Locational Attributes for a Plant Layout The location of an industrial plant plays a vital role in determining its success. Management should weigh the pros and cons of the location in terms of cost and revenue as each location might influence these variables in different proportions. Let us try to understand the need for a new facility location. Entrepreneurs interested in starting a new business venture or a small-scale enterprise has to look out for appropriate location for plant installation. Manufacturers who plan to expand their product range needs additional plant capacity Multinational corporations trying to establish their markets through subsidiaries Obsolete plants have to be shut down and new location has to be identified. The location attributes described below are fundamental in the decision to locate an industry. Although for particular firms some are more important than others, a significant shortfall in an area’s ability to provide even one of these may greatly reduce the attractiveness of that site. Labor The management will be interested in such locations where there is adequate supply of labor. Some operations need skilled labor and some unskilled. The cost of labor is an important factor to be considered as it influences labor productivity. However, low labor cost is not necessarily an advantage, if the workers are poorly educated and trained. The management has to be mentally prepared to pay for skilled labor who have the training and experience needed for the planned operation. Energy resources Electricity and water are major energy resources needed for production activities. For example, a textile mill needs to have round the clock power supply, for continuous production and a dyeing plant is in need of copious water supply. These industries will be on the look out for a location that has abundant energy resources available at low cost. Transportation The industry has to be located near the market so that the produce can quickly reach the market making the transportation costs minimum. Domestic trade heavily relies upon road transport as there are numerous service providers and there is well-developed infrastructure connecting even the remotest of locations. International trade takes place through either airways or waterways. In places like Kerala, inland waterways help in transporting merchandise within the domains of the territory. Raw materials availability Many businesses depend on materials of various types such as unprocessed raw materials for use in manufacturing and finished goods for inventory, in wholesale and retail establishments. The availability and cost, including transportation costs of these materials are critical location factors. Other Factors Other factors that influence location decisions are government regulations, climate and environmental quality of an area, soil texture, and attitudes of state and local governments’ etc. The economic viability of a project is undoubtedly enhanced by appropriate location. The location should also conform to environmental protection laws to maintain the ecobalance of that particular habitat. Organizations are expected to dispose of with the effluents in a systematic manner and this has to be kept in mind while choosing a location. The GEMBA Walk: A gemba (and sometimes genba) walk is the term used to describe personal observation of work – where the work is happening. The original Japanese term comes from gembutsu, which means “real thing.” It also sometimes refers to the “real...

Capital Budgeting- Long Term Resource Planning What is Capital Budgeting? Capital Budgeting refers to the process of planning expenditures that give rise to revenues or returns over a number of years. The process of investment analysis is essential to have a sustainable advantage in the competitive market and to stabilize the profits through resourceful strategic business units. The firm’s management must be on the alert to explore the opportunities present in the market. Obsolete product lines and changes in consumer tastes may present additional problems to a business enterprise affecting the profitability and growth. When a firm decides to venture into projects that demand huge investments, the management has to scrutinize the economic feasibility of such projects. The process of capital investment is also crucial because the projects are for the most part irreversible. Say, for example, if a business firm purchases a special type of machinery, and after installation, if the firm reverses its decision to sell the merchandise due to some technical reasons, it will have only a very small second hand value. Business firms based on the cash flow of the project and the capital recovery period do long-term investment. Why do firms opt for capital budgeting. The reasons may be: To replace worn out equipments that will affect the production efficiency To replace obsolete equipments to install new and more efficient ones To expand production facilities in lieu of increasing demand for the firm’s products and to capture new markets To divest the surplus funds from other business units and to rotate the funds, as idle funds will not generate any revenue To develop new products Research and development Investments made to comply with government regulations, such as projects undertaken to meet government’s health and safety regulations, pollution control and to satisfy other legal requirements. People Involved The proposals for new projects come from the internal environment, such as department heads, executives, employees and of course the management. Experts in product development, marketing research, industrial engineering examine the investment proposals and they may regularly meet with the heads of other divisions in brainstorming sessions to zero in on the proposals. This free course from Udemy is Ideal for people interested in entrepreneurship, fintech, big data, startups, finance, private equity, VCs, & investing. https://www.udemy.com/crowdfund-investing-101-the-basics-of-equity-crowdfunding/ Departments Involved While the firm’s top management makes the final say or decision to undertake or not a major investment project, the process is likely to involve most of the firm’s divisions. Each department has to present its view on the feasibility and viability of the project. The marketing department- on the demand for the new or modified products that the firm plans to sell The production, engineering, personnel and purchasing departments- on the estimation and cost of the investment projects The financing department on- how the required investments funds have to be raised. Thus, the process of expenditure analysis can truly be said to integrate the operation of all the major divisions of the...