Chapter 4 Location

Decision and Facilities

Layout
By:
C.M. Dhakal
 1. Reasons and Importance of Location
Decision
Facility location decision (generally facility refers to service
organization and factory or plant refers to manufacturing
organization) is important to both organization.
Facility location decision refers to the process of selecting
appropriate physical sites or place to produce goods and services.
The physical site means plant place where man, material, money,
equipment, machinery, etc. are brought together for
manufacturing of product or rendering services.
The facility location involves the following activities:
1. Selecting the proper geographical region.
2. Selecting specific site with in this region
3. To find the actual site.
 Cont..
Facility/location decision is important
decision due to following reasons:
a. The availability of input may change.
b. Shifting the geography of demand
c. New market is open.
d. Development of new technology
e. Changes in socio-political situation, economic
condition and government policies.
Factors Affecting Location Decisions.
The various factors these affect location decision of
organization, which are:
1. Nature of input
2. Nature of output
3. Nature of technology employed
4. Availability of skilled manpower
5. Transportation facility
6. Availability of services
7. Suitability of land and climate
8. Opportunity of expansion
9. Political, cultural and economic situation & regional regulation
10. Special grants, regional tax and import export barriers
 2.1 Competitive Advantage between
Urban, Rural & sub-urban Plant Location
A. Urban Location
 When facility located in city area is called urban
location.
 There are various advantages and dis advantages
of urban which are
a. Advantages
 Better transportation
 Large market
 Availability of skilled labor
 Availability of service
 Easy to finance
 Cont..
b. Disadvantages
 Low land area
 Higher real state cost
 Hard for expansion
 Higher local tax
 Higher labor cost
 Union problem
 Cont..
B. Sub-urban Location/Rural
 When facility located in Village area is called sub-urban location.
 There are various advantages and dis advantages of urban which are
a. Advantages
 Low cost of land
 Availability of unskilled labor at low cost
 Less union problem
 Low taxes and regulation
 Government assistance
b. Disadvantages
 Not availability of skilled labor
 Inadequate of skilled labor
 Lack of utility
 Far market
 Less service available
2.2 General Procedures in Facility/Location
There are various qualitative and quantitative
techniques for evaluating location, which are:
1. Preliminary screening
2. Detailed analysis by using qualitative methods
a. Simple comparative chart analysis
b. Factors rating method/ preference matrix
c. Analytical Delphi method
3. Detailed analysis by using quantitative method
a. Load distance method
b. Break- even analysis
 Qualitative Method
Facility location can be evaluated by using qualitative as well
as quantitative method.
Qualitative method is that method used for evaluating
location using judgment.
When the locational factors can not be measured in term of
money or in any units, in such situation, qualitative method
is used.
There are various types of qualitative methods used for
evaluating location, which are:
a. Simple comparative chart analysis
This method is useful for analyzing intangible factors affecting location
decision. The following procedures are followed in this method:
 Cont..
 Identify critical intangible factors
 Compare all the location on the basis of these factors
 Select the best location based on evaluation
It can be shown in following table:
Intangible factors Kathmandu Pokhara Simara
Labour supply Suitable More suitable Suitable
Business climate Good Very good Not good
Attitude of community Unfavorable Favourable Favourable
Union activities Important Less important More important
 Cont..
b. Factors rating method/ Preference matrix
 it is another qualitative method of analyzing the appropriate

location of the organization.

 Under this method, various factors are analyzed by assigning

the weight and score of each alternative location and select

the best location based on this weighted score.
 The steps involved in this method are:

1. To identify relevant critical factors.

2. To assign a rate to each factors.
3. To assign the weight for each factors.
4. To calculate the weighted score
5. To select the appropriate location based on weighted
score.
 Cont..
 It can be presented as:
Kathmandu Pokhara
Location Factors Weight
Score Wei. × Score Score Wei. × Score

Patient Miles 20 5 100 5 100

Facility utilization 10 3 30 4 40
Community attitude 20 2 40 3 60
Land and cons. Cost 25 4 100 5 125
Employee preference 5 1 5 4 20
Profit margin 20 4 80 5 100

Total weighted score 100 355 445

 Cont..
c. Analytical Delphi method
 It is the process of pooling the opinion of expert in case of
analyzing best location
 The various procedures for analytical Delphi method are:
1. To formulate Delphi group
2. To make SWOT analysis
3. To determine strategic goal
4. To develop alternative
5. To select best alternative
 Quantitative Method
Facility location can also be evaluated by using quantitative
method.
Quantitative method is that method used for evaluating
location using numerical value or unit.
When the locational factors can be measured in term of money
or in any units, in such situation, quantitative method is used.
There are various types of quantitative methods used for
evaluating location, which are:
a. Load-distance method
 This method is widely used quantitative technique for analyzing location
based on proximity factors.
 Under this method, various distance are calculated, which are:
 Cont..
1. Euclidean distance
dAB =
2. Rectilinear distance
dAB = /XA-XB/+ /YA-YB/
3. Calculation of load distance score (Ld. score)
Ld. score = ∑(load × distance)
4. Calculation of center of gravity
X-coordinate (X*) =
Y-coordinate (Y*) =
Where
dAB = distance between point A and B
XA = X-coordinate of point A
YA = Y-coordinate of point A
XB = X-coordinate of point B
YB = Y-coordinate of point B
 Cont..
b. Break-Even Analysis
 It can help the manager to compare location alternatives on the
basis of quantitative factors that can be express in terms of total
cost.
 It is particularly useful when the managers want to define the
ranges over which alternative is best.
 The various steps involved in break-even analysis are as follows:
1. To determine the variable and fixed cost of each location
2. To plot the total cost line, the sum of variable and fixed cost
for all the location on a single graph.
3. To identify the appropriate ranges for which each location has
the lowest cost.
4. To solve algebraically for the BEP over the relevant ranges.
Total cost of location A = Total cost of location B
3. Behavioral Impact in Facility Location
In location decision, various behavioral unquantifiable factors
are critical.
In new location, organization need to establish relationship
with new environment and employees.
Some behavioral aspects of location decision are:
a. Cultural differences.
b. Job satisfaction
 Labor turnover
 Absenteeism
 Tardiness
 Grievances
c. Customer consideration
 4. Facility Layout
Plant layouts means the disposition of the various facilities such as
equipment, materials, human resources and utilities of the plant with in
the area of factory site.
Plant layout begins with the design of the factory building and goes out to
the individual work table.
All the utilities like equipment, raw material, machinery, tolls, fixture,
workers etc. are given proper place so that the objectives of layout is
achieved.
The plant layout is needed in following cases:
1. Major changes in product design.
2. Some new product has been introduced
3. Changes in demand schedule,
4. Frequent accident
5. Poor working condition
6. Changes in production line
7. Shifted to new area
 4.1 Objectives of Plant Layout
Optimum plant layout decision is that provides maximum
satisfaction to all stakeholders such as employees,
management, shareholders and customers.
The objectives of good layout are:
1. To provide overall satisfaction and simplification.
2. To reduce material handling and labor movement
3. To utilize space effectively
4. To make worker convenience, safety and job satisfaction
5. To utilize labor and equipment effectively
6. To Increase efficiency and productivity
7. To reduce bottleneck and congestions
8. To increase flexibility
9. To reduce production cycle time
10. To make plant maintenance easier.
4.2 Consideration in layout design
The major consideration in plant layout are:
1. Higher utilization of space, equipment and people
2. Improved flow of information materials and people
3. Improve employee morale
4. Safe working condition
5. Improved customer interaction
6. flexibility
 4.3 Principles Plant Layout.
Considerable arts and skills are required to design
good plant layout.
The few principles for sound plant layout are:
1. Integration
2. Minimum movement and material handling
3. Smooth and continuous flow
4. Cubic space utilization
5. Safe and improve environment
6. Flexibility
 4.4 Types of Plant Layout
It is quite difficult to design effective plant layout in organization
because the production layout are now made more flexible to
achieve the versatility of services and goods as per customer
requirement.
The various types of plant layout are:
A. Process Layout
 Arranging or placing similar machine, equipment, space and
material required for performing similar job at one location is
called process layout.
 It is also functional layout because various resources of
organization are arranged according to their function.
 Work-shop, metal processing organization, hospital etc. can use
this type of layout.
 It can be presented in following figure.
 Cont..
Store Inspection Milling
Room department section
Lathe Shaper Section
section
Drill section Stock room of
finished goods
 Cont..
Advantages
 Wide flexibility
 Better utilization of equipment
 Lower capital investment
 Better product quality
 Reduce monotonous
 Separate responsibility
Disadvantages
 Required more space
 Automatic material handling is more difficult
 More stock of WIP
 More time
 Production control become difficult
 Increased material handling cost
 More inspection and coordination
 Cont..
B. Product Layout
 Arranging various resources according to way of
producing goods and services is called product layout.
 It is also known as line layout
 In other word, machine and other resources are
arranged in such sequence in which the raw material
will be operated up on.
 Sugar manufacturing organization, noodles
manufacturing company, paper mills etc. used this
type of plant layout.
 It can be presented as:
 Cont..
WS 2

Storage
Store WS 1 WS 3 WS 5 of Final
Room Product

WS 4
 Cont..
Advantages
 Least space requirement
 Lower material handling cost
 Lower inventory of WIP
 Lower production cycle time
 Better coordination and control
 Smooth and continuous work flow
 Less skilled manpower
Disadvantages
 Inflexible layout
 Difficulty to balance all resources
 Higher capital investment
 Possibility of higher production
 Cont..
C. Combination Layout
 Arranging some resources according to function and
arranging other according to way of producing goods
and services is called combination layout.
 This type of layout usually designed to acquire the
advantages of both layout.
 In modern time, there is difficult to make pure product
or process layout.
 It is applicable where an item is being made in
different type and size.
 It can be presented as:
 Cont..
F1 G1
H1
F2 G2
I1
Store of
F3 G3 Store of
Raw H2
Final
Material
Product
F4 G4 I2
H3
F5 G5
 Cont..
D. Fixed Position Layout
 When the resources are arranged at the place where the goods and
services are actually consumed is called fixed positioned layout.
 It is applicable in these organization involved in making bridge,
house, commercial complex etc.
Advantages
 Assigning worker at one time.
 Least movement.
 Maximum flexibility
 Handling different project
Disadvantages
 Inflexible in case of place
 Low utilization of resources
 High equipment handling cost