Group 4: 4Ms of Business Operations

The most important factors that influence business operations are represented by 4Ms:
Manpower, Method, Machine and Materials. The quality of these 4Ms will determine the
production of the business.
It is very important for every entrepreneur to recognize the needs in resources of the
business. Failure to supply the required resources might result in organizational failure.

Operations management is the administration of business activities to accomplish goals, achieve

higher productivity, and maximize profitability.
 About delivering products and services to customers to meet or surpass their expectations.
 It’s designing, developing, and executing operations that assures the intended outcome of
the customer’s wants and desires
Diagram of Business Operation:
Graphs and charts are important because they help an audience to quickly analyze data
and see relationships. They help to simplify data so that the audience can easily understand and
remember it. Diagrams and charts are important because they present information visually.
Input Process Output
 Manpower  The way these 4Ms are  Product or service being
 Method utilized offered by the
 Machine organization
 Materials

The attributes manpower, method, machine and materials should work together in the process of
executing the business.

MANPOWER
This refers to human workforce (labor) involved in the making (manufacturing) of products.
It is considered as the most significant factor of production. The entrepreneur must determine, hire
and match the most competent and skilled employees with the job at the most appropriate time.
Entrepreneur’s Most Highly Considered Criteria in Hiring:
1. Educational Qualifications – refers to the official confirmation, usually in the form of a
certificate, diploma or degree, certifying the successful completion of an educational
program.
2. Status of Employment – part-time (temporary), regular (permanent), seasonal, leased,
term/fixed.
3. Number of workers required for the job – too few team members will prevent you from
properly serving your clients, too many employees can result in increased cost and
underutilization of your resources. Hiring the right number of people will reduce errors in the
production.
4. Skills and expertise for the job – a well-developed skill can make us experts in a
particular field. Employers value skills in hiring potential employees because it is always
been necessary for a productive and smoothly functioning workforce.
5. Appropriate time the worker is needed – This is essential because the employer have to
estimate the money and resources, he/she should produce in exchange of labor.
 6. Conduct a background checking and issuance of requirements – Employers need to
make sure that their work environment is safe for all employees and also to avoid any
employment related security problems inside the organization.
7. Amount of salary or wages or other mandatory benefits – A good wage and salary
structure will keep the employees satisfied. Offering benefits shows your employees that
you understand and respect their needs.
8. Availability of potential workers in the community – Labor represents the human factor
in producing the goods and services of an economy. Finding enough people with the right
skills to meet increasing demand is essential. The availability of potential workers in the
community is important because employment contributes to economic growth.

METHOD
This refers to the ways of producing a particular product from raw materials (process,
schedule, procedure). This may refer to traditional method such as producing the product
manually and or it may be machine-assisted or automated.
Factors affecting the selection of the method of the production:
 Product to Produce
The physical output of the manufacturing process is called product. Every product should be
valuable and beneficial to the consumers and must satisfy their wants and basic needs.
Product can be homogeneous or heterogeneous.
A homogenous product can hardly be distinguished than other products as it may have the
same physical appearance, taste or chemical. (cement, metals, etc.)
Examples: sodas and medicine (distinguishing 5mg from 10mg tablet of a painkiller is difficult)
On the other hand, a heterogeneous product has different characteristics, parts, and physical
attributes. It can be easily distinguished from other products.
Examples: bags, home decors, furniture, car
 Mode of Production
This refers to how the product will be manufactured. Everything that goes into the production of
the necessities of life, including the "productive forces" (labor, instruments, and raw material) and
the "relations of production" (the social structures that regulate the relation between humans in the
production of goods.
The following system of production may be utilized in making a product:
a) Intermittent production system – This system is used when there is short production
process and there is frequent change in the machine.

i. In a project method, the products are very large in size and there is time
constraint in the completion of the product.
examples: construction of aircrafts, buildings, and vessels.
ii. In a job order method, the production process is accomplished by one
employee or a batch of employees.
examples: law firms, accounting businesses, and private investment companies
 iii. In batch method, the production goes through several stages and the product is
moved from a worker to another
examples: clothing, bags, software
The intermittent production system includes the following features:
1. A variety of products is mass-produced.
2. The flow of production is noncontinuous.
3. The customers’ demand is the basis of production.
4. The production volume is not material.
5. The machineries are for general purposes.
6. The product design is the basis of the sequence of operation.
Entrepreneurs who usually use intermittent production system are furniture makers,
manufacturers of farm equipment, tailors, and goldsmiths.
b) Continuous production system - This system is adopted when the demand for the
product is continuous. The manufacturing of products is for stocking of inventories.
The following are the features of the continuous production system:
1. The production system is nonstop.
2. The production is based on the projected demand of the market.
3. The production is believed to be standardized.
4. Usually, the products are homogeneous.
5. The production of products is in mass scale.

c) Just-in-time production system – products are produced when the market calls for the
need for them. It is designed to eradicate wastage of capitals (in the form of resources)
to increase production.

 Manufacturing Equipment to Use

This refers to the equipment available for use in making the product. If the company owns
high end equipment, then the method would be easier than those who manually process
products. Manufacturing equipment is defined as “anything kept, furnished, or provided for a
specific purpose.” Essentially, manufacturing equipment is anything that supports the function
of manufacturing goods for sale by the company.
Examples of standard manufacturing equipment include: Machinery, Materials, Tools, Technology,
Factories or plants, Personnel equipment

 Required Skills to Do the Work

This refers to the skills of the workforce that will manufacture the products. The ones who
are more skilled and more experienced will most probably work faster than those who are new
in the job. Hard skills are technical skills required for a job. They are learned abilities acquired
and enhanced through education and experience. Hard skills are important for your resume, as
employers look for them when hiring.
MACHINE
This refers to the devices and equipment used to perform specific type of work and usually
uses energy (electricity) to perform a task. Discusses about manufacturing equipment used in
the production of goods or delivery of services. In the process of selecting the type of
equipment to purchase, the entrepreneur may consider types of products to be produced,
production system to be adopted, cost of the equipment, capacity of the equipment, availability of
spare parts in the local market, efficiency of the equipment and the skills required in running the
equipment.
Important elements to consider in choosing type of equipment to procure:
1. Type of products to be produced - Generally, products are classified into two types;
Consumer Products (convenience products, shopping products, specialty products,
unsought products). Industrial Products (capital goods, raw materials, component parts,
major equipment, accessory equipment, operating supplies, and services).
2. Method of production to be adopted - Businesses providing goods can choose from
different types of production process. These are job production, batch production and
flow production.
3. Price of Equipment - As a business looks to upgrade equipment, knowing the value of
what they own can give owners a clear idea of the depreciation (an accounting method
used to allocate the cost of a tangible or physical asset over its useful life) expenses they
have (for tax purposes) and knowing the value can help with solving cash flow concerns.
4. Equipment Capacity - Capacity is a measurement of the amount of performance that
has occurred. The evaluation of a machine's capacity is an important evaluation because
underutilization of a machine increases the production costs and over utilization can lead to
increase repair, maintenance costs, and shorten machine life.
5. Spare parts’ availability in the local market - In the world of manufacturing that's
controlled by demand, spare parts are essential assets for maintaining high productivity.
Having spare parts available right away allows you to meet or exceed your production
goals and ensure the on-time shipment and delivery of your products.
6. Equipment Efficiency - Setting up your equipment productively will enable you to work in
an efficient and comfortable manner, do more in less time, and spend less money. In
time, you will also have to make decisions regarding repairing or replacing broken or
obsolete (outdated) equipment.
7. Required skills in running the equipment - Business skills are important because they're
a fundamental component of starting, running and managing a successful business.
If you are a business owner, these skills equip you with the ability to meet the needs of both
your consumers and employees.

MATERIALS
This simply refers to the raw materials needed in manufacturing of goods.
Basically, materials are assembled to make a finished product. These are the basic tools to
produce goods or to generate services. Selection of an appropriate machine not only enhances
efficiency but also saves times and increases revenue.
For example, wood is a raw material used to produce a cabinet or other furniture. If the
materials are of poor quality, the product will surely be of poor quality as well.
 Factors to consider in selecting raw materials:
1. Cost - Raw material cost is affected by supply and demand, therefore businesses should
keep this in mind when conducting procurement. It is crucial to carefully assess the number
of raw materials you acquire because if you order too many, they may decay and become
unusable over time.
2. Quality - Managing your raw materials as part of your quality system will help to ensure
that your finished product meets its quality attributes. It is wise to initiate such a system at
the outset of product development and build it into the product design.
3. Availability - The companies must be able to maintain the availability of raw materials
inventory to ensure the good flow of production process with good quality, proper time, and
effective cost.
4. Supplier’s Credibility - If the quality of your supplier's product or service is poor, you may
incur extra costs for returns and replacements, and risk losing business with any delays that
result. If you decide to pass poor quality on to your customers, you risk damaging your
business reputation.
5. Waste that may be produced by the material – Proper waste disposal prevents pollution
through the reduction of the need to collect new raw materials. It saves energy. It reduces
greenhouse gas emissions, which contribute to climate change globally. It helps sustain the
environment for future generations.

Value Chain vs. Supply Chain

The idea of value chain comes from the perspective of the business management. Value
chain managers search for possible opportunities to add value to the business.
Supply Chain refers to the integration of all activities involved in the process of sourcing,
procurement, conversion and logistics. On the other hand, value chain implies the series of
business operations in which utility is added to the goods and services offered by the firm so as to
enhance customer value.

Five Steps in the Value Chain Process

1. Inbound Logistics – This involves receiving of materials, storing them, and controlling of
inventory.
2. Operations – This involves activities wherein the entrepreneur adds value to the product
through manufacturing and assembly of merchandise that transforms raw materials into
finished product.
3. Outbound Logistics – This involves activities required in reaching end users. Examples
are warehousing, recording of inventories, order fulfillment, and delivery.
4. Marketing and Sales – This involves activities associated with convincing customers to
procure the offered product.
5. Service – This involves activities that maintain and improve the value of product, like
customer assistance and warranty provision.
Value chain gives a lot of consideration to things such as marketing, innovation, product
testing and research and development.
On the other hand, the supply chain includes the flow of all information, products,
materials, and funds between different stages creating and selling a product to the end. The
concept of the supply chain comes from an operational management perspective.
 Every step in the process – including creating goods or service, manufacturing it,
transporting it to a place of sale, and selling it – is a part of a company’s supply chain. The
supply chain comprises all tasks that are involved in knowing and satisfying a customer
request.
Supply Chain Functions:
 Product development
 Marketing
 Operations
 Distribution
 Finance
 Customer service
The cost of resources and product distribution are the primary concerns of supply chain
management. Reduced consumer cost and increased profits can be attained with proper
supply chain management
Developing Business Model
A company’s plan for making profit is referred to as business model. Basically, it identifies
and explains the goods and/or services to sell, target market, and projected expenses. They
help new businesses to attract investment, hire talents, and encourage management and
staff. Established businesses should regularly update their plans to cope up with trends and
challenges in the future.

Three Sections of Business Model:

1. Resources – Everything it takes to make something: design, raw materials, manufacturing,
labor and so on.
2. Dissemination – Everything it takes to sell that thing: marketing, distribution, delivering a
service, and processing the sale.
3. Rate – How and what the customer pays: pricing strategy, payment methods, payment
timing, and so on.
A successful business model simply needs to earn more than the cost to make the product
or service – profit. You do not have to create a new model to be an effective businessperson,
you could just adopt an existing model and execute it accordingly to different target market.
Basic types of Business Model:
a. Manufacturer – A manufacturer acquires unrefined materials and produces a new
merchandise. He/she can also manufacture pre-made parts into a new product. A
manufacturer may sell his/her products directly to end-consumers or it can be sold to
another businessperson who acts as the intermediary.
b. Distributor – A distributor buys manufactured goods directly from a manufacturer and
resell to retailers or to the end-consumers.
c. Retailer – A retailer acquires product from a distributor or wholesaler, and then sells
those products to the end-consumers.
d. Franchise – Franchising is the method of utilizing another company’s business model that
has already been successfully created, instead of establishing a new product. The
franchiser pays the ongoing royalties to be able to use the company name, model, method,
and other necessary materials.
Forecasting Revenue and Cost to be Incurred

Deducting your projected expenses from your projected sales gives you predicted net
revenue. To make a forecast, put past monthly expenses and sales in a spreadsheet up until
the present date. Then stretch your current sales and expenses forward into future months and
years.
Most entrepreneurs complain because forecasting takes a lot of their time which they think
could be of better use if spent in selling than planning. But more investors would be interested in
financing your business venture if you could provide them of thoughtfully done forecast because
they know that these forecasts will surely be of help in making your business a success by
creating highly effective operational plans.

Simplified Financial Forecasting:

1. Start with expenses, not revenues. When you are still starting, it is easier to forecast
expenses that revenue. Try to pre-assess the expenses by starting with the common
categories such as fixed cost/ overhead (rent, utility bills, bookkeeping, advertising, etc.);
variable cost (cost of goods sold, direct labor cost). Remember the following when
forecasting: (1) Since advertising and marketing costs always go up, make sure to double
your estimates. (2) Expenses for legal matters such as licensing fees, permits and
insurances must be tripled in your forecast because they are unpredictable and most of
them exceed expectation. (3) Consider your service as labor expense.

2. Forecast revenues using both conservative reality and aggressive dream.

Conservative reality makes you logical while aggressive dream makes you motivated and
inspire as well. It is recommended that you incorporate your dreams and at least a set of
predictions with aggressive expectations. It is believed that one cannot be big unless
he/she thinks big. Through the power of thinking big, you can create new discoveries and
innovative ideas that will grow your business enterprise.

3. Check the key ratios to make sure your projections are sound. When aggressive
revenue forecast is made, it is easy to overlook expenditures. Positive thinking might be of
big help, but it will not be enough to pay your bills, so you must reasonably balance your
forecast. To do this, you should have reality checks for key ratios. According to Advani,
ratios that could be your guide in thinking are as follows:

a. Gross margin. This refers to how much of the total revenue is the total direct cost
during a period (quarterly, annual, or bi-annual). You must be careful to make
assumptions that make your gross margin from ten (10) to fifty (50) percent. If the
customer service and direct sales are high now, they are expected to elevate in the
future.
b. Operating profit margin. This refers to how much of the total revenue is the total
operating cost—direct cost, overhead, excluding financial costs—during a period
(quarterly, annual, or bi-annual). Positive movement with this ratio should be expected.
Overhead cost should be represented by small portion of total cost as revenue grows,
and there must be improvement in the operating profit margin.
 c. Total headcount per client. You must divide the number of your employees by the
number of expected clients. You should consider revisiting your forecast about revenue
and payroll expense as your business grows.

Accurate projection on both revenue and cost will be challenging specially in your
pioneering years. It will be tiring and consuming but spending time to plan would prevent you from
unwanted expenses along the way.

Computing for Profit

The simplest formula in computing the profit is by subtracting total expenses from total
revenue as shown in the box.

The computation of profit is by deducting direct costs and indirect costs (also known as
overheads) from sales. Direct costs are expenses that directly go into producing goods or
providing services such as labor, materials and other manufacturing supplies; while indirect costs
are the general business expenses that keep the business operational such as rent, utilities and
general office expenses.
Based on the normal accounting guidelines, sales and expenses are included in profit on
the day they occur, not on the day of actual payment so profit will include credit sales and
purchases even when they are not yet paid.
Here is an example: A business buys 3,000 of stock in October and agrees to pay for it in
three months’ time. It sells the stock in the month in which it was purchased (October) for 5,000
cash. The profit for the month is 2,000. Even with the reality that the stock was not paid for
immediately is not important when calculating profit.