ENT300 Module09

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN
Module 9
THE OPERATIONS PLAN
Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin Entrepreneurship Department, Faculty of Business Management, Universiti Teknologi MARA 2008
LEARNING OUTCOMES At the end of the module, students should be able to: understand the concept of operations function in business understand the topics that are included in an operations plan prepare an operations plan for their proposed project
INTRODUCTION Operation is one of an important function in a business organization Managing operations is crucial to make sure that the business is able to produce product or deliver services according to the specification, quality and time specified by the customer Operations management can be defined as the process of marshalling business input to transform them into output in the form of product or services
Components in an operations system The components of an operations system that is involved in the transformation of business input into output comprises of the following: Business Input Transformation Process Output Feedback External Environment
Schematic Diagram of an Operations System The components of an operations system can be portrayed in the schematic diagram as shown below:
External Environment Factors
Input
Transformation Transformation Process Process

Feedback
Output
OPERATIONS PLAN The operations plan is the one of the section that is included in the business plan This section will demonstrate the operational aspect of the business that is crucial in transforming the business input into output The operations plan will ensure the business is able to produce the product or to provide the services that the business had planned in the marketing plan
The operations plan comprises of the following topics:

Process Planning Operations Layout Production Planning Material Planning Machine and Equipment Planning Manpower Planning Overheads Requirement Location Plan Business and Operations Hours License, Permits and Regulations Required Operations Budget Implementation Schedule
PROCESS PLANNING Process planning involve the identification of the step-by-step processes from beginning to end in making the product or in providing the services For manufacturing business, the processes involved will be explained clearly such as the activity involved, its duration and the equipment used For service business, the process planning will explain all the steps that should be taken from start to finish to provide the service to the customer
PROCESS PLANNING (cont.) The step by step processes can be illustrated using diagram such as a flow chart or a process chart The process chart will use symbols that are universally recognized in the operations management field These symbols are also used in the job activity chart to show a workers activity
Symbols Used in the Process Chart

Symbol Activity Operation Transportation Inspection Delay Storage Description Activity that modify, transform or give added value to the input Movement of materials or goods from one place to another Activity that measure the standard or quality Process is delayed because in process materials are waiting for next activity Finished product or goods are stored in the storage area or warehouse
Flow Chart for the Production of Mixed Fruits Jelly

Transfer the fruits from the store to the production area Check the quality of the fruits and segregate the bad fruits Clean the fruits under running water Put the fruits into the fruit chopper for chopping process Put the chopped fruits into the boiler for steaming process Use electric ladle to stir the fruit until the fruits change into pulp Add ten parts of water into the mixture Boil the mixture for 90 minutes
Activity Chart for Web Designing Services

Greet the client Invite the client into the discussion room Get the relevant information from the client Brief the client about terms and conditions Get the agreement from the client regarding terms and condition Send the client to the door Work on the design of the web Make a presentation to the client Get the feedback from the client Make the amendment accordingly
OPERATIONS LAYOUT Illustrate the layout of the operations Layout refers to the arrangement of machine, equipment, workers and other facilities used in the operations The layout must be design in such a way that the production of goods and services can be done smoothly and efficiently There are three types of layout:
o Layout based on process o Layout based on product o Layout based on marketing
Types of Layout Layout based on product This type of layout is suitable for a business that has product focus or continuous flow production The design of this layout is made according to the sequence of activities to product the product Example of a business that have this kind of layout is a food processing factory
Types of Layout (cont.) Layout based on process This layout is suitable for a business that produce several products using similar processes This type of layout is design based on the similarity of processes where by machine and equipment that perform similar function will be grouped together Example of business with this type of layout is a steel workshop and a tailor store
Types of Layout (cont.) Layout based on marketing This layout is designed with an intention to maximized the area available to display goods Examples of layout based on marketing can be observed in the retail business such as book store or departmental store
Example of Layout Based on Product

Filling Area Office Steaming
Finished Goods Storage
Fruits Cleaning Area Receiving Area Washing Area
Fruits Chopper
Example of Layout Based on Process

Office Milling Machine Grinding Machine
Drilling Machine Storage Area Tool Room
Example of Layout Based on Marketing

Frozen Food Pastry Products
Store
Aisle Aisle Aisle
Cashier
Example of Layout in a Restaurant

Food Counter
Store Cashier Kitchen
Dining Area
Toilet
Beverages
Food Display Counter
PRODUCTION PLANNING It is important to make sure that the business is able to produce output or to provide services that is enough to fulfill the expected market demand or sales This can be achieved by having a good production planning In production planning, the business will determine how much output to produce for a certain period of time such as in a day, a week or a month The business may need the information from the marketing plan, e.g. average sales forecast
Example of calculation for output per day

Average sales forecast per month Price per unit Number of output per month = RM 25,200.00 = RM 15.00 = RM 25,200.00 RM 15.00 = 1,680 units If the number of working days per month is 24 days The amount of output to be produced per day is: = 1,680 units 24 days = 70 units per day
MATERIAL PLANNING Material planning is done to determine the type and amount of raw materials need for the production Material planning involved four steps:
o o o o Identify and list down the raw materials required Prepare the Bills of Materials Calculate the quantity of raw material required Identify the suppliers of raw materials
Identify and list down the raw materials required Usually in manufacturing business, the raw materials used is easily identified For example, to manufacture pencils, raw materials needed are hollow wood, lead, eraser, metal band, paint, glue and packaging box In case of retail business, the raw materials is known as goods. The business need to estimate the amount of initial goods to be purchased to start the business operation
Prepare the bills of materials The bills of materials will contains a complete list of materials, parts or components and the amount needed to produce a unit of product To prepare the bill of material, the entrepreneur must understand the design of the product This bill of material is important information for purchasing activities
Example of Bills of Materials To produce a unit of pencil, the bills of materials is as follows:
Product No. 101 102 103 104 105 106 Description Half hollow wood Lead Eraser Metal band Paint Glue Specification 17 cm long 17 cm long 1.5mm diameter 0.75 cm long 6mm diameter 2 cm long 0.5 ml 0.5 ml Quantity 2 1 1 1 1 1
Examples of Materials Requirement Schedule

Material Quantity Safety Stock
Total Material Price / Requirement unit
Total price (RM)
(RM)
Flour Sugar Eggs Corn Syrup Margarine Total
50 Kg 50 Kg 200 units 100 Liter 100 Kg
5 kg 5kg 20 10 10
55 55 220 110 110
1.2 2.8 0.15 3 2
66 154 33 330 220 803
MACHINE & EQUIPMENT PLANNING Steps to determine machine and equipment requirement: 1. List out all machine and equipment required base on the process flow chart or process plan 2. Determine the amount of machine and equipment required based on the venture capacity requirement 3. Identify the suppliers that are reliable in term of price and after sale services
Factors to be considered in purchasing machine and equipment
Price Quality and reliability Availability of spare parts Break down maintenance facility Technology & user friendly Supplier reputation After sale services
Examples of Machine & Equipment Requisition Planning Schedule

No. Machine Quantity Price / Unit Total Price (RM) (RM) 1 2 1 2000 1000 1500 2000 2000 1500 5500
1. 2.
Mixer Cutter Total
3. Cash Register
Steps to determine quantity for machine & equipment 1. Determine the planned rate of production per day 2. Determine the standard production time per unit for the planned machine 3. Determine the machine productive time:
Operation hours (Setting up time + Down Time)
4. Calculate the amount of machine required using the formula given in the next slide
Formula To Calculate the amount of machine require:
No. of Planned Rate of Production per day Machine = Machine Productive Time per day Required
Standard Production Time / Unit
MANPOWER PLANNING Steps to determine the amount of direct labor required by the venture:
1. Determine the planned rate of production per day for the particular section of job 2. Determine the standard time for a worker to produce one unit of product or to complete a particular job 3. Determine workers productive hours: Working hours per day rest time or workers idling time 4. Calculate the amount of direct labor required
Formula To Calculate the amount of direct labor required

No. of Planned Rate of Production per day Worker = Worker Productive Time per day Required Worker Standard X Production Time / Unit
Example of Direct Labour Planning Schedule

No Position No. of Staff Salary/M Required onth (RM) 1 2000.00 EPF (RM) 13 % 260.00 Socso Total (RM) (RM) 2% 2260.00
1 2
Operation Manager
Total
OVERHEADS REQUIREMENT Determine the overheads that are required in the operations Overheads refers to requirements other than direct raw materials and direct labour Examples of overheads are indirect labour costs, indirect material, insurance, maintenance and utilities
LOCATION PLAN The entrepreneur has to make decision which premise is the best for the business to operate Choice of location is important because it will affect: Sales revenue Business operation cost Long term investment
Factors that Influence the Choice of Location

1. MANUFACTURING ACTIVITY Priority should be given to the cost factors In manufacturing cost saving would contribute to profit SERVICE ACTIVITY In service priority should be given to distance from market or customers. Distance from customers will influence sales revenue In service business cost saving may not contribute to sales revenue Increase in revenue will contribute to increase in profit
2.
Factors to be considered for Choice of Location Distance from raw material / suppliers Labor supply Transportation Price of Land or rentals Infrastructure Climate Local Government Policy Security Facility for expansion and business development
BUSINESS AND OPERATIONS HOURS Business hours refer to the time the business is open to the customers Operation hours refer to the hours the workers have to work. For manufacturing, usually the business will operate on 8-hours per shift. Thus the entrepreneur will only decide whether the business will runs for one shift or more. This will depends upon the planning for production
BUSINESS AND OPERATIONS HOURS (cont.) For service business, the entrepreneur will has to state the business hours in terms of days and hours For example, a restaurant may open to the customer from 7 a.m. to 10 p.m. every day However, the operations hours for the workers will be different The working hours may be from 5 a.m. to 12.a.m The entrepreneur may have 2 shifts for the workers; the first shift will starts from 5 a.m. to 3 p.m. and the second shift starts from 3p.m. to 12 a.m.
LICENSE, PERMITS and REGULATIONS Find out and list down all the license/permits/ regulations that are required to operate the business Identify which agency is responsible to approve the particular license/permit For example, a restaurant among others will need the following license/permit/regulations:
o License for signboard o Permits for emigrant workers o Typhoid injection for the workers
OPERATIONS BUDGET The business need to estimate the budget for the operations activities The operations budget can be categorized into: Fixed asset expenditure Monthly expenses Other expenses This operation budget is important because it will be one of the input to prepare the financial plan
OPERATIONS BUDGET (cont.) Fixed Asset Expenditure o Refers to the investment on long term assets used in the operations to produce the product or services o Examples are the purchase of machines and equipment Monthly Expenses o Refers to the payment made every month in the operations department o Examples are wages for workers and raw materials purchased
OPERATIONS BUDGET (cont.) Other Expenses o These are expenses that are made and could not be categorized as fixed asset expenditure or monthly expenses o Examples are deposits and insurance
Example of Operations Budget

Item Machine and Equipment Factory Renovation Raw Materials Wages + EPF + SOCSO Utilities Factory Rent Deposit for rent Deposit for utilities Fixed Asset RM 35,500 RM 45,000 RM 20,000 RM 6,500 RM 600 RM 3,000 RM 6,000 RM 1,000 Monthly Expenses Other Expenses
Total
RM 80,500
RM 30,100
RM 7,000
IMPLEMENTATION SCHEDULE Implementation scheduling involves sequencing and allotting time to all project activities To prepare implementation schedule, entrepreneurs has to decide how long each activity and compute the requirement on people and other resources Scheduling normally use Gantt Chart which is a planning chart used to schedule resources and allocate time
The Importance of Project Scheduling Project scheduling serves several purposes: 1. It shows the relationship of each activity to others and to the whole project 2. It identifies the precedence relationship among activities 3. It encourages the setting of realistic time and cost estimate for each activity 4. It helps make better use of people, money and material by identifying critical bottlenecks in the project
Example of Project Implementation Schedule

Activities Incorporation of business Application for permits and license Searching for business premise Renovation of premise Procurement of machines and raw material Recruitment of labours Installation of machines Deadlines Jan Mac 2009 Jan April 2009 Feb Mac 2009 April 2009 April June 2009 June 2009 June 2009 Durations 3 months 4 months 3 months 1 month 3 months 1 month 1 month
END OF MODULE 9

ENT300 Module09

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ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

Transformation Transformation Process Process

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

The operations plan comprises of the following topics:

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

Symbols Used in the Process Chart

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

Flow Chart for the Production of Mixed Fruits Jelly

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

Activity Chart for Web Designing Services

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

Example of Layout Based on Product

Finished Goods Storage

Fruits Cleaning Area Receiving Area Washing Area

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

Example of Layout Based on Process

Drilling Machine Storage Area Tool Room

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

Example of Layout Based on Marketing

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

Example of Layout in a Restaurant

Food Display Counter

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

Example of calculation for output per day

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

Examples of Materials Requirement Schedule

Total price (RM)

Flour Sugar Eggs Corn Syrup Margarine Total

50 Kg 50 Kg 200 units 100 Liter 100 Kg

55 55 220 110 110

1.2 2.8 0.15 3 2

66 154 33 330 220 803

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

Factors to be considered in purchasing machine and equipment

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

Examples of Machine & Equipment Requisition Planning Schedule

Mixer Cutter Total

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

Formula To Calculate the amount of machine require:

Standard Production Time / Unit

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN

Formula To Calculate the amount of direct labor required