How to Plan a New Factory

1. Project planning: fix the basis of design first

Every downstream cost is set by the basis of design: annual output, product mix, batch or continuous operation, shift pattern, seasonality and design margin. Write it as a single controlled document, approved by both operations and finance, before any supplier conversation begins.

Design for the demand you can defend with contracts or credible forecasts, and build expansion capability — space, utility headroom, structural provision — rather than idle installed capacity you must depreciate from day one.

• Nameplate vs. effective capacity: state both, with the OEE assumption behind them
• Shift model and planned maintenance windows
• Product mix and changeover frequency — the hidden capacity killer
• Design margin (typically 10–20%) and a defined expansion path

2. Technical preparation: process route, layout and utilities

Select the process route before the equipment. Two suppliers offering the same nominal throughput can imply entirely different building sizes, labour models and utility loads.

Develop a block layout showing material flow from goods-in to dispatch, with people flow, waste flow and hygiene or ATEX zoning separated. Then size utilities — power, water, steam, compressed air, refrigeration, effluent — from the equipment list rather than from rules of thumb.

• Process flow diagram and mass/energy balance
• Block layout with clean/dirty and personnel segregation
• Utility load schedule with diversity factors and future headroom
• Maintenance access, spares storage and lifting provisions

3. Budget considerations: what the estimate must contain

A credible factory budget is far more than machinery. Equipment is typically 40–60% of total installed cost; the balance is building, utilities, installation, automation, engineering, permits, spares, training, working capital and contingency.

State the estimate class. A concept-stage number carries ±30–50% accuracy; a Class 3 estimate built on a defined equipment list and layout carries roughly ±15%. Approving a Class 5 number as a fixed budget is the most common cause of mid-project funding crises.

• Equipment, installation and commissioning
• Building, civil works, utilities and connections
• Automation, MES/ERP integration and instrumentation
• Engineering, permits, insurance, spares, training
• Contingency (10–20%) and escalation for long delivery periods

4. Timeline: what actually sets the critical path

For most new factories the critical path is permitting and utility connection, not machinery delivery. Grid connections, effluent consent and environmental permits routinely take 6–18 months and cannot be compressed with money.

A realistic greenfield programme runs 18–36 months from approved basis of design to stable production, with 3–6 months of ramp-up after mechanical completion.

• Months 0–4: basis of design, site screening, pre-feasibility
• Months 3–10: permitting, utility applications, detailed engineering
• Months 6–18: tendering, contracting, long-lead equipment manufacture
• Months 12–28: construction, installation, integration
• Months 24–36: commissioning, qualification, ramp-up to nameplate

5. Procurement planning: package the scope deliberately

Decide early whether to buy a turnkey line under single responsibility, or discrete packages you integrate yourself. Turnkey costs more and constrains flexibility but transfers integration risk; multi-package procurement is cheaper on paper and only succeeds with real internal engineering capacity.

Write specifications in performance terms — throughput, yield, uptime, energy per unit, product quality — and tie acceptance testing and retention payments to them.

• Package map with clearly defined interfaces and battery limits
• Qualification criteria applied before commercial evaluation
• Incoterms, payment milestones, advance-payment and performance bonds
• Site acceptance test protocol agreed before contract signature

6. Risk management

Maintain a live risk register with owners and mitigation budgets from the first week. The dominant risks on new factories are permitting delay, utility connection capacity, scope growth, currency exposure on imported equipment, and a ramp-up curve slower than the business plan assumes.

• Permitting and environmental risk — mitigate with early authority engagement
• Single-source equipment risk — qualify a second supplier for critical packages
• FX and escalation risk — hedge or contract in a single currency
• Ramp-up risk — model 60/80/95% of nameplate over the first three quarters

7. Documentation set

The document pack is what makes a project financeable, auditable and operable. Assemble it as you go; reconstructing it at financial close costs months.

• Basis of design and process flow diagrams
• Equipment list with capacities, utilities and footprints
• Layout drawings and utility schematics
• Cost estimate with class, assumptions and contingency basis
• Permitting register and authority correspondence
• Feasibility study, financial model and sensitivity analysis

8. Financing considerations

Financing structure should be chosen while the scope is still flexible, because lenders shape the procurement plan. Export credit agency cover, for example, requires eligible content from a covered country and specific contract wording.

Typical structures for industrial projects include bank term debt, export credit agency-backed facilities, development bank funding, equipment leasing and supplier credit — often blended across packages.

• ECA-backed finance: attractive tenor and pricing, tied to country of origin
• Development bank funding: strong for food security, energy and infrastructure
• Leasing: preserves working capital for replaceable equipment
• Blended structures: match tenor to asset life, not to convenience

9. Implementation and ramp-up strategy

Appoint a single accountable project director with authority over scope changes. Freeze scope at detailed engineering and route every change through a costed change-control process.

Plan commissioning as a project of its own: water/dry runs, product trials, qualification, operator training and a documented ramp-up curve with weekly targets.

Buyer checklist

Use this as a readiness test before committing capital or issuing an RFQ.

1. 01Basis of design signed by operations and finance
2. 02Demand case defensible with contracts or credible forecasts
3. 03Site screened for power, water, effluent, logistics and permitting
4. 04Block layout and material flow reviewed by operators, not only engineers
5. 05Class 3 cost estimate with stated contingency and escalation
6. 06Permitting register open with authority contact log
7. 07Procurement packages and interface responsibilities defined
8. 08Performance-based specifications and acceptance tests drafted
9. 09Financing route selected before scope freeze
10. 10Commissioning, training and ramp-up plan budgeted

Common mistakes

Frequently asked questions