Location-Allocation

Overview

Location is often considered the most important factor leading to the success of a private- or public-sector organization. Private-sector organizations can profit from a good location, whether a small coffee shop with a local clientele or a multinational network of factories with distribution centers and a worldwide chain of retail outlets. Location can help keep fixed and overhead costs low and accessibility high. Public-sector facilities, such as schools, hospitals, libraries, fire stations, and emergency response services (ERS) centers, can provide high-quality service to the community at a low cost when a good location is chosen.

Given facilities that provide goods and services and a set of demand points that consume them, the goal of location-allocation is to locate the facilities in a way that supplies the demand points most efficiently. As the name suggests, location-allocation is a twofold problem that simultaneously locates facilities and allocates demand points to the facilities.

You can create a location-allocation analysis layer from Business Analyst by clicking Business Analyst > Sales Potential Modeling.

Location-allocation problem types

The Business Analyst location-allocation analysis offers three different problem types to answer specific kinds of questions. The three problem types are the following:

• Maximize Attendance - Locates facilities by assuming that the farther people have to travel to reach your facility, the less likely they are to use it. Specialty stores benefit from this problem type, such as coffee shops, medical offices, and electronic stores.
• Maximize Market Share - Captures as much of the total market share as possible with a given number of facilities so that allocated demand is maximized in the presence of competitors. Large discount stores can benefit from this problem type.
• Target Market Share - Chooses the minimum number of facilities necessary to capture a specific percentage of the total market share in the presence of competitors. You set the desired market share percentage and the solver chooses the fewest facilities necessary.

Input Prerequisite

The inputs required for location-allocation vary depending on the problem type in use.

Problem Type	Maximize Attendance	Maximize Market Share	Target Market Share
Number of Candidate Stores	Required	Required	N/A
Distance Threshold - Maximum distance or time that a demand point can be from a facility.	Required	Required	Required
Target Market Share - Percentage of the total demand weight that you want your solution facilities to capture. The solver chooses the minimum number of facilities required to capture the target market share specified by this numeric value.	N/A	N/A	Required
Network Attribute (length or time) - Defines whether Distance Threshold is in distance or minutes.	Required	Required	Required
Candidates Layer - Point layer containing potential locations	Required	Required	Required
Candidates Attractiveness/Weight	Optional	Optional	Optional
Existing Facilities Layer - Point layer containing existing locations.	Required	Required	Required
Existing Facilities Attractiveness/Weight	Optional	Optional	Optional
Competitors Layer - Point layer containing competitor locations.	N/A	Required	Required
Competitors Attractiveness/Weight	N/A	Optional	Optional
Demand Layer - Layer that represents the people or things requiring the goods and services your facilities provide.	Required	Required	Required
Demand Attractiveness/Weight	Optional	Optional	Optional
Apply Power Function (Distance) - Selects the impact of distance on the consumer.	Optional	Optional	Optional

Existing Store/Facility Layer

Each facility can have a weight that represents the importance or attractiveness of it. For example, it could be determined that a department store with a sales floor that is twice as large as a typical sales floor would be twice as attractive to customers. The larger store would have a weight of 2.0 and the normally-sized stores would have a weight of 1.0. Determining what factors influence facility weight and quantifying them requires careful consideration.

Competitor Layer

Competitor facilities are specific to the maximize market share and target market share problem types and typically represent facilities of rival businesses that compete for the same clientele as your business. Competitor facilities can have a weight that represents the importance or attractiveness of it.

Demand Layer

This feature layer contains demand points that are part of a given location-allocation analysis layer. A demand point is typically a location that represents the people or things requiring the goods and services your facilities provide. A demand point could be a ZIP Code centroid weighted by the number of people residing within it or by the expected consumption generated by those people. Demand points could also represent business customers. If you supply businesses with a high turnover of inventory, they would be weighted more heavily than those with a low turnover rate.

This is useful if some demand points have different needs or behavior.

Note:

The distance power function allows you to select the impact of distance to the consumer. A low value indicates that travel distance is less important meaning that consumers are willing to travel longer distances to get to a facility (such as an auto dealer). A high value indicates that travel distance is more important and consumers are less willing to travel longer distances (such as a convenience store).

Output Example

The Location-Allocation Analysis in Business Analyst produces four output layers:

1. Chosen Location - Layer that includes the chosen candidates and existing store.
2. Trade Area Polygons - Layer that displays the demand points/polygons allocated to each chosen location.
3. Market Share Layer - Layer displaying the area defined by quartile percent of demand points allocated to a facility.
4. Spider Diagram - Layer that displays straight-line distance from demand points/polygons to an allocated facility.

Learn more about the algorithm used in location-allocation.

Learn more about location-allocation problem types.