Chap 009

Chapter 09 - Location, Logistics, and Distribution

Chapter 09Location, Logistics, and Distribution

Learning Objectives for Chapter 9:

1. Describe what a third-party logistics provider is.2. Assess the major issues that need to be considered in locating a

plant or warehouse facility.3. Set up the transportation model to analyze location problems and

how to use Excel Solver to find solutions to these models.4. Understand the centroid method for locating entities such as cell

phone communication towers.5. Know how a factor-rating system can be used to narrow potential

location sites.

True / False Questions

1. The local government's willingness to invest in upgrading infrastructure to the levels required by a company is an important issue in a company's decision of where to locate a new facility. True False

2. Facility location analysis considers the competitive imperative to be close to customers as to timeliness of deliveries. True False

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3. Facility location analysis considers the competitive imperative of lowest total cost. True False

4. Facility location analysis considers the competitive imperative of a favorable business climate as indicated by the presence of other companies in the same industry. True False

5. Facility location analysis considers the competitive imperative of locating near the appropriate labor pool to take advantage of low wage costs and/or skill levels. True False

6. Facility location analysis considers the competitive imperative of locating near the appropriate labor pool to take advantage of high technical skills. True False

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7. An example of a positive business climate that might influence a facility location decision is increasing governmental costs and increasing property taxes. True False

8. A favorable business climate in facility location decision-making might include government legislation of tax abatements. True False

9. A favorable business climate in facility location decision-making might include local government intervention to facilitate businesses locating in an area via subsidies. True False

10. A favorable business climate in facility location decision-making might include local government providing basic skill training for prospective members of the workforce. True False

11. In facility location decision-making the educational and skill levels of the labor pool must match the company's needs. True False

12. In facility location decision-making matching the educational and skill levels of the labor pool to a company's needs is even more important than the labor pool's willingness and ability to learn. True False

13. Because the world is becoming more highly interconnected, the proximity of an important supplier's plants is not crucial in supporting lean production methods. True False

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14. Issues of Error! Hyperlink reference not valid.Error! Hyperlink reference not valid. and capacity are strongly interconnected to the facility location decision. True False

15. A free trade zone operates under different rules and laws than a foreign trade zone. True False

16. A free trade zone is typically a closed facility into which foreign goods can be brought without being subject to the usual customs requirements. True False

17. The objective of facility location analysis is to select the site with the lowest total cost. True False

18. Governmental barriers to enter and locate in many countries are increasing through restrictive protectionist legislation. True False

19. Quality of life in a host community is not a major factor in making the facility location decision. True False

20. In facility location decision-making the factor-rating system is one of the least used general location techniques. True False

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21. In facility location decision-making the factor-rating system is based on linear programming. True False

22. A major problem in a plant location decision based on the factor-rating system is that simple point-rating schemes do not account for the wide variance of costs that may occur within each factor used in the analysis. True False

23. Services typically have multiple site locations to maintain close contact with customers. True False

24. Facility location decisions are made using analytical techniques that are able to weigh a large number of different variables equally. True False

25. A third-party logistics company is a firm that manages all or part of another company's product delivery operations. True False

26. DHL and United Parcel Service are transportation companies which are prohibited from functioning as a third-party logistics company the way Federal Express does. True False

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Multiple Choice Questions

27. Which of the following is not a criterion that influences manufacturing plant or warehouse facility location decisions? A. Proximity to customersB. Historical costC. Infrastructure of a countryD. Quality of laborE. Business climate

28. Which of the following is a not criterion that influences manufacturing plant or warehouse facility location decisions? A. SuppliersB. Free trade zonesC. Political riskD. Gross national productE. Tariffs and customs duties

29. Which of the following is not a criterion that influences manufacturing plant or warehouse facility location decisions? A. Government barriersB. Trading blocsC. Environmental regulationD. Immigration rulesE. Local labor costs

30. Which of the following is a criterion that influences manufacturing plant or warehouse facility location decisions? A. Proximity to customersB. Corporate policyC. Competitor's locationsD. Competitive advantageE. Host community politics

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31. An important issue in facility location analysis is business climate. An unfavorable business climate could be indicated by which of the following? A. Similar-sized businesses nearbyB. The willingness of local politicians to provide favorable treatment for a considerationC. The presence of other foreign companies in the case of international locationsD. The local presence of companies in the same industryE. An established educational institution nearby

32. One of the objectives of facility location analysis is to select a site with the lowest total cost. Which of the following costs should be excluded from the analysis? A. Historical costsB. Inbound distribution costsC. LandD. ConstructionE. Regional costs

33. One of the objectives of facility location analysis is to select a site with the lowest total cost. Which of the following costs should not be included in the analysis? A. Outbound distribution costsB. Incidental costsC. Energy costsD. Hidden costsE. Costs we can pass along to our customer

34. One of the objectives of facility location analysis is to select a site with the lowest total cost. Which of the following are hidden costs that should be included in the analysis? A. Becoming less responsive to the customerB. Supplier costsC. TaxesD. Construction costsE. Product life cycle costs

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35. One of the objectives in facility location analysis is to select a site with the lowest total cost. Which of the following costs are hidden costs that should be included in the analysis? A. Infrastructure costsB. Movement of preproduction material between locationsC. TaxesD. Construction costsE. Bribery costs

36. Which of the following is not an infrastructure criteria used in facility location analysis? A. Adequate school systemB. Adequate health careC. Adequate transportationD. Adequate low cost laborE. Adequate public utility systems

37. How many free trade zones are there in the United States? A. Less than 50B. Less than 100C. About 260D. More than 412E. About 310

38. An example of a trading bloc is which of the following? A. North American Free Trade Agreement countriesB. Free trade zonesC. ISO-9000 companiesD. American Production and Inventory Control SocietyE. Wal-Mart and its' suppliers

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39. Which of the following is a plant location methodology good for locating a single facility within a set of existing facilities based in distances and volumes of goods shipped? A. Factor-rating systemsB. Centroid methodC. Decision treesD. Linear programmingE. Regression analysis

40. In which of the following situations should we not use the transportation method of linear programming? A. To find a new site location for a plantB. To minimize costs of shipping "n" units to "m" destinationsC. To maximize profits of shipping "n" units to "m" destinationsD. To determine which corner of a street intersection to locate a retail service facilityE. To locate a finished goods distribution warehouse

41. The centroid method for plant location uses which of the following data? A. Volume of goods to be shipped between existing pointsB. Inbound transportation costsC. Transport times between facilitiesD. Correlation matrix of existing facilitiesE. Probabilities and payoffs

42. Plant A is located at the (X, Y) coordinates of (100, 200) and has a volume of shipping of 500 units a day. Plant B is located at the (X, Y) coordinates of (150, 400) and has a volume of shipping of 200 units a day. Using the centroid method, which of the following is the X coordinate for the new plant location? A. About 100B. About 115C. About 130D. About 150E. X coordinate cannot be computed from the data given

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43. Plant A is located at the (X, Y) coordinates of (200, 500) and has a volume of shipping of 400 units a day. Plant B is located at the (X, Y) coordinates of (300, 100) and has a volume of shipping of 300 units a day. Using the centroid method, which of the following is the X coordinate for the new plant location? A. About 227B. About 243C. About 389D. X coordinate cannot be computed from the data given

44. A company wants to determine where they should locate a new warehouse. They have two existing production plants (i.e., Plant A and Plant B) that will ship units of a product to this warehouse. Plant A is located at the (X, Y) coordinates of (50, 100) and will have volume of shipping of 250 units a day. Plant B is located at the (X, Y) coordinates of (150, 200) and will have a volume of shipping of 150 units a day. Using the centroid method, which of the following are the X and Y coordinates for the new plant location? A. (81,117)B. (88, 138)C. (117,102)D. (76,123)E. X and Y coordinates cannot be computed from the data given

45. What transportation mode has very high initial investment costs but gives a very low cost per mile for products that are highly specialized and require no packaging? A. HighwayB. RailC. WaterD. PipelineE. Air

46. Very few products are moved without at least part of their journey being by which mode of transportation? A. HighwayB. RailC. WaterD. PipelineE. Air

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Fill in the Blank Questions

47. Name the five transportation modes discussed in the textbook.1)____________________; 2)____________________;3)____________________; 4)____________________;5) ____________________ ________________________________________

48. Name four methods of quantitative analysis that are useful in informing the facility location decision. 1)____________________; 2)____________________; 3)____________________; 4)____________________ ________________________________________

49. What is a closed area or compound into which foreign goods can be brought without being subject to the normal customs requirements? ____________________ ________________________________________

50. Three distribution centers, A, B, and C, are located at the following (X, Y) coordinates: A, (20, 130); B, (180, 0); and C, (200, 200). A factory is to be constructed to distribute a new product through these warehouses. The expected annual volumes expected to be shipped through the three warehouses is forecast to be 20 million units through A, 100 million through B and 50 million through C. Using the centroid method, approximately what should the coordinates of the new factory be? _________________ ________________________________________

51. What is the name for a group of countries that have agreed on a set of special arrangements governing the buying and selling of goods between member countries? ________________________ ________________________________________

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52. The text describes 14 "Issues in facility location." Name as many of these as you can.1) ________________________ 2) ________________________3) ________________________ 4) ________________________5) ________________________ 6) ________________________7) ________________________ 8) ________________________9) ________________________ 10) ________________________11) ________________________ 12) ________________________13) ________________________ 14) ________________________ ________________________________________

53. What are the two "hidden costs" that are often overlooked in determining the total cost of a facility location decision? ____________________________________________________________________ ________________________________________

Essay Questions

54. Compare and contrast the factor-rating system and the transportation method of linear programming as used in facility location decisions.

55. As a facility location consultant, how would you advise a client wanting to locate a retail service facility differently than a client wanting to locate an on-line stock trading operation?

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56. What weight should be given to environmental pollution control regulations that differ from location to location or from country to country in making facility location decisions?

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Chapter 09 Location, Logistics, and Distribution Answer Key

True / False Questions

1. The local government's willingness to invest in upgrading infrastructure to the levels required by a company is an important issue in a company's decision of where to locate a new facility. TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: KnowledgeTopic: Issues in Facility Location

2. Facility location analysis considers the competitive imperative to be close to customers as to timeliness of deliveries. TRUE


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3. Facility location analysis considers the competitive imperative of lowest total cost. TRUE


4. Facility location analysis considers the competitive imperative of a favorable business climate as indicated by the presence of other companies in the same industry. TRUE


5. Facility location analysis considers the competitive imperative of locating near the appropriate labor pool to take advantage of low wage costs and/or skill levels. TRUE


6. Facility location analysis considers the competitive imperative of locating near the appropriate labor pool to take advantage of high technical skills. TRUE


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7. An example of a positive business climate that might influence a facility location decision is increasing governmental costs and increasing property taxes. FALSE


8. A favorable business climate in facility location decision-making might include government legislation of tax abatements. TRUE


9. A favorable business climate in facility location decision-making might include local government intervention to facilitate businesses locating in an area via subsidies. TRUE


10. A favorable business climate in facility location decision-making might include local government providing basic skill training for prospective members of the workforce. TRUE


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11. In facility location decision-making the educational and skill levels of the labor pool must match the company's needs. TRUE


12. In facility location decision-making matching the educational and skill levels of the labor pool to a company's needs is even more important than the labor pool's willingness and ability to learn. FALSE


13. Because the world is becoming more highly interconnected, the proximity of an important supplier's plants is not crucial in supporting lean production methods. FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: UnderstandingTopic: Issues in Facility Location

14. Issues of Error! Hyperlink reference not valid.Error! Hyperlink reference not valid. and capacity are strongly interconnected to the facility location decision. TRUE


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15. A free trade zone operates under different rules and laws than a foreign trade zone. FALSE


16. A free trade zone is typically a closed facility into which foreign goods can be brought without being subject to the usual customs requirements. TRUE


17. The objective of facility location analysis is to select the site with the lowest total cost. TRUE


18. Governmental barriers to enter and locate in many countries are increasing through restrictive protectionist legislation. FALSE


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19. Quality of life in a host community is not a major factor in making the facility location decision. FALSE


20. In facility location decision-making the factor-rating system is one of the least used general location techniques. FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 5Taxonomy: UnderstandingTopic: Plant Location Methods

21. In facility location decision-making the factor-rating system is based on linear programming. FALSE


22. A major problem in a plant location decision based on the factor-rating system is that simple point-rating schemes do not account for the wide variance of costs that may occur within each factor used in the analysis. TRUE


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23. Services typically have multiple site locations to maintain close contact with customers. TRUE


24. Facility location decisions are made using analytical techniques that are able to weigh a large number of different variables equally. FALSE


25. A third-party logistics company is a firm that manages all or part of another company's product delivery operations. TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: UnderstandingTopic: Logistics

26. DHL and United Parcel Service are transportation companies which are prohibited from functioning as a third-party logistics company the way Federal Express does. FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 1Taxonomy: UnderstandingTopic: Logistics

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Multiple Choice Questions

27. Which of the following is not a criterion that influences manufacturing plant or warehouse facility location decisions? A. Proximity to customersB. Historical costC. Infrastructure of a countryD. Quality of laborE. Business climate


28. Which of the following is a not criterion that influences manufacturing plant or warehouse facility location decisions? A. SuppliersB. Free trade zonesC. Political riskD. Gross national productE. Tariffs and customs duties


29. Which of the following is not a criterion that influences manufacturing plant or warehouse facility location decisions? A. Government barriersB. Trading blocsC. Environmental regulationD. Immigration rulesE. Local labor costs


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30. Which of the following is a criterion that influences manufacturing plant or warehouse facility location decisions? A. Proximity to customersB. Corporate policyC. Competitor's locationsD. Competitive advantageE. Host community politics


31. An important issue in facility location analysis is business climate. An unfavorable business climate could be indicated by which of the following? A. Similar-sized businesses nearbyB. The willingness of local politicians to provide favorable treatment for a considerationC. The presence of other foreign companies in the case of international locationsD. The local presence of companies in the same industryE. An established educational institution nearby


32. One of the objectives of facility location analysis is to select a site with the lowest total cost. Which of the following costs should be excluded from the analysis? A. Historical costsB. Inbound distribution costsC. LandD. ConstructionE. Regional costs


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33. One of the objectives of facility location analysis is to select a site with the lowest total cost. Which of the following costs should not be included in the analysis? A. Outbound distribution costsB. Incidental costsC. Energy costsD. Hidden costsE. Costs we can pass along to our customer


34. One of the objectives of facility location analysis is to select a site with the lowest total cost. Which of the following are hidden costs that should be included in the analysis? A. Becoming less responsive to the customerB. Supplier costsC. TaxesD. Construction costsE. Product life cycle costs


35. One of the objectives in facility location analysis is to select a site with the lowest total cost. Which of the following costs are hidden costs that should be included in the analysis? A. Infrastructure costsB. Movement of preproduction material between locationsC. TaxesD. Construction costsE. Bribery costs


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36. Which of the following is not an infrastructure criteria used in facility location analysis? A. Adequate school systemB. Adequate health careC. Adequate transportationD. Adequate low cost laborE. Adequate public utility systems


37. How many free trade zones are there in the United States? A. Less than 50B. Less than 100C. About 260D. More than 412E. About 310


38. An example of a trading bloc is which of the following? A. North American Free Trade Agreement countriesB. Free trade zonesC. ISO-9000 companiesD. American Production and Inventory Control SocietyE. Wal-Mart and its' suppliers


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39. Which of the following is a plant location methodology good for locating a single facility within a set of existing facilities based in distances and volumes of goods shipped? A. Factor-rating systemsB. Centroid methodC. Decision treesD. Linear programmingE. Regression analysis


40. In which of the following situations should we not use the transportation method of linear programming? A. To find a new site location for a plantB. To minimize costs of shipping "n" units to "m" destinationsC. To maximize profits of shipping "n" units to "m" destinationsD. To determine which corner of a street intersection to locate a retail service facilityE. To locate a finished goods distribution warehouse


41. The centroid method for plant location uses which of the following data? A. Volume of goods to be shipped between existing pointsB. Inbound transportation costsC. Transport times between facilitiesD. Correlation matrix of existing facilitiesE. Probabilities and payoffs


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42. Plant A is located at the (X, Y) coordinates of (100, 200) and has a volume of shipping of 500 units a day. Plant B is located at the (X, Y) coordinates of (150, 400) and has a volume of shipping of 200 units a day. Using the centroid method, which of the following is the X coordinate for the new plant location? A. About 100B. About 115C. About 130D. About 150E. X coordinate cannot be computed from the data given

AACSB: AnalyticDifficulty: MediumLearning Objective: 4Taxonomy: AnalysisTopic: Plant Location Methods

43. Plant A is located at the (X, Y) coordinates of (200, 500) and has a volume of shipping of 400 units a day. Plant B is located at the (X, Y) coordinates of (300, 100) and has a volume of shipping of 300 units a day. Using the centroid method, which of the following is the X coordinate for the new plant location? A. About 227B. About 243C. About 389D. X coordinate cannot be computed from the data given


9-26


44. A company wants to determine where they should locate a new warehouse. They have two existing production plants (i.e., Plant A and Plant B) that will ship units of a product to this warehouse. Plant A is located at the (X, Y) coordinates of (50, 100) and will have volume of shipping of 250 units a day. Plant B is located at the (X, Y) coordinates of (150, 200) and will have a volume of shipping of 150 units a day. Using the centroid method, which of the following are the X and Y coordinates for the new plant location? A. (81,117)B. (88, 138)C. (117,102)D. (76,123)E. X and Y coordinates cannot be computed from the data given


45. What transportation mode has very high initial investment costs but gives a very low cost per mile for products that are highly specialized and require no packaging? A. HighwayB. RailC. WaterD. PipelineE. Air


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46. Very few products are moved without at least part of their journey being by which mode of transportation? A. HighwayB. RailC. WaterD. PipelineE. Air


Fill in the Blank Questions

47. Name the five transportation modes discussed in the textbook.1)____________________; 2)____________________;3)____________________; 4)____________________;5) ____________________ 1) Highway; 2) Rail; 3) Water; 4) Air; 5) Pipeline

AACSB: AnalyticDifficulty: MediumLearning Objective: 2Taxonomy: KnowledgeTopic: Issues in Facility Location

48. Name four methods of quantitative analysis that are useful in informing the facility location decision. 1)____________________; 2)____________________; 3)____________________; 4)____________________ 1) Centroid method; 2) Regression analysis; 3) Transportation method of linear programming; 4) Factor rating system


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49. What is a closed area or compound into which foreign goods can be brought without being subject to the normal customs requirements? ____________________ A free trade zone (or foreign trade zone)


50. Three distribution centers, A, B, and C, are located at the following (X, Y) coordinates: A, (20, 130); B, (180, 0); and C, (200, 200). A factory is to be constructed to distribute a new product through these warehouses. The expected annual volumes expected to be shipped through the three warehouses is forecast to be 20 million units through A, 100 million through B and 50 million through C. Using the centroid method, approximately what should the coordinates of the new factory be? _________________ X = 167, Y = 74

AACSB: AnalyticDifficulty: HardLearning Objective: 4Taxonomy: AnalysisTopic: Plant Location Methods

51. What is the name for a group of countries that have agreed on a set of special arrangements governing the buying and selling of goods between member countries? ________________________ Trading bloc


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52. The text describes 14 "Issues in facility location." Name as many of these as you can.1) ________________________ 2) ________________________3) ________________________ 4) ________________________5) ________________________ 6) ________________________7) ________________________ 8) ________________________9) ________________________ 10) ________________________11) ________________________ 12) ________________________13) ________________________ 14) ________________________ (1.) Proximity to customers; (2.) Business climate; (3.) Total cost; (4.) Infrastructure; (5.) Quality of labor; (6.) Suppliers; (7.) Other facilities; (8.) Free trade zones; (9.) Political risk; (10.) Government barriers; (11.) Trading blocs; (12.) Governmental regulation; (13.) Host community; (14.) Competitive advantage

AACSB: AnalyticDifficulty: HardLearning Objective: 2Taxonomy: KnowledgeTopic: Issues in Facility Location

53. What are the two "hidden costs" that are often overlooked in determining the total cost of a facility location decision? ____________________________________________________________________ (1.) Excessive moving of pre-production materials between locations prior to final delivery to the customers. (2.) Loss of customer responsiveness arising from locating away from the main customer base.

AACSB: AnalyticDifficulty: MediumLearning Objective: 2Taxonomy: UnderstandingTopic: Issues in Facility Location

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Essay Questions

54. Compare and contrast the factor-rating system and the transportation method of linear programming as used in facility location decisions.

These two methods are discussed in the text starting on page 255. A successful response to the question will identify that the transportation method of linear programming employs substantially more mathematical rigor but also imposes some fairly rigid assumptions (like linearity & certainty) and is limited in the kinds of information that is considered in making the decision. The factor-rating system makes fewer assumptions to facilitate analytical tractability and gives broad latitude in terms of the kinds of information used. On the other hand, to use the factor-rating system to sort out a facility decision from a large number of candidate locations will require gathering and assessment of large amounts of data which is measured differently and may not necessarily be compatible. Linear programming, on the other hand, uses less data per alternative and that data is, by definition, analyzable. Stated differently, the factor-rating method incorporates the decision-makers judgment more explicitly than does the transportation method of linear programming.A strong response to this question will convey the idea that blending these methods is possible. The transportation method can be used to help sort through a large number of candidate locations and eliminate most of them. The factor-rating system, then, working with a relatively short list of possibilities, each of which is acceptable from the transportation linear programming perspective, can look more closely and in more detail to assist in the final decision.

AACSB: AnalyticDifficulty: MediumLearning Objective: 3Learning Objective: 5Taxonomy: SynthesisTopic: Plant Location Methods

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55. As a facility location consultant, how would you advise a client wanting to locate a retail service facility differently than a client wanting to locate an on-line stock trading operation?

A retail service facility requires close physical proximity to customers. An analytical method that relates possible locations to the locations of clientele (such as the centroid method or regression analysis) is favored here. The on-line operation, on the other hand, is relatively footloose relative to customers. Here, a factor-rating system that considered issues like quality of labor, infrastructure, quality of life, host community amenities, etc. would be more appropriate.

AACSB: AnalyticDifficulty: HardLearning Objective: 2Taxonomy: UnderstandingTopic: Issues in Facility Location

56. What weight should be given to environmental pollution control regulations that differ from location to location or from country to country in making facility location decisions?

Environmental regulations are mentioned in passing on page 254 of the text. This question is extremely value-laden and does not lend itself to a right-or-wrong answer. Instead it provides your students with the opportunity to impose their own values on the issue. Hence, some latitude must be taken in evaluating their responses. Some students will argue that, because of the costs of being "green," the firm has a responsibility to shareholders to locate in the most environmentally permissive location. Others will argue that the social responsibility of the firm should dominate the decision and, wherever it locates, the firm should spare no expense to be as "clean and green" as technology allows. Either case, argued well, should get some credit. A slightly more thoughtful response will look not just at current regulations but toward possible tighter regulations in the long-term future and even to the public image the firm wishes to project. An excellent response will incorporate all of these perspectives and will add the notion that, by being "clean and green" a firm may actually gain competitive advantage as the environmental movement takes hold and sensitive customers become aware of the firm's environmentally responsible stance. A second type of competitive advantage might arise. If the "green" firm lobbies for the more strict pollution rules, competitors may be required to conform to tougher regulations by adopting pollution controls at inflated future prices.

AACSB: AnalyticDifficulty: HardLearning Objective: 2Taxonomy: UnderstandingTopic: Issues in Facility Location

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Chap 009

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