Mastering Factory Engineering: A Guide For Manufacturing Entrepreneurs

Introduction

In the fast-paced world of manufacturing, the journey from concept to production can feel overwhelming. With countless factors to consider—ranging from technology selection to regulatory compliance—it’s easy to lose sight of the big picture. This is where factory engineering becomes a critical discipline for manufacturing entrepreneurs.

Factory engineering isn’t just about designing processes; it’s about creating a seamless, efficient, and sustainable operation that aligns with your business goals. Whether you’re building a new facility or optimizing an existing one, having a clear, step-by-step roadmap can mean the difference between success and costly delays.

This guide, “Mastering Factory Engineering: A Guide for Manufacturing Entrepreneurs,” covers everything you need to know to lay the groundwork for a successful manufacturing operation:

• How to identify your production program and align it with market needs.
• The steps to select the right production technology for your business.
• Navigating regulatory licenses and technology requirements with ease.
• Designing the production process, layouts, and engineering works for optimal efficiency.
• Assessing your building, facilities, raw materials, and key personnel to ensure smooth operations.
• And finally, accurately estimating production costs to support profitability.

By addressing these essential topics, this guide will empower you to transform your vision into a fully operational and successful manufacturing facility. Let’s get started!      

Identify The Production Program

Identifying the factory production program refers to the process of defining what and how to produce to meet the sales and marketing strategy. It typically includes details on the list of products, their specifications, sizes, formulas, quality, the scope of uses and instructions, generic or patented items, ways of acquiring patented licenses, if any, production design capacity per product item or machinery/production line based on one shift basis of eight hours, timelines, resources, and quality standards. Moreover, it also includes a high-level briefing on the production inputs to reach the maximum production capacity, like raw materials, other supplies requirements, resources, utilities, etc. Also, the production program identifies the desired levels of production efficiency and productivity of the factory and wastes. The production program is the first step in searching the technical study of the project and providing important information on the production outputs, inputs, processes, and targets that can be significant to meet the sales strategy and deciding on the production technology. It provides a clear roadmap for production teams to plan and execute production processes efficiently and effectively. By creating a production program, a company can identify potential bottlenecks and other issues in the production process and address these problems proactively. By understanding the production capacity and capabilities, companies can adjust their production plans, as needed, to meet changing demands.

Step-By-Step Process

• Clarify the previously explained processes like the marketing and sales study, the project’s raw materials and supplies, and location.
• Study the corporate business strategy and understand the products and quantity scheduled to meet demands.
• Identify the list of products, features, specifications, and standards of quality.
• Estimate the design capacity for every product and schedule to reach maximum capacity.
• Identify inputs necessary to reach design capacities like raw materials (items and specifications), facilities (areas, buildings, utilities, and operating systems), workforces, machinery, tools, etc.
• Design the production system, including procedures and work instructions, to reach production targets.
• Prepare a document highlighting the above outcomes, and share it with your team and experts.

Example

Here is a brief description of the production program for a pharmaceutical manufacturing facility:

• Products: (+22) items-therapeutic areas, incl. diabetic, hyper lipidemic, immune suppressant, anti-coagulant, anti-ulcer, anti-cholinergic, anti-depressant, heart failure, anti-hypertension, decongestant, corticosteroid, anti-biotic, iron, glaucoma, ant-histamine, analgesic, diuretics, and anti-fungal.
• Design capacity: (80) million tablets and capsules yearly based on one production shift a day. The full design capacity of the project is gradually reached in the fifth year of operation.
• Facilities: a building facility over an area of (4000) M².
• Technology: the full-automatic machinery is sourced from the first ranking technology with European specifications.
• Workforce: (93) employees.

Useful Tips

• Study the corporate business strategy to define products and design capacities.
• Identify a flexible production program that suits the dynamic nature of demands.
• Obtain information on available technologies and competitive products that will be input to identify the production program.
• Consult experts and share discussions with your team and stakeholders.

Things To Avoid

• Deciding on the project production program without proper studying and consultation.

Select Production Technology

Production technology encompasses machinery, tools, auxiliaries, and operating systems and aims at achieving the production program. Choosing the right production technology is critical for the success of any manufacturing business. To select the production technology, someone will need to define the production requirements, for instance, the production program, cost budget, automation levels, quality standards, maintenance, safety, and machinery suppliers, and then collect offers for selection. Technology offers are typically evaluated based on criteria like, regulatory requirements, the reputation of the machinery supplier, references, specifications, recommendations, quality, reliability, cost of production, cost of technology, maintenance, compatibility and flexibility with marketing requirements, energy efficiency, and maintenance cost. If you choose the production technology, you will then need to profile the full description of the technology, including inputs, processes, outputs, speed, specifications, the name of the supplier or suppliers, origin, costs, flow chart, diagrams, layout, justifications of selection, etc. Production technology is essential for the factory to reach the production program with the most efficient and reliable manners, reduce the product costs, enable profitability, maintain the desired quality standards, be equipped with higher capacity, and be flexible to meet the changing demands. Also, in the manufacturing industry, a significant portion of the project investments go for the machinery and building; thus, choosing the right technology will help the factory achieve business, technical and investment objectives.

Step-By-Step Process

• Clarify the production program, as explained above, to understand the production requirements like the products, specifications, quantity, schedule of production, etc.
• Set the wanted technical requirements, including automation level, speed, specification, cost, quality, reliability, flexibility, and safety, which are used to recommend the list of technology suppliers.
• Research the available technologies that can meet the production requirements. This process involves gathering information on various production technologies, such as their capabilities, costs, maintenance requirements, and energy consumption.
• Set the technical and commercial criteria for evaluating offers. Technical criteria may include references, reputation, flexibility, reliability, and quality, and commercial one consists of the cost and value of offers.
• Prepare the documents (e.g., the scope of work, list of vendors, offer evaluation criteria) for the request and collection of offers.
• Evaluate offers as per the evaluation criteria and negotiate price offers.
• Decide on the most suitable offer and sign the contract with the winning technology supplier.
• Describe the chosen technology, including inputs (e.g., raw materials and workforces), outputs (e.g., products and specifications), speed (e.g., design capacity), specifications, the name of the supplier or suppliers, origin, costs, and justifications of selection.
• Prepare the document as per the above outcomes, and share it with your team and experts.

Example

Here are the machinery details for the solid dosage production line (e.g., tablets and capsules) of a pharmaceutical manufacturing facility:

Production Stage	Machine	No.
Weighing Booth	Weighing Balance	2
	Weighing booth	2
	Hand Pallet truck-Stainless Steel	1
	Material Handling Tools  (Lump Sum)	1
Granulation	Balance 100  kg	1
	Fitz Mill Machine (50-300 kg per Hour)	1
	Vibrating Sifter (50-300 kg per Hour)	1
	High Sheer Mixer granulator (70 kg Batch @ 0.5 BD)	1
	Fluid Bed Dryer (70 kg Batch @ 0.5 BD)	1
	Oscillator Machine  (50-300 kg per Hour)	1
	AHU with Hepa Filters for FBD	2
	St. pipe ducting (FBD to FBD-AHU)	1
	FBD-Dust Collector	1
	LOD Balance	1
IBC Blender	IBC-Blender (300 litres)	1
	IBCs (100 Litres  & 300 Litres ) – 3x each size	6
Tabletting	Tablet press B type 200000 tablets/hour	1
	Tablet press D type 120000 tablets/hour	1
	Tableting Tools (10 sets of punches & dies B-Type)	10
	Tableting Tools (10 sets of punches & dies D-Type)	10
	Powder Feeder from IBC to Hoper	2
	Deduster	2
	Metal detector	2
	Balance	2
	Vacuum Machine	2
	Tablet Hardness Tester	2
Coating	Auto Coating Pan 75 kg	1
	St. pipe ducting (Coating to Coating-AHU)	1
	Solution Mixer 50 Litres	1
Capsule filling	Capsules filling machine 60000/hour	1
	Size Change Parts (size 00 to size 3) – total 5 sets	5
	Deduster	1
	Metal detector	1
	Balance	1
	Vacuum Machine	1
Blistering Line	Blister Packaging System 40 stroke/min	1
	Camera system for the above	1
	Complete set PVC/ Alu size change parts	5
	Complete set Alu/ Alu size change parts	2
Cartoner Machine	Up to 120 cartons per minute	1
Filling powder in sachets	Powder filling machine (40-60 sachets per minute)	1
	Dehumidifier	1
Leaflet	Leaflet Folding Machine	1
	Leaflet Counting Machine	1
	Label Counting machine	1
Printing	Printing Machine	2

Useful Tips

• To list technology vendors, check competitors, visit exhibitions, and consult experts.
• Visit or contact vendors’ references before you decide on offers.
• Choosing production technology is critical for the success of the business; thus, take your time to carefully study technology options before you select anyone.

Things To Avoid

• Avoid guessing works and assumptions without evidence.
• Selecting any technology offer without careful studying.
• Selecting a cheaper offer without evaluating its technical capabilities. 

Identify Technology And Regulatory Licenses

In the manufacturing industry, a factory may come across particular licensing requirements for production, using patented technology, or fulfilling regulatory requirements. In this case, according to every industry condition, a feasibility study will need to identify these licensing requirements, explain requirements for qualification, and show plans to acquire them. In general, there are two types of licensing requirements (e.g., for under-patent technology) that a factory may be required to get before it commences operation; the first set is that related technology license and the second set is for the regulatory licensing (e.g., like in the pharmaceutical industry). These licenses are critical for the factory’s success and may require additional time, effort, and costs.

Step-By-Step Process

• Evaluate your manufacturing industry and identify requirements for production and regulatory licenses.
• Where-ever there is a license requirement for producing a product or using technology, the study must identify this license scope, conditions, terms, costs, the way of acquiring (e.g., lease or buy or joint venture), and any other legal requirements.
• Set a plan showing the regulatory requirements and steps for qualifying the factory for them. For example, a pharmaceutical manufacturing facility must qualify for the GMP (Good Manufacturing Practice) licensing, registration of products, and obtain a business license in the country of origin.
• Estimate the costs for qualifying the business for production and regulatory licensing.
• Prepare the document as per the above outcomes, and share it with your team and experts.  

Example

In the pharmaceutical industry, there are two groups of licensing; the first is regulatory, and the second is technology license. The pharma regulatory licenses are mandatory requirements imposed by the country of origin and include, for example, the site permit, operation permit, GMP license, product registration, and technical staff qualification. A patented technology holder imposes a use license and authorizes a licensee to use it in exchange for fees.

Useful Tips

• Check the website and other formal sources of information for the concerned regulatory authority in the country of origin for your business to obtain the regulatory licensing requirements.
• Consult experts and share discussions with your team and stakeholders.
• Carefully review any technology license and accept the one that can better support the company’s business plans.

Things To Avoid

• Avoid informal sources of information on obtaining regulatory licensing requirements.
• Don’t stick to one technology holder option but consider more options.

Design The Production Process, Diagram, And Layout 

Designing the production process and layout describes how a factory produces products and machines are positioned. It includes identifying the production processes, diagrams and machinery layout. Production process and layout provide details on steps required to transform raw materials into semi-finished and finished goods, and machinery layout identifies the most economical and technical arrangement of machinery within a production facility that will maximize production efficiency and productivity, along with worker safety and comfort. These processes can include things like raw materials inspection and load, assembly, fabrication, grinding, blending, finished products, testing, packaging, and shipping.

Both production processes and machinery layout are important for several reasons. First, efficient and effective production processes are essential for meeting customer demand while minimizing costs and maximizing profits. By optimizing production processes, companies can reduce waste, minimize downtime, and improve quality, ultimately resulting in higher levels of customer satisfaction and greater profitability.

Similarly, a well-designed machinery layout can help improve efficiency, reduce the risk of accidents or injuries, and create a more comfortable and productive work environment for employees. By optimizing the placement of machinery and equipment, companies can minimize the distance workers need to travel, reduce the risk of collisions or other accidents, and create a more ergonomic workspace.

Step-By-Step Process

• Define the production requirements as explained above. This action includes understanding the product’s purpose, function, features, and any specific requirements or constraints. The best document to obtain such information is the production program.
• Obtain details on the production process and layout from selected production technology.
• Map the production processes to transform raw materials into finished products. This process involves identifying the optimal flow of materials and information, eliminating inefficiencies and bottlenecks, and designing a process that is both efficient and effective.
• Draw a diagram illustrating the production processes.
• Evaluate machinery layout options and choose the best machinery arrangement that can support production efficiency and productivity. This activity involves determining the optimal placement of each machine based on the flow of materials and products through the production line, as well as any other considerations, such as safety, accessibility, and maintenance requirements.
• Prepare the document as per the above outcomes, and share it with your team and experts.

Useful Tips

• Define your manufacturing products and check the production technology.
• Document the production processes to be simple and easy to implement.
• Choose the processes and layout that can maximize production efficiency and productivity.
• Standardize processes to ensure consistency and efficiency in production.
• Consult experts and share discussions with your team and stakeholders.

Things To Avoid

• Not documenting the production processes.
• Relay on assumptions instead of facts and data.
• Not considering the impact of external factors such as suppliers or customers.Top of Form

Identify Engineering Works

Identifying the engineering works refers to the process of describing all the engineering works necessary to install and operate the production technology and including civil, electrical, mechanical and digital engineering works. These engineering works are critical for the operation of production technology and require time, effort, and costs to deliver.

Step-By-Step Process

• Clarify the production program, production technology, factory site, and production requirements, and conclude rough thoughts on the engineering works to be performed.
• Set requirements: Identify the engineering works to be done to install and operate machinery.
• Define the scope of work: This includes identifying the specific engineering tasks that need to be performed, as well as any constraints or limitations, such as budget, time frame, or regulatory requirements.
• Conduct a site survey: Before beginning any engineering work, it’s important to conduct a site survey. This survey includes gathering information about the site, such as its dimensions, topography, and existing infrastructure.
• Analyse existing conditions: Based on the site survey, it’s important to analyse existing conditions. This analysis includes identifying any potential challenges or obstacles that may need to be addressed in the engineering work.
• Develop engineering plans: Once the scope of work, site survey, and existing conditions have been analysed, the next step is to develop engineering plans. This plan includes creating detailed drawings, schematics, and specifications that outline the engineering work to be performed.
• Estimate the budget and schedule for conducting the engineering work plan.
• Prepare the document as per the above outcomes, and share it with your team and experts.

Example

The following is a brief description of the engineering works:

• Site selection and preparation: This involves selecting a suitable location for the factory, preparing the land by clearing and levelling it, and ensuring that the site meets zoning and regulatory requirements.
• Structural design: This includes the design of the factory building, which needs to be sturdy enough to withstand the weight of heavy machinery and equipment and to provide a safe working environment for employees.
• Electrical systems: This involves designing and installing electrical systems that can handle the power requirements of the machinery and equipment in the factory.
• Plumbing and water systems: This includes the design and installation of plumbing and water systems for the factory, including water supply and wastewater treatment systems.
• Heating, ventilation, and air conditioning (HVAC): This includes designing and installing HVAC systems to provide a comfortable and safe working environment for employees.
• Fire protection systems: This involves designing and installing fire protection systems, such as sprinklers and fire alarms, to protect the factory and its employees from fire hazards.
• Equipment installation: This involves the installation of the machinery and equipment required for the factory’s operations, including conveyor systems, assembly lines, and specialized machinery.
• Safety systems: This involves designing and implementing safety systems to ensure that the factory is a safe place to work, including safety protocols and equipment, such as safety guards and emergency shut-off switches.
• Digital system: This involves installing internet and computer systems to operate and control the production technology.

Useful Tips

• Conduct a thorough needs assessment and identify needs, problems, constraints, budget and time frame to perform.
• Involve stakeholders in the identification of engineering works.
• Study the feasibility of conducting the engineering works before performing them.Top of FormBottom of Form

Things To Avoid

• Neglecting to consider regulatory requirements.
• Failing to evaluate risks.
• Relay on assumptions instead of facts and data.

Identify The Building And Facilities

This activity refers to the process of describing the building and facilities of the project and including land location and estimation of area size, building drawing, building facilities (e.g., utilities, furniture, internet services, cooling and ventilation, and safety and security), building schedule, and total costs. The building and facilities are critical for the business’s success and impact the production cost, efficiency of operation, productivity and more.

Step-By-Step Process

• Determine the manufacturing needs: review the project concept, corporate strategy, production requirements, and production technology.
• Zoning and regulatory requirements: ensure that the building and facilities meet all zoning and regulatory requirements, including building codes, environmental regulations, and permits needed for manufacturing operations.
• Estimate the land size of the project.
• Decide on the location of the project.
• Decide on whether to lease the land and building or construct the project.
• Prepare a building drawing showing the distribution of the area.
• List all the building facilities necessary to operate the project.
• Prepare the building schedule.
• Estimate the cost of the land, building and facilities.
• Prepare the document as per the above outcomes, and share it with your team and experts.

Example

Let us consider the example of a company that wants to start manufacturing electric vehicles (EVs). Here are some steps that the company may take to identify the right building and facilities:

• Determine manufacturing needs: The company will need a facility that can accommodate the assembly line, machinery, and equipment required for EV manufacturing. They may need separate areas for battery assembly, motor assembly, and final vehicle assembly.
• Location: The company may consider locations that are close to suppliers of raw materials, such as batteries, motors, and other components. They may also look for a location with easy access to transportation infrastructure, such as highways or rail lines, for the transportation of finished products.
• Zoning and regulatory requirements: The company will need to ensure that the building and facilities meet all necessary zoning and regulatory requirements, such as building codes, environmental regulations, and permits for manufacturing operations.
• Accessibility: The company will need to ensure that the building and facilities have sufficient space for parking, loading docks, and accessibility for employees and customers.
• Infrastructure: The company will need to ensure that the building and facilities have the necessary infrastructure, such as electrical, plumbing, HVAC, and telecommunications systems, to support manufacturing operations.
• Condition of the building and facilities: The company will need to assess the condition of the building and facilities, including the roof, walls, flooring, and other structural components, to ensure that they are in good condition and can support EV manufacturing operations.
• Expansion potential: The company may consider the potential for expansion of the building and facilities in the future, in case their manufacturing operations grow.
• Cost: The company will need to consider the cost of the building and facilities, including the purchase or lease price, as well as ongoing operating costs such as utilities and maintenance.

Useful Tips

• Estimate the area size after careful studying of the project, its requirements, and future expansion.
• Consult a building contractor to develop the building drawing, estimate the building cost, and supervise the building project.

Things To Avoid

• Decide on the location, the building and the facilities without careful studying of the manufacturing needs.
• Using personal judgement to identify the project building and facilities.

Identify The Technology Contracting Details

Technology contracting refers to the process of identifying the details of the contracting requirements (high-level) for buying the production technology. Technology contracts typically define the terms and conditions of the transaction, including the technology description, the scope of the project, the timeline for delivery, the responsibilities of each party, payment terms, warranties, intellectual property rights, confidentiality provisions, dispute resolution mechanisms, and other relevant provisions. It will clearly define the underlying technology specification, spare parts list, costs, the time required to produce and transport the technology to the buyer destiny, testing, commissioning, installation, and trial operating. It also includes the costs of the technology transportation, testing, commissioning, installation and trial operation. Technology contracting is an important aspect of the technology industry as it helps establish clear expectations and guidelines for parties engaging in technology-related transactions and can help mitigate risks and disputes that may arise during these transactions.

Step-By-Step Process

• Receiving and evaluating technical and commercial offers for the underlying technology.
• Evaluate, complete and decide on the suitable technology.
• Prepare a full description of the purchasing technology, including machinery and operating software, spare parts, auxiliaries, automation levels, specifications, speed, origin, and costs.
• Ask for the drafted contract from the technology supplier and thoroughly review it to ensure compatibility with the approved offers.
• Consult a legal firm to review the drafted contract.
• Ensure contract references to the technology description, costs, payment terms, warranties, transportation, delivery schedule, testing, commissioning, and trial operation.
• Sign the technology contract and keep a copy with you.

Example

• Here are the steps you could follow to identify the contract of a pharmaceutical tabletting technology:
• Determine the requirements: This includes identifying the features and functionality of the tabletting technology, product specification, speed, utilities, automation levels, production processes, resources, raw materials, quality control, and regulatory compliance.
• Research available options: Once you have identified your requirements, research available technology options that meet your needs. Consider the factors like cost, ease of use, scalability, and integration with your existing systems.
• Evaluate vendors: After researching available options, evaluate vendors that offer pharmaceutical tabletting technology that meet your requirements. Look at factors like their reputation, customer reviews, and track record of delivering successful implementations in the pharmaceutical industry.
• Review contract terms: Once you have selected a vendor, review the offer and contract terms to ensure they align with your business requirements. Consider factors like the scope of work, timeline for implementation, support services, and pricing.
• Negotiate terms: If necessary, negotiate the contract terms to ensure they meet your business needs. This action could include negotiating the prices, adding or removing specific features, adjusting the implementation timeline, and installing and commissioning.
• Finalize the contract: Once the contract terms have been agreed upon, finalize the contract with the vendor. Make sure all parties have a clear understanding of the scope of work, timeline, and payment terms.Top of FormBottom of Form

Useful Tips

• Receiving offers and the drafted contract from the supplier and ensuring compliance.
• Consult a lawyer, experts, employees, and stakeholders in evaluating offers and drafting the contract.
• Identify and document all the technical and commercial details, including the scope of works, delivery schedule, and costs.
• Execute the payment terms through a confirming letter of credit.
• Tie the payment terms with the agreed progress or project’s deliverables.

Things To Avoid

• Agreeing on purchasing technology without written and approved offers and contracts.
• Avoid personal judgement on approving the purchasing documents of technology and instead consult lawyers, experts, employees and stakeholders.

Identify The Project Location And Land

Identifying the project location and land refers to the activities of selecting the most suitable location and estimating the land size and cost. The process of selecting the project location begins by setting the requirements, which may include the size of the area to suit the factory and other premises of the project, technologies, loading and unloading, storage area, laboratory requirements, civil and electrical, internet, and utilities, followed by selecting the project location. Selection of a project location involves the assessment of location options and deciding on the best-fit option based on criteria like how near it is to the infrastructure, building requirements, target market, distribution channels, suppliers, efficient operation, costs and profitability, and future growth. The factory may decide to construct the project building and search for suitable land either to buy or lease. Importantly, the feasibility study, in either way, will estimate the land cost as purchasing or renting.

Step-By-Step Process

• Identify the requirements for the project location that may include, for instance, the size of the area to suit the factory and other premises of the project, technologies, loading and unloading, storage area, laboratory requirements, civil and electrical, internet, utilities, etc. 
• Explore location options and choose the most suitable location based on criteria like how near it is to the infrastructure, building requirements, target market, distribution channels, suppliers, efficient operation, costs and profitability, future growth, etc.
• Decide on the size of land required to build the factory and whether to buy or lease it.
• Explore land options and decide on the land and its cost.
•  Prepare a document highlighting the above outcomes, and share it with your team and experts.

Example

The pharmaceutical manufacturing project of about 70,000 square meters will be located in XXX Industrial Areas- XXX, benefiting from the facilities provided by the industrial area. The project’s built-up area is estimated for about 40% of the total area. Here are the breakdown estimations of the built-up area and cost of the plant:

Areas	Area Estimation (Sqm)	Cost (US$/M2)	Total Cost (US$)
Stores
Stores	4,068	750	3,051,000
Factory
Solids	5,343	1,500	8,014,500
Nasal Drops / Spray	1,149	1,500	1,723,500
UDV	1,805	1,500	2,707,500
UDV (Sterile, 25%)	602	2,500	1,505,000
Ampoules	955	1,500	1,432,500
Ampoules ( Sterile, 25%)	318	2,500	795,000
Liquid Vials	843	1,500	1,264,500
Liquid Vials ( Sterile, 25%)	281	2,500	702,500
Eye Drops	540	1,500	810,000
Eye drops ( Sterile, 25%)	270	2,500	675,000
Eye Ointments	663	1,500	994,500
Eye Ointments ( Sterile, 25%)	221	2,500	552,500
Pilot Plant (Solids)	786	1,500	1,179,000
Secondary Packaging  (5 Areas)	3,000	1,000	3,000,000
Administration
Admin	1,495	1,000	1,495,000
Labs, Utilities, and Services
Labs	1,159	1,000	1,159,000
Utilities	1,165	1,000	1,165,000
Services	2,055	1,000	2,055,000
Other Facilities
Plantrooms	2,500	1,000	2,500,000
Others	150	1,000	150,000
Total	(29,368) or 30,000		$ 36,931,000

Useful Tips

• Identify the project land requirements based on the project definition and plans.
• Explore various location and land cost options, whether to buy or lease and decide on the most viable option for the project.
• Consult experts and share discussions with your team and stakeholders.

Things To Avoid

• Choosing a location that hinders the project’s operation, feasibility, and growth.
• Deciding on the project location and land cost without proper prior studying.

Identify Raw Materials, Spare Parts, And Supplies

The study must identify the raw materials, spare parts, and supplies of the project, including technical specifications, annual purchased quantity, sources, costs, and budget for at least five years. Raw materials are physical inputs a factory uses to produce semi-finished and finished goods, influencing the quality and the cost of production. Factory supplies are non-raw material items, including, for instance, packaging, maintenance oil, and cleaning products. Non-factory supplies are items staff require to perform jobs like food and beverages, uniforms, medicines, and accommodation supplies. The study will also identify the quantity, cost, and specifications of spare parts a factory requires to maintain and operate the machinery. These raw materials, factory supplies, and spare parts are typically capital items purchased by the factory as inventory capital and expensed when consumed.

Step-By-Step Process

• Identify the raw material items, their technical specification, annual purchased quantity, sources, costs, and the raw materials budget for at least five years.
• Identify the factory supplies (e.g., all items other than direct raw materials like syringes, needles, hoses, bags, packaging, maintenance oils, and cleaning products), their technical specification, annual purchased quantity, sources, their costs, and the budget of factory supplies for at least five years. 
• Identify the non-factory supplies (e.g., these include all supplies that staff require to work like food and beverages, uniforms, medicines, and accommodation supplies), their technical specification, annual purchased quantity, sources, costs, and the budget of non-factory supplies for at least five years.
• Identify spare part items, their technical specification, annual purchased quantity, sources, costs, and the budget for at least five years. It is usually included in the list of machinery supplied and will be sufficient for one to two years of operation.
• Projection of annual requirements of raw materials, supplies, and spare parts (quantity and values) and budget for five years.
• Prepare a document highlighting the above outcomes, and share it with your team and experts.

Example

For a manufacturing business producing ceramic tiles, here are the factors you will need to consider identifying the raw materials:

• Tile size and thickness: Determine the size and thickness of the tiles you plan to manufacture. This will help you calculate the amount of raw material needed to produce each tile.
• Production capacity: Estimate the number of tiles you plan to produce per day, week, or month. This will help you determine the overall raw material requirement for your manufacturing process.
• Raw material composition: Identify the raw materials needed to produce ceramic tiles. For instance, you may need clay, feldspar, kaolin, quartz, and other additives.
• Consumption rate: Determine the consumption rate of each raw material for the production of each tile. This will help you estimate the number of raw materials required to produce the required number of tiles.
• Waste and spoilage: Account for any waste or spoilage that may occur during the production process. This will help you estimate the total raw material requirement, including any additional material needed to account for waste.

Useful Tips

• Identify the factory requirement for raw materials and supplies by reviewing the production program and sales plan.
• Clarify the machinery supplies to figure out the spare parts required (quantity and amount) for the initial one to two years
• Identify and estimate the raw materials and supplies (quantity and value) annually and for five years.
• Seek expert advice and involve the team and other stakeholders to identify raw materials and supplies.

Things To Avoid

• Avoid guessing works and inaccurate estimations.

Identify Key technical Personnel

Identifying key personnel refers to the process of defining roles, job profiles, headcounts, staff costs, and organization for the firm staff. The importance of this process is to describe the workforce needed for the factory and the total costs to carry out the corporate mission, goals and plans.

Step-By-Step Process

• Clarify the business mission, business and technical plans, and approved organizational structure.
• Analyse each function or activity identified in the previous step and break it down into specific tasks and responsibilities. Determine the knowledge, skills, and abilities required to perform each task effectively. This analysis will form the basis for developing job descriptions.
• List technical roles required and align them to the organizational chart.
• Describe technical job profiles, headcounts, and cost. Job profiles show details on roles about the job qualification, duties, grades, compensation and benefit, line manager and organization, communication, authority and responsibility matrix, work condition, about the employer, and more.
• Anticipate your business’s future growth and potential expansion. Consider whether your staffing needs will change as your business expands and plan accordingly. This process will help ensure that you have a scalable workforce to support your growth trajectory.
• Once you have a clear understanding of your personnel requirements, develop a recruitment strategy. Advertise the positions, review resumes, conduct interviews, and select the most suitable candidates for each role. Ensure that your selection process is fair, unbiased, and compliant with employment laws.
• Once you have hired your staff, provide them with a thorough onboarding process to familiarize them with the business, its operations, policies, and procedures. Offer any necessary training to equip them with the skills required to perform their roles effectively.
• Share discussions with your team and experts.

Useful Tips

• Involve your team, look to similar practices, and consult experts in identifying the business personnel.
  • Build your personnel requirements on talented staff, diversified skills, and work experience.

Things To Avoid

• Avoid guessing works and assumptions in identifying the business personnel.

Estimate The Cost Of Production

Estimating the production cost is a process to identify and measure the production expenses for one year and to project these costs for (5-10) years. It includes direct (e.g., raw materials and labour) and indirect expenses (e.g., depreciation and other production overheads). The importance of estimating the production cost shows the product costs, controls costs, makes pricing and business decisions, and enables profitability planning and measurement.

Step-By-Step Process

• Review the production program and production fixed assets (e.g., machinery and building) to identify products, and estimate direct and indirect production costs.
• List and estimate all production expenses yearly (e.g., consumed raw materials, staff costs, utilities, maintenance, production depreciation, factory supplies, etc).
• Estimate the cost of materials: Create a detailed list of all the components, materials, and subassemblies required to manufacture the product, including quantities, specifications, and unit costs for each item.
• Estimate the cost of staff: Determine the labour requirements for manufacturing the product. This includes identifying the number of workers needed, their skill levels, and the time required for each task. Calculate the labour cost based on wages, benefits, and overhead expenses.
• Allocate indirect costs to products: Identify and allocate indirect costs associated with manufacturing, such as factory rent, utilities, equipment maintenance, and other overhead expenses. Allocate these costs based on factors like machine hours, labour hours, or square footage.
• Estimate the depreciation costs: Consider the cost of machinery, equipment, tools, building and other fixed assets needed for production. This includes purchase or lease costs, installation, maintenance, repairs, and depreciation. Calculate the cost per unit based on the expected lifespan and production volume.
• Estimate the cost of waste by considering a percentage of direct cost (e.g., 1-3%).
• Estimate the packaging and shipment costs.
• Allocate a contingency budget (e.g., 3% of production cost) to account for unforeseen expenses, price fluctuations, or other uncertainties that may impact production costs.
• Once you have gathered all the cost estimates as per the above, review and analyse the data by identifying cost drivers, potential areas for cost reduction, and any factors that may significantly affect the overall manufacturing production costs
• There are many ways to estimate the production cost, including estimation of each expense account, estimating the total production cost as a percentage of expected sales for the same year, based on similar experience, checking industry benchmarks or indicators, collecting suppliers’ quotations of raw materials and services, or consult experts.
• As per the above estimates, prepare a table listing the total production costs, segregating them into direct and indirect costs. Also, estimate the production cost of products by estimating the direct and indirect cost of products.
• Prepare the costing document as per the above outcomes, and share it with your team and experts.

Example

Here are the production costs of a pharmaceutical manufacturing facility:

Sub-accounts	Year 1 ($/Yr.)	Year 2 ($/Yr.)	Year 3 ($/Yr.)
Cost of raw materials, packaging and waste	115,858	1,748,879	4,507,227
Factory staff costs	1,193,976	3,404,880	5,859,132
Utility costs	7,335	110,722	285,355
Maintenance costs	7,384	111,465	287,270
Communication costs	1,231	18,578	47,878
Travelling costs	1,231	18,578	47,878
Machine and tool calibration costs	2,112	31,879	82,159
Insurance costs	1,231	18,578	47,878
Office supply costs	615	9,289	23,939
Cleaning costs	1,231	18,578	47,878
Safety and fire service costs	1,231	18,578	47,878
Staff development costs	1,231	18,578	47,878
Factory- Internet and IT services costs	1,231	18,578	47,878
Hospitality costs	615	9,289	23,939
Factory depreciation cost	7,266,914	7,266,914	7,266,914
Royalty cost	–	–	–
Factory transportation	615	9,289	23,939
Other factory costs	86,040	128,327	186,950
Total	8,690,081	12,960,977	18,881,973

Useful Tips

• Brainstorm the production cost with your team.
• Be aware of the industry benchmarks and indicators about production costs.
• Consult industry experts before you estimate the production costs.

Things To Avoid

• Avoid guessing works and assumptions without evidence.
• Assume fixed prices of raw materials, equipment, utilities, staff salaries and other production cost accounts.

The author: Munther Al Dawood

This article is derived from my book- Your Guide for Preparing an Industrial Feasibility Study

Get your copy here: https://growenterprise.co.uk/book-your-guide-for-preparing-an-industrial-feasibility-study/

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