Question

Q1)​A company is considering two location alternatives for a new facility. The management has identified the relevant factors for choosing a location and scored the non-quantitative factors as shown below.

FACTOR	WEIGHT	LOCATION A	LOCATION B
Labor availability	20	80	95
Supplier network	20	90	85
Quality of life	15	95	100
Initial fixed cost	5
Operating cost	35
Business friendliness	5	50	90

Initial fixed cost and operating cost are quantitative factors. The firm management is undecided about how to score these factors but it has the following information about them:

Location A

Initial fixed cost (annualized) = $200,000

Operating cost = $2800 per unit

Location B

Initial fixed cost (annualized) = $100,000

Operating cost = $3200 per unit

The firm expects the annual demand to be 10,000 units for their new facility. At their existing facility, operations have been streamlined very well – they have achieved a unit cost of $ 2145 per unit, which is an industry benchmark. A competitor that needed bankruptcy protection recently has a unit cost of $ 3674.   

The firm management wants to determine the optimal location for their new facility.

What would you recommend; which location is the best choice? (Analytically justify your answer for credit. Please think about you would score the locations on the quantitative cost factors – it is not a trivial task!)

Answer 1