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Chapter 09 - Location, Logistics, and Distribution

Chapter 09
Location, Logistics, and Distribution
Learning Objectives for Chapter 9:
1. Describe what a third-party logistics provider is.
2. Assess the major issues that need to be considered in locating a
plant or warehouse facility.
3. Set up the transportation model to analye location problems and
how to use !"cel Solver to find solutions to these models.
#. $nderstand the centroid method for locating entities such as cell
phone communication towers.
%. &now how a factor-rating system can be used to narrow potential
location sites.
True / False uestions

1. The local government's willingness to invest in upgrading inrastructure to the levels
re!uired b" a compan" is an important issue in a compan"'s decision o where to locate a new
acilit".
True #alse

$. #acilit" location anal"sis considers the competitive imperative to be close to customers as
to timeliness o deliveries.
True #alse

9-1
Chapter 09 - Location, Logistics, and Distribution
%. #acilit" location anal"sis considers the competitive imperative o lowest total cost.
True #alse

&. #acilit" location anal"sis considers the competitive imperative o a avorable business
climate as indicated b" the presence o other companies in the same industr".
True #alse

'. #acilit" location anal"sis considers the competitive imperative o locating near the
appropriate labor pool to ta(e advantage o low wage costs and)or s(ill levels.
True #alse

*. #acilit" location anal"sis considers the competitive imperative o locating near the
appropriate labor pool to ta(e advantage o high technical s(ills.
True #alse

9-$
Chapter 09 - Location, Logistics, and Distribution
+. ,n e-ample o a positive business climate that might inluence a acilit" location decision
is increasing governmental costs and increasing propert" ta-es.
True #alse

.. , avorable business climate in acilit" location decision-ma(ing might include
government legislation o ta- abatements.
True #alse

9. , avorable business climate in acilit" location decision-ma(ing might include local
government intervention to acilitate businesses locating in an area via subsidies.
True #alse

10. , avorable business climate in acilit" location decision-ma(ing might include local
government providing basic s(ill training or prospective members o the wor(orce.
True #alse

11. /n acilit" location decision-ma(ing the educational and s(ill levels o the labor pool must
match the compan"'s needs.
True #alse

1$. /n acilit" location decision-ma(ing matching the educational and s(ill levels o the labor
pool to a compan"'s needs is even more important than the labor pool's willingness and abilit"
to learn.
True #alse

1%. 0ecause the world is becoming more highl" interconnected, the pro-imit" o an important
supplier's plants is not crucial in supporting lean production methods.
True #alse

9-%
Chapter 09 - Location, Logistics, and Distribution
1&. /ssues o Error! Hyperlink reference not valid.Error! Hyperlink reference not
valid. and capacit" are strongl" interconnected to the acilit" location decision.
True #alse

1'. , ree trade 1one operates under dierent rules and laws than a oreign trade 1one.
True #alse

1*. , ree trade 1one is t"picall" a closed acilit" into which oreign goods can be brought
without being sub2ect to the usual customs re!uirements.
True #alse

1+. The ob2ective o acilit" location anal"sis is to select the site with the lowest total cost.
True #alse

1.. 3overnmental barriers to enter and locate in man" countries are increasing through
restrictive protectionist legislation.
True #alse

19. 4ualit" o lie in a host communit" is not a ma2or actor in ma(ing the acilit" location
decision.
True #alse

$0. /n acilit" location decision-ma(ing the actor-rating s"stem is one o the least used
general location techni!ues.
True #alse

9-&
Chapter 09 - Location, Logistics, and Distribution
$1. /n acilit" location decision-ma(ing the actor-rating s"stem is based on linear
programming.
True #alse

$$. , ma2or problem in a plant location decision based on the actor-rating s"stem is that
simple point-rating schemes do not account or the wide variance o costs that ma" occur
within each actor used in the anal"sis.
True #alse

$%. 5ervices t"picall" have multiple site locations to maintain close contact with customers.
True #alse

$&. #acilit" location decisions are made using anal"tical techni!ues that are able to weigh a
large number o dierent variables e!uall".
True #alse

$'. , third-part" logistics compan" is a irm that manages all or part o another compan"'s
product deliver" operations.
True #alse

$*. D6L and 7nited 8arcel 5ervice are transportation companies which are prohibited rom
unctioning as a third-part" logistics compan" the wa" #ederal 9-press does.
True #alse


9-'
Chapter 09 - Location, Logistics, and Distribution
!ultiple Choice uestions

$+. :hich o the ollowing is not a criterion that inluences manuacturing plant or warehouse
acilit" location decisions;
,. 8ro-imit" to customers
0. 6istorical cost
C. /nrastructure o a countr"
D. 4ualit" o labor
9. 0usiness climate

$.. :hich o the ollowing is a not criterion that inluences manuacturing plant or warehouse
acilit" location decisions;
,. 5uppliers
0. #ree trade 1ones
C. 8olitical ris(
D. 3ross national product
9. Taris and customs duties

$9. :hich o the ollowing is not a criterion that inluences manuacturing plant or warehouse
acilit" location decisions;
,. 3overnment barriers
0. Trading blocs
C. 9nvironmental regulation
D. /mmigration rules
9. Local labor costs

%0. :hich o the ollowing is a criterion that inluences manuacturing plant or warehouse
acilit" location decisions;
,. 8ro-imit" to customers
0. Corporate polic"
C. Competitor's locations
D. Competitive advantage
9. 6ost communit" politics

9-*
Chapter 09 - Location, Logistics, and Distribution
%1. ,n important issue in acilit" location anal"sis is business climate. ,n unavorable
business climate could be indicated b" which o the ollowing;
,. 5imilar-si1ed businesses nearb"
0. The willingness o local politicians to provide avorable treatment or a consideration
C. The presence o other oreign companies in the case o international locations
D. The local presence o companies in the same industr"
9. ,n established educational institution nearb"

%$. <ne o the ob2ectives o acilit" location anal"sis is to select a site with the lowest total
cost. :hich o the ollowing costs should be e-cluded rom the anal"sis;
,. 6istorical costs
0. /nbound distribution costs
C. Land
D. Construction
9. =egional costs

%%. <ne o the ob2ectives o acilit" location anal"sis is to select a site with the lowest total
cost. :hich o the ollowing costs should not be included in the anal"sis;
,. <utbound distribution costs
0. /ncidental costs
C. 9nerg" costs
D. 6idden costs
9. Costs we can pass along to our customer

%&. <ne o the ob2ectives o acilit" location anal"sis is to select a site with the lowest total
cost. :hich o the ollowing are hidden costs that should be included in the anal"sis;
,. 0ecoming less responsive to the customer
0. 5upplier costs
C. Ta-es
D. Construction costs
9. 8roduct lie c"cle costs

9-+
Chapter 09 - Location, Logistics, and Distribution
%'. <ne o the ob2ectives in acilit" location anal"sis is to select a site with the lowest total
cost. :hich o the ollowing costs are hidden costs that should be included in the anal"sis;
,. /nrastructure costs
0. >ovement o preproduction material between locations
C. Ta-es
D. Construction costs
9. 0riber" costs

%*. :hich o the ollowing is not an inrastructure criteria used in acilit" location anal"sis;
,. ,de!uate school s"stem
0. ,de!uate health care
C. ,de!uate transportation
D. ,de!uate low cost labor
9. ,de!uate public utilit" s"stems

%+. 6ow man" ree trade 1ones are there in the 7nited 5tates;
,. Less than '0
0. Less than 100
C. ,bout $*0
D. >ore than &1$
9. ,bout %10

%.. ,n e-ample o a trading bloc is which o the ollowing;
,. ?orth ,merican #ree Trade ,greement countries
0. #ree trade 1ones
C. /5<-9000 companies
D. ,merican 8roduction and /nventor" Control 5ociet"
9. :al->art and its' suppliers

9-.
Chapter 09 - Location, Logistics, and Distribution
%9. :hich o the ollowing is a plant location methodolog" good or locating a single acilit"
within a set o e-isting acilities based in distances and volumes o goods shipped;
,. #actor-rating s"stems
0. Centroid method
C. Decision trees
D. Linear programming
9. =egression anal"sis

&0. /n which o the ollowing situations should we not use the transportation method o linear
programming;
,. To ind a new site location or a plant
0. To minimi1e costs o shipping @n@ units to @m@ destinations
C. To ma-imi1e proits o shipping @n@ units to @m@ destinations
D. To determine which corner o a street intersection to locate a retail service acilit"
9. To locate a inished goods distribution warehouse

&1. The centroid method or plant location uses which o the ollowing data;
,. Aolume o goods to be shipped between e-isting points
0. /nbound transportation costs
C. Transport times between acilities
D. Correlation matri- o e-isting acilities
9. 8robabilities and pa"os

&$. 8lant , is located at the BC, DE coordinates o B100, $00E and has a volume o shipping o
'00 units a da". 8lant 0 is located at the BC, DE coordinates o B1'0, &00E and has a volume o
shipping o $00 units a da". 7sing the centroid method, which o the ollowing is the C
coordinate or the new plant location;
,. ,bout 100
0. ,bout 11'
C. ,bout 1%0
D. ,bout 1'0
9. C coordinate cannot be computed rom the data given

9-9
Chapter 09 - Location, Logistics, and Distribution
&%. 8lant , is located at the BC, DE coordinates o B$00, '00E and has a volume o shipping o
&00 units a da". 8lant 0 is located at the BC, DE coordinates o B%00, 100E and has a volume o
shipping o %00 units a da". 7sing the centroid method, which o the ollowing is the C
coordinate or the new plant location;
,. ,bout $$+
0. ,bout $&%
C. ,bout %.9
D. C coordinate cannot be computed rom the data given

&&. , compan" wants to determine where the" should locate a new warehouse. The" have two
e-isting production plants Bi.e., 8lant , and 8lant 0E that will ship units o a product to this
warehouse. 8lant , is located at the BC, DE coordinates o B'0, 100E and will have volume o
shipping o $'0 units a da". 8lant 0 is located at the BC, DE coordinates o B1'0, $00E and will
have a volume o shipping o 1'0 units a da". 7sing the centroid method, which o the
ollowing are the C and D coordinates or the new plant location;
,. B.1,11+E
0. B.., 1%.E
C. B11+,10$E
D. B+*,1$%E
9. C and D coordinates cannot be computed rom the data given

&'. :hat transportation mode has ver" high initial investment costs but gives a ver" low cost
per mile or products that are highl" speciali1ed and re!uire no pac(aging;
,. 6ighwa"
0. =ail
C. :ater
D. 8ipeline
9. ,ir

&*. Aer" ew products are moved without at least part o their 2ourne" being b" which mode
o transportation;
,. 6ighwa"
0. =ail
C. :ater
D. 8ipeline
9. ,ir


9-10
Chapter 09 - Location, Logistics, and Distribution
Fill in the "lan# uestions

&+. ?ame the ive transportation modes discussed in the te-tboo(.
1EFFFFFFFFFFFFFFFFFFFFG $EFFFFFFFFFFFFFFFFFFFFG
%EFFFFFFFFFFFFFFFFFFFFG &EFFFFFFFFFFFFFFFFFFFFG
'E FFFFFFFFFFFFFFFFFFFF
FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF

&.. ?ame our methods o !uantitative anal"sis that are useul in inorming the acilit"
location decision. 1EFFFFFFFFFFFFFFFFFFFFG $EFFFFFFFFFFFFFFFFFFFFG
%EFFFFFFFFFFFFFFFFFFFFG &EFFFFFFFFFFFFFFFFFFFF
FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF

&9. :hat is a closed area or compound into which oreign goods can be brought without being
sub2ect to the normal customs re!uirements; FFFFFFFFFFFFFFFFFFFF
FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF

'0. Three distribution centers, ,, 0, and C, are located at the ollowing BC, DE coordinatesH ,,
B$0, 1%0EG 0, B1.0, 0EG and C, B$00, $00E. , actor" is to be constructed to distribute a new
product through these warehouses. The e-pected annual volumes e-pected to be shipped
through the three warehouses is orecast to be $0 million units through ,, 100 million through
0 and '0 million through C. 7sing the centroid method, appro-imatel" what should the
coordinates o the new actor" be; FFFFFFFFFFFFFFFFF
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'1. :hat is the name or a group o countries that have agreed on a set o special
arrangements governing the bu"ing and selling o goods between member countries;
FFFFFFFFFFFFFFFFFFFFFFFF
FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF

9-11
Chapter 09 - Location, Logistics, and Distribution
'$. The te-t describes 1& @/ssues in acilit" location.@ ?ame as man" o these as "ou can.
1E FFFFFFFFFFFFFFFFFFFFFFFF $E FFFFFFFFFFFFFFFFFFFFFFFF
%E FFFFFFFFFFFFFFFFFFFFFFFF &E FFFFFFFFFFFFFFFFFFFFFFFF
'E FFFFFFFFFFFFFFFFFFFFFFFF *E FFFFFFFFFFFFFFFFFFFFFFFF
+E FFFFFFFFFFFFFFFFFFFFFFFF .E FFFFFFFFFFFFFFFFFFFFFFFF
9E FFFFFFFFFFFFFFFFFFFFFFFF 10E FFFFFFFFFFFFFFFFFFFFFFFF
11E FFFFFFFFFFFFFFFFFFFFFFFF 1$E FFFFFFFFFFFFFFFFFFFFFFFF
1%E FFFFFFFFFFFFFFFFFFFFFFFF 1&E FFFFFFFFFFFFFFFFFFFFFFFF
FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF

'%. :hat are the two @hidden costs@ that are oten overloo(ed in determining the total cost o
a acilit" location decision;
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$ssa% uestions

'&. Compare and contrast the actor-rating s"stem and the transportation method o linear
programming as used in acilit" location decisions.




''. ,s a acilit" location consultant, how would "ou advise a client wanting to locate a retail
service acilit" dierentl" than a client wanting to locate an on-line stoc( trading operation;




9-1$
Chapter 09 - Location, Logistics, and Distribution
'*. :hat weight should be given to environmental pollution control regulations that dier
rom location to location or rom countr" to countr" in ma(ing acilit" location decisions;




9-1%
Chapter 09 - Location, Logistics, and Distribution
Chapter 09 Location, Logistics, and Distribution ,nswer Ie"


True / False uestions

1. The local government's willingness to invest in upgrading inrastructure to the levels
re!uired b" a compan" is an important issue in a compan"'s decision o where to locate a new
acilit".
T&'$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

$. #acilit" location anal"sis considers the competitive imperative to be close to customers as
to timeliness o deliveries.
T&'$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

9-1&
Chapter 09 - Location, Logistics, and Distribution
%. #acilit" location anal"sis considers the competitive imperative o lowest total cost.
T&'$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

&. #acilit" location anal"sis considers the competitive imperative o a avorable business
climate as indicated b" the presence o other companies in the same industr".
T&'$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

'. #acilit" location anal"sis considers the competitive imperative o locating near the
appropriate labor pool to ta(e advantage o low wage costs and)or s(ill levels.
T&'$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

*. #acilit" location anal"sis considers the competitive imperative o locating near the
appropriate labor pool to ta(e advantage o high technical s(ills.
T&'$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

9-1'
Chapter 09 - Location, Logistics, and Distribution
+. ,n e-ample o a positive business climate that might inluence a acilit" location decision
is increasing governmental costs and increasing propert" ta-es.
F(L)$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

.. , avorable business climate in acilit" location decision-ma(ing might include
government legislation o ta- abatements.
T&'$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

9. , avorable business climate in acilit" location decision-ma(ing might include local
government intervention to acilitate businesses locating in an area via subsidies.
T&'$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

10. , avorable business climate in acilit" location decision-ma(ing might include local
government providing basic s(ill training or prospective members o the wor(orce.
T&'$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

9-1*
Chapter 09 - Location, Logistics, and Distribution
11. /n acilit" location decision-ma(ing the educational and s(ill levels o the labor pool must
match the compan"'s needs.
T&'$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

1$. /n acilit" location decision-ma(ing matching the educational and s(ill levels o the labor
pool to a compan"'s needs is even more important than the labor pool's willingness and abilit"
to learn.
F(L)$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

1%. 0ecause the world is becoming more highl" interconnected, the pro-imit" o an important
supplier's plants is not crucial in supporting lean production methods.
F(L)$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

1&. /ssues o Error! Hyperlink reference not valid.Error! Hyperlink reference not
valid. and capacit" are strongl" interconnected to the acilit" location decision.
T&'$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

9-1+
Chapter 09 - Location, Logistics, and Distribution
1'. , ree trade 1one operates under dierent rules and laws than a oreign trade 1one.
F(L)$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

1*. , ree trade 1one is t"picall" a closed acilit" into which oreign goods can be brought
without being sub2ect to the usual customs re!uirements.
T&'$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

1+. The ob2ective o acilit" location anal"sis is to select the site with the lowest total cost.
T&'$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

1.. 3overnmental barriers to enter and locate in man" countries are increasing through
restrictive protectionist legislation.
F(L)$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

9-1.
Chapter 09 - Location, Logistics, and Distribution
19. 4ualit" o lie in a host communit" is not a ma2or actor in ma(ing the acilit" location
decision.
F(L)$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

$0. /n acilit" location decision-ma(ing the actor-rating s"stem is one o the least used
general location techni!ues.
F(L)$

AACSB: Analytic
Difficulty: Easy
Learning Objective: '
Taxonomy: &n"erstan"ing
To#ic: (lant Location )et*o"s

$1. /n acilit" location decision-ma(ing the actor-rating s"stem is based on linear
programming.
F(L)$

AACSB: Analytic
Difficulty: Easy
Learning Objective: '
Taxonomy: &n"erstan"ing
To#ic: (lant Location )et*o"s

$$. , ma2or problem in a plant location decision based on the actor-rating s"stem is that
simple point-rating schemes do not account or the wide variance o costs that ma" occur
within each actor used in the anal"sis.
T&'$

AACSB: Analytic
Difficulty: Easy
Learning Objective: '
Taxonomy: &n"erstan"ing
To#ic: (lant Location )et*o"s

9-19
Chapter 09 - Location, Logistics, and Distribution
$%. 5ervices t"picall" have multiple site locations to maintain close contact with customers.
T&'$

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

$&. #acilit" location decisions are made using anal"tical techni!ues that are able to weigh a
large number o dierent variables e!uall".
F(L)$

AACSB: Analytic
Difficulty: Easy
Learning Objective: '
Taxonomy: &n"erstan"ing
To#ic: (lant Location )et*o"s

$'. , third-part" logistics compan" is a irm that manages all or part o another compan"'s
product deliver" operations.
T&'$

AACSB: Analytic
Difficulty: Easy
Learning Objective: +
Taxonomy: &n"erstan"ing
To#ic: Logistics

$*. D6L and 7nited 8arcel 5ervice are transportation companies which are prohibited rom
unctioning as a third-part" logistics compan" the wa" #ederal 9-press does.
F(L)$

AACSB: Analytic
Difficulty: )e"ium
Learning Objective: +
Taxonomy: &n"erstan"ing
To#ic: Logistics


9-$0
Chapter 09 - Location, Logistics, and Distribution
!ultiple Choice uestions

$+. :hich o the ollowing is not a criterion that inluences manuacturing plant or warehouse
acilit" location decisions;
,. 8ro-imit" to customers
"* 6istorical cost
C. /nrastructure o a countr"
D. 4ualit" o labor
9. 0usiness climate

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

$.. :hich o the ollowing is a not criterion that inluences manuacturing plant or warehouse
acilit" location decisions;
,. 5uppliers
0. #ree trade 1ones
C. 8olitical ris(
D* 3ross national product
9. Taris and customs duties

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

$9. :hich o the ollowing is not a criterion that inluences manuacturing plant or warehouse
acilit" location decisions;
,. 3overnment barriers
0. Trading blocs
C. 9nvironmental regulation
D* /mmigration rules
9. Local labor costs

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

9-$1
Chapter 09 - Location, Logistics, and Distribution
%0. :hich o the ollowing is a criterion that inluences manuacturing plant or warehouse
acilit" location decisions;
(* 8ro-imit" to customers
0. Corporate polic"
C. Competitor's locations
D. Competitive advantage
9. 6ost communit" politics

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

%1. ,n important issue in acilit" location anal"sis is business climate. ,n unavorable
business climate could be indicated b" which o the ollowing;
,. 5imilar-si1ed businesses nearb"
"* The willingness o local politicians to provide avorable treatment or a consideration
C. The presence o other oreign companies in the case o international locations
D. The local presence o companies in the same industr"
9. ,n established educational institution nearb"

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

%$. <ne o the ob2ectives o acilit" location anal"sis is to select a site with the lowest total
cost. :hich o the ollowing costs should be e-cluded rom the anal"sis;
(* 6istorical costs
0. /nbound distribution costs
C. Land
D. Construction
9. =egional costs

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

9-$$
Chapter 09 - Location, Logistics, and Distribution
%%. <ne o the ob2ectives o acilit" location anal"sis is to select a site with the lowest total
cost. :hich o the ollowing costs should not be included in the anal"sis;
,. <utbound distribution costs
"* /ncidental costs
C. 9nerg" costs
D. 6idden costs
9. Costs we can pass along to our customer

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

%&. <ne o the ob2ectives o acilit" location anal"sis is to select a site with the lowest total
cost. :hich o the ollowing are hidden costs that should be included in the anal"sis;
(* 0ecoming less responsive to the customer
0. 5upplier costs
C. Ta-es
D. Construction costs
9. 8roduct lie c"cle costs

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

%'. <ne o the ob2ectives in acilit" location anal"sis is to select a site with the lowest total
cost. :hich o the ollowing costs are hidden costs that should be included in the anal"sis;
,. /nrastructure costs
"* >ovement o preproduction material between locations
C. Ta-es
D. Construction costs
9. 0riber" costs

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

9-$%
Chapter 09 - Location, Logistics, and Distribution
%*. :hich o the ollowing is not an inrastructure criteria used in acilit" location anal"sis;
,. ,de!uate school s"stem
0. ,de!uate health care
C. ,de!uate transportation
D* ,de!uate low cost labor
9. ,de!uate public utilit" s"stems

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

%+. 6ow man" ree trade 1ones are there in the 7nited 5tates;
,. Less than '0
0. Less than 100
C* ,bout $*0
D. >ore than &1$
9. ,bout %10

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

%.. ,n e-ample o a trading bloc is which o the ollowing;
(* ?orth ,merican #ree Trade ,greement countries
0. #ree trade 1ones
C. /5<-9000 companies
D. ,merican 8roduction and /nventor" Control 5ociet"
9. :al->art and its' suppliers

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

9-$&
Chapter 09 - Location, Logistics, and Distribution
%9. :hich o the ollowing is a plant location methodolog" good or locating a single acilit"
within a set o e-isting acilities based in distances and volumes o goods shipped;
,. #actor-rating s"stems
"* Centroid method
C. Decision trees
D. Linear programming
9. =egression anal"sis

AACSB: Analytic
Difficulty: Easy
Learning Objective: ,
Taxonomy: &n"erstan"ing
To#ic: (lant Location )et*o"s

&0. /n which o the ollowing situations should we not use the transportation method o linear
programming;
,. To ind a new site location or a plant
0. To minimi1e costs o shipping @n@ units to @m@ destinations
C. To ma-imi1e proits o shipping @n@ units to @m@ destinations
D* To determine which corner o a street intersection to locate a retail service acilit"
9. To locate a inished goods distribution warehouse

AACSB: Analytic
Difficulty: Easy
Learning Objective: -
Taxonomy: &n"erstan"ing
To#ic: (lant Location )et*o"s

&1. The centroid method or plant location uses which o the ollowing data;
(* Aolume o goods to be shipped between e-isting points
0. /nbound transportation costs
C. Transport times between acilities
D. Correlation matri- o e-isting acilities
9. 8robabilities and pa"os

AACSB: Analytic
Difficulty: Easy
Learning Objective: ,
Taxonomy: &n"erstan"ing
To#ic: (lant Location )et*o"s

9-$'
Chapter 09 - Location, Logistics, and Distribution
&$. 8lant , is located at the BC, DE coordinates o B100, $00E and has a volume o shipping o
'00 units a da". 8lant 0 is located at the BC, DE coordinates o B1'0, &00E and has a volume o
shipping o $00 units a da". 7sing the centroid method, which o the ollowing is the C
coordinate or the new plant location;
,. ,bout 100
"* ,bout 11'
C. ,bout 1%0
D. ,bout 1'0
9. C coordinate cannot be computed rom the data given

AACSB: Analytic
Difficulty: )e"ium
Learning Objective: ,
Taxonomy: Analysis
To#ic: (lant Location )et*o"s

&%. 8lant , is located at the BC, DE coordinates o B$00, '00E and has a volume o shipping o
&00 units a da". 8lant 0 is located at the BC, DE coordinates o B%00, 100E and has a volume o
shipping o %00 units a da". 7sing the centroid method, which o the ollowing is the C
coordinate or the new plant location;
,. ,bout $$+
0. ,bout $&%
C* ,bout %.9
D. C coordinate cannot be computed rom the data given

AACSB: Analytic
Difficulty: )e"ium
Learning Objective: ,
Taxonomy: Analysis
To#ic: (lant Location )et*o"s

9-$*
Chapter 09 - Location, Logistics, and Distribution
&&. , compan" wants to determine where the" should locate a new warehouse. The" have two
e-isting production plants Bi.e., 8lant , and 8lant 0E that will ship units o a product to this
warehouse. 8lant , is located at the BC, DE coordinates o B'0, 100E and will have volume o
shipping o $'0 units a da". 8lant 0 is located at the BC, DE coordinates o B1'0, $00E and will
have a volume o shipping o 1'0 units a da". 7sing the centroid method, which o the
ollowing are the C and D coordinates or the new plant location;
,. B.1,11+E
"* B.., 1%.E
C. B11+,10$E
D. B+*,1$%E
9. C and D coordinates cannot be computed rom the data given

AACSB: Analytic
Difficulty: )e"ium
Learning Objective: ,
Taxonomy: Analysis
To#ic: (lant Location )et*o"s

&'. :hat transportation mode has ver" high initial investment costs but gives a ver" low cost
per mile or products that are highl" speciali1ed and re!uire no pac(aging;
,. 6ighwa"
0. =ail
C. :ater
D* 8ipeline
9. ,ir

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

9-$+
Chapter 09 - Location, Logistics, and Distribution
&*. Aer" ew products are moved without at least part o their 2ourne" being b" which mode
o transportation;
(* 6ighwa"
0. =ail
C. :ater
D. 8ipeline
9. ,ir

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location


Fill in the "lan# uestions

&+. ?ame the ive transportation modes discussed in the te-tboo(.
1EFFFFFFFFFFFFFFFFFFFFG $EFFFFFFFFFFFFFFFFFFFFG
%EFFFFFFFFFFFFFFFFFFFFG &EFFFFFFFFFFFFFFFFFFFFG
'E FFFFFFFFFFFFFFFFFFFF
+, -igh.a%/ 0, &ail/ 1, 2ater/ 3, (ir/ 4, 5ipeline

AACSB: Analytic
Difficulty: )e"ium
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

&.. ?ame our methods o !uantitative anal"sis that are useul in inorming the acilit"
location decision. 1EFFFFFFFFFFFFFFFFFFFFG $EFFFFFFFFFFFFFFFFFFFFG
%EFFFFFFFFFFFFFFFFFFFFG &EFFFFFFFFFFFFFFFFFFFF
+, Centroid 6ethod/ 0, &egression anal%sis/ 1, Transportation 6ethod of linear
progra66ing/ 3, Factor rating s%ste6

AACSB: Analytic
Difficulty: )e"ium
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

9-$.
Chapter 09 - Location, Logistics, and Distribution
&9. :hat is a closed area or compound into which oreign goods can be brought without being
sub2ect to the normal customs re!uirements; FFFFFFFFFFFFFFFFFFFF
( free trade 7one 8or foreign trade 7one,

AACSB: Analytic
Difficulty: Easy
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

'0. Three distribution centers, ,, 0, and C, are located at the ollowing BC, DE coordinatesH ,,
B$0, 1%0EG 0, B1.0, 0EG and C, B$00, $00E. , actor" is to be constructed to distribute a new
product through these warehouses. The e-pected annual volumes e-pected to be shipped
through the three warehouses is orecast to be $0 million units through ,, 100 million through
0 and '0 million through C. 7sing the centroid method, appro-imatel" what should the
coordinates o the new actor" be; FFFFFFFFFFFFFFFFF
9 : +;<, = : <3

AACSB: Analytic
Difficulty: .ar"
Learning Objective: ,
Taxonomy: Analysis
To#ic: (lant Location )et*o"s

'1. :hat is the name or a group o countries that have agreed on a set o special
arrangements governing the bu"ing and selling o goods between member countries;
FFFFFFFFFFFFFFFFFFFFFFFF
Trading bloc

AACSB: Analytic
Difficulty: )e"ium
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

9-$9
Chapter 09 - Location, Logistics, and Distribution
'$. The te-t describes 1& @/ssues in acilit" location.@ ?ame as man" o these as "ou can.
1E FFFFFFFFFFFFFFFFFFFFFFFF $E FFFFFFFFFFFFFFFFFFFFFFFF
%E FFFFFFFFFFFFFFFFFFFFFFFF &E FFFFFFFFFFFFFFFFFFFFFFFF
'E FFFFFFFFFFFFFFFFFFFFFFFF *E FFFFFFFFFFFFFFFFFFFFFFFF
+E FFFFFFFFFFFFFFFFFFFFFFFF .E FFFFFFFFFFFFFFFFFFFFFFFF
9E FFFFFFFFFFFFFFFFFFFFFFFF 10E FFFFFFFFFFFFFFFFFFFFFFFF
11E FFFFFFFFFFFFFFFFFFFFFFFF 1$E FFFFFFFFFFFFFFFFFFFFFFFF
1%E FFFFFFFFFFFFFFFFFFFFFFFF 1&E FFFFFFFFFFFFFFFFFFFFFFFF
8+*, 5ro>i6it% to custo6ers/ 80*, "usiness cli6ate/ 81*, Total cost/ 83*, ?nfrastructure/ 84*,
ualit% of labor/ 8;*, )uppliers/ 8<*, Other facilities/ 8@*, Free trade 7ones/ 89*, 5olitical
ris#/ 8+0*, Aovern6ent barriers/ 8++*, Trading blocs/ 8+0*, Aovern6ental regulation/
8+1*, -ost co66unit%/ 8+3*, Co6petitive advantage

AACSB: Analytic
Difficulty: .ar"
Learning Objective: 2
Taxonomy: no!le"ge
To#ic: $ssues in %acility Location

'%. :hat are the two @hidden costs@ that are oten overloo(ed in determining the total cost o
a acilit" location decision;
FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF
FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF
8+*, $>cessive 6oving of preBproduction 6aterials bet.een locations prior to final
deliver% to the custo6ers* 80*, Loss of custo6er responsiveness arising fro6 locating
a.a% fro6 the 6ain custo6er base*

AACSB: Analytic
Difficulty: )e"ium
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location


9-%0
Chapter 09 - Location, Logistics, and Distribution
$ssa% uestions

'&. Compare and contrast the actor-rating s"stem and the transportation method o linear
programming as used in acilit" location decisions.
These two methods are discussed in the te-t starting on page $''. , successul response to the
!uestion will identi" that the transportation method o linear programming emplo"s
substantiall" more mathematical rigor but also imposes some airl" rigid assumptions Bli(e
linearit" J certaint"E and is limited in the (inds o inormation that is considered in ma(ing
the decision. The actor-rating s"stem ma(es ewer assumptions to acilitate anal"tical
tractabilit" and gives broad latitude in terms o the (inds o inormation used. <n the other
hand, to use the actor-rating s"stem to sort out a acilit" decision rom a large number o
candidate locations will re!uire gathering and assessment o large amounts o data which is
measured dierentl" and ma" not necessaril" be compatible. Linear programming, on the
other hand, uses less data per alternative and that data is, b" deinition, anal"1able. 5tated
dierentl", the actor-rating method incorporates the decision-ma(ers 2udgment more
e-plicitl" than does the transportation method o linear programming.
, strong response to this !uestion will conve" the idea that blending these methods is
possible. The transportation method can be used to help sort through a large number o
candidate locations and eliminate most o them. The actor-rating s"stem, then, wor(ing with
a relativel" short list o possibilities, each o which is acceptable rom the transportation linear
programming perspective, can loo( more closel" and in more detail to assist in the inal
decision.

AACSB: Analytic
Difficulty: )e"ium
Learning Objective: -
Learning Objective: '
Taxonomy: Synt*esis
To#ic: (lant Location )et*o"s

9-%1
Chapter 09 - Location, Logistics, and Distribution
''. ,s a acilit" location consultant, how would "ou advise a client wanting to locate a retail
service acilit" dierentl" than a client wanting to locate an on-line stoc( trading operation;
, retail service acilit" re!uires close ph"sical pro-imit" to customers. ,n anal"tical method
that relates possible locations to the locations o clientele Bsuch as the centroid method or
regression anal"sisE is avored here. The on-line operation, on the other hand, is relativel"
ootloose relative to customers. 6ere, a actor-rating s"stem that considered issues li(e !ualit"
o labor, inrastructure, !ualit" o lie, host communit" amenities, etc. would be more
appropriate.

AACSB: Analytic
Difficulty: .ar"
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

'*. :hat weight should be given to environmental pollution control regulations that dier
rom location to location or rom countr" to countr" in ma(ing acilit" location decisions;
9nvironmental regulations are mentioned in passing on page $'& o the te-t. This !uestion is
e-tremel" value-laden and does not lend itsel to a right-or-wrong answer. /nstead it provides
"our students with the opportunit" to impose their own values on the issue. 6ence, some
latitude must be ta(en in evaluating their responses. 5ome students will argue that, because o
the costs o being @green,@ the irm has a responsibilit" to shareholders to locate in the most
environmentall" permissive location. <thers will argue that the social responsibilit" o the
irm should dominate the decision and, wherever it locates, the irm should spare no e-pense
to be as @clean and green@ as technolog" allows. 9ither case, argued well, should get some
credit. , slightl" more thoughtul response will loo( not 2ust at current regulations but toward
possible tighter regulations in the long-term uture and even to the public image the irm
wishes to pro2ect. ,n e-cellent response will incorporate all o these perspectives and will add
the notion that, b" being @clean and green@ a irm ma" actuall" gain competitive advantage as
the environmental movement ta(es hold and sensitive customers become aware o the irm's
environmentall" responsible stance. , second t"pe o competitive advantage might arise. /
the @green@ irm lobbies or the more strict pollution rules, competitors ma" be re!uired to
conorm to tougher regulations b" adopting pollution controls at inlated uture prices.

AACSB: Analytic
Difficulty: .ar"
Learning Objective: 2
Taxonomy: &n"erstan"ing
To#ic: $ssues in %acility Location

9-%$