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Feasibility Study Project Location, Site And Infrastructure

PROJECT LOCATION, SITE AND INFRASTRUCTURE

The choice of a project location is one of the most critical decisions when establishing an industry. The location directly or indirectly affects the business throughout its life time or for a long period of time. It is therefore necessary that the choice of a location be preceded by a critical evaluation of factors that will influence the choice either positively or negatively. The promoters must also identify alternative location(s) for the project and critically evaluate them in order to provide a sound justification for the location chosen.

Feasibility study project location site and infrastructure

In doing this, the following factors should be taken into consideration.
(a) Availability of an industrial area, a built up industrial estate or a Technology incubation center which already has some basic infrastructural facilities such as water, electricity, fuel, oil and gas, etc.
(b) Efficient and effective transportation system.
(c) Nearness to market and other resources. Adequate consideration should be placed on market demand and availability of raw materials.
(d) Cost of land construction.
(e) Availability of skilled, semi-skilled and unskilled laborers.
(f) An efficient sewage, or disposal facilities for waste products.

Other consideration include the availability of government incentives and subsidies, absence of communal clashes or civil unrest and social acceptance for the project in the community. Once a decision is made as to the choice of location, the next consideration is the site and the facilities available.

SITE

According to UNIDO (1979), the site survey in a given location should consider the following factors.
(a) Alternative sites relating to the market areas to determine whether it is close to the source of the raw materials or other inputs.
(b) Suitability of land, the terrain, and development costs.
(c) Availability of skilled, unskilled and casual labor.
(d) Availability of infrastructure including motorable roads, transport, electricity, fuel, water, gas, etc.

INFRASTRUCTURE

As stated earlier, the general purpose of ensuring availability of adequate infrastructure is to ensure a smooth flow and uninterrupted production process. Continuous production will contribute significantly to the profitability of the project. It is therefore important that adequate provision should be made in the feasibility study for the following utilities.

1. Electricity.
In the Nigerian environment where there is frequent power outage by the power authorities, the promoters should make alternative arrangements for a transformer to step-down electricity and a generating plant as a back-up
power supply or sometimes the main source of the power supply. Provision should also be made for installation materials and accessories and for possible future expansion and or diversification.

2. Water.
Another important utility required in many major manufacturing industry is water. Requirements of water for general purpose use is normally provided by the State Government through the Water Corporation Board. Unfortunately,
in the Nigerian environment, availability of water, like electricity is an exception rather than the rule.
The supply of pipe-borne water is limited in most cases to selected communities in the urban areas. This has made it imperative for projects that are sited in rural areas to make adequate provisions for their source of water supply. This is done by sinking boreholes complete with water treatment plant, pumping machines, and accessories at very exorbitant cost. Efforts should be made by the promoters to make adequate provision for the quantum of funds needed in the feasibility study.

3. Fuel/Gas/Oil.
In some manufacturing industry, utilities such as fuel, gas, oil, steam, etc. are also used in the production process. In such instances, it should be considered whether they are readily available and whether the equipment
for generation and conveyance is properly installed. Where the use of fuel is involved, proper storage facilities must be provided for in the project cost estimate. Depending on the nature of the manufacturing process,
refrigeration and air condition facilities have to be provided. Also it is very important that all these facilities are provided according to the manufacturer’s technical specification.

PRODUCTION PLANT LAYOUT

project location site and infrastructureA plant layout is an arrangement of plant and machinery, facilities and other services in the factory or business premises. It outlines the relationship between production centers and other functional departments.
As such, the efficiency of operation of a proposed project depend on the layout of the plant and equipment because this can result in a great economy in the movement and flow of materials and process. A layout may evolve gradually or it may be purposely planned for future operations. However, in a new project, it is very essential that the promoters plan the layout as an essential step towards project implementation.

The plant layout provides the broad framework within which production and may administrative activities take place. As such, it has an important bearing on the utilization of production facilities, on manufacturing turning methods, control mechanisms, and production costs. It also has a marked effect on a proposed capital expenditure. Very often, equipment suppliers or fabricators will provide guidelines on the layout and installation of machinery and equipment. Therefore, the costs of installation, have to be carefully weighed against material savings in the cost of labor, machine time, handling and services.

Specifically, a typical layout determines the location of departments and production centers, their proximity to one another, to various services and the efficient utilization of available space. It also outlines the nature
of flow in the plant and affects the distance traveled by materials and personnel. In addition, it has a direct effect on the time, efforts and costs spent on material handling, storage facilities, work-in-progress, machine utilization, maintenance, production planning and control and the effect on time lag between inspection and corrective action.

SEE ==> Office Location & Layout

In summary, the main purposes of a planned layout are to:
a) Integrate the production centers into a logical, balanced and effective production unit.
b) Facilitate satisfactory movement of materials and an efficient control of such transportation.
c) Provide a logical distribution of functional facilities.
d) Be adaptable to possible changes in the production programme either as changes in the product design or future expansion of the plant facilities.
e) Ensure proper allocation and utilization of space to the production centers and service departments.
f) Allows convenience of operation to both operators, supervisors and
management staff.

All these objectives cannot be simultaneously achieved. Therefore, project promoters should carefully analyze alternative  layouts based on advise by the equipment fabricators or suppliers and study the advantages and disadvantages in line with the manufacturing objectives.

TYPES OF LAYOUT

Depending on the product or product mix proposed, a suitable decision has to be made by the project sponsors between a product layout, a process layout, a static product layout and any other appropriate layout.
(a) Product layout or line production are instances when machines and auxiliary services are located along the product flow line. Product layout is suitable for continuous production or the basic horizontal flow lines.
Product layout is suitable for continuous production or the basic horizontal flow lines.
(b) Process layout are situations when plant, machinery, and service are grouped according to their functional characteristics. This type of layout is usually employed in job and batch production.
(c) Static product layout or layout by fixed position is a situation in which the product which is too big or too heavy to be moved from the process to the other end is consequently fixed in one place. In this situation, the machines and men are brought to the product to perform the required operations. This layout is typical of job production in heavy
industries such as ship building, construction work, fabrication of large tanks etc.

Whatever layout is adopted, it is absolutely necessary and very useful to prepare a process flowchart for arranging a proper layout.

PROBLEMS OF BAD LAYOUT

There are certain problems associated with bad layout and this should be critically considered during project formulation. Some of these include:
(a) Congestion of materials, components and assemblies.
(b) Excessive amount of work in progress.
(c) Poor utilization of space.
(d) Production bottlenecks at certain machines while similar or identical machines are idle most of the time.
(e) Long production cycles and consequent delay in delivery.
(f) Mental or physical strain on operators.
(g) Difficulties in maintaining effective supervision and control.

MANUFACTURING PROCESS AND FLOWCHART

Manufacturing Process

Before embarking on the manufacture of a given product, it is essential to study in detail all the available alternative processes of manufacture.
Project sponsors should assemble all the data concerning different processes of manufacture by which the product(s) can be made and explain the advantages and disadvantages of each process in relation to available materials, material quality and specifications, available skills, technology levels etc. Consideration should also e given to the suitability of the chosen process of manufacture to take care of possible changes that may occur in the future in the specification of materials and inputs proposed to be utilized. Plant, machinery and manufacturing process should be able to absorb such changes in raw materials and inputs.

After such consideration, a firm basis for the selection of a particular process should be spelt out in clear terms. However, a close relationship between a process of manufacture to be adopted and the scale of production
proposed should be considered by the promoters. For instance, a decision should be taken at the project formulation stage of whether to adopt a manual process, a semi-automatic process or a fully mechanized or automated process. Each of these processes has its advantages and disadvantages in relation to the nature of industry, type and suitability of materials, production output, capital outlay, turnover of sales and revenue, profitability and so on.

(a) Manual Process.
The use of manual effort in production is prevalent in areas where the development of production equipment is at the rudimentary stage. Restriction to manual operation could also be engendered by unavailability
of infrastructural facilities especially power to energize the machinery.
Whatever may be the situation, a manually operated process in which about 90% of the activities are done by labour while only 10% is done by machines.

(b) Semi Automatic Process.
Semi automated operation is more predominant in most developing economies where local technology is being developed to achieve self sufficiency. Sometimes it could be as a result of direct policy intervention to solve
the problem of unemployment. A semi automated operation has more machines involved in the production flow than in manually operated ones. The machine/Labour ratio in semi automation is 60:40.

(c) Full Automatic Process.
These are usually turn-key projects with every functions in the production process being carried out by machines. Labour is only involved in loading into delivery trucks. Most production outfits in this category are common
in the advanced countries. It should be mentioned also that the capital outlays of such projects are colossal and usually, funding is done through a consortium of banks. Some turn-key projects that are found in developing
economies are either government sponsored or multinational in outlook through the outsourcing of technical partners.

Production plan must contain production estimates, i.e. daily, monthly or yearly production estimates. It should also have selected technology of production and the entire arrangements for production, nature of machinery,
capacity of machines, nature and sources of raw materials, manpower level and quality and sources of labour.

There are many reasons why project promoters should explain the choice of production process. Some of these include:
(a) Preference of third parties, such as development and finance institutions, for the choice of a particular process or technology based on their past experiences in funding similar projects. These institutions have
in-house experts such as engineers ( mechanical, civil, electrical/electronics etc.), economists, financial management etc. who are well grounded in their various disciplines to do a proper appraisal and make a professional judgment.

(b) Another reason is a clear determination of whether the choice of process/technology is appropriate, affordable and sustainable for the level and scale of production. For example, a process technology that is appropriate may not be affordable, and where it is affordable, it may not be suitable or appropriate or sustainable for the Nigerian environment.

Having decided on the process to be adopted, the next step is for the promoters to ascertain the suitability and reliability of the sources of technology and the technology itself including a mutually agreeable modalities for the actual transfer of the technology. When adopting foreign technology, the project sponsors should be careful as parties making the technology available would very often withhold information regarding latest development and sell only out-dated technologies resulting in the transfer of plant and machinery corresponding to obsolete technology.

PROCESS FLOWCHART

A process flowchart is a graphic representation of the activities of a process in which arrows or symbols are used to represent standard activities. These symbols are so designed so as to be easily identified and to represent an activity which would otherwise be in writing. It shows the sequence of all the operations including material movement, production, inspections, delays, storage etc. occurring during a process or procedure.

The objectives of a process flowchart are:
(a) To visualize the complete “sequence” of events occurring in a
production process.
(b) To study events in a systematic way.
(c) To improve the plant layout.
(d) To improve material handling.
(e) To reduce delays.
(f) To study operations and other events in relation to each other.

SELECTION OF TECHNOLOGY.

Technology selection is one of the critical decisions in the establishment of a new project. Very often, plant and machinery constitute more than sixty percent of the total capital outlay of an industrial enterprise. Because of the quantum of capital involved, project promoters should exercise extreme caution and due diligence in the selection, purchase and installation of plant and machinery. To achieve these objectives, factors
that should be taken into consideration include the selection process, production factors and appropriateness of the technology selected.

UNIDO (1979) cautioned that the use of technology carries with it an element of risk which would be borne solely by the entrepreneurs or promoters. Therefore, the promoters task is to choose a technology that
will minimize his risks in investments and markets. The risk is not always associated with unsuitability of technology. It could be as a result of insufficiency of demand, underestimation of investments or sometimes over
capitalization. Some other considerations include political, social, financial, market, products, investments and technical factors.

APPROPRIATE TECHNOLOGY.

A technology which is appropriate to the needs of the environment in which a proposed project will be located and where the promoters will operate the enterprise should be adopted. The real test of appropriateness of a
technology to a given enterprise and environment will be in the most economic production of goods and services for consumption of the local population at their level of purchasing power.

However, when a manufacturing activity is oriented exclusively for exports, the technology must produce goods and services at specifications and pricing structure applicable to export materials. Thus, what is appropriate
to one enterprise need not necessarily be so to another in the same environment. Each case should be decided on its own merit. Appropriate technology should include provision for activities such as waste disposal,
effluent treatment and other environmental impact needed to maintain and possibly restore ecological balance.

POLITICAL AND ECONOMIC FACTORS.

Political and social factors arise that influence the choice of technology. Because of tied line of credits offered by multilateral development financial institutions such as the World Bank, the International Finance
Corporation (IFC), European Development Bank (EDB), African Development Bank (ADB) and so on, a recipient country like Nigeria may favor applicants whose technology employs manufacturing equipment supplied by the donor country. There are several instances where donor countries tie the purchase
of plant and machinery to their line of credit with very little consideration to the suitability of such technology.

Sometimes, financial considerations may favor a particular technology if the promoter who intends to use it is able to access high foreign capital inputs. But the most expensive technology is not necessarily the best.
Therefore product and market prices should also be considered principally in terms of its viability and relationship to product volume, product mix and product quality. In specific terms the objective behind raising product
quality is often to reduce the users costs or to enhance the users convenience in an environment of intense competition. Lower product prices or better packaging and distribution are often effective substitutes for
over sophistication and can be trade-off in technology selection.

In the same manner, technology selection according to UNIDO (1979) profoundly affects investments and operating costs. For example, technology A may require 30% lower fixed investment than technology B, but the
operating costs i.e. costs of production excluding depreciation of technology B may be 40% lower. Selecting technology in such a situation involves determining what financial resources are available and evaluating
economic returns. In summary the choice of technology is influenced by:

(a) Appropriateness of the nation’s infrastructure for supporting the
technology.
(b) Value added and other contributions that the technology will make to the national economy.
(c) Capability of the recipient of the technology to absorb and use it.
(d) Cost of technology.
(e) Source of technology and its supporting agreement i.e patents, trademarks, franchise , etc.
(f) Licensing agreement that will control the use of technology.

TECHNICAL FACTORS.

The selection of plant and machinery should also be done according to the manufacturing process and size of the project i.e. whether small, medium, or large scale. Different stages of manufacturing process should have
proper balance of capacity. Proper balancing of all stages of production may not be possible in some cases due to non-availability of certain machines of specific size. However as much as possible, the production
process should have balance of capacity in different stages. Important technical factors that should be considered in the choice of technology are:

(a) Maintenance requirements.
(b) Annual hours of operations.
(c) Availability of spare parts.
(d) Impact of increase or decrease in capacity on product quality.
(e) Minimum consumption of critical or limiting resources.
(f) Batch versus continuous operations including their impact on operations the operating costs, plant maintenance, product quality and product mix.
(g) Possible pollution implications.
(h) Safety of workers and the public.

PURCHASE OF TECHNOLOGY.

As much as possible, the purchase of plant, machinery and other equipment by project promoters should be done by direct negotiation with the suppliers or fabricators by formal quotation after inspection. It is not always advisable to procure plant and machinery from fabricators or suppliers whose quotation are the lowest. This is one of the reason why development banks like Bank of Industry (BOI) require project sponsors to source for and submit competitive quotations from at least three different sources. While sourcing for the equipment, project promoters should consider the quality of the machine, the reputation of the supplier, delivery schedule, payment terms, performance guarantee, past history of the supplier and the availability of spare parts. To ascertain some of these information, project sponsors should request from the suppliers its permission to inspect an discuss with industrialists who are currently operating the same or similar machines. This will provide vital information on the performance and suitability of such technology which may have been kept by the equipment supplier.

Equipment installation and commissioning after purchase is another major service which the supplier should provide. For this purpose, project sponsors could appoint either a consultant or suitable technical staff to supervise the installation process. The terms and costs of the installation should be mutually agreed upon by the two parties and should be factored in as a major component of the equipment purchase and transfer. Other issues of paramount importance include the following:

a) Equipment Fabrication. If the promoters propose to fabricate any machine or equipment instead of purchasing it from reputable machinery suppliers, they should ensure that the fabricators will be able to provide the necessary technical expertise to fabricate machines of good quality.

Sometimes, local fabricators claim to have expertise which they do not have. The end result will be a shoddy job and a machine that will not meet production specification. Such situations have resulted in premature bankruptcy of many industrialists who have been forced to close shop.

b) Fairly Used Equipment. The purchase of fairly used equipment, second-hand machines or “Tokunbo” calls for extreme caution. If it is necessary to purchase one, the detailed history of the machine should be obtained. Besides, a certificate issued by a Chartered Engineer giving details of present conditions of machine should be obtained. However, in most instances, development banks and external investors will not finance second hand equipment because it is difficult to determine its present condition and suitability for production.

c) Spare Parts.
To ensure an uninterrupted and continuous production, adequate arrangements should be made for repairs, routine maintenance and supply of necessary spare parts. A situation where regular supply of spare parts is not assured by the equipment supplier does not go well for production planning and could result in production interruptions, delays, low capacity utilization and loss of good will by customers.

SEE ==>  Office Machines & Equipments

SCALE OF PRODUCTION.

Another major factor that has a direct bearing on technology selection for a proposed project and its operations is the scale of production. It affects the capital outlay, working capital requirements, manpower
requirements, economy of production, pricing structure, market share etc. The decision governing the scale of production should be made after a careful study of all the relevant data collected by the promoters. In the analysis, a decision should be made on the investment potential, rated capacity of plant and machinery available, market potential as evidenced by systematic market research and assessment of raw materials and inputs.

For instance, in designing the production programme, a distinction should be made between “Feasible Normal Capacity” (FNC) and the “Normal Maximum Capacity” (NMC) or rated installed capacity. The feasible normal capacity
is what is achievable under normal working conditions taking into account not only the installed equipment  and mechanical conditions of plant and machinery such as normal stoppages, downtime, holidays, maintenance, tool changes, desired shift, pattern and indivisibilities of major machines to be combined but also the management system applied. On the other hand, the Normal Maximum Capacity (NMC) or the rated installed capacity is the
technically feasible capacity as guaranteed by the suppliers of the equipment.

Sometimes, economic policies of the government often determine the size of an enterprise and its scale of production to be established by a promoter especially where the promoter depend on loans from government funded institutions such as the small scale Industry Credit Scheme of the State Governments, the Small and Medium Industry Equity Investment Scheme (SMIEIS) etc. In such instances, the scale of production are kept within
specified limits, even if it means uneconomic production which impact negatively on the product pricing structure.

In the same vein, another consideration should be given to the possibility for future diversification with only slight modifications in plant and machinery in the event of minor changes in product range, production mix,
product specification etc. Due consideration should also be given by project promoters to backward or forward integration in the future and how it can be accommodated within the existing structure. However, from the standpoint of optimal business operations, the main consideration for deciding on scale of production should be what the target market can absorb.

PRODUCTION BALANCE.

After arriving at all possible requirement of plant, machinery and other requirements, another important exercise is to check on the plant balance in terms of matching production capacity of different process of equipment chosen. This is done with a view to avoid idleness of any particular piece of equipment in the production line. Consideration should also be given to the future diversification with only slight modification in plant and
machinery in the event of minor changes in product range, product mix, product specification, backward or forward integration and how it can be accommodated in the existing structure.

More Readings

Introduction To A Feasibility Study

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How To Prepare An Industrial Feasibility Study

How To Write A Business Plan

25 Profitable Small Scale Business Ideas In Nigeria

Agricultural Production Function Analysis

Significance To Corporate Perfomance Measures

 

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