Business systems utilize facilities like plant and machinery, warehouses etc., while performing the task of producing products and services a proper planning of these facilities would definitely reduce their cost of operation and maintenance. Plant location decisions are very important because they have direct bearing on factors like financial, employment and distribution patterns. In the long run, relocation may even benefit the organization. But, the relocation of the plant involves stoppage of production, and also cost for shifting the facilities to a new location. In addition to these things, it will introduce some inconvenience in the normal functioning of the business. Hence at the time of starting any industry, one should generate several alternate sites for locating the plant. After a critical analysis, it is the best site to be selected for commissioning the plant. Location of warehouses and other facilities are also having direct bearing on the operational performance of organization.
Deciding on a location for a facility can be seen as a two-step process.
- preliminary screening of location alternatives – Preliminary screening of location alternatives depends on the organization’s long-term technological, marketing, resource mobilization, and financial strategies.
- selecting exact site – When selecting the exact site within the region, a number of factors come into play. The company needs to compare the relative availability and costs of power, transportation, labor, water, land, and raw materials in alternative sites.
There are several ways of defining layout. For example, plant layout may be defined as the spatial arrangement of the physical resources used to create the product. Alternatively, it’s how the space needed for material movement, storage, and labor is arranged in a plant. For a factory that’s already up and running, this refers to the arrangement that’s already present. But for a new factory, it means the plan for how the labor, machines, and other factors of production will be arranged in the different sections or shops. Good layout generally means that everything should be arranged to make the production process as cost effective as possible. So the layout should be such that the costs of material movement, storage between processes, and investment in equipment are kept as low as possible.
Facility Location Strategy
The following events are quite common in any business venture:
- Establishment of a new venture
- Expansion of the existing business
- Significant change in existing demand, supply and marketing locations
- Significant change in the cost structure
- Government policies
Because of these events, an organization will be keen in additional or alternate sites for its production activities. So the plant location becomes an important decision which in turn influences plant layout and facilities needed. Also, it influences capital investment and operating costs. For example, in steel industry, if we integrate the unit’s right from ore extraction to final steel formation in a nearby area, the transportation cost would be substantially reduced and also, the availability of supplies to the final stage of production in the integrated plant would be improved. This in turn, improves the productivity of the plant.
Facility Location Factors
The factors which influence plant location can be classified into general factors and specific factors:
General factors: These are:
- Availability of land for present and future needs and cost of land and land development and building etc.
- Availability of inputs such as labor and raw material, etc.
- Closeness to the market place
- Stability of demand
- Availability of communication facilities
- Availability of necessary modes of transportation like road, rail, airport, and waterways.
- Availability of infrastructural facilities such as power, water, financial institutions banks etc.
- Disposal of waste and effluents and their impact on environment
- Government support, grant, subsidy, tax structure
- Availability of housing facilities and recreational facilities.
- Demographic factors like population, trained man power, academic institutions, standard of living, income level, etc.
- Security culture of the society
- Fuel cost
Specific Factors: A multinational company, desiring to set up plant should consider the following aspects in addition to the normal factors:
- Economic stability of the country and the concern of the country towards outside investments are to be considered
- The success of operation of the factory depends upon the cultural factors, language and cultural differences which can present operating control and even policy problems. Units of measurement are also very important in international business.
- Analysis must be based on the factors like wage rate, policy, duties, etc.,
- The Company can set up joint ventures with any leading local giants that will solve many local problems
