models for location selection

7/30/2019 Models for Location Selection

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Location Models


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Location Models

Models used to identify near ideallocation are listed below :

Factor rating Method

Point Rating Method

Break-even analysis

Qualitative Factor Analysis


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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 thefactor rating by the location rating for each factor

Compute the sum of the products of ratings foreach location

Finally select the location alternative which has themaximum sum of the product ratings as the

choice.


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Factor

Factor

Rating

Location rating Product of

rating

Loc A Loc B Loc A Loc B1. Tax Advantage 4 8 6 32 24

2. Suitability Labor Skill 3 2 3 6 9

3. Proximity to the customers 3 6 5 18 15

4. Proximity to suppliers 5 2 4 10 20

5.Adeuqacy of water 1 3 3 3 3

6.Receptivity of community 5 4 3 20 15

7. Quality of educational system 4 1 2 4 8

8. Access to rail and

transportation

3 10 8 30 24

9. Suitability of Climate 2 7 9 14 18

10. Availability of power 2 6 4 12 8

Total Score 149 144


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Problem

Factors Factor ratings Loc A Loc B Loc C

Proximity to markets 3 4 6 3

Proximity to Raw material 5 10 5 4

Transportation facility 4 9 10 5

Basic Amenities 2 6 7 6

Availability of cheap land 3 7 2 8

Low construction cost 1 5 1 6

Easy availability of skillful labor 3 3 8 4


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Point Rating Method

Importance of tangible cost factorscompared to intangible factors

If two alternatives potential are found

to be equally attractive by comparingcosts then these two locations may be

further evaluated, based on the

intangible factors using the point-rating method


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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


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Problems on Break Even

analysisA 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 and3,10,000 respectively. The variable

costs are Rs.100 per unit, Rs.90 per

unit and Rs.95 per unit. The plant isdesigned to have a capacity of 3000

unit per year. Which is the most

economic location ?


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Problem

Potential locations A,B and C have the coststructures 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 ofproduction 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 25,000 50

B 50,000 25

C 80,000 15


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Qualitative factor Analysis

Method XYZ company is evaluating four location for new

plant and has weighted the relevant scores asgiven below. Scores have been assigned with

higher values indicative of preferred conditions.

Using these scores, develop a qualitative factor

comparison for the four locations.Relevantfactors

Assigned

weight

Scores of location

A 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


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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 newlocation and existing locations :

D=|X0-Xi|+|Y0 Yi|

Transportation T = DCL


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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


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Demerits

New facility has to be added toexisting facilities

The model does not consider road

availability , physical terrain,population densities or any other of

the many important location

considerations

models for location selection

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