Operations Management Chap 8 Location Strategies

Question 1.
Which of the following methods best considers intangible costs related to a location decision?

A) transportation method
B) assignment method
C) locational break-even analysis
D) factor-rating method

D) factor-rating method
2. What is the major difference in focus between location decision in the service sector and in the manufacturing center?

A) The focus in manufacturing is revenue maximization, while the focus in service is cost minimization.
B) The focus in service is revenue maximization, while the focus in manufacturing is cost minimization.
C) The focus in manufacturing is on labor, while the focus in service is on raw materials.
D) There is no difference in focus.

B) The focus in service is revenue maximization, while the focus in manufacturing is cost minimization.
3. Service/retail/professional location analysis typically has a

A) environmental focus
B) labor focus
C) revenue focus
D) cost focus

C) revenue focus
4. Industrial location analysis typically has a

A) revenue focus.
B) labor focus.
C) environmental focus.
D) cost focus.

D) cost focus.
5. Which of the following is NOT a factor in the country location decision?

.

A) labor availability
B) zoning restrictions
C) location of markets
D) government rules

B) zoning restrictions
6. Which of the following is NOT a factor in the final site selection decision?

A) transportation systems
B) environmental impact issues
C) site size
D) cultural issues

D) cultural issues
7. Which of the following methods is a mathematical technique used for finding the best location for a single distribution point that services several stores or areas?

A) locational break-even
B) factor-rating
C) center-of-gravity
D) transportation model

C) center-of-gravity
8. The transportation method

a) uses both qualitative and quantitative factors.
B) performs a cost-volume analysis.
C) finds the location of a distribution center that minimizes distribution costs.
D) determines the best pattern of shipments from several points of supply to several points of demand.

D) determines the best pattern of shipments from several points of supply to several points of demand.
9. The U.S. Navy is considering four ports for their submarine squid proofing operations: San Diego, Bremerton, Virginia Beach, and Tulsa. The fixed costs at each location are $500,000, $700,000, $1,000,000, and $250,000 respectively and the variable costs are $300,000, $200,000, $100,000, and $1,000,000. Which location can most economically service the 4 submarines per year that need this valuable service performed?

A) Bremerton
B) Tulsa
C) San Diego
D) Virginia Beach

D) Virginia Beach
10. Champion Cooling Company is locating a warehouse that will provide service to four store locations: Seattle, with an annual volume of 1,000 units; Fargo, with an annual volume of 2,000 units; Miami, with an annual volume of 6,000 units; and Las Vegas, with an annual volume of 6,500 units. Las Vegas is located at (1,1); Miami is located at (10,1); Seattle is located at (1,6), and Fargo is located at (5,6). What is the best location for the new warehouse?

Open Hint for Question 10 in a new window.

A) (2,5)
B) (2,2)
C) (5,2)
D) (5,5)

C) (5,2)
11. A goods-producing location decision would stress the importance of

A) appearance and image.
B) utility and labor costs.
C) parking and access.
D) security and lighting.

B) utility and labor costs
12. A service or retail organization would use the _______ technique to make a location decision.

A) traffic counts
B) crossover charts
C) factor-rating method
D) transportation method

A) traffic counts
13. Your desire to run your own automobile company takes you to Detroit because it is advantageous to have

A) proximity to markets.
B) proximity to suppliers.
C) proximity to competitors.
D) proximity to intangible costs

C) proximity to competitors.
14. Labor cost is twice as important as utility cost, which is in turn twice as important as climate. Lubbock has scores of 8, 5, and 2 in these areas; El Paso has scores of 7, 6, and 5 in these areas; Dallas has scores of 6, 6, and 6 in these areas, and Houston has scores of 3, 7, and 9 in these areas. Which location is best?

Open Hint for Question 14 in a new window.

A) Lubbock
B) Houston
C) El Paso
D) Dallas

C) El Paso
True / False Questions
Question 1.
One factor affecting the country location decision is exchange rates.

True
False

True
Question 2.
Intangible costs can be measured with precision.

True
False

False
Question 3.
Manufacturing firms find it useful to be close to customers when transportation of finished goods is expensive.

True
False

True
4. Manufacturing firms like to locate close to their suppliers when their production process reduces the bulk during production.

True
False

True
5. Clustering is when competing companies locate close to each other.

True
False

True
Question 6.
One of the greatest challenges in a global operations decision is dealing with another country’s culture.

True
False

True
7. Proximity to suppliers is crucial for a pure service.

True
False

False
Question 8.
The factor rating method is used to determine which location will result in the lowest transportation costs.

True
False

False
9. For the center of gravity method to work properly, the shipping cost must be directly proportional to both distance and volume shipped.

True
False

True
Question 10.
A geographic information system has both demographic and topographic information in its database.

True
False

True
11. By definition, a country with low wage rates must have higher productivity than a country with high wage rates.

True
False

False
Essay Questions
1.

Question 1.
What is the purpose of the center-of-gravity method? What are the assumptions that accompany this model? Concoct a location scenario where the assumptions are less likely to be violated and another scenario in which the assumptions are clearly violated and the analysis is invalid.

The center-of-gravity method is a mathematical technique used for finding the location of a distribution center or central collection point that will minimize transportation costs to and/or from multiple existing sites. The method takes into account the location of the markets, the volume of goods shipped to those markets, and the shipping costs.

The center-of-gravity method assumes that cost is directly proportional to both the distance and volume shipped. These two values are multiplied for each site to provide a measure of the magnitude of each site’s contribution in determining the location of the central point. While this has some intuitive appeal, it should be noted that transportation costs may vary dramatically as distances and volumes change. Smaller volumes might be transported by an independent carrier as a partial load in a truck. Larger volumes may be moved via waterway, railcar, or by a fleet of trucks. Depending on infrastructure, different transportation costs per ton per mile may apply; this is a reality that the basic center-of-gravity model does not address.

The model also finds the geometric center or balancing point of all sites without regard to actual transportation route. One analogy for the center-of-gravity model is the balancing point for a serving tray at a restaurant. In reality, transportation is rarely accomplished on a straight line, instead conforming to the realities of a grid system of streets or availability of access to the desired carriers.

The model is well suited where all volumes are reasonably static from shipment to shipment and there is one transportation method available to all sites. On a small scale, this might be a method of locating a photocopy machine in an office and, on a larger scale, might be the location of a fire department in an urban setting. The model does not work well when volumes are dramatically different from period to period or where there are significant disparities in the costs between available transportation modes, such as might exist when two port cities might use ocean liners but cities further inland must cross a mountain range and spend time breaking bulk and then trucking materials to their destination.

Question 2.
Discuss tangible and intangible cost factors that affect location decisions and the impact of these cost factors on productivity.
Tangible costs are those readily identifiable and precisely measured. These costs include utilities, labor, material, taxes and depreciation, transportation of inputs and outputs, and site acquisition and construction. Intangible costs are those that are less easily quantified, such as quality of life, education level of the area, availability of public transportation, and community attitudes towards the company.

Productivity is calculated as output divided by input, so the calculation at its most basic level considers quantity or value of outputs compared with the quantity or value of the input or inputs. These inputs are the tangible costs that are explicitly identified in the formula. However, your authors make clear that intangible costs play a role in productivity. The quality and attitude of employees is an intangible cost, but it cannot be denied that low morale, perhaps fueled by poor management or by poor community attitudes towards the company, can adversely impact productivity. It cannot be said with any certainty which set of factors has the greatest impact on productivity, but it is reasonable to assume that both tangible and intangible costs factor into the firm’s productivity.

3. What are some factors that pure services take into consideration when deciding on a location and why are these different from the most prominent manufacturing factors?
Your authors identify eight major components of volume and revenue for service firms that weight heavily on the selection of the service site. These eight factors are: purchasing power of the 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; and quality of management.

These factors are distinct from the concerns of a typical manufacturer because they are more focused on customers and the potential revenue derived from them. A manufacturer focuses more on costs since the price of the manufactured good, with few exceptions, is more stable from region to region.

4. Of the models discussed in this chapter for deciding a facility’s location, which considers the fewest factors and which considers the greatest number of factors? Of these two, which yields the most defensible solutions?
The fewest factors are considered by the center-of-gravity method (or transportation model, although this is examined more thoroughly in Module C). This model considers only the transportation costs associated with moving items from a set of sites to one central point. The greatest number of factors is weighed by the factor-rating method, which can consider all tangible and intangible costs that a firm faces. Both of these models require assumptions in their application.

The center-of-gravity method requires the modeler to assume that costs per volume-distance are the same for all sites and that there is equal accessibility to all sites. The costs, distances, and volumes could be determined by the firm without too much difficulty.

The factor-rating method requires the modeler to select a set of factors that are most important and then to assign degree of importance to the factors. Each site under consideration must be scored for each factor so that a site’s overall score can be determined. The greatest difficulty arises in the assignment of the scores and weights for the factors; it is likely that a slight change in either would yield a different choice as a best location. The subjectivity quotient of the factor-rating method leaves it open to greater skepticism than the center-of-gravity method.