Background and Contents of Analysis in Part I

When the transportation technologies are still immature and the transport network is small and vulnerable, transportation cost of raw materials and finished goods is high. The transportation cost for firms is relatively high compared to processing costs of the products. In this case, the most important cost issue for a manufacturing firm is to find the place that minimizes the transportation cost. The firm calculates the transportation cost based on weights of raw materials and the finished goods, their transportation distances, and the freight rates. Based on the calculation results, the firm establishes its factory at the place with the lowest transportation cost. Factory location that minimizes the transportation cost tends to be a raw material site, an energy production site, or a goods market. Of course, the factory location with the lowest transportation cost might be the midpoint between these places. Strict derivation methods for finding the place that minimizes the transportation cost have been inquired from the several mathematical perspectives. From the early 1960s, the derivation of the place has become easy by using the numerical calculation methods aided by the computers.