For a manufacturer, the location site choices narrow significantly. Communities have zoning laws that limit manufacturing companies to certain designated areas away from residential, retail, and office commercial sites to reduce the chance of noise, odor, and pollutants affecting the citizens. Often these areas are known as industrial parks and they usually are equipped with electrical power and sewage plants appropriate to manufacturing. By locating in one of these parks, a new business may also benefit from the presence of other manufacturing nearby. Opportunities for sharing resources and costs are enhanced.
Another common location for manufacturing is Enterprise Zones, which are public-private partnerships designed to bring jobs to inner cites, downtown areas, and rural areas suffering from the shift of jobs and population to the suburbs. The draw for business is tax incentives, regulatory relief, and employee training programs.
Entrepreneurs seeking manufacturing sites are concerned with four key factors: access to suppliers, cost of labour, access to transportation, and cost of utilities. These factors may not be weighed equally. Depending on the type of manufacturer, one or more factors may have greater importance in evaluating a site.
Access to Suppliers
Manufacturers and processors usually try to locate within a reasonable distance of their major suppliers to cut shipping time and save transportation costs, Thus a food processor attempts to set up business near the rowing fields, so that the food is as fresh as possible when it arrives at the processing plant.
Similarly, a manufacturer that uses steel as one of its main raw materials might want to locate in the same region of the country as the steel mills to save the high costs of trucking heavy steel great distances.
Cost of Labour
Today, many manufacturers choose a location on the basis of the cost of labour, rather than proximity to suppliers, because labour is generally the single greatest cost in the production of goods. Wages and laws related to workers, such as workers’ compensation vary from region to region. The bottom line is that the entrepreneur must carefully weigh the cost of labour when considering a particular location for a manufacturing plant.
Access to Transportation
Most manufacturers prefer to locate near major transportation networks: railways, major highways, airports, and ports of call. The reasoning is obvious: The greater the distance between the plant and the major transportation network, the higher the cost to the company, and ultimately, to the customer. Also, the more transportation people who handle the product, the greater the cost.
Thus, in terms of simple economics, to remain competitive, manufacturers must conduct a cost-benefit analysis on any proposal to locate away from major transportation network. Higher transportation costs will result in smaller profit margin for the company or in higher costs for the customers. Either way, the company loses.
Cost of Utilities
Utility rates vary from state to state, and from city to city within a given state. If the new venture is heavily dependent on electricity, gas, or coal, this factor could be a significant variable in the cost of producing a product and therefore should be carefully examined.
The land and location are only part of the equation. If the site contains an existing building, the question becomes whether to lease or to buy. If the site is bare land, building a facility is the only option. Because the facility accounts for a significant portion of a new venture’s start-up costs.