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2 - Tutorial 1 - Facility Location

This document contains 8 exercises related to facility location planning. Exercise 1 asks the reader to determine the most economical location out of 3 options to produce 1,850 units based on their fixed and variable costs. Exercise 2 asks the reader to determine the most economical location out of 3 options to produce 2,500 units at 80% capacity based on fixed and variable costs. Exercise 3 asks the reader to determine the highest profit location out of 4 options for ski production based on fixed costs, variable costs, price, and demand forecasts.

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383 views4 pages

2 - Tutorial 1 - Facility Location

This document contains 8 exercises related to facility location planning. Exercise 1 asks the reader to determine the most economical location out of 3 options to produce 1,850 units based on their fixed and variable costs. Exercise 2 asks the reader to determine the most economical location out of 3 options to produce 2,500 units at 80% capacity based on fixed and variable costs. Exercise 3 asks the reader to determine the highest profit location out of 4 options for ski production based on fixed costs, variable costs, price, and demand forecasts.

Uploaded by

Rami Abdelaal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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INME 333 Facility Planning and Design September-Fall 2014/2015

Facility Location, TUTORIAL ONE


Exercise One
Potential locations Beirut, Saida and Tripoli have the cost structures shown for producing a
product expected to sell for $90, regardless of the origin.
 Find most economical location for an expected volume of 1,850 units per year.
 The range in volume over which each location would be best.
 What break even quantify defines each range.

Site Fixed Cost/Year Variable Cost/Unit


Beirut $20,000 $50
Saida $40,000 $30
Tripoli $80,000 $10

Exercise Two
A manufacturer is considering 3 locations A, B and C for a new plant. Fixed and variable costs are
given in table below. Effective system capacity of 2500 units/year and operates at 80%
efficiency. Find the most economical location based on actual output.

Site Fixed Cost/Year Variable Cost/Unit


A $240,000 $100
B $270,000 $90
C $252,000 $95

Exercise Three
Fall-line is a manufacturer of a variety of downhill skis. It is considering four locations for a new
plant: Aspen, Colorado; Medicine Lodge, Kansas; Broken Bow, Nebraska; Wounded knee, South
Dakota. All costs are given below.

Site Fixed Cost/Year Variable Cost/Unit


Aspen $8M $250
Medicine Lodge $2.4M $130
Broken Bow $3.4M $90
Wounded Knee $4.5M $65

 Plot all total costs on same graph, display the range in volume over which each location
would be best.
 What breakeven quantify defines each range.

Although Aspen’s fixed and variable costs are dominated by those of other communities, Fall-
line believes that both the demand and the price would be higher for Skis in Aspen than for Skis
made in other locations.
Site Price per pair Forecast Demand per year
Aspen $500 60,000 pairs
Medicine Lodge $350 45,000 pairs
Broken Bow $350 43,000 pairs
Wounded Knee $350 40,000 pairs

Dr Ramzi Fayad Page |1


INME 333 Facility Planning and Design September-Fall 2014/2015

 Determine which location yields the highest total profit contribution per year.
 Is this location decision sensitive to forecast accuracy? At what minimum sales volume
does Aspen become the location of choice?

Exercise Four
A new medical facility, Health-Watch, is to be located in Erie, Pennsylvania. The following table
shows the location factors, weights and scores (1=poor, 5=excellent) for one potential site. The
weights in this case add up to 100 percent. A weighted score (WS) will be calculated for each
site. What is the WS for this site?

Location Factor Weight Score


Total patient miles per month 25 4
Facility Utilization 20 3
Average time per emergency trip 20 3
Expressway Accessibility 15 4
Land and Construction costs 10 1
Employee Preference 10 5

Answer WS = 340

Exercise Five
The new Health-Watch facility is targeted to serve seven census tracts in Erie, Pennsylvania.
Customers will travel from the seven-tract centers to the new facility when they need health
care. What is the target area’s center of gravity for the Health-Watch medical facility?

Population x Population x
Census Tract Population Latitude Longitude
Latitude Longitude
15 2711 42.134 -80.041 114,225.27 -216,991.15
16 4161 42.129 -80.023 175,298.77 -332,975.70
17 2988 42.122 -80.055 125,860.54 -239,204.34
25 2512 42.112 -80.066 105,785.34 -201,125.79
26 4342 42.117 -80.052 182,872.01 -347,585.78
27 6687 42.116 -80.023 281,629.69 -535,113.80
28 6789 42.107 -80.051 285,864.42 -543,466.24
Total 30190 1,271,536.04 -2,416,462.80

The center of gravity is (42.1178 North, -80.0418 West) central to the target area

Exercise Six
An electronic manufacturer must expand by building a second facility. The search is narrowed to
four locations, all of which are acceptable to management in terms of dominant factors.
Assessment of these sites in terms of seven location factors is shown in table below. For
example, location A has a factor score of 5 (excellent) for labor climate; the weight for this factor
is 20, the highest of any.

 Calculate the weighted score for each location. Which locations should be
recommended?

Dr Ramzi Fayad Page |2


INME 333 Facility Planning and Design September-Fall 2014/2015

Location Factor Factor weight A B C D


Labor Climate 20 5 4 4 5
Quality of Life 16 2 3 4 1
Transportation
16 3 4 3 2
System
Proximity to markets 14 5 3 4 4
Proximity to Materials 12 2 3 3 4
Taxes 12 2 5 5 4
Utilities 10 5 4 3 3

Answer location C, 374

Exercise Seven
The operations manager for Mile-High Beer narrowed the search for a new facility location to
seven communities. Annual fixed costs (land, property taxes, insurance, equipment, and
buildings) and variable costs (labor, materials, transportation, and variable overhead) are shown
in table below.
 Which of the communities can be eliminated from further consideration because they
are dominated (both variable and fixed costs are higher) by another community?
 Plot the total cost curves for all remaining communities on a single graph. Identify on
the graph the approximate range over which each community provides the lowest cost.
 Using break-even analysis, calculate the break-even quantities to determine the range
over which each community provides the lowest cost.

Community Fixed Costs per Year Variable Costs per Barrel


Aurora $1,600.000 $17.00
Boulder $2,000,000 $12.00
Colorado Springs $1,500,000 $16.00
Denver $3,000,000 $10.00
Englewood $1,800,000 $15.00
Fort Collins $1,200,000 $15.00
Golden $1,700,000 $14.00

Answer Q = 500,000 barrels per year

Exercise Eight
A supplier to the electric utility industry has a heavy product, and the transportation costs are
high. One market area includes the lower part of the Great Lakes region and the upper portion
of the southeastern region. More than 600,000 tons are to be shipped to eight major customer
locations as shown in table below.

Customer Location Tons Shipped x,y Coordinates


Three Rivers, MI 5,000 (7,13)
Fort Wayne, IN 92,000 (8,12)
Columbus, OH 70,000 (11,10)
Ashland, KY 35,000 (11,7)
Kingsport, TN 9,000 (12,4)
Akron, WV 227,000 (13,11)
Wheeling, WV 16,000 (14,10)
Roanoke, VA 153,000 (15,5)

Dr Ramzi Fayad Page |3


INME 333 Facility Planning and Design September-Fall 2014/2015

 Calculate the center of gravity, rounding coordinates to the nearest tenth.


 Calculate the load-distance score for this location using rectilinear distance.

Exercise Nine
Two alternative locations are under consideration for a new plant: Jackson, Mississippi, and
Dayton, Ohio. The Jackson location is superior in terms of costs. However, management believes
that sales volume would decline if this location were chosen because it is farther from the
market, and the firm’s customers prefer local suppliers. The selling price of the product is $250
per unit in either case. Use the following information to determine which location yields the
higher total profit contribution per year.

Location Annual Fixed Cost Variable Cost per unit Forecast Demand per Year
Jackson $1,500,000 $50 30,000 units
Dayton $2,800,000 $85 40,000 units

Dr Ramzi Fayad Page |4

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