Volume 22, Issue 1, March 2022, Pages 57-75 https://doi.org/10.1016/j.cbrev.2022.03.001Get rights and content
Plant Location 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. Identifying an ideal location is very crucial, it should always maximize the net advantage, must minimize the unit cost of production and distribution. Plant location decisions are very important because once the plant is located at a particular site then the organization has to face the pros and cons of that initial decision. Factors affecting the plant location Decisions regarding selecting a location need a balance of several factors. · Availability of raw materials: Availability of raw materials is the most important factor in plant location decisions. Usually, manufacturing units where there is the conversion of raw materials into finished goods is the main task then such organizations should be located in a place where the raw materials availability is maximum and cheap. · Nearness to the market: Nearness of market for the finished goods not only reduces the transportation costs, but it can render quick services to the customers. If the plant is located far away from the markets then the chances of spoiling and breakage become high during transport. If the industry is nearer to the market then it can grasp the market share by offering quick services. · Availability of labor: Another most important factor which influences the plant location decisions is the availability of labor. The combination of the adequate number of labor with suitable skills and reasonable labor wages can highly benefit the firm. However, labor-intensive firms should select the plant location which is nearer to the source of manpower. · Transport facilities: In order to bring the raw materials to the firm or to carrying the finished goods to the market, transport facilities are very important. Depending on the size of the finished goods or raw materials a suitable transportation is necessary such as roads, water, rail, and air. The transportation costs must be kept low. · Availability of fuel and power: Unavailability of fuel and power is the major drawback in selecting a location for firms. Fuel and power are necessary for all most all the manufacturing units, so locating firms nearer to the coal beds and power industries can highly reduce the wastage of efforts, money and time due to the unavailability of fuel and power. · Availability of water: Depending on the nature of the plant firms should give importance to the locations where water is available. For example, power plants where use water to produce power should be located near the water bodies. · Suitability of climate: Climate is really an influencing factor for industries such as agriculture, leather, and textile, etc. For such industries extreme humid or dry conditions are not suitable for plant location. Climate can affect the labor efficiency and productivity. · Government policies: While selecting a location for the plant, it is very important to know the local existed Government policies such as licensing policies, institutional finance, Government subsidies, Government benefits associated with establishing a unit in the urban areas or rural areas, etc. · Availability of finance: Finance is the most important factor for the smooth running of any business; it should not be far away from the plant location. However, in the case of decisions regarding plant location, it is the secondary important factor because financial needs can be fulfilled easily if the firm is running smoothly. But it should be located nearer to the areas to get the working capital and other financial needs easily. · Competition between states: In order to attract the investment and large scale industries various states offer subsidies, benefits, and sales tax exemptions to the new units. However, the incentives may not be big but it can help the firms during its startup stages. · Availability of facilities: Availability of basic facilities such as schools, hospitals, housing and recreation clubs, etc can motivate the workers to stick to the jobs. On the other hand, these facilities must be provided by the organization, but here most of the employees give preference to work in the locations where all these benefits/facilities are available outside also. So while selecting plant location, organizations must give preference to the location where it is suitable for providing other facilities also. · Disposal of waste: Disposal of waste is a major problem particularly for industries such as chemical, sugar, and leather, etc. So that the selected plant location should have provision for the disposal of waste.
Facility location is the process of determining a geographic site for a firm’s operations. Managers of both service and manufacturing organizations must weigh many factors when assessing the desirability of a particular site, including proximity to customers and suppliers, labor costs, and transportation costs. Location conditions are complex and each comprises a different Characteristic of a tangible (i.e. Freight rates, production costs) and non-tangible (i.e. reliability, frequency security, quality) nature. Location conditions are hard to measure. Tangible cost based factors such as wages and products costs can be quantified precisely into what makes locations better to compare. On the other hand non-tangible features, which refer to such characteristics as reliability, availability and security, can only be measured along an ordinal or even nominal scale. Other non-tangible features like the percentage of employees that are unionized can be measured as well. To sum this up non-tangible features are very important for business location decisions. It is appropriate to divide the factors, which influence the plant location or facility location on the basis of the nature of the organization as
Location factors can be further divided into two categories: Dominant factors are those derived from competitive priorities (cost, quality, time, and flexibility) and have a particularly strong impact on sales or costs. Secondary factors also are important, but management may downplay or even ignore some of them if other factors are more important. General Locational Factors CONTROLLABLE FACTORS
Factors influencing plant location UNCONTROLLABLE FACTORS
CONTROLLABLE FACTORS
Location economies of scale in the manufacturing sector have evolved over time and have mainly increased competition due to production facilities and lower production costs as a result of lower transportation and logistical costs. This led to manufacturing districts where many companies of related industries are located more or less in the same area. As large corporations have realized that inventories and warehouses have become a major cost factor, they have tried reducing inventory costs by launching “Just in Time” production system (the so called Kanban System). This high efficient production system was one main factor in the Japanese car industry for being so successful. Just in time ensures to get spare parts from suppliers within just a few hours after ordering. To fulfill these criteria corporations have to be located in the same area increasing their market and service for large corporations.
Capital becomes a main factor when it comes to venture capital. In that case young, fast growing (or not) high tech firms are concerned which usually have not many fixed assets. These firms particularly need access to financial capital and also skilled educated employees. UNCONTROLLABLE FACTORS
The various services like communications, banking services professional consultancy services and other civil amenities services will play a vital role in selection of a location.
These factors are also needed to be considered by location decisions as infrastructure is enormously expensive to build and for most manufacturing activities the existing stock of infrastructure provides physical restrictions on location possibilities. Specific Locational Factors for Manufacturing Organization DOMINANT FACTORS
SECONDARY FACTORS Specific Locational Factors for Service Organization DOMINANT FACTORS PROXIMITY TO CUSTOMERS TRANSPORTATION COSTS AND PROXIMITY TO MARKETS LOCATION OF COMPETITORS SECONDARY FACTORS |