FACILITY LOCATION

Introduction

Plant location is a function of determining where the plant should be located for maximum operating economy & effectiveness. A selection on pure economic consideration will ensure an easy & regular supply of raw materials, labour force, efficient plant layout, proper utilization of production capacity & reduced cost of production. An ideal location may not guarantee success, but it certainly contributes to the smooth & efficient working of an organization. A bad location is a severe handicap for any enterprise & it finally bankrupts it.

Examples

M/s Samrat Thermo Plastic Industries (manufacturer of mixers & grinders-Raipur)-75% of raw material was bought from Mumbai & 75% of finished goods are marketed in Pune & Mumbai. To overcome this difficulty they decided to shift their plant to Pune.

Associated Breweries & Distilleries (for brewing beer-Goa)-Mumbai was main consuming centreshifted now to Vashi-save transportation cost.

Need for selection of the location

When business is newly started The existing business unit has outgrown its original facilities & expansion is not possible Volume of business or the extent of market necessitates the establishment of branches Lease expires & the landlord does not renew the lease When company thinks shifting to another location can reduce manufacturing cost Other social/economic reasons (labour supply, shifting of the market, etc.)

Guiding Principle in the search

For a place where the cost of the raw material & of fabrication, plus the cost of marketing the finished goods will be minimum

Location Theory-Alfred Weber

Classified location factors as primary & secondary

Primary (agglomerating factors)- materials & labourcontribute to dispersal of industries over different regions.
Secondary (degglomerating factors)- banking credit, insurance, communication & rent & rates. A plant is relocated because the new location offers added advantage Andreas Predohl

Errors in selection of location

Lack of thorough investigation & consideration of factors involved. Personal likes & prejudices Reluctance of key executives to move from traditional established home ground to new & better locations Moving to congested areas already/about to be over industrialized Preference for acquiring existing structure Choice of community with low cultural & educational standards, so that key administrative & technical personnel eventually accept employment elsewhere.

Steps In Location Selection

1.

Within the country or outside Selection of the region Selection of the locality or community Selection of the exact site

2.

3.

4.

1. Within the country or outside

Domestic or international location Initially this factor received little consideration. Increasing internationalization has arose greater relevance to the issue of home or foreign country. Countries across the world are vying with each other to attract foreign investments. Choice depends on factors like political stability, export & import quotas, currency & exchange rates, cultural & economic peculiarities & natural & physical conditions.

2. Selection or the region (Factors)

i. ii. iii. iv. v.

vi.
vii.

Availability of raw materials Nearness to the market Availability of power Transport facilities Suitability of climate Government policy Competition between states

2.i. Availability of raw materials

Manufacturing unit is engaged in conversion of raw materials into finished product, so the location must assure minimum transportation cost for the supply of raw materials E.g.: sugar industry (Bihar & U.P), paper industry (Dandeli), iron (Bhadravathi) & steel industry (Bihar, West Bengal, Orissa & M.P), sandalwood oil factory (Shimoga) etc Advantages- reduced cost of transportation, regular & proper supply of materials uninterrupted by transportation breakdowns, savings in the cost of storage of materials Raw materials may be weight-losing (iron ore, coal, timber, limestone) or non-weight losing (cotton & woollen)

2.ii. Nearness to the market

Advantages
-

Reduction in the cost of transporting finished goods to the market Ability to adjust the production programme to suit the likes & dislikes of consumers Provide after-sale services Execute replacement orders without delay

Eg.: industries producing perishable or bulky products, industries using non-weight losing raw materials, service units

2.iii. Availability of Power

Power is essential to move wheels of an industry Sources- coal, electricity, oil & natural gas Near coal fields-iron & steel industry Electric power (available regularly & at cheap rates)- aluminium extraction plant, semi-mechanized bakery Oil & natural gas- huge pipelines traversing long distances have kept up oil supplies to industries located in different regions Electric source is gaining significance over coal because of ease of handling, cleanliness, flexibility & cheapness

2.iv. Transport facilities

Transport facilities are essential for bringing raw material & in to factory & carrying away finished goods to the market. Well connected rail, road & water transport is ideal location. If a public sector unit is started in a remote area then government will naturally provide transport facilities to cater to the requirements of the unit.

2.v. Suitability of climate

There are some industries which because of the nature of their production require particular type of climatic conditions (humid climate for cotton textile industry concentrated in Mumbai, jute textile industry in Kolkota) Scientific & technological developments have enabled to create artificial climatic conditions (cotton textile mills- Delhi) Cost of providing an artificial climate is quite exorbitant Climate affects labour efficiency and such places do not attract industries Eg.: tropical & polar regions (little industrial activity), cool & temperate regions (heavy concentration of industrial activity)

2.vi. Government Policy

They influence plant location especially in planned economies like ours Many backward regions (because of balanced regional development) in India are selected by government as new locations for industries & generate the regions economy & also nations economy as a whole. Government influences plant location in many ways (licensing policy, freight rate policy, establishing a public sector unit in a remote area, institutional finance & government subsidies)

2.vii. Competition between states

States vie with each other to attract industries They offer investment subsidies & sales tax exemptions to new units Eg.: Tata Nano- Gujarat

3. Selection of community (Factors)

i. ii.

iii.
iv. v. vi. vii. viii.

Availability of labour Civic amenities for workers Existence of complimentary & competing industries Finance & Research facilities Availability of water & fire-fighting facilities Local taxes & restrictions Momentum of an early start Personal factors

3.i. Availability of labour

Despite of mechanization & automation, importance of labour is not lost Labour supply (skilled/unskilled) at reasonable wages Skilled labour influences plant location Eg.: glass industry (Firozabad); silk sarees (Kanjeevaram & Dharmavaram); woollen carpet (Mirzapur) However now-a days labour has become mobile Deterrent factors like attitude of workers, union activities & industrial disputes drive away existing factories & discourages new industries

3.ii. Civic amenities for workers

Good working conditions inside factory Certain facilities for employees outside factory Eg.: clubs, theatres, park, schools for their children If these facilities are not available then management should provide them But this requires diversion of funds from productive purposes to less productive purposes

3.iii. Existence of complementary & competing industries (benefits)

In collaboration with other similar units, an industrial unit can secure materials on better terms. This also increases the variety of materials offered by suppliers Concentration of similar industries improves labour market Banks grant loans easily according to the requirement of the industry Attracts variety of repair plants Reputation build up by existing units will be shared by new units established in the same locality

3.iv. Finance & Research facilities

A place where facilities for raising capital are available attracts new industries In advanced countries capital is uniformly distributed A manufacturing unit must be dynamic i.e. look out for new technology For this research facilities are essential

3.v. Availability of water & fire- fighting facilities

Some industries require lot of water (fertilizers, rayon, leather tanneries, bleaching, dyeing) Sources- local authority, canals, river, lake, borewell Supply of water should be considered with respect to its regularity, cost & purity Fire may break out (from within the unit or from neighboring unit) Loss from fire is considerable However availability of fire-fighting facilities is not of much importance but its existence will enhance the suitability of the location

3.vi. Local taxes & restriction

Charges like supply of water, electricity & other facilities Various taxes from industrial units Impose restriction on location of new unit in the public interest (Singur)

So preference for locations where such taxes & restrictions are least

3.vii. Momentum of an early start

Certain places (where one or more factories existed before) gain prominence as centres of an industrial complex with the passage of time because around them a number of facilities develop Eg.: transport facilities, repairs & maintenance specialist firms, banking facilities, labour.

3.viii. Personal factors

Small industrialists locate their plant purely on personal grounds neglecting economic considerations Sometimes such locations totally disapprove location theory Eg.: for a company (Rajasthan) raw material comes from Maharashtra and Karnataka and supplies majorly in Kolkata

4. Selection of the site (Factors)

i.

Soil, size & topography Disposal of waste

ii.

4.i. Soil, size & topography

Soil may not be a factor for influencing plant location Fertile soil is mandatory for agro based industries Area must be sufficient enough to accommodate existing manufacturing facilities as well as scope for future expansion Cost of land must be considered as well Cost of land forms a small percentage of total fixed investment or permanent working expense in case of leased land Topography (hilly, rocky & rough regions are unsuitable)

Difficult to attract population, leveling of land & infrastructure facilities

4.ii. Disposal of waste

Problem of provision for disposal of effluents (chemical, sugar, steel & leather industry) Vacant land for dumping of solid waste For liquid waste proper sewer connection or sea or river should be available

Discussion