OSI Layers Model

Introduction

During the early years of our modern computer era, very few standards and protocols existed between various manufacturers. However, as time went on and computer technology continued to improve and become more widespread, it became apparent that standards would be necessary to ensure compatibility. This was especially true with regard to networks, and networking technology. Since the main purpose of a network is to share information, a standard that governs how this information is formatted, transmitted, received and verified would make it possible for information to be shared openly, even when dealing with dissimilar networks.

This need for a standard means of implementing open communications led the ISO and ANSI to develop the seven-layer network communications model known as Open Systems Interconnect. By providing guidelines regarding the way network equipment should be manufactured and how network operating systems communicate on a network, the OSI model became the common link that allows data to be transmitted and exchanged reliably. Although it does not actually perform any functions or do any of the actual work, the OSI model defines the way things should be done by the software and hardware on a network so that communications can take place between two computers or nodes.

In this way, the OSI model provides a universal set of rules that make it possible for various manufacturers and developers to create software and hardware that is compatible with each other. This makes for organized communications. As I thought about this, I related it to the freeways that connect the various states of the mainland U.S. Because all of these freeways were constructed with the same set of standards regarding the width of each lane, the proper side that a person should drive on, the speed at which they should travel, and so on, people can comfortably drive across the country in an organized and efficient manner and car manufacturers are able to design cars within these guidelines as well.

On the other hand, if each state had devised its own set of rules, each differing from the other, not only would there be a lot more chaos on the roads, but also car manufacturers would have a hard time designing vehicles that would be compatible with each state’s roads. To me, this illustrates the importance of the OSI model with respect to network communications. Not only is it the foundation for all network communications today, but also because it is such a fundamental part of these communications, it becomes very apparent to me that it is very important for a network technician to understand the OSI model in full detail.

The OSI model is made up of the following layers: the physical, data link, network, transport, session, presentation and application. Together, these seven layers are collectively referred to as a stack. As a node receives data, each layer starting with the physical layer extracts the various portions of the packet and this process works its way up to the application layer. When data is sent, it begins at the application layer and travels down to the physical layer. The information is pushed to the next layer of the stack by means of commands called primitives. Each layer uses a peer protocol to encode the information, which ensures that the same layer on the receiving node will be able to understand the information.

Physical Layer

Beginning at the bottom, the first layer is the physical layer. It governs the actual voltages, type of electrical signals, mechanical connections and other items relating to the actual data transmission medium. This includes cabling types, distances and connectors, as well as protocols like CSMA/CD.

Data Link Layer

The next layer is the data link layer. This is the layer that actually constructs the frames, and it also performs error checking using CRC. It ensures that the frames are sent up to the next layer in the same order that they were received, providing an error free virtual path to the network layer. The data link layer consists of two sub layers; the logical link control (LLC) and the media access control (MAC), which provide reliable communications by ensuring the data link is not broken and also by examining packet address information. A bridge is an example of a device that works at this layer. A bridge learns, forwards and filters traffic by examining the layer 2 MAC address. This helps segment network traffic. More recently, bridges have been replaced by switches, which performs the same functions as a bridge, but can do so on each port. To find out more about switches, visit the Products link on the left.

Network Layer

Moving up to the next layer in the stack we come to the network layer. This layer actually routes packets of data, finding a path (both physical and logical) to the receiving or destination computer. It provides a unique address for each node through address resolution. One of the most common protocols for routing information at this layer is the Internet Protocol (IP). An example of hardware that can operate at this layer is a router. Although routers are often used to allow a LAN to access a WAN, layer 3 switches can also provide routing capabilities, but often at full wire-speed.

Transport Layer

The transport layer makes sure that the data arrives without errors, in the proper sequence and in a reliable condition. It uses flow control to make sure that information is sent at the proper speed for the receiving device to be able to handle it, and it repackages large data into smaller messages and then back again at the receiving node. An example protocol at this layer is the Transmission Control Protocol (TCP). Layer 4 switches can use the port information found in the TCP header to provide QoS (Quality of Service) and load balancing. To learn more about multi-layer switches, visit the Products link.

Session Layer

The session layer establishes the link between two nodes and ensures that the link is maintained and then disconnected. This is referred to as the session. It also makes sure the session is orderly, establishing which node transmits first, how long it can transmit, and what to do in case of an error. It also handles the security of the session.

Presentation Layer

The presentation layer deals with the actual formatting of the data. It handles compression, encryption, as well as translation to make sure differences in formatting can be read by the receiving node. For example, data might be converted from EBCDIC to ASCII formatting so that the receiving node can understand it.

Application Layer

This brings us to the seventh and final layer, the application layer. It allows applications access to network services, such as file and printer sharing, as well as file transfer and management services. This would be the layer that a programmer uses to allow his application to access a network service, such as linking into a database.

Although this explains the flow of data and what processes are performed by each layer starting with the physical layer and working to the top, or application, layer, the process would be the same, only reversed, for data flowing from the application layer and down to the bottom, or the physical layer.

Conclusion

By adhering to this standard model of communications, modern networks, including the Internet, have come into existence. For anyone interested in implementing and supporting today’s modern networks, an understanding of the OSI model and its various layers is crucial. Indeed, this standard of communications lays the foundation for all of today’s modern network hardware and software.

The Importance of Prototyping Machine Parts

In the production of machine parts, prototyping is a very useful tool for a number of reasons. These can include aspects ranging from the practical to the financial, each of which can have a positive outcome for developer of the project.

One of the first reasons why prototyping is important is that the development of machine parts is necessary to create a working model of a system before it goes into production. This is essential as it takes the theoretical into the practical realm, where instead of predicting how things will function, the actual functionality of equipment can be observed.

As a result of this, in becomes possible not only to get a clear idea of the efficiency of the machine, but also any errors that occur or any faults in the initial design. Often, these kinds of errors can only be detected after a physical component is produced, and not from 2D or 3D drawings that are created prior to production.

This, of course, has significant implications for the developer of the project; if an item were to go into production with major flaws, this could not only result in the circulation of faulty products on the market, but also bear a heavy financial penalty for the developer, manufacturer and distributor of said machinery.

Producing any complex item of equipment without first developing a prototype of a machine’s parts can be financially risky in a number of ways. The circulation of a faulty item on the market can also lead to the damaged reputation of the developer of the product, and even compensation claims in some instances.

Another reason why the creation of a prototype of a machine’s parts is so important is that it gives the product developer the chance to test the equipment under specific circumstances. This could be the ability of the equipment to function for an extended period of time, or to handle various amounts of pressure and weight.

A prototype of a machine can also be used to observe how durable the item is, and whether its components are susceptible to issues when they are placed together as a whole in an item of equipment rather than being analysed simply as separate components. This model of a machine is therefore valuable to any testing and trialling of the equipment before it goes into production.

All of this analysis and testing allows the developer to move on to the next stage of production, which is another reason why this step is so important; it can act as a bridge between the early development of an idea and the advanced stages of refinement and adjustment that are necessary before finalising a design.

For those working in the contract manufacturing industry, the creation of a prototype can also improve the relationship with the contractee who has commissioned the project. The reason for this is that such a model can give the client the opportunity to see and experience not only what the product looks like but how it works too.

This is helpful for gleaning useful feedback, and also building a strong and transparent working relationship between the contractor and the contractee. It also reduces the risk that some manufacturers will face if the project owners are not satisfied with the final product.

Lastly, developing a prototype of a machine’s parts can help give the manufacturer of the item an accurate idea of the logistics of the whole production process; it becomes far easier to understand the real cost of production as well as how rapidly an item of equipment can be manufactured.

Constructing a working model of machinery has numerous benefits, ranging from problem solving to calculating the real costs of production. As a result, this stage in the manufacturing process is considered absolutely essential in order to produce best results.

Venture Leasing – A Smarter Way To Build Enterprise Value

In 2003, venture capitalists and investors dispensed over $18 billion to promising young U.S. companies, according to VentureOne and Ernst & Young Quarterly Venture Capital Report. Less documented and reported is venture leasing’s activity and volume. This form of equipment financing contributes greatly to the growth of U.S. start-ups. Yearly, specialty leasing companies pour hundreds of millions of dollars into start-ups, permitting savvy entrepreneurs to achieve the biggest ‘bang for their buck’ in financing growth. What is venture leasing and how do sophisticated entrepreneurs maximize enterprise value with this type of financing? Why is venture leasing a cheaper and smarter way to finance needed equipment when compared to venture capital? For answers, one must look closely at this relatively new and expanding form of equipment financing specifically designed for rapidly growing venture capital-backed start-ups.

The term venture leasing describes the leasing of equipment to pre-profit, start-ups funded by venture capital investors. These companies usually have negative cash flow and rely on additional equity rounds to fulfill their business plans. Venture leasing allows growing start-ups to acquire needed operating equipment while conserving expensive venture development capital. Equipment financed by venture leases usually includes essentials such as computers, laboratory equipment, test equipment, furniture, manufacturing and production equipment, and other equipment to automate the office.

Using Venture Leasing Is Smart

Venture leasing enjoys many advantages over traditional venture capital and bank financing. Financing new ventures can be a high risk business. Venture capitalists generally demand sizeable equity stakes in the companies they finance to compensate for this risk. They typically seek investment returns of at least 35% – 50% on their unsecured, non-amortizing equity investments. An IPO or other sale of their equity position within three to six years of investing offers them the best avenue to capture this return. Many venture capitalists require board representation, specific exit time frames and/or investor rights to force a ‘liquidity’ event. In comparison, venture leasing has none of these drawbacks. Venture lessors typically seek an annual return in the 14% – 20% range. These transactions usually amortize monthly in two to four years and are secured by the underlying assets. Although the risk to the venture lessor is also high, this risk is mitigated by requiring collateral and structuring a transaction that amortizes. By using venture leasing and venture capital together, the savvy entrepreneur lowers the venture’s overall capital cost, builds enterprise value faster and preserves ownership.

Venture leasing is also very flexible. By structuring a fair market value purchase or renewal option at the end of the lease, the start-up can slash monthly payments. Lower payments result in higher earnings and cash flow. Since a fair market value option is not an obligation, the lessee has a high degree of flexibility and control. The resulting reduction in payments and shift of lease expense beyond the expiry of the transaction can deliver a higher enterprise value to the savvy entrepreneur during the initial term of the lease. The higher enterprise value results from the start-up’s ability to achieve higher earnings, upon which most valuations are based.

Customers benefit more from venture leasing as compared to traditional bank financing in two ways. First, venture leases are usually only secured by the underlying equipment. Additionally, there are usually no restrictive financial covenants. Most banks, if they lend to early stage companies, require blanket liens on all of the companies’ assets. In some cases, they also require guarantees of the start-ups’ principals. More and more, sophisticated entrepreneurs recognize the stifling effects of these limitations and their impact on growth. When start-ups need additional financing and a sole lender has encumbered all company assets or required guarantees, these young companies become less attractive to other financing sources. Correcting this situation can sap the entrepreneurs’ time and energy.

How Venture Leasing Works

Generally, a major round of equity capital raised from credible investors or venture capitalists makes venture leasing viable for the early stage company. Lessors structure most transactions as master lease lines, permitting the lessee to draw down on the lines as needed throughout the year. Lease lines usually range in size from as little as $ 200,000 to well over $ 5,000,000, depending on the lessee’s need and credit strength. Terms are typically between twenty four to forty eight months, payable monthly in advance. The lessee’s credit strength, the quality and useful life of the underlying equipment, and the lessor’s anticipated ability to re-market the equipment during the lease often dictate the initial lease term. Although no lessor enters a leasing arrangement expecting to re-market the equipment prior to lease expiry, should the lessee’s business fail, the lessor must pursue this avenue of recovery to salvage the transaction. Most venture leases give lessees flexible end-of-lease options. These options generally include the ability to buy the equipment, to renew the lease at fair market value or to return the equipment to the lessor. Many lessors limit the fair market value, which also benefits the lessee. Most leases require the lessee to shoulder the important equipment obligations such as maintenance, insurance and paying required equipment taxes.

Venture lessors target lessee prospects that have good promise and that are likely to fulfill their leases. Since most start-ups rely on future equity rounds to execute their business plans, lessors devote significant attention to credit review and due diligence – evaluating the caliber of the investor group, the efficacy of the business plan and management’s background. A superior management team has usually demonstrated prior successes in the field in which the new venture is active. Additionally, management’s expertise in the key business functions — sales, marketing, R&D, production, engineering, finance — is essential. Although there are many professional venture capitalists financing new ventures, there can be a significant difference in their abilities, staying power and resources. The better venture capitalists achieve excellent results and have direct experience with the type of companies being financed. The best VCs have developed industry specialization and many have in-house specialists with direct operating experience within the industries covered. Also important to the venture lessor are the amount of capital VCs provide the start-up and the amount allocated to future funding rounds.

After determining that the management team and venture capital investors are qualified, venture lessors evaluate the start-up’s business model and the market potential. Since most venture lessors are not technology specialists – able to assess products, technology, patents, business processes and the like – they rely greatly on the thorough due diligence of experienced venture capitalists. But the experienced venture lessor does undertake an independent evaluation of the business plan and conducts careful due diligence to understand its content. Here, the lessor generally attempts to understand and concur with the business model. Questions to be answered include: Is the business model sensible? How large is the market for the prospect’s services or products? Are the income projections realistic? Is pricing of the product or service sensible? How much cash is on hand and how long will it last according to the projections? When is the next equity round needed? Are the key people needed execute the business plan in place? These and similar questions help determine whether the business model is reasonable.

Satisfied that the business model is sound, the venture lessor’s greatest concern is whether the start-up has sufficient liquidity or cash on hand to support a significant portion of the lease term. If the venture fails to raise additional capital or runs out of cash, the lessor is not likely to collect further lease payments. To mitigate this risk, most experienced venture lessors pursue start-ups with at least nine months of cash or sufficient liquid assets to service a substantial portion of their leases.

Getting the Best Deal

What determines venture lease pricing and how does a prospective lessee get the best deal? First, make sure you are comfortable with the leasing company. This relationship is usually more important than transaction pricing. With the rapid rise in venture leasing over the past decade, a handful of national leasing companies now specialize in venture leases. A good venture lessor has a lot of expertise in this market, is accustom to working with start-ups, and is prepared to help in difficult cash flow situations should the start-up stray from plan. Also, the best venture lessors deliver other value-added services – such as assisting in equipment acquisitions at better prices, trading out existing equipment, finding additional venture capital sources, working capital lines, factoring, temporary CFOs, and introductions to potential strategic partners.

Once the start-up finds a capable venture lessor, negotiating a fair and competitive lease is the next order of business. A number of factors determine venture lease pricing and terms. Important factors include: 1) the perceived credit strength of the lessee, 2) equipment quality, 3) market rates, and 4) competitive factors within the venture leasing market. Since the lease can be structured with several options, many of which influence the ultimate lease cost, start-ups should compare competing lease proposals. Lessors typically structured leases to yield 14% – 20%. By developing end-of-lease options to better accommodate lessees’ needs, lessors can shift some of this pricing to the lease’s back end in the form of a fair market value or fixed purchase or renewal option. It is not uncommon to see a three year lease structured to yield 9% – 11% annually during the initial lease term. Thereafter, the lessee can choose to return the equipment, purchase the equipment for 10% – 15% of equipment cost or to renew the lease for an additional year. If the lease is renewed, the lessor recovers an additional 10% – 15% of equipment cost. If the equipment is returned to the lessor, the start-up reduces its cost and limits the amount paid under the lease. The lessor will then remarket the equipment to achieve its 14% – 20% yield target.

Another way that leasing companies can justify slashing lease payments is to incorporate warrants to purchase stock into the transaction. Warrants give the lessor the right to buy an agreed upon quantity of ownership shares at a share price predetermined by the parties. Under a venture lease with warrant pricing, the lessor typically prices that lease several percentage points below a similar lease without warrants. The number of warrants the start-up proffers is arrived at by dividing a portion of the lease line – usually 3% to 15% of the line – by the warrant strike price. The strike price is typically the share price of the most recently completed equity round. Including a warrant option often encourages venture lessors to enter transactions with companies that are very early in development or where the equipment to be leased is of questionable quality or re-marketability.

Building a young company into an industry leader is in many ways similar to building a state-of-the art airplane or bridge. You need the right people, partners, ideas, materials and tools. Venture leasing is a useful tool for the savvy entrepreneur. When used properly, this financing tool can help early stage companies accelerate growth, squeeze the most out of their venture capital and increase enterprise value between equity rounds. Why not preserve ownership for those really doing the heavy lifting?