MT209 Small Business Management Unit 6 – Operating the Business

Contact Information AIM: mpkapfac Office Hours: Mon & Wed 4 PM ET Kaplan Technical Support: (For all computer related issues)

Operating the Business A working business consists of not only the entrepreneur’s vision, plans, and strategies; it also represents a physical collection of resources – equipment, people, and processes. These must be configured and managed in such a way as to reflect both the mission and vision of the firm and the environmental realities that exist for the business. The operational plan addresses the day-to-day operation of the business as it produces products or provides services.

Unit 6 Outcomes Describe the implications of choosing a brick-and-mortar start- up versus an at-home or Internet start-up. Understand the challenges associated with growth in a small business. Specify the major considerations in structuring a distribution channel. Explain the importance of supply chain management. Discuss the nature of the operations process for both products and services.

Unit 6 To Do List Start the Unit: Review the key terms Study: Read Chapter 9, Chapter 15, and Chapter 21 in your text Prepare: Carefully review the previously completed sections of your Descriptive Business Plan in your MT209 Project Template. Graded Assignments: Respond to the Unit 6 Discussion Board Complete the Unit 6 Assignment Complete the Unit 6 Review Quiz Attend the Unit 6 Class Seminar or complete the Alternative Assignment

Unit 6 Class Discussion Unit 6 Discussion: In Chapter 21 of our textbook, read the “In the Spotlight” mini-case study on Modern Postcard, and feel free to visit their website for more information on the company: Then, respond to the following questions: Based on your review of the information on Modern Postcard in Chapter 21, and your exploration of their website: 1. How does the company produce beautifully designed postcards so affordably? 2. How has Modern Postcard managed their operations and assets so effectively? 3. Why does Modern Postcard consider their operations customer-focused?

Unit 6 Assignment Using the MT209 Project Template and MT209 Project Instructions, complete the Operational Plan section in the Descriptive Business Plan. This should include the following elements (where applicable): 1. Information about your products or services including how and where your products or services are produced, production techniques, quality control, customer service, inventory control, and product development; 2. Information about your proposed business location including any location requirements such as space, type of building, zoning, power, and other utilities, access, parking, etc., estimated total location expenses, business hours, any major required building alteration; 3. Information about your proposed venture’s legal and regulatory environment including any licenses required, any health, workplace, or environmental regulations affecting the business, any special professional requirements, zoning or building code requirements, insurance coverage, and any trademarks, patents, or copyrights held or required; 4. Information about proposed personnel including the number of employees (excluding management), type of labor, source of this labor, pay structure, required training, and any possible use of contract workers;

Unit 6 Assignment (Continued) 5. If Applicable, information about the inventory including the type of inventory (raw or finished goods), any seasonable impacts, and ordering lead times; 6. Information about key suppliers including a listing and discussion of key suppliers, their credit policies, history of reliability, need for backup suppliers, any expected delivery problems, and any anticipated increases in supply costs; and 7. Information about your proposed venture’s credit policies including any plans to sell on credit, needs to sell on credit, credit policies, credit limits, credit terms, any discounts, and cost estimates of the use of credit.

The Location Plan: ). Businesses may be operated in: A traditional brick and mortar location The entrepreneur’s residence (home based) As an Internet e-commerce business Or some combination of these

Exhibit 9.1Location Options for the Startup © 2010 South-Western, Cengage Learning, Inc. All rights reserved.

Location Plan: 5 Key Factors Customer Accessibility – How easy will it be for your customers to find you? Business Environment Conditions – Things like weather, geography, taxes, legal requirements, competition; can impact the location decision. Site Availability and Costs – An appropriate but affordable site must be selected. Resource Availability – Proximity to things like suppliers, raw materials, public transit, parking, transportation, etc. required for the business must be considered.

Location Plan: 5 Key Factors (Continued) Personal Preference of The Entrepreneur – This includes considerations important to the founder like proximity to the entrepreneur’s residence, image, intrinsic reasons, etc.

Additional Location Considerations: Costs and Work in: Providing Necessary Equipment or Machinery. Outfitting and Modifying the Physical Facilities to Support the Particular Business. Projecting the Desired Business Image

Home-Based Businesses Advantages: Low Start-up Costs Life-style Considerations Disadvantages: Business Image Legal Considerations

Internet Business Models ). B2C (Business to Consumer) – Business serves retail customers directly. B2B (Business to Business – Business serves other businesses. Auction Site Model – Embraces both B2C and B2B models (eBay, Amazon, Overstock.com, etc.)

Supply Chain Management Defined: Supply chain management is a management approach that seeks to coordinate all of the resources that a business uses to produce a product or provide a service from the inception of the product or service, to distribution, and payment. Other intermediaries are often involved in a business creating value for their customer! These may be middlemen, agents, or brokers. These specialized intermediaries can often handle the distribution of products more efficiently than the business over wide geographic areas. Managing the supply chain is critical to: Control costs Increase customer satisfaction  Question: Why would effectively managing the firm’s supply chain control costs and increase customer satisfaction?

Channels of Distribution Defined: Channels of distribution are the relationships that exist to manage the flow of products from their source to ultimate consumer or end-user. Direct Channel – A channel of distribution without any intermediaries. Product flows directly from source to end-user. Indirect Channel - A channel of distribution containing intermediaries. Dual Distribution – A system of distribution that incorporates multiple channels.

© 2010 South- Western, Cengage Learning, Inc. All rights reserved. Exhibit 15.8Alternative Channels of Distribution

Managing Operations: The Business Is a System! Inputs – All businesses require inputs in the form of resources. These include financial resources (capital), knowledge resources (managerial resources), physical resources (equipment, supplies, etc.) and a variety of other resources. Processes – All businesses perform some process on the input resources to produce some good or service. The exact nature of the process will vary with the type of business. Output – All businesses produce some form of outputs in the form of goods or services.  Question: How would this work in a bakery baking bread?

Service Versus Products Service-based businesses offer customers services rather than products. The operations of these vary in the following ways: Difficult to measure and control quality of service Involve intensive personal interaction with the customer Require personnel committed to customer satisfaction Technology can greatly assist service-based businesses

Manufacturing Operations Vary widely in forms: Job Shops – Produce limited runs of unique products. Project Manufacturing – Produce products that are similar but differentiated. Repetitive Manufacturing – Produce large quantities for extended periods of time. Continuous Manufacturing – A form of repetitive manufacturing that more closely resembles a stream of output. Flexible Manufacturing – Production that is usually computer assisted and produces smaller and flexible quantities of products.

Inventory Considerations Managing optimal inventory levels can be a complex task. Managing inventory reduces costs and contributes to profitability. Traditional methods such as economic order quantity or ABC method can be used. More sophisticated computerized methods such as statistical inventory control or just-in-time inventory systems can also be used to more efficiently manage inventories.

Inventory Considerations (Continued) At a minimum, the following factors should be considered: Storage Theft, Spoilage, Weathering, Obsolescence Cost of Capital tied up in inventory Transaction Costs associated with ordering, receiving, transporting, and distributing inventory Insurance and Security costs Disposal costs of unsold inventory

The Customer Focus of Quality Management Customer Driven – The customer’s needs and wants are the core. Organizational Commitment – While management must lead, all in the organization must participate Culture of Continuous Improvement – Must be the ongoing focus.  Question: What is the role of customer feedback in quality focus?

Some Quotations About The Customer Focus of Quality Management “Quality in a product or service is not what the supplier puts in. It is what the customer gets out and is willing to pay for. A product is not quality because it is hard to make and costs a lot of money, as manufacturers typically believe. This is incompetence. Customers pay only for what is of use to them and gives them value. Nothing else constitutes quality.” – Peter Drucker “The purpose of business is to create and keep a customer.” – Peter Drucker “Do what you do so well that they will want to see it again and bring their friends.” – Walt Disney “If you make customers unhappy in the physical world, they might each tell 6 friends. If you make customers unhappy on the Internet, they can each tell 6,000 friends.” - Jeff Bezos “Being on par in terms of price and quality only gets you into the game. Service wins the game.” - Tony Alessandra

Any questions?

See you next week! Remember, our Class Seminars will always be held at the same hour and the same day each week! After this seminar has concluded, there will be a recording in the archives located in the seminar room. It may be selected by date.

Thank you for joining me today! I look forward to joining you next week!