Lesson plan chapter 07 operating
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Transcript of Lesson plan chapter 07 operating
Be an Entrepreneur
Chap 07
The Entrepreneur
The Business Plan
The Enterprise•Epilogue
Be an Entrepreneur
CHAPTER 07
The Operating Plan
Chapter 7 overview
The product or service that you offer to the public through your marketing plan is just the tip of the iceberg.
Unseen to the customer is a host of activities that create the product or make the service available.
Chapter 7 overview
The term “operations” covers these behind-the-scene activities.
You may say that marketing is the face your business presents to the outside world.
Its inner workings fall under operations.
Chapter 7 overview
How you set up and run your operations is the subject of the operating section of the business plan.
Chapter 7 overview
Your main goal in writing the operating plan is to demonstrate to the investor that you know how to produce or deliver your good or service.
Coverage of the Chapter
• Components of the Operating Plan:• Production activities• Support Activities• Capacity Planning• Estimating Costs
Activities
Icebreaker Glossary. Video.
Convert inputs into outputs.
Story: Grocery Gateway
Support Activities
Production Activities
DiscussionCase study: ZARA
Summary
Learning Objectives
• State the subject and goal of an operating plan
• Explain why marketing dictates operations (and not the other way around)
• Define and distinguish production activities from support activities
• Illustrate a simple production process as a process flow or a flowchart
Learning Objectives
• State the goal of capacity planning and the sources of inefficiency
• Cite situations where demand may still be different from capacity despite planning
• Distinguish start-up costs from running costs
Central Idea
Operations Plan
Story from Real Life
Mystic Masala is a small business in Canada. It offers handmade aromatherapy soy candles and body and shampoo bars made with spice, herb, and flower oils.
Importing is vital to its operations.
Story from Real Life
Based on her experience, the owner has several suggestions when importing:
Do your homework before you begin. Know the product codes and laws that apply to the goods you want to import.
Story from Real Life
Customs brokerage fees vary depending on the agent. Shop around for a cost-effective and reliable
option. If you’re good with paperwork, doing them
yourself could save several hundred dollars a shipment.
Story from Real Life
It can be more difficult to guarantee quality when shipping merchandise.
“Originally, I had my soaps shipped via boat but after coming all the way from Nepal in the heat and through the monsoon season, they didn’t always arrive in the best shape.
“Now I have them sent by air cargo.”
Glossary
Operations: The set of activities that convert inputs
into outputs. Inputs are the resources used by your
business such as materials, labor, and machines.
Outputs are the goods you produce or the services you provide.
Glossary
Production activities: Business activities that relate directly to
making goods or providing services.
Glossary
Process flow: A visual representation of the steps and
sequence required to make a product. The steps are normally limited to production activities.
Glossary
Flowchart: The activities and sequence of a
process represented in symbols. Each step in the process is shown as a symbol with a short description of the step. The symbols are linked together with arrows to show the proper sequence of the activities.
Glossary
Support activities: Activities that help production activities
to function as intended though they do not produce the goods themselves.
Glossary
Capacity planning: The process of deciding the production
capacity to meet the demand for the products of a business.
Glossary
Start-up costs: Costs associated with putting up the
production capacity of a business. These costs enable your business to begin operations though you have not done so yet.
Glossary
Running costs: Recurring costs associated with inputs
to continuing operations.
Unit Cost: The total cost to produce one unit of a
product or service.
Points to Remember
• Your operating plan lays down the roadmap that will show how you will convert inputs into products in a cost-effective manner.
Points to Remember
The operating plan consists of the following sections:
• Production activities• Support activities• Capacity planning – start-up costs• Estimating Costs – now includes running
costs
Points to Remember
• The marketing plan should determine the operations plan.
• By having marketing as the driver of the enterprise, you ensure that your product and the activities that create it are aligned with the needs of the customer.
Ask Yourself
What demand should you plan to meet? • Should you play it safe, and plan production
to meet only the low demand estimate? • Should you plan for the high season or peak
demand? • Should you plan for something in between?
Points to Remember
• Production activities are the business activities that are directly related to making goods or providing services.
• A process flow is a visual representation of the steps and sequence required to make a product.
Points to Remember
• A flow chart: is the activities and sequence of a process, represented in symbols.
• Support activities: are there to aid production. They add value to the production process.
Points to Remember
• Capacity planning: means to schedule over time, the investments and resources you business will need to produce at a desired level.
Points to Remember
• When capacity is different from demand, production results in inefficiency.
• Too much capacity and your machines or people lie idle even as you pay for them.
• Too little and you will lose sales and maybe even customers.
Points to Remember
• Start-up costs are costs associated with setting up the production capacity of a business.
• To run operations, your business will require inputs like raw materials, supplies, rent, labor and electricity. These are the running costs.
Costs: one-time versus recurring
Start-up Costs Running Costs
Nature Largely a fixed amount
Amount varies directly with level of production
Frequency and timing
One-time, usually at beginning
Recurring or happens often
Recovery rate
Recovered through profits over time
Recovered as products are sold
Funding need Fund entire amount Fund only the level that stays in the business at a point in time
Ask Yourself
• Should my small business hire an accountant? Should I just hire a part-time accountant?
• Should I just buy a software package that will do the accounting for me?
• Should I just hire a company to send a worker everyday, to do the accounting for me?
Field work. Homework.
1. Visit a factory, or a shop, or a store. Afterwards, draw their production activities (or service activities) as a process flow.
2. Go to a website on production planning. Prepare a report on the different shapes in a flowchart.
Review Questions
What is the goal of an operating plan? What are the sections ofan operating
plan? Should marketing determine
operations or the other way around? Why?
Review Questions
What is a production activity?What is a process flow?What is a flow chart?
Review Questions
What happens when support activities are neglected?
What is the output of capacity planning?
What happens when there is too much (or too little) capacity compared to demand?
Review Questions
Why can demand still be different from capacity despite careful planning?
How are start-up costs different from running costs?
Case Study questions
• Would you say that ZARA is very successful? What facts in the case tell you this?
Case Study questions
• Many other successful fashion retailers outsource production to countries where labor cost is low rather than producing the items themselves.
• ZARA produces 50% of its sales with its own facilities.
• Why did ZARA do this? What are the pros and cons of this strategy?
Case Study questions
• What is your own view of using operations as the main means to compete in an industry like fashion retailing?
• Will you buy clothes just because the company that sells them is efficient?
NEXT CHAPTER: 8
Chapter 8: The Financial Plan
Chapter 8 overview
In Chapters 5 , 6, and 7, we discussed the parts of a business plan.
We now integrate all of these parts and express them in money terms in the financial plan.
Chapter 8 overview
In chapter 8, we take a close look at financial risks, how to measure them, and express them.
Chapter 8 overview
We relate risk to the rewards of a business.
We find ways to evaluate if the business is “worth the risk” or “worth the trouble.”