UNIT- III

PLANT LOCATION & LAYOUT

Factors influencing plant location, issues and challenges in location. Plant layout- Classification
of layouts - Advantages and Disadvantages, Layout procedure.

Plant Location:
It is a function of determining where the plant should be located for maximum operating
economy and effectiveness.
Plant location refers to the choice of region and the selection of a particular site for setting up a
business or factory. It is a function of determining where the plant should be located for
maximum operating economy and effectiveness
Plant location decision are very important because they have direct bearing on factors like-
financial, employment and distribution patterns. In long run, relocation of plant may even
benefit the organization. But, relocation leads to stoppage of production, and also cost for
shifting the facilities to a new location.
IMPORTANCE OF LOCATION PLANNING:
Location planning decision are very crucial and important for all types of business units. This is
because it involves cost, selling price and demand of the product. It is non-recurring heavy
expenditure.
Large companies take help from different professionals like Lawyers, Accountants and
Environmentalists etc for selecting proper location of plant.
Points to be considered Important for Location Planning are:
 Expansion
 Cost Advantage
 Discovery of Raw-material
 Additional Facilities
 Mergers
 Increasing Product Demand

 Available Tax Benefits

 Political and Social Changes.

Factors influencing plant location
(i) Availability of Raw Materials
(ii) Proximity to Market
(iii) Infrastructural Facilities
(iv) Government Policy
(v) Availability of Manpower
(vi) Local Laws, Regulations and Taxation
(vii) Ecological and Environmental Factors
(viii) Competition
(ix) Incentives, Land costs. Subsidies for Backward Areas
(x) Climatic Conditions
(xi) Political conditions.

(i) Availability of Raw Materials:

One of the most important considerations involved in selection of industrial location has been the
availability of raw materials required. The biggest advantage of availability of raw material at the
location of industry is that it involves less cost in terms of ‘transportation cost.
If the raw materials are perishable and to be consumed as such, then the industries always tend to
locate nearer to raw material source. Steel and cement industries can be such examples. In the
case of small- scale industries, these could be food and fruit processing, meat and fish canning,
jams, juices and ketchups, etc.
(ii) Proximity to Market:
If the proof of pudding lies in eating, the proof of production lies in consumption. Production has
no value without consumption. Consumption involves market that is, selling goods and products
to the consumers. Thus, an industry cannot be thought of without market.
Therefore, while considering the market an entrepreneur has not only to assess the existing
segment and the region but also the potential growth, newer regions and the location of
competitors. For example, if one’s products are fragile and susceptible to spoilage, then the
proximity to market condition assumes added importance in selecting the location of the
enterprise.
Similarly if the transportation costs add substantially to one’s product costs, then also a location
close to the market becomes all the more essential. If the market is widely scattered over a vast
territory, then entrepreneur needs to find out a central location that provides the lowest
distribution cost. In case of goods for export, availability of processing facilities gains
importance in deciding the location of one’s industry. Export Promotion Zones (EPZ) are such
examples.
(iii) Infrastructural Facilities:
Of course, the degree of dependency upon infrastructural facilities may vary from industry to
industry, yet there is no denying of the fact that availability of infrastructural facilities plays a
deciding role in the location selection of an industry. The infrastructural facilities include power,
transport and communication, water, banking, etc.
Yes, depending upon the types of industry these could assume disproportionate priorities. Power
situation should be studied with reference to its reliability, adequacy, rates (concessional, if any),
own requirements, subsidy for standby arrangements etc. If power contributes substantially to
your inputs costs and it is difficult to break even partly using your own standby source,
entrepreneur may essentially have to locate his/her enterprise in lower surplus areas such as
Maharashtra or Rajasthan.
(iv) Government Policy:
In order to promote the balanced regional development, the Government also offers several
incentives, concessions, tax holidays for number of years, cheaper power supply, factory 41
shed, etc., to attract the entrepreneurs to set up industries in less developed and backward areas.
Then, other factors being comparative, these factors become the most significant in deciding the
location of an industry.
(v) Availability of Manpower:
Availability of required manpower skilled in specific trades may be yet another deciding factor
for the location of skill- intensive industries. As regards the availability of skilled labour, the
existence of technical training institutes in the area proves useful. Besides, an entrepreneur
should also study labour relations through turnover rates, absenteeism and liveliness of trade
unionism in the particular area.
While one can get cheaper labour in industrially backward areas, higher cost of their training and
fall in quality of production may not allow the entrepreneur to employ the cheap manpower and,
thus, establish his/her enterprise in such areas.
(vi) Local Laws, Regulations and Taxes:
Laws prohibit the setting up of polluting industries in prone areas particularly which are
environmentally sensitive. Air (Prevention and Control of Pollution) Act, 1981 is a classical
example of such laws prohibiting putting up polluting industries in prone areas. Therefore, in
order to control industrial growth, laws are enforced to decongest some areas while
simultaneously encourage certain other areas.

(vii) Ecological and Environmental Factors:

In case of certain industries, the ecological and environmental factors like water and air pollution
may turn out to be negative factor in deciding enterprise location. For example, manufacturing
plants apart from producing solid waste can also pollute water and air. Moreover, stringent waste
disposal laws, in case of such industries, add to the manufacturing cost to exorbitant limits.

(viii) Competition:
In case of some enterprises like retail stores where the revenue of a particular site depends on the
degree of competition from other competitors’ location nearby plays a crucial role in selecting
the location of an enterprise. The areas where there is more competition among industries, the
new units will not be established in these areas. On the other hand, the areas where there is either
no or very less competition, new enterprises will tend to be established in such areas.
(ix) Incentives, Land Costs, Subsidies for Backward Areas:
With an objective to foster balanced economic development in the country, the Government
decentralizes industries to less developed and backward areas in the country. This is because the
progress made in islands only cannot sustain for long. The reason is not difficult to seek.
“Poverty anywhere is dangerous for prosperity everywhere.” That many have-not’s will not
tolerate a few haves is evidently clear from ongoing protests leading to problems like terrorism.
Therefore, the Government offers several incentives, concessions, tax holidays, cheaper lands,
assured and cheaper power supply, price concessions for departmental (state) purchases, etc. to
make the backward areas also conducive for setting up industries.
(x) Climatic Conditions:
Climatic conditions vary from place to place in any country including India. And, climatic
conditions affect both people and manufacturing activity. It affects human efficiency and
behaviour to a great extent. Wild and cold climate is conducive to higher productivity. Likewise,
certain industries require specific type of climatic conditions to produce their goods. For
example, jute and textiles manufacturing industries require high humidity.
(xi) Political Conditions:
Political stability is essential for industrial growth. That political stability fosters industrial
activity and political upheaval derails industrial initiates is duly confirmed by political situations
across the countries and regions within the same country. The reason is not difficult to seek.
The political stability builds confidence and political instability causes lack of confidence among
the prospective and present entrepreneurs to venture into industry which is filled with risks.
Community attitudes such as the “Sons of the Soil Feeling” also affect entrepreneurial spirits and
may not be viable in every case.
Issues and challenges in location
 Proximity to customers
 Business climate
 Total Costs
 Infrastructure
 Quality of labour
 Suppliers
 Free trade zones
 Political risk
 Government barriers
 Trading blocks
 Environmental regulations
 Host community
Location Models:
 Factor Rating Method
 Weighted Factor Rating Method
 Load-Distance Method
  Centre of Gravity Method
 Break-Even Analysis.
1. Factor Rating Method

The process of selecting a new facility location involves a series of following steps:

1. Identify the important location factors.

2. Rate each factor according to its relative importance, i.e ., higher the ratings is indicative
of prominent factor.

3. Assign each location according to the merits of the location for each factor.

4. Calculate the rating for each location by multiplying factor assigned to each location with
basic factors considered.

5. Find the sum of product calculated for each factor and select best location having highest
total score.

2.Weighted Factor Rating Method:

In this method to merge quantitative and qualitative factors, factors are assigned weights
based on relative importance and weightage score for each site using a preference matrix is
calculated.

The site with the highest weighted score is selected as the best choice.

3. Load-Distance Method:
The load-distance method is a mathematical model used to evaluate locations based on
proximity factors.
The objective is to select a location that minimizes the total weighted loads moving into and
out of the facility.
The distance between two points is expressed by assigning the points to grid coordinates on
a map.
An alternative approach is to use time rather than distance.
 For load-distance method, a rough calculation that is either Euclidean or rectilinear
distance measure may be used.
Euclidean distance is the straight-line distance, or shortest possible path, between two
points.
4. Centre of Gravity Method:
The centre of gravity is defined to be the location that minimizes the weighted distance
between the warehouse and its supply and distribution points, where the distance is
weighted by the number of tones supplied or consumed.
Centre of gravity is based primarily on cost considerations. This method can be used to
assist managers in balancing cost and service objectives.
The centre of gravity method takes into account the locations of plants and markets, the
volume of goods moved, and transportation costs in arriving at the best location for a
single intermediate warehouse.
5.Break-Even Analysis:
It implies that at some point in the operations, total revenue equals total cost.
Break even analysis is concerned with finding the point at which revenues and costs agree
exactly.
It is called ‘Break-even Point’.
Break-even point is the volume of output at which neither a profit is made nor a loss is
incurred.
It is calculated as
BEP = Fixed Cost / Contribution * 100 ; Contribution = Sales – Variable Cost
Plant layout
It is a floor plan of the physical facilities which are used in production. Plant layout is a plan for
effective utilization of facilities for the manufacture of products; involving a most efficient and
economical arrangement of machines, materials, personnel, storage space and all supporting
services, within available floor space

It is concerned with the orderly and proper arrangement and use of available resources viz., men,
money, machines, materials and methods of production inside the factory. A well designed plant
layout is concerned with maximum and effective utilisation of available resources at minimum
operating costs.

“Plant layout is the arrangement of machines, work areas and service areas within a factory”. —
George R. Terry
“Plant layout involves the development of physical relationship among building, equipment and
production operations, which will enable the manufacturing process to be carried on efficiently”. —
Morris E. Hurley

OBJECTIVES OF PLANT LAYOUT

1.To achieve economies in handling of raw materials, work in- progress and finished goods.
2. To reduce the quantum of work-in-progress.
3. To have most effective and optimum utilisation of available floor space.
4. To minimise bottlenecks and obstacles in various production processes thereby avoiding the
accumulation of work at important points.
5. To introduce system of production control.
6. To ensure means of safety and provision of amenities to the workers
7.To provide better quality products at lesser costs to the consumers.
8.To ensure loyalty of workers and improving their morale.

9. To minimise the possibility of accidents.

10. To provide for adequate storage and packing facilities.

11. To workout possibilities of future expansion of the plant.

12. To provide such a layout which permits meeting of competitive costs?

Factors influencing plant layout

 Factory Building

 Nature of Product

 Production process

 Type of machinery

 Human needs

 Plant environment

 Management policies

Principles of Plant Layout:

1. Principle of Integration

2. Principle of minimum distance

3. Principle of Cubic Space Utilization

4. Principle of Flow

5. Principle of Maximum Flexibility

6. Principle of Safety, Security and Satisfaction

7. Principle of minimum handling

Criterial of Good Layout:

1. Maximum Flexibility

2. Maximum Coordination

3. Maximum Visibility

4. Maximum Accessibility

5. Maximum Distance to be avoided

6. Minimized handling

7. Minimized Discomfort

8. Inherent Safety
 9. Identification of Work space for each person.

10. Efficient Process Flow

Classification of layouts

⚫ Product or line layout

⚫ Process or functional layout

⚫ Fixed position or location layout

⚫ Combined or group layout

Product or line layout

⚫ In this type of layout the machines and equipments are arranged in one line depending
upon the sequence of operations required for the product. It is also called as line layout

⚫ The material moves one machine to another machine sequentially without any back
tracking or deviation. i.e The output of one machine becomes input of the next machine.
It is used for mass production of standardized products.

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

Suitability of product layout

Process or functional layout

 In this type of layout the machines of a similar type are arranged together at one
place.
 Eg. Machines performing drilling operations are arranged in the drilling
department , machines performing casting operations be grouped in the casting
department.
 This type of layout is used for batch production.
 It is preferred when the product is not standardized and quantity produced is
relatively small
 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

Suitability of product layout

Fixed position or location layout

• 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 high.

Advantages:
The major advantages of this type of layout are:

• Helps in job enlargement and upgrades the skills of the operators.

• The workers identify themselves with a product in which they take interest and pride in
doing the job.

• Greater flexibility with this type of layout.

• Layout capital investment is lower.

Limitations:

• Transfer of machines & equipment to production centre consumes a lot of time and can
be very expensive.

• Highly skilled workers are needed for carrying out the operations of fixed position layout.

• The machines and equipment are not utilized effectively due to handling and positioning
constraints.
Group technology layout

 Group technology (GT) is the analysis and comparisons of items to group them into
families with similar characteristics.
 Group layout is a combination of the product layout and process layout.
 It combines the advantages of both layout systems
 There is a trend now to bring an element of flexibility into manufacturing system as
regards to variation in batch sizes and sequence of operations. A grouping of
equipment for performing a sequence of operations on family of similar components
or products has become all the important.
 GT can be used to develop a hybrid between pure process layout and pure flow line
(product) layout. This technique is very useful for companies that produce variety of
parts in small batches to enable them to take advantage and economics of flow line
layout.

⚫ There are three methods that can be used to form part families.

1. Manual visual inspection

 2.Production flow analysis

3.Classification and coding

Advantages of Group Technology

 Better space utilisation

 Reduced material handling effort
 Reduction in production time
 Reduction in number of machine operations and numerical control programming
time.
 Reduced work in progress inventory
 Easy identification of bottle neck

Limitations:

 Machines may required their own individual stock of materials.

 In adequacies in employees education, training & involvement could come in
the way of proper implementation.
 If the product mix is completely dissimilar then we may not have meaningful cell
formation