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![Page 1: Service Facility Location. Learning Objectives n n Discuss how different customer service criteria affect facility location. n n Locate a single facility.](https://reader036.fdocuments.net/reader036/viewer/2022082816/56649cf75503460f949c7fd9/html5/thumbnails/1.jpg)
Service Facility Location
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Learning Objectives
Discuss how different customer service criteria affect facility location.
Locate a single facility using the cross-median approach.
Use the Huff model to evaluate the economic feasibility of a retail service location.
Discuss nontraditional location strategies.
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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
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Geographic Representation
Location 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:
frequent users and large population)
City A
City B City C -1
0
-5
5
10
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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Site Selection Considerations
1. Access: 4. Parking:
Convenient to freeway exit and Adequate off-street parking
entrance ramps 5. Expansion:
Served by public transportation Room for expansion
2. Visibility: 6. Environment:
Set back from street Immediate surroundings should
Sign placement complement the service
3. Traffic: 7. Competition:
Traffic volume on street that may Location of competitors
Indicate potential impulse buying 8. Government:
Traffic congestion that could be a Zoning restrictions
hindrance (e.g.., fire stations) Taxes
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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 for Transportation
(e.g. USAA, Internet Shopping)
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Single Facility Location Using Cross Median Approach
0
1
2
3
4
5
0 1 2 3 4
X miles
Y m
iles
1 (W1=7)
2 (W2=1)
3 (W3=3)
4 (W4=5)
Median =16/2 =8
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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
AS
Tij
j
ij
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Huff Retail Location Model
Second, to account for competitors we calculate 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 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
E P C Bjk ij i ikj
m
1
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Huff Retail Location Model
Fourth, market share of product k purchased at store j can now be calculated.
ME
C Bjk
jk
i iki
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 SITESStore Sales area, sq ft Site Maximum sales area, sq ft
A 10,000 X 15,000
B 15,000 Y 20,000
Z 10,000
MINIMUM TRAVEL TIME BETWEEN POTENTIAL AND EXISTING SITES
AND BLOCK GROUPS, Min Census block group
Site 1 2 3 4 5 6 7 8 9 10 11 12
A 7 5 5 9 1 3 4 5 7 10 14 17
B 10 8 8 10 7 3 3 2 1 2 2 5
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
RELATIONSHIP OF STORE SIZE TO MARGIN ON SALES, EXPENSES,
AND NET OPERATING PROFIT AS % OF SALES
Sales area, Margin Net operating profit
sq ft on sales Expenses before taxes
10,000 16.2 12.3 3.9
15,000 15.6 12.0 3.6
20,000 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 household
1 730 $12,000-$12,500 $180
2 1130 8,500-9,000 125
3 1035 19,500-20,000 280
4 635 25,000-over 350
5 160 4,500-5,000 75
6 105 4,000-4,500 50
7 125 4,000-4,500 60
8 470 8,000-8,500 115
9 305 6,000-6,500 90
10 1755 18,500-19,000 265
11 900 15,000-15,500 215
12 290 25,000-over 370
7640
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Store Site SelectionStore Site Selection
Store Profit as a Function of Lambda
0
10000
20000
30000
0.1 0.5 1 2 5
An
nu
al P
rofi
t ($
) X10
X15
Y10
Y15
Y20
Z10
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Market Share AnalysisMarket Share Analysis
Now X15 Y15 Y20
A 30% 22% 21% 19%
B 70% 47% 46% 41%
Athol 31% 33% 40%