OPERATING FOR SUCCESS Class Name UNIT 4 • OPERATING A SMALL BUSINESS EFFECTIVELY OPERATING FOR SUCCESS Class Name Instructor Name Date, Semester

Performance Objectives After this lecture, you should be able to complete the following Performance Objectives 1. Understand the significance of operations in a business. 2. Develop a production-distribution chain for your business. 3. Manage suppliers and inventory. 4. Know the key factors to consider in the location decision.

Operations Permit Business to Deliver on Their Promises 12 Operations - a set of actions that produce goods & services Operating efficiency is critical to business success.

12 The Production-Distribution Chain Manufacturer Wholesaler Retailer Makes the products Rarely sells direct to consumers Wholesaler Buys products from manufacturers in bulk Sells smaller quantities to retailers Retailer Buys products from wholesalers Sells individual items to consumers Consumer Buys from the retailer The final customer

Manufacturer/Retailer 12 Figure 12 – 2 Production-Distribution Chain Variations Traditional Direct to Retailer Factory Direct Manufacturer Wholesaler Retailer Consumer Manufacturer Retailer Consumer Manufacturer/Retailer Consumer

12 Supply Chain Management The supervision of sourcing, procuring, production, & logistics to go from raw materials to end consumers across multiple intermediate steps. Addresses models & relations Partners work together to use tools & techniques for increased efficiency

12 Finding Suppliers Trade shows or conferences Trade catalogs or journals The Yellow Pages Internet search engines Wholesale supply houses & brokers Newspapers & magazines Competitors Firms like yours that are outside of your trading area Sales representatives Customers

12 Managing Inventory Visual Control – Inventory-management method in which an individual assesses the stock level on hand by visual inspection and reorders when the supply appears low. Safety stock– the amount of inventory or raw materials or work-in- progress that are kept to guarantee service levels. Reorder points (ROP) – the level of which materials need to be ordered again. ROP = (Average demand per unit of lead time x lead time) + safety stock Economic Order Quantity (EOQ) - the amount of inventory to request that will equal the minimum total ordering and holding costs. EOQ = the square root of ((2 x the annual demand in units x the ordering cost per order)/carrying cost per unit)

12 Facilities Location & Design The choice of location for your business can make the difference between success and failure. The choice of site is a critical strategic decision for manufacturing, wholesale, and Web-based businesses as well, albeit for different reasons.

12 Key Factors in Deciding upon a Location Access for customers. Access to suppliers. Climate and geography. Convenience Cost of facilities (rent, construction, and the like). Demographics. Economic conditions and business incentives. Governmental regulations and laws, including environmental impact. Labor pool. Proximity to competitors. Visibility.

12 Factor-Rating Method Location-decision criteria that are prioritized and weighted to eliminate subjective considerations. Rate in six basic steps. Develop a list of critical success factors. Determine the weight of each factor according to its relative importance. Create a measurement scale for the factors. Give each proposed location a score for each factor (best if done by a team) according to the scale. Multiply the factor weight times the factor score for each factor in each location. Use the sum of these weighted factors for the locations, to compare them and make a location recommendation/decision.

12 Facilities Design & Layout Leasehold Improvements – changes made to adapt a rented property for a particular business. For manufacturing, warehousing, and distribution firms, key considerations will include: Capacity for efficient movement of materials, equipment and people (floor space and ceiling height will matter). Flexibility to adapt to changing business requirements. Loading docks and vehicle access for deliveries and outbound shipments. Environment conducive to work requirements (natural light, appearance, and the like). Ability to include requisite controls, such as regulation of temperature and humidity, and cleaning rooms. Parking for commercial and employee vehicles, as well as spaces for visitors, including the handicapped, Adequate utility services to the building, including power, water, and telecommunications. Security and safety.

12 Retail Facilities They must meet such business requirements as: Appropriate selling area and configuration of that space. Permission to complete necessary leasehold improvements or improvements to be made by landlord. Space for offices, storage, restrooms, deliveries, and other special needs. Signage for rules/regulations. Parking that is adequate for the anticipated customer volume. Lighting and security.

Special Considerations for Home-Based Businesses 12 Starting a business at home reduces the overhead associated with leasing or purchasing a separate site and with technological advances in communication and computing many businesses are now home-based. Thoroughly investigate zoning ordinances, deed restrictions and civic association rules that may apply. Clearly delineate your business/work area from your family’s living area.

Special Considerations for Web-based Businesses 12 Face many of the same location, facilities, and layout decisions as other types of enterprises. Because they conduct business on the internet, such companies can literally be located anyplace in the world, with staff that may work remotely from anywhere.

Defining Quality: It Is a Matter of Market Positioning 12 Quality – level or standard of excellence, especially as measured against similar things, or against itself over time. Profits Follow Quality For many years, American companies had focused less on quality than on short-term profits. As you develop your business, it will be consistent quality of your product or service that will lead to profits.

12 Organization-Wide Quality Initiatives Benchmarking – the comparison of a company’s performance against that of businesses in the same industry, or against best practices, standards, or certification criteria. ISO9000 Process Management: the measurement, monitoring, and optimization of tasks. There are eight 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. Process Management- the measuring, monitoring, and optimization of tasks.

12 Six Sigma Is the measurement of quality that was originated in the 1980’s by Motorola engineers. Is the use of statistical methods to eliminate defects to failure rate of 3.4 defects per 1 million opportunities, or a 99.9997 percent success rate. For most enterprises, this a very intense program, and maybe more so than is practical in the early stages of a business.

12 Total Quality Management Total Quality Management (TQM) – the quality assurance methodology of striving for strategic advantage through quality. TQM success is dependent upon the commitment of all employees toward treating one another as customers, and working together to ensure that standards are met at all stages. Continuous Improvement – always identifying and implementing changes throughout an organization to focus on the requirements of internal and external customers.

12 Malcolm Baldrige Award This award is given to businesses, educational, and non-profit organizations by the president of the United States and is administered by the National Institute of Standard and Technology (NIST). Organizations apply for the award and are judged in the following areas: Leadership Strategic Planning Customer & Market Focus Measurement, Analysis, Knowledge Management Human Resources Focus Process Management Business Results

12 Using Technology to Your Advantage Computer Access Is Essential Every entrepreneur should have access to a computer Every business should have a Website and electronic mail access. Every business should hire employees who are conversant and comfortable with technology Every entrepreneur should be aware of the specialized computer software and equipment that is designed for his or her industry. Web Technology Terms: Hyperlink – word(s) that, when clicked on, transfer the computer user to a new Webpage. Uniform Resource Locator – a webpage address. Hypertext – Web-based documents that combine text and graphic.

12 Capture the Potential of the Telephone Whether you use voice mail or an answering service, make sure the message that callers hear represents your desired business image and is clear and professional. With text messaging and email sent over mobile phones, the versatility and importance of telephones to today’s businesses cannot be overstated.

Identify Market-Specific Software & Technology 12 In order to increase efficiency and effectiveness in operations, businesses use software and technology designed for their industry or type of business. The investment in industry-specific technology is often many times greater than in generic business equipment and software.

12 Electronic Storefront (Web Site) Electronic Storefront – an online site that customers can visit to view a company’s catalog, price lists, and documentation. No matter what type of business you have, opening an electronic storefront will make it more accessible to local customers and can introduce it to potential customers all over the world. One of the most cost-efficient ways to set-up an electronic storefront is to hire a competent consultant to help you design it and choose which server to use.

Key Terms benchmarking clustering continuous improvement economic order quantity (EOQ) electronic storefront factor-rating method hyperlink hypertext leasehold improvements operations process management quality reorder point (ROP) safety stock supply chain management (SCM) total quality management (TQM) traffic generators uniform resource locator (URL) visual control