Plant Location or Facility Location is an important decision for an organization at the strategic level. An important feature of the manufacturing system is its efficiency in transferring products to the end customer. This feature can be well fulfilled on the basis of the location of its plant or facility. The decision to select the plant location involves a large investment in building the plant and machinery.
Plant location building requires a large investment in machinery and plants. It is very important to choose a significant plant location, as it is not possible to change the location of the plant frequently. Thus, it is important that there be a proper choice of plant location because an improper location of the plant may waste the investments made in buildings and machinery.
A proper plant location requires long-range forecasts related to the future needs of a company. The company’s expansion strategy, product diversification plans, shifting market dynamics, shifting raw material sources, and a host of other considerations should all play a role in determining the plant’s site.
Factors Influencing Plant Location
There are many factors considered by managers of both service and manufacturing organizations to assess the desirability of a particular site, like proximity to customers and suppliers, labor costs, and transportation costs.
Controllable general locational factors
Proximity to Market: It is the priority of the company that they can serve their customers well by providing their goods and services within the time needed and at reasonable prices. An organization decides to locate its facilities close to the market or away from the market according to the product. A location close to the market is preferred if:
- The items are perishable and easily spoiled.
- There is a frequent need for sales service.
- Transportation costs are high, which increases the cost significantly.
- The product does not have a long shelf life.
Supply of raw materials: The need is to organize raw materials with the right qualities and time for uninterrupted production. This factor is highly sensitive for perishable goods and goods with high transportation costs.
General guidelines suggested by Yaseen regarding the effects of raw materials on the plant location are:
- Place the plant at the source of the raw materials, the market, or any intermediate location when one raw material is used without causing weight loss.
- When weight-losing raw material is demanded, locate the plant at the raw material source.
- When raw materials are universally available, locate them close to the market area.
- If the raw materials are processed from a variety of locations, the plant may be situated to minimize total transportation costs
Transportation facility: The timely supply of raw materials to the company is necessary for the timely finishing of goods for the customers. The placement of the plant is contingent upon the presence of a transport facility. There are five primary means of physical transportation: air, road, rail, water, and pipeline. The choice of transportation mode and the location of the plant will depend on relative costs, convenience, and suitability. Thus, transportation costs add value to the criteria for plant location.
Infrastructure availability: The location is mostly determined by the availability of essential infrastructure amenities like trash disposal, water, and electricity. Certain types of industries are power-hungry, e.g., aluminum and steel, as they should be located near the power station or a location where uninterrupted power supply is assured throughout the year. Process industries—such as those in paper, chemicals, cement, and other industries—need a steady supply of water in big quantities and of high quality; the mineral content of the water becomes crucial; a waste disposal facility is a crucial component that affects the location of the plant.
Labour and Wages: The problem of securing adequate laborers with specific skills is a factor to be considered both at the territorial as well as at the community level during plant location. It is usually expensive and involves administrative issues to import labor. It is important to research the history of labor relations in a potential community. The productivity of labour is also an important factor to be considered.
Uncontrollable general locational factors
Government Policy: The elements that require consideration include the policies of state and municipal governments with regard to labor regulations, building codes, safety, etc.
Climatic conditions: The geographical conditions of the area need to be considered along with climatic conditions (humidity, temperature). The climate is a crucial factor in influencing human efficiency and behavior. Some industries require specific climatic conditions, e.g., textile mills will require humidity.
Supporting industries and services: The concept of third-party vendors is emerging nowadays. The manufacturing firms will not make the components and parts by themselves. They subcontract the work to third-party vendors. So, the supply of components from third-party vendors will be an important factor influencing the location. Various services like communication, banking services, professional consulting services, and other civil amenities will play a vital role in the selection of a location.
Community and Labor attitudes: The attitude of the community toward their work and toward the concerned industries can make or break an industry. Even though all the conditions are favorable, the location of the facility is not ideal because of the labor union’s attitude toward management, which frequently results in strikes and lockouts.
Community infrastructure and amenity: Access to community infrastructure is necessary for all manufacturing activities. This includes both social and economic overhead capital, such as hospitals, universities, and electricity lines, as well as economic overhead capital like roads, railroads, ports, and service facilities.
These aspects must also be taken into account when choosing a location because building infrastructure is very expensive, and for the majority of manufacturing activities, the infrastructure that is currently in place places physical limits on potential locations.