PRODUCTION AND OPERATIONS

MANAGEMENT
STUDY MATERIAL AND TUTORIAL QUESTIONS

PREPARED BY
DR. RAKESH RANJAN CHAND

DEPARTMENT OF MECHANICAL ENGINEERING

C. V. RAMAN GLOBAL UNIVERSITY,
BHUBANESWAR
 MODULE-2
Facility Location & Layout

2.1 INTRODUCTION

Plant location or the facilities location problem is an important strategic level decision making
for an organisation. The selection of location is a key-decision as large investment is made in
building plant and machinery. It is not advisable or not possible to change the location very
often. So, an improper location of plant may lead to waste of all the investments made in
building and machinery, equipment.

The plant location should be based on the company’s expansion plan and policy,
diversification plan for the products, changing market conditions, the changing sources of raw
materials and many other factors that influence the choice of the location decision. The purpose
of the location study is to find an optimum location that will result in the greatest advantage to
the organization.

2.2 NEED FOR SELECTING A SUITABLE LOCATION

The need for selecting a suitable location arises because of three situations.

I. When starting a new organisation, i.e., location choice for the first time.
II. In case of existing organisation.
III. In case of Global Location.

2.3 FACTORS INFLUENCING PLANT LOCATION/FACILITY LOCATION

It is appropriate to divide the factors, which influence the plant location or facility location on
the basis of the nature of the organisation as

I. General locational factors, which include controllable and uncontrollable factors for
all type of organisations.
II. Specific locational factors specifically required for manufacturing and service
organisations.

Location factors can be further divided into two categories:

Dominant factors are those derived from competitive priorities (cost, quality, time, and
flexibility) and have a particularly strong impact on sales or costs. Secondary factors also are
important, but management may downplay or even ignore some of them if other factors are
more important.

2.3.1 General Locational Factors

CONTROLLABLE FACTORS

1. Proximity to markets: Every company is expected to serve its customers by providing

goods and services at the time needed and at reasonable price organizations may choose
to locate facilities close to the market or away from the market depending upon the
product. When the buyers for the product are concentrated, it is advisable to locate the
facilities close to the market. Locating nearer to the market is preferred if
• The products are delicate and susceptible to spoilage.
• After sales services are promptly required very often.
• Transportation cost is high and increase the cost significantly.
• Shelf life of the product is low.

Nearness to the market ensures a consistent supply of goods to customers and reduces
the cost of transportation.

2. Supply of raw material: It is essential for the organization to get raw material in right
qualities and time in order to have an uninterrupted production. This factor becomes very
 important if the materials are perishable and cost of transportation is very high. General
guidelines suggested by Yaseen regarding effects of raw materials on plant location are:
• When a single raw material is used without loss of weight, locate the plant at the raw
material source, at the market or at any point in between.
• When weight loosing raw material is demanded, locate the plant at the raw material
source.
• When raw material is universally available, locate close to the market area.
• If the raw materials are processed from variety of locations, the plant may be situated
so as to minimize total transportation costs.

Nearness to raw material is important in case of industries such as sugar, cement, jute
and cotton textiles.

3. Transportation facilities: Speedy transport facilities ensure timely supply of raw

materials to the company and finished goods to the customers. The transport facility is a
prerequisite for the location of the plant. There are five basic modes of physical
transportation, air, road, rail, water and pipeline. Goods that are mainly intended for
exports demand a location near to the port or large airport. The choice of transport method
and hence the location will depend on relative costs, convenience, and suitability. Thus,
transportation cost to value added is one of the criteria for plant location.
4. Infrastructure availability: The basic infrastructure facilities like power, water and
waste disposal, etc., become the prominent factors in deciding the location. Certain types
of industries are power hungry e.g., aluminium and steel and they should be located close
to the power station or location where uninterrupted power supply is assured throughout
the year. The non-availability of power may become a survival problem for such
industries. Process industries like paper, chemical, cement, etc., require continuous.
Supply of water in large amount and good quality, and mineral content of water becomes
an important factor. A waste disposal facility for process industries is an important factor,
which influences the plant location.
5. Labour and wages: The problem of securing adequate number of labour and with skills
specific is a factor to be considered both at territorial as well as at community level during
plant location. Importing labour is usually costly and involve administrative problem. The
history of labour relations in a prospective community is to be studied. Prospective
community is to be studied. Productivity of labour is also an important factor to be
 considered. Prevailing wage pattern, cost of living and industrial relation and bargaining
power of the unions’ forms in important considerations.
6. External economies of scale: External economies of scale can be described as
urbanization and locational economies of scale. It refers to advantages of a company by
setting up operations in a large city while the second one refers to the “settling down”
among other companies of related Industries. In the case of urbanization economies, firms
derive from locating in larger cities rather than in smaller ones in a search of having access
to a large pool of labour, transport facilities, and as well to increase their markets for
selling their products and have access to a much wider range of business services.
7. Capital: By looking at capital as a location condition, it is important to distinguish the
physiology of fixed capital in buildings and equipment from financial capital. Fixed
capital costs as building and construction costs vary from region to region. But on the
other hand, buildings can also be rented and existing plants can be expanded. Financial
capital is highly mobile and does not very much influence decisions. For example, large
Multinational Corporations such as Coca-Cola operate in many different countries and
can raise capital where interest rates are lowest and conditions are most suitable. Capital
becomes a main factor when it comes to venture capital. In that case young, fast growing
(or not) high tech firms are concerned which usually have not many fixed assets. These
firms particularly need access to financial capital and also skilled educated employees.

UNCONTROLLABLE FACTORS

8. Government policy: The policies of the state governments and local bodies concerning
labour laws, building codes, safety, etc., are the factors that demand attention. In order to
have a balanced regional growth of industries, both central and state governments in our
country offer the package of incentives to entrepreneurs in particular locations. The
incentive package may be in the form of exemption from a sales tax and excise duties for
a specific period, soft loan from financial institutions, subsidy in electricity charges and
investment subsidy. Some of these incentives may tempt to locate the plant to avail these
facilities offered.
9. Climatic conditions: The geology of the area needs to be considered together with
climatic conditions (humidity, temperature). Climates greatly influence human efficiency
and behaviour. Some industries require specific climatic conditions e.g., textile mill will
require humidity.
 10. Supporting industries and services: Now a day the manufacturing organisation will not
make all the components and parts by itself and it subcontracts the work to vendors. So,
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.
11. Community and labour attitudes: Community attitude towards their work and towards
the prospective industries can make or mar the industry. Community attitudes towards
supporting trade union activities are important criteria. Facility location in specific
location is not desirable even though all factors are favouring because of labour attitude
towards management, which brings very often the strikes and lockouts.
12. Community infrastructure and amenity: All manufacturing activities require access to
a community infrastructure, most notably economic overhead capital, such as roads,
railways, port facilities, power lines and service facilities and social overhead capital like
schools, universities and hospitals. These factors are also needed to be considered by
location decisions as infrastructure is enormously expensive to build and for most
manufacturing activities the existing stock of infrastructure provides physical restrictions
on location possibilities.
2.3.2 Specific Locational Factors for Manufacturing Organisation

DOMINANT FACTORS

Factors dominating location decisions for new manufacturing plants can be broadly classified
in six groups. They are listed in the order of their importance as follows;

1. Favourable labour climate: A favourable labour climate may be the most important
factor in location decisions for labour-intensive firms in industries such as textiles,
furniture, and consumer electronics. Labour climate includes wage rates, training
requirements, attitudes toward work, worker productivity, and union strength. Many
executives consider weak unions or al low probability of union organizing efforts as a
distinct advantage.

2. Proximity to markets: After determining where the demand for goods and services is
greatest, management must select a location for the facility that will supply that demand.
Locating near markets is particularly important when the final goods are bulky or heavy and
outbound transportation rates are high. For example, manufacturers of products such as plastic
pipe and heavy metals all emphasize proximity to their markets.

3. Quality of life: Good schools, recreational facilities, cultural events, and an attractive
lifestyle contribute to quality of life. This factor is relatively unimportant on its own, but it can
make the difference in location decisions.

4. Proximity to suppliers and resources: In many companies, plants supply parts to other
facilities or rely on other facilities for management and staff support. These require frequent
coordination and communication, which can become more difficult as distance increases.

5. Utilities, taxes, and real estate costs: Other important factors that may emerge include
utility costs (telephone, energy, and water), local and state taxes, financing incentives offered
by local or state governments, relocation costs, and land costs.

SECONDARY FACTORS

There are some other factors needed to be considered, including room for expansion,
construction costs, accessibility to multiple modes of transportation, the cost of shuffling
people and materials between plants, competition from other firms for the workforce,
community attitudes, and many others. For global operations, firms are emphasizing local
employee skills and education and the local infrastructure.

2.3.3 Specific Locational Factors for Service Organisation

DOMINANT FACTORS

The factors considered for manufacturers are also applied to service providers, with one
important addition — the impact of location on sales and customer satisfaction. Customers
usually look about how close a service facility is, particularly if the process requires
considerable customer contact.

SECONDARY FACTORS

Retailers also must consider the level of retail activity, residential density, traffic flow, and site
visibility. Retail activity in the area is important, as shoppers often decide on impulse to go
shopping or to eat in a restaurant. Traffic flows and visibility are important because businesses’
customers arrive in cars. Visibility involves distance from the street and size of nearby
buildings and signs. High residential density ensures nighttime and weekend business when
the population in the area fits the firm’s competitive priorities and target market segment.
2.4 LOCATION METHODS

Various models are available which help to identify the ideal location. Some of the popular
models are:

1. Factor rating method

2. Weighted factor rating method
3. Centroid method
2.4.1 Factor Rating Method

The process of selecting a new facility location involves a series of following steps:

1. Identify the important location factors.

2. Rate each factor according to its relative importance, i.e., higher the ratings is indicative
of prominent factor.
3. Assign each location according to the merits of the location for each factor.
4. Calculate the rating for each location by multiplying factor assigned to each location
with basic factors considered.
5. Find the sum of product calculated for each factor and select best location having
highest total score.

2.4.2 Weighted Factor Rating Method

In this method to merge quantitative and qualitative factors, factors are assigned weights based
on relative importance and weightage score for each site using a preference matrix is calculated.
The site with the highest weighted score is selected as the best choice.

2.4.3 Centroid Method

Centroid method is based primarily on cost considerations. This method can be used to assist
managers in balancing cost and service objectives. The centroid method takes into account the
locations of plants and markets, the volume of goods moved, and transportation costs in
arriving at the best location for a single intermediate warehouse.

The centroid is defined to be the location that minimizes the weighted distance between
the warehouse and its supply and distribution points, where the distance is weighted by the
number of tones supplied or consumed. The first step in this procedure is to place the locations
on a coordinate system. The origin of the coordinate system and scale used are arbitrary, just
as long as the relative distances are correctly represented. This can be easily done by placing a
grid over an ordinary map. The centroid is determined by the formula;

where Cx = x-coordinate of the centroid

Cy = y-coordinate of the centre of gravity

Dix = x-coordinate of location i

Diy = y-coordinate of location i

Wi = weighted distance of location i

2.5 LOCATIONAL ECONOMICS

An ideal location is one which results in lowest production cost and least distribution cost per
unit. These costs are influenced by a number of factors as discussed earlier. The various costs
which decide locational economy are those of land, building, equipment, labour, material, etc.
Other factors like community attitude, community facilities and housing facilities will also
influence the selection of best location. Economic analysis is carried out to decide as to which
locate best location.

2.6 FACILITY LAYOUT

Facility/plant layout refers to the physical arrangement of production facilities. It is the

configuration of departments, work centres and equipment in the conversion process. It is a
floor plan of the physical facilities, which are used in production. The primary goal of the plant
layout is to maximise the profit by arrangement of all the plant facilities to the best advantage
of total manufacturing of the product.

The objectives of plant layout are:

1. Streamline the flow of materials through the plant.

2. Facilitate the manufacturing process.

3. Maintain high turnover of in-process inventory.

4. Minimise materials handling and cost.

5. Effective utilisation of men, equipment and space.

6. Make effective utilisation of cubic space.

7. Flexibility of manufacturing operations and arrangements.

8. Provide for employee convenience, safety and comfort.

9. Minimize investment in equipment.

10. Minimize overall production time.

11. Maintain flexibility of arrangement and operation.

2.6.1 Principles of Plant Layout

1. Principle of integration: A good layout is one that integrates men, materials, machines and
supporting services and others in order to get the optimum utilisation of resources and
maximum effectiveness.

2. Principle of minimum distance: This principle is concerned with the minimum travel (or
movement) of man and materials. The facilities should be arranged such that, the total distance
travelled by the men and materials should be minimum and as far as possible straight-line
movement should be preferred.

3. Principle of cubic space utilisation: The good layout is one that utilise both horizontal and
vertical space. It is not only enough if only the floor space is utilised optimally but the third
dimension, i.e., the height is also to be utilised effectively.

4. Principle of flow: A good layout is one that makes the materials to move in forward direction
towards the completion stage, i.e., there should not be any backtracking.

5. Principle of maximum flexibility: The good layout is one that can be altered without much
cost and time, i.e., future requirements should be taken into account while designing the present
layout.

6. Principle of safety, security and satisfaction: A good layout is one that gives due
consideration to workers safety and satisfaction and safeguards the plant and machinery against
fire, theft, etc.

7. Principle of minimum handling: A good layout is one that reduces the material handling
to the minimum.
2.7 CLASSIFICATION OF LAYOUT

Layouts can be classified into the following categories:

1. Process layout
2. Product layout
3. Combination layout
4. Fixed position layout

2.7.1 Process Layout

Process layout is recommended for batch production. All machines performing similar type of
operations are grouped at one location in the process layout e.g., all lathes, milling machines,
etc. are grouped in the shop will be clustered in like groups.

Thus, in process layout the arrangement of facilities is grouped together according to

their functions. A typical process layout is shown in following figure. The flow paths of
material through the facilities from one functional area to another vary from product to product.
Usually, the paths are long and there will be possibility of backtracking.

Process layout is normally used when the production volume is not sufficient to justify
a product layout. Typically, job shops employ process layouts due to the variety of products
manufactured and their low production volumes.

Advantages

1. In process layout machines are better utilized and fewer machines are required.
2. Flexibility of equipment and personnel is possible in process layout.
3. Lower investment on account of comparatively a smaller number of machines and
lower cost of general-purpose machines.
4. Higher utilisation of production facilities.
5. A high degree of flexibility with regards to work distribution to machineries and
workers.
6. The diversity of tasks and variety of job makes the job challenging and interesting.
 7. Supervisors will become highly knowledgeable about the functions under their
department.

Limitations

1. Backtracking and long movements may occur in the handling of materials thus,
reducing material handling efficiency.
2. Material handling cannot be mechanised which adds to cost.
3. Process time is prolonged which reduce the inventory turnover and increases the in-
process inventory.
4. Lowered productivity due to number of set-ups.
5. Throughput (time gap between in and out in the process) time is longer.
6. Space and capital are tied up by work-in-process.

2.7.2 Product Layout

In this type of layout, machines and auxiliary services are located according to the processing
sequence of the product. If the volume of production of one or more products is large, the
facilities can be arranged to achieve efficient flow of materials and lower cost per unit. Special
purpose machines are used which perform the required function quickly and reliably.

The product layout is selected when the volume of production of a product is high such
that a separate production line to manufacture it can be justified. In a strict product layout,
machines are not shared by different products. Therefore, the production volume must be
sufficient to achieve satisfactory utilisation of the equipment. A typical product layout is shown
in the following figure.

Advantages

1. The flow of product will be smooth and logical in flow lines.

2. In-process inventory is less.

3. Throughput time is less.

4. Minimum material handling cost.

5. Simplified production, planning and control systems are possible.

6. Less space is occupied by work transit and for temporary storage.

7. Reduced material handling cost due to mechanised handling systems and straight flow.

8. Perfect line balancing which eliminates bottlenecks and idle capacity.

9. Manufacturing cycle is short due to uninterrupted flow of materials.

10. Small amount of work-in-process inventory.

11. Unskilled workers can learn and manage the production.

Limitations

1. A breakdown of one machine in a product line may cause stoppages of machines in the
downstream of the line.

2. A change in product design may require major alterations in the layout.

3. The line output is decided by the bottleneck machine.

4. Comparatively high investment in equipment is required.

5. Lack of flexibility. A change in product may require the facility modification.

2.7.3 Combination Layout

A combination of process and product layouts combines the advantages of both types of
layouts. A combination layout is possible where an item is being made in different types and
sizes. Here machinery is arranged in a process layout but the process grouping is then arranged
in a sequence to manufacture various types and sizes of products. It is to be noted that the
sequence of operations remains same with the variety of products and sizes. Following figure
shows a combination type of layout for manufacturing different sized gears.
2.7.4 Fixed Position Layout

This is also called the project type of layout. In this type of layout, the material, or major
components remain in a fixed location and tools, machinery, men and other materials are
brought to this location. This type of layout is suitable when one or a few pieces of identical
heavy products are to be manufactured and when the assembly consists of large number of
heavy parts, the cost of transportation of these parts is very high.

Advantages

The major advantages of this type of layout are:

1. Helps in job enlargement and upgrades the skills of the operators.

2. The workers identify themselves with a product in which they take interest and pride in
doing the job.
3. Greater flexibility with this type of layout.
4. Layout capital investment is lower.
2.8 SERVICE LAYOUT

The major factors considered for service providers, is an impact of location on sales and
customer satisfaction. Customers usually look about how close a service facility is, particularly
if the process requires considerable customer contact. Hence, service facility layouts should
provide for easy entrance to these facilities from the freeways. Well-organized packing areas,
easily accessible facilities, well designed walkways and parking areas are some of the
requirements of service facility layout.

Service facility layout will be designed based on degree of customer contact and the
service needed by a customer. These service layouts follow conventional layouts as required.

For car service station, product layout is adopted, where the activities for servicing a car
follows a sequence of operation irrespective of the type of car.

Hospital service is the best example for adaptation of process layout. Here, the service required
for a customer will follow an independent path.
 Tutorial-2

1. Let us assume that a new medical facility is to be located in Delhi. The location factors,
factor rating and scores for two potential sites are shown in the following table. Which is
the best location based on factor rating method?

2. For a health-care facility to be located in Bhubaneswar, the location factors, weights, and
scores (1 = poor, 5 = excellent) for two potential sites are shown in the following table.
What is the weighted score for these sites? Which is the best location?
3. The new Health-care facility is targeted to serve seven census tracts in Delhi. The table
given below shows the coordinates for the centre of each census tract, along with the
projected populations, measured in thousands. Customers will travel from the seven census
tract centres to the new facility when they need health care. Two locations being considered
for the new facility are at (5.5, 4.5) and (7, 2), which are the centres of census tracts C and
F. Details of seven census tract centres, coordinate distances along with the population for
each centre are given below. Find the target area’s centre of gravity for the health-care
medical facility.

4. From the following data, select the most advantageous location for setting a plant for
making transistor radios.