Why Proper Site Selection for Industrial Projects is Crucial?Learn Tricks and Strategies to Master in Managing the Selection Criteria!


Abstract:
Selection of the site for an industrial plant is governed by many considerations, like
# Technical consideration
# Human consideration
# Economic consideration
# Environmental consideration 
All these constitute techno- economic feasibility analysis as well as judgment as to the modifying effects of other factors. 

First, the costs of land, labour, materials, taxes, heat, light and power should be calculated and the costs of marketing from that place should be estimated.

Secondly, the total costs of each site for an industrial plant should be compared. This comparison would give an idea about primary considerations regarding selection of the site for an industrial plant. But this is not enough. 

There are other considerations which are more the matter of judgment rather than mathematical calculations, but have considerable effect on the smooth working of the business unit.

Keywords:
Plant, Site, Location, Cost, Selection, Land, Labour, Economic consideration, Technical consideration, Human and Environmental consideration

Learning Outcomes 
After undergoing this article you will be able to understand the following:
1. What is site selection for industry?
2. Why plant sites / location analysis is important?
3. What are the factors considered for selection of plant sites?
4. How to compare various sites / location?
5. Some examples of great companies why they established manufacturing units in such places?
6. Most frequently asked questions on site selection
7. Conclusions 

1. What is site selection for industry?

It is very imperative to understand that new manufacturing facilities represent a significant capital investment for any owner. By taking an approach that addresses a facility’s production and performance requirements in conjunction with the site requirements, owners can make more informed decisions that lead to project success.

Once general building and operational requirements are identified, site selection is the first of many steps in the manufacturing facility development process. As such, it may be tempting to rush that phase of the project just to get things moving. But the site a company chooses has an impact on the lifetime of the facility in ways that may not be immediately apparent. Beyond construction costs, long-term profitability and even the quality of the facility’s output can be impacted.

Owners that address facility and site considerations together have the most successful projects. 

2. Why plant sites/ location analysis is important?

The location analysis helps businesses find the ideal location for opening their new offices, store locations, or manufacturing units by analysing audience demographics, psychographics, brand affinities, trade areas, pathing, and other important factors. Location analysis also accelerates the decision-making process for organizations.

3. What are the factors considered for selection of plant sites?
The following 11 factors should be evaluated before committing to the purchase of a site or structure, to determine the project’s long-term success. Many of these considerations go hand-in-hand, yet all too often, one or more go under-investigated during the pre-purchase planning process.
Let's understand them:
1. Availability of raw material: As far as possible the site selected should be near the source of raw materials so that cost of transportation can be minimized and storing cost can be reduced especially when the raw material is heavy and bulky or cheap but looses a good amount of weight during processing. For example most of the iron and steel industries are situated in Orissa and Bihar, Paper industries in Ballarpur due to availability of raw material in these areas.

2. Availability of labour: Availability of right kind of labour in sufficient numbers at reasonable rates is one of the deciding factor in site selection. Unskilled labours are amply available at major industrial areas and rural areas but however firms requiring skilled labour be situated near the urban industrial area.

3. Climatic condition: 
Climatic conditions largely affect certain production processes and also the efficiency of employees. For example textile industries required moist climate due to which these types of industries are situated near Ahmadabad and Mumbai; similarly Tea and Coffee near Assam.

4. Proximity of market: 
Market is another important factor affecting site selection. Industrial units using raw material should be located near the markets to serve the customer with minimum service cost.

5. Transport and communication facilities: 
While selecting the site, adequate transportation facilities should be considered. The optimum site is the site which is well connected by various modes of transportation.

6. Availability of water: 
Water is required for drinking and sanitary purpose of all industries. Therefore, clean and adequate water should be available near the site.

7. Availability of power and fuel: 
All industries require power and fuel to run the prime movers. Therefore, the site selected should have these facilities available at cheaper rate.

8. Legal Aspects: 
Local bye laws, taxes etc. are also important because they directly reflect in total cost. So while selection, it should also consider legal aspects.

9. Amenities and recreational facilities: 
Facilities like schools, hospitals, garden, and play grounds are needed for employee and their family.

10. Scope of Future expansion: Site selected should be in such a way that a plenty of land and other facilities must be available for future expansion.

11. Community attitude : Mindset of the local people is also important, many times they oppose the work.

4. How to compare various locations to arrive at an optimum cost?

If you are planning on moving or acquiring a new facility, there are many factors to consider: the size, the geographic area, culture, transportation costs and others. After a location or locations have been chosen a cost-profit-volume analysis is done.

The main factors that affect location decisions include regional factors, community considerations, and site-related factors. Community factors consist of quality of life, services, attitudes, taxes, environmental regulations, utilities, and development support.

EVALUATING LOCATION ALTERNATIVES 
– There are three specific analytical techniques available to aid in evaluating location alternatives:

Location Cost-Volume-Profit Analysis:
The Cost-Volume-Profit (CVP) Analysis can be represented either mathematically or graphically. It involves three steps: 1) For each location alternative, determine the fixed and variable costs, 2)For all locations, plot the total-cost lines on the same graph, and 3) Use the lines to determine which alternatives will have the highest and lowest total costs for expected levels of output. Additionally, there are four assumptions one must keep in mind when using this method:
Fixed costs are constant.
Variable costs are linear.
Required level of output can be closely estimated.
There is only one product involved.
Total cost = FC = v(Q)
where FC=Fixed Cost, v=Variable Cost per Unit, Q=Number of Units (Also shown below but not in the same format)

Factor Rating
This method involves qualitative and quantitative inputs, and evaluates alternatives based on comparison after establishing a composite value for each alternative. Factor Rating consists of six steps:
Determine relevant and important factors.
Assign a weight to each factor, with all weights totaling 1.00.
Determine common scale for all factors, usually 0 to 100.
Score each alternative.
Adjust score using weights (multiply factor weight by score factor); add up scores for each alternative.
The alternative with the highest score is considered the best option.
Minimum scores may be established to set a particular standard, though this is not necessary.
Center of Gravity Method:
This technique is used in determining the location of a facility which will either reduce travel time or lower shipping costs. Distribution cost is seen as a linear function of the distance and quantity shipped. The Center of Gravity Method involves the use of a visual map and a coordinate system; the coordinate points being treated as the set of numerical values when calculating averages. If the quantities shipped to each location are equal , the center of gravity is found by taking the averages of the x and y coordinates; if the quantities shipped to each location are different , a weighted average must be applied.

5. Some examples of great companies why they established manufacturing units in such places?

When establishing companies have seen the following seven factors. 
The great companies examples in India are  
Tata Steel, Tata Motors, Mahindra and Mahindra, Volvo, Mercedes, Samsung, Sony, Bajaj Scooter, Ashok Leyland, SAIL etc.

Similarly, in International level companies like 
Boeing.
HP.
Johnson & Johnson.
Lancaster Colony.
Lear Corporation.
Patrick Industries.
Pilgrim's Pride Corporation.
Sanderson Farms.
Apple
Google etc are great companies.

The seven motivators
In addition to avoiding disasters, why else should you want to be more strategic about location decision-making? In my mind, there are seven key drivers.
1. Attracting and retaining talent. 
In most cases this will mean a city center location. Cities draw in increasing numbers of young and international people. These places also become accessible.

2. Real estate costs. 
It’s the second largest expense after labor costs—naturally, ensuring real estate is efficient.

3. Clusters. 
Having a network of connected businesses could give companies access to a better and bigger talent pool, regulatory bodies, investors and economies of scale. However, this could be expensive; weigh up the pros and cons and decide what’s important for your organization.

4. Regulation and tax. 
Bearing in mind regulations can change, speak to your C-suite and agree on one of the either: Do you want to be based in a country with lower tax rates or one with fewer regulations?

5. Growth or a change in corporate strategy, technology or leadership. 
Different structures work for different companies. In some cases, I’ve seen corporations opting for a central hub with meeting spaces while supported by multiple smaller spokes elsewhere. Meanwhile, others are maintaining large, centrally located corporate headquarters. Again, consider what works best for the function of your organization.

6. City dynamism.
In Europe, some governments are transferring power to regions and cities, which might offer grants and stimulus to businesses. Be aware of up and coming urban centers that incentivize businesses as this could prove advantageous.

7. Accessibility. 
It sounds simple but, whether it’s accessing new markets, customers or resources, transportation is crucial for not just your people but everyone you work with to get around effectively.

Location decisions can be lengthy. It involves identifying corporate requirements, consulting with stakeholders, assessing potential locations, conducting site visits and negotiating the best deal.

6. Conclusions 
The process of locating the place at which to install an industrial plant requires the analysis of various factors, from the economic, social, technological, and market point of view.





Comments