Optimizing Plant Facilities Location

CIM Bulletin, 1970

R. D. HOSSACK, Management Consultant, Urwick, Currie & Partners Ltd., Toronto, Ont.

The selection of a site for plant facilities is a function of severa! factors and has as its objective the maximization of profits, given fixed markets and sources of raw material locations. In practice there are severa! sites, any one of which or a combination of two or more would be suitable to meet the basic requirements of source of supply of raw material and labour and still fulfill market demands. The mode! used to select the optimum profit combination utilizes both computer programs and traditional financial analysis techniques. Of the three computer programs used in the mode), one is a Iinear program and another is a transportation simulator. Basic cost and priee data are required. In examining costs, three levels are used: (a) distribution costs of raw material to the plant and finished goods to the market; (b) direct production costs at the plant, such as labour and locally supplied material; and (c) capital and overhead costs at the plant, such as construction costs, taxes, insurance, and federal and provincial cost allowances. The direct costs generally depend on the scale of operations, so that a large plant in one location may have a lower unit cost than two smaller plants. This, of course, must be balanced against distribution costs. In examining profit, it is necessary to think in terms of the priee and volume of sales at each of the market loca• ti ons. Given basic data and relationships, the mode! can be used to optimally locate production facilities or, alternatively, optimally structure a transportation network given existing locations of plants and markets. It is dynamic to the extent that it can react to changes in volume, priee and cost to optimally locate an additional plant, the expansion of existing plants, the shutting down or cutting back of plants, or the restructuring of distribution networks.
Keywords: analysis, Cost, Costs, Distribution, financial analysis, linear program, operations research, plant, Regression analysis, Management, Markets, Plants, Production, Requirements