75  Facility Location and Layout

75.1 Why Location and Layout Matter

A facility decision is strategic, expensive, and difficult to reverse. Location answers where to set up the plant or service centre; layout answers how to arrange the inside of that facility. Both decisions shape long-run cost, capacity and competitiveness.

TipWhy Location Matters
Reason Impact
Cost Wages, real estate, transport, utilities
Access to inputs Raw materials, labour pool, supplier ecosystem
Access to markets Customer proximity, distribution efficiency
Regulatory environment Tax, labour law, environment, FDI
Risk Political, currency, climate
Network effects Cluster benefits (Silicon Valley)

75.2 Factors Affecting Location

TipEight Factors Affecting Facility Location
Factor Examples
Proximity to markets Reduces logistics cost; speed
Proximity to inputs Raw material, labour, suppliers
Transport / Infrastructure Roads, ports, rail, airports
Labour Skill, cost, union, availability
Utilities Power, water, telecom, internet
Regulation and taxation Excise, GST, SEZ benefits
Climate and quality of life Attracting talent
Government incentives Subsidies, tax holidays, infrastructure

75.3 Theories of Location

TipThree Classical Theories of Location
Theory Author Idea
Weber’s Industrial Location Alfred Weber (1909) Minimise total transport cost (raw material + finished good)
Central Place Theory Walter Christaller (1933) Hierarchy of cities supplying surrounding areas
Hoover’s Location Theory Edgar Hoover Location depends on procurement, processing, and distribution costs

Weber identifies three location pulls:

TipWeber’s Three Pulls
Pull Locate near
Material-oriented Raw material (when material loses weight in processing — sugar, cement)
Market-oriented Market (when product gains weight — soft drinks, bread)
Footloose / Labour-oriented Skilled labour (services, IT)

75.4 Location Selection Methods

TipCommon Location-Decision Methods
Method What it does
Factor-rating method Score each candidate on weighted factors; pick highest
Centre-of-gravity method For multi-source logistics — minimises weighted distance
Load-distance method Minimise total distance × load
Break-even location analysis Compare fixed and variable costs across sites
Transportation model (LP) Linear-programming optimisation
Simulation For complex multi-facility networks

The centre-of-gravity formula:

\[X^* = \frac{\sum L_i \cdot X_i}{\sum L_i}, \quad Y^* = \frac{\sum L_i \cdot Y_i}{\sum L_i}\]

where \(L_i\) is the load to/from location \(i\).

75.5 Plant Layout — Definition and Objectives

Plant layout is the physical arrangement of equipment, workstations, materials, and people in a facility. Objectives:

TipFive Objectives of a Good Layout
Objective What it captures
Minimise material handling Less movement = less cost
Use space efficiently Fit more in less
Improve work flow Smooth and continuous
Provide flexibility Easy to reconfigure
Ensure safety Reduce accidents

75.6 Types of Plant Layout

TipFour Classical Layout Types
Type Description Best for Example
Process / Functional Group similar processes together Job shops, low volume, high variety Hospital wards, machine shops
Product / Line Equipment arranged by product flow High volume, low variety Assembly lines
Cellular Grouped families of similar parts in cells Medium volume / variety Group technology cells
Fixed-position Product stays put; workers and equipment move to it Large, immobile products Shipbuilding, construction 

flowchart LR
  P[Process<br/>Job shop] --- C[Cellular<br/>Group technology]
  C --- L[Product / Line<br/>Assembly]
  L --- F[Fixed-position<br/>Shipbuilding]
  style P fill:#E3F2FD,stroke:#1565C0
  style F fill:#FCE4EC,stroke:#AD1457

75.7 Hybrid and Modern Layouts

TipHybrid and Modern Layout Concepts
Concept Description
Cellular manufacturing Groups of dissimilar machines arranged for a part family
U-shaped lines Lean layout for flexibility and visibility
Just-in-Time (JIT) layouts Minimise inventory; smooth flow
Service layouts Retail (grid, loop, free-flow), warehouse, office
Lights-out factory / Smart factory Automation, IoT, predictive maintenance

75.8 Indian Location Considerations — SEZs

TipIndian Location Considerations
Item What it offers
Special Economic Zones (SEZ Act, 2005) Tax holidays, simplified procedures, exempt from many regulations
Industrial corridors Delhi-Mumbai, Chennai-Bengaluru, Amritsar-Kolkata
GIFT City (IFSC) International financial-services centre
State industrial policy State-specific subsidies, incentives
PLI schemes Production-Linked Incentive — for 14+ sectors
Make in India National manufacturing initiative since 2014

75.9 Practice Questions

Q 01 Weber Medium

Weber's industrial-location theory is best summarised as:

  • AMaximise revenue
  • BMinimise total transport cost (raw materials + finished goods)
  • CLocate where labour is most expensive
  • DLocate at random
View solution
Correct Option: B
Weber (1909) — minimise transport cost. Three pulls: material-oriented, market-oriented, footloose / labour-oriented.
Q 02 Layout Type Medium

A shipyard, where the product is too large to move and equipment / workers come to it, is best described as a:

  • AProcess layout
  • BProduct / line layout
  • CCellular layout
  • DFixed-position layout
View solution
Correct Option: D
Fixed-position — product stays put. Examples: ships, aircraft, large construction.
Q 03 Process Layout Medium

A "process layout" — grouping similar machines together — is best for:

  • AHigh volume, low variety
  • BLow volume, high variety (job shop)
  • CContinuous production
  • DProject-type production
View solution
Correct Option: B
Process layout suits low-volume, high-variety operations — flexibility but more handling.
Q 04 Centre of Gravity Medium

The centre-of-gravity method is most useful for:

  • ALocating a single distribution centre to serve multiple sources / markets
  • BCost-volume-profit analysis
  • CCapacity planning
  • DQuality management
View solution
Correct Option: A
Centre-of-gravity finds the location that minimises weighted distance to multiple sources or markets.
Q 05 SEZ Medium

India's Special Economic Zones Act was enacted in:

  • A1991
  • B2000
  • C2005
  • D2014
View solution
Correct Option: C
SEZ Act 2005. Earlier export-oriented zones (EPZs, EOUs) existed since 1965 (Kandla).
Q 06 Cellular Medium

Cellular manufacturing arranges:

  • AIdentical machines together
  • BDissimilar machines into cells, each completing a part family
  • CEquipment alphabetically
  • DWorkers by seniority
View solution
Correct Option: B
Cellular manufacturing groups dissimilar machines into a "cell" that completes a family of parts — a hybrid of process and product layouts.
Q 07 Make in India Medium

India's "Make in India" initiative was launched in:

  • A1991
  • B2005
  • C2014
  • D2020
View solution
Correct Option: C
Make in India launched 25 September 2014. The PLI schemes (2020 onwards) operationalise sectoral incentives.
Q 08 Weber Pull Medium

A bottling plant typically locates near the market because the product:

  • ALoses weight in processing
  • BGains weight in processing (water added)
  • CIs difficult to transport raw materials
  • DHas highly skilled labour requirements
View solution
Correct Option: B
Bottling = adding water and packaging. The product gains weight, so transport cost favours market-oriented location (Weber's pull).
ImportantQuick recall
  • Location decisions are strategic, expensive, hard to reverse.
  • Weber (1909) — minimise total transport cost. Three pulls: material · market · footloose.
  • Methods: factor rating, centre of gravity, load-distance, break-even, LP transportation, simulation.
  • Plant layout types: Process · Product/Line · Cellular · Fixed-position.
  • Process layout for low-volume / high-variety; line for high-volume / low-variety; fixed-position for very large products; cellular as hybrid.
  • India: SEZ Act 2005, Make in India 2014, PLI schemes, GIFT-IFSC, industrial corridors.