Techniques/ Models of plant Site Selection

Techniques/ Models of plant Site Selection

Various models are available for identifying a near ideal location. The most popular models are 

Factor Rating Method
Transportation Model
Break-Even Analysis
Center of Gravity Method

Factor Rating Method

A typical location decision involves both quantitative factors, which tend to very from situation depending on the needs of each organization.
Factor rating is a general approach that is useful in evaluating and comparing different alternatives.
It helps the decision maker to incorporate their personal (qualitative) as well as quantitative information in the decision process.
The step involed are:

o   Develop a list of relevant factors
o   Assign weight to each factor to indicate its relative importance (the total of weights should be 1)
o   Assign a common scale to each factor (say 0 to 100) and set any minimum score to be secured by any location
o   Score each potential location according to the designated scale and multiply the scores by the weights to arrive at the weighted scores.
o   Total the points for each location and choose the location with the maximum points

§  Selection Decision: select the location which has the maximum sum of the product ratings. From the table it can be seen that site B is more advantageous than Site A§  Advantages:·       Simplicity, Which facilitates communication about why one location/ site is better than another·       Enables bringing diverse location considerations into evaluation process·       Promotes consistency of jufgment about location alternatives.

Transportation Model

-      When there are multiple sources/production factories producing the same product and transportation has to be done to multiple destinations/sales outlets from these sources, there arises the problem of which source will supply to ehich destination and also how much quantity to supply. Under such situation, transportation model is used.
-      The main objective of using transportation model is to transport various amounts of a single product, initially stored at different sources, to different destinations in such a way that the total cost of transportation or the total time taken is minimum.
-      Example: Suppose a manufacturing company has three production centers A,B and C in a city and the company sells the product at four sales centers i.e. destinations P,Q,R and S. The transportation cost of transporting one unit of product from various origins to different destinations cost of transporting one unit of product from various origins to different destinations is knows to us. Moreover, the supply at each origin and the requirement of each destination is also known to us. problem is to determine the number of units to be supplied from each of the origins to different destinations so as satisfy the requirements of each destination with the available supply at different origins and the total transportation cost is minimum.

Break-Even Analysis

-      An economic comparison of locations can also be made by identifying the fixed costs and variable costs and plotting the break-even analysis on a graph for each location.
-      The steps involved in this method are
o   Determine all relevant costs that vary with each location.
o   Categorize the costs for each location into annual fixed cost (FC) and variable cost per unit (VC) and calculate the total cost (TC) for the desired volume of production per annum for each location.
o   Plot the total costs associated with each location on a single graph of annual cost versus annum production volume.
o   Select the location with the lowest total annual cost (TC) at the expected production volume per annum (Q)
-      If revenues are different for each location then comparison of locations should be made on the basis of profits (i.e. Total Revenue-Total Cost) at each location.
-      Illustration: Potential locations X, Y and Z have the cost structures shown below. The ABC company has a demand of 1,30,000 units of a new product. Three potential locations X, Y and Z having following cost structures shown are available. Select which location is be selected and also identify the volume ranges where each location is suited?

Center of Gravity Method

-      This method is used to locate a single production unit/ districution center that will minimize shipping costs or travel time to various destinations

-      Example: police and firefighters use this method to locate their stations in such an area from where it is easy for them to reach the destination in less time in case of emergency.

-      This method is generally used to locate the plant where the goal is to minimize distribution cost.

-      The steps involved are:

o   Plot the destinations on a map. The map must be accurate and drawn to scale.

o   Draw a coordinate system on the map to determine relative locations of each destination. The location ofpoint (0,0) of coordinate system and its scale is unimportant.

o   Once the coordinate system is in place, determine the coordinate for each destination

o   Find the coordinate for center of gravity (I,e. distribution center) using following formula

§  If quantity to be shipped to all the destinations is equal

If quantity to be shipped to all the destinations is not same

Here weighted average must be used to determine the coordinate of center of gravity, with the weight being quantities to be shipped.