Question

Why is location such an important decision in locating a site for a production or service operation? list and explain all the factors considered when making such a decision?

Answer 1

The word “location” in the question means the site for production or service operation units. The reason why it is a very crucial factor so as to decide as where the site should be located is, it is related to the cost of product, bridge between supply and demand, etc .Some of the reasons for which is mentioned below:-

1)Purchase price of land or the rent of the land / premises where the production or service providing units needs to be installed- If a land or premises is purchased or taken on rent , and the location of such site is close to city the price or the rent would be quite high which in turn will increase the cost per unit of production.

2) Fuel Cost – Another factor which affects the production and distribution price of a product is the fuel charges that is incurred in transporting the raw materials to the factories and then transporting the finished goods from the factories to the distribution point. Hence if the production/ operation units are not located at a proper place then it may affect the cost per unit adversely.

3)Right place at right time- It is another factor that decides the location of production/distribution channels, it means that the finished goods should be stored at such a place from where it can be distributed in all directions and could be made available to the consumers at right time. A consumer will never wait for a product in this competitive market hence the product should be available to win the loyalty of consumers with out to much flooding a single area with the product and ignoring the rest all areas.

4)Government guidelines – It is another factor that decides where a production site should be located. One cannot establish a factory for production at any place of his choice, there are guidelines that should be followed while selecting proper site. For example agricultural lands cannot be utilized for setting up of factories.

5) Bridge between supply and demand – Location of factories and it’s channels of distribution acts as a bridge between demand of consumers and supply of companies , which should be decided taking all the factors in consideration so that the bridge between supply and demand is not broken.