Unit 2 -POM

Introduction:
Plant location refers to the strategic decision-making process of selecting an appropriate site
or geographic location for establishing a manufacturing facility or industrial plant. It is a
crucial aspect of operations management and plays a significant role in determining the
success and competitiveness of a business. The process of plant location involves analyzing
various factors, including geographical, economic, social, environmental, and logistical
considerations, to identify the most suitable location for the facility.

Need for location decisions

1. Market Access and Customer Proximity:
 A strategically located plant can provide better access to target markets,
reducing transportation costs and lead times. Proximity to customers can also
enhance customer service and responsiveness, thereby improving customer
satisfaction and loyalty.
2. Supply Chain Efficiency:
 Location affects the efficiency of supply chain operations by influencing
access to suppliers, raw materials, and distribution networks. A well-located
plant can minimize supply chain disruptions, reduce inventory holding costs,
and optimize procurement and logistics processes.
3. Labour Availability and Skill Level:
 Access to a skilled workforce is crucial for operational efficiency and
productivity. Selecting a location with a sufficient labour pool and relevant
skills can help mitigate recruitment challenges, reduce training costs, and
improve overall workforce productivity.
4. Regulatory and Legal Environment:
 Different regions have varying regulatory frameworks, tax policies, and legal
requirements that can significantly impact business operations and costs.
Choosing a location with favourable regulatory conditions, tax incentives, and
business-friendly policies can reduce compliance risks and administrative
burdens.
5. Cost of Doing Business:
 Plant location directly influences the cost structure of the business, including
land and property costs, utilities, taxes, labour wages, and other operational
 expenses. Selecting a location with lower costs can improve profitability and
competitiveness in the market.
6. Marketing Strategy:
 The location of a business can also influence its marketing strategy and brand
positioning. A well-chosen location can enhance brand visibility, attract target
customers, and support marketing efforts such as local promotions, events, and
partnerships.
7. Growth Opportunities:
 Plant location decisions should consider future growth prospects and
expansion opportunities. A strategic location can facilitate organic growth by
accommodating increased production capacity and market demand. It can also
support inorganic growth through mergers, acquisitions, or strategic
partnerships with other businesses in the region.
8. Depletion of Resources:
 Sustainable business practices require considering the environmental impact of
plant operations, including resource depletion and ecological sustainability.
Selecting a location with access to renewable resources, efficient waste
management systems and sustainable energy sources can minimize
environmental risks and support long-term business viability.

Factors influencing plant location

1. Availability of Raw Material: Proximity to sources of raw materials or inputs is
essential to minimize transportation costs, reduce lead times, and ensure a steady
supply chain. Access to reliable and cost-effective raw materials can significantly
impact production costs and competitiveness.
2. Nearness to Electricity, Waste Disposal, and Drainage Facilities: Adequate
infrastructure for utilities such as electricity, water supply, and waste disposal is
essential for plant operations. Proximity to these facilities reduces operational costs,
ensures reliability, and facilitates compliance with environmental regulations.
3. Supply of Labor: Access to a skilled and trainable workforce is critical for
manufacturing operations. Plant location decisions consider factors such as labour
availability, skill level, education, and wage rates to meet production requirements
and maintain workforce productivity.
 4. Transport and Communication Facilities: Efficient transportation and communication
networks are essential for the timely movement of goods, raw materials, and
information. Access to highways, ports, airports, and telecommunications
infrastructure facilitates logistics, distribution, and market connectivity.
5. Integration with Other Group Companies: Synergies with other group companies or
business units can influence plant location decisions. Co-location with suppliers,
customers, or related industries can create opportunities for collaboration, cost-
sharing, and supply chain integration, enhancing operational efficiency and value
creation.
6. Suitability of Land and Climate: Factors such as land availability, site topography,
environmental conditions, and climate suitability impact plant operations and
infrastructure development. Assessing these factors ensures the suitability and
resilience of the location for long-term business operations.
7. Government policies: Government policies can significantly influence plant location
decisions by shaping the regulatory environment, providing incentives, and fostering
infrastructure development. Policies related to zoning, environmental standards, and
safety regulations impact compliance costs and legal risks. Tax incentives, subsidies,
and grants can lower operating expenses and encourage investment in targeted regions
or industries. Government investments in transportation, utilities, and industrial parks
improve access to resources and markets. Political stability, legal frameworks, and
trade policies also play vital roles in creating a conducive business environment for
plant locations.

Alfred Weber’s theory of industrial location

Alfred Weber, a German Economist gave the principle of Least transportation cost for
industrial location. He tried to find the least cost location of the manufacturing industry by
taking into account three important factors namely, Transportation cost, Labour cost and
Agglomeration cost. To reduce the complexities of the real world, he made certain
assumptions.

Assumptions of Weber’s Industrial Location Theory

 The Geographical area of industry is physically, technologically, culturally and
politically uniform.
 Both the sources of raw materials and consumption centres are known.
  The transportation cost of goods is dependent on weight and distance.
 The workforce or labour is geographically fixed.
 Due to high competition, there is perfect competitive pricing among the industries.

Impact of transportation cost on the location of an industry

According to Weber’s industrial location theory, if the raw materials are weight-losing or
impure then the industries should be shifted towards the region of raw material. For instance,
the Sugar industry, Steel industry, Jute industry etc. On the contrary, if the raw material is
weight-gaining or pure then the location of an industry should be between the region of raw
materials and the market. Apart from these, if the raw material is universally available then
the industry should be shifted near the market. Weber used the location triangle models for
the manufacturing industries which use more than one raw material. According to Weber’s
triangle model, the manufacturing industries are divided into two groups namely, the weight-
gaining industry and the weight-losing industry. Therefore, the Iron and Steel industry,
Cement industry etc. have come under the weight-losing industry.

Impact of labour cost on the location of an industry

According to Weber’s least labour cost theory, if the labour cost is very cheap in a specific
region then the industry would be shifted from the least transportation cost to the least
labour cost provided the saving in labour cost would be greater than any additional transport
cost. The labour cost is the major factor for the development of the cotton textile
industry and the readymade garment industry in many cities of India.

Impact of Agglomeration on the location of an industry

According to Weber’s agglomeration theory of industrial location, sometimes infrastructural
factors also influence the location of an industry more than the transportation cost and labour
cost as many light industries and footloose industries are not able to invest in structural
facilities. As per this theory, the industry should be shifted towards agglomeration if the
agglomeration factor is more powerful than the combined factors of labour cost and
transportation cost. Agglomeration helps in the mutual sharing of services and specialization
among industries. For instance, the development of software industries, electronic industries
and readymade industries in the metropolitan regions (Bangalore-Chennai-Coimbatore
industrial region) of India
Criticism of Weber’s theory of industrial location
 Weber didn’t consider the role of demand for goods for the location of Industries.
However, overemphasized the role of supply.
 There is no region which is physically, politically, culturally and technologically
uniform but, he has taken this assumption to reduce the real-world complexities.
 Due to better employment opportunities, labours often migrate but, Weber has taken
labour as static.
 Weber also neglected the political factors of a location but, it has been experienced
that the migration of labours is also caused due to political and governmental factors.
 He overemphasized the role of transportation costs in the establishment of an
Industry.
 It is not possible to find the perfect competitive pricing of goods as man seldom
behaves rationally but, Weber has also taken this assumption.

Locational factors vary between manufacturing and service organizations, with each having
general and specific considerations:
General Locational Factors:
1. Accessibility: Both manufacturing and service organizations consider proximity to
transportation networks, including highways, ports, and airports, to facilitate the
movement of goods and people.
2. Market Proximity: Being close to target markets is crucial for both types of
organizations to reduce transportation costs and enhance customer responsiveness.
3. Labor Availability: Access to a skilled workforce is essential for both manufacturing
and service organizations, influencing location decisions to ensure adequate labor
supply and expertise.
4. Infrastructure: Availability of utilities, such as water, electricity, and
telecommunications, is important for both types of organizations to support operations
effectively.
5. Regulatory Environment: Both manufacturing and service organizations consider
regulatory factors such as zoning laws, environmental regulations, and taxation
policies when selecting a location.
Specific Locational Factors:
For Manufacturing Organizations:
 1. Availability of Raw Materials: Manufacturing organizations prioritize locations
close to sources of raw materials to minimize transportation costs and ensure a stable
supply chain.
2. Industrial Clusters: Manufacturing organizations may benefit from locating near
industrial clusters or supplier networks to leverage economies of scale, shared
resources, and collaboration opportunities.
3. Land and Infrastructure: Manufacturing facilities require adequate land for plant
construction and infrastructure for production processes, storage, and distribution.
For Service Organizations:
1. Customer Density: Service organizations often locate in areas with high population
density or near commercial centers to access a larger customer base and increase
market potential.
2. Quality of Life: Service organizations may prioritize locations with a high quality of
life to attract and retain skilled employees and cater to customer preferences for
convenience and amenities.
3. Competitive Landscape: Service organizations consider the competitive landscape in
a particular area, including the presence of similar businesses, to assess market
saturation and differentiation opportunities.

Objectives of plant layout design

1. Optimizing Workflow: Arrange facilities and equipment in a logical sequence to
minimize material handling, reduce production lead times, and improve workflow
efficiency.
2. Maximizing Space Utilization: Utilize available space effectively to accommodate
production processes, storage areas, and support facilities while minimizing wasted
space and congestion.
3. Improving Productivity: Design layouts that facilitate smooth operations, reduce
bottlenecks, and enhance productivity by minimizing downtime, reducing waiting
times, and optimizing resource utilization.
4. Enhancing Safety: Create layouts that promote a safe working environment by
minimizing hazards, optimizing traffic flow, and ensuring compliance with safety
regulations and standards.
 5. Facilitating Material Handling: Design layouts that streamline material flow,
minimize handling costs, and optimize storage and retrieval processes to ensure
timely and efficient movement of materials and products.
6. Promoting Flexibility: Create layouts that are adaptable to changing production
requirements, product mix, and volume fluctuations to support agile manufacturing
and respond to market demands effectively.
7. Supporting Quality Assurance: Design layouts that facilitate quality control
measures, ensure product traceability, and minimize the risk of defects by optimizing
process flow and minimizing disruptions.
8. Reducing Costs: Optimize layouts to minimize production costs, such as labor,
energy, and inventory carrying costs, by improving process efficiency, reducing waste,
and optimizing resource allocation.
9. Enhancing Employee Morale: Create layouts that provide a comfortable and
ergonomic work environment, promote employee engagement, and support
collaboration and communication among team members.
10. Supporting Growth and Expansion: Design layouts that allow for future expansion,
scalability, and reconfiguration to accommodate business growth, new product lines,
or changes in production technology.

The principles of layout design

1. Principle of Minimum Travel: Minimize the distance traveled by materials,
products, or people within the layout, optimizing flow paths to reduce transportation
costs and lead times.
2. Principle of Sequence: Arrange facilities and equipment in a logical sequence to
reflect the order of production processes, minimizing backtracking and improving
workflow efficiency.
3. Effective Use of Available Space: Utilize available space efficiently, considering
factors such as layout density, storage capacity, aisle width, and spatial organization to
maximize productivity and minimize wasted space.
4. Principle of Usage: Design layouts that align with the intended purpose and function
of each area, ensuring that facilities and resources are utilized effectively to support
operational objectives.
 5. Principle of Safety: Prioritize workplace safety by minimizing hazards, ensuring
clear pathways, providing proper signage, and implementing safety protocols to
protect employees and prevent accidents.
6. Maximum Visibility: Arrange layout elements to maximize visibility and
communication among workers, supervisors, and equipment, promoting transparency,
monitoring, and collaboration.
7. Principle of Flexibility: Design layouts that are adaptable to changing production
needs, allowing for easy reconfiguration, expansion, or modification to accommodate
evolving requirements.
8. Principle of Minimum Investment: Optimize layout design to minimize initial
capital investment and ongoing operating costs while maximizing return on
investment and efficiency gains.
9. Maximum Accessibility: Ensure easy access to facilities, equipment, and resources
for maintenance, cleaning, and operational tasks, facilitating smooth operations and
reducing downtime.
10. Overall Integration of Factors: Integrate multiple considerations, such as workflow
optimization, space utilization, safety, and flexibility, to create holistic layouts that
align with organizational goals and operational requirements.

Types of layout
1. Product Layout (Line Layout):
 Description: Product layout organizes production facilities and equipment in a
linear sequence based on the product's manufacturing requirements. It is
suitable for mass production of standardized products with high volume and
low variety.
 Characteristics:
 Workflow follows a straight line, with each workstation specializing in
specific tasks or operations.
 Production flow is continuous, with minimal material handling and
setup times between workstations.
 Layout emphasizes efficiency, high throughput, and repetitive tasks,
often utilizing assembly lines or conveyor systems.
 Examples: Automobile assembly lines, bottling plants, electronic
manufacturing.
2. Process Layout (Functional Layout):
 Description: Process layout groups similar machinery and equipment together
based on their function or process requirements. It is suitable for job shops or
batch production environments with high product variety and low volume.
 Characteristics:
 Facilities are organized into departments or work centers based on the
type of operations performed (e.g., machining, welding, assembly).
 Production flow is intermittent, with products moving between
different departments as they undergo various processing steps.
 Layout offers flexibility to accommodate different product
configurations and production schedules.
 Examples: Machine shops, hospitals, jobbing shops.
3. Fixed Position Layout:
 Description: Fixed position layout keeps the product stationary while workers,
machinery, and equipment are moved around it to perform required operations.
It is suitable for large and bulky products that cannot be easily moved during
production.
 Characteristics:
 The product remains stationary throughout the production process,
while resources are brought to the product's location.
 Layout requires careful planning of logistics, material handling, and
workspace utilization around the fixed position.
 Commonly used in construction projects, shipbuilding, aircraft
assembly, and large-scale infrastructure projects.
 Examples: Building construction sites, shipyards, aircraft manufacturing.
4. Cellular Layout (Cellular Manufacturing):
 Description: Cellular layout groups machines, equipment, and workstations
into self-contained work cells dedicated to specific product families or groups.
It is suitable for medium-volume, medium-variety production with a focus on
flexibility and responsiveness.
 Characteristics:
 Each cell is responsible for producing a family of similar products,
utilizing multi-skilled workers and shared resources within the cell.
  Production flow within cells is continuous, with minimal material
handling and setup times.
 Layout offers benefits of both product and process layouts, combining
efficiency with flexibility and reduced lead times.
 Examples: Lean manufacturing cells, electronics assembly, machining centers.
5. Combination Layout:
 Description: Combination layout combines elements of different types of layouts to
meet specific production requirements or accommodate diverse product mixes.
 Characteristics:
 Different areas of the facility may use product, process, or cellular layouts based on
the nature of production processes, product variety, and demand characteristics.
 Layout design may incorporate flexible manufacturing systems (FMS), robotics, or
automation to integrate multiple production approaches within the same facility.
 Suited for organizations with varied product lines, changing production requirements,
or the need for both high-volume and custom manufacturing capabilities.
 Example: Large manufacturing facilities with multiple production departments,
mixed-mode manufacturing environments, flexible production systems.
6. Group Technology Layout:
 Description: Group technology layout organizes production facilities based on
the similarity of manufacturing processes or part families. It is suitable for
medium-volume, medium-variety production environments seeking to
optimize workflow and minimize production lead times.
 Characteristics:
 Facilities are organized into groups or clusters based on common
process requirements or part families, allowing for specialized setups
and streamlined operations.
 Production flow is semi-continuous, with products moving between
groups or cells as they undergo different manufacturing processes.
 Layout promotes efficiency, standardization, and sharing of resources
while facilitating quick setups and changeovers.
 Examples: Machine cells based on process similarity, component
manufacturing, job shops implementing cellular manufacturing principles.
Analytical tool for location selection
1. Factor Rating:
 Description: Factor rating, also known as the weighted factor evaluation
method, is a quantitative technique used to evaluate and compare potential
locations based on multiple factors or criteria.
 Process:
 Identify and define key factors relevant to location selection, such as
labor availability, transportation access, market proximity,
infrastructure, and regulatory environment.
 Assign weights to each factor based on its relative importance or
priority to the organization's objectives. These weights reflect the
organization's strategic goals and preferences.
 Assess each potential location against the defined factors and assign
scores or ratings based on how well each location meets the criteria.
Ratings can be based on objective data, expert opinions, or subjective
assessments.
 Calculate the weighted score for each location by multiplying the
factor rating by its assigned weight and summing the results across all
factors.
 Compare the total weighted scores for each location to identify the
most favorable location based on the organization's priorities and
objectives.
 Application: Factor rating is commonly used in site selection decisions for
manufacturing plants, distribution centers, retail outlets, and service facilities.
2. Cost-Profit-Volume Analysis:
 Description: Cost-profit-volume (CPV) analysis, also known as break-even
analysis, is a financial modeling technique used to assess the profitability and
viability of potential locations based on expected costs, revenues, and
production volumes.
 Process:
 Identify and estimate the relevant costs associated with establishing
and operating a facility in each potential location, including fixed costs
(e.g., rent, utilities, depreciation) and variable costs (e.g., labor,
materials, transportation).
  Estimate revenue projections based on expected sales volumes, pricing
strategies, market demand, and competitive factors.
 Calculate the break-even point for each location, which represents the
level of sales or production at which total revenues equal total costs,
resulting in zero profit or loss.
 Conduct sensitivity analysis to assess the impact of variations in key
parameters, such as sales volume, pricing, or cost assumptions, on the
break-even point and profitability of each location.
 Compare the break-even analysis results for each location to identify
the most financially viable option based on profitability, risk, and
return on investment considerations.
 Application: CPV analysis is commonly used in retail site selection,
restaurant location decisions, real estate development, and investment
appraisal for business expansion projects.
3. Dimensional Analysis:
 Description: Dimensional analysis, also known as geometric modeling or
spatial analysis, is a quantitative method used to evaluate potential locations
based on spatial and geometric considerations.
 Process:
 Define and quantify spatial parameters relevant to location selection,
such as distance, area, accessibility, proximity to key resources or
markets, and spatial relationships.
 Use geographic information systems (GIS), mapping tools, or spatial
analysis techniques to visualize, measure, and analyze spatial data for
each potential location.
 Conduct spatial analysis to identify spatial patterns, trends, clusters, or
relationships that may impact location suitability or performance.
 Apply spatial modeling techniques to optimize location decisions, such
as network analysis, facility location modeling, or spatial optimization
algorithms.
 Integrate dimensional analysis with other analytical methods, such as
factor rating or CPV analysis, to incorporate spatial considerations into
location selection criteria.
 Application: Dimensional analysis is commonly used in urban planning,
transportation logistics, site selection for infrastructure projects, retail location
planning, and real estate development.