Guide to Starting and Running

parts . These smaller firms would not have the capacity 
to produce the whole product, but are fully capable to 
perform a key role in the supplier network by providing 
parts to the companies completing the assembly . Thus, it 
is wise to learn to combine your core competencies with 
those of other manufacturers .
Other Considerations.
Once you’ve made your decisions 
regarding the production process itself, there are related 
issues to consider:
• Purchasing Your Production Inputs
• Planning Your Logistics

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Purchasing your production inputs 
Effectively acquiring and managing your inventory of raw 
materials for production and assembly is vital to an efficient 
manufacturing process . And it is a balancing act .
One key goal of purchasing and inventory management is 
to make sure you have all the necessary production inputs 
when you need them, so there is no delay for want of parts . 
Another key goal is to minimize your inventory on hand in 
order to minimize your investment in that inventory and the 
need for warehousing facilities . In short, coordinating your 
purchasing of your raw materials with your production plans 
is crucial to your success .
There are two major control factors that will be helpful for 
optimizing your purchasing plan and minimizing your cost 
of purchasing and storing inventories of raw materials . First, 
determine the order quantity — the size and frequency 
of your orders . Second, determine the reorder point — 
the minimum level of inventory on-hand when you need 
to order new inventory . You can use an 
Economic Order 
Quantity
(EOQ) formula to compute the minimal annual 
cost of purchasing and storing each input item .
Two relatively new trends in purchasing production inputs 
are worth noting . First, 
Material Requirements Planning 
(MRP) is an effective method for managing inventory when 
your production process involves fabrication or assembly 
of several component parts . It is an information system 
through which materials are more closely scheduled, 
delivery times are shortened and more predictable, and the 
levels of on-hand inventory are reduced .
Just-in-time
inventory management is a management 
approach that attempts to minimize inventory rather than 
optimize it . Inventories are reduced to as little as possible 
— even to same-day requirements . Set-up times and lead 
times are reduced so that smaller quantities can be ordered . 
This puts pressure on suppliers to act faster and to make 
more deliveries in a time sensitive environment .
.
Planning your logistics
Moving stuff from one place to another sounds like 
a simple matter . But in a manufacturing enterprise, 
the logistics can be complicated . Bringing inputs into 
production, moving work-in-process through the steps 
of production, and distributing finished products after 
production raise some of the most complicated challenges .
So the key to a successful production process is effective 
logistical planning . You need to take logistics into 
account as you plan the location of your facilities, as 
you choose your suppliers, and as you target particular 
markets . Getting inputs where you need them when you 
need them is essential . 
In the end, controlling the costs of moving inputs and 
finished goods affects the price at which you can sell 
your products and the profitability of your business . 
Maximizing this efficiency is an ongoing requirement of a 
successful manufacturing business .