12Multifacility2009 - Drawbacks of Single Facility Location...

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Unformatted text preview: Drawbacks of Single Facility Location Models Demand is assumed to be concentrated at a single point , when in fact demand is generated from a number of retail stores or individual companies. The market center of gravity is often used as the demand focal point but this is subject to error when demand is not uniformly distributed over the region No distinction between capital cost differences (labor, inventory carrying, utilities) Transportation costs increase proportionately with distance Straight line route (increase by 21% to get highway direct route miles, by 24% to get rail short-line miles, by 41% for city streets Not dynamic All products are grouped into one homogenous category which results in a good location for all products taken together but a possible suboptimum location for any product in the mix Prof. Dr. Fsun lengin, 2009 2 Conventional Network Customer Store Materials DC Component Manufacturin g Vendor DC Final Assembly Finished Goods DC Components DC Vendor DC Plant Warehouse Finished Goods DC Customer DC Customer DC Customer DC Customer Store Customer Store Customer Store Customer Store Vendor DC Prof. Dr. Fsun lengin, 2009 3 Multifacility Location Models: Places are Already Known Heuristics Consider the following distribution system: Single product Two plants p1, p2 Plant p2 has an annual capacity of 60,000 units The two plants have the same production costs Two existing warehouses, referred to as warehouse w1 and warehouse w2 have identical warehouse handling costs Three markets, c1, c2, c3 with demands of 50,000, 100,000 and 50,000 respectively Prof. Dr. Fsun lengin, 2009 4 Distribution Costs per Unit Facility Warehouse P1 P2 C1 C2 C3 W1 4 3 4 5 W2 5 2 2 1 2 Prof. Dr. Fsun lengin, 2009 5 Heuristics Heuristic 1: For each market we choose the cheapest warehouse to source demand. Thus c1, c2, c3 would be supplied by w2. Then, for this warehouse choose the cheapest plant; that is, distribute 60,000 units from p2 and the remaining 140,000 from p1. the total cost is: 2*50,000+1*100,000+2*50,000+2*60,000+5*140,000= 1,120,000 Heuristic 2: For each market area, choose the warehouse where the total delivery costs to and from the warehouse are the lowest; that is, consider inbound and outbound distribution costs. Thus, for market area c1, consider the paths p1-w1-c1, p1-w2-c1, p2-w1- c1, p2-w2-c1. Among all these alternatives, the cheapest is p1-w1- c1, so choose w1 for c1. using a similar analysis, we choose w2 for c2 and w2 for c3. Prof. Dr. Fsun lengin, 2009 6 Heuristics This implies that warehouse w1 delivers a total of 50,000 units while warehouse w2 delivers a total of 150,000 units. The best inbound flow pattern is to supply 50,000 from plant p1 to warehouse w1, supply 60,000 units from plant p2 to warehouse w2, and supply 90,000 from plant p1 to warehouse w2. The total cost for this strategy is 920,000....
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12Multifacility2009 - Drawbacks of Single Facility Location...

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