Operations and Supply Chain Management The Core

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468 OPERATIONS AND SUPPLY CHAIN MANAGEMENT
exhibit 14.6
A Summary of the Variables That Correlated with Operating
Margin
VARIABLE YEAR 1 YEAR 2
ACCESS .20
AGE .29 .49
COLLEGE .25
DISTCBD −.22
EMPLYPCT −.22 −.22
INCOME −.23
MILTOT .22
NEAREST −.51
OFCCBD .30
POPULACE .30 .35
PRICE .38 .58
RATE .27
STATE −.32 −.33
SIGNVIS .25
TRAFFIC .32
URBAN −.22 −.26
The analysis done by the hotel chain indicated that the best variables to include in the model were
the following:
∙ State population per inn (STATE)
∙ Room rate for the inn (PRICE)
∙ Square root of the income of the area (INCOME)
∙ College enrollment within four miles (COLLEGE)
The final form for this model is as follows:
Profitability = 39.05 − 5.41 × State population per inn (1,000)
​ + 5.86 × Room rate for the inn ​ ​
​ − 3.91 × Square root of the income of the area (1,000) ​
​ + 1.75 × College enrollment within 4 miles
The model shows that profitability is negatively affected by the state population per inn, positively
affected by room rate, negatively affected by area income (the inns do better in lower-income areas),
and positively affected by colleges nearby.
The hotel chain implemented the model on a spreadsheet and routinely uses the spreadsheet to
screen potential real estate acquisitions. The founder and president of the hotel chain has accepted
the model’s validity and no longer feels obligated to personally select the sites.
This example shows that a specific model can be obtained from the requirements of service organizations
and used to identify the most important features in site selection.
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