CBMEC 1

OPERATIONS MANAGEMENT AND TQM

MODULE 14
Monday

PLANT LAYOUT

What is plant location?

 Plant location refers to the choice of region and the selection of a particular site
for setting up a business or factory.
Why is plant location important?
1) Location influences plant layout facilities needed.
2) Location influences capital investment and operating costs.
3) Location decisions are strategic, long-term and non-repetitive in nature. Without
sound and careful location planning in the beginning itself, the new facilities may
create continuous operating problems in future.
4) Location decision also affects the efficiency, effectiveness, productivity and
profitability.
Ideal location
 An ideal location is one where the cost of the product is kept to minimum, with a
large market share, the least risk and the maximum social gain.
o It is the place of maximum net advantage or which gives lowest unit cost
of production and distribution.
Locational analysis
 Locational analysis is a dynamic process where entrepreneur analyses and
compares the appropriateness or otherwise of alternative sites with the aim of
selecting the best site for a given enterprise.

 It consists the following:

o Demographic analysis
 It involves study of population in the area in terms of total
population (in no.), age composition, per capita income, educational
level, occupational structure etc.

o Trade area analysis

 It is an analysis of the geographic area that provides continued
clientele to the firm.

Source: https://www.businessmanagementideas.com/project-management/plant-location/plant-
location-importance-techniques-and-procedure/6658
  He would also see the feasibility of accessing the trade area from
alternative sites.

o Competitive analysis
 It helps to judge the nature, location, size and quality of competition
in a given trade area.

o Traffic analysis
 To have a rough idea about the number of potential customers
passing by the proposed site during the working hours of the shop,
the traffic analysis aims at judging the alternative sites in terms of
pedestrian and vehicular traffic passing a site.

o Site economics
 Alternative sites are evaluated in terms of establishment costs and
operational costs under this.
 Costs of establishment is basically cost incurred for permanent
physical facilities but operational costs are incurred for running
business on day to day basis, they are also called as running costs.
Selection criteria
The important considerations for selecting a suitable location are given as follows:
 Natural or climatic conditions.
 Availability and nearness to the sources of raw material.
 Transport costs
o In obtaining raw material and also distribution or marketing finished
products to the ultimate users.
 Access to market
o Small businesses in retail or wholesale or services should be located
within the vicinity of densely populated areas.
 Availability of Infrastructural facilities such as:
o Developed industrial sheds or sites
o Link roads
o Nearness to railway stations
o Airports or sea ports
o Availability of electricity
o Water
o Public utilities
o Civil amenities
o Means of communication

Source: https://www.businessmanagementideas.com/project-management/plant-location/plant-
location-importance-techniques-and-procedure/6658
  Availability of skilled labor, non-skilled labor and technically qualified and trained
managers.
 Banking and financial institutions are located nearby.
 Locations with links to develop industrial areas or business centers result in
savings and cost reductions in transport overheads, miscellaneous expenses.
 Strategic considerations of safety and security should be given due importance.
 Government influences
o Both positive and negative incentives to motivate an entrepreneur to
choose a particular location are made available.
 Positive includes cheap overhead facilities like electricity, banking
transport, tax relief, subsidies and liberalization.
 Negative incentives are in form of restrictions for setting up
industries in urban areas for reasons of pollution control and
decentralization of industries.
Procedure for Selecting a Site
 Step 1. Constitution of a site selection committee.
 Step 2. Determining the company needs.
 Step 3. Deciding criteria for selection.
 Step 4. Accumulate the data.
 Step 5. Analyse the data.
 Step 6. Evaluate the alternatives.
 Step 7. Reduce number of alternatives.
 Step 8. Investigation in detail.
Following are the factors when an undertaking is located near the raw material
site:
 Raw material site
o When source of raw material is likely be the controlling factor.
o When materials are bulky and of relatively low price.
o When materials are small and of high unit price.
o When raw materials are greatly reduced in bulk during the process of
manufacture.
o When raw materials are perishable and process makes them less
perishable.
 The examples are processing industries, cement, paper, meat,
canning (Fruit) etc.

 Locating an industry near the market

o When the size or bulk of the product is more.
o Render it more fragile.
o More subsection about the spoilage.
Source: https://www.businessmanagementideas.com/project-management/plant-location/plant-
location-importance-techniques-and-procedure/6658
  Examples are shoes, furniture, glassware industries.
 Economy of labor
o The ratio of labour cost to total manufacturing cost. If the ratio is small
then this factor is not important.
o The possibility of reduction in labour cost by using better methods or
better quality of labour.
o The type of labour required.
 For example, the textile industries silk and carpet making
industries, sports goods etc.

 Economy and availability of power

o Similar to the raw material procurement.
 If power is generated from coal, then coal is a raw material.
 Hence still steel plants are located near the coal-mines etc.
Weight-Rating Method
 Step 1. Find the important factors.
 Step 2. Putting the numerical values for each factor, for each alternative.
o This can be done at best when all the factors are considered according to
the same scale of desirability.
 Step 3. Weighing the factors with relative economic importance.
o In this we establish a percentage (of 100) to represent the relative
importance.
o In out example we weighed the factors putting them in the middle column.
 Step 4. Calculating weighed source for alternatives.
o For this, multiply each un-weighed point rating with the appropriate
weighted.
o Add the weighted points to find the best site.

Source: https://www.businessmanagementideas.com/project-management/plant-location/plant-
location-importance-techniques-and-procedure/6658