The factory system is a method of manufacturing using machinery and division of labor. Because of the high capital cost of machinery and factory buildings, factories are typically privately owned by wealthy individuals or corporations who employed the operative labor. Use of machinery with the division of labor reduced the required skill level of workers and also increased the output per worker. The factory system was first adopted in Britain at the beginning of the Industrial Revolution in the late eighteenth century and later spread around the world. It replaced the putting-out system (domestic system). The main characteristic of the factory system is the use of machinery, originally powered by water or steam and later by electricity. Other characteristics of the system mostly derive from the use of machinery or economies of scale, the centralization of factories, and standardization of interchangeable parts. Characteristics The defining characteristics of the factory system are: The factory system is considered a form of production. The operative labour generally does not own a significant share of the enterprise. The capitalist owners provide all machinery, buildings, management and administration, raw or semi-finished materials and are responsible for the sale of all production, as well as any resulting losses. Use of unskilled labor – Before the factory some systems had many products such as shoes and muskets were made by skilled craftsmen who usually custom-made an entire article. In contrast, factories practiced division of labour, in which most workers were either low skilled labourers who tended or operated machinery, or unskilled labourers who moved materials, semi-finished and finished goods. There were a few skilled mechanics. Division of labour was also practiced by the putting out system in which, for example, pieces of leather were cut off-site and brought to a central shop to be made into shoes or other articles. Economies of scale – Factories produced products on a much larger scale than the putting out or crafts systems. Because factories could oversupply local markets, access to transportation was important so that goods could be widely distributed. Factories used far less manpower per unit of production and therefore lowered product cost. Location – Before the widespread use of steam engines and railroads, most factories were located at water power sites and near water transportation. Railroads became widespread (itself a consequence of steam power becoming more efficient and affordable), so factories could be located away from water power