FACILITY OR PLANT LOCATION
Facility location decision is the systematic process of determining a geographic site
for a firm‘s operations. Managers of both service and manufacturing organizations should
consider the desirability of a particular site, including proximity to customers and suppliers,
labour costs, and transportation costs. Location conditions are difficult to measure. Tangible
cost based factors such as wages and products costs can be quantified easily. On the other
hand non-tangible features, which refer to such characteristics as reliability, availability and
security, cannot be measured exactly in quantitative forms.
Steps in site Selection
The following are the different stages involved in the site selection process:
1. Selection of the region in which the plant is to be established
2. After selecting the region, the next step is to select a locality with in the region.
3. Selection of site for plant construction
4. Final investment decision
There are mainly two sets of factors affecting the location decision:
General locational factors, which include controllable and uncontrollable factors for all
type of organisations.
Specific locational factors specifically required for manufacturing and service
organisations.
Following are the general factors required for location of plant in case of all types of
organisations.
1. Proximity to markets
2. Supply of materials
3. Transportation facilities
4. Infrastructure availability
5. Labour and wages
6. External economies
7. Capital.
8. Government policy
9. Climate conditions
10. Supporting industries and services
11. Community and labour attitudes
12. Community Infrastructure.
Controllable factors
1. Proximity to markets
Every company is expected to serve its customers by providing goods and services at
the reasonable price and time.Organizations may choose to locate facilities near to the
market. When the buyers are concentrated, it is advisable to locate the facilities close to the
market. Nearness to the market ensures a consistent supply of goods to customers and it
reduces the cost of transportation.
Locating nearer to the market is preferred if:
• The products are subject to spoilage.
• After sales services are promptly required veryoften.
2. Supply of raw material
It is essential for the organization to get right type of raw materialsat the right time in
order to have a continuous production. This factor becomes very important if the materials
are perishable and cost of transportation is very high. Nearness to raw material is important in
case of industries such as sugar, cement, jute and cotton textiles.The following things are to
be considered in this case:
• When a single raw material is used without loss of weight, locate the plant at the
rawmaterial source or at the market place.
• When weight loosing raw material is required, locate the plant at the raw material source
itself.
• When raw material is universally available, locate close to the market area.
3. Transportation facilities
Speedy transport facilities ensure timely supply of raw materials to the production
centres. The transport facility is a prerequisite forthe location of the plant. There are different
modes of transportation such as, air, road, rail, water and pipeline. Goods that are mainly
intended for exports demand, a location near to the port is useful and economical. The factors
influencing the choice locational facility includecosts, convenience, and suitability.
4. Availability of infrastructure facilities
The infrastructure facilities like power, water and waste disposal etc., are the
important factors in deciding the location facility. Certain types of industries use more
amount of power and such company‘s should be located close to the power station. The non-
availability of power may become a survival problem for such industries. Process industries
like paper, chemical, cement etc. require continuous supply of water in large amount.
Availability of waste disposal facility for process industries is an important factor in modern
times.
5. Labour and wages
The problem of securing adequate number of skilled and unskilledwork force is a
major factor to be considered at the time site selection. Importing labour is usually costly and
involves administrative problems. Productivity of labour is also an important factor to be
considered. Prevailing wage pattern, quality of human resources in terms of education, cost
of living, industrial relation and bargaining power of the unions‘ form important
considerations.
6. External economies of scale
Availability of various external economies of scale is major factor in deciding the
project location. Tax incentives, facility of industrial estates, special economic zone are some
of the factors to be considered at the time of taking location decision. 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.
7. Availability of Capital
Another important factor deciding the choice of location is the availability of capital.
Fixed capital is required for the construction of building and acquisition of land. But on the
other hand buildings can also be rented and existing plants can be expanded. The availability
of such factors is also affecting the decision on site selection.A careful study
on financial strength and weaknesses of the proposed project should be
undertaken.
8. Policies of the Government
The policies of the Central, state governments and local bodies
concerning labour laws, building codes, safety, tax etc. are the major factors
which affect the choice location for the industries. Government provides
various kinds of incentives to entrepreneurs for industrial development in
special economic zone. The incentive package may be in the form of
exemption from a sales tax and excise duties for a specific period, soft loan
from financial institutions and investment subsidy. Some of these incentives
may tempt to locate the plant to avail these facilities offered.
9. Climatic conditions
The natural condition of the geographical area needs to be considered
together with climatic conditions. Climates greatly influence human
efficiency and behaviour and reflect the same in the labour productivity.
Some industries require specific climatic conditions e.g., textile mill
requireshumidity. Therefore such special climatic factors have to be
carefully examined in the choice of project site.
10. Supporting industries and services
Availability of supporting industries is another consideration which
affects the choice of location. Manufacturing organisation will not make all
the components and parts by itself
.Sometimes it subcontracts the work to vendors to manufacture. So,the
source of supply of component parts will be the one of the factors that
influences the location. The presence of healthy relationship among different
firms is also a pre-requisite for industries to develop. The various services
like communications, banking services, professional consultancy services
will play a vital role in selection of a location.
11. Community and labour attitudes
The general attitude of the community towards proposed industry
will have an important bearing in the choice location.Sometimes,a specific
location is not desirable because of labours negative attitude towards
management, which brings very often the strikes and lockouts. Such
conditions have to be seriously analysed.
12. Availability of Community infrastructure
All manufacturing activities require access to a transport
infrastructure such as roads, railways, port, power lines and other service
facilities .The availability of social facilities like schools, universities and
hospitals are also the major determinants in the choice project site. These
factors are also required to be considered by managers.
