Plant Location and Layout

1. Plant location – Location need analysis

2. Factors affecting plant Location decision
3. Comparison of site location area (Numerical Problems)
4. Plant layout – Types of Layout
5. Comparison of Plant Layouts
6. Types of Maintenance
7. Total Productive Maintenance
8. Replacement ( Numerical Problems)
 Plant Location
 Facility Location is the right location for the manufacturing
facility, it will have sufficient access to the customers,
workers, transportation, etc.
 A manufacturing unit is the place where all inputs such as raw
material, equipment, skilled labors, etc. come together and
manufacture products for customers.
 Facility locations involve numerous aspects, such as the
location of manufacturing plants, assembly locations as well
as distribution centres.
 Facility location refers to establishment of the physical unit of
production process. The physical unit means "plant" where
man, material, money, equipment, machinery etc are brought
together for manufacturing of product.
 The need of facility location, factory location or plant location
is important for both new enterprises and existing enterprises. 2
 Need for Selecting a Suitable Location
 The need for selecting a suitable location arises because of
three situations.
1. When starting a new organisation, i.e., location choice for
the first time.
2. In case of existing organisation.
3. In case of Global Location.

1. In Case of Location Choice for the First Time or New

Organisations
 Identification of region
 Choice of a site within a region
 Dimensional Analysis

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The existing firms will seek new locations in order to
expand the capacity or to place the existing facilities.
When the demand for product increases, it will give rise
to following decisions:
 Whether to expand the existing capacity and
facilities.
 Whether to look for new locations for additional
facilities.
Whether to close down existing facilities to take
advantage of some new locations.

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2. In Case of Location Choice for Existing Organisation
 In this case a manufacturing plant has to fit into a
multi-plant operations strategy. That is, additional plant
location in the same premesis and elsewere under
following circumstances:
 Plant manufacturing distinct products.
 Manufacturing plant supplying to specific market
area.
 Plant divided on the basis of the process or stages in
manufacturing.
 Plants emphasizing flexibility.

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3. In Case of Global Location
 Because of globalisation, multinational corporations are setting up
their organizations in India and Indian companies are extending their
operations in other countries. In case of global locations there is scope
for virtual proximity and virtual factory.
 VIRTUAL PROXIMITY: With the advance in telecommunications
technology, a firm can be in virtual proximity to its customers.
 VIRTUAL FACTORY: Many firms based in USA and UK in the
service sector and in the manufacturing sector often out sources
part of their business processes to foreign locations such as India.
Thus, instead of one’s own operations, a firm could use its business
associates’ operations facilities. The Indian BPO firm is a foreign-
based company’s ‘virtual service factory’. So a location could be
one’s own or one’s business associates. The location decision need
not always necessarily pertain to own operations.

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 Factors affecting plant Location decision

It is appropriate to divide the factors, which influence

the plant location or facility location on the basis of
the nature of the organization as:
 General locational factors, which include
controllable and uncontrollable factors for all type
of organizations.
 Specific locational factors specifically required
for manufacturing and service organizations.

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UNCONTROLLABLE FACTORS
 Government policy: The policies of the state governments and local
bodies concerning labour laws, building codes, safety, etc., are the
factors that demand attention. In order to have a balanced regional
growth of industries, both central and state governments in our country
offer the package of incentives to entrepreneurs in particular locations.
The incentive package may be in the form of exemption from a safes
tax and excise duties for a specific period, soft loan from financial
institutions, subsidy in electricity charges and investment subsidy.
Some of these incentives may tempt to locate the plant to avail these
facilities offered.
 Climatic conditions: The geology of the area needs to be considered
together with climatic conditions (humidity, temperature). Climates
greatly influence human efficiency and behaviour. Some industries
require specific climatic conditions e.g., textile mill will require
humidity.

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 Supporting industries and services: Now a day the manufacturing
organization will not make all the components and parts by itself and it
subcontracts the work to vendors. So, the source of supply of
component parts will be the one of the factors that influences the
location. The various services like communications, banking services
professional consultancy services and other civil amenities services will
play a vital role in selection of a location.
 Community and labour attitudes: Community attitude towards their
work and towards the prospective industries can make or mar the
industry. Community attitudes towards supporting trade union activities
are important criteria. Facility location in specific location is not
desirable even though all factors are favouring because of labour
attitude towards management, which brings very often the strikes and
lockouts.

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 Community infrastructure and amenity: All manufacturing activities
require access to a community infrastructure, most notably economic
overhead capital, such as roads, railways, port facilities, power lines
and service facilities and social overhead capital like schools,
universities and hospitals. These factors are also needed to be
considered by location decisions as infrastructure is enormously
expensive to build and for most manufacturing activities the existing
stock of infrastructure provides physical restrictions on location
possibilities.

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CONTROLLABLE FACTORS
 Proximity to markets: Every company is expected to serve its
customers by providing goods and services at the time needed and at
reasonable price organizations may choose to locate facilities close to
the market or away from the market depending upon the product. When
the buyers for the product are concentrated, it is advisable to locate the
facilities close to the market.
 Locating nearer to the market is preferred if
• The products are delicate and susceptible to spoilage.
• After sales services are promptly required very often.
• Transportation cost is high and increase the cost significantly.
• Shelf life of the product is low.
 Nearness to the market ensures a consistent supply of goods to
customers and reduces the cost of transportation.

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 Supply of raw material: It is essential for the organization to get raw
material in right qualities and time in order to have an uninterrupted
production. This factor becomes very important if the materials are
perishable and cost of transportation is very high.
 General guidelines suggested by Yaseen regarding effects of raw
materials on plant location are:
 When a single raw material is used without loss of weight, locate
the plant at the raw material source, at the market or at any point in
between.
 When weight loosing raw material is demanded, locate the plant at
the raw material source.
 When raw material is universally available, locate close to the
market area.
 If the raw materials are processed from variety of locations, the
plant may be situated so as to minimize total transportation costs.
 Nearness to raw material is important in case of industries such as
sugar, cement, jute and cotton textiles.
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 Transportation facilities: Speedy transport facilities ensure timely supply of
raw materials to the company and finished goods to the customers. The
transport facility is a prerequisite for the location of the plant. There are five
basic modes of physical transportation, air, road, rail, water and pipeline.
Goods that are mainly intended for exports demand a location near to the port
or large airport. The choice of transport method and hence the location will
depend on relative costs, convenience, and suitability. Thus transportation cost
to value added is one of the criteria for plant location.
 Infrastructure availability: The basic infrastructure facilities like power,
water and waste disposal, etc., become the prominent factors in deciding the
location. Certain types of industries are power hungry e.g., aluminum and steel
and they should be located close to the power station or location where
uninterrupted power supply is assured throughout the year. The non-availability
of power may become a survival problem for such industries. Process
industries like paper, chemical, cement, etc., require continuous. Supply of
water in large amount and good quality, and mineral content of water becomes
an important factor. A waste disposal facility for process industries is an
important factor, which influences the plant location.

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 Labour and wages: The problem of securing adequate number of labour and
with skills specific is a factor to be considered both at territorial as well as at
community level during plant location. Importing labour is usually costly and
involve administrative problem. The history of labour relations in a prospective
community is to be studied. Prospective community is to be studied.
Productivity of labour is also an important factor to be considered. Prevailing
wage pattern, cost of living and industrial relation and bargaining power of the
unions’ forms in important considerations.
 External economies of scale: External economies of scale can be described as
urbanization and locational economies of scale. It refers to advantages of a
company by setting up operations in a large city while the second one refers to
the “settling down” among other companies of related Industries. In the case of
urbanization economies, firms derive from locating in larger cities rather than
in smaller ones in a search of having access to a large pool of labour, transport
facilities, and as well to increase their markets for selling their products and
have access to a much wider range of business services.

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 Capital: By looking at capital as a location condition, it is important to
distinguish the physiology of fixed capital in buildings and equipment
from financial capital. Fixed capital costs as building and construction
costs vary from region to region. But on the other hand buildings can
also be rented and existing plants can be expanded.
 Financial capital is highly mobile and does not very much influence
decisions. For example, large Multinational Corporations such as Coca
Cola operate in many different countries and can raise capital where
interest rates are lowest and conditions are most suitable. Capital
becomes a main factor when it comes to venture capital. In that case
young, fast growing (or not) high tech firms are concerned which
usually have not many fixed assets. These firms particularly need
access to financial capital and also skilled educated employees

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SPECIAL FACTORS
DOMINANT FACTORS
 Factors dominating location decisions for new
manufacturing plants can be broadly classified in six
groups. They are listed in the order of their importance as
follows.
I. Favourable labour climate
II. Proximity to markets
III. Quality of life
IV. Proximity to suppliers and resources
V. Utilities, taxes, and real estate costs

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DOMINANT FACTORS
 The factors considered for manufacturers are also applied to
service providers, with one important addition — the
impact of location on sales and customer satisfaction.
Customers usually look about how close a service facility
is, particularly if the process requires considerable customer
contact.

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 Comparison of site location area (Numerical
Problems)

Various models are available which help to

identify the ideal location. Some of the popular
models are:
1. Factor rating method
2. Weighted factor rating method
3. Load-distance method
4. Centre of gravity method
5. Break even analysis

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1. Factor Rating Method: The process of selecting a new

facility location involves a series of following steps:
 Identify the important location factors.
 Rate each factor according to its relative importance, i.e.,
higher the ratings is indicative of prominent factor.
 Assign each location according to the merits of the location
for each factor.
 Calculate the rating for each location by multiplying factor
assigned to each location with basic factors considered.
 Find the sum of product calculated for each factor and
select best location having highest total score

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ILLUSTRATION 1: Let us assume that a new medical facility, Health-
care, is to be located in Gangtok. The location factors, factor rating and scores
for two potential sites are shown in the following table. Which is the best
location based on factor rating method?

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2. Weighted Factor Rating Method: In this method to merge quantitative and
qualitative factors, factors are assigned weights based on relative importance
and weightage score for each site using a preference matrix is calculated. The
site with the highest weighted score is selected as the best choice.
ILLUSTRATION 2: Let us assume that a new medical facility, Health-care, is
to be located in Gangtok. The location factors, weights, and scores (1 = poor,
5 = excellent) for two potential sites are shown in the following table. What is
the weighted score for these sites? Which is the best location?

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3. Load-distance Method: The load-distance method is a mathematical model
used to evaluate locations based on proximity factors. The objective is to select
a location that minimizes the total weighted loads moving into and out of the
facility. The distance between two points is expressed by assigning the points
to grid coordinates on a map. An alternative approach is to use time rather than
distance.

The point A on the grid represents the supplier’s location, and the point B
represents the possible warehouse location. The distance between points A and
B is the length of the hypotenuse of a right triangle, or

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ILLUSTRATION 3: The new Health-care facility is targeted to serve seven
census tracts in Delhi. The table given below shows the coordinates for the
centre of each census tract, along with the projected populations, measured in
thousands. Customers will travel from the seven census tract centres to the
new facility when they need health-care. Two locations being considered for
the new facility are at (5.5, 4.5) and (7, 2), which are the centres of census
tracts C and F. Details of seven census tract centres, co-ordinate distances
along with the population for each centre are given below. If we use the
population as the loads and use rectilinear distance, which location is better in
terms of its total load distance score?

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4. Centre of Gravity Method: Centre of gravity is based
primarily on cost considerations. This method can be used to
assist managers in balancing cost and service objectives. The
center of gravity method takes into account the locations of plants
and markets, the volume of goods moved, and transportation
costs in arriving at the best location for a single intermediate
warehouse.
The center of gravity is defined to be the location that minimizes
the weighted distance between the warehouse and its supply and
distribution points, where the distance is weighted by the number
of tones supplied or consumed. The first step in this procedure is
to place the locations on a coordinate system. The origin of the
coordinate system and scale used are arbitrary, just as long as the
relative distances are correctly represented. This can be easily
done by placing a grid over an ordinary map. The center of
gravity is determined by the formula. 26
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ILLUSTRATION 4: Calculate centre of gravity from the following
information:

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5. Break Even Analysis: Break even analysis implies that at
some point in the operations, total revenue equals total cost.
Break even analysis is concerned with finding the point at which
revenues and costs agree exactly. It is called ‘Break-even Point’.
The figure portrays the Break Even Chart:
Break even point is the volume of output at which neither a profit
is made nor a loss is incurred.
The Break Even Point (BEP) in units can be calculated by using
the relation:

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 Location Economics
 An ideal location is one which results in lowest production
cost and least distribution cost per unit. These costs are
influenced by a number of factors as discussed earlier.
 The various costs which decide locational economy are those
of land, building, equipment, labour, material, etc. Other
factors like community attitude, community facilities and
housing facilities will also influence the selection of best
location.
 Economic analysis is carried out to decide as to which locate
best location.

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 Plant layout – Types of Layout
 Plant layout refers to the physical arrangement of production facilities. It is
the configuration of departments, work centres and equipment in the
conversion process. It is a floor plan of the physical facilities, which are
used in production.
 According to Moore “Plant layout is a plan of an optimum arrangement of
facilities including personnel, operating equipment, storage space, material
handling equipment and all other supporting services along with the design
of best structure to contain all these facilities”.
 Various types of layout are:
• Process layout (Functional layout)
• Product layout (Assembly line)
• Combination layout
• Fixed position layout
• Group layout

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 Process Layout: Process layout is recommended for batch production.
All machines performing similar type of operations are grouped at one
location in the process layout e.g., all lathes, milling machines, etc. are
grouped in the same floor.
 Thus, in process layout the arrangement of facilities are grouped
together according to their functions. A typical process layout is shown
in below figure. The flow paths of material through the facilities from
one functional area to another vary from product to product. Usually
the paths are long and there will be possibility of backtracking.
 Process layout is normally used when the production volume is not
sufficient to justify a product layout. Typically, job shops employ
process layouts due to the variety of products manufactured and their
low production volumes.

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Advantages
 In process layout machines are better utilized and fewer machines are
required.
 Flexibility of equipment and personnel is possible in process layout.
 Lower investment on account of comparatively less number of machines
and lower cost of general purpose machines.
 Higher utilization of production facilities.
 A high degree of flexibility with regards to work distribution to machineries
and workers.
 The diversity of tasks and variety of job makes the job challenging and
interesting.
 Supervisors will become highly knowledgeable about the functions under
their department.
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Limitations
 Backtracking and long movements may occur in the
handling of materials thus, reducing material handling
efficiency.
 Material handling cannot be mechanized which adds to
cost.
 Process time is prolonged which reduce the inventory
turnover and increases the in process inventory.
 Lowered productivity due to number of set-ups.
 Throughput (time gap between in and out in the process)
time is longer.
 Space and capital are tied up by work-in-process.

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 Product Layout: In this type of layout, machines and auxiliary
services are located according to the processing sequence of the
product.
 If the volume of production of one or more products is large, the
facilities can be arranged to achieve efficient flow of materials and
lower cost per unit.
 Special purpose machines are used which perform the required function
quickly and reliably.
 The product layout is selected when the volume of production of a
product is high such that a separate production line to manufacture it
can be justified.
 In a strict product layout, machines are not shared by different
products. Therefore, the production volume must be sufficient to
achieve satisfactory utilisation of the equipment.
 A typical product layout is shown in Fig. 2.6.

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Advantages
 The flow of product will be smooth and logical in flow lines.
 In-process inventory is less.
 Throughput time is less.
 Minimum material handling cost.
 Less space is occupied by work transit and for temporary storage.
 Reduced material handling cost due to mechanized handling systems and
straight flow.
 Manufacturing cycle is short due to uninterrupted flow of materials.
 Small amount of work-in-process inventory.

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Limitations
 A breakdown of one machine in a product line
may cause stoppages of machines in the
downstream of the line.
 A change in product design may require major
alterations in the layout.
Comparatively high investment in equipment’s is
required.
 Lack of flexibility. A change in product may
require the facility modification

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 Combination Layout: A combination of process and
product layouts combines the advantages of both types of
layouts.
 A combination layout is possible where an item is being
made in different types and sizes.
 Here machinery is arranged in a process layout but the
process grouping is then arranged in a sequence to
manufacture various types and sizes of products.
 It is to be noted that the sequence of operations remains
same with the variety of products and sizes.
 Figure 2.7 shows a combination type of layout for
manufacturing different sized of gears

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Fixed Position Layout: This is also called the project type of layout.
 In this type of layout, the material, or major components remain in a fixed
location and tools, machinery, men and other materials are brought to this
location.
 This type of layout is suitable when one or a few pieces of identical heavy
products are to be manufactured and when the assembly consists of large
number of heavy parts, the cost of transportation of these parts is very high.

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Advantages
 Helps in job enlargement and upgrades the skills
of the operators.
 The workers identify themselves with a product in
which they take interest and pride in doing the job.
 Greater flexibility with this type of layout.
 Layout capital investment is lower

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Group Layout (or Cellular Layout):
 There is a trend now to bring an element of flexibility into manufacturing
system as regards to variation in batch sizes and sequence of operations. A
grouping of equipment for performing a sequence of operations on family
of similar components or products has become all the important.
 Group technology (GT) is the analysis and comparisons of items to group
them into families with similar characteristics. GT can be used to develop a
hybrid between pure process layout and pure flow line (product) layout.
This technique is very useful for companies that produce variety of parts in
small batches to enable them to take advantage and economics of flow line
layout.
 The application of group technology involves two basic steps; first step is
to determine component families or groups. The second step in applying
group technology is to arrange the plants equipment used to process a
particular family of components. This represents small plants within the
plants. The group technology reduces production planning time for jobs. It
reduces the set-up time.

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 Thus group layout is a combination of the product layout and process layout. It
combines the advantages of both layout systems. If there are m-machines and n-
components, in a group layout (Group-Technology Layout), the m-machines and n-
components will be divided into distinct number of machine-component cells
(group) such that all the components assigned to a cell are almost processed within
that cell itself. Here, the objective is to minimize the intercell movements.
 The basic aim of a group technology layout is to identify families of components
that require similar of satisfying all the requirements of the machines are grouped
into cells. Each cell is capable of satisfying all the requirements of the component
family assigned to it.
 The layout design process considers mostly a single objective while designing
layouts. In process layout, the objective is to minimize the total cost of materials
handling. Because of the nature of the layout, the cost of equipments will be the
minimum in this type of layout. In product layout, the cost of materials handling
will be at the absolute minimum. But the cost of equipments would not be at the
minimum if the equipments are not fully utilized.
 In-group technology layout, the objective is to minimize the sum of the cost of
transportation and the cost of equipments. So, this is called as multi-objective
layout. A typical process layout is shown in Fig. 2.9

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 Question Bank

1. Briefly discuss the concept of plant

location. Elucidate the factors
influencing plant location.
2. What is plant layouts? Explain the
different types of plant layouts.

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ILLUSTRATION 3: The new Health-care facility is targeted to serve seven
census tracts in Delhi. The table given below shows the coordinates for the
centre of each census tract, along with the projected populations, measured in
thousands. Customers will travel from the seven census tract centres to the
new facility when they need health-care. Two locations being considered for
the new facility are at (5.5, 4.5) and (7, 2), which are the centres of census
tracts C and F. Details of seven census tract centres, co-ordinate distances
along with the population for each centre are given below. If we use the
population as the loads and use rectilinear distance, which location is better in
terms of its total load distance score?

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