1、Location and Distribution(Henry C.Co)1Location and DistributionHenry C.CoTechnology and Operations Management,California Polytechnic and State UniversityLocation and Distribution(Henry C.Co)2ContentsLocation lImportance of LocationlSystematic Decision ProcessFactor RatingCost-volume AnalysisLocation
2、al Breakeven AnalysisSingle Facility Location Multi-Facility LocationDistributionlThe Transportation ProblemlThe Transportation Problem with Lost SalesIt is not about time!Location and Distribution(Henry C.Co)3Importance of LocationLocation and Distribution(Henry C.Co)4“Location,Location,Location!”L
3、ocation decisions for residential homes are important because lThey affect travel time to work,to school,to recreational centers,and to shopping malls.lA home in a good school district is particularly important for most parents with school-age children.lA home in a“bad”neighborhood means the residen
4、ts are exposed to higher risk of crimes and drugs,while a home is a“good”neighborhood is a source of pride and status.Location and Distribution(Henry C.Co)5Location decisions are important to business organizations because lThey affect the cost of doing business,and the flow of goods and services.Th
5、e faster the flow of goods and service in one direction,the lower the inventory,and the quicker funds($)flow back in the reverse direction.lThey commit the organization to long lasting financial,employment,and distribution patterns.For retail outlets,location affects the demand for their products/se
6、rvices.For labor-intensive operations,labor costs may force an organization to relocate its operations to locations where wages are lower.Location and Distribution(Henry C.Co)6Location decisions are either demand-pulled,supply-pushed,or more frequently,both demand-pulled and supply pushed.Demand-pul
7、ledlMarket-related factors such as the location of customers,the location of the competition,the need for room for expansion,and the communitys attitude towards the organization.Location and Distribution(Henry C.Co)7Supply-pushed location factors lBased on the cost of doing business.The cost of doin
8、g business may be tangible or intangible.Tangible costs include the cost of site and construction,the availability and costs of labor,transportation cost(proximity to suppliers and markets),utilities(availability and costs),taxes,and real estate(site acquisition,preparation and construction)costs.In
9、tangible costs include:lZoning and legal regulations,community attitudes,proximity to parent companys facilities,expansion potential,labor climate,training and employment services,and the quality of life(schools and churches,recreation and cultural attractions,amount and type of housing available)ar
10、e examples of important location factors that are difficult to quantify.Location and Distribution(Henry C.Co)8Technology-Based FirmsTend to cluster around these organizations.lEventually developed into regional networks of expertise.Stanford University,which spawned Silicon ValleyMIT which spawned R
11、oute 128 in BostonIn the United Kingdom,Imperial College and Cambridge which spawned Science Parks.Large well-established firm also serve as incubators.lXerox PARC and Bell Laboratories spawned Fairchild Semiconductor which in turn led to numerous spin-offs including Intel,Advanced Memory Systems,Te
12、ledyne,and Advanced Micro-Devices.lEngineering Research Associates(ERA)led to more than 40 new firms,including Cray,Control Data Systems,Sperry and Univac.Technology-based firms cluster around their incubator organizations to gain financial and technical support.Location and Distribution(Henry C.Co)
13、9International LocationsTrade quotas,language,culture,government stability and cooperation,monetary system,infrastructure,etc.can sometimes force a multinational corporation to divest its interest in a country.Location and Distribution(Henry C.Co)10Systematic Decision ProcessQuantitative ApproachesQ
14、ualitative ApproachesIntegrating Qualitative&Quantitative DataLocation and Distribution(Henry C.Co)11Define the location objectives and associated constraints.Identify the relevant decision criteria.lQuantitative(e.g.,cost of doing business)lQualitative(i.e.,less tangible).Relate the objectives to t
15、he criteria using appropriate models(e.g.,economic cost models,BEP analysis,LP,factor rating system).Do field research to generate relevant data and use the models to evaluate the alternative locations.Select the location that best satisfies the criteria.Monks,J.G.,Operations Management Theory and P
16、roblems,3rd Edition,McGraw-Hill Book Company,ISBN 0-07-042727-5,p.106.Location and Distribution(Henry C.Co)12Qualitative ApproachesQuantitative ApproacheslConventional approaches.cost-volume analysis,net-present valuelDecision treeslTransportation(Linear Programming)lComputer Simulation.Integrating
17、Qualitative&QuantitativelRating scale approachlRelative-aggregate-scores approach.Location and Distribution(Henry C.Co)13Qualitative Approach Factor Rating MethodLocation and Distribution(Henry C.Co)14Develop a checklist of relevant factorsAssign weight to each factor to indicate its relative import
18、ance(total=100%)Assign a common scale to each factor(e.g.,1-5,5=best),and designate any minimumScore each potential location according to the designated scale,and multiply the scores by the weightsTotal the points for each location,and choose the location with the maximum pointsLocation and Distribu
19、tion(Henry C.Co)15Factor Rating Template(Illustration)Location and Distribution(Henry C.Co)16Which of these locations is better?Location and Distribution(Henry C.Co)17Locational Breakeven AnalysisTo identify the ranges of demand volume where each location is preferable.Location and Distribution(Henr
20、y C.Co)18Determine fixed and variable costs.Plot total costs.Determine lowest total costs.Example:8007006005004003002001000Annual Output(000)8101214166420$(000)ABCB SuperiorC SuperiorA SuperiorDCell D3=B3+C3*$B$1.To determine the total costs for the other three locations,we copy the formula for D3 a
21、nd paste onto cells D4:D6.Location and Distribution(Henry C.Co)19Between of 0 and 5,000 units,the line segment associated with location B is the lowest.Between annual outputs of 5,000 and approximately 11,000 units,location C is superior.Beyond approximately 11,000 units,location A is superior.80070
22、06005004003002001000Annual Output(000)8101214166420$(000)ABCB SuperiorC SuperiorA SuperiorDLocation and Distribution(Henry C.Co)20Using Goal Seek to find the breakeven volumeBetween A and ClD11=B11+$B$13*C11 and D12=B12+$B$13*C12 lSet Cell:D13(the cost difference)lTo value:0(the two costs must be eq
23、ual)lBy changing cell:B13(the volume)Location and Distribution(Henry C.Co)21Between B and ClD17=B17+$B$19*C17lD18=B18+$B$19*C18lSet Cell:D19(the cost difference)lTo value:0(the two costs must be equal)lBy changing cell:B19(the volume)Location and Distribution(Henry C.Co)228007006005004003002001000An
24、nual Output(000)8101214166420$(000)ABCB SuperiorC SuperiorA SuperiorDBelow 5,000 units,B is the best alternative.Beyond 11,111 units,B is the best alternative.Between 5,000 and 11,111 units,C is the best alternative.Alternative D is never a good choice.Location and Distribution(Henry C.Co)23Single F
25、acility LocationLocation and Distribution(Henry C.Co)24AssumptionsDemand volumes are frequently assumed to be concentrated at one point(demand cluster)The basis of variable costsTotal transportation costs usually are assumed to increase proportionately with distanceStraight-line routes are commonly
26、assumed b/w the facility and other network pointsNot dynamicLocation and Distribution(Henry C.Co)25Center of Gravity ApproachCenter-of-gravity approach,the grid method,centroid method,p-median methodlTransportation cost is the only locational factor,static continuous location modelIllustrationLocati
27、on and Distribution(Henry C.Co)26E2=B2*D2;copy an paste onto E3:E8F2=C2*D2;copy an paste onto F3:F8D9=SUM(D2:D8);copy an paste onto E9:F9D12=E9/D9;D13=F9/D9.Location and Distribution(Henry C.Co)27How good is the center of gravity?First,consider Euclidean distances.Geometrically,the straight line con
28、necting the center of gravity and demand center A is the hypotenuse of a right triangle.The lengths of the two legs of the right triangle correspond to the x-and y-coordinate distances between the center of gravity and demand center A,i.e.,(6.669 2.5)along the x-axis,and(4.5 3.022)along the y-axis.F
29、rom the Pythagorean Theorem,the square of the length of the hypotenuse equals the sum of square of the length of the two legs=(6.669 2.5)2+(4.5 3.022)2=19.566.The Euclidean distance therefore is 4.423.The corresponding Excel formula is F6=SQRT(B6-$C$2)2+(C6-$C$3)2).Location and Distribution(Henry C.
30、Co)28Copy and paste the formula for F6 onto F7:F12.The total weighted sum of the distances is the sumproduct of the forecasted demand and the Euclidean distances=141,166.Euclidean DistancesLocation and Distribution(Henry C.Co)29Use Solver to optimize the locationLocation and Distribution(Henry C.Co)
31、30Total weighted sum of the distances is reduced to 136,204.Location and Distribution(Henry C.Co)31Rectilinear DistanceParallel to the x-and y-axes(east-west,north-south,and making 90 turns only.F6=ABS(B6-$C$2)+ABS(C6-$C$3);copy an paste onto F7:F12G6=D6*F6;copy an paste onto G7:G12G13=SUM(G6:G12)Lo
32、cation and Distribution(Henry C.Co)32Use Solver to optimize the locationLocation and Distribution(Henry C.Co)33Solver was able to reduce the total weighted sum of the distances based on rectilinear distance from 180,147 to 161,000 or by about 10.6%!Location and Distribution(Henry C.Co)34Multiple Fac
33、ility LocationLocation and Distribution(Henry C.Co)35In many distribution/logistics problems,we are concerned with finding the minimum cost way to get products from a variety of plants/suppliers to their final markets.Typically,different suppliers have different costs and capacities;transportation c
34、osts are specific to a supplier/market pair;and different markets have different requirements and possibly profitability.Realistic problems of this type can involve large numbers of suppliers,products,and markets and can be difficult to figure out by intuition or gut feel.Location and Distribution(H
35、enry C.Co)36Solution MethodsThere are many approaches to the distribution system planning problem.The usual approach is to develop a first cut solution either by making simplifying assumptions or using heuristics,and then fine-tuning the solution with more advanced methodologies such as mathematical
36、 programming techniques and computer simulation.lThe center of gravity method is an example of a first cut solution.The solution was derived by taking weighted average of the x-and y-coordinates of the demand clusters.Solver improved the solution by than 10%.lWhat we just solved is actually a comple
37、x non-linear optimization problem.The availability of inexpensive high-speed computer has made such a complex problem appear so trivial!Location and Distribution(Henry C.Co)37Basic Planning QuestionWarehouseslHow many warehouses should there be in the logistics network?lHow large should they be,and
38、where should they be located?CustomerslWhich customers should be assigned to which warehouses?lWhich warehouses should be assigned to which plants,vendors,and ports?DistributionlWhich products should be stocked in which warehouses?lWhich products should be shipped directly from plants/vendors/ports
39、to customers?Location and Distribution(Henry C.Co)38DistributionLocation and Distribution(Henry C.Co)39The Transportation ProblemHow to satisfy demands at a given number of destinations with supplies from given set of origins.Structure of the system is knownlLocation and characteristics of facilitie
40、slLocation and profile/demand of customerslTransportation means and costsDistribution strategy to satisfy demand at least cost.Location and Distribution(Henry C.Co)40IllustrationThe Hottest Mexican Restaurant has restaurants in 5 Midwestern cities.They order their tortillas from the Laredo Tortilla
41、Factory,which has warehouses in 6 cities.The shipping costs(in dollars per dozen tortillas)are given below:Location and Distribution(Henry C.Co)41The demand for each restaurant and the tortillas available at each warehouse are:Location and Distribution(Henry C.Co)42Excel SpreadsheetStep 1:Set up the
42、 EXCEL spreadsheet as shown below:Location and Distribution(Henry C.Co)43Notice that there are two sections.The first section shows the unit shipping costs.The cells have been formatted as currency with 2 decimal places(Select by highlighting the cells,then click on Format-Cell-Currency).The second
43、section shows the allocation and shipping costs.The optimal allocations have been assigned to cells B20:F25.(at this time,these cells are all blanks).These are the decision variables.The demand and supply have been entered in cells B27:F27 and cells H20:H25,respectively.Also,row 28 has been formatte
44、d as“currency”with 2 decimal places,and all other cells formatted as number with 2 decimal places.Location and Distribution(Henry C.Co)44Sums of CellsStep 2:Enter the formulae for the sum of demand(cells B26:F26)and the sum of supply(cells G20:G25),respectively.lFor example,B26=SUM(B20:B25);copy and
45、 paste the formula from C26:F26.lG20=SUM(B20:F20);copy and paste the formula from G21:G25.To find out if supply is sufficient,enter the formulae of the total system demand and the total system supply.lTotal system supply H26=SUM(H20:H25)lTotal system demand G27=SUM(B27:F27)lThe sum of supply is H26=
46、423.Similarly,compute the sum of demand.The sum is G27=370.In this case,there will be excess supply.Location and Distribution(Henry C.Co)45Shipments from.Shipments to Step 3:Enter the formula for cell G20=SUM(B20:F20),the total shipment from Tulsa,as shown.Note that cells B20:F20=the allocations fro
47、m Tulsa to Minneapolis,Salina,Kansas,Lincoln,and Wichita,respectively.Copy this formula and paste it onto cells G21:G25.Step 4:Likewise,enter the formula for cell B26=SUM(B20:B25),the shipments to Minneapolis;copy and paste the formula onto cells C26:F26.Location and Distribution(Henry C.Co)46Shippi
48、ng CostsStep 5:Enter the formula for cell B28=SUMPRODUCT(B3:B8,B20:B25),the total shipping cost to Minneapolis.Copy and paste the formula onto cells C28:F28.Step 6:Enter the formula for cell G28=SUM(B28:F28),the total system cost.Location and Distribution(Henry C.Co)47Location and Distribution(Henry
49、 C.Co)48What we have just modeled is a linear programming problem.lThe objective function is the total transportation cost(to be minimized),lsubject to the demand-supply constraints.We are now ready to solve the problem using an Excel tool called Solver.Location and Distribution(Henry C.Co)49The“Nor
50、thwest Corner”SolutionStarting from cell B20(the“northwest corner”),let us find out how many units we can allocate from Tulsa to Minneapolis.lTulsa has 77 units available and Minneapolis needs 52 units.Suppose we allocated 52 from Tulsa,to satisfy the demand of Minneapolis.lThe leaves Tulsa with a r
