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    Factor Rating

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    Tesfaye Kebede
    Factor rating is a general approach for evaluating location alternatives and comparing them by establishing a composite value for each alternative based on relevant factors and their weights. The procedure involves 1) determining relevant factors, 2) assigning weights, 3) using a common scale, 4) scoring alternatives on each factor, 5) calculating weighted scores, and 6) choosing the alternative with the highest score. For example, a photo company evaluated two store locations and chose the alternative with the higher total weighted score of 82.7 versus 70.6.

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    Factor Rating

    Uploaded by

    Tesfaye Kebede
    43 views4 pages
    Factor rating is a general approach for evaluating location alternatives and comparing them by establishing a composite value for each alternative based on relevant factors and their weights. The procedure involves 1) determining relevant factors, 2) assigning weights, 3) using a common scale, 4) scoring alternatives on each factor, 5) calculating weighted scores, and 6) choosing the alternative with the highest score. For example, a photo company evaluated two store locations and chose the alternative with the higher total weighted score of 82.7 versus 70.6.

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    Factor rating is a general approach for evaluating location alternatives and comparing them by establishing a composite value for each alternative based on relevant factors and their weights. The procedure involves 1) determining relevant factors, 2) assigning weights, 3) using a common scale, 4) scoring alternatives on each factor, 5) calculating weighted scores, and 6) choosing the alternative with the highest score. For example, a photo company evaluated two store locations and chose the alternative with the higher total weighted score of 82.7 versus 70.6.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    43 views4 pages

    Factor Rating

    Uploaded by

    Tesfaye Kebede
    Factor rating is a general approach for evaluating location alternatives and comparing them by establishing a composite value for each alternative based on relevant factors and their weights. The procedure involves 1) determining relevant factors, 2) assigning weights, 3) using a common scale, 4) scoring alternatives on each factor, 5) calculating weighted scores, and 6) choosing the alternative with the highest score. For example, a photo company evaluated two store locations and chose the alternative with the higher total weighted score of 82.7 versus 70.6.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 4

    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

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