FACTOR AND LOCATION RATINGS

FACTOR AND LOCATION RATINGSModule -2The factors affecting the facility location decision is important for any type of industry. At the same time the importance of these factors may vary from different types of plants.Steps involved in factor rating.According to the requirements of a new plant a set of these factors are to be considered.These factors are rated from 1 to 5 to indicate the importance attached to them. A rating of 5 is given to the most important factor and rating of 1 is given to the least important one. These are called factor rating.

Eg:Factor rating of a leather good manufacturing company. FACTOR FACTOR RATINGProximity to customers(markets)3Proximity to raw materials5Transportation facilities4Basic amenities2Acceptance of a leather factory by local people4Availability of cheap land3Low construction cost1Easy availability of cheap and skillful and efficient labour3Now with respect to each of these locations, lets give each of these factors another rating called location rating, according to the benefit a particular location offers.Location ratings vary from 1-10.A rating of 10 is given to the most beneficial factor at that particular location. Similarly a rating of 1 is given to the least beneficial factor at that location. FACTOR FACTOR RATINGSLOCATION RATING OF A

B

CProximity to customers(markets)

3463Proximity to raw materials

51054Transportation facilities

49105Basic amenities

2676Acceptance of a leather factory by local people

4837Availability of cheap land

3728Low construction cost

1516Easy availability of cheap and skillful and efficient labour

3384For each location let us find the product of factor and location ratings.ABCFactor location ratingFactor location rating

Factor location rating

177140131Hence we observe that the total score of location A is the highest, followed by B .This technique is used for selecting best location with high score, which are then subjected to final analysis for finding the best location option.Break even analysis for facility location planningThe conversion process from inputs to output involves two types of costs namely Fixed cost Variable cost

Fixed cost are capital expenditures(long term investment in fixed assets)For eg.:The cost of land ,construction building and cost of machines and equipment

These cost remains constant irrespective of the volume of production(No of units produced within a given period of time)

Fixed cost( FC)We see that the production of zero units 500 units and 1000 units the fixed cost remains the same Variable cost:is the cost of labour(directly involved in the production process) and cost of raw material.As the volume of production increases the more labour and raw materials are required for the production and thus the variable cost increases.When the variable cost is added to the FC we get the TC at a particular volume of production.