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PLANT LOCATION

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Introduction

Site selection is an important activity whichdecides the fate of the business. A goodlocation may reduce the cost of productionand distribution to a considerable extent. Thereduction of cost of production anddistribution helps in elevating either the

competitive strength or the profit margin ofthe business.

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Need For Selecting ASuitable Site

1. While starting a new factory.

2. During the expansion of the existing plant.

3. When the existing plant is re-located at othersite.

4. Significant change in existing demand, supplyand marketing location.

5. Significant change in cost structure.6. A lease expires and the land lord dose not

renew the lease.

7. Govt. policies.

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Location Theory

- Alfred Weber

Weber classified locational factors in to twocategories :

Primary : Material, Labour Secondary : Banking Credit, Insurance,

Communication and Rent & Rates.

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Steps In Location

Selection of the exact site

Within the country or outside

Selection of the region

Selection of the locality orcommunity

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Steps :

Deciding of domesticor internationallocation.

Selection of region

Availability of rawmaterial

Nearness to the Market

Availability of power

Transport facilities

Suitability of climate Govt. policies

Competition b/w state

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Steps :

Selection of community

Availability of labour

Civic amenities for workers

Existence of complementary & competingindustry

Finance & research facilities

Availability of water and fire fighting facilities

Local taxes & restriction Momentum of an early start

Personal factor

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Steps :

Selection of the site

Soil, size and topography

Disposal of waste

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Factor Affecting the PlantLocation

Primary factor

Supply of raw material

Nearness to the market

Transport facility

Labour supply

Availability of power Supply of capital

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Factor Affecting the PlantLocation

Secondary factor

Facilities

Natural factor Political factor

Govt. subsidies and facilities

Historical & religious factor

Initial start and goodwill

Personal factor

Miscellaneous factor

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Recent trends in thelocation of industries

Priority for the suburban area

Industrial development in the notified

backward area Establishment of industrial estate

Decentralization of industries

Increased role of govt. in the decision oflocation of industries

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Location Models or Methods

Factor rating method

Point rating method

Break-even analysis

Quantitative factor analysis

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Factor Rating Method

Location rating Product ratingFactorrating

Factor

L [A] L[B] L[A] L[B]

Tax benefitLabour skillWaterPowerRaw materialClimateEducational systemsuppliers

521343

21

826234110

63543328

404661212

210

306512129

48

120 86

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Point Rating Method

Points Assigned to Alternative Location

Factor RatedPoints assigned to location

Location A Location B

Future availability of fuel

Transportation facility

Adequacy of water supply

Labour availability

Pollution regulationSite topography

Living condition

200

150

100

220

2040

100

250

150

100

200

2030

125

TOTAL 830 875

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Locational Break-even Analysis

Steps:-

1. Determine all relevant costs that vary with

each location.2. Categorized each cost as a VC & FC then

calculate the TC for each location.

3. Plot all this cost on graph

4. Select the location with the lowest totalannual cost at the expected productionvolume.

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ANNUAL VOLUME OF PRODUCTION

ANNUALTOTAL

COST

LOCATION A

LOCATION

LOCATION C

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Quantitative factor Analysis

Method

Steps :-

1. Develop a list of relevant factor

2. Assign a weight to each factor

3. Assign a common scale to each factor say 0to 100

4. Score each potential location according to

designated scale.5. Total the points of each location and choose

the location with maxi. Points.

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THANK YOU