How to Start a Factory | From Concept to Construction

Welcome to the thrilling world of factory creation in India.

 

India's manufacturing industry is booming with energy and excitement, attracting big global companies like never before.

 

But starting a factory isn't easy. It's like embarking on a big adventure.

 

In this blog, we will explore how to start a factory in India. We'll cover everything from choosing the right location to dealing with licenses and permits.

 

If you dream of building your manufacturing empire, prepare for an exciting journey into India's factory creation world.

 

Steps to start a factory:

 

Step 1: Register your company:

 

When you're thinking about getting into manufacturing, there are many paths you can take.

 

You can either start your own company or team up with someone in a partnership.

 

Most people go for setting up a private limited company.

For registration, StartEazy offers a seamless registration process with the assistance of our expert team.

 

Simply fill in your details on the right, and our experts will promptly connect with you to guide you through each step of the registration process.

 

Step 2: Location:

 

Choosing the right spot for your factory is like planting the seeds for success. 

 

According to the study, 80% of factory owners face loss due to location selection.

 

Imagine you've set up a factory where everything from raw materials to labor costs an arm and a leg, and finding skilled workers feels like searching for a needle in a haystack.

 

 So, how do you turn your factory toward growth and survival? 

 

When exploring locations, think about finding spots close to where your raw materials flow freely or where your market is, where skilled or semi-skilled workers are finding nearby easily, and where your eager customers await. 

 

Ensuring your business is at the center of opportunity helps it succeed and stay ahead of the competition.

 

While selecting the location, several criteria should be considered, such as:

• Raw material sourcing

 

• Availability of skilled or semi-skilled labor in the local population

 

• Distance to the actual market

 

It might not be possible to get the best of all three. You’ll have to decide what compromises you’ll have to make. Just don't compromise on the availability of Labor and quality of Labor Relations.

 

 

• Raw material sourcing:

 

Getting good raw materials on time is super important for any factory.

 

For instance, in the textile business, if you don't get the fabric on time, your whole production process gets stuck, and your customers have to wait longer for their trending t-shirts to be available for sale.

 

And this my friend in the Fast fashion industry has a huge potential for loss.

 

That's why picking a factory spot with easy access to transportation is important.

 

It makes sure your materials keep coming in smoothly, so you can keep making your products and keeping your customers happy with on-time deliveries.

 

 

• Availability of skilled or semi-skilled labor in the local population

 

When you're starting a factory, finding the right workers is a big deal. Lots of factory owners have trouble finding skilled people for the job.

 

One way to deal with this is by working with local contractors.

 

These people know who's good at what in their area. So, teaming up with them can help you find the skilled workers you need to get your factory up and running smoothly.

 

 

• Near to the actual market:

 

Putting your factory near your main customers is a clever idea.

Imagine you're sending products between Delhi and Jaipur.

 

If you set up your factory somewhere in the middle, It's not only about having skilled workers nearby but also about getting your products to your customers fast.

 

Being close means you can reach them quicker, which means you can deliver awesome products right on time.

 

 

Step 3: Pick your Niche:

 

Your niche is your superpower, your unique expertise that makes you stand out from the crowd. 

 

Imagine you're a superhero in a world where everyone else is wearing the same old capes.

 

Just like Mamaearth, the founder noticed a problem there weren't enough safe baby products for delicate skin.

 

So, they focused on this niche, making healthy baby stuff that people loved. This made them super successful, like unicorns. Later, they used their expertise to make skincare products too.

 

When making your product, think about solving a problem well, just like Mamaearth did.

 

Instead of trying to do everything, focus on what you're best at. It's like using your superpower to tackle challenges head-on and stand out from the crowd.

 

 

Step 4: Licensing:

 

To legally operate a manufacturing business, you need specific licenses that match what you're making.

 

These licenses make sure you follow rules and standards, ensuring your products are safe and high-quality.

 

For example, if you make food or drug (medicine), you'll need a license from the Food Safety and Standards Authority of India (FSSAI) to meet the safety rules.

 

If your manufacturing involves chemicals or dangerous materials, you might need permits from environmental regulators to keep things safe.

 

The licenses you need depend on what you're making, where you're located, and how big your business is. 

 

Before you start making anything, you need these approvals which are compulsory for starting a factory, Like:

 

Factory License:

 

A factory license is a government-issued permit allowing a business to run a factory in a specific area.

 

It ensures that the factory follows all laws and safety rules, including those for the environment and worker health.

 

If you run a business that uses power to manufacture goods, and you have employed 10 or more workers on any day in the past year, or you have employed 20 or more workers without using power, you need to get a factory license from your state government.

 

Now, to register a factory, companies can do it online with the government.

 

But the process can be different depending on which state you're in and what kind of products you're making.

 

To get a license, the business must provide detailed plans and documents about the factory's operations and safety measures.

 

The fees for obtaining a factory license in India can vary depending on factors such as the type of factory, its location, and the scale of operations.

 

Normally the minimum cost is Rs 5k and can go up to Rs 6 lakh for large factories. 

 

Having a license shows that the factory is safe and legal. Without one, the factory could face fines or be shut down.

 

 

Pollution Control Board Consent:

 

Pollution Control Board Consent is like a green light from the government to run a business without harming the environment.

 

It's needed for industries dealing with stuff that can pollute, like chemicals or waste. To get it, businesses must show detailed plans for how they'll manage waste and emissions safely.

 

The fees for obtaining a population control license in India can vary depending on several factors like the type of factory, its location, and the scale of operations.

 

The cost can range from Rs. 10,000, as per the government fee.

 

But the process can be different depending on which state you're in and what kind of products you're making.

 

Obtain the application form for the pollution control license from the State Pollution Control Board (SPCB) or Pollution Control Committee (PCC) website or their office.

 

After your application starts processing, the authorities may conduct a site inspection to evaluate the factory's compliance with pollution control norms and verify the information provided in the application.

 

If the application is found to be satisfactory and meets all requirements, the pollution control license will be issued to the factory owner.

 

License processing costs vary based on where you are, what you produce, and who does the inspection.

 

Without this consent, you could face fines or even shut down. It's all about making sure businesses play by the rules and keep our environment safe.

 

 

Fire NOC:

A Fire NOC (No Objection Certificate) is crucial for factories to ensure they're safe from fires.

 

It's issued by the fire department or authorities after checking if the factory has proper fire safety measures like extinguishers and alarms.

 

 The cost of getting an NOC from the Fire Department for commercial activities can range from Rs. 5,000 to Rs. 15,000. Depending on the type of factory, its location, and the scale of operations.

 

For Fire NOC you have to install all the fire security equipment and install and maintain a water supply to the factory, like Fire Extinguishers, Fire Alarm Systems, Fire Hydrant Systems, and Emergency Evacuation Plans. 

 

After receiving the application, the fire department conducts a physical inspection of the premises to assess its fire safety preparedness.

 

During the inspection, they check for the presence and adequacy of fire safety measures such as fire extinguishers, alarms, emergency exits, and evacuation plans.

 

Including all the expanses the cost of Fire NOC will be starting around 1 Lakhs and vary depending on the type of factory, its location, and the scale of operations.

 

Fire NOC is not compulsory to have but better to be safe than sorry. Having a Fire NOC is necessary for getting other important licenses and permits for the factory to operate legally.

 

Without it, the factory could face fines or even get shut down for not following fire safety rules.

 

Insurance companies may also require a Fire NOC for coverage. If dealing with hazardous materials, the process may take longer.

 

 

Electricity License:

 

A factory typically needs to obtain an electricity license to legally consume electricity for its operations.

 

This license ensures that the factory complies with safety regulations and pays the appropriate fees for the electricity it uses.

 

For an electricity license, you first need to submit a file to the local electricity board department, fee for submission of the file starts from 5000Rs and may differ depending on the state.

 

Once the application is processed by the electricity regulatory authority, an officer will visit the factory location and check that either the factory requires a transformer or a 3-face connection.

 

After finalizing the type of electricity support the installation will start which cost differs according to the supply of electricity and charges of installation.

 

Once you receive the license, you have to pay the electricity bill regularly, otherwise you will be liable to pay the penalties and in some cases, they even cancel the licenses as well.

 

 

GST Registration:

 

GST registration is vital for factories to operate legally and comply with tax laws. It enables them to claim input tax credits, conduct seamless transactions, and expand their business.

 

As of 2022, businesses with an aggregate turnover exceeding Rs. 40 lakhs (Rs. 20 lakhs for special category states) are required to register for GST.

 

However, certain businesses, such as those involved in interstate supply of goods, are required to register for GST irrespective of their turnover.

Without GST registration, factories may face penalties and miss out on growth opportunities.

 

The online process of GST registration is simply easy, just need to fill out the form and our experts will help you with the GST registration procedure. 

 

The charge for GST registration with StartEazy is 2000Rs, in which we also provide the services of MSME registration.

 

 

Step 5: Funding: 

 

Securing funding for your business venture is a critical step in turning your idea into a reality.

 

It involves obtaining the necessary financial resources to cover factory setup costs, initial investments, and ongoing operational expenses.

 

Setup Funds

 

You can start by estimating the total setup costs required for your factory. Generally, there are three ways through which you can use in setting up the factory.

1. Personal Capital
2. Partnership: Each partner contributes money or assets to the business in exchange for a share of ownership and profits.
3. Bank Loan: To apply for a loan, you can approach various banks or financial institutions such as HDFC, ICICI, or Bank Bazaar.

Each of these institutions offers different types of loans with varying terms and conditions.

 

For example, HDFC offers manufacturing loans of up to Rs. 40 lakhs. This means you can borrow up to Rs. 40 lakhs from HDFC specifically for manufacturing-related expenses.

 

When applying for a loan, you'll typically need to provide collateral, which could be property, assets, or other valuable items.

 

This collateral acts as security for the lender in case you're unable to repay the loan. If you default on the loan, the lender may seize the collateral to recover the amount owed.

 

4. Government subsidiaries: These are some government schemes available for financing small and medium-sized enterprises (SMEs) and startups in India.

 

The MSME Loan Scheme aims to provide financial assistance to micro, small, and medium enterprises.

 

Pradhan Mantri MUDRA Yojana (PMMY) offers loans up to a certain limit to non-corporate, non-farm small/micro-enterprises.

 

The National Small Industries Corporation (NSIC) provides support for the promotion and growth of small-scale industries through various schemes and initiatives.

 

The SIDBI Loan is offered by the Small Industries Development Bank of India to support MSMEs with financial assistance for their growth and development.

 

These schemes can be accessed through government banks or financial institutions, and detailed information is available in PDF documents provided by the government.

 

Once you have obtained the necessary funds for setting up your business, the next step is to source additional funds required for the initial investment.

 

 

Initial Investments:

1. Cost of Machinery
2. Cost of Raw material and inventory:
3. Cost of Packaging and labeling: 
4. Labor cost

 

This can be funded through various channels, including personal capital, loans, investments, and grants. 

 

One option is to approach banks or financial institutions for a business loan, where you present your business plan and financial projections to demonstrate the viability of your factory project.

 

 

Ongoing operational expenses:

When you are running a factory. There are 2 costs : 

 

1. Fixed Costs:

• Electricity Bills: Factories typically consume significant amounts of electricity to power machinery, lighting, and other equipment necessary for operations. This cost remains relatively stable regardless of production levels.

 

• Water Bills: Water is another essential resource for factories, which is used in various processes such as cooling machinery, cleaning, and sanitation.

 

• Salaries: This includes wages paid to factory workers, administrative staff, and management personnel. It is a fixed expense regardless of production output.

 

• Rent and Lease: The cost of renting or leasing the factory premises. This expense remains constant over a specified lease period.

 

• Loan Installments: If the factory obtains financing through loans, regular payments toward loan installments must be made. These payments are typically fixed over the loan term.

 

• Administrative Expenses: Costs associated with running the administrative aspects of the factory, such as office supplies, insurance, and administrative salaries.

 

• Equipment Maintenance: Regular maintenance of machinery and equipment to ensure smooth operation and prevent breakdowns. While maintenance costs may vary, they are typically considered fixed as they are incurred regularly to upkeep machinery.

 

 

2. Variable Costs:

• Raw Materials: The cost of raw materials used in manufacturing processes. This expense fluctuates based on production levels and the price of raw materials.

 

• Packaging Materials: Materials used for packaging finished products, such as boxes, labels, and packing materials.

 

• Freight and Shipping: Costs associated with transporting raw materials to the factory and finished products to customers. This cost varies depending on the distance and mode of transportation.

 

• Medical Emergencies: While not directly related to production, medical emergencies may occur among factory workers, leading to variable costs such as medical expenses and compensation for affected employees.

 

 

Step 6: Plant and Machinery:

When picking out machinery for your factory, it's super important to focus on things, like quality, functionality, and efficiency.

 

Let's say you're making steel sheets. You've got this awesome machine that melts down steel particles and turns them into solid blocks.

 

But there is not a single machine that does all the work, you first need a machine that loads raw materials like steel particles or scrap metal from suppliers.

 

Then, you need a connector that helps load the materials into a big furnace that gets super hot, reaching temperatures over 1,500 degrees Celsius.

 

Once the steel is all melted, it's poured into molds to make solid blocks. As the molten steel cools down, it turns into solid blocks, taking the shape of the molds.

 

To convert those tiny steel particles into solid blocks, you need the right machinery and a well-equipped plant.

 

With the right plant and machinery, the process can run smoothly, ensuring that you can produce high-quality steel blocks consistently.

 

In the process of starting a factory, many factory owners face the issue of not finding the right types of machinery and some of the time they don't know from where they will get the machinery. 

 

In India, Pune ranks on top when it comes to Machinery's Hub for manufacturing industries. With a strong industrial base and a favorable business environment, Pune has attracted numerous machinery manufacturers and suppliers. 

 

Apart from that, Rajkot Gujrat is also one of the machinery hubs. Rajkot, Gujarat, is indeed renowned for its machinery manufacturing industry, particularly in sectors like engineering, automotive parts, and machine tools.

 

In the south belt, Chennai, Tamil Nadu, is a major industrial hub, particularly known for its automobile and engineering industries.

 

The city is home to several manufacturing units, including automotive giants like Hyundai, Ford, and Renault-Nissan, as well as numerous engineering firms.

 

So, if your factory deals in automobile industries then Chennai is your one-stop solution.

 

Before finalizing the machinery, here's what to keep in mind:

• Check how much production the machinery can do: Make sure it matches up with how much you need to produce.
• See how many people you need to run the machines: You don't want to have more people than you need, or not enough to keep things going smoothly.
• Make sure the machines can last a long time: You want them to be tough and reliable so they don't break down all the time.

 

Also, think about how hard it is to install and take care of the machines, and whether you can get help if something goes wrong.

 

If you're starting small, you might be able to get someone else to make the raw materials for you.

 

You can even outsource some semi-finished products so that there should not be any delay in production.

 

But if you're a big operation with lots of orders, it's usually better to invest in good machinery. That way, you can stay in control and keep things running smoothly.

 

 

Step 7: Assembly line:

 

An assembly line is like the backbone of a factory, keeping everything moving smoothly from start to finish. 

 

Instead of each worker handling every step of production, tasks are divided into smaller, specialized jobs. 

 

The assembly line is important in a factory because it streamlines the production process, improves efficiency, and reduces costs. Let's consider an example to understand its importance:

 

Imagine a factory that manufactures smartphones. Without an assembly line, workers would have to individually assemble each smartphone from scratch, performing all the necessary tasks like attaching components, installing software, and testing functionalities.

 

This manual process would be time-consuming, prone to errors, and inefficient.

 

However, by implementing an assembly line, the factory can divide the smartphone assembly process into smaller, specialized tasks.

 

Each worker is assigned a specific task, such as attaching the screen, installing the battery, or testing the camera.

 

As smartphones move along the assembly line, they undergo each task sequentially, with workers focusing on their assigned tasks only.

 

That's why having a well-organized assembly line is key. Each step flows smoothly into the next, ensuring efficient production from start to finish. 

 

By designing a structured assembly area where tasks are clearly defined and processes are streamlined, you can avoid stoppages and keep your operation running.

 

Let's discuss the different types of assembly line layouts:

 

1. Line Layout: This type of layout aligns the manufacturing processes according to the product flow requirements. 

 

Line layouts are best suited for product families that require the same process sequence and similar work standardization.

 

For Example, A biscuit manufacturing plant arranges its processes in a sequential line, from dough preparation to packaging, ensuring efficient flow and standardization for biscuit products.

 

2. Functional Layout: In a functional layout, machines, and equipment that perform similar operations are grouped in one location. 

 

This type of layout is ideal for products with varying cycle times and Takt times.

 

For Example, An automobile assembly plant groups similar machines and equipment together, such as welding stations or painting booths, to handle different aspects of the production process for various car models.

 

3. Fixed Layout: Also known as a stationary layout, this type of layout involves keeping a product in one place due to its size. Men, materials, and machines are brought to the product. 

 

Examples of such layouts include shipbuilding, aircraft manufacturing, heavy construction of dams, wagon building, bridges, buildings, etc.

 

4. Combined Layout: Most plants use line and functional layouts. The combined layout suits businesses that need to manage variants for a similar product family.

 

For Example, A furniture manufacturing facility utilizes a combination of line and functional layouts.

 

While some processes like cutting and shaping wood follow a sequential line layout, finishing processes such as staining or varnishing may be organized in functional clusters based on equipment similarity.

 

 

By breaking down the production process into smaller, more manageable steps, you can make products faster and with fewer errors. 

Plus, it helps cut costs and save time by reducing unnecessary movement and streamlining workflow.