Operations and Supply Chain Management The Core

466 OPERATIONS AND SUPPLY CHAIN MANAGEMENT
Example 14.2: HiOctane Refining Company
The HiOctane Refining Company needs to locate an intermediate holding facility between its refining
plant in Long Beach and its major distributors. Exhibit 14.4 shows the coordinate map and the
amount of gasoline shipped to or from the plant and distributors.
In this example, for the Long Beach location (the first location), d ix = 325, d iy = 75, and V i = 1,500.
SOLUTION
Using the information in Exhibit 14.4, we can calculate the coordinates of the centroid:
​C​ x ​= _______________________________________________________
(325 × 1,500) + (400 × 250) + (450 × 450) + (350 × 350) + (25 × 450)
​ ​
1,500 + 250 + 450 + 350 + 450
​ = ​ _______ 923,750
3,000 ​ = 307.9 ​
​
(75 × 1,500) + (150 × 250) + (350 × 450) + (400 × 350) + (450 × 450)
​C​ y ​= _______________________________________________________
​ ​
1,500 + 250 + 450 + 350 + 450
​ = ​ _______ 650,000
3,000 ​ = 216.7
This gives management the X and Y coordinates of approximately 308 and 217, respectively, and
provides an initial starting point to search for a new site. By examining the location of the calculated
centroid on the grid map, we can see that it might be more cost-efficient to ship directly between the
Long Beach plant and the Anaheim distributor than to ship via a warehouse near the centroid. Before
a location decision is made, management would probably recalculate the centroid, changing the data
to reflect this (i.e., decrease the gallons shipped from Long Beach by the amount Anaheim needs and
remove Anaheim from the formula).
•
Locating Service Facilities
Because of the variety of service firms and the relatively low cost of establishing a service
facility compared to one for manufacturing, new service facilities are far more common
than new factories and warehouses. Indeed, there are few communities in which rapid
population growth has not been paralleled by concurrent rapid growth in retail outlets,
restaurants, municipal services, and entertainment facilities.
Services typically have multiple sites to maintain close contact with customers. The
location decision is closely tied to the market selection decision. If the target market is
college-age groups, locations in retirement communities—despite desirability in terms of
cost, resource availability, and so forth—are not viable alternatives. Market needs also
affect the number of sites to be built and the size and characteristics of the sites. Whereas
manufacturing location decisions are often made by minimizing costs, many service location
decision techniques maximize the profit potential of various sites. Next, we present a
multiple regression model that can be used to help select good sites.
Example 14.3: Screening Hotel Location Sites
Selecting good sites is crucial to a hotel chain’s success. Of the four major marketing considerations
(price, product, promotion, and location), location and product have been shown to be most
important for multisite firms. As a result, hotel chain owners who can pick good sites quickly have a
distinct competitive advantage.