PMT 322:- INDUSTRIAL LOCATION LECTURE NOTES
INDUSTRIAL LOCATION:- Refer s to the strategic decision making process
that businesses undertake when choosing where to establish their manufacturing
facilities or wharehouses.
The decision is crucial as it can impact a company’s cost structure, supply chain
efficiencyand competitiveness in the market.
FACTORS INFLUENCING INDUSTRIAL LOCATION
[Link] :-Proximity to transportation infrastructure such as highways,
ports, railways and airports
2. Labour Availability:- Access to skilled labour, labour costs, and workforce
productivity.
3. Market Access:- Proximity to customers and suppliers can reduce transportation
costs and lead times.
4. Cost of Land and Real Estate :- Land prices, taxes, utility costs and incentives
from local governments.
5. Regulatory Environment:- Compliance with environmental regulations, zoning
laws and government incentives.
TYPES OF INDUSTRIAL LOCATIONS
1. Urban Areas:- Closer to markets and skilled labour but higher land
operating costs.
2. Rural Areas:- Lower Operating costs, regulatory flexibility, but limited
access to marketsand skilled labour
3. Special Economic Zones (SEZs) :- Government – designated areas withtax
benefits infrastructure support and streamlined regulationsto attract
industrial investment.
PLANT LOCATION IN THE CONTEXT OF INDUSTRIAL LOCATION
Plant location refers to the process of selecting a suitable site or place for
establishing a manufacturing facility or industrial plant. It is a critical decision for
businesses, as the location of a plant can significantly impact the company’s
overall success and competitiveness. Plant location considerations are important
across various industries, including manufacturing, agriculture, energy generation,
and more.
Entrepreneurs face a major problem with plant location in deciding the best
location for their factory or plant. The utmost care must be exercised in selecting
the plant location and many different factors must be taken into account. Primarily,
the plant must be located where the minimum cost of production and distribution
can be obtained but, other factors such as room for expansion and safe living
conditions for plant operation as well as the surrounding community are also
important. The location of the plant can also have a crucial effect on the
profitability of a project.
For example, Consumer industries like televisions, washing machines and other
luxury goods are set up near the marketing centers, while producer industries like
steel mills are located near the vicinity of raw materials. Plant location is the
choice of region and the site selection to set up a business or a factory.
The choice is primarily made after considering all the benefits and costs of various
alternative areas. Moreover, it is a strategic plan which cannot be changed after
deciding. The location chosen should be selected according to the specific
circumstances and requirements. Each entrepreneur has an individual plant and
makes an optimum attempt.
FACTORS INFLUENCING PLANT LOCATION
There are several factors that influence plant location. Moreover, moving forward
by resolving all other problems and considering these factors leads to success in
business. The major factors affecting the plant location are listed as follows:
Availability of Raw Materials
The source of raw materials is one of the most important factors influencing the
selection of a plant location. Attention should be given to the purchased price of
raw materials, distance from the source of supply, freight and transportation
expenses, availability and reliability of supply, purity of raw materials and storage
requirements.
Proximity to Market
The location of markets or intermediate distribution centers affect the cost of
product distribution and time required for shipping. Proximity to major markets is
important consideration in the selection of the plant location because the buyer
usually finds advantageous to purchase from near-by sources.
Transportation
The transportation of materials and products to and from plant will be an
overriding consideration in the selection of plant location. If practicable, a site that
it is close to at least two major forms of transport: road, rail, waterway or a seaport,
should be selected. Road transport is being increasingly used, and is suitable for
local distribution from a central warehouse.
Rail transport will be cheaper for long-distance transport. If possible, the plant
location should have access to all three types of transportation. There is usually a
need for convenient rail and air transportation facilities between the plant and the
main company headquarters, and the effective transportation facilities for the plant
personnel are necessary.
Availability of Labour
Labour will be needed for the construction of plant and its operation. Skilled
construction workers will usually be brought in from outside the site, but there
should be an adequate pool of unskilled labours available locally; and labour
suitable for training to operate the plant. Skilled tradesmen will be needed for plant
maintenance. Local trade union customs and restrictive practices will have to be
considered when assessing the availability and suitability of labour for recruitment
and training.
Availability of Power, Fuel or Gas
It is important for an organisation to ensure the continuous supply of power, fuel
and gas before selecting a plant location. For example, the location of thermal
power plants and steel plants near coal fields is crucial for reducing cost of the fuel
transportation.
Supply of Water
Water is important for survival. It is required for processing in industries like
chemical, sugar and paper industries. Also, water is used for drinking and sanitary
purposes. It is important for an organisation to investigate a quality and probable
source of supply. In addition, the chemical properties like hardness, alkalinity and
acidity level of water should be checked. Apart from that, a thorough study should
be conducted related to the disposal of water like effluents, solids, chemicals and
other waste products.
Climatic Conditions
The climate of a region where the plant is to be located has great impact on both
capital and operational costs. Various aspects related to climatic conditions to be
considered by an organisation include the level of snow fall or rain fall in the
region, humidity, velocity of wind, frequency of natural calamities and so on.
In most plant locations, the target is to reduce cost. Some items of cost, like freight,
could also be higher for one city and lower for the other city, but power costs, for
instance, may have the reverse pattern. A little labour supply may cause labour
rates to be bid up beyond rates measured during a location survey.
The sort of labour available may indicate future training expenditures. Thus,
although a comparative analysis of varied locations may point toward one
community, an appraisal of intangible factors could also be the idea of the choice
to pick another. The example of a managerial decision with multiple criteria, where
trade-offs must be made between the varied values and criteria.
Location Analysis
Every organisation attempts to find an ideal or optimum location. An optimum
location is a place where the product cost is less with a huge market share and less
risk. To find such location, an organisation needs to perform vast analysis.
Business location analysis is a reliable process where an organisation weighs down
the pros and cons of each alternative site.
Location analysis is based on the following aspects:
Demographic analysis
Competitive analysis
Site economics
Trade area analysis
Traffic analysis
The following are the objectives of location analysis:
To make sure the smooth running of the business
To hold minimum investment and operational cost
To co-ordinate with government policies
To promote employee welfare
Significance of Plant Location
Strategic significance of plant location is connected with capacity decisions. Plant
location involves commitment towards resources to a long-range plan. The
criterion for the selection of location should be profit maximisation and cost
minimisation. If the costs of products are uniform altogether, then the criterion
becomes one among minimising relevant costs. Plant location is generally a stable
decision that cannot be changed frequently and requires a lot of cost and efforts.
Any wrong decision can bring huge losses for the organisation. Therefore, it is
important for an organisation to consider all the factors that impact the plant
location before making the selection. If all processes and costs are independent of
location, choices are going to be guided by proximity to potential customers or
clients or similar and competing organisations and centres of economic activity
generally.
Plant Location Selection Criteria
Most new investments in land, machines, buildings and expertise are made for the
long run. This is furthermore important in terms of manufacturing plants. Being the
global business environment, the company requires a location that every single day
it holds a major role in the new production plant. Organisations can have several
reasons to start the location selection process for their new manufacturing plant,
cost reduction, the capacity expansion for business growth, new market entries, the
pools of labour coping with geopolitical developments.
The factors that play a crucial role in plant location selection are as follows:
Materials
Machinery
Labour
Safety and Security
Future Operations
Materials
The layout of the productive equipment will depend on the characteristics of
the product to be managed at the facility, as well as different parts and
materials to work on.
Main factors to be considered: size, shape, volume, weight and the physical-
chemical characteristics, since they influence the manufacturing methods
and storage and material handling processes.
The sequence and order of operations will affect plant layout as well, taking
into account the variety and quantity to produce.
Machinery
Having information about the processes, machinery, tools and necessary
equipment, as well as their use and requirements is essential to design a
correct layout.
The methods and time studies to improve the processes are closely linked to
the plant layout.
Regarding machinery, we have to consider the type, total availability for
each type, as well as quantity of tools and equipment.
Labour
Labour has to be organised in the production process (direct labour,
supervision etc.)
Environment considerations: employees’ safety, light conditions, ventilation,
temperature, noise, etc.
Process considerations: personnel qualifications, flexibility, number of
workers required at a given time as well as the type of work to be performed
by them.
Safety and Security
Safety always be a consideration in the design or layout of the facility.
A company can design the most efficient production layout but if it places
employees at risk or places the product at risk from the layout, it cannot be
implemented.
Providing a quality product with the least amount of movement and material
handling is important, but the most important asset that any company has is
its employees. If the safety of those employees is jeopardised, the layout
should not imperil employee’s safety.
Future Operations
Every plan should include a consideration for the future of operations.
Whether it is a manufacturing facility that needs to consider future products
or variations of the same product or a distribution centre that needs to
consider future storage requirements and product configurations, as well as
the ability to expand capacity in the future.
It is important to forecast future changes to avoid having an inefficient plant
layout in a short term.
Flexibility can be reached keeping the original layout as free as possible
regarding fixed characteristics, allowing the adjustment to emergencies and
variations of the normal process activities.
Possible future extensions of the facility must be taken into account, as well
as the feasibility of production during re-layout.
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Water is important for survival. It is required for processing in industries like
chemical, sugar and paper industries. Also, water is used for drinking and
sanitary purposes. It is important for an organisation to investigate a quality
and probable source of supply. In addition, the chemical properties like
hardness, alkalinity and acidity level of water should be checked. Apart from
that, a thorough study should be conducted related to the disposal of water
like effluents, solids, chemicals and other waste products.
Climatic Conditions
The climate of a region where the plant is to be located has great impact on
both capital and operational costs. Various aspects related to climatic
conditions to be considered by an organisation include the level of snow fall
or rain fall in the region, humidity, velocity of wind, frequency of natural
calamities and so on.
In most plant locations, the target is to reduce cost. Some items of cost, like
freight, could also be higher for one city and lower for the other city, but
power costs, for instance, may have the reverse pattern. A little labour supply
may cause labour rates to be bid up beyond rates measured during a location
survey.
The sort of labour available may indicate future training expenditures. Thus,
although a comparative analysis of varied locations may point toward one
community, an appraisal of intangible factors could also be the idea of the
choice to pick another. The example of a managerial decision with multiple
criteria, where trade-offs must be made between the varied values and
criteria.
Location Analysis
Every organisation attempts to find an ideal or optimum location. An
optimum location is a place where the product cost is less with a huge
market share and less risk. To find such location, an organisation needs to
perform vast analysis. Business location analysis is a reliable process where
an organisation weighs down the pros and cons of each alternative site.
Location analysis is based on the following aspects:
Demographic analysis
Competitive analysis
Site economics
Trade area analysis
Traffic analysis
The following are the objectives of location analysis:
To make sure the smooth running of the business
To hold minimum investment and operational cost
To co-ordinate with government policies
To promote employee welfare
Significance of Plant Location
Strategic significance of plant location is connected with capacity decisions. Plant
location involves commitment towards resources to a long-range plan. The
criterion for the selection of location should be profit maximisation and cost
minimisation. If the costs of products are uniform altogether, then the criterion
becomes one among minimising relevant costs. Plant location is generally a stable
decision that cannot be changed frequently and requires a lot of cost and efforts.
Any wrong decision can bring huge losses for the organisation. Therefore, it is
important for an organisation to consider all the factors that impact the plant
location before making the selection. If all processes and costs are independent of
location, choices are going to be guided by proximity to potential customers or
clients or similar and competing organisations and centres of economic activity
generally.
Plant Location Selection Criteria
Most new investments in land, machines, buildings and expertise are made for the
long run. This is furthermore important in terms of manufacturing plants. Being the
global business environment, the company requires a location that every single day
it holds a major role in the new production plant. Organisations can have several
reasons to start the location selection process for their new manufacturing plant,
cost reduction, the capacity expansion for business growth, new market entries, the
pools of labour coping with geopolitical developments.
The factors that play a crucial role in plant location selection are as follows:
Materials
The layout of the productive equipment will depend on the characteristics of
the product to be managed at the facility, as well as different parts and
materials to work on.
Main factors to be considered: size, shape, volume, weight and the physical-
chemical characteristics, since they influence the manufacturing methods
and storage and material handling processes.
The sequence and order of operations will affect plant layout as well, taking
into account the variety and quantity to produce.
Machinery
Having information about the processes, machinery, tools and necessary
equipment, as well as their use and requirements is essential to design a
correct layout.
The methods and time studies to improve the processes are closely linked to
the plant layout.
Regarding machinery, we have to consider the type, total availability for
each type, as well as quantity of tools and equipment.
Labour
Labour has to be organised in the production process (direct labour,
supervision etc.)
Environment considerations: employees’ safety, light conditions, ventilation,
temperature, noise, etc.
Process considerations: personnel qualifications, flexibility, number of
workers required at a given time as well as the type of work to be performed
by them.
Safety and Security
Safety always be a consideration in the design or layout of the facility.
A company can design the most efficient production layout but if it places
employees at risk or places the product at risk from the layout, it cannot be
implemented.
Providing a quality product with the least amount of movement and material
handling is important, but the most important asset that any company has is
its employees. If the safety of those employees is jeopardised, the layout
should not imperil employee’s safety.
Future Operations
Every plan should include a consideration for the future of operations.
Whether it is a manufacturing facility that needs to consider future products
or variations of the same product or a distribution centre that needs to
consider future storage requirements and product configurations, as well as
the ability to expand capacity in the future.
It is important to forecast future changes to avoid having an inefficient plant
layout in a short term.
Flexibility can be reached keeping the original layout as free as possible
regarding fixed characteristics, allowing the adjustment to emergencies and
variations of the normal process activities.
Possible future extensions of the facility must be taken into account, as well
as the feasibility of production during re-layout.