PLANT LOCATION

By,
Kasthuri. D , MBA 2nd Yr
DEFINITION
 As locating a business is relatively a
permanent investment, selecting a site for the
factory is a important management decision.

 Plant location refers to the choice of the

region where men, materials, money,
machinery and equipment are brought together
for setting up a business or factory. A plant is
a place where the cost of the product is kept
low in order to maximize the gains.
IMPORTANCE
 Location decisions are strategic, long-term and non-
repetitive in nature.

 Location influences plant layout facilities needed.

 Location influences capital investment and operating costs.

 The location decision should be taken very carefully, as

any mistake may cause poor location, which could be a
constant source of higher cost, higher investment, difficult
marketing and transportation, dissatisfied and frustrated
employees and consumers, frequent interruptions of
production, abnormal wastages, delays etc.
SELECTION OF PLANT LOCATION

 The selection of the location for an industrial

plant is a long time commitment.
 A new enterprise may be suffered
throughout its life due to unfavorable
location. Once a plant has been built, the
expense and disruption of activities
necessary to move it to a more favorable
location is quite impracticable.
Procedure for Selecting a Site:

 Constitution of a site selection committee.

 Determining the company needs.

 Deciding criteria for selection.

 Accumulate the data.

 Analyze the data.

 Evaluate the alternatives.

 Reduce number of alternatives.

 Investigation in detail.

 Collect and analyze further data

Within or outside country
To be Continued…
The first step in locating a plant is to decide
whether the plant is located domestically or
internationally.

The choice of particular country depends on

factors like political stability, export & import ,
currency & exchange rates.

Due to globalization the issue of home or

overseas is gaining more relevance
PLANT IN URBAN AREA
Selection of Site in an Urban Area

Advantages:
 It is sometimes possible to find an existing building which can
be used to house the factory.

 It is easier to sell the building, if it is desired, at later stage.

 Power and water is easily available.

 If other factories are also situated in a big city, there will be good
opportunity for discussing and having exchange of knowledge.
Continued…
 Good market for small manufacturers.
 It is a good labor market, where all types of
labor available. Seasonal labor is also easily
obtained than in a smaller centre of
population, specially where unskilled labor
is required.
 Workers find easy to change job from one
industry to other, if required.
Continued…
 Services of repairs and maintenance etc. can
be available with existing industries.

 Large number of government of facilities

will be easily available like-Post office,
Banks, Railways, Police and Fire protection.
Continued..

 Houses for workers are easily available.

 Education for the children is not a problem.
 It is well served by railways and roads from
various parts of the country so that
transportation of incoming and outgoing
materials is convenient and cheap.
 Transport is easy
Disadvantages
1. Often sites are limited in area as sufficient land is
not available and congested. Hence climate is not
healthy.

2. Area being limited, it may not be possible to

arrange the equipment to the best of advantages.

3.The cost of land is high and rates are liable to

increase further. Land for expansion is not
available at reasonable rates. The larger the city,
the larger the land value.
Continued…
 Because of high standard of living, higher
wages of labor will have to be paid.

 More problems about labor and employer

relations.

 Cost of building factory will be high.

 High taxes.
PLANT IN RURAL AREA
Selection of Site in a Rural Area:

Advantages:
 The cost of land is less than in a city area
and usually easier to provide space for future
expansion.

 The cheapness of land enables a more

efficient layout of works to be made and
gives greater freedom in selecting the most
economic design for the buildings
Continued…
 Rail or road connection can be arranged
easily.
 Labor supply may be arranged from the
nearby areas or by transport from the city.
Labor is cheaply available.
 Lesser taxes and restriction
 Healthy surrounding and pleasant
atmosphere.
 Less labor trouble.
Disadvantages
 Sufficient power and water facilities may
not be available.

 Enough facilities for expansion may not be

available.

 Repairing work may become difficult,

because of less industry in the area
Continued…
 Government facilities may not be sufficient.

 Transport and housing facilities may not be

satisfactory.

 Skilled workers are not easily available.

 Facilities for education to children and adults

(part time courses) may not be available.
FACTORS AFFECTING PLANT
LOCATION
 Raw material procurement
E.g. Processing industries, cement, paper, meat, canning (Fruit)
etc.
 Proximity of Market
E.g. Shoes, furniture, glassware industries
 Availability of Labor, their Training and Compensation.
E.g. The textile industries silk and carpet making industries,
sports goods
 Availability of Power.
E.g. Steel industries & coal mines
 Availability of Finance & Research facility.
E.g. Gujarat
Continued…
 Availability of Transportation.
E.g. Mumbai
 Stability of the Government.
 Local tariffs & Restrictions.
 Disposal of Waste.
E.g. Nuclear power stations
 Selection of the Region ( hilly rocky &
rough terrain is unsuitable )
CENTRALIZED PLANT

 Companies with centralized
manufacturing have a single facility to
produce and distribute their products or a
central factory with multiple distribution
points in their supply chain.

 Decisions are made either by company

headquarters or some regional or divisional
level.
PROS OF CENTRALISED PLANT
 Production schedule efficiency.
 Dramatically reduce per unit production
costs by using the same equipment to
produce different products, allowing the
company to achieve economies of scale.
 Better forecasting
 More local jobs.
 More effective use of limited resources.
CONS
 Centralized manufacturing tends to be
inflexible, because of the cost of
customization.
 For example if a product has to change, the
entire system must be retooled and this is
extremely costly and time consuming. The cost
of labor can also be a disadvantage, especially
if a company maintains its central plant in a
region or country where wages are rising.
DECENTRALIZED PLANT
 Decentralized means that there is no single point
where the production is made.

 When a company is physically close to its customers,

it can be more flexible in meeting increasingly diverse
demands. Greater flexibility means greater
customization.

 A company with decentralized manufacturing can

manufacture only those products that are in demand in
a specific region or country.
PROS OF DECENTRALIZED
PLANT
 Flexibility
 Being closer to their customers
 Better and timelier information
 More motivated managers and employees
 The ability to take advantage of low labor
costs in different areas
 Increased demand or expanding markets
 CONS
 Multiple sites require a larger investment of
capital to set up.
 Maintaining organization-wide consistency
in products and processes is a challenge.
 For companies that manufacture highly
specialized products and distribute them
locally, decentralized manufacturing may
not be the best solution.
Any queries ??