Plant Location Selection Criteria/Considerations

Posted on Jul 7 2019 - 6:48pm by Preeti
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General Conditions for Site Selection/Plant Location Selection

An ideal location is one where the cost of the product is kept to a minimum, with a large market share, the least risk, and the maximum social gain. Every entrepreneur is faced with the problem of deciding the best site for locating of his plant or factory. Selection of plant location is important for the success of an organization. The various factors affecting plant location selection decision are discussed below:

  1. Nature of Product and Industry
  2. Nearness to raw material
  3. Proximity to market
  4. Workforce Requirement
  5. Availability of Power and Fuel
  6. Availability of Water
  7. Land
  8. Transport and communication facilities
  9. Climate
  10. Total costs
  11. Availability of Infrastructure
  12. Suppliers Industries Location
  13. Free Trade Zones
  14. Political Risk
  15. Government Policies
  16. Environmental Regulation
  17. Host Community
  18. Competitive Advantage
  19. Goodwill of Place
  20. Personal Factors
  21. Historical Religious Factors
  22. Other Factors

1. Nature of Product and Industry

Plant location decision is dependent on the nature of product to be produced and the nature of an industry. For example, if it is a chemical product, like sugar, where the manufacturing process emits a particular type of smell, this type of industry needs to be located far from the human communities. While if the industry is a chemical industry, which involves toxic element in manufacturing process, it must be located very far from cities to avoid tragedies like Bhopal Gas Tragedy.

2. Nearness to raw material

If a raw material is heavy then it is also difficult to transport and if it is required in large quantity then the manufacturing plant has to be located at the site where such material is available. Otherwise cost of loading and transportation is huge. The time consumed and managerial inputs are more. As a result the economics of manufacturing goes out of scale and the product become uncompetitive. This is the same reason why Steel mills are located at Bihar and Sugar Mills near the sugarcane producing fields like Kolhapur in Maharashtra. Further natural products like fruits, milk undergo changes after harvesting and milking respectively. Their quality starts deteriorating and contamination begins to multiply. This results in low recoveries and higher cost of production. In such cases plant is located at the origin of the raw materials.

3. Proximity to market

If the volume of a product is much bigger than the raw materials, like plastics products, or if the product is perishable, then the manufacturing plant is located near the market. Nearness to potential market minimizes the risk of deterioration and damage in transport. The organization needs to produce product which is close to the customer due to a time-based competition, trade agreements, and shipping costs benefits. Examples are, bottling plant of cold drinks, which are always near to the city. Some more examples are: Sub-contractors/Vendors-Automobile Industry (TATA,GM), Confectioneries, Food Products, Plastics Products, Electronic items (like T.V., Fridge) etc.

4. Workforce Requirement

Some of the manufacturing operations require skilled workforce in its manufacturing operations. Skilled workforce itself requires well-cultured surrounding, opportunities of advancement through further studies and experience sharing, opportunities of advancement through further studies and experience sharing, recognisation, competition and recreational facilities. Normally such a facilitating environment is there in urban areas. One can establish such environment in rural areas but it is very costly and time-consuming process. Skilled workforce is available are urban places. So such plants are located very near to city. For example most of the software industries are located in Bangalore, Hyderabad and Pune. These cities have good educational and training institutions along with other promotional factors. Which are providing ample skilled workforce for the software industry. Some manufacturing operations require unskilled labour force which is available in rural areas. Hence labour intensive plants are located very away from the city in rural area.

5. Availability of Power and Fuel

Industries consume power in large quantity. An industry will choose a site where there is uninterrupted and cheap power supply available. In place of power if coal or other materials are used as fuel their availability will locate the plants nearby.

6. Availability of Water

Chemical industries, food industries use lot of water in their process. similarly, waste and bi-products of these industries are hazardous and required to be discharged in flowing water after treatment, So, one finds that chemical and pharmaceutical industries are located near to sea or river.

7. Land

Locating a plant requires land. The land must be plane and good. Water should drain naturally. It should be free from all encroachments. It must have free and easy access. Land must be available not only as per present requirement but land must be available for future expansion. It should be available at very low cost, as it will reduce the capital investment.

8. Transport and communication facilities

To gain the advantages of the nearness to the raw material or market, the most important thing is transport and communication facility. Every industry requires transport of raw materials, finished products as well as their workforce and support services. Availability of transport network facilitates the site selection. Cheaper transport reduces production costs. Similarly communication facilities form an integral part of any business.

9. Climate

For the particular type of industry, the climate plays a very important role. Textile industries are located near coastal areas as the weaving of threads needs high humidity.

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B.Tech Biotechnology,MBA(HR and Marketing), UGC/CBSE NET Qualified

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