Page 149 - DMGT501_OPERATIONS_MANAGEMENT

Unit 5: Facility Location

5.6 Techniques of Locational Analysis Notes

5.6.1 Factor Rating Method

Assume that an auto ancillary is planning to set up a factory to supply parts to Maruti. There are
three location options identified by the company. The first is at Jammu, where the promoters are
based; the second location is at Chandigarh where the company already has land; and the third
is in Gurgaon, close to the principal's factory. How does the company choose the location using
a Factor Rating Analysis?
Table 5.3 shows the factor ratings and the location scores that were considered in this particular
case.
Table 5.3: Factor Rating Analysis

Factor Location Scores
Factor
Rating Jammu Chandigarh Gurgaon
Required Amenities 4 3 7 9
Government Regulations 2 10 7 5
Ability to Expand Capacity 3 10 10 6
Easy Availability of Required 1 7 10 4
Land
Availability of Skilled Labour 4 2 6 9
Impact Analysis 4 10 8 6
Ease of Funding 5 5 5 10
Proximity to Market 3 2 5 10
Proximity to Suppliers 5 2 6 9

In this type of analysis, the company chooses the factors that it considers most important in
making the correct decision. The identified factors are rated on a scale of 1 to 5. A rating of 5 is
given to the most important factor and 1 to the least important one. The factors that have been
identified are given scores raging from 1 to 10 dependent on the advantages the site offers. Ten
(10) is the highest score. This is called the location score.
Jammu gets very high scores in government regulations, ability to expand, and impact analysis.
Government offers incentives relating to exemption of sales tax and lower income taxes in
Jammu. As the promoters are based in Jammu, their ability to acquire assets to expand is going
to be easier in Jammu. As the level of industrialization in Jammu is low, the level of the
investment in clean technologies is expected to be low as the base levels of pollution are low.
Chandigarh gets very high scores both on ability to expand and availability of required land.
This is because the company already owns sufficient land at Chandigarh.
Gurgaon gets very high scores at ease of funding, because Maruti has a policy of investing in its
ancillaries around Gurgaon as a joint venture partner. This would not only ease the fund
requirements of the owners, but would also make availability of additional funds easier. It
would be located adjacent to its market, Maruti Udyog Ltd., and most of the suppliers of inputs
would be relatively close.

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