UNIT 6

By : Prof.Hetal Gaglani

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PLANT LOCATION

Every entrepreneur is faced with the

problem of deciding the best site for

location of his plant or factory.

What is 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.

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Contd..

• 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. 4

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.

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Factors influencing the selection of location

FACTORS

Raw Material

Market

Infrastructural

Facilities

LabourLaws &

Regulations

Environmental

Factors

Competition

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SIGNIFICANCE

• From the discussion above, we have already

learnt that location of a plant is an important

entrepreneurial decision because it influences

the cost of production and distribution to a

great extent.

• In some cases, you will find that location may

contribute to even 10% of cost of manufacturing

and marketing. Therefore, an appropriate

location is essential to the efficient and

economical working of a plant. A firm may fail

due to bad location or its growth and efficiency

may be restricted.

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Locational analysis

• Locational analysis is a dynamic

process where entrepreneur analyses

and compares the appropriateness or

otherwise of alternative sites with the

aim of selecting the best site for a

given enterprise.

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LOCATIONAL ANALYSIS

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Demographic Analysis

Trade Area Analysis

Competitive Analysis

Traffic analysis

Site economics

Plant Layout

A plant layout can be defined as follows:

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 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.

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“Plant layout ideally involves allocation

of space and arrangement of

equipment in such a manner that

overall operating costs are minimized.”

- J. L. Zundi

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Plant Layout

Plant layout embraces the physical

arrangement of industrial facilities.

This arrangement (either installed or

planned) includes the space needed for-

• Operating equipment & personnel.

• Material movement.

• Storage.

• Indirect laborers.

• Supporting activities & services.

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Types of Layout

From the point of view of plant

layout, we can classify small business or

unit into three categories:

- Manufacturing units

- Traders

- Service Establishments

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Manufacturing Units

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Product or line layout

Process or functional layout

Fixed position or location layout

Combined or group layout

Product or line layout

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.

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Traders Units

Traders Units

Self service or modified self service

layout

Full service layout

Special layouts

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Services centers and

establishment

• Services establishments such as

hotels, restaurants, must give due

attention to client convenience, quality

of service, efficiency in delivering

services and pleasing office ambience.

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Contd…

• In today‟s environment, the clients look

for ease in approaching different

departments of a service organization

and hence the layout should be designed

in a fashion, which allows clients quick

and convenient access to the facilities

offered by a service establishment.

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FACTORS INFLUENCING LAYOUT

Factors

Factory building

Nature of product

Production process

Type of machinery

Repairs and maintenance

Human needs

Plant environment

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Product Design

• Backbone of any enterprise is its product/

service offerings.

• Key strategic decision in the evolutionary

stage.

• Image & profit earning capacity of an

enterprise depends upon it.

• Long term decision.

Product Specification

Project Appraisal

Technical Financial Economic Market

Product Design

Technology Specification

Conception of Business Idea

Production

Stages in Product Design

Lease Financing

A lease contract can be defined as a contract

whereby the owner of an asset (lessor) grants

to another party (lessee) the exclusive right

to use the asset usually for an agreed period

of time in return for the payment of rent.

Types of Lease Agreements

Lease Agreements

Capital Lease

Operating lease

Sale & Lease Back

Hire Purchase

HP is an agreement under which the owner

called „hire vendor‟ gives delivery of goods to

the buyer called „hire purchaser‟ who pays

the price in certain number of installments.

Hire Purchase

If the hire purchase transaction is financed by

the manufacturer or dealer,then two parties

are involved in the agreement.

Ex:

Hire Vendor

Hire Purchaser

Hire Purchase

If the hire purchase transaction is financed by

some financial institution, then there are

three parties involved in the agreement.

Ex:

Hire Vendor

Hire Purchas

er

Financial Institution

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ACTIVITY

Visit a restaurant that you can classify as being in

the small sector. Comment upon how has the

layout of facilities added to or detracted from the

ease of movement? Could you suggest some

alternative layout?

THANK YOU

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