business management

week 1

• A strategy is a broad plan that provides direction over the

longer term and general guidelines for more specific plans
to be implemented in the organisation.
• The operations strategy sets the objectives of operations
management and comes from the business strategy. The
best operations strategy makes the organisation unique,
highly visible, has a competitive advantage like
specialised technology in terms of processes and
infrastructure.
• business triad: customers, competitors and internal
capabilities (resources, innovation, products, process
technologies and other forms of operations)
• Management must concentrate on the org’s strengths. Set
specific performance objectives and trying to find a
balance between a financial advantage for the
organisation and value-added benefits for their customers
when producing products and services. An operation
cannot be good at everything.

factors to be considered when setting objectives for

efficient operations

• Quality standards: Satisfy customers’ needs with

error-free goods and services.
• Speed: Minimise customer waiting time from when they
order g/s to when they get it.
• On time: The organisation must be able to keep
delivery promises to customers.
• Flexibility: Organisation must be capable and willing to
adapt the operation’s activities if changes in output,
product specifications or new products are required by
 customers. Flexibility can also be required for
adjustments to be made in response to competitor
activity in the market.
• Low cost: P/s should be produced at a cost that allows
the organisation to sell at a reasonable price and still
make a profit.
• Reliability: There must be consistency of performance
over the lifetime of the product.
• Respect and predictability: Respect must be shown
for customers and managers in other supporting
functions in the organisation. Rules and policies must
be adhered to as part of the organisational culture and
teambuilding. This will cause service delivery to
become predictable and more reliable in order to build
long-term relationships with customers.

Three important strategic roles of the OM function

include the following:

• Implement the corporate business strategy.

• Drive the corporate business strategy.
• Support the corporate business strategy.

Operations Design
Two types of operations design can be considered, lean
supply and agile supply. (search difference)
. Types of Production Systems
Process design includes an assembly line and decisions
about the availability of capacity and supply network. The
process type must match the nature and volume of products
to be delivered. This will influence the layout type

design types that can be linked to a specific layout:

• Continuous mode design is for producing high volume
and very low variety and the plant layout will be highly
mechanised. An example of this could be the
manufacturing of fruit juice or tomato sauce.
• Project mode design is for unique functional needs, low
volume and with high flexibility. Plant layout will be
temporary with no clear flow lines. The product position
is fixed,(referred to as a fixed-position layout.) An
example of this could be a building site.
• One-off operation is when only one item is made at a
time. It can be large scale or small scale. For example,
specialised jewellery is an example of small scale.
Design of a container ship is an example of a large-
scale operation. There is no specific layout type for
these operations.

Relationship Between Operations System Type and

Layout Type
Understanding the advantages and disadvantages of the
different types or combinations of layouts is important when
making decisions about the operation type and layout type.
Planning and control activities can be summarised as
follows:

• Strategic planning involves long-term planning and

involves factors to set up the factory for the longer term.
• Tactical planning refers to the medium-term activities
that are derived from the decisions that were taken
during strategic planning.
• Operational planning involves short-term planning,
such as aggregate or variable capacity planning.
• Aggregate capacity planning means to balance
capacity and demand in the most cost-effective way.
• Variable capacity planning means that capacity
planning will vary depending on demand.

• Demand management tries tomatch demand with

capacity. Forecasting is used in an attempt to predict
future demand could be and how capacity should be used
to meet demand.
• Forecasting helps when planning and scheduling and is
typically in collaboration with the marketing and finance
depts.

Demand management requires:

• A good feeling for market needs
• Accurate market research
• Professional anticipation
• Scientific forecasting

Capacity = the volume of input that an operation can

transform to provide the required output in a given period
Determinants of effective capacity
• The design of facilities and locational factors, e.g.
lighting or ventilation can influence employees’ rate of
production and location refers to the distance of the
factory to customers
• Product and service design factors, e.g. mix of products
or design
• Process capabilities of the process to produce quality
products in the right quantities determine capacity
• Human empowerment, e.g. capacity increases with
increase in employee skills, conditions of work and
conditions of service
• Operational factors, e.g. quality assurance and effective
scheduling and maintenance
• Supply chain factors, such as supply chain members’
support to effective scheduling of work can increase
capacity
Planning capacity to accommodate a change in demand can
be quite challenging. Capacity forecasts must be matched
with demand forecasts to determine the optimum amounts
to produce.

four distinct activities in operations scheduling

• Time and routing – time refers to the decision when the operation will
take place and routing will determine where the operation will take
place.
• Dispatching refers to the issuing of a shop order so that the operation
can take place.
• Control refers to the monitoring of the operation process so that the
progress of the shop order is known all the time.
• Expediting is the activity that takes place to ensure that the shop order
is expected as planned and to prevent delay or lateness.
Three types of operations scheduling

• Effective scheduling depends on the type of operations system and is

influenced by time, available capacity and monitoring of processes and
product design to ensure the best quality and output.
• Forward and backward scheduling depends on the point of departure
when planning the schedule. Forward scheduling begins at the present
date and schedules forward according to the time needed to produce
the product until the order is completed. Backward scheduling begins at
the required date as indicated by the customer and then subtracting the
time required for each process, working backwards to the point when
production should begin to meet the due date of the customer.
• Gantt charts are the most used scheduling method and provide a visual
impression of the progress made on the project. It is easy to understand
and simple to construct.

Inventory Management
Inventory management includes planning and controlling of all types
of inventory. Inventory includes raw materials, sub-assemblies,
consumables, and finished products. Stock includes products that
are sold as part of the business activities.

Is about having just enough inventory at a time. timing and tquantity

of inventory is important.

techniques to determine the right quantity:

• Resource-to-order: used in project operations. Stock
will be ordered as needed.
• Make-to-order: used in job shops or job lot processes.
Minimum stock is held-inventory bought as required by
client.
• Make-to-stock: used in batch and repetitive operations.
Planning and control is based on forecasting.
Management will focus on safety stock levels and
economic order quantities.
Continuous Improvement Through Total Quality
Management (TQM)
must look for ways to improve the quality of products and
services in response to continuous feedback.

Criteria for products includes the following

Performance: The way the product operates
Features: make the product unique
Reliability: The product must perform and keep on
performing as promised
Conformance: product meets the standards that were set
Durability: The product must be useful for its lifespan
Aesthetics: The physical qualities of the product must
make it pleasant to look at
Perceived quality: the reputation of the product/what the
customer believes about the product

Criteria for services:

Reliability: It means the customer can depend on the
service to be delivered as expected.
Responsiveness: The service provider is willing to meet
the customers’ needs.
Competence: The service provider has the skills and
knowledge to perform the service.
WEEK 2
Supply Chain Management
Supply chain management includes purchasing, materials,
and logistics management
Value must be added along the line of the supply chain
(some as costs) until the final product or service is delivered
to the customers, satisfying their demand

• If the value is added from the raw materials (supplier side)

= upstream part of the supply chain

• If value is added from the producer (manufacturer or “focal

firm” where most value is added), it is referred to as the
downstream part of the supply chain.

• New supply chain management approach is to:

• Form alliances or partnerships with suppliers in

the form of formal or informal agreements.
• Integrate systems and processes to limit costs.
• Reduce duplication and waste in the supply chain.
• Find innovative ways to source raw materials or
services.
• Produce and deliver the final product or service to
the final customer.

The development of the purchasing function=

• Purchasing materials and services
• Locating and selecting a suitable supplier
• Negotiating best terms
• Following up and ensuring on time delivery
• Contributing towards limiting costs and maximising
profits for the organisation
Three important perspectives of supply change
management include:
• Management of assets, products, information, and fund
flows to maximum total supply chain surplus
• Networking, which includes integrating a network of
upstream linkages (sources of inputs/supplies), internal
linkages and downstream linkages to create value for
the customer
• Implementation tools that are managing seamless,
value-added processes across organisational
boundaries to meet the needs of the customers

The 7 principles of supply chain management

Principle 1: segment consumers based on service needs
Principle 2: customise the logistics network to service
requirements, considering the profitability of the customer
segments
Principle 3: understand the market needs and align demand
planning across the supply chain to ensure consistent
forecasts and optimal resource allocation.
Principle 4: differentiate goods and services closer to the
customer and speed conversation across the supply chain.
Principle 5: manage sources of supply in a strategic manner
to manage reduction in cost of materials and services
Principle 6: develop a supply chain-wide technology strategy
to support different levels of decision making and to provide
a clear flow of goods.
Principle 7: include channel performance measurements to
understand the collective success in delivery of goods and
service efficiently and effectively.
Most Important Responsibilities of Purchasing
Finding and selecting suppliers

The purchasing function must pick the best suppliers. It

must have a systematic and objective way of selecting
suppliers to ensure a lasting relationship.

Important matters to consider when selecting a supplier:

• Existing suppliers must always be considered for new

purchases.
• Past performance of existing suppliers must count.
• Consideration for a standard or custom-made product
requires a different approach.
• Custom-made products for a specific purpose require
more effort in finding the right supplier.
Standard products = often more readily available and can
be bought at approximately the same quality and price, and
the choice of the supplier is less important.

Process for selection:

• Compile a list of suppliers. The list can be compiled from the existing
supplier register of the organisation, the internet, shows or exhibitions
etc.
• create a shortlist. Factors to be considered will be based on the
location, reputation, financial and technical ability and sustainability of
the suppliers.
• The final choice of suppliers will depend on factors including past
performance, quality products or services, right price, delivery, technical
support, progressiveness, reliability and the suppliers’ score in terms of
broad-based black economic empowerment (BBBEE).
• Continuous evaluation of the suppliers must ensure that performance
meets expectations. Suppliers whose performance is not satisfactory
must be eliminated.
Selection criteria for suppliers

• Quality of the product or service

• Price to deliver the service or product, and the cost structure must
be understood and evaluated
• Delivery can, for example, refer to frequency or punctuality
• Time can refer to timeous or actual time of delivery, or the time it
will take to deliver
• Flexibility refers to the supplier’s ability or willingness to adjust
products or services according to customer’s needs or
requirements
• Financial status and risk assessment must be sound to ensure that
the supplier is financially stable and will be able to deliver products
and services consistently, ensuring sustainability in the long term
• The broad-based black economic empowerment (BBBEE) score
must meet criteria set by the government
• Operational systems and e-commerce facilities must be advanced
and stream-lined and flexible enough to meet customer needs
• Technology and process capability must be sustainable, advanced
and be able to match customer standards and expectations
• Supply chain management capability must be sufficient in terms of
management, knowledge, application, and inbound and outbound
support functions to meet customer requirements
• Environment, ethics, and social responsibility must in line with the
principles of the triple bottom-line approach
• Capabilities, responsiveness and motivation in terms of present
and future product and service delivery must be focused on
customer needs and change in behaviour will be crucial
Three stages in identifying and retaining suppliers
Exploratory or pre-evaluation stage
Find diff suppliers and feel them out via pre screening. shortlist of
potential suppliers is made

Sources to find potential suppliers

methods used to find suppliers

Pre-screening and rejection to shortlist

Doing proper research and visit potential suppliers s expensive.
That’s why shortlist is important

grounds for eliminating suppliers at this early stage:

• poor financial situation
• previously rejected due to poor delivery
• at a reasonable risk of interruption to supply
• not complying with the requirements of compulsory
documentation such as audited financial statements, VAT
certificate, and BBBEE certificate

• Approved suppliers: Tmeet the requirements of the

supplier selection process.
• Preferred suppliers: They meet and exceed the
organisation’s required levels of performance
consistently over time, e.g., quality, cost reduction,
delivery, and service.
• Certified suppliers: These are suppliers that have
been accredited through an in-depth assessment and
achieve in terms of:
◦ Quality management systems
◦ Continuous improvement
 ◦ It is the top recognition that a supplier can be
awarded with.

The types of supplier relations management

(SRM) refers to the way in which the organisation chooses

to interact with its suppliers in terms of their performance
and contribution towards the organisation.

Four important factors in each purchasing decision:

The buyer must find the right quality at the right supplier, the
right delivery time and at the right price.

Development of strategic supplier alliances:

The aim of a strategic alliance or partnership is to:

• Ensure long-term availability of products and services.
• Improve efficiency and effectiveness through
innovation-eliminate waste and duplication in supply
chain.
• Identify market and improvement opportunities.

The focus and motives will require the following:

• add value to the product and service
• limit costs
• provide the end-consumer with better value
• improve the competitive advantage of the supply chain
For alliances to be successful at achieving their goals
and to remain focused, they require the organisations
to:
• Commit time, resources and focus on collaboration.
• Be willing to share information.
• Keep confidentiality among the alliances.
• Develop a relationship of trust.
• Measure success.
• Create support structures.

Challenges of the development of strategic alliances:

• Keeping new developments confidential
• Sharing information on profitability and best practices
• Trusting the alliance partner and sharing the risk
• Merging processes and streamlining of operations
• Merging the organisational cultures to co-operate and
support and trust each other
• Management of risks and extended relationships of
each alliance partner

Forecasting and Demand Planning

Qualitative and quantitative methods are used for
forecasting. It is important to be aware of the steps of
forecasting.
Forecasts are used for demand planning. It is important to
understand sales patterns derived from past consumer
demand.

Quantitative:
Time series
• Moving average or simple moving average
• Weighted moving average
• Exponential soothing
 Casual
• Linear regression
• Multiple regression

Qualitative
• Customer surveys
• Jury of executive opinion
• Sales-force opinion
• Delphi method

Week 3:

Financial Management
main focus of financial management is to make a profit

two major roles in the financial department:

• Financial management involves short- and long-

term planning and budgeting for business needs.
• tracking past financial transactions, controlling current
revenues and expenses.

Duties of financial management

• Financial planning
• Management of financial risks
• Record-keeping
• Financial reporting

Financial accountants focus on the current and historical

information and compile statements of what has happened.
The focus is on the past.
Financial managers use the information in the statements
to make decisions to increase the profit of the organisation
and to increase the wealth for shareholders. The focus is on
the future.
financial statements provide a summary of what happened
in the organisation over time. These statements contain
information collected by the accountants to provide a picture
of the financial health of the organisation to the
stakeholders.

Statement of the Financial Position

It is like a photograph of a business’ finances at a certain
point in time. The most common point in time is the end of a
financial year. It consists of all the assets owned by the
business, its equity, and liabilities.
Statement of Comprehensive Income
It illustrates the financial performance obtained from
financial activities during a specific period.
Statement of Cash Flows
This statement helps management to understand and
control the inflow and outflow of cash to ensure long-term
survival for the organisation. All the possible revenues
received, and expenses paid will be included in the
Statement of Cash Flows.
Owner’s equity:
• Anything that the owners have invested in the
business, other than their assets or that what they owe
to another party
• The share of the owner’s investment and it increases as
the organisation grows
• Examples include common stock, retained earnings or
preferred stock or accumulated income

Operating expenses:
• Costs that do not vary according to the level of activity
but are incurred with the running of the business
• Overhead costs (fixed cost) – a fixed cost means that it
does not vary when there is a change in production of
products or services
• For example, broad categories of these expenses are
related to sales, general and administrative expenses

Responsibilities of financial managers

finding ways to add value to the organisation through
profitable investments, by matching financing options to
support the investments and

when profit is made, they must make decisions on how to

distribute these profits to shareholders and to build the
reserves of the firm.
This means that they will be managing the three pillars
of financial management apart from the other roles that
they will fulfil. These will include the following:

• Managing the goals and budgeting of the organisation,

i.e. focus on the future
• Managing and measuring the corporate performance of
the organisation
• Managing the accurate development of the financial
statements and related accounting tasks
• Assisting top management with formulating and
achieving investment and operational goals and
strategies
• Assisting in developing financial policies

The pillars of financial management

These decisions are referred to as three pillars of

financial management and include the following:
• Investment decision: Management must decide what
assets, investments or projects the organisation should
invest in.
• Financing decision: Management must decide where
they will find the finances to fund the investments that
they have decided on.
• Dividend decision: Management must decide what
portion of the net profit will be retained in the
organisation and what portion will be paid out as
dividends or whether a combination of the two options
will be chosen.
Value Chain Analysis for Growth and Profitability

Financial managers manage the accounting function and

must ensure that they focus on value-adding activities when
fulfilling their duties.
Three types of ratios are used to compare line items on the
financial statements of a business.

They include:
• Profitability ratios: These ratios provide an indication
of the pro tability of the business in terms of the line
items that are compared from the statement
• Liquidity ratios: Liquidity refers to how quickly an
organisation can convert its short-term assets into cash
• Solvency ratios: These ratios indicate the ability of the
business to pay its debts by selling assets

The Statement of Financial Position provides information

based on the financial position of the business at a given
point in time.
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Budgets
Budgets are tools used to plan and manage the finances in
an organisation - a list of planned income and expenses
Plan of how the organisation wants to spend, save, invest,
and borrow money.

process to create the annual budget of an organisation:

Step 1: Setting objectives in monetary terms as the

standard.
Step 2: The actual performance is compared with the
standard
Step 3: The actual performance is evaluated and analysed
and reasons for variation must be determined.
Step 4: Corrective and preventative action must be taken if
the reasons for variations were determined to ensure that it
does not happen again.
The formula for break-even point is as follows:

Financial managers also manage the assets, projects, and

investment opportunities to produce a positive net present
value (NPV) to be able to build shareholders’ wealth
Financial managers are guided by the core principles of
financial management which include the following:

• The cost-benefit principle is based on the assumption

that the total benefits should always be more or greater
than the cost. For example, the benefit of importing
equipment for your business in a foreign country must
still be more or greater than the cost to buy the
equipment in South Africa.

• The risk-return principle refers to the probability that

an investment will deviate from a planned return and
cause financial loss. For example, investment in the
new factory carries high risk because they do not know
whether the new factory will result in a loss or a gain.
Management must decide whether they want to risk
their money with the chance that the return can be
much higher or much lower than what they could have
earned from investing the money, for example, in a
bank.

The future value of a single amount

The formula is as follows: FV = PV (1 + i)n

FV is the future value of an investment after n periods.

PV is the original investment or present value of the
investment.
i is the interest rate per period expressed as a decimal
number.
n is the number of discrete periods over which the
investment extends.

Current asset - can be converted to cash quickly

Financial Statements
The financial statements of an organisation provide a
summary of what happened in the organisation over time.

Important statements used are:

• The Statement of Financial Position to determine the
position of the organisation at a specific moment in time
(balance sheet)
• The Statement of Comprehensive Income to measure
financial performance
• The Statement of Cash Flows

Statement of Financial Position

snapshot of the organisation’s financial position at a certain

point in time.

1. Assets
• Current assets are items expected to be converted into cash
within one financial year. Examples of current assets include
stock or inventory, debtors and cash or short-term investments
such as money market products.
• Non-current assets are long-term assets that the organisation
expects to hold for longer than one financial year and they
cannot readily be converted into cash.
 • Intangible assets are assets that you cannot physically touch
or feel. These are trademarks, copyright, patents and
customer or employee relations. These intangible assets are
listed on the balance sheet.

2. Liabilities
A liability is typically an amount owed (debt and obligations) by an
organisation to a supplier, bank, lender, or other provider of goods,
services, or loans. It is a legally enforceable obligation to provide
value to another person or entity due to past transactions or events.
• Current liabilities are short-term liabilities, and the
organisation has to pay for these within a year. For further
explanation and understanding of current liabilities, refer to
pages 95-96 of the textbook (Nel & De Beer, 2022).
• Non-current liabilities have a life-span of longer than a year
and are called long-term liabilities.

3. Owner’s Equity
Owner’s equity refers to anything (not necessarily only money) that
the owners have invested in the business, Examples of owners’
equity can include common stock, retained earnings or preferred
stock or accumulated income.

The Statement of Comprehensive Income

1. Revenue
amount of money that the organisation receives by selling
their goods or services.
2. Cost of Goods Sold
Cost of goods is included in expenses on the income
statement and is part of variable costs. The price of raw
materials and the labour cost to produce products are
included as variable costs because they vary depending on
production time or volumes produced.

3. Operating Expenses
Operating expenses refer to costs that do not vary
according to the level of activity but are incurred with the
running of the business. They are also referred to as
overhead costs. Overhead costs are usually referred to as a
fixed cost.

The Statement of Cash Flows

displays the exchange of money between an organisation

and everyone else it deals with over a period of time.

Value-Chain Analysis for Growth and Profitability

A value chain refers to the activities or processes where the
organisation adds value to a product or a service that is
delivered to a customer.

Please note that discount tables WILL NOT be provided

in the exams and you must be able to use the
discounting formula to calculate the discounting factor
based on the interest rate and the n-value of the
example.
Week 4:

Managing Cash and Marketable Securities

• Cash refers to the money that the business has on hand in
cash registers or in current and saving accounts with a
financial institution.
•
• Marketable securities are investments on which the
organisation earns a fixed interest income, e.g. a savings
account. They are financial instruments and can easily be
converted into cash. They are usually redeemed within a
year.

There are three reasons an organisation should have cash

available. They need cash to pay for expenses, for
contingencies, in case of emergencies, or to use for
speculative purposes and exploit opportunities in the
marketplace.

The costs involved if the organisation holds little or no

cash:
• If the organisation cannot meet their financial
obligations on time due to cash shortages. This can
affect relationships with suppliers and employees.
• Organisations can lose out on opportunities - it cannot
claim cash discounts or take advantage of early
payment benefits.
• Shortages of cash may cause a cost of borrowing
because the business might be forced to borrow money
at short notice and at expensive rates.
Cash cycle
◦
cash coming into a business, which is used for tcreating the
product or delivering the service, and then the movement is
to the delivery of the finished product where money is
received again.

The cash cycle in a business is created as follows:

• The organisation invests in raw materials to produce
their products.
• In the operations department, they convert the raw
materials into finished products.
• Next, they sell the finished products to their customers.
• In the final step of the cycle, the business collects the
cash from customers.
•
The four Cs of credit are:
• Character - ’ customer’s willingness to pay and their
record of meeting past obligations.
• Capacity - ’ ability to pay back a loan.
• Capital - the customers’ sources of finance.
• Conditions - the current economic environments or
business conditions.

Financial Markets
‘Financial markets’ refers to the marketplace where buyers
and sellers exchange assets such as equities, bonds,
derivatives and currencies.

The rate that the bank pays to the investors is less than the
rate that they charge to the borrowers. The bank makes a
profit on the transactions,
• South African Reserve Bank (SARB)
• The SARB lays down policy for commercial banks,
protects the currency and maintain price stability in the
interest of balanced and sustainable economic growth
in South Africa.
• Land and Agricultural Bank
• This is a specialist agricultural bank guided by a
government mandate to provide financial services to
the commercial farming sector and to agri-business.
• Private sector banks
• Private banks are banks owned by individuals, partners
or shareholders that offer specialised financial services
to their clients to protect, grow and use their money.
ABSA, FNB etc
• The Corporation for Public Deposits (CPD)
• The CPD accepts surplus funds from departments,
institutions, and organisations in the public sector, pays
interest, and repays deposits on demand.
• Post Bank
• known as the post office in South Africa. They are a
government owned bank that takes deposits from
clients for saving purposes, but they do not grant credit.
They also pay out money to people who qualify for
government social grants, on behalf of the Government.
Financing Short-Term Organisation Needs
Short-term financing is lending or borrowing money for less
than one year. Financing for the short-term, such as
financing the working capital (current assets and current
liabilities) of the organisation, can include decision making

on a combination of long-term and short-term finances.

Accruals
Accruals are liabilities that remain unpaid. example is
accrued salaries. Employees provide labour but are not paid
until the end of the month
Debentures
Debentures are unsecured bonds which means that the loan
is not secured by an asset.
Bonds
A bond is financial instrument that was created to raise
capital. It is an agreement between the lender (issuer) and
the investor (borrower). The investor purchases a bond to
raise money for a project.

Financial Risk

Cost of Capital
the costs of borrowing and using capital. The use of capital
also implies that there is an opportunity of making a specific
investment which could result in a return on the investment.

Calculating the Weighted Average Cost of Capital (WACC)

There is a three-step approach to be followed to calculate

the WACC:
• Calculate the after-tax cost of each form of capital,
• Calculate the proportion of each form of capital in the
total structure
• Multiply the cost and the proportion of total capital to
determine the weighted average.
Bases for segmenting consumer markets

• Geographic segmentation, e.g. Johannesburg,

Winelands
• Demographic segmentation, e.g. age, income,
education level
• Behavioural segmentation, e.g. purchase
occasions, benefits sought, user status
• Psychographic segmentation, e.g. social class,
lifestyle, personality

The Role of Government

• Developing information and technology skills
• Emphasise scienti c development and innovation
• Maintain strong policy development
• Keep exchange rates constant,
• Reward collaboration through trade incentives, while
protectin the local environment through import tarrifs and
quotas.
• Offering foreign companies subsidies and market access if
there is a need for foreign business.

Triple bottom line

Profit
People
Planet

Definition of Public Relations

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