It is proven that geographical location is an important factor influencing business decisions. Even on the local level, taking such factors the cost of labor in particular regions and the company can save costs, which at the time of a financial crisis can be a determining factor of the company’s survivability. In that regard, the trend of the auto industry moving toward southern directions has implications affecting the reasonability of the industry in general. In some cases, some facilities such as GM’s Wilmington, DE, facility which “has dodged death a couple of times” and the Chrysler Group’s Newark, DE, plant, which could have gone too, if the Auburn Hills, MI-based company had to cut capacity (Corbett), the relocation factor is the difference between continuing production and closure. Accordingly, the logistics in the auto industry is affected too by the relocation factor. In the light of the aforementioned, this paper addresses the logistics of the auto industry, explaining the reasonability, in the logistics context, for the auto industry to move south.
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The main factor in logistics is coordination, and accordingly the lack of such coordination is what might turn the logistics into a nightmare. Taking that into consideration controlling the flow of the products is greatly affected by the location of the warehouse. Analyzing the relation of the effectiveness of logistics and the geographical location of the warehouses, the following factors can be outlined:
- Customer locality to the proposed new warehouse location.
- Suppliers’ locality to the proposed new warehouse location.
- Availability of trained labor.
- Motorway and trunk road networks.
- Cost of the space, i.e. purchase or rent and rates (Supply Chain & Logistics)
The correspondence of the relocation of the auto industry to the southern industries in terms of suppliers can be seen through the fact that “[s]uppliers are relocating south, too”, where for example, in a response to GMC going south, and as a result to the expansion, David Berzina, senior vice president of the Greater Shreveport Chamber of Commerce, stated that “11 or 12 new suppliers are building facilities in the area… to support the expanded assembly plant.”(Corbett, p. 48).
Accordingly, in terms of labor and cost of space, the aforementioned factors were among the most influential for the auto industry to relocate south in the first place, where there is “a larger and cheaper labor pool to draw from in the South”(Corbett, p. 48), as well as the fact that the “land values are low.”(Corbett, p. 45).
Additionally, addressing the markets and the transportation networks, the relocation to the south is also might be attractive in that regard, where taking for example such area as Tennessee, which has one of the best road systems in the country, its location is “within one day’s drive of 75% of all U.S. markets” (Corbett, p. 48). Accordingly, the centralization of the manufacturing is beneficial to the logistics, rather than building close to each market.
Thus, it can be seen that the determinant factors in relocating south make it attractive for the logistics as well. Another variable that should be mentioned in terms of the attractiveness of the relocation of the auto industry to the south, is the factor of time. For logistics company’s, in addition to the cost factor, an important factor is the time, where the reliability of the transport network, is not as much relied on the amount of time taken to deliver the product, as the delivery is made on the scheduled time.
In that regard, adjusting the scheduling and the rhythm of delivery can be managed to effectively decrease the cost of inventories, whereas stated earlier the centralization of the position in the south makes it easier to schedule the delivery in the appointed time 75% of the market (Lasserre, p. 76). Accordingly, in terms of logistics, the inventory will be managed in terms of demand, rather than production, and the storage costs can be saved.
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It can be concluded that, taking into consideration the determinant factors in relocating south, the southern location is attractive for auto industry. The main factors of cost, space and time, can be seen combined within the southern states, which is taken into consideration, specifically that recently it was hard financially for the auto industry. In logistics context, the same factors are in effect for the business in general, as logistics efficiency and costs are directly interrelated to the success of the business processes.
In that regard, location strategies and decisions, within the national and regional context, are directly associated with the access to markets and factors of production, where the first is related to the geographical characteristics of the location, i.e. closeness to markets, and the roads networks, while the latter is related to the characteristics of the location, i.e. labor costs, land costs, and etc. Thus, the combination of the aforementioned factors favors the decision of relocating to the southern U.S.
- Corbett, Brian. “Southern Hospitality.” Ward’s Auto World 38.8 (2002): 45-48.
- Lasserre, Frederic. “Logistics and the Internet: Transportation and Location Issues Are Crucial in the Logistics Chain.” Journal of Transport Geography 12.1 (2004): 73-84.
- Supply Chain & Logistics. “Distribution Logistics -Warehouse Geographical Location “. 2009. Supply Chain & Logistics Consulting.