Course Name: Production & Operations

Management
Module 3: Facility or Layout Planning &
Analysis

Q.1. Explain the need for Facility Location Planning.

Ans. Facilities location may be defined as selection of suitable location or site or place where the
factory or plant or facilities to be installed, where plant will start functioning.

The objective of location strategy is to maximise the benefit of location to the firm.

Facility planning has developed, in the past decade, into a major thriving business sector and
discipline. One of the major reasons for new facilities is the global economic boom that has been
accompanied by an enhancement of capacity worldwide.

In addition to the global economic boom, there are several other reasons for changing or adding
locations:

1. The cost or availability of labour, raw materials, and supporting resources often change. These
changes in resources may spur the decision.

2. As product markets change, the geographical region of demand may shift. For example, many
international companies find it desirable to change facility location to provide better service to
customers.

3. Companies may split, merge, or be acquired by new owners, making facilities redundant.

4. New products may be introduced, changing the requirement and availability of resources.

5. Political, economic and legal requirements may make it more attractive to change location.
Many companies are moving facilities to regions where environment or labour laws are more
favourable.
Q.2. Explain the factors affecting manufactured products in deciding location.
Ans. Manufactured products differ from many service products as production may take place at a
location, and then the goods are distributed to the customer. Often the source of raw materials is
an important factor in deciding locations. Very often, you want to locate your operation close to
that source of raw material.

The typical factors that require consideration are:

1. Location of markets: Locating plants and facilities near the market for a particular
product or service may be of primary importance for many products in the sense that
location may impact the economics of the manufacturing process.
2. Location of materials: Access to suppliers of raw materials, parts, supplies, tools,
equipment, etc., are very often considered to be of paramount importance. The main issue
here is the promptness and regularity of supply from suppliers and the level of freight
costs incurred.
3. Transportation facilities: Adequate transportation facilities are essential for the economic
operation of a production system. These can include – road, rail waterways airports. The
bulk of all freight shipments are made by rail since it offers low costs, flexibility and
speed.

For companies that produce or buy heavy and bulky low-value-per-ton commodities as
are generally involved in import and export activities, shipping and location of ports may
be a factor of prime importance in the plant location decision. Truck transport for
intercity transport is increasing as is airfreight and executive travel.

Traveling expenses of management and sales personnel should also be considered in the
equation

4. Labour supply: Manpower is the most costly input in most production systems. An ample
supply of labour is essential to any enterprise. The following rule of thumb is generally
applied:

(a) The area should contain four times as many permanent job applicants than the
organization will require.

(b) There should be a diversification between industry and commerce-roughly 50/50.

5. Location of other plants and warehouses: Organizations need to look at their plant locations
for the complete system point of view.

(a) Distribution and supply requirements require the support of sister-plants and warehouses that
complement the system.
(b) The system should be designed to minimize total system costs.

(c) The locations of competitor's plant and warehouses must also be considered (what do they
know, that you don't) the object being to obtain an advantage in both freight costs and the level
of customer service.

6. Climate: The recent typhoons in the Gulf of Mexico have indicated the need to look at climatic
conditions as a parameter for making location decisions.

7. Governmental controls and regulations: Table 3.2 shows the composite ranking of the business
environment in 20 countries, based upon factors including government controls, regulations and
incentives and labour conditions. Labour conditions include skills, availability, unionization and
history of labour relations.

Q.3. What are the factors that affect Service Products location selection?
Ans. The primary parameters on which the geographical location decisions are based for service
products have been enumerated below:

1. Purchasing power of customer drawing area.

2. Service and image compatibility with demographics of the customer drawing area.

3. Competition in the area.

4. Quality of the competition.

5. Uniqueness of the firm's and competitor's locations.

6. Physical qualities of facilities and neighboring businesses.

7. Operating policies of the firm.

8. Quality of management

Q.4. Explain planning at macro level for location decisions.

Ans. At macro level, the plans of the site are developed. These plans should include number,
size, and location of buildings. It should also include infrastructure such as roads, rail, water, and
energy. Planning of this stage has the greatest strategic impact on the facility planning decision.
This is the time to look ahead and consider the different impacts and site and plant expansions
leading to the eventual site saturation. Planning at the macro level stage should include the
following:

1. Development of a facility master plan to guide facility investments over a multi-year period

2. Impact planning

3. Evaluation

4. Facility layout, space allocation, and capacity

5. Development of space standards.

Q.5. Describe Facility master planning strategy.

Ans. Facility master planning strategy involves examining the existing facilities; the sizing of
future facilities and site amenities; the integration of these facilities into the site; traffic flow and
circulation; and the analysis of any impact that this development will have on the site with
respect to environmental issues.

The areas it covers include:

1. Land-Use Planning

2. Site Evaluation

3. Zoning Analysis

4. Traffic Impact Analysis

5. Site Engineering Analysis

6. Architectural Programming

7. Needs Assessment Survey

8. Interior Space Planning

9. Adaptive Reuse Study

10. Building Design

11. Site Design

12. Landscape Design

Q.6. Explain two phases of master planning.

Ans. Product development includes a number of processes. The steps that follow are given
below:

The master planning team's work is broadly divided into two phases: Phase I deals with
information gathering and analysis. Phase II addresses the synthesis of gathered information into
the development of a master plan.

Steps involved in Phase I

1. A review of the development history of the business;

2. Evaluation in the local and regional context;
3. Planned current and projected conditions;
4. It starts with collecting baseline data on market dynamics, workload trends, current space
allocation, and perceived facility, operational, and technology issues.

Steps involved in Phase II

1. Phase II synthesizes and integrates numerous strands of information gathered into an

organized plan.

2. Orderly approach to master planning and the growth during a specified planning period.

3. The master planners, at this stage, formulate approaches to such 'big picture' issues as image,
identity, character, and visions of the future of the organization within a broader, societal
context.

4. The current market strategies and business plans, potential operations restructuring initiatives,
and planned investments in new equipment, information technology, and other capital
requirements (e.g., infrastructure upgrading) are reviewed.
5. The facility master plan provides a detailed phasing/implementation plan, which also serves as
a 'road map' to guide facility investments over a multi-year period.

6. It identifies immediate, short-term, and long-range "projects" with corresponding capital

requirements and its sequencing. This is compared with current industry practice.

Q.7. Explain some considerations of site evaluation.

Ans.
1. Size of site: The plot of land must be large enough to hold the proposed plant along with
its utilities, waste and water treatment facilities, parking and access facilities and
support services. The size of the plot must also be large enough to provide sufficient space
for further expansion.

2. Utilities: The continuity of operations and the ability for uninterrupted production
depends on the adequacy of utilities. The ability to overcome recurring problems
associated with the supply of utilities needs to be evaluated and accountability assigned:

(a) Possible restrictions on power availability.

(b) Cost differentials at peak periods.

(c) Availability of water supply during a 'hot' summer.

(d) Quality of water-hard or soft, etc.

(e) Connection cost of services from main supply lines to the intended plant.

Costs associated with the volume and reliability of power, water and fuel supplies must
be evaluated carefully. These costs are considerable and have to be borne over the life of
the assets.

3. Transportation facilities: Rail and road networks should be close to the proposed plant
to minimize the cost of creating private sidings to the rail lines and access roads. Some
indication can be gained by looking at the present road and rail network serving the local
community. The plant should also be easily accessible by car and public transport.
4. Land costs: These are non-recurring costs and of little importance in the determination of
the facility location. In general, the plant site will be one of the following locations: city
location; industrial areas or estates; or interior areas.
Q.8. Explain the Community Considerations in location decision.
Ans. The proposed plant must fit in with and be acceptable to the local community. Full
Consideration must be given to the safe location of the plant so that it does not impose a
significant additional risk to the community. Adverse climatic conditions at site will increase
costs. Extremes of low temperatures will require the provision of additional insulation and
special heating for equipment and piping. Similarly, excessive humidity and hot temperatures
pose serious problems and must be considered for selecting a site for the plant. Stronger
structures will be needed at locations subject to high wind loads or earthquakes. Capital grants,
tax concessions, and other inducements are often given by governments to direct new investment
to preferred locations; such as areas of high unemployment. The availability of such grants can
be the overriding consideration in site selection. State and local tax rates on property income,
unemployment insurance and similar items vary from one location to another. Similarly, local
regulations on zoning, building codes, nuisance aspects and others facilities can have a major
influence on the final choice of the plant site.

Q.9. Explain Facility planning at the micro level.

Ans. Facility planning at the micro level involves decisions about the functional layout and
physical arrangement of economic activity centers. Economic activity centers are work related
places that consume space: it could be a teller window in a bank or the space for customers to
wait for their turns; it could be a machine, a work-bench or work-station; it could be a stairway
or an aisle; it could be a cafeteria or storage space. These have many practical and strategic
implications.

The goal of functional layout is to allow workers and equipment to operate as effectively as
possible. In order to do so, the following questions need to be addressed:

1. What should the layout include for each economic activity center? The economic activity
center should reflect decisions that maximize productivity. For example, a central tool room is
often efficient for most processes, but keeping tools at individual work-stations makes more
sense for many processes.

2. How much space and capacity does each economic activity center need? Space is a cost but
inadequate space can reduce productivity and even create safety and health hazards.

3. How should each economic activity center's space be configured? The space, its shape, and the
elements need to be interrelated.

Q.10. Explain the least cost method.

Ans. Least cost method suggests that the agriculture and industries should locate their activities
as close to the market as possible, in order to get benefit of least cost of transportation of goods
they produce.
According to this method, a site is chosen for industrial development where total costs are
theoretically at their lowest, as opposed to location at the point of maximum revenue.

A model of industrial location proposed by A. Weber, assumes that industrialists choose a least
cost location for the development of new industry. The theory is based on a number of
assumptions, among them that markets are fixed at certain specific points, that transport costs are
proportional to the weight of the goods and the distance covered by a raw material or a finished
product, that perfect competition exists, and that decisions are made by economic man.

Weber argued that raw materials and markets would exert a 'pull' on the location of an industry
through transport costs. Industries with a high material index would be pulled towards the raw
material. Industries with a low material index would be pulled towards the market.

Once a least-cost location has been established, Weber goes on to consider the deflecting effect
of labour costs.

Q.11. What are the reasons for changing or adding locations during the global economic
boom?

Ans. In addition to the global economic boom, there are several other reasons for changing or
adding locations:

1. The cost or availability of labour, raw materials, and supporting resources often change. These
changes in resources may spur the decision.

2. As product markets change, the geographical region of demand may shift. For example, many
international companies find it desirable to change facility location to provide better service to
customers.

3. Companies may split, merge, or be acquired by new owners, making facilities redundant.

4. New products may be introduced, changing the requirement and availability of resources.

5. Political, economic and legal requirements may make it more attractive to change location.
Many companies are moving facilities to regions where environment or labour laws are more
favourable.

Well-planned facilities enable an organization to function at its most efficient and effective level,
offering real added value improvements to the organization's core business.
 Q.12 Discuss the various types of facilities.
Ans. The various types of facilities are briefly described below:

Heavy Manufacturing

Heavy manufacturing facilities are primarily plants that are relatively large and require a lot of
space and as a result, are expensive to construct.

Example: Automobile plants, steel mills and oil refineries.

Important factors in the location decision for plants include construction costs, modes of
transportation for shipping heavy manufactured items and receiving bulk shipments of raw
materials, proximity to raw materials, utilities, means of waste disposal and labour availability.
Sites for manufacturing plants are normally selected where construction and land costs can be kept
at a minimum and raw material sources are nearby in order to reduce transportation costs. Access
to rail-roads is frequently a major factor in locating a plant. Environmental issues have
increasingly become a major factor in plant location decisions. Plants can create various forms of
pool pollution and traffic pollution. These plants must be located where the harm to the
environment is minimised. Although proximity to customers is an important factor for some
facility types, it is less so for manufacturing plants.

Light Industry

Light industry facilities are typically perceived as smaller, cleaner plants that produce electronic
equipment and components, parts used in assemblies, or assembled products.

Example: Making stereos, TVs, or computers, tool and die shop, breweries, or pharmaceutical
firms.

Several factors are important for light industry. Land and construction costs are not generally as
crucial, because the plants tend to be smaller and require less engineering. It is not as important to
be near raw materials, since they are not received in large bulk quantities, nor is storage capacity
required to as great a degree. As a result, transportation costs are somewhat less important. Many
parts and material suppliers fall into this category and as such, proximity to customers can be an
important factor. Alternatively, many light industries ship directly to regional warehouses or
distributors, making it less important to be near customers. Environmental issues are less
important in light industry, since burning raw materials is not normally part of their production
processes, not are there large quantities of waste. Important factors include the labour pool,
especially the availability of skilled workers, the community environment, access to commercial
air travel, government regulation and land use requirements.
Warehouses and Distribution Centers

Warehouses are a category of their own. Products are not manufactured or assembled within their
confines, nor are they sold from them. They represent an intermediate point in the logistical
inventory system where products are held in storage. Normally a warehouse is simply a building
that is used to receive, handle and then ship products. They generally require only moderate
environmental conditions and security and little labour, although some specialised warehouses
require a more controlled environment, such as refrigeration or security for precious metals or
drugs. Because of their role as intermediate points in the movement of products from the
manufacturer to the customer, transportation and shipping costs are the most important factors in
the location decision for warehouses. The proximity to customers can also be an important
consideration, depending on the delivery requirements, including frequency of delivery required
by the customer. Construction and land costs tend to be of less importance as does labour
availability. Since warehouses require no raw materials, have no production processes and create
no waste, factors such as proximity to raw materials, utilities and waste disposal are of almost no
importance.

Retail and Service

Retail and service operations generally require the smallest and least costly facilities. Examples
include such service facilities as restaurants, banks, hotels, cleaners, clinics and law offices and
retail facilities such as groceries and department stores, among many others. The single most
important factor for locating a service or retail facility is proximity to customers. It is usually
critical that a service facility be near the customers who buy from it. Construction costs are
generally less important (especially when compared with a manufacturing plant); however, land or
leasing costs can be important. For retail operations, for which the saying "location is everything"
is very meaningful, site costs can be very high. Other location factors that are important for heavy
and light manufacturing facilities, such as proximity to raw materials, zoning, utilities,
transportation and labour, are less important or not important at all for service and retail facilities.

Q.13. Describe the labour costs of manufacturing workers in different countries.

Ans.