Unit 2

INDUSTRIAL ENGINEERING & MANAGEMENT1

Unit 2: PLANT LAYOUT: Factors governing plant location, types of production layout, Advantages and
disadvantages of product layout and process layout. Applications, Quantitative techniques for optimal design of
layouts, Plant maintenance, Preventive and breakdown maintenance.

Introduction
Plant location decisions deal with where the plant is to be located.
Plant layout refers to the method in which the machinery is laid out within a given plant
area.
Both these decisions are taken at the top management level as they affect the cost of
production significantly.
Factors affecting Plant Location
(1) Closeness to raw materials:
If the plant is located close to the source of raw materials, the cost of transporting
the raw material can be reduced.
The location of the plant should be such that the supply of raw material is
continuous and uninterrupted.
If the material is fragile, perishable, bulky, or heavy, it is easy to transport it if the
plant is located close to the source of raw materials.
If the raw material is imported from other countries, it is advisable to locate the
plant near the ports.
(2) Nearness to the markets:
If the plant is close to the markets, the cost of transportation of finished goods can
be minimized.
If the plant is located near to the market, there will be a better knowledge about
the customers tastes and preferences. Further, the customers profiles in terms of
age, gender, income group etc., and the type of households and the number of
households can be collected. This enables the organization to mould its sales
strategies accordingly.
(3) Availability of fuel and power:
If the factory is dependent on a particular fuel (like coal), it is preferable if the
plant is located close to the source of power.
It is better to locate the plant at a location with less frequent power breakdowns.
(4) Better access to modes of transport:
It is advantageous to locate a plant at such a place, which is well connected by
different modes of transport.
It would help in transporting products and employees well.
(5) Availability of skilled labour:
1 Prepared by Prof. T.S.Nageswara Rao, Department of Management Studies, DVR &
Dr. HS MIC College of Technology, Kanchikacherla as a class notes. Adapted from
various sources.
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Availability of skilled labour reduces the need for training to an extent, thus
reducing the cost of production.

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(6) Agglomeration economics:

If the plant is located in an industrial area, it can avail certain special benefits
such as better infra structure, transportation facilities, banking&
communication facilities.
The employees of the organization could also benefit from common facilities
such as canteen, industrial housing, community halls, schools and colleges,
hospitals etc.
(7) Climactic factors:
Some crops grow in certain climates only. If the firm is an agro-based one, it
may have to be located closer to the location where the crops grow. For
instance tea grows in Assam, Darjeeling and Ooty in India. Tea manufacturing
plants are therefore located in such areas.
(8) Government incentives:
The Government of India and some state governments offer incentives to
organizations setting up factories in certain backward areas. These incentives
include free power, free water, sales tax exemption for a period of 15 years
etc.
These incentives may motivate organizations to set up factories in these areas.
(9) Political Pressures:
Many a time, politicians apply pressure on organizations, especially those in
the public sector, to set up plants in their constituencies so that the
employment potential can be improved.
In such situations, political considerations over ride economic rationale in
assigning an industry to a particular location.
(10) Other considerations:
(i)
Pollution levels
(ii)
Safety factors.

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PLANT LOCATION- ANALYTICAL TECHNIQUES

There are many analytical techniques that can be used in facility location decision. Some of these
are:
(1) Factor Rating, (2) Cost-Profit-Volume analysis, (3) Center of Gravity Method, and
(4) Transportation Models.
(1) FACTOR RATING METHOD
(i) In factor rating method, first we must identify the most important factors in evaluating
alternative sites for the new facility.
(ii) Then we should assign a weight between 0% and 100% to each of these factors.
(iii) Each alternative location will then be rated based on these factor weights.
(iv) The most weighted alternative is selected as the best alternative.
Example
M/s Samson Ltd. is considering three alternative sites for its new facility. After evaluating the
firms needs, the Managers have narrowed down the list of important selection criteria to three
major factors:
(i) Availability of skilled labor
(ii) Availability of Raw materials, and
(iii) Proximity to the firms markets.
Weights reflecting the relative importance of each factor have been assigned as follows:

Based on these criteria, the three alternative sites were scored between 0 and 100 points:

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Now we will multiply each score by its corresponding factor weight:

Weighted scores are calculated as: (Site Score) X (Factor Weight).
Factor
Skilled Labour
Raw Materials
Proximity to
markets

Site A
Score
Weighted
70
35
60
18
70
14
Total
weighted
score

67

Site B
Score
Weighted
70
35
40
12
95
19
Total
weighted
score

66

Site C
Score
Weighted
50
25
90
27
60
12
Total
weighted
score

64

From these results, the largest total weight is for Site A. It appears to be the best location.
What happens if we change the factor weights? Lets use the following factor weights:
Skilled labor: 0.45; Raw Materials: 0.40; and Market: 0.15.
Then the following results are obtained:
Factor
Skilled Labour
Raw Materials
Proximity to
markets

Site A
Score
Weighted
70
31.5
60
24
70
31.5
Total
weighted
score

66

Site B
Score
Weighted
70
31.5
40
16
95
14.25
Total
weighted
score

61.75

Site C
Score
Weighted
50
22.5
90
36
60
9
Total
weighted
score

67.5

In this case, Site C appears to be the best choice with largest weight score. Therefore, factor
rating method is very sensitive to the weights assigned to each factor. Since factor weights,
selected factors, and assigned scores are all determined subjectively, the managers should be
very careful in selecting these items and numbers.

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(2) COST-PROFIT-VOLUME ANALYSIS

When the fixed and variable costs for each site differ, Cost-profit-volume analysis can be used
to identify the location with the lowest cost.
M/s Foster Paper Ltd. is considering three alternative sites for its new production facility. The
Annual Production Cost associated with each alternative is a linear function of the production
volume.
Total Production Cost = (Fixed Cost) + (Variable unit cost) x (Annual production volume)
Assume that the expected annual production volume is 2,50,000 units.
Fixed Costs per annum are:
For Site A : Rs 1,00,00,000

(= Rs 1 crore)

For Site B : Rs 25,00,000

(= Rs 25 lakhs)

For Site C : Rs 60,00,000

(= Rs 60 lakhs)

Variable Costs (per Unit) are:

For Site A: Rs 250
For Site B: Rs 150
For Site C: Rs 50.
For Site A: Production. Cost = 1,00,00,000 + 250 x
For Site B: Production. Cost = 25,00,000 + 150 x
For Site C: Production. Cost = 60,00,000 + 50 x
Where x = Number of units produced per year. Based on these information, which site has the
lowest cost?
At a production volume of 2,50,000 units, site B has the lowest cost, because
For Site A: Prod. Cost = 1,00,00,000 + 250 (2,50,000) = Rs 7,25,00,000
For Site B: Prod. Cost = 25,00,000 + 150 (2,50,000) = Rs 6,25,00,000
For Site C: Prod. Cost = 60,00,000 + 50 (2,50,000) = Rs 7,25,00,000

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The graph shows that annual production cost changes with different production volumes.
If the expected annual production volume is below 1,50,000 units, then choose site A.
If the expected annual production volume is between 1,50,000 and 3,50,000 units, then choose
site B.
If the expected annual production volume is over 3,50,000 units, then choose site C.
(3) CENTER OF GRAVITY METHOD
The center of gravity method is used to find a location that minimizes the Sum of Transportation
Cost in between new facility and old facilities.
Transportation cost is assumed to be a linear function of the Number of Units Shipped and the
Traveling Distance.
The locations of the firms existing facilities are converted into x and y coordinates.
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The following center of gravity equations are then used for calculating the x and y coordinates
for the new facility:

Here,
Cx : x coordinate for new location; Cy : y coordinate for new location
i: index for existing locations; n: total number of existing locations
xi: x coordinate of existing ith location , and yi: y coordinate of existing ith location.
Example 2
Aldrich Manufacturing Company plans to build a Warehouse to serve its Distribution Centers in
Columbus (Ohio), Frankfort (Kentucky), Nashville (Tennessee), and Richmond (Virginia).
The number of units to be shipped monthly from Harrisburg to the Distribution Centers is shown
in the following table:
Location

Annual Shipping
Volume

Coordinates

Coordinates

Harrisburg

5000

270

160

Columbus

750

170

130

Frankfort

1250

120

90

Nashville

2500

110

50

Richmond

500

275

100

Weighted Coordinates are calculated as: (Annual Shipping Volume) X (x or y coordinate)

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Using the equations of center of gravity, :

Cx = 2,040,000 / 10,000 = 204 (x coordinate for new facility)
Cy = 1,185,000 / 10,000 = 118.5 (y coordinate for new facility)
The new facility should be therefore located at (204, 118.5).
This method only considers the distances traveled. It does not consider the other factors such as
the availability of roads on the selected location. Therefore, applying solely this method may not
be applicable in every case
(4) TRANSPORTATION MODEL
A special form of linear programming, the transportation model technique can be used to
determine how many units should be shipped from each plant to each warehouse to minimize
total transportation cost.
Example:
Straub plans to build a new plant. It has narrowed down the choice of sites to two possibilities:
Kalamazoo and Duluth.
We will now determine which site results in the lowest transportation cost by using the unit
transportation costs, warehouse demands, and plant capacities.

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PLANT LAYOUT
Definition:
A plant layout refers to the arrangement of physical facilities such as machinery, equipment,
furniture etc. within the factory building in such a manner so as to have the 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.
Importance of plant layout
A plant layout is an important decision as it represents a 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 employees
convenience, safety, comfort at work, maximum exposure to natural light and ventilation.
Plant layout is also important because it affects the flow of material and
processes, labour efficiency, supervision and control, use of space and expansion
possibilities etc.
Objectives of a plant layout
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) Utilize 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.

TYPES OF PLANT LAYOUT

Plant layouts are of four types
(a) Product or line layout
(b) Process or functional layout
(c) Fixed position or location layout
(d) Combined or group layout.
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PRODUCT (OR) LINE LAYOUT

Under this type of layout, machines and equipments are arranged in one line depending
upon the sequence of operations required for the product.
The materials move from 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 be 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 and packing must be included in the
line.

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Advantages of Product layout:

(a) Low cost of material handling, due to straight and short route and absence of
backtracking
(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 of Product layout
(a) High initial capital investment in Special Purpose Machines
(b) Heavy overhead charges
(c) Breakdown of one machine will hamper the whole production process
(d). Lesser flexibility as it is specially laid out for a particular product.
Suitability of a Product layout
A 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 a few standardized products continuously on the firms own specifications and
in anticipation of sales would prefer product layout.
Examples: Chemicals, sugar, paper, rubber, refineries, cement, automobiles, food
processing and electronics etc.

PROCESS (OR) FUNCTIONAL LAYOUT

:
In this type of layout, machines of a similar type are arranged together at one place
.Example: Machines performing drilling operations are arranged in the drilling
department, machines performing casting operations be grouped in the casting
department.
Hence, such layouts typically have drilling department, milling department, welding
department, heating department, 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 jobs as possible i.e. the
emphasis is on general purpose machine.
Hence, such layouts typically have drilling department, milling department, welding
department, heating department and painting department etc.
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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 machines are chosen to do as many different jobs 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.
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

Advantages of Process layout

(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 of Process layout
(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 (WIP) inventory is high needing greater storage space
(e) More frequent inspection is needed which results in costly supervision
Suitability of Process layout
(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 nonrepetitive processes and customer specifications and non-standardized products, e.g. tailoring,
light and heavy engineering products, made to order furniture industries, jewelry.

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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 a small scale entrepreneur.

Advantages of a Fixed position layout

(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 of a Fixed position layout
(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 of the fixed position layout
(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).
COMBINED LAYOUT
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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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MAINTENANCE
The activity carried out to prevent the occurrence of failure and the activity carried out after
failure to rectify the defect are called the maintenance activities.
Need for Maintenance
Need for maintenance arises for two reasons:
(i) To prevent the occurrence of any possible failures.
(ii) To correct a failure in the shortest possible time.
Objective of Maintenance

The primary objective of maintenance is to increase the operational reliability and safety
of personnel at minimum cost.
Plant and machines in any organisation are expected to run continuously without any
interruption during the production period.
The total production that can be obtained from a plant depends upon its capacity and the
number of working hours.
Therefore
Production = Capacity x Availability.
Interruptions on account of breakdown reduce the total time available for production.
Interruptions are frequently felt on account of machine break downs due to failures of
machine parts / components. There is always some loss of production on account of
machine failure.
The frequent failures cause frequent interruption in the production and the plant and
machines become unreliable.
This degree of uncertainty in production due to machines failures is termed as reliability.
Higher the reliability in operation, lesser will be the failure or vice versa.
If the breakdowns are less, the availability of machinery would increase thus increasing
the production.
Thus maintenance of the machinery, which reduces the breakdowns, is of prime
importance.

Down time = Repair time + Waiting Time

The duration by which any machine goes out of production due to break down is called
down time.

The down time is the total time taken on account of maintenance to rectify the fault.
The total time taken on account of maintenance involves the time actually spent by the
respective maintenance team to correct the fault and waiting time for want of spares
required for rectify the defect.

Waiting time
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The waiting time is the most unproductive element of total down time.
The reason for waiting time could be :(i) Want of spares
(ii) Want of crew members
(iii) Lack of communication.
(iv) Lack of proper supervision.

Mean time between failures (MTBF)

This is the average time a machine can operate without the occurrence of any failure.
MTBF indicates the operational reliability of the machine.

Higher the value of MTBF, higher will be the operational reliability of the machine
because of lesser number of failures.

To improve the operational reliability, the number of failures should be reduced. Failures
can be reduced if the machines are maintained properly with adequate care and attention.

TYPES OF MAINTENANCE

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There are two types of maintenance.

(1) Preventive maintenance.
(2) Break down / corrective maintenance.
PREVENTIVE MAINTENANCE
The activities which are carried out to prevent the occurrence of failures are known as preventive
maintenance.
Preventive maintenance is further divided into two parts.
(1) Direct preventive maintenance.
(2) Indirect preventive maintenance.
Direct Preventive Maintenance

Direct preventive maintenance activities are such as cleaning, lubricating , replacement of

wear/ tear parts and overhauling of machines.

Most of the common failures which are likely to occur during running of machinery can
be arrested. However, this cannot give 100% operational reliability because there are
always chances of unexpected failures to occur.

Indirect Preventive Maintenance / Condition Monitoring

By constantly monitoring the observable characteristics, any major faults / failures that
are gradually developing can be detected beforehand.

This constant monitoring of observable characteristics and measurable parameters in any

plant and machinery is called Condition Monitoring.

Indirect preventive maintenance helps to take corrective action in planned manner by

giving the reports as and when parameters change sharply.

BREAK DOWN / CORRECTIVE MAINTENANCE

The activities which are carried out after the occurrence of failures to correct the failures
are known as corrective maintenance.

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