Production/service process

56 It is not the goal of the business plan to provide details of the complex production and processing technology, however in order to make decisions it is necessary to present the technologies to be applied. In case the goal of the business plan is to acquire an external investor, it is not necessary to include the detailed technology, it may be attached as annex, however in the business plan it should be defined and clearly stated where the relevant information can be found. In case we (owners, management) prepare the business plan for ourselves, it is advisory to provide and record the details.

In the business plan, the operation of the enterprise, the production process, the products and services should be explained at this stage. The importance and details of the operation plan depends on the activity of the company. The enterprise itself should find the optimum volume in terms of production and processing activities in order to provide relevant information to the reader.

In case of production companies, it is vital to present the technology. At such scenarios, one should mention the following: (1) the location of the production, (2) manufacturing equipment, materials, labour demand, (3) technologies and processes to be applied, (4) capacity of the enterprise (potential and factual), (5) production and efficiency indicators, (6) quality assurance program in operation

In case of service provider companies, the service supply process should be introduced, in case of product manufacturing enterprises, the production process should be presented. In this chapter, we should introduce the entire process in a reader-friendly way. Perhaps one of the best solutions is to summarize the entire production/service process in a flow chart or diagram.

We should also mention at this point the various activities, tasks, which will be done in-house and also activities, which will be sub-contracted. Enterprises, especially start-ups may reduce their capital demand provided that they have sub-contractors perform the sub-tasks (outsourcing). As for production companies, it is advisory that production it entirely separated, at the same time service provider or commercial companies often provide similar information. In such cases, one should provide relevant information about key suppliers, delegation of tasks and other areas that the company is involved in.

It is important to introduce the following in the operation plan of a production company:

 How will production be organized (what equipment, technology is needed?)

 Does production meet the requirements of all standard specifications: for example noise and environment pollution?

 Are necessary permits available?

 How does the technology to be applied meet the environment protection requirements?

The technology description defines the needed equipment as well as the quality assurance processes to be applied. Also, the description defines the maintenance, service supply and warranty obligations as well as the repair works to be done if an equipment goes wrong.

As we mentioned earlier, not only production companies, but also service provider companies compile operation plans, concentrating on questions such as basic conditions for providing services (for example: space, necessary equipment) or meeting the security provisions, procedures of providing services, customer claims handling.

57 In this particular chapter of the business plan, the following should be explained: (1) material supply and stock management, (2) production/service procedure, (3) process control

Material supply, stock management: prior to the operation, material acquisition and stock management should be planned, how much needs to be ordered, should we place products in the warehouse or should we stock-pile? At this stage, we should plan all materials, stock, consumables, equipment, spare parts necessary for production. We should also plan the cost and method of stocks (inventory) depending on the volume, which is vital for continuous operation. We also need to consider the location of the warehouse, required space and the discounts if products are ordered in bulk. During the preparation of the inventory, we need to calculate how much time is needed to after-order, what is the speed of rotation of the stock, what liquidity is necessary for continuous operation⁶.

During the stock management planning, fire and accident prevention issues should also be clarified, depending on the nature of goods on stock.

The following step is to define what factors influence the volume of the given stock.

Unfinished production stock volume: this is rarely planned by enterprises. As for custom or unique production, when production has a relatively long duration, it may be the case.

Unfinished production = Volume of products under production x Direct overhead x Level of preparedness

The level of preparedness indicates what is the percentage of direct cost incurred until a specific point of time or stage.

Semi-finished product planning: spare parts, units, which are produced by the enterprise, commonly these are not to be sold but to be further processed.

Semi-finished product stock = Average stocking time of the semi-finished products x 1-day semi-finished product usage

The average stocking time or period depends on the after-order or supply time, which basically means the duration of days until the product is manufactured or substituted by the given semi-finished product.

Finished product stock planning: based on and according to needs and assumptions and by experience. Reason for stocking: production and sales are not in line. Reasons for changes in the finished product stock: (1) raising the production capacity (bulk production), (2) economic series production, (3) raising stocks by opening new sales options, (4) reducing stocks in order to minimize expenditures, depreciation costs.

6 Provided that the company is well-prepared for stock management and warehousing, continuous operation should not pose a problem. Warehouse and stock control programs also provide support, which should be mentioned in the business plan, too. These programs are capable of registering and recording the stock and the modifications, handle receipts and outgivings Send reminders in case the stock falls below the critical volume. A reliable stock program is also capable of reminding the entrepreneur that he has immobilized too much capital in the stock, in materials, in semi-finished products or in unsold finished products, which may cause severe liquidity problems, also it may worsen the result of the enterprise if external capital is needed.

58 Production/service process: it is absolutely vital to have relevant capacity in order to implement the production strategy. Under the term capacity, we mean resources and equipment, which are necessary for production. Production equipment are fixed assets. These fixed assets are the carriers of the technology, commonly used via several production cycles.

The technical quality of the production equipment mainly influences the resources as well as the needed volume and productivity of the work force. The production equipment define the range of products to be manufactured, their quality as well as the efficiency of production. As for production, equipment capacity is of vital importance.

During the selection process of production equipment, one should consider the following: (1) the size/volume and composition of the needed capacity (we should not forget that production capacity is not merely about setting up production, it is also about operation), (2) capacity building or reduction and its methodology, (3) maintenance issues.

Production equipment define the performance of the enterprise and its capacity, too. The needed capacity and its volume is strongly interrelated to the marketing strategy as well as to the type, volume of the products to be sold. Besides, one should also consider the so called volume-economy as well as the conditions of installation. In a company‟s life investment and especially fixed assets are of key importance. Via such investments, fixed assets are broadened in line with the company strategy. At the same time, maintenance and sustainability of fixed assets are also key strategic issues to be considered. Under the present economic conditions, a short downfall or pause in production could cause severe damage or loss. For this reason, the acquisition of fixed assets is vital as well as the planning of the maintenance operations. The enterprise should plan what equipment, machinery are needed for the production. Also, one should consider the quality standards, requirements, patents of the equipment as well as the durability and depreciation rate, which may be reimbursed at a later stage. The infrastructural needs must also be taken into account (such as: technical parameters, space needed, standards, production processes, authority permits, security requirements etc.). Also, what expertise (labour) is needed to be employed in order to operate the equipment or machinery. The enterprise should also consider and meet the authority, environmental, health regulations. The planning of the production process includes the planning of different work phases or stages, material, labour, equipment requirements as well as the blueprints.

Production process management: production process management includes the decisions made about the product/service and capacities as well as the installation of the production equipment inside the plant, also the scheduling of tasks/activities. The principles of production management much depend on the profile as well as on the type of product/service.

These principles have evolved significantly in the past. The traditional process-workshop and project-based systems have developed further into automated, computer controlled principles.

At the same time, production systems should flexibly be adopted to the changing customer needs in a fast manner. The state-of-the art production process management approach is nowadays the computer controlled integrated production. Each stage of the production is controlled and monitored by computers. PC-supported production help programming, controlling and monitoring of the production equipment. Production planning and control define the planned volume, schedule and also that certain phases of the production are performed on the same machinery or equipment. The automated material movement ensures

59 that no manual intervention is needed, the machinery automatically performs stocking, warehousing tasks. Robot technology also makes it possible to produce more efficiently.

As for decision-makers or managers, it is vital to consider that the enterprise provides and plans the working environment, conditions in a way that both production and services are efficient, economic and bring the best results. It includes the physical working conditions, security issues, schedule of the working time and breaks.