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SITUATION FACTORS AND INDUSTRY WHO CALLED MY NAME? WHO CALLED MY NAME? Slide 2 GROUNDING CHOOSING A LOCATION Most businesses think very carefully before choosing a location. The location of a business often affects its ability to produce a profit. However, some businesses can locate anywhere without much regard for place: FOOTLOOSE INDUSTRIES DID SOMEBODY SAY FOOTLOOSE?! A FOOTLOOSE INDUSTRY is one that can locate anywhere because it does not have any specific needs in terms of site or situation factors. For example: call centers can locate anywhere. Slide 3 GROUNDING CHOOSING A LOCATION Many businesses are not FOOTLOOSE and therefore think very carefully before choosing a location. Geographers try to explain why one location may be more profitable than another. Companies generally face one of two costs in choosing a location: SITE FACTORS SITUATION FACTORS Situation factors involve transporting inputs to the factory and products from the factory. Businesses choose locations that minimize the cost of shipping inputs to and goods from the factory. Slide 4 GROUNDING WEBERS THEORY OF INDUSTRIAL LOCATION Alfred Weber was a German economist who developed a theory for finding the ideal location of an industry. His Theory entailed three factors: 1. location of raw materials, 2. location of market, and 3. the cost of transportation. 3 Agglomeration: when a large number of enterprises cluster (agglomerate) in the same area (e.g. city), they can provide assistance to each other through shared talents, services, and facilities A BULK-REDUCING is one in which the products weigh less than the inputs. They tend to locate near the raw materials (materials oriented) due to high transport costs for inputs. A BULK-GAINING is one in which the products weigh more than the inputs. They tend to locate near the market (market oriented) due to high transport costs for products. 1 Transportation: the site chosen must entail the lowest possible cost of A) moving raw materials to the factory, and B) moving finished products to the market. This, according to Weber, is the most important. 2 Labor: higher labor costs reduce profits, so a factory might do better farther from raw materials and markets if cheap labor is available (e.g. China today) WEBERS LEAST COST THEORY amended his theory of industrial location by adding two considerations (IN ADDITION TO TRANSPORTATION) for locating a factory: Slide 5 GROUNDING Industries whose finished product weighs less than the inputs (lumber, iron, most foods, paper, meat, etc.) tend to be materialsoriented. MINING: Ore is mostly waste (1% copper) Ore is taken from mine to NEARBY Concentration Mill. CONCENTRATING: Mill crushes/grinds ore, then filters. Result (25% copper) is taken to NEARBY smelter. SMELTING: Concentrated copper is smelted, producing matte (60%), blister (97%) and anode (99%). Taken to refinery. REFINING: Foundry takes copper anode and produces copper cathode (99.99%). This step does not reduce much bulk. 2/3 of copper in the US is mined in Arizona. Most major concentration mills and smelters are there. A refinery is also called a Foundry most foundries are located near the major copper markets.. MATERIALS ORIENTED BUSINESSES BULK REDUCING INDUSTRIES The production of copper involves four steps, the first three are also bulk-reducing industries and tend to locate near their inputs. COPPER Slide 6 GROUNDING BULK REDUCING INDUSTRIES STEEL Steel is also a bulk reducing industry. Various impurities are removed from iron and other elements are added, the product is steel. The major inputs are iron ore and coal (for fuel), and steel mills typically locate to minimize transport costs of inputs. Mid 1800s Mills concentrated around Pittsburgh where both coal and steel were mined. Late 1800s Mills shift to Detroit/Cleveland area near Lake Erie when iron ore found in Mesabi range. Early 1900s Mills shift to Chicago area on Lake Michigan as new methods required more iron ore. Mid 1800s Mills shift to coastal port cities (Baltimore and LA) as iron ore shifts to other countries (Canada, Venezuela). Most US steel mills have now closed US steel mills have shifted over time according to the location/importance of inputs. Surviving US mills choose market orientation over materials orientation. Coastal plants provide to East coast population centers, and Michigan mills are centrally located. US Minimills avoid steel production (with iron ore and coal) and instead use scrap metal to make new steel products. Slide 7 GROUNDING MARKET ORIENTED Three types of businesses have an optimal location closest to customers rather than to raw materials: BULK GAINING INDUSTRIES SINGLE-MARKET INDUSTRIES PERISHABLE INDUSTRIES Slide 8 GROUNDING MARKET ORIENTED BULK GAINING INDUSTRIES Bulk gaining industries make a product that gains weight or volume during production. Bulk gaining industries tend to locate near where the product will be sold to reduce transportation costs. Fabricated MetalsBeverage Producers Some businesses make parts/machinery from metals. Machine shops from metal into shaped parts (auto parts, building materials) and Fabricators assemble parts into a product (TV, refrigerator, AC units). The largest market for both machiners and fabricators is the auto industry. Parts makers locate near auto assembly pants, and auto plants locate near their markets. 75% of cars sold in the US are made in the US. Most US auto plants are located in Auto Alley: between MI and Al, and between I-65 and I- 75 Beverage bottling is also bulk gaining mostly because of the water added to the other inputs. The relatively light inputs are shipped to bottling plants, and water is added to them at the points nearest the consumer markets to reduce shipping costs. Slide 9 GROUNDING MARKET ORIENTED SINGLE MARKET MANUFACTURERS Some businesses make a product that they sell to only one or two buyers. These businesses will locate close to their customer. Auto marts makers tend to sell to only one or two auto companies, and their products tend to be bulky or heavy and therefore locate near the auto assembly plants to whom they sell. AGGLOMERATION is when an industry/business locates near other business for a benefit. More and more auto assemblers practice JUST-IN-TIME DELIVERY where, rather than use factory space for storing parts to be used months or weeks later, they will have the parts they need delivered on the day they will use them. Just-in-time delivery also requires parts makers to locate near (often within an hour or two of) their buyers. Slide 10 GROUNDING MARKET ORIENTED PERISHABLE PRODUCTS Perishable items are those with a short shelf like (like fresh foods, beverages that spoil, and daily newspapers). These producers try to locate as close to their market as possible to minimize shipping time. Cheese and butter makers can locate far from markets, but milk producers cannot. Canned, frozen and preserved food processors can locate far from their markets, but fresh fruit, vegetable and bread makers cannot. Slide 11 GROUNDING SHIPPING METHODS Businesses seek the lowest shipping cost possible, and the method changes with the distance shipped. The cost of shipping per mile lessons the longer an item is shipped (due to loading and unloading costs). Businesses choose one of four methods to ship: TRUCKSTRAINS BOATSPLANES Short-distance delivery Loaded/unloaded easily Best within 1 day delivery Often used for >1 day delivery Interregional delivery Longer loading but no stops Most used for over-seas delivery Method is slow very low cost for long distance Highest cost for all distances Usually high speed / low bulk Often used for high value goods Products often require a number of modes of shipping. The BREAK OF BULK POINT is the point at which a shipped product is unloaded and transferred to a new shipping method (like seaports, airports and railroad stations). The cost of shipping increases each time a product is unloaded and reloaded. The use of containers (as seen on the ship above) has arisen to help expedite loading/unloading. To reduce costs, some businesses will locate their facilities at a break of bulk point to reduce shipping costs.