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Plant location
Introduction
• Plant location refers to the choice of region and the selection of a particular
site for setting up a business or factory. An ideal location is on where the cost
of the product is kept to minimum, with a large market share, the least risk and
the maximum social gain.
• Location of an industry is an important management decision. It is a two-step
decision: first, choice of general area or region and second, the choice of site
within the area selected. Location decision is based on the organisations long-
term strategies such as technological, marketing, resource availability and
financial strategies.
Importance of Plant location
• The objective of plant location decision-making is to minimize the sum of
all costs affected by location.
• Plant location is important because of the following:
• (i) Location influences plant layout facilities needed.
• (ii) Location influences capital investment and operating costs.
Nature of Plant Location
• Plant location with thorough analysis leads the organization towards
success. The basic objective of organization is to maximize the profit
level. Hence, it will be beneficial for both i.e. newly established business
& already established business. The profit maximization can be done by
increasing sales price, increasing sales with reduced production cost, by
analyzing market trend, nature & level of competition etc. Production cost
can also be reduced, if firm is located at a place where all the basic
requirements (that fulfill input needs) will be available easily.
Selection of appropriate location is necessary
due to following reasons:
• Plant location partially determines operating and capital cost. It determines
the nature of investment.
• Each plant location requires some basic facilities like transportation,
availability of water, electricity, fuel, cheap labors etc.
• Each prospective location implies a new allocation of capacity to
respective market area.
• Government plays an important role in the choice of the location keeping
in view the national benefits.
Location 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.
Factors affecting plant location
1. Proximity to the market
2. Availability of raw material
3. Transport and communication facilities
4. Labor supply
5. Fuel and power
6. Government policy
7. Supporting industries and services
8. Climatic consideration
9. Suitability of the land
10. Safety requirements
11. Strategic consideration
Proximity to the market
• Market is the location of buyers and hence become an important factor for plant
location planning.Industrial units tried to locate the industry near the market
because customer can be served better and cost of service will be minimum.
• Market may be concentrated or widely spread depending upon the product. When
the market is concentrated then plant should be located close to the user.
• Concentration of market and stability of demand
• Transportation facilities available and freight rates to principal market.
• Risk of damage and delays to goods in shipment.
Availability of raw material
• Location selection decision is also dependent upon the raw material. The ideal
plant location is that, where at least the main raw material is easily available in
required quantity and quality within a time, so the daily flow of production can
be maintained and the total production cost can be minimized,(e.g all the mines
are located around the abundant supply area of raw ore, indusries such as sugar
industry, steel industries, etc have tentancy to localize near the source of raw
material as there will be great saving in the transportation cost).
• For some indusrties, requirement may be of more than one raw material and their
sources may be at different locations in such situations the plant location should
be selected by considering transportation costs i.e, plant shall be placed where
transportation costs are minimum.
Transport and communication facilities
• Transportation includes movement of raw materials from source to site,
movement of in process material from one stage to another stage to
another stage, movement of human resource; movement of finished
products to market, etc.
• While selecting location, adequate transport facility road, rail, water or air,
are to be analyzed for their availability, suitability and transportation
charges. transportation is the only one reason why the industries are
located near these junctions.
Labor supply
• Another influencing factors which affects the industrial location is the
availability of labors.the units shall be started at the place where the labor or
manpower can be easily made available and also at reasonable wages.according
to weber an industrial units will deviate from the point of minimum
transportation cost to the cheaper labor centre if the additional cost of
transportation is more than compensated by the savings in the labor cost.in the
recent years this assumption has lost its significance because,
1. The minimum level of wages has been fixed by law below which industrial unit
cannot go.
2. The labor is mobile factor and can be easily imported from other places.
Fuel and power
• An uninterrupted and adequate supply of fuel and power is major factor
influencing plant location decision.in last century industries which were
using coal as a major source of fuel and power were situated near coal
mines or places to which coal could be carried easily and cheaply.but with
the introduction of other sources of fuel and power such as oil,gas,and also
developmentof high tension grid system,the power factor has become
mobile.and hence now-a-days this factors is not of much importance.
Government policy
• In planned economy,this factor plays important role.in india,government
follows the policy of balanced regional growth of the country which is
very important from the point of view of defense and social problem like
slums,disparity of income and wealth,optimum use of resources.in order to
implement this polcy government offers several incentive and subsidiary
scheme to motivate the businessmen to locate their plant in backward
regions or no-industry regions.
Supporting industries and services
• To select the plant location the proximity services needed by the firm is
also considered.in some firm, some of or all the parts are imported or
procured from outside,in this condition the firm will be located at the near
to sub-contractor.if such sub-contractors are located far away from
plant,then there will not only increase in transportation cost but also it will
be time consuming and costly.
Climatic consideration
• Some industries requires special climate to run unit effectively,so it also
influence location decision.the question of climate is very important for
agricultural product.also cotton industries require a humid atmosphere(e.g.
number of cotton industries is located near bombay or ahmadabad)
• In case of certain industries, safety factors affecting to the plant location.
for example: nuclear power plant, explosive, factories, etc such plants are
to be located at remote areas.
Safety requirements
• Location should be selected by considering the soil structure of the
land.the soil structure must be capable of bearing loads of foundations.
Suitability of the land
Strategic consideration
• Strategic consideration like law and order situations, political stability and safety
also influence the location decision.
Thank you

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plant location.pptx

  • 2. Introduction • Plant location refers to the choice of region and the selection of a particular site for setting up a business or factory. An ideal location is on where the cost of the product is kept to minimum, with a large market share, the least risk and the maximum social gain. • Location of an industry is an important management decision. It is a two-step decision: first, choice of general area or region and second, the choice of site within the area selected. Location decision is based on the organisations long- term strategies such as technological, marketing, resource availability and financial strategies.
  • 3. Importance of Plant location • The objective of plant location decision-making is to minimize the sum of all costs affected by location. • Plant location is important because of the following: • (i) Location influences plant layout facilities needed. • (ii) Location influences capital investment and operating costs.
  • 4. Nature of Plant Location • Plant location with thorough analysis leads the organization towards success. The basic objective of organization is to maximize the profit level. Hence, it will be beneficial for both i.e. newly established business & already established business. The profit maximization can be done by increasing sales price, increasing sales with reduced production cost, by analyzing market trend, nature & level of competition etc. Production cost can also be reduced, if firm is located at a place where all the basic requirements (that fulfill input needs) will be available easily.
  • 5. Selection of appropriate location is necessary due to following reasons: • Plant location partially determines operating and capital cost. It determines the nature of investment. • Each plant location requires some basic facilities like transportation, availability of water, electricity, fuel, cheap labors etc. • Each prospective location implies a new allocation of capacity to respective market area. • Government plays an important role in the choice of the location keeping in view the national benefits.
  • 6. Location 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.
  • 7. • (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.
  • 8. Factors affecting plant location 1. Proximity to the market 2. Availability of raw material 3. Transport and communication facilities 4. Labor supply 5. Fuel and power 6. Government policy 7. Supporting industries and services 8. Climatic consideration 9. Suitability of the land 10. Safety requirements 11. Strategic consideration
  • 9. Proximity to the market • Market is the location of buyers and hence become an important factor for plant location planning.Industrial units tried to locate the industry near the market because customer can be served better and cost of service will be minimum. • Market may be concentrated or widely spread depending upon the product. When the market is concentrated then plant should be located close to the user. • Concentration of market and stability of demand • Transportation facilities available and freight rates to principal market. • Risk of damage and delays to goods in shipment.
  • 10. Availability of raw material • Location selection decision is also dependent upon the raw material. The ideal plant location is that, where at least the main raw material is easily available in required quantity and quality within a time, so the daily flow of production can be maintained and the total production cost can be minimized,(e.g all the mines are located around the abundant supply area of raw ore, indusries such as sugar industry, steel industries, etc have tentancy to localize near the source of raw material as there will be great saving in the transportation cost). • For some indusrties, requirement may be of more than one raw material and their sources may be at different locations in such situations the plant location should be selected by considering transportation costs i.e, plant shall be placed where transportation costs are minimum.
  • 11. Transport and communication facilities • Transportation includes movement of raw materials from source to site, movement of in process material from one stage to another stage to another stage, movement of human resource; movement of finished products to market, etc. • While selecting location, adequate transport facility road, rail, water or air, are to be analyzed for their availability, suitability and transportation charges. transportation is the only one reason why the industries are located near these junctions.
  • 12. Labor supply • Another influencing factors which affects the industrial location is the availability of labors.the units shall be started at the place where the labor or manpower can be easily made available and also at reasonable wages.according to weber an industrial units will deviate from the point of minimum transportation cost to the cheaper labor centre if the additional cost of transportation is more than compensated by the savings in the labor cost.in the recent years this assumption has lost its significance because, 1. The minimum level of wages has been fixed by law below which industrial unit cannot go. 2. The labor is mobile factor and can be easily imported from other places.
  • 13. Fuel and power • An uninterrupted and adequate supply of fuel and power is major factor influencing plant location decision.in last century industries which were using coal as a major source of fuel and power were situated near coal mines or places to which coal could be carried easily and cheaply.but with the introduction of other sources of fuel and power such as oil,gas,and also developmentof high tension grid system,the power factor has become mobile.and hence now-a-days this factors is not of much importance.
  • 14. Government policy • In planned economy,this factor plays important role.in india,government follows the policy of balanced regional growth of the country which is very important from the point of view of defense and social problem like slums,disparity of income and wealth,optimum use of resources.in order to implement this polcy government offers several incentive and subsidiary scheme to motivate the businessmen to locate their plant in backward regions or no-industry regions.
  • 15. Supporting industries and services • To select the plant location the proximity services needed by the firm is also considered.in some firm, some of or all the parts are imported or procured from outside,in this condition the firm will be located at the near to sub-contractor.if such sub-contractors are located far away from plant,then there will not only increase in transportation cost but also it will be time consuming and costly.
  • 16. Climatic consideration • Some industries requires special climate to run unit effectively,so it also influence location decision.the question of climate is very important for agricultural product.also cotton industries require a humid atmosphere(e.g. number of cotton industries is located near bombay or ahmadabad)
  • 17. • In case of certain industries, safety factors affecting to the plant location. for example: nuclear power plant, explosive, factories, etc such plants are to be located at remote areas. Safety requirements
  • 18. • Location should be selected by considering the soil structure of the land.the soil structure must be capable of bearing loads of foundations. Suitability of the land Strategic consideration • Strategic consideration like law and order situations, political stability and safety also influence the location decision.