Facility Location

There are many analytical techniques that can be used in facility location decisions.Some of these are:
1) Factor Rating
2) Cost-Profit-Volume analysis
3) Center of Gravity Method, etc

FACTOR RATING METHOD
It is most widely used analytical technique. it is most popular technique because a wide variety of factor can be included in the analysis .It is useful for service and industrial location. In this method to merge quantitative and qualitative factors, factors are assigned weights based on relative importance and weight age score for each site using a preference matrix is calculated. The site with the highest weighted score is selected as the best choice.

STEPS OF FACTOR RATING METHOD
1. List relevant factors.
2. Assign importance weight to each factor.
3. Develop scale for each factor (0-1, etc.)
4. Score each location using factor scale.
5. Multiply scores by weights for each factor & total.
6. Select location with maximum total score.

After evaluating the firm’s Needs, the Managers have narrowed the list of Important Selection Criteria down into major Factors then weights reflecting the relative importance of each factor have been assigned .Based on these criteria, the Alternative sites were scored between 0 and 100 points. Now we will multiply each score by its corresponding factor weight. Weighted scores are calculated as:

(Site Score)x(Factor Weight)
From these results, the largest total weight is for Site France. It appears to be the best location.

Cost-Profit-Volume analysis:
Cost profit volume analysis is used for finding industrial locations.

Steps to Cost-Profit-Volume analysis:
1. Determine fixed and variable costs for each location
2. Plot the cost for each location
3. Select location with the lowest total cost for expected production volume

Example:
We are considering 3 locations to set up our firm facility:
 Akron
 Bowling Green

Chicago

Result:
Since Bowling Green has the lowest Total Cost at the volume being produced, it will be chosen as the site of new facility

Center of Gravity Method:
The Center of Gravity Method is a mathematical technique used for finding the location of a distribution centre that will minimize distribution costs. The method takes into account the location of markets, the volume of goods shipped to those markets and shipping costs in finding the best location for a distribution center.

Steps of Center of Gravity Method
The first step in the centre of gravity method is to place the locations on a coordinate system. The origin of the coordinate system and the scale used are arbitrary, just as long as the relative distances are correctly represented. This can be done easily by placing a grid over an ordinary map.

Equations
The centre of Gravity is determined using equations

x-coordinate of the centre of gravity = ∑i dix Qi/∑I Qi
y-coordinate of the center of gravity = ∑i diy Qi/∑I Qi
where,

dix = x-coordinate of location i
diy = y-coordinate of location i
Qi = Quantity of goods moved to or from location i

Since the number of containers shipped each month affects costs, distance alone should not be the principal criterion. The centre of gravity method assumes that cost is directly proportional to both distance and volume shipped. The ideal location is that which minimizes the weighted distance between the warehouse and its retail outlets, where the distance is weighted by the number of containers shipped.

FOR EXAMPLE:

Result:
The firm will be located at:
 X coordinate 66.7
 Y coordinate 93.3