Location Theories in Production Management - Production and Operations Management

Alfred Weber (1868–1958), with the publication of Theory of the Location of Industries in 1909, put forth the first developed general theory of industrial location. His model took into account several spatial factors for finding the optimal location and minimal cost for manufacturing plants.

The point for locating an industry that minimizes costs of transportation and labor requires analysis of three factors:

  1. The point of optimal transportation based on the costs of distance to the ‘material index’ the ratio of weight to intermediate products (raw materials) to finished product.
  2. The labor distortion, in which more favorable sources of lower cost of labor may justify greater transport distances.
  3. Agglomeration and degglomerating.

Agglomeration or concentration
of firms in a locale occurs when there is sufficient demand for support services for the company and labor force, including new investments in schools and hospitals. Also supporting companies, such as facilities that build and service machines and financial services, prefer closer contact with their customers.

Degglommeration occurs when companies and services leave because of over concentration of industries or of the wrong types of industries, or shortages of labor, capital, affordable land, etc. Weber also examined factors leading to the diversification of an industry in the horizontal relations between processes within the plant.

The issue of industry location is increasingly relevant to today’s global markets and trans- national corporations. Focusing only on the mechanics of the Weberian model could justify greater transport distances for cheap labor and unexploited raw materials. When resources are exhausted or workers revolt, industries move to different countries.

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