business dynamics final

business dynamics final

the creation of finished goods uses the 5 factors of production, which are

land, labor, capital, entrepreneurship, and knowledge

operations management

A specialized area in management that converts or transforms resources (materials, labor) into goods and services as efficiently as possible. It is broader than production

operations management includes

Inventory management.

Quality control.

Production scheduling.

Follow-up services.

flexible manufacturing

Designing machines to do multiple tasks so that they can produce a variety of products.

Mass Customization

Tailoring products to meet the needs of individual customers.

More manufacturers are learning to customize.

Mass customization exists in the service sector too.

robotics

Allows manufacturing to continue 24 hours a day, seven days a week with great precision.

Robotics have improved productivity while reducing the number of jobs for humans.

Robots work in service businesses, such as hotels, as well.

Operations management planning helps inform or solve problems like:

Facility location

Facility layout

Materials requirement planning

Purchasing

Inventory control

Quality control

Facility Location

The process of selecting a geographic location for a company’s operations.

Find a site that makes it easy for consumers to use the company’s services and communicate their needs.

Facility Location for Manufacturers

Considerations for moving facilities to a new location:

Labor costs.

Availability of resources.

Time to market, including access to transportation and proximity to suppliers and customers.

Quality of life for employees.

Crime rates, cost of living.

Need to train or retrain local workforce.

Materials Requirement Planning (MRP)

A computer-based operations management system that uses sales forecasts to make sure that needed parts and materials are available at the right time and place.

Purchasing

The function in a firm that searches for quality material resources, finds the best suppliers, and negotiates the best price for goods and services.

Companies may use one supplier or many.

Just-in-Time (JIT) Inventory Control

A production process in which a minimum of inventory is kept on the premises and parts, supplies, and other needs are delivered just in time to go on the assembly line.

To work effectively, the process requires excellent coordination with suppliers.

Quality

Consistently producing what the customer wants while reducing errors before and after delivery to the customer.

Quality is not an outcome – it is an ongoing process of continuous improvement.

Many different frameworks and methods to monitor quality.

Marketing Intermediaries

Organizations that assist in moving goods and services from producers to businesses (B2B) and from businesses to consumers (B2C).

They are called intermediaries because they’re in the middle of a series of firms that distribute goods.

Agents and brokers

Marketing intermediaries who bring buyers and sellers together and assist in negotiating an exchange but do not take title to the goods.

Wholesaler

A marketing intermediary that sells to other organizations.

Retailer

An organization that sells to ultimate consumers

why marketing needs intermediaries

Intermediaries perform marketing tasks faster and cheaper than most manufacturers could provide them.

Intermediaries make the exchange process easier and more efficient and profitable.

How Intermediaries Create Exchange Efficiency

Intermediaries perform certain marketing tasks—such as transporting, storing, selling, and relationship building—faster and more cheaply than most manufacturers could.

They add value that exceeds the cost

Three key facts about marketing intermediaries

Marketing intermediaries can be eliminated but their activities cannot.

Intermediaries perform marketing functions faster and cheaper than other organizations can.

Marketing intermediaries add costs to products, but these costs are generally offset by the values they provide.

Utility

The value that organizations (intermediaries) add to goods and services when the products are made more useful or accessible to consumers than they were before.

6 forms of utility

Form

Time

Place

Possession

Information

Service

Form Utility

Producers provide form utility by changing raw materials into useful products.

Example: Starbucks makes coffee the way the customers want it. Farmer who turns wheat into flour.

Time utility

Adding value to products by making them available when they’re needed.

Example: Some grocery stores are open 24 hours.

place utility

Adding value to products by having them where people want them.

Example: 7-Eleven stores are found in convenient locations.

possession utility

Doing whatever is necessary to transfer ownership from one party to another, including providing credit, delivery, installation, guarantees, and follow-up service.

Example: A real estate broker and a savings and loan office provide possession utility.

information utility

Adding value to products by opening two-way flows of information between marketing participants.

Example: Newspapers, salespeople, libraries, and websites all act as intermediaries and provide information.

service utility

Adding value by providing fast, friendly service during and after the sale and by teaching customers how to best use products over time.

Example: The Apple Genius Bar helps during and after a purchase.

supply chains

The sequence of linked activities that must be performed by various organizations to move goods from the sources of raw materials to ultimate consumers.

Supply-chain management

The process of managing the movement of raw materials, parts, work in progress, finished goods, and related information through all the organizations involved in the supply chain; managing the return of such goods, if necessary; and recycling materials when appropriate.

Today, supply chains can be very complex and expensive

logistics

The marketing activity that involves planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit.

Seven Rs: getting the right product to the right place, to the right customer, at the right time, in the right quantity, in the right condition, and at the right price.

promotion

All the techniques sellers use to motivate people to buy their products or services.

Promotion Mix

The combination of promotional tools an organization uses.

Advertising

Paid, nonpersonal communication through various media by organizations and individuals who are in some way identified in the advertising message.

Social Media Advertising

Companies can measure how many times a post is viewed or shared.

Social media allows marketers to test promotions before bringing them to traditional media.

Personal Selling

The face-to-face presentation and promotion of goods and services.

Salespeople need to listen to customer needs, help reach a solution, and do everything possible to make the transaction as simple as possible.

Public Relations (PR)

The management function that evaluates public attitudes, changes policies and procedures in response to the public’s requests, and executes a program of action and information to earn public understanding and acceptance.

Three steps of a good PR program:

Listen to the public.

Change policies and procedures.

Inform people you’re responsive to their needs.

Publicity

Any information about an individual, product, or organization that’s distributed to the public through the media and that’s not paid for or controlled by the seller.

Advantages of publicity:

Free.

Reaches people who would not look at an advertisement.

More believable than advertising.

Disadvantages of publicity:

No control over whether the media will use a story or when they may release it.

It can be good or bad.

Once a story has been run, it is not likely to run again.

Sales Promotion

The promotional tool that stimulates consumer purchasing and dealer interest by means of short-term activities.

Push strategy

The producer uses advertising, personal selling, sales promotion, and all other promotional tools to convince wholesalers and retailers to stock and sell merchandise.

Pull strategy

Heavy advertising and sales promotion efforts are directed toward consumers so that they’ll request the products from retailers.

Accounting

The recording, classifying, summarizing, and interpreting of financial events and transactions to provide management and other interested parties the information they need to make good decisions

Financial Accounting

the means by which management provides information (such as financial statements) that assist external parties in making decisions about the company.

Managerial Accounting

the means by which management provides information (such as costs of production, marketing, preparing budgets, checking whether operations are within budget limits) that assist internal parties in making decisions about the company.

Tax Accounting

the means by which management determines the amount of taxes that a company owes, how to legally reduce those taxes, and analyzes the impact of business decisions on taxes.

Three Key Financial Statements

Balance Sheet

Income Statement

Statement of Cash Flows

Balance sheet 3 main sections

Asset- Resources owned or controlled by the corporation that will provide a future benefit. Current and non-current

Liabilities- Debts of the business. Amounts owed to creditors such as banks and employees. Current and non-current

Shareholders’ Equity- Owners’ claim on the net assets of the business. Consists primarily of contributed capital and retained earnings

Fundamental Accounting Equation:

Assets = Liabilities + Equity

income statement

The financial statement that shows a firm’s profit after costs, expenses, and taxes; it summarizes all of the resources that have come into the firm (revenue), all the resources that have left the firm, expenses, and the resulting net income or net loss.

revenues

Wealth generated from products sold or services rendered

Also known as Sales or “The Top Line

expenses

Wealth outflow from the costs associated with selling products or services

gains

Net wealth inflows from transactions that are not part of normal operations

losses

Net wealth outflows from transactions that are not part of normal operations

net income

Also known as Net Earnings, Net Profit, or “The Bottom Line

statement of cash flows

Financial statement that reports cash receipts and disbursements related to a firm’s three major activities: operations (cash transactions associated with running the business), investments (Cash payments and receipts from purchasing and selling long-lived (producing) assets and investments in other businesses), and financing (cash raised by taking on new debt, or equity capital or cash used to pay business expenses, past debts, or company dividends).

Generally Accepted Accounting Principles (GAAP)

The standard framework of guidelines for financial accounting used in any given jurisdiction; GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statements.

finance

The function in a business that acquires funds for the firm and manages those funds within the firm.

Finance activities include:

Preparing budgets.

Doing cash flow analysis.

Planning for expenditures.

Financial Management

The job of managing a firm’s resources to meet its goals and objectives.

Financial managers

Examine financial data (prepared or reviewed by accountants) and recommend strategies for improving financial performance.

what worries financial managers

Market unpredictability.

Interest rates.

Cyberthreats.

Financial regulations from the government.

Volatility of the dollar.

Foreign competition.

Environmental regulations.

most common reasons a firm fails financially

Undercapitalization.

Poor control over cash flow.

Inadequate expense control.

financial planning and its 3 key steps

Involves analyzing short-term and long-term money flows to and from the company.

Three key steps:

Forecasting the firm’s short-term and long-term financial needs.

Developing budgets to meet those needs.

Establishing financial controls to see if the company is achieving its goals.

Forecasting Financial Needs

Short-term forecast predicts revenues, costs, and expenses for a period of one year or less.

Long-term forecast predicts revenues, costs, and expenses for a period longer than one year and sometimes as long as five or ten years.

budget

Sets forth management’s expectations and allocates the use of specific resources throughout the firm.

The budget is the guide for financial operations and expected financial needs.

capital budget

Highlights a firm’s spending plans for major asset purchases that often require large sums of money.

cash budget

Estimates cash inflows and outflows during a particular period like a month or quarter.

Operating (or master) budget

Ties together all the firm’s other budgets and summarizes its proposed financial activities.

financial control

A process in which a firm periodically compares its actual revenues, costs, and expenses with its budget.

Most companies hold at least monthly financial reviews.

Identifies variances to the financial plan and allows the firm to take corrective action.

Key Needs for Operational Funds

Managing day-by-day needs of the business.

Controlling credit operations.

Acquiring needed inventory.

Making capital expenditures (Major investments in either tangible long-term assets such as land, buildings, and equipment or intangible assets such as patents, trademarks, and copyrights.)

Debt financing

Funds raised through various forms of borrowing that must be repaid.

Equity financing

Money raised from within the firm, from operations or through the sale of ownership in the firm (stock or venture capital).

Short-term financing

Funds needed for a year or less.

Long-term financing

Funds needed for more than a year.

trade credit

The practice of buying goods and services now and paying for them later.

Businesses often get terms such as 2/10, net 30 when receiving trade credit.

Different Forms of Short-Term Loans

Secured loan — Backed by collateral (something valuable, such as property) less risky

Unsecured loan — Doesn’t require any collateral. more difficult to obtain

Line of credit — Given amount of unsecured short-term funds a bank will lend, provided the funds are readily available.

factoring

The process of selling accounts receivable for cash.

Factors (market intermediaries) charge more than banks, but many small businesses don’t qualify for loans.

Commercial Paper

Unsecured promissory notes, in amounts of $100,000+ that come due in 270 days or less.

Since commercial paper is unsecured, only financially stable firms can sell it.

Long-Term Financing Objectives

Financial managers generally ask three questions:

What are the organization’s long-term goals and objectives?

What funds do we need to achieve the firm’s long-term goals and objectives?

What sources of long-term funding (capital) are available, and which will best fit our needs?

Debt Financing by Borrowing from Lending Institutions:

Long-term financing loans generally come due within 3 to 7 years but may extend to 15 or 20 years.

Risk/return trade-off — The principle that the greater the risk a lender takes in making a loan, the higher the interest rate required.

Debt Financing by Issuing Bonds:

A bond is like an I O U with a promise to repay the amount borrowed, with interest, on a certain date.

Secured bonds are issued with some form of collateral, such as real estate.

Unsecured (debenture) bonds are backed only by the reputation of the issuer.

Securities Markets

Financial marketplaces for stocks and bonds; serve two primary functions:

Assist businesses in finding long-term funding to finance capital needs.

Provide private investors a place to buy and sell securities such as stocks and bonds.

Types of securities markets:

Primary markets handle the sale of new securities.

Secondary markets handle the trading of securities between investors, with the proceeds of the sale going to the seller.

Initial public offering (IPO)

The first public offering of a corporation’s stock

Investment bankers

Specialists who assist in the issue and sale of new securities. (Goldman Sachs, JP Morgan, Morgan Stanley). Assist with financial analysis to comply with SEC requirements, sometimes the underwrite an issue

Institutional investors

Large organizations, such as pension funds or mutual funds, that invest their own funds or the funds of others.

Stock Exchange

An organization whose members can buy and sell (exchange) securities for companies and investors. (NYSE)

Over-the-counter (OTC) market

Exchange that provides a means to trade stocks not listed on the national exchanges.

NASDAQ

A nationwide electronic system that communicates over-the-counter trades to brokers.

Stocks

Shares of ownership in a company.

Stock certificate

Evidence of stock ownership that specifies the name of the company, the number of shares it represents, and the type of stock being issued.

Dividends

Part of a firm’s profits that the firm may distribute to stockholders as either cash payments or additional shares of stock.

Advantages of Issuing Stock

Stockholders are owners of a firm and never have to be repaid their investment.

There is no legal obligation to pay dividends.

Issuing stock can improve a firm’s balance sheet since stock creates no debt.

Disadvantages of Issuing Stock

Stockholders have the right to vote for a company’s board of directors. Issuing new shares of stock can thus alter the control of the firm.

Dividends are paid from after-tax profits and are not tax-deductible.

The need to keep stockholders happy can affect managers’ decisions.

Common stock

The most basic form of ownership in a firm; it confers voting rights and the right to share in the firm’s profits through dividends. Common stockholders generally also have preemptive rights to purchase new shares to maintain their proportional share of ownership.

Preferred stock

Stock that gives its owners preference in the payment of dividends and an earlier claim on assets than common stockholders.

Do not have voting rights.

Preferred stock can be callable (which means preferred stockholders could be required to sell their shares back to the corporation), convertible to common stock, or cumulative.

bond

A corporate certificate indicating that a person has lent money to a firm.

principal

The face value of the bond