Plant Location: An Industrial Economists View

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Plant Location An Industrial Economists View

• 58th Annual AUBER Fall Conference
• Tucson, AZ
• October 17, 2004
• Duncan H. Meldrum
• Air Products Chemicals, Inc.
• Disclaimer the attached represents the authors
  view of a stylized decision process and not the
  views of Air Products Chemicals, Inc.

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Merchant Industrial Gases

• Air separation plants cryogenically distill air
  into its components of nitrogen, oxygen and
  argon.
• Liquid (super-cold) products delivered by
  insulated tanker trucks to merchant customers who
  have holding tanks.
• Limited inventory capability, limited delivery
  radius.
• Markets all major NAICS categories of industrial
  customers, plus medical facilities (oxygen to
  hospitals), research facilities, and government
  uses (primarily aerospace)

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Location Decision Factors

• System needs
• Demand and competitive situation
• Utilities (electric power, water)
• Labor
• Infrastructure
• Taxes
• Regulatory

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Other Factors Infrastructure
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Other Factors Taxes Regulatory/Environmental
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Location Factor Indexes
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Location Decision Factors

• System needs
• Threshold, a gono-go decision
• Demand and competitive situation
• Demand threshold,
• Competitive situation key
• Utilities (electric power, water)
• Highest weight
• Infrastructure
• Second most important cost-determinant
• Labor
• Availability more important than cost
• Tax regulatory/environmental
• Relatively low weight unless extremes exist
• Local differentials may be important
• State differentials where demand regions cross
  state lines much more important

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Adjusting for Importance
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Summary

• Demand factors dictate initial decision
• Primary cost stack factors next decision point
• Utilities
• Infrastructure
• Labor
• Tax/regulatory/environmental may or may not be
  critical
• Usually dominated by primary cost stack issues
• Local policy implications
• Focus on infrastructure, education
• Minimize unusual tax/regulatory/environmental
  actions fewer generally better