roduction to Producti?n Management ..

UNIT- I

CHAPTER

Introduction ~o Production
Management and
Production S stems .
1
.I Introduction
,2 Concept of Production
.3 Production and Operations Management
.4 Objectives of Production Management
.5 Components or elements of a Production / Manufacturing system
.6 Characteristics of Production System
.7 Goo'cls Vs Services
.8 Difference between Waste. Scrap, Spoil and Defect
.9 Scope and functions of Production Management _..
. IO Qualities and Values of a good production Manager
.11 Manufacturing systems: Intermittent and Continuous Production Systems
.12 Intermittent Production systems
.13 Continuous Production Systems
J4 Comparison between lnte~mittent a.nd Continuous ·Production Systems
. IS Comparison between Job/Project, Batch, Mass and Process Production
Systems
Questions
 2 rnr~ Vfpul'•™ Production anfTota/ Quality Management (BMS)
I .1.1 INTRODUCTION ] production is the creation of goods and services which satisfy the
An organization consists mainly of five imp~rtant functi~na
. I
subsystems, viz. Finance, Production and Operations, Marketing,
Human Resource and Management Information System.
Finarw=e
Manages Manages Manages Manages
Mooey Creatioo Cus!cmera Employees
«Goods
and
Services
Production and Operations function is one of the important
functional area for business. In India, our dynamic Prime
Minister Mr. Narendra Modi had .launched project, 'Make in
India' on September 25, 2014 to boost Production a~vities _and
manufacturing . sector. Now we find strong foreign direct
investment (FDI) flow into the Indian economy since beginning of
2015 in manufacturing, infrastructure and other investment
projects. India is projected to become the fifth largest
manufacturing hub in the world by the end of 2020. The
government has set a target of increasing.manufacturing output's
contribution to GDP to 25 per cent by 2,025, which would be a
9 percentage point increase from the current level in 2015 of
around 16 per cent. Sectors like defence, electronics, capital goods,
automobiles, pharmaceutical and speciality chemicals could ride
the make-in India drive in years to come.
1.2 CONCEPT OF PRODUCTION
Production is defined as "the step-by-step conversion of one form
of material into another form through ·rhemica/ or mechanical process to
create or enhance the utility of the product to the user."
Thus production is a value addition process. At each stage of
processing, there will be value addition . .
Production is the basic activity of all organizations and all
other activities revolve around production activity. ·The output of
/nuoduction to Production Management .. 3
needs of the customers.
There are three ways of Production, they are:
(1) Production by Disintegration: By separating the contents of
Crude oil or a mixture the desired products are produced. For
example the crude oil is disintegrated into various fuel oils.
Similarly salt production is also an example for product
produced by disintegrated. We can use Mechanical or
Chemical or both technologies to get the desired product, so
that it will have desired use value.
(2) Production by Integration: In this type of Production various
Components of the products are assembled together to get
the desired product. In this process, Physical and Chemical
Properties of the materials used may change. The examples
are: Assembly of Two wheelers, Four wheelers and so on.
(3) Production by Service: Here the Chemical and Mechanical
Properties of materials are improved without any physical
change. The example for. this is Heat Treatment of metals. In
real world, a combination of above methods is used.
I 1.3 PRODUCTION AND OPERATIONS MANAGEMENT I
According to Mr. E. L. Brech: "Production and Operation
Management (POM) is the process of effective planning and
regulating the operations of that section of an enterprise which is
· responsible for the actual transformation of materials into finished
products". This definition limits the scope of operation and
production management to those activities of an enterprise which
is associated with the transformation process of inputs into
outputs. The definition does not include the human factors
involved in production process. It lays stress on materialistic
features only.
E. S. Buffa defines production management as, 'Production
management deals with decision-making related to production
processes so that the resulting goods or services are produced
according to specifications, in the amount and by the schedule
demanded and out of minimum cost'.
4 Vlpul'•"' Production and Total Quality Management (BMS) Introduction to Production Management .. rnnr 5

Operations management (OM) is the business function (3) Production management is (3) Operations management is
responsible for managing the process of creation of goods, more concerned with input/ focused upon administration,
services and tangible services. It involves planning, organizing, output and churning out planning and execution of
products in the shape of operations involved in
coordinating, and controlling all the resources 11eeded to produce
desired finished product. production of goods, services
a company's goods and services. Because operations management
and tangible services and trying
is a management function, it . involves managing people, to minimize the resources at the
equipment, technology, information, and all the other resources same time increasing output.
needed in the production of goods, services and tangible services.
(4) Job use less labour and more (4) Job use more labour and less
Production inanagement on the other hand focuses specifically machines and equipments to machines and equipments to
more on the production of tangible goods and is concentrated produce tangible goods. produce tangible goods.
upon churning output from input. It is a broad sum of activities (5) There is no customer (5) Frequent customer
that go into converting raw material into final, finished product participation. participation.
with the help of suitable process/processes. (6) e.g. Production of a (6) e.g. educational institutions,
Production and operations management are more similar than computer, car etc. Banks, Super Bazaars, airlines
different: if manufacturing tangible goods is a prime concern then etc. in addition to any
it is called production management, whereas management of manufacturing enterprise.
intangible services or merging the goods and service offerings
(Tangible Services) is somewhat broader in scope and called
1.4 OBJECTIVES OF PRODUCTION MANAGEMENT
operations management
The objective of the production management is 'to produce
This little difference between Production and Operation
goods and services of Right Quality and Quantity at the Right
Management is given below:
time and Right manufacturing cost'.
Production Management Operations Management
(1) Right Quality: Depending upon the customers need, the
(1) Production Management (1) Operations Management quality of product is established. The right quality is not
precedes Operations succeeds Production
Management necessarily being the best quality. It is determined by the cost
in the Management in .the historical
historical growth of the of the product and the technical characteristics as suited to
growth of the subject It is the
subject. It is the older ierm. latest term. the specific requirements.
(2) Scope of Production (2) Scope of Operations
(2) Right Quantity: The manufacturing organization should
Management is narrower Management is broader produce the products in right number.
compared to Operations compared to Production If they are produced in surplus or excess of demand the
Management. It is more Management. It is related to capital will block up in the form of inventory and if the
related to production of offering of Intangible services or quantity is produced in short of demand, leads to shortage or
tangible goods. So Output is merge the goods and service
Tangible. stock out of products.
offerings (Tangible Services).
(3) Right Time: One of the important parameter to judge the
effectiveness of production department is timeliness of
 Vipul's™ Production and Total Quality Management (BMS)
tnuoduaion to Production Management..
delivery. So, the production department has to make the
optimal utilization of input resources to achieve its objective.

-
Inputs: Transformation Process: Outputs:
(4) Right Manufacturing Cost: Manufacturing costs are •Men • Product Desi171 • Products
established before the product is actually manufactured. • Materials • Process Planning •Services
Hence, all attempts should be made to produce the products • Machines • Production Centro!
• lnfonnation • Maintenance
at pre-established cost, so as to reduce the variation between • Capital
actual and the standard (pre-established) cost.
(5) To produce the desired product or specified product by
T
Continuous
specified methods so that the optimal utilization of available
resources is met with. • Inventory
• QJaltty
(6) Increase Productivity and efficiency of the Production •Cost
department. To increase Ratio of Output to Inputs. Environment Feedback Information
(7) To adopt lean thinking and ensure flexibility (Agility) in Fig.:1.2
Production.
Components or Elements of Production System are explained
(8) To adopt Green Production business strategy that focuses on below in brief: ·
profitability through environmentally friendly operating
(1) Inputs: Inputs are the physical and human resources utilised
processes and institute Green Production processes.
in the production process. They consist of raw materials,
1.5 COMPONENTS OR ELEMENTS OF A parts, capital equipments, human effort.5 etc.
r PRODUCTION/MANUFACTURING SYSTEM (2) Conversion Process or sub-system: It refers lo a series of
Definition of a Production System: operations which are performed on materials and parts. It can
A Production System can be defined as a transformation
be related to Product Design, Process Planning, Production
system in which a saleable product or service is created that Control, Maintenance etc.
satisfy customers' demand by working upon a set of inputs. (3) Outputs: Outputs are the products or_ completed parts
Inputs are usually in the form of men, machine, money, materials resulting from the conversion process. O~tput general<,
etc. revenue. It can be .Goods or services or mix of goods 'and
The input, processing, output, Transportation, Storage, · servic_es also called as Tangible services.
Information and control of a system are the components of a (4) Storage: Storage take place after the receipt of inputs,
Production System. between one operation and the other and after the output.
(5) Transportation: Inputs are transported· from one op_eration to
another in the production process. ·
(6) Information: It provides system control through
measurement, comparison, feedback, and corrective action.
(7) CONTROL Sub System: There are two types of control,
Fig.: 1.1 namely Proactive Control and Reactive Control.
 LTr["r[" Vipul'sl11 Production and Total Quality Management (BMS) l~uoduction to Production Management ..
- ·· - ONTROL: When an operation is carried
(a) PROACTIVE C h !ity inspector 1.6 CHARACTERISTICS OF PRODUCTION SYSTEM
out in a workstation on a product, t e qua
oes to the workstation and inspects the pro~uct. When The production system has the following characteristics:
g I that he has taken for the inspection are not (1) Every production system has an objective and therefore it is
the samp es ch· d
confirming to the quality, he stops the ma me an an organized activity.
identifies the reason for the deviation and corrects the
(2) The system transforms the various inputs to useful outputs to
problem, so th at the produced .product thereafterf satisfy customers' demand.
conform to the specifications. This type o c~ntro1
prevents any major quality setback after the production. (3) It does not operate in isolation from the other organization
system.
(b) REACTIVE CONTROL: In a planning peri_od,_ usually
(4) There exists a feedback about the activities, which is essential
the quality target is fixed . Suppose, an organization f~els
to fix 5% defective is safe in the targeted production to control and improve system performance.
quantity and assumes that at the end of the planning 1.7 GOODS v/s SERVICES
period it finds that the defective output exceeds the
targeted defective products. Then, it has to find _out the Characteristics Services Goods
reason for the deviations, namely, whether the problem Physical Shape
(1) Intangible Tangible
is due to the method of doing the work or the resources
(2) Production Spontaneous, Spread over time
used in the process. Then the planner uses this
simultaneous
knowledge to prevent any problem in the future.
(3) Delivery Along with production Separa le from
Components or Elements of Production System are shown
below in detail: production, scheduled
Demand
( eon....ion &Jl>eyslom) c~) (4)
(5) Supply
Fluctuating Stabilised
Inflexible Flexible
Envfronmart Frished
logel'A;!k:al ~•k:al Goods (6) Producer Status Inseparable from
Social, Ecanric, ~-linlac:,,ni Mnf>l) Se-ru lnlshed Separate from goods
T<drdogal l.ccalicnalServices Goods Service
....... (Tr.ropcnata,)
Exehalge&rv;ce Scrap (7) Product Life Short Longer life

-
C;n'f)ellticn (R~
Procu:tlrtcrma10'1 SlorageServces Wasle Cycle

--•)
CUSIOITl8'Deslres iW"""""i,g)
Other Private Servces (8) Title No ownership possible Transferred to
Pl'lmay R-,.uc:. (IJ'ISlr.n:e,Fll"B"Ce, Utilities, Aeal
Materials & Stw'.es Estale, Heahh Bl.6iness Service & customer
Capt.al Assets <hiEW!YTMn Sa-vice (9) Customer High Low/Absent
Captaj(Mcroy) (l.ocaj,Slate. Catra11
Utiities Involvement
feedlack
~ - - - - - 1 Caira Si.bS,.stoo, Wonna1icr, (10) Physical presence Compulsory in most May or may not be
* lnvtttory of customer
.. Qallty services required
• Cost
Fig.: 1.3 (11) ·Labour Tends to be high Low
(U) Technology Generally soft Generally hard
 II
/nuoduction to Production Management..
known example is of gold dust in jewellery and gold

,o
,
VI .,,,,"' ProdudiOn and Total Quaf,ty Management (8MS)

Standardized
industry.
Varies with time and (3) -Spoil: This is also a loss connected with the output. In the
(13) Quality person production process if the output is produced which is not up
Not important to the quality standard due to any problem and now the
Crucial
(14) Role of Physical product cannot be brought back in good state even after
Surroundings Delayed further processing or reprocessing or it is simply not feasible
Spontaneous
(15) Customer to do so then such output is called spoil or spoiled output or
Reaction Common spoilage. This is considered as loss as it is such finished good
Not Possible
(16) Repairs Common which is not worthy of sale and thus cannot generate
Rare intended revenue.
(171 Replacements Material based
Labour/need based For example in fashion and clothing industry many of the
(18) Pricing Physical
More Emotional well-known brands have strict quality standards which if not
(19) Need Satisfaction Technology
Personalization met then product is not considered to be worthy to a regular
(20) Basis of
Competition retail outlet and is most of the time shredded or sold as "B"
1.8 DIFFERENCE BETWEEN WASTE, SCRAP, SPOIL pair or "seconds".
AND DEFECT (4) Defect: This is another type of loss connected with the output
I but -it can be in the input as well. This is close to waste but
(1) Waste: This is a loss coru:iected with raw material or inputs to
the production process and usually means to refer that input with the difference that it is such output which does not
has been Jost due to any reason either because of its nature of qualify all the quality standards due to some problem but
the material itself, nature of the process or some other that problem CAN be fixed by further processing or
conditions. Sometimes such output that does not have any reprocessing and it is also feasible to do so. This is considered
sales or use is also referred as waste. as loss as more than normal effort will be required to bring
For example in paint industry many chemical are used that the goods into saleable condition.
are volatile i.e. can evaporate at room temperature. Another For example in juice manufacturing industry where juice is
example can be of break-oil which is wasted in the process not sweat up to a required level or i::- not homogenized to give
named ''bleeding" in which air bubbles are removed from the a required molecular level thus not consistent enough.
pressure pipes _so·that hydraulics can work effectively. Another example can be car repair and maintenance where
(2) Scrap: This is a loss connected with the outp~t. ·Most of the sometimes paint dries too quickly thus not giving proper
.hme at the end of production/ conversion process such s~e and will have to be "touched" again.
o~tp_uts are generated that were not intend~d but cannot be 1.9 SCOPE AND FUNCTIONS OF PRODUCTION
ehnunated due the nature of material or rocess itself
MANAGEMENT
~sually they are of no to insignificant value af compared t~
. e marn product that was intended. We usuall know (1) Product Selection and Design: The product mix makes the
~:f :e term by-products. This is considered Is loss at~:- pr_od_uction system either efficient or inefficient. Keeping the
e raw material IS converted into intended product. . m1ss10n and overall objectives of the organization in mind
For example in furniture manufacturin . . and choosing the right products, is the key to success. It is of
wood and sawdust is a comrriGn · exarnp le.g Another
chipprngsvery
of
 crLTIT Vl ui•.™ Production and Total Quarrty Management (BMS)
12 - p
- d ·gn of the product, with
t · portance to esi f th
paraJT\oun d' th tic value. It is the design o e
. d functional an aes e
reqwre th aruza·tion competitive or non-
ct which makes e org h (5) Capacity Planning: This deals with the procurement of
prod u . . does help to retain enoug
competitive. Value engmeenng
features, while eliminating the unnecessary ones.
P s and Production Design: Process design is co~cemed
(2) ;~e~e overall seq~ence of operation required to achieve the
design specification of the product. . .
Production design is concerned with concept of des1grung
products from the point of view of profitability. . . production, taking them at right time and in the right degree
(3) Location of facilities: Location of facilities for operations IS a
long-term capacity decision which inv~lves a long term
commitment about the geographically static factors th~t affect
a business organization. It is an important strate~c level
decision-making for an organization. It deals with the
questions such as 'where our main operations s~ould be
based?' A wrong decision of Location may prove d1sastro_us.
Location should as far as possible cut down the production
and distribution cost.
(4) Facilities Layout and Materials Handling: Plant layout refers
to the physical arrangement of facilities. It is the configuration
of departments, work centers and equipment in the
conversion process. The overall objective of the plant layout is
to design a physical arrangement that meets the required
V output quality and quantity most economically.
Material Handling refers to the 'moving of materials from
the store room to the machine and from one machine to the
next during the process of manufacture'. It is also defined as
the 'art and science of moving, packing and storing of
products in any form'. It is a specialized activity for a modem
manufacturing concern, with 50 to 75% of the cost of
production. This cost can be reduced by proper section,
operation and maintenance of material handling devices.
Material handling devices increases the output, improves
quality, speeds up the deliveries and decreases the cost of
production. Hence, materi~I handling is a prime
Introduction to Production Management..
13
consideration in the designing new plant and several existing
plants.
productive resources. Capacity refers to a level of output of
the conversion process over a period of time. Full capacity
indicates maximum level of output. Capacity is planned for
short-term as well as for long term.
(6) Production Planning: Production Planning is a technique of
forecasting ahead every process in the long process of
and trying to complete operations at the maximum efficiency.
In the words of Kimball and Kimball Jr - "The planning of
industrial operations involves four considerations, namely,
what work shall be done, how the work shall be done and
lastly, when the work shall be done."
Areas of Production Planning are:
• Preparation of production budget
• Devising manufacturing methods and sequence of
operations
• Deciding type of machines and equipments
• Preparation of operation sheets and instruction cards
• Estimating men, machine and material requirements
• Undertaking time and motion studies
• Preparing master schedules
(7) Production control: Production control is the process ·that
keeps a watchful eye on the production flow and size of
resources along with the location, of any deviation from the
present action and to arrange for the prompt adjustment so
that the production may run according to the original or
revised schedule.
In the words of Henry Fayol - "Production control refers
to ensuring that all which occurs is in accordance with the
rules established and instructions issued."
 i'.'J'LTL'I"
.
Vlpul'•Tl1 p,oduc11an an
d Total Quality Management (BMS)
14 "'"'"'
Areas of Production Control are: into manufacturing
Sub-dividing the master schedule
and subsidiary order
Routing
Scheduling
Despatching
Expediting and follow up .
0
. b d fin d as the selection of path which
Routing may e e e f d
each art of the product will follow' which being trans orme
from ~aw material to finished products. Routing determines
the most advantageous path to be followed from department
to department and machine to machine till raw matenal gets
its final shape.
Scheduling determines the programme for the operations.
Scheduling may be defined as 'the fixation of time and date
for each operation' as well as it determines the sequence of
operations to be followed.
Dispatching is concerned with the starting the processes.
It gives necessary authority so as to start a particular work,_
which has already been planned under 'Routing' and
'Scheduling'. Therefore, dispatching is 'releas~ of orders and
instruction for the starting of production for any item in
acceptance with the route sheet and schedule charts'.
The function of follow-up is to report daily the progress of
work in each shop in a prescribed proforma and to
investigate the causes of deviations from the planned
performance.
(8) Inventory Control: Inventory is stock of raw-materials work-
m-progress, finished products, stores, supplies, tools ~tc. No
shortage or stock out and No Excess or Surplus stock of
Inventory 1s Inventory Control Shortage of mat . 1 st0
production activities and Surpius stock of mat e~ial may
. h • ena may 1ead
to h 1g er inventory carrying costs.
(9) Work _Study (Time and Motion or Method St d .
study 1s a combination of two groups of t hni u y). Work
ec ques, method
/nuoductian ta Production Management.. rrrnr 15
(or Motion) study and work measurement (Time Study),
which are used to examine people's work and indicate the
factors which affect efficiency. Work study is normally used
in an attempt to increase output from a given quantity of
resources with little or no further capital investment. This is
achieved by systematically analysing existing operations,
processes and work methods.
Method study:
Method study (often called motion study, method analysis
or methods engineering) is the systematic recording and
critical examination of existing and proposed ways of doing
work in order to develop and apply easier and more effective
methods apd to reduce costs. It is used to improve processes
and procedures, plant layout, design of plant and equipment;
to reduce human effort and fatigue, use of materials, machines
and manpower, and to develop better physical and working
environments.
Work measurement (Time Study):
Work measurement establishes the time a qualified worker
needs to carry out a specified job at a defined level of
performance. Whereas method study helps us eliminate
urmecessary movement, work measurement helps in
investigating, reducing and subsequently eliminating
ineffective time, during which useful work is not being
performed.
(10) Quality control: Quality Control (QC) may be defined as 'a
system that is used to maintain a desired level of quality in a
product or service'. It is a systematic control of various factors
that affect the quality of the product. Quality control aims at
prevention of defects at the source, relies on effective
feedback system and corrective action procedure.
(11) Maintenance and Replacement In this we cover preventive
P methods to avoid machine break-downs, maintenance,
policies regarding repair and replacement decisions.
Maintenance manpower is to be scheduled and repair jobs are
to be sequenced. There are some preventive replacements
16
Vipul•s™ Production and Total Quality Management (BMS)
Introduction to Production Management ..
also. Machine condition is to be constantly monitored.
Effective maintenance is a crucial problem for India which l'l""l'l"lT ll
can help better capacity utilization and make operations 1.11 TYPES/CLASSIFICATION OF PR~;U~ION
systems productive enough. SYSTEM
Production systems are usu ..
(12) Cost Reduction and Control: Cost reduction ultimately following: · ally classified on the basis of the
improves productivity. The industry becomes competitive.
(l) Type of product,
Essentially cost reduction and cost elimination are
productivity techniques. Value engineering, budgetary (2) Type of production line,
control, standard costing, cost control of labour and materials (3) Rate of production,
etc. help to keep costs optimal.
(4) Equipments used etc.
1.10 QUALITIES AND VALUES OF A GOOD The types of production t
PRODUCTION MANAGER categories viz., sys em are grouped under two
According to Mark Dickman, following are the qualities of a (1) Intermittent production system, and
Good Production Manager: (2) Continuous production system
(1) Project management skills.
Inte~ttent :roduction systems can be further classified as Job
(2) Communication skills at all levels. Production, Pro1ect Production and Batch Production System.
(3) Maths & IT knowledge. Continuous Production systems can be further classified as
Mass and Process production systems.
(4) Problem solving skill.
(5) Time management. Types of Production System

(6) Understanding of working processes.

Intermittent Production System Continuous Production Systems
(7) Understanding of quality standards. ·
(8) Work flexibility.
ProJect Production
(9) Ability to make decisions under Pressure. Mass Production

(10) Understanding of health and safety and ability to implement Job Production Process Production
that within the·workplace.
(11) Strategic thinking. Batch Production Assembly Production
(12) Intelligence.
Fig.:1.4
(13) Imagination.
(14) Commitment.
1.12 INTERMITTENT PRODUCTION SYSTEM
(15) Sympathy.
Intermittent Production System means i~ i_s. not continuous
(16) Resourcefulness. production and Production activity starts (irutiates) ;"'dmst~s
(17) Self control. (halts) at irregular (unfixed) intervals (tune gaps . e
t-~t*-
IB
rnn'f
- -
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Vlpul'•"' ProdudJOn an
•
d Toto/ Qualit'f Mana1,tment (BMS)

tem the goods are manufactured

a
/nuoduetion to Production Management ..
Temporary does not mean short in nature, and it could well be
/9

intermittent production sys , d by customers. These goods a mammoth project - like a 5 year project - for example, Colaba-
•fi ders ma e . Bandra-SEEPZ Construction of a Metro Rail urban transportation
specially to fulfil spec c or scale ( uantity) but wide vanety of
are produced on a small q . ry flexible as the goods network. These are one time projects and based on extensive
rod d This system 1s ve . customization that is suited to the customer's 'need. Many
products are P uce · . d the finished product 1s
construction projects, project management contract, civil
~:~;~;:;:s. ;:::::n:::~ s~uence pattern of operations
engineering projects and shipbuilding fall in this category.
is appropriate. Characteristics of Projects Prod~ction Type:
Following is an example of the intermittent production system:
(1) Generally, in the beginning requirements is low and in mid
The work of a goldsmith is purely based on the frequency of
of production it increases and slows down when the project is
his customer's orders. The goldsmith makes goods (ornaments) on
near its completion phase. So the requirement of resources
a small-scale basis as per his customer's requirements. Here,
varies continuously and does not remain same.
ornaments are not done on a continuous basis.
(2) Many agencies have to perform specialized jobs to complete
The characteristics of an intermittent production system are
one Project. Since all jobs are interrelated coordination
listed as follows:
between agencies is important.
(1) The flow of production is not continuous. It is intermittent.
(3) Due to complexity and massiveness of projects, there is a
(2) Wide varieties of products are produced.
possibility of delays in project completion.
(3) The volume of production is small.
(4) At each stage of production proper inspection is required, as
(4) General purpose machines are used. These machines can routing and scheduling changes with fresh orders.
be used to produce different types of products.
Stages in project production:
(5) The sequence of operation goes on changing as per the
design of the product. Project management subject could be dividing into five stages.
Those stages have interaction with each other as a circle.
(6) The quantity, size, shape, design, etc. of the product
depends on the customer's orders. . (a) Initiates the project

The types of intermittent production system include: (b) Planning the project
(A) Projects production (c) Executing the project
(B) Job Shop production (d) Monitoring and controlling the project
(C) Batch Production (e) Close out the project
1.12.1. Projects:
These are two types of Projects:
_A Project is a temporary endeavou (Al Labour Intensive Projects with less at. .omation and less use of
uru~~e product, service or result. Te~ undertaken to create_a
definite beginning and end Th d . porary means having a lean technique and less use of Information technology with
· · e enif 1shreached
obJ'ectives have been achieved . when the.project's less information integration.
any reason. ' or t e project is terminated for (Bl Projects with use of lean technique and information
technology.
 /nuoduction to Production Management .. 21
™ _, . and Total Quality Management (BMS)
10 !f!n'f Vlpul'• Prwua,on . •
f Labour Intensive proiect: (6) Skilled manpower can be scarcely found .
(A) Advantages and Oisadvantagesdo Jabour it is called labour (B) Advantages and Disadvantages of projects with use of lean
If the activities of a project _depechnen ~ngy but ilie manual Jabour technique and information technology:
. proJ·ect· No automatic
intensive
O0
·ectt Labour intensive projects are In this to complete the project, use of automation (less use of
becomes major in such proJ :- e where machine or automatic human involvement wherever possible), use of Jean technique
operated in the countnailes ~~mployed manpower is high, where emphasis is given on waste reduction (which was defined
technology b1sf notd av a , cost. The success of such proiec
at minimum · t by Eiji Toyoda, the Japanese automobile manufacturer of
labour can e oun ff · J b r system is TOYOTA) and use of information technology to integrate and
de ends on the Jabour efficiency. So, e ec~~e a ou . .
.P h . In this the quality ability, skill, trammg coordinate various activities of the project is done.
given emp as1s. . ' . .
efficiency, initiative or workers are given pnonty. Advantages:
More wage is given to skilled workers than to the ineffici~nt ~r (1) Structured Process: It involves work breakdown structure.
unskilled workers. In the countries where greater population 1s Usually the work is allocated to all the participant of the
unemployed, the government operates labour ~tensive projects phases which helps to reduce the time and also the cost of the
for building development infrastructures to provide emplo~~nt project.
to general public. Social justice, employment opporturuties,

.,,
(2) Single Integrated Team: All members are treated equally as
economic stability, etc. can be found in Jabour intensive projects,
part of a single integrated team which involve the owner,
but competition becomes low, production cost rises high,
designer, contractor and all other important player in order to
economic growth rate remains low in it. In this age of
achieve the project goals.
technological development labour intensive projects are gradually
declining due to low competition. (3) Client satisfaction: The project delivery team help customers
decide what they want so that they have a clear
Advantages of labour intensive project:
understanding of customer's requirements and thus satisfy
(1) Many unemployed can get employment by · which
the clients at the highest level.
unemployment problem is solved.
(4) Higher Production Rate and Quality Product: Due to
(2) The attitude of society becomes positive towards project or
involvement and empowerment of employees, the overall
people take project positively.
Production cost and time is less compared to traditional
(3) It becomes suitable in the countries or places where modem method, lead time is reduced and delivers desired end
technology has not been developed. product with best quality.
<4) It helps to bring economic stability.
(5) lnt~gration management: Integration is conjoining the main
Disadvantages of labour intensive project: proiect management components; Planning, Execution and
(1) Production cost increases. Control.
(2) Economic growth rate remains low. (6) Use of P~oject Management Software: Project management
(3) Projects cannot be competitive. software 1s an IT tool which is using for -large projects. It is
(4) Productivity declines. fast and well accurate than the manual methods. Moreover
project management software has the ability to be used b;
(5) Uniformity lacks in production. several people at a time and it needs less manpower. There
 a
23
/ntroduaian ta ProdlJClion Management ..
, , Quality Management (BMS)
Vlpul'•'" p,odua,on and ,ota1 same type of product at regular intervals. Here firm ~ows
22 rnnr software in the market. very well that the customer visits at regular intervals, 11 can
. nagement plan for materials, and process and manpow,e r have
are several pro1ect ma
Ex.: Ms projects, Primavera. them in a master file. As soon as the customer v1s1ts and
books the order, the firm can start production. If the volume
Disadvantages:
, , ated and experience worker. of the order is considerably large and the number of regulady
(1) Reqwre dedic ,, . . ith complex organisation visiting customers are large in number, the Job Produc!Jon
(2) It is challenging in organisanons w system slowly transform into Batch Production system.
structure. . lier management: Here Just Some examples are:
(3) Lack of good and rebaedble shupep raw materials, components
. T' cept is us w er , Hairdressers
m d :i-:::emblies must be supplied on time. But some!Imes Tailoring
an 1· annot match up to the expectahons which may
supp 1ers c Painting and decorating
affect the whole process.
Plumbing and heating repairs in the home
1.12.2. Job shop:
A single product is produced from start to finish as a result of Characteristics of Job Shop:
an individual customer order. Job production te~ds to be lab~ur (1) The product manufactured is custom-made or non-
intensive, and often highly skilled labour is required. Productio_n standardised.
equipment is mostly general purpose to meet the specific (2) High variety of products and low volume.
customer orders.
(3) Variable path materials handling equipment are used.
Job Production system may be further classified as:
(4) A wide range of general purpose machines like grinders,
(I) The Job produced only once: Here the customer visit the firm
drilling, press, shaper etc. is used.
and book his order. After the completion of the product, he
takes delivery of the product and leaves the firm. He may not (5) Highly skilled operators who can take up each job as a
visit the firm to book the order for the same product. The firm challenge because of uniqueness.
has to plan for material, process and manpower only after (6) Detailed planning is essential for sequencing the
receiving the order from the customer. The firms have no requirements of each product, capacities for each work centre
scope for pre-planning the production of the product. and order priorities. ·
(2) The job produced at irregular intervals: Here the customer Advantages of Job production:
vis'.ts the fir~ to place orders for the same type of the product
(1) The main advantage of job production is that it allows the
at megu~ar ~tervals. The firm will not have any idea of
customers v1s1t. ~ere also planning for materials, process firm to make customised products for individual consumers.
and manpower will start only after taking the order from the Producer meets individual customer needs.
customer, In case the firm maintains the record of th J b (2) Because the product or service is customised lo meet the
Produced by it, it can refer to the previous plans, wh:n ~: specific requirements of a customer the firm is able to charge
customer amves at the firm to book the order. a higher price.
(3) The Jobs Produced periodically at regular intervals· In .
system, the customer arrives at the firm to I d . this
P ace or ers for the
 l.'Tl:'.rl.'I" VI ul'•™ Production and Total Quality Management (BMS)
24 = P
- f . realer flexibility which means
(3) Job production also allow~ or g dapted at the buyers request
that plans can be change or a
even after production has begun.
(4) Because each job is unique, wor k er motivation should be
high.
(5) Product is usually of high quality.
LIMITATIONS OF JOB PRODUCTION:
(1) Job production increases the average cost of production since
it requires the use of specialist labour.
(2) Job production can also be very time consuming.
(3) In job production there are very few opportunities to
automate the production process. Hence general purpose
machines have to be used.
(4) Requires investment in skills and training.
1.12.3. Batch production:
Batch production occurs whenever a number of identical (or in
some cases similar) products are produced in a batch. In batch
production the products are not necessarily produced for a
particular customer but are made at regular . int~rv~Js and th~n
sold to a number of customers. Batch production ,s often used m
bakeries where a batch of one product for example brown bread is
made before moving on to the production of some other good for
example white bread.
The Batch Production system can be classified under three
categories:
(1) A batch produced only once: Here customer places order
with the firm for the product of his specification. The size of
the order is greater than that of job production order. The
firm has to plan for the resources after taking the order from
the customer.
(2) A Batch · produced at irregular intervals as per Customer
order or when the need arises: As the frequency is irregular,
the firm can maintain a file of its detailed plans and it can
refer to its previous files and start production.
Introduction to Production Management..
rnnr 25
(3) Batch Produced periodically at known Intervals: Here the
firm either receives order from the customer at regular
intervals or it may produce the product to satisfy the
dem~nd. It can have well designed file of its plans, material
reqmrement and instructions for the ready reference. It can
also purchase materials required in bulk in advance. As the
frequen':'y of regular orders goes on increasing the Batch
Prod~chon system becomes Mass Production System. Here
also, m case the demand for a particular product ceases, the
plant and machinery can be used for producing other
products with slight modification in layout or in machinery
and equipment.
Characteristics of Batch Production:
(1) When there is shorter production runs.
(2) When plant and machinery are flexible.
(3) When plant and machinery set up is used for the production
of item in a batch and change of set up is required for
processing the next batch.
(4)When manufacturing lead time and cost are lower as
compared to job order production.
Advantages of Batch Production:
(1) The main advantage of batch production as opposed to job
production is that it reduces costs since there is less need for a
skilled and flexible workforce.
(2) Batch production also allows the firm to buy material in bulk
and therefore av~il of economies of scale.
(3) Batch production allows workers to specialise and use
specialist machinery which improves productivity. It
promotes functional specialization.
(4) Flexibility to accommodate and process number of products.
Limitations of Batch Production:
(1) The main problem with batch production i_s that all
equipment must be stopped cleaned and reset. m between
jobs. This down time increases the cost of production.
 Quality Management (8MS)
,,. p,oducdon and Tota1 Introduction to Production Management.. 27
"''rfl.T vi,111•1 . d
26 - "" ot be customise to
. eans that goods cann (5) Standardized routing sheets and schedules are prepared.
(2) Batch production m f. d'vidual consumers.
meet the specific needs o in i ds have to be stored The types of continuous production system include:
ns that goo (A) Mass production
·13) Batch production also mea
(B) Process production
which can be costly. t r specialisation it can
· leads to grea e · b (C) Assembly production
(4) Because batch production k et bored doing the same JO
led to de-motivation as wor ers g 1.13.1. Mass Production:
all day every day. In mass production, same type of product is manufactured to
. . and control is complex.
15) Production planning ON SYSTEM meet the continuous demand of the product. Usually demand of
113 CONTINUOUS PRODUCTI . the product is very high and market is going to sustain same
. thi that operates constantly without demand for sufficiently long time.
Continuous means some ng
. gularities or frequent halts. . . The following are the important characteristics of mass
any 1rre . flow production situations production system:
Buff "Continuous
According to a,. . . are standardised as to routings and (1) As same product is manufactured for sufficiently long
are those where the facibti~ d' d Therefore a standard set of time, machines can be laid down in order of processing
flow since inputs are stan ar ise · be adopted" Thus sequence. Product type layout is most appropriate for
d ces of process can ·
proc~sses an sequen . refers to the manufacturing of mass production system.
continuous or flow pr~dulction t most a very few varieties of (2) Standard methods and machines are used during part
large quantities of a sing e or a Th
. d d t of processes and sequences. e manufacture.
products with a. stan ar se f tock ·
mass production is carried on continuously or s m (3) Most of the equipments are semi-automatic or automatic
in nature.
anticipation of demand.
In the continuous production system; goods are . produced (4) Material handling is also automatic (such as conveyors).
constantly as per demand forecast. G_oods are produced on a large (5) ·Semi-skilled workers are normally employed as most of
scale for stocking and selling according to the forecasted demand the facilities are automatic.
and are not produced on customer's orders. For example, the (6) As product flows along a pre-defined line, planning and
production system of a food industry is purely based on the control of the system is much easier.
demand forecast. Here, a large-scale production of food takes (7) Cost of production is low owing to the high rate and
place. volume of p'roduction.
The characteristics of a continuous production system are (8) In process inventories are low as production scheduling is
listed as follows: simple and i:an be implemented with ease.
(1) The flow of production is continuous. It is not intermittent. Advantages of Mass Production:
(2) The products are standardized. (1) It is usually 'automated' to the highest extent possible.
(3) The products are produced on predetermined quality (2) Faster rate of production with reduced cycle time.
standards.
(3) Higher capacity utilization due to line balancing.
(4) The products are produced in anticipation of demand.
 ~n'f~'f Vipul'•"' Production and Total Quality Management (BMS)
28 Introduction to Production Management ..
29
(4) Less skilled operators are required. Therefore fewer labour 1.13.3. Assembly Production:
costs. An assembly line is a .
(5) Manufacturing cost per unit is low. interchangeable parts are ad::nufacturing process in which
10
manner to create an end d a product m a sequential
limitations of Mass Production: used to produce th •t pro uct. The workers and machinery
(1) Breakdown of one machine will stop an entire production e em are stationa
I I th •
product moves through th ry a ong e lme and the
· e eye Ie, from start to finish.
line.
Assembly line conce I w d .
(2) Not very flexible, as a production line is difficult to adapt. industry in the USA (C p as ev:loped m the automobile
(3) Machinery is very expensive to buy, so pr?du:tion lines a~e
Company) A uf o_ncept was introduced at Ford Motor
· man acturmg unit f d
very expensive to set up and therefore high investment m assembly line bee . pre ers to evelop and employ
roducti·on In ause it helps to improve the efficiency of
production facilities. P · an assembly lin ch ch" .
receive material from . e, ea . ma me must drrectly
(4) The cycle time is determined by the slowest operation. lhe prevmus machine and pass it directly to
the nex t ma chin e· Machine and equipment . should be arranged in
(5) Workers are not very motivated, since their work is very
ch a manner
such chin that every opera tor h as a free and safe access to
repetitive.
ea ~a e. Space should be provided for free movement of
1.13.2. Process Production (Flow Production): fork lifts, trucks etc. which deliver materials and collect finished
Process Production is an extension to Mass Production which products.
is carried on continuously through a uniform and standardised
1.14 COMPARISON BETWEEN INTERMITTENT AND
sequence of operations. Highly sophisticated and automatic
CONTINUOUS PRODUCTION SYSTEMS
machines are used. Process production is employed in bulk
processing of certain materials. The typical processing Industries
Particulars Intermittent Continuous
are fertilizers plants, petrochemical plants and milk dairies which
have highly automated systems and sophisticated controls. They (1) Nature of Goods are produced based Goods are produced
Product on customer orders and not based on dema;,d
are not labour-intensive and the worker is just an operator to
for stocking or stocking for forecast and for
monitor the ~ystem and take corrective steps if called for.
less period stocking for long
On the basis oi the nature of production process, flow period
production may be classified into Analytical and Synthetic (2) Flexibility of Production process is Production process is
Production. process flexible. The product design not flexible. It is
(a) In Analytical Process of production, a raw material is goes on changing and standardized. The
customization is possible. same/standard
broken into different products e.g. crude oil is analysed
product is
into gas, naphtha, petrol etc. Similarly, coal is processed to
manufactured
obtain coke, coal gas, coal tar etc. continuously.
(b) Synthetic Process of production involves the mixing of (3) Scale of Goods are produced on a Goods are produced
two or more materials to manufacture a product for production small scale, so there is no on a mass scale, so
instance, )auric acid, myristic acid, stearic acid are benefit of economies of there is a benefit of
synthesised to manufacture soap. scale. economies of scale.
 Q rty Management (BMS)
cn.rrr
= Vipul's™production and Total ua , Introduction to Production Monogement..
JO ,Oi -

Production is done on Production

rnrrr JI
Per Unit Cost Production is done on a
, (4)
(12)
a mass-scale and . The functions of routing, The function of
small-scale and therefor~ Planning and scheduling and loadine
cost per unit may be hig er. therefore cost per urut Control becomes relatively
routing, scheduling
may be lower. and loading are
complicated due to odd
carried on smoothly
,--- wide ranges of products are One particular size of order, non-repetitive
(5) Range of type/fe"! standard due to standardised
manufactured nature of the order, products, rated
products products are different delivery dates, capacity. Here
manufactured. etc., production planning production planning
Depending upon customers Single set of and control is complicated. and control is simpler.
(6) instructions instruction is
specifications, m_any
detailed instructions are sufficient. 1.15 COMPARISON BETWEEN JOB/PROJECT, BATCH,
provided MASS AND PROCESS PRODUCTION SYSTEMS
Staff required with high . Staff requires more
(7) Staff managerial skills and Comparison of Different Production Systems
technical skills and ab1hties
less technical skills. Classification of production systems (Production Volume v/s Product
Variety)
Change in location is easy Change in location is
(81 Location
difficult
change
Capital invested is less Capital invested is
(9) Capital
compared to continuous comparatively very
Invested
production. large.

(10) Plant It is desirable to have a It is essential to have a Production/

Operations
maintenance maintenance department to good plant Volume
and Service avoid losses due to break maintenance
down of machinery. department to avoid
stoppage of Job-Stq,
production due to Pro<b:tion
break down of
machines Output/Product Va.-lety
(11) Balancing of Due to different products The chances of Fig.: 1.5
Production and different types of imbalance in plant
As we have discussed various systems and sub-systems in
Capacity machines with different capacity is very much
detail in the above lines, we can now make a comparative study of
capacity blocks, possibility less.
themasfollows·
of imbalance in plant
capacity occurs. P.arameler Job/ Project Batch Mass Process
Manufacturing highest Medium Lower Lowest
Cost
Flexibility of Most flexible Flexible Not Flexible NotAexible
process
 32 Vipul'•™ Production and Total Quaf,ty Management (llMS)
Introduction to Production M
Siu and lowest Lower higher highest anagement.. 17"17"17"
CapiW (b) Which one of the folio . ,, ·" ' 33
Investment (I) Bank loans wing beSt represents a pure seivice?
require high Comparatively Comparatively (II) Computer d" . ·
R,quired Require high (fl!) Attend· iagnos1s and repair
Technial skilled technical skilled Require low Require low 1ng a play
Ability foreman and technical skilled technical skilled technical (Iv)_ FaSt fooct restaurant
other executives foreman and foreman but foreman but (c) Which one of the folio .
other require higher require highest (I) Sall wing best represents a pure gooct?
executives managerial managerial (11) Fast food
ability ability (fl!) Attending a play
Mostly Mostly (Iv) Vehicle repair
Organisational Mostly Mostly
Structure functional functional divisional divisional (d) The following terms _ inter ..
organisation organisation organisation organisation highly repetitive tasks. be t ,Changeability of parts, division of labour,
(I) Quality s ocus on _ _
Job Security No job security No job security Greater Job Greatest Job (II) Cost and efficiency
to workers due to workers due Security lo Security lo (Ill) Quantity
to their lo their workers workers (Iv) nme
intermittent intennittent
(e) Which function typically
character. character. functional area? emp 1oys more people than any other
During odd During odd
times, workers times, workers (1) Information Systems
particularly (II) Operations
particularly
unskilled unskilled (Iii) Marketing
workers are worke.Is are (Iv) Finance
thrown out of thrown out of (I) A measure of the succes f . .
job. job. satisfy customers is s o an operation in producing outputs that
(I) Efficiency
Industrial Hairdressers, Mechanical Automobiles, Chemical, (II) Effectiveness
Application Tailoring, engineering electrical goods Petroleum, Milk (111) Quality
buildings, and consumer- etc. Processing etc. (Iv) Profitability
bridges, goods
industries like (g) A meas_ure of the success of an operation in converting inputs to
outputs Is
cotton, jute,
machine tools, (I) Efficiency
shoe-making (11) Effectiveness
etc. (Ill) Quality
V (Iv) Profitability
Which of the following would not be an operations activity in a fast-
Ii QUESTIONS i
(h)
fooct restau~nt?
(I) Advertising new salad dishes
(IQ Purchasing tomatoes
(HQ _ Plaming !he layout of the serving areas
OBJECTIVE QUESTIONS (Iv) Cooking hamburgers and fries
(1) Multiple Choice Questions: (I) The teiins, 'general purpose equipment," "flexible and capable of
(a) Which of the following Is not a key activity of an operations manager? customizing work' and "wide variety of goods or services" best relate
(I) Understanding the needs of customer to
(II) Continually learning (I) Project
(111) Managing cash flows (II) Job shop
(Ill) Flow shop
(Iv) Exploiting technology to produce goocts and seivices
(Iv) Continuous flow
 Introduction to Production Management.. 35
. d Total Quality Management (M1S)
1,TLlrrf Vfpul'1"' p,oducllOn an (c) The examples of the necessary input production factors are Raw
34 • ion of inputs into outputs are Material, labour, machines and equipments, marketing, finance.
0) The steps of th8 conversood Feedback (d) The scope of Production Management is greater than scope of
(I) LabOUr, Control, sfeedback Operations Management.
QI) capital, Land, Se p~ss. Output, Feedback (e) Quality of services varies with time and person, but Quality of Goods
QII) Input Conversion . Feedback
Iv) Input'. output, Transtorrnat1on, ation of a utility and services. is more standardized.
( is descnbed as ere (I) When services are purchased by the customer, the ownership is
(k} - - transferred to !he customer.
/OCt 18)
(Q Produc_t process (g) Painting a wall by any specific colour is an example of mass
(II) operabon production.
(Ill) Production . (h) Sugarcane processing to produce sugar is an example of process
(Iv) Inventory d rrnents pharmaceutical production are production.
(1) Unifonn making, readyma e ga (0 t 18} (i) Construction of Metro rail is project type production. (Apri/ ·18)
production system. c
0) Job Securi.ty is higher in mass and Process Production compared to
(I) Batch Type
that of Job and Batch Production.
(IQ Mass Type
(ill) Job Type {Ans.: (a) True, (b) True, (c) False, {d} False, /e) True, (f) False, (g) False,
18 {h} True, (I) True, (j) True] ··
(m) \~v~ut:;::~i:.:Output are basic factors of - - -· (Oct. ) (4) Match the Column·
ui( Production Process Group 'A' Group 'B'
(II) ABC Analysis (a) Standard Products (I) Succeeds Production Management '-·
(Ill) Marketing View
(iv) Inventory Turnover Ratio . . . . (b) Feedback of Output (ii) Highly Skilled Workers
(n) is the process of transfonning raw material into finished (c) Green Production (Iii) production of crop
goodsforsale- (April 19) . (d) Intermittent Production (Iv) Special Purpose Machines
(Marl<eting/Pr"$)'ction/Packag1ng) . . . (e) Operations Management (v) Mass Production
[Ans.: l•J Managing cash nows; /b) Attending a play, _(c) Saff, /d) Cost _a_nd
efficiency; l•J Operations; (f) Effectiveness; /g) E/fic1_ency; (h) Advert,smg (vi) Environmental Friendly
new salad dishes; {I) Job shop; {/) lnpul Conversion Process, Output, (vii) Input
Feedback; /k) Operation; /t) Batch Type; (m/ Production Process; (n/ (viii) Corrective action
Produclion]
... ..
{Ans.: (a - v); (b - v11i); (c - vi); (d- 1i); (e - i)J
(2) FIii in the blanks: •
(a) Production is defined as 1he step-by-step _ _ _ _ of one form ol I THEORY QUESTIONS .
material into another fonn through chemical or mechanical process to (1) Deline Production Management. Discuss the components of Production
create or enhance the utility of the product to the user: Management. {April 19)
(b) Intermittent Production System means it is not (2) Briefly explain the production system and its characteristics.
production. (3) What _is job shop production? What are its characteristi.;., advantages and
(c) _ _ _ _ is a toss connected with raw material or inputs. hm1tat1ons?
(d) Hairdresser is an example of _ _ _ _ Production system. (4) What is batch production? What are its characteristics advantages and
(e) _ _ _ _ Production System is flexible whereas Continuous limitations? '
Production System is not. (5) What _is mass production? What are its characteristics, advantages and
[Ans.: I•) conversion, {b) continuous, (c) Waste, {d) Job, (e) Intermittent] llm1tat1ons?
(3) State whether the following statements are True or False: . (6) What is project production? What are its characteristics advantages and
(a) An organization consists mainly of five important functional limitations? '
subsystems, viz. Finance, Production and Operations, Marketing, (7) What is PfOCess production? What are its characteristics, ~dvantages and
Human Resource and Management lnfonnation System.
limitations?
(b) The principal activity in all production operations is to transform inputs
with suitable processes into outputs that satisfy consumer wants.
36
Vlpul•s™ Production and Total Quality Management (BMS)
(8) What is Assembly production? Explain with minimum 2 examples of
Assembly Production.
(9) Explain in brief the objectives of production management.
(10) Explain the scope of prqcfuction management.
(11) What is the function of a Production manager? Is this function different frol'll
the function of a marketing manager? · -
(12) "The management of the . transformation process is what we. mean by
production management. Its study is quite independent ~f whatsoever
specific technologies are involved and is concerned with employing
methodology to operate aod administer transformation systems With
effectiveness." Discuss and explain the above statement.
(13) a
Discuss different components or elements 9f Production System.
(14) Compare between Intermittent and Continuous Production Systems.
(15) Compare between Job, Batch, Mass and Process Production Systems.
(16) Explain the qualities essential for a production manager? (Apr/118)
(11) What are t'1e multiple objectives of Production .Management? (Oct. 18)
(18) Write short note on:
(a) Production System. (April 18, 19)
(b) Intermittent Production System.
(c) Continuous Production Systems.
(d) Mass Type Production System. (Oct. 18)
(e) Process Production.
(f) Assembly Production.
(g) Job / Project Production.
(h) Batch Production.
 ory Management trrr!'" /8/
/n~en t

CHAPTER
Inventory Management
8
8. I Define Inventory
B.2 Importance Of Inventory Management
·8.3 Purpose of Inventory Holding
8.4 What are the different types of Inventory?
8.5 What are the objectives of Inventory Management?
8.6 Inventory functionality (Need for holding lnventory)-
8.7 Some Inventory related Definitions / Concepts
8.8 What are the different costs of Inventory?
8.9 Inventory Control
8.10 Selective inventory control techniques.
8.11 Economic Order Quantity (EOQ)
8.12 JUST IN TIME QIT) -
8,13 Inventory System Models
8.14 Numerical on EOQ
8.15 Numerical on Inventory Levels
.. Questions

"Inventory is a very expensive asset that can be replaced with a less expensive
asset called 'information'. In order to do this, the information must be timely,
accurate, reliable, and consistent When this happens, you carry less inventory,
reduce cast and get products to customers faster." ·
- J. David Viale
 WW.-rf • i;_, Vfpul's™ Production and Total Quality Management (BMs
182

8.1 DEFINE INVENTORY

.

·
Inventory is the stock of any item o~ resource used in an
=:
organization. These items or resources can mcl~de: raw materials,
finished products, component parts, supplies! and work-in.
process;
K. S. Menon has .defined Inventory
r-..r: .'
as;
(1) Production Inventories: Those purchased from _the market
like raw materials, spare parts and components & special
parts or comp_onents manufactured in one's own company
and kept in stock for use.
(2) MRO Inventories · or Maintenance, repairs and operating
SU;ppfies: These are bought out materials required for
maintenance of the production process but which do not form
part of the finished product. These include petrol, .oil and
lubric~ts (POL), machine parts, jigs, tools etc.
(3) Work in Process or In Process Inventories: These are semi-
finished products usually found on .the f.actory floor in
various s~ages of production.
(4) Finished goods.
I 8.2 IMPORTANCE OF INVENTORY MANAGEMENT
Inventory management is important from the view point that it
enables to address two important issues:
(1) The firm has to maintain adequate inventory for smooth
/
production and selling activities.
(2) It has to minimize the investment in inventory to enhance .
firm's profitability. ·
Investment in · inventory . should neither be excessive nor ·
inadequate. It should just be optimum. Maintaining optimum
level of inventory is the main aim of inventory management.
Excessive investment in inventory results into more •cost of fund ,
being tied up so that it reduces the profitability, inventories may.
· be misused, lost, damaged and hold costs in terms of large space
and others. At the sam~ time, insufficient investment in inventory
creates stock-out problems, interruption in production and selling
,'
Inventory Management rrrrrr.· /83

operation. Therefore, the firm may lose the ~ustomers as they shift
to the competitors. Financial manager, as he involve~ in inventory
management, should . always try to put neither excessive nor
inadequate · investment . in inventory. The importance or
significance of inventory .management could be specified as
below:
Warehouse Transport
Transport Stores ProdUcUon

Storage o1 Raw Storage of

Material and
1--t Components 1--1 Work In
Finished Goods
1--1 and 1---t Outt>ound
Inbound and Process Inventory
Inventory Managemenl
Management

Inventories and the flow of materials

Material (Inventory) Flow System - Receipt of Input Materials
from Suppliers Receiving, Inspecting and Storage of accepted
Input Material Moving to Production and convert Raw
Materials to Finished Goods Moving of Finished goods to
Warehouses to final Customer
· (1) Inventory Management is responsible · for planning and
controlling inventory from the raw material stage to the
customer. Inventory management is not only concem with
aggregate or overall inventory ·management but also
individual item levels too. · ·
(2) Inventory management helps in ·maintaining a trade-off
between carrying costs and ordering costs which results into
.minimizing the total cost of inventory. · .
(3) Inventory management facilitates maintaining adequate
inventory fo~ smooth production and sales operations.
(4) Inventory management .avoids the stock-out problem that a
firm otherwise would face in the lack of proper inventory
management. ·
(5) Inventory management suggests the proper inventory control
system to be applied by a firm to avoid losses, damages and
misuses.
184 [nf~ Vfpul's™ Production and Total Quality Management (BMS) ~to rt
Management
1

(c) Retailer Inventory.

lfrnr 185
8.3 PURPOSE OF INVENTORY H~LDING
(1) To achieve economies of scale in Purchasing, Transportation s.5 WHAT ARE THE OBJECTIVES
and Manufacturing. _____ M_A_N.:.:AG.:::E~M.ENT?OF INVENTORY
(2) Provide Protection from uncertainties arising out of ) MaXimizing Customer Serv· .
11
variability in demand and replenishment (order) cycle. forecasts, a multitude of changtesce.t Inhaccurate customer
(3) To achieve specialization in manufacturing (Focused orders, and an overall lack of ac o t e ongma · · I customer
count mana
Factories). Jl\ajor causes of poor customer se . gement are the
rv1ce performa .
of on time d eIivery not suppliers t nee in terms
(4) • To strike balance between supply & demand. . • ' no purchasing Th uI
is excessive inventory, which ultimate! · . e res t
(5) Building seasonal inventories (Seasonal demand for finished write offs and high product cost and Y leads : inventory
0

goods/ availability of inputs at particular time of the year). . hin th Iower profit margin In
establis g e customer service level det . h .
(6) Acts as a buffer between critical interfaces in the channel of you want to ship on time. ' ermine ow often
distribution. The more accurate the individual prod t I f .
uc sa es orecasting
(7) Inventory is held throughout the supply chain to achieve time is, the smaII er the forecast error and the Jess · t
·d . . inven ory needs
and place utility as channel participants are separated to be came to mamtam a specific level of customer
· service.
•
. .
geographically. By c ~ g I~ss mv~ntory, the capacity of machines required

J
8.4 WHAT ARE THE DIFFERENT TYPES OF to buil~ _products IS better utilized. Inventory is not built
before 1t 1s needed, thus avoiding the mistake of committin
INVENTORY?
capacity of machin~s too early. By carrying less inventoJ
(A) Classification based on why they exist: generally less space IS used, and it is not used too early.
(i) Cycle or }'Vorking Stock: Purchases of raw materials and 12) Maximizing the efficiency of Purchasing and Production:
.components. There are instances when inventories are held due to cost
(ii) Work-in-process (WIP): buffers between work centers. efficiencies in procurement and production.
(iii) In-transit inventories. Goods may be purchased in greater quantities than are
needed in order to achieve cost efficiencies in purchasing and
(iv) Safety Stock i.e. Fluctuation inventory: safety stock
transportation. When goods are purchased in this way some
maintained to prevent shortages.
inventory may result.
(v) Anticipation Stock: Inventory built up in anticipation of In manufacturing, long production runs (large lot sizes) of
high demand.
a single product are usually much more :fficient than s~ort
(a) Seasonal (b) Speculative runs. Long runs results in inventory that sits for long periods
(vi) Dead stock. of time.
(B) Classification of inventories with reference to inventory (3) Minimizing Inventory Investment: Inventories_tie up cash
position in distribution channel: that the company could use elsewhere in the busmess. thinExcess
th t
inventory can create a negative cash flow, some g a
(a) Manufacturing Inventory; must be avoided. _This is why inventories are kept low as
(b) Wholesale Inventory; possible.
 t,1anagement
/86
6Tr£rf Vfpl'•TH Production and Total Quality Management (¾SJ t(llnco,Y •. • S"~rr, r 187
((eeP.~g_jn-ffillld the economics of od .
c4) Maximizing Profit: Profit can be maximized by increasui , future demand. This is sent to the pr k U~lion as well as the
revenue or decreasing cost. One of the best ways to do this _g with full-load capacity of trucks at ~ t m lar~e shipments;
by proper management of inventory. IS way, therefore, decoupling tends to 'buff~ fre'.,ght cost. In a
8.6 INVENTORY FUNCTIONALITY (NEED ·FOR erations of an enterprise from un ~r or cushion" the
oP f . certainty This ults .
HOLDING INVENTORY) the need or inventory. 11 .• · res m
C) Balancing Supply and Demand:, Balan . .
The functions of inventory are as follows: ( 'th the elapsed time b tw cmg, IS concerned
(A) Geographical Specialization: I~ ano:ws geographical wi . . e een consumption and
manufacturing. Balancing inventory cil
specialization for individual operating_uruts. Because of the availability with demand. recon es supply
requirements for factor of production such as power
materials, water, and labour, the economical location fo; For example sugar is seasonal productio
· F • • • .
d
n an year-round
manufacturing is often at a considerable distance from major · consumption. rwt JWce 1s consumed to a grea t ·extent
throughout th
markets. For example, tires, batteries, transmissions, and . ) . be year.
. But the production , ('1.e. reaping
. or
springs are significant components in automobile assembly. harvesting 1s as1ca1ly seasonal· Similarly umb rell as cane b
The expertise and technology to produce each of these Produced
. throughout
. the year but the demand 1s · seasona1.
components are traditionally located in proximity to material Balancing of inventories, therefore, attempts to link the
sources in order to minimize transportation. This strategy economics of manufacturing with the variations of
leads to geographical separation of production so that each consumption.
automobile component can be produced economically. When .the demand for a product is concentrated in a very
However, geographical separation requires internal inventory short selling season, manufacturers, wholesalers and retailers,
transfer to completely integrate components into final are forced to plan about stocking of goods far in advance of
assembly. · the peak selling period.
For example: Procter and Gamble uses its distribution (D) Buffer Uncertainties: The safety stock or buffer stock
centres to combine products from its laundry, food and health function concerns short-range variations in either dem;md or
care divisions to offer the customer a single · integrated replenishment. The safety stock requirement results from
shipment. This also calls for holding ·inventory at the uncertainty concerning future sales. Safety stock protects
warehouse. against two types of uncertainty.
(B) Decoupling: The economic lot size of manufacturing (or (a) The first type concerns demand in excess of forecast
transportation) may be different from · the · market
during the performance cycle.
requirements. Decoupling processes permit each product to
(b) The second type of uncertainty involves delay in the
be manufactured and distributed in economic lot sizes that
are greater than market demands. performance-cycle length itself.
For example, let us cons~der a tire-manufacturing unit. In the first type of uncertainty, the customer may demand
This unit, once the production operations begin, a certain more than what he had actually planned. It can also happen
type of tire will continue to produce till an economic lot size · that the demands from the customer may also fall, which·can
is produced. The actual demand may .be less than market also upset inventory.
demand. But the production of the lot was carried out
 188 tffnf Vlpul's™ Production ond Total Quality Management (¾SJ /nveJIIO,Y Management

In the second type of uncertainty, ther~ can be a dela . Number of units d ~ffif I 89
SL = emanded - Num
order receipt from the customer, or delay m the processu? 1l\
order, or delay in transportation of required materials.
brings about an uncertainty in the length of the perform s
ti Number of units d
preferred time span for Calcu!ati .
her of units short
emanded
on is 1 year
cycle. ance SL RANGE: 0 SL s 1 (or o•;. ·
• s SL :5 100'¾)
To tide over these uncertainties, there are statistical i.e. SL= 0 (or 0%) means complet D . •
e ehvery f ·1
mathematical techniques, which help managers to plan ~d SL = 1 means 100% SERVICE (N at ure
levels of safety stock or buffer stock. With these avaiJabI e o shortag )
SL is expressed as a %. es
techniques, the probability & the magnitude of each type
uncertainty can be reasonably estimated. The function
1
° Another method to determine Se .
kin
_
rv1ce Leve) is b
buffer or safety stock inventory is to provide a specifi~ the Jower stoc g cost (or under stockin ) - Y considering
degree of protection against both these types of uncertainty. cost. . g and the overstocking
These functions define the inventory investment neces Under stocking cost (Ku) merely
for a specific system to execute management's objectives. sary inCUT if the
item was not available. means the loss one could
8.7 SOME INVENTORY RELATED DEFINITIONS/ (Missed deliveries, lost sales, d'1ssati'sfied custom d
CONCEPTS production bottlenecks) _ ers an

8.7.1 Inventory Policy: Overstocking Cost (Ko) is not only th .

· -1d e inventory carrying
costs but may me u e other factors like op rtuni .
It consists of guidelines concerning what to purchase or funds) po ty cost. (ties up
manufacture, when to purchase/manufacture and in what
quantity. It also deals with the inventory positioning and Ku
SL=-K
u+ Ko
placements in plants and distribution centres.
. The second inventory policy element concerns inventory 8.7.3 Average Inventory:

1
management strategy. One approach is to manage inventory at
each distribution centre independently. The other extreme deals
with inventory interdependence across distribution sites by
managing inventory centrally. Centralized inventory management
requires more coordination and communication.
8.7.2 Service level:
It defines the performance objectives - it is the probability
determining the amount of inventory that is required to be kept
on hand so that this will be sufficient to meet the expected
demand. E.g. If the service level is-95 % it means that the demand
will be met 95 % of the time.
One method of calc'ulating service level (SL) is
SL _ Number of Units delivered without delay
Number of units demanded
. Average inven_to_ry consists of the materials, components; work
m ?.r?'ess and finished products typically stocked in logistical
~acil1ties, From a policy viewpoint, the appropriate level of
inventory must be determined for each facility.
Average inventories include:
(a) Cycle inventory or base stock or Lot size stock
(b)Safety Stock Inventory or Buffer Stock Inventory
(c) Transit Inventory
(a) Cycle inventory or base stock or Lot size stock: It can be
defined as the % (portion) of average inventory that results
from replenishment process.
190 fflfrf , Vlpul's™ Production and Total Quality Management (llMS) ry Management
/nttntO lff'E'J"' 191
Considering only the order quantity, (v) Availability of substitutes• !es , ""
. .. · s sa1ety stock.
Cycle invent~ry or base Order Quantity (vi) poss1b1hty of making the it .
stock or Lot size stock - 2 stock. em in-house: lower safety
(b) Safety Stock Inventory: The second part of__Average (vii)Risk of obsolescence or deterio Ii
Inventdty is the stock held to protect agamst the impact of • . ra on: low safety stock.
(viiil_Space restrictions: Where storage s a .
uncertainty on each facility. This portion of inventory, is where storage itself is diffi ( P ce is a problem or
called safety stock. It is used only at the ~nd oheplenishrnent cu1t glass panes o I
· cartons ,of huge thermocol sheets) saf ty r arge
cycles when uncertainty has caused higher than expected e stock should be
Iess.
demand or longer than expected perfonnance cycle times.
(ix) Management policy: Companies fin • .
Order Quantity · · 1 anaa1constraint or
Average Inventory = . 2 + Safety Stock r ~ g mto osse_s ~ay decide to prefer a stock out
situation rather maintain a safety stock.
· Safety Stock Inventory is created by placing an order
sooner that typically needed. The replenishment order most (c) Transit Inv~nto':f or Pipeline Inventory: It represents the
likely will arrive ahead of time, protecting against three stock -~at 1s either moving . or awaiting movement in
uncertainties: transportation vehicles. This portion of the total inventory is
also known as pipeline inventory. It can also be defined as the
(l)Demand; materials moving forward but no_t yet received at the
(2) Lead time & destination.
(3)Supply. Example of Pipeline Inventory:
How much should the magnitude of safety stock be?.. , In many instances, especially with overseas shipments,
The level of Safety stock will be decided by: inventory can remain in the transit pipeline for days or weeks
at a time. For instance, a shipment of video game consoles
(i) Category of item: An A category item where the controls
made in Japan can take several days to arrive by container
are better the safety stock can be low, for a standard
ship to an American port. If the wholesaler has already
which is readily available safety stock can be low.
purchased the consoles, they are part of that wholesaler's
(ii) Lead-time: Higher the lead-time more is the chance of inventory until he sells them to his retail store customers.
fluctuations - hence higher safety stock. When the retail store purchases the consoles from the
(iii) Number of Suppliers: If many suppliers are available we wholesaler, the pipeline inventory goes on their records.
can hold low-safety stocks. 8.7.4 Maximum Stock Level:
(iv) Criticality of the item: An item with high stock out cost This is the level beyond which stock should not be maintain~d.
(Critical items needs higher safety stock. For example in The main objective is to avoid over-stocking and_ thereby using
case of packing materials the safety stock needed is high working capital in a proper way. Maximum level 1s computed as
as otherwise finished goods cannot be marketed. follows: .
However if the goods are delivered in both packed and·
Maximum Level = Re-ordered Quantity+ Minimum Stock Level
loose from (e.g. Lubricating oils) the safety stock can be
less. OR
 ry Management ff"Ff
192 ~!if!if Vipul••™ Production and Total Quality Management (llMsJ ~,,enlO .
'[he simple formulae to calculate th ff 193
Maximum Re-ordered Re-ordered Minimum Minimum t)\e following as~umptions: e re-order level is based on
level = Level + Quantity - consumption x reor~erect
penoct constant daily usage of invento
(1 ) ry, and
Normally in Fixed Quantity (Q) System: (Z) fixed time.
Re-ordered quantity = EOQ In other words, the formula assum ..
. es conditions of .
8.7.5 Minimum Stock Level (Safety Stock Level): Re-order level = (average daily usa . certainty.
This is the level below which stock of an item should not fail. tiJllC in days) ge of inventory) x (lead
Normally Safety Stock Level = Minimum Stock Level With the inclusion of safety stock th
, e re-order level becomes·
While fixing the minimum level, the following points should Re-order level = (normal consum tion . ·
be taken into account: period)+ safety stocks p during procurement
(a) Re-order level, ::: (Average consumption rate x Av .
stocks erage 1ead Tune) + safety
(b) Average rate of consumption of material, and
(c) Average time required to receive the delivery of fresh ::: Expected demand during lead time + safety stocl<
purchases. ::: [Expected daily demand x Expected le~d tim' I
e + Safety stock
Minimum level is computed as follows: :::(d X LT)+ ss
Minimum level (Safety Level)= (Re-ordered level) - (Average The re-ordering level is the point fued betw •.
. ck . een mmunum and
rate of consumption x Average re-ordered period) maxunum sto levels at which time it is essenti'al 1 . .ti t
. .ti. (f o uu a e
Minimum level (Safety Level) = (Maximum Lead Time _ purch. ase reqws1 on or purchased items) and
. . (f
uf
man acturing
•
Average Lead Time) x (Monthly Consumption) reqws1tion or manufactured
. items) in the factory for esh
fr
suppIies ofth e matena1. _
8.7.6 Re-order level (ROL):
Re-order level represents the stock level when the stores must
Mulmum level ----------- ----------- ------
.-,eotory ----- ---R•ij:do,
place purchase requisition on the purchase department for level
Reorder level --------- __ ________ __ ·---··· •• __ 0. Uty
replenishment of stock through fresh purchases. Order level t Minimum level ----------~- _________ .,_ }ButterStoc __ ____ _
should be so adjusted that fresh supply is obtained often enough Dangwlevel ----------~-~------------------------ Safety Stock
and in some cases invariably before the stock runs out. In other ~- i+
words re-order point may be defined as that level of inventory T1 T2
lead Time= T2 - T1
when fresh order should be placed with the suppliers for
8.7.7 Danger Level:
procuring additional inventory equal to the economic order
quantity. The reorder level would be established at a point such Generally the danger level of stock is indicated below the
that the stock in hand would be just sufficient to meet the demand safety or minimum stock level. Sometimes, depending on the
during the lead time. Although some sophisticated re-order level practices of the firm and circumstances prevailing, the danger
formulae are available they are outside the scope of this book. level is determined between reorder level and minimum level. In
the second ca~e (danger l~vel between ROL and Minimum Level),
the firm can only take steps to ensure t!tat materials ordered will
 194 el'fl'" Vfpul'•™ ProdUCDOn and Total Quality Management (¾SJ ~;tnto,Y Management . •
. 1.s the time
. i°i'2""l"I""
arrive in time. It can be employed for ti:ie p~o~ of f?lloWing u (I) Lead. rune betw """' 195
on delivery on outstanding orders of high pnonty. It 1S the 'p 0 . P fr , een order 1
receipt om customer 5 pers . P acement and hi
· a stock-out 1s
of no return' after which · meVI
. "table if .d e lay oceurs.1.t\t . Pective. s pment
•) r..ead-time when viewed fr
(• d orn suppl"1 ,
Danger Level""'= Average Consumption x Lead tune for tiJJle between or er receipt d er s perspecti .
.emergency purchases. l tim , an order 5 hi ve 1s the
'order eye e . This cycle is rna Pment also called
8.7.8 Average Stock Level: which are listed below·· de up
.
of several factors.,
Average Stock Level is computed in following manner: Buyer related factors are
Average Maximum Level + Minimum Level (1) Acceptable inventory levels at bu ,
Stock Level 2 wants low inventory level t hi yer s place. When buyer
short lead-time is strong. a 5
place his demand for
_ Minimum Level + Re-ordered Quanti9::
- 2 (2) Invent~ry value. Money blocked . . .
when inventory value is hi h m inventory 1s high-
Minimum Level + EOQ inventory at short lead-t tirne.g · Hence need for small
2
(3) Stock-out risk. If this is high sh0 rt 1 . .
8,7.9 Difference between Buffer, Safety and Reserve Stock: ead-time IS demanded
(4) Order placement by buyer: wh .
Buffer Stock: This is a factor that inf! en IS the order placed?.
uences the lead-tim d .
It is that quantity which provides for normal consumption the supplier. As buyer places ord thi . e nee ed by
during Average Lead Time: factor. · er s IS a buyer-related
Safety Stock: Supplier related. factors are
It is the quantity which provides for average consumption (1) Order processing time: editing th d f .
during any increase in the Lead Time. bal ance, acceptability of the order, e~i;ro:Ctheo:r:;~
Reserve Stock: sa1es records and sending instructi t· .
· d ons o inventory
It is the quantity that provides for an increase in the rate of points an preparing shipping documents.
consumption during average lead time. (2) O~der pre!'ara~~n: making the inventory ready for
In short, Buffer for Normal Consumption in Lead Time, Safety sh!p~ent: identification, handling, packing labelling etc.
for increase in Lead Time and Reserve for increase in rate of this time component is significant which can be reduced
consumption in Lead Time. by advance instruction. . .
8.7.10 Lead time ( buyer and supplier factors): (3) Order shipment: time between the order placement on
the transport vehicle for movement and receipt of the
Lead-time is an important parameter that determines the
goods at the customer's place modem information
effectiveness of customer satisfaction process. One of the current
system has considerably reduced. the lead time. But this
chaUenges in the market is demand for lower lead-time. As this
is a two way process between the buyer and supplier.
effects the inventory levels and thereby all customer expectations
like cost and delivery. ·Reduced lead times are fundamental need
of a ]IT to rise inventory turnover ratio.
 t,1anagement
196
R"!i!"rf Vlpul'•"' Production and Totol Quality Management (BMS) 11""1ort . .. rnnr · 197
t But acquisition of a larger qu t'
8.8 WHAT ARE THE DIFFERENT COSTS OF 1
Jll0l)ll;oeiated with the maintenancean
0
;ty
Would increase the
INVENTORY? "'5#g costs. inventory, which is,

FOUR MAJOR INVENTORY COSTS ARE

(1) Ordering or Procuring or Acquiring or Transaction Cost 0
,~,a 1twentory Carrying Costs (i.e. C):
. .
. [llventory cai:rrmg cost IS the cost incurred . . . .
setup cost: Fixed cost incurred each time order is placedr tor)' e.g. interest on capital lock d in mamta1Ill!1g
iJ1VeJ: tion & obsolescence ins e up, losses due to
Costs for arranging specific equipment setups, etc. · tenora ' urance premium
Je ~,ation expenses, shrinkage/ evaporati· ' storage &
(2) Inventory Carrying (Holding) Cost: Costs for handling presf• • on etc.
storage space (rent or buy), Personnel, Equipment, Insurance' ""'e
1••
elements of Inventory Carrying·Costs . , below:
are explained
Taxes, Obsolescence, and Shrinkage -Opportunity Cost? ' Capital Cost: Also called the interest or .
(3) Purchase {Direct Material) Cost (DMCl: Only relevant if 1al cost focuses on what costs a compa::pp_orhm1ty cost, ~s
· d · · · Y inrurs by havmg
quantity discounts apply. · capital tie up. m its _inventory. In other words ''Wha . th
(4) Shortage (Stock out or Backorder) Cost: Lost present or iJTlplicit value of havmg capital tied up in . : IS e
. . f th inventory, instead

r
future sale, lost goodwill, premium freight, Costs of
cancelling an order, etc.
8.8.1 Ordering Costs (i.e. P):
This category of costs is associated with the acquisition or
ordering of inventory. Firms have to place orders with suppliers
to replenish inventory of raw materials. The expenses involved
· are referred to as ordering costs. Apart from placing orders, the
various production departments have. to acquire materials from
the stores. Any expenditure involved here is also a part of the
ordering cost. Included in the ordering costs are costs involved in
(a) Preparing a purchase order or re9uisition form and
(b) Receiving, inspecting, and recording the goods received to
ensure both quantity and qualify.
The cost of acquiring materials consists of clerical costs and
costs of stationery. It is, therefore, called a set-up cost. They are
generally fixed per order placed, irrespective of the amount of the
order. The larger the orders placed, or the more frequent the
acquisition of inventory made, the higher are such costs. From a -
different p,erspective, the larger the inventory, the fewer are the
acquisitions and the smaller/lower are the order costs. The
acq~itio~ costs are inversely related to the size of inventory: they
decline With the level of inventory. Thus, such costs can be
minimized by minimiz,ed by placing fewer orders for a larger
of usmg 1t o~ so)me o er worthwhile project (i.e. opportunity
cost prospective .
Toe capital . cost which is the largest · component of
jnventory carrying cost account~ for approximately 8 to 40
per cent of the value of a~erage mventory held over a eriod
of one year. p
lb) Storage
. edSpace
.th Cost:
. This cost includes handlin g cos ts
assooat WI movmg produ~ into and out of inventory as
well as cos~ such as rent, heating and lighting etc., Storage
space costs increase or decrease as inventory levels rise or fall.
icl Inventory Service Cost: This includes insurance and taxes on
inventory.
Taxes: Tax paid on the inventory which depends on the
location.
Insurance: The insurance premium paid_to cover the storage
risks.
Id) . Inventory Risk Cost: This cost reflects the . very real
possibility that inventory rupee value may decline for reasons
largely beyond corporate control. For example, goods held in
storage for some reasons may become obsolete and others
deteriorate in value. High technology products such as
computers (hardware and software), integrated circuits,
 198 fnf~ Vipul's™ Production and Total Quality Management (
'l"'°r{
Management
¾SJ
semiconductors and the like many experience relatively sho d~in
tages of inventory control•
·
rnnr 199
product life cycles. rt r Introduction_of a proper invento
Any calculation of inventory risk cost should indude j1l "eeping the investment in the ;n ry control system he! .
u,Ventories as ps In
costs associated with obsolescence, pilferage, relocatithe
r-
E nsures availability of mate . low as feasible.
within the inve_p,tory system, theft and other risks on IV . . 1
na by pr ·ct·
production against uncertainties of su . ov1 mg adequate
inventoried products. lo
of materials. PPhes and consumption
Though a balance sheet shows the value of stock, th Allows full advantage of economi f
carrying costs are not shown separately. From logistics an le Ill transportation. es O
bulk purchases and
"
if the carrying costs are . · manager triesge
. 1ess, the 1og1slics t
reduce the transportation costs by having more wareh0 ,, ••0 ill Reduces changes of going out of stock.
. ...,.,s
nearer the markets, so that transportation can be done in ill Leads to reduction in inventory levels.
bulk.
16) Releases more of capital for other operations.
Inventory Carrying Cost Components
(V Increases profitability of an organization.
Element Average(%) Range(%) IS) Adequate customer service.
Capital_Cost 15.oo 8.0 to4o.o
19,, Advantage of price discounts by bulk purchasmg.
•
Storage Space Cost 2.00
r Taxes 1.00
0 to4.0
0.5 to2.o
l!O) Providing flexibility to allow changes in producti
'demands or any other reason.
,
. d
onmesue
1
to changes m
Insurance 0.05 0 to2.0
Obsolescence 1.20 8.10 SELECTIVE INVENTORY CONTROL
0.5 to 2.0
TECHNIQUES.
Total 19.25% 9%to50%
Describe various methods of selective inventory control
techniques.

l
8.9 INVENTORY CONTROL
The higher inventory level avoids the stoppage of production,
J The philosophy. behind selective inventory control technique is
'to put the efforts where results are worth putting the efforts".
but it is costly due to large amount of capital being blocked in
inventory. Lower inventory or Just in time OIT) inventory is (1) ABC Analysis/Pareto's Law (80- 20 Rule)
always preferable. Any business has to strike balance between the (2) HML Classification
possibility of holding high inventories and stock out. This is (3) VED Classification
known as Inventory Control.
(4) SOE Classification
Inventory Contr~l is very important because of the following
(5) GOLF Classification
reasons:
(6) i;sN Classification
(1) Inventories can be a major commitment of monetary
resources. (7) MNG Classification
. (2) Inventories affect virtually every aspect of daily operations. (8) SOS Classification
(3) Inventories can be major competitiv; weapons. (9) XYZ Classification
r
,y Management
zoo W-WfT'
_.- -- -·
Vfpul'•,..,. Production and Total Quality Management 1
•¾SJ
tn~nto li.'l"'l.'l"'rr
· "" "" - 201
the detemunation of orde -
Classifying Criterion: class items have to be mr dquantities and priority "B"
Selective Criterion Method o erately ·
Classification · records and regular attenti . controlled by good
ABC Analysis Usage value or Consumption Value require little or no control. on, while "C" class items
HML Analysis Unit price (ii) price Control: It is possible
YED Analysis Criticality of item · benefits of ABC analysis by co to se~e the maximum
Procurement difficulties possibilities of price discountsn::~:~g on ~rice and the
SDE Analysis
involve a major investment. class items which
GOLF Analysis Source of procurement
Seasonality (iii) Consumption Control: By foeusing atten . ,, ,,
SOS Analysis
items and by day-to-day monitoring tifothn on A class
FSN Analysis Issues from Stores . ·t b O e pattern of
consump t wn, I may e possible to cut d own or red uce the-
XYZ Analysis Inventory investment usage o f one or more of these items.
(1) ABC Analysis I Pareto's Law (80 - 20 Rule): Limitation of ABC Analysis:
A-B-C analysis is a basic technique of inventory control and is
(i) Sy~tematic standardization and codification, which call for
often said to be its starting point. . qwte a good deal of effort and time on the art of the
If all the stores items in an undertaking, representing the entire management. P
inventory are analysed in terms of the annual consumption of
(ii) Focuses _only on the Cons~ption (money) value of goods.
each in rupees, it will be found that not more than 10 percent
Almost ignores low value items. It may sometimes be so

tr
(usually about 5 percent or thereabout) of the items account for
important from the point of view of production that a
about 80 per cent of the total annual consumption cost, about
· stock-out of this item may hold up total production. .
20 per cent for about 15 per cent of th_p annual consumption cost,
while the balance 70 per cent of the items will cover only five per (iii) Cannot be a stagnant one-time effort. There is a need for
· cent of the annual consumption cost. The small numbers of high- continuous monitoring and periodic review and
consumption-value items are called 'A' items, the medium- reclassification of the items if the analysis is to be relevant
consumption-value items are B items, while the large number of at all times.
items whose annual consumption value is very low are C items. It Comparison between A, B and C items of Inventory:
must be dearly understood that A-B-C analysis does not depend C
A B
on the unit cost of an item, but only on )ts total annual
(1) Tight control on stock Moderate Losses control
consumption.
levels control
The AB.C analysis helps the physical distribution manager to On estimated usage
(2) Only exact requirement to More or less on
. exercise selective control and focus attention on a few items which
be procured. Always have exact
are expensive and froin the bulk of investment. While this
1

more than one source. requirement.

increases his effectiveness in inventory control, it also reduces
Centralise procurement.
effort on his part. Collectiv~ postings
(3) Individual postings in Individual
, The following are the important applications of ~BC analysis: or preferably none
stores card and in terms of postings
at all
(i) Inventory Control: "A" class items deserve careful · charging out cost to
attention with more up to-date and accurate records for consumption.
202 [flfrf w,a1•1™ Production and Tata/ Quality Management (¾SJ
I iento,Y
Management
~i'l'rr
(4) Continuous check on Broad check on I W
"-teP V: Cale ate cumulative o;. f
W
Hardly any check
schedules and revision schedule required " t. total va1ue. ° 0 annual consumption
. value
where called for. revisions w-r-
step VI: 10 - 20% of Items contnbu .
IS) Very low buffer stock or if Exact No restriction-;---- uJative consumption value form "A"ting 65 . to 85% of
possible, none at all. requirements to fairly large safety
be worked oul stocks.
. oJlll_ 25% of Items contributing 15 7Pe items. Next
15 10 20
ption value form "B" typ -1 1/o of cumulative
(6) Regular expediting or Some follow- t15u!II e I ems All r . .
No follow - u;-- co
,c" type I·terns · · emammg items are
follow-up. up necessary.
ff _ M - L Classification:
(7) Very strict consumption Consumption Though (2)
control by laying down control is highly consumption -------- It is the unit value which is the basis of a . .
standards and norms. desirable •• nual consump ti.on va1ue. The items should en1enon
b .and not the.
control is desirable
much attention .,~- ending• ord er of urut· value and the m e 1ISied out m
.
deSC . . the three categories. anagement may fix
need not be liJJUIS for dec1dmg
bestowed.
(8) Material planning should Past The management may decide that the items of the value above
Rough estimates
be very a,curate especially consumption would be a unit value of Rs. 10,00_0 are H items and may decide •that all such
in regard to forecasts. can be taken as satisfactory ite!llS will only be sanctioned by the general manager.
basis. (3) v - E - D Classification:
(9) Concerted effort at cost Moderate An annual review V-E-D. st~ds f~r vital, essen!ial and desirable. This type of
reduction through modern attempts would classification 1s applicable mostly m the case of spare parts.
techniques like value be serious
analysis. Efforts should be Here the categorisation is made in terms of the importance or
more at import reduction criticality of the part to the operation of the plant. If it is very vital,
substitution if item is an it is given a V classification. If it is not so important, it is given a D
imported one. classification. How such a classification is done will purely
depend upon the machinery or equipment involved and one's
Method of Application: ABC analysis is applied on the basis of
own experience, ease of availability of the items, etc.
Annual Consumption Value (i.e. Annual Consumption x Unit
Cost) of the item. The whole objective is to select items for special control and
thus expend time and effort in a prudent way.
Step I: First the data on annual consumption of each item and
its unit price is tabulated. (4) S - D - E Classification: .
Step II: Calculate annual consumption value of each item. These letters stand for sca,rce it~ms, those which are difficult to
obtain and those which are fairly easy to obtain. For example, an
Step III: Rearrange the items in a decreasing order of their
item ~hich is imported. It would be best to obtain it one~ in a
annual consumption value and give the rankings starting from year, considering the time, effort and expenditure involved m the
rank no. 1.
procedures for import. . . .
Step IV: Find total Value of all items and work out the % . • which is not easily available m
contributed by each item of total value. A scarce item might be an item .t • ht
the mark~t and might require source development, ore1se I nu~
.
be an item. . 1s
which . very difficult
. to manufacture or there are o y
 Management l'l"Uf.'T
("fflf Vfpul'•"' Production and Total Quality Management (BMS) ~ iorf . !'al "" "' 205
204 odities, especially of agricultural ori . .
one or two manufactures who have to be given orders several c01Jl111 have to be purchased at the a gm ~d seasonal m
months in advance, and so on. ~ac::~ply E.O.Q. here, for example. ppropnate time. One
(S) G _ o _L _ F Classification: ~o y_z Classification:
These letters stands for Governm~nt-ordinary-loca! and foreign, 19) ~-
' :obased on the value of inventory stored If th
These are many imported items which are cha~elized through 'flllS "' h uld • e va1ues are
the State Trading Corporation, MMTC, In~1an Drugs and ,,gh, sPecial efforts s o be made to reduce them • This exerase
. ,
,, once a year.
Pharmaceuticals Ltd., Metals Trading Corp?ration, ~tc. There are a11be . .
' ll XYZ analys1S 1s used in cOnJunction
· with either ABC
special procedures to be followed for procunng such item. !]sua Y .
is or FSN analysis.
Items which are available within the country could be treated aJlalys

/----
differently if they were available locally, compared to their being XYZ+ABC
available only in very distant towns or where they have to be , A B C
specially manufactured. 1~ to be made to Efforts to be made to Steps to be taken to
Imported items would be a special class by themselves· and X reduce stocks to Z convert them to Y dispose of surplus
have to be accorded a treatment quite unique. Category Category stocks
(6) F - S - N Oassification: Efforts to be made to Items are within Cannot be further·
collvert these to Z control. No further tightened
The three letters stand for fast-moving, slow-moving and non-
Category action is necessary.
moving. This classification comes in very handy when we desire to I L..--
Stock levels may be Items are within
control obsolescence. N items require very great attention. There· zItems are within
may be several reasons why an item has got into the N category. control. No further reviewed twice a year control. No further
action is necessary• action is necessary.
There may have been a change in technology or change in the
specification of a particular spare part of the item may no longer Source: Materials and wgisti£s Management by Prof L. C. Jhamb.
be in use. XYZ+FSN
(7) M - N - G Oassification: F s N
MMG Analysis is based on stock turnover rate and it classifies X Tighten Control Deplete the stocks to Dispose off
the items into M (Moving items), N (Non-moving items) and very low level. immediately at
G (Ghost items). .- · optimum price.
M (Moving items) are those items which are consumed from y Items are within Deplete the stocks Dispose off as early
time to time. N (Non-moving items) are those which are not control. No ~er further at good price. as possible.
consumed in the last one year. G (Ghost items) are those items action is necessary.
which had nil balance, both in the beginning and at the end of the I
z Liberalise Control Items are within Dispose off as early
last financial year and there was no transactions (receipt or issues) control. No further as ·possible even at
(to reduce clerical
during the year. ·
I
action is necessary. lower prices.
cosi)
(8) S - 0 - S Classificaijon: Source: Materials and wgistics Management by Prof L. C. Jhamb.
Some of.the items required may be seasonal.in ~ature and may ·
require special purchasing and . stocking strategies.· Many
 ffifl° • ' Vipul',™ Prodl/Ction and Total Quality Managern
206
,-------:-::-=-:-:::::~~;;;-;~tti;;;;;~~
8.11 ECONOMIC ORDER QUANTITY (EOQ)
(1) Meaning: The economic order qu:m_ti~ (EOQ) is
replenishment ordered quantity that muunuzes the colllb· lhe
total cost of inventory maintenance (inventory carrying)illed
. and
ordenng.
(2) Estimation of Economic Order Quantity:
There are two types of costs associated with invento
management: ry
(1) Cost of Ordering
(2) Cost of Carrying Inventory
As the number of units_ per order in?"eases, the num.b~r of
orders reduce, thus reduang the ordering cost, but increases
the carrying cost. Thus the total cost reduces as the order siz
increases, but beyond a certain point it again increases as th:
increase in carrying cost is more than the reduction in
ordering costs. The Economic Order quantity (EOQ) is that
quantity ordered for which the total cost is the lowest.
Total Cost
Cost
Ordering Cost
EOQ UniVOrder
~quare Root Formulae for EOQ:
Let;
A = Annual Consumption (Units)
=.Cost of Ordering (Rupees/Order)
= Cost/Unit (Rupees)
Management
enr (¾SJ ~or( ~nnr 207
C = Inventory Carrying Cost (% of
Q ==Quantity/Order Inventory Cost)
--EoQ =Q _A ff.Kp
- \Jlic
tions of EOQ Model:
,usUJllP . .
following assumptions are unplied in the calculation:
constant or uniform demand: Although th EOQ
(1) t td d d e model
. assumes cons an eman , emand may vary from day to
day. It alflsdo. assumd~s thatknthe usage rate can be predicted
exactly. eman is not own in advance the d I
. cl mo e must
be mod ified through the m usion of safety stock.
(Z) Constant u~it price: !he EOQ model ass).lll1es that the
purchase pnce per urut of material will remain unaltered
irrespective of the order quantity. It also assumes a constant
cost throughout the year. It does not take into account the
quantity discounts offered.
(3) Constant carrying costs: Unit carrying costs may vary
, su~stantially as the size of the inventory rises, perhaps
decreasing because of economies of scale of storage. This is
not taken into consideration in EOQ. Same is the case with
economy of transporting larger volumes. It is also assumed
that this cost can be determined precisely.
(4) Constant ordering cost: EOQ assumes that ordering costs are
constant and can be determined precisely.
(5) Instantaneous delivery: It is assumed that the delivery of
goods is instantaneous, and further that there is no goods in
. transit.
(6) Independent orders: If multiple orders result in cost saving
by reducing paper work and the transportation cost, the
original EOQ model must be further modified. Thus the.EOQ
model does not take into account multiple product ord ers.
(7) Availability of Finance: _If is 1tlso assumed that there is no
constraint in the availability of funds.
 l0B !°ffi'f Vlpul's™ Production and Total Quality Management (S,,,,~
~ntort
Management

Limitations of the.EOQ formula: Extensions: 209

fOO .
(l) Erratic changes usages: The formula presumes the Us .. 11.;le the EOQ formulation is relati .
materials is both predictable and evenly distributed. of vv I"' h f t ve1y straight£
Ome ot er ac ors that mu t b orward there
this is not the case, the formula becomes useless. t!l) ·" s
a,· ucation. The most important and
s e e co_ns,'dered in 'actual
(2) Faulty basic information: order cost Varies from co"'~ . apP related-lo various adjustments n p rs1stent problems are
• · ••u.11 od1h, ,sose . .tu .
u• rtain spec1a1s1 ations.
ecessary to take ad vantage
to commodity and the carrying cost can vary With ·1 ofce
company's opportunity cost of capital. Thus the assl.Un. ~e Volume transportation rate: In the E .
that the ordering cost and the carrying cost remains co~:on ' (!) no consideration for the, impact of~rmula~on, there is
is faulty and hence EOQ calculations are not correct. ant
Order quantity. As a general rule gr portation cost on
(3) Costly calcula~ons: The ca!culation required to find out E<v-. will be the transportation rate per, eater
't Th
the qu ti'ty 1
an , esser
is extremely time consuming. More elaborate fonnuJa being equal, an enterprise will want uru t· b us all othe~ things
e are uantities to maximize trans
0
. uy goods m large
even more expensi_ve. In many c~ses, the cost of estimann
q . portation economies Such
the cost of ordenng and carrymg and calculating E~ 1
quantity may be larger than the actual . · .
Whil d 'd• quantity determmed
exceeds the savings made by buying that quantity. by EOQ. e ecr mg the order quantity this h
considered. ' as to be
(4) No formula is a substitute for common sense: sometimes th
EOQ may suggest that we order a· particular commodi e 1 (Z) Quantity Discounts: Purchase quantity ct·
. 1Scounts represent
every week based on the assumption that we need it at th~ an EOQ extens1on.. If the discount at any as . t d .
. . soc1a e quantity
same rate for the next one year. However we have to order-it , is sufficient to offset the additional cost f •
o mventory
in the quantities according to our judgement. Some items can management, then the quantity discount offers a viable
be ordered every week; some can be ordered monthly alternative. It should be noted that quantity discounts and
depends on how feasible it is for the firm. Further the model vol~~ transportation_ rates both affect the purchase
does not work well in case of seasonal items. quantities. However, this does not mean that the lowest total
(5) EOQ ordering must be used with judgement: Sometimes cost purchase will always be a large quantity.
guidelines provide a conflict in ordering. Where an order (3) Other EOQ Adjustments: A variety of special situations can
strategy conflicts with an operational goal, order strategy occur that will require adjustments to basic EOQ model.
should be changed to permit honouring the goal. Some of them are:
(6) Quantity discounts: In the EOQ analysis, it has been • Production lot size (most economici;tl quantity from
assumed that material prices and transportation costs are manufacturing perspective)
constant factors for the range of order quantities considered.
• Multiple item purchase (situations when more than one
In practice, some situations occur in which the delivered unit
product is bought concurrently, so that quantity and
cost ~f a material decreases significantly if a slightly larger 1
1 transportation discounts must consider the impact of the
quanti~ ~an the originally computed EOQ is purchased.
product combinations).
· Quantity discounts, freight rate schedules and price increases
may create such situations. Limited capital (budget limitations for total inventory
investment).
• Private trucking (influences order ~~anti~ since it
represent a fixed cost once the dec1s1on 1s made to
 210 .i'frnJ" VJpul 11™ Production and Total Quality Managernem ( ~~10
ry Management

replenish the product.) If the enterprise decides to Us .

¾sJ r!igher productivity rnnr 2//
l9) 1.,ess Admuus . . trati on
own truck, it should fill the truck regardless of the v~ 1ts 110)
calculated by the EOQ. Transporting a half empty truIle faster feedback of defects
does not make any sense. de: 111 )
) smoother output
8.12 JUST IN TIME (JIT) - PULL INVENTORY CONtao (1.2 •I
)_1.,eSS matena waste
TECHNIQUE l 113
) 1.,ess rework
It is a Japanese method of integrated philosophy by te 14
approach. Taichi Ohrio applied . it at Toyota Manufac~ll\
:is) r!igh quality of finished product
Company. Thus also known as Toyota Production system. g ) !JJlproved scrap control
116
In this customers pull their requirement from shop floor Improved overall working.
against the conventional method of pushing the product to
market.
~! 1171
(JJnitations:
(1) It is not a quick - fix item as it calls fo . ..
It helps to make products internally competitive by integratin • d · r sequential deas1on -
making an reVIew at every stage of implementation.
the Just In Time Cost with the total Quality Control system at th! 12) Commitment._of _the top management is required to issue
shop floor level.
policy statement m support of JIT and review by ii t tud
In Just in Time System, the advanced stage of production . . ti used p O s y.
Indian orga~a on to flabby inventories finds it ve
draws the right amount of inventory from the preceding stage t~ difficult to switch over to JIT, ry
sustain the activity.
131 Problems and perfect co-ordination and management
In this process, the production activity is planned upon the information system at different levels.
actual demand rather than the predetermined schedule since the
14) It is not the panacea for all the ills.
cycle time for production of various models is given only to the "
final assembly point of mixed production line. 15) Crucial steps in the implementation of JIT.
This process is repeated at each stage right down to raw (a) Start the system
materials. (b) Educate the concerned personnel
Advantages of JIT System of Inventory: (c) Accomplish process improvement
(1) Increased awareness of problems and their costs (d) Achieve Control improvement
(2) Reducing Lot Size (e) Extend vendor customer link.
(3) Less Work in Progress JlT in Purchasing:
(4) Less Raw material inventory 11) JIT purchasing is wrongly perceived as the activity of pushing
(5) Less indirect cost inventory on to the suppliers.
(6) Faster market response (Z) It is in fact the technique to eliminate waste in pur~a_se
function by developing long term, _mutually benefiaal
(7) Better forecasting relationships with fewer but better suppliers.
(8) Less finished goods inventory
• 2,2 · rnnr
It aims at:
Vipu
l's"' p,oduaion and Total Quality Manage,n
enr (A,.
"'~S)
,,~nco,Y
jtl Ill
JoW·
Management
.
uJti-period review models. Each of th .
rnnr
_
213

em IS bnefly discussed
(1) Elim. ting waste in the purchase process (e.g
i,e . gle Period models: Typically O d
ma_ follow up costs stock out costs, packa~~ order 5111 r ers are m d nl
processing, ' f h dlin d f ou,g ill\d are also known as the Dollar Limit S a e o y once.
packing costs, freight costs, cost o an g e ects etc.) 'flte~,,,e ordering for seasonal product YS tem and are used for
(2) Eliminating waste at suppliers' end (transport costs, reject· one w•· . . s or spare parts purchases.
10 t,1ulti penod models. Orders are placed mu! . .
costs etc.) · n ire production· cycle. Based on the pattern :ple _tim_es over the
0
(3) Eliminating purchased inventory. ell~entorJ, they are further classified. reVJewmg current
JIT Purchasing is based on following fundamental principles: ill (l) continuous Review (also called F' d .
In t · ixe Quantity or Q
(1) Supplier's facilities are the extension of the buyer's 0 system): ven ory 1s reviewed contin
d · uous1y and when
facilities. Wn jnventory . ro~s tod a certain (prefixed) reorder level a
(2) Long term mutually beneficial ~ths no companylihas resources fixed quantity 1s or ered. This model is genera 11 y used 'for
to solve long term problems w1 many supp ers but bett 1 high vo Iume, va1uable, or important items.
suppliers are necessary to eliminate the waste of IncoOU:
(Z) Periodic
.
Review (also called as p syste ) In t
d ( fix . .
•
m: venory1s
Inspection. g rev1ewe at ~re . ed) penod1c intervals irrespective of the
(3) Delivery lot size should bejust enough to satisfy immediate levels to which inventory drops; an order is placed to
higher level requirement. bring up the inventory to the maximum level. This is used
(4) Rejections interrupt supply chain and hence must be
for moderate volume items.
eliminated. (3) Optional replenishment system: Inventory is reviewed on
(5) Buyer and seller should jointly identify problems and a fixed frequency and a specific quantity is ordered, if
activities which do not add value and initiate the actions to inventory is below a certain level. This is a mix of the
achieve continuous improvements. P and Q systems.
(4) Two-bin system: An inventory amount equal to R is kept
~---8_.1_3_IN_V_E_N_T_O_R_Y_S_Y_S_T_EM_M_O_D_EL_S_ _ _]
in reserve in a second bin.
Various Inventory . system models are used to control
When the first bin is emptied, the second bin is emptied
Inventory (Stock) Levels.
into the first and an order of size Q is placed.
An inventory system can be modelled quantitatively based on
(5) One-bin system: This is the P-system where one bin is
· demand patterns. They are
reviewed at a fixed interval and inventory is brought up to
(A) Deterministic inventory models in which demand rate of a certain level.
an item is assumed to be constant.
(B) Probabilistic inventory models where the demand for an
item fluctuates and is specified in probabilistic terms.
Bas~d ?n the frequency at which orders are placed f~r
. procurm~ mv~nto_ry, there are two models. They are single period
and multi-period inventory systems. There are few sub-categories
214 f"!'."ifi ~. Vlpul'•™ Production and Total Quality Management (¾SJ Management
/nifnto rt
Fixed Order Quanti,ty Inventory System (Fixed Q System.):
make_ it easier, to group
such items f
according t~ s:;~::tegory
Wherever possible.
s J\,{ost suitable when the
(4)
inventory Carrying cost is
measurable and
Significant.
(5)
Automatic generation of
replenishment order at the
appropriate time by
L I Time comparison of stock level
against re-order level.
S - stock level
B - fixed point reorder level (6) 5omewhat more
responsive to fluctuations
T- order cycle time (varies) in demand
L - lead time (assumed constant)
Periodic Review Inventory System (Fixed p System):
Q- quantity ordered (constant)
Fixed Order Quantity (or Q) System:
Advantages Disadvantages
(1) Simple, cheap to operate (1) Many items may reach re-
and reliable. order level at the same time
thus overloading the re- ' I
ordering system. I
I
I
(2) Preferable for consumption (2) There are no records of
value items. stock level and usage rates
data.
T
_, I T

(3) Appropriate for widely (3) It does not lend itself to
different types of Inventory
within the same firm.
.........i Tme
'. L : I L !
S- stock level
ordering more items P - predetermined stock level
simultaneously from the
T- reorder cycle time or review period (constant)
same source. This drawback
could be set off by L- !~ad time (assumed constant)
classifying as slow-moving, Q- quantity ordered (varies)
fast-moving, etc., and to
p
V,pul'•"' Production and Total Quality Management (¾SJ
216 .-
Periodic Review Inventory System (Fixed p System):
Advantages
(1) The inventory being
(1) Since the system requir;-,-
reviewed at periodic
intervals, therefore there is
no flexibility in the order
time. Thus the fluctuation
in demand is taken care of
by the safety stock.
(2) All stock items are
reviewed periodically so
that there is more chance
of obsolete items being
eliminated.
(3) It is preferable whenever
inventory carrying cost is
meaningless.
(4) Larger quantity discounts
may be obtained when a
range of stock items are
ordered at the same time
from a supplier.
(5) The ordering inven.tory
costs are low. The ordering
work considerably reduced
through follow-up work
for each delivery may be
necessary. The suppliers
also give better price
discounts since the sale is
guaranteed. The service,
i.e., keeping to delivery
~,
I
~ nroff Management i'ffg" 217
schedule, is better since
liers known your
,upP . d
Disadvantages
perpetual auditing, the co
----- req
uirements m a vance
f ·t
and can plan or 1 •
. . th st secause orders will always
of operating e system is 16) be in the same sequence,
higher. t1iere may be production
economics due to more
efficient productjon
planning and lower set-up
(2) 'Ibis system requires more costs.
inventory on hand, for a
cornparison of Fixed order Quantity (FOQ or Q) System and
given frequency of periodic Review (PRS or P) System:
shortages, as compared to
the fixed order inventory . foinl of Q system P system
difference
system.
How much to Order Quantity Order Quantity
(3) Less responsive to changes , order? Q=EOQ Q = ROL- (stock available)
in consumption. If the rate
Order Quantity Fixed. Variable.
of usage change shortly
(The order quantity is (The review period is fixed but
after a review, a stock out
fixed but the review period order quantity is variable.)
may well occur before the is variable.)
next review.
When to order? Stock on hand reaches to Based on fixed review period
(4) Unless demands are reorder point. and not stock level.
reasonably consistent, it is Record keeping Continuously each time a Only al the review period.
difficult to set appropriate withdrawal or addition is
periods for review. made.
Size of inventory less than-the P-system. Larger than the Q system.
(5) It requires additional labour Tune lo maintain Higher due to perpetual Less than µue to only at the
record keeping. review period. ·
to review items of stock at
Typ!Of Items High Valued Items. Quantity discount options.
items other than when
receipts and issues are being Suety Stock Level The safety stock is set at a The safety stock is required to
level to guard against the cater , to the . demand
posted. demand fluctuations fluctuations dunn~ the
during the replenishment replenishments lead lime plus
eriod/lead time. the review period therefore
P higher stock levels are
required._
r .--__
218
urf Vlpad'•™ Production ond Total Quality Manaitrn
rr_'"_' -- .-::-------,~;;,--- ent/¾s1
~nlOrt
Monagement
e-inr 219
Stod<out
Lower Higher &ta,nple 2:
probability file annual demand of an item is 4200 .
Example The computerized College bookstore. 8 The inventory carrying rate is 30o/c0 Thuruts.5t The unit cost is
checkout system with a are normally O
~k., Jl.5~,.· zoo. Calculate EOQ. • e co of procurement
laser scanner used by a.ccording to a e~ ' ~""
many supermarkets and system, wherein a co Odie solution:
-retail stores. The laser textbooks in stock (for~ of ' Anllual demand {A) = 4200,Units
"
scanner reads bar code or course) is made after th "Y
the univeisal product code few weeks of a semes1e:.~I Unit cost (U) =Rs.8
(UPC) from the product order _for new textbooks. An • t d
. IS. the- next term is. then for
package; the transaction Ordenng cos per or er or cost of_procurement (P)-- Rs. 200
instantly recorded, and the according to estimated collla de carrying cost on an average inventory or In · .
inventory level updated. enrollments for the next ;:5' o,te (C) = 30% = 0.30 ventory Carrying
This system is not only (i.e., demand) and the ,_ I'll\ ""
. also . . . . ~•Oll!lt
quick and accurate, 11 remauung 111 stock.
provides management EOQ =- /y;p
with continuously updated \JuE"
information on the status 2 X 4200 X 200
of inventory levels. 8 X 0.30
EOQ = 836.66 Units
.___ __8.14
_ :NUMERICAL
. : = . ~ - ON
---EOQ 1j
-'-"---_ EOQ = 837 units (Round off value)
Example 1: F.xample3:
Following information refers to pedestal fans Solve the following problem; the annual demand of an item is
Annual demand = 36,000 units. 5,400 units. The unit cost is Rs. 10. The inventory carrying rate is
20%. The cost of procurement is 150. Calculate EOQ.
Unit price of a pedestal fan = Rs. 4000
Solution:
Ordering cost = Rs. 500 per order
Inventory Carrying cost =25% =0.25
Annual demand (A) =5400 Units
Unit cost (U) = Rs. 10
Solution: I
Ordering cost per order or cost of procurement (P) = Rs. 150
EOQ -- !Y;i_
-·ycic Carrying cost on an average inventory or Inventory Carrying
Rate (C) = 20% = 0.20
2 X 36000 X 500
_@
4000 X 0.25 EOQ =·y---u.c
EOQ = 189.73 Units
2 X 5400 X 150
EOQ = 190 units (Round off value) lQ X 0.20
.
! .EOQ = 900 Units
 220
lfii , Vfp11I;,"' Production and Toto/ Quality Monagemeni (S,,,~ ~~rort
,,1o~agem~nt
' rg: w
dering Cost - No. of . Ordering
Example 4: . I ·ven below: M/s. PQR Ltd. consumes (il Or - Purchase orders x cost per order
Solve the numenca ~ry year. Price per unit is, Rs. 10. Ord.,.;~ = 10 X Rs. 400 : Rs. 4,000
·ts fa componen 1 ev . t -•q1g
um o .rd 15 . Rs 200 Inventory carrying cos s are esfunated inventory Order Qty. Unit Carrying
cost per o er . • tory. turnover. Determine the Optima} dto (ii) Carrying Cost 2 x <::Ost x Cost fu %
be 20'¼O of total • mven t 0 r er
quantity • ·mise total inventory cos .
that w1 11 mJ.lll 200 .
= 2 x Rs~500 x 0.3
Solution:
Annual demand (A) . =800 Units =Rs.15,000
Unit cost (U) = Rs. 10 Direct
Ordering cost per order or cost of procurement (P) = Rs. 20() (iiil Material Cost = Annual Demand (Qty) x Unit Cost
Carrying cost on an average inventory or Inventory Carrying =2000 X 500
Rate (C) = 20% = 0.20 = Rs. 10,00,000
, __ @
EOQ -·vu.c Total Inventory Cost when order Qty is 200:
='(i) + (ii)+ (iii)
2x800x200 = Rs. 10,19,000
10 X 0.20
Option No. 2:
EOQ = 400 Units
Total ,Cost if orders are placed according to EOQ:
Example 5:
Annual Demand = 200 x 10 = 2,000 nos.
A purchase Manager has decided to place orders for minimum
_A@
quantity of 500 nos. of a ·particular-item in order to get a discount
of 10%. From the records it was found that in the last year,
(i) EOQ -·\Jlf.c
10 orders each of size of 200 nos. have been placed. The ordering Where,
cost is Rs. 400 per order, the Inventory carrying cost is 30% of the
A = Annual consumption (Demand or requirement or usage)
Inventory value and the cost of purchase per unit is Rs. 500. Is the
in units
Purchase Manager justified in his decision? What is the effect of
his decision on the company? P = Procurement (Ordering) cost per order
Solution: C = Inventory carrying cost expressed as a percentage
In order to comment on the Purchase Manager's decision, the (of value)
· c-omparative total costs of various options will have to be worked U = Unit Price
out.
2 X 2000 X 400
Option No. 1: EOQ 500x 0.3
Total Cost if previous years policy is followed:
= 103.27
Annual Demand = 200 x 10 = 2,000 nos.
= 104
 Production and Total Quality Manage~
rnnr . Management
1rrnr
' ··" TM
vi, ... • ,,,enr l¾si
222 ~corf , 223
No. of x (?rdering No. of _ Annual Demand
Ordering = Purchase ord'ers cost per order
Cost purchase orders - Order Qty.-
= 20 X Rs. 400 2000
= Rs: 8,000 ~500 =4
No. of , Annual Demand Inventory - Order Qty. X Unit Cost Carrymg ·
Purchase or~ers Order Qty. (ii) Carrying Cost - ,
2.- Discounted x Cost in%
2000 500
= 104 = T x Rs. 4~ x 0.3 = Rs. 33,750
= 19.23 Direct
(iii) Material Cost = Annual Demand (Qty) x Unit Cost
=20
Inventory Order Qty. Unit Carrying = 200() X 450 = Rs. 9,00,000
Carrying Cost 2 x Cost x Cost in %
(ii) Total Inventory Cost when order Qty is EOQ i.e. 104:
104 · = (i) + (ii) + (iii)
= x Rs. 500 x 0.3
2 = Rs. 93,5,350
= Rs. 7,800
From the above calctilations it is clear that the total cost as per
Direct = Annual Demand (Qty) x Unit Cost Purchase Manager's decision is the lowest ancf therefore he is
(iii) Material Cost justified. -
= 2000 X 500 Option 1-0ption'3 = Savinf of Rs.·10,15,800..:Rs. 9,35,350
= Rs. 10,00,000 =·Rs'. 80,450
Total Inventory Cost when order Qty is EOQ i.e. 104: Option 2 - Option 3 = Saving of Rs. 10,19,000- Rs. 9,35,350
= (i) + (ii) + (iii) = Rs. 83650
= Rs. 10,15,800 Example 6: (MU -April 2018)
Option No. 3: ABC Ltd. Purchases computer chips at the rate of Rs. 75 each.
Total Cost as per Purchase Manager's decision: The annual consumption of chip is 54,000 units. If the ordering
When, cost is Rs. 250 per order and carrying cost is 25%p.a., what would
be the EOQ and Total Cost? If the supplier offers a discount of
Order Qty = 500 nos., ' 10% for ordering 9,000 units per ord_E!r.-Do you accept the discount
Unit Cost i.e. U discounted = Rs. 500 - 10% of Rs. 500 = Rs. 450 offer?
(i) Ordering No. of Ordering cost Solution:
Cost = Purchase orders x per order
Annual demand (A) = 54000 Units
=4 X 40() Rs: Unit cost (U) = Rs. 75
=Rs.16,00
 v,nnr 225

E'J"E'I"E'I" Vi .,,,,"' production and Total Quality Managcm~ 54000

224 ,,. ,. .,., P "!(¾s, = 9000 =6
Ordering cost per order (P) = Rs- 250 Afll'ual ordering cost = 6 x Rs. 250
an average uwentory = 25% = 0.25
carrying cos t on . -'· rQ:_2 X 54000 X 250 =Rs. 1,500
(1) EOO = '\j V .C - 75 x 0.25 urut Discounted Cost = U discounted
= Rs. 75 -10% of Rs. 75
= 1,200 units
· Anllual Annual Direct =Rs. 67.50
= Ordering + - Inve_ntory . + Maten·a1 J\!ll'ual jnventory =(Order Quantity) U
t x discounted x C
Cost earrymg Cost Cost carrying cost ·
2
(2) Total inventory cos
9000
. - Nuinber dof Ordenng
. C ost =-2- X 67.50 X 0.25 r

,Annual ordering cost = PU:-chSe or ers x per order = Rs. 75,937.50.

!I\ one year

Number of purchase Annual Demand ® 54000 Direct material cost = :;nual ~nit Cost _- discounted
ernand x Discounted Ax U
orders in one year =-Order Quantity = 1200 = 45 = 54,QQO X Rs. 67.50
,Annual ordering cost = 45 x Rs- 250 = Rs. 11,250.
= Rs. 36,45,000
,Annual inventory _ .(Q!der Quanti~ U C Rs. 1,500 + Rs-75 937 .50 +
carrying cost - 2 x x · Total mventory cost -- Rs., 36,45,000
'
=21200 X 75 X 0.25 =Rs. 11,250. = Rs. 37,22,437.50
Total Inventory Cost when o~der Qu~tity =. 9,000 units ·
Direct material cost = Annual Demand x Unit Cost = A x U (Rs, 37,22,437.50) is less than Total ln'ljentory ~ost when Order
= 54,000.X Rs. 75 = Rs. 40,50,000. Quantity= Economic order Quantity,:, 1,200 Units (Rs. 40,72,500).
Total inventory cost = Rs. 11,250 + Rs. 11,250 + Rs. 40,50,000 Therefore discount offer should be accepted as company will save
= Rs. 40,72,500. Rs. 35,00,62.50. .
8.15 NUMERICAL ON INVENTORY LEVELS
(3) Let us ·calculate Total inventory cost (when order Quantity =

9000 units). Annual Annual Direct Example 1:

The infonnation gathered from ABCPL regarding air valves is
= Ordering + Inventory + Material
Cost Carrying Cost Cost as follows: ·
(i) The average lead time for procurement is one week.
Number of
· rd . t
(ii) Average demand is 1,000 units per week.
Annual ordering cost = purchse orders x O enng CoS
in one year per order
(iii) Safety-stock is assumed to be 1,000 uni_,ts-
Number of · Calculate the re order level for ·air valve from available
Purchase orders Annual Demand (A_}.
in one year Order Quantity information.
 226
..,™ Production and Total Quality Manage,,,~
..r - . nt(a,,,~ ~to,Y Management e"n- 227
Solution: fJa,nple 4: ·· ,
( Max Max ) (safety) ,Alll1ual demand for a product is 48,000 units .
ROL = \.consumption x lead time + stock . two months. Company's poll . · The delivery lead
= (i,000 xl) + 1000 , tiil'!/!o 400 units to guard against st~:~~ ~~pcula stafRety-Ostock
e<i~ • a e e rder
= 2,000 Units 1,evel. ,
Example 2: . . th od · 50/ution: . . . .
Dail consumption of a ra~ mat~na1m e pr ucti?n Proc~ . ce lead time 1s given m months consum ti
5Jll ·
is 300 .?:uts. Lead time for delivery IS 5 Days. ~ompany s policy is .
calculated on pe~ month. bas15. ' P on rate should
-· • be
t0 keep a safety stock equal to three day s daily CO!l5tunption to j\nllual Demand = 48,000 units.
guard agams -··t. c~aku!ate
• t stOCK' vu .
Re-Order
·.•
Level.
· Solution: Therefore Monthly Demand (Consumption) = 48 ~00 = ,000
Lead Time Consumption lead units per month._
4 1
Consumption Rate x time
Lead Time
· = 300 x 5 = 1500 Units Consumption = Consumption Rate x Lead Time
Safety Stock = Three day's daily consumption =4,000 X 2
. = 300 X 3 = 900 Units. =8,000 Units
ROL ·= Lead Time Consumption + Safety Stock ROL = Lead Time Consumptiollt+ Safety Stock
= 1500+ 900 =8,000+400
-= 24oo Units. = 8,400 Units.
.Example3: . . F.xample 5:
Daily cons~ption o.f a component "Z" is 750 Units. The The following information is available hi-~espect of Pakar's
supplier takes 5 days for·delivering the component "Z", after the Ltd., manufacturing a Consumer product.
purchase order is placed. What'should be the Re-Order Level?
(i) Normal (Average) Consumption per Week= 90 units.
Solution:
"(ii) Minimum Consumption per week = 60 units.
Since there is nC> mention of safety stock, Safe'ty Stcx;k = 0
(iii) Maximum Consumption per Week= 120 units . .
· Lead Time
Consµmption = Consumption Rate x Lead time (iv) Reorder_period (Lead Time) = 8 to 10 weeks.
(v) Re-Order Quantity = 800 units.
= 750 X 5
= 3,750 Units Calculate:
(1) -Re-order level
ROL = Lead Time Consumption + Safety Stock
(2) Maxim~ Level
=3750+0
'- (3) Minimum Level
= 3750 Units.
 l'J"l'J"l'l" · .,,,1,.,. Production and Tot!II Quality Mana
Management
226 Ill !II 1!11 Vlf rt111e111
lfllntolY ffn. 227
,ttple 4: - .
Solution: ( Max Max ) (safety)
it~ ual demand for a product is 48 . '
ROL = consumption x lead time + stock
Af'!1 two months. Company's pot/000. llllits. The delivery lead
= (i,ooo xl) + 1000 tiJlleal'!o 400 units to guard against st~ct to keep a safety stock
= 2,000 Units . equ out. Calculate Re-Order
i,evel. ,,
Example l: · I · th od 50/ution: . . . .
ail umption of a raw matena ID e pr UCtion p SiJlce lead tillle 1s given m months, consum ti ,
. D y ~onsLe d ..:-e for delivery is 5 Days. Company's p 'Ii calctilated on pe~ month basis. p on rate sho_1:'!d be
JS 300 uruts a um d y' dail o cy ,
to keep a sa1e s
. t
=
. ' ty t-·'- equal to three a s
stock out. Calculate Re-Or
d. Le
er
y consumpti IS
.vel.
· 011 to AJ1!1Ual Demand = 48,000 units.
guard ams . . '
· Solution: 'fherefore Monthly Demand (Consumption) = 481~00 = 4,000
Lead Time Consumption lead UJ!i!S per month._ ·
Consumption = Rate x time
Lead Time
= 300 x 5 = 1500 Units ' Consumption = Consumption Rate x Lead Time
V
Safety Stock = Three day's daily consumption = 4,000 X 2
. = 300 x 3 = 900 Units. = 8,000 Units
ROL ·= Le~d Time Consumption+ Safety Stock ROL = Lead Time Consumptiort+ Safety Stock
= 1500+ 900 =8,000 + 400
= 2400 Units. =8,400Units.
Example 3: . . fxatnple 5:
Daily consumption o.f · a '.C'Omponent "Z" is 750 Units. The The following information is available hi-~espect of Pakar's
supplier takes 5 days for·delivering the component "Z", after the Ltd., manufacturing a Consumer product.
purchase order is placed. What should be the Re-Order Level? • (i) Normal (Average) Consumption per Week= 90 units.
Solution: 1iil Minimum Consumption per week = 60 units.
Since there is n9 mention of,s~ety stock, Safety Stoc;k = 0 (iii) Maximum Consumption per Week= 120 units . .
Lead Time = Consumption Rate X Lead time (iv) Reorder_period (Lead Time)".' 8 to 10 weeks.
Consµmption
(v) Re-Order Quantity = 800 units.
=750x5
Calculate:
= 3,750 Units
(1) · Re-order level
ROL = Lead Time Consumption ,i: Safety Stock , I
(2) Max'im~ Level
=3750+0 1
(3) Minimum Level
= 3750 Units.
 t,1onarement
l'f'i' ~••"' Production and Tow/ Quafrty Manarement (¾si 'l"'°r( 229
228 ,\ILS OF LEAD TIME:
Solution: · 061'verage lead time = 15 days
Reorder Level (Maximum Rate Maximum) Safety A d .
l,{a,cilnUill lea time = 20 days
. (1) (ROL) = of Consumption x Lead Time + Level
= (120 x 10) + 0 l,{ifli!!lUill lead time = 10 days
1,ead time for emergency purchase = 4days
= 1,200 Units
(As safety stock is not gi~en in question so that safety-;Oclc It,'r£ OF CONSUMPTION DETAILS:
consider as a zero). · . Average ~te of consumption= 15 units per day
Maximum ""Reorder Reorder [ Min Rate of Min) ,, ,dlnum Rate
JY• 3 •
of consumption = 20 uru·ts per day
121 Level = Level + Quantity - Consumption x ~ad s~lution:
TIIl\e
= 1,200 + 800 - (60 X 8) Re-Order level = (lead time consumption) + safety stock
111
= (20 X 20) + 0
= 1,520 Units
= 400 units
Minimum _Reorder_( Avg ~te of x Avg Lead)
Level· · ~Consumption (ROC) Time
(3) Level
= 1,200 - (90 x_9)
(!) Maximum Level = ROL + ROQ _ (Minx
ROC Lead Tune
)

=400 + 245 - (10 X 10) .

= 390 Units
= 545 units
Working Note:
Av. Lead Time = (Min +,Max) / 2 Working Note:
= (8 + 10) /2 ROQ=EOQ = I UC = 25000 x = 245 units
=9.Weeks
(31 Minimum Level
=ROL - (Average x Axerage)
Example 6: ROC Lead Time
From the details given below calculate = 4()() - (15 X 15)
(1) ROL = 400-225
(2) Maximum Level = 175 units
· (3) Mi_nimum Level
(4~ Danger.Level = Average ROC x Lead Time for emergency
(4) Dander Level
purchases
Cost of purchase order = Rs. 30 = 15 X 4
No. of units to be purchased during the year = 5000 units
= 60 Units
Purchase price per unit (inclusive ~f all transport chargrs)
= Rs.100 .· .
Annual cost of storage/ unit _c Rs, 5 .
p t,1onagement lfl"Sf 231
230
~~!" Vipul'•™ Production and Total Quar,ty Management <¾sJ 1ffitr,10rf
Calculate:
. (MU-Octob A)sO . -
,Example 7: , er 2018) iie-0rder level, Minimum Level, Maximum Level and Average
Priya Elec tn.ca11s
· consuming Electnc Motors as follows ·
1evel·
.
~orma
wee , ma
1
=um 200 units per week, minimum uses 150 units
uses 225 units per week, reorder quan~er
d tim 3 to 5 weeks W ty
50/ution: .
suffer Stock (BS) =Av.Consumption x Av. Lead Time
230 units, reorder period or I~a e · ith this
(!) = 100 X 7
information, answer the following.
Calculate Safety Stock, Reorder Level, Maximum LeveJ = 700 Units
Consumption and Average Inventory. Safety Stock is for usage at normal rate during the extension
(2) d .
Solution: of lea tune.
Max. Max. ) Normal Max E~tension of lead time= Max LT-Av LT
(1) Safety Stock = ( Usage x_Lead Time - Usage
=8-7
=1125-200 = 1 Week
= 925Units Normal (Average) Consumption per Week= 100 units.
Re Order = Safety Stock + Normal Usage
(2) Level (ROL) (Max. Av.) Normal (Av~ge)
Safety Stock (55) = \ LT - LT x Consumption
= 925 + 200 per Week
= 1125 Units = (8- 7) x 100 = ioo Units
Maximum Level = Safety Stock+ Re-Order Quantity
13) Reserve Stock is to meet the excess usage requirement during
(3)

= 925 + 230 Normal lead time.

= 1155 Units Excess Consumption = (Max C - Av C)_
(4) Average Level = Safety Stock+ (Re-Order Quantity/ 2) = (150- 100)
= 1040 Units =50Units
Example 8: Reserve Stock (RS) = (Max C-Av C) x Av. LT
Determine Buffer S!ock, Safety Stock and Reserve Stock for the = (150-100) X 7
· data given below. ""350 Units
Normal (Average) Consum_ption per Wee_!<= 100 units. (4) Re-Order Level = BS + SS + RS
I 7
Minimum Consumption p~r week = 50 units - = 700 + 100 + 350
Maximum Consumption per Week= 150 units ,;, 1150 Uni~ per week
Reorder period (Lead Time) = 6 to 8 weeks.
(5) - Minimum Level • = 55 + RS
Re-Order Quantity= 900 units.
= 100+350
=600Units
 Ill
232
~~if Vlpad'•"' Production and Total Quality Monog•m•nt (S,,,,
~~ntO
ry Management
rnnr 233
(g) _ _ _ _ refers lo the quantity
(6) Maximum Level = Minimum Level + ROQ SJ lowest total cosl. (Aprl/ 19) ord ered to be purchased at the
= 600 + 900 (EOO/ABC/XYZ)
[Ans,: (a} Annual Consumption Value (b) A
= 1500 Units per Week price: (e) Safety stock, (I) Inventory C~st· ( )
fill In the blanks: ' g
!g,JcJ
i
Storing Cost; {d) Unit
(7) Average Level = (Min Level+ Max Level)/2
(2) e) The components of .
= (600 + 1500) / 2 ( Obsolescence Costs, Shrinkage Cot cos st include interest Costs,
s s, torage Costs etc
= 1050 Units (b) Inventory Carrying Cost, Stock out 00 · ·
st nd
Indirect costs of Inventory. a - cost and
(c) JIT inventory Control technique is originated from
country.
I\ QUESTIONS JI (d) _ level represents the stock level
purchase requisition on the purchase depa~hen the stores r:nust place
stock through fresh purchases. ment for replenishment ol
(1) Multiple Choice Questions: .
(a) The selective critena used _in ABC Analysis for classify· (e) · stock is that quantity wh· h ·
· IC is consumed during Average
organization's on hand inventory 1s ing
(I) Unrt Price [Ans.: (a) Inventory Carrying Cost, (b) Ordering Cost {c) Japan
(lij Annual Demand {d) Re-order, (e) Buller} ' . '
' (Ill) Annual Consumption Value
(Iv) .Jhe number of units on hand 131 Stale whether the lollowlng statements are True or False:
(b) Pareto's law is also known as _ _ _ _ Analysis. (a) Inventory management techniques can make or break your business?
(I) XYZ (b) In t_he EOQ model, the reorder point is detennlned by the demand
dunng the lead time.
(II) SDE
(Ill) FSN (c) ABC analysis is based on the Pareto principle. {April 18)
(Iv) ABC (d) A compan_y that places orders with order quantity larger than the EOQ
(c) Which of the following is not an element of Ordering Cost amount will incur a lower annual inventory carrying or holding cost as
-(I) Storing Cost a result.
(II) lntemet Cost for Sourcing (e)Uncertainty in demand for inventory as well as in l11<1d time creates the
(Ill) lntemet Casi for placing purchase order need for a safety stock.
(Iv) Telephone Cost to Supplier [Ans.: (a) Tnie, (b} True,. (c) True, (d) False, (e) True]
(d) The selective criteria used in HML Analysis for classifying (4) Match the Column·
organization's on hand inventory is Group 'A' Group'B'
(I) Unit Price ·
(II) Annual Demand (a) VED (I) Selective criteria Seasonality
(Ill) Annual Consumption Value (b) XYZ (II) Selective criteria Unit price
(Iv) The number of units on hand (c) sos (Ill) Selective Criteria Investment
{e) Extra units that are held in inventory to reduce stock outs are called (d) HML (Iv) Selective Criteria source ol procurement
11) Buffer Stock ·
(a) GOLF (v) Selective Criteria consumption value ·
(II) Just in Time inventory
(Ill) ·ReorderPoin\ (vi) Selective Criteria Issues from Stores
(Iv) Safely stock (vii) Selective Critena Procuremenl difficulties
(f) _ _ _ _ include financial costs, equipment handling costs, (viii) Selective cnteria criticality ol the part to operations
ordering cost. (Oct. 18) [Ans.: (a -viii);,(b- iii); (c-i); /d- ii); (e-,v)]
(I) Production cost
(II) Processing I REVIEW QUESTIONS . I
(Ill) Inventory Cost 0

(1) Explain how eicess inveniory can erode corporate profitability.•

(Iv) Purchasding
(2) What ar~ th~ reasons for holding inventory (inventory tunclionalily)?.
 23.f rfff -, ·-Vlpul'•'" Production and TotDI Quality Manafell'lent
(3) Outline the major differences in inventory control of manufactu . <¾s)
material stores and field distribution ware house. nng llnit, r
(4) Explain the squa·re root formulae for EOO - · wh_at are the a.~
assumptionS and-t!mitations. . llnder la.Yi11
(5) How does EOO model select the most economic quantity? e 9
examples. · . · : lCPlain ...1
- - , .. th
, (6) Explain with examples ABC analysis of Inventory management ·
(7) Define ·Inventory. What is the importance of Inventory - Managem-" ent?
- (8) What Is l_nventory Control? What are the advantages of Inventory Co
(9) Explain the various Inventory control tephniques in brief? (Apr1i 18) ntro1?
(10) Explain in brief any four Inventory Control Techniques: (April 1S)
(11) What is Inventory? Explain functions of Inventory. (Oct. 18)
(12) Describe different methods of controlling stock levels. (Oct. 18) ·
(13) Write short notes on:
(a) ·Inventory Functionality.
(b) Service Level. ·
(c) Costs of Inventory.
(d) AOL, Safety Stock and Buffer Stock.
(e) Pipeline Inventory.
(f) JIT.
(g) · Lead Time - .Buyer and Supplier related factors.
(h) EOO (Oct. 18)
(I) ABC Analysis.
0) _ Jnventory-Management. (Aprll 18)
(k) Material Flow System. (Oct. 18) ,
(I) Fixed Quantity System (0 System) Inventory Model.
(m) Fixed Period System (P System) Inventory M()det.
(14) Practical Questions: ·
(a) · ABC Ltd. Purchases- computer chips at the rate of Rs. 50 each. The
annual consumption of chtp is 36,000 units; If the ordering cost is Rs. ·
250 per order· and carrying cost is 25% p.a. what would be the EOO
and Total cost? · ., · . ·
If the supplier offers a discount of -10% for ordering 6,000 units;
Per order, do you accept the discount offer? (Aprll 19) ·
 Systems
t,1oten·of Handling
· 161

CHAPTER

Materiaf Handling Systems

7
7.1 Introduction: Definiticm and sc_o pe of Material Hand_ling
7.2 Materials Movement Cycle
7.3 . Stag~ in Materials Handling System
7.4 Objectives of Materials handling
7.5 Materials handling System Desigm Principles & Guidelines.
7.6 Factors responsible for _selecting Material_handling equipments
7.7 Methods / Sy~ems of.in plant movement of materials:
7.8 Types of material handling systems
7.9 Major Material Handling Equipment Categories .
7.10 Automated Storage&_Retrieval System (ASRS)
7.1_I . Carousels:
· 7.12 ·Automatic Guided Vehicle Systems (AGVS): . .
7.13 Sortations
7.14 Robotics
7.15 Conveyors
7.t6 Cranes
7
.17 Evaluation of Material Handling
.. ... Questions .
 M~erial Handling Systems
162 l°fnf . Vipul'•Tii Production and Total Quafrty Manag~ment (llMS) · hich . i'l;'.-r l.'i . 163
operations), w creates "form utili " b . ..
· 7.1 INTRODUCTION: DEFINITION AND SCOPE OF fortJl, and makeup of material. ty changing the shape,
MATERIAL HANDLING It is often said that MH only adds to th ·
Material Handling can be defined as "efficient short-distanc oes not a:dd to the value of a prod e cost of a product, it
d ·h uct. Although MH
movement of goods that usually takes place within the confines 0~ rovide a pro d uct wit form utility, the . does not
a building such as a plant or a warehouse or between a building provided by-MH can add real value t ., time and place utility
and a transportation agency." Pprodud can increase after MH hast oka product, i.e., the value of
a . a en place
Definition adopted by the American M:ateria_ls Handling scope of Matenals Handling:
Society is: Materials handling is the art and saence mvolving the functional scope of materials handlin . . .
moving; p;i.ckaging and storing of substances in any form. covers the following: g within an mdustry
Some of the other definitions are: (i) Bulk materials as well as unit t .
• Materials handling is the movement and storage of materials handling is particularly relevant :~~;a; han~ling. _B~lk
at the lowest possible cost through the use of prop~r methods and construction industries U ·t P oc:ssmg, nurung
. · ru matenals handlin
arid equipment. covers han d1mg of formed mat . ls . , .. . g
· d' . ena m the m1ttal
• Materials handling is the moving of materials or product by mterme iate and fmal stages of manufacture. '
any means, including storage, and all movements except ,1 (ii) Industrial packaging of in-process m t. . ls . . .
. ·h a ena , semi-finished
processing operations and inspection. or fIn!S ed goods, primarily from the po. t f . f
d f ' fh mov1ewoease
• Materials han~ling· is. the art and science of conveying, an sa ety o andling, storage and transportation.
elevating, positioning, transporting, packaging and storing of Howe:7er, cons~er packaging is not directly related to
materials. · . matenals handling.
Material Handling has four dimensions: (iii) Handling of materials for storage or .warehousing from
ra~ materials to finished product,sta~e: .
(1) Movement; (2) Time; (3) Quantity; (4) Space.
Material Handling improves efficiency by making the logistics , I~ _ _· _7._2_M_A_T_ERI_A_L_S_M:.::.O_:_V=EM=E=N::..:T:...:C:.:Y..::.C::::LE~--
system respond quickly and effectively to plant and · customer

r·
requirements. For efficient movement of goods into the
warehouse, locating stock~ accurately filling orders, .and rapidly
·preparing orders for shipment to customers, materials handling is
very important to ~utbound logistics. In inbound logistics terms,
materials handling serves company plants in the same way. Firms
need to integrate materials handling requirements not only for the
company's departmental needs, but also for meeting their
customers' needs.
Material handling (MH) can be used to create "time and place
utility" through the handling, storage, and control of material, as
distinct· from manufacturing (i.e., fabrication and assembly
Receipt of Input Storage of Inputs Moving to Production
Moving of Finished goods to W~rehouses to final Customer
15-20% of the cost of the product is spent on Material handling
Cost. · .
Material handling is an important & Specialized Function of .
Industrial activity. Even though this activity does not add to the
v'alue of the product, it essential from the point of Space & Time
utility (When & where it is required). . ·
If this system is r;iot properly designed & implemented, it will ·
result in increasing the cost of procurement production and
distribution. ..
 16 ~ rf("ff' ·Vfpul'•™ Production and Total Quality Management (BMsJ ·al Handling Systems
~taten r.i·~· l'J•
· 1 fl p · · """' ;!ij 165
7.3 STAGES IN MATERIALS ~ANDLING SYST~ (3) j',.fatena s low nnciple: Provide an op· .
equipment ayout that optimiz., . eration sequence and
(1) Inputs are transported from supplier to the plant (unloading; , • . • matenals flow
unpacking/inspecting). ) Simphflcahon Pnnciple: Sim l'fy ·
(4 I
eliminating or combining Hnnpe hand ling by reducing
(2) Unloaded inputs are moved to storage spaces and stacked ~"' cessary m '
equipment. ovements and/or
(loading, stacking, storing, Weighing, Counting, sorting).
(S) Gravity Principle: Utilize gravity t0
(3) Stored Inputs are moved to manufacturing location practical. move material wherever
(Loading/unloading/ moving/inspecting).
(6) Space Utilization Principle: Make .
(4) Semi-finished products are moved from one location to building cube.
O
Ptimum use of the
another within the plant or from plant to another outside
processing units (loading/ unloading/ movtng/ inspecting). (7) Unit Size Principle: Increase the uanti . .
unit loads or their flow rates. q ty, size or weight of
(5) Finished goods are moved to warehouses for packing/
staking/ (loading/ unloading/ stacking). (S) Mechanization Principle: Mechanize h dlin .
. . . an g operations.
(6) Finished goods are dispatched to customers (moving, loading (g) Automation Pnnc1ple: Provide autom ti' th
ti h dlin a on at includes
and if required unloading). . prod uc on, an g and storage functions.
Thus Material Handling Does Not Add Value To The Product; (10) Equipment Selection Principle· In s 1 tin' h d .
. 'd . · e ec g an ling
It Only Increases Its Cost. . eqwpment, cons, er all aspects of the material handled - the
movement and the method to be used.
7.4 OBJECTIVES OF MATERIALS HANDLING ]
(11) Standardization Principle:
. Standardize handling me thod s, as
(1) Reduction in handling cost well as types and sizes of hapdling equipment.
(2) Reduction in production time (12) Adaptabili~ Princip.le: Use methods and equipment that
(3) Better utilization of the space adapt to ':1dest vanety of tasks and applications, except ·
(4i .Reduction in damage/losses where special-purpose equipment is justified.

(5) Reduction in labour cost (13) Deadweight Principle: Reduce ratio of mobile handling
' equipment deadweight to load carried.
(6) Better utilization of existing equipment · ·
(14) Utilization Principle: Plan for optimum utilization of
~i (7) Improvements in materials management.system handling equipment and labour.
:J.5 MATERIALS HANDLING SYSTEM DESIG_N: (15) Maintenance Principle: Plan for preventive maintenance_and
PRINCIPLES & GUIDELINES scheduled repairs of all handling equipment.
(1) Planning Principle: Plan all materials handling and storage . (16) Obsolescence Principle: Replace obsolete handling· methods
activities to obtain maximum overall operating efficiency. · and . equipment when more efficient methods or equipment
(2) Systems Principle:Jntegrate as man}' handling activities as is · will 'improve operations. ·- __
p~actical into a coordinated ' warehousing, shipping, (17) Control P-rinciple: Use ma.terials handling .activities. to
transportation ~d customer. improve control of producti_ort,invento~ and order handlmg.
 166 . [f!f \f I. Vlput•s™ Production and Total Quality Managem
enrl¾s ~no1
. Handling Systems
167
(18) Capacity Principle: Use handling equipment to irn ) (1,) conveyors
production capacity. Prove (cl industrial Trucks
(19) Performance Principle: Determine handling perform (d) cranes And Hoists
effectiveness in terms of expense per up.it handled: ance
(e) Monorails
(20) Safety Principle: Provide suitable methods and equip
(fl Sli_des And Chutes
for safe handling. ' tnent
(g) Tractors And Trailers
7.6 FACTORS RESPONSIBLE FOR SELECTING
\ren the material flow requirements for
MATERIAL HANDLING EQUIPMENTS GI b d . . one or moves MHS
•.nativesthcan• e etemuned
~le,•· ,, .by. selecting
,, . ' MH
appropnate
· .; A wide variety of material handling equipments is availab! .
. the market, suitable to almost every industrial requirement.
material handling equipment differs from each other in follow·
'¾ eqlll·pment at, m
.. some. way, satisfies the re •
qwrements.
An importan_t 1Ssue IS the classification level from which the
t,ili equipment 1s selected:
·aspects. l!lg
(1) Suitability for The Type of Materials: Borne materi 1
, . d - . categories of equipinent, e•g., conveyors,
High Level
cranes, m . ustria1trucks, positioning equipment
handling equipments are suitable for bulk load while othe:5
are suitable for packaged load or individual pieces. , Intermediate Level - equipment types within ca tegones, ·
e.g., chute or roller conveyors, pallet jack or pallet truck
(2) Direction of Movement:°Some material handling equipment industrial trucks
can move materials only in horizontal direction, other can
move only in vertical direction. , Low Level - equipment models within an-equipment type,
e.g., an Acme Model X diesel-powered counterbalanced
(3) Speed of Movement: Some material handling equipments
lift truck with a rated lift capacity of 5,000 lbs.
have fixed speed while in others speed can be varied.
MHE selection:
(4) Path Followed: Some material handling ~quipment follows a
basic MH Equipmt:nl
fixed path while in others path can be varied. · 1----=;:=:;.;---+1 Technical Feasibility

r
characteristics Database
(5) Power Required· For The Operation Of The Equipments: MHS Allematives
Material-handling equipment can be power driven (battery or
IC engine) or manual driven (hand driven) or gravity feed
driveri. SelectedMHS

(6) The cost of equipment.-

(7) The plant facility, layout and the space available.
(8) Supervision Required: Some equipment require close
supervision . while others do not. Considering the .above
characteristics, material handling equipments may. be
grouped under: · ·
(a) Wheel Barrows, Hand Trucks And Troll.eys, Pulley
. Blocks etc. (Manual Material Handling Equipment) · '
Figure 7.1
Selection Problem:
Starting from a low level can result in too many possible
choices, while starting from a high .level dpes not. narrow .the
number of possible choices enough; starting from the mtermediate
level reduces the selection problem to choosing from lS-SO.
possible types of MH eq~~ment.
• L'J"l'l"L'l" Vfpul'•"' Production and Total Quality Monagem
emre,.,~ aierial Handling Systems
168 ""5"'
The process of MH equipment
_ .
selection can be decoll'I t,1 .
better than the manual systems and th h
~nnr /69
p· 71)· PoSeq
into two stages (Refer above_ igure . . is lesser. e uman effort involved
(1) Determine Te~ical hFeasibt il~tyl:flselect equiPrneht 13) Automation: These systems sub ti
types that can satisfy t ma ena ow reqturernents fr ., required in mechanized systems lute the human labour
a technological perspective; OJ!\ aspect of automated systems. ~o~~puters are an essential
E.g., a pallet jack is not technically feasible for stackin is the tight connectivity betw th aspect of such systems
een e hand!' d
. pallets onto storage racks. g Automated systems have to be dev ed mg an storage.
ch h dr d e1op and customized for
(2) Determine Economic Feasibility: from arnong ea an mg an storage system application.
technically feasible equipment types, select the equiprnlhe The~ stystems utilize_ equipments like carousels and
. given
type that is most cost effectlve . the matenal. handlinent automatics orage and retrieval systems (ASRS).
requirements;
E.g., while both a pallet jack and pallet
g
truck ar
[Is TYPES OF MATERIAL HANDLING SYSTEMS
technically feasible for lo~g~tance moves, the palle~
truck, while costing more lllltially, would be more cost _Types of Material Handling
effective because it can travel faster due the operator's
ability to ride on the_truck. i • . 1
7.7 METHODS/SYSTEMS OF IN PLANT MOVEMENT Fixed Path Variable Path
OF MATERIALS t
(1) Manu.il Labour: In this· method, material in gunny bags,
buckets, baskets etc., is moved in head loads by manual labour·
i
Fixed Variable
from point to point in the plant, say, from the warehouse the Destinations Destinations
raw material is stored, to·the production point, or from the
(1) Fixed Path Fixed Destination Material Handling
production plant to the warehouse or from the warehouse.to Equipments: Conveyers, Lifts, Guided Trolleys, Machine to
the loading point. fn smaller plants, this may be an economical Machine trays / System.
mgthod of in plant transfer o( material. The small volumes
moved at a time and over a period of time may justify Advantages:
movement in head loads. (i) Highly Automated- Human ~ementsMinimised.
The equipments used in such systems are racks, drawers, (ii) Suitable for heavy material.
bins, hand trucks and gravity conveyors. (iii) Minimum damages.
(2)' Mechanized 1'ransport: In this type of system, some m~ual · 6v) Can be effectively used for delicate parts.
aspects of the material handling system are mechanized, that
is use machine power in place ot li\bour. The equipments
Disadvantages:
. generally utilized are fork lift trucks, tow tractors, order picker (i) Limited liability
trucks; cranes and conveyors. The _speed of these systems is. (ii) High initial costs
(iii) Break down of system is costly
a
170 rrrr-i§l'f" , .,,,,™ Production and Total Quality Monagem,nt (¾si
VI ·a/ Handling Systems
Moten
171
(iv) High operations costs Advantages:
(v) Production Stoppages needs off live maintenance (i) Versatile in operations, not restricted to .
'b'l' . . certam areas.
(vi) Needs bask infrastructure. (iil FleXI 11ty 1s 1ugh - any type 0 f .
anywhere. matenal can be moved
flltl>tlt~r
(iiil Low Cost_a~ _compared to other cost
(iv) Job Size restrictions c1re minimum
(v) Can be used in places where infrastructure is not
available -
Gantry mobile crane
(2) Fixed Variable Destination Material Handt·
Equipments: Overhead Cranes, Auto Guided Vehi~
(AGVs), Movable Robots etc.
Advantages:
(i) Provides considerable flexibility.
(ii) Can move heavy loads
Recent high technology equipments have logic controls _
(iii)
(Pimension Sensing, Weight Sensing) etc. _Mobile gantry
Disadvantages: Disadvantages:
(i) High technology needs higher skills _(i) Needs Manual Skill
(ii) Area restricted
(ii) Weight moving capacity is low
(iii) High initial Cost (iii) Time consuming.
(iv) Need basic infrastructure.
7.9 MAJOR MATERIAL HANDLING EQUIPMENT
CATEGORIES
The di(ferent types of MH equipment can be classified into the
following five major ·categories:
(1) · Transport Equipmen~ Equipment -.used . fo move mat_erial
from one location to another (e.g., -between workplaces,
· between a loading dock and a storage area, _etc.). The major
subc~tegories of transport equipme~t are conveyors, cranes,
Robotic pick and place palletizers and industrial - trucks. Material can also be transported
(3) Variable Path Material Handling Equipments: Trucks, manually using no equipment.
.forklifts, mobile eranes, m
· d ustrial_
·- tractors, tippers, dumpers.
 l'J"'l'l"'l'J"' VJpul's™ Produaion and Total Quality Manage ...
172 i;;; i;; §! .. ,en1 (¾SJ . 1Handling Systems
(2) Positioning Equipment: Equipment used to_ handle tnateri ~o1eno l°i'l'l'
173
at a single location (e.g., to feed and/or manipulate ll\ate . ~I .fhe inain purposes of installing ASRs are: ""
' ' for subsequent hanctina1s
50 that are in the correct position · ') increase storage capacity• ASRS · .
machining, transport, or storage). Unlike tran ll\g, (1 d . . · ordinarily •
storage ens1ty m warehoUSes th . increase the,
equipment, positioning eqwpmen . t IS
. ~uaIIy Usedsport fo · number of individual loads th;t at b15, the total maximum
handling at a single workplace. Matenal can als r can e stored -
0 be
(iii Increase system throughput: ASRS in ·
positioned manually usm •
91no equipment.
·
_of loads per hour that the storage sy tcreases the ~umber
· -· lace m · t,o storage and retrieve ands demIi can receive .and
(3) U~t Load Formation Eq~ip~ent: ~q~pme_nt used to restrict P
materials so that they mamtam their mtegnty when handJ areas. · e ver to reqU1ted
a single load during transport and for storage: If materials ed (iii) Reduce ' labour costs: By automating th
self-restraining (e.g., a single part or interlocking parts) ;re . . t . d e systems of
retnevmg, s onng, an delivering materials, labor and
they can be formed into a unit load with no equipment. ' en related costs are often reduced.
(4) Storage Equipment: Equipment used for holding or buffenn (iv) Improve -product quality: Because of human err ·
materials over a period of time. Some storage equipment mag , . th or m
iden tifying matena1s, e wrong parts are often delivered
include the transport of materials (e.g., the S/R machines !t 1 and assembled into products. These errors often occur
an AS/RS, or storage carousels)_.Jf materials are block stacked because of similarity in the appearance of different
directly on the floor, then no storage equipment is required. materials. Automated systems that must identify parts
(5) Identification and Control Equipment: Equipment used based on bar-codes or other identification methods are not
10
collect and communicate the information that is used to as subject to these kinds of identification errors.
coordinate the flow of materials within a facility and between Advantages:
a facility and its sup-pliers and customers. The identification (i) Reduction in labour cost.
of materials and ass?Ciated control can be performed (ii) Increase in output rate.
manually with no specialized equipment.
(iii) Increase!' in consistency of services.
7.10 AUTOMATED STORAGE & RETRIEVAL SYSTEM (iv) Reduction in material handling cost.
. (ASRS)
(v) Increases accuracy levet
Automated storage and retrieval systems (ASRS) are systems (vi) Improvement in the speed of !l_ervice.
for receiving orders for materials from anywhere in operations or Disadvantages:
unloading areas, collecting the materials from locations within a
warehouse, and delivering · the materials to workstations in (i) Heavy initial capital cost.
operations or loading areas. (ii) Downtime of equipment/maintenance . may cause
There are three major elements of ASRS: interruptions.
(iii) Capacity proble~. . . .
· (1) Computers and communication systems
- (iv) Lack of flexibility to respond to changing env1torunent.
(2) Automated mat~rials-handling and deiivery systems
(v) . Perpetual maintenance cost.
(3) Storage and retrieval systems in warehouses
(vi) Users training requirement.
(vii)Risk of ooso'lescence.
Ill 174
Vi ,,i•s™ Production and Total Quality Managern
P

•..,,,
.~..
'
• .
, _...,.,, , ,i,.
. '
.
~~i'f'WJ1'
eni (8,,
'"SJ
·ol Handling Systems
~aien
automatically by way of computer con
N"l'J"l'J"'
1;;i a ~
either der picker operating a keypad . thtrol or manually by
t1te or

l)J'tace-
on e carousel's work

nYiMATicGtmmriviai~:-;:;-;:;:-::==------.
~,1Z t\(JTOMAT~C GUIDED VEHICLE SYSTEMS (AGVS)
/75

'
•utomatic guided vehicle (AGV) is 'batt d
" • J th · ery-powere
ri"er!ess vehic es a_t are controlled by computers for task
~ignment, pa th selection, and_posi?oning." AGV are often used
tomated warehouse operations mvolving AS/RS
.
AUtomated guided ve~cle _systems follow a magnetic path or
A typical Automated Storage & Retrieval System (ASRs) phOIO ~ath for the destination. They stop if they find any
obstrUctions.
7.11 CAROUSELS

A Typical Horizontal Carousel

It is a form of Autornati~ Storage and Retrieval System
(AS/RS). The Carousels are mechanical devices that house and A typical AGV material Handling System
rotate items for order picking. The most frequently utilized The benefits of AGV include "lower handling costs, reduced
carousel configurations are the horizontal and vertical systems. handling-related product damage, improved_sa!:ty, the ability to
· _A horizontal carousel is a linked series of rotating bins of interface with other automated systems & reliability.
adius~able shelves driven on the top or bottom by a drive motor. Similar types of AGV's that are used:
Rotatio~ takes place or an axis perpendicular to the floor at (1) Camera guided AGVs are used when precise guidance
approxunately 80 feet a minute. · . . needed, such as m · crowded environments and
accuracy 1s .
A vertical carousel is a horizontal carousel turned on its end· . d facu·tt·es
smaIIer size 1 .
An on-board camera focuses and
a~d enclosed in sheet metal. Like horizontal carousels, an order guides the AGV while perfonning.
picker operates l or -multiple carousels. The carousels are indexed

Q
 l'J"l'f" VJ id's™ Production and Total Quality Manage
176 · g";:. § P /IJellt(e,. . 1Handling Systems
. . • '"SJ JAoreno i"g"~
re used to pick up and deliver variou
(2) Forke d AGVS a ·
177
th Th s 1o d and hazardous such as die-ca tin _
such as pallets, carts, rolls and alelrs. deshe can be rnaru.t ls, ~ea''Y. ' s g, forging, and spot
.
dnven as well as used automatic y, an ave the abu·1tya ly we!dtilg-
lift loads to many levels. 1o ---,7i.t55CC:CO»N~VE'RYYlO~Rics_ _ _ __
(3) Inertial guided AGVs useth a ~t~gnhet ds~nsing device
scope that measures e urn s ea mg and a • a
, Belt conveyors airport baggage handling l
Chain/ cable conveyors - coal mines
~:eter that calculat~ the distance travelled. Ma""heer
'
mounted beneath the floor are detected by the on-bgnets
magnetic sensing device and _c?mbine ""'.ith the first
readings to give an accurate positional location.
0

o
:d ,
Gravity roller conveyors - power plant co I h di'
Live roller conveyors - Petroleum companies
Elevating conveyors - fertilizer factories
a an mg system

(4) Laser guided AGVs use mounted laser scanners that e . , 5cre~ / spiral conveyors - cement factories
laser and reflect back from targets. The vehicle's locatio:it a. , Pipeline conveyors
be determined based on distance to the target and tiinec~
. informa ti' on. of , Chutes
(5)
refl ection
Optical guided AGVs use a latex-based photosensitive ta
on a facility's flpor for guidance. Distance is measured by pe
C: 7.16 CRANES
, Fixed cranes - steel factory
of wheel odometers, which establish stop locations for :e Travelling cranes - turbine shop
AGV along the course. · e
Electric hoist - automobile factories
(6) Smart vehicle AGVs are capable of determining their OWn
, Winches and capstans
L 7.17 EVALUATION OF MATERIAL HANDLING
traffic control and routing without necessitating a central
controller.
(7) Wire guided AGVs use a charged wire that is buried beneath The effectiveness of the material handling system can be
the floor for proper guidance and ha_s a small antenna measured in terms of the ratio of the time spent in the handling to
composed of metal coils mounted on their bottoms. The the total time spent in production. This will cover time element.
stronger the field between the buried wire and antennae the
higher the voltage induced to the coils. ' The cost effectiveness can be measured by the expenses
incurred per unit weight handled.
7.13 SORTATIONS
In order to. know the total effort needed for moving materials,
Labels are read and the packages are delivered to right docks it may be necessary to 'Compute Materials Handling Labour Ratio
for onward dispatch. (MHL). This ratio is defined as under:
I 7.14 ROBOTICS ·I Personnel assigned to materials handling
MHL Total operating work force
P~ograrnmed to break down a unit load for storing at different
loca~ollll and also to make a unit load of items in different In order ·to ascertain whether the handling system delivers
loca~o_ns. Robots are useful in warehous~s where extreme materials to work centres with maximum efficiency, it is desirable
cond1~ons of temperature and noise exist. Robots are used in to compute Direct Labour Handling ratio.
matenals handling for I din d Materials handling time lost by direct labour
s r . . oa g an unloading, spot welding, and
.,. p ay painting. Robots were initially applied to jobs that were hot, DLHL = Total direct labour time

l..:,1111 5
 Vl,id'•"' Production and Total Quality Managen,

/I QUESTIONS II
e~r (~•-
""ISJ
~-
(I}
. I Handling Systems

5rate whether the following statements are True or F

Material handling cost per unit decrease - ,
C•l increases?
B'°l'J"L'I"

.
~lse.
179

s as th e size of the unit load

.

I OBJECTIVE QUESTIONS I (b) Never ride on hoisted loads or hooks being m d

. can be stacked .1n any m_anner. (Apr//
(c) Matenals ove )by cranes.
ie
M 111 Choice Questions:
(d) Material Handling Does Not Add Value T
18
Th p
(1) u P consist(s) of two or more computer-controll8d m Increases Its Cost. , " 0 e. roduct; It Only
I•) or robots. finked by automated handling devices such as ~ine
8 (e) An automated guided vehicle (AGY) is a small, drive~ess, battery-
chines conveyors and transport systems. Sier th
;;;8' Co~puter-Aided Design I Computer-Aided Engineering (C driVen .truck at . moves matenals between operations, following
instructions from either an on-board or a central computer.
CAE) . . . 1\()1
(II) Computer-Aided Manufactunng (CAM) (f) Conveyors ~re re~uired where a continuous flow ·or material over a
long penod 1s requrred. . .
(HQ Enterprise Resource Planning (ERP)
(Iv) Automated Storage and Retrieval Systems (ASAS) (g) Materials Handling . does not involve movement of Material, but
(b) Which of the following do not represent a_requirement for fixe(l.Pal/i involves_only protection, and storage and control of materials.
conveyors? (h) Inventory velocity refers to_ the average speed (in miles/hour) of
(Q Products are bulky, large or heavy material handling equipment rn a warehouse.
(II) The route does not vary (I) Scheduling an_d_ maintaining Material Handli~g Equipments are
(111) Continuous movement is requ_fred . . operational dec1s1ons.
(Iv) Automatic sorting, in-process inspection or 1n-pr°<:es~ storage U) Larger unit loads decrease completion lime but increase material
(c) Which is not true in case of Fixed Path Vanable Destination Matena, handling time.
Handling Equipments:
(k) When handling materials, you should always place heavier loads on
(Q Versatile In operations, not restricted to certain areas. lower or middle shelves.
(IQ Low Cost .as compared to other cost
(I) When racks are full, aisles are an acceptable place to store materials.
(Ill) Can be used in places where infrastructure is not available
(Iv) lnnexibllity (Ans. : (11) True, {b) True, (c) False, (d) True, (e) True, (f) True, (g) False,
(h} False, (/) True, (J)_False, (k)True, (I) False]
(d) For Materials Movement Cycle, select correct sequence
(I) Receipt of Input Moving to Production Storage of Inputs 131 Match the followln_g_:
Moving of Finished goods to Warehouses to final Customer µ- Group 'A' Group 'B'
(11) Receipt of Input Storage of Inputs Moving of Finlshea .. ~11) Fixed -Path Fixed Destination (I) Fork Lift Trucks
gOods to Warehouses Moving to Production to final Material Handling Equipment
Customer (b) Fixed Path Variable Destination (II) Positioning Material Handling
(Ill) Receipt of Input Storage of Inputs Moving to Production Material Handling Equipment Equipment
Moving of Finished gOods to Warehouses to final Customer (c) Variable Path Material Handling (Ill) Aut!l Guided Vehicle (AGV)
(Iv) Receipt o( Input Moving to Production Moving of Finished Equipment
gOods to Warehouses Storage of Inputs to final Customer (d) Used for moving unit loads both (Iv) Conveyers
(e) Which is not the objectives of Materials handling horizontally and vertically
(I) Reduction in handling cost
(II) Reduction in production time (e) Equipment used for holding . or (v) Adaptability and Flexibility
(Ill) Sourcing and Purchasing buffering materials over a penod
(Iv) Reduction In damage / losses oitime
(I) -c---,-,-.. Is the art and science of moving, packaging and storing (Q Equipment used to_ handle (vi) Storage Material Handling
of material in any·torm. (April 19) material al a single location Equipment
(Material Management/Material Handling/Material Procuring) °
(g) Factors affecting Selection 1 (vii) Comfortable working conditions
[Ans.: (11) Automated Storage and Retrieval Systems (ASRS), (b) Products Material Handling Equipments
are bulky, lar~e or heavy, (~) Inflexibility; (d) Receipt of Input -J Storage of (h) Ergonomics (~Ill) Du~per
Inputs -J Moving lo Pro<1uct1on -J Moving of Finished goods to Warehouses [Ans.: (a - iv), {b - iii), (c - viii}, (d- i}, (e - vi), (I ii), (g - v}, {h - vii)]
-J lo final Customer; (e) Sourcing and Purchasing; {f) Material handling]
 180 rrrrrr · Vipul's™ Production _and Total Quality Monaa
c. ellle11r t
j· THEORY QUESTIONS I ¾sJ
(1) Short Answer Questions:·
(a) What do you mean by 'Materials Handling'?
(b) List Stages in Mate~als Handling System.
(c) Objectives of Materials handling.
(2) Long Answer Questions:
(a) Describe manual, mechanical and automated material
systems with examples. handling
(b) Material handling does not add value but just adds to the
discuss. cos,'
(c) Describe various material handling equipment and its relevance .
Materials Management. in

(d) What are the principles to be applied for designing efficient maten
handling system? · _ . al
(e) Discuss for Material handling systems - its Definition, Objectives and
scope.
(f) Discuss types of Materials . Handling Equipments with the_ir relative
merits and demerits. . ··.
(g) Discuss in brief Material handling Equipment's. (April 18)
(h) Explain briefly Material Handling System. (Oct. 18)
(I) Explain
19)
the brief various. types of Material handling Equipments. (Apr//
(3) Short Notes:
(a) ·Automated Storage and Retrieval Systems (ASRS).
(b) Evaluation of Materials Handling.
(c) Fixed Path Fixed Destination Material Handling Equipments.
(d) Fixed Path Variable Destination Material Handling Equipments.
(e) Variable Path Material Handling Equipment.
(f) Factors considered in Materials Handling Equipment Selection. ·
,,.-- . Management
~¢erro1s
rrrr.r 139

UNIT- II

CHAPTER

Materials Management:
· Concept, Objectives and
.Importance.of Materials 6
Mana ement

Introduction to Materials Management

6. I
6.2 Importance of Materials management
· 6.3 Objectives of Materials Management .
6.4 Scope / Functions of Materials Management
6.5 Advantages or benefits-.of Materials Management

6.6 Phases in Materials Management

6.7 Challenges of Materials Management

6.8 Integrated materials Management

.. Questions

[ 6J INTRODUCTION TO MA'rERIA~S MANA_f EMENT I

.Different reseaFchers provide different definitions for material
management, therefore different definitions · can
be found in
different references. Basically, material management is concerned
With the pl,anning, identification, procuring, storag_~~ r_ec_eiving
and distribution of . materials. · The purpose of material
~agement is to assure that the right mate~als are in the right
place, in the right quantities when needed. -The responsibility of -,.
 140 rrsnT V1p11l'1™ Production and
.
Total Quality Management (BMs) ~oien
·als Management
e1tandler (2001) states that m t ,
rr~-
· "' ff 141
one department (i.e. material management de~artment) for the (7)
sho1.i!d b e ·imp1emented to plan aenals management systems
flow of materials from the time the materials are ordered warehousmg,. contro11·mg the us 'f order' cheek deliveries
received, and stored until they are used is the basis of material terials. He adds that these a~ ~timateria!s, and paying fo;
1113 vi es should b ,
management. J\!llold (2001) states that materials e mterrelated.
(1) -Dobler and Burt (2009) state that materials management is (S) responsible for planning and contr ~anagement is a function
designed to improve the activities related to the flow of adds that a materials manager sh:u%g of ~at:rials flow. He
materials. They add that material management should resources of the company. maxim12e the use of
coordinate purchasin?, inventoo/ control, . receiving,
) Gossom (1999) indicates that a materials ·
warehousing, matenals handling, plaruung, and 19 should have standard procedures f ml an~gement system
transportation. · · or P annmg exped1·tin
transportation, receipt, and storage to ens ' . , g,
(2) Bailey and Farmer (2009) define materials management as a system for materials control. ure and effioent
concept concerned with the management of materials until
the materials have been used and converted into the final (t
o) cavinato 1 f th states
(1994) fl that materials management mvolves
.
product. Activities include cooperation with designers, the con;o _o e. ;w of goods in a firm. It is the combination
purchasing, receiving, storage, quality control, inventory - of pur asmg Wl production, distribution, marketin and
finance. g
control, and material control.
(3) Stukhart (2007) defines· materials management as the ~PORTANCE OF MATERIALS MANAGEMENT I
activities involved to · plan, · control, purchase, expedite, _
Materia~~- man:g:~nt is concerned with planning, directing
transport, storage, and issue in order to achieve an efficient and contro mg t e , amount, location, movement and timing
- flow of materials and that the required materials are bought of the various flows. of commodities (goods flow) used in and
in· the required quantities, at the required time, with the produced by a business enterprise.
_required quality and at an acceptable price.
Materials management 9ffers greater promise as a cost ·

l
(4) Ballot {2006) defines materials management as th~. process of
planning, acquiring, storing, moving, and controlling
materials to effectively use facilities, personnel, resources and
capital.
(5) Tersine and Campbell (2004) define materials management
as the p~ocess to provide the right materials at the right place
at _the right time in . order to maintain -a desired level of
production at minimum cost. The purpose of material
mahagement is to control the flow of materials effectively.
(6) Beekman-Love (1998) state!\ th~t ~- inaterials management
structure should be organized in such a way that it allows for
integral planning and coordination ·of the flow of materials, in ,
order to use the resources in an optimal way-and to minimize
costs. ·
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 mventories, 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.
 ...... ,...
, ™production and Total Quality Management (BMSJ rials Management g"ffl'f I43
w !f~~ Vipul • ,At<e
r,abour Cost = 5% to 20% of Cost of manufacturing
. . t explains the importance of Materials
The following pom s overhead Cost = 20 % to 40% of Cost of manufacturing
Mana ement in globalised economy . .
g d'ture of Matenals m Manufacturin Before .1991. that
INDIAis before
th economic lib era11sa
. ti on and
(1) High perc~tar t::::eri~ls ranges from approximately 40'" Globalization .' e manufacturers or suppliers used
Industry: os o . o
to decide profit margin and sales Price and the equation in
to 75% of Cost of Manufactunng, .
business was stated as ·
The following table shows Average Matenals Expenditure
selling Price = Manufacturing Cost + Profit
in Manufacturing Industry.
TABLE In view of the current competitive pressures in the market
tter · 1991 when economic liberalisation and Globalization
Average Expenditure
:egan in INDIA, the equation has changed to:
Industry Groups
Average - selling Price - Manufacturing Cost = Profit
Expenditure
In today's situation, the Selling Price is determined by the
Perc'!nt
<-----
Cotton yam, earth-moving eq~ip'.11ent, sugar, wool, market forces and as such, Profit can be ensured only by
Aboveo5 jute commercial vehicles, fabrication reducing the Manufacturing Cost. In most of the
organizations, materials cost contribute approximately from
60-65 Cotton textiles, bread 40% to 75% of manufacturing cost and as such there is a
55-60 Engineering, non-ferrous significant importance to Materials Management. Materials
Ship-building, chemicals, tyre, machine tools, Cost is divided into two segments:
50-55 cement, electricity (a) . Unit price of the Materials.

j 45-50
40-45
Pharmaceuticals
Steel, newspaper, fertilizer, aircraft
(b) Consumption for Production.
The Purchase Department which i~ a part of Materials
The amount spent on materials is higher than all other Management can control the prices by effective Negotiations.
production inputs. The Ma,terials Management can control the total cost,
including the~Consumption, by controlling the issue from the
The above percentage expenditure of Materials shows an
l importance of Materials Management as there is a huge scope
in saving ir, the cost of materials through different effective
Stores, based on the norms for Production.
(3) Improvement of the PROFITABILITY of an _organizati~n:
materials management techniques. (including accurate Gopalkrishnan has given a simple example in his book which
Materials Planning, efficient Purchasing, Storing and is givt,t .below to understand the importance o~ M~terials
Preserving, materials handling and transportation, Inventory Management in increasillg profitability of an orgaruzation.
Control etc.) Annual Sales Turnover =Rs. 10 Million
(2) Effect of Globalisation: C~st of Materials . · · = Rs. 6 Million
Manufacturing Other {Labour+ Overheads+ Other costs)= Rs. 3 Million
Materials Labour Overheads
Cost =
Cost + Cost + Cost + related
costs ..P~ofit · · · <·
Rs. 1 Million
Materials Co~ = 40% to 75% of Cost of manufacturing

..
 "'Production ond Total Quality Management (¾s) Management g"!,Tl'r
144 ~f"(" V,pul'• ~dleriols = a 145
(Cost of Materials + (Labour •.-n on investment depends on the eff ti. .. .
Annual Sales Turnover - - Profit -I- re•"'·: ec ve utilisation of
Overheads+ Other related costs)) - . . - . !Jlatena1s.
llion+ (Rs. 3 Million)] - Rs. 1 Million 'J1le relationship of various entities here c b d
Rs.10 Milli on- [Rs · 6 Mi . an e expresse
t has assigned to manage the work of as:
Top Managem~~ . 0 Profits
increasing profitab1hty by 30 Yo . ROI Capital Employed
Manager has 2 wa s of achieve the result of mcreasing
Y
profitability by 30%. . · . - Total Receipt (Revenue) -Total Expenditure
ROI
Fixed Assests + Current Assets
(1) Increase sa Ies Turn over by 30% to increase profit by 30%
Annual Sales Turnover - (Cost ~f Materials + (Labour + OR
Overheads+ Other costs)]= Profit Profits Sales
Rs. 13 Million - [Rs. 7.8 Million+ (Rs. 3.9 Million)] ROI = Sales x

= Rs: 1.J Million ... increase in profit by 30% Profits Sales

(2) To reduce the materials cost by 5% using different
materials managem_ent techniques and increasing the
profit
Rs. 10 Milfon - (Rs. 5.7 Million + (Rs. 3 Million)]
Different strategies for- improving profitability through
= Rs. 1.3 Million
maximizing ROI may be as under:
Conclusion:
(i)
The result of the efforts in reducing the cost of materials by
· 5% using materials management techniques = The result of
the sales and marketing team efforts in increasing the sales
turnover by 30%. ·
(ii)
In this context one of the materials management experts
like Dean Ammer rightly claimed that efforts in saving a
Rupee in materials cost iS ahnost equal to efforts made for
additional sale of Rupees 10.
ThiS shows the importance of materials management as
how profitability of an organization can be improved.
(4) Maximization of the Return on Investment (ROI): The main
concern of any Busin~s management is to maximize the
Return on Investment (ROI). Management through their
policies, decisions, and coordination and control mechanisms
must maximize the Return On Investment (ROI). Improving
ROI = Sales x Fixed assets+ Current assets
Thus,
ROI = profit margin + asset turnover rate
To increase total receipts: For thiS either sale has to be
increased or the prices of the products sold have to be
increased. Both these alternative are very difficult to
achieve in present competitive market.
To reduce Expenditure: Majority of the expenditure of
any industry is either on men or materials. The relative
expenditure on men and materials vary from industry to
industry but in most of the industries' expenditure on
materials is 40% to 70% of total expenditure. Therefore,
two broad areas for reducing expenditure are men and
materials. However, reducing expenditure on men is a
very difficult task in today's environment of tight labour
Jaws and strong trade unions. Therefore the other are.a to
be tackled remains reducing expenditure on matenals.
When we talk of expenditure on materials, it is relevant
· to point out here that there are two types of costs rel~te~
to materials- "cost of materials" and "cost on matenals
i.e. there is always some extra expenditure related to
 TH p d ction and Total Quality Management (A,.' • Management !l'f'N"l1.f" /47
tfUU Vfpul'• ro u '"~SJ Maten 015 ,,. ..i ,,.
146
"" "' . . ot actual cost of materials. It needs 6.3 OBJECTIVES OF MATERIALS MANAGEMENT
materials ~hich is: we can very well tackle these ex~o
fhe fundainent_al and primary objectives of the Materials
be appreciated Iha t rials) without compromising tha · t function are acqU1sition
· · · of materials and services,
costs (cost on fma e ·ce (consumption) and ·achie e . t,faJlagemen
actual level o s~rvi . Ve fief\ called the famous 7 R's of Materials Management:
0
reduction in expenditure. . (l) purchase of material at right quality.
.· . t •rt fixed assets: As investment h
(iii) Reduce investmr ~ere is very little scope for. reduo:s
(2) purchase of material in right quantity.
already been ma e, . · 8
expenditure on fixed assets. 131 purchase of material from the right source.
.
(iv) Reduce inves
tment in Current Assets: Current assets
. d . 141 purchase of material at the right price.
consist of mainly working capital an inventory. As a (S) Delivery of roaterial at the right place.
. te about 40% of current assets are.generally
rough es hma , .
tied up in inventories of raw matena1s, cons~ables,
... 16) Delivery of material at the right time.
171 Delivery of material with the right mode of transport.
) /
materials under different stages of production and
finished goods. If we could reduce stocks of these
different types of inventories, w~ can very w_ell :~duce
F
0
m the management point of view, the other key primary
~ectives of Materials Management are:
investments in current assets and improve profitab11ity, (l) To buy at the lowest price, consistent with desired quality
(v) Proper application of Materials _Management techniques, and service.
controls investment on matenals as under and over (2) To maintain a high inventory turnover, by reducing excess
stocking is avoided. storage, carrying costs and inventory losses occurring due to
(vi) Quality of end product depends on materials. · Materials deteriorations, obsolescence and pilferage.
management assumes responsibility for whatever (3) To maintain continuity of supply, preventing interruption of
happens in purchasing, storing, inventory or any other the flow of materials and services to users.
area connected with materials.
(4) To maintain the specified material quality level and a
(vii)Materials Management ensures sustaina~ility with consistency of quality which pennits efficient and effective
environmental safety. Sustainable materials operation.
management is a systemic approach to using and reusing
(5) To develop reliable alternate sources of supply to promote a
materials more productively over their entire life cycles.
competitive atmosphere in performance and pricing.
It represents"a change in how our society thinks about
the use of natural resources and environmental (6) To minimize the overall cost of acquisition by improving the
I
,r protection. efficiency of operations and procedures.
r- The efficiency of any organisation depends upon the (7) To hire, develop, motivate and train personnel and to provide
a_vailability of right materials, in right quantity, at right time a reservoir of talent.
and at right price. This shows overall importance of Materials (8) To maintain good records and controls that provide an audit
Management. ·
trail and ensure efficiency and honesty.
 lfiff" Vipvl'•"' Production and Total Quality Management (BMS)
. Is Management
i,1atenO
l"l"
!;;; rnr /49
148 tiJlle in right quantity of right quality t . .
'ecti'ves of Materials Management are: ·ght source by efficient purchasing right ~nee from the
Th e Secon dary Obl ..... 15
rind developing sources of suppiy s co;5 ts of locating
(i) To develop and maintain good supplier re_lationships i_n order
a urchasing, calling of tenders se'1mti~r et research for
to create a supplier attitude and desrre to ~ s h the ·P . . ' ec on of s Ji
organisation with new ideas, products, and better prices and egotiations, contracting and issuing 0 f h upp ers,
n . pure ase orders.
service. procurement = Sourang of reliable suppliers + Purchasin
(ii) Promotion of standardisation with suppliers.
PROCUREMENT g
(iii) Development of reciprocal relations with customers.

1= -=\
lrwoice -
(iv) Committees to decide on economic make ~r- buy decisions.
(v) Development of inter departmental relationships.

(vi) Can undertake acquisitions.

Service Purchlllng Pu-chase
6.4 SCOPE/ FUNCTIONS OF MATERIALS Receiii Rl<JJ~ticr

MANAGEMENT
The functions of material management are as follows: \_ Order -AW<wal
J
l
(1) Material Planning and Programming: This consists of
detennining the total material requirement for any project by Some terms used in Procurement are given below:.
considering all factors. It also consists of laying down (1) RFI - Request for Information: An open enquiry that
standards for the materials, substitutes, sources of supply etc. spans the market seeking broad data and understanding.
It is also related to deciding whether to "Make or Buy''
(2) RFQ -:-- Reque_st for Quotation: An opportunity · for
considering the financial aspects, manufacturing capacity,
availability and dependability of outside sources. Materials potential suppliers to competitively cost the final chosen
Requirement Planning (MRP -1) is a forecast based technique solution(s).
of Materials Planning. (3) RFT - Request for Tender: An opportunity for potential
There are 5 stages in MRP- I Technique suppliers to submit an offer to supply goods or services
against a detailed tender.
MRP-1: 5 Stages:
(4) RFP - Request for Proposal: Sometimes based on a prior
(1) Sales forecasting
RFI; a business requirements-based request for specific
(2) Master Production Schedule solutions to the sourcing problem .
.(3) Bill of Material Explosion Sourcing of Materials can be done by following ways:
(4) Gross Material Requirement (GMR) (1) Existing Supplier's list
(5) Net Material requirement (NMR)
(2) From Trade Magazines / Publications
In short, MRP-I is to arrive at NMR from Sales Forecasting.
(3) Trade Fairs
(2) Mat~rial Procurement: The job of a materials m~ager is to
(4) Personal Connections
provide, to the user departments right material at the right
(5) Attending conferences, Webinars etc.
 . Is Management
150 fl'"~"Ff Vipul's"' Production and Total Quality Management (flMS) ~otenO • rnrrr
raw matenal and components t0 - 151
(6) Internet which is now a day, most powerful tool for -,,anufacturer on time in min;~ outsourced subcontra t d
.,. ~=11um trans ce
sourcing etc. ,~ventory Control: To ensure th portation cost.
(8) .,. f •1 at stock
(3) Receiving Inspection and Quality Contro_I: Involves want o matena s and so produ ti -outs don't occur fo
c on activ'ti•
1 r
receiving of having custody of purchased m~tenals, moving as well as there should not b t . es will not suffer
them to stores after inspection, return of reiected materials
. h. esockm -
leading to h1g er inventory earn,; excess or surplus
--,.ng costs.
etc. Quality control _is the _control of q~ality during
pisposal of Surplus, Obsolete d
manufacturing. Inspection cons1Sts of companng the actual 191 obsolete and scrap stock is held~ Scrap ~tock: If surplus,
products against previously laid down standards anct jnventory carrying, storage and : po~session, this involves
specifications. should be disposed of as soon ecunty ~osts. Hence, this
(4) Scheduling: Detailing the receipt of items to meet the possible cost and also maximize th as :ssible at minimum
procurement lead time availability or scarcity of materials, the scrap. e re e revenue by selling
economic lot sizes, etc. This involves follow up of actual
deliveries against the schedules and taking special action for (lO) Value Analysis / Value Engineering d C
Value analysis is an organized ere ti an ost Reduction:
expediting in case of any other short fall.
identifying unnecessary costs and e~ ~e a~proach aimed at
(5) Stoi::_e Keeping, Warehousing and _ Preserving: After the system without affecting the funcrnmti atinlg yie same from
inspection, the accepted raw materials, components, sub- · ona utility/guarantee/
safety performance. The essence of 1 . .
assemblies, consumables should be stored in such a way that 'fy th fun · va ue analysis IS to
iJenti e ction of the product to ex . .
handling and damage caused is minimum. Also finish goods hich h . ' arnme a1temative
are properly kept in warehouses. Suitable warehousing ways ~y w t ~ction can be accomplished -and finally
choosing that, which involves the least cost V 1 _ 1 .
arrangement to eliminate fire hazard, loss due to pilferage
correlates the cost of purchasing a product Or •services
a _ue ana
withy~is
its
and determination in storage is ensured. Proper accounting of
all the materials kept in stores and warehouse is very end use.. It attempts
hich to examine critically the ma ke-up of
important. It also involves proper designing layout for stores every item, w . contributes towards the cost of the product
and warehouse and improving the storing and preserving and whether this cost contributes towards the cost of the
product and whether this cost contributes to the function
system.
appr~priately. It is an approach of providing the required
(6) Material Handling: From the receipt of goods, inspection in
function of the product at the desired time and place at the
the storage and issue for use, materials should be handled in
low_est cost. _approach is concerned with right quality,
such a way so ·as to cause minimum damage. It consists of
design, specification, standards, methods of manufacture,
provision of suitable material handling equipment like
etc., and involves the substitution of material or component at
cranes, hoists, forklifts, conveyor systems, etc., selection of
a lesser price or better quality. Several other techniques
suitable material handling equipments suiting to layout of
closely resembling value analysis are also used in the
stores and warehouse, maintenance of material handling
industry with the different names, and these are mentioned in
equipments etc.
the following.
(7) Transportation: This involves planning of inward flow of
-Value Engineering: The application of the value analysis
purchased raw materials, components, sub-assemblies,
ideas during design and engineering stage of product before
consumables etc. and even planning of outward movement of
its manufacture is known as Value Engineering. ·
 ,Management l'l"
l'J'"l'T'l'l'" Vlpid'•™ Production and Total Quality Management (BMS) ,i;tr'tO --::::::;:-:-;;~-:--:-:-=---- 1=11 151 rnr
/5 2 "- 5;;. INTEGRATED MATERIALS ~N::-:---~
6·8 .:_:.:..----..:..::..::~~M AGEMENT
_ ADVANTAGES OR BENEFITS OF MATERIALS for 111tegrated Materials Managem t-::C--:.::..:.:.~~-
65 ~11d . en oncept:
MANAGEMENT \fing recogruzed the importance 0 f th
(1) Material cost can be lowered (Sales price can be brought ('la Jllent {unction, let us now see why . e materials
a¢1age an mtegrated approach
down to a reasonable level) ece5satY·
Controlling of indirect cost (such as materials movement) P~ • II
(2) ., terials management 1s the functio .
"'a f I . n responsible for the
(3) Risk of inventory loss min~ised (theft, pilferage)
(4) Reduction in loss of time of direct labour
rdination o p anrung, sourcing, purchasin
, c0° ng, preserving and controlling materials in
sto 0 er so as to provide a pre-determin d
! .
m~vmg,
. optimum
Cost of material used in different department ascertained Jl\aJIII • • 11
•· e service to the
(5) ¢iolller at m) irumum cost. (by P. Gopala,<rishnan and
(6) Control of manufacturing cycle rJ. sundaresan ·.
(7) Material congestion in storage places avoided ti some functions _of Materials Management are handled
(8) Improvement in delivery of the product </li></ul> Jll. dependently, there 1s a •chance of a conflict of m . terests.
there can be a conflict of interests between p ch
6.6 PHASES IN MATERIALS MANAGEMENT J E.g'
department a_n
din · ti' d ur ase
spec on an Stores department, if Purchase
Planning (Plans for capacity or production levels and

2
(1) , department 1s allowed to operate independently. Think, if
required inventory levels). purchase depar~ent takes de~i~n to ~uy a large quantity to get
Material utilisation (efficiency of the flow of materials unit discounts ~1~~ut coordmating with stores department for
(2)
through the plant). Jl\anpow_er availab1hty for lnspecti_on as well as storage space
availability to keep huge quantity. It may result in sub-
(3) Physical (storing, receiving and issuing of materials and
optimiZation of stores department as there will be high inventory
physical checking of inventory of raw materials, work in
process, finished goods, record keeping). carrying costs.
Therefore, the conflicting objectives need to be balanced and
(4) Control or follow up (feedback and corrective action
'. intertwined from a total organizational viewpoint so as to achieve
involved). optimum results for the organization as a whole.
6.7 CHALLENGES OF MATERIALS MANAGEMENT I· In an integrated set up, chief materials manager is responsible
(1) Selection of appropriate vendors for all inter . related functions of Materials Management and
(2) Land and storage cost increase , he/she is in a position to exercise control and coordinate all the
activities with a view to ensure proper balance of the conflicting
(3) Difficulty in forecasting demand accurately
'. objectives of the individual functions.
(4) Scarce capital for investment in materials inventory Now a days, in some organizations, even the production
(5) Diversification of product lines planning and production control has been included under the
(6) Optimising time and quantity for products Integrated materials management approach because for
manufacturing a huge quantity of finished product (big industry),
(7) Management of information
a large number of components are purchased from sub-
, contracting for end-use or for final assemblies. Sub-contracting
 l'J"l'I" -·" ,,. Production and Total Quafrty Management (BMsi ,,,reno. Is Management i"l'J'-rr, \
154 If !!a 5 vi,-· ~-- . •
artrnent 1s fed with stock levels d
.;; ""
d· rePby inventory control departrnan t order s tattis
-
155
. best managed by the chief integra1..,. by stores
and vendor development is '" o . . I . en s. All this
materials management manager. . . dicioUS deos10ns eadmg to !owe calls for
sts
Inte ated Matenals . Managell\el\t trnover, reduced stock-outs redr cod ' better inventory
,.,.... • . ' uce lead tim'
Ad~an~ges. ?f have ~ne in a big way for the integrateq general reduction m paper work. .J _ e and a
OrgaruzatiOns, which glly eni·oy many adv_antages. While•
lions inventory controI, purch ase, stores
materials. management,. usua II\ ,4.daptability to EDP: The centralizati
(4! ,.,.,ction has made it possibl~'' to d ?n of the materials
!~p::v::;;~O:C!::Uped into two or three dep~ents, it is I""' inf . es1gn data pr .
systems. All ormation with regard to . ocessmg
now bein realized all over the world that_ a com~~ed set-up is entralized under the integrated m tm_atenal function is
the best !om the coordination point of view, effio~t working C . . a ena1s manage t
. The modem nomenclature for this set-up 15 functions. This has facilitated the coll Cti . men
and cost reduction. • d
- . f d t I d' e on, collation and
. ls Department' and the vanous a vantages of analysJS o a a, ea mg to better decisions ' Ad
'Integrate d M atena
· d · vanced and ·
Th d efficient eIectroruc ata processing t
such a unified setup are given bel?w: ese a . v~tages, , . II. d . sysems can be
econom1ca y intro uced under an integrated set-up.
according to the authors, help in a~evmg the obJeetives of
materials management by the company ma better way. (5) procurement
· ls
at the right time: The principal · b' ti'
t · o Jee ve o
f
The advantages listed by GopaJakrishnan and N. K. Nair are matena m~agemen JS to obtain raw materials, tools
general supplies, etc., at. the right · time · This mvoves
• 1 '
given below: jnventory control, proce_ssmg the purchase order and follow-
(l) Better accountability: Through centralization of authority ,
up by purchase section; sending shortage reports by
and responsibility for all aspects of ma!erials function, a clear- .
jnve~tory control as well as by stores at different stages;
cut accountability is established. Vanous user d~partments
can direct their problems with regard to_mate~als to one de~rm~ ththe goods£ fromchdocks, railways or road transport
offices m e case o pur ases from distant sources· ch ckin
central point so that action can be taken unmed1ately. This
helps in evaluating the performance of materials and taking materials into finished stock by store;, et~. Th!
combined set-up brings about greater coordination and
management in an objective manner.
increa~d sense ~f res~onsibility with regard to getting
(2) Better coordination: When a central materials manager is matenals at the nght time. This avoids passing the buck
responsible for all . functions; the departments under the between purchasing and stores.
materials manager create an identity, which is common. This
results in better support and cooperation , in the (6) Improved Inventory control: Variations that may occur in
accomplishment of the materials function. The user delivery time, its effect on inventory and production, the
departments also find that they have to approach one necessity of adjusting the minimum and maximum levels on
department for discussing and solving then: materials inventory will be better understood by integrated approach
problems. This creates an atmosphere of trust and generally which fosters better understanding between purchase and
betters relations between the user departments and the 1 stores.
materials management department. (7) Increased productivity: Productivity is the ratio of output/
(3) Better performance: As all the interrelated functions ate Input. As far as materials management is concerned, it
integrated organizationally, greater speed and accuracy implies reduction of costs and increase in profit. Materials
results in communication. Need for materials are promptly management tools such as value analysis, standardization,
brought to notice by materials planning. Purchase simplification, reduction of procurement cost by bulk order,
156 ~ffl'f Vlp11I'•"' Production and Total Quality Management (8"15)
• Is Management
~otenO
f ·ty·
g-'£nr 157
) j\ssurance o ven mg right materi I
. f. tment and carrying cost by staggered rat (13 pproach the vice-president materi I a s: In the integrated
reduction o mves e a 1· d
of delivery, avoiding obsolescenc~, _contro1over consumption b .
..,hat is emg supp 1e against his d
a s gets opp !uni
or ty to see
of materials, etc. enhance productivity. "e receives th e ng
· ht material for th or ers and to assure that
h e money paid.
(8) Control of price: The price depends upon the quantity. If the ) setter. focus on urgent materials: In an ..
.. d" the quantity to be bought rests With 114 iJlgle executive is the head of both th integrated set-up, a
deas1on regar mg a
·t d artrnent the work of the purchase officer 15 . s enab Ies him to understand th e stores and purch ase.
'fhis
separa e ep ' th d
. d In a combined department, e epartment
h andicappe . . h b . purchases. Fro~ daily reports, he gets efir:;i:1 . of vari~us
h d is in a position to negotiate the pnce on t e as1s of the regarding matenals which have arriv d d information
ea t d future requirements and acceptable delivery
presen an . d f ft . a position to expedite issue of urgent :~:al~erefore he is in
Advantages of price break can be av~11e o a er proper
analysis through price break mathema~cal model under the (lS) Quick return of defective: The integrated set-u .
guidance of the department head, matenals. quicker return and replacement of reject d p ~orators
takes action accordingly. e matenals -and
c9l Improved Inventory control: One ~f the main objectives of
materials management is to keep inventory at a low level. 116) Better utilization of stores space: Although bulk
This can be achieved by staggering delivery and control of may be an advantage for better· price it m purchases
· I · If St d ' ay create storage
Safety stock. There should be close coordination between difficu ties. ores an purchase are separate, such
inventory control and purchase. In a combined inventory is likely to be overlooked. a factor
control and purchase, the head of the department is in a (17l Reduced paperwork: In a combined set~up, the inventory
•
position to see that material requisition is raised on tim~. .
controI will b e ad1acent to the purchase section This bl
ch · .. • ena es
(10) Dead stock: Dead stock will often come to the notice of a the pur ase section to utilize the information available on
common department head during his supervision to the the Inventory for the purchase work. In a separate set-up the
stores, and this facilitates quick disposal action. inventory control goes with the stores. This means dual
(11) Effective classification and codification: The classification records and.added cost.
and codification work requires through knowledge of the (18) Reduced Correspondence: Correspondence between stores
maierials and their application or use. Often this calls for purchase and inventory control is reduced in the integrated
actual examination of the materials in the stores and set-up. Reduced paperwork improves office efficiency.
consultation of the papers received in the purchase section.
For large industries involving multitudes of items, (19) Ease for accounting department: The work of accounts is
codification project is very important and useful. Many times easier in the integrated set-up. Otherwise, accounts
the help of an outside consultant is needed to complete the department has to shuttle between. the stores, purchase and
job. . traffic for settling and reconciling issues.
(12) Heavy packages: Handling of receipts, particularly heavy (20) Miscellaneous advantages: Under a central materials
packages, is simplified when the stores and purchase sections manager, a team spirit is inculcated. This boosts morale and
are combined. When separate, the stores often gets advice enhances co.operation. The opportunities for growth and
regarding unloading too late which creates problems, development are better in an integrated set-up. An individual
pressure and irritation. under such a set-up is not confined to any one function alone
 riOb Management
lfff 1, Vlput•s™ Production and Total Quality Management (A•·
..'IS)
158
(fl - . includes jobs rk
1 f"Sfg" 159
and he gets, over.a period of time, exposed to broader aspe stacking of material. (Oct 18,, e dropping, re1easing, holding and
of the materials function. cts (I) Purchase Management
(If) Inventory Management
(111) Material Management

Ii QUESTIONS] . (Iv) Process Management

[Afls,: (1) Integrated Materials M ·
(c) srores; (d) Materials Planning· (e)'7,agement; (b) All 1
[ OBJEC~VE QUESTIONS J /,/anagement}
FIii In the blanks:
' ales of Finished G~/he above;
· (f} Material
1
(1) Multiple Choice Questions: ~) (a) Value Analysis Is a
(a) Systematic approach In planning, procurement, storage and mat - reduction t h .
(b) RFI means Request__ ec n1que.
handling so as to m~imize company's investment in materials is ena1
(c) RFO means Request ____
(I) Investment planning (d) AFT means Request - ·
(11) Integrated Materials Management
(e) Ave.rage Materials Expenditure in ·M
(111) Rnanclal control and ranges from . . . anufacturing Industry is very high
(Iv) All of the above [Ans.: (1) Cost, (b) For Information ·
(b) Department of Purchase function In Integrated Materials managem t render, (e) 40% to 75%} ' (c) For Quotation, (d) Request for
should be aware of the following, as operating role en
(l) state whether the lolfowlng statemente 1111
(I) Current price trend analysis (a) To ensure no excess and no stack T~e or False:
(11) Current trends in product material . Handling. out is function u6der Material
(111) Current trends in technology of material (b) Purchasing. consists. of sourcing and Procunng.
.
(fv) All of the above (c) MAP - I 1s a Matenals
. Planning tech mque.
. (April 18) ·
(c) Issuing the material upon request and accounting the maierial is (d) In general, efforts in saving 8 Rupee in . .
responsibility of following department in Materials Management a to efforts made for additional sale of A matenals cost 1s·almost equal
. .. . upees 1O
(1) Source Development (e) Investment
Effect1ve u1111zat1on of Materials M
Ratio.
· .
anagement improves Return on
(II) Materials Planning
(Ill) Stores {Ans.: (1) False, (b) False, (c) True, {d) True, (e) Tru
(Iv) All of the above (4) Match the Column: eJ
(d) Forecasting is a responsibility of following department in Materials Group 'A' Group 'B'
Management (a) Cost Reduction without (I) Purchase
(I) Source Development I affecting quality (l1) Balancing of inter departmental
(11) Materials Planning (b) Sourcing is a part of Conflicts
(Ill) Stores (c) integrated Materials (Ill) Revenue Maximization
(Iv) All of the above Department (Iv) Inventory Control
(e) Following is not a scope or function of Integrated Materials (d) Disposal of Scrap (v) Procurement
Management le) Challenge of Materials (vi) Materials Requirement Planning
(I) Production Planning Management (vii) Selection of appropriate vendor
(11) Storing and Warehousing
(viii) Value Analysis ·
(111) Sales of Finished Goods
[Ans.. (a - viii), (b - v), (c - ii); {d - iii); (e - vii)]
(Iv) Transportation
160 rrrtrr Vipal'•™ Production and Total Quality Management (
. Bl.is)
1· -THEORY QUESTIONS I·
(1) Discuss the importance of Materials management. .
(2) . What is Materials management and objectives of it in detail? (April 18)
(3) Explain the objectives of Material Management. (Apr/119) • ·
(4) Discuss various functions / scope of Materials management. Briefly ex .
each function. , · · Plain
(5) Discuss the concept and the need of Integrated Materials Management
(6) Explain Integrated Systems Approach for Materials Management. (Oct· 1
(7) , Write short notes on: · 8)
(a) Phases in Materials Management.
(b) Challenges of Materials Management.
(c) F_1,1Jlci~ns of Materials Management.
(d) Impact of Globalisation on Materials Management.
(e) Return on Investment improvement through efficient Materials
Management.
. 92 rr.-rr Vfpal'•™ Production and Total Quality Management ('h·
. .

CHAPTEI\

Plant L~yout 4
4.1 What is layoud
4.2 What is plant layout?
4.3 Steps used in Layout Planning
4.4 Objectives of Plant Layout
4.5 Importance of Layout
4.6 Requirements of effective layout to meet competitive priorities.
4;7 Issues / Pr:oblems and Management Solution related to layouts?
4.8 Principles used in designing layout/layout design and implementation
4.9 Factors to be considered at the time of designing plant layout.

4.10 Types of layout

4.10.1 Process or Functional Layout

4.10.2 Product Layout / Line Layout (Assembly Lines Layout)

4.10.3 Fixed Positi9n Layout

4.10.4 Combination or Mixed or Hybrid layout

4.10.5 Cellular Layout or Group Technology Layout

4.10.6 Flexible Manufacturing Systems (FMS)

rr Questions
 93
Plant Layout

C . 4.lWHATISLAYOUT? J
Layout- It is an arrangement of facilities within a given area to
achieve certain objectives. It has constraints of area. ·
E.g.:
(1) Flat layout, (2) Hotel layout, (3) Classroom layout,
(4) Theatre, plant or factory layout.
[ 4.2WHATISPLANTLAYOUT? . j
Plant Layout: .
Plant layout means the disposition of the various facilities
(equipments, materials, manpower etc.) within the area of the site
selected. · ·
It is a plan or act of planning 9ptimum arrangement of
industrial facility .Le. production facility which includes machines
and equipments, flow of materials handling equipment etc. and
all other supporting services to give desired flow of raw materials,
in process and finished goods along with the design of the best
structure to contain these facilities.
·Since it is · an optimtllll. arrangement hence while designing
make many proposals/alternates, select the best at that time .
which will aclueve the objectives effectively, efficiently and
economically.
2nd definition of Plant Layout: It is a systematic arrangement
of machines and equipments, processes and services required for
smooth transformation of raw materials into· required finished
goods on the available space of the factory by performing ·various
operations in the most efficient and convent manners and provide
output of high quality at minimum cost.
In the words of James Lundy, "Plant Layout identically involves
the allocation of space and the arrangement of equipment in such a
manner that overall costs are minimised".
According to Mo Naughton Waynel, "A good layout results in
comforts, convenience, appearance, safety and profits. A poor layout
results in congestion, waste, frustration and inefficiency".

'
 . d Total Quality Management (BMS)
p/ont 1.ayout rrrnr 95
VJpul'•"' p,oductJon on ( ) Bottlenecks and points of congestions are eliminated (by line
4
94 balancing) so that the raw-material and semi-finished goods
Plant Layout is concemed: . f production system. move fast from one workstation to other.
(l) With design an
d · JementatiOn
J.IllP
° (S) The workers should be so arranged that there is no difficulty
aint for an Area. in supervision, coordination and control. There should be no
(2) With constr [Find out various alternatives
(3) With 0ptimum arr~gement 'hiding-places' into which goods can be mislaid. Goods - raw
materials and ready stocks - must be readily observable at all
and select best.] ANNING
4 3 STEPS USED IN LAYOUT PL times. It will reduce the pilferage of material and labour.
· • d to build a product. ( ) Working conditions are safer, better (well ventilated rooms
(1) Identify various deparlJilents requu:e 6
etc.) and improved.
of faculties in the department.
(2) Arrangement . (7) Plant maintenance is simpler.
. d installation of individual's workstation.
(3) Design an . . ks · (8) There is increased flexibility for changes in product design
. . . 1·s used in des1grung wor talion.
(4) Ergonomics pnnop1e . · d1·lions better lighting and and for future expansion. It must be capable of incorporating,
La out to have better wor~g con '. .
r v~tilation with noise-less alJilosphere. This -~ try to reduce
Human fatigue and increase human productiVIty.
without major changes, new equipment to meet technological
requirements or to eliminate waste.
(9) A good layout permits materials to move through the plant at

I
PQRST: _ . the desired speed with the lowest cost.
Rule for plant layout planning (following Inputs are reqwred
(10) There is increased productivity and better product quality
for plant layout planning).
with reduced capital cost.
p : Product Type / Characteristics Planning
(11) Boosting up employee morale · by providing employee
Q :Quantity comforts and satisfaction.
R : Route
4.5 IMPORTANCE OF LAYOUT
S : Supporting Activity
• Requires substantial investments of money and effort.
T :Time
4.4 OBJECTIVES OF PLANT LAYOUT • Involves long-term commitments.
• Has significant impact on cost and efficiency of short-term
The principal objective of a proper plant layout is to maximize
operations. ·
the production at the minimum of the costs.
(1) There is the proper utilization of cubic space (i.e. length, 4.6 REQUIREMENTS OF EFFECTIVE LAYOUT TO MEET
width and height). COMPETITIVE PRIORITIES.
(2) Material handling and transportation is minimized and (1) Reduce operating costs.
effectively controlled.
(2) Minimize Material handling costs.
(3) · The movements made by the workers minimized.
(3) Utilize Space efficiently.
(4) Utilize Labour efficiently.
r 96

(5)
rnrrr
Er · te Bottlenecks.
imma
. and Total Quality Management (BMSJ
vi,u1•,™ ProductJon

. lion and interaction between workers,

Plant Layout

4.8 PRINCIPLES USED IN DESIGNING

rrrnr 97

(6) Facilitate Commuruca . ervisors or between workers
between workers and their sup ' .
and customers.
. CYcle Time and customer service
(7) Reduce manufacturing
time.
(S) Eliminate wasted or Red undant Movement.
(9) Facilitate the Entry, Ex1't' an d .Placement. of Material,
Products, and People.
(10) Incorporate Safety and. security measures.
(11) Promote product and service Quality.
(12) Encourage proper Maintenance activities. . . .
/ (3) Principle of cubic space utilisation: The good layout is one
.
(13) Provide a visual Contro1Of OPerations or activities.
..
(14) 1 1ty tO ad ap t to changm·g conditions.
Provide FleXI'b"I"
4.7 ISSUES/PROBLEMS AND MANAGEMENT
SOLUTION RELATED TO LAYOUTS
Issues / Proble~ related to Layouts:
(1) Changes in product design and development.
(2) Changes in customer requirement due to changes m s~1al
factors. · that. can be altered without much cost and time, i.e., future •·-'
(3) Changes in volume and technology.
(4) Too many accidents are happing.
(5) The rate of obsoiesces of product.
(6) Weariness of Machines and equipments.
Solutions Offered by Management:
· (1) Minor changes in the existing layouts.
(2) Major changes in the existing layouts.
(3) New layout at new place, diversification and extending the
ranges of product.
LAYOUT/LAYOUT DESIGN AND IMPLEMENTATION
principles Used in Designing of Layout:
(1) Principl_e of int~gration: Overall integrating of all factors of
. produc~on. It _integrates men, materials, machines and
suf_por_ting services and others in order to get the optimum
utilisation of resources and maximum effectiveness.
(2) Principle ~f- minimu~ distance: The facilities are arranged to
ensur~ muum~ distance travelled (movement) by Raw
Matenal, Work m Process Material, Finished Good, Machines
and equipments and Man Power. The straight line movement.
should be preferred. .
that utilise both horizontal and vertical space. It is not only
enough if only the floor space is utilised optimally but the
third dimension, i.e., the height is also to be utilised
effectively.
(4) Principle of flow: A good layout is one that makes the
materials to move in forward direction towards the
. . comple.t ion stage, i.e., there should not be any backtracking.
(5) Principle of. maximum flexibility: The good layout is one
requirements should be taken into account while designing
the present layout.
(6) Principle of safety, security and satisfaction: A good layout
is one that gives due consideration _to workers safety and
satisfaction and safeguards the plant and machinery against
fire, theft, eh:.
(7) Principle of minimum handling: A good layout is one that-
reduces the material handling to the minimum.
(8) Principle of Maximum accessibility: A good la~ou_t is one
that makes all servicing and maintenance point readily
accessible.
Machines . sfiould be kept ;ufficiently . apart . and ~i!h
reasonable clearance from the wall so that lubncation,
98 g-g'g- Vlpul••™ Production and Total Quafrty Management (¾SJ
Plant Layout
adjustment and replacement of belts, removal of parts at th
time of repairs etc. can be done conveniently by the factory building. Th rfrf!!f
maintenance staff. Area in front of electrical panels and fi e parking lots and storae positioning of el 99
ge points 1· evators sta •
extinguishers should be kept free from obstructions. re (4) Type of machines· Stat' a so influence the I rrways,
(9) Maximum visibility: A good layout is one · that makes me are heavy and em;~ ionary layout is ayout.
machines and materials ready observable at all times. n, fitted on the floor. A~;re noise. Such he~ref::ble_ if machines
location of machin quate space sl;i.ouJ~ chinery can be
All departments should be smoothly integrated between them to a:~1-';;'d 3!so there should ; pr:;:d_ed foe the
convenient to service and easy to supervise. Every piece of (5) . accidents. es cient space
positioning_or screening or partitioning should be SCTutinized C Iimate: Temperature 1·11 .
ons·d d ' ummatio
and carefully planned. Special cupboards, enclosures, offices c I ere while decidin n, ventilation should b
partitions etc. should be avoided except when their utility factors should be cons.d g on th e type of layout Th b e
d If , ered in ord t . e a ove
- established beyond doubt. an we are of employees. er o improve the health
(10) Principle of Improved environment: Designing ~f Layout is (6) Service facilities: The layout sh .
and welfare of the em I ould provide for the comforts
not science but it is Sdentific Art .i.e. it requires experience, provision for rest roomr o;ees.. It should have adequate
skills also. Before irnpleni.entation involve the people who are should be sufficient space for ~ g water, lavatory. There
going to use layout daily. Their ideas/difficulties should be
(7) Safety of employees· WhiI d _ ovement of workers.
considered. I t th . e eciding on a ticul
ayou , e safety of employees sh f'.ar . ar type of
4.9 FACTORS TO BE CONSIDERED AT THE TIME OF The layout should provide f bould be given importance.
s rippery fl oars, protection a or ainst struction fre e fl oors, non:
O
DESIGNING PLANT LAYOUT d
heat, strong odors etc. g angerous fumes, excess
(1) Nature of the product: The nature of the product to be
manufactured has a significant influence on plant layout. (8) Type of production: Layout plans diff d'
Small and light products can be moved from one machine to of production. In case of . er accor mg to the type
standardized prod ts Job orders, production of non-
another with minimum effort and time and therefore line fun . ~1 uc are undertaken, and therefore
layout would be more ·suitable. Stationary layout would be . chona or process outlet is suitable. Line layout would be
suitable for heavy and bulky products. In case of production swtable when there is mass production of standardized
goods.
of large variety of non-standardized products, process layout
is ideal. 9
( ) Type _~f pro_cess: In the case of intermittent type of
(2) Production volume: Line layout should be preferred if produc~on _(b1-cycle manufacturing, electronics), functional
standardized commodities are manufactured on a large scale. layout 1s st11table. For synthetic type of Production (cement
Functional layout is suitable if production is based on and automobile industries), line layout is preferable.
customers orders. It is better suited for low volume job (10) Management policies: Policies of the management relating to
production. type of product, quality, scale of production, level of plant
integration, type of production, possibility of future
(3) Location ·of the site: The topology -and size of the site expansion etc., influence the type of layout to be adopted.
influences the choice of a particular layout. The idea is to
ma~ize the utilization of space. Layout should _also suit the
 .....
100 ~~ff Vlpul's"' Production and Total Quality Management (BMS)
I
Plant Layout
~rrrr
[ 4.10 CLASSIFICATION OF LAYOUT =:J (ii) The department should b 1
. e ocated as
operations as fairly as po "bl
"" "'
th
per e sequence of
IO I

Layouts can be classified into the following five categories: ss1 e to a "d
tracking. VO! crossovers or back
(1) Process layout also called Functional layout
(iiil But back tracking is inevitable.
(2) Product layout also called Assembly lines layout
(iv) Convenience for supervision and iris .
(3) Combination or Hybrid or Mix layout as far as possible. pection should be made
(4) Fixed position layout also called project type tpplications:
(5) Group layout or Cellular Layout (i) Pharmaceutical Industries.
4.10.1 PROCESS OR FUNCTIONAL LAYOUT: (ii) Paint Industries.
(iii) Standard Wire Gauge (S w G )
Characteristics of Process or Functional Layout: . · · · manufacturing.
(a) A layout that organizes resources (employees) and equipment (iv) Fractional Horsepower Motor (F·H•p•Motors)
by function rather than by service or product. (v) Educational Industries. ·
(b) It is a layout that groups similar activities together in (vi) Machine tools manufacturing.
departments of work centers according to the process or Lathing I Miing
function that they perform.
(c) The operations of each work center could serve different
customers different needs.
(d) The equipment in a process layout is general purpose.
(e) Workers are skilled at operating the equipment in their
department.
(f) . Process layouts in manufacturing firms require flexible
I
material handling equipment (such as forklifts) that can
follow multiple paths, move in any direction, and carry large
loads of in-process goods.
(g) All areas of the facility must have timely access to the
material handling equipment.
Fig. 4.1: Process or Functional Layout
(h) Process layouts in service firms require large aisles for
customers to move back and forth and ample display space to Advantages:
(i) In process layout machines are better utilized and fewer
-accommodate different customer preferences.
machines are required.
Principles in Grouping Machines in Process (Functional)
(ii) Flexibility of equipment and personnel is possible in process
Layout
(i) Distance between departments should be minimum so that layout.
materials movement will be reduced.

• ;sos~
102
l'J"l'TI.T
;;; a. ea l
VI
pll
l's"' Production and Total Quality Management (BMSJ l
plant Layout l.'TrJ·r,r 103
(iii) Lower investment on acco unt of comparatively less
hinnumber ai~g

of machines and lower cost of gen era!

...purpose mac es. (6) Product layouts are suitable for mass d . ..
. . . . pro uction or repetitive
·v Hi her utilization of production facilities. . . · operations· m which demand is steady and . hi h
• VO 1ume IS g
h l A high
(v) g degree of fl eXJ.b1"lity with regards to work d1stnbution because of this product layouts are more autonomous than
process layouts. _
to machineries an1.'forkers. . .
. . of tasks and variety of 10b makes the Job
(vi) The d1vers1ty (7) The major concern in a product layout is balancing the
challenging and interesting. assembly line so that no one workstation becomes a
. become highly knowledgeable about the
(vii)Supervisors will bottleneck and holds up the flow of work through the line.
functions under their department. (8) A product layout needs material moved in one direction

Limitations: . .
(1.) Bae ktra cking and long movements may dlinoccur m the handling
ffi .
of materials thus, reducing material han g e crency.
(ii) Matena . 1han di"mg cannot be mechanized which adds. to cost.
(iii) Process time is prolonged which reduce the inventory
turnover and increases the in-process inventory.
(iv) Lowered productivity due to number of set-up_s:
(v) Throughput (time gap between in and out m· the process)
time is longer.
(vi) Space and capital are tied up by work-in-process.
4.10.2 PRODUCT LAYOUT / LINE LAYOUT (ASSEMBLY
LINES LAYOUT):
Characteristics of Product or Line Layout:
(1) This layout that uses standardized processing operations to
achieve smooth, rapid, high-volume flow.
(2) It is made possible by highly standardized goods or services
that allow highly standard_ized, repetitive processing.
(3) The work is divided into a _series of standardized tasks,
permitting specialization of equipment and division of labor.
(4) Product layouts arrange this standardized tasks in a line
according to the sequence of operations that need to be
performed to assemble a.particular product.
(5) Each Product should have its own "line".
along the assembly line and always in the same pattern.
(9) The inost common material handling equipment used in
product layouts is the conveyor; conveyors can be automatic
(at a steady speed), or paced by the w~rkers.
(10) Aisles are narrow because material is moved only one way, it
is not moved very far.
(11) Scheduling of the conveyors, once they are installed, is simple
the only variable is how fast they should operate.
(12) Storage space along an assembly line is quite small because
in-process inventory is consumed in the assembly of the
product as it moves down the assembly line.
(13) Finished goods inventory may require a separate warehouse
for storage before they are sold.
(14) The large volumes handled by these systems usually make it
economical to invest substantial sums ?f money in equipment
and in job design.
Principles in Grouping Machines in Product (Line) Layout:
The grouping of machines should be done keeping in mind
following principles:
(i) All machines, tools, equipments must be produced at the_,_
point demanded by sequence. .
(ii) There should be no points where one line crosses another
line. ·
(iii) Materials must be fed where they are required for assembly
but not necessarily at one point.
 /05
Quality Management (8MS) p/ant LaYOur
_,ucti<>n and Tota1 ( ) rJjnimUJn material handling cost.
Vfpid'•,,,p'""
104
[flf l'l'"
Ii bl testing, packing etc. and 4
(S) Si.Jnp!ified production, planning and control systems are
. · elude assem y,
(iv) All operattons med . line possible.
includ in . () space is occupied by work transit and for temporary
should be in layout. J,eSS
•b"lity in change 6
(v) No fleXI ' d t (Line) Layout: storage.
. . ns of Pro uc
Apphc.itto
ch .
s scale su as. (7l Reduced material handling cost due to mechanized handling
Standardised product of) mas systems and straight flow.
(i) Chemical (S) Perfect line balancing which eliminates bottlenecks and idle
(ii) Paper capacity.
(iii) Sugar ( ) Manufacturing cycle is short due to uninterrupted flow of
(iv) Rubber
9
materials.
(v) Refineries (tO) Small amount of work-in-process inventory.

r
(vi) Cement industries b"les T.V., Radio, Computers, (11) Unskilled workers can learn and manage the production.
(vii)Assembly line for Automo , ,

B B
Refrigerators etc. Limitations:
(i) A breakdown of one machine in a product line may cause
Line or Product Layout: Package
Milling _, Drilling -, Assembly -> Inspection Dispatch stoppages of machines in the downstream of the line.
_, Machines Machine (ii) A change in product design may require major alterations in
the layout.
(iii) The line output is decided by the bottleneck machine.
(iv) Comparatively high investment in equipments is required.

y
A Stnllght Uno Product l.lyout
(v) Lack of flexibility: A change in product may require the
facility modification.
An 'L' Shaped Product Layout
Comparison of process oriented layout and product oriented
layout:
Different Product oriented
No. Process oriented
aspects
Product Diversified products Standardized product,
An 'U' Shaped Product Layout using operations, varying large volume, stable rate
An 'S' Product Llyout
rate of output or small of output
Fig. 4.2: batches of many different
Advantages: products
(1) The flow of product will be smooth and logical in flow Jines. Workflow Variable flow depending Identical flow and same
(2) In-process inventory is less. on nature of job sequence of operations
for each unit.
(3) Throughput time is less.
 ptont t.ayout f.Tl'J""l'J"'
[f!frf Vlptd'•"' p,odudion and Total Quality Management (¾SJ ·" ' ~ ,.. 107
106 -
(1·•·i) This layout is used in the manufacture of bulk · d
Semiskilled craftsman Highly specialized and roducts. Generally in Job/Pro· t Y an heavy
Human P jec order type Of d .
and able to do various/ able to perform repetitive
3
skills . ) frequent changes in pr0 d pro uction.
different categories of tasks at fixed place (1V . ucts, product desi d
of operations are possible. gn an sequence
work
Supporting Less; scheduling, material Large; schedule mate~ S,g,:
4
handling, production1and_and people, monitor and
staffs
inventory cimtrol · maintain works (1) bLoc_odm_otivpes, Ship, Aircraft, Dam, B
n·ctges, High risk
w 1 mgs, ower transfonner etc.
Material handling cost Less handling cost,~
5 Material (2) In Hospitals, doctors nurses k ..
handling high, handling systematized and often ' ' wor ers, med1ones and
automated. other. paraphernalia
. (materials) k .
are ta en to patient
sometimes duplicated
6 Inventory In process inventory less In process inventory hi-;; (patient IS treated as product).
Generally 5% of items are produced by F!Xed pos1tion
· • Layout.
7 Space Space and capital are tied Less space is occupiedby
work in transit and for Fixed posiUon layout for Ship building
up by work in process

-
utilization
temporary storage.
Stip bt.ildng yard
Capital Comparatively low Large investment in
8 Material
requirement investment in machines specialized equipment Labour Finished
required and processes Equpment proci.cts (ship)

9 Production Relatively low fixed cost, Relatively high fixed c,;;

cost high variable cost(for low variable cost (for Fixed poslUon layout for Aircraft building
direct labour, material labour and materials)
D D

~-Yo;:~
and material handling)
10 Production Through time is larger. Throughput time is
time lesser.
11 Flexibility high low
of design
change E Inst lnst-lnstnment
u Effect of Break down nf any Seriously affected; as all Fig.4.3:
breakdown machine doesn't affect are interrelated system.
much on.the final output Advantages of stationary Layout
4.10.3 FIXED POSffiON LAYOUT: The advantages of this type of layout are as under:
Characteristics of Fixed Position or Static or Stationary or (i) Flexible: This layout .is fully flexible and is capable of
Project Layout: absorbing any sort of change in product and process. The
project can be completed according to the needs of the
(i) In this layout materials or major component remains in fixed
custo,mers and as per their specification. ,
· place or stationary.
(ii) Lower labour cost People are drawn from functional
(ii) All tools, machines, men and other pieces of materials are departments. They move back to their respective departments
brought to the major component the product is build. as soon as the work is over. This is economical, if a number of
 /08
l'l'"L'l'"l'l"
15.;;
Vlpul'•"' p,odudion ond Toto/ Quality Monoiement (BMSJ p/ant l.a)'Out rnr~ /09
ch one is in a different stage of (iii l{ybrid Layout for Gear cutting.
orders are at h an d and ea .
ro ess. Besides, one or two workers can be assigned to a Toothed Wheel
p r fr tart to finish Thus it reduces labour cost.

0
proiect om s · . b
(iii) Saving in time: The sequence of operations can e changed if
some materials do not arrive or if some people are absent.
Since the job assignment is so long, differen~ sets of people
operate simultaneously on the same assignment doing
different operations.
(iv) Other benefits: , - Proo..ict layout
(1) It requires less floor space because machines and
equipment are in moving position and there is no need of Raw Finished
Material PrOOJCI
fixing them. (Gears)
(2) This arrangement is most suitable way of assembling
Raw
large and heavy products. Material
Disadvantages of stationary layout:
The disadvantages of this type of layout are:
(i) Higher capital investment: Compared to product or process
layout, capital investment is higher in this type of layout.
Fig.4.4:
· Since a number of assignments are taken, investment in
materials, men and machines is made at a higher cost. process Layout: F.P: Forging presses
(ii) Unsuitability: This type of layout is not suitable for G.C: Gear cutting

(
manufacturing or assembling small products in large
quantities. It is suitable only in case where the product is big
or the assembling process is complex.
4.10.4 COMBINATION OR MIXED OR HYBRID LAYOUT:
Description of Combination or Mixed or Hybrid layout:
It is a combination of process (functional) and product (line)
layout which gets the advantages of both layout and reduces
disadvantages.
(i) Like automobile manufacturing combining:
(A) Pr~~sses (functions) are forging making, pressing, and
pamling.
(B) Product (line) layout for assembly.
H.T: Heat treatment
G.G: Gear Grinding MC
(iii) In soap manufacturing plants, the machine of soap
manufacturing is arranged on product line. But Ancillary
services such as heating, the manufacturing glycerine, the
power house, water treatment plant are arranged on
functional or Process basis.
4.10.5 CELLULAR LAYOUT OR GROUP TECHNOLOGY
LAYOUT:
Introduction to Cellular Manufacturing:
(1) In ·cellular manufacturing, production work stations and
equipment are arranged in a,sequence that supports a smooth
flow of materials and components through the production
 ~fflT •, V1p111•,™ Production and Total Quality Management (M1S)
/ID
. . M" . al Transport or Delay. Generally
process WI th mun .
machines are arranged m U form. , flexibility to vary product type or features on the production
. f this Lean Method often represents an
(2) ImplementabOn o t "th
. the flexibility of a process Iayou w1 the
attempt to combme
efficiency of a product layout. . incrementally increased or decreased by adding or
.ng multiple parts before send mg them on
(3) Rather than proce551 .
rocess step (as is the case m batch-
to the next ma chine Or P
and-queue, or large-lot production), cellular ma~ufacturing
aims to move products through the manufactunng process
·
one-piece at a time, at a rate determined by customers'
needs.
(4) The approach seeks to minimize the time it takes for a single
roduct to flow through the entire production process.
p d cifi"c ana1·
(5) This One-Piece Flow method inclu es spe ytical
techniques for assessing current operations and designing a
new cell-based manufacturing layout that will shorten cycle
times and changeover times.
r
(6) To make the cellular design work, an organization must often
replace large, high volume production machines with small,
flexible, "right-sized" machines to fit well in the cell.
(7) Equipment often must be modified to stop and signal when a
cycle is complete or when problems occur, using a technique
called Automation (or Jidoka).
(8) This transformation often shifts worker responsibilities from
watching a single machine, to managing multiple machines in
a production cell. (One-worker, multiple-machines)
(OWMM)
(9) While plant-floor workers may need to feed or unload pieces
at the beginning or end of the process sequence, they are
generally freed to focus on implementing TPM and process
improvements.
pwnt Layout II I
(lO) Cellular manufacturing can also provide companies with the
line in response to specific customer demands.
(ll) Using this technique, production capacity can be
removing production cells.
(l2) Material and man moves but Machines are stationary.
(l3) Quantity can be changed to get as per demand with no
changes in layout.
I(ey Inputs which drive layout planning are P, Q, R, S, T.
p : Product, families; sub-assembly and components.
Q : Quantity volume of each product.
R : Routing, flow, operations work centres, sequence and
time.
s : Required supporting services.
T : Time constraint to produce as per customer demand
Characteristics of Cellular Manufacturing:
(i) Limited number of parts or models is processed with line
flows.
(ii) Based on the concept of group technology (GT), dissimilar
machines are grouped into work centres, called cells, to
process parts with similar shapes or processing requirements.
(iii) The layout of machines within each cell resembles a small
assembly line.
Group Technology:
(i) Production Flow Analysis (PFA) is a group technology
technique . that reorders part rou~g ma~ces to identify
families of parts with similar processmg reqwrements.
(ii) The grouping into part families of items with similar design
or manufacturing characteristics ..
Design characteristics: size, shape 3:1d function
11111111
I I2 g-fflf Vlpul'•"' Production and Total Quaftty Management (llMS)
pwnt l..0'!01/t

Manufacturing or process~g characteristics: type and Receiving, Current

sequence of operations requrred.

incoming Inspection, 1-=,----...:2.=:::::____j State
and Shopping
Advantages of cellular layout
d •ttime 13
(i) Reduced material handling an tranSl
Final
(ii) Reduced setup time Assembly
(iii) Reduced work-in-process inventory Center

(iv) Better use of human resources: @

Self-managed team, in most cases more satisfied with inspection and
Test Center
the work that they do.
Flexible resource. Workers in each cell are
multifunctional and can be assigned to different routes
within a cell or between cells as demand volume Fig.4.6:
changes. [)tlired
s1,te lrK:a::~~=Ofl,i---::;;::=":_iec_ti_oo_:,M_:,ol_:,dl~ng'...:C::en::1•:_r_ _ _ __
Receiving, 1

nn~n~
(v) Easier to control
(vi) Easier to automate
I
Disadvantages of a cellular layout:
--<r___
euu;]uu~
(i) Inadequate part falllilies: Part families identified. for design __,We.,o~rl<C.!:F~low:'!,___ _ _ _ _ __ j
purposes may not be appropriate for manufacturing
purposes.
(ii) Poorly balanced cells: It is more difficult to balance the flow
of work through a cell than a single-product assembly line,
because items may follow different sequences through the cell
that require diffe!ent machines or processing times. Fig. 4.7:
AU-Shaped ProdJction Line (iii) Expanded training and scheduling of workers: Training
workers to do different tasks is expensive and time-
.consuming and requires the workers' consent.
(iv) Increased capital investment:
• Existing equipment may be too large to fit into cells or
may be underutilized when placed in a single cell.

M.<a_ntage more canpact, ircreasec!.c:ommunicatioo • Additional machines of the same type may have to be
facrl~atlng team work, minimize material handling purchased for different cells.
/
Fig.4.5: • The cost and downtime required to move machines can
also be high.
 114 lff'ff Vlpul'•"' Production and Total Quaftty Management (BMS)
plant Layout ~n'f 115
EXIBLE MANUFACTURING SYSTEMS (FMS):
4.10.6 FL (v) Lower coS t /unit of output, due to the greater productivity
· Systems·.
Introduction to Flexible Manufactunng using the same number of workers. ·
. f ous programmable macJ.:_ (\Ii) Savings fro~ th e indirect labour, from reduced errors,
"A system that consists o numer . " "-1.ne
tools connected by an automated material handling system . rework, repairs and rejects.
.A flexible manufacturing system can produce an enormous Disadvantages of FMS .
(i) Limited ab~ty to adapt to_ ~anges in product or product mix
variety of items. ·
(ex. machines are of lnruted capacity and the tooling
An FMS is large, complex, and expensive Computers run an
necessary for ~roducts, even of the same family, is not always
the machines that complete the process. feasible m a given FMS).
Not many industries can afford tra~itional FMS h~nce the (iil Substantial pre-planning activity.
trend is towards smaller versions call fleXJble manufacturing cells. (iii) Expensive, costing millions of dollars.
Today two or more CNC machines are considered a Flexible (iv) Technological problems of exact component positioning and
Manufacturing Cell (FMC), and two or more cells are considered a precise timing necessary to process a component.
Flexible Manufacturing System (FMS). (v) Sophisticated manufacturing systems.

I
Four Basic Types of FMS:
(1) Progressive layout: All parts follow the same progression
through the machining stations.
Ii QUESTIONS 11
(2) Closed-loop layout: Arranged in the general order of
processing for a much larger variety of parts. OBJECTIVE QUESTIONS
(3) Ladder layout: So named because the machine tools appear (1) Multiple Choice Questions:
to be located on the steps of a ladder, allowing two machines (a) Which one of the following is not generally regarded as an advantage
to work on one item at a time. of product layouts?
(I) Material handling costs per unit are low
(4) Open-field layout: The most complex and flexible FMS

I
(II) Labour costs are low per unit
layout. It allows material to move among the machine centres (111) The system is fai~y flexible to changes in volume of output
in any order and typically includes several support stations (Iv) unit costs may be lower than with other processes
such as tool interchange stations, pallet or fixture build (b) A _ _ _ _ layout is an arrangement based on the sequence of
operations that are performed during the manufacturing of a good or
stations, inspection stations, and chip/coolant collection the delivery of a ~ervice.
systems. (I) Group
Advantages of FMS: (II) Process
(Ill) Product
(i) Faster, lower-cost changes from one part to another which (Iv) Fixed position .
will improve capital utilization. (c) Which of the following is not a reason for facility layout studies?
(ii) Lower direct labour cost, due to the reduction in number of (I) There is significant change in demand or throughput volume. .
(11) A new good or service is introduced to the customer benefit
workers.
package. . .
(iii)Red~~ed inventory, due to the planning and programming (Ill) Accounts receivable increases s1gmficanUy. .
preas1on. · (Iv) Different process, equipment a~d/or technology are installed.
(iv) Consistent and better quality, due to the automated control. (d) A key advantage of a process layout 1s
(I) Flexible equipment and _resources
(11) High degree of automauon
 16 rnnr Vlpul'•"' Production and Tata/ Quality Management !¾SJ

(Ill) Smooth flow of materials

(Iv) High levels of inventory .
(•) Which type of layout is adopted in soap manufactunng plants?
(1) Stationary layout
piant Layout

[ THEORY QUESTIONSI
Short Answer Questions:
(Sl (a) What do you mean by layout?
:.._i
rr~~ 117 ,
(IQ Combined layout (b) What do you_mean by Plant layout?
(111) Product layout (c) What are ObJectives of Plant Layout?
(Iv) Process layout . ( ) Long Answer Questions:
(I) _ _ _ _ pertains to planning of · the space available for 6
(a) Discuss the Importance of La
production activities. (Apr/119) effective layout to meet compet·ity,vout. _Wh_at are the requirements of
(Plant Layout/Plant Location/Plant Management) . . . e pnonties?
[Ans.: (a) the system is fairly flexible to changes m volume of output• (b) Descnbe the issues involved in la .
solution for the same. yout planning and the management
(b} Product; (c) Different process, equipment and/or technology ar~
installed; (d) Flexible equipment and resources; (e) Combined layout; (f) (c) Discuss basic characteristics (le t )
of Line Layout. a ures • advantages & disadvantages
Plant layout]
(2) FIii in the blanks: (d) Discuss basic characteristics (feat )
(a) In Cellular Manufacturing, generally machines are arranged in of Process Layout. ures • advantages & disadvantages
_ _ _ _ form. (e) · Discuss basic characteristics (feat ) d
(b) Another name for functional Layout is _ _ _ _ layout. of Stationary Layout. ures • a vantages & disadvantages
(c) Ship building requires _ _ _ _ type layout. (I) Discuss basic characteristics (features) ad t . .
of Cellular Layout. • van ages & disadvantages
(d) For Refineries _ _ _ _ layout is suitable.
(e) A breakdown of one machine in a _ _ _ _ Layout may cause (g) Discuss basic characteristics (features) and types of Flexible
stoppages of machines in the downstream of the line. Manufactunng Systems.
[Ans.: (a) U, (b} Process, (c) Stationary or Fixed Position, {d) Une or (h) What ·1s Plant layout and explain the principles of a good I t?
(April 18) ayou
Product, (e) product or line]
(3) State whether the following statements are True or False: (I) Explain objectives of the Plant Layout. Describe factors to be
(a) A good layout is one that involves backtracking. considered at the time of designing plant layout. (Oct. 18)
I (b) Line layout is also called as Product layout. (Aprll 18) 0) What are the types of Plant Layout? (April 19)
(c) Visibility does not form a part of Good Layout. (k) Explain the type of layout you would recommend for the following:
(d) In Product layout, all the facilities are brought and arranged around (I) Airport.
one workstation. (11) Hospttal.
(e) Only the property laid out plant can ensure the smooth and rapid (111) Community Centre.
movement of material from the raw material stage to the end product (Iv) School.
stage.
(v) University.
[Ans.: (a) False, {b) True, (c) False, {d} False, (e) True]
(4) Match the Column: (vi) Gannent Factory.
Group 'A' (vii) Office.
Group 'B'
(a) Cement Industries (viii) Ferry Tenninal.
(I) Process Layout
(b) Dam construction (7) Short Notes:
(11) Cellular Layout (a) Plant Layout and Layout Planning.
(c) Backtracking (ill) Inexpensive (b) Issues/ Problems and Management Solution related to layouts.
(d) Lean Manufacturing (Iv) Stationary Layout (c) Process or Functional Layout.
(e) Ladder Layout (v) Closed Loop Layout (d) Product Layout/ Line Layout (Assembly Lines Layout).
(vi) Open Field Layout (e) Fixed Position Layout.
(f) Hybrid layout.
(vii) Line Layout
(g) Cellular Layout.
. (viii) Flexible Manufacturing System (h) Flexible Manufacturing Systems (FMS).
[Ans.: (a - vii};.(b - iv); (c - i); (d - ii); (e - viii)]
 76
Vipul••™ Production
· . ·and 1iota/ Quality Management (81\is,

Plant Location

3.1 Introduction to Plant Location

4
3.2
The Need for Selecting a Suitable location
3.3
Objectives of Plant Location decision
3.4
Importance of Plant location
3.5
Need for Detailed Analysis of Plant Location Decisions
,7 . 3.6
Steps for Location Selection or ctors
Location Decision Fa
Affecting l Influencing the

..
3.7
General Procedure for Facilit>,' location Planning
Questions

Plant: 3.1 INTRooucnoN TO PLANT LOCATION

A plant is ·a place, where men, materials, money, machinery

etc. are brought together for IIlanufacluring Products; The
objective of minimization of cost of production can be achieved
only when the Plant is of the right size and at a right place where
economies of all kinds in production are available.
Plant Location refers to the choice of region and the selection
of a particuJar site for Belting up a business or factory. The choice
of Plant location is made only after considering COst as wi,u as
benefits of different alternative .sites. Plant Location may be
understood as llThe function detel'lllining Where plant the
' Total Quality Management (BMS)
CHAPTi:I\
3 should start from 'what' are organization's ·objectives; priorities,
Decisions
Affecting 1 Influencing the
ing
r LOCATION .
lls, money, machinery
turing products. The
!Ction can be achieved
at a right place where
ilable.
sion and the selection
or factory. The choice
lering cost as well as
nt Location ~ay be
ig where the plant
plant Location 77
should be located for Maximum Operating Economy &
effectiveness."
Toe planning for 'where' to locate the operations facilities
goals and the strategies required to achieve the same in the
general , so_cio-economic-techno-business-legal environment
currently available and expected to be available in the long-term
future. Unless the objectives and priorities of an organization are ·
clear ie. the general direction is clear, effective functional or
~omposite strategies cannot be designed.
3.2 THE NEED FOR SELECTING A SUITABLE
LOCATION
_ The need for ·selection o( facility location may arise under the
following circumstances.
(1) When the business is newly started.
(2) When the expansion of existing plant is not possible.
(3) When a firm wants to establish new:branches.
(4) When the landlord does not renew the lease
(5) For social or economic reason like inadequate water supply.
3.3 OBJECTIVE OF PLANT LOCATION DECISION
No single location may be significantly better than the others.
There may be numerous acceptable locations from which to
choose, as shown by the wide variety of locations where
successful organizations can be found. Furthermore, the number
of location that would have to be examined to find the best
location may be too large to make an exhaustive search practical.
Consequ~ntly, most organizations do not set out with the
intention of identifying-the one best location; rather, they hope ·to
find a number of acceptable locations from which to choose - and
to avoid choosing a location that will create future problems.
The main objective is to choose an optimum location from the
available accepta,ble alternatives where production and operations
cost can be minimized an~ profit can be maximized.
jiiP
. d Total Quality Management (BMS)
78 rnfrf" V1p1d's"' ProdUC!JOn an
Plant Location
L.ANT LOCATION DECISION
i"rnr 79
3 4 IMPORTANCE OF P
- . fir tup their operations is called services, a ~oor location could result in loss of customers and/ or
(1) The location where m se high operating costs.
facility location. . full I example:
. . and service organisations c~e y . an
(2) All manufactunng their plant and service fac1hties This location decision is important because it can't be corrected
1
where they ~houl~ :::: serious effect on the survival and without large losses in investment and need of additional capital
because location w111 outlay for another site like NANO PROJECT OF TATA
success of an organization's. . . . . MOTORS.
. f f cili'ty location is a strategic deasion which
(3) The selection Q a . .
is needed for the survival of the orgarusation. . . 3.5 NEED FOR DETAILED ANALYSIS OF PLANT
(4) It has to be done with considerable thoug~t. t~~g mto LOCATION DECISION
. us aspects leading to the end profitab1\!ty of the Plant location decisions need detailed analysis because:
_accoun t vano
firm, .. (1) Wrong plant location generally affects cost parameters
(5) The ,selection of site has permanent repercussion on th_e i.e. poor location can act as a continuous stimulus of higher

t operati.on of the plant and if it is not done properly then 1t

would become handicap to the plant performance.
Therefore firm conduct facility location analysis wher~ they
evaluate different locations and finally choose an optimun:i
location to start their operations._
The ideal location of a plant would be where it will mean
"OVERALL LOWEST COST OF PRODUCTION AND
MAXIMISATION OF PROFITS". In other words the best
locatitm is one where unit cost of production and distributions are
at minimum and where prices and volume of sales will bring
maximum profits.
There are two primary reasons that location decisions are a
highly important part of production system design.
• One is that they entail a long-term commitment, which .
makes mistakes difficult to overcome.
• The other is that location decisions often have an impact
on investment requirements, operating costs and revenues,
and operations itself.
For instance a poor choice of location might result in excessive
transportation costs, a shortage of qualified labor, loss of
competitive advantage, inadequate supplies of raw materials, or
some similar condition that is detrimental to operations: For
cost. Marketing, transportation, quality; customer satisfaction
are some of the other factors which are greatly influenced by
the plant location decisions - hence these decisions require in-
depth analysis.
(2) Once a plant is set up at a location which is not much
suitable, it is a very disturbing as well as very expensive
process to shift works of a company to some other place, as it
would largely affect the cycle of production.
(3) The investments involved in the in setting up of the plant
premises. buying of the land etc. are very large ;md especially
in the case of big multinational companies, the investments
can go into millions of rupees, so economic factors of .the
location should be very minutely and carefully checked and
discussed in order to achieve good returns on the money
which has been invested.
3.6 STEPS FOR LOCATION SELECTION OR FACTORS
AFFECTING / INFLUENCING THE LOCATION
DECISION
(1) Within the country or Outside
(2) Selection of the Region
(3) Selection of Community
(4) Selection of Exact Site
 . d r; ial Quaftty Management (BMSJ p/ani Location g-rnr Bl
r.rrrrI" V1p11l'1™ p,oduct,on an a
cultivated more in · this district. Sugarcane is a raw
BO ., 11S "' • • Th first step in locating a
Outside. e d . II material for sugar factory. _
(1) Within the· country or the !ant is located omestica y of
plant is to decide whethe\obaiization the is~ue of ho~e or (b) Nearness to Potential Ma.rket: Since goods are produced
internationally. Due to g ance. The choice of particular for sale, it is very essential that a plant should be located
I near to the market.
foreign is gaining more re ev like political stability, export
d on such factors
country depen s d exchange .rates. Advantages:
tas currency, an
& import quo ' . · . I . imperative to produce near the • Reduction in cost of transportation of finished goods
15
(2) Selection of the Region. t to meet set competition, trade to the market.
raw material base or customer
a eement and transport costs. . -. • Availability of render prompt services to the
gr M terial• As a manufactunng urut is consumer.
(a) Availability of Raw_ . a of ra~ materials in to finished
aged in conversion . • The ability to adjust production program to suit the
eng . . ential that it should be located m a likes and dislikes of consumers.
roducts, 11 1s very ess . . .
P the rupply of raw matenals IS maXImum.
place where Example: Auto-servicing and repairing units.
Advantages: (c) Availability of Power: Power is essential to move the
Reduce in cost of transportation. wheels of an industry. Industries using electricity have to
Regular and proper supply of raw material be located where the supply of power is available more.
Saving in the cost of storage of material Example: Steel industries are located near to power
industries. Visakhapatnam Stee_l Plant has its own coal
Availability of Raw Material near plant location is
based power plant and are still increasing their Power
useful in following cases:
plant capacity by setting up a 240Mw (120x2) captive
(i) raw materials which are weight losing and cannot be power plant to meet its future power requirements.
preserved for a long time e.g., fruits for juice making.
(d) Transport Facilities: Transport facilities are very
(ii) raw materials which are bulky, heavy and weight
important for bringing raw material to the factory.

r
losing in nature, like iron ore etc.
(iii) raw materials which are not heavy and can be
preserved for a longer period .of time, e.g., raw
cotton.
(iv) Thermal Power Stations are sihlated near co~) mines.
(v) In case the raw material are imported, it is advisable
that the unit must be establish_ed near the port.
Example:
The Shree Datta Sh,etkari Sahakari Sakhar Karkhana
Ltd. - sugar plant is located-in Taluka Shiro! Datta.n~gar '
Kalhapur, Maharashtra where yo~ find _ ~tigarc~l}e i;
Transport facilities are very important for carrying
f4tlshed goods to the market.
Depending upon the size of raw material and finished
goods, a suitable method of transportation like roads,
rail, water or air is selected and accordingly the plant
location is decided. Trar!Sportation costs depend mainly
on the weight carried and the distance to be covered. In
some industries, weight of the raw material is much
higher than that of finished product. E.g. in a weight
losing industry like sugar manufacturing four to five tons
of sugarcanes have _to be carried per ton of sugar.
Similarly in Iron and _Steel Industry two tons of iron is
 ,,. p,oducrion and Total Quaf,ry Management (BMS)
81 fr!'fl'f Vlpul'•
. oduce one ton of pig iron. Therefore the
reqwred to pr . b saved by locating near the source
transport costs can e . . • d try 1 .
f t .als In case of weight gaiIUJlg m us , ocation
~e=a~; m~rket may result in savings transportation
. ft d 'nk the weight of finished product is
costs. E.g. m so n
higher than raw material. . .
- hich is well connected by rail, road, air and
1 cost per unit of production.
A pace w rt 'aa'lities is suitable for plant location.
water transpo 1•
Example: Mumbai is best suitable for transport facilities
to locate industries.
(e) Suitability of climate: It is important for two reasons:
(1) There are certain industries which mainly depends
on nature of production. Example: Humid climate for
I
Cotton textiles and Jute.
(2) Based on climate which also affects the labour
efficiency.
(f) Government policies: Government policies like •
licensing policy, Freight rate policy, Establishing a unit in
the public sector in remote areas, Institutional finance
and government subsidies.
6 Example: NANO car project
(g) Competition between states: Various states offer
investments, subsidies and sales tax exemptions to new
units. The incentives may not be big but help to large
scale industries but not for small and medium scale
industries.
Example: Pasco steel company in Orissa
(3) SelecUon of C_ommunity: Selecting a particular community is
the third step m the process of plant location. The choices are
the rural place, the urban place or suburban area near the
?1etro. . The selection usually boils down to developed
mdustrtal area or having government sponsored advantages.
Th~ selection of a locality in a particular region influence
following factors:
Plant Location 83
(a) Availabili~ of labour: Labour is an important factor in
the productton of goods. A sufficiency of labour supply
at reasonable wages is very essential for smooth and
successful working of the industries, now a days the
influence of skilled labour on plant has lost because of
mobility. Th: purpose of the management is to face less
boycotts, strikes or lockouts and to achieve lower labour
(b) Finance and research facilities: Adequate capital is
essential for the successful working of any organization.
A place where facilities for raising capital are available
attracts new industries.
Example: Gujarat. The manufacturing unit has to be
dynamic i.e., it should always be on the lookout for new
technology.
(c) Banking facilities. Nearness to adequate Banking and
credit facilities: For the efficient and smooth running of
the business and for meeting working capital
requirements, banking facilities play an important role.
Nearness to banks and other financial institutions is an
important consideration now-a- days in deciding location
of an industrial unit.
This is because banking has become indispensable
part of modem business. In case of rural and small scale
industries, banks and financial institutio~ play an
important role and provide invaluable service in order to
cater their financial needs.
(d) Communication Facilities: Every business firm requires
every type of business information regarding the position
of labour, market, raw materials and finished goods and
this facility is available only when communication
facilities are there. As communications facilities are not
adequately available in rural areas, industries are very
much reluctant to start their business there.
(e) Civic amenities for workers: Besides of working
conditions inside the factory, the employees need
 . d Total Quality Management (BMSJ
ff!T vi,ul'•"' p,oductJon an
84 - ~ . eation facilities such as clubs,
facilities outside 11· _Rldecr tc must be provided for the
schools for chi ren e .
parks,
employees. .. . vided by BHEL to their
Example: All faalities pro
employees. • d trt· · must be kept in mind before setting a factory. A large
& fire· Some Ul us es reqwre
(fl Availability of water ."
I nty of water for there working.
Pe I t which uses water to
Example: NHPC power p an
produce power. . (j)
Some industries require fire for there working.
Example: NTPC power plant which makes fire from
coal to produce power.
(g) Local taxes and restrictions: Local au~_orities collect
charges for the supply of water, electriaty and other
facilities. They also collect vario_us_ other taxes fr?m
industrial units. The imposed restrictions on the location
of new unit in the public interest.
(h) Momentum of an early start: This is another important
factor affecting industrial location. A few industries start
at a place and gradually other similar type of industries
start at that particular place. For example, at Manimajra
(a small town near Chandigarh) a few small automobile
spare parts shops started about two decades back, but
now a fully-fledged automobile market has developed in
that area. Similarly, at Ludhiana a few hosiery units
started in the beginning, now Ludhiana has become a
very big hosiery articles producing centre in India.
Carpet industry developed gradually at Mirjapur
district of Uttar Pradesh. There are various reasons
a
responsible for such concentration of industries in a
particular regio~ viz., (i) availability of required type of
lab?ur m a particular region, (ii) facilities of repairs and
mamtenance on account of many repair shops and
workshops operating in the areas, (iii) Availability of
transport, communication, banking and insurance
p/ant L.Dcation ~£[~ 85
facilities, (iv) Facilities of managerial consultations and
advice are also available.
(i) Facilities of Repairs: In order to maintain uninterrupted
production, facilities with regard to repairs of machinery,
plant and other components (in case of breakdown),
scale concern can afford to install its own repair
workshops, whereas small concerns may rely on various
repair shops working near the factory.
Firefighting facilities: In order to protect the factory
against the risk of fire, adequate firefighting facilities
must be provided. Internal arrangements pertaining to
fire extinguishers, sand buckets and other firefighting
equipment must be arranged. In case there arises the
necessity of calling fire brigades, proper preparations
must be made for the same.
(k) Political, cultural, caste, religious and economic
conditions: Since these factors might affect the smooth
running of the plant.
(4) Selection of the exact site: Advantages of low land cost,
infrastructure or transport facilities chosen.
(a) Soil, size and topography: For the industries based on
agriculture require fertile soil to locate a plant. The area
of the land should be such as to accommodate not only
the existing purpose but offer for scope for future
expansion also. The topography of the place deserves
consideration to some extent. A hilly rocky and ruff.
terrain is unsuitable for plant location.
(b) Disposal of waste: The problem of the disposal of waste
is common to many industries, particularly chemical,
sugar, steel and leather industries. The site selected for
location of the plant should have provision fo:r the
disposal of waste.
Example: NTPC uo;e coal ash (waste) to construct bricks.
 86 ff!Tf' Vipul'•"' Produaion and Tata/ Quality Management (¾s)
Plant Location
3.7 GENERAL PROCEDURE FOR FACILITY LOCATION
PLANNING (4) Subcontractors rnnr 87
4
The general procedure for making location planning consists () Quality of life: Climate, housing,
of the following steps: (5) Transportation facilities recreation
(5) School
(i) Decide on the criteria that will be used to evaluate location (6) Utility availability and rates
(6) Taxes
alternatives, such as increased revenues or community Finally, it should not be forgotten that d . . b ·.
service. · ble from decisions about locat·
ec1s1ons a. out capaaty
are msepara ·ty
d 10n, since capaa
(ii) Identify important factors, such as location of market or raw depen s upo~ de~~d and demand often depends on location.
materials. Obviously this deas1on affects the revenues, op~rating costs and
capital costs of the organization. '
(iii) Develop location alternatives:
Evaluating Location Alternatives:
Identify the general region for a location
Identify a small number of community alternatives The following are utilized when evaluating location
alternatives:
Identify site alternatives among the community (al Location Cost-Volume Analyses
alternatives
(b) The Transportation Model
/ Evaluate the alternatives (c) Factor Rating
(iv) Make a decision
(a) Location cost-volume analyses: Break-even analysis is a
A preliminary screening to identify feasible sites begins the graphical and algebraic representation of the relationships
planning process. For some kinds of facilities, particularly among volume of the output, cost and revenues. The analysis
environmental or labour considerations are crucial. Breweries, for helps to relate costs and revenues to facility location. It
Y. example, require an adequate supply of clean water. Aircraft
manufacturers must be located near a variety of subcontractors;
identifies the level of output that must be reached in order to
recover through revenues all the costs of operation.
primary aluminium producers need electrical power. The The procedure for location cost-volume analysis involves
following Table: 9.3.2 shows the resources and local conditions to these steps:
be considered before finalizing facility location planning. After (i) Determine the fixed and variable costs associated with
identifying several key location requirements, management each location decisions.
undertakes a search to find alternative locations that are (ii) Plot the total cost lines for all location alternatives on the
consistent with these requirements. same graph.
Resources and local conditions for facility location planning (iii) Determine which location has the lowest total cost for the
Resources expected level of o_utput.
Local Conditions
(1) Labor skills and The method assume the following:
(1) Community ·receptivity to
productivity business Fixed costs are constant for the range of probable output.
(2) Land availability and cost (2) Construction costs Variable costs are linear for the range of probable output.
(3) Raw materials The required level of output can be closely estimated.
(3)
Organized industrial complexes
Only one product is involved.
 · _ d " tal Quality Management (8MS) p/Orrt u,cation
iTf" VJpul'•"' p,oducaon an ° 89
88 if,. - . del: Transpo
rtation costs sometimes • Choose the alternative that has the highest composite
transportation mo . decisions. These can stern score.
(bl Th e t le in location fi . hed
lay an importan ro
tom the movement of ei er :ce
th
w materials or rus goods.
or destination of shipments,
If a facility will be the sole so b included in a loc~tion cost-
factor Rating Example:
f,cto,I Weigh! Location A l.ocatJonAScoro Localfon B Localfon B Scor9
. costs can e · ....-- (1) (2) (3)=(1)x(2) (4) (5)=(1)x(4)
the transportation . ttn· the transportation cost per
I . by mcorpora g . Th ~,cost 0.3 10 3.0 9 2.7
volume ana ys'.s . the variable cost per umt. e
Nt&l!18S510mam1 02 7 1.4 .. 0.6
unit being shipped into kn wn as distribution method is 3
0.1 7 0.7 5 0.5
Transportation Mode( als~oca:on planning. Here, overall TIX
Nt11!18S5lorlWmAlerials 0.4 8 3.2 6 2.4
particular!~ useful . m the criterion used for performance

-
1.00 8.3 62
transportation_ cost ish I ful after initial screening phase has
evaluation. It IS more e P . . As location A has higher score hence 1t 15 recommended.
narrowed·the feasible alternative sites.
tin are frequently used to evaluate
(cl Factor rating: F~ctor ra_ gds . . n procedure in which each
ti
1oca on_ . alternatives
alternative IS ra
It IS a eclSIO
ted ·according to each factor relevant to the
din · rt
Ii QUESTIONS i
.. d ch f ctor is weighed accor g to impo ance.
dec151on, an ea a . 1 . OBJECTIVE QUESTIONS
!tis. used ·t
as1 1s . sun
· pie and brings diverse ocation.
.d ti" m
· to the evaluation process. Moreover 1t (1) Multiple Choice Questions:
cons1 era ons f · · (a) A dominant factor that influences the localion decision of a
fosters a consistency of judgment. The valu~ of actor r~~g is manufacturing firm is:
that 1t. proVI"d es a rational basis for evaluation . . and facilitates . (I) Transportalion cost
comparison among alternatives by es~bhshing a composite (II) Proximily to markets
value for each alternative that summanzes all related factors. (Ill) Location to compemors
Factor rating enables decision-makers to inco_rpor~te their (Iv) Climate changes
personal opinions and quantitative informa_tion mto the (b) When considering foreign locations, crime, and the threat of terrorism
decision process. · fall under which category?
(I) Cultural Differences
The following procedure is u~ed to develop a factor rating:
(II) - Market
Determine which factors are relevant (e.g., location (Ill) Financial
marl<et, water supply, parking facilities, revenue (Iv) Safely
potential). (c) Which of the following is not a step in the general procedure for
making location decisions?
• Assign a weight to each factor that indicates its relative
(I) Develop location alternatives
importance compared with all other factors. Typically,
(II) Evaluate the alternatives and make a selection
weights sum to 1.00.
(111) Gain government approval of location alternatives
Decide on common scale for all factors (e.g., Oto 100). (Iv) Decide on criteria for evaluating alternatives and Identify
• Score each location alternative. important factors (e.g., location of markets)
(d) Which Is a major consideration when choosing to operate in a region?
• Multiply the factor weight by the score for each factor, (I) identifying a communily
and sum results for each location alternatives. . (11) location to raw materials
 . d Toiol Quorrr, Management (BMS) p/ont Location 91
• 111 p,oduaion on
Vlpul'•
90 !rlflf THEORY QUESTIONS
'ble sites available (l) What factors should be considered in locating an airport in a metropolitan
(111) ~s:lnimum wage rate . II of the following except area?
(Iv) t e ·sIons should consider a (2) Whal role does good transportation facilities play in location decisions?
(e) Location dl!CI kills
Access to labCur s ()
3
•Raw materials, market, competitive pressures, and labour are important
(I) rkets regional factors for plant location,• discuss.
(II) Access to ma
(Ill) Product co
st
• ntives 4) How can community play a vital role In site selection? Explain.
1
) Local government taX ,nee ( }Gain govemment approval of ( Name a region, a community and a Site in INDIA, which will be important
(I~ J Transportation cost, (b) Safe:a,:rials; {e) p,oduct Cost] (S) Iocatlon for sugar manufacturing plant.
i,ocaAn~~n~Memstives; (d) 1ocat1on to ra:,, ere True or False: . (S) What factors will you consider In selecting a region, a community and a site
110wlng stateme . in INDIA for installing a Nuclear Power Plant?
State whether the fo the one best Iocat1on.
2
( ) ( ) Most organizations try to find d-«erence between profit and loss (7) Do you think location decisions can be an important strategic advantage for
(:) Plant location can contribute to the ' . .. ., any business? Why or why not?
for a t,rrn. . either 10 replace an existing tac1hty with (S) Differentiate between plant and plant location. Why is plant location
location decIsIon may be fac,h"' add a new one, or else. important?
(c) A xpand an ex1st1ng .,,
another one or toe ct,on facility 10 be near the potential (9) 'No single location may be significantly better than others.' Explain.
d II ,s more important for a produ (lO) What are the factors influencing location decisions?

~~:~;~t;a/se,
( ) market than tor a service tac1l1ty. I g term planning. (Apr/I18) (11) Discuss general procedure for Facility Location Planning.
I
(e) The 1~tion,:~~::n;: (e) True] (12) What is the need for Detailed Analysis of Plant Location Decisions?
[Ans.:{•) rS 1se, "' • (13) Write short notes on:
(3) Fill In the blanks: E luating Location Alternatives, the (a) Objectives and Importance of Plant Location.
(a) In Faclor R~ting method O1 va (b) Factors affecting Selection of Region.
weights sum 1s - · (Break even Analysis), we
(b) In Location cost-volu:~I :~:i 1
io~~he expected level of output.
(c) Factors affecting Selection of Community.
(d) Procedure for Facility Location Planning.
determine - h . related factor Influencing

f
(c) Soil, size and topograp Y is - (e) Need for Detailed Analysis of Plant Location.
Location decision. .
(d) Availability of Raw Material is - related factor Influencing
Location decision. · .
(e) Banking facilrties is ____ related factor influencing Location
decision.
[Ans.:(•) 1, (b) lowest, (c) Site, (d) Region, (e) Community]
(4) Mac •
I h th Column·
Group 'A' Group 'B'
(a) Availability or LabCur (I) Failure in Location Decision
(b) NANO car project (II) Break Even Analysis
(c) Availability of Power (Ill) Region related factor
(d) Weight (Iv) Transportation Model
(e) Disposal of waste (v) Factor Comparison Method
(vi) Community related factor
(vii) Objective of Location Decision
(viii) Site related factor
.. ...
{Ans.: (a - Vii); (b - i); (C - Iii); (d- ,v); (8 - viii)]
 Product Development, Classification and ..... . J7

CHAPTER

Product Development,
Classif,ca_tion and Product
Desi n
2
2.1 Introduction~ Meaning and definition of product development
2.2 · Importance of product development
2,3 Objectives of New Product Development
. .
2.4 New Product Development (NPD) Process
2.5 Classification of Product
2.6 Product Design
2.7 Objectives of Product Design and Development Techniques
2.8 . Requirements / characteristics of a good product design
· 2. 9 · . The Product Design Process
2.10 Product Design Classification Approaches / Aspects
2:1 I Factors affecting I influencing product design
2.12 Con_siderations in product design
2. I 3 Process Design
2.14 Characteristics / Requirements of a process
2.15 Factors· affecting/ influencing process _design:
2.16 Process Design and Process Planning
2.17 Process analysis
2.18 Tools for Product Development
.. Questions
 39
. d Total Quality Management (BMS) Product Developmen~ Qassification and .. ....
rrrf'L'J' v;pul'•"' p,oduct,on an
38 === MEANING AND DEFINITION OF (3) Continuous improvement of a new product or e~ancing
an existing product by giving preference to satisfy the
2.1 rNTRODU~~cr DEVELOPMENT
demand of end-users.
The meaning of Product Development: (4) Enhancing the utility of a new product or upgrading
. thin that can be able to meet the needs and features of an existing product, for the personal and/or
Product is any g A product is anything offered for sale commercial use, to expand the defined goal (objective).
wants of target customers.
f tisfying a want or need on bo th s1'd e of the
for the purpose O : product is a set of tangible and intangible Examples:
exchange process. . . d b Following are some common examples of product
attributes including packaging, colour, pnce, quahty an rand,
plus the services and reputation of the seller. development.
Packing wheat flour in retail bags for household consumption.
Development is an act of making or achieving a _continuous
progress in something .by someone. Progress transit from _an Packing cooking oil in retail pouches for household
earlier policy (traditional approach) to an advanced policy consumption.
(modem approach). [ . 2.2 IMPORTANCE OF PRODUCT DEVELPPMENT
Product development is a specialized activity. It is done to
Product development is an important way for businesses to
improve the existing product or to introduce a new product in the
stay ahead of the competition and continue to appeal to the
market. It is also done to improve the earlier features or
changing needs of existing customers. In addition, new product
techniques or systems. Generally, it means a new-product
development can open up new marketing channels and help to
development. increase market share.
Product development takes place or functions as under:
A company has to be good at developing new products.
(1) Creation of an entirely new product or upgrading an Without products there would be no customers and without
existing product by exploring all possibilities and customers, there would be no revenue. Developing a new product
outcomes. is a major activity. Thomas Alva Edison, -with as many as 1,300
(2) Innovation of a new or an existing product to deliver inventions and 1,100 patents to his credit, said about the product
better and enhanced services to end-users. development process," Genius is 1 per cent inspiration and 99 per
cent perspiration," Product development requires more of
perspiration and less of genius to be successful. The company also
must manage them in the face of changing tastes, technologies
competitions. Every produdseems to go through a life cycle
1t IS born. Goes through several phases, and eventually dies as
newer products come along that better serve the consumers'
needs.
The product life cycle presents two major challenges:
(1) Because all products eventually decline, the firm must find
Fig.: 2.1 new products to replace aging ones (the problem of
product development).
40 Vlpul•s™ Production and Total Quality Management (BMS)
(2) 1l1e fim1 must understand how the products age and
adapt its marketing strategies as product pass through life
cycle stages (the problem of product life-cycle strategies).
The Operation management addresses the issue of innovation
for product development by enabling firms with sorne
distinctiveness in their offerings. The distinctiveness may be on
account of products/services offered, technologies and channel
employed and various processes used while providing the
product or services to the customers.
In recent years we find a rise in customer expectations with
respect to the products and services offered. Firms can benefits in
this scenario.
(1) By offering highly differentiated products and services or
by offering very cost effective products.
(2) By bringing these products ~nd services much faster tha.n
the competitors and gain from the early mover advantage,
In order to achieve this, firms need to have a robust
mechanism to understand customers' expectations. Firms
must also have the capability to reach faster once the
expectations are understood.
In the 1950s and 1960s Hindustan Motors introduced variations
of its Ambassador roughly once in ten years. Today, no
automobile manufacturer can afford to take that much time to
introduce new products and variations of existing ones. A good
product development process addresses these issues and provides
a firm with · a set of tools, techniques and concepts to bring
products faster and cheaper into the market and realize the
associated gains.
We can see the benefits and in1portance of good product
development processes from the following points
Japanese manufacturers such as Honda and Toyota
introduced approxin1ately 2 times more innovations
during 1982 to 1989 against their American counterpart.
This significantly affected the competitive positioning of
Honda and Toyota firms and gained more U.S. market
share. But according to the source businesstheory.com,
Product Developmen~ C/ossif,colion and . . . . . . lll""L'J'"IIJ•
Honda and Toyota h f === 41
2008: New p d ave alien down in three areas since
ro uct Development T I
Management, and Su 1 . , ota Quality
result the h PP Y Cham Management. As a
co , . y ave lost market share to their Korean
4 5mpehtors: Hyundai and Kia. Since 2008, Toyota has lost
H. yundai
perc~ntage points in U.S. market share. In contrast
s (and Kia' ) us k '
fr 1O • s · · mar et share has increased
· om 1/o U1 1999 to approximately 9% in 2011. '
• B · trd O ·
Y _m ucmg products six months ahead of competitors
a firm can gain as much as three times the cumulativ~
profit earned over the life of the product.
·It is, therefore clear that product development is an in1portant
aspec~s ?f the operation management function in every
orgamza~on, be it services or manufacturing. An organization
am,_e~ With g?od product development process will be in a better
position to bnng new products and services to the market ahead
of competition and will be able to retain customers and its market
share in the sector.
There are a variety of strategies that can be used for effective
product development like
(1) Simply focussing on customer needs as "Necessity is the
mother of invention"
(2) Brand extension which involves using a commonly known
brand name to introduce another similar, but different
product. For instance, Arm & Hammer Baking Soda extended
its brand to toothpaste.
(3) Technology: Companies that can strategically identify
opportunities to capitalize on technology to provide products
and services more conveniently, less .expensively and in new
ways, can stay ahead of the curve and avoid the unfortunate
situation of having their products and services become
obsolete. A good example of this in recent years is the
evolution of videotapes and then DVDs that could be rented
at stores, to the mailing of DVDs to consumers in their homes
and now to the move toward online rentals. While businesses
can be negatively impacted by disruptive innovation if they
 ~'fff!f Vlput•.™ Produaion and Total Quality Management (BMSJ
42
. .th changing environment, alert businesses
Produa Devolopmen~ Oassi(,cation ond ......
wnr 43

fail to change wi . a w product offerings to capitalize on
can create strategic ne
technology.
[ 2.3 OBJECTIVES OF NEW PRODUCT DEVELOPMENI:J
(1) To reach new level of quality of product which effectively
increase customer satisfaction.
(2) To ma ke addict the.
customer to your company for that
df b ·td·
remarkable quality and also make profit an ame U1 mg.
(3) Creating something for which people will pay more
(hopefully significantly more) than ii costs you to produce. If
it can be protected from competition in some way, such as
patents, branding, trade secrets, etc. so much the better.
(2) Idea screening: The purpose of idea generation is to create a
2.4 NEW PRODUCT DEVELOPMENT (NPD) PROCESS]
The New Product Development process for finding and
growing new products consist of nine major steps as explained
below:
(1) Idea generation
(b) SWOT analysis: Company may review its strength,
weakness, opportunities and threats and come up with a
good feasible idea.
(c) Market research: Companies constantly reviews the
changing needs, wants, and trends in the market.
(d) Customers: Sometimes reviews and feedbacks from the
customers or even their ideas can help companies
generate new product ideas:
(el Competition: Competitors SWOT analysis can help the
company generate ideas.
It has been found that more than 55 perc~nt of all product
ideas come from internal sources.
large number of ideas. The purpose of the succeeding stages
is to reduce that number. The first reducing stage is idea
screening. The purpose of screening is to spot good ideas and
drop poor ones. Most companies require their executive to
write up the new product ideas on a standard format that can
be reviewed by a new product committee. The write up

t
(2) Idea screening describes the product, the target market, the competition and
(3) Concept development and testing makes some rough estimate of market size, product
development time and costs, manufacturing costs and rate of
(4) Marketing Strategy Development
rel.urn. The committee then evaluates the idea against a set of
(5) Business analysis general criteria.
(6) Product Development (3) Concept Development and testing: Customers do not buy
(7) Test marketing product ideas, they buy the product concepts. The concept
(8) Commercialization testing calls for testing new product concepts with a group of
target consumers. After being exposed to the concept,
(9) Introduction consumers then may be asked to react to it by asking a few
We shall briefly describe these step~: questions.
(1) Idea Generation: Ideas come from everywhere, can be of any (4) Market strategy development: The next step is market
form, and can be numerous. Th(s stage involves creating a strategy development, designing an initial marketing strategy
large pool of ideas from various sources, which include: for introducing the concept to the market. The market
(a) Internal sources: many companies give incentives to strategy statement consists of three parts:
their employees to come up with workable ideas.
44 ~fl)f\f Vlput•,™ Production and Total Quality Management (BMS)

(i) The first part describes the target market; ~e planned Product Development, Oassification and .. .. .. iTLTr.1• 5
4
product positioning, market share and profit goals for major decision are made b f . .
the first few years. the New Product O e ore the fmal mtroduction stage of
eve Iopment.
(ii) The second part of the marketing stra_tegy st_atement (9) Introduction: This sta . . .
outlines the product planned price, d1stnbution and product in th k ge m~o 1ves th ~ final mtroduction of the
marketing budget for the first year. actual Prod ctel~farCcl. This stage is the initial stage of the
u 1 e ycle.
(iii) The third part of the marketing strate~y statement 25
· CLASSIFICATION OF PRODUCT
describes the planned long-run sales, profit goals, and Definition of Product:
marketing mix strategy.
(5) Business Analysis: Once management has decided on its According lo Philip Kotler "Product is anything that can be
offered to mark~! for attention, acquisition use, or consumption
product concept and marketing strategy, it c~ evaluate t~e and that nught satisfy a want or need".
business attractiveness of the proposal. Business_ analys15
We can say that;
involves a review of its sales, cost, and profit projections for a
(i) pod
new product to find out whether they satisfy the company's r uct is able to meet up the needs and wants of target
objectives. customers.

(6) Product development If the product concept passes the
business test, it moves into product development. Here, R&D
or engineering develops the concept into a physical product.
The R&D department -will develop one or more physical
versions of the product concept, R&D hopes to design a
prototype that will satisfy and excite consumers and that can
be produced quickly and at budgeted cost. When the
prototype is ready it must be tested. Functional tests are then
conducted to make sure that the product performs safely and
effectively.
(7) Test Marketing: Unlike concept testing, here the actual
prototype is introduced for research and feedback. Actual
customers feedback are taken and further changes, if
required, are made to the product. This process is of utmost
importance as it validates the whole concept and makes the
company ready for the launch.
(8) Commercialization: The product is ready, so should be the
marketing strategies. The marketing mix is now put to use.
The final decisions are to be made. Markets are decided for
the product to launch in. This stage involves briefing different
departments about the duties and targets. Every minor and
(ii) Product may be visible and invisible.
(iii) Product has a specific price that customer has to pay.
Levels of Product:
A customer not only purchases a product but also various
attributes of a product. Specially, packaging, color, price, quality,
brand, etc. So marketer has to take proper planning before
introducing product in the market. Marketer mainly considers
three levels of product. These are given below:
(i) Core product: Core product consists of the core problem
solving benefit.
(ii) Actual product: The actual product exists around the core
and includes the quality level, features, design, brand
name and packaging.
(iii) Augmented product: The augmented prod~ct is the actual
product plus the various services and benefits offered With
it.
Product Qassification: .
A product is anything offered for sale for the purpose of
satisfying a want or need on both side of the exchange process.
 . d Total Quality Management (BMS) 47
Vipu1•s'" Product1on an Product Developmen~ Classificotion and ......
46
the basis of customer a strongly felt need. Such as; Ice-cream, toys,
on two types on
Products are classified magazines, etc.
characteristics. (iii) Emergency products: Emergency products are
(i) Consumer product products that are purchased immediately when the
(ii) Industrial product
need is great. Parts of car, medicine service for
. . Ideas and Places emergency patient, ramcoat for rainy season, etc.
(iii) Persons, Organizations,
Types of Product (iv) Home delivery products: These products are mainly
delivered to customer's home.
Persons, Organisations, (B) Shopping Products: The products which are purchased by
Consumer
Industrial Ideas and Places customers on the basis of pre planning is called shopping
Goods/Product
Goods/Product product. Shopping products are less frequently purchased
consumer products and services that customers compare
• Convenience
• Raw Matenal carefully on suitability, quality, price and style. Shopping
goods + Fabricating products are:
parts and
+ Shopping materials (i) Fashion products: Fashion products are shopping
goods
+ Installation goods that are purchased for their appearance,
• Speciality
goods + Accessory
distinctiveness or style. Such as; garments, gift etc.
equipment (ii) Service products: Service goods are durably shopping
+ Unsought
goods • Operating goods that represent relatively large outlays to the
supplies
consumer and that usually require repair or other
(1) Consumer Products: servicing. Such as; TV, Air conditioner etc.
Consumer products are products and services bought by final (C) Specialty Products: These products are charming and
consumers for personal consumption. Consumer, products are technology based. These are consumer products and
mainly use in personal consumption. Various types of consumer services with unique characteristics or brand identification
products are given below: for which a significant group of buyers is willing to make a
(A) Convenience products: Convenience products are special purchase effort. Such as; Mercedes Car, High
consumer's products and services that customers usually priced watch, etc.
buy frequently, immediately and with minimum of
(D) Unsought products: These are consumer products that the
comparison and buying effort. There are various types of
consumer either does not know about or _know about but
converuence products are:
does not normally think of buying. Such as; Life insurance
(i) Staple products: Staple products are products that are policy, grave stone, etc. Unsought products are:
bought often, routinely, and without much thought
Such as; Rice, Sault, etc. · (i) New unsought products
(ii) Impulse products: Impulse products are products that (ii) Regular unsought products
are bought quickly as unplanned purchases because of
 E'.f"i.TI.T 49
.
,- Management (BMS)
d Total Qua it)'
product Developmen~ Classification and · · · · · · ""' ""' =
Vfpul'•'" Produclion an is primary and Process design is secondary. Proc~s :esi~
M \?"\?"f d . lains how the product is produced as per spec ca . on
. Products: further pro uction. ;~duct. The specifications are development in product design.
(2) Jndustnal e rnainly used ford cts are products
• I roducts ar · J pro u . According to EU Council: "Design means the appe~rancet _of{';
1ndustna P . Koter "JndustTJa
to Phi11P
Accordrng. . 'd als and orgaruza
• fons
I
, ....her processIDg or
for !ll1L''
re various types of whole or a part of a product resulting from the features of rn .Pr
zif ;h;
bought by md1v1 u business". There a the lines, contours, colours, shape, texture and/or ma~erza s ;002)
for use in conducting a below· product itself and/or its ornamentation." (European Comm zsszon,
. dustrial products are given .. 1 d parts are industrial
m rt . Matena s an , product Various Definition of Product design:
(A) Materials and pa s. the manufacturer s
oducts that enter (1) Product design is the process of defining all the features and
Pr es·
completely. It has two typ . characteristics of the product to manufacture.
(i) Raw materials (2) It is defined as the Idea generation, concept develop_ment,
uf ctured materials and parts testing manufactured prototype and then Implementation of
(ii) Man a . dustrials products that
. I ·1 • Capital items are rn . I d' a physical product or service.
(B) Capita I em. d . or operations, me u IDg
. .
aid m e uyth b er's pro uction
. ent It has two types: (3) A product design gives birth to a product.
installations and accessory eqwpm . (4) It is concerned with form and function of product, it refers to
Accessory equipment the arrangement of elements or part that collectively fo~ a
;
(i)

(ii) Installations
. d . . These are· industrial products that
(C) Supphes an services. .
do not enter the finished product at all. These are.
(i)Supplies
Business services
(ii)
(3) Persons, Organizations, Ideas & Places:
The marketing entities named persons, organizations, ideas &
places are also included in the category of products recently. The
organization sells itself by carrying out certain activities like
creating, maintaining & changing the behaviour & attitude of
customers for an organization. Similarly, people also perform
certain activities for development, maintenance & change of
behaviour & attitude towards certain people through person
marketing. Similarly the idea_s & places are also regarded as
products.
I 2.6 PRODUCT DESIGN
Produ~t design and Process design are two important aspects
of operations management. These two are complirnenta to each
other. They are mutually dependent to each other. Produ~ Design
product i.e. it consists of Assemblies, Subassembhes,
Components, Hardware used.
(5) It specifies the shape, form size the kind of materials use~ in
construction determines, dimension & tolerances and defines
appearances of product like smoothness roughness, color etc.
called as aesthetics factors and seats standards of
performance.
(6) Product design also includes the design of services.
(7) Consumers respond to a product's . appearance, colour,
texture, and performance. All of its features, summed up, are
the product's design. Someone came up with the idea of what
this product will look like, taste like, or feel like so that it will
appeal to the customers. This is the purpose of product
design. Product design defines a product's characteristics,
such as its appearance, the materials it is made of, its
dimensions and tolerances, and its performance standards.
(8) Product design deals with conversion of ideas into reality.
Every business organization has to design, develop and
introduce new products as a survival and growth strategy .
_ ...______ 51
. d Toto/ Quofity Management (BMS) p,odud Developmen~ Qossi(,cotio.o and .. ... .
rrr.n'f VJpul'•"' ProductJon on . 2.8 REQUIREMENTS/CHARACTERISTICS OF A GOOD
50 " d launching them m the
. th w products an . • PRODUCT DESIGN
DevelopU1g e ne ' faced by the organizations.
market is the biggest chal,enge (1) Should cater to the customer's need.
PRODUCT DESIGN
(2) Should provide customer delight (in TQM, this means
providing some good feature which the customer did not
~Innovative
expect).
Existing Product &
or od t Different from Existing Product (3) Profitable to the firm's earnings.
current Pr uc (4) Should provide all functional requirements.
EXAMPLE OF SUCCESSFUL PRODUCT DESIGN:
(5) Reliable.
The Apple iPhone: . . (6) High quality and conformance to national/international
Apple is consistently ranked as one of the mostfumnl. o:~tillve
companies in the world. Though not always succes~ Ulltia . y, standard.
Apple has managed to create unique products with s~penor (7) Environmental friendly: no environmental degradation while
designs that have great appeal with end us_ers.' The Apple 1Phone disposing.
revolutionized the cell phone market with its innovative features, (8) Safe and no health hazard.
streamlined design and an entire supporting universe through the
app store. Though it was not the pioneer in smart phones, Apple (9) Proper packaging.
is extremely successful because it created a beautiful product that (10) Durable and long lasting.
gives a superior user experience to a consumer. (11) Easy to handle and simple controls.
2.7 OBJECTIVES OF PRODUCT DESIGN AND (12) Availability of spare parts.
DEVELOPMENT TECHNIQUES (13) Aesthetics - Good-looking; pleasant features and color.
Main goals of Product Design methodologies include:
(14) Easy to store.
(1) Help new products meet the specifications related to
(15) Compared to existing products, competitive price and better
customer's needs, quality, price, manufacturing, recycling
* ' features.
(16) Design for manufacturing (DFM): Easy to manufacture.
(2) Reduce development costs and time necessary for
commercialization. (17) Design for assembly (DFA): Easy to assemble.
(3) To reduce cost of the Product. (18) Availability in different range of price and performance for

(4) ;:~or:ina:e and schedule the activities involved in the design giving choice to customer.
eve opment of products w'th· 1 h . (19) Easily available peripherals, software, attachments, power
activities taking into m t e entire set of
' account time ta ks supply, etc.
manufacturing etc all in th ' s , resources,
( ' ·, e context of the compan (20) Possibility of add-on features.
5) Integrate the above objectives in y.
line with the company's ca .. to a development strategy in (21) Reliability.
paolles.
(22) Durability.
 . d -,: tol Quolity Monogement (BMS) Product Developmen~ Oossif,cation and .... .. 53
Vlpul'•"' p,oducvon on o
52
2.10 PRODUCT DESIGN CLASSIFICATION
·ty and Maintainability,
(23) Repara bili APPROACHES/ ASPECTS
(24) Simplification, Compact
Product Design Types on the basis of Approaches / Aspects
(2S) Standardization. ss· to Product Design are explained below:
2.9 THE PRODUCT DESIGN PROCE . Product design may be defined as a visible and tangible
stages
The Product Design Process consists of followmg expression of an idea. It may be classified with reference to
approach to Product design as follows:
described in brief:
(1) Functional design.
Step 1: d
Idea Development: Someone thinks of a ne~ and a ~ro ~ct/ (2) Form Design (with Aesthetic design considerations).
. d ·gn to satisfy it· customers, marketing, engmeermg,
service es1 · . . (3) Design for Manufacture and Assembly. (DFMA)
competitors, benchmarking, reverse engmeenng.
(4) Design for Quality. (DFQ)
Step 2: (5) Design for packaging.
Product Screening: Every business needs a formal_! stru:tured
(6) Design for Sustainability (Design for Green and social
evaluation process: fit with facility and lab~ur skills, size of
market, contribution margin, break-even analys1S, return on sales. requirements).
(7) Product Design type on the basis of Technology
Step 3: Push/Market Pull.
Preliminary Design and Testing: Technical specifications are
The primary objective of the designer of consumer products is
developed, prototypes built, testing starts.
the production of quality goods at minimum price. In practice, the
Step 4: functional design is changed to production design to make it easy
Final Design: Final design based on test results, facility, to produce. In a highly competitive market, aesthetic design plays
equipment, material, & labour skills defined, suppliers identified. the major role, since it is characterized by sales appeal.
Steps '·" the product design process The product designer must use as for as possible standard
ldeo Product Preliminary Final parts to minimize the cost of production. Standard components/
DeYelopment Screening Design & Testing Design
parts, in most cases, can be purchased from outside firms
Procu:1idea PnxlJc1 idea _. Prcxi.ci prolOl)'pes _. Final prodJct specializing in their production. The product designer should
devfl(fl<(I; sarces H evaluata:f; nee:l to tutt, lesled, ard specifications
cari be custcmers, cm,ijer ope,o!ioro, refined completed have a fair idea about the possibility of simplification or
carpetilas, cr marl<et~.ard
stq)liets firB'lcialrtq.iremerts diversification of the product. Any change in design should be in
t corporate in consultation with production department.
I
Steps in the product design process
Therefore, the assessment of the design should be incorporated
from the point of view of functional performance, aesthetic
Fig.:2.2
quality, efficient production, and economic packaging etc.
(1) Functional Design: The functional design involves the
working conditions of the product. What is intended function
 55
, nd Total Quality Management (BMS) Product Developmen~ Qassif,cation and .... ..
·ri·ri· Vipul'•TN Production a , While designing for Form and Aesthetic, we allow some
54 \1 ndary functions that
d what are the seco questions to be answered.
to be performed an th roduct?
can be performed by e P . . . n (FDS) identifies what (i) Does the design possess optimum aesthetic values?
. specifica110 h (ii) Does the design possess sufficient sales appeal?
The functional design , concemed with w at is
. . tO do and is more ,
its design obJect 1s 'th h0 it happens, Design and (iii) Can the sales appeal be further improved without
to be done and ... less w~ ; several phases, which are affecting the production cost?
development proiects go lou? functional design, detail
, ments ana ys1s, . (iv) Have the specific preferences of different markets been
typically require t ting documentalion, and
't and system es , 'd satisfied?
design, U!U
r The funct10na .
1 design phase prov1 es a (v) When will the next style change be essential?
implementa 10n. . ents analysis and the detail
translation between the requirem (3) Design for manufacture & Assembly (DFMA): Design for
design.
. . f F lion we allow some ques ions
f Manufacture and Assembly (DFMA) = Design for
While des1gnmg or unc , Manufacture (DFM) + Design for Assembly (DFA)
to be answered, Definition of Design for Assembly: DFA is the method of
(i) Is the specified tolerance more than what is just essential
design of the product for ease of assembly.
for functional requirement?
DFA is a tool used to assist the design teams in the design
(ii) How any alteration in the dimensional tolerance will
of products that will transition to productions at a minimum
affect the cost? cost, focusing on the number of parts, handling and ease of
(iii) Does it improve operating efficiency? assembly.
(iv) Does the product design agree with the performance Definition of Design for Manufacturing: DFM is the
specifications? method of design for ease of manufacturing of .the collection
(v) Does it offer easy operating control and maintenance? of parts that will form the product after assembly.
(vi) Can the range of product utility be improved? Differences·
(vii)Does it offer any functional attraction in comparison with Design for Assembly (DFA) Design for Manufacturing (DFM)
the competitor's products? (1) concerned only with reducing (1) concerned with reducing
(2) Fonn Design: Normally Form Design follows Functional product assembly cost. overall part production cost.
Design. The form designing includes decisions regarding its . '
(2) rrurunuzes number of (2) rmrunuzes
'.
complexity of
shape, size, tolerance, colour and appearance of the product. assembly operations. manufacturing operations.
The Aesthetic Considerations in Fonn Design are (3) individual parts tend to be (3) uses common datum features
more complex in design. and primary axes.
(a) How it looks?
(b) Appearance, smoothness, roughness colour surface
finishing, shape, luxury factors, Style fa'ctor etc. '
 ,·
d • n and Tota I Q
uality Management (BMS) I Product Development Oassi(,cation and . , ....
rri::ri::r Vipul'•"' Pro uaio 57

.
56
Sequence of AnaiyslS Design for Efficieni Joining
eorcept oesi!11 • Minimize Reorientation of parts during Assembly
and/ or Machining

.
Desi!11 !or
• Simplify and Reduce the number of Manufacturing
Assembly Operations
• Specify Acceptable' surface Finishes for functionality
Desigl for QJlimize Design for While designing for Manufacture and Assembly, we
Ma,,Jactunng Produ:tion Real1ness allow some questions to be answered.
(i) Is any substitution of material economical?
.. d DFA seek to reduce material, (ii) What is the proportion of material cost to total
. ·1 an·1·1es·· Both DFM an
S1011 Th both shorten th e pro d uct production cost?
overhead, and labor cos~ th riFM and DFA seek to utilize
development cycle time. 0 (iii) What percentage of material utilization is possible?
standards to reduce cost. (iv) Can standard components be incorporated in the final
Design for Manufacturing and Assembly (DFMA): . . product?
. f d I design we generally first think
When we think o pro uc ' I d (v) Has the present design got enough flexibility .in it so
h t mer However, we a so nee lo that it can be redesigned from time to time?
of how to please t e cusd~ficuit ii is to manufacture the
nsider how easy or 1 . h • (vi) Is the design such as the available men and machines
co . e might have a great idea t at 1s
product. Otherwise, w DFMA is a series of be utilized for manufacturing?
difficult or too costly to manufacture. .
guidelines that we should fol_low to produce a _prod~ct easily (vii) Does the design satisfy tooling needs?
and profitably. DFMA guidelines focus on two issues. (viii) Is the design fully standardized with reference to
(a) Design simplification means reducing the nurn~er of materials, surface finish and tolerances etc.?
parts and features of the product whenever poss1bl~. A (ix) Has the design been done to take benefit of
simpler product is easier to make, costs less, and gives specialization?
higher quality. (x) Does the design satisfy fully the needs of
(b) Design standardization refers to the use of common and simplification?
interchangeable parts. (xi) Does the design satisfy all the requirements of
By using interchangeable parts, we can make a greater manufacturing economy?
variety of products with less inventory and significantly (4) Design for Quality (DFQ): DFQ is related to
lower cost and provide greater flexibility.
• Superior Functionality
Key DFMA Principles:
• Best Fit
Minimize Part Count .
• Least Rejections
Standardize Parts and Materials
• Highest Customer Satisfaction
Create Modular Assemblies
 Q lily Management (BMS)
,,., Production and Total uo Product Developmen~ Oossiµcation and ......
g-~·g- V1p11I'• ff[flf 59
58
(a) Designing for economic packaging:
Consistent Performance F CUSTOMER. Method
Does the product design adapt to most convenient
Juc1
• . account VOICE O lo ment. In Q.F.D., a (i)
It ~akes Quality Function _Dep design. The tool marketable size of a package?
used 1s Q. · . incorporated 111 pr
voice of customer is rn' (ii) What is the nature and characteristics of product
dis HOUSE OF QUAL . . which shows the material?
use . a matnx chni
House of Quality is turner's requirement & te cal (iii) Is it essential to have some additional finishing
. . between the cos . . operation from the packaging point of view?
relationships th roduct.
characteristics of e P . llow some questions to (iv) If there are chances of design change for making
While designing . f or Quahty, we a packaging cost less?
be answered. (v) Can the assembly and disassembly operations be
(i) What Tolerance to allocate? . minimized so that the time and money involved in
ill the tolerances a ffect function7· them are reduced?
(ii) Howw .
(m" ') Will there be any assembly issues? (b) Designing the package for economy and sales appeal:
?
(iv) What will be the PPM estimates. (i) Does the package provide appropriate protection to
(v) Is it really necessary to tighten tolerances? the products during shipment and storage?
(vi) Have I chosen the right tolerance? C ? (ii) Does the package design satisfy trade
. ing the product ost. considerations?
(vii)Am I responsible for mcreas .
. P ck . g matters because, at tunes, (iii) Does the package show brand name of the product?
(5) Design for Packaging: a a~ t functioning, he sees how
before a customer sees your pro uc ck . (iv) Does the package improve the sales appeal of the
ck d 't Studies have proved that pa agmg product?
;:r~!:e ~tent, product satisfactio\ a~d r7:t (v) Can the package be produced economically?
urchases.· The perfection, the lustre and the es1gn o_ e
ppact<age
,. . what first draws a customer to the dproduct, (vi) What is the cost of package material with rest to the
IS · · cost of the end product?
especially the undecided customer. Good Package_ es1~ is
required for protection and promotion of product. Attractive (vii)Can the package be handled easily and rapidly?
packaging boost up sales. (6) . Design for Sustainability (Design for Green and social
This design is considered for two distinct functions as requirements): Sustainable development is a development
follows: that meets the needs of the prese:1t without compromising the
(a) Designing for economic packaging. ability of future generations to meet their own needs. Product
is designed keeping in mind Environmental and Social
(b) Designing the package for economic transportation and requirements. From the moment a company's product
optimum sales appeal.
development team puts pencil to paper, a -product's
While designing for Package, we allow some questions environmental impact is decided. That initial research and
to be answered. design phase is the first and best time to start a product down
the path of reduced environmental impact. Through a process
, llf"l'f'rf
. d Total Quality Management (¾si
vi,ul'•"' ProdvctJO" on . . Product Developmen~ Oossi(icotion and ... ...
60 61
l1i' "" .- • or design for environment, a
f green design, ecodesign, . g envirorunental problellls Technology and Market Linking:
o [Jl!Ilit to so1vin
company can co Emphasis on Technical Linking
before they start. t ·nable, inclusive and most Low High
. must be sus at
Green des1gn . (valued/use
ful/fu nctiona]J
.
1 good design oc
important Y "duser friendly). :;" Low Linking:
practical/durable/ergonom1 b . of Technology Push/ Low
...;:J"
Weak Venture Technology-Push
. type on the as1s Potenlial
(7) Product Design d t Innovation Strategies): ."
Market Pull (Pro uc z"
• Technology-Push: "
0
. . . . When Research and Development or a ·! Double Linking:
Definition. B kthrough drives the launch of a New
Technology rea -=... High Market-Pull Strong Venture
E Potential
Product. "'
. A le Newton PDS in 1993 or the Samsung
Examp1e. PP l .
Galaxy with touch screen techno ogy in 2012.
Technol~gy-Push Approach: 2.11 FACTORS AFFECTING/INFLUENCING PRODUCT
(1) .Focus on technical issues and problems. DESIGN
( 12) Trigger a search for sci:ntific and technical
knowledge ·both within the firm and from external
(1) Cost: One major factor that affects product design is the cost
of production including material costs · and labour costs.
knowledge sources. These in turn affect the pricing strategy, which needs to be in
(3) Develop an innovative, technical solution to .offer in line with what the customer is prepared to pay for it.
the marketplace. (2) Ergonomics: Ergonomics is the scientific discipline concerned
• Market-Pull: with the understanding of interactions among humans and
other elements of a system, and the profession that applies
Definition: When the market demand for a solution to a
theory, principles, data and methods to design in order to
problem or need in the marketplace triggers the
optimise human well-being and overall system performance.
development of a New Product.
The terms 'ergonomics' and _'human factors' can be used
Example: Miniaturization of digital cameras and photo interchangeably.
editing software. The product needs to be user friendly and afford
Market-Pull Approach: convenience in its function. Using ergonomic measurements,
(1) External market needs are recognized that trigger a minor or major changes may need to be made to product
search for scientific and technical knowledge. design to meet essential requirements.
(2) Analyzed by the firm for potential solutions. (3) Materials: Whether the requisite materials are available easily
is an important consideration in product design. In addition,
(3) Leads to an innovative offering in the marketplace.
an eye needs to be kept on new developments in materials
and technology.
 product Developmen~ Oassi(,cation and ..• ... 63
Q alit)' Management (BMS)

62 ""
rrrri:i·
"' p,oduction and Total u
Vi,~ 1•• d obvious influence
•rements: One majo~ancustomer and their
C 2.12 CONSIDERATIONS IN PRODUCT DESIGN
Product design is a complex process, since all the relevant
(4) customer Requi the product is e feedback on any stakeholders have differJmt requirements from the product. An
th desi~ on e customer
on . e ·It is vital to captur nning and conceptual example of conflicting needs that will require attention during
I
requuemen15. well as during the p aed and exciting feature
product design are:
prototypEe : a technologically ~dvanc s dislike or negative
stages- ve ed if it cause (1) Economic Viability: The manufacturer will want the product
d to be relllov to be created at the lowest cost possible, in order to maximize
may nee
feelings in an end user. , fdentity is a point of pride profit .and ensure sales. A prohibitively expensive product
(S) Company Identity: Toe com~an~uct's very de~ign ~r color will have higher price tag and may drive away customers.
and as a matter of cours\e determined by this identity. The Often, this may mean a product redesign or a· compromise on
schemes and features may d . pecific manner or subtle or quality.
logo may need to be feature inidentity
as may nee d to b e b u1·1t (2) Price, Appearance, and Prestige Value: The customer will ·
overt features of the company
always ~ ant a well presented product with a functional yet
into the design. ed to appear stylish· or of a aesthetically appealing ·design. They will also want it to be
(6) ' Ae.sthetics: The product may ne end up determining the
0
priced reasonably. The appearance may not always be vital to
-. h This form may .
certain s ape. . . . the roduct. This may m turn also fun_ction, but if there are multiple nearly similar products in
technology that it built into es~ that needs to be followed. the market, the look of the product may become the deciding
affect the manufactunng proc
t f hion and trends may also affect a factor.
(7) Fashion: The curredn . as Customers will want the most (3) Functionality: There needs to be equal focus on the
rtain product's esign. . d d ·
ce . d this needs to be cons1dere . unng functionality of the product or how well it performs. This is a
updated options an -
given as the product foremost needs to perform as it claims
product design. . .
to. The end user may purchase for the external appearance.
(8) Culture: If a product is for a certain mark~t with its o~n
individual culture, this needs to be .kept m mind . dunng But long term satisfaction and repeat usage will only occur if
product design. A product acceptable in one culture may end the product performs at an optimal level.
up being offensive or not destrable in another one. (4) Maintenance: Product designers, manufacturers and
(9) Functions: How many problems is the product trying to maintenance workers may all favour a modular construction
solve? The number of uses and functions a product has will for a product. The more easily different parts can be .worked
impact its design. on individually, the more versatility the product offers. A re-
design effort may only need to focus on changing certain
(10) Environment: Another consideration to product design is its
parts rather than the whole, the manufacturer can easily
impact on the environment. The average customer these days
tweak elements without changing entire production
may be more discerning and concerned about the
processes and maintenance workers may not need to
environment than before. 1hings to consider here may
include whether the materials used are recyclable, how the disassemble everything, thereby reducing repair time and
effort.
product will be disposed of at the end of its life or how the
packaging can be disposed of.
111111 Quality Management (BMSJ
,,, p,oductiOn and Toto1 p,oduct Developmen~ C/assif,cotion and ...... 65
vi, .. , ••
64 •
2.13 WHAT IS PROCESSv_:?_ _ _ _---.J Every process variability is due to two causes:
(a) Chance or Random Cause.
Whai is Process? converter or (b) Assignable Cause.
rypes of Process:
(1) Single stage and Multi Stage: Multistage Process output is
,~~ru~ controlled by bottleneck operation. Hence at some stage, WIP
. r transformation on of an is more. Hence scheduling is to be done properly.
. defined as convers10n o .
(1) Process 15 • t (2) Produce to Stock (Continuous): Repetitive operations.
. uts into denved outpu · .
mp sequence of operations, or (3) Make to Order (Customized product): Intermittent
I
(2) It can be viewed as technology; it is a level of scientific
operation system. (Techno
sophistication Ill plant an
0
fequipment and skills in
operations.

Single Stage I n p u t ~ OJtput

conversion process.)
. ess takes a set inter related resources_ and Process< - ~
(3) Pr~~clion r\:chnological capabilities and transf~rms ~put Multistage Stage 1 II 111
actiVJhe~ and t hich could be tangible or intangible. --+CJ-+C:::1-CJ
into des1gne outpu w · · f I
. . volves addition or creation o va ue to Processes are selected on the basis of the volume of production
The transforma Iion m .
1
product or service in tenns of Form, Time, p ace. required and Product Standardisation. (For variety of Products
(4) It is unique combination of all factors of production, engaged . with less quantity demanded - Job and Batch methods of
Production adopted. For Standard Product with large quantity
in production. demanded - Mass, Continuous and Assembly methods of
Production adopted.)
ll'!)Ut~()Jtput
Processes are selected in response to new facilities, new
Inputs: Mat~rial, Markets, Labour, Tools, Equipment, Plant products, new technology, new markets or new customers'
Layout, Environment, Energy etc. expectations.
Process: Method or Sequence of Operations. Process 2.14 CHARACTERISTICS/REQUIREMENTS OF A
parameters (Speed, Feed, Temp, Pressure etc.) PROCESS

Output: Desired Goods <

Tangible

Intangible
Every process should be ·
• Goal Oriented .
Process: Adds value in production by changing the material • Systematic: Adherence to process carried systematically
into required shapes, forms and size according to customer should be user friendly. · ··
requirement. • 'rt should ?e c;apabie of handling inputs
Legi~ip·a te: I~ should ,I:>~ authorized
, .• · Jtshould .b~ use, friendly
 product Developmen~ Oassification and .... . . 67
Qualjt'f Management (llMS)
_,..,.;on ond Toto 1
VI t••"' Prw""" While designing and analyzing process we ·allow some
"' NfLUENCJNG PROCESS questions to be answered.
CfJNG/1
DESIGN . (1) Is the process designed to · achieve competitive advantage
in terms of differentiation, response or low cost?
(1) Desired Quality (2) Does the process eliminate steps-that do not add value?
Does the process maximize customer value as perceived
(2) Volume of production . 1 d (3)
od tion mvo ve - by the customer?
( ) Total cost of pr uc
3
hich should be matched with
. d to produce w (4) Will the process win orders?
(4) Time reqwre ..
demand rate. d products to be produced. (5) How many customers can process handle per unit of time?
d ts or Standar
(5) Variety of Pro uc ND PROCESS PLANNING (6) How long it will take to serve customers?
ocESS DESIGN A (7) What changes is needed in the process to expand capacity?
2.16 PR . d cision-rnaking of an overall
. • TT111croscop1c e . .hd d
Process design is a h material into finis e goo s. (8) How much process costs?
erting t e raw h •
process route for conv he lection of a process, c 01ce of
These decisions encompass t_ ; layout of the facilities. Hence, the
[ _ _ _ _--=2:..::..1.:. . 7.:. . PR:..::.O=-=C=ES:..:S:.. .:A:..::.N:.. :.:. :A=LY=S::.:I:..::.S_ _ _ _ ___,
technology, process flow analysd1s an are to analyse the workflow for It is systematic examination of all aspects of a process· to
· · in process
important deciswns . . esign ft . h d product and to seIect the improve its operation to make it.
converting raw TT111terral m:o ms e ' (1) FASTER
. . for each included m the workflow.
workstatwn . . ed with overall sequence of operation (2) MORE EFFICIENT
Process Design is concern cifi tions
re uired to achieve the desired products spe ca . . (3) LESS COSTLY OR
q .. 0
f workstation that are to be used (4) MORE RESPONSNE TO THE CUSTOMER
• It specifies the type
(single stage or multistage). . Process analysis drives continuous improvemen_t of the
The markets and equipments necessary and the quantity operation which is the need· of the day to day,_due to dynamism
in which it is required. of the business environment.
• The. type of skill and knowledge of worker required to The processes are planned in response to:
perform operation. . (1) New Facilities
The environment in which the operation is to be earned
(2) New Product
out.
(3) New Markets
What sort of physical layout is required for a plant.
(4) New Techno)ogy
Operation Design: it is concerned with the design of the
individual operation. It consists of examining the man - (5) New Expectations
· machine relation. Therefore process should be arialyzed for improvement on
continuous basis when continual improvement efforts have been
exhausted and performance expectations still not reached with an
 . d Total Quality Management (BMS)
Vfptd'•"' p,oductJon an p,oduct Development, Oassif,Ctltion and .... .. rnnr 69
68 rnr~ time to cOmp
letely redesign or
Disadvantages of standardization:
• ting process. It is
ex 15 (1) Small scale industry suffers.
REENGJNEER the process . d' how process works. It is
. · understan mg h (2) Loss of motivation.
ocess analysIS IS fa company. A process t at
Pr titiveness o . (3) Loss of morale.
essential to ensure compe f the firm will punish the firm every
does not match the needs o (4) Standardization may create obsta c1es m
. innovations.
. .
. th t firm operates.
mmute a Cf DEVELOPMENT (5) Inflexibility.
2.18 TOOLS FOR PRODU
(2) Simplification: In production, simplification can be done at
(1) Standardization ~o places namely (i) for product (ii) for work. Simplificatio~
m product development is used for products· In fact
(2) Simplification
simplification should be done before standardizatio~.
(3) Specialization
,, _w. ~-_Spi_egel and R.H. Lansburg defines Simplification as,
(4) Diversification S1r_n~lificati_o n re!ers to the elimination of superfluous
(5) Automation . vaneties, size d!ffiensions etc." Simplification can be
. ti' . This means fixation of some appropnate advantageous to both producer and the consumer of a
(1) Standar
. d izaQ lity manufacturing process, we1g t an oth er
on. · h d
size, shape, ua , d product. These can be listed as:
characteristics as standard to manufacture£ a !pr?. uct of Product simplification or Product contraction refers to
desired variety and utility e.g. manufacture o te ev1S1on sets
discontinu~tion of a certain product from a range of products
of standard size of the screen using standard compone_nts and
(product rmx) by an organisation to thin out the product line.
technology; shaving blades are_made of standard size and
shape to suite every kind of razor. The concept . of Advantages of simplification:
standardization is applicable to all factors of production (1) Simplification involves fewer, parts, varieties and
namely men, materials, machines and finished goods. changes in products; this reduces manufacturing
operations and risk of_obsolescence.
Advantages of standardization: .
(2) Simplification reduces variety; volume of remaining
(1) Reduction of costs through mass production.
products may be increased.
(2) Reduces time of manufacture.
(3) Simplification provides quick delivery and better after-
(3) Better quality of products through specialization.
sales services.
Standard testing methods improve quality of products.
(4) Simplification reduces inventory and thus results in
(4) Interchangeability of parts possible for worn out and better inventory control.
damaged parts.
(5) Simplification lowers the production costs.
(5) Reduces manpower requirements. Decrease in clerical
(6) Simplification reduces price of a product.
and engineering expense.
(7) Simplification improves product quality.
(6) Decrease in variety of stores, decrease in investments.
(3) Specialization: Specialization ·is the act of confining activities
• (7) Better deliveries.
to a limited field. In factory management, specialization
 ITrrlT
. .
"' p(Oduct1on an
V1p11I'•
d Total Quality Management (¾si l Product Developmen~ Oassif!Calion and ...... ffl'fi" 71
70 E "" b ineSS to a relatively small
. of the us f 1· . d (c) to cope with demand fluctuations and
ns the IiJnitatton th production o a urute line of
mea fi Id and to e (d) for survival of the organization.
portion of the e ,
products. tion can lead to use of expert · Advantages of diversifications are:
The minimization of chniope_raues in production system, the (1) Increase in sales due to production-of different kind of
and te q ·
knowledge, skill f product. Operation required products. This also leads to increase in volume of
O
nature and the type ture of the market. Specialization business.
. 1·t and the na uf •
manufactunn~ . variety of products man actunng by (2) Needs of wider section of consumer are fulfilled.
implies reduction in the 1
the organiza non. (3) Risk minimization' in the case of quick and unpredictable
Advantages of spec1a· rization are·. . . demand variations.
(1) Specialization and standardization leads to higher (4) Uniform and balanced production programme can be
productivity. . . chalked out without any consideration of wastage by
. output and reduction in per urut cost of production by products.
(2) In case in
production, . . (5) Elimination of wastage by producing by-products.
• m
(3) Savrngs · purchase of raw material and improvement in Disadvantages of diversifications are:
the quality of the finished goods. (1) Due to increase in number of operations the production
Disadvantages of specialization are: process becomes quite complicated and sometimes
(l) Less flexibility in adjustment to changed situations. expensive.

(2) Monotony and b~redom may adversely affect the (2) Production Planning and control operation becomes
efficiency. complicated and time consuming requiring extra Efforts.
(4) Diversification: It implies policy of producing different types (3) The size and the variety of items in; the inventory
of products by an enterprise. Thus i_t is reverse of increases with diversification introducing more
simplification are associate with the nature of the industry problems.
e.g. in the case of capital goods industry simplification is (4) Worker of different types of skill and expertise are
more important as the customers give preference to economy, required.
accuracy and perfonnance of the product, whereas in an
(5) Automation in Business Enterprises: Automation implies
consumer · goods industry diversification leads to produce
use of machines and equipments for performing physical and
variety of goods in; leans of style, shape, colour, design etc.
.mental operations in a production operation in place of
The establishment facing tough competition is forced to
human beings. Automation can be visualized as an electronic
diversify this activates to ·capture the market. In general
brain with capacity of taking routine and logical decisions
diversification can be adopted for the purpose the market. In
connected with control and planning functions of
general diversification can be adopted for the purpose of
management.
(a) utilization of idle/surplus resources,
(b) stabilization of sales,
 rn.T
. . n and Total Quality Management (¾SJ
v,,.ul'•TH p,odudJD . .
product Developmen~ C/oss/f,cotion and ...... rnnr 73

72 rr"' - y human
intervention Or activjh,
gul . ·,
In the absence of an ·d ' ed as a self . re a ting and 11 QUESTIONS II
automation can be ~:~:nization . provides ~e .self
trolling system- rf _;ng manual operations by
con rty and pe o,,,-· OBJECTIVE QUESTIONS
regulating prope_ o erations- (1) Multiple Choice Questions:
means of mecharuzed P be defined as "A sys~em of doing (a) Determining standards of performance of various parameters, viz.,
Thus automation can d1in production process and Cost, Quality, Safety, etc. is
work where materia_l han t dgtltrough mechanization of (I) Appraising Conformance
· are 111tegra e · (II) Planning for Improvement
product design . lf regulating system.
ts d to achieve a se · (Ill) · Setting Standard
thol! gh an d e ·at .various levels of the (Iv) None of the above
Automation can ~e a:i or ·as a whole. (b) Is not a step in New Product Development process?
manufacturing system Ill p . .(I) Concept development and testing
Advantage~ [!f automation are: (II) Mass Production
(1) Reduction in producti_o n-iime .. (Ill) Test marketing
(Iv) Commercialization
(2) Increase in accu_racy and repeatability
(c) ----'--- ideas are generated from internal Sources?.
(3) Less human error (I) 20% to 30%
(Ii) 30% to 40%
(4) Less employee costs

I
(Ill) 50% to 60%
(5) Increased safety (Iv) 70% to 80%
(6) _l;Iigher volume production (d) Is not a type of consumer products?
(I) Convenience products
(7) Effective control on operations
(11) Specialty Products
(8) Minimization of waste (Ill) Shopping Products
Disadvantages of automation are: (Iv) Materials and parts
(e) For better process design, every process should be
(1) Less vetsatility , (I) Capable of handling i~puts
<21 More polluti~11 (If) · Syslemalic
(Ill) Legitimate
(3) Large initial investment
(Iv) without any Goal
<1) · Increase in unemployment . (I) ·Market Pull and inter-functional view are strategies for ~ ~ ' - - -
(5) Unpredicta&le c6sts. (Oct 18) .
(I) Productoevelopment
(6) Conpnuous power supply required
(II)_ Process Design
(7) Autoination equipment is highly inflexible . (HI) Quality Managem~t
(8) Any. brea_k down an~he~e w'ould lead , 'to . compl; te
(Iv) New Prod~ct lnlroduction_
shutdown. . . . . . (gf Technology . Push and : inte!"functionaf view are strategies for
,. . • (Oct. 18)
(I) '· Product developmeni'.
(11) - Proce~ Design
 . d i t I Quality Monoge~1erit (BMSJ product Developmen~ Oossif,cation and ...... rnnr 75
V1pul'•TJ1 p,oductJOn on o o
74 '---'-TH
:..cE:..:O:..:R.:..:Y...cQ:..:U::E:.::Sc.::Tl:.::O~N,::S_I
'fl) Quality Management .
(1 11 ) Discuss objectives and Importance of New Product Development.
(Iv) New product IntroductIon
. . h shape standard and pattern of
means determining I e ' 121 Discuss the steps in New Product Development (NPD) Process.
(3) What is Product Design? What are the requirements / characteristics of a
(h) ihe produCI (April 19) sJProduct Sale) good product design? (Apr/118)
(Product Design/Product Proce~ass Production, {c) 50% to 60%; 14) Explain the characteristics of a good product design. (Apr/119)
iAn6..• ,,,,,,, Setting Standard, (b}
. {e) w,thOuf any
Goal (() product Development
• ' (5) Discuss the steps in Product Design Process.
(d} Materials and parts, . . (h) Product design]
{g) New Product rntroduct,on, 16) What are the factors affecting/ influencing product design?
(7) Discuss the various considerations in product design.
(2) Fill In the blanks: . rovides a translation between the (8) What is standardization? What are its advantages and limitations?
design phase P .
(a) The .- t s aJysis and the detail design. (9) What is Simplification? What are its advantages and limitations?
requiremen an . for _ _ _ _ and social
(b) Design for Sustainability is the Design (10) What is Specialization? What are its advantages and limitations?
(11) What is Diversification? What are its advantages and limitations?
requirements. designing Includes decisions regarding its shape,
(12) Whal is Automation? What are its advantages and limitations?
(c) The ~ l o u r and appearance of the product.
size, tolerance, c . identifies what its design object is (13) What are the factors affecting/influencing process design?
(d) n,e functional design ~ h t . to be done.
( to do and is more concerned w,Jh w a is .
(14) Discuss Process Design and Process Planning.
) Interchangeability of parts possible for worn out and damaged parts if (15) Discuss classification of Products.
(e is adopted in new product development. (16) Discuss types and classification of Product Design.
[Ans.~al, /b) Green or Environmental, (c) form, {d) specification (17) Discuss DFM, DFA and discuss the Principles of DFMA.
. (FDS) /e) Standardization] (18) Explain the aspects of the new Product's Design. (Oct. 18)
(3) State ~hether the following statements are True or False: (19) Write short notes on:
(a) No~ally Functional Design follows Form Design. . (a) New Product Development.
(b) Design for Assembly precedes Design for Manufactunng. (b) Product Design.
(c) Simplification is opposile to that of Diversificalion. (Apr/118) (c) Process Design. (Oct. 18)
(d) Modular design for a product is always good for improving (d) Standardization.
maintainability of the product. (e) Simplification.
(e) Product design does not include the design of services.
(f) Specialization.
[Ans.:/•) False, {b) True, (c) True, (d) True, (e) False]
(g) Diversification.
(4) Match the Column·
(h) Automation.
Group'A' Group 'B'
(1) Test Marketing and Commercialization.
(a) Automation (I) Expert knowledge, skill and lec~niques
0) . Levels of Product and Product Classification.
(b) Ergonomics (II) Capital item
(c) Convenience products (111) Simplificalion
(d) Accessory equipment (Iv) Environment friendly design and
production
(e) Specializalion (v) Consumer Products
(vi) Human factors consideration
(vii) Eliminalion of human intervention
(viii) Materials and Parts
.. (e - i)J
i Ib vi), (c v), {d - 1i},
[Ans.: a-vii·
• ,,s rrrtt Vfpul's™ Production and Total Quality Management (lh,
.

CHAPlEI\
Purchase Management and
its Im ortance
JI"
5
5.1 Meaning and Definition of Purchase Management.
5.2 Objectives and Principles of Purchase Management
5.3 Importance of purchase Management
5.4 Types of Purchases
5.5 Centralized and Decentralized Purchasing
5.6 Functions of Purchasing Department
/ 5.7 Steps for Purchasing Cycle·
5.8 Purchase Ordering Systems (Methods)
,.. Questions

5.1 MEANING AND DEFINITION OF PURCHASE

MANAGEMENT
Purchasing is the first function of Materials Management.
Purchasing means procurement of goods and services from some
external agencies. Organizations, large and small, have some form
of a purchasing function. Even a sole-proprietor is responsible for
purchasing the necessary goods and services to keep their
business running.
In the words of Alford and Beatty, "Purchasing is the
procuring of materials, supplies, machines, tools and services
required for equipment, maintenance, and operation of a
manufacturing plant".
 e Management and its lmponance . 119
JhOS . .
p~rv· .
~ccording to Walters,_ purchasing function means "the
roeureIIlent. by pur<:11ase of the proper materials, machinery,
P •pIJlent and supplies for stores used in the manufacture of a
~:uct adopt~d to marketing in the proper quality and quantity
Pthe proper tune and at the lowest price, consistent with quality
at ,,
desired. .
~ccording .to. Westing, Fine and Zenz "Purchasing is a
Jllanagerial activity that goes beyond the simple act of buying. It
. eludes research and development for the proper selection of
:aterials and sources, follow-up to ensure timely delivery;
if1Spection to ensure .both quantity and quality; to control traffic,
receiving, storekeepmg and accounting operations related to
purchases." ·
The modem thinking is that Purchasing is a ~trategic
managerial function and . any negligence will · ultimately result ·
into decrease in profits. ·
Definition of Strategic Purchase Management:
Here is one explicit definition of strategic purchasing written
by Carr and Smeltzer (1997):
"Strategic purchasing is the process of planning, implementing,
evaluating, and controlling strategic and operating purchasing decisions
·tor directing all ·activities of the purchasing function toward
opportunities consistent with the firm's capabilities to achieve its long
.term goals".
5.2 OBJECTIVES AND PRINCIPLES OF PURCHASE
MANAGEMENT -
The objectives of purchasing are to buy materials and services
covered . under the following seven principles of purchase
management. These seven principles are also known as 7 R's.
(1) Purchase of material at right quality: The term right quality
refers to a suitability of an item for the purpose it is required.
For producing the goods of best quality, the best grade of raw
· material may be the rigp.t quality whereas for producing
items of medium quality, .the average lowest grade may be
the right quality:
> /20

(l)
rflff'
Forcrea
.,_,n
euuw,a
o·on
.
Vlpul'•"' Production and Total Quality Management (IIMS)

tingg
oodwt"ll
right production, standardisation
' · h
of waste and for better results, ng t quality
purchases are very essential.
.

Purchase of material in right quantity: The ri~ht qu~tity is

'
__..
purv·05
, Management and its Importance

selection o ng P ace or the acquisition f

uttnost importance.
~ a.a
lflaterials are to be acquired. For m· · . .
· f · ht 1 f
h
l'2'"1.'J""l.'J""

t • • f
121

irum1smg t ese costs,

o ma ena1 is o
( ) Delivery of material at the right time: The time at which the
6
l
purchases are to be made is of vital importance. In case of
_the quantity that may be purch_ased at a lime with. the items
minimum total cost and which obviates shortage of matenals. k used
ch regularly,
th right time means the timewente
.. h h
stoc rea es e rrururnum level. The reorder level of
Excess pur_chases should be avoid~, it results in material is fixed for each item under the principle of right
overstocking and capital is unnecessarily blocked and tiJlle.
inventory carrying cost goes up where as stock out (shortage)
of inventory should be avoided as it affects rate of (7l Deliv~ry o!
material with the right mode of transport:
Selecting nght mode or combination of right modes will
production. reduce the ~ansport_ cost and hence the purchase cost. Higher
(3) . Purchase of material from the right source: Selecting the right Transportation cost 1s one of the major cost element in cost of
source for the purchase of materials is an important purchase and production.
consideration in the purchase procedure. The right source for 7 Rs of Purchase Management
the procurement of materials is that supplier who can supply
the material of right quality as ordered, in right quantity as
ordered, at a right time at which the materials were required
to be supplied, at an agreed price with the supplier, who is in.
a position to honour the commitment without much follow-
up, who has necessary financial resources and adequate man-
The other specific objectives are:
power to handle the order and who is well established with
higher reputation and proven business integrity. (1) To make the user departments of the organisation from time
to time aware of the range of the quality of materials available
(4) Purchase of material at the right price: Determination of right
in the market and to maintain the right quality of purchased
price is a difficult task. It is the main object of any
materials based on standards, technical specifications and
organisation to procure the material items at the right price. It
suitability as determined by the user departments.·
is that price which brings the best ultimate value of the
money invested in purchasing the materials. (2) To procure at the lowest possible cost consistent with quality

D~d~g the ri?ht price of a product depends on variety of
factors, VIZ.; quality, delivery time and ultimate life of the
material, deman~ ~d supply curve, extent' of competition,
government restrictions, after sales services, discount offered,
and terms of purchase etc.
(S) Delivery of material at the right place: It should be ensured
that the materials are available at the . ht 1
Tran rt ti ng p ace.
spo a on and material handling costs are eat! .
affected by the selection of the right p1ace from w.he.gr
re they
and service requirements.
(3) To ensure the minimum possible investment in service
operations related to purchased materials, such as
transportation, inspection, storing, record keeping etc.
(4) To maintain continuity of the supply to ensure that scheduled
activities are not interrupted.
(5) To integrate the requirements of all departments of the
organisation in order to take the advantage of economy of
 ..,.....-rr •., 1,1"'Production and Total Quar,ry Management (¾SJ ,,,chas• Management and its Importance rrrnr
122 = .., .. m
"bl nd to also avoid duplications of The early manufacturer em 1 ·
poyed an
scale wherever _pos_s1 e a d obsolescence. toiling way by h and to transform ar'.11y of workmen
urchases resulting m wastes an products. The advanced manufa ;:_w matenals into finished
P r
(6) To set the proper purchase po icy
and procedure.
. automatic machines in the manut' nowadays uses costly
•11 for the organisation through hea!Uiy whole sub-assemblies and com/' mg process, buying out
(7) To ere a le good WI
buyer-supplier relationship. . trom specialist suppliers· m onufef\ls as well as materials
• ' an acturers in d d
5.3 IMPORTANCE OF PURCHASE (BUYING) economies are mter-dependent rath th a vance
er an self-sufficient
MANAGEMENT S) purchasing can effectively contrib t . . ·
( and thus enable the saving of fo u e m import substitution
(1) Purchasing is a fundamental fw_1cti?n !n industrial • b h • . reign exchange Purchasing
execul!ves Y t e Intrinsic nature f th • . ·
establishment. An industrial enterpnse IS pnrnanly meant for
knowledge of a wide range of exteomal :Job gain a_ ~~od
converting raw materials into finished products. The wheels Hence, more than anybody els . ustr'.al activities.
of industry will not move unless materials of ~e right type . ·nt . e In the orgaruzation they are
able to b nng 1 ormation about new d ' .
are bought in right quantities and ~ade ~vailable at ~ght Thi bl pro ucts, materials and
time. Needless it is to say that 1s buying (P~chasmg) processes. s ena es them to- suggest alternatives which
function which is _responsible for supply of matenals to the can reduce costs or dependence on imports.
factory. (6) The purchasing is the main factor m· 1- 1 •
. . . 1me y execution of
(2) As is well known, more than 50% of the total cost is industrial proiects. It IS the known fact th t ·
• fun . a m1Smanagement
contributed by a single element called materi_als. It _is proved of purch asmg ction is a frequent cause f d 1 .
tin . d tri . o e ays m
that a one percent saving in matenal cost 1s eqwvalent to execu g '1: us a 1_proiects. At times this has led to costly
nearly 10 percent increase in turnover. Saving in the cost of sto~pages, mterrupti~ns, delays and· wastage in important
materials is achieved mainly through efficient buying. projects. The ~conom1c, social, developmental and political
consequences m these cases have been serious and a source of
(3) An a;erage manufacturer spends a major portion of his great embarrassment.
earnings on purchases and has the largest portion of working
capital tied up in inventories. The annual reports of (7) Cost control is a critical factor in buying management. These
companies prominently illustrate the way their earnings are ~anager~ analyze which suppliers are selling the necessary
distributed. High financial stakes are involved in buying and mputs with regard to production and at what cost. From this
the purchasing manager who is the custodian of his firm's information, they review a host of other factors, which
working capital is obliged to have utmost integrity in include on-time shipments, warranties, industry reputation
spending company's valuable funds. and length of time in business. Because switching vendors is
costly, finding a reliable vendor is important to controlling
(4) Added to the spending of major portion of earnings on raw
costs.
materials is the tendency to buy an increasing proportion of
requirements. Only in primitive economies, are products (8) Price Stability: An important role of purchasing management
almost self-sufficient and in our economy, only the old is achieving price stability. When the cost ·of ·production
fashioned of inefficient manufacturer continues to make fluctuates wildly, other divisions experience obstacles. For
everytliing himself, like a do-it ym.irself home handyman. instance, the marketing team does not know what price to
charge customer, finance experts cannot estimate profits and
accountants cannot determine you're able to send cash flow .
 ,chose Management and its fmportonce
L"J"l'l"L"J" __ ., "' Production and Total Quaf,ty Management (llMS) p~ ~i'rf f 25
IH .;i !oi Ii VIP"'' departments in most cases and th
the cost of creation stable in a number eaded by an ex-purchasin ey are most likely to be
Buying managers keep . r t h .; . . · g manager than anyone else.
f hich is negotiating with supp 1ers o achieve
of ways, one O d to lock in the value for a lengthy four spec1f1c factors which have contrib · ..
(121 unportance of purchasing uted to the nsing
the least Jxp~ns~v: :th volatile prices such as commodities,
contract. or mp k .th b nks in order to hedge the (a) Post war shortages and ;"c • reqwrements
. -
acquiring managers wor WI a se ,.., reasmg of
items in the form of a forward agreement. defence and government departments.
Alan E. Branch, author of "International Purchasing as Well (b) The cyclical
" explains that these contracts also shield . dfSwings
.. of surpluses and soages
h rt of
as Management, .k f matena1s an ast nsing material costs.
transnational corporations from the ns o _currency (c) Stiff dome~tic . and international competition in the
fluctuations, which can also affect the cost of generation. manufacturing industries.
191
Securing the supply chain is another <=n:1cial rol~ of buying
managers. Buyers are responsible for making certain all of the C 5.4 TYPES OF PURCHASES
necessary materials appear on -time, intact and of expected Organizations buy many different goods and services.
quality. If any of these shipments are delayed or of subpar, Different Types of Purchases:
the effects reverberate throughout the production cycle. A
-Type of Description Examples
delivery of faulty screws, for instance, may cause the actual
finished product tQ falter. In turn, the .entire order is actually p~rchase
jeopardized because of the management's getting decision. Raw materials Items with a lack of Petroleum, coal,·lumber,
processing by the supplier copper, zinc, gold, and
As ~xplained in a May the year of 2011 "Bloomberg" post, into a newly formed silver
the explosion of Apple's vendor within China caused a product. Often these raw
possible manufacturing Joss of 500, 000 iPads. materials are not of equal
(10) Customer Satisfaction: Acquiring managers play a quality and are purchased
fundamental role in ensuring customer satisfaction. Managers by "grade."

ri
have this obligation inside two ways: quality associated with Semi-finished All items purchased from Components,
product and also on-time shipping. When buyers select high- products and a supplier required to subassemblies, assemblies,
quality ingredients at lower costs, these cost savings can be components support an organization's subsystems, and systems
issued to the customer. Likewise, poor quality deters final that are production. (seat assembly, steering
customers through returning to the business. Delayed along assembly, doors, and
posts)
with defective products are other ways clients are affected by
the particular decisions of purchasing managers. Thus, these Finished Products for internal use Furniture, computers, cars,
employees play a critical role throughout shaping typically products or products that require no and carts
1
the customer's experience with the organization. major processing before
resale to the end customer.
(11) Purchasing is the key stone of materials management. Most
companies have developed materials management around
purchasing, often relegating the other functions to second
class status. The materials management organizations that
exist in real life organizations evolved out of purchasing
 ....
Vipul'•™ Production and Toto/ Quality Management (llMS)
126 innr pu~ase M~nagement and its Jm/>Ortonce ·
.

Items that do not go Spare parts, office and (3) Better layout of stores is . "' fnT 127
Maintenance, cleaning supplies · possible in cen .
repair, arid directly into an (4) Economy in recordin trahzed stores.
operating organization's product but · 1s.
ma tena gandsystematic · accounting of
items(MRO) are required to run the

Production
business.
Materials required for Tape, bags, inserts, and -- (5) Transportation costs can b
matena · Is purchased. · e reduced because bulk quantity of

-
shrink-wrap
support items packaging and shipping. (6) Centralized purchasing av "d
o1 s reckless p ch
Services required to Customer support, Centralized purchasing disc0 . ur ases.
Services (7)
support the facility or the temporary labor, facilities

-
and legal ' (8) Centralized purcha~ing h urages duplication of efforts.
business. · epstom
1 · •
purchasing policies. amtam uniformity in
Capital Assets intended to be used Machinery, computer
equipment for more than one year. systems, and material- (9) Centralized purchasing helps to . . . .
handling equipment inventory.. rnmunize the investment on

Transportation A specialized type of Rail, truck, ocean, 3PL, Disadvantages of Centralized Purchasin .
and third- service bµying to manage and mu! timodal
(1) High initial investment has to b dg: . .
party inbound and outbound . . . e ma e m purchasing.
purchasing material flows. (2) Delay m rece1vmg materials from th . .
ot'.1er departments. · e centralized store by
·(3f Centralized purchasing is not suitabl 1.f b
5.5 CENTRALIZED AND DECENTRALIZED
PURCHASING
Concept and Meaning of Centralized Purchasing:
l (4)
al different geographical locations. e, ranches are located
In ca~e cif an emerg.ency, materials cannot be ur
local suppliers. P chased from
Centralized purchasing refers to the purchase of materials by a (SI Defective materials cannot be replaced timely.
single purchase department. this department is headed and
( managed by a purchasing manager. Under centralized
p urchasing, all purchases made by the purchase department to
Concept and Meaning of Decentralized Purchasing:
Decentralized purchasing refers to purchasing materials by all
departments and branches independently to fulfil their needs.
avoid duplication, overlapping and the non-unifonn
p rocurement. A company has to follow the centralized purchasing Such purchasing occurs when departments and branches
0 f materials for' ensuring proper materials control as well as
purchase separately and individually. Under decentralized
efficient store keeping. Under this system, the purchasing purchasing, there is no one purchasing manager who has the right
department purchases the required materials for all the t6 purchase materials for all departments and divisions. The
departments and branches of the company. defects of centralized purchasing can be overcome by
decentralized purchasing system. Decentralized purch~ing helps
Ad vantages of Centralized Purchasing: to purchase the materials immediately in case cif an urgent
(1) Bulk quantity of materials can be purchased at a low price situation.
with favourable purchasing terms:
(2) The service of an efficient, specialized and experienced
purchase executive can be obtained.
 ,chase Management and its Importance
l'J"l.'J"l"I'" Vlpul'•™
. and Total Qua/it( Management (¾SJ
p,oduct,on Pu \Tr[\f /19
/28 i;;; a Ea (9) Mee~g trarisport requirements
D entralized Purchasing: outgomg materials. of incoming and
Advantages of ec db ach department locally as and
(1) Materials can be purchase . Y e (10) Maintaining purchasing records and fil
es.
when required. f . h al' (11) Reporting to top management.
. right quantity o ng t qu 1ty for
(2) Materials are purchased m (12) Developing coordination among th d
each department easily. o er epartments.
· · d · "tially. (13) Creating goodwill of the organisati . th f th
(3) No heavy investment is requrre JJU .
supp I1ers. · on m e eyes o e
(4) Purchase orders can be placed quickly. . ..
(1) ·Receiving. .
indents: The first and fo
. . remos
t fun ·•
ction o
f
(5) The replacement of d efec tive materials takes httle time. purchasmg is rece1vmg demand/requisition of material from
Disadvantages of Decentralized Purchasing: differen~ departments of the organisation, such as from
(1) Organization losses the benefits of a bulk purchas~. Production, . stores, maintenance, admini5· trati've, d rawmg
·
. lized knowIed ge may be Jacking in purchasu:ig staff. office, plarmmg, tool room, packing, painting, heat treatment
(2) Speoa etc.
(3) There is a chance of over and under-purchasing of materials.
Af~er . r~ceivin? the indent from users' departments it
(4) Fewer chances of effective control of materials. exammes m details _and tak~s _action according to the need
(5) Lack of proper co:-aperation and co-ordination among various and urgency of any item. This IS called 'recognition of need'.
departments. Sometimes, need can be met by transfer of a stock of one
department to another department. In other cases, the reserve
5.6 FUNCTIONS OF PURCHASING DEPARTMENT ]
stock or the stocks kept in bank can be utilized i.e., pledged
The functions of purchasing department are varied arid w!de stock with bank. .
which are based upon different approaches. The pu~chasmg
(2) Assessment of dem·a nd or description of need: After

r
activities may be divided into those that are always assigned to
recognising the need with appropriate descrip_tion,
the purchasing department and those that are sometimes assigned
i.e.; qualitative as well as quantitative, is necessary for the
to some other department. The followings are some of the
sound and successful purchasing. An improperly described
important functions which.are necessary to be performed.
demand c~ cost heavily money-wise as well as time-wise . .
(1) Receiving indents.
The real problem arises when the order is placed for want
(2) Assessment of demand or description of need. of preciseness in the description of goods needed, the items
(3) Selection of sources of supply. are ·received and these are not acceptable to the user
(4) Receiving of quotation. department and it also becomes difficult to convince the
suppliers to · return the goods in case of faulty supplies.
(5) Placing order.
Therefore, purchasing department must have adequate
(6) Making delivery at the proper time by following up the knowledge of .items being purchased to be able to secure full
orders. _ description.
(7) Verification of invoices. The purchasing department should not have _such ,
(8) Inspection of incoming materials. alternative purchases of commodities, which are not available
 .• i. se Management and its Imp ortance
/30
l°trnf Vipal'•™ Production and Total Qual'rty Management (BMS) Pur1.u 0
(b) Telephonic quotations. 131
easily on their own responsibility or at a lower cost unless
and ~ti! it gets the consent from the user department. (c) Previous purchase
records
In a nutshell, it is recommended that the description of (d) Quotation letter or t d ·
en er i.e., Jette .
·t ms for purchase on the part of indenter, purchaser and (e) Sample and related . r of mquiry.
. Pncecards
~lier should be .quite clear and without ambiguity to (f) Negotiation between s :
promote harmony in an organisation. department like catalogu · up~lier~ and the purchase
(3) Selection of sources of supply: Most important ~ction of a
. . . e, pnce lists etc
It 1s m the interest of p ch . ·
purchasing department or offi~er is the ·selection of the . . ur asmg d
infonnation up to date Eve f epartment to keep this
sources for the requisitioned items of s_to~es .. There are · north · ·
purchased on a regular bas" th e items which are being
different sources of supply _which have no similanty between IS, e purer .
invite tend ers and know .full w ,asmg section should
11
them. ensure that _prices being pa.1d e th ~ market price. It will
For majority of items, selection of one of the vendors competitive. · · to the existing vendor are
should be made. While selecting the item, the purchase officer (5) Placing order: Placing a purch 0rd
has to see whether'the item to be purchased is on a regular purchasing. officer. Since pur:e er is ~e next function of
basis i.e., it is being purchased time and again or it is a between the two parties, it sho~s; ~~er is a legal b~ding
seldom purchase on non-recurring basis. and acceptable to both. The ur ays be accurate, clear
Whenever the items are to be bought from single the following particulars: p chase order should contain
manufacturer, such as branded or patented item, there is no (a) Description and specifications of·th · .
diffiaµty in the selection of the sources ~f supply; the order . ematenal.
can be placed with the party according to terms and (b) Quantity order.
conditions of their sale. (c) Transport and packing charges and shipping
Selection of source of supply requires the services of instructions.
shrewd purchasing officer who can keep pace with policies of (d) Name and addre~s of the supplier.
the_organisation and market from where the materials have to (e) Date, time and place of delivery.
be purchased. (f) Price, discount and terms of payment.
(4) · Rec~iving of.quotation: As soon as the purchase requisition
(g) Signature of the purchase manager.
is received in the purchase division, sources of supply will be
• located; a decision is then taken in respect of the method of ., (h) The name and address of the buyer.
tendering/limitation of · quotations frmn prospective (6) Mal<lng deliveif at the proper time by followin~ up the
suppliers. · orders: Since one of the objectives of successful purchasing is
Prices are also .ascertained. by preparing a comparative ' ,delivery of goods at right time so as to ensure delivery when
sta~ent with the help of either :of the following ·documents and where needed? In normal ,practice, the responsibi]Jty of
supplied either by _the supplier or taken .from the previous. I the purchasing d_epartment is up
to the·time the m~ferial is
rec-0rds·gf .advertisements, like: . ;received .in the store~ and is approved. by the lnspecti~n
1departJ,ient. ·
(a} •.Catalogues, price tis~ etc. . ', ,
 132 e1nr V1p11l'•TH Production-----
and Total Quality Management (BMsJ
. d --ent has the responsibility fo
E ry purchasmg epa, u" Ii
ve • rders it places on different supp .ers. AU
follow-up of the o.. extensive follow-up. For some less
_ items do not reqwre 'terns follow-up would be costly
important and low va1ue i_
and wastage of money and tiffie only. .t . , . may entail delay and additi 1
.. . f • voi· ces· In normal course,. L 15 also the
17) Verification o m · ch ck th ·
,, "bility of purchase department to e e mvoices
resdpons1 ·d. ly advise the accounts department for clearing
an accor mg the parties concern·eJ • contrad1cton, · ,quotations, ~ates, challans, railway receipts, parce~ ;:~ bills:
the payrnent to b .
statements have been given as to who should e assigned this
function.
Some are of the view that invoices should be checked by
the purchase department placed by it whereas oth_e r suggests
that it should go to the accounting department. In s~p?~rt of
this, the experts add that it is part of the responsibility of
urchase department that oiders are accurately executed and
- ~roperly filled as per terms and conditions of the contract.
If there is any error in the bills, the purchase department
can get the correction done or adjustment effected. If the
invoices are checl<ed by the stores or accounts departments,
f there may be some delay in attending to the errors.
(8) Inspection of incoming materials: The purchasing
department should have a close contact with inspection
department. · On receipt of the materials from different
suppliers, they are to be inspected as per specifications
indicated in the purchase order to verify their quality and
quantity. · work in close coordination and cooperation with other
_Unirispected materials are a burden on the economy-of the ·
• organisation. If inspection is de1ayed, the payments of the
· suppliers also are likely to be delayed, resulting in bad .
relations between suppliers and purchasers.
(9) Meeting transport requirements of incoming and outgoing
materials: The purchasing officer must make goods/
materials available _at the right time they are required, at the
_place they are needed, and at the lowest possible cost. It is a
purch
ase Management and its Importance
big responsibility, and even a sli ht
~Ff~
-
133
onsignment required at a particulg e~ror amounts to delay in
r C ar time.
In this regard, the purchase d
thorough knowledge of the means :r;rtment s~ould have a
ke a correct choice of ca . ansportation. It should
rna rners or routes b th ·
ecause o erwise
1t ona transportation costs.
(tO) Maintaining purchasing records and files: Purchasin
jnvolves a lot of paper work. Daily a number of 1 tt bu:
·, bills of •ladings, goods received notes lorry - • t d
.. ( td . , rece1p , goo s
receipt . trans~or e1ivery notes), inspection notes have to be
dealt with. It mvolves a lot of clerical work.
This department has to refer;: to previous correspondence
_ on purchase orders, not~s, catalogues, blue prints, price lists
etc. ve~ frequentl7 which makes it imperative to maintain
records m appropnate manner. These records are essential for
making the day to day purchase.
(11) Reporting to top management: It is also an important
tunctiori of the pur~asing department to prepare weekly,
monthly, quarterly, bi-annually and yearly reports regardino-
. e~j,enditures of thi~ department and send the same to to;
management along with details of purchases made and
suggestions or improvements, if any.
(12) Developing coordination among departments: A purchasing
department has to fulfil the needs of other departments in the
organisation. It is the function of purchasing department to
departments of the company. ·
To a considerable extent, the attitude and reactions of
other departments towards purchasing department ext~ds
.to these other departments. Mutual trust and.cooperation is
essential between the purchasing department and other
departments· to secure high degree of efficiency.
(13) Creating good~ill of the organisation in the eyes of the
suppliers: Good . vendor relat_ionship has to be maintained
and developed to reflect enterprise's image and goodwill.
 Management and its Importance
..,. , ,,. p,oduction and Total Quality Management (BMS)
1
pvrd1°st rnrrr 135
I34 rf['~ Vlpul J\Pproval and Payment: If th
. . lations requires mutual trust iltl.q (1Zl mpletely then full payment . ,e contract is carried out
MaintaJ.IUl1g such re t of dealings between the ..... co IS made If th bl
.d which grows ou ""O there may be a damage request. · ere are pro ems,
confI ence ·od of time. Worth of a purchasin
parties over a pen d by the amount of goodwill ? ) Sign Offr At the end of the contract wor . .
department can be measure 11 113 tract is signed off and all . . k and delivenes, the
confiniS.hed re1ationships with the supplier
has with its vendors.
are ·
. 5.7 STEPS FOR PURCHASING CYCLE
(14)
·u pdate ofRecords: The purcha stn
d t d This • · . · g Iedger and stock ··
records
(1) The Need: In this case, the need_ usually goe~ _through a are up a e . IS automatically done by man ch .
. d . then tightly defined and specified. computer systems. Y PUI! asmg
busmess case an 1s
(2) financial Authority: This us~ally happ~ns at a higher level
and includes the management of the department that requires
s.s PURCHASE ORDERING SYSTEMS (METHODS)
The different
. Pur chase
. .Ordering· Systems are given
· beIow:
the goods.
(3) RFP: A Request for Proposal (RFP) is written, in which the (1) Blanl<.et Otder: I_t is an order to single supplier for continuous
supply· _o fdmatenal
hi:L for a· specified time ·pen·od . It IS
· given
· for
need is highly specified.
those goo. s w u,. are frequently used in an Orgaruza · ti' on and
(4) Invite Tenders: This is always done formally, usually by
posting th~ request in trade magazines and appropriate web have sma~er urut value. New purchase procedure is not
sites. Government projects are posted on government web followed till the completion of agreed time period between
organization and supplier.
sites.
(5) PQQ: A Pre-Qualification Questionnaire (PQQ) is sent out to (2) Contract Purchasing: Under this method a contract is
likely suppliers in order to select a' short list of appropriate entered into betw~~ buyer _and suppliet, in ;hich delivery of
goods at a specified pnce will be made in different

r
potential suppliers. '
~t~llmen~ over a l?ng period of time. Generally, a contract
(6) Tenders: The tenders are sent in from the qualified suppliers.
15 given for items which are of repetitive use.
(7) Qualifying: A number of meetings are held to clarify any
(3) Tender Purchasing: A letter inviting tender is sent to the
questions that suppliers may have. shortlisted .suppliers. Sometimes tender ·notice is advertized
(8) . Evaluation: This is the most exciting part of the purchasing in leading newspapers. The quotations are invited. On
cycle and can take many weeks for a big tender. All the _qualifying the technical bid, a c;mparative statement is
tenders aTe evaluated· and the reql,li.r_ement -awarded to the prepared on the basis of financial bid and contract is awarded
winning bidder. to the most suitable supplier.'
(9) Negotiation: Th.e fine print of the terms and conditions are (4) Ju~t _!n Time Purchasing: In this type of. buying the buyer
negotiated with the chosen supplier. The price is fixed at the · need not ~~ep any stock of goods or goods_of any such type
bid price. · that he does not _h ave the expertise to store tli.em like
(lOj Contract Award: In a very short time, the contract is awardea chemicals. The store keeping is done by the s.upplier. The cost
to the chosen'bidder. is high as cost ofholding the inventory is incurTed by the
(11) Man?ge Contra~t: This is the period in the purchasing cycle supp_lier.
when the goods are delivered. ·
 ,chose Management and its Importance
Vlpul'•"' Production and Total Quality Management ll¼si
136 irrnr pu
(b)
Wh' h fth f II .
Ic o e o owing is not a f .
i°fn'f ·
137
. Sotimes in the market, materi 1 (I) Selecting !he source unction of purchasing management?
(5) Speculative buying: me firm f ·t a or (II) Placement of purchase order
other equipments required by the . or i_s production (Ill) Maintenance of Plant
process is available at a very lo_w pnce. The firm pu_rcha5es (Iv) Physical controls of material
huge quantity of that material with a purpose of reselhng it at (c) The _ _ _ _ Is used lo idenrty
a higher price on some latter d~~e. The sol~ purpose o! this user needs effectively and efficien\l user requirements, evaluate the
that need, develop agreements ~j~dentify suppliers who can meet
action is to take benefit of prevailing low ~nces and selling it ordering mechanism, ensure pa m 1h0se suppliers, develop the
at a high price for making speculative profit. the need was effectively met, an~ d~~t occu'.s promptly, ascertain that
(I) purchasing process e continuous improvement.
(6) Forward buying: In this method, s~ppliei:5 and the purchase (II) backdoor buying process
department enters into a contract m which _la~er agrees to (Ill) materials budgeting process
buy a specific quantity of material and supp!1es m future at a (Iv) forecasting process
pre-agreed price. In this way, bo~ _the parties are ce~ain of (d) All of the following are objectives 01 .
organization except a wMd-class purchasing
the execution of contract at speafic future date. It JS also (I) ensure that all hard copies· of
called buying for future. Such contract ·can be traded in the
i
documents are filed correct! . purchase orders and other paper
commodity market, if circumstances changes. . (II) develop integrated suppl ma secure area
and objectives Y s rategies that support business goals
(7) Seasonal Buying: In certain industries such as food (Ill) mana_ge the sourcing process efficiently and effective!
processing or where raw. material is available in a specific (Iv) supplier performance management Y
season, such type of buying is resorted to. The goods (e) . . is a process associated with defining the contract
purchased constitute a huge quantity as they are required to defining roles and responsibilities of both parties, and advising whe~
to modify and ensure appropnate escalation
be used throughout the year. Hence, it is purchased keeping (I) Spend analysis ·
in view the·yearly requirement and stored appropriately by (11) Contract management
(Ill) Cost management
the organization.

r
(Iv) Supplier selection
(8) Electronic Procurement: It is the process of purchasing online (Ans.: (11) production; (b) Maintenance of Plant; (c) purchasing process;
through internet. It is also known by the name of the supplier (d} ensure that all hard copies of purchase orders and other paper ·
exchange platform where all the stakeholders such as vendor cJocuments are filed correctly in a secure area; (e) Contract management]
(2) · State whether the following statements are True or Fal.se: .
and buyers and processes such as e-tendering, (a) Purchasing is primarily a clerical activity. (April 18)
e-auctioning, e-invoicing, e-payment, etc. are interconnected. (b) Supply management is also known as procurement at many firms and
government agencies.

Ii QUESTIONS ii (c) In collaborative relationships, buyers and suppliers can work together
to mutually share the benefits of learning curves and productivity
improvements.
(d) A major source of information on potential supply sources comes from
I· OBJECTIVE QUESTIONS I current or existing suppliers.
(1) · l,lultlple Choice Questions: (e) Enterprises are relying increasingly on external suppliers to provide
(a) Which one of the following is not included in the 7 R's in purchasing? only materials and products, not information technology, services, and
(I) O),_ ality design activities.
(II) Quantity (Ans.: (11) False, (b) True, (c) True, (d) True. (e) False]
(111) Price
(Iv) production
138 rrrrrr Vipul,.•™ Production and Total Quality Management (B
MS)
I THEOF:IY QUESTIONS I
(1) Define Purchase Management and state its objectives.
(2) Explain briefly six principles of Purchasing. (Oct. 18)

-
(3) Discuss the importance of Purchase Management.
(4) Discuss Centralized and' Decentralized Purchasing with their merits
demerits. - · •- . ana
(5) What are the functions performed by Purchase Department / Purch · ·
,

(6) What are the different steps in purchasing ·cycle? .

(7) Discuss various methods (Systems} of Purchase Ordering.
(8) · Write short notes _o n:
(a) -centralized Purchasing.
(b) De-Centralized Purchasing.
(c) Functions of Purchase Manager.
(d) Purchasing Cycle.
(e) Purchase Ordering Systems (or Methods}.
 235
p,oductiVity Management

UNIT- III j,

CHAPTER

Productivity Management g
9..1 Meaning and definitions.of p~oductivity
9.2 Difference between Production and Productivity
·,

9.3 - Difference between productivity and .performance

9.4 . Importance of productivity improvement
9.5 Benefits of higher productivity
9.6 Factors affecting productivity
9.7 Ways to improve productivity ·
9.8 Important challenges or difficulties in measuring productivity
9.9 Ways and models .of calculating productivity
9.10 Solved Numerical on Productivity
,.. Questions

PRODUCTIVITY
"Productivity is· the ·ratio of the -input fa_cilities to the output of goods and
se~ices - ~he Com~a~y must achieve high total factor. productivity which is the
.ratio of the market value of its output to the cost of all the resources required to
Produce the output,, . .· · - · .:· . . .
- James Dilworth -
 236 Vipul's™ Production and __
Total Quality Managem~ni (BMS)

9.1 MEANING AND .DEFINITIONS OF PRODUCTIVITY

In ge~eral sense, productivity is so~e so~t of relationship -
between mputs and outputs of an enterprise. It 1s the quantitative
relationship between w~at we produce and the resources used.
The. concept of productivity has many dimensions. It can relate to
every item/ activity on which money is spent to get the final
product. Some of the definitions given below explain the
f1:mdamental concept of productivity.
DEFINITIONS:
_-The following definitions are given for explaining the
concept of productivity:
(a) · "Productivity is a measure ·ofhow much input is required to
produce a given output i.e. it is ratio of output to input. 11

, -N.Charry
(b) "Productivity is the ratio between the amount produced and the
amount of resources used in the course of production. The resources
may be any combination of materials, machine, men, and space."
- B. S. Goel
(c)" ~According to Peter Drucker "Prqductivity means a balance
between·all factors of production that will give thi maximum output
with the ~mailest effort. 11
•

(d) ''The ratio between the volume of output _ as measured by production ·

I
indices and the· corresponding volume of labour input as measured
"- by production indices and the corresponding volume of labour input
as measured by employm~t indices. 11

-ILO
(e) .Europe~ Productivity _Council defines . "Productivity is an
attitude of mind. It ·is a · min,tality ·of progress,· of the constant ·
improvempit of that which exists;· It is the certainly of being able_ to _
· do better than yester.day and continuously. It.is constant adaptation .
of economic .and· social life to changing ~onditions.:· It. is tf.e
_ continual effort to apply new-techniques and ·methods~It is the faith ·
in human progress. 11
J '

..
- \ : . l.

l
 p,oductivitf Management
rrrrrr 211
(f) Organization of European E . _
defines productivity a conom1c
. · ·ty (OEEC)
C_ommum
. - . s the ratio between the production of
given commod_ity measured by volume and one or more of
the corresponding input f t ls
ac ors a o measured by volume.
Iri short,
-od cti- ·ty _ 0lJ.tput
Pr uvi_In
put
_Growth in productivity can come from either:
• ~creasing output, while maintaining the same level of
.inputs _ _ - . ___y _

• maintaining output while reducing the level of inputs, or _

• . a combination of the above.
Another ~ay . of looking at the concept of growth in _
productivity is -to look at the amount of waste generated. in the . -
- system. H waste is -unnecessary output and/ or defective output
from · the system, then the productivity of the system can be -
improved by eliminating/ minimizing the waste occurring in the
system.
Productivity can be ev:aluated with the help of the following
analysis: -
• Trend µaly~is: It gauges the change in productivity of
the firm over the years. ·
• Horizontal Analysis: It compares the firm's productivity,
with other firms-of the same size and bu_siness.
- • · Vertical Analysis: It compares firm's productivity, with
othet firms of various sizes in the same industry and with
- other industries. _
• Budgetary Analysis: Establishing productivi~ norm as
the budgef fo'r the upcoming peri~, on ba~~ of above _
analysis and making strategies for its achievement.
 238 Vfpul's™ Production and Total Quality Management (BMS)

9.2 DIFFERENCE BETWEEN PRODUCTION ANO ·

PRODUCTIVITY
Sr.
No.
Basis for
Comparison
Production Productivity -
1 Meaning Production is a function Productivity is a ·me~sur--;
of an organization of how efficiently
which is associated with resow:ces are combined
the .c onversion of range and utilized in the firm I
of inputs into desired for achieving the desired
output. u
outcome.
2 What is it? Process Measure
3 Represents Numbers of units Ratio of output to input
actually produced. -

4 Expression Absolute terms Relative terms

5 Determines Value of output ,, Efficiency of factors of.
·'
production
For Example:
Initially Total.Output = Rs. 20000 and ·
Total Combined Inputs = Rs. 10000
Productivity Ratio = 20000/10000 = 2
Case 1: ·
Combined Inputs have been doubled to Rs. 20000 and we have
fo!lowirig 3 cases:
Case (1A):
) Output = Rs. 38000.
Results: Production has increased but Productivity has.
decreased. ·
Case (1B):· .
_,
..Output =Rs. 40000.
Results: Production has increased but Productivity remc!inS the
same.
 239
p;oductMtY Management

case (lC):
Output= Rs. 44000.
Results: Production ha~ increased and also Productivity
nas increased.
case 2:
combined Inputs have been reduced to Rs. 5000 and we have
. following 3:cases:
Case (2A):
Output = Rs. 8000.
Results: Production -has decreased and also Productivity has
decreased.
Case (2B):
Output = ~- lqoDO.
· Results: Production has decreased but Productivity remains
the same.
Case (2C): ·
.Output= Rs. ~4000.
Results: Production has decreased and but Productivity has
increased.
9.3 DIFFERENCE BETWEEN PRODUCTIVITY AND
:. PERFORMANCE

Productivity ·Peifonnance Index ·

Sr. Basis for 1
No. Comparison
1· Meaning Productivity is a measure It considers Ou~ut ~lone
·of how efficiently
resources are combmed
, .and uti~ed in ·the firm,
'. for achieving the desired _·
_· .outcome. . · ·· ·
2 Repr~sen~ · ·. . Output ·· ~erformance Index =
Productivity = In t Actual Work
.. pu
· D<:>ne/Expected or
Standard Wqrk : .'
 140 Vipul's™ Production and Total Quality Management (BMS)

For Example:
It takes 3mts. of cloth to make a coat. In a day, Prakash is
expected to make 50 coats. · He makes 45 coats from 120 mts. of
cloth. .

(1) Performance Index = :~ X 100 = 90%

- r
(2) For manufachiring . one cloth 3 mts. Cloth is required.
Therefore for 45 cloths, Prakash should have used 45 x 3 mts.
Cloth-= 135 mts. But he has used actually 120 mts. of doth. ·
. -
135 .·
Prakash'sProductivity = 120 x·too = 112.5

9.4 IMPORTANCE OF PRODUCTIVITY IMPROVEMENT

(1) Productivity is a key to prosperity. e st~ificance of
productivity in increasing natiqnal welfare is now universally
recognised. There is nq human activity that does :not benefit
from improved productivity. This is ·important because more
~f the increase in gross.national income, .or GNP, is produced ·
by improving the effectiveness and quality of manpower than
by using _a dditional . labour .and _c apital. . In: - other .words,
national income, o:r- GNP, grows faster than the input factors
wh~n pro.guctivity is 'i mproved. -
, Productivity , improvement, therefc;,re, results in direct
increases in _the standard of living_ under conditions of
_distribution of productivity gains -according to contributic;m.
- -At present, it would not be wrong to state· that productivity is
the only important world-wide source of real economic
growth, social progress and improved standard of living.
(2) , The concept of productivity is of great.significance for under ,
developed countries, developing countries, big firins, small
firms, individuals etc. For all the cases,· there are limited
reso~ces wh~ch ~hould be u~ed to get the optimum output .
i.e . .there should be tendency ,to perform a job by cheaper,
_safer and quicker ways. The· aim should be optimum use of
resources so as to provi~e maximum output with maximUlll
satisfactiQn with minimum efforts and expenditure . .
 241
· ·j..,;,,., Management
p,odll"'''"I I
fhe higher the productivity of the operating system, more
(3) efficient the operation function said to be. Management of
operation system thus is essentially concerned with the
Jllanagement of productivity. ·'
~ p,oductivily analysis and measures indicate the stages and
1 situations where improvement in the working of inputs is
possible tq incre_a se the output. The productivity Indicators
can be used for different purposes viz. comparison of
performances for various organizations, contribution of
different input factors, bargaining with trade unions etc.
(S) Competition triggers productivity, as intense competition
results in higher productivity, which in turil provides better
value to the customers, leading to higher share in the market.
(6) Improvement in productivity is important for country like
India because it can minimise level of ·poverty and
unemployment.
(7) For survival of any organization, this productivity•ratio must
be at least 1.lf it is more than 1, the organization is in a
comfortable position which will benefit in multiple ways to
Nation, to Organization, to Workers, employees and society.
9.5 BENEFITS OF INCREASED PRODUCTIVITY

To workers:
(1) The gains from increased productivity can be shared with
workers or employees by paying them at higher rate.
(2) Better standard of living.
(3) Improved morale.
(4) Satisfied worker.
(S) " Resulting into goodwill.

To the organisat(on:
(l) . Higher
production of goods and services.
(2) ,,
Reduction in costs.
(3) Overall productivity reflects the efficiency of production"
system.
242 · rf¥£¥,f Vipul'•™ Production and Total Quality Management (BMS)

(4) . More output is produced with same or les!fmput.

(5) The same output is produced with lesser input.
(6) High turnover, More_profits and dividends _
(7) Cheaper goods to customers to retain the customers. ·
(8) _Wide spread markets and overall prosperity
To the nation: -
(1) High employment opportunities.
(2) Increased Gross National Product.
(3) Improved utilisation of resources.
(4) Expansion in international markets.
(5) . Higher revenue to government.
. To Consumers and Society in General:
(1) · Increase in supply of better quality goods and sel'\Tices.
(2) Gains from productivity c_a n be transferred to tl}e consumers
in form of lower priced Products/Services. - ·
(3) Greater customer satisfaction.
9.6 FACTORS AFFECTING PRODUCTIVITY
All the factors which are related · to .irtput and output
components · of a ·- production process are likely to affect
productivity. These factors can be divided in two main categories
namely.
CATEGORY - I: ' \

INPUT RELATED FACTORS:

(a) Primary factors: These are effort and working capacity of an
individual as we say that the productivity is a state of mind.
One who believes in productivity can take the stock of the
situation that how one will ensure the productivity.
(b) Organisational factors: These are related to' the design and
transformation process required to produce some items, the
nature of training and other skills imparted to workers to
perform certain operations in a production process, control
and various other incentives.
 I

WM"'rJ"' 243
p~u¢'itY Management _
conventions and traditions of the organisation: The
(~) activities of labour unions, medical facilities, workers and
executives understanding, etc. are part of this.
orEGORY - II:
oVfPUT RELATED FACTORS:
(a) Research and development techniques, improvement
technology and efficient sales strategy of the organisation will
lead to improvement in output.
(b) Efficient use of resources, better stores control, pro~~cti~n
control policy, maintenance of machines etc. will mirum1se
the cost of production.
(c) Quality improvement process will ensure - the minimum
wastage and in-tern better productivity.
(d) The factors affecting the productivity can also be divided _into
four major classes. yiz.,
(i) technological,
(ii) Managerial,
(iii) "Labour; and
(iv) External factors.
The technological factors can increase the output per unit of
input substantially. These can be defined in terms of technology
employed, tools arid raw material used~ etc.
Managerial factors can be located in organizational ·structure,
scheduling of work, financial management, layout, innovations,
personnel policies and practices, work environment, material
management etc.
Labour factors are, characterised by the degree of skills of the
~or~orce, health, attitude towards management, training,
discipline etc. Greater the congruence between the skills of work
force and technology employed better would be th~ productivity.
_ ~xtemal factors · are innumerable and identifiable in the
envrrorunent with which an organisation has to interact e.g. the
. power and· transport facilities, tariffs and taxes etc. have
lillporfant bearing on the levels of productivity.
 244 IJ",fflf Vfpal's™ Production and Total Quality Management (BMS)

( 9.7WAYSTOIMPROVEPRODUCTMTY _ ]
1) Technology based: CAD, CAM, integrated .CAM, Robotics,
laser beam technology, energy technology, group technology,
computer graphics; simulation, maintenance management,
rebuilding old ma2hinery, energy conServation.
(2) Employee Based: Financial incentives, group incentives,
fringe benefits, promotions, job enrichment, job enlargement,
· job rotation, worker participatio~, MBO, Skill enhancement,
learning curve, working condition improvement,
communication, zero defects, punishment, recognition,
quality circle, training, education, role perception,
supervision quality.
(3) Material Based: Material planning and control, purchasing,
logistics, material storage and retrieval, source selection and
procurement of quality material, waste elimination. ·., ·
(4) Process based: Methods engineering and work simplification,
job design evaluation, job safety, human factors engineering.
(5) Product based: Value analysis and value · engineering,
product diversification, standardisation and simplification,
reliability
.
engineering,
..
product mix and promotion.
. .

. ..._<6_)_T_a_sk_b_as_e_d_=_M_a_n_a_g_em_~_t_s_ty_l_e_,w_
in the organisation, motiv~tion, promotion · ~o-d_cul_tur_e_,c_o_mm_
-_uru..,,..-·c_a_tioo_~
group activity.
) 9.8 IMPORTANT CHALLENGES OR DIFFICULTIES IN
MEASURING PRODUCTIVITY
(1) Difficulty in measuring output: The · output of an industry
may be measured in terms of volume (units) or vaiue .
(Rupees). It is very difficult to combine both these factors.
If the output is similar or homogeneous, then · the
productivity can be measured in term~ of volume (units). If
the output is not similar or not homogeneous, then the
productivity can be measured in terms of value (Rupees).
However, if some _output units are homogeneous
representing volume (units) and other non-homogeneous
representing value (Rupees), then the industry will face
p,oductiVitY Management l'Ffrf 245

difficulties in getting total output and hence in measuring

productivity. · · ,,.
Simil~tly, it is very difficult to find out whether th.e by-
products and work-in-progress should be included. in output
or not. If it is included, then it is very hard to find its value.
(2) Difficulty in measuring inputs; Most industries do not have
proper records of the inputs of Material, labour, capital,
· energy, machines and land. Even if such records are
available, it is very difficult to calculate the exact number of
man hours worked i.e. the exact input of labour.
(3) Partial productivity: Partial Productivity means to calculate
the productivity of different factors of production separately.
Some management experts say that a single factor of .
production cannot produce anything by itself. Therefore, it
cannot measure correct total productivity. A single factor of
production has productivity only if it is combined with other
factors of production. It is difficult to combine all the
individual factors of production or all production inputs.
(4) Changing conditions: There is a continuous change in the
price of outputs and inputs, . quality of raw-materials,
machines and tools, quality of labour, etc. All this creates
difficulties in measuring productivity.
(5) Service sector: As the output of the service sector is fully and
partly intangible, it is very difficult to measure the
productivity of service sectors like Education, Banking
Insurance, etc.
(6) Different periods: It is very difficult to compare the
productivity of two different periods. For example,
comparison of productivity during a war period with a peace
period is meaningless.
(7) Difficulty in measuring man-hours: It is difficult to find out
the exact number of productive man-hours. This is because
wages paid to the employees also includes the cost of idle
time and allowances like Personal need Allowance, Fatigue
A,llowance, Contingency' Allowances, etc.
 146 rf~ff Vipul'sTM Production and Total Quality Management (BMS)

(8) Technological change: Changes in technology will cause a

change in the nature and quality of output. Therefore,
measurement of productivity will become difficult.
9.9 WAYS AND MODELS OF CALCULATING
PRODUCTIVITY ·
There are broadly three grpes of productivity measurements
and these are explained below:
/· (1)° Partial Productivity.
(2) . Total Factor Productivity.
./ (3) Multi-Factor Productivity (MFP).
(4) Total Productivity.
9.9.1 Partial Productivity Measurement:
_ Partial productivity is measured as a ratio of output and a
single input.
Partial . Output
Productivity = A particular class of input
Mostly, partial _productivity is calculated using a single input
such as labour,·Machine, Capital, Energy, Raw material, Land etc.
separately in order to tixamine changes in every input coefficient
to that of output. Such ratios are used for selection of a particular
area of improvement.
Advantages of Partial Productivity Measurement:

) •
•
• Easy to understand.
Easy to obtain the data.
Easy to compute the productivity indices.
• Easy to sell to~management· because of the above three
advantages.
• Some partial productivity indicator data is available industry
wide.
• Good diagnostic tools to pinpoint areas for productivity
improvement, if used along with total productivity
indicators.
 p,oductivitY Management rfrfrf 247
' Disadvantages of Parti,al Productivity Measuremen:
t
·• Profit
· control through partial can be a hit and rruss
· approach.
• Tend to shift the blame to the wrong areas of management
control.
• Do not have the ability to explain overall cost increases.
• If ~d alone, can be very misl~a-d ing and may lead to costly
nustakes. . ·
This four main factor are the backbone of . the Partial
Productivity Measurement are mentioned and defined below
mathematically by simple formula.
Bask Partial Productivity Measurement
Partial Productivity Measurement
Labour Machine Capital Energy
Output · Output Output Output
Labour Machine Capital Energy
9.9.1.1 Labour Productivity:
It is important to note that the most important productivity
factor is the labour. This is ,because labour is the main drive
behind the productivity measurement although there are another
3 factors.
Labour factor also is the main element in calculating the
Growth Domesti~ Pr<:>duct (GDP) and Gross National Product or
GNP.
The numbers of formulae to calculate Partial Labour
Productivity are given below:
Value Added
(i) Labour Productivity = No of Workers
• Value Added = Saleable Value -Cost
Units of Output
(ii) Labour Productivity = Man hour
Output Value
(iii) Labour Productivity = Man hour
 248 =
.r=["ffl_N,l~-'l- N Vipul's™ Production and Total Quality Management (BMS)

Units of Output
(iv) Labour Productivity = Shift
Units of Output
(v) Labour Productivity = No of Workers

9.9.1.2 Machine Productivity:

Below are several incidents that may reflect the mac;hine
productivity:
• The time tak,en by the operator to load the item for
manufacturing process.
• The time taken to transfer the part program to the motion
controller.
• The setting up time taken by the operator to ma~e the
machine operate. ·
• The time taken by the machine to run the part program
performing manufacturing process. ·
• The time taken by the operator to unload the processed
workpiece.
• The quality and precision of the finished part, poor quality
increases the work required subsequently.
• The down time of the machine.
The number of formulae to calculate Partial Machine
Productivity is given belo~:
(i) M chi p . d _ Units of Output
a he ro uctivity - Machine hour _

= Units of Output
(ii) Machine Productivity
Machine
Cost of Product
(iii) Machine Productivity = Machine hour

Value Added of.Product

(iv) Machine Productivity =
·Machine hour
 jiiP'
\
1
p,odvctivity Management 249

_.1,3 Energy Productivity:

99
Energy . is another Partial Productivity Measurement
cotrtponent that is closely related to the machineries. With current
industry trend that opt to go for bigger machineries, it seems that
the energy . consumption becomes one of the most import'.11't
factor when buying or selling it. This is also back by a fluctuating
') oil price where energy producer tend to hold the energy price at
high rate. Therefore, the industry prefers to have low energy
( . consumption with high machine capabilities. ·

l
The number. of formulae
, productivity is given below:
to calculate Partial Energy

'I (i) Energy Productivity

Units of Output
= Kilowatt hour
1

'1 Cost of Product

(ii) Energy Productivity = Kilowatt hour

;:[ 9.9.1.4 Capital Productivity:

The inputs that often linked with the· capital productivity are
"1 initial investment, investment or cost for the projects and stocks.
As for the output, the factors that usually put into consideration
are profits the company makes, the number of product produced
. and the value added of the product.
However, the capital productivity is a unique case. This is
because it revolves around the investment so it is impossible split
the investment into several projects. Therefore, the capital
productivity is usually coupled together with the labour
productivity. ·
The numb~r of formulae to calculate Partial Capital
Productivity is given below:
Value Added of Product
(i) , Capital Productivity
Cost or Investment

L
Units of Output
(ii) Capital Productivity
= Cost or Investment ·
Profit
C,p;ta! Producti.;ty = Cost or Investment
I 250
Vipul's™ Production and Total Quality Management (BMS)

9.9.1.5 Land Productivity:

Output
Land Productivity = Land Utilized

,
I 9.9.1.6 Water Productivity:
Water Productivity can be explained by using simple formula.
. . Output
Water Productivity = Water Used
In case of Agriculture sector, Water productivity may be
defined as the rati~ of the net benefit from crop, forestry, fishery,
livestock, and mixed agricultural systems to the amount of water
required to produce those benefits. In its broadest sense it reflects
the objectives of producing more food, income, livelihoods, an~
ecological benefits at less social and environmental cost per unit
of water used, where water use means either water delivered to a
use or depleted by a use. In simple ~ords, it implies growing
more food or gaining more benefits with less water. Within the
broad definition of water productivity there are interrelated and
cascading sets of definitions used for different purposes. Physical
water productivity relates the mass of agricultural output to water
use "more crop per drop." Economic water productivity relates
· the economic benefits obtained per. unit of water used and has
also been applied to reiate water use in agriculture to nutrition,
jobs, welfare, and the environment.
9.9.2 Total Factor Productivity:
9.9.2.1 John W. Kendrick Model or Capital Labour Multifactor '
Productivity:
Capital and Labour are -·always ·considered important
contributors to the process of production. The TFP model was
developed by John W. Kendrick. He has taken labour and capital
· as only two input factors for calculating-TFP.
Advantages:
(1) Simple to use.
(2) Data needed is easy to obtain in TFP.
 ~:.ntv Management 251
p,odUL~"•f

Linutation:
) It does not consider the impact of material and energy input,
(l even though materials constitute on an average 40% to 60% of
the cost.
(Z) It does not consider machine productivity and therefore it
cannot provide accurate measure of technical change.
The ~umbers of formulae to calculate Total Factor Productivity
are given below:
Capital-Labour Quantity index of value added
(i) Productivity = Quantity index of combined
labour and capital input
.. . Capital-Labour Quantity index of gross output
(u) Productivity = Quantity index of combined
, labour and capital input

:\ Example: . .
it Production worth Rs. 80 lakhs was manufactured and sold m a ·
month. It consumed labour hours worth Rs. 10 lakhs and capital ·
,: worth Rs. 50 lakhs Calculate TFP.
Output 80 80
TFP = Inputs of (Labo~ + Capital) (10 + 50) - 60 = 1.33
9.9.2.2 Taylor-Davis Total Factor Productivity (TFP) Model
(1977):
,, The Total Faetor Productivity (TFP) of a firm is measured as
'j follows: .
_ ____,_(S_+_C__. _+~MP__._)-_E__
" TFP = (W + 8) +[(Kw+ Kf) Fb df]
Total value - added output
TFP
= Total !nput (capital and labour)
Where,
S == Net adjusted Sales
= Sales in dollars for the period/(price deflator/100)
 252 Vipul'sTM Production and Total Quality Management (BMS)

C = Inventory Change
= Sum of inventory changes for raw materials, finished
goods, ½ works in· process for raw materials, and ½
works in process for finished goods.
MP = Manufacturing Plant
= This includes items that are available outside of the firm
but they are ·produced internally such as maintenance,
machinery, equipment, and research and development.
E = Exclusions
= Materials and services that are purchased outside the
firm
W = Wages and Salaries
= Labour costs
B = Benefits
= Includes vacations, benefits, insurance, sickness, ·social
security, bonuses, retirement, and profit shearing
Kw ·= Working Capital
I
= Cash + notes and accounts receivable + inyerttories + J
prepaid expenses I
Kr = Fixed Capitals
= Land + buildings + machinery and equipment + deferred
charges

7 Fb = Investor contributions, as a %
dr = Price deflator
The Taylor-Davis model is not a Total Productivity Model, but !
rather is . a Total Factor Productivity Model. The primary I
difference between Taylor-Davis' Total Factor Productivity model I
and a Total Productivity Model is in the method of accounting for I
raw material. Total Productivity Models include raw material as a l
straight input, while Total Factor Productivity Models typically
include raw materials as components of both inputs and outputs.
In the case of the Taylor-Davis Model, the raw material is a
component of E · (Exclusions) as an output factor and Kw
(Wor~g Capital) as an input factor.
 p,odUCUVit¥ Management ffrfrf'' 253

9,9.3 Multi Factor Productivity (MFP) Measurement:

9,9.3,1 Scott D. Sink MFP Model:
Scott D. Sink further developed the total factor productivity
model. MFP m9_del considers labour, material and energy as
major inputs. Capital was left out since it is very difficult to
estinuite how much capital is being consumed in a unit of time.
_ Output
MFP - Inputs of (Labour+ Energy+ Material)
9.9.3.2 KLEMS Multi Factor Productivity Model:
The idea of the emergence of KLEMS MFP is to combine
capit~l-labour productivity method and other intermediate factor.
The intermediate factors_in this method are energy, materials and
services. The. KLEMS MFP also reflects efficiency change, capital
scale and variations in capacity utilisation. This technique also can
represent . the technical change because the incorporation of
materials factor. However, the drawback of this technique is the
difficulties in getting data as there are too many uncertainties.
Listed below is the formula that is-used in this method.
. . Quantity index of gross outpuf
KLEMS Productivity = Quantity index of combined inputs
. . . Gross Output
KLEMS Productivity= (K + L + E + M + S)
Where,
K = Capital Input
L = Labour Input
E = Energy
M = Materials
S = Purchased Services
Advantages:
(l) !t is the most appropriate tool to measure technical change by
· industry as the role of intermediate inputs in production is
fully acknowledged.
r 154

(2)
w~w~u-
= = Vipul's
™
Production and Total Quality Management (BMS)

Domar aggregation of KLMES MFP across industries

provides an accurate picture of the contributions of industries
to aggregate MFP Change.
Disadvantages:
(1) Significant data requirements.
(2) Inter Industry links and aggregation across industries more
difficult to communicate than in the case of Value added
based MFP measures.
Overview of the main productivity measures
_Type of input 111:easures
Labour Capital Capital and · Capital,
Type of Labour labour and
output intermediate
measures inputs
(energy,
medical
services)
,. Labour Capital Capital- KLEMS
I Gross productivity productivity labourMFP multi-factor
output (based on (based on (ba~edon productivity
gross output) gross output) gross output)
I Value-·
Labour Capital _.Capital-
productivity productivity labourMFP
-
added (based on (based on
(based on
value added) value added) · value added)
Single factor productivity Multi-factor productivity
. .
measures (MFP) measures
_ Source: OECD Productivity Manual (OECD_, 2001a)
9.9.4 Total Productivity:
. . -
It is the ratio of Total Output and Total Input

) Total Total Output (Value of Produce)

Producti_vity = · Total Input (Value of Input)
There are many Total Productivity Models .
.
 p,oductivity Management i"rfrf 255

9,9.4.1 Craig and Harris Model (or Service Flow Model):

This model shows the inadequacy of Partial Productivity
Measures. In this model, physical inputs are converted into
Rupees that are payment for services providec;l by inputs.
productivity is seen as efficiency of conversion process.
Craig, and Harris (1972; 1973) defined total productivity
., measure as below:
Total Total Output OT
Productivity (PT) (L + C + R + Q) - (L + C + R + Q)
Where;
PT = total productivity,
OT = total output
L = labour input factor,
C = capital input factor,
R =raw material input factor and
Q = other miscellaneous goods and services input factor
The output is defined as the summation of all units produced
times their selling price, plus dividends from securities and
interest from bonds and other such sources-all adjusted to base-
period values.
9.9.4.2 V. Sumarith's -Total Productivity Model:
- It is the ratio of tangible output to tangible input
Total Total Tangible Output (Ot)
Productivity (Pt) = Total Tangible Input (It)
ToW m+m+OO+W+~
Productivity (Pt) = H + M + FC + WC + E + X
Where,
Total tangible O~tput (Ot):
01 = finished goods produced
02 = partial units produced
-03 = dividends from securities
04 = interest from bonds
05 = other incomes
 256 Vipul's™ Production and Total Quality Managemen((BMS)

Total tangible Input (It): ·

H = human inputs
M = material purchased
FC = fixed capital
WC = working capital
E = energy inputs
X = other expenses (taxes, transport, office cost, etc~) ·
Advantages:
(1) . All quantifiable inputs are considered.
(2) Provides firm level and operational unit level productivity.
· Disadvantages:
(1) Data is difficult to compute .
. (2) Does not consider intangible inputs and outputs.
9.9.4.3 APC Model:
American Productivity and Quality Center (APC) has been
advocating a productivity measure that relates profitability with
-productivity 'and price recovery factor. In this, the price recovery
factor fakes care of inflation
Over a period of time changes in this factor indicate:
• Whether the firm has been able to absorb the changes in .
the cost inputs,
• Has passed on or has over compensated the same price of
the company's output;
The APC model is developed on the premise that a firm
gener_ates profit from 2 sources:
(1) Productivity improvements.
(2) Price recovery improvements.

Sales Quantities of Output x ],)rice

Profitability = Costs = Quantities of Input x Price

= Productivity x Price Recovery Factor

 p,oductivity Management
257
price Ricovery Factor:
, Captures the effect of inflation.
, Inclusion of this factor will show whether gains or losses of a
firm are due to changes in productivity or it merely indicates
the fluctuations in the prices of the material consumed and
sold.
[ 9.10 SOLVED NUMERICAL ON PRODUCTIVITY . . I.
Example 1:
In a tooth brush manufacturing ind1:.1stry, standard time per
piece is 2 minutes. The output is 200 pieces per shift of 8 working
hours. Calculate the Productivity. .
Solution:
Standard time per piece = 2 minutes
8 X 60
Standard Inputs =·-
2- = 240 pieces

Actual Production (Output) = 20_Qpieces

Productivity =200
240
= 0.83
Example 2: ..
Three employees work for five days (0~ working hours a day)
to produce 1200 policies, calculate the labour hour productivity?
Solution:
1200 policies.
Labour hour productivity
= (3 employeesr(40 hrs/emp;)
Labour hour productivity = 10 policies/hour
Example 3:
A c_ompany that processes fruits ~nd vegetables i~ able to ·
Produce 600 ·cases of canned peaches in a half hour with four
wo.rkers. What is the labour productivity? .
Solution: .
· Quantity Produced
labour productivity Labours Hours Utilized
 258 Vipul'•TM Production and Total Quality Management (BMS)

600 cases
= (4workers x 1/2 hours/workers)
= 300 cases per labour hour
Example 4:
Given that:
II
20,000 Units Produced,
Sold for Rs. 10/unit ..
500 labour hours,
Labour rate: Rs. 8/hr
Calculate productivity unj.t wise & non unit wise? .
Solution:
.I

Labour produc_tivity 20000 Units

(Unit Wise) = 500 Labour Hrs.
= 40 Units/Labour Ho~
· Labour productivity
Non-Unit Wise - (20000 Units x Rs. 10 per Unit)
or MonE:y wise = (500 Units x Rs. 8 per Unit)

= 50 Units per Rs. Input . ·

. L....I_ _M_U-'-L_T_IF_A_C.;._·
-T_O_R_P_R_O_D__,U_CT_IV_I_TY_N_U_M_E_R_I_CA_;._L_·~· ___.I
Example 5:
-,
I · A wrapping paper company prodtj.ced 4,000 rolls of paper one
day. Standard price is Rs. 10/rolt Labour cost was Rs. 150 per

I day, material cost was Rs. SO _p er day, and overhead was Rs. 300
per day. Determine the multifactor,productiv:ify'. . .
Solution:
·

Quantity pro.d4ced
.

· Multifactor . at standard price .

productivity = Labour · , Material, Overhead
Cost ·+ , .'Cost , .· + · · Cost-
•(4000 rolls x Rs. 10)
.= {Rs.150 + Rs: 5() + Rs. 300) _
.=. 80. rolls
.
Output
'
per
.
~- _Input .·.
.
 Vity Management 259
productJ

fXll,nple 6: .
Determine t~ie multracto: prod~ctivity for the combined input of the
Labour and the machine time using_the following: .
rnput:
Labour : Rs.1,500
Materials : Rs. 500
Overheads : Rs. 3,000
Keep in mind the Production is 10,000 units
Solution:
Multifactor _ Output
productivity - (Labour+ Materials+ Overheads)
· 10000 Units
= (Rs. 1500 + Rs. 500 + Rs. 3000)
= 2 units Output per Rs. Input
Example 7:
Following data · is collected fr?m ~earing manufacturing
company.
Output per shift of 8ho~s is 1200 pieces.
·Sales price of each item is Rs. 10 per piece.
Labour Hour fharges are Rs., 300 per Hour. ·
AMaterial required is 60 Kg at the rate Rs. 10,0 per Kg.
Capital Inputs are of Rs. 1000.
Energy Inputs are of Rs. 2000.
Calculate various Productivity Indices.
Solution:
Output . . = 1200 pieces X ~ - 10 per piece =Rs. 12,000. .
Labour Inputs =8 Hrs x Rs. 300 per Hour =Rs. 2400.
Material Inputs = 60 Kg x Rs. 100 per Kg = Rs. 6000.
Capital Inputs = Rs. 1000.
Energy Inputs = Rs. 2000.
 260 rrrrrr Vipul's™ Production and Tot.al Quality Management (BMS)

Total Materials and

Net Output = Output - Services purchased
= Rs. 12,000 - (Rs. 6000 + Rs. 2000)
= Rs. 4000.
Labow Total Output
Productivity = Labour Input
12000
,= 2400 = S
\

,.1 Capital Total Output

Productivity . = Capital Input,
,_
12000
=Tooo= 10 ,
Materials Total Outpuf
Productivity ·= Material Input
12000
= 6000 = 2
Energy Total Output
Proquctivity = Energy Input ---
-- - - - - --- 12000 - -
= 2000 = 6
Total Factor Net Output
Productivity = Labour Input + Capital Inputs
4000
=2400 + 1000 =l.1 76
Total Total Output
Prod~ctivity = Labour + Materials Capital , Energy
Inputs : Inputs . + Inputs + Inputs _
12000 · ,,
52
= 2400 + 6000 -+ rooo +-2000:... L0

Example 8: . _
ABC Bari.k employs --three lo~n _9.fficers, each working eight
hours per day. Each officer processes ru:i average of Six loans per
day The bank's payroll cost for the officers is Rs: 1,000 per day;-
1
and there is a daily overhead expense of Rs. 800.
· .(a) Computethe labour productivity.
p,oductivitY Management 26/

(b) Compute the multifactor productivity, using loans per Rs.

cost as the measure. ·
The bank is considering the purchase of new computer
software for the loan operation. The software will enable each
Joan officer to process eight loans per day, although the overhead
expense will increase to Rs. 900.
(c) Compute the new labour p_roductiviry.
(d) Compute the new inultifactor productivity.
(e) Should the bank pro~eed with the purchase of the new
software? Explain.
Solution:
Labour productivity is simply .the ratio · of loans to labour-
hours:
(a) Labour productivity is simply the ratio of loans to labour-
holl.l's:
· output (loans) 3 officers x 6 loans/day
input (labour-hrs) = 3 officers x 8 hrs/day
= 0.75 loans/labour-hr
(b) Multifactor productivity accounts for both labour_cost and
overhead:
output (loans) = 3 officers x 6 loans/ day
input (labour cost +_overhead) Rs. 1000 + Rs. 800
=0.010 loans/Rs.
The new software increases the number of loans processed per
day, but it also increases the overhead.
(c) New labour productivity:
3 officers x 8 loans/ day
output (loans)
= 3 officers x 8 hrs/day
input (labour-hrs)
= 1.0 loans/labour-hr
(d) New multifactor productivity:
- 3 officers x 8 loans/day
output (loans)
= ·Rs. 1000 + Rs. 900
input (labour cost + overhead)
 262 Vipul's™ Production and Total Quality Managern
. . ent (BMS)
= 0.0126 loans/Rs.
(e) Purchasing the' new software would increase the 1
abollr
.productivity by 33.33 percent = ([1.0 - 0.75)/0.75).
And wouJ.d increase the multifactor productivity by
26 percent
. = ([0.01J
,(1,,6 - 0.0101/0.010)
So it is certainly wo; th t~e added overhead.

--
Example 9: (MU Numerical April 20IB)
Calculate partial & Total Productivity
Output 500,000 Raw Material 190,000
Labour 75,000 Electricity 25,000 -
Capital 100,000 Other Misc. Exp. 10,000
Total Output
Partial Productivity of Labour = Labour Input
500,000 ·
= 75,000
= 6.6666
;:, 6.67 Times
Total Output
Partial Productivity of Capital
= _C apital Input
. 500,000 ·
= 100,000
= 5Times

Partial Productivity Total Output

of Raw Material = Raw Material Input
500,000 ·
= 190,000 2
= ·631

= 2.63 Times
j . . . . . . Total Output
1 • Partial Produchv1ty of Electricity = Electricity Input
500,000
.- 25,000 ·
,
p,oducfiVitY Management g-rrrr 263

= 20Times
artial Productivity of Electricity = Total Output .·
P . • · Other Misc. Exp. Input
500,000
=
10,000
. = SO Times

-[a~:
_ Total Output
partial Productivity of Electricity

· Electricity +
+J Input
Other Misc. Exp.
500,000
= 75,000 + 100,000 + 190,000
+ 25,000 + 10,000
500,000
= 400,000
. = 1.25 Times

Summary:
Partial Productivity of Lab9ur: 6.67 Times.
Partial Productivity of Capital: 5 Times.
Partial Productivity of Raw Materi_al: 2.63 Times: .
Partial Productivity of Electricity: 20 Tiines.
Partial Productivity of Other Misc. Expenses: 50 Tim~s.
Total Productivity: 1.25 Times,

I[ QUESTIONS l
I OBJECtlVE QUESTIONS I
(1) Multlple Choice Questions:
(a) Which of the following factor does not influence productivity?
(0 Material ·
(II) Technology . .
(Ill) . Previous Capital
(Iv~ . Labour :r· .JO

.........
 264 Vipul's™ Production and Total Quality Management (BM
- S)
Il {b) In Capital Productivity, which of the following factor is not conside
I due to inflation? red
(i) - Receivables
(ii) Money
(iii) Business

I (Iv) The working ·capital

(c) Service Flow Model is also called as

I (I) Sumanth Model

(ii) Taylor Devis Model
-(iii) . Craig and Harris Model
(Iv) . APC Model
I (d) Which are the factors not considered in total factor productivity?
I
(i) Labour
(ii) Manager
(iii) Capital
(Iv) Services
(e) Which ·o f the following is considered in American Productivity Center
Model? . •
(i) Price Recovery
· (ii) Price Deflator
(til) Wages and Salary
(Iv) _Office Expenses Input _
(f) _ _ _ _ is the ratio of output to input in organization. (Oct. 18)
(i) Safety Cost
(if) Inventory Ratio
(iii) Performance Index
(Iv) Productivity
(g): _ _ _ _ _ ·is the ratio between what is produced to what is
required to produce it. (April 19)
(Quality/Quantity/Productivity)
[Ans.: ·(a) Previous Capital, (b) The working capital, (c) Craig and Harris
Model; (d) Manager; (e) Price Recovery, (f) Productivity; (f) Productivity] ·
(2) Fill In the blanks:
(~) _ _ _ _ productivity model ls cjeveloped by American _Produc!ivity
Center.
(b) _ _ _ _ partial productivity is ratio of Output to combined value
01
Materials consumed. ·
(c) _ _ _ _ is the simple formula for measuring Productivity. .
(dJ More crops per drop of water is related to partial . productivitY•
(e) _In KLEMS Producti".'ify Model, S stands for_
, _ _ __
[Ans.: . (a) · APC model, {b) Materials, (c) Output/Input, (d) water,
(e) Purchased Services)
111111---------:- -
265
productivity Management
· state whether the following statements are True or False: .
(3) (a) In general, the management and the leadership is responsible tor
organization's productivity improvement?
(b) Human Resource is not important in increasing organization's
productivity. nd
(c) In water productivity, the resources inputs are combined value of la
utilized and water consumed.
(d) Multifactor productivity is the ratio of real value of output to the
combi_ried input of labour, energy and material.
(e) Productivity can be measured only on Labours, Energy, Materials and
Capital.
(f) Inflation can be curbed by improving productivity. ·
(g) Productivity can be improved by standardizing processes.
· (h) Total Factor Productivity is the ratio of Net Output to the combined
inputs of labour and capital. ·
(i) Top management measures organizations productivity as a ratio of
total Input to Total Output.
0) Productivity and efficiency are same. (Aprll 18)
[Ans.: (a) True, (b) False, (c) False, (d) True, (e) False, (f) True, (g) True,
(h) True, (i) False, (j)_ False} ·
-I THEORY QUESTIONS
(4) Short Answer Questions:
(a) Define Productivity.
(b) Difference between Production and Productivity.
· (c) Difference betwE:_en Productivity and Performance .
. (d) Materials Productivity.
. (e) Labour Productivity.
(f) Energy Productivity.
(g) Capital Productivity.
(h) Land _Productivity.
(I) Water Productivity.
(5) Long Answer Questions:
(a) Define Productivity. What is the importance of productivity
improvements?
(b) Discuss various Partial Productivity measures.
(c) · Discuss Total Factor Productivity (TFP) measures.
(d) Discuss Multi Factor Productivity (MFP) Measures.
, ~;)> What ~re the various factors influencing productivity? .
What are the various ways to improve the productivity?
(g) ~hat are the challenges or difficulties in measuring productivity?
Discuss "Craig and Harris Model" of Productivity. ·
Discuss "V. Sumanth's Total Productivit{Model".
 267
;,v Management
l
QUO"' ,

CHAPTER

Quality Management 10
I0.I Definitions
10.2 Objective~ of Quality
10.3 Need and Importance of Quality Management
10.4 M!i!aning. (Product and Service Quality Dimensions/determinants)

10.s Quality Policy

1 10.6 Factors Affecting Quality

10.7 Stages of Quality

10.8 Evolution of Quality

10.9 Total Quality Management

I 0.10 Kaizen
10.11 Dr. W. Edwards Deming's contribution to Quality Management

10.12 PDCA: The Deming Cycle

10.13 Philip Crosby's Contribution to Quality Management

10.14 Joseph M.-Juran•~ Quality Trilogy

I0.15 The Costs of quality

10.16 lshikawa's Fishbone Analysis (Cause and Effect Analysis)

10.17 Quality Circle

10.18 SERVQUAL

.. Questions
268 - ¥!"~~ Vipul's™ Production and Total Quality Management (B
-· M~
W. 'Edwards Deming, Joseph Juran, Philip 8. Crosby and Kaoru Ishikawa, known
as the Big Four. ·

. 10.1 QUALITY: DEFINITIONS =:J

. 'Quality' can be defined as a standard measure of how Well a _
product or service conforms to the specified standards, so as t
meet the customer requirements. There is no single universa~
definition of quality. Quality has been defined by various Quality
Management Gurus.
(1) Jurart defined-quality as 'fitness for use' in 1974.
(2) Crosby, in 1979, defined the quality as 'conformance to
requir~ents or specifications.~
(3) Garvin, in 1984 divides the definition of quality into five
major categories namely, transcendent, product-based~ user-
based, manufacturing-based and value-based. In addition, he
also identifies eight attributes that may be used to define
product quality: · performance, features, reliability,
conformance, durability, serviceability, aesthetics, and
perceived quality. ,
(4) Predictable degree of uniformity and dependability at low
cost and suited to the market Definition given by Den:iing.
·(5) Taguchi defines Quality a~ Minimum loss imparted by a
product to society from the time the product is shipped.
(6) According to Feigen Baum Quality is a way of managing tile
organization.
(7) Correcting and preventing loss, not living with loss by
Hosffin.
(8) According to ISO Quaiity -is The totality of cllaracteristic~ of
an entity that bear on its ability to satisfy stated and implied.
needs. . ·
Quality also has~ time dime~sion. In other-words, as the ne~d ·
and preference of customer changes with time, the level·of quah~
111
or degree of customer satisfaction also changes. Thus, quality,
this sense, is not constant. It ·is a crucial parameter th at
Quality Management g"g'r{ 269

diffe:entiate~ an. org~ation from its competitors. Thus, tenn

quahtY, also rmplies different levels of expectations from different
5
egrnent of consumers. _
QV.ANITIFICATION OF QUALITY:
p
Q=E
Were,
P = Performance and
E = Expectations
[ ____io_.2_0_B~JE_CT_IV_E.::...:S:_O.=...F=-::::Q...:.U.:.::A=-L=-=ITY~-------']
(1) Meet competition: Quality of product or service is a must to
· meet competition in a global market. It emphasizes proper
utilization . of resources including human resources. The
proper utilization of -organization's resources and materials
supports to produce a quality of products. Therefore, the
quality control system helps to meet competition by
maintaining quality of products.
(2) Increase productivity: Increasing productivity is possible
only through best utilization of organizational resources. Due
to the proper utilization of resources, it helps to maximize
production of resources. It also helps to minimize cost per
unit of product and service. It emphasizes for proper ·
utilization of resources.
(3) Minimize the cost: It focuses on minimizing wastag~ of
organization's resources · through effective management
system. The proper utilization of resources helps to minimize
wastage and cost. Due to the utilization of resources, it faces
competition in a market.
(4) Maintaining image: Maintaining image is one of the
important parts of a quality of product and service. An
organizatipn should produce a quality of the product so that
their customer can trust the company product. If customer
find some quality less than that the company had told them
the company pr~stige in the market will _be lost. They can't
sell their product as the previous time ..So, it h~lps to increase
 270 LT'l!f"~~ Vipul•s™ Production and Total Quality Management (BMS)

brand image and frame image organization deal with quality

of products. ·
10.3 NEED AND IMPORTANCE OF QUALITY
MANAGEMENT
(1) "Quality manage~ ent" ensures superior quality products
and services.
- (2) Quality management is essential for customer satisfaction
which eventually leads to customer loyalty.
(3) Quality management tools help an organization to design and
create a product which the customer actually wants and
desires.
(4) Quality Management ensures increased revenues and higher
productivity for the organization. ·
(5) Quality management helps organizations to reduce waste and .
inventory.
(6) Quality management helps organizations to improve process ·
control.
(7) Quality management facilitates training to employees.
(8) Quality management motivates and raises morale of
I employees.
(9) The customer is not only commanding priority based on
volume but is more demanding about the quality system,
(10) The shift from low volume, high price to high volume, low
price have resulted in a need to reduce ~the internal cost of
poor quality.
(11) The requirements for suppliers of components have become
more stringent. ·
10.4 QUALITY: MEANING
'---- -- -----=-----:-- - - - -- - -- - - -- -
::J
The Meaning(s) of Quality:
A myriaq. of m_eanings define what qualiry means to differe~t
constituents involved with · a product or service. We will
concentrate on quality from the perspective of two different
sources: the consumer and the producer (manufacturer);
 27I
,w Management
QUO"I
The Meaning of Quality'

Prodlaf'S Perspective Consumer's Perspeetlve

Quality of Conformance Quality of Design

Marketing
• Conformance to • Quality charlcteristlcs
speclflcatlons

• Cost • Price

Fltnenfor
CUstomer Use

Figl0.1
(A} Quality from the consumer's perspective:
This perspective of quality is actually easy to define, but very
difficult to measure. The measurement difficulty arises. because
quality is based on the "eye of the beholder." Each consumer may
have a different need, want, or taste, so each consumer may see
similar products quite differently..
Two basic ways of defining a consumer's perspective of quality
are:
{1) Fitness for use: How well does the product or service do'
· what_ the consuiner on.1ser thinks it is supposed to do and
wants todo?
(2) Quality of design: The degree to which quality ~aracteri.stics
are designed into the product.
Quality of design is all about · set conditions that the
product- or service must minimally have to satisfy the
requirements of the customer. Thus, the product or service
must_be designed in such a way so as to meet at least
mfuimally the needs of the consumer. However, the design
must be· simple and also less expensive so .as to meet the
~~tomers' product or service ~xpedations. Quality of design
1s influen~ed :t,y many factors, St!ch as product !JPe, cost, ·
 272 ~rrrr
= = ,= , Vipul's™ Production and Total Quality Management (BMS)

profit pol~cy, demand of the product, avail-ability of parts

and materials, and product reliability.
Product Quality Dimensions/Determinants/Components
Garvin (1984) had provided J~ight critical dimensions of
product quality which are given below.
(1) Performance (will the product do the intended job in
field?): It talks about evaluation .•of product or service
performance with respect to certain specific functions and
determine how well it performs from customer's perspective.
For Example, how fast can a car go to 60 from 0 mph?
(2) Reliability (how often th~ product can fail within a
stipulated time?): It talks about probability of not failing of
components of say automobiles or airbus while on service for
a specified time period. Less the reliability, more the chances
of repair or replacement. For example, your computer will not
break down in the next year.
(3) Durability (how long can the product last?): This is the
effective life of the product or longevity before it is declared
as unfit for use. Repair is not possible after this phase of life.
(4) Conformance to Standards (is the product made exactly as
the designed?): It is the degree to which a product meets pre-
established standards, like the air conditioner can cool a 4,000
square foot space to 70 degrees F with an ·outside ambient air
temperature of 100 degree F, every time, as specified.
(5) Serviceability (how easy is it to repair the pr~duct?):
Customer's view on quality is ~lso influenced by how quickly
and economically a repair or routine maintenance activity can
be accomplished. This is mentioned as serviceability. For
· examples how long did it take to correct an error in your .
credit card sta(ement by the bank?
(6) Aesthetics (how appealing does the product look like?): ·
This is all about visual appeal of the product, often taking
into·account factors, such as style, ·colour, shape, packaging,
tactile characteristics, and other sensory features. For
example, the elegance of a crystal vase by Baccarat. _..
 ['J'"l"J'"rJ'" 273
Quality Management e
) features (value or what does the _product can actually do?):
17 customers tend to purchase products that have more value
added features. This can be beyond basic criteria to enter into
the market. A spreadsheet package may come with built-~
statistical quality control features while its competitors did
not in the same price range. Feature may also be definite as
addition or secondary characteristics attached and
- supplements primary functionary of a product. Thus, car
stereo is a feature of an automobile whose primary function is
transportation.
(8) Perceived Quality (what is the customer's feeling about the
product after intended use?): E.g. when we buy a T.V., we
look at the following parameters ·
Brand, Sales talk/Sales Brochure, Picture and Sound
Quality. Size/Dimensions, Appearance, Weight, Terms of
payment, Maintenance cost, Terms of delivery, Installation, -
Servicing/ skills
Service Quality Dimensions/Determinants/Components
. '
Service is generally defined as an experience felt by the
consumer. Say, in a restaurant, the way the customer is treated is
considered as a service. Services are often intangible in nature.
The quality of service is judged by how well the customer is
satisfied with the service. Service quality is about comparing
performance with thE?_customer expectations. Service quality also
leads to customer satisfaction and interrelated. The key to retain
customers is to understand their needs and fulfill those needs.
Making customers buy the services repeatedly requires focus on
dimensions of service quality. There are five dimensions of service
quality and given below:
(1) Reliability: Reliability refers to the dependability of
customers on specific service. It is all about what is promised
and what is delivered. Like, Indigo airlines in India have
proved to be low co;t airlines with high punctuality'.
 274 i"i"'i" Vfpul'•™ Production and Total Quality Management (Mis)

(2) Assurance: This dimension of service quality is ·related to the

competence of the service employee. The employees must be
competent to gain the trust of cu~tomers.
(3) Tangibles: The tangible dimension of quality is related to the
surroundings in which · the service is provided to the
customers. In a restaurant, it may be seating arrangement,
I
I , interior decoration and lighting arrangement.
(4) Empathy: Empathy refers .to caring attitude . that an
organization shows toward customer. This dimension of
service quality calls for individual attention to customer, so as
to.make them feel special.
(5) Responsiven~ss: Responsiveness refers to the time taken by a
service provider to respond to request. Like, LG customer
care in India promises response to customer complaints
within 24 hours.
(6) Time and timeliness: How long a customer must wait for
service, and if it is completed on time.
(7) Consistency: Expectation that the service . will provided the
same way each time.
(8) Accessibility and convenience: Ease of obtaining the service.
E.g. when we go to a Restaurant we look at the following
parameters.
Courtesy of staff, Layout of · table/ comfort, Lighting/
Ambience/ Atmosphere, Correct order taking, Service of the
waiters, Neatness/Clean Linen, Reasonably Quick Service,
Tasty Food, Courteous Serving, Proper Billing
(B) Quality from the perspective of the . producer or
manufacturer: .
Given an adequate product design, the primary . quality
concern of producers is quality of conformance. In other words,
the final product must conform to the specifications of the
design. This is achieved through proper production methods. ·
Important factors that determine conformance are:
(1) Design of the production proces~
(2) Performance level of machinery, equipment, and technology
p
275
QuQlity Management

, (3) Material~ used

. ( ) Training and supervision of employees
4
(S) Degree to which statistical quality control techniques are used
'fhree broad aspects are covered in the definition of Quality of
conformance, viz. defect detection, defect root cause analysis, and
defect · prevention. Defect prevention . deals with the means to
deter the occurrence of defects and is usually achieved using
statistical process control techniques. Detecting defects may be by
mspection, testing or statistical data analysis collected from
process. Subsequently, the root causes behind the presence of
defects are investigated, and finally corrective actions are taken to
.prevent recurrence of the defect.
If production fails to produce products and services that
conform to specification, the end result could undo all the quality
efforts built into the design.
Example: If ice cream mix is not given adequate time to "set
up" in the machine; it wi!l come out of the dispenser nµmy and
sloppy. Though the mix may be an excellent, ·heavily tested,
.. gourmet blend, the customer will be disappointed by its
appearance and texture.
I 10.5 QU,ALITY POLICY
Normally Quality is implemented in a company through a ·
Quality policy which, states the Company's intention of satisfying
-a customer requirements. Around their policy the company
develops a strategy to implement the same. The company needs
~o create an environment in which the policy is understood and
mvolves everyone in the organization. .
Examples of Quality Policies:
I Quality Policy of Johnson &Johnson
We will deliver to our customers, external and internal
f rod_ucts and seryices confirming at all times to clearly established
eqlllrements.
 2 76 ~rf'rf Vipul '.s™ Production and Total Quality Management (BMS)

• We commit ourselves as a corporation and as individuals to

'DO IT RIGHT FIRST TIME EVERY TIME'. To achieve this, we
will create an environment that encourages our employees and
suppliers to prevent defects.
Quality Policy of BEL
To be the market leader in defense electronics and in other
chosen fields and products, thereby serving the national needs
through quality, technology, and innovation.
/ Quality Policy of BRITISH AIRWAYS
"TO BE THE BEST"
Quality Policy of HONDA MOTORS
We are dedicated to supplying products of the highest
efficiency, yet at a reasonable price for worldwide customer
satisfaction.
10.6 FACTORS AFFECTING QUALITY
The quality of products and services are directly affected by
many base factors. In today's world these factors play a crucial
role in a company's ability to deliver a quality product or service.
/ Some of these factors are listed below.
(1) Markets: New products are hitting the market at an explosive
rate. Many of these products are manufactured -by material
and methods unheard till a few years back, · Customers
demand and get better products today. As markets broaden
in scope, the scope of _goods and services become more and
more specialized, Production today must be very flexible and
be able to respond rapidly and appropriately in different
markets worldwide. · '
(2) Mon;y: As competition has increased, profit margins have
decreased. Automation forced companies to spend heavily on
new equipment's and processes. To absorb these costs
productivity has to be increased, which means production.
loss, reworks; and scrap has to be kept to the minim~·
Quality costs have to be kept low which mean cost savll'lg
due to quality improvement has to be kept in prime focus.
Quafity Management
277

(3) Man: The rapid growth of technology and opening of new

fields have created a great demand for workers with
specialized knowledge. This specialization of people has
created a · need for persons who can bring together this
knowledge to plan and create operating systems that will
bring the desired results.
(4) Materials: Due to high material costs engineers have to
constantly keep coming up with ways to bring down the cost
of material used. They also need to come up with new
alternate materials that can replace costlier older material.
(5) Machines: The demand to cut costs is forcing companies to
use newer machines which will deliver better quality and
product using lesser cycle times. Further the machines need
to deliver higher quantities also to keep production costs low.
This means maintaining of these machines also becomes
critical as any and only down time of these machines leads to
increased costs.
(6) Ma,nagement: Today responsibility for product quality has to
be distributed among, various functions. E.g. Design of
design for quality of product 'design. Manufactµring for
process quality, service for after sales quality and marketing
for establishing the quantity of the new product required.
This means that .top management must ensure proper
allocation of responsibilities to all to achieve the organization
goals.
(7) Motivation: The increased complexity of the product means
that every employee has to give his best if quality is to be
maintained. This requires that Quality consciousnesses
among employees are high. This can be achieved only
through continuous education and motivation of the work
force. Motivation therefore needs to be on the top of the
agenda for any management team of an organization.
(S) Modem Methods of Information: With the spread of
computers, data collectiqn, storage retrieval retrieved and
transmission of information has become easy. This also
means that the right information can be given to the right
person at his workplace be it on the machine or in the office.
278 Vip1d's™ .Production and Total Quality Management (BMS)

From the above ~e see that there are many factors affecting
Quality and organizations must continually change to keep pace
with these requirements. ·
As responsible citizens it is our duty to demand Quality from
our suppliers and deliver Quality to our customers.
Quality is an endless journey. It is like walking towards the
horizon. No matter how much far you walk, it does not change
where the horizon is;
10.7 STAGES OF QUALITY J
In any organiz;ition quality is at three levels,
(1) Organization Quality: . Organizational strategy and the
various operational systems i.e. whether the organization is
doing the right thing. .
(2) Process Quality: the quality of inputs and outputs and inter
. functional activities that ensure goods and services produced
meet customer requirements.
Process Quality can be further elaborated . on "Never ·
ending series of improvement carried out in the entire chain
of activities". The process quality starts .a nd ends with the
customer, this chain -of activities can be .described in four
stages.
(i) Understanding and communicating customer
requirements.
(ii) Converting these .requirements into processes and
services.
(iii) Determine how these products and -services are
performing in the hands of the customer.
(iv) Determine new requirements of the customer which will
lead to increased customer satisfaction.
Process quality itself can be divided into three major
stages which we have already discussed in previous chapter.
 w Management
rrrrrr 279
l
QUO••t
(A) Quality of Design: Tlus is the stage where the customer
needs_ and requirements are translated into products and
services that would satisfy the customer.
0

(B) Quality of Conformance: This takes the design

requirements as the basis to measure and control and
ensures that inputs and outputs are in compliance with
· customer requirements.
"Quality of conformance is the extent to which a firm
·and its suppliers are able to meet and or upon the
specifications laid down by design that are required to
serve the needs of the customer". ·
(C) Quality of Performance: Quality of performance is how
well the product functions or service performs when put
to use. It measures the degree to which the product or
Service satisfies the customer from the perspective of
both quality of design and the quality of conformance.
Meeting customer expectation is the focus when we talk
about quality of performance. Automobile industry
conduct test drive of vehicles to collect information about
mileage, oi_l consumption. Bulbs are life tested to
understand · its reliability during useful life. Customer
survey is conducted to find customer's perception about
service delivered. If product or service does not live up to
customer expectation, then adjustments are needed in the
design or conformance phase.
· Each firm or organization needs to determine the
levels of performance of the product/service in the
market place, market research, warranty classes, and
repai~ calls· etc.
The data collected on the quality of performance i~
used for imposing the quality of design and the while
cycle is replicated on customer basis.
(a) Individual Quality: the performance of every person in the
organization.
 ______,,...
. '
280 ~~"'L"l"' ]
-= 1
~ Vfpul's™ Production and Total Quality Management (BMS)

[ 10.8 EVciLUTION OF QUALITY CONCEPTS ::J

Over th~ years quality has evolved over a number of stages
some of which are given below.
(1) Inspection.
(2) Quality Control.
(3) Statistical QuaHty Control.
(4) Total Quality Control.
· (5) · Ccimpanywide Quality Control.
(6) Quality Assurance.
(7) Total Quality Management.
Let us now understand the above stages.
10.8.1 Inspection:
Inspection involves measuring, examining, and testing
products, process and ·services against specified requirements to
determine conformity. During the early years of manufacturing,
inspection was used to decide whether a worker's job or a product
met the requirements; therefore, acceptable. It was not done in a
systematic way, but worked well when the volume of production
, was reasonably low. However, as organizations became larger,

,
the need for more effective operations beca,me apparent. -
/ 10.8.2 Quality Control:
Consists of ttie operational techniques and the activities, which
sustain the quality of the product or service that will satisfy given
needs.
Quality Control is thus the use of various techniques to
achieve, maintain and improve the quality standards of products
and process. Quality control usually co-ordinates the following set
of activities,
(1) Specifying what is required
(2) Designing the product/Service to the specification required.
(3) Production of the parts, components, assemblies and the
product.
 281
Q~'l
·ty Management . rf
.
ffrf ·
) inspection of the product at various stages of production to
14 ensure conformance to customer specification. '
(S) tyfonitor the use of the product/ s~rvice to obtain feedbacl<
from improvement.
From the above we can now lay d9wn the principal stages of . .
uality control. ·
[t) No manufacture without measurement.
(Z) No me~suremerit without records.
(3) No records without analysis.
(4) No analysis without feedback for correction and
improvement.
The concept of control: _
The concept of control includes all the activities which enable
an organization to achieve its objectives economically and
effic[ently. · '
There are three types ofcontrol namely
I

(1) Irregular control controlling quality when a complaint is .

received.
(2) Routine Control Regular control through inspection at
various stages in the productivity process. ·
(3) Scientific Control: Control through use of · various
measurement, analytical, and satisfied techniques.
10.8.3 Statistical Quality Control (SQC):
Statistical Quality Control (SQC) is a method to :measure the
degree of conformance of the various parameters involved in the
processing of products to previously lay doWI) sp~cification. SQC
techniques can be used for parameter invrolving both variables
and attributes.
l0.8.4 Total Quality Control (TQC):
Total Quality Control can~be describec;l as a framework for
ensuring continuing excellence.
The framework includes the following.
(1) • .
A philoso:ehy which groups together all departments and
activities and by a two-way flow of infonnation. · ·
 282 l'"rfg- Vfpul'•™ Production and Total Quality Management (8MS)

(2) A mind-set to .approve only those criteria, which will give

better than acceptable
-
quality. .
(3) A process for continuous improvement, which provides
II opportunity for achieving new and higher targets.
1.11 (4) TQC provides consistency and reliability in the products/
,/
I' service delivered to the customer;
11,
I The term 'total quality Control' was used for the first time in a
paper by Feigenbaum at ·the first international conference on
quality control in To~yo in 1969. The te!ffi referred to wider issues
within an organization.
10.8.S Company Wide Quality Control (CQC):
Ishikawa also discussed 'total quality control'.in Japan, which
js different from the western idea of total quality, According to his
explanation, it. means 'company-wide quJlity control' that
involves all employees, from top ~anagement to the workers, in
quality control. ·
10.8.6 Quality Assurance (Q. A.): '
PROCESS QUALITY+ ORGANIZ,A.TION QUALITY
Quality assurance basically means quality control activities in
an organization is carried out •in a systematic manner. What this
really means is that what is a,chieved .(output) matches with what
is planned. Quality Assurance includes making documents. from
one available to demonstrate compliance to quality and reliability
standards. · ,
Quality assurance tries to achieve quality by implementing a
set of laid down procedures and thereby avoidin.g defects from
occurring. ISO defines quality assurance as: All those planned and
systematic actions required to provide adequate confidence that a
product or service will sati~fy given requirements for quality.
A few other definitions of Quality assurance,
(1) Quality assurance is the act of ensuring that the product is of
such a quality that the consumer can purchase it worry free ·
and use it for a long time in worry free conditions.
(2) .-The systematic activity carried out by a producer to guaranty
. that the quality required by the customer is fully satisfied.
 Qu~lity Monog~ment l'"i"I'" 1
283
( ) Quality Assurance is the activity of providing to all concerned
3
the evidence- needed to establish confidence that the quality
function is being performed adequately:
Quality Assurance Activities:
QA covers all activities from product planning through
application to maintenance and disposal. QA therefore defines
what is to be done at each stage to guarantee quality, ensure all
function is impleinented, review and revise the activities ~s
needed. ·
(1) This can be basically described in Four steps (POCA-cycle),
namely ·
PLAN (P) .
DO (D)
·cHECK (C)
ACT . . (A)
This cycle should keep on repeating to ensure maintenance
and improvement of Quality. The above can also be depicted
as shown in the figure below.
The above also known as the Deming Cycle named after
the renowned Or. Deming - who first propagated this method
~-1 widely.
''J
IJ (2) Activities needed to Assure Quality are:
:'1
J'•
;.
(a) Pesigning Quality
(b) Purchasing Quality
(c) Standardization
(d) Analysis and control of manufacturing process
(e) Inspe(:tion and processing of defective products.
(f) Processing of customer complaint.
(g) Equipment management
(h) Personnel management
,f (i) .
, Technology development
(1') Auditing of the Quality Activities
'
1i1

L
 284 Vipul's™ .Production and Total Quality Management (BMS)

(3) Important Functions of QA:

. (a) Develop a QA policy. _
(b) 'Establish QA standards.
(c) Design and implement QA systems.
(d) Prepare QA procedures for all activities related to quality
(e) Quality evaluation at each stage
(f) Design quality
(g) Recording and analyzing quality problems.
(h) Ensure all QA functions/ activities are properly
understood by al~.
(i) Preparation,of correct product instruction manuals . .
(j) Quality system supervision and monitoring
Finally QA is a cross-functional activity therefore timely and
correct. feed .back to the diff.erent functions and areas . are
important in the successful implementation of QA systems in an
organization.
Quality Control Quality Assurance .
• Quality, ·Control is a Quality Assurance is" a process focused
product focused concept, concept, where the processes are ·puf .in
where checking of the place to ensure the correct steps are done in
actual results are done to the correct way. If the correct processes are
ensure that things are as in place there is. some assurance that the
expected. If the correct actual results will turn out as expected. ·
controls are in place you Quality assurance processes are put in
can know for certain that place to provide some comfort that the end
the actual results have been product is what you want. Quality control
achieved becaus~ the is making sure the end product really is
actual results have been what you want. That can still be a bit
checked. " confusing so this article will walk through
some examples to clarify the difference
between Quality Assurance ~s. Quality
I Control.
jiP
285
1;,,, Management ..
QUO•~

10:s.7 TOTAL QUALITY MANAGEMENT (TQM):

'fotal Quality Management:
In the 1980s to the 1990s, a new phas¢ of quality control and
. management began. . This became known as Total' Quality
Management (TQM). Having observed- Japan's success of
eJllploying quality issues, western companies started to introduce
their own quality initiatives.
. A typical definition of TQM includes phrases such as: customer
focus, the involvement of all employees, continuous improvement
and the integration of quality management into the total
organization.
[ 10.9 TOTAL QUALITY MANAGEMENT
10.9.1 TOTAL QUALITY MANAGEMENT:
Total: Made up of the whole
Quality: Degree of excellence a product or service provides
Management: Act, Art or manner of handling, controlling,
directing, etc.
10.9.2 Why TQM:
(1) A · question of survival in the intense competitive
environment.
(2) Increasing customer consciousness.
10.9.3 TQM DEFINITIONS:
(1) TQM is the management approach. of · an organization,
centered on quality, based on me participation of all its
members and aiming at long-term success through customer
satisfaction. and benefits to all members of me org~ation
and to society. - ISO
(2) TQM is an integrated organizational approach in delighting
customers (both internal and external) by meeting their
expectations on a continuous basis through everyone
involved with the organization working on continuous
~provement in all products, services, and processes along
with proper problem solving methodology. - INDIAN-
STATISTICAL INSTITUTE (ISi)
 · 286 • i'"FfFf Vlpul'•"' Production and Tata/ Quality Manaiement (81.1S)

(3) TQM is ·a people focused management ·system that aims at

I. continual increase in customer satisfaction at continually.
lower cost. TQM is a total system approach (not a separate
II ' area of program), and an integral part of high level strategy.
It works horizontally across functions and departments,
I --~ ,J

involving_ all employees,: top to bottom, and exceeds

I I backwards and forward to include the supply chain and the
.customer chain. -TOTAL QUALITY FORUM OF USA
n j
I
10.9.4 Objectives of 'IQ~:
(1) Process imprqvement. ·
I (2) Defect prevention.
l
f
(3) Priority of effort.
(4) Developing cause-effect relationships.
(5) Measuring system capacity.
II (6) Developing improvement checklist and check forms.
-
(7) Helping teams make better decisions.
(8) Developing operational definitions.
(9) Separating trivial from significant needs.
(10) Observing behaviour changes over a period of time.
10.9.5 Features/Characteristics of TQM:
The most important components of TQM are:
(1) Customer Focus
(2) Leadership of Top Management for Quality
a
(3) Quality as Strategic Issue
(4) · Continuous Improvement
(5) · Teamwork/Participation/Training
(6) Statistical Quality Control
Without these elements present, TQM will probab.l y not work.
10.9.6 PRINCIPLES OF TQM:
. .' Organizatiqns can successfully practice TQM if they have a
conductive work environment. A conductive work environment
will enable the successful implementation of TQM and ensure that
111111-------
.QllolitY .Management rf~rf 28
7

it becomes a way of life for the organization. To' create such_an

nvironment the organization must emphasis on followmg
: principles. By applying following eight Quality Management
principles, organizations will produce benefits for customers,
wners, people, suppliers and society at large.
0
principle 1 - Custo_mer-Focused Organization:
Organizations d~pend on their customers and therefore should
understand curr~nt and future customer needs, meet customer
requirements, and strive to exceed customer expectations.
Principle 2 - Leadership:
Leaders establish unity of purpose . and direction of
organization. They should . create and maintain the ·internal
environment in which people can become fully involved in
achieving the organization's objectives.
Principle 3 - Involvement of People:
People at all levels are the essence of an organization and their
full involvement enables their abilities to be used for the
organization's benefit.
Pri~ciple 4 - Process Approach:
A desired result is achieved more efficiently when related
resources and activities are managed as a process. ·
Principle s-·system Approach to Management:
Identifying, understanding, and managing · a system of
interrelated processes for a given objective improve the
organization's effectiveness and efficiency.
~rinciple 6 - Continual Improvement:
Continual improvement should be a permanent objective of the
organization.
Principle 7 - Factual Approach to Decision Making:
d Effecti~e decisions and .actions are based on the ~alysis of
ata and information.
 • l'JNJ.'f',.rl'JN
288 Vipul's™ Production and Total Quality Management (BMS)

Principle 8 - Mutually Beneficial Supplier Relationships:

An organization and its suppliers are independent, and a
• mutually beneficial relationship enhances the ability to create
value.
10.9.7 Eight Building Blocks or Key Elements of TQM:
The success of the TQM framework depends on eight Key
TQM Elements (building blocks) that are put together and further
categorized into 4 groups. They are as follows:
• Foundation (Ethics, Integrity, Trust}'
• l;luilding Bricks (Training; Teamwork, Leadership)
• Binding Mortar (Communication) .
• Roof (Recognition)

RECOGNITION

co TRAINING C
M
0
. M
u TEAMWORK M
N. M
IC LEADERSHIP
u
A N
Tl IC
ETHICS & INTEGRITY & TRUST . A
0
N Tl
0
N
Figure 10.2 - Eight Key Elements (Building Blocks) of TQM
(1) Ethics: .Ethics can be described as the understanding that an
individual has about what they deem right or wrong, or good
or bad at a workplace. Ethics form the gray decision area
where an employee can decide as to what is good to be
undertaken and what is bad that shouldn't be undertaken.
(2) Integrity: Integrity would essentially be defined as upholding
values/virtues such as honesty, justice, morals, and sincerity.
While knowing that a particular action is wrong, making sure
that they aren't part of such debauchery forms as a good
example of integrity.
 wManagement 289
l
QU0••1 ·

(J) rrust: Team members involved in TQM need to .trust each

other to ensure there is complete participation. Trust can
evolve into -~ relationship between team members that can
result in active d~cision making, tlms, implementation can be
successfully. It can also encourage commitment and foster
individual risk-taking, as this individual would know that the .
m
team members have their back important situations.
(4) Training: Training forms a quintessential part in the life cycle
of the TQM framework. Managers and supervisors are
forerunners 4lvolved in the implementation of a successful
TQM session. It is essential for them to cascade to every
employee within the organization the importance of the TQM
elements and the · ba~ic approach, that is, TQM. Training
employees to enhance their interper~onal skills, their decision :
making and problem solving abilities, can benefit the
implementation.
(5) Teamwork: With a collaborative stance taken by the team
,membei:s, it encourages quicker and better solutions to be
discussed and undertaken.
Teamwork would even provide the TQM process _with
feedback that can lead to permanent improvements within
processes and systems. Within teams, people can raise goocl .
feedback and come -cup with good initiatives pertaining to
quality. · ·, ·
(6) Leadership: Providing an inspirational vision to the
· employees is what is expected of a ieader. Making strategic. ·.
moves and guiding subordinates is what is expected from a
leader. They provide focus,· sense of direction, and dea;
~tructions with the goal of .the program in mind. With ·
TQM, it is essential that the top managemeht is mvolved in
the quality process ·as it COIIleS to become their responsibility .
and duty to maintain top notch quality at all times. · , . . .
(?) .Communication: Binding.everything together ~d-ce~E:nllitg
~e relationship of the employees·with the .element of quality ·
18
effective communication. Effective Communication enables ·
employee~ to learn better and be able ·to express better. This

....__ J
 290 Vlpul's™ Production and Total Quality Management (BMS)

facilitates innovative ideas and a proper medium to get them .

through.
There are different kinds of communication between employees
and these variations bring about proper flow of information: .
Do~ward. communication, Upward communication .and
Lateral communication. ·
(8) Recognition: Recognizing someone's work ' is extremely
important in nowadays' competitive environment.
Recognition promotes healthy competition in a bid to be
.-~ acknowledge for the brilliant work put in. Recognition
enabl~s an individual·to put their best foot forward to be in
line for a sparkling reward. It is but a boost to human morale
~~and pride.
10.9.8 Barriers to TQM:
,·
(1) ·Lack of m~agement commitment:
(2) .Lack of faith in and support to TQM activities among
management personnel. . ._
(3) Failure to appreciate TQM .as a cultural revolution. In
other words, inability to change organiz~tional culture.
(4) Misunderstanding about the concept of TQM.
(5) Improper planning.
(6) La~k of employees commitment.
(7) · Lack of effective communication.

I (8) Lack of continuous training anc;l educatio11. ·

(9) Lack of interest or incompetence ofleader~.
. (10) Ineffective measurement techniques and lack of access to
. data and results. · .
. (11} -Non-application of proper teols .µ1d techniques.
· · (12) Inadequate use of empowerment and team w9rk
10.9;9 , Need and I~portartce of Total Quality Management:
• \ • • M \

. The.heed and .the importance·can_be stated. witli the help of its

foUowjng benefits: ·'" . . ·
,
·•• .~·-,. ,
 Quality Management ffrfrf 29 /

(1) Lower .Co_st of Production' is achieved by implementing

TQM. · - . .
(2) Lower Cycle Time is achiev~d by implementing TQM. ··
(3) Lower Rejection Rates - Various Initiatives such ~s "Do .
right at First Time Approach", Process control, Just in
Time Approach, Quality Circles etc. enables the company
to reduce rejection rates.
(4)· Higher __ Employee Satisfaction as well as Because of
Customer Focus ap.proaches higher Customer Satisfaction
which-helps in increase in Market Share, increase its Sales
and thereby_increase in its profit.
(5) Team work is created by implement_ing TQM.
(6) Because of activities of Employee .involvement,
Participation & Suggestion Schemes, Employee gets
motivation & they work dedicatedly. c -

(7) Lower Employee Turnover.

(8) ·Higher Produ.ctivity.
10.9.10 BENEFITS OFTQM:
Tangible Benefits Intangible Benefits
(i) Improved product quality (i) Improved employee
participation . ' -
(ii) Improved productivity (ii) Improved team work
(iii) Reduced quality costs (iii) Improved working
relationships
(iv} Increased market and (iv) Improved customer satisfaction
. customers
' .
(v) Increased profitability (v) ·Improved communication
(vi) Reduced employee (vi) Enhancement of job interest
grievances
(vii) Enhanced problem · •solving
cap_acity ,
(viii) Better·company image

.........
 292 Vipul's™ Production and Total Quality Management (Bi\1S)

10.9.11 Criticism of TQM:

TQM is a passing fad; only 20% of Fortune 500 companies are
satisfied with TQM _initiatives; Malcom Baldridge Award never •
gained ariy prestige; 73% of electronics companies have quality
programs, but more than half show less than 10% improvement.
10.9.12 Traditional Management Vs TQM Approach:
Parameters Traditional Management TQM
Organization Is hierarchical and has Becomes flatter and
structure rigid of authority and more flexible
responsibility.
Focus On maintaining the Status On continuous
Quo and operating improvement in
efficiency system.
Relation between Dependence, fear and Workers see
workers and control supervisors as coaches
supervisor and facilitators.
Management Labour and training as Labour as asset and
perspective cost training as investment.
Primary basis for Gut feel and instinct .Shift to facts and
Decision systems.
Purpose To control To monitor and
improve
ORGANISATION:
Organisation consists of a number of people working for a purpose.
Each and ever_y employee, each and every department has a role to
play. Everyb_ody's role is equally important. Organisation becomes ·
most effective when all employees and all departments work together
and harmoniously to7?ards common company objectives. - . ._
MANAGEMENT:
_Management is t~e performance of the critical functions essential.
to the success of an <!!_ganization. Management can_usefully be viewed as
a network' of interrelated. functional responsibilities. They are not a
sequence of activities but rather a set of interacting ~ctivities that
constitute a whole. It should be recognized that activity in one junction
has impact on one or more of t}ze other function. - ·
Quality Management rfrfi'f 293

Traditional managerial practices based on function-by function

concepts limit ones appreciation of the interrelationships. Too
often they . cause competition rather than collaboration among
different functional areas. -
A quality environment has a customer focus with customers
being internal as well as external, it has a fundamental core
process, a methodology used by all in the organisation to meet
and exceed customer needs. Continual improvement of products,
services, systems; processes, and individual capabilities is the
accepted norm. Commitment to the pursuit of improvement and
disciplined use of quality techniques create and maintain the
quality environment. All employees from the CEO to the line are
involved. There is teamwork. The chahge from old Ways to new
takes time. The quality environment evolves. the management
style should change.
The major issues to be understood and worked on are:
. ' .

(1) How do we get everyone to work together.

(2) How do we maintain their involvement. ·
(3) How do we make them contribute their best.
(4) How do we create their satisfaction.
(5) . How do we continuously improve.
The soiutions to these issues ~ill emerge if the manages change .
their traditional beliefs and start to reco~e that
(a) E,mployees are not just resources; they are the very
purpose to achieve the objectives. · · ,
(b) The organization employs the,total 1;11an with body, mind
and intellect, and not just hands. ·
(c) Problems are with systems a:nd n<?t with people.
(d) Variance analysis focuses on what-how-why (and not
who). .
(e) People will be able to improve systems and solve
problems. · . . .
(f) Aiin is to utilize the full potential of all employ_ees and
r;
I

294 l'"e"'I'" _' Vipul's™ Production and Total Quality Management (BMS)
1I Total employee involvement is essential for customer ·
1

(g)
l1 · satisfaction.
I What we need today is total re-orientation from our traditional
I way of working to working together.
Individual
Il ,1, Team
/1 Managing Involving & leading ,
11 Delegation Participation, consensus
Control Empowerment
I . Problem management Problem solving
Traditional pyramid Structure Flattened structure
10.9.13 THE FOUR PILLARS OF TQM:
Pillar - 1: Satisfying Customers:
Aim of TQM is not only to meet the needs of the customer, but
also .about customer satisfaction. (Satisfying implied needs).
This also includes th~ internal customers as without satisfying
them; achieving satisfaction of external customers will be difficult.
Pillar - 2: Systems/Proce~~:
Establishing a system: is the basic building block of quality
management.
Within this system having the right processes will ensure
production of error free or defect free products. .
.' - The more robust the _process, the less will be the possibility of
defect occurring.
Pillar - 3: People: ,
People are the most important asset of the organizations; no
organization can succeed without the whole hearted involvement
of the people in the various aspects of the organization.
Pillar- 4: TQM Improvement Tools: ·
There exists alwa¥S, a potential for improvement. Use of th~
right, improvement tools and methodologies will ensure that the
organization remains competitive.
11111
295
Monogemen.t
rrrrrr
o~orrtY .
rQM-1inprovement Tools:
10,9,14 •
_,1,.1 ~enclunarking: · .
109fhis,•is the process_ of iden~ the
best_ practices . ~d
- es by companng productivity m specific areas ~•thin.
proach ·thin nd
apes' own company to other organizations both WI a
.011 . • d try
outside the m us .
'fhis is one of the Breakthrough (non continuous) quality
unprovem.ent technique. _
, ,14.2 Statistical process control:
10 9
This is a · statistical technique th,at uses periodic random
samples taken during actual production to determine whe~er
acceptable quality levels are being met or whether production
should be stopped in order to take remedial action. Because most
processes produce some variation, statistical process control uses
statistical tests to determine when variations fall outsic!e a narrow
range around the acceptable quality level. The emphasis .when
using SPC is on defect prevention rather than trying to inspect the
quality into the product. ·
10.9.14.3 Conunitment: ·
In order for the Eye _o n the Future Model to be a success, each
member in an organization must be committed to the -change
process. Jt cannot be viewed as the new flavour of the month, but
should rather be regarded as an exciting life changing process.
Too often peoples' enthusiasm wanes when they realize tha~ the
change process in an organization is not likely to occur overnight
:eople need to pl~dge their support to objectively analyzing their
Job_functions and procedures, and seeking new inl)ovative ways
10 unprove them. If necessary ipspirational spe.a kers should be
employed to enthuse staff to a new attitude of commitment. Once
again, people are led by example. If it appears that management is
not committed to the change process, this is the .attitude the
~~ple_wiUdevelop. Howeve! , if commitment is perceived to be
follo~tude of management, then the people ar~ most likely ·to
 296 Vipul's™ Production and Total Quality Management (BMS)

10.9.14.4 Training:
Training must be a part of the organizations succession
planning. In today's business environment any training which is
. less than visionary will' not help the organization meet its' future
goals and objectives. Training objectives must be supportive of the
company's vision and mission. In order to identify training, the
employees must be involved. System deficiencies including non-
conformance reports, customer complaints and job performance
appraisals will highlight the most urgent areas for development.
Training programmes must be devised and implemented to help
· - bridge the gap identified previously. The results of the training
must be evaluated to ensure that effective improvement has been
achieved and that employees are competent to use the skills
acquired.
Management must promote the need for continuous training, ·
as it will facilitate the following: ·
(i) Employ~es will be more confident and motivated in their
· work
(ii) Reduce staff turnover
· ·(iii) Reduce errors
(iv) Improve productivity
(v) Improve the organization competitiveness.
·Training must help each individual in the organization to
maintain Jl growing knowledge. of their business environment. It
· ' must be implemented to each individual,.from the directors to the
. cleaners. · · · ·
l().9.14~5 Kaizen Technique:
·--Which is expla.i ned in detail in the same chapter afterwards.
10.9.14.6 Quality Circle Technique: ,
Which is explained in detail in the same chapter c3:fterwards.
T'.
I
 Quality Management rfi'"~ 2 97

c= k" Im . . , 10.10 KAIZEN

Mas~a 1 · . ai introduced the concept of Kaizen in 1986.
Jv1asaaki Imai was born in Tokyo in 1930. He received his
bachelor's degree from the University of Tokyo in 1955.
According · to Masaaki Imai (1986), '.'Kaizen means
improvement. "Kaizen means continuous improvem~nt in personal life,
home life, social life and working life" (Kaizen Institute, 2004)
Kai == To modify, to change
Zen == Think. Make Good, Make Better
Kaizen == Kai+ Zen
- Make it easier by studying it and making the
improvement through elimination of waste.
When ·applied to the workplace Kaizen means continuing
improvement involving everyone managers and workers alike."
Imai relates quality to Kaizen by stating that" In its broadest sense,
quality is anything that can be improve~." ·
'Small" daily improvements that add up to big differences.
Here the focus ·.is on department-level participation in finding
· quality improvements. A typical way to start TQM improvements
is to begin with a precess flowchart in each department and note
which activities are value-adding and ·which are non-value:-
adding. Ideas and brainstorming are used to eliminate waste and
change work methods. The seven old Quality Control tools to
assist in problem solv~g are: . · ·
(i) . Cause ana Effect Diagram
(ii) Rlln Chart
(iii) ScatterDiagram
(iv) Flow Chart
(v) · Pareto Chart
(vi) Histogram
. I
(vii)Control Chart.
· Basic Tips for KAIZEN activities:
(1) Discard conventional fixed ideas.
 29.8 ~
. ~rf"
= ___. l!i!iil
l'J'" . Vlpul'•"" Pro:1uction and Total Quality Management (8MS)

(2) Think of how to do it, not why it cannot be done.

(3) Do not make excuses. Start by questioning current practices.
1/
I
(4) Do not seek perfection. Do it right away even if for only 50%
of target.
(5) Correct it right away, if you make mistake.
(6) Do not spend money for KAIZEN, use your wisdom.
(7) Wisdom is brought out when faced with hardship.
(8) Ask 'WHY?" five times and seek root causes.
(9) Seek the wisdom of ten people rather than the knowledge of
one.
(10) KAIZEN ideas are infinite.
GEMBAKAIZEN:
"GEMBA" is a Japanese word meaning "real place", where the
. real action takes place. In business, GEMBA is where the value-
adding activities to satisfy the client are carried out.
GEMBAKAIZEN is to make continuous improvement at the
real place, where the action is going on, and that can make your
organization better. '
Kaizen - Basic Rules for Change:
(1) Keep an ?pen mind to change. ·
(2) No such thing as a dumb question or idea.
(3) · Avoid spending money (Capita! expense should be a last
resort) . .
(4) Maintain a positive attitude.
(5) ·Don'.t' make excuses & question current practices.
(ii) · Think about how to do it, NOT why it can't be done.
}ust do it!! . --
(7)
Managem_ent has two major functions in KAIZEN
(1) Crea_te a conducive environment and encourage continuous
improvement (technological, managerial and operative) and I

· establish standards. . ,
.J
(2) .·Maintain the standards established
Quality Management
299
The ~portant role for management in maintenance function is
to establish the standards, policies and procedures so that they are
followed by everybody and they could be monitored - and
re~iewed. Management also has the responsibility to educate and
tram the people to enable them to follow the standards. Thus, in
the Japanese perception, one action follows the other in
succession.

10.11 DR. W. EDWARDS DEMING'S CONTRIBUTION

TQ QUALITY MANAGEMENT
(1) Foundation of Deming Philosophy
(2) Philosophy focuses on reducing uncertainty and variability in
design and manufacturing processes variations are the chief
culprits of poor quality
(3) Advocates a -never-ending cycle of . product design,
manufacturing, test, sales, followed by market surveys,
redesign, etc.-
Deming articulated the first comprehensive philosophy . of
quality management. It was based on the following four key
concepts and put into practice using his 14 Points (14
PRINCIPLES FOR TOP MANAGEMENT).
· 10.11.1 Four key concepts on which Deming's philosophy based:.
(1) Systems-Thinking and Continuous Cycle of Improvement:
I?eming was not interested in assigning blame .to individual ·
parts of a system, like assuming _all defects are caused by
faulty equipment or poor workers. He wanted to treat quality·
. issues system wide and continuously. His POCA (plan-do-
check-act) cycle illustrates continuous improvement.
(2) Fact-Based Management: Many decisions are made in
conditions of uncertainty. Such decision-making is necessary,
but when it creates a habit of "jumping to concl~sions" when
assigning causes to problems, it creates even bigger problems.
Deming advocated using fact-finding tools to identify-cause-
and-effect relationships for solving problems.
(3) Human Psychology for
Organiz~tion: Deming ad~oc~ted .'
many of tlle motivational concepts developed dunng the
 300 Vipul's™ Production and Total Quality Management (BMS)

"human relations movement." He did not think it wise to

berate workers for poor quality; rather he wanted to create an
open, fear-free, cooperative work environment.
(4) Statistical Study of Quality: These concepts provide the
theoretical foundation for the use of statistical control charts.
To understand these very important concepts, we must fully
understand variation.
Variation ·is the degree to which an actual activity or
measurement deviates from a desired value or an average
value.
Demin~ identifies two different types of variation: .
(i) · Common Cause Variation: ''.n aturar•·variation caused by
the system as set ·up by management; can only be fixed
by changing the_process .·through the 5 M's (men &
women, machines, measurement tools, materials, or
methods). All systems have some "natural" variation; the
goal is to shrink this to a minimum. Using traditional
methods (firing workers, using slogans, et~.) to "fix" a
system with natural (common cause) variations will only
make the system worse. .
(ii) Special . Cause .Variation: variations caused by
identifiable "special event"; can usually be fixed by an
operator and identified by using SPC control charts
10.11.2
, Dr. W. E. Deming's-14
. princjples for top
. management:

(1) Create constancy of purpose for improving the product and

service, which involves ·redefining a company's role as
staying in business and providing jobs through innovation,
research, constant improvement, and maintenance;
(2) Adopt new philosophy, where poor workmanship and sullen
service are no longer tolerated and mistakes and negativism
are unacceptable; - . ·
(3) . Cease dependence on mass inspection, because quality does
not come from inspection but from improvement of the whole
process;
 L
ouolitr Management ¥f ~"'ff' 30 /

Cease ~oing business on price tag alone, because when

141
purchasing deparn:nents award business to vendors who
offer the lowest pnce, supplies of low quality are often the
result; ·
(S) Improve the process continually, artd realize that
unprovement is not a one-time effort but a continual proces,s;

16) , Institute training on the job so that workers are not learning
their jobs from other workers who were never trained
properly in the first place;
(7) Institute leadership to help people to do a better job rather
than tell people what to do or punish them when they really
need individual help;
(8) Drive out fear so people will not continue to do things the
wrong way or not do them at all because they are afraid to
ask questions or take a position;
(9) Break down barriers between departments so everyone is
working together as a team and not competing .with each
other for conflicting goals;
(10) Eliminate slogans, exhortations, and targets because they
never help anybody to do a good job;
(11) Eliminate numerical quotas because they cause people to
meet a quota at any cost to keep their jobs, without regard to
the quality of thE: product or the _damage this does to the
~ompany;
(12) Allow pride in workmanship by removing barriers such as
ineffective supervisors, faulty equipment, and defective
materials;
(13) Institute a program of self-improvement so that both
management and the workforce will always be informed of
new methods, including teamwork; and
(14) Take action to accomplish the tra~formation by developing a
_ plan of action to carry out the quality mission and involving
both management and workers in. carrying- out ,the quality
~ission. ·'
· 302 ~l"l~i!i~
-~ -· _, Vip11l•s™ Production and Total Quality Management (BMS)<

10.11.3 Theory of Profound Knowledge:

In order to prc;,mote cooperation, Deming espouses his Theory
of Profound Knowledge. Profound knowledge involves expanded
views and an understanding of the seemingly individual yet truly
interdependent eleme11ts that compose the larger system, the
company. Deming beli~ved that every worker has nearly
unlimited potential if placed in an environment that adequately
supports, educates, .and nurtures senses of pride ·and
responsibility; he stated that the majority 85 percent of a worker's
effectiveness ·is determined by his environment and only
minimally by his own skill. ·
A rmanager seeking to establish such an environment must:
• Employ an understanding of psychology of groups and
individuals.
• Eliminate tools . such as production quotas and
sloganeering which only alienate workers . from their
. supervisors and breed divisive competition between the
workers themselves.
• Form the c;ompany into a large team divided into sub-
teams all working on different aspects of the same goal;
barriers between departments often give rise conflicting
objectives,and create unnecessary competition.
·• Spread profit to workers as teams; not individuals.
• Eliminate fear, envy~ anger, and revenge from the
workplace. ·
• Employ · sensible methods such as rigorous on-the-job
- training programs.
In the resulting company, workers better understand their jobs· ·
-the specific tasks and techniques as well as their higher value;
thus stimulated and empowered, they perform better. The
expense pays for itself.
 303
. Q~olity Management rfffrf _,

The ideas of W. Edwards Deming may seem common or

obvious now; however, they have become embedded in our
culture of work. Dr. Deming's ideas (and personal example) of
· hard work, sincerity, decency, and personal responsibility, forever
· dianged the world of management. "It is not enough to just d?,
your best o~ work hard. You must know what to work on.
.w. Edwards Deming. .

Theory Knowledge
about of

. Figt0.3

[ 10.12 POCA - THE DEMING CYCLE

W. Edwards Deming in the 1950's proposed that business
processes should be analyzed and measured to identify sources of
variations that cause products to deviate from ·customer
requirements. He .recommended that business processes be placed
in a continuous feedback loop so that managers can identify and
change the parts of the process ~at . need improvements. As a
· teacher, Deming created a (r~ther oversimplified) dia~am to
illustrate this continuous process~ commonly known as the POCA
cycle for Plan, Do~Check, Act
(1), ·PLAN: Design or · revise business"process· components to
improve results. . ·
(2) DO: Implement the plan and measure its performance.
(3) CHECK: Assess the measurements' and report the resuits -·
·- to decision makers. · ·
(4) · ACT: Decide.on changes.needed to.improve the process . .
 304 Vipul's™ Production and Total Quality Management (BMS)

Deming's POCA cycle cart be illustrated as follows:

ACT PlAN

CHECK DO

Figl0.4
Deming's focus was on industrial production processes, and
the level of improvements he sought was on the level of
production. In the m~dern post-industrial company, these kinds
of improvements are still needed but the real performance drivers
often occur on the level of business strategy. Strategic deployment
is another process, but it has relatively longer-term variations
because large companies cannot change as rapidly as small
business units. Still, strategic initiatives can and should be placed
in a feedback loop, complete with measurements and planning
linked in a POCA cycle.
The POCA ··cycle is also known by , two other names, the
Shewhart cycle and the Deming cycle. · ·
Walter A Shewhart first discussed the concept of PDCA _ !n his
1939 ·book, Statistical Method from the Viewpoint of Quality
Control. Shewhart said the cycle draws . its structure from the
notion that constant evalua,tion of manage!}lent practices, as well
-as the willingness of .management to adopt . arid disregard
unsupported tdeas, is key. to the evolution- of a successful ·
ent~rprise. - - . . .
W. Edwards Deming was the .one who first coined the term
"She.,whart . cycle" for PDCA, naming _it after his .mentor and
teacher at Bell Laboratories _in New York. Deming promoted .
POCA as a primary means of achieving. CPI.5 He also referred to ·
the POCA cycle as the PDSA;cyde (''S" for shldy).
Deming is credited with encour~ging the Japanese in the 1950s .
.,, to adopt POCA. The Japanese eagerly embr~ced POCA ~nd other
1111" 305
;N Management
QUO,.,
l
· -ality concepts, and to honor beming for his instruction, they
qtlf to the POCA cycle as the Deming cycle. ·
re er
o.1 pf{JLIP CROSBY'S CONTRIBUTION TO QUALITY
1 3 MANAGEMENT
Crosby's name is best known in relations to the concepts_ ~f Do
Right First time and Zero Defects. He considers traditional
1tt1ality control, acceptable quality limits and waiv_e rs of sub-
qtandarcl products to represent failure rather than assurance of
. :uccess. Crosby therefore ~efines quality as conformance to t~e
requireinents which the company itself has established for its
products based directly on its customers' needs. He believes that
since most companies have organisations and systems that all~w
deviation from what is really required, manµfacturing companies
spend around 20% of their revenues doing things wrong and
doing ·them over again. According to C:::rosby this can be 35% of
operating expenses for service companies. .,
Quality Management Maturity Grid by Philip Crosby:
In the book 'Quality is Free' written by Philip Crosby, _he
advocates the 11se of a simple tool to show where you are in the
quality management spectrum; he calls .it the Quality
Management Maturity Grid. ·
The grid is a simple 6 x 5 matrix tj:tat shows 5 different stages
of maturity of the company's quality management against six .
different quality · management categories (management
understanding of quality, problem handling, cost of quality, etc).
The lowest stage of maturity is called 'Uncertainty' the
organisation is inexperienced, quality management is a low
priority and reactive, etc. then as quality management matures it
?o~s through the stages of 'Awakening', 'Enlightenment',
Wisdom', then the highest level, 'Certainty'. ·
Each point maturity versus category on the grid has a brief
~escription of how that combination appears in the company; for
~tance, in the 'Uncertainty' stage, Problem Handling looks like
/r~~l~ms are fought as they o~cur; no resolution; inadequate
efimtion; lots of yelling and acc;usations." If that -sounds like
 Vfpul's™ Production and Total Quality M~nagement (Bh1S),
~.,
your company then I'm sorry to hear it and you are at the
- 'Uncertainty' stage for Problem Handling! ·
Quality Management Maturity Grid is given below:
MasuNment Stage 1 Stage2 Stage3 Stage4 Stages
categories Uncertainty Awakening Enlightenment Wisdom Certainty
(Ad hoc) (Repeatable) (Defined) (Managed) (Optimizing)
Management Information Management Through the Management is Information
understanding quality is not recognizes information participating. It quality
andattHude considered a that quality understands the management
management infoonation improvement principles of is considered
tool, quality program, information an essential
MaryagerJ!8nt management management quality part of the
I tends to blame maybe of learns more management company
I. data value but is not about quality and recognizes system.
administration willing to management, ii its continuing
or informali9n provide money is becoming role:
services for or time for it. ' more suppollive
'information and helpful.
quality
problems' or
vice versa.
lnfonnatlon Data quality is A stronger All assessment is The information The
quality hidden in information incorporated and quafrty manager information
organization application quality role is managers have a reports to a chief quality
status development 'appointed' role in developing information manager is
d9Partments. but the main applications. officer. Status paitofthe
Data audits are emphasis is reporting and management
probably-not still on preventive team.
part of the correcting bad action are Prevention is
organization. data. effective. The the main
Theemphasis organization is focus.
is on correcting involved with Information
bad data. business areas. quality is akey
consideration
in all activitieS-

Information Problems are . Teams are set Communication Problems are Except in the
quality problem dealt with as upto attack on corrective identified early in most unusual
handling they occur. major' action is their cases,
There is usually problems. established. development All information
no resolution Long-term ~roblems are functions are quality
due to solutions are faced openly and open to problems are
inadequate not solicited.. resolved in an suggestion and prevented.
definition. orderly way. improvement
Conffict is
common.
Cost of Reported: · Reported: 5% Reported: 10% Reported: 8% Reported: 5% .
lnformatlon Unknown Actual: 18% Actual: 15% Actual: 10% Actual: So/o
quality as a Aclual:20%
percent of
revenue
11111' 307
litY Management
QUO Information
- There are no Motivational Management
implements a 14·
A 14-point
program is
quality
improvement
inf0!1Tl'tion organiZed short-tenn ~tinuingand
efforts are point program. It is a normal
qualllY t activities, an.d benefits are
thoroughly and continued
I111 provemen understanding made.
understands and starting tobe
,cti0"1 of such optimized. activilY·
establishes each
activities is .
step. ~\

lacking. -WeknowwhY
'Information
----
summation of
company
'We don1 know
why we have
problems with
'Is'nabsolutely
necessary to
always have
'Through
management
commttment and
quality problem
prevention is a
routine part of
we do not
have problems
with
1n1ormatlon problems with inlonnation information
quality posture inlonnatiOn our operatiOn.'
·infonnatiOn quality quality.'
quality.' improvement, we
quality?'
are Identifying
and resolving our
problems.'

-The 14 Steps To Quality Program Improvement:

Quality Guru Philip Crosby has developed 14 steps for an
organization to follow in building an effective quality program:
(1) Management Commitment-Management is committed to
quality and this is clear to all: Clarify where management
stands on quality. It is necessary to consistently produce
conforming products and services at the optimum price.
(2) Quality Improvement Team-Create quality improve~ent
teams with representatives from all workgroups and
functions: These teams run the quality improvement
program.
(3) Quality Measurement-Measure processes to determine
current and potential quality issues: Communicate current
and potential non-conformance problems in a manner that
permits objective evaluation and corrective action. Basic
quality measurement data is obtained from the inspection
and test reports, which are broken down by operating areas
of the plant. By comparing the rejection data with the input
data, it is possible to know th~ rejection rates.
(4) Cost of Quality Evaluation-Calculate the cost of (poor)
quality: Define the ingredients of the COQ and explain its use
as a management tool.
(S) Quality Awareness: Raise quality awareness of all
employees: Provide a method of raising the personal concern
 308 rf"ff~" Vipul's™ Production and Total Quality Management (BMS)

felt by all personnel in the company toward the conformance

of the product or service and the quality reputation of the
company. ···
(6) Corrective Action-Take actions to correct quality_ issues:
Provide a systematic method of permanen.tly resolving the
I problems that are identified through previous action steps. ,
I;
Establish an Ad Hoc Committee for the Zero Defects
I
(7)
Program: Examine the various activities that must be
conducted in preparation for formally launching the Zero
Defects program. The quality improvement task team
should list all the individual action steps that build up to Zero
Defects day in order to make the most meaningful
presentation of the concept and action plan to personnel of
the company.
(8) Supervisor Training-Train supervisors in quality
improve·ment: Define the type of training supervisors need in
order to actively carry out their part of the quality
improvement program. The supervisor, from the board
chairman down, is the key to achieving improvement goals.
The supervisor gives the individual employees their attitudes
and work standards, whether in engineering, sales, computer
programming, or wherever.
\
Therefore, the supervisor must be given primary.

V consideration when laying out the program.

(9) Hold zero defects days: Create an event that will let all
employees realize through personal e~erience, that there has
been a change. Zero Defects is a revelation to all involved that
they are embarking on a new way of corporate life. Working
under this discipline requires personal commitments and
understanding. Therefore, it is necessary that all members of
the company participate in an experience that will make them
aware of this change. · ·
(10) Goal Setting-Encourage employees to create their own
quality improvement goals: Tum pledges and commitments
into action by encouraging individuals to establish
improvement goals for themselves and their groups. About a
Quality Management l"'rf[f 309

, week after Zero Defects day~ individual supervisors should

ask their people what kind of goals they should set for
themselves. Try to get twc:i goals from each area. These goals
should be specific and measurable.
(ll) Error Cause Removal-Encourage employee communication
with . management about obstacles to quality: Give the
individual employee a method of communicating to
management the situations that make it difficult for the
employee to fulfil the pledge to improve.
(12) Recognize participants' effort: Appreciate those who ·
participate. People really don't work for money. They go to
work for it, but once the salary has been established, their
concern is appreciation. Recognize their contribution publicly
and noisily, but don't demean them by applying a price tag to
everything.
(13) Create quality councils: Bring together the professional
quality people for planned communication on a regular basis.
It is vital for the professional quality people of an
organization to meet regularly just to share their problems,
feelings, and experiences, with each other.
(14) Do it all over again quality improvement does not end:
Emphasize that the quality improvement program never
ends. There is always a great sign of relief when goals are
reached. If care is not taken, the entire program will end at
that moment. It is necessary to construct a new -quality
improvement team, and to let them begin again and create
their own communications.
Frbm the above 14 points Philip Crosby communicated th~t
management should take prim~ responsibility for quality, and
workers only follow their managers' example.
Crosby's Quality _Improvement Process is based upon the Four
Absolutes of Quality Management:
(1) Quality is defined as conformance to requirements, not as
'goodness' or 'elegance'. ·
(2) The system for causing quality is prevention, not appraisal.
11'/!1I
I II I ,.
II 3 IO ·=
L''.f"L'rrl° Vipul's™ Production and Total Qual;ty Management (BMS)
I I
(3) The performance standard must be Zero Defects, not "that's
close enough". .
(4) The measurement of quality is the Price of Non-conformance
not indices. · '
I
According to Crosby, five characteristics of an highly
! i successful organizations are:
(i) People routinely do things right first time.
(ii) Change is anticipated and used to advantage.
(iii) Growth is consistent and profitable.
(iv) New products and services appear when needed.
(v) Everyone is happy to work there.
10.14 JOSEPH M. JURAN'S QUALITY TRILOGY
Joseph M. Juran made many contributions to . the field of
quality management in his 70+ active working years. In 1926, a
team of Quality Control pioneers from Bell Laboratories brought a
new program to Hawthorne Works. -The program, designed to
implement new tools and techniques, required a training
program. From a group of 20 trainees, Juran became one of two
engineers for the Inspection Statistical Department, one of the first
of such divisions created in American industry.
As early as 1928, Juran had written a pamphlet entitled
"Statistical Methods Applied to Manufacturing Problems." By the
end of the war, he was a well-known and highly-regarded
statistician and industrial engineering theorist. After he left
Western Electric, Juran became Chairman of the Department of
Administrative Engineering at New York University, where he
taught for many years. He also created a thriving consulting
practice, and wrote books and delivered lectures for American
Management.Association. It was his time with NYU and the AMA
which allowed for the development of his management
philosophies which are now embedded in the foundation of
American and Japanese management.
His concepts of "Breakthrough", "The internal customer" and
the "Quality Trilogy" did much to build on the foundation of

~, business improvement established by the other quality gurus.

 311
QllOlitY Management .
e us e of Pa re to . an aly sis for effective ·pr ob l~ m
anded on th
t of qu ali ty " an d th e co ncept of co m pa ny "q ua lit y
!:eting, "cos
' ·
councils• ty wa s intrinsically lin ke d to
Juran main tai ne d th at q~ ali
Satisfaction in th is co nt ex t
tisfaction an d di~satisfaction.
roduct sa
su pe rio r pe rfo rm an ce or features, wh er ea s th e
~as the or
isfac tion wa s th e de fic ien cie s or defects in th e pr od u~ t.
(iissat
o di sti nc t ar ea s we re co nc erned w ith m at ch in g
service. These tw n) an d bu ild in g th e
m en ts (th e ex ter na l di m en sio
customer require
rv ice co rre ctl y (th e in ter na l dimension). Ju ra n's we ll
product or se
fin iti on , "F it fo r pu rp os e" ne ed s further clarification. Fo r
known de y
pu q, os e an d wh at 's th e re al purpose. As th er e ar e m an
whose e business, Ju ra n
ter na l an d ex ter na l to th
customers bo th in ho w an d w hy th es e
at qu ali ty be gi ns wi th wh o,
maintained . th
wi ll ~s e it, wi th ou t th is in fo rmation an y im pr ov em en t
· customers s
gu es sw or k. ill us tra tin g th is po in t by .sta tin g a da ng er ou
will be
m ee t all sp ec ifi ca tio ns an d still no t be fit fo r use.·
product could
, hi s "B ig Q" co nc ep t of qu ali ty no t be in g ju st ab ou t
More recently
tur ing bu t ex ten ds ac ro ss or ganisational links an d on to
manufac
the customers.
ntrol Ha nd bo ok , first re le as ed
His classic book, th e Quality Co
ll th e sta nd ar d ref ere nc e wo rk for qu ali ty m an ag er s.
in 1951, is sti
ing tab le ou tli ne s th e·m ajo r po in ts of Dr. Ju ra n's qu al ity
The follow
management ideas:
it
.does no t ha pp en, by ac ci de nt
Juran's ·view is that, "Quality
". Se ein g qu ali ty pl an ni ng as th e th re e.e le m en ts
must be planned
Pl an ni ng , Qu ali ty Co nt ro l _an d Qu ali ty Im pr ov em en t
of Quality
pa ral lel to bu dg eti ng , co st control an d co st' re du cti on .
running ire d to im pl em en t a
t ni ng 's ke y ele me nt s re qu
Sating that plan
str ate gy we re to id en tif y customer ne ed s, de fin e
com~any-wide
als, id en tif y an d im pl em ent quality metrics, pl an ni ng
quality go
ity , an d. co nt in ua lly m on ito r results to re du ce d
process capabil
an d no n- m an uf ac tu rin g er rors. All this su pp or ts
~anufacturing e
ory th at qu ali ty is no t fre e an d there is a po in t wh er
the
is mo re co stl y th an the va lu e of the qu ali ty ob tai ne d.
conformance
 ◄
3/2 Vipul's™ Production and Total Quality Management (BMS)

Quality Trilogy:
• Identify who are the customers.
• Determine the needs of those customers.
Quality • Translate those :r;,.eeds into our language .
.• Planning
• Develop a product that can respond to those needs. ·
• Optimise the product features so as to meet our
needs and customer needs.

Quality • Develop a process which is able to produce the

product.·
Improvement
• Optimise the process .
• Prove that the process can produce the product
Quality under operating conditions with minimal
Control inspection.
• Transfer the process to Operations.
Internal customer:
Juran realised that the customer was not just the.end customer
and that each person along the ~hain has an internal customer,
and as ·such is supplier to the next in the chain. Therefore Juran
maintained that at each stage was a "Three role model": supplier,
process and customer: The "three role model" represents a
breaking down of the complete cycle_into numerous opportunities
for ongoing process and business improvement. ·Emphasising
those quality improvements can be identified and achieved
'throughout the complete cycle from the original customer need
through to the receiving.external c~stomer. ·
By exploring the complete lifecycle; Juran points out that the
"big picture" must include suppliers and in so doing biiings· into
the equation Purchasing and Sub-contract as prime elements to
maintaining ·pr.o duct quality (essential when prime contr~ctor
ships are involved). Expanding this argument, he rightly state~
that, "a single source can more easily neglect to ,sharpen its
competitive edge, cost and service", b1:1,t goes on to temper it with
a hands-on tea1n approach to vendors being·more productive than
an adversarial one.
 'in! Management 313
QEO••,
/

Sy accepting that.the cycle starts and ends with the customer, it

can see how important the concept is. ·
Quality Trilogy:
QUALITY CONTROL (DURING OPERATIONS)

40 SPORADIC
SPIKE
I .

.I
I

ORIGINAL ZONE
20 OF QUALITY CONTROL
LL
-------------r---~-~--~
I
0 en I I
1-
(/J
z I I

0 Oz
0
1 NEW ZONE OF
-~ (.!) CHRONIC WASTE I : QUALITY CONTROL
a:W
wen I
a. ' I QUALITY ~___,,. '
0 : IMPROVEMENT,-~ - - - - - - - - - - -
o----------------------------
0 TIME

. Fig 10.s·
Quality Planning Road Map:
• Identify customers.
• Determine customer ·needs.
• Translate customer needs into specifications.
• Develop product or service to rrieet customer needs.
• Optimize prodiict or service features and characteristics.
• Develop process capabilities to produce product or service.
' Prove·proc~ss.
1
Production wise process.
== 10.15 THE COSTS OF QUALITY
In recent years, many companies have ·recognized the
j
In.portant relationship between cost and quality. In the past,
f -
ent (BMS)
Vipul's™Production and Total Quality Managem
;I 314 g-g,.rr -
ts of poor quality
companies generally underestimated the cos
y costs are now
because they were difficult to quantify. Qualit
ieving goo d quality
defined in two major categories: the cost of ach
costs dedicated to
and the cost of-poor quality. Generally, as the
I
of poor quality
I achieving good . quality increase, the costs ·
decrease.
ion are major
I Concepts about quality cost categorizat
research into the
contributions of Joseph Juran. Though
ty is inconclusive,
relationship between quality and profitabili
s in quality lead to
·ma ny experts believe that long-term investment
rket shar~, greater
gre ate r profitability through increases in ma
pr-oductivity, and lower costs.
(1) Costs of Achieving Good Quality;.
(i) Pre-vention (for best long-term
savings, invest here):
rovements,
quality planning, pro duc t design, process imp
training, information.
(ii) Appraisal: inspection. and testing
, test equipment,
·quality-related operator labour.
(2) Costs of Poor Quality:
failure,
(i) Internal Failure: scrap, rework, process
downtime, price-downgrading.
(ii) External Failure (will be.high _if insuff
icient investment ·
ts, product ·
. in 1st two types): customer complaint cos
s. .:.
return, warranty claims, pro duc t liability, and lost sale
USE AND
·10.16 ISHIKAWA'S FISHUONE ANALYSIS (CA
EFFECT ANALYSIS)
10.16.1 What is Fishbone analysis? ..
. It can be
Fishbone analysis is a technique to solve problems
plaints~It hel~s
used to analyze service failures and customer com
ce and ho": it
to find out why such a failure or complaint took pla
can be prevented in future. It is an invention of a
Japanese quality
specialist called Dr. Kaoru Ishikawa.
wa diagraJJ\
Alternate.names for Fishbone analysis are Ishika
or Cause and Effect diagram or Tree analysis.
 315
/inl Management.
QU0 1•1
. .·
WJten is a Fis hbo ne ana lysi s required?
co~ d be a
) To find out the r?~ t __cau se fo~ a pr? ble m. :m s ive ry. or
(t customer com pla int or .· a f~il~re
m serv ice del
ono log ica l
interactive ma rke ting. The re cou ld be a seri es of chr
hav e t~e n to
events tha t hav e cau sed the pro ble m. ·Th e cau ses
olv ed ~ the
be dep icte d in seq uen tial ord er. The per son inv
bee n ser ved
interactive ma rke ting fail ure ma y not hav e
t per son nel .
properly as an inte rna l cus tom er of the sup por
find the roo t
Hence we hav e to trac e bac kw ard s unt il we can
_roo t cau se.
cause. Fish bon e ana lysi s hel ps us trac e hac k to the
cla ssif ie1
It hel ps to ana lyz e the pro ble m if the cau ses a~e
d in ser vic e
in to gro ups . The gro upi ng tha t is com mo nly use
a~d Peo ple .
industries is: Equ ipm ent , Pol icie s, Pro ced ure s
rou ndi ngs ,
Another kin d of gro upi ng tha t can be use d is:·Sur
ies can be
Suppliers, Sys tem , and Ski lls. The se cate gor
atio n. p-te
changed as per the · nee ds of a par tjcu lar situ
sib le cau ses .
categories ·are me ant to hel p you thin k of all pos
You can ma ke any c~tegories tha t sui~ you . · ·
(2) Fishbone ana lysi s is ver y hel pfu l to
find . out the cau se of a
ed to dea l
problem in. wh ich peo ple are inv olv ed. It is des ign
with hum an erro rs.
(3) It is suit able for use in eve ryd ay life
by peo ple wh o are not
cal too ls or
quality specialists. It doe s not nee d any stat isti
wh o can
specialized equ ipm ent . It can be use d by any one
think in a logical way .
pon sib ilit y of
(4) It -c~ hel p a gro up of peo ple giv en the res
te and hel p
solving a pro ble m, a tran spa ren t wa y to col lab ora
each oth er trac e the roo t cau se.
(S) It can be use d to stu dy a pro ces s and
find out mis sin g ste ps
and errors of seq uen cin g. •
Steps to mak e a F1s . hbone dia. gram:
(I) Decid h h styl e. The
tree e w . et er you pre fer ti te Fis hbo ne or the tree
style 1s bet ter as all cau ses of one lev el can be see n · a
Th . m
verticals e F1shbone is diff icul t to rea d in a com ple x
anal . pace.
ysis. The Fish bon e, on the oth er han d is be~
er kno wn .
 -
Vfpul'sTM Production and Total Quality Management (8MS)
~Tlll'lT ll~TII
316 ~ ~ a

. The pers on read ing your analy sis may not know that the
.2 diag rams resul t in the same analy sis.
(2) Writ e out the prob lem that you are tryin g to solve. This will
be a servi ce failur e. Writ e out this prob lem at the "fish head"
on the right side of the pape r. Use an arrow if yoti prefe r it to
a fish head or use a box to repre sent the top of a tree lying on
its side.
Take an ·e xamp le of a delay ed fligh t depa rture. The
delay ed depa rture anno ys passe nger s and is henc e a service
failu re. You want to find out why it occu rred. So write it on
the right side of the pape r in one of the 3 follo wing ways :

(ii)>. ► Delayed departures (iii)c =J· Delayed departures

(i)"- ----
Fig 10.6
(3) Now think of the majo r categ ories unde r whic h you can list
poss ible cause s for the prob lem that you have state d as per·
poin t 2 abov e. The majo r categ ories of caus es for delayed
aircr aft depa rture are show n below : · ·
Front state
Facilit ies and Personnel Procedures
equipments_

Customers

Delayed
Departures

"'
Other Causes · '·,

Material supplie s
Back stage
Information
Person nel
Fig 10.7
Here is anoth er exam ple from a catering indus try (refer Fig 10.8):
The squa re boxe s cont ain the majo r categ ories of reaso ns. It is
poss ible to list man y caus es unde r each categ ory. I have
ment ione d one caus e, as an exam ple, for each categ ory. You
shou ld be able to think of othe r·cau ses also. You coul d also think
of n.ew categ ories of cause s.
 J/7 .
"" Management
QllOr,1•1

Equipment . P~le Process

customer

Customer
Unhappy
---~- --::-- --"'.r ----= :-:-:- :::--r l
~---=Cause With
Menu

__ _ _, Packing
_..
Timing Weather

Support Information Other

Materials

Fig.10.8
Some common categories of causes are:
(1) Methods, Machines, Materials, People
(2) Places, Procedures, People, Policies
(3) Surroundings, Suppliers, System, Skills ·
There are not fixed rules regarding the categories. You can
make your own. I feel ·that the, ones given for the exam ple of a
delayed departure can be commonly used to analyze comp laints
of service failures in service-s. .
(1) The next step is to identify causes that you feel are 'most
likely. This is required in case your -fishbone or tree has many
branches and sub-branches. You canno t analyze all of them .
· You have therefore to make a short-list of the causes that you
feel are more likely. Mark these causes with a circle.
2
( ) Repeatedly ask the question "WHY " for each likely cause in
order to trace back to the root. It is a common example that
you need to ask "WHY" 5 times before you can reach the root
 WT"~TIIW"' )
3/8
~ Vipu l's™ Production and Total Quality Management (BMS
~";l: .~
.
step the
cau se. Tha t is the r~as on som e peo ple call this
u5 WHYs.'; Her e is a hum oro us exa mpl e of 5 l:VHYs:
Ci) 'Wh y are you late for the lect ure? "
1

(ii) "Be cau se I mis sed the bus ."

(iii) .,,Why did you mis s the bus ?"
(iv) "Be cau se I got up late ."
(v) "W hy did you get up late ?"
(vi) "Be cau se I was at a par ty."
(vii ) "W hy did you part y?"
(vii i) Bec ause my bes t fri~nd ask ed me to go."
(ix) ·"W hy doe s you r bes t _frien d like to par ty?"
(x) "Be cau se she like s to hav e fun ."
·1ate for
The roo t cau se, ·in this jo~e, is tha_t you ng peo ple are
the evening
lect ures ,-be cau s~ they wan t to hav e a goo d tim e in
a theoretical
and ther e is a pee r pres sure to be social. (Th is is
mea nt as a
exa mpJ e to mak e it eas y for you to und erst and -it is not
refl ecti on on stud ents in general.)
a service
Her e is a com plet e fish bon e or tree for ,a com plai nt ·in_
ind ustr y. (Refer Fig. 10.9)
Reason Phone Not Answeied

Mach inery Materials

LAN Directory
Audl x Exists
Not Updated

Audlx~ Directory ---- ---- -~

· Llne Busy Wron g Extension

In Book Phon e Not
Answered
Call comes
befor e/afte r hou_rs_ __.,,
AW8'/ from ___ ___ _ Busin ess call
Desk _,..____..__ RE-direct Issues
.A-__ __."'- -- Talki ng on Supp ort staff
othe r·Hne hasA udlx
Pers onal call·
Peop le Meth od

Fig 10.9
 319
litll Management

C key
QUO ••t

. A
10.17 QUALITY CIRCLE
elemen t of TQM is emplo yee invo.l vemen t and
]

a.rticipative proble m-solv ing. Many types of teams and meth~ ds

i r employee involv ement exi~t, but very import ant quality -
r~Iated participation tool is Qualit y Circles.
The quality circle in its form ·known today was concei ved and
introduced by Dr. Kaom Ishikawa, a Japane se chemic al engiit~ e~r
quality control expert, when he was an adviso r with JUSE ~Uruon
of J~panese Scientists and Engineers) in 1962.
The role played by quality circles in transfo rming the Japane se
industry, ge~erally charact erised by low quality otthe produc t, to
one w~ch excels in quality and low costs has made the quality ··
circles very popula r ~ other countri es too.
The quality circle concep t took birth in India in 1980 when this
concept wa_$.introdu ced in the Hydera bad unit of B~arat Heavy
Electricals Ltd (BHEL}. The growin g popula rity of the 4aality
circles in India is eviden t from the increas e in the numbe r of
Organizations which have .quality circles.
Quality Circles mean small volunt ary group of emplo yees
(8-10) and their supervisor(s) from the same depart ment that meet _
qnce a week to solve problem s. The superv isor acts as a ,,
moderator, encour aging others to speak. Qualit y circles have
generally been more successful ~ Japan than in the United States. ·
· Organlzatlonal Structure of
QualltyClrcle

/ A steering committee

Coorcinator

Facilitator

Circle leader

Circle members

Fig 10.10
 ◄

320 IJ...e,_i... Vipu l'•~ Production and Total Quality Management (BMS)
to
· . Wor kers mee t as a grou p and utili ze thei r inhe rent ability
thin k for them s~lv es fo~ ide1:1-tifying the ~onstraint~ bein g faced by
them and pool ing thei r wisd om for final solutiofl' that Wou
ld
r
imp rove th~i r wor k life in gene ral and cont ribu te towa rds bette
~esu lts for the orga niza tion.
.Obj ectiv es and Phil osop hy of Qua lity Circles:
The obje ctiv es of qua lity circl es are as follo ws:
(1) Crea te prob lem solv ing capa bilit y.
(2) Buil d an attit ude of prob lem prev entio n.
(3) Red uce·erro rs and enha nce qual ity and prod uctiv ity.
· (4) Imp rove com mun icati on in the orga niza tion .
(5) Insp ire mor e eff~ctive team work .
(6) :Pro mote job invo lvem ent and part icipa tion .
(7) Incr ease emp loye es' moti vatio n.
(8) Dev elop harm onio us ~an ager wor kers ' relat ions hip.
(9) Dev elop grea ter safe ty awa rene ss.
(10) Prom ote cost redu ction.
(11) Prom ote pers onne l and lead ersh ip deve lopm ent.
(12) Cata lyse attit udin al chan ges for grea ter· cohe sive
ness· and
team wor k.
Phil osop hy of Qua lity Circles:
Qua lity Circ le repr esen ts a phil osop hy of man agin g people
ed
spec ially thos e at the gras s root leve l as w·e n as a clea rly defin
mec hani sm ·and meth odol ogy for tran slati ng this phil osop hy into
pra.c tice and a requ ired stru ctur e to mak e it a way of life.
Qua lity Circ le is bou nd to succ eed whe re peop le are.respected
and are invo lved in decis~ons, conc erni ng thei r wor k life, and
in
as -
envi ronm ents whe re peop les' capa bilit ies are look ed upon
·
asse ts to solv e wor k-ar ea prob lems .
The Qua lity Circ le phil osop hy calls for a prog ress ive attit ude
e
on the part of the man agem ent and thei r will ingn ess to mak
adju stme nts, if nece ssar y, in thei r style.and cult ure.
 ~~
l;,v Management ff~e: . .
32 I

ve me n?o ~ed
Therefore, referring to the objectives and abo
- buddi~g
. ts of Philosophy, Quality Circles is a people
hap pin ess ~
P;riosophy, pro vid ing self-motivation and
or mo net ary
~proving env iron me nt wit hou t any compulsion
benefits. · .
Characteristics of Quality Circles:
foIIows :
Features & characteristics of quality circles are as
(l) It makes wo rk place meaningful. .
,2) It shows concern for the total person.
(3) It harmonises the work.
(4) It removes bar rier of mistrust.
(5) It is voluntary.
(6) It has man age men t's sup por t.
(7) It is participative.
(8) It involves task performance.
(9) It is not a sub stit ute for . joint pla
nt councils or wo rk
committees.
(10) It is group activity.
(11) It is not a forum to discuss dem and or
grievances.
loa d all their
(12) If is not a forum for man age men t to ··un
·
problems.
all
(13) It is not a panacea for ills..
Developing and launching of. a · Quality
circle in · an
gra m wh ich is
organization is explained wit h. the following dia
. , .. - ·
self-explanatory. '{Refer Fig. 10.-11) , ·. ·
Benefits:.
The. Quality Circles are expected to develop:
(l) internal leadership .
(2} reinforce worker morale .and motivation
sati on:
encourage a stro ng·sense of teamwork in.a n org ani
(3)

(4) higher quality _ · · .

(S) · ·unproved pro duc tivi ty
(6) . , , .
greater upw ard flow of information
 ◄

322 rr~-l'J
~ §~
"' Vipul's ™ Production and Total Quality Mona~ement (8MS)
(7) broad er impro ved worke r attitud es ·
(8) job enrich ment

Organiz ation
8 - 1O members ·.
Same area
Supervi sor/
Moderat or
Training
P resentatlon Group process es
Implementation Data collectio n
· Monitoring Problem
analysis

Problem
Identification
Solutio n List alternat ives
Proble" ' results Consen sus
Brainsto rming
Problem
Analysis
Cause and ~ffect
Data collectio n
and analysis

Fig .1 0.11
Limita tions: ·
Quali ty circies often suffer from: .
(1) unreaU-sti~ expec tati0n s for fast r~sult s
. (2) lack of manag eµtent comm itmen t-and suppo rt.·
(3) resista nce by middl e manag ement _. ·..·· ,... ··
. ~· -
(4) - resent ment by non partic ipants ·
(5) inadeq uate trainin g
(6) lacl< of clear ~bject ives
(7) Failµr e t9 get solutio ns imple mente d.
Concl ~sion: .
Qualit y Circle s .are .i:tOt µmite d . to ~anuf acturi ng firm$
0
15
n1r
They . are applic able for variet y of . orgaJi isation s where there~ ·
·sc~pe for group ~ased solutio n of woi;k r~late d probl~ ms. Quality
 Quality Management
323
Circles . ~e relevant .for . .factories, firm
s, schools, hospitals,
universities, research institutes, banks,
government offices etc.
fhe P.W_.~ of Maha~ashtra is one such
example of Government
organisations ma rch ing on the pa th of
Quality Improvement.
f{ence it can ~e safely concluded tha t no
pro ssive organisation
can afford to ignore the concept of quality cir.gre
des. , ·
C _10.18 SERVQUAL
SERVQUAL is a multi-dimensional
research instrument,
designed to cap tur e consumer expectatio
ns and perceptions of a
service along the five dimensions
(Reliability, Assurance,
Tangibles, Em pat hy an d Reliability) tha t
are believed to represent
service.quality.
SERVQUAL represents service quality
as the discrepancy
between a customer's expectations for a
service offering and the
customer's perceptions of the servic
e received, requiring
respondents to ans we r questions about
both their expectations
and their perceptions. The use of perceived as opposed· to actual
service received makes the SERVQUAL
measure an attitude
measure that is related to, bu t no t the sam
e as, satisfaction. The
difference between expectations and percep
tions is called the gap
which is the determinant of customers
' perception of service
quality as sho wn on figure below (Fig. 10.
12).
,- --Ext-- -- -- -- - 7--
1 ernal Factors : ,.,
1 1
I I
influencing expectation ,
. I - - -: - - - - .
SERVQUAL Dimensions , ------1

Tangibles Expectation
(Expected
Reliability Service)

Responsiveness r-+--- +-- .i G~ p5 , Perceived Service

Quality
Assurance
Perception
Empathy (Perceived
Service)
 ◄
324 ITl"'ll,. Vfpul's™ Production and Total Quality Management (Mis)

Measurin g service quality using SERVQU AL model (Kull\

al, 2009) - . ~ ar et

(1) SEl{VQU AL is . a multidim,ensional research instnunent

. .
(1.e. questionn aire or measurem ent scale) designed t
measure service quality by capt:uring responde nt;-
expectati ons and perceptio ns along the five d~ension s of
· service quality. · -·
(2) The questionn aire ·consists of matched pairs of items; 22
expectati on items and 22 perceptio ns items, organized into
·.five dimensio ns which are believed to align with the
co~ume r's mental map of service quality dimensio ns. Both
the expectati ons compone nt and the perceptio ns component
of the questionn aire consist a total of 22 items, comprising
4 items to capture tangibles , 5 items to capture reliability,
4 items for responsiv eness, 5 items for assuranc e and 5 items
to capture empathy.
(3) . The questionn aire is designed to be administ ered in a face-to-
face interview and_.requires a moderate to large size sample .
. for statistical reliability. Jn practice, if is customar y to add
. additiona l items such as the responde nt's demographics,
prior experienc e with the brand· or category and behavioural
intention s .(intention tq revisit/re purdlase , loyalty intentions
and propensi ty to give word-of- mouth referral~). Thus, the
final questionn aire ~~y co~ist of 60+_items and. typically
takes at least ·one hour, per resp~nde rit, . to administe r. The
length of the -question naire · combine d with . sample size
requirem ents conttibut e to substantia ~ costs_in administr a~on
and data -analysis. ·
(4) S-ERVQUAL Strengths and Problems
No. SERVQUAL Strengths SERVQU AL .P roblems
M; asures five dimensions of Measures expectations of ~deal
1 :furn.
service quality. ·-
- - - - - - - - - -,- -----+ ------ ------ -"""'.' 7
Firms ·c an use to.measure ·their Generic nature of instrument.
2
service quality p~rformance.
·Highlights strengths an<f: Use_·of .g ap ~eory. ,
3
weaknesses
rQUOlilY Manageinent .
325

. (5)
Jntemal Measures:
Advantages:
(i) Locate.weak areas of service.
(ii) Identify areas of expertise.
Disadvantages:
(i) Lacks customer perspective. ·
(ii) May not be important to customers.
(iii) Does !lot measure behavioral side of servic~-.
(6) Customer Measures:
Adv.antages:
(i) . Learn how custom~rs feel.
(ii) Gain information on customer needs·
Disadvantages:
(i) Does not reflect opinion of non-customers.
(ii) Does not provide comparative
,.
information.
.

(iii) Difficult to get unbiased information.

11 QUESTIONS · II
I oBJec11ve aµes110Ns I
. \
(1) Multlple Choice Questions: .
_(a) _ _ _ _ views quality as function of entire enterprise ·not ~f any
· particular department of product. (Oct. 18)_ ·
(I) qost 9f Quality
(II)· Holistic Quality Management
(Ill) Qualify Improvement
(Iv) Kaizen . .
(b) · is the performance of the product as per the commitment
made by producer. (Oct. 18)
(I) . Total Qu~llty.Management-
. · (II) •Purchase Mate~al
·(Ill) Quality . .
. (Iv) . Product development . . ·· · .
(c) . · -should be airfled at the n~eds of tt,~ ~ustomer, present
, and future. (Aprll 19) · _ . ,. .
(Quantity/Quality/Productivity) · . . . .
[Ans.: (a) Holistic Quality Management, (b) C,uality; (c) Quality]
 Q l M t (BMS)
326 ,lT'W . -~ '
:.~ ~ '"W" , Vip~~•sTM Production and Total ua ity anagemen

I (2) FiH in the blanks: ".,. .-.

ce standard of quality
I I (a) .One of the abs~lutes of Crosby is the performan
,s _ _ _ _ defects.
ns _ _ __
(b) Kaizen means to modify; to chang~ and Zen mea
(c) SER VOU AL is a · · measuring instrument.
be used to define
(d) Garvin identified _ _ _ _ attributes that may
product quality. ' .
ept, whereas Quality
(e) Quality Control is a prodtJ<?t focused conc
Assurance is a _ _ _ _ focused concept.
r, (c) Service Quality,
[Ans .: (s) Zero, (b) Think. Make Good, Make Bette
{d) eiglJt, (e) Process]
(3) Matc h the Column:
Group '8'
Group 'A'

I (a) Product Quality Dimension

(b) Service Quality Dimension
(c) TOM
(I)· Deming Cycle
(II) Customer focused organization
(Iii) Process Quality Focused concept
(d) Quality Control (Iv) 14 principles tor top management
and 4 points Philosophy

(e) Kaizen (v) 14 steps for quality program

improvement and Four Absolutes
. -
(f) POCA (~I) Joseph Juran ·
(g)Dr. W. E. Deming (vii) Performance and Aesthetics
I
(h) Fishbone Analysis (viii) As$urance and Emp athy
'
(i) Cost of Quality (ix) Product Qua lity Focu sed concept
(x) lshikowa
0) . Quality Measuring Tool
(k) Philip Crosby (xi) Servqual
(I) Qua lity Assura,:ice (~ii) Costs of Poo r Qua lity
(m) Prevention and Appraisal (xiii) Grou p volu ntary activ ity
Cos t
(n) Internal and External (xiv) Con tinuo us Impr ovem ent
failure
-(xv) Costs of achi evin g good quality _
(o) Qua lity Circle
- i); (g - iv); (h - x),
[Ans.: (a - vii); (b - viii); (c - ii); {d - ix); (e - xiv); (f
·
.(i - vi); (j- xi); (k- v); (I-ii i); (m -xv) ; (n -xii) ; (o - xiii)]
e:
(4) State whetherthe following statements are True or Fals
(a) Philip Cros by formulated POC A cycle. .
(~) An aest hetic s refers to as to how a prod uct look s.
. (c) Qua lity is fitne ss for use state d by Ishikawa.
(d) Imai and Kaiz en are antonyms.
TOM requires man agem ent to rejec t chan ge. (April
18)
(e)_
[Ans.: (a) False, (b) True, (c) False, (d) False, (e) Fals
e]
 Quality Improvement Strategies & Certif,cations 329

UNIT- IV

CHAPTE R

Quali(y Impro vemen t

Strate ies & Certifications 11
11.1 Lean Thinking
11.2 Kepner Tregoe Methodology of problem solving
11.3 Six Sigma
11.◄ Taguchi's Quality Engineering
11.5 ISO 9000
· 11.6 ISO 14000
11.7 QS 9000
11.8 Malcolm Baldrige National Quality Award·(MBNQA)
11.9 Deming's Application Prize.
,.. Questions

[ ____ __1_·1_.l_L_E_A_N_TH_IN_K_I_N_G
______ _J

ll.1.1 What Is Lean Thinking ?

As the name implies, it is really a mind7set - a way of viewing
the World. Lean is about focus, re~oving
waste, and increasing
~tomer value.- Lean is about smooth process Jlo:ws, doing only
those activities that add
customer value··a nd eliminating all other
activities that don't. Adding value is another way of - saying
generating revenue. If it doesn't generate revenue then it must
~ . .
cost, not value.
 Vfp ul'• ™ Production and Total Quality Managem
ent (BMS)
330 1."'i"'D'•
g an organization
· Lea n ma nag em ent is an app roa ch to run nin
rov em ent , a long-
tha t sup por ts ·t he ton ~ep t of con tinu ous imp
ks to achieve sina11
ter m app roa ch to wo rk tha t systematically see I

imp rov e efficiency

inc rem ent al cha nge s in processes in ord er to
•

·
and qua lity . .
P. Womack and
Th e ter m lean thinking wa s coined by Jam es
ir in- dep th stu dy of .
Da nie l Tw Jon es to cap tur e the essence of the
S).
To yot a's fab led Toyota Production Sys tem (TP
basic steps in
In Pro ces s Fl~w or Lean Thinking, the re are five
ass ess ing lea n operations:
(1) Ide ntif y the activi~ies tha t cre ate
value.
(2) De term ine ~e seq uen ce of activit
ies .(also cal led -the value
- stream).
(3) Eli min ate activities tha t do not add
val ue:
....
(4) All ow the cus tom er to "'pull" pro duc
ts/s erv ice s.
(5) Im pro ve the pro ces s (sta rt over).
11.1.2· Lean Ph ilos oph y oi Lean Culture:
y or culture:
He re are som e wa ys of des crib ing lea n phi los oph
imp rov em ent practiced at
• Lean 1is_a cul tur e of con tinu ous ~by eve ry te~ . ·•
eve ry level of the org ani zat ion and
Lea d is ·t he · app lica tion · ·_Qf the · sci~ntific me tho d ·of
• and _systei:,lS to ..
exp erim ent atio n and ~tu dy of ·_w ork processes
· · .
fin d ~p rov em ent s. .
Lea n 'is. res pec t for peo ple . It is res pec t for the ·voice of the
• wo rk, wh o are
cus tom er and it is res pec t for tho se wh o do the
orl d's greatest
"'on-the-_spot " and a_!e, therefore, the . "w
exp erts " in the ir w:ork.
forms. Lea n is the
• Lean is the elimination of wa ste in aU its. iy add s value
ability to:disfihguish'.b¢ twe en w~ r.k tha t ~ctur:1I
.By ·eliffii!iatu:tg . .
-to the cus~omers. anc;I wo rk tha t. _d oes ·not:
din g activity
\\:aste, it frees resourc;E:S to. dev ote to ._v alu ~ad . · ·.
tha t ser ves the customers.·
• • Lean . is a wo rk env iro iun ent . tha t.a~sures · qua lity the . and
.· · .
~afety of ~ wo rk for bot h, cus tom e·r s ~d _staf f.
•J
►
Quality /mpr~ve~ent Strategies & Certifications ~i~j~ 33 I

Lean is ~ focus on improving the work process and not on

• blaming people or creating fear.
, Lean is a culture of .teamwork, shared responsibility and
ownership that cuts through organization walls or silos.
, Lean is a culture that returns the joy to work. Hon da spea ks
of the three joys of buying, selling ~d making the prod uct.
We do o~ best wor k ~he n we have joy in o~ work.
, Lean i~ flow. Lean is an interruption free process that flows
from beginning to end without interruption.
11.1.3 Lean Manufacturing Wastes: The 3 Ms of Lean:
(1) Muda,

(2) Mura
(3) Muri
(1) Wastes (Mudas) Associated With Lean Man agem
ent:

(a) Overproduction: Producing .more than is required and

building for stock causes waste.
(Raw materials are used, resources hav e been used
and it has no requirement or meet orders)
(b) Waiting: Waiting and Idle time add s no valu
e to the
~ ,. products. (Products that are waiting in the prod ucti on
process have consumed material and add costs to the
work in progress)
(c) Transportation: The movement of prod uct
betw een
operations, and locations. Del a~g the movement of
materials.
(d) Inventory and stock: Due to waste in the prod ucti on
processes unnecessary raw material is required to be kep t
in stock, Work in Progress and ~sh ed goods.
(e) Motion: movement of equipment or peop
le that add no
'value to the p·roduct. · ·
(f) Over-processing: unnecessary processing or proc
edur es
(work carried out on the product which adds no value).
 agement (BMS)
332 ~,.,g,.g·• Vip_r,f'•TM Production and Total Quality Man
-
..
(g) Defective equipment: Defective equ
ipment producing
_ defective units, rejections and rework. __
st companies
To this list of the original ·sev.en wastes mo
wastes:
hav e started considering following additional
(h) Talent: failing to utilize the skills and
.know~edge of all of
you r employees.
(i) Resources: failing to tum
off lights_ and unused
machines.
(j) By-Products: not ma.king use
of by-products of your
-process.
(2) Mura the Waste of Unevenness:
Mura is the waste of
o~istency.- Mura creates ma ny of the seven
unevenness or inc
da! By failing to
wastes that we observe, Mura drives Mu
s on ou r processes
smooth our demand we pu t unfair dem and
ent ory and other
and_eeople and cause the creation of inv
wastes.
ses where the
On e obvious example is .production proces
, the department
manager is measured on mo nth ly• out put
d in the final week of. the, mo . nth to-
meet
rushes like ma
du cin g par ts not
.

targ ., using up components and pro

~ts
mo nth is then· slow
_actually required. The first ~e ek of the
on me etj ng targets. ·
du e to comp~ne_n t shortages and no. focus
du cti on as we see ·
:..This giveS-Jus _the hockey stick gra ph of pro
ou t pro duc tio n ~d
. her e on the right, -far better to sm oot h
custom er.. · ·
. . of the
wo. rk at -the dem and .
Q

Mu ri is to cau se overburden,
.

(3) Muri the waste of Overburden:

to ou r employees
by this we meart to give unnecessary str ess
an d a ho st of other
and ou r processes. This is cau sed by Mu ra
in ou r system s~ch as l_ack of. training, unclea
r o_r_no
.·fa~1:II'es _
ols, an d.ill tho ug ht out -
· .. defined wa ys of working, the wr on g-to
cau ses Mu da, the -
me asu res of performance. Ag ain Mu ra
e to tackle Mu ra and
sev en wa ste s are sym pto ms-' of ou r failur
r1 w i~ ou r processes no t the roo t cau ~! · ~
· · ,. ·
Mu

. i_ I
►
QuafitY Improvement Strategies & Certipcations ·r f~i T 333

,1.4 Basics of Toy_~ta Production System (TPS) 1~ principles:

11
The Toyota Production System (TPS) is an integrated socio-
technical system~ developed by Toyota that com prise s. its
management philosophy and · practices. The TPS organizes
· rnanufacturing and logistics for the automobile manufacture~,
incfuding interaction with ·suppliers and customers. The syste m 1s
a major pre~ur~or of the more generic "lean manufacturing"•
Taiichi Ohno and Eiji Toyoda, Japanese industrial engineers,
developed the system between 1948 and .
1975. . .

(1) Base the management ~ecis~ons _o n a long term philo soph

y,
even at the expense of short-term__fina11:cial goals.
(2) Create continuous process flow to bring problems
to the
surface.
(3) Use "Pull-" system to avoid overproduction.
(4) Level out the workload (heijunka). (Work like a tortoise,
not
the hare)
(5) _B.uild a .cul_ture of .st~pping to fuC" problems, to get qual ity'
right at the first time.
· (6) Standardized tasks are the foundation. for cont
inuous
improvements an~ emp~oyee empowerment.
(7) :Use _Visual Control so no problems are hidden.
(8) Use only reliable, thoroughly tested technology that serve
rs .
the people and process. .
(9) . q;o~ leaders who thoroughly under~tand the work, live :
. philosophy and teach it' to others.
(10_) Develop exceptional people and teams who follow
the
company's philosophy.
(11) Respect the extended network of partners imd suppliers by
challenging.them and helping them improve. , · ·
·. (12)·G.o ~nd . see -for ·. yo~'s-elf ·t~ 'thoroughly unde~stand-···the'
_situation (Ge~clu.-Genbti~su). . . ..
I

. (la) Make dec;ision slowly by ~onsensus, ilioro~ghly coris

~dering
· all options; implement decisions rapidly.
 334 iT'UW"'
~ =: = Vipul's™ Production and Total _Quality Management (BMS)

(14) Become a learning organisation through rel~ntless reflection

(hansei) and continuous improvements (Kaizen). -
11.2 KEPNER TREGOE METHODOLOGY_OF PROBLEM
SOLVING
KEPNER TREGOE METHODOLOGY OF PROBLEM
SOLVING:
What is a Problem?
A Problem is a gap between the · actual situation and the
desired state.
POCA Problem Solving Cycle (OR General Steps in Problem
Solving)
What Definition of the Problem

/ Analysis of the problem

Plan Why Identification of Causes

How Planning Counter measures

I Do
I ~ Implementation I
/Check/
~ Confirmation of Results 1·

1Action] ~ Standardization · j
Fig 11.1
What is Kepner Tregoe methodology?
It was deveioped by Charles H. Kepner and Benjamin B.
Tregoe in the 1960s · and is one of the method of Root Cause
Analysis and Decision Ma~g. · ·
The Kepner Tregoe (K-T) rational thinking process is an
integrated approach_ to setting management priorities and
removing emotion from problem solving and decision making_.
 335
· ·. · improvement Strategies & C~Pcations
0110/itY
red ·m eth odo l~g y
J(epner Tregoe decision ma kin g is a stru ctu
lua ting it. It 1s a
· athering information and prioritizing and eva
solving pro ble ms ,
fot ~by-step app roa ch for systematically
st:Ln g decisions and analyzing and prioritizing of pot ent ial
pected in bus ine ss
:sks·.This is a_ scientific mod~l tha t is well res
inanagernent crrc~es. .
rat her the bes t
So the idea is not to find a perfect solution but
t~e ~ut com e wit h
possible ·choic~, bas ed on _ach:Ially achieving
. .
ntiJtlmal negative consequences.
jsio ns-i n tha t 1t is
It is marketed as a wa y to make unbiased det
t dra w atte nti on
said to limit conscious and unconscious biases tha
away from the oµtcome. ·
Kepner Tregoe
There are ~our .·basic steps when using the
dec ision matrix: .
situations into actio~aple, .
.

(1) Situation appraisal: Break complex

ple wo rki ng on
·prio~itised co:µlponents tha t put the right peo
pra isa l rev eal s
the right ·things in the right wa y Situation Ap
ori ty. It the n
all the aspects of a situation and their relative ·p~
determin~s wh at different courses of action .
~e nee ded and
.
who needs to be involved for effective resolution
day -to -d~ y
· Whethe~ it.is responding to a crisis,· ma nag ing
shifts, alm ost
'oper~tio~, or improving_: hand-offs bet we en
efit ·fro m the .
.any situation requiring effec'tive· action .wil l ben . . -'
applicatiori'of S~tuation Appraisal. . . .
-

t2) Problem analysis: Find the root ca~

e of any pro ble m and ·
gat her ing .and .
correct it. Problem . ~aJ ysi s is ·a process -f(?r.
and·correct the ··.
·analysing just the ·information tteeded to find
t is poo rer tha n.
true cause 9f a problem. An y performance tha
i be add res sed
expected,_including toµgh people problems, ·car
by Problem Analysis. . ·: · · . , _ ·
tha t: ther~ is
· · Here the Basic premise (as.sumptioi:,.) ._is
m ·IS from wh at .
something tha t distingi.rish~s wh at _the proble
_ort~t. .·
it IS NOT. The·disanc.tion column is·_the mo st imp
 336 Vipul'sTM Production and Tota/ Quality Management (BMS)

IS Distinction
-
IS~OT Cause
-
What Identify: What is problem? What is not problem? What difference What is
between is and is possible
not? cause?
Where Locate: Where is problem Where is problem not What difference in What
found? found? locations? cause?
When Timing: When does · When does pr~fem What difference in What
problem occur? not occur? timing? .. '~ cause?
When was it first When was it last What difference What
observed? observed? between 1st, last? cause?
Extent Magnitude: How far does How localized is What is the What
probl!m extend? problem? distinction? cause?
How many units How many not Whal is the What
are affected? affected? distinction? cause?
How much of any How much of any Wtiat is the What
one unit is one unit is not distinction? cause? .
affected? affected?

(3) Decision analysis: Alternatives are identified and a risk

analysis·d_one for each. Make the best balanced choice that is
fully supported and implemented.
Decision Analysis marries log1c, expertise, creativity and
factual information to guide individuals and groups to sound
choices. Choosing any course of action large or . small,
whether it is a purchasing, personnel, operations, project,
produc~ or customer decision, will benefit from the
application of Decision Analysis.
Steps in Kep~er Tregoe decision analysis:
Step 1: Prepare decision statement
➔ includes not only the desired result but also the arjion
required.
Step 2: Define
➔ Strategic requirements - 'must haves'
➔ Operational objectives- 'want to haves'
➔ Restraints - limits in the system
/,
)
QtJOlitf /mprqvement Strate~es & Certifications rr~rr 337

\ step 3: Rank the objec tives and assig n relative weig hts
\ Objec tive Weight
~ Want A 6
WantB 7
Want C 4
Want D 2

~ 4: List altema~ves
➔ Generate as many poten tial courses of actio n as possi
ble
wheth
.
er imn1ediate
.
ly feasible or not.
Step 5: Score each alternative
➔ Firstly, elimi nate any altern ative that does not fit the 'mus
t
haves'.
➔ Going throu gh each _ alternative -one by one, rate it again st
each Want on a scale of 1 to 10.
➔ Next, multi ply the weig ht of the objective by the satisf actio
n
score to come tip with the weig hted score.
Objective Weigh t Alternative 1 Weigh ted ScQre
Satisfaction Score
WantA 6 4 24

WantB 7 6 -
42

WantC 4 6 24

WantD 2 5 10 .

Total Alternative Score for Alternative 1 = 100

➔ · Repeat this for each altern ative

Step 6: Choose the top two or three alternatives and consider

potential problems or negative effects of each.
Step 7: Consider each alternative against all of the nega tive
effects: One at a time again, rate alternatives again st adve rse
-effects, scoring for proba bility and significance.
_ Adverse Effect Probability Signif icance Weigh ted Score
,..__ WantA 0.5 6 3.0

- WantB
WantC
0.2 .
0.3
2
5
0.4
1.5

Adversity Rating for Alternative I = 4~9

 ◄
3 VJ"'L9l"'17• . .
. 38 ~ .~ ~ · Vipul' s™ Production and Total Quality Management (BMS)

Step 8: Anal yze the weigh ted score versu s the adversity ratin
for each and choos e the high- scorin g one. . g
Step 9: Cons ider the winn ing optio n again st each negative
conse quen ce and sugge st a plan of action to minimize -the
adver se effect s. .
. .

(4) Poten tial probl em/op portu nity analy sis: The best of the
altern atives is furthe r scruti nized again st poten tial problems.
and neg~t iye conse quenc es and action s are proposed to •
minim ize the risk. Prepa re and respo nd to future threats and
oppor tuniti es. Poten tial Problem/Opp<;>rtunity Analysis
comb ines past exper ience and creati ve insigh ts about the
future to logically analy se and prepa re for the risks and
rewar ds that could occur. Any action or projec t, wheth er it is
prepa ring for a prese ntatio ~ or ·mana ging a plant shut-down,
will benef it from Poten tial Probl em and Potential
Oppo rtunit y Analy sis.
Adva ntage s of Kepn er Trego e Meth odolo gy: -
(1) Step- by-ste p, system atic appro ach make s it easy to dd .the
Kepn er Tregoe decis ion analysis.
(2) It can be very usefu l wher e there are many poten tial options
to consi der as well as _many possi ble unwa nted effects. Built .
into it is the abilit y to minim ize some of these .negative
effects.
Limit ation s of Kepn er Trego·e Metlj odolo gy:
(1) Altho ugh it is offere d as an unbia sed deci~ion matrix,
some body has t~ decid e the relati ve impo rtanc e of the
<;>bjectives, the proba bility of occur rence of adver se reactions
and the relati ve significance of each of these reactions. It's
diffic ult to believ e that there won't be any bias in there
whats oever!
(2) Kepn er Trego e decis ion maki ng sets _up an outco me as well as
how exact ly it shoul d be achie ved. This is often problematic ·
becau se the univ~ rse often has other plans ! You can have one
or the other , not usual ly both.
 Quality Improvement Strategies & Certifications [f~"'[f' 339

(J) This decision making modei" deals with this only by

trou~leshoo~g at the end of the process. It may also take
·cons1derabl~ ti~e to get through this process. Much patience
and determination may be required! ·
C 11-.3-S-IX_S_I_G_M_A_ _ _ _ _ ___,,
11.3.1 What is Six Sigma?
Six Sigma is a set of techniques and tools for process
improvement. It was developed by Motorola in 1986. Sir Bill
Smith, "the Father of six sigma" introduced this quality
improvement Methodology to M?torola.
Six Sigma is simply a method of efficiently solving a problem.
Using Six Sigma reduces the amount of defective products
manufactured or services provided, resulting in increased revenue
and greater custome~ satisfaction. Six Sigma identifies the cause(s)
of your problem to efficiently develop effective solution(s).
Six Sigma is named after a statistical concept where a process
only produces 3.4 defects per million opportuajties (DPMO). Six
Sigma can therefore be also thought of as a goal, where processes
not only encounter less defects, but do so consistently (low
variability). Baskally, Six Sigma reduces variation, so products or
services can be delivered ~s expected reliably.
Six Sigma approach is a ·collection of managerial and statistical
concept and techniques that focuses on reducing variation in
processes and preventing deficiencies in produ~t. The concept of
Variation states "NO two items will be perfectly identical."
Levels of Six Sigma
Sigma Level Defects per Million Yield
- ~

3.4 99.99966%
- 6
5 230 99.977%
-
99.38%
- 4 6,210

-
r---...
3
2
66,800
308,000
93.32%
69.15%
1 690,000 30.85%
 a
340
Vipul's™ Production and Total Quality Management (M1S)

~ . a ~rocess that has achieved six sigma capability, the

v_ana_tion 1s small compared to the range of specification limit. A ·
six sigma process is one .in which 99.9999966% of the products
manufa ctured are statistically expected to be free of defects
(3.4 defects per million opportunities or 3.4 DPMO). Six Sigma is a
very clever way of brandin g and packaging many aspects of Total
Quality Management (TQM).
Leaming Curve
Lower Upper
specification llmlt Mean _
speciflcatlon llmlt

99. 7%
I Def t Free I
I I
I I
3.4 Defects , , 3.4 Oefects
per Million .• 1 per Million
I I
~ I
.
I
I
I
V,
. -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6

Fig 11.~
11.3.2 Th~ Characteristics of Six Sigma:
(1) Statistical Quality Control: Six Sigma is clearly derivedfrom
the Greek Letter Sigma from the Greek Alphabet, which is
used to denote St~dar d Deviation,, in Statistics. Standard
Deviation is used to measure vari~nce,' which is an important
tool for measuri ng non-conformance as far as the quality of
the output is concerned._
(2) Methodical Approach: The Six Sigma is not merely a quality
improve ment strategy in theory as it features a well-defined
methodological approac h in applicat ion in DMAIC and
DMADV which can be used to improve the quality of
product . DMAIC is an acronym for Define - Measure -
Quality Improvement Strategies & Certipcotio
~s rfg-i"' 34 I

aly se - Im pr ov e - Co ntr ol. DM ADV is an ac ron ym for

An
n - Verify.
Define - M ea su re - An aly ze - Desig
an d Da ta Ba sed Ap pr oa ch : The statistical an d
(S) Fact
ow the scientific basis of
methodical asp ec ts of Six ·Sigma sh
im po rta nt asp ec t of Six
the technique. This accentuates an
. ·
Sigma tha t it is fact an d da ta based
Pr oject an d Ob jec tiv e Ba sed Fo cus: The Six Sigma pro ce ss is
(4)
n's project tailored to its
implemented for an organizatio
e process is flexed to su it
specifications an d requirement. Th
in wh ich a project is
the requirements an d conditions
operating to ge t the be st results.
o objective based. Th e
Ap art fro m that, the Six Sigma is als
e _to invest in the Six Sig ma
. management ne ed s· so me incentiv
s. It is aim ed to en ha nc e pro fit ability an d to ge ne rat e
proces
financial.
e Cu sto me r Fo cu s: Th e cu sto me r focus is fun da me nta l to
(5) Th
ality im pro ve me nt an d
the Six Sigma approach. The qu
· the explicit cu sto me r
control sta nd ard s are ba sed on
requirements.
(6) Teamwork Approach to
Quality Management: Th e Six
pro ce ss req uir es org an iza tio ns to ge t org an ize d wh en
Sigma
com es to co ntr pll ing an d im pro vin g quality. Six Sigma
it
pe nd ing on the rol e of an
actually involves a lot of training de
nt team. ·
individual in the Qu ali ty Manageme
:
11.3.3 Six Sigma Objectives/Goals
Re du ce De fec ts/ Pr oc ess Va ria bility: An y business see kin g
(1)
the nu mb er of defective
improved nu mb ers mu st red uc e
or ser vic es it pro du ce s by sta nd ard izi ng processes.
products
fec tiv e pro du cts ca n ha rm cu sto mer satisfaction levels.
De
du ced Co sts : Re du ce d co sts eq ual increased profits. A
(2) Re
principles ha s to look to
company im ple me nti ng Six Sigma
can--w ith ou t . red uc ing
reduce costs wh ere ve r it possibly
quality. ·
3 e Qu ali ty: Ho we ve r, I ca n tell yo u this for sure. Th at
( ) Improv
en Six Sig ma pra cti tio ne rs are un leashed on an y bu sin ess
wh
','1 I
I <
I
1
r
342 rrgrMr.r
I I
I I
I
-"'"" - - -!!!1': Vipul's™ Production and Total_Quality Management (M1S)

process, quality improvement will result. This is the b .

of s1x
· s1gma
· - to Improve
.
I I
I ' Prem1·se
. the quality of a productas1c
or
service. I_f your goal is to increase the quality of your product
8
and services, a Six Sigma implementation is the right place t
0
start. · ·
r

(4) Imp~ove Cycle Time: Any reduction in the amount of time it

takes to produce a product or perform a service means money
saved, both in maintenance costs and personnel wages.
Additionally, customer satisfaction improves when both
retailers and end users receive products sooner than
expected. The company that can get a product to its customer
faster may win her business.
(5) Improve Corporate Culture: Only a few people will become
Six Sigma green or black belts, but the entire organization will
see the focus on quality and respond accordingly.
Implementing Six Sigma is an easy way to tell everyone that
"quality matters." That's a benefit you ·can't readily put a
price on.
(6) Increase · · Customer Satisfaction: Customer satisfaction
depends. upon successful resolution of all Six -Sigma's other
objectives. But customer satisfaction is an objective of its own.
11.3.4 Levels of Six Sigma Mastery:
• Green Belt is the foundational level of Six .Sigma expertise.
Team members with this training integrate Six Sigma
implementation into their primary job duties. Green Belts,are
guided by _thos.e at the next Six Sigma level, Black Belts.
• Working under Master Black Belts t6 apply Six Sigma
methodology to designated projects, Black Belts dedicate all
of their professional efforts to Six Sigma. .
• Master Black Belts mentor Black Belts and Green·Belts. Like
Black Belts, they concentrate on Six Sigma implementation. In
addition to spending time on statist1eal duties, Master Black
Belts help ensure that Six Sigma processes are applied
consistently throughout . an organization's numerous
departments and functions. ·
 343
& Certifications
,. Improvement Strategies
QtJOtit/
e i
' nd iv id ua ls ~ o se n from u p p er
s ar
Six Sigma Champion de rs hi p. C h am p io n s ar~ al so
xecu tiv e L ea
' .management by E e Si x S ig m a im pl em en ta ti on as .
rise-wid
conceJ'!led w it h enterp Si x S ig ma practitioners.
lo w er -l ev el
well as mentoring n" is E xe cu ti ve
m a "f oo d ch ai
Six Sig
At the top o f the co m pa ny 's CEO an d o th er
· includ es a
' Leadership. This ge m en t. E xecutive L ea d er sh
ip
m a
· na
.members o f top fo r th e or ga ni za ti on 's Six
al l st ra te gy
determines the over al so se t th e p ar am et er s fo r ·
. The y
Sigma implementation
practitioners.
duties of more junior
Six Si gm a· Im p le m en tation Enablers:
11.3.5 Lean
en t In vo lv em en t an d C o m m it m en t
(1) Total Top Man
agem

(2) Fund Availabil

ity
atio n an d in fo rm at io n M an ag em en t
(3) Communic
(4) Organization In
frastructure
(5) Training
en t Skills
(6) Project Managem
(7) Project Prior i~zation an d Selection
to ol s an d te ch ni qu es o f Lean Six S ig m a
(8) Understanding
king Lean Si x S ig m a to business str~tegies
(9) - Lin
grating C us to m er to Lean Six Sigma
(10) Inte a
R es ou rc es .a n d L in king to Lean Six S ig m
(11) Quality of H u m an
(12) Linking Lean Si
x Sigma to su pp li er
W or k Fo rce an d E m pioyee In vo lv em en t
(l3) Competent
4 na l C ul tu re , C ha ng e an d Im pr ov em en t
(l ) Organizatio
Q ua li ty of M an uf ac turing Facilities
(lS) Appropriate
za ti on an d R ed uction in U n n ec es sa ry
(16) Part Standar
di
Inventory
(l7) Effective Schedul
ing

(lS) Appropriate Tec

hnology

(l ) Effective Visual
9 Control
 ◄

344 . ~ff ~ Vfpul '•™Producti9n and Tota/ Quality Managemen~ (BMS)

(20) Quality of Raw Material

(21) Floor Layout
(22) Optimization of Transportation and Material Handling
(23) Statistical Thinking
(24) Reliable Data Collection and Retrieval System
(25) Employee Motivation and Continuous Efforts
(26) Team Management
11.3.6 The DMA DV Methodology Approach:
The application of DMADV is used whe n a client or customer
requires prod uct improvement, adjustment, or the creation of an
entirely new prod uct or service. The application of these methods
is aimed at creating a high-quality prod uct keeping in mind
custo mer requirements _a t every stage of the game. In general, the
process can be outlined as:
(1) Define: Project leaders identify wan ts and needs belie
ved to
be considered mos t important to customers. Wants and needs
are identified through the historical information, customer
feedback, and other information sources. ·
• Teams are assembled to drive the process
• Metrics and othe r tests are developed in alignment with
customer information
(2) Measure: The second part of the process is to use the
defined
metrics to collect data and record specifications in a way that
can be utilized to help driye the rest of, the process.
• ·All the processes need ed to successfully manufacture the
prod uct or service are assigned metrics for later
evaluation.
• Technology teams test the metrics and then appl y them
(3) Analyze: The resu lt of the man ufac turin g
process
(i.e. finished prod uct or service) is teste d by internal teams to
create a baseline for improvement.
• Leaders use data to identify area s of. adju stme nt within
the processes that will deliver impr ovem ent lo either the
Quality ~mprovement Strategies_& Certifications [f'ff'g- 345

.quality ~r manufacturing process of a finished product or_

service. ·
• Teams set final ·processes in place and m~ke adjustments
as needed.
(4) Design: The results of internal _tests are compared with
customer· wants and needs. Any additional adjustments
needed ·are made.
The improyed manufacturing process is · tested and test
groups · of customer~ provide feedback before the final
product or.~service is widely released.
(5) Verify: The last stage in the .methodology is C(?ntinuous.
While the product or servi~e is_being released and customer
reyiews are coming in, the processes may be adjusted.
Metrics are further developed to keep track of continuous
~tomer feedbac~·o n the pr(?duct or service.
New data may lead to other changes that need to be
addressed, so the initial process may lead to new applications
of DMADV in subsequent areas.
The applications of ·these methodologies cl:re generally
rolled out over the course of many months or even years. The
end result is a product or service that is: completely· aligned
with customer expectations, wants and need~. ~
11.3.7 The DMAIC Methodology Approach:
DMAIC is used to apply the principles of Six Sigma to existing
business processes. ·For instance, if you are trying to find out how
to make - a particular pr9ces~ more effective( you would use
OMAIC to break · down the process into its component parts.
Using this S~x Sigma model, you would start by defining _the
problems and project goals, measuring data relating to the current
process and analyzing your findings to identify cause-and-effect
relationships. The next step involves improving existing processes
based on your 4ata ~alysis. Finally, you need to implement -
control& to avo_id variation in the process going forward.
(l) · D~fine: The -main obje~tive of this stage is to outline the ·
bord~rs of ·t he project. -.' .. ·.
 ◄
346 g•·g"'~"' Vipul's ™ Production and Total Quality Manaaeme
6 nt
(
BMs;
I • Stakeh olders agree on the param eters that will defin·
e the
project. ,·
I
I Scope and budge tary items, as wen ·as customer ne d
•
are aligne d with projec t goals. e s,
'

I • Team develo pment takes place as the project begins to

take shape.
I
/.
(2) Measure: The main oJ?jective is to collect data pertin ent to the ,
scop~ of the project.
. • l Leaders collect reliable baseline data to compare against
future results.
• Team~ create a detailed map of all interrelated business
processes to elucidate areas of possible performance
enhancement.
- .
(3) Analyze: The mijin · objective is. to ·reveal the root cause of
business inefficiencies.
• -Analysis of data reveals areas where the implementation
of change can provide the most effective results.
• · Groups discuss ways that the data underscores areas ripe
for improvement.
( 4) .Improve: The main objective at the end of this stage is to
complete _a test run of a change that is to be widely
implemented.
• Teams and stakeholders devise metho ds to address the
proce ss deficiencies uncovered durin g the data analysis
process.
• Group s finalize and test a chang e that is ·aimed at
mitig ating the ineffective process.
Impro veme nts are ongoi ng ~d includ e feedback
•
analysis and stake holde r participation.
,(5) Control: The objective of the last stage of 'the methodology is
to develop metrics that ~elp leade rs monitor and doc~ e~t
. .
continued success.
• Six Sigma strategies are ad-aptive and on-going..
 QIJlllitY Improvement Strategies & Certificatio
ns l"i"i" 34 7

Ad justm en ts ca n be ma de an d ne w changes m ay be
•,
mpletion of this first
'implemented as a· result of the co
cycle•of the process.
d of the cy cle, ad dit ion al pr ocesses ar e eit he r
At the en
leted.
addressed.or the initial project is comp
me tho do log ies ca n· be ro lle d ou t in a m at te r of
Six Sigma
er the co urs e of ye ars . Fr om large in ter na tio na l
•.months or oy
ies to mi d-s ize firms , ma ny hig h-profile companies ha ve
compan
ple me nte d Six Sig ma str ate gie s as a wa y of saving co o/ or ate
un
ging the competitive edge.
Rupees, increasing quality an d levera
proach:
11.3.8 The DFSS Methodology Ap S, Lecw1 and .
The Process Improvement Triad: DFS
OMAIC

I OVERALL PROGRAMS '

DMAIC
DFSS
um
ELIMINATE
BJMINATE
. DESIGN DEFECTS,
PAB)ICTIVE WASTE,
IMPROVE . REDUCE
QUAUTYINTO ·VARIABILITY
· PAOOUCTS CYCLETIM~
Capable
Robust · l.eal>time

LEAN Vmialfon Reduction

.Design for_six Sigma
•F lo w ~ • Aecictability
• R ~ s·allocation • Feasibility
• ~ i t y assessmen t . • Waste Bimlnation
•CycleTme • Bficlency
• Ra ut Desigl • Capability
Recu:tion
• PAdcta,ie Proo.a Q.lality • WI Prations and Desigl •Pc cin cy
• Cpe

I The "I" In DMAIC may/Jet:omeDF

SS I
Fig 11.3
Cu sto ~~ r Ne ed s wi th c
· ~p ~bilify. . ~
DFSS ma tches .. d
. b'li ty affects prod.uct pe . rformance an .
(1) Mean and va na 1 . co st
• D . yields in th d es1. gn
es1gnerc, can predict costs an d e
phase.
(2) Co 'd . the design ph as e
ns1 . ~r mean an d variability in
 Vipu l's™ Production and Tota_/ Quality Management (BMS
)
348 g·-~·-9··
• Esta blis h top leve l mea n, var iabi lity and failure ·rate
targ ets for a des ign.
rate
~ Rat iona lly allo cate mea n, vari abil ity, and failure
targ ets to sub sys tem and com pon ent leve ls.
and
• Ma tch req uire men ts _a gain st pro ces s capability
le
iden tify gap s - Clo se gap s to opt imi ze a producib
des ign. ·
e
• Iden tify variab~lity driv ers and opt imi ze des ign s or mak
des igns rob ust to variability.
• Process·cap abil ity imp act des ign dec isio ns.
(3) DFSS enh anc es_pro duc t des ign met hod s.
]
,; I 11.4.TAGUCHI'S QUALITY EN GIN EE RIN G
(Ge nic hi J'aguchi ·(1924-20i2) w;s fam ous for his
pioneering
t quality
. met hod s of mo dem qua lity con trol -and low -cos
kno wn as
eng inee ring . He is the founq.er ·o f wha t.ha s com e to be
t quality at
the Taguchi met hod , whi ch.s eek s to imp rov e pro duc
product
~e des ign stag e by inte grat ing qua lity con tro_l into
methods ·
des~gn,- usin g exp erim ent and statistical ana lysi s) His
phy and
~ h~ve _bee n •.said to fun dam enta lly cha nge the .phi loso
, . practice of qua lity control.
'.(Taguchi methods: -
) and
Tag uch i dev elop ed met hod s for bot h onl ine (process
is of his
offline (design) qua lity con trol) This form ed the bas
a product's
. app roac h tq tota l qua lity con trol and assu ran ce wit hin
rov ing the
d~-v ~lop men t life cycle.(His appr(?a<;}l emp has ised pnp
t is, at the
qua hty of pro duc t and process prio r to man ufa ctur e (tha
roa ch of
des ign stage) rath er than _ the . mor e trad itio nal app
_ _. .
· achieving qua lity thro ~gh ~pe ctio n)
: ·
11.4.1 ~ag uch i's Vie ~ of. Qua lity Eng ine_e ring Des ign
(
. Taguchi'~ Rob ust Des ign Method: ·
What is robust_des ign? - Rob ust de's ign is an "eng
ineering
methodology for im_proving. produc_tivity during · research and
kly and
. developmen! so that high-quality products ca_n be produced quic
ign is to
at low ~?st (Ph adk e, 1989). The id~a be ~d rob ust des
►
Quality Improvement Strategies & Certi(tcatipns . rfrf~ 34:9

iJnprove th~ quality _of. a ~roduc t by minim izing the ef(e~ts of

variation. w1thC?ut elimina ting the causes (since they are too
difficult o~ too ·_expens i:e to_c?ntrol).).His method is .an _off-line _
quality c9n~ol metho d ~at is ~stitu{ ed a~_.bo~h the produc t and
process 4es1gn _$tag~ to improv e product" mainif actur.a b~ty and
reliability by m~king produc ts insensitive to envirorurtent~l '·
conditions and compo nent variations( The enq.
result is a robust
design, a design that has minimum ·sensitivity to .variations · in
uncontrollablef act~rs) - . ·
-~ the basis of the signal to noise measure, Taguchi was able
·-to d~elop the concept of robustness; which enables a produc t to
be designed _to be less ,affected by noise. Giv-en normal variati ons
in process op~att ons, the produc t in question wouid be less likely
to fail acceptable quality criteria. ·

Control . . - - - - - - -
factors eroduct .
--.t - functlonlnrf
· In the fleJd

Noise . Performance ~-
factors response

. ~ust Product· ·
Control -+-----.i · functioning
Factors In the field \ -.

Noise Reduced performance - ·

factors · response variation .

. . Fig 11.4 .. . . .-
produc t 4uality -by - design, Taguch i .
. (to · aclrieve - desi~al,}e
ach
Quality Engineering.. .appro_
. . .
suggested·a·three-stage ptocess:
·Jl) Sy~tem .desig~, _. .
(2) Parameter design,
• (3) Tolerance des~gn.
 II
,I /'I ◄
I ~

I Vip ul'• ™ Production and -Total Qua

e (
lity Managem
350 i'J{'g'• _ , nt BMS)
II
.
Trad ition al View Taguchl's View of Engineering Design
Customer needs Customer needs
I
I
Sys tem design System design

Tes ting Parameter design

I.
Pro duc t design Tolerance design

I Robust prod uct

I
Fig 11.5
I lization and synthesis of a
(1) Sys tem~ design~ It is the conceptua
I product or process to be used. The sy~tem des ign stage is where
I areas of science
new ideas, concepts and knowledge in the
m to determine
I
and technology are utilized by the des ign tea
s, processes and
fI!.e rig lit combination of materials, ·p~ut nal and economical
- des ign factors lha t will satisfy functio
specifications. To -achieve an increase in ~quc
i"'lity at this level
em ent s are not
req uir es inn ova tion , cl!1d therefore imp rov
/ alw ays ma de. . -
the sys tem variables .
J (2) Pa ram ete r design.: In par am ete r des ign
w the product or_
are exp eri me nta lly ana lyz ed _to_det erm ine ho
~ in the system;
pro ces s rea cts . to unc ont rol lab le -~ 'l'noise'
uchi'~ apptoa~-
p_arame_ter design is the m~ ~-thrust of Tag
Pa ram ete r desi$1f is related to finding _the
appropriate desi~
variationS" i_n
fdctor fevels to make the system less sensitive to thi5
actors, i.e., to make the system rob ust. In
uncontrolltible noise.f
loss ·to the .
wa y the product performs· better, reducing the
. _ .
customer. · th~
tw o typ es of fac tors
. In par am ete ; de si~ , there are
:i~:.
aff~ct a product s_functional characteristic:__co~
no ise factors. Control /f!.ctors are those factor
tro~ factors
s which ~n
le time, or
:n
. . be controlled such as material choice, cyc
. tem per atp re in_an inj_e~tion .mouldin~ proces
s. Noise f
5
~c:o:
are" factors that are difficult or impossible or -too _exp noi_se,_
iv . en
er
l. ~e re - are three types of noise factors: out
· co_ntro
 Quality Improvement Strategies & Certifi~ations ~g-g- 35 I

jnner noise, and between product noise. Examples of each

type of noise factor and controllable factors in product and
process qesign are listed~ following table. Noise factors are
primarily response for causing .a product's performance to
deviate from its target value. ·Hence, parameter design seeks
to i~entify settings of the control factors whidl make the
product insensitive to variations in the . noise · factors,
i.e., make the product more robust, without actually
eliminating the ~-~uses of variation.
· ProdOct ~eslgn Process·Design
,
Outer Noise Consumer's usage conditions Ambient Temperature ·
Low temperature Humidity
' Seasons ·
High temperature
Temperature change Incoming material variation
Shock Operators
Vibraqon Voltage change
Humidity Batch to batch variation
Inner Noise Deterioration of parts ~achinery aging -
-
-
Deterioration of material Tool wear
'
Oxidation (rust) . Qeterioration ·
Between Product
-
Piece to piece variation where they Process to process variation where
Noise are te
they a_
·supposed to be the same, e.g., supposed to be the same, e.g.,
Young's modulus variations in feed rate
shear modulus
allowable stress
Controllable Factors All design parameters, e.g., . A~I process design parameters
'
•• dimensions All process setting parameters
.._ • material selection
Table - Examples of Noise arid Control Factors (adapted ·from
Byrne and Taguchi, 1987)
(Vrolerance design occurs when the tolerances for the products or
process are established. to minimize the sum of the manufqcturing 1

and lifetime costs of 'the product or process. -In the tolerance

design stage, tolerances of factors that have· the largest
influence on variation are adjusted only·if after the parameter
 ◄

352 Vipul 's™ Production and Total Quality Management (BMS)

des~gn stage , the targe t va~ues of quali ty have not yet been
achie ved. Most engin eers tend to assoc iate quali ty with better
toler ance s, but tight ening the toler ance s -incre ases the cost of
the prod uct or proc ess be~a use it requi res bett~r materials,
comp onen ts, or mach inery -to achie ve the tight er tolerances as
we discu ssed in-ea rlier chap ters..,) . . .
I
I I Tagu chi's para mete r desig n appr oach allows for
impr ovin g the quali ty with out· requ iring bette r materials or
I
I parts and make s it.possi ble to impr ove quali ty and decrease
(or at least main tain the same ) cost.
114.2 Tagu chi Loss Functio!l:
Deve loped by Geni chi Tagu chi, it is a grap hical representati~n
of how an incre ase in varia tion with in speci ficat ion limit s leads -to
an e~po nenti al incre ase in custo mer dissatis~action. .
A r~al life exam ple of the Tagu chi L(?SS Func tion woul d be the
. quali ty of food comp ared to expir a~on· dates . · _
If _you p~ch ase an oran ge at t~e supe rmar ket, ther~ is a certain -·
date that is ideal to· e~t it. That woµl ~ b~ the targe t _date. · There
will also be limit s for when to eat the oran ge (with in three days of
the·t arge t date, Day 2 to ·D ay 8).. . ·

,,_ Fig 11.6

· For · tltis ex~ ple, .[ ?ay S repre sents ·the .ta!g et date to eat .the ·
.. orange.., _That ·is· when_ the oran ge will taste .the- best- (custom~t
·_ sati_sf~ction). .
. .

·, · ·_ Y~u purc hase .the oran ge on -_Day l,_· but if ypu .eat ~he oi:ange
you will b~ very dissa tisfie d, as it is not reaq y to eat. This ~oul d ·
fall belo w the lo:wer limit : On Day _3 -it wou ld be acc~ ptabl e to_· eat,
, but you are still dissa tisfie d beca use it does n't taste as ·good·-as
.. - e~~ g o~ ~~ targe t dat~. ff you- ·wai t for_Pay" ·s,· yoti -w~l-~~.~ ----
.--. sat_isfied, beta use..it is •eate n on the ide~ __<;ia~e. Jf. .yo1rwai t until .
_
Day 7,_you ~ill pe slig~ tly d~ssa ;tisfied,. beca use ·it is one c;;{ay ·past -
. . .
. . .
 . /mp' rovement Strategies & Certif,cations 353
oualitf ·
·deal date, but it will still be within the limits provided by the
t1te :rrnark~t. If you wait until pay 9, you wilfbe very dissatisfied,
5t1
~t ~&,ill be too far past the ideal date. · ·
as 1 ,. ·
~L U~

-
Least Dissatisfaction

(Mo•T-1

Fig 11.7
.· You are slightly dissati~fied from Day.2 through 4~ and from
Day 6 throµgh 8, even thoHgil_technically you are within the-limits
provided by the supermar~et. The least amount of dissatisfaction
occurs on the ·target date, and each day removed from the target
date incurs slightly m~re dissatisfaction. Contrary to most
.discussions around_specification_limits, you are NOT compl~tely
satisfied from Days ,2 through~'-and only dissatisfied on Day.·1
and'.9. . · . .

Quadratic Loss Function

· Nominal
Quality characteristic
. ..
. ·Fig·11.8 ' ...· · ·. ..
Thu~ we upd~rsta,nd from Ta·gutjtl L~ss, Function·. . .- . -
. ·•. · The _smaller·· the pe~foimanc~- vari~tion, ·the .b~~~ the-·
_qu~lity ~f..the product. · · ·
• Tl)e 1arg~r ~e· deviation horn ·th~-tar.g~t value, the larger
the !oss _to society. · . . _- ·._ . . . · ·: .- .
 ◄
354 Vip1d'.s™ Production and Total Quality Managemen t (BM S)
.

~ - - - - - -- =:J
-~1~1-~5~1::::S..:::O:.....9::...:0:.:0:..=0_ _ _ _ _ _ _
11.5.1 ISO 9000:
A ce~tificat ion or auditing system for quality designed by the
Internatzo_nal Standards Organization. A company writes in ow
policy in accordan ce with ISO guideline s and must comply wi;
them · for certificat ion. - A registrar evaluate~ policies and
complian ce · every 3 years. It is increasin gly- necessary for
compani es to get certificat ion because ·it is abnost required for
export to the Eut opean Commun ity.
ISO i~ the word that represent s the Internati onal Organiza tion
for Standard ization. It is not the acronym for the International
Organiz ation for Standard ization as many people think. It is the
world.wi de federatio n of national standard s · bodies for
approxim ately 130 countries . The ISO 9000 standard s are
produce d by an internatio nal consensu s of countries with the aim
of creating glo~al stand~rd s of product and service quality. These
sets of standard s form a quality managem ent system and are
applicab le to any qrganiza tion regardles s of product, · service,
organiza tional size, or whether it's a public or private company.
ISO 9000 indicates the overall series of the Quality Managem ent
System standard s. ISO 9001 is the number of the actual standard
to which a co~pany achieves certificat ion. Both terms-ar e often
used synonym ously to refer fo the certificat ion.
The year of fli.e· current revision of the standard appears in the
title, such as ISO · 9001. First publishe d m.1987, ISO 9001 has
consi~te ntly been ISO's most popular series of .
standard s. It is
revised in 1994 (ISO 9001 : · 1994), . then revised in 2000
(ISO 9001 : 2000), then revised in 2008 (ISO 9001 : 2008) ·and
currentl y revised in 2015, (ISO 9001 : 2015). Since _ currently
compani es are going for ISO 9001 : 2015, and previous stanqard s
have ' become outdated , we sJ)all -; ~iscuss here importan t
informat ion about ISO 9001 : 2015.
What do the standards do?
Collectiy ely they provide guidance for quality managem ent
and general requirem ents for quality assuranc e.
 . Improvement Strategies & Certi~catio
ns 1'911,.rf 355
0110/it'f
ISO ·9000 family de sc rib e
•"fhe Intemational St an da rd s in the
encompass bu t no t ho w a
hat elements_ ~u~lity. s~stems sh ou ld ments. It is no t th e
aru za tio n un ple me nts the se ele
w ific org
5~ the se .~t em ati on al St a~ da rds to enforce un ifo ~i ty of
0 se of tio ns vary. The de sig n an d
P alit y sys tem s. ·Ne ed s of org aru za
stem mu st necessarily . be
~uplementation of a quality sy
es, pr od uc ts an d processes,
~u en ce d by the pa rti cu lar objectiv
n."
and specific practices of t~e organizatio
90 01 :20 15 Se ve n Qu ali ty Management Princip~~s:
·11 .s.2 ISO
90 01 :20 15 is the wo rld 's mo st po pu lar an d mo st
ISO
uno nly us ed sta nd ard - for qu ali ty ma na ge m~ nt . _systems. A
con
me nt or be st practice th at _an
. standard is_no t a law, bu t an agree
A sta nd ard reflects a go od
organisation can· app1y voluntarily.
fes sio na lis m. A qu ali ty ma na ge me nt sy ste m is a tool
level of pro
h wh ich an org an isa tio n ca n 4~ termine ' ho w 1t ca n me et the
wit
other int ere ste d pa rti es th at
requirements of its custom~rs an d the
are involved in its activities.
ard .is co ns tru cte d ar ou nd
The most recent ISO -9Q01:2015 ~ta~d
seven quality manag~ment principles:
(1) customer focus;
(2) leadership;
(3) engagement of people;
(4) · process approach;
(5) improve111ent;
.(6) evidence-based decision ma
king;
.
(7) relationship ma na ge me nt.
e ma in dif fer en ce s be tw ee n ISO 9001:2008 an d IS O
11.5.3 Th
9001:2015 are giv en be l9~ :
IS O 90 01 :20 l5
- ISO 90 01 :20 08
(l) Introduction (1) Int rod uc tio n ·

(2) Scope (2) Scope .

(3) . •
· Normative reference (3) No rm ati ve reference
d de
-finitions
. (4) (4) Te rm s an
Terms and definitions
. '
 "g"'g "',"1"'
356 ,,,__ _,__ ~ - Vipul's™ P.rodu~ion and Total Quality Management (BMS)

(5) Quality management system (5) Context of the

organisation
(6) Management responsibility (6) Leadership
.,

(7) Resource man agem ent (7) Planning

(8) Prod uct realisation (8) Support
(9)" Measurement, analysis and (9) Operation
-improvement
(10) Performance evaluation
(11) Impr ovem ent
as
Th~ first three clauses in ISO 900i:2015 are largely the same
rences
those in ISO 9001:2008, but there are considerable diffe
clause
be~ een ISO 9001:2008 and ISO 90Q,1:2015 from· the fo~ th
rding to .
o~wards. The. fast seven clauses are now arranged acco
figure
the POCA cycle (Plan, Do, Check, Act). The following
shows this.

5 . . ... 6. . - . -7. 8.
Planning Support ,. Operation .
Leadership ·

I
I

4.-·
Context · ·
· of.the
organi sati9n

9.
10. -- Act" -performance ·
. lmprQvement · -
- evaluation

· -Fig 1.1.9 .. . . . - · '-

• '
,<' '
. .

· Clauses 4, s,· 6 .and 7 of ISO -9001:2015 ·come :under ·pLAN1.

.

da·use 8'.·coines m:ider DO, clau~e 9 comes und er CHECK

and
cla~se.10.is cov~red by ACT..Wi_th this ne':'7 a~angem~nt, the new
. ..

'
 ouolitY improvement Strategies & Certi~cations _ ~i"'rf 357

SO 9001 :2015 strives to give additional momentum to the

~ntinUO~S and systema_tic improvement of processes within .
0
rganisations. .
ISO 9001:2015 HAS A HIGH LEVEL STRUCTURE
11,s.4
(HLS): .
. As a result of the new arrangement in ten clauses, ISO
9001:2015 now has the same unambiguous structure as all
standardised management systems, known as a 'High tevel
stn1cture' (HLS).
The core elements of ISO 9001, ISO 14001,. ISO 22000, (?HSAS
18001, etc. are therefore all the same from now on. This h~s made
the integration of various mana~e~ent systems-mtitjl simpler.~If~
for exampl~, an organisation wishes to implement ISO 1~001 in_
addition to ISO 9001, the_parts that cover the same topic can easily
be seen in the standards. _
! Quality management Environment
1S09001 ISO 14001

' ----1
-----'-'- . THE SAME CORE ELEMENTS

IS022000 OHSAS 18001

Food_safety- Occupational health and safety

Fig 11.10
11.5.S Obj.ectives of ISO 9000:
(l) Gives businesses with useful, globally recognized mqdels for
operating a quality management system.
(2) Achieve, maintain and aim to regularly enhance product
quality (the standards define "product" as_the output of any
process. Therefore, this word will also apply to "services,"
whether internal or-exte~al to the business). -
 358 tf'~g" · Vipul'~™ Production and Total Quality Management (BMS)

(3) Primary objective of getting these standards is to boost the

goodwill of organization. Customer can compare the quality
of two companies, . one is with ,Isq standard and other is
without ISO standard. Goodwill could be in form of rise in
sale or more promotion of produ ct of company.
(4) To create a compliance standard which is followed 24 hours-
a-day,_7 days-a week, 52 weeks-a-year.
(5) Offer confidence to ,internal management as well as other
workers that requirements for quality are being fulfilled and
maintained, and that quality improvement is taking place.
11.5.6 · Elements of an ISO 9001 Quality Management System:
ISO standards are documented rules and guidelines for
implementing a quality system into your company. Specific
technical specifications and/ or other specific criteria ,m ay also be ·
included depending on the standa rd-you select . ·
' .
The ISO 9001 standa rd is a mode l of a qualit y system,
describing the processes and resources requir ed.for registration of
a company's quality system~. This ISO System diagra m shows the
management system and processes that are part of the ISO quality
manc}gement ~tandard. A brief sUllUllary of the key requirements

V
is detailed below.

Management
· Responsibility

Resource Measurement,.
Manag~ ment Analysis &
,_
lmprov~ment

Product
Realization
Customer . Customer
Requirements ¢ Satisfaction

Fig 11.11
, 359
,,.· . Improvement Strategies & Certmcations
1
QIIOn'f
pro duc t or
QMS: Document procrsses necessary to ensure
' service · is of hig h quality ,,~d :~conforms
to customer
requirements. ·
on. Sho w
, Management Responsib.ility: Provide a visi
co~ tm ent .
eve ryo ne
Focus on the customer. Define policy. Keep
informed.
to the job:
, Resource Management: Assign the right per son
Create and maintain positive workspace.
pro duc t,
• Product Realization: Clearly understand customer,
cations are
legal .and design requirements. Ensure specifi
followed. Check you r suppliers.
y cur ren t
• Measurement, Analysis and Improvement: Identif
cus tom er
and potential problems. Monitor and measure
satisfaction. Perform internal audits. Fix·problems.
11.5.7 Benefits ofl SO 9000:
Benefits to your organisation:
• Provides senior management_ wit h ~
efficient
management process.
sation.
• Sets out areas of responsibility across the organi
lic sector
• Mandatory if you wa nt to tender for some pub
work.
customers.
• Communicates a positive message to staff and
time sav ing
• Identifies and encourages more efficient a~d
processes.
• Highlights deficiencies.
• Reduc~s you r costs. .
nt.
• Provides continuous assessment and improveme
• · Marketing opportunities.
Benefits to your customers:
• Improved quality and serv1ce.
• Delivery·on time.
 <
. .
360 Vipul'.s™ Production and Total Quality Manaoe
6 rnent (BMs)
• •

• Rig ht firs t tim e atti tud e.

• Few er ret urn ed pro duc ts and com pla int s.
• Ind epe nde nt ·a udi t dem ons tra tes c~m mit me nt to quality. ,
11. 5.8 Ste ps to Ac hie ve ISO 900 0 Registration
and
Im ple me nt~ tio n:
· (1) Ge t top ma nag em ent com mit me
nt:

(i) To p ma nag em ent con ~id ers ISO 900

0 registration.

(ii) Qu ali ty ste eri ng com mit tee me ets

to eva lua te process. ·
(iii ) Co mm itte e inf orm s top ma nag em
ent of ISO 9000 costs I
•

sch edu le, etc.

.
.
pur sue ISO 9000 .
· · ·(iv ) To p ma nag em ent com mit s to
reg istr atio n.
(2) T~ ain per son nel :
·(i) Ho ld bas ic qua lity and ISO
900 0 tra ini ng for all
em plo yee s.
(ii) Sel ect and trcrin per son nel to be int
ern al aud ito rs.
.
(3) Pre par e Qu ~li ty ·P oli cy Ma nua l:
(i) · Stu dy .ai:id und ers tan d ISO .900
0 req uir em ent s as they
__ app ly to yo ~ com pan y. · .
- Vis ion and Mission
(ii) Wr ite (or re- ~ri te) com pan y
sta tem ent s.
(iii ) Wr ite bas ic Qu alit y Pol icy Ma nua
l ou~Iine.
~, (iv) Co mp lete firs t dra ~ of Qu alit y Pol icy
Ma nua l.
irin g ISO 9000
(v) Sen d cop y of ma nua l to cus toi: ner des
com pli anc e (if nec ess ary ).
.
(4) Pt epa re Op ei:~ tin g Pro ced ure s:
(i~ De fin e res pon sib ilit ies , usi ng Qu ali
ty Ma nua l as a guide.
(ii) Ha ve- tho se res p~n sib le ·for ·
£:unctions out lin e their
pro ced ure s. r

s.
(iii ) Int erv iew ma nag ers and fin e-t une pro ced ure
 /itv Improve ment Strategies & Certifications lV"LTJ..N"'. 36 I
QUO•~, . . El a 5

(iv) Compare Operating Procedures.with Quality Manual for

consistency.
(S) Hold internal audit:
(i) Hold internal audit of ISO 9000 manu al vs. ISO 9000
compliance. .
.
(ii) _Implement corrective action items from audit.
(6) Select registrar:
(i) Research registrars and their cost.
(i~) Qualif y possible registrars.
(iii) Select ·third party registrar. ·
(7) Go through regist ration process:
(iv) Apply for registration and audits.
(v) Agree to a~dit process etc. with registrar.
• (vi) Hold pre-assessment audit.
(vii)Take any neede d corrective action.
(viii) Have ISO 9000 registration audit.
(ix) Take any neede d corrective action.
(x) _Re-audit as needed.
(xi) Take any neede d corrective action.
(8) Obtain ISO 9000 registration:
(i) This verifies that you operate . your business in
compliance to the ISO 9000 requirements.
11.5.9 ISO 9001 QMS docum entati on .hierarchy:
The QMS docum entati on can consist of different types •of
doeuments. Usually, it includes ·documents such as quality policy,
quality manual, procedures, work instructions, quality plans, and
re~ords. . .

The QMS docum entati on can be repres ented as a hierarchy as

shown in the Fig 11.12: ·
 t (BMS)
362 Vip ul's ~ Production and Total Quality_Managemen

Polley

Procedures

Work instn.ciions

Records ·

Fig 11.12
fit you r organization.
(1) · Qu ali ty ma nua l: Th e ma nua l sho uld
nua l can vary
Th e stru ctu re and the con ten t of the ma
the com ple xity of
dep end ing on the siz e of the org ani zat ion ,
per so~ el. S~all
ope rat ion s, and the com pet enc e of the
S in. one manual.
. org ani zat ion s can doc um ent the ent ire QM
ion s ma y have
On the ·o the r sid e, larg e inte rna tion al- org ani zat
, the manual
sev era l dif fer ent qua lity ma nua ls. Ge ner ally
the standard,
inc lud es the QM S sco pe, exc lus ion s fro m

, ref ere nce s to rele van t doc um ent s, and the

·mo del . Th e qua lity pol icy and the obj ect ive s
ma nua l as we ll.
bus ine ss process
can be par t of the
·
of following
Th e ·qu alit y ma nua l sho uld inc lud e mo st
pe of the QMS;
ele me nts : titl e and tab le of con ten ts; sco
orm atio n and
exc lus ion s fro m ISO . 9001, ver sio nin g inf
des crip tion , the
app rov al; qua lity pol icy and objectives; QM S
; def init ion of
bus ine ss pro ces s mo del of the org ani zat ion
s to relevant
respon~ibilities for all per son nel ; ref ere nce
doc um ent s and rele van t app end ice s.
(2) Qu alit y pol icy : A pol icy rep res
ent s a dec lar ativ e statement
uld sta te the
by an org ani zat ion . A Qu alit y pol icy sho
and continual
~om mit me nt of the org ani zat ion to qua lity
for promotional
nnp rov em ent . Usu ally , this pol icy is use d
~rganization's
pur pos es and sho uld be dis pla yed in the
sho rt quality
pre ~s~ s and p~s ted on webs1tes,, so a cle ar and
e.
pob cy 1s con ver uen t and is the gen era l pra ctic
 UNIT 1
PRODUCTION MANAGEMENT
 Introduction
• “Production is the process of transforming raw
materials or purchased components in to
finished products for sale.” – Carl Heyal
• Creation to satisfy Human Needs.
• Type : Disintegration, Integration, Service.
• Manufacturing : The process of producing only
Tangible Goods.
• Production : The process of creating both
Tangible & Intangibles.
 Production Management
• The application of Management Principles to the
production function in a factory. (PODSCORB)
• “PM is the process of effective planning &
regulating the operations of that section of an
enterprise which is responsible for the actual
transformation of materials into Finished Goods.”
– Mr. E. L. Brech
• Factory or Plant
• Operation : Adding Value
• Importance of Service.
 Production Process

Inputs
1. Labour Outputs
2. Material 1. Goods
3. Equipment 2. Services
4. Capital Conversion 3. Information
5. Management A B
Process

Comparison
Actual V/s. Planned
• A : Adjustments
• B : Maintain Output
 Objectives

Right Quality Effectiveness Efficiency

Optimum
Right Quantity Utilisation of Lead Time
Resources

Right Time Right Cost

Customer Satisfaction

Cash Inflow & Outflow

Minimum scrap / wastages / rework

Minimum inventory levels

Minimum production cycle time

Protection of Environment

Maximum productivity

Maximum possible profit (Return on Investment)

Employee satisfaction
 Components of Production
• Product Design & Selection
• Process Selection & Planning
• Facility Location & Layout
Planning • Material Handling
• Capacity planning & Forecasting
• Production Planning & Control

Organising • Work Study & Job Designing

• Production , Inventory , Quality Control

Controlling • Maintenance & Replacement
• Cost Reduction & Control
 Qualities Essential for Production Manager
Imagination

Intelligence

Sympathy

Self Control

Communication Skills

Perseverance & Enthusiasm

Resourcefulness

Flexibility
 Product
• “A Product is anything that can be offered to a
market for attention, acquisition, use or
consumption that might satisfy a want or a
need.” – Philip Kotler
Levels of Product
Core Product

Actual
Product

Augmented
Product
 Staple
Products

Convenience Impulse
Goods Products

Emergency
Consumer Products
Goods Speciality
Goods

Shopping Insistence
Products Goods Goods

Unsought
RM & SFG
Goods

Industrial Fabricated
Products Goods

Operating
Supplies
 Product Development
• The creation of new products to fill the new
demands of the market,
• -improvements in the old products to conform
to the change in customer demand, and
• -addition / deletion from the product line to
realise greater efficiency &
• -profitability to the organisation.
1. Introduction of New Products
2. Improvement of existing products
Stages / Process in New Product Development

Idea Generation Idea Screening Concept Testing

Product
Test Marketing Business Analysis
Development

Review / Follow-
Commercialisation
ups
 Challenges

Trade offers

Customer
Dynamics
Needs

Team
Diversity & Details
Team Spirit

Time
Creation
Pressure
 Product Design
• “Design, in its broadest sense, includes the
whole development of a product through all
the preliminary stage until actual
manufacturing begins.” – C.S.Deverell
• Determining the shape, size, standard &
pattern of the product.
 Requirements / Characteristics

Function Reliability Maintainability Producibility

Simplification Standardisation Quality Cost

Warranties &
Modular Design
Guarantees
Factors affecting Product Design

Customers Facility to
Functionality
requirement operator

Work method Cost – Price

Quality policy
& equipment ratio

Effect on
Process
other Packaging
capability
products
 Stages in Product Design

Pre
Conception Acceptance Execution Evaluation Translation
Production
 Production System
• “The means by which we transform resource
inputs to create useful goods & services as
outputs.” – Buffa & Serin
• Production system constitutes a number of
activities & operations.
• Production system is the framework within
which the inputs are converted into outputs.
• Components : Input , Process , Output
 Types of
Production

Intermittent Continuous
Production Production

Batch Jobbing Project Mass & Flow Process

Production Production Production Production Production
 Intermittent System
The flow of production is intermittent, not continuous.

The volume of production is generally small.

A wide variety of products are produced.

General purpose, machines, and equipment are used so as to be

adaptable to a wide variety of operations.

No single sequence of operations is used and periodical adjustments are

made to suit different jobs or batches.

Process layout is most suited.

 Continuous System
The volume of output is generally large (mass production) and goods are produced in
anticipation of demand.

The product design and the sequence of the operations are standardized i.e. identical
products are produced.

Special purpose automatic machines are used to perform standardized operations.

Machine capacities are balanced so that materials are fed at one end of the process
and the finished product is received at the other end.

Fixed path materials handling equipment is used due to the predetermined sequence
of operations.

Product layout designed according to a separate line for each product is considered.
 Project Production
• Definite beginning & end
• Non uniform requirement of resources
• Involvement of different agencies
• Fixed position layout
• High cost overruns
• Personal Problems
• Scheduling & control
 Jobbing Production
• Small production runs
• Discontinuous flow of materials
• Disproportionate manufacturing cycle time
• General purpose machines & process layout
• Highly skilled labours
• Highly competent knowledgeable supervision
• Large WIP
• Limited PPC
 Batch Production
• Short runs
• Skilled labour in specific trades
• Supervisor to possess knowledge of a specific process
• Limited span of control
• General purpose machines & process type of layout
• Manual materials handling
• Manufacturing cycle time affected due to queues
• Larger WIP
• Flexibility of production schedules
• Need to have PPC
 Mass & Flow Production
• Continuous flow of material
• Special purpose machines & product type
layout
• Mechanised material handling
• Low skilled labour
• Short manufacturing cycle time
• Easy supervision
• Limited WIP
• Lesser flexibility in production schedule
 Process Production
• Special purpose machines with built in
controls
• Highly mechanised material handling
• Virtually zero manufacturing cycle time
• Low skilled labour
• Supervisor to be process specialist
• Negligible WIP
• Limited PPC
 Facility / Plan Location
• A geographical site for firm’s operations
achieving maximum operating economy &
effectiveness.
• Plant location decisions concern both
manufacturing & assembly units as well as
service organisations.
• Plant location decisions being strategic, long
term & non repetitive.
 Need for location decisions
Expansion of
New Business Business Increase in DD
Activity

Shift in Social &

Relocation Market / Economic
Customers reasons

Increase in
cost of inputs
 Factors governing Plant Location
Proximity to Proximity to Infrastructural Transport
Market source of RM facilities facilities

Industrial &
Labour & Legislation & Climatic
Labour
Wages Taxation conditions
attitude

Supporting
Safety Community Community
industries &
requirements facilities attitudes
services

Suitability of Availability &

the land cost of Land
 Objectives
Higher utilisation of space, equipments & labour

Improved flow of RM, Information & Employment

Improved employee morale & safe working environment

Higher flexibility

Improved production capacity

Reduced Material handling cost

Reduced Congestion / Bottleneck

Reduce Health hazards & accidents

Efficient utilisation of labour, idle time & equipment

Provide product & volume facility

Ease of supervision & maintenance

Better coordination & communication

 Urban Location Rural Location
Proximity to Market Far away from Market
Adequate SS of Labour Limited SS of Skilled Labours
Availability of Transport Facility Not Adequate
Availability of Social Amenities Fewer or Lesser
High Cost of Land Less
Restriction for Construction Fewer Restriction
Good Communication Facilities Inadequate Facilities
Good Salary & Wages Structure Lower Structure
Strong Trade Union Weak Union
Anti Pollution Measures No Measures
Training Facilities available Limited Facilities
High Labour Turnover Low Turnover
Proximity to Supporting Industries Limited Support
Govt. restriction for New Industry Support for Starting New Industry
 Plant Layout
• “Plant layout is the placing of right equipment
coupled with right method in the right place to
permit the processing of a product in the most
effective manner through the shortest possible
distance & through the shortest possible time.”
• A good layout results in comforts, convenience,
appearance, safety , efficiency & profits while
poor layout causes congestion, disruption in
materials flow, unnecessary material handling,
more scrap & rework, higher tough put time,
wasted movements, frustration & inefficiency.
 Objectives
• Economy in Handling materials, WIP & FG.
• Minimisation of Production delays.
• Lesser WIP & minimum Manufacturing Cycle
time.
• Efficient utilisation of available space.
• Easy Supervision & better production control.
• Greater flexibility for changes in product design &
for future expansion.
• Better working conditions by eliminating causes
of excessive noise, objectionable odour, smoke ,
etc.
 Features
Smooth flow of Production

Maximum utilisation of available space

Facilities the movement of Men, Materials , Machines, etc.

Minimum Handling

Better working conditions

Flexibility

Location of stores

Facilities supervision & control

Provision of safety

Co ordination & integration

Principles of a Good Layout
Overall
Minimum Uni Directional
Integration of
Movements Flow
Factors

Effective use
Maximum Maximum
of available
Visibility Accessibility
Space.

Safe &
Minimum Inherent
Improved
Handling Safety
Environments

Maximum
Flexibility
 Product / Line Layout
• The arrangement of machine & equipment in
a line or a sequence in which they would be
used in the process of manufacture of the
product or group of related products.
 Advantages Disadvantages

• Smooth Flow of Production • Expensive

• Mechanisation of Material • Inflexible
handling
• Difficulty in Supervision
• Economy in Manufacturing
Time • Difficulty in Expansion
• Saving in Material Handling • High Labour Cost
Cost • Stoppage of Work through
• Lesser WIP Breakdown
• Easy Inspection
• Introduction of PPC
• Maximum use of available
space
• Effective use of resources
• Simplified Production Control
 Functional / Process Layout
• It is based on the function performed by a
department. Machines or equipment of the
same function are grouped together in a
separate department as per specialised
operation.
 Advantages Disadvantages

• Flexibility • Inefficient Material

• Scope of Expansion Handling

• Maximum use of Equipment • Diseconomy of Floor Space

• Lower Financial Investments • High Inventory Investment

• Better working condition • High Cost of Supervision

• High Output rate • Accumulation of WIP

• Enhances the overall skill of

workers
 Cellular Layout
• Layout where machines are grouped into cell
& the cells function somewhat like a product
layout within large shop or process layout.
Advantages Disadvantages

• Lower WIP • Reduced Manufacturing

• Reduced Material handling cost
• Shorter cycle time
• Simplified PPC
• Improved Control
• Fewer tool/ equipment changes
flexibility
• Increase in machine downtime
• Duplication of activity/ process
 Static / Fixed Position Layout
• The product being produced is fixed at a
location.
• Equipment, Labour & components are moved
tot hat location.
 Advantages
• Men & Machines can be used for a wide variety
of operations.
• Investment requirement is less.
• Pride for workers.
• Avoid transferring bulky materials.

• * Service Layout
• * Hybrid / Combined Layout
Production Management : it’s Meaning, Definition, Function and Scope

Production Management : it’s Meaning, Definition, Function and Scope!

Meaning of Production Management:

Production Management refers to the application of management principles to the production function in a

factory. In other words, production management involves application of planning, organizing, directing and

controlling the production process.

The application of management to the field of production has been the result of at least three

developments:

(i) First is the development of factory system of production. Until the emergence of the concept of

manufacturing, there was no such thing as management as we know it. It is true that people operated

business of one type or another, but for the most part, these people were owners of business and did not

regard themselves as managers as well,

(ii) Essentially stems from the first, namely, the development of the large corporation with many owners and

the necessity to hire people to operate the business,

(iii) Stems from the work of many of the pioneers of scientific management who were able to demonstrate

the value, from a performance and profit point of view, of some of the techniques they were developing.
Definition of Production Management:

It is observed that one cannot demarcate the beginning and end points of Production Management in an

establishment. The reason is that it is interrelated with many other functional areas of business, viz.,

marketing, finance, industrial relation policies etc.

Alternately, Production Management is not independent of marketing, financial and personnel management

due to which it is very difficult to formulate some single appropriate definition of Production Management.

The following definitions try to explain main characteristics of production management:

(i) In the words of Mr, E.L. Brech:

“Production Management is the process of effective planning and regulating the operations of that section of

an enterprise which is responsible for the actual transformation of materials into finished products.” This

definition limits the scope of production management to those activities of an enterprise which are associated
with the transformation process of inputs into outputs. & the definition does not include the human factors

involved in a production process. It lays stress on materialistic features only.

(ii) Production Management deals with decision-making related to production process. So that the resulting

goods and services are produced in accordance with the quantitative specifications and demand schedule

with minimum cost.

According to this definition design and control of the production system are two main functions of

production management.

(iii) Production Management is a set of general principles for production economies, facility design, job

design, schedule design, quality control, inventory control, work study and cost and budgetary control. This

definition explains the main areas of an enterprise where the principles of production management can be

applied. This definition clearly points out that production management is not a set of techniques.

It is evident from above definitions that production planning and its control are the main characteristics of

production management. In the case of poor planning and control of production activities the organization

may not be able to attain its objectives and may result in loss of customer’s confidence and retardation in the

progress of the establishment.

In short, the main activities of production management can be listed as:

(i) Specification and procurement of input resources namely management, material, and land, labour,

equipment and capital.

(ii) Product design and development to determine the production process for transforming the input factors

into output of goods and services.

(iii) Supervision and control of transformation process for efficient production of goods and services.
Functions of Production Management:

The definitions discussed above clearly shows that the concept of production management is related mainly

to the organizations engaged in production of goods and services. Earlier these organizations were mostly in

the form of one man shops having insignificant problems of managing the productions.
But with development and expansion of production organizations in the shape of factories more complicated

problems like location and lay out, inventory control, quality control, routing and scheduling of the

production process etc. came into existence which required more detailed analysis and study of the whole

phenomenon.

This resulted in the development of production management in the area of factory management. In the

beginning the main function of production management was to control labour costs which at that time

constituted the major proportion of costs associated with production.

But with development of factory system towards mechanization and automation the indirect labour costs

increased tremendously in comparison to direct labour costs, e.g., designing and packing of the products,

production and inventory control, plant layout and location, transportation of raw materials and finished

products etc. The planning and control of all these activities required more expertise and special techniques.

In modern times production management has to perform a variety of functions, namely:

(i) Design and development of production process.

(ii) Production planning and control.

(iii) Implementation of the plan and related activities to produce the desired output.

(iv) Administration and co-ordination of the activities of various components and departments responsible

for producing the necessary goods and services.

However, the responsibility of determining the output characteristics and the distribution strategy followed

by an organization including pricing and selling policies are normally outside the scope of Production

Management.
Scope of Production Management:

The scope of production management is indeed vast. Commencing with the selection of location, production

management covers such activities as acquisition of land, constructing building, procuring and installing

machinery, purchasing and storing raw materials and converting them into saleable products. Added to the

above are other related topics such as quality management, maintenance management, production planning

and control, methods improvement and work simplification and other related areas.
https://www.yourarticlelibrary.com/production-management/production-management-its-meaning-
definition-function-and-scope/27925
 https://kalyan-city.blogspot.com/2011/12/what-is-production-management-meaning.html
What is Production Management? Meaning

Production management means planning, organising, directing and controlling of production activities.
Production management deals with converting raw materials into finished goods or products. It brings
together the 6M's i.e. men, money, machines, materials, methods and markets to satisfy the wants of the
people.

Image Credits © jovijovijovi.

Production management also deals with decision-making regarding the quality, quantity, cost, etc., of
production. It applies management principles to production.
Production management is a part of business management. It is also called "Production Function."
Production management is slowly being replaced by operations management.
The main objective of production management is to produce goods and services of the right quality, right
quantity, at the right time and at minimum cost. It also tries to improve the efficiency. An efficient
organisation can face competition effectively. Production management ensures full or optimum utilisation of
available production capacity.

Definition of Production Management

According to Elwood Spencer Buffa,

"Production management deals with decision-making related to production processes so that the resulting
goods or service is produced according to specification, in the amount and by the schedule demanded and at
minimum cost."

Importance of Production Management

The importance of production management to the business firm:

1. Accomplishment of firm's objectives : Production management helps the business firm to achieve all its
objectives. It produces products, which satisfy the customers' needs and wants. So, the firm will increase
its sales. This will help it to achieve its objectives.
2. Reputation, Goodwill and Image : Production management helps the firm to satisfy its customers. This
increases the firms reputation, goodwill and image. A good image helps the firm to expand and grow.
3. Helps to introduce new products : Production management helps to introduce new products in the
market. It conducts Research and development (R&D). This helps the firm to develop newer and better
quality products. These products are successful in the market because they give full satisfaction to the
customers.
4. Supports other functional areas : Production management supports other functional areas in an
organisation, such as marketing, finance, and personnel. The marketing department will find it easier to
sell good-quality products, and the finance department will get more funds due to increase in sales. It will
also get more loans and share capital for expansion and modernisation. The personnel department will be
able to manage the human resources effectively due to the better performance of the production
department.
5. Helps to face competition : Production management helps the firm to face competition in the market.
This is because production management produces products of right quantity, right quality, right price and
at the right time. These products are delivered to the customers as per their requirements.
6. Optimum utilisation of resources : Production management facilitates optimum utilisation of resources
such as manpower, machines, etc. So, the firm can meet its capacity utilisation objective. This will bring
higher returns to the organisation.
7. Minimises cost of production : Production management helps to minimise the cost of production. It tries
to maximise the output and minimise the inputs. This helps the firm to achieve its cost reduction and
efficiency objective.
8. Expansion of the firm : The Production management helps the firm to expand and grow. This is because
it tries to improve quality and reduce costs. This helps the firm to earn higher profits. These profits help
the firm to expand and grow.
The importance of production management to customers and society:
1. Higher standard of living : Production management conducts continuous research and development
(R&D). So they produce new and better varieties of products. People use these products and enjoy a
higher standard of living.
2. Generates employment : Production activities create many different job opportunities in the country,
either directly or indirectly. Direct employment is generated in the production area, and indirect
employment is generated in the supporting areas such as marketing, finance, customer support, etc.
3. Improves quality and reduces cost : Production management improves the quality of the products
because of research and development. Because of large-scale production, there are economies of large
scale. This brings down the cost of production. So, consumer prices also reduce.
4. Spread effect : Because of production, other sectors also expand. Companies making spare parts will
expand. The service sector such as banking, transport, communication, insurance, BPO, etc. also expand.
This spread effect offers more job opportunities and boosts economy.
5. Creates utility : Production creates Form Utility. Consumers can get form utility in the shape, size and
designs of the product. Production also creates time utility, because goods are available whenever
consumers need it.
6. Boosts economy : Production management ensures optimum utilisation of resources and effective
production of goods and services. This leads to speedy economic growth and well-being of the nation.

https://www.ilearnlot.com/types-of-production-systems-continuous-system-and-intermittent-system/59608/

Types of Production Systems; A production manager will have to choose the most appropriate method for
his enterprise. The final decision regarding any particular method of production is very much affecting by
the nature of the products and the quantity to produce. The types of Production Systems are grouped under
two categories viz., Intermittent production system, and Continuous production system.

Here are explain Types of Production Systems; Continuous System and Intermittent System with their
advantage and disadvantage.

There are two main types of production systems: 1) Continuous System and 2) Intermittent System.
Continuous System or Flow System:

According to Buffa,
“Continuous flow production situations are those where the facilities are standardized as to routings and
flow since inputs are standardized. Therefore a standard set of processes and sequences of the process can
adopt.”

Thus continuous or flow production refers to the manufacturing of large quantities of a single or at most a
very few varieties of products with a standard set of processes and sequences. The mass production is carried
on continuously for stock in anticipation of demand.
Types of Production Systems; Continuous System and Intermittent System, #Pixabay.

Characteristics of Continuous System:

The following characteristics below are;

 The volume of output is generally large (mass production) and goods are produced in anticipation of
demand.
 The product design and the sequence of the operations are standardized i.e. identical products are
produced.
 Special purpose automatic machines are used to perform standardized operations.
 Machine capacities are balanced so that materials are fed at one end of the process and the finished
product is received at the other end.
 Fixed path materials handling equipment is used due to the predetermined sequence of operations.
 Product layout designed according to a separate line for each product is considered.

Advantages of Continuous System:

The following advantages below are;

 The main advantage of the continuous system is that work-in-progress inventory is minimum.
 The quality of output is kept uniform because each stage develops skill through repetition of work.
 Any delay at any stage is automatically detected.
 Handling of materials is reduced due to the set pattern of the production line. Mostly the materials
are handled through conveyor belts, roller conveyors, pipelines, overhead cranes, etc.
 Control over materials, cost, and output are simplified.
  The work can be done by semi-skilled workers because of their specialization.

Enterprise Architecture framework (EA framework) and their Components

The disadvantages of Continuous System:

The continuous system, however, is very rigid and if there is a fault in one operation the entire process is
disturbed. Due to continuous flow, it becomes necessary to avoid piling up of work or any blockage on the
line. Unless the fault is cleared immediately, it will force the preceding as well as the subsequent stages to be
stopped. Moreover, it is essential to maintain stand by equipment to meet any breakdowns resulting in
production stoppages. Thus investments in machines are fairly high.

Types of Continuous System:

Continuous production is of the following types;

Mass Production:

This production refers to the manufacturing of standardized parts or components on a large scale. Mass
production system offers economies of scale as the volume of output is large. Quality of products tends to be
uniform and high due to standardization and mechanization. In a properly designed and equipped process,
individual expertise plays a less prominent role.

Process Production:

Production is carried on continuously through a uniform and standardized sequence of operations. Highly
sophisticated and automatic machines are used. Process production is employed in the bulk processing of
certain materials. The typical processing Industries are fertilizers plants, petrochemical plants, and milk
dairies which have highly automated systems and sophisticated controls.

They are not labor-intensive and the worker is just an operator to monitor the system and take corrective
steps if called for. On the basis of the nature of the production process, flow production may classify into
Analytical and Synthetic Production.

 Analytical Process: In the Analytical Process of production, the raw material is broken into different
products e.g. crude oil is analyzed into gas, Naptha, petrol, etc. Similarly, coal is processed to obtain
coke, coal gas, coal tar, etc.
 Synthetic Process: Synthetic Process of production involves the mixing of two or more materials to
manufacture a product, for instance, lauric acid, myristic acid, stearic acid are synthesized to
manufacture soap.
Assembly Lines:

Assembly line a type of flow production which is developed in the automobile industry in the USA. A
manufacturing unit prefers to develop and employ an assembly line because it helps to improve the
efficiency of production. In an assembly line, each machine must directly receive material from the previous
machine and pass it directly to the next machine.

Machine and equipment should be arranged in such a manner that every operator has free and safe access to
each machine. Space should be provided for free movement of forklifts, trucks, etc. which deliver materials
and collect finished products.

Intermittent System:

According to Buffa,
“Intermittent situations are those where the facilities must be flexible enough to handle a variety of products
and sizes or where the basic nature of the activity imposes a change of important characteristics of the input
(e.g. change. in the product design). In instances such as these, no single sequence pattern of operations is
appropriate, so the relative location of the operation must be a compromise that is best for all inputs
considered together.”

In the industries following the intermittent production system, some components may be made for inventory
but they are combined differently for different customers. The finished product is heterogenous but within a
range of standardized options assembled by the producers. Since production is partly for stock and partly for
consumer demand, there are problems to be met in scheduling, forecasting, control, and coordination.

Utility of Accounting: Types, Explain with Understand

Characteristics of Intermittent System:

The following characteristics below are;

 The flow of production is intermittent, not continuous.

 The volume of production is generally small.
 A wide variety of products are produced.
 General purpose, machines, and equipment are used so as to be adaptable to a wide variety of
operations.
 No single sequence of operations is used and periodical adjustments are made to suit different jobs or
batches.
 Process layout is most suited.

The intermittent system is much more complex than continuous production because every product has to be
treated differently under the constraint of limited resources.

The intermittent system can be-effective in situations which satisfy the following conditions:
  The production centers should be located in such a manner so that they can handle a wide range of
inputs.
 Transportation facilities between production centers should be flexible enough to accommodate a
variety of routes for different inputs.
 It should be provided with the necessary storage facility.

Types of Intermittent System:

Intermittent Production May be of two types;

Job Production:

Job or unit production involves the manufacturing of a single complete unit with the use of a group of
operators and process as per the customer’s order. This is a “special order” type of production. Each job or
product is different from the other and no repetition is involved. The product is usually costly and non-
standardised.

Customers do not make a demand for exactly the same product on a continuing basis and therefore
production becomes intermittent. Each product is a class by itself and constitutes a separate job for the
production process. Shipbuilding, electric power plant, dam construction, etc. are common examples of job
production.

Characteristics of Job Production:

 The product manufactured is custom-made or non-standardised.

 The volume of output is generally small.
 Variable path materials handling equipment are used.
 A wide range of general-purpose machines like grinders, drilling, press, shaper, etc. is used.

Advantages of Job Production:

It is flexible and can adapt easily to changes in product design. A fault in one operation does not result in
complete stoppage of the process. Besides, it is cost-effective and time-effective since the nature of the
operations in a group is similar. There is reduced material handling since machines are close in a cell. The
waiting period between operations is also reduced. This also results in a reduced work-in-progress inventory.

Production System; Introduction, Meaning, Definition, and Elements

The disadvantages of Job Production:

Job shop manufacturing is the most complex system of production e.g. in building a ship thousands of
individual parts must be fabricated and assembled. A complex schedule of activities is required to ensure the
smooth flow of work without any bottlenecks. Raw materials and work-in-progress inventories are high due
to uneven and irregular flow of work. Workloads are unbalanced, speed of work is slow and unit costs are
high.

Batch Production:

Batch production pertains to repetitive production. It refers to the production of goods, the quantity of which
is known in advance. It is that form of production where identical products are produced in batches on the
basis of demand of customers’ or of expected demand for products.

This method is generally similar to job production except for the quantity of production. Instead of making
one single product as in case of job production, a batch or group of products are produced at one time. It
should be remembered here that one batch of products may not resemble with the next batch.

It is defined as,
“The manufacture of a product in small or large batches or lots at intervals by a series of operations, each
operation being carried out on the whole batch before any subsequent operation is performed.”

The batch production is a mixture of mass production and job production. Under it machines turn out
different products at intervals, each product being produced for a comparatively short time using mass-
production methods. Both job production and batch production are similar in nature, except that in batch
production the quantity of product manufactured is comparatively large.

Advantages of Batch Production:

The batch production method possesses the following advantages;

 The work is of a repetitive nature.

 There is a functional layout of various manufacturing processes.
 One operation is carried out on the whole batch and then is passed on to the next operation and so on.
 The same type of machines is arranged at one place.
 It is generally chosen where trade is seasonal or there is a need to produce a great variety of goods.

The disadvantages of Batch Production:

Work-in-progress inventory is high and large storage space is required. Due to frequent changes in product
design, no standard sequence of operation can be used. Machine set-ups and tooling arrangements have to be
changed frequently. The main problem in batch production is the idle time between one operation and the
other. The work has to wait until a particular operation is carried out on the whole batch.
Types of production system:
The types of production system are grouped into two categories, namely:
1. Intermittent production system
2. Continuous production system
1. Intermittent production system:
Intermittent means something that starts and stops at irregular intervals (time intervals). In the intermittent
production system, goods are produced according to customer orders. These products are produced on a
small scale. The production flow is intermittent (irregular). In other words, the production flows are not
continuous.
In this types of production system, large varieties of products are produced. These products are of different
sizes. The design of these products keeps changing. It keeps changing based on product design and size.
Therefore, this system is very flexible.
The following are examples of the intermittent production system:
(i) The work of a goldsmith is based exclusively on the frequency of customer orders. The goldsmith
manufactures goods (ornaments) on a small scale according to the requirements of his client. Here,
ornaments are not made continuously.
(ii) Similarly, a tailor’s work is also based on the number of orders he receives from his clients. The tailor
sews the garments for each client independently according to measurement and size. Products (sewn
clothing) are manufactured on a limited scale and is proportional to the number of orders received from
customers. Here, sewing is not done continuously.
Characteristics of an intermittent production system are listed below:
(i) The production flow is not continuous. It is intermittent.
(ii) Wide varieties of products are produced.
(iii) The production volume is small.
(iv) General-purpose machines are used. Different types of products can be produced by the use of these
machines.
(v) The sequence of operations continues to change according to the product design.
(vi) The quantity, size, shape, design, etc. Product depends on customer orders.
The types of intermittent production system include:

i. Project production flows,

ii. Jobbing production flows, and
iii. Batch production flows.
i. Project production flows:
Here, in the project’s production flows, the company accepts a single complex order or contract. The order
must be completed within a certain period of time and at an estimated cost. Consider making a boat. Such
products are never manufactured in large quantities. Labor, facilities and other resources focus on these
products. Therefore, each product can be treated as a project, which requires the sequencing of certain
activities, either in series or simultaneously. PERT/CPM or network analysis is a useful technique to plan
and control such projects.
Examples of project production flows mainly include the construction of airports, roads, buildings,
shipbuilding, dams, etc.
Characteristics of project production flows:
1. A resource requirement varies with the production phases.
2. Many agencies are involved and their jobs are interrelated.
3. Generally. Delays take place at the end of the project.
4. As routing and programming changes, inspection is required.
ii. Jobbing production flows:
In the job production flows, the company accepts a contract to produce one or a few units of a product
strictly according to the specifications given by the customer. The product is produced within a certain
period and at a fixed cost. This cost is fixed at the time of signing the contract.
Examples of such job production flows include services provided by clothing workshops, repair shops,
manufacturers of special machine tools, etc.
Characteristics of jobbing production flows:
1. The production of items takes place in small batches.
2. Items are manufactured according to customer specifications.
3. Highly skilled labor is needed for specialized jobs
4. There is a disproportionate manufacturing cycle time.
iii. Batch production flows:
In batch production flows, the production schedule is decided according to specific orders or is based on
demand forecasts. Here, the production of items takes place in lots or lots. A product is divided into different
jobs. All jobs in a production batch must be completed before starting the next production batch.
Examples of batch production flows include, manufacture of drugs and pharmaceuticals, medium and heavy
machinery, etc.
Characteristics of batch production flows batch instruction:
1. Products are manufactured and stored until demand arises.
2. General-purpose machines and equipment are installed.
3. There is a possibility of major work in progress.
4. You need detailed production planning and control.
2. Continuous production system:
Continuous means something that operates constantly without irregularities or frequent stops. In the
continuous production system, goods are constantly produced according to the demand forecast. The goods
are produced on a large scale for storage and sale. They are not produced at the customer’s request. Here, the
inputs and outputs are standardized together with the production process and the sequence.
The following are examples of the continuous production system.
(i) The production system of the food industry is based solely on the demand forecast. Here a large-scale
food production takes place. It is also a continuous production.
(ii) Similarly, the production and processing system of a fuel industry is also based solely on the demand
forecast. Crude oil and other raw sources are continuously processed on a large scale to obtain a usable form
of fuel and
offset global energy demand.
The characteristics of a continuous production system are listed below:
(i) The production flow is continuous. It is not intermittent
(ii) The products are standardized.
(ii) Products are produced with predetermined quality standards.
(iv) Products are produced in anticipation of demand.
(v) Standardized roadmaps and schedules are prepared.
The types of continuous production systems include:
1. Mass production flows
2. Process production flows.
1. Mass production flows:
Here, the company produces different types of large-scale products and stores them in warehouses until they
are demanded in the market. Products are produced with the help of a single operation or use a series of
operations.
E.g. Mass production is the production of toothpaste, soaps, pens, etc.
Characteristics of mass production flows:
1. Continuous production flow, depends on market demand.
2. Here, there is limited work in progress.
3. Supervision is easy: few instructions are necessary.
 4. The material is mainly handled by machines.
5. The flow of materials is continuous with little or no glue.
2. Production processes:
Here, a single product is produced and stored in warehouses until it is demanded in the market. The
flexibility of these plants is almost nil because only one product can be produced.
Examples of production process flows include steel, cement, paper, sugar, etc.
Characteristics of process production flows:
1. Highly mechanized system for material handling.
2. Low skilled labor and skilled technicians are required.
3. Very little work in progress, since the flow of material is continuous.
4. Production planning and programming can be decided in advance.
5. The complete production system is designed to produce a single item.
https://www.roarwap.com/pom/types-of-production-system/
Types of production system

The types of production system are depicted in the following image.

Image credits © Moon Rodriguez.

The types of production system are grouped under two categories viz.,
1. Intermittent production system, and
2. Continuous production system.
Now let's discuss in detail each of the above-mentioned categories.

Intermittent production system

Intermittent means something that starts (initiates) and stops (halts) at irregular (unfixed) intervals (time
gaps).
In the intermittent production system, goods are produced based on customer's orders. These goods are
produced on a small scale. The flow of production is intermittent (irregular). In other words, the flow of
production is not continuous. In this system, large varieties of products are produced. These products are of
different sizes. The design of these products goes on changing. It keeps changing according to the design and
size of the product. Therefore, this system is very flexible.
Following chart highlights the concept of an intermittent production system.
 Following are examples on the intermittent production system. Please refer above chart while reading
examples given below.
1. The work of a goldsmith is purely based on the frequency of his customer's orders. The goldsmith makes
goods (ornaments) on a small-scale basis as per his customer's requirements. Here, ornaments are not
done on a continuous basis.
2. Similarly, the work of a tailor is also based on the number of orders he gets from his customers. The
clothes are stitched for every customer independently by the tailor as per one's measurement and size.
Goods (stitched clothes) are made on a limited scale and is proportional to the number of orders received
from customers. Here, stitching is not done on a continuous basis.
The features of an intermittent production system are depicted below.

The characteristics of an intermittent production system are listed as follows:

1. The flow of production is not continuous. It is intermittent.
2. Wide varieties of products are produced.
3. The volume of production is small.
4. General purpose machines are used. These machines can be used to produce different types of products.
5. The sequence of operation goes on changing as per the design of the product.
6. The quantity, size, shape, design, etc. of the product depends on the customer's orders.
The types of intermittent production system include:
1. Project production flows,
2. Jobbing production flows, and
3. Batch production flows.

Continuous production system

Continuous means something that operates constantly without any irregularities or frequent halts.
In the continuous production system, goods are produced constantly as per demand forecast. Goods are
produced on a large scale for stocking and selling. They are not produced on customer's orders. Here, the
inputs and outputs are standardized along with the production process and sequence.
Following chart highlights the concept of a continuous production system.
 Following are examples on the continuous production system. Please refer above chart while reading
examples given below.
1. The production system of a food industry is purely based on the demand forecast. Here, a large-scale
production of food takes place. It is also a continuous production.
2. Similarly, the production and processing system of a fuel industry is also purely based on, demand
forecast. Crude oil and other raw sources are processed continuously on a large scale to yield usable form
of fuel and compensate global energy demand.
The features of a continuous production system are depicted below.

The characteristics of a continuous production system are listed as follows:

1. The flow of production is continuous. It is not intermittent.
2. The products are standardized.
3. The products are produced on predetermined quality standards.
4. The products are produced in anticipation of demand.
5. Standardized routing sheets and schedules are prepared.
The types of continuous production system include:
1. Mass production flows, and
2. Process production flows.

https://kalyan-city.blogspot.com/2012/02/types-of-production-system-intermittent.html
https://www.aha.io/roadmapping/guide/product-development-methodologies/what-is-product-
development#:~:text=Product%20development%20is%20the%20complete,to%20consumer%20goods%20a
nd%20services.
What is product development?

Product development is the complete process of delivering a new product or improving an existing one for
customers. The customers can be external or internal within a company. And it can support many different
types of products from software to hardware, to consumer goods and services.

Product development methodologies are used to build many new offerings. In this article, we are going to
focus on its impact on software development for paying customers. It encompasses all stages required to
bring a new experience to end users — from ideation and analysis to design, engineering, and testing.
A clear product development process gives companies a way to explore new product ideas and learn what
customers want in the early stages of conceptualization. The objective is to ensure that the new or enhanced
product satisfies a real customer need and helps the company reach business goals.
How do teams approach product development?

The first stage in any product development process is to identify and analyze the business opportunity — this
can be how you serve external customers or build internal products for the organization. Before a concept
moves to implementation, you must determine if and how it supports overall business objectives. A
feasibility study, for example, can help teams determine whether a concept has the potential to be successful
before a full go-to-market investment is made.

Once you have a clear vision for what you want to achieve, the next step in your product development
process is to define what will be built. Researching customer needs, prioritizing features, and testing
concepts help you narrow in on the key capabilities that will be delivered in a new product or release.

Many product teams create lightweight wireframes, mockups, and prototypes to show what they envision
and to capture early feedback. This also ensures that engineering understands exactly what to build and how
the functionality should be implemented.

Your product development methodology will guide how you approach the implementation of your product
development process. For example, if your organization follows a waterfall approach, you will ideate and
define all release requirements upfront. If your organization is agile, your approach to product development
will be more incremental.
What are some common early-stage product development frameworks?

There are a number of frameworks that product teams follow to start the product development process. Most
approaches advocate understanding customer needs, market research, prototyping, and testing ideas before
fully investing in product development.

Determining the best approach for your organization largely depends on your product. For example,
hardware products might follow steps differently in the product development process than software
solutions. Medical and financial products may require more legal and compliance activities and therefore
lengthen the product development process.

The specifics will vary based on what you are actually building, but below are some common early stage
product development frameworks.

Design thinking
Design thinking is a framework for design and innovation. It includes cognitive, strategic, and functional
processes for developing new concepts. It is central to user and human-centered design. The table below
shows the fundamental steps behind design thinking.
Empathize Understand the user and what their needs are
Define Frame the problem in user and human-centered ways
Ideate Gather feedback and create ideas
Prototype Produce preliminary versions of a product or feature
Test Determine what works and identify any issues

Front end innovation

Front end innovation represents the beginning stages of the product development process. It should not be
confused with the user interface, which is often referred to as the "front end" as well. Front end innovation is
used for scoping out the concept of a product and determining whether or not to invest further time and
resources. There is not a universally accepted definition or dominant framework but you can see common
components below.
Strategic planning Establish company and product vision
Idea selection and analysis Conceptualize and understand product feasibilit
Product definition Build a business case and gather requirements

New product development (NPD)

NPD is the process of taking a product from concept to market availability. It can apply to developing a new
product as well as improving an established product.
Idea generation Brainstorm ideas internally and gather ideas ex
Idea screening Analyze and prioritize ideas
Concept testing Turn an idea into a defined concept
Market strategy and business analysis Determine the cost and potential profit
Technical product design and development Design and develop the product
Market testing Perform beta testing or a trial run of the produ
Commercialization Complete a comprehensive go-to-market launc

Who manages the product development process?

Product managers are responsible for guiding the success of a product. This starts with setting strategy and
building the product roadmap. But product managers also guide a cross-functional team as part of the
product development process. This team includes design, engineering, marketing, IT, sales, support, and
finance. This kind of cross-functional alignment helps organizations deliver a Complete Product Experience.

While product managers are at the center and oversee the entire product lifecycle, its success is a
collaborative effort. Each group of the cross-functional team owns a particular area and also likely has a
functional leader who is a part of the process and works closely with the product manager.

Innovation and new products are integral to a company’s continued success. Establishing a defined product
development process that works for your organization ensures that you launch products that fulfill customer
needs.

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Product Development
November 30, 2018 by Prachi M Leave a Comment
Definition: Product development refers to the creation of a new product which has some utility; or up-
gradation of the existing product; or enhancement of the production process, method or system. In simple
words, it is all about bringing a change in the present goods or services or the mode of production.

In simple terms product development comprises of the following elements:

  Creation and Innovation pave the way for new inventions and generation of a new product which
provides utility to the consumers.
 Improvement of the existing products is essential to upgrade the old products and to attain perfection.
 Enhancement of the existing production process, methods, techniques and system helps in the
betterment of customer experience. It is more cost-efficient for the organization too.
For Example; One of the most popular electronic brands Sony came up with the idea of coloured television
in the year 196o. Sony, with its new product development, has given a modern edge to the technological
advancement in the entertainment world.
Content: Product Development

1. Identifying the Need

2. Process
3. Conclusion
Identifying the Need for Product Development
Have you ever wondered; Why is the change needed in organizations? Why do the companies keep on
modifying their ways? What makes companies invest a tremendous amount in research and development?
To answer these questions, let us go through the following reasons for which companies plan for product

development:
Slow or Static Product Growth
When the company notices a downfall in the product performance regularly, which is not due to change in
the economy or other factors which are beyond control, it should inspect the product line to find out the
reason.
Pressure to Lower the Product Price
A business which is controlled merely by the price factor may land nowhere. If a company encounters that
the customers are shifting to the competitors’ product due to the price factor and land up cutting down the
prices of its product, it must opt for product development.
Diminishing Business from the Most Valuable Customers
The company finds out that its high revenue-generating customers prefer the competitor’s product over its
product. Then, it must analyze the change in the customer’s demand and the features offered by the
competitor’s product to meet that requirement.
Decrease in Inquiries by Prospective Customers
A product itself has the capability of acquiring customers. If the product becomes obsolete or unworthy for
its buyers and is unable to attract inquiries from the potential customers, the company must consider product
development.
Rise in Salesforce Turnover
When it becomes difficult for the sales team to sell a particular product to the customers, they tend to grab
better opportunities in other companies. This leads to salesforce turnover. It signifies that something is
wrong with the product due to which it is being rejected in the market.
Entry of New Competitor with Innovative Product
A new competitor enters the market and successfully acquires the company’s prevailing market share. The
company needs to analyze that the competitor’s innovative product is providing a higher level of satisfaction
to the customers, which the company’s product failed to do.
Change in Customer’s Demand
When the company finds out that the customers are frequently demanding a particular change in the product
or seeking for some additional feature which the competitor is offering at the similar price, it should look
forward to product development.
Competitors Exit the Market
Sometimes, many competitors leave the market since they have sensed the downfall. At this point, the
company must look up to product development to retain the customers through innovation.
Product Development Process
Product development is a strategic approach. It should be well planned and systematically executed to
achieve desired results and avoid loss.
Given below is the step by step process for introducing a new product in the market:

Idea Generation: The first step is knowing customer’s requirement through market research by taking
feedback, conducting surveys and going through the competitor’s product. From this research, a product idea
is developed.
Idea Screening: The product idea is to be well studied and investigated to find out the need for introducing
the new product, the requirement of additional machinery, selection of marketing channel and its break-even
point.
Concept Testing: The next stage is enquiring about the product feasibility by conducting concept testing.
The new product idea is revealed to a group of consumers, and they are asked to share their response over it.
If the majority is in favour of the product, then further steps are to be taken.
Business Analysis: In this step, the organization decides whether the product is financially viable for it or
not. Product’s demand, cost, competitiveness, profitability, expected sales, overheads, etc. are analyzed.
Product Development: At this stage, the manufacturing of a new product, it’s financing, marketing and
distribution as well as advertisement and promotion takes place. However, initially, a small quantity is
produced as a test batch.
Test Marketing: The product is then launched in the market on a small scale. If it attains success and can
generate customers, the large-scale production is planned.
If the product is rejected in the market, the company finds out the shortcomings and rectifies it. If the
product fails again in the market, the company tends to dump it.
Commercialization: At this point, the company executes large-scale production and distribution of the
successful new product. It advertises and markets the product on a massive scale to acquire a considerable
customer base.
Review Market Performance: Lastly, the company keeps track of the product’s performance in the market
to know customer satisfaction level, demand, profitability, sales volume, competitor’s strategy, the
satisfaction of the middlemen involved, etc.
Conclusion
Product development is essential for the growth of all; the business, the consumers and the economy. No
business can survive the competition without adding the element of innovation to its product line.
Developing a successful product for the consumers require a lot of brainstorming, planning, research, trials
and rectification.
Plant Layout: Concept, Objectives, Principles and Types
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Read this article to learn about the concept, objectives, principles, and types of plant layout.
Concept of Plant Layout:

The concept of plant layout may be described as follows:

Plant layout is a plan for effective utilisation of facilities for the manufacture of products; involving a most

efficient and economical arrangement of machines, materials, personnel, storage space and all supporting

services, within available floor space.

More defines plant layout as follows:

“Plant layout is a plan of optimum arrangement of facilities including personnel, equipment’s, storage space,

material handling equipment and all other supporting services along with the decision of best structure to

contain all these facilities.”

Points of comment:

Certain useful observations on the concept of plant layout are as follows:

(i) Plant layout is very complex in nature; because it involves concepts relating to such fields as engineering,

architecture, economics and business management.

(ii) Most of managers now realize that after the site for plant location is selected; it is better to develop the

layout and build the building around it – rather than to construct the building first and then try to fit the

layout into it.

Objectives/Advantages of Plant Layout:

Following are the objectives/advantages of plant layout:

(i) Streamline flow of materials through the plant

(ii) Minimise material handling

(iii) Facilitate manufacturing progress by maintaining balance in the processes

(iv) Maintain flexibility of arrangements and of operation

(v) Maintaining high turnover of in-process inventory

(vi) Effective utilisation of men, equipment and space

(vii) Increase employee morale

(viii) Minimise interference (i.e. interruption) from machines

(ix) Reduce hazards affecting employees

(x) Hold down investment (i.e. keep investment at a lower level) in equipment.
Principles of Plant Layout:

While designing the plant layout, the following principles must be kept in view:

(i) Principle of Minimum Movement:

Materials and labour should be moved over minimum distances; saving cost and time of transportation and

material handling.

(ii) Principle of Space Utilization:

All available cubic space should be effectively utilized – both horizontally and vertically.

(iii) Principle of Flexibility:

Layout should be flexible enough to be adaptable to changes required by expansion or technological

development.

(iv) Principle of Interdependence:

Interdependent operations and processes should be located in close proximity to each other; to minimize

product travel.

(v) Principle of Overall Integration:

All the plant facilities and services should be fully integrated into a single operating unit; to minimize cost of

production.

(vi) Principle of Safety:

There should be in-built provision in the design of layout, to provide for comfort and safety of workers.
(vii) Principle of Smooth Flow:

The layout should be so designed as to reduce work bottlenecks and facilitate uninterrupted flow of work

throughout the plant.

(viii) Principle of Economy:

The layout should aim at effecting economy in terms of investment in fixed assets.

(ix) Principle of Supervision:

A good layout should facilitate effective supervision over workers.

(x) Principle of Satisfaction:

A good layout should boost up employee morale, by providing them with maximum work satisfaction.

Types of Plant Layout:

Two basic plans of the arrangement of manufacturing facilities are – product layout and process layout. The

only other alternative is a combination of product and process layouts, in the same plant.

Following is an account of the various types of plant layout:

(a) Product Layout (or Line Layout):

In this type of layout, all the machines are arranged in the sequence, as required to produce a specific

product. It is called line layout because machines are arrange in a straight line. The raw materials are fed at

one end and taken out as finished product to the other end.

Special purpose machines are used which perform the required jobs (i.e. functions) quickly and reliably.

Product layout is depicted below:

Advantages:

1. Reduced material handling cost due to mechanized handling systems and straight flow

2. Perfect line balancing which eliminates bottlenecks and idle capacity.

3. Short manufacturing cycle due to uninterrupted flow of materials

4. Simplified production planning and control; and simple and effective inspection of work.

5. Small amount of work-in-progress inventory

6. Lesser wage cost, as unskilled workers can learn and manage production.

Disadvantages:

1. Lack of flexibility of operations, as layout cannot be adapted to the manufacture of any other type of

product.

2. Large capital investment, because of special purpose machines.

3. Dependence of whole activity on each part; any breakdown of one machine in the sequence may result in

stoppage of production.

4. Same machines duplicated for manufacture of different products; leading to high overall operational costs.

5. Delicate special purpose machines require costly maintenance / repairs.

Suitability of product layout:

Product layout is suitable in the following cases:

1. Where one or few standardized products are manufactured.

2. Where a 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 done to determine the rate of work.

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

5. Where minimum of inspection is required, during sequence of operations.

6. Where materials and products permit bulk or continuous handling by mechanical parts.

7. Where minimum of set-ups are required.

(b) Process Layout (or Functional Layout):

In this type of layout, all machines performing similar type of operations are grouped at one location i.e. all

lathes, milling machines etc. are grouped in the shop and they will be clustered in like groups.

A typical process layout is depicted below:

Advantages:

1. Greater flexibility with regard to work distribution to machinery and personnel. Adapted to frequent

changes in sequence of operations.

2. Lower investment due to general purpose machines; which usually are less costly than special purpose

machines.

3. Higher utilisation of production facilities; which can be adapted to a variety of products.

4. Variety of jobs makes the work challenging and interesting.

5. Breakdown of one machine does not result in complete stoppage of work.

Disadvantages:

1. Backtracking and long movements occur in handling of materials. As such, material handling costs are

higher.

2. Mechanisation of material handling is not possible.

3. Production planning and control is difficult

4. More space requirement; as work-in-progress inventory is high-requiring greater storage space.

5. As the work has to pass through different departments; it is quite difficult to trace the responsibility for the

finished product.

Suitability of process layout:

Process layout is suitable in the following cases, where:

1. Non-standardised products are manufactured; as the emphasis is on special orders.

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

3. Production is not carried on a large scale.

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

5. It is frequently necessary to use the same machine or work station for two or more difficult operations.

6. During the sequence of operations, many inspections are required.

7. Process may have to be brought to work, instead of “vice-versa”; because materials or products are too

large or heavy to permit bulk or continuous handling by mechanical means.

(c) Combination Layout:

In practice, plants are rarely laid out either in product or process layout form. Generally a combination of the

two basic layouts is employed; to derive the advantages of both systems of layout. For example, refrigerator

manufacturing uses a combination layout.

Process layout is used to produce various operations like stamping, welding, heat treatment being carried out

in different work centres as per requirement. The final assembly of the product is done in a product type

layout.
(d) Fixed Position Layout:

It is also called stationary layout. In this type of layout men, materials and machines are brought to a product

that remains in one place owing to its size. Ship-building, air-craft manufacturing, wagon building, heavy

construction of dams, bridges, buildings etc. are typical examples of such layout.
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Plant Location Decisions and Factors Affecting Plant Location

Plant Location Decisions and Factors Affecting Plant Location

Plant location refers to the choice of the region where men, materials, money, machinery and equipment are

brought together for setting up a business or factory. A plant is a place where the cost of the product is kept

to low in order to maximize gains. Identifying an ideal location is very crucial, it should always maximize

the net advantage, must minimize the unit cost of production and distribution. Plant location decisions are

very important because once the plant is located at a particular site then the organization has to face the pros

and cons of that initial decision.

While taking plant location decision organizations need to consider various factors such as availability of

men, materials, money, machinery and equipment. At the same time plant, location decisions should also

focus on expanding and developing facilities, the nearness of the market, transport facilities, availability of

fuel and power, availability of water and disposal of water etc. There is no exact method of analysis or

assurance for the selection of an optimal location. But an extent of analysis and study can help in

maximizing the probability of finding the right locations.

If an organization is placed in a potentially satisfactory location then it can fulfill the objectives smoothly in

the long run, on the other hand, opt for a poor location does not give the expected results due to the non-

availability of raw materials, problems from local people, problems associated with availability and disposal

of water, power supply problems, etc. However following a systematic method in order to evaluate the better

location can give maximum results in generating profits.

Factors affecting the plant location

Decisions regarding selecting a location need a balance of several factors. These are divided into primary

factors and secondary factors; here both the factors can influence the business in the long run.

Primary factors

Availability of raw materials

Availability of raw materials is the most important factor in plant location decisions. Usually, manufacturing

units where there is the conversion of raw materials into finished goods is the main task then such

organizations should be located in a place where the raw materials availability is maximum and cheap.
Nearness to the market

Nearness of market for the finished goods not only reduces the transportation costs, but it can render quick

services to the customers. If the plant is located far away from the markets then the chances of spoiling and

breakage become high during transport. If the industry is nearer to the market then it can grasp the market

share by offering quick services.

Availability of labor

Another most important factor which influences the plant location decisions is the availability of labor. The

combination of the adequate number of labor with suitable skills and reasonable labor wages can highly

benefit the firm. However, labor-intensive firms should select the plant location which is nearer to the source

of manpower.

Transport facilities

In order to bring the raw materials to the firm or to carrying the finished goods to the market, transport

facilities are very important. Depending on the size of the finished goods or raw materials a suitable

transportation is necessary such as roads, water, rail, and air. Here the transportation costs highly increase

the cost of production, such organizations can not complete with the rival firms. Here the point considered is

transportation costs must be kept low.

Availability of fuel and power

Unavailability of fuel and power is the major drawback in selecting a location for firms. Fuel and power are

necessary for all most all the manufacturing units, so locating firms nearer to the coal beds and power

industries can highly reduce the wastage of efforts, money and time due to the unavailability of fuel and

power.
Availability of water

Depending on the nature of the plant firms should give importance to the locations where water is available.

For example, power plants where use water to produce power should be located near the water bodies.

Secondary factors

Suitability of climate

Climate is really an influencing factor for industries such as agriculture, leather, and textile, etc. For such

industries extreme humid or dry conditions are not suitable for plant location. Climate can affect the labor

efficiency and productivity.

Government policies

While selecting a location for the plant, it is very important to know the local existed Government policies

such as licensing policies, institutional finance, Government subsidies, Government benefits associated with

establishing a unit in the urban areas or rural areas, etc.

Availability of finance

Finance is the most important factor for the smooth running of any business; it should not be far away from

the plant location. However, in the case of decisions regarding plant location, it is the secondary important

factor because financial needs can be fulfilled easily if the firm is running smoothly. But it should be located

nearer to the areas to get the working capital and other financial needs easily.
Competition between states

In order to attract the investment and large scale industries various states offer subsidies, benefits, and sales

tax exemptions to the new units. However, the incentives may not be big but it can help the firms during its

startup stages.

Availability of facilities

Availability of basic facilities such as schools, hospitals, housing and recreation clubs, etc can motivate the

workers to stick to the jobs. On the other hand, these facilities must be provided by the organization, but here

most of the employees give preference to work in the locations where all these benefits/facilities are

available outside also. So while selecting plant location, organizations must give preference to the location

where it is suitable for providing other facilities also.

Disposal of waste

Disposal of waste is a major problem particularly for industries such as chemical, sugar, and leather, etc. So

that the selected plant location should have provision for the disposal of waste.

https://www.businessmanagementideas.com/project-management/plant-location/plant-location-importance-

techniques-and-procedure/6658
Purchasing: it’s Meaning, Definition, Importance and Objectives | Material Management
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Purchasing: it’s Meaning, Definition, Importance and Objectives!

Meaning and Definition:

Purchasing is the first phase of Materials Management. Purchasing means procurement of goods and

services from some external agencies. The object of purchase department is to arrange the supply of

materials, spare parts and services or semi-finished goods, required by the organisation to produce the

desired product, from some agency or source outside the organisation.

The purchased items should be of specified quality in desired quantity available at the prescribed time at a

competitive price. In the words of Alford and Beatty, ”Purchasing is the procuring of materials, supplies,

machines, tools and services required for equipment, maintenance, and operation of a manufacturing plant”.

According to Walters, purchasing function means ‘the procurement by purchase of the proper materials,

machinery, equipment and supplies for stores used in the manufacture of a product adopted to marketing in

the proper quality and quantity at the proper time and at the lowest price, consistent with quality desired.”

Thus, purchasing is an operation of market exploration to procure goods and services of desired quality,

quantity at lowest price and at the desired time. Supplier who can provide standard items at the competitive

price are selected.

Purchasing in an enterprise has now become a specialised function. It was experienced that by giving the

purchase responsibility to a specialist, the firm can obtain greater economies in purchasing. Moreover

purchasing involves more than 50% of capital expenditure budgeted by the firm.

According to Westing, Fine and Zenz “Purchasing is a managerial activity that goes beyond the simple act of

buying. It includes research and development for the proper selection of materials and sources, follow-up to

ensure timely delivery; inspection to ensure both quantity and quality; to control traffic, receiving,

storekeeping and accounting operations related to purchases.” The modern thinking is that Purchasing is a

strategic managerial function and any negligence will ultimately result into decrease in profits.
Importance of Purchasing:

1. Purchasing function provides materials to the factory without which wheels of machines cannot move.

2. A one percent saving in materials cost is equivalent to a 10 percent increase in turnover. Efficient buying

can achieve this.

3. Purchasing manager is the custodian of his firm’s is purse as he spends more than 50 per cent of his

company’s earnings on purchases.

4. Increasing proportion of one’s requirements are now bought instead of being made as was the practice in

the earlier days. Buying, therefore, assumes significance.

5. Purchasing can contribute to import substitution and save foreign exchange.

6. Purchasing is the main factor in timely execution of industrial projects.

7. Materials management organisations that exist now have evolved out or purchasing departments.

8. Other factors like:

(i) Post-war shortages,

(ii) Cyclical swings of surpluses and shortages and the fast rising materials costs,

(iii) heavy competition, and

(iv) Growing worldwide markets have contributed to the importance of purchasing.

Objectives of Purchasing:

The purchasing objective is sometimes understood as buying materials of the right quality, in the right

quantity, at the right time, at the right price, and from the right source. This is a broad generalisation,

indicating the scope of purchasing function, which involves policy decisions and analysis of various

alternative possibilities prior to their act of purchase.

The specific objectives of purchasing are:

1. To pay reasonably low prices for the best values obtainable, negotiating and executing all company

commitments.

2. To keep inventories as low as is consistent with maintaining production.

3. To develop satisfactory sources of supply and maintain good relations with them.

4. To secure good vendor performance including prompt deliveries and acceptable quality.

5. To locate new materials or products as required.

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Plant Location: Importance, Techniques and Procedure

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Introduction:
Location of an industry is an important management decision. It is a two-step decision: first, choice of
general area or region and second, the choice of site within the area selected. Location decision is based on
the organisations long-term strategies such as technological, marketing, resource availability and financial
strategies.
The objective of plant location decision-making is to minimise the sum of all costs affected by location.
Plant location is important because of the following:

(i) Location influences plant layout facilities needed.

(ii) Location influences capital investment and operating costs.
Location decisions are strategic, long-term and non-repetitive in nature. Without sound and careful location
planning in the beginning itself, the new facilities may create continuous operating problems in future.
Location decision also affects the efficiency, effectiveness, productivity and profitability.
The location decision should be taken very carefully, as any mistake may cause poor location, which could
be a constant source of higher cost, higher investment, difficult marketing and transportation, dissatisfied
and frustrated employees and consumers, frequent interruptions of production, abnormal wastages, delays
and substandard quality etc.

Therefore, it should be based upon a careful consideration of all factors that are essentially needed in
efficient running of a particular industry. The necessary factors in the selection of plant location vary among
industries and with changing technical and economical conditions.
Site selection is not an easy problem because if the selection is not proper then all money spent on factory
building, machinery and their installation etc., will go as waste and the owner has to suffer a great loss.
Therefore, while selecting a site, owner must consider technical, commercial, financial aspects which may
provide maximum advantages.
It is sometimes possible that all the requirements and features of ideal site may not be available at one
particular location but then it will be advantageous to find out suitable site with combinations of all essential
requirements of the particular industry to be established as explained in following paras.
Locational Economics:
The selection of the location for an industrial plant is a long time commitment. A new enterprise may be
suffered throughout its life due to unfavourable location. Once a plant has been built, the expense and
disruption of activities necessary to move it to a more favourable location is quite impracticable. Therefore,
the search for plant site justifies very careful consideration.

For evaluation of economical location following factors should be considered:

1. Raw material procurement.
2. Proximity of market.
3. Availability of labour, their training and compensation.

4. Availability of power.
5. Availability of finance.
6. Miscellaneous considerations like donations, subsidies, taxes and non-interference by government or local
bodies, war and political effects and other facilities or bottle necks.
For comparing, the problem is divided into five main factors. The cost of each factor or sub- factor is
calculated per unit as shown in Table 31.1, which will help us in deciding most economical site.

Let R1 and R2 be the two available sources of raw material supply, one place of market or consumption is M,
and L is the location of the factory. Then, if L is at M, only freight on raw material will be paid or if L is at
R1 or R2, there will be only distribution charges on the manufactured goods.
Now, again if an intermediate place is selected both incoming and outgoing freights will be paid. Actually in
practice, a comparison should be made of each element of the cost required to be involved, if the plant is
erected at each of these alternative locations as shown in triangular form in Fig. 31.1.
In order to explain the mechanics of optimal choice of location the following examples are taken. It is not
necessary to consider all the factors of site selection given in Table 31.1, only the most effective factors can
be considered. An optimal location is one, which is the best in given and existing circumstance.
Example 1:

A comparison for three cities is given below on the basis of effective factors which effect the locational
economic:
Now on the basis of operating costs alone Alwar city would appear to be best location. If we include the
other factors such as community attitude and employee housing, Kota offers the best possibilities for
location and would probably be chosen.

Example 2:
A new industrialist wants to locate a small factory. On surveying he found the three possibilities of Delhi,
Gaziabad and Meerut with different advantages. The initial investment is going to be of the order of Rs. 2
lacs. The industrialist wants to calculate the rate of returns of the three proposed sites with highest rate of
returns will be the optimal choice of location for the factory.

Out of above factors 1 and 2 can be headed under sales and distribution cost and other five factors under
production cost.
Now Total cost of production and distribution, i.e.,

Thus location of the factory at Delhi with 20% rate of return is the optimal choice for the factory, as it gives
maximum rate of return. The rate of return for Gaziabad and Meerut are 14% and 11.5% respectively.
However from analysis for the cost of raw material and other materials, Delhi is costlier with Rs. 90,000 in
comparison with Rs. 80,000 and Rs. 70,000 respectively at Gaziabad and Meerut.

The rate of return is highest at Delhi due to the following reasons:

1. Lower distribution costs.
2. Lower Transportation costs for raw materials and others.
3. Lower fuel and power supply cost.
Although an analysis such as given in above example does not make the final location decision.
Management may find it quite useful in knowing the facts on which a sound economic choice is based.
Market Location:

To solve such problems a market analysis of the area is conducted and answers of the following
questions can be found out:
1. If there is a market which could be served and if retail price of product can be reduced?
2. Whether quick delivery of the product can be made by better plant location to the particular market?
3. Whether there is a competitor for the product in the market? Whether demand for product may increase?
Whether an additional plant is required to meet the future demand?
4. What is the potential purchasing power of the market?
5. What are the buying habits of local people, and what must be done to fit your service to these habits?
Economical Aspects:
Locational economics for an enterprise includes a consideration of the product to be manufactured, the
processes and machinery to be used, and the service and facilities required.
To know this the following factors may be studied:
1. Product:
(a) Nature,
(b) Volume, and
(c) Value.
2. Production process:
(a) Continuous,
(b) Intermittent, and
(c) Interrupted.
3. Manufacturing machinery.
4. Other manufacturing equipment’s.
5. Special manufacturing requirement.
6. Service:
(a) Steam,
(b) Gas,
(c) Water,
(d) Air or high pressure,
(e) Electricity, and
(f) Sewerage.
Selection of Site in an Urban Area:
Advantages:
1. It is sometimes possible to find an existing building which can be used to house the factory.
2. It is easier to sell the building, if it is desired, at later stage.
3. Power and water is easily available.
4. If other factories are also situated in a big city, there will be good opportunity for discussing and having
exchange of knowledge.
5. Good market for small manufacturers.
6. It is well served by railways and roads from various parts of the country so that transportation of incoming
and outgoing materials is convenient and cheap.
7. It is a good labour market, where all types of labour available. Seasonal labour is also easily obtained than
in a smaller centre of population, specially where unskilled labour is required.
8. Workers find easy to change job from one industry to other, if required.
9. Services of repairs and maintenance etc. can be available with existing industries.
10. Large number of government of facilities will be easily available like-Post office, Banks, Railways,
Police and Fire protection.
11. Houses for workers are easily available.
12. Education for the children is not a problem.
13. Transport is easy.
Disadvantages:
1. Often sites are limited in area as sufficient land is not available and congested. Hence climate is not
healthy.
2. Area being limited, it may not be possible to arrange the equipment to the best of advantages.
3. The cost of land is high and rates are liable to increase further. Land for expansion is not available at
reasonable rates. The larger the city, the larger the land value.
4. Because of high standard of living, higher wages of labour will have to be paid.
5. More problems about labour and employer relations.
6. Cost of building factory will be high.
7. High taxes.
Selection of Site in a Rural Area:
Advantages:
1. The cost of land is less than in a city area and usually easier to provide space for future expansion.
2. The cheapness of land enables a more efficient layout of works to be made and gives greater freedom in
selecting the most economic design for the buildings.
3. Rail or road connection can be arranged easily.
4. Labour supply may be arranged from the nearby areas or by transport from the city. Labour is cheaply
available.
5. Housing can be provided by private enterprises or by local authorities.
6. Healthy surrounding and pleasant atmosphere.
7. Less labour trouble.
8. Lesser taxes and restriction.
Disadvantages:
1. Sufficient power and water facilities may not be available.
2. Enough facilities for expansion may not be available.
3. Repairing work may become difficult, because of less industry in the area.
4. Skilled workers are not easily available.
5. No recreational facilities.
6. Facilities for education to children and adults (part time courses) may not be available.
7. Government facilities may not be sufficient.
8. Transport and housing facilities may not be satisfactory.
Techniques used for Selecting Best Location:
Following are the few important techniques used to decide best location from the available alternative
locations:
1. Subjective Techniques:
(a) Industry precedence,
(b) Preferential factor and
(c) Dominant factor.
2. Qualitative Techniques (Factor ranking system)
3. Semi-quantitative Techniques (Factor weight-rating system)
4. Quantitative Techniques (Operation Research Models):
(a) Break-even analysis.
(b) Economic/cost analysis, and
(c) Transportation model.
Procedure for Selecting a Site:
For selecting a site following procedure should be followed:
1. Constitution of a site selection committee.
2. Determining the company needs.
3. Deciding criteria for selection.
4. Accumulate the data.
5. Analyse the data.
6. Evaluate the alternatives.
7. Reduce number of alternatives.
8. Investigation in detail.
9. Collect and analyse further data.
Location for an Industrial Plant:
The principle of Industrial Plant Location is that the sum of manufacturing and distributing cost should be at
minimum for the best location. The first two factors are related with the transportation cost. One should be
clear that a plant may be located near the market as well as near the raw materials site. But in actual practice,
many times, due to some other factors, it is not possible to locate an industry near the proximity of market as
well as raw material.
For economical analysis these factors play an important part:
(a) Following are the factors when an undertaking is located near the raw material site:
1. When source of raw material is likely be the controlling factor.
2. When materials are bulky and of relatively low price.
3. When materials are small and of high unit price.
4. When raw materials are greatly reduced in bulk during the process of manufacture.
5. When raw materials are perishable and process makes them less perishable.
The examples are processing industries, cement, paper, meat, canning (Fruit) etc.
(b) Factors responsible for locating an industry near the market:
1. When the size or bulk of the product is more.
2. Render it more fragile.
3. More subsection about the spoilage.
Examples are shoes, furniture, glassware industries.
(c) While dealing with the economy of labour, the factors responsible are:
1. The ratio of labour cost to total manufacturing cost. If the ratio is small then this factor is not important.
2. The possibility of reduction in labour cost by using better methods or better quality of labour.
3. The type of labour required.
For example, the textile industries silk and carpet making industries, sports goods etc.
(d) Now for the economy and availability of power:
This point is similar to the raw material procurement. If power is generated from coal, then coal is a raw
material. Hence still steel plants are located near the coal-mines etc.
(e) Other major factor that influences in availability of finance:
But the finance can be obtained from Government agencies. Banks etc. at any place.
(f) The following factors also influence the layout:
1. An offer of a factory site or an existing plant.
2. Subscriptions of the capital stock of the enterprise.
3. A rebate of taxes and period for which it will remain available.
4. Non-reference by local or government bodies.
5. The location should not be near the border of the country to safeguard from risk of war
6. For smooth going, political interference should not be there.
Weight-Rating Method:
Table 31.2 illustrates the weighing method for selection of local site and other influencing factors. While
weighing, we establish a percentage to represent the relative importance. It is important that the better the
technique for getting the weighing the better the decision. In this a questionnaire survey or group discussion
may help a lot.
Before making a good decision, we should have a clear idea of objective. We should know what is the real
problem, and what are the different alternatives possible for the solution. Further it is quite easy to get
decision by putting numerical values, for factors which cannot ordinarily evaluate objectively.
Step 1:
Find the important factors. First of all find the factors which are considered important. For finding this,
statistical analysis, questionnaire survey or other techniques may be employed. Group some of the factors in
the order of importance as shown in Table 31.2.
Step 2:
Putting the numerical values for each factor, for each alternative. This can be done at best when all the
factors are considered according to the same scale of desirability.
In our example we use numbers up to 10, where 10 is the perfect in desirability. Each factor should be
considered separately. There may be many methods to get these evaluations like cost studies, statistical
analysis, work samplings questionnaires and all the other tools of O.R. and Industrial Engineering.
Step 3:
Weighing the factors with relative economic importance. In this we establish a percentage (of 100) to
represent the relative importance. In out example we weighed the factors putting them in the middle column
as shown in Table 31.3. It may be important that the better the technique for getting the weighting, the better
the decision. In this, a questionnaire survey or group discussion may help a lot.
Step 4:
Calculating weighed source for alternatives. For this, multiply each un-weighed point rating with the
appropriate weighted. In our example for factor 1, i.e. availability of labour for site 1, multiplying 10 by 40.
Now complete the table as per Table 31.3. Finally add the weighted points to find the best site.

Now observe that how the choice is reversed by weighing. As Site I with 825 become the first choice instead
of the third.
The Best Location for the Small Plant:
Following are the other points which are to be considered in addition to main factors, while
considering location for small plant:
1. Select the area where producer or enterprisers have an idea about the local people, their habits, customs
and needs.
2. If selection is made in a strange area, then enterpriser must personally meet the local interested people.
3. Location in rented premises is always better than purchasing. Because if change of location is sought
latter, then purchased premises may cause a loss.
4. Location at the main roads or corner is best suited, if finances allow.
5. Location on side road is economical but more publicity is required to become known.
6. The first renting contract with owner must not exceed one year or so, and commitments for five or ten
years must not be made until success of the projects is certain.
7. Success is not assured in any particular locality, but it can be achieved in every locality and in any
location by good and careful planning.
 Unit II
Purchase Management
Materials Management
Inventory Management
PPC & Forecasting
 Purchase Management
• “Purchasing is a business activity directed to
securing the materials, supplies, equipments
required in the operation of an organisation.”
– Westing & Fine
• Purchasing : What to
How
much to
Make or Buy Decision. Buy?
Buy?

From
When to
Where
Buy?
to Buy?
 Introduction
Purchasing Management is department in an organisation responsible for
purchasing activities.

Purchase is most important function in organisation.

Purchase is the first element which affect the product cost.

Purchase Management decide profitability of the company.

The Purchasing Management department ensure that all goods, supplies &
inventory needed to operate the business are ordered and kept in stock.

It is also responsible for controlling cost of the goods ordered, controlling

inventory level & building strong relationship with suppliers.
 Objectives
To keep department expenses low.

Development of good & new Suppliers.

Development of good relation with the existing suppliers.

Training & development of personal employees in department.

To maintain proper & up to date records of all transactions.

Participating in development of new material & products.

To contribute in product improvement.

To avoid stock – out situations.

To develop policies & procedure.

Importance / Purchasing Parameters
Right Place
Right
Transportation Right Material

Right Contract Right Quality

Right Attitude

Right Source Right Quantity

Right Time Right Price

 Materials Management
• Is a Art & Science of managing material
resources.
• Considers the cost incurred on materials & seek
to reduce this cost with strategy.
• Material Management = Cost of Materials + Cost
of Material Handling
• A process of management, covers the whole
range of functions involved in planning, sourcing,
procuring, moving, storing & controlling materials
in the most efficient manner.
• “MM is used for the group of activities
concerned with getting purchased materials &
services to the point where they are
economically useful.” – Peter Baily & David
Farmer.
• MM is concerned with all activities relating to
purchasing, receiving & storekeeping,
inventory control, material handling,
transportation with a view to achieve the
objectives of making available materials of the
right quality, in the right quantity, at the right
time, from the right source at right price.
 Objectives
Low cost of
High Inventory Continuity of
Low Prices Acquisition &
Turnover Supply
possession

Maintenance of Development of Good record

Consistency of
a good buyer new materials & keeping & quick
Quantity
seller relations vendors reporting

Development of Operational
Standardization Procedures
personnel Expenditure

Make or Buy
Future Forecasts
Decision
 Importance

Higher Cost of Offers cost Improves

Materials reduction Profits

Major part of Adds value to

Quality of FG
Current Assets product

Better Better
Life blood
coordination Accountability
 Functions
Material
Procurement Storage of
Planning &
of Materials Material
Budgeting

Vendor
Issue of Inventory
Development
Material Control
& Evaluation

Material
Material Disposal of
handling &
Accounting Scrap
Transportation

Purchase Logistics &

Traffic
Analysis & Supply Chain
Management
Research Management
 Challenges
Availability of
Difficulty in
Capital for Increase cost of
forecasting DD
Investment in storage space
Properly
Materials

Selection of Optimising
Diversification of
appropriate purchase Quality,
Product Line
vendor Time & DD

Managing
Information
 Make or Buy Decisions
• A make-or-buy decision refers to an act of using cost-benefit to
make a strategic choice between manufacturing a product in-
house or purchasing from an external supplier.
• It arises when a producing company faces a diminishing capacity,
experiences problems with the current suppliers, or sees changing
demand.
• Make-or-buy decisions reward firms with a competitive advantage
and reduce the cost of production and capital investment.
• Factors : Availability of Capacity, Expertise, Quality Considerations,
Nature of Demand, Cost.
• Make & Buy Analysis : Economic Evaluation.
• When to Make? ---------When to Buy?
Make-or-Buy Decision - Overview, How It Works, Triggers (corporatefinanceinstitute.com)
 Strategic Consideration in Make or Buy Decisions

1. Quality Consideration • A make-or-buy decision is an act

2. Quantity Considerations
3. Cost Considerations
4. Service Considerations
5. Competence of Know
required
6. Age of the firm
7. Tax considerations
8. Labour Union Compulsions
9. Emotional Considerations
10. Sub Contracting
Make-or-Buy Decision Definition (investopedia.com) efficient method.
10 Strategic Considerations in Make or Buy Decisions (accountlearning.com)
of choosing between
manufacturing a product in-house
or purchasing it from an external
supplier.
how • Make-or-buy decisions, like
outsourcing decisions, speak to a
comparison of the costs and
advantages of producing in-house
versus buying it elsewhere.
• There are many factors at play
that may tilt a company from
making an item in-house or
outsourcing it, such as labor costs,
lack of expertise, storage costs,
supplier contracts, and lack of
sufficient volume.
• Companies use quantitative
analysis to determine whether
making or buying is the most cost-
Material Handling
 Introduction

“Material Handling is the movement & storage of

material at the lowest possible cost through the use of
proper method & equipment.”

Material Handling is a necessary & significant

component of logistical activity.

Means providing Right Amount of the Right Material,

in the Right Condition , at the Right Place, at the Right
Time, in the Right Position & for the Right Cost, by
using Right Method.
The cost of material handling contributes
significantly to the total cost of manufacturing.

Process :Picking up moving & lying down materials.

Applies to movement of RM, Parts in Process, FG,

Packing Materials & Disposal of Scraps.

Material handling can be used to create time &

place utility.

Improves efficiency by making the logistics system

respond quickly & effectively.
 Objectives of Material Handling
Improving
Waste
Cost Reduction Working
Reduction
Condition

Increasing Better
Increasing
Warehouse Utilisation of
Safety
Capacity Space

Improving Optimal
Layout to Equipment
reduce waste. Utilisation
 Principles of Material Handling

Planning Standardization Work Ergonomics

Unit load Space utilization System Automation

Environmental Life Cycle Cost

 Storage
Equipments

Conventional Bulk Material

Equipments Handling

Industrial Trucks
System /
Equipments
Robotic Delivery
System

Computer
Computer Aided
Controlled
Equipments
Conveyors

Automated
Guided Vehicles
Factors affecting Material Handling Equipments

Adaptability Environment Cost

Ease of
Flexibility Load Capacity
Maintenance

Degree of
Power Safety
Automation

Space
Speed
Requirements
Inventory Management
 Introduction
Inventory refers to the stock of any commodity that is usable
but an ideal resources.

Inventories Form : Raw Materials, Finished Goods, Parts, etc.

Inventory Management refers to the process of ordering,

storing & using inventory.

Inventory management is a very important function that

determines the health of the supply chain as well as the
impacts the financial health of the balance sheet.
Every organization constantly strives to maintain optimum
inventory to be able to meet its requirements and avoid over or
under inventory that can impact the financial figures.

Inventory is always dynamic.

Inventory management requires constant and careful

evaluation of external and internal factors and control through
planning and review.

Most of the organizations have a separate department or job

function called inventory planners who continuously monitor,
control and review inventory and interface with production,
procurement and finance departments.
Inventory is an idle stock of physical goods that contain
economic value, and are held in various forms by an
organization in its custody awaiting packing, processing,
transformation, use or sale in a future point of time.

Any organization which is into production, trading, sale

and service of a product will necessarily hold stock of
various physical resources to aid in future consumption
and sale.

While inventory is a necessary evil of any such business,

it may be noted that the organizations hold inventories
for various reasons, which include speculative purposes,
functional purposes, physical necessities etc.
All organizations engaged in production or sale
of products hold inventory in one form or
other.

Inventory can be in complete state or

incomplete state.

Inventory is held to facilitate future

consumption, sale or further processing/value
addition.
All inventoried resources have economic value
and can be considered as assets of the
organization.
 Types of Inventory by Function
INPUT PROCESS OUTPUT
Raw Materials Work In Process Finished Goods
Consumables required for Semi Finished Production in Finished Goods at Distribution
processing. various stages, lying with various Centers through out Supply Chain
Eg : Fuel, Stationary, Bolts & Nuts departments like Production,
etc. required in manufacturing WIP Stores, QC, Final Assembly,
Paint Shop, Packing, Outbound
Store etc.

Maintenance Items/Consumables Production Waste and Scrap Finished Goods in transit

Packing Materials Rejections and Defectives Finished Goods with Stockiest

and Dealers
Local purchased Items required Spare Parts Stocks & Bought Out
for production items
Defectives, Rejects and Sales
Returns
Repaired Stock and Parts
Sales Promotion & Sample Stocks
 Objectives / Importance of IM
To supply the required materials continuously

To minimize the risk of under & over stocking of materials.

To maintain systematic record of inventory.

Reduction in losses, damages & misappropriation of materials.

Minimize the cost associated with inventory.

Stability in price
Functions of Inventory Management

Geographical
Decoupling
Specialisation

Balancing
Buffer
Demand &
Uncertainties
Supply
 Inventory Control Techniques
ABC GOLF SDE
Analysis Analysis Analysis

XYZ FSN S-OS

Analysis Analysis Analysis

HML VED
EOQ
Analysis Analysis
Modern Inventory Control Techniques

JIT

JIT – II

Vendor Managed Inventory

Quick Response

Automatic Replenishment
 EOQ or Optimum Lot Size
• The EOQ is a company's optimal order quantity
that minimizes its total costs related to ordering,
receiving, and holding inventory.
• The EOQ formula is best applied in situations
where demand, ordering, and holding costs
remain constant over time.

• D = Annual Demand
• Co = Cost of Placing Order
• P = Cost Per Unit
• Ci = Inventory Carrying Cost
 Assumptions
The demand for the product is uniform, constant & continuous over time.

The price per unit is fixed, independent of the size of order.

The lead time for the product is constant.

The cost of placing an order is fixed.

There is no limit on order size due either to stores capacity.

The cost of placing an order is independent of size of order.

The cost of holding a unit of stock does not depends on the quantity in stock.

The product has a long life & the chances of deterioration or spoilage are
minimum.
 Limitations
The product may not be produced in desired quantity.

The product many not necessarily have a long life.

The cost of placing an order may vary with the size of order.

Lead time can never be zero. ( Time gap between placing &
receiving order)
The demand for the product may not be same throughout the
year.
The price of the product may not be fixed. It may vary with the
size of order.
 Reorder Level
• The inventory level at which a company would
place a new order.
• It is the minimum amount of an item which a
company holds in stock such that when the stock
fails to this amount the item must be reordered.
• The reorder level is the point at which stock on a
particular item has diminished to a point where it
needs to be replenished.
• Reorder Level =
(Lead Time X Demand Per Day/Week /Month) + Safety Stock
• Safety Stock is extra units that are held in
inventory to reduce stock outs.
• Buffer Stock is a quantity which is consumed
during average lead time.
• Reorder level is a level of inventory at which
the organisation should initiate the purchase
requisition for fresh supplies.
• Lead time is the time elapses between the
placing order & actual receiving the goods.
 PPC: Production Planning & Control
• “PPC comprise the planning, routing ,
scheduling, dispatching & follow up functions
in the production process so organised that
movements of materials are directed &
coordinated as to quantity, quality , time &
place.” – Alford & Beatty.
• PPC is a technical job.
• It ensures right type of goods are produced in
right time, with least cost.
• Principle : “Plan your work & work your plan.”
• Production Planning : Pre production activity.
• Production Control : Post production activity.
• Determines & Regulates the Production Process.
Deals with ,
a) The planning of production
b) Deciding on the sequence of operations
c) The setting of starting & finishing time for
production
d) The issue of necessary instructions to start
operations
e) Follow up actions to check the progress of
operations.
 Importance of PPC
Inventory well controlled

Meeting unforeseen circumstances

Better service to customers

Appropriate use of equipment

Cost reduction

Fewer rush orders

Rationalises productions activities

Lower capital requirements

Reduced idle time

Higher morale of workers

 PPC Process

Routing Scheduling Dispatching Follow up

https://www.youtube.com/watch?v=PuEaH3-
zCnk&list=PLzWOyFS2BJrrlrXPBk_4vbHB_C91p
FzNp&index=5
 Forecasting
• Forecasting is the estimating the future demand for
products & services & resources necessary to produce
these outputs.
• Art + Science
• Vital activity for survival & success of any business.
• Concerned with Predicting or projecting about future
based on past & present situation.
• “Right Forecasting”
• Area : Cost, Sales , Profits & future course of action.
(Physical & Financial)
• No 100% accurate forecast.
 Need Type

New Technological
Production
facility Forecasts
planning
planning

Workforce Financial Demand Economic

Scheduling Planning Forecasts Forecasts
Demand Forecasting Process
Importance / Objectives of Demand Forecasting

Increasing Reducing Scheduling Deciding on

Customer Inventory Stock Production Purchase of
Satisfaction Outs more Effectively Materials

Minimization of Minimization of Evaluation of

Planning of
Inventory Warehousing Business
Sales
Carrying Costs Costs Performance

Stabilizing
Optimize Cash
Employment &
Flow
Production
 Methods / Techniques

Qualitative Techniques Quantitative Techniques

• Consumer’s Survey Method (Complete • Regression Analysis
Enumeration Survey, Sample Survey & • Barometric Technique
Test Marketing) • Time Series (Moving
• Sales Force Opinion Method Average, Weighted Average,
• Experts Opinion Method Extended Smoothing)
• Naive Approach
• Delphi Technique
 Qualitative Techniques

I) Consumer’s Survey Method or Survey of Buyer’s Intention

1. Direct Approach 2. Interviewing 3. Burden on Buyer

A. Complete Enumeration:
1. Door to Door Survey 2. First Hand Information
3. Unbiased 4. Require lots of Resources & Time.

B. Sample Survey & Test Marketing :

1. Random Sample Selection 2. Bases on Assumption
3.True Representation 4. Less Expensive & Less Time Consuming
 Qualitative Techniques
II) Sales Force Opinion Method:
1. Collective Opinion Method 2. Salesmen Opinion
3. Gross Root Approach / Bottom Up Approach 4. Sales of New Products

III) Expert Opinion Method :

1. Panellists : Expertise, Knowledge & Experience.
2. Sale of New Product 3. For Long Term Forecasting

IV) Naive Approach :

1. Assumption : Past DD & SS 2. No Major Changes

V) Delphi Technique:
1. 1950 : Olaf Helmer & Norman Dalkey 2. Common Agreement
3. Circulating Series of Questionnaires 4. Feedback Mechanism
5. Facilitators 6. Common Conclusion
 Quantitative Technique
Regression Analysis Barometric Technique Time Series

• Historical Data • Instrument of • Moving Average

(Based on Average of
• Relation measuring Resent Past)
between Two Changes • Weighted Average
Variables • Certain (Exponential
Assumptions Smoothing, Weights
• Dependent & Assigned, Previous
Independent • Use of Year data
Economic & Consideration)
Statistical • Extended Smoothing
(Cope with Seasonal
Indicators Factors , Changes in
Factors)
Factors to be Considered for Selecting
Demand Forecasting Technique

Cost Accuracy Data Available

Nature of
Impulse
Time Span Product /
Response
Service

Noise
Dampening
 Approaches to Demand Forecasting
• Top Down Approach
Total DD
16,000 Units

West : 7,000 East : 5,000 North : South :

Units Units 2,500 Units 1,500 Units
 Approaches to Demand Forecasting
• Bottom Up Approach
East : North :
5,000 2,500
Units Units

West : South :
7,000 1,500
Total DD
Units Units
16,000
Units
What is Materials Management?
Materials Management is a method for planning, organizing and controlling the activities that
are related to the flow of materials in a company. This can lead to the control of the location,
movement and time of those materials from their introduction, production, manufacturing
process and final delivery.
Materials management makes sure the materials available are aligned with the customer
demands, thus giving a schedule of costs and resources that the company has or needs.
Materials management controls the flow of materials with demand, prices, quality and
delivery schedules.
The supply chain is linked to materials management as this method is used to plan and supply
the organization. Inventory goes hand in hand with this in order to keep track of raw
materials and specific products. This helps minimize costs to the organization and ensures
maximum return on working capital.
It should be noted that materials are classified by direct materials or indirect materials. Direct
materials are those that process and give a finished product, indirect materials are those that
do not generate a final product.
Direct materials
Direct materials are those materials or raw materials in which value and importance are
identified in order to make the product that is needed and they also represent the cost and
benefit of the process. These direct materials are essential for the quality of the product
because without them the product could lose value in the market. They are vital in the
inventory and it is not possible to get out of them.
Indirect materials
These are those materials that are part of the production of the product but do not make a
difference to the final product. These cannot be calculated or measured, so their presence is
not of high relevance in the delivery of the final result.
What a Materials Manager does
They fulfil the responsibility of sustaining the supply of materials so as not to stop
production. Ensures that inventories at each storage location in the supply chain are up to
date. Improves operational efficiency and minimizes material management costs to satisfy
customers. It also gets involved in purchasing decisions that are necessary for production.
Other material management roles:
 Materials Manager
 Inventory Control Manager
 Inventory Analyst
 Materials Planner
Importance of Materials Management
Materials Management is vital for the process that is received from raw materials, machinery,
production processes, maintenance, among others, because with this management you can
order and classify the inventories in the most accurate way.
With the Management of Materials, one is responsible for the planning, movement, storage
and control of materials to enhance and provide excellent customer service with a
predetermined cost that is minimal.
Objectives of Materials Management
One of the objectives is to provide an interrupted chain of components for production in time
for customers. The materials department takes care of the supplies by ensuring the on-time
delivery of these.
Materials Management also takes care of the procurement of materials by connecting with
suppliers. In some organizations they have a separate department that takes care of this called
the purchasing department.
The main objective of this method is the provision and monitoring of appropriate processes of
the materials at the lowest cost.
1. Selection of the material
Correct selection of the required material, evaluation of this in sales with the sales
department.
2 Low cost operation
Low operating costs and maintain profits without neglecting the quality offered to the
customer. Receive and control the material in a safe way and the good condition it must have.
Identify the stock and take the production process to get the final product.
The result of the objectives of Materials Management can be the following:
 Constant supply of raw materials to continue production
 Economic purchase value can lead to increased productivity
 Minimize storage and stock control
 Minimize the cost of production to increase profits
 Buy better quality items at the most competitive price
Fundamental Objectives of Materials Management
These objectives are called the 5 R’s of Materials Management, they are the acquisition of
materials and services.
 The right material
 At the right time
 In the right amount
 Of the quality that is
 At the right price
 From the right sources
Planning and control
Planning and control of Materials Management is important in order to achieve the desired
results. The planning and control is done with the areas that need to find the processes of the
operations.
This means that it is necessary to have the necessary parts, budget the materials, inventories,
schedule the orders and monitor their process in relation to production and sales because the
costs will be of investment for the delivery of the final product.
Because of the economic control and the investment in the raw materials, it is necessary to
have the inventories of the purchase and management of the materials that are needed for the
processes of creating of the final product.
An essential part of the materials management
It is the collection of the materials that are needed to complete production, and the follow-ups
of these. With this in order you can keep track of the performance that the company is having
and also its finances.
With well managed inventories, the cost decision making can be much easier when it comes
to purchases because you can see what is needed for the production and how much could be
invested, trying to maintain a good cost with the balance that is needed.
It also helps to know the existence of what you have stored in the warehouse and the record
of the process that has had what has gone into production from arrival to delivery.
Inventory control
It is vital that you identify three factors for the control of your company’s inventories:
1. Maximum stock
This is the maximum amount of materials you wish to keep in storage or in the warehouse.
Taking into account certain factors such as: the product has a very good acceptance by the
customer, the cost of storage and transport, the time of the assortment by the supplier among
others.
2. Minimum security stock
This is the minimum amount of materials or products you want to keep in the warehouse or
store. Taking into account: the supplier’s delivery time, cost of the orders, prices etc.
3. Re-order point
This is the level of stock of the orders to be able to supply warehouse where the time with the
suppliers is essential not to have problems of supply.
The benefits of inventory control are helpful to the operational areas that are in the
organization giving priority to investment and cost of materials that are necessary for the
productivity of the company, giving a follow-up flow to give positive results in the end of
production and delivery to the customer.
Functions of Materials Management
Materials management is concerned with the costs of materials, supply and use. The
following areas are involved such as production control, shipping, receiving and stores which
we will explain below.
Production and control of materials
The preparation of schedules is very important to carry out in order to hit the results. The
requirements of parts or materials are determined according to the production schedules. This
is prepared with orders that are requested by customers in advance. This is how production
can be carried out without any problems.
Purchasing
This is the purchase of the materials needed in the entire production process. The objective of
this department is to maintain the flow of materials and services needed to operate in the
company. To keep investments and losses in inventory to a minimum.
Choose the sources of supply, finalize the terms of purchase and their follow-up, maintain the
relationships with the suppliers, approve payments for the suppliers, evaluate and qualify the
development of the suppliers. This department fulfils the function of buying quality products
at reasonable prices.
Stores
When the material is delivered, physical control, conservation and maintenance of records,
proper location and storage is done in the stores.
Transport
It is important to be able to move the materials from the point of purchase to the company or
to the customers or to the place where they are going to be stored. Ideally, you should hire
cheap and fast transportation according to how often you need to move production materials
around.
Material handling
It is the follow-up of the material process, to know that everything has the flow that is needed
in the production of the products.
Receiving
The reception is responsible for unloading the materials, counting the units and sending them
to the stores.
Conclusion
Companies tend to use Materials Management to process productivity and follow up of these
processes through inventories, thus having a logistic and even economic control of everything
that is invested in order to have a step by step view of what has been done and what will be
done in the future.
It also makes the Management of Materials the main factor to give a final product to the
client, since being able to manage the quality, the purchase, the production of the product or
service that is wanted to offer in the final straight of delivery, the Management makes that
everything passes through the necessary filters to obtain the best results of delivery.
The Management of Materials began to be implemented in the industrial companies by the
productive system of machinery, nevertheless nowadays still it is used by modern companies
that have plans of work very different from the companies of the industrial age but that still
guide themselves with the management of materials for the productivity of their processes,
the fulfilment of deliveries and the economic pursuit of the raw material or the things that are
necessary so that the processes do not stop and can follow the suitable flow for the final
delivery.
https://www.toolshero.com/management/materials-
management/#:~:text=Materials%20Management%20is%20a%20method,manufacturing%20
process%20and%20final%20delivery.
Material Management: it’s Definition, Objectives and Organization
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Material Management: it’s Definition, Objectives and Organization!

Some Definitions of Materials Management:

(i) ‘Materials Management’ is a term used to connote “controlling the kind, amount, location,

movement and timing of various commodities used in production by industrial enterprises”.

(ii) Materials Management is the planning, directing, controlling and coordinating those

activities which are concerned with materials and inventory requirements, from the point of

their inception to their introduction into the manufacturing process.

It begins with the determination of materials quality and quantity and ends with its issuance

to production to meet customer’s demand as per schedule and at the lowest cost.

(iii) Materials Management is a basic function of the business that adds value directly to the

product itself

(iv) Materials Management embraces all activities concerned with materials except those

directly concerned with designing or manufacturing the product.

(v) Materials Management deals with controlling and regulating the flow of material in

relation to changes in variables like demand, prices, availability, quality, delivery schedules

etc.

Thus, material management is an important function of an organisation covering various

aspects of input process, i.e., it deals with raw materials, procurement of machines and other

equipment’s necessary for the production process and spare parts for the maintenance of the

plant. Thus in a production process materials management can be considered as an

preliminary to transformation process.

It involves planning and programming for the procurement of material and capital goods of

desired quality and specification at reasonable price and at the required time.

It is also concerned with market exploration for the items to be purchased to have up to date

information, stores and stock control, inspection of the material received in the enterprise,

transportation and material handling operations related to materials and many other functions.

In the words of Bethel, “Its responsibility end when the correct finished product in proper

condition and quantity passes to the consumer.”

General Electric Company (G.E.C.) of U.S.A. who are pioneers in the field of Materials

Management listed the functions of materials management under following heads:

(i) Planning and programming for materials purchase.

(ii) Stores and Stock control.

(iii) Receiving and issue of the material.

(iv) Transportation and material handling of the material.

(v) Value engineering and value analysis.

(vi) Disposal of scrap and surplus materials.

Objectives of Materials Management:
Materials management contributes to survival and profits of an enterprise by providing

adequate supply of materials at the lowest possible costs.

The fundamental objectives of materials management activities can be:

(i) Material Selection:

Correct specification of material and components is determined. Also the material

requirement in agreement with sales programme are assessed. This can be done by analysing

the requisition order of the buying department. With this standardisation one may have lower

cost and the task of procurement, replacement etc. may be easier.

(ii) Low operating costs:

It should endeavor to keep the operating costs low and increase the profits without making

any concessions in quality.

(iii) Receiving and controlling material safely and in good condition.

(iv) Issue material upon receipt of appropriate authority.

(v) Identification of surplus stocks and taking appropriate measures to produce it.

The outcome of all these objectives can be listed as given below:

(i) Regular uninterrupted supply of raw-materials to ensure continuity of production.

(ii) By providing economy in purchasing and minimising waste it leads to higher

productivity.

(iii) To minimise storage and stock control costs.

(iv) By minimising cost of production to increase profits.

(v) To purchase items of best quality at the most competitive price.

Organization of Materials Management Department:
To facilitate planning, direction, control and co-ordination of various activities related to

material in an enterprise there should be a separate department of materials management. The

organisational structure of the department can be.

There can be more sub-sections of the department but in general, materials manager controls

the four major sections and is responsible for reporting to the president of the organisation.
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Materials Management: Meaning, Importance and Functions
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Materials Management: Meaning, Importance and Functions!

The need for materials management was first felt in manufacturing undertakings. The

servicing organizations also started feeling the need for this control. And now even non-

trading organizations like hospitals, universities etc. have realized the importance of materials

management. Every organization uses a number of materials. It is necessary that these

materials are properly purchased, stored and used.

Any avoidable amount spent on materials or any loss due to wastage of materials increases

the cost of production. The object of materials management is to attack materials cost on all

fronts and to optimize the overall end results. Materials management connotes controlling the

kind, amount , location and turning of the various commodities used in and produced by the
industrial enterprises. It is the control of materials in such a manner that it ensures maximum

return on working capital.

L.J. De Rose:

“Material management is the planning, directing, controlling and co-ordination of all those

activities concerned with material and inventory requirements, from the point of their

inception to their introduction into manufacturing process.”

As per De Rose all those functions which start with the procurement of materials and end

with completion of manufacturing are a part of material management.

N.K. Nair:

“Material management is the integrated functioning of the various sections of an organization

dealing with the supply of materials and allied activities in order to achieve maximum co-

ordination.”

N.K. Nair has emphasized the co-ordination of all those activities which are related to the

efficient use of materials.

Importance of Material Management:

Material management is a service function. It is as important as manufacturing, engineering

and finance. The supply of proper quality of materials is essential for manufacturing standard

products. The avoidance of material wastage helps in controlling cost of production. Material

management is essential for every type of concern.

The importance of material management may be summarized as follows:

1. The material cost content of total cost is kept at a reasonable level. Scientific purchasing

helps in acquiring materials at reasonable prices. Proper storing of materials also helps in

reducing their wastages. These factors help in controlling cost content of products.
2. The cost of indirect materials is kept under check. Sometimes cost of indirect materials

also increases total cost of production because there is no proper control over such materials.

3. The equipment is properly utilized because there are no break downs due to late supply of

materials.

4. The loss of direct labour is avoided.

5. The wastages of materials at the stage of storage as well as their movement is kept under

control.

6. The supply of materials is prompt and late delivery instances are only few.

7. The investments on materials are kept under control as under and over stocking is avoided.

8. Congestion in the stores and at different stages of manufacturing is avoided.

Functions of Material Management:

Material management covers all aspects of material costs, supply and utilization. The

functional areas involved in material management usually include purchasing, production

control, shipping, receiving and stores.

The following functions are assigned for material management:

1. Production and Material Control:

Production manager prepares schedules of production to be carried in future. The

requirements of parts and materials are determined as per production schedules. Production

schedules are prepared on the basis of orders received or anticipated demand for goods. It is

ensured that every type or part of material is made available so that production is carried on

smoothly.
2. Purchasing:

Purchasing department is authorized to make buying arrangements on the basis of

requisitions issued by other departments. This department keeps contracts with suppliers and
collects quotations etc. at regular intervals. The effort by this department is to purchase

proper quality goods at reasonable prices. Purchasing is a managerial activity that goes

beyond the simple act of buying and includes the planning and policy activities covering a

wide range of related and complementary activities.

3. Non-Production Stores:

Non-production materials like office supplies, perishable tools and maintenance, repair and

operating supplies are maintained as per the needs of the business. These stores may not be

required daily but their availability in stores is essential. The non-availability of such stores

may lead to stoppage of work.

4. Transportation:

The transporting of materials from suppliers is an important function of materials

management. The traffic department is responsible for arranging transportation service. The

vehicles may be purchased for the business or these may be chartered from outside. It all

depends upon the quantity and frequency of buying materials. The purpose is to arrange

cheap and quick transport facilities for incoming materials.

5. Materials Handling:

It is concerned with the movement of materials within a manufacturing establishment and the

cost of handling materials is kept under control. It is also seen that there are no wastages or

losses of materials during their movement. Special equipment’s may be acquired for material

handling.
6. Receiving:

The receiving department is responsible for the unloading of materials, counting the units,

determining their quality and sending them to stores etc. The purchasing department is also

informed about the receipt of various materials.

Types of Material Handling Equipment
The four main categories of material handling equipment include storage, engineered
systems, industrial trucks, and bulk material handling.
Storage and Handling Equipment
Storage equipment is usually limited to non-automated examples, which are grouped in with
engineered systems. Storage equipment is used to hold or buffer materials during
“downtimes,” or times when they are not being transported. These periods could refer to
temporary pauses during long-term transportation or long-term storage designed to allow the
buildup of stock. The majority of storage equipment refers to pallets, shelves or racks onto
which materials may be stacked in an orderly manner to await transportation or consumption.
Many companies have investigated increased efficiency possibilities in storage equipment by
designing proprietary packaging that allows materials or products of a certain type to
conserve space while in inventory.
Examples of storage and handling equipment include:
 Racks, such as pallet racks, drive-through or drive-in racks, push-back racks, and
sliding racks, are a basic but important method of storage, saving floor space while
keeping their contents accessible.
 Stacking frames are stackable like blocks, as their name implies. They allow
crushable pallets of inventory, such as containers of liquid, to be stacked to save space
without damage.
 Shelves, bins, and drawers. Shelves, another basic storage method, are less open than
racks. Used with bins and drawers, they’re more able to keep smaller and more
difficult to manage materials and products stored and organized. Shelving types can
include boltless, cantilever, revolving, and tie-down.
 Mezzanines, a type of indoor platform, help to create more floor space in a warehouse
or other storage building for offices or more storage. Typical types include modular,
movable, rack supported, building supported, and free-standing versions.
 Work assist tooling enables safe and efficient product handling across numerous
industries in applications that require the movement of products, enhancing the
efficiency of assembly and manufacturing operations.
Engineered Systems
Engineered systems cover a variety of units that work cohesively to enable storage and
transportation. They are often automated. A good example of an engineered system is an
Automated Storage and Retrieval System, often abbreviated AS/RS, which is a large
automated organizational structure involving racks, aisles and shelves accessible by a
“shuttle” system of retrieval. The shuttle system is a mechanized cherry picker that can be
used by a worker or can perform fully automated functions to quickly locate a storage item’s
location and quickly retrieve it for other uses.
Other types of engineered systems include:
 Conveyor systems come in a variety of types, depending on what they are meant to
transport, including vibrating, overhead, chain, vertical, and apron conveyors.
 Automatic Guided Vehicles (AGV) are independent computer-operated trucks that
transport loads along a predetermined path, with sensors and detectors to avoid
bumping into anything.
Industrial Material Handling Trucks
Industrial trucks (material handling trucks) refer to the different kinds of transportation items
and vehicles used to move materials and products in materials handling. These transportation
devices can include small hand-operated trucks, pallet jacks, and various kinds of forklifts.
These trucks have a variety of characteristics to make them suitable for different operations.
Some trucks have forks, as in a forklift, or a flat surface with which to lift items, while some
trucks require a separate piece of equipment for loading. Trucks can also be manual or
powered lift and operation can be walk or ride, requiring a user to manually push them or to
ride along on the truck. A stack truck can be used to stack items, while a non-stack truck is
typically used for transportation and not for loading.
There are many types of industrial trucks:
 Hand trucks, one of the most basic pieces of material handling equipment, feature a
small platform to set the edge of a heavy object on, and a long handle to use for
leverage. Whatever is being moved must be tipped so that it rests on the handle, and is
carried at a tilt to its destination.
 Pallet Trucks, also known as pallet jacks, are a type of truck specifically for pallets.
They slide into a pallet and lift it up to move it. Pallet trucks come in both manual and
electrical types.
 Walkie Stackers transport and lift pallets like a forklift, though they don’t include a
place for the operator to ride in. They come in both powered or manual versions.
 Platform trucks are hand trucks low to the ground, with a wide platform for
transporting goods.
 Order pickers lift the operator several feet above the ground on a platform so they can
retrieve or store goods on high shelves.
 Sideloaders, also known as VNA (Very Narrow Aisle) trucks, are meant to fit in
narrow warehouse aisles, as they can load objects from different directions. They’re
also good for long, awkward products that need moving.
 Many types of AGV, or automatic guided vehicles, as discussed above, shuttle
products along a route automatically, without human guidance.
See more on trucks and carts in our other Thomas' Buying Guide: Types of Trucks and Carts.
Bulk Material Handling Equipment
Bulk material handling refers to the storing, transportation and control of materials in loose
bulk form. These materials can include food, liquid, or minerals, among others. Generally,
these pieces of equipment deal with the items in loose form, such as conveyor belts or
elevators designed to move large quantities of material, or in packaged form, through the use
of drums and hoppers.
 Conveyors, as mentioned above, come in a wide variety of types for different types of
bulk material.
 Stackers, which are usually automated, pile bulk material onto stockpiles, moving
between two points along rails in a yard.
 Reclaimers are the opposite of stackers, retrieving materials from stockpiles, some
using bucket wheels to carry the material while others are scraper or portal style.
 Bucket elevators, also known as grain legs, use buckets attached to a rotating chain or
belt to carry material vertically.
 Grain elevators are tall buildings specifically for storing grain. They include
equipment to convey the grain to the top of the elevator, where it is sent out for
processing.
 Hoppers are funnel-shaped containers that allow material to be poured or dumped
from one container to another. Unlike a funnel, though, hoppers can hold material
until it’s needed, then release it.
 Silos are generally large storage structures for bulk materials, though they don’t
necessarily include equipment to convey the material to the top of the structure like
grain elevators. Different varieties include tower, bunker, and bag silos.
https://www.thomasnet.com/articles/materials-handling/material-handling-equipment/
https://www.douglasequipment.com/material-handling/different-types-material-handling-
equipment/
What is inventory management?
Inventory management is a systematic approach to sourcing, storing, and selling inventory—
both raw materials (components) and finished goods (products).
In business terms, inventory management means the right stock, at the right levels, in the
right place, at the right time, and at the right cost as well as price.
https://www.tradegecko.com/inventory-
management#:~:text=Inventory%20management%20is%20a%20systematic,cost%20as%20w
ell%20as%20price.

Inventory Management
September 15, 2019 by Prachi M Leave a Comment
Definition: Inventory management is an approach for keeping track of the flow of inventory.
It starts right from the procurement of goods and its warehousing and continues to the
outflow of the raw material or stock to reach the manufacturing units or to the market,
respectively. The process can be carried out manually or by using an automated system.
When the goods arrive at the premises, inventory management ensures receiving, counting,
sorting, arrangement, storage and maintenance of these items, i.e. stock, raw material,
components, tools, etc., efficiently.
To see how this whole system functions, we should first understand the flow of inventory in
an organization. The same has been represented in the following diagram:

Here, the goods which are stored in the warehouse can be utilized in the following two ways:
 Direct distribution in the market i.e., to the wholesalers, dealers, retailers or customer;
or
 Sent to the production units for manufacturing of finished goods.
There are many inventory management techniques available for organizations to choose
from. Some of the most common ones are EOQ (economic order quantity), ABC analysis,
just-in-time management, EQR model, VED analysis, LIFO (last in last out) and FIFO (first
in first out).
Content: Inventory Management
1. Objectives
2. Types
3. Process
4. Importance
5. Challenges Faced
6. Conclusion
Inventory Management Objectives
Inventory management is performed to simplify the operational activities. Some of the
primary objectives for which it is carried out are as follows:

 Preventing Dead Stock or Perishability: With an optimal inventory level, the chances
of wastage in the form of goods spoilage or dead stock.
 Optimizing Storage Cost: It reduces the chances of maintaining excessive stock, even
the requirements are pre-determined, which ultimately cuts done the unnecessary
warehousing costs.
 Maintaining Sufficient Stock: Now, the production department need not worry about
the shortage of raw material or goods because of its constant supply.
 Enhancing Cash Flow: Inventory has a significant impact on the cash flow of the
company. With effective inventory management, the organization can ensure sufficient
liquid cash to enhance its operational efficiency.
 Reducing the Inventories’ Cost Value: When there is a constant purchase of goods or
stock, the organization can ask for discounts and other benefits to decrease the
purchase price.
Types of Inventory Management
While installing an inventory management system, the organization has to consider the
various aspects like cost, budget, utility and accessibility. However, it can be classified into
the following types:

Bar-code Inventory Management

The barcode system is its automated and simplified version. The management can find out
the stock remaining with just one click on a computer device. The scanned barcodes enable
the software to maintain a track of all the purchases and the flow of inventory.
Continuous Inventory Management
It links the barcode and radio frequency identification with the accounting inventory system,
inventory received, and point of sales systems along with the production system, to trace the
path of inventory movement. It is mostly beneficial for accounting purpose. This is also
termed as perpetual inventory management.
Periodic Inventory Management
It is a manual process, which is used for determining the closing inventory value, for putting
it up in the ledger at the end of a financial year. Depending on the organizational need, it can
also be analyzed quarterly. However, it is a time-consuming way, since the inventory has to
be physically counted.

Inventory Management Process

Since it is a process of identifying and resolving inventory-related obstacles. Given below is
the step by step method of improving the organization’s inventory management system:
Step 1: Determining the Loopholes
The foremost step is to evaluate the inventory requirement and the actual stock of the goods.
Also, the reasons for this gap between the demand and inventory should be ascertained.
Step 2: Analyzing Consumer Demand and Spending Patterns
The market demand forecasting holds equal importance. This is because it helps the
organization to estimate the production quantity, which ultimately leads to the maintenance
of adequate inventory.
Step 3: Evaluating the Cost Involved
Its implementation involves different types of expenses such as warehousing, maintenance,
transport, bulk discounts and supply chain costs. Each of these should be well analyzed.
Step 4: Identifying the Extent of Process Automation
It is not possible for every organization to completely automate the inventory management
process. However, the management can recognize those particular areas where there are
possibilities of automation.
Step 5: Inspecting Supplier’s Practices and Performance
The next step is to find out the suppliers’ inventory management practices since this strategy
cannot be implemented solely. If the supplier is resistant to change and tends to proceed with
the traditional means, the organization needs to look for alternative vendors.
Step 6: Classifying Inventories into Different Categories
The goods have to be segregated into various categories depending upon the product type,
customer class, maintenance cost or profit margin.
Step 7: Setting Objectives for Each Inventory Category
To efficiently manage and track the performance of the applied technique for each category,
it is essential to set individual goals. It not only provides a base for benchmarking but also
identifies the problems and issues faced in each of these categories.
Step 8: Prioritizing the Areas of Improvement
Now, that we are aware of the problems, the next step is about finding out the density of each
issue and its impact. The concerns which can be resolved immediately needs to be addressed
first. And then, the ones which are complex and requires restoration should be considered.
Step 9: Taking Advice or Opinion from Experts
Designing an appropriate inventory management system is the task of the personnel who
specialize in the field. Thus, at this stage, the organization needs to hire consultants or experts
for advice and opinion on current technology and problem fixation within the desired budget.
Step 10: Framing Suitable Inventory Management Policy
The last step is to implement a satisfactory inventory management strategy for the desired
change. This improvement should be incorporated as an inventory management policy to deal
with the changes in demand and add value to customer experience.

Importance of Inventory Management

The evolving technology and changing consumer preference have significantly brought
forward the need for a robust inventory management system. Given below are some of the
most prominent reason for which it is considered beneficial for every business entity:

Enables Enterprise Resource Planning (ERP)

The ERP software accommodates and links the different business operations. These are
inventory procurement, warehousing, production, human resource, finance, marketing and
sales to one another. In this process, inventory management contributes its part of providing
the necessary data.
Proper Warehouse Management
The barcode system, LIFO and FIFO techniques provide a clear picture of the past and
present inventory available with the company to optimize the warehousing functions.
Efficient Inventory Valuation
It provides for proper evaluation of the different types of inventory, i.e., stock in hand,
opening and closing stocks, raw material, finished goods, etc. This data is also used to
prepare the cost sheet.
Supports Supply Chain Management
Being a segment of supply chain management, it is responsible for streamlining all the
warehousing operations and flow of raw material or stock.
Manages Sales Operations
Sales, as we know, is a continuous process which depends upon the production of goods or
services. If there is inefficient inventory management in the organization, the chances of
unavailability of raw material for manufacturing may arise.

Challenges Faced in Inventory Management

Inventory management has become an inevitable part of significant business entities. Also,
many small organizations have adopted the concept to keep track of their stock and raw
material.
But while practically implementing it, the companies have to deal with the following
limitations:

 Lack of Knowledge: The personnel at the receiving and warehousing departments may
lack the required expertise and adequate knowledge of segregating the regular and
seasonal goods out of the whole stock.
 Expanding Product Portfolios: The customers’ demand and requirements for a wide
range of products have tremendously increased the inventory size, making it difficult to
manage, manually.
 Supply Chain Complexity: The organization, at times, fail to track the stock or goods
during the supply chain process. Moreover, it is not necessary that the business partners
also maintain an inventory management system, creating hurdles.
Conclusion
Inventory management is a useful method for simplifying all the warehousing activities of the
organization. With this technique, the company can now access and determine its stock and
inventory with efficiency to smoothen all the business operations.
It has also proved to be a valuable tool for maintaining the working capital requirement.
https://theinvestorsbook.com/inventory-management.html
Inventory management is the basis of a well-functioning retail business. Inventory
management systems track the lifecycle of inventory and stock as it comes and goes out of
your business.
When businesses don’t have a handle on the activity of their inventory, or worse, track it with
outdated spreadsheets and data entry, the rest of the pieces, like order fulfilment, don’t fall into place.
When you don’t know how much inventory you have on hand, you can’t make smart reorder
decisions
You can’t list items accurately online because you don’t have visibility into how much
inventory you have to allocate to each channel. You get stuck with too much inventory or an
incorrect amount of product. The list is endless.
Inventory management processes are imperative to succeed as a retailer of any kind —
ecommerce, multi-channel, brick-and-mortar, omni-channel — if you want to seriously
compete.
Let’s take a look at a few stats from actual retailers who have experienced the hurdles of not
using an inventory management software.
 43% of retailers ranked inventory management as their number one day-to-day
challenge
 Over 1,600 new warehouses were opened between 2013 and 2017
With new warehouses opening every day, the amount of people in need of proper inventory
management processes grows in congruence with the amount of people who don’t know how
to manage them. The importance of inventory management simply cannot be ignored.
What Is Inventory Management?
Inventory management is a step in the supply chain where inventory and stock quantities are
tracked in and out of your warehouse.
The goal of inventory management systems is to know where your inventory is at any given
time and how much of it you have in order to manage inventory levels correctly.
Some companies may opt to scan in inventory via a barcode scanner to increase efficiency
along pick routes and accuracy.
Unlike an ERP system, an inventory management system focuses on one supply chain
process. They often come with the ability to integrate with other software systems – point of
sale, channel management, shipping – so you can build a personalized integration stack to the
needs of your unique business.
Why Is Inventory Management Important
Inventory management is the fundamental building block to longevity. When your inventory
is properly organized, the rest of your supply-chain management will fall into place. Without
it, you risk a litany of mistakes like mis-shipments, out of stocks, overstocks, mis-picks, and
so on.
Proper warehouse management is key. Mis-picks result from incorrect paper pick lists,
disorganized shelf labels, or just a messy warehouse in general. Mis-shipments are a direct
result of mis-picks at the beginning of the inventory process, and are also a result of a lack in
quality control procedures.
Out of stocks and overstocks occur when a company uses manual methods to place orders
without having a full grasp on the state of their inventory. This is a not a good predictor for
inventory forecasting and results in too much stock or too little.
All of these mistakes will not only cost you money, but also cost you in wasted labor spent
correcting the mistakes later. When you don’t implement management tools, your risk of
human error mistakes goes up by the minute. And your customer reviews and loyalty take a
negative hit as well.
Inventory Management Techniques
That being said, inventory management is only as powerful as the way you use it.
It’s well worth the extra time and money to have inventory management set up by the experts
who made the software. Work with them to make sure you’re utilizing the proper techniques
and features to get the most bang for your buck.
Let’s take a look at some inventory-control techniques you may choose to utilize in your own
warehouse.
1. Economic order quantity.
Economic order quantity, or EOQ, is a formula for the ideal order quantity a company needs
to purchase for its inventory with a set of variables like total costs of production, demand
rate, and other factors.
The overall goal of EOQ is to minimize related costs. The formula is used to identify the
greatest number of product units to order to minimize buying. The formula also takes the
number of units in the delivery of and storing of inventory unit costs. This helps free up tied
cash in inventory for most companies.
2. Minimum order quantity.
On the supplier side, minimum order quantity (MOQ) is the smallest amount of set stock a
supplier is willing to sell. If retailers are unable to purchase the MOQ of a product, the
supplier won’t sell it to you.
For example, inventory items that cost more to produce typically have a smaller MOQ as
opposed to cheaper items that are easier and more cost effective to make.
3. ABC analysis.
This inventory categorization technique splits subjects into three categories to identify items
that have a heavy impact on overall inventory cost.
 Category A serves as your most valuable products that contribute the most to overall
profit.
 Category B is the products that fall somewhere in between the most and least
valuable.
 Category C is for the small transactions that are vital for overall profit but don’t
matter much individually to the company altogether.
4. Just-in-time inventory management.
Just-in-time (JIT) inventory management is a technique that arranges raw material orders
from suppliers in direct connection with production schedules.
JIT is a great way to reduce inventory costs. Companies receive inventory on an as-needed
basis instead of ordering too much and risking dead stock. Dead stock is inventory that was
never sold or used by customers before being removed from sale status.
5. Safety stock inventory.
Safety stock inventory management is extra inventory being ordered beyond expected
demand. This technique is used to prevent stockouts typically caused by incorrect forecasting
or unforeseen changes in customer demand.
7. FIFO and LIFO.
LIFO and FIFO are methods to determine the cost of inventory. FIFO, or First in, First out,
assumes the older inventory is sold first. FIFO is a great way to keep inventory fresh.
LIFO, or Last-in, First-out, assumes the newer inventory is typically sold first. LIFO helps
prevent inventory from going bad.
8. Reorder point formula.
The reorder point formula is an inventory management technique that’s based on a business’s
own purchase and sales cycles that varies on a per-product basis. A reorder point is usually
higher than a safety stock number to factor in lead time.
9. Batch tracking.
Batch tracking is a quality control inventory management technique wherein users can group
and monitor a set of stock with similar traits. This method helps to track the expiration of
inventory or trace defective items back to their original batch.
10. Consignment inventory.
If you’re thinking about your local consignment store here, you’re exactly right. Consignment
inventory is a business deal when a consigner (vendor or wholesaler) agrees to give a
consignee (retailer like your favorite consignment store) their goods without the consignee
paying for the inventory upfront. The consigner offering the inventory still owns the goods
and the consignee pays for them only when they sell.
11. Perpetual inventory management.
Perpetual inventory management is simply counting inventory as soon as it arrives. It’s the
most basic inventory management technique and can be recorded manually on pen and paper
or a spreadsheet.
12. Dropshipping.
Dropshipping is an inventory management fulfillment method in which a store doesn’t
actually keep the products it sells in stock. When a store makes a sale, instead of picking it
from their own inventory, they purchase the item from a third party and have it shipped to the
consumer. The seller never sees our touches the product itself.
13. Lean Manufacturing.
Lean is a broad set of management practices that can be applied to any business practice. It’s
goal is to improve efficiency by eliminating waste and any non value-adding activities from
daily business.
14. Six Sigma.
Six Sigma is a brand of teaching that gives companies tools to improve the performance of
their business (increase profits) and decrease the growth of excess inventory.
15. Lean Six Sigma.
Lean Six Sigma enhances the tools of Six Sigma, but instead focuses more on increasing
word standardization and the flow of business.
16. Demand forecasting.
Demand forecasting should become a familiar inventory management technique to retailers.
Demand forecasting is based on historical sales data to formulate an estimate of the expected
forecast of customer demand. Essentially, it’s an estimate of the goods and services a
company expects customers to purchase in the future.
17. Cross-docking.
Cross-docking is an inventory management technique whereby an incoming truck unloads
materials directly into outbound trucks to create a JIT shipping process. There is little or no
storage in between deliveries.
18. Bulk shipments.
Bulk shipments is a cost efficient method of shipping when you palletize inventory to ship
more at once.
Examples of Successful Inventory Management
1. MB Klein
MB Klein, a historic retailer in Maryland of model trains, train sets, and railroad accessories,
is a mutual client of SkuVault and BigCommerce. Mat Huffman, digital warehouse lead at
MB Klein, told us about his experience using a SkuVault and BigCommerce integration to
manage the company’s online store and brick-and-mortar store.
“After having implemented SkuVault’s system, the task of maintaining our inventory has
become more straightforward and efficient. Our customer satisfaction has improved with
accelerated shipping times and the ability to accurately represent our stock in real-time with
the BigCommerce integration for our website,” said Huffman.
“The ease of only needing to upload new products into BigCommerce that migrate into
SkuVault has been a tremendous advantage for dealing with workflow. One of the most
beneficial aspects of utilizing SkuVault has been the ability to streamline, not only the
inventory counts, but the ordering and receiving processes as well,” he said. “Overall, we
have found the use of SkuVault to be invaluable, and the benefits have had an extensive
impact on MB Klein’s growth during the past year.”
Common Inventory Management Questions
Below are frequently asked questions regarding inventory management.
Does BigCommerce integrate with inventory management software?
Yes! Click here to browse popular inventory management solutions we currently integrate
with. Don’t see a platform or have a custom solution? Get in touch to discuss your options.
What are necessary goals of inventory management?
The main goal of inventory management is to increase the visibility and organization of
inventory activity via automated and streamlined pick/pack/ship features.
This kind of change empowers your small business to grow with confidence and puts you in
front of the kind of customers you want.
Your business should run like a well-oiled machine upon implementing smart inventory
management techniques. And if you really want to do it right, implement inventory
management software with the software’s in-house support team. Let the experts lead you in
the right direction.
How do you measure to see if you are successfully managing inventory?
The proof is in the numbers when measuring the success rate of inventory management. After
you have implemented new inventory management techniques, compare the data from before
and after.
Have your level of mis-shipments, mis-picks, or out of stocks decreased? What about dead
stock? Have you eliminated the dead piles of inventory around the perimeter of the
warehouse?
If you can answer yes to these, you’ve successfully conducted inventory management. As a
result, you can expect to see better customer reviews, improved customer loyalty, and even a
boost in Amazon Seller Rating Performance.
Who should be accountable for inventory management effectiveness?
It’s an all hands on deck approach when it comes to inventory management effectiveness.
Several teams are responsible for different pieces of the pie.
The purchasing team is accountable for making sure they are not over or under purchasing,
and are closely monitoring each purchase order.
The merchandising team is tasked to ensure the inventory is properly listed, promoted, and
priced to move.
The warehouse team, warehouse manager, and inventory specialists are responsible for
handling all inventory from FIFO to delegating proper stock levels in each location. This
ensures less shelf wear on packaging.
The warehouse team is also accountable for the obvious inventory management tasks –
managing proper receiving, correct picks, and correct shipments to create an ease of
movement throughout the pick/pack/ship process.
How do you determine if your inventory manager is spread too thin?
There’s a few alarming signs around a warehouse that signal your inventory manager cannot
do their job properly. And they all have to do with improper inventory management.
Here are a few signs:
 You have undersold inventory; meaning, there’s a hot item somewhere hidden in the
backstock you didn’t list in time for the season.
 Inventory levels are creeping up, but aren’t in line with sales levels. This is a sign of
dead stock.
 The amount of shelf wear on packages forces you to mark down the price. This is a
result of stocking inventory incorrectly or sitting too long and becoming dead stock.
 The inventory manager is still using a manual spreadsheet. This method of inventory
management leads to huge amounts of manual error like mis-shipments and mis-
picks.
What should determine ordering frequency?
Reporting, reporting, reporting.
It can’t be stressed enough how important reports are to inventory management processes
during peak season.
Historical sales reports from peak seasons past, and throughout the current year, should be
used to determine order frequency during peak season. Look back on what you sold the most
and the least in tandem with what items are popular this year to make more accurate
purchasing decisions.
Sales reports can be broken down by sales channels so you get a better understanding of what
items sold on each channel. This gives you a clear idea of the kind of order demand to expect
and right order frequency to establish.
How should I prepare for peak seasons?
Peak season for a business is arguably the most important time of the year. It’s the time of
year when most businesses make the bulk of their revenue, so it’s pivotal that you have
proper inventory management in place in order to succeed.
If you’re heading into your first peak season, here’s what you can do to prepare.
 Conduct a cycle count to make sure all inventory levels are correct.
 Ensure shipping supplies are properly stocked and ready to use. By the way, shipping
supplies should be inventoried as well.
 Hire temporary staff to account for a higher demand in orders.
 Utilize history reports to make sure you’ve ordered the right amount of inventory.
 Make sure all inventory, including backstock and picking, is in the proper locations.
And last, but not least, implement inventory management software. Inventory management
streamlines all the points above and better accommodates for high demand and fluctuation
throughout peak season better than a spreadsheet ever could.
Executive Summary
Inventory is the biggest asset to your company, so in order to save money and make money,
you need to protect that asset and nurture it in the right direction. Without implementing
inventory management techniques, you’ll never get ahead.
Sign up with an inventory management software that masters the basics of inventory
management. The fundamentals are key to a sustainable business. Software should be a
catalyst for your growth, not a hindrance.
https://www.bigcommerce.com/blog/inventory-management/#executive-summary
Methods and Techniques of Inventory Control
1. ABC analysis:
The basic work in this always better control analysis is the classification and identification of
different types of inventories, for determining the degree of control required for each. In
many firms it is found that they have stocks which are used at very different rates. So items
are classified under three broad categories A, B and C, on the basis of usage, bulk, value,
size, durability, utility, availability, criticality etc.; and should be controlled with due
weightage to differential characteristics.
The items included in group A involve largest investments and the inventory control should
be most severe to these items. C group consists of inventory items which involve relatively
small investments although the number of items remains large. These items deserve
minimum attention of control. In B group that items are included which are neither of A nor
C. This method can be explained by the following exhibit.

Exhibit II:
Classification of Inventory Items:

Class No. of Items (per cent of total) Value of Items (per cent of total)

A 20 85

В 30 10

С 50 5

Total 100 100

From the figure it can be observed that there are comparatively few items in A but they
constitute a large proportion of the total rupee value; B items are in the intermediate range
and C items are numerous but inexpensive.
The purpose behind the ‘distribution by value’ analysis is ‘Always Better Control’. Donald
G. Hall recommends that different attitudes shall be adopted in inventory management—
aggressive for class A items, active for class B items and loose for class C items; and that
each category should be given the attention as deserves. R.S. Chadda recommends the
following order for selective control:

A Items B Items C Items

1. Control Tight Moderate Loose

2. Requirements Exact Exact Estimated

3. Postings Individual Individual Group

4. Check Close Some Little

5. Expediting Regular Some None

6. Safety Stocks Low Medium Large

(Adapted from P.V. Kulkarni, Financial Management—A Conceptual Approach).

2. Economic order quantity model:

The basic decision in an economic order quantity (EOQ) procedure is to determine the
amount of stock to be ordered, at a particular time so that the total of ordering and carrying
costs may be reduced to a minimum point. A firm should place optimum orders and neither
too large nor to small. The EOQ is the level of inventory order that minimizes the total cost
associated with inventory. The EOQ model is based on following four assumptions:
(i) A firm has a steady and known demand of D units each period for a particular input.
(ii) The firm consumes the input at a uniform rate.

(iii) The costs of carrying stocks are a constant amount C per unit per period.
(iv) The costs of ordering more inputs are a fixed amount O per order. Orders are delivered
instantly.
A useful formula for calculating the optimum order quantity is:
EOQ = √2DO/ C

To show how we might use the formula consider exhibit III in which a firm has an annual
inventory requirement of 10,000 units. The accounting costs associated with placing an order
with the supplier come to Rs. 200 per order and the carrying costs of holding stocks are
expected to be Rs. 4 per unit.
Hence, D=10,000 units
0=Rs. 200
C=Rs. 4

EOQ = √2 x 10,000 x 200/ 4

= √10,00.000
= 1,000 units
Therefore, 1000 units should be ordered every 37 days.
The EOQ model is very simple one and its assumptions will be unrealistic in many
applications, in practice orders are not delivered instantly. The assumption of a constant
usage of inventory and known annual demand are of doubtful validity.
3. Minimum Safety Stocks:
To avoid stock-outs firms maintain safety stocks of inventory. The safety stock is the
minimum level of inventory desired for an item given the expected usage rate and the
expected time to receive an order. If an order is placed when the inventory reaches 12,000
units instead of 10,000 units, the additional 2,000 units constitute a safety stock.

The manager expects to have 2,000 units in stock when the new order arrives at the scheduled
time. The safety stock protects as a safe-guard against stock-outs ‘position due to
unanticipated increase in usage resulting from an unusually high demand and/or an
uncontrollable late delivery of inventories.
The increase in the amount of inventory held as safety stock reduces the chances of stock-out
and therefore, reduces stock-out costs over the long-run. The level of inventory investment is,
however increased by the amount of safety stock. The optimum level of safety stock is
determined by the trade-off between the stock-out and the carrying costs.
Thus the best level of safety stock for a given item depends on stock-out costs, variability of
usage rates and delivery times. The safety stock level is the multiplication of the average
demand during a period of the maximum delay and the probability of its occurrence.
If the usage rate and delivery time or lead time can be forecasted with a high degree of
accuracy and if the cost of stock-out is estimated to be small, then little or no safety stock will
needed. If the circumstances are not so favourable, then the significant investment in safety
stock will be desirable.
4. Re-order point:
In addition to set EOQ, the inventory management must know when to place the order for
avoiding the stock-out position. Especially in the Indian context where there is a considerable
time lag between placing the order and actual receipt of the inventory, determining the re-
order point (ROP) is momentous as well as intricate. The ROP may be defined as that level of
inventory at which a fresh order should be placed to the suppliers for replenishing the current
stock.
The ROP is calculated as the lead time X daily usage. The lead time is the time lag between
raising an order and the goods being delivered. For example, if the normal daily usage of
materials is 100 units and it takes 30 days for the supplier to deliver the goods, then an order
must be sent out when the stock level reaches 3,000 units. If safety stocks are held then re-
order level should be: safety stock+ (lead time x daily usage).

Another method of ordering is the ‘two bin’ and ‘three bin systems. These involve putting a
quantity equal to the re-order level in a separate bag or bin which is sealed or put in a
separate location; the rest of the stock is withdrawn as needed with no record of individual
usage being kept.
Opening the sealed bin, however, gives the indication for a replenishment order. This method
is cheap as it does not entail continuous, monitoring and is easy to understand—it has
therefore gained a fair amount of acceptance. There are also other types of system in use
known as ‘the ‘min-max’ or ‘S-s’ ‘method. However, an organization will have to take care
of the lead time with sufficient initial stock and then follow it up regularly with EOQ cycles.
https://www.businessmanagementideas.com/business-management/methods-and-techniques-
of-inventory-control-business-management/542
https://www.investopedia.com/terms/e/economicorderquantity.asp#:~:text=Economic%20ord
er%20quantity%20(EOQ)%20is,in%201913%20by%20Ford%20W.
Economic Order Quantity – EOQ Definition
By JASON FERNANDO
Reviewed By JANET BERRY-JOHNSON
Updated Jan 16, 2021
What Is Economic Order Quantity (EOQ)?
Economic order quantity (EOQ) is the ideal order quantity a company should purchase to
minimize inventory costs such as holding costs, shortage costs, and order costs. This
production-scheduling model was developed in 1913 by Ford W. Harris and has been refined
over time.1 The formula assumes that demand, ordering, and holding costs all remain
constant.
KEY TAKEAWAYS
 The EOQ is a company's optimal order quantity that minimizes its total costs related
to ordering, receiving, and holding inventory.
 The EOQ formula is best applied in situations where demand, ordering, and holding
costs remain constant over time.
Formula and Calculation of Economic Order Quantity (EOQ)
The formula for EOQ is:
 \begin{aligned} &Q = \sqrt{ \frac{2DS}{H} }\\ &\textbf{where:}\\ &Q=\text{EOQ
units}\\ &D=\text{Demand in units (typically on an annual basis)}\\ &S=\text{Order
cost (per purchase order)}\\ &H=\text{Holding costs (per unit, per year)}\\
\end{aligned}Q=H2DS
where:Q=EOQ unitsD=Demand in units (typically on an annual basis)S=Order cost (p
er purchase order)H=Holding costs (per unit, per year)
Economic Order Quantity (EOQ)
What the Economic Order Quantity Can Tell You?
The goal of the EOQ formula is to identify the optimal number of product units to order. If
achieved, a company can minimize its costs for buying, delivery, and storing units. The EOQ
formula can be modified to determine different production levels or order intervals, and
corporations with large supply chains and high variable costs use an algorithm in their
computer software to determine EOQ.
EOQ is an important cash flow tool. The formula can help a company control the amount of
cash tied up in the inventory balance. For many companies, inventory is its largest asset other
than its human resources, and these businesses must carry sufficient inventory to meet the
needs of customers. If EOQ can help minimize the level of inventory, the cash savings can be
used for some other business purpose or investment.
The EOQ formula determines a company's inventory reorder point. When inventory falls to a
certain level, the EOQ formula, if applied to business processes, triggers the need to place an
order for more units. By determining a reorder point, the business avoids running out of
inventory and can continue to fill customer orders. If the company runs out of inventory,
there is a shortage cost, which is the revenue lost because the company has insufficient
inventory to fill an order. An inventory shortage may also mean the company loses the
customer or the client will order less in the future.
Example of How to Use EOQ
EOQ takes into account the timing of reordering, the cost incurred to place an order, and the
cost to store merchandise. If a company is constantly placing small orders to maintain a
specific inventory level, the ordering costs are higher, and there is a need for additional
storage space.
Assume, for example, a retail clothing shop carries a line of men’s jeans, and the shop sells
1,000 pairs of jeans each year. It costs the company $5 per year to hold a pair of jeans in
inventory, and the fixed cost to place an order is $2.
The EOQ formula is the square root of (2 x 1,000 pairs x $2 order cost) / ($5 holding cost) or
28.3 with rounding. The ideal order size to minimize costs and meet customer demand is
slightly more than 28 pairs of jeans. A more complex portion of the EOQ formula provides
the reorder point.
Limitations of Using EOQ
The EOQ formula assumes that consumer demand is constant. The calculation also assumes
that both ordering and holding costs remain constant. This fact makes it difficult or
impossible for the formula to account for business events such as changing consumer
demand, seasonal changes in inventory costs, lost sales revenue due to inventory shortages, or
purchase discounts a company might realize for buying inventory in larger quantities. 2
Frequently Asked Questions
What does economic order quantity mean?
Economic order quantity is a technique used in inventory management. It refers to the
optimal amount of inventory a company should purchase in order to meet its demand while
minimizing its holding and storage costs. The economic order quantity is just one of many
formulas used to help companies make more efficient inventory management decisions. One
of the important limitations of the economic order quantity is that it assumes the demand for
the company’s products is constant over time.
How is economic order quantity calculated?
Economic order quantity is calculated using the following formula:
 \begin{aligned} &Q = \sqrt{ \frac{2DS}{H} }\\ &\textbf{where:}\\ &Q=\text{EOQ
units}\\ &D=\text{Demand in units (typically on an annual basis)}\\ &S=\text{Order
cost (per purchase order)}\\ &H=\text{Holding costs (per unit, per year)}\\
\end{aligned}Q=H2DS
where:Q=EOQ unitsD=Demand in units (typically on an annual basis)S=Order cost (p
er purchase order)H=Holding costs (per unit, per year)
As you can see, economic order quantity will be higher if the company’s setup costs or
product demand increases. On the other hand, it will be lower if the company’s holding costs
increase.
Why is economic order quantity important?
Economic order quantity is important because it helps companies manage their inventory
efficiently. Without inventory management techniques such as this, companies will tend to
hold too much inventory during periods of low demand, while also holding too little
inventory in periods of high demand. Either problem creates missed opportunities for
companies: too much inventory generally means too little cash on hand, while not holding
enough inventory will lead to missed sales. For investors, calculating the economic order
quantity for a company can help to assess how efficiently that company is managing its
inventory.
Formulas:
2𝐷𝐶𝑜
1. 𝐸𝑂𝑄 = √ 𝑃𝐶𝑖
2. Total Cost = DP + (D / Q) X Co + ( Q/2) X PCi
Where;
D = Annual Demand, Co = Ordering Cost,
P = Cost per Unit, Ci = Inventory Carrying cost, Q = EOQ Units
3. Buffer Stock = Avg. Lead Time X Avg. Usage Rate
4. Safety Stock = ( Maximum – Avg. Lead Time ) X Normal Usage Rate
5. Reserve Stock = ( Maximum – Normal Usage Rate ) X Avg. Lead Time
6. Re order Level = Safety Stock + Buffer Stock + Reserve Stock
7. Minimum Inventory Level = Safety Stock + Reserve Stock or Reorder Level - Buffer Stock
8. Maximum Inventory Level = Minimum Inventory Level + Order Quantity
9. Avg. Inventory Level = ( Maximum + Minimum Inventory Level) / 2

Q1. The annual demand of an item is 8400 units. The unit cost is Rs. 8/-. The inventory carrying rate
is 25%pa, Ordering Cost is Rs.200/-, Calculate EOQ?
Solution:
Given: D = 8400 units, P= Rs. 8/-, Co= Rs. 200/-, Ci= 25%pa = 25/100 = 0.25
2𝐷𝐶𝑜
𝐸𝑂𝑄 = √ = √ ( 2 X 8400 X 200) / ( 8 X 0.25)
𝑃𝐶𝑖
= √ 134,40,000 / 2
= √ 6720,000 = 2592.30 = 2592 units.
Answer: The EOW for given situation is 2592 units per Order.

Q2. The annual demand for chair is 108000 units; per unit cost is Rs. 1000, carrying rate is 20% &
ordering cost is Rs. 700/-. Calculate EOQ.
Solution:
Given: D = 108,000 units, P= Rs.1000/- Co= Rs.700/-, Ci= 20% = 0.20
2𝐷𝐶𝑜
𝐸𝑂𝑄 = √ = √ ( 2 X 108,000 X 700) / ( 1000 X 0.20)
𝑃𝐶𝑖
= √ 15,12,00,000 / 200 = √ 756,000
= 869.48 = 869 units
Answer : The EOQ for given situation is 869 units per Order.

Q3. In ABC Ltd. the annual consumption is of 10000 units. The ordering cost is Rs. 700, Cost per unit
is Rs. 100 & Inventory Carrying cost is 25%. Calculate EOQ?

Solution:
Given : D = 10,000 units, P = Rs. 100/-, Co = Rs. 700/-, Ci = 25% = 0.25

2𝐷𝐶𝑜
𝐸𝑂𝑄 = √ = √ ( 2 X 10000 X 700) / ( 100 X 0.25)
𝑃𝐶𝑖
= √ 14,000,000 / 25 = √ 560,000 = 748. 33
= 748 units
Answer : The EOQ for given situation is 748 units per Order.
Q4. The weekly demand is 1000 units, CPU is Rs. 100, procurement cost is Rs.250, carrying cost is
50%. Calculate EOQ.
Solution:
Given: D = Annual Demand = Weekly DD X 52 Weeks = 1000 units X 52Weeks = 52,000 units
OR = Daily DD X 360days or 365days
OR = Monthly DD X 12Months
P = Rs. 100/- Co = Rs. 250/- Ci = 50% = 0.50

2𝐷𝐶𝑜
𝐸𝑂𝑄 = √ √ ( 2 X 52000 X 250) / ( 100 X .050)
𝑃𝐶𝑖
= √ 260,00,000 / 50 = √ 520,000 = 721.11 = 721 units
Answer = The EOQ for given situation is 721 units.

Q5. Determine the stock levels from the following information.

Normal Usage = 100 units per week Minimum Usage = 50 units per week
Lead Time = 4 to 6 weeks Maximum Usage = 150 units per week
Re order Quantity = 600 units.
Solution:
WN1 : Calculation of Average Usage Rate = ( Maximum + Minimum Usage ) / 2
= ( 150 + 50) / 2 = 200 / 2 = 100 units
WN2 : Calculation of Average Lead Time = ( Maximum + Minimum Lead Time ) / 2
= ( 6 + 4) /2 = 10 / 2 = 5 Weeks

1. Buffer Stock = Avg. Lead Time X Avg. Usage Rate

= 5 Weeks X 100 units = 500units

2. Safety Stock = ( Maximum – Avg. Lead Time ) X Normal Usage Rate

= ( 6 weeks – 5 weeks ) X 100 units = 1 X 100 units = 100 units

3. Reserve Stock = ( Maximum – Normal Usage Rate ) X Avg. Lead Time

= ( 150 units – 100 units ) X 5 Weeks
= 50 units X 5 Weeks
= 250 units

4. Re order Level = Safety Stock + Buffer Stock + Reserve Stock

= 100 units + 500 units + 250 units = 850 units

5. Minimum Inventory Level = Safety Stock + Reserve Stock or Reorder Level - Buffer Stock
= 100 units + 250 units = 350 units
OR = 850 units – 500 units = 350 units

6. Maximum Inventory Level = Minimum Inventory Level + Order Quantity

= 350 units + 600 units = 950 units

7. Avg. Inventory Level = ( Maximum + Minimum Inventory Level) / 2

= ( 950 + 350) /2 = 1300 / 2 = 650units
Q6. An Auto Industry purchases Spark Plugs at the rate of Rs. 25 per piece. The annual consumption
of spark plugs is 18,000 units. If the ordering cost is Rs. 250 per order & carrying cost is 25% pa.,
what would be the EOQ? If the supplier of spark plugs offers a discount of 5% for order quantity of
3,000 units per order, do you accept the discount offer?

Solution:
Part A = Calculation of EOQ
Given: D = 18000 units P = Rs.25/- Co = Rs. 250/- Ci = 25% = 0.25

2𝐷𝐶𝑜
𝐸𝑂𝑄 = √ = √ ( 2 X 18000 X 250) / ( 25 X 0.25)
𝑃𝐶𝑖
=√ 9000,000 / 6.25 = √ 14,40,000 = 1200 units

Total Cost = DP + D/Q Co + Q/2 P CI

Given : D = 18000 units P = Rs.25/- Co = Rs. 250/- Ci = 25% = 0.25
Q = EOQ = 1200 units
= ( 18000 X 25) + ( 18000 / 1200 ) X 250 + ( 1200 / 2 ) X 25 X 0.25
= 450,000 + 3750 + 3750
TC = Rs. 457,500

Part B = Calculation of Discounted Total Cost.

Given : D = 18000 units P = 25 – 5% Discount = Rs. 23.75/-
Co = Rs. 250/- Ci = 25% = 0.25
Q = Minimum Order Quantity = 3000 units

Total Cost = DP + D/Q Co + Q/2 P CI

= ( 18000 X 23.75) + ( 18000 / 3000) X 250 + ( 3000 / 2 ) X 23.75 X 0.25
= 427,500 + 1500 + 8906.25
= 437,906.25
TC = Rs. 437,906

Answer : The discount offer will be accepted as Total Cost under Discount offer is Rs. 437,906 which
is lesser than the Total Cost for original process, which was Rs. 457,500.
Q7. A Company uses 1200 units per month of an electronic component each costing Rs.2, Placing
each order cost Rs.50 & carrying cost is 6%pa of the average inventory.
A. Find EOQ
B. If the company gets 5% discount if it places single order, should they accept the discount offer?

Solution:
Part A : Calculation of EOQ
Given : D = Annual DD = Monthly DD X 12 Months = 1200 units X 12 months = 14,400 units
P = Rs. 2/- Co = Rs. 50/- Ci = 6% = 0.06

2𝐷𝐶𝑜
𝐸𝑂𝑄 = √ = √ ( 2 X 14,400 X 50) / ( 2 X 0.06) = √ 14,40,000 / 0.12
𝑃𝐶𝑖
= √ 120,00,000 = 3464.10 units = 3464 units

Total Cost = DP + D/Q Co + Q/2 P Ci

= ( 14,400 X 2) + ( 14,400 / 3464) X 50 + ( 3464 / 2) X 2 X 0.06
= 28,800 + 207.85 + 207.84
= 29,215.69
TC = Rs. 29,216/-

Part B: Calculation of Total Cost under Discount Offer.

Given: D = Annual DD = Monthly DD X 12 Months = 1200 units X 12 months = 14,400 units
P = 2 – 5% = Rs. 1.90/- Co = Rs. 50/- Ci = 6% = 0.06
Q = Single Order = D = 14,400 units

Total Cost = DP + D/Q Co + Q/2 P Ci

= ( 14,400 X 1.90) + [ ( 14,400 / 14,400) X 50] + [ ( 14,400 / 2) X 1.90 X 0.06]
= 27,360 + 50 + 820.80
= 28,230.80
TC = Rs. 28,231/-

Answer : The discount offer will be rejected as it provides marginal benefit in Total Cost, which we
wont be able to set off with Storage & Warehousing Cost.
Q. If Annual Demand is 10000 units, Cost per unit is ₹ 50, Ordering Cost is ₹200 & Carrying cost is
25%.
1. Calculate EOQ
2. Calculate TC.
3. Calculate revised TC. If Discount is 10% & Order Quantity is 1500 units.

Solution:
Part A : EOQ & TC
Given : D = 10000 units , P = Rs.50/-, Co = Rs.200/-, Ci = 25% = 0.25
2𝐷𝐶𝑜
𝐸𝑂𝑄 = √
𝑃𝐶𝑖
= √ ( 2 X 10000 X 200) / ( 50 X 0.25) = √ 4000,000 / 12.50 = √ 327,868.85
= 572.60 =573 units

Total Cost = DP + D/Q Co + Q/2 P Ci

= [ 10000 X 50] + [ ( 10000/ 573) X 200] + [ ( 573 / 2 ) X 50 X0.25]
=50,0000 + 3490.40 + 3581.25
TC = Rs. 507,071.62 = Rs. 507,072

Part B: Calculation of TC under Discount.

Given : D = 10000 units , P = Rs.50 – 10% = Rs.45/-, Co = Rs.200/-, Ci = 25% = 0.25
Total Cost = DP + D/Q Co + Q/2 P Ci
= [ 10000 x45] + [ 10000 / 1500] X 200 + [ 1500/2] x 45 X 0.25
= 450,000 + 1333.33 + 8437.50
= 459,770.83
TC = Rs. 459,771
 Formulas:
1. PP: Partial Productivity = Output / Input
2. TP: Total Productivity = Total Output / Total Input
3. TFP: Total Factor Productivity = Net Output / Labour + Capital
4. Net Output = Total Output – Non-Human Inputs

Q 1. The following information regarding the output produced & inputs consumed for a particular time
period for a particular company is given as follows;
1. Output: ₹ 100,000
2. Labour charges paid: ₹ 35,000
3. Raw Materials Consumed: ₹ 15,000
4. Capital: ₹ 15,000
5. Energy & Consumption Charges paid: ₹ 10,000
6. Misc. Expenses: ₹ 5,000
From the given information calculate the Partial Productivity, Total Productivity & Total Factor
Productivity.
Solution:
1. PP of Labour = Total Output / Labour Input = 100,000 / 35,000 = 2.86 times.
2. PP of RMC = Total Output / RMC = 100,000 / 15,000 = 6.67times
3. PP of Capital = Total Output / Capital = 100,000 / 15,000 = 6.67times
4. PP of E & CC = Total Output / E& CC = 100,000 / 10,000 = 10 times
5. PP of Mis. Expenses = Total Output / MIsc. Exps. = 100,000 / 5,000 = 20times
6. Total Productivity = Total Output / Total Inputs
= 100,000 / [ 35,000+15,000+15,000+10,000+5,000]
= 100,000 / 80,000
= 1.25 times
7. Total Factor Productivity = Net output / Labour + Capital
= 55,000 / [ 35,000 + 15,000]
= 55,000 / 50,000
= 1.10 times

Net Output = Total Output – Non Human Factors of Inputs

= 100,000 – [ 15,000+15,000+10,000+5,000]
= 100,000 – 45,000
= 55,000
Q 2. Calculate Partial, Total & Total Factor Productivity.
Output 1000,000 Raw Material 175,000
Labour 150,000 Electricity 50,000
Capital 200,000 Other Misc. Exp. 25,000
Solution:
1. PP of Labour = Total Output / Labour Charges = 1000,000 / 150,000 = 6.67times
2. PP of Capital = Total Output / Capital = 1000,000 / 200,000 = 5.00times
3. PP of RMC = Total Output / RMC = 1000,000 / 175,000 = 5.71 times
4. PP of Electricity = Total Output / Electricity Chgs. = 1000,000 / 50,000 = 20.00 times
5. PP of Oexps. = Total Output / Other Exps. = 1000,000 / 25,000 = 40.00 times
6.TP = Toal Output / Total Inputs = 1000,000 / [ 150,000+200,000+175,000+50,000+25,000]
= 1000,000 / 600,000 = 1.67times
7.TFP = Net output / Lab +Cap
= [ Total Output – Nonhuman Inputs] / Lab +Cap
= [ 1000,000 – (200,000+175,000+50,000+25,000) / 150,000+200,000
= 550,000 / 350,000
= 1.57times

Q 3. Calculate Partial, Total & Total Factor Productivity.

Output 500,000 Raw Material 190,000
Labour 75,000 Electricity 25,000
Capital 100,000 Other Misc. Exp. 10,000

Q4. Calculate, PP, TP & TFP

1. Output Rs. 2500,000
2. RM Consumed: Rs. 500,000
3. Capital Invested: Rs. 375,000
4. Electricity Charges paid: Rs. 175,000
5. Labour Charges: Rs. 225,000
6. Other Expenses: Rs. 165,000
 UNIT III
Basics of Productivity & TQM
 Productivity
• “Productivity means the balance between all
factors of production that will give the greatest
output for the smallest effort.” – Peter F. Drucker
• The ratio of input to output in terms of
production available.
• P = O / I ( P= Productivity, O= Output, I= Input)
• Increasing productivity means efficient utilisation
of available resources in terms of men &
materials.
• Productivity is a comparative concept.
• Type : Total Productivity, Partial Productivity
 Factors influencing Productivity

Technological Production Organisation

Factor Factors Factors

Labour Human Financial

Factors Factors Factors

Managerial Government Natural

Factors Policies Factors
Measures to Improve Productivity
Value Operations
PERT & CPM Quality Circle
Engineering Research

Work Job Job

Ergonomics
Simplification Enrichment Enlargement

Monetary &
Performance Materials
Job Evaluation Non Monetary
Appraisal Management
incentives

Inventory Total Quality

Control management
 Modes of Calculating Productivity
• Total Productivity = Total Output / Total Inputs
• Partial Productivity = Total Output / Particular Input
• Partial Productivity Inputs:
• Capital
• Labour
• Material
• Machines
• Land
• Any other Input.
 Quality
• “Quality refers to total of the goodness of a product.”
• “Quality is fitness for use.” Juran
• Quality does not have same meaning always & differs
from one situation to another.
• The degree to which a product meets the requirements
of a customer.
• Criteria : Performance, Cost & Delivery
• Factors : RM, Production Technology & Skill of
Manpower
• Features : Attribute & Measure
• Quality = Performance / Expectation of Customer
[ Q = P /E]
 • Shape & Size
• Colour & Strength
Measured
• Appearance, Height & Weight
Characteristic • Thickness, Diameter &
Volume

• Defective Prices, Defect per

item
Attribute • Number of mistakes, Cracks,
Characteristic Discolouring
• Casting mistakes
Characteristics of Quality

Quality by Design

Quality of Design

Quality of Conformance to
Requirements

Quality of Performance

Quality of Service
 Importance of Quality Management
• Early detection of Quality Deviations
• Minimises Delays & Stoppages
• Reduces Cost of Production
• Improves Overall Efficiency
• Improves Customers Goodwill
• Builds Competitive Strength
• Minimises Legal Action
• Improves Morale of Employees
• Study of Variations.
 Factors Affecting Quality

Market Money Management

Men Motivation Materials

Modern Mounting
Machines &
Information Product
Mechanisation
Methods Requirements
 Product Dimension of Quality

Performance Features Reliability

Durability Conformance Aesthetic

Perceived
Serviceability Safety
Quality
 Service Dimensions of Quality

Timely Completeness Courtesy Accessibility

Convenience Consistency Accuracy Responsiveness

Aesthetic
Safety in Use Simplicity Reliable
Feature
 Total Quality Management (TQM)
• “A process designed to focus on customer expectations,
preventing problems, building commitment to quality in
the workforce & promoting open decision making.” – John
Gilbert.

• Total quality management (TQM) is an ongoing process of

detecting and reducing or eliminating errors.

• It is used to streamline supply chain management, improve

customer service, and ensure that employees are trained.
• The focus is to improve the quality of an organization's outputs,

including goods and services, through continual improvement of

internal practices.

• Total quality management aims to hold all parties involved in the

production process accountable for the overall quality of the

final product or service.

• Special emphasis is put on fact-based decision making, using

performance metrics to monitor progress; high levels of

organizational communication are encouraged for the purpose

of maintaining employee involvement and morale.

 Features

Stress on quality Stress on quality

Continuous process
management assurance system

Linkage of quality Employee's

Gradual process
& productivity involvement

Formation of
quality Management’s
improvement involvement
teams
 Importance
Provides customer satisfaction

Improves quality

Absence of additional investment

Raises competitiveness

Facilitates expansion & diversification

Provides highly trained & motivated employees

Improves revenue

Participative approach

Customers first

Reduced rejection rate

 Cost of Quality
• Joseph Juran : 1951 : Book - “Quality Control
Handbook.”
• “Cost of quality is a means to quantify the
total cost of quality related efforts &
deficiencies.”
• Its a measure of comparing success of projects
& Provides data for motivation.
• Quality is a profit centre.
• Cost of quality is the price for creating a
quality product.
 • It enables an organisation to determine the
extent to which its resources are used in activities
that prevent poor quality.
• Cost of Quality = Cost incurred for maintenance
of acceptable quality levels + Cost of failure to
maintain that level.
• Quality cost : 15 to 40%
• Profit is affected due to poor quality.
• Cost of quality helps to point out quality
problems.
• Helps to identify major opportunities of cost
reductions.
• Reduces Customer dissatisfaction & potential
threat to product.
https://www.youtube.com/watch?v=wi0d3aDsVfs
 Types of Cost of Quality

Internal Failure External Failure

Appraisal Cost Prevention Cost
Cost Cost
 Internal Failure Cost
• The costs incurred when product/ service fail
to meet quality requirements prior to the
transfer of ownership to the customer.
• Cost associated with defects found before the
customer receives the product / service.
• Eg. Overtime, Scrap, Rework, Redesign,
Retesting, Excess Inventory, Excess Material
handling, etc
 External Failure Cost
• The cost incurred after the product dispatched to
the customer.
• Includes : Cost to the business of providing a bad
service / product.
• Results into cancellation of order. , Warranty
claims, loss of reputation.
• Eg : Warranty cost, Loss of market share,
Customer dissatisfaction, product recalls,
restocking cost, customer complaint, price
concession, etc
 Appraisal Cost
• Cost spent to detect defects to assure
conformance to quality standards.
• Cost for inspection an testing, Cost of checking.
• Focuses on the discovery of defects rather than
prevention of objects.
• Measuring + Evaluation + Auditing
• Eg. Internal Audit, Material Inspection,
Laboratory Testing, Procedure evaluation, Non
destructive testing, Quality auditing, Vendor
Surveillance, etc.
 Prevention Cost
• Associated with design implementation,
maintenance & planning prior to actual
operations in order to avoid defects.
• Stress on prevention of defect in order to reduce
defects.
• Leads to reduction of internal ,external failure
cost & appraisal cost.
• Eg. : Customer survey, Design review, Preventive
checks & maintenance, Field trails, Quality
training programmes, Cost of R&D, Quality
planning, etc.
 SERVQUAL Model
• SERVQUAL stands for service quality
developed in 1980s by Zeithaml, Parasuraman
& Berry.
• It aims at measuring the scale of quality in the
service sectors.
• Customer dissatisfaction occurs when
expectations are greater than performance &
the quality is less than satisfactory.
Attributes

Reliability

Responsiveness

Assurance

Empathy

Tangibles
 Gaps

GAP 1. Between consumer expectation & management perception

GAP 2. Between management perception & service quality

specification

GAP 3. Between service quality specification & service delivery

GAP 4. Between service delivery & external communication

GAP 5. Between perceived service & expected service.

 Quality Circle
• QC a management technique developed in Japan
to upgrade Quality, Productivity & Morale in an
organisation.
• People’s power i.e. cooperation & participation.
• Japan is known for its Quality & productivity.
• QC is purely voluntary & useful for
understanding, studying & solving the problem
through collective efforts.
• Participative Management in Practice.

https://www.economicsdiscussion.net/human-resource-management/quality-circle/quality-
circle/32204
• QC = Small Group + Improvement.
• Small group constantly interested in bringing
improvements in quality through voluntary efforts.
• Group consist of 8 to 10 members from same / similar
work, meets regularly to identify, analyse & solve the
quality problems.
• Membership is voluntary with no extra remuneration.
• QC is a way of life.
• Areas : Improvement in quality, self development,
improvement in communication & attitude in the work
life, cordial industrial relations, full utilisation of
capacity of employees, job satisfaction, waste
reduction, cost reduction , team building, raising
productivity & improvement in the participation of
employees.
 Features
Voluntary Effective
Objective
Character Participation

Members helps
Stress on group Participation of
others to
efforts Management
develop

Direct
Encouragement Collective
relationship
to creativity approach
with work

Role of group
leader
 Objectives
1. To develop, enhance and utilise human resources effectively;
2. To improve quality of products/services, productivity and reduce
cost of production per unit of output;
3. To satisfy the workers’ psychological needs for self-urge,
participation, recognition etc., with a view to motivating them.
Accomplishment of this objective will ensure enhancement of
employee morale and commitment;
4. To improve various supervisory skills like leadership, problem
solving, inter-personal and conflict resolution; and
5. To utilise individual imaginative, creative and innovative skills
through participation, creating and developing work interest,
including problem solving techniques etc. Achievement of these
objectives effectively requires the use of certain techniques.
6. To make use of the knowledge and skills of the workers.
7. To develop good relations between workers and managers and
create cordial industrial relations.
 QA Quality Assurance
• “All those planned & systematic actions necessary to
provide confidence that a product or service will satisfy
given need.”
• QA builds confidence both in customer & management that
company’s operations are capable of producing a quality
product or service & adequate control exist thereby
avoiding constant intervention.
• An organisation need to apply relevant standards,
legislation, codes of practices & other measures to all its
operations.
• QA Activities : Design Assurance, Procurement Assurance &
Manufacturing Assurance.
• QA Methods : Inspection & Testing, Periodic Surveys,
Acceptance Testing, Life Testing, Quality Audit
 Management Actions
• Declaring the organisation’s plan for
achieving quality.
• Formulating a plan which identifies key steps
to achieve assurance of quality.
• Organising resources to implement the plans
of QA.
• Establishing the organisation’s proposed
products & services possess characteristics
which will satisfy customer’s needs.
• Evaluating organisation's processes &
assessing where & what quality risks are.
• Establishing whether organisation’s quality
plans make adequate provisions for the
control, elimination & reduction of the
identified risks.
• Measuring the degree of implementation of
the organisation’s plan & its effectiveness to
contain the identified risks.
• Establishing whether products or services
being supplied conform to the prescribed
characteristics.
 Philosophy of Quality by William
Edwards Deming
• Born in 1900, W. Edwards Deming was an American
engineer, professor, statistician, lecturer, author, and
management consultant.
• Deming opined that by embracing certain principles of
the management, organizations can improve the
quality of the product and concurrently reduce costs.
• Reduction of costs would include the reduction of
waste production, reducing staff attrition and litigation
while simultaneously increasing customer loyalty.
• The key, in Deming’s opinion, was to practice constant
improvement and to imagine the manufacturing
process as a seamless whole, rather than as a system
made up of incongruent parts.
https://www.simplilearn.com/deming-vs-juran-vs-crosby-comparison-article
• In the 1970s, some of Deming's Japanese proponents summarized
his philosophy in a two-part comparison:
• Organizations should focus primarily on quality, which is defined by
the equation ‘Quality = Results of work efforts/total costs’. When
this occurs, quality improves, and costs plummet, over time.
• When organizations' focus is primarily on costs, the costs will rise,
but over time the quality drops.
• The Deming Cycle
• Also known as the Shewhart Cycle, the Deming Cycle, often called
the PDCA, was a result of the need to link the manufacture of
products with the needs of the consumer along with focusing
departmental resources in a collegial effort to meet those needs.
• Plan: Design a consumer research methodology that will inform
business process components.
• Do: Implement the plan to measure its performance.
• Check: Check the measurements and report the findings to the
decision-makers.
• Act/Adjust: Draw a conclusion on the changes that need to be
made and implement them.
 The 14 Points for Management
1. Create constancy of purpose for improvement of product and service
2. Follow a new philosophy
3. Discontinue dependence on mass inspection
4. Cease the practices of awarding business on price tags.
5. Strive always to improve the production and service of the organization
6. Introduce new and modern methods of on-the-job training
7. Device modern methods of supervision
8. Let go of fear
9. Destroy barriers among the staff areas.
10. Dispose of the numerical goals created for the workforce.
11. Eradicate work standards and numerical quotas
12. Abolish the barriers that burden the workers
13. Device a vigorous education and training program
14. Cultivate top management that will strive toward these goals
Philosophy of Quality by Joseph Moses
Juran
• Born in 1904, Joseph Juran was a Romanian-born
American engineer and management consultant
of the 20th century, and a missionary for quality
and quality management.
• Like Deming, Juran's philosophy also took root in
Japan.
• He stressed on the importance of a broad,
organizational-level approach to quality – stating
that total quality management begins from the
highest position in the management, and
continues all the way to the bottom.
• In 1941, Juran was introduced to the work of Vilfredo
Pareto.
• He studied the Pareto principle (the 80-20 law), which
states that, for many events, roughly 80% of the effects
follow from 20% of the causes, and applied the
concept to quality issues.
• Thus, according to Juran, 80% of the problems in an
organization are caused by 20% of the causes.
• This is also known as the rule of the "Vital Few and the
Trivial Many".
• Juran, in his later years, preferred "the Vital Few and
the Useful Many" suggesting that the remaining 80% of
the causes must not be completely ignored.
• The primary focus of every business, during Juran's
time, was the quality of the end product, which is what
Deming stressed upon.
• Juran shifted track to focus instead on the human
dimension of Quality management.
• He laid emphasis on the importance of educating and
training managers.
• For Juran, the root cause of quality issues was the
resistance to change, and human relations problems.
• His approach to quality management drew one outside
the walls of a factory and into the non-manufacturing
processes of the organization, especially those that
were service-related.
• The Juran Quality Trilogy : Quality Planning, Quality
Control , Quality Improvement
 • Accomplish improvements that are structured on a
Three Steps regular basis with commitment and a sense of
urgency.
• Build an extensive training program.
to Progress • Cultivate commitment and leadership at the higher
management.

• Establish awareness for the need to improve and

the opportunities for improvement.
• Set goals for improvement.
• Organize to meet the goals that have been set.
• Provide training.
Ten Steps • Implement projects aimed at solving problems.
• Report progress.
to Quality • Give recognition.
• Communicate results.
• Keep score.
• Maintain momentum by building improvement
into the company's regular systems.
Philosophy of Quality by Philip Bayard
Crosby
• Born in 1926, Philip B. Crosby was an author and
businessman who contributed to management theory and
quality management practices.
• He started his career in quality much later than Deming and
Juran.
• He founded Philip Crosby and Associates, which was an
international consulting firm on quality improvement.
• Crosby's principle, Doing It Right the First Time, was his
answer to the quality crisis.
• He defined quality as full and perfect conformance to the
customers' requirements.
• The essence of his philosophy is expressed in what he
called the Absolutes of Quality Management and the Basic
Elements of Improvement.
 • The Absolutes of Quality Management
• The First Absolute: The definition of quality is conformance to
requirements
• The Next Absolute: The system of quality is prevention
• The Third Absolute: The performance standard is zero defects
• The Final Absolute: The measurement of quality is the price of non-
conformance
• Zero Defects
• Crosby's Zero Defects is a performance method and standard that
states that people should commit themselves too closely
monitoring details and avoid errors.
• By doing this, they move closer to the zero defects goal.
• According to Crosby, zero defects was not just a manufacturing
principle but was an all-pervading philosophy that ought to
influence every decision that we make.
• Managerial notions of defects being unacceptable and everyone
doing ‘things right the first time’ are reinforced.
 The Fourteen Steps to Quality
Improvement
1. Make it clear that management is committed to quality for the long term.
2. Form cross-departmental quality teams.
3. Identify where current and potential problems exist.
4. Assess the cost of quality and explain how it is used as a management tool.
5. Improve the quality awareness and personal commitment of all employees.
6. Take immediate action to correct the problems identified.
7. Establish a zero-defect program.
8. Train supervisors to carry out their responsibilities in the quality program.
9. Hold a Zero Defects Day to ensure all employees are aware there is a new
direction.
10. Encourage individuals and teams to establish both personal and team
improvements.
11. Encourage employees to tell management about obstacles they face in trying to
meet quality goals.
12. Recognize employees who participate.
13. Implement quality controls to promote continual communication.
14. Repeat everything to illustrate that quality improvement is a never-ending
process.
 Kaizen
• “Kaizen is a programme, a philosophy & a strategy to
improve quality of goods & services of an
organisation.” – Samuel Kho
• KAI means “to change” & ZEN means “for better.”
• A Japanese word which means continuous
improvement with the involvement of everyone in the
organisation to generate value for customers.
• Kaizen puts emphasis on process oriented thinking as
opposed to result oriented thinking.
Orientation:
• Management oriented , Group Oriented, Individual
oriented.

https://theleanway.net/what-is-continuous-improvement
• Term first coined by Masaaki Imai in 1986.
• Book : “Kaizen : The key to Japan’s Competitive
Success.”
• Toyota company used this method as early as
1950s to continuously improve its quality ,
technology , productivity & safety measures.
-> “Toyota Production System”
• Obj : Elimination of wastes, Quality Control , JIT
delivery, Standardisation work & the use of
efficient equipment.
• Five S of Kaizen : Sorting, Simplifying, Sweeping,
Standardising, Sustaining
• India : Reliance Industries, Arati Drugs Ltd.,
Andhra Petrochemicals Ltd., Essar Oil Ltd.,etc.
 Features

Gradual Wide Less

Process applicability Resistance

Less Capital Learning

Team Building
Investments Experience

Quality
Far reaching
control
implications
techniques
 Process
To define the To assess the To find the root
problem current status cause

To implement To plan
To verify
counter counter
results
measures measures

To establish a To review
new standard progress
 Ishikawa Fishbone Diagram
• Ishikawa diagrams (also called fishbone
diagrams, herringbone diagrams, cause-and-effect
diagrams, or Fishikawa) are causal diagrams created
by Kaoru Ishikawa that show the potential causes of a
specific event.
• Common uses of the Ishikawa diagram are product
design and quality defect prevention to identify
potential factors causing an overall effect.
• Each cause or reason for imperfection is a source of
variation.
• Causes are usually grouped into major categories to
identify and classify these sources of variation.
 • The defect is shown as the fish's head, facing to the
right, with the causes extending to the left as
fishbones; the ribs branch off the backbone for major
causes, with sub-branches for root-causes, to as many
levels as required.
• Ishikawa diagrams were popularized in the 1960s
by Kaoru Ishikawa, who pioneered quality
management processes in the Kawasaki shipyards, and
in the process became one of the founding fathers of
modern management.
• The basic concept was first used in the 1920s, and is
considered one of the seven basic tools of quality
control.
• It is known as a fishbone diagram because of its shape,
similar to the side view of a fish skeleton.
• Mazda Motors famously used an Ishikawa diagram in
the development of the Miata (MX5) sports car.
https://en.wikipedia.org/wiki/Ishikawa_diagram
 • Highly visual brainstorming tool which can
spark further examples of root causes
• Quickly identify if the root cause is found
multiple times in the same or different causal
Advantages tree
• Allows one to see all causes simultaneously
• Good visualization for presenting issues to
stakeholders

• Complex defects might yield a lot of causes

which might become visually cluttering
Disadvantages • Interrelationships between causes are not
easily identifiable
 Root causes
• Root-cause analysis is intended to reveal key
relationships among various variables, and the possible
causes provide additional insight into process behavior.
• The causes emerge by analysis, often through
brainstorming sessions, and are grouped into
categories on the main branches off the fishbone.
• To help structure the approach, the categories are
often selected from one of the common models shown
below, but may emerge as something unique to the
application in a specific case.
• Each potential cause is traced back to find the root
cause, often using the 5 Whys technique.
 Ms (used in Ps (used in product Ss (used in service
manufacturing) marketing) industries)
• Man / mind power • Product (or service) • Surroundings
(physical or knowledge • Price • Suppliers
work, includes: kaizens, • Place • Systems
suggestions)
• Promotion • Skill
• Machine (equipment,
• People (personnel)
technology)
• Process
• Material (includes raw
material, consumables, • Physical evidence
and information) (proof)
• Method (process) • Performance
• Measurement /
medium (inspection,
environment)
• Mission / mother
nature (purpose,
environment)
• Management / money
power (leadership)
• Maintenance
 Process
1. The group should agree on a problem statement (effect).
2. Write the problem statement at the centre right of the flipchart or
whiteboard, box it and draw a horizontal arrow running to it.
3. Brainstorm the primary categories of causes for the problem. For
instance, it might make sense to start with these generic
headings: methods, machines (equipment), people (manpower),
materials, measurement, and environment.
4. Write the categories of causes as branches from the main arrow.
5. Brainstorm possible causes. Ask: “Why does this happen?” As each idea
is given, the facilitator writes it as a branch from the appropriate
category. Causes can be written in several places, if they relate to several
categories.
6. Ask the question “why does this happen?” again. Write sub–causes
branching off the causes. Continue to ask “Why?” and generate deeper
levels of causes. Layers of branches indicate causal relationships.
7. When the group runs out of ideas, focus attention to areas in the chart
where ideas are thin.

https://www.investopedia.com/terms/i/ishikawa-diagram.asp
 UNIT IV
QUALITY IMPROVEMENT STRATEGIES
• SIX SIGMA • ISO CERTIFICATION
• POKAYOKE • LEAN THINKING
• JIDOKA • Kepner Tregor Methodology
• BENCHMARKING • Taguchi’s Quality Engineering
• SMED
 Six Sigma
• 1986 : Bill Smith : Motorola Engineer
• A set of tools & strategies for process improvement.
• Attempts to improve quality of process output by identifying &
removing the cause of defects/ errors.
• Motorola defined six standard deviations of variation which could be
taken into consideration with limits defined by the customers
specification requirements.
• Six sigma uses a set of quality management methods such as
statistical methods.
• A special hierarchy of people is created within the organisation.
 • Objectives:
• To improve the customer satisfaction by removing defects in products/
services.
• To reduce sources of creations & improving quality & productivity through
continuously improving processes.
• Six sigma tools help to cut down cost & removes inefficiencies in
production or in use of resources.
• Six sigma is one in which 99.9999966% of the product manufactured are
statistically expected to be free from defects.
• Used in Batch Production, Job Production & Mass Production.
• Key Concepts:
1. Critical to Quality 2. Defects
3. Process Capability 4. Variation
5. Stable Operations 6. Design for Six Sigma
Master Black
Belt

Black Belt

Green Belt

Yellow Belt

White Belt
 Features

Waste &
Statistical Facts & Data Critical to
Inefficiency
Approach Based Quality
Eliminated

Higher
Cost
Variation Customer Consistency
Reduction
Satisfaction

Cultural Role of Team

Change Members
 Process

Define the Identify Measure core

Product or Customers & business
Service their needs process

Attend to
Attend to Analyse the
improve
control phase problem
phase
 DMAIC DMADV Enablers Goals

• Define • Define • Leadership • To reduce

• Measure • Measure Commitment variations
• Analyze • Analyze • Change in • To reduce
• Improve • Design Culture defects /
• Change in rework
• Control • Verify
Mindset • To improve
• Challenging yield /
Standards productivity
• Customer • To enhance
Focus customer
• Continual satisfaction
Improvement • To improve the
bottom line
• To improve the
top line
 Lean Thinking
• Lean Thinking is a business methodology based on the history of
Japanese manufacturing techniques which have been applied
worldwide within many types of industries.
• It is ultimately a mindset – a way of viewing the world – that aims to
handle work in a Lean manner.
• Lean puts focus on providing high levels of customer value by
continuously improving business processes.
• The Lean Thinking concept is more than just using tools or changing
a few steps in a business process.
• It’s about changing the lens by which you perceive your business
operations.

Lean Thinking: Its Origins, Pillars and Principles | Kanban Zone

Lean Thinking: Overview, Principles, Benefits, & Applications Explained (simplilearn.com)
• Lean takes its roots from the car manufacturing industry,
particularly from the Toyota Production System.
• The Japanese company was able to create a sustainable
ecosystem for work, where they are able to minimize their costs,
ensure efficiency in their processes, and sell their products at a
competitive price.
• In fact, when Toyota entered the U.S. market, they were able to
sell their cars at a much lower price than U.S. manufacturers.
• This is because they were able to find a way to speed up the
manufacturing process without sacrificing quality.
• As Lean thinkers, they were also able to identify wasteful
activities in their process and address them.
• All these were made possible because they came together as
an organization with a new set of beliefs and attitudes towards
work – one that puts focus on providing value to the customer.
Pillars of Lean
• Continuous Improvement:
• This simply means that every member of your organization is
actively trying to find opportunities and execute initiatives that
change work for the better.
• What you define as “better” will depend on your unique industry, but
you can rely on this pillar for better team productivity and job
satisfaction.
• Respect for People:
• Respect for others is the backbone of any thriving organization or
team.
• When people are able to look at one another as individuals with
goals, dreams, needs, wants, and fears, they’re able to practice true
empathy. In a lean organization, having respect for people (workers,
customers, and everyone in between) means you give everyone
their autonomy to get the job done.
• In other words, it means you have confidence in the people around
you, which lifts morale, shows trust, and goes a long way.
 5 Principles (Womack & Jone’s)
• Value
• The first of the lean thinking principles is value, which begs organizations to really understand what value means for
their customers.
• Once you identify value, you can provide it! Value is really the foundation of the five lean thinking principles, and
without it, you can’t move on to the next four.
• Value Stream
• Once you can successfully identify value, organizations must next learn and define how to achieve that value.
• In other words, organizations must identify all the steps in the different processes that take raw ideas and materials
and transform them into working products and services that customers can use.
• Flow
• Once you identify the value stream, you can move on to the next lean thinking principle: flow.
• When flow has been established, it means that your work is not slowed or blocked in any way.
• Establishing flow is not an easy task, though.
• To do it effectively, you may have to introduce and implement changes within your organization that may be
difficult and unpopular at first. This is the essence of lean thinking: continuous improvement pushed by a shared
goal.
• Even if getting into your flow is stressful, it will always work out well for a unified organization.
• Pull
• By the time you’ve eliminated waste and other problems and gotten your flow running smoothly,
time to market will be low.
• This may sound bad, but it's actually a good thing. Instead of creating products that will sit in
inventory, they’ll be “pulled” by customers right when they need them.
• Customers are now in a great position to pull what they need from your organization, satisfying
their needs and saving you from unused products piling up in inventory.
• Perfection
• The last principle of lean thinking is perfection.
• To reach perfection, your organization will have gone through a total lean transformation.
• This means you’ve correctly identified value, refined and streamlined your value stream, nailed
down smooth flow, and met customer needs and demands with the right number of products at the
right time.
• It’s important to understand perfection is a journey and not a destination – it’s something your
organization is always working toward.
 Types of Wastages

Delay : Waiting
Overproduction Transportation Processes
Time

Defective Defective
Inventories Motions
Product Design
• Lean Thinking helps organizations create and design efficient
business flows that create products and services that customers
need.
• More importantly, Lean Thinking transforms the mindset
through which a business operates – one that is focused on
continuous improvement and respect for people in order to
churn out value.
• This mindset is what propels a Lean organization to work for
lasting change.
• The kind of change that is for the betterment of the organization
and its customers.
 KEPNER TREGOE DECISION MAKING
• Kepner Tregoe decision making is a structured methodology for
gathering information and prioritizing and evaluating it.
• It was developed by Charles H. Kepner and Benjamin B. Tregoe in
the 1960s.
• This is a rational model that is well respected in business
management circles.
• An important aspect of Kepner Tregoe decision making is the
assessment and prioritizing of risk.
• So the idea is not to find a perfect solution but rather the best
possible choice, based on actually achieving the outcome with
minimal negative consequences.
• It is marketed as a way to make unbiased decisions in that it is said
to limit conscious and unconscious biases that draw attention away
from the outcome.

How to use the Kepner Tregoe decision making model (decision-making-confidence.com)

 Four basic steps
1. Situation appraisal - is used to clarify the situation,
outline concerns and choose a direction
2. Problem analysis - here the problem is defined and it's
root cause determined
3. Decision analysis - alternatives are identified and a risk
analysis done for each
4. Potential problem analysis - the best of the alternatives
is further scrutinized against potential problems and
negative consequences and actions are proposed to
minimize the risk.
 Kepner Tregoe Analysis Process
1. Prepare decision statement with desired result & required action.
2. Define strategic requirements, operational objectives & limits.
3. Rank objectives from the most to the least important & weighting them in table.( Rank 1-10)
4. Generate list of alternative courses of action & keep only those that are obligatory of desires
result. (All other should be eliminated)
5. Score alternatives against each objectives on scale of 1 to 10.
6. Multiply the weight of the objectives by the satisfaction score to come up with the weighted
score.
7. Step 5 & 6 has to be repeated for each alternative.
8. Choose the top three alternatives & consider potential problems or negative effect of each
one.
9. Consider each alternative against all of the negative effects.
10. Rate chosen alternatives against adverse effects & score them for probability & significance.
 Problem Solving Methodology

Draw problem
analysis by List the possible
Specify a Problem Evaluate Options
understanding solution ( Options)
everyone's interest

Test the cause Analysis for

Find the Cause
determined Changes
 Genichi Taguchi’s Quality Engineering
• Genichi Taguchi (1924-2012)
• Taguchi is famous for his pioneering methods of modern quality
control and low-cost quality engineering.
• He is the founder of what has come to be known as the Taguchi
method, which seeks to improve product quality at the design
stage by integrating quality control into product design, using
experiment and statistical analysis.
• His methods have been said to fundamentally change the
philosophy and practice of quality control.

Genichi Taguchi: quality engineering thinker - The British Library (bl.uk)

 Taguchi methods
• Taguchi developed methods for both online (process) and
offline (design) quality control.
• This formed the basis of his approach to total quality control and
assurance within a product's development life cycle.
• His approach emphasized improving the quality of product and
process prior to manufacture (that is, at the design stage) rather
than the more traditional approach of achieving quality through
inspection.
• Quality loss function , Signal to noise ratio , Robust quality of
design , Product design improvement (System design,
Parameter design, Tolerance design), Invest last not first
 Taguchi’s Seven Points
1. Product quality is measured by the total loss to society created by that product.
2. Continuous quality improvement & cost reduction are necessary to survive in
world competition.
3. Quality improvement requires continual & repeated reduction of variation in
the production process performance around the standard nominal value.
4. Quality loss is frequently proportional to the square of the deviation of the
performance from the nominal value.
5. Product & process design can have an important impact on a product's quality
& cost.
6. Performance variation can be reduced by suitable adjustment of the product’s
parameters &/ or the process parameters.
7. The appropriate parameter setting that reduce variation can be identified with
the appropriate statistically designed experiments.
 Taguchi’s Quality Loss Function
• In the field of Quality management and manufacturing industry, Taguchi’s
Quality loss function proposed a different approach and was a turning point
in how businesses considered cost of quality and loss associated with poor
quality product.
• Traditional Quality Loss:
1.Traditionally organizations had specification limits: Upper or Lower
specification limits or sometimes both limits. All values of the product
characteristic that falls within the limits are considered acceptable and are
considered equal irrespective of where the value lies within the range and
the variation of the characteristic.
2.Also, while measuring the loss, the cost of poor quality (COPQ) was
measured only till the product was sold to the customer. However, in real
scenarios, the cost of poor quality was manifold than the production cost of
the product cost itself, which was not estimated as COPQ.

Taguchi’s Quality Loss Function (whatissixsigma.net)

 • Taguchi’s Loss Function:
1.Not all values falling within the
specification limits are equal and
create equal loss due to poor quality.
The loss value depends on how close
the characteristic is to the targeted
value.
2.Quality Loss is not only the cost
spent on poor quality till
manufacturing. It includes the
financial loss to the society. He
proposed a Quadratic function to
explain this loss as a function of the
variability of the quality
characteristic and the process
capability.
• He explained that the loss value is a function of the process
capability; because, process capability represents how
consistent the Quality parameter is and how close the
parameter’s performance value lies to the targeted
value/average value.
• Therefore processes with less variation will have a lower cost of
poor Quality.
• Thus Taguchi explained that variation directly affects the
Quality and hence Customer satisfaction and Revenue of an
organization.
• Strengths:
• Taguchi’s method pull quality right back into the design stage rather
than relying on adjustments to the process online or inspection of the
final product.
• The philosophy identifies quality as a societal issue & not just an
organizational one.
• Weaknesses:
• There are no directives about how to manage a quality oriented
organization, particularly people.
• Taguchi has nothing to say about humans as social, cultural or
political being & therefore makes no contribution to managing
employee.
 What is Muda, Mura and Muri?
• The Toyota Production System,
and later on the concept of
Lean, was developed around
eliminating the three types of
deviations that shows inefficient
allocation of resources.
• At the heart of it is a dedication
to eliminating waste and
improving product quality.
• In designing the system, Taiichi
Ohno defined three areas of
waste: mura, muri and muda.
Muda, Mura, Muri - The Toyota 3M Model | Kanban Zone
Kaizen Training PowerPoint (quality-assurance-solutions.com) What is Muda, Mura, and Muri? (theleanway.net)
Muda
• Muda means wastefulness, uselessness and futility, which is contradicting value-addition.
• Value-added work is a process that adds value to the product or service that the customer
is willing to pay for.
• There are two types of Muda, Type 1 and Type 2.
• Muda Type 1 includes non-value-added activities in the processes that are necessary for
the end customer. For example, inspection and safety testing does not directly add value
to the final product; however, they are necessary activities to ensure a safe product for
customers.
• Muda Type 2 includes non-value added activities in the processes, but these activities are
unnecessary for the customer. As a result, Muda Type 2 should be eliminated.
• There are seven categories of waste under Muda Type 2 that follow the abbreviation
TIMWOOD.
• The seven wastes are (1) Transport i.e. excess movement of product, (2) Inventory i.e.
stocks of goods and raw materials, (3) Motion i.e. excess movement of machine or
people, (4) Waiting, (5) Overproduction, (6) Over-processing, and (7) Defects.
Mura
• Mura means unevenness, non-uniformity, and irregularity.
• Mura is the reason for the existence of any of the seven wastes.
• In other words, Mura drives and leads to Muda. For example, in a
manufacturing line, products need to pass through several workstations
during the assembly process.
• When the capacity of one station is greater than the other stations, you will
see an accumulation of waste in the form of overproduction, waiting, etc.
• The goal of a Lean production system is to level out the workload so that
there is no unevenness or waste accumulation.
• Mura can be avoided through the Just-In-Time ‘Kanban’ systems and other
pull-based strategies that limits overproduction and excess inventory.
• The key concept of a Just-In-Time system is delivering and producing the
right part, at the right amount, and at the right time.
Muri
• Muri means overburden, beyond one’s power, excessiveness,
impossible or unreasonableness.
• Muri can result from Mura and in some cases be caused by
excessive removal of Muda (waste) from the process.
• Muri also exists when machines or operators are utilized for more
than 100% capability to complete a task or in an unsustainable way.
• Muri over a period of time can result in employee absenteeism,
illness, and breakdowns of machines.
• Standardize work can help avoid Muri by designing the work
processes to evenly distribute the workload and not overburden any
particular employee or equipment
Observation
 ISO CERTIFICATION
• ISO certification is a seal of approval from a third party body that a
company runs to one of the international standards developed and published
by the International Organization for Standardization (ISO).
• The ISO are an independent, non-governmental international organization
who brings together experts to share knowledge and develop international
standards that support innovation and provide solutions to global
challenges.
• ISO 9001 helps put your customers first
• ISO 27001 protects your systems, data and reputation
• ISO 14001 reduces your environmental impact
• ISO 45001 helps you protect your people
• ISO 22301 protects your business from disruption

What is ISO Certification & Other Frequently Asked Questions | ISO QSL (isoqsltd.com)
 Benefits
Increased efficiency

Reduced costs

Improved customer satisfaction

More engaged employees

Reduced risks

Reduced insurance premiums

Helps with tendering

 Process

Audit of
Preliminary Submission of Selection of
Quality
Investigation Application Registrar
Manuals

Pre Negotiate
Issue of Assessment by
assessment by terms with
Certificate Audit Meeting
Auditing Body registrar
 ISO 9000
• ISO 9000 is a set of international standards, established by the
International Organization for Standardization, as the basis
for quality management systems and quality assurance.
• ISO 9000 standards were developed to help manufacturers
effectively document the quality system elements that need to
be implemented to maintain an efficient quality system.
• They are increasingly being applied to any organization or
industry.
• ISO 9001 is now being used as a basis for quality
management—in the service sector, education, and
government—because it can help organizations satisfy their
customers, meet regulatory requirements, and achieve
continual improvement.
 • ISO 9000 is a set of internationally recognized standards for
quality assurance and management.
• ISO 9000 lays out best practices, guidelines, and a standard
vocabulary for quality management systems.
• ISO 9001 is the only certifiable portion of these standards, with
updates published in the year 2015.
• The ISO 9000 family contains these standards:
• ISO 9001:2015: Quality Management Systems—Requirements
• ISO 9000:2015: Quality Management Systems—Fundamentals
and Vocabulary (definitions)
• ISO 9004:2009: Quality Management Systems—Managing for
the Sustained Success of an Organization (continuous
improvement)
• ISO 19011:2011: Guidelines for Auditing Management Systems
ISO 9000 Definition (investopedia.com)
 ISO 9000:2000
ISO 9000:2015 principles
• ISO 9000:2000 refers to the of Quality Management
ISO 9000 update released in
the year 2000.
• The ISO 9000:2000 revision
had five goals:
1.Meet stakeholder needs
2.Be usable by all sizes of
organizations
3.Be usable by all sectors
4.Be simple and clearly
understood
5.Connect quality management
system to business processes
 ISO 14000
• ISO 14000 is a set of rules and standards created to help companies
address their environmental impact.
• This certification is optional for corporations, rather than mandatory;
• ISO 14000 is intended to be used to set and ultimately achieve
environmentally-friendly business goals and objectives.
• This type of certification can be used as a marketing tool for
engaging environmentally conscious consumers and may help firms
reach mandatory environmental regulations.
• ISO 14000 can ultimately help a company lower costs because it
mandates that the firm seeking certification use its resources more
efficiently and limit waste.

ISO 14000 Definition (investopedia.com)

• ISO 14000 is defined as a series of international environmental
management standards, guides, and technical reports.
• The standards specify requirements for establishing
an environmental management policy, determining environmental
impacts of products or services, planning environmental objectives,
implementing programs to meet objectives, and conducting
corrective action and management review.
• ISO 14001: Specification of Environmental Management Systems
• ISO 14004: Guideline Standard
• ISO 14010 – ISO 14015: Environmental Auditing and Related
Activities
• ISO 14020 – ISO 14024: Environmental Labelling
• ISO 14031 and ISO 14032: Environmental Performance Evaluation
• ISO 14040 – ISO 14043: Life Cycle Assessment
• ISO 14050: Terms and Definitions
 Aspects of Environmental
Management System Model
• Environmental Management Environmental
Systems (EMS) Policy

• Environmental Auditing & Planning

Related Investigations
(EA&RI)
Implementation
• Environmental Labels and & Operation

Declarations (EL) Checking &

• Environmental Performance
Corrective
Action

Evaluation (EPE) Management

• Life Cycle Assessment (LCA) Review

• Terms and Definitions (T&D) Continual

Improvement

ISO 14000 Guide: Definition, benefits, compliance | ISO certificate Online

 QS 9000
• QS 9000 is an industry standard of American The core activity requirements of
automotive industry, which was prepared in 1994 the QS-9000 include the following:
by the joint efforts of automakers General Motors,
Chrysler and Ford (The Big Three) and released 1. Quality System Assessment
under the auspices of AIAG (Automotive Industry (QSA);
Action Group). 2. Advanced Product Quality
The QS-9000 is divided into three (3) sections: Planning and Control Plan
(APQP);
1. all the twenty (20) ISO-9001 elements plus certain
automotive requirements; 3. Production Part Approval Process
(PPAP);
2. system requirements defined by the 'Big Three' for
their own use, which are referred to as 'Additional 4. Potential Failure Modes and
Requirements' in the standard; Effects Analysis (FMEA);
3. customer-specific requirements, which are 5. Measurement Systems Analysis
requirements that are unique to every individual (MSA);
automotive or truck manufacturer.
6. Statistical Process Control (SPC).
QS 9000 - ManagementMania.com
 Certification Process
1) Review of the QS9000 document standard and its support
literature and software;
2) Organizational preparation and assembly of a team that will
oversee the certification;
3) Development of a Quality Manual that meets the QS-9000
requirements;
4) Development of support documents for your Quality Manual;
5) Implementation of the quality management systems defined in your
Quality Manual;
6) Pre-assessment of your quality systems (optional);
7) Certification to the QS-9000;
8) Continual assessment of your quality systems against QS-9000
requirements to maintain your registration.
The QS-9000 Standard (eesemi.com)
 Poka Yoke
• Poka Yoke is a Japanese phrase that means error prevention.
• It was developed in the sixties of the previous century by Shigeo Shingo from Japan.
He was an engineer at the Toyota car factory.
• The Toyota production system is still the most effective manufacturer using Poka
Yoke today and comes close to error proof manufacturing.
• The method is used to prevent defects and resolve them during the production
process in industrial engineering, eliminating human quality control after the
process.
• A ‘poka’ is an ‘inadvertent error’ and ‘yokeru’ is Japanese for ‘preventing’.

What Is Poka-yoke And Why It Matters In Business - FourWeekMBA

Poka Yoke: the definition and meaning, steps and an example | toolshero
• Poka Yoke makes it practically impossible to have processing errors.
• It forces actions to be carried out correctly, leaving no room for
misunderstandings and/or human error.
• It’s about measures that prevent further errors from being made.
• Many solutions based on this concept tend to be simple, cheap, and effective.
• They can be integrated into the product design or in one of the process steps.
• Poka Yoke is a frequently used method in Lean Manufacturing and Six
Sigma to ensure as little errors in a production process as possible.
Types of Poka Yoke
• 1. Visual aids : These aids are clear and show
the work instructions. These may be pictograms
in a user manual or a traffic sign that shows a
restriction or warning.
• 2. Visual control : These refer to directing
behaviour and warning in case of deviations.
One example would be a traffic sign that lights
up red when drivers are speeding and green if
they stick to the speed limit.
• 3. Fail-safes : They force the user to either do or
not do something. This can be road closures for
motorway maintenance, for instance. Arrows on
signs force drivers to go from 3 to 2 and from 2
to 1 lanes. The arrows are followed by red Xs on
the signs until 2 of the 3 lanes are closed.
 Jidoka
• Jidoka was first used in 1896 by Sakichi Toyoda, who invented a textile loom that
would stop automatically when it encountered a defective thread.
• Jidoka is a Japanese term used in lean manufacturing.
• The term describes a scenario where machines cease operating without human
intervention when a problem or defect is discovered.
• The concept facilitates autonomation, defined as automation with a human touch.
• Having a human watch over a machine constantly is both physically demanding
and prone to error.
• Defect rates in most processes are well below 1%, which means a worker
employed to look for them would become bored very easily.
• Since Jidoka automates error detection, the business can reassign the employee
to a more productive role.
• Jidoka exists to minimize waste and improve efficiency.

What Is Jidoka? Jidoka In A Nutshell - FourWeekMBA

 The four principles of Jidoka
1.Discover an abnormality (automated). In an ideal world, abnormalities are
prevented by building quality into a process from the start and not by inspecting
for quality at the end. Tools such as Kanban and 5S can also help discover
problems before they occur.
2.Stop (automated). Stopping the line is as important as developing a culture
where doing so is accepted and not feared. Many Western businesses fear a loss
of productivity when the line is constantly stopped for problems. However, Jidoka
favors addressing minor issues before they have a chance to become major
issues.
3.Fix the immediate problem (human). At companies such as Toyota, line
interruptions are a way of life. When operators detect a problem, supervisors are
immediately notified to help solve the problem. If the solution is an easy fix, the
problem is rectified and the line restarted. If not, the appropriate expertise is
called in for support.
4.Investigate and correct the root cause by installing a countermeasure
(human). Despite being notified of problems by superior technology, some
businesses still find it difficult to correct the problem and identify the root cause.
To ensure problems are solved once and for all, personnel should be trained in
root cause identification techniques. Then, any change to relevant operating
 SMED (Single-Minute Exchange of Die)
• SMED (Single-Minute Exchange of Die) is a system for
dramatically reducing the time it takes to complete equipment
changeovers.
• The essence of the SMED system is to convert as many changeover
steps as possible to “external” (performed while the equipment is
running), and to simplify and streamline the remaining steps.
• The name Single-Minute Exchange of Die comes from the goal of
reducing changeover times to the “single” digits (i.e., less than 10
minutes).
• SMED was developed by Shigeo Shingo, a Japanese industrial
engineer who was extraordinarily successful in helping companies
dramatically reduce their changeover times.
• His pioneering work led to documented reductions in changeover
times averaging 94% (e.g., from 90 minutes to less than 5 minutes)
across a wide range of companies.
SMED (Single-Minute Exchange of Die) | Lean Production
 SMED : Process

Streamline
Remaining
Convert Elements
Internal
Separate Elements to
External External
Identify Elements
Elements
Identify
Pilot Area

Single Minute Exchange of Die (SMED) Definition and Example (sixsigmadaily.com)

 SMED BENEFITS
1. Lower Manufacturing Cost: faster changeovers mean less
equipment downtime
2. Smaller Lot Sizes: faster changeovers enable more frequent
product changes
3. Improved Responsiveness to Customer Demand: smaller lot
sizes enable more flexible scheduling
4. Lower Inventory Levels: smaller lot sizes result in lower
inventory levels
5. Smoother Startups: standardized changeover processes
improve consistency and quality
 Benchmarking
• Benchmarking is a process where different companies compare their
nature of work with other companies in the same field of business
and they set a certain type of standard of work.
• It is a matter of work from different companies which creates some
standard for the work they deliver. And this standard of their work is
considered and called as benchmarking.
• This benchmarking allows different companies to compare
their workability with other companies.
• The benchmarking process helps to increase the competitive nature
in different companies working in the same field of business.
• Benchmarking also provides a sense of awareness regarding the
maintenance of quality in their field of work.

What is Benchmarking? definition, types and process - Business Jargons

What Is Benchmarking? Definition, Examples and Meaning - Oberlo Wiki Benchmarking: Types, Process, Advantages & Disadvantages - WiseStep
 Benchmarking : Reasons
1. Understand your performance relative to close 7. Better understand what makes a company
competitors successful
2. Compare performance between product 8. Increase effectiveness and efficiency
lines/business units in your own company
9. Set clear business goals
3. Hold people more accountable for their 10.Provide new opportunity for discovery
performance
11.Motivate employees
4. Drill down into performance gaps to identify
areas for improvement 12.Better understand the competition
5. Develop a standardized set of processes and
metrics
6. Enable a mindset and culture of continuous
improvement

7 Reasons Why Benchmarking in Business Is Important | Indeed.com

7 Reasons You Should Benchmark Your Manufacturing Performance - Pharmaceutical Processing World 7 Benefits of Benchmarking Your Manufacturing Performance (lnsresearch.com)
 Benchmarking : Types
• Benchmarking is mainly used to assess the competitive insight and also
gather the information based on the performance which was done
throughout the product or organization development process.
• With the help of this benchmarking process, we can evaluate and identify
the process to eliminate hindrances which help further in improving and
enhancing our performance.
• I. Internal benchmarking:
• In this type of benchmarking the comparison of practices and performance
is done between teams, individuals or groups within an organization
• II. External benchmarking:
• In the external benchmarking process, the comparison of organizational
performance towards the company peers or across companies.
1. Process benchmarking: Benchmarking is usually a process to see how the competitors are working or how
they are able to gain success. When using process benchmarking, the data is gathered via research,
surveys, and website visits. All this information is helpful for people who are working on similar kind of
tasks and objectives.
2. Performance Metrics: Here when comparing competitors or analyzing clients, numerical metrics are
gathered as information. The details later are used to identify performance gaps, prioritize tasks, etc and
then work accordingly.
3. Strategic Benchmarking: Strategic benchmarking analyzes how top companies compete and use the best
strategies to achieve success in this competitive market. This type is mainly helpful for all the
organizations which are aiming for their long term goals. There are different types of benchmarking
which helps in understanding the actual concept of the benchmarking process. Most of the benchmarking
process involves a legitimate competitive element in different types of business.
4. SWOT: As per the abbreviation goes, it can be elaborated as strength, weakness, opportunities, and threat.
It is a combination made of strength & weakness with opportunities & threats. In this type of
benchmarking process, most of the companies provide their own strength, weakness, opportunity, and
threat. And finally, the result of all this analysis covers up a new idea of change inside the company itself.
5. Peer benchmarking: There is some kind of criteria that needs to be considered while benchmarking and
these criteria provide some sort of dimension for all the companies. And in this peer benchmarking the
competition is among those industries or companies which deal with a similar field of work. Therefore,
the comparison is among those companies which deliver similar work field.
6. Group benchmarking: It is one of the forms of combined benchmarking where in which a group of
companies joins hands with some relevant association and that association helps them provide the report
that can be necessary to deliver their benchmarking aspects. Therefore, group benchmarking or
collaborative benchmarking allows all the information of the different companies through those
associations and actual work of those associations is that they need to provide better reports of
benchmarking of their companies.
7. Best practice benchmarking: In this form of benchmarking, the companies look forward to those
companies which already made their impression on the business field. The practices which they followed
to be in the top list of the best companies are followed and incorporated by the rest of the company which
aspires to be similar like that successful company.
 Benchmarking : Process

Determining
Planning and Collection of
aspects of the
research data
company

Incorporation Development Examination

 Benefits
• Implements creative ideas
• Increased competitions
• Developing improvement
• Identifies essential activities
• Quality of work
• Increased performance
Limitations
• Stabilized standards
• Insufficient information
• Decreased results
• Lack of customer satisfaction
• Lack of understanding
• Increased dependency