Industrial Site Selection
THE IMPORTANCE AND ADVANTAGES OF SUCCESSFUL INDUSTRIAL SITE SELECTION
An industrial plant is a manufacturing facility that is formed by machines, devices and other means of production that are conveniently arranged in buildings or suitable places, whose function is to transform materials or energies to obtain a product or the provision of a service according to a pre-established basic process. In order to successfully operate a company must make commit the resources that are required to initiate and complete the industrial site selection process.
Importance and advantages of a good plant location
Making the decision to locate an industrial plant is particularly important to achieving business objectives. Given this consideration, it should not be done superficially. All the alternatives must be analyzed before selecting the place at which a factory can operate in the best cost conditions, which has access to adequate infrastructure and a supply of necessary material inputs.
Generally, this class of decision is taken once or only on very few occasions in the company’s history. As such, the favorable and unfavorable effects of the industrial site that has been selected prevail in the long term, affecting the competitive position and profitability of the company.
Industrial site selection refers to the study that determines the most convenient location for a manufacturing installation, which provides the highest profitability of the operations with respect to its investment or where it fully meets the objectives of the company, whether economic or social. 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.
Steps for effective industrial site selection
There are two stages: In the first, the general area in which the company is installed is decided:
Preliminary Analysis: Translate the general strategy of the company and location requirement.
Search for alternative locations: Study the set of places and examination of related data.
Evaluation of Alternatives: Detailed quantitative analysis of the locations under consideration.
Selection of the location: Choice of the most acceptable places and final decision.
In the second stage, the final choice is made taking into consideration a wide scope of variables that are critical to the industrial site selection exercise.
Key factors in plant location – Criteria and aspects to evaluate
Analysis of the factors influencing the choice of a manufacturing site allows parties that are involved in the process to understand the types of industrial site options that exist and guides policies aimed at making the choice that is the best for the business.
The existence of natural resources: Historically, this has been a central location factor. When the cost of transport of material inputs to the manufacturing process was very high, the profitability of the factory was negatively affected. For instance, some of the first factories were located next to the mines, to be close to the sources of raw materials and energy. Today, raw materials and energy resources, such as oil, electricity or natural gas, are transported long distances in large quantities. Only energy-intensive industries choose to locate near hydroelectric plants and around large ports.
Transportation and communications: Normally, companies are located in well-connected places, as this facilitates the arrival of raw materials, the transfer of employees and customers and the output of their products. Good transportation is essential, especially for industries that move a large volume of heavy or perishable goods. In present times, means of transport are fast and have great load capacity and are cheap. The almost ubiquitous presence of transportation and communications resources has favored the siting of factories in places where they were unable to exist in the past.
The availability, qualification and cost of labor: When abundant low-skilled labor is needed, large companies in developed countries often install part of their industrial processes in what are known as “low-cost countries.” As this would suggest, these are nations where wages are lower, and the unionization of the workforce is less prevalent. This phenomenon is called offshoring or nearshoring. If, on the contrary, a company requires a highly-skilled, educated, and qualified workforce, it often establishes itself in large population centers of more developed countries.
The proximity of other similar industries: Some industries maintain their traditional industrial site selection because they benefit from existing infrastructure and services, as well as the presence of other similar or complementary industries. In this way, they can share some services with like companies or subcontract certain industrial processes out to third parties. These types of clusters of companies are highly valued. For example, some industries manufacture parts or perform services that they sell to others. This leads to the formation of networks of companies that work in a coordinated way that benefits all participants. Many are located in industrial or in technological and scientific business parks.
The proximity of the end user markets: The result of the industrial site selection exercise also requires that, in order to be considered successful, companies locate manufacturing facilities close to the consumers. This will enable the manufacturer to better service its customers as well as to maximize profits due to maximized transportation costs.
Political factors: Public aid, tax advantages, more or less permissive labor and environmental regulation, political stability and receptiveness to foreign investment also drives the industrial site selection decision of many industries.
The price of land. This factor is usually a very important consideration, as industries occupy a large amount of land.
The quality of the environment: A pleasant quality of life, an agreeable climate and landscape, social stability, etc.
Personal factors. The location of many industries, especially those that have a personal or family origin, also depends on the preferences of the employer. However, personal judgment often entails factors that are highly subjective.
The factors that influence the industrial site selection have varied over time due to technological changes and organizational changes in business. At present they are, above all, of an economic nature. They include the abundance of natural resources, the availability of labor, proximity to markets, good transportation and communications infrastructure, etc. Companies that are successful in the exercise of locating the best place for their operations are those most likely to be profitable and long-lasting.
Photo by David McBee