Dela Cruz, Junel B.

III- BSBA- MM

St. Louis College Valenzuela

Maysan, Valenzuela City
COLLEGE DEPARTMENT

A. Subject Code / Description: Management 10 – Production

Management / TQM
B. Weekly Module Number 7
C. Topic: Plant Location
D. Intended Learning Outcomes:
At the end of this module, you should be able to:
1. Describe the factors that influence the selection of a plant
site;
2. Explain the importance of plant’s location to its profitability;
3. Explain the reasons for relocating a business.

E. Introduction and Engagement

1. Determining the location of a plant is a problem that
business firms face periodically. Since products, processes,
markets, and sources of materials are constantly changing,
the company should frequently review its existing location
and question whether it should move or expand or locate in
still another locally. Of all the decisions of management, that
on plant location is the most difficult to make, if change is
desired.

F. Presentation of the Topic/s

1. Please view or download the PowerPoint Presentation from
our Production Management class in our Google Classroom
(Chapter 8 – Plant Location).
2. Please take down notes and answer the following questions:
 a. Name the factors that influence the selection of a plant
site.

Availability of Raw Materials:

One of the most important considerations involved in selection of industrial location has
been the availability of raw materials required. The biggest advantage of availability of
raw material at the location of industry is that it involves less cost in terms of
‘transportation cost.

If the raw materials are perishable and to be consumed as such, then the industries always
tend to locate nearer to raw material source. Steel and cement industries can be such
examples. In the case of small- scale industries, these could be food and fruit processing,
meat and fish canning, jams, juices and ketchups, etc

Proximity to Market:
If the proof of pudding lies in eating, the proof of production lies in consumption.
Production has no value without consumption. Consumption involves market that is,
selling goods and products to the consumers. Thus, an industry cannot be thought of
without market.

Therefore, while considering the market an entrepreneur has not only to assess the
existing segment and the region but also the potential growth, newer regions and the
location of competitors. For example, if one’s products are fragile and susceptible to
spoilage, then the proximity to market condition assumes added importance in selecting
the location of the enterprise.

Similarly if the transportation costs add substantially to one’s product costs, then also a
location close to the market becomes all the more essential. If the market is widely
scattered over a vast territory, then entrepreneur needs to find out a central location that
provides the lowest distribution cost. In case of goods for export, availability of
processing facilities gains importance in deciding the location of one’s industry. Export
Promotion Zones (EPZ) are such examples.

Infrastructural Facilities:
Of course, the degree of dependency upon infrastructural facilities may vary from
industry to industry, yet there is no denying of the fact that availability of infrastructural
facilities plays a deciding role in the location selection of an industry. The infrastructural
facilities include power, transport and communication, water, banking, etc.

Yes, depending upon the types of industry these could assume disproportionate priorities.
Power situation should be studied with reference to its reliability, adequacy, rates
(concessional, if any), own requirements, subsidy for standby arrangements etc.
Government Policy:
In order to promote the balanced regional development, the Government also offers
several incentives, concessions, tax holidays for number of years, cheaper power supply,
factory shed, etc., to attract the entrepreneurs to set up industries in less developed and
backward areas. Then, other factors being comparative, these factors become the most
significant in deciding the location of an industry.

Availability of Manpower:
Availability of required manpower skilled in specific trades may be yet another deciding
factor for the location of skill- intensive industries. As regards the availability of skilled
labour, the existence of technical training institutes in the area proves useful. Besides, an
entrepreneur should also study labour relations through turnover rates, absenteeism and
liveliness of trade unionism in the particular area.

Such information can be obtained from existing industries working in the area. Whether
the labour should be rural or urban; also assumes significance in selecting the location for
one’s industry. Similarly, the wage rates prevalent in the area also have an important
bearing on selection of location decision.

Local Laws, Regulations and Taxes:

Laws prohibit the setting up of polluting industries in prone areas particularly which are
environmentally sensitive. Air (Prevention and Control of Pollution) Act, 1981 is a
classical example of such laws prohibiting putting up polluting industries in prone areas.
Therefore, in order to control industrial growth, laws are enforced to decongest some
areas while simultaneously encourage certain other areas.

For example, while taxation on a higher rate may discourage some industries from setting
up in an area, the same in terms of tax holidays for some years may become the dominant
decisional factor for establishing some other industries in other areas. Taxation is a
Centre as well as State Subject. In some highly competitive consumer products, its high
quantum may turn out to be the negative factor while its relief may become the final
deciding factor for some other industry.

Competition:
In case of some enterprises like retail stores where the revenue of a particular site
depends on the degree of competition from other competitors’ location nearby plays a
crucial role in selecting the location of an enterprise. The areas where there is more
competition among industries, the new units will not be established in these areas. On the
other hand, the areas where there is either no or very less competition, new enterprises
will tend to be established in such areas.
 b. How does the source of raw materials or the finished
goods market influence decisions on plant location?

The most essential consideration in plant placement selection is the availability of raw
materials. Typically, manufacturing units where the main purpose is the conversion of
raw materials into final items should be placed in a location where raw material supply is
maximal and cheap.

c. How important is a plant’s location to its profitability?

Location decisions are strategic, long-term and non-repetitive in nature. Without sound
and careful location planning in the beginning itself, the new facilities may create
continuous operating problems in future. Location decision also affects the efficiency,
effectiveness, productivity and profitability.

The location decision should be taken very carefully, as any mistake may cause poor
location, which could be a constant source of higher cost, higher investment, difficult
marketing and transportation, dissatisfied and frustrated employees and consumers,
frequent interruptions of production, abnormal wastages, delays and substandard quality
etc.

d. What advantages does a firm derive from relocation?

Name some of the reasons for relocating a business.

Reduced Overhead
One of the main benefits of relocating a business that results in a smaller office,
store, plant or warehouse is the reduction in overhead expenses. In addition to
reduced heating, cooling and lighting costs, you can lower your insurance costs as
well. A smaller location might also result in less rent or a smaller mortgage.

More Operating Capital

If you sell land or a building and rent a new space, you can use the cash from the sale to
fund an acquisition, expansion, operations or debt reduction plan. Even though you might
end up paying more in rent than you would if you had stayed in your current location,
that’s a long-term consideration. If you need cash to keep your business afloat during a
tough period or have an opportunity to expand your business, the relocation trade-off
might be worth it. If you move to a smaller location, the trade-off might net you money.
Access to Economic Development Assistance
Many towns, cities, counties and states offer relocating businesses incentives to
move into their areas, hoping to attract businesses that will create jobs and pay
taxes. When you relocate, contact the state, county and municipality economic
development offices in areas you’re considering to learn what they offer. You
might get tax credits for each job you produce, free worker training programs,
reduced utility rates or even a free building. Economic development authorities
have databases of empty buildings they will give new businesses as an incentive to
relocate to the area.

Lower Taxes
Moving from one location to another can reduce your tax burden. A move from
one county to another can lower your sales taxes, while a move to a new state
might eliminate inventory or personal income taxes. Calculate your costs for
licenses, permits, fees and taxes based on your current location and other locations
you’re considering to determine if that difference justifies a move.

Improved Operations
If you chose your original location because of cost or convenience, you might be able to
improve your operations by moving to a new location now that you have some history
with your sales and operations. If you’re a retailer, a move to a new location can make it
easier for current customers to reach you and new customers to find you, resulting in
higher sales. You might decrease your shipping time to customers and reduce your costs.
Depending on how many employees you have, quality of life issues, including taxes and
commute times, can help you attract better employees and retain them longer. If you
move into a newer building, you might have access to better digital infrastructure, a free
conference room you can book for meetings and reduced utilities costs.

e. What benefits are provided by industrial estate? Name

and describe estates in the Philippines.

The Best Long-Term Investment For Locators

Business owners and even start-up establishments have begun to see that industrial parks
represent the most excellent environment for entrepreneurs. Here we take a look at the
characteristics of industrial parks to assist you in seeing a clearer perspective. How it can
serve a locator’s growth and advancement over time and how it can highly contribute to a
business’s development? Here are the following reasons:

Its sole purpose is to be complementary to production and manufacturing

Purposed for production for small and medium manufacturers
Built in a special economic zone that contains mutually beneficial businesses and
industries
Subsidized service and infrastructure such as roads, electricity, energy, water supply, gas
supply, and telecommunication services, among others.

When locators invest in industrial parks, they can easily lower their production costs
through their cost implications for machines and parts. This results in more convenient
and efficient duty payments and delivery. All these factors could be a vast advantage to
promote export activity and produce more goods to accommodate the demands of
consumers. These will undeniably transform businesses greatly.

Great Eye For Foreign Investors

The rising value of industrial parks has cultivated international relationships. All
countries already have a certain niche and competitive standpoint that they offer to
international and foreign investors. For instance, a country like the Philippines has a
growing economy, which makes it a sensible investment for foreign investors to support.
The country is considered one of the fastest-growing countries with highly trainable
manpower, expanding infrastructure, and a significant number of natural resources.
Industrial parks in the Philippines are one of the potential locations that investors have
been eyeing nowadays.

Predominantly, industrial parks have the biggest edge for businesses to be established in.
This is because of their complete and modern infrastructures combined with the best
benefits that a country can provide.

Environmental Advantages

Manufacturing companies are doing a stellar job at seeking solutions to lessen the
environmental impacts from the pre- to post-production of their goods. Since they are
large-scaled areas, industrial parks have emerged to design a whole new area of
sustainability. These refer to environmental design, energy design, waste design and
infrastructure principles that aim to preserve more for ecological circumstances. Here are
the environmental benefits that industrial parks can provide:

Decrease in air emissions

Depleted groundwater and surface contamination
Water conservation
Lessened greenhouse gas emissions
Recycled materials and conserved resources
Available and dependable technology, energy, and electricity

You can immediately see how these components, when added together, can make an
impact on environmental standards. Industrial parks are aware of ecological and social
effects as well as value sustainability. This is why they have managed to devise a system
that caters to the faster production of goods with minimal waste and harm to the
environment.
Enhancement For Competitive Standpoints And Profits

When located at an industrial park, you are offered and provided with benefits for
the community, the economy, and the environment. When these variables are
enhanced and elevated, a business’ market image promptly rises to the top. In
terms of community, industrial parks produce more jobs, improve the tax base and
business retention, as well as reduce development costs. On the other hand, there is
an extensive number of benefits it can provide the economy. Locators are capable
of having higher profitability, improved market and business image, access to
financing, and many more.

G. Exercises
1. Research; Problems; and Projects
a. The trend in business moves toward international and
multinational operations. What factors should be
considered in deciding to locate in a foreign country?
Distinguish international operations from multinational
operations.
International companies means they have business outside the home country
but not with the huge investment as well as they haven't adopted the culture
of different countries just replicating the home country products to other
nations.

Multi nation Companies means huge investment in other countries and

adapted the culture of other countries as well as implemented
everywhere( best part) and offering the product according to the market or
customer’s requirement.

b. Foreign business firms migrated to Manila to avoid the

high cost of rent in Hongkong and to take advantage of
the excellent facilities and incentives given by the New
Society. It did not take long for business rentals to
skyrocket, following the increase in demand for industrial
 and office space. This seems to negate the rationale for
transferring to Manila. Clamor to freeze business rentals
was the immediate reaction by a business columnist in a
local daily. How would you view this problem and what
positive approaches may be pursued to resolve the
situation?

Financiers were already well diversified (few if any specialized in financing only
ships), and oil companies and brokers had fewer options for diversification, as their
unique skills took a long time to build and were less transferable. However,
diversification is theoretically possible for these as well, if they chose to branch into
businesses less related to their current lines of work

c. A semi-conductor company wishes to locate in the

Philippines to take advantage of cheap Philippine labor.
Recently this industry has asked the BOI to regulate further
entry of similar firms because the industry is experiencing a
mounting inventory due to abrupt decline in orders from
the foreign clients. What problems would such a new
company anticipate?

With every new day, we are presented with business opportunities we never had before.
However, alongside these opportunities, we are also facing new challenges. Very often
business owners are not prepared to successfully withstand them due to being
overwhelmed with their daily duties. I believe that learning about those challenges in the
first place is a great way to overcome them.

If you think about it, one of the biggest challenges we faced in the world of business so
far is the “humans vs. machines” situation. More and more tasks are being automated
these days and the human workforce becomes something that could be easily replaced in
most cases. This leads to the disruption of traditional business models which is
sometimes a good thing and sometimes not. In any case, we should not forget, that even
the most sophisticated machines need a human being to be operated.

Another great challenge that we are facing these days is a lack of integrity. Many
business owners are trying to “cut corners” in achieving their goals. The modern motto
“to win by all means” isn’t something we should cultivate in the business community.
After all, the biggest corporations always followed their own code of integrity.

Surely, these are not the only two problems that we are facing these days, however,
starting by these two we can make the world of business so much better.

H. Summative Assessment
1. Answer the Quiz from our Production Management class in
Google Classroom or Messenger Group Chat.
 2. Online assessment during the video classes through
recitation

I. References
1. Production Management, Second Edition, Esdras T. Martinez