Location of an industry is an important management decision. It is a two-step decision: first, choice of general area or region and second, the choice of site within the area selected. Location decision is based on the organisations long-term strategies such as technological, marketing, resource availability and financial strategies.
The objective of plant location decision-making is to minimise the sum of all costs affected by location.
Plant location is important because of the following:
(i) Location influences plant layout facilities needed.
(ii) Location influences capital investment and operating costs.
Location decisions are strategic, long-term and non-repetitive in nature. Without sound and careful location planning in the beginning itself, the new facilities may create continuous operating problems in future. Location decision also affects the efficiency, effectiveness, productivity and profitability.
The location decision should be taken very carefully, as any mistake may cause poor location, which could be a constant source of higher cost, higher investment, difficult marketing and transportation, dissatisfied and frustrated employees and consumers, frequent interruptions of production, abnormal wastages, delays and substandard quality etc.
Therefore, it should be based upon a careful consideration of all factors that are essentially needed in efficient running of a particular industry. The necessary factors in the selection of plant location vary among industries and with changing technical and economical conditions.
Site selection is not an easy problem because if the selection is not proper then all money spent on factory building, machinery and their installation etc., will go as waste and the owner has to suffer a great loss. Therefore, while selecting a site, owner must consider technical, commercial, financial aspects which may provide maximum advantages.
It is sometimes possible that all the requirements and features of ideal site may not be available at one particular location but then it will be advantageous to find out suitable site with combinations of all essential requirements of the particular industry to be established as explained in following paras.
To solve such problems a market analysis of the area is conducted and answers of the following questions can be found out:
- If there is a market which could be served and if retail price of product can be reduced?
- Whether quick delivery of the product can be made by better plant location to the particular market?
- Whether there is a competitor for the product in the market? Whether demand for product may increase? Whether an additional plant is required to meet the future demand?
- What is the potential purchasing power of the market?
- What are the buying habits of local people, and what must be done to fit your service to these habits?
Locational economics for an enterprise includes a consideration of the product to be manufactured, the processes and machinery to be used, and the service and facilities required.
To know this the following factors may be studied:
(b) Volume, and
- Production process:
(b) Intermittent, and
- Manufacturing machinery.
- Other manufacturing equipment’s.
- Special manufacturing requirement.
(d) Air or high pressure,
(e) Electricity, and