Here are some of the important factors which must be considered while selecting an optimum location for an plant/factory.
Proximity to the Market:
Market is the location of buyers and hence becomes an important factor for plant location planning.
Industry units try to be as close to the market so that customers can be better served and cost of service will be reduced.
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Following points must be considered for analysis of alternative.
– Concentration of market and stability of demand.
– Market area to be served by the plant.
– Transportation facilities available and freight rates to main market
– Risk of damage and delays to goods in shipment.
– Location of competitors plant.
Availability of raw material:
Location selection decision also depends on raw material availability. Raw material should be easily available so that production is not affected.
Plant must be located where raw material is cheaper or available at concessional rates
If raw material is imported, plant must be nearer to port
Reliability and continuity of supply of raw materials is important
Transport and communication facilities
– Transportation includes movements of raw materials from source to site, movement of in-process material from one stage to another, movement of human resource, movement of finished goods to market, etc.
– While selecting location, transport facilities such as road, rail, water, air are to be analyzed for their availability, sustainability and transportation charges.
More factors include:
Labour Supply: How easy is it to find workers
Suitability of Land
Fuel and Power: Easy and uninterrupted access to fuel and power
Government Policies: Are the policies favourable for business
Supporting industries and services:
Strategic considerations: Law and order, political stability
MBA management question / Case study on this topic:
Q) Briefly explain with a suitable example the factors which affect the decision to locate a plant.
Q. What are the key factors that firms consider while choosing a location to operate? List five major reasons, why any Pharmaceuticals manufacturing firm should operate (locate its factory) in India.
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