Plant Location/Facility Location

Plant Location/Facility Location

Facility location is also called plant location. Plant location is the choice of region and the selection of a particular site for setting up a plant. Facility location is a critical strategic decision. Location activity has been very high in recent decades as a result of technology improvements, economic growth, international expansion and globalization, and corporate restructuring, mergers and acquisitions. If a company selects the right location, it may have adequate customers, workers, transportation, materials, and so on. Consequently, location often plays a significant role in a company’s profit and overall success.

Definition

According to B. Mahadevan

Location decision pertains to the choice of an appropriate geographical site for locating various manufacturing and services facilities of an organization.

According to Bethel Smith and Alwater

Plant location stands for that spot where in consideration of business as a whole, the total cost of production and delivery goods to all the consumers is the lowest.

According Prof. R.C. Davis

The function of determining where the plant should be located for maximum operating economy and effectiveness.

 

Theories associated with Location

1. Weber’s Theory of Location 

Alfred Weber was a German Scientist who gave a systematic theory on industrial location. Weber, after a great lot of analysis and investigation, discovered the factors that causes and determine the location of industry into two broad divisions:

i. Primary causes of regional distribution of industry (Regional Factors) and

ii. Secondary (agglomerative and deglomerative factors) that are responsible for location of industry.

i. The Primary factors involve cost element as follow,

• Cost of land
• Cost of building, machines and other fixed cost
• Cost of procuring materials, power and fuel
• Cost of labour
• Cost of transportation
• Interest rates
• Rate of depreciation of fixed capital

ii. Secondary Factors

An agglomerative factor is an advantage or a cheapening of production or marketing which results from the fact that production is carried on to some considerable extent at one place while a deglomerative factor is a cheapening of production which results from the decentralization of production (production in more than one place).

2. Sargant Florence’s Theory

Another theory of location, which has assumed great importance and acquired a wide popularity during recent year, is the one put forward by Professor Sargent Florence. He observed that the relation of an industry to an area is not so important as the relation of the distribution of the occupied population as a whole. It means he does not accept relation between industry and geographical area.