University of Cassino Faculty of Economy Business Organization BUSINESS MANAGEMENT A.Y. 2008 -2009 Prof. Francesco Polese 1
Business Organization Premises Growing up of business dimensions, developing of business relationships with the market, and the nowadays management procedures have lead to assume for Direction and Organization functions more importance and strategical remarkable contents.
Business Organization Business Directional Process The function of Business Direction demands the simultaneous assumption of decision actions, of employment of resources, of leading of workers and of appraisal of the performances, according to an integrated cycle that previews for each activity the development of different moments (phases, stages) closely and mutually interdependent.
Business Organization Business Directional Cycle Planning Decisions Actions Organization Control Direction Actions Evaluation Actions Leading Guide Actions
Business Organization Business Directional Cycle Every cycle is carried out, in its several moments, by means of the finding, the management and of the communication of informations that flow inside of the enterprise and that must necessarily be integrated with those coming from the outside; in this sense we can speak also about an informative cycle.
Business Organization Informative Cycle for Direction Environmental Informations Executive Guidelines Internal Control Data Executive Results
Business Organization Organizational Function The Enterprise works as a system, constituted from several elements that act for a common purpose, coordinated by means of the accomplishment of specialistic functions and oriented to the attainment of a final (survival) goal . The study of the Organization can be carried out by means of the analysis of the Structural aspect relatedto the ordering of tasks and responsibilities, and of the Behavioural aspect of the organizational system, considered as a whole.
Business Organization Organizational Decisions The planning (or re-planning) of the Organization demands the assumption of a set of decisions: Definition of the Objectives Construction of the Organizational Structure Definition ofvertical integration degree (efficient border) Characterization of the Functions (insidethe Business System) Analysis of the complex of existing ties (Professional abilities, Investments, Structural costs) Characterization of the strength elements and valorization of the main meaningful potentialities
Business Organization Organizational Decisions To define an Organizational Structure it is necessary the definition of an outline of connections between the several organizational positions finalized to the activation of authority relationships, of cooperation, information around which the business life is developed, as well as it concerns the “vertical” development, the “horizontal one”, the “cross-sectional one” and “functional one” (of lines or staff). The planning of the structure demands also the definition of procedures (organizational routines) that establish the adoptable behavioral rules for the solution of periodical (or extraordinary) problems; they come planned in starting phase, enriched in itinere for effect of the accumulation of knowledge and experience, and they translate in decisional and operating rules. Therefore we distinguish operative, of control, informative and decisional procedures
Business Organization Structural Models for Organization Several models of Organizational Structure exist to define the inner articulation of the relationships, the roles and the existing responsibilities in an enterprise: Functional Pattern: The definition on which it is based: the function consist of a set of complementary and interdependent tasks and duties (functions) in relation to an aim Its characteristic: the subdivision of the areas of responsibility for groups of tasks in terms of management functions What is the main principle: the principle of specialization of each operating areas, and of sub-division of the managerial process in connection with the different nature of the problems to train, approaching the responsibles competences according to the kind of task to carry out What it is the limit: possible difficulty of coordination between the different Responsibility Area To who it is apt: to enterprises with greater operating stability
Business Organization Functional Structural Model Top Government Business Management Business Direction Marketing Management Production Management Human resources Management Administration and Financial Management Sales Office Planning Office Accounting Office Finance Office Plant Office Planning Office Supplies Office Public relations Office Customer care Office Purchase Office Systems and Methods Office Controll Office Production Office
Business Organization Structural Models for Organization Several models of Organizational Structure exist to define the inner articulation of the relationships, the roles and the existing responsibilities in an enterprise: Divisional Pattern: Its characteristic: the division of the management responsibilities for groups or various families of products, each entrusted to a divisional director, who is the only responsible of economic and operating result (also geographical meaning) The definition on which it is based: the business focuses its attention on the result rather than on the tasks and stimulates the assumption of responsibilities (decentralization) What it is the limit: possible creation of inner conflicts (often it’s due to not the convergence of the specific interests) What is the main principle : the subdivision of the business (enterprise) in more parts, considered distinct centers of profit (and cost) with elevated autonomy, above all operative. To who it is apt: to mainly dynamic enterprises in the (entrepreneurial) managerial behaviors
Business Organization Multi-divisional Structural Model Top Government Business Management Finance and accounting Human resource Business Direction Alfa Product Division Beta Product Division Gamma Product Division Production Division Plant Division Marketing Division Production Division R&D Division Marketing Division Production Division Planning Division Marketing Division Studies and plan Division Sales Division Budget Division Sales Division Public relation Division Sales Division
Business Organization Structural Models for Organization Several models of Organizational Structure exist to define the inner articulation of the relationships, the roles and the existing responsibilities in an enterprise: Matrix Pattern: Its characteristic: the corporate structure introduces a reticular character, with interlacing of functional competences, flexible form and interconnection of responsibility (institutionalized evolution of the Organizational plan) The definition on which it is based: the requirement of <<department division>> of the job and the responsibilities What it is the limit: the processes of information and decision can be carried out with a minor tie of institutionalized hierarchical filter What is the main principle: the definition of the amplitude and the limits of the delegation of the directional powers according to the degree of decentralization realized in the government of the business system To who it is apt: to the enterprises highly (deeply) dynamic in the managerial behaviors
Business Organization Matrix Structural Model Top Government Mkt Manager Production Manager Administration Management Humanresources Management Alpha Products Technical Manager Sales Manager Head accountant HumanresourcesResponsible Technical Manager Sales Manager Head accountant Human resources Responsible Beta Products Technical Manager Sales Manager Head accountant Human resources Responsible Gamma Products
Business Organization Themes Business Functions Purchases/Supply Production Logistics Marketing Quality R&D Definitions Evolution Purchase Mkt Make or buy Suppliers Relationship Suppliers Integration Supply Chain Supply Chain Management 16
Business Organization Purchases/Supply Purchases Supplies the set of the activities turned to stipulates contracts for the supply of the necessary assets/ services the set of the activities turned to guarantee a regular standard flow of goods and services according to a predetermined business planning Definition operating tasks (even if the managed amounts can be also much considerable) and moderated decisional autonomy greater discretion and delegation Relevance in decisional process The short run trend, with a “passive” attitude to answer the demands for the production The long run trend, with a “proposal” guidance for plans General Framework
Business Organization Purchases/Supply The purchases office must, at first, comprise the requirements of production (quantity, quality and timing) according to: 1) To estimate and to choice of the suppliers It’s not necessary to put more suppliers in competition and to choose lower purchase price. Risks and opportunities estimation of the only supplier (single sourcing) 2) To deal and to define the conditions: Choosing between open contracts or orders spot. Quality and delivery time turn out critical. The acceptance or test control can be made from the supplier 3) To speed up the deliveries and to define the anomalies: It’s the more delicate phase because the anomalies can have origin from problems of the supplier or inner problems of the plant. In the great enterprises the center purchases function only takes care of the heavy supplies addressed to several plants while the little ones purchases are managed from local offices.
Business Organization Purchases/Supply The supplying function has acquired during last years an increasing importance and strategic relevance regarding: • Purchases relevance, • It’s expressed as an added value for line of product, or costs percentage of raw materials on the total costs • complexity of the supply market, • It’s linked to lack of supply, technological development in new materials, entrance constraints, cost / complexity of logistic factors, any condition of monopoly / oligopoly.
Business Organization Purchases/Supply There are two paths in the development of the supply function: through materials management, in relation to the recognition of the costs of purchase (more frequently); through the management of the supplying sources, with regard to the strategic or technological criticality of the purchases.
Business Organization Purchases/Supply Il marketing purchase It’s based on the systematic study of the supply market in order to consider and manage suppliers as a resource. It’s based on procurement mix: Product: = all decisions relating to materials supplied. The product policies are linked to critical state of economic situation and risk of supply. Price = the negotiation of economic conditions and issues related to quality and deliveries impacting on the total cost of supply. Sources supplying = the monitoring of the market supply is finalized to the identification of potential suppliers, their evaluation, selection and qualification, and to verify suppliers related to critical performances Communication = promoting the corporate image towards potential and consolidated suppliers, through financial and technical assistance and through lightness in production schedules
Business Organization Purchases/Supply Kraljic Matrix Non-critical Items: No important intervention Leverage Items: to optimize costs through the analysis of value and the search for new sources Bottleneck Items: Reliability, deliveries to guarantee also to higher costs Strategic Items: cooperation with the suppliers
Business Organization Purchases/Supply The outsourcing choices are due to : The search of elasticity margins according to fluctuations in demand; The exploitation of cost differentials; The need to cope with insufficient production capacity; The outsourcing of stages characterized by low crucial degree; The outsourcing working on bulky and weight materials; the outsourcing of parts to be carried in small quantity. The outsourcing choices are due to : - a "positive" attitude of search for greater flexibility, productivity and cost - a “precautionary” attitude link to the will to to relegate outside risk and impediment factors
Business Organization Purchases/Supply The evaluation of outsourcing choices considers: Internal costs Exsternal Costs purchase price; services charges, if not included in the price, such as transportation (logistics) costs, packaging, insurance and so on; the cost of plants, specific equipment and so on, however charged on customer; financial charges on specific equipment; any increased costs related to initial development the cost of the direct materials; the cost of the direct labor; other variable costs; changes in fixed costs amortization of specific investments; any start-up costs, understood in a broad sense
Business Organization Purchases/Supply In the relationships with suppliers different requirements must be distinguished: It provides elasticity to the production process in terms of production volumes Specialty sub-supply It is incremental and not internally available, it brings technological expertise not possessed from the purchaser Capacity sub-supply It’s the result of a constant and structured relationship Permanent sub-supply It’s the result of episodic relationship and linked up contingent requirements Occasional sub-supply • Suppliers are regarded as business assets : • - Investing in suppliers relationship • - Consolidating long-term relationships
Business Organization Purchases/Supply The enterprises reduce the number of their suppliers: • Through centralization of same category purchases • Standardizing the components and subset • Buying units/subunits rather than individual components
Business Organization Purchases/Supply The development of consolidated suppliers relationship and the sharing of the information on the production plans is finalized to reduce total costs, and to manage efficienlty the storage
Business Organization Purchases/Supply The consolidation of suppliers relationship requires: organizational integration: tocommon interbusiness procedures computer science integration: to invest in innterorganizational systems for the exchange/sharing of the data cultural integration: to invest in an acculturation /understanding process Levers of integration Operational Technological • Organization • - Quality control integrated procedures, sending orders,invoicing, transport,planningand production control • Uniformity of language (for example, materials tagging) • - New products integrated developing procedures (for example materials and common processes tagging) • - Uniformity of language Information technology - Integrated management systems - EDI for launch orders, forecasts, invoices - Integrated planning information systems (CAD-CAM) - EDI for project data communication • Culture • Uniformity in strategic guidelines on manufacturing (Production flow) - Uniformity of values (Manufacturing excellence, service orientation) • - Uniformity in the product design (Modularization, standardization) - Uniformity of values (eg., Technological excellence)
BusinessOrganization Purchases/Supply The reduction of time to market increases through the establishment of new monitoring tools on the entire supply chain.
BusinessOrganization Purchases/Supply SUPPLY CHAIN • Objective of a supply chain • What is Supply chain? • Supply Chain Management
BusinessOrganization Purchases/Supply What is Supply chain? Consists of all parties involved, directly or indirectly, in fulfilling a customer request Supplier Manufacturer Distributor Retailer Customer It refers to the distribution channel of a product, from its sourcing, to its delivery to the end consumer (also known as the value chain). The supply chain is typically comprised of multiple companies who are increasingly coordinating activities via an extranet
BusinessOrganization Purchases/Supply Objective of a supply chain • When is Supply chain effective? • Manage Product, Information and Fund flow • Maximise overall profit • Profit • Revenue generated from customer - costs incurred along the entire chain • (e.g. manufacturing / storing / distributing the product)
BusinessOrganization Purchases/Supply Objective is to be able to have the right products in the right quantities (at the right place) at the right moment at minimal cost
BusinessOrganization Purchases/Supply SUPPLY CHAIN MANAGEMENT Supply chain management is the integration of key business processes from end user through original supplier that provides products, services, and information that add value for customers and other stakeholders.
BusinessOrganization Purchases/Supply Supply chain management is a set of approaches used to efficiently integrate suppliers, manufacturers, warehouses, and customers so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time in order to minimize system wide costs while satisfying service-level requirements.
BusinessOrganization Purchases/Supply Supply Chain Management • Business association • Cluster secretariat Education and research organisations Specialised services and closely-related industries (certification, etc.) Producers • Distribution • Marketing • Packaging • Technical/technology demonstration centre • Technology transfer centre
Sourcing Operations Logistics BusinessOrganization Purchases/Supply INTERMEDIATE CUSTOMERS SUPPLIERS COMPANY F I N A L C O N S U M E R S F I N A L C O N S U M E R S Value Creation (Product/Service Development) Process Information/Demand Flows Value Delivery (Order Fulfillment) Process Value Maintenance (After Sale Service & Support) Process
Enterprise Organization Topics Business Functions Supply Production Logistics Marketing Quality R&D Definition Production cycle centrality Production process Supply chain, outsourcing Inferences on Strategy Process Organization Production programs and plans Control 38 38
Enterprise Organization Production Definition The production function deal with the transformation process of goods, and with all the operations with which the acquired resources (input)are converted into finished goods (output) for the market INPUT Transformation process OUTPUT Market 39 39
Enterprise Organization Production Production cycle centrality The production cycle is central in every business, proceeded by the supplying process and followed by distribution, continually interconnected with marketing, design, finance, human resources, R&D Incoming logistics Supplying and raw material management Outgoing logistics Distribution and products delivery and management Production Function Marketing Marketing mix etc. Human resources Jobs organizations and resources management Finance Mng and planning of financial necessities R&D Design, new products development 40 40
Enterprise Organization Production Production chain Rappresents the system of enterprises involved and participating to the transformation of inputs into finished products, contributing to deliver into final market Outsourcing • Enterprises sometimes need external support in logistics, production, finance support, etc., in order to became more flexible in costs (from fixed to variables), financial need decrease, know-how concentration, networks support fulfillment, core business focusing Production de-centralization Growing trend leading to great enterprises transformed in a central unit as controlling and dispatching outside processes and activities, maintaining internally market distribution and overall management and coordination. 41
Enterprise Organization Production Strategies Choises Focus Price-competition Costs Differentiation Quality Production Choices Focus Mix production definition Mix, Quality, Quantity Plants definition Dimensional targeting, technologies, external services Logistics determinations Vertical integration, production de-centralization 42
Enterprise Organization Production Production organization typologies Production Cycle characteristics Operating process Distinct units/goods Intermittent Lab (job shop) Differentiated mass production Mix Batch Standard mass production Continuous Line production Homogeneous products Continuous Continuous flow production 43
Enterprise Organization Production Production plants Design Plant capacity to remain competitive under sub-utilization a) Lay out Economic flexibility b) Tech and economical flexibiliy Plant capacity to adapt to different products with low switching costs c) Flexible automation Technical flexibility d) Capacity 44
Enterprise Organization Production Stocks as a balance between production and selling 45
I. Production system’s Reporting Enterprise Organization Production Production function organization II. Production control systems III. Reactive production systems 46
I. Production system’s Reporting Production orders Material invoice Operation master lists Material requests reports Work timing reports Resources availability reports Production status report Enterprise Organization Production 47
A. Production orders Production orders authorize every production unit to process their job Enterprise Organization Production B. Materials invoices List of materials composing each product C. Operation master lists List of operation sequence of human resources and machinery necessary for each product D. Material requests reports These requests prepare materials and authorizes their release from stocks for production purposes 48
E. Work timing report Useful to document production timing and work management of every production order Enterprise Organization Production F. Resources availability reports Detailed stock availability report of materials/products necessary to operations G. Production status report Details completed productions vs orders and how these relate to global production. Orders are monitored and registered 49
Production control systems 1 Order to production 1 Production control 2 2 Order to production 3 2 Production order completed N Production reports Journal Voucher Journal Voucher Overal cost of production Costs production status To Management Production control Operating units Stocks control Costs accounting General register 2 Production order completed 50