OM 300 1nd Edition Lecture 14 Outline of Last Lecture I Strategic Importance of Location II Location and Costs III Factors that affect Location Decisions Outline of Current Lecture I Locational Cost Volume Analysis II Center of Gravity Method III GIS Current Lecture Locational Cost Volume Analysis An economic comparison of location alternatives Three steps in the method 1 Determine fixed and variable costs for each location 2 Plot the cost for each location 3 Select location with lowest total cost for expected production volume These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Center of Gravity Method Finds location of distribution center that minimizes distribution costs Considers o Location of markets o Volume of goods shipped to those markets o Shipping cost or distance Place existing locations on a coordinate grid o Grid origin and scale is arbitrary o Maintain relative distances Calculate x and y coordinates for center of gravity o Assumes costs is directly proportional to distance and volume shipped Service Location Strategy 1 Purchasing power of customer drawing area 2 Service and image compatibility with demographics of the customer drawing area 3 Competition in the area 4 Quality of the competition 5 Uniqueness of the firm s and competitor s locations 6 Physical qualities of facilities and neighboring businesses 7 Operating policies of the firm 8 Quality of management How Hotel Chains Select Sites Location is a strategically important decision in the hospitality industry La Quinta started with 35 independent variables and worked to refine a regression model to predict profitability The final model had only four variables o Price of the inn o Median income levels o State population per inn o Location of nearby colleges Geographic Information Systems GIS Important tool to help in location analysis Enables more complex demographic analysis Available data bases include o Detailed census data o Detailed maps o Utilities o Geographic features o Locations of major services
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