Plant Size and Scale of Operations | Management Optional Notes for UPSC PDF Download

 Page 1




 
	
 	
 
	
 		



2.1 INTRODUCTION AND MEANING
Plant location or the facilities location problem is an important strategic level decision-
making for an organisation. One of the key features of a conversion process (manufacturing
system) is the efficiency with which the products (services) are transferred to the customers.
This fact will include the determination of where to place the plant or facility.
The selection of location is a key-decision as large investment is made in building plant and
machinery. It is not advisable or not possible to change the location very often. So an improper location
of plant may lead to waste of all the investments made in building and machinery, equipment.
Before a location for a plant is selected, long range forecasts should be made anticipating
future needs of the company. The plant location should be based on the company’s expansion
plan and policy, diversification plan for the products, changing market conditions, the changing
sources of raw materials and many other factors that influence the choice of the location
decision. The purpose of the location study is to find an optimum location one that will result in
the greatest advantage to the organization.
2.2 NEED FOR SELECTING A SUITABLE LOCATION
The need for selecting a suitable location arises because of three situations.
PLANT LOCATION AND LAYOUT
2
2.1 Introduction and Meaning
2.2 Need for Selecting a Suitable Location
2.3 Factors Influencing Plant/Facility Location
2.4 Location Theories
2.5 Location Models
2.6 Locational Economics
2.7 Plant Layout
2.8 Classification of Layout
2.9 Design of Product Layout
2.10 Design of Process Layout
2.11 Service Layout
2.12 Organisation of Physical Facilities
• Exercises
 Skill Development
CHAPTER OUTLINE
Page 2




 
	
 	
 
	
 		



2.1 INTRODUCTION AND MEANING
Plant location or the facilities location problem is an important strategic level decision-
making for an organisation. One of the key features of a conversion process (manufacturing
system) is the efficiency with which the products (services) are transferred to the customers.
This fact will include the determination of where to place the plant or facility.
The selection of location is a key-decision as large investment is made in building plant and
machinery. It is not advisable or not possible to change the location very often. So an improper location
of plant may lead to waste of all the investments made in building and machinery, equipment.
Before a location for a plant is selected, long range forecasts should be made anticipating
future needs of the company. The plant location should be based on the company’s expansion
plan and policy, diversification plan for the products, changing market conditions, the changing
sources of raw materials and many other factors that influence the choice of the location
decision. The purpose of the location study is to find an optimum location one that will result in
the greatest advantage to the organization.
2.2 NEED FOR SELECTING A SUITABLE LOCATION
The need for selecting a suitable location arises because of three situations.
PLANT LOCATION AND LAYOUT
2
2.1 Introduction and Meaning
2.2 Need for Selecting a Suitable Location
2.3 Factors Influencing Plant/Facility Location
2.4 Location Theories
2.5 Location Models
2.6 Locational Economics
2.7 Plant Layout
2.8 Classification of Layout
2.9 Design of Product Layout
2.10 Design of Process Layout
2.11 Service Layout
2.12 Organisation of Physical Facilities
• Exercises
 Skill Development
CHAPTER OUTLINE

	
 	
 	
  

I. When starting a new organisation, i.e., location choice for the first time.
II. In case of existing organisation.
III. In case of Global Location.
I. In Case of Location Choice for the First Time or New Organisations
Cost economies are always important while selecting a location for the first time, but should
keep in mind the cost of long-term business/organisational objectives. The following are the
factors to be considered while selecting the location for the new organisations:
1. Identification of region: The organisational objectives along with the various long-term
considerations about marketing, technology, internal organisational strengths and weaknesses, region-
specific resources and business environment, legal-governmental environment, social environment
and geographical environment suggest a suitable region for locating the operations facility.
2. Choice of a site within a region: Once the suitable region is identified, the next step
is choosing the best site from an available set. Choice of a site is less dependent on the
organisation’s long-term strategies. Evaluation of alternative sites for their tangible and intangible
costs will resolve facilities-location problem.
The problem of location of a site within the region can be approached with the following
cost-oriented non-interactive model, i.e., dimensional analysis.
3. Dimensional analysis: If all the costs were tangible and quantifiable, the comparison and
selection of a site is easy. The location with the least cost is selected. In most of the cases
intangible costs which are expressed in relative terms than in absolute terms. Their relative merits
and demerits of sites can also be compared easily. Since both tangible and intangible costs need
to be considered for a selection of a site, dimensional analysis is used.
Dimensional analysis consists in computing the relative merits (cost ratio) for each of the
cost items for two alternative sites. For each of the ratios an appropriate weightage by means
of power is given and multiplying these weighted ratios to come up with a comprehensive figure
on the relative merit of two alternative sites, i.e.,
C
1
M
, C
2
M
, …, C
z
M
 are the different costs associated with a site M on the ‘z’ different cost
items.
C
1
N
, C
2
N
, …, C
z
N
 are the different costs associated with a site N and W
1
, W
2
, W
3
, …, W
z
are the weightage given to these cost items, then relative merit of the M and site N is given by:
() () ()
×
12 z
WW W
MN MN MN
11 22 z z
C/C C/C ,...,C/C
If this is > 1, site N is superior and vice-versa.
When starting a new factory, plant location decisions are very important because they have
direct bearing on factors like, financial, employment and distribution patterns. In the long run,
relocation of plant may even benefit the organization. But, the relocation of the plant involves
stoppage of production, and also cost for shifting the facilities to a new location. In addition to
these things, it will introduce some inconvenience in the normal functioning of the business.
Hence, at the time of starting any industry, one should generate several alternate sites for locating
the plant. After a critical analysis, the best site is to be selected for commissioning the plant.
Location of warehouses and other facilities are also having direct bearing on the operational
performance of organizations.
Page 3




 
	
 	
 
	
 		



2.1 INTRODUCTION AND MEANING
Plant location or the facilities location problem is an important strategic level decision-
making for an organisation. One of the key features of a conversion process (manufacturing
system) is the efficiency with which the products (services) are transferred to the customers.
This fact will include the determination of where to place the plant or facility.
The selection of location is a key-decision as large investment is made in building plant and
machinery. It is not advisable or not possible to change the location very often. So an improper location
of plant may lead to waste of all the investments made in building and machinery, equipment.
Before a location for a plant is selected, long range forecasts should be made anticipating
future needs of the company. The plant location should be based on the company’s expansion
plan and policy, diversification plan for the products, changing market conditions, the changing
sources of raw materials and many other factors that influence the choice of the location
decision. The purpose of the location study is to find an optimum location one that will result in
the greatest advantage to the organization.
2.2 NEED FOR SELECTING A SUITABLE LOCATION
The need for selecting a suitable location arises because of three situations.
PLANT LOCATION AND LAYOUT
2
2.1 Introduction and Meaning
2.2 Need for Selecting a Suitable Location
2.3 Factors Influencing Plant/Facility Location
2.4 Location Theories
2.5 Location Models
2.6 Locational Economics
2.7 Plant Layout
2.8 Classification of Layout
2.9 Design of Product Layout
2.10 Design of Process Layout
2.11 Service Layout
2.12 Organisation of Physical Facilities
• Exercises
 Skill Development
CHAPTER OUTLINE

	
 	
 	
  

I. When starting a new organisation, i.e., location choice for the first time.
II. In case of existing organisation.
III. In case of Global Location.
I. In Case of Location Choice for the First Time or New Organisations
Cost economies are always important while selecting a location for the first time, but should
keep in mind the cost of long-term business/organisational objectives. The following are the
factors to be considered while selecting the location for the new organisations:
1. Identification of region: The organisational objectives along with the various long-term
considerations about marketing, technology, internal organisational strengths and weaknesses, region-
specific resources and business environment, legal-governmental environment, social environment
and geographical environment suggest a suitable region for locating the operations facility.
2. Choice of a site within a region: Once the suitable region is identified, the next step
is choosing the best site from an available set. Choice of a site is less dependent on the
organisation’s long-term strategies. Evaluation of alternative sites for their tangible and intangible
costs will resolve facilities-location problem.
The problem of location of a site within the region can be approached with the following
cost-oriented non-interactive model, i.e., dimensional analysis.
3. Dimensional analysis: If all the costs were tangible and quantifiable, the comparison and
selection of a site is easy. The location with the least cost is selected. In most of the cases
intangible costs which are expressed in relative terms than in absolute terms. Their relative merits
and demerits of sites can also be compared easily. Since both tangible and intangible costs need
to be considered for a selection of a site, dimensional analysis is used.
Dimensional analysis consists in computing the relative merits (cost ratio) for each of the
cost items for two alternative sites. For each of the ratios an appropriate weightage by means
of power is given and multiplying these weighted ratios to come up with a comprehensive figure
on the relative merit of two alternative sites, i.e.,
C
1
M
, C
2
M
, …, C
z
M
 are the different costs associated with a site M on the ‘z’ different cost
items.
C
1
N
, C
2
N
, …, C
z
N
 are the different costs associated with a site N and W
1
, W
2
, W
3
, …, W
z
are the weightage given to these cost items, then relative merit of the M and site N is given by:
() () ()
×
12 z
WW W
MN MN MN
11 22 z z
C/C C/C ,...,C/C
If this is > 1, site N is superior and vice-versa.
When starting a new factory, plant location decisions are very important because they have
direct bearing on factors like, financial, employment and distribution patterns. In the long run,
relocation of plant may even benefit the organization. But, the relocation of the plant involves
stoppage of production, and also cost for shifting the facilities to a new location. In addition to
these things, it will introduce some inconvenience in the normal functioning of the business.
Hence, at the time of starting any industry, one should generate several alternate sites for locating
the plant. After a critical analysis, the best site is to be selected for commissioning the plant.
Location of warehouses and other facilities are also having direct bearing on the operational
performance of organizations.

 
	
 	
 
	
 		
The existing firms will seek new locations in order to expand the capacity or to place the
existing facilities. When the demand for product increases, it will give rise to following decisions:

 Whether to expand the existing capacity and facilities.

 Whether to look for new locations for additional facilities.

 Whether to close down existing facilities to take advantage of some new locations.
II. In Case of Location Choice for Existing Organisation
In this case a manufacturing plant has to fit into a multi-plant operations strategy. That is,
additional plant location in the same premesis and elsewere under following circumstances:
1. Plant manufacturing distinct products.
2. Manufacturing plant supplying to specific market area.
3. Plant divided on the basis of the process or stages in manufacturing.
4. Plants emphasizing flexibility.
The different operations strategies under the above circumstances could be:
1. Plants manufacturing distinct products: Each plant services the entire market area for
the organization. This strategy is necessary where the needs of technological and resource inputs
are specialized or distinctively different for the different product-lines.
For example, a high quality precision product-line should not be located along with other
product-line requiring little emphasis on precision. It may not be proper to have too many
contradictions such as sophisticated and old equipment, highly skilled and semi-skilled personnel,
delicates processes and those that could permit rough handlings, all under one roof and one set
of managers. Such a setting leads to much confusion regarding the required emphasis and the
management policies.
Product specialization may be necessary in a highly competitive market. It may be necessary
to exploit the special resources of a particular geographical area. The more decentralized these
pairs are in terms of the management and in terms of their physical location, the better would
be the planning and control and the utilization of the resources.
2. Manufacturing plants supplying to a specific market area: Here, each plant
manufactures almost all of the company’s products. This type of strategy is useful where market
proximity consideration dominates the resources and technology considerations. This strategy
requires great deal of coordination from the corporate office. An extreme example of this
strategy is that of soft drinks bottling plants.
3. Plants divided on the basis of the process or stages in manufacturing: Each
production process or stage of manufacturing may require distinctively different equipment
capabilities, labour skills, technologies, and managerial policies and emphasis. Since the products
of one plant feed into the other plant, this strategy requires much centralized coordination of the
manufacturing activities from the corporate office that are expected to understand the various
technological aspects of all the plants.
4. Plants emphasizing flexibility: This requires much coordination between plants to meet
the changing needs and at the same time ensure efficient use of the facilities and resources.
Frequent changes in the long-term strategy in order to improve be efficiently temporarily, are not
healthy for the organization. In any facility location problem the central question is: ‘Is this a
location at which the company can remain competitive for a long time?’
Page 4




 
	
 	
 
	
 		



2.1 INTRODUCTION AND MEANING
Plant location or the facilities location problem is an important strategic level decision-
making for an organisation. One of the key features of a conversion process (manufacturing
system) is the efficiency with which the products (services) are transferred to the customers.
This fact will include the determination of where to place the plant or facility.
The selection of location is a key-decision as large investment is made in building plant and
machinery. It is not advisable or not possible to change the location very often. So an improper location
of plant may lead to waste of all the investments made in building and machinery, equipment.
Before a location for a plant is selected, long range forecasts should be made anticipating
future needs of the company. The plant location should be based on the company’s expansion
plan and policy, diversification plan for the products, changing market conditions, the changing
sources of raw materials and many other factors that influence the choice of the location
decision. The purpose of the location study is to find an optimum location one that will result in
the greatest advantage to the organization.
2.2 NEED FOR SELECTING A SUITABLE LOCATION
The need for selecting a suitable location arises because of three situations.
PLANT LOCATION AND LAYOUT
2
2.1 Introduction and Meaning
2.2 Need for Selecting a Suitable Location
2.3 Factors Influencing Plant/Facility Location
2.4 Location Theories
2.5 Location Models
2.6 Locational Economics
2.7 Plant Layout
2.8 Classification of Layout
2.9 Design of Product Layout
2.10 Design of Process Layout
2.11 Service Layout
2.12 Organisation of Physical Facilities
• Exercises
 Skill Development
CHAPTER OUTLINE

	
 	
 	
  

I. When starting a new organisation, i.e., location choice for the first time.
II. In case of existing organisation.
III. In case of Global Location.
I. In Case of Location Choice for the First Time or New Organisations
Cost economies are always important while selecting a location for the first time, but should
keep in mind the cost of long-term business/organisational objectives. The following are the
factors to be considered while selecting the location for the new organisations:
1. Identification of region: The organisational objectives along with the various long-term
considerations about marketing, technology, internal organisational strengths and weaknesses, region-
specific resources and business environment, legal-governmental environment, social environment
and geographical environment suggest a suitable region for locating the operations facility.
2. Choice of a site within a region: Once the suitable region is identified, the next step
is choosing the best site from an available set. Choice of a site is less dependent on the
organisation’s long-term strategies. Evaluation of alternative sites for their tangible and intangible
costs will resolve facilities-location problem.
The problem of location of a site within the region can be approached with the following
cost-oriented non-interactive model, i.e., dimensional analysis.
3. Dimensional analysis: If all the costs were tangible and quantifiable, the comparison and
selection of a site is easy. The location with the least cost is selected. In most of the cases
intangible costs which are expressed in relative terms than in absolute terms. Their relative merits
and demerits of sites can also be compared easily. Since both tangible and intangible costs need
to be considered for a selection of a site, dimensional analysis is used.
Dimensional analysis consists in computing the relative merits (cost ratio) for each of the
cost items for two alternative sites. For each of the ratios an appropriate weightage by means
of power is given and multiplying these weighted ratios to come up with a comprehensive figure
on the relative merit of two alternative sites, i.e.,
C
1
M
, C
2
M
, …, C
z
M
 are the different costs associated with a site M on the ‘z’ different cost
items.
C
1
N
, C
2
N
, …, C
z
N
 are the different costs associated with a site N and W
1
, W
2
, W
3
, …, W
z
are the weightage given to these cost items, then relative merit of the M and site N is given by:
() () ()
×
12 z
WW W
MN MN MN
11 22 z z
C/C C/C ,...,C/C
If this is > 1, site N is superior and vice-versa.
When starting a new factory, plant location decisions are very important because they have
direct bearing on factors like, financial, employment and distribution patterns. In the long run,
relocation of plant may even benefit the organization. But, the relocation of the plant involves
stoppage of production, and also cost for shifting the facilities to a new location. In addition to
these things, it will introduce some inconvenience in the normal functioning of the business.
Hence, at the time of starting any industry, one should generate several alternate sites for locating
the plant. After a critical analysis, the best site is to be selected for commissioning the plant.
Location of warehouses and other facilities are also having direct bearing on the operational
performance of organizations.

 
	
 	
 
	
 		
The existing firms will seek new locations in order to expand the capacity or to place the
existing facilities. When the demand for product increases, it will give rise to following decisions:

 Whether to expand the existing capacity and facilities.

 Whether to look for new locations for additional facilities.

 Whether to close down existing facilities to take advantage of some new locations.
II. In Case of Location Choice for Existing Organisation
In this case a manufacturing plant has to fit into a multi-plant operations strategy. That is,
additional plant location in the same premesis and elsewere under following circumstances:
1. Plant manufacturing distinct products.
2. Manufacturing plant supplying to specific market area.
3. Plant divided on the basis of the process or stages in manufacturing.
4. Plants emphasizing flexibility.
The different operations strategies under the above circumstances could be:
1. Plants manufacturing distinct products: Each plant services the entire market area for
the organization. This strategy is necessary where the needs of technological and resource inputs
are specialized or distinctively different for the different product-lines.
For example, a high quality precision product-line should not be located along with other
product-line requiring little emphasis on precision. It may not be proper to have too many
contradictions such as sophisticated and old equipment, highly skilled and semi-skilled personnel,
delicates processes and those that could permit rough handlings, all under one roof and one set
of managers. Such a setting leads to much confusion regarding the required emphasis and the
management policies.
Product specialization may be necessary in a highly competitive market. It may be necessary
to exploit the special resources of a particular geographical area. The more decentralized these
pairs are in terms of the management and in terms of their physical location, the better would
be the planning and control and the utilization of the resources.
2. Manufacturing plants supplying to a specific market area: Here, each plant
manufactures almost all of the company’s products. This type of strategy is useful where market
proximity consideration dominates the resources and technology considerations. This strategy
requires great deal of coordination from the corporate office. An extreme example of this
strategy is that of soft drinks bottling plants.
3. Plants divided on the basis of the process or stages in manufacturing: Each
production process or stage of manufacturing may require distinctively different equipment
capabilities, labour skills, technologies, and managerial policies and emphasis. Since the products
of one plant feed into the other plant, this strategy requires much centralized coordination of the
manufacturing activities from the corporate office that are expected to understand the various
technological aspects of all the plants.
4. Plants emphasizing flexibility: This requires much coordination between plants to meet
the changing needs and at the same time ensure efficient use of the facilities and resources.
Frequent changes in the long-term strategy in order to improve be efficiently temporarily, are not
healthy for the organization. In any facility location problem the central question is: ‘Is this a
location at which the company can remain competitive for a long time?’

	
 	
 	
  

For an established organization in order to add on to the capacity, following are the ways:
(a) Expansion of the facilities at the existing site: This is acceptable when it does not
violate the basic business and managerial outlines, i.e., philosophies, purposes, strategies and
capabilities. For example, expansion should not compromise quality, delivery, or customer service.
(b) Relocation of the facilities (closing down the existing ones): This is a drastic step
which can be called as ‘Uprooting and Transplanting’. Unless there are very compelling reasons,
relocation is not done. The reasons will be either bringing radical changes in technology, resource
availability or other destabilization.
All these factors are applicable to service organizations, whose objectives, priorities and
strategies may differ from those of hardcore manufacturing organizations.
III. In Case of Global Location
Because of globalisation, multinational corporations are setting up their organizations in India
and Indian companies are extending their operations in other countries. In case of global locations
there is scope for virtual proximity and virtual factory.
VIRTUAL PROXIMITY
With the advance in telecommunications technology, a firm can be in virtual proximity to its
customers. For a software services firm much of its logistics is through the information/
communication pathway. Many firms use the communications highway for conducting a large
portion of their business transactions. Logistics is certainly an important factor in deciding on a
location—whether in the home country or abroad. Markets have to be reached. Customers have
to be contacted. Hence, a market presence in the country of the customers is quite necessary.
VIRTUAL FACTORY
Many firms based in USA and UK in the service sector and in the manufacturing sector often out
sources 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. The Indian BPO firm
is a foreign-based company’s ‘virtual service factory’. So a location could be one’s own or one’s
business associates. The location decision need not always necessarily pertain to own operations.
REASONS FOR A GLOBAL/FOREIGN LOCATION
A. Tangible Reasons
The trangible reasons for setting up an operations facility abroad could be as follows:
Reaching the customer: One obvious reason for locating a facility abroad is that of
capturing a share of the market expanding worldwide. The phenomenal growth of the GDP of
India is a big reason for the multinationals to have their operations facilities in our country. An
important reason is that of providing service to the customer promptly and economically which
is logistics-dependent. Therefore, cost and case of logistics is a reason for setting up manufacturing
facilities abroad. By logistics set of activities closes the gap between production of goods/services
and reaching of these intended goods/services to the customer to his satisfaction. Reaching the
customer is thus the main objective. The tangible and intangible gains and costs depend upon the
company defining for itself as to what that ‘reaching’ means. The tangible costs could be the
logistics related costs; the intangible costs may be the risk of operating is a foreign country. The
Page 5




 
	
 	
 
	
 		



2.1 INTRODUCTION AND MEANING
Plant location or the facilities location problem is an important strategic level decision-
making for an organisation. One of the key features of a conversion process (manufacturing
system) is the efficiency with which the products (services) are transferred to the customers.
This fact will include the determination of where to place the plant or facility.
The selection of location is a key-decision as large investment is made in building plant and
machinery. It is not advisable or not possible to change the location very often. So an improper location
of plant may lead to waste of all the investments made in building and machinery, equipment.
Before a location for a plant is selected, long range forecasts should be made anticipating
future needs of the company. The plant location should be based on the company’s expansion
plan and policy, diversification plan for the products, changing market conditions, the changing
sources of raw materials and many other factors that influence the choice of the location
decision. The purpose of the location study is to find an optimum location one that will result in
the greatest advantage to the organization.
2.2 NEED FOR SELECTING A SUITABLE LOCATION
The need for selecting a suitable location arises because of three situations.
PLANT LOCATION AND LAYOUT
2
2.1 Introduction and Meaning
2.2 Need for Selecting a Suitable Location
2.3 Factors Influencing Plant/Facility Location
2.4 Location Theories
2.5 Location Models
2.6 Locational Economics
2.7 Plant Layout
2.8 Classification of Layout
2.9 Design of Product Layout
2.10 Design of Process Layout
2.11 Service Layout
2.12 Organisation of Physical Facilities
• Exercises
 Skill Development
CHAPTER OUTLINE

	
 	
 	
  

I. When starting a new organisation, i.e., location choice for the first time.
II. In case of existing organisation.
III. In case of Global Location.
I. In Case of Location Choice for the First Time or New Organisations
Cost economies are always important while selecting a location for the first time, but should
keep in mind the cost of long-term business/organisational objectives. The following are the
factors to be considered while selecting the location for the new organisations:
1. Identification of region: The organisational objectives along with the various long-term
considerations about marketing, technology, internal organisational strengths and weaknesses, region-
specific resources and business environment, legal-governmental environment, social environment
and geographical environment suggest a suitable region for locating the operations facility.
2. Choice of a site within a region: Once the suitable region is identified, the next step
is choosing the best site from an available set. Choice of a site is less dependent on the
organisation’s long-term strategies. Evaluation of alternative sites for their tangible and intangible
costs will resolve facilities-location problem.
The problem of location of a site within the region can be approached with the following
cost-oriented non-interactive model, i.e., dimensional analysis.
3. Dimensional analysis: If all the costs were tangible and quantifiable, the comparison and
selection of a site is easy. The location with the least cost is selected. In most of the cases
intangible costs which are expressed in relative terms than in absolute terms. Their relative merits
and demerits of sites can also be compared easily. Since both tangible and intangible costs need
to be considered for a selection of a site, dimensional analysis is used.
Dimensional analysis consists in computing the relative merits (cost ratio) for each of the
cost items for two alternative sites. For each of the ratios an appropriate weightage by means
of power is given and multiplying these weighted ratios to come up with a comprehensive figure
on the relative merit of two alternative sites, i.e.,
C
1
M
, C
2
M
, …, C
z
M
 are the different costs associated with a site M on the ‘z’ different cost
items.
C
1
N
, C
2
N
, …, C
z
N
 are the different costs associated with a site N and W
1
, W
2
, W
3
, …, W
z
are the weightage given to these cost items, then relative merit of the M and site N is given by:
() () ()
×
12 z
WW W
MN MN MN
11 22 z z
C/C C/C ,...,C/C
If this is > 1, site N is superior and vice-versa.
When starting a new factory, plant location decisions are very important because they have
direct bearing on factors like, financial, employment and distribution patterns. In the long run,
relocation of plant may even benefit the organization. But, the relocation of the plant involves
stoppage of production, and also cost for shifting the facilities to a new location. In addition to
these things, it will introduce some inconvenience in the normal functioning of the business.
Hence, at the time of starting any industry, one should generate several alternate sites for locating
the plant. After a critical analysis, the best site is to be selected for commissioning the plant.
Location of warehouses and other facilities are also having direct bearing on the operational
performance of organizations.

 
	
 	
 
	
 		
The existing firms will seek new locations in order to expand the capacity or to place the
existing facilities. When the demand for product increases, it will give rise to following decisions:

 Whether to expand the existing capacity and facilities.

 Whether to look for new locations for additional facilities.

 Whether to close down existing facilities to take advantage of some new locations.
II. In Case of Location Choice for Existing Organisation
In this case a manufacturing plant has to fit into a multi-plant operations strategy. That is,
additional plant location in the same premesis and elsewere under following circumstances:
1. Plant manufacturing distinct products.
2. Manufacturing plant supplying to specific market area.
3. Plant divided on the basis of the process or stages in manufacturing.
4. Plants emphasizing flexibility.
The different operations strategies under the above circumstances could be:
1. Plants manufacturing distinct products: Each plant services the entire market area for
the organization. This strategy is necessary where the needs of technological and resource inputs
are specialized or distinctively different for the different product-lines.
For example, a high quality precision product-line should not be located along with other
product-line requiring little emphasis on precision. It may not be proper to have too many
contradictions such as sophisticated and old equipment, highly skilled and semi-skilled personnel,
delicates processes and those that could permit rough handlings, all under one roof and one set
of managers. Such a setting leads to much confusion regarding the required emphasis and the
management policies.
Product specialization may be necessary in a highly competitive market. It may be necessary
to exploit the special resources of a particular geographical area. The more decentralized these
pairs are in terms of the management and in terms of their physical location, the better would
be the planning and control and the utilization of the resources.
2. Manufacturing plants supplying to a specific market area: Here, each plant
manufactures almost all of the company’s products. This type of strategy is useful where market
proximity consideration dominates the resources and technology considerations. This strategy
requires great deal of coordination from the corporate office. An extreme example of this
strategy is that of soft drinks bottling plants.
3. Plants divided on the basis of the process or stages in manufacturing: Each
production process or stage of manufacturing may require distinctively different equipment
capabilities, labour skills, technologies, and managerial policies and emphasis. Since the products
of one plant feed into the other plant, this strategy requires much centralized coordination of the
manufacturing activities from the corporate office that are expected to understand the various
technological aspects of all the plants.
4. Plants emphasizing flexibility: This requires much coordination between plants to meet
the changing needs and at the same time ensure efficient use of the facilities and resources.
Frequent changes in the long-term strategy in order to improve be efficiently temporarily, are not
healthy for the organization. In any facility location problem the central question is: ‘Is this a
location at which the company can remain competitive for a long time?’

	
 	
 	
  

For an established organization in order to add on to the capacity, following are the ways:
(a) Expansion of the facilities at the existing site: This is acceptable when it does not
violate the basic business and managerial outlines, i.e., philosophies, purposes, strategies and
capabilities. For example, expansion should not compromise quality, delivery, or customer service.
(b) Relocation of the facilities (closing down the existing ones): This is a drastic step
which can be called as ‘Uprooting and Transplanting’. Unless there are very compelling reasons,
relocation is not done. The reasons will be either bringing radical changes in technology, resource
availability or other destabilization.
All these factors are applicable to service organizations, whose objectives, priorities and
strategies may differ from those of hardcore manufacturing organizations.
III. In Case of Global Location
Because of globalisation, multinational corporations are setting up their organizations in India
and Indian companies are extending their operations in other countries. In case of global locations
there is scope for virtual proximity and virtual factory.
VIRTUAL PROXIMITY
With the advance in telecommunications technology, a firm can be in virtual proximity to its
customers. For a software services firm much of its logistics is through the information/
communication pathway. Many firms use the communications highway for conducting a large
portion of their business transactions. Logistics is certainly an important factor in deciding on a
location—whether in the home country or abroad. Markets have to be reached. Customers have
to be contacted. Hence, a market presence in the country of the customers is quite necessary.
VIRTUAL FACTORY
Many firms based in USA and UK in the service sector and in the manufacturing sector often out
sources 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. The Indian BPO firm
is a foreign-based company’s ‘virtual service factory’. So a location could be one’s own or one’s
business associates. The location decision need not always necessarily pertain to own operations.
REASONS FOR A GLOBAL/FOREIGN LOCATION
A. Tangible Reasons
The trangible reasons for setting up an operations facility abroad could be as follows:
Reaching the customer: One obvious reason for locating a facility abroad is that of
capturing a share of the market expanding worldwide. The phenomenal growth of the GDP of
India is a big reason for the multinationals to have their operations facilities in our country. An
important reason is that of providing service to the customer promptly and economically which
is logistics-dependent. Therefore, cost and case of logistics is a reason for setting up manufacturing
facilities abroad. By logistics set of activities closes the gap between production of goods/services
and reaching of these intended goods/services to the customer to his satisfaction. Reaching the
customer is thus the main objective. The tangible and intangible gains and costs depend upon the
company defining for itself as to what that ‘reaching’ means. The tangible costs could be the
logistics related costs; the intangible costs may be the risk of operating is a foreign country. The

 
	
 	
 
	
 		
tangible gains are the immediate gains; the intangible gains are an outcome of what the company
defines the concepts of reaching and customer for itself.
The other tangible reasons could be as follows:
(a) The host country may offer substantial tax advantages compared to the home country.
(b) The costs of manufacturing and running operations may be substantially less in that
foreign country. This may be due to lower labour costs, lower raw material cost, better
availability of the inputs like materials, energy, water, ores, metals, key personnel etc.
(c) The company may overcome the tariff barriers by setting up a manufacturing plant in a
foreign country rather than exporting the items to that country.
B. Intangible Reasons
The intangible reasons for considering setting up an operations facility abroad could be as
follows:
1. Customer-related Reasons
(a) With an operations facility in the foreign country, the firm’s customers may feel secure
that the firm is more accessible. Accessibility is an important ‘service quality’ determinant.
(b) The firm may be able to give a personal tough.
(c) The firm may interact more intimately with its customers and may thus understand their
requirements better.
(d) It may also discover other potential customers in the foreign location.
2. Organisational Learning-related Reasons
(a) The firm can learn advanced technology. For example, it is possible that cutting-edge
technologies can be learn by having operations in an technologically more advanced
country. The firm can learn from advanced research laboratories/universities in that
country. Such learning may help the entire product-line of the company.
(b) The firm can learn from its customers abroad. A physical location there may be essential
towards this goal.
(c) It can also learn from its competitors operating in that country. For this reason, it may
have to be physically present where the action is.
(d) The firm may also learn from its suppliers abroad. If the firm has a manufacturing  plant
there, it will have intensive interaction with the suppliers in that country from  whom there
may be much to learn in terms of modern and appropriate technology, modern management
methods, and new trends in business worldwide.
3. Other Strategic Reasons
(a) The firm by being physically present in the host country may gain some ‘local boy’ kind
of psychological advantage. The firm is no more a ‘foreign’ company just sending its
products across international borders. This may help the firm in lobbying with the government
of that country and with the business associations in that country.
(b) The firm may avoid ‘political risk’ by having operations in multiple countries.
(c) By being in the foreign country, the firm can build alternative sources of supply. The firm
could, thus, reduce its supply risks.