4Ms of

Operation
4Ms of Operations
The operations plan is an important part
of the business plan because it simply
states the details in operating the
business. Operations management, on the
other hand, controls the implementation
of the business plan. A strong operations
plan should have the four operational
aspects-called the 4Ms of operations:
• The methods, or the processes to be
followed in effectively manufacturing or
delivering a product or service
The manpower, or the right human
resources who will handle certain business
operations
The machines, or the technology used in
efficiently operating the business
The materials to be used in creating a
product or performing a service, which
includes supply chain management
METHODS
The methods aspect represent the day-to-day
operations of a business. It describes how an
entrepreneur will run the business from all
facets of the business such as the
manufacturing of goods, service delivery
process, distribution of goods and services,
logistics for delivery of goods, and inventory
management, to name a few. The entrepreneur
has to be very detailed in formulating these
processes and must ensure that the customer
experience will be pleasant and seamless.
METHODS
Internally, the processes must also abide with
industry standards and policies where the
business belongs (e.g., ISO certification). The
entrepreneur must also set standard operating
procedures (SOPs) both in manufacturing
goods and rendering of services. These SOPs
must be monitored to validate compliance.
The entrepreneur must also critically consider
the effects of these processes to the
environment and to the public.
METHODS
Manufacturing of Goods
 Service Delivery Process
 Distribution Method
 Payment Process
METHODS – Manufacturing of
Goods
The entrepreneur who will engage in
producing his or her own products will have
to consider the basic guidelines and principles
in manufacturing, Manufacturing is the
process of translating raw materials into
finished goods that are acceptable to the
customer's standards. It consists of three
elements:
METHODS – Manufacturing of
Goods
Inputs - the materials or ingredients to be used
in creating the product.
Process - the transformation phase where
inputs are processed by manpower and
machines to come up with the final product.
Output - the final product of the process stage,
which is intended to be sold to target
customers.
METHODS – Manufacturing of
Goods
The entrepreneur must also consider the most
efficient manufacturing site in which the
manufacturing process will take place
Depending on the entrepreneur's objective and
financial capacity, he or she can opt to have
any of the following manufacturing sites:
METHODS – Manufacturing of
Goods
1. Home-based - Most startups do not have
financial capacity to establish a manufacturing
site. Thus, their only option is to manufacture
goods at home. This option is the cheapest
and highly flexible. The entrepreneur can start
with products that are usually manageable to
be processed at home such as food products
and customized clothes.
METHODS – Manufacturing of
Goods
2. Commercial space for rent - This is
advisable if the business really requires a
commercial space for the processing of goods
and if the home option is not viable anymore.
A commercial space gives the entrepreneur a
more specialized and suited manufacturing
site than manufacturing at home. However,
this is more expensive than manufacturing
home and requires long-term commitment
because the entrepreneur will need to sign a
lease agreement.
METHODS – Manufacturing of
Goods
3. Commercial space purchase - This option
requires the biggest amount of capital
expenditure, but it also provides the
entrepreneur substantial freedom and
flexibility to design and run the commercial
space. Compared with renting, purchasing a
commercial space is considered more of an
investment than an expense.
METHODS – Manufacturing of
Goods
Once the entrepreneur has chosen a manufacturing
site, he or she should consider location where the
delivery of raw materials and finished goods will be
conducted. The transportation routes from or to the
manufacturing site should be efficient, so that the
delivery of raw materials and finished goods will be
seamless. The location should also be accessible to
major types of transport vehicles. Last, the location
must operate in an environment-friendly manner so
as not to contribute to various types of pollution in
the environment.
METHODS – Manufacturing of
Goods
The internal layout or the floor plan of the
manufacturing site must also be critically done
by the entrepreneur because it affects the
efficiency of the business operation. Each
space should be maximized to save on
manufacturing costs (specifically overhead
costs). An efficient floor plan illustrates how
raw materials and finished goods can
efficiently be transferred, processed. and
released from one processing unit to another.
METHODS – Manufacturing of
Goods
There are two options for the floor plan:

(1) the product-based layout, where the

facilities are prearranged according to the flow
of the manufacturing operations
(2) the process-based layout, where the
facilities are grouped according to their
function.
METHODS – Manufacturing of
Goods
Example Floor Plan:
METHODS – Manufacturing of
Goods
Last, the entrepreneur must prepare a
manufacturing process flow, which serves as a
step-by-step guide of the employees and the
manufacturing equipment. The objective of the
process flow is to ensure that the right inputs are
properly used in production, that the process is
performed according to the set standards, and
that acceptable outputs are produced. Not
having a process flow will result in
inconsistencies in the process, high expenses,
and disagreements among employees.
METHODS – Manufacturing of
Goods
Example of Process Flow Chart:
METHODS – Service Delivery Process
The entrepreneur who will engage in a service
business must be more meticulous when it
comes to the service delivery process. This is
because services are intangible, and the only
way the customer can appreciate the service is
by remembering how pleasant his or her
experience was. Moreover, a seamless service
saves the entrepreneur a huge chunk in
operational costs.
METHODS – Service Delivery Process
Service entrepreneurs must prepare a detailed
flowchart of the service business, which is also
called a service blueprint. Every process in
the blueprint must be relevant to the service
business to minimize wastage. The service
bottlenecks must be addressed immediately to
avoid customer complaints. Bottleneck is a
part of the process where there is an apparent
inefficiency and where the customer waits
longer.
METHODS – Service Delivery Process
The service entrepreneur must develop scripts that
the service provider will follow to serve the
customers better and to establish standard processes
In terms of the floor plan, the service entrepreneur
must design it according to the most efficient way
in performing the service, which can be based on
the internal structure of the service business, service
delivery requirements, or customer requirements.
For example, a barber shop should place the
receptionist in front so that customers can easily
inquire of the service that they will avail.
METHODS – Distribution Method
Distribution is the process of bringing the
products or services to customers. In selling
physical goods, the entrepreneur must plan the
location, the processes, and the distribution of the
products to the customers. The entrepreneur may
also buy the finished goods from the
manufacturers and plan how to distribute them
efficiently to target distribution centers or the
customers. Distribution is not a straight process
from the entrepreneur to customers; thus, the term
supply chain or distribution channel was coined.
METHODS – Distribution Method
The manufacturer will deliver the products to the
distributors, to the wholesalers, to the retailers,
and then finally to customers. Each member of
the supply chain will have a fair share in the
profits, which may be squeezed if the supply chair
grows longer. This is why there is a tendency to
impose higher markups on the product price It is
now up to the entrepreneur on what distribution
channel strategies he or she will employ
depending on the product or service he or she will
offer.
METHODS – Distribution Method
As mentioned, there are certain people
involved in the supply chain. First is the
manufacturer. The manufacturer handles the
invention, development, and production of the
product or service. Entrepreneurs can be
manufacturers of a product or service. Most
often budding entrepreneurs become
manufacturers when they introduce a new
product most established products or services
in the market are owned by top corporations.
METHODS – Distribution Method
The great thing about being a manufacturer is
that entrepreneurs can manage the entire
supply chain. Manufacturers take charge of
acquiring materials, production and delivery
schedules, product quality, and inventory or
safety management. Manufacturers also
handle product delivery marketing, and
selling. Because of this, manufacturers often
seek the help of distributors or agents for the
distribution of goods.
METHODS – Distribution Method
DISTRIBUTORS - Entrepreneurs who often
buy products or services to the manufacturer and
sell them at a markup price to either wholesalers
or retailers. Distributors buy the products it bulk
for a discounted price. The bought products or
services are now owned by the distributors so
any damage, spoilage, or other liabilities to the
product will be their sole responsibility.
Distributors become wholesalers when they sell
the product to another distributor.
METHODS – Distribution Method
AGENTS - don't own the products or services
because they do not buy these from the
manufacturer. Instead, they negotiate with buyers as
to how much or how many are to be sold, so the
manufacturer will be able to deliver the goods
directly to the buyer g the commission for every
product sold. Some agents do consignment, where
agents get the products in advance to demonstrate
them live to the customers. If unsold, agents Just
return the merchandise to the manufacturers. They
are not held table for any damages or losses incurred.
METHODS – Distribution Method
Manufacturers turn to distributors when they have
limited resources or they don't have people with
expertise in selling the product. The distributor or
agent can assist the entrepreneur manufacturer in the
following: (1) sharing industry knowledge, behavior,
and activities of the primary target market, (2)
pertinent rules and regulations imposed by the
government, (3) best practices in marketing and
selling the product, (4) best practices in operating the
business, and (5) their respective sticky relationship
with business associates such as suppliers, financial
institutions, or retailers, to name a few.
METHODS – Payment Process
The entrepreneur must also establish a seamless
payment process. Generally, there are no
problems if the customers pay in cash. But
there are instances when they do not want to
pay in cash and are usually attracted by flexible
and customer-friendly payment terms such as
credit cards, installment plans, or a simple
accounts payable or pautang. The entrepreneur
must ensure that credit payments are seamless
and that the customers are aware of the terms
and conditions of the credit.
METHODS – Payment Process
Some entrepreneurs put point-of-sale (POS)
machines in their shops to accommodate those
who will pay through their credit or debit cards.
For traditional ones, they put the credit purchase
in a ledger and indicate the due dates. Once the
due date arrives, the entrepreneur has to collect
payments from the customers. The objective for
all entrepreneurs is to ensure efficient collection
of accounts receivables and avoid bad debts. He
or she must conduct due diligence first before
allowing a customer to purchase via credit.
METHODS – Payment Process
Example of POS Machine:
MANPOWER
 It refers to the right human resources who will
handle certain business operations.
 If the business is just starting, usually the manpower
will be the entrepreneur, his/her partner, relatives or
family. But as the business grow, the entrepreneur
will need the expertise of qualified employees that
can handle operational functions, so that he/she will
be free from daily activities and can thus focus on
the strategic management functions of the business.
MANPOWER
Each position in the business has to be relevant. To
verify if a position is really necessary, the entrepreneur
must devise a detailed job description and job
qualifications of the future employee. The entrepreneur
must be very keen in selecting and hiring employee.
He/she must ensure that due diligence is performed to
check the background of the applicant. Manpower is
one of the highest costs of operating a business but is
also the most instrumental to its success. Having the
right people encompasses a myriad of advantages.
MANPOWER
The entrepreneur must consider the following
in selecting and hiring manpower:
Job Description
Employee Qualification
Preparatory Selection of Job Applicants
Selection of Job Applicants
Job Offer
Employee Development
MANPOWER – Job Description
Job Description – enumerates the duties and
responsibilities of the potential employee,
including the scope, limitations, and terms and
conditions of employment.
The heading of the Job Description is the Job
Title, which is the summary of what the
employee will do. The entrepreneur should devise
a respectable and decent job title because the title
boosts the self confidence of the employee.
MANPOWER – Job Description
After the job title is the Compensation and Benefit
Range, which details the potential salary and
benefits that the employee will get. Next are the
Duties, which clearly describe the job that the
employee will assume with allowance for
flexibility.
Responsibilities and accountabilities follow next,
which must be communicated well to the employee
so that he or she knows what to expect with the job.
MANPOWER – Job Description
Work schedules, including work hours, must
also be clearly indicated in the job description.
The specific days and working hours must be
written so that the employee will be able to align
the work schedule with his or her personal
schedule. Work schedules are highly driven by
business requirements (for example: security
agencies will need to indicate the work
schedules of the security guards it will hire).
MANPOWER – Employee
Qualification
In hiring suitable employees for the job needed,
entrepreneurs will have to look for the following
criteria:
1. Educational background – this gives the
entrepreneur an idea on the degree of the
candidate’s knowledge of basic things. However, it
is not the sole factor in selecting a candidate.
2. Work Experience – this will tell him/her what
to expect from the applicant and what he/she can
potentially contribute to the business based on his
or her past positions and experiences.
MANPOWER – Employee
Qualification
3. Specific skills or knowledge – this one is important
especially on technical jobs that require high proficiency.
It will be easy for entrepreneurs to place highly skilled
people into specialized jobs because they can help right
away. This is also less expensive because entrepreneurs
don’t have to train them thoroughly to acquire such skills.
4. Work attitude – this deals with the worker’s integrity
and how he/she deals with his/her coworkers, bosses, and
customers. Entrepreneurs also need people with
relationship skills because communication is important in
applying their expertise.
MANPOWER – Preparatory Selection of Job
Applicants
Once the job description and employee qualifications
are finalized by the entrepreneur, he or she now
preselects a set of candidates for the positions required.
When the business is already big, it usually has a
Human Resource Department that will handle the
selection and recruitment of candidates. The
entrepreneur can initially choose from his/her personal
list of trustworthy people whom he/she thinks can
contribute to the business venture. If the list does not
exist, he or she can turn to employment agencies or
manpower agencies that can do the job.
MANPOWER – Preparatory Selection of Job
Applicants
 HEADHUNTERS – help the companies find a set
of people suited for their requirements. They
usually charge a finder’s fee once the entrepreneur
has decided to accept an applicant.
 MANPOWER AGENCIES – it recruit temporary
employees under a short contract, usually on a six-
month period.
 RECOMMENDATIONS AND REFERRALS –
from friends, relatives, or business partners with an
untainted reputation.
MANPOWER – Preparatory Selection of Job
Applicants
 BUSINESS NETWORKS – the people whom
the entrepreneur has worked with in the past.
 DIGITAL MEDIA – with the power of
internet, an entrepreneur can easily post job
vacancies through his/her Website, social media
accounts, emails, and the like.
MANPOWER – Selection of Job Applicants
Once the potential candidates are pooled, the
entrepreneur must now do the difficult task of
screening them and picking the most qualified
and most suited for the job. Preliminary
screening can easily be done because the
entrepreneur will just need to refer to the required
qualifications and eliminate those who did not
qualify. The entrepreneur or the HR Department
can now conduct a series of interviews for the
shortlisted candidates with the objective of
getting the most qualified candidate for the job.
MANPOWER – Selection of Job Applicants

Some established businesses even conduct

qualifying examinations in Math, English and
Logic before they hire an employee. Some may
give qualitative examinations or psychology
tests that require the candidates to answer in
essay form or multiple choice.
MANPOWER – Job Offer
Once the entrepreneur or the hiring manager has
been convinced already of the credentials and
the interview answers of the candidate, the Job
Contract is now prepared.
JOB CONTRACT – generally summarizes the
terms and conditions of the candidate’s
employment with the business. It usually
includes the following details:
1.Rank or position of the candidate
2.A list of responsibilities or deliverables and its
scope and limitations
MANPOWER – Job Offer

3. The salary and benefits including vacation

and sick leave
4. Work schedule
5. Probationary period if any and qualifications
to become a regular employee
6. The duration of the contract
7. Resignation procedure
MANPOWER – Employee Development
Training people is one of the biggest
investments of an entrepreneur or a
businessman. Therefore, he or she must devise
strategies on how to keep employees satisfied
working in the company

Employee orientation is usually a one-to-two-

day session that summarizes the history of the
business, kits vision and mission, policies and
procedures, culture, and norms of the business.
MANPOWER – Employee Development

For startup entrepreneurs whose budget are

really tight, they usually conduct on-the-job
training (OJT) as the most practical tool in
training the employee under a supervision of a
team leader or manager.
Other practical options that the entrepreneur
can use as training tools are the buddy system
and mentor-mentee training programs.
MANPOWER – Employee Development
BUDDY SYSTEM is a training program wherein
an expert team member is assigned to assist a new
employee in his/her function. The objective of the
expert employee is to train the new employee
until he/she masters the job.
MENTOR-MENTEE PROGRAM is a training
program for supervisors, wherein they will be
mentored by a senior executive or senior officer
of the business. The objective is to train the
supervisor to handle key decisions and strategic
tasks that will eventually become part of his/her
job once he/she climbs the organizational ladder.
MANPOWER – Employee Development
Entrepreneurs must prepare a succession plan to
ensure business operations still continue even in
their absence or the absence of key employees, or
when they decide to resign or retire.

Training Development Program:

1.Online Learning Programs or Webinars
2.Internal Training Programs
MANPOWER – Employee Development
Employee training and development is a major
thrust of every entrepreneur because employees are
the best assets of the business enterprise. For one,
this human resource aspect help the business reduce
costs; remember that whenever employees commit
errors as a result of lack of training, the business
incurs unnecessary cost. As a result of employee
training, productivity also increases because as the
employee learns his/her job every day, he/she
becomes more and more productive. Moreover, the
full potential of employees is optimized especially
when their skills are recognized.
MANPOWER – Employee Development
The greatest challenge for all entrepreneurs is
constantly motivating and keeping high-
performing employees. Because of their track
record and achievements, they can easily transfer
to other competitors,. Which means all training
investments to high-performing employees will
be gone, higher costs for training new employees,
potential decrease in productivity, and customers
transferring to competitors as well. Therefore,
entrepreneurs and the HR department must devise
an effective talent management program to gain
the employee’s loyalty.
MANPOWER – Employee Development
Here are several strategies for talent management:
1.Providing employees with a very competitive salary
package that includes guaranteed bonuses,
performance bonuses, commissions, and other
monetary incentives.
2.Nonmonetary benefits such as medical coverage,
different types of leaves, decent and notable job titles,
flexibility in work schedule, awards and recognition
for excellence performance, inspirational leaders,
transparency and fairness in employee performance
evaluation, and channels to which employees can
provide constructive feedback without the risk of
being fired.
MANPOWER – Employee Development

3. Additional (optional) benefits such as

annual trips (international or local), work-
from-home opportunities, scholarships,
transportation and communication allowances,
free meals and drinks, fitness programs, sports
programs, and other work-life balance
programs.
MACHINE
Most businesses would not be able to operate
without the aid of machines. Machines can be
described as the "best friend" of manpower in
producing goods and offering services. They go
hand in hand. Sometimes, machines can even
replace employees. Machines have become one
of the 4Ms because they are a very important
aspect of goods and service production, and
they have changed the way entrepreneurs
conduct business.
MACHINE
Machines are not only limited to physical
equipment but can also pertain to new technologies
that help business operations become standardized
and seamless. Without machines, business
operations will be cumbersome, costly, and with
low quality.
Equipment and other Facilities
Telecommunications and Information &
Technology
MACHINE – Equipment & Other Facilities

Depending on the product that the

entrepreneur produces or the service that he or
she offers, the facilities must be strategically
placed in the manufacturing site or in the
service delivery area. The entrepreneur must
prepare a facility plan that details the most
economical way to manufacture the product or
offer the service by placing the facilities where
they can be efficiently used.
MACHINE – Equipment & Other Facilities
The sizes and shapes of the facilities and
equipment affect the entire operations process,
so the site must adapt to how big or small the
pieces of equipment are. The site must also be
conducive, well-ventilated, and well-lit, so that
the employees can manage the machines
efficiently. There should be fire exits and
safety reminders on how to use the facilities to
ensure safety of the employees.
MACHINE – Equipment & Other Facilities
The equipment to be used should all be
compliant with safety requirements to prevent
accidents. For pieces of manufacturing
equipment that are complicated to operate
(including delivery vehicles), the entrepreneur
must ensure that the employee went through
rigorous training or certification to operate
them.
MACHINE – Equipment & Other Facilities
The entrepreneur must also allocate space for
the storage of equipment, including the
parking of delivery vehicles. He or she must
also be aware of the power consumption of
each of the equipment to analyze the cost of
producing the goods. Ultimately, the goal of
the entrepreneur is to maximize the pieces of
equipment to their full capacity to minimize
manufacturing or service delivery costs.
MACHINE – Equipment & Other Facilities
For pieces of manufacturing equipment that are
complicated to operate (including delivery vehicles),
the entrepreneur must ensure that the employee went
through rigorous training or certification to operate
them. The entrepreneur must also allocate space for the
storage of equipment, including the parking of delivery
vehicles. He or she must also be aware of the power
consumption of each of the equipment to analyze the
cost of producing the goods. Ultimately, the goal of the
entrepreneur is to maximize the pieces of equipment to
their full capacity to minimize manufacturing or
service delivery costs.
MACHINE – Telecommunications &
Information and Technology

Regardless of any business the entrepreneur

will venture Telecommunications and
information technology equipment is
mandatory. These pieces of equipment
include:

•Landline phones- order-taking,

telemarketing, and teleconferencing with
business partners and customers
MACHINE – Telecommunications &
Information and Technology
•Mobile phones (smartphones, tablet computers,
phablets)-mobile application for order- taking, mobile
application for payments, mobile marketing, social
media marketing, teleconferencing with business
partners and customers, marketing research, mobile
banking, and Internet promotions
•Laptop and desktop computers- order-taking,
Internet marketing, making conference calls with
business partners and customers, marketing research,
online banking. preparing reports such as financial
statements, business case, inventory reports, and legal
and compliance reports.
MACHINE – Telecommunications &
Information and Technology
•POS machines -charging customers' debit or credit
card, tracking sales, storing data, analyzing purchases.

•Accounting and inventory software- accounting all

business transactions and profitability, monitoring sales
and inventory .

•Web site- order-taking, 24/7 marketing, having online

conversations with customers. tracking customer
activities online, collecting customer information.
MACHINE
The responsibility of the entrepreneur is to protect these
pieces of equipment physically and against fraudsters who
will be using these information to malign or steal from the
business. These machines carry confidential information.
Therefore, they should be protected with strong passwords
and used only by authorized employees. Employees must
be trained to keep every piece of important information
confidential, including passwords. Software programs must
always be updated and checked against viruses and
hackers. POS machines must always be in working
condition and must be referred to the banks when not
properly working.
MACHINE
There must be a business continuity plan
(BCP) should machines not work properly.
The entrepreneur must select reliable suppliers
for these machines so that when contingencies
arise, they may be able to provide immediate
replacements or repair them quickly. The
entrepreneur can also negotiate with suppliers
to provide discounted prices for bulk
purchases.
MACHINE
On the information technology side, the
entrepreneur must appoint two or more reliable
information technology experts whom they can
call whenever there are issues encountered in
the software and computers. Both physical and
nonphysical equipment should be covered in
the event of loss of property due to fortuitous
events and accidents, machine breakdown,
manual faults, or interruption of business.
MATERIALS
Whether the entrepreneur will offer products
or cater services, he or she has to pinpoint a
number of dependable suppliers of quality raw
materials and supplies. The supplier must have
a consistent and sufficient amount of raw
materials and supplies that can accommodate
the demand of the entrepreneur. In short, the
selection of suppliers depends largely on how
the suppliers will not cause interruptions in the
production of goods or serving the customers.
MATERIALS
From the onset, the entrepreneur should
decide on what route to choose when it comes
to materials requisitioning. Options include
the following:
(1)manufacturing own products or offer
services
(2)outsourcing of manufacturing or service
activities to a third party; and
(3)purchasing own product or service from
present suppliers.
MATERIALS – Manufacturing Own
Products or Services
In manufacturing the entrepreneur's own
products or offer services, a huge chunk of
capital must be prepared because all the
expenses in manpower, machines, and
materials will be borne by the entrepreneur.
The entrepreneur must have studied the
business feasibility thoroughly, as the risk is
larger with this option.
MATERIALS – Manufacturing Own
Products or Services
A set of competent employees must be
employed to handle the machines or service
the customers. But these challenges can be
augmented because the entrepreneur can be
very specific in the details that he or she wants
for the product or service.
MATERIALS – Manufacturing Own
Products or Services
He or she can also closely monitor the quality
of products or services, strategically design the
production or service blueprint, as well as its
schedule, and be more flexible in deciding on
the production quantity. On the marketing
side, the entrepreneur will also have the
opportunity to build his or her own brand
identity. Most importantly, the profits will all
go to the entrepreneur or the manufacturer.
MATERIALS - OUTSOURCING
Outsourcing is the process of appointing a third
party manufacturer to do the manufacturing
operations of the business. These third party
companies already have an expertise in handling and
manufacturing these products, supplies, or
inventories, and because they manufacture, they
produce goods in bulk. These drive the companies to
create products or services tailored to the
entrepreneur's needs at a lower cost. Some outsource
companies offer to provide the services for the
entrepreneur.
MATERIALS - OUTSOURCING
Outsourcing provides the entrepreneur a chance
to provide the operation details to the third
party. No changes in the brand name and
identity will be implemented because the
entrepreneur still holds the rights to such.
Outsourcing saves the entrepreneur from
buying expensive machines, renting locations,
or hiring manpower, as the operational aspect
of the business will be transferred to the third
party.
MATERIALS - OUTSOURCING
Outsourcing saves the entrepreneur from buying
expensive machines, renting locations, or hiring
manpower, as the operational aspect of the business will
be transferred to the third party. This scenario, however,
poses risks, especially when the outsource party closes its
business, when it runs out of supplies, when it breaches
the service-level agreement, when it produces
substandard products or services, or when the service
stops. The profits are also shared with the third party,
which does not happen when the entrepreneur creates the
product in his or her own. Also, because it knows how
the entrepreneur's business works, the third party can
easily shift to other companies
MATERIALS - OUTSOURCING
This scenario, however, poses risks, especially when
the outsource party closes its business, when it runs out
of supplies, when it breaches the service-level
agreement, when it produces substandard products or
services, or when the service stops. The profits are also
shared with the third party, which does not happen
when the entrepreneur creates the product in his or her
own. Also, because it knows how the entrepreneur's
business works, the third party can easily shift to other
companies. details to the third party. No changes in the
brand name and identity will be implemented because
the entrepreneur still holds the rights to such.
MATERIALS - OUTSOURCING
The entrepreneur, therefore, must protect its
product through a trademark or a patent, and a
noncompeting agreement or nondisclosure
agreement. A patent is the right to protect the
entrepreneur regarding the product or service. A
trademark, on the other hand, is a sign or symbol
that helps distinguish the product from others. A
nondisclosure agreement (NDA) states that the
third party will be given full access to any
confidential information provided that it should
not be disclosed to anyone else.
MATERIALS - OUTSOURCING
One option that an entrepreneur has is to make
use of multiple outsource parties. Having multiple
outsource parties can be an advantage because of
the following:
(1)it helps continue the operation even if one of
the third party stops;
(2)the entrepreneur will have greater bargaining
power on the price and scope of the product, and
(3)the entrepreneur may have a choice to switch to
other parties if one of them does not perform well.
MATERIALS – Purchasing Finished
Product
Purchasing finished products from a manufacturer or
offering the services of another company is another
viable option for the entrepreneur. In this setup, the
entrepreneur cannot own the brand name of the
product or service. Moreover, the manufacturer or the
original service provider is allowed to sell to the
entrepreneur's competitors. In short, the entrepreneur
is just one of the many distribution hubs of the
manufacturer or the original service provider. This
setup is prevalent in distribution businesses, retailers,
sari-sari stores, and franchises.
MATERIALS – Purchasing Finished
Product
Same with outsourcing, buying finished products
or offering services of another company spares
the entrepreneur of the costs of machines and full-
time manpower. Therefore, the entrepreneur can
use his or her funds for other purposes. This setup
also allows the entrepreneur to buy and sell a
broad range of finished products and established
services. Switching to another manufacturer or
service provider will be easy if the sales of the
products or services are not good.
MATERIALS – Purchasing Finished
Product
However, the entrepreneur will have a hard time
establishing a unique selling proposition because
all the competitors offer exactly the same
products or services. They usually compete on the
indirect aspects of the business such as customer
experience or physical attributes of their business.
Another disadvantage is that the manufacturer or
original service provider can just easily take the
entrepreneur off its list when it wants to.
MATERIALS – Purchasing Finished
Product
The manufacturer or service provider can also
charge unreasonable prices to the entrepreneur
or, worse, go directly to end customers and
give them lower prices to bypass its
relationship with the entrepreneur.
MATERIALS – LOGISTICS

Entrepreneurs/manufacturers can also venture

into distributing their products on their own
without the aid of a distributor or agent. This is
where the entrepreneur must understand and
implement efficient logistics management. As
discussed earlier, the entrepreneur/manufacturer is
responsible for manufacturing, warehousing,
transportation, inventory management, marketing,
and selling the product or service.
MATERIALS – LOGISTICS

LOGISTICS – the organization of moving,

housing, supplying equipment and distribution
of products to the target customers.
MATERIALS – LOGISTICS

Warehousing is storing the finished goods

manufactured in a facility until they are
distributed to end users. Warehousing cost is
usually substantial. Therefore, the entrepreneur
should think of ways on how to reduce the cost of
warehousing by either buying an economical
warehouse or renting an inexpensive space.
MATERIALS – LOGISTICS

Transportation will also be a major cost in

logistics management. It is the process of
efficiently transferring the products to retailers or
consumers. The entrepreneur/manufacturer must
purchase energy-efficient vehicles that can carry a
reasonable amount of merchandise to prevent
inefficient trips. The entrepreneur/manufacturer
can also use the presence of distribution hubs.
MATERIALS – LOGISTICS

The distribution hub is where the

entrepreneur/manufacturer combines the goods
before delivery to retailers or end consumers.
Consolidating different products in the distribution
hub elicits efficiency because, more often than not, a
manufacturer carries multiple products. Instead of
delivering per product to retail outlets, the
entrepreneur/manufacturer can consolidate all the
products needed by the retail outlet and deliver just
once.
MATERIALS – LOGISTICS
Inventory should also be tracked religiously by
the entrepreneur/manufacturer. Each of the
inventories in the warehouse, distribution hubs,
and manufacturing sites should be monitored. The
law of supply and demand must always be taken
into account. There shouldn't be a surplus of
inventory especially if the entrepreneur is selling
perishable goods. The entrepreneur must be
knowledgeable about the life span of the products
that will be sold.
MATERIALS – LOGISTICS
The entrepreneur/manufacturer must also ensure that
there is enough space to store and stock inventory,
depending on storage requirements (e.g., product is
required to be stored in cold temperature). To protect
the products from fortuitous events, the entrepreneur
must insure them with a reliable insurance firm. It
can be surmised that the entrepreneur is not selling
well if there are too many products left after a long
period of time in his or her inventory, or he or she is
producing more than what is demanded by the
customers.
MATERIALS – LOGISTICS

The key with inventory management is

understanding the historical and current
demand data as well as future trends to
avoid unnecessary costs in producing too
many products. Bear in mind that making
too many products can incur
manufacturing costs, storage costs, and
costs of spoilage.