Logistics&FacilityLocation

Logistics and Facility Location : 

Logistics and Facility Location Selected Slides from Jacobs et al, 9th Edition Operations and Supply Management Chapter 11 Edited, Annotated and Supplemented by Peter Jurkat

What is Logistics? : 

What is Logistics? The movement of goods through the supply chain “the art and science of obtaining, producing, and distributing material and product in the proper place and in proper quantities” 11-2

Facility Location : 

Facility Location Decisions How to best transport goods Modes of transportation Truck, ship, rail pipelines Warehouses Consolidation Cross Docking Hub-and-Spoke systems Facility Location Issues Proximity to Customers Business Climate Total Costs Infrastructure Quality of Labor Suppliers Other Facilities Free Trade Zones Political Risk Government Barriers Trading Blocs Environmental Regulation Host Community Competitive Advantage Clusters Country Characteristics memo: chose an organization with globalization goals and investigate various countries as to their desirability for locating a facility there with regard to one of the issues in red. Short memo and at most 4 slides; teams of up to four. Define the terms (e.g., quality of labor) , provide operational definitions of relevant quantitative(?) measure, and give references for further details. Presentation by one team for each issue selected at random.

Location DecisionFactor-Rating Method : 

Location DecisionFactor-Rating Method Popular because a wide variety of factors can be included in the analysis Six steps in the method Develop a list of relevant factors (often called critical success factors) Assign a weight to each factor (relative importance) Develop a rating scale (extent of desirability) for each factor Rate each location for each factor Multiply rates by weights for each factor and add for each location Recommend the location with the highest point score What are some factors that are usually not formally considered? Text describes ratings as combined weight x desirability; although equivalent people often think that separation allows more “objectivity”.

Factor-Rating Example : 

Factor-Rating Example See FactorRatingWorksheet.xlsx Suppose one of the factors is cost. The ratings can then be calculated in several ways.

Location Cost Analysis : 

Location Cost Analysis Four common methods (among others?) Break-even analysis compares locations on volume necessary to break-even if located there Transportation method allows minimization of cost or maximization of profit for combinations of factories (sources), warehouses (sources and destinations), and retail/customer locations (destinations) Center of gravity methods finds best location of a source among several destinations based on cost or distance and/or time weighed by volume Intervening opportunity method based on the willingness (probability) of customers travel to a destination among several other similar destinations Regression models find relationship between a location success measure (e.g., sales) and location characteristics

Location DecisionBreak-Even Analysis Example : 

Location DecisionBreak-Even Analysis Example Three locations: Total Cost = Fixed Cost + (Variable Cost x Volume) Total Revenue = Price x Volume Break-even volume = (FC1 – FC2)/(VC2 – VC1) Selling price = $120 Expected volume = 2,000 units Expected revenue = $240,000 BEV A vs. B = 1000 BEV A vs. C = 380 BEV B vs. C = 2500 See Ch07_BreakEvenAnalysis_Template.xlsx for any volume

Transportation Method Example : 

Transportation Method Example Minimizes total cost of shipments from several factories (rows) to several warehouses (columns) subject to factory production limits and warehouse demands Date often presented as follows but for computation in Excel need two separate arrays, one for costs and other for actual shipments See Ch11_4x4_US_Pharmaceutical.xlsx - need to build a new spreadsheet for each (n, m)

Location DecisionCenter-of-Gravity Method : 

Location DecisionCenter-of-Gravity Method Finds location of distribution center that minimizes distribution costs Considers Location of markets Volume of goods shipped to those markets Shipping cost (or distance) Place existing locations on a coordinate grid Calculate X and Y coordinates for ‘center of gravity’ Assumes cost is directly proportional to straight line distance and volume shipped Averages distances weighted by amount to be shipped (not inverse square) “Airline distance” (diagonal of triangle) “City block distance” (base + height of triangle) diagonal any destination (xi,yi) (0,0) (xc,yc) height base Consider (xc,yc) potential source (center of gravity)

Location DecisionCenter-of-Gravity Method : 

Location DecisionCenter-of-Gravity Method City block distances See Ch11_Centroid_Method_Template.xlsx for city-block distances See AirlineDistanceCenterOfGravityLocationModel.xlsx for airline distances

Inerv : 

Inerv Used as if a traveler wishes to got to a facility of a particular type (e.g., fast food, shopping mall, food store, movie, club) Rank destinations by distance/cost and assign the destination index i such that di < dj for i < j (means destination1 is nearest, destination2 is next furthest, … , destinationn is furthest away) For each potential destination assign a probability, Pi, of it being chosen regardless of distance (i.e., as if they were all equidistant) – preference for competitor? Then probability of choosing destination i Pci = K(1 – P1)(1 – P2)…(1 – Pi-1)Pi K chosen so that sum of all probabilities = 1 Probabilities estimated from surveys and/or actual traffic Intervening Opportunity Model

Slide 12: 

11-12 Initial location characteristics and other independent variables for a regression model of hotel success (profitability) – others added during analysis Final model included state population/inn, price, square root(median income), and college students within 4 miles (p395)

Geographic Information Systems (GIS) : 

Geographic Information Systems (GIS) After regression analysis gather data for independent variables of the candidate geographic areas Important tool to help in location analysis - enables more complex demographic analysis Available data bases include Detailed census data Detailed maps Utilities Geographic features Locations of major services See http://www.gis.com/, a commercial site by ESRI, http://gislounge.com/, http://opensourcegis.org/ ….

Geographic Information Systems (GIS) : 

Geographic Information Systems (GIS)