ENT/ETR300 – FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN THE OPERATIONS PLAN.

ENT/ETR300 – FUNDAMENTALS OF ENTREPRENEURSHIPTHE OPERATIONS PLAN

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


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:

Input OutputTransformation

Process

TransformationProcess

Feedback

External Environment Factors


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 worker’s activity


Symbols Used in the Process Chart

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

Symbol Activity Description

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


Flow Chart for the Production of Mixed Fruits JellyFlow Chart for the Production of Mixed Fruits Jelly

Transfer the fruits from the store to the Transfer the fruits from the store to the production areaproduction area

Check the quality of the fruits and segregate the Check the quality of the fruits and segregate the bad fruitsbad fruits

Clean the fruits under running waterClean the fruits under running water

Put the fruits into the fruit chopper for Put the fruits into the fruit chopper for chopping processchopping process

Use electric ladle to stir the fruit until the Use electric ladle to stir the fruit until the fruits change into pulpfruits change into pulp

Add ten parts of water into the mixtureAdd ten parts of water into the mixture

Boil the mixture for 90 minutesBoil the mixture for 90 minutes

Put the chopped fruits into the boiler for Put the chopped fruits into the boiler for steaming processsteaming process


Activity Chart for Web Designing ServicesActivity 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

Work on the design of the web

Get the feedback from the client

Make the amendment accordingly

Make a presentation to the client

Send the client to the door


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 processo Layout based on producto Layout based on marketing


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


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

Types of Layout (cont.)


Example of Layout Based on Product

Fill

ing

Are

a Office

Ste

amin

gReceivingArea

FinishedGoodsStorage

Fruits Cleaning Area

Washing Area Fru

its

Ch

opp

er


Example of Layout Based on Process

MillingMachine

GrindingMachine

DrillingMachine

Office

ToolRoom

StorageArea


Example of Layout Based on Marketing

Store

Cashier

Aisle

Frozen Food

Ais

lePas

try

Pro

duct

s

Aisle


Cashier

Food Display CounterBeverages

Dining Area

Kitchen

StoreF

oodC

ounter

Toilet

Example of Layout in a Restaurant


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 = 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


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 Identify and list down the raw materials required

o Prepare the Bills of Materials

o Calculate the quantity of raw material required

o 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. Description Specification Quantity

101 Half hollow wood 17 cm long 2

102 Lead 17 cm long1.5mm diameter

1

103 Eraser 0.75 cm long6mm diameter

1

104 Metal band 2 cm long 1

105 Paint 0.5 ml 1

106 Glue 0.5 ml 1


Examples of Materials Requirement Schedule

Material Quantity SafetyStock

Total Material Requirement

Price / unit (RM)

Total price (RM)

Flour 50 Kg 5 kg 55 1.2 66

Sugar 50 Kg 5kg 55 2.8 154

Eggs 200 units 20 220 0.15 33

Corn Syrup 100 Liter 10 110 3 330

Margarine 100 Kg 10 110 2 220

Total 803


MACHINE & EQUIPMENT PLANNING

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

Steps to determine machine and equipment requirement:


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


No. Machine Quantity Price / Unit (RM)

Total Price (RM)

1. Mixer 1 2000 2000

2. Cutter 2 1000 2000

3. Cash Register 1 1500 1500

Total 5500

Examples of Machine & Equipment Requisition Planning Schedule


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:

Machine Productive Time per day

Planned Rate of Production per dayX

Standard ProductionTime / Unit

=No. of Machine Required


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

Worker Productive Time per day

Planned Rate of Production per dayX

Worker Standard Production Time / Unit

=No. of Worker Required


Example of Direct Labour Planning Schedule

No Position No. of Staff Required

Salary/Month (RM)

EPF (RM)

13 %

Socso (RM)

2%

Total (RM)

1 Operation Manager

1 2000.00 260.00 2260.00

2

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

profit2. 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


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 have 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 Expenditureo 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 Expenseso Refers to the payment made every month in the

operations departmento Examples are wages for workers and raw

materials purchased


OPERATIONS BUDGET (cont.)

•Other Expenseso 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 Fixed Asset Monthly Expenses

Other Expenses

Machine and Equipment

Factory Renovation

Raw Materials

Wages + EPF + SOCSO

Utilities

Factory Rent

Deposit for rent

Deposit for utilities

RM 35,500

RM 45,000

RM 20,000

RM 6,500

RM 600

RM 3,000

RM 6,000

RM 1,000

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


Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin© Entrepreneurship Department, Faculty of Business Management, Universiti Teknologi MARA 2008

The Importance of Project Scheduling

Project scheduling serves several purposes:1. It shows the relationship of each activity to

others and to the whole project2. It identifies the precedence relationship

among activities3. It encourages the setting of realistic time

and cost estimate for each activity4. It helps make better use of people, money

and material by identifying critical bottlenecks in the project


Nawawi Hj. Mohd Jan, Rahimah Sarmidy & Sodri Ariffin© Entrepreneurship Department, Faculty of Business Management, Universiti Teknologi MARA 2008

Example of Project Implementation Schedule

Activities Deadlines Durations

Incorporation of business Jan – Mac 2009 3 months

Application for permits and license

Jan – April 2009 4 months

Searching for business premise

Feb – Mac 2009 3 months

Renovation of premise April 2009 1 month

Procurement of machines and raw material

April – June 2009 3 months

Recruitment of labours June 2009 1 month

Installation of machines June 2009 1 month

ENT/ETR300 – FUNDAMENTALS OF ENTREPRENEURSHIP THE OPERATIONS PLAN THE OPERATIONS PLAN.

Documents

operations plan operations

operations plan slide

operations plan components

operations plan symbols

operations system

marketing plan slide

operations hours license

concept of operations