Entrepreneurship and Small Business Management Chapter 17 Operating for Success

Entrepreneurship and Small Business Management

Chapter 17Operating for Success

© 2012 Pearson Education, Upper Saddle River, NJ 07458.

All Rights Reserved.2

Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

Ch. 17 Performance Objectives Understand the significance of

operations in a business. Develop a production-distribution chain

for your business. Manage suppliers and inventory. Explore the idea-to-product process. Ensure product quality. Use technology to benefit your

business.




Operations is a set of actions that produce goods and services, allowing businesses to deliver on promises.

Inputs (materials, data, funds, etc.) are converted into outputs (products, services).

The steps required depend on the specific industry and business.

Operating efficiency is critical to business success.

Operations




Manufacturing Makes tangible products Rarely sells direct to consumers

Wholesale Buys products from manufacturers in bulk Sells smaller quantities to retailers

Retail Buys products from wholesalers Sells individual items to consumers

Service Sells time, skills, or expertise Serves other businesses and/or consumers

Review of Types of Businesses




Manufacturer sells in bulk to… Wholesaler who sells in quantities to… Retailer who sells single pieces to… Consumer

Each link along the chain marks up the price.

Production-Distribution Chain




Management of sourcing, procurement, production, and logistics across multiple intermediate steps in order to go from raw materials to end consumers

Creates and maintains efficient supply flows by addressing models and relations

Partners work together to use tools and techniques for increased efficiency.

Supply Chain Management (SCM)




Trade shows or conferences Trade catalogs or journals The Yellow Pages Internet search engines Wholesale supply houses and brokers Newspapers and magazines Competitors Firms like yours, outside your trading area Sales representatives Customers

Sources of Suppliers




Visual control—inspect inventory on hand; reorder stock when levels appear low

Safety stock and reorder point (ROP) Safety stock—amounts of inventory, raw

materials, or work-in-progress kept in order to meet customer demand

ROP—level at which materials need reordered

ROP = (avg. demand per unit of lead time x lead time) + safety stock

Managing Inventory




Economic order quantity (EOQ)—amount of inventory that will equal the minimum total ordering and holding costs

EOQ = √ 2DO

CThe square root of: (2 x annual demand in units x ordering cost per order) ÷ carrying cost per unit

Managing Inventory(continued)




A Purchasing Plan Includes: When orders should be placed to have

products as promised An estimate of when the product will

reach its peak to know when replacement orders need to be in place

When to stop ordering a product and drop it from production

The end date for stocking particular inventory




Factors to Consider When Selecting Suppliers Product conformance to quality standards Certification Timely delivery Lead times Minimum-order quantities Extension of trade credit Value added (training, promotion, leads) Flexibility and responsiveness




Idea-to-Product Process A manufacturer can make every piece

of its own product or have parts or sub-assemblies made by suppliers.

Many companies: Make the most important or complex parts

of their products, but purchase minor ones Do the final assembly, regardless of who

makes the parts Job shops (“jobbers”)—suppliers or

subcontractors for other manufacturers




Whether a company makes its own product or has parts made by suppliers, it controls the design and how the product is made: Drawings and specifications—diagrams

explaining how to make the product Parts and materials lists—materials needed

and where to get them Prototype—working sample of the product Tooling—making/adapting equipment to

produce the product Setup—setting up equipment, workers, etc.

each time a “lot” (batch) of product is made

Idea-to-Product Process(continued)




Just in Time (JIT) Manufacturing

Excess inventory creates multi-million-dollar losses each year.

JIT does not waste materials, labor, shipping, or warehousing on products that might not be sold.

JIT focuses on making the smallest amount of product needed, quickly and efficiently.

Principles: Run the smallest lots feasible. Reduce setup time/cost to the bare minimum. Schedule production so products are finished “just in

time” to ship. Stay flexible.




Quality Broadly-used concept with multiple

definitions, such as determining degrees of excellence and conforming to specifications or standards

Largely defined by your market positioning strategy

Profits follow quality (W. Edwards Deming)




Organization-WideQuality Initiatives

Benchmarking

ISO 9000

Six Sigma

Total Quality Management (TQM)

Malcolm Baldrige Award




Benchmarking Comparison of your company’s

performance against: Other companies in your industry Best practices, standards, or certification

criteria Examples:

Compare your financial ratios to industry levels. Use market research to create a list of criteria

important to your customers, and then compare how well your company “measures up.”




ISO 9000 Standards for quality management systems

established by the International Organization for Standardization (ISO)

Certified by independent companies which document the use of consistent business procedures, and indicate an organization has been independently audited for compliance

Organizations sometimes market their ISO certification as a mark of excellence, although it is not a guarantee of compliance with standards.




ISO 9000 Quality Management Principles for Organizational Improvement

Customer focus Leadership Involvement of people Process approach System approach to management Continual improvement Factual approach to decision making Mutually beneficial supplier relationships




Six Sigma Rigorous process-improvement program that

originated in 1980s by Motorola engineers Uses statistical methods to eliminate defects

with a 99.9997% success rate Two submethodologies:

DMAIC (define, measure, analyze, improve, control) for enhancing existing production

DMADV (define, measure, analyze, design, verify) for supporting new procedures and products

May be too overwhelming for a new enterprise




Total Quality Management (TQM)

Developed in the 1950s with goal of achieving strategic advantage through quality

Based on concept of continuous improvement—ongoing effort to identify and implement changes throughout the organization

Involves constant monitoring and improvement of processes through measures of quality, such as:

Complying with product specifications and operating standards

Volume of production On-time delivery Repeat rates

Requires commitment of all employees to be successful




Malcolm Baldrige Award A competitive process, established by the U.S.

Congress, that recognizes quality management Administered by the National Institute of

Standards and Technology (NIST) Organizations are judged in the areas of:

Leadership Strategic planning Customer and market focus Measurement, analysis, and knowledge management Human resources focus Process management Business results




Use Technology to Your Advantage Invest in a computer.

Capture the potential of the telephone.

Identify market-specific software and technology.

“Open” an electronic storefront (Web site).

Documents

Entrepreneurship and Small Business Management Chapter 17 Operating for Success