LGT 2106

Principles of Operations Management

2023/24, Semester 1

Lecture 4
Plant Location and Facility Layout
 Learning Outcomes of Lecture 4
1. Identify the various factors, both quantitative and qualitative, that should be
taken into consideration when selecting a location for a manufacturing or service
organization
2. Evaluate alternative site locations by different criteria
3. Know different types of facility layouts that can be used in designing
manufacturing and service operations
4. Construct layout plans by systematic layout planning approach

References: Jacobs & Chase, 15th ed, Chapters 8, 15.

Locating Manufacturing Facilities
• Products that decrease in weight and volume during manufacturing tend to
be located near the sources of raw materials
• Products that increase in weight and volume during manufacturing tend to
be located near the consumers
• One site’s cost disadvantage such as transportation may be offset by a cost
savings advantage specific to the site such as low labor costs
• A location analysis should consider both qualitative and quantitative factors
Qualitative Location Factors
• Local Infrastructure
• Institutional (e.g., reliable electrical power grid)
• Transportational (e.g., railway systems)

• Worker Education and Skills

• Education and skills of local workers

• Product Content Requirements

• The minimum percentage of product that must be produced in a country in order for
the product to be sold in that country

• Political/Economic Stability
Quantitative Location Factors
• Labor Costs
• Labor costs vary dramatically, depending on location. Cheap labor often lacks needed
education and skills.

• Distribution Costs
• Distance and the time required to deliver products can offset lower location costs.

• Facility Costs
• Special economic zones (SEZ)
• Duty-free areas established to attract foreign investment in the form of manufacturing facilities.
Quantitative Location Factors
• Exchange Rates
• Variations in rates can have a significant effect on sales and profits.

• Tax Rates
• Taxes vary considerably between countries and within countries.
• All forms of taxes should be considered (property, payroll, inventory, and investment
taxes).
Manufacturing Labor Costs per Hour for China, Vietnam, Mexico

From https://www.statista.com/statistics/744071/manufacturing-labor-costs-per-hour-
china-vietnam-mexico/
Example: Gigafactory Shanghai
• Gigafactory Shanghai is the first oversea factory, located
in Shanghai, China and operated by Tesla, Inc.

• Why did Tesla build its first overseas factory in shanghai?

• China is shifting towards electric cars with the
encouragement of the government.
• It’s cheaper to make batteries in China because of the
availability of mined raw materials.
• Cost of construction, availability of all of the parts,
low labour costs.
• …… Photo source:
https://en.wikipedia.org/wiki/File:China_Shanghai_location_map.svg
Geographic Information Systems (GIS)
• Locating a new power generation facility:

1. Within 50 miles of a commercial airport.

2. With more than 5000 workforce.

3. Within 5 miles of a 230-kVolt transmission

line.

4. Within 5 miles of a 12-inch or larger gas

line.
Evaluating Potential Locations
• Factor Rating System

1. Identify the specific criteria or factors to be considered.

2. Assign a weight to each factor.

3. Select a common scale for rating each factor.

4. Rate each potential location on each of the factors.

5. Multiply each factor’s score by its weight.

6. Sum the weighted scores and select the location with the highest score.
Factor-Rating System Example
• A Low Credit-Card Interest Bank
Rating Rating Score Score
Factor Weight Site A Site B Site A Site B

Size and education of workforce within 15 miles 20 60 75 1,200 1,500

Availability of part-time workers (students) 10 45 20 450 200
Distance to telecommunication infrastructure 25 80 90 2,000 2,250
Distance to higher education facilities 5 50 35 250 175
Cost of living index 15 85 80 1,275 1,200
Cultural amenities 10 65 40 650 400
Crime statistics 15 95 90 1,425 1,350
Totals 100 7,250 7,075

According to the factor rating system: Site A should be selected.

Evaluating Potential Locations (cont’d)
• Center of Gravity (or Centroid) Method
• Used to determine the optimal location of a facility based on minimizing the
transportation costs between where the goods are produced and where they are sold
or redistributed

1. Locate each existing operation on an X and Y coordinate grid map

2. Calculate X coordinate of center of gravity
3. Calculate Y coordinate of center of gravity
Center of Gravity Formulas

 d V  d iyV i
Cx = ix i
Cy =
V i V i
Cx = X coordinate of the center of gravity
Cy = Y coordinate of the center of gravity

dix = X coordinate of the ith location

diy = Y coordinate of the ith location

Vi = Volume of goods transported to the ith location

Centroid Method Example
• The HiOctane Refining Company needs to locate an intermediate holding facility
between its refining plant in Long Beach and its major distributors

Locations Gallons of Gasoline

per Month (000,000)
Long Beach 1500
Anaheim 250
LaHabra 450
Glendale 350
Thousand Oaks 450

Question: What is the best location for the intermediate holding facility
considering only distances and quantities shipped per month?
Centroid Method Example
Determining Existing Facility Coordinates

To begin, you must identify the

existing facilities on a two-
dimensional plane or grid and
determine their coordinates.

Locations Gallons of Gasoline

per Month (000,000)
You must also have the volume Long Beach 1500
information on the business activity Anaheim 250
at the existing facilities. LaHabra 450
Glendale 350
Thousand Oaks 450
Centroid Method Example
Determining the Coordinates of the New Facility

You then compute the new coordinates using the formulas:

(325 1,500) + (400  250) + (450  450) + (350  350) + (25  450) 923,750
Cx = = = 307.9
1,500 + 250 + 450 + 350 + 450 3000

(75  1,500) + (150 250) + (350 450) + (400 350) + (450 450) 650,000
Cy = = = 216.7
1,500 + 250 + 450 + 350 + 450 3000

You then take the coordinates and place them on the map:

New location of
facility about
(308,217)
Facility Layout
• Facility layout: the process of determining placement of departments, workgroups
within departments, workstations, machines, and stock-holding points within a facility

How Apple Builds Its Stores - YouTube

Facility Layout
Characteristics of a Good Layout
Facilities Layout for Services
• Goals of Service Facility Layouts
• Minimize travel time for workers and customers
• Maximize revenues from customers

• Types of Service Layouts

• Process layout—emergency rooms in a hospital
• Product layout—cafeteria line
• Fixed-position layout (a system that addresses the layout requirements of stationary
projects)—automobile repair shop, operating room in a hospital, table at a restaurant
Facilities Layout for Services (cont’d)
• Servicescape: The aspects of the physical surroundings in a service operation that can
affect a customer’s perception of the service received
• Ambient conditions
• Noise, lighting, and temperature
• Spatial layout and functionality
• Minimizing employee and/or customer travel time and maximizing revenue opportunities from
customers
• Signs, symbols, and artifacts
• Objects that create positive images of the firm
Facility Layout – Systematic Layout Planning Approach
• Definition
• Select the most effective physical arrangement of facilities to produce
products or provide services

• Objectives
• The ultimate goal is building a plant to achieve the overall business plan:
the type of product to be produced in the plant and the rate of production
Systematic Layout Planning Approach
➢ In achieving the goal, the following objectives should be considered:
❖ Minimize investment in equipment
❖ Minimize overall production time
❖ Utilize existing space most effectively
❖ Provide for employee convenience, safety, and comfort
❖ Maintain flexibility of arrangement and operation
❖ Minimize material handling cost
Systematic Layout Planning Processes (SLP)
Input Data and Activities

1. Flow of 2. Activity
Materials Relationship

3. Relationship
Diagram

4. Space 5. Space
Requirements Available

6. Space
Relationship
Diagram

7. Modifying 8. Practical
Considerations Limitations

9. Develop
Layout
Alternatives

10. Evaluation
Activity Relationship Analysis
• The placement of the departments in a plant layout is very much dependent
on the relationships of their activities
1 Offices
O Activity relationship chart shows the
4 E
2 Foreman importance of relationship between any
I 5 O
5 O 3
pair of activities, in terms of material flow,
3 Conference room
4 I
U information flow, people’s move,
U U
2 I convenience, etc.. The more important a
4 Parcel post U U
U U
I 2
U
relationship between two activities, the
2 O
5 Parts shipment O
4
U
2 I
U closer should these two activities in the
U U U
2 I
U layout. The figure on the left shows the
6 Repair and service
parts E
U U U
2 format of an activity relationship chart of 10
U U U
7 Service area
3
U U
I departments. The departments (activities)
U I A 1 are listed on the left in the chart, one in each
4 1
8 Receiving E
3
U row. The intersection blocks on the right
U U are for importance codes for the
9 Testing A
E 1
relationships among the activities.
3
10 General storage
Activity Relationship Analysis
➢ Activity relationship chart
❖ The relationship importance are classified into 6 categories

Code Definition
“A” Absolutely necessary to be next to each other
“E” Especially important
“I” Important
“O” Ordinary Important
“U” Unimportant
“X” Closeness undesirable

Construct the activity relationship chart:

1.Fill in the importance code in each block according to the importance of
the relationship between the two activities.
2.Guideline:
No more than 5% of the relationships should be assigned “A” or “X”;
No more than 10% “E”;
No more than 15% “I”;
No more than 20% “O”.
Activity Relationship Analysis - Example
Reason Code
1 Offices
O
Code Reason
4 E
2 Foreman 1 Material flow
I 5 O
5 O 3 2 Ease of supervision
3 Conference room U
3 Common personnel
4 I
U U
2 I 4 Contact necessary
4 Parcel post U U
I 2 5 Convenience
U U U
O 2 O … …
5 Parts shipment U U
4 2 I
U U U U
6 Repair and service
U U U
2 I To include more information in the chart, the
parts E
U U U
2 reasons for assigning the importance codes may be
3 I presented on the chart by putting a reason code
7 Service area U U
U I A 1 under each importance code. In this case, a table
8 Receiving E 4 U 1 showing the definition of these reason code should
3 be attached to the chart. Here is the activity
U U
9 Testing A relationship chart of the above example. Reason
E 1 codes are only listed for a few relationships for
3 example purpose.
10 General storage
Dimensionless Block Diagram
➢ Dimensionless block diagram shows a dimensionless layout based on the activity
relationship information
➢ Procedure for constructing dimensionless block diagram (unit block layout)

Step 1: Preparation:
This procedure uses equal sized square blocks to represent the departments (activities) and
place them to the layout one by one until all the departments have been placed. In each
iteration of the procedure we need to make the following two decisions.
❖ The order of placing the departments (which department should be placed to the layout
next).
❖ The relative positions between the department being placed and the departments
already on the layout (where it should be placed).
Dimensionless Block Diagram (cont’d)
Step 2: Preparation
In this method, both of these two decisions are made based on the total closeness
ratings of the departments. The total closeness rating of a department can be
calculated as follows:
Since the types of relationships (A, E, I, O, U, X) defines how close the departments
should be, we assign the closeness rating to the different types of relationship as
follows:
A = 10,000, E = 1,000,
I = 100, O = 10,
U = 1, X = -10,000.
Then, the total closeness rating (TCR) of a department is the sum of the absolute
values for all the relationships between this department and other departments.
Example: Calculate TCR
The TCRs can be calculated in a table form. The table below shows the calculation for the example
problem.

Department Summary

A = 10,000,
Dept. 1 2 3 4 5 6 7 8 9 10 A E I O U X TCR
10,000 + 2 × 100 + 6 × 1
E = 1,000,
1 - I U U U U U I U A 1 0 2 0 6 0 10206 = 10206

I = 100,
2 I - O E E A A I E I 2 3 3 1 0 0 23310

O = 10,
3 U O - U U A A U U X 2 0 0 1 5 1 30015

U = 1,
4 U E U - A U U U U U 1 1 0 0 7 0 11007

X = -10,000.
5 U E U A - U U O O U 1 1 0 2 5 0 11025
6 U A A U U - I U U U 2 0 1 0 6 0 20106
7 U A A U U I - U U X 2 0 1 0 5 1 30105
8 I I U U O U U - I U 0 0 3 1 5 0 315
9 U E U U O U U I - E 0 2 1 1 5 0 2115
10 A I X U U U X U E - 1 1 1 0 4 2 31104
Dimensionless Block Diagram (cont’d)
The procedure
Step 0. Select the department with the highest TCR value and place it in the middle of the layout. Mark
“last to place” to those departments having an X relation with this department.

Step 1. From the remaining departments which have an A relation with any of the placed departments,
select the one with the highest TCR value (those marked “last to place” have the lowest priority
even if their TCRs are higher). If no remaining department has an A relation with the placed
departments, then select from those having an E relation with the placed departments, and so on.
Mark “last to place” to those departments having an X relation with the selected department.
Example: Determining The Order of Placing

Department Summary
Placed Last to place To be placed
Dept. 1 2 3 4 5 6 7 8 9 10 A E I O U X TCR
10 3, 7 A: 1
1 - I U U U U U I U A 1 0 2 0 6 0 10206
1 3, 7 E: 9
2 I - O E E A A I E I 2 3 3 1 0 0 23310
9 3, 7 E: 2
3 U O - U U A A U U X 2 0 0 1 5 1 30015
2 3, 7 A: 6
4 U E U - A U U U U U 1 1 0 0 7 0 11007
6 3, 7 E: 4, 5
5 U E U A - U U O O U 1 1 0 2 5 0 11025
5 3, 7 A: 4
6 U A A U U - I U U U 2 0 1 0 6 0 20106 4 3, 7 I: 8
7 U A A U U I - U U X 2 0 1 0 5 1 30105 8 3, 7 3, 7
8 I I U U O U U - I U 0 0 3 1 5 0 315 7 3
9 U E U U O U U I - E 0 2 1 1 5 0 2115 3
10 A I X U U U X U E - 1 1 1 0 4 2 31104

Sequence: 10 → 1 → 9 → 2 → 6 → 5 → 4 → 8 → 7 → 3
Dimensionless Block Diagram (cont’d)
Step 2. Number the positions around the placed departments anti-clockwise starting from the left side of the most left-
upper placed department, see the example below. Place the selected department into one of the numbered
positions so that its weighted placement value will be maximized. If ties exist, place it into the position with
smaller number.
The weighted placement value: When the department in a
position,
10 9 8
For each placed departments having side touch with it,
12 11 i 7 assign a value according to their relation: A = 10,000; E =
1,000; I = 100; O = 10; U = 1; X = -10,000;
1 j k 6 For each placed departments having corner touch with it,
assign a value according to their relation: A = 5,000; E = 500;
2 3 4 5 I = 50; O = 5; U = 0.5; X = -5,000;

The weighted placement value of the department is then the

sum of the values for all the placed departments touching
with it.
Step 3. If all the departments have been placed, STOP! Otherwise, go to Step 1.
 Department Summary

Example: Determining Relative of Positions Dept. 1 2 3 4 5 6 7 8 9 10 A E I O U X TCR

1 - I U U U U U I U A 1 0 2 0 6 0 10206

2 I - O E E A A I E I 2 3 3 1 0 0 23310

3 U O - U U A A U U X 2 0 0 1 5 1 30015

4 U E U - A U U U U U 1 1 0 0 7 0 11007

8 7 6 10 9 8 7 5 U E U A - U U O O U 1 1 0 2 5 0 11025

6 U A A U U - I U U U 2 0 1 0 6 0 20106

1 10 5 ➔ 1 1 10 6 7 U A A U U I - U U X 2 0 1 0 5 1 30105

8 I I U U O U U - I U 0 0 3 1 5 0 315

2 3 4 2 3 4 5 9

10
U

A
E

I
U

X
U

U
O

U
U

U
U

X
I

U
-

E
E

-
0

1
2

1
1

1
1

0
5

4
0

2
2115

31104

Sequence: 10 → 1 → 9 → 2 → 6 → 5 → 4 → 8 → 7 → 3

12 11 10 9 12 11 10 9
1 1 10 8 1 1 10 8
➔
2 3 9 7 2 2 9 7
4 5 6 3 4 5 6
 Department Summary

Example: Determining Relative of Positions (cont’d)

Dept. 1 2 3 4 5 6 7 8 9 10 A E I O U X TCR

1 - I U U U U U I U A 1 0 2 0 6 0 10206

2 I - O E E A A I E I 2 3 3 1 0 0 23310

3 U O - U U A A U U X 2 0 0 1 5 1 30015

4 U E U - A U U U U U 1 1 0 0 7 0 11007

12 11 10 9 14 13 12 11 5 U E U A - U U O O U 1 1 0 2 5 0 11025

6 U A A U U - I U U U 2 0 1 0 6 0 20106
14 13 1 10 8 16 15 1 10 10 7 U A A U U I - U U X 2 0 1 0 5 1 30105

➔ ➔ 8 I I U U O U U - I U 0 0 3 1 5 0 315

1 6 2 9 7 1 6 2 9 9 9 U E U U O U U I - E 0 2 1 1 5 0 2115

10 A I X U U U X U E - 1 1 1 0 4 2 31104

2 3 4 5 6 2 3 5 7 8
Sequence: 10 → 1 → 9 → 2 → 6 → 5 → 4 → 8 → 7 → 3
4 5 6

14 13 12 11 14 13 12 11

16 15 1 10 10 16 15 1 10 10
1 6 2 9 9 ➔ 1 6 2 9 9

2 4 5 7 8 2 4 5 8 8

3 4 5 6 3 4 5 6 7
 Department Summary

Dept. 1 2 3 4 5 6 7 8 9 10 A E I O U X TCR

Example: Determining Relative of Positions (cont’d) 1 - I U U U U U I U A 1 0 2 0 6 0 10206

2 I - O E E A A I E I 2 3 3 1 0 0 23310

3 U O - U U A A U U X 2 0 0 1 5 1 30015

4 U E U - A U U U U U 1 1 0 0 7 0 11007

5 U E U A - U U O O U 1 1 0 2 5 0 11025

6 U A A U U - I U U U 2 0 1 0 6 0 20106

7 U A A U U I - U U X 2 0 1 0 5 1 30105

8 I I U U O U U - I U 0 0 3 1 5 0 315

9 U E U U O U U I - E 0 2 1 1 5 0 2115

16 15 14 13 12 10 A I X U U U X U E - 1 1 1 0 4 2 31104

7 1 10
1 7 1 10 11 Sequence: 10 → 1 → 9 → 2 → 6 → 5 → 4 → 8 → 7 → 3

➔ 3 6 2 9
➔ 2 6 2 9 10
4 5 8
3 4 5 8 9
4 5 6 7 8

All departments have been placed now,

the Dimensionless Block Diagram is completed
Space Relationship Diagram
➢ Combine the space consideration with the REL diagram.

➢ Replace the unit squares of the dimensionless block diagram with space templates.

➢ Construct different space relationship diagrams from the same REL diagram.

Number Department name Area (ft2) Number of Template

unit squares dimensions
1 Offices 1200 48 6x8
2 Foreman 150 6 2x3
3 Conference room 300 12 3x4
4 Parcel post 400 16 4x4
5 Parts shipment 600 24 4x6
6 Repair and service parts 300 12 3x4
7 Service area 900 36 6x6
8 Receiving 600 24 4x6
9 Testing 1000 40 5x8
10 General storage 3000 120 10 x 12
8450 ft2 338
Scale: 1 unit square = 5 ft x 5 ft = 25 ft2
Space Relationship Diagram

1. Office 10. General storage

7. Service area

3. Conference 6. Repair and 2. Foreman

Room Service Parts
9. Testing

4. Parcel Post 5. Parts shipment 8. Receiving

Alternative Block Plans
8. Receiving

1. Office 10. General storage

10. General storage

1. Office
3. Conference
Room
2. Foreman

6. Repair and Service 9. Testing

7. Service area Parts
6. Repair 4. Parcel Post
and Service
Parts
7. Service area
9. Testing
5. Parts shipment
3. Conference
4. Parcel Post
5. Parts shipment 8. Receiving 2. Foreman
Room

(c) Total area = 8,300 sq. ft

(a) Total area = 8,075 sq. ft

8. Receiving 8. Receiving

10. General storage

1. Office
1. Office 10. General storage

3.
Conference
Room 5. Parts
3. Conference Room
6. Repair shipment
and Service 4. Parcel Post
Parts 7. Service
area 6. Repair
9. Testing and Service
Parts
7. Service area
2.
5. Parts shipment 4. Parcel Post
9. Testing
Foreman

2. Foreman

(b) Total area = 8,400 sq. ft (d) Total area = 8,350 sq. ft