What is Plant Location?
Plant location refers to the process of selecting a suitable site or place for establishing a manufacturing facility or industrial plant. It is a critical decision for businesses, as the location of a plant can significantly impact the company’s overall success and competitiveness. Plant location considerations are important across various industries, including manufacturing, agriculture, energy generation, and more.
Table of Content
- 1 What is Plant Location?
- 2 Factors Influencing Plant Location
- 3 Location Analysis
- 4 Significance of Plant Location
- 5 Plant Location Selection Criteria
Entrepreneurs face a major problem with plant location in deciding the best location for their factory or plant. The utmost care must be exercised in selecting the plant location and many different factors must be taken into account. Primarily, the plant must be located where the minimum cost of production and distribution can be obtained but, other factors such as room for expansion and safe living conditions for plant operation as well as the surrounding community are also important. The location of the plant can also have a crucial effect on the profitability of a project.
For example, Consumer industries like televisions, washing machines and other luxury goods are set up near the marketing centers, while producer industries like steel mills are located near the vicinity of raw materials. Plant location is the choice of region and the site selection to set up a business or a factory.
The choice is primarily made after considering all the benefits and costs of various alternative areas. Moreover, it is a strategic plan which cannot be changed after deciding. The location chosen should be selected according to the specific circumstances and requirements. Each entrepreneur has an individual plant and makes an optimum attempt.
Factors Influencing Plant Location
There are several factors that influence plant location. Moreover, moving forward by resolving all other problems and considering these factors leads to success in business. The major factors affecting the plant location are listed as follows:
- Availability of Raw Materials
- Proximity to Market
- Availability of Labour
- Availability of Power, Fuel or Gas
- Supply of Water
- Climatic Conditions
Availability of Raw Materials
The source of raw materials is one of the most important factors influencing the selection of a plant location. Attention should be given to the purchased price of raw materials, distance from the source of supply, freight and transportation expenses, availability and reliability of supply, purity of raw materials and storage requirements.
Proximity to Market
The location of markets or intermediate distribution centers affect the cost of product distribution and time required for shipping. Proximity to major markets is important consideration in the selection of the plant location because the buyer usually finds advantageous to purchase from near-by sources.
The transportation of materials and products to and from plant will be an overriding consideration in the selection of plant location. If practicable, a site that it is close to at least two major forms of transport: road, rail, waterway or a seaport, should be selected. Road transport is being increasingly used, and is suitable for local distribution from a central warehouse.
Rail transport will be cheaper for long-distance transport. If possible, the plant location should have access to all three types of transportation. There is usually a need for convenient rail and air transportation facilities between the plant and the main company headquarters, and the effective transportation facilities for the plant personnel are necessary.
Availability of Labour
Labour will be needed for the construction of plant and its operation. Skilled construction workers will usually be brought in from outside the site, but there should be an adequate pool of unskilled labours available locally; and labour suitable for training to operate the plant. Skilled tradesmen will be needed for plant maintenance. Local trade union customs and restrictive practices will have to be considered when assessing the availability and suitability of labour for recruitment and training.
Availability of Power, Fuel or Gas
It is important for an organisation to ensure the continuous supply of power, fuel and gas before selecting a plant location. For example, the location of thermal power plants and steel plants near coal fields is crucial for reducing cost of the fuel transportation.
Supply of Water
Water is important for survival. It is required for processing in industries like chemical, sugar and paper industries. Also, water is used for drinking and sanitary purposes. It is important for an organisation to investigate a quality and probable source of supply. In addition, the chemical properties like hardness, alkalinity and acidity level of water should be checked. Apart from that, a thorough study should be conducted related to the disposal of water like effluents, solids, chemicals and other waste products.
The climate of a region where the plant is to be located has great impact on both capital and operational costs. Various aspects related to climatic conditions to be considered by an organisation include the level of snow fall or rain fall in the region, humidity, velocity of wind, frequency of natural calamities and so on.
In most plant locations, the target is to reduce cost. Some items of cost, like freight, could also be higher for one city and lower for the other city, but power costs, for instance, may have the reverse pattern. A little labour supply may cause labour rates to be bid up beyond rates measured during a location survey.
The sort of labour available may indicate future training expenditures. Thus, although a comparative analysis of varied locations may point toward one community, an appraisal of intangible factors could also be the idea of the choice to pick another. The example of a managerial decision with multiple criteria, where trade-offs must be made between the varied values and criteria.
Every organisation attempts to find an ideal or optimum location. An optimum location is a place where the product cost is less with a huge market share and less risk. To find such location, an organisation needs to perform vast analysis. Business location analysis is a reliable process where an organisation weighs down the pros and cons of each alternative site.
Location analysis is based on the following aspects:
- Demographic analysis
- Competitive analysis
- Site economics
- Trade area analysis
- Traffic analysis
The following are the objectives of location analysis:
- To make sure the smooth running of the business
- To hold minimum investment and operational cost
- To co-ordinate with government policies
- To promote employee welfare
Significance of Plant Location
Strategic significance of plant location is connected with capacity decisions. Plant location involves commitment towards resources to a long-range plan. The criterion for the selection of location should be profit maximisation and cost minimisation. If the costs of products are uniform altogether, then the criterion becomes one among minimising relevant costs. Plant location is generally a stable decision that cannot be changed frequently and requires a lot of cost and efforts.
Any wrong decision can bring huge losses for the organisation. Therefore, it is important for an organisation to consider all the factors that impact the plant location before making the selection. If all processes and costs are independent of location, choices are going to be guided by proximity to potential customers or clients or similar and competing organisations and centres of economic activity generally.
Plant Location Selection Criteria
Most new investments in land, machines, buildings and expertise are made for the long run. This is furthermore important in terms of manufacturing plants. Being the global business environment, the company requires a location that every single day it holds a major role in the new production plant. Organisations can have several reasons to start the location selection process for their new manufacturing plant, cost reduction, the capacity expansion for business growth, new market entries, the pools of labour coping with geopolitical developments.
The factors that play a crucial role in plant location selection are as follows:
- The layout of the productive equipment will depend on the characteristics of the product to be managed at the facility, as well as different parts and materials to work on.
- Main factors to be considered: size, shape, volume, weight and the physical-chemical characteristics, since they influence the manufacturing methods and storage and material handling processes.
- The sequence and order of operations will affect plant layout as well, taking into account the variety and quantity to produce.
- Having information about the processes, machinery, tools and necessary equipment, as well as their use and requirements is essential to design a correct layout.
- The methods and time studies to improve the processes are closely linked to the plant layout.
- Regarding machinery, we have to consider the type, total availability for each type, as well as quantity of tools and equipment.
- Labour has to be organised in the production process (direct labour, supervision etc.)
- Environment considerations: employees’ safety, light conditions, ventilation, temperature, noise, etc.
- Process considerations: personnel qualifications, flexibility, number of workers required at a given time as well as the type of work to be performed by them.
Safety and Security
- Safety always be a consideration in the design or layout of the facility.
- A company can design the most efficient production layout but if it places employees at risk or places the product at risk from the layout, it cannot be implemented.
- Providing a quality product with the least amount of movement and material handling is important, but the most important asset that any company has is its employees. If the safety of those employees is jeopardised, the layout should not imperil employee’s safety.
- Every plan should include a consideration for the future of operations. Whether it is a manufacturing facility that needs to consider future products or variations of the same product or a distribution centre that needs to consider future storage requirements and product configurations, as well as the ability to expand capacity in the future.
- It is important to forecast future changes to avoid having an inefficient plant layout in a short term.
- Flexibility can be reached keeping the original layout as free as possible regarding fixed characteristics, allowing the adjustment to emergencies and variations of the normal process activities.
- Possible future extensions of the facility must be taken into account, as well as the feasibility of production during re-layout.