“The governing Principle is that a location of plant should be fixed in such a manner that the people interested in its success can sell goods most profitably and manufacture them with least expenses.”
The various types of factors associated with location of an enterprise have a significant impact on the operation of an enterprise and its costs structure. There factors can be qualitative as well as quantitative. Qualitative factors can be measured in terms of some qualitative criteria namely, adequate, good, significant etc. viz. type of labor, union activity, recreation climate etc. Quantitative factors can be measured on cost or some other quantitative basis viz. labor, material, housing, land, transport etc.
According to Dr. Visvesvariaya the decision of plant location should be based on nine M’s, namely Money, material, manpower, market, motive power, management, machinery, means of communication and momentum of an early start. In general, “a plant should be located at a place where the inhabitants are interested in its success, the product can be sold profitably and the production cost is minimum.”
Factors influencing Plant Location
In practice, the choice of plant location should be based on following considerations
1. Availability of Raw material : An ideal location is one where the main raw-material required to manufacture the product is adequately available. This will ensure regular supply of the material and will also reduce the transportation costs. The technical and delivery problems associated with raw-material can be reviewed and discussed from time to time. Alternately, the per unit cost of raw-material should come out to be minimum at the ideal plant location.
2. Nearness to the potential market : Marketing of its product efficiently is also an important function of an enterprise. If the plant is located near the market then the management can keep close touch with the changes in market environment and formulate its production policies accordingly. But with expansion of markets both on national and international levels this aspect has now become of secondary importance. But the reduction in marketing costs still remains an important consideration for location to be near the market. The transportation and other overheads are likely to increase with distance between plant and the market. Also in case of factory being nearer to the market the risk of damage in transportation, loss of demand due to change in fashions etc. is also reduced. Glass, chemical and drug factories are mainly affected by this consideration.
3. Location should be near to the source of operating power : In some industries continuous and adequate supply of power is of great significance e.g. nylon fiber plant. There are some industries for which cheap electricity may be more important. In such situation location of the plant near to hydro-power stations will provide cheap electricity e.g. paper and pulp mills, flour mills etc.
4. Supply of labor : Labor is one of the most important inputs in an industrial enterprise. There should be regular and cheap supply of labor, specifically for unskilled labor. in modern times with brisk movement of labor force from one place to other this factor is also of secondary importance. But if there is adequate supply of local labor near the plant then naturally it will be available at cheaper rates.
5. Transport and Communication facilities : Transport is very important for bringing raw materials, fuel from different places. Also transport is required to supply the finished products to markets. The region well connected with Rail, Road, Water and Air transport system is considered to be more appropriate for the location of plants. Similarly good communication facilities viz. Postal and Telecommunication links are of great significance towards the success of an enterprise. Regions with good communication system should be given priority for the selection of sites. Similarly, Industries producing goods for export may be located near ports or airports.
6. Integration with other group of companies : New enterprise owned or operated by a single group of companies should be so located that its work can be integrated with the work of the associated establishments.
7. Suitability of land and climate : Sub-soil of the location should be able to support the load likely to be placed on it. Similarly, the climatic conditions viz, humidity, temperature and other atmospheric conditions should be favorable for the plant e.g. damp climate is favorable for textile and cotton industries. These conditions also determine heating and ventilating requirements.
8. Availability of housing, amenities and other services : Good housing facility, adequate number of shops, theaters, cinemas, restaurants, local passenger transport and rail services and sufficient availability of gas, water supply, drainage, disposal of waste, fire fighting services can easily attract goods toff.
9. Local building and planning regulations: Proposed location should not infringe local regulations and bye-laws. A discussion with the survey department of the local authority is most desirable. Laws for the construction of buildings, local taxes c:c , should be taken into consideration for the selection of site.
10. Safety requirements : industries like nuclear power stations, explosive in nature, chemical process likely to pollute the atmosphere should be located in remote areas. Safety from enemy during the war periods also affects location decision.