Chapter: 1

Facility Location Models

1.1 Introduction Facility Location is a geographic location of manufacturing/service facilities where transformation activities from inputs into the output are performed. Selecting a location of facilities is very crucial decision not only for manufacturing unit but also for service unit. Generally it is a strategic decision and involves lot of activities. It starts from identifying the suitable locations based on certain criteria and then evaluating all locations based on specific tools and techniques. Factor Rating Method, Break even analysis, Centre of Gravity Method, Simple Median Method and Transportation Techniques are available that would help the decision maker to identify the best suitable*…show more content…*

The graph shows the fixed cost, variable cost, total cost and Break even volume. The intersection point of total cost and total revenue is called break even point. At break even volume, the organization recovers all its costs. It is a no profit no loss situation.

Fixed Cost + variable Cost = Total Cost

Total Revenue

Total Cost

Variable Cost Cost / Revenue

Fixed Cost

Break even Volume

Production Volume The Fig 1.1 Graph representing Fixed Cost, Total Cost, Total Revenue & Break Even Volume.

Example 1.2: The table shows the fixed costs and variable costs for 3 potential locations for Watch Manufacturing Unit. The product is expected to sell at Rs 300 per unit. Find the most economical location for a production volume of 15,000 per year. Locations Noida Morbi Buddi Fixed Cost / Year ( Rs ) 1,20,000 1,45,000 1,10,000 Variable Cost / Unit ( Rs ) 60 45 50

Solution : The fixed cost and variable cost for Locations A , B and C are given. Let Us find the total Cost associated with all the three locations.

Total Cost for Noida = Fixed Cost + ( Variable cost × Production Volume ) = 1, 20,000 + ( 60 × 15,000 )

= 1, 20,000 + 9,00000 =10,20,000 Total Cost for Morbi = Fixed Cost + ( Variable cost × Production Volume ) = 1,45 , 000 + ( 45 × 15,000 ) = 1,45,000 + 6,75 ,000 = 8 , 20 , 000 Total Cost for Buddi = Fixed Cost + ( Variable cost × Production Volume ) = 1,10 , 000 + ( 50 × 15,000 ) = 1,10,000 + 900000 = 10,10,000 By Comparing Total

Facility Location Models

1.1 Introduction Facility Location is a geographic location of manufacturing/service facilities where transformation activities from inputs into the output are performed. Selecting a location of facilities is very crucial decision not only for manufacturing unit but also for service unit. Generally it is a strategic decision and involves lot of activities. It starts from identifying the suitable locations based on certain criteria and then evaluating all locations based on specific tools and techniques. Factor Rating Method, Break even analysis, Centre of Gravity Method, Simple Median Method and Transportation Techniques are available that would help the decision maker to identify the best suitable

The graph shows the fixed cost, variable cost, total cost and Break even volume. The intersection point of total cost and total revenue is called break even point. At break even volume, the organization recovers all its costs. It is a no profit no loss situation.

Fixed Cost + variable Cost = Total Cost

Total Revenue

Total Cost

Variable Cost Cost / Revenue

Fixed Cost

Break even Volume

Production Volume The Fig 1.1 Graph representing Fixed Cost, Total Cost, Total Revenue & Break Even Volume.

Example 1.2: The table shows the fixed costs and variable costs for 3 potential locations for Watch Manufacturing Unit. The product is expected to sell at Rs 300 per unit. Find the most economical location for a production volume of 15,000 per year. Locations Noida Morbi Buddi Fixed Cost / Year ( Rs ) 1,20,000 1,45,000 1,10,000 Variable Cost / Unit ( Rs ) 60 45 50

Solution : The fixed cost and variable cost for Locations A , B and C are given. Let Us find the total Cost associated with all the three locations.

Total Cost for Noida = Fixed Cost + ( Variable cost × Production Volume ) = 1, 20,000 + ( 60 × 15,000 )

= 1, 20,000 + 9,00000 =10,20,000 Total Cost for Morbi = Fixed Cost + ( Variable cost × Production Volume ) = 1,45 , 000 + ( 45 × 15,000 ) = 1,45,000 + 6,75 ,000 = 8 , 20 , 000 Total Cost for Buddi = Fixed Cost + ( Variable cost × Production Volume ) = 1,10 , 000 + ( 50 × 15,000 ) = 1,10,000 + 900000 = 10,10,000 By Comparing Total

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