A plant should be in a place where the cost of production is kept low in order to gain maximum profit. Identifying an ideal location is very important as it determines the cost of
- Getting suitable raw material,
- Processing raw material to finished goods, and
- Distribution of goods to customers.
What is Plant location?
A Plant Location is a place, where men, money, material, machinery, etc are brought together for manufacturing products.
Hardly any location can be ideal and perfect. Decisions regarding selecting a location need a balance of several factors affecting plant location. Now we will discuss each factor separately.
Factors affecting Plant Location
1. Nearness to Raw Material
Availability of the raw material near the plant will reduce the cost of transporting raw material from the vendor’s end to the plant.
Especially those plants, which consume raw material in bulk, or need heavy raw material but loses a good amount of material in processing must be located close to the source of raw material.
2. Transport facilities
One point must be kept in mind that cost of transportation should be small in proportion to the total cost.
Depending upon the size of the raw material and finished goods, a suitable method of transport like roads, rail, water, or air is selected, and site location is decided accordingly.
3. Nearness to market
It reduces the cost of transportation as well as the chance of finished product getting damaged and spoiled in the way. If the industry is nearer to the market then it can catch a big market share by offering quick services.
4. Availability of the labour
Another important factor that influences plant location decisions is the availability of labour. The combination of an adequate number of labour with suitable skills and reasonable labour wages can highly benefit the firm.
However, labor-intensive firms should select the plant location which is nearer to the source of manpower.
5. Availability of fuel and power
Because of the wide spread use of electric power, in most cases, fuel has not remained a deciding factor for plant location. Even then steel industries are located near the source of fuel to reduce fuel transportation costs.
6. Availability of water
Water is used for processing, drinking and sanitary purpose. Depending upon the nature of the plant water should be available in adequate quantity and proper quality.
7. Climate condition
With the development of heating, ventilating, and air conditioning climate of the region does not present much problem for many industries.
But, for industries such as agriculture, leather, and textile, etc climate is an influencing factor. For such industries extreme humid or dry conditions are not suitable for plant location.
8. Financial factor
In order to attract the investment and large scale industries various states offer loans, subsidies, benefits, and sales tax exemptions to the new units.
So, choosing the state is a important factor in order to a new industries.
Area, shape of the site, cost, drainage, and other facilities, the probability of floods, chance of earthquakes, etc influence the selection of plant location.
10. Presence of related industries
An industry can outsource some of the parts from the related industries near the plant location. It reduces the headache of making every part within the plant.
11. Availability of facilities
Availability of basic facilities such as schools, hospitals, housing and recreation clubs, security etc can motivate the workers to stick to the jobs.
The success of industries depends very much on the attitude of its workers, so while selecting the plant location organization must be given preference to other facilities also.
12. Disposal of waste
Disposal of waste is becoming a major problem for industries like chemical, leather, sugar, etc. So, plant location should have proper provision for this.
These are the factors every industries need to consider while choosing a site location.
Types of Plant Location
Plant Location can be two types–
1. Localization or centralization
Localization or centralization means concentration of similar types of plant at a same place.
The advantage of these types of site location is you can find raw material and production-related product near to your plant. The disadvantage is sometimes it increases the market competition.
Example- Pharmaceutical companies in Gujrat.
2. Delocalization /Decentralization
Delocalization means spreading the same types of industries at different places.
The advantage of this type of plant location planning is to reduce the competition and grab the market of new places. The disadvantage is sometimes it can be hard to find the resources (man, material, machines, etc).
Example– Banking industries.