Plant location

Factors for locating Factories

and services.
 Plant Location
 Plantlocation decisions are strategic,
long term and non repetitive.
 Plant Location
• Plant location decisions concern

• A) Manufacturing units

• B) Assembly units

• C) Service organizations.
 Plant Location
Poor location leads to :-
A) Higher Cost
B) Difficult marketing
C) Difficult Transportation
D) Dissatisfaction among employees.
E) Substandard Quality.
Plant Location
 Poorly located plants can only be
shifted at a considerable cost and
stoppage of production.
Location Decision
Why does it arise ?
1) A new manufacturing or service is to be
set up.
2) Existing operations are difficult to
expand.
3) Additional facilities due to growth in
business.
4) Changes in Industrial policy.
5) Product developments.
Three factors of Plant
Location
• Regional

• Community

• Site
 Regional Factors
• Proximity to the market.
• When?
• 1) The product is fragile. Glass)
• 2) The product spoils easily. Food)
• 3) The promptness of service is required.
(LPG leakage)
• 4) The product is cheap but transport costs
are more.(Sand,silica)
 Regional Factors
Benefits of market proximity.
Administrative problems are reduced.
(Octroi)
Liaison and keep an eye on our
dealers and distributors.
Commissions to middlemen are
reduced by 50 %.
Recovery from customers is easy
,time saving .
Proximity to Raw materials.
 Why ?
 Since RM constitutes 60 % of the product
cost the firm should get its requirement at
the right time and price for which the plant
should located near the source.
 RM is of a perishable nature.
 Expensive to transport.
 The weight of RM is substantially reduced
on processing.
 Proximity to Raw Materials.
 Inventory costs can go up .
 Follow up with supplier is costlier.
 Tracking supply is costlier.
 Replacement of defective items
become costlier and further affects
the delivery commitment of the
manufacturer.
 Proximity to Raw Materials
 Two kinds of Raw Materials.

 Gross Materials :-
 They loose weight during the process of
transformation.

 E.g. iron ore,coal,limestone,sugarcane etc.

Proximity to Raw Materials
• Steel plants are located in Bihar,WB and Orissa
because of proximity to iron ore and coal mines
• Gas based fertilizer plant of RCF is located near
Thal Vaishet because of proximity to Gas via
ONGC plant at Uran.
• Naphtha based fertilizer plant Mangalore
Fertilizers is located near port because of
proximity to seaport as it uses imported items.
 Proximity to Raw Materials
 Pure materials.

 These materials add weight to the finished

product in the process of manufacture.
 E.g. Cotton textiles,woolen,biscuit factories
etc.
 In this case the finished goods market
should be nearer the factory as the final
product has become bulky.
 Proximity to Infrastructural
Facilities
Power – aluminum and steel
industry.
Water – chemical industries.
Water treatment – coke and Pepsi.
Drainage facilities.
Scrap disposal.
 Proximity to Transport
facilities.
 Structureof transportation costs :-
 1) Characteristics of commodity.

 2) Average distance of shipment.

 3) Medium of shipment.
Proximity to Labor and Wages
 Labor should be easily available.
 Importing labor is costly and has
administrative problems.
 No cost incurred on accommodation .
 Training facilities to build up skills.
 Skilled employees are available if
ITI’s etc are nearby.
 Legislation and Taxation
• Policies of state and local bodies regarding
licences,building codes,labour laws etc.

• Incentive packages and tax holidays.

• The above costs influence the final costs of

the product.
Climate

Suitable climate for specific products

may be required.
High humidity for Textiles. Textile
plants are located at Ahmedabad.
Low humidity for adhesives.
Low temperature for inflammable
chemicals.
 Attitude to labor problems.

 Community attitude towards

industries.
 Political climate.
 Attitude of Government towards
labor unions.
 E.g. Unhealthy climate for industries
in states like Kerala and West Bengal
because of Communist Governments.
 Safety Requirements
Nuclear power plants.

Explosive factories.
 Community Factor
 It implies :-

 Accommodation

 Education

 Entertainment

 Transport facilities.
Community Factor
 Accommodation is required for all
outstation residents.

 It should be easily available, cheap and

near some public transport stop. BEST or
Railway station).

 The employee should be able to reach his

place of work with ease.
 Community Factor
• Communication facilities should be easily
available.

• Medical facilities should be near by with

competent technology and hospitalization
facility.
 Community Factor
 In the same township educational
facilities like schools, colleges and
technical institutes should be
available.(e.g L& T and RCF have
their own diploma colleges).
 Entertainment facilities like cinema,
children parks, clubs etc should be
nearby.
Community Factor
 What is the community attitude
towards work?
 Whether hard working or not?
 What is their attitude towards
incoming businessmen?
 Whether helpful and co operative or
otherwise?
 The above decisions can make or
break an industry.
 Site Factors
Land suitability.
What is the soil structure of the land.?
Whether it can bear the load of
foundations?
If land is purchased at cheap rates but
requires considerable modifications then
it may finally turn out to be expensive.
 Site Factor
 Whether plot size is sufficient of
present factory?
 Whether plot size is sufficient for
future development.?
 As a thumb rule the plot size must be
five times bigger than the present
plant size.
Site Factor

All supporting services like

Crane
Forklifts
Third part contractors etc
Must be available near the site.