Bulk Reducing vs Bulk Gaining Industries Chapter 11

Bulk Reducing vs. Bulk Gaining Industries Chapter 11 -Key Issue #2 Why are situation and site factors important?

Proximity to inputs • Manufacturers try to locate their factories as close as possible to both buyers and seller • Every factory uses inputs ▫ Inputs= materials, energy, machinery and supporting services

Pg. 388 • “The optimal plant location is as close as possible to inputs if the cost of transporting raw materials to the factory is greater than the cost of transporting the products to consumers. ”

Proximity to markets • Manufacturers try to locate their factories as close as possible to both buyers and seller (repeat)

Pg. 388 • “The optimal plant location is as close as possible to customer if the cost of transporting raw materials to the factory is less than the cost of transporting the products to consumers. ”

Mineral Resources • Minerals are important inputs for many industries because they have an abundance of industrial uses • Non-metallic minerals ▫ 90% that humans use ▫ Building stones, gemstones ▫ Minerals used in fertilizers Nitrogen, phosphorus, calcium, sulfur • Metallic minerals ▫ Valuable for fashioning machinery, vehicles, and essential elements of contemporary society ▫ Malleable and ductile ▫ Good conductors of heat and energy • Ferrous alloys ▫ Chromium, manganese, nickel, titanium, and tungsten • Non-ferrous alloys ▫ Aluminum. Copper, lead, lithium, magnesium, zinc, and precious metals

Inquire and Think!!! • “So What? ” • Reflect on your notes so far and discuss with students around you, what have we learned so far that is important or worth further inquiry?

Bulk-Reducing Industry • Definition=An industry in which the inputs (materials, etc. ) weighs more than the final product • (raw materials weigh more than the final product) ▫ Needs to be located near its source of inputs to minimize transportation costs

Copper Industry • Mining: ▫ the ore extracted is mostly waste • Concentration: ▫ transforms the heavy, bulky copper ore into a much lighter material of high value • Smelting: ▫ input for the smelters, who remove more impurities (bulk-reducing example)

Bulk-Gaining Industry • Definition= Industry that makes something that gains volume or weight during production • (finished product weighs more than the raw materials) ▫ Needs to be located near where the product is sold to minimize transportation costs ▫ More expensive to transport

Bulk Reducing Examples (do not write) Copper Steel • Finished copper bar weighs less than the copper ore used to make the product • Several steps in the copper process that are bulk reducing • Most foundries also need to be located close to energy sources (part of inputs) • Steel is an alloy of iron, manufactured by removing the impurities • Two inputs for steel are iron ore and coal, weighs more than the final product • U. S. steel production location has changed b/c of changing inputs • Today, more concerned with being close to markets

Bulk Gaining Examples Fabricated Metals Beverage Production • Factory brings together metals (like steel) as inputs and transforms them into a more complex product • Located near markets because products are much bigger • Largest market for fabricated metal and machinery is motor vehicles • ¾’s of vehicles sold in the U. S. are assembled in the U. S. • http: //www. msnbc. msn. com/i d/3032619/#42140012 • Empty cans or bottles given to producer and filled with beverage- thus adding bulk/weight • Water- heavy to transport, #1 ingredient in beverage

Single-market Manufacturer • Specialized manufacturers with only 1 -2 customers • Close proximity to customers • Producer of parts for motor vehicles • Ship directly to the carmaker’s plants

Perishable Products • Must be located near their market • Bread and milk • Example: Newspapers, why is this “perishable”?

Motor Vehicle Production and Sales ▫ Important to produce vehicles near market (why? ) ▫ Regional distribution of production is extremely close to that for sales ▫ However, carmakers operate assembly plants in all 3 major industrial regions

Changing Situation Factors: Steel ▫ In the past, steel production was a good example of a bulk-reducing industry that located near its inputs ▫ the increasing importance of proximity to markets has contributed to the growth of steel mini-mills

Changing Distribution of World Steel Production ▫ Between 1980 and 2013, the share of world steel production declined to 27% in developed countries (down from 81% in 1980) ▫ Between 1980 and 2013, the share of world steel rose to 73% in developing countries (up from 19% in 1980)

Truck, Train, Ship or Plane? • Trucks – short distance delivery • Rail – used for 1+ days, longer to load, no daily rests • Ships – very long distances, slower than land based • Air – very expensive…used for speedy delivery, small, high-value packages

Break-of-Bulk Points ▫ Mixed modes of delivery are often used ▫ Break-of-bulk point: a location where transfer among transportation modes is possible ▫ Containerization ▫ Costs rise each time inputs or products are transferred from one mode to another

Just-in-Time Delivery ▫ Shipment of parts and materials arrive at the factory moments before they are needed ▫ Suppliers must locate very close to they factories they supply ▫ Advantages: Reduces inventory costs Allows for reduction of factory size ▫ Example: computer manufacturers ▫ Disruptions: Natural hazards Traffic Labor unrest

Stop here

Site Factors in Industry ▫ For some firms, site factors are more important than situation factors in locating a factory ▫ The three most important site factors are labor, capital, and land

Labor ▫ Most important site factor on a global scale ▫ Variation of labor costs around the world is large ▫ ½ billion workers are engaged in industry worldwide China has 1/4 th India 1/5 th All developed countries combined: 1/5 th ▫ Labor-intensive industry An industry in which wages and other compensation paid to employees constitutes a high percentage of expenses

Capital ▫ The funds needed to establish new factories or expand existing ones