Process location and layout decisions

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Author: Ellen Zhuang [2016]

Stewards: Daniel Garcia, and Fengqi You



Location is one of the first decisions in the design of a new chemical plant. It impacts profitability and scope for future expansion. If the project is a new facility, a suitable site must be found and an optimal layout of the site and process units must be planned. If the project adds to an existing site, the impact of the new addition on the existing plant must be considered. The plant also needs to accommodate for the nearby infrastructure, the services that it requires, and its environmental impacts.

Location Selection

Location Decision Factors

Initially, economists viewed the plant location decision as a cost-minimization problem. The optimal location was one where the transportation costs of raw material to the plant and product to the market was minimized. Between the early 1900s and post World War II period, most industries were sensitive to the cost of transportation. As transportation costs became less of an obstacle, the approach to the problem developed with considerations of trade-offs between transportation and factors such as wages, energy, local regulations, etc. If lower wages could balance the higher transportation costs of building the plant in a low-wage area, the low-wage location may be more desirable.

Although location is a long-term investment, a firm does not decide on a location with the sole objective of maximizing its profits or minimizing its costs. Managers may choose a “safer” location that is more likely to produce higher profits rather than a riskier location that yields the maximum investment return. Personal factors of the people involved are also influences. For example, new businesses tend to locate where the founders live.2

In the current age, a plant's site is chosen based on several factors. These include:1,2,3,8

1. Raw material supply: The source and price of raw materials is one of the most important factors that determine the location of a plant. Facilities that produce chemicals in bulk are usually located close to the source of raw material if the costs of shipping the product is less than the costs of shipping the feed. For example, ethylene production is growing in the Middle East since cheap ethane from natural gas is readily available. Oil refineries tend to be located near areas with high population and crude oil supplies since it is expensive to transport the oil.

2. Location with respect to market: If the plant produces high-volume and low-cost products, such as cement and fertilizer, it may be better to situate the plant closer to the primary market since transportation cost is a large fraction of the sales price. If the product is low-volume and high-cost, like pharmaceuticals, then the benefits of being closer to the primary market may not be there.

3. Transport facilities: Facilities should be close to at least two major forms of transportation, whether that be road, rail, waterway, and/or seaport. For example, paper manufacturing plants in the US use various types of pulp that are delivered by truck or by train from various places in North and South America, so paper facilities need to be close to rail and major roads. Transportation by road is common for local distribution from central warehouses, while transportation by rail is more widespread for long distance transport of bulk chemicals. Pipeline is used to ship industrial gases and bulk fuels. Air freight can be efficient for shipment of personnel and essential units and supplies and for small volume products that have high value, such as pharmaceuticals. Of course, products that are delivered by air must meet aviation regulations.

4. Availability of labor: Skilled workers are usually brought to the plant from outside the area. There should be a local pool of unskilled labor that can be trained to operate the plant, and of skilled craft workers to maintain the process units. Local labor laws, trade union customs, restrictive practices for recruitment and training should also be taken into consideration. A 10% increase in unionization of a state's labor force is projected to reduce the number of expanding facilities by 30 to 45%.

5. Availability of utilities: Processes that require a substantial amount of cooling water is usually located near water sources, such as rivers or wells. Cooling water may be directly taken from the water source, or may be stored in cooling towers. Those that need large quantities of power, such as electrochemical ones, are typically close to cheap power sources.

6. Availability of suitable land: The ideal land is flat, well-drained, with suitable load-bearing characteristics. Further considerations have to be made if the land is reclaimed land near the ocean in earthquake zones. Property tax is also a factor when choosing a site since property taxes vary area to area. Under a third of plants that relocate move to regions with lower property taxes, which is the proportion that would be expected if companies move to a new location regardless of property tax. High property taxes is not as significant as other factors such as labor supply and land costs.

7. Environmental impact: Depending on the location, it may be more difficult and costly to dispose of wastes. During the project design phase, experts are typically consulted to learn more about an area's local regulations. More details about environmental regulations are found below.

8. Local community considerations: State and local planners are typically motivated by the desire to create jobs and improve the tax base. Introduction of facilities to an area is usually viewed as the most direct way to stimulate the area's economy. However, recent studies have found that communities with high-growth are already characterized by the fast growth of businesses that are already there. It is rare for a plant to completely close in one area and relocate to another, and if plants do relocate, the majority is over short distances and often within the same community. Therefore, local policymakers favor the expansion of existing plants. The opening of a new plant at a location should impost no additional risk to the local residents. For example, they should be downwind of the residential areas. Local communities also need to be able to accommodate the plant personnelles. For example, traffic, housing, and facilities must be able to accommodate the influx of workers. Additional factors are property taxes and water consumption.

9. Climate: The climate of the area may affect processes and costs. For example, plants in cold areas need more insulation and special heating. Facilities in earthquake areas need to be seismically sound. Plants in areas with high ambient humidity will usually use air cooling instead of water cooling. More detailed information about the effects of weather can be found in the Site condition and design page.

10. Political and strategic considerations: Government sometimes gives capital grants, tax concessions, and other incentives to encourage plants to be built in specific areas. Physical assistance such as roads, water, and other public infrastructure are more popular than financial assistance. Companies can also globalize and take advantage of areas with preferential tariff agreements. The tax policy of an area is inversely related to growth. High personal income sometimes hinder employment growth. Personal income does not affect the cash flow of the company, but it reduces the after-tax income of its managers, and thus high personal income tax can be classified as a personal region. High state corporate taxes has also and detrimental effects on growth, but that is not always the case. Corporate tax is more important to firms with high capital expenditures.

Analysis of the Importance of Factors

In 1963, Morgan surveyed 17 companies and found that on average the most important factors on industrial location decisions are market, labor, and raw material. Taxes and financial incentives were of little significance. More recently, Fortune magazine surveyed among the 1000 largest US companies and found that the most important factors were market and labor. The survey also found that personal preferences of a firm's executive, tax, and central cities have great influence over the site of corporate headquarters. Surveys of interstate locational decisions found that the factors that played key roles for new firms were access to customers and the growing market, labor force, transportation, personal reasons of management, and availability of capital. The cost of land had the least important influence. For firms that expanded across states, the influential factors were labor costs and labor supply. Companies seeking expansion usually have made their production more routine, so quick access to suppliers is less of a concern. Cost minimization becomes more relevant to existing corporations.2

Site Selection Process

The decision for the location of a facility is part of a larger corporate planning process. Usually, a corporate planning office or a division of the company initiates the site selection process by forecasting future capacity requirements. If capacity shortages are in the forecasts, the managers may choose to outsource, increase price to reduce the demand, expand existing sites, or open a new facility. If the managers decide on a new facility, the site selection team enters the project.

The structure of the site selection team depends on the firm's organization. In companies with centralized staff, the site selection team generally consists of representatives from relevant areas, such as engineering, real estate, and transportation. In companies with strong divisions, the locational decisions may be done at the divisional level, with the corporate office supervising the process.

The site selection team determines what characteristics are important for the new location by considering how the new facility will fit in the company's overall strategy, if the company wants to target new markets, if the corporation wants to divide or integrate its functions, or how the company wants to be seen by the public. Next, potential locations are listed and studied against the desired characteristics.

Locational decisions are typically made sequentially. The first step is at the state or regional level. Then, the team studies specific communities and sites. Different locational factors are important to different stages. When selecting a general region, the site selection team focuses on factors with interregional variations such as labor, tax policies, climate, and market locations. At the more focused stage, details like inexpensive land, access to to major roads, and good schools are important. Consultants are often hired to do site analyses.

Once site options are narrowed down, the company discusses potential problems and incentives with local public officials. Construction costs are estimated, and a feasibility analysis is done to show that the project has a high rate of return.2

Biofuel Supply Chain Example

Biofuels is a popular potential alternative to fossil fuels. Various biomass resources, including food crops, non-food crops, and agricultural residues, are converted into biofuels. The two most common biofuels currently are ethanol and biodiesel. The supply chain for biofuel is a network consisting of several nodes: biomass cultivation sites, biofuel production plants, and demand centers. The locations of these facilities, and the location of the demand centers with respect to the biofuel demand impact transportation costs, production resource, demand, etc., and thus affects and sets constraints to the cost minimization of the supply chain. The optimal supply chain design here minimizes the total cost, which is a sum of the total investment cost, production cost, transportation cost, and outsourcing and import cost. The total transportation cost captures the transportation of biomass and biofuel between areas and the local bio mass transfer. Location of the facilities also sets constraints on the regional demand of biofuel and availability of local biomass. Sustainability constraints ensure that plants do not negatively affect the food production, sustainably use the land, and don't compete with other industries that use biomass.4

Figure 1. The biofuels supply chain consists of three notes: biomass cultivation sites, biofuel production plants, and biofuel demand centers.1
Figure 2. An example of a Great Britain biofuel supply chain design that minimizes cost. The plants are near areas with high raw material supply. The locations of the plants with respect to the demand centers are also optimized. The main modes of transportation are road, rail, and ship.4

Site Layout

The process units and buildings need to be arranged in such a way that allows for the most economical flow of materials and people. Dangerous processes need to be a safe distance from other buildings, and the layout should be planned to allow for future expansion.

Process units are usually laid out first in an arrangement that allows for smooth flow of materials between the process steps. The distance between equipment is usually at least 30 m. Next, the location of the principal ancillary buildings are sited as to minimize the time that it takes the workers to travel between buildings. Administrative offices and laboratories are located away from hazardous processes. Control rooms are next to the processing equipment. Utility buildings are located as to minimize piping between the process units. Storage is placed between the loading and unloading facilities and next to the process units that they serve. Tanks containing hazardous material are placed at least 70 m from the plant. An example of a typical site plan is shown below.1

Figure 3. A typical site layout.1

Site Layout Factors

The main factors that are considered when planning the layout of the plant are listed below.1

1. Economic considerations (construction and operating costs): Construction costs can be minimized by arranging process units and buildings that minimize pipes between equipment, the amount of structural steel work, etc. However, this layout may conflict with the layout that gives the optimal operation and maintenance.

2. Process requirements: Examples of process considerations that must be taken into account is the elevation of the base of columns to give enough net positive suction head to a pump.

3. Operation convenience: Process units that are attended to frequently should be placed with convenient access. Valves, heads, and sample heads should be placed where operators can easily access. If the plant anticipates replacement of equipment, space must be allowed for removal and installation.

4. Maintenance convenience: Equipment that requires maintenance should be in a location with easy access, and should have sufficient space for the maintenance tasks. For example, shell-and-tube exchangers need space so that tube bundles can be removed for cleaning and repair.

5. Future expansion: The layout should be planned to conveniently allow for future expansion of processes. Pipe racks should have space for future piping, and pipes should be oversized to allow for more flow in the future.

6. Modular Construction: Modular construction is where sections of the plant is constructed outside of the plant, and then transported to the site by road or sea. Advantages include improved quality control, reduced construction costs, less requirements for skilled labor on site. Tradeoffs are more flanged connections and possible problems with onsite assembly.

7. Safety: Escape routes for workers need to be in place at each level in process buildings. Blast walls must isolate equipment that pose hazards to confine potential explosions.

First, a conceptual flowsheet for the process is developed. The types of equipment and their connections with each other is described in a process flow diagram (PFD). Before the PFD is translated into detailed piping and instrumentation diagrams (P&ID) the layout of the process units must be planned.3,5 Scale drawings are made to show the relationships between storage space and process equipment based on the flow of materials and people, and on future expansion. Three-dimensional visualization are the layouts are then carried out with cardboard cutouts of the equipment outlines or rectangular and cylindrical blocks. When a layout of the major process units has been decided, drawings of the plan and elevation are made, and design of the structural steelwork and foundations are done. Computer-aided design has also become increasingly popular.1,3,7

Environmental Considerations

Laws that protect the environment restrict the waste that plants can emit in order to preserve air, land, and water quality. States, provinces, and municipals usually have additional laws to national ones. In the US, environmental policies are moving towards more uniform and strict regulations. Businesses that produce more pollution are more likely to move to regions where local regulations are more lax, and industries in areas with more stringent policies will decline. The tighter national regulations are implemented to prevent this competition between regions. For example, amendments to the Clean Air Act and the Environmental Protection Agencies in the 1970s and 1980s reduced differences in regions' air pollution controls. Congress voted on the PSD (prevention of significant deterioration) to "level the playing field" across regions.1

Some of the main environmental legislations in North America are:

  • The National Environmental Policy Act of 1969 (NEPA) - Signed by President Nixon, NEPA was one of the first laws that provide a national framework for the protection of the environment. It requires that all executive federal agencies consider the environmental impact of proposed actions. Government agencies must prepare environmental assessments and environmental impact statements that describe potential environmental effects. NEPA is implemented when buildings, airports, military complexes, parkland purchases, and highways are proposed.6
  • The Clean Air Act (CAA, 1970) - The CAA was implemented to control air quality on a national level. The law was amended in 1990 to address issues such as acid rain, ozone depletion, and toxic air pollution, and to increase enforcement authority. Under the National Ambient Air Quality Standards (NAAQS), the law sets limits to allowable ambient levels of seven contaminants: ozone, carbon monoxide, lead, nitrogen dioxide, sulfur dioxide, PM10, and PM2.5. The CAA also requires that the EPA set US National Emissions Standards for Hazardous Air Pollutants (NESHAP), which regulates the emission of 189 hazardous air pollutants. The Maximum Available Control Technology (MACT) was implemented to limit the emission of volatile organics, sulfur, and other inorganic compounds from oil refineries. The CAA has had significant impact on the level of air pollutants that it regulates. Particularly in the Midwest and the Northwest, water acidity has been reduced. On the other hand, reduction of ozone damage has not been as successful since nitrogen oxide, which is linked to ozone formation, is not as tightly regulated.
  • The Federal Water Pollution Control Act (The Clean Water Act, 1972) - The Clean Water Act was initially passed to clean water used for swimming and boating, and to protect wildlife. Amendments were later added to address water quality and toxic compound emissions. Under the CWA, the EPA can set water quality standards and monitor the industries' discharge into waters.
  • The Safe Drinking Water Act (SDWA, 1974) - This act allows the EPA to set standards to potential drinking water. Public water systems must operate according to these standards.
  • The Resource Conservation and Recovery Act (RCRA, 1976) - The RCRA protects current and future groundwater facilities from contamination. Firms that produce waste must have a "cradle to grave" approach to managing waste, meaning that the waste producer is legally responsible for the waste from the moment it is produced until it is finally disposed.
  • The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund, 1980) - This legislation creates a tax on chemical and petroleum industries in order to cover the remediation of hazardous waste sites that are uncontrolled or abandoned. The CERCLA empowers EPA to remediate waste sites by short-term removal of material or long-term remediation actions, depending on the risk that the waste imposes on life.
  • The Pollution Prevention Act (PPA, 1990) - This act promotes minimization of waste and pollution at their source. It encourages more efficient processing and raw materials and recycling through grants, technical assistant, and information.
  • The Oil Pollution Act of 1990 (OPA, 1990) - This act was passed after the Exxon Valdez oil spill in the Prince William Sound in Alaska, creating a tax on oil to cover the cost of responding to spills when the corporation that creates the spill does not respond.
  • The Department of the Environment Act (E-10) - The Department of Environment Act created the Department of Environment and charges the Minister of the Environment with creating programs that protect the environment, assessing environmental impacts of federal program, and reporting information to the public in Canada.
  • The Canadian Environmental Protection Act (CEPA, C-15.31, 1999) - CEPA empowers Environment Canada to control toxic substances, reduce pollution, and reduce bioaccumulating toxic substances. Canada will use CEPA to implement regulations that helps it meet its commitments to the Kyoto Protocol.
  • The Canada Water Act (C-11) - This law allows the Minister of the Environment to manage water resources in Canada. This includes research, implementing conservation programs, utilization of water resources, and setting water quality standards.

Wastes comprise mainly of by-products, unused reactants, and off-specification product produced by misoperation. Leaking seals and flanges, and spills and discharges also emit waste. Material is also discharged in emergency situations. Instead of considering how to treat or manage waste, designers should start by tackling the source and find ways to minimize the production of waste.

The process of designing waste management systems are: (1) source reduction, (2) waste stream recycle, (3) waste treatment to reduce environmental impact, and (4) disposal that is legally sound. Source reduction can be achieved by reducing the concentration of impurities in the feed, protecting catalysts and adsorbents from contaminants, eliminating the use of extraneous materials, increasing recovery from separation, and improving the quality of the fuel by switching to cleaner-burning fuel. Unused feed can be recycled, and off-specification products can be reprocessed. In integral processes, the waste of one process is used as the feed for another. By-products can also be sold to another company for use as raw material. Tighter control systems, alarm, and interlocks can reduce misoperation of process unit.1

Further information about environmental considerations can be found in the Environmental concerns page.


The location and layout of a plant can greatly impact its economic and operational success. Objectives such as cost minimization, efficient material distribution, room for expansion, and safety of the plant operators and local community play important roles in the site decision. The major factors affecting this decision are market and labor. National and regional environmental legislations impact the processes, and thus make some areas more desirable than others. Least important are land costs and financial incentives. When planning to build a new facility or expanding an existing site, companies utilize their site selection team to assemble a list of desirable locational characteristics and determine how the new facility will fit in with the overall company. Then with the help of consultants, a location is narrowed down and further analyses are done to justify the continuation of the project. The location should be obtained before design of the details of the process. Within the site itself, process units are arranged to allow for the most economical flow of people and material, optimal safety, and room for future expansion.


[1] G.P. Towler, R. Sinnott, Chemical Engineering Design: Principles, Practice and Economics of Plant and Process Design, Elsevier, 2012.

[2] J.P. Blair, R. Premus. Major Factors in Industrial Location: A Review. Economic Development Quarterly. 1987;1(1):72-85.

[3] M.S. Peters, K.D. Timmerhaus, Plant Design and Economics for Chemical Engineers, 5th Ed., McGraw-Hill: New York, 2003.

[4] O. Akgul, N. Shah, L.G. Papageorgiou. Economic optimisation of a UK advanced biofuel supply chain. Biomass and Bioenergy. 2012;41:57-72.

[5] L.T. Biegler, I.E. Grossmann, A.W. Westerberg, Systematic Methods of Chemical Process Design, Prentice-Hall: Upper Saddle River, 1997.

[6] Summary of the National Environmental Policy Act website. August 2015. Accessed February 2016.

[7] R.T. Turton, R.C. Bailie, W.B. Whiting, J.A. Shaeiwitz, Analysis, Synthesis, and Design of Chemical Processes, Prentice Hall: Upper Saddle River, 2003.

[8] R.W. Schmenner, Look Beyond the Obvious in Plant Location website. January 1979. Accessed February 2016.