Manufacturing Business Plan
If you want to become a manufacturer then you will probably need to start off with one particular item and then as you expand move into manufacturing different items on a theme; for example, you may make wooden chairs on a production line - you may churn out the same type of chair all the time. Later you may make modifications to the chair so you give it a slightly different design, color, material etc.
According to the latest research from the United Nations, China has further outpaced its competitors in world manufacturing, generating $2.9 trillion in output annually versus $2.43 trillion from the U.S., the world’s second-largest manufacturing economy.
Over the last two years, China’s manufacturing sector has made strong gains, while the U.S. has been mired in economic and political doldrums.
- Manufacturers contribute $2.03 trillion to the economy, up from $1.93 trillion last year. This is 12.5 percent of GDP. For every $1.00 spent in manufacturing, another $1.32 is added to the economy, the highest multiplier effect of any economic sector.
- Manufacturing supports an estimated 17.4 million jobs in the United States—about one in six private-sector jobs. More than 12 million Americans (or 9 percent of the workforce) are employed directly in manufacturing.
- The average manufacturing worker in the United States earns $77,505 annually, including pay and benefits. The average worker in all industries earned $62,063.
- Manufacturers in the United States are the most productive in the world, far surpassing the worker productivity of any other major manufacturing economy, leading to higher wages and living standards.
- Manufacturers in the United States perform two-thirds of all private-sector R&D in the nation, driving more innovation than any other sector.
- Taken alone, manufacturing in the United States would be the 8th largest economy in the world.
The whole point of manufacturing is you are repeating a process over and over again to produce as much stock as possible in as short a time as possible with the smallest amount of operating and material costs as you can. The object then is to sell to large retailers who are going to order your products in bulk - depending on the size of your units - these may be multiples of 100 / 1,000 or even 10,000 or maybe more if you are mass producing very small objects which get used very frequently.
Conventional machining, one of the most important material removal methods, is a collection of material-working processes in which power-driven machine tools, such as lathes, milling machines, and drill presses, are used with a sharp cutting tool to mechanically cut the material to achieve the desired geometry. Machining is a part of the manufacture of almost all metal products, and it is common for other materials, such as wood and plastic, to be machined. A person who specializes in machining is called a machinist. A room, building, or company where machining is done is called a machine shop. Much of modern day machining is controlled by computers using computer numerical control (CNC) machining. Machining can be a business, a hobby, or both.
In terms of annual dollars spent, machining is the most important of the manufacturing processes. Machining can be defined as the process of removing material from a work piece in the form of chips. The term metal cutting is used when the material is metallic. Most machining has very low set-up cost compared to forming, molding, and casting processes. However, machining is much more expensive for high volumes. Machining is necessary where tight tolerances on dimensions and finishes are required.
Drilling is easily the most common machining process. One estimate is that 75% of all metal-cutting material removed comes from drilling operations. Drilling involves the creation of holes that are right circular cylinders. This is accomplished most typically by using a twist drill, something most readers will have seen before.
The characteristics of drilling that set it apart from other powered metal cutting operations are:
- The chips must exit out of the hole created by the cutting.
- Chip exit can cause problems when chips are large and/or continuous.
- The drill can wander upon entrance and for deep holes.
- For deep holes in large work pieces, coolant may need to be delivered through the drill shaft to the cutting front.
- Of the powered metal cutting processes, drilling on a drill press is the most likely to be performed by someone who is not a machinist.
Turning is another of the basic machining processes. Information in this section is organized according to the subcategory links in the menu bar to the left.
Turning produces solids of revolution which can be tightly toleranced because of the specialized nature of the operation.
Turning is performed on a machine called a lathe in which the tool is stationary and the part is rotated. Lathes are designed solely for turning operations, so that precise control of the cutting results in tight tolerances. The work piece is mounted on the chuck, which rotates relative to the stationary tool.
Milling is as fundamental as drilling among powered metal cutting processes.
Milling is versatile for a basic machining process, but because the milling set up has so many degrees of freedom, milling is usually less accurate than turning or grinding unless especially rigid fixturing is implemented.
For manual machining, milling is essential to fabricate any object that is not axially symmetric. There is a wide range of different milling machines, ranging from manual light-duty Bridgeports™ to huge CNC machines for milling parts hundreds of feet long.
Grinding is a finishing process used to improve surface finish, abrade hard materials, and tighten the tolerance on flat and cylindrical surfaces by removing a small amount of material. Information in this section is organized according to the subcategory links in the menu bar to the left.
In grinding, an abrasive material rubs against the metal part and removes tiny pieces of material. The abrasive material is typically on the surface of a wheel or belt and abrades material in a way similar to sanding. On a microscopic scale, the chip formation in grinding is the same as that found in other machining processes. The abrasive action of grinding generates excessive heat so that flooding of the cutting area with fluid is necessary.
Reasons for grinding are:
- The material is too hard to be machined economically. (The material may have been hardened in order to produce a low-wear finish, such as that in a bearing raceway.)
- Tolerances required preclude machining. Grinding can produce flatness tolerances of less than ±0.0025 mm (±0.0001 in) on a 127 x 127 mm (5 x 5 in) steel surface if the surface is adequately supported.
- Machining removes excessive material.
Because of the importance of machining for any industrial economy, Machining Theory has been extensively studied.
The chip formation process is the same for most machining processes, and it has been researched in order to determine closed-form solutions for speeds, feeds, and other parameters which have in the past been determined by the "feel" of the machinist.
With CNC machine tools producing parts at ever-faster rates, it has become important to provide automatic algorithms for determining speeds and feeds. The information presented in this section are some of the more important aspects of chip formation. Reasons for machining being difficult to analyze and characterize can be summarized as follows:
- The strain rate is extremely high compared to that of other fabrication processes.
- The process varies considerably depending on the part material, temperature, cutting fluids, etc.
- The process varies considerably depending on the tool material, temperature, chatter and vibration, etc.
The process is only constrained by the tool cutter. Unlike other processes such as molding and cold forming which are contained, a lot of variation can occur even with the same configuration. For all types of machining, including grinding, honing, lapping, planing, turning, or milling, the phenomenon of chip formation is similar at the point where the tool meets the work.
Working out the right price for your new product or service can be one of the biggest problems faced by small Manufacturing Business owners. You need a price that covers your costs and makes you a profit, but you also need to think about what your competitors are charging and what your customers will be prepared to pay.
Setting too high a price for your product or service can lead to lost sales. Undercharging will lower your profits and possibly result in you being unable to deliver on your contracts. The prices you charge should reflect your costs on the one hand, and the strength of the market on the other.
Your direct cost per product is the direct costs your Manufacturing Business incurs to produce and supply a specific product, divided by the number of those products sold. If, for example, you spend $100,000 on raw materials, production and distribution and sell 10,000 items, your cost per product is $10.
Thorough market research is essential to help you determine:
- If there is an existing market for your product or service.
- How much your target customers might be prepared to pay.
- What your competitors are charging.
- Projected sales volumes for your product or service.
Having an idea of likely sales volumes is particularly important; otherwise you will not be able to calculate your direct costs. This is less important if you are selling a service where there are very low, if any, direct costs. But it is very important if you are manufacturing, particularly if the costs like raw materials are high.
Prepare an income and expenditure forecast using different prices, so that you can estimate what effect a price increase or decrease would have on your sales.
Many new Manufacturing Businesses have some difficulty calculating the direct costs of their products or services before they start trading and, as a result, let their competitors effectively set the price. They think that as long as they undercut that price they will succeed. However, this approach to 'cost leadership' is a strategy that often fails for small businesses. Since they lack the economies of scale necessary to make the price really competitive, they end up losing money as a result.
Price is frequently quoted by customers as their main buying criteria, but often there are many factors involved, such as service offered or convenience. Try clearly to differentiate your product or service in comparison to your competitors and this will help the price to be perceived as less important.
There are various ways by which different types of Manufacturing Businesses work out the costs of providing products or services. The key requirement is to know all the costs - direct and fixed - for an expected level of sales. Don't forget to include depreciation in the value of the equipment used in your business, and, if you are self-employed, your personal outgoing expenses. Once you have calculated your total costs, you have the bare minimum price you should set for a given level of sales.
Provided your costs are less than the income from the sales you forecast when you did your market research and set a price for your product, you will make a profit - assuming, of course, that you also sell the volumes that you predicted.
Once you know your costs and the estimated selling price of your product, you are in a position to calculate how many items, or hours of your time, you need to sell to break even - that is, to cover all your costs.
One way to calculate your breakeven point is to draw a graph that shows sales volume on the horizontal axis and costs on the vertical axis. First show the overhead costs. This will be a horizontal line since these costs are, generally, fixed for all volumes of production.
Your direct costs can then be added to the overhead costs to give total costs for a given volume of output. A line representing total costs can be plotted. The sales income can then be plotted to show how much income will be generated for a given volume of sales.
The point at which the sales income equals the total cost shows the breakeven point. A higher price will achieve breakeven with fewer sales. A lower price may attract more customers, but will require higher sales volumes to break even. The further above breakeven that your business can operate, the greater its margin of safety and profitability will be.
These direct costs are also known as variable costs, because they vary in proportion with the number of units sold of each product.
Your keys to success will be to manufacture a product that:
- People want to buy the manufactured product consistently and on a regular basis.
- A unique product that no other manufacturing company is allowed to make due to patents / trademarks etc.
- Diversity - you are capable in the future to produce variations on a theme
- To be able to obtain your raw materials without concern for fluctuating costs
- To keep a reliable workforce that doesn't need constant training to manufacture your goods
- Deliver on time and the required amounts
If you are able to obtain the finance in the first place and deliver alll the points above then you will have a successful manufacturing business.
Writing A Manufacturing Business Plan
Writing A Manufacturing Business Plan
The traditional Manufacturing Business Plan does not meet the needs of real-world managers. They need a simple, effective tool that is easy-to-read, portable, and keys them into what needs to get done. A concise, functional Manufacturing Business Plan in five pages. Simple Manufacturing Business Plans are popular from executives down to operators because they are convenient, concise, and user-friendly.
A critical point raised in my many discussions with managers is the failure of Manufacturing Business Planning to reach all levels. That failure is directly attributed to the Manufacturing Business Planning model, the Manufacturing Business Planning documentation, and the lack of Manufacturing Business Planning accountability. Numbers are bantered about as if they actually mean something. Tough talk is heard about roles, responsibilities, and accountability. The session ends with a charge by the president “to go out and do good.” Two weeks later the budget people tell you the plan is invalid because it can’t be financed. The salespeople react to the numbers as unrealistic. The manufacturing folks tell you they cannot sustain the production levels. The information technology (IT) people need a complete hardware / software upgrade that requires millions of dollars.
And so on and so on.
Lengthy modifications are pieced into the Manufacturing Business Plan, distorting what was initially thought to be a viable, integrated solution.
Your Manufacturing Marketing Plan, when implemented, needs to be converted into perhaps the most important business goal of all: your sales revenue target.
You should set out your sales forecasts in terms of:
- Sales of different product or service types by volume and value.
- Sales from different customer groups or territories.
- Sales from different distribution or advertising channels.
Although advertising is not the only part of marketing, it is often the most important (and usually the most expensive!).
You need to look at possible advertising budgets and the effectiveness and cost of any current budgets. If you sell more than one product, this could mean several smaller budgets, or maybe one large budget. You might want to look at setting new aims for your advertising (based on the other objectives in your marketing plan). E.g.: If you currently advertise your low prices, you may want to adjust your advertising to show a new feature.
Part of your advertising planning is to look at the different advertising media. If you currently use newspapers, are they effective, and would magazine advertising be better value for money?
Example Objective: “Lower television advertising in exchange for magazine advertising. Try to keep within the same budget, whilst increasing exposure. Aim the majority of magazine advertising at the younger part of our target market, with the aim of raising their sales by 10% in 6 months.”
If you currently use public relations as part of your marketing; you need to look at whether it is cost effective, and whether the exposure is of good enough quality. You should also look at whether the message your pr is giving is relevant to your business at this time. You might decide to raise, lower or stop pr activity altogether; or set new targets for exposure.
If you do not currently use public relations, you should look at why this is, and any possible benefits you could gain through it.
Example Objective: “Look at the benefits of PR, and try it on a small scale for 6 months. If it is successful, look at the possibility of a permanent PR presence.”
Do your customers tell their friends about their experiences with your business? If so, how can you help make sure the message is positive?
You need to look at whether you encourage people to talk about your business, and if not, how you can make them tell their friends. Good word of mouth publicity is free marketing if you treat your customers well, and anything you can do to increase it will have a positive effect on your business.
Example Objective: “If a customer introduces another customer, they will both get 20% off that purchase.”
What price reductions or additional features could you offer your customers to attract their attention? A special offer can convince unsure customers to make a purchase, and a competition can create interest in looking at your product.
You can look at what special offers your business uses to judge their effectiveness, and make alterations to improve them. If you do not use any special offers, you should look at how they might benefit your sales.
Example Objective: “Continue our effective free carry case offer on our top of the range product.
This is a commonly used form of Manufacturing Marketing analysis. It looks at both your Manufacturing Business and the external environment to anticipate possible future action you may need to take to defend or expand your market position.
SWOT stands for Strengths; Weaknesses; Opportunities; and Threats.
Here you should list the main strengths of your business and products / services. This should include not only the areas that your business or products are good at, but also high profit margins, successful current marketing campaigns and similar strengths. E.g.: Our Manufacturing Business has a reputation for excellent quality customer service.
Strengths are internal factors, and are usually related to your Manufacturing Business only.
Here you should list the main weaknesses of your Manufacturing Business and products / services. This should include the areas that you feel your Manufacturing Business could improve on, or are limiting your quality or expansion. E.g.: Our slow production speed makes it difficult for us to meet shipment dates effectively.
Weaknesses are internal factors, and are usually related to your Manufacturing Business only.
Here you should list what you believe to be the best opportunities available in your market, or new markets you believe your Manufacturing Business Plan can succeed in. E.g.: Gap in market for smaller versions of our products.
Remember, a weakness may be an opportunity in disguise! E.g.: If we fix the weakness in our manufacturing speed whilst maintaining quality, we have an opportunity to offer faster delivery to our customers.
Opportunities are almost always external, although they may rely on internal strengths. E.g.: An opportunity is available by advertising our strengths in quality of service.
Here you should list what you believe to be the biggest threats to your Manufacturing Business. This could include competitors, government regulations, changes in customer attitudes and other such areas. E.g.: Our competitors are planning to launch a big new product in the next 6 months.
Threats are almost always external, although they may rely on internal weaknesses or external factors that limit your strengths. E.g.: If our competitors lower their prices and we match them, we may be left with an unprofitable product.
When making a Manufacturing Marketing Plan, it is important to know and state the timescale you are working with. Are you making a long term Manufacturing Business Plan, a short term Manufacturing Business Plan, or something in between? You may also find that some areas of your Manufacturing Marketing Plan are short term, while others will work in the long term.
A Manufacturing Business that deals with new technology may need to update their Manufacturing Marketing Plans every 3-6 months, where as a Manufacturing Business in an established and stable industry might only need to update their Manufacturing Business Plan every other year.
Your targets and objectives need to be based on a realistic timescale, there is little point making a target of 400% sales growth in 2 months when you know that is impossible. Set realistic but challenging targets over an accurate timescale.
Expansion means moving out into a world where you hope to be a bigger fish in a bigger pond. Your choice from the above alternative strategies becomes more crucial. When you write your plan you must make clear which strategy or strategies you are choosing and show that you understand the management consequences of your decision. For instance, if ‘innovation’ is your choice, in order to maintain progress the money you plough back into the Manufacturing Business should go largely into research and development.
Manufacturing Business Plan
Manufacturing Business Plan
If you choose the ‘cheaper product’ line of action - which can be very dangerous for a small Manufacturing Business - your policy must be to minimize overheads and to keep the marginal cost of production as low as possible.
- ‘Better service’ involves top managerial attention to matters such as delivery dates, after-sales visits to customers or clients, a financial policy with relatively high overheads and high profit margins.
- ‘Better quality of goods’ commits you to a high degree of design innovation and the strictest quality control. Make sure that the section or the Manufacturing Business Plan labelled ‘strategy’ or ‘the longer-term view’ shows your tactics and management to be in harmony with the overall strategy.
You must also give special attention to the part of your Manufacturing Business Plan that deals with the use to which you intend to put the money you are seeking. Do ask for a large enough sum, more even than you think you will need.
You may have heard the story of the bank manager who, when asked for a loan of $50,000, automatically offered $30,000 (secured, or course); then, when his customer failed for lack of sufficient capital, congratulated himself on having prevented the man from losing $20,000 more! It is to be hoped that this type of bank manager is now extinct.
However, you would be wise to make sure that you are not undercapitalized. Ask for plenty. You may need it for a crisis you cannot foresee. If you are offered less, don’t be afraid to turn it down!
The section on finance will be of special importance to your lender(s). It is here that they will expect to find out what is in the deal for themselves. In this section you must explain, as fully as you can, how your backers will get their reward for entrusting their money to you for your Manufacturing Business.
Great Manufacturing businesses do not happen by accident.
They are planned that way!
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