Pick Optimal Business Space with Location-Allocation

Operations, Customers and Parking - Location is Important in Business

Location-Allocation Tool in ArcGIS
Location-allocation to maximize coverage of their services

Last Updated: Jan 12, 2018

Optimal Site Selection

Where should I build my store?

Location is the #1 factor for the success of a business.

Because when businesses know where their customers are located, they naturally have customers rolling in like clockwork.

So how do you find an optimal business location? Where should you locate a municipal or city service?

Enter the location-allocation tool – a handy tool using the ArcGIS network analyst.

Location-Allocation Explained

If you were the mayor of an island with the following population distribution:

island population

…and your island has no fire stations.

If you were asked to locate 5 fire stations to maximize coverage, where would you put them?

Here’s where I would put them shown as the red extruded points:

island optimal locations

But how did I know where to put them?

I used the location-allocation tool because it answers how to serve demand in optimal locations.

Here’s how you can use it too:

What You Will Need

There are three must-have layers you need to run the location-allocation tool:

  • Demand Points: Input are points of demand with a weight- such as population per point. Where is your population? Or where are potential customers located? Add a weight field if there are more than one per point. Examples of free demand GIS data could be from TIGER census data, SEDAC socio-economic data, Esri’s tapestry segmentation and your local city/municipal sources.

    island population

  • Facilities: Input is points with a facility type defining if its a candidate, required, competitor or chosen site. Where are existing facilities located? Or where can candidate facilities be placed? If candidate facilities are everywhere, then you can run the fishnet tool to create evenly-spaced points in your area of interest.

    location-allocation candidates

  • Network Data Set: Input is a road network with connectivity rules. What is the current road network? In order to get the network toolbar enabled, you need a road network dataset part of a geodatabase. Check out this services area tutorial to learn how to make one.

    location-allocation road network

Run the Location-Allocation Tool

Turn on your Network Analyst extension. Add your road network data set. In the Network Analyst toolbar, click  Network Analyst > New Location Allocation .

Load your demand points and facilities. Choose the type of problem in the advanced setting drop-down. From here, all you need to do is solve

One of the most powerful features is how you can solve different types of location-allocation problems.

For example:

  • Minimize Impedance is good for warehouse problems because it selects optimal locations based on impedance to the facility.
  • Maximize Coverage is good for fire hall problems because facilities are chosen based on greatest demand within an impedance cut-off
  • Market Share takes into account competing facilities using gravity models to determine proportion the percentage of demand at each candidate facility.
  • Minimize Facilities allocates the minimum number of facilities so demand is served given an impedance cut-off.

Other types of solutions are for maximizing-capacitated coverage, targeting market share and maximizing attendance.

Location-Allocation Tool in ArcGIS
Location-Allocation Tool in ArcGIS

Impedance value can be interpreted as how far people are willing to travel to or from a given facility. For example, when you enter an allowable distance of 5 miles, this is the length a fire department would go to reach a community.

This location-allocation solution runs the maximize coverage type of problem.

What’s Next?

Given existing facilities, location-allocation helps business owners decide where the optimal location should be.

You can even add competing stores to target market share.

If you were to use one tool to decide the optimal location for a successful business, it would be the location-allocation tool in ArcGIS.

ArcGIS has developed a gem to allocate facilities based on demand.

Alternatively, you can predict how many customers will patron your store using the Huff Gravity Model.

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