Skip to content

How to Select a Factory Location for Manufacturing Business in 14 Steps

Choosing and selecting a factory location rightfully is a difficult task for entrepreneurs, especially for beginners. The right plant location is a ‘make or break’ decision from an owner’s point of view.

The location of the business is the most important factor influencing its success or failure. It is a long-term decision that should take into consideration not only the present requirements of the organization but also its future expansion plans. Choosing an inappropriate factory location may be very difficult and expensive to rectify.

Also, the location of a plant has a bearing on the layout of machinery and equipment as well as on the process of production. There is no ideal location for all or even one firm at all times. The choice of location depends on several important factors. It is influenced by the products being manufactured and the production and distribution costs.

A sound business plan should be the foundation of your site-selection process, detailing the goods the plant will produce, the number of goods the plant will produce, five years of production planning, and future growth expectations.

The objective of a locational plan is to find out the optimum or best location for the particular plant. Such a location not only results in the lowest cost per unit but also facilitates the orderly growth of the firm. In this article, we intend to explore 14 things to consider in selecting a factory location.

Related: Things To Consider Before Starting a Manufacturing Business

14 Steps to Follow Before Selecting a Factory Location

#1. Availability of Raw Materials

Raw materials are the basic components of finished products. This is one of the most important considerations when selecting a factory location.

If your required raw materials are perishable items, then you must tend to locate the plant nearer to the raw material source. Moreover, it also reduces transportation costs which affects hugely the cost of production.

#2. Proximity to Market

Every finished product needs to go to the market for consumer consumption. Here also transportation overhead increases the cost of the finished product.

In case you are initiating a fully export-oriented plant, the availability of processing facilities gains importance in deciding the location of one’s industry. Export Promotion Zones (EPZ) are such examples.

#3. Infrastructural Facilities

This is important because all supporting services are required for the successful operation of the plant. The availability of communication facilities is also an important part of the infrastructure.

Existing vibrant infrastructure in the vicinity is much preferred to the need-based infrastructure getting developed after the plant commissioning.

Related: Things To Consider In Purchasing Machine & Equipment

#4. Government Policy

The Government offers several incentives, concessions, tax holidays for a few years, cheaper power supply, factory sheds, etc., to attract entrepreneurs to set up industries in less developed and backward areas. In this scenario, you must prioritize this factor in selecting a factory location.

#5. Get N.O.C

Neighbours play sometimes a vital role in getting license permissions from different Govt. authorities. If you are establishing the plant near a domestic area, then authorities may ask you to get a ‘No Objection’ from your neighbours.

#6. Availability of Manpower

Local availability of skilled and semi-skilled manpower will add to the efficient running of the plant. Besides, you must study labour relations through turnover rates, absenteeism, and the liveliness of trade unionism in a particular area.

#7. Availability Of Utilities

Utilities like electricity, water resources, etc. play an important role in almost every factory’s operation. Stable and uninterrupted power is a required magnitude, without fluctuations in voltage and frequency is important for the successful operation of the plant.

#8. Local Laws, Regulations, and Taxation

You must check the laws related to the pollution control board. In food products, you must check the FPO regulations. In the case of the wood industry, you must maintain the distance from forestry. Taxation is also an important factor as well as a 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 industries.

Related: How to Register a Company/ Startup

#9. Ecology & Pollution

Nowadays, there is a great deal of awareness towards the maintenance of natural ecological balance. Regarding the effect of pollution from the specific type of plants, social obligations are to be met.

The nature of the site selected should preferably have some advantages to meet these requirements. You must be careful about effluent disposal, in the cases, it is needed.

#10. Distance from Your Residence

Yes, it’s important. In a small-scale factory operation, an entrepreneur plays a vital role. You should not select a place that has adequate distance from your residence.

#11.  Competition

If you are dealing with an innovative product and your plant is in an industrial zone, then you might face competition in manufacturing automation from other companies.

#12. Incentives, Land costs. Subsidies for Backward Areas

In some cases, the Government offers several incentives, concessions, tax holidays, cheaper lands, assured and cheaper power supply, price concessions for departmental (state) purchases, etc. to make the backward areas also conducive for setting up industries. You must take into consideration these issues in selecting a factory location.

Read: Best Small Manufacturing Business Ideas

#13.  Climatic Conditions

Climatic conditions affect both people and manufacturing activity. Additionally, certain industries require a specific type of climatic conditions to produce their goods. For example, jute and textile manufacturing industries require high humidity.

#14. Political conditions

The stability of the political environment is essential for industrial growth. It builds confidence and political instability causes a lack of confidence among the prospective and present entrepreneurs to venture into the industry which is filled with risks.

Hence, the most advantageous location is that at which the cost of gathering material and fabricating it plus the cost of distributing the finished product to the customers will be at a minimum. The choice of an optimum location requires a judicious balancing of all these factors.

This list of 14 things to consider in selecting a factory location helps you to get almost the right plant location for your manufacturing operation.

About Next What Business Research Team

The Editorial Staffs at NextWhatBusiness is a team of Business Consultants with years of experience in small and medium-scale manufacturing and service-based businesses.