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For organizations seeking to implement a warehouse or new facility, the centroid method is a technique used by organizations to locate single facilities, the distance between them, and the volume of goods to be shipped. The centroid method would be an appropriate method for an organization to rely on as the cost of facilities from land, rent and employees would be greatly reduced. This technique is used to locate intermediate or distribution warehouses. Simplified, this form assumes that transportation costs are equal for both in bound and out bound transportation and does not include special considerations for shipping costs for less than full loads.
Other major applications of the centroid method include the location of communications towers in urban areas such as cell, radio and tv communications towers. The centroid method allows sites to be found near clusters of customers while ensuring clear radio signals. The centroid method often utilizes a coordinate grid system for this application but the purpose remains in establishing distances between locations.
By using this method, companies have calculated initial starting points regarding coordinates for their new location or tower. When mapped out, companies can visualize more cost effective ways to ship between points or to provide service between towers. The importance of using such a method in determining the placement of a warehouse facility is because such facilities are far less common than service facilities (e.g. restaurant, spa, entertainment) and are far more critical to the overall success of larger companies. Therefore, the centroid method is integral in organizational management to contribute to the company’s success.