Laboratory Exercise 7

Location Strategies

Abayabay, Almarejen
Abelardo, Ma. Istefanie
Valle, Doren
Name: ___________________ Score: ______
Class Schedule: Friday, 1:00- 4:00 (D205) Date: January 25,2023

1. Discuss the importance of location decisions in operations management.

The location where a company operates is a crucial aspect of operations
management as it can greatly influence the overall performance and success of the
company. Factors such as transportation costs, labor costs and access to resources and
markets are all affected by the location of a facility. A good location can help to lower costs,
improve efficiency and give a company a competitive edge. For instance, situating a
manufacturing plant close to a port can reduce the cost of transporting raw materials and
finished products. On the other hand, placing a retail store in a busy area can increase its
visibility and customer base. Operations managers need to carefully evaluate all factors,
including the availability of skilled labor, government regulations and infrastructure access,
before making a location decision. Ultimately, the location choice can have a major impact
on a company's financial performance and it's important for operations managers to
consider all factors before making a decision.

2. Grax Sweats and Sweaters (GSS) is a small chain of stores specializing in casual cotton
clothing. The company currently has five stores in Georgia, South Carolina, and North
Carolina, and it wants to open a new store in one of four new mall locations in the
Southeast. A consulting firm has been hired to help the company decide where to locate
its new store. The company has indicated five factors that are important to its decision,
including proximity of a college, community median income, mall vehicle traffic flow and
parking, quality and number of stores in the mall, and proximity of other malls or shopping
areas. The consulting firm had the company weight the importance of each factor. The
consultants visited each potential.
Solution:

Score (0-100)
Location Factors Weighted Mall 1 Mall 2 Mall 3 Mall 4

College proximity 0.30 12 18 27 15

Median Income 0.25 18.75 20 18.75 17.5

Vehicle Traffic 0.25 15 22.5 19.75 18.5

Mall quality and size 0.10 9 10 8 9

Proximity of other 0.10 8 3 6 7

shopping
TOTAL SCORE 62.75 73.5 79.5 67

Therefore, Mall 3 has the highest factor rating of 79.5 compared with the
other locations; however, this evaluation would have to be used with other
information, particularly a cost analysis before making a decision.
Computation:
𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑆𝑐𝑜𝑟𝑒 = 𝑊𝑒𝑖𝑔ℎ𝑡 𝑥 𝐹𝑎𝑐𝑡𝑜𝑟 𝑆𝑐𝑜𝑟𝑒
a. College proximity

Mall 1 = 0.30 x 40 Mall 2 = 0.30 x 60 Mall 3 = 0.30 x 90 Mall 4 = 0.30 x 50

= 12 = 18 = 27 = 15

b. Median Income
Mall 1 = 0.25 x 75 Mall 2 = 0.25 x 80 Mall 3 = 0.25 x 75 Mall 4 = 0.25 x 70
= 18.75 = 20 = 18.75 = 17.5

c. Vehicle Traffic

Mall 1 = 0.25 x 60 Mall 2 = 0.25 x 90 Mall 3 = 0.25 x 79 Mall 4 = 0.25 x 74

= 15 = 22.5 = 19.75 = 18.5

d. Mall quality and size

Mall 1 = 0.10 x 90 Mall 2 = 0.10 x 100 Mall 3 = 0.10 x 80 Mall 4 = 0.10 x 90

=9 = 10 =8 =9

e. Proximity of other shopping

Mall 1 = 0.10 x 80 Mall 2 = 0.10 x 30 Mall 3 = 0.10 x 60 Mall 4 = 0.10 x 70

=8 =3 =6 =7
3. Ms. D’s Mega-Mart (MMM), a discount store chain, wants to build a new superstore
in an area in southwest Virginia near four small towns with populations between 8000 and
42,000. The coordinates (in miles) of these four towns and the market population in each
are as follows:

Solution:

[12(26,000) + 18 (12,000) + 30(18,300) + 32(9,700)]

𝑥=
26,000 + 12,000 + 18,300 + 9,700

312,000 + 216,000 + 549,000 + 310,400

=
26,000 + 12,000 + 18,300 + 9,700

1,387,400
𝑥 − 𝑐𝑜𝑜𝑟𝑑𝑖𝑛𝑎𝑡𝑒 = = 𝟐𝟏. 𝟎𝟐
66,000

[20(26,000) + 15 (12,000) + 7(18,300) + 25(9,700)]

𝑦=
26,000 + 12,000 + 18,300 + 9,700

520,000 + 180,000 + 128,100 + 242,500

=
26,000 + 12,000 + 18,300 + 9,700

1,070,600
𝑦 − 𝑐𝑜𝑜𝑟𝑑𝑖𝑛𝑎𝑡𝑒 = = 𝟏𝟔. 𝟐𝟐
66,000

Thus, the suggested coordinates for new superstore location are

x= 21.02 and y= 16.22.
4. Lorax Farm (LF) implements dealer is seeking a fourth warehouse location to complement
three existing warehouses. There are three potential locations: Charlotte, NC; Atlanta, GA;
and Columbia, SC. Charlotte would involve a fixed cost of $5,000 per month and a variable
cost of $7 per unit; Atlanta would involve a fixed cost of $4,000 per month and a variable cost
of $8 per unit; and Columbia would involve a fixed cost of $5,500 per month and a variable
cost of $9 per unit. Use of the Charlotte location would increase system transportation costs
by $20,000 per month, Atlanta by $23,000 per month, and Columbia by $19,000 per month.
Which location would result in the lowest total cost to handle 900 units per month?
Given: Volume: 900 units per month

SOLUTION:

Name potential Fixed Cost Variable Cost Transportation Cost

locations(Warehouses) (per month) (per unit) (per month)
Charlotte, NC $5,000 $7 $20,000
Atlanta, GA $4,000 $8 $23,000
Columbia, SC $5,500 $9 $19,000

COST ANALYSIS:

Charlotte, NC: $5,000 + $7 x 900 + $20,000= $31,000

Atlanta, GA: $4,000 + $8 x 900 + $23,000 = $34,000

Columbia, SC: $5,500 + $9 x 900 + $19,000= $32,600

Therefore, Charlotte, NC will have the lowest total cost for this monthly volume.