Transcript Service Facility Location Learning Objectives     Discuss how different customer service criteria affect facility location. Locate a single facility using the crossmedian approach. Use the.

Service Facility Location
Learning Objectives




Discuss how different customer service
criteria affect facility location.
Locate a single facility using the crossmedian approach.
Use the Huff model to evaluate the economic
feasibility of a retail service location.
Discuss nontraditional location strategies.
Competitive Role of Service
Facility Location
Flexibility: Future economic changes
and portfolio approach
 Competitive Positioning: Prime location
can be barrier to entry
 Demand Management: Diverse set of
market generators
 Focus: “Cookie-cutter” expansion and
cannibalization

Geographic Representation
Location on a Plane
Y
Destination j
Yj
Euclidean

dij  ( xi  x j )  ( yi  y j )
2
Origin i
Yi
Metropolitan
dij  xi  x j  yi  y j
0
Xi
Xj
X
2

1/ 2
Effect of Optimization Criteria
City A
10
15
3
*
5
2
-10
*
-5
5
10
15
20
25
*
-10
-5
-15
B
1. Maximize Utilization City
(City
C: elderlyCity C
find distance a barrier)
2. Minimize Distance per Capita (City B:
centrally located)
3. Minimize Distance per Visit (City A:
frequent users and large population)
1
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)
Site Selection Considerations
1. Access:
Convenient to freeway exit and
entrance ramps
Served by public transportation
2. Visibility:
Set back from street
Sign placement
3. Traffic:
Traffic volume on street that may
Indicate potential impulse buying
Traffic congestion that could be a
hindrance (e.g.., fire stations)
4. Parking:
Adequate off-street parking
5. Expansion:
Room for expansion
6. Environment:
Immediate surroundings should
complement the service
7. Competition:
Location of competitors
8. Government:
Zoning restrictions
Taxes
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 for
Transportation
(e.g. USAA, Internet Shopping)
Single Facility Location Using
Cross Median Approach
5
3 (W3=3)
Y miles
4
Median =16/2 =8
3
2 (W2=1)
2
1 (W1=7)
4 (W4=5)
1
0
0
1
2
X miles
3
4
Huff Retail Location Model
First, a gravity analogy is used to
estimate attractiveness 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 j
lambda = Parameter reflecting propensity to travel
Aij 
Sj

Tij
Huff Retail Location Model
Second, to account for competitors we
calculate the probability that customers
from area i will visit a particular store j.
Pij 
Aij
n
A
j 1
ij
Huff Retail Location Model
Third, annual customer expenditures for
item k at store j can now be calculated.
Pij = Probability of customer from area i travelling to store
j
Ci = 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
m

E jk   Pij Ci Bik
j 1

Huff Retail Location Model
Fourth, market share of product k
purchased at store j can now be
calculated.
M jk 
E jk
m
 (C B
i 1
i
ik
)
Athol Furniture Site Alternatives
4
State Park
1
2
3
A
5
Bluff lake
Z7
6
9
4
Railroad
Freeway
Major street
Park boundary
River
Census block group
Existing retail outlets
Potential sites
B
8
Y
11
10
12
X
Athol Furniture Data
COMPETITORS’ STORE SIZES
Store
A
B
MAXIMUM SIZE LIMIT OF SITES
Sales area, sq ft
10,000
15,000
Site
X
Y
Z
Maximum sales area, sq ft
15,000
20,000
10,000
MINIMUM TRAVEL TIME BETWEEN POTENTIAL AND EXISTING SITES
AND BLOCK GROUPS, Min
Site
A
B
X
Y
Z
1
7
10
16
12
7
2
5
8
14
10
5
3
5
8
14
10
5
4
9
10
16
12
7
Census block group
5
6
1
3
7
3
13
8
9
5
4
2
7
4
3
7
4
1
8
5
2
6
3
4
9
7
1
4
2
3
10
10
2
4
4
10
RELATIONSHIP OF STORE SIZE TO MARGIN ON SALES, EXPENSES,
AND NET OPERATING PROFIT AS % OF SALES
Sales area,
sq ft
10,000
15,000
20,000
Margin
on sales
16.2
15.6
14.7
Expenses
12.3
12.0
11.8
Net operating profit
before taxes
3.9
3.6
2.0
11
14
2
2
2
10
12
17
5
2
5
13
Athol Furniture Demographics
MARKET DATA
Census block
group
1
2
3
4
5
6
7
8
9
10
11
12
Number of
households
730
1130
1035
635
160
105
125
470
305
1755
900
290
7640
Average annual
income
$12,000-$12,500
8,500-9,000
19,500-20,000
25,000-over
4,500-5,000
4,000-4,500
4,000-4,500
8,000-8,500
6,000-6,500
18,500-19,000
15,000-15,500
25,000-over
Average annual furniture
expenditures per household
$180
125
280
350
75
50
60
115
90
265
215
370
Store Site Selection
Annual Profit ($)
Store Profit as a Function of
Lambda
30000
X10
X15
20000
Y10
10000
Y15
0
Y20
0.1
0.5
1
2
5
Z10
Market Share Analysis
Now
X15
Y15
Y20
A
30%
22%
21%
19%
B
70%
47%
46%
41%
31%
33%
40%
Athol