Location Planning with Location Allocation Models
Optimization of Branch Networks and Customer Allocation
The core reason companies use geomarketing analysis is always to achieve one thing: the best possible branch network with an optimal customer branch allocation. They ideally form a nationwide network that allows potential customers to shop without having to travel long distances.
Location-allocation models answer the following questions
- How many branch locations are needed?
- Are the branches accessible to all the customers within 30 minutes by car?
- Where should new branches be opened?
- What is the potential area of the branch location?
- How can I save on transport costs?
Location: Determining locations. Allocation: Allocating customers
The location allocation model helps retailers and banks to identify the best possible branch locations and allocate customers to branches. The approach aims to methodically optimize the spatial reference system “supply-demand-distance” and places the focus on this in the analysis. Both the supply locations as well as the distribution of the customers must be modeled. The distances between these points are entered into the analysis in the form of distance matrices.
Complex mathematical algorithms solve a wide range of target functions that optimize either individual parameters or the entire system: For example, by specifying a maximum distance, the necessary number and “location” of the branch locations can be determined. In addition, customers are allocated to individual branch locations. Through this “allocation”, individual potential areas are defined.
Demand-weighted overall distance
Location planning, which should ensure minimal transport costs or the best possible accessibility, look for solutions with a total minimum demand-weighted overall distance. The impact of deciding on a certain branch location can thus be evaluated more quantitatively and it is easier to compare various possible solutions. Simply speaking: it is easier for a company to decide if branch location A, B or C is the best choice.
The location allocation model examines the reference system “supply-demand-distance”. It is a proven and effective geomarketing method.
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