Facility (Plant) Location

Introduction

Facility location is about arriving at decision on where and how to locate facility. Most
organisations are saddle with challenges of choosing a suitable location for sitting a factory or
for expansion purposes. Such decision includes:

 The location of organisation in a larger and broad area. This is where production and
other manufacturing activities take place.
 The selection of a specific location for building a factory. This is typically a smaller area
within the larger area. The major consideration for arriving at a decision to location any
facility is the minimum cost of overall production.

Learning Objectives
Students are expected to :
1. Understand the meaning of facility location
2. Identify Reasons for Facility Location Decision
3. Understand the basic procedure in facility location
4. Understand the various factors for determining the facility location
5. Understand the advantages and disadvantages
6. Understand and Compute the technique for allocating facility to jobs

Meaning of Facility Location

Facility location means arriving at the decision to put up a facility in a suitable location with
utmost consideration on the reduction of cost

Reasons for Facility Location Decision

1. When the decision is to established a new factory

2. Relocation of existing factory to another location because of increase in cost of
acquisition
3. When there is need for expansion to meet the need of increased production
4. The decision to near the market, near the raw materials, improvement in transportation
facilities etc,.

The basic procedures in facility location

1. Choice of the broad area or region of operation e.g south south

2. Choice of the specific host area e.g River state
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 3. Selection of the exact plant location site.

Choice of the broad area

This refers to the choice of a larger area in terms of region in which the facility or factory will be
located. For example, the decision to establish a palm oil factory in South-south of Nigeria.

Choice of the specific host area

This refers to the choice of specific area within the identified broader area. For instance, the
decision is to locate the factory in South-south of Nigeria. The next decision is to chose to locate
in a specific area such as River state since it is one of the states in South-south of Nigeria.

Choice of an exact plant location site

This is decision to locate the facility in a more exact place than specific. This decision is often
played around either the urban or rural, density or sparse etc. Consequently the final decision wil
be which community will host the facility.

Factors determining the Choice of the broad area

a. Meteorological conditions and Topography

Meteorological conditions should be of first consideration before facility location decision is

made. An entrepreneur should have an idea about rainfall, cold, heat, fog, humidity, flood,
likelihood of earthquake in the region, and so on, before a decision is made, as knowledge of
these could help in determining the influence the elements can have on the processes to be
carried out in the factory. For instance, there may be need for financial consideration if an
organisation is erecting a building in a swamping area because of the high cost of pilling.

b. Availability of raw materials

Raw materials are of two types, ubiquities and localised materials. Ubiquities imply existing
everywhere. Such materials include water, clay, sand, and so on. In the case of localised
rawmaterials, these are materials concentrated in certain areas, such as coal, minerals, rubber,
timber, cotton, and so on. Localised materials can further be classified into gross and pure
materials. While gross materials are those that lose weight in the process of transformation into
finished products (such as lime stone, sugarcane, etc), purematerial are those that add to the

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weight of the finished product, hence the factory using pure materials are best located near
markets.

Nearness to raw materials is important when heavy and bulky materials of small value are
concerned. In the case of perishable raw materials, nearness to the source of supply is important.
Also, it will be of great advantage if factories are located near ports for those industries that rely
on imported materials as this will help to reduce the cost of transportation.

c. Availability of power

Availability of power is an important decisive factor in plant location. This is because power
is very essential for production activities and ultimately the survival of organisation. Several
companies in Nigeria have relocated to neighbouring countries because of poor power supply in
the country.

d. Availability of market

Availability of ready market is essential when considering plant location. This is because
nearness to market helps to reduce the cost of transporting goods over long distances. The
location of facility near to market will result in the below listed benefits:

 Reduction in the cost of transporting finished goods as well as advertisement expenses

thus enabling goods to be sold at cheaper rates.
 The rendering of prompt and quick service to customers.
 The execution of almost immediate replenishment.
 The provision of after sale services to customers that complain about the good supply.
 If the goods being manufactured are of perishable type or susceptible to spoilage,
nearness to market will enable quick delivery of such products.
 In the case of fragile products, nearness of the plant to market will reduce the costs that
might arise as a result of breakages.

e. Availability of means of transportation

Transport is important for location of plant as conveyance of raw materials to production site
will require transport. Transport is also required in the distribution of finished products as well as
for carrying the workforce to the factory.. Furthermore, sales personnel will need transport to
enable them perform their duty. Hence, efforts should be made to locate a plant where it can be
directly connected by water, road, rail and air facilities

Factors determining the Choice of the specific host area

a. Availability of Labour

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Since labour is a major component of total cost of production, priority should be given to sourcing labour
from the locality. This is to ensure reduction in labour cost. Factory is better located near a place of
supply of the particular type of labour required. Where only skilled labourers are required, a factory is
located near an urban area that has such labour. However, if semi-skilled and unskilled labourers are
needed, the factory is better located in the rural area with abundance of such skill. The characteristics of
labour supply are: stable labour force, right type of labour, adequacy in the number of employees,
reasonable wage rates, right attitude towards work, reliability of labour supply, and conducive
environment.

b. Availability of banking and institutions

No industrial enterprise can underestimate the need for finance since the factory will require
funds to meet its obligations as it grows large. Hence, the possibility of raising funds from within
the environment should be of major consideration. The existence of banking and finance
institutions within a locality will therefore be an advantage in facility location.

c. Availability of water

Depending on the nature of the factory, water is essential for the purposes of cooling, waste
disposal, sanitation, processing of products and in case of fire, for the sprinkler system. For this
reason, there is need for water to be available in the right quantity and quality. Also, stability of
water supply and problems that could lead to water pollution, mineral content of the water and
transportation of water if not readily available in the locality should be of concern. Although a
good number of factories do depend on bore holes provided by the promoters, it leads to added
cost of production because bore holes may have to be powered by generators in most cases.

d. Momentum for early start of operation

An industrial concern is interested in how early processing of product can begin. As a matter of
fact, this is one major factor responsible for the selection of an area that many successful
industries to thrive. It has been observed that when factories start in an industrial community,
various facilities, such as repair services, transport and communication systems, shops and
restaurants, banking services, and so on, are also extended to such area.

e. Personal and historical factors

Personal and historical considerations are other factors that could influence the choice of an area.
In a number of cases, the selection of an area is not just based on economic consideration only.
Personal preference and prejudices of the promoters do play a role particularly if the promoters
are indigenes of the selected region. Furthermore, historical events do play a role in the location
of a plant. A good number of promoters would prefer to be close to tourist attraction areas once
other factors mentioned earlier are available.

f. Political stability
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Even when other considerations are in favour of a locality, knowledge of the political situation
and local disputes among the people within the area may be a disadvantage to the choice of the
area.

g. State assistance

State assistance will be an incentive to encourage the establishment of factories to provide

employment and develop the local areas. Such assistance include: provision of access
roads,partial waiver of taxes, concession on processing fee, permission to tap local resources,
partial exemption from sales tax, exemption from stamp duty and concession from processing
fee.

3.2.3 Factors for Determining the Choice of an Exact Plant Location Site

Here we are concerned with determining the exact place where the factor should be
established within the locality selected. The factors that will influence the choice are:

(i) Type of soil

The analysis of the soil in the proposed location must be examined and tested at different
points below the surface to ensure that it can carry the type of load that will be on it when the
factory is established. This is to make sure that the right foundation is laid as sandy soil will
require deep foundation which may demand extra cost.

(ii) Price of land

Price of land can influence the exact location of a factory in that if the price is very high, it
will involve investment of higher fixed capital in the case of outright purchase. However, an
alternative to buying the land is to acquire it on lease. This will only involve payment of rent
rates at specific period. The effect of this is that the profit from the factory will reduce.

(iii)Expansion potential

Consideration should also be given to expansion potential in the near future when a choice is
to be made on the exact location. This is because as time progresses, the factory may
discover that there is need to expand either to enable it produce at a higher volume or to
begin the production of a second product. At times, it is of great advantage for the promoter
to select a site where land is available at the adjacent site to the factory for future
developmental purpose.

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(iv) Availability of waste disposal facility

Factories are known to generate a lot of waste, hence it is essential that waste disposal
facilities are available so as not to endanger both human and animal life. Where some other
factories can utilise the waste products as inputs, a factory generating such waste is better
located close to such other factories so as to reduce the cost ofproviding waste disposal
facilities. Industrial waste can be classified into three, namely, solid waste, liquid waste and
gaseous waste. While liquid waste should be disposed through sewage connections in the
factory area drained into some other safe places, solid waste requires acquisition of additional
land space on which the waste could be deposited. On the other hand, gaseous waste must be
disposed into high altitudes in the atmosphere through chimney pipes after they must have
been treated specially to render them harmless.

(v) Availability of commercial services

There is the need for commercial services such as warehousing, repair workshops,
accounting and audit services to be available near the selected site.

(vi) Availability of amenities

A location that provides good amenities, such as restaurants, schools, hospitals, shopping
centres, clubs and communication facilities (both postal and telephone means) are often at an
advantage when considering factory site. Such amenities do provide additional incentives to
the factory staff.

(vii) Health of the locality

Enquiry should be made about the health of the locality been selected. Such enquiry relates to
whether any disease is conspicuously present near the site being proposed. Investigation
should also be made on whether the disease is due to local conditions like heat, insects
(mosquitoes bite), bad or impure water, and so on, and such disease can be controlled.

(viii) Environmental conditions

A good site for a factory must be free of environmental problems such as flood and drought.
Hence in a case where the proposed site is very close to a river bank, investigation should be
made on whether the land was ever flooded and to what extent. If the investigation reveals
that the land had always been flooded to a great height, it is better to look for an alternative
site for the factory. However, where enquiry reveals that flooding has never been regular or
to high level, the plinth (a block of stone on which a column or statue stands) of the factory
building and foundations of machinery are to be raised above envisaged flood level in order
to save them from damages that may arise in case of flood. Similarly, manufacturing

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 factories do require a lot of water, hence it is better if a factory is not sited at a place that
experiences drought in order to be assured of regular water supply.

(ix) Right to title of land

This factor becomes important in order to guaranty the continuous existence of the factory. It
is therefore necessary to ensure that the promoters of the industry will have a continuous and
full right to the land on which the factory is to be set up. For this reason, documents relating
to the acquisition of the land must be perfected by competent persons as any defect in the
right and title of the land can drag the factory into prolonged litigation and this might be very
costly for the factory to bear.

(x) Technological know-how

Efforts should be made to ensure that knowledge of the techniques required by the factory
can be sourced nearby to avoid delay in repair and fixing of machines in case of breakdown.

(xi) Availability of religious and social institutions

The existence of social and religious institutions will enable the workers of the factory to
lead a value-based life as such institutions do help in shaping behaviour. These institutions
contribute a lot to industrial peace and harmony devoid of labour unrest.

Recent Trends in Facility (Plant) Location

These trends are explained below.

3.3.1 Location of Factories away from Cities

Long before now, factories were being located near cities. However, urban development that is
taking place all over the world has made it necessary for factories to be located away from cities,
hence the trend now favours locating a factory either in the rural area or suburban area. The
advantages and disadvantages of such location are as follows:

(i) Advantages and disadvantages of locating a factory in rural area

The major advantages of locating a factory in the rural area include: (1) low price of land,

(2) cheaper labour rates (as the standard of living is lower than the urban cities),

(3) opportunity for expansion of the factory as time goes on owing to availability of land,

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(4) lower taxes rates, (5) reduced labour unrest due to the absence of labour unions, (6) health
surroundings and good atmosphere, (7) easy waste disposal, (8) availability of pure water in
abundance and (9) inducements from government so as to develop the rural areas.

However, there are some disadvantages in siting a plant in the rural area. Firstly, it may be
difficult to get skilled labour within the rural area, so skilled labourers may have to be employed
from far and will require higher cost of recruitment. In a good number of cases, rural sites may
pose great difficulties in respect of power supply as electricity supply is not often extended to
rural areas. Availability of transportation and communication facilities are some other factors
that constitute a problem in the rural area as these facilities are not adequate or arecompletely
unavailable. Rural sites are always distant from markets thus increasing the cost of transporting
products to the market. Also contact with suppliers in case of urgent need is not possible, hence
materials may have to be bought in large quantities thus tying down capital that could have been
used for other needs. Furthermore, employees will have to be sent on technical training outin
cities. In the same vein, repairs and service stations, recreational facilities, colleges and hospitals
may not be available in the rural areas, while the problem of decent housing could also arise.

(ii) Advantages and disadvantages of locating a factory in suburban area

The advantages of siting a plant in a suburban area include:

(1). Availability of labour supply both in quality and quantity,

(2). Possibility of close contact with suppliers which enables materials to be obtained on
time and at the right price,

(3). Availability of repairs and service facilities,

(4). Availability of transport and communication facilities,

(5). Availability of municipal services such as power, water, health, school and recreational
facilities,

(6). Availability of technical and commercial facilities like training facility, repair
workshops, banking and insurance institutions, and warehousing. Also, suburban areas
are close to allied industries, market, and security for protection such as fire fighting
equipment and police.

Disadvantages of suburban areas include:

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 1. is that land is expensive to acquire. Further, suburban areas are often congested with
limited land space. This could cause poor ventilation within the factory and hence
unhealthy environment. Also expansion of the factory at a later time is constrained by
limited land space.

2. Property tax and water rates are high in suburban areas,

3. while labour wages are higher than the rural areas because of higher standard of living.

4. Labour unrest is also frequent since employees are members of organised unions.

5. Finally, over a period of time, suburban area may grow into a big city thus causing a
problem of overcrowding.

TECHNIQUES FOR ALLOCATING FACILITIES TO JOBS

There are several techniques for assigning facilities to jobs. Doing this, will require due consideration for
cost implication for assigning these facilities. Among the techniques are North West corner method and
linear assignment. However, for the purpose of this lesson, we shall limit our discussion to linear
assignment method.

LINEAR ASSIGNMENT METHOD.

This method involves identifying the unique zero in each row and column and drawing lines across these
zeros to assign optimally. The number of lines to be drawn must be equal to the number of row or column
i.e. row = column’

Steps in linear assignment

Step 1: Identify the smallest value in each row and column

Step 2: Subtract the identified figure from other figures in the row and column

Step 3: Draw lines across the zeros in an optimal manner, by the optimal we mean that the row or column
with the highest number of zeros should be drawn line first.

Step 4: The process of drawing lines across unique zeros will continue in an iteration form until
assignment is completed. Continuing from step 3, the smallest figure will be identified from among the
figures that were not covered by the line drawn.

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Step 5: The identified figure in step 4 will be subtracted from other figures that are not covered with
lines. The figures covered with lines are left constant, while the figures crossed by two lines or at
intersection will have the identified figure added to it.

Step 6:. Lines will be drawn across the unique zeros and the process in step 3 to 6 will continue until
assignment is completed.

WORK EXAMPLE

Assuming a sales company has four salespersons among and four territories in Lagos States in
Nigeria and is saddled with the responsibility to assign the sales reps to territories optimally.. A
critical analysis table of the sales potentials of each salesperson is given:

SALES TERRITORIES
SALESPERSON Ikorodu Yaba Ojo Ikeja
GILO 62 58 49 42
Alex 58 72 57 71
Rexo 70 81 69 40
Vinto 30 52 51 62

The first step is to identify the smallest figure in each row and column and subtract

Row reduction

SALES TERRITORIES
SALESPERSON Ikorodu Yaba Ojo Ikeja
GILO 20 16 7 0
Alex 1 15 0 14
Rexo 30 41 29 0
Vinto 0 22 21 32

Column reduction

SALES TERRITORIES
SALESPERSON Ikorodu Yaba Ojo Ikeja
Gilo 20 1 7 0
Alex 1 0 0 14
Rexo 30 26 29 0
Vinto 0 7 21 32
Lines will be drawn across unique zeros optimally after column reduction. Since the number of line
drawn is not equal to number of row or column, there is need to continue from step 4 below

SALES TERRITORIES
SALESPERSON Ikorodu Yaba Ojo Ikeja
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 GILO 19 0 6 0
Alex 1 0 0 15
Rexo 29 25 28 0
Vinto 0 7 21 33

Gilo = yaba, ikeja,

Alex = yaba, ojo

Rexo = ikeja

Vinto = ikorodu

Gilo has zeros under Yaba and Ikeja,

Alex has two zeros under Yaba and Ojo

Rexo has only one zero under Ikeja

Vinto also has only zro undr Ikorodu

Common sense will demand that we assign Vinto to Ikorodu, Rexo to Ikeja since these are the only
available locations for them, Gilo will be assigned to Yaba since Rexo is already assigned to Ikeja while
Alex will be assigned to Ojo. Thus we have

Gilo = Yaba

Alex = Ojo

Rexo = Ikeja

Vinto = Ikorodu

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