plant location, its selection criteria, and factors affecting plant location

8/4/2019 Plant Location, Its Selection Criteria, And Factors Affecting Plant Location

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DAWOOD COLLEGE OF ENGINEERING AND

TECHNOLOGY KARACHI

Department: Industrial Engineering and Management

MUHAMMAD EHSAN

(08-Dcet-314)

Production Planning and Control

Assignment No # 2

Submitted To: Engr. Imran Khan ShaikhDate # 12-10-2010




- 2 - 08-Dcet-314 M Ehsan

PLANT LOCATION:

Every entrepreneur is faced with the problem of deciding the best site for location of his plant orfactory.

What is plant location?

Plant location refers to the choice of region and the selection of a particular site for setting up a

business or factory.

But the choice is made only after considering cost and benefits of different alternative sites. It is

a strategic decision that cannot be changed once taken. If at all changed only at considerable loss,the location should be selected as per its own requirements and circumstances. Each individual

plant is a case in itself. Businessman should try to make an attempt for optimum or ideallocation.

What is an ideal location?

An ideal location is one where the cost of the product is kept to minimum, with a large marketshare, the least risk and the maximum social gain. It is the place of maximum net advantage or

which gives lowest unit cost of production and distribution. For achieving this objective, small-scale entrepreneur can make use of locational analysis for this purpose.

LOCATIONAL ANALYSIS:

Locational analysis is a dynamic process where entrepreneur analyses and compares the

appropriateness or otherwise of alternative sites with the aim of selecting the best site for a givenenterprise. It consists the following:

Demographic Analysis: It involves study of population in the area in terms of total population(in no.), age composition, per capita income, educational level, occupational structure etc.

Trade Area Analysis: It is an analysis of the geographic area that provides continued clientele

to the firm. He would also see the feasibility of accessing the trade area from alternative sites.

Competitive Analysis: It helps to judge the nature, location, size and quality of competition in agiven trade area.

Traffic analysis: To have a rough idea about the number of potential customers passing by theproposed site during the working hours of the shop, the traffic analysis aims at judging the

alternative sites in terms of pedestrian and vehicular traffic passing a site.

Site economics: Alternative sites are evaluated in terms of establishment costs and operationalcosts under this. Costs of establishment is basically cost incurred for permanent physicalfacilities but operational costs are incurred for running business on day to day basis, they are also

called as running costs.





SELECTION CRITERIA:

The important considerations for selecting a suitable location are given as follows:

Natural or climatic conditions.

Availability and nearness to the sources of raw material.

Transport costs-in obtaining raw material and also distribution or marketing finishedproducts to the ultimate users.

Access to market: small businesses in retail or wholesale or services should be locatedwithin the vicinity of densely populated areas.

Availability of Infrastructural facilities such as developed industrial sheds or sites, link

roads, nearness to railway stations, airports or sea ports, availability of electricity, water,public utilities, civil amenities and means of communication are important, especially forsmall scale businesses.

Availability of skilled and non-skilled labour and technically qualified and trained

managers.

Banking and financial institutions are located nearby.

Locations with links: to develop industrial areas or business centers result in savings and

cost reductions in transport overheads, miscellaneous expenses.

Strategic considerations of safety and security should be given due importance.

Government influences: Both positive and negative incentives to motivate anentrepreneur to choose a particular location are made available. Positive includes cheapoverhead facilities like electricity, banking transport, tax relief, subsidies and

liberalization. Negative incentives are in form of restrictions for setting up industries inurban areas for reasons of pollution control and decentralization of industries.

Residence of small business entrepreneurs want to set up nearby their homelands.

One study of locational considerations from small-scale units revealed that the native place or

homelands of the entrepreneur was the most important factor. Heavy preference to homelandsuggests that small-scale enterprise is not freely mobile. Low preference for Governmentincentives suggests that concessions and incentives cannot compensate for poor infrastructure.





Factors Affecting Plant Location:The task of finding a perfect or ideal location for a plant is very much difficult,

and it has been observed that hardly any location can be ideal or perfect. But stillfollowing are some of the factors, which should be kept in mind while selection for aplant:

1) Raw Material Availability: Raw material should be easily available near to a selectedlocation, as it will reduce the cost of transporting raw materials.

2) Nearness to Markets: it will reduce the cost of transporting the finished goods to themarket but also decrease the chances of finished product being damaged or spoiled in the

way. Moreover a plant being near to the market can catch a big share of the market andcan also provide quick service to the customers.

3) Transportation Cost and Facilities: A lot of many is spent both in transporting rawmaterials and finished goods, therefore it should also be kept in mind that the

transportation cost should be fairly minimum and also be available easily.

4) Labor Availability, Cost and Unions: Labor should be easily available of right kind,and adequate size with proper attitude towards work.

5) Fuel and Power Availability: Fuel (Coal, Oil, etc) and Power (Electricity) are the mainfactors for the running of a plant; therefore it should be available easily and nearer to

plant. It is essential that the electricity should be remain available continuously 24/7, inproper quantity and at reasonable rates.

6) Availability of Water: After Fuel and Power the next important thing is the availabilityof water resources, as water is used for many purposes i-e for processing in paper and

chemical industries and also for domestic use like drinking and sanitary purposes.

7) Climate Conditions: With the development in the field of heating, ventilating and air-

conditioning, climate of the region does not have much problem. But still it is of muchimportance to select a location having normal climatic conditions because it is very muchdifficult and in some cases almost impossible to control the climatic conditions (i-e heat,

ventilation, etc) in all part of the plant.

8) Financial and Other Aids: In some state local government provide various facilities (i-

e provide loans, feed money in business, machinery, relaxation in tax policy, exciseduties, etc) to attract industrialists. It is also important to have knowledge about

government regulations and if are available should be made use of the facilities.

9) Availability of Land: The characteristics of the land at the proposed plant site should be

examined carefully. The cost of the land is important, as well as local building costs andliving conditions. Future changes may make it desirable or necessary to expand the plantfacilities. The land should be ideally flat, well drained and have load-bearing

characteristics





10) Topography of Land (i.e. basic characteristic of land): It is very much important tohave knowledge about the area, shape of the site, drainage, earthquakes, floods etc of the

land being selected for the plant. One can get this sort of knowledge form the past historyof the area.

11) Community Attitude: Success of an industry mainly depend on the attitude of the localpeople that whether the people there are educated or not, and or willing to do work or not,

and the most important of them all is whether the society has any extremist factor or not.

12) Construction Cost: It is also very important to have close view about the construction

cost before setting-up an industry.

13) Environmental Regulations: Also try to have knowledge about the environmentalregulations like the local policy regarding the environmental pollution, etc.

14) Local Community Consideration: The proposed plant must fit in with and beacceptable to the local community. Full consideration must be given to the safe locationof the plant so that it does not impose a significant additional risk to the community.

In addition to all these factors, if a company tries to locate an industry beyond national borders, then they have to consider following factors as well:

1) Culture 2) Government stability

3) Exchange rates 4) Export and import regulations

5) Available technology 6) Political and Economic systems

plant location, its selection criteria, and factors affecting plant location

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