Plant Location2
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Transcript of Plant Location2
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PLANT LOCATION
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Introduction
Site selection is an important activity whichdecides the fate of the business. A goodlocation may reduce the cost of productionand distribution to a considerable extent. Thereduction of cost of production anddistribution helps in elevating either the
competitive strength or the profit margin ofthe business.
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Need For Selecting ASuitable Site
1. While starting a new factory.
2. During the expansion of the existing plant.
3. When the existing plant is re-located at othersite.
4. Significant change in existing demand, supplyand marketing location.
5. Significant change in cost structure.6. A lease expires and the land lord dose not
renew the lease.
7. Govt. policies.
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Location Theory
- Alfred Weber
Weber classified locational factors in to twocategories :
Primary : Material, Labour Secondary : Banking Credit, Insurance,
Communication and Rent & Rates.
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Steps In Location
Selection of the exact site
Within the country or outside
Selection of the region
Selection of the locality orcommunity
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Steps :
Deciding of domesticor internationallocation.
Selection of region
Availability of rawmaterial
Nearness to the Market
Availability of power
Transport facilities
Suitability of climate Govt. policies
Competition b/w state
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Steps :
Selection of community
Availability of labour
Civic amenities for workers
Existence of complementary & competingindustry
Finance & research facilities
Availability of water and fire fighting facilities
Local taxes & restriction Momentum of an early start
Personal factor
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Steps :
Selection of the site
Soil, size and topography
Disposal of waste
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Factor Affecting the PlantLocation
Primary factor
Supply of raw material
Nearness to the market
Transport facility
Labour supply
Availability of power Supply of capital
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Factor Affecting the PlantLocation
Secondary factor
Facilities
Natural factor Political factor
Govt. subsidies and facilities
Historical & religious factor
Initial start and goodwill
Personal factor
Miscellaneous factor
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Recent trends in thelocation of industries
Priority for the suburban area
Industrial development in the notified
backward area Establishment of industrial estate
Decentralization of industries
Increased role of govt. in the decision oflocation of industries
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Location Models or Methods
Factor rating method
Point rating method
Break-even analysis
Quantitative factor analysis
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Factor Rating Method
Location rating Product ratingFactorrating
Factor
L [A] L[B] L[A] L[B]
Tax benefitLabour skillWaterPowerRaw materialClimateEducational systemsuppliers
521343
21
826234110
63543328
404661212
210
306512129
48
120 86
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Point Rating Method
Points Assigned to Alternative Location
Factor RatedPoints assigned to location
Location A Location B
Future availability of fuel
Transportation facility
Adequacy of water supply
Labour availability
Pollution regulationSite topography
Living condition
200
150
100
220
2040
100
250
150
100
200
2030
125
TOTAL 830 875
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Locational Break-even Analysis
Steps:-
1. Determine all relevant costs that vary with
each location.2. Categorized each cost as a VC & FC then
calculate the TC for each location.
3. Plot all this cost on graph
4. Select the location with the lowest totalannual cost at the expected productionvolume.
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ANNUAL VOLUME OF PRODUCTION
ANNUALTOTAL
COST
LOCATION A
LOCATION
LOCATION C
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Quantitative factor Analysis
Method
Steps :-
1. Develop a list of relevant factor
2. Assign a weight to each factor
3. Assign a common scale to each factor say 0to 100
4. Score each potential location according to
designated scale.5. Total the points of each location and choose
the location with maxi. Points.
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THANK YOU