Non-capital analysis: technical and operational aspect

1. Non-capital analysis:technical and operational aspect Nur Aini Masruroh http://aini.staff.ugm.ac.id/ ; Email: aini@ugm.ac.id; n_masruroh@yahoo.com

2. Overview • Product design • Production process • Capacity planning • Location • Human resources • Environmental aspect • Legal aspect

3. Product selection • Three successful business trend exist: • Specializing in offering one type of product • Example: Starbucks, Subway • Megastore that allow one-stop shopping for a large variety of product • Example: Wall-Mart, Carrefour • Megastore that specialize in one product area • Example: Home depot (household megastore), office max • These trends have also emerged on the internet where some sites have been successful in offering a large variety of different products while others specialize in single offering • Example: www.BlueDenimShirt.com

4. Product design Factors to be considered: • Function • Reliability • Maintainability • Produceability • Human factors • Safety • Disposeability

5. Production process :Tests of Feasibility • Operational Feasibility • How well will the solution work in the organization? • Technical Feasibility • How practical is the technical solution? • How available are technical resources and expertise?

6. Operational Feasibility • Questions to Ask • Is the problem worth solving? • will the solution to the problem work? • How do end users and management feel about the solution? • Has a usability analysis been conducted?

7. Technical Feasibility • Questions to Ask • Is the proposed solution practical? • Do we possess the necessary technology? • Do we possess the necessary technical expertise? • Is the schedule reasonable?

8. Production process: Factors to be considered • Dependability • Quality and specification of the product • Economic • Scope: the ability to process several products • Equipments: related to the technology used, budget • Raw material required • Process flexibility • Maintenance and replacement • Spare-parts availability • External factors, i.e. regulation on environment, labor, etc

9. Capacity planning • Capacity planning is done to overcome the demand fluctuation • Related to: human resources, machines, and other physical equipment • Factors to be considered (economical aspects): • Demand (market) • Availability of raw material and supplies • Standard production capacity (technology constraints) • Break event point (BEP) and shut down point (SDP)

10. Demand • Three possibilities: • Capacity lead demand • Demand lead capacity • Equal demand and capacity • For highly fluctuate demand, the capacity is predicted based on its highest estimated value

11. The availability of raw material and supplies • Raw material and supplies are possible to become constraints, such as: • Mineral industry: limited to availability of mineral • Import raw material: limited import quota • If raw material and or supplies become constraints, the predicted market cannot be the only consideration in capacity planning

12. Technology limitation • Some technology may have certain capacity constraints (requirement) • Cement industries require minimum capacity 300 ton/day • Steel industry (blast furnace process): 2 millions ton/year/unit • This limitation is changing as the technology is changing

13. Location • Location of the plant can be: • Raw material oriented • Close to the raw material resources • Transportation cost of raw material is higher than finished product or raw material is easily damage • Example: mining company, milk, etc • Market oriented • Close to customers • Transportation cost and warehouse consideration, quality of the finished product • Example: ice cream, soft drink, bakery, etc • If the consumers concentrated at a certain location, the distribution of finished goods is expensive, and high advertisement cost, choose location close to the consumers

14. Location • Factors to be considered; • Production factors: • raw material • Power supply • Human resources • area condition • capital • infrastructure • Product: • transportation • material handling • distributor • Environmental: • Market • Acceptance of the local community • Competitor • Legal aspect

15. Production factors: raw material • Factors to be considered: • Availability • Continuity • Quality • Transportation • Suppliers

16. Human resources • Factors to be considered in recruitment: • Skill • Age • Gender • Educational background • Health • Personality • Other added values

17. Organization • Function based • Grouped based on the function • Suitable for stable condition • Product based • Grouped based on the product • Each group has its own organizational structure • Suitable for big organization with many products or plants • Hybrid • Combined function based and product based

18. Director R & D Production Finance Marketing Function based organization • Example

19. Director Product B Product C Product A R&D R&D R&D Produc tion Produc tion Produc tion Finan ce Finan ce Finan ce Market ing Market ing Market ing Product based organization Example

20. Head office Administration Finance HRD R&D Product B Product A Purchasing Purchasing Production Production Marketing Marketing Hybrid structure Example

21. Matrix structure

22. Legal aspects • The proposed business should be NOT included in the Daftar Negatif Investasi (DNI) • Clearly stated whether it will be in the form of PT, CV, Firma (Fa) • For small business, it should follow regional regulation

23. Environmental aspect • Waste management • ISO 14000 • Environmental is a sensitive issue • Concern on environmental issues increases