Entrepreneurship Chapter 12 Operating for Success

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 2 Permit businesses to deliver on their promises A set of actions that produce goods & services Operating efficiency is critical to business success. Operations

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 3 Manufacturing Makes 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 Service Sells time, skills, or expertise May serve retail, wholesale, or manufacturing clients & consumers Types of Businesses

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 4 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. The Production-Distribution Chain

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 5 Management of sourcing, procurement, 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 Supply Chain Management

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 6 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 your trading area Sales representatives Customers Sources of Suppliers

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 7 Conformance of products to your quality standards Certification—either from an official organization or via a process that you employ Timely delivery Lead times Minimum-order quantities Extension of trade credit The value added to your business (i.e., training, promotion, customer leads) Flexibility & responsiveness Supplier Considerations

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 8 Visual control Safety stock & reorder points (ROP) ROP = (Average demand per unit of lead time x lead time) + safety stock Economic order quantity (EOQ) EOQ = the square root of ((2 x the annual demand in units x the ordering cost per order)/carrying cost per unit) Inventory Management

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 9 Pros Can build products that don’t exist yet Can fine-tune design & features of a product Can obtain patents on new product designs to block competitors Cons Expensive to set up and maintain a manufacturing company Costly to hire & train workers Have to pay to make the product before it can be sold Manufacturing

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 10 Drawings & specifications = diagrams explaining how to make the product Parts & materials lists = what materials are needed & where to get them Prototype = working sample of the product Tooling = making/adapting equipment to produce the product Setup = each time a batch of product is made, manufacturer must set up equipment, workers, & the like Idea-to-Product Process

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 11 JIT Manufacturing “Just in Time” manufacturing Developed in Japanese factories Focuses on making smallest amount of product needed, quickly & efficiently Good method for small business Principles Run smallest batches necessary Reduce setup time/cost to minimum Schedule production so products are finished “just in time” to ship Stay flexible

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 12 Quality Assurance The concept of quality is used broadly & has multiple definitions, including to determine degrees of excellence & conformance to specifications or standards. Quality products or services will be largely defined by your market positioning strategy. Profits follow quality according to W. Edwards Deming.

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 13 Organization-Wide Quality Initiatives Benchmarking ISO9000 Six Sigma Total Quality Management (TQM) Malcolm Baldrige National Quality Award

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 14 ISO9000 The family of standards for quality management systems established by the International Organization for Standardization (ISO) Certified by independent companies to document that consistent business procedures are being used & that the organization has been independently audited for compliance Organizations sometimes market their ISO certification, although it is not guarantee of excellence by itself.

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 15 ISO9000 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

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 16 Six Sigma Originated in the 1980s by Motorola engineers The use of statistical methods to eliminate defects to a failure rate of 3.4 defects per one million opportunities, or a % success rate A rigorous process-improvement program that aims to achieve near perfection May be overwhelming for a new enterprise

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 17 Total Quality Management Strategic advantage through quality Developed in the 1950s, but many of the principles are valid & valued Continuous improvement = always identifying & implementing changes to focus on the requirements of internal & external customers Constant monitoring & improvement of processes with measures of quality, such as compliance with product specifications & operating standards, volume of production, on-time delivery, & return rates Success depends on the commitment of all employees toward treating one another as customers & working together.

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 18 Malcolm Baldrige National Quality Award Competitive process that recognizes quality management established by the U.S. Congress Given to businesses, health care, educational, & nonprofit organizations by the President of the United States & is administered by the National Institute of Standards & Technology (NIST) [1][1] Organizations apply for the award & are judged in the areas of: Leadership Strategic planning Customer & market focus Measurement, analysis, knowledge management Human resources focus Process management Business results [1][1] Available at

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 19 Using Technology Computers Phones Market-specific software & technology Electronic store fronts (websites)