Transport and Communication Facilities

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Plant Location Planning
OBJECTIVES:
After studying this unit, the student should be able to understand:
The concept of plant location
The importance of the theories of plant location
The new theory of industrial location
STRUCTURE:
Objectives
Introduction
Importance of Plant Location
Location of choice for first time
Strategies to determine plant location
Theories of Location
Factors affecting plant location
Summary
Review questions
8.9 References
INTRODUCTION:
The performance of any manufacturing unit is considerably affected by its location. The location of the industry is as important as the choice of location for a Business or a retail outlet. Selection of location for the operations, involves a long-term commitment about the geographical factors that affect any industry.
IMPORTANCE OF PLANT LOCATION:
The selection of location is an important factor for the success of an enterprise. It is equally important for both new as well as already established enterprises. The location choice is vital to any new firm because some changes and adjustments in capacity, qualitatively and quantitatively, at the initiation stage are always possible. However, one should note that it is not easy to change the location of the operation base once such a base has been established.
Two different situations under which location decision are made are: –
Location choice for the first time
Location choice for an already established organization with one or more existing facilities
LOCATION CHOICE FOR THE FIRST TIME:
The physical factors associated with the location of an enterprise can have a significant impact on the operations of an enterprise and its cost structure. These factors can be qualitative as well as quantitative.
According to Dr. Visweswarayya, the decision of plant location should be based on the ‘Nine M’s’ namely, Money, Material, Manpower, Market, Motivational power, Management, Machinery, Means of communication and Momentum to early start. In particular, the choice of the plant location should be based on the following conditions:
Availability of Raw Materials: An ideal location is one where the main raw material required to manufacture the product is adequately available. This will ensure regular supply of raw material and will also reduce the transport cost, for example, the location of textile mills at Mumbai and Ahmadabad, iron and steel industries at Jamshedpur and jute mills in Kolkata.
Nearness to a Potential Market: If the plant is located near the market, the management can keep in close touch with the changes in the market environment and formulate its production policies accordingly. Now-a-days, with the expansion of markets, both at the national and the international levels, this aspect is becoming secondary. The transport and other overheads are likely to increase with the increase in distance between the plant and the market. Also, in case of a factory being near to the market, the risk of damage during transportation, loss of demand due to change in fashions, etc., are also reduced, for example, the glass industry as well as the chemical and drug factories.
Nearness to power source: Some industries require continuous and adequate supply of power. For example, nylon and fiber plants. Availability of low cost electricity may be more important for industries in such a case the location of the plant near to power stations will provide cheap electricity.
Supply of Labour: Labour is one of the most important inputs in an industrial enterprise. There should be regular and cheap supply of labour, especially unskilled labour. This is vital for labour based industries.
Transport and Communication Facilities: Transport is very important for bringing raw material and fuel from different places and for marketing the finished goods, etc. The region well connected with rail, road, water and air transport systems is considered to be more appropriate for the location of plants. Similarly, good communication facilities like postal and telecommunication links play a significant role in the success of an enterprise.
Integration with other establishments in a group of companies: A new enterprise owned or operated by a single group of companies should be located such that its work can be integrated with the work of the associated establishments.
Suitability of land and climate: The subsoil of the location should be able to support the load likely to be placed on it. Similarly, the climatic conditions like humidity, temperature and other atmospheric conditions should be favourable for the plant, for example, a very damp climate may not favour the textile and cotton industries. The climatic conditions also determine the heating and ventilation requirements for the industry.
Availability of housing, other amenities and services: A good housing facility with adequate number of shops, theatres, restaurants, local transport system and sufficient supply of gas and water as well as provision for drainage and disposal of waste, etc., can easily attract good staff.
Local building and planning regulations: The proposed location should not infringe local regulations and by-laws for the construction of buildings, local taxes, etc.
Safety requirements: Industries like nuclear power stations using processes that are explosive in nature and chemical process likely to pollute the atmosphere should be located in remote areas, on the outskirts of a city or village, away from the residential areas.
Apart from the above, other factors that affect the selection of site for industry may be:
low interest on loans, special grants, political situations, low rentals, other benefits to encourage investment attitude of residents towards the industry, living standards, etc.
STRATEGIES TO DETERMINE PLANT LOCATION
A. Plants manufacturing distinct products or product lines:
Each plant services the entire market area of the organization. A strategy is required where the needs of the technological and resource inputs are specialized differently for different product lines. For example, product lines requiring different levels of precision ideally should not be located in the same plant. Such a situation would lead to too much confusion regarding processes and policies. For example, a watch manufacturing unit and a machine tools unit, a textile unit and a sophisticated organic chemical unit. All these pairs are distinctively different in technological sophistication, in process and in the relative stress on certain aspects of management.
B. Manufacturing plants each supplying to market area:
Here, each plant manufactures almost the company’s entire product range. This type of strategy is useful where market proximity is the factor that is considered primarily and where the resources and technology considerations are secondary. This strategy requires a great deal of consideration on the part of the corporate office.
C. Plants divided on the basis of process or stage in manufacturing:
Each production process or stage of manufacturing may require distinctly different equipment capabilities, labour skills, technologies, managerial policies and different levels of emphasis since the product of one plant is fed into the other plant. This strategy requires much centralised coordination of the manufacturing activities from the corporate office and a deep understanding of the various technologies and resources being used in all the plants.

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