Introduction: The is a key component for most business concerns. This is particularly true for manufacturing and assembly businesses that need to identify uses of technology, production timetables, inventory purchases/management, and labour costs. Service related businesses typically address all of the same issues in the operations plan with a few exceptions; the product for a service business may be intangible such as a knowledge-based business like consulting. For small businesses, the operation plan primarily focuses upon administration and production. The operation plan provides the entrepreneurs with the opportunity to expand on the 5 W s in the previous sections and explain the details. Operation plans are usually incorporated for businesses involved directly with manufacturing. For the purposes of the E-Spirit competition, Operations Plans may include: Inventory Supplier analysis Scheduling Production costing (how much does the product or service cost the business) Monitoring/benchmarking of key milestone dates Distribution Human resource requirements 47
To complete this module, team members will have to do a substantial amount of research. For that reason a section has been included that explains basic research theories and types. In addition, a list of potential sources of information has been included in this guide for discussion and provided on overhead transparency. Research will become particularly important in the following modules concerning marketing and financial statements. Projected Outcomes: Upon completion of Module 4, participants will: Employ decision making skills in a business situation Research and compile business operations information, using primary and secondary sources of information Understand the importance of business location Provide a detailed manufacturing and/or service process and be aware of the planning involved in business operations Be aware of costs associated with production of a product or service. Research and identify potential suppliers Enhance their research skills and abilities. Research Skills: Every business plan has one thing in common with every other business plan research, research, and more research! The more you know about the type of business you are entering, who your market is and where they are located, who the competition is, and where your advantage is, the greater your likelihood of success. Where do you start? How much research is enough? Will research prove the business idea will make money? There are two sources of research material; primary and secondary sources. Primary data/research is information gathered for the first time. Secondary data/research is information previously gathered by someone else. 48
Primary research will encompass your time through survey development, holding focus groups, and one-on-one interviews with potential customers, suppliers, and industry experts. Secondary research is information concerning your proposed business venture that someone else has already researched and compiled making it less expensive to gather and saving time. UTILIZE THE INTERNET; EVERYTHING YOU EVER WANTED TO KNOW IS OUT THERE SOMEWHERE!! There is a great site from the University of Alberta that provides the student with the basic skills required to use the Internet for research. This and other sources of business information have been included as an overhead transparency. CHECK OUT THIS SITE! http://www.quasar.ualberta.ca/edpy202/modules/module1new/assign1.htm Facilitators Notes: Encourage team members to obtain actual quotes and source documentation from suppliers, rental agencies, transportation companies, etc. These numbers will be of extreme importance in our last module concerning the financial statements required for a business plan. There is a substantial amount of work associated with the next two modules and as such more time has been budgeted into the E-Spirit competition to accommodate team members. 49
The following section outlines questions concerning the operations of a business venture that should or may be addressed in your business plan. Not all questions will apply to all business ventures. The more detail, the better the plan! Production A production schedule or plan simply tells the reader how much product should be produced and when it needs to be on the shelf. The production schedule is typically utilized only for manufacturing businesses. Have the Team work backwards from the point of sale to calculate timing schedules. For example, you plan to sell X number of Dreamcatchers per month, when do you have to order them from suppliers to ensure that you do not run out of supplies? Inventory How much inventory a business keeps on hand depends on how much product is projected to be sold per day, week, month, or year? It is important not to have too much inventory on hand as it requires capital to purchase and store. Purchase terms are another consideration when examining inventory. This inventory item will make a difference to cash flow projections as well as the profitability for the business venture. Purchase terms are price concessions made from suppliers to the business owner where the actual price may be less than the list price of that item. 50
Price terms are usually given to motivate purchasers to pay earlier than expected. Terms are usually stated as follows: Example 2/10;n/30 This means a discount of 2% of the listed purchase price is available if the bill is paid within 10 days, but after that time the full price must be paid within 30 days. Is your business going to offer or take advantage of trade discounts? 51
Future Considerations: The operations section of the business plan also considers purchases and equipment that may be necessary in the future. This means you must account for rises in costs, additional equipment, and other items that will be required for business success. This section could state that 2% of future profits will be re-invested in the business to manage risks associated with inflation, rising product costs, changes in technology, etc. Not planning for the future has caused numerous businesses to fail!! Administration Costs: For the purposes of the E-Spirit competition, administration costs will include any costs associated with the cost of goods sold. The cost of goods sold is the cost associated with producing your product or service. Administration costs will include the following: Materials Labour Maintenance, repair parts and labour Amortization costs (optional) Insurance costs Telephone Utilities Rent Office supplies Other It is important to be as accurate as possible in calculating these expenses. If these expenses are under calculated the financial stability of your business venture may be in jeopardy. If you run short of monies, it is extremely difficult to go back to your funder and request more money! REMEMBER GET ACTUAL QUOTES FOR YOUR EXPENSES. 52
Human Resources: Human resources basically ask the questions; who is going to do what, why is that person conducting that job, and what future human resource requirements will the business require? In small business, the owner or owners usually do all the work involved in the business. But as the business grows employees may be hired to free up management to expand the operations even more. Therefore it is important to keep in mind what future human resource requirements may be needed to meet your business goals and objectives. What wages will be required, what level of business is needed before you hire additional help, what skills and expertise will these employees require to contribute to your goals and objectives? Do current employees (entrepreneurs) have any capacity shortcomings? This section of the business plan should address the following questions. What type of expertise is required (technical, marketing, other) When will staff be required (when business increases, prior to opening, other) How and why would those individuals work for you (how are you going to attract the right people) How do you expect to keep good employees (salary, flex time, bonuses, other) Will employee benefits be offered (insurance, dental, medical, etc.) How or is the business going to supply training (rapid changes in the workforce, changes in technology) How is the business going to motivate employees Distribution: Distribution involves the moving of products to the consumer. In most cases involving small business the entrepreneur handles most of the distribution duties for the venture, although additional assistance may be required such as shipping a large order across the country, or you must hire additional delivery personnel or sub-contract the work. 53
Suppliers: Finding the right suppliers for a business is crucial! The entrepreneur must find several suppliers of the goods/services they require to conduct business. Becoming dependent on one supplier may cause the business to be at the mercy of that supplier. Relying or depending on one supplier could prove dangerous for a business because the supplier may Dictate price Quality Availability Shipping schedules and rates Business owners should find several alternative suppliers of the goods/services they require. This is not to say the company should not have a primary supplier, but to hedge any risk of dependency, the entrepreneur should frequently purchase goods from other sources. Location: Where will the business be located and why? These questions must be answered in the business plan. Deciding on the location is dependent upon many factors such as budget, renovations/leasehold improvements required, size, traffic flow, visibility, zoning, etc. Real estate agents have used the expression, the 3 things that matter in choosing real estate is location, location, and location. For many small businesses choosing a location is low on the list of priorities and choose to run their businesses from their homes until they can justify the expense associated with leasing or purchasing real estate. Whatever the choice the location should be where your target market resides in the case of retail, or in an industrial zone for manufacturing. 54