Category Archives: Facility Decisions: Location and Capacity

Solved Problems

Problem 1

Luxury Hotels Inc. is looking to relocate its reservations call center and has identified the following factors and respective weights for evaluating each potential site:

Problem 1

Problem 1

A consultant has identified the following three sites and has rated each of these locations on the above factors as follows:

Factor                                                             Ratings Site A                              Ratings Site B                            Ratings Site C

Available workforce                                            65                                                  80                                                   90
Level of skills                                                          50                                                  45                                                    75
Telecommunication infrastructure                90                                                  70                                                    40
Cost of lab Or                                                          75                                                  90                                                     85
Access to major highways                                  80                                                  85                                                      55

a. Which site would you recommend for locating the call center?

b. How much does the rating for the labor cost factor have Ii'I increase for site A so that the cores for sites A and B are the same?

c. How much does the weight for the infrastructure factor have to increase before site A become the preferred location for the call center?


a. We set up the following spreadsheet to calculate the scores for each location:



Based upon this analysis. we recommend that the new call center be located at site B, which has the highest score of 12,850.

b. To determine the rating for the labor cost factor at site A that makes the scores for sites A and B identical, we again use a spreadsheet and increase ~e labor cost rating for site A until the scores for the two sites are the same. The desired labor cost rating for site A is 82, as illustrated in the following spreadsheet:

solution 2.0

solution 2.0

c. As shown in the spreadsheet below, the weight for the infrastructure has to be increased to 63 before  site A becomes the preferred location.

solution 2.2

solution 2.2


Internet Exercise

Internet Exercise

Visit the website of an ASP (application service provider) that will give you detailed maps that include the distance and time between any two locations. What is the estimated time it takes to go from your home to your school and how many miles is it? Use the same ASP to determine how far it is from your school to the nearest McDonald.

Review and Discussion Questions

Review and Discussion Questions

I. List some practical limits to economies of scale; that is when should a plant stop growing in size?

2. What are some capacity balance problems faced by the following organizations or facilities?

a. An airline terminal.

b. A university computing center.

c. A clothing manufacturer.

3. What are the primary capacity planning considerations for foreign companies locating their facilities in the United States?

4. What are some major capacity considerations in a hospital? How do they differ from those of a factory?

5. What are some of the location factors that a manufacturer needs to take into consideration in locating a factory in a foreign country?

6. In what respects is facility layout a marketing problem in services? Give an example of a service system layout designed to maximize the amount of time the customer is in the system?

7. Identify some of the site selection criteria that should be considered by a high-end, full service hotel chain such as the Hilton, Hyatt, or Marriott. (By full-service we mean that the hotel has a restaurant. cocktail lounge. meeting rooms. and catering facilities to accommodate large functions such as conferences and weddings.)

8. Identify some of the site selection factors that should be considered for a budget motel that primarily provides only rooms, such as Motel 6. Days Inn, and Econo Lodge.

9. What are some of the factors that should be taken into consideration when evaluating potential sites for a distribution center of quasi-manufacturing operation that directly supports retail operations?



The decisions where and when to locate a facility and how big to make it are critical to the success If every business be it a manufacturing or service operation. As a result, significant analysis and planning are required to ensure that a potential location will properly support the long-term strategy and objectives of the firm. In addition the decision where to locate a new facility is complex involving both qualitative and quantitative factors.Like so many topics in operations management today location decisions and capacity planning are being significantly influenced, not only by advances in information technology but also by the trend toward globalization. As more firms continue to focus on their core competencies, management has changed its perspective on available capacity, while at the same time becoming more dependent on its suppliers. The growth in international markets as well as cheaper labor and other incentives offered by foreign countries,also has significantly affected decisions on where to locate new operations.

Capacity Measures

Capacity Measures.

As described in detail in Chapter 5 capacity is the output of a process or facility over a given time period. For a manufacturing plant, examples of capacity include: televisions per week, barrels of oil per year and gallons of laundry detergent per month. For a service operation capacity is usually measured over shorter time periods, because time is more critical due to the customer's interaction with the process. Examples here would include customers per hour in a restaurant calls per hour in a call center and guests per hour at the front desk of a hotel.
Capacity utilization, as also decried in Chapter 5, defines what percentage of the available capacity is actually being used. For example, a call center might have 1,200 workstations but on a given day, only have 600 of them staffed with operators. In this case, the call center would be working at 600/ I,200 or 50 percent capacity utilization that day.