PLANT / FACILITY

LOCATION

LEARNING OBJECTIVES -1
Importance of location.
Problems due to wrong location.
Factors in deciding the location of plant.
Sources of information for decision
making.
2

LEARNING OBJECTIVES - 2
Tools used in location planning.
Model for assessing competitiveness of a
location.
Other issues in location planning
Location decision in service sector
3

FACILITY OPERATION & OPERATING COST

DEPEND ON INPUTS

Inputs:
- Raw Materials
- Plant & Machinery
- Spare parts &
Consumables
- Manpower

FACILITY
OPERATION
AND
OPERATING
COST

Output:
Product
or
Service

PLANT LOCATION
Location of plant has direct impact on operating
cost of the plant.
Future growth of the plant depends upon its
location.
A location initially looking very attractive may
prove to be a constraint for further growth of the
plant.
There can be number of options for the location
of the plant. Each needs to be evaluated in
depth for making a choice for locating the plant.
5

IMPORTANCE OF PLANT LOCATION

Has direct impact on:
Cost of raw materials.
Cost of spare parts and consumables.
Cost of manpower.
Transportation cost of finished goods.
Transportation cost for sending plant and
machinery for repairs or replacement.
Lead time of materials.
Movement of men (regular work force / experts).
Operation and maintenance costs of transport
vehicles.
Wrong location can be a constraint for further
growth of the plant.
6

PROBLEMS DUE TO WRONG LOCATION

Cracks in buildings and foundations in case
of earth quake prone areas.
Heavy rotating M/Cs or hydraulic presses in
a nearby plant may generate ground
vibrations, which may require frequent
setting of M/Cs.
Frequent transport disruptions in areas with
history of heavy rains / floods.
Traffic jams in congested area affect normal
operations.
Frequent work disruptions in areas with
militancy.
7

FACTORS TO BE CONSIDERED IN
DECIDING THE LOCATION OF PLANT

Technical
Economical
Industrial environment
Social
Political
Government policies

TECHNICAL 1
CAPACITY REQUIREMENTS
Location must have area suitable to meet the
plant capacity planned. For example, enough
space should be available to accommodate
plant & machinery, dispatch section and parking
of trucks etc.
In addition enough space should be available for
future expansion of the capacity of the plant.

TECHNICAL FACTORS IN DECIDING THE

LOCATION OF THE PLANT - 2
VIBRATIONS:
Nature of industry (Precision equipment
factory is sensitive to vibrations).
Nearness to other facilities generating
vibrations (Railway station and plant with
heavy machinery).

10

TECHNICAL FACTORS IN DECIDING THE

LOCATION OF THE PLANT - 3
SOIL CONDITION
Sinking of plant and machinery in loose
soil.
Cracks in civil construction & foundations
due to stresses from sinking of the
structure.
Misalignment of machines.
Serious maintenance problems.
Heavy cost of repairs.
11

TECHNICAL FACTORS IN DECIDING THE

LOCATION OF THE PLANT - 4
CLIMATIC CONDITION EXTREME HOT
CONDITIONS:
Adverse effect on the quality of the rubber
materials of belt conveyors.
Heating up of bearings.
Heating of electrical contacts.
Erratic behavior of electronic items.
Risk of fire in use of inflammable materials.
Disruption in work if temperature exceeds 50C.
12

TECHNICAL FACTORS IN DECIDING THE

LOCATION OF THE PLANT - 5
CLIMATIC CONDITION EXTREME COLD
CONDITIONS:
Starting problems in engines and oil pumps.
Very difficult to work.
Busting of pipes due to freezing of water.
Difficulty in lubrication of plant and
machinery.
Difficulty in casting work.
13

TECHNICAL FACTORS IN DECIDING THE

LOCATION OF THE PLANT - 6
AREAS WITH HISTORY OF FLOODS
Floods adversely affect the
transportation of raw materials, spares,
plant & machinery, finished goods and
men.
Cement plant generating dust would
create slush with flood water thus
affecting operations adversely.
14

ECONOMIC FACTORS 1
AVAILABILITY OF POWER
Disruption in plant operation due to
shortage of power, low voltage, and
fluctuations in frequency.
Installation of standby generating sets
adds to the cost, increases operating and
maintenance cost.

15

ECONOMIC FACTORS 2
AVAILABILITY OF WATER
Water is required for the operation of
conditioning tower in electrostatic precipitator for
cooling the exhaust gases.
Initial investment very high in ESP without
conditioning tower. Their maintenance is also
difficult.
Adequate water is required for operation of
turbines and power house.
Water is required for cooling of bearing
temperature, drinking, and other industrial
operations like spraying of water in grinding
operations.
16

ECONOMIC FACTORS 3
NEARNESS TO RAW MATERIALS
Plants are usually preferred near the source of
raw materials i.e. lime stone in case of cement
plant.
Other raw materials for making the clinker are
bauxite, iron ore, sand & gypsum. Source of fuel
like coal should also be near the plant location.

17

ECONOMIC FACTORS 4
NEARNESS TO MARKET
Low delivery cost to a nearby market helps to
keep low sale price.
Shorter delivery help the customer in
maintaining lower inventory.
Quick after sales service could be arranged.
Higher customer satisfaction possible.
Concept of split location plants where production
facility is near the raw-material and
finishing/packing operations are near market.
Example of Narmada Cement in Gujrat.
18

ECONOMICAL FACTORS - 5
MANPOWER AVAILABILITY
Availability of skilled & trained manpower.
Manpower of different trades or of different
backgrounds needed.
Contractual labor should be available.
Number of Multi National Companies (MNC)
have set up plants in countries with cheap labor
cost. India, China, Malaysia have low cost of
labor.

19

MANUFACTURING FACILITIES IN
COUNTRIES WITH CHEAP LABOR
MNC

PRODUCT

COUNTRY
WITH
FACILITY

Refratechic,
GmbH

Refractory

China,
Collaboration in
India

Toyo, Japan

Castings &
grinding
media

China

Maggotteaux,
Belgium

Grinding
media

Malaysia
20

INDUSTRIAL ENVIRONMENT 1
Industrial units of the same industry i.e. if there are
cement units already installed in the area and a new unit
is being considered in the area. Three cement plants in
Rajasthan (CCI Plant at Neemach, J K Cement at
Nimbahera and Udaipur Cement at Udaipur)
Industrial unit of other industrial sectors. For example, a
cement plant may be considered in an area where a steel
plant is already operating. Slag, a waste product of steel
plant is used as raw material for cement plant. A cement
plant in eastern region near Jamshedpur is using slag of
the steel plant as raw material for producing cement.
21

INDUSTRIAL ENVIRNMENT 2
AVAILABILITY OF SERVICE PROVIDERS - 1

Inspection agencies.
Transport service providers.
Courier service.
Repair facilities for various requirements:
Rewinding of electrical motors.
Welding, machining and repair shops.
Contract labor for various jobs.
Computer maintenance services.
22

INDUSTRIAL ENVIRONMENT 2
AVAILABILITY OF SERVICE PROVIDERS - 2

Cleaning services.
Security services
Testing services
Condition monitoring services like
vibration analysis, oil testing
Industrial gases and lubricant suppliers

23

OTHER FACTORS

Proximity to airport
Proximity to sea port
Good banking facilities
Good network of roads and rails.

24

SOCIAL FACTORS

Good housing facilities.

Recreation and entertainment facilities.
Schools and colleges.
Medical facilities.
Noise, gas or dust pollution in the region.
Law and order situation.
Future threats such as:
Fear of flooding near a dam, or
Leakage of gas from a chemical factory
(Bhopal Tragedy Union Carbide Factory), or
Fear of loosing local jobs by installation of an
industry. Narmada dam project got delayed
due to court case on the height of the dam 25
and opposition by the local population.

POLITICAL FACTORS
Labor unrest.
Militancy in the region (Kashmir, Naxal
areas).
Political differences (Dabhol power project in
Maharashtra where the project was approved
by Congress Government but when Shiv
Sena & BJP combine came, some of the
decisions were reversed while the project
was in full swing thus delaying the project. A
serious situation was faced as Dabhol
company wanted to back out of the project).
26

NANO CAR PROJECT OF TATA

AT SINGUR IN WEST BENGAL
CONTROVERSY OVER LAND ACQUISITION - 1

Location: Singur, a block in West Bengals

Hoogly district.
Site: About 60 Km away, Singur is a 75 min
car drive from Kolkata.
Tatas investment about 1500 Crores in the
project, schedule to produce car by Oct.,08.
Total land acquired for the project: 997.11
acres.
Compensation: Rs 118.96 crores for 8890
land owners.
27

NANO CAR PROJECT OF TATA

AT SINGUR IN WEST BENGAL
CONTROVERSY OVER LAND ACQUISITION - 2
More than 2000 villagers have not claimed
compensation.
Nano car is priced at Rs1 lakh and is for general
masses, who can not afford other costly cars.
Agitators led by Trinumal Congress leader Mamta
Banerjee wants return of 400 acres of land to
farmers.
None of the 800 odd engineers and executives,
none of the workers could report for work due to
threat by the agitators.
28

NANO EFFECT- 3
The Singur branch of Hoogly District Cooperative Bank (HDCCB) had 5,346 account
holders till December 31, 2006. Now (October 3,
2008) it has 8,613.
Banks turnover grew by about 33% between
2006-07 and 2007-08.
Gift shop and motor cycle reported rise in sales
by 50-70% in the past two years.
Foreign liquor sales grew by 50% during the
same period.
In places, marginal farmers pooled in their
compensation money to form a syndicate that
supplies sand, red soil and ash to the plant.
29

NANO CAR PROJECT OF TATA

AT SINGUR IN WEST BENGAL
CONTROVERSY OVER LAND ACQUISITION - 4
Some of the engineers are from Japan,
Singapore & Korea. They are being terrorized.
Tata is frustrated with daily threats and
intimidation by the agitators and have indicated
to shift the plant to another site, forgiving their
investment of Rs 1500 crores.
If Tata pulls out of West Bengal, it will be a huge
setback for the industrial investments and
development of the country and disaster for the
economy of the state.
30

NANO CAR PROJECT OF TATA

AT SINGUR IN WEST BENGAL
CONTROVERSY OVER LAND ACQUISITION - 5
The project that could pull many out of poverty
and help the general masses is struggling to
carry on due to controversy over land
acquisition.
Some local youths recruited by Tata Motors for
the small car plant were worried for their jobs.
Due to agitation work at the plant remained
suspended for more than a month.
CPM led West Bengal government wants Tata
project to go on but unable to settle the matter
due to political interests of others.
31

DEAL: WIN-WIN FOR TATA,

GUJRAT
Tata wants only:
Rs 2,900 Cr for Nano plant, including the relocation
cost of Rs 700 Crores.
Infrastructure cost of Rs 6,670 cr also billed to
Tatas. Infrastructure development include road and
rail, gas pipeline, effluent treatment plant, electricity,
water etc.
Repayment of Rs 9,570 cr loan @0.1% over 20
years.
Size of the loan would be a quarte of Gujrat
Governments budget of Rs 40,000 cr
Reference: TOI dated November 12, 2008

32

THE SWEETNERS OF THE DEAL

100% exemption on electricity duty
concessional power tarrif.
1100 acre land comes cheap
No stamp duty, registration and transfer
charges
Payment for land in 8 equal annual
installments.
33

CASE OF AIRPORT AT KOCHIN

Airport is 25 Km from Kochin

Decision to set up the airport taken in 1991
Airport was inaugurated in 1999
Project came after years of protests from
local farmers fearing:
Loss of livelihood
Legal hurdles
Political interference
34

DETAILS OF KOCHIN AIRPORT

Government agencies involved in the
airport project: 32
Cost of construction: Rs 303 crores
Financed by: Rs 900m equity; Rs 1,680m
in loans; Rs 250m in deposits.
Individual investors: 11,000 from 30
countries.
35

CASE OF PRIVATE AIRPORT OF

WORLD CLASS AT KOCHIN
Problem:
Faced a fund crunch: barely had Rs 20,000 as
capital and immense opposition as evicting
people was like uprooting a well grown tree.
To acquire 1,300 acres from 2,300 land owners
and evict and rehabilitate 822 families in a state
where land is precious asset.
People were to be displaced at a compensation
of Rs. 3500 per cent (a cent is one-hundredth of
an acre) for dry-land and Rs 500 per cent for wet
land
36

AGREEMENT REACHED FOR

AIRPORT AT KOCHIN
At Rs 12,000 per cent for dry land
At Rs 3,000 per cent for wet land
Much higher than the market rates.

37

WHAT BROUGHT SUCCESS TO

AIRPORT AT KOCHIN?
Offering jobs and land to the displaced:
Airport cleaning contract jobs and taxi
permits.
Developed 60 acres and compensated those
giving up their lands by distributing six free
cents to each of them.
Those , who refused were offered Rs 50,000.
Displaced received other benefits such
asshares in the new company and one free
air ticket to a nearby location.
38

LAND ACQUISITION FOR INDUSTRY IS

EMERGING AS THE MOST BURNING ISSUE - 1
India has chosen the path of industrialization
to break out the curse of mass poverty.
Huge industrial projects are suffering due to
various local problems.
At stake are investment worth of 2.43 lakh
crores or $54 billion roughly equal to seven
years FDI (Foreign Direct Investment) inflow
in India an amount ,which is more than the
GDP of over 100 countries.
39

LAND ACQUISITION FOR INDUSTRY IS

EMERGING AS THE MOST BURNING ISSUE - 2
Combined land of big projects in India is 92,000
acres half the size of Mumbai and twice the size
of Calcutta or Chenai.
This land is scattered at different places across the
country and is not much.
Land acquisition is becoming a big problem for the
growth of industry and needs urgent attention.
Details of projects faced with land disputes are
given in the Table.
Source: TOI dated August 30, 2008
40

GOVERNMENT POLICIES
If the area has the clearance of the
government for setting up the industrial
unit.
If incentives are given by the government
for new ventures.
If the area is backward area and
government has plans to build infrastructure and roads etc.
41

SOURCES OF INFORMATION FOR

DECIDING ON THE LOCATION
Industry associations such as ASSOCHAM, CII
(Confederation of industry), CMA (Cement
Manufacturers Associations).
Ministry of Industry.
Local municipality.
Research organizations.
Ministry of information
Consultants
Metrological Department (weather, climatic
conditions).
42

TOOLS USED IN LOCATION

PLANNING
Location factor rating method
Centre of gravity method.
Load-distance method
Models such as Transportation Models.
Application of Break Even Analysis (BEA).43

THREE TIER MODEL FOR ASSESSING

THE COMPETITIVENESS OF A LOCATION
TIERS

COMPETITIVENESS

1st

Country competitiveness

2nd

Sector competitiveness

3rd

Company
competitiveness

44

COUNTRY COMPETITIVENESS

Government budget & regulation.

Quality of judicial & political institutions.
Openness to international trade & finance.
Development of financial market.
Extent of which a national environment is
conducive or detrimental to business.

45

SECTOR COMPETITIVENESS

Labor market flexibility

Quality of infrastructure.
Quality of technology.
Extent to which a business sector offers
potential for growth and attractive returns
on investment.

46

COMPANY COMPETITIVENESS
Ability to design, produce & market
products superior to competitors quality of
business management.

47

FACTORS AND RATING ON A SCALE OF

1-100 FOR LOCATION OF GARMENT
FACTORY OUT OF 3 CHOICES
S No.

Factors

Ratings

Availability of infrastructure

90

Size of market

60

Industrial climate

50

Tax benefits and concessions

30

Availability of cheap labor

30

Nearness to port

65
48

RATING OF EACH LOCATION AGAINST

EACH LOCATION ON A SCALE OF 1-100
Factors

Location 1 Location 2 Location 3

Availability of infrastructure

20

40

60

Size of market

30

30

40

Industrial climate

80

30

50

Tax benefits and

concessions

80

20

10

Availability of cheap labor

70

70

45

Nearness to port

20

40

90
49

CALCULATING THE RELATIVE WEIGHTS

S #.

Factors

Ratings

Relative
weights

1
2
3
4

Availability of infrastructure
Size of market
Industrial climate
Tax benefits and
concessions

90
60
50
30

0.28
0.18
0.15
0.09

5
6
7

Availability of cheap labor

Nearness to port
Sum of all factor ratings

30
65
325

0.09
0.20
1.00

Relative weights = (Rating/Sum of all factors) . For S.# 1 = 90/325 = 0.28

50

CALCULATING THE RELATIVE WEIGHTS

Factors

Relative
weights

Location
1

Location
2

Location
3

Availability of infrastructure

0.28

20

40

60

Size of market

0.18

30

30

40

Industrial climate

0.15

80

30

50

Tax benefits and concessions

0.09

80

20

10

Availability of cheap labor

0.09

70

70

45

Nearness to port

0.20

20

40

90

Overall score for the

locations

41.23

37.54

54.77

Ranking of the locations

1
51

Location 3 is the best, followed by location 1. It is a rough cut and quick evaluation.

CENTRE OF GRAVITY METHOD

All the demand points (or the supply
points, if the raw material is supplied from
several locations) are represented on
Cartesian coordinate system.
Weight of each demand (or supply) point
per unit time is also indicated.
Work out the centre of gravity of various
demand (or supply) for locating the new
facility.
52

DISTANCE OF COORDINATES AND THE

ANNUAL SUPPLY FROM SUPPLY POINTS
Point of
supply

X
(m)

Y
(m)

Annual
supply
(tonnes)

125

550

200

350

400

450

450

125

175

700

300

150
53

WORKING OUT OF THE CENTRE

OF GRAVITY OF SUPPLY
700
Distance in kilometers

600

A (125, 550), 200

500

B (350,400), 450

Centre of gravity (x = 366, y = 376)

400
300

D (700, 300), 150

200

C (450, 125), 175

100
100

200

300

400

500

600

700

Distance in kilometers
54

CALCULATION OF CENTRE OF
GRAVITY (XC, YC)
XC = (125x200 + 350x450 + 450x175 +700x150) / (200 + 450 + 175 + 150)
= (25000 + 157500 + 78750 + 105000) / (975)
= (366250) / (975)
= 375.64 m
YC = (550x200 + 400x450 + 125x175 + 300x150) / (200 + 450 + 175 + 150)
= (110000 + 180000 +21875 + 45000) / (975)
= (356875) / (975)
= 366 m

Centre of gravity of supply or

the location of the new facility is (375.64, 366).
55

OTHER ISSUES IN LOCATION

PLANNING
Recent trend in international market is to
have fewer facilities that could serve
markets world wide. Example is:
HP Deskjet printers are manufactured at 2
places, Vancouver in US and Singapore.
Availability of good transportation
infrastructure enables to give high level of
service to customers with fewer large
scale facilities.
56

GOOD INFRASTRUCTURE - 1
All weather high speed road network.
Good railway infrastructure capable of
transporting bulk cargo.
Ports having faster turnaround times.
Good connectivity to the ports.
57

GOOD INFRASTRUCTURE - 2
Good internet system and IT for useful interface
for the customers.
Locating a good number of suppliers in the
vicinity (20-40 km radius) of the manufacturers.
Examples are:
Toyota, Japan, in the context of JIT manufacturing.
Ambattur and Guindy industrial estates in Chennai
cater to all major automobile manufacturers in
Chennai.
Maruti has several suppliers in the GurgaonFaridabad belt on the outskirts of Delhi
58

CONSIDERATION IN LOCATION
DECISION IN SERVICE SECTOR
Locate service outlets as close to the
demand point as possible to give good
response of the service delivery system.
Nearness to the market is more important
than the cost of the cost of the site.
In case of manufacturing system, the cost
of the site takes precedence over the
location.
59

GUIDELINES IN SELECTION
OF LOCATION
Proper technical evaluation of the probable
sites.
Optimum operating cost.
Consider if the project meets government
policies and guidelines.
Take clearance of local governments.
Consider social factors.
Possibility of future growth.
Strategic decision for ultimate value to
60
customer.