Plant location : Plant location Meaning-the establishment of an industry at a particular place.
It is of 2 types-
Localization /centralization-means concentration of similar type of industries at some particular place. E.g. textile in Mumbai.
Delocalization /Decentralization-means spreading of similar type of industries at different places. E.g. banking industries. Factors affecting location & site decisions : Factors affecting location & site decisions Availability of raw material
Nearness to the potential market
Near to the source of operating requirements like electricity, disposal of waste, drainage facilities.
Supply of labor
Transport & communication facilities
Integration with other group of companies
Suitability of land & climate
Availability of housing, other amenities & services
Local building & planning regulations
Others like low interest on loans, special grants, living standards selection of the site for the factory : selection of the site for the factory Known as location analysis where firstly some geographical area is selected & from that area a particular site is selected for the establishment of the plant.
Methods for the evaluation of plant location-
Involving quantitative factors-
Comparative cost chart, b. dimensional analysis.
2. Comparison of qualitative factors. Comparative cost chart : Comparative cost chart Is appropriate where the location problem concerns the placement of a single plant. This is based on location cost summary chart. A comparative chart of total costs involved in setting up a plant of desired size is prepared. Slide 5: The total cost is represented by the height of column for each location. we select a location for which total cost is minimum.
The cost summary chart has advantage of clarity in presentation. but analysis is restricted to certain specified factors only.
Least cost centre analysis-
Here transportation cost associated with various location alternatives is considered.
Limitation of these techniques-
1.Choice of plant location assumed to be entirely dependent upon minimization of operational costs.
2.Operational costs are assumed to be linearly related to distance involved. Dimensional analysis : Dimensional analysis It involves
calculation of the relative merits or cost ratios for each of the factors,
giving each of the cost factor an appropriate weightage by means of an index to which the cost ratio is raised
& multiplying these weighted ratios in order to arrive at a figure on the relative merits of alternative sites. Slide 7: Let Cm1,Cm2,Cm3,…..Cmz are the costs associated with site M for various cost factors. Cn1,Cn2,Cn3,…….Cnz are of site N.W1,W2,W3,…….Wz are weightage for various factors.
Merit of location M=(Cm1)W1*(Cm2)W2*…(Cmz)Wz
Merit of location N=(Cn1)W1*(Cn2)W2*…(Cnz)Wz
Relative merits of sites M & N are-
merit of M
merit of N
If this value is > 1, then select site M & vice-versa.
Advantages- it compares both subjective & objective factors & gives a quantitative figure. Comparison of qualitative factors. : Comparison of qualitative factors. These are the factors to which cost values can’t be assigned. Like lack of good schools, community attitude. These can be termed as good or excellent.
Clearly location B appears to be better one. Ranking & weight method : Ranking & weight method Various locations are ranked acc. To their contribution
Various factors are assigned weights acc. To their importance
Weights are then multiplied with rank assigned
Total of these products for each location is calculated
Location having max. total is then selected. Slide 10: Advantages &disadvantages of urban, rural & sub-urban sites for a plant- Backward area & industrial policy : Backward area & industrial policy In the facilities location problems, the industrial policies of the governments are very important inputs in the overall consideration. In India, the industrial development of backward areas for balanced regional development of the country has always been emphasized. This has been attempted mainly through:
1. Licensing policy (practice of leasing a legally protected property to another party )
2. Location of public sector projects
3. Investment subsidy (money granted by the State to keep down the price of commodities)
4. Concessional finance (by IDBI, IFCI , ICICI)
5. Concession on income tax import duty etc and
6. Setting up of industrial estates (property consisting of much land ) Backward area & industrial policy contd. : Backward area & industrial policy contd. All the districts in the country have been classified into four categories:
A. No industry districts,B. Moderately backward districtsC. Least backward districts, andD. Non-backward districts
The A, B, and C categories are eligible for subsidy on investment in fixed assets in an industrial unit, as given below:
Category Percent Subsidy Maximum Limit Per unit
A 25 Rs 25 lakhB 15 Rs15 lakhC 10 Rs 10 lakhD not eligible for subsidy Global locations : Global locations World-wide locations are called global locations.
E.g. MNC’s are setting up their branches in India & Indian companies are extending their operations in other countries like -
USA, EUROPE , CHINA.
virtual proximity – Social networking at a distance .with the advances in telecommunications technology , a firm can be in virtual proximity to its customers. Virtual Factory : Virtual Factory Many firms based in USA and UK—in the service sector and in the manufacturing sector—often outsource part of their business processes to foreign locations such as India. Thus, instead of one's own operations, a firm could use its business associates' operations facilities. In a way, the Indian BPO firm is that foreign-based company's 'virtual service factory'. So, one's business associate's operations facilities is called virtual factory. REASONS FOR A FOREIGN LOCATION : REASONS FOR A FOREIGN LOCATION Reaching the Customer -One obvious reason for locating a facility abroad is that of capturing a share of the market expanding worldwide.
Other Tangible Reasons-
The host country may have/offer substantial tax advantages compared to the home country.
The costs of manufacturing and/or running operations may be substantially less in that foreign country. This may be due to
Low labor cost
Low raw material cost
Better availability of inputs
The co. may overcome the tariff (table of fixed charges) barriers by setting up a manufacturing plant in foreign country rather than exporting the items to that country.
3. Intangible reasons- Slide 16: Customer-related reasons-
firm’s customer may feel secure that firm is more accessible.
Firm may be able to give a personal touch.
Firm may understand customer’s requirements better.
It may discover other potential customers in abroad.
Organizational learning related reasons
Firm can learn advanced technology
Firm can learn from its customers abroad
It can also learn from its competitors operating in abroad.
It may also learn from its suppliers abroad. Plant layout : Plant layout Meaning-
Plant layout is the physical arrangement of industrial facilities. It involves the allocation of space & the arrangement of equipment in such a manner that overall operating costs are minimized. Objectives of plant layout : Objectives of plant layout An efficient layout can be instrumental in the accomplishment of the following objectives-
Economies in materials, facilitate manufacturing process & handling of semi-finished & finished goods.
Proper & efficient utilization of available floor space.
To avoid congestion & bottlenecks.
Provision of better supervision & control of operations. Objectives of plant layout cont. : Objectives of plant layout cont. 5. Careful planning to avoid frequent changes in layout which may result in undue increase in cost of production.
6. To provide adequate safety to the workers from accidents.
7. To meet the quality & capacity requirements in the most economical manner.
8. Provision of medical facilities & cafeteria at suitable & convenient places.
9. To provide efficient material handling system.
10. To suggest the improvements in production process & work methods. Principles of plant layout : Principles of plant layout Principle of integration (of 5M’s)
Principle of minimum distance
Principle of cubic space utilization( both horizontal & vertical space).
Principle of flow( must be forward no backtracking)
Principle of maximum flexibility
Principle of safety, security & satisfaction
Principle of minimum handling. Types of plant layout : Types of plant layout Product layout
Fixed Position/ Stationary layout
Layout that uses standardized processing operations to achieve smooth, rapid, high-volume flow
Here machines are arranged acc. To the needs of product & in the same sequence as the operations are necessary for manufacture. E.g. ‘back office’ of services such as banks and insurance companies. Product Layout : Raw materials
or customer Finished item Station
and/or labor Station
and/or labor Material
and/or labor Material
and/or labor Used for Repetitive or Continuous Processing Product Layout Advantages of Product Layout : High rate of output
Low unit cost
Low material handling cost
High utilization of labor and equipment
Established routing and scheduling
Short processing time Advantages of Product Layout Disadvantages of Product Layout : Creates dull, repetitive jobs
Poorly skilled workers may not maintain equipment or quality of output
Fairly inflexible to changes in volume
Highly susceptible to shutdowns
Needs preventive maintenance
Require large capital investment Disadvantages of Product Layout A U-Shaped Production Line : A U-Shaped Production Line Slide 26: Process layout-
Layout that can handle varied processing requirements
Here all machines performing similar type of operations are grouped together at one location in the process layout. Thus here facilities are grouped together acc. To their functions. E.g. all drilling machines are located at one place known as drilling section. Process Layout : Used for Intermittent processing
Job Shop or Batch Process Layout
(functional) Process Layout Product Layout : Product Layout
(sequential) Used for Repetitive Processing
Repetitive or Continuous Product Layout Advantages of Process Layouts : Can handle a variety of processing requirements
Machines breakdown doesn’t result in shutdown.
Equipment used is less costly
Wide flexibility in production facilities.
Each production unit of system works independently.
High utilization of facilities
Variety makes the job interesting. Advantages of Process Layouts Disadvantages of Process Layouts : In-process inventory costs can be high
Challenging routing and scheduling
Equipment utilization rates are low
Material handling is slow and inefficient & is more.
More space is required
Longer processing time
Back tracking may occur. Disadvantages of Process Layouts Comparison of product & process layout : Comparison of product & process layout Slide 32: Stationary layout- Layout in which the product or project remains stationary, and workers, materials, and equipment are moved as needed. E.g. construction of DAMS.
The product, because of its size and/or weight, remains in one location and processes are brought to it. Factors affecting plant layout : Factors affecting plant layout Nature of product- e.g. some products need air-conditioned plants.
Size of output-
For bulk-product/line layout
For small-functional layout
Nature of manufacturing system-
For intermittent-functional layout
For continuous-product/line layout
Localization of plant- e.g. there will be different transportation arrangement if site is located near railway line.
Machines or equipment- e.g. heavy machines need stationary layout
Climatic conditions, need of light, temperature also affect design of layout. CRAFT: COMPUTER PROGRAM TO SOLVE PROCESS LAYOUT PROBLEMS : CRAFT: COMPUTER PROGRAM TO SOLVE PROCESS LAYOUT PROBLEMS CRAFT- Computerized Relative Allocation of Facilities Technique
A CRAFT program basically has the following elements:
It reads the load summary (the number of loads carried between pairs of departments), the costs per unit load per unit distance for the handling of materials between various pairs of departments.
It computes the centres of the departments and computes the various inter-departmental distances.
On the basis of the above it computes the total material handling costs per unit period for the layout. Slide 35: 4. It makes paired and/or three-way exchanges between the different departmental locations so as to produce a valid and improved layout pattern. The improvement is in terms of reducing the total material handling costs.
5. The computer prints out the scaled layout pattern and the corresponding cost.
The ultimate aim of the CRAFT program is to minimize the material handling costs for the entire plant. Capacity Planning : Capacity Planning Capacity is the upper limit or ceiling on the load that an operating unit can handle.
The basic questions in capacity handling are:
What kind of capacity is needed?
How much is needed?
When is it needed? Types of Capacity : Types of Capacity Design capacity
maximum output rate or service capacity an operation, process, or facility is designed for
Design capacity minus allowances such as personal time, maintenance, and scrap
rate of output actually achieved--cannot exceed effective capacity. Efficiency and Utilization : Efficiency and Utilization Both measures expressed as percentages Efficiency/Utilization Example : Actual output = 36 units/day
Efficiency = = 90%
Effective capacity 40 units/ day
Utilization = Actual output = 36 units/day
= 72% Design capacity 50 units/day Efficiency/Utilization Example Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day Objectives of capacity planning : Objectives of capacity planning To satisfy the future demand of products without any shortage
To find the optimal capacity of the facility so that the sum of costs of under-capacity & over- capacity is the minimum.
To keep the initial investment in the facility as low as possible to achieve lower break-even volume
Investment in facility capacity are long-term & can’t be reversed easily. Variations in Demand Relative to Capacity : Variations in Demand Relative to Capacity Determinants of Effective Capacity : Determinants of Effective Capacity Facilities
Product and service factors
Supply chain factors
External factors Steps for Capacity Planning : Steps for Capacity Planning Estimate future capacity requirements
Evaluate existing capacity
Conduct financial analysis
Assess key qualitative issues
Select one alternative
Implement alternative chosen
Monitor results Strategies for Shifting Demand to Match Capacity : Strategies for Shifting Demand to Match Capacity Use signage to communicate busy days and times
Offer incentives to customers for usage during non-peak times
Take care of loyal or regular customers first
Advertise peak usage times and benefits of non-peak use
Charge full price for the service--no discounts Use sales and advertising to increase business from current market segments
Modify the service offering to appeal to new market segments
Offer discounts or price reductions
Modify hours of operation
Bring the service to the customer Demand Too High Demand Too Low Shift Demand Strategies for Flexing Capacity to Match Demand : Strategies for Flexing Capacity to Match Demand Stretch time, labor, facilities and equipment
Hire part-time employees
Request overtime work from employees
Rent or share facilities
Rent or share equipment
Subcontract or outsource activities Perform maintenance renovations
Schedule employee training
Lay off employees Demand Too High Demand Too Low Flex Capacity Production planning & control : Production planning & control Production planning implies formulation, co-ordination & determination of activities in a manufacturing system necessary for the accomplishment of desired objectives
Production control is the process of maintaining a balance between various activities evolves during production planning providing most effective & efficient utilization of resources. Objectives of PPC : Objectives of PPC Determining the nature & magnitude of various input factors to manufacture desired output.
To co-ordinate labor, machines in the most economic manner
Setting targets & checking these against performance.
Ensuring smooth flow of material by eliminating bottlenecks if any
Utilization of under employed resources
To produce desired output of right quality & quantity at right time. Importance of time horizon : Importance of time horizon Depending on the time horizon, the plan is of 3 types-
Long-term Planning: Strategic Planning – normally more than an year’s time.
Medium-term Planning: Aggregate Planning – up to an year’s time.
Short-term Planning: Routine Planning – monthly/weekly.
Dovetailing (fit together) of Plans-
Shorter-range plans are always made within the framework of the longer-range plans. Production planning as it is generally understood, is really the intermediate-range and short-range plan. That is why. production planning is said to follow from the marketing plan. The production plan is the translation of the market demands into production orders. The market demands have to be matched with the production capacities Slide 49: Need for Detailed Plans-
At a gross level, one must balance the gross demand into gross level availability of resources in machine-hours or man-hours, etc. At the detailed level one needs to balance the requirements of individual products with the availability of individual machines/equipments and labor of different skill categories.
Centralization & decentralization-
concentrate of authority (esp. administration) at a single centre & transfer (power etc.) from central to local authority. AGGREGATE PLANNING DEFINED : AGGREGATE PLANNING DEFINED Aggregate Planning may be defined as ‘Intermediate Planning’ which is normally done for a period of up to one year’s time. The word ‘Aggregate’ symbolizes that the planning is done at the broadest level.
AGGREGATE PLANNING PROCESS –
Sales forecast for each product: the quantities to be sold in each time period (weeks, months, or quarters) over the planning horizon (6 -18 months)
Total all the individual product or service forecasts into one aggregate demand Slide 51: Transform the aggregate demand for each time period into production resource requirements (workers, materials, machines, etc.)
4. Develop alternative resource plans to support the cumulative aggregate demand and compute the cost for each.
5. Select the best alternative which satisfies aggregate demand and best meets the organization’s objectives
Goals for aggregate planning-
there are number of goals to be satisfied –
It has to provide the overall levels of output, inventory and backlogs
Proper utilization of the plant capacity.
The aggregate plan should be consistent with the company’s goals and policies regarding its employee
Make sure enough capacity available to satisfy expected demand Assembly line balancing : Assembly line balancing The sequence of machines & equipments arranged to produce the desired product is called assembly lines.
The amount produced by machine depends on
No. of operations performed on machine
Time required for each operation
There can be a situation that different machines may produce varying amount of product during same period. This property is known as unbalanced assembly line Example of ALB : Example of ALB Clearly, assembly line is unbalanced.
Alternatively if in system we arrange 3 machines of type A, 4 of B & 6 of C, then output/hr. will Slide 54: Such type of arrangement is called balanced assembly/production line.
To balance the production line by increasing the machines may not be in the interest of organization due to increased capital investment.
So another method is to increase the working hours for machines. E.g. Production planning procedures : Production planning procedures It can be divided in 3 parts-
It means determination of path or route over which each piece is to travel in being transformed from raw-material into finished product. Slide 56: In general routing consists of seven decisions, namely
Whether to make/buy
The form & shape of material
Division of work to be done into operations
The choice of machines on which each operation should be done.
The sequence in which operations are to be performed
The division of operations into work elements
The choice of special tooling. Slide 57: Advantages of routing
Efficient use of resources
Reduction in manufacturing costs
Improvement in quantity & quality of output
Provides a basis for scheduling & loading.
Scheduling- it means
A description of when & where each operation is to be executed.
Establishment of timetable at which to begin/ complete each operation. Slide 58: Objectives of scheduling-
Items are delivered on due date
Production cost is minimum
To minimize idle time of machines
To prevent unbalanced allocation of time among various departments
Types of schedules-
Operations schedule- determine total time required to do a piece of work with given machine
Master schedule- is a list showing how many of each item to make in each period of time in future. Scheduling devices : Scheduling devices Gantt charts- portrays planned production & actual performance over a period of time. It is a rectangular chart divided by horizontal & vertical lines.
PERT & CPM method- job is first broken in basic elements & network is constructed which is then analyzed to prepare schedule.
The Run Out approach Productivity : Productivity Productivity
A measure of the effective use of resources, usually expressed as the ratio of output to input All Productivity measures : All Productivity measures Productivity = Number of units of output
Number of persons employed to produce that output
Productivity= no. of units produced
no. of man-hours worked
Productivity= output at standard price
Amount of wages paid in order to produce that output
Capital productivity = Value Added
Capital Productivity= Total sales in Rupees
Depreciation of capital assets
MULTI FACTOR PRODUCTIVITY = Production at standard price
Labor + materials + overhead + k (capital invested)
where, labor, materials overhead and capital constitute all the input factors Methods to increase productivity : Methods to increase productivity By increasing output, keeping input constant
By decreasing inputs for same output
By Better utilization of resources
By using efficient & effective methods of working
By using good layouts
By reducing material handling
By selecting new technology
By proper maintenance
By good working conditions to workers
By good incentive schemes
By better quality of purchase
By Training to employees
Be customer oriented.
Assign right people for right jobs.
Keep things simple Slide 63: Difference between efficiency & effectiveness- Slide 64: BUSINESS PROCESS REENGINEERING-
Business Process Reengineering is about revamping or overhauling the existing processes and redesigning them from a clean slate, in order to achieve significant improvements in critical measures of performance.
generic TATA BUSINESS EXCELLENCE MODEL : TATA BUSINESS EXCELLENCE MODEL The TBEM criteria for performance excellence are built upon a set of core values and concepts that are embodied in seven categories:
3. Customer and Market Focus
4. Measurement Analysis and Knowledge Management
5. Human Resource Focus
6. Process Management
7. Business Results