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Lecture 10

Plant Location: It is a process whereby a best suitable site is selected for the establishment of business factory (generally for the manufacturing concern). The Need for Location Decisions: 1. Expansion Purposes: Firms such as banks, fast-food chains etc. view locations as part of marketing strategy, and they look for locations that will help them to expand their markets. Basically, the location decision in these cases reflect the addition of new locations to an existing system.

The Need for Location Decisions: 2. Growth in demand: When an organization experience a growth in demand for its products or services that cannot be satisfied by expansion at an existing location. The addition of new location to complement an existing system is often a realistic alternative. 3. Depletion of basic inputs: Some firms face location decisions through depletion of basic inputs. For example, fishing, logging operations are often faced to relocate due to the temporary exhaustion of fish or forests at a given location.

General Procedure for Making Location Decisions

1. 2. 3. The general procedure for making location decisions usually consists of the following steps: Decide on a criteria to use for evaluating location alternatives, such as, increased revenues or community service. Identify important factors, such as location of markets or raw materials. Develop location alternatives: a. Identify the general region for location b. Identify a small number of community alternatives c. Identify site alternatives among the community alternatives. Evaluate the alternatives and make a selection.


Factors that affect Location Decisions

1. Nearness to the Raw Material: Firms locate near or at the source of raw material for three primary reasons:  Necessity  Perishability  Transportation costs Mining operations, farming, forestry, and fishing fall under necessity. Firms involved in canning or freezing of fresh fruits and vegetables, processing of dairy products, baking, and so on, must consider perishability when considering location. Transportation costs are important in industries where processing eliminates much of the bulk connected with a raw material, making it less to transport the product or material after processing.

Factors that affect Location Decisions

2. Nearness to Markets: Markets may be nation-wide or local, production may be centralized in one or several plants; or production may be decentralized in many plants near the consumer. This decision depends upon the nature of the product. Industries in which production may be centralized, even though distribution is nation-wide include, watches, clocks, jewelry, fountain pens, books , magazines etc. In such industries the product is relatively light in weight, and labor is an important percentage of the cost. Some processing plants make a fragile or perishable product. Such industries profit by being near the consumer. Moreover, industries which produce goods in accordance with the specifications of consumers may profit by locating near the market.

Factors that affect Location Decisions

3. Labor Conditions: The number of workers and the particular crafts or skills needed should be considered in relation to the labor available in an area. A factory which uses low-paid labor should be located near the workers. Labor cost is affected by the: a. Efficiency of labor b. The number of unemployed workers in an area c. The extent of unionization d. The level of wages e. The cost of living f. The housing conditions

Factors that affect Location Decisions

4. Cost of Land: The cost of land is an important factor in choosing between a city location and one in a town or suburb. Suitable land is limited along some water or lake fronts and a lack of adequate space may force the company to choose a multistory building when other considerations indicate that a single-story building would be more desirable. Many companies require space for parking facilities, adequate light and air, and protection against undesirable neighbours.

Factors that affect Location Decisions

5. Future plans for expansion: Space for possible expansion should also be available. A location should not be chosen merely because land or building is for sale at what appears to be an attractive price. Location is not easily changed, and a poor location may burden a company permanently with heavy fixed charges. Moreover, while deciding about the appropriate location of land considerations should be put forth with respect to the expansion in terms of market and volume as well. 6. Power and fuel: Fuel and power are important costs to factories requiring a great deal of power. In developing countries it has been ever difficult to curtail power costs. The dependability of the power supply is exceedingly important for some industries. Both oil and gas have advantages in cleanliness and labor costs.

Factors that affect Location Decisions

7. Water Supply: Many modern industries generate large amount of heat and use water for cooling as well as other purposes. Airconditioning systems for public buildings use large amounts of water, and a large plant can use up the surplus water supply of a small community and cause a deficit. 8. Civic Values: Numerous features of community and civic life contribute to the desirability of the city or town as a place for employees to live. If the city provides many services for its residents, the workers and his family may receive benefits which are properly a part of his real wage. Moreover, a company that moves into an area with a new plant should consider not only the facilities available but also the demands that the company and its employees will make upon such community services as schools, libraries, hospitals, parking parks etc.

Factors that affect Location Decisions

9. Taxes: Tax rates differ from the one locality to another, and some states depend more upon certain kinds of taxes than do others. Some tax advantage may be gained by a small town location as compared with an urban site, but in the choice of a small-town or urban location other factors might be even more important. 10. Climate: Climate is usually not a deciding factor, although workers are presumed to do better work in some climates that in others. Extremely cold, hot, rainy or dry climates are not desirable. The most important question is whether the workers would object to live in an area. For making good conditions possible air conditioning or heating system can be installed.

Choice of Town or City Through Weighted Index

Sr. No
1 2 3 4 5 6 7 8 9 10

Raw Material Market Plan of Expansion Labor Supply Land Civic Conditions Safety Measures Taxes Advantage Climate Fuel & Power Total: %

Weighted Point
20 10 10 20 5 10 15 25 15 20

7 8 4 8 1 8 8 10 15

17 6 8 15 4 6 11 25 12 13

17 5 8 10 4 4 12 25 5 10

100 %

47.3 %

76.6 %

66.6 %