Lesson 4 The 4Ms of Operations

Learning Outcomes

 Describe the 444 Manpower Method, Machine, Materials) of operations in relation to the
business opportunity
 Develop the business model
 Forecast the revenues of the business
 Forecast the costs to be incurred
 Compute the profits
 Create the company's five-year projected financial statement
INTODUCTION

If Sales is the engine that powers Auto Salvage yards then Production is the drive train that gets us
where we are going. Production is both reactive and proactive almost simultaneously, it reacts to what
is sold today and must meet the expectations set by the cafes team. It must also anticipate what most
likely will be needed in the near future. The key for production is to have procedures and processes that
can accomplish both. Once the procedures are set up to maximize efficiency, it is time to train the
production staff on their individual responsibilities centered an red on the 4 Ms of Production.

Production Driven by Sales

The buyer buys vehicles based on statistics of what has been sold and what has been searched. By the
same token, production managers should decide how many and what part to take off a vehicle based on
statistics or what has been sold and searched for on the vehicle. Why put labor into parts that make up
less than 20% of sales? Why spend pesos chasing nickels? With today's inventory management system,
the production managers have an unprecedented amount of information at their fingertips and they
need to learn how to use it.

4 Ms of Production
1. Use the Inventory Management System to establish what is needed and at what inventory stock
levels impacts the first M-Method. Based on what is known, the manager can determine the
volume of cars that need to be processed and who will be responsive for each stop of the
process. The manager will determine the most efficient way for each part of the process to be
done to eliminate damage to the product and to eliminate areas where time and manpower are
wasted. Controlling waste is the key to efficient and profitable production.
2. The second M is manpower. When examining the methods which are now in place, what is
the ideal number of people it will take to perform these methods and what positions should
they be in? How will the personnel be trained and measured for performance? What is the
"cycle time” of each part of the Method?
3. Machine is the third M in the sequence. When examining the facilities, vehicles and tools, is
everything needed in place to ensure the safety of the employees while maximizing the
efficiency and productivity of the department? Do all employees have access to the same tools
and equipment, if needed? Do the tools enable them to perform tasks independently? Are they
trained on how to maintain the machinery and tools?
 4. Material is the last portion of the Ms of Production. Are the materials needed is in place to
perform all parts of production and are they conveniently located to minimize waste? Example:
All material needed to clean and package are always available and are in place to minimize
effort. Does the layout of the production department minimize wasted movement? Example:
Does the part flow go in one direction or does it zigzag throughout your facility?

Measuring Production
Once the new processes are formalized and employees are trained on how to perform, you can
begin to measure for expected performance and begin enforcing mums. Do get also production
standards and implementation procedures. Once these standards are known, the manager is
responsible in figuring out how to motivate (by means of money/recognition) and train the
employees to reach these new standards.

Production or Technical Feasibility

Once an entrepreneur has found Information about potential consumers, their requirements
and the likely share of the market that could be obtained for a new product, it is then necessary
to assess whether production at this scale is technically feasible.

The series of questions below is helpful in deciding the technical requirements of The business:

1. Are enough raw materials of the correct quality available when needed year-round
production?
2. Is the cost of the raw materials satisfactory?
3. Are the correct size and type of equipment available for the expected production level
and is it at a reasonable cost?
4. Can it he made by local workers? Are maintenance and repair t affordable?
5. Are sufficient information and expertise available to ensure that the food is consistently
made at the required quality?
6. Are suitable packaging materials available and affordable?
7. Are distribution procedures to retailers or other sellers established?
8. Is a suitable building available? What modifications are needed?
9. Are services (fuel, water electricity etc.) available and affordable?
10. Are trained workers available and are their salaries affordable?

Contents of Production or Technical Feasibility

1. Production Planning
This plan should indicate how the different stages in a process are linked together. It should
identify any ‘bottlenecks’ in the process, the equipment that is required for each stage and where
ensures procedures should be used.
The data that has been found from market surveys is added to the press chart to indicate the scale
of production that is required.
A chart is prepared and used for planning a number of different aspects of the production process.
 2. Raw Materials and Ingredients
There are two stages involved in planning the amounts of materials that are needed to produce
the red weight of product. It is necessary to calculate the amount of each ingredient that will be
needed to formulate a batch of product. Further, it is necessary to calculate the amount of losses
that can be expected during preparation.

3. Equipment required
The decision on enuinment requirements are influenced by the:

3.1. The cost and availability of machinery:

3.2. The availability of people who are skilled in maintenance and repair,
3.3. The availability and cost of spare parts and the possibilities of local equipment fabrication.

4. Packaging
Selection of packaging materials frequently causes the largest problems for small producers
and is often the main cause of delay in getting a business established.

Considerations include the following:

4.1. the technical requirements of the product for protection against light, crushing, air,
moisture etc.;

4.2. the promotional and marketing requirements; and

4.3. the relative cost and availability of different types of packaging professional advice should
be sought from packaging specialists or agents of packaging manufacturers.

5. Dicing Levels
Decisions on the number and types of workers that are required to operate the proposed
business are taken in conjunction with decisions equipment procurement.

It is possible to break down the production into different stages and then decide the number
of people that will be needed for each stage of the process.

It is important also to include functions such as store management quality assurance and
bookkeeping when planning employment levels.

Developing a Business Model

Most technical entrepreneurs focus hard on building an innovative product but forget that an elegant
solution doesn't automatically translate into a successful business. Businesses require an equally elegant
business model, with the right price messaging and delivery channel to the right target customer to keep
the dream alive and growing.

Defining the right business model requires the same diligence as designing the right product, but the
approach and skills required are different. That's why investors acknowledge that two co-founders are
often better than one with one focusing on the technical solution, and the other focusing on defining
and building the business model These two jobs must be done in parallel.

In the investment community, this work is called proving the business model. It starts with validating a
business opportunity (a large customer segment willing to pay money to solve a real problem), in much
the same way as your proof of concept or prototype validates your technical solution. Here are seven
steps recommended for establishing the right business model.

7 Steps Recommended in Establishing the Right Business Model

 Size the value of the solution in the target segment.

Customers often complain that existing approaches are not intuitive of integrated, but
old solutions may be familier end locked in. Estimate your costs, including a 50 percent
gross margin, as a lower bound on a price. Products too expensive for the market won't
succeed, and prices too low will leave an exposure. Match with competitor prices and
market demographics.

 Confirm that the product or service solves the problem.

Once the prototype or alpha version is available, expose it to real customers to see and
feel the same excitement and delight. Look for feedbacks on how to make it a better fit.
If it doesn't relieve the pain, or doesn't work, no business model will be saved.

 Test the channel and support strategy.

Now is the time to pitch the entire business model to group of customers or a specially
selected focus group. This is not just a product pitch, but must include all elements of
your pricing, marketing, distribution and maintenance. Here again is a chance to make
pivots for almost no cost.

 Talk to industry experts and investors.

A small advisory board of outsiders with experience in the domain can give the unbiased
needed feedback, as well as connections for setting up distribution and sales channels.
It's also valuable to talk to potential investors for their views and possible sources of
canital, even if it is for a bootstrapping effort.

 Plan and execute pilot or local rollout.

Good traction on a limited rollout is great validation of a business model. It allows to
test costs, quality and pricing in a few stores or a single City, with minimum jeopardy
and maximum speed for recovery and corrections. Save your viral campaign and major
inventory buildup for later.

 Focus on collecting customer references.

Give extra attention to those first few customers, and ask for publishable testimonials
and word-of-mouth support in return. If there will be no support even with the personal
arts, take it as a red flag that the business will probably not scale at the rate you
projected.
  Target national trade shows and industry association groups.
There is need for positive visibility, credibility and feedback from these organization as a
final validation of the business model, a model, in the context of major competitors. This
may also be a great source for leads as a key part of that final roll-out and an effort.

The business model can be a better sustainable competitive advantage the product
features, or it can be the biggest risk exposure. Too many of the business plans are heavy
competitive product features, but light on business model details and innovations.

Forecasting the Revenues of the Business and Costs to be Insured

Having completed Body of technical feasibility, the entrepreneur should have a sufficient
information to determine the costs that are likely to be included in production. Additionally, the
market survey will have up information about the price that could be achieved for the new
product. The entrepreneur is therefore in a position to calculate the expected income and
expenditure and the gross profit can be achieved.

1. Start Up Costs
The start-up capital is the amount of money that is needed to buy the facilities and
equipment, to register and license the business and get the necessary certificates.

Working capital includes the costs of raw materials, packaging, staff traning, product
promotion etc. that have to be made before the business begins to generate income from
sales of the product.

The start-up capital and initial working capital are calculated to determine whether the
entrepreneur's savings (known as the owner's equity) with the sufficient to start the
business with a loan.

The requirement for working capital also continues as the business develops and a”Cash
Flow” should be prepared. Requirements for working capital will differ among types of
business. This is because of the seasonal nature of the raw materials needed and other
ingredients.
Example of Start-up costs for burger production Start-up cos

Start-Up Cost Php

Renovation of space for the store 10,000
Equipment 13,500
Registration Of Business 2,500
Business License 2,500
Hygiene inspection and certificate 2,500
Raw materials and ingredients for 4 weeks production 9,275
Packaging (minimum order) 2,000
Staff Training (Equipment to income from 2 weeks production value) 15,000
Initial production promotion 2,500
Staff salaries for 6 weeks 36,000
TOTAL 96,775

ACTIVITY 1: List down the start-up costs of the product you want to introduce per in unit ii, Lesson 2.
2. Operating Costs
There are two types of operating (or production) costs. Those expenses that have to be paid
even if no production takes place are called fixed costs and those that depend on the
amount of food that is produced are the variable costs.

3. Income and Profit

From the market survey, the estimated market size and share enable you to calculate the
expected sales. The gross profit (or gross loss) is the difference between the expected
income and the total operating costs over the first year, including any loan repayments.

Income is therefore calculated as follows:

Income = Selling price per unit x number of units sold