Chapter 7

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP
THE OPERATIONS PLAN
CHAPTER 7
OPERATION PLAN

THE OPERATIONS PLAN
INTRODUCTION
Operation is one of an important function in a

business organization
Managing operations is crucial to make sure that

the business is able to produce product or deliver
services according to the specification, quality and
time specified by the customer
Operations management can be defined as the

process of marshalling business input to transform
them into output in the form of product or services

THE OPERATIONS PLAN
Components In An Operations
System
The components of an operations system that is

involved in the transformation of business input into
output comprises of the following:
Business Input
Transformation Process
Output
Feedback
External Environment

THE OPERATIONS PLAN
Schematic Diagram Of An
Operations System
External Environment Factors
Input
Transformation
Transformation
Process
Process
Feedback
Output

THE OPERATIONS PLAN
OPERATIONS PLAN
The operations plan is the one of the section

that is included in the business plan
This section will demonstrate the operational
aspect of the business that is crucial in
transforming the business input into output
The operations plan will ensure the business is
able to produce the product or to provide the
services that the business had planned in the
marketing plan

THE OPERATIONS PLAN
OPERATIONS PLAN
The operations plan comprises of the following topics:

Process Planning
Operations Layout
Production Planning
Material Planning
Machine and Equipment Planning
Manpower Planning
Overheads Requirement
Location Plan
Business and Operations Hours
License, Permits and Regulations Required
Operations Budget
Implementation Schedule

THE OPERATIONS PLAN
PROCESS PLANNING
Process planning involve the identification of the stepby-step processes from beginning to end in making
the product or in providing the services
For manufacturing business, the processes involved

will be explained clearly such as the activity involved,
its duration and the equipment used
For service business, the process planning will explain

all the steps that should be taken from start to finish
to provide the service to the customer

THE OPERATIONS PLAN
PROCESS PLANNING (Cont.)
The step by step processes can be illustrated

using diagram such as a flow chart or a process
chart
The process chart will use symbols that are

universally recognized in the operations
management field
These symbols are also used in the job activity

chart to show a workers activity

THE OPERATIONS PLAN
OPERATIONS LAYOUT
Illustrate the layout of the operations
Layout refers to the arrangement of machine, equipment,

workers and other facilities used in the operations
The layout must be 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 process
o Layout based on product
o Layout based on marketing

THE OPERATIONS PLAN
Types of Layout
10
Layout Based On Product

This type of layout is suitable for a business
that has product focus or continuous flow
production
The design of this layout is made according
to the sequence of activities to product the
product
Example of a business that have this kind
of layout is a food processing factory

THE OPERATIONS PLAN
Example of Product Layout
11

THE OPERATIONS PLAN
Types of Layout
12
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 restaurants and a tailor store

THE OPERATIONS PLAN
Example of Process Layout
13

THE OPERATIONS PLAN
Types of Layout
14
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

THE OPERATIONS PLAN
Example of Marketing Layout
15

THE OPERATIONS PLAN
PRODUCTION PLANNING
16
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

THE OPERATIONS PLAN
Example of calculation for

output per day
Average sales forecast per month
Price per unit
17
= RM 25,200.00
= RM 15.00
Number of output per month

25,200.00 / RM 15.00
= RM
= 1,680
units
If the number of working days per month is 24 days

,the amount of output to be produced per day is:
= 1,680 units / 24 days
= 70 units per day

THE OPERATIONS PLAN
MATERIAL PLANNING
18
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

THE OPERATIONS PLAN
MATERIAL PLANNING (Cont.)

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
19

THE OPERATIONS PLAN
MATERIAL PLANNING (Cont.)
20
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:
Specification
21
Product No.
Description
Quantity
101
Half hollow wood
17 cm long
102
Lead
17 cm long
1.5mm diameter
103
Eraser
0.75 cm long
6mm diameter
104
Metal band
2 cm long
105
Paint
0.5 ml
106
Glue
0.5 ml
Examples of Materials Requirement

Schedule
Material
Quantity
22
Safety
Stock
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
330
Margarine
100 Kg
10
110
220
Total
803

THE OPERATIONS PLAN
MACHINE & EQUIPMENT

PLANNING
Steps to determine machine and equipment requirement:
23

THE OPERATIONS PLAN
Factors To Be Considered In
Purchasing Machine And
Equipment
Price
Quality and reliability
Availability of spare parts
Break down maintenance facility
Technology & user friendly
Supplier reputation
After sale services
24
Examples of Machine & Equipment

Requisition Planning Schedule
No.
Machine
1.
2.
3.
Mixer
Cutter
Cash Register
Total
Price / Unit
Quantity
(RM)
1
2
1
2000
1000
1500
Total
Price
(RM)
2000
2000
1500
5500
25

THE OPERATIONS PLAN
Steps To Determine Quantity

For Machine & Equipment
26
1. Determine the planned rate of production per

day
2. Determine the standard production time
per unit for the planned machine
3. Determine the machine productive time:
Operation hours (Setting up time +
Down Time)
4. Calculate the amount of machine required
using the formula given in the next slide

THE OPERATIONS PLAN
Steps To Determine Quantity

For Machine & Equipment
(Cont.)
27
Formula To Calculate the amount of machine

require:
No. of
Machine
Required
Planned Rate of Production per day

Machine Productive Time per day
Standard
Production
Time / Unit

THE OPERATIONS PLAN
MANPOWER PLANNING
Steps to determine the amount of direct labor
required by the venture:
28

THE OPERATIONS PLAN
Formula To Calculate The Amount Of

Direct Labor Required
29
No. of
Worker
Planned Rate of Production per day
X Standard
Worker =
Worker Productive Time
Require
Production
per day
d
Time / Unit

THE OPERATIONS PLAN
Example of Direct Labour

Planning Schedule
No Position
Operation
Manager
2
Total
No. of
Staff
Required
Salary/
Month
(RM)
EPF
(RM)
13 %
2000.00
260.00
30
Socso
(RM)
2%
Total
(RM)
2260.00

THE OPERATIONS PLAN
Overheads Requirement
31
Determine the overheads that are required

in the operations
Overheads refers to requirements other than
direct raw materials and direct labour
Examples of overheads are indirect labour
costs, indirect material, insurance,
maintenance and utilities

THE OPERATIONS PLAN
LOCATION PLAN
32
The entrepreneur has to make decision

which premise is the best for the business
to operate
Choice of location is important because it
will affect:
Sales revenue
Business operation cost
Long term investment

THE OPERATIONS PLAN
Factors that Influence the

Choice of Location
33
1.
MANUFACTURING ACTIVITY
Priority should be given to the cost factors
In manufacturing cost saving would contribute to profit
2.
SERVICE ACTIVITY
In service priority should be given to distance from
market or customers.
Distance from customers will influence sales revenue
In service business cost saving may not contribute to
sales revenue
Increase in revenue will contribute to increase in profit

THE OPERATIONS PLAN
Factors that Influence the

Choice of Location (Cont.)
Distance from raw
material / suppliers
Labor supply
Transportation
Price of Land or
rentals
Infrastructure
Climate
34
Local Government
Policy
Security
Facility for expansion

and business
development

THE OPERATIONS PLAN
Business And Operations

Hours
35
Business hours refer to the time the business is

open to the customers
Operation hours refer to the hours the workers
have to work.
For manufacturing, usually the business will
operate on 8-hours per shift. Thus the
entrepreneur will only decide whether the
business will runs for one shift or more. This will
depends upon the planning for production

THE OPERATIONS PLAN
Business And Operations Hours

(Cont.)
36
For service business, the entrepreneur will has to state the

business hours in terms of days and hours
For example, a restaurant may open to the customer from

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.

THE OPERATIONS PLAN
License, Permits And

Regulations
37
Find out and list down all the license/permits/

regulations that are required to operate the
business
Identify which agency is responsible to approve the
particular license/permit
For example, a restaurant among others will need
the following license/permit/regulations:
o License for signboard
o Permits for emigrant workers
o Typhoid injection for the workers

THE OPERATIONS PLAN
Operations Budget
38
The business need to estimate the budget for the

operations activities
The operations budget can be categorized into:

Fixed asset expenditure
Monthly expenses
Other expenses
This operation budget is important because it will

be one of the input to prepare the financial plan

THE OPERATIONS PLAN
Operations Budget (Cont.)
39
Fixed Asset Expenditure

o Refers to the investment on long term assets used
in the operations to produce the product or
services
o Examples are the purchase of machines and
equipment
Monthly Expenses
o Refers to the payment made every month in the
operations department
o Examples are wages for workers and raw
materials purchased

THE OPERATIONS PLAN
Operations Budget (Cont.)
40
Other Expenses
o These are expenses that are made and could not
be categorized as fixed asset expenditure or
monthly expenses
o Examples are deposits and insurance

THE OPERATIONS PLAN
Example of Operations
Budget
Item
Fixed Asset
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
Total
RM 80,500
41
Monthly
Expenses
Other
Expenses
RM 20,000
RM 6,500
RM 600
RM 3,000
RM 6,000
RM 1,000
RM 30,100
RM 7,000

THE OPERATIONS PLAN
42
Implementation scheduling involves sequencing

and allotting time to all project activities
To prepare implementation schedule,

entrepreneurs has to decide how long each
activity and compute the requirement on people
and other resources
Scheduling normally use Gantt Chart which is a

planning chart used to schedule resources and
allocate time

THE OPERATIONS PLAN
The Importance of Project

Scheduling
43
Project scheduling serves several purposes:

1. It shows the relationship of each activity to
others and to the whole project
2. It identifies the precedence relationship
among activities
3. It encourages the setting of realistic time and
cost estimate for each activity
4. It helps make better use of people, money
and material by identifying critical bottlenecks
in the project

THE OPERATIONS PLAN
Example of Project
Activities
44
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

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ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

THE OPERATIONS PLAN

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

Operation is one of an important function in a

Managing operations is crucial to make sure that

Operations management can be defined as the

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

The components of an operations system that is

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

External Environment Factors

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

The operations plan is the one of the section

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

The operations plan comprises of the following topics:

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

For manufacturing business, the processes involved

For service business, the process planning will explain

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

PROCESS PLANNING (Cont.)

The step by step processes can be illustrated

The process chart will use symbols that are

These symbols are also used in the job activity

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

Illustrate the layout of the operations

Layout refers to the arrangement of machine, equipment,

The layout must be design in such a way that the

There are three types of layout:

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

Layout Based On Product

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

Example of Product Layout

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

Layout Based On Process

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

Example of Process Layout

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

Layout Based On Marketing

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

Example of Marketing Layout

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

It is important to make sure that the business is

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

Example of calculation for

Number of output per month

If the number of working days per month is 24 days

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

Material planning is done to determine the type

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

MATERIAL PLANNING (Cont.)

Usually in manufacturing business, the raw

For example, to manufacture pencils, raw

In case of retail business, the raw materials is

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

MATERIAL PLANNING (Cont.)

Prepare the bills of materials:

The bills of materials will contains a complete

To prepare the bill of material, the entrepreneur

This bill of material is important information for

Example of Bills of Materials

Half hollow wood

Examples of Materials Requirement

ENT/ETR300 FUNDAMENTALS OF ENTREPRENEURSHIP

MACHINE & EQUIPMENT