Allegheny Eateries, Inc. operates a chain of restaurants straddling various states in the U.S. The firm is planning to open a new restaurant in Little Rock, Arkansas, and it is considering three locations. The first step in the factor-rating method for facility location analysis is to identify key success factors and their relative importance (Bozarth, & Handfield, 2016). Certain key success factors influence the profitability of a restaurant; the following table shows these factors and their importance - the weighting reflects the importance and all the assigned weights add up to 1.
Table 1: Key Success Factors for Restaurant Operations
Factor Space Costs Traffic Density Neighborhood Income Zoning Laws
Weight .30 .25 .20 .15 .10
From the preceding table, space is the most important success factor for restaurants. Spacious facilities can hold a large number of customers, which enhances restaurants revenue. Space is also important for operating efficiency. When a restaurant occupies a large space, the waiters and other staff can move quickly and easily, which ensures minimal delays in serving customers, and, in turn, a high quality of customer service. In addition, spacious facilities allow restaurants to unbundle some elements of their service package. For instance, when a restaurant is large, it can set aside areas where customers can queue for self-service, which eliminates the need for waiting staff, resulting in low costs of operation.
Space also influences an operations managers discretion is shaping the servicescape the servicescape is a term for the physical surroundings of the delivery of a service, and the humanistic impact of those surroundings on customers and employees (Jacobs, Chase, and Lummus, 2014). Shaping the servicescape requires several considerations, all of which depend on the spaciousness of a service facility (Heizer, Render, & Munson, 2017). One consideration is the spatial layout and functionality, which involves how the operations manager has planned the path that customers use to go around a facility, the grouping and arrangement of various products, and the features of aisles.
Another consideration is the ambience of a service facility this encompasses the background features like temperature, sound, smell and lighting. The ambient conditions of a facility can affect its attractiveness to customers and the length of time customers spend in the facility. If a facility has adequate space, the operations manager has ample latitude in varying key features such as temperature, sound and smell that make it have the ambience that appeals to diverse consumers. Signs, symbols, and artifacts are also another element shaping the humanistic impact of the physical surroundings of a service facility on customers and staff. Putting certain signs, symbols, and artifacts in a service facility creates some social significance that influences consumer behavior. If a service facility faces space constraints, it may not be easy to put signs, symbols, and artifacts that can enhance a customers service experience.
In table 1, costs rank second among the key success factors, and they reflect the efficiency with which a firm manages its operations. Efficiently managed operations can reduce the resource requirements for producing a particular good or service, and low resource requirements for production can result in low operating costs. Cost competitiveness can enable a restaurant to charge low prices for its products. Low product prices can give a firm competitive advantage.
Location costs can be tangible or intangible. It is easy to identify and precisely measure tangible costs such as labor, depreciation, material and supplies, and depreciation. In addition, when deciding on the location of a facility, the operations manager should factor other costs such as raw-material transportation, finished-goods transportation, and construction. For intangible costs, quantification is more difficult. Intangible costs include, among others, the values of prospective employees, such as their work ethic. If prospective employees have a poor work ethic, their productivity will be low, which means their employer will incur higher labor costs than he/she would have incurred if the prospective employees had a good work ethic. Traffic density ranks third among the key success factors for restaurants. There is higher demand for restaurant services - especially fast foods - in areas commanding high traffic than in areas with low traffic.
Neighborhood income and zoning laws do not have as much weight as the other success factors do. Neighborhood income reflects the purchasing power of the inhabitants of a particular neighborhood, and the purchasing power of a firms target market influences the choice of the operations strategy. The appropriateness of the positioning strategy, and hence the operations strategy, can be different depending on the purchasing power of the target market. Zoning laws influence the ways one can develop a property. Companies operating eateries, for instance, cannot build restaurants in areas where zoning laws prohibit commercial activities. In selecting the location of its restaurant in Little Rock, Allegheny should ensure the decision enables the firm to attain the key success factors. Table 2 below shows how the three potential locations rank on all the success factors (the ranking is on a scale of 1 100).
Table 2: Ranking of Potential Locations on the Key Success Factors
Success Factor Maitland Baptist Drive Southside Mall
Space 65 75 85
Costs 45 85 35
Traffic Density 55 85 65
Neighborhood Income (per capita) 55 75 45
Zoning laws 85 25 95
Using the factor rating method, Allegheny can solve its problem of choosing a location that best meets the key success factors for restaurant operations. In the factor rating method, the score for each location is weighted according to the importance of each success factor this involves multiplying the scores by the weight of specific success factors (Prater & Whitehead, 2013). After attaining the weighted score for each factor, all factors weighted scores are added up to attain the aggregate score for a particular location (Chopra & Meindl, 2016). The table 3 below shows the weighted scores of each of the three locations.
Table 3: Weighted Scores for Potential Locations
Success Factor Maitland Baptist Drive Southside Mall
Space 19.5 22.5 25.5
Costs 11.25 21.25 8.75
Traffic Density 11 17 13
Neighborhood Income (per capita) 8.25 11.25 6.75
Zoning laws 8.5 2.5 9.5
Total 58.5 74.5 63.5
From table 3, the three locations rank differently on the five success factors. On space, Southside Mall ranks higher than the other two locations do, which means that if the firm were to select Southside Mall, it would build a more spacious outlet than if it selected Baptist Drive or Maitland. Baptist Drive is better than Maitland and Southside Mall when it comes to costs; Baptist drive has a higher weighted score (21.25), which is nearly twice the score of Maitland (11.25), and almost thrice the score of Southside Mall (8.75). On traffic density, Baptist Drive (weighted score = 17) is still ahead of Southside Mall (13) and Maitland (11). Looking at neighborhood income, Baptist Drive (11.25) is still a favorite because Southside Mall (6.75) and Maitland (8.25) have lower weighted-scores.
However, Baptist Drive (2.5) loses its lead when it comes to zoning laws; Southside Mall (9.5) and Maitland (8.5) score higher on zoning laws than Baptist Drive does. Baptist Drive seems to have strict zoning laws that inhibit the lengths to which firms can go when developing operating facilities. Overall, Baptist Drive has the highest aggregate score - 74.5, and Southside Mall - 63.5 - follows closely. Maitland has the lowest aggregate score - 58.5. The preceding analysis suggests that the operations manager at Allegheny Eateries, Inc. should choose Baptist Drive as the location of the new restaurant. Locating the new restaurant in Baptist Drive will help the firm achieve the key success factors for restaurant operations.
Bozarth, C. C., & Handfield, R. B. (2016). Introduction to operations and supply chain management (4th edition). Boston, M.A: Pearson.
Chopra, S., & Meindl, P. (2016). Supply chain management: Strategy, planning, and operation (6th edition). Boston, M.A: Pearson.
Heizer, J., Render, B., & Munson, C. (2017). Operations management: Sustainability and supply chain management (12th edition). Boston, M.A: Pearson Education.
Jacobs, F. R., Chase, R. B., & Lummus, R. R. (2014). Operations and supply chain management. New York: McGraw-Hill Education.
Prater, E., & Whitehead, K. (2013). An introduction to supply chain management: A global supply chain support perspective. New York: Business Expert Press.
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