Writing a Business Plan - Operations Strategy

Preparation and production: How are you going to get it all done?

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A business plan should include an assessment of your product and operations strategy. Operations have a steep learning curve, but many successful companies, such as Wal-Mart, have grown by leveraging their operational infrastructure.

What Role Will Operations Play in Your Company?

This will depend on the nature of your business. If you’re selling a consumer good, it will be important to make sure you can get your products to your clients at the time you promise.

A service company relies on an operational plan to make sure customers are seen in an efficient manner. When writing your business plan, focus on where production and operational efficiencies are needed to help the company succeed, including buying power and economies of scale.

Where Will You Get Your Sourcing Materials?

This mostly applies for startups selling goods, rather than services. In this section of the business plan, spell out what raw materials are needed to make your product and from where you plan to get them. Sourcing can offer a huge cost advantage (or disadvantage) in the production stage, so it is important to do research on this. The price on commoditized products such as wood and plastic will likely be similar regardless of where you get them, but there could be a lot of variability if you require specialized materials.

Can You Outsource Any of This?

Sometimes the best production strategy is to let someone else handle it.

As a startup, you’re unlikely to have the capital to build your own factory to produce your product, so outsourcing to a manufacturing company is probably already in your plans. Look for a manufacturer, either domestic or foreign, who has experience producing goods similar to yours. Companies such as UPS, FedEx and DHL are no longer just package-shipping companies: They all offer supply-chain management services to help firms who want to offload that responsibility, and whose scale makes them more efficient.

Balance Opportunity Cost with Surplus Charges

An accurate projection of the demand for your product is key to a successful operational strategy. Remember to consider opportunity costs when placing an order. If you’re selling sweaters for $50, and you run out, every person who wanted a sweater and couldn’t get one represents a missed opportunity of $50 in revenue. Of course, if you order too many sweaters, you’ll be left with surplus inventory.

In your business plans, offer ideas of how you will unload any surplus. For example, selling slow-moving items to a liquidator can bring in some additional revenue, while donating surplus goods to a nonprofit can yield a nice tax deduction. Both methods reduce the cost associated with maintaining the inventory, such as warehousing and handling or disposing of the items yourself.

Be Diligent

It’s not uncommon for entrepreneurs to get tripped up at this stage of planning. Many new business owners have minimal experience in operations and production. Whether you develop this strategy yourself or bring in a consultant to help, be sure your business plan clearly states the role operations will play in your company, who will be involved in establishing this infrastructure and what the potential costs are.