The Proper Plant Location

A manufacturing organization should

seek the best possible location, so that
operating costs of all kinds will be minimized.
Ideally, it should be:
• Close to its market
• Near to skilled workers and its family
• Close to school and hospital
• Minimum transportation costs
• Wide streets for transportation of goods
Transportation and Sources of
Raw Materials
The determination of optimum location based on
transportation involves:

1. Consideration of the relative importance of

transport costs to the total costs, as it is unlikely
that the point of minimum transport costs will be
the point of minimum production costs.
Transportation and Sources of
Raw Materials

2. References to different costs of alternative

methods of transport and variations of rates for
different types of materials.

3. Consideration of the dangers of over

dependence upon one source of raw material or
market.
Market Pull and Marketing
Strategies
Industrial Concentration
The geographical association of the
industry may be classified or grouped as
follows:

1. Vertical association
2. Horizontal or lateral association
3. Diagonal association
Industrial Concentration
The advantages of locating near a
concentration of industries are:
1. Proximity to market
2. Reduction of transport costs
3. Availability of labor possessing
special skills
4. Prestige of location
5. Contact with customers and
competitors
 Industrial Concentration
6. Contact with government departments
7. Knowledge of technical developments
through business contacts, library, and
research.
8. In case of Greater Manila, excellent
transportation links (presence of largest port)
9. Educational Facilities
10. Stimulation and motivation to entrepreneurs
and executives
11. Availability of specialists, services for
banking, insurance, and maintenance.
Industrial Concentration
Among the disadvantages of industrial
concentration are:
1. Lack of space
2. Premises that are difficult and costly
to acquire
3. Shortage of labor, high wage rates,
and high staff turnover
4. Lost of time and frustration through
street and traffic congestion
Industrial Concentration
5. An adverse effect on efficiency and
output caused by the need for work-
people to make long journeys between
home and workplace.
6. Disadvantages of competition for
everything
7. Possibility of more militant labor force
and sympathy strikes with employees in
the same industry locally.
Provision for Business Growth
• In case of branch factory, branch is
best places near the main branch.

• Consider the possibility of expansion

and anticipated growth in choosing the
new site.
Labor Availability and Cost
Most businesses consider the availability of
skilled and cheap labor the most important
characteristic of any location. They may also
consider:
• The relationship between the size of the firm
and the size of the community
• The policies, sizes, and characteristics of
other businesses
• The history of industrial relations in the area
• Wage rate comparisons
• Community facilities
Availability of Water and Power

The availability of electric power,

water, gas, and sewages disposal
facilities may be of great significance to
certain industries.
Entrepreneural and Executive
Personnel Preference

Personal preference plays a

deciding part in the choice of location
when a firm relocates.
Management and Technical Staff

The performance of a business is

closely related to the performance of
each managerial and technical staff. The
recruitment and productivity of such staff
can be influenced by the location and
choice of site.
Plant location refers to the choice of region and
the selection of a particular site for setting up a
business or a factory.
An 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.
It is the place of maximum net advantage or which
gives lowest unit cost of production and
distribution.
 THE SEQUENCES OF CHOICES

A management faced with the

problems of properly locating a new
plant necessary must make three
choices in sequence. These are:
 Region
 Community
 Specific Site
 REGIONAL SELECTION
 Among the factors requiring serious consideration in the
choice of a regional location of a new plant are:
 Closeness to one’s market
 Easy access to vendors of materials, parts, supplies, tools,
and equipment
 Adequacy of transportation
 Regional concentration of skilled labor
 Availability of sufficient electric power, water, and fuels
 Existence of regional wage rate differences
 Satisfactory climatic conditions
 Political stability
 Regional population, wealth, and income
 COMMUNITY SELECTION
 The choice of a community depends upon the region
already chosen. Community selection factors are fairly
numerous, and their relative importance varies widely.
Consider the following:
 Adequacy of labor supply
 Prevailing wage scales
 Industrial and labor attitudes
 Character of industry already in the community
 Restrictive legislation and taxes
 Power, water supply, and sewage disposal
 Adequacy of police and fire protection
 Living conditions in the community
 Community income and purchasing power
 PLANT SELECTION
 The main factors involved in the choice of a site are as
follows:
 Technical requirements
 Capital cost
 Cost of development
 Industrial and other neighbors
 Plot of land
 Transportation facilities
 Zoning
 Proximity to police stations, fire stations, and hospitals
 Adequacy of water and power supply at the chosen site,
and adequacy of communications and other services
 Proximity to employee’s facilities
 FINAL CHECKLIST FOR PLANT
LOCATION
 Has consideration been given to both supply of input
materials and demand for output products in locating a
plant site?
 Has the cost of studying the plant location or relocation
problem been considered?
 Have insurance rates and taxes been determined with
respect to plant selection?
 Have the costs, availability, and apparent skills of labor
been compared for the various location possibilities?
(Has equipment selection been made with this in mind?)
 What importance do transportation problems and
shipping costs play in reaching a location decision?
(Can the basis for the decision change?)
FINAL CHECKLIST FOR PLANT
LOCATION
 What zoning restrictions and town or city
ordinances exist that might affect the
location decision? (Do pollution
considerations deserve attention?)
 How available and costly are utility
services such as sewage, water, oil, gas,
heat, and electricity? (Will process
demands be stable or will they grow?)
 Have incorporation fees and procedures
been considered?
 Has the cost of shutting down and moving
been taken into account?
FINAL CHECKLIST FOR PLANT
LOCATION
 What consideration has been given to long-
run land values? (Is inflation relevant?)
 Have building costs been properly compared
with plant purchase and plant rental?
 Should climate have any influence on the
location decision?
 Has there been a thorough evaluation of
specific site factors including drainage,
exposure, and so forth? (Has the ecological
impact been evaluated?)
 What lot dimensions will be required? Has
room been provided for expansion?
FINAL CHECKLIST FOR PLANT
LOCATION
 Is a railroad siding or pier berth a necessary
feature?
 How many floors should the building have?
What colors will be used for walls, ceilings,
floors, and machines? (Has illumination been
properly assessed?)
 What construction materials will be used? Who
will control the construction schedule?
 Has the effect of decisions on competitors
been properly surveyed?
 Is the chosen course of action the best
possible one?
Urban or City area
Rural area
Suburban area
 Advantages of Urban Area
 Good transport facilities are available for the movement
of raw-materials and finished products by rail and road
and at times, by water and air.
 Good and prompt postal and communication services
are available.
 Banking and credit facilities available.
 Services of insurance companies are available in city
areas.
 Sufficient storing facilities including cold-storage , are
available.
 Advantages of vicitinty of the market for the product.
Due to large population
 The local demand for the product is fairly high.
 Disadvantages of Urban Area
 The cost of land is very high as compared to rural areas
 Due to high standard of living in city area, the cost of labour is
relatively high
 Due to possibilities of changing jobs from one unit to another, and
tendency of competitors to snatch away the good employees, the
rate of labour turnover is very high in city area.
 Various types of taxes is levied in city areas. The rates of taxes are
relative high. Eg. Octroi is a typical tax of the city area which is not
levied in rural areas.
 Certain municipal restrictions put constraints and involve extra cost
due to height of the building, disposal of waters, treatment of affluent
water, elimination of air pollution caused by smoke etc.
 The industrialization in the city areas gives birth to slums and dirty
residence which creates the typical problems of sanitation and
health.
Advantages of Rural Areas
 As compared to the city area, the land is
available at cheaper rates.
 Due to lower standard of living, the rates of
labour are relatively lower.
 The local taxes which are found in the city areas
are practically nonexistent in rural areas.
 The municipal restrictions which are found in
city areas do not exist in rural areas. E.g. height
of buildings.
 Slumps and dirty residence are not found in
rural areas. The rural areas is conducive to
good health of workers.
Disadvantages of Rural Areas
 Transportation facilities are not available in good
condition and sufficient quantities.
 Banking and credit facilities are also not available.
The indigenous money-lenders are charging
exorbitantly for these services.
 Absence of insurance facilities.
 Storing and warehouse facilities are not available in
rural areas.
 Such units are very far from the market place and
this increases the cost of distribution of finished
goods.
 It is generally not easy to get skilled workers in rural
areas.
 Municipal facilities like water supply, drainage, fire-
fighting etc. are not available in rural areas.
Advantages of Suburban Areas
 Land is available at a cheaper rate as compared
to urban areas.
 Adequate land is available for future expansion
unit. The machines can be installed horizontally
and still the provision for future expansion can
be made.
 Infrastructure facilities like road, water supply,
drainage, banking, warehousing, insurance etc.
are developed by government, municipal
authorities or industrial associations.
 As city area is nearest, the skilled and unskilled,
both type of labour are available.
 CITIES VS SUBURBS

CityZoning Ordinances
Ecology
Industrial Estate
Benefits of the EPZA
 Tax Benefits
 Foreign Exchange and Financing
 Labor and Manpower
 Low Cost Housing for Zone Workers
 Foreign Investors and Technicians
 Guarantee on Foreign Investments
 Simplified Administrative Methods
Included
Imperatives of Relocation
Some reasons for business relocation
are:
1. Technological change
2. Optimum size
3. Release of capital
4. Strategic reasons
Imperatives of Relocation
Alternatives to relocation which should
be carefully evaluated are:
1. Reorganization
2. Rationalization of products
3. Other alternatives
The Relocation Feasibility
Survey Checklist
1. Alternatives
2. Profit and loss projections
3. Sales forecast
4. Factory size
5. Transportation
6. Materials
7. Shut down and start-up cost
8. Decentralization operations
The Relocation Feasibility
Survey Checklist
Disadvantages of setting up a branch:
1. Duplication of plant, machinery, and
staff
2. Long-term disruption and interwork
transportation
3. More difficult management and
control
4. Lack of coordination with sales,
design, and other functions
Planning the move
Most common errors cited constantly:
1. Lack of proper coordination and
control
2. Failure to look sufficiently far ahead
3. Acceptance of the status quo as the
point of departure
Planning the move
The following items indicate the scope of
planning necessary:
1. Sales forecast used for the feasibility
survey must be carefully studied and
necessary changes must be made on
marketing plans, philosophy, competition, or
market demand.
2. The product requirements have to fit into
assembly, subassembly, and piecepart
requirements.
Planning the move
3. A make-or-buy analysis has to be
produced.
4. Process layout and flow process
charts must be developed to consider
and evaluate all alternatives.
5. All plant and production equipment
must be reviewed to determine new
equipment required.
Planning the move
6. Machine capacities must be re-
examined
7. Materials handling and stores
requirements have to be based on
outputs and carefully computed stock
levels for raw materials.
8. Agreement must be obtained on a
detailed factory layout
Planning the move
9. Schedules of new and existing plants
and equipment must be prepared.
10. Ordering and delivery of new
equipment must be scheduled
11. Maintenance requirements for plants
and buildings must be determined
12. Scheduled by work center location of
service requirements has to be prepared
Planning the move
13. An administrative organization
structure must be developed and levels
must be established together with plans
and facilities required.
14. Final plant layouts and models have
to be prepared.
15. Time schedules for the
implementation of all the above steps
must be finalized
Planning the move
16. Building size requirements and
specification must be prepared.
17. Plans will have to be made for the
disposal of the old and redundant plant
and equipment at old location.
 Many companies do not make use of a
large, rational screening process to
identify foreign investment opportunities
because of the following reasons:

1. Lack of suitable methods

2. Inadequacy of Information
3. Shortage of Time
4. Possible Cost
The tools are of two major types:
 Those pertaining to a country
 Those pertaining to a product

Imitation Lag – being the lapse between

commencement of commercial production in
the world and commencement of commercial
production in a specified country.
 According to some researches, there are four
“Country-Related Variables” which affects
imitation lag:

1. Market Size
The number of individuals in a certain market
who are potential buyers and/or sellers of a
product or service.
The various measures of market size which
companies have used are:
• Gross National Product
• Population
• Per Capita Income
2. Investment Climate
The economic and financial
conditions in a country that
affect whether individuals and
businesses are willing to lend
money and acquire a stake in
the businesses operating
there.
3. Availability of Local
Technology or know-how
The availability of
technological know-how is at
least as significant a variable
as is size of market or an
investment climate.
4. Distance from major production
countries / Distance from
Producers
The farther the importing
country is from another country
capable of supplying its needs,
the higher the freight costs in
shipping a product from one to
the other.
Three “Product-Related Variables” that
research has shown and significant in affecting
imitation lag, namely:

1. Freight Costs
-are an important factor in
determining imitation lag when
comparing one country with
another.
2. Economies of Scale
Where the manufacturing process
has a low economy of scale in relation
to the size of the foreign market, the
result is a shorter imitation lag.
3. Consumer‘s need for the product
A product considered in a foreign
country to be a necessity naturally can
be expected to have a shorter imitation
lag than one not considered so
essential.
BASIC PATTERNS

1. PROCESS LAYOUT OR
FUNCTIONAL LAYOUT

Groups machine that

performs similar function
 2. PRODUCT LAYOUT OR
ASSEMBLY LINE LAYOUT

Groups different kinds of equipment

necessary to make a single product or
product line
 3. ASSEMBLY FLOOR LAYOUT
OR
FIXED MATERIAL LAYOUT

Also known as fixed position layout because

the material does not move
 THE LAYOUT CHART
 THE LAYOUT CHART IS SIMPLY A SKETCH OF THE
WORKPLACE, INDICATING THE FLOW OF WORK THROUGH
IT.

 THE LAYOUT CHART SHOULD:

1. MAKE IT POSSIBLE TO PLOT THE WALKING DISTANCE
INVOLVED IN GETTING WORK DONE.
2. SHOW THE FLOW OF WORK FROM ONE LOCATION TO
ANOTHER.
3. PROVIDE THE BASIS FOR DETERMINING POOR
ARRANGEMENTS OF WORK STATIONS IN RELATION TO ONE
ANOTHER.
4. SHOW IMPROPERLY LOCATED EQUIPMENT AND FACILITIES,
SUCH AS FILES, TELEPHONE, AND MACHINERY.
TOOLS FOR SPACE LAYOUT

 THE DESIGN OF A LAYOUT IS DONE

BY DRAWING THE FLOOR PLAN TO
SCALE. THIS ALSO INCLUDES ALL
PERMANENTLY AND SEMI-
PERMANENTLY PLACED OBJECTS.
CONSTRUCTING A LAYOUT CHART

 IT IS FIRST NECESSARY TO GET A

PICTURE OF PRESENT LAYOUT
ARRANGEMENTS. THIS WILL REQUIRE
THE PROCUREMENT OF A SCALED
DRAWING OF THE PRESENT FLOOR
AREA.
 SUPERVISORS SHOULD TRY TO DEVELOP A
SYSTEM WHERE WORK FLOWS FORWARD IN
AS STRAIGHT A LINE AS POSSIBLE, WITH LESS
BACK-TRACKING.

 SOME OTHER POINTS TO BE CONSIDERED

ARE:
1. PLACEMENT OF WORK MATERIALS AND
EQUIPMENT NEAR THOSE WHO USE THEM
MOST.
2. PROVISION FOR EFFECTIVE SUPERVISION.
3. COMFORT AND SAFETY OF WORKERS
4. ATTRACTIVENESS.
5. ECONOMY.
PLANT LAYOUT AND MATERIALS
HANDLING

 SEVERAL STANDARDS HAVE BEEN

DEVELOPED IN LAYING OUT THE
OFFICE OR SHOP. THESE STANDARDS
PROVIDE THE SUPERVISOR WITH SOME
BASIS OF DETERMINING SPACE
IMPROVEMENT POSSIBILITIES.
 THESE ARE THE FOLLOWING:
1. EACH PERSON SHOULD BE PROVIDED AS AREA
BETWEEN EIGHTY AND ONE HUNDRED SQUARE
FEET.
2. MAIN AISLES SHOULD BE FOUR TO FIVE FEET IN
WIDTH, SIDE AISLES, THREE TO FOUR FEET.
3. THE SEATING SPACE BETWEEN DESKS SHOULD
BE APPROXIMATEKY THREE FEET.
4. LARGE OPEN SPACES SHOULD BE PROVIDED FOR
LIGHT AND VENTILATION.
5. PERSONS DOING CLOSE WORK SHOULD BE
PLACED IN THE BEST LIGHT.
6. NO ONE SHOULD BE PLACED IN A POSITION
FACING THE LIGHT.
7. ALL DESKS SHOULD FACE THE SAME DIRECTION.
8. PERSONS DOING LIKE TYPES OD WORK SHOULD
 Evaluating Layout
Proposals
Two criteria to evaluate
developed layout plan:

1. The space used.

2. The distance used.
Network Planning for
Large Projects
Managerial
World
Problem
War II

NETWORK
PLANNING
METHODS
Network Planning for
Large Projects
NETWORK PLANNING METHODS

• Performance Evaluation and

Review Techniques (PERT)
• Critical Path Method
(CPM)
Plant layout checklist
 Material Handling
 Production and Production
Control
 The Building and Its
Surroundings
 Product Design and Engineering
 Service Area and Employee
Comfort
Material handling
is the combination of art and
science of moving, storing,
protecting and controlling the
materials.
Material handling
equipment
is a mechanical equipment used
to move material from one
location to another within a
facility or at a site.
Three classes of material
handling equipment:
1. Conveyors
2. Crane and Hoists
3. Mobile equipment
conveyors
Cranes and hoists
Mobile equipment
Selecting the equipment
Factors the will influence the
analysts choice of equipment.