Plant/Facility Location

&
Plant/Facility Layouts

Complied by
Prof. Shrinivas Repak
 PLANT LOCATION

“….The propensity of particular

industries to cling, breed &
cluster in particular localities is
called as Localization of
industries….. ”

- Prof. Robertson
 Factors that affects ‘Location ’
decision
 Labor Productivity
 Political / Strategic Considerations
 Costs
 Infrastructure
 Local Community Considerations
 Proximity to Markets
 Proximity to Suppliers
 Proximity to Competitors (Clustering)
 Location Decisions

Country Decision Critical Success Factors

1. Political risks, government

rules, attitudes, incentives
2. Cultural and economic
issues
3. Location of markets
4. Labor availability, attitudes,
productivity, costs
5. Availability of supplies,
communications, energy
6. Exchange rates and currency
risks
 Location Decisions

Region / Community Critical Success Factors

Decision
1. Attractiveness of region
2. Labor availability, costs,
MN attitudes towards unions
WI 3. Costs and availability of
utilities
MI
4. Environmental regulations
5. Government incentives and
OH
IL IN fiscal policies
6. Proximity to raw materials and
customers
7. Land/construction costs
 Location Decisions

Site Decision Critical Success Factors

1. Site size and cost

2. Air, rail, highway, and
waterway systems
3. Zoning restrictions
4. Nearness of services/
supplies needed
5. Environmental impact
issues
 Methods for Evaluating Location
Alternatives

 The Factor-Rating Method

 Locational Break-Even Analysis

 Center-of-Gravity Method

 The Transportation Method

 Factor Rating Method
 Popular because a wide variety of factors
can be included in the analysis
 Six steps in the method
1. Develop a list of relevant factors called critical
success factors
2. Assign a weight to each factor
3. Develop a scale for each factor
4. Score each location for each factor
5. Multiply score by weights for each factor for
each location
6. Recommend the location with the highest point
score
 Example

Critical Scores
Success (out of 100) Weighted Scores
Factor Weight Sanand Singur Sanand Singur

Labor
availability
and attitude .25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0
People-to
car ratio .05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0
Per capita
income .10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0
Tax structure .39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3
Education
and health .21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7
Totals 1.00 70.4 68.0
 Location Break-Even Analysis

 Method of cost-volume analysis used for

industrial locations
 Three steps in the method
1. Determine fixed and variable costs for each
location
2. Plot the cost for each location
3. Select location with lowest total cost for
expected production volume
 Example
Three locations:

Fixed Variable Total

City Cost Cost Cost

Rajkot $30,000 $75 $180,000

Ahmadabad $60,000 $45 $150,000
Jamnagar $110,000 $25 $160,000

Selling price = $120

Expected volume = 2,000 units

Total Cost = Fixed Cost + Variable Cost x Volume

 Example

–
$180,000 –
–
$160,000 –
$150,000 –
e
–
o s t curv
c
$130,000 – n a gar
m
– Ja
Annual cost

$110,000 – t
c os
– d
a ba
– mad urve
$80,000 –Ah c
– ost
c
$60,000 – kot e
j v
– Ra cur
–
Rajkot Jamnagar
$30,000 – Ahmadabad lowest
lowest lowest cost
– cost
cost
$10,000 –
| | | | | | |
–
0 500 1,000 1,500 2,000 2,500 3,000
Volume
 Center-of-Gravity Method

 Finds location of distribution center

that minimizes distribution costs
 Considers
 Location of markets
 Volume of goods shipped to those
markets
 Shipping cost (or distance)
 Transportation Model
 Finds amount goods to be shipped from
several points of supply to several points
of demand
 Solution will minimize total production
and shipping costs
 A special class of linear programming
problems
 Theories of Plant Location
 Weber’s theory of Industrial Location
 Least cost Theory
 Minimize cast in three categories
 Transportation
 Labor
 Agglomeration

 Sargent Florence's Theory of Location

 Statistical techniques for measuring the degree
& incidence of localization
 Geographical Information System
(GIS)
 New tool to help in location analysis
 Enables more complex demographic
analysis
 Available data bases include
 Detailed census data
 Detailed maps
 Utilities
 Geographic features
 Locations of major services
PLANT LAYOUT
 Objectives of Plant Layout
1. To minimize the investment in equipment
2. Minimize overall production time
3. Utilize existing space more effectively
4. Provide for employee convenience, safety &
comfort
5. Maintain flexibility of arrangement
6. Minimize material handling cost
7. Minimize variation in type of material handling
equipment
 Factors affecting plant layout
1. Nature of the product
2. Volume of production
3. Managerial policies and decisions
4. Nature of plant location
5. Type of industry process
6. Types of methods of production
7. Type of machines and equipments
8. Climate
9. Nature of materials
10. Human factor and working condition
 Types of layout

 Product Layout
 Process Layout

 Mixed Layout
 Cellular Layout (Group Technology)
 Layout by fixed procedure
 Product Layout

Input
A B C D

Output G F E
Features of product layout

 Smooth and logical flowline

 Small in-process inventories
 Total production time/unit short
 Reduced material Handling
 Little operator skill therefore training is simple
 Simple production planning and control
 Less space for work in transit and temporary
storage
 Process Layout

A E
C

B D F
Advantages:

 Better utilization of machines, hence fewer

machines
 High degree of flexibility with regard to
equipment or manpower allocation for a
specific task
 Comparatively low investment in machine
requirements
 Greater job satisfaction for operator
 Specialize supervision is possible
Disadvantages

 Since longer flow lines usually result, material

handling more expensive
 Production planning and control are more
involved
 Total production time is usually longer
 Large in process inventories
 Space and capital tied up by work in process
 Because of the diversity of the jobs in specialized
departments, higher grades skill are required
 Types of layout

 Product Layout
 Process Layout

 Mixed Layout
 Cellular Layout (Group Technology)
 Layout by fixed procedure
 Product
Design

Layout
Design

Schedule Process
Design Design
 Input Data and Activities

1. Flow of materials 2. Activity Relationship

Analysis
3. Relationship Diagram

4. Space Requirement 5. Space Available

6. Space Relationship Diagram

Search
7. Modifying 8.Practicle
Considerations Limitations

9. Development layout Activities

10. Evaluation selection

 Techniques of Plant Layouts
 Charts and Diagrams
 From-to Chart
 Activity Relationship chart
 Flow Process Chart
 Computer Programs
 CRAFT (Computerized Relative Allocation of Facilities
Techniques)
 ALDEP (Automated Layout Design Program) and
CORELAP (Computerized Relationship Layout Planning)
 PREP (Plant Re-layout and Evaluation Package)
 Templates