Selection of factory

location
The selection of a place for locating a
factory is one of the problems, perhaps
the most important ,which is faced by an
entrepreneur while launching a new
enterprise.
An ideal location may not , by itself
,guarantee success , but it certainly
contributes to the smooth & efficient
working of an organisation.
Once a mistake is being made in locating
a factory is become extremely difficult &
costly to correct it, specially where large
plants are concerns.
Need for the selection of the location
When the business is newly started.
The existing business unit has outgrown
its original facilities & expansion is not
possible. hence a new location has to be
found
The volume of business or the extent of
market necessitates the establishment of
branches.
When a company thinks that there is a
possibility of reducing manufacturing cost
shifting from one location to another
location.
Other social & economic reason:
inadequate labor supply ,shifting of the
market.
Steps in location selection
With in country or outside
Selection of region
Selection of the locality or community.
Selection of exact site.
Deciding on domestic or
international location-facility

should be located
domestically/internationally
Selection of region
Availability of raw material.
A firm that depends on heavy raw materials locates
nearer to availability of raw material.
Bihar & up in sugarcane industry
Nearness to market
A company that want to reduce the transportation cost
locates near markets.
Availability of power-eg iron & steel industry in
Germany. jamshedpur in india.

Transport
Suitability of climate-
suitability of climate is very
important for setting up
location facilities-humid
climate for cotton & jute
industry.
Government policy-any firm that is
looking for subsidy or incentives has to
locate factory in states which provide
them.
Licensing policy
Institutional finance & govt subsidy .

Competition between states

Selection of community
Availability of labour .-an adequacy of
labour supply at reasonable wages is very
essential for the smooth functioning.
Civic amenities for workers.- availability
of civic amenities for workers also plays
role in facility location.
Clubs,theatres,parks.
Existence of complementary & competing
industries.- favourable
Labour market
Bank become familiar.
A group of plant attract a variety of
repair plants.
Finance & research facilities.
Availability of water & fire fighting
facilities.-influences the location decision.
Local taxes & restriction-they imposed
charges for the supply of water
,electricity,& other facilities. industrlist
should prefer an area where such taxes &
restrictions are less.
Momentum of early start-
railway,banking,repair & maintenance.
Personal factors
Selection of the site
Soil& size & topography
Disposal of waste-leather & chemical
industries locate where there is a
provision of disposal of waste.
Location models
Factor rating method
Point rating method
Break –even analysis
Qualitative factor analysis
Factor rating method

Factor rating are used to evaluate

alternative locations
Steps involved are
List the most relevant factors in the
location decision.
Rate each factor ( from 1 to 5)according
to its relative importance.
Rate each location (from 1 to10)
according to its merits on each
factor.compute the product of rating by
multiplying the factor by location rating
for each factor
Compute the sum of the products of
ratings for each location./selection
actor Factor Location rating Product of rating
rating

Location A Location B Location A Location B

.Tax advantage 4 8 6 32 24
.Suitability of 3 2 3 6 9
Labour skills
.Proximity of 3 6 5 18 15
Customer
.Adequacy of 5 2 4 10 20
water
.Receptivity of 1 3 3 3 3
Community
.Proximity 5 4 3 20 15
To supplier
.Quality of 4 1 2 4 8
Educational
ystem
.Access to rail 3 10 8 30 24
ir transportation
.Climate 2 7 9 14 18
0.power 2 6 4 12 8

Total score 149 144

Point rating method
In selecting a site or location ,companies
have several objectives but not are equal
important.
The relative weight a company assigns to
each objective or to each location factor
may be represented by the number of
points a perfect site would receive in each
category.
Each potential site is then evaluated with
respect to every factor.
The site with highest points considered is
better.
or Maximum Points assigned to location
Possible
points
Location A Location B

uture 300 200 250

lability
uel
ansportatio 200 150 150

ater supply 100 100 100

abour 250 220 200
ollution 30 20 20
ulations
te 50 40 30
ving 150 100 125
dition

1080 830 875

Locational break -even analysis
Steps
Determine all relevant costs that vary
with each location
Categorize the cost for each location into
annual fixed costs(FC) & VC & calculate
the TC for the desired volume of
production per annum.
Plot the total costs associated with each
location on the single chart or graph
Select the location with the lowest annual
cost at the expected production volume
per annum.(Q).
TOTAL COST=(fixed cost per annum)+
(variable cost per unit)*(quantity
produced)
Qualitative factor analysis method
Develop a list of relevant factors.
Assign weight to each factor to indicate
its relative importance.
Assign a common scale to each factor (0
to 100) & designate any minimum point
to be scored by each location
Score each potential location according to
the designed scale.
Total points of each location/selection