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Questions and Answers
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 characteristic of location decisions?
What is an option for achieving a location strategy?
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What is a trend that is increasingly influencing location decisions?
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What is a key consideration when making location decisions?
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What can affect the cost of a facility location?
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What is a result of globalization on location decisions?
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What type of costs are easily measured?
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What is a strategy to manage exchange rate risks?
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What can affect attitudes toward private and intellectual property?
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Why might proximity to markets be important for manufacturers?
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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?
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How do cultural differences globally impact business decisions?
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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.
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Location is a strategically unimportant decision in the hospitality industry.
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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.
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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.
