Operations in Service Industry

Athol Furniture Inc Case Solution

Submitted By

Kunal Singh

Roll No: 2010C43 SCMHRD, Pune

CASE FACTS:

Athol Furniture, Inc. (AFI) is a growing regional chain of discount furniture and large-

appliance stores.

Management has targeted the small city of Bluff Lake as the next location for a retail outlet.

X, Y, and Z are the possible sites that AFI could use for a retail store.

Map of bluff lake:

Market Data:

Competitions Store Size:

Minimum Size Limit of AFI Sites

Minimum Travel time between potential & existing sites and block groups in minutes

Relationship of size of store to margin on sales, Expenses & Net operating profit as a

percent of sales

CASE SOLUTION: Hulf Location Model is used.

The maximum size limit of AFI sites are:

Site Max sales area (Sq Ft)

X 15000

Y 20000

Z 10000

The minimum Travel time between potential & existing sites and block groups in minutes is:

Census block group

Site 1 2 3 4 5 6 7 8 9 10 11 12

X 16 14 14 16 13 8 7 6 4 4 2 2

Y 12 10 10 12 9 5 4 3 2 4 2 5

Z 7 5 5 7 4 2 1 4 3 10 10 13

Calculation of Attractiveness:

Attractiveness to facility j to consumer i

Aij = Sj / Tij

Where Sj = Size of facility j

Tij = Travel time of Customer of i’s location to facility j

Attractiveness of each site for each location are calculated below using the above formula.

Attraction to site X

AX1 937.5

AX2 1071.4

AX3 1071.4

AX4 937.5

AX5 1153.8

AX6 1875.0

AX7 2142.9

AX8 2500.0

AX9 3750.0

AX10 3750.0

AX11 7500.0

AX12 7500.0

Attraction to site Y

AY1 1666.7

AY2 2000.0

AY3 2000.0

AY4 1666.7

AY5 2222.2

AY6 4000.0

AY7 5000.0

AY8 6666.7

AY9 10000.0

AY10 5000.0

AY11 10000.0

AY12 4000.0

Attraction to site Z

AZ1 1428.6

AZ2 2000.0

AZ3 2000.0

AZ4 1428.6

AZ5 2500.0

AZ6 5000.0

AZ7 10000.0

AZ8 2500.0

AZ9 3333.3

AZ10 1000.0

AZ11 1000.0

AZ12 769.2

Attractiveness

AX1 937.5 AY1 1666.7 AZ1 1428.6 ∑Ai1 4032.7

AX2 1071.4 AY2 2000.0 AZ2 2000.0 ∑Ai2 5071.4

AX3 1071.4 AY3 2000.0 AZ3 2000.0 ∑Ai3 5071.4

AX4 937.5 AY4 1666.7 AZ4 1428.6 ∑Ai4 4032.7

AX5 1153.8 AY5 2222.2 AZ5 2500.0 ∑Ai5 5876.1

AX6 1875.0 AY6 4000.0 AZ6 5000.0 ∑Ai6 10875.0

AX7 2142.9 AY7 5000.0 AZ7 10000.0 ∑Ai7 17142.9

AX8 2500.0 AY8 6666.7 AZ8 2500.0 ∑Ai8 11666.7

AX9 3750.0 AY9 10000.0 AZ9 3333.3 ∑Ai9 17083.3

AX10 3750.0 AY10 5000.0 AZ10 1000.0 ∑Ai10 9750.0

AX11 7500.0 AY11 10000.0 AZ11 1000.0 ∑Ai11 18500.0

AX12 7500.0 AY12 4000.0 AZ12 769.2 ∑Ai12 12269.2

Calculation of Probability:

Now we will calculate the probability of a consumer from a given area travelling to a shopping site.

Pij = Aij / ∑ Aij

Probability

PX1 0.232 PY1 0.413 PZ1 0.354

PX2 0.211 PY2 0.394 PZ2 0.394

PX3 0.211 PY3 0.394 PZ3 0.394

PX4 0.232 PY4 0.413 PZ4 0.354

PX5 0.196 PY5 0.378 PZ5 0.425

PX6 0.172 PY6 0.368 PZ6 0.460

PX7 0.125 PY7 0.292 PZ7 0.583

PX8 0.214 PY8 0.571 PZ8 0.214

PX9 0.220 PY9 0.585 PZ9 0.195

PX10 0.385 PY10 0.513 PZ10 0.103

PX11 0.405 PY11 0.541 PZ11 0.054

PX12 0.611 PY12 0.326 PZ12 0.063

Calculation of Total Annual expenditure for a product:

Census Block Group No. of Households Avg. annual Expenditure Per Household ($)

1 730 180

2 1130 125

3 1035 280

4 635 350

5 160 75

6 105 50

7 125 60

8 470 115

9 305 90

10 1755 265

11 900 215

12 290 370

Estimate of Total Annual expenditure for a product

Ejk = ∑ PijCiBik Ci = Number of consumer at area i

Bik= Average annual amount budgeted by the

consumer of area i for a product class k

Estimate of Total Annual expenditure for a product

EX1 30546.9 EY1 54305.5 EZ1 46547.6

EX2 29841.5 EY2 55704.2 EZ2 55704.2

EX3 61225.4 EY3 114287.3 EZ3 114287.3

EX4 51667.0 EY4 91852.4 EZ4 78730.6

EX5 2356.4 EY5 4538.2 EZ5 5105.5

EX6 905.2 EY6 1931.0 EZ6 2413.8

EX7 937.5 EY7 2187.5 EZ7 4375.0

EX8 11582.1 EY8 30885.7 EZ8 11582.1

EX9 6025.6 EY9 16068.3 EZ9 5356.1

EX10 178875.0 EY10 238500.0 EZ10 47700.0

EX11 78445.9 EY11 104594.6 EZ11 10459.5

EX12 65590.9 EY12 34981.8 EZ12 6727.3

EX 517999.4 EY 749836.6 EZ 388989.0

Calculation of Market share:

Market share captured by facility j for product k

Mjk = Ejk / ∑CiBik

Ejk= Estimate of Total Annual expenditure for a product k

Ci = Number of consumer at area i

Bik= Average annual amount budgeted by the

consumer of area i for a product class k

Census block group

No. of customers

Avg. annual budget for furniture

Customer Spending

1 730 180 131400

2 1130 125 141250

3 1035 280 289800

4 635 350 222250

5 160 75 12000

6 105 50 5250

7 125 60 7500

8 470 115 54050

9 305 90 27450

10 1755 265 465075

11 900 215 193500

12 290 370 107300

Total 1656825

Estimate of Total Annual expenditure for a product

EX 517999.4 EY 749836.6 EZ 388989.0

Market share

MX 31.26% MY 45.26% MZ 23.48%

Recommendation:

The store site to be chosen for new store is Y.

Market share = 45.26%

Total annual Expenditure = $ 749836