Successful Business Plans

Lesson 2: What Are You Selling?

Production and Delivery

This section discusses any proposed site location, costs of your product, facilities and logistics. The emphasis must be on the productive use of capital, labor, and material resources, manufacturing processes, vendor relations, experience and distribution requirements. Statements are needed that indicate initial volume and expansion requirements, as well as product/process complexity, uniqueness and costs.

Production At this stage you need to explain how you are going to make your future product or deliver your future services. Determining your equipment, material and labor requirements, as well as their price and availability can be critical factors in the production process. Other considerations include alternate sources/materials, inventory requirements, and care and handling of hazardous materials, if any.

You need to determine the full capacity of your present facility and how your new product plans will translate into manufacturing schedules. How will the new product plans affect the way production is done now? Let the reader of your business plan know that you've done your homework and that your production capabilities will not be overrun by the proposed products selected for future development and production.

Costs To determine the cost of your product, it is important to quantify your business costs in terms of production rates, capacity constraints, or required quality assurance and safety programs. Include quantity discounts, if applicable.

In evaluating the cost of the same product from other companies, you should determine why and how your costs are more competitive. This information will be important to the banker or investor who is looking at the return on investment. If subcontractor or assembly work is required, list the parts, vendors, lead times, costs, etc. Include information on how the future product cost will rise.

Facilities The manufacturing facility provides needed space for initial production and expansion to meet projected demand. Site selection includes the following considerations:

• Room and cost for expansion
• Land and construction costs
• Transportation cost and route access for common carrier
• Risks and insurance
• Packaging and material costs and availability
• Labor pool availability, skills, costs
• Local ordinances, licensing, and permit requirements
• Government assistance (roads, trainings, exemptions, etc.)
• Government restrictions and requirements (OSHA, NLRB, etc.)
• Community attitudes toward business and manufacturing
• Continued operating costs (utilities, communications, etc.)

Staff People are one of the most significant resources for your business. Assessing the required number of people and their skills, how and when they will be trained, and who will hire and manage them is important to your product strategy.

To protect proprietary interests and information, certain policies and procedures like confidentiality and nondisclosure agreements should be implemented with your staff, vendors and contractors, as applicable. Work with an attorney to generate the agreements and procedures to cover your company and your staff, vendors or contractors, should questions or disputes arise.

Packaging and Transportation The primary function of a product package is the protection and safety of the product. The package must be designed to protect the product during transportation over a specific perio of time in varying climates. Also, a package can be an effective marketing tool by differentiating your product from your competition. For example, when you receive an overnight package, you know whether the sender used Federal Express, UPS, DHL or TNT before you even open the contents, just by looking at the package.

Both the packaging and the transportation of your product convey an image to the customer and must be balanced with the cost, availability and competitive products on the market.

Product Fulfillment Product fulfillment is an important part of customer satisfaction. Providing a channel to monitor and manage the delivery, billing, warranty and repair of your products will ensure customer satisfaction and loyalty. Some or all of these services can be supplied directly by your company. Increasing numbers of businesses are contracting fulfillment services to companies specializing in these areas.

The benefits of an outside fulfillment operation may include:

1. Their telephone and order entry systems are state of the art.
2. They manage the sales employees which you may train with detailed sales scripts.
3. Their shipping volumes with common carriers provide a tremendous savings in shipping costs.
4. They have sophisticated equipment to handle and track lost shipments.
5. They take orders 24 hours, every day of the year.

Shipping Terms Numerous pricing terms are available, and they all impact the final cost of your product. Free on Board (F.O.B.) indicates that the seller is responsible for the cost of loading the goods onto the vehicle. The customer then takes title of the goods and is responsible for all freight charges, the cost of unloading and any damages in transit. These terms can easily be changed to "FOB Delivered" or "FOB Buyers Factory", to pass all the transportation cost to the buyer until the customer takes physical possession.

Another way to price freight is to charge a flat rate for a specific zone. You actually pay the freight charges, but bill your customer a standard charge.

Don't let your company fall into the trap of thinking the shipping department's expenses are negligible. Where pennies might have been saved on each product by carefully selected design, components or processes, these same pennies can be lost through inattentive shipping decisions. Develop your own methods by determining your return on the investment you have made on your shipping.

When your target readers see in your business plan that you have thought of and addressed every facet of product delivery, including getting it in your customer's hands, you gain immediate credibility in your ability to manage the day-to-day operations of your business.

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