SOM Assignment-3

Submitted by:
Gaurav Kumar
28 NMP-14

1. Explaining the concept of facility location by amalgamating more than one method.
Facility Location is the right location for the manufacturing facility, it will have sufficient access to the customers,
workers, transportation, etc.
Need : Location decisions may arise for a variety of reasons:

Addition of new facilities

As part of a marketing strategy to expand markets

Growth in demand that cannot be satisfied by expanding thexisting facilities
Depletion of basic inputs requires relocation
Shift in markets
Cost of doing business at a particular location makes relocation attractive.

Objectives: Location decisions are based on:

Cost or profit potential and customer service
Finding a number of acceptable locations from which to choose (no single location may be better
than others)
Position in the supply chain.
End: accessibility, consumer demographics, traffic patterns, and local customs are important
Middle: locate near suppliers or markets
Beginning: locate near the source of raw materials
Supply chain management issues such as supply chain configuration
Centralized vs. decentralized distribution

Factor Rating and Centre of Gravity Method for Location Decision

A combination of these two methods can be utilized for making an optimal decision in choice of location for a retail
store. The factors to be considered in both the methods will be mutually re-enforcing, as the factor rating with respect
to various decision variables based on a scoring model and subsequently final decision can be taken by considering
the logistics movement required from the nearest warehouses. Therefore the cumulative model will be based on
following:
1. The critical factors for store success will be analysed by the factor rating method and accordingly the choice
of location will be decided.
2. Depending on the warehouse logistics factor, total distances and capacity planning the location of store can
be further optimized from the choices available.

Example :A retail store company intends to open a new branch store. The following table contains information on
two potential locations. Which is better? X= (150,350) Y= (250,400)
a) Factor Rating Method
Factor

Weight

Alt 1

Alt 2

Proximity to existing
source

.10

100

60

Traffic volume

.05

80

80

Rental costs

.40

70

90

Size

.10

86

92

Layout

.20

40

70

Operating Cost

.15

80

90

1.00

Factor

Weight

Alt 1

Alt 2

Alt 1(X)

Alt 2 (Y)

Proximity to
existing source

.10

100

60

.10(100) = 10.0

.10(60) = 6.0

Traffic volume

.05

80

80

.05(80) = 4.0

.05(80) = 4.0

Rental costs

.40

70

90

.40(70) = 28.0

.40(90) = 36.0

Size

.10

86

92

.10(86) = 8.6

.10(92) = 9.2

Layout

.20

40

70

.20(40) = 8.0

.20(70) = 14.0

Operating Cost

.15

80

90

.15(80) = 12.0

.15(90) = 13.5

70.6

82.7

1.00

b) Centre of Gravity Method

Given Warehouse locations A,B,C,D and distances from possible store locations X,Y along with volume of
goods to be shipped to each location.

xQ
Q
yQ

Cx

Cy

where
Qi Quantity t o be shipped to destinatio n i
xi x coordinate s of destinatio n i
yi y coordinate s of destinatio n i

x
y
Vt

A
200
200
75

Calculating we Get Cx= 238 and Cy = 444

B
100
500
105

C
250
600
135

D
50
30
60

Miles

700y
600 B C(135)
500
(105)
Center ofDgravity (238, 444)
400
300
(60)
A(75)
2
100
0 0 1002 300
400500600700x
Miles
0
0
0

Clearly the choice of location for the new store as optimized from both the methods is location
Y=(250,400)