Facility location production and operation managemtn

Production and operation Management
UNIT - 3
1
4/28/2017Prepared by: DIVYA PAULOSE

Facility location is the right location for the
manufacturing facility, it will have sufficient access to
the customers, workers, transportation, etc. For
commercial success, and competitive advantage
following are the critical factors

 Plant location may be understood as the
function of determining where the plant should
be located for maximum operating economy and
effectiveness.
 An ideal location may not, by itself,
guarantee success but it certainly contributes to
the smooth and efficient working of the
organization. 34/28/2017Prepared by: DIVYA PAULOSE

Need of selection of the location:
 When the business is newly started.
 Existing business has outgrown its original
facilities.
 When a company thinks that there is a
possibility of reducing manufacturing cost.
 A lease expires.
 Other social economic reasons

❖ An entrepreneur seeking location for his enterprise
has greater freedom than in the past .
Tata Iron & Steel company (TISCO):
❖ The site ( present Jamshedpur) was selected after
extensive geological survey which established the
existence of coal, iron, ore and other minerals.
❖ The site selected was at the confluence of small
rivers amidst thick jungle. Between the two rivers, a
city had to be planned as the jungles were cleared , in
place of towering trees ,steel chimneys arose.

Though the maharaja of Mayurbhanj had given highly favorable
terms to Tata’s , the local kings of the jungle were less hospitable
.
Tigers killed two tribal laborers.
An elephant driven frantic by the din of dam construction
stampeded over a number of Huts and flattened them.( One night
a she-bear crawled into the hut of the railways superintendent
and delivered a cub under his table)
Erecting a plant of this nature in the wilderness was called by
contemporaries a titanic enterprise. Communication were slow ,
machinery was hauled over vast distances from homes or abroad ;
labor had to be trained 64/28/2017Prepared by: DIVYA PAULOSE

The passage of time has made site selection easier for
contemporary businessmen , thanks to certain specific
developments that have taken place over a period of nine
decades.
Following are the developments
 Improvements in transportation and communication
facilities and speed of services.
 Reduction of wages differentials between regions.
 Mobility of workers and management.
 Improvements in construction methods and designs
for plant buildings which make less expensive to build. 74/28/2017Prepared by: DIVYA PAULOSE

Vigorous policy pursued by the government to remove
regional imbalances in industrial development, thus
making all regions almost equal in attraction.
Improvements in processing and machine designs that
reduce the relative number of employees required for a
given Output.
Availability of air-conditioning equipment to counteract
adverse climatic conditions for employees and processes.
Expansion of markets for almost all goods and services so
that more enterprises are needed to meet the demands. 84/28/2017Prepared by: DIVYA PAULOSE

ERRORS IN SELECTION
Though location selection is relatively easy, businessmen
commit errors and wrong locations are selected.
Errors in site selection seem to fall into a pattern. Some of the
most common errors are:
Lack of thorough investigation and consideration of factors
involved.
Personal likes and prejudices of key executives or owners
overriding impartially established facts.
Reluctance of key executives to move from traditional
established home ground to new and better locations.

• Moving to congested areas already or about to be
over industrialized.
• Preference for acquiring an existing structure
(usually at an imagined bargain)that is
improperly located or not designed for the most
efficient production.
• Choice of community with low cultural and
educational standards.

1. Within the country or outside
2. Selection of the region
3. Selection of the locality or community
4. Selection of the exact site

16
Political Stability
Export Import quotas
Natural and physical conditions
Economic peculiarities
Exchange rate 4/28/2017Prepared by: DIVYA PAULOSE

 Availability of Raw material.
A firm which depends heavy on raw materials locate
near to availability of raw materials
Example: sugar industry concentration in BIHAR and
UP (Leading producer of Sugarcane )
Sandwood oil factory at Shimoga in Karnataka.
17
Raw
Material
Weight-losing/ gross
materials
Non – weight losing/
pure materials4/28/2017Prepared by: DIVYA PAULOSE

 The weight of the final product is less than the weight of the
raw material going into making the product—the weight
losing industry.
Ex, in the copper industry, it would be very expensive to haul
raw materials to the market for processing, so manufacturing
occurs near the raw materials.
 Material oriented: timber mills, furniture manufacture, most
agricultural activities, Steel Industry etc..
In the other, the final product is equally as heavy as the raw
materials that require transport. i.e. they don’t lose their weight
in the process of manufacturing.
Cotton industry is a prominent example of weight-gaining raw
material. 184/28/2017Prepared by: DIVYA PAULOSE

19
Reduced cost of transportation
Regular and uninterrupted supply
Saving in the cost of storage of materials

 Nearness to market :
A company wants to reduce its transportation
cost therefore locates its self near market.
Advantages:
20
Ability to render prompt service.
Provide after sales service.
Execute replacement orders without any
delay

 Availability of Power
Electricity as a source of power is most
significant for modern industries.
They have to locate a place where electric
power is available regularly and at cheaper
price
Steel industries are located near to power
industries

Transportation Facilities:
Plant Location should be well connected to
rail road and water transport
Suitability of Climate
Ex: cotton textiles and jute require humid
climate- Mumbai, Kolkata.
Government Policy
Any firm that is looking for subsidy or
incentives has to locate factory in the states
which provide the.
Tyre & tube- Kerala, textile units- Rajasthan,
Punjab, Orissa

 Availability of Labor
Labour is an important factor in production.
Adequacy of labor supply @ reasonable rate is an
important factor.
Example: glass industry in Firozabad, woolen carpet
in Mirzapur,

Civic amenities of worker
Besides good working conditions inside factory
employees require certain facilities outside it.
Example: Modern township Rourkela, Durgapur,
Chhota Nagpur

 Existence of complementary and competing
Industries:
It may appear disadvantageous but on the contrary
can be benefited if competition is taken healthy.
Reputation build existing units can be taken by new
units.
Tie ups with other firms for raw materials from
supplier can get much better.
 Finance and research facilities :
Adequate capital requirements should be meet.

 Local taxes and restrictions:
Collection of charges for supplying water, electricity
and other facilities etc..
 Availability of water and fire fighting facilities:
Examples: fertilizer industries, cotton
Manufacturing units, Leather tanneries, Bleaching,
dyeing etc…

Soil, size and topography:
 Disposal of waste

Facility location production and operation managemtn

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