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Questions and Answers
What is the primary objective of a location strategy?
What is the primary objective of a location strategy?
What is a significant impact of location decisions on a firm's costs?
What is a significant impact of location decisions on a firm's costs?
What is a characteristic of location decisions?
What is a characteristic of location decisions?
What is an option for achieving a location strategy?
What is an option for achieving a location strategy?
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What is a trend that is increasingly influencing location decisions?
What is a trend that is increasingly influencing location decisions?
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What is a key consideration when making location decisions?
What is a key consideration when making location decisions?
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What can affect the cost of a facility location?
What can affect the cost of a facility location?
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What is a result of globalization on location decisions?
What is a result of globalization on location decisions?
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What type of costs are easily measured?
What type of costs are easily measured?
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What is a strategy to manage exchange rate risks?
What is a strategy to manage exchange rate risks?
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What can affect attitudes toward private and intellectual property?
What can affect attitudes toward private and intellectual property?
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Why might proximity to markets be important for manufacturers?
Why might proximity to markets be important for manufacturers?
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What can drive the clustering of competitors in a particular location?
What can drive the clustering of competitors in a particular location?
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Why might a company choose a location close to its suppliers?
Why might a company choose a location close to its suppliers?
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How do cultural differences globally impact business decisions?
How do cultural differences globally impact business decisions?
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La Quinta's final model to predict profitability had 35 independent variables.
La Quinta's final model to predict profitability had 35 independent variables.
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The quality of management is a major determinant of volume and revenue.
The quality of management is a major determinant of volume and revenue.
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Location is a strategically unimportant decision in the hospitality industry.
Location is a strategically unimportant decision in the hospitality industry.
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The final model predicted $81% of the profitability.
The final model predicted $81% of the profitability.
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One of the major determinants of volume and revenue is the physical quality of neighboring businesses.
One of the major determinants of volume and revenue is the physical quality of neighboring businesses.
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Study Notes
Location Strategies
- Location decisions are one of the most important decisions a firm makes, with a significant impact on fixed and variable costs.
- Location decisions are increasingly global in nature and are made relatively infrequently.
The Strategic Importance of Location
- Long-term decisions are involved in location strategy, and once committed, many resource and cost issues are difficult to change.
- The objective of location strategy is to maximize the benefit of location to the firm.
- Options include expanding existing facilities, maintaining existing and adding sites, or closing existing and relocating.
Location and Costs
- Location decisions require careful consideration, and once in place, location-related costs are fixed in place and difficult to reduce.
- Effort spent determining optimal facility location is a good investment.
Factors That Affect Location Decisions
- Globalization adds to complexity, and drivers of globalization include market economics, communication, rapid and reliable transportation, ease of capital flow, and differing labor costs.
- Identify key success factors (KSFs) to make informed location decisions.
- Exchange rates and currency risks can have a significant impact on costs, and operational hedging involves shifting production as exchange rates change.
- Costs can be categorized into tangible (easily measured) and intangible (not as easy to quantify) costs.
Factors That Affect Location Decisions (continued)
- Political risk, values, and culture can affect location decisions, including national, state, and local governments' attitudes toward private and intellectual property, zoning, pollution, and employment stability.
- Worker attitudes toward turnover, unions, and absenteeism can vary globally.
- Cultures have different attitudes toward punctuality, legal, and ethical issues.
Factors That Affect Location Decisions (continued)
- Proximity to markets is very important to services, and JIT systems or high transportation costs may make it important to manufacturers.
- Proximity to suppliers is important for perishable goods, high transportation costs, and bulky products.
- Proximity to competitors (clustering) is often driven by resources such as natural, information, capital, and talent, and is found in both manufacturing and service industries.
Location Strategies
- Location decisions are one of the most important decisions a firm makes, with a significant impact on fixed and variable costs.
- These decisions are made relatively infrequently, are long-term, and can be difficult to change once committed.
The Strategic Importance of Location
- The objective of location strategy is to maximize the benefit of location to the firm.
- Options include expanding existing facilities, maintaining existing and adding sites, or closing existing and relocating.
Location and Costs
- Location decisions require careful consideration, as location-related costs are fixed in place and difficult to reduce once in place.
- Effort spent determining optimal facility location is a good investment.
Factors That Affect Location Decisions
- Globalization adds to complexity, with drivers including market economics, communication, rapid and reliable transportation, ease of capital flow, and differing labor costs.
- Key success factors (KSFs) must be identified.
Location Decisions Based on Costs
- Exchange rates and currency risks can have a significant impact on costs, and rates change over time.
- Operational hedging involves shifting production as exchange rates change.
- Costs can be tangible (e.g., utilities, labor, materials, taxes) or intangible (e.g., education, public transportation, community, quality-of-life).
Service Location Strategy
- Major determinants of volume and revenue include:
- 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
How Hotel Chains Select Sites
- Location is a strategically important decision in the hospitality industry.
- La Quinta used a regression model to predict profitability, starting with 35 independent variables and refining it to four variables:
- Price of the inn
- Median income levels
- State population per inn
- Location of nearby colleges
- The final model predicted 51% of profitability with just these four variables.
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Description
This quiz accompanies the 13th edition of Heizer, Render, Munson's Operations Management textbook, covering location strategies in operations management. Learn about the key concepts and principles of location strategies.
