PLANT LOCATION

Every entrepreneur is faced with the problem of deciding the best site for location of his plant or factory.
What is plant location?
Plant location problem is an important strategic level decision making for an organization. The selection of location is a key
decision as large investment is made in building plant and machineries. Plant location refers to the choice of region and the selection of
a particular site for setting up a business or factory. But the choice is made only after considering cost and benefits of different
alternative sites. It is a strategic decision that cannot be changed once taken. If at all changed only at considerable loss, the location
should be selected as per its own requirements and circumstances. Each individual plant is a case in itself. Businessman should try to
make an attempt for optimum or ideal location. It is not advisable or not possible to change the location very often. So an improper
location of plant may lead to waste of all investments made in building and machinery & equipments. The propose of location study is to
find an optimum location one that will result in the greatest advantage to the organization.

Need for selecting suitable location

The need for selecting a suitable location arises because of two situation
1. When starting a new organization i.e. location choice for the first time.
2. In case of existing organization
The existing firms will seek new location in order to expand the capacity or to place the existing facilities. The increase in demand for the
company’s products can give rise to following decisions.
1. Whether to expand the existing capacity and facilities
2. Whether to look for new locations for additional facilities
3. Whether to close down existing facilities to take advantage of some new location

Reasons for replacement of existing facilities to new location

 Changes in location of demand
 Changes in availability of materials
 Changes in availability of transport
 Changes in the cost or supply of labour
 Changes in regulations and law
 Changes in availability of raw materials

What is an ideal location?

An ideal location is one where the cost of the product is kept to minimum, with a large market share, the least risk and the
maximum social gain. It is the place of maximum net advantage or which gives lowest unit cost of production and distribution. For
achieving this objective, small-scale entrepreneur can make use of location analysis for this purpose.

LOCATIONAL ANALYSIS
Locational analysis is a dynamic process where entrepreneur analyses and compares the appropriateness or otherwise of alternative
sites with the aim of selecting the best site for a given enterprise. It consists the following:
(a) Demographic Analysis: It involves study of population in the area in terms of total population (in no.), age composition, per capita
income, educational level, occupational structure etc.
(b) Trade Area Analysis: It is an analysis of the geographic area that provides continued clientele to the firm. He would also see the
feasibility of accessing the trade area from alternative sites.
(c) Competitive Analysis: It helps to judge the nature, location, size and quality of competition in a given trade area.
(d) Traffic analysis: To have a rough idea about the number of potential customers passing by the proposed site during the working
hours of the shop, the traffic analysis aims at judging the alternative sites in terms of pedestrian and vehicular traffic passing a site.
(e) Site economics: Alternative sites are evaluated in terms of establishment costs and operational costs under this. Costs of
establishment is basically cost incurred for permanent physical facilities but operational costs are incurred for running business on day to
day basis, they are also called as running costs.

1
 SELECTION CRITERIA
The important considerations for selecting a suitable location are given as follows:
a) Natural or climatic conditions.
b) Availability and nearness to the sources of raw material.
c) Transport costs-in obtaining raw material and also distribution or marketing finished products to the ultimate users.
d) Access to market: small businesses in retail or wholesale or services should be located within the vicinity of densely populated areas.
e) Availability of Infrastructural facilities such as developed industrial sheds or sites, link roads, nearness to railway stations, airports or
sea ports, availability of electricity, water, public utilities, civil amenities and means of communication are important, especially for small
scale businesses.
f) Availability of skilled and non-skilled labour and technically qualified and trained managers.
g) Banking and financial institutions are located nearby.
h) Locations with links: to develop industrial areas or business centers result in savings and cost reductions in transport overheads,
miscellaneous expenses.
i) Strategic considerations of safety and security should be given due importance.
j) Government influences: Both positive and negative incentives to motivate an entrepreneur to choose a particular location are made
available. Positive includes cheap overhead facilities like electricity, banking transport, tax relief, subsidies and liberalization. Negative
incentives are in form of restrictions for setting up industries in urban areas for reasons of pollution control and decentralization of
industries.
k) Residence of small business entrepreneurs want to set up nearby their homelands.

Plant location problem in Urban Area:

Advantages
1. Excellent communication network
2. Good transportation facilities for material and people
3. Availability of skilled and trained manpower
4. Factory in the surrounding of market hence high local demand
5. Good educational, recreational & medical facilities
6. Availability of service of consultants, training institutes & trainers
Disadvantages
1.High cost of land compared to rural area
2. Sufficient land is not available for expansion
3. Labour cost is high due to high cost of living
4. industrial unrest due to trade union activities
5. Management labour relations are much influenced by union activities
6. Municipal and other authority restrictions on buildings etc.
7. High labour turnover

Plant location problem in Suburban Area:

Advantages
1. Land available at cheaper rate compared to urban location
2. Infrastructure facilities are developed by promotional agencies
3. Nearness to city availability of skilled manpower
4. Educational, medical facilities are available because of nearness to city
Disadvantages
1. High mobility of worker and hence higher labour turnover
2. Government incentive and subsides to promote industries.
3. Crowdie and will become urban in turn within short period.

Plant location problem in Rural Area:

Advantages Disadvantages
1. Cheaper and easily availability of site 1. Poor transportation networks
2. Cheaper labour rate 2. No good communication facilities
3. Less turnover of labours because of limited mobility 3. Sourcing of components and materials should be from outside.
4. No municipal restrictions 4. Far away from market
5. Good industrial relation 5. No educational, medical and recreational facilities.
6. Scope for expansion 6. High absenteeism during harvest season.
7. No slums and environmental pollution
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