Latest News The Real Costs of Setting Up A New Product Manufacturing Facility

August 11th 2011

Creating a new production facility is a hallmark of any growing, dynamic firm. However, firms must be quite smart about how they go about setting up their new production facilities to avoid unwarranted and unprofitable costs before production even begins.

The Real Costs of Setting Up A New Product Manufacturing Facility

More than one promising venture has been brought down by poor cost management, a fate that can be avoided by acknowledging the real costs of setting up a new facility right from the start.  These often overlooked real costs include time, organisational resources, and testing costs.

Time is a critical element of new facility development, but it is also one of the most commonly forgotten and underestimated costs.  Both staff time in design and development stages as well as the time spent on actual construction must be accounted for in budgeting.  After all, each hour spent on the new production facility represents a resource that can’t be applied to another part of your business.

Controlling the time costs is especially important when it comes to top talent.  You want your best people to be focused on the biggest challenges facing your organisation, not nitpicking over design details or reinventing the wheel.  This is a case where smart outsourcing can really bring down the overall costs of a project, since even your most experienced staff may have only set up one or two new production facilities in the past.  By supplementing their expertise with outside experts who set up new production facilities continually, your firm can cut the number of hours needed to bring the project to life, lowering the overall cost of bringing the facility online.

Along with time, another often underestimated cost of a new production facility is total resources.  You may adequately plan for property costs, taxes, and fees, but did you remember local charges, rates etc, permits, and notices?  Perhaps the raw material costs have significantly changed between the drawing board and breaking ground.  Failing to budget for resources appropriately leads to overruns, delays, and significant frustration.

This is something more and more firms are being surprised by as commodity markets have been exceptionally volatile.  Consulting teams familiar with sourcing bulk materials, hard to find materials, or volatile commodities can help take the guesswork out of the project.  Development teams with up-to-the minute information can streamline material needs or make substitutions, saving substantial sums on resource expenditures.

A final cost area frequently overlooked in new production facility work is testing.  To ensure the facility is meeting standards, firms must do testing but repeated sample production runs can dramatically increase the costs of bringing the end product to market.  These surprises generally hit near the end of the project, but they can be avoided at the beginning.

Many firms are not aware that they don’t need to build a full-scale facility to do trial runs for new products and systems.  Instead, they can leverage specialist manufacturing companies with flexible production lines to create test products and do proof-of-concept runs at a fraction of the cost of building an in-house new production facility.  Often, specialist firms have additional features to offer, such as in-house design teams who can upgrade the product during test runs and bring down overall costs.

Innovative and dynamic firms often have to rise to the challenge of creating new facilities.  This can be a growth step or a step into trouble.  By acknowledging the real costs of setting a new production facility right from the start, firms can bring down their total time, resource, and testing costs to ensure a profitable facility launch.

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