Production and Materials Management

PRODUCTION AND MATERIALS MANAGEMENT
PAPER 3.1 : PRODUCTION AND MATERIALS MANAGEMENT
SYLLABUS Unit 1 Introduction: Production function Design of production Systems Types of process 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 Material Handling: Importance Selection of material handling equipments.
Unit 5 Stores Management : Functions Stores location Stores layout Essentials of good 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. the operations of that part of an enterprise which is responsible for the actual transformation of materials into finished products. It deals with man machine organisation to accomplish both productivity and satisfaction the desirable end results.
Scope of Production Management Major activities included under the production management are: (1) Product planning and development, i.e. evolution of new products and designing of those products on the basis of specific demands received from marketing or sales department. (2) Production administration which deals with three specialized parts of production activity, namely, production engineering production planning, and production 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, inventory control, research and development, diversification, employee amenities etc.
Major Decisions of Production Management The are two major areas of responsibilities of production, management requiring management decisions.
1. Strategic Decisions: The design of the production system involves decision on many problems such as selection of product, equipment and process, location and layout plant etc. They may need large capital investments.
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These decisions are called strategic decision. They are also long-run decision. Such major decisions of production management are taken by the top management and not by production or manufacturing managers.
2. Tactical Decisions: The tactical or short-run or recurring decision relating to the operations and control of the production system are usually taken by production manages. These tactical decision are on the problems such as forecasting, production planning, production control, inventory control, quality cost control and productivity. When competitive, economic, social and technological changes occur in the environment of the enterprise new approaches and adoptions are required in both the areas to justify its existence and to ensure steady growth. The production function of a business is concerned with the creation of a product or service required to satisfy customer needs, wants and desires. In any business that supplies a needed product or service, it is quite obvious that activities of product system must be closely related to the customer demand as reflected in the continuous flow of order.
PRODUCT FUNCTION Production function involves an organized activity for converting materials into a finished product desired by customers. Production function will be considered most effective when it serves a dual purpose.
1) It must operate primarily to satisfy customer demand particularly relating to quality, quantity, price and above all timing of delivery as scheduled in the order. 2) It must permit production activities to operate in an economical and efficient manner because cost of production is a vital factor is facing the market competition and in ensuring normal profit or return on the investment. Higher costs may wipe off normal profit and sooner or later enterprise 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 intense competition and sophisticated technology. The production function in an enterprise is not only concerned with the proper and full use of production facilities, utilization of latest techniques of production, and production of quality goods satisfying the varied segments of customers, but also with the human factor. The scope of production function is not fixed. It depends upon a multiplicity of factors. The scope of production function is not fixed. It depends upon a multiplicity of factors, two more important ones being nature of business and activity and size of business operations. However, in a large manufacturing concern, the various activities that generally from part of production function include the following: 1. Production Planning: Production planning deals with the preparation of production programmes, that is, about number and types of product to be manufactured, the technique of production to be employed, the quality specification to be met, the delivery schedules to be adhered to, and utilizing all production facilities with optimum results. Thus, production planning is a comprehensive function which decides in advances about the production objectives and the methods to realize those objectives.
2. Plant (or works) Engineering: This function is concerned with installation of plant and equipment, and provision 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 of purchasing becomes relevant. Purchasing activity is aimed at meeting the requirements of production department for raw materials, intermediate products, and consumables. In order to be useful, the purchasing activity must 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 and equipment, work measurement etc.
5. Manufacturing: This is the function of actual conversion of physical inputs into outputs of product and services. There could be various operations, depending on the nature of products and production for example, matting, grinding, pressing, cutting, heat treating, welding, finishing etc. or fabrication and assembling. It may be pointed out that the functions of production planning, plant engineering, purchasing and production engineering are undertaken with the object of facilitating manufacturing. They all set stage for the actual manufacturing operations by providing production programmes, routes, schedules and work orders, by installing plant and equipment 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 to production control. Production control mainly deals with bringing actual performance at par with planned performance in terms of quantity and quality 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, it is pertinent to know (a) who is responsible for performing production function in a business enterprise, and (b) what organizational set-up is followed to perform production function in a business enterprise. These aspects are briefly described below.
Responsibility of Product Function
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The responsibility of performing production function varies in different types of business enterprises. In sole-proprietary organization, for instance, the owner (i.e. sole proprietor) looks after this responsibility. In partnership firm, the responsibility of production department can be entrusted to one of the active partners. In a company, which is generally organized on a large scale, the responsibility of production function is given a formal shape. A separate department (generally known as Production Department) is created and put under the charge of an individual (generally known as Production Manager), who functions under the overall guidance, superintendence, and control of the Chief Executive (Manager or Managing Directors), or Board of Directors. It is this organ of company management (i.e. top management) that is responsible for taking broad policy decision about production activities.
Relationship of production with other functions of business Production functions, in a typical manufacturing organisation, operates in a network of inter-dependencies and interactions with other major functions such as marketing, finance and accounting, personnel, office, and research and development (R&D). the nature of relationships between production and other functions of business is briefly given below.
Production in Relation to Marketing Function
In the nature of things, two functions are more closely interrelated than other functions. At every stage, right from conceiving the product idea down to after-sales service, production and marketing departments have to work in unison. Several decisions in marketing the production have common premises and inputs. Production designs, sizes and quality ranges have to be determined keeping in view the preferences of the various customer groups, as studied by the marketing people. Decision on introduction of new products, improvement of existing product and elimination of slow-moving and obsolete products have to be taken in consultation with the manufacturing department. There are several areas in which both the departments can cooperate and integrate their activities. For instance, new product ideas that may emanate from research laboratories attached to production department may be taken up by the marketing department to build up potential customers. Similarly, production department can furnish details of the distinct technical features of products to add grist to the sales promotional campaigns. Sometimes even marginal
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changes in product design can contribute greatly to the attractiveness and utility of the products.
Production in Relation to Finance and Accounting Function
Production function is closely interlinked with finance and accounting function in a business enterprise. Long range and short range financial planning has to take into consideration production costs which are a sizeable component of total costs of products. In evaluation of production performance, aspects of cost minimization get the attention of finance manager. In the task of product on planning, the production people have to depend on costing and other accounting units to provide the needed estimates and computations of costs of alternative product designs, process and plant engineering, methods, processes, standards, and production programmes. Further, any proposal for capital expenditure for acquisition and replacement of assets, balancing equipment etc. emanating from production department should be cleared by the finance department. Thus, both departments should work in close cooperation with each other and appreciate the complexities and compulsions of each others job responsibilities.
Production in Relation to Personnel Function The personnel manager in a manufacturing organisation helps the production department in several matters such as man-power planning, recruitments and selections, training, design or wage incentive systems, discipline and grievance settlement process, welfare and safety programmes, and relations with labour unions. Apart from these aspects, personnel manager also assists the production department in motivating employees and works, in establishing communication with them, and in injecting humanism in work units.
Production in Relations to Office Function Like other functions, production stands in interdependent and interactional position with office function. The production function can not be satisfactorily performed if an efficient office does not exist in the organisation. It is the office that will inform the production department, through relevant records, about the time schedules of production, the quantities of production, and the quality specifications 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. It is from the office that raw materials and other supplies are issued to the production department, on requisition. It is the office that keeps a periodic check 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 the production department and R & D unit. R & D is a melting pot of ideas with regard to products, processes and techniques employed in production. it feeds the production department with new, improved and innovative product idea and production methods. All technical aspects, specifications and designs of products are generally cleared in R & D unit. Likewise, R & D unit has to depend on production department for understanding the environmental setting in which production people work, availability and acquisition of plant and equipment, skills of personnel and so on. Manufacturing, industrial and quality control engineers are also associated with R & D with respect to several aspects of 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 may produce a product or a service, i.e. provide advice, information, help or any assistance. 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 are production, marketing, finance and personnel relations. A system is a complex unity formed of many and often diverse parts which are interconnected and are also interrelated. All the parts making a system are subject to common plan for serving a common purpose. A business is a system because the four functions mentioned above are interrelated and they can be coordinated and integrated to achieve common organisation objectives namely, profit and satisfaction. Production function is regarded as a subsystem of the business firm a system within a system. It represents a regularly interacting or interdependent group of items 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, building design, product development. Similarly under systems approach he is interested in the decisions made in other functional areas of the business, e.g. marketing, finance and personnel as his department always interacts with these departments. 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 and which 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 of machines (or manual work) flows through those machines in the same sequence. There is no waiting period between the two successive processes. Time taken for each operation must be equalized in order to maintain steady flow of operations. This is done by increasing the number of machines performing larger operations or by altering the content of the operation. The famous example of flow production is the
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motor car assembly line production. flow production can be controlled more easily and cheaply than batch production. of course, failure in material supply, machines, or quality standards can stop the line and maximum 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 can have large output.
E Line (Product) form of Product Organisation Car Assembly Line
2. Batch Production If the same sequence of operations on all the work produced in manufacturing section is not there, then the flow production cannot be adopted. In that case, the batch production on a small or a large scale will be preferred. Batch producers may arrange their machine shops so that their similar machines are grouped together. Machines are grouped according to type, e.g. the presses in one area, automatics in another, lathes in another, milling machines in another and so on. This is also called functional layout.
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B B En En
3. Unit Production It means a type of production where only one article is produced and it is not repeated, except after a long interval. The article is made as per customers specific needs. It may have standard elements but those are combined in a unique manner. In practice a factory specializing in unit production may produce more than one of a particular article. As long as the number is small, the organisation for unit production may also serve small batch production. unit production and batch production have difference only in degree. Unit or jobbing production differs from batch production only in one respect. In unit production, batch qualities are much smaller (only a few articles custom made) and the variety of components manufactures is much greater than that of batch production. in unit production, the product is costly and the customer wants it designed 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, and timely as well as speedy delivery of goods.
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2. The Employees: The employees including the managers get higher remuneration, stable employment, security of jobs, better working conditions, and above all enhanced personal satisfaction through sense of achievement. 3. The Investors: When the enterprise has good production management, it is prosperous. The investors get higher return of income and their investments obtain capital appreciation also. 4. The Suppliers: The good production management helps bring enduring positive relationship between companies and their suppliers through effective cooperation, better communication and mutual confidence. 5. The Community: Due to better production management, all types of business operating in the community become prosperous. 6. The Nation: When all industries in the national economic, system demonstrate good production management, the entire national economy 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 of business 3. What are the different types of production? 4. What are the benefits of good production management?
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LESSON 2 PRODUCTIVITY
CONCEPT OF PRODUCTIVITY
Productivity is the talk of the day and increase in productivity is looked upon as the key to prosperity at all levels. It refers to the relationship between the result and the means employed, or, to be more specific, between the product and the factors used for obtaining it. It seeks to measure the economic soundness of the use of the means. Consequently, productivity can be considered to be higher if the same product is obtained with more limited means; it will be lower is the same product can be obtained by a larger quantity of the means./ it will be maximum when the highest output is obtained with the minimum expense of resources; it will be the lowest when the resources are not used in the most economical manner with the result that the smallest amount of output required the maximum expense of the resources required for the purpose.
Productivity, in simple works, is a tool which aims at measuring relationship between the results achieved (output) and the means employed (input) to achieve the results, in financial and or physical terms, in relation to given time and conditions.
A few definitions of productivity are given below:
According to I.L.O. Productivity is the ratio between the output of wealth produced and input of resources used up in the process of production
Peter Drucker, defines productivity as that balance between all factors of production that will give the greatest output for the smallest effort.
Shri V.K.R. Menon defines productivity as development of an attitude of mind and a constant urge to find better, cheaper, quicker, easier and safer ways of doing a job, manufacturing an article, and providing a service. It aims at the optimum utilization of the available resources for yielding as many goods as possible at the lowest possible costs.
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According to J.M.S. Risk, Productivity is a physical ratio, it relates to the quantity of goods produced or services given in comparison with the quantity of 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 is the ratio of the output (of product) to the input (of factors required for producing the products) Symbolically.
O P = ---------------I Where P = productivity, O = output, and I - input
The output may be measured in terms of the units of goods produced or the value of the goods and services produced. The input, on the other hand, refers to the combination of the raw materials, machinery, workers time, power, efforts and imagination of the entrepreneur and the managers. A unit of input can, therefore be expressed as one worker, or one hour labour time, or one tone of raw material, or one kilowatt of electricity, and so on and so on and so forth. It follows from above that it is possible to calculate and measure the productivity of each one of the factor comprising the input or of all the factors combined together. The productivity of capital can, for example, be found out by ascertaining the ratio between the value of the output produced and the amount 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 that established definable relationships between an output and the relative production factor. 2. Productivity is applicable to all kinds of activities: Productivity is a general measure applicable to the various functions of different organizations such as business enterprise and non-business organizations like hospitals, military, government etc.
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3. Productivity is applicable to all factors of production: The word productivity 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 exhibit identifiable relationship between output and input. 4. Productivity reflects a general attitude of eliminating wastage and inefficiency in business functioning: The term productivity should not always be taken in its technical sense i.e. a ratio between output and input. Rather, it is a philosophy, an attitude that aims at making the most economical use of scarce resources. It implies development of an attitude of mind and a constant urge to find better, cheaper, quicker, easier, and safer ways of doing a job, manufacturing a product and providing a service. PRODUCTION AND PRODUCTIVITY The term production should be clearly distinguished from productivity. Production refers to the volume, value or quantity of goods and services produced in a given period by a worker, plant, firm or economy. It is the sum-total of the results achieved by the various factors used together. Productivity, on the other hand, is concerned not merely with the total value or volume of output or production, what is more important it shows the efficiency of production. In other words, productivity is relative to the resources used in turning out a certain amount of physical output, while production is used in a more or less absolute sense. The distinction between the two becomes all the clearer when we find that all increases in production do not necessarily result in increased productivity. If increase in total output is brought about with an increase in the input of the factors of production, production will have increased, but productivity may actually decline or may remain constant. Thus, if output is just doubled by doubling the capital investment in machinery, raw materials, the number of workers etc. production is twice as much as it was in the beginning, but productivity does not record any rise and is constant.
Labour Productivity According to the above description of productivity, it should be possible to measure it by dividing the output by the quantity of raw material used or by the kilowatts of electric power consumed, or even by the total time devoted by the workers 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 be expressed as: PL where, PL = = = = O ---------MH productivity of labour Output in terms of units or quantity or value or for actual output Number of man-hours spend on production, and Number of workers employed on production x Number hours worked.
O standard time MH of
Man-hours =
To take an example, if a drill operator marked the centres of three holes on an iron casting and then drilled the three holes on each piece one by one producing 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 input for the following reasons: Labour occupies a central position in the industrial order for man is both the 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 productive activity through its precise importance varies from industry to industry. Labour as a factor of production is easily measurable in terms of man-hours spent on production. All other factors of production are subject to laws of mechanics, that is to say, their output increases in a more or less fixed proportion to their input.
It must be remembered that labour productivity simply indicates the effectiveness 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 the product.
IMPORTANCE OF PRODUCTIVITY Higher productivity is of vital importance for the speedy industrialization and economic development of a country. The available resources have to be used in such a manner that both the total output and the productivity per unit are increased. In this manner, capital will become available for investment in new plants and projects opening the way to economic advancement.
In short, improvement in productivity brings the following advantages to the firm and the community at large: Reduction in the cost of raw materials )through increase in the productivity 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 of productivity) Increase in reserve fund that can be utilized for expansion and modernization. Better standards of living for people through increase in their incomes and improvement in the quality of goods can be made available at cheaper rates.
FACTORS AFFECTING PRODUCTIVITY Industrial productivity is affected by a wide variety of complex and inextricably interwoven factors. They can be categorized as technological, financial, managerial, natural, sociological and cultural, and political factors. The impact of 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, and the vast store of organized knowledge of doing a work. There is an ample empirical evidence to show that technology is the major determinant of industrial productivity. Specifically stated, technological factors that have greatly influenced industrial productivity include: the use of specialized and automatic machines, application of mechanical power, integration of processes, design of plant and machinery, division of labour, simplification and standardization of products and techniques, product mix, location and layout of plant, materials handling, size and capacity of plant, rationalization and automation of manufacturing process and so on.
2. Financial Factors: Finance the backbone of industry is essential to high productivity. It is so because finances facilitate conduct of research in innovations and technological improvements; introduce schemes of modernization, mechanization, automation and rationalization of production processes, and undertake programmes of upkeep of plant and machinery.
3. Managerial Factors: The energetic, enterprising, far-sighted managerial talents coupled with the spirit of adventure, imagination and vigilance can go a long way in affecting industrial productivity. All these managerial qualities, can be used for formulating short and long-term organizational plans; devising sound organizational structure; introducing efficient staffing policies, evolving appropriate motivational, leadership and communication systems; introducing economical and effective systems; and showing bold initiatives in handling organizational conflicts and crises. These managerial factors have a bearing on productivity and help in minimizing wastage and idleness of organizational resources and increasing their contributions in goal accomplishment.
4. Natural Factors: The natural factors such as physical, geographical and climatic differences exert significant influence on the productivity of industrial enterprises. In extractive industries like coal mines, geological and physical conditions directly affect the productivity of workers.
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5. Sociological and Cultural Factors: Sociological factors such as class structure, beliefs and customs of people and cultural factors such as values, norms and accepted behaviour do affect productivity of industrial organization.
6. Political Factors: Political factors especially the governments policies like taxation, financial tariff are major determinants of industrial productivity. Favourable taxation policies, granting tax concessions and incentives, may encourage industries to install latest equipment and machinery. This has a positive impact on the productivity of such industries. Liberal financial policy, that makes available sufficient finances at reasonable rates of interest, would enable the industry to finance their activities to an uninterrupted manner and show better productivity. Similarly, excessive restrictions on licensing, location, big business, are responsible for low productivity.
INDUSTRIAL EFFICIENCY Concept of Efficiency Apart from productivity, another concept closely related to a production system is efficiency. Efficiency is basically an output-cost-input relationship. As explained earlier, productivity is a ratio only between output and input, without any regard to cost implications. Efficiency, however, centres around three variables: output, cost and input. Increased output with reduced cost is an indication of high efficiency. The task of measuring the efficiency of a business unit involves setting up standards of output for various inputs and comparing the achievements with the standards. Deviations from the standards are measured and suitable corrective actions initiated. The corrective actions would include the revision of the standards themselves. In general, an enterprise may be deemed efficient if it is able to satisfy a given demand at the lowest possible of cost besides stimulating the demand. Yet another simplest method of evaluating 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 it assumes special significance for labour. Increasing and maintaining the efficiency of labour is vital to produce more goods at less expenditure of time and energy. Increased labour efficiency means reduced labour cost per unit. Further, an efficient worker would not wear him out easily through unnecessary motions and exertions.
Factors Affecting Labour Efficiency
1. System of Wage and bonus Payment: The various systems of wage and bonus payment (such as Halsey Plan, Rowan Plan, and the like) are introduced to increase the efficiency of the workers. Satisfactory wages enable the workers to have a decent standard of living and turns out a good work as well. 2. Working Conditions: In additions to good wages and systems of bonus payment, the conditions of work also should be satisfactory. The working conditions within the factory must be safe and healthy. These relate to cleanliness, adequate ventilation and lighting, elimination of dust and fumes, sanitary conveniences, drinking water facilities, prevention of over-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 modern factory largely depends upon the machinery, equipment, and tools which they use there, the management should provide them the best possible machinery etc. 4. Internal Organisation: Internal organisation outlines the authority responsibility relationships of organizational positions. Management should take the responsibility to provide an efficient internal organisation to ensure the smooth flow or work inside the factory. 5. Humane Treatment of Workers: The efficiency of the workers also depends upon the treatment method out to them. 6. Provision of Education and Training: Provision of facilities and incentives to workers to get theoretical and practical education is also
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vital. The management must also take upon itself the responsibilities of full training of the workers after their recruitment for a given job. 7. Responsible Trade Union Leadership: A strong workers association and a competent trade union leadership will go a long way in securing more welfare facilities for the workers, which in turn will increase the efficiency of 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.
Enterprises Efficiency For measuring the efficiency of a business enterprise as a whole, the use of 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 production requirements, and debtors in months turnover. in months consumption for
SOME DISTINCTIONS
EFFICIENCY AND EFFECTIVENESS

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The term efficiency should be differentiated from effectiveness. Efficiency establishes relationship between output and costs. as the cost of a factor declines, its efficiency increases. A business enterprise is said to be efficient when it is able to achieve its objectives with lowest costs. efficiency is largely influenced by internal factors such as improvement of standardized procedures, reducing waste and raising quality levels. Effectiveness refers to the ability of a factor or variable to achieve its objective. An organisation is said to be effective when it is able to achieve its goals.
PRODUCTION, PRODUCTIVITY AND MATERIALS MANAGEMENTTHE BASIC RELATIONSHIP The production function has some basic characteristics which involve identical activities in almost all companies. Information must flow authorizing production of specific quantities within a specific period in time. Authorization must state, in clear terms, the product specification, quality and performance characteristics to be built into the product, either to meet pre-establish sales forecasts or as a routine procedure of replacement of finished goods. Once this is done, the routing procedure for Materials Management involves a series of steps 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 without production and operations, which have pronounced sensitiveness to it. All the management systems are designed to raise production and improve productivity. Productivity has been defined as the ability to produce goods and services efficiently and economically. But productivity, as defined by output obtained for a given resources expended, must not only take into account diverse resources employed in the productive process which are fairly measurable (both quantitatively and qualitatively) and brought into being through the common medium of money costs, but must also take into account such intangible factors as management, supervision and control.
Cost can furnish, if only with some difficulty, a dependable index of comparison through the common medium of money value for bringing together such diverse resources like, men, materials, machines as well as capital. reduction in cost, therefore, has long been recognized as an effective measure of productivity analysis for both inter- firm and intra-firm comparisons.
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However, productivity is affected not only by the managements attitude and resourcefulness, but also by the day-to-day operation of the productive organisation as well its supervision and control. Management must not only keep itself abreast of the latest developments and new improvements in the productive processes but also consistently strive to improve skills, methods and procedures in relation to materials in order to increase overall productivity.
Recent shift of emphasis on materials cost-control has again made it incumbent on management to use materials management as an important tool to reach the basic objectives of economic control of product cost and better customer service. Therefore, the need arises to organize and plan, coordinate and control various activities concerned with materials, which then becomes the basis for improvement in productivity. This has a far-reaching effect on corporate goal of profit through elimination of waste and reduction in costs. therefore, it has to be realized that technological changes for improving productivity are not confined to technical innovations, plant size and installation of modern types of machinery and capital equipment necessary for production. It also lies in the inherent nature and quality of materials used in the production process and the methods employed to handle them, which is reflected in the final output cost via lower cost of production. And here, in order to optimize production and reduce cost, Materials Management pl.ays the key role. There may be some dispute over its boundary, but there is no dispute about 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 factors affecting labour efficiency?
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LESSON 3 ERGONOMICS
Ergonomics 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). Ergonomics analyses and designs work equipment and environments to fit human physical and cognitive capabilities. It implies recognition of human relations and individual differences. Ergonomics views management and organisation of work or job primarily from the worker or employee convenience and case. It uses knowledge of anatomy, physiology, psychology and social psychology to reduce the 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 the work. These areas include layout of equipment and machinery, display of information and controls. 2. General Environment: This refers to work environment and working conditions, such as lighting, noise, vibration, air circulation, industrial hygiene and safety measure etc. 3. Other Factors: These cover industrial fatigue, degree of vigilance and control, typical problems of women, old persons, disabled workers etc.
When a worker operates a machines, uses a tool or an equipment, it is absolutely 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, in designing a machine, tool or instrument, in evolving a process of control, in establishing a flow of information, human element and individual human differences must be recognized.
Management is naturally interested in discovering more effective and cheaper ways to perform work. If cost of production goes down, the organisation can have rising earning power placing the business in a more favourable situation to face increasing competition. The sole objective of management of work in is to optimize returns on all resources including the human resources with due consideration to human valued.
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Work Design Work design or methods improvement is one of the techniques used often by management 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 or methods 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 assess human effectiveness and to improve methods of production. Motion study provides evolution of ideal methods of doing the work. Time study provides the evolution 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 prevailing circumstances. Work study is associated with two distinct techniques which are interdependent.
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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 capital investment in plant. It can reveal organizational inefficiency due to job structure or job contents. 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 for setting 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, in performing an operation for the purpose of eliminating useless motions and of arranging the sequence of useful motions in the most efficient order indicating there by one best way of doing the work according to Gilbreth, the pioneer of motion study. Motion Study is the science of eliminating ineffective, unwanted and wasteful motions. It has to do with the selection, invention and substitution of effective for non-productive, and wasteful motions. Its end objective is to find a simpler, easier and better way of performing a job. Management is interested not only in increasing the workers efficiency but also in reducing or eliminating fatigue due to unnecessary months. The better work methods aim at reducing fatigue and making the worker more efficient. The better way is usually a faster and simpler way involving fewer motions and inducing 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 motion economy, management can set the standard of how to do the job. This standard method forms the backbone of the training programme for new workers. The new worker can be given detailed instructions as to how he is to use 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 a series of motions. It is the art of observing and recording the time required to do each detailed element of an assigned job or work. Time studys purpose is to determine how much time is required to perform the job. Taylor, the father of scientific management, introduced for the first time, the concepts of time and motion study for systematic establishment 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 of jobs. 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 under which the job is to be done. 2) Selecting the average worker who is to be studied as he performs the task and 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 standardized performances. When used together, motion and time study concerns itself with the analysis of work and the time required to perform it. In current usage it embraces two facts
(1) Determining the most economical and effective method of performing a task. (2) Determining the time required by trained employees working at a normal pace to perform the job.
Taylor advocated and emphasized time study of the various components of job by means of a stopwatch so that it would be possible to determine a fair days work scientifically. Gilbreth placed more emphasis on motion study than on time study and financial incentives. He was conceived that there was one best way to perform each physical motion necessary in completing a job. Gilbreths identified seventeen basic elements in on-the-job motions, which they christened thebliges.
4. Fatigue Study Meaning of Industrial Fatigue: Industrial fatigue is reduced capacity for further work as a consequence of 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, mind and 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 and inconvenient 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; bad ventilation, 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 family life, 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 of accidents which may cause partial or total disability or even loss of human life. 2. It leads to a low rate of output diminishing returns 3. When a worker is tired, he cannot give proper attention and concentration to 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 low morale due to lack of case at work. Low morale is reflected in the form of frustration, disappointment, non-cooperative and grudging temperament. 6. Fatigue leads to physical, mental and nervous debility resulting in higher rate of absenteeism and/or labour turnover.
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7. A tired worker may be unwittingly responsible for damages of machinery and equipment or machine breakdown creating further loss in production.
In short, non-stop excessive work without suitable rest pauses will be prejudicial to both the parties, employer as well as employees. Above all, it leads to wastage of humand and material resources.
Remedies: The management must adopt concrete measures to eliminate or minimize the adverse effects of industrial fatigue on the business enterprise. (1) Ideal working week is five days or 40 hours week. Two weekend holidays will 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 maintain warming-up effect, interest and enthusiasm in the work throughout the working day. (4) Favourable work environment and working conditions also can prevent to a great extent industrial fatigue. (5) Work study, particularly motion study, can also help the management to reduce undue stress and strain in the performance of a job. (6) Proper plan layout, material handling, designing of machines and equipment 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 can ensure reduction or elimination of fatigue and boredom.
5. Methods Study or Analysis Methods analysis aims to evolve the most effective method of accomplishing a given task or job. Methods analysis attempts to improve existing methods as well as develop efficient methods for new tasks to be performed for the first time. However, it concentrates more on the improvement of existing methods
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or methods for performing the tasks which are already existing. Methods analysis 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 its objectives? 4. What is fatigue? Explain the causes and consequences. What are the remedies to minimize fatigue?
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LESSON 4 PRODUCTION PLANNING AND CONTROL
Production planning and control is one of the most important phases of production management, it is, as a matter of fact, the nervous system of a manufacturing organisation. In manufacturing organisation, it is essential that production is carried on in the best manner at the lowest cost, and the goods are of right quality and are produced at the proper time. This can be ensured only through proper planning of production. but mere planning of production will not solve the problem because production plans are not capable of self-actuating and do not lead to automatic accomplishement. For that the production manager has to take certain steps like, he has to regulate work assignment, review the work progress, and devise methods to bring conformity between the actual performance and planned performance so that plans chalked out are adhered to and the standards set at the planning stage are properly attained and improved. This is the function of production control. Production control, therefore, is a directive function which involves the coordination and integration of operations and activities of different factors of production with a view to optimizing efficiency. Optimum efficiency is attainable by proper planning of work, laying down of exact routes which operations shall follow, correct fixing of time-table within which productive operations shall start and come to a close, uninterrupted releasing of orders and work facilities, and timely initiation of appropriate follow-up steps to ensure smooth functioning of the enterprise. In other words, production control involves planning, routing, scheduling, dispatching and follow-up.
Definition The concept of production planning and control can be better understood with reference to a few definitions:
According to Spriegel and Lansburgh. Production planning and control is the process of planning production in advance of operations: establishing the exact route of individual item, part, or assembly; setting, starting, and finishing dates for each important item, assembly, or the finished product; and releasing the necessary order as well as initiating the required follow up to effectuate the smooth function of the enterprise.
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In the words of Alford and Beatty, Production planning and control comprise the planning, routing, scheduling, dispatching and follow-up functions in the productive process, so organized that the movements of material, performance of machines, and operations of labour, however subdivided, are directed and coordinated as to quantity, quality, time and place.
Prof. Koepke production planning and control as the coordination of a series of functions according to a plan which will economically utilize the plant facilities and regulate the orderly movement of goods through their entire manufacturing cycle, form the procurement of all materials to the shipping of goods at a predetermined rate.
Objectives of Production Planning and Control Basically production control function involves the coordination and integration of the factors of production or production facilities to produce a product at an optimum efficiency. An elaborate definition of production control is given below:
Production control is the function of directing and regulating the orderly movement of goods through the entire production cycle form the requisitioning of raw materials to the delivery of finished products to meet the objectives of (i) customer service, (ii) minimum inventory investment and (iii) maximum production efficiency.
In this sense production control includes planning of production as well as production control proper and also inventory control. Production planning covers setting the requirements of production. Production control covers keeping production within the planned requirement.
Importance of Production Planning and Control 1. Plants Nervous Systems: Production planning and control coordinates and regulates all plant operations just as our nervous system regulates and coordinates the breathing and muscular movement. In a large plant involving numerous parts and components to manufacture a final product such as motor car, production planning and control assumes importance.
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2. Intermittent Process Industry: In intermittent process industry, under batch production, goods are made as per order. in such industries production planning and control become absolutely necessary to assure deliveries as planned and as demanded by customers. 3. Cost Control: Good production planning and control help optimize the utilization of men, machinery, materials and money through effective planning, organizing motivating and controlling multifarious operations in the plant. The net result is reflected in reducing all costs to the minimum. 4. Developing Economy: In a developing economy, production planning and control is a boon for optimum use of scarce economic resources particularly capital, machinery and equipment. Proper planning and adequate control can accelerate industrial productivity and consequently helps develop economy. 5. Rationalization of Plant Operations: Production planning and control helps rationalization of plant operations and helps optimum utilization of plant 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 concerned with the careful preparation of production plans. Production plans determine what will be produced and where, at what type, by whom, and how. For detailed planning of operations, the relevant information may be obtained from several sources in the enterprise. Information about quantity and quality of products to be manufactured may be obtained from customers orders and the sales budget, and information about production facilities may be obtained from the management and the engineering 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 avoiding randomness in production, providing regular and steady flow of production activities, utilizing production facilities to its maximum for minimizing operating costs and meeting delivery schedules; coordinating various departments of the enterprise for maintaining proper balance of activities, and above all, providing the basis for control in the enterprise.
2. Routing The next important function of production planning and control is routing which involves the determination of the path (i.e. route) of movement of raw materials through various machines and operations in the factory. Routing, to quote Spriegel and Lansburgh, includes the planning of where and by whom work shall be done, the determination of the path that work shall follow, and the necessary sequence of operations. To find this path, emphasis is placed on determining operating data, which usually includes planning of where and by whom work should be done, the determinations of the path that work shall follow, and the necessary sequence of operations. These operating data are contained in the standard process sheet which helps in making out a routing in the standard process sheet which helps in making out a routing chart showing the sequence of operations and the machines to be used. If the machine loan chart indicates the non-availability of certain machines, alternate routings may also be included on the routing chart. The most efficient routing may have to be compromised with the availability of the machines at a particular time. In other words, routing establishes the operations, their path and sequence, and the proper class of machines and personnel required for these operations.
From the above, it can be inferred that routing is one of the highly essential elements and prime considerations of production control because many production control functions are closely related processes and are dependent on routing functions. Thus, it is essential to solve the different problems concerning: appropriate personnel; full utilization of machines; and determining with precise degree the time required in the production process.
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3. Scheduling Scheduling is planning the time element of production i.e. prior determination of when work is to be done. It consists of the starting and completion times for the various operations to be performed. In other words, scheduling function determines when an operation is to be performed, or when work is to be completed, the difference lies in the details of the scheduling procedure. To work out effectively, the scheduling, as a part of production control function, determines the time when each operation called for on the route sheet is to be done on the specified machine in order to meet the desired delivery dates. Good control function directs not only the time that each particular operation should start but also indicates the progress of each manufacturing part, the amount of work ahead of each machine, and the availability of each machine for the assignment of new work.
Schedules are of two types: Master schedule and Detailed schedule. Activities, if recorded on plant-wise basis, would be preparing master schedule, while mere detailed schedules are employed to plan the manufacturing and assembly operations required for each product.
4. Dispatching Dispatching is the part of production control that translates the paper work into actual production. It is the group that coordinates and translates planning into actual production. dispatching function proceeds in accordance with the details worked out under routing and scheduling functions. As such, dispatching sees to it that the material is moved to the correct work place, that tools are ready at the correct place for the particular operations, that the work is moving according to routing instructions. Dispatching carries out the physical work as suggested by scheduling. Thus, dispatching implies the issuance or work orders. These work orders represent authority to produce. These orders contain the following 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 to ensure that what is intended and planned is being implemented. Expediting consists in reporting production data and investigating variances from predetermined time schedules. The main idea behind expedition is to see that promise is backed up by performance. It includes the following functions:
(i)
Check-up to ensure that all materials, tools, component parts, and accessories are available at all work centres in specified quantities for starting and carrying out manufacturing operations. Check-up on the status of work-in-progress and completed work at various work stations. This includes collecting information relating to the starting and completion time and date of work completed, status of work-in-progress relative to scheduled completion dates, position of movements of materials, component parts, and sub-assemblies within the plant, and inspection results. Preparation of progress records and keeping the control boards up-to-date. Reporting to manufacturing management on all significant deviations so that corrective action may be taken. It also includes reporting to production planning department so that future plans may be adjusted.
(ii)
(iii) (iv)
Thus production planning and control by completing the above discussed phases 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 production planning and control is a never-ending process, and its various functions are inter-dependent.
REQUIREMENTS OF AN EFFICIENT SYSTEM OF PRODUCTION PLANNING AND CONTROL The scheme of production planning and control system will require reliable information about productive capacities and production standards, a sound organizational structure, and trained and competent personnel, for it successful operations. 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 machine and 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 be used. d. Accurate knowledge of job analysis particulars as to the work to be performed, and the type of skill required. e. Information relating to completion times of all previous operations and their actual cost. f. Accurate knowledge of operation method, machine layout, and the best 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 specifications, and their delivery schedules. 2. Sound organizational structure: (a) A clear delineation of the authority responsibility relationships in the production planning and control department (b) Full and active support from the top management 3. Trained and competent personnel: hand, their quality
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(a) Possession of requisite qualities to understand and perform various operations. (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 proper system of production planning and control is that it renders prompt and economical service to customers. This is possible by proper scheduling and expediting of manufacturing operations which enables a business enterprise to meet delivery dates. Not only that customers are served on time, but they also get quality products. 2. Lower Investment: Proper production planning and control holds investment to the minimum necessary level by avoiding unnecessary stock inventories and machines. 3. Reduced Costs: Good production planning and control means minimum waste 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 system avoids rush orders, maintaining an even flow of work, and providing congenial working conditions. All this means avoidance of speeding up of workers, maintenance of efficiency and productivity and healthy attitude of workers towards work and work organization. These elements determine the morale of the workers. 5. Better Public Relations: A well-planned and well-controlled production system not only reduces investment and costs for the enterprise, but also improves its image with the outside public. A company that provides better quality products on announced time schedule is looked favorably upon by the general public.
Thus, a good and efficient system of production planning and control is beneficial 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 the work planned and work completed.
Gantt schedules show how much time was planned for each activity in a project and how much of each has been completed upto the present date. Their popularity can be attributed to their simplicity and case of use. Like any good schedule, they show, at a glance, how the project is progressing. They also show the sequence of events or activities.
Two basic types of Gantt charts are used extensively in production control work, namely, order control chart and machine load chart. Both contain a horizontal time axis. In the order control chart which shows both planned and actual progress for various orders, the orders being charted are listed on the vertical axis. In the machine load chart, the various machines or work centres are listed on the vertical axis. This pair of simplified matching Gantt charts is illustrate below:
Order Control Chart Order No. 1 No. 2 No. 3 A 009 January A 007 February C 009 B 008 A 007 A 007 C - 009 March
Machine Load Chart Machine No. 1 No. 2 No. 3 A 009 January A 007 February C 009 B 008 A 007 A 007 C - 009 March
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There job orders to be processed on three machines are shown. In the order control chart, the dotted line shows that work is progressing according to the schedule (in the month of January) which is indicated by the solid line. Apparently order B-008 was started about one week prior to the regularly scheduled starting date, and it is about two-thirds, rather than just one half, completed, as was originally planned. Order C-009 was processed on machine No. 3 according to schedule, but there ahs been some delay in getting it started on machine No. 1. This situation probably would lead to expediting to see what was causing the delay. The machine load chart portrays the information in a slightly different manner. For instance, the first time shows that order A-007 was completed satisfactorily on machine No. 1 but scheduled work in order C-009 has not been started.
The Gantt chars shown in the figure may be used individually or in pair. Their usefulness lies in the fact that they portray plans and progress in such as manner as to facilitate comparison of the two. These charts may also be used to keep track of which machines are down for any reason. This chart is dynamic and must be constantly updated with current information. In order to make Gantt chart more useful, use of computers can be made in which software package generate Gantt charts.
INSPECTION Production control is introduced not merely to ensure that the goods will be produced on time, but is also meant to see that the goods produced are of the right quality. This is done through inspection of the products manufactured. Since the purpose of inspection is to compare the products with the standards of quality set earlier, it too, can be regarded as an effective agency of production control. One way of inspection is to examine the quality of finished products at the end of the process of production. But this may involve too much of wastage in the form of rejected products. To minimize the rejection of defective products, inspection may be conducted at every stage of production. similarly, materials, machines and tools may be inspected against certain established standards to find out their performance and accuracy. Inspections may be made either in respect of samples selected at random or of each particular product (i.e. cent percent inspection). The inspectors may inspect materials, semi-finished and finished products either at the work bench or in special laboratories on testing rooms.
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Inspections vs Quality Control Inspection shall be differentiated form quality control. Inspection involves checking to see if a product meets or does not meet a stated standards. The result of the inspection process is acceptance or rejection of production. quality control, as distinguished from inspection, is directed towards future production rather than the past production. also, inspection methods only enable one to be wise after the event. Quality control serves to make one get wise before the event. Truly speaking, quality control is a basic function, while inspection is one technique of executing it. Quality control sets burglar alarm which prevents law from being broken. Inspection, on the other hand, is simply the police dragnet that catches the burglar after the law has been broken. Quality control 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 product these have to be satisfied either by purchaser form an outside source or the firm may seek the atternative course of satisfying the need by undertaking producoitn within the firms own plant for reasons of cost, convenience and control, which outside supply source do nto always provide. For non-manufacturing organisatoins, such as hospitals, research and educational institutions, government agencies and commercial establishments, it is service rather than the product that mattes. Even in manufacturing organisatoins, the possibility of becoming ones own supplier receives scant attention, yet it is vital strategy for efficient materials management. Probably because most concerns do nto have a clear-cut policy on make or buy, they prefer to decide each 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 their manufacturing operation. On the other hand, there are companies which believe in specializing in a limited production line, even if an opportunity exists for the manufacture of the part or component.
Theoretically at least, any manufacturing concern has three basic alternatives in sourcing 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 assemble others.
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(3) Manufacture the part or product completely An organization cannot manage its operations on the basis of the third alternative alone, even thought it may have a large base of an integrated operation starting from extraction of basic raw materials down to final production of marketable finished goods. And some companies prefer to stick to the first alternative because they are either a merchandising firm or an engineering organisatoin and the part or product is not suited to their manufacturing facilities, or may be due to the patent or specialization of the vendor or the supplier. As a general rule, therefore, a manufacturing company will make some of its parts or components and buy others from outside sources, either in a semi-finished or finished state. Even when procurement of an item by purchasing looks bright, the question of make-or-buy must be settled first in the form of an economic analysis of cost, if no definite company policy exists. Such decisions have obviously to be made before making the purchase requisition and placing supply order. often it is outside the scope and responsibility of the materials department to find an answer. Cost considerations and conditions in the supply market may suggest a change even when the part or product was formerly purchased. 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 this reason, cost comparison is one of the first considerations that confronts the decision-maker, but it may not always be the most important one. The estimated total cost of production must be compared with the cost of purchase to know the pay-off. It is apparent, therefore, that when a make-or-buy decision has to be made, what matters is not purchasing policy or source of supply but the consultation and cooperation of production, cost, quality another technical departments. Even marketing executive may have to be consulted. A simple make-or-buy decision may have such economic implications as that may effect the total organisation interest on a much wider scale which can even overthrow a product or threaten product stability in a highly competitive market.
Formally, make-or-buy decision of such vital importance are made by top-management and the materials manager here plays the key role in collecting, analyzing and interpreting data. He also acts as a coordinator between other departments so as to assists top management in decision-making. A decision based on minimum cost-point has to be located 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 determined for 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 Gantts 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 production management relates to the suitable location of plant. The chief object of an industrial concern is to maximize profit through the minimization of cost of production. this is possible when the firm is of the right (i.e. optimum) size and is located at a place which provides economies of all kinds in production. In other words, optimum size has to be combined with optimum location if profit is to be maximized. It must be clearly understood at this stage that optimum location does not necessarily imply the most favourable location where labour costs are lowest, transportation cost are minimum, and the water is the best, but rather where the entire group of considerations is the optimum size. Just as the optimum size is determined through a reconsiderations is the optimum size. Just as the optimum size is determined through a reconciliation of the various relevant forces, the optimum location is also the outcome of proper reconciliation of various considerations relevant to the question.
It is responsibility of the promoter or entrepreneur to search for a location which yields maximum advantage to the business enterprise in terms of raw materials, labour, market, transportation and communication, power and fuel, storage, climate, security, and the like. It is important for the entrepreneur to choose a location which meets not only the present requirements of an enterprise, but also the changes likely to occur in the foreseeable future. Consideration of this factor is important for an enterprise which proposes to undertake expansion and growth programmes without the botheration of searching for alternative locations.
The problem of location has several technical, economic, managerial, social and strategic implications. These various aspects vary in their importance and direction at various places. So that al the relevant consideration are fully take into account, it is imperative for the promoter or entrepreneur to be extra careful in choosing a location. In medium and large-sized enterprises, the location study is usually conducted by a special committee consisting of members having a through understanding of the technical, managerial, social, and political aspects of location. When the location problem is very complex, it is expedient to use an outside consulting firm that specializes in location studies.
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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 on the cost of production as well as on the effectiveness of marketing. It is one location that the ability of a business at a minimum cost, to maintain a sufficient labour force, and to serve satisfactorily its customers. 2. Effect on the Life of the Business: The factor of location assumes greater importance because once a plant location is chosen, the enterprise is compelled to remain in that location for may years. Any decision to change the location later on may mean a substantial loss in the value of the assets and additional cost in resetting the business. Thus, errors in decision-making in the realm of plant location often lead to long-term problem which are very difficult to overcome.
OBJECTIVES ACHIEVED THROUGH LOCATION 1. Holding Capital Investment and Operating Costs to Minimum: The foremost objective in selecting an ideal location should be to ensure a minimum amount of investment in capital assets and also lowest possible operating costs. 2. Ensuring Smooth Operation of the Business: Another objective that an entrepreneur can hope to achieve through ideal location is the smooth running of the business enterprise. For smooth operation, a business enterprise 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 these services and facilities available with regularity and in sufficient quantities helps a business enterprise in conducting its operations smoothly and economically. 3. Promoting Employee Welfare and Public Needs: an ideal location, by making available various facilities and resources, helps achieving employees welfare and public needs. For instance, if the enterprise is located where educational, recreational, medical, religious and security needs of employees are met, they will certainly feel attached to the enterprise and would develop their loyalty and commitment for it. 4. Coordinating with Government Policies: Another objective that may guide an entrepreneurs decision to select a particular location may be
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that of coordination with government policies. The governments policy on location veers around one important consideration, that is, a balanced regional development. This policy is sought to be accomplished through various positive and negative measures. While selecting a location for enterprise, the entrepreneur must ensure that his decision does not conflict with the governments policy.
WEBERS DEDUCTIVE THEORY Alferd Webers (a German Economist) analysis was one of the first attempts to base location decisions on some sort or analysis. Webers theory is based on the study of general factors which determine the framework of industrial orientation. In his pure theory, Weber classified the causes influencing location into two categories:
(i) primary causes of regional distribution of industry regional factors; and (ii) secondary causes responsible for redistribution agglomerative and deglomerative factors. of industry
Regional Factors Weber maintains that the distribution of an industry between regions is largely the result of two factors, transportation costs and labour costs. Transportation costs have to be incurred by an industry in respect of raw materials, fuels, and markets and since these are not available at the same place the industry has to choose its location in such a way that its total transportation costs will be the minimum. The relative influence of materials and markets on the development of industries depends upon the nature of the materials as well as the nature of their transformation into products. In this connection Weber distinguishes between ubiquitous and localized raw materials. The former type of materials are available almost everywhere such as brick-clay and water, localized materials, on the other hand, are available in specific location such as wood, coal, iron are cotton, jute etc. he further classified localized raw materials into two classes: weight losing and non-weight losing. Weight losing (or impure) raw material are those which lose a high proportion of their weight in the process of manufacture and contribute only a small fraction weight to the finished goods. Others like cotton, wool, etc, add the whole or bulk of their weight to the finished product and hence are called pure materials. Weber holds 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 of raw materials. Textiles, automobiles, oil refining industries, on the contrary, use pure raw materials and are best located near the market. Moreover, quite a large number of such industries is also localized near the centre of raw materials where better regulative in the supply of raw materials is assured. Weber explains this position by what he calls the material index, which is calculated as follows:
Weight of the Localized Materials Materials Index = -------------------------------------------------Weight of the Finished Product If this production is high, i.e. equal to or more than unity, location tends to be attracted 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 of minimum transportation costs and according to him this is mainly in order to take advantage of favourable labour location. In thickly populated areas, differences inlabour costs are more marked, and therefore, industries in such areas are mainly attracted to labour locations. The attracting power of labour location depends upon two main factors, labour costs index and locational weight. The ratio of labour costs of the manufacturing industry to the weight of product has been termed by Weber as the Labour Cost Index and the weight to be transported during the whole process of production as the Locational Weight. The extent of variation caused by the varying labour costs can be determined by its Labour Coefficient, that is, the rates of the labour costs to the locational weight. Weber forms the laws of labour orientation. An industry deviates from transport locations in proportion to the size of its labour coefficients, when labour 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 the regional factors discussed above. Simply stated, An agglomerative factor is an advantage in the form of reducing production or marketing costs which result from the fact that production is carried on at one place, while a deglomerative factor is a cheapening of production which results from the decentralization of production. facilities of banking, credit, insurance, better communications etc. are such agglomerative factors which encourage concentration of industries at certain places. Industries having a high proportion of manufacturing expenses in their total costs of production, have a tendency to agglomerate and further if the manufacturing expenses contain a high proportion of labour costs, the tendency to agglomerate is even stronger. The concentration of industries usually causes a rise in local taxes and land value, and this causes the industry to decentralize. This decentralization would not reduce the cost of production and distribution. This tendency to decentralize with a view to cheapening cost of production and distribution is called deglomeration.
Split Location Weber has also considered the question of split location, that is, the location of an industry at more than one place. Locational advantage may bring together several industries as well as split up different processes of the same industry between different localities. Split locations become favourable when an industry uses several materials in independent stages of production and when a considerable 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 in the plant located near the source of such materials. While, the plant using weight adding (i.e. pure) materials is located near the place of consumption. Paper industry offers a suitable example of such splitting up of location. The manufacture of pulp may be undertaken near the raw materials supplied and that of paper near the market.
Criticism of Webers Theory (1) The theory is over-simplified and departs so widely from the reality that it can hardly serve as the basis for a scientific analysis of the factors of industrial location. (2) The selection of factors made by Weber is rather arbitrary. He has omitted many important factors affecting localization of an industry like
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climate, historical factors, personal factors, level of taxation, State patronage etc. (3) Webers assumptions regarding labour are wrong or unrealistic. For example, he assumes that centres of labour supply are fixed. With increased mobility of labour, this is not an important factor. (4) The assumption regarding fixed consumption centres, too, does not hold good. The consumers of various types of products are quite often so widely scattered that it is impossible to pinpoint a fixed consumption centre in relation to which costs of transport have to be calculated. (5) The theory is formulated mainly in terms of mathematical coefficients rather 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, primary factors, while the less important ones are referred to as secondary factors. It is, however, possible that the secondary factors may exert a greater degree of influence on the location of an industry than any of the primary factors. The distinction is, therefore, not clear-cut. Further, considerations of broader national interest must also be given due regard.
The various factors which usually determine the location of industries may be described as under: (A) PRIMARY FACTORS 1. Raw Material
From the point of view of minimization of transport costs, the nature of raw material is of great importance. Certain raw materials are of weight-loosing character, say sugarcane. Such materials lose much of their weight while passing through the process of production. As a result, the finished product is lighter than the raw materials used in its manufacture. It is well known that ten tones of sugarcane are needed to manufacture one tone of sugar. Therefore, a good deal of economy in transport costs can be achieved if industries which use weight-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 greatly reduce volume of the finished product. There are some raw materials which are common and are found everywhere. Such materials, are called ubiquities and do 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 must view the supply of raw materials from other different angles also viz., Whether the raw materials are home produced or imported in the latter case the unit must be established near ports. If there is financial linkage with raw material suppliers so that the raw materials 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 advised to consider a location which has auxiliary raw materials also or has market for the by products of the industry.
2. Market The industries which use pure raw materials, i.e. materials which do not lose much of their weight while being converted into finished goods, are generally located near the markets. Cotton is a good example. Upto ginning, cotton is a weight-losing material, therefore, ginning factories are generally found near cotton markets. After ginning cotton becomes non-weight-losing, because out of a hundred pounds of cotton about 95 pounds of cloth can be obtained. This is 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 not only in the transport cost but also in the personal touch between the producers and consumers. In addition, the increased demand for rapid and regular delivery of small consignments and the practice of offering after-sale services made it imperative for the producers to be near the consumers or at least to open branches in those centres.
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Thus, the choice between the point where materials are produced and the point where finished goods are sold is generally made on the basis of the weight-loosing character of the materials.
3. Fuel and Power The problem of fuel and power can also be solved with reference to the nature of raw materials. The industries which use very large quantities of coal are generally located near the coal mines. The chief reason why steel mills are generally found near coal mines rather than iron-ore mines is that the coal loses its weight completely. The development of electric and diesel power has reduced the importance of coal.
4. Transport The facilities for transport available in a particular region and the policy of freight rates are also of great importance. For instance, previously the Indian railways had preferential freight rates for raw materials moving towards the ports and for finished goods moving from the ports to inland centres. This encouraged starting of industries in port tows like Bombay or Calcutta. Availability of cheap transport (water transport) is, however, one of the chief reasons why the jute industry is localized on the two banks of the Hooghly.
5. Labour Another important factor influencing the location of industries is labour industry can be started only at a place where the right type of labour is abundantly available at reasonable wages. For example, tea industry depends not only on the right soil and climate, but also because abundant cheap labour was available. The wage levels in an area, the influence of trade unions and the character of labour unions are some aspects of labour force which influence the decision of the entrepreneur to locate the plant in a particular region or even at a 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 and attracted industries. As a place gains in industries, certain facilities usually begin to develop. For example:
Transport facilities are developed because railways and other agencies find it economical to serve the centre. Facilities for repairs and maintenance begin to be provided by specialist firms. 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, but it has a very important advantage. Industrial atmosphere may be said to exist where people living at a place think instinctively of industry and learn the intricacies of machines without much effort. This helps the growth of even new industries.
3. Special Advantage of a Place: The special advantages offered by a place also have some importance. For example, previously some of the princely States charged little or no income-tax and also offered some advantages in the matter of labour.
4. Soil and Climate: The question of soil and climate is important particularly for agricultural products like tea, coffee and rubber, but due to scientific inventions and developments it is becoming less important for most of the manufactured goods. Previously the cotton textile industry had to be started in a place where the climate was damp but with artificial humidification, cotton textile mills can be started also in completely dry places provided other factors justify the starting 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 the personal likes and dislikes than purely economic considerations. It must, however be recognized that such locations cannot endure unless they prove to be economical enough in the long run.
6. Historical Factors: Factors like personal fancies of entrepreneurs or historical accidents may lead to the development of a place as the centre of an industry. Dr. Om Prakash cites the instance of Kanpur which has developed as the premier textile centre of northern India but has hardly any advantage. It grew as such largely because some pioneers especially Europeans chose Kanpur as the centre of their cotton activity.
7. Political Stability: The lack of political stability in a State makes for uncertainty in the attitude of State Governments to industry. In locating plant, it must be seen as to whether the State has a record of political and economic stability. It is common knowledge that many industrialists have moved out and many more are planning to move out of West Bengal because of adverse political and law and order situation there.
8. Special Concession and Benefits: Each State Government has been trying to promote industrial development in relatively backward regions by offering various concessions and incentives in the 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. These considerations, however, ignore the broader national interest and, as pointed out earlier, lead to concentration of industries in a few places. This is clearly undesirable from the point of view of national defence. From the point of view of 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 necessary that the distribution of industries over the various region of the country should be equitable.
REVIEW QUESTION: 1. Bring out the importance of plant location. 2. Discuss Webers Theory of plant location. 3. Enumerate the factors that determine the plant location.
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LESSON 6 PLANT LAYOUT

Plant layout deals with the arrangement of physical facilities and manpower required to manufacture a product. Plant layout, in a more specific sense, covers the planning of space requirements for all activities in an industrial enterprise offices, rest rooms, warehouses and all other facilities associated with the total manufacturing plant with a view to enabling the plant to function most effectively. The over-all objective is to plan the arrangement of facilities and personnel so that the manufacturing process is carried out in an effective manner. This objective involves a minimum of movement on the part of both materials and men in the organisation.
Plant layout is very complex in nature as it involves concepts relating to such fields as engineering, architecture, economics and business administration. Since a plant layout, when properly designed, encompasses all production and service facilities and provides for the most effective utilization of men, materials, and machines constituting the process, it is a master blueprint for coordinating all operations.
OBJECTIVES OF PLANT LAYOUT Plant layout facilitate the manufacturing process by maintaining balance in 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 manufactured and volume of production. The type of product affects plant layout in many ways. Small and light products can be easily removed from one machine to another and from one man to another, and therefore, for such products more attention can be given to machine locations and the handling of materials. Similarly, the volume or rate of production has a significant bearing on the plant layout. In plant layout it is reflected in the total size of the operation to be planned as well as being the principal factor in the type of manufacture to be employed.
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 and equipment. Variations among the kinds of processes to be carried on in different industries necessitate considerable difference in plant layout for the respective types of manufacturing.
3. Materials Materials storage and materials-handling are probably then most important factorfs to be considered in planning a layout. For materials storage, factors such as rate of use of the material; space, volume and weight of materials; flour loan capacity, ceiling height; method of storing should be given special consideration. This will affect the space as well as the efficiency of the production process in the plant.
4. Personnel While laying out a plant, safety and comfort of the personnel must be given a special 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. A proper 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 the connecting link between the factory and the surrounding community. The building itself, either existing or as proposed, will often have a bearing on the layout. Working conditions such as illumination, ventilation, heating, noise and vibration, temperature, employee facility etc. affect the layout.
Each and every one of the above factors presents a problem to the plant layout engineer. One must realize that a solution that is completely favourable in all ways is seldom reached. In fact, some of them are rather in opposition to each other. Nevertheless, each represents an important problem which the plant layout engineer has to consider. As in most design solutions, a compromise must be made to attain an optimum solution.
TYPES OF PLANT LAYOUT There are three basic types of plant layout product, process and fixed position layout. It is rate to find that only one type is present in a single factory, usually they exist side by side. Selection of the basic plan to be used depends upon many factors; however of these, the type of product and type of manufacture are of significant importance.
PROCESS OR FUNCTIONAL LAYOUT In the process layout, all facilities for performing the same or similar functions are grouped together, i.e. lathes, milling machines, drill presses etc. are found in separate areas. a part being worked on them travels from one area to another according to the established sequence of operations through which it must 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 has the following characteristics:
Allows specialized supervision; Facilitates provision of services; Failure of machines or absence of workers does not disrupt production excessively; Good machine utilization; Operations may be missed and bad jobs delayed because of the necessary flexibility of control, High work-in-progress.
Advantages of Process Layout 1. Flexibility: Process layouts are noted for flexibility which is possible in terms of products which can be manufactured and the jobs that can be done. 2. Financial Investment: Process layout puts much less strain on the scarce financial resources of the organisation. Under it, general-purpose machines with usually less cost are used. It require typically lower set-up and maintenance costs. this layout requires less duplication of machines and supporting equipment. Besides, general-purpose machines do not depreciate or become obsolete as rapidly as specialized machines used in product layout. All these result in usually a lower financial investment in machines and other equipments. 3. Working Conditions: Process layout facilitates installation of machines in separate areas without any dependence on other sequences. Process layout makes it easy to isolate machines which produce excessive noise, vibration, fume or heat thereby resulting in heavy working conditions in the work place. The effect of such working conditions is reflected in terms 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 production on broken machines. This reduces the productive capacity of succeeding operations in the ratio of one to the total number of machines on the labour 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 other equipment or work station. 5. Supervision: under process layout better and efficient supervision is possible through specialization.
Disadvantages of Process Layout 1. Inefficient Materials-handling: Efficient materials handling is difficult to practice in process layouts. Back-tracking and side-tracking materials become common and are costly and it eliminates the savings which result form the use of conveyors, chutes and other fixed-path equipment. 2. Unbalanced Line of Production: Process layout do not lend themselves to the maintenance of balance line of production and they make it difficult to carry out routing and scheduling function for they require special routing for different jobs. Therefore, execution of orders is usually delayed and production rate is hampered. 3. High Inventory Investment: Compared to product layout, inventory investments are usually larger in case of process layout. This ties up more working capital in work-in-progress inventory. 4. High Cost of Supervision: Under process layout, the number of employees for supervision per supervisor is less and results in reduced supervisory span of control and increased cost of supervision. 5. Less Mechanization: Less mechanization of halding is the characteristic of process-laid-out plants, so handling efficiency is less and cost is high. Because of this, the chances of accidents and fatigue hazards are greater resulting 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 on special 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 for two 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 plant layout. In it, all the machines of each kind needed for balanced operations on a given production or assembly line are located adjacent to it in labour operation sequence. In product layout, all plant facilities machines, men and materials are arranged according to the sequence of operations required to produce a specific product. A continuous production system usually utilizes a product layout.
Characteristics of Product Layout Layout by product is associated with mass and large batch production and has the 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 of product layout are essentially the same as the disadvantages of the process layout 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 records needed, 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 the capacities 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 the production process over a considerable period of time. 3. Where time and motion studies can be made to determine the rate of work 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 by mechanical 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 layout exists and is known as a fixed-position layout. In a fixed-position layout, the material or principal component is fixed or must remain in fixed position and facilities move to and from the product. Examples of this type of layout can be found in the building of aircraft, ship-building, ship-yards, and civil engineering works like bridge construction cases etc.
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A fixed position layout has several advantages and disadvantages. For example, this type of layout can accommodate variety in product, changes in design etc. Also breakdowns on one part of the project do not necessarily stop the entire production operation. The main disadvantage of this layout is, poor facility 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 minimize movement of machines and personnel, facilitate the manufacturing process, and reduce the cost of production. while the techniques employed in making a layout are normal work-study techniques; however, it cannot be set down with any 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 rapidly modified to meet changing circumstances. 2. Maximum Coordination: Layout requires to be considered as a whole and not in parts. It should be a master blueprint for coordinating all operations. It should clearly state the interrelationships between different machines, departments, and personnel and should provide for coordinated efforts. For example, entry into, and disposal from any department should be in such a manner that it is more convenient to the issuing or receiving departments. 3. Maximum use of Volume: Maximum use should be made of the volume available: conveyors can be run above head height and equipment can be suspended from the ceiling. This principle is particularly true in stores, where goods can be stacked at considerable heights without inconvenience, especially if lift-trucks are used. 4. Maximum Visibility: All men and materials should be readily observable at all times, there should be not hiding places into which goods can be mislaid. This criterion is sometimes difficult to fulfill particularly when an existing plant is taken over. It is also a principle that may be resisted if such, places add to the face lifting of the plant.
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5. Maximum Accessibility: All servicing and maintenance points shodul be readily accessible. For instance, a piece of plant placed in front of a fuse box will impede the work of the electricians and may cause an unnecessary 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 increase its value, consequently any unnecessary or circuitous movements should be 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 where handling is unavoidable it should be reduced to a minimum by the use of conveyors, lifts, chutes, hoists and trucks. Materials being worked on should be kept at working height, and never placed on the floor if it is to be lifted later. 9. Inherent Safety, Maximum Security, Visible Routes: All layouts should be inherently safe, and no person should be exposed to danger. Care must be taken not only of the persons operating the equipment but also of the passers-by, who may be required to go behind a machine, the back of which is unguarded. Similarly, safeguards against fire, moisture, theft, and general deterioration should be provided, as far as possible, in the original layout. Definite liens of travel should be provided and, if possible, clearly marked, no gangways should ever be used for storage purposes, even temporarily.
PROCEDURE FOR DESIGNING A PLANT LAYOUT The steps which are logically necessary in order to prepare a satisfactory plant layout are: 1. Obtain basic production data, starting with a list of operations to make a product, the machines to be used or processes to be employed, and the sequence or route to be followed. 2. Prepare an assembly chart, obtaining and analyzing and coordinating the basic production data, so that a flow process chart can be derived showing the path taken by materials and labour/machine requirements.
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3. Calculate equipment requirements needed to produce the particular production rate, making allowance for machine capacity, machine utilization etc. 4. Materials-handling plan containing decisions on whether the movement of materials between machines, work stations, or process plant is to be by means of conveyors, cranes, hoists etc. materials-handling is a very significant cost factor in production and this aspect of production should receive very serious considerations at this stage. 5. Space allocation study: Since site considerations chiefly relate to the case of transfer of materials between the various operations, factors related to materials-handling dominate at this stage. 6. Prepare fist draft layout plan. This will involve using the site plan and incorporating on it the various machines and materials-handling equipments needed as a result of the initial assembly chart and flow process chart. 7. Prepare first draft flow diagram. This will show whether the flow diagram is good and free from complex movements. 8. Revise layout and prepare revised flow diagram as necessary until the best arrangement is obtained. 9. Plan individual machines, work stations, or plant in relation to access for work in process, for repair and maintenance of plant and for services such as electricity, gas, high-pressure air, etc. it is also necessary to ensure that there is adequate illumination. 10. Plan materials-handling equipment in detail, as related to the individual machines, work stations, or process plant. 11. 12. Plan and locate all service supplies to each part of the layout. 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 and disadvantages? 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 controlling the kind, amount, location, movement and timing of the various flows of commodities (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. Better and scientific management of material can not only bring about substantial cost savings but also result in improved production capacity of plants, savings of labour time, reduction in inventories, reduction in storage space, reduction in damage 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) transport of material from the producer to the consumer.
PURCHASING Purchasing is indeed an art and required experts to make scientific purchases in modern markets. It is a technical aspect and requires the servicers of professionals. Purchase has a wider meaning. It is more than mere buying. It is considered a managerial activity and it includes planning, organisatoin and control of a wide range of interrelated activities. Purchasing is very closely related to production as well as marketing departments of a manufacturer. The top management is responsible to lay down or formulate certain principles on which purchasing action is based.
Purchasing Policies provide the guidelines for a planned course of action in performing the managerial function of purchasing. A sound purchase policy adopts the golden mean and avoids either excessive speculation or over conservative buying Economical, efficient and timely purchase can appreciably reduce the cost of procurement and consequently, the cost of production and/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 a time and at a bargain price with the object of reselling the stock at a higher price 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 current needs. Small-lot purchases are made through small and frequent orders. In this case, the buyer has to sacrifice quantity discount. But he incurs minimum risk of 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 his supplies may be very few or limited. It is called concentrated buying policy. If purchases are made from a large number of sources, it is termed as scattered or diversified buying policy.
3. Reciprocal Being Policy It is a good policy to place an order with a seller who is your customer. For example, a sugar factory agrees to buy sugarcane from a farmers cooperative society, 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 and parts or components used in production. standards of quality and quality control are essential in manufacturing.
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2. Quantity: The large-scale purchases do give economics and reduce unit cost of purchasing. However, the purchase department must avoid both overstocking or under stocking. In determining how much to buy, purchase department should consider the amount in stock (plus amount on order) and the amount wanted at the end of the purchase period. Availability of space and capital will also determine the quantity to be bought.
3. Price: Price is an important element in the cost of production of manufacturer. A good purchasing policy will always prefer fair and reasonable price for services offered by the seller.
4. Terms of Delivery: The right time of delivery plays an important role in purchasing. Delay or default will be very costly. Proper planning and programming in purchasing can ensure 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 right supplier. Efficiency, financial resources and team sprit will determine the seller s reputation and goodwill. First preference should be given to the local suppliers, if they offer fair and competitive terms of sale. This will incidentally assure quick and timely delivbery and local patronage also.
Principles of scientific purchasing There are six Rs 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 similar cooperation is essential between purchase sales and finance departments.
The purchase manager is called to organize and manage all activities relating to purchasing of goods (or materials and supplies) as per needs of sales (or production) department. The purchase department is called upon to purchase the right type of goods, at the right time, from the right suppliers, and at right prices. The activities of the purchase department are briefly listed below:
Maintaining up to date and reliable records indicating availability of goods, sources of supplies, their possible prices and quantities. Negotiation and contractual work with suppliers, i.e. search of sources of supplky and contacts. Securing of quotations by placing inquiries on the suppliers and keeping up-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 and passing 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 and sincere. He must have adequate and up-to-date knowledge of sources of supply, general business conditions, marketing techniques, trade practices, commercial laws, office organisaton and routine.
PURCHASING METHODS The following purchasing methods are generally followed by a purchase manager.
1. Market Purchasing: Market purchasing is a sound method of purchasing according to the conditions prevailing in the market. Such a method can take full advantage of price 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 of market tendencies, if the judgement is accurate means large profits and if it goes wrong, it will mean large losses.
2. Contract Purchasing: The required stocks of goods are purchased under contract for a fairly long period with fixed suppliers. the buyer can get continuous supply of goods at a fixed price. This requires minimum record keeping and storekeeping. Limited capital will be locked up at a time. However, under contract purchasing, the buyer cannot get the benefit of favourable change in the prices, e.g. when prices are falling, be cannot get goods cheaper under this method. This method is useful when prices are stable, and not liable to wide fluctuations.
3. Forward Purchasing Purchase in advance for a specified future period through Forward Delivery Contracts is a good practice, particularly when an organized physical as well as future markets for commodities. The buyer in the cash market can hedge his cash purchases in future market through hedging contracts. This practice is common 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 joint purchases at very reasonable prices. In the retail field, group buying or cooperative purchasing is very common. Group purchases would offer better selection of merchandise, quantity discounts, favourable prices; they also bring about economy in express of procurement.
5. Buying Job Lots:
Occasionally, the liquidators of insolvent concerns may sell off the goods at rock bottom prices or some concerns may sell off their stocks to get hard cash for some other business (firm going out of business). The manufactures may also sell their stocks of second or inferior quality (rejected for exports) at very low prices in the market. The accumulated stocks may be sold by the producers in job-lots at tempting prices.
6. Purchase through Commission Agents: When supplies are procured from foreign manufacturers or from a distant market or from organized wholesale markets, there are two alternatives. There can be own permanent buying office to make all purchases in a distant market or can send their own buyers to such markets for securing supplies. This method is very costly. There is another alternative, i.e. to appoint commission agents or middlemen who possess expert knowledge and local contacts in that market.
Purchasing agents and resident buyers are wholesale establishments primarily engaged in buying merchandise (or goods on sale) on an agency basis in the home 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 a centralized purchasing department to make purchases on behalf of all the departments situated in one place. But there is a controversy regarding the desirability 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 favour of centralized purchasing are:
(a) The purchasing department can be staffed with highly paid officials. Even otherwise, the mere fact that some officers have to devote all their time on purchasing will also make them experts. (b) Inspection staff can be engaged to see that goods of proper quality are purchased . (c) When contracts are negotiated, favourable terms can be obtained because the quantity involved will be large. Moreover, supplies can be arranged from other sources rather than form middlemen. (d) Savings can be effected by eliminating duplication of purchasing and unnecessary varieties through standardization of purchases.
However, centralization has its drawbacks and limitations which are outlined below:
(a) Centralized purchasing will often mean delay because branches may send their indents to the purchasing department and the purchasing department will then process the indent and place the order. (b) There can be misunderstanding between the branch which requires the material and the purchasing department with the result that wrong purchases may be made. (c) There is no obvious advantage if the branches manufacture different types of articles requiring different materials because in that case the quantity of each material to be purchased will not be larger than if the purchases were to be made on decentralized basis. (d) Under centralized purchasing, a branch cannot take advantage of local resources.
It may be concluded that if the branches require the same type of materials, it is advantageous to have centralized purchasing, but if the branches require different types of materials, centralized purchasing does not have any advantage.
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PURCHASE SYSTEM The purchasing systems refer to various elements or activities that are commonly found in purchase procedure of industrial organisatoin. The purchasing system that are in use commonly involve the following categories of activity.
(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 the formulation 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 recognition of the need as one of its basic elements. as such as adequate and accurate description of what is needed by the using department is vital. In purchasing systems, the need is translated into some form of document authorizing the purchase. This document may be a requisition, a bill of materials, a budget or an automatic recorder.
The requisition originates from the using department and it carries a description 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 to complete a certain project or manufacture the products specified in a job order. it carries detail of the quantities of materials needed, their specifications and delivery schedules expected.
Budgeting for materials is resorted to when it is considered advantageous to contract for materials on an annual or semiannual basis. When a budget is duly approved, it constitutes authorization to purchase.
The need for standard items, supplies or materials bought on established specifications, is met through an automatic recorder. This document carries information relating to minimum inventory levels, order points and economic order quantities. Whenever the inventory of any specified item reaches its order point, 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 the products involved, the quantity of purchase, the implications for design, production or other activities of the company. In such situation, a team of buyers will be involved in negotiating. The members of the team may be drawn from engineering, finance, marketing, production, purchase and legal departments of the company. The supplier may also constitute similar team.
A manufacturer may decide to make the needed items rather than buy them from 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 spread overheads. However, the main deterrent factor may be lack of administrative or technical experience in making the required products.
Purchase Requisition The purchasing department is to make purchases only on the basis of purchase requisition originating from the stores or user departments. A purchase requisition 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. Department: material is required............................ Purpose................................... Please purchase for .......................................Department. Order......................... Serial Code Number Number Description of Materials Required Job Quantity Required Remarks Date: Date by which
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Required by ....................... by............
Ordered by..............................Approved
For the use of Purchase Department Date Purchase Order No. Name of Suppliers Date of Delivery Remarks
Purchase Manager Inviting Quotations or Tenders On receipt of the purchase requisition, the purchase department invites quotations ore tenders for the required material. A specimen Schedule of Quotation is given in Format 2.
Format 2 ABC Co. Limited Schedule of Quotations Material ................................................................................ Date............................. Serial Number Name of Supplier Rate per Kg. Time of Delivery Terms of Delivery Remarks
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Selecting the Suppliers After receiving the quotations they are opened at the time prescribed and a comparative statement is prepared for selecting the supplier. A specimen Comparative Statement of Tenders Proforma is given in Format 3.
Format 3 ABC Co. Limited Comparative Statement of Tender Proforma No............................ Date............. Name of Material ................................................................................. Serial Number Name of Supplier Rate per Unit Quantity Time of Delivery Terms Remarks
Placing Order After selecting the supplier the purchase department proceeds to place the order for the materials. A Purchase Order is a written request to supply certain specified quantity of material of specified quality at specified rates and according to the terms and conditions of the order. it is a formal contract which binds the purchaser to accept delivery and make payment as agreed upon. A specimen Purchase Order is given in Format 4
Format 4 ABC Co. Limited Purchase Order

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Pondicherry Date ................................ To, No.: ....................... Messers ............................... No.:............... .............................................. .............................................. Order Requisition Date by which materials are required....................
Dear Sirs, Your quotation bearing number .............. dated ................... has been accepted. Please supply the following materials in accordance with the terms and 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 be reminded again and again to avoid unnecessary delay in the execution of the orders. Some suppliers may deliberately delay execution of the order giving priority to more profitable orders. Therefore, there should be proper follow up of 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 or expediters who spend full time keeping supplies on schedule regarding deliveries.
Receipt of Materials When the ordered goods arrive at the factory door, the store keeper verifies the goods 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 the materials supplied. A copy of this note is returned to the supplier duly signed after verification of receipt. The physical quantity and the quality of materials are carefully checked before taking them in store.
Specimens of Materials Received Report Proforma and Materials Inspection Reports Preforma are given in Format 5.
Format 5 ABC Co. Limited Materials Inspection Report No. .......................... No. ........... Purchase Order No. ............................... Dated ........................................... Supplier .................................. S. No. Description Code No. Quantity Reasons for Rejection Goods Received Note
Received Accepted Rejected
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Date of Inspection............................. by ..................... Approval of Purchase Invoice
Inspected
On receipt of the invoice the purchase department checks the accuracy of the particulars contained in it with the help of the of the following documents: (i) Purchase Order (to ensure whether the terms and conditions are fulfilled and the rates charged are correct) (ii) Materials Receipt Report / Note (to verify the quantity billed with the quantity received) (iii) Materials Inspection Report (to verify the quality of material received)
(iv)Debit Note (to make deduction from the invoice of materials returned to the supplier) Besides, invoice price, the items such as freight, sales tax, excise duty, cost of containers, discount etc., are to be checked carefully. Having checked all these matters, 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 and components are supplied by different vendors, it becomes difficult to keep track of their performances. Therefore, in order to compare the performance of various vendors, it is essential to rate them individually. The rating may be done as per following parameters: Quality performance Delivery performance Price performance
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(a) Quality Performance: A supplier can be judged for quality performance from the view-point of rejected lots. Thus, if a supplier has supplied 100 pieces and 10 pieces are rejected from the lot, he has a rating of 90 per cent.
Number of lots accepted --------------------------------weightage Number of lots supplied
x 100 x
(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 is substantiated 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 performed under 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 concept and implementation. Now, management does not consider it merely as the routine transfer of materials from one place to another, but has come about largely as a result of new automatic handling and storage equipment and systems that are closely integrated with automatic processing and sophisticated management information and control systems.
DEFINITION In the broad sense, the term materials-handling includes all movement of materials in a manufacturing situation. The American Society of Mechanical Engineers defines material-handling as, the art and science involving the moving, packing and storing of substances in any form A careful reading of this definition will reveal the all-inclusive nature such as moving, packing, and storing of fluids, semi-fluids, and discrete items. Also, it includes the movement of materials in a total manufacturing situation.
In its narrow sense, materials-handling is restricted toMovement 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 of irregularity or stoppage of materials, and two, production process may suffer from 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 the problem 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 in correct quantities and at precisely the right time to avoid the risk of a shutdown. Effective materials-handling by satisfying the condition of quantity and timing contributes 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 working conditions is by designing correctly the materials-handling system, utilizing the proper materials-handling devices, and training workers in safe materials-handling practices.
4. Ensures customer satisfaction: From marketing point of view, suitable materials-handling can mean can customer satisfaction. By avoiding disruptions in production schedules and looking seriously to the distribution aspect of production, and shortening manufacturing cycle time, customers are assured of their deliveries on promised dates. Since success in business rests on satisfying customers wants and needs, it is essential that good materials handling be practiced.
5. Enhances productivity and avoids high costs: Efficient materials-handling if practiced, would relationship between output, efficiency and cost. help in satisfying the
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 in movement of materials
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Avoiding the unnecessary transfer of materials form floor to workplace or from container to container Increasing the speed of handling Utilizing containers and unit load. The idea involved in the principle of unit load is that products to be moved should be grouped into units of a large and constant size.
2. In laying out the plant: Plan for materials flow and combine handling with processing wherever possible. Provide for continuous or appropriate intermittent flow of materials Provide for the capital flow of materials between operations and a minimum 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 the management 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 the purchase of new equipment. Use the simplest equipment that is adaptable to the problem; avoid the use of complicated mechanisms and controls. Adopt standard equipment if possible, insure that the purchase of special equipment 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 are somewhat different, therefore, the materials-handling problems in different firms 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 a particular concern. General principles of materials-handling are only guides in assisting the materials-handling engineer in analyzing the problems rather than finding solutions to problems.
MATERIALS HANDLING EQUIPMENT There are various kinds of materials-handling equipment serving different purposes. The differences between kinds of equipment are significant to the extent that they condition its ability to more or position materials in a manner that 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 lifting and lowering devices (vertical motion), others are transportation devices (horizontal devices), and still others are combination devices. Although it is very difficult 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 motion by winding the rope or cable on a drum), hoists (power-driven devices often operated between fixed guide rails), elevators (they are different from hoists in that the operations also rides with the load), and block and tackle. (ii) Transporting devices, including hand carts, sack-trolleys, industrial railways (narrow-gauge railroads provided within the plant), tractors and trailers, aerial tramways (in which the load-carrying vehicle is supported from the top, usually by means of a cable), skids (generally used 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 and horizontal motion, and are commonly used in airway and airline terminals for handling packages and baggage), trolley hoists (on rails are common in use), portable elevators, conveyors etc.
Equipment Selection Before a final selection of equipment can be made, a thorough analysis of the proposed situation must be made. This requires a consideration of factors which are grouped under three main headings: physical, intangible and cost. 1. Physical Factors Physical factors concern themselves primarily with the relationship between the route to be followed by the materials and the equipment to be used. They are: kind of material, origin; destination; tonnage; distance; number of employees required; time per trip; weights and dimensions of unit loads; whether the material collects at the origin at the same rate as it is consumed at the destination; whether there is cross traffic because of intersecting routes; whether the location of the route varies or likely to vary; whether the route lies wholly within one building or extends through more than one. After a careful study of these physical factors that the equipment should be selected.
2. Intangible Factors Intangible factors are safety considerations; possible future expansion or contraction of production plans, flexibility or adaptability of repair parts, complexity of equipment etc. many of the above factors will be difficult to evaluate; however, each should be considered as to its possible effect on the proposed installation.
3. Cost Factors Cost factors significantly help the materials-handling engineer in comparing the al possible choices on cost basis before making a final decision and submitting 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 building within 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 jobs are being done at the same time on a variety of machines and in a variety of places. The materials-handling decisions have more relevance for intermittent production system than continuous-process system. 2. Type of Products to be handled: The type of products being handled greatly affects material-handling decisions. For instance, liquids and gases are well suited to transport by pipelines. Similarly, cranes are best suited to very heavy lifting jobs and conveyors are suited where high volumes of products including weight, size, shape, Perishability and whether the materials is solid, liquid or gas have a significant bearing on the 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 devices which should be used. Single story building lend themselves to the use of trucks and conveyors. Multi-storied buildings lend themselves to the use of pipelines, lifts etc. 4. Cost of Materials-handling Devices: The operating costs of equipment such as fuel, maintenance, repair, insurance and labour costs have impact on deciding the selection of equipments. Needless to mention, the manager ahs to select appropriate equipments which involve less operating 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? What factors 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 with the user departments in its day-to-day activities. The most important purpose served by the stores is to provide uninterrupted service to the manufacturing divisions. Further, stores are often equated directed with money, as money is locked up in the stored.
The functions of stores can be classified as follows:
(1) To receive raw materials, components, tools equipments and other items and account for them. (2) To provide adequate and proper storage and preservation to the various items. (3) To meet the demands of the consuming departments by proper issues and account for the consumption. (4) To minimize obsolescence, surplus and scarp through proper codification, preservation and handling. (5) To highlight stock accumulation, discrepancies consumption and effect control measures. and abnormal
(6) To ensure good housekeeping so that material handling, material preservation, stocking, receipt and issue can be done adequately. (7) To assist in verification and provide supporting information for effective purchase 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, the governing 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 proper preservation from rain, light etc.
these problems are more important in the case of items that have a limited shelf life. Other important factors governing the location are the number of end users and their location, the volume and the variety of goods of goods to be handled, the location of the central receiving section and accessibility to modes of transportation such as rail or road. Since stores have to be nearest to the user, large organizations usually have stores attached to each consuming department, whereas receiving is done centrally. Items of common usage are stocked in the Central Stores so that inventory is kept at an optimum level. These factors are considered at the planning level of layout.
In the case of warehouses stocking finished goods, factors such as proximity to ports, railways lines, quality of roads, availability of power etc. become quite important. It is also important that the stores are constructed with a futuristic orientations, so that sufficient flexibility for expansion needs is in built. The activities of receiving he goods, stocking in appropriate locations, materials-handling and issues must be done swiftly and economically. The stores building must have adequate facilities for preservation of stores. Sometimes facilities, such as cols storage, heating equipments, air-conditioning and similar facilities may be required. These should be planned in advance. Comfortable working conditions must be provided to the stores personnel to get maximum efficiency and morale.
The important factors in the design of stores building can be summarized as follows: 1. Lighting: Clear and adequate lighting is a must for a proper work environment. Lighting effects can be accentuated through a judicious choice of colours for the walls. For stores personnel who work day in and day out in the stores receiving, checking, stocking, handling and issuing goods, a pleasing environment goes a long way in reducing monotony. Any attempt to reduced these facilities will prove to be false economizing in the long run. 2. Safety: This factors is perhaps the most important aspect. In stores a large volume of goods are handled everyday. Accidents considerably
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reduce the morale and effectiveness of the system. To ensure safety the following 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 the physical storage of goods. The store of goods is connection link between the shops or work places and production control department. Materials, parts, work-in-process etc. move through the store just as money moves into and out of a commercial bank. Principal function of store or stockroom is to act as a clearing house for goods, i.e. receipt of goods bought and issue of needed materials 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 disbursement of material when properly authorized. It must provide space and storage equipment as to both size and load bearing capacity for the material to be stored. It is an organized store and as such it must provide means for identifying and quickly locating articles and any contents. For this purpose it has the device 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 maintain production 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 controllers to the purchasing agent. (5) Issuing (disbursement) of materials to the operators and/or foremen against written authority. (6) Conduct of physical inventory control (7) Timely intimation to proper authorities regarding out-of-stock conditions of items (8) Custodian of goods against losses, damages, unauthorized use, pilfering. Standard items often invite theft and are stolen for resale. Such thefts should be prevented.
WORKING OF THE STORES The store may have functional sections to look after principal functions and follow 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, defective goods, surplus or deficit supplies etc. along with rejection forms or notes. Returning defective or damaged goods to the supplier as per direction of purchase department. Depositing the materials to the appropriate store locations for storage When finished products are received for the storage, the warehouse keeper will issue an acknowledgement and intimation to the sales organisatoin that such and such goods are ready for sale.
2. Storage Section The stockrooms are in charge of storage, safety, care and disbursement of materials. There are separate stockrooms for each class of inventories. Also multiple stockrooms located at different places in the plant in addition to general or main store. The storekeeper has to receive the materials for actual storage, classify the materials, provide easy identifications to facilitate quick location, keep all goods at appropriate places, maintain up-to-date inventory records and accounts and issue materials as per written instructions. Each article must have label and identifying mark-stamping, embossing, colour coding writing or painting. 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 control as well as financial checks. This section is called upon to keep on a daily basis compare records of receipts and issue of materials. It is also in charge of continuous stock taking and inventory valuation. The chief activity of this section is inventory control.
4. Issue Section The storekeeper is a commodity banker. He must take necessary precautions and 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 must be duly posted on the Bin Cards and on Stock Control Cards.
Stores Accounting: The theory underlying any system of stores accounting is that is ordinary double entry book-keeping. The accounts in a stores ledger are really detailed analyses of general Purchase and Issue. The theoretical aspect is that the records which form the basis of the entry in the stores ledger incidentally enable cost accounts to be prepared.
The scheme requires that goods received from suppliers delivery notes be entered in stores day book (stores received or goods inward book) and that issues of materials may only be made in exchange for authenticated Requisitions/Issue Notes, and that these again be either entered into a stores day book (stores issued or goods outward book) or after interposition of the issue notes written out by the storekeeper on supplying the materials requested. The stores received and stores issued books form from carbon duplicates of these books obtained by having the pages arranged in appropriate fashion. The other alternative is for the requisition/issue notes or carbon copies thereof, to be sent to office for postings direct to the stores ledger.
Quite apart from the desirability of keeping the stock records up-to-date, a good 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 without stock taking, are necessary 5. Where ascertainment of the ordering level without actual inspection of the stock, is also a pre-condition to efficient buying.
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Many of the advantages mentioned above might almost be termed as necessities in an up-to-date accounting organization. The idea, however, is mainly to show a host of highly desirable information, at any rate, the hints for economy which such as recording system will automatically provide and this must not be overlooked in any case. It is a good policy to have one section exclusively devoted to receiving of stores and if a proper scheme is formulated and adhered to, the receiving may be carried out expeditiously. It is a common experience everywhere that owing to the lack of timely determination of shortages of huge quantity of receipted materials and also due to transitional delays from receipt centres to storage. Claims for shortages or damages which could have been otherwise realized either from the carriers or from insurance companies or vendors, are often lost by time bars. Again, due to the absence of arrangements for recovery of claims which have matured, claim settlement often proves abortive. To obviate these and may other difficulties it should be clearly understood that no other than the receiving storekeeper is authorized to receive anything. as already stressed actual stores receiving should, therefore, be the duty of the receiving storekeeper after checks as to quantity and the condition of supplies, and quality checks should be done by some inspecting staff before they are passed on to the stores. Any excess or short delivery has to be reported by the receiving storekeeper and noted on the invoice under due intimation to the buying section following inspection and quality reports. On proper receipt as to quality 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 checking and 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 range of items in the stores and recording the results in a systematic manner. The purposes served by stock verification are as follows:
To reconcile the stock records and documents for their accuracy and usefulness. 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 is usually 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 achieved in a day and usually several days are taken to complete this task. As no transactions can take place during the verification, this could pose some problems. Physical verification requires careful planning and execution. The various steps involved are detailed below: A detailed programmes should be chalked out giving complete breakdown of the process store wise and itemwise. This should be done in consultation with the materials management and finance departments. Necessary stock verifications cards and checksheets must be prepared in adequate amounts. All materials audit personnel must have clear cut instructions on their jobs and schedule for proper accountability During the verification process all transactions must be stopped. In other words, there should not be any receipts or reference and control. Separate provisions must be made available for items which are damaged or deteriorated. Selected areas and items must be allocated to each stock-taking person so that orderly completion of the job without duplication or omission is ensured. It will be necessary to separately verify items which are under inspection, items sent out to suppliers for processing and stocks at various stock yards.
Store location ............................................................. Serial No. ................................

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Part
number ................................................................ Date ........................................
Past description........................................................... Unit of quantity NO/METERS / KGS / LITRES Quantity on
Rate ............................................. hand .............................................
Value of stock on hand ......................................................... Audited by Checked by S/d S/d
Remarks Damaged Others Deteriorated
Such sheets as shown above are prepared for each item and values are worked out for different classification. The total of such values gives the value of the stock on hand as verified. Then this is tailed against the book figures or stock records. Discrepancies, if any, are noted down. Minor discrepancies are taken care of by correcting the stock records. Any major discrepancies need further analysis so that causes can be identified and remedied. Allowances regarding acceptable margins of tolerances for conversion, weighting and measuring, as well as for evaporation, must be clearly laid down. Top managements sanction can then be sought for writing off deficiencies or valuing surplus.
Continuous Verification Under this system, verification is done throughout the year as per a predetermined 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 is maintained showing all transactions so that reconciliation for each item is maintained showing all transactions so that reconciliation can be done. The advantages here are:
Work can be independently carried out by materials audit department staff. Investigation with regard to discrepancies are spread over the year and hence detailed analysis is possible. Final accounts can be prepared expeditiously if continuous verification is done as per plan. There is no need to freeze the entire operations of the stores as verification is done throughout the year based on perpetual inventory records Any time stock records are more up-to-date when compared with the periodic verification system.
Process of Verification
Items are verified by counting in the case of bearings, by weight in the case of sheets, by measuring in the case of lubricants and so on. However, when large stocks of itesm such as sand, scrap and ore fuel need to be verified, it is based only on estimates as the question of exact measurement is ruled out. In the actual process of stock verifications, the stores personnel should be involved, as they intimately know the locations of various items which results in quicker identification 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 be rectified and then only should they be reported to top management. Major discrepancies may require a re-verification. Such discrepancies may be due to pilferage on a large scale, wrong posting of records and loose documents control. They require careful analysis and immediate corrective measures.
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After discrepancies have been noted, stock adjustments must be made using standard stock adjustment documents duly signed by the appropriate authority. A typical stock adjustment form is shown below:
Discrepancy Voucher Date of verification: number ............................. Part number: ................................ no.: ..................... Part description: .......................... Location code: Quantity as per record: Quantity on verification Discrepancy: Amount Value Surplus Deficient Serial Serial no./Ref.
Stock verification sheet ......................................
Prepared by Approved by
S/d S/d
After the approval, the stock records can be corrected. Surprise checks and verifications are made by materials audit department to detect any fraudulent acts. Material audit plays a role of watchdog of store, pointing out weak areas and remedying them. It assists in accurate records-keeping and smooth finalization of annual accounts.
REVIEW QUESTIONS 1. What are the functions of stores? 2. What is storekeeping? What are the objectives and functions of storekeeping? 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 raw materials, 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 for the smooth running of the plant. Since these resources are idle when kept in the stores, inventory is defined as an idle resource of any kind having an economic value.
Inventories are maintained basically for the operational smoothness which they can effect by uncoupling successive stages of production, whereas the monetary value of inventory serves as a guide to indicate the size of the investment made to achieve this operations conveniences. The materials management department is expected to provide this operational convenience with a minimum possible investment in inventories. The objectives of inventory, operational and financial, needless to say, are conflicting. The materials department is accused of both stockouts as well as large investment in inventories. The solution lies in exercising a selective inventory control and applications 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 the production process and generally form part of the product. 2. In process inventories: Semi-finished parts, work-in-process and partly finished products formed at various stages of production. 3. M.R.O. Inventories: Maintenance, repairs and operating supplies which are consumed during the production process and generally donot form part of the product itself (e.g. Petroleum products petrol, kerosene, diesel, various oils and lubricants, machinery and plant spares, tools, jibs and 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 time necessary to move stocks from one place to another. The average amount can be determined mathematically thus I =S xT 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 the movement inventory needed. As for example, if it takes three weeks to move materials to a warehouse from the plant and if the warehouse sells 110 per week, then the average inventory needed will be 110 units x 3 weeks 330 units. In fact, when a unit of finished product is manufactured and ready for sale, 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 are bought than are necessary for immediate use. It is common practice to buy some raw materials in large quantities in order to avail of quantity discounts. c) Fluctuation inventories: In order to cushion against unpredictable demands these are maintained, but they are not absolutely essential in the sense that such stocks are always uneconomical. Rather than taking what they can get, general practice of serving the customer better is the reason for holding such type of inventories. d) Anticipation inventories: Such inventories are carried out to meet predictable changes in demand. In case of seasonable variations in the availability of some raw materials, it is convenient and also to some extent economical to build up stocks where consumption pattern may be reasonably uniform and predictable.
Of the types of inventories discussed above, the Lot size. Fluctuation and Anticipation Inventories may be said to be Organisatoin Inventories As more and more of these basic types of inventories are carried into stock, less coordination 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 directly proportional to the size of inventories maintained. As the size increases, even if they are efficiently maintained, handled and properly located, gains form additional stock become less and less prominent. The cost of warehousing, obsolescence and capital costs associated with maintenance of large quantities grow 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 costs and the decline in return from holding additional inventories. Striking a balance in a complex business situation through intuition alone is not easy. Costs, and to be sure, the balancing of opposite costs, like at the heart of all inventory control problems, for which cost analysis are necessary.
As has already been said that even a typically medium size industrial organisation may use 10,000 to 15,000 different items which are carried in inventory. Initial planning and subsequent control of such inventories can only be accomplished on the basis of knowledge about them. Consequently, the starting point in inventory management and control is the development of a stores catalogue, which is more or less comprehensive and complete in all respects. All inventories should be fully and carefully described and a code number should be allotted. Similar items should be grouped together and standard codification should be adopted.
INVENTORY CONTROL Inventory control may be said to be a planned method whereby investments in inventories held in stock is maintained in such a manner that it ensures proper and smooth flow of materials needed for production operations as well as sales while at the same time, the total costs of investment in inventories is kept at a minimum.
From the above definition it follows that a comprehensive inventory control system must be closely coordinated with other planning and control activities, such as, cash planning, capital budgeting, sales forecasting, including production planning, production scheduling and control. This impinges on a wide range of operations, operating decisions and policies for production, sale sand finance. The finance controller of a company regards inventory as a necessary 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 of finished goods inventories in order to give better customer service to ensure the companys goodwill and would not like to see a sales opportunity lost for want of saleable ready stock. The production manager does not want an out of stock condition for which production might be held up. It will, therefore, be seen that everyone has some objectives which are conflicting in nature. The basic problem is, therefore, to strike a balance between operating efficiency and the costs of investment and other associated costs with large, inventories, with the object to keep the basic conflicts at the minimum while optimizing the inventory holding.
OBJECTIVE OF INVENTORY CONTROL 1. To reduce to the minimum idle time due to shortage of materials and spare parts. Neither man nor machine should have idle time due to lack of materials. 2. Similarly, to offer maximum service and satisfaction to the customers with regard to fulfilling the due dates strictly as per orders. The sole aim of 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 in production. there is no danger of closure of plant, unemployment, lower dividend and replacement of management a dark picture resulting out of poor inventory control. 2) It helps a company to secure many economies. For instance, no duplication in ordering, better use of available materials by inter department transfers, economies due to bulk purchases such as low freight, higher discount, lower price, less clerical work etc. 3) It is necessary for efficient accounting system, particularly for material aspect 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 and enables 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 so that 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 keeping up-to-date trace of every outgoing item. (5) Indexing of all items of stock for their quick location. This is done through identifying marks, labels and Bin Cards. (6) Up-to-date inventory records must show the quantity and value of all goods in the warehouse, all receipts and deliveries made from the warehouse and the points at which replenishment of stocks become necessary 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 the largest 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 a maximum reserve or margin of safety. This level of safety may be used only in an emergency. It is the level acting as a safety value. it is the minimum level of stocks 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. A repeat 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 requisition given the quantity for replenishment of stocks.
4. The Ordering Point It is the quantity of stock necessary to protect against the exhaustion of the stock 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 an indication that a new order must be placed at once. The time necessary to secure the stock of required articles after requisitioning must be carefully calculated and sufficient margin must be provided for contingent delays or bottlenecks 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 be maintained 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 to make allowance for fluctuations. In the case of business with seasonal sales, a change in the inventory level is necessary by periodical review of the inventory, the restored level should be maintained. 2. Present position regarding supplies of materials and labour and their availability 3. The next factor is the time that elapses between the time of requisitioning of the items and the time of the receipt of the same. This is called lead time. Due allowance should be made for the variability in the lead 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 facilities available. Inventory level will be affected if there is lack of storage facilities. 6. In carrying stocks at higher levels there is the danger of expenses of storage involved. 7. The most important is the price factor. Low value items may be purchased in large quantities to take advantage of the price position while 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 affected by 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 is defined as a system of records maintained by the controlling department which reflects the physical movements of stocks and their current balance.
It is a method of ascertaining balance after every receipt and issue of materials through stock records to facilitate and issue of materials through stock records to facilitate regular checking and to avoid closing down for stock-taking. In order to ensure accuracy of perpetual inventory record, it is desirable to check the physical stocks by a programme of continuous stock-taking. Any discrepancy noted between physical stock and stock records can be investigated 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 number of items of goods. Under this method, inventories are grouped under three categories A, B and C A is allotted for the high value items, B for medium value items and C for low value items. Values of the items are converted into percentages, each item being stated at a percent of the total value of all the items. Usually items which account for 70% to 80% of the values are grouped under item A. Those which account for 10% to 20% of the values are grouped under item B. The remaining items are grouped under category C. High value items should be reviewed frequently and accurately and low value items may be reviewed at long periods. In the case of medium value items, the control should be more than the low value items, the control should be more than the low value items and less than the high value items. Moreover in this case review need 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 the standards raw materials content of the actual output. A standard ratio of input of material and output of material should be determined and the actual ratio is higher than the standard ratio, the performance will be considered to be below the standard ratio and vice-versa. In process industries it is a valuable report to show the percentage of losses that have occurred at each stage. It also measures the productivity of capital. this method is also useful to ascertain the raw material cost of finished output by multiplying the raw material cost per unit by this ratio.
4. Inventory Turnover Ratio This ratio is another method of exercising control. It is essential to compare the turnover of different kinds of materials to find out the items: which are slow moving, thus helping the management to avoid keeping capital locked up in such item. A low ratio is an indicator of slow moving stock, accumulation of obsolete stock, carrying of too much stock. It will lead to the disadvantages arising out of over-stocking. But a high turnover ratio is an indication of fast moving 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 be immediately 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 should be ordered at a time so that the overall inventory cost is the lowest and stockout situations may be prevented. When the EOQ is determined, it helps management to order such a desirable quantity, that the erratic ordering to manufacturing plant is avoided to a large extent. When the ordering cost and the cost of carrying an additional unit in inventory are constant and the demand is known, the following formula, also called square root law, may be applied to arrived at the EOQ.
PN ----C
where Q P N C = = = = the most economical order quantity in units the preparation cost of one order in rupees the total number of units of products required per year, and the carrying cost per unit per year.
Limitation of EOQ Formula However, the very restrictive nature of the assumptions made in the EOQ formula restrict the use of the formula in many cases of practical inventory situations. The cost-analyses on the basis of which the formulas has been developed are merely national rather than actual in some cases. In practice, unit cost of purchase of an item varies, lead times are uncertain and also requirements or demands of inventory items are not perfectly predictable in advance. Rate of consumption varies greatly in many cases. As such, the application 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 provide materials 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 and time-consuming calculating are avoided. Also movement analysis, lead time analysis, vendor rating etc. can be computerized in a short time which permits the management to carefully evaluate and take scientific decisions so as to control the inventory levels. Factors, such as reserve stock, safety-stock and reorder points, require statistical and mathematical analysis; them manually Programmes are available for performing ABC analysis, EOQ calculations, reorder point computations and delivery schedule pricing. This will come as a part of the software package in most of the cases. A items are normally controlled manually with crucial and timely information support from computers. Thus, computers may print out the stock status of A-items, orders pending execution, expected consumption etc. so that follow-up will be done on a selective basis to keep inventories at minimum. B and C items are usually large in number and here computers may be used to order EOQ and reorder point control can be used. Requisition analysis, processing of enquiries and quotation analysis can be done very effectively using computers. Receipt and issue of documents can be easily computerized. This keeps in product costing, materials accounting and maintaining perpetual inventory records. This results in better physical verification. It is imperative to conclude that computers could be 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 level for 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 100 Section A marks) 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 its importance. 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 Gantts Chart. 6. As a production manager how would you take make or buy decisions? 7. What are the merits and limitations of centralized and decentralized purchasing? 8. What is materials-handling? What are the principles of materials-handling? Maximum Marks : (5 x 8 = 40
Section B marks) Answer any Four questions All questions carry equal marks 9. What are the factors affecting productivity. 10. 11.
(4 x 14 = 60
State the steps involved in production planning and control Discuss the factors that determine location of industries.
12. What do you understand by process and product layout? What are their advantages and limitations? 13. 14. 15. Describe the purchase procedure. What are the functions of storekeeping? Explain different techniques of inventory control.
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Unit 6 Inventory Management : Concept Importance Techniques.