View
220
Download
5
Category
Preview:
DESCRIPTION
operations management plant location
Citation preview
Month 2007
Operations Management. Plant Location-Cases/models
Location Models (Facility location)
Nelson Group of Industries would like to establish a production unit at one of the locations proposed at site A, B and C. The table given below shows the various factor considered for location decision and the factor rating assigned to each factor based on its importance for location decision.
Q. As a project consultant, suggest the best alternative out of location A, B and C It can be analysed by:1. Factor Rating Method
2. Point Rating Method
3. Location Break-even Analysis
1. Factor Rating Method:The steps involved are:
List the most relevant factors in the location decision.
Rate each factor ( say from 1for every low and to 5for very high ) according to its relative importance, i.e. a factor rating is given to each factor, based on its importance, the higher the ratings the more important is the factor.
Rate each location (say 1 for very low and to 10 for very high) according to its merits on each factor. Compute the product of ratings multiplying the factor rating by the location rating for each factor.
Compute the sum of the product of ratings for each location.
Table: Factor Ratings and Location Ratings for Location Alternatives.
FACTORSFACTOR
RATINGLOCATION RATINGPRODUCT OF RATINGS
LOCATION ALOCATION BLOCATION CLOCATION ALOCATION BLOCATION C
1. TAX ADVANTAGE
2. SUITABILITY
OF LABOUR SKILL
3. PROXIITY
TO CUSTOMERS
4. PROXIMITY TO SUPPLIERS
5. ADEQUACY OF WATER
6. RECEPTIVITY OF COMMUNITY
7. QUALITY OF EADUCATIONAL SYSTEM
8. ACCESS TO RAIL AND AIR TRANSPORTATION
9. SUITABILITY OF CLIMATE
10. POWER AVAILABILITY 4
3
3
5
1
5
4
3
2
28
2
6
2
3
4
1
10
7
66
3
5
4
3
3
2
8
9
4
33
34
23
2
554
Total Score
DECISION: Since the total score for location __ is the highest than that of __& __Hence location__is the choice.2. Point Rating Method:After evaluating the potential sites A, B & C by comparing costs, the company management decided to evaluate on the basis of intangible factors for the locations by using the point rating method. Comparative rating assigned to major intangible location factors to determine the relative importance for each factor and the points assigned to each location alternative for each of the factors are given below.Location Factors Maximum Possible PointsPoints assigned to locations
Location ALocation BLocation C
Future availability of fuel300200250200
Ease of transportation & growth200150150150
Adequacy of water supply100100100100
Labour availability200170150100
Pollution regulations50404050
Site topography50403030
Living conditions100507570
Total Score out of 1000 750795700795
DECISION: - From the table, it is seen that location B has slight advantage over location A & C.3. Location Break-even Analysis:
In comparing several potential locations on an economic basis, (i.e., intangible and tangible factors) only the revenue and costs that needs to be evaluated which varies from one location to another. If revenue per unit is the same, regardless of where the goods are produced the total revenue can be eliminated from consideration. An economic comparison of location can be made by identifying the fixed costs and the variable costs . It can be shows by analytical or graphical method.The potential locations A, B and C have the cost structures shown for producing a product expected to sell at Rs.100 per unit. Q1.Find the most economical location for an expected volume of 2000 units/year. Q2.Also determine the range of annual volume of production for which, each of the location A, B and C would be most economical.Locationfixed cost/yearVariable cost per unit
ARs.25000Rs.50
BRs.50000Rs.25
CRs.80000Rs.15
Solution (a)To determine the most economical location for an expected annual volume of production of 2000 units, calculate the total cost of production at each of the locations for the annual production volume Q= 2000 units. (TC=FC+VC * Q)1)2)3)DECISION: By comparing the total costs at each of the three locations, it is seen that location ___ is the most economical location for the volume of production of 2000 nos. per year.
Solution (b)To determine the range of annual volume of production at which each of the three locations would become most economical, it is necessary to determine the break-even volumes either by analytical method or graphical method .
Analytical Method
To determine the break even volume between locations A and & B, the total cost for producing the break even quantity say Qab at each of location A & B are equated. 25000 + 50Qab = 50000 + 25Qab
Qab =
To determine the break even volume between locations B & C, the total cost for producing the break even quantity say Qbc at each of location B and C are equated. 50000 + 25Qbc = 80000 + 15Qbc
Qbc = To determine the break even volume between locations A & C, the total cost for producing the break even quantity say Qac at each of location A and C are equated. 25000 + 50Qac = 80000 + 15Qac
Qac =
Graphical Method: The above break even quantities are shown graphically below.
(CLASS ROOM ASSIGNMENT):4. Qualitative factor analysis method:If economic criteria are not sufficiently influential to decide the location alternatives, a system of weighing the criteria might be useful in making a plant location decision.
XYZ Company is evaluating 4 locations for a new plant and has weighted the relevant scores as given below. Scores have been assigned with higher values indicative of preferred conditions. Using these scores, develop a qualitative factor comparison for the 4 locations.
RELEVANT FACTORSASSIGNED
WEIGHTSCORES FOR LOCATION
ABCD
PRODUCTION COST
RAW MATERIAL SUPPLY
LABOUR AVAILABILITY
]
COST OF LIVING
ENVIORMENT
MARKETS
0.35
0.25
0.20
0.05
0.05
0.10
50
70
60
80
50
7040
80
70
70
60
9060
80
60
40
70
8030
60
50
80
90
50
TOTAL1.00
Solution
FACTORSWEIGHTED SCORES FOR LOCATION
ABCD
PRODUCTION COST
RAW MATERIAL SUPPLY
LABOUR AVAILABILITY
]
COST OF LIVING
ENVIORMENT
MARKETS
TOTAL
Location ____ is preferred because of highest weighted score.THANKS: .Annual Total Cost
Location C
Location B
Location A
80000
50000
25000
50010001500200025003000
Annual Volume (Unit) (Q)
Dr..Nitin Kubde Page 5 SIESCOMS
Recommended