Plant location a Challenge in Indian Context ?21 Ambika Nadar 23 Nutan Panchal 24 Vikas Pandey 25 Satyam Pandya

Plant locationPlant location is the location where an industry wants to start its operations. It may be understood as the function of determining where the plant should be located for maximum operating economy and effectiveness. It is the selection of suitable location or site .

Plant locationIt is of 2 types1.Localization /centralization-means concentration of similar type of industries at some particular place. E.g. textile in Mumbai. 2.Delocalization /Decentralization-means spreading of similar type of industries at different places. E.g. banking industries.

3.

The Need for location decisions Arises under following conditions:

(a)When the business is newly started; (b)The existing business unit has outgrown its original facilities and expansion is not possible; hence a new location has to be found; (c)The volume of business or the extent of market necessitates the establishment of branches; (d)A lease expires and the landlord does not renew the lease; (e)When the company thinks that there is possibility of reducing manufacturing cost by shifting from one location to another location; and (f)Other social or economic reasons; for instance, inadequate labour supply, shifting of the market etc.(g)

Location Theories

There is a theory given by Alfred Weber called the Location Theory. It gives a simple set of guidelines on deciding a location. Weber classified locational factors into two broad categories-primary and secondary.

Primary factors- Materials and Labour. Secondary factors- Banking credit, insurance, communication and rent and rates.

Freedom Of Location In the past, location selection was a tedious task. Eg. TISCO. Now in the 21st century, passage of time has made site selection easier for

contemporary businessmen. Following are the developments:(a)Improvements in transportation and communications facilities and speed of services. (b)Reduction in wage differential between regions . (c)Mobility of workers and management. (d)Improvements in construction methods and designs for plant buildings which make them less expensive to build. (e)Vigorous policy pursued by the government to remove regional imbalances in industrial development thus making all regions almost equal in attraction. (f) Improvements in processing and machine design that reduce the relative number of employees required for a given output. (g)Availability of air-conditioning equipments to counteract adverse climatic conditions for employees and processes. (h)Expansion of markets for almost all goods and services so that more enterprises are needed to meet the demands.

Plant location decisions need detailed analysis because:1. Wrong plant location generally affects cost parameters.

2.3. Once a plant is set up at a location which is not much suitable, it is a very disturbing as well as very expensive process to shift works of a company to some other place, as it would largely affect the cycle of production.

4.5. The investments involved in the in setting up of the plant premises .buying of the land etc are very large.

6.7. An ideal location may not, by itself guarantee success; but certainly contributes to the smooth and efficient working A Bad location, on the other hand is severe handicap for an enterprise and it finally bankrupts it. 1. Therefore utmost care must be taken at the initial stages to select a proper place because any problem at the later stages costs dearly to the organisation in relocating or shifting the plant to a new place.

Eg. M/s. Samrat Thermo Plastic

Factors affecting location & site decisions

1. Availability of raw material 2. Nearness to the potential market 3. Availability of Power 4. Supply of labor 5. Transport & communication facilities

Factors affecting location & site decisions Contd

6. Suitability of land & climate 7. Availability of housing, other amenities & services for workers 8. Availability 0f Water facilities 9. Finance & Research Facilities 10. Local Taxes & Restrictions

Factor-Rating MethodvPopular because a wide variety of factors can be included in the analysis vSix steps in the method1.Develop a list of relevant factors called critical success factors 2.Assign a weight to each factor 3.Develop a scale for each factor 4.Score each location for each factor 5.Multiply score by weights for each factor for each location 6.Recommend the location with the highest point score

Factor-Rating ExampleCritical Success Factor Labor availability and attitude People-to car ratio Per capita income Tax structure Proximity to Supplier Totals Scores (out of 100) Weight Sanand Singur Weighted Scores Sanand Singur

.25 .05 .10 .39 .21 1.00

70 50 85 75 60

60 60 80 70 70

(.25)(70) = 17.5 (.25)(60) = 15.0 (.05)(50) = 2.5 (.05)(60) = 3.0

(.10)(85) = 8.5 (.10)(80) = 8.0 (.39)(75) = 29.3 (.39)(70) = 27.3 (.21)(60) = 12.6 (.21)(70) = 14.7 70.4 68.0

Location Break-Even AnalysisvMethod of cost-volume analysis used for industrial locations vThree steps in the method1.Determine fixed and variable costs for each location 2.Plot the cost for each location 3.Select location with lowest total cost for expected production volume

Location Break-Even Analysis ExampleThree locations: City Fixed Cost Variable Cost Total Cost

Rajkot $30,000 Ahmadabad $60,000 Jamnagar $110,000 Selling price = $120 Expected volume = 2,000 units

$75 $180,000 $45 $150,000 $25 $160,000

Total Cost = Fixed Cost + Variable Cost x Volume

Location Break-Even Analysis Example$180,000 $160,000 $150,000 $130,000 urve ost c c gar Jamna st co ad ab ve d hma cur t A os tc j k o rv e R a cu Rajkot Ahmadabad lowest lowest cost cost | | | | | |

Annual cost

$110,000 $80,000 $60,000 $30,000 $10,000

Jamnagar lowest cost|

0

500

1,000

1,500

2,000

2,500

3,000

Volume

Advantages & disadvantages of urban , rural & sub - urban sites for a plant :

Urban

Rural

Sub-urban Planned industrialization Larger area

Better transportation More water Large labor supply Big local market Easy finance Municipal services Cheaper land Lower taxes Few ordinances Labor stability

Relocation of TATA NANO & the problems faced by NANO..

Introduction

TATA NANO-PEOPLES CAR

The tale of the creation and design of the Nano is one of innovation and

ingenuity, both inside and outside Tata's own organization. The introduction of the Nano received media attention due to its targeted low price. The Financial Times reported ." The car is expected to boost the Indian economy create entrepreneurialopportunities across India ,as well as expand the Indian car market by 65%. The car was envisioned by Ratan Tata Chairman of the Tata Group and Tata Motors who has described it as an eco-friendly "people's car". Nano has been greatly appreciated by many sources and the media for its lowcost.

The Nano was originally to have been manufactured at a new factory

Location of tata nanoin Singur ,West Bengal.

Singur is present in the states of west bengal and about 997 acres had

been alloted to Tata Motors for buiding the Nano. The construction for this factory on which the Nano was supposed to be coming up started in the month of july 07, but soon faced opposition from a political party.

Tatas tale of two cities.After months of voilent opposition ,Tata Motors has

abondoned the Indian site in Singur where it had worked for two years to build a new plant. Instead the automaker is relocating to sanand, where it will construct a $417 million facility to make the Nano mini car. October 7th ,only four days after the withdrawal from West Bengal the company announced that it would relocate and rebuild the plant in Sanand a city in Gujrat state in West Central India. It was an extraordinary turnof events inside one of the worlds most rapidly industralizing nations.

Relocation of Tata NanoWith the continued agitation led by Mamatha Banerjee

against the Nano car project, Tata finally decided to leave West Bengal. The project will be relocated in Gujarat. Sanand, on the outskirts of Ahmedabad, will be Nanos new home. The Trinamool Congress and its partners were, in the beginning, opposed to the entire acquisition. On Aug. 22, Tata Chairman Ratan Tata suggested the company

may move Nano production to another factory in India. "I've made a major investment here.To move will be at a great cost to Tata Motors and to shareholders," Tata told reporters in Kolkata.

Ratan Tata has two options if he moves out of West

Bengal: He will either retain the selling price and delay the project by six [or] seven months, or he might sell the Nano at a higher price," he says. Tata has closed shop because, as chairman Ratan Tata told journalists in Kolkata.. "I can't bring our managers and their families to West Bengal if they're going to be beaten, if there is going to be violence constantly, if their children are afraid to go to school."

Problems faced by Tata Nano Tata has faced trouble ever since it got the go-ahead for the plant on

May 18, 2006. Indeed, even before the current troubles, rising costs and delays already have had many industry watchers wondering how long it will take Tata to turn the Nano into a profitable venture. 1. Rising Costs-Rising materials prices have also disproportionately affected the Nano. 2. Tata's share price, also depressed by a $2.3 billion . 3. Paying a Price-If Tata Motors does pull out of Singur, it could cause the project cost to increase and therefore impact the company's ability to produce a low-cost car 4. Tatas share price also depressed by a $2.3 billion acquisition of Land Rover and Jaguar. 5. The main problem faced by the Tata Nano was delayed in production because of relocation of plant, as it is natural that setting the plant is a harder task.

Conclusion -Tata nano controversyThe delay in the launch of Tata Nano was caused largely due to

the Singur controversy. The construction for this factory on which the Nano was supposed to be coming up started in the month of July 2007 but soon faced opposition from a political party. The trinamool congress led by Mamata Banerjee protested against the manufacture of the car and the plant saying that the land was to be used for agrarian purposes and was wrongfully allotted to Tata Motors for making the Nano. There were protests all over the state and even in the capital city of New Delhi. Activists of the Trinamool congress stood outside the main gate of the plant and protested against any work in the plant.

Finally the dream project of Ratan Tata got completed,

Nano people s car launched successfully after facing so many hurdles.

Thank You

Beyond National BordersIn addition to all these factors, if companies tries to locate a industry beyond national borders, then they have to consider following factors also i.e.

Government stability Political and Economic systems Exchange rates Culture Export and import regulations Available technology

Factors affecting location & site decisions1.Availability of raw material 2.Nearness to the potential market 3.Near to the source of operating requirements like electricity, disposal of waste, drainage facilities. 4.Supply of labor 5.Transport & communication facilities 6.Integration with other group of companies 7.Suitability of land & climate 8.Availability of housing, other amenities & services 9.Local building & planning regulations 10.Safety requirements 11.Others like low interest on loans, special grants, living standards 12.

Examples of plant location ( India) Most of the textile mills are found in or near Mumbai and Ahmedabad because of the

humidity conditions that prevail there. Sites for nuclear power plants to be located in different parts of the country largely depend upon environmental, safety, socio-economic and also the engineering factors affecting the construction and operation of such plants. Steel plants are generally located near the Jharkhand, Bengal, Chhattisgarh and Orissa regions. This choice of site is mainly because of more economical transport of the finished goods as compared to basic raw materials. Similar case is observed in the plants which manufacture cement; such plants are located near the lime and the coal deposits. Namroop and Thal Vaishet, both act as very important sites for the gas-based fertilizer plants. Coal based fertilizer plants at Ramagundum are located near the source of raw materials (coal). Naptha / oil based fertilizer plants at Mangalore, Madras, Cochin have been located near ports, which act as a great source for the import of the raw materials. Proximity to market forms a major factor which affects plant location decisions in case of machine tool industries. In case of such industries, sites are scattered over different parts of the country such as Ludhiana, Pune, Bangalore, Calcutta, Mumbai etc. Information Technology/BPO/Software Industries depend largely on availability of skilled personnel, infrastructure etc Because of these reasons most of such organizations operate in urban areas such as Delhi, Chennai, Hyderabad, Bangalore, Pune etc.

Location Models Factor Rating Method: This method is the most commonly

used method. It involves factor rating and location rating .

Point rating method: This method consider to give the

rating to each factor on the basis of favorable, average and unfavorable .

Break even analysis: It is a graphical representation that

shows relationship between cost and revenue.

Qualitative Factor Analysis Method: In this technique,

relevant factors are assigned a weigh to indicate the relative importance.

To summarise their selection criteriaLabor (availability, cost and unions) Proximity to customers Construction cost Availability of land Raw material availability Transportation cost Government regulations (Excise duties, taxes ) Environmental regulations Climate Topography of land (i.e. basic characteristic of land)

Plant locationMeaning-the establishment of an industry at a particular place. It is of 2 types1.Localization /centralization-means concentration of similar type of industries at some particular place. E.g. textile in Mumbai. 2.Delocalization /Decentralization-means spreading of similar type of industries at different places. E.g. banking industries. 3.

Plant locationPlant location is the location where an industry wants to start its operations. It is the selection of suitable location or site .Various types of industries needs to consider various factors in this respect. If the industry is engaged in "heavy manufacturing " i.e. these are the industries which are relatively large and requires a lot of space. And as a result, they are expensive to construct. Important factors in the location decision for these plants are construction cost, modes of transportation , means of waste disposal and labour availability. And if it is a "light industry" i.e. the industry which is engaged in producing electronic equipment and components, parts etc .These type of industry doesn't require large storage capacity, so for them proximity to customer is important. And if the industry is warehouse or distribution centre , then they just require huge space .in addition to all the defined factors.

Plant location decisions need detailed analysis because:1. Wrong plant location generally affects cost parameters i.e. poor location can act as a continuous stimulus of higher cost. Marketing, transportation, quality, customer satisfaction are some of the other factors which are greatly influenced by the plant location decisions hence these decisions require in-depth analysis. 2. 3. Once a plant is set up at a location which is not much suitable, it is a very disturbing as well as very expensive process to shift works of a company to some other place, as it would largely affect the cycle of production. 4. 5. The investments involved in the in setting up of the plant premises .buying of the land etc are very large and especially in the case of big multinational companies, the investments can go into millions of rupees, so economic factors of the location should be very minutely and carefully checked and discussed in order to

The Need for location decisions These decisions are needed when a new plant is to be set up or

when the operations involved in the company at the present location need to be expanded but expansion becomes difficult because of the poor selection of the site for such operations. These decisions are sometimes taken because of the social or the political conditions engulfing the working of a company.

The way the works of a company have to be performed, largely

depends upon the industrial policies issued by the government. Any change that creeps in the industrial policy of the government which favors decentralization and hence does not permit any change or any expansion of the existing plant requires strictly evaluated location decisions.