Minimizing Production Cost for Local Economic Development

The transportation cost minimization approach elsewhere on this site provides the basic concept for the cost minimization model dealt with here. Essentially this approach simply adds more factors into the equation than the basic shipping costs of raw material and products, when selecting the optimal location for a plant.

Blaire and Primus ( ) list four categories of such factors:

  1. Labor factors such as prevailing wages, productivity, labor environment, and industrial filtering (i.e. the shifting of location in order to obtain access to labor pools appropriate to the maturity level of the firm);
  2. Taxes and business climate;
  3. Amenities and quality of life for both labor and management;
  4. Government including such aspects as access to government representatives and contracting links, overall political climate, as well as government incentives and assistance.
A very good example of how this approach plays out in practice is that of the City of Brandon in co-operation with the Rural Development Institute at Brandon University. In order to be better able to discuss locating in Brandon with large companies, a thorough profile of the community and its surrounding area was drawn up. This profile was more than the standard "come to us, we're friendly" sort of brochure that is the general sort of promotional literature.

Brandon modeled its brochure after a piece of research in the United States, which itemized exactly what corporations wanted to know about towns. They made a list and provided all of what the research said was wanted. When the negotiations took place with Maple Leaf to re-locate its hog plant in Brandon, this brochure was sent to them. It is a tribute to the excellent work on the profile that they came back saying that it provided 95% of what they needed to know to make their (favorable) decision.

It is interesting to note that about half of the document relayed detailed aspects about the labor pool in the area (the plant needed 2000 workers in a city of forty thousand)with the remainder of the profile dealing with such aspects as:

It should be noted that most of these items were specific in numbers so that a company could plug those numbers into a cost minimization model for comparative purposes in selecting their new location. A city or town that provides accurate numbers can at least be assured that correct numbers are being filled into the equation.

Some Interesting Production Cost Minimization Related Sites

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