Strategic Location Decisions

Strategic Location Considerations

• Flexibility is the degree a service can react to changing economic situations.
• Location decisions are long-term, capital-intensive commitments.
• Selecting locations responsive to economic, demographic, cultural, and competitive changes is essential.
• Locating sites across multiple states can lower the risk of financial crisis from regional downturns.
• Competitive positioning is how a firm establishes itself relative to competitors.
• Multiple locations can block competition by building position and awareness.
• Holding prime locations early prevents competitors from accessing them, creating an entry barrier.
• Demand management is the ability to control the quantity, quality, and timing of demand.
• Hotels can control demand by locating near diverse market generators.
• Focus is developed by offering the same narrowly defined service across many locations.
• Many multisite service firms use a standard facility design that can be duplicated.
• Cookie-cutter expansion can cause demand cannibalization if sites are too close.
• Demand cannibalization can be avoided by establishing a pattern of desired growth.
• Competitive clustering is a reaction to consumer behavior when choosing among competitors.
• Customers often seek areas with many dealers for comparison when shopping for items like cars.
• Au Bon Pain uses saturation marketing by grouping outlets tightly in urban areas.
• Au Bon Pain has about 25 cafés in Boston, some less than 100 yards apart.
• Services are intangible, so the geographic area for service seems restricted.
• Service channels of distribution have evolved to use separate entities as intermediaries.
• Using telecommunications is an appealing alternative to moving people.
• Telemetry has successfully extended healthcare services into remote regions.
• The front and back office don't need to be co-located for many services like dry cleaning.
• Separating the front from back office can yield strategic benefits.
• Front and back office separation allows for creative service design.
• At a Texas McDonald's drive-in, the order taker might be in an Iowa call center.
• The Internet enables electronic commerce, allowing customers to shop from home.
• Websites are virtual locations for e-commerce firms like eBay.
• Websites are alternative distribution channels for click-and-mortar retailers like Barnes & Noble.
• Physical travel is irrelevant in the virtual internet world.
• E-distance is the barrier created by internal and external navigation to attract website customers.
• An undiscovered website is infinitely distant.
• A website five clicks away might rule out 90% of the public.
• Web developers use a two-click rule: a customer's destination should be two clicks from the homepage.
• Real estate availability is a major constraint when selecting a site.
• Site selection requires assessing the local environment.
• Physical attributes like access, visibility, and traffic are important to attract customers.
• The nearby location of competitors is often desirable due to competitive clustering.
• Complementary services, like restaurants near motels, are another consideration.
• If customers don't need to travel to the site, consider the availability of skilled labor.
• Service firms locate call centers in Bangalore, India, due to the availability of low-cost, skilled employees.
• Location decisions have traditionally been based on intuition with mixed results.
• Quantitative analysis can be useful to avoid mistakes, even though site selection is often based on opportunistic factors.
• Many factors enter into the decision to locate a service facility.
• Broad categories for location decisions are geographic representation, number of facilities, and optimization criteria.

Facility Location Modeling Considerations

• Private and public sector location problems aim to maximize a measure of benefit.
• The choice of location criteria differs based on "ownership".
• Private sector location decisions are governed by minimizing costs or maximizing profits.
• Public facility decisions should be governed by society's needs as a whole.
• Public decision making maximizes a societal benefit that can be difficult to quantify.
• Private sector location analysis focuses on the tradeoff between building/operating costs and transportation costs.
• Much of the literature addresses product distribution such as the warehouse location problem.
• Models for product distribution can be applied to services delivered to customers like consulting.
• Consumers travel to the facility, so no direct cost is incurred by the provider.
• Distance restricts potential consumer demand for facilities.
• Facilities like retail shopping centers are located to attract a maximum number of customers.

Optimization Criteria Influence

• The selection of optimization criteria influences service facility location.
• William J. Abernathy and John C. Hershey studied health center locations for a three-city region.
• Health-center locations effect the following criteria:
• Maximize utilization by by maximizing the total number of visits to centers.
• Minimize distance per capita to the closest center.
• Minimize distance per visit to the nearest center.