What is manufacturing and is it a good business choice for you?

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It might sound like a dumb question but just what is manufacturing? More importantly, what is it like to own and operate a manufacturing business?

Both are important questions right now because real opportunities exist for manufacturing in the pandemic recovery. It is also due to the long decline in manufacturing in western countries over the past few decades. Pleasingly, demand for locally made is products is now growing again presenting a fantastic opportunity for entrepreneurs. 

Starting a manufacturing business could be an excellent option for budding business owners

Clickable Summary

1. What does manufacturing mean?
2. What is a business function?
3. In which sectors do Manufacturing businesses operate?
4. What does “make to order” mean?
5. What is Just In Time?
6. What is lead time?
7. What is micro-manufacturing?
8. What do Advanced Manufacturing and Industry 4.0 mean in simple terms?
9. Is 3D printing the same as additive manufacturing?
10. What is the difference between additive and subtractive manufacturing?
11. Does manufacturing have to be advanced to make money?
12. What is manufacturing productivity?
13. How do you measure manufacturing productivity?
14. Can I turn my hobby into a manufacturing business?
15. Which type of person might manufacturing suit?
16. What is it like running a manufacturing business?

So, let’s have a look at some of the basics and some of the terms used in the industry.

What does manufacturing mean?

Manufacturing can be described as a “conversion industry”. It is made up of many businesses ranging from micro to massive

The term covers a wide range of processes. They essentially convert raw materials, ingredients or parts into finished products. The general idea is to add value” to those materials.

Manufacturing businesses employ a production process to produce finished products. Most will also operate a range of supporting functions. These include warehousing, logistics and equipment maintenance.

The term production usually relates to the core production process. Operations, on the other hand, usually relates to those supporting functions and production. 

factory is the site where production, fabrication, processing and packaging takes place. They can range in size from small industrial units to huge complexes.

If a food business is more your thing, what is it like owning a mobile coffee business?

Image of factory with 3 chimneys

What is a business function?

For any business to grow, certain things have to happen in harmony. These are known as business functions. They include marketing, sales, finance, operations and an array of other important functions. Some of these business functions are critical for a business to thrive.

In a manufacturing business, how well these functions are done is critical to success. Get them wrong and high material, labour or factory costs will be the result. Higher costs, of course, can lead to cash flow issues and ultimately, business failure.

In which sectors do Manufacturing businesses operate?

There are many different sectors of the economy in which Manufacturing companies operate. The production processes these companies use can be very different depending upon their sector.

  • Engineering.
  • Fabrication.
  • Food production.
  • Beverage production.
  • Packaging.
  • Heavy industrial chemicals.
  • Electronics.
  • Vehicles.
  • Ship/boat building.
  • Clothing.
  • Printing.

Some Businesses, such as those in industrial chemicals for instance, use continuous processes. Others produce batches. Hence the terms continuous process and batch process manufacturing. However, smaller manufacturers are more likely to be batch processors.

What does “make to order” mean?

Generally, there are three approaches (or a combination of each) in manufacturing business models. 

Make To Stock (MTS) means standard items are made and held in stock, waiting for customers to buy them.

Make To Order (MTO) means items are made after an order is received from a customer. MTO means you only produce things that are guaranteed to sell.

Make To Assemble (MTA) means components are made to stock but not assembled until the customer orders a finished item. 

What is Just In Time?

Just In Time (JIT) production only produce a finished product for when a customer needs it. The idea is to avoid finished products in inventory. JIT aims to minimize the money required to run the business. After all, money tied up in raw materials, work-in-progress or finished goods is a waste.

What is lead time?

Lead time is the time it takes to complete the production process.

Measuring lead time is an important part of customer service. Reducing lead times helps to minimize the working capital required to run a manufacturing business.

What is micro-manufacturing?

Micro-manufacturing refers to the size of the company and not the size of the products. Many countries describe the smallest firms that employ one or a few people as “micro-businesses”. Increasingly, micro-businesses are involved in manufacturing or micro-fabrication.

Micro businesses are prevalent in all economies. In fact they account for the greatest number of businesses across the world. Some small manufacturers can be highly profitable, particularly if they serve a niche.

Micro and Small manufacturers are increasingly taking advantage of advanced manufacturing. This is largely because it’s becoming more affordable.

What do Advanced Manufacturing and Industry 4.0 mean in simple terms?

The term “Advanced Manufacturing” describes processes that use new technology to improve products.

Industry 4.0 is a term to describe the cyber connected world of:

  • People. 
  • Machines. 
  • Additive manufacturing. 
  • Robotics. 
  • Data, and 
  • Artificial intelligence.

All these are coming together in ways that have not been possible before. This is largely because of the rapid improvements in digital technology. 

Industry 4.0 can include cloud computing, the internet of things (IoT) and the industrial internet of things (IIOT).

Is 3D printing the same as additive manufacturing?

Additive manufacturing is associated with 3D “printing” technology. A 3D printer progressively adds layers of material to build a 3D shape. 

Depending upon the materials and design, an item may be fully completed in this way.

Additive manufacturing is the opposite of traditional subtractive methods. 

What is the difference between additive and subtractive manufacturing?

Subtractive manufacturing is the opposite approach to additive manufacturing. It is a process of progressively machining away material from a larger piece of raw material. For example, a lathe that removes steel from a solid rectangular block to produce a cylinder is subtractive manufacturing.

Additive manufacturing can have faster production time and less material waste. It also allows for an individual product to be made. This is because there is very little set up time compared to conventional machining.

The ability to produce a single item is a gamechanger. It is a massive advantage over traditional manufacturing processes. Producing a single item allows you to make to order. Thereby it reduces your working capital, and eliminates the need to hold stock. 

Producing a single product, quickly, exactly when a customer needs it is a fantastic advantage.

Does manufacturing have to be advanced to make money?

No! 

Some excellent companies use traditional methods. In doing so, they have been able to be highly profitable. Many others, however, have gone down the advanced manufacturing path.

Some production processes lend themselves to process automation and manufacturing with robots. Others do not. 

Businesses producing a high volume of finished goods will often seek to automate their processes. The use of robotics is costly, so huge volumes are usually required to offset those costs. 

On the downside, the more automation, the less flexible the process is to change. Smaller manufacturers may prefer to have less automation but higher flexibility.

The upshot is, all sorts of Manufacturing businesses can be profitable.

What is manufacturing productivity?

Productivity is a measure of how efficiently your business runs. It targets the efficient use of materials, labour and resources.

Increasing productivity leads to a higher profit margin. This is because you will be able to produce more for a lower cost. If you are thinking of starting a Manufacturing business, make sure you think about ways to improve your productivity! 

How do you measure manufacturing productivity?

Improving productivity in a small business is not rocket science. It is achieved by consistently improving the things that make a difference to profitability. Processes related to people, materials, machines, storage and space, are a few examples. 

The more complicated a production process is the more that can go wrong. And, the harder harder it is to manage. Increasing manufacturing productivity needs to be simple and natural. But, it is a skill to see complicated things, simply. 

Unfortunately, small manufacturing businesses can quickly become complicated as they grow. That said, having effective Key Performance Indicators and good reporting systems make a tremendous difference.

The good news is, effective systems do not need to be complex or expensive.

Can I turn my hobby into a business?

Is starting a manufacturing business for you? It you make things for fun, it could be a natural fit!  

You might like this article about turning a welding hobby into a fabrication business.

By transitioning from hobbyist to part-time micro-manufacturer you can ‘test the waters’. You can find out what business ownership is like before you fully commit. You might generate prototypes, test customer feedback and build a business while limiting your risk

Starting small does not mean ending small!

Which type of person might manufacturing suit?

People suited to a manufacturing business are typically:

  • practical 
  • happy to do physical work and get their hands dirty
  • good at organizing people and systems  
  • natural planners 
  • have sound technical knowledge of their products
  • resourceful and creative problem solvers
  • show attention to detail 
  • able to anticipate problems
  • able to cope with complex processes 
  • decisive

Age doesn’t really matter. Possibly some over 50s have prior manufacturing experience they could re-ignite.

What is it like running a manufacturing business?

Like any business, it can be rewarding, good fun and very challenging. All at the same time!

As the owner, you must be across all the functions of your business. Your products made correctly and meet your customers’ needs so quality management is super important.

In addition to managing your business, here are some examples of what a “manufacturing manager” might do daily:

  • Production planning so your materials, processes and labour are best used to meet deadlines.
  • Process and quality control to  ensure your products meet their specification.
  • Logistics ensures packaging, storage and shipping are working well.
  • Motivating People to keep your team engaged.
  • Maintenance and cleaning to maximise your efficiency.
  • Looking after Health, Safety and environment issues.
  • Monitoring your productivity to ensure you are profitable.

In doing all of these things you’ll want to be calm, logical and decisive.  

When things don’t go to plan, resourceful manufacturers find creative solutions quickly. Of course, the size of your business will determine how much you can delegate these tasks or cover them yourself.

You might our Entrepreneur Personality Quiz helpful as it guides on some key areas for preparing to own a business.

Written by Brendan Barrow
Brendan Barrow is the Co-Host of the Should I Own A Business Podcast. Brendan has a wealth of business experience across many different businesses and 3 continents.

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