Operations and Manufacturing
The manufacturing operation can involve significant commitments to investment capital for plant and equipment which may require heavy financing expenditure. For a small company or a start-up venture this could involve major risks which could render the venture unattractive to the potential financial backers. It is possible to reduce capital requirements by sub-contracting manufacture to other companies and by leasing certain types of equipment and machinery. However, these strategies must be weighed against the need to achieve a sufficiently high and reliable level of production to satisfy the company’s customers. The potential backers will want to see that a satisfactory compromise has been reached between the containment of capital requirements and adopting a penny-pinching approach which could cause manufacturing problems and supply bottle-necks once the company has started operation. All costs associated with manufacture will have to be fed into the business plan five year projections in order to produce cash flow forecasts, pro-forma balance sheets and break-even forecasts.
The plan must also discuss how manufacturing will be controlled and monitored and the level of stocks of raw materials and finished products which will have to be maintained. Material requirements, costs and supply sources and terms of supply must be included in the costing. The role and responsibilities of key production management personnel must be specified. The availability of a sufficiently skilled labour force must be indicated and the industrial relations record presented.
CHECK LIST
- Will you make the product yourself or sub-contract the work?
- Will you hire or buy premises or machines?
- What are the exact machinery requirements and what will they cost?
- What are the manufacturing costs?
- How much raw material has to be bought and will you make to stock or to order? Who will be your suppliers?
- What are the delivery times for orders?
- Who will solve problems such as trials and quality control?
- Have roles and responsibilities of the key management personnel been specified?