Importance and factors of plant location

Plant location means selecting the geographical site where the factory will be built. The decision is long term and costly to reverse, because land, buildings and machines are fixed investments.

Importance of plant location

• It decides the transport cost of raw materials and finished goods.
• It affects the availability and cost of labour, power and water.
• It influences the production cost, and so the selling price and competitiveness.
• It affects the possibility of expansion and relations with the community.
• A wrong choice cannot easily be corrected and may cause long-term loss.

Factors affecting plant location

1. Nearness to raw materials: important when the raw material is bulky or perishable or loses weight in processing (sugar mill, cement plant).
2. Nearness to market: important when the product is fragile, perishable or heavy (bakery, soft drinks).
3. Transport facilities: road, rail, air and waterways; their cost and reliability.
4. Availability of labour: skilled and unskilled labour, wage level, labour relations.
5. Power and fuel: cheap and reliable electricity and fuel (e.g. hydropower for power-intensive industries).
6. Water and waste disposal: supply of water and facilities for effluent treatment.
7. Climate and land: soil bearing capacity, drainage, flood risk, cost of land, room for expansion.
8. Government policy: taxes, subsidies, industrial estates, environmental rules, zoning.
9. Capital and financial facilities: banks, insurance, availability of finance.
10. Community and living conditions: housing, schools, hospitals, security, safety from hazards.
11. Competitors and supporting industries: nearby suppliers, repair and service facilities.

Selection method

Because many factors conflict, the final decision is made using methods such as the weighted factor rating, break-even (cost) analysis or the centre-of-gravity method.