Chapter 7: The Operating Plan PDF

Chapter 7 THE OPERATING PLAN © BE AN ENTREPRENEUR 2021 7 THE OPERATING PLAN Components of the Operating Plan: Production activities Support Activities Capacity Planning Estimating Costs © BE AN ENTREPRENEUR 2021  Chapter 7 overview...

Chapter 7 THE OPERATING PLAN © BE AN ENTREPRENEUR 2021 7 THE OPERATING PLAN Components of the Operating Plan: Production activities Support Activities Capacity Planning Estimating Costs © BE AN ENTREPRENEUR 2021  Chapter 7 overview The product or service that you offer to the public through your marketing plan is just the tip of the iceberg. Unseen to the customer is a host of activities that create the product or make the service available. The term “operations” covers these behind-the- scene activities. You may say that marketing is the face your business presents to the outside world. Its inner workings fall under operations.  Coverage of the Chapter Components of the Operating Plan: Production activities Support Activities Capacity Planning Estimating Costs  Learning Objectives State the subject and goal of an operating plan Define and distinguish production activities from support activities Illustrate a simple production process as a process flow or a flowchart. State the goal of capacity planning and the sources of inefficiency Distinguish start-up costs from running costs.  Story from Real Life Mystic Masala is a small business in Canada. It offers handmade aromatherapy soy candles and body and shampoo bars made with spice, herb, and flower oils. Importing is vital to its operations. Based on her experience, the owner has several suggestions when importing: Do your homework before you begin. Know the product codes and laws that apply to the goods you want to import.  Story from Real Life Customs brokerage fees vary depending on the agent. Shop around for a cost-effective and reliable option. If you’re good with paperwork, doing them yourself could save several hundred dollars a shipment. It can be more difficult to guarantee quality when shipping merchandise. “Originally, I had my soaps shipped via boat but after coming all the way from Nepal in the heat and through the monsoon season, they didn’t always arrive in the best shape. “Now I have them sent by air cargo.”  The operating plan Your operating plan lays down the roadmap that will show how you will convert inputs into products in a cost-effective manner. The operating plan consists of the following sections: Production activities Support activities Capacity planning – start-up costs Estimating Costs – now includes running costs  The operating plan Operations: The set of activities that convert inputs into outputs. Inputs are the resources used by your business such as materials, labor, and machines. Outputs are the goods you produce or the services you provide.  The operating plan The marketing plan should determine the operations plan. By having marketing as the driver of the enterprise, you ensure that your product and the activities that create it are aligned with the needs of the customer.  The operating plan Production activities are the business activities that are directly related to making goods or providing services. Process flow is a visual representation of the steps and sequence required to make a product. The steps are normally limited to production activities.  The operating plan Flowchart: The activities and sequence of a process represented in symbols. Each step in the process is shown as a symbol with a short description of the step. The symbols are linked together with arrows to show the proper sequence of the activities.  The operating plan Support activities: Activities that help production activities to function as intended though they do not produce the goods themselves. Support activities: are there to aid production. They add value to the production process.  The operating plan Capacity planning: The process of deciding the production capacity to meet the demand for the products of a business. Capacity planning: means to schedule over time, the investments and resources you business will need to produce at a desired level.  The operating plan Start-up costs: Costs associated with putting up the production capacity of a business. These costs enable your business to begin operations though you have not done so yet.  The operating plan Running costs: Recurring costs associated with inputs to continuing operations. Unit Cost: The total cost to produce one unit of a product or service.  The operating plan Start-up costs are costs associated with setting up the production capacity of a business. To run operations, your business will require inputs like raw materials, supplies, rent, labor and electricity. These are the running costs.  Do your operation plan https://knowhow.ncvo.org.uk/tools- resources/business-plan-template/writing-your- business-plan/8-operational-plan  Review Questions 1. What is the goal of an operating plan? 2. What are the sections of an operating plan? 3. Should marketing determine operations or the other way around? Why? 4. What happens when support activities are neglected? 5. What is the output of capacity planning? 6. What happens when there is too much (or too little) capacity compared to demand?  Review Questions 7. Why can demand still be different from capacity despite careful planning? 8. How are start-up costs different from running costs?  Case Study questions Would you say that ZARA is very successful? What facts in the case tell you this? Many other successful fashion retailers outsource production to countries where labor cost is low rather than producing the items themselves. ZARA produces 50% of its sales with its own facilities. Why did ZARA do this? What are the pros and cons of this strategy?  Case Study questions Many other successful fashion retailers outsource production to countries where labor cost is low rather than producing the items themselves. ZARA produces 50% of its sales with its own facilities. Why did ZARA do this? What are the pros and cons of this strategy? What is your own view of using operations as the main means to compete in an industry like fashion retailing?