production and materials management

PRODUCTION AND MATERIALS MANAGEMENT

BABASAB PATIL

PAPER 3.1 : PRODUCTION AND MATERIALS MANAGEMENT

SYLLABUS

Unit 1

Introduction: Production function – Design of production – Systems – Types ofprocess – Productivity – Ergonomics

Unit – 2

Production Planning and Control: Planning – Routing – Scheduling -Despatching – Inspection – Gnatt Charts – Make or Buy Decisions

Unit – 3

Plant Location and Layout : Factors influencing plant location – Relocation –Types of layouts – Process and product layout.

Unit – 4

Materials Management: Concept - Purchasing – Vendor rating – MaterialHandling: Importance – Selection of material handling equipments.

Unit – 5

Stores Management : Functions – Stores location – Stores layout – Essentials ofgood layout – Stock verification.

Unit – 6

Inventory Management : Concept – Importance – Techniques.


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Lesson – 1

PRODUCTION FUNCTION

PRODUCTION MANAGEMENT

Production management is the process of effectively planning, organizing,directing the controlling the production function or production system i.e. theoperations of that part of an enterprise which is responsible for the actualtransformation of materials into finished products. It deals with man – machineorganisation to accomplish both productivity and satisfaction – the desirableend results.

Scope of Production Management

Major activities included under the production management are:

(1) Product planning and development, i.e. evolution of new products anddesigning of those products on the basis of specific demands receivedfrom marketing or sales department.

(2) Production administration which deals with three specialized parts ofproduction activity, namely,

production engineeringproduction planning, andproduction control

(3) Execution of plans, policies and decisions, i.e. implementation function(4) Department services and departments, e.g. standardization,simplification, specialization, inspection and quality control, inventorycontrol, research and development, diversification, employee amenitiesetc.

Major Decisions of Production Management

The are two major areas of responsibilities of production, managementrequiring management decisions.

1. Strategic Decisions:

The design of the production system involves decision on many problemssuch as selection of product, equipment and process, location and layoutplant etc. They may need large capital investments.


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These decisions are called strategic decision. They are also long-rundecision. Such major decisions of production management are taken bythe top management and not by production or manufacturing managers.

2. Tactical Decisions:

The tactical or short-run or recurring decision relating to the operationsand control of the production system are usually taken by productionmanages. These tactical decision are on the problems such as forecasting,production planning, production control, inventory control, quality costcontrol and productivity.

When competitive, economic, social and technological changes occur inthe environment of the enterprise new approaches and adoptions arerequired in both the areas to justify its existence and to ensure steadygrowth.

The production function of a business is concerned with the creation of aproduct or service required to satisfy customer needs, wants and desires.In any business that supplies a needed product or service, it is quiteobvious that activities of product system must be closely related to thecustomer demand as reflected in the continuous flow of order.

PRODUCT FUNCTION

Production function involves an organized activity for converting materials intoa finished product desired by customers.

Production function will be considered most effective when it serves a dualpurpose.

1) It must operate primarily to satisfy customer demand particularly relatingto quality, quantity, price and above all timing of delivery as scheduled inthe order.

2) It must permit production activities to operate in an economical andefficient manner because cost of production is a vital factor is facing themarket competition and in ensuring normal profit or return on theinvestment. Higher costs may wipe off normal profit and sooner or laterenterprise will be wiped out of the market.


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SCOPE OF PRODUCTION FUNCTION

The scope of production function is very wide in the present era of intensecompetition and sophisticated technology. The production function in anenterprise is not only concerned with the proper and full use of productionfacilities, utilization of latest techniques of production, and production ofquality goods satisfying the varied segments of customers, but also with thehuman factor. The scope of production function is not fixed. It depends upon amultiplicity of factors. The scope of production function is not fixed. It dependsupon a multiplicity of factors, two more important ones being nature ofbusiness and activity and size of business operations. However, in a largemanufacturing concern, the various activities that generally from part ofproduction function include the following:

1. Production Planning:

Production planning deals with the preparation of productionprogrammes, that is, about number and types of product to bemanufactured, the technique of production to be employed, the qualityspecification to be met, the delivery schedules to be adhered to, andutilizing all production facilities with optimum results. Thus, productionplanning is a comprehensive function which decides in advances aboutthe production objectives and the methods to realize those objectives.

2. Plant (or works) Engineering:

This function is concerned with installation of plant and equipment, andprovision of plant services (like power, steam, compressed air, water etc.,plant and building maintenance; safety precautions; and the like.

3. Purchasing:

After production planning and plant engineering, the function ofpurchasing becomes relevant. Purchasing activity is aimed at meeting therequirements of production department for raw materials, intermediateproducts, and consumables. In order to be useful, the purchasing activitymust pay due attention to such aspects of quantity, quality, source, price,delivery time, planning and control etc.

4. Production (or manufacturing) Engineering:


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This is a specialized function of process design, plant layout design,materials handling, method engineering, design of tooling andequipment, work measurement etc.

5. Manufacturing:

This is the function of actual conversion of physical inputs into outputs ofproduct and services. There could be various operations, depending onthe nature of products and production for example, matting, grinding,pressing, cutting, heat treating, welding, finishing etc. or fabrication andassembling. It may be pointed out that the functions of productionplanning, plant engineering, purchasing and production engineering areundertaken with the object of facilitating manufacturing. They all setstage for the actual manufacturing operations by providing productionprogrammes, routes, schedules and work orders, by installing plant andequipment and making available plant services, by buying raw materials,intermediate products, and consumables, and specifying methods,processes and standards of operations.

6. Production Control:

The final activity that forms part of production function relates toproduction control. Production control mainly deals with bringing actualperformance at par with planned performance in terms of quantity andquality requirements, time schedules and cost standards. As such,production control is closely related to production planning.

Organizing production function

To understand how production function is organized in a business enterprise, itis pertinent to know (a) who is responsible for performing production functionin a business enterprise, and (b) what organizational set-up is followed toperform production function in a business enterprise. These aspects are brieflydescribed below.

Responsibility of Product Function


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The responsibility of performing production function varies in different types ofbusiness enterprises. In sole-proprietary organization, for instance, the owner(i.e. sole proprietor) looks after this responsibility. In partnership firm, theresponsibility of production department can be entrusted to one of the activepartners. In a company, which is generally organized on a large scale, theresponsibility of production function is given a formal shape. A separatedepartment (generally known as Production Department) is created and putunder the charge of an individual (generally known as Production Manager),who functions under the overall guidance, superintendence, and control of theChief Executive (Manager or Managing Directors), or Board of Directors. It isthis organ of company management (i.e. top management) that is responsiblefor taking broad policy decision about production activities.

Relationship of production with other functions of business

Production functions, in a typical manufacturing organisation, operates in anetwork of inter-dependencies and interactions with other major functionssuch as marketing, finance and accounting, personnel, office, and research anddevelopment (R&D). the nature of relationships between production and otherfunctions of business is briefly given below.

Production in Relation to Marketing Function

In the nature of things, two functions are more closely interrelated than otherfunctions. At every stage, right from conceiving the product idea down toafter-sales service, production and marketing departments have to work inunison. Several decisions in marketing the production have common premisesand inputs. Production designs, sizes and quality ranges have to be determinedkeeping in view the preferences of the various customer groups, as studied bythe marketing people. Decision on introduction of new products, improvementof existing product and elimination of slow-moving and obsolete products haveto be taken in consultation with the manufacturing department. There areseveral areas in which both the departments can cooperate and integrate theiractivities. For instance, new product ideas that may emanate from researchlaboratories attached to production department may be taken up by themarketing department to build up potential customers. Similarly, productiondepartment can furnish details of the distinct technical features of products toadd grist to the sales promotional campaigns. Sometimes even marginal


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changes in product design can contribute greatly to the attractiveness andutility of the products.

Production in Relation to Finance and Accounting Function

Production function is closely interlinked with finance and accounting functionin a business enterprise. Long range and short range financial planning has totake into consideration production costs which are a sizeable component oftotal costs of products. In evaluation of production performance, aspects ofcost minimization get the attention of finance manager. In the task of producton planning, the production people have to depend on costing and otheraccounting units to provide the needed estimates and computations of costs ofalternative product designs, process and plant engineering, methods, processes,standards, and production programmes. Further, any proposal for capitalexpenditure for acquisition and replacement of assets, balancing equipment etc.emanating from production department should be cleared by the financedepartment. Thus, both departments should work in close cooperation witheach other and appreciate the complexities and compulsions of each other’s jobresponsibilities.

Production in Relation to Personnel Function

The personnel manager in a manufacturing organisation helps the productiondepartment in several matters such as man-power planning, recruitments andselections, training, design or wage incentive systems, discipline and grievancesettlement process, welfare and safety programmes, and relations with labourunions. Apart from these aspects, personnel manager also assists theproduction department in motivating employees and works, in establishingcommunication with them, and in injecting humanism in work units.

Production in Relations to Office Function

Like other functions, production stands in interdependent and interactionalposition with office function. The production function can not be satisfactorilyperformed if an efficient office does not exist in the organisation. It is the officethat will inform the production department, through relevant records, about thetime schedules of production, the quantities of production, and the qualityspecifications of production. it is the office that makes arrangement for the


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procurement of raw material and other production inputs at reasonable rates. Itis from the office that raw materials and other supplies are issued to theproduction department, on requisition. It is the office that keeps a periodiccheck on the inventories and ensures their proper management. Thus,production department and office are closely related.

Production in Relation to R & D Function

In a large sized manufacturing organization there is an organic link between theproduction department and R & D unit. R & D is a melting pot of ideas withregard to products, processes and techniques employed in production. it feedsthe production department with new, improved and innovative product idea andproduction methods. All technical aspects, specifications and designs ofproducts are generally cleared in R & D unit. Likewise, R & D unit has to dependon production department for understanding the environmental setting inwhich production people work, availability and acquisition of plant andequipment, skills of personnel and so on. Manufacturing, industrial and qualitycontrol engineers are also associated with R & D with respect to several aspectsof product engineering. This close inter-relationship between production and R& D needs continuous communication and coordination among them.

PRODUCTION SYSTEM

A business enterprise may be a manufacturing or service organisation. It mayproduce a product or a service, i.e. provide advice, information, help or anyassistance. In either case it is producing something which did not exist before.

Such a business organisation can b e regarded as a system, whose elements areproduction, marketing, finance and personnel relations. A system is a complexunity formed of many and often diverse parts which are interconnected and arealso interrelated. All the parts making a system are subject to common plan forserving a common purpose. A business is a system because the four functionsmentioned above are interrelated and they can be coordinated and integrated toachieve common organisation objectives namely, profit and satisfaction.Production function is regarded as a subsystem of the business firm – a systemwithin a system. It represents a regularly interacting or interdependent group ofitems forming a unified whole.


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Production Manager

Production manager must concern himself with a number of interrelated areas.These areas are:

production planning

production control

quality control

methods analysis

material handling

plant layout

inventory control

work measurement

wage incentives, and

working conditions

He is also involved in other areas incidentally, e.g. plant location, buildingdesign, product development. Similarly under systems approach he isinterested in the decisions made in other functional areas of the business, e.g.marketing, finance and personnel as his department always interacts with thesedepartments. Of course these other areas are not his primary responsibilities.

TYPES OF PRODUCTION

There are three basic types of productions which can be easily identified andwhich affect the complexity of the required production control system.

1. Flow Production

It is called on-line or mass production. all the work done on a series ofmachines (or manual work) flows through those machines in the samesequence. There is no waiting period between the two successiveprocesses. Time taken for each operation must be equalized in order tomaintain steady flow of operations. This is done by increasing thenumber of machines performing larger operations or by altering thecontent of the operation. The famous example of flow production is the


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motor car assembly line production. flow production can be controlledmore easily and cheaply than batch production. of course, failure inmaterial supply, machines, or quality standards can stop the line andmaximum attention is necessary to maintain the flow of materials,machine operations and we must have statistical quality control devices.Flow production is adopted invariably to meet high demand as we canhave large output.

Line (Product) form of

Product Organisation

Car Assembly Line

2. Batch Production

If the same sequence of operations on all the work produced inmanufacturing section is not there, then the flow production cannot beadopted. In that case, the batch production on a small or a large scale willbe preferred. Batch producers may arrange their machine shops so thattheir similar machines are grouped together. Machines are groupedaccording to type, e.g. the presses in one area, automatics in another,lathes in another, milling machines in another and so on. This is alsocalled functional layout.

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3. Unit Production

It means a type of production where only one article is produced and it isnot repeated, except after a long interval. The article is made as percustomer’s specific needs. It may have standard elements but those arecombined in a unique manner. In practice a factory specializing in unitproduction may produce more than one of a particular article. As long asthe number is small, the organisation for unit production may also servesmall – batch production. unit production and batch production havedifference only in degree. Unit or jobbing production differs from batchproduction only in one respect. In unit production, batch qualities aremuch smaller (only a few articles – custom made) and the variety ofcomponents manufactures is much greater than that of batch production.in unit production, the product is costly and the customer wants itdesigned to suit his special requirements.

Benefits of good production management

1. The Consumers: The consumer benefits from higher productivity,better and reliable quality, reasonable price, satisfactory services, andtimely as well as speedy delivery of goods.


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2. The Employees: The employees including the managers get higherremuneration, stable employment, security of jobs, better workingconditions, and above all enhanced personal satisfaction throughsense of achievement.

3. The Investors: When the enterprise has good production management,it is prosperous. The investors get higher return of income and theirinvestments obtain capital appreciation also.

4. The Suppliers: The good production management helps bringenduring positive relationship between companies and their suppliersthrough effective cooperation, better communication and mutualconfidence.

5. The Community: Due to better production management, all types ofbusiness operating in the community become prosperous.

6. The Nation: When all industries in the national economic, systemdemonstrate good production management, the entire nationaleconomy will accomplish around security and prosperity.

REVIEW QUESTIONS

1. What is production function? What is its scope?

2. Bring out the relationship between production and other functions ofbusiness

3. What are the different types of production?

4. What are the benefits of good production management?

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LESSON – 2

PRODUCTIVITYCONCEPT OF PRODUCTIVITY

Productivity is the talk of the day and increase in productivity is looked upon asthe key to prosperity at all levels. It refers to the relationship between the resultand the means employed, or, to be more specific, between the product and thefactors used for obtaining it. It seeks to measure the economic soundness ofthe use of the means. Consequently, productivity can be considered to behigher if the same product is obtained with more limited means; it will be loweris the same product can be obtained by a larger quantity of the means./ it willbe maximum when the highest output is obtained with the minimum expenseof resources; it will be the lowest when the resources are not used in the mosteconomical manner with the result that the smallest amount of output requiredthe maximum expense of the resources required for the purpose.

Productivity, in simple works, is a tool which aims at measuring relationshipbetween the results achieved (output) and the means employed (input) toachieve the results, in financial and or physical terms, in relation to given timeand conditions.

A few definitions of productivity are given below:

According to I.L.O. “Productivity is the ratio between the ‘output’ of wealthproduced and ‘input’ of resources used up in the process of production”

Peter Drucker, defines productivity as “that balance between all factors ofproduction that will give the greatest output for the smallest effort.”

Shri V.K.R. Menon defines productivity as “development of an attitude of mindand a constant urge to find better, cheaper, quicker, easier and safer ways ofdoing a job, manufacturing an article, and providing a service. It aims at theoptimum utilization of the available resources for yielding as many goods aspossible at the lowest possible costs.”


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According to J.M.S. Risk, “Productivity is a physical ratio, it relates to thequantity of goods produced or services given in comparison with the quantityof resources consumed.”

To reduce the above description of productivity to precise technical terms,productivity may be described as a relationship between output and input. It isthe ratio of the output (of product) to the input (of factors required forproducing the products) Symbolically.

OP = ----------------

IWhere P = productivity, O = output, and I - input

The output may be measured in terms of the units of goods produced or thevalue of the goods and services produced. The input, on the other hand, refersto the combination of the raw materials, machinery, worker’s time, power,efforts and imagination of the entrepreneur and the managers. A unit of inputcan, therefore be expressed as one worker, or one hour labour time, or onetone of raw material, or one kilowatt of electricity, and so on and so on and soforth. It follows from above that it is possible to calculate and measure theproductivity of each one of the factor comprising the input or of all the factorscombined together. The productivity of capital can, for example, be found outby ascertaining the ratio between the value of the output produced and theamount invested in the production of such output.

Characteristics of Productivity

1. Productivity establishes relationship between output and input:Productivity does not study a variable in isolation. It is a measure thatestablished definable relationships between an output and the relativeproduction factor.

2. Productivity is applicable to all kinds of activities: Productivity is ageneral measure applicable to the various functions of differentorganizations such as business enterprise and non-businessorganizations like hospitals, military, government etc.


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3. Productivity is applicable to all factors of production: The wordproductivity has become almost a synonym of ‘productivity of labour’.This is obviously not very true. Productivity may be calculated for labour,capital, power, raw materials and all other factors which exhibitidentifiable relationship between output and input.

4. Productivity reflects a general attitude of eliminating wastage andinefficiency in business functioning: The term productivity should notalways be taken in its technical sense – i.e. a ratio between output andinput. Rather, it is a philosophy, an attitude that aims at making the mosteconomical use of scarce resources. It implies development of an attitudeof mind and a constant urge to find better, cheaper, quicker, easier, andsafer ways of doing a job, manufacturing a product and providing aservice.

PRODUCTION AND PRODUCTIVITY

The term production should be clearly distinguished from productivity.Production refers to the volume, value or quantity of goods and servicesproduced in a given period by a worker, plant, firm or economy. It is thesum-total of the results achieved by the various factors used together.Productivity, on the other hand, is concerned not merely with the total value orvolume of output or production, what is more important it shows the efficiencyof production. In other words, productivity is relative to the resources used inturning out a certain amount of physical output, while production is used in amore or less absolute sense. The distinction between the two becomes all theclearer when we find that all increases in production do not necessarily result inincreased productivity. If increase in total output is brought about with anincrease in the input of the factors of production, production will haveincreased, but productivity may actually decline or may remain constant. Thus,if output is just doubled by doubling the capital investment in machinery, rawmaterials, the number of workers etc. production is twice as much as it was inthe beginning, but productivity does not record any rise and is constant.

Labour Productivity

According to the above description of productivity, it should be possible tomeasure it by dividing the output by the quantity of raw material used or by thekilowatts of electric power consumed, or even by the total time devoted by theworkers to production. the productivity of labour is the ratio between the


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output and the number of man-hours worked. Symbolically, it may beexpressed as:

OPL = ----------

MHwhere, PL = productivity of labour

O = Output in terms of units or quantity or value orstandard time for actual output

MH = Number of man-hours spend on production, and

Man-hours = Number of workers employed on production x Numberof hours worked.

To take an example, if a drill operator marked the centres of three holes on aniron casting and then drilled the three holes on each piece one by oneproducing 100 pieces in 4 hours, the productivity of the operator will be 100/4= 25 per man-hour worked.

Of all the factors of production, labour is usually selected as the unit of inputfor the following reasons:

Labour occupies a central position in the industrial order for man is boththe end and an agent of production.

Productivity of labour is the key to higher standard of living

Labour is an element of cost in all branches and sectors of productiveactivity through its precise importance varies from industry to industry.

Labour as a factor of production is easily measurable in terms ofman-hours spent on production.

All other factors of production are subject to laws of mechanics, that is tosay, their output increases in a more or less fixed proportion to theirinput.

It must be remembered that labour productivity simply indicates theeffectiveness with which labour is being utilized along with other factors of


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production. it does not refer to the contribution made by labour alone to theproduct.

IMPORTANCE OF PRODUCTIVITY

Higher productivity is of vital importance for the speedy industrialization andeconomic development of a country. The available resources have to be used insuch a manner that both the total output and the productivity per unit areincreased. In this manner, capital will become available for investment in newplants and projects opening the way to economic advancement.

In short, improvement in productivity brings the following advantages to thefirm and the community at large:

Reduction in the cost of raw materials )through increase in theproductivity of raw materials)

Reduction in labour cost per unit of output.

Reduction in overheads and power costs per unit of output.

Reduction in the price of goods.

Increase in wages and salaries (through schemes for sharing the gains ofproductivity)

Increase in reserve fund that can be utilized for expansion andmodernization.

Better standards of living for people through increase in their incomesand improvement in the quality of goods can be made available atcheaper rates.

FACTORS AFFECTING PRODUCTIVITY

Industrial productivity is affected by a wide variety of complex and inextricablyinterwoven factors. They can be categorized as technological, financial,managerial, natural, sociological and cultural, and political factors. The impactof these factors on productivity is studied below.

1. Technological Factors:


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The term ‘technology is very broad and may include inventions, techniques, andthe vast store of organized knowledge of doing a work. There is an ampleempirical evidence to show that technology is the major determinant ofindustrial productivity. Specifically stated, technological factors that havegreatly influenced industrial productivity include: the use of specialized andautomatic machines, application of mechanical power, integration of processes,design of plant and machinery, division of labour, simplification andstandardization of products and techniques, product mix, location and layout ofplant, materials handling, size and capacity of plant, rationalization andautomation of manufacturing process and so on.

2. Financial Factors:

Finance – the backbone of industry – is essential to high productivity. It is sobecause finances facilitate conduct of research in innovations and technologicalimprovements; introduce schemes of modernization, mechanization,automation and rationalization of production processes, and undertakeprogrammes of upkeep of plant and machinery.

3. Managerial Factors:

The energetic, enterprising, far-sighted managerial talents coupled with thespirit of adventure, imagination and vigilance can go a long way in affectingindustrial productivity. All these managerial qualities, can be used forformulating short and long-term organizational plans; devising soundorganizational structure; introducing efficient staffing policies, evolvingappropriate motivational, leadership and communication systems; introducingeconomical and effective systems; and showing bold initiatives in handlingorganizational conflicts and crises. These managerial factors have a bearing onproductivity and help in minimizing wastage and idleness of organizationalresources and increasing their contributions in goal accomplishment.

4. Natural Factors:

The natural factors such as physical, geographical and climatic differencesexert significant influence on the productivity of industrial enterprises. Inextractive industries like coal mines, geological and physical conditions directlyaffect the productivity of workers.


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5. Sociological and Cultural Factors:

Sociological factors such as class structure, beliefs and customs of people andcultural factors such as values, norms and accepted behaviour do affectproductivity of industrial organization.

6. Political Factors:

Political factors especially the government’s policies like taxation, financialtariff are major determinants of industrial productivity. Favourable taxationpolicies, granting tax concessions and incentives, may encourage industries toinstall latest equipment and machinery. This has a positive impact on theproductivity of such industries. Liberal financial policy, that makes availablesufficient finances at reasonable rates of interest, would enable the industry tofinance their activities to an uninterrupted manner and show better productivity.Similarly, excessive restrictions on licensing, location, big business, areresponsible for low productivity.

INDUSTRIAL EFFICIENCY

Concept of Efficiency

Apart from productivity, another concept closely related to a production systemis ‘efficiency’. Efficiency is basically an output-cost-input relationship. Asexplained earlier, productivity is a ratio only between output and input, withoutany regard to cost implications. Efficiency, however, centres around threevariables: output, cost and input. Increased output with reduced cost is anindication of high efficiency. The task of measuring the efficiency of a businessunit involves setting up standards of output for various inputs and comparingthe achievements with the standards. Deviations from the standards aremeasured and suitable corrective actions initiated. The corrective actions wouldinclude the revision of the standards themselves. In general, an enterprise maybe deemed efficient if it is able to satisfy a given demand at the lowest possibleof cost besides stimulating the demand. Yet another simplest method ofevaluating the efficiency of an enterprise is in terms of its rate of profit. Thus,efficiency can be measured or defined in terms of cost-minimization,profitability and productivity.


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LABOUR EFFICIENCY

Although efficiency can be calculated for various factors of production, but itassumes special significance for labour. Increasing and maintaining theefficiency of labour is vital to produce more goods at less expenditure of timeand energy. Increased labour efficiency means reduced labour cost per unit.Further, an efficient worker would not wear him out easily through unnecessarymotions and exertions.

Factors Affecting Labour Efficiency

1. System of Wage and bonus Payment: The various systems of wage andbonus payment (such as Halsey Plan, Rowan Plan, and the like) areintroduced to increase the efficiency of the workers. Satisfactory wagesenable the workers to have a decent standard of living and turns out agood work as well.

2. Working Conditions: In additions to good wages and systems of bonuspayment, the conditions of work also should be satisfactory. The workingconditions within the factory must be safe and healthy. These relate tocleanliness, adequate ventilation and lighting, elimination of dust andfumes, sanitary conveniences, drinking water facilities, prevention ofover-crowding, fencing of dangerous machinery, reduction of noise,emergency measures in case of the fire accidents etc.

3. Machinery and Equipment: Since the efficiency of workers in a modernfactory largely depends upon the machinery, equipment, and tools whichthey use there, the management should provide them the best possiblemachinery etc.

4. Internal Organisation: Internal organisation outlines the authority –responsibility relationships of organizational positions. Managementshould take the responsibility to provide an efficient internal organisationto ensure the smooth flow or work inside the factory.

5. Humane Treatment of Workers: The efficiency of the workers alsodepends upon the treatment method out to them.

6. Provision of Education and Training: Provision of facilities andincentives to workers to get theoretical and practical education is also


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vital. The management must also take upon itself the responsibilities offull training of the workers after their recruitment for a given job.

7. Responsible Trade Union Leadership: A strong workers’ association anda competent trade union leadership will go a long way in securing morewelfare facilities for the workers, which in turn will increase the efficiencyof the workers.

SOME INDICES OF EFFICIENCY

Labour Efficiency

The efficiency of labour is measured through:

ratio of actual output to a work standard,

the ratio of indirect labour cost to the total pay-roll,

the ratio of set-up time required for each direct labour hour; and

the ratio of maintenance and repair time for each direct labour hour.

Enterprise’s Efficiency

For measuring the efficiency of a business enterprise as a whole, the useof financial ratio analysis, technique can be made. These ratios include:

percentage of profits before tax to sales,

percentage of profits before tax to gross fixed assets,

percentage of profits before tax to capital employed,

percentage of profits after tax to net worth

percentage of value of production to net worth,

stock of raw-materials and supplies in month’s consumption forproduction requirements, and

debtors in month’s turnover.

SOME DISTINCTIONS

EFFICIENCY AND EFFECTIVENESS


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The term ‘efficiency’ should be differentiated from ‘effectiveness’. Efficiencyestablishes relationship between output and costs. as the cost of a factordeclines, its efficiency increases. A business enterprise is said to be efficientwhen it is able to achieve its objectives with lowest costs. efficiency is largelyinfluenced by internal factors such as improvement of standardized procedures,reducing waste and raising quality levels. Effectiveness refers to the ability of afactor or variable to achieve its objective. An organisation is said to be effectivewhen it is able to achieve its goals.

PRODUCTION, PRODUCTIVITY AND MATERIALS MANAGEMENT-

THE BASIC RELATIONSHIP

The production function has some basic characteristics which involve identicalactivities in almost all companies. Information must flow authorizingproduction of specific quantities within a specific period in time. Authorizationmust state, in clear terms, the product specification, quality and performancecharacteristics to be built into the product, either to meet pre-establish salesforecasts or as a routine procedure of replacement of finished goods. Once thisis done, the routing procedure for Materials Management involves a series ofsteps like whether to make or buy, establishing materials requirement,scheduling, placing of orders, follow-up etc.

It is difficult to grasp the full implications of materials management withoutproduction and operations, which have pronounced sensitiveness to it. All themanagement systems are designed to raise production and improveproductivity. Productivity has been defined as the ability to produce goods andservices efficiently and economically. But productivity, as defined by ‘outputobtained for a given resources expended’, must not only take into accountdiverse resources employed in the productive process which are fairlymeasurable (both quantitatively and qualitatively) and brought into beingthrough the common medium of ‘money costs’, but must also take into accountsuch intangible factors as management, supervision and control.

Cost can furnish, if only with some difficulty, a dependable index of comparisonthrough the common medium of ‘money value’ for bringing together suchdiverse resources like, men, materials, machines as well as capital. reduction incost, therefore, has long been recognized as an effective measure ofproductivity analysis for both inter- firm and intra-firm comparisons.


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However, productivity is affected not only by the management’s attitude andresourcefulness, but also by the day-to-day operation of the productiveorganisation as well its supervision and control. Management must not onlykeep itself abreast of the latest developments and new improvements in theproductive processes but also consistently strive to improve skills, methods andprocedures in relation to materials in order to increase overall productivity.

Recent shift of emphasis on materials cost-control has again made itincumbent on management to use materials management as an important toolto reach the basic objectives of economic control of product cost and bettercustomer service. Therefore, the need arises to organize and plan, coordinateand control various activities concerned with materials, which then becomes thebasis for improvement in productivity. This has a far-reaching effect oncorporate goal of profit through elimination of waste and reduction in costs.therefore, it has to be realized that technological changes for improvingproductivity are not confined to technical innovations, plant size andinstallation of modern types of machinery and capital equipment necessary forproduction. It also lies in the inherent nature and quality of materials used inthe production process and the methods employed to handle them, which isreflected in the final output cost via lower cost of production. And here, inorder to optimize production and reduce cost, Materials Management pl.ays thekey role. There may be some dispute over its boundary, but there is no disputeabout its role and contribution to productivity and profit.


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Review Questions:

1. explain the concept of productivity. Bring out its importance.

2. What are the factors affecting productivity?

3. Distinguish between production and productivity.

4. What do you understood by the term efficiency? What are the factorsaffecting labour efficiency?


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LESSON – 3

ERGONOMICSErgonomics has been defined as fitting the job or the machine to the worker.The word is derived from the Greek Ergon (work) and nomos (law). Ergonomicsanalyses and designs work equipment and environments to fit human physicaland cognitive capabilities. It implies recognition of human relations andindividual differences. Ergonomics views management and organisation of workor job primarily from the worker or employee convenience and case. It usesknowledge of anatomy, physiology, psychology and social psychology to reducethe stress and strain on the workers in their work area.

It covers three areas:

1. The Work Places: The workers pass major part of their daily life at thework. These areas include layout of equipment and machinery, display ofinformation and controls.

2. General Environment: This refers to work environment and workingconditions, such as lighting, noise, vibration, air circulation, industrialhygiene and safety measure etc.

3. Other Factors: These cover industrial fatigue, degree of vigilance andcontrol, typical problems of women, old persons, disabled workers etc.

When a worker operates a machines, uses a tool or an equipment, it isabsolutely necessary to ensure that man and machine form a good partnership(on equal terms) so that they have unity and work as a single unit. Hence, indesigning a machine, tool or instrument, in evolving a process of control, inestablishing a flow of information, human element and individual humandifferences must be recognized.

Management is naturally interested in discovering more effective and cheaperways to perform work. If cost of production goes down, the organisation canhave rising earning power placing the business in a more favourable situationto face increasing competition. The sole objective of management of work in isto optimize returns on all resources including the human resources with dueconsideration to human valued.


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Work Design

Work design or methods improvement is one of the techniques used often bymanagement to control labour costs. work design eliminates unnecessary,pain-giving movements and in reality it reduces (not increases) human efforts.A worker can get more work done – without his working any harder.

Work design or methods improvement is also called time and motion study ormethods analysis, or work simplification or simply work study.

We will deal in detail the following branches of man-machine organization:

(1) Work Study

(2) Motion Study

(3) Time Study and

(4) Fatigue Study

(5) Methods Study or Analysis

1. Work Study

Work study covers both time study as well as motion or method study to assesshuman effectiveness and to improve methods of production. Motion studyprovides evolution of ideal methods of doing the work. Time study provides theevolution of work measurement device etc. to establish time standards.

Objectives of Work Study:

The most effective use of plant and equipment

The most effective use of human effort

The evaluation of human work

Work study provides the means to achieve higher productivity under prevailingcircumstances. Work study is associated with two distinct techniques which areinterdependent.


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(1) Method – the way in which work is done

(2) Value – work content of the task itself.

Uses of Work Study:

It is the best means of raising productivity.

It is a universal tool of work reorganization involving minimum capitalinvestment in plant.

It can reveal organizational inefficiency due to job structure or jobcontents.

It can eliminate waste of resources.

It can help management in planning, controlling and motivating

It facilitates production planning and control by providing best means forsetting standards of performance.

It can evolve humanized man-machine system.

2. Motion Study (A Device of Work Improvement)

It is the study of movements, whether of a machine or an operator, inperforming an operation for the purpose of eliminating useless motions and ofarranging the sequence of useful motions in the most efficient order indicatingthere by ‘one best way of doing the work’ according to Gilbreth, the pioneer ofmotion study. “Motion Study is the science of eliminating ineffective, unwantedand wasteful motions. It has to do with the selection, invention and substitutionof effective for non-productive, and wasteful motions. Its end objective is tofind a simpler, easier and better way of performing a job.

Management is interested not only in increasing the worker’s efficiency but alsoin reducing or eliminating fatigue due to unnecessary months. The better workmethods aim at reducing fatigue and making the worker more efficient. Thebetter way is usually a faster and simpler way involving fewer motions andinducing less fatigue.

Procedure for a Motion Study:

Develop a normal and maximum working area.


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Use fewest basic motions from the simplest to the most complex.

Eliminate delay

Achieve rhythm and automaticity in motions

Improve the work place and

Improve the working conditions

As a result of motion analysis and adherence to the principles of motioneconomy, management can set the standard of ‘how’ to do the job. Thisstandard method forms the backbone of the training programme for newworkers. The new worker can be given detailed instructions as to how he is touse machines, tools, his body etc. The standard method (through motion study)is usually established concurrently with the standard time (through time study)for performance of the job.

3. Time Study (A Device of Work Measurement)

Time study, on the other hand, is the are of systematically recording,analyzing and synthesizing the time required to perform a motion or aseries of motions. It is the art of observing and recording the timerequired to do each detailed element of an assigned job or work. Timestudy’s purpose is to determine how much time is required to performthe job. Taylor, the father of scientific management, introduced for thefirst time, the concepts of time and motion study for systematicestablishment of work standards.

Use of Time Study:

To establish a fair incentive wage plan

To estimate the time and cost involved in new production orders

To achieve a uniform flow of work in improving plant layout

To help the analysis of work methods during a motion study ofjobs.

Standard time is the basis for labour cost control

Steps in Time Study:


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1) Establishing the method, equipment and workplace condition underwhich the job is to be done.

2) Selecting the average worker who is to be studied as he performs the taskand securing his cooperation.

3) Breakdown of the job into elements suitable for timing purposes

4) Recording time with the help of stopwatch

5) Grading the study

6) Applying relaxation allowances, e.g. personal allowance (3 to 5 pc.),fatigue allowance (3 p.c.), delay allowance (3 p.c.)

7) Determining the time standard

The object of time study and motion study is to establish standardizedperformances. When used together, motion and time study concerns itself withthe analysis of work and the time required to perform it. In current usage itembraces two facts –

(1) Determining the most economical and effective method of performing atask.

(2) Determining the time required by trained employees working at a normalpace to perform the job.

Taylor advocated and emphasized time study of the various components of jobby means of a stopwatch so that it would be possible to determine a fair day’swork scientifically. Gilbreth placed more emphasis on motion study than ontime study and financial incentives. He was conceived that there was one bestway to perform each physical motion necessary in completing a job. Gilbrethsidentified seventeen basic elements in on-the-job motions, which theychristened ‘thebliges’.

4. Fatigue Study

Meaning of Industrial Fatigue:

Industrial fatigue is reduced capacity for further work as a consequenceof previous continuous activity, where a worker was trying almost as hard as he


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could. It is the natural outcome of continuous work – reaction on body, mindand nerves. It indicates negative appetite for work.

Causes of Industrial Fatigue:

1. Unreasonably long working week and/or working hours.

2. Bad plant layout, faulty machine design – leading to unwanted andinconvenient and painful movements.

3. Inconvenient, awkward or bad posture at the work bench – standing,bending position (continuous) for a prolonged period

4. Unfavourable work environment, e.g. defective or glaring light; badventilation, noise and vibration.

5. Acute division of labour making the work or the job meaningless,monotonous, tedious.

6. Unpleasant jobs, e.g. repetitive or routine work.

7. Unfavourable personal factors, i.e. bad nutrition, bad health, poor familylife, absence of interest etc.

Consequence of Fatigue:

The following are the consequences of continued activity or excessive fatigue.

1. A tired person is accident-porne. It leads to increased number ofaccidents which may cause partial or total disability or even loss ofhuman life.

2. It leads to a low rate of output – diminishing returns

3. When a worker is tired, he cannot give proper attention and concentrationto his job. He becomes careless. This may increase wastage or spoilage.

4. Fatigue also can reduce quality of output.

5. As it induces mental and physical sickness, the worker may have lowmorale due to lack of case at work. Low morale is reflected in the form offrustration, disappointment, non-cooperative and grudging temperament.

6. Fatigue leads to physical, mental and nervous debility resulting in higherrate of absenteeism and/or labour turnover.


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7. A tired worker may be unwittingly responsible for damages of machineryand equipment or machine breakdown creating further loss in production.

In short, non-stop excessive work without suitable rest pauses will beprejudicial to both the parties, employer as well as employees. Above all, itleads to wastage of humand and material resources.

Remedies:

The management must adopt concrete measures to eliminate or minimizethe adverse effects of industrial fatigue on the business enterprise.

(1) Ideal working week is five days or 40 hours week. Two weekend holidayswill enable employees to start the routine work with new vigour.

(2) Ideal length of working day is 8 hours work per day. This is now universal

(3) Rest pauses within the working day. The rest pauses can maintainwarming-up effect, interest and enthusiasm in the work throughout theworking day.

(4) Favourable work environment and working conditions also can prevent toa great extent industrial fatigue.

(5) Work study, particularly motion study, can also help the management toreduce undue stress and strain in the performance of a job.

(6) Proper plan layout, material handling, designing of machines andequipment to suit the human needs also can reduce industrial fatigue.

(7) Job enlargement and job rotation also can reduce boredom.

In short, any measure to provide case of work – physical and mental – canensure reduction or elimination of fatigue and boredom.

5. Methods Study or Analysis

Methods analysis aims to evolve the most effective method of accomplishing agiven task or job. Methods analysis attempts to improve existing methods aswell as develop efficient methods for new tasks to be performed for the firsttime. However, it concentrates more on the improvement of existing methods


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or methods for performing the tasks which are already existing. Methodsanalysis is made with the help of both motion study and time study.

Review Questions:

1. What do you understand by ‘Ergonomics”

2. What is work study? What are its objectives?

3. What do you understand by motion and time study? What are itsobjectives?

4. What is fatigue? Explain the causes and consequences. What are theremedies to minimize fatigue?

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LESSON – 4

PRODUCTION PLANNING AND CONTROL

Production planning and control is one of the most important phases ofproduction management, it is, as a matter of fact, the nervous system of amanufacturing organisation. In manufacturing organisation, it is essential thatproduction is carried on in the best manner at the lowest cost, and the goodsare of right quality and are produced at the proper time. This can be ensuredonly through proper planning of production. but mere planning of productionwill not solve the problem because production plans are not capable ofself-actuating and do not lead to automatic accomplishement. For that theproduction manager has to take certain steps like, he has to regulate workassignment, review the work progress, and devise methods to bring conformitybetween the actual performance and planned performance – so that planschalked out are adhered to and the standards set at the planning stage areproperly attained and improved. This is the function of ‘production control’.Production control, therefore, is a directive function which involves thecoordination and integration of operations and activities of different factors ofproduction with a view to optimizing efficiency. Optimum efficiency isattainable by proper planning of work, laying down of exact routes whichoperations shall follow, correct fixing of time-table within which productiveoperations shall start and come to a close, uninterrupted releasing of ordersand work facilities, and timely initiation of appropriate follow-up steps toensure smooth functioning of the enterprise. In other words, production controlinvolves planning, routing, scheduling, dispatching and follow-up.

Definition

The concept of production planning and control can be better understood withreference to a few definitions:

According to Spriegel and Lansburgh. “Production planning and control is theprocess of planning production in advance of operations: establishing the exactroute of individual item, part, or assembly; setting, starting, and finishing datesfor each important item, assembly, or the finished product; and releasing thenecessary order as well as initiating the required follow up to effectuate thesmooth function of the enterprise.”


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In the words of Alford and Beatty, “Production planning and control comprisethe planning, routing, scheduling, dispatching and follow-up functions in theproductive process, so organized that the movements of material, performanceof machines, and operations of labour, however subdivided, are directed andcoordinated as to quantity, quality, time and place.

Prof. Koepke production planning and control “as the coordination of a series offunctions according to a plan which will economically utilize the plant facilitiesand regulate the orderly movement of goods through their entiremanufacturing cycle, form the procurement of all materials to the shipping ofgoods at a predetermined rate”.

Objectives of Production Planning and Control

Basically production control function involves the coordination and integrationof the factors of production or production facilities to produce a product at anoptimum efficiency. An elaborate definition of production control is given below:

“Production control is the function of directing and regulating the orderlymovement of goods through the entire production cycle form the requisitioningof raw materials to the delivery of finished products to meet the objectives of (i)customer service, (ii) minimum inventory investment and (iii) maximumproduction efficiency”.

In this sense production control includes planning of production as well asproduction control proper and also inventory control. Production planningcovers setting the requirements of production. Production control coverskeeping production within the planned requirement.

Importance of Production Planning and Control

1. Plant’s Nervous Systems: Production planning and control coordinatesand regulates all plant operations just as our nervous system regulatesand coordinates the breathing and muscular movement. In a large plantinvolving numerous parts and components to manufacture a final productsuch as motor car, production planning and control assumes importance.


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2. Intermittent Process Industry: In intermittent process industry, underbatch production, goods are made as per order. in such industriesproduction planning and control become absolutely necessary to assuredeliveries as planned and as demanded by customers.

3. Cost Control: Good production planning and control help optimize theutilization of men, machinery, materials and money through effectiveplanning, organizing motivating and controlling multifarious operationsin the plant. The net result is reflected in reducing all costs to theminimum.

4. Developing Economy: In a developing economy, production planning andcontrol is a boon for optimum use of scarce economic resourcesparticularly capital, machinery and equipment. Proper planning andadequate control can accelerate industrial productivity and consequentlyhelps develop economy.

5. Rationalization of Plant Operations: Production planning and controlhelps rationalization of plant operations and helps optimum utilization ofplant and machinery.

STEPS IN PRODUCTION PLANNING AND CONTROL

1. Planning

2. Routing

3. Scheduling

4. Dispatching

5. Expediting

1. Planning

The first important step in production planning and control is concernedwith the careful preparation of production plans. Production plansdetermine what will be produced and where, at what type, by whom, andhow. For detailed planning of operations, the relevant information may beobtained from several sources in the enterprise. Information aboutquantity and quality of products to be manufactured may be obtainedfrom customers’ orders and the sales budget, and information aboutproduction facilities may be obtained from the management and theengineering department. Thus, the planning function formulates


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production plans, and translates them into requirements for men,machinery and materials.

Whatever be the planning period, production planning helps in avoidingrandomness in production, providing regular and steady flow ofproduction activities, utilizing production facilities to its maximum forminimizing operating costs and meeting delivery schedules; coordinatingvarious departments of the enterprise for maintaining proper balance ofactivities, and above all, providing the basis for control in the enterprise.

2. Routing

The next important function of production planning and control is routingwhich involves the determination of the path (i.e. route) of movement of rawmaterials through various machines and operations in the factory. “Routing”,to quote Spriegel and Lansburgh, “includes the planning of where and bywhom work shall be done, the determination of the path that work shallfollow, and the necessary sequence of operations”. To find this path,emphasis is placed on determining operating data, which usually includesplanning of ‘where’ and ‘by whom’ work should be done, the determinationsof the path that work shall follow, and the necessary sequence of operations.These operating data are contained in the standard process sheet whichhelps in making out a routing in the standard process sheet which helps inmaking out a routing chart showing the sequence of operations and themachines to be used. If the machine loan chart indicates the non-availabilityof certain machines, alternate routings may also be included on the routingchart. The most efficient routing may have to be compromised with theavailability of the machines at a particular time. In other words, “routingestablishes the operations, their path and sequence, and the proper class ofmachines and personnel required for these operations.”

From the above, it can be inferred that routing is one of the highly essentialelements and prime considerations of production control because manyproduction control functions are closely related processes and aredependent on routing functions. Thus, it is essential to solve the differentproblems concerning: appropriate personnel; full utilization of machines;and determining with precise degree the time required in the productionprocess.


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3. Scheduling

Scheduling is planning the time element of production – i.e. priordetermination of “when work is to be done”. It consists of the starting andcompletion times for the various operations to be performed. In other words,scheduling function determines when an operation is to be performed, orwhen work is to be completed, the difference lies in the details of thescheduling procedure. To work out effectively, the scheduling, as a part ofproduction control function, determines the time when each operation calledfor on the route sheet is to be done on the specified machine in order tomeet the desired delivery dates. Good control function directs not only thetime that each particular operation should start but also indicates theprogress of each manufacturing part, the amount of work ahead of eachmachine, and the availability of each machine for the assignment of newwork.

Schedules are of two types: Master schedule and Detailed schedule.Activities, if recorded on plant-wise basis, would be preparing masterschedule, while mere detailed schedules are employed to plan themanufacturing and assembly operations required for each product.

4. Dispatching

Dispatching is the part of production control that translates the paper – workinto actual production. It is the group that coordinates and translatesplanning into actual production. dispatching function proceeds inaccordance with the details worked out under routing and schedulingfunctions. As such, dispatching sees to it that the material is moved tothe correct work place, that tools are ready at the correct place for theparticular operations, that the work is moving according to routinginstructions. Dispatching carries out the physical work as suggested byscheduling. Thus, dispatching implies the issuance or work orders. Thesework orders represent authority to produce. These orders contain thefollowing information:

The name of the product;

The name of the part to be produced, sub-assembly or final assembly;


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The order number;

The quantity to be produced;

Descriptions and numbers of the operations required and their sequence,

The departments involved in each operation

The tools required for particular operation; and

Machines involved in each operation and starting dates for the operations.

5. Expediting

Expedition or follow-up is the last stage in the process of production control.This function is designed to keep track of the work effort. The aim is toensure that what is intended and planned is being implemented.“Expediting consists in reporting production data and investigatingvariances from predetermined time schedules. The main idea behindexpedition is to see that promise is backed up by performance”. Itincludes the following functions:

(i) Check-up to ensure that all materials, tools, component parts, andaccessories are available at all work centres in specified quantitiesfor starting and carrying out manufacturing operations.

(ii) Check-up on the status of work-in-progress and completed workat various work stations. This includes collecting informationrelating to the starting and completion time and date of workcompleted, status of work-in-progress relative to scheduledcompletion dates, position of movements of materials, componentparts, and sub-assemblies within the plant, and inspection results.

(iii) Preparation of progress records and keeping the control boardsup-to-date.

(iv) Reporting to manufacturing management on all significantdeviations so that corrective action may be taken. It also includesreporting to production planning department so that future plansmay be adjusted.

Thus production planning and control by completing the above discussedphases ensures the manufacturing of goods of right quality, quantity and at


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competitive market rates. One thing must be borne in mind that productionplanning and control is a never-ending process, and its various functions areinter-dependent.

REQUIREMENTS OF AN EFFICIENT SYSTEM OF PRODUCTION PLANNING ANDCONTROL

The scheme of production planning and control system will require reliableinformation about productive capacities and production standards, a soundorganizational structure, and trained and competent personnel, for it successfuloperations. These requirements are enumerated below:

1. Reliable information about productive capacity and production standards:

a. Complete knowledge of products be manufactured

b. Detailed information about the number and types of each machineand processing unit together with the complete data on power,speeds, and feeds of all machines.

c. Full information relating to production materials which are to beused.

d. Accurate knowledge of job analysis – particulars as to the work tobe performed, and the type of skill required.

e. Information relating to completion times of all previous operationsand their actual cost.

f. Accurate knowledge of operation method, machine layout, and thebest way of handling a task.

g. Knowledge of the work-in-progress

h. Work performances expected from workers, machines etc.

i. Information regarding the orders on hand, their qualityspecifications, and their delivery schedules.

2. Sound organizational structure:

(a) A clear delineation of the authority – responsibility relationships in theproduction planning and control department

(b) Full and active support from the top management

3. Trained and competent personnel:


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(a) Possession of requisite qualities to understand and perform variousoperations.

(b) Well trained to assume newer and higher responsibilities.

(c) Scientifically remunerated.

ADVANTAGES OF PRODUCTION PLANNING AND CONTROL

1. Efficient Service to Customers: The greatest advantage of a propersystem of production planning and control is that it renders prompt andeconomical service to customers. This is possible by proper schedulingand expediting of manufacturing operations which enables a businessenterprise to meet delivery dates. Not only that customers are served ontime, but they also get quality products.

2. Lower Investment: Proper production planning and control holdsinvestment to the minimum necessary level by avoiding unnecessarystock inventories and machines.

3. Reduced Costs: Good production planning and control means minimumwaste of materials and labour efforts, avoidance of idle machine time,and fewer production interruptions. All these reduce production cost.

4. Higher Morale of Workers: Good production planning and control systemavoids rush orders, maintaining an even flow of work, and providingcongenial working conditions. All this means avoidance of ‘speeding up’of workers, maintenance of efficiency and productivity and healthyattitude of workers towards work and work organization. These elementsdetermine the morale of the workers.

5. Better Public Relations: A well-planned and well-controlled productionsystem not only reduces investment and costs for the enterprise, but alsoimproves its image with the outside public. A company that providesbetter quality products on announced time schedule is looked favorablyupon by the general public.

Thus, a good and efficient system of production planning and control isbeneficial to the manufacturer, workers, customers and the society.

GANTT CHART


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This scheduling technique, developed by Henri Lawrence Gantt (1861 – 1919),is one of the most practical and efficient methods which shows at a glance thework planned and work completed.

Gantt schedules show how much time was planned for each activity in a projectand how much of each has been completed upto the present date. Theirpopularity can be attributed to their simplicity and case of use. Like any goodschedule, they show, at a glance, how the project is progressing. They alsoshow the sequence of events or activities.

Two basic types of Gantt charts are used extensively in production controlwork, namely, order control chart and machine load chart. Both contain ahorizontal time axis. In the order control chart which shows both planned andactual progress for various orders, the orders being charted are listed on thevertical axis. In the machine load chart, the various machines or work centresare listed on the vertical axis. This pair of simplified matching Gantt charts isillustrate below:

Order Control Chart

Order January February March

No. 1 A – 007 C – 009

No. 2 B – 008 A – 007

No. 3 A – 009 A – 007 C - 009

Machine Load Chart

Machine January February March

No. 1 A – 007 C – 009

No. 2 B – 008 A – 007

No. 3 A – 009 A – 007 C - 009


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There job orders to be processed on three machines are shown. In the ordercontrol chart, the dotted line shows that work is progressing according to theschedule (in the month of January) which is indicated by the solid line.Apparently order B-008 was started about one week prior to the regularlyscheduled starting date, and it is about two-thirds, rather than just one half,completed, as was originally planned. Order C-009 was processed on machineNo. 3 according to schedule, but there ahs been some delay in getting it startedon machine No. 1. This situation probably would lead to expediting to see whatwas causing the delay. The machine load chart portrays the information in aslightly different manner. For instance, the first time shows that order A-007was completed satisfactorily on machine No. 1 but scheduled work in orderC-009 has not been started.

The Gantt chars shown in the figure may be used individually or in pair. Theirusefulness lies in the fact that they portray plans and progress in such asmanner as to facilitate comparison of the two. These charts may also be used tokeep track of which machines are down for any reason. This chart is dynamicand must be constantly updated with current information. In order to makeGantt chart more useful, use of computers can be made in which softwarepackage generate Gantt charts.

INSPECTION

Production control is introduced not merely to ensure that the goods will beproduced on time, but is also meant to see that the goods produced are of theright quality. This is done through inspection of the products manufactured.Since the purpose of inspection is to compare the products with the standardsof quality set earlier, it too, can be regarded as an effective agency ofproduction control. One way of inspection is to examine the quality of finishedproducts at the end of the process of production. But this may involve too muchof wastage in the form of rejected products. To minimize the rejection ofdefective products, inspection may be conducted at every stage of production.similarly, materials, machines and tools may be inspected against certainestablished standards to find out their performance and accuracy. Inspectionsmay be made either in respect of samples selected at random or of eachparticular product (i.e. cent percent inspection). The inspectors may inspectmaterials, semi-finished and finished products either at the work bench or inspecial laboratories on testing rooms.


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Inspections vs Quality Control

Inspection shall be differentiated form quality control. Inspection involveschecking to see if a product meets or does not meet a stated standards. Theresult of the inspection process is acceptance or rejection of production. qualitycontrol, as distinguished from inspection, is directed towards future productionrather than the past production. also, inspection methods only enable one ‘tobe wise after the event’. Quality control serves to make one ‘get wise before theevent’. Truly speaking, quality control is a basic function, while inspection isone technique of executing it. “Quality control sets burglar alarm whichprevents law from being broken. Inspection, on the other hand, is simply thepolice dragnet that catches the burglar after the law has been broken. Qualitycontrol enlarges the production pile, inspection only enlarges the scrap pile”.

MAKE OR BUY DECISIONS

When needs arise in a manufacturing concern for a material, part or a productthese have to be satisfied either by purchaser form an outside source or thefirm may seek the atternative course of satisfying the need by undertakingproducoitn within the firm’s own plant for reasons of cost, convenience andcontrol, which outside supply source do nto always provide. Fornon-manufacturing organisatoins, such as hospitals, research and educationalinstitutions, government agencies and commercial establishments, it is servicerather than the product that mattes. Even in manufacturing organisatoins, thepossibility of becoming one’s own supplier receives scant attention, yet it isvital strategy for efficient materials management. Probably because mostconcerns do nto have a clear-cut policy on ‘make or buy’, they prefer to decideeach case on cost, volume, sevice and other considerations. There are, however,some companies which tend towards their manufacturing operation. There are,however, some companies which companies which tend towards theirmanufacturing operation. On the other hand, there are companies which believein specializing in a limited production line, even if an opportunity exists for themanufacture of the part or component.

Theoretically at least, any manufacturing concern has three basic alternatives insourcing a part or a product that it needs.

(1) Buy the part/product completely from an outside source.

(2) Buy some components/ parts or materials and manufacture and assembleothers.


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(3) Manufacture the part or product completely

An organization cannot manage its operations on the basis of the thirdalternative alone, even thought it may have a large base of an integratedoperation starting from extraction of basic raw materials down to finalproduction of marketable finished goods. And some companies prefer tostick to the first alternative because they are either a merchandising firm oran engineering organisatoin and the part or product is not suited to theirmanufacturing facilities, or may be due to the patent or specialization of thevendor or the supplier. As a general rule, therefore, a manufacturingcompany will make some of its parts or components and buy others fromoutside sources, either in a semi-finished or finished state. Even whenprocurement of an item by purchasing looks bright, the question of‘make-or-buy’ must be settled first in the form of an economic analysis ofcost, if no definite company policy exists. Such decisions have obviously tobe made before making the purchase requisition and placing supply order.often it is outside the scope and responsibility of the materials departmentto find an answer. Cost considerations and conditions in the supply marketmay suggest a change even when the part or product was formerlypurchased. On the other hand, it may work in a quite opposite direction,although the significance and justification of the propositions‘make-or-buy’ largely depends on the volume and cost involve ed. For thisreason, cost comparison is one of the first considerations that confronts thedecision-maker, but it may not always be the most important one. Theestimated total cost of production must be compared with the cost ofpurchase to know the pay-off. It is apparent, therefore, that when a‘make-or-buy’ decision has to be made, what matters is not purchasingpolicy or source of supply but the consultation and cooperation ofproduction, cost, quality another technical departments. Even marketingexecutive may have to be consulted. A simple ‘make-or-buy decision mayhave such economic implications as that may effect the total organisationinterest on a much wider scale which can even overthrow a product orthreaten product stability in a highly competitive market.

Formally, ‘make-or-buy’ decision of such vital importance are made bytop-management and the materials manager here plays the key role incollecting, analyzing and interpreting data. He also acts as a coordinatorbetween other departments so as to assists top management indecision-making. A decision based on minimum cost-point has to belocated for an optimum decision and if, two or more alternatives posses the


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same characteristics, the minimum cost-point for each must be determinedfor a final choice.

REVIEW QUESTIONS

1. Define production planning and control. What are its objectives?

2. Discuss the various steps involved in production planning and control.

3. Write a note on Gantt’s Chart

4. Distinguish between inspection and quality control.

5. As a production manager, how would you take ‘make –or – buy’ decisions?

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LESSON – 5

PLANT LOCATION

An important decision which has a bearing on efficiency of productionmanagement relates to the suitable location of plant. The chief object of anindustrial concern is to maximize profit through the minimization of cost ofproduction. this is possible when the firm is of the right (i.e. optimum) size andis located at a place which provides economies of all kinds in production. Inother words, optimum size has to be combined with optimum location if profitis to be maximized. It must be clearly understood at this stage that optimumlocation does not necessarily imply the most favourable location where labourcosts are lowest, transportation cost are minimum, and the water is the best,“but rather where the entire group of considerations is the optimum size. Justas the optimum size is determined through a reconsiderations is the optimumsize. Just as the optimum size is determined through a reconciliation of thevarious relevant forces, the optimum location is also the outcome of properreconciliation of various considerations relevant to the question.

It is responsibility of the promoter or entrepreneur to search for a locationwhich yields maximum advantage to the business enterprise in terms of rawmaterials, labour, market, transportation and communication, power and fuel,storage, climate, security, and the like. It is important for the entrepreneur tochoose a location which meets not only the present requirements of anenterprise, but also the changes likely to occur in the foreseeable future.Consideration of this factor is important for an enterprise which proposes toundertake expansion and growth programmes without the botheration ofsearching for alternative locations.

The problem of location has several technical, economic, managerial, social andstrategic implications. These various aspects vary in their importance anddirection at various places. So that al the relevant consideration are fully takeinto account, it is imperative for the promoter or entrepreneur to be extracareful in choosing a location. In medium and large-sized enterprises, thelocation study is usually conducted by a special committee consisting ofmembers having a through understanding of the technical, managerial, social,and political aspects of location. When the location problem is very complex, itis expedient to use an outside consulting firm that specializes in locationstudies.


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IMPORTANCE OF PLANT LOCATION

1. Influence on the Cost of Production and Effectiveness of Marketing:The location chosen for a business enterprise has a direct influence onthe cost of production as well as on the effectiveness of marketing. It isone location that the ability of a business at a minimum cost, to maintaina sufficient labour force, and to serve satisfactorily its customers.

2. Effect on the Life of the Business: The factor of location assumesgreater importance because once a plant location is chosen, theenterprise is compelled to remain in that location for may years. Anydecision to change the location later on may mean a substantial loss inthe value of the assets and additional cost in resetting the business. Thus,errors in decision-making in the realm of plant location often lead tolong-term problem which are very difficult to overcome.

OBJECTIVES ACHIEVED THROUGH LOCATION

1. Holding Capital Investment and Operating Costs to Minimum: Theforemost objective in selecting an ideal location should be to ensure aminimum amount of investment in capital assets and also lowest possibleoperating costs.

2. Ensuring Smooth Operation of the Business: Another objective that anentrepreneur can hope to achieve through ideal location is the smoothrunning of the business enterprise. For smooth operation, a businessenterprise needs the efficient services of transportation, communication,banking, repairs and maintenance and regular supply of raw materials,labour, power and fuel, and the like. An ideal location by making theseservices and facilities available with regularity and in sufficient quantitieshelps a business enterprise in conducting its operations smoothly andeconomically.

3. Promoting Employee Welfare and Public Needs: an ideal location, bymaking available various facilities and resources, helps achievingemployees’ welfare and public needs. For instance, if the enterprise islocated where educational, recreational, medical, religious and securityneeds of employees are met, they will certainly feel attached to theenterprise and would develop their loyalty and commitment for it.

4. Coordinating with Government Policies: Another objective that mayguide an entrepreneur’s decision to select a particular location may be


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that of coordination with government policies. The government’s policyon location veers around one important consideration, that is, a balancedregional development. This policy is sought to be accomplished throughvarious positive and negative measures. While selecting a location forenterprise, the entrepreneur must ensure that his decision does notconflict with the government’s policy.

WEBER’S DEDUCTIVE THEORY

Alferd Weber’s (a German Economist) analysis was one of the first attempts tobase location decisions on some sort or analysis. Weber’s theory is based onthe study of general factors which determine the framework of industrialorientation. In his ‘pure theory’, Weber classified the causes influencing locationinto two categories:

(i) primary causes of regional distribution of industry – regional factors; and

(ii) secondary causes responsible for redistribution of industry –agglomerative and deglomerative factors.

Regional Factors

Weber maintains that the distribution of an industry between regions is largelythe result of two factors, transportation costs and labour costs. Transportationcosts have to be incurred by an industry in respect of raw materials, fuels, andmarkets and since these are not available at the same place the industry has tochoose its location in such a way that its total transportation costs will be theminimum. The relative influence of materials and markets on the developmentof industries depends upon the nature of the materials as well as the nature oftheir transformation into products. In this connection Weber distinguishesbetween ubiquitous and localized raw materials. The former type of materialsare available almost everywhere such as brick-clay and water, localizedmaterials, on the other hand, are available in specific location such as wood,coal, iron are cotton, jute etc. he further classified localized raw materials intotwo classes: weight losing and non-weight losing. Weight losing (or impure)raw material are those which lose a high proportion of their weight in theprocess of manufacture and contribute only a small fraction weight to thefinished goods. Others like cotton, wool, etc, add the whole or bulk of theirweight to the finished product and hence are called “pure” materials. Weberholds that in case of industries using impure raw materials, the centres of


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minimum transportation cost are near the raw materials and not in the market.Iron and steel, aluminium, copper, and all other metal smelting industries,sugar and heavy chemicals industries etc. are best located near the centres ofraw materials. Textiles, automobiles, oil refining industries, on the contrary,use pure raw materials and are best located near the market. Moreover, quite alarge number of such industries is also localized near the centre of rawmaterials where better regulative in the supply of raw materials is assured.Weber explains this position by what he calls the ‘material index’, which iscalculated as follows:

Weight of the Localized MaterialsMaterials Index =--------------------------------------------------

Weight of the Finished Product

If this production is high, i.e. equal to or more than unity, location tends to beattracted to the places of materials deposit, and if low, then to the market place

Weber proceeds to examine the causes of deviation from the poient ofminimum transportation costs and according to him this is mainly in order totake advantage of favourable labour location. In thickly populated areas,differences inlabour costs are more marked, and therefore, industries in suchareas are mainly attracted to labour locations. The attracting power of labourlocation depends upon two main factors, labour costs index and locationalweight. The ratio of labour costs of the manufacturing industry to the weight ofproduct has been termed by Weber as the Labour Cost Index and the weight tobe transported during the whole process of production as the Locational Weight.The extent of variation caused by the varying labour costs can be determinedby its “Labour Coefficient”, that is, the rates of the labour costs to the locationalweight. Weber forms the laws of labour orientation. An industry deviates fromtransport locations in proportion to the size of its labour coefficients, whenlabour costs vary.

Agglomerative and Deglomerative Factors

According to Weber, an industry also deviates from the point of minimum costs,in order to take advantage of agglomerating and deglomerating factors, which


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are indirect factors and are not capable of the same deductive analysis as theregional factors discussed above. Simply stated, “An agglomerative factor is anadvantage in the form of reducing production or marketing costs which resultfrom the fact that production is carried on at one place, while a deglomerativefactor is a cheapening of production which results from the decentralization ofproduction”. facilities of banking, credit, insurance, better communications etc.are such agglomerative factors which encourage concentration of industries atcertain places. Industries having a high proportion of manufacturing expensesin their total costs of production, have a tendency to agglomerate and further ifthe manufacturing expenses contain a high proportion of labour costs, thetendency to agglomerate is even stronger. The concentration of industriesusually causes a rise in local taxes and land value, and this causes the industryto decentralize. This decentralization would not reduce the cost of productionand distribution. This tendency to decentralize with a view to cheapening costof production and distribution is called deglomeration.

Split Location

Weber has also considered the question of split location, that is, the location ofan industry at more than one place. Locational advantage may bring togetherseveral industries as well as split up different processes of the same industrybetween different localities. Split locations become favourable when an industryuses several materials in independent stages of production and when aconsiderable loss of weight take place after the first stage of production.naturally, in such cases, the weight – losing (i.e. the gross) materials are used inthe plant located near the source of such materials. While, the plant usingweight – adding (i.e. pure) materials is located near the place of consumption.Paper industry offers a suitable example of such splitting up of location. Themanufacture of pulp may be undertaken near the raw materials supplied andthat of paper near the market.

Criticism of Weber’s Theory

(1) The theory is over-simplified and departs so widely from the reality thatit can hardly serve as the basis for a scientific analysis of the factors ofindustrial location.

(2) The selection of factors made by Weber is rather arbitrary. He hasomitted many important factors affecting localization of an industry like


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climate, historical factors, personal factors, level of taxation, Statepatronage etc.

(3) Weber’s assumptions regarding labour are wrong or unrealistic. Forexample, he assumes that centres of labour supply are fixed. Withincreased mobility of labour, this is not an important factor.

(4) The assumption regarding fixed consumption centres, too, does not holdgood. The consumers of various types of products are quite often sowidely scattered that it is impossible to pinpoint a fixed consumptioncentre in relation to which costs of transport have to be calculated.

(5) The theory is formulated mainly in terms of mathematical coefficientsrather than costs and prices.

FACTORS OF LOCATION

Decision regarding location requires a careful balancing of several factors.Some of these are more important than the rest and are usually called, ‘primaryfactors’, while the less important ones are referred to as ‘secondary factors’. Itis, however, possible that the secondary factors may exert a greater degree ofinfluence on the location of an industry than any of the primary factors. Thedistinction is, therefore, not clear-cut. Further, considerations of broadernational interest must also be given due regard.

The various factors which usually determine the location of industries may bedescribed as under:

(A)PRIMARY FACTORS

1. Raw Material

From the point of view of minimization of transport costs, the nature of rawmaterial is of great importance. Certain raw materials are of weight-loosingcharacter, say sugarcane. Such materials lose much of their weight whilepassing through the process of production. As a result, the finished product islighter than the raw materials used in its manufacture. It is well known that tentones of sugarcane are needed to manufacture one tone of sugar. Therefore, agood deal of economy in transport costs can be achieved if industries which useweight-losing materials are located near the source materials. In such cases,the weight of finished product includes a very small part of the weight of the


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raw material used and therefore, transport will be needed only for the greatlyreduce volume of the finished product. There are some raw materials which arecommon and are found everywhere. Such materials, are called ‘ubiquities’ anddo not affect the location of industries. Examples of such materials are clay,sand and water.

Apart from these considerations, the promoter of an industrial venture mustview the supply of raw materials from other different angles also viz.,

Whether the raw materials are home produced or imported – in the lattercase the unit must be established near ports.

If there is financial linkage with raw material suppliers so that the rawmaterials may be available below market prices at some specific points.

Reliability and continuity of the source of supply, and

The security of means of transport.

Further, as between two equally suitable locations, the promoter is well advisedto consider a location which has auxiliary raw materials also or has market forthe by – products of the industry.

2. Market

The industries which use ‘pure’ raw materials, i.e. materials which do not losemuch of their weight while being converted into finished goods, are generallylocated near the markets. Cotton is a good example. Upto ginning, cotton is aweight-losing material, therefore, ginning factories are generally found nearcotton markets. After ginning cotton becomes non-weight-losing, because outof a hundred pounds of cotton about 95 pounds of cloth can be obtained. Thisis the chief reason why the cotton textile industry is located near markets.

According to Dr. N.S.R. Sastry, :The advantage of proximity to market is notonly in the transport cost but also in the personal touch between the producersand consumers. In addition, the increased demand for rapid and regulardelivery of small consignments and the practice of offering after-sale servicesmade it imperative for the producers to be near the consumers or at least toopen branches in those centres”.


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Thus, the choice between the point where materials are produced and the pointwhere finished goods are sold is generally made on the basis of theweight-loosing character of the materials.

3. Fuel and Power

The problem of fuel and power can also be solved with reference to thenature of raw materials. The industries which use very large quantities ofcoal are generally located near the coal mines. The chief reason why steelmills are generally found near coal mines rather than iron-ore mines isthat the coal loses its weight completely. The development of electric anddiesel power has reduced the importance of coal.

4. Transport

The facilities for transport available in a particular region and the policy offreight rates are also of great importance. For instance, previously the Indianrailways had preferential freight rates for raw materials moving towards theports and for finished goods moving from the ports to inland centres. Thisencouraged starting of industries in port tows like Bombay or Calcutta.Availability of cheap transport (water transport) is, however, one of the chiefreasons why the jute industry is localized on the two banks of the Hooghly.

5. Labour

Another important factor influencing the location of industries is labourindustry can be started only at a place where the right type of labour isabundantly available at reasonable wages. For example, tea industry dependsnot only on the right soil and climate, but also because abundant cheap labourwas available. The wage levels in an area, the influence of trade unions and thecharacter of labour unions are some aspects of labour force which influence thedecision of the entrepreneur to locate the plant in a particular region or even ata particular place.

(B) Secondary Factors

1. Momentum of an Early Start

Another factor of some importance has been the momentum of an early start.There are a number of places where, to begin with, only one or two factories


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are started. With the passage of time these places gained importance andattracted industries. As a place gains in industries, certain facilities usuallybegin to develop. For example:

Transport facilities are developed because railways and other agenciesfind it economical to serve the centre.

Facilities for repairs and maintenance begin to be provided by specialistfirms.

Banking facilities become available.

Labour possessing various skills is attracted towards it.

These are important facilities and will automatically attract more industries.

2. Industrial Atmosphere

The industrial atmosphere of a place cannot be measured in tangible terms, butit has a very important advantage. Industrial atmosphere may be said to existwhere people living at a place think instinctively of industry and learn theintricacies of machines without much effort. This helps the growth of even newindustries.

3. Special Advantage of a Place:

The special advantages offered by a place also have some importance. Forexample, previously some of the princely States charged little or no income-taxand also offered some advantages in the matter of labour.

4. Soil and Climate:

The question of soil and climate is important particularly for agriculturalproducts like tea, coffee and rubber, but due to scientific inventions anddevelopments it is becoming less important for most of the manufacturedgoods. Previously the cotton textile industry had to be started in a place wherethe climate was damp but with artificial humidification, cotton textile mills canbe started also in completely dry places provided other factors justify thestarting of the industry there.


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5. Personal Factors:

The initial location of an industry may, in may cases, be promoted more by thepersonal likes and dislikes than purely economic considerations. It must,however be recognized that such locations cannot endure unless they prove tobe economical enough in the long run.

6. Historical Factors:

Factors like personal fancies of entrepreneurs or historical accidents may leadto the development of a place as the centre of an industry. Dr. Om Prakash citesthe instance of Kanpur which has developed as the ‘premier textile centre ofnorthern India’ but has hardly any advantage. It grew as such largely becausesome pioneers especially Europeans chose Kanpur as the centre of their cottonactivity.

7. Political Stability:

The lack of political stability in a State makes for uncertainty in the attitude ofState Governments to industry. In locating plant, it must be seen as to whetherthe State has a record of political and economic stability. It is commonknowledge that many industrialists have moved out and many more areplanning to move out of West Bengal because of adverse political and law andorder situation there.

8. Special Concession and Benefits:

Each State Government has been trying to promote industrial development inrelatively backward regions by offering various concessions and incentives inthe form of financial assistance, cheap land, tax-subsidy etc. to new enterprises.In may cases the location of the plat may be influenced by this factor.

(C)NATIONAL AND STRATEGIC CONSIDERATIONS

Balanced Regional Development of Industry:

The consideration given above are mostly economic in character. Theseconsiderations, however, ignore the broader national interest and, as pointedout earlier, lead to concentration of industries in a few places. This is clearlyundesirable from the point of view of national defence. From the point of viewof equity, too, it is unfair, because it means that people living in a few places


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will enjoy the benefits of industry in the form of employment. It is necessarythat the distribution of industries over the various region of the country shouldbe equitable.

REVIEW QUESTION:

1. Bring out the importance of plant location.

2. Discuss Weber’s Theory of plant location.

3. Enumerate the factors that determine the plant location.


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LESSON – 6

PLANT LAYOUTPlant layout deals with the arrangement of physical facilities and manpowerrequired to manufacture a product. Plant layout, in a more specific sense,covers the planning of space requirements for all activities in an industrialenterprise – offices, rest rooms, warehouses and all other facilities associatedwith the total manufacturing plant – with a view to enabling the plant tofunction most effectively. The over-all objective is to plan the arrangement offacilities and personnel so that the manufacturing process is carried out in aneffective manner. This objective involves a minimum of movement on the partof both materials and men in the organisation.

Plant layout is very complex in nature as it involves concepts relating to suchfields as engineering, architecture, economics and business administration.Since a plant layout, when properly designed, encompasses all production andservice facilities and provides for the most effective utilization of men,materials, and machines constituting the process, it is a master blueprint forcoordinating all operations.

OBJECTIVES OF PLANT LAYOUT

Plant layout facilitate the manufacturing process by maintaining balancein the process.

Efficient and economic material handling

Smooth flow of factory operations

Promote effective utilization of manpower and other physical facilities

Minimize interference from machines

Reduce hazards affecting employees

Increase employee morale

Hold down investment in equipment and other services; and

Built-in-provision for future expansion.

FACTORS AFFECTING PLANT LAYOUT


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1. Nature of Product

In this category, two factors are quite important – products to be manufacturedand volume of production. The type of product affects plant layout in manyways. Small and light products can be easily removed from one machine toanother and from one man to another, and therefore, for such products moreattention can be given to machine locations and the handling of materials.Similarly, the volume or rate of production has a significant bearing on theplant layout. In plant layout it is reflected in the total size of the operation to beplanned as well as being the principal factor in the type of manufacture to beemployed.

2. Nature of Process

Factors relating to the process may be, type of process, sequence of operations,number of machines and equipment, and space requirements of machines andequipment. Variations among the kinds of processes to be carried on indifferent industries necessitate considerable difference in plant layout for therespective types of manufacturing.

3. Materials

Materials – storage and materials-handling are probably then most importantfactorfs to be considered in planning a layout. For materials storage, factorssuch as rate of use of the material; space, volume and weight of materials; flourloan capacity, ceiling height; method of storing should be given specialconsideration. This will affect the space as well as the efficiency of theproduction process in the plant.

4. Personnel

While laying out a plant, safety and comfort of the personnel must be given aspecial consideration. Layout should provide for the provision of rest rooms,drinking water, an d other services, as is also provided in the Factories Act,1948, people working on machines should be provided with safety devices. Aproper layout should take these factors into consideration.

5. Layout


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The type of layout – process layout, product layout and layout by fixed position– will affect the plant layout.

6. Miscellaneous Factors:

Plant layout is also affected by factors such as plant site, building, flexibility,working conditions, supervisory requirement and the like. The plant site is theconnecting link between the factory and the surrounding community. Thebuilding itself, either existing or as proposed, will often have a bearing on thelayout. Working conditions such as illumination, ventilation, heating, noise andvibration, temperature, employee facility etc. affect the layout.

Each and every one of the above factors presents a problem to the plant layoutengineer. One must realize that a solution that is completely favourable in allways is seldom reached. In fact, some of them are rather in opposition to eachother. Nevertheless, each represents an important problem which the plantlayout engineer has to consider. As in most design solutions, a compromisemust be made to attain an optimum solution.

TYPES OF PLANT LAYOUT

There are three basic types of plant layout – product, process and fixed positionlayout. It is rate to find that only one type is present in a single factory, usuallythey exist side by side. Selection of the basic plan to be used depends uponmany factors; however of these, the type of product and type of manufactureare of significant importance.

PROCESS OR FUNCTIONAL LAYOUT

In the process layout, all facilities for performing the same or similar functionsare grouped together, i.e. lathes, milling machines, drill presses etc. are foundin separate areas. a part being worked on them travels from one area toanother according to the established sequence of operations through which itmust be put, and where the proper machines are located for each operation.

Characteristics of Process Layout


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Layout by process is associated with jobbing in small batch production and hasthe following characteristics:

Allows specialized supervision;

Facilitates provision of services;

Failure of machines or absence of workers does not disrupt productionexcessively;

Good machine utilization;

Operations may be missed and ‘bad’ jobs delayed because of thenecessary flexibility of control,

High work-in-progress.

Advantages of Process Layout

1. Flexibility: Process layouts are noted for flexibility which is possible interms of products which can be manufactured and the jobs that can bedone.

2. Financial Investment: Process layout puts much less strain on the scarcefinancial resources of the organisation. Under it, general-purposemachines with usually less cost are used. It require typically lower set-upand maintenance costs. this layout requires less duplication of machinesand supporting equipment. Besides, general-purpose machines do notdepreciate or become obsolete as rapidly as specialized machines used inproduct layout. All these result in usually a lower financial investment inmachines and other equipments.

3. Working Conditions: Process layout facilitates installation of machines inseparate areas without any dependence on other sequences. Processlayout makes it easy to isolate machines which produce excessive noise,vibration, fume or heat thereby resulting in heavy working conditions inthe work place. The effect of such working conditions is reflected interms of enhanced employee morale.

4. Output Rate: Process layouts are less vulnerable to break-downs.Machine breakdowns in a process layout situation only tie up productionon broken machines. This reduces the productive capacity of succeedingoperations in the ratio of one to the total number of machines on thelabour operation on which a single machine breaks down. Besides, it is


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easier to handle breakdown of equipment by transferring work to otherequipment or work station.

5. Supervision: under process layout better and efficient supervision ispossible through specialization.

Disadvantages of Process Layout

1. Inefficient Materials-handling: Efficient materials – handling is difficultto practice in process layouts. Back-tracking and side-tracking materialsbecome common and are costly and it eliminates the savings which resultform the use of conveyors, chutes and other fixed-path equipment.

2. Unbalanced Line of Production: Process layout do not lend themselvesto the maintenance of balance line of production and they make itdifficult to carry out ‘routing’ and ‘scheduling’ function for they requirespecial routing for different jobs. Therefore, execution of orders isusually delayed and production rate is hampered.

3. High Inventory Investment: Compared to product layout, inventoryinvestments are usually larger in case of process layout. This ties upmore working capital in ‘work-in-progress’ inventory.

4. High Cost of Supervision: Under process layout, the number ofemployees for supervision per supervisor is less and results in reducedsupervisory span of control and increased cost of supervision.

5. Less Mechanization: Less mechanization of halding is the characteristicof process-laid-out plants, so handling efficiency is less and cost is high.Because of this, the chances of accidents and fatigue hazards are greaterresulting in high insurance rates and lows employee morale.

Suitability of Process Layout

Process layout is suitable where:

(1) Non-repetitive items are manufactured. In other words, emphasis is onspecial orders.

(2) It is difficult to achieve good labour and equipment balance.

(3) Production is not carried on large scale.

(4) It is difficult to undertake adequate time and motion studies.


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(5) It is frequently necessary to use the same machine or work station fortwo or more operations.

(6) During the sequence of operation many inspections are required.

PRODUCT LAYOUT

Product layout (or flow, sequential, or line layout) is another basic type of plantlayout. In it, all the machines of each kind needed for balanced operations on agiven production or assembly line are located adjacent to it in labour operationsequence. In product layout, all plant facilities – machines, men and materials –are arranged according to the sequence of operations required to produce aspecific product. A continuous production system usually utilizes a productlayout.

Characteristics of Product Layout

Layout by product is associated with mass and large batch production and hasthe following characteristics:

Little material-handling necessary;

Good machine utilization;

Low work-in-progress;

Production control facilitated

Minimum floor space required;

Machine breakdown disrupts production;

Effective use of labour, i.e. minimum training, job specialization, etc.

Evaluation of Product Layout

The evaluation of product layout is simple to make because the advantages ofproduct layout are essentially the same as the disadvantages of the processlayout and vice versa.

Advantages of Product Layout

1. Lower total materials – handling cost.

2. Less total production time.


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3. Less work-in-process

4. Greater simplicity of production control, fewer controls and recordsneeded, and lower accounting cost, and

5. Less supervision

Disadvantages of Product Layout

(1) Decreased flexibility

(2) Increased investment in equipment and machines

(3) Frequently greater difficulty in expanding production beyond thecapacities of the lines in layout by product, and

(4) Greater difficulty in securing specialization in supervision.

Stability of Product Layout

The product layout is suitable:

1. Where one or a few standardized products are manufactured.

2. Where large volume of production of each item has to travel theproduction process over a considerable period of time.

3. Where time and motion studies can be made to determine the rate ofwork

4. Where a possibility of good labour and equipment balance exists.

5. Where minimum of inspection during sequence of operation is required.

6. Where materials and products permit bulk or continuous handling bymechanical means.

7. Where minimum of set-ups are required.

LAYOUT BY FIXED POSITION

Besides process and product layouts, a less common but basic type of layoutexists and is known as a fixed-position layout. In a fixed-position layout, thematerial or principal component is fixed or must remain in fixed position andfacilities move to and from the product. Examples of this type of layout can befound in the building of aircraft, ship-building, ship-yards, and civilengineering works like bridge construction cases etc.


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A fixed – position layout has several advantages and disadvantages. Forexample, this type of layout can accommodate variety in product, changes indesign etc. Also breakdowns on one part of the project do not necessarily stopthe entire production operation. The main disadvantage of this layout is, poorfacility utilization, particularly on remote work, such as civil engineering.

CRITERIA FOR A GOOD LAYOUT

The process of plant layout is a creative one in so far as it helps minimizemovement of machines and personnel, facilitate the manufacturing process,and reduce the cost of production. while the techniques employed in making alayout are normal work-study techniques; however, it cannot be set down withany finality, and, as a matter of fact, in this, experience plays an important role.Further more, it is not possible to define a good layout with any precision.However, there are certain criteria which should be satisfied by a good layout,which are:

1. Maximum Flexibility: A good layout will be one which can be rapidlymodified to meet changing circumstances.

2. Maximum Coordination: Layout requires to be considered as a whole andnot in parts. It should be a master blueprint for coordinating alloperations. It should clearly state the interrelationships between differentmachines, departments, and personnel and should provide forcoordinated efforts. For example, entry into, and disposal from anydepartment should be in such a manner that it is more convenient to theissuing or receiving departments.

3. Maximum use of Volume: Maximum use should be made of the volumeavailable: conveyors can be run above head height and equipment can besuspended from the ceiling. This principle is particularly true in stores,where goods can be stacked at considerable heights withoutinconvenience, especially if lift-trucks are used.

4. Maximum Visibility: All men and materials should be readily observableat all times, there should be not ‘hiding places’ into which goods can bemislaid. This criterion is sometimes difficult to fulfill particularly when anexisting plant is taken over. It is also a principle that may be resisted ifsuch, ‘places’ add to the face lifting of the plant.


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5. Maximum Accessibility: All servicing and maintenance points shodul bereadily accessible. For instance, a piece of plant placed in front of a fusebox will impede the work of the electricians and may cause anunnecessary stoppage of the machine when the fuse box is opened.

6. Minimum Distance: All movements should be both necessary and direct.Handling materials adds to the cost of the product but does not increaseits value, consequently any unnecessary or circuitous movements shouldbe avoided.

7. Minimum Discomfort: Poor lighting, excessive sunlight, heat, noise,vibrations, and smells should be minimized and if possible counteracted.

8. Minimum Handling: The best handling is ‘no handling’, but wherehandling is unavoidable it should be reduced to a minimum by the use ofconveyors, lifts, chutes, hoists and trucks. Materials being worked onshould be kept at working height, and never placed on the floor if it is tobe lifted later.

9. Inherent Safety, Maximum Security, Visible Routes: All layouts shouldbe inherently safe, and no person should be exposed to danger. Caremust be taken not only of the persons operating the equipment but alsoof the passers-by, who may be required to go behind a machine, theback of which is unguarded. Similarly, safeguards against fire, moisture,theft, and general deterioration should be provided, as far as possible, inthe original layout. Definite liens of travel should be provided and, ifpossible, clearly marked, no gangways should ever be used for storagepurposes, even temporarily.

PROCEDURE FOR DESIGNING A PLANT LAYOUT

The steps which are logically necessary in order to prepare a satisfactory plantlayout are:

1. Obtain basic production data, starting with a list of operations to make aproduct, the machines to be used or processes to be employed, and thesequence or route to be followed.

2. Prepare an assembly chart, obtaining and analyzing and coordinating thebasic production data, so that a flow process chart can be derivedshowing the path taken by materials and labour/machine requirements.


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3. Calculate equipment requirements needed to produce the particularproduction rate, making allowance for machine capacity, machineutilization etc.

4. Materials-handling plan containing decisions on whether the movementof materials between machines, work stations, or process plant is to beby means of conveyors, cranes, hoists etc. materials-handling is a verysignificant cost factor in production and this aspect of production shouldreceive very serious considerations at this stage.

5. Space allocation study: Since site considerations chiefly relate to the caseof transfer of materials between the various operations, factors related tomaterials-handling dominate at this stage.

6. Prepare fist draft layout plan. This will involve using the site plan andincorporating on it the various machines and materials-handlingequipments needed as a result of the initial assembly chart and flowprocess chart.

7. Prepare first draft flow diagram. This will show whether the flow diagramis good and free from complex movements.

8. Revise layout and prepare revised flow diagram as necessary until thebest arrangement is obtained.

9. Plan individual machines, work stations, or plant in relation to access forwork in process, for repair and maintenance of plant and for servicessuch as electricity, gas, high-pressure air, etc. it is also necessary toensure that there is adequate illumination.

10. Plan materials-handling equipment in detail, as related to theindividual machines, work stations, or process plant.

11. Plan and locate all service supplies to each part of the layout.

12. Prepare master plan

REVIEW QUESTIONS:

1. What is plant layout? What are its objectives?

2. Discuss the factors affecting the plant layout.

3. What is process layout? What are its characteristics, advantages anddisadvantages?

4. What is product layout? What are its advantages and disadvantages?


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5. State the criteria for a good layout.

6. Describe the procedure for designing a good plant layout.

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LESSON – 7

MATERIALS MANAGEMENT

‘Materials management is concerned with planning, directing and controllingthe kind, amount, location, movement and timing of the various flows ofcommodities (goods flow) used in and produced by a business enterprise.’(Bethel)

IMPORTANCE OF MATERIALS MANAGEMENT

Materials management offers greater promise as a cost reducing device. Betterand scientific management of material can not only bring about substantial costsavings but also result in improved production capacity of plants, savings oflabour time, reduction in inventories, reduction in storage space, reduction indamage to materials, smooth flow of production, easier production control,reduced employee fatigue, and so on.

Material management system has four branches (i) procurement or purchasing,(ii) store keeping or inventory control, (iii) material handling, and (iv) transportof material from the producer to the consumer.

PURCHASING

Purchasing is indeed an art and required experts to make scientific purchasesin modern markets. It is a technical aspect and requires the servicers ofprofessionals. Purchase has a wider meaning. It is more than mere buying. It isconsidered a managerial activity and it includes planning, organisatoin andcontrol of a wide range of interrelated activities. Purchasing is very closelyrelated to production as well as marketing departments of a manufacturer. Thetop management is responsible to lay down or formulate certain principles onwhich purchasing action is based.

Purchasing Policies provide the guidelines for a planned course of action inperforming the managerial function of purchasing. A sound purchase policyadopts the golden mean and avoids either excessive speculation or overconservative buying Economical, efficient and timely purchase can appreciablyreduce the cost of procurement and consequently, the cost of productionand/or procurement.


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TYPES OF PURCHASING POLICY

1. Speculative vs. Conservative Buying

Under speculative buying, bulk purchases are made through large orders at atime and at a bargain price with the object of reselling the stock at a higherprice in the near future. If the price change is favourable, good profit is made,but if the price change is adverse, heavy loss is incurred. It is a game of risk.

Under conservative buying, purchases are made strictly on the basis of currentneeds. Small-lot purchases are made through small and frequent orders. In thiscase, the buyer has to sacrifice quantity discount. But he incurs minimum riskof loss, when he adopts this policy of hand-to-mouth purchases.

2. Concentrated vs. Diversified Purchases

The number of sources on which a wholesaler or a retailer may depend for hissupplies may be very few or limited. It is called concentrated buying policy. Ifpurchases are made from a large number of sources, it is termed as scatteredor diversified buying policy.

3. Reciprocal Being Policy

It is a good policy to place an order with a seller who is your customer. Forexample, a sugar factory agrees to buy sugarcane from a farmer’s cooperativesociety, provided the society also agrees to buy sugar from the sugar factory.

FACTORS OF PURCHASING

1. Quality:

In manufacturing, quality of finished goods on the quality of raw materials andparts or components used in production. standards of quality and qualitycontrol are essential in manufacturing.


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2. Quantity:

The large-scale purchases do give economics and reduce unit cost ofpurchasing. However, the purchase department must avoid both overstockingor under stocking. In determining how much to buy, purchase departmentshould consider the amount in stock (plus amount on order) and the amountwanted at the end of the purchase period. Availability of space and capital willalso determine the quantity to be bought.

3. Price:

Price is an important element in the cost of production of manufacturer. A goodpurchasing policy will always prefer fair and reasonable price for servicesoffered by the seller.

4. Terms of Delivery:

The right time of delivery plays an important role in purchasing. Delay ordefault will be very costly. Proper planning and programming in purchasing canensure supplies at the right time and at the right place.

5. Suppliers Reputation:

One of the important functions of the purchase department is to select the rightsupplier. Efficiency, financial resources and team sprit will determine the seller’s reputation and goodwill. First preference should be given to the localsuppliers, if they offer fair and competitive terms of sale. This will incidentallyassure quick and timely delivbery and local patronage also.

Principles of scientific purchasing

There are six R’s of wise or scientific purchasing:

(1) Right quality

(2) Right quantity

(3) Right time of delivery

(4) Right price

(5) Right place of delivery, and

(6) Right source of supply


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PURCHASING DEPARTMENT

In a manufacturing company there is close cooperation between production,purchase and finance departments. In a commercial concern similarcooperation is essential between purchase sales and finance departments.

The purchase manager is called to organize and manage all activities relating topurchasing of goods (or materials and supplies) as per needs of sales (orproduction) department.

The purchase department is called upon to purchase the right type of goods, atthe right time, from the right suppliers, and at right prices. The activities of thepurchase department are briefly listed below:

Maintaining up to date and reliable records indicating availability ofgoods, sources of supplies, their possible prices and quantities.

Negotiation and contractual work with suppliers, i.e. search of sources ofsupplky and contacts.

Securing of quotations by placing inquiries on the suppliers and keepingup-to-date record of all quotations.

Select suppliers on the basis of best quotations

Following-up of purchase orders till delivery

Checking of invoices with quotations and with the goods received andpassing of invoices for payment in due course.

Keeping up-to-date records of purchases.

Coordination with other departments on all matters relating to purchases.


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The purchase manager must be qualified, competent, reliable, honest andsincere. He must have adequate and up-to-date knowledge of sources ofsupply, general business conditions, marketing techniques, trade practices,commercial laws, office organisaton and routine.

PURCHASING METHODS

The following purchasing methods are generally followed by a purchasemanager.

1. Market Purchasing:

Market purchasing is a sound method of purchasing according to theconditions prevailing in the market. Such a method can take full advantage ofprice changes. The purchase plan is shaped on the basis of price fluctuations.In a rising market, large-scale buying is made, while in a falling market,hand-to-mouth purchasing is made. Much will depend on the judgement ofmarket tendencies, if the judgement is accurate means large profits and if itgoes wrong, it will mean large losses.

2. Contract Purchasing:

The required stocks of goods are purchased under contract for a fairly longperiod with fixed suppliers. the buyer can get continuous supply of goods at afixed price. This requires minimum record keeping and storekeeping. Limitedcapital will be locked up at a time. However, under contract purchasing, thebuyer cannot get the benefit of favourable change in the prices, e.g. whenprices are falling, be cannot get goods cheaper under this method. This methodis useful when prices are stable, and not liable to wide fluctuations.

3. Forward Purchasing

Purchase in advance for a specified future period through Forward DeliveryContracts is a good practice, particularly when an organized physical as well asfuture markets for commodities. The buyer in the cash market can hedge hiscash purchases in future market through hedging contracts. This practice iscommon for a wholesaler in raw materials, e.g. cotton, jute, oil seeds etc.


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4. Group Purchase:

A buying group of stores, institutions or even manufacturers may make jointpurchases at very reasonable prices. In the retail field, group buying orcooperative purchasing is very common. Group purchases would offer betterselection of merchandise, quantity discounts, favourable prices; they also bringabout economy in express of procurement.

5. Buying Job Lots:

Occasionally, the liquidators of insolvent concerns may sell off the goods atrock bottom prices or some concerns may sell off their stocks to get hard cashfor some other business (firm going out of business). The manufactures mayalso sell their stocks of second or inferior quality (rejected for exports) at verylow prices in the market. The accumulated stocks may be sold by the producersin job-lots at tempting prices.

6. Purchase through Commission Agents:

When supplies are procured from foreign manufacturers or from a distantmarket or from organized wholesale markets, there are two alternatives. Therecan be own permanent buying office to make all purchases in a distant marketor can send their own buyers to such markets for securing supplies. Thismethod is very costly. There is another alternative, i.e. to appoint commissionagents or middlemen who possess expert knowledge and local contacts in thatmarket.

Purchasing agents and resident buyers are wholesale establishments primarilyengaged in buying merchandise (or goods on sale) on an agency basis in thehome market for a limited number of customers on a continuing basis.

CENTRALIZED vs. DECENTRALIZED PURCHASING

There is, of course, no controversy about the desirability of establishing acentralized purchasing department to make purchases on behalf of all thedepartments situated in one place. But there is a controversy regarding thedesirability or otherwise of entrusting purchases to one centralized department


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on behalf of factories or branches situated in various cities. The points in favourof centralized purchasing are:

(a) The purchasing department can be staffed with highly paid officials. Evenotherwise, the mere fact that some officers have to devote all their timeon purchasing will also make them experts.

(b) Inspection staff can be engaged to see that goods of proper quality arepurchased .

(c) When contracts are negotiated, favourable terms can be obtained becausethe quantity involved will be large. Moreover, supplies can be arrangedfrom other sources rather than form middlemen.

(d) Savings can be effected by eliminating duplication of purchasing andunnecessary varieties through standardization of purchases.

However, centralization has its drawbacks and limitations which are outlinedbelow:

(a) Centralized purchasing will often mean delay because branches maysend their indents to the purchasing department and the purchasingdepartment will then process the indent and place the order.

(b) There can be misunderstanding between the branch which requires thematerial and the purchasing department with the result that wrongpurchases may be made.

(c) There is no obvious advantage if the branches manufacture differenttypes of articles requiring different materials because in that case thequantity of each material to be purchased will not be larger than if thepurchases were to be made on decentralized basis.

(d) Under centralized purchasing, a branch cannot take advantage of localresources.

It may be concluded that if the branches require the same type of materials, itis advantageous to have centralized purchasing, but if the branches requiredifferent types of materials, centralized purchasing does not have anyadvantage.


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PURCHASE SYSTEM

The purchasing systems refer to various elements or activities that arecommonly found in purchase procedure of industrial organisatoin. Thepurchasing system that are in use commonly involve the following categories ofactivity.

(i) Recognition of need,

(ii) Choice of sources to this need,

(iii) Purchase requisition

(iv)Inviting quotations or tenders from the suppliers

(v) Selecting the suppliers

(vi)Placing of orders with the selected suppliers

(vii) Follow-up

(viii) Invoice handling and,

(ix) Receipt of items purchased

(x) Approval of purchase invoices and passing them for payment.

As components of the purchasing system they play a vital role in theformulation of the purchase strategy by the industrial buyer.

Recognition of Need

The purchasing system originates from the needs of using departments.Therefore, the purchasing systems, as a service function, have the recognitionof the need as one of its basic elements. as such as adequate and accuratedescription of what is needed by the using department is vital. In purchasingsystems, the need is translated into some form of document authorizing thepurchase. This document may be a requisition, a bill of materials, a budget oran automatic recorder.

The ‘requisition’ originates from the using department and it carries adescription of items including the quality specifications, quantity required etc.


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The ‘bill of materials’ is nothing but a list of items which are needed tocomplete a certain project or manufacture the products specified in a job order.it carries detail of the quantities of materials needed, their specifications anddelivery schedules expected.

‘Budgeting’ for materials is resorted to when it is considered advantageous tocontract for materials on an annual or semiannual basis. When a budget is dulyapproved, it constitutes authorization to purchase.

The need for standard items, supplies or materials bought on establishedspecifications, is met through an ‘automatic recorder’. This document carriesinformation relating to minimum inventory levels, order points and economicorder quantities. Whenever the inventory of any specified item reaches its orderpoint, the buyer is authorized to reorder such item in the quantity specified.

Choice of Sources to Fulfill the Need

‘Negotiation’ is employed in the purchase of new products from bidders.Negotiation may become highly technical in character depending upon theproducts involved, the quantity of purchase, the implications for design,production or other activities of the company. In such situation, a team ofbuyers will be involved in negotiating. The members of the team may be drawnfrom engineering, finance, marketing, production, purchase and legaldepartments of the company. The supplier may also constitute similar team.

A manufacturer may decide to make the needed items rather than buy themfrom others in order to utilize the idle capacity in periods of depressed sales.Similar decision may be taken even in times of normal sales mainly to spreadoverheads. However, the main deterrent factor may be lack of administrative ortechnical experience in making the required products.

Purchase Requisition

The purchasing department is to make purchases only on the basis of purchaserequisition originating from the stores or user departments. A purchaserequisition is a formal request for the materials to replenish the stock of items.A specimen from of purchase requisition is given in Format 1:


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Format – 1

ABC Co. Limited

Purchase Requisition

No. Date:

Department: Date by whichmaterial is

required............................

Purpose...................................

Please purchase for .......................................Department. JobOrder.........................

SerialNumber

CodeNumber

Description of Materials Required QuantityRequired

Remarks


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Required by ....................... Ordered by..............................Approvedby............

For the use of Purchase Department

Date PurchaseOrder No.

Name of Suppliers Date ofDelivery

Remarks

Purchase Manager

Inviting Quotations or Tenders

On receipt of the purchase requisition, the purchase department invitesquotations ore tenders for the required material. A specimen Schedule ofQuotation is given in Format 2.

Format – 2

ABC Co. Limited

Schedule of Quotations

Material ................................................................................Date.............................

SerialNumber

Name ofSupplier

Rate perKg.

Time ofDelivery

Terms ofDelivery

Remarks


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Selecting the Suppliers

After receiving the quotations they are opened at the time prescribed and acomparative statement is prepared for selecting the supplier. A specimenComparative Statement of Tenders Proforma is given in Format – 3.

Format – 3

ABC Co. Limited

Comparative Statement of Tender Proforma

No............................Date.............

Name of Material .................................................................................

SerialNumber

Name ofSupplier

Rate perUnit

Quantity Time ofDelivery

Terms Remarks

Placing Order

After selecting the supplier the purchase department proceeds to place theorder for the materials. A Purchase Order is a written request to supply certainspecified quantity of material of specified quality at specified rates andaccording to the terms and conditions of the order. it is a formal contract whichbinds the purchaser to accept delivery and make payment as agreed upon. Aspecimen Purchase Order is given in Format – 4

Format – 4

ABC Co. Limited

Purchase Order


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Pondicherry

Date ................................

To, OrderNo.: .......................

Messers ............................... RequisitionNo.:...............

.............................................. Date by which materials

.............................................. are required....................

Dear Sirs,

Your quotation bearing number .............. dated ................... has beenaccepted. Please supply the following materials in accordance with the termsand conditions mentioned below:

S. No. Description Code No. Quantity Rate Amount Remarks

Packaging and Despatching instruction ...................................

Terms of Payment ...................................................................

Place of Delivery ......................................................................

Freight .....................................................................................

Special Instructions:

Receipt of this order may please be acknowledged.

Yours faithfully,

For ABC Co. Limited

...................................

Purchase Manager


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Follow – up of Purchase Orders

All suppliers may not promptly executed the orders and they have to bereminded again and again to avoid unnecessary delay in the execution of theorders. Some suppliers may deliberately delay execution of the order givingpriority to more profitable orders. Therefore, there should be proper follow upof purchase orders. It may involve e telephone call or writing a series of letters.In large organizations this work may be entrusted to order chasers orexpediters who spend full time keeping supplies on schedule regardingdeliveries.

Receipt of Materials

When the ordered goods arrive at the factory door, the store keeper verifies thegoods with the help of the Delivery Note and the copy of the Purchase Order.the Delivery Note, in duplicate, is supplied by the supplier along with thematerials supplied. A copy of this note is returned to the supplier duly signedafter verification of receipt. The physical quantity and the quality of materialsare carefully checked before taking them in store.

Specimens of Materials Received Report Proforma and Materials InspectionReports Preforma are given in Format 5.

Format – 5

ABC Co. Limited

Materials Inspection Report

No. .......................... Goods Received NoteNo. ...........

Purchase Order No. ...............................Dated ...........................................

Supplier ..................................

S.No.

Description CodeNo.

Quantity Reasonsfor

Rejection

Received Accepted Rejected


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Date of Inspection............................. Inspectedby .....................

Approval of Purchase Invoice

On receipt of the invoice the purchase department checks the accuracy of theparticulars contained in it with the help of the of the following documents:

(i) Purchase Order (to ensure whether the terms and conditions are fulfilledand the rates charged are correct)

(ii) Materials Receipt Report / Note (to verify the quantity billed with thequantity received)

(iii) Materials Inspection Report (to verify the quality of material received)

(iv)Debit Note (to make deduction from the invoice of materials returned tothe supplier)

Besides, invoice price, the items such as freight, sales tax, excise duty, cost ofcontainers, discount etc., are to be checked carefully. Having checked all thesematters, the bill is passed for payment and sent to the Accounts Department.

VENDOR RATING

In a large stores and materials organization, where a large number of parts andcomponents are supplied by different vendors, it becomes difficult to keeptrack of their performances. Therefore, in order to compare the performance ofvarious vendors, it is essential to rate them individually. The rating may bedone as per following parameters:

Quality performance

Delivery performance

Price performance


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(a) Quality Performance: A supplier can be judged for quality performancefrom the view-point of rejected lots. Thus, if a supplier has supplied 100pieces and 10 pieces are rejected from the lot, he has a rating of 90 percent.

Number of lots accepted--------------------------------- x 100 x

weightageNumber of lots supplied

(b) Delivery performance: Delivery performance can be made in two ways: (i)adherence to time – schedule, and (ii) adherence to quantity schedule.

(i) Adherence to time schedule:

Number of deliveries made in time

----------------------------------------------- x weightage

Total number of scheduled deliveries

(ii) Adherence to quantity schedule

Quantity supplied

---------------------------- x weightage

Scheduled quantity

The final evaluation, however, will depend on judgement, which issubstantiated by facts.

REVIEW QUESTIONS

1. What is purchase policy? What are the types of purchasing policies?

2. Briefly explain different purchasing methods.

3. What do you understand by centralized and decentralized purchasing?What are their merits and limitations?

4. What is purchase system? Explain the various activities to be performedunder purchases system.


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LESSON – 8

MATERIALS HANDLING

Materials – handling is an integral part of ‘facilities design’. And the materials,handling function has undergone significant changes in terms of its conceptand implementation. Now, management does not consider it merely as theroutine transfer of materials from one place to another, but has come aboutlargely as a result of new automatic handling and storage equipment andsystems that are closely integrated with automatic processing and sophisticatedmanagement information and control systems.

DEFINITION

In the broad sense, the term materials-handling includes all movement ofmaterials in a manufacturing situation. The American Society of MechanicalEngineers defines material-handling as, “the art and science involving themoving, packing and storing of substances in any form”

A careful reading of this definition will reveal the all-inclusive nature such asmoving, packing, and storing of fluids, semi-fluids, and discrete items. Also, itincludes the movement of materials in a total manufacturing situation.

In its narrow sense, materials-handling is restricted to-

Movement and storage of discrete items, such as transistors, boxes,machines etc and

Movement of materials within the plant or storage areas

It is the restricted concept that has been discussed in this unit.

IMPORTANCE OF EFFICIENT MATERIALS – HANDLING

1. Reduces wastage of machine time:

The loss involving machine time can be examined from two angles: one,production process may suffer from inadequate production because ofirregularity or stoppage of materials, and two, production process may sufferfrom distribution problem. By keeping loading and unloading time at a minimal,an efficient materials-handling system enables the completion of


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manufacturing cycle at reasonably short time. In other words, it would avoid theproblem of slow movement of materials through the plant.

2. Avoids disruptions in production schedules:

In mass production system, since all parts must come in the assembly line incorrect quantities and at precisely the right time to avoid the risk of a shutdown.Effective materials-handling by satisfying the condition of quantity and timingcontributes to a better control of the flow of goods.

3. Brings safety to workers and provides for safer working conditions:

The only way to bring safety to the workers and providing for safer workingconditions is by designing correctly the materials-handling system, utilizing theproper materials-handling devices, and training workers in safematerials-handling practices.

4. Ensures customer satisfaction:

From marketing point of view, suitable materials-handling can mean cancustomer satisfaction. By avoiding disruptions in production schedules andlooking seriously to the distribution aspect of production, and shorteningmanufacturing cycle time, customers are assured of their deliveries onpromised dates. Since success in business rests on satisfying customer’s wantsand needs, it is essential that good materials handling be practiced.

5. Enhances productivity and avoids high costs:

Efficient materials-handling if practiced, would help in satisfying therelationship between output, efficiency and cost.

PRINCIPLES OF MATERIALS – HANDLING

1. Eliminate wasteful methods by:

Reducing to a minimum number of handling of materials

Eliminating unnecessary mixing and subsequent sorting

Using mechanical aids to eliminate the use of hand labour inmovement of materials


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Avoiding the unnecessary transfer of materials form floor toworkplace or from container to container

Increasing the speed of handling

Utilizing containers and unit load. The idea involved in the principleof unit load is that products to be moved should be grouped intounits of a large and constant size.

2. In laying out the plant:

Plan for materials flow and combine handling with processingwherever possible.

Provide for continuous or appropriate intermittent flow of materials

Provide for the capital flow of materials between operations and aminimum of retrograde movement

Maximize the quantity and size of weight handled

Coordinate the overall materials-handling throughout the entire plant

Provide for safe handling and safe equipment and integrate with themanagement information and control system

Plan for adequate receiving, storage and shipping facilities

Design adequate aisle and access areas.

3. In the selection and application of materials-handling equipment:

Plan activities and analyze equipment needs before considering thepurchase of new equipment.

Use the simplest equipment that is adaptable to the problem; avoid theuse of complicated mechanisms and controls.

Adopt standard equipment if possible, insure that the purchase of specialequipment is economically justified.

Recognize the need for different equipment for different jobs.

Provide for alternative methods for use in emergencies


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Replace obsolete methods and equipment with more efficient ones.

These principles are general in nature. In actual, all industrial situations aresomewhat different, therefore, the materials-handling problems in differentfirms vary. However, factors like the production system in use, type of building,and cost of various devices, govern the use of materials-handling system in aparticular concern. General principles of materials-handling are only guides inassisting the materials-handling engineer in analyzing the problems rather thanfinding solutions to problems.

MATERIALS HANDLING EQUIPMENT

There are various kinds of materials-handling equipment serving differentpurposes. The differences between kinds of equipment are significant to theextent that they condition its ability to more or position materials in a mannerthat will meet the requirement of the particular materials-handling problem.

Kinds of Equipment

Several kinds of materials-handling devices are used in plants – some are liftingand lowering devices (vertical motion), others are transportation devices(horizontal devices), and still others are combination devices. Although it is verydifficult to give a comprehensive catalogue of materials-handling devices,however, the more widely used ones include the following:

(i) Lifting and lowering devices, including winches (effecting vertical motionby winding the rope or cable on a drum), hoists (power-driven devicesoften operated between fixed guide rails), elevators (they are differentfrom hoists in that the operations also rides with the load), and blockand tackle.

(ii) Transporting devices, including hand carts, sack-trolleys, industrialrailways (narrow-gauge railroads provided within the plant), tractorsand trailers, aerial tramways (in which the load-carrying vehicle issupported from the top, usually by means of a cable), skids (generallyused with lift trucks), pipelines (used for transporting materials like oil,gas, water etc.)


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(iii) Combination devices, including chutes (have both vertical andhorizontal motion, and are commonly used in airway and airlineterminals for handling packages and baggage), trolley hoists (on railsare common in use), portable elevators, conveyors etc.

Equipment Selection

Before a final selection of equipment can be made, a thorough analysis of theproposed situation must be made. This requires a consideration of factorswhich are grouped under three main headings: physical, intangible and cost.

1. Physical Factors

Physical factors concern themselves primarily with the relationship between theroute to be followed by the materials and the equipment to be used. They are:kind of material, origin; destination; tonnage; distance; number of employeesrequired; time per trip; weights and dimensions of unit loads; whether thematerial collects at the origin at the same rate as it is consumed at thedestination; whether there is cross traffic because of intersecting routes;whether the location of the route varies or likely to vary; whether the route lieswholly within one building or extends through more than one. After a carefulstudy of these physical factors that the equipment should be selected.

2. Intangible Factors

Intangible factors are safety considerations; possible future expansion orcontraction of production plans, flexibility or adaptability of repair parts,complexity of equipment etc. many of the above factors will be difficult toevaluate; however, each should be considered as to its possible effect on theproposed installation.

3. Cost Factors

Cost factors significantly help the materials-handling engineer in comparingthe al possible choices on cost basis before making a final decision andsubmitting an order.

FACTORS AFFECTING MATERIALS-HANDLING DECISIONS

There are four general factors which affect materials – handling decisions: the


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type of production system, the products to be handled, the type of buildingwithin which the materials-handling is to be done, and the costs of materials –handling devices.

1. Production System: There are two basic types of production systems.One is intermittent or job-lot production; the other is continuous –process production. intermittent systems are used where a variety of jobsare being done at the same time on a variety of machines and in a varietyof places. The materials-handling decisions have more relevance forintermittent production system than continuous-process system.

2. Type of Products to be handled: The type of products being handledgreatly affects material-handling decisions. For instance, liquids andgases are well suited to transport by pipelines. Similarly, cranes are bestsuited to very heavy lifting jobs and conveyors are suited where highvolumes of products including weight, size, shape, Perishability andwhether the materials is solid, liquid or gas have a significant bearing onthe selection of the type of device which should be chosen to move it.

3. Type of Building: The number of floor has direct effect on the deviceswhich should be used. Single story building lend themselves to the use oftrucks and conveyors. Multi-storied buildings lend themselves to the useof pipelines, lifts etc.

4. Cost of Materials-handling Devices: The operating costs of equipmentsuch as fuel, maintenance, repair, insurance and labour costs have impacton deciding the selection of equipments. Needless to mention, themanager ahs to select appropriate equipments which involve lessoperating cost.

REVIEW QUESTIONS:

1. Define materials – handling. Bring out its importance

2. Enumerate the principles of materials – handling

3. What are the different kinds of materials handling equipment? Whatfactors would you consider for selecting appropriate equipment?

4. State the factors affecting materials-handling decisions.


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LESSON – 9

STORES MANAGEMENT

Stores play a vita role in the operations of a company. It is in direct touch withthe user departments in its day-to-day activities. The most important purposeserved by the stores is to provide uninterrupted service to the manufacturingdivisions. Further, stores are often equated directed with money, as money islocked up in the stored.

The functions of stores can be classified as follows:

(1) To receive raw materials, components, tools equipments and other itemsand account for them.

(2) To provide adequate and proper storage and preservation to the variousitems.

(3) To meet the demands of the consuming departments by proper issuesand account for the consumption.

(4) To minimize obsolescence, surplus and scarp through proper codification,preservation and handling.

(5) To highlight stock accumulation, discrepancies and abnormalconsumption and effect control measures.

(6) To ensure good housekeeping so that material handling, materialpreservation, stocking, receipt and issue can be done adequately.

(7) To assist in verification and provide supporting information for effectivepurchase action.

LOCATION AND LAYOUT

The normal practice is to locate the stores near the consuming departments.This minimizes handling and ensures timely dispatch. In stores layout, thegoverning criteria are –

easy movement of materials

good housekeeping

sufficient space for men and material-handling equipments

optimum utilization of storage space,


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judicious use of storage equipments – shelves, racks, pallets and properpreservation from rain, light etc.

these problems are more important in the case of items that have a limitedshelf life. Other important factors governing the location are the number of endusers and their location, the volume and the variety of goods of goods to behandled, the location of the central receiving section and accessibility to modesof transportation such as rail or road.

Since stores have to be nearest to the user, large organizations usually havestores attached to each consuming department, whereas receiving is donecentrally. Items of common usage are stocked in the Central Stores so thatinventory is kept at an optimum level. These factors are considered at theplanning level of layout.

In the case of warehouses stocking finished goods, factors such as proximity toports, railways lines, quality of roads, availability of power etc. become quiteimportant. It is also important that the stores are constructed with a futuristicorientations, so that sufficient flexibility for expansion needs is in built. Theactivities of receiving he goods, stocking in appropriate locations,materials-handling and issues must be done swiftly and economically. Thestores building must have adequate facilities for preservation of stores.Sometimes facilities, such as cols storage, heating equipments, air-conditioningand similar facilities may be required. These should be planned in advance.Comfortable working conditions must be provided to the stores personnel toget maximum efficiency and morale.

The important factors in the design of stores building can be summarized asfollows:

1. Lighting: Clear and adequate lighting is a must for a proper workenvironment. Lighting effects can be accentuated through a judiciouschoice of colours for the walls. For stores personnel who work day in andday out in the stores receiving, checking, stocking, handling and issuinggoods, a pleasing environment goes a long way in reducing monotony.Any attempt to reduced these facilities will prove to be false economizingin the long run.

2. Safety: This factors is perhaps the most important aspect. In stores alarge volume of goods are handled everyday. Accidents considerably


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reduce the morale and effectiveness of the system. To ensure safety thefollowing steps may be taken:

Safety consciousness should be instilled in the minds of stores personnel,

Safety applicances must be provided to the stores employees,

Stores equipment must be kept in good order,

Provision of fire fighting facility is necessary

Safety awards and prizes may be instituted to motivate stores employees.

STORES KEEPING

Storekeeping is that aspect of material control concentrated directly with thephysical storage of goods. The store of goods is connection link between theshops or work places and production control department. Materials, parts,work-in-process etc. move through the store just as money moves into and outof a commercial bank. Principal function of store or stockroom is to act as aclearing house for goods, i.e. receipt of goods bought and issue of neededmaterials in the plant against authorized orders.

OBJECTIVES OF STOREKEEPING

It offers protection against fire, damage, deterioration, theft, losses.

It must allow for easy, quick and sure receipt, storage and disbursementof material when properly authorized.

It must provide space and storage equipment as to both size and loadbearing capacity for the material to be stored.

It is an organized store and as such it must provide means for identifyingand quickly locating articles and any contents. For this purpose it has thedevice of indexing, identification marks and labels.

It should provide for the selection of the oldest material promptly

Optimum use of storage space and labour is possible

Minimum investment in inventories can be assured

Ease in inventory taking and effective inventory control can be obtained

Assurance of continuous flow of materials to keep and maintainproduction schedules in tact.


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FUNCTIONS OF STOREKEEPING

Functions of storekeeping are given below:

(1) Receipt of incoming materials into storage

(2) Efficient and orderly record-keeping of all materials into storage

(3) Storage of materisl in safe and convenient locations

(4) Issue of purchase requisition as per instruction of production controllersto the purchasing agent.

(5) Issuing (disbursement) of materials to the operators and/or foremenagainst written authority.

(6) Conduct of physical inventory control

(7) Timely intimation to proper authorities regarding out-of-stock conditionsof items

(8) Custodian of goods against losses, damages, unauthorized use, pilfering.Standard items often invite theft and are stolen for resale. Such theftsshould be prevented.

WORKING OF THE STORES

The store may have functional sections to look after principal functions andfollow set policy and procedure.

1. Receiving Section

The store in a plant has four kinds of inventories to be received:

Raw materials

Stores and supplies (materials consumed in operations)

Tools and components (to keep the machines and plant running)

Materials-in-process of manufacturing (semi-manufactured goods)

Procedure for receiving materials or inventories has the following steps:

Receiving incoming materials,

Checking and inspection of these materials

Recording the incoming goods in ‘Goods Received Book’


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Preparing and sending goods inward not to the purchasing section

Intimating purchasing section regarding damages, losses, defectivegoods, surplus or deficit supplies etc. along with rejection forms ornotes.

Returning defective or damaged goods to the supplier as per directionof purchase department.

Depositing the materials to the appropriate store locations for storage

When finished products are received for the storage, the warehouse keeperwill issue an acknowledgement and intimation to the sales organisatointhat such and such goods are ready for sale.

2. Storage Section

The stockrooms are in charge of storage, safety, care and disbursement ofmaterials. There are separate stockrooms for each class of inventories. Alsomultiple stockrooms located at different places in the plant in addition togeneral or main store.

The storekeeper has to receive the materials for actual storage, classify thematerials, provide easy identifications to facilitate quick location, keep allgoods at appropriate places, maintain up-to-date inventory records andaccounts and issue materials as per written instructions. Each article must havelabel and identifying mark-stamping, embossing, colour coding writing orpainting. Location of any article can be easily found out by such devices.

3. Accounting Section

Proper and up-to-date records and accounting can facilitate inventory controlas well as financial checks. This section is called upon to keep on a daily basiscompare records of receipts and issue of materials. It is also in charge ofcontinuous stock – taking and inventory valuation. The chief activity of thissection is inventory control.

4. Issue Section

The storekeeper is a commodity banker. He must take necessary precautionsand actions in both cases, viz. incoming goods flow and outgoing goods flow.Items are issued or supplied for direct use or merely on loan. Goods are issued


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against material requisition slip (written authority). All particulars of issue mustbe duly posted on the Bin Cards and on Stock Control Cards.

Stores Accounting:

The theory underlying any system of stores accounting is that is ordinarydouble entry book-keeping. The accounts in a stores ledger are really detailedanalyses of general ‘Purchase’ and ‘Issue’. The theoretical aspect is that therecords which form the basis of the entry in the stores ledger incidentallyenable cost accounts to be prepared.

The scheme requires that goods received from suppliers’ delivery notes beentered in stores day book (stores received or goods inward book) and thatissues of materials may only be made in exchange for authenticatedRequisitions/Issue Notes, and that these again be either entered into a storesday book (stores issued or goods outward book) or after interposition of theissue notes written out by the storekeeper on supplying the materials requested.The stores received and stores issued books form from carbon duplicates ofthese books obtained by having the pages arranged in appropriate fashion. Theother alternative is for the requisition/issue notes or carbon copies thereof, tobe sent to office for postings direct to the stores ledger.

Quite apart from the desirability of keeping the stock records up-to-date, agood system is necessary for certain other purposes listed below:

1. Where accurate cost account is a must

2. Where complete income and expenditure accounts are kept

3. Where management wants to know facts about good or bad buying,apparently from the stores accounts

4. Where indications, as to the quantity and value of the stores withoutstock taking, are necessary

5. Where ascertainment of the ordering level without actual inspection ofthe stock, is also a pre-condition to efficient buying.


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Many of the advantages mentioned above might almost be termed asnecessities in an up-to-date accounting organization. The idea, however, ismainly to show a host of highly desirable information, at any rate, the hints foreconomy which such as recording system will automatically provide and thismust not be overlooked in any case.

It is a good policy to have one section exclusively devoted to receiving ofstores and if a proper scheme is formulated and adhered to, the receiving maybe carried out expeditiously. It is a common experience everywhere that owingto the lack of timely determination of shortages of huge quantity of receiptedmaterials and also due to transitional delays from receipt centres to storage.Claims for shortages or damages which could have been otherwise realizedeither from the carriers or from insurance companies or vendors, are often lostby time bars. Again, due to the absence of arrangements for recovery of claimswhich have matured, claim settlement often proves abortive. To obviate theseand may other difficulties it should be clearly understood that no other than thereceiving storekeeper is authorized to receive anything.

as already stressed actual stores receiving should, therefore, be the duty of thereceiving storekeeper after checks as to quantity and the condition of supplies,and quality checks should be done by some inspecting staff before they arepassed on to the stores. Any excess or short delivery has to be reported by thereceiving storekeeper and noted on the invoice under due intimation to thebuying section following inspection and quality reports. On proper receipt as toquality and quantity, the receiving storekeeper should sign the delivery note,one copy of which has to be sent to the bill section for payment on checkingand the other to the stores accounting section for posting to the stores ledger

STOCK VERIFICATION

It is the process of physically counting, measuring or weighing the entire rangeof items in the stores and recording the results in a systematic manner. Thepurposes served by stock verification are as follows:

To reconcile the stock records and documents for their accuracy andusefulness.

To identify areas which require more disciplined document control

To back up the balance sheet stock figures, and

To minimize pilferage and fraudulent practices.


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Stock verification is usually carried out by the materials audit department,reporting to either the materials manager or the internal audit. One person isusually given the exclusive responsibility with adequate facilities and authority.

Physical verification can be carried out periodically or on continuous basis.

Periodic Verification

Under this system, the entire cross-section is verified at the end of one period,which is usually the accounting period. In big organizations this is not achievedin a day and usually several days are taken to complete this task. As notransactions can take place during the verification, this could pose someproblems. Physical verification requires careful planning and execution. Thevarious steps involved are detailed below:

A detailed programmes should be chalked out giving completebreakdown of the process store wise and itemwise. This should be donein consultation with the materials management and finance departments.

Necessary stock verifications cards and checksheets must be prepared inadequate amounts.

All materials audit personnel must have clear – cut instructions on theirjobs and schedule for proper accountability

During the verification process all transactions must be stopped. In otherwords, there should not be any receipts or reference and control.

Separate provisions must be made available for items which are damagedor deteriorated.

Selected areas and items must be allocated to each stock-taking personso that orderly completion of the job without duplication or omission isensured.

It will be necessary to separately verify items which are under inspection,items sent out to suppliers for processing and stocks at various stockyards.

Store location ............................................................. SerialNo. ................................


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Part number ................................................................Date ........................................

Past description...........................................................

Unit of quantity NO/METERS / KGS / LITRES

Rate ............................................. Quantity onhand .............................................

Value of stock on hand .........................................................

Audited by S/d

Checked by S/d

Remarks

Damaged DeterioratedOthers

Such sheets as shown above are prepared for each item and values are workedout for different classification. The total of such values gives the value of thestock on hand as verified. Then this is tailed against the book figures or stockrecords. Discrepancies, if any, are noted down. Minor discrepancies are takencare of by correcting the stock records. Any major discrepancies need furtheranalysis so that causes can be identified and remedied. Allowances regardingacceptable margins of tolerances for conversion, weighting and measuring, aswell as for evaporation, must be clearly laid down. Top management’s sanctioncan then be sought for writing off deficiencies or valuing surplus.

Continuous Verification

Under this system, verification is done throughout the year as per apredetermined plan of action.

Items may be verified thrice a year

Items twice a year, and

Items once a year


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It, therefore, presuppose that a perpetual inventory record for each item ismaintained showing all transactions so that reconciliation for each item ismaintained showing all transactions so that reconciliation can be done. Theadvantages here are:

Work can be independently carried out by materials audit departmentstaff.

Investigation with regard to discrepancies are spread over the year andhence detailed analysis is possible.

Final accounts can be prepared expeditiously if continuous verification isdone as per plan.

There is no need to ‘freeze’ the entire operations of the stores asverification is done throughout the year based on perpetual inventoryrecords

Any time stock records are more up-to-date when compared with theperiodic verification system.

Process of Verification

Items are verified by counting in the case of bearings, by weight in the case ofsheets, by measuring in the case of lubricants and so on. However, when largestocks of itesm such as sand, scrap and ore fuel need to be verified, it is basedonly on estimates as the question of exact measurement is ruled out. In theactual process of stock verifications, the stores personnel should be involved,as they intimately know the locations of various items which results in quickeridentification of items. For instance, some items may be located in many places,by virtue of their experience, only stores personnel will be able to locate them.So the material audit people will have to work in close coordination with them.Discrepancies must be discussed with Stores so that any omissions may berectified and then only should they be reported to top management. Majordiscrepancies may require a re-verification. Such discrepancies may be due topilferage on a large scale, wrong posting of records and loose documentscontrol. They require careful analysis and immediate corrective measures.


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After discrepancies have been noted, stock adjustments must be made usingstandard stock adjustment documents duly signed by the appropriate authority.A typical stock adjustment form is shown below:

Discrepancy Voucher

Date of verification: Serialnumber .............................

Part number: ................................ Serial no./Ref.no.: .....................

Part description: .......................... Stock verification sheet

Location code: ......................................

Quantity as per record:

Quantity on verification

Discrepancy: Amount Value Surplus

Deficient

Prepared by S/d

Approved by S/d

After the approval, the stock records can be corrected. Surprise checks andverifications are made by materials audit department to detect any fraudulentacts. Material audit plays a role of watchdog of store, pointing out weak areasand remedying them. It assists in accurate records-keeping and smoothfinalization of annual accounts.

REVIEW QUESTIONS

1. What are the functions of stores?

2. What is storekeeping? What are the objectives and functions ofstorekeeping?

3. Describe the working of stores.

4. Write a note on stores accounting.


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5. What is stock verification? What is its purpose?


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LESSON – 10

INVENTORY MANAGEMENT

In financial parlance, inventory is defined as the sum of the value of rawmaterials, fuels and lubricants, spare parts, maintenance consumables,semi-processed materials and finished goods stock at any given point of time.The operational definition of inventory would be. The amount of raw materials,fuel and lubricants, spare parts and semi-processed materials to be stocked forthe smooth running of the plant. Since these resources are idle when kept inthe stores, inventory is defined as an idle resource of any kind having aneconomic value.

Inventories are maintained basically for the operational smoothness which theycan effect by uncoupling successive stages of production, whereas themonetary value of inventory serves as a guide to indicate the size of theinvestment made to achieve this operations conveniences. The materialsmanagement department is expected to provide this operational conveniencewith a minimum possible investment in inventories. The objectives of inventory,operational and financial, needless to say, are conflicting. The materialsdepartment is accused of both stockouts as well as large investment ininventories. The solution lies in exercising a selective inventory control andapplications of inventory control techniques.

TYPES OF INVENTORIES

Inventories may be classified as under:

1. Raw materials and production inventories: These are raw materials,parts and components which enter into the product direct during theproduction process and generally form part of the product.

2. In process inventories: Semi-finished parts, work-in-process and partlyfinished products formed at various stages of production.

3. M.R.O. Inventories: Maintenance, repairs and operating supplies whichare consumed during the production process and generally donot formpart of the product itself (e.g. Petroleum products – petrol, kerosene,diesel, various oils and lubricants, machinery and plant spares, tools, jibsand fixtures etc.)

4. Finished goods inventories: Complete finished products ready for sale.


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Inventories may also be classified according to the function they serve, such as:

a) Movement and transit inventories: This arises because of the timenecessary to move stocks from one place to another. The average amountcan be determined mathematically thus –

I = S x T

Where, S represents the average rate of sales (say, weekly or monthly average)and T, the transit time required to move from one place to another, and I themovement inventory needed. As for example, if it takes three weeks to movematerials to a warehouse from the plant and if the warehouse sells 110 perweek, then the average inventory needed will be 110 units x 3 weeks – 330units. In fact, when a unit of finished product is manufactured and ready forsale, it must remain idle for three weeks for movement to warehouse. Therefore,the plant stock on an average must be equal to three weeks’ sale in transit.

b) Lot-size inventories: In order to keep costs of buying, receipt,inspection and transport and handling charges low, larger quantities arebought than are necessary for immediate use. It is common practice tobuy some raw materials in large quantities in order to avail of quantitydiscounts.

c) Fluctuation inventories: In order to cushion against unpredictabledemands these are maintained, but they are not absolutely essential inthe sense that such stocks are always uneconomical. Rather than takingwhat they can get, general practice of serving the customer better is thereason for holding such type of inventories.

d) Anticipation inventories: Such inventories are carried out to meetpredictable changes in demand. In case of seasonable variations in theavailability of some raw materials, it is convenient and also to someextent economical to build up stocks where consumption pattern may bereasonably uniform and predictable.

Of the types of inventories discussed above, the Lot – size. Fluctuation andAnticipation Inventories may be said to be ‘Organisatoin Inventories’ As moreand more of these basic types of inventories are carried into stock, lesscoordination and planning are required. Also less clerical and administrative


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efforts are needed and greater economies can be obtained in handling,manufacturing and dispatching. But the difficulty is that gains are not directlyproportional to the size of inventories maintained. As the size increases, even ifthey are efficiently maintained, handled and properly located, gains formadditional stock become less and less prominent. The cost of warehousing,obsolescence and capital costs associated with maintenance of large quantitiesgrow at a faster quantities grow at a faster rate than the inventories themselves.As such, the basic problem is to strike a balance between the increase in costsand the decline in return from holding additional inventories. Striking a balancein a complex business situation through intuition alone is not easy. Costs, andto be sure, the balancing of opposite costs, like at the heart of all inventorycontrol problems, for which cost analysis are necessary.

As has already been said that even a typically medium size industrialorganisation may use 10,000 to 15,000 different items which are carried ininventory. Initial planning and subsequent control of such inventories can onlybe accomplished on the basis of knowledge about them. Consequently, thestarting point in inventory management and control is the development of astores catalogue, which is more or less comprehensive and complete in allrespects. All inventories should be fully and carefully described and a codenumber should be allotted. Similar items should be grouped together andstandard codification should be adopted.

INVENTORY CONTROL

Inventory control may be said to be a planned method whereby investments ininventories held in stock is maintained in such a manner that it ensures properand smooth flow of materials needed for production operations as well as saleswhile at the same time, the total costs of investment in inventories is kept at aminimum.

From the above definition it follows that a comprehensive inventory controlsystem must be closely coordinated with other planning and control activities,such as, cash planning, capital budgeting, sales forecasting, includingproduction planning, production scheduling and control. This impinges on awide range of operations, operating decisions and policies for production, salesand finance. The finance controller of a company regards inventory as anecessary evil, since it drains off cash which could be used elsewhere to earn


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some profits. The marketing manner always wants enough of ready stock offinished goods inventories in order to give better customer service to ensurethe company’s goodwill and would not like to see a sales opportunity lost forwant of saleable ready stock. The production manager does not want an out ofstock condition for which production might be held up. It will, therefore, beseen that everyone has some objectives which are conflicting in nature. Thebasic problem is, therefore, to strike a balance between operating efficiencyand the costs of investment and other associated costs with large, inventories,with the object to keep the basic conflicts at the minimum while optimizing theinventory holding.

OBJECTIVE OF INVENTORY CONTROL

1. To reduce to the minimum idle time due to shortage of materials andspare parts. Neither man nor machine should have idle time due to lackof materials.

2. Similarly, to offer maximum service and satisfaction to the customerswith regard to fulfilling the due dates strictly as per orders. The sole aimof a business is to create and retain customers.

3. At the same time, to minimize capital investment and cost of storage.

IMPORTANCE OF EFFICIENT INVENTORY CONTROL SYSTEM

1) An efficient inventory control system minimizes the possibility of delay inproduction. there is no danger of closure of plant, unemployment, lowerdividend and replacement of management – a dark picture resulting outof poor inventory control.

2) It helps a company to secure many economies. For instance, noduplication in ordering, better use of available materials by interdepartment transfers, economies due to bulk purchases such as lowfreight, higher discount, lower price, less clerical work etc.

3) It is necessary for efficient accounting system, particularly for materialaspect of cost accounting.

4) It discourages dishonesty, e.g. stealing material from the plant.

5) It expedites preparation of financial statements.

6) Losses, damages, deterioration of materials can be minimized andenables careful material-handling.


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FUNCTIONS OF INVENTORY CONTROL

(1) Keeping the stock of goods at the most appropriate level at all times sothat the requirements of sales department can be always fulfilled.

(2) Maintaining capital investment in stocks at a minimum desirable level,without sacrificing the main interest of trading.

(3) Protecting the stocks from losses and damages due to improper handling,pilferage or unauthorized removal from the store.

(4) Receiving and recording of all goods routed in the store and keepingup-to-date trace of every outgoing item.

(5) Indexing of all items of stock for their quick location. This is donethrough identifying marks, labels and Bin Cards.

(6) Up-to-date inventory records must show the quantity and value of allgoods in the warehouse, all receipts and deliveries made from thewarehouse and the points at which replenishment of stocks becomenecessary by ordering new stocks.

STANDARDS IN INVENTORY CONTROL

There are four important quantity standards in inventory control.

1. The Maximum Level

It indicates the upper limit of the level of stocks or inventory. It points out thelargest quantity to be normally kept in the store in the interest of economy.

2. The Minimum Level

It indicates the lower limit of the level of stocks of inventory which is really amaximum reserve or margin of safety. This level of safety may be used only inan emergency. It is the level acting as a safety value. it is the minimum level ofstocks which must be always on hand. It is the minimum reserve of the dealer.

3. The Standard Order

It is quantity of stocks to be requisitioned for purchase at any one time. Arepeat order for a commodity is always of the same quantity until conditions


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change, necessitating a revision of the standard order. The purchase requisitiongiven the quantity for replenishment of stocks.

4. The Ordering Point

It is the quantity of stock necessary to protect against the exhaustion of thestock during the gap between the date of order and the date of actual receipt.When the level of stocks or the balance on hand reaches this level, it is anindication that a new order must be placed at once. The time necessary tosecure the stock of required articles after requisitioning must be carefullycalculated and sufficient margin must be provided for contingent delays orbottlenecks in transport.

Comments

Reorder point indicates when to order

Standard order shows how much to order

The maximum is the upper limit of the inventory

The minimum is the lower limit of the inventory

The following factors are to be considered for establishing the stock level to bemaintained in a business for effectiveness of the system of control.

1. On the basis of the previous records pertaining to sales and production,the demand for the inventory should be determined. It is essential tomake allowance for fluctuations. In the case of business with seasonalsales, a change in the inventory level is necessary by periodical review ofthe inventory, the restored level should be maintained.

2. Present position regarding supplies of materials and labour and theiravailability

3. The next factor is the time that elapses between the time ofrequisitioning of the items and the time of the receipt of the same. This iscalled ‘lead time’. Due allowance should be made for the variability in thelead time.


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4. Quantities of stocks on hand and required at the end of the period.

5. The effectiveness of the system depends upon the storage facilitiesavailable. Inventory level will be affected if there is lack of storagefacilities.

6. In carrying stocks at higher levels there is the danger of expenses ofstorage involved.

7. The most important is the price factor. Low value items may bepurchased in large quantities to take advantage of the price positionwhile higher value items may be purchased frequently in small quantities.

8. Capital to be invested in stock.

9. If higher levels of inventories are maintained, stock level will be affectedby obsolescence, change in fashion and improvements in technicalities.

INVENTORY CONTROL TECHNIQUES

(1) Perpetual Inventory And Continuous Stock Taking

(2) A. B. C Analysis

(3) Input-Output Ratio Analysis

(4) Inventory Turnover Ratio

(5) Economic Order Quantity

1. Perpetual Inventory System

According to the Institute of Costs and Management Accountants, England, it isdefined as “a system of records maintained by the controlling department whichreflects the physical movements of stocks and their current balance”.

It is a method of ascertaining balance after every receipt and issue of materialsthrough stock records to facilitate and issue of materials through stock recordsto facilitate regular checking and to avoid closing down for stock-taking. Inorder to ensure accuracy of perpetual inventory record, it is desirable to checkthe physical stocks by a programme of continuous stock-taking. Anydiscrepancy noted between physical stock and stock records can beinvestigated and rectified, then and there.


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2. A B C Control Method

This method is useful in business organisations which are dealing in a numberof items of goods. Under this method, inventories are grouped under threecategories A, B and C “A” is allotted for the high value items, “B” for mediumvalue items and “C” for low value items. Values of the items are converted intopercentages, each item being stated at a percent of the total value of all theitems. Usually items which account for 70% to 80% of the values are groupedunder item ‘A’. Those which account for 10% to 20% of the values are groupedunder item ‘B’. The remaining items are grouped under category ‘C’. High valueitems should be reviewed frequently and accurately and low value items may bereviewed at long periods. In the case of medium value items, the control shouldbe more than the low value items, the control should be more than the lowvalue items and less than the high value items. Moreover in this case reviewneed not be made as frequently as in the case of high value items.

3. Input-Output Ratio Analysis

This ratio is the ratio of the raw-materials put into manufacturing and thestandards raw materials content of the actual output. A standard ratio of inputof material and output of material should be determined and the actual ratio ishigher than the standard ratio, the performance will be considered to be belowthe standard ratio and vice-versa. In process industries it is a valuable report toshow the percentage of losses that have occurred at each stage. It alsomeasures the productivity of capital. this method is also useful to ascertain theraw material cost of finished output by multiplying the raw material cost perunit by this ratio.

4. Inventory Turnover Ratio

This ratio is another method of exercising control. It is essential to compare theturnover of different kinds of materials to find out the items: which are slowmoving, thus helping the management to avoid keeping capital locked up insuch item. A low ratio is an indicator of slow moving stock, accumulation ofobsolete stock, carrying of too much stock. It will lead to the disadvantagesarising out of over-stocking. But a high turnover ratio is an indication of fastmoving stock and investment in stock. If this ratio for a particular item is zero,it means that the item had not been used at all during the period and should beimmediately disposed of; otherwise the quality of the item may get deteriorated.


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5. Economic Order Quantity (EOQ)

The economy order quantity represents that quantum of products which shouldbe ordered at a time so that the overall inventory cost is the lowest andstockout situations may be prevented. When the EOQ is determined, it helpsmanagement to order such a desirable quantity, that the erratic ordering tomanufacturing plant is avoided to a large extent. When the ordering cost andthe cost of carrying an additional unit in inventory are constant and the demandis known, the following formula, also called ‘square root law’, may be applied toarrived at the EOQ.

PNQ = -----

C

where

Q = the most economical order quantity in units

P = the preparation cost of one order in rupees

N = the total number of units of products required per year, and

C = the carrying cost per unit per year.

Limitation of EOQ Formula

However, the very restrictive nature of the assumptions made in the EOQformula restrict the use of the formula in many cases of practical inventorysituations. The cost-analyses on the basis of which the formulas has beendeveloped are merely national rather than actual in some cases. In practice, unitcost of purchase of an item varies, lead times are uncertain and alsorequirements or demands of inventory items are not perfectly predictable inadvance. Rate of consumption varies greatly in many cases. As such, theapplication of the formula often becomes difficult and a complicated matter.

USE OF COMPUTERS IN INVENTORY MANAGEMENT

Computers are now being used to control the level of inventories and to providematerials at the right time. Computers can handle various data such as price,lead time, cost of ordering, cost of carrying, historical data on delivery


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performance and so on very easily. Various techniques such as ABC analysis,EOQ etc. can be easily programmed into the computer so that tedious andtime-consuming calculating are avoided. Also movement analysis, lead timeanalysis, vendor rating etc. can be computerized in a short time which permitsthe management to carefully evaluate and take scientific decisions so as tocontrol the inventory levels. Factors, such as reserve stock, safety-stock andreorder points, require statistical and mathematical analysis; them manuallyProgrammes are available for performing ‘ABC’ analysis, EOQ calculations,reorder point computations and delivery schedule pricing. This will come as apart of the “software package” in most of the cases. A items are normallycontrolled manually with crucial and timely information support fromcomputers. Thus, computers may print out the stock status of A-items, orderspending execution, expected consumption etc. so that follow-up will be doneon a selective basis to keep inventories at minimum. B and C items are usuallylarge in number and here computers may be used to order EOQ and reorderpoint control can be used. Requisition analysis, processing of enquiries andquotation analysis can be done very effectively using computers. Receipt andissue of documents can be easily computerized. This keeps in product costing,materials accounting and maintaining perpetual inventory records. This resultsin better physical verification. It is imperative to conclude that computers couldbe utilized to guide all the activities relating to inventory management.

REVIEW QUESTIONS

1. What is inventory control? What are its objectives?

2. Bring out the need for an efficient inventory control system

3. What are the factors to be considered while establishing the stock levelfor effectiveness of the system of control?

4. Explain various inventory control techniques.

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PAPER 3.1: PRODUCTION AND MATERIALS MANAGEMENT

Time: 3 hours Maximum Marks :100

Section – A (5 x 8 = 40marks)

Answer any Five questions

All questions carry equal marks

1. What is production function. What is its scope?

2. What do you understand by the term ‘productivity’? Bring out itsimportance.

3. What are the causes of fatigue? Suggest remedies to minimize fatigue.

4. What is production planning and control? What are the advantages?

5. Write a note on Gantt’s Chart.

6. As a production manager how would you take ‘make or buy’ decisions?

7. What are the merits and limitations of centralized and decentralizedpurchasing?

8. What is materials-handling? What are the principles of materials-handling?

Section – B (4 x 14 = 60marks)

Answer any Four questions

All questions carry equal marks

9. What are the factors affecting productivity.

10. State the steps involved in production planning and control

11. Discuss the factors that determine location of industries.

12. What do you understand by process and product layout? What aretheir advantages and limitations?

13. Describe the purchase procedure.

14. What are the functions of storekeeping?

15. Explain different techniques of inventory control.


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production and materials management

Documents

production control

production activities

cost of production

production administration

production planning

production ofquality

product planning

stores management