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Saturday, June 11, 2011

Plant Location - A Scientific Approach



Slide 1:
PLANT LOCATION A Scientific Approach

Definition:
Definition A plant layout study is an engineering study used to analyze different physical configurations for an industrial plant. Plant location refers to the choice of region and the selection of a particular site for setting up a business or factory. The selection of location is an important phenomenon for the success of an enterprise and requires thorough analysis.

What is an ideal Location:
What is an ideal Location An ideal location is one where the cost of the product is kept to minimum, with a large market share, the least risk and the maximum social gain. It is the place of maximum net advantage or which gives lowest unit cost of production and distribution. 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 to 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 profitable and the production cost is minimum

Importance of Plant Location :
Importance of Plant Location The location of a plant is an important entrepreneurial decision because it influences the cost of production and distribution to a great extent. In some cases, you will find that location may contribute to even 10% of cost of manufacturing and marketing. Therefore, an appropriate location is essential to the efficient and economical working of a plant. A firm may fail due to bad location or its growth and efficiency may be restricted. The selection of location is of paramount importance both for new and already established enterprises.

Importance of Plant Location :
Importance of Plant Location The location choice is vital for any new firm for its success. Because fundamental objective of an enterprise is to maximize its profits which can be done either by increasing sales or by decreasing cost of production. If an enterprise is located near its potential market then the organization can have better and upto date understanding of the market and thus can formulate more effective production and marketing strategies to increase sales. The reduction in cost of production is possible when a firm is located at a place where all kinds of production economies w.r.t. input factors are available. The relocation of already existing enterprises may be necessary due to dynamic nature of plant location.

Importance of Plant Location :
Importance of Plant Location For example: materials that are produced in bulk quantities, such as cement, mineral acids and fertilizers, where the cost of the product per ton is relatively low and the cost of transport is a significant fraction of the sales price, the plant should be located close to the primary market. This consideration will be less important for low volume production, high-priced products; such as pharmaceuticals. In an international market, there may be an advantage to be gained by locating the plant within an area with preferential tariff.

Factors Affecting Plant Location:
Factors Affecting Plant Location The physical factors associated with the location of an enterprise can have a significant impact on its operations and its cost structure. Suitability of land and climate. Transport and communication facilities Supply of labour Location should be near to the source of operating power Nearness to the potential market Availability of Raw material Environmental Impact, and Effluent Disposal Political and strategic considerations

Location Analysis:
Location Analysis The selection of appropriate location depending on the size of the industry can be done in two stages: (i) Evaluation of various geographic areas and the selection of an optimum area. (ii) Within each area there is a choice of proper site which can be urban, sub-urban or rural are generally known as industrial zone. Thus in the process of location analysis, firstly some appropriate geographical area is selected and form that area a proper site is selected for the establishment of the plant.

Location Analysis:
Location Analysis The analysis for the choice of appropriate area and corresponding site is based on a number of measures described below. Measures for the selection of location : The fundamental objective of location analysis is to maximize the profits by minimizing the total cost of production associated with the production process. Total costs = Fixed costs + Operational costs Fixed costs include expenditure on land, building, machines and other equipments etc. Operational costs are the expenditure incurred on inputs, transformation process and the distribution of output. The contribution of various factors to the total cost will vary from place to place e.g a possible advantage of cheap labour at some place may be offset by more expenditure on fuel, power, taxes etc. similarly the contribution of various factors also depend on the nature of the product e.g in oil and chemical products the labour costs represent only a small proportion of total costs whereas it it quite high in garment and textile industries.

Reasons for Selection of Appropriate Plant Location:
Reasons for Selection of Appropriate Plant Location The location of the plant can have a crucial effect on the profitability of a project, and the scope for future expansion Location of plant determines operating and capital costs. It determines the nature of investment costs to be incurred and also the level of many operating cost Each prospective location implies a new allocation of capacity to respective market area Location fixes some of the physical factors of the overall plant design e.g. heating and ventilation requirements, storage capacity for raw material taking into consideration their local availability, transportation need for raw materials and finished goods; power needs; costs of labour, taxes, land construction, fuel etc. The Government also plays an important role in the choice of the location keeping in view the national benefits The proposed plant must fit in with and be acceptable to the local community. Full Consideration must be given to the safe location of the plant so that it does not Impose a significant additional risk to the community

Reasons for Selection of Appropriate Plant Location:
Reasons for Selection of Appropriate Plant Location Industries like nuclear power stations, process explosive in nature, chemical process likely to pollute the atmosphere should be located in remote area Population in area should not face health issues. It means the industrial waste must not be hazardous to health and must be properly disposed off The market may expand due to increase in local population or due to change in habits and tastes of consumers. The possibility of all these alternatives should be properly analyzed for the selection of appropriate plant location New enterprise owned or operated by a single group of companies should be located in a way that its work can be integrated with the work of the associated establishments These factors can be qualitative as well as quantitative. Qualitative factors can be measured in terms of some qualitative criteria namely adequate, good, significant etc. Quantitative factors can be measured on cost or some other quantitative basis viz, labours, material, housing, land, transport etc.

Slide 20:
Raw Material Market Labour Climate Environmental Factors Transportation Political Power, Fuel & Water Government and Economical Policies Scope of expansion Special Zones Technology Transfer Industrial Colony

Slide 21:
Select Factors Assign Weightage Assessment

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