CHAPTER 8

DISCUSSION QUESTIONS
5.

Service location decisions tend to focus on the revenue function, whereas manufacturing/industrial
location decisions tend to focus on costs. The service sector uses techniques such as:
n
Correlation analysis
n
Traffic counts
n
Demographic analysis
n
Purchasing power analysis
The industrial decision uses:
n
Transportation method
n
Factor-weighting approach
n
Break-even analysis
n
Crossover charts

8.

Factors to consider when choosing a country:

n
Exchange rates
n
Government stability
n
Communications systems within the country and to the home office
n
Wage rates
n
Productivity
n
Transportation costs
n
Language
n
Tariffs
n
Taxes
n
Attitude towards foreign investors/incentives
n
Legal system
n
Ethical standards
n
Cultural issues
n
Supplies availability
n
Market locations

9.

Factors to consider in a region/community decision:

n
Corporate desires
n
Attractiveness of region
n
Labor issue
n
Utilities
n
Environmental regulations
n
Incentives
n
Proximity to raw materials/customers
n
Land/construction costs

10.

Site location factors:

n
Size and cost
n
Transportation systems
n
Zoning
n
Proximity of services/supplies needed
n
Environmental impact

Chapter 8: Location Strategies

END-OF-CHAPTER PROBLEMS
8.1

(a) Six laborers each making $3 per day can produce 40 units.
(b) Eight laborers each making $2.50 per day, can produce 45 units.
(c) Two laborers, each making $64 per day, can make 100 units.
6 $3
$ 0.45 unit
40
8 $2.50
b China
$ 0.44 unit
45
2 $64
c Montana
$1.28 unit
100
a

Malaysia

China is most economical, assuming transportation costs are not included.

8.2

Malaysia $0.45 $1.50 $1.95

China
$0.44 $1.00 $1.44
Montana $1.28 $0.25 $1.53
China is most favorable.

8.6

Atlanta 0.480 0.320 0.2 40 0.1 70 53

. 30 60
Charlotte 0.460 0.3 50 0.2 90 01
Charlotte is better.

8.7

996825852 4
6.03
31
796855 459 4
Suburb A rating
619
.
31
698865 556 4
Suburb B rating
6.35
31
Suburb B has the highest rating, but weights should be examined using sensitivity analysis, as the
final ratings are all close.
Downtown rating

8.8
Factor
1
2
3
4

Present Location
Wgt
40
0.30
12
20
0.15
3
30
0.20
6
80
0.35
28
Total Points 49

60
20
60
50

Location
Newbury
Wgt
0.30
0.15
0.20
0.35
Total Points

18.00
3.00
12.00
17.50
50.50

50
80
50
50

Hyde Park
Wgt
0.30
0.15
0.20
0.35
Total Points

15.0
12.0
10.0
17.5
54.5

It appears that Hyde Park represents the best alternative.

8.9

(a)

(b)

Chicago = 16 + 6 + 7 + 4 = 33
Milwaukee = 10 + 13.5 + 6 + 3 = 32.5
Madison = 12 + 12 + 4 + 2.5 = 30.5
Detroit = 14 + 6 + 7 + 4.5 = 31.5
All four are quite close, with Chicago and Milwaukee almost tied. Chicago has the largest
rating, with a 33.
With a cutoff of 5, Chicago is unacceptable because it scores only 4 on the second factor.
Only Milwaukee has scores of 5 or higher on all factors.

Instructors Solutions Manual t/a Operations Management

8.10

Factor
1
2
3
4
5
6

Location A
Weight
Rating
Weighted Score
5
100
500
3
80
240
4
30
120
2
10
20
2
90
180
3
50
150
Total weighted score:
1210

Factor
1
2
3
4
5
6

Location B
Weight
Rating
Weighted Score
5
80
400
3
70
210
4
60
240
2
80
160
2
60
120
3
60
180
Total weighted score:
1310

Factor
1
2
3
4
5
6

Location C
Weight
Rating
Weighted Score
5
80
400
3
100
300
4
70
280
2
60
120
2
80
160
3
90
270
Total weighted score:
1530

Based on the total weighted scores, Location C should be recommended.

Note that raw weights were used in computing these weighted scores (we just multiplied
weight times rating). Relative weights could have been used instead by taking each factor
weight and dividing by the sum of the weights (i.e., 19). Then the weight for factor 1 would have
been 5 19 0.26 . Location C would still have been selected.

8.11

70 10 85 10 70 25 50 20 90 15 6250

78125
.
80
80
60 10 90 10 60 25 90 20 80 15 6000
Site 2 factor rating

75.0
80
80
85 10 80 10 85 25 90 20 90 15 6925
Site 3 factor rating

86.56
80
80
90 10 60 10 90 25 80 20 75 15 6475
Site 4 factor rating

80.94
80
80
Site 1 factor rating

Site 3 has the highest rating factor, 86.65, and should be selected.

Chapter 8: Location Strategies

8.12 (a) The following figure indicates the volume range for which each site is optimal.
Total Cost versus Production Volume

7
6
5

Site 1
Site 2

Site 3

3
2
1
0
0

(b)

50 100 150 200 250 300 350 400 450 500

Production volume

Site 1 is optimal for production less than or equal to 125 units.

Site 2 is optimal for production between 125 and 233 units.
Site 3 is optimal for production above 233 units.
For 200 units, site 2 is optimal.

8.13 (a)

2,000,000

$1,920,000
$1,730,000
Victoria line

1,200,000
1,000,000
800,000

Perth line
Perth best

0
(b)
8.14

Victoria best
5128
units

For 5,000 units, Perth is the better option.

14,000
12,000
10,000
8,000

B
C

6,000
4,000
2,000
0
0

4,800
Local
supplier

8,000
A

13,333
B

Instructors Solutions Manual t/a Operations Management

Supplier $2.20 each

Process A 6,000 0.95x
Process B 10,000 0.45x
Process C 12,000 0.30 x
VA: 2.20 x 6,000 0.95x x 4,800
AB: 6,000 0.95 x 10,000 0.45 x x 8,000
BC: 10,000 0.45 x 12,000 0.30 x x 13,333
8.15 (a)

300
Denver

270

Atlanta

240
210

200

180

Cleveland

Atlanta

150
120

Burlington

Cleveland

Cleveland lowest
above 25,000 units

90
60
Denver
30

3,570

0
0
4
Denver lowest

Burlington lowest
8

25,000

12
16
20
Volume (1,000s of units)

24

28

The total cost equations are:

Atlanta: TC 125,000 6 x
Burlington: TC 75,000 5 x
Cleveland: TC 100,000 4 x
Denver: TC 50,000 12 x
(b)
(c)
8.16

Denver is preferable over the range from 03,570 units. Burlington is lowest cost at any
volume exceeding 3,570, but less than 25,000 units. Atlanta is never lowest in cost.
Cleveland becomes the best site only when volume exceeds 25,000 units per year.
At a volume of 5,000 units, Burlington is the least-cost site.

5 5 6 10 4 15 9 5 7 15 3 10 2 5 335

515
.
5 10 15 5 15 10 5
65
10 5 8 10 9 15 5 5 9 15 2 10 6 5 475
Cy

7.31
5 10 15 5 15 10 5
65

Cx

The proposed new hub should be near (5.15, 7.31).

Chapter 8: Location Strategies

8.17

20
E

18

16

14

12

10

(4, 17) 15

(8, 18)

H
(18, 18)
20
F
(12, 16)
10

(2, 13)

10

(9.67, 10.37)

10

(7, 7)
(17, 4)

4
2
0
0

A
20
2
City
A
B
C
D
E
F
G
H

G
20

(2, 1)
4

10

12

14

16

18

20

Map Coordinates Shipping Load

2, 1
20
2, 13
10
4, 17
5
7, 7
20
8, 18
15
12, 16
10
17, 4
20
18, 18
20
120

220 210 4 5 7 20 815 1210 1720 18 20 1160

9.67
120
120
1 20 1310 175 720 1815 1610 420 18 20 1245
Cy

10.37
120
120

Cx

8.19

10 3 3 3 4 2 15 6 13 5 1 3 5 10 255

7.97
3 3 2 6 5 3 10
32
5 3 8 3 7 2 10 6 3 5 12 3 5 10 214
Cy

6.69
3 3 2 6 5 3 10
32

Cx

The proposed new facility should be near (7.97, 6.69).

Instructors Solutions Manual t/a Operations Management

14
12

(1, 12) Temple

Palma (15, 10)

10
8

(3, 8) Davis
Dale (4, 7)

(5, 5) Hyde

(7.97, 6.69) C.O.G.

(10, 5) Ybor

4
Bayshore (13, 3)
2
0
0

Chapter 8: Location Strategies

8
10
X-axis

12

14

16

18