Hello Fatima,
I have a different question. Have you analyzed why people are coming late?
Some of them will be undisciplined, lethargic but not everyone else. Try to find out the area/reason which will make them feel excited about reaching on time. Interview a few of them informally to know the real reasons (e.g., are they working long hours in the office every day?).
Check the location of your office/factory and where most of them are staying. Is it too far? Allowing a grace period is a good suggestion but that should be practical. If the location is in the outskirts, people are bound to be somewhat late, especially when driving through their means.
Applying a penalty for frequent latecomers is obvious. Yes, negative motivation is necessary to maintain decorum.
Nevertheless, I would like to suggest you devise something that works as positive motivation, e.g., bonus points if an employee attends the office within the given time in a month. You may convert these bonus points into some sort of gift or a vital point connecting to the Appraisal parameters.
Hope it helps. All the best!