Facility Planning

Location Decision
• Location Decision in operation management is finding an
ideal geographical region to install a Facility or Plant.
• It is a vital component in facility planning as it greatly
impacts the organization’s Profitability, Cost and Success.
• In other words, the decision about the area for locating a
facility is the Location Decision. It is also termed as
Facility Location and Site Selection.
• Depending on the business and market conditions, the
organizations can have all facilities under single or
multiple units.
• It includes both the location of the plant and the facilities
within the plant.
 Location Decision
• Generally, the location decision is taken to set up a new
plant, relocate or expand the existing plant.
• The decision depends on several factors that impact the
business in the short and long run. These factors may be
the industry’s size, nature and product.
• The goal behind selecting a suitable location is to create
accessibility to:
– Customers
– Workers
– Transportation
– Materials, etc
 Location Decision
• Installation of facilities involves massive investment and
cannot be changed frequently.
• Due to poor location decisions, relocating to another
place may lead to a heavy investment loss.
• Facility location has a significant impact on different
types of costs. These costs include Direct, Indirect, Fixed
and Variable costs.
• The organization aims to deliver products at minimum
cost to its customers.
Therefore, the industrialists are going for a strategic and
logical approach to choose the best location. It also helps in
the smooth and efficient working of the organization.
 Objectives of Location Decision
• A good site location helps in reducing costs and
amplifies the profit earned.
• The industries invest their valuable time in search of an
ideal site for the following purposes: –
– Revenue Potential from that Site
– Availability of Resources
– Tax advantages
– Reducing Cost and Production Time
– Convenient Transportation Facilities
– Suitable Environment for Employees
– Meet the Maximum Demands of Customers
– Maximum Space Utilization
 Criteria of Location Decision
• Facility location is a critical decision area and cannot depend
on a single criterion.
• Essential criteria for selecting the location of a site are as
follows: –
– Costs: The cost perspective is an essential criterion
concerning the location of a facility. Any wrong decision will
adversely impact the company’s finances.
– Competition: Effective location decision helps in achieving
a competitive advantage in the markets. As industries can
control costs and offer products at reasonable prices to
consumers.
– Hidden Effects: The plant’s location affects many factors in
the long run in a direct or indirect manner. To remain
competitive, organizations must strategically locate
their facilities.
 Factors affecting Location Decision
• Numerous factors might affect the location decision. The suitable location
is determined by analyzing various factors, parameters and issues. Some
of the factors are listed below:
– Product and Industry: The nature of the product impacts the facility’s
location. For instance, poultry farms are established on the outskirts of
the city.
– Availability of Resources: The plant must be located close to the
suppliers of the raw materials. This is because, it minimizes the
transportation cost, time and overall cost of production.
– Proximity to Consumers: The organizations offering services may choose
to locate facilities near their target customers. Thus, providing them with
an advantage over similar service providers.
– Climate Conditions: Manufacturing of some products demands specific
climatic conditions. For this reason, industries are set up in areas
where suitable climatic condition exists.
– Proximity to Market: The companies producing customized or assembled
products are located near their target market. Consequently, it reduces
the time required for product assembly and delivery.
 Factors affecting Location Decision
• Regulatory and Policy Issues: The political policies differ in
different geographical boundaries. So, the organizations prefer
locations inside open economies having favourable policies.
• Labour Supply: Before installing the plant, companies assess the
availability of skilled labour. Also, they ensure the availability of
basic necessities for the employee’s survival.
• Free Trade Zones: Free Trade Zones are areas in which one can
conduct business free from customs duty. Thus, it is an essential
factor when selecting a site location.
• Infrastructure: Before the installation, industries must assess the
availability of infrastructure in that region. It may include
connectivity via Rail, Roads, Air and Sea.
• Taxes: The tax rates vary within and across the regions. This
factor directly impacts the organizations.
 Location Decision Process
Step 1: Investigation
• Firstly, the organizations investigate their requirements regarding their
location. They conduct an internal SWOT analysis and decide whether
to move, expand or install a new setup.
Step 2: Identification
• Post investigation, they try to identify the potential locations for locating
the facility. For example, installing the facility in the Domestic or Foreign
regions.
Step 3: Evaluation
• The next step in the location decision process is evaluating the potential
locations. The evaluation process may include a detailed comparison of
all the alternatives available.
Step 4: Selection
• Companies conduct a thorough analysis of the location and government
policies in the selected region. Also, an in-depth evaluation of the merits
and demerits of the chosen area. Therefore, choosing the most
appropriate location of the facility for installation.
 Location Planning Techniques
• Following are the location analysis techniques that help
in the selection of an ideal location:
– The Factor Rating Method
– Location Break-Even Analysis
– Weighted Scoring Method
– Center of Gravity Method
– Transportation Method
– Load-distance Method

Practice numerical for each method.

 Disadvantages of Poor Location Decision
• Following are the disadvantages of selecting a poor
location of the facility:
– The maintenance of the plant is a constant addition to
the cost.
– Purchase of land and construction of infrastructure is
an expensive affair.
– Difficulty in marketing and transportation of the
products.
– Dissatisfaction among employees and workers.
– Abnormal wastage and delays in the processes.
 Examples
Sugar Mills
• Companies construct Sugar mills close to the Sugarcane
farms. Consequently, there is a reduction in the transportation
time and carriage inwards.
Tea Factories
• The tea plants need moist soil for their growth. In India,
Assam, West Bengal and Karnataka are some of the major
tea-producing states.
• Hence, most Tea Factories are located in these states due to
their climatic conditions.
Crude Oil Companies
• The United Arab Emirates is the largest exporter of crude oil.
Abu Dhabi National Oil Company (ADNOC), situated in UAE,
is a leading company in this sector.
 Capacity Planning
• Capacity planning is the process of determining the
resources required to meet the current and future needs
of a business or organization.
• It involves forecasting future demand for products or
services and ensuring that the necessary resources,
such as personnel, equipment, and facilities, are
available to meet that demand.
• Capacity planning typically involves analyzing historical
data to identify trends and patterns, as well as
considering factors such as market demand, seasonality,
and growth projections.
• The goal is to optimize resource utilization while
minimizing costs and maintaining quality.
 Capacity Planning
• Capacity planning is particularly important in industries
with high fixed costs, such as manufacturing or
transportation, where over- or under-capacity can have
significant financial consequences.
• Capacity planning process is used by organizations to
determine their production capacity in order to meet the
changing needs of their products.
• A design capacity is an organization's maximum ability to
complete a specified amount of work in a given time
period, in the context of capacity planning.
• Effective capacity planning can help organizations avoid
stockouts, reduce lead times, improve customer
satisfaction, and achieve greater operational efficiency.
 Capacity Planning
• The capacity planning process is crucial in project
management knowledge areas such as:
– Resource management
– Time management
– Team management
– Work Management
• Production capacity, strategy planning, and project planning
go hand in hand.
• Planning is the task of scheduling the team members so that
the work gets completed on time.
• Capacity management is not a set procedure. Because every
company is distinct and demand keeps fluctuating, project
managers can employ various capacity planning
methodologies to respond to different conditions.
 Capacity Planning Strategies
1. Lag Strategy
The lag method entails having sufficient resources to fulfill
demand rather than planned demand estimations. This capacity
planning technique is advantageous for smaller firms with
limited capacity requirements.
2. Lead Strategy
The primary strategy entails having enough resources to satisfy
demand estimates. The lead strategy planning technique is
beneficial since your extra capacity can accommodate the rising
demand.
3. Match Strategy
This technique combines the lead and lag capacity planning
approaches. In this instance, project managers must monitor
actual demand, demand planning estimates, and market
developments to modify capacity.
 Types of Capacity Planning
Workforce Capacity Planning
• This capacity planning strategy ensures that you have the
workforce needed to meet demand. It’s all about having the
right number of workers and hours available to not just
complete jobs but complete them well. Should you need to
hire more workers (or possibly downsize) you’ll know how far
in advance you need to start making changes to
accommodate the length of the recruiting and onboarding
process.
Product Capacity Planning
• This capacity strategy ensures that your business is equipped
with the right number of products or resources needed to fulfill
deliverables. For example, a pet store needs things like food,
pet toys, and equipment like carriers, leashes, and cages.
These are all things which are required to fulfill demand.
 Types of Capacity Planning
Tool Capacity Planning
• This type of capacity planning strategy ensures that your
business is equipped with the necessary tools. Such tools
may include machinery, vehicles, assembly line parts, and
anything else needed to create and deliver your product or
service in a timely manner.
 Capacity Planning in Operations
Management
• Capacity planning is an integral aspect of operations
management. It refers to the system of maintaining a balance
between the demand-supply of goods and products.
• It involves evaluating all aspects of production, such as the
machinery, the staff, and the work centers, to know if a
specific organization or the manufacturer can meet the
customers' current demand and in the future.
• The capacity management analytics market shows a
favorable growth rate in the projected 2020 to 2027, owing to
the changing business environment and workload. This
creates the demand for the coming of much higher
technologies to evaluate growth.
• Capacity management analytics work by predicting the
changes in the operations and independently balancing the
workloads in real-time accordingly.
 Capacity Planning Benefits
• Reduce Stock-Outs
• Identify Inefficiencies in Your Business Process
• Increase Delivery Capacity
• Confirm Availability
 Types of Layout
• There are four basic layout types: process, product, hybrid,
and fixed position.
 Process Oriented layouts
• A process-oriented layout can simultaneously handle a wide variety
of products or services.
• This is the traditional way to support a product differentiation
strategy. It is most efficient when making products with different
requirements or when handling customers, patients, or clients with
different needs.
• A process-oriented layout is typically the low-volume, high-variety
strategy.
• In this job-shop environment, each product or each small group of
products undergoes a different sequence of operations. A product or
small order is produced by moving it from one department to another
in the sequence required for that product.
• A good example of the process-oriented layout is a hospital or clinic.
 Process Oriented layouts
• A big advantage of process-oriented layout is its flexibility in
equipment and labor assignments.
• The breakdown of one machine, for example, need not halt an entire
process; work can be transferred to other machines in the
department.
• Process-oriented layout is also especially good for handling the
manufacture of parts in small batches, or job lots, and for the
production of a wide variety of parts in different sizes or forms.
• The disadvantages of process-oriented layout come from the
general-purpose use of the equipment.
• Orders take more time to move through the system because of
difficult scheduling, changing setups, and unique material handling.
• In addition, general-purpose equipment requires high labor skills,
and work-in-process inventories are higher because of imbalances in
the production process. High labor-skill needs also increase the
required level of training and experience, and high work-in-process
levels increase capital investment
 Product Oriented layouts
• Product-oriented layouts are organized around products or families
of similar high-volume, low-variety products.
• Repetitive production and continuous production, use product
layouts.
• Two types of a product-oriented layout are fabrication and assembly
lines.
• The fabrication line builds components, such as automobile tires or
metal parts for a refrigerator, on a series of machines, while an
assembly line puts the fabricated parts together at a series of
workstations.
• However, both are repetitive processes, and in both cases, the line
must be “balanced”; that is, the time spent to perform work on one
machine must equal or “balance” the time spent to perform work on
the next machine in the fabrication line, just as the time spent at one
workstation by one assembly-line employee must “balance” the time
spent at the next workstation by the next employee.
 Product Oriented layouts
The assumptions for product oriented layout are that:
• Volume is adequate for high equipment utilization.
• Product demand is stable enough to justify high investment in
specialized equipment.
• Product is standardized or approaching a phase of its life cycle that
justifies investment in specialized equipment.
• Supplies of raw materials and components are adequate and of
uniform quality (adequately standardized) to ensure that they will
work with the specialized equipment.
• A well-balanced assembly line has the advantage of high personnel
and facility utilization and equity among employees’ workloads.
• Indeed, the objective of the product-oriented layout is to minimize
imbalance in the fabrication or assembly line, therefore this process
is also known as assembly line balancing.
 Fixed Position layouts
• In a fixed-position layout, the project remains in one place, and
workers and equipment come to that one work area.
• Examples of this type of project are a ship, a highway, a
bridge, a house, and an operating table in a hospital operating
room.
• The techniques for addressing the fixed-position layout are
complicated by three factors.
• First, there is limited space at virtually all sites. Second, at
different stages of a project, different materials are needed;
therefore, different items become critical as the project
develops. Third, the volume of materials needed is dynamic.
• For example, the rate of use of steel panels for the hull of a
ship changes as the project progresses.
 Hybrid layouts
• Now a days in pure state any one form of layouts discussed
above is rarely found, as every layout has got some
advantages as well as disadvantages.
• If the good features of all types of layouts are connected, a
compromise solution can be obtained which will be more
economical and flexible.
• Example:
– This approach is used in the shipbuilding industry when standard
units—say, pipe-holding brackets—are assembled on a nearby
assembly line (a product-oriented facility).
– In an attempt to add efficiency to shipbuilding, Ingall Ship
Building Corporation has moved toward product-oriented
production when sections of a ship (modules) are similar or when
it has a contract to build the same section of several similar
ships.