Chapter 08 - Summary Principles of Operations Management PDF

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CHAPTER 8: LOCATION STRATEGIES TRUE/FALSE 1.

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. False (Global company profile, easy)

2.

Generally, the objective of the location decision is to maximize the firm's profit. False (The strategic importance of location, easy)

3.

Lists have been developed that rank countries on issues such as “competitiveness” and “corruption.” True (Factors that affect location decisions, easy)

4.

When innovation replaces cost as a firm's focus for location decisions, the presence of other stateof-the-art firms is a plus, not a negative, for the firm's competitiveness. True (The strategic importance of location, moderate)

5.

The ratio of labor cost per day to productivity, in units per day, is the labor cost per unit. True (Factors that affect location decisions, moderate)

6.

For a location decision, labor productivity may be important in isolation, but low wage rates are a more important criterion. False (Factors that affect location decisions, moderate)

7.

Unfavorable exchange rates can offset other savings in a location decision. True (Factors that affect location decisions, moderate)

8.

An example of an intangible cost, as it relates to location decisions, is the quality of education. True (Factors that affect location decisions, moderate)

9.

In location decisions, intangible costs are easier to measure than tangible costs. False (Factors that affect location decisions, moderate)

10.

Location decisions are based on many things, including costs, revenues, incentives, attitudes, and intangibles, but not on ethical considerations. False (Factors that influence location decisions, easy) {AACSB: Ethical Reasoning}

11.

Manufacturers may want to locate close to their customers, if the transportation of finished goods is expensive or difficult. True (Factors that affect location decisions, moderate)

12.

One reason for a firm locating near its competitors is the presence of a major resource it needs. True (Factors that affect location decisions, moderate)

13.

The graphic approach to location break-even analysis displays the range of volume over which each location is preferable. True (Methods of evaluating location alternatives, moderate) 189

14.

The factor-rating method can consider both tangible and intangible costs. True (Methods of evaluating location alternatives, moderate)

15.

The center-of-gravity method finds the location of a centralized facility, such as a distribution center, that will maximize the organization's revenue. False (Methods of evaluating location alternatives, moderate)

16.

The transportation model calculates an optimal shipping system between a central facility and several outlying customers. False (Methods of evaluating location alternatives, moderate)

17.

Service firms choose locations based, in part, on the revenue potential of a site. True (Service location strategy, moderate)

18.

Starbucks Coffee's approach to choosing new café locations is largely based on executive intuition, not sophisticated models and site selection technology. False (Service location strategy, easy)

19.

Labor cost and labor availability often drive the location decision in the call center industry. True (Service location strategy, moderate)

20.

The location decisions of goods-producing firms will generally pay more attention to parking, access, and traffic counts than will service location decisions. False (Service location strategy, moderate)

21.

Industrial location decisions often assume that costs are relatively constant for a given area. False (Service location strategy, moderate)

22.

Starbucks Coffee's use of geocoded demographic and consumer data in site selection decisions is an example of the use of a Geographic Information System, or GIS. True (Service location strategy, moderate)

MULTIPLE CHOICE 23.

FedEx chose Memphis, Tennessee, as its U.S. hub because a. the city is in the center of the U.S., 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 the above are true. e (Global company profile, easy)

24.

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 U.S., but a city-to-city network in other countries. e. Memphis is FedEx's only hub airport in the United States. c (Global company profile, easy)

190

25.

Industrial location analysis typically attempts to a. reduce costs b. maximize sales c. focus more on human resources d. be environmentally friendly e. none of the above a (Strategic importance of location, easy)

26.

Governmental attitudes toward issues such as private property, intellectual property, zoning, pollution, and employment stability may change over time. The term associated with this phenomenon is a. bureaucratic risk b. political risk c. legislative risk d. judicial risk e. democratic risk b (Factors that affect location decisions, moderate)

27.

A location decision for an appliance manufacturer would tend to have a(n) a. cost focus b . labor focus c. revenue focus d. environmental focus e. education focus a (Strategic importance of location, moderate)

28.

A location decision for a traditional department store (Macy's) would tend to have a(n) a. cost focus b. labor focus c. revenue focus d. environmental focus e. education focus c (Strategic importance of location, moderate)

29.

Globalization of the location decision is the result of all of the following except 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 b (Factors that affect location decisions, moderate) {AACSB: Multiculture and Diversity}

30.

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 the above c (Factors that affect location decisions, moderate)

191

31.

A manufacturing firm finds a location that has a significant cost advantage over alternatives, but rejects that location because the educational infrastructure was insufficient to train the firm's workers in its special production technologies. The firm's action illustrates the link between __________ and location. a. innovation b. clustering c. tax incentives d. globalization e. proximity a (The strategic importance of location, easy)

32.

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 d (Factors that affect location decisions, moderate) {AACSB: Multiculture and Diversity}

33.

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 e (Factors that affect location decisions, moderate) {AACSB: Multiculture and Diversity}

34.

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 e (Factors that affect location decisions, moderate)

35.

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 c (Factors that affect location decisions, moderate)

192

36.

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 c (Factors that affect location decisions, moderate)

37.

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 c (Factors that affect location decisions, moderate)

38.

Intangible costs include which of the following? a. quality of prospective employees b. quality of education c. availability of public transportation d. all of the above e. none of the above d (Factors that affect location decisions, moderate)

39.

Operations managers will need to consider ethical and social responsibility issues when location decisions involve a. child labor issues b. sweatshop conditions c. allegiance to the firm's current location d. corruption e. all of the above e (Factors that affect location decisions, moderate) {AACSB: Ethical Reasoning}

40.

A firm is seeking a new factory location, and is considering several countries worldwide. In some of these countries, child labor is prevalent; in others, working conditions and worker safety are inferior to conditions in the U.S. An operations manager paying attention to __________will factor these issues into the location decision. a. ethical and social responsibility issues b. critical success factors c. factor rating systems d. geographic information systems e. regression models a (Factors that influence location decisions, easy) {AACSB: Ethical Reasoning}

193

41.

Which of the following statements regarding "proximity" in the location decision is false? a. Service organizations find that proximity to market 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 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 their labor supply. e (Section, easy)

42.

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 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. b (Factors that affect location decisions, moderate)

43.

Which of the following worker characteristics would likely be least important for U.S. firms looking to open up call centers in different countries? a. willing to accept low wages b. have a high level of education c. speak English d. possess an in-depth knowledge of American popular culture e. are young e (Service location strategy, moderate) {AACSB: Multiculture and Diversity}

44.

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 break-even analysis c. center-of-gravity method d. simulation e. factor rating method e (Methods of evaluating location alternatives, moderate)

45.

Which of the following methods best considers intangible costs related to a location decision? a. crossover methods b. locational break-even analysis c. factor rating analysis d. the transportation method e. the assignment method c (Methods of evaluating location alternatives, moderate)

194

46.

Evaluating location alternatives by comparing their composite (weighted-average) scores involves a. factor rating analysis b. cost-volume analysis c. transportation model analysis d. linear regression analysis e. crossover analysis a (Methods of evaluating location alternatives, moderate)

47.

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 on the left. The manager has rated each location on each factor, on a 100-point basis, as shown on the right. Factor 1 2 3 4

Factor Description Average community income Community growth potential Availability of public transportation Labor cost

Weight .40 .25 .15 .20

Barclay 30 40 20 10

Chester 20 30 20 30

What is the score for Chester? a. 10.00 b. 24.50 c. 25.75 d. 27.00 e. 100.00 b (Methods of evaluating location alternatives, moderate) {AACSB: Analytic Skills} 48.

An approach to location analysis that includes both qualitative and quantitative considerations is a. locational cost-volume b. factor rating c. transportation model d. assignment method e. make or buy analysis b (Methods of evaluating location alternatives, moderate)

49.

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 at which 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 e (Methods of evaluating location alternatives, moderate)

195

50.

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. Factor Affluence of local population Traffic flow Parking availability Growth potential

Weight .20 .40 .20 .20

Gary Mall 30 50 30 10

Belt Line 30 20 40 30

The score for Gary Mall is _____ and the score for Belt Line is ______. a. 120; 120 b. 22; 24 c. 18; 120 d. 34; 28 e. none of the above d (Methods of evaluating location alternatives, moderate) {AACSB: Analytic Skills} 51.

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 $0.35 per unit. If demand is expected to be 10 million units, which plant offers the lowest total cost? a. Plant A, because it is cheaper than Plant B for all volumes under 8,000,000 units b. Plant B, because it is cheaper than Plant A for all volumes over 8,000,000 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 10 million units b (Methods of evaluating location alternatives, easy) {AACSB: Analytic Skills}

52.

The center-of-gravity method does not take into consideration the a. location of markets b. volume of goods shipped to the markets c. value of the goods shipped d. combination of volume and distance e. center-of-gravity method considers none of the above c (Methods of evaluating location alternatives, moderate)

53.

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 c (Methods of evaluating location alternatives, moderate)

196

54.

A regional bookstore chain is about 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 model d. linear programming e. all of the above c (Methods of evaluating location alternatives, moderate)

55.

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?

Athens, Texas Beaumont, Texas Carthage, Texas Denton, Texas

X-coordinate 30 20 10 50

Y-coordinate 30 10 70 50

Volume 15 0 350 10 0 200

a. X = 28.125; Y = 31.25 b. X = 22000; Y = 24000 c. X = 27.5; Y = 40 d. center of gravity = 28 e. none of the above a (Methods of evaluating location alternatives, moderate) {AACSB: Analytic Skills} 56.

Ac o u n t ywa n t st ob u i l do n ec e n t r a l l y l oc a t e dp r o c e s s i n gf a c i l i t yt os e r v et h ec o u n t y ' sf o ur r e c y c l i n gd r o po ffl o c a t i on s .Th ef ou rd r o p o ffsha v ec h a r a c t e r i s t i c sa sg i v e ni nt h et a b l e b e l o w. Wh a ti st h ea p p r o x i ma t ec e n t e ro fg r a v i t yo ft he s ef o u rl o c a t i o n s ? Location Drop-off point A Drop-off point B Drop-off point C Drop-off point D

X-coordinate 1 6 6 4

Y-coordinate 8 7 2 7

Tonnage 10 35 25 50

a. 4.75, 6.04 b. 17, 24 c. 33.5, 135.4 d. 6, 4.25 e. 570, 725 a (Methods of evaluating location alternatives, moderate) {AACSB: Analytic Skills}

197

57.

Production and/or shipping costs are always considered in which of the following location decision methods? a. factor rating method b. transportation method c. locational break-even analysis d. center-of-gravity method e. crossover analysis b (Methods of evaluating location alternatives, moderate)

58.

The transportation method, 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 b (Methods of evaluating location alternatives, moderate)

59.

Which of the following is not among the eight components of revenue and volume for a service firm? a. quality of the management b. shipment cost of finished goods c. purchasing power of the customer-drawing area d. uniqueness of the firm's and the competitor's locations e. competition in the area b (Service location strategy, moderate)