Importance of location planning
Location planning decisions are very important for all types of business units. This is because it affects the cost, selling price, and demand of the product. It is a non-recurring heavy expenditure. Large companies take the help of different professionals like lawyers, accountants, environmentalist, etc. for selecting the proper location of plant.
Following image lists 8 points that bring out importance of location planning.
Image credits © Prof. Mudit Katyani.
There is a need or importance of location planning because it aids in:
- Cost advantages,
- Discovery of raw-material,
- Additional facilities,
- Political and social changes,
- Increasing product demand, and
- Avail tax benefits.
Now let's discuss above points highlighting importance of location planning.
- Expansion : If the company wants to expand and diversify its activities, it will have to search for a new-location for setting up its new business unit. In this case, it will need a location planning.
- Cost advantages : If an existing plant is not near a market place, it will increase the transport cost. This will also increase the cost of the product. So, to avoid this, the company will search for a new plant location which is near the market. Such location of plant must be convenient to the employees and must have a regular supply of water and electricity. Overall, this will result in reduction of the cost of production.
- Discovery of raw-material : Generally, a plant must be located at a place where raw-material is available. For example, if oil and gas are found at some place, then a new petrochemical plant has to be set up there for processing purpose.
- Additional facilities : Plant location-related decisions will have to be taken if the organization wants additional facilities. New facilities may be necessary to improve the quality of work, to meet rising demands, etc.
- Mergers : Mergers, joint-ventures, and Amalgamations may lead to start a new unit at a new-location. It may even require closure of an existing plant unit. In mergers, production is mostly started at a new place as per the new-agreement.
- Political and social changes : Each political party has its own philosophy. Political changes can lead to changes in economic policies of the government. This may make the existing location unattractive for doing business. Social changes may require production of eco-friendly goods. This may require a change in location.
- Increasing product demand : Demand for the company's product may increase at other places, especially in abroad countries. So, the company will have to start a branch in another state or in foreign countries. This would lead to a search for new location of plant.
- Avail tax benefits : Government may announce some tax benefits for starting a business in rural areas. This may motivate entrepreneurs to start their business units in remote areas.