The production plan in the business plan: description, functions, content
A document that gives the project a detailed rationale, as well as the opportunity to evaluate comprehensively adopted decisions and planned activities as highly effective and allowing you to answer positively to the question of whether the project is worth investing money - the production plan. The business plan should reflect almost all the actions that will be required when setting up production.
First, you need to show that a service or product will definitely find a consumer, calculate the capacity of the sales market and draw up a long-term plan for its development. Second, you need to accurately estimate the costs that will be required in the manufacture and sale of products or the provision of services or works on the market. Thirdly, it is necessary to determine the profitability of production in the future, showing all its effectiveness for the investor (enterprise), for the state, regional and local budget. And the production plan will help the entrepreneur in this. The business plan also contains its main functions.
1. It should be a tool through which an entrepreneur evaluates the actual results of a certain period of activity.
2. The production plan is also used in the development of the concept of prospective business. The business plan has all the tools to attract investment.
3. The company's strategy is also implemented with its help.
In the planning process, the most important stage is the production plan. The business plan should contain everything necessary both for planning within the firm and for justifying subsidizing the enterprise from external sources, that is, money is received for a specific project - these are bank loans, budget allocations, equity participation of other enterprises for the implementation of the project.
That is why it is necessary to reflect absolutely all aspects of commercial and production activities and the financial results of the enterprise. The structure of this document is subject to unification according to the norms that provide for any production plan. A business plan (an example will be given below) must contain certain sections. Let's take a standard sample for clarity.
The first section is an overview. This is a summary. It is the most important because it briefly reflects the whole essence of this project. Almost all success depends on the content of the first section, on what exactly the production plan in the business plan is. There are many examples of refusal to cooperate after reading an entrepreneur's resume. The first section should arouse interest in the enterprise from potential investors.
If you are starting a manufacturing facility, your business plan should have an additional chapter dedicated to describing the process of manufacturing a product. The main purpose of this section of the business plan is to prove to a potential investor that you can ensure the production of the planned volumes of high quality products and on time.
First of all, answer the question whether your company is already operating or is it just being created. This is what interests your investors and partners in the first place.
Often, a production plan is drawn up on the basis of a sales plan for products. In this section, write about how you plan to manufacture your product and consider all the stages of creating a product or service. It is best to arrange it in the form of a calendar plan, which will include a forecast of the timing of events and the amount of funding required for their implementation.
Describe in detail all the nuances of the technological process (best with visual diagrams) from the moment of purchasing raw materials and materials to the sale of finished products to wholesalers.
Think about how you can improve your workflow and what it takes. The composition and structure of production facilities may not be considered in great detail.
If this information is of particular importance (for example, for large manufacturing companies), it can be specified in the attachment to the business plan.
But the issues of supply of raw materials, materials and components deserve more attention, since the stability of the technological process largely depends on them. Write what material values (land, buildings, production facilities), stocks of raw materials and materials, what equipment and components your company has now and how deliveries will be made in the future.
If the raw materials you use require special conditions for transportation and storage, please write about how these conditions will be met. Think about how the quality control and timeliness of deliveries will be carried out, because the profit and reputation of your company depends on it.
Evaluate the performance indicators, which are determined by the amount of time and human resources required to produce a product or service. This indicator also directly affects the amount of profit, which is of particular interest to investors.
Describe what equipment is required to manufacture the product. If at the time of writing the business plan the enterprise does not have all the necessary equipment, indicate what is needed to acquire it and how long it will take from the moment of receiving the required financing to buy, install, debug and launch it.
As part of the business plan, this section explains what to consider when choosing the manufacturing process and equipment that is used in the enterprise to produce products. In addition, in this guide you can find recommendations for quality control at all stages of production. Without going deep into the theory of economic disciplines, we can say that a production plan in a business plan is prepared answers to any questions that may arise in the process of producing products / providing services.
Large companies quite often turn to special design firms (working in your industry), which draw up production plans taking into account the individual characteristics of each customer. The presented article will help you understand this important section of a business plan, as well as find out how it is drawn up, what is needed for this and what benefits it brings to enterprises.
Manufacturing plan - key elements
Each production plan shows the number of employees of the company, the amount of raw materials and materials, a list of equipment and other resources required to manufacture products (provide services).
The main elements of this section of the business plan are:
description of all processes that are mandatory for the production of finished products;
procurement policy of the company, on which the availability of all the necessary materials for the smooth operation of the company depends;
list of suppliers (indicating contacts and responsible persons), raw materials, consumables, spare parts, etc.;
volumes of required raw materials in quantitative and monetary terms;
ensuring quality control, both finished products and at each separate stage in the manufacturing process;
The basis for planning the work of any enterprise is the production plan. This document fixes the volume and procedure for the production of goods or the provision of services with accompanying characteristics: the volume of raw materials used, cost, labor costs. Consider how a production plan should be drawn up, what purposes it serves, which must be reflected in this document and its sample.
What is production plan
A production plan is a document with the help of which the management of the enterprise organizes the work and controls the labor process, the consumption of raw materials and energy, the employment of personnel. The production plan is the backbone of the company. Without it, it is impossible to effectively control the enterprise, track profits and losses, and find ways for optimization.
Such a document sets a task for each department / structural unit. The production plan is drawn up at each enterprise independently. It is virtually impossible to find a ready-made template: each organization has its own specifics. At the same time, there are generally accepted approaches and algorithms for compiling this document. Their use greatly simplifies the procedure. It is also important to know that you cannot write planning once and use it all the time. The document requires regular corrections.
What does it give
Any production plan serves several purposes simultaneously:
- Determination of the number of units of goods and services needed to make a profit.
- Planning a specific amount of profit, the ratio of expenses and income, any other important financial indicators.
- Evaluation of the efficiency of using resources and raw materials.
- Quality control. In the document, you can fix the specific characteristics of the goods and achieve them.
- Raw material cost planning.
- Find ways to optimize the process and work options.
- Capacity control.
- Monitoring the efficiency of the use of labor resources.
- Evaluation of sales efficiency.
- Develop the best ways to use the budget.
- Reporting standardization.
Thus, the list of tasks solved by the production plan is very wide. In addition, depending on the wishes of the management, the document may include any other indicators and goals for structural units. The document helps to formulate a development strategy - a list of specific actions of the enterprise necessary to achieve the goals of work. The plan helps you allocate resources efficiently.
Varieties of production plans
All production plans can be divided into the following types:
- Short-term - 1-2 years. Divided into quarters and semesters. Establish what goals the company should achieve during the year.
- Medium-term - from 2 to 5 years. The main goal is to determine the organizational structure, the number of employees, capital investments and production capacity, the volume of annual income and the dynamics of growth, the need for investments and loans.
- Long-term - from 10 years and above. The goal is to develop an economic strategy, determine the place of the organization in the market, position among competitors.
The long-term plan is concretized in the medium-term, the medium-term - in the short-term. All three plans must agree with each other. They cannot contradict each other. Planning should include development dynamics. It should follow from the documents what indicators the enterprise will consistently achieve.
Is business planning always carried out on the initiative of an entrepreneur or investor in connection with the opening of a new business? Not always. Often, the practice of preparing a business plan is integrated into the general context of managing a diversified company in the context of implementing a development strategy. In most cases, this is done by a special unit within the finance department, and not by a project office. The development of a production plan in a business plan for business units or the entire company is a versatile area of planning activity. Let's consider its expanded context.
Key aspects of the production program
It is necessary to look directly at the difference in approaches to business planning in cases of an external business project and internal planning of activities of business units. The goals for these situations are different. This is especially true of the production plan. In the first case, the emphasis is on demonstrating to the customer and investor that the project is secured with production resources: equipment, personnel and material and technical resources. In the second case, the business owners and the general management of the company must be convinced that:
- the production program takes into account the required stocks of finished products and probable losses;
- capacities are used in an optimal way, bottlenecks in them are expanded;
- imbalances in internal production units have been eliminated;
- cooperation between strategic business units (SEB) is effective;
- from the standpoint of marginal analysis and sales plan for each SEB, a verified production profitability is planned.
Considering the above, it should be remembered that the importance of such a section as a production plan when integrating business projects into the plans of a multidisciplinary company is higher than for a separate business. Under the strategic business unit, it is proposed to understand the direction of activity, in the financial structure having the characteristics of the CFD "profit" or "margin profit". SEB is the bearer of a separate business product or a whole range of products. In an ideal situation, SEB, being a part of a company, nevertheless has the characteristics of a legal entity - a subsidiary.
In any case, the production plan is built on the basis of the program for the sale of products and (or) services. And the first aspect of this section is the forecast of production volumes, taking into account the required stock of finished products and losses. The volume of production of works, services, goods is determined through a certain set of indicators, the formulas of which are given at the end of the section.
- Volume of products sold at planned prices. This volume includes products shipped to consumers that meet the conditions of quality standards, technical specifications, manufacturing technology and pre-sale preparation.
- Commodity and gross output of the company. Commercial products (TP) mean not only manufactured products for external and internal consumption, but also works, services of a capital and production nature, semi-finished products that can be considered as goods. Gross output in addition to marketable includes also changes in work in progress.
- Work in progress. This type should be understood as incompletely manufactured products that are at different stages of the production cycle and are not accepted as marketable products.
- Value added recorded in the production plan as gross output, but net of material costs.
Ancillary production volume calculations
As you know, the production of industrial products is the most difficult type of business to plan and organize. This is especially evident when the production is multi-stage, requiring a greater number of security and support measures (equipment, tooling, etc.). Product innovation also leaves its mark on planning processes.
Let us imagine an example of a medium-sized industrial enterprise operating in the oil and gas engineering industry, nevertheless, having several main and supporting industries. Let us ask ourselves a question: what else should be taken into account when developing a program for the production of such a complex product as an element of a pipeline and corresponding communications? Although many products for the oil and gas sector are made exclusively to order, the business plan should always include a certain stock of products in the warehouse for serial products. In addition, there simply cannot be a defect-free production.