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Plant Location (Production Management)

MBA class project presentation-Draft 1
by

trish prem

on 13 March 2013

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Transcript of Plant Location (Production Management)

Recent Trends Factors in selecting plant location Introduction Selection of Locality Plant Definition: Need for plant location Important strategic level decision making
Large investment
Forecasting and analysing future needs
Based on several factors:
company’s expansion plan and policy,
diversification plan for the products,
changing market conditions,
changing sources of raw materials
Ultimately purpose is to find an optimum location An ideal location is one where the
Cost of the product is kept to minimum
A large market share
The least risk and the maximum social gain.
lowest unit cost of production and distribution. Location Ideal plant location MHRDM 2012 - 15 Group 6
Aditi - 33
Amruta - 31
Dimple - 36
Kavita - 08
Krunal - 17
Premkumar - 30
Trishna - 39 “The function of determining where the plant should be located for maximum operating economy & effectiveness”
- R.C. Davis

“That spot where, in consideration of the business as a whole, the total cost of production & delivering goods to all the consumers is the lowest.”
-Bethel Smiths & Atwater To put it together:

Plant location means deciding a suitable location, area or place where the plant will start functioning. It refers to the area where the plant will operate to produce goods or services. The location of plant can have a crucial effect on the profitability of a project, & the scope for future expansion. Need for plant location arises when:

A new plant is to be established. A new branch or branches are to be opened for increasing the volume of production or distribution or both. The tendency of shifting the market, depletion of raw materials, changes in transportation facilities, new processes requiring a different location are observed in the factory. An undesirable location is to be abandoned. The existing factory is not in a position to obtain renewal of lease. Old plant undergoes expansion, decentralization & diversification to meet increased demands for its products. The ideal factory location can be choosen in the following 3 stages:

Selection of the Region: Comparative advantages are analyzed from various options of natural regions & political boundaries in particular country.

Selection of the Locality: Urban, Rural & Suburban areas are various alternatives in selection of locality.

Selection of the Site: The type of development of land, cost of leveling etc, plant expansions & other infrastructure facilities like transport, banking, power, communication, postal facilities etc. are considered. Selection of Region 1) Availability of Raw Materials: It is categorized into two:
Ubiquity i.e., existing everywhere like clay, water etc.
Localized materials i.e. minerals, coal, sugarcane etc.
pure (cotton, raw silk)
gross materials (iron-ore, limestone, sugarcane). Spriegel & Lansburgh quoted “Nearness to the source of raw materials is of special importance when the material is bulky in relation to its value & when the volume & weight are greatly reduced during its processing.”
For e.g.:
Textile mills in Maharashtra,
Sugar factories in U.P,
Marble mfg. in Jabalpur,
Sandal Wood products in Mysore,
Fish-canning & salt pans near coast,
Export of Alphansos from Ratnagiri. 2) Nearness to fuel & power: It is a decisive factor in plant location. It is necessary to ensure that the phase, voltage, frequency, rates, regularity, special discounts allowed are suitable to factory. 3) Transport:
Getting raw materials to place of manufacture,
Transporting finished goods to place of consumption
Movement of employees and sales representatives to and fro the factory & the consumers. James Lundy quoted “Ideal plant from the point of view of transportation is one which is centrally located & directly connected by water, rail, road & air.

Cost, dependability, time required to transport finished goods, prompt availability, shift in the market & speed are factors considered for choosing particular mode.”

For e.g.:
Huge industries uses road, water & own rail routes for transportation. 4) Market: Nearness to market influences -
Reduced cost of transporting finished goods & promotional expenses.
Enables to study the consumers.
Enables to render quick service & after-sales services.
Execute replacement orders without delay.
Perishable nature of goods. 5) Meteorological conditions & Topography:

Kimball & Kimball quoted “The effect of climate upon the efficiency in the case of workforce required to work outdoors, as in case of quarries, constructional industries etc cannot be minimised. A cool climate develops the best of worker.”
For e.g.:
Agro-industries 1) Labour: The need of management is to face less strikes or lockouts & to achieve lower labour cost per unit of production. According to requirement of labour, factory may be located as follows:
Semi-skilled/ Unskilled – Rural areas.
Skilled – Urban areas. 2) Supplementary & Complementary factories:
D. Jones described advantages of concentration of industries:
Helps to increase the variety of materials that suppliers offers.
Improves the labour market for employer & employee.
Attracts a variety of repair plants like foundries, tool makers & machine shops.
Serves the local markets.
Division of labour is possible. 3) Banking & Credit institutions

4) Local Taxes & Subsidies

5) Momentum of early start

6) Political stability

7) State assistance Selection of exact plant site

1) Price of land
2) Type of soil
3) Waste disposal
4) Expansion potential
5) Availability of commercial services
6) Communication
7) Availability of amenities 8) Statutory consideration

9) Flood & drought conditions

10) Right & title of the land

11) Good scenery

12) Attitude of local people

13) Technological know-how General Location Factors Controllable Factors
Uncontrollable Factors Specific Location Factors For Manufacturing Organization
For Service Organization Controllable Factors

Proximity to Markets.
Supply of Materials.
Transportation Facilities.
Infrastructure Availability.
Labour and wages.
Economies of scale.
Capital. Uncontrollable Factors

Government Policy.
Climate Condition.
Supporting Industries and Services.
Community and Labour attitudes. For Manufacturing Organization

Dominant Factors.
Favourable labour Climate.
Proximity to market.
Quality of life.
Proximity to suppliers and resources.
Utilities, taxes & real estate costs.
Secondary Factors For Service Organization.
Dominant Factors.
Proximity to customers.
Transportation cost and proximity to market.
Location of competitors.
Secondary Factors Global Location Information Technology/BPO/Software Industries - Delhi, Chennai, Hyderabad, Bangalore, Pune - availability of skilled personnel, infrastructure etc. Naptha / oil based fertilizer plants at Mangalore, Madras, Cochin have been located near ports, which act as a great source for the import of the raw materials. ‘Proximity to market’ forms a major factor which affects plant location decisions in case of machine tool industries. In case of such industries, sites are scattered over different parts of the country such as Ludhiana, Pune, Bangalore, Calcutta, Mumbai etc. To locate plants away from cities.
Development of industrial estates.
Competition among states to develop industries.
Trend towards decentralization.
Pollution control.
Location of industries leading to balanced regional development.
Growth of multinational firms, thereby transcending the geographical areas of the country.
FDI - Foreign Direct Investment 1) VIRTUAL PROXIMITY
2) VIRTUAL FACTORY

Reasons for selecting Global/Foreign location
Tangible Reasons
Reaching the Customer.
Tax Advantage.
Cost of Manufacturing and Running Operations.
Removing tariff barriers. Intangible Reasons
Customer Related reasons.
Organizational Learning related reasons.
Other Strategic reasons. Thank You
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