PLANT LOCATION, LOCATIONAL ANALYSIS, SELECTION CRITERIA & Its SIGNIFICANCE

Every entrepreneur is faced with the problem of deciding the best site for location of his plant or factory.

What is plant location?

Plant location refers to the choice of region and the selection of a particular site for setting up a business or factory. But the choice is made only after considering cost and benefits of different alternative sites. It is a strategic decision that cannot be changed once taken. If 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 itself. Businessman should try to make an attempt for optimum or 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. For achieving this objective, small-scale entrepreneur can make use of locational analysis for this purpose.

LOCATIONAL ANALYSIS

Locational analysis is a dynamic process where entrepreneur analyses and compares the appropriateness or otherwise of alternative sites with the aim of selecting the best site for a given enterprise. It consists the following:

(a) Demographic Analysis: It involves study of population in the area in terms of total population (in no.), age composition, per capita income, educational level, occupational structure etc.

(b) Trade Area Analysis: It is an analysis of the geographic area that provides continued clientele to the firm. He would also see the feasibility of accessing the trade area from alternative sites.

(c) Competitive Analysis: It helps to judge the nature, location, size and quality of competition in a given trade area.

(d) Traffic analysis: To have a rough idea about the number of potential customers passing by the proposed site during the working hours of the shop, the traffic analysis aims at judging the alternative sites in terms of pedestrian and vehicular traffic passing a site.

(e) Site economics: Alternative sites are evaluated in terms of establishment costs and operational costs under this. Costs of establishment is basically cost incurred for permanent physical facilities but operational costs are incurred for running business on day to day basis, they are also called as running costs.

SELECTION CRITERIA

The important considerations for selecting a suitable location are given as follows:

a) Natural or climatic conditions.

b) Availability and nearness to the sources of raw material.

c) Transport costs-in obtaining raw material and also distribution or marketing finished products to the ultimate users.

d) Access to market: small businesses in retail or wholesale or services should be located within the vicinity of densely populated areas.

e) Availability of Infrastructural facilities such as developed industrial sheds or sites, link roads, nearness to railway stations, airports or sea ports, availability of electricity, water, public utilities, civil amenities and means of communication are important, especially for small scale businesses.

f) Availability of skilled and non-skilled labour and technically qualified and trained managers.

g) Banking and financial institutions are located nearby.

h) Locations with links: to develop industrial areas or business centers result in savings and cost reductions in transport overheads, miscellaneous expenses.

i) Strategic considerations of safety and security should be given due importance.

j) Government influences: Both positive and negative incentives to motivate an entrepreneur to choose a particular location are made available. Positive includes cheap overhead facilities like electricity, banking transport, tax relief, subsidies and liberalization. Negative incentives are in form of restrictions for setting up industries in urban areas for reasons of pollution control and decentralization of industries.

k) Residence of small business entrepreneurs want to set up nearby their homelands

One study of locational considerations from small-scale units revealed that the native place or homelands of the entrepreneur was the most important factor. Heavy preference to homeland suggests that small-scale enterprise is not freely mobile. Low preference for Government incentives suggests that concessions and incentives cannot compensate for poor infrastructure.

SIGNIFICANCE

From the discussion above, we have already learnt that 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.