1. OPERATIONS MANAGEMENT
1

2.  CENTRAL HUB CONCEPT
 ENABLES SERVICE TO MORE LOCATIONS WITH FEWER
AIRCRAFT
 ENABLES MATCHING OF AIRCRAFT FLIGHTS WITH PACKAGE
LOADS
 REDUCES MISHANDLING AND
DELAY IN TRANSIT BECAUSE
THERE IS TOTAL CONTROL OF
PACKAGES FROM PICKUP TO
DELIVERY
2

3.  THE STRATEGIC IMPORTANCE OF LOCATION
 FACTORS THAT AFFECT LOCATION DECISION
 METHODS OF EVALUATING LOCATION ALTERNATIVES
 SERVICE LOCATION STRATEGY
3

4. • ONE OF THE MOST
IMPORTANT DECISIONS A
THE OBJECTIVE
FIRM MAKES
OF LOCATION • INCREASINGLY GLOBAL IN
STRATEGY IS NATURE
TO MAXIMIZE • SIGNIFICANT IMPACT ON
FIXED AND VARIABLE
THE BENEFIT OF
COSTS
LOCATION TO • DECISIONS MADE
THE FIRM RELATIVELY INFREQUENTLY

5. LOCATION OPTION INCLUDES:
EXPANDING AN EXISTING FACILITY INSTEAD OF
MOVING
MAINTAINING CURRENT SITES WHILE ADDING
ANOTHER FACILITY ELSEWHERE, OR
CLOSING THE EXISTING FACILITY AND MOVING
TO ANOTHER LOCATION

6.  LOCATION DECISIONS BASED ON LOW COST
REQUIRE CAREFUL CONSIDERATION
 ONCE IN PLACE, LOCATION-RELATED COSTS
ARE FIXED IN PLACE AND DIFFICULT TO
REDUCE
 DETERMINING OPTIMAL FACILITY LOCATION IS
A GOOD INVESTMENT
6

7. FOUR KEY ATTRIBUTES WHEN STRATEGY IS
BASED ON INNOVATION
HIGH-QUALITY AND SPECIALIZED INPUTS
AN ENVIRONMENT THAT ENCOURAGES
INVESTMENT AND LOCAL RIVALRY
A SOPHISTICATED LOCAL MARKET
LOCAL PRESENCE OF RELATED AND
SUPPORTING INDUSTRIES
7

8. KEY SUCCESS FACTORS
COUNTRY  POLITICAL RISKS, GOVERNMENT
GLOBALIZATION
DECISION RULES, ATTITUDES, INCENTIVES
 CULTURAL AND ECONOMIC
REGION / ISSUES
COMMUNITY  LOCATION OF MARKETS
DECISION  LABOR TALENT, ATTITUDES,
PRODUCTIVITY & COSTS
 AVAILABILITY OF SUPPLIES,
SITE COMMUNICATIONS, ENERGY
DECISION  EXCHANGE RATES AND
CURRENCY RISKS
8

9. KEY SUCCESS FACTORS
 CORPORATE DESIRES
 ATTRACTIVENESS OF REGION
GLOBALIZATION
 LABOR AVAILABILITY AND COSTS
REGION /  COSTS AND AVAILABILITY OF
COMMUNITY UTILITIES
DECISION  ENVIRONMENTAL REGULATIONS
 GOVERNMENT INCENTIVES AND
FISCAL POLICIES
 PROXIMITY TO RAW MATERIALS
AND CUSTOMERS
 LAND/CONSTRUCTION COSTS
9

10. KEY SUCCESS FACTORS
COUNTRY  SITE SIZE AND COST
GLOBALIZATION
DECISION
 AIR, RAIL, HIGHWAY, AND
REGION / WATERWAY SYSTEMS
COMMUNITY  ZONING RESTRICTIONS
DECISION  PROXIMITY OF SERVICES/
SUPPLIES NEEDED
SITE
DECISION  ENVIRONMENTAL IMPACT ISSUES
10

11. THE GLOBAL COMPETITIVENESS INDEX 2011-2012 RANKINGS
© 2011 WORLD ECONOMIC FORUM | www.weforum.org/gcr
GCI 2010-
GCI 2011-2012
2011
COUNTRY/ECONOMY RANK SCORE RANK CHANGE
SWITZERLAND 1 5.74 1 0
SINGAPORE 2 5.63 3 1
UNITED STATES 5 5.43 4 -1
JAPAN 9 5.40 6 -3
UNITED KINGDOM 10 5.39 12 2
AUSTRALIA 20 5.11 16 -4
MALAYSIA 21 5.08 26 5
THAILAND 39 4.52 38 -1
VIETNAM 65 4.24 59 -6
PHILIPPINES 75 4.08 85 10
CHAD 142 2.87 139 -3

12. LABOR PRODUCTIVITY
WAGE RATES ARE NOT
EXCHANGE RATES & THE ONLY COST
CURRENCY RISK
COSTS LOWER PRODUCTIVITY
POLITICAL MAY INCREASE TOTAL
RISK, VALUES &
CULTURE COST
PROXIMITY TO
MARKETS
LABOR COST
PROXIMITY TO PER DAY COST
SUPPLIERS = PER UNIT
PRODUCTIVITY
PROXIMITY TO
COMPETITORS
(UNITS PER DAY)
12

13. LABOR PRODUCTIVITY
CONNECTICUT
EXCHANGE RATES & $70 = $1.17 PER UNIT
CURRENCY RISK :
EXAMPLE
IF QUALITY COILS PAYS 60 UNITS
$70 PER 60 UNITS
COSTS
PRODUCED PER DAY IN
Juarez
$25
CONNECTICUTISK,WILL
POLITICAL R , IT
VALUES & CULTURE = $1.25 PER UNIT
SPEND LESS ON LABOR 20 units
THAN AT A MEXICAN
PROXIMITY TO
MARKETS
PLANT THAT PAYS $25 LABOR COST
PROXIMITY TO
PER DAY WITH PER DAY COST
SUPPLIERS
PRODUCTION OF 20 = PER UNIT
PRODUCTIVITY
PROXIMITY TO DAY
UNITS PER
COMPETITORS
(UNITS PER DAY)
13

14. LABOR PRODUCTIVITY
EXCHANGE RATES & CAN HAVE A SIGNIFICANT
CURRENCY RISK
IMPACT ON COSTS
COSTS
POLITICAL RISK, RATES CHANGE OVER
VALUES & CULTURE
TIME
PROXIMITY TO
MARKETS
PROXIMITY TO
SUPPLIERS
PROXIMITY TO
COMPETITORS
14

15. LABOR PRODUCTIVITY
TANGIBLE : EASILY
EXCHANGE RATES & MEASURED COSTS SUCH
CURRENCY RISK AS
COSTS UTILITIES, LABOR, MATERI
ALS, TAXES
POLITICAL RISK,
VALUES & CULTURE
INTANGIBLE : LESS
PROXIMITY TO EASY TO QUANTIFY AND
MARKETS
INCLUDE
PROXIMITY TO EDUCATION, PUBLIC
SUPPLIERS
TRANSPORTATION, COMM
PROXIMITY TO
COMPETITORS UNITY, QUALITY-OF-LIFE
15

16. LABOR PRODUCTIVITY
• NATIONAL, STATE,
EXCHANGE RATES & LOCAL GOVERNMENTS
CURRENCY RISK ATTITUDES TOWARD
COSTS PRIVATE AND
INTELLECTUAL
POLITICAL RISK, PROPERTY, ZONING,
VALUES & CULTURE
POLLUTION,
PROXIMITY TO EMPLOYMENT
MARKETS
STABILITY MAY BE IN
PROXIMITY TO FLUX
SUPPLIERS
PROXIMITY TO
COMPETITORS
16

17. CORRUPTION PERCEPTIONS INDEX 2011
SOURCE: TRANSPARENCY INTERNATIONAL
THE GLOBAL COALITION AGAINST CORRUPTION

18. LABOR PRODUCTIVITY
• WORKER ATTITUDES
EXCHANGE RATES & TOWARDS
CURRENCY RISK TURNOVER, UNIONS, AB
COSTS SENTEEISM
POLITICAL RISK,
VALUES & CULTURE
• GLOBALLY CULTURES
HAVE DIFFERENT
PROXIMITY TO ATTITUDES TOWARDS
MARKETS
PUNCTUALITY, LEGAL, A
PROXIMITY TO ND ETHICAL ISSUES
SUPPLIERS
PROXIMITY TO
COMPETITORS
18

19. LABOR PRODUCTIVITY
VERY IMPORTANT TO
EXCHANGE RATES & SERVICES
CURRENCY RISK
COSTS
JIT SYSTEMS OR HIGH
POLITICAL RISK,
VALUES & CULTURE TRANSPORTATION COSTS
PROXIMITY TO MAY MAKE IT IMPORTANT
MARKETS
TO MANUFACTURERS
PROXIMITY TO
SUPPLIERS
PROXIMITY TO
COMPETITORS
19

20. LABOR PRODUCTIVITY
PERISHABLE GOODS,
EXCHANGE RATES & HIGH TRANSPORTATION
CURRENCY RISK
COSTS, BULKY PRODUCTS
COSTS
POLITICAL RISK,
VALUES & CULTURE
PROXIMITY TO
MARKETS
PROXIMITY TO
SUPPLIERS
PROXIMITY TO
COMPETITORS
20

21. LABOR PRODUCTIVITY
 CALLED CLUSTERING
EXCHANGE RATES &
CURRENCY RISK  OFTEN DRIVEN BY
COSTS RESOURCES SUCH AS
POLITICAL NATURAL
RISK, VALUES &
CULTURE RESOURCES, INFORMATIO
PROXIMITY TO
MARKETS N, CAPITAL, TALENT
PROXIMITY TO  FOUND IN BOTH
SUPPLIERS
MANUFACTURING AND
PROXIMITY TO
COMPETITORS SERVICE INDUSTRIES
21

22. INDUSTRY LOCATIONS REASON FOR
CLUSTERING
NAPA VALLEY (US) NATURAL RESOURCES
WINE MAKING BORDEAUX REGION OF LAND AND CLIMATE
(FRANCE)
TALENT RESOURCES OF
SOFTWARE SILICON VALLEY, BRIGHT GRADUATES IN
FIRMS BOSTON, SCIENTIFIC/TECHNICAL
BANGALORE (INDIA) AREAS, VENTURE
CAPITALISTS NEARBY
RACE CAR HUNTINGTON/NOR CRITICAL MASS OF
TH HAMPTON TALENT AND
BUILDERS
REGION (ENGLAND) INFORMATION
22

23. INDUSTRY LOCATIONS REASON FOR
CLUSTERING
THEME PARKS A HOT SPOT FOR
(DISNEY WORLD, ORLANDO, FLORIDA ENTERTAINMENT, WARM
UNIVERSAL WEATHER, TOURISTS,
STUDIOS) AND INEXPENSIVE LABOR
ELECTRONICS NORTHERN MEXICO NAFTA, DUTY FREE
FIRMS EXPORT TO US
HIGH TECHNOLOGICAL
PENETRATION RATE AND
COMPUTER
PER CAPITA GDP,
HARDWARE SINGAPORE, TAIWAN SKILLED/EDUCATED
MANUFACTURERS
WORKFORCE WITH LARGE
POOL OF ENGINEERS
23

24. FACTOR-RATING METHOD
LOCATIONAL
BREAK-EVEN ANALYSIS
CENTER-OF-GRAVITY METHOD
TRANSPORTATION MODEL
24

25. POPULAR BECAUSE A WIDE VARIETY OF FACTORS CAN
BE INCLUDED (FROM EDUCATION, TO EDUCATION TO
LABOR SKILLS) IN THE ANALYSIS
EXAMPLE:
FIVE FLAGS OVER FLORIDA, A U.S. CHAIN OF 10
FAMILY-ORIENTED THEME PARKS, HAS DECIDED TO
EXPAND OVERSEAS BY OPENING ITS FIRST THEME
PARK IN EUROPE. IT WISHES TO SELECT BETWEEN
FRANCE & DENMARK.
25

26. KEY SUCCESS WEIGHT SCORES (OUT OF 100) WEIGHTED SCORES
FACTORS FRANCE DENMARK FRANCE DENMARK
LABOR
AVAILABILITY 0.25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0
AND ATTITUDE
PEOPLE-TO- 0.05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0
CAR RATIO
PER CAPITAL 0.1 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0
INCOME
TAX 0.39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3
STRUCTURE
EDUCATION 0.21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7
AND HEALTH
1 70.4 68
1ST: DEVELOP A LIST OF RELEVANT FACTORS CALLED KEY
SUCCESS FACTORS 26

27. KEY SUCCESS WEIGHT SCORES (OUT OF 100) WEIGHTED SCORES
FACTORS FRANCE DENMARK FRANCE DENMARK
LABOR
AVAILABILITY 0.25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0
AND ATTITUDE
PEOPLE-TO- 0.05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0
CAR RATIO
PER CAPITAL 0.1 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0
INCOME
TAX 0.39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3
STRUCTURE
EDUCATION 0.21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7
AND HEALTH
1 70.4 68
1ST: :DEVELOP A LIST OF RELEVANT FACTORS
2ND ASSIGN A WEIGHT TO EACH FACTOR CALLED KEY
SUCCESS FACTORS 27

28. KEY SUCCESS WEIGHT SCORES (OUT OF 100) WEIGHTED SCORES
FACTORS FRANCE DENMARK FRANCE DENMARK
LABOR
AVAILABILITY 0.25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0
AND ATTITUDE
PEOPLE-TO- 0.05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0
CAR RATIO
PER CAPITAL 0.1 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0
INCOME
TAX 0.39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3
STRUCTURE
EDUCATION 0.21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7
AND HEALTH
1 70.4 68
1ST: : DEVELOP A SCALE FOR EACH FACTOR
3RD DEVELOP LIST OF RELEVANT FACTORS CALLED KEY
SUCCESS FACTORS 28

29. KEY SUCCESS WEIGHT SCORES (OUT OF 100) WEIGHTED SCORES
FACTORS FRANCE DENMARK FRANCE DENMARK
LABOR
AVAILABILITY 0.25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0
AND ATTITUDE
PEOPLE-TO- 0.05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0
CAR RATIO
PER CAPITAL 0.1 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0
INCOME
TAX 0.39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3
STRUCTURE
EDUCATION
AND HEALTH 0.21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7
1 70.4 68
1ST: :DEVELOP A LIST OF RELEVANT FACTORS CALLED
4TH SCORE EACH LOCATION FOR EACH FACTOR KEY
SUCCESS FACTORS 29

30. KEY SUCCESS
FACTORS WEIGHT SCORES (OUT OF 100) WEIGHTED SCORES
FRANCE DENMARK FRANCE DENMARK
LABOR
AVAILABILITY 0.25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0
AND ATTITUDE
PEOPLE-TO- 0.05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0
CAR RATIO
PER CAPITAL 0.1 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0
INCOME
TAX 0.39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3
STRUCTURE
EDUCATION
AND HEALTH 0.21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7
1 70.4 68
1ST: : DEVELOP A LIST OF RELEVANTFOR EACH FACTOR FOR
5TH MULTIPLY SCORE BY WEIGHTS FACTORS CALLED KEY
EACH LOCATION
SUCCESS FACTORS 30

31. KEY SUCCESS
FACTORS WEIGHT SCORES (OUT OF 100) WEIGHTED SCORES
FRANCE DENMARK FRANCE DENMARK
LABOR
AVAILABILITY 0.25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0
AND ATTITUDE
PEOPLE-TO- 0.05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0
CAR RATIO
PER CAPITAL 0.1 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0
INCOME
TAX 0.39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3
STRUCTURE
EDUCATION
AND HEALTH 0.21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7
1 70.4 68
1ST: :DEVELOP A LIST OF RELEVANT FACTORS CALLED KEY
6TH RECOMMEND THE LOCATION WITH THE HIGHEST POINT
SCORE
SUCCESS FACTORS 31

32. METHOD OF COST-VOLUME ANALYSIS TO MAKE AN
ECONOMIC COMPARISON OF LOCATION ALTERNATIVES
EXAMPLE:
JOHN KROS, OWNER OF CAROLINA IGNITIONS
MANUFACTURING NEEDS TO EXPAND HIS CAPACITY.
HE IS CONSIDERING THREE LOCATIONS—AKRON,
BOWLING & CHICAGO—FOR A NEW PLANT. THE
COMPANY WISHES TO FIND THE MOST ECONOMICAL
LOCATION FOR AN EXPECTED VOLUME OF 2,000
UNITS PER YEAR
32

33. AKRON BOWLING GREEN CHICAGO
FIXED COST 30,000 60,000 110,000
VARIABLE COST 75 45 25
SELLING PRICE 120 120 120
TOTAL COST = FIXED COST + (VARIABLE COST X VOLUME)
AKRON 30,000 + (75*2000) = 180,000
BOWLING GREEN 60,000 + (45*2000) = 150,000
CHICAGO 110,000 + (25*2000) = 160,000
1ST: DETERMINE FIXED AND VARIABLE COSTS FOR
EACH LOCATION
33

34. –
$180,000 –
–
$160,000 –
$150,000 –
–
$130,000 –
ANNUAL COST
–
$110,000 –
–
–
$80,000 –
–
$60,000 –
–
–
$30,000 –
–
$10,000 –
| | | | | | |
–
0 500 1,000 1,500 2,000 2,500 3,000
FIGURE 8.2
VOLUME
2ND: PLOT THE COST FOR EACH LOCATION

35. –
$180,000 –
–
$160,000 –
$150,000 –
–
$130,000 –
ANNUAL COST
–
$110,000 –
–
–
$80,000 –
–
$60,000 –
–
–
AKRON CHICAGO
$30,000 – BOWLING GREEN
LOWEST LOWEST COST
– LOWEST COST
COST
$10,000 –
| | | | | | |
–
0 500 1,000 1,500 2,000 2,500 3,000
FIGURE 8.2
VOLUME
3RD: SELECT LOCATION WITH LOWEST TOTAL COST
FOR EXPECTED PRODUCTION VOLUME

36. THE CROSSOVER POINT FOR AKRON & BOWLING GREEN IS:
30,000 + 75X = 60,000 + 45X
30X = 30,000
X = 1,000
THE CROSSOVER POINT FOR BOWLING GREEN & CHICAGO IS:
60,000 + 45X = 110,000 + 25X
20X = 50,000
X = 2,500
36

37. FINDS LOCATION OF DISTRIBUTION CENTER THAT
MINIMIZES DISTRIBUTION COSTS
CONSIDERS:
 LOCATION OF MARKETS
 VOLUME OF GOODS SHIPPED TO THOSE MARKETS
 SHIPPING COST (OR DISTANCE)
37

38.  PLACE EXISTING LOCATIONS ON A COORDINATE
GRID
 GRID ORIGIN AND SCALE IS ARBITRARY
 MAINTAIN RELATIVE DISTANCES
 CALCULATE X AND Y COORDINATES FOR ‘CENTER
OF GRAVITY’
 ASSUMES COST IS DIRECTLY PROPORTIONAL TO
DISTANCE AND VOLUME SHIPPED

39. ∑dixQi
i
x - COORDINATE = ∑Qi
i
∑diyQi
i
y - COORDINATE = ∑Qi
i
WHERE dix = x- COORDINATE OF LOCATION i
diy = y- COORDINATE OF LOCATION i
Qi = QUANTITY OF GOODS MOVED TO OR FROM
LOCATION i

40. NORTH-SOUTH
NEW YORK (130, 130)
CHICAGO (30, 120)
120 –
PITTSBURGH (90, 110)
90 –
60 –
30 –
ATLANTA (60, 40)
–
| | | | | |
EAST-WEST
30 60 90 120 150
ARBITRARY
ORIGIN
FIGURE 8.3

41. NUMBER OF CONTAINERS
STORE LOCATION SHIPPED PER MONTH
CHICAGO (30, 120) 2,000
PITTSBURGH (90, 110) 1,000
NEW YORK (130, 130) 1,000
ATLANTA (60, 40) 2,000
(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)
X-COORDINATE =
2000 + 1000 + 1000 + 2000
= 66.7
(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)
Y-COORDINATE =
2000 + 1000 + 1000 + 2000
= 93.3

42. NORTH-SOUTH
NEW YORK (130, 130)
CHICAGO (30, 120)
120 –
PITTSBURGH (90, 110)
90 – + CENTER OF GRAVITY (66.7, 93.3)
60 –
30 –
ATLANTA (60, 40)
–
| | | | | |
EAST-WEST
30 60 90 120 150
ARBITRARY
ORIGIN
FIGURE 8.3

43.  FINDS AMOUNT TO BE SHIPPED FROM SEVERAL
POINTS OF SUPPLY TO SEVERAL POINTS OF DEMAND
 SOLUTION WILL MINIMIZE TOTAL PRODUCTION AND
SHIPPING COSTS
 A SPECIAL CLASS OF LINEAR PROGRAMMING
PROBLEMS
43

44. Figure 8.4

45.  PURCHASING POWER OF CUSTOMER-DRAWING AREA
 SERVICE AND IMAGE COMPATIBILITY WITH DEMOGRAPHICS
OF THE CUSTOMER-DRAWING AREA
 COMPETITION IN THE AREA
 QUALITY OF THE COMPETITION
 UNIQUENESS OF THE FIRM’S AND COMPETITORS’
LOCATIONS
 PHYSICAL QUALITIES OF FACILITIES AND NEIGHBORING
BUSINESSES
 OPERATING POLICIES OF THE FIRM
 QUALITY OF MANAGEMENT
45

46. SERVICE/RETAIL/PROFESSIONAL GOODS-PRODUCING LOCATION
LOCATION
REVENUE FOCUS COST FOCUS
VOLUME/REVENUE TANGIBLE COSTS
DRAWING AREA; PURCHASING TRANSPORTATION COST OF RAW
POWER MATERIAL
COMPETITION; ADVERTISING/PRICING SHIPMENT COST OF FINISHED GOODS
ENERGY AND UTILITY COST; LABOR;
PHYSICAL QUALITY RAW MATERIAL; TAXES, AND SO ON
PARKING/ACCESS;
SECURITY/LIGHTING;
APPEARANCE/IMAGE INTANGIBLE AND FUTURE COSTS
COST DETERMINANTS ATTITUDE TOWARD UNION
RENT QUALITY OF LIFE
MANAGEMENT CALIBER EDUCATION EXPENDITURES BY STATE
OPERATIONS POLICIES (HOURS, QUALITY OF STATE AND LOCAL
WAGE RATES) GOVERNMENT 46

47. SERVICE/RETAIL/PROFESSIONAL GOODS-PRODUCING LOCATION
LOCATION
REVENUE FOCUS
TECHNIQUES COST FOCUS
TECHNIQUES
VOLUME/REVENUE TANGIBLE COSTS
REGRESSION MODELS TO DETERMINE
DRAWING AREA; PURCHASING TRANSPORTATION COST OF RAW
POWER T MATERIAL
RANSPORTATION METHOD
IMPORTANCE OF VARIOUS FACTORS
COMPETITION; ADVERTISING/PRICING SHIPMENT COST OF FINISHED GOODS
FACTOR-RATING METHOD FACTOR-RATING METHOD ; LABOR;
ENERGY AND UTILITY COST
PRAFFIC COUNTS
THYSICAL QUALITY RAW MATERIAL; TAXES, AND SO ON
LOCATIONAL BREAK-EVEN ANALYSIS
PARKING/ACCESS;
DEMOGRAPHIC ANALYSIS OF DRAWING
SECURITY/LIGHTING;
APPEARANCE/IMAGE CROSSOVER CHARTS
INTANGIBLE AND FUTURE COSTS
AREA
COST DETERMINANTS ATTITUDE TOWARD UNION
PURCHASING POWER ANALYSIS OF
RENT QUALITY OF LIFE
MANAGEMENT CALIBER
AREA EDUCATION EXPENDITURES BY STATE
CENTER-OF-GRAVITY METHOD ,
OPERATIONS POLICIES (HOURS
WAGE RATES)
QUALITY OF STATE AND LOCAL
GOVERNMENT
GEOGRAPHIC INFORMATION SYSTEMS
47

48. SERVICE/RETAIL/PROFESSIONAL GOODS-PRODUCING LOCATION
LOCATION
REVENUE FOCUS
ASSUMPTIONS COST FOCUS
ASSUMPTIONS
VOLUME/REVENUE TANGIBLE COSTS
LOCATION ISAREA; PURCHASING
DRAWING A MAJOR DETERMINANT LOCATION IS A MAJOR DETERMINANT
TRANSPORTATION COST OF RAW
POWER
OF REVENUE MATERIAL
OF COST
COMPETITION; ADVERTISING/PRICING SHIPMENT COST OF FINISHED GOODS
HIGH CUSTOMER-CONTACT ISSUES ARE MENERGY AND UTILITY COST; LABOR;
OST MAJOR COSTS CAN BE
PHYSICAL QUALITY RAW MATERIAL; TAXES, AND SO ON
CRITICAL IDENTIFIED EXPLICITLY FOR EACH SITE
COSTS ARE RELATIVELY CONSTANT FOR
LOW CUSTOMER CONTACT ALLOWS
A GIVEN AREA; THEREFORE, THE
FOCUS ON THE IDENTIFIABLE COSTS
REVENUE FUNCTION IS CRITICAL
INTANGIBLE COSTS CAN BE EVALUATED
48

49.  LOCATION IS A STRATEGICALLY IMPORTANT DECISION
IN THE HOSPITALITY INDUSTRY
 LA QUINTA STARTED WITH 35 INDEPENDENT
VARIABLES AND WORKED TO REFINE A REGRESSION
MODEL TO PREDICT PROFITABILITY
 THE FINAL MODEL HAD ONLY FOUR VARIABLES
• PRICE OF THE INN R2 = .51
51% OF THE
• MEDIAN INCOME LEVELS PROFITABILITY IS
• STATE POPULATION PER INN PREDICTED BY JUST
• LOCATION OF NEARBY COLLEGES THESE FOUR VARIABLES!

50. REQUIRES NEITHER FACE-TO-FACE CONTACT
NOR MOVEMENT OF MATERIALS
HAS VERY BROAD LOCATION OPTIONS
TRADITIONAL VARIABLES ARE NO LONGER
RELEVANT
COST AND AVAILABILITY OF LABOR MAY DRIVE
LOCATION DECISIONS
50

51.  IMPORTANT TOOL TO HELP IN LOCATION ANALYSIS
 ENABLES MORE COMPLEX DEMOGRAPHIC ANALYSIS
 AVAILABLE DATA BASES INCLUDE
 DETAILED CENSUS DATA
 DETAILED MAPS
 UTILITIES
 GEOGRAPHIC FEATURES
 LOCATIONS OF MAJOR SERVICES

53. 53