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![Factor-Rating Method
•
Six steps:
1. Develop a list of relevant factors.
2. Assign a weight to each factor reflecting its relative
importance to the firm.
3. Develop a rating scale for the factors.
4. Score each location on each factor based on the scale.
5. Multiply the scores by the weights for each factor and total
the weighted scores for each location.
6. Make a recommendation based on the maximum point
score, considering other [quantitative?] factors.](https://image.slidesharecdn.com/locationdecision-140117103611-phpapp01/85/Location-decision-19-320.jpg)
Uploaded bySumit Malhotra
Location decision
This document discusses various factors to consider when making location decisions for facilities. It identifies the strategic importance of location decisions and objectives like profit potential. Key factors include availability of infrastructure, resources, labor, transportation and costs. Methods for evaluating locations are described, such as cost-volume analysis to determine the location with the lowest total costs based on fixed and variable costs. The factor-rating method scores locations based on weights assigned to relevant factors. Location decisions require analyzing regional, community, site and multiple plant strategies. Manufacturing and service facilities have different location considerations.
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Location decision
- 1.
- 2. Need for LocationDecisions • Marketing Strategy • Cost of Doing Business • Growth • Depletion of Resources
- 3. Nature of LocationDecisions Strategic Importance Long term commitment/costs Impact on investments, revenues, and operations Supply chains Objectives Profit potential Identify several locations from which to choose Options Expand existing facilities Add new facilities Move
- 4. Types of Facilities •Heavy Industry Facilities • Light Industry Facilities • Retail And service facilities
- 5. Making Location Decisions • • • • • Decideon the criteria Identify the important factors Develop location alternatives Evaluate the alternatives Make selection
- 6. General Factors affectinglocation decision • • • • • • • • Availability of basic infrastructure Basic amenities Proximity to raw material and markets Residential complexes, schools, hospitals, clubs etc. Availability of cheap labour Govt. policies Env. And community Cheap land
- 7. Locating Foreign operations • • • • • • • Tradebarriers International Customers International Competition Regulations Additional Resources Low Costs Offensive in Competitor’s home country
- 8. Factors at countrylevel • Political Risks, Govt. Regulations, attitudes, incentives • Cultural and economic issues • Labour talent, productivity, cost • Availability of supplies, infrastructure • Exchange rates and currency risks
- 9. Location Decision Factors RegionalFactors Community Considerations Multiple Plant Strategies Site-related Factors
- 10. Regional Factors • Attractivenessof region(culture, taxes, climate) • Labour availability • Location of raw materials • Location of markets • Availability of utilities • Govt. Incentives andpolicies • Climate and taxes
- 11. Community Considerations • • • • • • • Quality oflife Services Attitudes Taxes Environmental regulations Utilities Developer support
- 12.
- 13. Multiple Plant Strategies •Product plant strategy • Market area plant strategy • Process plant strategy
- 14. Comparison of Serviceand Manufacturing Considerations Manufacturing/Distribution Service/Retail Cost Focus Revenue focus Transportation modes/costs Demographics: age,income,etc Energy availability, costs Population/drawing area Labor cost/availability/skills Competition Building/leasing costs Traffic volume/patterns Customer access/parking
- 15. Evaluating Locations • Cost-Profit-VolumeAnalysis – Determine fixed and variable costs – Plot total costs – Determine lowest total costs
- 16. Location Cost-Volume Analysis •Assumptions – Fixed costs are constant – Variable costs are linear – Output can be closely estimated – Only one product involved
- 17. Example 1: Cost-VolumeAnalysis Fixed and variable costs for four potential locations L o c a tio n A B C D F ix e d C o s t $ 2 5 0 ,0 0 1 0 0 ,0 0 1 5 0 ,0 0 2 0 0 ,0 0 0 0 0 0 V a r ia b le C o s t $ 1 1 3 0 2 0 3 5
- 18. Example 1: Solution Fix e d C o s ts A B C D V a r ia b le C o s ts T o ta l C o s ts $ 2 5 0 ,0 0 0 1 0 0 ,0 0 0 1 5 0 ,0 0 0 2 0 0 ,0 0 0 $ 1 1 (1 0 ,0 0 0 ) 3 0 (1 0 ,0 0 0 ) 2 0 (1 0 ,0 0 0 ) 3 5 (1 0 ,0 0 0 ) $ 3 6 0 ,0 0 0 4 0 0 ,0 0 0 3 5 0 ,0 0 0 5 5 0 ,0 0 0
- 19. Factor-Rating Method • Six steps: 1.Develop a list of relevant factors. 2. Assign a weight to each factor reflecting its relative importance to the firm. 3. Develop a rating scale for the factors. 4. Score each location on each factor based on the scale. 5. Multiply the scores by the weights for each factor and total the weighted scores for each location. 6. Make a recommendation based on the maximum point score, considering other [quantitative?] factors.
- 20.
- 21. Evaluating Locations • Centerof Gravity Method – Decision based on minimum distribution costs • Load Distance model – Decision based on evaluating potential locations based on load distance value.