Unit – II:

Business Unit, Establishing a new business unit.

Meaning of promotion. Features for business, Plant
location, Plant Layout & size of business unit.
Business Unit
A Business Unit is most commonly recognized as an
independent transaction-processing entity. It is defined as an
organization or the subset of an organization that is independent
in its accounting and operational functionality.
A Business Unit is basically a profit-making center that has a
prime focus to segment the market and is able to enhance the
product offerings of the company. They usually have a separate
clearly defined marketing plan, a well-defined marketing
campaign, and a detailed analysis of the competition, even when
they are essentially a part of a bigger business entity.
Business unit operates as an independent entity, but it has to report directly to the
headquarters of the organisation about the status of its operation. It operates
independently and is focused on a target market. It is big enough to have its own
support functions such as HR department, training department, production
department etc. There are several benefits of having a Business Unit. This principle
works best for organisations which have multiple product structure. The best example
of Business Unit are companies like Proctor and Gamble, LG etc. These companies
have different product categories under one roof. For example, LG as a company
makes consumer durables.

It makes refrigerators, washing machines, air-conditioners as well as televisions.

These small units are formed as separate SBUs so that revenues, costs as well as
profits can be tracked independently. Once a unit is given an SBU status, it can make
its own decisions, investments, budgets etc.
 Establishing a new Business unit
 Idea Generation
 Nature of Business
 Determine the Size and Scale of Operations
 Select a Place for Business
 Choose the Form of Ownership
 Determine Financial Requirements
 Plan for Physical Facilities
 Select an Appropriate Plant Layout
 Determine Human Resource Requirements
 Keep an Eye on Legal and Procedural Requirements
 Launch the Business
Step 1. Idea Generation:

To kick start operations, entrepreneurs must be imbued with rich

ideas that can work. In order to generate ideas, entrepreneurs need
to have an eye for detail. They should keep a close watch over
changing trends in the market place and identify gaps that can be
prof­itably exploited.
Step 2. Nature of Business:

The entrepreneur should be clear about the nature of type of business that he wants
to be in:
1.What type of business- Wholesale or retail, independent or fran­chise business or simply
a trading business.
2.What to offer- Products or services or a mix of both; he wants to trade in these or wants
to produce and distribute.
3.III. In Which sector- Entertainment, construction, software, hardware, fashion, etc.
4.Is it a profitable business or a risky one -Carefully studying the prospects of chosen
business. He needs to calculate the gains, the challenges ahead and the type of risks that
exist and the viability of business in the long run.
Step 3. Determine the Size and Scale of Operations:

The entrepreneur should be clear about what kind of sales could be generated at
different price points. He should plan for a volume that recovers his costs fully and
generates enough profits for survival initially. Then he can think of expanding
volumes, size and scale of operations. A gradual step by step, trial and error process
is what most market experts suggest. Rushing into catch a temporary wave of
demand created by artificial mismatch between demand and supply might eventually
put a very good business also on the stretcher.
Step 4. Select a Place for Business:

The entrepreneur must pick up a location that is closer to all the inputs, resources and
materials that the business would require. Availability of manpower and transport links
also need to be looked into. Other services like banking, telecommunications, and power
supply need closer attention of course, different organisations in the same industry may
have different facilities requirements.

For example Benetton uses only one distribution centre for the entire world, whereas
Wal-Mart has several distribution centres in the United States alone. In any case, a small
business owner of retail business must pay close attention to the convenience factor
especially from the customers’ point of view.
Step 5. Choose the Form of Ownership:

The entrepreneur must be clear about the form of ownership that is closer to his heart. He
could think of a small business owned by him exclusive or start the venture in partnership
with someone or create a company with diversified shareholding. To start with, he can pick
up the entity that is easy to form, simple to operate, allows freedom to implement his ideas
without any legal or taxation problems and gives him enough room to expand further,
whenever the opportunity turns out to be big.
Step 6. Determine Financial Requirements:

Here it is a question of calculating the fixed capital and working capital needs of the
firm, keeping the present and future plans of the business in mind. The entrepreneur
should be clear about the type of expenses that are going to eat up resources at different
points of time. Requisite funds for emergency use need to be put in place. The sources of
funds also need to be calculated well in advance. How much through bank financing,
how much from the long term lending institutions, how much from the general public—
if equity is a preferred option—how much from own sources etc.?
Step 7. Plan for Physical Facilities:

This is a question of giving a concrete shape to the business plan by arranging the
physical infrastructure required. It includes decisions regarding machines, equipment,
factory and of­fice design, choosing furniture, space planning, providing for repair and
maintenance, availability of spare parts, degree of sophistication required in terms of
modernizing the plant in every way—keeping the availability of skilled hands in the
chosen location etc. An appropriate organisation structure must also be designed
keeping the space needs of various departments, divisions and plants in mind.
Step 8. Select an Appropriate Plant Layout:

The choice of physical configuration or the layout of facilities is closed related to other
operation decisions. A product layout is appropriate when large quantities of a single
product are needed. It makes sense to custom design a straight line flow of work for a
product when a specific task is performed at each work station as each unit flows past.
Most assembly lines use this format.
For example, Dell’s personal computer factories use a product layout. The type of
layout depends on the expected volume of production, space available, type of
equipment, etc. The chosen layout, in any case, must be in sync with space available
and must permit easy flow of production without posing any danger to human life.
Step 9. Determine Human Resource Requirements:

Here it is a question of finding human resource requirements in terms of

physical numbers and also in terms of quality such as technical skill sets,
managerial competencies, degree of expertise, necessity for people possessing
latest knowledge in a high-tech area etc. The necessity for hiring people with
qualities of head and heart must be recognized and the small business owner
must keep plans ready for this purpose.
Step 10. Keep an Eye on Legal and Procedural Requirements:
All approvals, sanc­tions must be obtained well in advance. The needed
paper work must be entrusted to experienced people hired for this
purpose. Help from external consultants could also be obtained to avoid
surprises of various kinds hitting the budding venture at a later stage. All
taxation matters be carefully looked into at this stage. If required, the
owner must carry out a drill looking into each and every detail
personally.
Step 11. Launch the Business:

The owner should get ready to launch the business formally after
acquiring physical and financial resources, providing for
infrastructural facilities and hiring the people needed.
 Meaning of Promotion
 Promotion is a type of communication between the buyer and the seller.
The seller tries to persuade the buyer to purchase their goods or services
through promotions. It helps in making the people aware of a product,
service or a company. It also helps to improve the public image of a
company. This method of marketing may also create interest in the minds
of buyers and can also generate loyal customers.
 It is one of the basic elements of the market mix, which includes the four
P’s: price, product, promotion, and place. It is also one of the elements in
the promotional mix or promotional mix or promotional plan. These are
personal selling, advertising, sales promotion, direct marketing publicity
and may also include event marketing, exhibitions, and trade shows.
 Types of Promotion
1.Advertising
Advertising means to advertise a product, service, or company with the help of
television, radio, or social media. It helps in spreading awareness about the
company, product, or service. Advertising is communicated through various
mass media, including traditional media such as newspapers,
magazines, television, radio, outdoor advertising, or direct mail; and new
media such as search results, blogs, social media, websites, or text messages.
2.Direct Marketing
Direct marketing is a form of advertising where organizations communicate
directly to customers through a variety of media including cell phone text
messaging, email, websites, online adverts, database marketing, fliers, catalog
distribution, promotional letters, and targeted television, newspaper, and
magazine advertisements as well as outdoor advertising. Among practitioners,
it is also known as a direct response.
3. Sales Promotion
Sales promotion uses both media and non-media marketing communications for a pre-
determined, limited time to increase consumer demand, stimulate market demand or
improve product availability.

4. Personal Selling
The sale of a product depends on the selling of a product. Personal Selling is a method
where companies send their agents to the consumer to sell the products personally. Here,
the feedback is immediate, and they also build trust with the customer which is very
important.

5. Public Relation
Public relations or PR is the practice of managing the spread of information between an
individual or an organization (such as a business, government agency, or nonprofit
organization) and the public. A successful PR campaign can be really beneficial to the
brand of the organization.
Features for business

1. Economic Activity
 Business necessarily has to be an economic activity. But what exactly is an
economic activity? Any activity that gives a monetary return is an
economic activity. For example, if your friend’s father picks you up and
drops you at college every day, he is doing this act out of kindness. But if
he starts a transportation service of picking up and dropping by charging
money then it’s an economic activity.
2.Production or Trading of Goods or Services for
Sale
If a business plans on selling a product, it has to either manufacture
that product or purchase it and add a profit margin to it and sell it
further. Business is interested in every activity that is concerned with
the production or purchase of goods for selling, this makes it one of the
most important characteristics of a business. Services for sale include
transportation, housekeeping, and security. Whereas, goods are mostly
consumable items.

3.Sale or Exchange of Goods and Services

The third and crucial one of characteristic of business after production
or procurement is to sell that product for the money. The way to sell a
product or service is by launching it in the market or to offer it for sale.
A sale or exchange must take place between the seller and the buyer.
4. Regularity in Dealings
Business is a repeatable economic activity that generates money. For
example, if you sell your old bike and it generates money. Also, it’s an
economic activity but is you doing this on a regular basis? No. As it has
no regularity in it, it cannot be accepted as a business activity. Similarly,
there is a dealer who deals in the purchase and sells of second-hand
bikes. For him, it’s a business activity as there is a regularity in his
dealing. A single transaction of purchase or sale cannot be classified as a
business.

5. Profit Earning
The sole purpose of business is the maximization of profit. It steps into
the market with the main objective of earning a profit. For the survival
of business in a market, generating profit is extremely necessary. If a
business can’t produce profit, it is expected of it to go downhill
financially. Therefore the businessman does all the possible tricks to
maximize its profits by increasing the volume of sales or decreasing the
costs
6. Risk Factor
It is well known “Higher the risks, higher the return”. The business
attracts risk. While initiating business it is not guaranteed 100% that the
business will be successful. There is an anticipation that there might be
demand for its product or service in the market. But the market is always
dwindling subject to risk. The business may even earn profit but the
amount of profit earned may vary.
7. Uncertainty of Returns
Businessmen invest huge capital in their activities to sustain and extract
profit from the business. As we discussed the risk above, it is very
uncertain as to what amount the profit will be earned. Often there are
situations where is no return of profit. There are always chances of losses
in business activities.
8. Legal Activity
The business has to be legal and lawful. Business is an extremely
important activity for a country but it is not above the law. Every
economic activity has to be within the limits of the law. The country’s
legislation puts clauses on the functioning of the business to control its
activities.
 Size of Business unit
Depends 0n-

 1. Entrepreneurial Skill:
The most important factor of comes is the skill, initiative and resourcefulness of the entrepreneur.
Everything depends on his judgment and ability. An entrepreneur of outstanding ability will be
able to procure as much finance as he may need, hire the requisite labor force, and build up a huge
business. But an entrepreneur of moderate ability will run business on a moderate scale and a man
of limited entrepreneurial skill will be content with a small business
 2. Managerial Ability:
For running the routine part of the business, managers are appointed. If a firm is lucky enough to
have a manager of great ability, the size of the firm will grow to considerable dimensions. On the
other hand, a mediocre manager will have a small-sized firm to manage.
3. Availability of Finance:
It is finance which oils the wheels of business machine. If ample funds
are available, it will help the entrepreneur to make his business grow to a
big size. This requires a proper development, of the banking system so
that savings of the community can be effectively mobilized and utilized
in the development of trade and industry.
4. Availability of Labour:
Another factor on which the size of the firm depends is the availability
of labour of requisite skill. After all, what can the entrepreneur even with
large capital do, if the labour to man the business is not available? What
is required is efficient and skilled labour.
5. Nature of Business:
Much also depends on the nature of business. If the business obeys the
law of increasing Returns, it will grow to a big size, otherwise, in the
case of diminishing returns it will remain stunted, and in the case of
constant returns it will remain stagnant.
6. Extent of the Market:
The size of the firm also depends on the extent of the market. If the
commodity in which the firm deals or which it-manufactures has a wide
market, naturally the business will assume a large scale. But if the
demand for the commodity is fitful or limited, the size of the firm will
continue to be small.

These are some of the factors on which the size of an average firm in a
country depends.
 Plant Location
Plant location refers to the choice of the region where men,
materials, money, machinery and equipment are brought
together for setting up a business or factory.
Identifying an ideal location is very crucial, it should always
maximize the net advantage, must minimize the unit cost of
production and distribution. Plant location decisions are very
important because once the plant is located at a particular
site then the organization has to face the pros and cons of
that initial decision.
 Primary factors
· Availability of raw materials:
Availability of raw materials is the most important factor in plant location
decisions. Usually, manufacturing units where there is the conversion of raw
materials into finished goods is the main task then such organizations should be
located in a place where the raw materials availability is maximum and cheap.
· Nearness to the market:
Nearness of market for the finished goods not only reduces the transportation
costs, but it can render quick services to the customers. If the plant is located far
away from the markets then the chances of spoiling and breakage become high
during transport. If the industry is nearer to the market then it can grasp the
market share by offering quick services.
Availability of labor:
Another most important factor which influences the plant location
decisions is the availability of labor. The combination of the adequate
number of labor with suitable skills and reasonable labor wages can
highly benefit the firm. However, labor-intensive firms should select the
plant location which is nearer to the source of manpower.
· Transport facilities:
In order to bring the raw materials to the firm or to carrying the finished
goods to the market, transport facilities are very important. Depending
on the size of the finished goods or raw materials a suitable
transportation is necessary such as roads, water, rail, and air. The
transportation costs must be kept low.
· Availability of fuel and power:
Unavailability of fuel and power is the major drawback in selecting a
location for firms. Fuel and power are necessary for all most all the
manufacturing units, so locating firms nearer to the coal beds and power
industries can highly reduce the wastage of efforts, money and time due to
the unavailability of fuel and power.
· Availability of water:
Depending on the nature of the plant firms should give importance to the
locations where water is available.
For example, power plants where use water to produce power should be
located near the water bodies.
 Secondary factors

· Suitability of climate:
Climate is really an influencing factor for industries such as agriculture,
leather, and textile, etc. For such industries extreme humid or dry
conditions are not suitable for plant location. Climate can affect the labor
efficiency and productivity.
· Government policies:
While selecting a location for the plant, it is very important to know the
local existed Government policies such as licensing policies, institutional
finance, Government subsidies, Government benefits associated with
establishing a unit in the urban areas or rural areas, etc.
· Availability of finance:
Finance is the most important factor for the smooth running of any
business; it should not be far away from the plant location. However,
in the case of decisions regarding plant location, it is the secondary
important factor because financial needs can be fulfilled easily if the
firm is running smoothly. But it should be located nearer to the areas
to get the working capital and other financial needs easily.
· Competition between states:
In order to attract the investment and large scale industries various
states offer subsidies, benefits, and sales tax exemptions to the new
units. However, the incentives may not be big but it can help the firms
during its startup stages.
· Availability of facilities:
Availability of basic facilities such as schools, hospitals, housing and
recreation clubs, etc can motivate the workers to stick to the jobs. On the
other hand, these facilities must be provided by the organization, but here
most of the employees give preference to work in the locations where all
these benefits/facilities are available outside also. So while selecting plant
location, organizations must give preference to the location where it is
suitable for providing other facilities also.
· Disposal of waste:
Disposal of waste is a major problem particularly for industries such as
chemical, sugar, and leather, etc. So that the selected plant location should
have provision for the disposal of waste.
Plant Layout

Definition: Plant Layout involves the optimum physical

arrangement of the economic activity centres so that they are
easily manageable. It aims at finding the quickest route for
efficient material flow at minimum cost.
Objectives
The prime objective of the well-designed plant layout is to maximize profit by
efficient, low-cost production. Besides this, the other objectives are as follows:
•Optimum use of the available floor space.
•Reduce the time lag and total production time.
•Obtaining efficiency in material management and mobilization.
•Direct the material flow within the manufacturing unit.
•Reduce the chances of any mishap or accident in the unit.
•Maintain a scope of flexibility in operations and production.
•Ensure human resource safety, comfort and convenience.
•Easy transportation of men, materials and products from one point to another.
Factors Affecting
The major factors influencing the plant’s layout are listed below:
•Men: It is the most influential factor in the entire production process. It plays a major
role in integrating all the crucial elements of the production process. In addition, men
are the highly flexible element of the production system.
•Material: It is another element affecting the plant layout. Materials change form and
move through various processes before converting into the final product. A good layout
necessarily facilitates the effective mobilization of materials.
•Machine: Different types of machines are used for different types of products. And,
the type of machine to be used for production greatly impacts the plant layout.
•Movement of Men and Materials: In the layout design, the movement of men and
materials plays a vital role. This is because, the layout design directs the flow of these
two.
Principles
When deciding the plant layout, one must consider the following principles.
1.Minimum Movement Principle: The layout must be such that it ensures the minimum
movement of men and material.
2.Flow Principle: The layout flow should always be in the forward direction towards the
end.
3.Space Principle: The organization must use every inch of the space available, including
height.
4.Safety Principle: A plant layout must mandatorily make provision for the safety of the
manpower.
5.Flexibility Principle: It should be flexible enough to incorporate changing technology in
the existing layout.
6.Interdependence Principle: The level of interdependence should be less between the
work centres. It helps reduce the time lag and complete the shutdown of the production
process.
7.Overall Integration Principle: A well-designed layout integrates all the 4Ms in an
optimum way.
TYPES OF PLANT LAYOUTS:

There are four broad categories of

plant layout:

•Product Layout or Line Layout

•Process Layout or Functional
layout
•Fixed Layout
•Group Layout or Combined Layout
•PRODUCT OR LINE LAYOUT

•In product layout, machines and equipment’s are arranged in the

sequence of the manufacturing operations required for the product.
•The material is moved from one work station to another sequentially
without backtracking or deviation.
•It is also known as Line Layout because machines are mostly
arranged in a straight line. The raw materials are fed at one end and
taken out as the finished product on the other.
•Output of one machine becomes input to next machine.
•It is a grouping of machines in one sequence. A product layout may
assume a straight line shape or U-shape or circular shape.
•Examples: Sugar refineries, Paper mills, Cement plants, Rolling mills,
Automobile assembly plants, Food processing chains.
ADVANTAGES:
•Smooth and uninterrupted operations.
•Continuous flow of work permits mechanized handling of materials.
•Lesser investment in inventory and work in progress.
•Special purpose equipment can be operated by semi-skilled labour.
•Optimum use of floor space and less congestion of work in the
process.
•Shorter processing time.
•Simple and effective inspection of work and simplified production
control.

DISADVANTAGES:
•Breakdown of one machine results in work stoppage of the entire line
of machines.
•Less flexibility of operations as layout cannot be adapted to the
manufacture if any other type of product.
2.PROCESS LAYOUT

•In process layout, the machines of similar type are located together
according to their function.
•Products move between the groups of equipment’s in order of the
operations required.
•The work which has to be done, is allocated to the machines
according to the loading schedules with the object ensuring that
each machine is fully loaded.
•It is used when the operations system must handle a wide variety
of products in relatively small volumes.
•It is also known as Functional Layout.
ADVANTAGES:
•Lower initial capital investment is required in machines and
equipment. There is higher Change in product design and volume
can be more easily adapted to the output of a variety of products.
•Breakdown of one machine does not result in complete work
stoppage.
•Supervision can be more effective and specialized.
•There is a greater flexibility and scope for expansion.
•Setup and maintenance costs are low.

DISADVANTAGES:
•More skilled labour is required resulting in higher labor cost.
•Processing time or time lag in production is higher.
•Work in process inventory is high requiring greater storage space.
•More frequent inspection is needed resulting in costly supervision.