Production Management

Plant Location and Its Importance

Proper and well-planned industrial location and plant layout is an important managerial decision. It is a long term decision involving virtually impossible any change in the decision later on. As such, the performance of an enterprise is considerably affected by its location.

The location of an industry is as important as the choice is for the location of a business or a shop in a city or locality. Unscientific and unplanned location is harmful not only to the industrial unit but also to the social and economic structure of the, country as a whole. “Bad location and layout contribute to the cost of manufacture and add nothing to the value of enterprise.”‘

The degree of significance for the selection of location for any enterprise mainly depends on its size and nature. A small scale industry mainly selects the site where in accordance with its capacity the Local market for the product is available. It can easily shift to other place when there is any change in the market. But for large scale industries requiring huge amount of investment there are many considerations other than the local demand in the selection of proper plant location.

These plants cannot be easily shifted to other place and an error of judgement in the selection of site can be very expensive to the organization.

Importance of Plant Location

Plant location is of Paramount importance both for new enterprise as well as for already established enterprises. The fundamental objective of an enterprise is to maximize its profit. Profits can increase either by increased sales or by decreasing cost of production. The reduction in cost of production when the form is of optimum size and is located at a place where all kinds of production economies are available. Selection of suitable location is important due to following reasons

(i) Location of plant partially determines operating and capital costs. It determines the nature of investment costs to be incurred and also the level of many operating costs.

(ii) Each prospective location implies a new allocation of capacity to respective market area.

(iii) Location fixes some of the physical factors of the overall plant design e.g.. heating and ventilation requirements, storage capacity for raw materials taking into consideration their local availability, transportation need for raw materials and finished goods; power need; costs of labor, taxes, Land, construction, fuel etc.

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