Production Management

Objective and Nature of Plant Location Decision

Objective and Nature of Plant Location Decision. The basic objective of plant location decision is to determine the minimum cost level in keeping view of all input costs. The chosen location decision should permit minimization of both long-term and short- term costs. No location can be considered to be unique and can remain competitive indefinitely.

Location study requires continuous monitoring. Any location which is found optimum or most appropriate today may not remain optimum tomorrow. Thus, the problem of decision to move or to stay at a particular location is always before the management specially when some expansion programme is contemplated. The shift of the location of plant to some other place is known as relocation.

The relocation of plant may be necessary due to following reasons:

(i) shift in the structure of the market.

(ii) changes in the nature and costs of transportation.

(iii) rise in labor costs and other overheads.

(iv) change in the pricing policy of the enterprise.

(v) undesirable labor situation.

(vi) other factors viz. education, housing facilities etc.

The problem of relocation can be visualized in a number of ways by the management of the enterprise. Some of the alternatives can be

(i) Not to expand the plant and to allow the growth in business to be enjoyed, by other competitors in the field.

(ii) instead of expanding the physical facilities the sub contracting policy may be expanded to achieve overall expansion.

(iii) Expand the plant at the present Location.

(iv) The existing plant may be retained but other facilities may be developed at. airier places.

(v) Abandon the existing plant and relocate all facilities elsewhere.

In general, when the management decides against relocating, it is balancing extra profit to be gained by moving against the savings in effort and capital.

According to Buffa, “the intended objective for choice of location is profit minimization for economic activities. Where prices of products are uniform in all locations, then the criterion becomes maximum revenue. In such instances, locations will gravitate towards the location of consumers, and the general effect will be to disperse or decentralize If all prices and costs are independent of location, then the choice will be guided by Proximity to potential consumers or clients, proximity to similar or competing organizations, proximity to centers of economic activity in general, and the personal choices of owners and managers.”

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