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Plant Location

Sana Zahid

The geographical location of the final plant can have strong influence on the success of an industrial venture. Considerable care must be exercised in selecting the plant site, and many different factors must be considered. Primarily, the plant should be located where the minimum cost of production and distribution can be obtained, but other factors, such as room for expansion and safe living conditions for plant operation as well as the surrounding community, are also important.

Factors Affecting the Plant Location

The following factors should be considered in selecting a plant site:
1. Raw materials availability 2 . Markets 3 . Energy availability 4 . Climate 5 . Transportation facilities 6 . Water supply 7 . Waste disposal 8 . Labor supply 9. Taxation and legal restrictions 1 0 . Site characteristics 11. Flood and fire protection . 1 2 . Community factors

Roll of Chemical Engineer

The chemical engineer will be making economic evaluations of new processes, designing individual pieces of equipment for the proposed new venture, or developing a plant layout for coordination of the overall operation. A chemical engineer Specializing in the design Aspects Is referred to as a design engineer A chemical engineer specializing in the economic aspects of the design is often referred to as a cost engineer

General Overall Design Considerations

Record keeping and accounting procedures are also important factors in general design considerations, and it is necessary that the design engineer be familiar with the general terminology and approach used by accountants for cost and asset accounting

Cost estimation
Evaluation of costs in the preliminary design phases is sometimes called guesstimation but the appropriate designation is predesign cost estimation. The chemical engineer (or cost engineer) must be certain to consider all possible factors when making a cost analysis. Fixed costs, direct production costs for raw materials, labor, maintenance, power, and utilities must all be included along with costs for plant and administrative overhead, distribution of the final products, and other miscellaneous items.

A major function of the directors of a manufacturing firm is to maximize the long-term profit to the owners or the stockholders. A decision to invest in fixed facilities carries with it the burden of continuing interest, insurance, taxes, depreciation, manufacturing costs, etc., and also reduces the fluidity of the companys future actions. Capital-investment decisions, therefore, must be made with great care.

Time value of Money

Money, or any other negotiable type of capital, has a time value. When a manufacturing enterprise invests money, it expects to receive a return during the time the money is being used. The amount of return demanded usually depends on the degree of risk that is assumed

Taxes and Insurances

Expenses, for various types of taxes and insurance can materially affect the economic situation for any industrial process. Because modern taxes may amount to a major portion of a manufacturing firms net earnings, it is essential that the chemical engineer be conversant with the fundamentals of taxation.

Since all physical assets of an industrial facility decrease in value with age, it is normal practice to make periodic charges against earnings so as to distribute the first cost of the facility over its expected service life.


Optimum Economic Design

If there are two or more methods for obtaining exactly equivalent final results, the preferred method would be the one involving the least total cost. This is the basis of an optimum economic design


Optimum Operation Design

Many processes require definite conditions of temperature, pressure, contact time, or other variables if the best results are to be obtained. It is often possible to make a partial separation of these optimum conditions from direct economic considerations


Engineering Economic Decisions







Predicting the Future

Estimating a Required investment Forecasting a product demand Estimating a selling price Estimating a manufacturing cost Estimating a product life

Role of Engineers in Business

Create & Design

Engineering Projects

Analyze Production Methods Engineering Safety Environmental Impacts Market Assessment

Evaluate Expected Profitability Timing of Cash Flows Degree of Financial Risk

Evaluate Impact on Financial Statements Firms Market Value Stock Price


Accounting Vs. Engineering Ecom.

Evaluating past performance Evaluating and predicting future events


Engineering Economy
Future Present


Two Factors in Engineering Economic Decisions

The factors of time and uncertainty are the defining aspects of any engineering economic decisions


A Large-Scale Engineering Project

Requires a large sum of investment Takes a long time to see the financial outcomes Difficult to predict the revenue and cost streams
(Remember Cash flow discussed earlier)


Types of Strategic Engineering Economic Decisions in Manufacturing Sector

Service Improvement Equipment and Process Selection Equipment Replacement New Product and Product Expansion Cost Reduction


Equipment Replacement Problem

Now is the time to replace the old machine? If not, when is the right time to replace the old equipment?


New Product and Product Expansion

Shall we build or acquire a new facility to meet the increased demand? Is it worth spending money to market a new product?


Cost Reduction
Should a company buy equipment to perform an operation now done manually? Should spend money now in order to save more money later?


Course outline
Characteristics of Chemical industry; Market survey; Plant location; Estimation of capital investment; Physical-plant cost; Manufacturing cost; General expenses; Sales and profit; Organization and management; Cost accounting; Research and development; Marketing.

Chemical engneering Economics by Donald e Garrett Plant Design and Economics by Timmerhaus