Product (or Service) Development Plan Chapter Nine Operations Plan and Product (or Service) Development Plan Operations Plan and Product (or Service) Development Plan By Bruce R. Barringer, PhD Department of Management University of Central Florida Orlando, FL 32816 Email: Bruce.Barringer@bus.ucf.edu Dr. Bruce Barringer University of Central Florida 9-1

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Introduction Operations section How to produce your product or service and run your business The status of the development of a product or service The first part of the chapter describes the operations section of a business plan, which focuses on how you will produce your product or service and run your business. The section half of the chapter focuses on a topic that is signaled out in some business plans and is not in others—the status of the development of a product or service. If you are developing a non-existent product, you’ll need to include a chapter that describes the design and development of the product. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Operations Plan How your business will be run and how your product or service will be produced Operating model and procedures Business location Facilities and equipment Operations strategy and plans The operations plan section of the business plan outlines how your business will be run and how your product or service will be produced. The topics that are generally included, and will be discussed below, include: operating model and procedures, business location, facilities and equipment, and operations strategy and plans. Other topics may be included depending on the nature of the business. The degree of importance that the reader of your plan will place on the operations plan varies dramatically by plan. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Operations Model and Procedures Objective Fully understand operational details of launching and running your business How inventory will be stored Production cycle Bottlenecks Seasonal production loads Quality control The primary objective of this section is to show that you have a firm grasp on the operational details of launching and running your business. Examples of issues that fall into this category include: An explanation of how you inventory will be stored and how frequently it will be turned over. A description of the length and nature of your product or service’s production cycle (when do you pay for inputs?, how long does it take to produce the product?, when does the customer buy the product?, when do you get paid?) An explanation of where bottlenecks are likely to occur in your manufacturing process or service delivery and how these will be handled. A explanation of how seasonal production loads will be handled without service disruption (normally accomplished by building up inventory and using part-time help during beak periods) An explanation of how your quality control will be managed. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Business Location Geographic location of business Proximity to labor force Closeness to suppliers Access to transportation Access to international shipping alternatives Proximity to customers Access to favorable state and local tax rates Access to economic incentives Proximity to high-quality community This section of your plan describes the geographic location of your business. There are several specific instances in which a business’s location is a critical factor is in ability to operate efficiently and effectively. These instances include: Proximity to a qualified labor force. Closeness to suppliers. Access to transportation, such as a major airport or an interstate highway. Access to international shipping alternatives, such as a major airport, a rail hub, and/or a seaport. Proximity to customers with a profile conductive to a firm’s business, such as a high income neighborhood for an upscale clothing boutique or a certain ethnic population for an ethic restaurant. Access to favorable state and local tax rates. Access to economic incentives for locating in a certain area, such as tax abatements and/or low priced land or labor. Proximity to a high quality community in terms of public education, recreational opportunities, healthcare and the arts, to attract a high quality workforce. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Facilities and Equipment Identify facilities and equipment Describe how acquired (purchase, lease) Facilities of business partners This section describes a firm’s facilities and equipment. You should list your most important facilities and equipment, and briefly describe how they will be (or have been) acquired, in terms of whether they will be purchased, leased, or acquired through some other means. If you will be producing a product and will contract or outsource your production, you should comment on the facilities of your business partners Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Operations Strategy and Plans Strategy issues Working with partners Approach to quality control Production control Inventory control This section deals with strategic and longer-term issues pertaining to your operations strategy. An important issue that is normally covered is the portion of your production process (or service delivery process) that you’ll perform in-house opposed to the activities that will be done by others. The model that many firms use in constructing their operations flow (or supply chain) is to perform the activities in-house that they are particularly good at and find partners to do the rest. Other issues that are discussed in this section include a firm’s overall approach to quality control, production control, inventory control, and similar issues, depending on the nature of the business. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Product or Service Development Plan Development status and tasks Challenges and risk Costs Intellectual property This section of your business plan has four parts: development status and tasks, challenges and risks, costs, and intellectual property Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Development Status and Tasks Describe the present state of the development of your product or service Product conception Prototyping Initial production and full production The purpose of this section is to describe the present state of the development of your product or service. Most products follow a logical path of development which includes product conception, prototyping, initial production, and full production. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Prototype A prototype is the first physical depiction of a new product If you are a very early stage firm and only have an idea, you should carefully explain how a prototype of your product will be made. A prototype is the first physical depiction of a new product. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Prototype Testing Prototype and usability testing measures the product’s ease of use and user’s perception of the experience After a company has a working prototype of its product, usability testing often takes place. Usability testing is a form of product/service feasibility analysis, which measures a product’s ease of use and the user’s perception of the experience. Usability tests are sometimes called user tests, beta tests, or field trials, depending on the circumstances involved. Usability testing is particularly important for software and Web site design. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Challenges and Risks Detail any major design and development challenges and risks that will be involved in bringing your product or service to market This section should disclose any major anticipated design and development challenges (and risks) that will be involved in bringing your product or service to market. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Costs Budget for remaining design and development work Costs of labor Material Consulting fees Prototyping Usability testing This section should provide a budget for the remaining design and development work that needs to be done to bring your product or service to market. The budget should include the costs of labor, material, consulting fees, prototyping, usability testing, and so on. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Intellectual Property Patents, trademarks, copyrights, or trade secrets secured relative to the products you are developing This section should describe any patents, trademarks, copyrights, or trade secrets that you have secured or plan to secure relative to the products or services you are developing. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Intellectual Property Intellectual property is any product of human intellect that is intangible but has value in the marketplace Intellectual property is any product of human intellect that is intangible but has value in the marketplace. It is called “intellectual” property because it is the product of human imagination, creativity, and inventiveness. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Trade Secret A trade secret is any formula, pattern, physical device, idea, process, or other information that provides the owners of the information with a competitive advantage in the marketplace A trade secret is any formula, pattern, physical device, idea, process, or other information that provides the owners of the information with a competitive advantage in the marketplace. Trade secrets include marketing plans, product formulas, financial forecasts, employee rosters, logs of sales calls, laboratory notebooks, operations manuals, and similar material. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Patents Patents are expensive ($5,000 to $50,000) and must be applied for within one year of when the product is first offered for sale, put into public use, or is described in any printed publication, such as a concept statement, or the right to file a patent application is forfeited Patents are expensive to obtain, which poses a challenge for many startups. The total cost of applying for a patent ranges from $5,000 to $50,000, depending on the nature of the patent. In addition, a patent must be applied for within one year of when a product or process is first offered for sale, put into public use, or is described in any printed publication, such as a concept statement, or the right to file a patent application for the product or process is forfeited Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright ©2009 Pearson Education, Inc. publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright ©2009 Pearson Education, Inc.  publishing as Prentice Hall