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107
C H A P T E R
Location Strategies
DISCUSSION QUESTIONS
1.FedExskeylocationconceptisthecentralhubconcept,with
Memphisselectedforseveralreasons,includingitsbeinginthe
middleofthecountryandhavingveryfewhoursofbadweather
closures.
2.ThemajorreasonforU.S.firmstolocateoverseasisoften
lower labor costs, but as this chapter, Chapter 2, and
Supplement11suggest,thereareanumberofconsiderations.
3.ThemajorreasonforeignfirmsbuildintheU.S.istosatisfy
thedemandforforeigngoodsintheUnitedStateswhilereducing
transportationcostandforeignexchangerisk;inaddition, U.S.
locationsallowforeignfirmstocircumventquotasand/ortariffs.
4.Clusteringisthetendencyoffirmstolocatenearcompetitors.
5.Differentweightscanbegiventodifferentfactors.Personal
preferencesareincluded.
6.The qualitative approach usually considers many more
factors,butitsresultsarelessexact.
7.Clustering examples in the service sector include fastfood
restaurants,shoeandjewelrystoresinashoppingmall,andtheme
parks.
8.Factorstoconsiderwhenchoosingacountry:
Exchangerates
Governmentstability(politicalrisk)
Communications systems within the country and to the
homeoffice
Wagerates
Productivity
Transportationcosts
Language
Tariffs
Taxes
Attitudetowardsforeigninvestors/incentives
Legalsystem
Ethicalstandards
Culturalissues
Suppliesavailability
Marketlocations
9.Factorstoconsiderinaregion/communitydecision:
Corporatedesires
Attractivenessofregion
Laborissue
Utilities
Environmentalregulations
Incentives
Proximitytorawmaterials/customers
Land/constructioncosts
14.Theissueofweightorvolumegainandweightorvolume
loss during processing is important, and supports the
manufacturingsideofthesaying(weightlossduringminingand
refining,forexample,suggestsshippingafterprocessing).ButJIT
maybemoreeasilyaccomplishedwhensuppliersareclustered
nearthecustomer.Andsomeservices(suchasInternetsales)can
take place at tremendous distances without sacrificing close
contact.
15.Besides low wage rates, productivity should be considered
also.Employeeswithpoortraining,pooreducation,orpoorwork
habitsarenotagoodbuy.Moreover,employeeswhocannotorwill
notreachtheirplaceofworkarenotmuchgoodtotheorganization.
16.Servicelocation techniques: regressionmodels todetermine
importanceofvariousfactors,factorratingmethod,trafficcounts,
demographicanalysisofdrawingarea,purchasingpoweranalysisof
area,centerofgravitymethod,andgeographicinformationsystem.
17.Thedistributorismoreconcernedwithtransportationand
storagecosts,andthesupermarketmoreconcernedwithproximity
to markets. The distributor will focus more on roads, overall
populationdensity(storedensity),whilethesupermarketwillfocus
more on neighborhood affluence, traffic patterns, etc. The
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
108
CHAPTER 8L O C AT I O N S T R AT E G I E S
distributorwillbeconcernedwithspeedyandreliabledelivery,the
supermarket with easy access. Both will have concerns over
attitudesandzoning.Bothwillneedaccesstosimilarlaborforces;
bothwillneedsimilarmeasuresofworkforceeducation,etc.Many
othercomparisonscanbedrawn.
END-OF-CHAPTER PROBLEMS
(a)Cambodia
ETHICAL DILEMMA
Location is a major issue in the U.S. today. Almost every
communityisseekingnewjobs,especiallyfromforeignfirmslike
Mercedes.AsMercedeswasdefinitelycomingtotheU.S.any
way,thebiddingwarsarenonproductivefromacentraleconomy
perspective.Therearemanyimplicationstothelocalcitizenry,
especially because they pay the bills if the financial successes
predictedarenotaccurate.Votesareusuallynottakenasthese
decisions are made by the political leaders of the community.
Objective economic analysis on the incentives versus benefits
mightlimitthegiveaways.
AstheUnitedAirlinesdiscussionsuggests,therearemany
downsides to the spread of incentives being offered by almost
everycity,state,andcountry.OrlandoandLouisvillearelikely
counting their blessings that they lost the bidding war for the
United repair base. For every happy ending (such as Vance,
Alabama,claimswithitsMercedesplant),thereisastorylikethe
oneinthisEthicalDilemma.TheInternetshouldyieldarichcrop
ofsimilarsituations.
8.1Where:Sixlaborerseachmaking$3perdaycanproduce40units.
Tenlaborerseachmaking$2.00perdaycanproduce45units.
Twolaborerseachmaking$60perdaycanmake100units.
6 $3
$0.45 unit
40
10 $2.00
(b)China
$0.44 unit
45
2 $60
(c)Montana
$1.20 unit
100
Chinaismosteconomical,assumingthattransportationcosts
arenotincluded.
8.2Cambodia
$0.45$1.50$1.95
China
$0.44$1.00$1.44
Montana
$1.20$0.25$1.45
Chinaismostfavorable,butMontanaisalmosttied.
2,000baht/20010baht/unit,
if$110baht$1/unit
India:
2,000rupees/20010rupees/unit,
if$18rupees$1.25/unit
Sacramento(U.S.A.):$200/200=$1/unit
SelecteitherThaiorU.S.company.
8.3Thailand:
8.4IfIndiahadatariffof30%,thenmakingtheitemsinIndiais
$0.05lessthanimportingthemfromanywhere.
8.5(a)BaptistChurchisbest.
Maitland
(weight
score)
Factor
Space
18
Costs
10
Traffic density
10
Neighborhood income
Site
Baptist
Church
(weight
Northside
Mall
(weight
score)
score)
21
20
16
24
7.5
12
7.5
2
10.5
9
69.5
58.5
6Zoning laws
Totals53.5
(b) The totals are now Maitland, 52.5; Baptist Church, 70.5; and
NorthsideMall,56.5.BaptistChurchslocationisevenmorepreferred.
8.6(a)Atlanta0.4(80)0.3(20)0.2(40)0.1(70)53
Charlotte0.4(60)0.3(50)0.2(90)0.1(30)60
Charlotteisbetter.
(b) Achangeto75(from60)inCharlottesincentivepackage
doesnotchangetheanswertopart(a)becauseCharlottewas
alreadythebettersite.ThenewCharlottescoreisnow66
overall,whileAtlantastaysat53.
8.7
Factor
Philadelphia
(weight score)
New York
(weight
score)
17.5
8.0
17.0
13.5
8.0
20
18
15
8.25
5.0
Customer
convenience
Bank accessibility
Computer support
Rental costs
Labor costs
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
CHAPTER 8L O C AT I O N S T R AT E G I E S
Taxes
9.0
Totals 73.0
109
5.0
71.25
ILAshouldlocateinPhiladelphia.
8.8(a)
Location
Present Location
Wgt
Factor
1
2
3
4
40
20
30
80
Newbury
Wgt
0.30
12
0.15
3
0.20
6
0.35
28
Total Points 49
60
20
60
50
0.30
0.15
0.20
0.35
Total Points
ItappearsthatHydeParkrepresentsthebestalternative.
(b) If Present Locations public transportation score increases
from30to40,thetotalscoreincreasesby10points0.20
weight=2.0points.Sothenewscoreis51pointsforPresent
Location,whichisstillnotasgoodasHydeParksscore.
Hyde Park
Wgt
18.00
3.00
12.00
17.50
50.5
0
50
80
50
50
0.30
0.15
0.20
0.35
Total Points
15.0
12.0
10.0
17.5
54.
5
8.9(a)Theweightedaveragesare:
Akron
Biloxi
Carthage
Denver
81.5
80.0
87.5
76.0
Akron
Factor
Labor
Availability
Tech. School
Quality
Operating Cost
Land &
Construction
Ind. Incentives
Labor Cost
Weight Score
Biloxi
Carthage
Denver
Weight
Score
Score
Weight
Score
Score
Weight
Score
Score
Weight
Score
0.15
90
13.5
80
12.0
90
13.5
80
12.0
0.10
95
9.5
75
7.5
65
6.5
85
8.5
0.30
80
24.0
85
25.5
95
28.5
85
25.5
0.15
0.20
0.10
1.00
60
90
75
9.0
18.0
7.5
81.5
80
75
80
12.0
15.0
8.0
80.
90
85
85
13.5
17.0
8.5
87.5
70
60
75
10.5
12.0
7.5
76.
(b)Carthageispreferred(87.5points)intheinitialscenario.
Akron
Factor
Labor
Availability
Tech. School
Quality
Operating Cost
Land &
Construction
Ind. Incentives
Labor Cost
Weight Score
Biloxi
Carthage
Denver
Weight
Score
Score
Weight
Score
Score
Weight
Score
Score
Weight
Score
0.15
90
13.5
80
12.0
90
13.5
80
12.0
0.10
95
9.5
75
7.5
65
6.5
85
8.5
0.10
80
8.0
85
8.5
95
9.5
85
8.5
0.15
0.20
0.30
1.0
0
60
90
75
9.0
18.0
22.5
80.
5
80
75
80
12.0
15.0
24.0
79.
0
90
85
85
13.5
17.0
25.5
85.
5
70
60
75
10.5
12.0
22.5
74.0
(c)Inthesecondscenario,allfourscoresfalltosmallervalues,Carthagemorethantheothers,butitisstill
firmlyinfirstplace.Allscoresaresmallerbecauseallsiteshadoperatingcostscoresbetterthanlaborcost
scores.Whenlaborcosttakesonthehigherweight,thelowerscoreshavemoreinfluenceonthetotal.
Thenewscoresare:
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
Akron
80.5
Biloxi
79.0
Carthage 85.5
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CHAPTER 8L O C AT I O N S T R AT E G I E S
8.10(a)
Location A
Factor
Weight
1
2
3
4
5
6
5
3
4
2
2
3
Rating
Weighted
Score
100
80
30
10
90
50
Total weighted score:
500
240
120
20
180
150
1210
Location B
Factor
Weight
1
2
3
4
5
6
5
3
4
2
2
3
Rating
Weighted
Score
80
70
60
80
60
60
Total weighted score:
400
210
240
160
120
180
131
0
Location C
Factor
Weight
1
2
3
4
5
6
5
3
4
2
2
3
Rating
Weighted
Score
80
100
70
60
80
90
Total weighted score:
400
300
280
120
160
270
153
0
Basedonthetotalweightedscores,LocationCshouldberecommended.
Notethatrawweightswereusedincomputingtheseweightedscores
(wejustmultipliedweighttimesrating).Relativeweights couldhave
beenusedinsteadbytakingeachfactorweightanddividingbythesumof
theweights(i.e.,19).Thentheweightforfactor1wouldhavebeen5/19=
0.26.LocationCwouldstillhavebeenselected.
(b)LocationBsProximitytoPortFacilitiesscoreincreasesfrom
80to90:Thetotalscoreincreasesby10(5weight)=50,to
1,360points.
(c) Tochangeitsranktofirstplace,LocationBneedstoincreasetoat
least1,530pointsfrom1,310.Evenifthescoreis100,thetotalonly
increasesto1,410,soBwillstayasthesecondchoice.Toendupin
thirdplace,iftheratingdropsbelow60,thetotalweightedscoredrops
below1,210,whichisLocationAstotalscore.
8.11(a)
Factor
Technology
Level of education
Political/legal
Social
Economic
Weighted average
.8
.4
.4
.4
.6
2.6
1.0
.1
1.2
.2
.6
3.1
.2
.5
1.2
.3
.4
2.6
Thailandrateshighest(3.1).
(b)NowThailandsoverallscoredropsto2.7,justahead(butnot
bymuch)ofTaiwanandSingapore.
(c) Now Thailands score drops to 2.3, leaving the other two
(b) SiteDstotalscoreisnowraisedfrom165to175.AlthoughD
countriesinatieforfirstplace.
ranksslightlyhigherthanA,theresultsdonotchange.
8.12(a) Given
the factors and weightings presented, the
(c)SiteAstotalscoreincreasesby12points,to186.Thisisnowclosetoathree
followingtablesuggeststhatGreatBritainbeselected:
waytiebetweensitesA,BandC.Otherfactorsneedtobeintroduced.
Factor
1 Stability of
government
2 Degree to
which the
population can
converse in
English
3 Stability of
the monetary
system
4 Communications
infrastructure
5 Transportation
infrastructure
6 Availability of
historic/
cultural sites
7 Import
restrictions
8 Availability of
suitable
quarters
Great
Hollan Britain Italy Belgium Greec
d
e
5
34
36
26
33
28
(b) IfEnglishisnotanissue,asillustratedinthefollowing
table,GreatBritain,Holland,andBelgiumshouldall
beconsideredfurther:
Factor
1 Stability of
government
3 Stability of the
monetary
system
4 Communications
infrastructure
5 Transportation
infrastructure
6 Availability of
historic/
cultural sites
7 Import
restrictions
8 Availability of
suitable
quarters
Great
Hollan BritainItaly Belgium Greec
d
e
5
30
31
23
29
25
8.13(a)
Site
A
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CHAPTER 8L O C AT I O N S T R AT E G I E S
B
C
D
111
185
187
165
Site3isoptimalforproductionabove233units.
SiteChasthehighesttotalweightedscoresoshouldbeselected.
(Asapracticalmatter,whenscoresareascloseasthoseforSites
BandC,furtheranalysisiswarranted.)
(b)For200units,site2isoptimal.
8.17(a)Seethefigurebelow:
(b)Qdropsto23,333,from33,333.
8.14(a)
Germany:
Italy:
Spain:
Greece:
0.05(5)
0.05(5)
0.05(5)
0.05(2)
0.05(4)
0.05(2)
0.05(1)
0.05(1)
Cost(Dallas) Cost(Detroit)
FC (Dallas) Q VC (Dallas) FC (Detroit) Q VC (Detroit)
Italyishighest.
(b)Spains cost would drop, but the result would not
changewitha4,sinceSpainisalreadylowest.Noscore
willchangeSpainslastplace.
8.15(a)Chicago=16+6+7+4=33
Milwaukee=10+13.5+6+3=32.5
Madison=12+12+4+2.5=30.5
Detroit=14+6+7+4.5=31.5
Allfourarequiteclose,withChicagoandMilwaukee
almosttied.Chicagohasthelargestrating,witha33.
(b)Withacutoffof5,Chicagoisunacceptablebecauseitscores
only4onthesecondfactor.OnlyMilwaukeehasscoresof5
or higher on all factors. Detroit and Madison are also
eliminated,aseachhasoneratingofa4.
since$660,000+28Q=$800,000+22Q
so,
6Q=140,000
or
Q=23,333
8.18(a)
Forallvolumesabove10,000,siteChasthelowestcost.
10,000,000 + 2,500V = 25,000,000 + 1,000V
Site1isoptimalforproductionlessthanorequalto125units.
1,500V = 15,000,000
V = 10,000.
(b)SiteAisoptimalforvolumesfrom0to10,000Audis.
(c) SiteBis never optimal becauseitscostlinealwaysexceeds
thatofAorCforallvolumelevels.
8.19(a)CrossoveriswhereProfitBonham=ProfitMcKinney;
or800,000+15,000X=920,000+16,000X
Crossoverisat120units.
Profit Bonham 800,000+(29,000 14,000)X
800,000+15,000X
Profit McKinney 920,000+(29,000 13,000)X
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920,000+16,000X
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CHAPTER 8L O C AT I O N S T R AT E G I E S
(b,c)McKinneyispreferablebeyond120units,Bonham
below120units.
(d)Bonhamhasbreakevenatabout53units;McKinney
about 58, so both are beyond breakeven at the
crossover.
8.20(a)
5 5 6 10 4 15 9 5 7 15 3 10 2 5
5 10 15 5 15 10 5
335
5.15
65
10 5 8 10 9 15 5 5 9 15 2 10 6 5
Cy
5 10 15 5 15 10 5
475
7.31
65
Theproposednewhubshouldbenear(5.15,7.31).
(b)WhentheshipmentloadsfromCityAtriple,from5to15,the
newcoordinatesare(5.13,7.67).
Cx
8.21
3 9.2 3 7.3 5 7.8 3 5.0 3 2.8
3 5.5 3 5.0 3 3.8
Cx
26
154.8
5.95
26
3 3.5 3 2.5 5 1.4 3 8.4 3 6.5 3 2.4
3 3.6 3 8.5
Cy
26
113.2
4.35
26
Thedistanceminimizinglocationisat(5.95,4.35).Thisminimizes
distancetraveled,butisstraightline,whichdoesnotreflectreali
tiesofhighwayroutes.Itdoesnotconsiderrivers,bridges,andother
geographicalimpediments.Considerplacingtheofficeasnearthe
centerofgravityaspossibleandstillbeonornearamajorhighway.
StudentswhooverlaythisontoamapofLouisianashouldrecognize
thatBatonRougewouldbeanideallocation.
8.22
A (North Park)
B (Jefferson)
C (Lincoln)
D (Washington)
(4, 11)
(5, 2)
(8, 2)
(11, 6)
500
300
300
200
1300
(a)
X=Newmiddleschooltoserve4elementaryschools.
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
CHAPTER 8L O C AT I O N S T R AT E G I E S
(4 500) (5 300) (8 300) (11 200) 8100
6.23
1300
1300
(11 500) (2 300) (2 300) (6 200) 7900
Cy
6.08
1300
1300
Cx
Cannotlocateonthehighway,obviously
Safetypedestrianbridge
Spaceforschoolandgrounds
Traffic
Availabilityoflandanditsprice
8.23(a)
Cx =xcoordinateofcenterofgravity
[25(2,000) 25(5,000) 55(10,000) 50(7,000)
80(10,000) 70(20,000) 90(14,000)]
Cx
[2,000 5,000 10,000 7,000 10,000
20,000 14,000]
4,535,000
66.69
68,000
[45(2,000) 25(5,000) 45(10,000) 20(7,000)
50(10, 000) 20(20,000) 25(14,000)]
Cy
[2,000 5,000 10,000 7,000 10,000
20,000 14,000]
2,055,000
Cy
30.22
68,000
Thecenterofgravityis(66.69,30.22).
(b)WhenCensustracks103and105increaseby20%each,from
10,000 to 12,000 population, the new coordinates become
(66.74,31.18).Coordinatedenominatorsincrease(by2,000
+2,000)to72,000.Thexcoordinatenumeratorincreases(by
55(2,000) + 80(2,000)) to 4,805,000. The ycoordinate
numeratorincreases(by45(2,000)+50(2,000))to2,245,000.
Cx
8.24(a)Calculatetheoverallsitescoresforeachsite:
Site
A
B
C
D
Overall Score
20(5)
348
20(4)
370
20(4)
374
20(5)
330
Overall Score
20(5) + 16(2) + 16(3) + + 5w7 = 298
+ 5w7
20(4) + 16(3) + 16(4) + + 4w 7 = 330
+ 4w7
20(4) + 16(4) + 16(3) + + 3w 7 = 344
+ 3w7
(a)344+3w7298+5w7
(b)344+3w7330+4w7
(c)344+3w7300+3w7
Results:
(a)statesw723 (b)statesw714
(c)states344300(whichholdsforallvaluesofw7).
Forallpositivevaluesofw7suchthatw714.
8.25(a)Weightedscores
British International Airways
Milan
3,415
Munich
3,425
Rome
2,945
Bonn
3,915
Genoa
3,425
Berlin
3,665
Paris
3,155
Lyon
3,970
Nice
3,660
So,forpart(a)thetopthreecitiesbecome:Lyonisbest(3,970),
Bonnissecond(3,915),andBerlinisthird(3,665).
(b)Weightedscoreswithhangarweightsmodified:
Milan
3,215
Munich
3,065
British
Rome
2,825
Bonn
3,555
International Airways
Genoa
Paris
Lyon
3,345
2,795
3,730
Berlin
3,585
Nice
3,460
So,forpart(b)thetopthreecitiesbecome:Lyonisbest(3,730),
Berlinissecond(3,585),andBonnisthird(3,555).
(c)Germancitiesreweighedonfinancialincentives:
Weighted
Score
Yes,increasingthefinancialincentivefactorsto10forthethree
GermancitiesofMunich,Bonn,andBerlinchangesthetopthree
citiestoBerlin(3,840),Bonn(3,810),andLyon(3,730).
Herearesolutionstoadditionalhomeworkproblemsthatappear
onourWebsite,www.myomlab.com.
8.26Toaidinthisanalysis,weassignaratingtoeachgrade.
Grade
SiteCisbest
Nowfindallvalues
ofw7suchthat
(a),(b),&(c)allhold:
(b) Otherconsiderations:
113
Rating
A
B
C
D
4
3
2
1
andtoeachfactor:
Factor
Rent
Walk-in
Distance
Rating
1.00
0.90
0.72
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114
CHAPTER 8L O C AT I O N S T R AT E G I E S
andcomputeoverallratingsforeachlocation:
1 1.0 3 0.90 3 0.72
2.24
2.62
2 1.0 4 0.90 4 0.72
Shoppingmallrating
3.24
2.62
4 1.0 1 0.90 2 0.72
CoralGablesrating
2.42
2.62
Ifyoudonotdividebythesumoftheweights,therespectiverat
ings are 5.86, 8.48, and 6.34. The shopping mall receives the
highestratingusingthissiteselectionapproach.
Downtownrating
8.27
9 9 68 2 5 8 5 2 4
6.03
31
7 9 6 8 5 5 4 5 9 4
SuburbArating
6.19
31
6 9 8 8 6 5 5 5 6 4
SuburbBrating
6.35
31
SuburbBhasthehighestrating,butweightsshouldbeexamined
usingsensitivityanalysis,asthefinalratingsareallclose.
Downtownrating
8.28
70 10 + 85 10 + 70 25 + 80 20 + 90 15 6250
=
= 78.125
80
80
60 10 + 90 10 + 60 25 + 90 20 + 80 15 6000
Site2factorrating =
=
= 75.0
80
80
85 10 + 80 10 + 85 25 + 90 20 + 90 15 6925
Site3factorrating =
=
= 86.56
80
80
90 10 + 60 10 + 90 25 + 80 20 + 75 15 6475
Site4factorrating =
=
= 80.94
80
80
Site1factorrating =
Site3hasthehighestratingfactor,86.56,andshouldbeselected.
8.29
(a)
1,000,00073X800,000112X
200,00039XorX5,128
(b)For5,000units,Perthisthebetteroption.
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
CHAPTER 8L O C AT I O N S T R AT E G I E S
8.30
115
City
Map Coordinates
Shipping
Load
A
B
C
D
E
F
G
H
2,1
2,13
4,17
7,7
8,18
12,16
17,4
18,18
20
10
5
20
15
10
20
20
120
(a)
9.67
120
1(20) 13(10) 17(5) 7(20) 18(15) 16(10) 4(20) 18(20)
Cy
(20 10 5 20 15 10 20 20)
1245
10.37
120
8.32
Cx
Thetotalcostequationsare:
Atlanta:TC 125,000 6 x
Burlington:TC 75,000 5 x
Cleveland:TC 100,000 4 x
Denver:TC 50,000 12 x
(b)Denverispreferableovertherangefrom03,570units.
Burlington is lowest cost at any volume exceeding
3,570, but less than 25,000 units. Atlanta is never
lowestincost. Cleveland becomes the best site only
whenvolumeexceeds25,000unitsperyear.
(c)At a volume of 5,000 units, Burlington is the least
costsite.
8.31
10 3 3 3 4 2 15 6 13 5 1 3 5 10
3 3 2 6 5 3 10
255
7.97
32
5 3 8 3 7 2 10 6 3 5 12 3 5 10
Cy
3 3 2 6 5 3 10
214
6.69
32
Cx
Theproposednewfacilityshouldbenear(7.97,6.69).
8.33Withequalweightsof1foreachofthe15factors:
Total
Average
39
52
50
41
2.60
3.47
3.33
2.73
Spain
England
Italy
Poland
Englandisthetopchoice.
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CHAPTER 8L O C AT I O N S T R AT E G I E S
8.34Withweightsgiven,theresultbecame:
Spain
2.55
England
3.55
Italy
3.30
Poland
2.80
Englandremainsthetopselection.
CASE
STUDY
SOUTHERNRECREATIONALVEHICLECOMPANY
1.
2.
3.
4.
EvaluatetheinducementsofferedSouthernVehicleCompany
bycommunityleadersinRidgecrest,Mississippi.
The inducements offered Southern Recreational Vehicle
Companyarenotunusual.Suchinducementsareofferedin
anticipationofthebenefitstobederivedfromtherelocation
decision.Amongthemorecommonfinancialinducementsis
anarrangementunderwhichacommunitydevelopmentfirm
willpurchaseaplantfacilityandleaseittoacompanyona
longterm basis. Whenever financial inducements are
extraordinary,managementshouldrealizethattheremustbe
somethingundesirableaboutlocatinginthatcommunity.
Whatproblemswouldacompanyexperienceinrelocatingits
executivesfromaheavilypopulatedindustrializedareatoa
small,ruraltown?
Amajorprobleminrelocationdecisionsisthereluctanceof
executives to move from industrialized, heavily populated
areas to small, rural towns. Often, the educational,
recreational, and cultural opportunities are lacking. In
addition, residential housing, shopping facilities, medical
facilities, and adequate police and fire protection play an
importantroleinthedecisionofexecutivestorelocate.
EvaluatethereasonscitedbyMr.OBrianforrelocation.
Aretheyjustifiable?
Matters of economics are certainly justifiable reasons to
relocate.Ifafirmcangeneratemorerevenue,operatemore
efficiently, and experience lower costs at another site,
relocation should certainly be considered. However, the
allegationthattheunionforcedunreasonabledemandsonthe
company should be seriously questioned. Concessions and
provisionsarebargained;theyarenotforcedoneitherthe
companyortheunion.
Whatresponsibilitiesdoesafirmhavetoitsemployeeswhen
adecisiontoceaseoperationsismade?
Whenever the management of a firm decides to cease
operationsinagivenlocation,ithastheresponsibilitytoaid
its employees in finding suitable employment in that
community. Such assistance can take various forms,
including personal contacts with other employers and
personalrecommendations.Inaddition,theemployerhasa
responsibilitytonotifyitsemployeesofthedecisionassoon
asithasbeenfinalizedinordertogiveeachworkerample
timetofindemploymentelsewhere.Finally,severancepay
should be considered in an attempt to alleviate financial
hardshipsonworkerswhohavebeenunsuccessfulintheir
attemptstofindemploymentelsewhere.Ifthecompanyhas
morethan500employees,closingtoavoidunionizationis
illegal.
VIDEO
CASE STUDIES
LOCATINGTHENEXTREDLOBSTER
RESTAURANT
1.MapInfohas72clustersthatprovidesocioeconomicprofiling.
Theseprofiles(PSYTE)provideinterestingreadinganddatafor
classdiscussion.MapInfowouldtellyouthattheapplicationsare
virtually limitless. For instance, the BusinessMAP database
includesthefollowingdatasetstoaidfinancialinstitutionlocation
decisions:
ESRIscurrentyearand5yearoutestimatesfor
population,age,race,andincome
Branchlocation,asset,anddepositinformationfrom
RPMConsultingsBranchinfo
MarketBankdata,withinformationaboutdepositand
loanpotential
NationalCreditUnionAssociationdataonmember
assets,loans,etc.
Segmentedlifestyle/lifechangeinformation
D&Blistings
Streetlevelmaps
Datasuchastheabovehelpsthelocationdecisionbyproviding
current and potential deposit and loan information as well as
informationaboutthecompetition.
Sources: www.esri.com/bmapfinancial, www.esri.com/archnews,
andwww.esri.com/partners.
2. Manydifferencescanbeidentifiedinanassignmentorclass
discussion,butrestaurantswantdisposableincome,whileretail
depending on the type of retailwants high traffic, and
manufacturing wants a focus on costs, infrastructure, and low
taxes.
3. Darden has shied away from urban locations; high location
costsdonotfititscurrentmodel,butDardenhasfoundfertile
groundinfirstandsecondtiersuburbanandexurban/small(over
90% of the Red Lobsters are in these three density classes).
Incidentally, in 2010, Darden announced it will begin to open
facilitiesoutsidetheU.S.andCanada.
2
WHERETOPLACETHEHARDROCKCAFE
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CHAPTER 8L O C AT I O N S T R AT E G I E S
117
Attractions
Introduction
Entertainment(Includinglocation,seats,attendance)
Purpose
1.Theaters(Includingliveperformancespace)
ProductType(e.g.,franchiseorcompanyowned,cafe,
2.Cinemas(IncludingIMAX)
hotel,casino)
3.ThemeParks
Overview of City/Market (e.g., set context) including
4.Zoo/Aquarium
history,macroeconomicsummary
5.HistoricSites
Demographics(Local,City,RegionSMSA,or
Sports (Capacity, annual attendance, location, age
equivalent)
offacility,etc.)
1.Soccer
Population(Trendanalysis,ifpossible)
2.Rugby
1.Number
3.Baseball
2.Age
4.MinorLeagues
3.Households
4.AverageHouseholdIncome
Retail(Size,tenants,visitors,seasonality)
1.RegionalShoppingCenters
EconomicIndicators(Trendanalysis,ifpossible)
2.DiscountShoppingCenters
1.CostofLivingIndex(comparedtonationalaverage)
3.ShoppingDistricts
2.Unemployment
3.SizeofWorkforce
Transportation
4.Employmentbysector
5.Majoremployers
Airport
1.Age
VisitorMarket
2.PassengersAnnually
3.Airlines(Indicatehubcity)
Tourism/BusinessVisitor(Trendanalysis,ifpossible)
4.DirectFlights
1.Number
2.Origins
Rail
3.LengthofStay
Road
4.AverageSpend
Sea/River
5.SizeofParty
Restaurants
(Aselectionofrestaurantsinkeyareasofthe
6.ReasonsforVisit
targetmarket)
7.FrequencyofRepeatVisits
8.Seasonality
1.Name
9.MethodofTransportation
2.Location
3.Type
Hotels(Trendanalysis,ifpossible)
4.Seats
1.HotelRoomInventory
5.Age
2.Occupancy
Rates (Annual and monthly for
6.EstimatedGrossSales
seasonality)
7.Averagecheck
3.RoomRates
8.SizeofBar
4.FunctionRoomDemand
9.OutsideDiningFacilities
5.RecentDevelopment
6.FutureDevelopment
Nightclubs(Aselectionofclubs/casinosetc.inkey
ConventionCenter(Trendanalysis,ifpossible)
areasofthetargetmarket)
1.Size
1.Name
2.NationalRanking
2.Location
3.DaysBookedperannum
3.Type
4.Seats/capacity
5.Age
6.EstimatedGrossSales
7.Averagecheck
8.SizeofBar
9.Musictype(e.g.,live/disco/combination)
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CHAPTER 8L O C AT I O N S T R AT E G I E S
HRCComparableMarketAnalysis
1.IdentifycomparableexistingHRCmarkets
2.Explainsimilarities(e.g.regionalpopulation,visitors,
hotelrooms,seasonality,etc.)
3.PreparecityP&Lspreadsheetanalysis
Conclusion
1.Estimate of Gross Food & Beverage Revenue for
marketinGeneralwithbackupandcomparables
2.EstimateofGrossMerchandiseRevenueformarket
inGeneralwithbackupandcomparables
3.Preferredlocations
4.Sizzle(Howwillwemakeourselvesspecialinthis
market?)
$1015,000students5games
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
Weighted
Center
Ada
1.0624
Ardmore
0.4641
CHAPTER 8L O C AT I O N S T R AT E G I E S
119
Denton
1.824
Durant
0.7372
Greenville
2.3239
McAlester
2.1746
Norman
2.1597
3.Based on the survey data, rating comfort
Paris and national 2.2572
imageas1s,convenienceasa2,andcostandguaranteed
Sherman
1.1183
availabilityas4s,theresults(usingA= 4,B
3,C=
2,D= 1, 2.6212
Wichita
Falls
F= 0forgrades):
Total
16.742
6
Weighted
Total
7,767.13
Sum of Ratings (Weighted Averages
in Parentheses)
Existing Site New Site
Dallas Cowboy
Site
Students
Boosters
Faculty/staff
*SolutiontothecasethatappearsonourCompanionWebsite,www.pearsonhighered.com/heizer.
36 (3)
34 (2.83)
43 (3.58)
21 (1.75)
23 (1.92)
23 (1.92)
35 (2.92)
47 (3.92)
35 (2.92)
Students are almost neutral between the existing site and the
Dallassite.BoostersstronglypreferDallas.Faculty/staffstrongly
prefertheexistingsite.Nogroupranksthenewsitenearcampus
astheirfirstorsecondchoice.
4.The expansion of the existing stadium appears preferable
evenatannualattendanceof500,000fans.
5.Gardnerusedthefactorratingmethodtoratetheconstituency
responses. This was appropriate for evaluating the qualitative
values. He should consider weighting the criteria as the
administrationdidultimately.
Location,SmallDCinTexas
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.