978-1259912191 Chapter 12 Lecture Notes

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Chapter Twelve: Establishing Operations

Table of Contents

Brief Chapter Outline…………………………………………………………………………………..2

Chapter Outline and Lecture notes………………………………………………………………..4

Key Terms……………………………………………………………………………………………….. 12

Suggested Text Responses………………………………………………………………………..

…13

Class Activities and Sample Assignments…………………………………………………….15

Discussion Questions for Online/Hybrid classes…………………………………………….17

Lecture Links…………………………………………………………………………………………… 20

Lecture Link 12.1: The Federal Reserve System (Fed)……………………………..20

Lecture Link 12.2: Federal Deposit Insurance Corporation (FDIC)………………22

Lecture Link 12.3: Time Management and Stress Reduction Techniques…….24

Bonus Internet Exercises…………………………………………………………………………… 25

Bonus Internet Exercise 12.1: Establish the Bank Relationship………………….25

Bonus Internet Exercise 12.2: Bank Failures and the FDIC………………………..26

Bonus Internet Exercise 12.3: Location Strategy and the New Small Business

……………………………………………………………………………………………………….. 27

Critical Thinking Exercises…………………………………………………………………………. 28

Critical Thinking Exercise 12.1: Planning and Operations Assessment……….28

Critical Thinking Exercise 12.2: Establishing Finance and Legitimacy…………30

Critical Thinking Exercise 12.3: Critical Path Table and Charting……………….33

Bonus Cases……………………………………………………………………………………………. 35

Bonus Case 12.1: Conferences and Operations Planning for the New

Entrepreneur…………………………………………………………………………………….. 35

Bonus Case 12.2: Communication Enhances Operational efficiency…………..37

Bonus Case 12.3: Contingency Planning for the New Small

Business……………………….…38

Endnotes………………………………………………………………………………………………… 39

Brief Chapter Outline

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Chapter Twelve: Establishing Operations

I. Learning Objectives (text page 224)

Discuss the use of a critical path chart.

Describe how location can be used as a competitive advantage.

Discuss the important issues in the financing considerations of new firms.

Distinguish between the various methods with which a new firm establishes

legitimacy in the market.

Explain the importance of production management in start-up ventures.

Explain how production charting is accomplished.

Describe the importance f quality as a competitive tool.

Discuss the type and condition of equipment needed at start-up.

Explain how timing is a competitive advantage.

Recognize the issues related to time management in the starting of a new

business.

II. The Use of a Critical Path Chart (text page 227)

Learning Objective 12-1: Discuss the use of a critical path chart.

III. How Location Can Be Used as a Competitive Advantage



Learning Objective 12-2: Describe how location can be used as a competitive

advantage.

IV. The Important Issues in the Financing Considerations of New Firms



Learning Objective 12-3: Discuss the important issues in the financing

considerations of new firms.

V. The Various Methods with Which a New Firm Establishes Legitimacy in the

Market



Learning Objective 12-4: Distinguish between the various methods with which a

new firm establishes legitimacy in the market.

VI. The Importance of Production Management in Start-Up Ventures



Learning Objective 12–5: Explain the importance of production management in

start-up ventures

VII. How Production Charting Is Accomplished

Learning Objective 12-6: Explain how production charting is accomplished

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Chapter Twelve: Establishing Operations

VIII. The Importance of Quality as a Competitive Tool

Learning Objective 12–7: Describe the importance of quality as a competitive

tool

IX. The Type and Condition of Equipment Needed at Start-Up

Learning Objective 12–8: Discuss the type and condition of equipment needed at

start-up

X. How Timing Is a Competitive Advantage

Learning Objective 12–9: Explain how timing is a competitive advantage

XI. Issues Related to Time Management in the Starting of a New Business

Learning Objective 12-10: Recognize the issues related to time management in

the starting of a new business

XII. For Review (text page 241)

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Chapter Twelve: Establishing Operations

Chapter Outline and Lecture notes

1. Learning Objectives (text page 224)

Discuss the use of a critical path chart.

Describe how location can be used as a competitive advantage

Discuss the important issues in the financing considerations of new firms.

Distinguish between the various methods with which a new firm establishes

legitimacy in the market.

Explain the importance of production management in start-up ventures.

Explain how production charting is accomplished

Describe the importance of quality as a competitive tool

Discuss the type and condition of equipment needed at start-up

Explain how timing is a competitive advantage

Recognize the issues related to time management in the starting of a new

business.

2. The use of a Critical Path Chart (text pages 227 through 230)

Learning Objective 12-1: Discuss the use of a critical path chart.

A. Defining a critical path chart (text page 228)

i. A critical path chart demonstrates how the activities necessary to

start the firm fit together and build on each other. The chart allows

you to understand which activities can occur concurrently and

which must already be in place before the next activity can occur

B. The purpose of a critical path chart is to focus the owner’s efforts so there

are no slow downs

C. A small business owner establishes criteria to construct a critical path

chart

i. The amount of time needed to complete the key tasks required to

open new business

ii. The amount of time the owner needs to be involved in new

business activities

iii. The prerequisite tasks

iv. Identification of the person responsible for task implementation

D. A small business owner lists the critical tasks needed to meet the required

deadlines in order to develop the new business

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Chapter Twelve: Establishing Operations

E. The critical path chart demonstrates how the criteria of critical tasks are

linked together

F. The longest path in the critical path chart reveals the set of activities that

are dependent on other activities and which activities take the longest time

to complete

G. The critical path chart reveals the activities that can be accomplished at

the same time

i. i.e. Opening a bank account and setting up the financing activities

for the new small business

H. A critical path chart assures the entrepreneur that they have all the

important business activities necessary to establish the new business

have been covered

I. A critical path chart to provide the amount of data that is deemed

necessary to initiate the new small business

J. Some charts are simple while others are quite complex

K. Software packages can be purchased to help develop a task chart to

produce a critical path chart

3. How Location Can Be Used as a Competitive Advantage (text pages 230

through-232)

Learning Objective 12-2:Describe how location can be used as a competitive

advantage

A. An important step in the critical path chart is the identification and

purchase/lease of location for the new business

B. Defining a strip shopping center

i. A small retail center that is located typically along a major road. The

center has only small businesses and the center itself occupies

only a small strip of land along the major streets

ii. Other characteristics include cheap rent and, typically one-story

retail centers, usually parallel to a well-traveled street

C. Defining anchor stores

i. Major retail store which anchor(s) other retail stores

D. Doing location analysis

i. It is used to evaluate the amount of traffic in a location

ii. It is used to analyze the amount of money needed to reach

short-term and long-term goals

iii. It considers expansion options

iv. A proper location provides the business with legitimacy

E. Commercial real estate firms provide useful information

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Chapter Twelve: Establishing Operations

i. They have reputable agents

ii. The costs for the realtor are paid by building owner

4. The Important Issues in the Financing Considerations of New Firms (text pages

232 through 233)

Learning objective 12-3: Discuss the important issues in the financing

considerations of new firms

A. These are the financial issues related to start-up operations

B. The new business requires capital to establish the business and acquire

resources (text pages 232 through 233)

i. Security deposits

ii. Utility set-up fees

iii. Purchase/lease of initial equipment and installation

iv. All licenses and inspections

v. All initial supplies

vi. Hiring and training of the initial staff

vii. Initial advertising expenses

viii. Bank relationships

1. Establish great relationships with the bank

2. Establish a revolving line of credit, also known as working

capital

3. Acquire a business credit card

4. Set up a business checking account

a. Should have a primary signatory and a confirmation

signatory

b. Should limit the amount of a check written without a

countersignature

5. Select a local bank

6. Select a bank with expertise understanding small business

cash flow

7. Compare the expertise of banks with other small business

owners

5. The Various Methods with Which a New Firm Establishes Legitimacy in the

Market (text pages 233 through 234)

Learning Objective 12-4: Distinguish between the various methods with which a

new firm establishes legitimacy in the market

A. Defining legitimacy

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Chapter Twelve: Establishing Operations

i. The acceptance by key stakeholders such as customers and

suppliers that you are a genuine business that will still be in

operation next year

B. Perception of legitimacy is critical to long-term survival of the business

C. Professionalism projects legitimacy

D. Items that establish legitimacy

i. Business checking account with the name of the business

1. Possibly starting with a high check number

ii. Business credit card

iii. Bank line of credit

iv. Professional business cards

v. Business stationary

vi. Professional advertising material

vii. Business address uniformly listed on stationary, business cards,

letterhead, and other correspondence

viii. Job titles used liberally

ix. Telephone answering support

x. High-quality web page

xi. Board of directors or advisors with excellent community visibility

xii. Endorsements from well-recognized and respected individuals

6. The Importance of Production Management (text page 234)

Learning Objective 12-5: Explain the importance of production management in

start-up ventures

A. Defining production management systems (text page 234)

i. The process or steps that are involved from production to actually

receiving money

B. All businesses have production systems

C. All production systems have preferred operations

D. Production systems may or may not be codified

E. Consistent handling of unusual circumstances is assured

F. Employee focus is enhanced by production management

7. How Production Charting Is Accomplished (text pages 235 through 237)



Learning objective 12–6: Explain how production charting is accomplished

A. A production chart is defined

i. A chart that provides a detailed understanding of a firm’s production

process

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Chapter Twelve: Establishing Operations

B. Franchises are successful because their methods of operation are well

established

C. A production chart is similar to a critical path chart

i. Production charts detail steps that occur in the production process

ii. Step by step visualization of process to provide customer with

product

iii. Some steps occur simultaneously and others occur concurrently

D. Process is sequential because firms have limited personnel

E. Charts can be complex

F. Retail firms have production processes

i. Goods enter store

1. Counted

2. Tagged

3. Stocked

4. Sold

5. Detagged and bagged

6. Goods that are not sold moved to clearance area

G. New small business owners discuss popular production process systems

with other business owners in their industry

H. Not feasible to start a new production process system

i. Waste of time and money

8. The Importance of Quality as a Competitive Tool (text pages 237 and 238)

Learning Objective 12-7: Describe the importance of quality as a competitive tool

A. New small businesses invest in quality

B. Quality is assumed to be standard in most industries

C. Dr. W. Edwards Deming is the father of quality movement in the United

States

i. Argued that quality needs to be constantly and consistently

improved

ii. Developed a continuous set of measures for various processes in

organizations

iii. Stated that the performance of processes cannot be judged without

recorded data

iv. Stated that organizational goals for quality should not drive all

actions

1. Firms might make short-term decisions detrimental to

overall direction of the company

v. Suggested that firms be guided by the scientific method

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Chapter Twelve: Establishing Operations

1. Focus is to change only one thing at a time and

measure the impact of that change

2. Results reveal the firm is moving in the right direction

and that the each change has a true impact

3. Rather than focusing on suppliers with the lowest

prices, firms should focus on the quality of the

supplier’s inputs. Deming argues that without quality

inputs the output has no chance to be high quality

vi. Defining strategic alliances

a. Firms join together to form long-term, mutually

beneficial relationships

i. Firms seek out long-terms relationships with

suppliers to meet price, supply, and

high-quality product.

ii. Consistent inputs help the firm produce a

consistent output

9. The Type and Condition of Equipment Needed at Start-Up (text pages 238 and

239)

Learning objective 12-8: Discuss the type and condition of equipment needed at

start-up

A. Acquire equipment for the new small business

i. It is very expensive to purchase new equipment.

ii. The new small business owners must evaluate equipment needs

1. When will the equipment be needed?

2. When will equipment need to be replaced?

3. What is the long-term outcome of whether or not to purchase

new equipment or used equipment

iii. Various methods of acquisition

1. Purchasing new equipment guarantees it is the most current

in the market

a. It will be most expensive

b. It’s delivery may be delayed

c. New equipment depreciates as much as fifty

percent in the first year

2. Purchasing older equipment is risky

a. Quality may be poor

b. It may not be available

c. Older equipment should be researched

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iv. Develop a comparison chart

1. Compare prices

2. Compare advantages and disadvantages of buying new,

used, or leased equipment

3. Assess overcoming a cash flow crunch

4. Determine the impact on the quality output of the firm

5. Determine the long-term impact of the purchase if small

business grows and prospers

10.How Timing Is a Competitive Advantage (text page 239 and 240)

Learning objective 12-9: Explain how timing is a competitive advantage

A. New small business owners must evaluate their timing strategies to

determine the appropriate time to initiate the business

B. Start-up timing should be determined by several factors

i. General environment

ii. Competitor moves

iii. Cyclical considerations in regards to purchasing and supply

patterns

iv. Lifestyle issues

C. The economy should be evaluated for cyclical trends

i. Boom

ii. Slowdown

iii. Recession

iv. Growth

D. Competitor moves should be taken into account

i. Direct competitors

ii. Other competitions

iii. Business failures competitors

11. The Issues Related to Time Management in the Starting of a New Business (text

pages 231 through 232)

Learning objective 12-10: Recognize the issues related to time management in

the starting of a new business

A. Evaluate the steps in the time management process

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Chapter Twelve: Establishing Operations

i. Write down what needs to be accomplished in all parts of the

business

ii. Prioritize which tasks are critical and which would just be helpful

iii. Segment items to be done between short term and long term

iv. Allocate time for dealing with operational issues

v. Make a check list of critical items to be completed and check them

off when they are complete

1. Notebooks

2. PDA’s

12.For Review (text page 241)

Key Terms

Anchor Stores: Major retail stores, such as department stores in a mall. They serve as

the anchor for the retail establishment. (LO 12-2)

Critical Path Chart: Chart that demonstrates how the activities necessary to start the

firm fit together and build on each other. This chart allows you to understand which

activities can occur concurrently and which must already be in place before the next

activity can occur. (LO 12-1)

Legitimacy: The acceptance by key stakeholders such as customers and suppliers that

you are a genuine business that will still be in operation next year. (LO 12-4)

Production Chart: A chart that provides a detailed understanding of a firm’s production

process. (LO 12-6)

Strategic Alliances: The joining together of firms to form long-term, mutually beneficial

relationships. (LO 12-7)

Strip Shopping Center: A small retail center located typically along a major road. The

center has only small businesses and the center itself occupies only a small strip of land

along the major street. (LO 12-2)

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Chapter Twelve: Establishing Operations

Suggested Text Responses

Opening Vignette “Weed maps – The Yolk Ox Marijuana Buying – p. 225

Student responses will vary.

Exercise 1 – p. 230

Student responses will vary.

Ethical Challenge – p. 231

Student responses will vary.

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