Chapter 11 Industry Key Issue 2

Why Are Situation Factors Important? Proximity to Inputs Proximity to Markets Ship, Rail, Truck, or Air? Situational Factors: involve transporting inputs to the factory and products from the factory

Proximity to Inputs Inputs are materials, energy, machinery, and supporting services. Manufacturers try to lower the cost of transporting inputs to their factories and transporting finished products to consumers. Plant locations depend on shipping costs (factories/consumers)

Copper: A Bulk-Reducing Industry Copper production involves four steps: Mining Concentration Smelting Refining

1. Mining Ore is mostly waste (1% copper) Known as gangue Ore is taken from mine to NEARBY Concentration Mill.

2. Concentration Mill crushes/grinds ore, then filters. Result (25% copper) is taken to NEARBY smelter.

3. Smelting Concentrated copper is smelted, producing matte (60%), blister (97%) and anode (99%). Taken to refinery.

4. Refining Foundry takes copper anode and produces copper cathode (99.99%). This step does not reduce much bulk.

Steel: Changing Importance 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 1900s Mills shift to coastal port cities (Baltimore and LA) as iron ore shifts to other countries (Canada, Venezuela).

Proximity to Markets Three types of businesses have an optimal location closest to customers rather than to raw materials 1.BULK GAINING INDUSTRIES 2. SINGLE- MARKET INDUSTRIES 3. PERISHABLE

Bulk-gaining Industry makes something that gains volume (size/weight)during production. FABRICATED METALS Machines change metal into shaped parts (auto parts, building materials) Fabricators assemble parts into a product (TV, refrigerator, AC units). The largest market for both machiners and fabricators is the auto industry. 75% vehicles sold in U.S. are assembled in U.S.

Bulk-gaining Industry BEVERAGE PRODUCTION 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.

Bulk-gaining Industry FABRICATED METALS BEVERAGE PRODUCTION

Single-Market Manufacturers - are specialized manufacturers with only one or two customers and usually locate close to the customer. More and more auto assemblers practice JUST- IN-TIME DELIVERY, 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

Perishable Products

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.

Ship, Rail, Truck, or Air? Firms seek the lowest-cost mode of transportation, but which of the four alternatives is cheapest changes with the distance that goods are being sent.

Trucks Short-distance delivery Loaded/unloaded easily Best within 1 day delivery

Trains Often used for >1 day delivery Interregional delivery Longer loading but no stops

Ships Most used for over-seas delivery Method is slow very low cost for long distance

Air Highest cost for all distances Usually high speed / low bulk Often used for high value goods

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.