PLANT LOCATION AND LAYOUT

Objectives:
After studying this lesson, you should be able to:
Describe the concept of plant location and plant layout.
Identify the various factors to be considered for selection of
plant location from state/area to the specific site.
Distinguish among the alternative patterns of plant layout.
Discuss the various factors influencing the choice of an initial
layout and its subsequent modification

PLANT LOCATION
Plant location-refers to the choice of region and
the selection of a particular site for setting up
a business or factory.
Ideal Location is one where the cost of the
product is kept to minimum, with a large
market share, the least risk and the maximum
social gain.

LOCATION ANALYSIS
is a dynamic process where entrepreneur analysis and
compares the appropriateness or otherwise of
alternatives sites with the aim of selecting the best site
for a given enterprise.
It consist the following:

Demographic analysis
Trade Area Analysis
Competitive Analysis
Traffic Analysis
Site Economics

Demographic Analysis
It involves study of population in the area in
terms of

total population (in no.)

Age composition
Per capita income
Educational level
Occupational structure

Trade Area Analysis

It is an analysis of the geographic area that
provides continued clientele to the firm.
See the possibility of accessing the trade area
from alternative sites.

Competitive Analysis
It helps to judge the following:
nature
location
size
quality
of competition in a given trade area

Traffic Analysis
To have a rough idea about the number of
potential customers passing by the proposed
site during the working hours of the shop, the
traffic analysis aims at judging the alternative
sites in terms of pedestrian and vehicular
traffic passing a site.

Site Economics
Alternative sites are evaluated in terms of
establishment costs and operational cost under
this. Cost of establishment is basically cost
incurred for permanent physical facilities but
operational cost are incurred for running
business on day to day basis, they are also
called as running costs.

Example: Comparative Costs of Alternative

Solutions
Costs

Site A (Php)

Site B (Php)

Cost of establishments:
Land and Buildings

350,000.00

230,000.00

Equipment

60,000.00

60,000.00

Transport Facilities

20,000.00

30,000.00

Materials, freight and carriage

34,000.00

24,000.00

Taxes and Insurance

10,000.00

7,500.00

100,000.00

70,000.00

10,000.00

8,000.00

584,000.00

429,500.00

Cost of operations:

Labor
Water,power,fuel
Total

 The above cost statement indicates that site B is

preferable to site A keeping in mind economic
considerations only though in some respects site A has
lower costs. By applying the definition of ideal location
which is the place of maximum net advantage or which
gives lowest unit cost of production and distribution,
site B will be preferred.

SELECTION CRITERIA
Natural or climate conditions
Availability and nearness to the sources of raw material
Transport cost-in obtaining raw material and also
distribution or marketing finished products to the
ultimate users.
Access to market
Availability of infrastructural facilities
Availability of skilled and non-skilled labor and
technically qualified and trained managers

Selection Criteria
Banking and financial institutions are located nearby.
Locations with links
Strategic considerations of safety and security should be
given due importance.
Government influences
Residence of small business entrepreneurs want to set
up nearby their homelands.

Example 2: Factors Affecting Location Decision

Considerations

Response
Hills

Plains

Total

Homeland

15

67%

11

39%

26

52%

Government
Incentives

14%

4%

8%

Availability of raw
materials

4%

2%

Availability of labor

9%

4%

Availability of
market

18%

10%

Availability of
infrastructure
facilities

5%

32%

10

20%

ASSIGNMENT/ACTIVITY 2
Talk to three business entrepreneur, it could
be one manufacturing, one trade and one
service business. Discuss with them and find
out:
a.
b.

The factors considered by them in the location

decision
How have availability of transportation and labor
affected their location decision?

*Get the name of the business entrepreneur, the

business , the location.

Plant layout
MeaningPlant layout is the physical arrangement of
industrial facilities. It involves the allocation
of space & the arrangement of equipment in
such a manner that overall operating costs are
minimized.

Factors affecting plant layout

1. Management Policy
2. Manufacturing process
3. Nature of product
4. Volume of production
5. Type of Equipment
6. Type of building
7.

Availability of Total floor area

8.

Arrangement of Material Handling Equipment

9.

Service facilities

10. Possibility of future expansion

Types of plant layout

1. Product layout
2. Process layout
3. Fixed Position/ Stationary layout
4. Combination lay out

Product Layout
Layout that uses standardized processing
operations to achieve smooth, rapid, highvolume 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

(contd)

Station
1

Station
Station
22

Station
Station
33

Material

Material

Material

Material

and/or
labor

and/or
labor

and/or
labor

and/or
labor

Station
Station
44

Used for Repetitive or Continuous Processing

Finished
item

Advantages of Product Layout

1.

High rate of output

2.

Low unit cost

3.

Labor specialization

4.

Low material handling cost

5.

High utilization of labor and equipment

6.

Established routing and scheduling

7.

Short processing time

Disadvantages of Product Layout

1.

Creates dull, repetitive jobs

2.

Poorly skilled workers may not maintain

equipment or quality of output

3.

Fairly inflexible to changes in volume

4.

Highly susceptible to shutdowns

5.

Needs preventive maintenance

6.

Require large capital investment

Process layout
Layout 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
(functional)
Dept. A

Dept. C

Dept. E

Dept. B

Dept. D

Dept. F

Used for Intermittent processing

Job Shop or Batch

Advantages of Process Layouts

1.

Can handle a variety of processing requirements

2.

Machines breakdown doesnt result in shutdown.

3.

Equipment used is less costly

4.

Wide flexibility in production facilities.

5.

Each production unit of system works independently.

6.

High utilization of facilities

7.

Variety makes the job interesting.

Disadvantages of Process Layouts

1.

In-process inventory costs can be high

2.

Challenging routing and scheduling

3.

Equipment utilization rates are low

4.

Material handling is slow and inefficient & is

more.

5.

More space is required

6.

Longer processing time

7.

Back tracking may occur.

Comparison of product & process layout

Factors

Product layout

Process layout

1. nature

Sequence of facilities

Similar are grouped together

2. Machines utilization

Not to full capacity

Better utilization

3. product

standardized

4. Processing time

less

more

5. Material handling

less

more

6. inventory

High WIP

Low WIP

7. breakdown

Cant tolerate

Can tolerate

8. Production centre

simple

complex

9.flexibilty

low

high

10. floor space

Requires less

more

11. investment

high

low

diversified

FIXED POSITION LAYOUT

Layout by fixed
position of the
product is inherent in
ship building, aircraft
manufacture .

ADVANTAGES OF FIXED LAYOUT

It is possible to assign one or more skilled workers to a
project from start to finish in order to ensure
continuity of work
It involves least movement of materials
A number of quite different projects can be taken with
the same layout

DISADVANTAGES OF FIXED LAYOUT

There appears to be low utilization of labor and
equipment
It involves high equipment handling costs

COMBINATION LAYOUT
A combination of process and product layouts combines
the advantages of the both types of layouts.
A combination layout is possible where an item is being
made in different types and sizes.
examples: wood saws, files etc