Semester-V, BBA, 2010-13

FACILITY LOCATIONS & Click to edit Master subtitle style LAYOUT

Prof. Biranchi Prasad Panda KSOM, KIIT University 8/17/12

Concept

TOPICS UNDER DISCUSSION

Need for Suitable Location Factors affecting Plant/Facility Location Location Theories Location Models Locational Economics Plant Lay Out Classification of layout Design of Product Layout Design of Process Layout Service Layout
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CONCEPT
Plant/Facility Location be located ? Where a plant or facility is to

Facility Layout which order ?

What provisions are required and in

These are important strategic-level decisions Selecting a location or layout is a key-decision

Involves large investment Difficult to change, once selected

Prerequisite

Long range forecasting Companys expansion plan and policy 8/17/12 Diversification plan for product

NEED FOR SUITABLE LOCATION

I.

When an organization starts (comes into existence,1st time)

Has the direct bearing on financial, employment, distribution patterns etc.

By closing its old/cost-inefficient operations unit

I.

When an existing organization expands/diversifies/ decentralizes/ shuts-down ..

Relocation involves stoppage of production, cost of shifting etc. 8/17/12

LOCATION CHOICE
for 1st time operation or new
Consider the long-term business/organizational objectives

organizations

Identification of region for locating the operations facility

Along with the considerations marketing, technology, org strengths & weaknesses, regional resources, business environment, legal-gov environment, society, geography

Choice of a site within the region

Along with the org strategies for their tangible and intangible costs

Dimensional (quantitative) analysis to select a location with least cost

By quantifying all the tangible and intangible costs

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Contd.

For example, the relative merits of two sites:

C1M, C2M+, C3M, . , CzM Costs associated with site-M on z different cost elements C1N, C2N, C3N, . , CzN Costs associated with site-N on z different cost elements
Then relative merit of M and N is given by

(C1M/ C1N)W1 x (C1M/ C1N) W2 (CZM/ CZN) WZ

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LOCATION CHOICE
expansion/diversification/..
Consider the multi-plant operation strategy additional plants in the same premises or elsewhere

Manufacturing distinct products

When the resources/ inputs are specialized for different competitive product-lines

Manufacturing for a specific market area

When proximity factor dominates the resources factors

Division of plant on the basis of stage-wise processes

When parts are manufactured in different plants

Emphasis on flexibility

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LOCATION CHOICE
for global operations
Consider the reasons and reaches

Virtual Proximity
With the advance telecommunication technologies

Virtual Factory
With the advance telecom and information technologies, operating the factory in foreign and remote locations Contd.
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Contd.

Tangible reasons
To reach the customer To avail tax benefits To avail low-cost/abundant labor, raw material, energy, water etc.

To avail tariff benefits of mfg. there, instead of exporting

Intangible reasons
For customer service accessibility, personal touch, better understanding the needs
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FACTORS INFLUENCING
(Tangible/Intangible/Strategic)

PLANT
General factors

/ FACILITY

LOCATION
Specific factors
For Mfg. Organizations
Dominant competitive factors Secondary factors

Uncontrollable factors

Controllable factors

Government policy Climatic conditions Supporting industries

Proximity to markets Supply of materials Transportation facilities

For Service Organization

Dominant competitive factors Secondary factors

Infrastructure availability

Community attitudes

Labor and wages External economics

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Community infrastructure

FACTORS

Contd.

General factors

Controllable factors

Proximity to markets for concentrated buyers, for delicate/susceptible/low-self-life products, for products demanding aftersales-service, in-time/low-cost supply of goods and service to the customers, if raw materials are ubiquitous

Supply of materials raw material in right quality/quantity/time/price/place, transportation at a lower cost, proximity to source for processing weight-loosing materials

Transportation facilities timely supply of raw materials (to company) and finished goods (to customers), import/export duties

Infrastructure availability power, water, waste-disposal/treatment, (air)port/railway

Labor and wages adequate number/skill, prospective community, productive, conveyance, prevailing wage pattern, cost of living, 8/17/12

FACTORS

Contd.

General factors

Uncontrollable factors

Government Policy labor laws/building-code/safety-rules, incentives to entrepreneurs exemption from sales-tax/excise-duty, soft loans, subsidy on electricity/water etc.

Climatic conditions geological/geographical factor on human efficiency and behavior, climatic conditions requirement for processes (ex- humidity for textile mills, dryness for cement plants) etc.

Supporting industries and services subsidiaries/ancillaries/subcontracts/outsourced vendors, services like communications, banking, consultancy, civil amenities etc.

Community and labor attitude union/association, strikes/lockouts etc.

Community infrastructure and amenity economic overhead capital like roads/railways/port/power lines/utilities and social overhead 8/17/12

FACTORS

Contd.

Specific factors for Mfg. Org.

Dominant factors

Favorable labor climate for labor-intensive firms (ex textile, furniture, consumer electronics), wage rates, training requirements, attitude towards work, worker productivity, union strength etc.

Proximity to markets for greater demand of goods/services, for bulky/heavy finished goods

Quality of life schools, recreational facilities/events Proximity to suppliers and resources for those plants who rely on supplying to (receive supplies from) other facilities, to offer/receive staff support, for frequent coordination/communication

Utilities, taxes, and estate costs telephone/energy/water, local/state taxes, financial incentives offered by local/state govt, relocation, land cost etc.

Secondary factors

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space for expansion, construction,

FACTORS

Contd.

Specific factors for Serv. Org.

Dominant factors

Proximity to customers after sales service, customer contact Transportation costs & proximity to markets for warehousing/distribution, inventory, delivery time, sales promotion

Location of competitors competitors location, their reaction to cos new location, advantage of cluster

Secondary factors
segment

level of retail activity, residential density, traffic

flow, site visibility, shoppers impulse, strategies for target market

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LOCATION THEORIES
for finding an optimal (min. cost) location
Alfred Webers Theory of Location of Industries (1909):

Distance travelled by raw/intermediate/finished product materials Labor movement for transportation and work Agglomeration (or concentration) of labor; investment in schools and hospitals; supporting companies for construction, plant and machine erection, financial services etc.

Degglommeration (loosening of over concentration) of inappropriate industries, labor, capital, land; diversification; flat processes.

Some models to identify an ideal location Factor rating method Weighted factor rating method

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Load-distance method

FACTOR RATING METHOD

The process of selecting a new
Identify facility the important location factors location

Rate the factors according to their relative importance (higher the rating, more the prominence)

Assign each location Calculate the rating by multiplying the assigned factor to the basic factor

Find the sum of product for each factor Select the best location having highest total score 8/17/12

Example Lets assume that a new medical facility, health care, is to be located in Delhi. The location factors, factor rating and scores for two potential sites are shown in the following table. Which is the best location based on factor rating method?

Sl. Location No. Factor

Facto Location -I Location -II r Ratin RatingTotal RatingTotal g

1 2 3

Facility 8 utilization Total patient 5 per month Average time 6 per emergency 8/17/12 trip

3 4 4

24 20 24

5 3 5

40 15 30

Location models:

WEIGHTED FACTOR RATING METHOD

Both qualitative and quantitative factors are assigned weights to select the best choice

Example Lets assume that a new medical facility, health care, is to be located in Delhi. The location factors, weights and scores (1= poor, , 5=excellent) for two Location Factor potential sites are shown in the following table. Sl. Weight Location -I Location -II No. Rating Total Rating Total What is the weighted score for these sites? Which is the best location?
1 2 3 4 5 Facility utilization Average time per emergency trip 25 25 25 3 4 3 1 5 Total: 75 75 15 50 315 5 3 3 2 3 125 75 75 30 30 335 Total patient per month 100

Land and construction costs 15 Employee preferences 8/17/12 10

Location models:

LOAD-DISTANCE METHOD

Sl. Census Tract

A mathematical model (calculated in terms of distance/time/cost of movement) Example The new health-care facility is targeted to serve seven census tracts in Delhi. The table given(min. movement of weighted loads into or out Based on proximity factors below shows the coordinates for the centre of each census tract, along with the projected populations, measured in of the facility) thousands. Customers will travel from the seven census tract centers to the new facility when they need health-care. Two locations being considered for the new facility are at (5.5, 4.5) and (7, 2) which are the centers of census tracts C and F. Details of seven census tract centers, coordinate distances along with the population for each centre are given below. If we use the population as the loads and use rectilinear distance, which location is better in terms of its total load-distance score?
(X, Y) Population Location (5.5, 4.5) Location (7, 2) Distance (dx+dy) (2.5, 4.5) (2.5, 2.5) (5.5, 4.5) (5,2) (8,5) (7,2) 2 5 10 7 10 20 3+0=3 3+2=5 0 0.5+2.5 =3 2.5+0.5=3 Loaddistance 6 25 0 21 30 80 Distance (dx+dy) 4.5+2.5=7 4.5+0.5=5 1.5+2.5=4 2+0=2 1+3=4 0+0=0 Loaddistance 14 25 40 14 40 0

1 2 3 4 5 6

A B C D E F

8/17/12 1.5+2.5=4

CENTRE OF GRAVITY METHOD and service objectives Balancing cost

Takes care of market, volume of transportation, warehousing etc.

Sl. 1 2 3 4 5 6 7

Minimizes the weighted distance between the warehouse Census its supply/distribution/sales points. X component of CG Y Component of CG and (X, Y) Population
Tract A B C D E F G (2.5, 4.5) (2.5, 2.5) (5.5, 4.5) (5,2) (8,5) (7,2) (9, 2.5) Total: 2 5 10 7 10 20 14 2.5x2=5 2.5x5=12.5 5.5x10=55 5x7=35 8x10=80 7x20=140 9x14=126 Total: 453.50 4.5x2=9 2.5x5=12.5 4.5x10=45 2x7=14 5x10=50 2x20=40 2.5x14=35 Total: 205.50 Overall y3.02

68

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Overall x-

6.67

BREAK-EVEN ANALYSIStotal revenue equals Locates a site where

total cost

At break-even point, there is no loss, no profit BEA for each location can make economic comparison, identifying for a Rs range of production volume.
.
s le u e Sa en it Prof v Re ble ar i a t V cos
Margin of Safety

At BEP,
BEQ = fixed cost / contribution per unit = fixed cost / (selling price variable cost per Los unit) s = F / (S - V) units 8/17/12

BE P

Fixed cost No.

Example Company ABC has a demand of 1,30,000 units of a new product. Three potential locations X, Y and Z have the cost structures shown below. Identify the locations for selected volume of production.
Location X Fixed Costs (Rs.) Variable Costs (Rs.) 1,50,000 10 Location Y 3,50,000 8
20,0 0,00 0 15,0 0,00 0 Co

Location Z 9,50,000 6

X Y Solution Z Solve for the cross-over between X and Y locations

10,0 10x + 1,50,000 = 8x + 3,50,000 0,00

st
0

Or 2x = 2,00,000 Or x = 1,00,000 units

5,00, 000

1,00, 000

Similarly for the cross-over between Y and Z locations 8x + 3,50,000 = 6x + 9,50,000

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000 Volu me

2,00,

3,00, 000

LOCATIONAL ECONOMICS
A location is ideal/economic at a least cost of:
Factors X Y Z Production 1. Total initial investment Distribution 2. Total expected sales Land 3. Distribution expenses 4. Raw material Building expenses Equipment 5. Power and water supply expenses Labor 6. Wages and salaries Material 7. Other expenses 8. Community attitude with better 8/17/12 9. Employee housing

Design of systems
Defining

the system elements the interrelationship between the

Defining

elements
Selection

of elements

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Production (process) System Design Process planning

place, people, m/c tools, time cost estimation

Process selection
continuous,

batch, job

Process sequence
product,

process, job

Process technology
manual,

automatic, semiautomatic

Process flow design

product,

material, people, information, utilities, etc.

Work center (place) design

light,

air, temp., noise, speed, vibration, safety - positional/ occupational fatigue, place (posture) of sitting, movement of body (parts) etc.

Process personnel 8/17/12

DESIGN OF LAYOUTS
Moore: optimum including equipment, handling Plant layout is a plan of an arrangement personnel, storage equipment space, and of facilities operating material all other

supporting services along with the design of best structure to contain all these facilities.
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Objectives of Plant Layout

The primary goal of the plant layout is to maximize the profit by arrangement of all the plant facilities to the best advantage of total manufacturing of the product.

The objectives of plant layout are: 1. 2. 3. 4. 5. 6. 7. 8. Streamline the flow of materials through the plant. Facilitate the manufacturing process. Maintain high turnover of in-process inventory. Minimise materials handling and cost. Effective utilisation of men, equipment and space. Make effective utilisation of cubic space. Flexibility of manufacturing operations and arrangements. Provide for employee convenience, safety and comfort. 8/17/12

Principles of Plant Layout

1.

Principle of integration: A good layout is one that integrates men, materials, machines

2.

Principle of minimum distance: This principle is concerned with the minimum travel

3.

Principle of cubic space utilization: The good layout is one that utilize both horizontal

4.

Principle of flow: A good layout is one that makes the materials to move in forward 8/17/12

TYPES OF LAYOUTS

Flow patterns
project/job

- line/continuous, intermittent/batch,

Types

of Layouts
layouts layouts layouts

Product layouts

Process Position

Combined

Shapes

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FLOW PATTERNS line/continuous

intermittent/batch

project/job
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PRODUCT LAYOUT
(Assembly) line/continuous
M/c1 M/c2 M/c3 M/c4 M/c5

High volume production A dedicated set of facilities Fixed sequence of operations Suitable for only one type of product or its minor modifications
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PROCESS LAYOUT
Intermittent/ Batch
M/c Type 1 M/c Type 2 M/c Type 3 M/c Type 4 M/c Type 5

A small range of variety Products/ services are repetitive Large volume on demand, but periodically Identical Facilities are put together

They function/ process Similar within the department/section 8/17/12

JOB-SHOP LAYOUT
Job shop

Limited capacity, but of general purpose machines/equipments/facilities.

Limited people, but highly skilled Wide variety of unique (non-repetitive) products
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Higher degree of customization

POSITION LAYOUT

Job at one place (a project) Resources arrive Costly/ Scarce Resources

 Line

COMBINED LAYOUTS
layout

layout with sub-assemblies of line and function

Combination

Advantage

of both types

Cellular layouts
Every

cell represented by a for flexible batch

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Group/ process/ functional layout

Suitable

production
High

degree of standardization

O-type

I-type

SHAPE OF LAYOUT

U or C-type

L-type

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S-type

Single-storied Vertical Layout

Z
Z Z

VERTICAL LAYOUT
Use

of vertical

space
2nd Floor 1st Floor Gr. Floor

Use

of gravity of material

Ease

handling
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Multi-storied Vertical Layout

LINE BALANCING
Assembly-line balancing often has implications for layout. This would occur when, for balance purposes, workstation size or the number used would have to be physically modified.

The steps in balancing an assembly line (product layout) are: 1. Specify the sequential relationships among tasks using a precedence diagram. 2. Determine the required workstation cycle time C, using the formula
C = Production time per day / Required output per day (in units) 3. Determine the theoretical minimum number of workstations (Nt) required to satisfy the workstation cycle time constraint using the formula Nt = Sum of task times (T) / Cycle time (C) 4. Select a primary rule by which tasks are to be assigned to workstations, and a secondary rule to break ties.

8/17/12 5. Assign tasks, one at a time, to the first workstation until the sum of the task times is equal to the workstation cycle time, or no other tasks are feasible because of time or

Exampl e:

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Earlier the efficiency was: 195/ (11task points x 50 slowest process) = 0.3545 =
35.45%

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DESIGN OF PROCESS LAYOUT

1. List and describe each functional work centre. 2. Obtain a drawing and description of the facility being designed. 3. Identify and estimate the amount of material and personnel flow among work centers 4. Use structured analytical methods to obtain a good general layout. 5. Evaluate and modify the layout, incorporating details such as machine orientation, storage area location, and equipment access.
Other physical facilities are:

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Assignment
Select

a suitable location for your business.

A region A site within the region Do a dimensional analysis for the selection Identify and apply a particular or a combination of location model to finalize the location

Build List

a virtual factory model

the factors influencing the location and/or layout

General factors

Controllable Uncontrollable

Specific factors 8/17/12