Ch.

10
Service Facility Location

McGraw-Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

10-2

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 (GIS)
is used in service location decisions.
Differentiate between a Euclidian and metropolitan
metric approach to measuring travel distance.
Locate a single facility using the cross-median
approach.

1. Service Facility Location

Planning

10-3

Competitive positioning: prime location can

be barrier to entry.
Demand management: diverse set of market
generators.
Flexibility: plan for future economic
changes and portfolio effect.
Expansion strategy: contiguous, regional
followed by fill-in, or concentrated.

10-4

1. 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)

1. Strategic Location
Considerations
Front Office
External
Customer
(consume
r)
Internal
Customer
(employe
e)

Back Office

Is travel out to customer or

customer travel to site?

Is co-location necessary?

Can electronic media

substitute for physical travel?

How is communication
accomplished?

Availability of labor?

Can employees work from

home?

Are self-service kiosks an

alternative?

Is offshoring an option?

10-5

1. 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
Surrounding clutter
should complement the
Sign placement
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

10-6

10-7

2. Regression Model for Motel

Location
Competitive Factors: Room rate, hotels within one mile,
(p.231)
competitive room rate

Demand Generators: College, Hospital beds within one

mile, Annual tourists
Area Demographics: Family income, residential
population
Market Awareness: State population per inn, Distance to
nearest inn
Physical Attributes: Sign visibility, Distance to
downtown, Accessibility

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

10-8

3. Geographic
Representation
(GIS)
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

1/ 2

4. Effect of Optimization
Criteria

10-9

City A

10

15

1. Maximize Utilization
City B
(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)

-5

10

15

20

25

-5

-10

-10

-15

City C

4. Single Facility Location

Using Cross Median
Approach

10-10

3 (W3=3)

2 (W2=1)
1 (W1=7)
4 (W4=5)

4. Single Facility Location

Using Cross Median
Approach

10-11

3 (W3=3)

2 (W2=1)
1 (W1=7)
4 (W4=5)

Solution is line segment y=2, x=2,3

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Topics for Discussion

Pick a particular service, and identify

shortcomings in its site selection.
What are the characteristics of a service that
would make communication a good substitute for
transportation?
What are the benefits of using intermediaries in
the service distribution channel?
Go to http://www.mapinfo.com/ and find the
definition of location intelligence. What use can
be made of geographic information?

10-13

Interactive Exercise
The class breaks into small groups
and each group comes up with
examples of service facility
locations that seem to defy the
analytical models discussed in the
chapter. E.g. COSTCO,