4.

3 (Facility Location, Facility Capacity and Facility Layout Planning)

LOCATION

Plant locate on decision are strategic, long term and non repetitive in nature. Plant location may be understood
as the function of determining where the plant should be located. Location decision is affected by many factors,
both internal and external to the organization operations. Selection on pure economic consideration will ensure
on easy and regular supply of raw material, lab our force, efficient plant layout, proper utilization of production
capacity and reduced cost of production. An ideal location may not be itself, qurentee successes, but certainly
contributed to the smooth and efficient working of an organization or Location may be defined as the selection
of suitable location, site or place where the factory or plant or facilities to be installed, where plant will start
functioning.

Need For Selection of Location.

 New Business started.
 Expansion is not possible in current plant.
 To increase the volume of Business
 A lease expires and the land lord does not renew the lease.
 Inadequate lab our supply
 Shifting of the market.
 Political reasons.

Objective of Location Strategy

 Right location will decrease operating cost.

 To enhance speed of delivery of production.
 To minimize the transportation cost.
 Right location will save time, reduce cost, maximize the revenue, and reduce effort.

Factors Affecting For Plant Location

 Availability of Raw Material

 Proximity to market
 Availability of Lab our and skills
 Availability of amenities housing, shops communication service, communication.
  Availability of transport facility.
 Salability of climate and land.
 Availability of service, gas, electricity, water, drainage, disposal of waste.
 Regional regulation.
 Room for expansion
 Safety requirement
 Site cost
 Political, Cultural and economic situation
 Special grant
 Availability of Supporting industries
 Availability of Land
 Nature factors
 Government subsidies and facilities

Techniques of Plant Location

(a) Location Factor Rating

Factor rating method involves giving rating to each factor based on its importance. In this procedure the factor
that are important in the location decision are identified. Each factor is assigned a weight from zero to one that
priorities the factor and reflects its importance. A score is assigned to each factor on its attractiveness compared
to other location and weighted scale is summed.

(b)Location Break even analysis

The conversion process from inputs to outputs involves two type of costs, namely, the fixed cost and variable
cost. The fixed cost remains constant irrespective of the volume of production. Variable cost is the cost of lab
our and material. As the volume of production increased, the variable cost also increased. When the variable
cost (VC) is added to the fixed cost (FC), we get total cost (TC) at a particular volume of production. The total
revenue (TR) is the money that comes into a firm when it sells its product at sales price. The point at which TR
=TC is the break even point. If TR is more than TC, it shows the profit while in case of TR is less than TC it
shows loss. In facility location planning, a location at which break even volume is lower is preferred.

(d) Centre of Gravity Techniques

This is also referred to as the centriod method. Having plotted the existing facilities facilities on a grid
coordinates, the coordinates of centroid are then calculated which result in the minimal transportation cost. The
centroid are then plotted on the map and suitably adjusted so that other factors like proximity to a rail hub or a
communication centre can be met or This method identifies a set of coordinates designating a central location
on a map that minimize the weighted average of the weight transported to all the other locations..

(e) Analytical Delphi Model

The analytical Delphi Method involves using a combination of three team, a coordinating team, the forecasting
team and a strategic team. Each of these teams takes on different role in the decision making process. The
following are the steps involved in executing the method.

 Form two Delphi panels

 Identify threats and opportunities.
 Determine direction and strategic goals of the organization.
 Develop alternative.
 Priorities the alternatives

Numerical on location

1. Potential location A, B and C have the cost structure shown for producing a product expected to sell at Rs
100 per unit. Find the most economical location for an expected volume of 2000 units per year.

Location Fixed cost per year Variable cost per unit

A Rs 25,000 Rs 50

B Rs 50,000 Rs 25

C Rs 80,000 Rs 15

2.A manufacturing of farm equipment is considering three locations A, B and C for a new plant. Cost per year
at the sites are Rs 2,40,000, Rs 2,70,000 and Rs 2,52,000 respectively whereas variable cost are Rs 100 per unit,
Rs 90 per unit and Rs 95 per unit respectively. If the plant is designed to have an effective system capacity of
2500 units per year and expected to operate at 80% efficiency. What is the most location on the basis of actual
output?

3.A Company is to decide on the location of new plants. It has narrowed down the choice of 3 locations A, B
and C, data in respect of which is furnished below.

Data A B C

Wages 20,000 20,000 20,000

Power 20,000 30,000 25,000

Total initial investment 2, 00000 3,00000 2,50,000

Distribution expenses 50,000 40,000 60,000

Miscellaneous exp 40,000 25,000 30,000

Expected sales per year 2, 25,000 2, 50,000 2, 25,000

Use suitable criteria and advise the company on the best choice.

4. XYZ Company is evaluating four locations for new plants and has weighed the relevant score as given below.
Score have been assignment with higher volume indicative of preferred conditions. Using these score, develop a
qualitative factor Comparison for the four locations.

Relevant factor Assigned weight A B C D

Production cost 0.35 50 40 60 30

Raw material 0.25 70 80 80 60

Lab our availability 0.20 60 70 60 50

Cost of living 0.05 80 70 40 90

Environment 0.05 50 60 70 90

Markets 0.10 70 90 80 50

5.One Company interested to established new plant at one of two locations A and B. The cost and performed
are summarized in the table below.

Details of costs A B

Material (per unit) 0.66 0.50

Transportation (per unit) 0.40 0.25

Power per year 30,000 75,000

Insurance per year 18,000 32,000

Depreciation per year 78,000 96,000

Which of the location should the company select if it decides to produce 100000 units of this product?

CAPACITY PLANNING
The term capacity means the amount of a system is capable of achieving over a specific period of time.
Maximum output that can be produced on a particular period of time. Use of factory upto full potential or
capability.

Objective
To achieve maximum production in a given period of time.
Need for capacity planning
Demand is not fixed for any business. Some time demand is very high or some time demand is very low. So
capacity planning is necessary for smooth production.
Strategies for increasing capacity

 Over time
 Increasing number of working hours
 Increasing number of labour
 Latest machines
 Outsourcing
 Use of technology
 Use of automation
 Qualified and skilled resource
 Minimize the wastage
Strategies in case of less demand / lean period

 Maintenance
 Training
 Layoff temporally labour
 Research and development
 Test marketing
 Some production for peak demand
 Recreation activity
 Try to get order from big company
 Conduct meeting to improve system.
Factor effecting capacity

 Nature of product (type and number )

 Process analysis (labour/ more machine )
 Supply factor
 Human factor (skilled / experienced )
 Availability of facility (input )
 External factor (govt regulation )
Process of capacity planning
  Assessment of existing capacity
 Forecast of the future capacity requirement
 Identification of alternative way to modify capacity
 Evaluation of short term and long term capacity
 Selection of most suitable alternative to meet the future demand.
Factor affecting capacity planning

 Product and service factors

 Process
 Availability of facilities
 Human factors
 Supply factors
 External factors
LAYOUT PLANNING

Plant layout refers to the arrangement of machinery, equipment and other industrial facilities for achieving
quickest and smooth production or Layout refers to the arrangement of facilities or a plant layout refers to the
arrangement of machinery, equipment and other industrial facilities for the purpose of achieving the quickest
smoothest production at least cost. Plant layout ideally involves the allocation of space and the arrangement of
equipment in such a manner that overall operation costs be minimum.

Problems in facility layout

 Change in product design

 Introduction of new product
 Obsolescence of facility
 Change in demand
 Market changes
 Competitive cost reduction
 Frequent accidents
 Adoption of new safety standard
 Decision to build a new plant.

Quality of a Good Layout / Benefit of layout / objective of layout / importance of layout

 Should be flexible
 Maximum coordination
 Maximum visibility
 Movement of material, machine, labor should be minimum.
  Minimum material handling
 Proper ventilation and lighting
 Maximum security
 Efficient process flow.
 Minimum number of accident and wastage.
 Better utilization of man, machine and equipment.
 Decrease maintenance cost.
 Reduced cost of supervision.
 Improver maternal handling.
 Optimum use of area
 Minimization of delay
 Improved quality control
 Avoidance of bottlenecks
 Good production control
 Better supervision
 Improved employee morale

Symptoms of a Bad Layout

All negative points of a Quality of a Good Layout.

Factor affecting layout

 The maternal factor (Type of maternal, variety, quantity of maternal)

 The machinery factor (Type & Space required)
 The man factor (Number, help, supervisor of man)
 The movement factor (Storage & inspection of maternal)
 The wasting factor (minimize the wasting time)
 The service factor (Maintenance, inspection, waste, scheduling and dispatching.)
 The building factor (Inside and outside building feature, Utility distribution)
 The change factor (felinity and expansion)
 Type of product(heavy,light,big,small,liquid,solid)
 Type of industry (sysnthetic,analytical,extractive)

Type of Layout
(a)Product layout/Assembly Lines /Line Layout (used for automobiles)

A product layout involves the arrangement of machine in one line depending on the sequence of operations. In
product layout, arrange machine in a line according to the sequence of operation that need to be performed to
assemble a particular product. Each product has its own “line” specially designed to meet its requirement. In
this type of layout, machines are arranged in the sequence as required by the particular product. To make this
layout successful, the work load on the various machines must be balanced. The process of getting even loading
at each stage of production is called line balancing.

Input -> Machine A - Machine B - Machine C- Machine D- Output

Merits

 Reduced maternal handling

 Easy and accurate scheduling of maternal.
 Production control is simple due to less product variety.
 Quality control is effective
 Lab our cost decrease, as the work is simple.

Demerits

 Changes is the layout is required if the nature of work in changed.

 The machine may not be used to the fullest
 The manufacturing cost increase if the value of work increases.
 Delay in work if any of the machines break down.
 Expansion of work area or inspection of any machine in between other machines is not possible.

(b)Process Layout/Functional Layout (used for service sector)

Process layout involves a grouping together of like machine in one department. The layout in which all the
equipment informing similarly tasks are grouped together called process layout. The process layout in useful
in such plant where the manufactures volume is low and the variety of Job is high. For Example in a
garment plenty the switching machine are placed in one place, then the pressing machine such as iron are
placed in one place and so on. This type of layout includes all machines performing similar type of
operations are grouped together at one location in the process layout. This type is more suitable to job order
type of production.

Merits

 Wide flexibility in production facilities.

  Effective supervision.
 Machine breakdown does not disturb production schedule.
 Lower production of fixed cost to total cost
 Training is easy

Demerits

 Required more floor space

 Inspection is more inspection and costlier
 Routing and scheduling is different
 There is difficulty in production control.
 There is accumulation of work-in-progress at different places.

(c) Fixed Position Layout / Project Layout (used for aircraft, ship, house, construction)

In fixed position layout major components remain in a fixed location. Product remains stationary for the entire
manufacturing cycle. Fixed position layout are typical of project in which the product produced in too bulky or
heavy to more, ship, house and air craft are example. The manufacturing operation requires the movement of
men, material and machines. In position location layout the product remain at one position manufacturing
equipment is moved to the product.

Merits

 Reduce movement of machine and equipment.

 Minimize damage or cost of moving.
 The investment on layout is very small.
 The worker identifies himself with the product and takes pride in it when work is complete.
 The high cost of and difficulty in transporting a bulky product are avoided.

Demerits

 Movement of people and material to and from the place may be expansive.
 Equipment may be left at a location where it will be needed again in a few days rather than moved to
another location where it would be productive.
 Since the same workers are involved in more operation & killed and versatile worker are required.

(d)Combination Layout
A mixed layout is the combination of process and product layout. It is used when the product require to be
produced in different types and sizes. In this type of layout, the parts are produced on facilities arrange in a
process type of layout and they are assembled using product type of layout. Another concept of mixed
layout is called cellular layout in which the facilities are clubbed together into cells which are to perform
similar type of operations for a group of products.