Plant Location: Nature23/02/2020
Location of an industry is an important management decision. It is a two-step decision: first, choice of general area or region and second, the choice of site within the area selected. Location decision is based on the organizations long-term strategies such as technological, marketing, resource availability and financial strategies.
The objective of plant location decision-making is to minimize the sum of all costs affected by location.
Plant location is important because of the following:
(i) Location influences plant layout facilities needed.
(ii) Location influences capital investment and operating costs.
Location decisions are strategic, long-term and non-repetitive in nature. Without sound and careful location planning in the beginning itself, the new facilities may create continuous operating problems in future. Location decision also affects the efficiency, effectiveness, productivity and profitability.
The location decision should be taken very carefully, as any mistake may cause poor location, which could be a constant source of higher cost, higher investment, difficult marketing and transportation, dissatisfied and frustrated employees and consumers, frequent interruptions of production, abnormal wastages, delays and substandard quality etc.
Therefore, it should be based upon a careful consideration of all factors that are essentially needed in efficient running of a particular industry. The necessary factors in the selection of plant location vary among industries and with changing technical and economical conditions.
Site selection is not an easy problem because if the selection is not proper then all money spent on factory building, machinery and their installation etc., will go as waste and the owner has to suffer a great loss. Therefore, while selecting a site, owner must consider technical, commercial, financial aspects which may provide maximum advantages.
Nature of Plant Location
Plant location with thorough analysis leads the organization towards success. The basic objective of organization is to maximize the profit level. Hence, it will be beneficial for both i.e. newly established business & already established business. The profit maximization can be done by increasing sales price, increasing sales with reduced production cost, by analyzing market trend, nature & level of competition etc. Production cost can also be reduced, if firm is located at a place where all the basic requirements (that fulfill input needs) will be available easily.
Selection of appropriate location is necessary due to following reasons:
- Plant location partially determines operating and capital cost. It determines the nature of investment.
- Each plant location requires some basic facilities like transportation, availability of water, electricity, fuel, cheap labors etc.
- Each prospective location implies a new allocation of capacity to respective market area.
- Government plays an important role in the choice of the location keeping in view the national benefits.
Plant location and Layout in Production Management
Plant location or the facilities location problem is an important strategic level decision making for an organization. One of the key features of a conversion process (manufacturing system) is the efficiency with which the products (services) are transferred to the customers. This fact will include the determination of where to place the plant or facility.
The selection of location is a key-decision as large investment is made in building plant and machinery. It is not advisable or not possible to change the location very often. So an improper location of plant may lead to waste of all the investments made in building and machinery, equipment.
Before a location for a plant is selected, long range forecasts should be made anticipating future needs of the company. The plant location should be based on the company’s expansion plan and policy, diversification plan for the products, changing market conditions, the changing sources of raw materials and many other factors that influence the choice of the location decision. The purpose of the location study is to find an optimum location one that will result in the greatest advantage to the organization.