Category: Chapter 8

Posts relating to Chapter 8

OM in the News: What Texas Wants for Christmas

The answer: More California companies to relocate to what Texas claims is the more business-friendly state. Oracle and HP are the latest big corporations to announce moves to the Lone Star State. Elon Musk, the CEO of Tesla, is also moving to Texas, and the electric car company is expanding there.

The announcements have highlighted the vastly different tax and regulatory systems in the country’s two most populous states, writes The Wall Street Journal (Dec. 17, 2020). California relies more on taxing personal income, particularly of high-income households, and operates a growing regulatory structure. Texas leans on more regressive property and sales taxes and boasts a more laissez-faire environment. The biggest difference: High-paid executives who move can see their state income-tax bills go from 13.3% to nothing.

Austin houses the powerful attraction of the U. of Texas

Moves by high-profile companies to Texas from California are not only likely to improve the personal finances of executives, but also offer employees more affordable housing and lighten regulatory burdens. For companies, much of the difference between California and Texas boils down to ease and cost of hiring—not just now but down the road. Companies have grown frustrated with the cost of attracting and keeping employees, as living expenses soar in California, and as regulatory mandates expand. “The compounding effects of California’s economic and political environment is making it more difficult to run a business effectively,” said one industry expert.

The Tax Foundation puts Texas 11th in its ranking of state business-tax climates, with California 49th. The biggest factor—outweighing any change in business taxes—is likely to be the lower cost of employing workers in the state. For most employees, that calculation is about housing costs.

Classroom discussion questions:
1. What other factors mentioned in Ch.8 (Location Strategies) affect location decisions?

2. How is “clustering” an advantage to both of these states?

Guest Post: Repurposing Facilities as a Location Issue

 Howard Weiss is Professor of Operations Management Emeritus at Temple University. He is also the developer of our POM and ExcelOM software, provided free to adopters.

The location chapter (Ch. 8 in your Heizer/Render/Munson text) offers the following on why companies choose a location. “Companies make location decisions relatively infrequently, usually because demand has outgrown the current plant’s capacity or because of changes in labor productivity, exchange rates, costs, or local attitudes. Companies may also relocate their manufacturing or service facilities because of shifts in demographics and customer demand.”

However, sometimes rather than a company actively looking for a location, it chooses a location because the location has looked for an organization. This is particularly true of repurposed malls and automobile plants. Store closings in malls have been on the rise for some time now mainly due to e-commerce. But COVID-19 has accelerated the closing of stores, and vacancy levels in malls will likely never return to the vacancy levels pre-covid. Mall developers say they’re scouting for businesses other than retailers to replace shuttered stores, anything from schools to doctors’ offices and short and long-term storage facilities both for residential and commercial customers.

Repurposing malls has been underway prior to COVID-19. In a 2018 report, Livability.com gives several examples of malls that have been repurposed as a skating rink, a satellite college campus, libraries, a light rail station, offices, residences, a startup tech company, a theater and art museums. And it is not just malls that were being repurposed prior to COVID-19. One report indicated that 128 of 267 closed automobile plants have been repurposed as follows:

 

 

Classroom discussion questions:

  1. What store, mall or other facility has been repurposed near where your students reside?
  2. What industries, aside from automobile manufacturing, will have facilities that will need to be repurposed after COVID-19.

 

 

OM in the News: World Bank Halts Report Amid Data Manipulation by China, Others

The World Bank will not release its flagship report ranking business competitiveness by country, reports Newsmax.com (Aug. 27, 2020),  amid concerns of improperly altered data about four countries: China, Azerbaijan, the United Arab Emirates, and Saudi Arabia.

The report, which we illustrate in Table 8.1 on page 341 of your OM text. has become the premier international ranking of the business environment in different countries. Its annual publication draws headlines around the world about the standing of individual countries, and it has been cited as a powerful motivator for governments to jockey for higher rankings by improving their regulatory environment.

Countries can improve their rankings by reducing bureaucracy around starting businesses, easing their permitting process and expanding access to electricity, among other measures. The next version of the report, which would have been published in a little over a month, will be delayed.

For three of the countries affected, China, Azerbaijan and the U.A.E., the World Bank had reported a marked improvement in their business environments in recent years. Five years ago, China ranked 90th in the report. Last year, its ranking climbed to 31st. Azerbaijan rose from 80th to 34th over that time. In last year’s report, the U.A.E. was ranked the 16th-best business environment in the world, up from 22nd five years ago.

In 2018, the World Bank’s chief economist, Paul Romer, said data in the report was susceptible to manipulation. “Conflicts are inevitable,” he said, “when the member countries that fund World Bank programs are the ones ranked by the project, generating the potential for internal pressure to make some countries look better or worse.  And signs keep emerging of even deeper rot within the project.”

Classroom discussion questions:

  1. What variables, in addition to those noted above, would you suggest be included in the rankings?
  2. What alternative, but related rankings, might you include in a location analysis?

OM in the News: Tesla Searches for a New Location

Tesla is looking for locations in the central United States to build a new factory for the company’s electric pickup truck. Cybertruck, a wedge-shaped pickup, is expected to go into production in late 2021 and start selling for a price of just under $40,000. By publicizing Tesla’s plans to construct a factory for the truck, the firm is repeating a strategy used in 2014 to score a $1.3 billion incentive package from Nevada. The state lured the company’s massive battery factory there after Tesla held a bake-off in which Arizona, California, New Mexico and Texas were the finalists that came up short.

States with right-to-work laws that prohibit unions from requiring prospective hires to join their membership are likely to be contenders for Tesla’s facility, writes Industry Week (March 11, 2020). Government incentives will also play a role in Tesla’s decision-making on a plant location, along with logistics costs, access to big, talented workforces, and quality of life.

Tesla recently completed construction of its newest plant in China and started delivering locally assembled Model 3 sedans to consumers in January. It’s also planning a factory near Berlin.

Last month, Elon Musk hinted that Tesla could build a factory in Texas. The Texas Enterprise Fund, created by the state’s legislature, has become one of the largest payers of economic-development incentives in the nation. Texas offered $2.3 million to entice SpaceX, the rocket company Musk founded and runs, to locate a launch facility in Brownsville.

Classroom discussion questions:

  1. What are the most important location factors for Tesla’s new plant?
  2. What kind of incentives did Amazon seek when it announced its search for a second HQ last year? (Hint: see our post on the topic).

OM in the News: Tesla Attacks Germany’s Auto Establishment

It’s Tesla’s first entry to European production, having selected a site that will churn out as many as 500,000 cars a year, employ 12,000 people and pose a serious challenge to Volkswagen, Daimler, and BMW, reports Industry Week (Jan. 20, 2020). The frantic activity underway to quickly set up Tesla’s latest assembly plant is a daring attack on the German auto establishment.

The project represents a second chance for the quiet town of Gruenheide, just southeast of Berlin. Gruenheide lost out on a similar factory two decades ago, when BMW opted for Leipzig. That missed opportunity helped town officials to move quickly when Tesla expressed interest in entering Europe, with a plot set aside for industrial use and offering easy access to the Autobahn and rail lines. “The investment is a unique opportunity,” said the mayor. “It gives young people with a good education or a university degree the possibility to stay in our region.”

The plant will make batteries, powertrains and vehicles, including the Model Y crossover, the Model 3 sedan and any future cars. The factory will include a pressing plant, paint shop and seat manufacturing in a building that will be 2,440 feet long—nearly triple the length of the Titanic. There’s space for four such facilities.

Tesla is taking its fight for the future of transport into the heartland of the combustion engine, where the established players long laughed off Tesla as a feeble upstart  that couldn’t compete with their rich engineering heritage.  “No other foreign carmaker has done that in decades given Germany’s high wages, powerful unions and high taxes.” said an industry analyst. Building a factory in Europe’s largest car market is a major test of Tesla’s global ambitions, a place where buyers are loyal to local brands. Meanwhile, labor costs in Germany’s auto sector are 50% higher than in the U.S. and five times what they are in Poland, just an hour’s drive away from Gruenheide.

For Gruenheide, the planned investment has suddenly transformed the town of 8,700 people into a sought-after location.

Classroom discussion questions:

  1. Why did Tesla select  this European site?
  2.  What is your SWOT analysis of this location decision? (See Chapter 2 in your Heizer/Render/Munson text)

OM in the News: Using the Factor Rating Method to Pick an Apartment in NYC

Terese Lawry and Jacob Falkovich in their new apartment

I have often told my students that the factor rating method (covered in both Chapters 2 and 8) is one of their most versatile OM tools. But it was still interesting to see The New York Times article (Jan. 6, 2020) how one young NYC couple, needing to find a new home in a rush, used the model to expedite their search. Here is their tale:

When Terese Lawry and Jacob Falkovich suddenly found out they had to move, Jacob suggested they turn to a time-honored method for making hard choices: factor rating. The couple identified 22 factors to consider in selecting an apartment and, after much discussion, assigned each one a different weight.

“Without weighting criteria, people just start being like, I refuse to live without a dishwasher.”  Falkovich said. Their model featured basics, like cost, as well as size and layout. Factors also included subletting and pet policies, lease duration, physical elements like windows, lighting, water pressure, outdoor space, A/C and whether the building had an elevator or a doorman or a gym. Sometimes they disagreed.  Falkovich didn’t mind walking up 3 flights of stairs, but Lawry pressed him.  They agreed to assign an elevator a weight of 4; the size of the apartment, by comparison, was weighted as a 10, while laundry was given a 1.

For location, they calculated the score based on the mean duration of 10 weekly work commutes. They also included neighborhood features like proximity to grocery stores and parks, as well as aesthetics. When they toured their current apartment, a 2-bedroom, 2-bathroom duplex in Brooklyn, that rents for $3,300 a month, it scored a 238 —” 2 deviations up” from the other listings, which ranged from 180 to 215.

It’s not the first time he has relied on factor rating, Falkovich confessed. He used the same method when he was single and trying to decide whether to continue dating Lawry or another woman he began seeing around the same time!

Classroom discussion questions:

  1. Name 3 other potential applications of the model in your personal life.
  2.  What are the strengths and weaknesses of the model?

 

OM in the News: The Growing Cluster of High-Tech Talent

Seattle is one of 5 metro areas that have attracted the lion’s share of the nation’s tech talent

The forces that are driving the nation’s top technology talent to just a handful of cities have intensified in recent years, leaving much of the nation behind as the U.S. becomes a more digital economy, reports The Wall Street Journal (Dec. 13, 2019). Just five metropolitan areas—Boston; San Diego; San Francisco; Seattle; and San Jose—accounted for 90% of all U.S. high-tech job growth between 2005 to 2017.

The nation’s 377 other metro areas accounted for 10% of the 256,063 jobs created during that period in 13 high-tech industries such as software publishing, pharmaceutical manufacturing and semiconductor production. Among the smaller cities that gained tech jobs were Madison, Wis.; Albany, N.Y.; Provo, Utah; and Pittsburgh. The result is increased concentration of high-tech resources in just a few places and a strengthening of economic forces that are dividing the nation.

Tech industries find they are most productive when they have resources clustered in few places, a topic discussed in Chapter 8 of your Heizer/Render/Munson OM text. Such clustering allows for the fast spread of new ideas and a concentrated talent pool from which businesses recruit. But the concept runs counter to the idea that technology might allow people to work from anywhere, even in remote places.

The trend is creating problems for the cities that have these concentrations of workers and for those places that don’t. San Francisco and Boston are becoming increasingly unaffordable as home prices soar, while cities outside of these high-tech hubs are missing out on the dynamism that technology creates. “The superstar places are becoming extremely expensive, choked with traffic and struggling with big social costs like inequality gone wild and homelessness,” said a researcher studying the issue.

Some big cities were left behind. Combined, the Washington, D.C. area; Dallas; Philadelphia; Chicago; and L.A. lost more than 45,000 high-tech jobs between 2005 and 2017.  Many small cities across the heartland also lost tech jobs.

Classroom discussion questions:

  1. What are some other clusters besides tech talent?
  2. What does it take to create a tech cluster?

OM in the News: Can the Incentive Wars End?

State Line Road is the 12 mile north-south street that divides the part of the region between Kansas and Missour

States and local governments spend $45 billion annually on various economic subsidies for businesses. Concerns have mounted in recent years about the wisdom of competing for business using tax incentives. Research has shown that economic incentives make little difference in where a company ultimately chooses to locate. Despite that, localities can end up engaging in bidding wars, pushing up the cost of new jobs.

Now Kansas and Missouri are nearing a truce in an economic border war that has cost hundreds of millions of dollars and created barely any new jobs, writes The Wall Street Journal (June 26, 2019). The neighboring states would agree to cease using one of the most popular tools in the economic-development toolbox: lucrative tax breaks in exchange for a promise of investment and jobs. Politicians regularly tout the number of new jobs created under such programs.

Companies in the Kansas City region have long been able to take advantage of its unique geography, where the Kansas and Missouri border runs right through the metropolitan area. Companies could receive tax incentives for moving from one side of town to another, even if they just moved jobs from one spot to the other and didn’t create net new jobs.

Since 2011, 5,526 jobs have moved from the Kansas side to the Missouri side, with Missouri paying $151 million. In that same period, 6,729 existing jobs moved from the Missouri side to Kansas for a cost of $184 million. In total, $335 million has been spent on such company relocations. Can the Kansas City truce work elsewhere? “There are opportunities for broader regions to work together,” said one local CEO. “But at the end of the day, people want to attract companies and jobs and prosperity for the part of the country they’re responsible for.”

Classroom discussion questions:

  1. Suggestions for solving this thorny problem?
  2. Discuss some of the recent massive location incentive packages.

OM in the News: Apple Wrestles With Conflicts in its Supply Chain

Tim Cook in China recently

Apple is asking suppliers to study shifting final assembly of some products out of China, as trade tensions prompt the company to consider diversifying its supply chain, reports The Wall Street Journal (June 19, 2019). While any major changes would be difficult and could take time to implement, Apple is looking into the feasibility of shifting 1/3 of the production for some devices to S.E. Asia.

Manufacturers of apparel, footwear and other low-margin items have been moving out of China for years due to rising costs, and tariffs have accelerated that trend. Many tech companies, however, find it more difficult to move. Among China’s chief attractions are well-developed chains of suppliers and reliable infrastructure, much of it built in the past 20 years. A plentiful labor force skilled in precision manufacturing as well as trained engineers and pro-business government policies also make China appealing. And for those companies looking to sell into the large Chinese market, producing in the country is more competitive than importing.

Apple remains deeply rooted in China. About 1/5 of its total sales are recorded there, while on the manufacturing side its supply chain accounts for three million jobs. Foxconn, which assembles iPhones, iPads and Macs, is, however, ready to shift some Apple production to plants elsewhere. It has also put more than $213 million into India recently and is looking to invest in Vietnam.

Outsourcing to China helped solidify Apple as one of the world’s largest and most profitable companies. CEO Tim Cook helped build the company’s sophisticated and efficient supply chain there, relying on Foxconn and others to crank out hundreds of millions of iPhones annually.

International moves won’t come easy. Production equipment and assembly lines would need to be dismantled and packed,. They then must be reinstalled, tested and calibrated, and their output rate adjusted. Software and environmental-control systems would need to be put in place, and line operators, engineers and quality managers must be available and trained.

Classroom discussion questions:

  1. Why isn’t more of Apple’s manufacturing coming to the U.S?
  2. What are the advantages and disadvantages of moving production?

OM in the News: Amazon’s Un-Location Decision

Protesters held signs during a protest at an Amazon store in Manhattan

When Amazon announced plans for a second headquarters in 2017, it promised 50,000 high-paying jobs and billions in investment for a community that would be coequal to its home in Seattle. The company, which outgrew the number of people it could hire in the Pacific Northwest, set off a nationwide frenzy, with more than 200 cities making bids. (We in Orlando even thought we had a decent shot for being selected. But I guess when Amazon listed cultural opportunities as a criteria, they didn’t count Disney World). In the end, Amazon decided last fall that no one city could provide the number of tech workers it needed and split the headquarters in two. The “winners”: Arlington, VA., and NYC.

But, as the whole world knows, Amazon last week canceled its plans to build the expansive campus in NYC after facing an unexpectedly fierce backlash from lawmakers, progressive activists and union leaders, who contended that a tech giant did not deserve nearly $3 billion in government incentives that the state and city had offered in their confidential bid package. The backlash in New York showed no sign of abating and risked tarnishing Amazon’s image beyond the city.

“Amazon, one of the richest companies in the world, run by the richest man in the world, had held a nationwide contest in which governments scraped together enough entitlements to satisfy it, even as those same cities struggled to fortify corroding infrastructure and stave off a housing crisis that has pushed the middle class to the brink and forced the poor into homeless shelters,” wrote The New York Times (Feb. 15, 2019). Our current system of location incentives, in which powerful corporations can pry billions in tax benefits out of cities and states to locate facilities, without any added investment in infrastructure, schools and other benefits, is one worth a class discussion.

Classroom discussion questions:

  1. How important are incentives, in the final analysis, in location decisions?
  2. What was the “final straw” for Amazon, in deciding to pull out of NYC?

OM in the News: Warehousing Moving to Retail Locations in the New E-Commerce World

Empty stores and shopping centers are increasingly being converted into warehouse and e-commerce distribution centers. One recent study, reported in Material Handling & Logistics (Feb. 4, 2019),  found a surprisingly wide variety of retail-to-warehouse conversions. The projects include the total demolition of obsolete malls to be rebuilt as warehouses in Baltimore, Atlanta, Chicago, and Detroit. Other retail structures that were left standing after the retailers closed their doors also have been repurposed for industrial uses, including a former Toys ‘R’ Us in Milwaukee now occupied by a transmission manufacturer, and Sam’s Club’s conversions of 12 of its stores to distribution centers.

Freestanding big-box stores closer to population centers than they are to warehouse districts are the primary candidates for conversion. These retail structures also typically offer dock doors, ample parking and clear heights compatible with industrial usage. Major retailers who are choosing to expand their omni-channel platforms are transforming underperforming retail properties into e-commerce-driven logistics spaces.

Larger-scale vacant retail properties, such as malls and community centers, are more often purchased by industrial developers and then demolished to be replaced by new industrial construction that is designed to meet the physical requirements of prospective space users. Factors favoring the targeting of retail space for conversion include the prime locations of many retail centers, which often sit at busy intersections or highway interchanges. Another advantage is site access. Standalone big-box stores in particular offer backend docks and easy access for trucks. They also have the needed high ceilings.

“These types of conversions were once unthinkable, and now they’re not only happening, they’re gaining traction,” says one industry leader. “That industrial uses can overtake what are usually higher-rent uses illustrates the strength of demand for industrial real estate, especially last-mile distribution centers.”

Classroom discussion questions:

  1. What are the advantages and disadvantages of converting malls to warehouses?
  2. What is happening to other malls as they lose retail tenants?

OM in the News: Amazon’s HQ2 Spectacle Ends

The Amazon HQ2 saga is finally over. Fourteen months ago, Amazon announced a beauty contest, in which cities could apply to win the honor of landing the 2nd headquarters. The prize: 50,000 employees. The cost? Just several billion dollars in tax incentives. Then last week, Amazon announced it would split the prize between Arlington VA, and NYC. So the question, writes The Atlantic (Nov. 12, 2018) is: “Did the world’s smartest company really need 13 months, and applications from 238 cities, to reach the striking conclusion that it should invest in New York and D.C.?”

When covering Location Analysis (Ch. 8), you could also ask your students: Why are U.S. cities spending tens of billions of dollars to take jobs from one another in the first place? (Recall the “Border War”, in which the Kansas and Missouri sides of Kansas City have spent $1/2 billion dragging companies back and forth across state lines, within the same metro area, creating no new jobs.)

Every year, American cities and states spend about $90 billion in tax breaks and cash grants to urge companies to move among states– more than the federal government spends on housing, education, or infrastructure. These deals take resources from everything local governments would otherwise pay for, such as schools, roads, police, and prisons. In the past decade, Boeing, Nike, Intel, Royal Dutch Shell, Tesla, Nissan, Ford, and G.M. have each received subsidy packages worth more than $1 billion to either move their HQs within the U.S. or, quite often, to keep theme right where they are. New Jersey and Maryland offered $7 billion for HQ2, which would have been the biggest corporate giveaway in history.

And companies don’t always hold up their end of the deal. Consider Wisconsin, which lured Foxconn with a subsidy plan that will end up costing over $4 billion. Foxconn said it would build a large manufacturing plant that would create about 13,000 jobs. Now the company is building a much smaller factory with just 1/4 of its initial promised investment, and much of the assembly work to be done by robots.

Classroom discussion questions:

  1. Money aside, why did Amazon select the D.C. suburb and NYC as co-HQ2 winners?
  2. Make the argument for and against the giant incentives being offered to companies.

OM in the News: Amazon, Incentives, and Electricity

 

When officials in Montgomery County responded to a FOIA request on their bid, they delivered a 10-page document of incentives — with every line of text redacted.

We have blogged a few times about Amazon’s quest for incentives in locating its new HQ2, promising a potential of 50,000 jobs. The few bids that have become public are breathtaking financial packages that indicate just how much states are willing to pony up to woo Amazon. Maryland put together an $8.5 billion bid, and New Jersey got legislative approval to offer $7 billion in tax credits and incentives to pick Newark.

Others are not as forthcoming with how taxpayer’s money will be spent. “We are not releasing documents related to Amazon HQ2. We are not subject to F.O.I.A.,” said Miami-Dade Beacon Council. Requests by the New York Times (Aug.5, 2018) to Austin, Atlanta and Indianapolis met with similar responses. The photo reflects the response from Montgomery County, Md.

But today’s post is not about HQ2. It is about Amazon’s cloud computing business–its fastest growing and most profitable division. Data centers come with a lot of ongoing expenses, the biggest of which is electricity. Over the past 2 years, Amazon added dozens of new data centers with vast fields of servers running 24/7. In at least 2 states, it’s also negotiated with utilities and politicians to stick other people with the bills for millions of dollars of electricity.

Amazon stands out for its success in offloading its power costs and also because it dominates America’s cloud business, writes BusinessWeek (Aug.27, 2018). It has gone from nonexistent to using 2 percent of U.S. electricity! Although data centers typically yield few new jobs, politicians desperate to make up for fading manufacturing businesses have worked closely with utility companies to land Amazon data centers. In Virginia, where Amazon operates at least 29 such centers and is planning 11 more, the company’s 78-page application for a special rate agreement has two versions—a heavily redacted public one and another under seal with state regulators.

This is certainly an interesting topic for classroom discussion when covering Chapter 8.

Classroom discussion questions:

  1. What are the plusses and minuses of providing such incentives?
  2. What is the alternative?

OM in the News: When the Location Incentives are in the Billions

The incentives offered by Wisconsin and its municipalities to Taiwan’s Foxconn Technology Group since it announced a $10 billion megaplant in the state have gone up by nearly $1 billion, writes The Wall Street Journal (June 29, 2018).The company broke ground this week, almost a year after the deal was announced as a success in the president’s efforts to bring manufacturing jobs back to America. The Apple  supplier promised to open a 20 million-square-foot complex that would build liquid-crystal display panels and committed to creating 13,000 jobs in the state.

Foxconn Chairman Terry Gou with President  Trump at the signing

In return, Wisconsin offered $3 billion in financial incentives. In an effort to land the plant, municipalities added their own sweeteners. The town and the county where the facility will be built offered a $764 million incentive package. And Wisconsin added another $134 million to the tab to improve state highways and local roads in the area around the Foxconn site. The state is on the hook for 40% of the public bonds that finance the local expenses if the project flops. If all goes well, Wisconsin taxpayers would recoup the investment in the 2042.

Ballooning costs underscore how expensive and unpredictable such projects can become for states and cities eager to attract new investments and jobs. Currently 20 states and cities are vying to win Amazon’s second headquarters, which promises a $5 billion investment and 50,000 well-paying jobs. New Jersey and the city of Newark have offered as much as $7 billion in tax incentives, while Maryland has offered $5 billion. But unexpected costs can often creep up with large projects that receive money from multiple government entities.

A professor at the University of Texas said negotiating a state deal separately from a local deal is particularly “bad practice.” It can put pressure on a locality to offer a large incentive package and also pits local communities against each other after the state has already had its own bidding war with other states.

Classroom discussion questions:

  1. What would be a better way to provide incentives from the government point-of-view?
  2. Provide an example of how massive incentives have, indeed, paid off in the past.

OM in the News: Bitcoin Goes to Where the Power is Cheap

Power cords connect to hundreds of computers inside Giga Watt’s Washington mining facility. Giga Watt employs 45 people here.

“Home to hydroelectric dams that harness the flow of the Columbia River, north central Washington has some of the cheapest power in the U.S.,” writes The Wall Street Journal (Feb.12, 2018). That has made the largely rural area best known for its apple orchards a magnet for bitcoin miners, who use powerful specialized computers to generate new units of cryptocurrencies—a process that requires vast amounts of electricity to run and cool thousands of machines. “If you ask the guys at UPS or FedEx what they’re delivering to Wenatchee, I think they’d tell you it’s a whole bunch of bitcoin mining machines,” says that town’s mayor.

Mining operations can squeeze into small spaces. Shoebox-size computer servers that suck up as much power as 1,000 homes can be packed into a 25-by-25-foot room. Miners have popped up in unexpected places in the area: an old laundromat, a former warehouse, apartments. There are already at least 30 known cryptocurrency-mining operations in north central Washington.

These aren’t the first businesses to come to the region for its cheap power. Aluminum smelters once flocked here. In more recent years, companies including Microsoft and Dell have built data-storage centers. Electricity in the region costs 2 to 4 cents per kwh compared with more than 10 cents nationwide. Some residents and officials hope that mining will be the first step toward transforming the area into a business hub for blockchain technology, bringing new jobs.

Others worry these miners will drain the area of the surplus power that helps keep rates low. Here is why: Comparative power usage rates (per sq. ft. per year): school-10; home-12; hotel-18; hospital-32; grocery store-40; computer data center-2,100!

Classroom discussion questions:

  1. Why are some towns not welcoming the new miners?
  2. What is the primary location factor for cryptocurrency miners?