Transportation by road is common for local distribution from central warehouses, while transportation by rail is more widespread for long distance transport of bulk chemicals. For example, paper manufacturing plants in the US use various types of pulp that are delivered by truck or by train from various places in North and South America, so paper facilities need to be close to rail and major roads. Transport facilities: Facilities should be close to at least two major forms of transportation, whether that be road, rail, waterway, and/or seaport. If the product is low-volume and high-cost, like pharmaceuticals, then the benefits of being closer to the primary market may not be there.ģ. Location with respect to market: If the plant produces high-volume and low-cost products, such as cement and fertilizer, it may be better to situate the plant closer to the primary market since transportation cost is a large fraction of the sales price. Oil refineries tend to be located near areas with high population and crude oil supplies since it is expensive to transport the oil.Ģ. For example, ethylene production is growing in the Middle East since cheap ethane from natural gas is readily available. Facilities that produce chemicals in bulk are usually located close to the source of raw material if the costs of shipping the product is less than the costs of shipping the feed. Raw material supply: The source and price of raw materials is one of the most important factors that determine the location of a plant. In the current age, a plant's site is chosen based on several factors. For example, new businesses tend to locate where the founders live. Personal factors of the people involved are also influences. Managers may choose a “safer” location that is more likely to produce higher profits rather than a riskier location that yields the maximum investment return. If lower wages could balance the higher transportation costs of building the plant in a low-wage area, the low-wage location may be more desirable.Īlthough location is a long-term investment, a firm does not decide on a location with the sole objective of maximizing its profits or minimizing its costs. As transportation costs became less of an obstacle, the approach to the problem developed with considerations of trade-offs between transportation and factors such as wages, energy, local regulations, etc. Between the early 1900s and post World War II period, most industries were sensitive to the cost of transportation. The optimal location was one where the transportation costs of raw material to the plant and product to the market was minimized. Initially, economists viewed the plant location decision as a cost-minimization problem. Location Selection Location Decision Factors The plant also needs to accommodate for the nearby infrastructure, the services that it requires, and its environmental impacts. If the project adds to an existing site, the impact of the new addition on the existing plant must be considered. If the project is a new facility, a suitable site must be found and an optimal layout of the site and process units must be planned.
It impacts profitability and scope for future expansion. Location is one of the first decisions in the design of a new chemical plant.
2.2 Analysis of the Importance of Factors.
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