entrepreneurship and small business management chapter 17 operating for success

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  • Entrepreneurship and Small Business ManagementChapter 17Operating for Success

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    Ch. 17 Performance ObjectivesUnderstand 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.

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    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

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    ManufacturingMakes tangible productsRarely sells direct to consumersWholesaleBuys products from manufacturers in bulkSells smaller quantities to retailersRetailBuys products from wholesalersSells individual items to consumersServiceSells time, skills, or expertiseServes other businesses and/or consumersReview of Types of Businesses

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    Manufacturer sells in bulk toWholesaler who sells in quantities toRetailer who sells single pieces toConsumer

    Each link along the chain marks up the price.Production-Distribution Chain

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    Management of sourcing, procurement, production, and logistics across multiple intermediate steps in order to go from raw materials to end consumersCreates and maintains efficient supply flows by addressing models and relationsPartners work together to use tools and techniques for increased efficiency.Supply Chain Management (SCM)

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    Trade shows or conferencesTrade catalogs or journalsThe Yellow PagesInternet search enginesWholesale supply houses and brokersNewspapers and magazinesCompetitorsFirms like yours, outside your trading areaSales representativesCustomersSources of Suppliers

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    Visual controlinspect inventory on hand; reorder stock when levels appear low

    Safety stock and reorder point (ROP)Safety stockamounts of inventory, raw materials, or work-in-progress kept in order to meet customer demandROPlevel at which materials need reordered

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

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    Economic order quantity (EOQ)amount of inventory that will equal the minimum total ordering and holding costsEOQ = 2DOCThe square root of: (2 x annual demand in units x ordering cost per order) carrying cost per unitManaging Inventory(continued)

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    A Purchasing Plan Includes:When orders should be placed to have products as promisedAn estimate of when the product will reach its peak to know when replacement orders need to be in placeWhen to stop ordering a product and drop it from productionThe end date for stocking particular inventory

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    Factors to Consider When Selecting SuppliersProduct conformance to quality standardsCertificationTimely deliveryLead timesMinimum-order quantitiesExtension of trade creditValue added (training, promotion, leads)Flexibility and responsiveness

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    Idea-to-Product ProcessA 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 onesDo the final assembly, regardless of who makes the partsJob shops (jobbers)suppliers or subcontractors for other manufacturers

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    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 specificationsdiagrams explaining how to make the productParts and materials listsmaterials needed and where to get themPrototypeworking sample of the productToolingmaking/adapting equipment to produce the productSetupsetting up equipment, workers, etc. each time a lot (batch) of product is madeIdea-to-Product Process(continued)

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    Just in Time (JIT) ManufacturingExcess 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.

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    QualityBroadly-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)

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    Organization-WideQuality InitiativesBenchmarking

    ISO 9000

    Six Sigma

    Total Quality Management (TQM)

    Malcolm Baldrige Award

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    BenchmarkingComparison of your companys performance against:Other companies in your industryBest practices, standards, or certification criteriaExamples: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.

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    ISO 9000Standards 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.

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    ISO 9000 Quality Management Principles for Organizational ImprovementCustomer focusLeadershipInvolvement of people Process approachSystem approach to managementContinual improvementFactual approach to decision makingMutually beneficial supplier relationships

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    Six SigmaRigorous process-improvement program that originated in 1980s by Motorola engineersUses statistical methods to eliminate defects with a 99.9997% success rateTwo submethodologies:DMAIC (define, measure, analyze, improve, control) for enhancing existing productionDMADV (define, measure, analyze, design, verify) for supporting new procedures and productsMay be too overwhelming for a new enterprise

    2012 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

    Total Quality Management (TQM)Developed in the 1950s with goal of achieving strategic advantage through quality

    Based on concept of continuous improvementongoing 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 standardsVolume of

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