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Analysis of site selection based on factors rating

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 International Journal of Emerg ing trends in Engineering and Develop ment Issue 2, Vol.6 (September 2012)
Available online on http://www.rspublication.co m/ijeted/ijeted_index.ht m ISSN 2249-6149

Analysis for Site Selection Based on Factors Rating

Parveen Sharma1 , Rakesh Kumar Phanden2 , Vinod Baser3

1
Department of Mechanical Engineering,National Institute of Technology
Kurukshetra, Haryana
2
Department of Mechanical Engineering,National Institute of Technology
Kurukshetra, Haryana
3
Department of Mechanical Engineering,National Institute of Technology
Kurukshetra, Haryana

Abstract- This paper addresses about the analysis, based on factors rating for selecting a
particular site for a business. The location of a plant directly affects the total cost of the product.
The location must be selected by proper strategic planning. This research covers the analysis of
location, like demographic analysis, traffic analysis, etc. The main factors which affect the
location of a site are explained with suitable examples. The site must be evaluated based on all
these important factors, which can affect the production, like Transport, Availability of Suitable
Land, Raw Materials Availability, etc. Factor rating method is explained by few easy steps for
finding the location of any company.

Keywords- factor rating, site selection, plant location, evaluation, strategic planning

I. INTRODUCTION

Plant location refers to the choice of region and the selection of a particular site for setting up a
business or factory. The choice is made only after considering cost and benefits of different
alternative sites. It is strategic decision that cannot be c hanged once taken [1,2]. The location
should be selected as per business requirements and circumstances. Businessman should try to
make an attempt for optimum or ideal location. An ideal location is one where the cost of the
production is minimum, with large market share, the least risk and the maximum social gain. It is
the place of maximum net advantage or which gives lowest unit cost of production and
distribution [3].

II. LOCATION ANALYSIS

It is a process in which analysis of alternative sites is done with the aim of selecting the best site
for business. It consist of followings [2,4,5]:

Demographic Analysis: it involves the study of population in the area in term of total
population, age composition, per capita income, educational level, occupational structure, etc.

Site Economics: alternative sites are evaluated in term of establishment cost and operational cost
under this. Cost of establishment is basically cost incurred for permanent physical facilities but

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operational cost are incurred for running business on day to day basis, they are also called
running costs.

Competitive Analysis: it help to judge the nature, location, size and quality of completion in a
given trade area.

Traffic Analysis: to have a rough idea about the number of potential customers passing by the
proposed site during the working hours of the shop, the traffic analysis aims at judging the
alternative sites in term of pedestrian and vehicular traffic passing a site.

III. FACTORS AFFECTING SITE S ELECTION

The geographical location of the final plant can have strong influence on the success of the
industrial venture [1,6]. Considerable care must be exercised in selecting the plant site, and many
different factors must be considered. Primarily the plant must be located where the minimum
cost of production and distribution can be obtained, but other factors such as room for expansion
and safe living conditions for plant operation as well as the surrounding community are also
important [7].

The choice of the final site should first be based on a complete survey of the advantages and
disadvantages of various geographical areas and ultimately, on the advantages and disadvantages
of the available real estate. The various factors to be considered are as given below [8.9]:

Raw Materials Availability: the source of raw materials is one of the most important factors
influencing the selection of a plant site. Attention should be given to the purchased price of the
raw materials, distance from the source of supply, transportation expenses, availability and
reliability of supply, purity of raw materials and storage requirements.

Location: The location of market or intermediate distribution centres affects the cost of product
distribution and time required for shipping. Proximity to the major market is an important
consideration in the selection of the plant site, because the buyer usually finds the advantageous
to purchase from near-by sources. For example in case of sulphuric acid plant, the major
consumers are fertilizer industries and hence the plant should be created in close proximity to
those units.

Availability of Suitable Land: the characteristics of the land at the proposed plant site should be
examined carefully. The topography of the tract of land structure must b e considered, since either
or both may have a pronounced effect on the construction cost. The cost of the land is important
as well as local building cost and living conditions. Future changes may make it desirable or
necessary to expand the plant facilities. The land should be ideally flat, well drained and have
load-bearing characteristics. A full site evaluation should be made to determine the need for
piling and other special foundations.

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Transport: the transport of materials and products to and from plant will be an overriding
consideration in site selection. If practicable, a site should be selected so that it is close to at least
two major forms of transport; road, rail, waterway or a seaport. Road transport is being
increasingly used, and is suitable for local distribution from a central warehouse. Rail transport
will be cheaper for the long-distance transport. If possible the plant site should have access to all
three types of transportation. There is usually need for convenient rail and air transportation
facilities between the plant and the main company head quarters, and the effective transportation
facilities for the plant personnel are necessary.

Availability of Labors: labors will be needed for construction of the plant and its operation.
Skilled construction workers will usually be brought in front outside the site, but there should be
an adequate pool of unskilled labors available locally, and labors suitable for training to operate
the plant. Skilled tradesmen will be needed for plant maintena nce. Local trade union customs and
restrictive practices will have to be considered when assessing the availability and suitability of
the labors for recruitment and training.

Availability of Utilities: the word „utilities‟ is generally used for the ancillary services needed in
the operation of any production process. These services will normally be supplied from a central
facility and includes water, fuel and electricity [10].

Water: the water is required for large industrial as well as general purposes, s tarting with water
for cooling, washing, steam generation and as a raw material in the production of product. The
plant therefore must be located where the dependable water supply is available namely lakes,
rivers, wells, seas. If the water supply shows seasonal fluctuations, it‟s desirable to construct a
reservoir or to drill several standby wells. The temperature, mineral content, slit and sand content
and cost of supply and purification treatment must also be considered when choosing a water
supply. De-mineralized water, from which all the minerals have been removed is used where
pure water is needed for the process use, in boiler feed. Natural and forced draft cooling towers
are generally used to provide the cooling water required on site.

Electricity: power and stem requirement are high in most industrial plants and fuel is ordinarily
requirement to supply these utilities. Power, fuel and stem are required for running the various
equipments like generators, motors, turbines, plant lightings and general use and thus be
considered as one major factor is choice of plant site.

Environmental Impact and Effluent Disposal: Facilities must be provided for the effluent without
and public nuisance. In choosing a plant site, the permissible tolerance levels for va rious
effluents should be considered and attention should be given to potential requirement for
additional waste treatment facilities. As all industrial processes produce waste products, full
consideration must be given to the difficulties and coat of their disposal. The disposal of toxic
and harmful effluents will be covered by local regulations, and the appropriate authorities must
be consulted during the initial site survey to determine the standards that must be met.

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Local Community Considerations: The proposed plant must fit in with and be acceptable to the
local community. Full consideration must be given to the safe location of the plant so that it does
not impose a significant additional risk to the community.

Climate: Adverse climatic conditions at site will increase costs. Extremes of low temperatures
will require the provision of additional insulation and special heating for equipment and piping.
Similarly, excessive humidity and hot temperatures pose serious problems and must be
considered for selecting a site for the plant. Stronger structures will be needed at locations
subject to high wind loads or earthquakes.

Political and Strategic Considerations: Capital grants, tax concessions, and other inducements
are often given by governments to direct new investment to preferred locations; such as areas of
high unemployment. The availability of such grants can be the overriding consideration in site
selection.

Taxation and Legal Restrictions: State and local tax rates on property income, unemployment
insurance and similar items vary from one location to another. Similarly, local regulations on
zoning, building codes, nuisance aspects and others facilities can have a major influence on the
final choice of the plant site.

IV. METHOD OF FACTOR RATING

There are many analytical methods which can be used for selecting the suitable site for any
industry. Factor rating is mostly used method, following are the basics steps [11,12]:

Step1: Develop a list of relevant factors.

Step 2: Assign a weight to each factor reflecting its relative importance to the firm.
Step 3: Develop a rating scale for the factors.
Step 4: Score each location on each factor based on the scale.
Step 5: Multiply the scores by the weights for each factor and total the weighted scores for each
location.
Step 6: Make a recommendation based on the maximum point score, considering other factors.
In factor rating method, first we must identify the Most Important Factors in evaluating
alternative sites for the new facility. Then we should assign a weight between 0 and 100 to each
of these factors. Each alternative location will then be rated based on these factor weights. The
most weighted alternative is selected as the best alternative.

Let XYZ Ltd. is considering three alternative sites for its new facility. After evaluating
the firm‟s Needs, the Managers have narrowed the list of Important Selection Criteria
down into three major Factors.

- Availability of skilled labour

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- Availability of Raw materials, and

- Proximity to the firm‟s markets.
Weights reflecting the relative importance of each factor have been assigned as
follows in table1:

Table 1: Assign weight to each factor

Factor Weight

Availability of skilled labor : 0.50

Availability of raw materials: 0.30

Proximity to the firm’s market: 0.20

Total: 1.0

Based on these criteria, the three Alternative sites were scored between 0 and 100
points(table 2):

Table 2: Site score for alternatives sites

Factor Site Scores

Site A Site B Site C

Availability of skilled labor : 70 70 50

Availability of raw materials: 60 40 90

Proximity to the firm’s market: 70 95 60

Now we will multiply each score by its corresponding factor weight:

Weighted scores (table 3) are calculated as: (Site Score)x(Factor Weight).

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Table 3: Weighted score for each site

Factor Site A Site B Site C

Score Weighted Score Weighted Score Weighted

skilled labor 70 35 70 35 50 25
:
raw 60 18 40 12 90 27
materials:
Market 70 14 95 19 60 12
proximity:
Total 67 66 64
Weighted
Scores:

From these results, the largest total weight is for Site A. It appears to be the best location. What
happens, if factor weight get changed. Let‟s use the following factor weights: Skilled labour:
0.45; Raw Materials: 0.40; and Market: 0.15

Then the results (table 4) are obtained

Table 4: Weighted score for each site with changed factor weight

Factor Site A Site B Site C

Score Weighted Score Weighted Score Weighted
skilled labor : 70 31.5 70 31.5 50 22.5
raw 60 24 40 16 90 36
materials:
Market 70 10.5 95 14.25 60 9
proximity:
Total 66 61.75 67.5
Weighted
Scores:

In this case, Site C appears to be the best choice with largest weight score. Therefore, factor
rating method is very sensitive to the weights assigned to each factor.

V. CONCLUSION

The location of a plant is an important entrepreneurial decision because it influences the cost of
production and distribution to a great extent. Location analysis must be done very carefully. In
some cases, the location may contribute to even 10% of cost of manufacturing and marketing.
Therefore, an appropriate location is essential to the efficient and economical working of a plant.

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A firm may fail due to bad location or its growth and efficiency may be restricted. In Method of
Factor Rating; factor weights, selected factors, and assigned scores are all determined
subjectively, the managers should be very careful in selecting these items and numbers.

VI. REFERENCES

[1] Verma, J.C., and Gurpal Singh, Small Business and Industry – A handbook for
Entrepreneurs, New Delhi, Sage, 2002
[2] Ghosh, Bishwanath entrepreneurship development in India: National publishing house,
Jaipur and New Delhi 2000
[3] Charantinath M Poornima, Entrepreneurship Development Small Business Enterprises:
Pearson Education First Impression, 2006
[4] Florence. P. Sargent, Investment, Location and Size of plant, London: Cambridge
University Press, 1984
[5] Government of India (Office of the Economic Adviser), Location of Industries in India,
New Delhi, 1963
[6] Lundy, James. L. Effective Industrial Management, New Delhi: Eurasia Publishing
House, New Edition, 1984
[7] Sreekantaradhya, B.S., Regional Dispersal of Industries, New Delhi; Deep and Deep,
1985
[8] Weber, Alfred, Theory of Location of Industries, Chicago: The University of Chicago
Press, 1929
[9] Asian Productivity Organisation, Production Engineering, Manila: APO, 1981 Buffa
Elwood S., Operations Management, New Delhi: Wiley Eastern, 1986
[10] Kumar Anil, S.C. Purnima, Abrahim Mini K, K Jayashree, “Entrepreneurship
development”: New Age International Private Limited Publisher, 2003
[11] Read Ruddel R., Plant Layout – Factors, Principles and Techniques, Illinois: Richard D.
Irwin, 1978
[12] Gupta C.B. and Khanka S.S., Entrepreneurship and small business management: Sultan
Chand and Sons 2003

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