BRILLIANT ANSWERS

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CHAPTER 11

Operations

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The biggest part of becoming a winner

is developing standards of performance.

Know how you go about doing things;

know your process. Constantly develop

the application of your knowledge and skills.

Having standards means many, many people

function within a framework.”

– Bill Walsh, Former Coach, S.F. 49ers

“

How You Run Your Business

• Operations cover day-to-day functions

• Seems mundane (e.g., tracking inventory) but it’s vital to success

• Evaluate each step

• Consider developing a manual

• Plan thoroughly, but keep details brief in business plan

Limit Operations to Issues

• Essential to the nature and success of your company

• That provide you with a distinct competitive edge

• That overcome a frequent problem in businesses of your type

Operations Include

• Facilities

• Production planning

• Inventory control

• Supply and distribution

• Order fulfillment and customer service

• Research & development

• Financial control

• Contingency planning

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As part of a Business Plan,

this section is not intended to be an

operations manual!

Facilities

Facilities

Location(s)

• Type

• Square footage

• Access to parking, transportation

• Shipping access

• Access to other necessary facilities

Lease • Terms

• Length

• Concessions

• Restrictions

Facilities

Improvements • Who pays?

Utilities/maintenance

• Water, gas, electricity, phone, Internet costs

• Janitorial, trash removal costs

• Emphasize energy efficient measures

Key factors affecting success

• examples: Proximity to target market, prestigious/convenient location, favorable lease terms, potential to grow in facilities

Production Planning

• Labor/variable labor

• Team approach or production line approach

• Permanent employees and/or contract workers

• Number and types of employees necessary to produce product or service

• How are decisions reached in workforce?

Production Planning

• Productivity

• Measures how long and how many people required to produce product/service

• Producing more goods in less time generates higher profits

• Look for ways to improve productivity without reducing quality

Capacity

• Measures how much work current facilities, labor force, and equipment can handle

• Excess capacity is the ability to produce more than currently selling

• Represents a waste of earning potential

• If operating at full capacity, plan how to handle future growth

Quality Control

• Measures you take to ensure same standards for each product/service

• Regular inspection throughout production process

• Occasional testing/sampling of randomly selected goods

• Employee involvement and training

• Rewards programs for quality assurance

• Solicitation of customer comments

Equipment & Furniture

• Include:

• manufacturing equipment

• transportation vehicles

• store fixtures

• office equipment

• furniture

• List any payment obligations or leases

• Describe state of the equipment

Inventory Control

• Increase flow of information from sales to production and purchasing teams

• Work with suppliers

• To reduce time needed to receive goods

• To reduce minimum order

• Just-in-time inventory management

• LIFO – last in, first out

• FIFO – first in, first out

Supply & Distribution

• Don’t depend on just one supplier or distributor

• Develop excellent relationships with suppliers and distributors

• Work out payment plans and communication methods to reduce pressure on them

• Select suppliers and distributors that understand your needs

Supply/Materials Considerations

• Cost of goods

• Reliability of suppliers

• More than one supplier

• Additional costs

• Terms

Distribution Considerations

• How product gets to consumer

• Names and numbers of several distributors

• Effectiveness and reputation of distributors

• Terms

• Use more than one distributor if possible

• Alternative distribution methods

Order Fulfillment & Customer Service

• Establish good internal communications between sales and processing departments

• Plan how to ship rush orders

• Develop ongoing relationship with customers

• Establish good repair, service, warranty, and return policies

Global Operational Issues

Outsourcing: Another company or contractor provides a business service or component product

Offshoring: Some of your company’s operations are performed in another country

Global Operational Issues

Research & Development

• All companies need ongoing R & D

• Larger R & D components

• Industries with rapidly changing technology

• Industries with rapidly changing consumer preferences

• Smaller R & D components

• Old fashioned (e.g., cookie company that develops low-sugar cookies)

Financial Control

• Set up procedures to handle financial information promptly

• Send invoices out quickly

• Establish follow-up system

• Design financial systems as source of regular information

• Don’t depend on monthly reports only

• Establish systems to prevent employee embezzlement

Contingency Planning

• Plan for emergencies

• Fire, flood, earthquake

• Power interruption, burglary, slowdown from supplier, product failure

• Safeguard records and data

• Backup schedule, data storage offsite

• Devise disaster plan

• Insure adequately

Other Operational Issues

• Regulation

• Insurance

• Legal

• Health and safety

• Environmental issues

Start-Up Costs

• Not included in Income Statement but affect the amount of money required to start your business

• IRS treatment – Some costs must be depreciated over a number of years rather than expensed in the first year of business

Prepare the Start-Up Costs Statement

• Enter the actual or projected costs to get your business underway

• If using the Business Plan Financials, some of these expenses will automatically be transferred to the Balance Sheet