The ultimate goal of any organization is to maximize the profit through minimization of cost of production.This goal can be achived only when the plant is of the right size and at a right place where economics of all kinds in production are available.

Many factors must be considered when choosing a site for a manufacturing plant, distribution warehouse, or other industrial facility. Hence, from this view point, the decision of location for a plant become important as it affects the profitability of the concern.

Importance of plant location

Generally plant location problem is major for new business. Also it is equally important while taking a decision for establishing a new branch of existing plant or shifting the established plant to new site. Entrepreneaur of a new business seldom considers site outside of his own community.

Selecting location implies several economics and engineering implication and therefore, before taking a decision for establishing a new plant or for shifting an existing plant, or for starting a new branch of an existing plant, all relevant factors affecting the profitability of the concern should be studied throughly as it affects substantially , the operational variability.

Factors affecting plant location

Proximity to the market

• Market is the location of buyers and hence become an important factor for plant location planning.Industrial units tried to locate the industry near the market because customer can be served better and cost of service will be minimum.
• Market may be concentrated or widely spread depending upon the product. When the market is concentrated then plant should be located close to the user.
• Concentration of market and stability of demand
• Transportation facilities available and freight rates to principal market.
• Risk of damage and delays to goods in shipment.

Availability of raw material

• Location selection decision is also dependent upon the raw material. The ideal plant location is that, where at least the main raw material is easily available in required quantity and quality within a time, so the daily flow of production can be maintained and the total production cost can be minimized,(e.g all the mines are located around the abundant supply area of raw ore, indusries such as sugar industry, steel industries, etc have tentancy to localize near the source of raw material as there will be great saving in the transportation cost).
• For some indusrties, requirement may be of more than one raw material and their sources may be at different locations in such situations the plant location should be selected by considering transportation costs i.e, plant shall be placed where transportation costs are minimum.

Transport and communication facilities

• Transportation includes movement of raw materials from source to site, movement of in process material from one stage to another stage to another stage, movement of human resource; movement of finished products to market, etc.
• While selecting location, adequate transport facility road, rail, water or air, are to be analyzed for their availability, suitability and transportation charges. transportation is the only one reason why the industries are located near these junctions.

Labor supply

• Another influencing factors which affects the industrial location is the availability of labors.the units shall be started at the place where the labor or manpower can be easily made available and also at reasonable wages.according to weber an industrial units will deviate from the point of minimum transportation cost to the cheaper labor centre if the additional cost of transportation is more than compensated by the savings in the labor cost.in the recent years this assumption has lost its significance because,

1. The minimum level of wages has been fixed by law below which industrial unit cannot go.
2. The labor is mobile factor and can be easily imported from other places.

Fuel and power

• An uninterrupted and adequate supply of fuel and power is major factor influencing plant location decision.in last century industries which were using coal as a major source of fuel and power were situated near coal mines or places to which coal could be carried easily and cheaply.but with the introduction of other sources of fuel and power such as oil,gas,and also developmentof high tension grid system,the power factor has become mobile.and hence now-a-days this factors is not of much importance.

Government policy

• In planned economy,this factor plays important role.in india,government follows the policy of balanced regional growth of the country which is very important from the point of view of defense and social problem like slums,disparity of income and wealth,optimum use of resources.in order to implement this polcy government offers several incentive and subsidiary scheme to motivate the businessmen to locate their plant in backward regions or no-industry regions.

Supporting industries and services

• To select the plant location the proximity services needed by the firm is also considered.in some firm, some of or all the parts are imported or procured from outside,in this condition the firm will be located at the near to sub-contractor.if such sub-contractors are located far away from plant,then there will not only increase in transportation cost but also it will be time consuming and costly.

Climatic consideration

• Some industries requires special climate to run unit effectively,so it also influence location decision.the question of climate is very important for agricultural product.also cotton industries require a humid atmosphere(e.g. number of cotton industries is located near bombay or ahmadabad)

Suitability of the land

• Location should be selected by considering the soil structure of the land.the soil structure must be capable of bearing loads of foundations.

Safety requirements

• In case of certain industries, safety factors affecting to the plant location. for example: nuclear power plant, explosive, factories, etc such plants are to be located at remote areas.

Strategic consideration

• Strategic consideration like law and order situations, political stability and safety also influence the location decision.