120511/Industrial Engineering

Unit-4
Facility Location

Dr. Nitin Upadhyay

Department of Mechanical Engineering
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Facility Planning
• Plant Location

• Plant Layout

Source:- Google image

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Plant Location
• Plant location refers to the location of organization.

• It refers to selection of specific site for establishment of the

physical unit of production process.

• It is a strategic decision of an organization.

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Need of Plant Location
§ In case of new factory
§ In case of existing factory

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Need of Plant Location
For existing facility
§ Change in availability of resources
§ Shift of demand
§ To expand new target market
§ Development of new technology
§ Socio Political and legal changes

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Location decisions Critical Success Factors
Country Decision 1. Political risks, government
rules, attitudes, incentives
2. Cultural and economic issues
3. Location of markets
4. Labor availability, attitudes,
productivity, costs
5. Availability of supplies,
communications, energy
6. Exchange rates and currency
risks
6
 Location decisions Critical Success Factors
Region/ Community
1. Corporate desires
Decision
2. Attractiveness of region
3. Labor availability, costs, attitudes towards
MN unions
WI
4. Costs and availability of utilities
MI
5. Environmental regulations
IL IN OH 6. Government incentives and fiscal policies
7. Proximity to raw materials and customers
8. Land/construction costs

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Location decisions
Critical Success Factors
Site Decision 1. Site size and cost
2. Air, rail, highway, and
waterway systems
3. Zoning restrictions
4. Nearness of services/
supplies needed
5. Environmental impact issues

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Plant Layout

Source - http://www.vbengg.com/img16/services/plant-layout-design4.jpg

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 Plant layout

• According to Riggs, “The overall objective of plant layout is to

design a physical arrangement that most economically meets
the required output - quantity and quality”

• According to J.L. Zundi, “ Plant Layout ideally involves

allocation of space and arrangement of equipment in such a
manner that overall operating cost are minimized”

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 Plant layout
• Objectives

• Factor influencing plant layout

• Principles of ideal layout

• Importance of plant layout

• Types of plant layout

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 Plant layout

• Material flow pattern

• Tools and techniques of plant layout

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Factors affecting plant location

• General locational factors

- Include controllable and uncontrollable factors for all
type of organizations

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 General location factors
• Controllable factors
- Proximity to markets
- Supply of raw materials
- Transportation facilities
- Infrastructure availability
- Availability of labor and wages

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General location factors
• Uncontrollable factors
- Government policy
- Climate conditions
- Supporting industries and services
- Community and labor attitudes
- Community Infrastructure

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 Proximity of markets
§ Location of facilities close to the market
- Provide goods and services at time and reasonable price
- Reduce the transportation cost

§ Location of facilities close to market (based on product)

- Delicate and susceptible to spoilage
- Services are promptly required very often
-Self life of the product is low

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 Supply of raw material
§In right qualities and at right time in order to have an uninterrupted
production.

§Availability of raw materials nearer to the plant location decreases

the transportation cost.

§Examples of some industries in which raw material availability

should be nearer to plant location sugar, cement, jute and cotton
textiles
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 Transport facility
§Transport facilities are very important for bringing raw materials to
the factory.

§Transport facilities are very important for finished goods to the

market

§A place which is well connected by rail, road, air and water

transport facilities is suitable for plant

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 Infrastructure
• The basic infrastructure facilities are power, water and waste disposal.

• Certain types of industries are strong power dependent (aluminum and steel)
• Process industries like paper, chemical, cement require continuous supply of
water in large amount and good quality.

• A waste disposal facility for process industries is an important factor, which

influences the plant location

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Availability of labor and wages
• Adequate number of labor and with specific skills
• Cheap manpower need training program which need
extra funding
• Now a days, the influence of skilled labor on plant has
lost because of mobility
• Prevailing wage pattern, cost of living, industrial relations
and bargaining power of the employee unions’ are
important considerations

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

• Incentive package given by government to entrepreneur in a particular

location:
- exemption from a sales tax and excise duties
- soft loan from financial institutions
- subsidy in electricity charges
- investment subsidy

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 Supporting industries and services
• Now a day the manufacturing organization will not make all the
components and parts by itself

• The source of supply of component parts will be the one of the factors that
influences the location.

• 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

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 Climate
• It is important for two reasons
- There are certain industries which mainly
depends on nature of production
Example :- Humid climate for Cotton textiles
and jute
- Climate also affect the labor efficiency

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 Community and labor attitudes
• Community attitude towards their work and towards the
prospective industries can make or mar the industry.

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Location Evaluation Methods

• Cost-volume analysis
• Factor-rating method.
• Center of gravity method.
• Transportation model.

25 2
 Cost-Volume Analysis

• Determine fixed and variable costs

• Plot total costs
• Determine lowest total costs

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Cost-Volume Analysis
Assumptions
• Fixed costs are constant
• Variable costs are linear
• Output can be closely estimated
• Only one product involved

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 Cost-Volume Analysis
Fixed and variable costs for four (4) potential locations

L o c a tio n F ix e d
Cost
A $ 2 5 0 ,0 0
B 1 0 0 ,0 0
C 1 5 0 ,0 0
D 2 0 0 ,0 0
V a r ia b le
C ost
0 $11
0 30
0 20
0 35

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 Cost-Volume Analysis
Fixed Variable Total
Costs Costs Costs

A $250,000 $11(10,000) $360,000

B 100,000 30(10,000) 400,000
C 150,000 20(10,000) 350,000
D 200,000 35(10,000) 550,000

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 Cost-Volume Analysis
$(000)
800 D
700 B
600
C
500 A
400
300 A Superior
C Superior
200 B Superior
100 0
2 4 6 8 10 12 14 16
0
Annual Output (000)
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 Factor-Rating Method
• Most widely used location technique.
• Useful for service and industrial locations.
• Rates locations using factors.
• Decision based on quantitative and qualitative inputs.
- Intangible (qualitative) factors
Example: Education quality, labor skills.
- Tangible (quantitative) factors
Example: Short-run and long-run costs.
• Based on weighted average.
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 Factor-Rating Method
• List relevant factors.
• Assign importance weight to each factor (0-1).
• Make sum of weights as unity.
• Set a scale for scoring each factor (1-10 or 1-100).
• Score each location using factor scale.
• Multiply scores by weights for each factor and add.
• Select location with maximum total score.

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 Factor-Rating Method
Three locations: A, B and C; Four
Factor Weight A B C
factors.
Cost 0.3
1. Assign weights to each factor. Proximity to source 0.2
2. Score each location on each factor. Taxes 0.1
3.Multiply the weight and score and Labor 0.4

sum for each location.

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 Factor-Rating Method
Factor Weight A B C
Cost 0.3 10 9 7
Proximity to source 0.2 7 3 10
Taxes 0.1 7 5 10
Labor 0.4 6 8 5
7.5 7 7.1

A is best; B and C are similar.

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 Center of Gravity
Method
• Decision based on minimum distribution costs
• Find location of single facility serving several destinations.
•Used for services and distribution centers.
Requires:
- Location of existing destinations (Markets, retailers etc.)
- Volume to be shipped.
- Shipping distance (or cost)
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 Center of Gravity
Method
• Find X and Y coordinates for all destinations.
• Can use an arbitrary coordinate grid.
• Calculate center of gravity location for facility as weighted
average of X and Y coordinates.
• Minimizes the transportation cost approximately.
• Location is not necessarily optimal, but is usually close.

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 Center of Gravity Method

X Coordinate • dix = x coordinate

å d ix Wi of location i
Cx = i
å Wi
i
• Wi = Volume of
goods moved to or
from location i
Y Coordinate
å d iy Wi • diy = y coordinate
Cy = i
å Wi of location i
i
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 Center of Gravity
Method
Four cities with volume of demand and (x, y) coordinates are given.
Find location for a warehouse minimizing total distance to supply these cities.
Location Volume NewYork (130,130)
Chicago (30,120)
Chicago 200 120
Pittsburgh 100 Pittsburgh (90,110)
New York 100
60
Atlanta 200
Atlanta (60,40)
00 60 120

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 Center of Gravity
Method
Location Volume X-Coordinate Y-Coordinate
Chicago 200 30 120
Pittsburgh 100 90 110
New York 100 130 130
Atlanta 200 60 40

X coordinate of warehouse:
Cx=(200 x 30 + 100 x 90 + 100 x 130 + 200 x 60)/(200+100+100+200) = 66.7

Y coordinate of warehouse:
Cy=(200 x 120 + 100 x 110 + 100 x 130 + 200 x 40)/(200+100+100+200) = 93.3
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 Center of Gravity
Method
New York (130,130)
Location Volume Chicago (30,120)
120
Chicago 2000
Pittsburgh 1000 X Pittsburgh (90,110)
New York 1000
60
Center of gravity = (66.7, 93.3)
Atlanta 2000

Atlanta (60,40)

0 0
60 120

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