Service Facility Location

Attracting customersChap. 8第七章

Strategic location considerations

• Flexibility– Ability to react to changing economic situations• Facility is capital-intensive long term commitment• Reduce risk from regional economic downturns

• Competitive position– Establish itself relative to competitors• Multiple locations

– Market awareness

• Acquire prime location before market developed

• Demand management– Ability to control quality, quantity, and timing of

demand• Hotel

– Fixed nature of the facility– Locate near a diverse set of market generators

• Focus– Offering the same narrowly defined service at

many location• Cookie-cutter approach

• Competitive Clustering– Reaction to observed consumer behavior• Comparison before purchase• Motor mile

– Cluster of dealers

• Motel chains– Occupancy is higher if locate with many competitors

• Saturation marketing– Group outlets of the same firm tightly• In urban and other high-traffic areas

– Au Bon Pain, Café • Clustered about 25 cafés in the Boston area• Some of them fewer than 100 yards apart• Advantages

– Reduce advertising, easier supervision, customer awareness– Intercept impulse customers with little time to shop or eat

• Marketing Intermediaries– Service is created and consumed simultaneously• Not suitable for “channel-of-distribution” concept

» Make lots of shoes and sell thru many channel– 美國前總統柯林頓演講費為 30 萬美元一場

– Insurance products can use intermediaries• 旅行平安險在機場或業務代表都可以買

– Bank Credits• Credit cards are distributed thru many different

channels

• Substitution of communication for travel– Paramedics and nurse practitioners• Use communication with distance hospital

– Save patients’ trip to hospitals

– Direct payroll deposit• Save employee’s trip to banks for deposits• Free bank’s office from congestion

• Separation of front from back office– Front office closed to customers– Back office near the available cheap labors

• Impact of the Internet on service location– Websites are virtual locations for e-tailers

• Customers’ physical travel becomes irrelevant

– Products shipping• Still a concern• Easy to access overnight shippers

– 24/7 call centers• Strategically locate around the world

– India, Ireland, and Jamaica– Operate normal daylight shift– Educated English literate low-wage labor

– “Competitive clustering” around a website• Small off-Broadway theaters

– Southern New Jersey– No central theatre district exist– Scatter across eight counties

• Shared website– Allow potential patron to browse available plays– Direct link to theatre for ticket

• Site consideration

• Geographic Information Systems– Capture. Store,

manipulate, analyze, manage, and present all type of spatial or geographical data

Stanford Geospatial Center

– Water main ruptured• Level of storage tank lowering dramatically

– To locate a leak» Explore 2000 acres» Stopping periodically and listen for leaking water

• GIS– Show geographical coordinates of each water line and valve– Pressure-sensitive valves and data logic control– Locate the leak precisely from the office

– Immediate-response team• Wildfire, earthquake, and tsunami

– Data• Bird populations, plant diseases, fuel management

– Use GIS to find ideal location

Facility location modeling considerations

• Geographic presentation– Travel distance

– Number of facilities• One

– Easy, ex. Travel distance

• Many– Service capacity– Level of service– Area served

– Optimization criteria• Maximize some measure of benefit• Private sector criteria

– Cost of building and operating facilities– Cost of transportation

• Public sector criteria– Lack of agreement on goals– Difficult to measure benefit

» Travel distance» Demand created

– Effects of optimization criteria on location

Facility location techniques

• Minimize the average walk– Concession along beach of Waikiki

• Cross-median approach for a single facility– Minimize the total travel distance

• Huff model for a retail outlet– Maximize profit– Gravity model• Mass (estimate customer demand) / (distance)2

• Location set covering for multiple facilities– Minimal number and location of facilities– Serve all demand points– Within some specified maximal service distance

Regression analysis in location decision

• Forecast the performance of a standard location

• Several independent variables– Size, competitors nearby, traffic, …

• Minicase– Case 8.1 Health Maintenance Organization– Case 8.2 Athol furniture, Inc.

– No local cases needed. Show your reasoning in solving problems