CHAPTER 3 Plant Location

• One of the key features of a conversion process

(manufacturing system) is the efficiency with which
the products (services) are transferred to the
customers. This fact will include the determination
of where to place the plant or facility.
• The location of the plant can have a crucial effect
on the profitability of a project, and the scope for
future expansion.
• Plant location or the facilities location is an
important strategic level decision-making for an
organization.
 Contd
• 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.
• Before a location for a plant is selected, long
range forecasts should be made anticipating
future needs of the company.
 Contd
• 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.
 Strategic Importance of Plant Location
The purpose of the location study is to find an
optimum location one that will result in the greatest
advantage to the organization
 Long-term decisions
Difficult to reverse
Affect fixed & variable costs
– Transportation cost
– Other costs: Taxes, wages, rent etc.
Objective: Maximize benefit of location to firm
Location Decision Sequence
Country Region/Community

Site

5
 Factors Influencing Plant Location
• Following are the factors that influences where to
locate plant/factory in all types of organizations:
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.
 Contd
• 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
 Contd
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.
 Contd
 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.
 Contd
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.
 Contd
• 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.
 Contd
• 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.
 Contd
Labor and wages: The problem of securing adequate
number of labor and with skills specific is a factor to
be considered both at territorial as well as at
community level during plant location.
 Importing labor is usually costly and involve
administrative problem.
 The history of labor relations in a prospective
community is to be studied. Prospective community
is to be studied.
 Contd
• Productivity of labor 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.
 Contd
• 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 labor,
transport facilities, and as well to increase their markets
for selling their products and have access to a much
wider range of business services.
• Location economies of scale in the manufacturing sector
have evolved over time and have mainly increased
competition due to production facilities and lower
production costs as a result of lower transportation and
logistical costs. This led to manufacturing districts where
many companies of related industries are located more
or less in the same area.
 Contd
• As large corporations have realized that inventories
and warehouses have become a major cost factor,
they have tried reducing inventory costs by
launching “Just in Time” production system (the so
called Kanban System). This high efficient
production system was one main factor in the
Japanese car industry for being so successful. Just
in time ensures to get spare parts from suppliers
within just a few hours after ordering.
• To fulfill these criteria corporations have to be
located in the same area increasing their market
and service for large corporations.
 Contd
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.
 Contd

 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.
Government policy: The policies of the state
governments and local bodies concerning labor
laws, building codes, safety, etc., are the factors
that demand attention.
 Contd
• 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.
 Contd

Climatic conditions: The geology of the area needs to

be considered together with climatic conditions
(humidity, temperature).
 Climates greatly influence human efficiency and
behavior. Some industries require specific climatic
conditions e.g., textile mill will require humidity.
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.
 Contd
• 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 labor 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 favoring because of labor
attitude towards management, which brings very
 Contd
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
 Facility Layout
• Plant layout refers to the physical arrangement of
production facilities.
• It is the configuration of departments, work centers
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”.
 Objectives of Facility Layout
The primary goal of the plant layout is to maximize the
profit by arrangement of all the plant facilities to the
best advantage of total manufacturing of the product.
The objectives of plant layout are:
• Customer satisfaction
• Efficient flow of information, material & people
• Employee morale & safety
• Facilitate the manufacturing process.
• Minimize materials handling and cost.
• Effective utilization of men, equipment and
space.
 Contd
• Make effective utilization of cubic space.
• Flexibility of manufacturing operations and
arrangements.
• Provide for employee convenience, safety and
comfort.
• Minimize investment in equipment.
• Minimize overall production time.
• Maintain flexibility of arrangement and
operation.
• Facilitate the organizational structure
 Types of Layout
Layouts can be classified into the following three
categories:
 Process layout
 Product layout
 Fixed position layout
 Process layout
• Deals with low-volume, high-variety production (“job
shop”, 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.
• Thus, in process layout the arrangement of
facilities are grouped together according to
their functions.
 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.
 Contd
• In a strict product layout, machines are not shared
by different products. Therefore, the production
volume must be sufficient to achieve satisfactory
utilization of the equipment. A typical product
layout is shown in Fig. 3.1.
 Fixed Position Layout

• large bulky projects such as ships and buildings

• 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 hig
 Material Handling
• Materials handling can be defined as ‘the function
dealing with the preparation, placing and
positioning of materials to facilitate their
movement or storage’.
• Material handling is the art and science involving
the movement, handling and storage of materials
during different stages of manufacturing.
• Through scientific material handling considerable
reduction in the cost as well as in the production
cycle time can be achieved.
 Objectives of Material Handling
Following are the objectives of material handling:
• Minimize cost of material handling.
• Minimize delays and interruptions by making
available the materials at the point of use at right
quantity and at right time.
• Increase the productive capacity of the production
facilities by effective utilization of capacity and
enhancing productivity.
• Prevention damages to materials.
• Lower investment in process inventory.
 Principles of Material Handling
Following are the principles of material handling:
• Planning principle: All handling activities should be planned.
• Systems principle: Plan a system integrating as many
handling activities as possible and co-ordinating the full
scope of operations (receiving, storage, production,
inspection, packing, warehousing, supply and
transportation).
• Space utilization principle: Make optimum use of cubic
space.
• Unit load principle: Increase quantity, size, weight of load
handled.
• Material flow principle: Plan an operation sequence and
equipment arrangement to optimize material flow.
 Contd
• Simplification principle: Reduce combine or eliminate
unnecessary movement and/or equipment.
• Safety principle: Provide for safe handling methods and
equipment.
• Mechanization principle: Use mechanical or automated
material handling equipment.
• Standardization principle: Standardize method, types,
size of material handling equipment.
• Flexibility principle: Use methods and equipment that
can perform a variety of task and applications.
 Contd
• Equipment selection principle: Consider all aspect of
material, move and method to be utilized.
• Motion principle: Equipment designed to transport
material should be kept in motion.
• Idle time principle: Reduce idle time/unproductive
time of both MH equipment and man power.
• Maintenance principle: Plan for preventive
maintenance or scheduled repair of all handling
equipment.
• Performance principle: Determine efficiency of
handling performance in terms of cost per unit
handled which is the primary criterion.
 Material Handling Equipments
Broadly material handling equipment’s can be
classified into two categories, namely: (a) Fixed path
equipments, and (b) Variable path equipments.
1. Fixed path equipments which move in a fixed
path. Conveyors, monorail devices, chutes and
pulley drive equipments belong to this category.
A slight variation in this category is provided by the
overhead crane, which though restricted, can move
materials in any manner within a restricted area by
virtue of its design.
 Contd
• Overhead cranes have a very good range in terms
of hauling tonnage and are used for handling bulky
raw materials, stacking and at times palletizing.
2. Variable path equipments have no restrictions in
the direction of movement although their size is a
factor to be given due consideration trucks, forklifts
mobile cranes and industrial tractors belong to this
category.
• Forklifts are available in many ranges, they are
manoeuvrable and various attachments are
provided to increase their versatility.
 Contd
Specifically, Material Handing Equipments may be
classified in five major categories:
1. CONVEYORS- are useful for moving material
between two fixed workstations, either
continuously or intermittently.
• They are mainly used for continuous or mass
production Conveyors may be of various types, with
rollers, wheels or belts to help move the material
along: these may be power-driven or may roll freely.
 contd

• Different types of conveyor

Contd
 Contd
• D/t types of cranes
 Contd
2. INDUSTRIAL TRUCKS-are more flexible in use than
conveyors since they can move between various
points and are not permanently fixed in one place.
They are, therefore, most suitable for intermittent
• production and for handling various sizes and
shapes of material.
• There are many types of truck­petrol-driven,
electric, hand-powered, and so on.
• Their greatest advantage lies in the wide range of
attachments available; these increase the trucks
ability to handle various types and shapes of
material.
 Contd
3. CRANES AND HOISTS
• The major advantage of cranes and hoists is that
they can move heavy materials through overhead
space. However, they can usually serve only a
limited area.
• Here again, there are several types of crane and
hoist, and within each type there are various
loading capacities. Cranes and hoists may be used
both for intermittent and for continuous
production.
 Contd
4. CONTAINERS
• These are either ‘dead’ containers (e.g. Cartons,
barrels, skids, pallets) which hold the material to
be transported but do not move themselves, or
‘live’ containers (e.g. wagons, wheelbarrows or
computer self-driven containers).
• Handling equipments of this kind can both contain
and move the material, and is usually operated
manually.
 contd

5. ROBOTS
• Many types of robot exist. They vary in size, and in
function and manoeuvrability. While many robots
are used for handling and transporting material,
others are used to perform operations such as
welding or spray painting.
• An advantage of robots is that they can perform in
a hostile environment such as unhealthy conditions
or carry on arduous tasks such as the repetitive
movement of heavy materials.