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Entrepreneurship and Small Business Management Chapter 17 Operating for Success.
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Transcript of 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.
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.3
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.4
Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin
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
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.5
Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin
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
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.6
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 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)
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.7
Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin
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
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.8
Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin
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
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.9
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 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)
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.10
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 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
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.11
Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin
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
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.12
Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin
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
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.13
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 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)
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.14
Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin
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.
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.15
Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin
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)
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.16
Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin
Organization-WideQuality Initiatives
Benchmarking
ISO 9000
Six Sigma
Total Quality Management (TQM)
Malcolm Baldrige Award
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.17
Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin
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.”
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.18
Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin
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.
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.19
Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin
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
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.20
Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin
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
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.21
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 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
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.22
Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin
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
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.23
Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin
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).