Operations Management 10.1 Operating Procedures 10.2 Inventory Management 10.3 Financial Management

Lesson 10.1 Operating Procedures Goals Define the five functions of management. Describe five types of policies that should be included in an operations manual. Chapter 10

Vocabulary manager management organizational structure authoritative management democratic management operations manual Chapter 10

Management Functions manager management the person responsible for planning, organizing, staffing, implementing and controlling the operations of a business management the process of achieving goals by establishing operating procedures making effective use of people and other resources Chapter 10

Planning Strategic planning Intermediate-range planning planning for the three to five years ahead setting broad, long-range objectives Intermediate-range planning planning for a one-year period set target dates for task completion Short-term planning planning for daily operations Chapter 10

Organizing Assignment of tasks Grouping of tasks into departments determining which employee is responsible for specific tasks Grouping of tasks into departments grouping closely related tasks together Chapter 10

Organizational structure a plan that shows how the various jobs in a company relate to one another often represented in a chart Allocation of resources across the organization determining the most efficient use of resources Chapter 10

Staffing Managing the personnel needs of a business through: obtaining training compensating Chapter 10

Implementing Implementing involves directing and leading people to accomplish the goals of an organization. management style the way a manager behaves toward and works with employees Chapter 10

authoritative management the manager is directive and controlling democratic management employees are involved in decision making the manager provides less direction mixed management a combination of authoritative and democratic management Chapter 10

Controlling Controlling is the process of: setting organizational standards ensuring those standards are met comparing actual revenues and expenses with projected revenue and expenses determining if operations are running effectively inspecting products and services to ensure they are meeting performance standards Chapter 10

What are the functions of management? Chapter 1

Operations Manual operations manual employee handbook contains all the rules, policies, and procedures that a business should follow to function effectively employee handbook details the rules, policies, and procedures that apply to employees Chapter 10

Customer Service Policies Operating Policies Set daily operating hours that are convenient for customers. Customer Service Policies Customer satisfaction is the goal. returns follow-up service Chapter 10

Delivery Policies often offered for customer convenience The policy should cover: whether you will offer delivery delivery fee delivery timeframe Chapter 10

Hiring Policies Safety Policies application process testing requirements background checks Safety Policies Employees should be trained in emergency procedures. Chapter 10

What type of information should be included in an operations manual? Chapter 1

Lesson 10.2 Inventory Management Goals Prepare a purchasing plan for inventory. Describe the perpetual and periodic inventory methods. Determine how much inventory to keep in stock. Chapter 10

Vocabulary perpetual inventory method stock card point-of-sale software system periodic inventory method stock turnover rate Chapter 10

Meet Inventory Needs inventory Inventory costs include: the stock of goods a business has for sale Inventory costs include: storage insurance taxes purchase price of inventory Inventory must be well managed if you want to make a profit. Chapter 10

Purchasing Plan The sales forecast can be used to calculate required inventory. Ending inventory = Beginning inventory + Purchases ─ Sales Chapter 10

Chapter 10

What are some of the concerns managers have regarding inventory? Chapter 1

Track Your Inventory You will need to take a physical inventory once or twice a year. Chapter 10

Perpetual Inventory Method monitors inventory levels daily efficient avoids inventory shortages stock card a paper inventory record for a single item electronic versions available Chapter 10

reorder point the minimum amount you want to keep in inventory indicates when you should place an order to receive more units Chapter 10

Chapter 10

Use a Computer point-of-sale (POS) software system updates inventory as each sale happens provides up-to-date inventory levels Chapter 10

Periodic Inventory Method taking a physical count of merchandise at regular intervals Take a Physical Inventory counting the number of items in stock should be done once or twice a year can highlight discrepancies caused by a failure to record sales theft damage Chapter 10

How does the perpetual inventory method differ from the periodic inventory method? Chapter 1

Manage Your Inventory Costs of Carrying Inventory Costs can increase for many reasons including: obsolescence deterioration interest fees insurance storage Chapter 10

Costs of Being Out of Stock Stock shortages can lead to: loss of sales loss of customer loyalty Stock Turnover Rate the rate at which inventory is sold and replaced with new inventory Months of inventory to stock = Months in year ÷ Stock turnover rate Chapter 10

What three factors determine the amount of inventory a business keeps in stock? Chapter 1

Lesson 10.3 Financial Management Goals Describe strategies for managing cash flow. Evaluate a business’s performance through financial statement analysis. Chapter 10

Vocabulary cash budget gross sales net sales Chapter 10

Manage Your Cash Flow Create a Cash Budget cash budget shows the projection of your cash coming in and going out estimated cash flow actual cash flow the difference between the two Chapter 10

Chapter 10

Improve Your Cash Flow Increase Cash Receipts discounts for timely payment tighter credit policies collect unpaid accounts receivable hold shipments to customers with unpaid bills Decrease Cash Disbursements inventory reductions reducing the payroll use credit from suppliers reduce variable expenses Chapter 10

What are some ways you can improve your cash flow? Chapter 1

Prepare and Analyze Financial Statements Prepare Financial Statements cash flow statement cash inflows cash outflows Chapter 10

income statement balance sheet revenues expenses net income or loss over a specific period or time balance sheet assets liabilities owner’s equity Chapter 10

Analyze Sales Sales records can: show trends and patterns be used to forecast future sales Chapter 10

Analyze Sales by Product helps you decide what type of inventory to stock helps you increase sales and profits Chapter 1

Chapter 10

Analyze Net Profit on Sales Net income after taxes ÷ Net sales Chapter 10

Calculate Net Sales gross sales net sales = gross sales ─ returns dollar amount of all sales net sales = gross sales ─ returns Chapter 10

Calculate Net Income After Taxes Gross profit = Net sales ─ Cost of goods sold Net income from operations = Gross profit ─ Operating expenses Chapter 10

Net income before taxes = Net income from operations ─ Interest expense Net income after taxes = Net income before taxes ─ Income tax paid Chapter 10

Chapter 10

Calculate and Analyze Net Profit on Sales Net income after taxes ÷ Net sales Net profit helps to determine the profitability of your business. can compare with prior years can compare against industry standards Chapter 10

Set and Meet Profit Goals Profit goals reflect the amount of profit you hope to earn during a particular year. Chapter 10

Perform Breakeven Analysis breakeven point the volume of sales that must be made to cover all business expenses Profit occurs after the breakeven point is exceeded. Chapter 10

Chapter 10

Analyze Debt and Equity The four key areas entrepreneurs should review using data from the balance sheet are: Ability to pay debt as it comes due Return on assets Amount of debt the company is using Rate of return by the owners on their equity investment Chapter 1

Ability to Pay Debt A company is liquid if it has enough money to pay off any debt. Current ratio = Current assets ÷ Current liabilities Chapter 1

Return on Assets ROA indicates how profitable a company is relative to the total amount of assets invested in the company. Return on assets = Net income ÷ Total assets Chapter 1

Debt Ratio The amount of debt, relative to total assets, used to finance a business should be examined. Debt ration = Total debt ÷ Total assets Chapter 1

Return on Equity The ROE is the rate of return the owners are receiving on their equity investment. Return on equity = Net income ÷ Owner’s equity Chapter 1

Chapter 1

Why is it important for an entrepreneur to analyze the financial statements of the business? Chapter 1

PERFORMANCE COMPENTENCIES Demonstrate good communication skills Describe project development and implementation Describe the partnership Demonstrate the ability to make a professional presentation Answer questions effectively Chapter 10

GIVE IT A TRY Development (description of the partnership goals, description of planning activities used to build a partnership, and roles of business leaders and chapter members in developing the partnership) Chapter 1

Implementation (description of activities, level of involvement from business leaders, and roles of business leaders and chapter members) Results (description of concepts learned from the project and the impact of the project) Chapter 1

Degree of Involvement (hours spent and contacts made) Evidence of Publicity (description of the recognition received as a result of the partnership) Chapter 1