Deck 8: Location Strategies

Question 1

Why does FedEx use a central hub airline network, rather than a "point-to-point" network? Describe FedEx's approach to choosing its superhub.

Answer 1

The hub system is more centralized and allows for greater control; greater control reduces package mishandling and transit delays. Also, the hub permits service to a far greater number of points with fewer aircraft than a point-to-point network would. Their U.S. hub in Memphis reflects a need to be geographically centralized, and in a location where schedules can more reliably be kept because weather delays are minimized.

Question 2

The World Economic Forum has developed a list that ranks countries on issues such as "competitiveness" and "corruption."

Answer 2

True

Question 3

Unfavorable exchange rates can offset other savings in a location decision.

Answer 3

True

Question 4

Location decisions are based on many things, including costs, revenues, incentives, attitudes, intangibles, and ethical considerations.

Question 5

Identify the three location options when demand has outgrown the current plant's capacity.

Question 6

FedEx chose Memphis, Tennessee, for its central location, or "hub," primarily because of the incentives offered by the city of Memphis and the state of Tennessee.

Question 7

A location decision for an appliance manufacturer would tend to have what type of focus?

A) cost focus
B) focus on finding very highly skilled technicians
C) revenue focus
D) environmental focus
E) education focus

Question 8

Which of the following statements regarding FedEx is TRUE?

A) Its hub in Memphis, Tennessee, was selected because of its low cost.
B) Memphis, Tennessee, is the only hub in the company's global flight network.
C) FedEx believes the hub system helps reduce mishandling and delays due to better controls.
D) FedEx uses a hub system in the United States, but a city-to-city network in other countries.
E) Memphis is FedEx's only hub airport in the United States.

Question 9

FedEx chose Memphis, Tennessee, as its U.S. hub because:

A) the city is in the center of the United States, geographically.
B) the airport has relatively few hours of bad weather closures.
C) it needed a means to reach cities to which it did not have direct flights.
D) the firm believed that a hub system was superior to traditional city-to-city flight scheduling.
E) All of these are true.

Question 10

Location decisions are often being based on which of the following?

A) ports and rivers
B) rail hubs
C) interstate highways
D) airports
E) all of these

Question 11

Industrial location analysis typically attempts to:

A) minimize costs.
B) maximize sales.
C) focus more on human resources.
D) avoid countries with strict environmental regulations.
E) ignore exchange rates and currency risks.

Question 12

State the fundamental objective of a firm's location strategy. How is this basic objective carried out by industrial or goods-producing firms; how does that differ for service firms?

Question 13

An example of an intangible cost, as it relates to location decisions, is depreciation.

Question 14

The ratio of labor cost per day to productivity, in units per day, is the labor cost per unit.

Question 15

Location greatly affects fixed cost, but not variable cost.

Question 16

FedEx schedules its aircraft using a(n) ________ system, which it credits with reducing package mishandling and delay in transit.

Question 17

A location decision for a traditional department store (e.g., Macy's) would tend to have what type of focus?

A) cost focus
B) labor focus
C) revenue focus
D) environmental focus
E) education focus

Question 18

In location decisions, intangible costs are easier to measure than tangible costs.

Question 19

For a location decision, labor productivity may be important in isolation, but low wage rates are a more important criterion.

Question 20

Manufacturers may want to locate close to their customers if the transportation of finished goods is expensive or difficult.

Question 21

Intangible costs include which of the following?

A) quality of prospective employees
B) quality of education
C) availability of public transportation
D) all of these
E) none of these

Question 22

Tangible costs include which of the following?

A) climatic conditions
B) availability of public transportation
C) taxes
D) quality and attitude of prospective employees
E) zoning regulations

Question 23

When making a location decision at the country level, which of these would be considered?

A) corporate desires
B) land/construction costs
C) air, rail, highway, waterway systems
D) zoning restrictions
E) location of markets

Question 24

Why is Singapore used as a cluster for computer hardware manufacturing?

A) high traffic flows
B) venture capitalists located nearby
C) natural resources of land and climate
D) NAFTA
E) high technological penetration rates and per capita GDP

Question 25

Which of these factors would be considered when making a location decision at the site level?

A) government rules, attitudes, stability, incentives
B) cultural and economic issues
C) zoning regulations
D) cost and availability of utilities
E) proximity to raw materials and customers

Question 26

Globalization of the location decision is the result of all EXCEPT which of the following?

A) market economics
B) higher quality of labor overseas
C) ease of capital flow between countries
D) high differences in labor costs
E) more rapid, reliable travel and shipping

Question 27

Which of the following is usually NOT one of the top considerations in choosing a country for a facility location?

A) availability of labor and labor productivity
B) exchange rates
C) attitude of governmental units
D) zoning regulations
E) location of markets

Question 28

In location planning, environmental regulations, cost and availability of utilities, and taxes are:

A) global factors.
B) country factors.
C) regional/community factors.
D) site-related factors.
E) none of these.

Question 29

Among the following choices, an operations manager might best evaluate political risk of a country by looking at which type of country ranking?

A) based on competitiveness
B) based on cost of doing business
C) based on corruption
D) based on magnitude of government social programs
E) based on average duration between presidential/prime minister elections

Question 30

Governmental attitudes toward issues such as private property, intellectual property, zoning, pollution, and employment stability may change over time. What is the term associated with this phenomenon?

A) bureaucratic risk
B) political risk
C) legislative risk
D) judicial risk
E) democratic risk

Question 31

Which of these factors would be considered when making a location decision at the region/community level?

A) government rules, attitudes, stability, incentives
B) cultural and economic issues
C) zoning restrictions
D) environmental impact issues
E) proximity to raw materials and customers

Question 32

One reason for a firm locating near its competitors is the presence of a major resource it needs.

Question 33

The reason fast-food restaurants often are found in close proximity to each other is:

A) they enjoy competition.
B) location clustering near high traffic flows.
C) low cost.
D) availability of skilled labor.
E) all of these.

Question 34

Currency risk is based on what assumption?

A) Firms that do not continuously innovate will lose market share.
B) Values of foreign currencies continually rise and fall in most countries.
C) Changing product lines by reacting to every current trend may alienate the customer base.
D) The value of one dollar today is greater than the value of one dollar to be received one year from now.
E) The U.S. stock market fluctuates daily.

Question 35

________ and currency risks are to key country success factors as land costs and ________ are to key region success factors.

A) Cultural issues; zoning restrictions
B) Exchange rates; environmental impact
C) Labor costs; exchange rates
D) Land costs; air and rail systems
E) Location of markets; climate

Question 36

Which of the following statements regarding "proximity" in the location decision is FALSE?

A) Service organizations find that proximity to suppliers is the most critical primary location factor.
B) Manufacturers want to be near customers when their product is bulky, heavy, or fragile.
C) Perishability of raw materials is a good reason for manufacturers to locate near the supplier, not the customer.
D) Reduction in bulk during production is a good reason for a manufacturer to locate near the supplier.
E) Clustering among fast-food chains occurs because they need to be near high traffic flows.

Question 37

Which of the following workers is the most productive?

A) $50 wages, 10 parts produced
B) $10 wages, 1 part produced
C) $30 wages, 5 parts produced
D) $100 wages, 21 parts produced
E) $500 wages, 110 parts produced

Question 38

When making a location decision at the region/community level, which of these would be considered?

A) government rules, attitudes, stability, incentives
B) cultural and economic issues
C) cost and availability of utilities
D) zoning restrictions
E) air, rail, highway, waterway systems

Question 39

An employee produces 10 parts during a shift in which he made $90. What is the labor content of the product?

A) $9
B) $5
C) $6
D) $0.111
E) $900

Question 40

Which of the following is the best example of the proximity rule that, for service firms, proximity to market is the most important location factor?

A) Soft drinks are bottled in many local plants, where carbonated water is added to proprietary syrups that may have been shipped long distances.
B) Few people will travel out of state for a routine haircut.
C) Patients will travel very long distances to have their hernia surgeries performed at Shouldice Hospital.
D) Furniture makers choose to locate near the source of good hardwoods, even though it means locating near other furniture manufacturers.
E) Metal refiners (smelters) locate near mines to accomplish significant weight reduction near the metal's source.

Question 41

________ occurs when competing companies locate near each other because of a critical mass of information, talent, venture capital, or natural resources.

Question 42

The factor-rating method can consider only tangible costs, not intangible costs.

Question 43

Community attitudes, zoning restrictions, and quality of labor force are likely to be considered in which of the following location decision methods?

A) transportation method
B) locational cost-volume analysis
C) center-of-gravity method
D) simulation
E) factor-rating method

Question 44

The graphic approach to locational cost-volume analysis displays the range of volume over which each location is preferable.

Question 45

The transportation model calculates an optimal shipping system between several points of supply and several outlying customers.

Question 46

What is the impact of exchange rates on location decisions?

Question 47

Identify five factors that affect location decisions at the site level.

Question 48

Identify five factors that have fostered globalization.

Question 49

The center-of-gravity method finds the location of a centralized facility, such as a distribution center, that will maximize the organization's revenue.

Question 50

Labor cost per unit is also referred to as ________.

Question 51

Evaluating location alternatives by comparing their composite (weighted-average) scores involves which of the following?

A) factor-rating analysis
B) cost-volume analysis
C) transportation model analysis
D) linear regression analysis
E) crossover analysis

Question 52

"Proximity" or closeness implies that a firm should locate "close" to something. What are the three kinds of proximity described in the text? What are the basic conditions under which each is appropriate? What kinds of firms are likely to use each of these?

Question 53

Which of the following methods best considers intangible costs related to a location decision?

A) crossover methods
B) locational cost-volume analysis
C) factor-rating method
D) the transportation method
E) center-of-gravity method

Question 54

________ costs are readily identifiable and can be measured with precision.

Question 55

What is it called when competing companies locate next to each other? Why do they do this?

Question 56

Which of the following statements regarding the center-of-gravity method is FALSE?

A) It is designed to minimize the maximum possible travel distance to any of the locations.
B) The optimal x- and y-coordinates are calculated separately.
C) The optimal solution is unconstrained, so it could suggest a location in the middle of a body of water.
D) The weights used are the quantity of goods moved to or from each location.
E) The origin of the coordinate system and the scale used are arbitrary, just as long as the relative distances are correctly represented.

Question 57

What is the role of labor productivity in location decisions?

Question 58

Why is "quality of life" an element of intangible costs associated with location decisions? Provide an example as part of your discussion.

Question 59

A clothing chain is considering two different locations for a new retail outlet. They have identified the four factors listed in the following table as the basis for evaluation, and have assigned weights as shown. The manager has rated each location on each factor, on a 100-point basis, as shown under the respective columns for Barclay and Chester. What is the score for Barclay?

A) 10.00
B) 24.50
C) 25.75
D) 27.00
E) 100.00

Question 60

Political risk, cultural issues, and exchange rates are among those ________ that affect which country will be selected for a location decision.

Question 61

Production and transportation costs are always considered in which of the following location decision methods?

A) traffic counts
B) transportation model
C) purchasing power
D) proximity of markets
E) clustering

Question 62

A firm is considering two location alternatives. At location A, fixed costs would be $4,000,000 per year, and variable costs $0.30 per unit. At alternative B, fixed costs would be $3,600,000 per year, with variable costs of $0.34 per unit. If annual demand is expected to be 9 million units, which plant offers the lowest total cost?

A) Plant A, because it is cheaper than Plant B for all volumes below 10,000,000 units.
B) Plant B, because it is cheaper than Plant A for all volumes below 10,000,000 units.
C) Plant A, because it is cheaper than Plant B for all volumes.
D) Plant B, because it has the lower variable cost per unit.
E) Neither Plant A nor Plant B, because the crossover point is at 9 million units.

Question 63

The ________ method is popular because a wide variety of factors, from education to recreation to labor skills, can be objectively included.

Question 64

The ________ is used to determine the best pattern of shipments from several points of supply to several points of demand.

Question 65

A farmers' cooperative association plans to build a new sugar mill in Southwestern Louisiana. The primary objective of the mill is to provide the farmers with a place to take their crop for processing that will reduce their transportation costs. The members of the co-op believe that the center-of-gravity method is appropriate for this objective. While there are over 200 sugar cane farms in the region, they are tightly clustered around six villages. Using the data below, use the center-of-gravity method to calculate the coordinates of the best location for this mill. All mileage references use the city of Lake Charles as (0,0).

Question 66

The ________ is a mathematical technique used for finding the best location for a single distribution point that services several stores or areas.

Question 67

On the crossover chart where the costs of two or more location alternatives have been plotted, the quantity at which two cost curves cross is the quantity where:

A) fixed costs are equal for two alternative locations.
B) variable costs are equal for two alternative locations.
C) total costs are equal for all alternative locations.
D) fixed costs equal variable costs for one location.
E) total costs are equal for two alternative locations.

Question 68

A full-service restaurant is considering opening a new facility in a specific city. The table below shows its ratings of four factors at each of two potential sites. The score for Gary Mall is ________ and the score for Belt Line is ________.

A) 90; 100
B) 22; 24
C) 18; 120
D) 34; 28
E) none of these

Question 69

What kinds of location decisions are appropriate for the use of center-of-gravity analysis? What variable is being optimized in this analysis?

Question 70

A manufacturing company preparing to build a new plant is considering three potential locations for it. The fixed and variable costs for the three alternative locations are presented below.
(a) Complete a numeric locational cost-volume analysis.
(b) Indicate over what range each of the alternatives A, B, C is the low-cost choice.
(c) Is any alternative never preferred? Explain.

Question 71

Which of the following is an approach to location analysis that includes both qualitative and quantitative considerations?

A) locational cost-volume analysis
B) factor-rating method
C) transportation model
D) center-of-gravity method
E) make-or-buy analysis

Question 72

Identify the four major quantitative methods for solving location problems.

Question 73

What are the advantages and disadvantages of the use of the factor-rating method?

Question 74

East Texas Seasonings is preparing to build one processing center to serve its four sources of seasonings. The four source locations are at coordinates shown below. Also, the volume from each source is provided. What is the center of gravity?

A) X = 28.125; Y = 31.25
B) X = 32500; Y = 35000
C) X = 32.5; Y = 35
D) center of gravity = 28
E) X = 27.5; Y = 40

Question 75

The center-of-gravity method is used primarily to determine what type of locations?

A) service locations
B) manufacturing locations
C) distribution center locations
D) supplier locations
E) call center locations

Question 76

A regional bookstore chain wants to build a distribution center that is centrally-located for its eight retail outlets. It will most likely employ which of the following tools of analysis?

A) assembly line balancing
B) load-distance analysis
C) center-of-gravity method
D) linear programming
E) locational cost-volume analysis

Question 77

A clothing chain is considering two different locations for a new retail outlet. The organization has identified the four factors listed in the following table as the basis for evaluation, and it has assigned weights as shown. The manager has rated each location on each factor, on a 100-point basis (higher scores are better), as shown under the respective columns for Barclay and Chester.
a. Calculate the composite score for each alternative location.
b. Which site should be chosen?
c. Are you concerned about the sensitivity and subjectivity of this solution? Comment.

Question 78

The transportation model, when applied to location analysis:

A) minimizes total fixed costs.
B) minimizes total production and transportation costs.
C) minimizes total transportation costs.
D) maximizes revenues.
E) minimizes the movement of goods.

Question 79

What kinds of location decisions are appropriate for the use of locational cost-volume analysis? Write a brief paragraph explaining how the method can assist an operations manager in choosing among alternative sites in making a location decision.

Question 80

A county wants to build one centrally-located processing facility to serve the county's four recycling drop-off locations. The four drop-offs have characteristics as given in the table below. What is the approximate center of gravity of these four locations?

A) (4.75, 6.04)
B) (17.00, 24.00)
C) (4.25, 6.00)
D) (4.90, 5.85)
E) (490, 585)