OM (with OM Online, 1 term (6 months) Printed Access Card)
OM (with OM Online, 1 term (6 months) Printed Access Card)
6th Edition
ISBN: 9781305664791
Author: David Alan Collier, James R. Evans
Publisher: Cengage Learning
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Chapter 6, Problem 3CQD
Summary Introduction

Interpretation:

Summary score of center of gravity, cost and qualitative criteria.

Concept Introduction:

Location is one of the most important aspect of business. Business must be located within close vicinity of market. It is advantageous if it s close to warehouse, market, suppliers of goods, customers etc, it leads to reduction in cost, thereby economies of scale.

Center of gravity is an approach to select a business facility with the minimum cost. It coordinates all the facilities like transportation, warehouse, market, suppliers of raw material, customer etc. and gives the best location for a business facility.

Expert Solution & Answer
Check Mark

Explanation of Solution

Center of gravity is calculated as follows:

Center of gravity =x1d1+x2d2+x3d3....xndnd1+d2+d3....dn

Center of gravity =1×290,000+11×95,000+4×145,000+2×80,000+10×120,000290,000+95,000+145,000+80,000+120,000

Center of gravity =290,000+1,045,000+580,000+160,000+1,200,000730,000

Center of gravity =3,275,000730,000

Center of gravity =4.48

  xcoordinate=4.48 (population center)

Center of gravity =y1d1+y2d2+y3d3....yndnd1+d2+d3....dn

Center of gravity =11×290,000+11×95,000+8×145,000+1×80,000+2×120,000290,000+95,000+145,000+80,000+120,000

Center of gravity =3,190,000+1,045,000+160,000+80,000+240,000730,000

Center of gravity =5,715,000730,000

Center of gravity =7.82

  ycoordinate=7.84 (population center).

According to the center of gravity, the best location for stadium coordinates is (4.48, 7.84)

Stadium coordinate (4.48, 7.84)

It is nearest to 3rd population center

2nd nearest to population center 1

Population center 1 is better as it has more population compared to other centers.

Transportation like airport and shopping center is also nearest to the location. So, stadium can be build at this location coordinate (4.48, 7.84).

Following is the score for each criterion that ranges from 1- 3

    Criteria /Score 1 2 3
    Gain environmental group(s) endorsement No Almost Yes
    Traffic access and congestion Poor Moderate Good
    Permit (road, utility, etc) Ready Mostly Ready Not Ready
    Long term economic growth and development 3 4 5
    Chance to preserve a huge area of the country High Moderate Low

Based on the above score, it is easy to give the score to the location site. Following is the score of the site for A, B, C and D along with weightage. The long term economic growth and development is given the higher weightage because it will give good growth opportunity to the site.

    Location/CriteriaWeightSite ASite BSite CSite D
    Gain environmental groups endorsement 0.15 2 1 1 3
    Traffic access and congestion 0.10 3 1 1 2
    Permit (road, utility, etc) 0.20 3 2 1 3
    Long term economic growth and development 0.35 2 1 2 3
    Chance to preserve a huge area of the country 0.20 2 1 3 1

Following is the calculation of the score for all the site using weightage

    Location/CriteriaWeightSite ASite BSite CSite D
    Gain environmental groups endorsement 0.15 0.30 0.15 0.15 0.45
    Traffic access and congestion 0.10 0.30 0.10 0.10 0.20
    Permit (road, utility, etc) 0.20 0.6 0.4 0.2 0.6
    Long term economic growth and development 0.35 0.70 0.35 0.70 1.05
    Chance to preserve a huge area of the country 0.20 0.40 0.20 0.60 0.20
    Total 1.00 2.30 1.20 1.75 2.50

  0.15×Gainenvironmental+0.10×Trafficaccess+0.20×Permit+0.35×Longtermeconomic

  +0.2×Chancetopreserve

  SiteA=0.15×2+0.10×3+0.20×3+0.35×.2+0.20×2

  SiteA=0.30+0.30+0.60+0.70+0.40

  SiteA=2.30

The score of Site A is 2.30. Similarly, the score of Site B, C and D is 1.20, 1.75 and 2.50 respectively. Site D score is better than other sites; hence Site D is more preferable.

Following is the total cost for all the site A, B, C and D

    Site ASite BSite CSite D
    Stadium land cost (million) 18.0 22.0 0.0 22.0
    Additional utility cost (million) 1.0 0.5 3.0 0.5
    New round cost (million) 2.0 0.5 15.0 2.0
    Total cost (million) 21.0 23.0 18.0 24.5
    Acres 241 209 - 106
    Total cost / acres (million) 0.08710.110048 18.00.231132

Site D consist of maximum cost, but the weightage score is higher compared to Site A. Site A has comparable score and consists of less cost compared to Site D. Shopping Mall 1 and Airport is near to Site A whereas Population center 2 and Airport is near to Site D. Hence, it is recommended that firm must choose Site D to build a stadium.

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