Plant Location

Plant Location

• Plant location refers to the choice of region and the selection of a particular site for setting up a business or factory.

• An ideal location is one where the cost of the product is kept to minimum, with a large market share, the least risk and the maximum social gain. It is the place of maximum net advantage or which gives lowest unit cost ofproduction and distribution.

Plant location studies are conducted in three phases :

• Regional factors ,• Community factors , and• Site factors

Factors Affecting the Plant Location

• The location of an industry is determined by taking into consideration the following factors:

• Primary Factors:– Supply of raw materials– Nearness to the market– Transport Facilities– Supply of Labour– Availability of power– Supply of Capital

• Secondary Factors :– Natural Factors:– Government Subsidies and Facilities – Personal Factors

• Miscellaneous Factors :• Suitability of the land• Disposal of waters• Availability of Water and Fire-fighting Facilities• Community attitudes

Selection of Site

• Urban or City area.

• · Rural area.

• · Suburban area.

Advantages of Urban area

• Good transport facilities are available for the movement of raw-materials and finished products by rail and road and at times, by water and air.

• Good and prompt postal and communication services are available.• Banking and credit facilities available.• Services of insurance companies are available in city areas.• Sufficient storing facilities including cold-storage , are available.• Ample availability of skilled and unskilled workers.• Advantages of vicitinty of the market for the product. Due to large population,• The local demand for the product is fairly high.• Facility of the ancillary and services units, which develop around the• industrial strip of the city area.• Sufficient passenger transport facilities by road and railways are available• to employees.• Development of the training institutes for workers and management institutes for executives put the

city area units into privileged position.• Educational, medical and recreational institutes increase the amenities of lives in the city area .• Certain specific municipal services facilities are available only in the city areas, like water supply,

drainage, fire fighting facilities, sufficient police protection etc.

Disadvantages of Urban or City Area

• The cost of land is very high as compared to rural areas• Even at high cost, sufficient land is not available, which puts constraints on the

arrangement of plants and machines. Sometimes multi-story buildings are used which are not suitable for the installation of heavy

• plant and machines• Due to high standard of living in city area, the cost of labour is relatively high• Due to possibilities of changing jobs from one unit to another, and tendency of competitors

to snatch away the good employees, the rate of labour turnover is very high in city area• The trade union movement is very strong in city area. Militant trade unionists disturb the

amicable industrial relations, which gives rise to strikes and lockouts• Various types of taxes is levied in city areas. The rates of taxes are relative high. Eg. Octroi is

a typical tax of the city area which is not levied in rural areas.• Certain municipal restrictions put constraints and involve extra cost due to height of the

building, disposal of waters, treatment of affluent water , elimination of air pollution caused by smoke etc.

• The industrialization in the city areas gives birth to slums and dirty residence which creates the typical problems of sanitation and health.

Advantages of Rural area• As compared to the city area, the land is available at cheaper rates.• Large plots of the land area available which can be developed for a factory sites,

office buildings and residential quarters. Horizontal arrangement of plant machines in the vast areas of land is possible.

• Due to lower standard of living, the rates of labour are relatively lower.• As compared to the city area, the labour force is more or less stable which reduces

the rate of labour turnover.• The industrial relations between labour and management are relatively amicable.• The local taxes which are found in the city areas are practically nonexistent in rural

areas.• The municipal restrictions which are found in city areas do not exist in rural areas.

E.g. height of buildings.• Slumps and dirty residence are not found in rural areas. The rural areas is conducive

to good health of workers.• Due to lack of congestion, there is danger of fire caused by surrounding units.

Disadvantages of Rural Area• Transportation facilities are not available in good condition and sufficient quantities.• Banking and credit facilities are also not available. The indigenous money-lenders are

charging exorbitantly for these services.• Absence of insurance facilities.• Storing and warehouse facilities are not available in rural areas.• Passenger transport facilities are not available, as are available in city area.• Like in city areas, the advantage of ancillary and service units is not available.• Such units are very far from the market place and this increases the cost of distribution of

finished goods.• Sometimes the means of transport are not available.• It is not possible to tap the advantage of industrial training institutes or management

development pragrammes which is possible in city areas.• It is generally not easy to get skilled workers in rural areas.• Municipal facilities like water supply, drainage, fire-fighting etc. are not available in rural

areas.• There is absence of recreation facilities, good educational institutes, good and sufficient

medical facilities.

Advantages of Suburban Area• Land is available at a cheaper rate as compared to urban areas.• Adequate land is available for future expansion unit. The machines can be

installed horizontally and still the provision for future expansion can be made.• Infrastructure facilities like road, water supply, drainage, banking, warehousing,

insurance etc. are developed Government, municipal authorities or industrial associations.

• As city area is nearest, the skilled and unskilled, both type of labour are available.• It is possible to tap the advantage of industrial training institutes, management

development programmes, research institutes etc. which are available in nearby city area.

• The nearby city area provides a substantial market for the products of the unit. This reduces the cost of marketing the finished products and other ancillary advantages of marketing are available.

• Educational institutes, medical facilities and other recreational facilities are available in the suburban area itself as well as in the nearby city area.

Location Models

• 1. Factor Rating Method• 2. Point rating Method• 3. Qualitative Factor Analysis

Factor Rating Method

Point rating Method

Qualitative Factor Analysis

Government Control on Location of Industries

• The objectives of state intervention and control are:• · To attain balanced regional development.• · To narrow down the gap of inequality of income and wealth

through• creating and providing employment opportunities to less

developed areas• · To reduce the concentration of population and congestion of

industries in• city areas• · As strategic defence policy, spread of industries reduces the

chances of• heavy losses in war time.