PLANT LOCATION

Location of an enterprise is an important entrepreneurial decision as it affects the operational as well as financial
performance. So entrepreneur is required to identify that location at which the enterprise will have easy access to
physical, economic and social endowments. The general objective in selecting a location is to minimize total cost
of production and distribution. The selected location should be in a position to help in generating maximum
revenue and provide an opportunity for further growth and expansion. An entrepreneur is expected to evaluate
his targets in terms of time and cost variable and try to select a proper location and seek possession of the site
before the zero date. Generally, financial institutions are also interested to inspect the location or site of the plant
before sanctioning any loan to the enterprise concerned. Efforts should also be made by the entrepreneur to
remove all uncertainties associated with the site before the zero date. Entrepreneur should also know that any
change in location or site at a later date not only targets will be missed but even the viability of the project may
also be lost. Thus, ideal location site helps in smooth and efficient functioning of an enterprise. It ensures a
reduction in costs as well as improves productivity and financial viability of the enterprise.
Need for Enterprise Location
The need for location or site is generally government by the following circumstances:
(i) To promote the establishment of a new enterprise.
(ii) To undertake expansion, decentralisation and diversification necessary for meeting
(iii) To manage the situations arising due to non-renewal of existing lease of an establishment demand of
products.
(iv) To develop new location if existing location has been declared as undesirable or unsuitable.
(v) To arrange a new location by shifting from existing location due to change in market pattern, depletion
of raw materials, change in production processes and transport facilities, etc.
(vi) To open new branch or production facility at new places for increasing the volume of production and
distribution activities.
Importance of Enterprise Location
Selection of plant location or site is quite important due to the following reasons:
(i) It enables the enterprise to operate smoothly, efficiently and with the minimum cost.
(ii) It controls wastages in efforts and talents at the entrepreneurs.
(iii) It reduces uncertainty in results.
(iv) It encourages effective mobilization of raw-materials, labour and potential customers.
(v) it develops the area by attracting other potential entrepreneurs and endowments like physical,
economic and social variables.
Steps in Enterprise Location
Following steps are important in selecting a particular location or site for the plant:
(i) Selection of the region.
(ii) Selection of the locality or community.
(iii) Selection of the exact site and
(iv) Selection of an optimum site.
Generally, entrepreneur is free to select and location or site for the plant development. However, regulatory
provisions of the government also affect the choice of plant location or site.
Location, Localisation and Planned Location of Industries
Location is concerned with a particular site where entrepreneur is interested to establish his enterprise or plant
having lowest cost objective. If a particular industry is concentrated mainly in one areas is called as localisation of
industries. For example, Kolkata and Mumbai are known for jute and textiles industry respectively. Planned
location of industries is a systematic approach by which location of industries is planned to give each region or
area or place a variety of industries to promote dispersal of industries. For example, in Ludhiana, different types
of industries have been developed and no particular industry is concentrated in that particular area.
Factors Influencing the selection of the Location of an Enterprise or Plant or Project
Following are the important factors which are normally to be considered when selecting the location of an
enterprise or project:
(a) Availability of Land: Land should be large enough to meet out present requirement with provision for
further expansion. Land should be for industrial use (land usage pattern to be adhered to) and proper layout of
plant and equipment must be possible as per the technical feasibility study. Drainage level of land, soil testing
report (should be suitable for the construction of the factory) should be favourable to the project requirements.
(b) Availability of Raw Materials: Availability of required quantity and quality of raw materials at a reasonable
cost. Cost of materials generally constitutes a major chunk of total cost of production and thus, the impact of raw
materials on location depends upon their nature and the source of their deposits.
(c) Supply of Manpower: Every enterprise requires an adequate supply of manpower with appropriate skills.
Availability of skilled manpower, cost of labour, labour expectations, local culture affect the supply of manpower
to the enterprise. Sometimes, it becomes difficult to obtain high skilled people to work at very remote places with
big town facilities. Alfred Weber rightly remarked that that “an industrial site will deviate from the point of
minimum transportation cost to the cheaper labour centre if the additional cost of transportation at the new
centre is more than compensated by the savings in labour cost.” However, this situation has been changed.
Labour is mobile and there is a level of minimum wages fixed by the Government from time to time. Moreover
certain industries are capital intensive and they require less labour.
(d) Transport and Communication Facilities: Transport services are required for assembling of materials and
distribution of products. At the time of selection of a particular efforts should be made to ensure that
transportation facilities are easily available at reasonable rates. Site should be well connected by road and rail or
nearer to national highways, major railway yard etc., Transportation of equipment, material, product and
personnel is an important requirement and it should be ensured in time and in efficient manner.
(e) Proximity to the Market: Availability of consumer market also affects the viability of the enterprise. An
entrepreneur can improve his customer relations if they are available in nearby areas and easily render rapid
services to them. Enterprises engaged in the production of perishable commodities and those producing for a
local market are also interested to develop their plants in potential consumer’s area as it would ensure a
reduction in transportation cost involved in distributing the finished products. Actually, an enterprise tends to
disperse only if they find a new consumer market.
(f) Water, Power and Fuel: Uninterrupted operations of an enterprise are the result of sufficient supply of water,
power and fuel etc. In this context, efforts are required to assess local sources of water. Besides, required water
supply to be assessed in terms of water conditions or sub-soil water etc. Availability of power in the region is to
be evaluated in terms of actual requirements. Some industries consume lot power (aluminium) or water (Paper
industry) and these variables are a very important factor for them. Nowadays, industries are facing the problem
of power shortages and they are shifting to the fuel option––coal. For example, coal is the major source of fuel for
the iron and steel industry and these industries are located near the coal mines.
(g) Regional Development: In our country, government is pursuing the policy of balanced regional development
to solve the problems like slum, disparity of income and wealth and optimum use of resources. In order to ensure
balanced regional development, government has declared certain areas as backward areas and zero industry
areas. Government gives certain benefits like tax benefits but it is necessary to evaluate the process to what extent
they would outweigh the disadvantages.
(h) External Economies: In some cases, an enterprise prefers to be located in those centres where other industrial
units are already located. There are certain facilities like transportation, warehousing, banking, insurance,
communication and factoring services etc. which are easily available and industrial units tend to be concentrated
in these areas. Besides, raw materials are also available at cheaper prices and in large quantity. For example, by
product of one enterprise may be used as raw material by another enterprise. Enterprises working as distilleries
are generally located in nearby areas of Sugar mills because they supply molasses as raw materials to distilleries.
(i) Personal Factors: Personal preferences and prejudices of an entrepreneur also effect the selection of location.
Entrepreneurial preferences are also affected by law and order, political stability and safety etc. Thus,
entrepreneurs prefer to locate their enterprises in those areas which are safe and free from law and order
problems.
(j) Local Laws and Regulations: In certain cases local laws and regulations impose restrictions on the
development of industrial units in special areas. For example, consent of various agencies like local Panchayat,
municipality, government, state planning bodies is mandatory for the entrepreneurs otherwise they cannot run
their enterprises in municipal or local areas. Similarly, high rate of income-tax, sale-tax, octroi, etc. discourage
entrepreneur to develop their plant in a particular area or state. But facility of tax holidays encourages them
otherwise to develop their units in a particular area or state.
(k) Ecological and Environmental Factors: Certain industrial units are required to be governed by the ecological
and environmental provisions of Pollution Control Act. Industrial units are required to follow the norms of
Pollution Control Board. They have to make efforts for the disposal of effluents are directed by the pollution
control authorities. They have to arrange the nearest source where effluent (after treatment) could be discharged.
ERRORS IN SELECTION
Though location selection is relatively easy, businessmen commit errors and wrong locations are selected.
Interestingly , errors in site selection seem to fall into a pattern .Some of the most common errors are:
1. Lack of thorough investigation and consideration of factors involved.
2. Personal likes and prejudices of Key executives or owners overriding impartially established facts.
3. Reluctance of key executives to move from traditional established home ground to new and better locations.
4. Moving to congested areas already or about to be over industrialized.
5. Preference for acquiring an existing structure (usually at an imagined bargain)that is improperly located or
not designed for the most efficient production.
6. Choice of community with low cultural and educational standards, so they key administration and technical
personnel eventually accept employment elsewhere.
In order to avoid the errors occurring and to ensure selection of a good location, a selection committee
comprising people knowledgeable on facts and factors, as well as those responsible for operating the factors
should be constituted. The committee should then tour places, select two or three locations, study their plus
and minus points, and finally select one among them.
ALFRED WEBER’S THEORY OF THE LOCATION OF INDUSTRIES
Alfred Weber (1868–1958), with the publication of Theory of the Location of Industries in 1909, put forth the first
developed general theory of industrial location. His model took into account several spatial factors for finding the
optimal location and minimal cost for manufacturing plants.
The point for locating an industry that minimizes costs of transportation and labour requires analysis of three
factors:
1. The point of optimal transportation based on the costs of distance to the ‘material index’ the ratio of
weight to intermediate products (raw materials) to finished product.
2. The labour distortion, in which more favourable sources of lower cost of labour may justify greater
transport distances.
3. Agglomeration and degglomerating.
Agglomeration or concentration of firms in a locale occurs when there is sufficient demand for support services
for the company and labour force, including new investments in schools and hospitals. Also supporting
companies, such as facilities that build and service machines and financial services, prefer closer contact with
their customers.
Degglommeration occurs when companies and services leave because of over concentration of industries or of the
wrong types of industries, or shortages of labour, capital, affordable land, etc. Weber also examined factors
leading to the diversification of an industry in the horizontal relations between processes within the plant.
The issue of industry location is increasingly relevant to today’s global markets and trans- national corporations.
Focusing only on the mechanics of the Weberian model could justify greater transport distances for cheap labour
and unexploited raw materials. When resources are exhausted or workers revolt, industries move to different
countries.
PLANT LAYOUT
Concept of Plant Layout:
The concept of plant layout may be described as follows: Plant layout is a plan for effective utilisation of
facilities for the manufacture of products; involving a most efficient and economical arrangement of machines,
materials, personnel, storage space and all supporting services, within available floor space.
More defines plant layout as follows: “Plant layout is a plan of optimum arrangement of facilities including
personnel, equipment’s, storage space, material handling equipment and all other supporting services along with
the decision of best structure to contain all these facilities.”
Points of comment:
Certain useful observations on the concept of plant layout are as follows:
(i) Plant layout is very complex in nature; because it involves concepts relating to such fields as engineering,
architecture, economics and business management.
(ii) Most of managers now realize that after the site for plant location is selected; it is better to develop the layout
and build the building around it – rather than to construct the building first and then try to fit the layout into it.
Objectives/Advantages of Plant Layout:
(i) Streamline flow of materials through the plant
(ii) Minimise material handling
(iii) Facilitate manufacturing progress by maintaining balance in the processes
(iv) Maintain flexibility of arrangements and of operation
(v) Maintaining high turnover of in-process inventory
(vi) Effective utilisation of men, equipment and space
(vii) Increase employee morale
(viii) Minimise interference (i.e. interruption) from machines
(ix) Reduce hazards affecting employees
(x) Hold down investment (i.e. keep investment at a lower level) in equipment.
PRINCIPLES OF PLANT LAYOUT
(i) Principle of Minimum Movement: Materials and labour should be moved over minimum distances; saving
cost and time of transportation and material handling.
(ii) Principle of Space Utilization: All available cubic space should be effectively utilized – both horizontally and
vertically.
(iii) Principle of Flexibility: Layout should be flexible enough to be adaptable to changes required by expansion
or technological development.
(iv) Principle of Interdependence: Interdependent operations and processes should be located in close proximity
to each other; to minimize product travel.
(v) Principle of Overall Integration: All the plant facilities and services should be fully integrated into a single
operating unit; to minimize cost of production.
(vi) Principle of Safety: There should be in-built provision in the design of layout, to provide for comfort and
safety of workers.
(vii) Principle of Smooth Flow: The layout should be so designed as to reduce work bottlenecks and facilitate
uninterrupted flow of work throughout the plant.
(viii) Principle of Economy: The layout should aim at effecting economy in terms of investment in fixed assets.
(ix) Principle of Supervision: A good layout should facilitate effective supervision over workers.
(x) Principle of Satisfaction: A good layout should boost up employee morale, by providing them with
maximum work satisfaction.
TYPES OF PLANT LAYOUT
Two basic plans of the arrangement of manufacturing facilities are – product layout and process layout. The only
other alternative is a combination of product and process layouts, in the same plant.
Following is an account of the various types of plant layout:
(a) Product Layout (or Line Layout):
In this type of layout, all the machines are arranged in the sequence, as required to produce a specific product. It
is called line layout because machines are arrange in a straight line. The raw materials are fed at one end and
taken out as finished product to the other end.
Special purpose machines are used which perform the required jobs (i.e. functions) quickly and reliably.
Product layout is depicted below:

Advantages:
1. Reduced material handling cost due to mechanized handling systems and straight flow
2. Perfect line balancing which eliminates bottlenecks and idle capacity.
3. Short manufacturing cycle due to uninterrupted flow of materials
4. Simplified production planning and control; and simple and effective inspection of work.
5. Small amount of work-in-progress inventory
6. Lesser wage cost, as unskilled workers can learn and manage production.
Disadvantages:
1. Lack of flexibility of operations, as layout cannot be adapted to the manufacture of any other type of product.
2. Large capital investment, because of special purpose machines.
3. Dependence of whole activity on each part; any breakdown of one machine in the sequence may result in
stoppage of production.
4. Same machines duplicated for manufacture of different products; leading to high overall operational costs.
5. Delicate special purpose machines require costly maintenance / repairs.
Suitability of product layout:
Product layout is suitable in the following cases:
1. Where one or few standardized products are manufactured.
2. Where a large volume of production of each item has to travel the production process, over a considerable
period of time.
3. Where time and motion studies can be done to determine the rate of work.
4. Where a possibility of a good balance of labour and equipment exists.
5. Where minimum of inspection is required, during sequence of operations.
6. Where materials and products permit bulk or continuous handling by mechanical parts.
7. Where minimum of set-ups are required.
(b) Process Layout (or Functional Layout):
In this type of layout, all machines performing similar type of operations are grouped at one location i.e. all
lathes, milling machines etc. are grouped in the shop and they will be clustered in like groups.
A typical process layout is depicted below:

Advantages:
1. Greater flexibility with regard to work distribution to machinery and personnel. Adapted to frequent changes
in sequence of operations.
2. Lower investment due to general purpose machines; which usually are less costly than special purpose
machines.
3. Higher utilisation of production facilities; which can be adapted to a variety of products.
4. Variety of jobs makes the work challenging and interesting.
5. Breakdown of one machine does not result in complete stoppage of work.
Disadvantages:
1. Backtracking and long movements occur in handling of materials. As such, material handling costs are higher.
2. Mechanisation of material handling is not possible.
3. Production planning and control is difficult
4. More space requirement; as work-in-progress inventory is high-requiring greater storage space.
5. As the work has to pass through different departments; it is quite difficult to trace the responsibility for the
finished product.
Suitability of process layout:
Process layout is suitable in the following cases, where:
1. Non-standardised products are manufactured; as the emphasis is on special orders.
2. It is difficult to achieve good labour and equipment balance.
3. Production is not carried on a large scale.
4. It is difficult to undertake adequate time and motion studies.
5. It is frequently necessary to use the same machine or work station for two or more difficult operations.
6. During the sequence of operations, many inspections are required.
7. Process may have to be brought to work, instead of “vice-versa”; because materials or products are too large or
heavy to permit bulk or continuous handling by mechanical means.
(c) Combination Layout:
In practice, plants are rarely laid out either in product or process layout form. Generally a combination of the two
basic layouts is employed; to derive the advantages of both systems of layout. For example, refrigerator
manufacturing uses a combination layout.
Process layout is used to produce various operations like stamping, welding, heat treatment being carried out in
different work centres as per requirement. The final assembly of the product is done in a product type layout.
(d) Fixed Position Layout:
It is also called stationary layout. In this type of layout men, materials and machines are brought to a product that
remains in one place owing to its size. Ship-building, air-craft manufacturing, wagon building, heavy
construction of dams, bridges, buildings etc. are typical examples of such layout.