PLANT DESIGN AND TECHNOLOG

YCHAPTER 1

CHAPTER 1: GENERAL PLANT

DESIGNSubtitle

OBJECTIVES OF PLANT DESIGN

Subtitle

OBJECTIVES OF PLANT DESIGN

1.To ensure it operates at low cost2.To provide fast delivery3.To accommodate new products4.To produce many varied products5.To Increase or decrease volume of production.6.To provide unique services or features.7.To produce at highest quality level.

Subtitle

FACILITY PLANNING

STAGES OF FACILITY PLANNING

STAGE I – SITE LOCATIONSTAGE II – SITE PLANNINGSTAGE III – BUILDING LAYOUTSTAGE IV - DEPARTMENT LAYOUTSTAGE V – WORK STATION DESIGN

STAGE IPLANT

LOCATIONSubtitle

Location decisionSubtitle

NEED FOR LOCATION DECISION ARISE

WHEN A NEW FACILITY TO BE ESTABLISHED

EXPANSION OF EXISTING FACILITIES

TO ESTABLISH ADDITIONAL FACILITIES IN NEW TERRITORIES DUE TO GROWING VOLUME OF BUSINESS

WHEN ORIGINAL ADVANTAGES OF THE PLANT HAVE BEEN OUTWEIGHT DUE TO NEW DEVELOPMENT

WHEN NEW ECONOMIC, SOCIAL , LEGAL OR POLICTICAL FACTORS SUGGEST A CHANGE OF LOCATION OF THE EXISTING FACILITIES.

FACTORS IN SELECTING NEW GENERAL LOCATION OF PLANT

Availability of raw materials Proximity to the markets. Transport facilities Availability of efficient and cheap

labour. Availability of power and fuel. Climatic and atmospheric

conditions.

• Availability of water.• Availability of capital• Social and recreational

facilities.• Business and commercial

facilities.• Existence of related

industries• Other factors

SELECTION OF A PARTICULAR SITE

• COMMUNITY ATTITUDE

• COMMUNITY FACILITIES

• TOPOGRAPHY

• TRANSPORTATION FACILITIES

• WASTE DISPOSAL

• ECOLOGY AND POLLUTION

• SIZE OF LAND

• SUPPORTING INDUSTRIES

FACTORS IN LOCATIONAL ECONOMICS

• RAW MATERIAL PROCUREMENT

• PROXIMITY TO MARKET

• AVAILABILITY OF LABOR, THEIR TRAINING AND COMPENSATION

• AVAILABILITY OF POWER

• AVAILABILITY OF FINANCE

• MISCELLANEOUS CONSIDERATION SUCH AS DONATIONS AND ETC.

FACTORS IN LOCATIONAL ECONOMICS

• RAW MATERIAL PROCUREMENT

• PROXIMITY TO MARKET

• AVAILABILITY OF LABOR, THEIR TRAINING AND COMPENSATION

• AVAILABILITY OF POWER

• AVAILABILITY OF FINANCE

• MISCELLAANOUS CONSIDERATION SUCH AS DONATIONS AND ETC

ECONOMIC ANALYSIS FACTOR

(a)Factors undertaking near the raw material site1. When the source of raw material is the controlling factor.2. When materiall are bulky and relatively low price3. When materials are small and relatively high price.4. When raw materials are greatly reduced in bulk during the process of

manufacture.5. When raw materials are preishable and process makes them less

perishable.Examples are processing industries cement, paper, meat, canning fruit.

ECONOMIC ANALYSIS FACTOR

(b) Factors responsible for locating an industry near the market.1. When the size or bulk of the product is more.2. Render it more fragile3. More susception about the spoilage.Examples are shoes, furniture, glassware industry.

ECONOMIC ANALYSIS FACTOR

(c) Factors responsible for the economy of labor.1. The ratio of labor cost to total manufacturing cost. If the ratio is small,

then this factor is not important.2. The possibility of reduction in labor cost by using better method or better

quality of labor.3. The type of labor required.Examples are textile industries, silk and carpet making industry and sport good.

ECONOMIC ANALYSIS FACTOR

(d) Economy and availability of power. If power generated from coal then coal is a raw material hence steel plants are located near the coal mines.(e) Availability of finance- finance can be obtained from government agencies / banks.(f) Miscealenous considerations –

1. An offer for a factory site or an existing plant.2. A rebate of taxes and period for which it will remain available.3. Non-interference by local government bodies.4. The location should not near the border of a country to safeguard

from risk of war.5. For smooth going, political interference should not be there.

MARKET SURVEY - QUESTIONS

1. If there is a market which could be served, if retail price of product is reduced.

2. Whether quick delivery of the product can be made to the particular market by better plant location.

3. Whether there are competitors for product in the market. Whether demand for product may increase. Whether an additional plant is required to meet the future demand.

4. What is the potential purchasing power of the market?5. What are the buying habits of the local people, and what must be done to

fit your service to these habits?

Example 1A new industrialist wants to locate a small factory. On surveying he found the three possiblities of Segamat, Batu Pahat and Kluang with different advantages. The initial investment is going to be of the order of RM 200,000. The industrialist wants to calculate the rate of return of the three proposed sites, the site with the highest rate of return will be the optimal choice of location of the factory.

Factors Segamat Batu Pahat Kluang

1. Expected sales during the first year (A) 250,000 250,000 250,000

2. Distribution charges during the year (B) 40,000 42,000 47,000

3. Thus net sales C=A-B 210,000 208,000 203,000

4. Raw material and other materials 90,000 80,000 70,000

5.Transportation of (4) 20,000 25,000 35,000

6.Labor wages & salaries 25,000 30,000 35,000

7. Fuel and power etc. 20,000 30,000 30,000

8.Misceallaneous 15,000 15,000 20,000

Total of 4-7 = (D) 170,000 180,000 180,000

Net Profit in RM C-D=E 40,000 28,000 23,000

Rate of return = E x 100 / initial investmet 20% 14% 11.5%

NOTES

• 1 & 2 classified under sales and distribution cost and other five factors under production cost.

• Location of factory at Segamat with 20% ROR is the optimal choice of location.

• The ROR is the highest at Segamat due to the following reasons:-• Lower distribution costs• Lower transportation costs• Lower fuel and power supply cost.

• Quite useful in collecting the facts on which a sound economic choice is based.

MARKET SURVEY - QUESTIONS

1. If there is a market which could be served, if retail price of product is reduced.

2. Whether quick delivery of the product can be made to the particular market by better plant location.

3. Whether there are competitors for product in the market. Whether demand for product may increase. Whether an additional plant is required to meet the future demand.

4. What is the potential purchasing power of the market?5. What are the buying habits of the local people, and what must be done to

fit your service to these habits?

BREAK EVEN POINT ANALYSIS - BEP

1. In most plant model, the objective is to minimize the sum of all cost affected by the locations.

2. Fixed cost – heating, lighting and administrative expenses that are same regardless of the output volume.

3. Variable costs are those that are fluctuate directly with volume. Generally cost of direct labor and materials.

4. As per the BEP , the cost exceeded the revenues at the beginning up to a point call break even point, the level which total cost equal the revenues.

5. Thereafter revenues exceed cost of operations

BREAK EVEN POINT ANALYSIS - BEP

REASONS FOR LOCATIONAL CHANGES

1. Need for greater capacity2. Changes in resources. The cost availability of labor, raw materials may

change.3. The geography of demand may shift.4. Companies may merge , making facilities redundant.5. New products may be introduced.6. Change in political and economics conditions.

SELECTION OF SITES IN URBAN AREAAdvantages Disadvantages

1. Possible to find existing building which can house a factory

1. Often sites are limited as sufficient land is not available and being congested climate will not be healthy.

2. Easier to resell building 2. The cost of land is high and rates are liable to increase further.

3. Power and water are easily available 3. Land for expansion is not available at reasonable rate. The larger the city, the higher the land rate.

4.Exchange of knowledge are easier due to many manufacturers in a city.5. Good market for small manufacturers. 4. Because the high standard of living, higher wages of labor

have to be paid.6. Well served by railways and roads from various parts of the country – cheap incoming and outgoing transport.

5. More problem about labour and employer relations.

7.Good labour market. All type of labors are available. 6. Cost of building will be high

8.Services for repairs and maintenance can be available with existing industries.

7. High taxes

9. Houses for workers are easily available

SELECTION OF SITES IN RURAL AREAAdvantages Disadvantages

1. The cost of land is less than in a city area and usually easier to get space for future expansion

1. Sufficient power and water facilities may not be available

2. The cheap land enables a more efficient layout of works to be made and gives greater freedom in selecting the most economic design for buildings

2. Repairing work may become difficult, because of less industries in the area.

3. Rail and road connections can be arranged easily 3. Skilled worker are not easily available

4.Labour supply may be arranged from near by areas by transport from where the labor is cheaply available

4.No recreational facilities

5. Healthy surrounding and pleasant atmosphere 5. Facilities for education to children and adults (part time ) may not be available.

6. Less labour trouble 6.Government facilities may not be sufficient

7. Lesser taxes and restrictions 7. Transport and housing facilities may not be satisfactory.

TECHNIQUES FOR SELECTING BEST PLANT LOCATION

1. Subjective techniquesa. Industry precedence – this occurs when a new facility is locate previously

selected by similar industry.b. Preferential factor – This involves a personal whim or preferences. This

is not a professional approach and is not a good business decision making process.

c. Dominant factor: This occurs when one factor dominates any other factors and could influence the location decision e.g mining or petroleum drilling operations must be located in the areas where the mineral resources is available.

TECHNIQUES FOR SELECTING BEST PLANT LOCATION

2. Qualitative techniques –Factor ranking system – ranking conducted on overall location – no comparative relationship for values within the factor other than position in the list. A location is either better or worse than other location. Ranking is therefore unsatisfactory.

3. Semi quantitative technique – factor weight rating system. Rating scales is used to compare regions, communities or sites against each other. Variable weight is assigned for each of the factor and each location is evaluated along the factor scale.4. Quantitative techniques – i) Break even analysis ii) Economic/cost analysis iii) transportation model

5. WEIGHT RATING METHOD

1. Step 1 – Find the important factors. Statistical analysis, questionnaire survey or other techniques may be employed

2. Step 2 – Putting numerical value for each factor. Factors are considered according to the same scale of desirability.

3. Step 3- weighing the factors with relative economic importance.4. Step 4- Calculating weighed source for alternative. Multiply each unweigh

point rating with the appropriate weight percentage.

PROCEDURES FOR SELECTING A SITE

1. Constitution of site selection committee – compose of people having knowledge and experience of relevant fields.

2. Determining company needs – establishing goals, vision, mission and objectives.

3. Deciding criteria for selection-for the purpose deciding criteria for selecting the region and actual site either checklist is prepared.

4. Accumulate the data- locate sources of data, collecting the data and finally tabulate the data.

5. Analyse the data- after collecting all the facts, figures and information are analysed. Base map pinpointing all sites and such major features such as industrial, zoning boundary, road , rail, air and water transportation.

PROCEDURES FOR SELECTING A SITE

6. Evaluate the alternatives – most common method of comparing the factors is by giving them a value or weight. Evaluation is done in the following steps – i) select the important factor for the enterprise ii) Rank them in order of importance iii) evaluate each region or site for each alternative location.

7. Reduce number of alternatives – reduced to about 6 for detail analysis.8. Investigation in details- each site shall be visited by the selection

committee. These can include consultants, architects and builders.9. Collect and analyze further data-In final stage sometimes additional data

is required . Then the committee can make decision.

CATEGORIES OF FACTORS AFFECTING PLANT LOCATIONS

1. Critical factors – necessitates location of plant in a particular area only. Examples – energy oriented plant require to be located at the area where plenty and cheap electricity are available. Water based plant require area with a lot of water supply and cheap.

2. Objective factors – Factors that can be evaluated with money term such as labor cost,raw materials, utilities, taxes, cost of lands, construction cost and etc. Labor cost objective but availability of labor of required type is critical factor.

3. Subjective factor – factor that can be measure qualitatively such as nature of community support.

COST ECONOMICS

The site that gives the minimum total cost per unit, in absence of any other critical consideration should be selected as a suitable plant location.1. Capital cost– includes cost of land, land development, building and services,

environmental protection measures and infrastructural facilities.2. Operating costs– includes cost of capital, overhead and depreciation on

capital, cost of materials, labour and other variable cost.3. Distribution cost– includes transportation and sales cost.

ECONOMIES OF SCALE FOR SINGLE PLANT LOCATION

INTERRELATIONSHIP BETWEEN THESE COSTS AND PLANT CAPACITIES

Profitable operation take places above break-even point (BEP). After certain value the rise of distribution cost more than offsets the fall of operating cost resulting in a rise in the total cost which might become higher than revenue at break-down point (BDP). This show the plant has reached beyond economies of scale indicating the necessity for additional plants.

INTERRELATIONSHIP BETWEEN THESE COSTS AND PLANT CAPACITIES

For multiple plant location, relations between the total cost (Fixed+Variable costs) and volume of production for various location to enable management to carry out a break even point analysis or decide optimum capacity at such locations. One BEP is identified for each location.

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