Unit 4. 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.

Unit 4

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.

LOCATIONAL ANALYSIS• (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.

Selection criteria• 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 influences 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

RAW MATERIALS AVAILABILITY

• The source of raw materials is one of the most important factors influencing the selection of a plant site.

• This is particularly true for the sulfuric acid plant because large volumes of sulfur is consumed in the process which will result in the reduction of the transportation and storage charges.

• Attention should be given to the purchased price of the raw materials, distance from the source of supply, freight and transportation expenses, availability and reliability of supply, purity of raw materials and storage requirements.

LOCATION

• The location of markets or intermediate distribution centers affects the cost of product distribution and time required for shipping.

• Proximity to the major markets is an important consideration in the selection of the plant site, because the buyer usually finds advantageous to purchase from near-by sources.

• In case of sulfuric acid plant, the major consumers are fertilizer industries and hence the plant should be erected in close proximity to those units.

AVAILABILITY OF SUITABLE LAND• The characteristics of the land at the proposed plant site should be

examined carefully.• The topography of the tract of land structure must be considered,

since either or both may have a pronounced effect on the construction costs.

• The cost of the land is important, as well as local building costs and living conditions.

• Future changes may make it desirable or necessary to expand the plant facilities.

• The land should be ideally flat, well drained and have load-bearing characteristics.

• A full site evaluation should be made to determine the need for piling or other special foundations

TRANSPORT

• The transport of materials and products to and from plant will be an overriding consideration in site selection.

• If practicable, a site should be selected so that it is close to at least two major forms of transport: road, rail, waterway or a seaport.

• Road transport is being increasingly used, and is suitable for local distribution from a central warehouse.

• Rail transport will be cheaper for the long-distance transport. If possible the plant site should have access to all three types of transportation.

• There is usually need for convenient rail and air transportation facilities between the plant and the main company head quarters, and the effective transportation facilities for the plant personnel are necessary.

AVAILABILITY OF LABORS

• Labors will be needed for construction of the plant and its operation.

• Skilled construction workers will usually be brought in from outside the site, but there should be an adequate pool of unskilled labors available locally; and labors suitable for training to operate the plant.

• Skilled tradesmen will be needed for plant maintenance.• Local trade union customs and restrictive practices will

have to be considered when assessing the availability and suitability of the labors for recruitment and training.

AVAILABILITY OF UTILITIES

• The word “utilities” is generally used for the ancillary services needed in the operation of any production process.

• These services will normally be supplied from a central facility and includes Water, Fuel and Electricity which are briefly described as follows:

Water

• The water is required for large industrial as well as general purposes, starting with water for cooling, washing, steam generation and as a raw material in the production of sulfuric acid.

• The plant therefore must be located where a dependable water supply is available namely lakes, rivers, wells, seas.

• If the water supply shows seasonal fluctuations, it’s desirable to construct a reservoir or to drill several standby wells.

• The temperature, mineral content, slit and sand content, bacteriological content, and cost for supply and purification treatment must also be considered when choosing a water supply.

• Demineralized water, from which all the minerals have been removed is used where pure water is needed for the process use, in boiler feed. Natural and forced draft cooling towers are generally used to provide the cooling water required on site.

Electricity

• Power and steam requirements are high in most industrial plants and fuel is ordinarily required to supply these utilities.

• Power, fuel and steam are required for running the various equipments like generators, motors, turbines, plant lightings and general use and thus be considered as one major factor is choice of plant site.

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

Essentials• 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

Types of units

• 1. Manufacturing units• 2. Traders• 3. Service Establishments

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

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.

FACTORS INFLUENCING LAYOUT• 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. 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.

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

• 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.

ENVIRONMENTAL IMPACT AND EFFLUENT DISPOSAL:

• Facilities must be provided for the effective disposal of the effluent without any public nuisance.

• In choosing a plant site, the permissible tolerance levels for various effluents should be considered and attention should be given to potential requirements for additional waste treatment facilities.

• As all industrial processes produce waste products,full consideration must be given to the difficulties and coat of their disposal.

• The disposal of toxic and harmful effluents will be covered by local regulations, and the appropriate authorities must be consulted during the initial site survey to determine the standards that must be met.

LOCAL COMMUNITY CONSIDERATIONS

• 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.

• CLIMATE• 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.

• POLITICAL AND STRATEGIC CONSIDERATIONS• 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.

• TAXATION AND LEGAL RESTRICTIONS:• 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.

PLANT LAY OUT

• After the flow process diagrams are completed and before detailed piping, structural and electrical design can begin, the layout of process units in a plant and the equipment within these process unit must be planned. This layout can play an important part in determining construction and manufacturing costs, and thus must be planned carefully with attention being given to future problems that may arise.

• Thus the economic construction and efficient operation of a process unit will depend on how well the plant and equipment specified on the process flow sheet is laid out.

principal factors

• 1. Economic considerations: construction and operating costs.

• 2. Process requirements.• 3. Convenience of operation.• 4. Convenience of maintenance.• 5. Health and Safety considerations.• 6. Future plant expansion.• 7. Modular construction.• 8. Waste disposal requirements

• COSTS:• The coat of construction can be minimized by adopting a

layout that gives the shortest run of connecting pipe between equipment, and least amount of structural steel work.

• However, this will not necessarily be the best arrangement for operation and maintenance.

• PROCESS REQUIREMENTS:• An example of the need to take into account process

consideration is the need to elevate the base of columns to provide the necessary net positive suction head to a pump.

• CONVENIENCE OF OPERATION:• Equipment that needs to have frequent attention should be located

convenient to the control room. • Valves, sample points, and instruments should be located at convenient

positions and heights. • Sufficient working space and headroom must be provided to allow easy

access to equipment.• CONVENIENCE OF MAINTENANCE:• Heat exchangers need to be sited so that the tube bundles can be easily

withdrawn for cleaning and tube replacement. • Vessels that require frequent replacement of catalyst or packing should be

located on the out side of buildings. • Equipment that requires dismantling for maintenance, such as compressors

and large pumps, should be places under cover.

• HEALTH AND SAFETY CONSIDERATIONS:• Blast walls may be needed to isolate potentially hazardous equipment,

and confine the effects of an explosion. At least two escape routes for operators must be provided from each level in process buildings.

• FUTURE PLANT EXPANSION:• Equipment should be located so that it can be conveniently tied in with

any future expansion of the process. Space should be left on pipe alleys for future needs, and service pipes over-sized to allow for future requirements.

• MODULAR CONSTRUCTION:• In recent years there has been a move to assemble sections of plant at

the plant manufacturer’s site. These modules will include the equipment, structural steel, piping and instrumentation. The modules are then transported to the plant site, by road or sea.

• The advantages of modular construction are:• 1. Improved quality control.• 2. Reduced construction cost.• 3. Less need for skilled labors on site.• The disadvantages of modular construction are:• 1. Higher design costs & more structural steel

work.• 2. More flanged constructions & possible problems

with assembly, on site.

Plant location• Plant location decisions need detailed analysis because:

1. Wrong plant location generally affects cost parameters i.e. poor location can act as a continuous stimulus of higher cost. Marketing, transportation, quality, customer satisfaction are some of the other factors which are greatly influenced by the plant location decisions – hence these decisions require in-depth analysis.

• 2. Once a plant is set up at a location which is not much suitable, it is a very disturbing as well as very expensive process to shift works of a company to some other place, as it would largely affect the cycle of production.

3. The investments involved in the in setting up of the plant premises .buying of the land etc are very large and especially in the case of big multinational companies, the investments can go into millions of rupees, so economic factors of the location should be very minutely and carefully checked and discussed in order to achieve good returns on the money which has been invested.

The Need for location decisions

• These decisions are needed when a new plant is to be set up or when the operations involved in the company at the present location need to be expanded but expansion becomes difficult because of the poor selection of the site for such operations.

• These decisions are sometimes taken because of the social or the political conditions engulfing the working of a company.

• The way the works of a company have to be performed, largely depends upon the industrial policies issued by the government.

• Any change that creeps in the industrial policy of the government which favors decentralization and hence does not permit any change or any expansion of the existing plant – requires strictly evaluated location decisions.

Factors governing plant location

1. Regional factors: These factors include proximity of the plant to the market and also to the sources of the raw materials. They also include infrastructural facilities, transportation facilities, and availability of skilled workers, legislation, the taxation and also the work attitude of the workers.2. Community factors: These involve accommodation, education, entertainment and transport facilities. It also includes attitude of the community, supporting industries and services, suitability of the land etc.

• Examples of plant location ( India) • Most of the textile mills are found in or near Mumbai and Ahmedabad because of the humidity conditions that prevail there.

• • Sites for nuclear power plants to be located in different parts of the country largely depend upon environmental, safety, socio-economic and also the engineering factors affecting the construction and operation of such plants.

• • Steel plants are generally located near the Jharkhand, Bengal, Chhattisgarh and Orissa regions. This choice of site is mainly because of more economical transport of the finished goods as compared to basic raw materials.

• • Similar case is observed in the plants which manufacture cement; such plants are located near the lime and the coal deposits.

• • Namroop and Thal Vaishet, both act as very important sites for the gas-based fertilizer plants. Coal based fertilizer plants at Ramagundum are located near the source of raw materials (coal).

• • Naptha / oil based fertilizer plants at Mangalore, Madras, Cochin have been located near ports, which act as a great source for the import of the raw materials.

• • ‘Proximity to market’ forms a major factor which affects plant location decisions in case of machine tool industries. In case of such industries, sites are scattered over different parts of the country such as Ludhiana, Pune, Bangalore, Calcutta, Mumbai etc.

• • Information Technology/BPO/Software Industries depend largely on availability of skilled personnel, infrastructure etc… Because of these reasons most of such organizations operate in urban areas such as Delhi, Chennai, Hyderabad, Bangalore, Pune etc.