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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

Loc B

Loc A

Loc B

1. Tax Advantage

32

24

2. Suitability Labor Skill

3. Proximity to the customers

18

15

4. Proximity to suppliers

10

20

5.Adeuqacy of water

6.Receptivity of community

20

15

7. Quality of educational system

8. Access to rail and


transportation

10

30

24

9. Suitability of Climate

14

18

10. Availability of power

12

Total Score

149

144

Problem
Factors

Factor ratings

Loc A

Loc B

Loc C

Proximity to markets

Proximity to Raw material

10

Transportation facility

10

Basic Amenities

Availability of cheap land

Low construction cost

Easy availability of skillful labor

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 point-rating
method

Example
Points assigned to locations
Factors

Maximum
Points

Loc A

Loc B

Loc C

Future availability of fuel

300

200

250

250

Transportation flexibility
and growth

200

150

150

100

Adequacy of water supply

100

100

100

90

Labor availability

250

220

200

190

Pollution regulation

30

20

20

15

Site topography

50

40

30

30

Living conditions

150

100

125

110

Total

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
Variable Cost
cost/year
(Rs.)

per unit (Rs.)

25,000

50

50,000

25

80,000

15

Qualitative factor Analysis


XYZ company is evaluating four location for new
Method
plant and has weighted the relevant scores as
given below. Scores have been assigned with
higher values
indicative of preferred
conditions.
Relevant
Assigned
Scores of location
Using theseweight
scores, develop a qualitative factor
factors
comparison for the four
A locations.
B
C
D
Production
cost

0.35

50

40

60

30

Raw material
supply

0.25

70

80

80

60

Labour
availability

0.20

60

70

60

50

Cost of living

0.05

80

70

40

80

Environment

0.05

50

60

70

90

Markets

0.10

70

90

80

50

Total

1.00

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

30,60

10

678

F3

80,50

10

483

F4

50,10

10

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

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