Chap 6 Facility Location

8/13/2019 Chap 6 Facility Location

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Site Selection Considerations

1. Access: 4. Parking:Convenient ring roads and Adequate off-street parking

motorways 5. Expansion:Served by public transportation Room for expansion2. Visibility: 6. Environment:

Set back from street Immediate surroundings shouldSign placement complement the service

3. Traffic: 7. Competition:Traffic volume on street that may Location of competitorsIndicate potential impulse buying 8. Government:Traffic congestion that could be a Zoning restrictionshindrance (e.g.., fire stations) Taxes


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Competitive Role of Service Facility Location

Flexibility: Future economic changesand portfolio approach (multiple sites

in different regions)Competitive Positioning: Prime location

can be barrier to entryDemand Management: Diverse set of

market generators (hotel nearconvention centre)Focus: Cookie -cutter expansion (formula facility) and cannibalization


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Breaking the Rules

Competitive Clustering ( Among Competitors )(e.g. Auto Dealers, Motels)

Saturation Marketing (Same Firm )(e.g. An Bon Pain, Ice Cream Vendors)Marketing Intermediaries

(e.g. Credit Cards, HMO)

Substitute Electronic Media forTransportation

(e.g. Internet Shopping)


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Location Considerations

Location

Geographic structure Number of facilities Optimization criteria

network plane

rectilinear

euclidean

Public sector Private sectorone many

Service capacity

Service level

Area served


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Geographic Representation

Location on a Plane

Y

Destination j

Yj Euclidean

Origin i

Metropolitan

0 Xi X j

Yi

X

d x x y yij i j i j ( ) ( ) /2 2 1 2

d x x y yij i j i j


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Effect of Optimization Criteria

1. Maximize Utilization (City C: elderlyfind distance a barrier )

2. Minimize Distance per Capita (City B:

centrally located )3. Minimize Distance per Visit (City A:

frequent users and large population )

City A

City B City C -

1 0

- 5

5

1 0

1 5

-15 -10 -5 5 10 15 20 25

3

2

1

*

*

*


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Estimation of Geographic Demand

Define the Target Market(Families receiving AFDC)

Select a Unit of Area(Census track, ZIP code)

Estimate Geographic Demand

(Regression analysis)Map Geographic Demand

(3D visual depiction)


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Single Facility Location UsingCross Median Approach

0

1

2

3

4

5

0 1 2 3 4

X miles

Y m

i l e s

1 (W 1=7)

2 (W 2=1)

3 (W 3=3)

4 (W 4=5)

Median =16/2 =8


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Huff Retail Location Model

First, a gravity analogy is used toestimate attractiveness of store j for

customers in area i. Aij= Attraction to store j for customers in area iS j = Size of the store (e.g. square feet)T

ij= Travel time from area i to store j

lambda = Parameter reflecting propensity to travel

AS

T ij

j

ij


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Second, to account for competitors wecalculate the probability that customers

from area i will visit a particular store j.

P A

A

ijij

ij j

n

1


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Third, annual customer expenditures foritem k at store j can now be calculated.

P ij = Probability of customer from area i travelling to store jCi = Number of customers in area i (e.g. census track)Bik = Annual budget for product k for customers in area i

m = Number of customer areas in the market region

E P C B jk ij i ik j

m

1


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Fourth, market share of product kpurchased at store j can now be

calculated.

M

E

C B jk

jk

i ik i

m( )

1


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Athol Furniture Site Alternatives

1

2 3

4

75

6

8

9

10

11

12

Bluff lake

State Park

A

B

Z

Y

X

RailroadFreewayMajor streetPark boundaryRiverCensus block groupExisting retail outletsPotential sites

4


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Athol Furniture DataCOMPETITORS STORE SIZES MAXIMUM SIZE LIMIT OF SITES Store Sales area, sq ft Site Maximum sales area, sq ft

A 10,000 X 15,000B 15,000 Y 20,000

Z 10,000

MINIMUM TRAVEL TIME BETWEEN POTENTIAL AND EXISTING SITES AND BLOCK GROUPS, Min

Census block groupSite 1 2 3 4 5 6 7 8 9 10 11 12 A 7 5 5 9 1 3 4 5 7 10 14 17B 10 8 8 10 7 3 3 2 1 2 2 5X 16 14 14 16 13 8 7 6 4 4 2 2Y 12 10 10 12 9 5 4 3 2 4 2 5Z 7 5 5 7 4 2 1 4 3 10 10 13

RELATIONSHIP OF STORE SIZE TO MARGIN ON SALES, EXPENSES, AND NET OPERATING PROFIT AS % OF SALES

Sales area, Margin Net operating profitsq ft on sales Expenses before taxes

10,000 16.2 12.3 3.915,000 15.6 12.0 3.620,000 14.7 11.8 2.0


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Athol Furniture Demographics

MARKET DATA

Census block Number of Average annual Average annual furniture

group households income expenditures per household1 730 $12,000-$12,500 $1802 1130 8,500-9,000 1253 1035 19,500-20,000 2804 635 25,000-over 3505 160 4,500-5,000 756 105 4,000-4,500 507 125 4,000-4,500 608 470 8,000-8,500 1159 305 6,000-6,500 90

10 1755 18,500-19,000 26511 900 15,000-15,500 21512 290 25,000-over 370

7640


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Store Site Selection

Store Profit as a Function of

Lambda

0

10000

20000

30000

0.1 0.5 1 2 5 A n n u a

l P r o

f i t ( $ ) X10

X15

Y10

Y15

Y20

Z10


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Market Share Analysis

Now X15 Y15 Y20

A 30% 22% 21% 19%

B 70% 47% 46% 41%

Athol 31% 33% 40%

Documents

Chap 6 Facility Location