Mini Case

A major retailer is planning to build a new distribution warehouse in the Midlands. Five possible sites have been identified: Alverscombe, Benfield, Cadthorpe, Derrington and Eltin. The choice of site will be based on four attributes: i) Costs ii) Distance from nearest motorway iii) Availability of a local labour force and iv) Scope for future expansion. The costs have been discounted to present value, while scores have been assigned to the options to measure their performance on the non-monetary attributes (100= best on that attribute, 0 = worst). The results are shown below.

Site	Costs ($m)	Distance	Labour	Expansion
Alverscombe	9.1	60	20	90
Benfield	8.5	30	30	80
Cadthorpe	10.7	20	70	30
Derrington	9.9	75	60	10
Eltin	7	20	90	0

The retailer was asked to consider a hypothetical site that was optimal for each factor. She was then asked, if she could improve the site so that its performance on just one of these attributes was equivalent to the best option on that attribute, which attribute would she choose? She indicated that improving the distance from the motorway was the most desirable change. Similar improvements to labour availability and scope for expansion were respectively considered to be 65% and 35% as desirable as the improvement in distance.

1. The retailer has provided information that can be used to obtain swing weights for the three non-monetary attributes. What would have been the danger of using weights based simply on the decision-maker's view of the relative importance of the attributes and how do swing weights overcome this danger?

1. Aggregate scores for each site

1. Identify the site (or sites) on the efficient frontier.

1. If a site had the worst scope for labor, the retailer would be prepared to pay an

extra $4.5m to improve the site so that it had the best labor, all else

remaining equal. Identify the site that the retailer should choose. Explain your

decision.

Fill in the table based on your decisions

Switch	Extra Cost	Extra Benefit	Cost per Benefit

1. Your recommendation in part (d) does not agree with the retailer's "gut feel". She is

still unsure about what to do, but feels that another site is probably better.

1. Discuss possible reasons for this discrepancy between the model's recommendation and the retailer's intuitive judgment.

ii) Briefly indicate how the discrepancy might be resolved so that a requisite model

is obtained.