Factor Rating

A typical location decision involves both qualitative and quantitative inputs,

which tend to vary from situation to situation depending on the needs of each
organization. Factor rating is a general approach that is useful for evaluating
a given alternative and comparing alternatives. The value of factor rating is
that it provides a rational basis for evaluation and facilitates comparison
among alternatives by establishing a composite value for each alternative that
summarizes all related factors. Factor rating enables decision makers to
incorporate their personal opinions and quantitative information into the
decision process.

The following procedure is used to develop a factor rating.

1. Determine which factors are relevant (e.g., location of market, water
supply, parking facilities, revenue potential).
2. Assign a weigh to each factor that indicates its relative importance
compared with all other factors. Typically, weights sum to 1.00.
3. Decide on a common scale for all factors (e.g., 0 to 100).
4. Score each location alternative.
5. Multiply the factor weight by the score for each factor, and sum the
results for each location alternative.
6. Choose the alternative that has the highest composite score.
This procedure is illustrated in the next example.
A photo-processing company intends to open a new branch store. The table
below contains information on two potential locations.
 (Scores)
(Out of 100) Weighted Scores
Factor Weight Alt. 1 Alt.2 Alternative 1 Alternative 2
Proximity to existing store .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 costs .15 80 90 .15(80)=12.0 .15(90)=13.5
1.00 70.6 82.7
Alternative 2 is better because it has the higher composite score.

In some cases, managers may prefer to establish minimum thresholds for

composite scores. If an alternative fails to meet that minimum, they can reject
it without further consideration. If none of the alternatives meets the
minimum, this means that either additional alternatives must be identified and
evaluated or the minimum threshold must be reevaluated.

The Center of Gravity Method

The center of gravity method is a method to determine the location of a

distribution center that will minimize distribution costs. It treats distribution
cost as a linear function of the distance and the quantity shipped. The
quantity to be shipped to each destination is assumed to be fixed (i.e., will not
change over time). An acceptable variation is that quantities are allowed to
change, as long as their relative amounts remain the same (e.g., seasonal
variations).

The center of gravity method is a technique for locating single facilities that
considers the existing facilities, the distances between them, and the volumes
of goods to be shipped.

 The technique is often used to locate intermediate or distribution

warehouses.
  The center of gravity method begins by placing the existing locations on a
coordinate grid system.
 The purpose is to establish relative distances between locations.
 The center of gravity is found by calculating the X and Y coordinates that
result in the minimal transportation cost.
 We use the formulas

Cx= ∑dix Vi
∑ Vi
Cy= ∑diy Vi
Cx= ∑ Vi

where

Cx= X Coordinate of the center of gravity

Cy=Y Coordinate of the center of gravity
dix= X Coordinate of the ith location
diy= Y Coordinate of the ith location
Vi= Volume of goods to or from the ith location

Example: A refining company needs to locate an intermediate holding facility

between its refining plant in place A and its major distributors. The following
exhibit shows the coordinate map.
 500
 E(25,450)
400  D(350,400)

 C(450,350)
300

200 * Center of gravity (308,217)

 B(400,150)
100
 A(325,75)
o
o 100 200 300 400 500

 Plant

 Distributor

Shipping Volumes
Locations A B C D E
Gallons of Gasoline per month (000,000) 1,500 250 450 350 450

In this example, for location A d1x = 325, d1y = 75, and V1=1,500

Solution: using the above information we can calculate the coordinates of the
center of gravity.

Cx= (325x1,500) + (400x250) + (450x450)+(350x350)+(25x450) = 923,750 = 307.9

1,500 + 250+ 450+350+450 3,000

Cy= (75x1,500) + (150x250) + (350x450)+(400x350)+(450x450) = 65,000 = 216.7

1,500 + 250+ 450+350+450 3,000