How to Start a Factory in India

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There are two ways to start a factory- the entrepreneur can either start a factory by themselves or can purchase an existing one and start the operations. The entrepreneurs need to remember that their expenditure will be dependent on their choice.

Steps that should be taken to start a new Factory

Determining cash sales

An integral part of opening a factory is determining the cash sales, which is the aggregate income received through sales and other transactions. The owners should have a clear idea of estimating the income they can make from the sales in the first year of operations and should account for various taxes such as VAT. The estimates need to be made on the basis of the type of business.

Determining the type of factory you want to start

The first thing that a factory owner needs to decide while determining the business type is the customer base. They need to determine if they will look to work on a national level or outside the country as well. Following are some other important considerations in this regard:
  • Where will the focus be – on finished goods to be sold at the consumer markets or components and parts for other manufacturers?
  • Will goods be produced only on the basis of orders or continuously?
  • The location and size of the premises. Ideally, the factory should be located near motorways and important connecting roads. This will help in
  • convenient delivery of raw materials and easy distribution of products
  • Will orders for modification of products be accepted or will it only be a standard set of goods?
  • Will there be a retail establishment or showroom attached to the factory?
  • Will production be automated or labor intensive?
  • How will the goods be delivered to the markets? Should freelance selling agents be recruited or should there be a dedicated sales team for the purpose?
  • Will the customers be provided ordering privileges on the internet?
  • Will a skilled workforce be necessary?
  • Will production be non-stop or will it be the more conventional five days a week routine?
  • Will freelance workers be employed?

Determining the products

The basic choice in this area of business is determining the sort of products to be made by a factory. However, there are some other important considerations as well:
  • How will your products be different from similar goods that are already in the market? Will they be for the mass market or just for some selected companies and a niche market?
  • How will wastage, seconds, re-works and rejects be monitored?
  • Will you need to employ specialized equipment and plant for every stage of your product manufacturing or is the machinery capable enough to handle different stages of production well enough? The latter part is especially important if the owner is looking to manufacture goods that might only experience a short term demand.
  • Will they be able to sell any waste or scrap?
  • What will be the source of the raw materials?
  • What will be the quantity of the product manufactured? It is necessary to determine early on the minimum requirements regarding volume and value will be imposed regarding customers’ orders
  • Will the products be sold in the fair trade markets?
  • Will the volume of production stay consistent throughout the year or will there be seasonal increases?
  • The time that will be taken to complete an order.
  • Is there any possibility to enter into partnerships with another manufacturer so that the consumers can be offered value added products? However, the companies need to be aware that their customers do not end up buying the products of their competitors.
  • What targets of productivity will be set for the workers?
  • Whether they will need to provide general consumers, retail customers, and sales team display models and samples? These should also be included in the costing calculations.
  • How will productivity be monitored?
  • How can carbon emissions be minimized?

Determining the product pricing

Ideally the pricing policy of a factory should cover its various costs, drawings, and overheads. The factory owners also need to determine the currency in which business shall be done and decide the time interval for reviewing the prices. They also need to choose if they will provide rebates and discounts.

The factory owners should try to widen their customer base as with a smaller number, the clients are in a position to impose their will on them. They should also look to procure raw material from within India as imported goods will become costlier as and when the Rupee depreciates. Ideally the owners should construct a safety margin in the prices for guarding against such a possibility.

Some more things to be kept in mind while starting a factory

The entrepreneurs should remember that prices should not be the sole attractive feature of their products or services – there should be other factors such as commendable design features, individualized services, and top class standards. It is also important to opt for a market segment that has a reasonable performance record for a substantial period of time and will grow properly in the future as well.

Last Updated on May 25, 2015