9-Ent300 - M9 - The Operations Plan

ENT/ETR300 – FUNDAMENTALS OF ENTREPRENEURSHIP
THE OPERATIONS PLAN
Chapter 9
THE OPERATIONS PLAN
Nawawi Hj. Mohd Jan

Rahimah Sarmidy
Sodri Ariffin
THE OPERATIONS PLAN
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
Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

© Entrepreneurship Department, Faculty of Business Management, Universiti Teknologi MARA 2008
THE OPERATIONS PLAN
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
THE OPERATIONS PLAN
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

THE OPERATIONS PLAN
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 Output

Transformation
Process
Process
Feedback

THE OPERATIONS PLAN
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
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
THE OPERATIONS PLAN
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

THE OPERATIONS PLAN
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 worker’s activity

THE OPERATIONS PLAN
Symbols Used in the Process Chart
Symbol Activity Description
Operation Activity that modify, transform or give added

value to the input
Transportation Movement of materials or goods from one
place to another
Inspection Activity that measure the standard or quality
Delay Process is delayed because in process

materials are waiting for next activity
Storage Finished product or goods are stored in the

storage area or warehouse

THE OPERATIONS PLAN
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

THE OPERATIONS PLAN
Activity Chart for Web Designing Services

Greet the client
Invite the client into the discussion room
Get relevant information from the client
Brief the client about terms and conditions
Get 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

THE OPERATIONS PLAN
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 designed 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

THE OPERATIONS PLAN
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.

THE OPERATIONS PLAN
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 designed based on the
similarity of processes whereby 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.

THE OPERATIONS PLAN
Types of Layout (cont.)

Layout based on Marketing
 This layout is designed with an intention to maximize
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

THE OPERATIONS PLAN
Example of Layout Based on Product
Office
Finished
Filling Area
Steaming
Goods
Storage
Fruits Cleaning Area
Fruits Chopper
Receiving
Area
Washing Area

THE OPERATIONS PLAN
Example of Layout Based on Process
Office
Milling Grinding
Machine Machine
Drilling
Machine
Tool
Storage
Room
Area

THE OPERATIONS PLAN
Example of Layout Based on Marketing
Frozen Food
Pastry Products
Store
Aisle Aisle
Aisle
Cashier

THE OPERATIONS PLAN
Example of Layout in a Restaurant
Counter
Store
Food
Cashier
Kitchen
Dining Area
Toilet Food Display Counter

Beverages

THE OPERATIONS PLAN
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 information from the
marketing plan, e.g. average sales forecast
THE OPERATIONS PLAN
Example of Calculation for Output per-day

Average Sales Forecast per-month = RM 25,200.00
Price per-unit = RM 15.00
Number of output per-month = 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

THE OPERATIONS PLAN
MATERIAL PLANNING
 Material planning is done to determine the type and

amount of raw materials need for the production
 Material planning involved four (4) steps:
o Identify and list down the raw materials required
o Prepare the Bills of Materials
o Calculate the quantity of raw materials required
o Identify the suppliers of raw materials

THE OPERATIONS PLAN
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

THE OPERATIONS PLAN
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

THE OPERATIONS PLAN
Example of Bills of Materials

 To produce a unit of pencil, the bills of materials is
as follows:
Product No. Description Specification Quantity
101 Half hollow wood 17 cm long 2
102 Lead 17 cm long 1
1.5mm diameter
103 Eraser 0.75 cm long 1
6mm diameter
104 Metal band 2 cm long 1
105 Paint 0.5 ml 1
106 Glue 0.5 ml 1

THE OPERATIONS PLAN
Examples of Materials Requirement Schedule
Price /
Safety Total Material Total Price
Material Quantity Requirement
unit
Stock (RM)
(RM)
Flour 50 kg 5 kg 55 1.2 66
Sugar 50 kg 5 kg 55 2.8 154
Eggs 200 units 20 220 0.15 33
Corn Syrup 100 litres 10 110 3 330
Margarine 100 kg 10 110 2 220
TOTAL 803

THE OPERATIONS PLAN
MACHINE & EQUIPMENT PLANNING

Steps to Determine Machine and Equipment
Requirement:
1. List out all machines 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

THE OPERATIONS PLAN
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 sales service
THE OPERATIONS PLAN
Examples of Machine & Equipment Requisition

Planning Schedule
Price / Unit
No. Machine Quantity Total Price (RM)
(RM)
1. Mixer 1 2,000 2,000

2. Cutter 2 1,000 2,000
3. Cash Register 1 1,500 1,500
TOTAL 5,500

THE OPERATIONS PLAN
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

THE OPERATIONS PLAN
Formula to Calculate the Amount of Machine

required:
No. of Planned Rate of Production per-day Standard

Machine = X Production
Required Machine Productive Time per-day
Time / Unit

THE OPERATIONS PLAN
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

THE OPERATIONS PLAN
Formula To Calculate the Amount of Direct

Labor Required
No. of Planned Rate of Production per day Worker Standard

Worker = X Production Time /
Worker Productive Time per day
Required Unit

THE OPERATIONS PLAN
Example of Direct Labour Planning Schedule
Salary/ EPF SOCSO

No. of Staff (RM) (RM) Total
No. Position Month
Required (RM)
(RM) 13 % 2%
1 Operation
1 2,000.00 260.00 2,260.00
Manager
2
TOTAL

THE OPERATIONS PLAN
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.

THE OPERATIONS PLAN
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

THE OPERATIONS PLAN
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
2. 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

THE OPERATIONS PLAN
Factors to be Considered for Choice of Location
• Distance from raw • Local Government

material / suppliers Policy
• Labor supply • Security
• Transportation
• Facility for expansion
• Price of Land or
and business
rentals development
• Infrastructure
• Climate

THE OPERATIONS PLAN
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

THE OPERATIONS PLAN
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 7am to 10pm everyday
 However, the operations hours for the workers will
be different
 The working hours may be from 5am to 12am
 The entrepreneur may have 2 shifts for the workers;
the first shift will starts from 5am to 3pm and the
second shift starts from 3pm to 12am
THE OPERATIONS PLAN
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
THE OPERATIONS PLAN
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

THE OPERATIONS 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
THE OPERATIONS PLAN
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

THE OPERATIONS PLAN
Example of Operations Budget
Monthly Other
Item Fixed Asset
Expenses Expenses
Machine and Equipment RM 35,500
Factory Renovation RM 45,000
Raw Materials RM 20,000
Wages + EPF + SOCSO RM 6,500
Utilities RM 600
Factory Rent RM 3,000
Deposit for Rent RM 6,000
Deposit for Utilities RM 1,000
TOTAL RM 80,500 RM 30,100 RM 7,000

THE OPERATIONS PLAN
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 OPERATIONS PLAN
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
THE OPERATIONS PLAN
Example of Project Implementation Schedule
Activities Deadlines Durations

Incorporation of business Jan – Mac 2009 3 months
Application for permits and
Jan – April 2009 4 months
license
Searching for business premise Feb – Mac 2009 3 months
Renovation of premise April 2009 1 month
Procurement of machines and
April – June 2009 3 months
raw material
Recruitment of labours June 2009 1 month
Installation of machines June 2009 1 month

THE OPERATIONS PLAN
END OF MODULE 9


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ENT/ETR300 – FUNDAMENTALS OF ENTREPRENEURSHIP

THE OPERATIONS PLAN

THE OPERATIONS PLAN

Nawawi Hj. Mohd Jan

At the end of the module, students should be able to:

 understand the concept of operations function in

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

 Operation is one of an important function in a

Components in an Operations System

The components of an operations system that is involved

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

Schematic Diagram of an Operations System

The components of an operations system can be portrayed in the

External Environment Factors

Input Transformation Output

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

The Operations Plan Comprises of the following

 Process planning involve the identification of the

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

Process Planning (cont.)

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

Symbols Used in the Process Chart

Symbol Activity Description

Operation Activity that modify, transform or give added

Inspection Activity that measure the standard or quality

Delay Process is delayed because in process

Storage Finished product or goods are stored in the

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

Flow Chart for the Production of Mixed Fruits Jelly

Transfer the fruits from the store to the production area

Clean the fruits under running water

Add ten parts of water into the mixture

Boil the mixture for 90 minutes

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

Activity Chart for Web Designing Services

Invite the client into the discussion room

Get relevant information from the client

Brief the client about terms and conditions

Get agreement from the client regarding terms and

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

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

Types of Layout (cont.)

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

Types of Layout (cont.)

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

Example of Layout Based on Product

Fruits Cleaning Area

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

Example of Layout Based on Process

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

Example of Layout Based on Marketing

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin

Example of Layout in a Restaurant

Toilet Food Display Counter

Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin