Center-of-Gravity Approach
The Center-of-Gravity Approach a supply chain planning methodology for locating distribution centers at approximately the location representing the minimum transportation costs between the plants, the distribution centers, and the markets. It is a mathematical optimization technique that minimizes the total cost of supplying a set of demand points. The Center-of-Gravity Approach is also called the Pareto Frontier or Pareto Efficiency.
The Center-of-Gravity Approach was developed in the early 1960s by two researchers at MIT, Jay Forrester and Harry Markowitz. Forrester is known for his development of the System Dynamics Modeling methodology. Markowitz went on to win the Nobel Prize in Economics in 1990 for his work in portfolio theory and security analysis.
The basic concept behind the Center-of-Gravity Approach is that a distribution center should be located as close as possible to the demand points it serves while still remaining within the bounds of acceptable transportation costs. The Center-of-Gravity Approach uses a weighted average formula to calculate the minimum transportation cost between any two points. This formula takes into account the distance between the points, the weight of each point, and the cost of transportation between the points.
The Center-of-Gravity Approach is a very powerful tool for locating distribution centers. It can be used to locate distribution centers for both finished goods and component parts. It can also be used in both cross-docking and inventory management scenarios. However, it is not perfect. The Center-of-Gravity Approach can only be used when there are known demand points and fixed transportation routes. In addition, it does not take into account other factors such as labor costs and storage costs.
Despite its limitations, the Center-of-Gravity Approach is a very effective tool for locating distribution centers. It has been used by many companies to reduce their transportation costs.
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Center of Gravity Method in Distribution Center Location
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