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TECHNICAL AND
PRODUCTION ASPECT
-CHAPTER 4-
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LEARNING OBJECTIVES:
1 Discuss the production plan.

2 Discuss the determination of optimum location in business operation.

3 Identify and explain the capacity of business operation.

4 Discuss the business size and technique of production

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TECHNICAL ANALYSIS

●INTENT: obtaining exhaustive and

authoritative information.
● AIM: determining the technical
requirements, most advantageous
location, optimum size of the business.

The technical study consists of the following:
1. Selection of
a. Manufacturing Processes
b. Machinery Capacity and
Design.
c. Machinery Supplies
d. Plant Location.
e. Plant Layout.
f. Building and Structures
Specifications.
g. Raw Materials and their
Sources.
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2. Determination of
a. Quantity and Quality of
the Products to be
Produced.
b. Labor Needed (skilled
and unskilled)
c. Utilities Required
d. Waste Disposal Method.
e. Transportation
Necessary.
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The technical study consists of the following:

3. COMPUTATION: 4. Detailed listing of 5. Any major technological

total project cost & the estimated development
enumeration of the production and considerations.
major items of capital overhead costs.
cost.
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4.1 THE PRODUCTS

- product(s) to be manufactured and sold.
● a. Product’s PMC (physical, mechanical, chemical)
● b. Uses
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4.2 PRODUCTION PLAN

 A production plan is necessary in the event that
the new venture is a manufacturing operation.
This plan should describe the complete
manufacturing process.
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4.2 PRODUCTION PLAN
If the manufacturing is to be carried out in whole or in part by the
entrepreneur, he or she will need to describe:

• the physical plant layout;

• the machinery and equipment needed to perform the
manufacturing operations;
• raw materials and suppliers’ names, addresses, and terms;
• costs of manufacturing; and
• any future capital equipment needs.
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4.2 PRODUCTION PLAN
 The selected manufacturing process must be described
simply and clearly, preferably with the aid of flow charts
and diagrams. The existence of alternative processes and
how they compared with the chosen process must be
discussed. A review of licensing agreements and patents, if
any, would also be helpful.
 In the event that the venture is not a manufacturing
operation but a retail store, this section would be used to
describe the merchandizing plan, the purchasing of
merchandise, and inventory control system, as well as the
storage needs.
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The preparation of the production plan involves providing
answers for the following questions:
1. Will you be responsible for all or part of the manufacturing
operation?
2. If some manufacturing is subcontracted, who will be the
subcontractor(s)?
3. Why were these subcontractors selected?
4. What are the costs of the subcontracted manufacturing?
5. What will be the layout of the production process?
6. What equipment will be needed immediately for manufacturing?
7. What raw materials will be needed for manufacturing?
8. Who are the suppliers of new materials and appropriate costs?
9. What are the costs of manufacturing the product?
10.What is the future capital equipment needs of the ventures?
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If the venture is a retail operation in service delivery, the
following questions are very relevant:
1. From whom will merchandise be purchased?
2. How will the inventory control system operate?
3. What is the storage needs of the venture and how will they be promoted?
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4.2 DETERMINATION OF OPTIMUM LOCATION
 Optimum Location- The best location or area where a business
firm will rise.

Location study consists of analyzing locational forces which include:

● the sum of the total transportation costs of the inputs (raw
materials) and the physical distribution costs of the output. must
be minimum
● availability and relative costs of resource inputs and,
● favorable environment with regard to the availability of land and
buildings, taxes and regulations, general living conditions, climate,
administrative facilities, centralization or decentralization policies
of the government, environmental impact policies.
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4.2.1 INFLUENCE OF TRANSPORTATION COST ON
CHOICE OF LOCATION
 Analysis of the transfer costs point out to three possible
Location:

● near the source of raw materials

● near the market, and
● at an intermediate point
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4.2.1.1 FACTORS INFLUENCING LOCATION NEAR
SOURCE OF RAW MATERIAL
Projects are located near the source of raw material if:

● They have the characteristics of considerable weight loss at

the production stage.
● They involve large requirements for fuel.
● The relative weights of materials and finished products are
the same.
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4.2.1.2 FACTORS INFLUENCING LOCATION NEAR
THE MARKET

Projects are located near the market if:

● They are characterized by the considerable weight gain at

the production stage.
● The production process is in the intermediate and last
stages of production and is therefore more perishable,
more valuable and involves a higher distribution cost per
kilogram.
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4.2.1.3 FACTORS INFLUENCING LOCATION AT AN
INTERMEDIATE POINT
It is best to locate at the intermediate point if:
● both the raw material and the finished product are cheap and
bulky;
● the transportation costs of raw material and finished product are
the same; and
● expenses of trans-ship are great. Trans-shipment cost may
involve among other things the provision of warehouses and
strong security outfit.
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4.2.2 INFLUENCE OF PRODUCTION OR PROCESSING
COSTS
● Processing costs include direct labor costs, raw materials,
cost of administration, electric power, interest, rents, water,
fuel, royalties and others.
● The best location is where the combination of productive
services necessary to make the product is available and can
be obtained at minimum cost per unit of output.
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4.2.3 Influence of Government Spatial Policy

1. Government Policy
2. Direct Incentives

4.3 PLANT SIZE AND PRODUCTION

SCHEDULE
1. Minimum/Maximum Capacity
2. Operating Days
3. Projected Scale of Operation
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4.4 MACHINERY AND EQUIPMENT
 must be itemized according to type and use
 detailed specifications, capacities and costs
 origin of the machinery, manner and cost of
transporting and installing them must be
identified
 balancing of capacities must be presented
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4.5 PLANT LAYOUT
 should be clearly depicted through diagrams and descriptions
 a good plant lay out is characterized by the following:
■ minimum material handling
■ effective space utilization
■ smooth workflow throughout the plant
■ safe and conducive working area for the workers
■ safety and sanitation facilities
■ flexibility of arrangements
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4.6 BUILDING AND FACILITIES
 the site, type, and costs of the building and land should be
adequately described
 construction cost of the building and facilities should be
presented
 land improvements such as roads, drainage facilities, etc.
and their respective costs should be computed and
included as well
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4.7 RAW MATERIALS AND SUPPLIES
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4.8 UTILITIES
● indicates the amount, cost, and sources of electricity, fuel,
water and/or other potential energy sources. These factors
must be determined in relation to the production schedule
and capacity utilization defined.
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CHAPTER SUMMARY
SUGGESTED PARTS OF TECHNICAL AND PRODUCTION ASPECT
A. Description of the Product/ Service
B. Manufacturing Process
C. Plant Size ( Capacity) and Production Schedule
D. Machinery and Equipment
E. Plant Location
F. Plant Layout
G. Building and Facilities
H. Raw Materials and Supplies
I. Utilities
J. Production Cost
K. Appendices