Reading: Lesson 2 - Planning a Manufacturing Business

10.2.A - Planning a Manufacturing Business

1. LOCATING THE BUSINESS

1. A business is to make a number of important strategic decisions. They must evaluate the company’s ability to get the materials it needs to build products. They must have buildings designed and built. The company must purchase specialized machinery and equipment and arrange it in the buildings so that it can produce quality products rapidly and at a low cost. The company must hire people with the skills to perform the many activities needed to produce the products. If it cannot find people with the needed skills, it must train others. Finally, after manufacturing the products, the company must store them until it can sell and distribute them to customers. One of the first decisions a manufacturing company must make is where to locate the business. Although it might seem that a business could locate anywhere it wants to, finding the best location is a very complicated procedure. Several factors influence the decision of where to locate a manufacturing business.
   
2. If a manufacturer must process raw materials as part of the production process, it must have a reliable supply of those materials. Also, the cost of the raw materials must be as low as possible. Thus, the manufacturer may choose to locate close to the source of the raw materials to keep the cost of transporting them as low as possible. Furniture and textile manufacturers, steel mills, and food-processing companies are examples of industries that locate close to the source of needed raw materials. Consider what the most important raw materials are for each of these manufacturers and where the manufacturers are likely to locate because of the need for these materials.
   
3. The company must decide how to obtain the materials needed to manufacture the products and how it will ship the products to customers. The choice of transportation method can determine whether the company will receive materials and deliver products on time. The major transportation methods include air, rail, truck, water, and pipeline. Each has specific advantages based on time, cost, and convenience. Very bulky, fragile, or perishable products need special transportation. Companies may decide to locate close to a railroad, an interstate highway system, or a major airport to be able to conveniently access the type of transportation needed. If the company is involved in international business, it may need to locate near a variety of transportation sources.
   
4. The costs and supply of energy that manufacturers use are important considerations in production planning. The company must have an uninterrupted supply of energy (such as electricity, gasoline, or coal) at a reasonable cost. There have been times in recent years when several types of energy, including electricity and gasoline, have been in short supply. Energy prices can change dramatically in a short time, making it difficult to control costs. As a result, companies had to switch to other forms of energy or reduce operations. Water supplies are limited in many parts of the United States as well as in other countries. Governments tightly control access to water as well as the requirements for treatment and discharge of wastewater. Cities and states have passed environmental laws that regulate access to water and energy resources and where specific types of businesses can and cannot locate. A company must be sure to locate where it will have enough energy and water to be able to operate for many years.
   
5. Some companies can operate in small buildings, but others may need several hundred acres of land. Companies can purchase or lease land and buildings. Constructing a large manufacturing building costs many millions of dollars. A company will need a source of financing for the construction and will normally pay the cost of the building over many years. As a business grows, it must plan for possible future expansion. Many companies have had to expand several times since they started business. Expansion is easier if enough land is available close to the existing buildings and buildings are designed to be flexible and allow for expansion. Companies must carefully consider how the manufacturing process will affect other people and organizations in the same area. Businesses with production processes that create odors or high noise levels may be severely restricted in where they can locate or may face lawsuits from adjoining neighborhoods.
   
6. Well-trained employees are an important part of most manufacturing operations. Few businesses can operate effectively today without well-educated employees. In selecting a location, a company should look at the available supply of workers, the training they might need, and the cost of the labor. The choice of location depends on whether the company needs highly skilled employees or unskilled labor. The days of easily available and inexpensive labor providing the skills a company needs are over. Businesses are working with government agencies, colleges, and universities to design training programs to ensure a competitive workforce.
   
7. Just as some companies need to locate near the source of raw materials, others may consider the location of their customers. This is an important factor when most of the customers can be found in one part of the country, when they need the products regularly and rapidly, or when transportation costs of the finished products will be very high. Manufacturers that supply parts for the auto industry usually locate near the automobile production facilities. Some companies locate near seaports if they have important markets in other countries. Because soft drink companies must provide a regular, fresh supply of their product to many stores and businesses, they have bottling plants and distribution centers in most cities to reduce transportation costs. Today some states are developing large air freight centers. These are airports that are surrounded by efficient distribution centers and have easy access to interstate highways and rail lines. Air freight centers are being created to attract manufacturing businesses that need to ship products quickly by air.
   
8. A company also considers the type and amount of taxes it must pay in the location of its manufacturing facilities. Some cities offer reduced tax rates or may even waive some taxes for several years to encourage new businesses to locate there. Others have taxes on inventory and equipment that increase the costs of business operations. Most towns and cities use zoning laws to restrict where businesses can locate and how they can operate. Environmental regulations control the use of water and energy as well as require businesses to avoid polluting the water, air, and land.
   
   

2. PRODUCTION PLANNING

1. Developing a production plan can be compared to planning a meal. All the ingredients must be available in the right quantities and at the right time. Cooking utensils need to be assembled. Some foods require longer cooking times than others, so preparation of each item must begin at the correct time. If scheduled and completed correctly, all the dishes can be served at the same time. When planning production, the company identifies all the resources required to produce the product and estimates when each will be needed and in what quantity. Because production occurs over a period of time and in a sequence, the company will not need all resources at once. If the company receives the materials before it needs them, it will have to use both space and money for storage. On the other hand, if the company can’t get the resources when it needs them, it will have to delay production and spend money on nonproductive employee time until the necessary materials arrive. Three important activities are part of production planning. Inventory management involves planning the quantities of materials and supplies needed for production and the number of finished products required to fill customer orders. Human resources planning is the process of determining the types of jobs required for each part of production, the number of people needed for each job, and the skills each person will need in order to do the job. Production scheduling involves identifying the steps required in a manufacturing process, the time required to complete each step, and the sequence of the steps. Managers use sophisticated planning systems to develop production schedules. Computers are very useful in scheduling production and monitoring progress toward meeting production schedules.
   
2. A manufacturer must organize its facilities, equipment, and materials to produce products efficiently. Products have to move through the building, parts must be added, and employees must be able to work on the product easily and safely. The manufacturer must have cost-effective methods for receiving and storing raw materials, parts, and supplies. Once products are finished, the manufacturer must store them or load them for shipment. The type of layout a manufacturer uses depends on the product and the assembly process. For example, one company that builds tractors has a continuous assembly line that is nearly a mile long. Many of the parts have to be stored long distances from the place they are needed. The parts are delivered to the assembly line with overhead conveyor belts and chains. A small company that builds electric motors delivers all needed parts to each assembler’s work area. The assembler puts the parts together to finish the motor. The motor then moves to the shipping area for packaging and storing for delivery. A company that manufactures desktop computers organizes its manufacturing employees in teams with their own work areas. Each team orders the parts it needs and keeps them in easy-to-reach bins around its workspace. The entire team works on the assembly, tests each computer to make sure it works, and packages it for delivery. This procedure allows the company to quickly build a customized computer for each customer’s order. In addition to the type of product and the assembly process used, other factors influence the layout of the business. The layout should be designed to make product assembly easy and safe. Employees may need areas to test and repair products. Products and people must be able to move around the building. Employees need food services and break areas. Other activities that support the manufacturing process, such as purchasing, information management, training, and administrative services, require space as well. For most companies, the layout should be flexible so they can add new machinery and equipment. Also, companies may need to expand the layout as the company grows or change it to produce new products.
   
3. Improving quality and productivity has been one of the most important challenges facing businesses in the last decade. Increasing global competition has resulted in a larger number of products from which customers can choose. Businesses have found that customers buy the best product available for the price they can afford, resulting in increased pressure to improve quality while holding down costs and prices. For many years companies were more interested in production efficiency than in quality. As early as the 1950s, W. Edwards Deming was encouraging businesses to focus on quality as the most important company goal, but his ideas were largely ignored in the United States. Today, however, because of the success of companies that have adopted Deming’s ideas, most manufacturers use principles of quality management. Quality management is the process of assuring product quality by developing standards for all operations and products and measuring results against those standards. For quality management to succeed, the company must believe that no defects are acceptable and that all employees are responsible for quality. Everyone must be able to identify problems and take responsibility for correcting them. Rewards must be based on achieving the quality standards rather than meeting a certain level of production.
   
4. To encourage American companies to improve quality, Congress created the Malcolm Baldrige National Quality Award in 1987. To win the award, a company must demonstrate that it has implemented a program to develop and maintain quality in all of its products and activities. Companies compete for the award because customers are more likely to buy from companies that can prove their commitment to quality by winning this honor. Technology has contributed to the improvement of manufacturing for many years. Computers have dramatically improved the quality and speed of production and have reduced costs. Robots now perform many of the routine and repetitive tasks previously done by low-skilled employees. Fewer people are now needed to accomplish the same level of production. However, those people must be skilled in computer operations and modern production processes. In addition to routine tasks, computer technology can also accomplish more difficult and challenging tasks. As previously mentioned, engineers can use computer applications such as CAD to design and test products before they are even built. They can view a design from various angles, study possible modifications, and test the products for strength and durability.
   
5. The most extensive use of computers in manufacturing is a process known as computer-integrated manufacturing, whereby all manufacturing systems are designed and managed with computers. Design work, planning and scheduling, resource management, and control are all tied together through computers. When someone makes a change in one area, computers determine the impact of the change on other areas and communicate that information to the affected work units. The Internet has become a powerful resource in improving the speed and quality of manufacturing. Some of the uses of the Internet are very basic but have an amazing impact on how a business operates. As an example, it used to be a very expensive and time-consuming process for companies to get approval from the Food and Drug Administration when they wanted to produce a new food product or drug. They had already spent months and often years developing and testing the product. Then they had to prepare, print, and ship volumes of reports to the FDA for approval. Today that entire process can be managed on the Web. Companies can transmit reports instantly, research questions online, send answers to the FDA by email, and conduct meetings on computer screens. The approval process time has been cut in half, and the cost of approval has gone down substantially. An automobile manufacturer with plants in many countries around the world is improving the automobile design process using the Internet. Product designers come together in cyberspace to share ideas and plan new products. If one factory identifies design or manufacturing problems, it can immediately share information about the problems with every other facility and cooperatively develop a solution. The system is resulting in cost savings because there are fewer design problems and good designs are now being used over and over in many locations. Also, the manufacturer benefits from greater creativity in developing new automobile models as people from around the world share their ideas.
   
6. A highly dynamic environment requires that businesses develop and carry out multiple projects at the same time in a variety of areas, such as new product development, sales territory expansion, process redesign, and many others. Some industries have been identified as project-intensive industries. These include manufacturing, business services, finance and insurance, oil and gas, information services, construction, and utilities. Managers who have the skills to control these projects are in high demand. Worldwide about 1.5 million project management jobs are opening every year. Some managers oversee divisions or departments. A project manager is responsible for a time-limited, specific business initiative. For example, a project manager may be responsible for the development and launch of a new software product but then hand over the ongoing operation to a different manager. Project managers must plan, organize, staff, lead, and control a project while meeting deadlines and keeping within a budget.
   
7. Successful project managers will also have strong interpersonal, leadership, and time management skills. They can also help others manage their time. The Project Management Institute (PMI) has set a series of standards of best project management practices and offers globally recognized credentials that certify project management expertise. This includes the Project Management Professional (PMP) certification. A PMP-certified project manager has demonstrated competence in performance of project management and in leading and directing projects and teams. Project managers use a variety of tools and techniques to manage projects. This includes critical path analysis, whereby project activities are identified and the relationships between the activities are mapped so project team members can look for ways to improve operations. Gantt charts are used to show project activities such as tasks or events within the project timeline. The Figure below shows a Gantt chart for the development of a class management project report. This Gantt chart shows that the project will take 53 days and tasks have been assigned to six people with specific start and end dates. By the current date, the team project task of brainstorming has been completed. Max is on track to complete the Internet research, but Hazel is currently behind on her library research. A Gantt chart allows each team member to see the sequencing of tasks and track task completion from start to end.