UNIT - III

PLANT LOCATION
&
PLANT LAYOUT
 PLANT
LOCATION
 INTRODUCTION
A Plant is a place; where men, materials, money, equipment, machinery,
etc. are brought together for manufacturing products.

The selection of a place for locating a plant is one of the problems, perhaps
the most important, which is faced by an entrepreneur, while launching
a new enterprise.

A selection on basis of pure economic considerations will ensure an easy

& regular supply of raw materials, labor force, efficient plant
layout, proper utilization of production capacity & reduced
cost of production.
continued……..
An ideal location may not, by itself, guarantee success; but it
certainly contributes to the smooth and efficient working of an
organization.

A bad location, on the other hand, is a severe handicap for

any enterprise and it finally bankrupts it.

It is, therefore, very essential that the utmost care should
be exercised in the initial stages to select a proper
place.
 continued……..
Plant location is especially critical to:- a new firm entering a
market or to an old firm introducing a new process or
product.

Increasing international competition & changing markets have

expanded the number of potential locations available for plant
location.

Thus, understanding the various aspects and issues of plant location

has become important, as it has direct impact on the operating cost
of the plant and future growth of the firm.
MEANING : PLANT LOCATION
 Plant Location may be understood as the function of
determining, where the plant should be located for
maximum operating economy and effectiveness.

 The locations where firm set up their operations is simply

called as plant location.
 DEFINITION OF PLANT LOCATION
 According to PROF. R.C. DAVIS,
“The function of determining
where the plant should be located for maximum operating economy and
effectiveness”.

 According to BETHEL SMITH AND ALWATER,

“Plant
location stands for the spot where in consideration of business as whole,
the total cost of production and delivery goods to all the consumers is the
lowest”.
NEED FOR SELECTION OF LOCATION

SELECTION OF SUITABLE
LOCATION

Starting New Existing Global

Organization Organization Location
 1) In Case of Location Choice for the First Time for
New Organizations:

(i) IDENTIFICATION OF REGION:

The organizational objectives along with the various long-term

considerations about marketing, technology, internal organizational
strengths & weaknesses; region-specific resources & business
environment, legal – governmental environment, social environment
& geographical environment suggest a suitable region for
locating the operations facility.
(ii) CHOICE OF A SITE WITHIN A REGION:
 Once the suitable region is identified, the next step is choosing the
best site from an available set.
 Choice of a site is less dependent on the organization’s long term
strategies.
 Evaluation of all alternative sites for their costs, will resolve
facilities – location problem.
 The problem of location of a site within the region can be
approached with the following cost-oriented model, i.e.,
Dimensional Analysis.
(iii) DIMENSIONAL ANALYSIS:

 If all the costs were tangible and quantifiable, the comparison and
selection of a site is easy.
 The location with the least cost, is selected.

In most of the cases, intangible costs have to be considered which are
expressed in relative terms.
Their relative merits and demerits of sites can also be compared easily.

 Since both tangible and intangible costs need to be considered for a

selection of a site, dimensional analysis is used.
2) In Case of Location Choice for Existing Organizations:
(I) PLANTS MANUFACTURING DISTINCT PRODUCTS:
 This strategy is necessary, where the needs of technological &
resource inputs are specialized or distinctively different for the
product-lines.

For Example, a high quality precision product-line should not be located

along with other product-line requiring little emphasis on precision.
 It may not be proper to have too many contradictions such as sophisticated
and old equipment, highly skilled and semi-skilled personnel, delicate
process and those that could permit rough handlings, all under one roof and
one set of managers.
 Such a setting leads to much confusion regarding the required
emphasis and the management policies.
(II) PLANTS DIVIDED ON THE BASIS OF THE PROCESS OR
STAGES IN MANUFACTURING:
Each production process or stage of manufacturing may require distinctively
different :-
 equipment capabilities,
 labor skills,
 technologies, &
 managerial policies & emphasis.
Since the products of one plant feed into the other plant, this strategy requires
much centralized co-ordination of the manufacturing activities from the
corporate office that are expected to understand the various technological aspects of
all the plants.
(III) PLANTS EMPHASIZING FLEXIBILITY:
 This requires much co-ordination between plants, to meet the
changing needs & at the same time ensuring efficient use of the
facilities & resources.
 Frequent changes in the long-term strategy in order to improve the efficiency of
the plant temporarily; are not healthy for the organization.
 In any facility location problem, the central question is: ‘Is this a location at
which the company can remain competitive for a long time’?
In order to enhance the capacity of an established organization, the following methods can be
used:
(a) Expansion of the Facilities at the Existing Site
(b) Relocation of the Facilities (By Closing Down the Existing Ones)
 3) In Case of Global Location
i. VIRTUAL PROXIMITY:
Virtual Proximity refers to the
level of emotional closeness between individuals, as developed through the
use of information & technology.
 With the advance in telecommunications technology, a firm can be in
virtual proximity to its customers.
 For a software service firm, much of its logistics is through the
information / communication pathway.
 Many firms use the communications highway, for conducting a large
portion of their business transactions.
 Customers have to be contacted. Hence, a market presence in the
country of the customers is quite necessary.
ii) VIRTUAL FACTORY:
 Many firms based in USA and UK in the service sector & in the
manufacturing sector often outsource part of their business process to
foreign locations such as India.
 Thus, instead of one’s own operations, a firm could use its
Business Associate’s operations facilities.
 The Indian BPO (Business Process Outsourcing) 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.
 LOCATION DECISION PROCESS
(1) DEFINE THE LOCATION OBJECTIVES & ASSOCIATED
CONSTRAINTS:
The location objectives and associated constraints are defined on the basis of
the views and requirements of the promoters, owners, employees, suppliers
and customers of the firm.

(2) IDENTIFY THE RELEVANT DECISION CRITERIA:

Firms should select a location by formulating relevant decision criteria. The
criteria should include – several economic factors such as impact of the plant
on the surrounding environment.
(3) RELATE THE OBJECTIVES TO THE CRITERIA
USING APPROPRIATE MODELS:

 Using the models like – Break-Even Analysis, Linear Programming,

Decision-Tree Analysis & Qualitative Factor Analysis, the relevant
decision criteria should be evaluated.

 Though it is preferred, to model the location decision process in a

systematic & quantitative manner, it is difficult to quantify the
intangible criteria.

 Therefore, the judgment of responsible managers is taken

into consideration to obtain a solution.
(4)EVALUATE THE ALTERNATIVE LOCATIONS:

 Firms should collect the possible primary & secondary data,

to evaluate different alternative locations.
 Primary data is the data that is collected for a specific purpose for the
first time.
 Firms mainly use survey methods like personal interviews, telephonic
interviews and mail interviews to collect the primary data.
 Secondary data is purpose or by some other institutions.
 Firms collect the possible primary & evaluate different
alternative locations on the basis of this data using the given
decision criterion.
(5) SELECT THE LOCATION THAT BEST SATISFIED
THE CRITERIA:

A location, which can meet the defined objectives, is

able to satisfy the criteria and provides benefits to the
community should be selected.
 SELECTING THE PLANT LOCATION
 Generally, the geographical area is divided on the basis of natural
regions or political boundaries with in the nation.
 With in the region, new locality is chosen.
 Following alternative are open in selecting the locality:

SELECTING THE PLANT LOCATIONS

Plant Location in Plant Location in

Urban Area Sub-Urban Area
Plant Location in
Rural Area
 Plant Locations in Urban Areas
 Urban areas defines as land occupied by buildings & other structures used
for residences and industrial sites.

 Urban areas often have some form of public transportation, such as buses,
subways, or trains and have high population densities.

 Buildings are often closer together and built higher than those in suburban or
rural areas.

 Due to certain advantages available in city area promoters show preferences

for the city area as the location of industrial unit.
 Advantages of Plant Locations in a Urban Area
1. A city is very well-connected by rail, road and air.
2. It provides a good market also.
3. Right labor force is available.
4. Power and water is easily available.
5. It has good hospitals, marketing centres, schools, banks, recreation club,
etc.
6. Worker’s and foremen’s training classes and many other educational
facilities can be in cities.
7. Services of experts and specialists are easily available
8. Security is there.
 Disadvantages of Plant Locations in Urban Area

1. Land available for the building is limited in area,

2. Cost of Land and building construction is high,
3. Local taxes are high,
4. Labor salaries are high, and
5. Union problems are more; employee-employer relations are
not so good.
 Plant Locations in Sub-Urban Area
 Suburban areas are those on the outskirts of cities.

 Residents of suburban areas often commute to the cities for work.

 Some suburban areas have commuter trains and buses that shuttle people to and from
the cities.

 Though they have smaller populations than cities, suburbs offer the same services
including schools, health care facilities, and public works.

 From the cost point of view, the cost involved in the purchase of land
in case of urban selection and the non-availability of work force in
rural area can be offset by locating the plant in the semi-urban area.
Advantages Plant Locations in a Sub-Urban Area

1. Land is available at cheaper rates.

2. Infrastructural facilities are developed by promotional
agencies.
3. Skilled manpower available due to nearness of cities.
4. Educational, medical facilities are available.
Disadvantages Plant Location in a Sub- Urban Area

1. Suburban areas will soon become crowded, like cities

within a short time.

2. High mobility of workers, hence high turnover.

 Plant Locations in Rural Area
 There are areas with large amounts of land with significantly lower
populations than urban or sub-urban areas.

 Structures are often far a part and some rural communities share
hospitals or schools.

 Rural areas tend to be far from urban areas.

 However, people live in woodland forests, plains, deserts, which are

example of rural areas.
 Advantages Plant Locations in a Rural Area
1. Plenty of Land is available for building construction and expansion
purposes,
2. Land is cheap,
3. Unskilled labor is available which can be trained to suit the
requirements of the concern,
4. Employee-employer relations are good; no union problem,
5. Government gives inducements as it wants to develop the
underdeveloped areas (like tax reliefs, cheap electricity, free
irrigation facilities).
 Disadvantages Plant Locations in a Rural Area
1. Skilled Labor is not available.
2. Rail, road, and air links may not be there at all or may not be
adequate,
3. Power is not available,
4. Cost involved in training the unskilled labor into skilled will
involve high cost,
5. Far away from the actual markets,
6. Facilities like hospitals, banks, post offices have to be established.