Manufacturing Process and Production Planning

Posted on Mar 1, 2025 in Business Administration and Management (BAM)

Key Considerations for Product Production

Before launching a product, we address several preliminary questions:

  • How much money should we invest?
  • How quickly can we recover the investment?
  • What stock of raw materials and finished products do we need?
  • How much will it cost to produce the required amount?
  • How many employees do we need?
  • What type of contracts should these workers have?

To produce a product, besides securing resources like facilities, equipment, and personnel, we must organize them by defining the process that leads to the final product (production process). This process is detailed in the production plan, which outlines all technical and organizational aspects of manufacturing the product.

Essential Planning Components

  • Investment Plan: What investments are necessary? (Premises, machinery, tools, vehicles, etc.)
  • Expense Plan: What expenses are required for production? (Raw materials, energy, insurance, etc.)
  • Stock Management: What quantities should be stored? How many orders should be placed per year? What is the optimal stock level?
  • Production Stage Description: How many phases are in the production process? What are the conditions for each phase?
  • Staff Recruitment: How many people are needed? What roles will each person have?
  • Time Needed: How long does it take to manufacture a good or provide a service?
  • Cost Calculation: How much will it cost to produce the planned quantities?
  • Profitability Threshold: What is the minimum revenue needed to cover costs and achieve profitability?
  • Average Collection Period: How long does it take from the initial investment to recover the funds?

Product Description

  • What goods or services are offered?
  • Will there be an extended product line? What will it include?
  • What labeling and presentation should the product have?
  • How will distribution be handled?
  • When will the product be launched?

Phases of Production

The phases of production are the individual steps that make up the manufacturing of a product or the provision of a service.

Example: Production of Lead Soldiers

  1. Place lead in a crucible.
  2. Melt the lead.
  3. Pour the molten lead into molds.
  4. Inspect and control the operations.
  5. Wait for the figures to cool.
  6. Paint the figures.
  7. Final inspection and quality control.

Sales Forecasting

Forecasting: How many units will be sold, or how many services will be provided within the set timeframe? It’s crucial to set achievable goals, as the production plan will be based on this forecast.

Detailed Investment Plan

The Investment Plan must detail the investments and the amount for each:

  • Premises
  • Machinery
  • Vehicles
  • Facilities
  • Furniture
  • Setup and commissioning costs

Detailed Expense Plan

The Expense Plan should list the necessary expenses to obtain the product:

  • Materials
  • Energy and other supplies
  • Depreciation
  • Salaries and Social Security
  • Insurance
  • Maintenance and repairs
  • Financial expenses
  • Rentals
  • External services
  • Transport and fuel

Warehouse Management

How much raw material should be kept in the store? Insufficient raw materials can halt production and lead to economic losses. Excessive raw materials in the warehouse lead to immobilization, potential neglect, and other economic issues. It also requires more space, insurance, etc.

Managing the Store

  • Study providers: Evaluate value for money, their ability to fulfill orders, delivery reliability, and adherence to deadlines.
  • Calculate the daily amount of raw material consumed.
  • Ordering: Orders should be placed periodically to cover daily consumption, plus a safety stock (to account for order backlogs, increased production, etc.).

Optimal Ordering Strategy

What is more efficient: frequent small orders or infrequent large orders?

Costs to consider:

  • Cost of transport
  • Cost of storage (theoretically 20-25% of the value of stored goods)

Formula for Economic Order Quantity (EOQ):

Q = square root (2 * T * Cc / Cm)

  • Q: Ideal number of units to order for each order.
  • T: Total number of units consumed in a year.
  • Cc: Cost of order (transport, telephone, administrative, postal, etc.).
  • Cm: Maintenance cost or storage cost (warehouse rent, worker salaries, insurance costs, opportunity cost, etc.).

Average number of units in stock = Q / 2 + Es

  • Es: Safety stock.

Characteristics of Raw Materials

Consider factors such as material aging, anticipated changes in production, etc.