Chapter 8: Location Strategies

Problem 1: A major drug store chain wishes to build a new warehouse to serve the whole Midwest. At the moment, it is looking at three possible locations. The factors, weights, and ratings being considered are given below:

Ratings Factor Nearness to markets Labor cost Taxes Nearness to suppliers Which city should they choose? Problem 2: Balfours is considering building a plant in one of three possible locations. They have estimated the following parameters for each location: Weights 20 5 15 10 Peoria 4 8 8 10 Des Moines 7 8 9 6 Chicago 5 4 7 10

Location Waco, Texas Tijuana, Mexico Fayetteville, Arkansas

Fixed Cost $300,000 $800,000 $100,000

Variable Cost $5.75 $2.75 $8.00

For what unit sales volume should they choose each location?

Problem 3: Our main distribution center in Phoenix, AZ is due to be replaced with a much larger, more modern facility that can handle the tremendous needs that have developed with the citys growth. Fresh produce travels to the seven store locations several times a day making site selection critical for efficient distribution. Using the data in the following table, determine the map coordinates for the proposed new distribution center.

Store Locations Mesa Glendale Camelback Scottsdale Apache Junction Sun City Pima

Map Coordinates (x,y) (10,5) (3,8) (4,7) (15,10) (13,3) (1,12) (5,5)

Truck Round Trips per Day 3 3 2 6 5 3 10

Problem 4: The following table gives the map coordinates and the shipping loads for a set of cities that we wish to connect though a central hub. Near what map coordinates should the hub be located?

City A B C D E F G

Map Coordinate (x,y) (5,10) (6,8) (4,9) (9,5) (7,9) (3,2) (2,6)

Shipping Load 5 10 15 5 15 10 5

Problem 5: A company is planning on expanding and building a new plant in one of three countries in Middle or Eastern Europe. The general manager, Patricia Donegal, has decided to base her decision on six critical success factors: technology availability and support, availability and quality of public education, legal and regulatory aspects, social and cultural aspects, economic factors, and political stability. Using a rating system of 1 (least desirable) to 5 (most desirable) she has arrived at the following ratings (you may, of course, have different opinions). In which country should the plant be built?

Critical Success Factor Technology availability and support Availability and quality of public education Legal and regulatory aspects Social and cultural aspects Economic factors Political stability

Turkey 4 4 2 5 4 4

Serbia 3 4 4 3 3 2

Slovakia 4 3 5 4 3 3

Problem 6: Assume that Patricia decides to use the following weights for the critical success factors: Technology availability and support Availability and quality of public education Legal and regulatory aspects Social and cultural aspects Economic factors Political stability Would this change her decision? 0.3 0.2 0.1 0.1 0.1 0.2

ANSWERS: Problem 1:

Ratings Factor Nearness to markets Labor cost Taxes Nearness to suppliers Weights 20 5 15 10 Peoria 4 8 8 10 Des Moines 7 8 9 6 Chicago 5 4 7 10 Peoria 80 40 120 100 340

Weighted Ratings Des Moines 140 40 135 60 375 Chicago 100 20 105 100 325

Sum of Weighted ratings:

Therefore, it appears that based upon the weights and rating, Des Moines should be chosen.

Problem 2: Transition between Waco and Tijuana:

300, 000 + (5.75 x) = 800, 000 + (2.75 x) 3 x = 500, 000 x = 166, 000 Transition between Waco and Fayetteville:

300, 000 + (5.75 x) = 100, 000 + (8.00 x) 200, 000 = 2.25 x 88,888 = x

Problem 3:

New Distribution Center should be located at:

(10*3) + (3*3) + (4* 2) + (15*6) + (13*5) + (1*3) + (5*10) 255 = = 7.97 3 + 3 + 2 + 6 + 5 + 3 + 10 32

Cx =

Cy =

(5*3) + (8*3) + (7 * 2) + (10*6) + (3*5) + (12*3) + (5*10) 214 = = 6.69 3 + 3 + 2 + 6 + 5 + 3 + 10 32

Problem 4:

The new hub should be located close to: (5*5) + (6*10) + (4*15) + (9*5) + (7 *15) + (3*10) + (2*5) 335 = = 5.15 5 + 10 + 15 + 5 + 15 + 10 + 5 65 (10*5) + (8*10) + (9*15) + (5*5) + (9*15) + (2*10) + (6*5) 475 = = 7.31 5 + 10 + 15 + 5 + 15 + 10 + 5 65

Cx =

Cy =

Problem 5:

Critical Success Factor Technology availability and support Availability and quality of public education Legal and regulatory aspects Social and cultural aspects Economic factors Political stability
=

Turkey 4 4 2 5 4 4 23

Serbia 3 4 4 3 3 2 19

Slovakia 4 3 5 4 3 3 22

Based upon her ratings of the critical success factors, Patricia should choose Turkey. From a practical perspective, given the small difference between the scores for Turkey and Slovakia, and the subjectivity of the ratings themselves, Patricia would be better advised to develop additional critical success factors, more carefully weigh the individual factors; or, in general, to acquire more information before making her decisions.

Problem 6:

Critical Success Factor Technology availability and support Availability and quality of public education Legal and regulatory aspects Social and cultural aspects Economic factors Political stability

Wgt 0.3 0.2 0.1 0.1 0.1 0.2

Turkey 4 4 2 5 4 4 1.2 0.8 0.2 0.5 0.4 0.8

Serbia 3 4 4 3 3 2 0.9 0.8 0.4 0.3 0.3 0.4 3.1

Slovakia 4 3 5 4 3 3 1.2 0.6 .5 0.4 0.3 0.6 3.6

= 3.9

No, in this case, use of the weighting factors does not change the recommendation. One might again suggest that additional information be considered in making the decision.

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