10 Important Factors Affecting Plant Location

This article throws light upon the ten important factors affecting plant location. The factors are: 1. Selection of Region 2. Township Selection 3. Question of Urban and Rural Areas 4. Location of a Factory in a Big City 5. Location of an Industry in Small Town 6. The Sub-Urban Location for a Factory 7. Site Selection 8. Current Trends in Plant Location 9. Appropriate Site Selection 10. The Design of Factory Plant Building.

Factor # 1. Selection of Region:

The selection of a region or area in which plant is to be installed requires the consideration of the following:

(i) Availability of Raw Materials:

Proximity of sources of raw materials is the obvious explanation of the location of majority of sugar mills in Uttar Pradesh. This means that the raw material should be available within the economical distance. Easy availability of supplies required for maintenance and operation of the plant should also be considered.

(ii) Proximity to Markets:

Cost of distribution is an important item in the overhead expenses. So it will be advantageous to be near to the centre of demand for finished products. Importance of this is fully realized if the material required for the manufacturing of products are not bulk and freight charges are small.

Consumer industries like cycles, sewing machines, radio, televisions and other luxury goods etc. are set up near the marketing centres whereas producer industries like steel mills are located near the vicinity of raw materials.

For this purpose market analysis should be carried out keeping in view the following points:

(a) Market trend and competition regarding product to be manufactured.

(b) Industrial market.

(c) Consumer habits and income.

(d) Population.

(e) Scope of export to neighbouring countries.

(iii) Transport Facilities:

Since freight charges of raw materials and finished goods enter into the cost of production, therefore transportation facilities are becoming the governing factor in economic location of the plant.

Depending upon the volume of the raw materials and finished products, a suitable method of transportation like rail, road, water transportation (through river, canals or sea) and air transport is selected and accordingly plant location is decided. Important consideration should be that the cost of transportation should remain fairly small in comparison to the total cost of production.

(iv) Availability of Power Fuel or Gas:

Because of the widespread use of electrical power the availability of fuel or gas has not remained a deciding factor in most of the cases for plant location. The location of thermal power plants (like Bokaro Thermal Plant) and steel plants near coal fields are for cutting down cost of the fuel transportation. The reliability of continuous supply of these facilities is an important factor.

(v) Water Supply:

Water is required for processing as in chemical, sugar and paper industries and is also used for drinking and sanitary purposes. Investigation for quality and probable source of supply is important. Since the cost of treating water is substantial so the chemical properties like hardness, alkalinity, acidity, presence of dissolved gases and organic material etc. should be thoroughly investigated.

In case of water supply from an external source such as municipality, dependability of the source, pumping and storage capacity for present and future demands should be found out.

(vi) Disposal Facility for Waste Products:

Thorough study should be made regarding disposal of water like effluents, solids, chemicals and other waste products likely to be produced during the production process.

(vii) Climatic and Atmospheric Conditions:

The climate of the region/area where the plant is to be located has an important bearing on both the capital and operational costs.

Normally following aspects are considered:

(a) Rain fall or snow fall in the area concerned.

(b) Ambient temperatures.

(c) Humidity.

(d) Wind velocities and direction.

(e) Incidence of cyclones, storms etc.

(viii) Availability of Labour:

Potential supply of requisite type of labour governs plant location to a major extent. Some industries need highly skilled labour while others need unskilled and intelligent labour. But the former type is difficult in rural areas in comparison with industrially developed locations.

(ix) Momentum of an Established Industry:

Already established industry in a certain area will produce skilled labour in that trade. Thus future industries in that area will have no difficulty with respect to the skilled labour e.g., Ludhiana is famous for cycle industries and Faridabad for engineering industries.

(x) Preference of Outstanding Businessmen and Government Subsidies:

Some of the factory locations do not consider the above factors but locate industries in a particular district or area just to develop that area. It may be due to State Government policies regarding workers, pollution and smoke control requirements, waste disposal rules for industries etc.

Factor # 2. Township Selection:

The factors to be considered regarding township selection are:

(i) Availability of man power of requisite skill.

(ii) Competitive wage rates of workers.

(iii) Other enterprises which are complementary or supplementary regarding raw materials, other input, labour and skills required.

(iv) Moderate taxes and the absence of restricting laws.

(v) A favourable cooperative and friendly attitude towards the industry.

(vi) Favourable living conditions and standards keeping in view the availability of medical and educational facilities, housing, fire service, recreational facilities, cost of living etc.

Factor # 3. Question of Urban and Rural Area:

Question of urban and rural area should also be decided in view of the following:

(i) Advantages of Rural Area:

(i) The initial cost of land, erection cost of building and plant is less in rural area as compared to urban or city area.

(ii) Acquisition for additional area for extension work expansion of plant is possible without much difficulty whereas urban area being congested, the additional land is not easily available.

(iii) Rural areas are free from labour troubles which are most common in towns and cities.

(iv) Over crowding of working class population in cities is avoided.

(ii) Advantages of Urban Area:

(i) Better modes of transportation for collection and distribution of materials and finished products.

(ii) Availability of requisite type of labour for special and specific jobs is there.

(iii) Utilities like water, power, fuels etc. are easily available.

(iv) Industries do not need to construct colonies to provide residential facilities to their workers since houses are available on rental basis whereas in rural areas houses have to be build for workers.

Factor # 4. Location of a Factory in a Big City:

Generally factories are located in big cities for obvious reasons of skilled labour, close market proximity for both raw materials and end products.

Its advantages and disadvantages are mentioned below:


(i) Existence of educational and recreational facilities is advantageous for children and dependents of workers.

(ii) Facilities for technical/industrial education and training for children of workers are available.

(iii) Evening classes facilities are available.

(iv) Discussion opportunities and facilities for exchange of thought are available for interested people in societies and clubs.

(v) All types of skilled man power is available.

(vi) Repair, maintenance and service facilities for various utilities are available in abundance.

(vii) Banking facilities regarding finance (loan etc.) for industry in case of necessity are available.

(viii) Big markets for sale of products available.

(ix) Better transport facilities for movement of raw materials, finished products and workers are available.

(x) Many similar industries/plants exist in nearby areas.

(xi) Housing facilities workers & employees.

(xii) Police and fire protection facilities available in nearby area.


(i) Insurance and taxation rate are high.

(ii) Due to higher living standards, cost of consumer goods and wage rates are high.

(iii) Possibilities of expansion are minimum due to scarcity of land.

(iv) Cost of land is more if needed for expansion of the plant etc.

(v) Building costs very high in comparison to rural or semi-urban areas.

(vi) Atmospheric conditions not very pleasant rather suffocating.

(vii) Local bye laws present a problem for future, working & expansion etc.

The small plants may find location in big cities that too in upper stories of the buildings. Such accommodation may be utilized in view of availability of requisite type of labour in big cities.

Factor # 5. Location of an Industry in Small Town:

There are some industries which are located in the rural areas or small towns specifically for the want of raw material and cheap labour.

Its advantages and disadvantages are mentioned below:


(i) Less labour trouble and co-ordinal employee-employer relations,

(ii) Suitable land for current and future requirements easily available.

(iii) Local bye laws do not impose problem in working of the unit,

(iv) No resistance from existing industries,

(v) Possibility of tax exemptions exist.

(vi) Not much congestion.

(vii) Lower rents in comparison to big cities and urban areas.

(viii) Lower wage rates for labour/employees/workers.

(ix) Less fire risks,

(x) Noise not much problem.


(i) Scarcity of skilled labour of requisite type.

(ii) Lack of recreational and amusement facilities for staff.

(iii) Facilities like evening classes and industrial training do not exist.

(iv) Employees/workers do not get accustomed to factory life easily,

(iv) Specialized services needed for various purposes are not available,

(v) Police and fire protection less satisfactory.

(vii) Transportation and marketing facilities not satisfactory as required.

Factor # 6. The Sub-Urban Location for a Factory:

Such a location generally provides advantages of both the large city and small towns.

Benefits of such a locality may be summarized as follows:

(i) Land is easily and cheaply available in comparison to big cities.

(ii) Lower tax rates in comparison to big cities and urban areas.

(iii) Transportation facilities equal to big cities available.

(iv) Good living accommodation to enjoy advantages of big cities available for workers/employees.

(v) Unskilled labour cheaply available.

(vi) Recreational facilities of cities available due to easy transport facilities.

Factor # 7. Site Selection:

The third step is to select the exact plant site with the following considerations:

(i) The cheap availability of land for current and future requirements, soil characteristics sub soil water, availability or possibility of economic drainage and waste disposal system are desirable parameters.

(ii) The site should be easily accessible to various modes of transport as required so that apart from input materials, employees can also reach the site conveniently.

(iii) The site should he free from zonal restrictions like from railways or civil aviation restrictions.

Factor # 8. Current Trends in Plant Location:

(i) Location in Proximity of Cities:

Frist tendency is to locate the industries or enterprises in the proximity of cities rather than in rural or urban areas. These sub-urban sites offer today practically all advantages, facilities and services available in cities and towns with the added advantage of land required for future expansion on cheap rates.

(ii) Planned Industrial Centres:

While industrial towns may be planned and developed by big industrial houses or govt., the latest trend is to develop areas as industrial estates and sell these to people interested in starting their units at various places. Noida and Faridabad are the examples of this type of development.

(iii) Competition for Development of Industries:

In order to generate the employment opportunities the state and central govt. offer concessions to attract industrialists to set up industries in their states or territories.

Factor # 9. Appropriate Site Selection:

Appropriate site selection is important because of the following:

(i) A good location may minimize the cost of production and distribution to a considerable extent. Such reduction in the cost of production helps in elevating either the competitive strength or the profit margin of the business.

(ii) Initiation of an enterprise involve a relatively large permanent investment. If the selected site is not proper, all the money invested on factory building, installation of machinery etc. will go as waste and the owner will have to suffer a great loss.

(iii) Location put constraints for the physical factors of the overall plant designs heating, ventilation requirements, storage capacity for raw materials, transportation requirements for input materials and finished products, energy requirements cost of labour, taxes and construction costs.

(iv) Location of plant decides the nature of investment cost to be incurred.

(v) Government policies sometimes play an important role in site selection.

(iv) Probably no location is so perfect as to guarantee success but locations can be so bad as to bankrupt an enterprise.

A comparison of rural and urban areas regarding site selection for an industry is given in Table 3.1.

Comparison of Rural and Urban Areas

Factor # 10. The Design of Factory Plant Building:

After a plant location has been decided upon, management’s next problem deals with the design of building. A building is designed and built to protect the property and employees of an organization. This basic fact is mostly overlooked in planning the requirement for building structures.

For those plants where employees, materials and infrastructural facilities require protection, the problems involved in designing and constructing effective and economical structures are many.

Good building design and planning can reduce manufacturing cost due to following reasons:

1. Reduction of work-in process inventory.

2. Lowering down material handling cost.

3. Reducing storage costs.

4. Reducing the manufacturing cycle time.

5. Simplifying manufacturing and employees control procedure.

6. Reducing plant repair & maintenance costs.

7. Decreasing work stoppage and interruptions during production cycle.

8. Increasing plant flexibility and utilization.

9. Reducing employee hiring and training cost.

10. Increasing morale of workers and reducing employee turnover.

Practically in all industrial situations, plants or building is composed of rectangular or square areas. The combinations result commonly in building of the shape L, T, U, G, H, F, E, I. O and polygonal. Generally speaking a square building is cheaper to construct than a rectangular building because the square will have less perimeter per square metre of usable area.

This reduction in perimeter length results in lower foundation and outside site and boundary wall costs. At the same time however the square shape of the building normally does not suit to efficient production or assembly lines patterns.

Furthermore, the cost of structural steel for floor and roof supports in the square building will likely to exceed that for a rectangular building and may offset the possible savings in foundation and wall costs.

Most industrial building can be categorised into three groups as mentioned below:

(i) Single Storey Building:

The trend today is toward the construction of single storey buildings particularly where land is available at a reasonable price.

Following are the advantages offered by single storey building:

(i) It provides the cheapest overall cost per square metre of operating space of the plant.

(ii) It is easily and quickly constructed.

(iii) Greater flexibility in layout of the plant possible.

(iv) Truss construction makes for unimpaired operating space,

(v) Minimum vibrations from floors being on the ground.

(v) Ease of ventilation, heating and air conditioning of the space,

(vi) Elimination of costs and maintenance of stairways,

(vi) Easy to expand by removing walls.

(ix) All equipment is on the same level, providing easier, more effective layout and control,

(x) Unrestricted floor load capacities available.

(a/) Supervision on one floor easy.

Following are the limitations of single storey buildings:

(i) Cost of heating and ventilation is more,

(ii) Roof maintenance cost is higher.

(iii) Longer ground runs for drainage required.

(iv) Water storage less convenient.

(v) Maintenance of glasses and lights is expensive affair.

Single storey building’s roof structures are of the following four types:

(ii) Highway and Monitor Type Buildings:

These types of single storey buildings are designed to give maximum overhead space for a given floor space. If properly designed and constructed almost all the vertical walls can have windows for natural illumination.

The monitor type building is usually found in companies requiring good natural ventilation and considerable overhead room for operating cranes and other overhead facilities. Buildings for foundries and steel mills are often of the monitor or highway type enabling the firms to take advantage of the natural ventilation resulting from the high roof.

(iii) Multi-Storey Building:

Following are the advantage of multi-storey buildings:

(i) Less roof repairs.

(ii) Heating and ventilation cost less.

(iii) Small ground runs for drainage.

(iv) More compact layout.

(v) Provides for maximum operating floor space per square metre of land,

(vi) Easily adopted for the manufacture of light goods.

Following are the limitations of multi-storey buildings:

(i) These present problems in heavy goods industries.

(ii) Material handling can be relatively expensive for bulky materials because of the vertical transfer between floors.

(iii) Natural illumination in the centre of a multi-storey building is often poor.

(iv) Flexibility is hampered in multi-storey buildings because changes in the width and length of a floor are usually impossible except at ground level.

Submitted by : Professor Ananya, Category : Plant Location, Tag : Factors Affecting Plant Location