Optimum Producer-Service Location

Abstract

Presented in this paper is a formal economic model that identifies the optimal intraurban location for a producer-service vendor that caters to the technical needs of spatially dispersed clients in the manufacturing sector. Two major components are incorporated into the model. The first of these describes the oft-cited externalization process among industrial firms, where in-house service provision is selectively abandoned in favor of out-sourcing. The second component describes a vendor location process based on profit maximization, where buyers and sellers are optimally located relative to one another. Normative modeling propositions are then compared with current empirical streams in the literature on producer-service location, the role of manufacturing demand, and the process of selective vertical disintegration among industrial firms. The paper is concluded with a brief research agenda for modeling the intraurban locational behavior of specialist firms in the producer services.

The Role of Contact Requirements in Producer Services Location

“…It should be emphasized, however, that this conclusion is tentative and preliminary. To date, a reasonably complete theory of the location of producer services firms has yet to be developed [the theory developed by Lentnek et al (1992), for example, is only at the development stage of an allocation model]. We believe that what is needed is the construction of an integrated locationâ llocation model which can be applied to profit-maximizing, competitive industry.…”

“…In delineating contact requirements on the basis of these three characteristics, frequency times duration times intensity equals the total contact costs per contract, given reasonably scaled values for each variable (for a formal statement of this model, see Lentnek et al, 1992). This is a partial analysis, however, because contact costs are only part of the total costs of the operation of a specialized service firm (another being the production costs of the service at locations other than those of the client).…”

The Role of Producer Service Outsourcing in the Innovation Performance of New York State Manufacturing Firms

“…Rajan and Pearson (1986) trace at least some of the post-1945 growth of specialized producer services to an efªciencydriven fragmentation of jobs between ªrms, following the classical logic of structural change outlined by Adam Smith. A formal economic model proposed by Lentnek et al (1992) presents this logic from a spatial standpoint. According to this model, ªrms will choose external vendors whenever the relative costs of in-house supply are higher.…”

“…While lawyers and bankers are important from an enabling point of view (try launching a new product without a good line of credit or a patent search), they rarely contribute to the hands-on work of problem solving on the shopºoor. In employment Haour (1992), Lawton-Smith (1993) New products or procedures Management consulting Berman (1995), Better ways of doing business Marketing Sinkula (1990), Coffey et al (1994) Improved sales performance Advertising Beyers and Lindahl (1994) Finding new customers Export counseling Berman (1995), Britton (1989) Finding new export markets Equipment repair Lentnek et al (1992) Reduced downtime/lower costs Data processing Hepworth (1989), Phillips (1995) Lower costs/professional quality Business software Phillips (1995), Yap et al (1992) Improved management efªciency Laboratory testing Feldman and Florida (1994) Essential product information Production engineering Rothwell (1992), Britton (1993) New or better production methods Public services Government agencies Chrisman and Katrishen (1995) Market data and business planning Hospital research units Chandra (1992), MacPherson (1995) Clinical trials and research Technical colleges Lawton-Smith (1993) Applied R&D, engineering help Universities Haour (1992), Rothwell (1991) Basic and applied research Informal/nonmarket services Other manufacturing ªrms Lipparini and Sobrero (1994) New ideas and engineering advice Informal business networks Malecki and Veldhoen (1993), Malecki (1994) Market leads, business information Suppliers Gertler (1995), Soni et al (1993) Innovative inputs, new ideas Customers Von Hippell (1978,1988) Feedback on design ºaws Distributors Glasmeier (1990) Hints on customer/market needs a This table is not designed to supply a comprehensive or representative summary of the recent empirical or theoretical contributions by scholars in this ªeld. Instead, the intent is simply to provide a snapshot of the types of inquiries cond...…”

Risk, Activity Modularization, Sourcing, and Economic Geography

“…Like the traditional neoclassical model, the allocation of resources is based on cost minimization. An example of this approach can be found in Lentnek et al (1992) where a manufacturer chooses between doing mechanical maintenance in-house or outsourcing this task to a producer service firm.…”