For labor, personnel and capital investment decisions, it is important to use valid production data. Production flow simulation modeling helps prepare for different scenarios, which is essential to improve understanding of the operational and financial impact of changes.
Planning: a key step in putting a new product into production, for maximum ROI
After years of research and development, design and prototyping, and market testing, your new product gets the green light for production . Marketing forecasts demand in hundreds of thousands of units and sales teams collect early order commitments. Now comes the next big challenge: getting ready for production .
An important outcome of planning is a better understanding of how production decisions and expected performance translate into financial results. One of the best ways to do this is to use simulated production data as input to financial models .
In this article, we will review the importance of using valid production data for labor, personnel, and capital investment decisions . We'll also talk about how you can use this data to improve financial planning.
Production flow modeling for labor and personnel planning
Planning the labor pool and identifying areas of training and staffing needs are key considerations for a new production launch.
labor still represents a significant portion of the cost of manufacturing most goods . It is therefore important to accurately estimate the workforce your production needs , in terms of number of resources, salary ranges and skills and planning. It is also important that this is done accurately and under realistic conditions.
Here's an example: Time studies are frequently conducted to estimate how long it takes workers to travel a certain path , connect a component, or remove or change a part on a machine. But, sometimes, these studies lack important human factors .
Have you ever done a time study with all the right-handers ? This is an easy variable to overlook, but can have a significant impact on labor estimates and production planning .
For a 20-week production run, spending 8 weeks reworking all those right-handed stations could mean missing out on the impact of a strong, early sales start. For seasonal items, this could mean a total flop.
Production flow simulation for capital expenditure planning
Building a new production plant or assembly line can be one of the most important investment decisions a product company faces. It’s a major commitment that requires in-depth analysis and input from multiple departments within the company, as its financial impact can last for years.
Decisions are not made by operational staff
Purchasing new manufacturing equipment also carries financial and operational risks. These purchases are typically classified as capital expenditures, which means for many companies that the final decision-makers are executives with limited understanding of how the equipment will be used on a day-to-day basis .
Your CFO may never have touched one of the precision-machined products your company manufactures, but you can be sure they are an integral part of the decision to purchase a new multi-million dollar lathe which is used to make them.
Decision makers should be advised by the planning team
They may not flip the switch, but they 're certainly invested in the operational and financial success of the investment . And, while they may not have the operational experience or technical acumen to grasp some of the important benefits, risks and trade-offs, it is essential that they are advised on these matters by the team planning .
Can he get here in time? Will this fit? Can we change after making a purchase? Will the included training work with each of our operators? The financial performance of new equipment is determined by numerous operational realities that must be taken into account, modeled and evaluated, using appropriate software tools .
Production data for financial planning
Output data from production simulations can also be used as input data to model the financial performance of production and capital investments . Here are some examples of how production data can be simulated to assess financial impact:
- Labor requirements in each team
- Ramp-up speed, output and project duration
- Capacity constraints that affect sales potential
- ROI of capital expenditure based on reduced failure rate or increased capacity
It's rare that everything goes right with a product launch: demand ends up being too high or too low, key equipment breaks down, some product details need to be changed.
These issues inevitably impact production and force product companies to make decisions about how to move forward.
It is essential to prepare for different scenarios to improve your understanding of the operational and financial impact of changes . Production flow simulation modeling makes it possible to create these different scenarios and anticipate the decisions to be made.
Production flow modeling and simulation software: to make better investments in production
When planning a new production line, it's good to hope for the best, but it's important to prepare for the worst as well as the best. This means understanding the impact of production decisions on financial results, modeling different scenarios, and being able to clearly communicate this information to decision makers so they make good decisions.
Production flow modeling and simulation software such as Visual Components allows you to create these scenarios and make your investment decisions more reliable.
Contact us to discuss your investment issues and benefit from a personalized, free demonstration of our software.
