Building an effective operation

management and control

management

1 WEEK 5 – Part 2
2
Learning objectives

 At the end of the topic, students should be able to:

 1. to understand the roles of suppliers and the needs to create and maintain
the supplier relationship management.
 2. identify factors in selecting the suitable locations for businesses.
 3. explain the principles of effective layout and design a layout of the
proposed business.
3 Suppliers

Expectations:
High quality supplies Impacts:
Good price Quality
Sufficient supplies Price
Timely
4
 Power of suppliers
5

Microsoft’s power as a suppliers of computer operating systems is

enhanced by the threat that it might enter the PC industry if PC
makers talk too much at the cost of its software or threaten to use
an operating system from different software provider

A farmer, i.e., a producer of vegetables, directly sells his products

at the farmer’s markets.

A bicycle tyre manufacturer starts manufacturing bicycles, i.e., the

end product.
 Suppliers
6
 Suppliers and supply chain
7
8
Suppliers and product life cycle
9 Role of suppliers
Understand requirement and specifications
Keep incoming inspection
Check before dispatch
Suggest low-cost alternatives
Keep inventory of regular items
Packing and dispatch
Quick and proper documentation
10 Supplier relationship management (SRM)
 SRM is a process in business by which an  Some considerations:
organisation systematizes its interactions  What kind of information that can be
with individuals or organises the delivery provided and shared with suppliers
of raw goods and services (trust).
 Suppliers need to feel that they bring
  SRM can be implemented through a good value to our business (sense
of belonging).
software, making it possible for
organisations to effectively perform
business transactions, request goods or
services and automate the entire process
between the organisation and its suppliers.
11
12
Benefits of SRM
Suppliers
 Reduced costs
 Managing suppliers relationship means
they engage and commit in doing
business with our company for a long
time. Communication and related costs
can be minimised.
 Process improvements
 Feedback and continuous communication
can improve understanding about the
nature of business, the materials needed
and when they are needed.
Our business
 Reduced costs
 Obtaining many different materials from
a small number of suppliers is better than
having many different suppliers
(subjective)
 Process improvements
 Suppliers’ understanding can ensure we
receive our order on time and meet
specification.
13
14 Layout

 The logical arrangement of the physical facilities in a business that

contributes to :
 The efficiency in operation
 An increased productivity

 An effective layout helps a company to:

 Recruit people
 Reduce absenteeism
 Improve employee productivity and satisfaction
15 Layout
 Some considerations:
 Smooth flow of raw materials
 Safe and conducive working environment
 Should reflect the character and culture of a company
 Comfortable – employees and customers
 Can be rearranged easily to accommodate different task, technology and types
of work
 Layout
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Open office layout  Advantages:

 Minimum space is utilised
 Improving communication
 Productivity remains intact
 Ideas exchange
 Improve employer-employees
relationship
 Easy supervision

 Disadvantages:
 Noisy
 Lack of security
 Seniority overlooked
 Lack of concentration and privacy
 Layout
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Factors that have impact on space’s layout and design
 1. Size and adaptability  6. Building interiors
 Adequate space-customers’ movement, inventory,  cleanliness and images
display, storage, work areas, offices and restrooms.
 Ergonomics- work environment that complement
 2. Construction and appearance employees’ strengths and suits with customers’
needs.
 Soundness of construction, attractive external and
internal appearances.  7. Sight, sound, scent and lighting
 3. Entrances  Use colour and visuals, sounds, and proper lighting
to support company’s brand and image. Create
 Should invite customers, remove barriers with scent as a sales tool.
customers
 8. Drive-through windows
 4. Needs for people with disabilities
 9. Sustainability and environmental friendly
 Providing facilities for employees and customers with
disabilities.
design
 E.g. the use of recycled paper bag, green outlet.
 5. Signs
 As a guideposts for a business.
18
19 Kitchen layout- bakery
20 Shop layout- bakery
21 Location
 The choice of location will be determined by:

 Type of business- Service, trading/manufacturing

 Distance from the source of raw materials
 Availability of labour
 Transportation facilities
 Distance from customers
 Price of premises
 Availability of services- e.g. utilities, banks, safety
 Parking areas
22
The index of retail saturation (IRS)

 Takes into account:

 Number of customers
 Intensity of competition
 Measure the potential of sales per square foot of store space for a
given product within a specific trading area.

 C=number of customers in the trading area

 RE = retail expenditure/average expenditure per person for the product in the trading area.
 RF = retail facilities/total square feet of selling space allocated to the product in the trading area.
 The index of retail saturation (IRS)
23
 Illustration:
Suppose an entrepreneur who is looking at two sites for a shoe store finds that he
needs sales of RM175 per square foot to be profitable.

Site 1 has a trading area with 25,875 potential customers who spend an average of
RM42 on shoes annually. The only competitor in the trading area has 6,000 square feet
of selling space.

Site 2 has 27,750 potential customers spending an average of RM43.50 on shoes

annually, two competitors occupy 8,400 square feet of space.

Which site should be selected by the entrepreneur?

24
25 Operation costs

Types Details
Direct material cost Costs of materials that are directly used to produce products or services.
Direct labour cost Cost of workers who involved directly in the production of products or
services, e.g. salary, wages or benefits
Overhead costs Other costs incurred but are not directly for the production of products or
services.
26 Operation costs
Example: production of biscuits

Types Details Costs Cost per biscuit

Direct material cost Flour, eggs, butter, sugar, water RM7,150 RM13150.00
Direct labour cost Direct labour salaries RM6,000 50,000 biscuits
=RM0.263/biscuit
Overhead costs Rent, utilities, depreciation of RM6,000
machines

Direct materials

0.02kg/unit x 50,000 =1,000 kg Flour RM3/kg RM3,000 Direct labour= 6 workers x RM1000
= RM6,000
0.005 kg/unit x 50,000 = 250 kg Butter RM8/kg RM2,000

0.01 kg/unit x 50,000 = 500 kg Sugar RM2.50/kg RM1,250

2,000 eggs Eggs RM0.30/egg RM600

0.005 liter/unit x 50,000 = 250 liters Water RM1.20/liter RM300

 Operation plan
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Contents:
1) Operation activities
2) Flow chart
3) Raw materials
4) Manpower
5) Machines and equipment
6) Layout
7) Location
8) Operation budget