Importance and Factors of Plant Location in Production Management

Shubham Dadaso Patil (Final Year B. Text)
Dhiraj Kalgonda Balanna (Textile Technology)
DKTE’s Textile & Engineering Institute, Ichalkaranji.
Correspondence to:
Shubham Patil:
Dhiraj Balanna:

Plant location is an important factor that determines the performance of an organization. Planned industrialization offers smooth working of the industry. Also it maintains social and economical structure of the country. In olden days, the location was selected randomly, with convenience of manufacturer and by considering social factors, which caused in failure of an organization.

Plant location selection decision plays a very important role in both manufacturing unit and assembly unit. The location is decided as per nature and size of the organization & product to be manufactured.

Importance and Factors of Plant Location

Importance of Plant Location:
Plant location with thorough analysis leads the organization towards success. The basic objective of organization is to maximize the profit level. Hence, it will be beneficial for both i.e. newly established business & already established business. The profit maximization can be done by increasing sales price, increasing sales with reduced production cost, by analyzing market trend, nature & level of competition etc. Production cost can also be reduced, if firm is located at a place where all the basic requirements (that fulfill input needs) will be available easily.

Selection of appropriate location is necessary due to following reasons:
  • Plant location partially determines operating and capital cost. It determines the nature of investment.
  • Each plant location requires some basic facilities like transportation, availability of water, electricity, fuel, cheap labors etc.
  • Each prospective location implies a new allocation of capacity to respective market area.
  • Government plays an important role in the choice of the location keeping in view the national benefits.
Factors Affecting the Plant Location:
Many factors are considered while selecting a site. According to their importance these are classified as primary factors & secondary factors.

Primary factors:
  • Raw material supply: Production process will continue properly when adequate supply of raw material is there. Raw material cost is a part of total production cost. Inadequate supply of raw material will result in the reduction in production. It will increase downtime & hence reduce efficiency of industry. Due to this inadequacy, profit maximization may not be obtained. The time to transport & cost of transportation is also important. Hence, industries are situated where raw material is available easily.
  • Nearness to market: This factor will produce the product to customer in short time period and hence it will be less damage to the product. It also reduces transportation cost. Also it will help the supplier to know the requirement of customers.
  • Transportation Facility: While selecting a site one thing has to be considered that is transportation of any raw material, semi- finished & finished goods should be as less as possible. By this factor material will be transported less, which will affect the material quality, cost of transportation, time to transport etc. Hence for all above reasons producer has to select cheap & speedy transportation with various sources like road, airways, railways, waterways etc. 
  • Labor Supply: Labor is most effective part of the industry, who produces the product. The producer has to choose the site in such a way that labor should present in adequate quantity with low cost and labor would be skilled or unskilled. If labors are not present in sufficient numbers it will increase downtime of production and decrease plant efficiency.
  • Power Supply: Electrical, diesel, automatic etc. energies are required to produce the product and also required for transportation. For continuous production process regular and sufficient supply is necessary. Many companies follow the industrial area because of availability of regular & sufficient power supply.
  • Supply of Capital: Capital is required for the industries for production, day to day working, expansion, marketing etc. Large scale production require large amount of capital which may be raised by shares, debentures etc.
Secondary factors:
  • Natural factors: Factors like land, water, climate etc. are very important for industries.
  • Government Policy: in particular area new plant can not be started due to some rules and regulations made by government. Also, there are some subsidies and other facilities to support small scale industries to grow up.
  • Availability: Availability of housing, hospitality, entertainment, education facilities also helps in deciding plant location.
  • Miscellaneous factors:
           1. Sufficient water supply
           2. Danger of attack during war
           3. Personal factors
           4. Environmental & ecological factors
           5. Availability of safety facilities like fire- fighting, police etc.

Selection of Site As Per Area:
Broadly, the area can be classified as rural, suburban and urban area.

1. Rural area: 

In some cases, rural area is selected to start a production unit. Government is providing various incentives & subsidies to entrepreneurs to start plant in rural area instead of urban area.

Advantages of rural area:

  • Land is available in abundance with cheap rate.
  • Large number of labor is available with less salary & wages due to lower standard of living.
  • Taxes are not there in rural area.
  • More stable labors are available. Less chances of job hopping due to less job opportunities.
  • No hostile environment between labor & managers.
  • No restrictions for height of building, drainage etc.
  • Rural environment is healthy. Slum & dirty area is not present in rural area.
Disadvantages of rural area:
  • Less transportation facility.
  • Poor communication facilities. Sometimes, postal, telegraph, telephone services may not work properly.
  • Less modernization.
  • Support industries are not available.
  • Unskilled labors are available in large number than skilled labors.
  • Water supply, drainage, fire- fighting facilities is not available.
  • Poor education, entertainment, hospital facilities.
2. Urban area: 
Urban area is exactly opposite to rural area. Now-a-days, large plants are not allowed in cities, only offices are allowed.

Advantages of rural area:

  • All types of transportation are available.
  • Big market is available for the product. Most of the companies first introduce product in city area.
  • Skilled labors are available, so no need to train them.
  • All municipal facilities like water supply, drainage, fire- fighting is available.
  • Banking & insurance facilities are found good in cities.
  • All types of supporting industries are available.
  • Entertainment, education, hospital, postal services are available easily as compared to rural area.
Disadvantages of rural area:
  • Higher land cost.
  • Higher labor cost due to high standard of living.
  • Due to availability of jobs, employee changes job consistently. Job snatching also takes place in cities by giving more salary or by good incentive schemes.
  • Some restrictions are made by municipal in case of height of building, drainage etc.
  • Strong trade union movement.
  • Industrialization in city increases slum & dirty area.
3. Sub-urban area: 
Both city & rural areas have certain limitations. Due to which the trend is towards sub-urban area, which will take advantages of both the areas & eliminate limitations.

Advantages of rural area:

  • As compared to urban area, land is available at cheaper rate.
  • Adequate land is available for future expansion.
  • Skilled & unskilled labors are available.
  • Training services for labors are also available.
  • Infrastructural facilities like road, water, banking etc. developed by government, authorities or industrial associates.
Disadvantages of rural area:
After few years sub-urban area may be developed into urban area with its advantages & disadvantages.

In general, urban area provides benefits for small enterprises, whereas, rural area provide benefits for large scale industries. Sub-urban area is suitable for medium size industries.
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Mazharul Islam Kiron is a textile consultant and researcher on online business promotion. He is working with one European textile machinery company as a country agent. He is also a contributor of Wikipedia.

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