THE PRODUCTION OR TECHNICAL PLAN 4.
4. Prevention Cost: Cost incurred to prevent (keep failure and appraisal cost to a minimum) poor
Production Process
The production process is a component appearing the overall business plan. The
production process is the process a product or service takes in order for it to become ready for
customers to buy. Production will certainly depend on the type and nature of your proposed
business.
Components of a production process in a manufacturing company
1. Fabrication (where individual parts are made into raw materials)
2. Assembling the raw materials into finished products
3. Quality Control (inspections)
4. Testing of finished products
5. Packaging the finished products
6. Shipping the finished products to retailers, wholesalers, etc.
Quality control
Quality control is a process through which a business seeks to ensure that product quality
is maintained or improved and manufacturing errors are reduced or eliminated. It requires the
business to create an environment in which both management and employees strive for perfection.
This is done by training personnel, creating benchmarks for product quality, and testing products to
check for statistically significant variations.
Cost of quality
Cost of quality is a methodology that allows an organization to determine the extent to
which its resources are used for activities that prevent poor quality, that appraise the quality of the
organization's products or services, and that result from internal and external failures. It refers to
the costs that are incurred to prevent, detect and remove defects from products.
Quality costs are categorized into four main types. Theses are:
1. External Failure Cost: Cost associated with defects found after the customer receives the
product or service. Example: Processing customer complaints, customer returns, warranty claims,
product recalls.
2. Internal Failure Cost: Cost associated with defects found before the customer receives the
product or service. Example: Scrap, rework, re-inspection, re-testing, material review, material
downgrades
3. Inspection (appraisal) Cost: Cost incurred to determine the degree of conformance to quality
requirements (measuring, evaluating or auditing). Example: Inspection, testing, process or
service audits, calibration of measuring and test equipment.
quality. Example: New product review, quality planning, supplier surveys, process reviews, quality
improvement teams, education and training.
TOTAL QUALITY MANAGEMENT
TOTAL QUALITY MANAGEMENT – process of mainstreaming quality consciousness in
the entire organization from supplier to costumer.
Good working practices to achieve effective TQM:
 Continuous improvement – every aspect of the operation can be improved with perfection
as the end goal
 Employee empowerment – expanding the scope of employees job
 Benchmarking – selecting a proven standard that represents the very best for a product,
service, cost, process or activity.
Global Standards
ISO - The International Organization for Standardization, is an independent, non-governmental
organization, the members of which are the standards organizations of the 162[1] member
countries.
HACCP - Hazard Analysis and Critical Control Point (HACCP) is an internationally recognized
system for reducing the risk of safety hazards in food.
HALAL - Halal food Authority rules for halal are based on Islamic Shari’ah.Halal in Arabic means
permissible or allowed.
Inventory Management
Inventory management refers to the process of ordering, storing and using a company's
inventory: raw materials, components and finished products.
Just-in-time (JIT) manufacturing originated in Japan in the 1960s and 1970s; Toyota Motor Corp.
(TM) contributed the most to its development. The method allows companies to save significant
amounts of money and reduce waste by keeping only the inventory they need to produce and sell
products. This approach reduces storage and insurance costs, as well as the cost of liquidating or
discarding excess inventory. JIT inventory management can be risky. If demand unexpectedly
spikes, the manufacturer may not be able to source the inventory it needs to meet that demand,
damaging its reputation with customers and driving business towards competitors. Even the
smallest delays can be problematic; if a key input does not arrive "just in time," a bottleneck can
result. A bottleneck is a stage in a process that causes the entire process to slow down or stop.
Inventory Management: The Program Evaluation and Review Technique (PERT) is a widely used method for planning and
There are three main types of inventory: coordinating large-scale projects. asically a management planning and control tool. It can be
Raw materials inventory – Raw materials inventory are raw materials that your business changes considered as a road map for a particular program or project in which all of the major elements
to produce its goods and/or services. For example, if you manage an ice cream business, raw (events) have been completely identified, together with their corresponding interrelations.
materials inventory could include milk you use to make ice cream. Product Cost
Work-in-process inventory – Work-in-process inventory is any unfinished goods that your business Product cost refers to the costs used to create a product. These costs include direct labor, direct
has made. If your business makes and sells chairs, work-in-process inventory would include any materials, consumable production supplies, and factory overhead. Product cost can also be
unfinished chairs on hand that your business has made. considered the cost of the labor required to deliver a service to a customer. In the latter case,
Finished goods inventory – Finished goods inventory includes any finished goods that are ready to product cost should include all costs related to a service, such as compensation, payroll taxes, and
sell. If you have a retail business that buys and sells toys, the toys you buy would be finished employee benefits.
goods inventory. The calculation is:
Methods of managing inventories (Total direct labor + Total direct materials + Consumable supplies + Total allocated overhead) ÷
 The materials requirement planning (MRP) inventory management method is sales- Total number of units
forecast dependent, meaning that manufacturers must have accurate sales records to Product cost can be recorded as an inventory asset if the product has not yet been sold. It is
enable accurate planning of inventory needs and to communicate those needs with charged to the cost of goods sold as soon as the product is sold, and appears as an expense on
materials suppliers in a timely manner. the income statement.
 Perpetual inventory is a method of accounting for inventory that records the sale or
purchase of inventory immediately through the use of computerized point-of-sale systems
and enterprise asset management software.
The first in, first out (FIFO) method of inventory valuation is a cost flow assumption
that the first goods purchased are also the first goods sold.
The last in, first out (LIFO) method is used to place an accounting value on inventory. The
LIFO method operates under the assumption that the last item of inventory
purchased is the first one sold
Understanding and classifying your inventory can help you plan and budget to achieve your
business goals.
Production planning or scheduling
Scheduling is essentially the short-term execution plan of a production planning model. Production
scheduling consists of the activities performed in a manufacturing company in order to manage and
control the execution of a production process.
 Forward scheduling is planning the tasks from the date resources become available to
determine the shipping date or the due date.
 Backward scheduling is planning the tasks from the due date or required-by date to
determine the start date and/or any changes in capacity required.