Content

• Facility Location: Factors affecting location decisions and Facility location

models. Facility layout: Layout and its objectives for manufacturing
operations, warehouse operations, service operations, and office operations,
Types of plant layouts – Product Layout, Process layout, fixed position layout,
Cellular Manufacturing layouts, Hybrid layouts, Factors influencing layout
changes.
Facility Location
• Plant location refers to the choice of the region where men, materials,
money, machinery and equipment are brought together for setting up a business or
factory. A plant is a place where the cost of the product is kept to low in order to
maximize gains. Identifying an ideal location is very crucial, it should always
maximize the net advantage, must minimize the unit cost of production and
distribution. Plant location decisions are very important because once the plant is
located at a particular site then the organization has to face the pros and cons of that
initial decision.
Need of selection of plant/ facility location
• When the business is newly started
• Existing business unit has overgrown and expansion is not possible at the same
Site
• Volume of business /extent of market necessity need to establish a new branch
• A lease expires and the landlord does not want to renew the lease.
• When company assumes that manufacturing cost can be reduced by shifting to
new location.

• Other social reasons – inadequate lab our supply , shifting of market

Steps in Location Selection
• Within the country /outside the country
• Selection of region
• Selection of locality/ community
• Selection of exact site
Selection of region
– Availability of raw material
– Nearness to market
– Availability of power
– Transport facility
– Suitability of climate
– Competition between the states
– Government policy
Selection of locality/ community
• Availability of labor
• Civic Amenities for worker
• Existence of competing industries
• Finance and research facilities available
• Local Taxes and Restrictions
• Momentum of Early start up
• Personal factors
Selection of site
• Soil size and topography
• Disposal of waste
: Factors affecting location decisions
• Primary Factors
– Availability of Raw materials
– Nearness to Market
– Availability of labor
– Transport facility
– Availability of Fuel and Power
– Availability of water
Factors affecting location decisions
• Availability of raw materials
• Availability of raw materials is the most important factor in plant location
decisions. Usually, manufacturing units where there is the conversion of raw
materials into finished goods is the main task then such organizations should be
located in a place where the raw materials availability is maximum and cheap.

• Nearness to the market

• Nearness of market for the finished goods not only reduces the transportation
costs, but it can render quick services to the customers. If the plant is located far
away from the markets then the chances of spoiling and breakage become high
during transport. If the industry is nearer to the market then it can grasp the
market share by offering quick services.
Factors affecting location decisions
• Availability of labor
• Another most important factor which influences the plant location decisions is
the availability of labor. The combination of the adequate number of labor with
suitable skills and reasonable labor wages can highly benefit the firm. However,
labor-intensive firms should select the plant location which is nearer to the source
of manpower.
• Transport facilities
• In order to bring the raw materials to the firm or to carrying the finished goods to
the market, transport facilities are very important. Depending on the size of the
finished goods or raw materials a suitable transportation is necessary such as
roads, water, rail, and air. Here the transportation costs highly increase the cost
of production, such organizations cannot compete with the rival firms. Here the
point considered is transportation costs must be kept low.
Factors affecting location decisions
• Availability of fuel and power
• Unavailability of fuel and power is the major drawback in selecting a location for
firms. Fuel and power are necessary for all most all the manufacturing units, so
locating firms nearer to the coal beds and power industries can highly reduce the
wastage of efforts, money and time due to the unavailability of fuel and power.

• Availability of water
• Depending on the nature of the plant, firms should give importance to the
locations where water is available. For example, power plants where use of
water to produce power should be located nearer to the water bodies.
Factors affecting location decisions
• Secondary factors
– Suitability of climate
– Government policies
– Availability of finance
– Competition between states
– Availability of facilities
– Disposal of waste
Secondary factors

• Suitability of climate
• Climate is really an influencing factor for industries such as agriculture,
leather, and textile, etc. For such industries extreme humid or dry conditions
are not suitable for plant location. Climate can affect the labor efficiency and
productivity.

• Government policies
• While selecting a location for the plant, it is very important to know the local
existed Government policies such as licensing policies, institutional finance,
Government subsidies, Government benefits associated with establishing a unit
in the urban areas or rural areas, etc.
Secondary factors
• Availability of finance
• Finance is the most important factor for the smooth running of any business; it
should not be far away from the plant location. However, in the case of
decisions regarding plant location, it is the secondary important factor because
financial needs can be fulfilled easily if the firm is running smoothly. But it
should be located nearer to the areas to get the working capital and other
financial needs easily.

• Competition between states

• In order to attract the investment and large scale industries various states offer
subsidies, benefits, and sales tax exemptions to the new units. However, the
incentives may not be big but it can help the firms during its startup stages.
Secondary factors
• Availability of facilities
• Availability of basic facilities such as schools, hospitals, housing and recreation
clubs, etc can motivate the workers to stick to the jobs. On the other hand, these
facilities must be provided by the organization, but here most of the employees
give preference to work in the locations where all these benefits/facilities are
available outside also. So while selecting plant location, organizations must
give preference to the location where it is suitable for providing other facilities
also.

• Disposal of waste
• Disposal of waste is a major problem particularly for industries such as
chemical, sugar, and leather, etc. So that the selected plant location should have
provision for the disposal of waste.
PLANT LOCATION MODELS
Quantitative model
• Factor Rating Method
• Break Even analysis
• Point rating method
Quantitative model
• Factor Rating Method
– List the most relevant factor in location decision
– Rate each factor at the scale of 1 to 5 (5 is the highest and 1 is the lowest)
– Compute product rating = Location rating * factor rating
– Sum of product rating
– Highest is the most desirable location

• Let us assume that a new medical facility, Health-care, is to be located in Delhi. 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?
Question
ANSWER
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’. 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:

• BEP= Fixed Cost Contribution per unit = Fixed Cost Selling Price- Variable
Cost per unit =FS-V

• The Break Even Point (BEP) in Rs. can be calculated by using the relation:
Illustration
• Potential locations X, Y and Z have the cost structures shown below. The ABC
company has a demand of 1,30,000 units of a new product. Three potential locations X,
Y and Z having following cost structures shown are available. Select which location is
to be selected and also identify the volume ranges where each location is suited?
• SOLUTION:
Solve for the crossover between X and Y:
• 10X+ 150,000 = 8X + 350,000 2X = 200,000 X = 100,000 units Solve for the
crossover between Y and Z:

• 8X + 350,000 = 6X + 950,000 2X = 600,000 X = 300,000 units Therefore, at a volume

of 1,30,000 units, Y is the appropriate strategy. From the graph we can interpret
that location X is suitable up to 100,000 units, location Y is suitable up to
between 100,000 to 300,000 units and location Z is suitable if the demand is more
than 300,000 units.
Point Rating Method
• In selecting a site or location , companies have several objectives but not are of
equal importance . The relative weight a company assigns to each objective or
each location factor may be represented by the number of points a perfect site
would receive in each category . Each potential site is then evaluated with
respect to every factor a company is looking for and points are assigned for each
factor.The site with highest total number of points is considered superior to other
site.
Qualitative Model
• If economic criteria are not sufficiently influential to decide the location
alternatives a system of weighting the criteria might be useful in making a plant
location decision This is known as qualitative factor analysis . The steps
involved are as follows .
– Develop a list of relevant factor
– Assign a weight to each factor to indicate its relative importance
– Assign a common scale to each factor and designate any minimum point to be scored
by any location
– Score each potential location according to designated scale and multiply the scores by
the weights to arrive at the weighted scores.
– Total the point for each location and choose the location with maximum points.
• Problem :1 from the following data select the most advantage location for selling
a plant for making transistor radios.
Particulars Site X (RS) Site Y (Rs) Site z(Rs)

Total Initial Investment 2,00,000 2,00,000 2,00,000

Total expected sales 2,50,000 3,00,000 2,50,000

Distribution Expense 40,000 40,000 75,000

Raw material Expense 70,000 80,000 90,000

Power and water supply 40,000 30,000 20,000

Wage and salaries 20,000 25,000 20,000

Other expense 25,000 40,000 30,000
Problem :2 A techno park is looking to chose Location A B & c for its Expansion activities the
annual operating cost and other qualitative aspects are below
Factors A B C
1. Find out best location based on economics factors
Economics factor
2. Find best location based on combined
a. Rent / year factors 30,000
36,000 36,000
b. Local taxes / year 18,000 20,000 24,000
c. Logistics 12,000 9,000 8,000
d. Power 20,000 24,000 30,000
maintenance 90,000 1,00,000 1,20,000
e. Labour cost/year
Qualitative factors
A. Labour flexibility Excellent Good Very Very
B. Ready available Very good good
C. Civic good Below Excelle
communities Average Average nt
D. Nearness to Average Good Averag
market e
Excelle
nt
• Problem:3 A company has to select one location out of five alternatives
considered for a new plant .The operating costs and other intangible factors are
given below for these five location
Factor A B C D E
1.on the basis of annual
Economic 1,20,000
operating costs which
1,10,000
site would
1,60,000 85,000
you choose
75,000
?
2.Devise
factor a method of quantifying the intangible costs and integrate them with the cost data into the overall
evaluation
Labour cost which is best now?
10,000 8,000 7,000 12,000 14,000
Local Taxes 17,000 20,000 25,000 19,000 17,000
Cost of power 21,000 29,000 25,000 18,000 23,000
Other costs 16,000 11,000 12,000 16,000 18,000
Intangible
factor Very Fair Good Fair Very
Community good good
attitude
Labour Good Very good Fair Outstadi Accepta
ng ble
\Quality of Fair Acceptable Outstan Accepta Fair
transport ding ble
Quality of life Acceptabl Fair good Very Outstan
e good ding
Facility layout – Meaning
• For an organization to have an effective and efficient manufacturing unit, it is
important that special attention is given to facility layout. Facility layout is an
arrangement of different aspects of manufacturing in an appropriate manner as
to achieve desired production results. Facility layout considers available space,
final product, safety of users and facility and convenience of operations.

• An effective facility layout ensures that there is a smooth and steady flow of
production material, equipment and manpower at minimum cost. Facility layout
looks at physical allocation of space for economic activity in the plant. Therefore,
main objective of the facility layout planning is to design effective workflow as
to make equipment and workers more productive.
Facility Layout Objective
• To provide optimum space to organize equipment and facilitate movement of
goods and to create safe and comfortable work environment.
• To promote order in production towards a single objective
• To reduce movement of workers, raw material and equipment
• To promote safety of plant as well as its workers
• To facilitate extension or change in the layout to accommodate new product
line or technology upgradation

• To increase production capacity of the organization

Facility layout objectives for manufacturing
operations
• Economy in handling of materials, work-in-process and finished goods.
• Minimization of product delays.
• Lesser work-in-progress and minimum manufacturing cycle time.
• Efficient utilization of available space.
• Easy supervision and better production control.
• Greater flexibility for changes in product design and for future expansion.
• Better working conditions by eliminating causes of excessive noise, objectionable
odor smoke etc.
Principles of a Good Plant Layout
• Overall integration of factors: A good layout is one that integrates men, materials, machines and supporting
activities and others in a way that the best compromise is obtained. No layout can satisfy each and every principle
of a good layout. Some criterion may conflict with some other criterion and as a result no layout can be ideal it has
to integrate all factors into the best possible compromise.

• Minimum movement: A good layout is one that permits the minimum movement between the operations. The
plant and machinery in case of product layout and departments in case of process layout should be arranged as
per sequence of operations of most of the products . Since straight line is the shortest distance between any two
points, men and materials as far as possible should be made to move along the straight path

• Uni-direction flow: A good layout is one that makes the materials move only in the forward direction, towards
stage of completion, with any backtracking.

• Principle of Safety

• Principle of flexibility

• Minimum investment

• Maximize space utilization

Facility layout : Objective for warehouse operation
• The layout of a warehouse may need to be changed to accommodate new
product lines or to add greater flexibility to the warehouse operations. When a
new warehouse layout is proposed a detailed planning process should be
followed to ensure the success of the project. A warehouse designed properly the
first time eliminates delays and change orders to save time and money.
• The objective of warehouse layout design is to optimize the warehousing
functions and achieve maximum productivity and space utilization. A
warehouse is typically divided into zones to support the everyday intra-logistics
processes. These zones include: receiving, cross docking, quality control space,
reserve storage, primary picking, shipping, kitting/assembling. Designing a new
facility or revamping an old one starts with analyzing the current and projected
data on the activities in each of these areas. This data should be supported by
other considerations such as process flows, information flows, material handling
equipment, type and styles of racking equipment, special handling requirements,
and personnel.
• There are four primary functions that a warehouse layout must accommodate:
• 1. Inbound Operations
• 2. Put away and Storage Operations
• 3. Outbound Operations
• 4. Value-added processes
Facility layout : Objective for service operations
• The major factors considered for service facility layouts should provide for easy
entrance to these facilities from the freeways.
• Well-organized areas, easily accessible facilities, well designed walkways
and parking areas are some of the requirements of service facility layout.

• Service facility Design based on degree of customer contact and the service
needed by a customer.

• These service layouts follow conventional layouts as required. For example, for
car service station, product layout is adopted, where the activities for servicing a
car follows a sequence of operation irrespective of the type of car. Hospital
service is the best example for adaptation of process layout. Here, the service
required for a customer will follow an independent path. The layout of car
servicing and hospital is shown in Figs.
Layout for car service and Hospital
Facility layout : Objective for Office operation
Office layout aims to achieve smooth performance of official work .It helps to
increase profit of any organisation . The objective of office layout is explained
below .

1. Utilisation of Floor space

2. Minimise Risk
3. Maintain safety and security
4. Effective supervision and control
5. Provide facility to employee and customer.
Types of Layout
There are five types of facility layout, and they are as follows:

Line Layout

Functional Layout

Fixed Position Layout

Cellular Technology Layout

Combined Layout
Types of Layout
• 1. Product or Line Layout:

• If all the processing equipment and machines

are arranged according to the sequence of
operations of the product, the layout is called
product type of layout. In this type of layout,
only one product of one type of products is
produced in an operating area. This product
must be standardized and produced in large
quantities in order to justify the product
layout.

• The raw material is supplied at one end of the

line and goes from one operation to the next
quite rapidly with a minimum work in
process, storage and material handling. Fig. 8.3
shows product layout for two types of
products A and B.
Product or Line Layout:
• Advantages offered by Product
Layout:
• (i) Lowers total material handling cost.
• (ii) There is less work in processes.
• (iii) Better utilization of men and
machines,
• (iv) Less floor area is occupied by
material in transit and for
temporary storages.
• (v) Greater simplicity of production
control.
• (vi) Total production time is
also minimized.
• Limitations of Product Layout:
• (i) No flexibility which is generally
required is obtained in this layout.
• (ii) The manufacturing cost increases
with a fall in volume of production.
• (iii) If one or two lines are running
light, there is a considerable
machine idleness.
• (iv) A single machine break down
may shut down the whole production
line.
• (v) Specialized and strict supervision
is essential.
Types of Layout
• 2. Process or Functional Layout:

• The process layout is particularly useful where low

volume of production is needed. If the products are
not standardized, the process layout is more
desirable, because it has created process flexibility
than other. In this type of layout, the machines are
not arranged according to the sequence of operations
but are arranged according to the nature or type of
the operations. This layout is commonly suitable for
non repetitive jobs.

• Same type of operation facilities are grouped together

such as lathes will be placed at one place, all the drill
machines are at another place and so on. See Fig. 8.4
for process layout. Therefore, the process carried out
in that area is according to the machine available in
that area.
 • Advantages of Process Layout:
• (i) There will be less duplication of machines. Thus,
total investment in equipment purchase will be
reduced.
• (ii) It offers better and more efficient supervision
through specialization at various levels.
• (iii) There is a greater flexibility in equipment and
man power thus load distribution is easily controlled.
• (iv) Better utilization of equipment available is
possible.
• (v) Break down of equipment can be easily
handled by transferring work to another
machine/work station.
• (vi) There will be better control of complicated or
precision processes, especially where much
inspection is required.
• Limitations of Process Layout:
• (i) There are long material flow lines and hence the
expensive handling is required.
• (ii) Total production cycle time is more owing to
long distances and waiting at various points.
• (iii) Since more work is in queue and waiting
for further operation hence bottle necks occur.
• (iv) Generally, more floor area is required.
• (v) Since work does not flow through definite lines,
counting and scheduling is more tedious.
• (vi) Specialization creates monotony and there will be
difficult for the laid workers to find job in other
industries.
Types of Layout
• 3. Fixed Position Layout:
• This type of layout is the least important for today’s manufacturing industries. In
this type of layout the major component remain in a fixed location, other
materials, parts, tools, machinery, man power and other supporting equipment’s are
brought to this location.

• The major component or body of the product remain in a fixed position because it
is too heavy or too big and as such it is economical and convenient to bring the
necessary tools and equipment’s to work place along with the man power. This
type of layout is used in the manufacture of boilers, hydraulic and steam turbines
and ships etc.
• Advantages Offered by Fixed Position
Layout: • Limitations of Fixed Position Layout:

• (i) Material movement is reduced • (i) Highly skilled man power is required.

• (ii) Capital investment is minimized. • (ii) Movement of machines equipment’s to

production centre may be time consuming.
• (iii) The task is usually done by gang of
operators, hence continuity of operations • (iii) Complicated fixtures may be required
is ensured for positioning of jobs and tools. This may
increase the cost of production.
• (iv) Production centers are independent of
each other. Hence, effective planning and
loading can be made. Thus total production
cost will be reduced.

• (v) It offers greater flexibility and allows

change in product design, product mix
and production volume.
Types of Layout
• 4. Combination Type of Layout:

• A combination of process and product layouts combines the advantages of the both types of
layouts. Moreover, these days pure product or process layouts are rare. Most of the
manufacturing sections are arranged in process layout with manufacturing lines occurring here
and there (scattered) wherever the conditions permit. A combination layout is possible where
an item is being made in different types and sizes.

• In such cases machinery is arranged in a process layout but the process grouping (a group of
number of similar machines) is then arranged in a sequence to manufacture various types and
sizes of products. The point to note is that, no matter the product varies in size and type, the
sequence of operations remains same or similar. A combination layout is also useful when a
number of items are produced in same sequence but none of the items are to be produced in
bulk and thus no item justifies for an individual and independent production line. For example,
files, hacksaws, circular metal saws, wood saws, etc. can be manufactured on a combination
type of layout.
CELLULAR LAYOUT
• Every cell contains a group of machines which are dedicated to the production of
a family of parts.
• One of the problems is to identify a family parts that require the same group of
machines.

• These layouts are also called as group technology layouts.

• Used to make parts in just-in-time manufacturing
• Based on group technology: a method of organizing parts into families with
similar manufacturing requirements

• a manufacturing cell is created for each part family

Advantages Of cellular layout
• Elimination of waste (muda) -Transportation Inventory Movement Waiting Over Processing
Over Production Defects
• Reduced material handling and transit time
• Reduced setup time
• Reduced work-in-process inventory
• Better use of human resources
• Better scheduling, easier to control and automate
• Less floor space required , reduced direct labor
• Heightened sense of employee participation
• Increased use of equipment & machinery
• Reduced investment on machinery & equipment
Cellular layout disadvantages
• Sometimes cells may not be formed because of inadequate part families
• Some cells may have a high volume of production and others very low. This
results in poorly balanced cells
• when volume of production changes, number of workers are adjusted and
workers are reassigned to various cells. To cope with this type of
reassignments, workers must be multi-skilled and cross-trained

• sometimes, machines are duplicated in different cells. This increases capital

investment
Importance of facility layout
• Economies in Handling

• Effective use of available area

• Minimisation of production delay

• Improved quality control

• Minimising equipment investment

• Avoidance of bottleneck

• Better production control

• Better supervision

• Improved utilisation of labour

• Improved employee morale

• Avoidance of unnecessary and costly change

Reasons of change in Layout
• Expansion
– Increase in output

– Introduction of new product

– Diversification of the line of activity

• Technological advancement
– Replacement of labour by machine

– Development in fuel and energy

– Development in process

– Developments in materials

– Improvement in product design

• Improvement in Layout
– Material handling cost are high

– Aisles and individual work stations are congested

– No plan for future expansion

– Increase in cost of production and reduce operational efficiency

– Delays in production schedule

– Frequent accidents happened to workers