Industrial engineering

Plant Location |12 Factors Affecting Plant Location / Site Location

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.This will not only save transportation costs but also reduce the risk of damage or loss during transit. Additionally, having the raw material readily available nearby can help in maintaining a steady supply chain and ensure uninterrupted production schedules. Overall, proximity to raw material sources can significantly benefit manufacturing plants in terms of cost-effectiveness and operational efficiency.

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.The proximity to transportation hubs and infrastructure is crucial in determining the efficiency and cost-effectiveness of the supply chain.

Additionally, factors such as reliability, speed, and safety of the chosen transportation mode should also be taken into consideration when making decisions about site location. Ultimately, a well-planned transportation strategy can greatly impact the overall success and profitability of a business.

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.This proximity also allows for better understanding of consumer needs and preferences, enabling the industry to tailor its products and services more effectively.

Additionally, being close to the market facilitates quicker response to changing market trends and demands, giving the industry a competitive edge in meeting customer expectations. Furthermore, proximity to the market can lead to increased customer loyalty and satisfaction, as prompt delivery and efficient service are key factors in building strong relationships with consumers. Overall, being near the market offers numerous advantages for industries looking to thrive in today’s fast-paced and dynamic business environment.

    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.This can help reduce transportation costs, minimize employee commute times, and ensure a steady supply of skilled workers for the firm’s operations.

    Additionally, proximity to the labor source can also lead to better employee retention and satisfaction, ultimately improving overall productivity and efficiency within the plant. Therefore, when considering plant location decisions, firms must carefully evaluate the availability and proximity of labor to ensure long-term success and competitiveness in the market.

    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.This has led to the clustering of steel plants in regions with abundant coal or natural gas reserves. Despite advancements in technology and transportation, the proximity to fuel sources remains a crucial consideration for the steel industry.

    Additionally, being located near fuel sources also allows for easier waste disposal and environmental management, further emphasizing the importance of plant location in the steel industry.

    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.

    Proper water management practices should be implemented to ensure a continuous and reliable water supply for all necessary operations. Additionally, regular testing and monitoring of water quality should be conducted to prevent any contamination issues that could impact the plant’s processes or the health of employees. Adequate water storage facilities should also be in place to handle fluctuations in water availability. Overall, the availability of water is crucial for the smooth functioning of any industrial plant.

    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.

    For example, a textile industry would require a moderate climate with controlled humidity to ensure proper production processes. Similarly, the agriculture industry would need a climate with sufficient rainfall and suitable temperature ranges for optimal crop growth. Therefore, when considering plant location for these industries, climate conditions play a crucial role in determining the feasibility and success of the operation.

    8. Financial factor:

    In order to attract investment and large-scale industries various states offer loans, subsidies, benefits, and sales tax exemptions to the new units.

    So, choosing the state is an important factor in order to a new industries.

    Choosing the right state can make a significant impact on the financial success of a new industry. By taking advantage of the various financial incentives and benefits offered by different states, companies can save money on initial investments and operating costs. This can ultimately lead to higher profits and a more sustainable business model in the long run. Therefore, careful consideration of the financial factors involved in choosing a state for a new industry is crucial for success.

    9. land:

    Area, shape of the site, cost, drainage, and other facilities, the probability of floods, chance of earthquakes, etc influence the selection of plant location. Availability of utilities such as water, electricity, gas, and telecommunications also play a crucial role in determining the suitability of a particular piece of land for a plant location.

    Additionally, proximity to transportation networks like highways, railways, and ports can impact the ease of distribution for the finished products. All of these factors must be carefully considered before finalizing the location for a new plant.

    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.This also allows for easier collaboration and communication between different industries, leading to potential cost savings and improved efficiency in the production process.

    Additionally, having related industries nearby can attract skilled workers and provide access to specialized resources and expertise that may not be readily available in other locations. Overall, the presence of related industries near a plant location can have significant benefits for the industry and its operations.

    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.

    Organizations should strive to provide a conducive environment for their employees by ensuring that essential facilities are easily accessible. By prioritizing the well-being and comfort of their workforce, companies can boost morale and productivity levels. Ultimately, investing in these basic amenities can lead to greater job satisfaction and employee retention rates.

    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. Improper waste disposal can lead to environmental pollution and health hazards for both employees and the surrounding community. Industries must prioritize implementing effective waste management systems to mitigate these risks and ensure sustainable operations.

    Proper disposal methods such as recycling, treatment, or safe landfilling should be integrated into the site location planning to minimize negative impacts on the environment. Additionally, compliance with local regulations and standards regarding waste disposal is essential to avoid legal repercussions and maintain a positive reputation within the industry. 

    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.

    Download Plant location PDF

    Locational Economics

    An ideal plant location results in the lowest production cost and minimum distribution cost per unit. These costs are affected by a number of factors as I discussed above. The various costs which determine the locational economy are those of –

    1. Cost of land.
    2. Cost of building or rent.
    3. Cost due to procuring equipment and machinery.
    4. Labour cost.
    5. Water, power, and fuel cost.
    6. Shipment or transportation cost.
    7. Cost of raw material.
    8. Paying taxes, etc.

    Other than these costs, community attitude, housing facilities are also considered during selecting a site location. The economic aspects of locations are considered or run an economic survey and analysis to decide, which is the best location.

    Rural vs Urban Plant Location

    Selecting the Plant Location in Urban site

    Advantages of selecting plant site in a city

    1. A city is always well connected by road, rail and air.
    2. The city itself provides a market for the manufactured products.
    3. Efficient and skilled workers available within the city.
    4. Enough power and water are easily available.
    5. Hospitals, shopping complex, school, bank, recreation club, etc. facilities are available in an urban area.
    6. Sometimes factory can be set up in an existing available building.
    7. Workers and foremen’s training institute can be found in cities.
    8. Many other industries related to your product are available, so outsourcing can be easily done.

    Dis-advantages of selecting plant site in a city

    1. Available land can be limited in area.
    2. Cost of land or construction is quite high.
    3. Expansion of the factory is not easily possible.
    4. Taxes in cities are high.
    5. Salary of worker is high.
    6. Problems due to union is more in urban sites.

    Selecting the Plant Location in Rural site or small town

    Advantages of selecting plant location in Rural site

    1. In a rural area, plenty of lands is available for factory setup and expansion purpose.
    2. cost of land is cheap.
    3. Cheap labour is available but the company have to train them to suit the requirement of the work.
    4. There will be no union problem, so employee-employer relations are good.
    5. Municipal and other regulations and taxes are easy.
    6. The government gives inducements as it wants to develop the rural areas.

    Dis-advantages of selecting plant location in Rural site

    1. Skilled workers not available, giving the training is a time-consuming process.
    2. There is no proper infrastructure like rail, road and air or may not be adequate.
    3. Enough power is not available.
    4. Rural areas are far from the market, so transportation cost is high in this case.
    5. Hospitals, schools, recreation clubs may not available there.
    6. High-grade executive and officers may not like to live in a small town.

    Suburban site can an alternative between urban and rural site as it possesses good point of both urban and rural locations.

    Sukanta Maiti

    I am a Mechanical Engineer by profession, Blogger, and Youtuber by passion. I have been in the engineering field since 2014. I am passionate about sharing all my knowledge about engineering, management, and economics to my readers.

    One thought on “Plant Location |12 Factors Affecting Plant Location / Site Location

    Leave a Reply

    Your email address will not be published. Required fields are marked *