LAUNCHING NEW VENTURES – AN ENTREPRENEURIAL APPROACH, 7E Kathleen R. Allen – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Planning Startup Operations Chapter 12 – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Chapter Objectives Identify the components of the production process for products and services Explain the critical aspects of supply-chain management Discuss how to manage quality Explain how outsourcing can benefit an entrepreneur – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Planning Startup Operations Startups differ from large corporations: ◦ They don’t begin with a proven business model, so they are constantly sensing and revising ◦ They don’t have formal systems and controls in place, and may rely on outsourcing ◦ They deal with unknowns and uncertainty, while large corporations follow systems, and typically miss game-changing transformations ◦ Startups need to create operational competitive advantages in very different ways – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12.1 Producing Products and Services Production is managing the flow of material and information from raw materials to finished goods ◦ Think of manufacturing equipment as hardware, and people and information needed to run the machines as software ◦ Easy to see why its possible for two companies to have the same equipment, yet produce significantly different products ◦ The difference lies in the software (information and people) driving the machinery – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12.1 Producing Products and Services Building a complex production system while the company is in startup or rapidly growing is a recipe for disaster Not having a reliable fulfillment process in place prior to launch has cost many firms customer loyalty and significant revenues, as the firm was unable to produce and deliver products to customers on time ◦ Once lost, that customer base is nearly impossible to regain – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12.1 Producing Products and Services The virtual enterprise (strategic alliances among all links in the value chain) is one way to achieve control of the process while still keeping the firm small and flexible To understand how the production process touches customers and affects the bottom line, follow an order through the company and document where the order flow gets bogged down, duplicated or hindered Must understand supply chain management – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12.2 Supply Chain Management A supply chain consists of upstream and downstream business activities that move a product through the stages of designing, making, sourcing and delivering to the customer A value chain is a cooperative effort among the participants to add value at each point in the chain, creating benefits for all Supply Chain Management (SCM) is critical – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12.2 Supply Chain Management Good SCM enables your firm to forecast demand, match supply with demand, and fulfill the demand through optimal distribution channels and logistics ◦ Create backups in case of disruptions ◦ Complexity of supply chains varies greatly ◦ Manage and measure your supply chain ◦ Know what is important to customers ◦ The “efficient frontier” means provide the exact service the customer wants at minimal cost – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure Example of a Supply Chain – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure The Production Process – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12.2a Purchasing To select a vendor as a source, ask: ◦ Can the vendor deliver enough of what is needed when its needed? ◦ What is the cost of transportation? ◦ What services is the vendor offering? How often will sales reps call? ◦ Is the vendor knowledgeable about the product line? ◦ What are the vendor’s maintenance and return policies? – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12.2b Inventory Management Inventory is stocks of items supporting production, associated activities, customer service ◦ Businesses today that hold inventories must reduce them significantly to remain competitive ◦ Once a firm begins growing, most do not have resources to purchase raw materials in sufficient quantities to qualify for significant industry discounts (30-50%), or to store the items ◦ Consider inventory management firms – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12.3 Production and Manufacturing Production is actual manufacturing and assembly of a product ◦ Manufacturers tend to produce in flexible manufacturing cell (FMC’s) or work cells, which produce one unit serially in each cell  Benefits: Reduced lead times, improved costs, quality and timing; workers complete a whole product, and can substitute for one another ◦ Product-focused (highly decentralized) ◦ Process-focused (capital-intensive processes) – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure The Production Process – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12.3a Quality Quality control is the process of reconciling product or project output with the standards set for that product or project ◦ “An effective system for integrating the quality- development, quality-maintenance, and quality- improvement efforts of various groups in an organization to enable marketing, engineering, production, and service at the most economical levels, which allow for full customer satisfaction.” – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Table Quality Management Programs – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12.3b Logistics Logistics is the management and control of the flow of goods and resources from the source of production to the marketplace ◦ A fundamental part of supply chain management ◦ Can make the difference between success and failure, profit and loss in a growing company ◦ Consider UPS or another provider that can handle logistics difficulties – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12.3c Warranting the Product Entrepreneurs who use total quality management will probably want to provide warranties with products and services ◦ To protect their firms from potential liability ◦ To demonstrate that they stand behind their products and services ◦ Length of warranty depends on industry standards, components of the product, or what aspects of service to cover ◦ Have OEM certify parts from others – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12.4 Outsourcing to Reduce Costs Many entrepreneurs outsource manufacturing to an established firm, overseas where labor costs are lower Some products give you the option to set up an assembly operation, cheaper than a manufacturing plant Possible in many industries to manufacture domestically and compete successfully if processes are refined and quality is built in – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12.4a Manufacturing Overseas For some industries, this is the only option to remain competitive ◦ But not always wisest choice ◦ Schedule flexibility affected by transportation ◦ Work backward from customer needs, and align workflows appropriately Before deciding, consider: ◦ 1. Go offshore when all efforts to boost efficiency and innovation at home have been exhausted. Don’t do it just because everyone else is. – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12.4a Manufacturing Overseas Before deciding, consider: (cont.) ◦ 2. Consider whether to set up a captive operation (you own it) or contract with a local specialist ◦ 3. Management and employees must both believe in going offshore and must be in the loop ◦ 4. Don’t do it if management does not have the time and willingness to put in much effort for it ◦ 5. You must be willing to treat your outsourcing partners as equals, not as subservient workers ◦ 6. The supply chain needs to be flexible to avoid disruptions from natural & man-made disasters – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure Technology Readiness Levels – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12.4b Lessons from Outsourcing Overseas ◦ 1. Start by doing some serious research ◦ 2. It is important to start small and gradually build ◦ 3. Communicating by and fax is not enough ◦ 4. Best to use a combination of an offshore captive operation and a local contract firm ◦ 5. Outsourced staff have a high turnover rate ◦ 6. Understand the regulatory requirements ◦ 7. Important to outsource only tasks that have a high probability of going smoothly and making the customer happy – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

New Venture Action Plan Source suppliers for your materials and supply requirements Determine how inventory will be handled Develop quality control metrics Itemize and calculate production costs and determine whether to outsource Determine warranty service requirements Identify a third-party logistics provider – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.