SUO_MGT3059 W4 L1 Macro Approach To Location Decisions

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Independence University *

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3059

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Management

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Jan 9, 2024

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Macro Approach To Location Decisions The First Level Of Analysis On Where To Locate Let’s review a case study of an organization in the service industry. First Watch Restaurants is a growing restaurant chain that is open for breakfast and lunch only. Since 1983, its operations have grown to include more than 75 restaurants in 11 states. Its philosophy is to put customers first, which begins with using fresh ingredients and high quality products. In fact, the restaurants have a base of 75 percent repeat customers, many of whom eat in the restaurant multiple times per week. When deciding on locations for new restaurants, the organization works with franchisees to identify potential locations. The decision criteria include population density, visibility, parking, and cotenants. Specific requirements include over 25,000 vehicles passing the location on any given day, 45 parking spaces, 3,000 square feet of area, and over 90,000 residents within a four-mile radius of the restaurant. For First Watch Restaurants, an organization that wants to open multiple locations and ensure the success of each new expansion, the factors used to determine a restaurant location are clear cut. For other organizations, the process may be more difficult, especially when dealing with a global network. Location decisions are made to improve the effectiveness and efficiency of the overall resulting network. In general, an operations manager tries to balance cost, value, and time. General factors influencing location decisions include: • Natural resources • Population characteristics • Taxes and subsidies • Transportation considerations • Customer considerations • Trade patterns • Quality of life considerations • Locating in other countries • Specialized location characteristics Evaluating Location Decisions Let’s use some hypothetical data for First Watch Restaurants to identify potential locations and explore the factor-rating method and the center-of-gravity method. Suppose you are the manager at First Watch Restaurants. You have to decide where to open a new restaurant. After determining the key factors for the location decision, you need to assign a weight to each

Macro Approach To Location Decisions The First Level Of Analysis On Where To Locate factor based on its importance in meeting the organization’s objectives. In addition, you need to develop a scale for each factor. You have identified three potential locations: 1, 2, and 3. The management has assigned a score to each location for each factor using the developed scale. These scores have been recorded in the following table: Potential Location Scores Requirement Weight 1 2 3 Cotenant(s) 0.5 80 60 75 Visibility 0.3 50 85 70 Traffic 0.12 75 70 65 Parking 0.08 85 85 80 Using the information in the table, let’s first apply the factor-rating method to evaluate the locations. Based on the assigned weights for each factor and the score for each location, Location 3 is the recommended site for the new restaurant because it has the highest score. Weighted Scores Requirement 1 2 3 Cotenant(s) 40 30 37.5 Visibility 15 25.5 21 Traffic 9 8.4 7.8 Parking 6.8 6.8 6.4 Total 70.8 70.7 72.7 However, all three locations have similar scores, and the results would probably change based on a change to the weights. Therefore, it may be beneficial to use another approach that is not as subjective. The center-of-gravity method is a more quantitative approach for location analysis. By using the coordinates of the current restaurants, you can determine where to place a central inventory location that will ship supplies to each restaurant. Consider the following information for three restaurants in a region: Current Stores A B C Coordinates x 90 140 20 y 10 60 70 # Customers 120,000 90,000 105,000 Using the center-of-gravity approach, you can see that the new storage facility should be located at (81,44) as circled in the graph below. Page 2 of 3 Operations Management ©2017 South University

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