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W4/4/12

Industrial Situation Factors

Ch. 11.2 - pp. 350-355

© 2011 Pearson Education, Inc.

I. Proximity to Inputs• A. Overview

– Situation factors – transportation important• shipping supplies & final product• want to minimize cost• location important to minimize trans. costs• Optimal location depends on costs

– Which is more expensive trans.? – supplies or customers?– Must determine whether bulk-reducing or bulk-gaining

product– Answer will help determine location

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I. Proximity to Inputs (cont.)

• B. Bulk-Reducing Industries• Two (2) Examples: copper & steel• 1. Copper

– Involves 4 major steps, 3 of which are bulk-reducing» Mining, concentration mills, smelting» Location is closer to copper’s source

– Final step, refining, has little bulk reducing» Location can be further away from source

– Other important factor: energy source» Traditionally located near cheaper source OR work out

agreement w/ power company– See map –

» concentration mills & smelters near source (AZ)» foundries, where iron is manufactured into finished

product, near markets (east & west coasts, Gulf Mex)

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I. Proximity to Inputs (cont.)

• B. Bulk-Reducing Industries (cont.)

• 2. Steel– not mass-produced until Bessemer process in 1855

» Henry Bessemer invents simple casting process– steel requires 2 items: iron ore & coal

» where located?» ideal location is b/w 2 mineral sites

– location changed over time b/c of cost» Pittsburgh - Lake Erie - Lake Michigan - E & W coasts

– shift over time due to change from proximity to resources to proximity to market» change in part due to new elements of steel

– creation of minimills using scrap metal» available everywhere - no location restrictions

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Steel Industry

Historical Overview

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II. Proximity to Markets• A. Bulk-gaining industries

– adds weight or bulk during production– need to be closer to market– 1. Fabricated Metals

• motor vehicles (cars, trucks, etc.)– 75% of U.S. vehicle sales made in U.S., most of rest in N.A.– about 40 assembly plants in U.S.– thousands of plants for parts

• most U.S. manufactured cars made in “auto alley”– Michigan to Alabama (I-65 & I-75)– traditionally most U.S. made in Detroit

– 2. Beverage Production• heavy weight of filled bottles requires localized bottling

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“Auto Alley”

I-65 & I-75

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II. Proximity to Markets– B. Single-Market Manufacturers

• specialized products - usually a manufacturer will purchase (not consumers)

– car parts

• location is near manufacturer - – vehicle parts - esp. car seats (bulky)– “just-in-time” parts - minimal storage time

» other parts of cars may be far away b/c not expensive to ship

– C. Perishable Products• bread & milk are more localized

– butter & cheese are not - last longer (WI)

• daily newspaper – losing out to internet news b/c of speed & accessibility– jobs lost in print news, gained in e-news

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III. Ship, Rail, Truck, or Air?– The farther something is transported, the lower

the cost per km/mile– Cost decreases at different rates for each of the

four modes• Truck = most often for short-distance travel• Train = used to ship longer distances (1 day +)• Ship = slow, but very low cost per km/mile• Air = most expensive, but very fast

– break-of-bulk point - use of multiple transport modes based on pricing -

• switch from air or ship to truck during delivery– often seaports or airports – L.A. (CA), Port Elizabeth (NJ), Memphis (TN)