Practice Problems: 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

Weights

Peoria

Des Moines

Chicago

Nearness to markets

20

Labor cost

Taxes

15

Nearness to suppliers

10

10

10

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:

Location

Fixed Cost

Variable Cost

Waco, Texas

$300,000

$5.75

Tijuana, Mexico

$800,000

$2.75

Fayetteville, Arkansas

$100,000

$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

Map Coordinates (x,y)

Truck Round Trips per Day

Mesa

(10,5)

Glendale

(3,8)

Camelback

(4,7)

Scottsdale

(15,10)

Apache Junction

(13,3)

Sun City

(1,12)

Pima

(5,5)

10

Problem 4:
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

Turkey

Serbia

Slovakia

Technology availability and support

Availability and quality of public education

Legal and regulatory aspects

Social and cultural aspects

Economic factors

Political stability

Problem 5:
Assume that Patricia decides to use the following weights for the critical success factors:
Technology availability and support

0.3

Availability and quality of public education

0.2

Legal and regulatory aspects

0.1

Social and cultural aspects

0.1

Economic factors

0.1

Political stability

0.2

Would this change her decision?

Problem 6:
Patricias advisors have suggested that Turkey and Slovakia might be better differentiated by either
(a) doubling the number of critical success factors, or (b) breaking down each of the existing
critical success factors into smaller, more narrowly defined items, e.g., Availability and quality of
public education might be broken into primary, secondary, and post-secondary education. How
would you advise Ms. Donegal?

ANSWERS:
Problem 1:

Ratings

Weighted Ratings

Weights

Peoria

Des
Moines

Chicago

Peoria

Des
Moines

Chicago

Nearness to
markets

20

80

140

100

Labor cost

40

40

20

Taxes

15

120

135

105

Nearness to
suppliers

10

10

10

100

60

100

Sum of Weighted ratings:

340

375

325

Factor

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:

Cx

(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

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:

Critical Success Factor

Turkey

Serbia

Slovakia

Technology availability and support

Availability and quality of public education

Legal and regulatory aspects

Social and cultural aspects

Economic factors

Political stability

23

19

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 5:

Critical Success Factor

Wgt

Turkey

Serbia

Technology availability and support

0.3

1.2

0.9

1.2

Availability and quality of public

education

0.2

0.8

0.8

0.6

Legal and regulatory aspects

0.1

0.2

0.4

.5

Social and cultural aspects

0.1

0.5

0.3

0.4

Economic factors

0.1

0.4

0.3

0.3

Political stability

0.2

0.8

0.4

0.6

= 3.9

Slovakia

3.1

3.6

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.
Problem 6:
(a) Doubling the number of critical success factors. There are two issues here. First, from a
practical perspective there are a limited number of truly critical success factors and these
should be the ones presently being considered. Any additional factors should be of secondary
or tertiary importance. Second, given the subjective nature of the rating process, adding
additional factors would also increase the overall margin of error of the final ratings to a degree
that may eliminate any gain in differentiation arising from the use of the additional factors. The
use of a maximum of seven to nine critical success factors is usually appropriate.
(b) Given that ones ability to estimate or rate an aggregate is usually better than ones ability to
estimate or rate the individual components of the aggregate, this approach is unlikely to
provide much help.