FACTOR AND

LOCATION RATINGS
Module -2

The 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 RATING

Proximity to customers(markets)

Proximity to raw materials

Transportation facilities

Basic amenities

Acceptance of a leather factory

by local people

Availability of cheap land

Low construction cost

Easy availability of cheap and

skillful and efficient labour

Now 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
RATING
S

Proximity to
customers(markets)

Proximity to raw materials

Transportation facilities

LOCATIO
N
RATING
OF A
4

10

10

Basic amenities

Acceptance of a leather
factory by local people

Availability of cheap land

Low construction cost

Easy availability of cheap and

skillful and efficient labour

For each location let us find the product of

factor
and location
ratings.
A
B

Factor
rating

Factor
rating

177

location

Factor
rating

140

location

131

location

Hence 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 planning
The 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)

FC)

Fixed cost(

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