Manufacturing represents a significant part of the total gross domestic product of many countries around the world. In America, manufacturing produced over $2.3 trillion in GDP during the first quarter of 2022. Strong manufacturing industry can be the backbone of any country’s wealth creation and is a significant labor employer. If you are considering starting up your own manufacturing business, you will be aware that the initial costs are likely to represent a significant financial investment. Plant and machinery costs are likely to form a considerable part of your initial budget even before the consideration of labor costs is taken into account. However, if your business is successful manufacturing concerns can become extremely profitable ventures for the owner. In this article, five of the key points to consider when starting up a manufacturing operation will be explored in detail.
Research the Market Thoroughly
A vital first point that should be considered before any financial activities take place is to thoroughly research the marketplace in which you intend to operate in. It is important to bear in mind that only 78.5% of small businesses survive their first year in operation. One prime reason for this failure is that the owners do not fully consider the market they are operating in. Firstly, you need to be certain that there is long-term demand for the product you intend to manufacture. Secondly, you need to fully understand your competitors and how similar their product offering is to yours. If you are both creating an extremely similar product, the only realistic way you can compete is to offer your product at a lower price. This is often poor business practice as it can start a price war with your competitor, which will directly impact your overall revenue streams. It is a far better business practice to offer a differentiated product from that of your competitors. This helps to make your product more attractive in the eyes of your target market and reduces the implications of direct competition.
Create a Sound Business Plan
Once you are certain that there is suitable demand for your product and space in the marketplace for your offering, the next step is to create a comprehensive business plan. This should cover all aspects of your business and should demonstrate accurate financial projections for your first few years in operation. In the manufacturing sector especially, start-up costs are likely to be high when compared with other types of business. As a result, you will likely need to take out a bank loan or seek alternative sources of finance or private investment to fund it. Your business plan and financial projections will form a key part of convincing money lenders or investors to commit to your business. You should be able to illustrate who your key customers will be and how much demand for the type of product you intend to manufacture is present. For additional guidance on creating a business plan that is suited to a manufacturing concern, see here.
Ensure You Have the Equipment
Once you have secured the necessary funding for your manufacturing business, you will need to investigate the exact equipment and machinery that will be used to create your final product. For this stage, you may need to seek specialist advice either from a member of your senior staff or an outside agency. The modern world of manufacturing relies on a range of highly specialized pieces of equipment in the production of the final goods. Whilst no two factories are quite the same, many manufacturing firms require some similar equipment. For example, if you are involved in the production of textiles or some food products you will likely need to invest in an instrument air package. An instrument air dryer package effectively removes moisture and contaminants from machinery that requires compressed air to function (which is present in many forms of manufacturing processes). Without such specialist equipment, it raises the risk of contamination of the final product or damage to the machinery itself because of pipe corrosion or freezing moisture in cold manufacturing environments.
Location Is Key
The location of your factory or manufacturing plant is another prime consideration that will directly impact the success of your business. You will likely want the operations to be located on industrial zoned land as the rents on this type of ground will be lower than in commercial zones. If you are intending to manufacture bulky or heavy products, it makes sense to be located near commercial railway links which are well suited to the bulk transport of such goods. Transport links, in general, form a vital consideration in the location of the factory. If your business relies on regular deliveries of components in the manufacturing process, it will need to be served ideally by a good road network to allow the timely delivery of these items.
Workforce Considerations
As a final major consideration, time should be spent considering the workforce. Firstly, you must ensure that there is a local population that has adequate numbers of suitably skilled workers. This is imperative if the product you intend to manufacture requires skilled labor rather than just unskilled factory operatives to produce. If there is a skills shortage of suitably qualified staff, you will either need to fully train the workers themselves (which would be a time-consuming and costly process) or entice skilled staff from further afield to work for you. This would almost certainly necessitate the use of attractive relocation packages which would add a considerable amount to your labor costs. It is good practice to contact the local council and universities in the area you intend to set up a business. They may be able to advise on the skill mix of the local population, which could be instrumental in determining if a suitable workforce is present.
To Sum Up
When thinking about setting up a manufacturing business, there are some key points to consider. Thorough market research along with a comprehensive business plan will allow you to demonstrate the viability of the business and can be key in securing outside finance. You must ensure that all specialist equipment that is required in the manufacturing process is thoroughly understood and cost. Finally, the location of your operation and the nearby labor market composition are key to ensuring that you can receive and transport components and finished products efficiently whilst being certain that there are suitable levels of labor in the vicinity.
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