|Manufacturing: How to put together an operations plan for manufacturers
As a manufacturer, you operations plan must outline the process you will use to transform your inputs (such as ideas, capital, skills, materials, equipment and time) into outputs (like products, services and profits).
This factsheet will list a series of questions that you need to answer in your operations plan, and help you to answer them.
Why you should read this factsheet even if you are an expert in your business's operation
Most people who start a manufacturing business are very familiar with the production process of the business. Often, they have either worked in the production process of other businesses before, or they are turning their hobby into a business. This, together with the fact that they are almost always the production manager when they start, leads to one of the greatest problems faced by small businesses: They become entagled in the production process. They cannot step back and do proper business strategising. They find it very difficult to delegate. The result is that they struggle to grow their businesses.
In order to free yourself from your production process, it is necessary to think about your production process in terms of systems. Only then will you be able to delegate it as you grow to other people without too many problems.
This factsheet outlines the systems found in most production processes. You will notice that it urges the reader to write them down. This is especially handy if you need to communicate your production plan to a team, a joint venture partner, a financier or a consultant. If you don't have to do this, and if you don't have time for a writing-down exercise, view this factsheet as a checklist. Think through each system described, and let it lead to into thinking in systems.
What are the important features of your product? How is each product made?
- Summarise your product and what it does, emphasising those aspects that differentiate the product from others in the market (you need to have specified these aspects when focusing your business idea);
- Describe the process of making it, highlighting those aspects that require special attention in the manufacturing process (that is, those parts of the process that make your product different or better than your competitors). For instance, your process might make use of a particular tool, or skill, to improve the quality or safety of your product; and
- If you consider it useful to a non-technical reader, summarise the work-flow by outlining briefly what happens at each stage of the process (you will go into more detail in the section on work-flow below).
What equipment, accessories, material and labour do I need?
Under each of the items in the heading above, describe what goes into the manufacture of your product:
- Itemise the equipment involved, as you will have to cost each item for your financial plan. Describe how long this equipment generally lasts and how much maintenance it requires;
- List the main accessories that your equipment or your employees need in your working environment. Pay particular attention to issues of safety and occupational health (noise levels, dust, lighting, dangerous chemicals, hazardous tools, etc);
- Describe the materials and components that you will consume in the manufacturing process, and estimate what is used in each product. This could range from square metres of wooden board to litres of paint or grams of glue. This will lay the foundation for forecasting your unit cost in your financial plan; and
- Describe the skills that are required to make your product, and the number of employees that you will need to manufacture the required quantity within the required time. The quantity and time-frame will come from the sales forecast in your marketing plan, where you have estimated how many units you can sell each week, month and year.
How many factory hours do I need to meet sales forecasts?
This is where experience is important. Hopefully you will be familiar enough with this particular manufacturing process to know how long things take.
- If you don't know how many hours are required, organise a pilot scheme where you simulate the manufacturing environment and test how fast you can make the products. Don't go into business relying on guess-work about something as important as this. If the process takes twice as long as you thought, you could fail to deliver on time in your first contract - and this would be disastrous for your reputation and your chances of repeat business;
- On the basis of the time estimates, work out how many employees are needed. Show in a table or on a chart how many more workers need to be employed if more products need to be produced, and what the implications are for costings;
- Indicate what sort of can be expected, what might cause them, and how these could be avoided or managed.
What kind of facility do I need and where should it be located?
- Describe the sort of environment that you would need to house the manufacturing process, such as a workshop, a warehouse, a back-room, or a proper factory.
- What will you need in terms of power-supply (high-voltage current, number of plug-points, safety devices, etc?), lighting, ventilation, space, loading area, access, etc?
- Is it important to be close to your suppliers, or to your customers? Being near a main highway makes transport quicker.
- When choosing a location, make sure you visit it at various times of the day, especially peak traffic times. Is there traffic congestion that will slow down your deliveries?
- If your business is likely to generate a lot of noise (from angle grinders, air compressors, metal-cutting tools, hammering, etc), avoid being too close to a residential area - you don't need residents' complaints and municipality inspectors to distract you from business.
What should my factory floor layout look like?
This will obviously depend on your particular manufacturing process, but bear in mind the following:
- The flow of materials - plan your layout so that materials move the shortest possible distance between production phases. Items moving 'against the flow' of the job will raise inefficiency and the risk of accidents;
- Minimise traffic around dangerous equipment, and keep all cords and cables out of pathways. You can even paint green pathways between the work areas - using special non-slip paint - to keep people (especially visitors) a safe distance from the machinery;
- Dedicate a 'green area' in the factory (or attached to it), or a quiet room in your workshop, for employees to use as for breaks and meetings.
How can I ensure quality and cost control?
There are probably two things you need to understand about quality:
- The first is that, from a customer's point of view, quality is no longer a luxury. They will expect your products to be of good quality, even if you think you're selling them cheaply; and
- Secondly, improving your quality should not just mean spending more on your process. Getting a quality product means improving the quality of your whole process, and this should bring efficiencies and cost-savings.
A valuable approach is to look at your business from Total Quality Management (TQM) point of view; although big businesses make more use of concepts like these, there is no reason why you can't apply them to a small business.
Consider ways that you can use TQM as a tool to focus on:
- Your customers - ask yourself what they specifically want;
- Your processes - are they as efficient as they could be?
- Empowerment of your employees - can they make good decisions on their own?
- Continuous improvement - are you watching the process closely and implementing improvements, and do your employees understand that they can make improvements to the way they work?
- Ways to measure product quality, profits, and the efficiency of your process.
What will my workflow processes and schedules look like?
The way you arrange your processes will depend on how certain you are of selling your products within a certain time. If you produce goods to order, then you will have a deadline to meet and you can organise the production of that batch of goods like a project, giving attention to:
- Scheduling - draw up a timetable highlighting the times at which the various phases of the job can be started and when they must be completed;
- Estimating the amount of materials, the number of employees, and all the associated costs;
- Controlling costs as the project proceeds, ensuring that there is no significant over-spending; and
- Controlling the purchase and utilisation of materials in line with the project estimates.
If you are producing on a 'continuous' basis directly to consumers, or to other buyers who will require the goods immediately, you need to hold a certain amount of completed stock. Here you need to balance the cost of holding goods in stock ('just in case') and the more economical strategy of producing goods as you need them (making the products 'just in time' to sell them).
Will there be any variation in sales and how will this affect production?
- Your sales forecast needs to warn you of any seasonal variations in the demand for your products. It is expensive to manufacture products that don't get sold immediately. You have to pay for materials, wages and all the other inputs that go into the product, and that cash sits locked up inside the product on your shelves or in your warehouse. There is seldom enough cash in a small business to cope with this situation for too long.
- When you do find yourself in this position (and it will happen), it is important to act quickly. There are essentially three options: produce less (consume fewer inputs and hence save on costs), find other customers (expand your marketing into other areas), and/or borrow money to see you through until sales pick up.
- If sales exceed your forecasts, however, you will need to consider producing more. Note that you don't have to produce more: while there is always a risk of losing future business by not being able to supply an order, there is also a great risk of 'overtrading' when trying to meet too big an order. Small businesses, especially those that are under-capitalised, can quickly go bankrupt when forced to outlay unbudgeted amounts of cash without prompt payment from customers.
Who are my suppliers?
Your operations plan should convince the reader that there exist a number of suppliers who are willing and able to supply you with the materials and inputs that you need on a regular basis.
- Describe the suppliers (by name), what they do, where they are based and, if possible, their price list of inputs you will need;
- Describe any relationship/contact you have had with the suppliers, and whether any of them are prepared to offer credit terms or discounts;
- Describe some of the logistical issues that may be involved in getting your supplies, such as whether the suppliers can deliver materials, the price of doing this (relative to arranging your own transport facilities), etc; and
- Describe how quickly your suppliers can deliver, and give some indication of their reliability if you can.
How will I control my stock?
Keeping the right amount of stock in an organised and accessible place is both a logistical and financial issue for you. In your operations plan, describe how you will:
- Manage your stock level - this applies to both your materials and your products, as they both cost you money when they stand on your shelves. What is the minimum amount of materials or stock that you can hold? Can you get materials at short notice, so that you can hold less? Is there a substantial benefit to buying in bulk?
- Make your manufacturing process as efficient as possible, so that materials and components do not spend too much time in the 'production pipeline';
- Arrange your purchasing system, to get the best prices at short delivery times, and to keep track of orders; and
- Arrange your receiving system and inventory system, so you know what you've got and where it is.
How is the manufacturing process administered, from receiving an order to sending out an invoice?
When you are manufacturing 'to order' (that is, making the product only once its been ordered), you need to have a lot of information at your fingertips, and a system that will allow you to keep your promises to customers. Your operations plan needs to include an explanation of how you will:
- Set and manage your 'lead time'. Most manufacturing businesses will have a certain lead time on all their products - a period that most customers will be happy to wait, whether it's a day, a week or a month. From an operations point of view, however, your workshop or factory might be busier than normal. How will you keep track of this so that you can adjust your lead times and not 'over-promise' to customers.
- Who will take the order for products?
- How will you keep track of the order through the manufacturing process, so that if the customer phones to check on progress, someone can answer his query?
- How and when will the customer be in