MB204: Operations and Project Management

What is Operations Management?

Operations management is a field of business concerned with the

administration of business practices to maximize efficiency within an
organization. It involves planning, organizing, and overseeing the
organization’s processes to balance revenues and costs and achieve the
highest possible operating profit.

Operations management is a crucial aspect of any

organization, as it involves managing the processes and resources
required to produce goods or deliver services efficiently and
effectively. Here are some key responsibilities in operations
management:

1. Production Planning and Control: This involves scheduling and

coordinating the production process, including determining the required
materials, labor, and equipment to meet customer demand while
optimizing resource utilization.
2. Inventory Management: Operations managers must ensure that the
right amount of raw materials, work-in-progress, and finished goods
are available at the right time and place to maintain smooth operations
and meet customer requirements.
3. Quality Control: Establishing and maintaining quality standards
for products or services is essential. This involves implementing
quality assurance processes, inspections, and continuous improvement
initiatives to meet customer expectations and regulatory requirements.
4. Supply Chain Management: Operations managers coordinate the flow
of materials, information, and finances among suppliers, manufacturers,
distributors, and customers to ensure timely and cost-effective
delivery of products or services.
5. Facilities Planning and Management: This involves designing,
operating, and maintaining the physical facilities, equipment, and
workspace required for efficient production or service delivery.
6. Process Improvement: Continuously analyzing and improving
operational processes is crucial for enhancing productivity, reducing
waste, and increasing efficiency. This may involve techniques like lean
manufacturing, Six Sigma, or business process re-engineering.
7. Capacity Planning: Operations managers must determine the
appropriate level of resources (e.g., equipment, labor, materials)
required to meet expected demand while considering future growth and
fluctuations.
8. Cost Management: Monitoring and controlling operational costs,
such as labor, materials, energy, and overhead, is essential for
maintaining profitability and competitiveness.
9. Health and Safety Management: Ensuring a safe and healthy work
environment for employees and complying with relevant regulations and
standards is a critical responsibility in operations management.
10. Performance Measurement and Continuous Improvement: Establishing
key performance indicators (KPIs) and metrics to measure operational
performance, and using this information to identify areas for
improvement and implement changes.

By : Dr. Sudipta Halder

MB204: Operations and Project Management
Effective operations management requires a balance between efficiency,
quality, and customer satisfaction while maintaining a focus on
continuous improvement and adapting to changing market conditions and
technological advancements.

The main difference between manufacturing operations and

service operations lies in the nature of their outputs and
processes.
Manufacturing Operations: Manufacturing operations involve the
transformation of raw materials into physical goods or products. The
output is a tangible and durable product that can be stored,
transported, and consumed at a later time. Manufacturing processes
typically follow a defined sequence of steps to create the final
product.
Example: Maruti Suzuki India Limited (MSIL) Maruti Suzuki is a leading
automobile manufacturer in India. Its manufacturing operations involve
processes such as stamping, welding, painting, and assembly to
transform raw materials like steel, plastics, and glass into finished
vehicles. The output is a tangible product (cars and SUVs) that can be
stored and distributed to customers.
Service Operations: Service operations, on the other hand, involve the
provision of intangible offerings, such as knowledge, expertise, or
experiences. The output is a service that is consumed at the time it
is produced, and it cannot be stored or transported like a physical
product. Service processes often involve a high degree of customer
interaction and customization.
Example: Tata Consultancy Services (TCS) TCS is a global IT services
and consulting company. Its service operations involve providing
software development, consulting, and IT services to clients. The
output is intangible, such as software solutions, business process
improvements, or IT infrastructure management. Services are produced
and consumed simultaneously, often requiring direct interaction between
TCS employees and clients.
Key Differences:
1. Output: Manufacturing produces tangible goods, while service
operations provide intangible offerings.
2. Inventory: Manufactured goods can be stored as inventory, while
services cannot be inventoried.
3. Customer Interaction: Service operations often involve a high degree
of customer interaction and customization, whereas manufacturing
processes can be more standardized.
4. Process Variability: Service processes tend to be more variable due
to the direct interaction with customers, while manufacturing processes
can be more controlled and consistent.
5. Quality Measurement: Quality in manufacturing can be measured
objectively based on product specifications, while service quality is
often subjective and depends on customer perception.

It's important to note that many organizations, especially in the

modern economy, engage in a combination of manufacturing and service
operations. For example, companies like Dell and Apple manufacture
physical products (computers, smartphones) but also offer various
services (software support, cloud services) to their customers.

By : Dr. Sudipta Halder

MB204: Operations and Project Management
The responsibilities of an operations manager can vary depending on
the specific domain or industry. Here are some examples of operations manager responsibilities in
different domains, along with relevant examples:
Human Resources (HR) Domain:
✓ Overseeing the recruitment and onboarding processes to ensure
efficient staffing and new employee integration.
Example: An operations manager at an HR consulting firm like Aon or
Willis Towers Watson may be responsible for streamlining the
recruitment process, ensuring timely background checks, and
coordinating new hire orientation programs.
✓ Managing employee training and development programs to enhance
workforce capabilities.
Example: At a company like Infosys or Wipro, the operations manager in
the HR department may oversee the planning and execution of employee
training programs, ensuring efficient resource allocation and tracking
of training effectiveness.
✓ Implementing and maintaining HR information systems and processes
for payroll, benefits administration, and compliance.
Example: The operations manager at a company like Hewitt Associates or
Mercer may be responsible for ensuring the smooth operation of HR
information systems, such as payroll and benefits management software,
and ensuring compliance with labor laws and regulations.
Marketing Domain:
✓ Planning and executing marketing campaigns and promotional
activities to support sales and brand awareness.
Example: At a consumer goods company like Hindustan Unilever or Procter
& Gamble, the operations manager in the marketing department may be
responsible for coordinating the logistics of product launches,
managing advertising campaigns, and organizing promotional events.
✓ Managing the production and distribution of marketing materials,
including digital and print assets.
Example: For a company like Ogilvy or Lowe Lintas, the operations
manager in the marketing department may oversee the efficient creation
and distribution of marketing collateral, such as brochures, catalogs,
and digital assets, ensuring timely delivery and quality control.
✓ Analyzing marketing data and metrics to optimize campaigns and
resource allocation.
Example: At a technology company like Google or Facebook, the
operations manager in the marketing department may be responsible for
analyzing data from various marketing channels, optimizing campaigns
based on performance metrics, and ensuring efficient resource
allocation across different marketing initiatives.
Finance Domain:
✓ Overseeing financial processes, including accounts payable,
accounts receivable, and cash flow management.
Example: At a financial services firm like ICICI Bank or HDFC Bank,
the operations manager in the finance department may be responsible
for ensuring the smooth operation of financial processes, such as
invoice processing, collections, and cash management, to maintain
efficient financial operations.
✓ Managing budgeting, forecasting, and financial reporting processes.
Example: For a manufacturing company like Tata Steel or Mahindra &
Mahindra, the operations manager in the finance department may oversee

By : Dr. Sudipta Halder

MB204: Operations and Project Management
the budgeting and forecasting processes, ensuring accurate financial
reporting and compliance with accounting standards.
✓ Implementing and maintaining financial systems and controls to
ensure accuracy and compliance.
Example: At a consulting firm like PwC or EY, the operations manager
in the finance department may be responsible for implementing and
maintaining financial systems, such as enterprise resource planning
(ERP) software, and ensuring adherence to internal controls and
regulatory requirements.

Regardless of the domain, operations managers play a crucial role in

ensuring the efficient and effective execution of processes, optimizing
resource utilization, and maintaining compliance with relevant
regulations and standards.

Product-Process Matrix : The product-process matrix is a tool used

in operations management to analyze and categorize different types of
production processes based on the characteristics of the product being
produced and the volume of production. The matrix provides a framework
for understanding the relationship between product and process, and
helps organizations choose the appropriate production process based on
their specific requirements.

By : Dr. Sudipta Halder

MB204: Operations and Project Management

The product-process matrix offers several advantages and disadvantages,

which can be illustrated with examples from Indian companies:
Advantages:
1. Alignment of production processes with product characteristics:
Indian companies like Mahindra & Mahindra (automotive) and Samsung
(consumer electronics) use continuous or mass production processes,
which are well-suited for their standardized, high-volume products.
2. Efficient resource allocation: Companies like Titan (watches)
and Pepperfry (furniture) use batch processes for their moderately
customized, high-volume products, allowing efficient utilization of
resources.
3. Flexibility in meeting customer needs: Companies like Larsen &
Toubro (construction) and Hindustan Aeronautics Limited (aerospace)
use project processes for their highly customized, low-volume products,
providing flexibility to meet unique customer requirements.
4. Strategic decision-making: The matrix helps companies like Tata
Motors (automotive) and Godrej (consumer goods) make informed decisions
about production processes, equipment investments, and operational
strategies based on their product portfolios.
Disadvantages:
1. Limited flexibility: Continuous or mass production processes, used
by companies like Maruti Suzuki (automotive) and Parle (food products),
offer limited flexibility for product customization, which may not be
suitable for rapidly changing customer preferences.
2. High initial investment: Setting up dedicated production lines or
facilities for continuous or mass production processes, as used by
companies like ITC (consumer goods) and Bajaj Auto (motorcycles),
requires significant initial capital investment.
3. Difficulty in process changes: Companies like Hindustan Unilever
(consumer goods) and Asian Paints (paints and coatings), which employ
mass production processes, may face challenges in adapting to sudden
changes in product demand or process requirements due to the rigid
nature of their production systems.
4. Potential for overcapacity or underutilization: Companies like Tata
Steel (steel manufacturing) and Videocon (consumer electronics), which

By : Dr. Sudipta Halder

MB204: Operations and Project Management
operate continuous or mass production processes, may experience
overcapacity or underutilization of resources if demand fluctuates
significantly.
While the product-process matrix provides a useful framework for
aligning production processes with product characteristics, companies
must carefully consider their specific business requirements, market
dynamics, and operational constraints to strike the right balance
between efficiency, flexibility, and responsiveness to customer needs.

The production cycle refers to the series of steps involved in

transforming raw materials into finished goods or products. The steps
in the production cycle can vary depending on the industry and the
specific product being manufactured. Here are the typical steps
involved in a production cycle, along with examples from Indian
companies and the benefits and challenges of production cycle analysis.

Steps in the Production Cycle:

1. Product Design and Development: Example: Tata Motors designs and

develops new vehicle models based on market research and customer
requirements.
2. Procurement of Raw Materials: Example: Hindalco Industries procures
bauxite, alumina, and other raw materials for aluminum production.
3. Production Planning and Scheduling: Example: Maruti Suzuki plans and
schedules its production lines to meet demand for different car models.
4. Manufacturing or Production Process: Example: Bajaj Auto follows a
series of production processes, such as metal fabrication, welding,
assembly, and painting, to manufacture motorcycles.
5. Quality Control and Inspection: Example: Dr. Reddy's Laboratories
performs rigorous quality control tests to ensure the safety and
efficacy of its pharmaceutical products.
6. Packaging and Labeling: Example: ITC Limited packages and labels its
food and consumer goods products for distribution.
7. Storage and Inventory Management: Example: Asian Paints maintains
inventory of finished paint products in its warehouses for distribution
to retailers.
8. Distribution and Logistics: Example: Flipkart and Amazon India
manage the distribution and logistics of delivering products to
customers across the country.
By : Dr. Sudipta Halder
MB204: Operations and Project Management
Benefits of Production Cycle Analysis:
1. Improved Efficiency: Analyzing the production cycle helps identify
bottlenecks, redundancies, and areas for process optimization, leading
to increased efficiency and cost savings.
2. Quality Control: By examining each step of the production cycle,
companies can implement quality control measures and ensure adherence
to standards and regulations.
3. Resource Planning: Understanding the production cycle allows for
better planning and allocation of resources, such as raw materials,
labor, and equipment, to meet production targets.
4. Waste Reduction: Analyzing the production cycle can help identify
and eliminate sources of waste, such as excess inventory, defective
products, or unnecessary steps, leading to cost savings and
environmental benefits.
5. Continuous Improvement: Regular analysis of the production cycle
enables companies to identify areas for improvement and implement
strategies for continuous process optimization.
Challenges of Production Cycle Analysis:
1. Complexity: Production cycles can be highly complex, especially in
industries with intricate manufacturing processes or multiple product
lines, making analysis and optimization challenging.
2. Data Collection:
Gathering accurate and
comprehensive data for
each step of the production
cycle can be time-
consuming and resource-
intensive, especially in
large-scale operations.
3. Resistance to Change:
Implementing changes or
improvements to the
production cycle may face
resistance from employees
or stakeholders who are
accustomed to existing
processes.
4. Investment
Requirements: Optimizing
the production cycle may
require significant
investments in new
equipment, technology, or
infrastructure, which can
be costly and disruptive.
5. Coordination and Integration: Ensuring seamless coordination and
integration among different steps of the production cycle, especially
when involving multiple departments or external suppliers, can be a
challenge.
Despite these challenges, analyzing and optimizing the production cycle
is crucial for companies to remain competitive, reduce costs, improve
quality, and enhance overall operational efficiency.

By : Dr. Sudipta Halder

MB204: Operations and Project Management

Production Planning and Control : Production Planning and Control

(PPC) is a crucial function in operations management that involves the
planning, scheduling, and controlling of the production process to
ensure efficient and effective utilization of resources to meet
customer demand.
Objectives and Benefits of Production Planning and Control:
Meeting Customer Demand: The primary objective of PPC is to ensure
that products are manufactured in the right quantities and delivered
to customers on time. This helps in maintaining customer satisfaction
and enhancing brand reputation. Example: Maruti Suzuki, India's largest
automobile manufacturer, employs robust PPC systems to ensure timely
delivery of vehicles to meet customer demand.
Optimizing Resource Utilization: PPC aims to optimize the use of
available resources, such as raw materials, labor, equipment, and
facilities, to minimize waste and reduce production costs. Example:
Tata Steel, a leading steel producer, uses PPC techniques to optimize
the utilization of its blast furnaces, rolling mills, and other
production resources.
Improving Productivity: Effective PPC can help in identifying and
eliminating bottlenecks, reducing idle time, and increasing overall
productivity through better scheduling and coordination of production
activities. Example: Hindustan Unilever, a multinational consumer goods
company, employs PPC systems to improve productivity and reduce lead
times in its manufacturing facilities.
Inventory Management: PPC plays a crucial role in managing inventory
levels by coordinating the flow of materials and ensuring the
availability of required components and finished goods at the right
time. Example: Bajaj Auto, a major motorcycle manufacturer, uses PPC
to maintain optimal inventory levels of raw materials, work-in-
progress, and finished motorcycles.
Cost Control: By optimizing resource utilization, reducing waste,
and improving productivity, PPC contributes to overall cost control
and profitability in manufacturing operations. Example: Dr. Reddy's
Laboratories, a leading pharmaceutical company, leverages PPC to
control production costs and maintain competitiveness in the market.

By : Dr. Sudipta Halder

MB204: Operations and Project Management
Steps in Production Planning and Control (with an example of a smartphone):
1. Product Design and Development: The process begins with the design
and development of the smartphone, including specifications, features,
and component requirements.
2. Sales Forecasting: Based on market research and historical data,
sales forecasts are made to estimate the demand for the smartphone.
3. Production Planning: Production plans are developed, considering the
sales forecast, available resources, and production capacity. This
includes determining the required quantities, production schedules,
and resource allocation.
4. Material Requirements Planning (MRP): MRP is used to calculate the
required quantities of raw materials, components, and subassemblies
needed for the planned production of the smartphone.
5. Capacity Planning: The available production capacity is assessed,
and adjustments are made if necessary, such as adding additional shifts
or outsourcing certain processes.
6. Production Scheduling: Detailed production schedules are created,
specifying the sequence of operations, machine assignments, and start
and finish times for each production run.
7. Shop Floor Control: The actual production process is monitored and
controlled on the shop floor, ensuring adherence to schedules, quality
standards, and resolving any issues that may arise.
8. Inventory Management: Inventory levels of raw materials, work-in-
progress, and finished smartphones are closely monitored and adjusted
as needed throughout the production cycle.
9. Quality Control: Quality checks are performed at various stages of
the production process to ensure that the smartphone meets the
specified standards and requirements.
10. Continuous Improvement: Data and feedback from the production
process are analyzed to identify opportunities for improvement, such
as reducing lead times, increasing efficiency, or improving quality.

Effective Production Planning and Control is crucial for manufacturing

companies to meet customer demand, optimize resource utilization,
reduce costs, and maintain a competitive edge in the market.

________________________________*****________________________________

By : Dr. Sudipta Halder

MB204: Operations and Project Management
Chapter2: Facility Location and Layout
The concept of facility location is a crucial aspect in operations
management and strategic decision-making for businesses. It involves
determining the optimal location for a facility, such as a
manufacturing plant, warehouse, or distribution center, to maximize
efficiency, minimize costs, and enhance overall profitability. The
purpose of selecting a good plant location is multifaceted and has far-
reaching implications for a company's success.

Purpose of Good Plant Location:

1. Cost optimization: A well-chosen plant location can significantly
reduce various costs associated with manufacturing, transportation,
labor, raw materials, and utilities. By strategically locating the
facility, companies can minimize transportation costs for both inbound
raw materials and outbound finished goods.
2. Access to resources: Proximity to critical resources, such as skilled
labor, raw materials, energy sources, and infrastructure (e.g.,
transportation networks, ports, and utilities), can greatly impact
operational efficiency and cost-effectiveness.
3. Market proximity: Locating the plant near major markets or customer
bases can reduce distribution costs and lead times, enhancing customer
satisfaction and facilitating timely delivery of products.
4. Competitive advantage: A strategic plant location can provide a
competitive edge by allowing a company to serve its customers more
effectively, respond to market demands faster, and maintain a strong
presence in the industry.
5. Expansion potential: Selecting a location with growth opportunities
and room for future expansion can accommodate increasing demand and
facilitate scalability without the need for relocation.
Factors Influencing Plant Location:
The decision to locate a plant involves considering various tangible
and intangible factors. These factors can be categorized as follows:
Tangible Factors:

1. Raw Material Availability: Proximity to sources of raw materials can

significantly reduce transportation costs and ensure a consistent
supply. Example: Tata Steel located its integrated steel plant in
Jamshedpur, which is close to iron ore, coal, and other raw material
sources.
2. Labor Availability and Cost: Access to a skilled and cost-effective
labor force is essential for efficient operations. Example: Textile
companies in India often establish plants in states like Gujarat and
Tamil Nadu, which have a large pool of skilled textile workers.
3. Transportation and Logistics: Convenient access to transportation
networks (roads, railways, ports) is crucial for the movement of raw
materials and finished goods. Example: Maruti Suzuki's manufacturing
facility in Gurgaon is strategically located near the National Capital
Region, facilitating efficient distribution across northern India.
4. Utilities and Infrastructure: Reliable sources of power, water, and
other utilities, along with adequate infrastructure like roads and
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MB204: Operations and Project Management
telecommunications, are vital for smooth operations. Example: The IT
sector in India has flourished in cities like Bengaluru and Hyderabad
due to the availability of robust infrastructure and utilities.

Intangible Factors:

1. Government Policies and Incentives: Favorable government

policies, tax incentives, and subsidies can influence the decision to
locate a plant in a particular region. Example: Many automobile
companies have set up plants in Gujarat, attracted by the state's
industry-friendly policies and incentives.
2. Environmental Considerations: Companies may prioritize locations
that align with their environmental sustainability goals and minimize
adverse impact on the surroundings. Example: Renewable energy companies
like Suzlon Energy and Gamesa have established manufacturing facilities
in states with favorable wind and solar energy potential.
3. Community Attitudes: The local community's attitudes towards the
industry, as well as their cooperation and acceptance, can
significantly impact the success of the plant. Example: Companies in
the mining and extractive industries often face challenges in locating
plants due to community resistance and environmental concerns.
4. Quality of Life: Factors like housing, healthcare, education, and
recreational facilities in the area can influence the ability to
attract and retain skilled employees. Example: IT companies tend to
locate in metropolitan cities like Bengaluru, Hyderabad, and Pune,
which offer a high quality of life and amenities for their employees.

It is essential for companies to carefully evaluate these tangible and

intangible factors and strike a balance among them to select an optimal
location that supports their long-term business objectives and
competitiveness.
Economic Survey Site Selection: The economic survey is a
crucial step in the site selection process for a new facility or plant
location. It involves a comprehensive analysis of the economic factors and
conditions that can impact the success and profitability of the proposed
facility. The economic survey aims to identify the most suitable location
that offers the best combination of factors to support the organization's
operations and long-term growth objectives. Here are some key aspects that
are typically evaluated in an economic survey for site selection:

1. Labor Market Analysis:

✓ Availability of skilled and unskilled labor
✓ Prevailing wage rates and labor costs
✓ Presence of labor unions and labor relations
✓ Productivity levels of the local workforce
✓ Access to training and educational institutions
2. Market and Industry Analysis:
✓ Size and potential growth of the target market
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MB204: Operations and Project Management
✓ Presence of existing competitors and industry clusters
✓ Proximity to customers and distribution channels
✓ Trends and forecasts for the industry and market demand
3. Transportation and Logistics:
✓ Access to various transportation modes (road, rail, air, water)
✓ Proximity to major transportation hubs (airports, seaports,
highways)
✓ Availability and costs of transportation services
✓ Condition and capacity of existing infrastructure
4. Utilities and Infrastructure:
✓ Availability and reliability of power, water, and other utilities
✓ Quality and capacity of telecommunication networks
✓ Condition and capacity of roads, bridges, and other infrastructure
5. Real Estate and Construction Costs:
✓ Availability and costs of land or existing facilities
✓ Construction costs, including labor and materials
✓ Costs of leasing or purchasing facilities
✓ Potential for future expansion or relocation
6. Tax and Regulatory Environment:
✓ Federal, state, and local tax rates and incentives
✓ Environmental regulations and compliance costs
✓ Zoning and land-use restrictions
✓ Permitting processes and requirements
7. Quality of Life Factors:
✓ Cost of living and housing affordability
✓ Availability of educational, healthcare, and recreational
facilities
✓ Crime rates and public safety
✓ Cultural and recreational opportunities
8. Economic Development Incentives:
✓ Tax credits, grants, or subsidies offered by local governments
✓ Availability of financing or loan programs
✓ Workforce training and development programs
The economic survey typically involves gathering and analyzing data
from various sources, such as government agencies, industry
associations, real estate firms, and economic development
organizations. The findings of the economic survey are then used to
evaluate and compare potential site locations based on their economic
viability and alignment with the organization's strategic objectives.
Errors in Location Selection : The categorization of
errors into behavioral and non-behavioral errors provides a useful framework
for understanding and mitigating these risks.

1. Behavioral Errors: Behavioral errors stem from personal biases,

preferences, or conflicts of interest that may influence the decision-
making process. These errors can include:

a. Personal Preferences: Executives may prioritize personal

considerations, such as proximity to their hometown or preferred living
locations, over the optimal location for the business.

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MB204: Operations and Project Management
b. Familiarity Bias: Decision-makers may favor locations they are
familiar with, even if other locations offer better opportunities or
advantages for the facility. c. Influence from Stakeholders: External
stakeholders, such as investors or influential individuals, may exert
pressure to locate the facility in a specific area, potentially
compromising objective decision-making.

d. Cognitive Biases: Various cognitive biases, such as anchoring bias

or confirmation bias, can lead decision-makers to overlook critical
information or selectively interpret data to fit their preconceived
notions.

2. Non-behavioral Errors: Non-behavioral errors are typically

associated with inadequate research, analysis, or consideration of
essential factors relevant to the facility's operations and success.
These errors can include:

a. Insufficient Data Collection: Failing to gather comprehensive data

on factors such as market conditions, transportation networks, labor
availability, and infrastructure can lead to uninformed decisions.

b. Overlooking Critical Factors: Ignoring or underestimating the

importance of certain factors, such as environmental regulations, tax
implications, or potential risks, can result in suboptimal location
choices.

c. Inadequate Analysis: Lack of rigorous analysis, including

quantitative modeling, cost-benefit analysis, or scenario planning,
can lead to poor decision-making.

d. Industry-specific Oversights: Neglecting to consider industry-

specific factors, such as proximity to suppliers, distribution
channels, or regulatory environments, can hinder the facility's
competitiveness and efficiency.

To mitigate these errors, organizations should establish robust

location selection processes that involve cross-functional teams,
objective data analysis, and a comprehensive evaluation of all relevant
factors. Engaging external consultants or experts can also help provide
an unbiased perspective and identify potential blind spots.
Additionally, implementing checks and balances, such as peer reviews
or independent audits, can help detect and correct biases or oversights
in the decision-making process.

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MB204: Operations and Project Management
Model for facility location :
1. Cost-Profit-Volume Analysis method : A firm could decide on a
particular location out of multiple alternatives if that location
produces:
• at lowest cost
• gives maximum profit
This method provides calculations to achieve any of the above st
ated objectives if a firm fulfills following assumptions:

• Fixed costs are constant for a particular range of output at a particular

location.
• Variable costs are linear for selected range of output i.e. variable
cost does not change if output varies over a particular range.
• All the selected location alternatives produce same and only one item.

For cost analysis, total cost for each location can be computed by using
following formula:
Total cost (TC) = Fixed cost (FC) + variable cost (V) * Quantity or volume
of output (Q) ………(1)
For profit analysis, total profit can be computed by using following formula:
Profit (P)= Quantity or volume of output (Q) * (Revenue – variable cost) –
Fixed cost
Profit (P)= Q * (R-V) – FC ………(2)

So, location C should be selected for manufacturing same product as this

location would incur minimum cost out of given alternatives.

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MB204: Operations and Project Management

2. Location Factor Rating (Weighted Scoring Model) : In this method, key

factors or criteria relevant to the facility location decision are
identified and weighted according to their relative importance. Each
potential site is then rated on a numerical scale for each factor. The
ratings are multiplied by the corresponding factor weights, and the
scores are summed to determine an overall score for each site. The site
with the highest overall score is considered the most favorable
location.

Example : Hindustan Unilever Limited (HUL), a leading consumer goods

company in India, wants to establish a new manufacturing facility for
their personal care products. The company has identified three
potential locations: Pune (Maharashtra), Gurgaon (Haryana), and
Ahmedabad (Gujarat). HUL wants to evaluate these locations using the
factor rating method.

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MB204: Operations and Project Management

Key Factors or Weights To Each Each Potential Location on A Scale

Criteria Relevant to Factor Based on (E.G., 1 To 5) For Each Factor.
The Location Their Relative
Decision Importance Pune GurGaon
ahMedabad
Availability of
skilled labor
0.25 4 3 5

Proximity to raw
material suppliers
0.20 3 2 4

Transportation
infrastructure
0.15 5 4 3
Incentives and
support from the 0.20 2 4 3
state government
Cost of land and
construction
0.20 3 2 4
Weights To Each Factor Based on
Their Relative Importance Pune GurGaon
ahMedabad
0.25 1 0.75 1.25
0.20 0.6 0.4 0.8
0.15 0.75 0.6 0.45
0.20 0.4 0.8 0.6
0.20 0.6 0.4 0.8
Total weighted score 3.35 2.95 3.9
Based on the factor rating method, the optimal location for HUL's new
manufacturing facility would be Ahmedabad, followed by Pune and
Gurgaon.
1. Analytical Hierarchy Process (AHP)
2. The Dimensional Analysis approaches
3. Center of Gravity Method
4. Load-Distance Technique
5. Composite Factor Rating
6. The Simple ranking of alternative site approach
7. The Quadratic Assignment model
8. The Linear Assignment model
9. The Linear Transportation model
10. Branch and Bound technique

By : Dr. Sudipta Halder