Walden Farms Company’s Location Decision-Making

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Walden Farms was founded in 1972, and it is a leader in healthy food production. The targeted market segment is comprised of people with diabetes, bodybuilders, and dieters. The company seeks to create foods with a low amount of calories, sugars, fats, and gluten. Its mission is to “develop healthy, specialty foods that help people control calories, fat, carbohydrates, gluten or any kind of sugar without sacrificing great taste, “The Walden Way” (“About Walden Farms,” 2020). In other words, the business is interested in taking over the niche of healthy and low-calorie foods.

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The major factors that influence the company’s location decision are dependent on how health-conscious the local population is and the level of access for healthy food. It is stated that Portland, Irvine, and San Diego are in the top six most health-aware cities in the United States (Song, 2020). Although there are three other cities, which have a higher level within the given metric, the indicated locations were ranked low on food and access (Song, 2020). Therefore, the factors are manifested in the local people’s interest in healthy food alternatives and the unavailability of the products.

The factor rating method for the Walden Farms’ case is shown in Table 1. The identified two factors were selected, which are health-consciousness and healthy food access. The factor rating of 0.6 for the former and 0.4 for the latter was determined due to the fact that the presence of demand is more important than supply. There is no valid reason to open such a business in a place where there is no interest in the product or service, and it does not become more appealing even if there is no supply. However, the sheer number of cities available in the United States, in conjunction with the notion that people always have some form of interest in their own well-being, means that access is also relevant.

Therefore, the resulting rating factors are 0.6 and 0.4, where health-consciousness is more important than healthy food access by a small margin. The scoring was solely based on the list provided by the source in the most health-conscious cities (Song, 2020). The article lists approximately 100 cities, which is why percentile-based scoring was used. Although the authors assigned the highest scores to the places with the greatest degree of access, the numbers were reversed because the locations with the lowest availability are desirable. A similar approach was used for ranking, where Portland was ranked first out of 100 cities, which meant that its score is 100. The results indicate that the most plausible site for the next business expansion is Portland because it is highly health-conscious, and there is no access to healthy foods.

Table 1. Factor rating method.

No. Location Factor Factor rating Portland Irvine San Diego
Scoring Total Scoring Total Scoring Total
1 Health-consciousness 0.6 100 60 96 57.6 95 57
2 Healthy food access 0.4 95 38 98 39.2 92 36.8
Total 98 Total 96.8 Total 93.8

In the case of Location Cost-Volume (LCV) Analysis, the main emphasis will be put on the crossover chart. It is stated that the given approach uses fixed and variable costs, which are combined in a formula Total cost = FC + v(Q) (“Facility location and layout,” 2020). In order to generate an accurate graph, it is essential to estimate annual costs and volume output. For this example, a volume will represent the number of no-calorie ketchup. The results of the analysis are demonstrated in Figure 1.

The provided form of operational analysis is an element of cost management. The essence is to study the dependencies of the financial results of an economic entity on the costs and volumes of production and sales of products, goods, and services. This type of assessment is most effective for planning and forecasting the activities of an enterprise. It is also used in pricing and determining the next location. LCV analysis is carried out according to the “cost-volume” scheme. When conducting a factor analysis of profits, the data of the profit and loss statement is used, in which the expenses were allocated according to the directions of the enterprise. These might include costs, and commercial, management, operating, non-operating, and emergency expenses.

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Location Cost-Volume Analysis.
Figure 1. Location Cost-Volume Analysis.

The expected annual output is 1500 units, which means that the lowest costs can be expected in Portland. However, the crossover point for the highest profits can be observed between 1500 and 2000, which is approximately 1750. This can be considered as the most profitable point for Portland, but if the volumes grow, then the most advantageous place will be San Diego. The values were based on estimated fixed and variable costs for every location, which were largely dependent on taxation rates for each city.

In addition, the average price of Walden Farms products is around $5, and the manufacturing costs equal to about $3. The given analysis is one of the most effective ways to carry out the first step, such as cost measurement and analysis. It is an element of enterprise cost control that analyzes the impact of the structure of costs and revenues on the profitability of products or divisions of the enterprise. It allows, through modeling, to find the most advantageous relationship between the variable and fixed costs, product price, and production volume.

References

About Walden Farms. (2020). Web.

Facility location and layout. (2020). Web.

Song, J. (2020). The most health-conscious cities in America. Web.

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