What are the factors affecting plant location decisions and the need for such decisions

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Units concerning both manufacturing as well as the assembling of the products are on a very large scale affected by the decisions involving the location of the plant. Location of the plant itself becomes a very important factor concerning service facilities, as the plant location decisions are strategic and long-term in nature.

Plant location decisions need detailed analysis because:
1. Wrong plant location generally affects cost parameters i.e. poor location can act as a continuous stimulus of higher cost. Marketing, transportation, quality, customer satisfaction are some of the other factors which are greatly influenced by the plant location decisions – hence these decisions require in-depth analysis.

2. Once a plant is set up at a location which is not much suitable, it is a very disturbing as well as very expensive process to shift works of a company to some other place, as it would largely affect the cycle of production.

3. The investments involved in the in setting up of the plant premises .buying of the land etc are very large and especially in the case of big multinational companies, the investments can go into millions of rupees, so economic factors of the location should be very minutely and carefully checked and discussed in order to achieve good returns on the money which has been invested.

The Need for location decisions –
These decisions are needed when a new plant is to be set up or when the operations involved in the company at the present location need to be expanded but expansion becomes difficult because of the poor selection of the site for such operations. These decisions are sometimes taken because of the social or the political conditions engulfing the working of a company.

The way the works of a company have to be performed, largely depends upon the industrial policies issued by the government. Any change that creeps in the industrial policy of the government which favors decentralization and hence does not permit any change or any expansion of the existing plant – requires strictly evaluated location decisions.

Factors governing plant location:
1. Regional factors: These factors include proximity of the plant to the market and also to the sources of the raw materials. They also include infrastructural facilities, transportation facilities, and availability of skilled workers, legislation, the taxation and also the work attitude of the workers.

Robinson was the one who has very clearly and efficiently justified industrial location concerns using pure materials nearer to the markets or the consumption centers. According to Robinson, the place of production is likely to be at the place of consumption where the final product is more expensive to carry because it is more bulky, more fragile or more perishable than is raw materials.

2. Community factors: These involve accommodation, education, entertainment and transport facilities. It also includes attitude of the community, supporting industries and services, suitability of the land etc.

Examples of plant location ( India)
• Most of the textile mills are found in or near Mumbai and Ahmedabad because of the humidity conditions that prevail there.

• Sites for nuclear power plants to be located in different parts of the country largely depend upon environmental, safety, socio-economic and also the engineering factors affecting the construction and operation of such plants.

• Steel plants are generally located near the Jharkhand, Bengal, Chhattisgarh and Orissa regions. This choice of site is mainly because of more economical transport of the finished goods as compared to basic raw materials.

• Similar case is observed in the plants which manufacture cement; such plants are located near the lime and the coal deposits.

• Namroop and Thal Vaishet, both act as very important sites for the gas-based fertilizer plants. Coal based fertilizer plants at Ramagundum are located near the source of raw materials (coal).

• Naptha / oil based fertilizer plants at Mangalore, Madras, Cochin have been located near ports, which act as a great source for the import of the raw materials.

• ‘Proximity to market’ forms a major factor which affects plant location decisions in case of machine tool industries. In case of such industries, sites are scattered over different parts of the country such as Ludhiana, Pune, Bangalore, Calcutta, Mumbai etc.

• Information Technology/BPO/Software Industries depend largely on availability of skilled personnel, infrastructure etc… Because of these reasons most of such organizations operate in urban areas such as Delhi, Chennai, Hyderabad, Bangalore, Pune etc.

This article has been written by KJ Singh a MBA Graduate from a prestigious Business School In India
Article Published:July 22, 2010
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