Plant Location

Introduction
• Plant location or the facilities location problem is an
important strategic level decision making for an
organization.
• The selection of location is a key-decision as large
investment is made in building plant and machinery. 
• It is not advisable or not possible to change the
location very often. 
• So an improper location of plant may lead to waste of
all the investments made in building and machinery,
equipment.
 Things to consider
• Long range forecasts should be made anticipating
future needs of the company. 
• The plant location should be based on the
– company’s expansion plan and policy,
– diversification plan for the products,
– changing market conditions,
– the changing sources of raw materials
• and many other factors that influence the choice of
the location decision.
 Objective
• Find an optimum location one that will result
in the greatest advantage to the organization.
 Need for Selecting a Suitable Location
• When starting a new organization, i.e., location
choice for the first time.
• In case of existing organization.
– the plant operations and subsequent expansion
are restricted by a poor site,
– growing volume of business makes it advisable to
establish additional facilities in new territories.
– Decentralization and dispersal of industries
reflected in the industrial policy
 – the original advantages of the plant have been
outweighed due to new developments.
– New economic, social, legal or political factors
could suggest a change of location of the existing
plant.
• In case of Global Location.
 Location selection
• Facility location is the process of determining a
geographic site for a firm’s operations.
• Managers of both service and manufacturing
organizations must weigh many factors when
assessing the desirability of a particular site,
including proximity to customers and suppliers, labor
costs, and transportation costs.
• Location conditions are complex and each comprises a
different Characteristic of a tangible
– (i.e. Freight rates, production costs)
– Tangible cost based factors such as wages and products
costs can be quantified precisely into what makes locations
better to compare.
• and non-tangible
– (i.e. reliability, frequency security, quality) nature.
– which refer to such characteristics as reliability, availability
and security, can only be measured along an ordinal or even
nominal scale.
• Location studies are usually made in two
phases namely,
I. the general territory selection phase and
II. the exact site / community selection phase
 the general territory selection phase

• Raw materials and supplies

• Markets
• Transportation facilities
• Manpower supply
• Infrastructure
• Legislation and taxation
 Site / Community Selection
• Community facilities
• Community attitudes
• Waste disposal
• Ecology and pollution
• Site size
• Topography and land cost
• Transportation facilities
• Supporting industries and services
 Classification of location factors
•  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.
• CONTROLLABLE FACTORS
• Proximity to markets.
• Supply of materials
• Transportation facilities
• Infrastructure availability
• Labour and wages
• External economies
• Capital
• UNCONTROLLABLE FACTORS
• Government policy
• Climate conditions
• Supporting industries and services
• Community and labor attitudes
• Community Infrastructure
• Dominant factors
• Favorable labor climate
• Proximity to markets
• Quality of life
• Proximity to suppliers and resources
• Utilities, taxes, and real estate costs
•  Secondary factors
• room for expansion,
• construction costs,
• accessibility to multiple modes of transportation,
• the cost of shuffling people and materials
between plants,
• competition from other firms for the workforce,
• community attitudes, and many others.
• Markets
• location of competitors
• Nearer to the market if promptness of service is
required (spoilage)
• Also if the product is relatively inexpensive
(transportation costs add substantially to the cost)
• Raw materials and supplies
• promptness and regularity of delivery
• nearer; raw material is bulky or low in cost
• perishable
• raw materials come from a variety of locations
(situated so as to minimize total transportation costs)
• Transportation facilities:
• Adequate transportation facilities
• Economical feasible type; land/ water/air
• Manpower supply:
• availability of skilled manpower, the prevailing wage
• pattern, living costs and the industrial relations
• Infrastructure:
• availability and reliability of power, water, fuel and
• communication facilities in addition to transportation
facilities
• Legislation and taxation:
• financial and other incentives for new industries in
backward areas
• exemption from certain taxes etc.
• Community facilities:
• education, places of worship, medical services, police
and fire stations, cultural, social and recreation
opportunities, housing, good streets and good
communication and transportation facilities.
• Community attitudes:
• usually welcome; employment opportunities to the
local people
• polluting and hazardous industries; as far away as
possible.
• Waste disposal:
• Proper disposal of solid, liquid and gaseous effluent
at reasonable cost
• prevailing winds carry any fumes away from
populated areas
• Ecology and pollution:
• awareness towards maintenance of natural
• ecological balance
• Site size:
• large enough to hold the proposed plant and parking
• and access facilities and provide room for future
expansion
• Topography and land cost:
• soil structure and drainage must be suitable.
• considerable land improvement is required, low
priced land might turn out to be expensive.
• Transportation facilities:
• accessible preferably by road and rail.
• Supporting industries and services:
• supporting services such as tool rooms, plant
services etc.
City, sub urban, rural
 Requirements governing choice of a city
location are
• Availability of adequate supply of labour force
• High proportion of skilled employees
• Rapid public transportation and contact with
suppliers and customers
• Small plant site or multi floor operation
• Processes heavily dependent on city facilities and
utilities
• Good infrastructure facilities
 Requirements governing the choice of a
suburban location
• Large plant site close to transportation or population
centre
• Free from some common city building zoning
(industrial areas) and other restrictions
• Freedom from higher parking and other city taxes
etc.
• Labour force required to reside close to the plant
• Community close to, but not in large population
centre
• Plant expansion easier than in the city
Requirements governing the choice of a rural
location
• Large plant site required for either present demands
or expansion
• Dangerous production processes
• Lesser effort required for anti-pollution measures
• Large volume of relatively clean water
• Lower property taxes, away from Urban Land Ceiling
Act restrictions
• Unskilled labour force required
• Low wages required to meet competition
• Balanced growth and development of a developing
or underdeveloped area
Plant Location – theory and models
• SUBJECTIVE TECHNIQUES
• Three subjective techniques used for facility
location
– Precedence,
– Preferential Factor
– and Dominant Factor
 Precedence
• the basic assumption is that if a location was best for
similar firms in the past, it must be the best for the
new one now.
• no need for conducting a detailed location study and
• the location choice is thus subject to the principle of
precedence - good or bad.
 Preferential Factor
• the location decision is dictated by a personal factor.
• It depends on the individual whims or preferences
e.g. if one belongs to a particular state, he / she may
like to locate his / her unit only in that state.
• Such personal factors may override factors of cost or
profit in taking a final decision.
• This could hardly be called a professional approach
though such methods are probably more common in
practice than generally recognized.
 Dominant Factor
• (in contrast to the preferential factor) which could
influence the location decision.
• In a true dominant sense, mining or petroleum
drilling operations must be located where the
mineral resource is available.
• The decision in this case is simply whether to locate
or not at the source.
Qualitative technique
Good, bad, worse, excellent
 Semi quantitative
• Equal weights method
• equal weights to all factors
• evaluate each location along the factor scale
• S3 has the highest site rating of 24. Hence, this
site would be chosen.
 Weight -cum-Rating Method
• variable weights to each factor
• common scale for each factor
 Variable Weights Method
• assigning variable weights to each of the
factors and
• evaluating each location site along the factor
scale.
 Another weight-cum-rating method
• subjective scale common to all factors
• assigning points against the subjective scale for each
factor and assigns the factor points of the subjective
rating for each factor.
• For example, five subjective ratings-Poor, Fair,
Adequate, Good and Excellent are selected to be
used in evaluating each site for each factor.
• For each of the factors, assign factor points
COMPOSITE MEASURE METHOD
Locational Break-Even Analysis
 Layouts classification
• Process layout.
• Product layout
• Combination layout
• Fixed position layout
 Process Layout
• Process layout is the arrangement of facilities are
grouped together according to their functions
• 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 shop will be clustered in like groups.
 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.
 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.
 Product Layout
• In this type of layout, machines and auxiliary
services are located according to the
processing sequence of the product.
• 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.
 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.
• Simplified production, planning and control systems are possible.
• Less space is occupied by work transit and for temporary storage.
• Reduced material handling cost due to mechanised handling
systems and straight flow.
• Perfect line balancing which eliminates bottlenecks and idle
capacity.
• Manufacturing cycle is short due to uninterrupted flow of
materials.
• Small amount of work-in-process inventory.
• Unskilled workers can learn and manage the production.
 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.
• The line output is decided by the bottleneck machine.
• Comparatively high investment in equipments is
required.
• Lack of flexibility. A change in product may require the
facility modification.