plant location

INTRODUCTION

A plant is a place, where men, materials, money, machinery and equipment etc are brought together for manufacturing products.Plant location may be understood as the function of deternmining where the plant should be located for maximum operating economy and effectiveness. A selection on pure economic consideration will ensure an easy and regular supply of raw materials, labour force .efficient plant layout, proper utilization of production capacity and reduced cost of production An ideal location may not by itself, guarantee success; but it certainly contributes to the smooth and efficient working of an organization A bad location, on the other hand, is a severe handicap for any enterprise and it finally bankrupts it .It is ,therefore very essential that utmost care should be exercised in the initial stages to select a proper place. Once a mistake is made in locating a plant, it become extremely difficult and costly to correct it, especially where large plants are concerned

FACTORS OF LOCATION

Decision regarding location requires a careful balancing of several factors. Some of them are more important and are known as primary factors, while. The less important one are known as secondary factors

PRIMARY FACTORS

Availability of  raw material

Nearness to the potential market

Proximity to cheap fuel

Transport facilities

Availability of labour

Availability of water

Land and climate

Availability of hospitals, schools, house,etc

Financial and other aids

Availability of raw material

In order to minimize the transport cost of raw materials to the industrial plant, nature of raw material is of great importance.A good deal of economy in transport cost can be achieved if industries, which use weight losing materials, are located nearer to the source of raw materials .In case industries ubiquities material, the material transport cost factor do not influence the location much. In addition to the cost factor, other factors related to material to be considered, while taking a decision regarding to the location is (1) whether the material available indigenously or to be imporeted? (2)Any financial   linkage to the  supply of raw material, so that material is available below market price,(3)Reliability and continuity of the source of supply and(4)The security factor of transport.

Nearness to the   market for the finished product  

Industries using pure raw materials, are generally located nearer to the market for the product produced. By located the unit nearer to the market, the transportation cost of finished goods will be minimum. In addition to this factor the chances of finished goods getting damaged or spoiled during transport can be reduced. As the industry is nearer to the market, it can catch a big share of the market and can render quick services to the customers.

Availability of Fuel and Power

The problem of fuel and power can also be solved with reference to the nature of raw materials .Industries, which use coal as the source of power for their industries. Are located nearer to the coal bed. Because coal loses substantial weight during processes.

Transport facilities

A lot money is spent both in transporting  the raw material and the finished goods. Depending on the size of the raw material or finished

 goods,a suitable method of transportation like roads, rail, water ,or air is selected and accordingly the plant location is decided .The point to be considered here is that the cost of transport must be kept at a minimum this is because, the movement of material will simply add to the cost  and nothing to use /economic values of the material or product.

Availability of labour

Another importat factor influencing the location of industries is availability of suitable and adequate number of labour at a reasonable labour wages.This particularily true in the case of plants like, tobacco companies, and tea estates etc.Any labour intensive companies have to select a location nearer to the source of labour .In case needs skilled labour, it has to select a location nearer to the source of skilled labours.

Availability of water

In case water is used for processing, as in paper and chemical industries, also is required for drinking and sanitary purposes. Depending up on the nature of plant, water should be in adequate quanity and be of desired quality

SECONARY FACTORS

Soil and climate

Soil and climate is really an influencing factor for a unit processing agricultural products like tea, coffee and rubber etc. With the development in the field of heating ventilating and air conditioning climate of the region is not a problem these days

Industrial Atmosphere

The industrial Atmosphere cannot be measured in tangible terms, but it has very important advantage in selecting a location for a plant. Industrial atmosphere may said to exist where people living at a place instinctively of industry and learn the intricacies of machines without much effort .This is an added advantage for the growth of industries in a particular area

Financial and Other Aid

The plant should be located in an area where financial institutions are available to get a part of capital as loan and getting working capital and for other financial aids.

Availability of facilities like housing, schools and hospitals and recreation clubs

The site should be nearer to infrastructure facilities,so that labour will have housing facility at a reasonable cost and they will take advantage of educational institutions to educate their children.For health problems,they can use hospitala.They can relax during off periods in recreation clubs.All the above said facilities will help in motivating the labour to stick to the job. ie; ,labour turnover will be at low rate

Momentum of an early start

There are number of places where, to begin with, only one or two factories were started. With the passage of time these places gained importance and attract industries. As number of industrial units increase, certain facilities are developed in that area. Some of facilities are banking facility; maintenance units and other services related units will come up. With these .availability pf skilled labour also increase

Special advantages of the place

Some times certain facilities are offered by the state, in case the particular region is selected. Facilities like providing subsides, tax holidays etc, in this way state tries to develop the underdeveloped areas.

Personal factors

Some times, promoters, irrespective of economic factors, prefer to start their unit in their place of origin to develop the area and help the fellow community. Good example for this is Ford Company at Detroit

Historical factors

Factors like personal fancies of entrepreneurs or historical incidents may in many cases lead to the development of a place as the center of an industry. Example is development of Kanpur as textile industrial center.

Political stability

The lack of political stability in a state makes for uncertainty in the attitude of State Governments to industries .In locating industrial plant; it must be seen as to whether the State has a record of political and economic stability

LOCATON ANALYSIS

Analysis of location alternatives should consider both objective factors such as availability of proper transport facilities, availability of suitable labour, tax consideration material cost and market

Pontentalities and subjective factors like civic amenities,labour union activities,weather conditions etc

COST ANALYSIS

QUANTITATIVE METHODS

WEIGHT METHOD 

RANKING METHODS

COST ANALYSIS

A cost study is made regarding all the alternatives sites,to work out what would be the expected production cost per unit of product or what is the rate of return on investment expected and they are compared to select the optimal site.Cost analysis can be done in three ways. They are Comparative cost analysis Rate of return analysis, Break even analysis

COMPARATIVE COST ANALYSIS

In this method all the costs involved in establishing and operating the plant at the site is listed and total cost is worked out .Based on the total cost plant site is selected.It can be represented by graphical means.All cost factors are shown to scale on a bar chart(one bar for each plant). Comparing the height of the bars, the decision is taken to opt for particular  site. The bar, whose height is smaller, is selected

RATE OF RETURN ANALYSIS (ROR)

This analysis is based on the rate of return on the total investment.Any person who invests money in business is more interested in knowing what rate of return he is going to get by investing the money? He compares the alternatives and select the business that yield higher rate of return

Rate of return=Total sales-total expenses

                          Total investment

BREAK EVEN ANALYSIS

  

Using the break even analysis concept one may compare objective cost factors.For this one has to identify the fixed and variable expenses for each alternative location and the total cost is worked out.These total cost curves are plotted on a single graph.The location with the lowest cost is selected

Fixed cost-It consists of all those costs or expenditure, which will not vary with the quantity produced below the capacity of the plant

Variable cost-This consist of those costs, which will vary directly with quantity produced.

Fixed cost and variable costs of a location

  With expected higher volume compared to total cost as indicated by dashed line in figure ie, location is selected. If the total cost line for various alternative locations intersect, it indicates that advantages of each location is not absoluter but will vary according to the volume of output.

QUALITATIVE METHODS

The entrepreneur, who is making a choice between different sites, has to consider intangible factors in addition to the cost factors, which cannot be measured quantitatively, can be expressed as significant, good, excellent, bad etc. Such factors are housing facility, community attitude, education facilities and medical facilities etc.

WEIGHT METHOD

Here, weight is allocated to each influencing

factor depending on the importance of the

factor. Most important factor is given a higher

weight and next one is lesser weight and so on

.These weight are added and the site, which gets

Higher totals weight, is given preference. One must

careful while a scale for fixing up weight. 

RANKING METHOD

In ranking method each factor is allocated a rank or a rate according to its importance. Important factor is given a rank of one and all other factors are expressed in whole numbers as multiple of least number as shown in the below. Each rank is then multiplied by the appropriate weighting factors, to get the score for each location. The scores are totaled and the site, which has higher score, is selected