Updated: March 27, 2009
This is the last part of the series, be sure to read the first part here: Planning A Business Production System Part 1
So far, we’ve discussed human resource, raw materials, and equipment and machinery. These are our primary considerations when planning for a business production system.
In this second part, we’ll talk about the integration of these “basic ingredients” and learn what makes up an efficient production system.
The last four things we need to consider if we want to produce our own goods are cash flow, time, processes and management. Let’s examine these further:
Cash is king. Every decision you make for your business must consider how it will affect cash flow. Setting up a production system requires financial investment not only on equipment and machinery but also in space and manpower. Larger ventures should also consider the cost of permits for setting up a production plant. Make sure you can cover everything.
Remember our siomai production? If your kitchen at home is small, then you might need to do some renovations or transform your dining area to accommodate your production. You should also consider the salary of the additional personnel you’ll be hiring.
Time means doing a balancing act between supply and demand. Study the production volume capacity of your setup and determine if it will meet your requirements. Also be careful not to overproduce, specially if your goods are perishable. Moreover, remember that having too much inventory could also affect cash flow.
How many dim sum can you make in a day? Can this meet your daily requirements? Up to how much demand can your planned production setup handle? Where will you store the excess goods? How much inventory can you afford to keep and for how long?
A production system is made up of processes, from acquiring your raw materials until the delivery of your goods. Make sure that each step is well-documented and carried out without any deviation nor modification. Quality standards should also be in place to make sure that your products remain consistent.
For your siomai production, this means having quality control over your ingredients, a detailed recipe with proper preparation and cooking procedure, instructions for correct handling, packaging and delivery of your finished goods. Likewise, there is a need for a clear definition of the duties and responsibilities of each staff position.
Management is the glue that holds everything together. Most business owners would handle this responsibility but hiring managers should be considered specially for large production systems. In the simple terms, management checks and rechecks everything and ensures that your production is working like a well-oiled machine.
So again, that’s human resource, raw materials, equipment and machinery, cashflow, time, processes and management – the essential factors that make up an efficient business production system.
Looks like a lot of work, right? Yes it is but in most cases, the most difficult part is just setting it up. Once you’re able to make everything run smoothly, there will be less worries and more profits and opportunities for your business.
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I agree. cash is King. Like, before you decide to take risks consider first how would affect the cash flow or your income. Nice article once again sir, i am actually learning a lot from you!
Grabe.. very detailed explanation (both part 1 and 2).
I highly recommend that you compile these treasure of information and create a book someday.
I work as a computer programmer/Analyst in Pan de Manila. I have created a software that monitors the production of each branches. It also detects the raw materials needed and sends P.O. to suppliers automatically. Receiving, Production Planning, over production and even Left over/turn over are also monitored.
And when I build a business of my own someday. I plan to use all of the knowledge I gather through out the years.
Nice article once again.. please keep it up.
Thanks Gio. I also used to work as a system analyst for a shipping company and the warehousing and container tracking system I developed for them helped me in fully understanding the importance of an efficient production and inventory system.
Best of luck on your future business! You can do it.
I estimated that I would be ready to venture on a business after 2 more years, since I have just invested my money on a small condo unit near our house. Hopefully, if things goes well, it will be ready to be rented this July. 🙂