Wednesday, May 13, 2009

Small Business

In today’s world, small businesses dominate the economy. Out of all the business in the United States, small business accounts for 99% of it all. For a business to be a small business it must have under 500 employees, be locally owned and operated, dependent on the industry, and one or few owners. These owners receive a high amount of respect from all the employees and co-workers. Most of the time the owners have put forth a great amount of time and money in order for the company to be existent. Also, the owner will have more than just his or her money invested. He will have loans from the bank and also some of the family’s money invested into the business. Therefore, most of the owner’s life is spent running the business and making sure it stays on track. Many entrepreneurs start up a business because of a few advantages: they can be their own boss, make a lot of money, they have freedom and flexibility, and do what they love to do. On the flip side, it is a capital risk, long hours, high stress, and fluctuating sales. Therefore, many people start up a business hoping to make a lot of money not knowing all the details it takes to successfully run it. Some factors that cause a business to fail are; poor management, nepotism, taxes, miss-hires, too much overhead, and product to market failure. After taking all of these things into consideration, I went out and interviewed 3 business owners and collected information from all of them. Many of their answers were very similar and some were very different. Throughout the paper I will discuss the owner’s daily practices, the results from their surveys, findings from the internet article, and
whether or not the business world has changed since they have been in it and how it affected them.
For my paper I interviewed three business owners or daily managers from three different business fields. First, I interviewed Gary Sims from Sims Insurance Agency. He got involved in the company about 10 years ago when he purchased the company. Next, I interviewed Tom Gallagher from Countrytyme, Inc. He is into real estate where he purchases land and resells it. Last, I interviewed Joshua Garey from Grainger. He is a daily customer service manager. He got started with Grainger through their management trainee program. Throughout the research packets, interviews, and other additional findings certain themes seemed to reappear in many different ways. There were some very significant similarities between the three research surveys. There were two major categories from the first question on the survey that three people I interviewed had very similar answers for their most important. It seemed that money and customers ranked higher than any other aspect on the survey. Specifically, overall growth in revenue seemed to be ranked the highest out of all of them. Next, would be to improve service to their customers. Followed by improve profits margin and increase success in retaining customers. Lastly, improve return on capital rounded up the similarities as most important. With these five answers continually repeating themselves throughout the surveys and answers, then there must be a catch to them. Well it is not to difficult to find the catch between customers and making money. If a company, such as these three, takes to heart what they feel is most important and lives by it then what they want to come true will happen. All three of these businesses are very successful in their own right. Therefore, improving customer service and then increased success in retaining customers, which they feel is very important for their business, helps them meet their financial goals. It is quite obvious why those answers were ranked among the top. If a company improves its customer service and then increases customers the rest will follow, such as growth in revenue, improved profit margin, and improved return on capital.

There also were some similarities between the answers ranking at the bottom of the question on the survey. First, ranking low on the survey was financially viable return on investment in new services and facilities. When I asked them why this was not so important to them as a business, the common answer I received was that their companies were pretty set in what services they offered, therefore they did not view new services as too important. There was an exception to the other part of the question though, investment in new facilities. Tom Gallagher, land buyer, obviously has to reinvest his money into buying new land. Other than that this answer ranked toward the bottom. Also, to go along with the other question, successful introduction of new services and facilities ranked at the bottom. Basically the same idea goes along with this question as it did with the question before. Most of these companies are either limited on what they do or they are satisfied with their services as they are. The next question that ranked at the bottom of the survey was collaboration with other companies in your industry. When I asked them about this they just simply answered that they do not feel any interest in joining or working together with anybody else. Ranking near the bottom of the survey in most of the surveys was improving the relationship with suppliers. Basically, if the relationship between the business and its supplier is manageable and there are no problems then there is no real need to make an effort to improve the relationship between the two of them.

During each of my interviews there were a few specific questions that I asked each business person. These questions were asked to aim at the daily decisions they make, the practices they go by, what problems they encounter, if the business world has changed since they have been involved, and etc. The first question that I asked them, “What is a typical day for you as an owner or daily manager?” Basically I got the response back that I expected to hear. There was nothing to out of the extraordinary just the basic everyday managerial duties one has as an owner or manager. Everyday tasks include such things as paperwork, dealing with customers, working with employees, checking inventory, and making sure the business runs smoothly and efficiently. All of these things must be done everyday for the business to stay on top of everything that is going on and to continue to make money, which is the bottom line. All of this work seems very time consuming and for the most part it is. One thing the owners mentioned is the fact that they are very busy during the day, but to make sure and save some time for yourself. This also goes along with the internet article I found on BusinessWeek. It simply states that people today are so concerned with making themselves available 24/7/365 to their customers that they have no time for themselves.

The next question I asked them, “What type of practices or guidelines do you work by in your business?” Once again there was a universal answer that I received from the people I talked to. A certain word kept coming up during the conversations with the business people and that word was ethics, the sense of right and wrong. When it comes to ethics some people tend to cringe up and not want to talk about them as if they are evil. Luckily the people I interviewed seemed to follow some type of ethical code when dealing with their business practices. Each of the business people I interviewed had a list of business ethics that all the employees had to go by and follow. They were all a little different based on the company, but the general principle was about the same for all the businesses. Also, the organizational ethics is only one of three branches which lead into the ethical dilemma. There are also personal factors that lead to the decision as well as opportunity. With opportunity a lot of times the reward must be a lot higher than the risk in order for a person to make the decision to do it. When I asked the business people what type of things they would or would not do for success in their business, it still lead back to personal and organizational ethics. If the consequence would hurt them as a person or the company as a whole, then the action was not worth taking. In order for a business to survive in today’s world, the business must be ethical, i.e. Enron. The lifeline of a business is repeat business, therefore if you unethically make a decision that makes a customer mad, the chances of getting them back as a customer are not very good. One advantage of carrying positive ethics that I learned is the reputation of your business, which is very important. Once your business is known for doing something illegal or unethical then that type of reputation will stick for a very long time. After news like that gets out the chances of the business staying in operation are not very good.

The next question I asked them, “What are the biggest problems you have to deal with as an owner or manager?” The number one problem that all business people have to deal with is the customers. No matter whom I talked to whether it was the owners, managers, salespeople, or secretaries they all said that dealing with customers is by far the biggest problem. No matter how hard a business tries there will be times when they mess up an order or whatever for a customer. What the customer does not realize is that they did not do it on purpose. These businesses deal with tons and tons of customers and with even more orders, therefore there are going to be times that the order is not right. The customer never understands that and they are so impatient, which they have the right to be to an extent. When I asked the owners how they deal with the customers they simply responded, “The customer is always right.” Even though 99% of the time they actually are not, the business still has to treat the customer as if they are right. Like I said earlier, the lifeline of a business is repeat business, meaning it is easier to get existing customers to buy more than to go out and find new customers, so in order to keep the existing customers you must treat them well.
Finally, I asked, “Has the business world changed since you have been in business, if so, how has it affected your business?” For some of them they have not really been in the business long enough to really notice much of a trend. For the others, the biggest change in the business world has been the economy. They mentioned the difference from when they just started back in the 1970’s and then in the 1990’s was the booming of the economy and all the technology that the business world has today. On the other hand they are starting to see the flip side of the economy. They are starting to get hurt a little bit with the recession and now the war starting. For some of them business is slowing up a little bit, but for others not much has changed. With Tom Gallagher, land buyer/real estate, he can definitely see a change in his business as of lately. Then with Gary Sims, Insurance agent, he has not seen a much of a drop in business. So depending on the type of business one is associated with the business world changes differently for each business.

In conclusion, this research project opened my eyes to a lot of different aspects that a business owner or daily manager has to encounter. A lot of things go into running a small business efficiently. As the owner or manager is it your job to make sure everything gets done the way you want it to. At the end of the day all the responsibilities are left for the owner to handle. No one else is to blame for the lack of revenue generated by a business other than the owner. Therefore, the owner must be able to deal with many different situations that he may have to encounter and solve them.

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Stock Management

Stock management is defined as the control of stock to ensure that it is adequate for immediate needs without using up excessive financial resources. Stock costs are an important aspect of a firm’s overall costs. This means that firms ensure that efficient stock management is used. Hence any proficient method of stock management used to reduce the cost of holding stock increases profitability and that is a major objective of any firm.

Firms understand that they have to incur an expense to hold stock but this will ensure that the business can remain functioning. So the central aim of stock management is to effectively minimize the cost to stockholding while allowing the business to operate smoothly by retaining sufficient stock.

A firm must ensure efficient stock management to ensure that enough supplies of raw materials for the production process. The business must be supplied with enough raw materials to meet output requirements. If the firm cannot meet demand of the consumers because it does not have enough stock to do so, it will start to lose sales. This is especially true in the growth stage of the product’s lifecycle where there is an anticipated increase in demand for the product. This is also true of seasonal which have variations in demand. Too much stock can’t be kept when demand is low otherwise depending on the nature of the stock it may go bad, become obsolete or lose its quality.

If a business does not ensure efficient stock management then a lot of wastage can arise as a result. A stockout happens when a firm experiences total depletion or runs out of stock. Stockouts lead to lost profits and loss of customer goodwill and loyalty therefore future sales. If the customers cannot get their goods at one firm they will leave and purchase it somewhere else that has it in stock. Continuously unfavorable stockouts by that firm will cause them to lose future sales. These are reasons is why it is of major importance for a firm to have efficient stock management.

Stock management teams must use some method of stock management in order to ensure that they do not experience an unwanted stockout. The stock management team must decide whether to make large occasional orders to hold in stock or small frequent orders. Two major methods utilized are the ‘Buffer Stock’ technique and the ‘Just in Time’ system.

The Buffer stock technique is referred to as a conventional method of stock management. The firm has a fixed amount of stock held in inventory. They specify a certain stock level that if stock reaches that point, a reorder must be made to bring it back to normal level. There is a time lapse between the actual order of stocks and its delivery. During this time supplies are still decreasing. A buffer stock is held as reserve stock in the event that the reorder takes longer than expected. Buffer stock ensures that the firm always has reserve stock, enough to fend off a stockout experience.

The Just in Time System is a manufacturing practice developed by the Japanese in order to minimize holdings of stock. Suppliers deliver materials needed for production at the exact moment they are required. Goods are produced only as they are needed for the next phase of production. Stock is frequently delivered therefore there is a zero inventory situation. The firm only produces something when there is actual customer demand for it (First sell it, then make it). The Just in Time system only work when there is high employee flexibility and commitment and a well coordinated production system to ensure quality and continuous improvements to minimize bottlenecks.

The Buffer Stock method is beneficial given that they can benefit from purchasing economies of scale. Profits that derive from the rise of the price of stock they purchased at a previously lower price. They also have the security of an emergency source of supplies. The Just in Time system has a much less risk of their stock becoming obsolete or going bad (losing its quality). The firm keeps a small inventory hence using less space required, lower maintenance costs and capital requirements. As a result of the ‘First sell it, then make it’ method of operation the right quantities are produced at the right time. There is increased workforce participation as a result of their employment flexibility and commitment. The continuous emphasis on improvement and problem solving results in higher quality, customer service and reduced costs.

Firms must place emphasis on their stock management system. This is a vital part of business operations because it affects crucial parts of the business such as profitability and customer relations. Their business’ environment it will determine what method of stock management they employ and how effective it turns out to be.

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Materials Management

Materials Management has always been an area of scrutiny for organizations. This has become a central focal point as trends from the supply chain arena have indicated that substantial operating cash can be freed with leaner and more efficient handling of inventory.

As organizations examine the state of their inventory, they often find that visibility across locations and warehouses are inadequate, stock levels are inconsistent, demand is uncertain, and communication between stocking locations or warehouses may be minimal or non-existent. Among other things, the lack of an integrated interaction between peripheral systems and materials managers leads to unnecessary purchasing and overstocking.

The concepts of “materials management,” “physical distribution management,” and “logistics management” are the primary materials organizational tools-tools which have been used successfully in the past and will be used increasingly in the future to achieve closer coordination and control of a firms various materials activities.

In general materials management is concerned with bringing materials from outside of an organization to the point of production and moving in processes inventory. It deals with moving material inputs from suppliers into the organization and within the organization. The materials management concept advocates the assignment of all major activities, which contribute to materials’ cost to a single materials management department. This includes the primary responsibilities which are generally found in the purchasing department, plus all other major procurement responsibilities, including inventory management, traffic, receiving, warehousing, surplus and salvage, and frequently production planning and control. Some companies also include customer service, scheduling, shipping, materials handling, and physical distribution in their definition of materials management.

It’s clear that top management and materials management personnel focus their attention sharply on material costs and there is no doubt that reliable long term supply of materials is an increasingly important materials.

Physical Distribution Management is related to marketing in a manner similar to the way materials management is related to production. Advocates of the physical distribution organization traditionally refer to it as “the other half of marketing.” This view divides marketing into two parts: (1) conventional marketing (market research, product development, sales promotion, advertising, and selling) and (2) physical distribution. To people holding this view, physical distribution consists of the following minimum functions:
· Sales order processing, Traffic and transportation, Production control, Inventory control, Materials handling, & Sales planning

Physical distribution can also include additional functions such as customer service and technical service.

Many of these materials function are plainly the same functions claimed by materials management. For the most part, however, the functions are concerned with different materials and are performed at different points in time in the materials system (cycle). For example, the inventories controlled by physical distribution management are finished goods inventories. The warehouses controlled by physical distribution are primarily finished goods warehouses, field warehouses, or distribution centres; those controlled by materials management are the raw materials and production stores warehouses. On the other hand, traffic and production control frequently constitute points of contention between physical distribution management advocates and materials management advocates. In the case of both of these functions, each organizational group can lay legitimate claim to them. The optimum location for traffic and production control will vary from one company to another, depending on specific operating and organisational factors within each firm.

Logistics management is a combination of materials management and physical distribution management. On the basis of the preceding discussions of the latter two concepts, it is clear that a number of similarities exist between them. Not only are the activities involved in both concepts a part of the same overall materials system, many of the skills required to perform the respective operating activates are also similar. The same skills required to perform the respective operating activities are also similar. The same skills and knowledge required to control production inventories are also those used to control finished goods used in traffic, materials planning, and materials handling are identical skills. Although physical distribution is the final stage of the marketing process, the training and orientation of physical distribution personnel is much more akin to that of the materials management personnel. These factors have combined to produce the logistics management concept.

Historically, these similarities and relationships were first recognized by military officers, and the organizational concept of logistics was initially developed in the armed forces. In industry today, logistics management includes all of the functions of both materials management and physical distribution management. In the broadest sense, logistics management views a firm as a single operating system; it seeks to minimize total costs associated with the acquisition and handling of materials from the inception of materials requirements to the final delivery of finished products to their users.

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