# Service Management

## Quiz 8 :Service Facility Location

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What is the expected annual net operating profit before taxes and market share for the outlet you have recommended ? Defend your recommendation.
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Although a 15,000 sq. ft. store at site Y yields an expected annual net operating profit of \$23,393, a 20,000 sq. ft. store at the site would maximize the market share at 45.9 percent.  With the larger store the market share of the competition is severely eroded (see head-to-head comparison).  Store A with a 10% loss in market share (33% to 23%) will probably not survive.  Furthermore, with store B and Athol located in close proximity the effect of clustering will draw even more customers to shop both stores simultaneously.

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A small city airport is served by four airlines. The terminal is rather spread out, with boarding areas located on an xy coordinate grid at A = (1, 4), B = (5, 5), C = (8, 3), and D = (8, 1). The number of flights per day, of approximately equal capacity, is A = 28, B = 22, C = 36, and D = 18. A new central baggage claim area is under construction. Using the cross-median approach, recommend a location for the new baggage claim area that will minimize the total weighted distance from the boarding areas.
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The locations of boarding areas at an airport are given below:
Step-1: Calculate the cross-media by adding the expected capacity and dividing it by 2, as shown below:
Step-2: Identify the order of the four locations stores: If one has to move from east to west, west to east, north to south, and south to north.
East to west: d-c-b-a
West to east: a-b-c-d
North to south: b-a-c-d
South to north: d-c-a-b
Step-3: For each direction, add the demand values up until have reached or exceeded the cross-median value. In our problem, this value is 52 (see step 1).
Step-4: Identify the business in which cross-median demand is reached or exceeded for each direction:
X-Axis Directions
• West to East = C
• East to west = C
Y-Axis Directions
• South to North = C
• North to South = C
Since, all the options are showing the location-C, location-C is as an optimal solution.
The optimal coordinates are (8, 3).

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What are the benefits of using intermediaries in the service distribution channel ?
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Business distribution channels pave path to deliver its products or services. The distribution channels used to deliver products differ from the distribution channels used to deliver services. This is because, services are intangible and cannot be preserved.
Due to the fact that services cannot be felt or stored physically, the service providers make use of intermediaries to carry the service from source to destination i.e. service provider to consumer.
The benefit of using intermediaries in the service distribution channel is as discussed below:
As services are intangible, their movement to reach the destination is restricted to some geographical areas. To eliminate this issue, service providers use marketing intermediaries as organizational entities to create unlimited geographical service area.
For example, companies provide on-site work by arranging common equipment to examine the issues faced by the customers. A separate department namely, customer care executives are hired to solve these issues which has eliminated the issue with geographical service area.
Some other benefits using intermediaries in the service distribution channel are as discussed below:
• Virtual delivery can be one among the intermediaries in the service distribution channel that could be expand the business by interacting with clients, or customers using phone calls, teleconferences, videoconferences, etc.
• Using third party consultancy as one among the intermediaries in the service distribution channel, the service provider prevents issues that raise while working remotely. PR consultancy can hire an employee which works for YX company. He or she would render services to YX but, get instructions from PR consultancy. Therefore, the functions of company YX would be continue its operations remotely.
Thus, intermediaries of service distribution channel would help companies to overcome from issues those raise in delivering services and promote growth to the companies.

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A temporary-help agency wants to open an office in a suburban section of a large city. It has identified five large corporate offices as potential customers. The locations of these offices in miles on an xy coordinate grid for the area are c 1 = (4, 4), c 2 = (4, 11), c 3 = (7, 2), c 4 = (11, 11), and c 5 _ (14, 7). The expected demand for temporary help from these customers is weighted as w 1 = 3, w 2 = 2, w 3 = 2, w 4 = 4, and w 5 = 1. The agency reimburses employees for travel expenses incurred by their assignments; therefore, recommend a location (i.e., xy coordinates) for the agency that will minimize the total weighted metropolitan distance for job-related travel.
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Revisit the copying service in Example 10.1 and assume that over the years, the monthly demand from the four customers has increased to the following weights: w 1 =7, w 2 = 9, w 3 = 5, w 4 = 7. If we previously located the copying service at point A in Figure 10.6, should we now consider a relocation?
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Utilizing a ite Y w spreadsheet version of the Huff location model (with = 1.0), recommend a store size and location for AFI that will maximize expected net operating profit before taxes. Assuming that AFI does not wish to consider a store smaller than 10,000 square feet, assess the store sizes (based on increments of 5,000 square feet) up to the maximum allowable sales area for each potential site.
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Four hospitals located in one county are cooperating to establish a centralized bloodbank facility to serve them all. On an xy coordinate grid of the county, the hospitals are found at the following locations: H 1 = (5, 10), H 2 = (7, 6), H 3 = (4, 2), and H 4 = (16, 3). The expected number of deliveries per month from the blood bank to each hospital is estimated at 450, 1,200, 300, and 1,500, respectively. Using the cross-median approach, recommend a location for the blood bank that will minimize the total distance traveled.
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Try two other values of (e.g., 0.5 and 5.0) to measure the sensitivity of customer travel propensity on your recommended location.
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Revisit the copying service Huff analysis in Example 10.2. Recalculate the monthly customer expenditures and the market share for the proposed copying center at location B if the new store will be three times the capacity of the existing store at location A and the new demand weights from Exercise 10.1 above are used.
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A community is currently being served by a single self-serve gas station with six pumps. A competitor is opening a new facility with 12 pumps across town. Table 10.12 shows the travel times in minutes from the four different areas in the community to the sites and the number of customers in each area. a. Using the Huff retail location model and assuming that , calculate the probability of a customer traveling from each area to each site. b. Estimate the proportion of the existing market lost to the new competitor.
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A bank is planning to serve the rural communities shown in Figure 10.8 with automated teller machines (ATMs). The travel time in minutes between communities in the service area is shown on the network in Figure 10.8. The bank is interested in determining the number and location of ATMs necessary to serve the communities so that a machine will be within 20 minutes' travel time of any community.
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You have been asked to help locate a catering service in the central business district of a city. The locations of potential customers on an xy coordinate grid are P 1 = (4, 4), P 2 = (12, 4), P 3 = (2, 7), P 4 = (11, 11), and P 5 = (7, 14). The expected demand is weighted as w 1 = 4, w 2 = 3, w 3 = 2, w 4 = 4, and w 5 = 1. Using the cross-median approach, recommend a location for the catering service that will minimize the total weighted distance traveled to serve the customers.
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Recall the rural medical clinics in Example 10.3 and suppose that each community were required to be 25 miles at most from the nearest clinic. How many clinics would be needed, and what would their locations be? Give all possible location solutions.
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Briefly state any shortcomings you may perceive in this model.
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What are the characteristics of a service that would make communication a good substitute for transportation ?
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Go to http://www.pbinsight.com/welcome/mapinfo/ and find the definition of "location intelligence." What use can be made of geographic information?
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locally owned department store samples two customers in each of five geographic areas to estimate consumer spending in its home appliances department. It is estimated that these customers are a good sample of the 10,000 customers the store serves. The number of customers in each area is C 1 = 1,500, C 2 = 2,500, C 3 = 1,000, C 4 = 3,000, and C 5 = 2,000. It is found that the two consumers have the following budgets in dollars for home appliances per year: B 11 = 100, B 12 = 150; B 21 = 75, B 22 = 100; B 31 = 125, B 32 = 125; B 41= 100, B 42 = 120; and B 51 = 120, B 52 = 125. a. Using the Huff retail location model, estimate annual home appliance sales for the store. b. Bull's-Eye, a chain department store, opens a branch in a shopping complex nearby. The Bull's-Eye branch is three times larger than the locally owned store. The travel times in minutes from the five areas to the two stores ( j = 1 for the locally owned store, j = 2 for Bull's-Eye) are T 11 = 20, T 12 = 15; T 21 = 35, T 22 = 20; T 31 = 30, T 32 = 25; T 41 = 20, T 42 = 25; and T 51 = 25, T 52 = 25. Use the Huff retail location model to estimate the annual consumer expenditures in the home appliance section of each store assuming that
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pizza delivery service has decided to open a branch near off-campus student housing. The project manager has identified five student apartment complexes in the northwest area of the city, the locations of which, on an xy coordinate grid in miles, are C 1 = (1, 2), C 2 = (2, 6), C 3 = (3, 3), C 4 = (4, 1), and C 5 = (5, 4). The expected demand is weighted as w 1 = 5, w 2 = 4, w 3 = 3, w 4 = 1, and w 5 = 5. Using the cross-median approach, recommend a location for the pizza branch that will minimize the total distance traveled.
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