Location decisions and sustainable production

Last time

Before we start: last time, in Economies of scale and quality, you learned these points. Here they are again on one card. Keep them in mind, because today builds on them.

Where to produce

A factory far from its customers pays more for transport; a shop on a quiet street sees few customers. Choosing a location is a major, long-term decision. This lesson covers what decides it, and how businesses can produce in a sustainable way.

Location for manufacturing

Nearness to raw materials, especially if they are heavy or bulky, cuts transport costs. Nearness to the market, for products that are fragile, perishable or heavy after making. Availability of skilled, affordable labour, cheap land, reliable power and water, and good transport links.

Location for services

Shops and services must be near their customers, where many people pass by, such as a busy market or shopping centre. Rent is higher in busy areas, so the business must weigh the extra customers against the extra cost. Nearness to competitors can help, as customers come to compare, or hurt, if it divides sales.

Government influence

Governments offer grants, lower taxes or cheap land to attract businesses to poorer areas. Planning rules limit where factories can be built, such as not near homes. Environmental laws may stop polluting industries in some areas.

Locating abroad

A business may produce abroad for lower wages, to be nearer foreign customers, or to avoid tariffs on its exports. But there are risks: different laws and language, political instability, and exchange rate changes. Its reputation may also suffer if workers abroad are badly treated.

Comparing two locations

For a choose-a-location question, compare the options on the same factors, then decide. Here is a template.

Making the choice

Not every factor matters equally. For a heavy product, transport may matter most; for a high-tech product, skilled labour. A cheaper location may cost more in the end if workers lack skills or customers are far away. So decide which factor matters most for this business, and choose the location that does best on it.

Sustainable production

Sustainable production means producing in ways that do not harm the environment or use up resources needed by future generations. Methods: renewable energy, such as solar power; recycling and reusing materials; and using less packaging. Also using resources efficiently, cutting waste and pollution, and sourcing from sustainable suppliers.

Why be sustainable?

Benefits: lower energy and material costs in the long run, a better reputation, and customers who prefer green products. It also avoids fines and meets government rules. Costs: new equipment, such as solar panels, is expensive at first, and green materials may cost more.

Applying sustainability

In an exam, suggest methods that fit the business: a factory could fit solar panels; a café could use recyclable cups. Then explain the effect on costs, reputation or the environment. Two outlined ways earn four marks: one mark for each way and one for applying it.

Mistakes that lose marks

Mistake one: listing location factors without saying which matters most for the business. Mistake two: choosing a location only because it is cheapest. Mistake three: giving sustainability methods that do not fit the business in the case. The fix: weigh the factors for this business, then decide.

The full-marks tip

The full-marks tip: compare locations on the same factors, then choose by the factor that matters most to this business. For sustainability, suggest a method that fits the case, then its effect.

On one card

So, on one card: location and sustainability. Keep it for revision.