Manufacturing Feasibility Studies: How to Evaluate Machinery, Capacity & Technology

What Is a Manufacturing Feasibility Assessment?

A feasibility study is a systematic assessment done in an unbiased way, of whether or not the project can be implemented based on all factors involved with it, such as costs vs. benefits, technical capability vs. technical requirement, demand for product in its market, ability to grow, and level of risk associated with the project.

In terms of manufacturing, the feasibility study helps answer many important questions, such as:

• Does the equipment and process technology currently available or suggested have the capability to produce the volume and quality of products that are required?
• Does production capacity equate to projected demand?
• Is the supply chain structure, operation structure, and costs of operations sustainable and scalable?
• Will projected revenues exceed all capital and operating expenses at all potential levels of production?

What a Strong Manufacturing Feasibility Study Should Cover?

Technical and Technology Feasibility

Central to any manufacturing feasibility study is the technical feasibility aspect of confirming whether the proposal can be executed with the proposed resources, technology and processes. If the technical feasibility fails, for example, due to inadequate machinery or an unworkable process design, then no amount of financial promise could justify proceeding.

Capacity and Production Volume Analysis

Even if the technology is suitable, production capacity must match the demand forecasted. This includes:

• Definition of Plant Capacity: All equipment capacities must be synchronised across all stages of processing, from raw material handling through to final packaging, to prevent bottle necks.
• Efficiency Estimates: Output per shift, day and month must be estimated and allow for downtime, maintenance, wastage, rejects and quality losses.
• Scalability Planning: If demand increases, can the capacity be expanded? Does the arrangement of the plant and equipment permit modular growth within the supply chain?

Financial Feasibility and ROI Forecasting

To demonstrate the financial viability of a manufacturing operation, a manufacturing feasibility study should provide detailed financial projections regarding:

• Capital Expenditure: Machinery and equipment costs, plant construction costs, infrastructure costs, Installation and commission, and any safety or service systems that may be required.
• Operating Expenditure: Costs of raw materials, labour, utilities, maintenance, logistics, waste management, and regulatory compliance.
• Revenue: Estimated revenue based on the expected demand for the products, pricing strategies, or production levels expected under three different scenarios.
• Profitability Metrics: Determining how long until the operation will become profitable, cash flow, internal rate of return, how long it will take to recover your investment, and how sensitive these assumptions are to various changes.

Operational and Organisational Readiness

Manufacturing Feasibility is not just about the physical equipment, it’s also about how human resources, processes, adherence to regulatory standards, and management practices can affect a manufacturing operation’s profitability. Therefore, it encompasses:

• Workforce Skill Requirements: Do you have all of the necessary skill sets to perform production processes on a consistent basis? Will you need to hire employees or provide additional training?
• Management systems, internal quality assurance or quality control functions, routine and preventive maintenance routines used to maintain equipment, supplies or spare part inventory, and waste management, and compliance activities.
• Logistics and Supply Chain Readiness: Raw material freight in, finished goods freight out, storage, warehouses, modes of transportation, potential supply chain partners, and relationships.

Why Emphasise Feasibility Studies Before Manufacturing Launch?

• Operational coherence and sustainability: Plan for Operational Sustainability by considering people, processes, compliance, development, management and also maintaining lists for future reference.
• Increase investor and lender confidence: When you have a strong feasibility report, it gives your investors and lenders confidence that you understand the risks or assumptions associated with your business and how you are going to manage them.
• Increase probability of success and eliminate surprises: By knowing your risks early in the process you can mitigate them, thus reducing the cost overruns, delays or technical failures associated with them.
• Plan for Growth Scalability and Long Term: By properly evaluating a company’s capacity and its ability to accommodate subsequent technology improvements upgrades, they will have the flexibility to plan and grow their business without incurring excessive costs associated with retrofitting or closing down later.