Operation Management

MT OM BBA501
BY: Dr. Anupam Jain
Associate Professor-ABS
Amity University, Jaipur.
 Module III
Facility Location and Facility
Layout
BY: Dr. Anupam Jain
Associate Professor-ABS
Amity University, Jaipur.
 Meaning of Facility Location

Facility location refers to the process of selecting a geographical

site for a company’s operations such as manufacturing, service
centers, or warehouses. The right location minimizes costs,
ensures easy access to markets and suppliers, and supports long-
term strategic objectives.
Importance of Facility Location
Cost Efficiency – Right location reduces transportation,
production, and distribution costs.

Customer Service – Ensures timely delivery and better

service quality.

Competitiveness – Provides an advantage over competitors

in accessing markets and resources.

Long-term Sustainability – Supports expansion,

government compliance, and environmental requirements.
 Factors Affecting Location Decisions
1. Proximity to Customers – Being close to target markets reduces distribution cost and
ensures faster delivery.
2. Proximity to Raw Materials & Suppliers – Important for industries with bulky or
perishable inputs (e.g., steel, food).
3. Transportation & Infrastructure – Availability of road, rail, air, port facilities, and power
supply.
4. Labor Availability & Cost – Skilled/unskilled labor availability, wage rates, and labor
laws.
5. Government Policies & Incentives – Subsidies, tax benefits, SEZ (Special Economic
Zones).
 Factors Affecting Location Decisions
6. Environmental & Community Considerations – Compliance with pollution norms,
community acceptance.
7. Cost of Land & Construction – Land availability, rental/ownership cost, expansion
opportunities.
8. Climate & Natural Conditions – For industries like agriculture, textiles, or tourism.
9. Competition & Cluster Effect – Sometimes industries locate near competitors to benefit
from shared resources and skilled manpower.
10. Global Factors – Political stability, exchange rates, trade barriers in international location
decisions.
 Steps in Facility Location Decision

Define the
Evaluate
objectives Apply
Identify qualitative Select the
(cost quantitative
alternatives factors final location
reduction, methods
(possible (labor, and plan
customer (factor rating,
cities/regions community, layout
service, center of
). environment) accordingly.
strategic gravity, etc.).
.
advantage).
Quantitative Techniques in Facility
Location
 1 Factor Rating Method
• The Factor Rating Method is a qualitative and quantitative
decision-making tool used to evaluate multiple location
alternatives. It considers various factors that influence location
choice (e.g., labor, transport, infrastructure) and assigns weights
and ratings to them.
• The method provides a systematic and objective way to compare
different sites and select the most suitable one.
 Steps in Factor Rating Method
1. Identify Critical Factors
•List the factors that affect location choice (e.g., labor cost, transport,
customer proximity, government incentives).

2. Assign Weights to Each Factor

•Weights reflect the importance of each factor.
•The sum of all weights is usually 1 (or 100%).

3. Develop a Rating Scale

•Decide on a scale (e.g., 1–10, where 1 = poor and 10 = excellent).
 Steps in Factor Rating Method
4. Rate Each Location
•Evaluate each location against each factor using the chosen scale.

5. Calculate Weighted Scores

•Multiply weight × rating for each factor at each location.

6. Compute Total Score for Each Location

•Add all weighted scores for each location.

7. Select the Best Location

•The location with the highest total weighted score is chosen.
 Example 1

Factor Weight Rating (A) Rating (B)

Labor availability 0.4 7 9

Transport 0.3 8 6

Infrastructure 0.3 9 7
 Solution 1
Factor Weight Rating (A) Score (A) Rating (B) Score (B)

Labor
0.4 7 2.8 9 3.6
availability

Transport 0.3 8 2.4 6 1.8

Infrastructure 0.3 9 2.7 7 2.1

Total Score 1.0 7.9 7.5

Decision: Location A (7.9) is preferred over Location B (7.5).

 Advantages & Disadvantages
Advantages: Limitations:
•Simple & Flexible: Easy to •Subjectivity in Weights & Ratings:
understand and apply. May introduce bias.
•Considers Multiple Factors: Both •Ignores Interrelationships: Factors
qualitative and quantitative. are assumed independent.
•Customizable: Decision-makers can •Not Always Precise: Provides
adjust weights based on priorities. guidance, not absolute accuracy.
•Objective Comparison: Converts •Time-Consuming: If too many
subjective judgments into numbers factors and alternatives exist.
 2 Centre of Gravity Method

The Centre of Gravity Method is a quantitative technique used to

find the best location for a facility (like a warehouse, distribution
center, or plant) that minimizes the total transportation cost and
distance.
It is based on the concept of balancing loads (demand, shipments, or
weights) across different geographic locations. The optimal site is
treated as the “centre of gravity” of all demand points.
 Assumptions

Transportation cost is directly

proportional to distance and load.

Distances are measured using a simple

distance metric.

The objective is to minimize

weighted distance or cost.
Formula
 Steps for Calculation
➢Identify the coordinates (xi,yi) of each demand point.
➢Determine the weights (demand/shipments).
➢Multiply each coordinate by its weight.
➢Sum up the weighted values and divide by total weight.
➢The result gives the optimal coordinates (X, Y).
 Example 2

A company serves three warehouses with the following data:

Warehouse X Y Demand (units)

W1 10 20 100

W2 30 40 150

W3 50 30 200
Solution 2
 Advantages & Disadvantages
Advantages: Limitations:
•Simple to use and understand. •Assumes flat plane geography
•Provides a clear, quantitative (does not consider terrain, roads, or
solution. obstacles).
•Effective when cost is proportional •Assumes transportation cost is
to load × distance. directly proportional to distance.
•Ignores qualitative factors (labor,
policies, environment).
•Works best for single facility
location problems, not multiple.
 3 Load Distance Method

The Load-Distance Method is a quantitative technique used in

facility location planning and layout design. It evaluates
alternative locations by considering the distance between
facilities and the load (amount of material, people, or goods) to
be moved. The goal is to minimize the total "load-distance
score," which represents material handling cost and effort.
Steps in the Load-Distance Method
 Example 3
Suppose we are locating a warehouse that must serve 3 customers.
Distance from site A Distance from site B
Customer Load (units)
(km) (km)
1 100 10 20
2 200 15 5
3 150 25 10
 Advantages & Disadvantages

Advantages: Limitations:
•Simple and easy to apply. •Assumes distance and load are the
only factors.
•Quantifies trade-off between
•Ignores qualitative aspects (e.g.,
loads and distances. labor availability, land cost,
•Helps in minimizing government rules).
transportation/material •Works best for preliminary
handling costs. analysis, not for final decision-
making.
 Break-Even Analysis Method

The Break-Even Analysis Method is a quantitative technique

used to compare different facility location alternatives by
analyzing fixed costs, variable costs, and expected
demand/output. It helps determine the point (output level) at
which two or more locations will incur the same total cost.
 1. Key Concepts
•Fixed Costs (FC): Costs that remain constant regardless of output (e.g., rent,
salaries, insurance).
•Variable Costs (VC): Costs that change with the level of output (e.g.,
material, labor per unit, utilities).
•Total Cost (TC):
TC=FC+(VC×Q)
Where Q = number of units produced.
•Break-even Point (BEP): The production level where the total cost of two
alternatives is the same.
 2. Formula for Break-even Point between
Two Locations
For two sites A and B:
𝐹𝐶𝐴 + 𝑉𝐶𝐴 × 𝑄 = 𝐹𝐶𝐵 + 𝑉𝐶𝐵 × 𝑄

Solving for 𝑄:
𝐹𝐶𝐵 − 𝐹𝐶𝐴
𝑄=
𝑉𝐶𝐴 − 𝑉𝐶𝐵
 3. Example

A company wants to choose between Location A and Location B:

Location A: Fixed Cost = ₹1,00,000, Variable Cost = ₹30 per unit
Location B: Fixed Cost = ₹1,50,000, Variable Cost = ₹25 per unit
As per the break-even analysis method, which location is to be
selected?
 Solution
Step 1: Write equations
𝑇𝐶𝐴 = 1,00,000 + 30𝑄
𝑇𝐶𝐵 = 1,50,000 + 25𝑄
Step 2: Equate costs
1,00,000 + 30𝑄 = 1,50,000 + 25𝑄
5𝑄 = 50,000
𝑄 = 10,000 units
Step 3: Decision
If demand is less than 10,000 units → Choose Location A (lower fixed cost, though higher variable cost).
If demand is greater than 10,000 units → Choose Location B (higher fixed cost but lower variable cost).
 Example: Three Locations

When comparing more than two facilities, calculate break-even

for each pair, then identify ranges of demand where each site is
optimal.
A: FC = ₹60,000; VC = ₹50/unit
B: FC = ₹1,00,000; VC = ₹40/unit
C: FC = ₹1,50,000; VC = ₹30/unit
 Solution
Step 1: Compare A vs. B
60,000 + 50𝑄 = 1,00,000 + 40𝑄
𝑄 = 4,000
Step 2: Compare B vs. C
1,00,000 + 40𝑄 = 1,50,000 + 30𝑄
𝑄 = 5,000
Step 3: Decision Ranges
• If demand < 4,000 → Choose A
• If demand between 4,000–5,000 → Choose B
• If demand > 5,000 → Choose C
Graphical Presentation
Here’s a graphical representation of Break-Even Analysis for Location X vs.
Location Y:
• The orange line = Location X (higher fixed cost, lower slope/variable cost).
• The blue line = Location Y (lower fixed cost, higher slope/variable cost).
• The red point shows the Break-Even Point (BEP = 12,000 units), where both
locations have equal cost.
• If demand is below 12,000 units → Location Y is better.
If demand is above 12,000 units → Location X is better.
 4 Advantages & Disadvantages

Advantages: Limitations:
•Simple and easy to apply. •Assumes fixed and variable costs
are known and constant.
•Provides a clear decision •Ignores qualitative factors (e.g.,
rule based on demand. labor skills, infrastructure,
•Useful for comparing 2 or government rules).
more locations. •Assumes only one
product/output.
•Doesn’t account for uncertainty in
demand or cost changes.
 Utilisation of GIS in Plant Location
Introduction
• Plant location is a strategic decision that determines the long-term
success of a manufacturing business.
• Traditional methods (factor rating, load Distance, BEP Analysis methods)
have limitations because they rely on limited or aggregated data.
• Geographic Information System (GIS) provides a powerful, data-driven
tool to enhance plant location decisions by integrating spatial and non-
spatial data for better visualization and analysis.
 What is GIS?
• A Geographic Information System (GIS) is a computer-based tool
that captures, stores, analyzes, and displays geographic (spatial)
data.
• It links location data (maps, coordinates) with attribute data (cost,
labor availability, transport facilities).
• GIS helps decision-makers see patterns, relationships, and trends
that are not visible through traditional tabular analysis.
 Role of GIS in Plant Location Decisions

1. Site Selection:
➢ Helps identify optimal sites by overlaying multiple factors (e.g., land availability, zoning
regulations, transport access).
2. Accessibility Analysis:
➢ Evaluates proximity to suppliers, customers, highways, ports, and airports.
➢ Minimizes transportation costs and delivery time.
3. Resource Mapping:
➢ Identifies availability of labor force, utilities (power, water), raw materials in a given region.
4. Competitor and Market Analysis:
➢ Maps existing competitor plants and customer locations.
➢ Assists in identifying underserved markets.
5. Risk Assessment:
➢ Analyzes environmental risks (flood zones, seismic activity, pollution impact).
➢ Ensures compliance with government regulations.
6. Scenario Analysis:
➢ Allows simulation of “what-if ” scenarios (e.g., future infrastructure development, population growth,
new highway construction).
GIS Factors in Plant Location
 Advantages of GIS in Plant Location

• Comprehensive Decision-Making: Integrates multiple data layers (economic,

demographic, environmental).
• Visualization: Provides maps and spatial models for easy understanding.
• Accuracy: Uses real-time data (satellite, census, government databases).
• Cost and Time Efficiency: Speeds up location analysis compared to manual
surveys.
• Better Risk Management: Identifies high-risk zones before finalizing a site.
 Examples of GIS Applications in Plant
Location

Automobile Industry: Pharmaceuticals:

Retail & FMCG Plants: Logistics &
Analyzes road Identifies sites with low
GIS helps find locations Warehousing: Optimizes
connectivity, proximity to pollution, safe
close to demand centers warehouse placement to
component suppliers, and environment, and good
(urban clusters). minimize distribution cost.
export hubs. connectivity.
 Challenges in Using GIS

• Data Availability: Reliable spatial data may not be easily available in some
countries.
• Cost of Technology: High initial cost for GIS software, data acquisition,
and skilled staff.
• Integration Issues: Combining GIS with traditional decision models
requires expertise.
 Conclusion
•GIS is a modern, scientific approach to plant location that
improves accuracy, reduces risks, and supports strategic growth.

•By integrating geographical, demographic, environmental, and

economic data, GIS provides multi-dimensional insights that
traditional methods cannot.

•In future, GIS combined with AI, IoT, and Big Data analytics will
further revolutionize facility and supply chain location planning.
FACILITY LAYOUT
 Meaning of Facility Layout
• Facility Layout refers to the systematic arrangement of physical facilities such as machines,
equipment, work centers, departments, storage areas, and offices within a manufacturing or
service organisation.
• It determines how resources—people, materials, and machines—are positioned and
moved through the production system to achieve efficient workflow and effective utilization of
space, time, and resources.

In Simple Terms:
• Facility layout is the physical arrangement of everything needed for production, designed to
ensure smooth flow of materials, efficient use of space, safety, and ease of supervision.
 Objectives of a Good Facility Layout

To minimize material handling and movement.

To ensure a smooth flow of operations.

To use available space efficiently.

To provide safety and comfort to workers.

To achieve high productivity and low production cost.

 Principles of Facility Layout

Integration:
Combine men, Minimum Flexibility: Efficient Space Safety and Customer
Movement: Smooth Flow: Layout should be Utilization: Comfort: Provide Satisfaction:
materials, Ensure logical Supervision and
Reduce material adaptable to Optimum use of adequate lighting, Control: Facilitate Ensure quality and
machines, and sequence of
handling and future changes in available floor ventilation, safety easy monitoring timely delivery
supporting operations with
avoid product or space and vertical measures, and of processes. through efficient
services minimal delays.
backtracking. volume. space. ergonomics. arrangement.
effectively.
Types of FacilityLayout

1 Process
Layout

3 Fixed 2 Product
Position or Line
Layout Layout
 1 Process Layout
• A Process Layout, also known as a Functional Layout, is a type of facility
layout where similar machines or operations are grouped together
according to the function they perform.
• The movement of materials depends on the sequence of operations required
for each product — hence, products may follow different paths through the
plant.
• It is typically used in job shops or batch production systems where the
variety of products is high and volume is low.
 Characteristics:

Similar machines are arranged in departments.

Products move between departments in different sequences.

Flexible routing and scheduling are possible.

Suitable for customized or non-standard products.

Production is usually intermittent and labor-intensive.

 Diagrammatic
Presentation
Here’s a diagram of the
Process (Functional) Layout,
showing how different
products (A, B, and C) take
different routes through
various functional
departments like drilling,
milling, grinding, etc.
Merits (Advantages): Demerits (Disadvantages):
• High flexibility: Can handle a variety of •High material handling cost: Materials
products and processes. have to move longer distances between
• Better supervision: Specialized departments.
supervisors can manage each functional
area. •Longer production time: Due to waiting
and scheduling complexity.
• Less investment in machines: Machines
can be shared for multiple jobs. •Higher work-in-progress inventory: Jobs
• Breakdowns do not stop production: pile up at departments.
Other jobs can continue in unaffected
departments. •Complex supervision and planning:
Scheduling is more difficult.
 Example Industries:

Hospitals
Automobile Furniture (different
Machine tool
repair manufacturing departments: X-
industries ray, pathology,
workshops units
surgery, etc.)
 2 Product or Line Layout
• A Product Layout, also known as a Line Layout, is a type of facility layout in
which machines and equipment are arranged in a sequence according to the
order of operations required to manufacture a specific product.
• The material moves along a straight line or a predetermined path from one
workstation to the next, with each workstation performing a specific task.
• This layout is most suitable for mass production or assembly line systems,
where a standardized product is produced in large volumes.
• For Eg.: In an automobile manufacturing plant, the car chassis moves on a
conveyor belt from one workstation to another — starting from frame assembly,
engine fitting, painting, and ending with inspection.
 Characteristics:

The sequence of operations determines the layout.

The product moves from one process to the next without backtracking.

Production is continuous and standardized.

Workers and machines perform repetitive, specialized tasks.

The focus is on high output and efficiency.

 Diagram Description (Product or Line
Layout)

Raw Material → [Machine A] → [Machine B] → [Machine C] →

[Machine D] → [Inspection] → Finished Product

Flow Direction: Left to Right (→)

Each machine or workstation performs one specific operation, and the product
moves in sequence without backtracking.
Merits (Advantages): Demerits (Disadvantages):
•Smooth and continuous flow of • High initial investment in equipment
production. and layout setup.
•Low material handling cost as • Lack of flexibility — layout is
movement is streamlined. designed for one product only.
•Shorter production time due to
reduced delays. • Machine breakdowns can stop the
•Simplified supervision and entire production line.
scheduling. • Repetitive work may lead to worker
•High labor and machine utilization. fatigue and monotony.
•Suitable for mass and large-scale
production.
• Difficult to adjust for changes in
demand or product design.
Suitability:
• When a single standardized product is produced in large quantities.
• When production process is repetitive and operations are well-defined.
Examples:
• Automobile assembly lines
• Mobile phone manufacturing
• Bottling plants
• Food processing industries
 3 Fixed Position Layout

• A Fixed Position Layout is a type of facility layout in which the product

remains stationary at a single location, and all necessary resources—
such as workers, machinery, tools, and materials—are brought to the site
to perform the required operations.
• This layout is used when the product is large, heavy, bulky, or difficult to
move during the manufacturing process.
• For Eg.: Shipbuilding, Aircraft manufacturing, Construction of bridges,
dams, or buildings, Large industrial machinery assembly etc.
 Characteristics:

The product stays fixed at one position.

Men, machines, and materials move to the work site.

Suitable for customized and complex projects.

Production involves low volume and high variety.

Work is often done in open spaces or at the client’s location.

 Diagrammatic
Presentation
Here’s a diagram of the
Fixed Position Layout,
showing how the product
stays stationary while
workers, machines, tools,
and materials are brought
to the site.
Merits (Advantages): Demerits (Disadvantages):
•Smooth and continuous flow of • High initial investment in equipment
production. and layout setup.
•Low material handling cost as • Lack of flexibility — layout is
movement is streamlined. designed for one product only.
•Shorter production time due to
reduced delays. • Machine breakdowns can stop the
•Simplified supervision and entire production line.
scheduling. • Repetitive work may lead to worker
•High labor and machine utilization. fatigue and monotony.
•Suitable for mass and large-scale
production.
• Difficult to adjust for changes in
demand or product design.
Basis Product (Line) Layout Process (Functional) Layout Fixed Position Layout
Machines are arranged in the Machines performing similar Product remains stationary;
Meaning sequence of operations required functions are grouped together men, materials, and machines
to produce a product. in departments. move to the site.
Standardized products produced Customized products produced Very large or bulky products
Product Type
in large quantities. in small batches. produced in single or few units.
Irregular and non-linear flow Product is fixed; resources move
Flow of Material Linear and continuous flow.
depending on process needs. around it.
Very low — layout is fixed for High — can handle different Moderate — flexibility in
Flexibility
one type of product. products and processes. scheduling and resource use.
High-volume, repetitive Low-volume, intermittent Very low-volume, project-based
Volume of Production
production. production. production.
Moderate cost — shared use of High cost due to movement of
Investment Cost High initial setup cost.
machines possible. equipment and labor.
Low — minimal movement of High — frequent movement High — equipment must be
Material Handling Cost
material. between departments. moved to the product.

Difficult — requires coordination Complex — supervision at

Supervision Easier — simple, repetitive work.
across departments. various work points.

Automobile assembly, bottling Machine shops, hospitals, Shipbuilding, aircraft assembly,

Examples
plants, electronic goods. furniture units. construction projects.