Plant location


Plant location may be understood as the function of determining where the plant should be located for maximum operating economy and effectiveness .The selection of a place for locating a plant is one of the problems, perhaps the most important , which is faced by an entrepreneur while launching a new enterprise .A selection on pure economic considerations will ensure an easy and regular supply of raw material , labor forces ,efficient plant layout, proper utilization of production capacity and reduced cost of production .An ideal location may not, by itself, guarantee success; but it certainly contributes to the smooth and efficient working of an organization .A bad location ,on the other hand, is a severe handicap for any enterprise and it finally bankrupts it .It is, therefore, very essential that utmost care should be exercised in the initial stages to select a proper place. Once a mistake is made in locating a plant, it becomes extremely difficult and costly to correct it, specially where large plants are concerned .Cases are not wanting where mistakes were committed and wrong places selected. M/s. Samrat Thermo Plastic Industries, for example, are the manufacturers of mixers and grinders ,located in Raipur district in Madhya Pradesh. Seventy-five percent of the raw materials required by them had to be bought from Mumbai, and 75%of the finished products had to be marketed in Pune and Mumbai. To overcome this difficulty , it was decided to shift the entire plant to Pune. Similarly, Associated Breweries & Distilleries first set up its plant for brewing beer at Goa, though Mumbai is its main consuming centre The plant is now shifted to Vashi, near Mumbai. This enabled the firm to save considerably on transportation costs .Since the shifting to, Mumbai , the firm has had a steady run of success. The difficulties experienced by the proprietors and the cost of shifting the plant can easily be imagined.

The need for the selection of the location may arise under any following conditions:

(a) When the business is newly started;
(b) The existing business unit has outgrown its original facilities and expansion is not possible; hence a new location has to be found;
(c) The volume of business or the extent of market necessitates the establishment of branches;
(d) A lease expires and the landlord does not renew the lease; and
(e) Other social or economic reasons; for instance , inadequate labor supply, shifting of the market etc.

Whatever the reasons, the selection of the location has to be made after considering all the economic factors which have a bearing on it.It may be impossible to find a place which abounds in all the facilities that are required to start a factory; but a search has to be made for a place which enjoys as many facilities as possible. The guiding principle in the search should be for a place where the cost of the raw material and of fabrication, plus the cost of the marketing of the finished product, will be minimum.