Facilities Design & Planning

Facility Location Problem

Introduction

U. MAHİR YILDIRIM
Introduction
Location decision problems can be classified as:
• Location Problems
• Determine the location of one or more new facilities in one or more of
several potential sites
• Allocation Problems
• Determine how each customer is to be served, given the number, location, and
capacities of facilities
• Location-Allocation Problems
• Determine the location and capacity of facilities along with how much each
customer will receive from each facility

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Classification of Facility Location Problems
Number of facilities
• Single-Facility (Location Prob.)
• deals with the optimal determination of the location of a single facility.

• Multiple-Facility (Location, Location-Allocation Prob.)

• deals with the simultaneous location determination for more than one facility

Number of possible locations

• Discrete Space Location Prob.
• Finite feasible set of sites
• Continuous Space Location Prob.
• If a facility can be located anywhere within the confines of a geographic area,
then the number of possible locations is infinite

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Facility Location Problem
• Objective?
• Definition?

• The facility location problem consists of selecting a site for new facilities that
will minimize the production and distribution cost of products and/or services
to potential customers.

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Reasons for considering Location Problems
• Significant changes in the level of demand

Rekor Kauçuk moved its factory to Eskişehir.

The company, which stopped its production in

Istanbul completely, tripled its production
capacity with the new investment.

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Reasons for considering Location Problems (cont'd)
• Significant changes in the geographical distribution of demand

World Population (1 C.E. → Present)

https://www.youtube.com/watch?v=khFjdmp9sZk
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Reasons for considering Location Problems (cont'd)
• Significant increases in the real-estate value of existing or adjacent sites or
in their taxation

Image source: http://im.htemlak.com/2016/11/14/ver1479128164/1323763_620x349.jpg

Source: https://www.atasehirhaber.com.tr/haber/Atasehirdeki-Halin-2020nin-sonunda-tasinmasi-hedefleniyor-37792

Istanbul Metropolitan Municipality will move the Ataşehir

vegetable hall to the new complex to be established in
the Aydınlı district of Tuzla towards the end of 2020.
Image source: https://evdenhaberler.com/wp-content/uploads/2017/01/atasehir-sebze-ve-meyve-hali-678x381.jpg
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Kadıköy Vegetable Hall (1973)

1989 – Now
Haldun
Taner
Stage
Image Source: https://tiyatrolar.com.tr/files/location/h/haldun-taner-
sahnesi/gallery/11/haldun-taner-sahnesi-11.jpg

http://mimdap.org/2017/02/kadykoy-hal-binasy-arif-atylgan/ Image Source: https://www.atasehirhaber.com.tr/haber/Atasehirdeki-Halin-2020nin-sonunda-tasinmasi-hedefleniyor-37792

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Reasons for considering Location Problems (cont'd)
• Changes in the cost or quality requirements of critical production inputs
(labor, raw materials, energy or others)
• e.g. call centers
• Working remote
• Need to change as a result of fire or flood for reasons of prestige or
improved public relations

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Alternatives to New Location – Demand Related
Now assume that you need relocation due to change in demand, either in
quantity or geographical distribution. In other words, the current capacity
cannot satisfy the demand anymore.
What might be some alternatives instead of relocation?

• The increase of existing capacity by additional shifts or overtime, especially for

capital-intensive systems.
• The use of seasonal inventories to reduce the need for maintaining capacity
for peak demand.
• The use of subcontractors.
• The purchase of new equipment for the present location.

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Important Factors in Location Decisions
• Production inputs (raw materials, human resources, etc…),
• Process techniques,
• Environmental factors
• The availability and reliability of supporting systems
• Social and cultural conditions
• Legal and political considerations.

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Example
Important Factors in Location Decisions

• Consider the NIKE distribution center in

Laakdal, Belgium.
• This warehouse employs 800 people,
• It has an annual turnover of 10.5 million of
units of footwear and apparel,
• It covers 100 K m2,
• It cost $139 M to build.
• A location and design study was done in
1992 and the building was completed in
two phases – the last in 1995.

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Example (cont'd)
Important Factors in Location Decisions

WHY Nike selected Laakdal from several available locations in Europe?

Business objective
to service 75% of
> 75% Proximity to ports
Road network
its customers in Access to major
less than 24 hours
< 24h highways

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Example (cont'd)
Important Factors in Location Decisions

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Example (cont'd)
Important Factors in Location Decisions

WHY Nike selected Laakdal from several available locations in Europe?

Business objective
to service 75% of
> 75% Proximity to ports
Road network
its customers in Access to major
less than 24 hours
< 24h highways

Educated Legal and political

workforce considerations

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Important Factors in Location Decisions (cont'd)
• In practice, many factors have an important impact on location decisions.

• The relative importance of these factors depends on whether the scope of a

particular location problems is
• international,
• national, or
• communitywide.

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Important Factors in Location Decisions (cont'd)
Which factors play a role
• If we are trying to determine the location of a manufacturing facility in a
foreign country?
• Political stability,
• Foreign exchange rates,
• Business climate,
• Duties, and
• Taxes

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Factors Affecting Location Decisions
• Proximity to raw materials sources • Export, import regulations, duties, and
• Cost and availability of tariffs
energy/utilities • Transportation system
• Cost, availability, skill and • Technical expertise
productivity of labor • Environmental regulations
• Government regulations • Support services
• Taxes • Community services (schools, hospitals,
• Insurance recreation, etc.)
• Construction costs, land price • Weather
• Government and political stability • Proximity to customers
• Exchange rate fluctuation • Business climate
• Competition-related factors
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