Teaching PowerPoint Slides Chapter 7

1
Operations Management for

Business Start-ups
7
Synopsis
This chapter provides the basic knowledge on how

to manage operations of a business start-up and
small businesses. It covers managing inputs,
processes and outputs that involve planning of
product design, process design, location choice
and layout design, production capacity planning
and management of production schedule and cost,
inventory and quality management.
Introduction to Entrepreneurship All Rights Reserved

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Objectives
The objectives of this chapter are:

To introduce operations management.
To discuss product design, process design,
location choice and layout design, production
capacity planning and management of production
schedule and cost, inventory and quality
management

Learning Outcomes
At the end of this chapter, students should be able

to:
Discuss basic operations management, especially
for small business start-ups.
Discuss and apply knowledge on operations
management to their entrepreneurial practicum
project.

List of Topics
 Location Planning
 Process Design, Sourcing of Equipment and
Layout Planning
 Production Planning and Capacity Management
 Inventory Management
 Quality Management
 Operational Costs and Product Costing

Introduction
 Operations management can be defined as the

management of resources (inputs), organizing
and designing the transformation process
(production processes) to produce products and
services (outputs) to achieve objectives of cost,
quality, quantity, time and safety.

Introduction (cont.)

Location Planning
 It is crucial for an entrepreneur to choose the right

location for his business because a good location can
result in higher sales, lower operating cost and higher
profit. In general, the choice of location will depend on
the following factors:
– Close proximity to customers.
– High number of potential customers and high population
growth.
– Close proximity to raw materials.
– Availability of good infrastructures and facilities.
Location Planning (cont.)
– Availability of manpower.
– Good visibility and easier accessibility.
– Low crime rate and availability of facilities and
services such as hospitals, schools, banks, sport
facilities, etc.

Process Design, Sourcing of
Equipment and Layout Planning
 In a small business employing a traditional production
process, products are made in a small quantity and
they are normally produced to fulfil specific customers’
needs.
 Generally, the tools and machines used are designed
to perform specific isolated tasks to help operators
perform their work.
 Entrepreneurs must choose machines that are suitable
with his production tasks in terms of quality, price,
quantity, after-sales service and maintenance, etc.

(cont.)
 The layout planning and the positioning of the
machines must be designed to achieve efficient
process flow, safe operation, effective and
convenient process control.

(cont.)

Production Planning and
Capacity Management
 An entrepreneur must design adequate

production facilities to produce outputs that fulfil
sales forecast. Decisions must be made on the
type, quality and number of machines or
equipment and manpower required for the plan
production. Depending on the volume of
production, he may choose to use a fully
automatic, semi-automatic or manual production
system.

Inventory Management
 Entrepreneurs must manage inventory effectively

because:
(a) Adequate inventory helps entrepreneurs to meet
market demand.
(b) Inadequate inventory will cause disruption to
operations and incur missed sales opportunities.
(c) Too much inventory means high inventory costs
and reduce business profit.
 In short, inventory is entrepreneurs’ valuable capital. All
capital must be managed effectively and efficiently.
Inventory Management (cont.)
 A business that has too much inventory will increase

holding or storage (carrying) costs and occupy more
space; while too little inventory may cause stock
shortage and affect customer service.
 In a retail business, the general rule of thumb is that
inventory for fast-moving items should be adequately
stocked, while the inventory for slow-moving items
should be few but adequate. The objective of
inventory management is to determine optimum
inventory level that is suitable for the business.

Quality Management
 Quality is defined as a measure of how close a

product or service conforms to standards and
specifications (Stevenson, 2009).
 Quality is also defined as a product’s fitness for use;
its success in offering features that consumers want
(Juran, 1998).
 ISO definition of quality, "The totality of features and
characteristics of a product or service that bear on its
ability to satisfy stated or implied needs".

Quality Management (cont.)
Benefits of quality:
Remain competitive
Retain market share
Acquire profitability
Achieve customer satisfaction and customer loyalty
Produce high quality products/services
Reduce operational costs (reduced quality problems,
scraps, yield loss, wastages)


Cost of Non-quality:
Entrepreneurs must realize that the cost of non-
quality is very high.
External costs involve poor reputation, loss of
repeat customers, and rejected or returned product
costs.
Internal costs involve wasted cost on material
and labour, rework costs and low morale among
workers.
 An entrepreneur should initially focus on preventive

efforts to eliminate defects and seek the causes of
these defects—defective methods, materials,
manpower, equipment, management procedures
and systems, layout and work place.
 An entrepreneur has to identify these quality
defects and find the causes of these defects, before
working out a suitable solution.

 The cause-and-effect diagram below, also known as Ishikawa

diagram, can facilitate an exercise of identifying quality problems,
their root causes and possible remedies or solutions.

Operational Costs and Product
Costing
 One of the objectives of operations management is to minimize
the cost per unit of production, so that the product can be sold
at a competitive price.
 Operational costs include cost of direct materials, direct labour
and overhead.
– Direct materials and labour include the money spent on
materials and labour directly used for the production of the
product.
– Overhead costs include other indirect costs such as wages
for administrative, marketing and finance staff; rental, utility,
transportation, maintenance, depreciation of assets
(equipment) and interest.
Operational Costs and Product
Costing (cont.)

Summary
 This chapter introduces basic operations

management that needs to be addressed by an
entrepreneur when starting a new business.
 An entrepreneur will have to choose the site location,
plan his production system, and estimate the cost per
unit of the output.
 Ultimately, the operations management must be able
to meet operational objectives of quality, quantity,
delivery time, cost and safety.


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1

Operations Management for

This chapter provides the basic knowledge on how

Introduction to Entrepreneurship All Rights Reserved

The objectives of this chapter are:

Introduction to Entrepreneurship All Rights Reserved

At the end of this chapter, students should be able

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

 Operations management can be defined as the

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

 It is crucial for an entrepreneur to choose the right

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

 An entrepreneur must design adequate

Introduction to Entrepreneurship All Rights Reserved

 Entrepreneurs must manage inventory effectively

 A business that has too much inventory will increase

Introduction to Entrepreneurship All Rights Reserved

 Quality is defined as a measure of how close a

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

 An entrepreneur should initially focus on preventive

Introduction to Entrepreneurship All Rights Reserved

 The cause-and-effect diagram below, also known as Ishikawa

Introduction to Entrepreneurship All Rights Reserved

Introduction to Entrepreneurship All Rights Reserved

 This chapter introduces basic operations

Introduction to Entrepreneurship All Rights Reserved

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