Nonprofit Fundraising e-books:

The Fundraising Series of eBooks

The authors of the below listed eBooks, writing in their areas of expertise,
have a combined tenure in service to the nonprofit community of over
60 years.

The Fundraising Series — Book 1: The Basics: Perceptions
& Realities

The Fundraising Series — Book 2: Special Events

The Fundraising Series — Book 3: Guidance for the New Nonprofit

The Fundraising Series — Book 4 : Major Gifts: Planning and
Implementation

The Fundraising Series — Book 5: Capital Campaigns

The Fundraising Series — Book 6: Grants & Grantsmanship

The Fundraising Series — Book 7: Finding & Getting Federal
Government Grants

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The Fundraising Series – Book 1 – The Basics:
Perceptions & Realities

This book is about the acquiring of donated gifts/contributions for nonprofit organizations. It is not about “fundraisers”– ticket or product sales. The intent of this book is not to provide a “how to” for raising money, but to help you develop the mindset necessary to be successful at “legitimate” fundraising. Order your book here.

The Fundraising Series – Book 2 – Special Events

Everyone loves a good event, but not everyone will have the ingredients to make it happen. This book is designed to help you determine whether special events are right for your nonprofit; and, how to be sure that your event is unique/memorable, not just another dinner, luncheon or auction. Order your book here.

The Fundraising Series – Book 3 – Guidance
For The New Nonprofit

This book – this entire series – is written and intended for nonprofit board members, staff and volunteers to help them understand what real nonprofit fundraising is all about … and what it’s not. It is the author’s intention to address some of the most common questions raised by board members, staff and volunteers. Order your book here.

The Fundraising Series – Book 4 – Major Gifts:
Planning and Implementation

This collection of essays and blog postings is intended to give nonprofit leaders and staff an overview of Major Gifts Fundraising that will help you develop an understanding of what it takes to ensure your organization’s future. Order your book here.

The Fundraising Series – Book 5 – Capital Campaigns

This collection of essays and blog postings is intended to help you understand the elements of and prepare for a capital campaign; so that, when you hire a staff campaign director or engage counsel, their time (and your money) will be used most effectively. Order your book here.

The Fundraising Series – Book 6 – Grants &
Grantsmanship

This book is written and intended for nonprofit staff, board members and volunteers to help them understand what the Grantsmanship process is all about, and what it’s not. A realistic (although dramatic) definition of “grantsmanship” would be, “The cradle to grave process for ‘conceiving’, ‘birthing’, and ‘raising’ grants. here.

The Fundraising Series – Book 7 – Finding &
Getting Federal Government Grants

Book Seven in The Fundraising Series, titled “Finding & Getting Federal Government Grants and written by Jayme Sokolow, Ph.D. This book is intended for nonprofit staff, board members, and volunteers to help them research and become successful applicants for federal grants. here.

 

 

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Supply Chain Management: Guidelines and Resources

Copyright, Carter McNamara, MBA, PhD

This topic in the Library is written especially for those new to SCM. It also aims to include nonprofits and small businesses in its scope. As you read this topic, think about the activities of a certain product or service that you know about, or are even involved in developing or providing to customers. Before reading this topic, you might read about the Relationship Between Managing Supply Chain, Operations, Quality, Customer Relationships and Customer Service.

Sections of This Topic Include

What is Supply Chain Management?

• You Are Probably Part of a Supply Chain
• What is Supply Chain Management (SCM)?
• SCM Is Best Managed as a System
• SCM is for Any Type of Organization
• Problems With Ineffectively Managed Supply Chains
• Many Benefits of High-Quality SCM

Planning Your SCM

• Characteristics of High-Quality SCM
• Develop Your SCM Team Now
• Use SCOR© Model to Plan Your SCM?
• Establish SCM System Goals
• Decide Any Organizational Changes
• Use Push or Pull Drivers to Manage Your Supply Chain?
• Partner With Others to Operate Your SCM?
• Select the Best SCM Software

Developing Your SCM

• Redesign Your Organization As Needed for SCM
• Delegate QMS Goals to Teams and Employees
• Train Your Employees About SCM Systems and Management

Managing Your SCM

• Three Levels of Managing in SCM
• Chain of Management Processes in SCM
  • Strategic Planning Process
  • Demand Planning Process
  • Supply Planning Process
  • Procurement Process
  • Manufacturing Process
  • Warehousing Process
  • Order Fulfillment Process
  • Distribution Process
  • Customer Service Management
  • Customer Relationship Management
    
• Manage These Flows Through Your Supply Chain
• Managing Risk Management in Your SCM
• Managing Safety and Security in Your SCM
• Managing Ethically and Social Responsibility in Your SCM
• Evaluating Your SCM Performance

General Resources

• Additional Overviews
• Certifications
• Glossaries
• Organizations

Also consider

• Customer Relationship Management
• Customer Service Management
• Operations Management
• Product and Service Development
• Related Library Topics

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WHAT IS SUPPLY CHAIN MANAGEMENT?

You Are Probably Part of a Supply Chain

What is a Supply Chain?

If you work in an organization that produces tangible offerings (products) and/or intangible offerings (services) to customers, and if you are involved in any the following organizational activities, then you are part of a supply chain:

1. Strategic planning about what market, products and services are provided by the organization
2. Estimating what the consumer needs (forecasting demand) will be for those products and services
3. Making sure there will be sufficient resources (materials planning) to meet that demand
4. Identifying who will supply those resources (who will be the suppliers)
5. How you will buy (or procure) them
6. How you will get the resources into your organization (these are matters of inbound logistics)
7. How you will build (or manufacture) them
8. How you will store (or warehouse) all of them (that is, how you will inventory them)
9. How you will get the products or services delivered to the customer, for example, sold directly or through a retailer (these are matters of distribution and outbound logistics)
10. How you will ensure the product or service meets or exceeds the customer’s expectations (matters of customer service and customer relationship management)

NOTE: All of the activities and terms in the above parentheses are the typical sequential components in a supply chain.

Other Definitions of a Supply Chain

This is sometimes where readers start to get overwhelmed and confused when reading about supply chains and SCM. If they have heard of the more common topic of logistics, then descriptions of supply chains can seem even more confusing.
However, Intek Freight and Logistics, Inc provides a very useful description of a supply chain, as well as how it differs from logistics:

“To sum up logistics and supply chains, think of a football game where logistics is the game on the field of play and the supply chain is the stadium where the game is played.

From the game perspective of the analogy, the movement of the ball up and down the field of play to deliver a score is logistics.

The stadium, on the other hand, represents all the physical and communication components. Think of the massive amounts of money put into a professional football stadium to deliver the best experience for the buying customers (the fans). There is the stadium itself, plus the communication points between coaches in the box to coaches and players on the field. The communication network allows calls, still pictures and replay videos to execute to the highest levels to score points and have the customers standing on their feet cheering for more.

The feedback mechanism of scoreboards, referees, replay screens, and for those really into the game, radio commentators (providing play-by-play and overall game analysis), give feedback all along the way through a scoring drive to assist in delivering the very best results.”

Here is another perspective: “The supply chain is probably one of the more complex systems that all managers have to be knowledgeable about. Its broad coverage, which includes entire organizations, people, information, various activities and all other resources that play a role in the flow of products or services from producers to suppliers to customers to end users. This complexity, coupled with its dynamic nature, calls for a way to keep that flow going in such a way that facilitates and does not, in any way, hinder the operations of the business. This discipline is called supply chain management.” Anastasia in Cleverism

What is Supply Chain Management (SCM)?

Definitions of SCM

SCM involves numerous management activities and components in the supply chain. Therefore, it is useful to consider a couple of careful definitions of SCM.

• The Council of Supply Chain Management Professionals (CSCMP) defines SCM: “Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.”
• “Supply chain management (SCM) is the discipline that manages supplies and processes through all of the stages of a project, product or business deliverable. Business material has a journey as it moves from one state to the next until it’s ready to be delivered to the customer or stakeholder. Then there’s the logistics of taking the finished product from one place to another. Getting through these various stages efficiently requires control—that’s where supply chain management comes in.” ProjectManager

How SCM Compares to Logistics, Operations Management and ERP

Now you have read the various definitions of SCM. If you have any acquaintance with logistics, operations management and enterprise resource planning, then the four practices might seem so similar as to be confusing. However, they are actually different from each other.

SCM Compared to Logistics?

Logistics is often considered to be the storage and transportation of goods and services. The flow of those resources can be from their input to the organization to the customer, and backwards from those end points, for example, in the case of customer returns. Thus, logistics is a component of the supply chain.

SCM Compared to Operations Management

Operations management is concerned with ensuring high-quality effectiveness and efficiency of a broader range of operations throughout the organization than SCM. For example, operations management puts more focus on meeting strategic goals, coordination of various departments and personnel across the organization, and typically on management of more facilities than those directly involved in SCM.

SCM Compared to ERP

Note that SCM is also different than Enterprise Resource Planning (ERP). The activities of SCM include ensuring timely and cost-effective transportation of goods and materials into the organization, as well as outside of the organization and ultimately to the customer. (These are matters of logistics.)

Thus, SCM often collaborates with a variety of external organizations, for example, suppliers, manufacturers and transporters. As a result, SCM also focuses on the quality of relationships with those types of organizations. In contrast, ERP focuses exclusively on activities within the organization. Its focus is also much more on detailed activities, than on broad relationships.

• Operations Management and Supply Chain Management: Understanding the Nuances
• Supply Chain Management vs. Operations Management
• The Differences Between Logistics, Operations and Supply Chain Management

Also see

• Operations Management
• Product and Service Development

SCM Is Best Managed as a System

A system is a recurring cycle of activities, including:

1. Planning to determine goals and how they can be achieved, and
2. Then developing and managing resources and activities to achieve those goals, and
3. Then evaluating whether the goals have been achieved or not, and
4. Then using the learning from the evaluation to improve the quality of the next round of planning.

Thus, a system is a recurring loop of components (the supply chain) — in a continuous cycle of improvement. SCM is best planned and managed as a system; otherwise, the management tends to be highly reactive and sporadic, often resulting in a patchwork of disconnected and ineffective activities.

SCM is for Any Type of Organization

Service Organizations

The sequence of activities listed in the previous section, You Are Probably Part of a Supply Chain, is referred to as the “supply chain”. Many of the articles about SCM refer to the manufacturing products in larger organizations. However, if you work in a service industry, think about how each of the listed activities applies to your own organization.

For example, if your organization offers consulting services, then your organization still needs strategic planning and demands planning to clarify what types of services will be provided to whom, and what the demand for those services might be.

It still needs to be sure there are sufficient personnel (resources) with certain expertise who can be hired (procured) and provided (supplied) to your organization, as well as what it will cost to get those resources (transported) to your organization. It still needs to plan how to organize and train (develop) them, as well as how to maintain (store) them until they are put into use (delivered) to the clients.

Small Organizations

The managing of the activities through the supply chain — the supply chain management (SCM) — applies to small organizations, as well. The supply chain and the management of the supply chain are likely to be more complex than in a large organization.

However, it could be argued that SCM is just as important to the health of the small organization because, for example, the poor development and delivery of products and services to customers could pose a significant threat to the life of the organization.

In small organizations, there are often far fewer resources to rapidly identify and solve organizational problems, while also attending to customer needs. There is often far less money to hire expertise to help, as well. Problems in the supply chain often result in more dissatisfied customers and less revenue — another problem that small organizations cannot afford.

Nonprofit Organizations

A common misconception is that nonprofits are very small organizations that primarily offer services, and that they are seldom the types of large manufacturing organizations so often written about in the SCM literature.

However, the primary difference between a nonprofit and a for-profit is just that the nonprofit dedicates its financial resources exclusively toward meeting some social need, while a for-profit aims to accomplish a profit that can be allocated back to the owners or shareholders.

Otherwise, many nonprofits provide products to their clients, much as for-profits do. Actually, a small nonprofit is much more like a small for-profit in nature than a large nonprofit. Similarly, a large nonprofit is much more like a large for-profit in nature than a small nonprofit. See
How Nonprofits Differ From For-Profits – and How They Are the Same

Problems With Ineffectively Managed Supply Chains

Many organizations reactively evolve some version of a supply chain over time. They piece together the necessary parts of the supply chain as they need them. They might even evolve to a fairly complete supply chain, but still not manage it as a tightly integrated and aligned system of components that needs to continually be managed and adjusted for maximum efficiency to meet customer demands, while reducing unnecessary costs and overhead. As a result, these organizations expose themselves to experiencing:

• Insufficient resources (inventory) to meet customer needs
• Excess, costly inventory of unused resources
• Increasing stress and conflicts among personnel trying to do more with less
• Poor quality products and services
• Products and services for which there is little customer demand
• Decreasing amounts of customers
• High turnover among employees
• Decreasing sales and profits

Many Benefits of High-Quality SCM

The overall benefits of proactively, systematically managing SCMs are numerous and can include:

• More efficiency in operations, resulting in decreased operational costs
• Improved understanding of customers’ needs, resulting in more demand for products and services
• Increased focus on the customer, rather than on the organization itself, resulting in improved customer service
• Faster product development and production, resulting in increased volume of products and services for customers
• Increased sales and decreased expenses, resulting in more profitability for businesses and more community impact for nonprofits
  • Top 5 Benefits of Supply Chain Management Software That will Double Your Business
  • Benefits of Responsible Supply Chain Management
  • Key 7 Advantages and Benefits of Supply Chain Management
  • Primary Business Benefits of Supply Chain Management
  • The Benefits of Integrated Supply Chain Management

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PLANNING YOUR SCM

Characteristics of High-Quality SCM

Before you progress in planning your SCM, it might be useful to get an idea of what high-quality SCM’s look like and operate like. We turn to Intek Freight and Logistics, Inc, this time for a listing of the characteristics of a high-quality SCM.

1. Consistency – be great all the time
2. Horizontal and vertical integration – it should be difficult to see where one component of the chain stops and other begins
3. Technology – continually invest in best technologies
4. Value network design – inbound and outbound activities all focused on the end customer
5. Data-driven – the amount of available and useful data is substantial — use it
6. Proactive use of data – always think about how you can use the data
7. Customization and flexibility – especially with communications and delivery to customer
8. Prepare for unexpected – regularly think of potential disruptions to the supply chain and what to do about it
9. Sustainability – increasingly, stakeholders want to see this value in their providers of goods and services
10. Compliance – stay up to date and comply with relevant laws and regulations
11. Transparency – nothing goes unnoticed and everything is communicated
12. Integrity – governance and executives should ensure ethical activities throughout the supply chain

• Global Logistics / Supply Chain Best Practices
• 10 Best Practices You Should Be Doing Now
• Best Practices for Optimizing Supply Chain Management
• Supply Chain Best Practices from 10 Leading Companies
• The Essential Guide to Supply Chain Management Best Practices

Develop Your SCM Team Now

The planning and implementation of an SCM system requires sufficient time, energy and expertise, as well as a variety of different perspectives. That means a well-qualified and designed SCM Team of the most suitable members from your organization. The SCM Team would make recommendations to management about, for example:

• Goals for the SCM system
• Metrics to measure progress toward the goals
• The best approaches to train employees about SCM
• Criteria to select the best SCM system
• The best SCM system that meets the criteria

It is best to draft a job description for the SCM Team to be used when explaining the SCM Team’s role to upper management and suggesting who should be on it. The description also gives guidance and direction to the SCM Team as its doing its job. It is often best, as well, to train the members of the SCM Team about quality management. That might suggest hiring an expert to do that training, as well as to being a resource to the SCM Team as it does its job.

Also see

• Hiring Consultants
• Team Building
• Team Performance Management

Use SCOR© Model to Plan Your SCM?

The SCOR model is widely used in planning SCM systems. Your SCM Team choose this approach. The approach includes five overall stages, including:

1. Planning – includes, for example, decisions about aligning the supply chain with strategic goals, building versus buying, outsourcing, and activities across the supply chain.
2. Sourcing – includes, for example, decisions about cost-effectively procuring needed materials from the right suppliers, and always getting the materials in good condition
3. Making – includes, for example, decisions about facilities, activities and scheduling to effectively produce goods and services
4. Delivering – includes, for example, activities to store goods and services, fulfill orders, and distribute goods and services to the customer
5. Returning – includes, for example, authorizing returns, transporting defective products, and replacing products or refunding fees

• 5 Essential Stages in Developing a Successful Supply Chain
• The SCOR Model for Supply Chain Strategic Decisions
• Basics of Supply Chain Management

Establish SCM System Goals

Identify Relevant Organizational Goals

Your organization should have done strategic planning to clarify its overall purpose and priorities for the coming years. Ideally, the planning was done proactively and explicitly. The priorities are usually specified in terms of strategic goals.

Strategic goals related to the SCM might be, for example, regarding what products and services will be offered, as well as when and where. Planning might have also specified the value proposition of the organization, which specifies the value that customers get from using the organization’s products and services. Planning might have also specified certain financial goals to achieve, such as reducing expenses by a certain amount or raising revenues by a certain amount.

• Supply Chain Strategy: Back to Basics
• Supply Chain Strategy and Business Strategy

Also see

• Strategic Planning
• How to Do to Planning
• Goals and Objectives Should Be SMARTER

Identify SCM Goals and Align with Organizational Goals

Here is an example of an SCM strategic plan that gives examples of SCM goals, including as derived from a strategic SWOT analysis. The article Defining the Supply Chain gives a useful overview of examples of SCM goals and associated objectives. The article mentions goals, including to achieve efficient fulfillment, drive customer value, enhance organizational responsiveness, build network efficiency and facilitate financial success.

The above are examples to help you with your thinking. However, your SCM goals should be derived from your own organization’s strategic priorities. For each SCM goal, associate various milestones, or key performance indicators, of progress that you are making progress toward achieving the goal. (For ideas of goals, consider various metrics for evaluating your SCM.)

• Align Your Supply Chain With Your Business Goals
• Six Steps to Align Supply Chain with Corporate Strategy
• Supply Chain Metrics: Make Sure They Are Aligned with Your Strategy!

Also see

• Action Planning and Operational Planning
• Strategic Action Plans & Alignment

Be Realistic In Your Planning

Especially if yours is a small to medium-sized organization, or if this is your first time in being focused and intentional about quality management, then be very realistic about what you can accomplish. Develop a plan with various phases to be implemented over a realistic period of time. Build in some quick accomplishments in order to sustain excitement and motivation to implement the plan. Be willing to change the plan while implementing your quality management during its first year.

Also see
How to Do to Planning

Decide Any Organizational Changes

A conventional rule in deciding the structure of something is “form follows function.” In other words, the structure of the organization (its design and roles) should be to what is most useful in implementing the organization’s functions (its goals and methods to achieve those goals).

So what departments, teams and employees are now — and should be — involved in SCM, including to use the SCM software? What goals should each department, team and various employees have in SCM? What SMART objectives should be associated with each goal?

• Organizational Structures and Design
• Work Design and Job Design
• How to Know What Positions and Jobs Are Needed

Use Push or Pull Drivers to Manage Your Supply Chain?

Push and pull are two different approaches to managing supply chains. It is important early on when planning and designing a supply chain to decide which of the two approaches is best for the organization and its customers.

In the push approach, goods and services are “pushed” through the supply chain to the customer. The push approach starts by forecasting the demand for the goods and services, and then making sure the supply chain effectively operates to meet that expected demand. So the effectiveness of the approach depends very much on the accuracy of the forecasts.

The pull approach starts from relying on actual customer demands in order to forecast the necessary supplies and any changes needed in the supply chain in order to promptly meet those demands. So the effectiveness of this approach depends very much on the supply chain promptly learning and meeting the demands of the customers.

• What is Push and Pull Strategy in Supply Chain Management?
• Push-Pull Strategy
• Push vs. Pull in Your Supply Chain…What’s the Difference?

Partner With Others to Operate Your SCM?

There can be numerous types of other organizations that can work with your organization to help operate your supply chain. So your organization must closely manage its relationship with each of those other organizations. This includes clarifying the roles and responsibilities of each, establishing complete and accurate contracts and agreements, monitoring the performance of each, and evaluating the usefulness of each relationship.

RedStag Fulfillment lists some types of partners in this order:

• Vendors – that produce and provide raw materials
• Producers – that organize, assemble and/or manufacture products and services
• Warehouses – that store, monitor and organize products and materials
• Distribution centers – that collect, manage and provide products and services
• Retailers – that sell products and services to customers via various different methods
  • Partnerships to Improve Supply Chains
  • Supply Chain Partnerships Or Supply Chain Management?
  • Establishing Supply Chain Partnerships
  • Supply Chain Collaboration
  • Managing Relationships in the Supply Chain

Also see

• Team Building
• US Business Contracts

Select the Best SCM Software

What Type of Software Platform is Best?

On-premises

In this type, you install the SCM software on your computer system, as well as maintaining, troubleshooting and updating the software. You would either use one of the free SCM tools or buy or license a tool from a vendor.

This type of software installation works best if you have available ongoing technical skills for installation, troubleshooting and upgrades. You also will need considerably more time to install the software as you climb the often steep learning curve to understand the software and its installation. You are likely to face occasional periods of downtime of the software as problems are solved and upgrades are installed.

Cloud-based

In this type, you subscribe or license the software from a vendor that makes the software available to one or more people in your organization, depending on the licensing agreement. The vendor manages all aspects of the software, including installation, testing, training, troubleshooting and upgrades. This works if you have a suitable budget. Fortunately, the price of SCM software has continued to decrease over the years.

How to Select the Right SCM Software

Questions to Consider When Specifying Your Software Requirements

Itarian lists a variety of questions to consider, including:

1. Is it suitable for your size of organization?
2. Are there any limitations to the number of users?
3. Is it easy to use?
4. Can it be integrated with your other computer systems?
5. Is it easy to integrate with other supply chain management solutions that you already use?
6. What are its security features against hackers’ attacks?
7. Is the software affordable and fits in your budget?

You should also consider:

1. What type of SCM software do you need?
2. What type of technical support does the vendor provide? How reliable is it?
3. Does the vendor provide training?
4. Does the vendor include a careful manual for implementing the software?
5. Does the vendor provide demonstrations that your employees can experience?
6. What are some of its customers saying about the software?

Specify the Requirements for the Software

Now you are ready to specify what you want the SCM software to accomplish for you. It is best to write a software requirements specification (SRS), while focusing now on the needs of your organization, and not on the particular software tool that you might already prefer. Later on, you will take your SRS to the various SCM software vendors for you to carefully decide if their software will indeed meet your organization’s needs.

• Requirements & Features of Supply Chain Management
• Sample SCM Software Requirements Specification (scroll down the page)

Lists of Some SCM Software and Costs to Consider

• Supply Chain Management Software
• 13 Essential Types of Supply Chain Management Tools
• Types of Supply Chain Management Software
• Top 15 Supply Chain Management Software
• Top 10: Supply Chain Management Software Companies

Free SCM Software

5 Open Source Software Tools for Supply Chain Management

For Small Organizations

Supply Chain Management Software for Small Businesses

For Nonprofits

Nonprofit organizations have supply chains, especially those focused on providing services. There seems to be an increasing number of for-profits organizations providing services. Thus, SCM software for businesses might also accommodate nonprofit organizations, so it certainly is worth contacting software vendors to ask if their software works for nonprofits.

Supply Chain Solutions for Disaster Relief Organizations

Now Select the Best Software For Your Needs

You are in a great position now to begin working with various vendors to get the best software to meet your needs, as specified in your SRS. You might include your specification in an overall Request for Proposal (RFP). You also might bring the members of SCM Team with you when talking to the vendors.

• 5 Tips for Choosing Supply Chain Management Software
• How to Choose Supply Chain Management Software
• How to Select the Best Supply Chain Management Software For Your Business
• Supply Chain Management Software Selection
• Selecting A Supply Chain Management System

Also see

• 4 Reasons Business Contracts Fall Apart
• US Business Contracts

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DEVELOPING YOUR SCM SYSTEM

Redesign Your Organization As Needed for SCM

Consider the goals and objectives that you established during the SCM planning for each department, team and employee associated with customer relationship management. What teams and roles should exist? How should they be integrated with each other? For example, which departments, teams and employees should be collaborating with each other and how? What organizational design would best facilitate that type of involvement and collaboration?

• Requirements for Successful Organizational Change
• Understanding Organizational Structures and Design
• Organizing or Reorganizing an Organization and Its Employees

All of the activities within an organization occur within the context of organizational performance management. Thus, having a basic understanding of that overall process will also give you an understanding of the major recurring activities in an organization and the general order in which they occur.
Organizational Performance Management

Delegate SCM Goals to Teams and Employees

Consider the SCM goals and associated objectives that you decided during the planning. Which goals should be delegated to which teams and employees? Make sure that you make the assignments according to the team performance management and employee performance management practices that are formally established in your personnel policies.

• Goal Setting with Employees — What Should Employees Work On?
• Team Performance Management: Performance Planning Phase (Assigning Goals)

Also see
Personnel Policies

Train Your Employees About SCM Systems and Management

Operating a high-quality SCM system requires well developed knowledge and expertise among employees. Depending on the employees role in the system, required skills can planning, organizing, leading and coordinating resources. It can include supervising, communicating and evaluating. It can include planning, monitoring, measuring and analyzing. Therefore, arrange highly practical trainings for your employees — trainings that match their busy schedules and trainings that include practice sessions.

• Supply Chain Education: What Skills Do Your Staff Need?
• The Importance of Supply Chain Training to Improve Your Business’ Bottom Line
• Skills for the New Era of Supply Chain Management – A Look to the Future

Also see
About Training and Development

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MANAGING YOUR SCM

Three Levels of Managing in SCM

It helps to get clearer perspective on managing SCM if you look at it as having the following three general levels that must continually get attention when managing a supply chain.

Strategic Level

Strategic planning involves clarifying the organization’s overall purpose and long-term priorities. Specific to a supply chain, strategic decisions answer, for example, what is our unique value to our customers, what sets us apart from our competitors and what are our values in serving our customers. It also answers what are our strategic priorities for the next few years, for example, to expand marketshare, increase profits, expand community impact or improve quality?

Also see
Strategic Planning

Operational Level

Where the management activities in the strategic level answer “What will we be doing?”, management activities at this level show how we will be doing it. Examples include designing and structuring the organization, getting and organizing the best people to address the strategic priorities. It also includes managing each of the components in the supply chain, as well as the important flows of information, finances, products, values and risk management across the supply chain.

Also see
Operations Management

Tactical Level

This level includes the many recurring day-to-day tasks necessary to operate the components in the supply chain. There are many examples, such as following policies and procedures to work with suppliers, doing timely and cost-effective procurements, transporting goods and supplies to and from the organization, tracking and monitoring resources in warehouses and communicating with personnel across the supply chain.

Also see

• Three Levels of Supply Chain Management
• 3 Step Beginner Guide to Supply Chain Planning
• The Ultimate Guide to Supply Chain Management

Chain of Management Processes in SCM

It is clear that SCM spans different management processes. Predictive Analytics Today suggested items 1-8, below, as being the “building blocks” of SCM.

1. Strategic Planning Process

This involves planning and specifying the strategic supply chain design. This might be done as part of the overall strategic planning process, which would also specify which products and services are provided and to which groups of customers.

• Strategic Planning
• Introduction to Strategic Supply Chain Management
• How To Do Strategic Supply-Chain Planning

2. Demand Planning Process

This involves planning how customer needs (demands) will be accurately and usefully forecasted, and how those forecasts will be communicated especially to the supply planning process.

• What’s the True Definition of Demand Management?
• Demand-Chain Management
• Lessons in Demand Management

3. Supply Planning Process

This involves planning how to ensure sufficient resources (raw materials, components, expertise, etc.) to develop into needed products and services. This also includes managing for effective supplier relationship management.

• Supply Planning: Processes, Options & Analytics, Oh My
• 5 Steps to Connected Supply Chain Planning
• Who Loves Ya?? Demand Planning or Supply Planning? (Part 1)

4. Procurement Process

This involves ensuring timely and cost-effective purchases of sufficiently needed resources, including finding (or sourcing) the resources, coordinating the most cost-effectiveness purchases, and accurately administrating the purchases.

• Procurement Processes in Supply Chain Management
• Driving Procurement Process Benefits in 4 Different Ways
• Procurement

5. Manufacturing Process

This involves regularly manufacturing goods by combining, integrating and aligning the supplies in a timely and cost-effective manner. It means accurately scheduling these production activities in close coordination with the forecasted rate of sales to customers. It means always conducting careful quality control to ensure products will always meet or exceed expectations of customers. In the case of service organizations, this process would include equipping personnel and materials to deliver services when needed.

• How Does Supply Chain Management Affect Manufacturing Companies?
• Manufacturing and Supply Chain Management Solutions
• Manufacturing Supply Chains

Also see
Quality Control
Quality Control Techniques

6. Warehousing Process

This involves transporting, organizing, storing, tracking and monitoring raw materials needed for products. (This in-bound transporting to the organization is sometimes considered to be part of the procurement process.) This can also include doing the same activities for produced products and services. This all must be done in timely, cost-effective and reliable manner.

• About Warehousing
• Warehousing Efficiency and Effectiveness in the Supply Chain Process
• 11 Warehouse Operations Best Practices

Also see
What is Inventory Management?
What is Inventory Management?

7. Order Fulfillment Process

This involves ensuring accurate sales order pricing, processing and billing, as well as orderly and efficient packaging — or provision — of products and services to customers. Depending on the nature of the products and services, this can include highly customized and expensive packaging or provisioning. It can also include arranging necessary warranty and optional customer service agreements.

• Secrets to Successful Order Fulfillment
• Order Fulfillment, Logistics and Supply Chain Management
• Order Fulfillment

8. Distribution Process

This involves planning and ensuring timely and cost-effective distribution of products and services to the customers (that is, outbound logistics), including the same activities in reverse order if products are returned by the customers or if customers are not satisfied with the quality of services.

• The Role of Distribution in the Supply Chain
• Distribution Channels and Supply Chain Management in High-Tech Markets
• Logistics and Distribution Models

9. Customer Service Management

This includes ensuring high-quality service and support to customers before, during and after your customers buy from you. It includes answering customers’ questions about products and services, and can include handling customers’ complaints.

• Customer Service
• What is Customer Service?
• 10 Types Of Customers Services – Customer Service Channels

10. Customer Relationship Management

This involves the ongoing activities to ensure high-quality relationships between the organization and its customers. Thus, this also includes the activities to ensure great customer service management.

• Customer Relationship Management
• The Three Phases of CRM

Manage These Flows Through Your Supply Chain

When trying to grasp the nature of activities through the supply chain, it helps to see them as different types of flows through the supply chain. That type of perspective can make it much easier in recognizing what needs to be managed and how. The direction of the flows depends on whether you had selected a push or pull approach to your management activities. When reading the following, you might think of the major processes in a supply chain, including:

1. Strategic processes
2. Demand processes
3. Supply processes
4. Procurement processes
5. Transportation to organizations
6. Manufacturing processes
7. Inventory management
8. Transportation/distribution to customers

Product Flow

This includes the development and movement of goods and services all the way from suppliers to customers. Thus, the timing of those activities in a particular supply chain component affects the timing of activities in the chain’s upcoming components, as well. The flow and affects are in reverse order in the case of returns from the customer.

Financial Flow

The costs of the supply chain tend to increase as activities proceed through the supply chain. Thus, the cost of a particular supply chain activity affects the available funds for the upcoming activities in the supply chain, as well.

Information Flow

There should be a constant flow of useful and timely information throughout the supply chain. Thus, the accuracy and timeliness of information in a particular supply chain activity affects the quality of information in the upcoming activities in the supply chain, as well.

Value Flow

The value of products and services increases through the supply chain. Thus, the value produced by a particular supply chain activity affects the value in the upcoming activities in the supply chain, as well.

Risk Flow

Risk can be any kind of disruption to activities in the supply chain, for example, breakdowns of machinery, suddenly unavailable materials, poor quality materials, or poor performance of personnel. A sudden disruption in an activity at any point in the supply chain becomes a disruption to the upcoming activities in the supply chain, as well.

• The Five Major Flows in Supply Chain
• Managing Supply Chain Flows
• Supply Chain Management – Process Flow

Managing Risk Management in Your SCM

Risk management is attempting to identify and then manage threats that could severely impact or stop the supply chain. Generally, this involves reviewing the supply chain, identifying potential threats and the likelihood of their occurrence, and then taking appropriate actions to address the most likely threats.

With the recent increase in rules and regulations, employee-related lawsuits and reliance on key resources, risk management is becoming a management practice that is every bit as important as financial or facilities management.

As written above, risks to the supply chain can include, for example, sudden breakdowns of machinery, unavailability materials, poor quality of materials and poor performance of personnel. Risk management should be applied to all components in the supply chain. Disruption at any point in the chain should be planned for and contingencies should be planned accordingly.

• Supply Chain Risk Management
• Supply Chain Risk Management (SCM)
• Five Techniques to Manage Supply Chain Risk

Also see
Risk Management

Managing Safety and Security in Your SCM

Safety and security are major concerns of today’s supply chain managers. The supply chain is comprised of numerous moving parts, ranging in size from unpacking containers, driving transport vehicles to constructing production facilities.

Often, the faster that a supply chain operates, the more products and services that it can provide. However, the faster it operates, the more likely that accidents and major disruptions can occur.

Concerns for safety are increasing as organizations outsource operations around the world, sometimes resulting in facilities and activities that are not as carefully designed and managed as those in the industrialized countries. This results in even more concerns about safety.

Security concerns are increasing, as well. Unfortunately, various terrorist attacks have included bombs and shootings in and around organizations with products and services that have been perceived as somehow being destructive to society. Computer hackers are growing more sophisticated in their abilities to attack and adversely affect computers and their networking. This poses a substantial risk to the operations of organizations and their supply chains around the world.

• Safety and Supply Chain Management Go Hand in Hand
• Focusing on Supply-Chain Management – Better Safety, Monitoring and Quality
• Supply Chain Risk Management

Managing Ethically and Social Responsibility in Your SCM

The social responsibility movement arose particularly during the 1960s with increased public consciousness about the role of business in helping to cultivate and maintain highly ethical practices in society and particularly in the natural environment.

Increasingly, organizations are being held publicly responsible for how their products and services are developed and provided. The public expects safe and secure working conditions. It expects workers to get livable wages. It expects products and services to be environmentally friendly.

Major public relations problems have occurred with organizations found to be collecting and selling customers’ private data without getting the customers’ permission to do so.

Consequently, the topics of social responsibility and business ethics are increasingly mentioned in publications and conversations about supply chain management.

• 5 Steps to a More Ethical Supply Chain
• The Ethical Supply Chain
• Corporate Social Responsibility in Supply Chains
• Six Steps to a More Ethical and Sustainable Supply Chain

Also see
Social Responsibility

Evaluating Your SCM Performance

Back in the Preparation paragraphs, you were encouraged to prepare for developing your SCM system by establishing goals for its performance. Goals could include desired results at the organizational level for SCM and for the SCM system itself.

Evaluations of the SCM should include assessing the extent of achievement of the SCM’s goals, as well as the quality of its ongoing operations to achieve those goals.

Evaluations of the SCM system should be done at regular intervals, not just at the end of the year. The more complex the products and services and also the falser that the supply chain operates, the more frequently that the evaluations should occur.

Here are several useful articles with metrics and guidelines to regularly evaluate the performance of your SCM system.

How to Evaluate SCM

• Evaluating Your Supply Chain Management Process
• Evaluation of Supply Chain Management
• ROI: How to Evaluate Your Supply Chain Performance

Metrics to Monitor During Evaluations

• 10 Supply Chain Metrics & KPIs You Need For A Successful Business
• 12 Key Metrics for Supply Chain Management
• All 17 Key Metrics For Supply Chain Management That You Ever Need

Also see
Evaluations
How to Design Successful Evaluation and Assessment Plans

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General Resources

Additional Overviews

• 3 Step Beginner Guide to Supply Chain Planning (excellent for beginners)
• The Ultimate Guide to Supply Chain Management
• Supply Chain Management
• What is Supply Chain Management? Definition, Example & Objectives!
• Logistics and Supply Chain Management – Comprehensive Guide
• Ultimate Guide to Supply Chain Management
• Supply Chain Management Tutorial
• Supply Chain Management – Complete Resource Guide

Certifications

• Top 8 SCM Certifications
• The 5 Best Supply Chain Management Certifications

Glossaries

• Supply Chain Definitions and Glossary (download it)
• Supply Chain Glossary of Terms

Organizations

• Association for Supply Chain Management
• Council of Supply Chain Management Professionals
• Chartered Institute of Procurement & Supply
• Supply Chain Council

---

For the Category of Operations Management:

To round out your knowledge of this Library topic, you may want to review some related topics, available from the link below. Each of the related topics includes free, online resources.

Also, scan the Recommended Books listed below. They have been selected for their relevance and highly practical nature.

• Related Library Topics
• Recommended Books

Introduction to Operations Management of Products and Services: Overview and Resources

Copyright, Carter McNamara, MBA, PhD

Before reading this topic, you might read about the Relationship Between Managing Supply Chain, Operations, Quality, Customer Relationships and Customer Service.

Sections of This Topic Include

Introduction to Operations Management (OM)

• What is Operations Management (OM)?
• Various Definitions
• What Are Goods and Services?

Roles in Operations Management

• Operations Management Specific Roles
• Chief Operations Officer
• Operations Manager

What is an Operating System?

• What Are Operations Systems?
• What is a System?
• What is an Operations System?
• Align With Strategic Planning

Planning Operations Systems

• Phase 1: Planning Operations Systems
• Product/Service Planning
• Capacity Planning
• Facilities and Layout Planning
• Job and Work Design
• Work Flow Management

Planning Operations, Inventory and Quality Control

• Phase 2: Planning Operations, Inventory and Quality Control
• Production and Scheduling
• Supply Chain Management and Inventory Management
• Service Design
• Quality Control

Managing Productivity

• Phase 3: Managing Productivity
• What is Productivity?
• Methods to Measure and Improve Productivity

General Resources

Also consider

• Product and Service Development
• All About Customer Service
• Related Library Topics

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What is Operations Management (OM)?

Various Definitions

Operations management focuses on carefully managing the processes to produce and distribute products and services. A great deal of focus is on efficiency and effectiveness of processes. Therefore, operations management often includes substantial measurement and analysis of internal processes.

Ultimately, the nature of how operations management is carried out in an organization depends very much on the nature of the products or services in the organization, for example, agriculture, mining, construction or general services. Here are some additional perspectives on the field.

• “Operations management is chiefly concerned with planning, organizing and supervising in the contexts of production, manufacturing or the provision of services.” — TOPMBA
• “Operations management is an area of management concerned with designing and controlling the process of production and redesigning business operations in the production of goods or services.” — Wikipedia:

What Are Goods and Services?

Basically, a product is a tangible offering to a customer, whereas a service is an intangible offering. The former is usually a one-time exchange for value. In contrast, a service usually involves a longer period of time.

The value of a product is inherent in the tangible offering itself, for example, in the can of paint or pair of pants. In contrast, the value of a service often comes from the eventual benefit that the customer perceives from the time while using the service.

In addition, the customer often judges the value of a service based on the quality of the relationship between the provider and the customer while using the service.

Wikipedia mentions that there are certain differences between manufactured goods and services, including that services can have simultaneous (in the moment) production and consumption, are perishable (there is no inventory management), ownership (ownership of the service is not owned by the customer) and tangibility (it is difficult to evaluate). These features make operations management more of a challenge in services.

• Difference Between Product and Service
• 6 Key Differences Between Services and Products

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Operations Management Specific Roles

Chief Operating Officer

“The chief operating officer (COO), also called the chief operations officer, is one of the highest-ranking executive positions in an organization, comprising part of the “C-Suite”. The COO is responsible for the daily operation of the company,[1] and routinely reports to the highest-ranking executive, usually the chief executive officer (CEO)… The COO is usually the second in command at the firm, especially if the highest-ranking executive is the Chairman and CEO. ”

• Wikipedia
• Chief Operating Officer (COO)
• All About COOs (Chief Operating Officers)
• The Misunderstood Role of the Chief Operating Officer

Operations Manager

A useful definition of the role of an operations manager comes from Investopedia:

• “Operations management is the administration of business practices to create the highest level of efficiency possible within an organization.
• Operations management is concerned with converting materials and labor into goods and services as efficiently as possible.
• Corporate operations management professionals try to balance costs with revenue to maximize net operating profit.”

They oversee product development and delivery, inventory and supply chain management, operations staffing and job design, and production. They oversee an organization’s key operations and, thus, they usually have a wide and strategic view of the organization. The specific duties of the role depend on the nature of the product and service that the company produces and provides, for example, in agriculture, industry or construction.

• Operations Management
• The Role of the Operations Manager
• Operations Manager Job Description
• Operations Manager Job Description
• What Are Operations Manager Job Responsibilities?

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What Are Operations Systems?

It can seem overwhelming to read about the numerous activities involved in operations management. One wonders where they fit into an organization? How are they connected? This is where a systems view is very helpful.

What is a System?

Simply put, a system is an organized collection of parts that are highly integrated to accomplish an overall goal. The system has various inputs, which go through certain processes to produce certain outputs, which together, accomplish the overall desired goal for the system.

For example, an automobile is a system. Its inputs are gasoline, a driver, a steering mechanism, tires, as well as various tubes, pipes and electrical cords. The system’s processes are when they work together to burn the gasoline, resulting in the systems outputs of the tires moving and the car steering as the driver prefers. The overall system’s desired goal is a very useful automobile.

What is an Operations System?

The primary activities in operations management is a system — they are all integrated and aligned with each other. The operations manager’s job is to ensure they are all effectively and efficiently working together in order to produce the desired goal of useful goods and services for customers.

Look at this diagram of a system of an overall organizations. Notice the various inputs that are processed to produce certain outputs and outcomes (desired goals).

An operations system includes, for example:

1. Inputs — such as expertise, best practices, funding, equipment, facilities and technologies, as well as the customer’s feedback and the overall organization’s strategic priorities
2. Processes — such as planning (capacity, product and service design, production, facilities, jobs, inventory, quality control, etc.) and managing productivity to produce high-quality products and services
3. Outputs — high-quality products and services
4. Outcomes — very satisfied customers

Feedback from customers should be continually collected and considered as an input to the processes of the planning the development and production of goods and services. In that way, the operations system is really a recurring loop of outcomes which, in turn, influence the inputs to the next round of the system.

Align Operations Systems With Strategic Planning

Notice that one of the inputs to the operations system is the strategic priorities of the organization. It is critical that the operations system be closely integrated and aligned with the purpose (the mission) and priorities (strategic goals) of the organization.

Otherwise, the system will not be operating as effectively as it should be. For the system to be operating as efficiently as it should be, there should be closely integrated and aligned parts within the system.

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Phase 1: Planning Operations Systems

Product/Service Planning

The planning of products and services (the outputs from the system) includes market research to:

• Clarify the needs and wants of potential groups (market niches) of customers, as well as how those needs and wants might be met with certain products and services.
• Clarify how the new products and services should best be provided to those target markets.
• Identify competitors, as well as potential collaborators.
• Suggest the best terms in pricing for the products and services.
• Suggest how best to advertise and promote to those groups of customers.

The results of that research produce a specification of the product or service. Various feasibility studies and perhaps a prototype might be done, as well, to refine the description of the product or service. See
Product and Service Development

The specification could be further enhanced by adding information about costs to develop and produce the product or service, including employees, facilities and management. This information is often included in a business plan. (This information is also sometimes referred to as the business strategy.)
All About Business Planning

Capacity Planning

Capacity planning includes specifying how many of the outcomes (products or how much service) will be produced and how often. That includes predicting, or forecasting, the demand for those outcomes. The previous market research will be very useful here. There are a variety of other tools that could be useful,
as well.

• Four Steps to Forecast Total Market Demand
• How to Choose the Right Forecast Technique
• What is Demand Forecasting and How Can It Help Your Business?
• What Are the Best Demand Planning Software Tools for 2019?

A useful planning technique to ensure consideration of many possible influences is scenario planning, including to consider various external driving forces that could have a strong influence.
Driving Force Impacts for Environmental Scanning in Strategic Planning

It also might be useful to hire an expert with knowledge about developing the particular product or service.
How to Successfully Hire and Work With an Excellent Consultant

The results of the planning should produce estimates of the needed inputs to produce the product or service, including types of expertise needed, amounts of certain kinds of materials, what technologies to use, etc.

Facilities and Layout Planning

This is one of the most critical activities in operations management, not just because they underlie and facilitate the activities to very effectively and efficiently produce products and services, but also because facilities and their maintenance are one of the most expensive, as well. Fortunately, there is a variety of helpful articles about how to do this acclivity in operations management.

• Relationship Between Plant Layout and Material Handling
• Plant Layout and Material Handling
• Introduction to Manufacturing Facilities Design And Material Handling
• The Ultimate Facility Manager Checklist

Job and Work Design

The Business Dictionary defines work design as:

• “An arrangement in the workplace that has the objective of overcoming employee alienation and job dissatisfaction that comes about from mechanical and repetitive tasks in the workplace. Work design is used by organizations to boost productivity by offering employees non- monetary rewards such as satisfaction from a greater sense of personal achievement. Also called job design.”

From Wikipedia:

“Job design (also referred to as work design or task design) is a core function of human resource management and it is related to the specification of contents, methods and relationship of jobs in order to satisfy technological and organizational requirements as well as the social and personal requirements of the job holder or the employee.”

• Work Design (Wikipedia)
• Work Design in an Organizational Context
• Principles of Good Work Design

Work Flow Management

“Workflow management is creating and optimizing the paths for data in order to complete items in a given process. Workflow management includes mapping out the workflow in an ideal state, finding redundant tasks, automating the process, and identifying bottlenecks or areas for improvement.”
kissflow

The map depicts the flow of activities through the system, including its input, processes, outputs and outcomes. These are sometimes also referred to as operations management process maps. (This technique is at the heart of the Business Process Re-Engineering approach.)

• Workflow
• What Should You Include in Your Operations Management Process Map?
• 9 Powerful Workflow Examples For Smart Teams in 2019

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Phase 2: Planning Operations, Inventory and Quality Control

Production and Scheduling

Production Planning

This is the processes part in the operations system where the inputs are transformed into the desired product or service. Considerations include, for example:

• Are there technologies currently or soon available that could expedite the production?
• Are there best practices suggested by various experts about the product or service?
• Can components of the product be purchased as-is or off-the-shelf?
• What components are needed, in total, to produce the product or service?
• What are the costs associated with developing and producing the product or service?
• What are the estimated demands of customers for the next six months? 12 months? 18 months? These estimates drive the scheduling of the production activities.

This activity also includes developing a detailed map of the activities required to obtain, assemble, integrate and test the product or service before it is provided to customers.

• What Makes a Good Production Plan?
• What Must Be Considered for Production Planning?
• Production Planning
• Production Planning

Scheduling

A critical activity in ensuring that the operations system is highly effective and efficient is coordinating (scheduling) the timing of activities to organize, monitor and optimize the equipment, people and production activities. Scheduling has a major impact on the productivity of the system.

• Scheduling (production processes)
• Production Scheduling Approaches for Operations Management
• Scheduling (in operations management)

Supply Chain Management and Inventory Management

Supply Chain Management

“In business and finance, supply chain is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer.” Wikipedia

” Supply chain management (SCM) is the active management of supply chain activities to maximize customer value and achieve a sustainable competitive advantage. It represents a conscious effort by the supply chain firms to develop and run supply chains in the most effective & efficient ways possible. Supply chain activities cover everything from product development, sourcing, production, and logistics, as well as the information systems needed to coordinate these activities.”

• Supply Chain Resource Cooperative
• Guide to Supply Chain Management for any Organization: Overview and Resources
• What is Supply Chain Management (SCM)
• CSCMP Supply Chain Management Definitions and Glossary
• The Death of Supply Chain Management
• What Are the Main Supply Chain Challenges?
• The Seven Deadly Supply Chain Sins

Inventory Management

Inventory includes unprocessed materials, finished products, supplies and works-in-progress. Inventory management is a part of supply chain management that oversees the inventory items from manufacturers to storage to where they are sold. There must be a very careful balance between the size of the inventory of items compared to the actual rate of their sales.

Too many items in inventory means their costs are not recovered in a timely manner from their sales. It also might mean high costs of storage. Insufficient numbers of items means the organization cannot meet the customer demand, resulting in lost revenue.

• What is Inventory Management?
  What is Inventory Management?
• Your Essential Guide to Effective Inventory Management + 18 Techniques You Need to Know
• 3 Inventory Management Problems and How To Avoid Them
• 5 Common Inventory Mistakes and How to Avoid Them

Service Design

In the past, an organization was expected to provide a product or service to the customer, and then that transaction was done — the activity was done to the customer. The customer was more or less at the mercy of the organization.

Today, that is changing dramatically. Customers have a much wider range of organizations, products and services to choose from, and they can access them instantly. Customers can also access numerous sources of useful opinions or reviews about the product or service even before they buy them.

Thus, it is more important than ever that organizations remain very good at attracting, satisfying and retaining customers. That requires a carefully designed and implemented customer services plan.

Service design “is the activity of planning and organizing people, infrastructure, communication and material components of a service in order to improve its quality and the interaction between the service provider and its customers. Service design may function as a way to inform changes to an existing service or create a new service entirely.”

• Wikipedia
• Customer Service Business Plan Template
• Why Your Business Needs a Customer Service Plan
• 8 Steps to Creating a Superior Customer Service Plan
• How to Create a Customer Service Plan
• How to Create a Customer Service Plan

Quality Control

Quality management, including quality control, is crucial to effective operations management, particularly continuous improvement. More recent advancements in quality, such as benchmarking and Total Quality Management, have resulted in advancements to operations management as well.
Quality Management

Quality control can be defined “part of quality management focused on fulfilling quality requirements.” While quality assurance relates to how a process is performed or how a product is made, quality control is more the inspection aspect of quality management. An alternate definition is “the operational techniques and activities used to fulfill requirements for quality.”

• American Society for Quality
• Quality Control
• Quality Control (QC): Definition, Importance and Tools of Quality Control
• Quality Control Techniques

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Phase 3: Managing Productivity

What is Productivity?

In the context of operations systems, productivity is defined as the ratio of the output to the input of the system. The higher the ratio, the more productive the system. One of the most common measures of productivity is output per hour. This is important especially in manufacturing industries.

• The Concept of Productivity
• 5 Steps to Achieving Better Results through Productivity Management
• How to Create a Successful Productivity Management System
• Productivity and Operations Management

Methods to Measure and Improve Productivity

Where many guidelines are in regard to increasing employee productivity, Productivity: A Practical Handbook distinguishes between three factors that drive productivity, not all of them around employee productivity, including:

1. Job-related
2. Resource-related
3. Environment-related

The above Handbook is a very useful overview of the many different methods to improve productivity.

Here are various measures, or indicators, to help monitor and assess the levels of productivity.

• Measuring Productivity Levels
• Operations Management (scroll down to “Metrics: efficiency and effectiveness”)

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General Resources

Software / Tools

• How to Use Operations Management Tools in Business
• Operations Management Software
• Operations Management Software (reviews)

Organizations and Journals

• Organizations
• Journals

---

For the Category of Operations Management:

To round out your knowledge of this Library topic, you may want to review some related topics, available from the link below. Each of the related topics includes free, online resources.

Also, scan the Recommended Books listed below. They have been selected for their relevance and highly practical nature.

• Related Library Topics
• Recommended Books

All About Financial Management in Nonprofits

Guidelines for nonprofit financial management are included in the book Bookkeeping Basics: What Every Nonprofit Bookkeeper Needs to Know .

© Copyright
Carter McNamara, MBA, PhD, Authenticity Consulting, LLC.
Applies to nonprofits unless otherwise noted.

New nonprofit leaders and managers have to develop at least basic skills in financial management. Expecting others in the organization to manage finances is clearly asking for trouble. Basic skills in financial management start in the critical areas of cash management and bookkeeping, which should be done according to certain financial controls to ensure integrity in the bookkeeping process.

New leaders and managers should soon go on to learn how to generate financial statements (from bookkeeping journals) and analyze those statements to really understand the financial condition of the business. Financial analysis shows the “reality” of the situation of a business — seen as such, financial management is one of the most important practices in management. This topic will help you understand basic practices in financial management, and build the basic systems and practices needed in a healthy business.

Sections in This Topic Include

The following links are to sections included further below in this Web page.

Basics and Getting Started

• Basics of Financial Management
  • Reviewing the Basics of Nonprofit Financial Management
  • Use Fiscal Sponsorship?
  • What Type of Bookkeeping System Should You Use?
  • Your Board Treasurer and Board Finance Committee — Critical Resources to Help You Get Started
  • Getting an Accountant, If Needed
  • Buy a Software Package to Automate Your Financial Management?
  • Getting a Bank and Banker
• Understanding and Setting Up Your Nonprofit Bookkeeping and Accounting
• Addressing Financial Controls and Risk Management

Activities in the Yearly Accounting Cycle

Planning and Cash Management

• Financial Planning
• Budgeting and Managing Budgets
• Managing Program Finances
• Managing Cash Flow
• Credit and Collections
• Budget Deviation Analysis

Financial Statements, Analysis and Reporting

• Financial Statements
  • Statement of Activities (Income Statement)
  • Statement of Financial Position (Balance Sheet)
• Financial Analysis
  • General Information
  • Ratios
• Financial Reporting
  • Overviews
  • Annual Reports

Special Topics

• Cutting Costs
• Lease Versus Buy
• Assessments and Audits of Nonprofit Financial Management Practices
  • Various Assessments to Check the Financial Health of Your Nonprofit
  • Financial Audits
• General Resources (assistance, banking, software, accounting, etc.)

Also consider
Related Library Topics

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BASICS AND GETTING STARTED

Basics of Financial Management

Reviewing the Basics of Nonprofit Financial Management

To manage your finances as effectively as possible, you should at least have an understanding of the basic accounting process. To get an overall sense for the recurring financial activities in the typical nonprofit, carefully read the following article.
Basic Overview of U.S. Nonprofit Financial Management

Other sites that you might benefit from are:

• Bookkeeping 101: A Beginning Tutorial
• Online Learning Center’s tutorial
  
• An Executive Director’s Guide to Financial Leadership

Use Fiscal Sponsorship?

In some cases, you might want to pursue finding a fiscal sponsor. For example, if you’re not sure you want to start a nonprofit, or if your nonprofit may not need to exist for long, then a fiscal sponsor may be useful for you. A fiscal sponsor might oversee your financial management activities until your organization is more developed or terminated. See Fiscal Sponsorship — Is it For You?

What Type of Bookkeeping System Should You Use?

Small organizations might use a single-entry bookkeeping system, although some might choose to use a double-entry.
What Type of Bookkeeping System Should You Use?

Also, see the cash-basis or accrual-basis in Basic Overview of U.S. Nonprofit Financial Management

Your Board Treasurer and Board Finance Committee — Critical Resources to Help You Get Started

An active board treasurer can be the most important resource in the long-term financial health of your nonprofit. As a new nonprofit organization, you must get accounting expertise somehow, if you don’t have strong skills in this area yourself. You (or, ideally your board chair) should get someone on your board with accounting skills to be your treasurer. See

• Role of Your Board Treasurer
• Makes a Good Board Treasurer
• Board Finance Committee

Getting an Accountant, If Needed

You might choose to do the basic bookkeeping activities yourself. You should get an accountant initially to help you set up your bookkeeping system, generate financial statements and do some basic financial analysis.

• Getting and Using Accounting Services
• How to Hire an Accountant
• Nonprofit Bookkeeping Test
• What to Look for When Hiring an Accountant

Buy a Software Package to Automate Your Financial Management?

There are a number of very useful software packages that will help you automate bookkeeping, generation of financial statement and their analysis. See

• Buy Accounting Software to Help You?
• How to Automate Payroll

Getting a Bank and Banker

You’ll need to start a checking account. Probably the best way to find a good bank is to ask for advice and references from other nonprofits, especially other nonprofits that are of the size and nature of yours. If you’re just starting out, you probably don’t have much money. You may be able to get buy with a non-interest-bearing checking out that has no, or minimal, fees. The following link may be useful
Getting and Using a Banker

Understanding and Setting Up Your Nonprofit Bookkeeping and
Accounting

Now that you have a sense for the overall, recurring activities in nonprofit financial management. Let’s take a closer look at what happens in nonprofit accounting. Accounting is identifying, organizing and reporting financial transactions. It’s useful to understand the basics of accounting before reading the next major section on financial planning — that planning requires some understanding of the accounting process. One of the biggest challenges is knowing how to enter each type of transaction in the journal and ledger. The following links are very useful for this challenge. Before reading them, do read Basics of Nonprofit Financial Management.

Quick Overviews of Bookkeeping / Accounting

Bookkeeping and accounting is all about identifying, organizing and reporting your financial transactions. Scan this information to further clarify your understanding of bookkeeping and accounting.

Critical Issues in Financial Accounting Regulation for Nonprofit Organizations

Setting Up Your Chart of Accounts

How to Design a Scalable Chart of Accounts

Deciding to Use Cash Basis or Accrual Basis for Accounting

• What is the difference between the cash basis and the accrual basis of accounting?
• What is petty cash?

Deciding Which Expenses Are Direct and Indirect (Overhead)

• Can a cost be both a direct cost and an indirect cost?
• Nonprofit Overhead Costs: Breaking the Vicious Cycle of Misleading Reporting, Unrealistic Expectations, and Pressure to Conform

Cost Analysis to Determine Costs of Activities

The following series gives you a well-structured overview of how to analyze the financial data, especially to associate costs with the activities in your organization. That information is extremely important if you ever need to cut costs.

• Nonprofit Cost Analysis: Introduction
• Nonprofit Cost Analysis – Step #1: Determine Purpose and Scope of Analysis
• Nonprofit Cost Analysis – Step #2: Gather Financial Data
• Nonprofit Cost Analysis – Step #3: Allocate Direct Costs
• Nonprofit Cost Analysis – Step #4: Allocate Indirect Costs
• Nonprofit Cost Analysis – Step #5: Check Your Data
• Nonprofit Cost Analysis – Step #6: Apply This Knowledge

Deciding How Much to Allocate to Fringe Benefits in Payroll Expenses

What is a fringe benefit rate? | AccountingCoach.com Q&A

Deciding How Much to Document as Depreciation

Addressing Financial Controls and Risk Management

There are certain practices that you should consistently follow to ensure that financial transactions are consistently recorded in an accurate fashion. These controls also help to minimize risk, including employee theft.

• 6 Strategies to Ensure the Security of Your NGO’s Financial Resources
• Minimizing Financial Fraud
• Avoid Common Accounting Missteps

Also consider

• Assessments and Audits of Nonprofit Financial Management Practices
• Insurance Information for Nonprofits
• Risk Management Information for Nonprofits
• Risk Management on Boards of Directors

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ACTIVITIES IN YEARLY ACCOUNTING CYCLE: Budgeting (Financial
Forecasting) and Cash Management

Financial Planning

Financial planning works from the strategic and business plans to identify what financial resources are needed to obtain and develop the resources to achieve the goals in the two types of plans. Typically, financial planning results in very relevant and realistic budgets — budgets are addressed later on in this topic. So be sure to consider business planning for each of your products and services.

• Nonprofit Accounting Basics — Reporting and Operations
• Examples of Financial Plans for Not-for-Profit Organizations
• The Ultimate Guide to Setting SMART Financial Goals
• Strategic Planning
• Business Planning

Budgeting and Managing Budgets

A budget depicts what you expect to spend (expenses) and earn (revenue) over a time period . They are useful for projecting how much money you’ll need for a major initiative, for example, buying a facility, hiring a new employee, etc. They also help track whether you’re on plan or not. There are yearly (or annual or operating) budgets, cash budgets, capital budgets (for major assets, such as equipment, buildings, etc.) and proposal budgets (for fundraising), etc. The following links are about annual budgets.

Meaningful Budget Work by the Board

Managing Program Finances

Usually, there are two major types of costs to consider: indirect costs and direct costs. Indirect costs are what we sometimes call “administrative” or “overhead” costs, for example, costs to run the central facility. Direct costs are those that fund resources which directly produce services to clients, for example, supplies and materials for books provided to clients.

Usually, the lower your administrative costs, the more it looks like your resources are going directly to services to clients. In addition, you may have restricted grants (that is, grants that are dedicated for certain programs), which require you to report monies spent on overhead and directly on the program. Therefore, it’s wise to track carefully how much money each of your programs requires to operate and how much revenue it generates, as well. A major challenge is to analyze how much of the indirect costs are associated with each program.

• Allocate Direct Costs
• Allocate Indirect Costs

Also see Basic Guidelines for Nonprofit Program Design and Marketing.

Managing Cash Flow

As a new or small nonprofit, your biggest challenge is likely to be managing your cash flow — probably the most important financial statement for a new business is the cash flow statement. The overall purpose of managing your cash flow is to make sure that you have enough cash to pay current bills. Nonprofits can manage cash flow by examining a cash flow statement and cash flow projection.

Basically, the cash flow statement includes total cash received minus total cash spent. Cash management looks primarily at actual cash transactions. (Note that nonprofits must file a financial statement called Cash Flow Statements or Statements of Cash Flow — this statement is not the same as a cash flow budget.)

Basics of Cash Flow Management — article specific to nonprofits

How to Make Cash Flow Projections

More Basics of Cash Management

Note that cash management activities, whether nonprofit or for-profits, are essentially the same.

Basics of Cash Management

• The Importance of Cash Management
• Techniques for Improving Cash Flow
• Cash Management Basics Resources

Preparing a Cash Flow Statement

• Preparing Your Cash Flow Statement
• Cash Flow Worksheet

Preparing Cash Flow Projections and Forecasts

• More information on doing cash flow forecast
• How to Make Cash Flow Projections
• Short-Term Cash Flow Projections

Managing Your Bank Account

For a new nonprofit, your check register very likely will be your primary means to record and track cash. Whether yours is a new nonprofit or an established nonprofit, you’ll need to know how to manage your bank account. See

• Reconciling Accounts
• Managing Your Bank Account Resource Centre

Credit and Collections

Matters of credit and collections are similar between for-profit and nonprofit organizations, other than that nonprofits obviously grant free services much more than for-profit organizations. Consequently,
nonprofits are not nearly as likely to utilize credit and collections procedures.

• Debt Collection-Know Your Rights
• Credit Granting Authority
• Nonprofits and Electronic Payments

Budget Deviation Analysis

You learned above that a budget depicts what you expect to spend (expenses) and earn (revenue) over a time period. Budget deviation analysis regularly compares what you expected, or planned, to earn and spend with what you actually spent and earned. The budget deviation analysis can help greatly when detecting how well you’re tracking your plans, how much to accurately budget in the future, where there may be upcoming problems in spending, etc. A budget deviation analysis report might include columns with titles:

Planned for Month

Actual for Month

Difference (planned minus actual)

% Deviation (Difference x 100)

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ACTIVITIES IN YEARLY ACCOUNTING CYCLE: Financial Statements
and Analysis

Financial Statements

In order to know how your nonprofit is doing, you’ll do some ongoing financial planning and analysis. In this planning and analysis, you’ll likely use your bookkeeping information to produce various financial statements, including a cash flow statement, statement of activities and a statement of financial position.

• Financial Statements of Nonprofit Organizations
• Financial Statements of Nonprofits
• How to Understand a Nonprofit Financial Statement

Statement of Activities (Income Statements)

These statements include much money you’ve earned (your revenue) and subtracts how much you’ve spent (your expenses), resulting in the total of your unrestricted net assets. The statement of activities includes how much money you’ve earned (your revenue) and subtracts how much you’ve spent (your expenses), resulting in how much you’ve made money (your profits) or lost money (your deficits). Basically, the statement includes total sales minus total expenses. It presents the nature of your overall profit and loss over a period of time. Therefore, the Income Statement gives you a sense for how well the nonprofit is operating.

• Statement of Activities
• A Sample Income Statement
• What is the statement of activities?

Statement of Financial Position (Balance Sheets)

Whereas the statement of activities depicts the overall status of your profits (or deficits) by looking at income and expenses over a period of time, the balance sheet depicts the overall status of your finances at a fixed point in time. It totals your all your assets and subtracts all your liabilities to compute your overall net worth (or net loss). This statement are referenced particularly when applying for funding.

• Statement of Financial Position
• Sample Balance Sheets
• Statement of Financial Position (Purpose, Key Numbers, Assets, Liabilities, & Stockholders’ equity)
• What is the difference between a balance sheet of a nonprofit organization and a for-profit business?

Financial Analysis (individual statements, ratios, break-even analysis, etc.)

Financial analysis can tell you a lot about how your nonprofit is doing. Without this analysis, you may end up staring at a bunch of numbers on budgets, cash flow projections and financial statements. You should set aside at least a few hours every month to do financial analysis. Analysis includes cash flow analysis and budget deviation analysis mentioned above. Analysis also includes balance sheet analysis and state of activities analysis. There are some techniques and tools to help in financial analysis, for example, profit analysis (yes, these can be used even in nonprofits), break-even analysis and ratios analysis that can substantially help to simplify and streamline financial analysis. How you carry out the analysis depends on the nature and needs of you and your business. The following links will help you get a sense for the “territory” of financial analysis.

General Information

• Financial Statement Example
• Beginner’s Guide to Financial Statements
• How Financial Sustainability is So Misunderstood
• 5 Strategies for Non-profits to Use to Get Rid of a Deficit

Financial Planning and Analysis — Ratios

There are a variety of ratios that can be used to help determine the current and future condition of a nonprofit. The following links provide explanation and procedures for using those ratios. The ratios are produced from numbers on the financial statements. Note that the usefulness of ratios often are from comparing ratios from different time periods in the same nonprofit or from standards for a type of nonprofit, eg, social services, associations, civic organizations, etc.

• Nonprofit FAQ’s questions about ratios (find them in this section)
• Financial Ratio Analysis (Definition)
• Financial Ratios (different types)

The following articles are in reference to for-profits, but the principles behind the ratios also apply to nonprofit organizations.

Overview of major types of ratios and how they’re computed

Financial Planning and Analysis — Break-Even Analysis

The break-even analysis uses information from the statement of activities and cash flow statements to compute how much sales or revenue much be accomplished in order to pay for all of your fixed and variable expenses. Fixed expenses are expenses that you’d have regardless of the level of sales of products or services (eg, sales, rent, insurance, maintenance, etc.). Variable expenses are incurred according to the level of sales of products or services (eg, sales commissions, sales tax, freight to ship products, etc.). Break-even analysis can help you when deciding how much to charge for a service, how much to ask for from donors, etc.

• How to Do a Breakeven Analysis
• Break-Even Analysis Definition
• Break-Even Analysis

Financial Reporting

The types and frequency of reports depend on the nature of the nonprofit and its situation. Banks might want reports to verify financial strength to pay back loans. Foundations, individuals, or other donors may want reports to verify that donations are being spent as expected by the foundation or donor. The Internal Revenue Service will want certain reports when filing yearly tax forms.

Overview

Basics of Nonprofit Financial Management

Annual Reports

• Tips for Creating a Good Annual Report
• Tips for Reading an Annual Report
• The Annual Reports Library
• How to Write a Nonprofit Annual Report
• What a Great Idea! – The Nonprofit Annual Report

General

• Nonprofit Resource Center
• Have You: Met Your Financial Reporting Obligations?
• (also see “General Information” in Nonprofit Taxation)

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SPECIAL TOPICS

Cost Cutting

• Nonprofit Survival Tips
• Cost Cutting (these are suggestions for for-profits, but most apply to nonprofits, too)

Also consider
Organizational Sustainability

Lease Versus Buy

• The Basics of Leasing
• Cost of Lease vs. Purchase
• Leasing Versus Buying Cars
• Leasing Office Space

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Assessments and Audits of Nonprofit Financial Management Practices

Various Assessments and Indicators

• Financial Indicators
• Minnesota Council of Nonprofits “Principles and Practices”, section about finances
• Seven characteristics of financially healthy nonprofits
  
• Evaluating Your Nonprofit Financial Management

Audits

• Nonprofit Audit Checklist
• Nonprofit Audit Guide
• Does your nonprofit need to have an independent audit?

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GENERAL RESOURCES

Sources of Online Assistance and Information

Resources for Nonprofits

Software to Help Manage Your Finances

Software for Nonprofits

Getting and Using Banking Services

• Banking Rules for Non-Profit Organizations
• Closing a Bank Account Without Going to the Bank
• How to Open a Bank Account for a Non-Profit Association

Getting and Using Accounting Services

• How to Hire Accounting Services for Your Small Business
• Business Contracts (this will be useful if you sign any contracts with the accountant)
• Facing Changing Paradigms — A Nonprofit Accountant in the Catbird Seat

You should carefully consider whether you should hire an outside accountant, or hire your own employee. The IRS pays increasing attention to the hiring of independent contractors.
Potential Issues in Hiring Consultants (general information and IRS-related issues)

Have a Treasurer to Help You?

• Role of Board Treasurer
• Duties of the Treasurer of a Nonprofit Corporation

Fiscal Sponsorship — To Help Get Your Finances Started …

• Fiscal Sponsorship (Wikipedia)
• How Fiscal Sponsorship Nurtures Nonprofits
• Fiscal Sponsorship: A Balanced Overview
• More Than the Money: Fiscal Sponsorship’s Unrealized Potential
• Fiscal Sponsorship is Maturing as a Field

Miscellaneous Other Resources

• Financial Calculators (many kinds)
• More Financial Calculators
• Financial Resources on the Internet

Major Sites of Online Information

• Financial resources for nonprofit financial management
• Nonprofit Resource Center
• Nonprofits Assistance Fund – Various tools for financial management
• Free, Online, Self-Paced Program to Completely Build/Strengthen Your Nonprofit
• Basic Guide to Nonprofit Program Design and Marketing
• Various Types of Resources
• Various Major Sites of Online Information

Also consider
Supersites

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Learn More in the Library’s Blogs Related to Nonprofit Financial Management

In addition to the articles on this current page, also see the following blogs that have posts related to Nonprofit Financial Management. Scan down the blog’s page to see various posts. Also see the section “Recent Blog Posts” in the sidebar of the blog or click on “next” near the bottom of a post in the blog. The blog also links to numerous free related resources.

• Library’s Nonprofit Capacity Building Blog
• Library’s Social Enterprise Blog
• Library’s Strategic Planning Blog

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For the Category of Financial Management (Nonprofit):

To round out your knowledge of this Library topic, you may want to review some related topics, available from the link below. Each of the related topics includes free, online resources.

Also, scan the Recommended Books listed below. They have been selected for their relevance and highly practical nature.

• Related Library Topics
• Recommended Books

Basic Overview of U.S. Nonprofit
Financial Management

© Copyright Carter
McNamara, MBA, PhD, Authenticity Consulting, LLC.
Applies to nonprofits unless otherwise noted.

Sections of This Topic Include

Description
Basic Bookkeeping Activities
Financial Statements
Financial Analysis
Financial Reporting

Also consider
Related Library Topics

(This information is referenced from the page Basic
Guide to U.S. Non-Profit Financial Management)

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Description

The following basic overview will give you some overall perspective
on the basic processes involved in nonprofit financial management.
Key terms to learn are bolded . You’ll learn more about the key
terms later in subsequent sections when you return to Basic Guide to U.S. Non-Profit Financial Management

The following activities described on this page occur regularly
as part of the yearly accounting cycle. The accounting
cycle includes bookkeeping, generating financial statements and
analyzing information from the statements.

Basic Bookkeeping Activities

Bookkeeping is basically recording various financial
transactions. Bookkeeping activities can often by done by someone
who’s doing basic clerical work in the organization. Often, the
board treasurer can help you develop and carry out your bookkeeping
system.

Fiscal Policies and Procedures Manual (or Accounting
Procedures Manual)

The board develops and authorizes a set of procedures
for how the organization manages its finances, including how the
following activities are carried out by your organization. The
board treasurer usually coordinates the board’s responsibility
for the manual, including its regular review and update. The board
and chief executive should make every effort to ensure compliance
to the procedures in the manual.

Type of Accounting System and Recording of Financial
Transactions

Accounting starts with basic record keeping (or bookkeeping).
When your organization is just getting started, your bookkeeping
system will probably be based on what’s called a cash-basis
accounting system, rather than accrual-basis system.
Many organizations, when starting out, use the cash-basis system
and a checkbook to track transactions. In the “memo”
portion of the checkbook, they note if the amount depicted on
the check is an expense or revenue, and where the amount came
from or is going to. As your organization grows, you’ll begin
using ledgers to track transactions, for example, you’ll post
cash receipts to a cash receipts journal and checks you
write to a cash disbursements journal.

As your nonprofit grows and as you begin using the accrual
method, you’ll likely need more types of journals, for example,
a Cash Receipts Journal, Cash Disbursements Journal, Payroll Journal,
Accounts Receivable Ledger, Accounts Payable Ledger, Sales Journal,
Purchases Journal and General Ledger.

(In an accrual-basis system, you post entries when you earn
the money and when you owe it. Small organizations usually do
not have the resources to use an accrual-based system. However,
financial statements are prepared on an accrual basis. As a compromise,
many organizations use the cash-based basis to record entries
in journals, but get help to convert to an accrual-based basis
to generate financial statements.)

You can do postings using a single-entry or double-entry
method. Double-entry works from a basic accounting equation
“assets = liabilities + capital”. The double-entry method
makes sure that your books are always in balance. Every transaction
has two journals entries, a debit and a credit.
Each transaction effects both sides of the equation.

Each posting might refer to accompanying documents that you
keep in a file somewhere. For example, postings about cash receipts
might refer to invoices that you sent to a clients which prompted
them to write checks to your organization (checks which you posted
as cash receipts). For example, postings about cash disbursements
might refer to invoices that were sent to your organization which
prompted you to write checks (checks which you posted as cash
disbursements.) When you make a deposit to the bank, you’ll file
the bank’s deposit receipt in a file.

Manual or Automated Accounting System

Your record keeping system will be based on a manual system (where
you make entries and total them by hand) or a computer system.
You might even choose to outsource your record keeping system
to another business that manages your bookkeeping activities (along
with other financial management activities) for you.

Soon you may evolve to using a computer-based system, which
greatly automates entry of transactions, updating of ledgers,
generation of financial statements and financial analysis (more
on these later), and generation of reports needed for filing taxes,
etc. The only drawback to using a computer is that you might underestimate
the importance of knowing how your accounting processes really
work — that’s an advantage of doing the bookkeeping yourself,
if only for a few months. You should also generate your own financial
statements and financial analysis at least for a couple of months.
Having this knowledge and experience helps you develop an instinct
for getting the most out of your financial resources.

(We’ll talk more about that back in the topic Basic Guide to U.S. Non-Profit Financial Management, after
we’ve reviewed the rest of the information on this page.)

Accounts and Chart of Accounts

You’ll post each entry according to the category, or account,
of the transaction. Each account will be associated with an account
number. These numbers are referenced when developing your
financial statements (more on those later). You’ll refer to a
chart of accounts which will tell you what account
number to use when you post an entry. You can design your own
chart of accounts, including coming up with your own account numbers.
The chart usually have five areas, including assets, liabilities,
net assets (or fund balances), revenues, and expenses. The account
numbers you come up with should depend on the particular kinds
of revenues and expenses you expect to have most frequently.

However, nonprofits have to report account activity according
to the classifications functional (or programs)
and natural (or supporting). Program transactions are those
directly related to providing services to clients, members, etc.
Supporting transactions are those in common to all programs, for
example, general management costs, etc. It’s not always easy to
know which transactions belong to which category! We’ll also talk
more about managing program budgets back in the topic Basic Guide to U.S. Non-Profit Financial Management, after
we’ve reviewed the rest of the information on this page.

Budgets (Financial Forecasting)

You’ll have an operating budget (or annual
budget), which shows planned revenue and expenses,
usually for the coming year. Budget amounts are usually divided
into major categories, for example, salaries, benefits, computer
equipment, office supplies, etc. You might also have cash budgets,
which depicts the cash you expect to receive and pay over the
near term, for example a month. You also might have capital
budgets, which depict expenses to obtain or develop, and operate
or maintain major pieces of equipment, for example, buildings,
automobiles, computers, furniture, etc. Development of the budgets
is usually driven by the chief executive. In the case of corporations,
the board treasurer can take a strong role in developing and presenting
the budget to the rest of the board. The board is responsible
to authorize the yearly budgets.

You should develop a program budget, that is, a budget
for each major service you provide to clients. For example, a
transportation program, a child-care program. Many nonprofits
have more than one program. It’s critical to plan and track financial
costs for each program. As much as possible, nonprofits should
strive to minimize overhead or administrative costs, that
is, costs to support the resources that support the entire organization
and all programs, rather than just one program. Examples of administrative
costs are rent for a building, office supplies, labor costs for
personnel who support the central office or more than one program,
insurance, etc. It’s wise to develop a program budget that allocates
indirect costs to programs. There are several methods to do this.
We’ll also talk more about these methods back in the topic Basic Guide to U.S. Non-Profit Financial Management, after we’ve reviewed the rest of the information
on this page.

Usually, each month (during trial balancing — more on that
later), you’ll update your budget report to include actual revenue
and expenses. Then you can compare your planned revenue and expenses
to your actual revenue and expenses. This will give you a good
idea whether your operating according to plan or not, including
where you need to cut down on expenses and build up on revenue.

Petty Cash

You’ll have a lot of small, recurring expenses that you’ll
need to pay right away, for example, to buy a computer power cord,
stamps, etc. You’ll probably work from a petty cash fund.
You might establish this fund by writing a check to your organization,
and noting on the check that it goes to the “petty cash”
fund. You’ll withdraw from the fund by filling out a voucher that
describes who took the money, how much, for what and on what date.

Trial Balances

Usually, once a month, you’ll do trial balancing. Often,
the board treasurer can help with this activity. This activity
usually starts by totaling the entries from the journal(s) into
a general ledger. (As your business grows, you may
use other types of ledgers, too, for example for equipment, payroll,
etc.) When using double-entry accounting, you’ll add up totals
on both sides of the ledger to make sure that total debits equal
total credits.

You’ll make sure that the individual postings and totals are
correct by comparing each to its accompanying documentation. For
example, your recording of cash disbursements will be compared
to your bank’s monthly checking statement that indicates what
checks you wrote over the month. Your recording of cash disbursements
will also be compared to accompanying invoices and other forms
of billing to your organization, to verify there was a need for
each check that was written to pay bills.

Internal Controls

You will have various forms of internal controls to ensure
the business is following its plans, minimize the likelihood of
mistakes, avoid employee thefts, etc. There are a wide range of
internal controls. For example, you’ll be careful about whom you
hire. You might have authorization lists about who can access
which areas of the building, types of information, etc.

As mentioned above, you’ll carry over totals to various financial
reports, including your budget, to see if your financial activities
are according to plan or not. To minimize employee theft, the
business’s mail will be opened by one person who logs in each
check that is received. This person will be someone other than
the person who deposits the checks to the bank. Disbursements
of large amounts, for example, over $500, may require a secondary
signature, for example, from the board treasurer.

Another form of financial control is an audit. An audit
is a comprehensive analysis, by a professional from outside the
organization, of your financial management procedures and activities.
The auditor produces a report, with a variety of supplements,
that indicates how well your organization is managing its resources.
Some nonprofits are required to have audits. It’s usually good
practice to have an audit, whether you’re required to or not.

Financial Statements

In order to know how your organization is doing, you’ll
do some ongoing financial planning and analysis. In this planning
and analysis, you’ll likely use your bookkeeping information to
produce various financial statements, including a cash flow statement,
statement of activities and a statement of financial position.

Your cash flow statement depicts changes in your cash
during the year. Your statement of activities (known as
the income statement before) depicts the changes in your assets
over the past year. This statement is particularly useful to tell
you if you are operating with extra money or at a deficit. This
gives you a pretty good impression of your rate of revenues and
spending. It signals areas of concern, as well. Your statement
of financial position depicts the overall value of your organization
at a given time (usually at the end of the year), including by
reporting your total assets, subtracting your total liabilities
and reporting the resulting net assets. Net assets are reported
in terms of unrestricted, temporarily restricted
and permanently restricted assets. Funders often
want to see the statement of financial position. (You’ll learn
a lot more about financial statements, including examples, later
on back in the topic
Basic Guide to U.S. Non-Profit Financial Management).

Financial Analysis

By themselves, numbers usually don’t mean much. But
when you compare them to certain other numbers, you can learn
a lot about how your organization is doing. For example, you can
compare the planned expenses depicted on your budget to your actual
expenses in order to see if your spending is on track.

Another form of comparison is by using ratios. A ratio is a
comparison made by mathematically dividing one number by the other.
For example, nonprofits are expected to keep administrative costs
down in order to make more money available for programs. Dividing
a program’s expenses by your total expenses indicates the amount
of administrative overhead to run your program.

The interpretation of results from various types of comparisons
depends on the nature of the nonprofit. For example, an association
might expect to spend far less on administrative overhead than
would a social services agency during their first year. You’ll
learn a lot more about financial analysis back in the topic Basic Guide to U.S. Non-Profit Financial Management.

Financial Reporting

The types and frequency of reports depend on the nature
of the nonprofit and its situation. For example, if the nonprofit
is in some sort of crisis, the board may require frequent reports.

Your board should require regular financial reports at each
board meeting. When your organization is just getting started,
the chief executive will prepare and present financial reports
to the board. However, as the organization develops, a board treasurer
will likely take a strong role in helping the chief executive
to present financial information to the board. The finance committee,
led by the board treasurer, ensures that financial reports are
complete and helps present them to other members of the board.

The board may require a statement of financial position and statement of activities
at each meeting. They also may request descriptions of finances for each program
or of affordability for upcoming, major initiatives. They may request information
prior to filing taxes. They will certainly need to see any results from financial
audits. You’ll learn a more about financial reporting back in the topic
Basic Guide to U.S. Non-Profit Financial Management.

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For the Category of Financial Management (Nonprofit):

To round out your knowledge of this Library topic, you may want to review some related topics, available from the link below. Each of the related topics includes free, online resources.

Also, scan the Recommended Books listed below. They have been selected for their relevance and highly practical nature.

Related Library Topics

Recommended Books