When deciding on the location of a facility there are a large number of factors that must be considered:
- Access to transportation
- Access to a labor pool
- Power and Communications
- Labor Rates
- Capital Costs
To name a few. One major consideration is operating costs and a significant contribution to operating costs is transportation costs. All transportation costs have fixed and variable components. The variable components change as a result of distance traveled.
This example uses the Center or Gravity Method to determine the most appropriate position for a regional distribution center that delivers material to local hubs in 6 cities. The local hubs have been located close to population centers.
Using the Method:
- Locate the delivery locations on a map and look up the expected shipping volume to each location. The shipping volume can be of units of your choice. If you’re doing deliveries of the same materials to each you can simply use unit volume. If the loads vary in size you may want to use total weight shipped or the sum of units x weight over all shipments. In our example, we are using shipment count.
- Using a grid assign an X and Y coordinate to each location.
- Calculate the sums for
- Total Shipments
- X value * Shipments for each location
- Y value * Shipments for each location
- The X value for the Center Point = Sum(X value * Shipments) / Sum of Shipments
- In this exampe 435,000 / 66,000
- The Y value for the Center Point = Sum(Y value * Shipments) / Sum of all Shipments
- here 590,000 / 66,000
|City||X||Y||Shipping Volume||X * Volume||Y*Volume|
From Steps 4 and 5 we see our center point is at X=6.6 and Y=8.9
A look at the map shows that to be in Reading PA. The large volumes from NY, Philadelphia, and Baltimore has driven the location towards the southern portion of our region. It is possible for this method to locate a facility in a place that is not feasible such as in a body of water or on a mountain. In those cases, your judgment has to be used to make adjustments or an alternate method of placement can be used.