kcmcalgeo. content 1introduction 2finding out the least cost location 3material index 4cost profile...

KcmcALGeo.

Content1 Introduction

2 Finding out the least cost location

3 Material index

4 Cost profile

5 Location triangle

6 Drawing isodapanes

7 Application

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Weber’s model

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Weber’s model of industrial location

Cost minimization approach

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Average cost

Price/revenue

BA C

Seeking for the least cost location

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Assumptions

• Presence of an isotropic plain• Natural resources are either ubiquitous or

localized• Transport system is uniform• Labour is at fixed points and of different

wages• Markets are at fixed points and demand is

unlimited

KcmcALGeo.

Assumptions

• Perfect competition exists, the price of a particular goods is identical.

• Industrialists are economic men, trying to minimize their costs or maximize profits.

• Apart from transport cost, labour cost and agglomeration economies, all other factors are not considered.

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The three locational factors

• Transport cost

• labour cost

• agglomeration economies

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Steps of finding out the least cost location

• Step 1: find out the least transport cost site

• Step 2: consider if the production unit will move to a cheaper labour cost site

• Step 3: consider if the production unit will move to a site where

agglomeration economies are available

KcmcALGeo.

Total transport cost equals to

Cost of moving raw materials to the production unit/ procurement cost

Plus

Cost of moving finished products to the market/ distribution cost

KcmcALGeo.

Raw material market

Procurement

cost Distribution cost

Total transport cost

Seeking for the least transport cost site

Step 1

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Groupings of raw materials

ubiquitous localized

pure gross

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Working out of the material index(MI)

MI = Weight of raw material

Weight of finished product

Method 1

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Material index of sugar milling:

7 tonnes of sugar cane =

1 tonne of raw sugar

7

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Material index of beer manufacturing

10 tonnes of wheat = 100 tonnes of beer

0.1

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Material index of manufacture of cloth:

10 tonnes of yarn =

10 tonnes of cloth1

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M.I. Greater than 1

Weight-loss industry

Material-oriented

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M.I. Small than 1

Weight-gain industry

Market oriented

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M.I. Equal to 1

No weight-gain nor weight loss industry

Footloose location

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Total transport

cost

Procurement co

st

Distribution cost

R M

Where is the least cost location?

KcmcALGeo.

Total transport cost

procurementcost

distribution

cost

R M

Where is the least cost location?

KcmcALGeo.

Total transport cost

Procurement cost

Distribution cost

R M

Where is the least cost location?

KcmcALGeo.

Tapering freight structure

Distance

Tra

nspo

rt c

ost

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distance

Transport c o st

Stepped freight rate

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distance

Transport cost

Road

Rail

Sea

Different transport rates

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R MTransshipmentlocation

Procurement costDistribution cost

Total transport cost

Locating at a transshipment point

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Summing up

• Freight rate varies from goods to goods

• Freight rate tends to taper off with increasing distance

• Freight rate varies among different transport means

• Transshipment point offers additional advantage

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RM1 RM2

M

50km 50kmX

87km

Weber’s locational triangle

100k

m

100km

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M

RM1

RM2

RM3

(1 unit)

(2 units)

(3 units)

(2 units)

*

Centre of gravity

Using the Varignon frame

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*R *M

R M(8)

(9)(10)

(11)

Drawing isodapanesLines of Total transport cost

Where is the least cost location?

KcmcALGeo.

M

Rm2

*

**

Rm2

.

L1.L2.

T($8)

($?)

($?)

$9

$10

$11

Labour saving at L1 & L2 is $3

Which is the critical isodapane ?

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F1F2. .

($8) ($8)

$10

$12

($10)

($12)

Which are the critical isodapanes?

If F1 & F2 locate side by side,production cost declines by $4

Where will F1 and F2 be moving to?

KcmcALGeo.

Applicability of Weber’s model

To what extent the model represents the reality?

KcmcALGeo.

Assumption 1: an isotrophic plain,uniform physical and human settings

Reality: it rarely exists in the real world

KcmcALGeo.

Assumption2: uniform transport system,freight rate is directly proportional to weight and distance of haulage.

Reality: it rarely exists, freight rate tends totaper off with increasing distance.

KcmcALGeo.

Assumption 3: labour is at fixed points and with different rates

Reality: labour is more mobile and with different skill levels

KcmcALGeo.

Assumption 4: markets are at fixed points,perfect competition exists.

Reality: they exist as an area, monopolylikely occurs.

KcmcALGeo.

Assumption 5: industrialists are economic men, profit maximizers.

Reality: it is hard for them to have complete knowledge, they tend to be a satisfizer.

KcmcALGeo.

Assumption 6: apart from transport, labour and agglomeration economies, other factors don’t vary spatially.

Reality: land price, government policy, technology and behavioral factors become increasingly significant in industrial location.

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