Entrepreneurship and smaill business management chapter 17

 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-prog

Entrepreneurship and

Small Business Management Chapter 17

Operating for Success

 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

 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

 Trade shows or conferences

 Trade catalogs or journals

 The Yellow Pages

 Internet search engines

 Wholesale supply houses and brokers

 Newspapers and magazines

 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

C The 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

 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.

 Broadly-used concept with multiple

definitions, such as determining

degrees of excellence and conforming

 Total Quality Management (TQM)

 Malcolm Baldrige Award

 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

 Factual approach to decision making

 Mutually beneficial supplier relationships

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

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:

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).