Econintersect: Pundits believe one of the major factors in locating a factory or distribution center is the cost of labor. Labor is becoming less and less of a factor in determining where to locate a facility. The recent post Skilled Work, Without the Worker in the NYT stated:
A new wave of robots, far more adept than those now commonly used by automakers and other heavy manufacturers, are replacing workers around the world in both manufacturing and distribution.
This post went on to state:
In one example, a robotic manufacturing system initially cost $250,000 and replaced two machine operators, each earning $50,000 a year. Over the 15-year life of the system, the machines yielded $3.5 million in labor and productivity savings.
In a 24 hour / seven day a week environment, the robot would be advantageous in any environment where the cost of labor exceeded $1 per hour. Robots hardly get sick, do not sue their employer, and will work in terrible / hazardous conditions. Robots literally are making the cost of manufacturing labor $1 per hour around the world.
So labor costs are no longer a primary factor in determing where business should locate. In quantitative analysis, factors which determine where to locate a facility include:
- cost of labor
- cost of facility investment
- cost of shipping to and from the facility
- time delays in distribution chain
- regulatory elements and risk (insurance)
- cost and availability of utilities – electricity (energy), water, and waste disposal
The soaring costs of energy are becoming a bigger factor in determining business siting plans. The NUS Consulting Group recently produced the following table on the cost of electricity around the world.
In an energy intensive business, business electricity cost historically has been one of the major factors in site selection. Still, the above table does not tell the complete story as it is possible to arrange private supply of energy, or provide energy needs from on-site sources.
The bottom line is that in 2012, electric (energy) costs are becoming one of the key factors in any business – not just energy intensive ones.