What is Plant location decision? Location of an industry is an important management decision. Location decision is based on the organizations long-term strategies such as technological, marketing, resource availability and financial strategies. 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.
Here are explain; What do we think about Plant location decision?
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. Why we Comparison of Different Production Systems?
What is a Plant?
A plant is a place where the cost of the product is kept to low in order to maximize gains. A plant is a place, where men, materials, money, machinery, etc. are brought together for manufacturing products.
Identifying an ideal location is very crucial, it should always maximize the net advantage, must minimize the unit cost of production and distribution. The objective of minimization of cost of production can achieve only when the plant is of the right size and at the right place where economies of all kinds in production are available.
The planning for “where” to locate the operations facilities should start from “what” are organization’s objectives, priorities, goals and the strategies required to achieve the same in the general socio-economic-techno-business-legal environment currently available and expected to be available in the long-term future.
Unless the objectives and priorities of an organization are clear i.e. the general direction is clear, effective functional or composite strategies cannot design. And, it is these strategies of which the location design is a product.
When Plant location decision in Different Situations, How to chose perfect?
The following the different situations below are;
To select a proper geographic region:
The organizational objectives along with the various long-term considerations about marketing, technology, internal organizational strengths and weaknesses, region-specific resources and business environment, legal-governmental environment, social environment, and geographical environment suggest a suitable region for locating the operations facility.
Selecting a specific site within the region:
Once the suitable region is identified, the next problem is that of choosing the best site from an available set. Choice of a site is much less dependent on the organization’s long-term strategies. It is more a question of evaluating alternative sites for their tangible and intangible costs if the operations were located there. Cost economies now figure prominently at this final stage of the facilities-location problem.
Location choice for the first time:
In this case, there is no prevailing strategy to which one needs to confirm. However, the organizational strategies have to be first decided upon before embarking upon the choice of the location of the operating facility/facilities. The importance of long-term strategies can not overemphasize. Cost economics is always important but not at the cost of long-term business/ organizational objectives.
Location choice for an ongoing organization:
A new plant has to fit into a multi-plant operations strategy as discussed below;
Plant Manufacturing Distinct Products or Product Lines.
This strategy is necessary where the needs of technological and resource inputs are specialized fir distinctively different for the different products/product- lines. For example, a high-quality precision product-line should preferably not locate along with other product-line requiring a little emphasis on precision.
It may not be proper to have too many contradictions such as sophisticated and old equipment, highly skilled and not so skilled personnel, delicate processes and those that could permit rough handling, all under one roof and one set of managers. Such a setting leads to much confusion regarding the required emphasis and management policies. Product specialization may be necessary in a highly competitive market; it may also be necessary in order to fully exploit the special resource potential of a particular geographical area.
Instances of product specialization could be many: A watch manufacturing unit and a machine tools unit; a textile unit and a sophisticated organic chemical unit; an injectible pharmaceuticals unit and a consumer products unit; etc. All these pairs have to be distinctively different-in technological sophistication, in process, and in the relative stress on certain aspects of management. The more decentralized these pairs are in terms of the management and in terms of their physical location, the better would be the planning and control and the utilization of the resources.
Manufacturing Plants Each supplying to a Specific Market Area.
Here, each plant manufactures almost all of the company’s product. This type of strategy is useful where market proximity consideration dominates the resources and technology considerations. This strategy requires a great deal of coordination from the corporate office. An extreme example of this strategy is that of soft-drinks bottling plants. Manufacturing Plants Divided According to the Product/Product Line being Manufactured, and these Special-Product Plants Located in Various Market Areas.
Plants Divided on the Basic of the Processes or Stages in Manufacturing.
Each production process or stage of manufacturing may require distinctively different equipment capabilities, labor skills, technologies, and managerial policies and emphasis. Since the products of one plant feed into the other plant, this strategy requires much-centralized coordination of the manufacturing activities from the corporate office who are expecting to understand the various technological and resources nuances of all the plants. Sometimes such a strategy is using because of the defense/national security considerations. For instance, the Ordnance Factories in India.
Plants Emphasizing Flexibility in Adapting to Constantly Changing Product Needs.
This needs much coordination between plants to meet the changing needs and at the same time ensure efficient use of the facilities and resources. The new plant or branch-facility has to fit into the organization’s existing strategy, mainly because the latter has been the product of deep thinking about the long-term prospects and problems, and strengths and weaknesses for the organization as a whole.
Location for an Industrial Plant:
The principle of Industrial Plant Location is that the sum of manufacturing and distributing cost should be at a minimum for the best location. The first two factors are related to the transportation cost. One should be clear that a plant may locate near the market as well as near the raw materials site. But in actual practice, many times, due to some other factors, it is not possible to locate an industry near the proximity of the market as well as raw material.
Explain different parts:
For economical analysis these factors play an important part:
Following are the factors when an undertaking is located near the raw material site;
When the source of raw material is likely the controlling factor. Materials are bulky and of relatively low price. Materials are small and of the high unit price. Raw materials are greatly reducing in bulk during the process of manufacture. Raw materials are perishable and the process makes them less perishable. The examples are processing industries, cement, paper, meat, canning (Fruit), etc.
Factors responsible for locating an industry near the market;
When the size or bulk of the product is more. Render it more fragile.
More subsection about the spoilage. Examples are shoes, furniture, glassware industries.
While dealing with the economy of labor, the factors responsible are;
The ratio of labor cost to total manufacturing cost. If the ratio is small then this factor is not important. Possibility of a reduction in labor cost by using better methods or better quality of labor. The type of labor required. For example, the textile industries silk and carpet-making industries, sports goods, etc.
Now for the economy and availability of power;
This point is similar to raw material procurement. If power is generating from coal, then coal is a raw material. Hence still steel plants are located near the coal-mines etc.
Another major factor that influences the availability of finance;
But the finance can obtain from Government agencies. Banks etc. at any place.
The following factors also influence the layout;
An offer of a factory site or an existing plant. Subscriptions of the capital stock of the enterprise. A rebate of taxes and the period for which it will remain available. Non-reference by local or government bodies. The location should not be near the border of the country to safeguard from the risk of war. For smooth going, political interference should not be there.
