Facility Location: Weber's Theory

Facility Location

• Plant location is determining where a plant should be for maximum efficiency and economic operation.
• Locating a plant incorrectly can be costly and difficult to correct, especially for large plants.

Need for Location Selection

• Starting a new business
• The business has outgrown its facilities and cannot expand.
• A lease expires and is not renewed.
• Businesses can reduce manufacturing costs by changing locations.
• There could be social or economic reasons like inadequate labor supply, or shifting markets.

Theories of Location: Alfred Weber's Approach

• Economists have developed industrial location theories.

Weber's Deductive Theory

• Alfred Weber, a German economist, is considered the father of location theory.
• Weber's book, initially published in German in 1909, outlines his deductive theory of industrial location
• Factors affecting plant location are classified into regional (primary) and secondary factors.

Detailing the Factors in Weber's Theory

• Regional factors significantly impact the regional distribution of an industry.
• Secondary factors involve agglomerating and deglomerating effects that redistribute industry.
• Agglomerative factors provide advantages through the concentration of production or marketing in one place
• Deglomerative factors cheapen production by decentralizing it across multiple locations.

Primary Factors

• Regional analysis should include a study of various industrial cost structures.
• The two general Regional Factors:
  • Transportation Costs:
    • Consider the weight of the goods to be transported.
    • There are two categories of Raw Materials
      • Ubiquitous materials, which are readily available everywhere, like water, wood and soil
      • Localized materials, which are found in particular places like sugarcane, cotton, iron, coal, and mineral produce.
    • You should analys Distance to be travelled
  • Labour Costs:
    • Weber identified labor costs as a secondary regional factor.

Secondary Factors

• Industry location is influence by regional and other factors
• Agglomerative factors concentrate industries in one location, producing external economies. Agglomeration occurs when the regional factors concentrate industries at one place, and these industries obtain benefits without any individual effort.
• These include:
  • Availability of machines and technical components.
  • Availability of repair and replacement facilities.
  • Access to banking and insurance.

Agglomerative & Deglomerative Factors

• Split Location:
  • Weber stated single production locations will be the exception, splitting the production process will be normal.
• Locational Coupling:
  • Weber theorized that locating various types of industries in the same area can be advantageous
  • If one industry's byproduct is another's raw material, both industries may co-locate.

Freedom of Location

• Andreas Predohl noted new locations offer advantages that may cause relocation.
• An entrepreneur has greater location freedom.
• TISCO's plant in Jamshedpur was selected after surveying geological data to confirm the presence of key minerals.
• The Maharaja of Mayurbhanj had given highly favourable terms to Tatas.,
• However the TISCO plant faced challenges such as slow communication, difficulty hauling machinery, and labor training
• The location was near the confluence of the Subarnarekh and Kharkai rivers in Jharkhand
• The TISCO was only 32 km from Kalimati station on the Bengal-Nagpur railway line.
• The area was close to iron ore, coal, and manganese, and the Kolkata market.
• TISCO sources coal from Jharia coalfields, and iron ore, limestone, dolomite, and manganese from Orissa and Chhattisgarh.
• Kharkai and Subarnarekha rivers provide water, and government initiatives offer capital

Development 20th to 21st Century

• Improvements were made in transportation, communication and services.
• Improvements in construction methods, processing and machine designs.
• Availability of air conditioning equipment.

Errors in Location Selection

• Businesses sometimes choose incorrect locations, even if location selection seems easy.
• This is due to factors like:
  • A lack of investigation.
  • Prejudices.
  • A move to congested areas.
• Therefore a selection committee may tour places, select two or three locations, study the plus & minus points and select one among them.

Steps in Location Selection

• Determine to locate within the country or outside.
• Select a region.
• Select a community.
• Select a specific site.

Steps in Location Selection

• Within the Country vs. Outside
  • Political stability, export and import considerations.
  • Currency and exchange rates.
  • Cultural and economic traits.
  • Understanding the natural environment.
• Selection of the Region
  • Availability of Raw Materials
  • Nearness to the Market
  • Availability of Power
  • Transport Facilities
  • Suitability of Climate
  • Government Policy
  • Competition Between States

Steps in Location Selection

• Selection of the Locality or Community
  • Availability of Labour
  • Civic Amenities for Work
  • Existence of Complementary and Competing Industries
  • Finance and Research Facilities
  • Availability of Water & Fire-fighting Facilities
  • Local Taxes and Restrictions
  • Momentum of an Early Start
  • Personal Factors
• Selection of the site includes topography.
  • Soil type.
  • Size.
  • Topography.
  • Waste disposal considerations.

Site Considerations

• The selected site can be urban, suburban, or rural.
• Rural areas:
  • Offer cheaper land.
  • Negligible taxes
  • Spacious layouts.
  • Low-wage unskilled workers.
  • Fewer labor issues.
  • Lack skilled workers and transport facilities.
• Suburban areas:
  • Less Costly.
  • More reliable Rail & Road transport.
• Urban areas:
  • They offer transport.
  • Labour.
  • Waste disposal and public services.
  • Banking.
  • Local markets.

Location Models

• There are several location models including:
  • Factor rating method.
  • Point rating method.
  • Break even analysis.
  • Qualitative factor analysis.

Factor Rating Method

• Factor ratings evaluates alternative locations.
• Steps involved:
  • List relevant decision factors.
  • Rate factors form 1 (very low) to 5 (very high)
  • Rate location form 1 being very low and 10 very high.

Point Rating Method

• Point rating is the most widely used technique for location.
• It measures the compensable.
• The analysis approach measures locations by factors like labour, transportation, and living conditions.