Plant Location

REPORT ON PLANT LOCATION

Points to be discussed: • • • • • • •

Definition Problem of location Need for Plant location Steps in Plant location Factors affecting Plant location Recent trends in Plant location Merits & Demerits of Urban & Rural site

Definition: “The function of determining where the plant should be located for maximum operating economy & effectiveness” - R.C. Davis “That spot where, in consideration of the business as a whole, the total cost of production & delivering goods to all the consumers is the lowest.”

-Bethel Smiths & Atwater Plant location means deciding a suitable location, area or place where the plant will start functioning. It refers to the area where the plant will operate to produce goods or services.

Problem of Location: The problem of site selection of a factory can be solved in the following 3 stages:  Selection of the Region: Comparative advantages are analyzed from various options of natural regions & political boundaries in particular country.  Selection of the Locality: Urban, Rural & Suburban areas are various alternatives in selection of locality.  Selection of the Site: The type of development of land, cost of leveling etc, plant expansions & other infrastructure facilities like transport, banking, power, communication, postal facilities etc. are considered.

Need for Plant Location: The location of plant can have a crucial effect on the profitability of a project, & the scope for future expansion. Need for plant location arises when: I. A new plant is to be established. II. Old plant undergoes expansion, decentralization & diversification to meet increased demands for its products. III. The existing factory is not in a position to obtain renewal of lease. IV. An undesirable location is to be abandoned. V. The tendency of shifting the market, depletion of raw materials, changes in transportation facilities, new processes requiring a different location are observed in the factory. VI. A new branch or branches are to be opened for increasing the volume of production or distribution or both.

Steps in Plant Location by Bethel, Atwater & Smith: Factors affecting Plant Location

Selection of Region

Selection of Community

Selection of Plant site

Selection of Region:  Availability of Raw Materials: It is categorized into two: • Ubiquities i.e., existing everywhere like clay, water etc. • Localized materials i.e. minerals, coal, sugarcane etc. & it is subdivided into pure (cotton, raw silk) & gross materials (iron-ore, limestone, sugarcane). Spriegel & Lansburgh quoted “Nearness to the source of raw materials is of special importance when the material is bulky in relation to its value & when the volume & weight are greatly reduced during its processing.” For e.g.: Textile mills in Maharashtra, Sugar factories in U.P, Marble mftg in Jabalpur, Sandal Wood products in Mysore, fishcanning & salt pans near coast, Export of Alphansos from Ratnagiri.

 Nearness to fuel & power: It is a decisive factor in plant location. It is necessary to ensure that the phase, voltage, frequency, rates, regularity, special discounts allowed are suitable to factory.  Transport: Getting raw materials to place of manufacture, transporting finished goods to place of consumption & carrying employees to the factory & sales representatives to the consumers are functions of transport. James Lundy quoted “ideal plant from the point of view of transportation is one which is centrally located & directly connected by water, rail, road & air. Cost, dependability, time required to transport finished goods, prompt availability, shift in the market & speed are factors considered for choosing particular mode. For e.g.: TAPS uses road, water & own rail route.

 Market: A place where particular products are sold. Nearness to market influences: • Reduced cost of transporting finished goods & promotional expenses. • Enables to study the consumers. • Enables to render quick service & after-sales services. • Execute replacement orders without delay. • Perishable nature of goods. • Fragile nature of goods.  Meteorological conditions & Topography: Kimball & Kimball quoted “The effect of climate upon the efficiency in the case of working force required to work outdoors, as in case of quarries, constructional industries etc cannot be minimised. A cool climate develops the best of worker.” For e.g.: Agro-industries.

Selection of Community:  Labour: Kimball & Kimball wrote “The need of adequate supply of labour is obvious, but a number of considerations such as cost of living & the character of labour available as to both skill & temperament should be taken into account.” According to labour, factory may be located as follows: • Semi-skilled/ Unskilled – Rural areas. • Skilled – Urban areas. The need of management is to face less strikes or lockouts & to achieve lower labour cost per unit of production. A stable labour force, the right type of labour, reasonable wage rates, adequate number of employees, reliability of labour supply, proper attitude towards work are features that influence supply of labour.

 Supplementary & Complementary factories: D. Jones described advantages of concentration of industries: • Helps to increase the variety of materials that suppliers offers. • Improves the labour market for employer & employee. • Helps banks to discount commercial papers readily. • Attracts a variety of repair plants like foundries, tool makers & machine shops. • Serves to perfect the local markets. • Division of labour is possible.  Banking & Credit institutions: Factory expansion needs funds to meet the requirements. Existence of banks will exert influence over location of plants.  Local Taxes & Insurance: Factories must be located in a place where taxes, insurance costs are comparatively low. E.g.: fire cracker industry.

 Water supply: Water should be available in adequate quantity & proper quality. The factors in this connection are stability in its supply, mineral content of water, problems leading to water pollution, cost of transporting water if it is not readily available.  Momentum of early start: Some of the facilities like banking, transport, communication, repair services, shops & hotels give momentum to growth of industries in such an area.  Historical factors: The existence of historical towns are responsible for location of such industries. E.g.: Banaras, Lucknow, Kanjivaram, Kanpur.  Political stability: The political situation in potential locations should be considered while selecting a locality for establishing a factory. E.g.: Singur, liquor industries in Gujarat.

 State assistance: Karnataka state provides assistances like feasibility study subsidy; investment subsidy; concession on term loans, processing fee, working capital loan; stamp duty exemption; sales tax exemption to some extent; subsidy on electricity tariff; Technical guidance; raw materials; marketing facilities; allotment of land & sheds to entrepreneurs.

Selection of exact plant site: Following factors must be considered while selecting plant site: 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14) 15)

Price of land Type of soil Waste disposal Expansion potential Availability of commercial services Communication Availability of amenities Health of the locality Statutory consideration Flood & drought conditions Right & title of the land Good scenery Attitude of local people Technology know-how Existence of religious & social institutions

Selection of Most Economic Site: According to Kimball & Kimball, “The most advantageous location is that at which the cost of gathering material & fabricating it plus cost of distributing the finished product to the customer will be a minimum.” Diagram of most profitable site:

Recent trends in Plant Location:  Seven most important trends with regard to plant location are:  To locate plants away from cities.  The development of industrial estates.  Competition among states to develop industries.  Trend towards decentralization.  Pollution control.  Location of industries leading to balanced regional  development.  Growth of multinational firms, thereby transcending the  geographical areas of the country.

Merits of Urban & Rural Areas Urban Area

Rural Area

•Possible to find existing building to •Cost of land is less & scope of future house factory. expansion is more. •Easier to sell building if later. •Power & water easily available.

•Healthy & pleasant atmosphere. •Cheapness of land allows freedom for most economic design for building.

•Good market for small mftrs. •Housing, banks, fire protection, railways & education available.

•Lesser taxes & restriction. •Housing can be provided by pvt. Enterprise or local authority.

•Transportation is easy & cheap.

•Road or rail connection can be arranged easily.

•Workers find easy to change job & •Less labour trouble & labour is cheap. area has good labour market. •Repairing facility available with existing industries. •Opportunity to exchange knowledge from nearby industries.

Demerits of Urban & Rural Areas Urban area

Rural area

•Climate is not healthy due to congestion.

•Sufficient power & water may not be available.

•Arranging equipment is not possible due to limited area.

•Enough facilities for expansion may not be available.

•High taxes.

•No recreational facilities.

•Cost of land is high & scope of expansion is less.

•Transport & housing facilities may not be satisfactory.

•More problems about labour & employee relations

•Government facilities may not be sufficient.

•Cost of building factory will be high.

•Skilled workers are not easily available.

•Higher wages of labour due to high standard of living.

•Educational facilities may not be available.