PART IV- MANAGING THE

BUSINESS FUNCTIONS
MANAGING PRODUCTION AND SERVICE
OPERATIONS

Operations refers to “any process that

accepts inputs and uses resources to change
those inputs in useful ways”.

Operations is an activity that needs to be

managed by competent persons.
Operations management must be performed in
coordination with the other functions like those for
marketing and finance. Although the specific
activities of the operations divisions of firms slightly
differ from one another, the basic function remains
the same, i.e., to produce products or services.
Efficiency – is related to the “cost of doing
something, or the resource utilization involved”\

Effectiveness – refers to goal accomplishment.

 TYPES OF TRANSFORMATION PROCESS

The engineer manager must have some knowledge of the various types of
transformation process. They are as follows:

 Manufacturing process - are those that refer to making of products by

hand or with machinery
 Job shop
 Batch flow
 Worker – paced line flow
 Machine – paced line flow
 Batch / continuous flow hybrid
 Continuous flow
 Service process - are those that refer to the provision of services to
persons by hand or with machineries.
 Service factory
 Service shop
 Mass service
 Professional service
 IMPORTANT PARTS OF PRODUCTIVE SYSTEMS

Productive systems consist of six important activities

as follows:
1. Product design
2. Production planning and scheduling
3. Purchasing and materials management
4. Inventory control
5. Work flow layout
6. Quality control
MANAGING THE MARKETING FUNCTION

Marketing is a group of activities designed to

facilitate and expedite the selling of goods and
services.

The marketing concepts states that the engineer

must try to satisfy the needs of his clients by means
of a set of coordinated activities. When clients are
satisfied with what the company offers, they
continually provide business.
 THE ENGINEER AND THE FOUR P’S MARKETING

The engineering organization will be able to meet the

requirements of its clients (or customers) depending
on how it uses the four P’s of marketing which are as
follows:
1. The product (or service)
2. The price
3. The place, and
4. The promotion
Failure
 STRATEGIC MARKETING FOR ENGINEERS

Companies, including those managed by engineer

managers, must markets that are best fitted to
their capabilities. To achieve this end, a very
important activity called strategic marketing is
undertaken.

Under this set – up, the following steps are made:

1. Selecting a target market
2. Developing a marketing mix
 MANAGING THE FINANCE FUNCTION

The finance function is an important management

responsibility that deals with the “procurement and
administration of funds with the view of achieving
the objectives of business.
 DETERMINATION OF FUND REQUIREMENTS

Organization needs fund for the following specific

requirements:
 To finance daily operations

 To finance the firms credit services

 To finance the purchase of inventory

 To finance the purchase of major assets

 FINANCING DAILY OPERATIONS

Wages and salary

Rent
Taxes
Power and light
Marketing expenses
 THE SOURCES OF FUNDS

Cash Sales
Collection of AR
Loans and Credit
Sale of Assets
Ownership Contribution
Advances from Customer
 Supplies of Short-terms Funds

Trade creditors refers to suppliers extending credit to

a buyer for use in manufacturing, processing, or
reselling goods for profit. The instruments used in trade
credit consist of the following: (1) open book credit, (2)
trade acceptance, and (3) promissory notes.

The open book credit is unsecured and permits the

customer to pay for goods delivered to him in a specified
number of days. For financially weak engineering firms,
the open book credit is a very useful source of financing.
 Supplies of Short-terms Funds

The trade acceptance is a time draft drawn by a seller as

payee, and accepted by the purchaser as evidence that the
goods shipped are satisfactory and that the price is due and
payable. Under the terms granted in the trade acceptance, the
seller allows the buyer to pay within a certain number of days.
The arrangement provides the buyer some relief in financing
his short-term requirements.

A promissory note is an unconditional promise in writing

by one person to another, signed by the maker, engaging to
pay, on demand or at a fixed or determinable future time, a
certain sum of money to, or to the order of, a specified person
or to bearer.
 Supplies of Short-terms Funds

 Commercial banks are institutions which individuals or firms

may tap as source of short-term financing. Commercial banks
grant two types of short-term loans: (1) those which require
collateral, and (2) those which not require collateral. Examples
of commercial banks granting short-term loans are City Trust,
Premier Bank, and Land Bank.

 Commercial paper houses are those that help business firms

in borrowing funds from the money market. Under this scheme,
the business firm in needs of funds issues a commercial paper,
which is a short-term promissory note, generally unsecured, and
issued by large, established firms. The commercial paper is sold
to investors through the commercial paper house.
 Supplies of Short-terms Funds

 Business finance companies are financial institutions that finance

inventory and equipment of almost all types and sizes of business firms.
Example of finance companies in the Philippines are Philacor Credit
Corporation and Consolidated Orix Leasing and Finance Corporation.

 Factors are institutions that buy the accounts receivables of firms,

assuming complete accounting and collection responsibilities.
Engineering firms which maintain sizable amounts of accounts receivable
may avail of the services of factors when they are in direct need of cash.

 Insurance companies are also possible sources of short-term funds.

Industry reports indicate that insurance companies in the Philippines
regularly make investments in short-term commercial papers and
promissory notes.
 Long-Term Sources of Funds

There are instances when the engineering firm will

have to tap the long-term sources of funds. An
example is when expenditures for capital assets
become necessary. After the amount required is
determined, a decision has to be made on the type of
source to be used
 The Best Source of Financing

To determine the best source, Schall and Haley

recommends that the following following factors
must be considered:
1. Flexibility
2. Risk
3. Income
4. Control
5. Timing
6. Other Factors
 Indicators of Financial Health

The financial health of an engineering firm may be

determined with the use of three basic financial
statements. These are as follows:

1. Balance sheet – also called statement of financial

position;
2. Income statement – also called statement of
operations;
3. Statement of changes in financial position.
 Risk

Risk refers to the uncertainty concerning loss or

injury. The engineering firm is faced with a long list
of exposure to risk, some of which are as follows:
1. Fire
2. Theft
3. Floods 4. Accidents
5. Nonpayment of bills by customers
6. Disability and death
7. Damage claim from other parties
 Types of Risk

Risks may be classified as either pure or speculative.

Pure risk is one in which “there is only a chance of loss.”

This means that there is no way of making gains with pure
risks.

Speculative risk is one in which there is a chance of either

loss or gain. This type of risk is not insurable. An example of
a speculative risk is investment in common stocks.
 What is Risk Management

Risk management is “an organized strategy for

protecting and conserving assets and people.” The
purpose of risk Management is “to choose
intelligently from all the available methods of dealing
with risk in order to secure the economic survival of
the firm.”
 Methods of Dealing with Risk

There are various methods of dealing with risks. They

are as follows:
1. the risk may be avoided
2. the risk may be retained
3. the hazard may be reduced
4. the losses may be reduced
5. the risk may be shifted
 Risk retention is a method of handling risk wherein the management
assumes the risk.

 A planned risk retention, also called self-insurance, is a conscious and

deliberate assumption of a recognized risk. In this case, management
decides to pay losses out of currently available funds.

 Unplanned risk retention exists when management does not recognize

that a risk exists and unwisely believes that no loss could occur.

 Hazards may be reduced by simply instituting appropriate measures in

a variety of business activities. An example is prohibiting unauthorized
persons to enter the cashier’s office.