Location Planning and analysis

First Question:

Factor Wt. A B C
1. Conv. access .15 (80) (70) (60)
2. Parking .20 (72) (76) (92)
3. Display area .18 (88) (90) (90)
4. Shopper traffic .27 (94) (86) (80)
5. Operating costs .10 (98) (90) (82)
6. Neighborhood .10 (96) (85) (75)
1.00

Solution

Factor Wt. A B C
1. Conv. access .15 .15(80) = 12.00 .15(70) = 10.50 .15(60) = 9.0
2. Parking .20 .20(72) = 14.40 .20(76) = 15.20 .20(92) = 18.4
3. Display area .18 .18(88) = 15.84 .18(90) = 16.20 .18(90) = 16.2
4. Shopper traffic .27 .27(94) = 25.38 .27(86) = 23.22 .27(80) = 21.6
5. Operating costs .10 .10(98) = 9.80 .10(90) = 9.00 .10(82) = 8.2
6. Neighborhood .10 .10(96) = 9.60 .10(85) = 8.50 .10(75) = 7.5
1.00 87.02 82.62 80.9
On the basis of composite score, A seems the best.

Second Question :

Determine the center of gravity location for the destinations and shipping quantities shown below:

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Third Question :

Given the information below on scores of three location alternatives, which alternative would you
recommend? Why?

Composite scores are: A = 72, B = 69, and C = 69. If the criterion is highest composite, choose A.

4. A manager must decide between two location alternatives, Boston and Chicago. Boston would have
annual fixed costs of $70,000, transportation costs of $60 per unit, and labor and material costs of $200
per unit. Chicago would have annual fixed costs of $90,000, transportation costs of $40 per unit, and labor
and material costs of $170 per unit. Revenue will be $300 per unit.
(A) Which alternative would yield the higher profit for an annual demand of 3,000 units?
(B) Would the two locations yield the same profit at a certain volume? If so, at what volume would that
be?

A) At a volume of 3,000 units, Boston's profit would be $50,000 and Chicago's profit would be $180,000.
B) At an annual volume of 400 units, both locations would have identical losses of $54,000.

5. A firm is trying to decide between two location alternatives, Albany and Baltimore. Albany would
result in annual fixed costs of $60,000, labor costs of $7 per unit, material costs of $10 per unit,
transportation costs of $15 per unit, and revenue per unit of $50. Baltimore would have annual fixed costs
of $80,000, labor costs of $6 per unit, material costs of $9 per unit, transportation costs of $14 per unit,
and revenue per unit of $48.
(A) At an annual volume of 9,000, which would yield the higher profit?
(B) At what annual volume would management be indifferent between the two alternatives in terms of
annual profits?

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A) At an annual volume of 9,000, Albany's profit of $102,000 is higher than Baltimore's profit of $91,000.
B) Profits for these two locations are identical at an annual volume of 20,000 units.

6. Given the information below on scores of three location alternatives, which alternative would you
recommend? Why?

Composite scores are: A = 72, B = 69, and C = 69. If the criterion is highest composite, choose A.

7. Determine the center of gravity location for the destinations and shipping quantities shown below:

8. Determine the optimum location for a distribution center to serve the following locations. Shipments to
each location will be approximately equal.

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LOCATION PLANNING AND ANALYSIS

PROBLEMS
P1. Two plant locations are under consideration for a new battery factory. Here are estimates of the fixed and
variable costs at each location.
Location Fixed Cost per Year Variable Cost per Unit
A $1,500,000 $1.25
B 1,250,000 1.75

a. What is the total cost function for each location?

b. Plot the total cost functions on the same graph.
c. On the graph, identify the range of output for which each location has the least cost.
d. Which location should be selected for an output of 400,000 batteries per year? 800,000 batteries per
year?
e. Find the cutoff point algebraically.
P2. Four plant locations arc under consideration for a new microchip plant. Here are estimates of the fixed and
variable costs at each location.
Fixed cost Variable cost
Locatio per year per unit
n
A $3,500,000 $600
B 3,000,000 800
C 4,000,000 500
D 4,500,000 400
a. What is the total cost function for each location?
b. Plot the total cost functions for these locations on the same graph.
c. On the graph, identify the range of output for which each location has the least cost.
d. Which location should be selected for an output of 4,000 chips per year? 12,000 chips per year?
e. Find the cutoff points algebraically.
P3. Two locations are under consideration for building a condominium. (A condominium is a building in which
each apartment is owned by the resident, rather than rented.) One location is in suburb A of a large Eastern
city, and the other is in suburb B. The marketing manager has identified the following factors which bear
upon the location decision and their relative weights.
Factor Desirable Status Weight
1. Proximity to public transportation Should be close .20
2. Space for a parking lot Should be large .40
3. Property taxes Should be low .25
4. Electricity rates Should be low .15

Each factor will be rated on a scale of 1 = unsatisfactory to 10 = outstanding. Research has revealed the
following information about each location, and the marketing manager has rated each factor at each
location.

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 Location Rating
Factor A B A B
1. Public transportation 1 block 6 blocks 9 2
2. Parking lot 1 acre 3 acres 3 7
3. Property taxes $600/year $800/year 6 4
4. Electric rates $.09/kwh. $.06/kwh. 5 8
a. Determine the composite score for each location.
b. Where should the condominium be built? Why?

P4. Business has been good for the Black & White News Company, which receives magazines from the
publishers and distributes them to the news racks of drugstores and supermarkets. At present, it has five
customers, each of which is serviced once a week; expired magazines are collected and new editions are
displayed on the racks. (This problem is obviously artificially small.) Here are the x and y coordinates of the
locations of the customers and the number of truckloads of magazines which go to each destination. The
company operates out of a single warehouse, whose coordinates are also included. The company has
outgrown the warehouse, and the partners are discussing whether to expand the present facilities or to
construct a larger warehouse at a new site.
Weekly
Customer x y Loads
A 2 3 1
B 5 2 3
C 3 6 2
D 10 4 6
E 6 5 2
Warehouse 3 4

a. Plot the locations of the customers on graph paper.

b. Determine the optimal location of the new warehouse.
c. Plot the optimal location of the warehouse on your graph. Why is it so far to the right?

SOLUTIONS

P1. a. Location A: CA = 1,500,000 + 1.25x

Location B: CB = 1,250,000 + 1.75x
b., c.

Total Cost B
A

$1,500,000
$1,250,000

B A
Volume
100,000 300,000 500,000 700,000 900,000

d. For 400,000 batteries, location B is less expensive. For 800,000 batteries, location A is less expensive.
e. At the cutoff point (Q), the total costs will be equal at both locations.

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 CA = CB
1,500,000 + 1.25Q = 1,250,000 + 1.75Q
Q = 500,000 batteries.

P2. a. Location A: C A = 3,500 ,000 + 800 x

Location B: CB = 3,000,000 + 500x
Location C: CC = 4 ,000,000 + 500x
Location D: CD = 4 ,500,00 + 400x
b., c.

Cost
($000,000)
15

13 B

A
11 C
D

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B A C D
Microchips
2 4 6 8 10 (000)

d. For 4,000 chips, location A is the least expensive. For 12,000 chips, location D is the least expensive.
e. CB = CA
3,000,000 + 800Q = 3,500,000 + 600Q
Q = 2,500 microchips.
At a lower volume, B is superior; at a higher volume, A is superior. Repeat this logic to determine the
cutoff point between A and C is 5,000 microchips. The cutoff point between C and D is 10,000
microchips.
P3. a.
Score
Weighted score
Factor Weight A B A B
1. Public Transportation .20 9 21.80 0.40
2. Parking lot .40 3 71.20 2.80
3. Property taxes .25 6 41.50 1.00
4. Electricity rates .15 5 80.75 1.20
5.25 5.40
b. The condominium should be built in suburb B, since it has the higher composite score.

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P4. a. Y Problem P4a
+ = A Destination

12

C+
6 E+

D+
A+
3 B+

0 X
2 4 6 8 10 12 14

b. x=
 Qx = 1(2) + 3(5) + 2(3) + 6(10) + 2(6) = 6.78 .
Q 1+ 3+ 2 + 6 + 2

y=
 Qy = 1(3) + 3(2) + 2(6) + 6(4) + 2(5) = 3.93
Q 1+ 3+ 2 + 6 + 2

Y Problem P4c
+ = A Destination
# = Center of Gravity
12

C+
6 E+

# D+
A+
3 B+

0 X
2 4 6 8 10 12 14

c. The location of the new warehouse (#) reflects the fact that Destination (or Customer) D requires
substantially more loads delivered weekly, and thus the warehouse is located closer to this particular
point to minimize the overall cost of distribution.