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Manufacturing means processing and/or assembling raw materials and sometimes parts to make them into products, using workers (labour), machines, tools and power.
The raw materials (wood, steel, cloth, chemicals, etc.) and the parts (handles, nails, screws, wire, thread, etc.), as well as the labour and the power, are called inputs because they are put into the making of the products.
INPUTS
MANUFACTURING
OUTPUTS
Products are the goods which are manufactured or produced in a workshop or factory.
The quantities of products produced by a business during a period of time are called the outputs.
The stages of manufacturing always follow one another in the same order, whatever the products may be.
STAGE 1 - STORING
The materials and parts which have been bought arrive in the raw material store. They are checked and stored till needed.
Figure
STAGE 2 - PROCESSING
The raw materials are processed, for example by cutting, sawing, machining or sewing.
Figure
STAGE 3 - ASSEMBLING
The parts are put together to make a product (i.e. assembly takes place). Where the product is simple - flour, cotton yarn or steel bars - assembly does not take place.
Figure
STAGE 4 - FINISHING
Finishing takes place. This includes, for example, painting, polishing, washing, dyeing or glueing.
Figure
STAGE 5 - INSPECTION
Inspection takes place to check that the product has been made correctly and is ready to be sent to the customer. This is a check for quality.
Figure
STAGE 6 - PACKING
The product is packed, ready to be sent to the customer.
Figure
Each stage of manufacturing involves costs. Some of these costs are unavoidable, as you need raw materials, labour and energy to manufacture your product. But in manufacturing businesses the amount of money spent on these items is often greater than it should be. This leads to high costs. The main causes of these high costs are:
· waste of raw materials;
· waste of workers' time;
· waste of machine time;
· waste by tying up too much working capital.
It is important that your goods are produced with the smallest possible waste. Waste adds to the cost of the product and reduces the possible profit.
The cheaper you can produce, the cheaper you can sell, so that:
· more people buy your goods; and
· you are more able to compete with other manufacturers.
Figure
Cut your costs by reducing your waste, and you will get a bigger profit.
Figure
The cost of materials can be made less by-
· Good buying. This is even more important in manufacturing than in retail trade. Price is not everything. Cheap materials may mean more material that cannot be used because it is faulty and must be thrown away, so that the material you can use becomes dearer.
· Cutting down waste. In woodworking, sheet metalworking, shoemaking, dressmaking and tailoring, among other trades, skilled cutting can make great savings as against bad cutting.
· Cutting down spoiled work. This must then be thrown away or sold off cheaply. When work must be scrapped, you lose not only the cost of machine time but also the money which you would make if the product were sold.
BAD CUTTING GIVES ONE SHIRT BUT
GOOD CUTTING GIVES TWO SHIRTS
Good training of workers, good tools and working conditions, good wages and strong supervision will cut down spoiled work.
This will not be done by cutting wages. It must be done by cutting down the amount of time which a worker wastes when he is doing a job. The costs of labour are calculated on the basis of the time spent by a worker to do a certain piece of work. The less the time spent, the less the cost.
How is time wasted by workers?
· By making workers walk, and carry materials through the workshop further than they need, because machines, workplaces and stores are badly placed.· By giving workers bad workplaces, which are untidy, difficult to work at and badly lit, and by giving them unsuitable or worn-out tools for the job to be done.
TIME IS WASTED BY: WALKING TOO MUCH POOR WORKPLACES BAD TOOLS
WORKSHOP LAYOUT
Workshop layout is the way in which machines, workbenches and storage places in a workshop are placed in relation to each other.
Good layout means that the product travels and is handled as little as possible between stages of manufacture, and that people walk as little as possible. Bad layout means that the product travels and is handled too much during its manufacture, and that people walk too much.
Bad layout costs you money because products take longer to make than they need to take. To get the same output, you need:
· more workers;
· more handling equipment;
· more space (bigger factory buildings).
All these things mean more costs.
BAD WORKSHOP LAYOUT COSTS YOU MONEY AND CUTS PROFITS
Figure
So your profits are less and you may lose orders to companies which do things better. It is your money you are wasting.
With bad layout, the product goes back and forward between processes. This uses more labour and more trucks, makes delays at machines and makes work difficult to find. Space is taken up in a bad way.
Good layout is most important when the product or materials used are heavy or big, as in sheet metalworking and woodworking. In wood machining the machines cut very fast. If the machines are in the right order there is little delay between the stages of manufacturing. The time spent moving big and heavy pieces of wood from the store to the shop, round the shop and on to the machines may be five or ten times as long as the cutting time.
If you are in a trade where heavy materials and work must be handled, think how you can make the handling time less.
You cannot always make the best layout, for example in an old factory building; but one thing you can do is to be tidy.
· Keep your workshops tidy-put everything in its right place so that it is easy to find.
· Keep your gangways clear and tidy.
· Tidiness saves time and is safe.
GOOD WORKSHOP LAYOUT SAVES YOU MONEY AND INCREASES PROFITS
Figure
WORKPLACE LAYOUT
Workplace layout is the way in which tools and materials are laid out and the finished work is stored at the place where the work is done.
The workplace which you see in the picture on the left below can be seen in thousands of small workshops all over the world. What a mess!
Figure
Figure
If you do not believe it, go and look at some small (and big) workshops near you. Finished work is mixed with pieces to be assembled. The tools are in the wrong places. The wire is tangled. The workers have to look for everything they want. They will take a much longer time to make one assembly than workers who sit at a neat workplace.
Now look at the picture on the right above. This is a good workplace layout. The worker has a chair to sit on, so he or she will be less tired. The pieces to be assembled are always in the same place so that they can be picked up without looking. The wire is on a reel. The welding nozzle is on a hook close to the worker's right hand. The screwdriver is hanging on a spring on the same side, easy to reach and use. The finished assemblies are put into a box on the left, ready to take away.
GOOD WORKPLACE LAYOUT MEANS EVERYTHING IN ITS RIGHT PLACE
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Remember: · Good workplace layout is important where products are small and light and produced from many parts in large quantities. · Work study will help you make better layouts and save money. Ask about it at your Small Business Centre or Management Centre. |
SAFETY
Workshop safety is extremely important both to you and your workers. As the owner/manager you are responsible for injuries and illness caused by poor safety standards or ignorance of risks that you and your workers are exposed to. Safety means not only preventing accidents but also doing something about bad working conditions like very loud noise or poor light, dangerous liquids or gases and so forth.
Remember that if something happens because you have not paid enough attention to workshop safety, you are causing other people pain and distress and you might end up paying for damages for the rest of your life.
There are a number of measures you can take in order to safeguard the health and security of your workers:
· Organise the work so that the different stages can be carried out smoothly and without pressure. Many accidents occur when people are moving in workshops from one workplace to another, or when they are collecting raw materials or carrying away finished goods.· Give your workers detailed instructions on how to use machines, tools and chemicals before they start working. Make sure that the safety equipment that you provide is also used by your workers. Never let a worker without proper training repair or adjust machines.
· Avoid having visitors walking around in the workshop on their own. People who are unfamiliar with your business might not have the necessary respect for tools and machines.
· Always think about safety factors when you are making investments in new machines. Ask for written instructions on how to use them.
AVOID ACCIDENTS BY:
GOOD WORK ORGANISATION
TRAINING
SAFE MACHINERY AND EQUIPMENT
CUTTING MACHINE TIME
Machines cost money, sometimes a lot of money. When you have paid money for a machine you must use it as well as possible. In many workshops, machines spend more time stopped than they do working. Why?
Because-
· the workers operating the machines must spend time fetching material from the store and taking away finished work;· the next job is not ready when the earlier job is finished, and the worker and machine are waiting for work;
· the machines break down.
In addition to these causes, machines are often not working at their correct speeds, tools are not properly sharpened and the workers are not trained to use the machines well.
Before beginning work with a machine, make sure that it is working as well as possible and that the worker really knows how to use it well.
Let us look at an example of how time can be lost in working a machine during a working day of eight hours from 8 a.m. to 5 p.m. plus a one-hour meal break from 12.30 p.m. to 1.30 p.m.
MACHINES COST MONEY-USE THEM WELL!
Look at clock no. 1. The time during which the machine is producing work is shown in light grey. The time when the machine is stopped during the working day is shown in black. Clock no. 1. shows how you could operate your machine in the best way. There are no stoppages between 8 a.m. and 5 p.m. apart from the lunch break.
Clock no. 1
The machine worked for eight hours, with no stoppages.
Now look at clock no. 2 on the opposite page. There are five dark grey pieces in clock no. 2.
Each dark grey piece shows the time when the machine was stopped, apart from at the lunch break, which is shown in black.
Clock no. 2
Clock no. 2 shows that you did not operate your machine in a good way. There were many stoppages for the following reasons:
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· The worker is late |
15 min. lost (8 a-m.-8.15a.m.) |
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· The machine is reset |
15 min. lost (9.45a.m.-10.00a.m.) |
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· The worker has a smoke |
15 min. lost (10.00a.m.-10.15a.m.) |
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· The worker carries away finished goods |
15 min. lost (12.15 p-m.-12.30 p.m.) |
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· The machine breaks down |
50 min. lost (3.00 p.m.-3.50 p.m.) |
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· The worker stopped early Total time machine stopped: |
10 min. lost (4.50 p-m.-5.00 p.m.) 120 min. = 2 hr. |
Due to the stoppages, the actual working time of the machine was reduced from eight hours to six hours, as below:
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Total working time of machine |
8 hr. (480 min.) |
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Less: |
Machine stopped |
2 hr. (120 min.) |
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Gives: |
Working time of machine |
6hr. (360 min.) |
In other words, the machine was stopped for one-quarter (i.e. 25 per cent) of its total working time.
Now look at clock no. 3 on the next page and compare it with clock no. 2.
In clock no. 3 there is only one dark grey piece left.
Clock no. 3
Let us see what has happened:
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· The worker starts on time |
15 min. saved |
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· The worker does not have to carry away finished goods |
15 min. saved |
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· The machine does not break down |
50 min. saved |
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· The worker does not stop work early |
10 min. saved |
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Total machine time saved: |
90 min. =1 1/2 hr. |
One-and-a-half hours of working time were saved due to management improvements. The actual working time of the machine was increased from six hours to seven-and-a-half hours, as shown below:
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Total working time of machine |
8 hr. (480 min.) |
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Less: |
Machine stopped |
1/2 hr. (30 min.) |
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Gives: |
Actual working time of machine |
7 1/2 hr. (450 min.) |
In other words, the machine was stopped for only one-sixteenth (6 per cent) of its total working time.
MACHINE MAINTENANCE
Machine maintenance is looking after machines and equipment, including vehicles, by oiling, greasing, checking that they are in good working order, replacing worn parts before they break, and checking electrical parts and wiring.
To work well, maintenance must be done regularly: oiling and greasing, say, once a week; checking for worn parts once a month; and checking the electrical parts every three months. The more a machine costs, the more important is good maintenance.
REGULAR MAINTENANCE PREVENTS
BREAKDOWNS
If you must stop a machine for a long time to do a good job on it, plan to stop it when you think it is best. It is better to stop a machine when you want to do it than to have it break down and stop when it is doing important work. By good maintenance, you avoid stoppages due to breakdowns.
HANDLING ON AND OFF MACHINES
We said earlier that in some trades it takes much longer to bring the material to the machine and to put it on the machine than it does to cut or work the material. It may also take longer to take the work off the machine. This is true of woodworking, where big logs of wood are difficult to handle. The same can be true of sheet metalworking, because the sheets are large and heavy. It can also be true of dressmaking when the dress or shirt is nearly finished.
HANDLING BY HAND-SLOW
If you can only make the handling time in each operation smaller, you can make your output bigger. Many business people spend a lot of money on highspeed machines and lose most of the bigger output because they do not cut their handling time.
HANDLING BY BARROW-FAST
If you are in a trade where heavy materials and work must be handled, think how you can make the handling time less and get advice.
Cash is a most important asset used in running your business. Cash enables you to buy raw materials, pay your workers and office staff, and pay for all the other expenses such as rent, insurance, telephone and so on.
Cash flows into your business from five different sources:
· from your own savings;
· from loans which you obtain from a bank;
· from relatives or friends;
· from sales on credit; and
· from cash sales.
At the time you started your business, your cash came only from your own savings and maybe from a loan. You used this cash first of all to buy machines, tools, equipment and other assets. All these are called fixed assets, because they are fixed in your business for a very long time. This means that your money is tied up in them for a very long time.
FIXED ASSETS
The rest of the cash, which you did not spend on fixed assets, is called working capital. You used it to buy raw materials and parts for production and to pay the wages and salaries and other expenses during the first two months or so of production. From then on you have received cash back from the finished goods which you make and sell.
WORKING CAPITAL
You normally receive your cash in two ways:
· quickly when you make cash sales; and
· more slowly when you make sales on credit, since people take a long time to pay.
A CREDIT SALE MEANS CASH
LATER
A CASH SALE MEANS CASH NOW
The cash which you receive from your sales is your new working capital. This is slightly more than the cash you spent on making the goods which you sold, because you made a profit. You now use this new working capital to buy more new materials and parts, which you convert into more finished goods and, when you sell these, this will give you even more cash (working capital) back than you spent before. Now you can see why this cash is called working capital: it works for you; it helps you to earn a profit.
Naturally, the faster you get your cash back after you spend it, the faster you make a profit and the faster your cash (working capital) increases. Therefore the raw materials which you purchased should be processed and turned into finished goods as quickly as possible, so that they can be sold and the money from sales flows back into your business.
WORKING CAPITAL
¯
BUYING
MATERIALS V
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MANUFACTURING OF GOODS
V
¯
SELLING OF GOODS V
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MORE WORKING CAPITAL
It is very bad if your materials are held up in each section of your workshop for a long time. The more stock and material are lying in your workshop, the more working capital is tied up in them.
You should try to organise your production in such a way that you manufacture with a minimum of materials and semi-finished goods held up in your workshop.
Look at the example below, where a lot of working capital is tied up in stock in the workshop.
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1. Raw materials store |
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Working capital tied up in raw materials: |
Working capital tied up | |
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10,000 |
10.000 |
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2. Processing section |
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Working capital tied up in partly processed goods: 5,000 |
+ 5,000 |
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3. Assembly section |
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Working capital tied up in partly assembled goods: 5,000 |
+ 5.000 |
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4. Finishing section |
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Working capital tied up in partly finished goods: 2,500 |
+ 2,500 |
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5. Inspection section |
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Working capital tied up in goods waiting for inspection: 2,500 |
+ 2,500 |
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6. Finished goods store |
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Working capital tied up in finished goods lying in store: 5,000 |
+ 5,000 |
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Total cash (working capital) tied up in stock: 30,000 |
= 30,000 | |
The more stock you hold, the more cash is tied up and the less cash you have in hand. Now look at the results you can obtain after making some improvements.
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1. Raw materials store |
Working capital tied up after improvements | |
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Working capital tied up in raw materials: 5,000 |
5,000 |
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2. Processing section | | |
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Working capital tied up in partly processed goods: 2,500 |
+ 2,500 |
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3. Assembly section | | |
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Working capital tied up in partly assembled goods: 2,500 |
+ 2,500 |
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4. Finishing section |
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Working capital tied up in partly finished goods: 1,250 |
+ 1,250 |
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5. Inspection section | | |
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Working capital tied up in goods waiting for inspection: 1,250 |
+ 1,250 |
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6. Finished goods store |
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Working capital tied up in finished goods lying in store: 2,500 |
+ 2,500 |
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Total cash (working capital) tied up in stock: 15,000 |
= 15,000 |
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In the example above, you can reduce the money tied up in stock by moving the stock faster through the factory. You can do this in many ways. We have already talked about some improvements you can make:
· improved workshop layout;
· improved workplace layout;
· better machine maintenance;
· quicker loading and unloading of machines;
· shorter machine time.
You can also reduce the money tied up by:
· quick delivery of your finished goods to the customers after you have sold the goods, and getting as much of the payment in ready cash as quickly as possible;· making sure that the customers to whom you sell on credit pay you cash strictly within two months after the delivery of the goods.
REDUCE WORKING CAPITAL TIED UP BY:
HOLDING LESS STOCK
DELIVERING GOODS
QUICKLY
LIMITING CREDIT SALES
The saving in cash is: 30,000 - 15,000 = 15,000. You now produce the same output with much less working capital tied up. With all this extra cash in hand, you may be able to finance all your purchases and expenses without having to go for a loan. You may even have some money to make the business bigger.
Increase your profit by using your working capital in a better way - Do not tie it up!
Figure
REMEMBER:
GOODS OUT FAST-
CASH IN
FAST
Service industries do not usually produce goods, but they render services to the public or some section of the public.
There are generally more small businesses in the service sector of industry than in the manufacturing sector. Service industries include garages and other repair workshops, television and radio repairs, laundries, dry-cleaning, passenger and goods transport services, hotels, restaurants and bars.
Business people in the service sector may think that the section of this book on manufacturing is of no use to them. It is true that some services, for example garages and repair workshops in general, and laundries, come very close to manufacturing industries, while others, such as bars, may seem very different. Although service industries do not generally use raw materials to make a product (although restaurants do), they use spare parts for repairs, fuel, heating, electricity and water for washing, cleaning, running vehicles and so on. They also use labour to repair, drive, clean, cook or serve, and equipment such as tools or vehicles, buildings and land just like manufacturing businesses.
To operate a service efficiently, we must use the same means as we use in manufacturing industry. The first step is to know your costs.
A SERVICE BUSINESS USES
SPARE PARTS
MATERIALS
LABOUR
TOOLS
A BUILDING
JUST LIKE
A MANUFACTURING
BUSINESS
The same methods that are used in manufacturing to cut out waste and make sure of good use of workers' time and of machines can be used in operating services. Safety is also as important in a service industry as it is in manufacturing. Read the part of this section on " Manufacturing " carefully and see what you can apply in your service business.
Knowing the costs of different items makes it possible to attack the biggest item of cost first. In manufacturing firms, this is generally the direct material cost but in service industries it may be direct labour, fuel or some other cost. To cut these costs you can use the same methods described for manufacturing:
ATTACK YOUR BIGGEST COST ITEM FIRST
· better buying and cutting down waste of materials, including fuel, power and energy;
CUT DOWN WASTE OF ENERGY
· reducing labour costs by better layout, working methods and tools, and by cutting ineffective time;
IMPROVE WORKPLACE LAYOUT
· improving the use of equipment, including vehicles, by better planning, including planned maintenance.
IMPROVE
MAINTENANCE
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