MODULE 6: TECHNICAL STUDY – PRODUCTION TECHNOLOGY and TECHNICAL PRODUCTION

OBJECTIVES:

After reading this module, learners are expected to prepare the following segments of feasibility study:

1. Factory machineries and equipment

2. Physical premises
a. Business location and size
b. Office/ factory lay-out
c. Capital expenditures, material requirements, sources and estimated costs
3. Manufacturing / merchandising and service process
a. Process flow chart
b. Estimated production capacity
c. Direct material, labor and overhead requirement
d. Storage
e. Waste management
f. Proto-type

Marketing aspect answers what products to sell, while in technical aspect, it answers the question, “how do we
produce the product or service?”. In the easiest logic, production technology is the machinery that helps in creating a
tangible physical product.

The illustration above shows a framework of how products or services are made. It starts with input resources.
These input resources may be in the form of materials, information, customers, facilities and staff. Materials input are
usually seen in manufacturing companies. Information inputs are usually seen in service businesses such as banks,
professional accountants, statisticians, etc. customers themselves may be included as inputs specially in businesses such
as barbershops, salons, business of plastic surgery, etc.

After having made available the inputs, it is now time for them to be placed in process. There are four activities
that should be done in the process phase:
 1. Designing the process of production
2. Planning and controlling the process or operations
3. Improving the process or operations
4. Directing the process or operations

Basically, these are also the things that we will be doing in this module, after we have established what to offer, we
will now identify the inputs required to produce the products and we will organize the processes of producing them.

FACTORY MACHINERIES AND EQUIPMENTS

in here, you will enumerate all the machineries and equipment that will be used in producing your product or
service. Be sure to describe them with appropriate detail. State their price, residual value (if any) and estimated useful
lives. Example for a bakery business’ equipment is given below:

After you have already enumerated all of the required machineries and equipment, you may also prepare a
DEPRECIATION SCHEDULE FOR THOSE ASSETS.

BUSINESS LOCATION AND SIZE

Business location is probably one of the most important decisions an owner will get to decide. It is crucial decision
because it has an important impact on profits. Typically, a new business will seek locations that maximize revenues and
minimize costs. In selecting business location, firms should reflect on the following factors that will help spot good
location opportunity:

1. Nearness to the market

 - The population characteristics of a possible new territory should be analyzed first before setting up in a new
location. For instance, if the offering is a service intended for wealthy senior aged citizens, the location must
be where there is a plenty of such kind of people.
2. Communication linkages
- This includes transport facilities like road, rail and air as well as information infrastructure.
3. Nearness to raw materials
- Availability of raw material is crucial to continued and uninterrupted business operations.
4. Accessibility of basic infrastructure
- Services and infrastructure like abundant water supply, uninterrupted power supply, good road network and
security are things to consider when situating a new business.
5. Accessibility of fittingly skilled employees
- Access to a reliable pool of staff with pertinent skills is important when a new business needs to hire
employees.
6. Prospect for waste disposal
- Waste is a significant disadvantage of modern industrial processes. Waste disposal should be taken into
consideration when selecting the place of business.
7. Accessibility of land (rental fees)
- Land is increasingly important today. In the urban area, rental fees keep on increasing because of land
scarcity. Today, a number of spaces for rent are business ready with superior wifi connection. In the choice
of the most suitable location, the amount of rental fee has to be treated as an important consideration.
8. Government incentives
- There are economic business programs offered by the government to new businesses which can influence
the location like grants and loans.

Below is an example of the choice of plant location:

OFFICE / FACTORY LAY-OUT

This shows the planned lay-out of

the proposed business. Usually, we hire engineering students to prepare office / factory lay-out for us, including
estimates of the costs that will be incurred. An example of factory / office lay-out for a restaurant business is as follows:
CAPITAL EXPENDITURES, MATERIAL REQUIREMENTS, SOURCES AND ESTIMATED COSTS

In this segment, you will list all of the items considered as PROPERTY PLANT AND EQUIPMENT. You may use the
following table:

Property plant and Technical specification / quantity Cost per unit Total cost
equipment product information

MANUFACTURING / MERCHANDISING AND SERVICE PROCESS

PROCESS FLOWCHART

The process flowchart provides a visual

demonstration of the steps in a process. Flow charts are
also referred to as process mapping or flow diagrams.
Constructing a flow chart is often one of the first
activities of a process improvement effort, because of
the following benefits:

1. An apparent understanding of the process

2. Name nonvalue-added operations
3. Cooperation and communication
4. Ensures that everybody is on the same page

Elements that may be included are: sequence of

actions, materials or services entering or leaving the
process (inputs and outputs), decisions that must be
made, people who become involved, time involved at
each step and/or process measurements.

The process flowchart can be anything depending

on the type of activities the start-up business will be
doing, say manufacturing, merchandising or service. The
aim here is to effectively present the input-process-
output of production of goods or services. An example
of process flow-chart made by my past students is given
to you.
 You can also put here the step by-step procedure
or recipe of your products.

ESTIMATED PRODUCTION CAPACITY

The capacity of a plant is mostly expressed using the total machines factory have. Secondly, the number of pieces
the factory produces on a daily basis for the specific products must be calculated next. If the proposed business is labor
intensive, we can use direct labor hours available instead of total machine hours available.

A plant capacity is presented in total minutes or hours or in pieces or in units (production per day). The method
used to calculate capacity has been explained below. To calculate the daily production capacity (in units) one needs the
following information.

1. Plant capacity in hours (in case of labor-intensive business, use Labor capacity in hours)
- Check how many machine factory has and how many hours the factory runs in a day, for instance:
Total number of machines = 16
Shifts hours per day = 8 hours

So, the total factory capacity (in hours) = 16 x 8 = 128 hours

2. Product SAM (Standard allowed minute)

- SAM means the time (in minutes) that it takes a worker to complete a specific operation or produce a
specific product. The SAM is calculated by using a stopwatch. Sometimes, it is done of times that have
already been calculated for every task needed to make a certain product. For example, in brownies
production, the following are made information are made available:

Process Time
preparation 25 minutes
cooking 15 minutes
total 60 minutes or 1 hour
 Number of servings 16 brownies

- In this case, the SAM is one (1) hour and in that one hour, 1 pack or 16 brownies can be produced.

3. Line efficiency (Average)

- It is impossible for a human being to achieve 100% efficiency. There would be times when human suffer
fatigue or machines experience downtime. For the purposes of feasibility study writing, the use of the
average 50% is recommended.
- Using the example above in plant capacity in hours, let us estimate now the production capacity

Plant capacity 128 hours

Product SAM 1 hour for 16 brownies
Line efficiency 50%

The production capacity is computed as follows:

Production capacity = 128 hours x 60/60 minutes x 50%
= 64 packs of brownies per day

EXPECTED PRODUCTION SCHEDULE AND VOLUME

Using the estimated production capacity above as the example, the expected production schedule and volume can
be created.

Daily Weekly Monthly Yearly

(5 working days) (4 weeks) (12 months)
Brownies 64 320 1,280 15,360
TOTAL 64 320 1,280 15,360

DIRECT MATERIAL, LABOR AND OVERHEAD REQUIREMENTS

Materials

Continuing our Brownies business, assume that for each pack of brownies, the following direct materials are consumed:

Ingredients Cost behaviour Total unit cost

½ cup butter Variable P25
1 cup white sugar Variable P15
2 eggs Variable P18
1 teaspoon vanilla Variable P2
1/3 cup cocoa powder Variable P25
½ cup all-purpose flour Variable P10
¼ teaspoon salt Variable P1
¼ teaspoon baking powder Variable P1
 TOTAL 97

Labor

Assume that you pay your employees P300 per day. If they work 8 hours per day, their hourly rate would be P37.50.
since it takes one hour to make one pack of brownies, the direct labor rate per pack of brownies is P37.50.

Overhead

Overhead are indirect expenses incurred in the production of goods or services. Assume that we incurred the following
overhead costs: (all overheads are assumed to be fixed)

Items Cost per month

Electricity expense P3,000
Water P500
Gas P2,500
Other P1,000
Total P7,000

To summarize, the following information pertains to costs of brownies:

Items Cost
Materials P97 per pack
Labor P37.50 per pack
Overhead P84,000 per year
Production 15,360 packs per year

STORAGE/ WAREHOUSING

Warehousing is storing of goods inside a commercial building for safekeeping. Warehouses are typically big plain
buildings located in industrial areas of cities and towns and villages. Often, start-up businesses especially those that are
small to medium sized normally use the vicinity of their production plant as storage facility also. The idea is to lessen
expenses particularly storage cost and to ensure full access to the inventory of raw materials and finished goods as well
if needed.

WASTE MANAGEMENT

Waste is definitely a problem, that is why waste management policies should be implemented. Here are some
methods of waste disposal:

1. Landfills
- Throwing daily waste/garbage in the landfills is the most popularly used method of waste disposal. This
process of waste disposal focuses attention on burying the waste in the land.
2. Incineration/Combustion
- Incineration or combustion is a type of disposal method in which municipal solid wastes are burned at high
temperatures. The process eventually converts them into residues and gaseous products.
3. Recovery and Recycling
 - Resource recovery is the process of taking useful discarded items for a specific next use. These discarded
items are then processed to extract or recover materials and resources or convert them to energy in the
form of useable heat, electricity or fuel.
- Recycling is the process of converting waste products into new products to prevent energy usage and
consumption of fresh raw materials
4. Composting
- Composting is an easy and natural bio-degradation process that takes organic wastes i.e. remains of plants
and garden and kitchen waste and turns into nutrient-rich food for your plants.

PROTO-TYPE

A proto-type is a three-dimensional version of a product. It is an early-stage sample, model or release of a product

built to test a concept or process or to act as a thing to be replicated or learned from. If applicable, you may present
here pictures of your products.
ASSESSMENT:

Prepare Technical Study showing the following parts:

1. Factory machineries and equipment

2. Physical premises
a. Business location and size
b. Office/ factory lay-out
c. Capital expenditures, material requirements, sources and estimated costs
3. Manufacturing / merchandising and service process
a. Process flow chart
b. Estimated production capacity
c. Direct material, labor and overhead requirement
d. Storage
e. Waste management
f. Proto-type