MANUFACTURING / ILLUSTRATIVE PROJECT
Testing the case for a second production line
A fictional parts manufacturer has a potential increase in demand and is considering a second production line. The equipment also requires staffing, raw materials and additional working capital.
THE DECISION
Start with what
needs to be understood.
Compare the new line’s capacity and ramp-up with demand, direct costs and the cash committed before additional sales arrive.
START WITH THE DRIVERS
Connected assumptions. A clear view of your business.
THE PROPOSED APPROACH
Connect the drivers
to the decision.
This example describes how the scope could be shaped for the fictional brief.
Capacity & throughput
Connect machines, shifts, cycle times and yield to saleable output. Reflect ramp-up, maintenance and limits on production.
Unit costs & margins
Build material, labor, energy and packaging costs around product volumes. Separate variable production costs from plant and company overhead.
Equipment & working capital
Model equipment investment, raw materials, work in progress and finished goods. Connect supplier and customer terms to funding requirements.
THE DELIVERABLES
A connected set
of business materials.
The investment case would connect equipment capacity to actual saleable output, operating costs and inventory funding.
- A production and financial model connecting throughput, costs, inventory, equipment and cash flow.
- A business plan explaining the product, market, production process, supply chain and expansion requirements.
- A presentation linking new capacity and customer demand to the investment request and operating milestones.
WHAT WOULD INFORM THE WORK
- Production lines, shifts and capacity
- Product prices, mix and demand assumptions
- Bills of materials and direct labor costs
- Inventory levels and payment terms
- Equipment quotes and installation timing
EXPLORE RELATED DECISIONS
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