Plant Location

Plant/ facility Location
Students are going learn

1. Plant location factors
2. Need for selecting a plant location
3. Reasons for searching for new location
4. Simple problems
Locating a facility is a decision that any company should make at some point.
It is a decision that is made at the organizational level and has a profound effect on
different aspects of the company.
Many of the operations that are performed within the company depend deeply on the
location of its facilities.
For example,
if the facility is a factory and some outsider vendor supplies the raw material for
that, location of the facility is one of the most important determinant in selecting
type of transportation used and it also has a big influence on the transportation cost.
Holmes defines plant location problem as one of determining "That location which, in
consideration of all factors affecting delivered-to-customers cost of product (s) to be
manufactured, will afford the enterprise the greatest advantages obtained by virtue of
location.“
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.
NEED FOR SELECTING A SUITABLE LOCATION
The need for selecting a suitable location arises because of two
situations.
1. When starting a new factory.
2. In case of existing factory
The increase in demand for the company's products can give rise to following
decisions:
1. Whether to expand the existing capacity and facilities.

2. Whether to look for new locations for additional facilities.
3. Whether to close existing facilities to take advantage of some new locations
The probable reasons for replacement of existing facilities to new locations:
• Changes in location of demand
• Changes in availability of materials
• Changes in availability of transport
• Changes in the cost and/ or supply of labour
• Changes in regulations and law
• Changes in availability of raw materials
• Changes in policy of industries to relocate on which the firm is dependent.
Identifying a Country, Region, Community, and Site:
Factors that influence location decisions are:
Manufacturing:
• Availability of energy and water
• Proximity to raw materials
• Transportation cost
Service:
• Traffic patterns
• Proximity to markets
• Location of competitors
Identifying a Region- 4 major considerations
Location to Raw Materials: The three most important reasons for a firm to locate in a particular
region includes raw materials, peris/wbilihJ, and transportation cost. This often depends on what
business the firm is in.
Location to Markets: Profit maximizing firms locate near markets that they want to serve as part of
their competitive strategy. A Geographic information system (GIS) is a computer-based tools for
collecting, storing, retrieving, and displaying demographic data on maps.
Labour Factors: Primary considerations include labour availability, wage ranges, productivity,
attitudes towards work, and the impact unions may have.
Other: Climate is sometimes a consideration because bad weather can disrupt operations. Taxes are
also an important factor since taxes affect the bottom line in some financial statements.
Identifying a Community important factors for deciding upon the Community include facilities for
education, shopping, recreation and transportation among many others.
1. Availability of Raw Materials
2. Proximity to Market
3. Infrastructural Facilities
4. Government Policy
5. Availability of Manpower
6. Local Laws, Regulations and Taxation
7. Ecological and Environmental Factors
8. Competition
9. Incentives, Land costs, Subsidies for Backward Areas
10. Climatic Conditions
11. Political Conditions.
Lesson outcomes
1. Learned factors that influence plant location

2. Learned Center of gravity method to locate a new
plant
3. Learned to take a decision on plant location based
on return on investment

Plant Location

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Plant/ facility Location

Students are going learn

1. Whether to expand the existing capacity and facilities.

1. Learned factors that influence plant location

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