Feasibility Study Guidelines – Technical and Production/ Operations (FSG-TAPO)

 

A Feasibility Study (FS) is an investigative tool that is being used—in both on-going and start-up organizations—to provide pertinent information to organizational leaders enabling them to make informed decisions on how to proceed on a new initiative and/or business-idea. It is all about assessing alternative courses of actions, and is normally filled with calculations, analysis and estimated projections of possible business scenarios, among others; and is carried out to determine the profitability and viability of each alternative, with the end-in-view of coming-up with the most appropriate recommendations to pursue i.e., whether to abort, amend or proceed to preparing a business plan for eventual project-execution.

The Technical and Production/ Operation aspects of the study typically focus on how the sales forecast and the identified needs and wants of the targeted market-niche, are translated into the necessary design and transformation process(es) that will enable the organization to sustain-ably deliver and satisfy the said market requirements; and in so doing, benefit from  whatever revenue and related returns that can be derived from it.

This phase of the FS also provides the bulk of cost-data that will be used in the subsequent and crucial investment-analysis phase. It is important, therefore, that project proponents must fully understand and accept the sound principles that have so far been established by industry-practice; and the implications of the aforementioned cost-data (and related assumptions) that were used, on the result of the study.

This FSG-TAPO specifies the INPUT data/ information requirements, and the resulting  OUTPUT data/ information  to be generated. It also stipulates on the SCOPE of the analyses that will be required. They are explained as follows:

A. Inputs

The following data and information must be secured from the market-feasibility stage:

  1. Sales forecast for each product/ by-products identified:
  • 1st-year – monthly data,
  • 2nd-year – quarterly data, and
  • 3rd to 5th years – annual data.
  1. Primary function and the necessary features/ characteristics of the product and/ or service.
  2. Customer requirements and preferences:
  • Needs, and
  • Wants, with their corresponding weight of importance.

B. Outputs

The five (5) sets of items listed below must be emphasized and discussed in a clear and concise manner in the feasibility-study report, and have to be delivered/ presented in a compelling manner to demonstrate the project-proponents’ mastery of the subject-matter, and the feasibility-study process involved.

The depth of analyses will be determined by the required cost-estimates to be able to generate pertinent cash-flows that will be necessary in conducting t a realistic investment-analysis i.e., using the Internal Rate Of Return (IRR or MIRR[1], as may be appropriate) and/ or Net Present Value (NPV) approaches; or, as may be required by the Financial-aspects of the study. On breadth of analyses, three alternatives are deemed sufficient to demonstrate the project-proponents’ awareness of the options that are available.

N.B.: All data and assumptions MUST be properly justified.

  1. Factors (5Ms) of production, their design, amounts/ quantities and schedules:

  • Manpower
  • Materials
  • Machinery
  • Money, and
  • Management (day-to-day).
  1. Compliance with in-vogue environmental and statutory laws and regulations of the land:

  • Solid waste management (RA-9003)
  • Clean air act (RA-8749)
  • Water quality act (RA-9275)
  • Labor laws: minimum age (RA-9231), minimum wage (DO-18), and basic employment benefits (SSS, Philhealth, Pag-ibig)
  1. Certifications on Management Systems and Standards

To be validated during the market study, and explicitly specified as part of Customer’s requirements in Section A3 above—more particularly, for EU-destined products whose buyers are very passionate about ISO management systems and standards.

  • Quality management system (ISO-9001 or equivalent),
  • Environmental management system (ISO-14001 or equivalent), and
  • Occupational health and safety administration (OHSAS-18001 or equivalent); or, possibly
  • An integrated management system (IMS).
  1. Key Performance Indicators (KPIs)

  • Productivity Indices for: Overall Multi-factor, Labor, Materials, Energy;
  • Overall Equipment Effectiveness (OEE) Index,
  • Supply-chain SCOR Metrics: Reliability (Perfect-order Fulfilment – %), Responsiveness (Order Fulfilment Cycle-time – Days), and Flexibility (Upside supply chain flexibility – Days @ 20% Δ);
  • Environmental-footprints: CO2-emission (MT), Water-consumption (CuM), Solid-waste generation (MT).
  1. Costs, Expenses and Timing

Close coordination with the Finance FS-Team will be important here as these are the inputs to the subsequent Investment Analysis that will be crucial in determining the outcome of the Feasibility Study as a whole.

  • Capital expenditures i.e., all cost and expenses that will benefit the organization for more than one-year;
  • Pre-operating cost and expenses i.e., all cost and expenses incurred prior to the 1st commercial operating-period;
  • Operating costs and expenses i.e., all periodic cost and expenses incurred during the commercial phase; and
  • Cash draw-down schedules tables and matrices.

C. Minimum Coverage/ Scope

It is easy to get entangled when analyzing a complex system such as the production-operation system  of an enterprise. To avert this and ensure that nothing important is overlooked, Heizer and Render’s 10-strategic OM areas[2] will be used as framework of analysis. They are listed below, with their respective pertinent sub-topics.

  1. Designing the Product[3]

  • Product development process,
  • Application of Quality function deployment (QFD) or House of quality (HOQ) concepts,
  • Description (textual and graphic) of product and/ or service,
  • Engineering drawings,
  • Bill of materials (BOM),
  • Assembly drawings,
  • Alternative product designs, and
  • Evaluation of alternatives (including possible outsourcing) with due considerations to Section B
  1. Designing the Production/ Operating Process and Capacity

  • Process strategies,
  • Process analysis and design,
  • Process flowcharts,
  • Capacity plans and utilization,
  • Alternative process and capacity designs, and
  • Evaluation of alternatives (including possible outsourcing) with due considerations to Section B above.
  1. Managing Total Quality

  • Quality control,
  • Quality assurance,
  • Quality-improvement/ TQM,
  • Alternative quality management configuration, and
  • Evaluation of alternatives (including possible outsourcing) with due considerations to Section B above.
  1. Locating the Main Production/ Operating Facility

  • Decision-criteria (MUSTS & WANTS),
  • Decision evaluation model and procedures,
  • Alternative site-locations, and
  • Evaluation of alternatives (including possible outsourcing) with due considerations to Section B above.
  1. Layouting the Main Production/ Operating Facility

  • Decision-criteria (MUSTS & WANTS),
  • Decision evaluation model and procedures,
  • Alternative layout schemes, and
  • Evaluation of alternatives (including possible outsourcing) with due considerations to Section B above.
  1. Designing Jobs and Establishing Time Standards

  • Skills requirements,
  • Job Designs and Work Methods,
  • Job Descriptions,
  • Time standards,
  • Alternative job designs and manning configurations, and
  • Evaluation of alternatives (including possible outsourcing) with due considerations to Section B above.
  1. Supply Chains and Networks

  • Suppliers for each of BOM-items,
  • Service-level Agreement,
  • Prices and terms of payment for each of BOM-items,
  • Inbound Logistics (customs, brokerage, temporary-storage and transport),
  • Outbound Logistics (customs, brokerage, temporary-storage and transport),
  • Alternative supply chain/ network configurations, and
  • Evaluation of alternatives (including possible outsourcing) with due considerations to Section B above.
  1. Inventory Management

  • Relevant inventory models,
  • Order lead-times,
  • Re-order points (ROP),
  • Safety stocks,
  • ABC-classification of inventory-items,
  • Inventory-policies,
  • Alternative inventory control configurations, and
  • Evaluation of alternatives (including possible outsourcing) with due considerations to Section B above.
  1. Planning and Scheduling

  • Long and short-term planning process,
  • Sales and operations planning (S&OP) process,
  • Aggregate Schedules,
  • Master Production Schedules,
  • Material Requirements Plans (MRP),
  • Alternative schemes, and
  • Evaluation of alternatives (including possible outsourcing) with due considerations to Section B above.
  1. Maintenance

  • Maintenance policies: Preventive, Breakdown, or Predictive
  • Alternative maintenance strategies, and
  • Evaluation of alternatives (including possible outsourcing) with due considerations to Section B above.

The project-proponents/ analysts conducting this stage of the study MUST coordinate with all FS-Teams (Marketing, Finance etc.) to ensure that nothing important is overlooked, and that the spirit of constructive-collaboration, realistic-assumptions, and fact-based decision-making will prevail throughout the study;  inasmuch as the time-tested adage of “G.I.G.O.” is very much applicable here.

—-End—

[1] Modified IRR

[2] Heizer and Render’s “Operations Management, Sustainability and Supply Chain Management” 11/e, Pearson 2014.

[3] Applies to physical-goods, services and/or a bundle of goods and services.

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About Ramon H. Enriquez MIE&M, RME

Ramon H. Enriquez is a retired business executive who now spends his available time sharing his more than 35 years of industry experiences in the Philippines and abroad (Indonesia, Japan, Malaysia, Thailand, Vietnam, Brazil, and Switzerland) as an Independent Management Consultant and as a Professional Lecturer of leading Metro-Manila universities, on the various value-creation and strategy-execution topics that he now specializes: Supply-Chains, Operations, Quality, Enterprise-Projects, and Decision-support---their systems design and management, in particular. His affiliations with relevant leading global industry associations (APICS, CSCMP, PMI, INFORMS, ASQ, ISM among others) keeps him informed and updated on the current and future developments in the above-mentioned fields. He is a lifelong Systems Thinker/ Modeler, and an avid Micro-blogger. His hobby includes Digital-photography/ -graphics, Singing, Acoustic guitar playing, Songwriting, and Audio-recording/ -mixing. When not traveling, he normally spends his time at his Quezon City home-office with his wife, Gay; son, Dax; and dog, Brutus.
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