Course Name: Production & Operations

Management
Module 3: Facility or Layout Planning &
Analysis

1) “Manpower is the most costly input in most production

systems.” Analyse this statement.
Manpower is the most costly input in most production systems.
An ample supply of labor is essential to any enterprise. The
following rule of thumb is generally applied:

(a) The area should contain four times as many permanent job
applicants than the organization will require.

(b) There should be a diversification between industry and

commerce-roughly 50/50.

Organizations often take advantage of a location with an

abundant supply of workers.

Labor costs and/or skills are often a very important consideration

for locating a facility. The type and level of skill possessed by the
workforce must also be considered. If a particular required skill is
not available, then training costs may be prohibitive and the
resulting level of productivity inadequate.
 In the call center business, the need of English speaking workers
becomes a factor in deciding the location of your business
capacity. India has come on the map for software development
because it has a large number of skilled software personnel.
Microsoft, Texas Instruments, Cisco Systems, Oracle, etc., some of
the best-known names in software applications, have located
facilities in India. Many countries, like China and India, are turning
out to be attractive locations for industries that require large
contingents of unskilled labor .

For example, while labor costs may be low in a certain geographic

location now, this will change if the demand for labor grows
significantly. In considering the labor supply, the following points
should be considered.
(a) Skills available – size of the labor force – productivity levels.
(b) Unionization – prevailing labor – management attitudes.
(c) History of local labor relations – turnover rates – absenteeism,
etc.
Some organizations have relocated from a high skill/high cost
area to a low skill/low cost area without any decrease in
productivity. Sometimes it has been due to skill availability and
labor-management relations but often it has been the result of
higher investment in mechanization.

2) Why is it important to evaluate a site beforehand?

Site Evaluation Site evaluation should be the step after the facility
impact assessment bears out the suitability of the site. The next
steps are to look at the size of the land, the provision of
infrastructure and utilities, the transportation facilities, land cost and
site location, etc. Some of these considerations are discussed here
under:

1. Size of site: The plot of land must be large enough to hold the
proposed plant along with its utilities, waste and water treatment
facilities, parking and access facilities and support services. The size
of the plot must also be large enough to provide sufficient space for
further expansion.

2. Utilities: The continuity of operations and the ability for

uninterrupted production depends on the adequacy of utilities. The
ability to overcome recurring problems associated with the supply of
utilities needs to be evaluated and accountability assigned:

(a) Possible restrictions on power availability.

(b) Cost differentials at peak periods.

(c) Availability of water supply during a 'hot' summer.

(d) Quality of water-hard or soft, etc.

(e) Connection cost of services from main supply lines to the

intended plant.

Costs associated with the volume and reliability of power, water and
fuel supplies must be evaluated carefully. These costs are
considerable and have to be borne over the life of the assets
3. Transportation facilities: Rail and road networks should be close to
the proposed plant to minimize the cost of creating private sidings to
the rail lines and access roads. Some indication can be gained by
looking at the present road and rail network serving the local
community. The plant should also be easily accessible by car and
public transport. Intangible factors to consider include the reliability
and network of the available carriers, the frequency of service, and
freight and terminal facilities, and distance from the nearest airport.
These can reflect on the cost and time required to transport the
finished product to market and raw materials to the plant. They may
also impact on the time required to contact or service a customer.
These are important issues that must also be considered.

4. Land costs: These are non-recurring costs and of little importance

in the determination of the facility location. In general, the plant site
will be one of the following locations: city location; industrial areas
or estates; or interior areas. Locating an establishment can be in a

(a) city,

(b) industrial estate or industrial area, or

(c) at a green field location.

Each option has advantages and disadvantages.

The criteria for choosing each of these locations are given below:

(a) City Location:

(i) Availability of high proportion of highly skilled employees.

(ii) Fast transportation or quick contact with customers and

suppliers.

(iii) Size of plant often a limitation, small plant sites or multi-floor

operations.

(iv) Transportation of large variety of materials and supplies possible,

but usually in relatively small quantities. (v) Urban facilities and
utilities available at reasonable rates.

(vi) Possible to start production with a minimum investment in land,

buildings, etc., as these can usually be rented.

(b) Industrial Estates/Industrial Areas:

(i) Limitations in locating close to employee's homes.

(ii) Often provided exemptions from high taxes.

(iii) Freedom from strict city building and zoning restrictions.

(iv) Infrastructure often not a major concern.

(v) Environmental concerns can be met at minimum cost outlay.

(vi) The site should be close to transportation and population.

(c) Interior Greenfield Location:

(i) Large land requirement.

(ii) Suitable to production processes/product which are dangerous
or objectionable.

(iii) Requirement for large volumes of relatively pure water.

(iv) Often provided exemptions from high taxes.

(v) Limited availability of highly skilled employees.

(vi) Need to invest in infrastructure and housing. Plant location

analysis is a periodic task. Management should recognize that
successful businesses are dynamic. A location may not remain
optimal forever.

Community Considerations:-

The proposed plant must fit in with and be acceptable to the local
community. Full Consideration must be given to the safe location of
the plant so that it does not impose a significant additional risk to
the community. Adverse climatic conditions at site will increase
costs. Extremes of low temperatures will require the provision of
additional insulation and special heating for equipment and piping.
Similarly, excessive humidity and hot temperatures pose serious
problems and must be considered for selecting a site for the plant.
Stronger structures will be needed at locations subject to high wind
loads or earthquakes. Capital grants, tax concessions, and other
inducements are often given by governments to direct new
investment to preferred locations; such as areas of high
unemployment. The availability of such grants can be the overriding
consideration in site selection. State and local tax rates on property
income, unemployment insurance, and similar items vary from one
 location to another. Similarly, local regulations on zoning, building
codes, nuisance aspects and others facilities can have a major
influence on the final choice of the plant site.

3) “Any facility will create an impact on the environment.” Elucidate.

Any facility will create an impact on the environment. This is also

called an ecological footprint. Theoretically, the size of the ecological
footprint should be minimized. Impact planning is the integration of
commercial and practical environmental objectives to produce the
optimum benefit for business and the environment.

The following features need to be protected and the impact on these

also needs to be considered:

1. Vegetation/Tree cover

2. Wetlands, Swamps, Mangroves

3. Protected Areas

4. Lakes

5. Rivers and creeks

6. Sea coast

The impacts on these specific elements should be within the

parameters of the environmental laws that protect environs of the
site.
 In addition, the topography, soil mixture and drainage must be
suited to the type of building required. The soil must be capable of
providing it with a proper foundation. It should not be a low-lying
area. Ingress of excess water during monsoons should not disturb
operations. Land improvements or piling and concrete rafting to
provide protection and the required strength to the foundations
always prove expensive. Even when the price of land is low, it may
not prove to be economical to build on such sites.

In India we have laws to protect the air, water, and ground. Both air
and water are impacted by the wastes that are produced and the
manner in which wastes are disposed of. Recently there were news
reports that oil seepage from an oil storage depot of Indian Oil
Corporation in Bihar, had found its way into the water table. Water
supply in the area has become unfit for human consumption. This
raises questions of various threats to the environment from factory
operations.

The legal requirements of the Government of India and the types of

impacts that need to be controlled to meet environmental and local
laws include the following:

1.Air pollution
2.Water pollution
3.Waste treatment
4.Hazardous chemical
5.Solid waste disposal
6.Disposal of sludge
7.Radiation
8.Noise
9.Dust
10.Indusrial accidents
11.Chemical or fuel spills
12.Toxic chemical
13.Soil contamination
14.Disease vectors
15.water supply
16.Acid precipitation
17.Smog
18.Ozone depletion
19.Global warming
20.loss of biodiversity
21.animal deaths
22.visual impact
23.landscaping
4) "Well-planned facilities offer real added value improvements to
the organization’s core business.” Explain the statement .

Need for Facility Location Planning:-

Facilities location may be defined as selection of suitable location or

site or place where the factory or plant or facilities to be installed,
where plant will start functioning. The development of a location
strategy depends upon the type of firm being considered. Industrial
location analysis decisions focus on minimizing costs; retail and
professional service organizations typically have a focus of
maximizing revenue. Warehouse location, on the other hand, may
be determined by a combination of cost and speed of delivery. The
objective of location strategy is to maximize the benefit of location
to the firm. Facility planning has developed, in the past decade, into
a major thriving business sector and discipline. One of the major
reasons for new facilities is the global economic boom that has been
accompanied by an enhancement of capacity worldwide. In addition
to the global economic boom, there are several other reasons for
changing or adding locations:

1. The cost or availability of labor, raw materials, and supporting

resources often change. These changes in resources may spur the
decision.

2. As product markets change, the geographical region of demand

may shift. For example, many international companies find it
desirable to change facility location to provide better service to
customers.
3. Companies may split, merge, or be acquired by new owners,
making facilities redundant.

4. New products may be introduced, changing the requirement and

availability of resources.

5. Political, economic and legal requirements may make it more

attractive to change location.

Many companies are moving facilities to regions where environment

or labor laws are more favorable. Well-planned facilities enable an
organization to function at its most efficient and effective level,
offering real added value improvements to the organization's core
business.

5) Explain the different types of facilities.

The various types of facilities are briefly described below:

Heavy Manufacturing:-

Heavy manufacturing facilities are primarily plants that are relatively

large and require a lot of space and as a result, are expensive to
construct. Example: Automobile plants, steel mills and oil refineries.
Important factors in the location decision for plants include
construction costs, modes of transportation for shipping heavy
manufactured items and receiving bulk shipments of raw materials,
proximity to raw materials, utilities, means of waste disposal and
labor availability. Sites for manufacturing plants are normally
selected where construction and land costs can be kept at a
minimum and raw material sources are nearby in order to reduce
transportation costs. Access to rail-roads is frequently a major factor
in locating a plant. Environmental issues have increasingly become a
major factor in plant location decisions. Plants can create various
forms of pool pollution and traffic pollution. These plants must be
located where the harm to the environment is minimised. Although
proximity to customers is an important factor for some facility types,
it is less so for manufacturing plants.

Light Industry:- Light industry facilities are typically perceived as

smaller, cleaner plants that produce electronic equipment and
components, parts used in assemblies, or assembled products.
Example: Making stereos, TVs, or computers, tool and die shop,
breweries, or pharmaceutical firms. Several factors are important for
light industry. Land and construction costs are not generally as
crucial, because the plants tend to be smaller and require less
engineering. It is not as important to be near raw materials, since
they are not received in large bulk quantities, nor is storage capacity
required to as great a degree. As a result, transportation costs are
somewhat less important. Many parts and material suppliers fall into
this category and as such, proximity to customers can be an
important factor. Alternatively, many light industries ship directly to
regional warehouses or distributors, making it less important to be
near customers. Environmental issues are less important in light
industry, since burning raw materials is not normally part of their
production processes, not are there large quantities of waste.
Important factors include the labor pool, especially the availability of
skilled workers, the community environment, access to commercial
air travel, government regulation and land use requirements.

Warehouses and Distribution Centers :-

Warehouses are a category of their own. Products are not

manufactured or assembled within their confines, nor are they sold
from them. They represent an intermediate point in the logistical
inventory system where products are held in storage. Normally a
warehouse is simply a building that is used to receive, handle and
then ship products. They generally require only moderate
environmental conditions and security and little labor, although
some specialized warehouses require a more controlled
environment, such as refrigeration or security for precious metals or
drugs. Because of their role as intermediate points in the movement
of products from the manufacturer to the customer, transportation
and shipping costs are the most important factors in the location
decision for warehouses. The proximity to customers can also be an
important consideration, depending on the delivery requirements,
including frequency of delivery required by the customer.
Construction and land costs tend to be of less importance as does
labour availability. Since warehouses require no raw materials, have
no production processes and create no waste, factors such as
proximity to raw materials, utilities and waste disposal are of almost
no importance.

Retail and Service :-

Retail and service operations generally require the smallest and least
costly facilities. Examples include such service facilities as
restaurants, banks, hotels, cleaners, clinics and law offices and retail
facilities such as groceries and department stores, among many
others. The single most important factor for locating a service or
retail facility is proximity to customers. It is usually critical that a
service facility be near the customers who buy from it. Construction
costs are generally less important (especially when compared with a
manufacturing plant); however, land or leasing costs can be
important. For retail operations, for which the saying "location is
everything" is very meaningful, site costs can be very high. Other
location factors that are important for heavy and light manufacturing
facilities, such as proximity to raw materials, zoning, utilities,
transportation and labor, are less important or not important at all
for service and retail facilities.