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13 Mmc205 Assignment Essay

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ESTABLISHING A NEW PRODUCTION FACILITY FOR MOUNTAIN BIKES IN VIETNAM

13MMC205
James Howson
A911027

Contents
Executive Summary…………………………………………………………. Page 3 Project Brief…………………………………………………………………….. Page 4 1.1 Location……………………………………………………………………. Page 4 1.2 Suppliers…………………………………………………………………… Page 4 1.3 Production………………………………………………………………… Page 5 1.4 Finances……………………………………………………………………. Page 5 1.5 Long Term Goals……………………………………...………………... Page 6 1.6 Success Criteria…………………………………………………………. Page 7 1.7 Project Boundaries……………………………………………………. Page 9 Project Gantt Chart…………………………………………………………...Page 8 Project Initiation Document……………………………………………... Page 12 1 Overview………………………………………………………………………………….. Page 12 1.1 Client………………………………………………………………………… Page 12 1.2 Purpose…………………………………………………………………….. Page 12 1.3 Objectives…………………………………………………………………. Page 12 1.4 Scope……………………………………………………………………….…Page 12 1.5 Deliverables…………………………………………………………….… Page 13 1.6 Constraints………………………………………………………………... Page 13 2 Business Case & Risk Analysis…………………………………………………….Page 14 2.1 Benefits of Project……………………………………………………… Page 14 2.2 Costing……………………………………………………………………… Page 14 2.3 Risk Analysis……………………………………………………………… Page 16 3 Personnel & Work Breakdown Structure……………………………………. Page 19 3.1 Personnel…………………………………………………………………... Page 19 3.2 Work Breakdown Structure………………………………………... Page 23 4 Schedules & Monitoring…………………………………………………………….. Page 24 4.1 Schedules……………………………………………………………….….. Page 24 4.2 Monitoring……………………………………………………………….... Page 26 Sources of Information……..………………………………………………. Page 27

Executive Summary
This report provides an analysis and evaluation of the potential profitability, risks, future benefits and financial stability of MountBike plc. setting up a production facility in Vietnam. A Project Initiation Document (PID) has been produced along with the Project Brief issued by the client, identifying costing estimates, timescale, the scope of the project and any difficulties that may be encountered. The project has been broken down into a Gantt chart, a work breakdown structure identifying the critical path, a diagram of the project organisation structure, the predicted number of sales required by the factory to the retailer in order for the factory to become profitable and a risk analysis. The project brief identifies and justifies the proposed site for the Vietnam factory and provides an overall project cost including basic figures for capital investments and a basic financial breakdown of the company based on production and sales of the mountain bikes. The project initiation document includes a breakdown of the schedules, resources, personnel and risk management plans required for the success of this project. This is supported by the work breakdown structure, network diagram, recommendations for mix of employment of UK and Vietnamese personnel in the project team and the identification of the key risks and the relevant mitigating actions. This report finds that should the project be successful, the company should break even at 76,667 units sold and expand its overall market share, thus becoming more profitable and providing opportunities for future expansion. Acquiring new business partners overseas will also provide the company with further opportunities for expanding and reduce risks such as aggressive pricing by competitors.

Project Brief

1.1 Location
The ideal location for purchase and set up of a new bike manufacturing facility, is the capital city of Hanoi (figure 1) in Northern Vietnam. This would enable easier access to raw materials and more skilled workers, due to the level of destitution in other regions of the country. Hanoi has access to a large airport, many road systems and is within a reasonable distance of the ports/docks located in the Gulf of Tonkin in the South China Sea.

1.2 Suppliers
Establishing an effective supply network for raw materials/parts/machinery that are required for production is vital to the success of this project. Therefore access to trade routes via road, air and sea is an important factor. Hanoi is located in the centre of the northern region of Vietnam, in between the borders of China and Laos. This allows easier access for potential suppliers in southern China (Hong Kong for example) and Laos. Laos is less capable of providing the necessary supplies for production but provides access to the Mekong River, a major trading route for neighbouring countries such as Vietnam, Thailand, Southern China, Cambodia and Burma. Locating closer to China enables the company to benefit from easier access to up-to-date manufacturing machinery. Figure 1 – Location of Hanoi, Vietnam

1.3 Production
The aim is to purchase an “empty shell” factory unit and convert it into a mountain bike factory, independently producing and shipping 50,000 mountain bike units within an 18-month period. This requires a substantial amount of capital investment in the factory itself, the machinery being used, the workforce and training them and the stocks of raw materials. A key factor is in ensuring the cost of producing and shipping each bike does not exceed £100.

1.4 Finances
Not including the costs of capital investment and the overall project cost, the financial breakdown for sales and production are shown below, with a total net turnover of £5,000,000 for selling 50,000 units. Table 1 – Basic figures

R.R.P. £200 (50,000 Units)
Turnover
Costs
Profit
Retailer
£10,000,000
- £6,000,000[1]
£4,000,000
Factory
£6,000,000[1]
- £5,000,000[2]
£1,000,000
Total Net Profit
£16,000,000
- £11,000,000
£5,000,000
[1] Price to retailer (£120 x 50,000)
[2] Total cost of production and shipping per bike (£100 x 50,000) Table 2 – Single unit prices
Price to retailer per unit
£120
Selling price in retail outlet per unit (R.R.P.)
£200
Total cost of production & shipping per unit
£100

1.4.1 Capital Investment (Estimates)
Based on prices obtained from Chinese companies that supply bicycle assembly lines, an assembly line capable of producing 50 units per week may cost up to $3000 (~£1825). In order to produce 50,000 units with a 10% allowance (5,000) for faulty units, 50 assembly lines would be required in order to complete the shipment within 22 weeks. This would equate to approximately £91,250 in capital investments on machinery. The cost of renting 5000 squared metres of factory space in Hanoi can cost as much as $12,500 a month, which would equate to $225,000 (~£137,000) for the duration of the 18 month project. Purchasing a factory space of this size can cost anywhere between £1,000,000 and £4,000,000. Wages paid to workers in Hanoi must meet or exceed the minimum wage, which is approximately $112 dollars (~£68) per month, equating to £1227 for the duration of the project for one member of staff.

1.4.2 Required Budget and justifications
Table 3 shows a breakdown of the estimated required budget for the completion of this project. These are estimates however and some leeway should be made in t...

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Keywords

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