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Every entrepreneur is Iaced with the problem oI deciding the best site Ior location
oI his plant or Iactory.
What is plant location?
Plant location reIers to the choice oI region and the selection oI a particular site
Ior setting up a business or Iactory.
But the choice is made only aIter considering cost and beneIits oI diIIerent
alternative sites. It is a strategic decision that cannot be changed once taken. II at
all changed only at considerable loss, the location should be selected as per its
own requirements and circumstances. Each individual plant is a case in itselI.
Businessman should try to make an attempt Ior optimum or ideal location.
What is an ideal location?
An ideal location is one where the cost oI the product is kept to minimum, with a
large market share, the least risk and the maximum social gain. It is the place oI
maximum net advantage or which gives lowest unit cost oI production and
distribution. For achieving this objective, small-scale entrepreneur can make use
oI locational analysis Ior this purpose.
Locational analysis is a dynamic process where entrepreneur analyses and
compares the appropriateness or otherwise oI alternative sites with the aim oI
selecting the best site Ior a given enterprise. It consists the Iollowing:
(a) Demographic Analysis: It involves study oI population in the area in terms oI total population
(in no.), age composition, per capita income, educational level,
occupational structure etc.
(b) Trade Area Analysis: It is an analysis oI the geographic area that provides
continued clientele to the Iirm. He would also see the Ieasibility oI accessing the
trade area Irom alternative sites.
(c) Competitive Analysis: It helps to judge the nature, location, size and quality
oI competition in a given trade area.
(d) TraIIic analysis: To have a rough idea about the number oI potential
customers passing by the proposed site during the working hours oI the shop, the
traIIic analysis aims at judging the alternative sites in terms oI pedestrian and
vehicular traIIic passing a site.
(e) Site economics: Alternative sites are evaluated in terms oI establishment costs
and operational costs under this. Costs oI establishment is basically cost incurred
Ior permanent physical Iacilities but operational costs are incurred Ior running
business on day to day basis, they are also called as running costs.

Plant location decisions concern
A) anuIacturing units
B) Assembly units
C) Service organizations.
D)
Poor location leads to :-
A) Higher Cost
B) DiIIicult marketing
C) DiIIicult Transportation
D) DissatisIaction among employees.
E) Substandard Quality.
Poorly located plants can only be shiIted at a considerable cost and stoppage oI production.

Why does a location decision arise ?
1) A new manuIacturing or service is to be set up.
2) Existing operations are diIIicult to expand.
3) Additional Iacilities due to growth in business.
4) Changes in Industrial policy.
5) Product developments.

Three Iactors oI Plant Location
A) Regional
B) Community
C) Site

Regional Factors

Proximity to the market.
The location oI markets or intermediate distribution centers aIIects the cost oI product
distribution and time required Ior shipping. Proximity to the major markets is an
important consideration in the selection oI the plant site, because the buyer usually Iinds
advantageous to purchase Irom near-by sources.
1) In case oI sulIuric acid plant, the major
consumers are Iertilizer industries and hence the plant should be erected in close
proximity to those units.
2) The product is Iragile. (Glass)
3) The product spoils easily. (Food)
4) The promptness oI service is required.(LPG leakage)
5) The product is cheap but transport costs are more.(Sand,silica)

BeneIits oI market proximity.
A) Administrative problems are reduced.(Octroi)
B) Liaison and keep an eye on our dealers and distributors.
C) Commissions to middlemen are reduced by 50 .
D) Recovery Irom customers is easy ,time saving .




Proximity to Raw materials.
The source oI raw materials is one oI the most important Iactors inIluencing the selection
oI a plant site. This is particularly true Ior the sulIuric acid plant because large volumes
oI sulIur is consumed in the process which will result in the reduction oI the
transportation and storage charges. Attention should be given to the purchased price oI
the raw materials, distance Irom the source oI supply, Ireight and transportation expenses,
availability and reliability oI supply, purity oI raw materials and storage requirements.

A) Since R constitutes 60 oI the product cost the Iirm should get its requirement at
the right time and price Ior which the plant should located near the source.
B) R is oI a perishable nature.
C) Expensive to transport.
D) The weight oI R is substantially reduced on processing.
E) Inventory costs can go up .
F) Follow up with supplier is costlier.
G) Tracking supply is costlier.
H) Replacement oI deIective items become costlier and Iurther aIIects the delivery
commitment oI the manuIacturer.

Two kinds oI Raw aterials.

1) Gross aterials :-
They loose weight during the process oI transIormation.
E.g. iron ore,coal,limestone,sugarcane etc.

A) Steel plants are located in Bihar,WB and Orissa because oI proximity to
iron ore and coal mines
B) Gas based Iertilizer plant oI RCF is located near Thal Vaishet because oI
proximity to Gas via ONGC plant at Uran.
C) Naphtha based Iertilizer plant angalore Fertilizers is located near port
because oI proximity to seaport as it uses imported items.

2) Pure materials.
These materials add weight to the Iinished product in the process oI manuIacture.
E.g. Cotton textiles,woolen,biscuit Iactories etc.
In this case the Iinished goods market should be nearer the Iactory as the Iinal product
has become bulky.

Proximity to InIrastructural Facilities
AVAILABILITY OF UTILITIES:
The word 'utilities is generally used Ior the ancillary services needed in the operation oI
any production process. These services will normally be supplied Irom a central Iacility
and includes Water, Fuel and Electricity which are brieIly described as Iollows:
Water: -
The water is required Ior large industrial as well as general purposes, starting with water
Ior cooling, washing, steam generation and as a raw material in the production oI sulIuric
acid. The plant thereIore must be located where a dependable water supply is available
namely lakes, rivers, wells, seas. II the water supply shows seasonal Iluctuations, it`s
desirable to construct a reservoir or to drill several standby wells. The temperature,
mineral content, slit and sand content, bacteriological content, and cost Ior supply and
puriIication treatment must also be considered when choosing a water supply. Demineralized
water, Irom which all the minerals have been removed is used where pure
water is needed Ior the process use, in boiler Ieed. Natural and Iorced draIt cooling
towers are generally used to provide the cooling water required on site.

Electricity: -
Power and steam requirements are high in most industrial plants and Iuel is ordinarily
required to supply these utilities. Power, Iuel and steam are required Ior running the
various equipments like generators, motors, turbines, plant lightings and general use and
thus be considered as one major Iactor is choice oI plant site.

ENVIRONENTAL IPACT AND EFFLUENT DISPOSAL:
Facilities must be provided Ior the eIIective disposal oI the eIIluent without any public
nuisance. In choosing a plant site, the permissible tolerance levels Ior various eIIluents
should be considered and attention should be given to potential requirements Ior
additional waste treatment Iacilities. As all industrial processes produce waste products,
Iull consideration must be given to the diIIiculties and coat oI their disposal. The disposal
oI toxic and harmIul eIIluents will be covered by local regulations, and the appropriate
authorities must be consulted during the initial site survey to determine the standards that
must be met.

A) Power aluminum and steel industry.
B) Water chemical industries.
C) Water treatment coke and Pepsi.
D) Drainage Iacilities.
E) Scrap disposal.
F) Proximity to Transport Iacilities.

Transportation Factors :-
The transport oI materials and products to and Irom plant will be an overriding
consideration in site selection. II practicable, a site should be selected so that it is close to
at least two major Iorms oI transport: road, rail, waterway or a seaport. Road transport is
being increasingly used, and is suitable Ior local distribution Irom a central warehouse.
Rail transport will be cheaper Ior the long-distance transport. II possible the plant site
should have access to all three types oI transportation. There is usually need Ior
convenient rail and air transportation Iacilities between the plant and the main company
head quarters, and the eIIective transportation Iacilities Ior the plant personnel are
necessary.
Structure oI transportation costs :-
1) Characteristics oI commodity.
2) Average distance oI shipment.
3) edium oI shipment.

Proximity to Labor and Wages
Labors will be needed Ior construction oI the plant and its operation. Skilled construction
workers will usually be brought in Irom outside the site, but there should be an adequate
pool oI unskilled labors available locally; and labors suitable Ior training to operate the
plant. Skilled tradesmen will be needed Ior plant maintenance. Local trade union customs
and restrictive practices will have to be considered when assessing the availability and
suitability oI the labors Ior recruitment and training.
A) Labor should be easily available.
B) Importing labor is costly and has administrative problems.
C) No cost incurred on accommodation .
D) Training Iacilities to build up skills.
E) Skilled employees are available iI ITI`s etc are nearby.

Legislation and Taxation
State and local tax rates on property income, unemployment insurance, and similar items
vary Irom one location to another. Similarly, local regulations on zoning, building codes,
nuisance aspects and others Iacilities can have a major inIluence on the Iinal choice oI the
plant site.
A) Policies oI state and local bodies regarding licences,building codes,labour laws etc.
B) Incentive packages and tax holidays.
C) The above costs inIluence the Iinal costs oI the product.

Climate
Adverse climatic conditions at site will increase costs. Extremes oI low temperatures will
require the provision oI additional insulation and special heating Ior equipment and
piping. Similarly, excessive humidity and hot temperatures pose serious problems and
must be considered Ior selecting a site Ior the plant. Stronger structures will be needed at
locations subject to high wind loads or earthquakes.
A) Suitable climate Ior speciIic products may be required.
B) High humidity Ior Textiles. Textile plants are located at Ahmedabad.
C) Low humidity Ior adhesives.
D) Low temperature Ior inIlammable chemicals.

Attitude to labor problems.

A) Community attitude towards industries.
B) Political climate.
C) Attitude oI Government towards labor unions.
E.g. Unhealthy climate Ior industries in states like Kerala and West Bengal because oI
Communist Governments.


SaIety Requirements
A) Nuclear power plants
B) .Explosive Iactories.
C)
Community Factor
It implies :-

A) Accommodation
B) Education
C) Entertainment
D) Transport Iacilities.
Accommodation is required Ior all outstation residents.
It should be easily available, cheap and near some public transport stop. BEST or
Railway station).
The employee should be able to reach his place oI work with ease.
Communication Iacilities should be easily available.
edical Iacilities should be near by with competent technology and hospitalization
Iacility.
In the same township educational Iacilities like schools, colleges and technical
institutes should be available.(e.g L& T and RCF have their own diploma colleges).
Entertainment Iacilities like cinema, children parks, clubs etc should be nearby.
The proposed plant must Iit in with and be acceptable to the local community. Full
consideration must be given to the saIe location oI the plant so that it does not impose
a signiIicant additional risk to the community.

Some other considerations oI Community Factor
A) What is the community attitude towards work?
B) Whether hard working or not?
C) What is their attitude towards incoming businessmen?
D) Whether helpIul and co operative or otherwise?
The above decisions can make or break an industry.

Site Factors
Land suitability.
A) What is the soil structure oI the land.?
B) Whether it can bear the load oI Ioundations?
C) II land is purchased at cheap rates but requires considerable modiIications then it
may Iinally turn out to be expensive.
D) Whether plot size is suIIicient oI present Iactory?
E) Whether plot size is suIIicient Ior Iuture development.?
F) As a thumb rule the plot size must be Iive times bigger than the present plant size.

Over and above this all supporting services like
Crane,ForkliIts,Third part contractors etc must be available near the site.