Operations Management

Assignment no. 4

FACILITY PLANNING

Submitted by:
Tindugan, Juleven A. Jr.

Submitted to:
Engr. Liez Cabrera Gonzales
Task
(Service Industry) FAST FOOD RESTAURANT:
Identify Any Fast Food Restaurants in your area.
Analyze and Explain the reasons given below:

Fast Food Chain Restaurant: McDonald'sCoorporation

Located in: Mactan Town Center
Address: 7XW7+GVF, Maximo V. Patalinghug Jr. Avenue, Lapu-Lapu City, Cebu

1.) The locational factors considered for establishing the enterprise.

McDonald’s Outlets Service businesses generally must maintain a number of sites to
remain close to customers, the location selected should be close to the targeted segment of the
market. The market can also influence the number of new locations, as well as their size and
features. A simple technique for determining service locations is to establish a set of minimum
criteria for opening new outlets.These criteria should be developed so that the locations selected
have strong chances of success. For example, a company could assess the potential of
prospective locations based on primary criteria such as:
The population of the community should more than 50,000.The annual per capita income
should be more than P250,000.

1. Proximity to Customers

Location is a key factor in determining how conveniently customers can carry on

business with a firm. Since McDonald’s is an entity that provides service. It is safe to say that its
stores are located close to customers because it is one of the keys to increase sales and promote
the business itself. To illustrate the proximity of Jollibee to market, the picture above is the
McDonald’s Mactan Town Center branch. The figure below will show us information about the
place that surrounds it, most especially Tamiya and Cebu Light Industrial Park. Given the
map information, we can conclude that the location of McDonald’s-Mactan Town Center is
substantially convenient to the publicand can contribute to increase its sales due to the
population or community that surrounds it. In addition, as I observe, most of the McDonalds
store is located in the busiest part of the city, such as in capital, center, industrial site,
marketplace, malls and etc, in which there are lots of potential customers who gathered to
shop and bought what their wants and needs.. In other words, McDonalds position closer to
the customer so that the cost in delivering, transporting the product to further potential
customers and its distance will be minimized. Thus, the influence of location on revenues
tends to be the dominant factor.

Figure 1.McDonald’s Location

2. Transportation Costs and Proximity to Markets
Management must choose a location for the facility that will meet that need after
identifying where the demand for goods and services is greatest. It is especially vital to locate
near markets when the final goods are large or heavy and outbound transportation rates are
high. It lowered transportation costs as well as the likelihood of finished products being
damaged or spoilt on the way, especially perishable ones. Furthermore, a facility that is close
to the market can gain a large market share and provide speedy service to customers.
 For warehousing and distribution operations, transportation costs and proximity to
markets are extremely important. With a warehouse nearby,many firms can hold inventory
closer to the customer, thus reducing delivery ime and promoting sales.
3. Location of Competitors
The impact of competition is one complication in assessing the sales potential at
different locations. Management must evaluate not only the existing location of competitors,
but also their reaction to the firm's new location. It is frequently advantageous to avoid
locations where competitors are already firmly entrenched. However, with fast-food
businesses such as McDonald's, being close to competition is really advantageous. The goal
aims to achieve critical mass, in which several competing enterprises grouped in one location
attract more customers than the total number of customers who would shop at the same stores
in other locations. Recognizing this effect, several businesses employ a follow-the-leader
strategy when selecting new locations.
Close proximity to competitors might spark a battle for a competitive edge. However,
being close to competitors is more likely to benefit a company. Many experts feel that the
greatest location for a business is as close to your biggest competition as possible because
your competitors choose their locations based on the optimal demography of a specific area.
In many cases, they've also spent a significant percentage of their advertising budget to drive
visitors to their locations. So, why waste your money when they've already spent it on you?
Of course, it's still a good idea to make your own evaluation of a particular property,
even if your competitors seem to be thriving in the area. Staying ahead of the game in this
regard will help your business grow should you decide. That's why, McDonald’s locates itself
near its competitors like Jollibee, or either way clustering also stimulates sales.
In fact, Jollibee and McDonald's in Basak, Lapu-Lapu City are indeed nearby. The
distance between the two is 50-100 meters.
4. Proximity to suppliers and resources
In many companies, facility supply parts to other facilities or rely on other facilities
for management and staff support. These require frequent coordination and communication,
which can become more difficult assistance increases.
Firms locate near their raw materials and suppliers because of perishability,
transportation cost or bulk. Some McDonald’s stores which are far from suppliers located
themselves in places where the means of transpiration are accessible in order to minimize
transportation cost.
McDonald’s chose to place its branches in Lapu-Lapu City in industrial zones because
these provide advantages such as: Tax exemptions (No VAT for land acquisitions and other
exemptions depending on the policy of the municipality) Low water, natural gas, and
telecommunication costs Import and export documentation Access to roads International
Expansion.

The McDonalds is part of the Golden Arches Development Corporation, in which they
have their own suppliers. Although the raw materials are from outside the country, still the
cost in transporting the raw materials will be minimized since they are incorporated.

5. Utilities, taxes, and real estate costs

Other important factors that may emerge include utility costs (telephone,energy, and
water), local and state taxes, financing incentives offered bylocal or state governments,
relocation costs, and land costs.

2.) Strategy adopted for identifying the location [Ex: factor rating, load, distances
method etc.
For the McDonald fast food restaurant, I use only factor rating method to determine
which the best location is considering the five locational factors in establishing the restaurant.
Way back on 2018, there are two potential locations that probably McDonald Restaurant
would be built. First, location is at the Basak Mactan Town Center and the second is at the
Abuno, Pajac. Both locations are inside the city of Lapu-Lapu which I live. Let us consider the
weight of each locational factor from scale of (0-1) with a total of 1. The score rating scale from
(1-5), 1 being the poorest and 5 being the excellent. I rate the two of the locations subjectively
based on my analysis of how high or low the location in terms of each locational factors as
follows:
McDonald's
Rating (1-5)
Location Factors Weight (0-1) Basak MTC Abuno, Pajac
Proximity to Customers 0.3 4 2
Proximity to Market 0.3 4 2
Location of Competitors 0.2 3 2
Proximity to Suppliers and Resources 0.1 2 2
Utilities, Tax and Real State Costs 0.1 4 4

The solution is as follows:

McDonald's
Rating (1-5) Weighted Rating
Weight Basak Abuno, Basak Abuno,
Location Factors (0-1) MTC Pajac MTC Pajac
Proximity to Customers 0.3 4 2 1.2 0.6
Proximity to Market 0.3 4 2 1.2 0.6
Location of Competitors 0.2 3 2 0.6 0.4
Proximity to Suppliers and
Resources 0.1 2 2 0.2 0.2
Utilities, Tax and Real State
Costs 0.1 4 4 0.4 0.4
Total 3.6 2.2

The total weighted rating of Basak MTC is higher than the total weighted rating of
Abuno, Pajac. Hence the best location that the McDonald Fast Food Restaurant should be build
is at Basak, MTC Lapu-Lapu City considering the six locational factors.
Now, similar of my analysis, the McDonald Fast Food was built at Basak, Mactan Town
Center, in which I am the pioneering service crew included for the opening of the Facility last
June 2019. I believe it is due to the following factors. The proximity to the market and customers
are very high, the location to its competitors is good even though the proximity to suppliers is
farther from the restaurant and cost for the tax and real estate is not so high since McDonald has
Real Estate Team but I still give low weight for it.