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Plant Location
Plant
location refers to the choice of the region where men, materials, money,
machinery and equipment are brought together for setting up a business or
factory.
Identifying an
ideal location is very crucial, it should always maximize the net advantage,
must minimize the unit cost of production and distribution. Plant location
decisions are very important because once the plant is located at a particular
site then the organization has to face the pros and cons of that initial decision.
Factors affecting the plant location
Decisions
regarding selecting a location need a balance of several factors.
Primary factors
·
Availability of raw materials:
Availability
of raw materials is the most important factor in plant location decisions.
Usually, manufacturing units where there is the conversion of raw materials
into finished goods is the main task then such organizations should be located
in a place where the raw materials availability is maximum and cheap.
·
Nearness to the market:
Nearness
of market for the finished goods not only reduces the transportation costs, but
it can render quick services to the customers. If the plant is located far away
from the markets then the chances of spoiling and breakage become high during
transport. If the industry is nearer to the market then it can grasp the market
share by offering quick services.
·
Availability of labor:
Another
most important factor which influences the plant location decisions is the
availability of labor. The combination of the adequate number of labor with
suitable skills and reasonable labor wages can highly benefit the firm.
However, labor-intensive firms should select the plant location which is nearer
to the source of manpower.
·
Transport facilities:
In
order to bring the raw materials to the firm or to carrying the finished goods
to the market, transport facilities are very important. Depending on the size
of the finished goods or raw materials a suitable transportation is necessary
such as roads, water, rail, and air. The transportation costs must be kept low.
·
Availability of fuel and power:
Unavailability
of fuel and power is the major drawback in selecting a location for firms. Fuel
and power are necessary for all most all the manufacturing units, so locating
firms nearer to the coal beds and power industries can highly reduce the
wastage of efforts, money and time due to the unavailability of fuel and power.
·
Availability of water:
Depending
on the nature of the plant firms should give importance to the locations where
water is available.
For
example, power plants where use water to produce power should be located near
the water bodies.
Secondary factors
·
Suitability of climate:
Climate
is really an influencing factor for industries such as agriculture, leather,
and textile, etc. For such industries extreme humid or dry conditions are not
suitable for plant location. Climate can affect the labor efficiency and
productivity.
·
Government policies:
While
selecting a location for the plant, it is very important to know the local
existed Government policies such as licensing policies, institutional finance,
Government subsidies, Government benefits associated with establishing a unit
in the urban areas or rural areas, etc.
·
Availability of finance:
Finance
is the most important factor for the smooth running of any business; it should
not be far away from the plant location. However, in the case of decisions
regarding plant location, it is the secondary important factor because
financial needs can be fulfilled easily if the firm is running smoothly. But it
should be located nearer to the areas to get the working capital and other
financial needs easily.
·
Competition between states:
In
order to attract the investment and large scale industries various states offer
subsidies, benefits, and sales tax exemptions to the new units. However, the
incentives may not be big but it can help the firms during its startup stages.
·
Availability of facilities:
Availability
of basic facilities such as schools, hospitals, housing and recreation clubs,
etc can motivate the workers to stick to the jobs. On the other hand, these
facilities must be provided by the organization, but here most of the employees
give preference to work in the locations where all these benefits/facilities
are available outside also. So while selecting plant location, organizations
must give preference to the location where it is suitable for providing other
facilities also.
·
Disposal of waste:
Disposal
of waste is a major problem particularly for industries such as chemical,
sugar, and leather, etc. So that the selected plant location should have
provision for the disposal of waste.
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