11 1

Location
BY: SHARMEENI MURUGAN
This lecture slides are modified from Operations Management, by Jay Heizer
et al., Pearson.
11 2
Location Decisions
Location decisions affect processes and
departments
Marketing
Human resources
Accounting and finance
Operations
International operations
11 3
Location Decisions
Many factors
Sensitive to location
High impact on the companys ability to meet its goals
Divide location factors
Dominant factors in manufacturing
Favorable labor climate
Proximity to markets
Quality of life
Proximity to suppliers and resources
Proximity to the parent companys facilities
Utilities, taxes, and real estate costs
Other factors
11 4
Location Decisions
Dominant factors in services
Impact of location on sales and customer
satisfaction
Proximity to customers
Transportation costs and proximity to markets
Location of competitors
Site-specific factors
11 5
Geographic Information Systems
GIS is a system of computer software, hardware,
and data
Use to manipulate, analyze, and present
information relevant to a location decision
Create a visual representation of a firms location
choices
Useful decision-making tool
Using GIS to identify locations and demographic
customer segments
Identifying locations that relate to target market
Part of an array of decision-making tools
11 6
Locating a Single Facility
Expand onsite, build another facility, or
relocate to another site
Onsite expansion
Building a new plant or moving to a new retail
or office space
Comparing several sites
11 7
Selecting a New Facility
Step 1: Identify the important location factors and
categorize them as dominant or secondary
Step 2: Consider alternative regions; then narrow to
alternative communities and finally specific
sites
Step 3: Collect data on the alternatives
Step 4: Analyze the data collected, beginning with
the quantitative factors
Step 5: Bring the qualitative factors pertaining to
each site into the evaluation
11 8
EXAMPLE
A new medical facility, Health-Watch, is to be located in Erie,
Pennsylvania. The following table shows the location factors,
weights, and scores (1 = poor, 5 = excellent) for one potential
site. The weights in this case add up to 100 percent. A weighted
score (WS) will be calculated for each site. What is the WS for
this site?

Calculating Weighted Scores
Location Factor Weight Score
Total patient miles per month 25 4
Facility utilization 20 3
Average time per emergency trip 20 3
Expressway accessibility 15 4
Land and construction costs 10 1
Employee preferences 10 5
11 9
SOLUTION
The WS for this particular
site is calculated by
multiplying each factors
weight by its score and
adding the results:
Calculating Weighted Scores
Location Factor Weight Score
Total patient miles per month 25 4
Facility utilization 20 3
Average time per emergency trip 20 3
Expressway accessibility 15 4
Land and construction costs 10 1
Employee preferences 10 5
WS = (25 4) + (20 3) + (20 3) + (15 4) + (10 1) + (10 5)
= 100 + 60 + 60 + 60 + 10 + 50
= 340
The total WS of 340 can be compared with the total weighted
scores for other sites being evaluated.
11 10
Management is considering three potential locations for a new
cookie factory. They have assigned scores shown below to the
relevant factors on a 0 to 10 basis (10 is best). Using the
preference matrix, which location would be preferred?
Application
Location
Factor
Weight
The
Neighborhood
Sesame
Street
Ronalds
Playhouse
Material Supply 0.1 5 9 8
Quality of Life 0.2 9 8 4
Mild Climate 0.3 10 6 8
Labor Skills 0.4 3 4 7
11 11
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.
0.9
1.6
1.8
1.6
5.9
Management is considering three potential locations for a new
cookie factory. They have assigned scores shown below to the
relevant factors on a 0 to 10 basis (10 is best). Using the
preference matrix, which location would be preferred?
Application
0.5
1.8
3.0
1.2
6.5
0.8
0.8
2.4
2.8
6.8
Location
Factor
Weight
The
Neighborhood
Sesame
Street
Ronalds
Playhouse
Material Supply 0.1 5 9 8
Quality of Life 0.2 9 8 4
Mild Climate 0.3 10 6 8
Labor Skills 0.4 3 4 7
11 12
Load-Distance (ld) Method
Identify and compare candidate locations
Like weighted-distance method
Select a location that minimizes the sum of
the loads multiplied by the distance the load
travels
Time may be used instead of distance
11 13
Load-Distance (ld) Method
Calculating a load-distance score
Varies by industry
Use the actual distance to calculate ld score
Use rectangular or Euclidean distances
Different measures for distance
Find one acceptable facility location that
minimizes the ld score
ld = l
i
d
i
i
Formula for the ld score
11 14
Application
What is the distance between (20, 10) and (80, 60)?
SOLUTION
Euclidean distance:
d
AB
= (x
A
x
B
)
2
+ (y
A
y
B
)
2
= (20 80)
2
+ (10 60)
2
= 78.1
Rectilinear distance:
d
AB
= |x
A
x
B
| + |y
A
y
B
| = |20 80| + |10 60| = 110
11 15
Application
Management is investigating which location would be best to
position its new plant relative to two suppliers (located in
Cleveland and Toledo) and three market areas (represented by
Cincinnati, Dayton, and Lima). Management has limited the
search for this plant to those five locations. The following
information has been collected. Which is best, assuming
rectilinear distance?
Location x,y coordinates Trips/year
Cincinnati (11,6) 15
Dayton (6,10) 20
Cleveland (14,12) 30
Toledo (9,12) 25
Lima (13,8) 40
11 16
Application
SOLUTION
Calculations:
Location x,y coordinates Trips/year
Cincinnati (11,6) 15
Dayton (6,10) 20
Cleveland (14,12) 30
Toledo (9,12) 25
Lima (13,8) 40
15(9) + 20(0) + 30(10) + 25(5) + 40(9) = 920
15(9) + 20(10) + 30(0) + 25(5) + 40(5) = 660
15(8) + 20(5) + 30(0) + 25(0) + 40(8) = 690
15(4) + 20(9) + 30(5) + 25(8) + 40(0) = 590
15(0) + 20(9) + 30(9) + 25(8) + 40(4) = 810 Cincinnati =
Dayton =
Cleveland =
Toledo =
Lima =
11 17
Center of Gravity Method
A good starting point
Find x coordinate, x*, by multiplying each
points x coordinate by its load (l
t
), summing
these products l
i
x
i
, and dividing by l
i
The center of gravitys y coordinate y* found
the same way
Generally not the optimal location
x* =
l
i
x
i
l
i
i
i
y* =
l
i
y
i
l
i
i
i
11 18
Finding the Center of Gravity
EXAMPLE
A supplier to the electric utility industry produces power
generators; the transportation costs are high. One market area
includes the lower part of the Great Lakes region and the upper
portion of the southeastern region. More than 600,000 tons are
to be shipped to eight major customer locations as shown
below:
Customer Location Tons Shipped x, y Coordinates
Three Rivers, MI 5,000 (7, 13)
Fort Wayne, IN 92,000 (8, 12)
Columbus, OH 70,000 (11, 10)
Ashland, KY 35,000 (11, 7)
Kingsport, TN 9,000 (12, 4)
Akron, OH 227,000 (13, 11)
Wheeling, WV 16,000 (14, 10)
Roanoke, VA 153,000 (15, 5)
11 19
Finding the Center of Gravity
What is the center of gravity
for the electric utilities
supplier? Using rectilinear
distance, what is the resulting
loaddistance score for this
location?
Customer Location Tons Shipped x, y Coordinates
Three Rivers, MI 5,000 (7, 13)
Fort Wayne, IN 92,000 (8, 12)
Columbus, OH 70,000 (11, 10)
Ashland, KY 35,000 (11, 7)
Kingsport, TN 9,000 (12, 4)
Akron, OH 227,000 (13, 11)
Wheeling, WV 16,000 (14, 10)
Roanoke, VA 153,000 (15, 5)
SOLUTION
The center of gravity is calculated as shown below:
x* = =
l
i
x
i
l
i
i
i
l
i
=

i
l
i
x
i
=

i
5 + 92 + 70 + 35 + 9 + 227 + 16 + 153 = 607

5(7) + 92(8) + 70(11) + 35(11) + 9(12) + 227(13)
+ 16(14) + 153(15) = 7,504

= 12.4
7,504
607
11 20
Finding the Center of Gravity
What is the center of gravity
for the electric utilities
supplier? Using rectilinear
distance, what is the resulting
loaddistance score for this
location?
Customer Location Tons Shipped x, y Coordinates
Three Rivers, MI 5,000 (7, 13)
Fort Wayne, IN 92,000 (8, 12)
Columbus, OH 70,000 (11, 10)
Ashland, KY 35,000 (11, 7)
Kingsport, TN 9,000 (12, 4)
Akron, OH 227,000 (13, 11)
Wheeling, WV 16,000 (14, 10)
Roanoke, VA 153,000 (15, 5)
x* = =
l
i
y
i
l
i
i
i
l
i
y
i
=

i
5(13) + 92(12) + 70(10) + 35(7) + 9(4) + 227(11)
+ 16(10) + 153(5) = 5,572

= 9.2
5,572
607
11 21
Finding the Center of Gravity
What is the center of gravity
for the electric utilities
supplier? Using rectilinear
distance, what is the resulting
loaddistance score for this
location?
Customer Location Tons Shipped x, y Coordinates
Three Rivers, MI 5,000 (7, 13)
Fort Wayne, IN 92,000 (8, 12)
Columbus, OH 70,000 (11, 10)
Ashland, KY 35,000 (11, 7)
Kingsport, TN 9,000 (12, 4)
Akron, OH 227,000 (13, 11)
Wheeling, WV 16,000 (14, 10)
Roanoke, VA 153,000 (15, 5)
The resulting load-distance score is
ld = l
i
d
i
=

i
5(5.4 + 3.8) + 92(4.4 + 2.8) + 70(1.4 + 0.8) +
35(1.4 + 2.2) + 90(0.4 + 5.2) + 227(0.6 + 1.8) +
16(1.6 + 0.8) + 153(2.6 + 4.2)
= 2,662.4
where
d
i
= |x
i
x*| + |y
i
y*|
11 22
Application
A firm wishes to find a central location for its service. Business
forecasts indicate travel from the central location to New York
City on 20 occasions per year. Similarly, there will be 15 trips to
Boston, and 30 trips to New Orleans. The x, y-coordinates are
(11.0, 8.5) for New York, (12.0, 9.5) for Boston, and (4.0, 1.5) for
New Orleans. What is the center of gravity of the three demand
points?
SOLUTION
x* = =
l
i
x
i
l
i
i
i
y* = =
l
i
y
i
l
i
i
i
[(20 11) + (15 12) + (30 4)]
(20 + 15 + 30)
= 8.0
[(20 8.5) + (15 9.5) + (30 1.5)]
(20 + 15 + 30)
= 5.5
11 23
Using Break-Even Analysis
Compare location alternatives on the basis
of quantitative factors expressed in total
costs
Determine the variable costs and fixed costs for
each site
Plot total cost lines
Identify the approximate ranges for which each
location has lowest cost
Solve algebraically for break-even points over
the relevant ranges
11 24
Break-Even Analysis for Location
EXAMPLE
An operations manager narrowed the search for a new facility
location to four communities. The annual fixed costs (land,
property taxes, insurance, equipment, and buildings) and the
variable costs (labor, materials, transportation, and variable
overhead) are as follows:
Community Fixed Costs per Year Variable Costs per Unit
A $150,000 $62
B $300,000 $38
C $500,000 $24
D $600,000 $30
11 25
Break-Even Analysis for Location
Step 1: Plot the total cost curves for all the communities
on a single graph. Identify on the graph the
approximate range over which each community
provides the lowest cost.
Step 2: Using break-even analysis, calculate the break-
even quantities over the relevant ranges. If the
expected demand is 15,000 units per year, what is
the best location?
11 26
Break-Even Analysis for Location
SOLUTION
To plot a communitys total cost line, let us first compute the
total cost for two output levels: Q = 0 and Q = 20,000 units per
year. For the Q = 0 level, the total cost is simply the fixed costs.
For the Q = 20,000 level, the total cost (fixed plus variable costs)
is as follows:

Community

Fixed Costs
Variable Costs
(Cost per Unit)(No. of Units)
Total Cost
(Fixed + Variable)
A $150,000
B $300,000
C $500,000
D $600,000
11 27
Break-Even Analysis for Location
SOLUTION
To plot a communitys total cost line, let us first compute the
total cost for two output levels: Q = 0 and Q = 20,000 units per
year. For the Q = 0 level, the total cost is simply the fixed costs.
For the Q = 20,000 level, the total cost (fixed plus variable costs)
is as follows:
$62(20,000) = $1,240,000 $1,390,000

Community

Fixed Costs
Variable Costs
(Cost per Unit)(No. of Units)
Total Cost
(Fixed + Variable)
A $150,000
B $300,000
C $500,000
D $600,000
$38(20,000) = $760,000 $1,060,000
$24(20,000) = $480,000 $980,000
$30(20,000) = $600,000 $1,200,000
11 28
A best B best C best
Break-Even Analysis for Location
Figure 1 shows the
graph of the total cost
lines.
| | | | | | | | | | | |
0 2 4 6 8 10 12 14 16 18 20 22
1,600
1,400
1,200
1,000
800
600
400
200

A
n
n
u
a
l

c
o
s
t

(
t
h
o
u
s
a
n
d
s

o
f

d
o
l
l
a
r
s
)

Q (thousands of units)
A
B
C
D
6.25 14.3
Break-even
point
Break-even
point
(20, 980)
(20, 1,390)
(20, 1,200)
(20, 1,060)
The line for community
A goes from (0, 150) to
(20, 1,390). The graph
indicates that
community A is best for
low volumes, B for
intermediate volumes,
and C for high volumes.
We should no longer
consider community D,
because both its fixed
and its variable costs
are higher than
community Cs.
Figure 1 Break-Even Analysis of Four
Candidate Locations
11 29
Break-Even Analysis for Location
Step 2: The break-even quantity between A and B lies at the
end of the first range, where A is best, and the
beginning of the second range, where B is best. We
find it by setting both communities total cost
equations equal to each other and solving:
(A) (B)
$150,000 + $62Q = $300,000 + $38Q
Q = 6,250 units
The break-even quantity between B and C lies at the end of the
range over which B is best and the beginning of the final range
where C is best. It is
(B) (C)
$300,000 + $38Q = $500,000 + $24Q
Q = 14,286 units
11 30
Break-Even Analysis for Location
Step 2: The break-even quantity between A and B lies at the
end of the first range, where A is best, and the
beginning of the second range, where B is best. We
find it by setting both communities total cost
equations equal to each other and solving:
(A) (B)
$150,000 + $62Q = $300,000 + $38Q
Q = 6,250 units
The break-even quantity between B and C lies at the end of the
range over which B is best and the beginning of the final range
where C is best. It is
(B) (C)
$300,000 + $38Q = $500,000 + $24Q
Q = 14,286 units
No other break-even quantities
are needed. The break-even
point between A and C lies
above the shaded area, which
does not mark either the start or
the end of one of the three
relevant ranges.
11 31
By chance, the Atlantic City Community Chest has to close
temporarily for general repairs. They are considering four
temporary office locations:
Application
Property Address Move-in Costs Monthly Rent
Boardwalk $400 $50
Marvin Gardens $280 $24
St. Charles Place $350 $10
Baltic Avenue $60 $60
Use the graph on the next slide to determine for what length
of lease each location would be favored? Hint: In this
problem, lease length is analogous to volume.
11 32
Application
| | | | | | | | |
0 1 2 3 4 5 6 7 8
Months
T
o
t
a
l

C
o
s
t

500

400

300

200

100


Boardwalk
St Charles Place
Marvin
Gardens
Baltic Avenue
F
s
+ c
s
Q = F
B
+ c
B
Q
Q =
F
B
F
s
c
s
c
B
= = 6 months
300
50
=
$60 $360
$10 $60
The short answer: Baltic
Avenue if 6 months or less,
St. Charles Place if longer
SOLUTION
11 33
Locating Within a Network
When a firm with a network of existing
facilities plans a new facility, one of two
conditions exists
Facilities operate independently
Facilities interact
The GIS method for locating multiple
facilities
The transportation method
11 34
A five step GIS framework
Step 1: Map the data
Step 2: Split the area
Step 3: Assign a facility location
Step 4: Search for alternative sites
Step 5: Compute ld scores and check capacity
Other methods of location analysis
Heuristics
Simulation
Optimization
Locating Within a Network
11 35
Locating Multiple Facilities
EXAMPLE
Witherspoon Automotive remanufactures automotive
components and subassemblies
Full truckloads of parts to and from customers
Two locations: Spartanburg, SC and Orlando, FL
Locations have a remanufacturing facility and a warehouse
Spartanburg covers a total of 362 customers
Orlando facility covers a total of 66 customers
Spartanburg DC shipped 17,219 and Orlando DC shipped
4,629 full truckloads last year
Operating regions and customer locations are shown in
Figure 12.
11 36
Locating Multiple Facilities
Figure 2 Operating Regions and Customer Location for Witherspoon Automotive
11 37
Locating Multiple Facilities
The senior management decided to close the Spartanburg
facility and split the region into two each with its own
manufacturing and distribution center
Five important location factors:
1. The new facilities should be located in a major
metropolitan area
2. Total loaddistance score should be minimized
3. Size of the two new facilities should not exceed a maximum
of 9,500 truckloads of output per year
4. Customer truckloads allocated between the two facilities
should be fairly balanced
5. New distribution network should be able to accommodate
up to 1,000 full truckload shipments per year from the
Alabama
11 38
Locating Multiple Facilities
Where should the two new facilities be opened, assuming that
the Orlando DC will stay where it is, and that fixed cost
differences in opening a new facility are comparable across
most potential sites in the region?
SOLUTION
Using the data in their system and MapPoint, the managers at
Witherspoon automotive overlaid the locations and the number
of full truckload shipments delivered last year for each
customer in the Spartanburg region onto a map. The
Witherspoon Automotive video on myomlab shows how to
perform this analysis using MapPoint. To achieve a greater
degree of aggregation in customer base and to also give due
consideration to the quality of life location factor, the map was
changed from displaying data for each street address
(customer) to an aggregate view that displays data for each
Metropolitan Statistical Area (MSA).
11 39
Locating Multiple Facilities
Figure 3 Truckload Concentration for Witherspoon
11 40
Locating Multiple Facilities
The darker the shade, the greater the number of truckloads in
the MSA. It was visually clear that Atlanta and Charlotte were
the major markets, with Columbia, South Carolina; Greenville,
South Carolina; and Richmond, Virginia, also having a heavy
concentration of customers. From this map in Figure 3, it was
easy to see that the dark green shaded area in Atlanta has a
heavy customer-trips concentration. It represents 4,475 full
truckloads, which would easily support half a facility. It seems
reasonable for the management to locate one of the two new
facilities near Atlanta. This decision will also achieve two other
management objectives, in that the facility is near a major
metropolitan area and is also well placed to serve the proposed
expansion of the northern Alabama market. Management stated
that if it decides to locate a facility near the Atlanta area, it
would be in Buford, Georgia.

11 41
Locating Multiple Facilities
The next step was to partition the customers into 2 regions,
each with a total demand of less than 9,500 truckloads.
Because it seemed clear that the Atlanta area would have a
facility, one region was circled around Atlanta as shown in
Figure 4. Furthermore, if the northern Alabama market develops
as hoped, it will handle an additional 1,000 truckloads. Because
of this potential, the Atlanta region can only handle 8,500
truckloads for current customers. After a careful look at the
map data, it was decided that Georgia, Tennessee, Alabama,
and the parts of South Carolina that were within 2.5 hours of the
Atlanta facility would be assigned to the Atlanta region. The
Augusta/Aiken MSA that straddles the Georgia/South Carolina
border was also added to this region to balance the two
regions. This scenario results in the Atlanta region being
assigned 8,397 truckloads and the second region having 8,822
trips, and achieving a 48.8 percent to 51.2 percent split while
still allowing capacity in the Atlanta region for the proposed
expansion of the northern Alabama market.
11 42
Locating Multiple Facilities
Figure 4 Witherspoons Facilities Areas
11 43
Locating Multiple Facilities
In order to identify a good location for the second facility, the
center of gravity for the second region was determined to find a
good starting point. Looking at the map in Figure 4, it appears
that the center of the second region is around Durham, North
Carolina. However, the center of gravity for the second region is
close to a National Forest in Randolph County, North
Carolinanot too far from Charlotte but considerably south and
west of Durham. Such an outcome is to be expected because
the Charlotte and to a lesser extent Columbia, South Carolina,
markets have such a large percentage of the truckload volume
for this region. However, the center of gravity does not appear
to be a promising site because it is only near one customer.
Given this dilemma, the management of Witherspoon
Automotive decided to pick a site next to the center of gravity
as well as several sites in the general area of the center of
gravity that are near Interstate I-85.
11 44
Locating Multiple Facilities
Loaddistance scores were computed using driving mileage
and driving time based on last years demand for each of the
possible locations. The following results were obtained for
loaddistance calculations based on one-way trips:

Site

City
Load-Distance Using
One-Way Mileage
Load-Distance Using
One-Way Travel Hours
1 Albemarle 1,331,608 22,194
2 Salisbury 1,075,839 18,541
3 Greensboro 1,222,675 20,378
4 Concord 1,037,424 17,938
11 45
Locating Multiple Facilities
As the Witherspoon Automotive managers reviewed the results,
they noted that Concord will provide the minimum mileage and
drive time, and have the additional advantage of being near
Charlottefulfilling the managerial objective of being located
near a major city. Another attractive feature of this solution is
that the Greenville, South Carolina, and Augusta, Georgia,
markets are almost as close to the Concord facility as they are
to the Buford facility. Management can reassign customers in
these markets to the Charlotte region at little additional cost if
the northern Alabama market grows faster than expected.
11 46
An electronics manufacturer must expand by building a second
facility. The search is narrowed to four locations, all of which
are acceptable to management in terms of dominant factors.
Assessment of these sites in terms of seven location factors is
shown in Table 11.1. For example, location A has a factor score
of 5 (excellent) for labor climate; the weight for this factor (20)
is the highest of any. Calculate the weighted score for each
location. Which location should be recommended?
Solved Problem 1
11 47
Solved Problem 1
TABLE 11.1 | FACTOR INFORMATION FOR ELECTRONICS MANUFACTURER
Factor Score for Each Location
Location Factor Factor Weight A B C D
1. Labor climate 20 5 4 4 5
2. Quality of life 16 2 3 4 1
3. Transportation system 16 3 4 3 2
4. Proximity to markets 14 5 3 4 4
5. Proximity to materials 12 2 3 3 4
6. Taxes 12 2 5 5 4
7. Utilities 10 5 4 3 3
11 48
SOLUTION
Based on the weighted scores shown in Table 11.2, location C
is the preferred site, although location B is a close second.
Solved Problem 1
TABLE 11.2 | CALCULATING WEIGHTED SCORES FOR ELECTRONICS
| MANUFACTURER
Weighted Score for each Location
Location Factor Factor Weight A B C D
1. Labor climate 20
2. Quality of life 16
3. Transportation system 16
4. Proximity to markets 14
5. Proximity to materials 12
6. Taxes 12
7. Utilities 10
Totals 100
11 49
TABLE 11.2 | CALCULATING WEIGHTED SCORES FOR ELECTRONICS
| MANUFACTURER
Weighted Score for each Location
Location Factor Factor Weight A B C D
1. Labor climate 20
2. Quality of life 16
3. Transportation system 16
4. Proximity to markets 14
5. Proximity to materials 12
6. Taxes 12
7. Utilities 10
Totals 100
SOLUTION
Based on the weighted scores shown in Table 11.2, location C
is the preferred site, although location B is a close second.
Solved Problem 1
100 80 80 100
32 48 64 16
48 64 48 32
70 42 56 56
24 36 36 48
24 60 60 48
50 40 30 30
348 370 374 330
11 50
The operations manager for Mile-High Lemonade narrowed the
search for a new facility location to seven communities. Annual
fixed costs (land, property taxes, insurance, equipment, and
buildings) and variable costs (labor, materials, transportation,
and variable overhead) are shown in Table 11.3.
Solved Problem 2
a. Which of the communities can be eliminated from further
consideration because they are dominated (both variable
and fixed costs are higher) by another community?
b. Plot the total cost curves for all remaining communities on a
single graph. Identify on the graph the approximate range
over which each community provides the lowest cost.
c. Using break-even analysis, calculate the break-even
quantities to determine the range over which each
community provides the lowest cost.
11 51
Solved Problem 2
TABLE 11.3 | FIXED AND VARIABLE COSTS FOR MILE-HIGH LEMONADE
Community Fixed Costs per Year Variable Costs per Barrel
Aurora $1,600,000 $17.00
Boulder $2,000,000 $12.00
Colorado Springs $1,500,000 $16.00
Denver $3,000,000 $10.00
Englewood $1,800,000 $15.00
Fort Collins $1,200,000 $15.00
Golden $1,700,000 $14.00
11 52
Solved Problem 2
L
o
c
a
t
i
o
n

c
o
s
t
s

(
i
n

m
i
l
l
i
o
n
s

o
f

d
o
l
l
a
r
s
)

Barrels of lemonade per year (in hundred thousands)
10
8
6
4
2

| | | | | | |
0 1 2 3 4 5 6
Fort Collins
Boulder
Denver
Golden
Break-even
point
Break-even
point
2.67
Figure 5 Break-Even Analysis of Four Candidate Locations
11 53
Solved Problem 2
SOLUTION
a. Aurora and Colorado Springs are dominated by Fort Collins,
because both fixed and variable costs are higher for those
communities than for Fort Collins. Englewood is dominated
by Golden.
b. Figure 5 shows that Fort Collins is best for low volumes,
Boulder for intermediate volumes, and Denver for high
volumes. Although Golden is not dominated by any
community, it is the second or third choice over the entire
range. Golden does not become the lowest-cost choice at
any volume.
11 54
Solved Problem 2
c. The break-even point between Fort Collins and Boulder is
$1,200,000 + $15Q = $2,000,000 + $12Q
Q = 266,667 barrels per year
The break-even point between Denver and Boulder is
$3,000,000 + $10Q = $2,000,000 + $12Q
Q = 500,000 barrels per year
11 55
Solved Problem 3
The new Health-Watch facility is targeted to serve seven census
tracts in Erie, Pennsylvania, whose latitudes and longitudes are
shown in Table 11.4. Customers will travel from the seven
census-tract centers to the new facility when they need health
care. What is the target areas center of gravity for the Health-
Watch medical facility?
TABLE 11.4 | LOCATION DATA AND CALCULATIONS FOR HEALTH WATCH
Census Tract Population Latitude Longitude
Population
Latitude
Population
Longitude
15 2,711 42.134 80.041 114,225.27 216,991.15
16 4,161 42.129 80.023 175,298.77 332,975.70
17 2,988 42.122 80.055 125,860.54 239,204.34
25 2,512 42.112 80.066 105,785.34 201,125.79
26 4,342 42.117 80.052 182,872.01 347,585.78
27 6,687 42.116 80.023 281,629.69 535,113.80
28 6,789 42.107 80.051 285,864.42 543,466.24
Total 30,190 1,271,536.04 2,416.462.80
11 56
Solved Problem 3
SOLUTION
We use MapPoint in this solution, with coordinates represented
in the form of latitude and longitude rather than an (x, y) grid, to
calculate the center of gravity. First the target area is displayed
on the map of Erie, Pennsylvania, using MapPoint. In Figure 6 a
pushpin is placed in the approximate geographical center of the
census tracts. The location sensor is then turned on. By
moving the cursor over the pushpin, the location sensor will
register the longitude and latitude for the pushpin. The
population of each census tract is added to the map using
MapPoints built-in demographic data. Thus, we obtain the
following table in which latitudes and longitudes for each of the
seven census-tracts are given, along with their actual
populations, in thousands.
11 57
Solved Problem 3
Figure 6 Center of Gravity for Health-Watch
11 58
Solved Problem 3
Next we solve for the center of gravity x* and y*. Because the
coordinates are given as longitude and latitude, x* is the
longitude and y* is the latitude for the center of gravity.
x* = = 42.1178
1,271,536.05
30,190
y* = = 80.0418
2,416,462.81
30,190
The center of gravity is (42.12 North, 80.04 West), and is shown
on the map to be fairly central to the target area.
11 59
THE END