Unit 6 - Locations Decision
Unit 6 - Locations Decision
• Location is a major
revenue factor
– Affects amount of
customer contact
– Affects volume of
business
Site
Total Cost =Total Fixed Cost + (Variable Cost Per Unit x Volume)
–
$110,000 – n
– G r ee
g ve
– owlin t cur
s
$80,000 – B co
– o st
c
$60,000 – on e
r v
– Ak c u r
–
Akron Chicago
$30,000 – Bowling Green
lowest lowest cost
– lowest cost
cost
$10,000 –
| | | | | | |
–
0 500 1,000 1,500 2,000 2,500 3,000
5/15/2011 Prepared By: Sandeep Shrestha
Volume 26
The fixed cost and variable costs for three potential
manufacturing plant sites for a chair weaver are
shown below:
Site Fixed Cost per Year Variable Cost per Unit
1 Rs. 500 Rs. 11
2 1,000 7
3 1,700 4
Critical Scores
Success (out of 100) Weighted Scores
Factor Weight France Denmark France Denmark
Labor
availability
and attitude .25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0
People-to-
car ratio .05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0
Per capita
income .10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0
Tax structure .39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3
Education
and health .21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7
Totals 1.00 70.4 68.0
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Insight:
By changing the points or weights slightly for those
factors about which there is some doubt, we can
analyze the sensitivity of the decision. For instance, we
can see that changing the scores for “labour availability
and attitude" by 10 points can change the decision. The
numbers used in factor weighting can be subjective and
the model's results are not "exact" even though this is a
quantitative approach.
Learning Exercise:
If the weight for "tax structure" drops to .20 and the
weight for "education and health” increases to .40, what
is the new result? [Answer: Denmark is now chosen,
with a 68.0 vs. a 67.5 for France.]
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Case
A business group has planned to establish a new
sugar factory in Nepal. They have made a feasibility
study that showed very good opportunity to invest
money in this sector. They have made series of
decisions regarding location, layout and facility
selection.
∑diyQi
ii
y - coordinate =
∑i Qi
where dix = x-coordinate of
location i
diy = y-coordinate of
location i
Qi = Quantity of goods
5/15/2011
moved to or from location i
Prepared By: Sandeep Shrestha 45
Center-of-Gravity Method
Quain’s Discount Department Stores, a chain of four large Target-type outlets, has
store locations in - Chicago, Pittsburgh, New York, and Atlanta; they are currently
being supplied out of an old and inadequate warehouse in Pittsburgh, the site of the
chain's first store. The firm wants to find some "central” location in which to build
a new warehouse.
North-South
New York (130, 130)
Chicago (30, 120)
120 –
Pittsburgh (90, 110)
90 –
60 –
Atlanta (60, 40)
30 –
| | | | | |
East-West
30 60 90 120 150
Arbitrary
–origin
5/15/2011 Prepared By: Sandeep Shrestha 46
Center-of-Gravity Method
Number of Containers
Store Location Shipped per Month
Chicago (30, 120) 2,000
Pittsburgh (90, 110) 1,000
New York (130, 130) 1,000
Atlanta (60, 40) 2,000
60 –
| | | | | |
– East-West
30 60 90 120 150
Arbitrary
origin
5/15/2011 Prepared By: Sandeep Shrestha 49
Insight:
By overlaying a U.S. map on this exhibit, we find this
location is near central Ohio. The firm may well wish to
consider Columbus, Ohio, or a nearby city as an
appropriate location. But it is important to have both
North-South and East-West interstate highways near the
city selected to make delivery times quicker.
Learning Experience:
The number of containers shipped per month to Atlanta
is expected to grow quickly to 3,000. How does this
change the center of gravity, and where should the new
warehouse be located?
[Answer: (65.7, 85.7), which is closer to Cincinnati, Ohio
Project B
(Fountain) $24 Plant X (Wilson)
102 loads 82 loads available
$8 required $8
$16
$16
Project C
(Ayden)
Plant Y (Bethel) $24 41 loads
77 loads available required
To Plant
Project A Project B Project C
From capacity
WA 4 WB 8 WC 8
Plant W 56
x1 x2 x3
XA 16 XB 24 XC 16
Plant X 82
x4 x5 x6
YA 8 YB 16 YC 24
Plant Y 77
x7 x8 x9
Project 215
requirements 72 102 41 215