prestige or
improved public relations.
Alternatives to New Location
• The increase of existing capacity by additional shifts or
overtime, especially for capital-intensive systems.
• The use of seasonal inventories to reduce the need for
maintaining capacity for peak demand.
• The use of subcontractors.
• The purchase of new equipment for the present location.
Important Factors in Location
Decisions
• Production inputs (raw materials, human resources,
etc...),
• Process techniques,
• Environmental factors
• The availability and reliability of supporting systems
• Social and cultural conditions
• Legal and political considerations.
 Examples
• If we are trying to determine the location of a
manufacturing facility in a foreign country, factors
such as;
• Political stability,
• Foreign exchange rates,
• Business climate,
• Duties, and
• Taxes play a role.
 Examples
If the scope of the location problem is
restricted to few communities, the factors like;
• Community services,
• Property tax incentives,
• Local business climate, and
• Local government regulations
are important.
 Factors that affect Location
Decisions
• Proximity to source of raw materials,
• Cost and availability of energy and utilities,
• Cost, availability, skill and productivity of labor,
• Government regulations at the federal, state, county and local levels,
• Taxes at the federal, state, county and local levels,
• Insurance,
• Construction costs and land price,
• Government and political stability,
• Exchange rate fluctuation,
• Export and import regulations, duties and tariffs,
 Factors that affect Location
Decisions
• Transportation system,
• Technical expertise,
• Environmental regulations at the federal, state, county and local levels,
• Support services,
• Community services – schools, hospitals- recreation and so on,
• Weather,
• Proximity to customers,
• Business climate,
• Competition-related factors.
Location Decision-AHP
Example:

• Suppose that the Waterstill Manufacturing Company

has narrowed its choice down to two locations, city A
and city B. all cost calculations have been made and
there is no clear-cut distinction. In fact, for simplicity,
assume that all costs are equal at the two locations.
How can the decision be made?
Step 1: make a list of all important factors. Noncost factors in plant
location:

(1) Nearness to market (12) Churches and religious facilities

(2) Nearness to unworkerked goods (13) Recreational opportunities
(3) Availability of power (14) Housing
(4) Climate (15) Vulnerability to air attacks
(5) Availability of water (16) Community attitude
(6) Capital availability (17) Local ordinances
(7) Momentum of early start (18) Labor laws
(8) Fire protection (19) Future growth of community
(9) Police protection (20) Medical facilities
(10) Schools and colleges (21) Employee transportation facilities
(11) Union activity
• Step 2: assign relative point values for each of the factor for specific
company and plant to be located. Therefore, maximum point values
for each factor:
Factor-Value Factor-Value Factor-Value
1 - 280 8 - 10 15 - 10
2 - 220 9 - 20 16 - 60
3 - 30 10 - 20 17 - 50
4 - 40 11 - 60 18 - 30
5 - 10 12 - 10 19 - 30
6 - 60 13 -20 20 - 10
7 - 10 14 - 10 21 - 20
• Step 3: assign degrees and points within each factor. Usually, from 4 to
6 degrees are used with linear assignment of points between degrees.
• Degrees and points for factor 16 (community attitude):

• Degrees Point Assignment

•0 Hostile, bitter, noncooperative 0
•1 Parasitic in nature 15
•2 Noncooperative 30
•3 Cooperative 45
• Maximum Friendly and more than cooperative 60
At this point Waterstill has its
evaluation scheme completely
defined, so it
now must assign each of the
two locations (A and B)
degrees and
corresponding points for each
factor. The hypothetical
results are;

Waterstill now can compare these results

with the cost calculations and make a
decision. City A has a total point value of 719
compared to 643 for City B.
City A would probably be preferred since all
cost calculations were assumed
equal.
At this point Waterstill has its
evaluation scheme completely
defined, so it
now must assign each of the
two locations (A and B)
degrees and
corresponding points for each
factor. The hypothetical
results are;

Waterstill now can compare these results

with the cost calculations and make a
decision. City A has a total point value of 719
compared to 643 for City B.
City A would probably be preferred since all
cost calculations were assumed
equal.
Techniques for Discrete Space
Location Problems
The single facility for which we seek a location may be;
• The only one that will serve all the customers,
• An addition to a network of existing facilities that are already serving
customers.
1. Qualitative Analysis
2. Quantitative Analysis
3. Hybrid Analysis
 Qualitative Analysis
• Qualitative Analysis => Location Scoring Method
• This is a very popular, subjective decision-making tool that is relatively easy
to use.
• Qualitative Analysis consists of these steps:
Step 1: List all the factors that are important – that have an impact on the
location problem.
Step 2: Assign an appropriate weight (typically between 0 and 1) to each
factor based on the relative importance of each.
 Qualitative Analysis
Step 3: Assign a score (typically between 0 and 100) to
each location with respect to each factor indentified in
step 1.
Step 4: Compute the weighted score for each factor for
each location by multiplying its weight by the
corresponding score.
Step 5: Compute the sum of the weighted scores for each
location and choose a location based on these scores.
Example
• A payroll processing company has recently won several major
contracts in the Midwest region of the United States and Central
Canada, and wants to open a new, large facility to serve these areas.
Because customer service is so important, the company wants to be
as near its “customers” as possible. A preliminary investigation has
shown that Minneapolis, Winnipeg, and Springfield are the three
most desirable locations, and the payroll company has to select one
of these. Using the location scoring method (Qualitative Analysis),
determine the best location for the new payroll processing facility.
Solution
• A through investigation of each location with respect to eight
important factors generated the raw scores and weights listed in the
table below.
Weighted scores for the 3 locations:
Profitability Analysis

• According to costs

Calculate return rate

And select highest rate

Profitability Analysis
Facilities
A B C
ANNUAL SALES 600.000 615.000 575.000
SALES COSTS 30.000 25.000 20.000
TOTAL MANUFACTURING 150.000 160.000 14.000
COSTS
CAPITAL COSTS 1.000.000 900.000 1.200.000

Profit = Annual sales- Total cost

Total Cost = Total manufacturing costs + Sales costs

Return Rate = Annual Profit / Capital Cost

• Facility A:

• Total cost = 150000 + 30000 = 180000

• Annual Profit = 600000-180000=420000

• Return Rate = 420000/1000000 = 0.42

Facility Return Rate

A 0.42

B 0.4778

C 0.346
break-even analysis
• Break-even analysis

• geographical coordinates method