REVIEW EXERCISES CHAPTER 2. The location of the company .

Academic Year 2023-2024

REVIEW EXERCISES

CHAPTER 2: THE LOCATION OF THE

COMPANY

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 REVIEW EXERCISES CHAPTER 2. The location of the company .
Academic Year 2023-2024

CASE 1:

INDI, S. A., a glass recycling company, is considering the location of a new plant in three different geographical
locations. Three main factors were taken into account: availability of skilled labour (40
%), cost of labor (15 %) and infrastructure in the area (30 %) and, finally, the legislation in force. The
scores obtained (out of 5) in each of the locations were as follows:
FACTORS WEIGHTING L1 L2 L3
Availability of manpower 40% 3 5 1
Labor cost 15% 4 1 2
Infrastructure 30% 1 3 4
Legislation 15% 5 2 4

On the basis of this information, it is requested:

1. What would be the most suitable location based on the weights and scores given to each of the factors?

Weighting L1 = (0.40 x 3) + (0.15 x 4) + (0.30 x 1) + (0.15 x 5) = 2.85

Weighting L2 = (0.40 x 5) + (0.15 x 1) + (0.30 x 3) + (0.15 x 2) = 3.35
Weighting L3 = (0.40 x 1) + (0.15 x 2) + (0.30 x 4) + (0.15 x 4) = 2.50
The optimal location is L2

2. If the company were to change the importance of the labour cost factor and double-weight it, in exchange
for de-weighting the labour availability factor, would it improve the score for all locations, would it still
maintain the same decision, and if so, would it still maintain the same decision?

L.C = 30% / A.M = 25%

Weighting L1 = (0.25 x 3) + (0.30 x 4) x (0.30 x 1) + (0.15 x 5) = 3.90
Weighting L2 = (0.25 x 5) + (0.30 x 1) x (0.30 x 3) + (0.15 x 4) = 2.75
Weighting L3 = (0.25 x 1) + (0.30 x 2) x (0.30 x 4) + (0.15 x 4) = 2.65
In this case, the optimal location would be L1

CASE 2:

FLORISTA, S. A., a company dedicated to floral art, wants to open a new shop in the Salamanca district of
Madrid, for which it has visited five possible premises for rent in different streets in the area. After
evaluating the different factors that affect its business and weighting them appropriately, the results obtained
are shown in the following table:
FACTORS WEIGHTING Ayala Castelló Lagasca Recoletos Serrano
Competition 4% 7 4 8 6 6
Rental prices 15% 5 4 5 5 3
Suppliers 5% 5 6 4 4 4
Per capita income 10% 9 8 8 6 10

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 REVIEW EXERCISES CHAPTER 2. The location of the company .
Academic Year 2023-2024

Infrastructure 2% 4 5 5 9 5
CASE 1:
Socio-economic status 10% 8 8 7 7 10
Average age of the
20% 6 5 7 6 5
population
Clients 15% 6 5 5 5 7
Other nearby businesses 4% 4 5 6 7 8
Leisure area 15% 3 7 4 7 8
Based on the above data, determine the optimal location.

Weighting Ayala = (0.04 x 7) + (0.15 x 5) + (0.05 x 5) + (0.10 x 9) + (0.02 x 4) + (0.10 x 8) + (0.20 x 6) + (0.15 x 6) +
(0.04 x 4) + (0.15 x 3) = 5.77

Weighting Castelló = (0.04 x 4) + (0.15 x 4) + (0.05 x 6) + (0.10 x 8) + (0.02 x 5) + (0.10 x 8) + (0.20 x 5) + (0.15 x 5) +
(0.04 x 5) + (0.15 x 7) = 5.76

Weighting Lagasca = (0.04 x 8) + (0.15 x 5) + (0.05 x 4) + (0.10 x 8) + (0.02 x 5) + (0.10 x 7) + (0.20 x 7) + (0.15 x 5) +
(0.04 x 6) + (0.15 x 4) = 5.86

Weighting Recoletos = (0.04 x 6) + (0.15 x 5) + (0.05 x 4) + (0.10 x 6) + (0.02 x 9) + (0.10 x 7) + (0.20 x 6) + (0.15 x 5) +
(0.04 x 7) + (0.15 x 7) = 5.95

Weighting Serrano = (0.04 x 6) + (0.15 x 3) + (0.05 x 4) + (0.10 x 10) + (0.02 x 5) + (0.10 x 10) + (0.20 x 5) + (0.15 x 7) +
(0.04 x 8) + (0.15 x 8) = 6.56

The optimal location is Serrano

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 REVIEW EXERCISES CHAPTER 2. The location of the company .
Academic Year 2023-2024

CASE 3:

PEQUEÑÍN, S. A., a manufacturer and marketer of children's clothing, wants to set up a new shop for direct
sales, for which it has carried out a study of different locations in which potential customers, geographical
coordinates, the most important factors for this business and its score are collected.
These data are shown in the attached table:

FACTORS WEIGHTING ALMIRANTE VELAZQUEZ IBIZA

Competition 10% 8 4 6
Infrastructure 5% 8 8 7
Socio-economic status 15% 6 8 9
Average age of the population 30% 6 7 9
Clients 10% 4 5 6
Birth rate 20% 6 4 9
Other complementary businesses 10% 3 9 7
Estimated customers year 350 630 510
Geographical coordinates (3,2) (2,9) (3,5)

Provide a reasoned justification for the optimal location using the factor weighting method and the center of
gravity criterion.

Weighting Almirante = (0.10 x 8) + (0.05 x 8) + (0.15 x 6) + (0.30 x 6) + (0.10 x 4) + (0.20 x 6) + (0.10 x 3)

= 5.80
Weighting Velazquez = (0.10 x 4) + (0.05 x 8) + (0.15 x 8) + (0.30 x 7) + (0.10 x 5) + (0.20 x 4) + (0.10 x 9)
= 6.30
Weighting Ibiza = (0.10 x 6) + (0.05 x 7) + (0.15 x 9) + (0.30 x 9) + (0.10 x 6) + (0.20 x 9) + (0.10 x 7) =
8.10

Customers 350 + 630 + 510 = 1490

X = (350 x 3) + (630 x 2) + (510 x 3) / 1490 = 2.57
Y = (350 x 2) + (630 x 9) + (510 x 5) / 1490 = 5.98

According to the weighting method = Ibiza (8.10)

According to the center of gravity criterion = Ibiza (3,5)

CASE 4:
Company SAREO, wants to open a new store in a nearby street. Data on estimated customers, location
factors to be assessed, customer scores and optimal geographic coordinates are given in this table:

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 REVIEW EXERCISES CHAPTER 2. The location of the company .
Academic Year 2023-2024
FACTORS WEIGHTING MONCLOA QUINTANA DÓNOSO CORTES
CASE 3:
Competition 20% 4 5 7
Economic level 25% 6 8 5
Cultural level 30% 7 7 9
Average age of the
10% 9 9 9
population
Clients 10% 3 5 9
Cafés/bars 5% 5 7 4
Estimated customers year 650 820 500
Geographical coordinates (2,2) (2,6) (2,5)

Analyze what will be the optimal location using the business location methods you are familiar with.

Weighting Moncloa = (0.20 x 4) + (0.25 x 6) + (0.30 x 7) + (0.10 x 9) + (0.10 x 3) + (0.05 x 5) = 5.85

Weighting Quintana = (0.20 x 5) + (0.25 x 8) + (0.30 x 7) + (0.10 x 9) + (0.10 x 5) + (0.05 x 7) = 6.85
Weighting Donoso Cortes = (0.20 x 7) + (0.25 x 5) + (0.30 x 9) + (0.10 x 9) + (0.10 x 9) + (0.05 x 4) = 7.35

Customers = 650 + 820 + 500 = 1970

X = (650 x 2) + (820 x 2) + (500 x 2) / 1970 = 2
Y = (650 x 2) + (820 x 6) + (500 x 5) / 1970 = 4.42

According to the weighting method = Donoso Cortes (7.35)

According to the center of gravity criterion = Donoso Cortes (2,5)