PRODUCTION & OPERATIONS MANAGEMENTBY MeeTpaL :

Lesson 1 :
Lesson 1 Production and Operations Management (POM): An Introduction
Overview : Overview Introduction of Production/Operations (P/O) systems Some Historical Perspectives of P/O
Management Basic components of P/O systems Manufacturing versus Service systems Major issues in P/O
Management Current Trends

Definitions of P/O systems : Definitions of P/O systems Production is the creation of goods and services.
Production/operation system is any system which transforms input into output and in the mean time creates value

Introduction of P/O systems : Introduction of P/O systems In some organizations the product is a physical good
(refrigerators, bread, etc.) and the activities creating such tangible product is usually referred to as Production. In
others the product is a service (insurance, health care for elderly, etc.). The production that takes place to produce a
service is called Operations.

Operations Management : Operations Management The management of systems or processes that create goods
and/or provide services

Slide 7: Hospital Process Inputs Processing Outputs

Twin objectives of operations management : Twin objectives of operations management 1. The customer
service objective. To provide agreed/adequate levels of customer service (and hence customer satisfaction) by
providing goods or services with the right specification, at the right cost and at the right time. 2. The resource
utilization objective. To achieve adequate levels of resource utilization (or productivity) e.g., to achieve agreed levels
of utilization of material,machines and labor.

introduction to production and operations management : introduction to production and operations

management Definition Production and Operations Management ("POM") is about the transformation of production
and operational inputs into "outputs" that, when distributed, meet the needs of customers.
Slide 10:The process in the above diagram is often referred to as the "Conversion Process". There are several
different methods of handling the conversion or production process – 1.Job, 2.Batch, 3.Flow and Group.

SCOPE OF PRODUCTION AND OPERATIONS MANAGEMENT :

SCOPE OF PRODUCTION AND OPERATIONS MANAGEMENT Following are the activities which are listed
under production and operations management functions:

Historical Perspectives of POM :Historical Perspectives of POM The Industrial Revolution Scientific
Management Human Relations and Behaviorism Operations Research Influence of Japanese Approach

The Industrial Revolution (18th century) :The Industrial Revolution (18th century) The industrial revolution
developed in England in the 1700s. The steam engine, invented by James Watt in 1764, largely replaced human and
water power for factories. Adam Smith’s The Wealth of Nations in 1776 touted the economic benefits of the
specialization of labor. Thus the late-1700s factories had not only machine power but also ways of planning and
controlling the tasks of workers.

The Industrial Revolution (18th century) :The Industrial Revolution (18th century) The industrial revolution
spread from England to other European countries and to the United Sates. In 1790 an American, Eli Whitney,
developed the concept of interchangeable parts. In the 1800s the development of the gasoline engine and electricity
further advanced the revolution. By the mid-1800s, the old cottage system of production had been replaced by the
factory system.

Scientific Management (1900s) :Scientific Management (1900s) Frederick Taylor is known as the father of
scientific management. His shop system employed these steps: Each worker’s skill, strength, and learning ability were
determined. Stopwatch studies were conducted to precisely set standard output per worker on each task. Material
specifications, work methods, and routing sequences were used to organize the shop. Supervisors were carefully
selected and trained. Incentive pay systems were initiated.

Scientific Management :Scientific Management In the 1920s, Ford Motor Company’s operation embodied the
key elements of scientific management: standardized product designs mass production low manufacturing costs
mechanized assembly lines specialization of labor interchangeable parts

Human Relations and Behavioralism :Human Relations and Behavioralism In the 1927-1932 period,
researchers in the Hawthorne Studies realized that human factors were affecting production. Researchers and
managers alike were recognizing that psychological and sociological factors affected production. From the work of
behavioralists came a gradual change in the way managers thought about and treated workers.

Operations Research (Management Science) :Operations Research (Management Science) During World
War II, enormous quantities of resources (personnel, supplies, equipment, …) had to be deployed. Military operations
research (OR) teams were formed to deal with the complexity of the deployment. After the war, operations
researchers found their way back to universities, industry, government, and consulting firms. OR helps operations
managers make decisions when problems are complex and wrong decisions are costly.

Influence of Japanese Approach :Influence of Japanese Approach Total Quality Management Just In Time
Management. Strong employees involvement

Today's Factors Affecting POM :Today's Factors Affecting POM Global Competition Quality, Customer
Service, and Cost Challenges Computers and Advanced Production Technology Growth of the Service Sector
Scarcity of Production Resources Issues of Social Responsibility

Production as a System :
Basic components of Production/ Operation Systems :
Basic components of Production/ Operation Systems Inputs: All physical and nonphysical resources coming into the
system External Legal, Economic, Social, Technological Market Competition, Customer Desires, Product Info.
Primary Resources Materials, Personnel, Capital, Utilities
Basic components of Production/ Operation Systems Outputs can be classified as: Direct Goods Services Indirect
Waste Pollution Technological Advances
Basic components of Production/ Operation Systems A pure good is a tangible product that can be stored, transported,
and purchased for later use A pure service is an intangible product which cannot be stored since it is consumed as it is
produced.
Basic components of Production/ Operation Systems Transformation/Conversion subsystem: which converts inputs
into goods or services. It consists of Concepts Procedures Non-equipment technologies Rules, Guideline, Steps, etc.

Slide 26: POM incorporates many tasks that are interdependent, but which can be grouped under five main
headings: PRODUCT, PLANT, PROCESSES, PROGRAMMES, PEOPLE. [5 P’s] PRODUCT Marketers in a
business must ensure that a business sells products that meet customer needs and wants. The role of Production and
Operations is to ensure that the business actually makes the required products in accordance with the plan. The role of
PRODUCT in POM therefore concerns areas such as: - Performance- Aesthetics- Quality- Reliability- Quantity-
Production costs- Delivery dates

Slide 27:2. PLANT To make PRODUCT, PLANT of some kind is needed. This will comprise the bulk of the fixed
assets of the business. In determining which PLANT to use, management must consider areas such as: - Future
demand (volume, timing)- Design and layout of factory, equipment, offices- Productivity and reliability of
equipment- Need for (and costs of) maintenance- Heath and safety (particularly the operation of equipment)-
Environmental issues (e.g. creation of waste products)

Slide 28:3. PROCESSES There are many different ways of producing a product. Management must choose the best
process, or series of processes. They will consider: - Available capacity- Available skills- Type of production- Layout
of plant and equipment- Safety- Production costs- Maintenance requirements

Slide 29:4. PROGRAMMES The production PROGRAMME concerns the dates and times of the products that are
to be produced and supplied to customers. The decisions made about programme will be influenced by factors such
as: - Purchasing patterns (e.g. lead time)- Cash flow- Need for / availability of storage- Transportation

Slide 30:5. PEOPLE Production depends on PEOPLE, whose skills, experience and motivation vary. Key people-
related decisions will consider the following areas: - Wages and salaries- Safety and training- Work conditions-
Leadership and motivation- Unionization- Communication

Trends in OPR MGT. :

Trends in OPR MGT. Major trends The Internet, e-commerce, e-business Management technology Globalization
Management of supply chains Agility

Other Important Trends :

Other Important Trends Ethical behavior Operations strategy Working with fewer resources Cost control and
productivity Quality and process improvement Increased regulation and product liability Lean production

Entry-Level Jobs/ Career options in POM :

Entry-Level Jobs/ Career options in POM Purchasing planner/buyer Production (or operations) supervisor Production
(or operations) scheduler/controller Production (or operations) analyst Inventory analyst Quality specialist

INTERFACING WITH OTHER SYSTEMS :

INTERFACING WITH OTHER SYSTEMS BASIC FUNCTIONAL GROUPS: MARKETING GENERATES
DEMAND FINANCE GENERATES THE CAPITAL PRODUCTION GENERATES THE SUPPLY OF OUTPUTS.

Slide 35:
Manage- ment System Philo- sophy Policy Objectives Opportu- nity Information system General information Policy
flow Feedback Personnel R & D Engineering Purchasing Control Inf Performance information Control Information
Feedback(forecasts) Feedback (plans, budgets &a/c Control Inf Business organisation Marketing system Prod.Ops.
Mgt. system Fin & A/c system Orders & Inf Raw matl Collections Disbursements Finished goods
Advt,Promotion,Sales Order flow Material flow Cash flow Relationship between POM & Rest of organisation

MARKETING AND POM :

MARKETING AND POM MARKETING SYSTEM DISCOVERS AND TRANSMITS THE NEED OF
CONSUMERS TO THE TOTAL ORGANISATION INCLUDING THE POM SYSTEM WHICH SUPPLIES
THESE NEEDS. TRANSLATES THE DEMAND FOR FUTURE INTO UNITS OF PRODUCTION & DESIRED
DELIVERY SCHEDULES.

Slide 37:
Manage- ment System Philo- sophy Policy Objectives Opportu- nity Information system General information Policy
flow Feedback Personnel R & D Engineering Purchasing Control Inf Performance information Control Information
Feedback(forecasts) Feedback (plans, budgets &a/c Control Inf Business organisation Marketing system Prod.Ops.
Mgt. system Fin & A/c system Orders & Inf Raw matl Collections Disbursements Finished goods
Advt,Promotion,Sales Order flow Material flow Cash flow Relationship between POM & Rest of organisation

POM-MARKETING INTERFACE :
POM-MARKETING INTERFACE MARKETING FURNISHES DATA ON: SIZE OF MARKET VOLUME OF
PRODUCTION NEEDED TO MEET ANTICIPATED MARKET NEEDS DESIRED INVENTORIES
ANTICIPATED CHANGES IN PRODUCTION OF OTHER PRODUCTS ANTICIPATED DELIVERY
SCHEDULES: AMOUNT,LOCATION,TIMING PACKAGING NEEDS

CONFLICTS BETWEEN MARKETING AND POM :

UNREASONABLE COMMITMENT TO CUSTOMERS REGARDING CUSTOMISATION DELIVERY
SCHEDULE ORDER QUANTITY CONFLICTS BETWEEN MARKETING AND POM

POM- FINANCE & ACCOUNTING INTERFACE :

POM- FINANCE & ACCOUNTING INTERFACE F&A FUNCTION RESPONSIBLE FOR ALL CASH FLOWS
BETWEEN THE ORGANISATION AND EXTERNAL ENVIRONMENT. INTERFACES FROM THE
INCEPTION OF THE IDEA OF PRODUCT THROUGH ITS DEVELOPMENT STAGES TILL IT IS SOLD

Slide 41:
Money CASH FLOW Stock Product Process Man-Job/ Materials / Equipments Labour Materials Depreciation charge
Depreciation Reserve Physuical Plant Working Capital Surplus & Reserves Profits Taxes Money accounts
Production/Product Money, time, and the POM system Sales: product becomes money

POM-F&A INTERFACING :
POM-F&A INTERFACING IMPORTANT AREAS ACCUMULATION OF OPERATING DATA TO FORM A
STARTING POINT FOR STANDARDS ACCUMULATION OF COST DATA OF A JOB, A TIME PERIOD OR A
PROCESS ASSIGNMENT OF GENERAL COSTS TO PROFIT CENTRES

POM-F&A INTERFACING :
POM-F&A INTERFACING DETERMINATION OF PROFIT/LOSS OF PROFIT CENTRES DETERMINATION
OF VALUE OF WORK-IN-PROCESS (W-I-P) DETERMINATION OF FINANCIAL VALUE OF RAW
MATERIAL & FINISHED GOODS INVENTORIES PROVIDING STATUS OF JOBS OR W-I-P

Slide 44:
Manage- ment System Philo- sophy Policy Objectives Opportu- nity Information system General information Policy
flow Feedback Personnel R & D Engineering Purchasing Control Inf Performance information Control Information
Feedback(forecasts) Feedback (plans, budgets &a/c Control Inf Business organisation Marketing system Prod.Ops.
Mgt. system Fin & A/c system Orders & Inf Raw matl Collections Disbursements Finished goods
Advt,Promotion,Sales Order flow Material flow Cash flow Relationship between POM & Rest of organisation

POM- INFORMATION SYSTEM :

POM- INFORMATION SYSTEM INFORMATION FUNCTION INCORPORATES POLICY INFORMATION
FLOW FROM MANAGEMENT AND FEEDBACK INFORMATION TO MANAGEMENT ACCOMODATES
INFORMATION FROM EXTERNAL AS WELL AS INTERNAL SYSTEMS WITHIN THE ORGANISATION

Slide 46:
Manage- ment System Philo- sophy Policy Objectives Opportu- nity Information system General information Policy
flow Feedback Personnel R & D Engineering Purchasing Control Inf Performance information Control Information
Feedback(forecasts) Feedback (plans, budgets &a/c Control Inf Business organisation Marketing system Prod.Ops.
Mgt. system Fin & A/c system Orders & Inf Raw matl Collections Disbursements Finished goods
Advt,Promotion,Sales Order flow Material flow Cash flow Relationship between POM & Rest of organisation

POM-INFORMATION INTERFACING :
POM-INFORMATION INTERFACING INFORMATION FUNCTION INTERFACES IN RESPECT OF
INVENTORY CONTROL COST CONTROL REPORTING STATUS ON ORDERS PRODUCTION SCHEDULES
FORECASTING & SCHEDULING MATERIAL REQUIREMENT CONTROL OF W-I-P

POM-INFORMATION INTERFACING :
POM-INFORMATION INTERFACING QUALITY CONTROL PREVENTIVE MAINTENANCE PLANNING
MAKE OR BUY DECISION LABOUR EFFICIENCY RECORDS

POM INTERFACING WITH OTHER FUNCTIONS :

POM INTERFACING WITH OTHER FUNCTIONS R&D AND ENGINEERING TO EFFECT PRODUCT
DEVELOPMENT, PRODUCTION PLANNING & CONTROL AND QUALITY CONTROL PURCHASING
PURCHASES, INVENTORY CONTROL, RECEIVING AND WAREHOUSING PERSONNEL MANPOWER
PLANNING, WAGES AND SALARIES, LABOUR RELATIONS, EMPLOYEE SERVICES AND PERSONNEL
RECORDS

Slide 50:
Manage- ment System Philo- sophy Policy Objectives Opportu- nity Information system General information Policy
flow Feedback Personnel R & D Engineering Purchasing Control Inf Performance information Control Information
Feedback(forecasts) Feedback (plans, budgets &a/c Control Inf Business organisation Marketing system Prod.Ops.
Mgt. system Fin & A/c system Orders & Inf Raw matl Collections Disbursements Finished goods
Advt,Promotion,Sales Order flow Material flow Cash flow Relationship between POM & Rest of organisation

AUTOMATION :
AUTOMATION It means use of machine s& equipments for performing physical & mental operations in a
production process in place of human beings. It can be visualized as electronic brain with capability of taking routine
decisions like routing, scheduling & logical decisions like to make corrective actions. It can be done at following
levels of system- Over the raw materials & WIP Over the machines & tools. Over the finished goods.

Slide 52:
Advantages of automation Better quality Reduction in direct labor cost More accuracy Minimization of waste Saving
of time, more speed & output & list goes on……. Disadvantages of automation High capital investment Can create
un-employment High maintenance cost Continuous power supply Any break down leads to shutdown.

MANUFACTURING PROCESS :
MANUFACTURING PROCESS The combination of all activities & operations to produce some goods & services is
called manufacturing process. It is basically of 2 types- Intermittent continuous
Intermittent :
Intermittent Here goods are manufactured specially to fulfill orders made by customers rather than for stock. e.g.
HOSPITALS features- Items are made according to customer’s order. Production facilities are flexible enough to
handle wide variety of products & sizes. Flow of materials is Intermittent. Products are produced in small quantities.
Workload is generally unbalanced. In-process inventory is large. Requires Large capital investment. Demand can be
discontinuous. Storage is necessary at each stage of production.

Types of Intermittent system :

Types of Intermittent system Job production Batch production Job production-it is the production of single complete
unit by one operator or group of operators. e.g. bridge building Features- Whole project is taken as single operation
Work is to be completed on each operation before passing to next item. Versatile & skilled labor is needed. High
capital investment High capital investment.

Types of Intermittent system cont. :

Types of Intermittent system cont. Batch production- It is the extension of job production. Here product is divided
into parts/operations & each operation is to be completed throughout the whole batch before the nest operation is
undertaken. In other words, after the production of one batch, the plants & machines become available to other
batch .e.g. chemical industry where different medicines are manufactured in batches. or electronic instruments

CONTINOUS SYSTEM :
CONTINOUS SYSTEM Here items are produced for stocks & not for specific orders. E.g. sugar Features- Items are
produced for stocks Flow of materials is continuous Production facilities are inflexible Items are produced in large
quantities Workload is generally balanced In-process inventory is less Require less capital investment Demand is
continuous Storage is not necessary at each stage Product must be standardized.

Types of continuous system :

Types of continuous system Mass Process Mass- Standardization is fundamental feature of system Items are produced
in large quantity Continuous flow of material System can produce only one type of product at one time. e.g. GNA-
AUTO PARTS.

Types of continuous system cont. :

Types of continuous system cont. Process- It is similar to mass production system with more stress on automation in
production process. Volume of production is very high It is used for manufacturing those items whose demand is
continuous & high. E.g. petroleum products Here single raw material can be transformed into different kinds of
products at different stages of production process. E.g. in processing of crude oil in refinery one gets kerosene,
gasoline at different stages.

Classification of Production System :

Classification of Production System Production systems can be classified as Job Shop, Batch, Mass and Continuous
Production systems.

Process analysis :
Process analysis A "business process," can be defined as "a chain of logical connected, repetitive activities that
utilizes the organization's resources to refine an object for the purpose of achieving specified and measurable results
or products for internal or external customers." Process analysis is an approach that helps managers improve the
performance of their business activities. It can be a milestone in continuous improvement.

Slide 62:
Process analysis generally involves the following tasks: Define the process boundaries that mark the entry points of
the process inputs and the exit points of the process outputs. Construct a process flow diagram that illustrates the
various process activities and their interrelationships. Determine the capacity of each step in the process. Calculate
other measures of interest. Identify the bottleneck, that is, the step having the lowest capacity. Evaluate further
limitations in order to quantify the impact of the bottleneck. Use the analysis to make operating decisions and to
improve the process.

Slide 63:
Process Flow Diagram The process boundaries are defined by the entry and exit points of inputs and outputs of the
process. Once the boundaries are defined, the process flow diagram (or process flowchart) is a valuable tool for
understanding the process using graphic elements to represent tasks, flows, and storage. The following is a flow
diagram for a simple process having three sequential activities: Process Flow Diagram The symbols in a process flow
diagram are defined as follows: Rectangles: represent tasks Arrows: represent flows. Flows include the flow of
material and the flow of information. Inverted triangles: represent storage (inventory). RAW ,WIP,FINISHED
Circles: represent storage of information

Process Performance Measures :

Process Performance Measures Operations managers are interested in process aspects such as cost, quality, flexibility,
and speed. Some of the process performance measures that communicate these aspects include: Process capacity - The
capacity of the process is its maximum output rate, measured in units produced per unit of time. Capacity utilization -
the percentage of the process capacity that actually is being used. Throughput rate (also known as flow rate ) - the
average rate at which units flow past a specific point in the process. The maximum throughput rate is the process
capacity.

Slide 65:
4. Flow time (also known as throughput time or lead time) - the average time that a unit requires to flow through the
process from the entry point to the exit point. 5. Cycle time - the time between successive units as they are output
from the process. Cycle time for the process is equal to the inverse of the throughput rate. Cycle time can be thought
of as the time required for a task to repeat itself. 6. Process time - the average time that a unit is worked on. Process
time is flow time less idle time. 7. Idle time - time when no activity is being performed. 8. Work In process - the
amount of inventory in the process. 9. Set-up time - the time required to prepare the equipment to perform an activity
on a batch of units . 10. Direct labor content - the amount of labor (in units of time) actually contained in the product.
11. Direct labor utilization - the fraction of labor capacity that actually is utilized as direct labor.

Little's Law :
Little's Law The inventory in the process is related to the throughput rate and throughput time by the following
equation: W.I.P. Inventory = Throughput Rate x Flow Time This relation is known as Little's Law . Since the
throughput rate is equal to 1 / cycle time, Little's Law can be written as: Flow Time = W.I.P. Inventory x Cycle
Time

The Process Bottleneck :

The Process Bottleneck The process capacity is determined by the slowest series task in the process; that is, having
the slowest throughput rate or longest cycle time. This slowest task is known as the bottleneck. Identification of the
bottleneck is a critical aspect of process analysis since it not only determines the process capacity, but also provides
the opportunity to increase that capacity. Starvation and Blocking Starvation occurs when a downstream activity is
idle with no inputs to process because of upstream delays. Blocking occurs when an activity becomes idle because the
next downstream activity is not ready to take it. Both starvation and blocking can be reduced by adding buffers that
hold inventory between activities.

Process Improvement :
Process Improvement Improvements in cost, quality, flexibility, and speed are commonly sought. The following lists
some of the ways that processes can be improved: Reduce work-in-process inventory - reduces lead time. Add
additional resources to increase capacity of the bottleneck. For example, an additional machine can be added in
parallel to increase the capacity. Improve the efficiency of the bottleneck activity - increases process capacity. Move
work away from bottleneck resources where possible - increases process capacity. Increase availability of bottleneck
resources, for example, by adding an additional shift - increases process capacity.

Slide 69:
6. Minimize non-value adding activities - decreases cost, reduces lead time. Non-value adding activities include
transport, rework, waiting, testing and inspecting, and support activities. 7. Redesign the product for better
manufacturability - can improve several or all process performance measures. 8. Flexibility can be improved by
outsourcing certain activities. Flexibility also can be enhanced by postponement, which shifts customizing activities
to the end of the process. In some cases, dramatic improvements can be made at minimal cost when the bottleneck
activity is severely limiting the process capacity. A cost-benefit analysis should be performed to determine if a
process change is worth the investment. Ultimately, net present value will determine whether a process
"improvement" really is an improvement.

New Product Development Process :

New Product Development Process Idea Generation

New Product Development Process Step 1. Idea Generation :

Customers Competitors Distributors Suppliers Idea Generation is the Systematic Search for New Product Ideas
Obtained Internally From Employees and Also From: New Product Development Process Step 1. Idea Generation

New Product Development Process Step 2. Idea Screening :

New Product Development Process Step 2. Idea Screening Process to spot good ideas and drop poor ones as soon as
possible. Many companies have systems for rating and screening ideas which estimate: Market Size Product Price
Development Time & Costs Unit Costs Rate of Return Then, the idea is evaluated against a set of general company
criteria.

New Product Development Process Step 3. Concept Development :

1. Develop New Product Ideas into Alternative Detailed Product Concepts 2. Concept Testing - Test the New Product
Concepts with Groups of Target Customers 3. Choose the One That Has the Strongest Appeal to Target Customers
New Product Development Process Step 3. Concept Development

New Product Development Process Step 4. Marketing Strategy :

Part Three Describes Long-Term: Sales & Profit Goals Marketing Mix Strategy Part Two Describes First-Year:
Product’s Planned Price Distribution Marketing Budget Part One Describes Overall: Target Market Planned Product
Positioning Sales & Profit Goals Market Share New Product Development Process Step 4. Marketing Strategy

Step 5. Business AnalysisStep 6. Product Development :

If No, Eliminate Product Concept Business Analysis Review of Product Sales, Costs, and Profits Projections to See if
They Meet Company Objectives Step 5. Business AnalysisStep 6. Product Development If Yes, Move to Product
Development

Product Development ProcessStep 7. Test Marketing :

Advertising Atmosphere Product Budget Levels Positioning Location Pricing Branding Elements that May be Test
Marketed by a Company Test Marketing is the Stage Where the Product and Marketing Program are Introduced into
More Realistic Market Settings. Product Development ProcessStep 7. Test Marketing
New Product Development Process Step 8. Commercialization :
When is the Right Time to Introduce Product? Where to Launch a New Product? Commercialization is the
Introduction of the New Product into the Marketplace. New Product Development Process Step 8. Commercialization

Product Development through Acquisition :

Product Development through Acquisition Large companies will sometimes buy a small companies rather than
develop their own new companies. Sometimes, companies purchase distressed chains to turn them around. For
example, PepsiCo purchased KFC and Taco Bell.

Plant location :
Plant location Meaning-the establishment of an industry at a particular place. It is of 2 types- Localization
/centralization-means concentration of similar type of industries at some particular place. E.g. textile in Mumbai.
Delocalization /Decentralization-means spreading of similar type of industries at different places. E.g. banking
industries.

Factors affecting location & site decisions :

Factors affecting location & site decisions 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 :

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
location- Involving quantitative factors- Comparative cost chart, b. dimensional analysis. 2. Comparison of qualitative
factors.

Comparative cost chart :

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.

Slide 83:
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 analysis- Here transportation cost associated with various location alternatives
is considered. Limitation of these techniques- 1.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 :
Dimensional analysis It involves calculation of the relative merits or cost ratios for each of the factors, giving each of
the cost factor an appropriate weightage by means of an index to which the cost ratio is raised & multiplying these
weighted ratios in order to arrive at a figure on the relative merits of alternative sites.

Slide 85:
Let Cm1,Cm2,Cm3,…..Cmz are the costs associated with site M for various cost factors. Cn1,Cn2,Cn3,…….Cnz are
of site N.W1,W2,W3,…….Wz are weightage for various factors. Merit of location M=(Cm1)W1*(Cm2)W2*…
(Cmz)Wz Merit of location N=(Cn1)W1*(Cn2)W2*…(Cnz)Wz Relative merits of sites M & N are- merit of M merit
of N If this value is > 1, then select site M & vice-versa. Advantages- it compares both subjective & objective factors
& gives a quantitative figure.

Comparison of qualitative factors. :

Comparison of qualitative factors. These are the factors to which cost values can’t be assigned. Like lack of good
schools, community attitude. These can be termed as good or excellent. Clearly location B appears to be better one.

Ranking & weight method :

Ranking & weight method 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.

Slide 88:
Advantages &disadvantages of urban, rural & sub-urban sites for a plant-