7.

1 OBJECTIVES
After studying this lesson, you should be able to:
• Describe the concepts of plant location and plant layout
• Identify the various factors to be considered for selection of plant location-
from state/area to the specific site
• Distinguish among the alternative patterns of plant layout
• Discuss the various factors influencing the choice of an initial layout and
its subsequent modification

7.2 PLANT LOCATION

Every entrepreneur is faced with the problem of deciding the best site for location
of his plant or factory.

What is plant location?

Plant location refers to the choice of region and the selection of a particular site
for setting up a business or factory.

But the choice is made only after considering cost and benefits of different
alternative sites. It is a strategic decision that cannot be changed once taken. If at
all changed only at considerable loss, the location should be selected as per its
own requirements and circumstances. Each individual plant is a case in itself.
Businessman should try to make an attempt for optimum or ideal location.

What is an ideal location?

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. For achieving this objective, small-scale entrepreneur can make use
of locational analysis for this purpose.

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7.2.1 LOCATIONAL ANALYSIS
Locational analysis is a dynamic process where entrepreneur analyses and
compares the appropriateness or otherwise of alternative sites with the aim of
selecting the best site for a given enterprise. It consists the following:

(a) Demographic Analysis: It involves study of population in the area in terms of

total population (in no.), age composition, per capita income, educational level,
occupational structure etc.
(b) Trade Area Analysis: It is an analysis of the geographic area that provides
continued clientele to the firm. He would also see the feasibility of accessing the
trade area from alternative sites.
(c) Competitive Analysis: It helps to judge the nature, location, size and quality
of competition in a given trade area.
(d) Traffic analysis: To have a rough idea about the number of potential
customers passing by the proposed site during the working hours of the shop, the
traffic analysis aims at judging the alternative sites in terms of pedestrian and
vehicular traffic passing a site.
(e) Site economics: Alternative sites are evaluated in terms of establishment costs
and operational costs under this. Costs of establishment is basically cost incurred
for permanent physical facilities but operational costs are incurred for running
business on day to day basis, they are also called as running costs.

Two sites A and B are evaluated in terms of above mentioned two costs as
follows:

Table 7.1: Comparative Costs of Alternative Locations

Costs Site A (Rs.) Site B (Rs.)
Cost of establishments:

Land and Buildings 350000 230000

Equipment 60000 60000
Transport facilities 20000 30000
Cost of operations:

Materials, freight and carriage 34000 24000

Taxes and insurance 10000 7500
Labour 100000 70000
Water, power and fuel 10000 8000
Total 584000 429500

The above cost statement indicates that site B is preferable to site A keeping in
mind economic considerations only although in some respects site A has lower
costs. By applying the definition of ideal location which is the place of maximum

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net advantage or which gives lowest unit cost of production and distribution, site
B would be preferred.

7.2.2 SELECTION CRITERIA

The important considerations for selecting a suitable location are given as
follows:

a) Natural or climatic conditions.

b) Availability and nearness to the sources of raw material.
c) Transport costs-in obtaining raw material and also distribution or marketing
finished products to the ultimate users.
d) Access to market: small businesses in retail or wholesale or services should be
located within the vicinity of densely populated areas.
e) Availability of Infrastructural facilities such as developed industrial sheds or
sites, link roads, nearness to railway stations, airports or sea ports, availability
of electricity, water, public utilities, civil amenities and means of
communication are important, especially for small scale businesses.
f) Availability of skilled and non-skilled labour and technically qualified and
trained managers.
g) Banking and financial institutions are located nearby.
h) Locations with links: to develop industrial areas or business centers result in
savings and cost reductions in transport overheads, miscellaneous expenses.
i) Strategic considerations of safety and security should be given due importance.
j) Government influences: Both positive and negative incentives to motivate an
entrepreneur to choose a particular location are made available. Positive
includes cheap overhead facilities like electricity, banking transport, tax relief,
subsidies and liberalization. Negative incentives are in form of restrictions for
setting up industries in urban areas for reasons of pollution control and
decentralization of industries.
k) Residence of small business entrepreneurs want to set up nearby their
homelands

One study of locational considerations from small-scale units revealed that the
native place or homelands of the entrepreneur was the most important factor.
Heavy preference to homeland suggests that small-scale enterprise is not freely
mobile. Low preference for Government incentives suggests that concessions and
incentives cannot compensate for poor infrastructure.

Table given below also suggests that the locational choice undergo change with
differences in the levels of development across the regions (hills and plains).

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 Table 7.2: Factors Affecting Location Decision
.
Entrepreneur’s Response
Considerations Hills Plains Total

No. % No. % No. %

Homeland 15 67 11 39 26 52
Government 3 14 1 4 4 8
Incentives
Availability of 0 0 1 4 1 2
Raw material
Availability of 2 9 0 0 2 4
labour
Availability of 0 0 5 18 5 10
market
Availability of 1 5 9 32 10 20
infrastructure
Facilities
Others 1 5 1 4 2 4
Total 22 100 28 100 50 100

7.2.3 SIGNIFICANCE
From the discussion above, we have already learnt that location of a plant is an
important entrepreneurial decision because it influences the cost of production
and distribution to a great extent. In some cases, you will find that location may
contribute to even 10% of cost of manufacturing and marketing. Therefore, an
appropriate location is essential to the efficient and economical working of a plant.
A firm may fail due to bad location or its growth and efficiency may be restricted.

CHECK YOUR PROGRESS

1. The factor least important to consider when selecting a location for a new
furniture store is

a. The weather of the community

b. The future of the community
c. The other businesses in the community
d. The age distribution of the population in the community

2. When selecting a site for a business it is important to

a. Purchase the property when possible

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………………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………

7.3 PLANT LAYOUT

The efficiency of production depends on how well the various machines;
production facilities and employee’s amenities are located in a plant. Only the
properly laid out plant can ensure the smooth and rapid movement of material,
from the raw material stage to the end product stage. Plant layout encompasses
new layout as well as improvement in the existing layout.

It may be defined as a technique of locating machines, processes and plant

services within the factory so as to achieve the right quantity and quality of output
at the lowest possible cost of manufacturing. It involves a judicious arrangement
of production facilities so that workflow is direct.

7.3.1 DEFINITION
A plant layout can be defined as follows:

Plant layout refers to the arrangement of physical facilities such as machinery,

equipment, furniture etc. with in the factory building in such a manner so as to
have quickest flow of material at the lowest cost and with the least amount of
handling in processing the product from the receipt of material to the shipment of
the finished product.

According to Riggs, “the overall objective of plant layout is to design a physical

arrangement that most economically meets the required output – quantity and
quality.”

According to J. L. Zundi, “Plant layout ideally involves allocation of space and

arrangement of equipment in such a manner that overall operating costs are
minimized.

7.3.2 IMPORTANCE
Plant layout is an important decision as it represents long-term commitment. An
ideal plant layout should provide the optimum relationship among output, floor
area and manufacturing process. It facilitates the production process, minimizes
material handling, time and cost, and allows flexibility of operations, easy
production flow, makes economic use of the building, promotes effective
utilization of manpower, and provides for employee’s convenience, safety,
comfort at work, maximum exposure to natural light and ventilation. It is also

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important because it affects the flow of material and processes, labour efficiency,
supervision and control, use of space and expansion possibilities etc.

7.3.3 ESSENTIALS
An efficient plant layout is one that can be instrumental in achieving the
following objectives:

a) Proper and efficient utilization of available floor space

b) To ensure that work proceeds from one point to another point without any
delay
c) Provide enough production capacity.
d) Reduce material handling costs
e) Reduce hazards to personnel
f) Utilise labour efficiently
g) Increase employee morale
h) Reduce accidents
i) Provide for volume and product flexibility
j) Provide ease of supervision and control
k) Provide for employee safety and health
l) Allow ease of maintenance
m) Allow high machine or equipment utilization
n) Improve productivity

7.3.4 TYPES OF LAYOUT

As discussed so far the plant layout facilitates the arrangement of machines,
equipment and other physical facilities in a planned manner within the factory
premises. An entrepreneur must possess an expertise to lay down a proper layout
for new or existing plants. It differs from plant to plant, from location to location
and from industry to industry. But the basic principles governing plant layout are
more or less same.

As far as small business is concerned, it requires a smaller area or space and can
be located in any kind of building as long as the space is available and it is
convenient. Plant layout for Small Scale business is closely linked with the
factory building and built up area.

From the point of view of plant layout, we can classify small business or unit into
three categories:

1. Manufacturing units
2. Traders
3. Service Establishments

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1. Manufacturing units

In case of manufacturing unit, plant layout may be of four types:

(a) Product or line layout

(b) Process or functional layout
(c) Fixed position or location layout
(d) Combined or group layout

(a) Product or line layout:

Under this, machines and equipments are arranged in one line depending upon the
sequence of operations required for the product. The materials move form one
workstation to another sequentially without any backtracking or deviation. Under
this, machines are grouped in one sequence. Therefore materials are fed into the
first machine and finished goods travel automatically from machine to machine,
the output of one machine becoming input of the next, e.g. in a paper mill,
bamboos are fed into the machine at one end and paper comes out at the other end.
The raw material moves very fast from one workstation to other stations with a
minimum work in progress storage and material handling.

The grouping of machines should be done keeping in mind the following general
principles.

a) All the machine tools or other items of equipments must be placed at the point
demanded by the sequence of operations
b) There should no points where one line crossed another line.
c) Materials may be fed where they are required for assembly but not necessarily
at one point.
d) All the operations including assembly, testing packing must be included in the
line

A line layout for two products is given below.

Lathe Drill Grinder Assembly Paint shop

Product A (1) (2) (3) (4) (5)

Planer Grinder Miler Lathe Welding

Product B (1) (2) (3) (4) (6)

Advantages: Product layout provides the following benefits:

a) Low cost of material handling, due to straight and short route and absence of
backtracking

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b) Smooth and uninterrupted operations
c) Continuous flow of work
d) Lesser investment in inventory and work in progress
e) Optimum use of floor space
f) Shorter processing time or quicker output
g) Less congestion of work in the process
h) Simple and effective inspection of work and simplified production control
i) Lower cost of manufacturing per unit

Disadvantages: Product layout suffers from following drawbacks:

a. High initial capital investment in special purpose machine

b. Heavy overhead charges
c. Breakdown of one machine will hamper the whole production process
d. Lesser flexibility as specially laid out for particular product.

Suitability: Product layout is useful under following conditions:

1) Mass production of standardized products

2) Simple and repetitive manufacturing process
3) Operation time for different process is more or less equal
4) Reasonably stable demand for the product
5) Continuous supply of materials

Therefore, the manufacturing units involving continuous manufacturing process,

producing few standardized products continuously on the firm’s own
specifications and in anticipation of sales would prefer product layout e.g.
chemicals, sugar, paper, rubber, refineries, cement, automobiles, food processing
and electronics etc.

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(b) Process layout:

In this type of layout machines of a similar type are arranged together at one place.
E.g. Machines performing drilling operations are arranged in the drilling
department, machines performing casting operations be grouped in the casting
department. Therefore the machines are installed in the plants, which follow the
process layout.

Hence, such layouts typically have drilling department, milling department,

welding department, heating department and painting department etc. The process
or functional layout is followed from historical period. It evolved from the
handicraft method of production. The work has to be allocated to each
department in such a way that no machines are chosen to do as many different job
as possible i.e. the emphasis is on general purpose machine.

The work, which has to be done, is allocated to the machines according to loading
schedules with the object of ensuring that each machine is fully loaded. Process
layout is shown in the following diagram.

Drilling Planning Grinding

(1) (2) (5) (5)

(2) (3)

Milling Welding Assembly

(1)

(3) (4) (4) (6) (6)

Product A:

Product B:

Process layout showing movement of two products

The grouping of machines according to the process has to be done keeping in

mind the following principles

a) The distance between departments should be as short as possible for avoiding

long distance movement of materials
b) The departments should be in sequence of operations
c) The arrangement should be convenient for inspection and supervision

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Advantages: Process layout provides the following benefits

a) Lower initial capital investment in machines and equipments. There is high

degree of machine utilization, as a machine is not blocked for a single product
b) The overhead costs are relatively low
c) Change in output design and volume can be more easily adapted to the output
of variety of products
d) Breakdown of one machine does not result in complete work stoppage
e) Supervision can be more effective and specialized
f) There is a greater flexibility of scope for expansion.

Disadvantages: Product layout suffers from following drawbacks

a. Material handling costs are high due to backtracking

b. More skilled labour is required resulting in higher cost.
c. Time gap or lag in production is higher
d. Work in progress inventory is high needing greater storage space
e. More frequent inspection is needed which results in costly supervision

Suitability: Process layout is adopted when

1. Products are not standardized

2. Quantity produced is small
3. There are frequent changes in design and style of product
4. Job shop type of work is done
5. Machines are very expensive

Thus, process layout or functional layout is suitable for job order production
involving non-repetitive processes and customer specifications and non-
standardized products, e.g. tailoring, light and heavy engineering products, made
to order furniture industries, jewelry.

(c) Fixed Position or Location Layout

In this type of layout, the major product being produced is fixed at one location.
Equipment labour and components are moved to that location. All facilities are
brought and arranged around one work center. This type of layout is not relevant
for small scale entrepreneur. The following figure shows a fixed position layout
regarding shipbuilding.

Ship building yard

Material
Labour Finished
Equipment Products (ship)

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Advantages: Fixed position layout provides the following benefits

a) It saves time and cost involved on the movement of work from one
workstation to another.
b) The layout is flexible as change in job design and operation sequence can be
easily incorporated.
c) It is more economical when several orders in different stages of progress are
being executed simultaneously.
d) Adjustments can be made to meet shortage of materials or absence of workers
by changing the sequence of operations.

Disadvantages: Fixed position layout has the following drawbacks

a. Production period being very long, capital investment is very heavy

b. Very large space is required for storage of material and equipment near the
product.
c. As several operations are often carried out simultaneously, there is possibility
of confusion and conflicts among different workgroups.

Suitability: The fixed position layout is followed in following conditions

1. Manufacture of bulky and heavy products such as locomotives, ships, boilers,

generators, wagon building, aircraft manufacturing, etc.
2. Construction of building, flyovers, dams.
3. Hospital, the medicines, doctors and nurses are taken to the patient (product).

(d) Combined layout

Certain manufacturing units may require all three processes namely intermittent
process (job shops), the continuous process (mass production shops) and the
representative process combined process [i.e. miscellaneous shops].

In most of industries, only a product layout or process layout or fixed location

layout does not exist. Thus, in manufacturing concerns where several products
are produced in repeated numbers with no likelihood of continuous production,
combined layout is followed. Generally, a combination of the product and
process layout or other combination are found, in practice, e.g. for industries
involving the fabrication of parts and assembly, fabrication tends to employ the
process layout, while the assembly areas often employ the product layout. In soap,
manufacturing plant, the machinery manufacturing soap is arranged on the
product line principle, but ancillary services such as heating, the manufacturing of
glycerin, the power house, the water treatment plant etc. are arranged on a
functional basis.

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2. Traders

When two outlets carry almost same merchandise, customers usually buy in the
one that is more appealing to them. Thus, customers are attracted and kept by
good layout i.e. good lighting, attractive colours, good ventilation, air
conditioning, modern design and arrangement and even music. All of these things
mean customer convenience, customer appeal and greater business volume.

The customer is always impressed by service, efficiency and quality. Hence, the
layout is essential for handling merchandise, which is arranged as per the space
available and the type and magnitude of goods to be sold keeping in mind the
convenience of customers.

There are three kinds of layouts in retail operations today.

1. Self service or modified self service layout

2. Full service layout
3. Special layouts

The self-service layouts, cuts down on sales clerk’s time and allow customers to
select merchandise for themselves. Customers should be led through the store in
a way that will expose them to as much display area as possible, e.g. Grocery
Stores or department stores. In those stores, necessities or convenience goods
should be placed at the rear of the store. The use of color and lighting is very
important to direct attention to interior displays and to make the most of the stores
layout.

All operations are not self-service. Certain specialty enterprises sell to fewer
numbers of customers or higher priced product, e.g. Apparel, office machines,
sporting goods, fashion items, hardware, good quality shoes, jewelry, luggage and
accessories, furniture and appliances are all examples of products that require
time and personal attention to be sold. These full service layouts provide area and
equipment necessary in such cases.

Some layouts depend strictly on the type of special store to be set up, e.g. TV
repair shop, soft ice cream store, and drive-in soft drink stores are all examples of
business requiring special design. Thus, good retail layout should be the one,
which saves rent, time and labour.

3. Services centers and establishment

Services establishments such as motels, hotels, restaurants, must give due

attention to client convenience, quality of service, efficiency in delivering services
and pleasing office ambience. In today’s environment, the clients look for ease in
approaching different departments of a service organization and hence the layout

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should be designed in a fashion, which allows clients quick and convenient access
to the facilities offered by a service establishment.

7.3.5 FACTORS INFLUENCING LAYOUT

While deciding his factory or unit or establishment or store, a small-scale
businessman should keep the following factors in mind:

a) Factory building: The nature and size of the building determines the floor
space available for layout. While designing the special requirements, e.g. air
conditioning, dust control, humidity control etc. must be kept in mind.
b) Nature of product: product layout is suitable for uniform products whereas
process layout is more appropriate for custom-made products.
c) Production process: In assembly line industries, product layout is better. In
job order or intermittent manufacturing on the other hand, process layout is
desirable.
d) Type of machinery: General purpose machines are often arranged as per
process layout while special purpose machines are arranged according to
product layout
e) Repairs and maintenance: machines should be so arranged that adequate
space is available between them for movement of equipment and people
required for repairing the machines.
f) Human needs: Adequate arrangement should be made for cloakroom,
washroom, lockers, drinking water, toilets and other employee facilities,
proper provision should be made for disposal of effluents, if any.
g) Plant environment: Heat, light, noise, ventilation and other aspects should be
duly considered, e.g. paint shops and plating section should be located in
another hall so that dangerous fumes can be removed through proper
ventilation etc. Adequate safety arrangement should also be made.

Thus, the layout should be conducive to health and safety of employees. It

should ensure free and efficient flow of men and materials. Future expansion and
diversification may also be considered while planning factory layout.

7.3.6 DYNAMICS OF PLANT LAYOUT

Plant layout is a dynamic rather than a static concept meaning thereby if once
done it is not permanent in nature rather improvement or revision in the existing
plant layout must be made by keeping a track with development of new machines
or equipment, improvements in manufacturing process, changes in materials
handling devices etc. But, any revision in layout must be made only when the
savings resulting from revision exceed the costs involved in such revision.

Revision in plant layout may become necessary on account of the following

reasons:

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a) Increase in the output of the existing product
b) Introduction of a new product and diversification
c) Technological advancements in machinery, material, processes, product
design, fuel etc.
d) Deficiencies in the layout unnoticed by the layout engineer in the beginning.

7.3.7 APPLICABILITY OF PLANT LAYOUT

Plant layout is applicable to all types of industries or plants. Certain plants
require special arrangements which, when incorporated make the layout look
distinct form the types already discussed above. Applicability of plant layout in
manufacturing and service industries is discussed below.

In case of the manufacturing of detergent powder, a multi-storey building is

specially constructed to house the boiler. Materials are stored and poured into the
boiler at different stages on different floors. Other facilities are also provided
around the boiler at different stations.

Another applicability of this layout is the manufacture of talcum powder. Here

machinery is arranged vertically i.e. from top to bottom. Thus, material is poured
into the first machine at the top and powder comes out at the bottom of the
machinery located on the ground floor.

Yet another applicability of this layout is the newspaper plant, where the time
element is of supreme importance, the accomplishment being gapped in seconds.
Here plant layout must be simple and direct so as to eliminate distance, delay and
confusion. There must be a perfect coordination of all departments and
machinery or equipments, as materials must never fail.

Plant layout is also applicable to five star hotels as well. Here lodging, bar,
restaurant, kitchen, stores, swimming pool, laundry, shaving saloons, shopping
arcades, conference hall, parking areas etc. should all find an appropriate place in
the layout. Here importance must be given to cleanliness, elegant appearance,
convenience and compact looks, which attract customers.

Similarly plant layout is applicable to a cinema hall, where emphasis is on

comfort, and convenience of the cinemagoers. The projector, screen, sound box,
fire fighting equipment, ambience etc. should be of utmost importance.

A plant layout applies besides the grouping of machinery, to an arrangement for

other facilities as well. Such facilities include receiving and dispatching points,
inspection facilities, employee facilities, storage etc.

Generally, the receiving and the dispatching departments should be at either end
of the plant. The storeroom should be located close to the production, receiving

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and dispatching centers in order to minimize handling costs. The inspection
should be right next to other dispatch department as inspections are done finally,
before dispatch.

The maintenance department consisting of lighting, safety devices, fire protection,

collection and disposal of garbage, scrap etc. should be located in a place which is
easily accessible to all the other departments in the plant. The other employee
facilities like toilet facilities, drinking water facilities, first aid room, cafeteria etc.
can be a little away from other departments but should be within easy reach of the
employees. Hence, there are the other industries or plants to which plant layout is
applicable.

CHECK YOUR PROGRESS

1. The aim of a good store layout should be

a. Customer convenience
b. Stocking as much merchandise as can be placed in the store
c. The elimination of stockroom space
d. All of the above

2. one way to increase and direct customer traffic through the store is to

a. Make merchandise difficult to reach

b. Keep goods that are in heavy demand in convenient locations
c. Place items that are used together in different parts of the store
d. Organize the store so that customers do not have a view of the entire
department

3. Which of the following stores would find the self-service type of layout most
convenient?

a. A jewelry store c. A shoe store

b. A supermarket d. A coffee shop

4. You have come across various key words in this section. Pick up the words,
which do not belong to this section.

Process layout Product mix Job shops

Production capacity Handling cost Market segment
Special layout Employee morale Demographic analysis

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