Management of Operations

Gordon Crane 1972 - Grad. U. Rhode Island, used $2,000 of savings to start small natural foods distributing 1975 - Law School, used $3,000 to start Apple & Eve as means of funding law school 1978 - Grad. Law School, Apple & Eve sales reach $1 million 1982 - packaged apple juice in “brik-pak” juice boxes 1994 - 16 employees with sales over $36 million

Gordon Crane Heavy competitors Constant Innovation Motts Seneca Lincoln Ocean Spray Snapple Constant Innovation Management of early operations

Managing Early Operations Financial Management Venture Management Risk Management

Start Up Costs Start-up Expenses Legal $50,000 Stationary $2,000   Legal $50,000 Stationary $2,000 Brochures $1,000 Consultants $3,000 Insurance $4,000 Rent $8,000 R&D $6,000 Equipment $24,000 Custom Software Logo Design Management Salaries $40,000 Raw Material Inventory Packaging Supplies Other $15,000 Total Start Up $174,000

Financial Control Accrual vs Cash Accounting Accrual Method Cash Method Sales Accounted when sales Counted when are made cash is received Expenses Accounted when expense Counted when is actually incurred cash is paid out

Example August cash sales = $ 6,000 chg. sales = 4,000 Expenses = 8,000 on 30 /credit Receives July sales = 2,000 Pays out July Exp = 10,000

Example (cont.) August Income Stmt. Basis Accrual Cash Revenue $ 8,000 $10,000 Expenses 10,000 8,000 Net Income ($2,000) $ 2,000

Managing Cash Flow

Managing Cash Flow Concerns Low Sales High COGS High Selling Exp.

Managing Assets

Managing Assets Concerns Accounts Receivables Inventory credit cards (3-4%) bad depts Inventory

Inventory Control LIFO (Last in - First out) FIFO (First in - First out) Inventory Units Sold FIFO LIFO 1,000 @ 1.00 800 $ 800 $ 800 500 @ 1.10 600 640 650 1,000 @ 1.15 900 1,030 1,035

Conversion to LIFO Beneficial if Rising labor, materials, & other production costs are anticipated Business & inventory are growing Business has computer-assisted inventory control method capability Business is profitable (higher inventory costs lower taxes)

Managing Costs/Profits

Managing Costs/Profits Concerns Compare Actual % to budgeted or standard % Compare 3rd yr to 1st & 2nd to pick up trends Selling Expenses = $11,700, break that out to individual expenses for each product Also evaluate exp. by region, customer, distribution channel, department, . . . Taxes FICA/SSN withheld from wages but paid to IRS on quarterly basis Don’t spend

Marketing & Sales Control Control focus on key variables Market Share (% of total industry sales) Sales Avg sales calls/wk Avg $ sales/salesperson Avg. cost/sale # new accounts/lost accounts Distribution Out of stock conditions Promotion Important to know why a customer buys Customer Satisfaction

Rapid Growth & Control Problems during rapid growth Can cover up weak management, poor planning Dilutes effective leadership Causes venture to stray from goals & objectives Leads to communication barriers between depts. Training & employee development given little attention Can lead to stress and burnout Can create bottlenecks in mgmt. decision making Quality control is not maintained

Promoting New Venture News Release Advertising Agency location organizational structure public relations services research department creativity of agency staff professional qualifications interest shown towards new product recommendations by other clients experience & success of new products