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BA 101A - Midterm 2 Study Guide
BA 101A - Midterm 2 Study Guide
Define Ethics : Ethics are a set of standards that govern the conduct of a person, especially a
member of a profession.
Define Legal Behavior :Legal behavior follows the dictates of laws, which are written down and
interpreted by the courts
What is the difference between ethical and legal considerations? : Smokers for example can be
refused for hire if they smoke, as the annually cost more and have a higher rate of absenteeism.
So Ethically, should the company legally interfere with what you're doing on your own time
legally? Or from a legal standpoint does not hiring smokers constitute discrimination?
Define Business Ethics : Business ethics implicitly regulates behavior that lies beyond
governmental control. Business ethics refers to contemporary standards or sets of values that
govern the actions and behavior of individuals in the business organization and the actions of the
business itself. It applies to all aspects of business conduct and is relevant to the conduct of
individuals and entire organizations.
How are Individual Ethics and Corporate Ethics different? : Corporate ethics express the values
of an organization to its internal and external stakeholders
What are Covalence EthicalQuote and Ethical Consumer? : Companies such as Covalence
EthicalQuote have cropped up to monitor the ethical behavior of businesses. Web sites such as
Ethical Consumer promote “ethical consumerism” to help consumers act in the marketplace in
ways that are consistent with their ethics.
Define Corporate Code of Ethics : Corporate ethics express the values of an organization to its
internal and external stakeholders. Corporate Code of Ethics. A code of ethics begins by setting
out the values that underpin the code and describes a company’s obligation to its stakeholders.
The code is publicly available and addressed to anyone with an interest in the company’s
activities and the way it does business. It includes details of how the company plans to
implement its values and vision, as well as guidance to staff on ethical standards and how to
achieve them. It is hoped that having such a policy will lead to greater ethical awareness,
consistency in application, and the avoidance of ethical disasters.
failure to comply with a code of practice can result in expulsion from the professional
organization.
What are three things that business gifts are usually seen as?
1.
2.
3.
What are the three dimensions in evaluating gifts and what do they mean?
1.
2.
3.
Define bribery
Giving someone something in exchange for a change in behavior or attitude
What is a kickback?
A kickback is a form of negotiated bribery in which a commission is paid to the bribe-taker in
exchange for services rendered.
Make an example for yourself of what a kickback would look like in a real life situation
If I paid a member of the board at the company to put in a good word for my hire.
What are the four common forms of conflict of interest and define them?
1. Self dealing - Officials enter into a deal benefiting them personally
2. Outside employment - The interests of one job may contradict another
3. Family interests - doing business with family
4. Gifts - receiving gifts from friends or family
Define Integrity
Being honest (and fessing up when you’re not)
What is a whistleblower?
A whistleblower is a person who exposes activity that is illegal or unethical within an
organization
BA 101A: Business Foundations Midterm 1 Study Guide
Whistleblowers take action to put an end to unethical practices after witnessing injustices in
their businesses or organizations
on helping children in need around the world. Since 2007, P&G has improved the lives of
more than 210 million children through initiatives such as Protecting Futures, which
helps vulnerable girls stay in school, and Hope Schools, which increases access to
education in rural areas of China. “We see programs like Protecting Futures as an
investment in the future that helps both children and communities thrive,” says Jeff Roy,
Procter & Gamble’s media relations manager.
● 5. Partnering with experts: Leadership requires establishing a high degree of credibility.
This is best done through relationships with social issue experts and not-for-profit
organizations. Starbucks hosted a “Cup Summit” at the Massachusetts Institute of
Technology to bring together municipalities, raw materials suppliers, cup manufacturers,
retail and beverage businesses, recyclers, non-government organizations and academic
experts to share ideas for making paper and plastic cups more broadly recyclable. “On the
journey to make our iconic coffee cups 100% recyclable, we quickly learned that
developing recyclable material is just one part of the complex equation. We had to
consider the entire lifespan of the cup, including what happens after it leaves our
customers' hands,” said Ben Packard, Starbucks' vice president of global responsibility.
“This required bringing together the entire system of stakeholders with the expertise, the
influence and the infrastructure to coordinate a fundamental shift, not only in our own
operations, but in the entire food packaging and recycling industries.”
●
Define greenwashing
Greenwashing is the process of conveying a false impression or providing misleading
information about how a company's products are more environmentally sound. Greenwashing is
considered an unsubstantiated claim to deceive consumers into believing that a company's
products are environmentally friendly.
What are 8 topics you should consider when selecting a form of ownership?
•Cost of start up
•Control vs. responsibility
•Do you want to share the profits?
•Taxation
•Entrepreneurial ability
•Risk tolerance
•Financing
•Continuity and transferability
Sole proprietorships adhere to a few regulatory requirements. Unlike corporations, the entities do
not need to spend time and resources on various government requirements such as financial
information reporting to the general public.
3. Tax advantages
Unlike the shareholders of corporations, the owner of a sole proprietorship is taxed only once.
The sole proprietor pays only the personal income tax on the profits earned by the entity. The
entity itself does not have to pay income tax.
Disadvantages
Potential disadvantages include the following:
A limited partnership (LP) is a form of partnership similar to a general partnership except that
while a general partnership must have at least two general partners (GPs), a limited partnership
must have at least one GP and at least one limited partner. Limited partnerships are distinct from
limited liability partnerships, in which all partners have limited liability.
Source of capital. With many partners, a business has a much richer source of capital than
would be the case for a sole proprietorship.
Specialization. If there is more than one general partner, it is possible for multiple people
with diverse skill sets to run a business, which can enhance its overall performance. In
general, this may mean that there is more expertise within the business.
Minimal tax filings. The Form 1065 that a partnership must file is not a complicated tax
filing.
No double taxation. There is no double taxation, as can be the case in a corporation.
Instead, profits flow straight to the owners.
Disadvantages of a Partnership
Unlimited liability. The general partners have unlimited personal liability for the
obligations of the partnership, as was the case with a sole proprietorship. This is a joint
and several liability, which means that creditors can pursue a single general partner for
the obligations of the entire business.
Self-employment taxes. A partner’s share of the ordinary income reported on a Schedule
K-1 is subject to the self-employment tax. This is a 15.3% tax (social security and
Medicare) on all profits generated by the business that are not exempt from these taxes.
Define a C corporation
A C corporation, under United States federal income tax law, is any corporation that is
taxed separately from its owners. A C corporation is distinguished from an S
corporation, which generally is not taxed separately. Many companies, including most
major corporations, are treated as C corporations for U.S. federal income tax purposes.
C corporations and S corporations both enjoy limited liability, but only C corporations
are subject to corporate income taxation.
If you’re thinking about taking a company public one day, then the C corporation structure
provides opportunities for financing. More investors are willing to get involved in companies
looking to be traded on a national-level exchange if this structure is present. That is because
there is more flexibility within the ownership arrangements within the C corporation structure
compared to other business opportunities.
Within a C corporation, shareholders are able to obtain fringe benefits without a tax obligation if
they are also an employee. Earnings can also be accumulated within this business structure at a
low tax cost than other business structures, making it easier for the business to scale upward
when there are growth opportunities present.
A C corporation is permitted to deduct all medical payments to a fixed dollar amount, set by the
organization, not the government or existing tax laws. Shareholders/employees are then able to
take advantage of this benefit without worrying about taxation consequences.
Within a C corporation, the organization is an entity which is legally separate from its
shareholders and its ownership. The individuals involved with the business cannot be held
responsible for the debts incurred by the company, which provides a level of protection for
personal assets that other business structures do not provide.
Companies have the option to split profits and losses between ownership and the business to
generate a lower overall tax rate. In the United States, the business tax rate in 2019 is expected to
be 21%, which would be a lower tax rate than personal income at the same level as well. Every
situation is a little different, so a financial advisor familiar with your specific circumstances
should be consulted to understand the full tax obligations of your enterprise.
6. It exists forever.
A C Corporation continues to exist indefinitely as a separate entity unless changes are made to
the business. For a family business, this structure makes it easier to pass down assets to heirs.
When shareholders or owners leave, or even if the shares are sold off, the company continues to
exist unless it is purposely disbanded for some reason, such as a bankruptcy. When the power
BA 101A: Business Foundations Midterm 1 Study Guide
structure of the C-Suite is included with this advantage, this type of business provides more
consistency.
One of the primary advantages of a C corporation is that it can issue stock for shareholders to
purchase as a way to raise money. This structure allows for an unlimited number of owners,
which makes it easier to transfer ownership of stock through a sale. Multiple classes of stock can
be issued as well, with some shareholders potentially having stronger voting rights than others.
These stocks can be issued even without a listing on a national board. A C corporation is
permitted to offer stock options to employees as well, which can be used as a tool to attract more
talent to the company.
In Wyoming and Nevada, the directors and officers of the company are permitted to reside
anywhere in the world. The shareholders for the company can be from anywhere in the world,
though some restrictions may apply based on state or national laws. For a foreign investor, the
structure of a C corporation makes it possible to diversify a portfolio without dealing with a lot
of administrative red tape.
Under the laws of the United States, a C corporation is protected through the 5th Amendment
and the 14th Amendment to the Constitution. Just like an individual, the corporate has the rights
of due process and equal protection for every legal proceeding. In most states, there is a right to
free speech for a corporation as well.
10. It does not require shareholders to be involved in the operations of the business.
Under the C corporation structure, the officers of the business are responsible for the operations
of the company. The shareholders are entitled to their percentage of ownership status for
dividends, voting, and similar responsibilities. It is the CEO and the others in the C-Suite who
are involved in the daily responsibilities which keep the company operational. The established
power structure creates roles and responsibilities which are clearly defined, making the company
processes as efficient as possible.
Consumers are looking for value in the products and services which they purchase. Value is not
always defined by the lowest cost. Other business structures, including sole proprietors, may be
BA 101A: Business Foundations Midterm 1 Study Guide
able to provide something similar, but not always with the same level of history, reputation, or
expertise. Consumers tend to prefer to work with businesses which have an established history
and are not reliant on one person’s expertise or talents to provide that value. They want to know
that a business will continue to provide supports, which is more likely from a corporation than
other business structures.
Depending upon the size of the corporation and its location, there may be certain tax advantages
available in this structure compared to other businesses. One example of this is the small
business tax deduction that is available in Canada. Once the business is incorporated, the first
$500,000 in taxable income is taxed at a rate of 10.5%. For businesses with lower revenue levels,
programs like these make it much easier to capitalize profits, helping the company to grow over
time.
Many contractors will only work with businesses that have gone through the incorporation
process. That is because there are liability issues that may be present when dealing with other
business structures in a B2B relationship. It is also easier to work more at an arm’s length with
an incorporated business than those that are not.
Once you incorporate your business using the C corporation option, you’ll be able to reserve
your business name for use in that state/province for a small registration fee. You also have the
option to file on a federal level as a corporation, which gives you the right to use the name
throughout the country. Other business structures have the option to use trademarks or similar
options to brand their business, but from a pure naming standpoint, they do not have the same
protections against name infringement that a corporation enjoys.
When the C corporation structure is finalized, the profits from the company are going to be
taxed. Then, when the profits are sent out in the form of dividends, then they will be taxed again.
Companies are not allowed to deduct their dividend distributions. There are some ways to lessen
the tax responsibilities found under this structure, though it is something that must be planned for
each fiscal year. You must file a personal tax return and a business tax return.
BA 101A: Business Foundations Midterm 1 Study Guide
C Corporations are required to hold formal meetings for their shareholders and their board.
These meetings must have accurate minutes kept of them and distributed as required. There are
several tax forms required of this business structure as well at all levels of government, including
tax forms sent to employees for their compensation received. Profit distribution paperwork is
required as well. For smaller businesses, the paperwork requirements can be overwhelming.
In the United States, personal taxes are due by April 15 or the closest weekday to that date. For C
corporations, the tax deadline is a month earlier, on March 15. Because of the complicated nature
of the filing system, many C corporations find themselves needing to hire or contract with an
accountant to ensure their obligations are met.
To start a C corporation, there are several filing fees which must be paid. In the U.S., each state
has its own set of regulations which must be followed when creating a new business. In
Washington State, for example, Title 23B RCW requires a $180 fee for an original filing, a $60
fee for the annual report, and various additional fees based on statements, reports, or
amendments which must be filed. The total cost may be over $1,000 in some states, while the
filing fees may be under $100 in others. There are several legal requirements which must be
managed as well, including a requirement to file in multiple states, and pay their registration
fees, to have a presence in that market.
Many states require the officers or board members of the company to reside within state borders
for their registered company. Some exceptions may apply for a secondary state registration, like
having a business open a second location in a separate state. This requirement may require
certain officers or board members to move to meet this requirement or sell their share in the
company.
Although a C corporation is afforded some of the rights that individuals receive in the United
States, it is not afforded every right. One of the key differences is in the right to having legal
counsel. If the company must attend a court proceeding, then it must provide its own attorney.
BA 101A: Business Foundations Midterm 1 Study Guide
An attorney from the public defenders’ office is not provided to companies that are facing legal
situations.
When there are numerous shareholders holding fractional shares of a business, without a clear
majority helping to navigate the company, then the officers may not have a structure which
provides a measure of accountability. The C-Suite is able to operate the business without
oversight when there are multiple fractional-share owners, relying on their ability to provide
dividends or returns to appease instead. This can lead to inappropriate, and sometimes criminal,
actions by the management team if left unchecked for too long.
Individuals in the United States cannot be compelled to testify if they believe that their testimony
may be a form of self-incrimination. This right is protected by the 5th Amendment.
Corporations, even though they have some status as an “individual” with their structure, are not
granted this privilege. They must present all facts during a legal proceeding, whether it
implicates their company or not.
As a sole proprietor or in certain partnerships, any losses taken by a business can be deducted
from the personal income of the owner. That is not the case with a corporation. That means there
are limits to the amount of income splitting you can use to limit your tax liabilities. There are no
personal tax credits available to owners either, something which is available to businesses using
other structures as well.
Just because a business incorporates itself does not mean that lenders will automatically offer
lending products. There must be enough assets within the corporation to secure debt financing. If
the assets for the business are insufficient, then lenders will often insist that the ownership make
a personal guarantee on the debt. If that is agreed upon, then there is still personal liability within
the ownership for the debts of the business if the company is unable to make its payment
obligations.
You cannot simply quit a corporation. The business must pass a resolution of dissolution if the
corporation is no longer needed or wanted. This creates a copy of dissolution which must be sent
to the governing authorities of the state or province where the business was located. The business
must file their tax returns for that final period as well to ensure full compliance. That is why
BA 101A: Business Foundations Midterm 1 Study Guide
many small businesses opt to stick with a business structure which is different than the C
corporation structure.
The advantages and disadvantages of a C corporation may apply to businesses of all size, though
the largest corporations tend to see the most benefits. It does take more time, energy, and cash to
manage this structure than other business types. It also provides numerous benefits which can
only be realized by using this structure.
To know if the C corporation structure is right for your business, consult with a legal
professional to discuss these pros and cons with them.
Define a S corporation
An S corporation, for United States federal income tax, is a closely held corporation that makes a valid
election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. In general, S
corporations do not pay any income taxes. Instead, the corporation's income and losses are divided
among and passed through to its shareholders. The shareholders must then report the income or loss on
their own individual income tax returns.
There are multiple reasons why the owners of a business would want to structure it as an S
corporation. Consider the following advantages:
Shareholder protection. As is the case with any corporation, an S corporation shields its
shareholders from the debts of the corporation.
Distribute appreciated property. A distribution of appreciated property by an S corporation to
its shareholders generates a gain in the amount of the difference between the corporation’s
basis in the asset and its fair market value. This gain increases the basis of the shareholders’
stock in the corporation.
Distributions are free of payroll taxes. Any distributions made from an S corporation to
shareholders are not subject to payroll taxes. This means that social security, unemployment,
and Medicare taxes are not paid on these distributions.
BA 101A: Business Foundations Midterm 1 Study Guide
Double taxation circumvention. The earnings of an S corporation are only taxed once, at the
level of its shareholders. This is significantly better than for a C corporation, where the
corporation is taxed and then again when any distributions to shareholders are taxed.
No accumulated earnings tax. An S corporation is not subject to the accumulated earnings
tax, which applies to a C corporation if it accumulates an excessive amount of earnings
without paying some portion of it to shareholders.
Passive loss offsets. If a shareholder does not actively participate in managing the business,
any income passed through from it is characterized as passive, and so can be used to offset
passive losses.
Single taxation level on sale of business. When an S corporation is sold, the shareholders will
pay tax on the distribution. This is better than for a C corporation, where tax is paid by the
corporation and again by the shareholders when the proceeds are forwarded to them.
Despite these advantages, converting from a C corporation to an S corporation does not always make
sense – or it at least requires consideration of certain issues. In particular, the following concerns may
be present:
Minimal cash retention. It is difficult for an S corporation to build up cash reserves, since its
shareholders need distributions in order to pay taxes on the income that has been passed
through to them.
Net operating loss carryforwards. It is not allowable to carry forward net operating losses
(NOLs) from a C corporation to an S corporation, which can be a significant concern when
an NOL is quite large.
Taxable built-in gains. A tax is imposed if an S corporation sells or distributes to its
shareholders any assets that appreciated in value before the firm converted to an S
corporation. The tax applies to any asset sales or distributions that arose during the five years
prior to the date of the conversion to an S corporation.
Tax-free fringe benefits. Some tax-free fringe benefits (such as accident and health insurance
premiums) are not available to the shareholders in an S corporation that hold more than a 2%
interest in the business. When an S corporation pays for these benefits, they are treated as
wages, which means that payroll taxes will be applied to them.
Unplanned termination. A dissident shareholder can trigger the termination of the entity’s S
status by transferring shares to an entity that is not allowed to be a shareholder, such as a
nonresident alien.
Define a B corporation
How do B corporations do taxes? Because a corporation is a separate legal entity from its
owners, the company itself is taxed on all profits that it cannot deduct as business expenses.
Generally, taxable profits consist of money kept in the company to cover expenses or expansion
(called “retained earnings”) and profits that are distributed to the owners (shareholders) as
dividends
● When there are several shareholders involved with an organization, the internal debate
about the best course of action to follow can be stressful and time consuming. The B
Corp provides built-in mechanisms that help to dictate the direction a company must take.
There are standards that must be met. Even random audits are used to make sure that all
of the rules are being followed.
● 3. There are numerous ways to get involved.
● People who support your organization’s mission may wind up having their contributions
be tax deductible. Many B Corporations may qualify for 501c3 status because their
mission is to create or maintain a good cause within the local community. Some B Corps
may also be allowed to charge annual fees, collect fundraising, and other non-profit
activities that are inviting to investors.
● 4. There is a fellowship of B Corporations that shares resources.
● There are numerous member resources that are available to a B Corp once they are
allowed to form. The corporation status allows for instant networking with similar
business owners who have similar goals in their own local communities. This fellowship
allows for sharing in a mutually beneficial way that other corporations may not always be
able to have.
●
● The Cons of a B Corp
● 1. It’s only as good as you make it.
● If you are able to maintain your B Corp status by passing the random audits and being
transparent about your mission, then you can have a beneficial experience with your B
Corp. If you fail an audit or can’t prove you are staying true to your stated mission, then
losing your certification will be questioned and your built-up network will be destined to
fail.
● 2. Accountability might be a good thing, but it can also be a headache.
● Some decisions a B Corp make are difficult and audits allow a third-party judge to come
in and say that you were right or wrong. Sometimes you’re forced to choose between two
answers that someone will judge as wrong. You could be making what you think is the
best decision for your organization only to have an auditor come in, say you made the
wrong choice, and begin the process of trying to strip your B Corp status away.
● 3. It’s not a corporation status that is available everywhere.
● Because the B Corp is so new, it isn’t a method of incorporation that is allowed in every
state right now. It is recognized nationally, but you’ll need to check with your local state
officials before filing your articles of incorporation to see if it is available to you. It may
be recommended that you form an S Corp first and file for 501c3 status after
incorporation, then transition to a B Corp status should it become available locally.
● 4. There are no corporate tax benefits to the status.
● Unless you have a tax-exempt status associated with your B Corp, your organization is
still going to be responsible for paying the same taxes as any other organization. There
are no additional tax benefits associated with this status.
Define LLC
A limited liability company is the US-specific form of a private limited company. It is a business
structure that can combine the pass-through taxation of a partnership or sole proprietorship with
BA 101A: Business Foundations Midterm 1 Study Guide
the limited liability of a corporation. An LLC is not a corporation under state law; it is a legal
form of a company that provides limited liability to its owners in many jurisdictions. LLCs are
well known for the flexibility that they provide to business owners; depending on the situation,
an LLC may elect to use corporate tax rules instead of being treated as a partnership, and, under
certain circumstances, LLCs may be organized as not-for-profit. In certain U.S. states, businesses
that provide professional services requiring a state professional license, such as legal or medical
services, may not be allowed to form an LLC but may be required to form a similar entity called
a professional limited liability company.
LLC Cons
● Self-employment taxes
● Difficulty attracting investors for funding
● Added formation costs and franchise tax for some states
As the sole owner of your LLC, you must report all profits (or losses) of the LLC on Schedule C
and submit it with your 1040 tax return. Even if you leave profits in the company's bank account
at the end of the year -- for instance, to cover future expenses or expand the business -- you must
pay income tax on that money.
Multi-Owner LLCs
The IRS treats co-owned LLCs as partnerships for tax purposes. Like one-member LLCs,
co-owned LLCs do not pay taxes on business income; instead, the LLC owners each pay taxes
on their share of the profits on their personal income tax returns (with Schedule E attached).
Each LLC member's share of profits and losses, called a distributive share, should be set out in
the LLC operating agreement. For information on operating agreements, see Nolo's article The
LLC Operating Agreement.
Dividing up the profits between members. Most operating agreements provide that a member's
distributive share is in proportion to his or her percentage interest in the business. For instance, if
Jimmy owns 60% of the LLC, and Luana owns the other 40%, Jimmy will be entitled to 60% of
the LLC's profits and losses, and Luana will be entitled to 40%. If you'd like to split up profits
and losses in a way that is not proportionate to the members' percentage interests in the business,
BA 101A: Business Foundations Midterm 1 Study Guide
it's called a special allocation. (For more information on special allocations, including the IRS
rules you'll have to follow if you wish to make them, see Nolo's article Making Special
Allocations.)
Taxes assessed on entire distributive share. However members' distributive shares are divvied
up, the IRS treats each LLC member as though the member receives his or her entire distributive
share each year. This means that each LLC member must pay taxes on his or her whole
distributive share, whether or not the LLC actually distributes all (or any of) the money to the
members. The practical significance of this IRS rule is that, even if LLC members need to leave
profits in the LLC -- for instance, to buy inventory or expand the business -- each LLC member
is liable for income tax on his or her rightful share of that money.
File Form 1065 with the IRS. Even though a co-owned LLC does not pay its own income taxes,
it must file Form 1065 with the IRS. This form, the same one that a partnership files, is an
informational return that the IRS reviews to make sure that LLC members are reporting their
income correctly. The LLC must also provide each LLC member with a Schedule K-1, which
breaks down each member's share of the LLC's profits and losses. In turn, each LLC member
reports this profit and loss information on his or her individual Form 1040, with Schedule E
attached.
Starting in 2018, all regular “C” corporations are taxed at a flat 21% rate on all their profits. This
rate is lower than the top three individual income tax rates, ranging from 32% to 37%, which
would otherwise apply to LLC owners at various income levels. Thus, LLC owners can save
money on their overall taxes by choosing to be taxed as a C corporation. However, these
potential savings can prove elusive because money distributed from a C corporation to its owners
is subject to double taxation—first the 21% corporate tax must be paid and then the shareholders
must pay individual income tax on their dividends at capital gains rates, which range up to
23.8%. However, retained earnings are not subject to double taxation. In addition, electing
corporate taxation can allow an LLC to offer owners and employees various tax-advantaged
fringe benefits, stock options, and stock ownership plans, none of which are subject to double
taxation.
to the appropriate state tax agency, if there is a state income tax) -- in April, June, September, and
January.
Define LLP
A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the
jurisdiction) have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In
an LLP, each partner is not responsible or liable for another partner's misconduct or negligence. This is an
important difference from the traditional partnership under the UK Partnership Act 1890, in which each
partner has joint (but not several) liability. In an LLP, some or all partners have a form of limited liability
similar to that of the shareholders of a corporation. Unlike corporate shareholders, the partners have the
right to manage the business directly. In contrast, corporate shareholders must elect a board of directors
under the laws of various state charters. The board organizes itself (also under the laws of the various
state charters) and hires corporate officers who then have as "corporate" individuals the legal
responsibility to manage the corporation in the corporation's best interest. An LLP also contains a
different level of tax liability from that of a corporation.
Define Franchise
an authorization granted by a government or company to an individual or group enabling them to carry out
specified commercial activities, e.g., providing a broadcasting service or acting as an agent for a
company's products.
What is a Franchisor?
The company (McDonalds is a franchisor)
What is a Franchisee?
an individual or company that holds a franchise for the sale of goods or the operation of a
service.
McDonalds. It is part of a large national chain. A person buys (and basically pays rent) to use the
name McDonalds to bring in revenue.
Business Assistance
One of the benefits of franchising for the franchisee is the business assistance they receive from
the franchisor.
Depending on the terms of the franchise agreement and the structure of the business, the
franchisee might receive essentially a turnkey business operation. They may be provided with the
brand, the equipment, supplies, and the advertising plan—essentially everything they need to
operate the business.
Other franchises may not provide everything, but all franchises provide the knowledge and
wisdom of the franchisor. Whether that knowledge is stored in a searchable, digital knowledge
base or is a phone number to reach the franchisor directly, the franchisee has access to a deep
reservoir of business assistance to guide them through the process of owning and operating a
business. This knowledge can be essential to running a successful business and makes it much
easier than starting a business from scratch.
2. Brand Recognition
A big benefit that franchisees receive when opening a franchise is brand recognition. If you start
a business from scratch, you would have to build your brand and customer base from the ground
up, which would take time.
Franchises, on the other hand, are already well-known businesses with established customer
bases built in. So when you open a franchise with this recognizable branding, people will
automatically know what your business is, what you provide, and what they can expect.
In general, franchises have a lower failure rate than solo businesses. When a franchisee buys into
a franchise, they’re joining a successful brand, as well as a network that will offer them support
and advice, making it less likely they’ll go out of business.
As well, franchises have already proven their business concept, so you have reassurance that the
products or services you’ll be offering are in demand.
4. Buying Power
Another benefit of franchising is the sheer size of the network. If you’re operating a standalone
business and need to order products or supplies to make your products, you’re paying more
money per item because your order is relatively small.
However, a network of franchises has the opportunity to purchase goods at a deep discount by
buying in bulk. The parent company can use the size of the network to negotiate deals that every
franchisee benefits from. A lower cost of goods lowers the overall operation costs of the
franchise.
5. Profits
In general, franchises see higher profits than independently established businesses. Most
franchises have recognizable brands that bring customers in droves. This popularity results in
higher profits. Even franchises that require a high initial investment for the franchise fee see high
return on investment.
6. Lower Risk
Starting a business is risky. This is true whether a business owner is opening an independent
business or purchasing a franchise. That being said, the risk is lower when opening a franchise.
One of the reasons franchise owners face lower risk than independent business owners is the
franchise network. Most franchises are owned by established corporations that have tested and
proven the business model of the franchise in multiple markets.
This lower risk may also make it easier to access loans, including the best SBA franchise loans,
to help you launch your business.
One of the biggest benefits of owning a business is being your own boss. When starting a
franchise business, you get to be your own boss with the added benefit of receiving support from
the franchise’s knowledge base.
Owning a business is hard work, but when you’re your own boss, you get to create your own
schedule, have autonomy over your career, and potentially work from home.
A franchise gives you the benefit of being your own boss without the risk of starting your own
independent business.
1. Restricting Regulations
While a franchise allows the franchisee to be their own boss, they’re not entirely in control of
their business, nor can they make decisions without taking into account the opinion of the
franchisor.
For most franchisees, the most frustrating disadvantage that they face is that they must follow the
restrictions laid out in the franchise agreement. The franchisor can exert a degree of control over
the majority of the franchise business and decisions made by the franchisee.
Depending on the franchise agreement, the franchisor can control any of these aspects of the
business:
● Business location
● Hours of operation
● Holidays
● Pricing
● Signage
● Layout
● Decor
● Products
● Advertising and marketing
● Resale conditions
These restrictions are put into place to maintain uniformity between the different franchises and
the overall brand, but they can also be frustrating and feel limiting for the franchisee.
2. Initial Cost
While the initial investment of the franchise fee buys a lot of benefits for the franchisee, it can
also be costly—especially if you’re joining a very well-known and profitable franchise. While
BA 101A: Business Foundations Midterm 1 Study Guide
this often translates to larger profits, coming up with this initial money can put a strain on any
small business owner.
Even if you opt for a low-cost franchise, you’ll likely still have to front a few thousand dollars.
While this can be seen as a disadvantage of franchises, it’s important to weigh the opportunity
against the initial investment and find the right balance for your business. And keep in mind,
there are also franchise financing options to help you come up with this initial cost.
3. Ongoing Investment
In addition to the initial investment you’ll have to provide to start your franchise, there are
additional, ongoing costs that are unique to franchises. Within the franchise agreement, the
ongoing costs of the franchise should be enumerated. These costs might include royalty fees,
advertising costs, and a charge for training services.
You’ll want to keep these ongoing fees in mind when you’re deciding whether to start a
franchise.
While a franchise agreement states the expectations of both the franchisee and franchisor, the
franchisee has minimal power to enforce the franchise agreement without a costly legal battle.
Whether it’s lack of support or simply a clash of personalities, the closeness of the business
relationship between franchisor and franchisee is rife for conflict. A franchisor should screen all
potential franchisees before entering into business with them, and as the franchisor, you should
also use this opportunity to get a feel for the franchisor’s personality and management style.
1. Access to Capital
One of the biggest barriers to expansion for small business is the money it costs to expand. And
while there are several business loan options, they don’t always pan out. Franchising your
BA 101A: Business Foundations Midterm 1 Study Guide
business will take some time and money on your end, but it also has the potential to make you a
lot of money in the form of franchise fees.
Expanding your business as a franchise allows you to expand with little debt. The business
expands as capital becomes available from franchisees instead of taking on debt through loans.
The franchisor also shares minimal risk with the franchisee because the franchisee puts their
name on the deed for the physical location of the business and lowers the franchises overall
liability.
2. Efficient Growth
Opening the first unit of a business is costly and time consuming. Opening a second unit can be
almost as difficult. When that burden is shared with another business owner, it makes the process
more efficient and takes the onus off the initial business owner.
When trying to grow your small business, starting a franchise can make opening multiple
locations a much simpler process.
This minimal employee supervision allows the franchisor to focus on the growth of the business
instead of day-to-day operations. Instead of worrying about whether an employee shows up for
their shift or not, the franchisor is focused on the big picture for business success.
5. Reduced Risk
One of the biggest benefits to the franchisor in a franchise agreement is the ability to expand
without an increase in risk. Because the franchisee takes on the debt and liability of opening a
unit under the name of the franchise, the franchisor gets all the benefit of an additional location
without taking on the risk themselves.
Additionally, the franchisor is often further insulated because the franchise is incorporated as a
new business entity, leaving the original business owned by the franchisor as a separate entity
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from the franchise. A franchise lawyer can help to set up the terms for this type of protection
within the franchise agreement.
When a franchisor allows a franchisee to open a business under their brand, they’re giving away
(actually, selling) some of the control over their small business branding. While the franchise
agreement should contain strong stipulations and rules to guide the decisions made by the
franchisee, your franchisees won’t be clones of you. They will think and act differently, and your
brand could wind up suffering because of it.
Any legal disputes that must be resolved in mediation or through the court system can be costly
in both time and money, which takes away from the success of the franchise.
3. Initial Investment
While much conversation is devoted to the initial investment that a franchisee must make in the
franchise, that ignores the initial cost that is taken on by the franchisor.
When a franchisor starts a franchise, there’s a startup cost to get the business in operation. A
franchisor must make sure that the franchise agreement is written clearly and reviewed by a
lawyer experienced in franchise law. You may also hire a franchise consultant for expertise
during this process. Starting a franchise requires an initial investment of both time and money on
the part of the franchisor.
And while you don’t have to file your agreement with the federal government, you do have to
file with some states—and you will have to make sure you’re compliant with different state’s
laws. This can be a time-consuming process, but can be made easier with professional guidance.
No Overlapping of Territories
Interested franchisors are aware that overlapping territories affect the performance and
profitability of their franchises. They conduct researches about the population of a certain area as
well as the demographics of target customers prior to awarding it to a franchisee. They also
calculate probable sales according to the results of their research.
Continuing Innovation
Innovation is one of the keys to capturing the attention of modern consumers. You don’t have
something new, you don’t have business. Yes, you can do innovations on your own, but that
would mean investing a great deal of your time, effort and resources. A franchise, on the other
hand, has a department dedicated to creating innovations for the benefit of all franchisees. Thus
you have the advantage of continuing innovation without lifting a finger.
Endless Fees
Initial fees, royalties, marketing fees are the reasons why some people would rather build their
businesses from scratch.
Periodic Inspections
Some people are uncomfortable knowing that somebody else is watching them as they perform
their daily tasks.
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What is integration?
Put simply, business integration (also known as B2B integration, or just B2Bi) refers to the
comprehensive digital strategy that enables the integration, automation and optimization of key
business processes that connect an organization with its trading partners – customers, suppliers,
logistics companies, and financial institutions.
Define merger
A merger is the consolidation of two companies that, prior to the merger, were operating as
independent entities.
A merger usually creates one larger company, and one of the original companies ceases to
exist.
Define acquisition
An acquisition occurs when a company purchases the assets of another business (such as
stock, property, plants, equipment) and usually permits the acquired company to continue
operating as it did prior to the acquisition.
Revenue synergies: Synergies that primarily improve the company’s revenue-generating ability.
For example, market expansion, production diversification, and R&D activities are only a few
factors that can create revenue synergies.
Cost synergies: Synergies that reduce the company’s cost structure. Generally, a successful
merger may result in economies of scale, access to new technologies, and even elimination of
certain costs. All these events may improve the cost structure of a company.
2. Diversification
Mergers are frequently undertaken for diversification reasons. For example, a company may use
a merger to diversify its business operations by entering into new markets or offering new
products or services. Additionally, it is common that the managers of a company may arrange a
merger deal to diversify risks relating to the company’s operations.
Note that shareholders are not always content with situations when the merger deal is primarily
motivated by the objective of risk diversification. In many cases, the shareholders can easily
diversify their risks through investment portfolios while a merger of two companies is typically a
long and risky transaction. Market-extension, product-extension, and conglomerate mergers are
typically motivated by diversification objectives.
3. Acquisition of assets
A merger can be motivated by a desire to acquire certain assets that cannot be obtained using
other methods. In M&A transactions, it is quite common that some companies arrange mergers
to gain access to assets that are unique or to assets that usually take a long time to develop
internally. For example, access to new technologies is a frequent objective in many mergers.
5. Tax purposes
If a company generates significant taxable income, it can merge with a company with substantial
carry forward tax losses. After the merger, the total tax liability of the consolidated company will
be much lower than the tax liability of the independent company.
happens when the managers of a company start favoring the size of a company more than its
actual performance.
Additionally, managers may prefer mergers because empirical evidence suggests that the size of
a company and the compensation of managers are correlated. Although modern compensation
packages consist of a base salary, performance bonuses, stocks, and options, the base salary still
represents the largest portion of the package. Note that the bigger companies can afford to offer
higher salaries and bonuses to their managers.
Ch. 8 Entrepreneurship
What qualifies as a small business? The SBA defines small businesses broadly as those with
fewer than 500 employees, and startups as those in business for a year or less. Yet what
constitutes “small” in a retail shop as opposed to a utility is a very different matter.
What are the four ways small business and entrepreneurs contribute to the economy and explain
them?
1. Fuel the economic engine of the U.S
2. Make economic growth and recovery from cyclical downturns possible
3. Create jobs
4. Are depended on by large
businesses to support
component parts, services,
and product distribution
Define Entrepreneur
An entrepreneur is a person who organizes and manages any enterprise, especially a
business, usually with considerable initiative and risk.
Disadvantages
•Time commitment
•Risk
•Uncertainty
•Financial commitment
What are the six main causes of small business startup failure?
•Lack of planning
•Failure to delegate
•Unwillingness to change
•Forgetting that cash is king
•Lack of objective targets
•Failure to ask the right questions
Economists have analyzed a range of entrepreneurial successes and failures and identified key
issues for up-and-coming business owners to consider carefully ahead of time. Taking them into
account can reduce risk; ignoring them can contribute to failure. If you’re considering
entrepreneurship, ask yourself about the four key issues.
-What are the four key issues?
Motivation
–What is your incentive for starting a business?
Strategy
–What differentiates your business idea and the products or services from others in the
market?
Realistic vision
–How long will it take to make your product or service available?
What are the 10 steps that can help you plan, prepare and manage your business?
1. Write a business plan
2. Get business assistance and training
3. Choose a business location
4. Finance your business
5. Determine the legal structure of your business
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What are the 9 parts of a business plan and what do they need to have within them?
•Executive summary
•Company description
•Market analysis
•Organization and Management
•Service or product line
•Marketing and sales
•Funding request
•Financial projections
Ch. 9 Management
What are the differences between top, middle and first-line managers?
What are the differences between technical, conceptual and human skills for a manager?
Human skill is being able to work with people, technical skill is knowledge in a
given activity or subject, and conceptual skill is the ability to work with new
BA 101A: Business Foundations Midterm 1 Study Guide
ideas (Northouse, 2017). Conceptual skills are used heavily at the executive
level of business.
What are the four principles of Frederick Taylor’s scientific management theory and what does
they mean?
1. Using scientific methods to determine and standardize the one best way of doing a job
2. A clear division of tasks and responsibilities
3. High pay for high-performing employees
4. A hierarchy of authority and strict surveillance of employees
You can help determine the most efficient way of completing a task by experimenting with
several different methods to find out which method takes the least amount of time and the fewest
steps to complete. Scientific management takes these findings and standardizes the most efficient
way of doing the task, retraining employees as needed.
Soon afterward, two management theorists, Frank and Lillian Gilbreth, came up with the idea of
filming workers to analyze their motions. Their ideas have since been combined into one
process (called time and motion studies) for analyzing the most productive way to complete a
task.
According to Baumgart (2009) scientific management was mostly developed in the 1880s and
1890s by Fredrick W. Taylor whose method of time study defined the field. Baumgart (2009)
stated that Taylor observed 75 men who worked repetitively to move pig iron by shovel all day at
the Bethlehem Steel Company.
Then one of his engineers selected a worker and instructed him to follow his directives to the t.
“We want no back talk, when he tells you to walk, you walk and when he tells you to sit down
you sit down”. Consequently, the worker raised his productivity from 12. 5 to 47 tons of pig iron
moved daily and even earned an increased pay from $1.
These observations led him to seek the one best way to perform tasks. He realized that if he
could use a little adjustable table that put the bricks at the same height as the row he was working
on, he wouldn’t have to stoop down to get each brick so e invented a scaffold which permitted
quick adjustment of the working platform so that the worker would be at the most convenient
level at all times. He equipped the scaffold with a shelf for the bricks and mortar, saving the
effort formerly required by the workman to bend down and pick up each brick. He had the bricks
stacked on wooden frames, by low-priced laborers, with the best side and end of each brick
always in the same position, so that the bricklayer no longer had to turn the brick around and
over to look for the best side to face outward.
comprehensive. Employees good behaviour also helps them smoothly build and progress in their
professional careers.
4. Unity of Command-
This means an employee should have only one boss and follow his command. If an employee has to
follow more than one boss, there begins a conflict of interest and can create confusion.
5. Unity of Direction-
Whoever is engaged in the same activity should have a unified goal. This means all the person
working in a company should have one goal and motive which will make the work easier and achieve
the set goal easily.
6. Subordination of Individual Interest-
This indicates a company should work unitedly towards the interest of a company rather than
personal interest. Be subordinate to the purposes of an organization. This refers to the whole chain
of command in a company.
7. Remuneration-
This plays an important role in motivating the workers of a company. Remuneration can be monetary
or non-monetary. However, it should be according to an individual’s efforts they have made.
8. Centralization-
In any company, the management or any authority responsible for the decision-making process
should be neutral. However, this depends on the size of an organization. Henri Fayol stressed on the
point that there should be a balance between the hierarchy and division of power.
9. Scalar Chain-
Fayol on this principle highlights that the hierarchy steps should be from the top to the lowest. This
is necessary so that every employee knows their immediate senior also they should be able to
contact any, if needed.
10. Order-
A company should maintain a well-defined work order to have a favourable work culture. The positive
atmosphere in the workplace will boost more positive productivity.
11. Equity-
All employees should be treated equally and respectfully. It’s the responsibility of a manager that no
employees face discrimination.
12. Stability-
An employee delivers the best if they feel secure in their job. It is the duty of the management to
offer job security to their employees.
13. Initiative-
The management should support and encourage the employees to take initiatives in an organization.
It will help them to increase their interest and make then worth.
14. Esprit de Corps-
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It is the responsibility of the management to motivate their employees and be supportive of each
other regularly. Developing trust and mutual understanding will lead to a positive outcome and work
environment
What are differences between Strategic Plans, Tactical Plans, Operational Plans and Contingency
Plans?
A strategic plan is designed with the entire company in mind, defining the direction and
mission
of a company, leading it from where it is now to where it would like to be in the future.
Strategic
plans are long term in nature and can be considered guides that managers can use to
set
priorities in implementing programs and ensuring that resources (such as personnel and
funding)
are directed toward the organizational objectives. Next, tactical plans need to be
developed to
reach the objectives and goals that are found in the strategic plan. These plans are
more specific
and detailed in nature; they are designed to be achieved in a short time frame and meet
a specific
goal outlined in the strategic plan. These plans turn strategic plans into reality where, for
example, specific departments are responsible for carrying them out in the short term.
These
tactical plans, meanwhile, are implemented through operational plans. Operational
plans are
low-level in nature; they provide specific details and action steps that need to be carried
out.
Compared to tactical and strategic plans, these are more detailed and define specific
activities,
processes, and tasks and procedures that will be accomplished by various departments
and
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individuals to review and show how they are moving toward accomplishing the strategic
goals.
•Duplication of functions
•Coordination across different product departments
•Limited view of organizational goals
The above advantages and disadvantages taken from (Zararain, 2012)
List the three most common types of Management Styles and define them:
1. Autocratic
•Decision-making power is concentrated in the manager.
•Managers do not take any suggestions or consider initiatives from subordinates.
•Is effective for quick decision making but is generally not successful in fostering employee
engagement or maintaining worker satisfaction.
•Can be useful in crisis situations, when it’s impractical to solicit employee input.
2. Laissez-faire
- Known as “hands-off” management because the manager delegates the tasks to the
followers while providing little or no direction.
- Can sometimes result in a lack of productivity, cohesion, and satisfaction.
- Effective when workers have the skills to work independently, are self-motivated, and
are held accountable for results.
- Managers of creative or innovative employees often adopt this approach in order to foster
creativity.
3. Democratic
- Manager shares decision-making authority with group members.
- Can help employees feel more invested in decisions, outcomes, or the choices they’ve
made, because they have a say in them.
- Effective during a transitional period when managers need to guide the workforce
through the change.
- Seeking input from employees at many levels within the organization can uncover people
with invaluable experience, advice, and solutions.
What are the three types of leaders and define them? (slides break this down better than book)
1. Transformational
- Work with subordinates to identify needed change, create and share an inspiring vision,
and bring about change together with committed members of a group.
- Serves to enhance the motivation, morale, and job performance of followers.
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2. Transactional
- Focuses on supervision, organization, and performance.
- Pays attention to their followers’ work in order to find fault or deviation and gain their
compliance through a system of rewards and punishments.
- Two factors that form reward/punishment system: Contingent reward, management by
exception
3. Narcissistic
- Known for being interested only in themselves, at the expense of others, such as
employees or group members.
- Cons: arrogance, self-absorption, and a personal egotistic need for power.
- Pros: takes charge and tend to take control of leaderless groups.
2. Activities
3. Performance
What are the four perspectives that are represented in a balanced scorecard?
1. financial
2. customer
3. Innovation
4. Internal Process
What is the difference between doing operations management for a product versus a service?
The key difference between these roles comes down to the definition of a project versus
operations.
The Project Management Institute, better known as PMI, defines a project as a temporary
endeavor undertaken to create a unique product, service, or result. Business operations, on the
BA 101A: Business Foundations Midterm 1 Study Guide
other hand, are ongoing activities that produce long-term, repetitive outputs, such as
manufacturing products or supplying services.
Therefore, an operations manager’s role is ongoing, whereas a project manager’s role—in
regards to a specific project—is temporary in nature.
Other key differences between the two positions are focused around specific responsibilities,
skills, and education required for success.
Define data
the quantities, characters, or symbols on which operations are performed by a computer, being
stored and transmitted in the form of electrical signals and recorded on magnetic, optical, or
mechanical recording media.
Define information
facts provided or learned about something or someone.
Data Information
BA 101A: Business Foundations Midterm 1 Study Guide
Data is an individual unit that contains raw Information is a group of data that
materials which do not carry any specific collectively carries a logical meaning.
meaning.
Raw data alone is insufficient for decision Information is sufficient for decision
making making
An example of data is a student’s test score The average score of a class is the
information derived from the given data.
Types of layouts
•Process: arrange equipment according to its function.
BA 101A: Business Foundations Midterm 1 Study Guide
What is MRP?
Material-requirements planning (MRP) is a production planning, scheduling,
and inventory control system used to manage manufacturing processes.
MRP systems meets the following objectives simultaneously:
•Ensure materials are available for production.
•Ensure products are available for delivery to customers.
•Maintain the lowest possible material and product levels in store.
•Plan manufacturing activities, delivery schedules, and purchasing activities.
Operations managers must accurately forecast the need for materials, since even the slightest
deviation can result in a slowdown of production.
CPM calculates the longest path of planned activities (expressed in time) to logical end points
or to the end of the project, and the earliest and latest that each activity can start and finish
without causing a delay to determine which activities are “critical” and which can be delayed
without extending the overall project duration
On the other hand, the Critical Path Method or CPM is apt for the projects which are recurring
in nature.
BASIS FOR
PERT CPM
COMPARISON
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What is it? A technique of planning and A method to control cost and time.
control of time.
Define CAD
cad | Business English. abbreviation for computer-aided design; computer-assisted design: the
use of computers to help design products: An office worker is now using a CAD system to plot
production process flow, a job previously reserved only for engineers.
Define CAM
Computer-aided manufacturing ( CAM) also known as Computer-aided Modeling or
Computer-aided Machining is the use of software to control machine tools and related ones in the
manufacturing of work pieces.
What is CIM?
A CIM, also referred to as the "book" will typically include the following:
● A detailed description of the business and its operations;
● A summary of the industry and opportunities within the market;
● Financial information including analysis of historical results and future projections; and
● A summary of the auction process including the proposed structure of the deal and timing
for receipts of expressions of interest or letters of intent.
What is FMS?
● A flexible manufacturing system (FMS) is designed up front to be readily adapted to
changes in the type and quantity of goods being produced.
● Production is largely automated, reducing overall labor costs.
BA 101A: Business Foundations Midterm 1 Study Guide
● An FMS system is, however, more expensive to design and put in place and requires
skilled technicians to keep it running.
What is a 3D Printer?
a machine allowing the creation of a physical object from a three-dimensional digital model,
typically by laying down many thin layers of a material in succession.
Managers in both areas oversee people, parts, and supplies. They both require the ability to communicate
across departments internally and externally, to lead people and teams, and to manage human capital.
If you’re a skilled engineer or technician, but need to add these skills, a master’s degree in operations
management or supply chain management provides the information, training, and knowledge needed.
“Overall, supply chain is sourcing and moving both the raw materials and the finished product.
Operations management is the part in the middle where the product is created from the raw materials.
Supply chain is how you get it and get it to customers. Operations is how you make it,” stated Lee
Buddress, an Associate Professor of Supply and Logistics Management at Portland State University.
What are the 6 elements that most Supply Chains have within them?
To attain that goal, the supply chain management should realize that the success is in the six key elements. The six
key elements of supply chain are production, supply, inventory, location, transportation and information.
Logistics activities include inbound logistics or outbound logistics. Inbound logistics refers to the sourcing,
expediting and receiving of goods, that is coming to the business organization. On the other extreme, outbound
logistics is all about warehousing, packaging and transporting of goods, going out of the organisation.
Logistics is nothing but the management of the movement of materials, information and other resources between
two points, i.e. from the point of inception to the point of consumption, to conform to the requirements of the
customers and the organisation. Logistics management determines the procurement, storage and transportation of
goods and material to their ultimate destination.
BASIS FOR
INBOUND LOGISTICS OUTBOUND LOGISTICS
COMPARISON
Meaning The influx of raw material and The outward movement of final
parts, from suppliers to the goods, from the company to the
manufacturing plant, is known as end user, is known as outbound
inbound logistics. logistics.
BA 101A: Business Foundations Midterm 1 Study Guide
Interaction Between supplier and the firm Between firm and customers
What is SPC?
Statistical process control (SPC) is a method of quality control which employs statistical methods to monitor and
control a process. This helps to ensure that the process operates efficiently, producing more
specification-conforming products with less waste (rework or scrap). SPC can be applied to any process where the
"conforming product" (product meeting specifications) output can be measured. Key tools used in SPC include run
charts, control charts, a focus on continuous improvement, and the design of experiments. An example of a process
where SPC is applied is manufacturing lines.
What is Benchmarking?
Comparing business processes and performance metrics to industry bests and best practices from other
companies.
Remember, Mistakes in an operation that result in defective products, even if they represent only 1 percent of total
output, can alienate millions of customers.