Plant location

MeaningMeaning-the establishment of an industry at a particular place. It is of 2 typestypes1. Localization /centralization-means /centralizationconcentration of similar type of industries at some particular place. E.g. textile in Mumbai. 2. Delocalization /Decentralization/Decentralizationmeans spreading of similar type of industries at different places. E.g. banking industries.

Factors affecting location & site decisions

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Availability of raw material Nearness to the potential market Near to the source of operating requirements like electricity, disposal of waste, drainage facilities. Supply of labor Transport & communication facilities Integration with other group of companies Suitability of land & climate Availability of housing, other amenities & services Local building & planning regulations Safety requirements Others like low interest on loans, special grants, living standards

selection of the site for the factory

Known as location analysis where firstly some geographical area is selected & from that area a particular site is selected for the establishment of the plant. Methods for the evaluation of plant locationlocation1. Involving quantitative factorsfactorsa. Comparative cost chart, b. dimensional analysis. 2. Comparison of qualitative factors.

Comparative cost chart

Is appropriate where the location problem concerns the placement of a single plant. This is based on location cost summary chart. A comparative chart of total costs involved in setting up a plant of desired size is prepared.
40 30 A 20 10 0 locations B C D

The total cost is represented by the height of column for each location. we select a location for which total cost is minimum. The cost summary chart has advantage of clarity in presentation. but analysis is restricted to certain specified factors only.  Least cost centre analysisanalysisHere transportation cost associated with various location alternatives is considered. Limitation of these techniquestechniques1.Choice of plant location assumed to be entirely dependent upon minimization of operational costs. 2.Operational costs are assumed to be linearly related to distance involved.

Dimensional analysis
It involves 1. calculation of the relative merits or cost ratios for each of the factors, 2. giving each of the cost factor an appropriate weightage by means of an index to which the cost ratio is raised 3. & multiplying these weighted ratios in order to arrive at a figure on the relative merits of alternative sites.

Comparison of qualitative factors.



These are the factors to which cost values cant be assigned. Like lack of good schools, community attitude. These can be termed as good or excellent. factors labor relation education Location A adequate good Good Location B excellent Very good Very good

Clearly location B appears to be better one.

Ranking & weight method

1. 2. 3. 4. 5.

Various locations are ranked acc. To their contribution Various factors are assigned weights acc. To their importance Weights are then multiplied with rank assigned Total of these products for each location is calculated Location having max. total is then selected.

Advantages &disadvantages of urban, rural & sub-urban subsites for a plantplant-

urban

rural

Sub-urban SubPlanned industrial Larger area

Better More water transportation Large labor Cheaper land supply Big local market Lower taxes Easy finance Municipal services Better civil attitude Few ordinances

Labor stability

Backward area & industrial policy



In the facilities location problems, the industrial policies of the governments are very important inputs in the overall consideration. In India, the industrial development of backward areas for balanced regional development of the country has always been emphasized. This has been attempted mainly through: 1. Licensing policy (practice of leasing a legally protected property to another party )

2. 3. 4. 5. 6.

consisting of much land )

Location of public sector projects Investment subsidy ( ) Concessional finance (by IDBI, IFCI , ICICI) Concession on income tax import duty etc and Setting up of industrial estates (property
money granted by the State to keep down the price of commodities

Backward area & industrial policy contd.

All the districts in the country have been classified into four categories: A. No industry districts, B. Moderately backward districts C. Least backward districts, and D. Non-backward districts NonThe A, B, and C categories are eligible for subsidy on investment in fixed assets in an industrial unit, as given below:
Category Percent Subsidy Maximum Limit Per unit

A B C D

25 15 10 not eligible for subsidy

Rs 25 lakh Rs15 lakh Rs 10 lakh

Global locations
WorldWorld-wide locations are called global locations. E.g. MNCs are setting up their branches in India & Indian companies are extending their operations in other countries like USA, EUROPE , CHINA. virtual proximity Social networking at a distance .with the advances in telecommunications technology , a firm can be in virtual proximity to its customers.

Virtual Factory
Many firms based in USA and UKin the UK service sector and in the manufacturing sector sectoroften outsource part of their business processes to foreign locations such as India. Thus, instead of one's India. own operations, a firm could use its business associates' operations facilities. facilities. In a way, the Indian BPO firm is that foreign-based company's 'virtual foreignservice factory'. So, one's business factory'. associate's operations facilities is called virtual factory. factory.

1.

REASONS FOR A FOREIGN LOCATION Reaching the Customer -One obvious reason for
locating a facility abroad is that of capturing a share of the market expanding worldwide.

2.
 

Other Tangible ReasonsReasonsThe host country may have/offer substantial tax advantages compared to the home country. The costs of manufacturing and/or running operations may be substantially less in that foreign country. This may be due to
 

Low labor cost Low raw material cost Better availability of inputs

The co. may overcome the tariff (table of fixed charges) barriers by co. setting up a manufacturing plant in foreign country rather than exporting the items to that country.

3. Intangible reasonsreasons-

CustomerCustomer-related reasonsreasons firms

customer may feel secure that firm is more accessible. accessible.  Firm may be able to give a personal touch. touch.  Firm may understand customers requirements better. better.  It may discover other potential customers in abroad. abroad.


Organizational learning related reasons

can learn advanced technology  Firm can learn from its customers abroad  It can also learn from its competitors operating in abroad. abroad.  It may also learn from its suppliers abroad.
 Firm

Plant layout


MeaningMeaningPlant layout is the physical arrangement of industrial facilities. It involves the facilities. allocation of space & the arrangement of equipment in such a manner that overall operating costs are minimized. minimized.
L L L L L L L L A A A A M M M M M M D D D D

G G G

G G G

Objectives of plant layout



1.

2. 3. 4.

An efficient layout can be instrumental in the accomplishment of the following objectivesobjectivesEconomies in materials, facilitate manufacturing process & handling of semisemi-finished & finished goods. Proper & efficient utilization of available floor space. To avoid congestion & bottlenecks. Provision of better supervision & control of operations.

Objectives of plant layout cont.

5. Careful planning to avoid frequent changes in layout which may result in undue increase in cost of production. production. 6. To provide adequate safety to the workers from accidents. accidents. 7. To meet the quality & capacity requirements in the most economical manner. manner. 8. Provision of medical facilities & cafeteria at suitable & convenient places. places. 9. To provide efficient material handling system. system. 10. 10. To suggest the improvements in production process & work methods. methods.

Principles of plant layout

1. 2. 3. 4. 5. 6. 7.

Principle of integration (of 5Ms) Principle of minimum distance Principle of cubic space utilization( both horizontal & vertical space). Principle of flow( must be forward no backtracking) Principle of maximum flexibility Principle of safety, security & satisfaction Principle of minimum handling.

Types of plant layout

Product layout 2. Process layout 3. Fixed Position/ Stationary layout Product layoutlayout1.


Layout that uses standardized processing operations to achieve smooth, rapid, highhighvolume flow Here machines are arranged acc. To the needs of product & in the same sequence as the operations are necessary for manufacture. E.g. back office of services such as banks and insurance companies.

Product Layout
Raw materials or customer
Material and/or labor

Station 1

Station 2

Station 3

Station 4

Finished item

Material and/or labor

Material and/or labor

Material and/or labor

Used for Repetitive or Continuous Processing

Advantages of Product Layout

1. 2. 3. 4. 5. 6. 7.

High rate of output Low unit cost Labor specialization Low material handling cost High utilization of labor and equipment Established routing and scheduling Short processing time

Disadvantages of Product Layout

1. 2. 3. 4. 5. 6.

Creates dull, repetitive jobs Poorly skilled workers may not maintain equipment or quality of output Fairly inflexible to changes in volume Highly susceptible to shutdowns Needs preventive maintenance Require large capital investment

A U-Shaped Production Line UIn

4 5

Workers

6
Out

10

Process layoutlayoutLayout that can handle varied processing requirements  Here all machines performing similar type of operations are grouped together at one location in the process layout. Thus here facilities are grouped together acc. To their functions. E.g. all drilling machines are located at one place known as drilling section.


Process Layout
Process Layout (functional)
Dept. A Dept. C Dept. E

Dept. B

Dept. D

Dept. F

Used for Intermittent processing Job Shop or Batch

Product Layout
Product Layout (sequential)
Work Station 1 Work Station 2 Work Station 3

Used for Repetitive Processing Repetitive or Continuous

Advantages of Process Layouts

1. 2. 3. 4. 5. 6. 7.

Can handle a variety of processing requirements Machines breakdown doesnt result in shutdown. Equipment used is less costly Wide flexibility in production facilities. Each production unit of system works independently. High utilization of facilities Variety makes the job interesting.

Disadvantages of Process Layouts

1. 2. 3. 4. 5. 6. 7.

InIn-process inventory costs can be high Challenging routing and scheduling Equipment utilization rates are low Material handling is slow and inefficient & is more. More space is required Longer processing time Back tracking may occur.

1. 2.   3.   4.

5. 6.

Factors affecting plant layout Nature of product- e.g. some products need airproductairconditioned plants. Size of outputoutputFor bulk-product/line layout bulkFor small-functional layout smallNature of manufacturing systemsystemFor intermittent-functional layout intermittentFor continuous-product/line layout continuousLocalization of plant- e.g. there will be different planttransportation arrangement if site is located near railway line. Machines or equipment- e.g. heavy machines need equipmentstationary layout Climatic conditions, need of light, temperature also affect design of layout.

Capacity Planning
Capacity

is the upper limit or ceiling on the load that an operating unit can handle. The basic questions in capacity handling are:
 What

kind of capacity is needed?  How much is needed?  When is it needed?

Types of Capacity
Design

capacity

 maximum

output rate or service capacity an operation, process, or facility is designed for

Effective
 Design

capacity

capacity minus allowances such as personal time, maintenance, and scrap

Actual
 rate

output

of output actually achieved--cannot achieved--cannot exceed effective capacity.

Efficiency and Utilization

Actual output Efficiency = Effective capacity Actual output Utilization = Design capacity
Both measures expressed as percentages

Efficiency/Utilization Example
Design capacity = 50 trucks/day Effective capacity = 40 trucks/day Actual output = 36 units/day

Efficiency = Utilization =

Actual output Effective capacity Actual output Design capacity =

36 units/day 40 units/ day = 90%

36 units/day 50 units/day

= 72%

Objectives of capacity planning

1. 2.

3.

4.

To satisfy the future demand of products without any shortage To find the optimal capacity of the facility so that the sum of costs of underunder-capacity & over- capacity is the overminimum. To keep the initial investment in the facility as low as possible to achieve lower break-even volume breakInvestment in facility capacity are longlong-term & cant be reversed easily.

Determinants of Effective Capacity

Facilities Product

and service factors Process factors Human factors Operational factors Supply chain factors External factors

Steps for Capacity Planning

1. 2. 3. 4. 5. 6. 7. 8.

Estimate future capacity requirements Evaluate existing capacity Identify alternatives Conduct financial analysis Assess key qualitative issues Select one alternative Implement alternative chosen Monitor results

Production planning procedures

It can be divided in 3 partsparts1. Routing 2. Scheduling 3. Loading RoutingRoutingIt means determination of path or route over which each piece is to travel in being transformed from raw-material rawinto finished product.

In general routing consists of seven decisions, namely 1. Whether to make/buy 2. The form & shape of material 3. Division of work to be done into operations 4. The choice of machines on which each operation should be done. 5. The sequence in which operations are to be performed 6. The division of operations into work elements 7. The choice of special tooling.

Advantages of routing 1. Efficient use of resources 2. Reduction in manufacturing costs 3. Improvement in quantity & quality of output 4. Provides a basis for scheduling & loading. SchedulingScheduling- it means 1. A description of when & where each operation is to be executed. 2. Establishment of timetable at which to begin/ complete each operation.

Objectives of schedulingscheduling1. Items are delivered on due date 2. Production cost is minimum 3. To minimize idle time of machines 4. To prevent unbalanced allocation of time among various departments Types of schedulesschedules1. Operations schedule- determine total time schedulerequired to do a piece of work with given machine 2. Master schedule- is a list showing how schedulemany of each item to make in each period of time in future.

Scheduling devices
1.

2.

3.

Gantt charts- portrays planned chartsproduction & actual performance over a period of time. It is a rectangular chart divided by horizontal & vertical lines. PERT & CPM method- job is first methodbroken in basic elements & network is constructed which is then analyzed to prepare schedule. The Run Out approach

Productivity
Productivity
A

measure of the effective use of resources, usually expressed as the ratio of output to input

Outputs Productivity = Inputs

Methods to increase productivity

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

By increasing output, keeping input constant By decreasing inputs for same output By Better utilization of resources By using efficient & effective methods of working By using good layouts By reducing material handling By selecting new technology By proper maintenance By good working conditions to workers By good incentive schemes By better quality of purchase By Training to employees Be customer oriented. Assign right people for right jobs. Keep things simple

BUSINESS PROCESS REENGINEERINGREENGINEERINGBusiness Process Reengineering is about revamping or overhauling the existing processes and redesigning them from a clean slate, in order to achieve significant


improvements in critical measures of performance.

BenchmarkingBenchmarking1. Internal 2. Competitive 3. Functional 4. generic

TATA BUSINESS EXCELLENCE MODEL

The TBEM criteria for performance excellence are built upon a set of core values and concepts that are embodied in seven categories:
1. 2.

3. 4. 5. 6. 7.

Leadership Strategic Planning Customer and Market Focus Measurement Analysis and Knowledge Management Human Resource Focus Process Management Business Results