Location Models

Location Models
Models used to identify near ideal location are listed below : Factor rating Method Point Rating Method Break-even analysis Qualitative Factor Analysis

Factor Rating Method

Steps involved : List the most relevant factors in the location decision Rate each factor according to its relative importance Rate each location according to its merits on each factor Compute the product of ratings by multiplying the factor rating by the location rating for each factor Compute the sum of the products of ratings for each location Finally select the location alternative which has the maximum sum of the product ratings as the choice.

Factor Rating
Factor

Location rating

Product of rating
Loc A 32 6 18 10 3 20 4 30 14 12 Loc B 24 9 15 20 3 15 8 24 18 8

Loc A 1. Tax Advantage 2. Suitability Labor Skill 3. Proximity to the customers 4. Proximity to suppliers 5.Adeuqacy of water 6.Receptivity of community 7. Quality of educational system 8. Access to rail and transportation 9. Suitability of Climate 10. Availability of power 4 3 3 5 1 5 4 3 2 2 8 2 6 2 3 4 1 10 7 6

Loc B 6 3 5 4 3 3 2 8 9 4

Total Score

149

144

Problem
Factors Proximity to markets Proximity to Raw material Transportation facility Basic Amenities Availability of cheap land Low construction cost Easy availability of skillful labor Factor ratings 3 5 4 2 3 1 3 Loc A 4 10 9 6 7 5 3 Loc B 6 5 10 7 2 1 8 Loc C 3 4 5 6 8 6 4

Point Rating Method

Importance of tangible cost factors compared to intangible factors If two alternatives potential are found to be equally attractive by comparing costs then these two locations may be further evaluated, based on the intangible factors using the pointrating method

Example
Points assigned to locations Factors Future availability of fuel Transportation flexibility and growth Maximum Points 300 200 Loc A 200 150 Loc B 250 150 Loc C 250 100

Adequacy of water supply

Labor availability

100
250

100
220

100
200

90
190

Pollution regulation
Site topography Living conditions Total

30
50 150

20
40 100

20
30 125

15
30 110

Problems on Break Even analysis

A manufacturer of a bakery equipment is considering three locations A, B and C. The fixed costs per year at the sites are Rs.2,46,000, Rs.2,75,000 and 3,10,000 respectively. The variable costs are Rs.100 per unit, Rs.90 per unit and Rs.95 per unit. The plant is designed to have a capacity of 3000 unit per year. Which is the most economic location ?

Problem

Potential locations A,B and C have the cost structures shown for producing a product expected to sell at Rs.100 per unit. Find the most economical location for an expected volume of 2000 units/year. Also determine the range of annual volume of production for which each of the locations A, B and C would be most economical.
Location Fixed cost/year (Rs.) Variable Cost per unit (Rs.)

A
B C

25,000
50,000 80,000

50
25 15

Qualitative factor Analysis Method XYZ company is evaluating four location for new
plant and has weighted the relevant scores as given below. Scores have been assigned with higher values indicative of preferred conditions. Using these scores, develop a qualitative factor comparison for the four locations. Relevant Assigned Scores of location
factors Production cost Raw material supply Labour availability Cost of living Environment Markets weight A 0.35 0.25 0.20 0.05 0.05 0.10 50 70 60 80 50 70 B 40 80 70 70 60 90 C 60 80 60 40 70 80 D 30 60 50 80 90 50

Simple Median Model

Steps involved : Find the median load : Find the X- coordinate of the new plant Find the Y coordinate of the new plant Find the distance between the new location and existing locations : D=|X0-Xi|+|Y0 Yi| Transportation T = DCL

Facility (Fi)

Coordinate Location(x,y)

Cost (C) of moving one unit by unit distance (Rs)

Annual Load (L) units

F1

10,80

10

452

F2
F3 F4

30,60
80,50 50,10

10
10 10

678
483 711

F5

80,10

10

539

Demerits
New facility has to be added to existing facilities The model does not consider road availability , physical terrain, population densities or any other of the many important location considerations