Chap10-Service Facility Location

7/30/2019 Chap10-Service Facility Location

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Service Facility Location

Time

McGraw-H il l/I rwin Copyri ght 2011 by The McGraw-H il l Companies, I nc. Al l ri ghts reserved.


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Learning Objectives Explain the different between competitive clustering and

saturation marketing.

Explain the impact of the Internet on location decisions.

Describe how a geographic information system is used inservice location decisions.

Differentiate between a Euclidian and metropolitanmetric approach to measuring travel distance.

Locate a single facility using the cross-median approach. Use the Huff retail location model to estimate revenue

and market share for a potential site.

Locate multiple facilities using the set covering model.

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Service Facility Location

Planning Competitive positioning: prime location can

be barrier to entry.

Demand management: diverse set of marketgenerators.

Flexibility:plan for future economic changesand portfolio effect.

Expansion strategy: contiguous, regionalfollowed by fill-in, or concentrated.

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Strategic Considerations 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 Communication for Travel(e.g. telecommuting, e-Commerce)

Separation of Front from Back Office

(e.g. ATM, shoe repair)

Impact of the Internet on Service Location(e.g. Amazon.com, eBay, FedEx)

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Strategic Location Considerations

Front Office Back Office

External

Customer

(consumer)

Is travel out to customer orcustomer travel to site?

Can electronic mediasubstitute for physical travel?

Is location a barrier to entry?

Is service performed onperson or property?

Is co-location necessary?

How is communicationaccomplished?

Internal

Customer

(employee)

Availability of labor?Are self-service kiosks analternative?

Are economies of scalepossible?

Can employees work fromhome?

Is offshoring an option?

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Site Selection Considerations1. Access:

Convenient to freeway exit and

entrance ramps. Served by publictransportation.

5. Expansion:

Room for expansion

2. Visibility:

Set back from street, Surroundingclutter, Sign placement

6. Environment:

Immediate surroundings shouldcompliment the service

3. Traffic:

Traffic volume on street that mayindicate potential impulse buying

7. Competition:

Location of competitors

4. Parking:

Adequate off-street parking

8. Government:

Zoning restrictions, Taxes10-6


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Regression Model for Motel Location

Competitive Factors: Room rate, hotels withinone mile, competitive room rate

Demand Generators: College, Hospital bedswithin one mile, Annual tourists

Area Demographics: Family income, residentialpopulation

Market Awareness: State population per inn,Distance to nearest inn

Physical Attributes: Sign visibility, Distance todowntown, Accessibility

Y= 39 + (-5.41)STATE + (5.86)PRICE + (-3.09)INCOME + (1.75) COLLEGE10-7


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Geographic RepresentationLocation on a Plane

Y

Destination j

Yj Euclidean

Origin i

Metropolitan

0Xi Xj

Yi

X

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

2 21 2

d x x y yij i j i j

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Effect of Optimization Criteria

1. Maximize Utilization

(City C: elderly find distance a barrier)2. Minimize Distance per Capita

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

(City A: many frequent users)

City A

City B City C-10

-5

5

10

15

-15 -10 -5 5 10 15 20 25

3

2

1

*

*

*

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Single Facility Location Using

Cross Median Approach

0

1

2

3

4

5

6

0 2 4 6

X miles

Ymiles

1 (W1=7)

2 (W2=1)

3 (W3=3)

4 (W4=5)

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Single Facility Location Using

Cross Median Approach

0

1

2

3

4

5

6

0 2 4 6

X miles

Ymiles

1 (W1=7)

2 (W2=1)

3 (W3=3)

4 (W4=5)

Solution is line segment y=2, x=2,310-11


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Huff Retail Location Model

First, a gravity analogy is used to estimateattractiveness of store j for customers in

area i.Aij= Attraction to store j for customers in area i

Sj = Size of the store (e.g. square feet)

Tij= Travel time from area i to store jlambda = Parameter reflecting propensity to travel

AS

Tij

j

ij

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Huff Retail Location ModelSecond, to account for competitors wecalculate the probability that customers

from area i will visit a particular store j.

PA

Aij

ij

ijj

n

1

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Huff Retail Location ModelThird, annual customer expenditures for item k atstore j can now be calculated.

Pij = Probability customers from area i travel to store jCi = Number of customers in area i (e.g. census track)Bik= Annual budget for product k for customers in area im = Number of customer areas in the market region

E P C Bjk ij i ikj

m

1

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Huff Retail Location Model

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

calculated.

M

E

C Bjk

jk

i iki

m

( )1

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Chap10-Service Facility Location