OPERATIONS MANAGEMENT MBA II AGBS - INDORE

MODULE III
Facility/Plant Location and Facility layout

Facility/Plant Location

• Factors Affecting Location Decisions

• Quantitative Techniques in Facility Location - Factor Rating Method , Centre of Gravity Method, Load
Distance Method, Median Model method

Facility Layout
• Principles of Facility Layout

• Types of Layout(Product/Line Layout, Process Layout, Fixed Position Layout)

• Concepts of Line Balancing(No numerical)

• Merits and Demerits of Product and Process Layout.

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Plant location refers to the choice of the region where men, materials, money, machinery and
equipment are brought together for setting up a business or factory.

• It is an important strategic level decision making for an organization

• A plant is a place where the cost of the product is kept to low in order to maximize gains.

Need for selecting a suitable location

When starting a new venture/organization(Factors – Finance, employment , good distribution)

In case of existing organization(require expansion, new location for additional facilities, costs
increasing-change)

In case of global location (ex Haldiram – USA ,Mac Donalds – in India

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Factors affecting/influencing plant / Facility location

Facility/Plant location is a process of determining a geographic site for a firm’s operations.

Managers of manufacturing or service organizations have an important task - to find the appropriate location for
the organization.
Decisions regarding selecting a location need a balance of several factors. These are divided into primary
factors and secondary factors; here both the factors can influence the business in the long run.
Primary factors
Availability of raw materials
Availability of raw materials is the most important factor in plant location decisions. Usually, manufacturing
units should be located in a place where the raw materials availability is maximum and cheap.
Proximity/Nearness to the market
Nearness of market for the finished goods reduces the transportation costs and can render quick services to the
customers. If the plant is located far away from the markets then the chances of spoiling and breakage become
high during transport.
Availability of labor
The combination of the adequate number of labor with suitable skills and reasonable labor wages can highly
benefit the firm. However, labor-intensive firms should select the plant location which is nearer to the source of
manpower.
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Transportation Facilities-
Speedy transport facilities ensure timely supply of raw materials to the company and finished goods to the
customers. It is the prerequisite for the location of the plan.( can reduce the costs of the organisation)

Infrastructure Availability-
These include Availability of power, fuel, water, waste disposal etc. There are very important factors while
selecting a location. Aluminium and steel plant require continuous power supply. Paper, cement chemical
plant require continuous water supply in large amount. Some chemical , sugar ,leather factories require
proper waste disposal facility too.

Secondary Factors-
Suitability of climate
Climate is really an influencing factor for industries such as agriculture, leather, and textile, etc. For such
industries extreme humid or dry conditions are not suitable for plant location. Climate can affect the labor
efficiency and productivity.
Government policies
While selecting a location for the plant, it is very important to know the local existed Government policies
such as licensing policies, institutional finance, Government subsidies, Government benefits associated
with establishing a unit in the urban areas or rural areas, etc.
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Availability of finance
Finance is the most important factor for the smooth running of any business; it should not be far away from
the plant location. But it should be located nearer to the areas to get the working capital and other financial
needs easily.
Competition between states
In order to attract the investment and large scale industries various states offer subsidies, benefits, and sales
tax exemptions to the new units. However, the incentives may not be big but it can help the firms during its
startup stages.
Availability of facilities
Availability of basic facilities such as schools, hospitals, housing and recreation clubs, etc can motivate the
workers to stick to the jobs.
Supporting industries and Services-
During manufacturing , some parts/sub parts are out sourced to small industries, so such industries should
be near the location selected by the organisation.
Community and labour attitudes-
Labour attitudes and culture difference are very important for selecting a location as it can make or mar the
industry. Ex labourers of certain states are very aggressive which may lead to arguments with the
management and may result in strikes or lockout of a factory.
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Factors for Manufacturing Organisations

1. Proximity to markets
2. Proximity to suppliers and resources
3. Availability of labour
4. Favourable Climate (for production and labour)
5. Transportation Costs
6. Quality of Life
7. Utilities(communication, electricity/energy ,water) , taxes and real estate costs, labour skills, labour costs

Factors for Service Organisations

1. Proximity to Customers(laundary, grocery)

2. Transportation Costs(warehouse near)
3. Proximity to markets(Repair shop)
4. Location of Competitors(near competitors is an advantage)
5.Utilties(residential density, traffic flow, site visibility, - impulse buying/eating)
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Procedure for Selecting a Site/location:

For selecting a site following procedure should be followed:
1.Constitution of a site selection committee.
2.Determining the company needs.
3.Deciding criteria for selection.
4.Accumulate the data.
5.Analyzse the data.
6.Evaluate the alternatives.
7.Investigation in detail.
8.Select the ideal location/site

Quantitative Techniques to identify the Ideal Facility Location –

• Factor Rating/ Weighted Factor Rating Method
• Centre of Gravity Method
• Load Distance Method
• Break Even Analysis method
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Factor Rating/ Weighted 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.(factors are assigned weights according to its relevance)
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(weights) considered.
5.Find the sum of product calculated for each location and select best location having
highest total score.
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Let us assume that a new medical facility, Health-care, 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?

The total score for location 2 is higher than that of location 1. Hence location 2, is the best choice.
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Comparison of Factor Rating and Weighted Factor Rating method

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CENTER OF GRAVITY(Help to determine the coordinates(location) of the new facility)

It is a quantitative method that can be utilized to find out the ideal area of a facility in view
of minimizing the carrying costs between the place the products are manufactured and the
place they are sold. In other words, this method is useful for finding distribution storage
house(warehouse). This method is easy to calculate and helps to find out the usefulness of
a particular location. The objective is to minimize cost by enhancing effectiveness and
efficiency and hence maximize the revenue.

Cx =∑Lx/∑L Cy =∑Ly/∑L Y
Q
(790,900)

(x,y) – Coordinates of the current destination D

(250,580)

L= volume of goods moved to or from a location A

(100,200)

(0,0) X
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CENTER OF GRAVITY(Help to determine the coordinates(location) of the new facility

SNO Tract (x,y) Population Lx Ly

1 A (2.5,4.5) 2 5 9
2 B (2.5,2.5) 5 12.5 12.5
3 C (5.5,4.5) 10 55 45
4 D (5,2) 7 35 14
5 E (8,5) 10 80 50
6 F (7,2) 20 140 40
7 G (9,2.5) 14 126 35

Cx =∑Lx/∑L Cy =∑Ly/∑L

Cx =453.5/68 = 6.67 Cy =205.5/68 = 3.02

COG = (6.67,3.02) (COG – Centre of Gravity)
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Load Distance method

The load-distance method is a mathematical model used to evaluate locations based on

proximity factors. The objective is to select a location that minimizes the total weighted loads
moving into and out of the facility.

Example- The new Health-care facility is targeted to serve seven census tracts in Delhi.
Customers will travel from the seven census tract centers 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 location is better in terms of its total load- distance score?
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calculate the load-distance score for each tract.

Using the formula D = |X – X | + |Y – Y |
AB A B A B

Summing the scores for all tracts gives a total load-distance score of 239 when the facility is located at versus
a load-distance score of 168 at location (7, 2).
Therefore, the location in census tract F is a better location.
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BREAK EVEN ANALYSIS

A break-even analysis is a financial tool which helps a company to determine the stage at which the company, or a new
service or a product, will be profitable. In other words, it is a financial calculation for determining the number of
products or services a company should sell or provide to cover its costs (particularly fixed costs). Break-even is a
situation where an organisation is neither making money nor losing money, but all the costs have been covered.
Break-even analysis is useful in studying the relation between the variable cost, fixed cost and revenue.

Eg Variable costs per unit: Rs. 400(VC)

Sale price per unit: Rs. 600(SP)
Total fixed costs: Rs. 10,00,000(FC)

BEP = FC / SP – VC = 1000000/600-400 = 1000000/200 = 5000 units(Q)

Break even Sales = SP * Q = 600 *5000 = Rs.30, 00, 000

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Location – Mumbai
Variable costs per unit: Rs. 135(VC) Sale price per unit: Rs. 300(SP) Total fixed costs: Rs. 50000(FC)
Forecasted demand = 3000 units (Q)
Total costs TC = FC +(VC *Q)= 50000 + (135 * 3000) = 50000 +405000 = Rs.4,55,000(Mumbai)-> Total cost

Total Profits = (SP * Q) – TC = (300*3000) – 455000 = Rs. 4,45,000(Mumbai) -> Total Profit

Location – Ahmedabad
Variable costs per unit: Rs. 110(VC) Sale price per unit: Rs. 300(SP) Total fixed costs: Rs. 100000(FC)
Forecasted demand = 3000 units (Q)
Total costs TC = FC +(VC *Q)= 100000 + (110 * 3000) = 100000 + 330000 = Rs.4,30,000(Ahmedabad)-> Total Cost

Total Profits = (SP * Q) – TC = (300*3000) – 430000 = Rs. 4,70,000(Ahmedabad)- > Total Profit

Location – Bangalore
Variable costs per unit: Rs. 120(VC) Sale price per unit: Rs. 300(SP) Total fixed costs: Rs. 120000(FC)
Forecasted demand = 3000 units (Q)
Total costs TC = FC +(VC *Q)= 120000 + (120 * 3000) = 120000 +360000 = Rs.4,80,000(Bangalore)-> Total Cost

Total Profits = (SP * Q) – TC = (300*3000) – 480000 = Rs. 4,20,000(Bangalore)-> Total Profit

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The best location is the one which has least cost or maximum profit

Ans. In the given example Location Ahmedabad shows the least cost Rs 4,30000 so The ideal location for the ice factory is
Ahmedabad. Also Since the costs of location Ahmedabad is lowest among 3 locations and assuming revenue is same for all
3 places , the total profit is maximum for location Ahmedabad.

If no of units forecasted or quantity to produce is not known in advance then-

Mumbai = TC = TFC + TVC

= 50000 + 135 Q
Ahmedabad = 100000 + 110 Q
Bangalore = 120000+ 120Q

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PLANT LAYOUT/FACILITY LAYOUT

Plant layout refers to the physical arrangement of production facilities.

• It is the configuration of departments, work centers and equipment in the conversion process.
• It considers available space, final product, safety of users and facility and convenience of operations.
• It is a floor plan of the physical facilities, which are used in production.

According to Moore “Plant layout is a plan of an optimum arrangement of facilities including personnel,
operating equipment, storage space, material handling equipment and all other supporting services along
with the design of best structure to contain all these facilities”.

An effective facility layout ensures that there is a smooth and steady flow of production material,
equipment and manpower at minimum wastage of resources and minimum cost, with maximum output
produced.
Therefore, main objective of the facility layout planning is to design effective workflow as to make equipment
and workers more productive.
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Need for selecting a Layout

• Inefficient operations example - High Cost and Bottlenecks
• Changes in the design of products or services
• Accidents Safety hazards
• Changes in environmental or other legal requirements
• Changes in methods and equipment
• Changes in volume of output or mix of products
• Morale problems
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PLANT LAYOUT/FACILITY LAYOUT

Objectives of Plant Layout

The primary goal of the plant layout is to maximize the profit (or minimize the cost)by arrangement of all the plant
facilities to the best advantage of total manufacturing of the product. The objectives of plant layout are:

• Streamline(structure) the flow of materials through the plant.

• Facilitate(make it easy) the manufacturing process.
• Maintain high turnover of in-process inventory.(supply)
• Minimize materials handling and cost.
• Effective utilization of men, equipment and space.
• Make effective utilization of cubic space.
• Flexibility of manufacturing operations and arrangements.
• Provide for employee convenience, safety and comfort.
• Minimize investment in equipment.
• Minimize overall production time.
• Facilitate the organizational structure.
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Classification of Plant Layout

Layouts can be classified into the following five categories:
1.Process layout(Functional Layout)
2.Product layout(Line Layout)
3.Combination layout(Hybrid Layout)
4.Fixed position layout(Project Layout)
5.Group layout/Cellular layout

Process Layout or Functional Layout

In process layout the arrangement of facilities are grouped together according to their functions.
All machines performing similar type of operations are grouped at one location in the process layout
Process layout is recommended for batch production and job shop production(variety high &low volume)
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Advantages

1.Flexibility of equipment and personnel is possible in process layout.

2.Lower investment on number of machines(standard)
3.A high degree of flexibility with regards to work distribution to machineries and workers.
4.The diversity of tasks and variety of job makes the job challenging and interesting.
5.Supervisors will become highly knowledgeable about the functions under their department.

Disadvantages
6.Process time is prolonged and increases the in- process inventory.
7.Throughput (time gap between in and out in the process) time is longer.
8.Space and capital are tied up by work-in-process.
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Product layout(Line 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. In a strict product layout, machines
are not shared by different products of the equipment.
Example-Auto plants, cafeterias
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Advantages

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

2.Minimum material handling cost.
3.Simplified production, planning and control systems are possible.
4.Less space is occupied by work transit and for temporary storage.
5.Manufacturing cycle is short due to uninterrupted flow of materials.
6.Small amount of work-in-process inventory.
7.Unskilled workers can learn and manage the production.

Disadvantages

8.A breakdown of one machine in a product line may cause stoppages of machines in the line.
9.A change in product design may require major alterations in the layout.
10.Comparatively high investment in equipment is required.
11.Lack of flexibility. A change in product may require the facility modification.

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Product Layout Process Layout
Sequential arrangement of activities Functional Grouping of activities(not sequential)
.
Continuous production, mass production Intermittent- batch, job shop production

Standardised products produced(made to stock) Variety of products produced(made to order)

Demand is stable Demand is fluctuating

Volume of goods is high Volume is low
Variety low Variety high
Special purpose equipment needed General purpose machines needed
Workers have limited skills Workers have varied skills
Inventory- low in process, high in finished goods Inventory- high in process,low in finished goods

Storage space small Storage space large

Material Handling follows fixed path Material Handling follows different and flexible path
Aisles are narrow Aisles are wide
Goal-equal work at each work station Minimise material handling cost

Very Efficient in nature Can be very flexible

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Combination layout(Hybrid Layout)

A combination of product and process layout – used when items are made in different types and sizes.
It combines advantages of both types of layouts.

Ex- Faulty products when returned to factory-

Hospital- patients coming will wait in queue and then go to different departments for diagnosis
Supermarket visit-first customer can go to clothing, then clothes laid out in sequence(product layout)

Its used more often in real situations for mass production /services and hence improve the productivity.

Fixed Position Layout(Project 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.

Example- Aircraft, boilers, construction

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Fixed position layout

Advantages

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 and material handling cost is lower.
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Group or Cellular layout-

There is a trend now to bring an element of flexibility into manufacturing system as regards to variation in batch sizes
and sequence of operations. A grouping of equipment for performing a sequence of operations on family of similar
components or products has become more important.
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Group technology (GT) is the analysis and comparisons of items to group them into families with similar characteristics.
This technique is very useful for companies that produce variety of parts in small batches to enable them to take
advantage and economics of flow line layout.
Group technology involves identifying parts with similar design characteristics (size, shape, and function) and similar
process characteristics (type of processing required, available machinery that performs this type of process, and
processing sequence). Workers in cellular layouts are cross-trained so that they can operate all the equipment within
the cell and take responsibility for its output.
Advantages-
1.Paper work and overall production time will be decreased
2.Work-in-progress and work movement will be decreased
3.Overall cost will be reduced.
4.Effective machine operation and productivity will increase.
5.Customer service will be enhanced.

Disadvantage-This type of layout may not be feasible if the product mix is completely dissimilar.
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.
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.
• service facility layouts should provide for easy entrance to these facilities.
• Well-organized packing areas, easily accessible facilities, and parking areas are some of the requirements of
service facility layout.

Service facility Design and Layout

• Service facility layout will be designed based on degree of customer contact and the service needed by a
customer. For example, 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.
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Service layout of Car service Service Layout of Hospital

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Concept of Line Balancing in product or line layout

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.
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Line Balancing is a process of assigning tasks to the workstations in such a way that each work station have approximately
.
equal time requirement. This can be done by using both the operators and the machines in the most efficient way and at
the same time providing flexibility in the production. https://www.youtube.com/watch?v=yJrejEcEpHE(Maruti)
https://www.youtube.com/watch?v=P7fi4hP_y80 BMW
v.Assigning task to each OPERATIONS MANAGEMENT
work station in such a way that there is little idle time. AGBS - INDORE

Benefits of Line Balancing

. 1. Reduce waiting waste(operator waiting or machine waiting)- Line balancing ensures that all operators and
machines work together in a balanced fashion. No operator or machine should be overburdened or idle
2. Reduce inventory waste-(raw material, in process and finished goods)
3. Absorb internal and external irregularities- Line balancing reduces variations within a production line. A balanced
production line is stable and flexible enough to adapt to changes.
4. Reduce production costs and increase profits- Perfect line balancing leads to workers and machines that perform in
a fully synchronized manner. No operator is paid for standing idle. All machines are used to their full potential. In other
words, manpower and machine capacity are maximized. Such process efficiency represents fewer costs and more
profits.

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https://www.youtube.com/watch?v=gJF51K7pQB0(CUSTOMISED)

https://www.youtube.com/watch?v=czkDCBgZAns(SHUTTLECOCK)
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.
PERT & CPM
Project Evaluation and Review Technique (PERT) and Critical Path Method (CPM) are both useful tools when
planning and controlling a project. PERT and CPM are complementary and both are important analytical techniques
in project management when managing tasks.

PERT
Project managers use PERT as a tool to help them determine how much time it’ll take to complete a project. This is
an essential step toward developing an accurate schedule.
PERT works on a PERT chart, which maps three-time estimates. One is the optimistic time, or the least amount of
time expected for a task to be done.
Next is the pessimistic time, or the maximum amount of time it’ll take to complete a task. Finally, there’s the most
likely time, which is a reasonable amount of time to complete the task as long as there are no delays, bottlenecks,
etc.
Once these estimates have been recorded, the project manager then calculates (optimistic time + 4 x most likely
time + pessimistic time) /6.
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.
CPM
It is used to determine the earliest possible starting time for each task in the project. It’ll also help a project
manager determine the critical tasks and non-critical tasks. This helps when executing the project. If you’re behind
schedule, you know which tasks can be skipped without impacting the integrity of the work.
Therefore, the critical path is the longest sequence in a network diagram or the shortest duration for the project to
be completed.

Difference between PERT and CPM

PERT uses a three-point method to forecast time, while CPM only has one measure for estimating. CPM uses exact
time estimates(Deterministic) and Pert have 3 time estimates from which we can calculate the time
estimate(probabilistic).
CPM is used to control cost and time, and PERT is a must for controlling time when planning.
PERT is also more of a development and research tool. CPM is more often found in
construction project management.

Resource leveling is a project management technique that aims to balance the use of resources and avoid
overallocation or underallocation
. Resource leveling can help optimize the project schedule, reduce costs, and improve efficiency. Some of the comm
on resource leveling techniques
are-
Critical path method: prioritizes tasks based on their duration and dependencies.
Crashing: adds more resources to critical tasks to shorten their duration