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Plant location

Meaning-the establishment of an industry at a particular place. It is of 2 types1. Localization /centralization-means concentration of similar type of industries at some particular place. E.g. textile in Mumbai. 2. Delocalization /Decentralizationmeans spreading of similar type of industries at different places. E.g. banking industries.

Factors affecting location & site decisions

1. 2.

4. 5. 6. 7. 8.

10. 11.

Availability of raw material Nearness to the potential market Near to the source of operating requirements like electricity, disposal of waste, drainage facilities. Supply of labor Transport & communication facilities Integration with other group of companies Suitability of land & climate Availability of housing, other amenities & services Local building & planning regulations Safety requirements Others like low interest on loans, special grants, living standards

selection of the site for the factory

Known as location analysis where firstly some geographical area is selected & from that area a particular site is selected for the establishment of the plant. Methods for the evaluation of plant location1. Involving quantitative factorsa. Comparative cost chart, b. dimensional analysis. 2. Comparison of qualitative factors.

Comparative cost chart

Is appropriate where the location problem concerns the placement of a single plant. This is based on location cost summary chart. A comparative chart of total costs involved in setting up a plant of desired size is prepared.
40 30 20 10 0 locations


The total cost is represented by the height of column for each location. we select a location for which total cost is minimum. The cost summary chart has advantage of clarity in presentation. but analysis is restricted to certain specified factors only. Least cost centre analysisHere transportation cost associated with various location alternatives is considered. Limitation of these techniques1.Choice of plant location assumed to be entirely dependent upon minimization of operational costs. 2.Operational costs are assumed to be linearly related to distance involved.

Dimensional analysis
It involves 1. calculation of the relative merits or cost ratios for each of the factors, 2. giving each of the cost factor an appropriate weightage by means of an index to which the cost ratio is raised 3. & multiplying these weighted ratios in order to arrive at a figure on the relative merits of alternative sites.

Comparison of qualitative factors.

These are the factors to which cost values cant be assigned. Like lack of good schools, community attitude. These can be termed as good or excellent. factors labor relation Training Location A adequate good Good Location B excellent Very good Very good

Clearly location B appears to be better one.

Ranking & weight method

1. 2. 3. 4. 5.

Various locations are ranked acc. To their contribution Various factors are assigned weights acc. To their importance Weights are then multiplied with rank assigned Total of these products for each location is calculated Location having max. total is then selected.

Advantages &disadvantages of urban, rural & sub-urban sites for a plant-



Sub-urban Planned industrial Larger area

Better More water transportation Large labor Cheaper land supply Big local market Lower taxes Easy finance Municipal services Better civil attitude Few ordinances

Labor stability

Backward area & industrial policy

In the facilities location problems, the industrial policies of the governments are very important inputs in the overall consideration. In India, the industrial development of backward areas for balanced regional development of the country has always been emphasized. This has been attempted mainly through: 1. Licensing policy (practice of leasing a legally protected property to another party )
money granted by the State to keep down the price of commodities

2. Location of public sector projects 3. Investment subsidy ( ) 4. Concessional finance (by IDBI, IFCI , ICICI) 5. Concession on income tax import duty etc and 6. Setting up of industrial estates (property
consisting of much land )

All the districts in the country have been classified into four categories: A. No industry districts, B. Moderately backward districts C. Least backward districts, and D. Non-backward districts The A, B, and C categories are eligible for subsidy on investment in fixed assets in an industrial unit, as given below:
Category Percent Subsidy Maximum Limit Per unit

Backward area & industrial policy contd.


25 15 10 not eligible for subsidy

Rs 25 lakh Rs15 lakh Rs 10 lakh

Global locations
World-wide locations are called global locations. E.g. MNCs are setting up their branches in India & Indian companies are extending their operations in other countries like USA, EUROPE , CHINA. virtual proximity Social networking at a distance .with the advances in telecommunications technology , a firm can be in virtual proximity to its customers.

Virtual Factory
Many firms based in USA and UKin the service sector and in the manufacturing sectoroften outsource part of their business processes to foreign locations such as India. Thus, instead of one's own operations, a firm could use its business associates' operations facilities. In a way, the Indian BPO firm is that foreign-based company's 'virtual service factory'. So, one's business associate's operations facilities is called virtual factory.


REASONS FOR A FOREIGN LOCATION Reaching the Customer -One obvious reason for Other Tangible ReasonsThe host country may have/offer substantial tax advantages compared to the home country. The costs of manufacturing and/or running operations may be substantially less in that foreign country. This may be due to

locating a facility abroad is that of capturing a share of the market expanding worldwide.


Low labor cost Low raw material cost Better availability of inputs

The co. may overcome the tariff (table of fixed charges) barriers by setting up a manufacturing plant in foreign country rather than exporting the items to that country.

3. Intangible reasons-

Customer-related reasons firms

customer may feel secure that firm is more accessible. Firm may be able to give a personal touch. Firm may understand customers requirements better. It may discover other potential customers in abroad.

Organizational learning related reasons


can learn advanced technology Firm can learn from its customers abroad It can also learn from its competitors operating in abroad. It may also learn from its suppliers abroad.

Plant layout
MeaningPlant layout is the physical arrangement of industrial facilities. It involves the allocation of space & the arrangement of equipment in such a manner that overall operating costs are minimized.




Objectives of plant layout




An efficient layout can be instrumental in the accomplishment of the following objectivesEconomies in materials, facilitate manufacturing process & handling of semi-finished & finished goods. Proper & efficient utilization of available floor space. To avoid congestion & bottlenecks. Provision of better supervision & control of operations.

Objectives of plant layout cont.

5. Careful planning to avoid frequent changes in layout which may result in undue increase in cost of production. 6. To provide adequate safety to the workers from accidents. 7. To meet the quality & capacity requirements in the most economical manner. 8. Provision of medical facilities & cafeteria at suitable & convenient places. 9. To provide efficient material handling system. 10. To suggest the improvements in production process & work methods.

Principles of plant layout

1. 2. 3. 4. 5. 6. 7.

Principle of integration (of 5Ms) Principle of minimum distance Principle of cubic space utilization( both horizontal & vertical space). Principle of flow( must be forward no backtracking) Principle of maximum flexibility Principle of safety, security & satisfaction Principle of minimum handling.

Types of plant layout

Product layout 2. Process layout 3. Fixed Position/ Stationary layout Product layout1.

Layout that uses standardized processing operations to achieve smooth, rapid, highvolume flow Here machines are arranged acc. To the needs of product & in the same sequence as the operations are necessary for manufacture. E.g. back office of services such as banks and insurance companies.

Product Layout
Raw materials or customer
Material and/or labor

Station 1 Material and/or labor

Station 2
Material and/or labor

Station 3
Material and/or labor

Station 4

Finished item

Used for Repetitive or Continuous Processing

Advantages of Product Layout

2. 3. 4. 5. 6. 7.

High rate of output Low unit cost Labor specialization Low material handling cost High utilization of labor and equipment Established routing and scheduling Short processing time

Disadvantages of Product Layout

1. 2. 3. 4. 5. 6.

Creates dull, repetitive jobs Poorly skilled workers may not maintain equipment or quality of output Fairly inflexible to changes in volume Highly susceptible to shutdowns Needs preventive maintenance Require large capital investment

A U-Shaped Production Line


4 5




Process layoutLayout that can handle varied processing requirements Here all machines performing similar type of operations are grouped together at one location in the process layout. Thus here facilities are grouped together acc. To their functions. E.g. all drilling machines are located at one place known as drilling section.

Process Layout
Process Layout (functional)
Dept. A Dept. B Dept. C Dept. D Dept. E Dept. F

Used for Intermittent processing Job Shop or Batch

Product Layout
Product Layout (sequential)
Work Station 1 Work Station 2 Work Station 3

Used for Repetitive Processing Repetitive or Continuous

Advantages of Process Layouts

1. 2. 3.

5. 6. 7.

Can handle a variety of processing requirements Machines breakdown doesnt result in shutdown. Equipment used is less costly Wide flexibility in production facilities. Each production unit of system works independently. High utilization of facilities Variety makes the job interesting.

Disadvantages of Process Layouts

1. 2. 3.



In-process inventory costs can be high Challenging routing and scheduling Equipment utilization rates are low Material handling is slow and inefficient & is more. More space is required Longer processing time Back tracking may occur.


Comparison of product & process layout

Product layout

Process layout
Better utilization

1. nature 3. product 4. Processing time

Sequence of facilities Similar aregp2gether

2. Machines utilization Not to full capacity

5. Material handling
6. inventory 7. breakdown 8. Production centre 9.flexibilty 10. floor space 11. investment

standardized less less High WIP Cant tolerate simple low Requires less high

diversified more more Low WIP Can tolerate complex high more low

Stationary layout- Layout in which the product or project remains stationary, and workers, materials, and equipment are moved as needed. E.g. construction of DAMS. The product, because of its size and/or weight, remains in one location and processes are brought to it.


3. 4.

5. 6.

Factors affecting plant layout Nature of product- e.g. some products need airconditioned plants. Size of outputFor bulk-product/line layout For small-functional layout Nature of manufacturing systemFor continuous-product/line layout Localization of plant- e.g. there will be different transportation arrangement if site is located near railway line. Machines or equipment- e.g. heavy machines need stationary layout Climatic conditions, need of light, temperature also affect design of layout.