UNIT 02: PLANT LOCATION

Plant location: Factors to be considered- Multi Plant Location - Evaluation of Factors using Rations plan & Cost Analysis - Plant location trends. Plant Location may be defined as Deciding a suitable location or place, where the factory or plant will start functioning. Aspects of Plant location Selection of a region (Regional factors): Availability of raw materials Nearness to the source of power Proximity to the market Availability of transport facilities Suitability of climate Friendly industrial climate Selection of a locality (Community factors): Supply of labour Prevailing wage rates Banking, Insurance and Communication facilities Existence of supplementary or complementary industries Locales and the bye-laws Water supply and fire fighting services Attitude of people in the locality Selection of a site (Site factors): Price of land Disposal of waste Importance of Plant location 1. Location of plant partially determines the operating cost and capacity costs 2. Each prospective location implies a new allocation of capacity to respective market area 3. Location fixes some of the physical factors of the overall plant design heating and ventilation requirements Storage capacity for raw materials Transportation Power needs Cost of labour Land construction 4. Location helps to deliver the product at a cheaper price and thus helps to combat competition Types of Locational decisions 1. Location of production units or plants for the conversion of inputs into finished products 2. Location of service units which provide assistance to production units 3. Location of distribution and retail units for dispersion of the production 4. Location of procurement centres to assemble necessary inputs in the selected site 5. Location of warehouse facilities Objectives in Plant location 1. Reduced capital investments and operating costs 2. Ensuring effective plant layout 3. Coordination with government policies 4. Employee welfare and public needs 5. Security Location Theories 1. Theory of least cost location: Based on the assumption that product has no effect on demand as a result of location chosen. 2. Independence theory of location: Based on the following two assumptions Ability to control the largest market area Costs of procuring raw materials and processing are equal at all locations 3. Theory of maximum profit location: Based on the following two assumptions Depends on the cost of production at alternative locations Income variations between alternative locations 4. Location analogue model: Transportation models of Operations Research Localization Vs De-localization Concentration of similar type of industries at some particular place is known as Localization. Page 1 of 2

The propensity of particular industries to cling, breed and cluster in particular localities is called localization of industries. Relocation Shifting of the location of plant to some other place is called Relocation. The necessity of relocation arises due to 1. Undesirable labour situation Maruti Suzuki 2. Changes in the pricing policy of an enterprise 3. Changes in the cost and availability of materials 4. Changes in the nature and cost of transportation 5. Shift in the structure of market or movement of markets Factors affecting Plant Location Selection of Region Selection of Community 1. Availability of labour 1. Availability of raw materials 2. Nearness to market 3. Availability of power 4. Transport facilities 5. Suitability of climate 6. Government policies 7. Competition among states 2. Civic amenities for workers 3. Existence of complementary and competing industries 4. Finance and research 1. Soil, size and topography facilities 2. Disposal of waste 5. Availability of water and fire fighting facilities 6. Local taxes and restrictions 7. Momentum of an early start 8. Personal factors Multi-plant Location In a single plant location, the focus is normally on establishing a new facility at a minimum cost. In the multi-plant location, the focus is on selecting the location, which when added to existing locations, should minimize the cost of entire system. Thus each of the potential factors must not only be assessed on its own merit alone but also in the context of multi-plant location. Selection of Site

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