-· ..

,, l Pp
138
CJ
,, . rf'\iinq (HJ l operations properly so that the PrOdu .
., To i.;ee that pc~o n ure c.a , r - I
-· - - . the ~c hedu cs. Ctton
plans may be executed accord1nq to . ©
Production Planning and Con trol (PPC) .
~ (> vpl;lna tion of production pl.onn 1ng and production Cl'\r.t
ln the hoht ('I! t•t>OVC I.,'. ., t ,. I' . .
· . - .
contro .uncbon consist of Pia :tO!
. . .

-~ ;; ·ate-Iv we can say t 1,a P. L reduc tion planning and '-'-'I

:,.cp; , . , ... f t ring orgrnsat1on befor e actual production . . nr >

rroduct1on tn a n •1.mu ac u actlVlt ies Start. "
e,· erc1sH1
.. ct · •t·ns to ensure that the plann ed produc tion 1 .
s realise d in terh-,
aliQ
Q contro 1a iv, k~ .
quall t\~ quanttt:v, delive ry schedule and the cost of produ ction , ,s or
.
.A. few defrnit,ons are given below :
. .
"Prod uction plann ing and control involves gener ally t~e organ
isat1_o n and Plerio•l"I,:
of the manufacturi ng process consists of plann ing of routin g, sched
uling, des~~c - ~~
and inspection, coord ination and control of mater ials, metho ds,
mach ines, toohrl<j a.~
operating times. The ult imate objec tive is the organ isatio n of the suppl
y and move~ t
of materials and labour, machine utilisation and re lative activi ties in order
to bring about
the desired manufacturing results in terms of quant ity, time and
place .''
- Gordon 8. Cars<>n
" Production planning and contro l comp rise the plann ing,
routing, schedulinc~,
despatching and follow -up function in the productive process,
as organ ised that the
move ment of ma~erials, performance of machines and opera
tions of labour, however,
subdivided, are directed and coord inated as to quant ity, qualit
y, time and place. lt 1s
adopting as business principle the old saying 'plan your work
and work you r plan."
- Alford and Beauty
"The coordination of a series of functions according to a plan which
will economica1, ,
utilise the plant facilities and regulate the orderly move ment
of goods thoug h their
manufacturing cycle, from the procu remen t of all mater ials to
the shipp ing of finished
goods at a predetermined rate ."
-Cha rles A. Keopke

Objectives of Production Planning and Control ~

The basic objectives of production plann ing and contro l are as
under :
1. To ensure maximum utilization of reso urce s-The ma in
obJective of
production planning and contro l is to ensure maxim um utiliza
tion of all resources.1.e.
men, materials, machines, metho ds etc. Unde r produ ction plann
ing these resou rces are
estimated in prope r quant ity and qualit y, wh ile under the produ
ction control , the plans.
are implemented, but production planning and contro l ensures
their optimum utilisat ion
to get the desired outpu t.
2. To Maintain Optimum levels of inve ntory - Inven tory could
be raw material~,
work-in-progress, finishe d products or the spare parts and other
indirect materials. It 15
defined as a usable resouces. A low level of inven tory can lead
to a stock out. On th e
other hand, a high level of invento'ry unnecessarily ties up capita
l. Therefore, we need
to determ ine the optim um level of inventory, which should be
neithe r low nor high, but
Production Planning a d
n Control [PPCJ
139
· t ·h
JUS ng t. Production plan .
nmg and contr0 I .
-
inventory. aims at maintaining the optimum level of
3. To provide max imum
. customer satisf ct· roduction planning and control
ensures t he delivery of quality. goods .in requi.reda •on-P
t· .
.
deI,very schedule and at mini . quan 1t1es to customer in the required
satisfaction. mum possible co This facilitate maximum customer
st.

4. To ensl lre production of q r

nsuring quality involves action
on several fronts- To be specific ua~a ity pro~uct-E
(a) control of purchased ,tq. ty c~ntrol involves following steps :
ma enal quality
u I' th . _
(b) control of manufacturin inspe ction and testing points in
production process. g q a ,ty rough
.
( c) control of engineering qual"1ty- revie .
. w of design of product' evaluation of customer
requirements etc.
.
Production planning and con t ro I ensure production of quality products through above
stated measures .
Co-ordination between labour
S. To co-o rdin ate betw een labour and machines-
is essential for achieving the targets
~nd machines a~d various supporting departments
ot be implemented in the absence
frxed by production planning department. Plans cann
other supporting departments.
of co-ordination between labour and machines and
tial co-o rdin a~.s ing_d~r~ions,
Production planning and control establishes the essen
rs, mainta'ining the machines in
guidelines and by providing necessary training to worke
working order.
function of operations
6. To prep are production sche dule s-It is an organising
ding to customer orders or jobs to
manager. Production schedules are prepared accor
ble" approach. The operations
various work centres based on the "as early as possi
ules of various orders to the work
manager sends information about the detailed sched
for processing the materials (inputs)
centres. Preparation of production schedules is done
rtment prepares the schedules for
into outputs. Production planning and control depa
orders. . .
the production according to priorities i.e. cust~mer refers to
unng cycle time
7. To mini mise man ufac turin g cycle t1,ne-Manufact
ct. In ~ther word~ it refer to ~he
the period of time consumed in processing a produ
up to ,~s completron. Productron
delay from the movement the order is ready for ~et
cycle time by :
pla nning and control aima at reducing ~anufactunng
.
(i) minimising the machines setup trme
equipments.
ii) rom t repair and maintenances of machines and
( ... p .P. idelines, orders, schedules etc. to the workers.
ations-Another objective of
(111) prov,~mg ~ecess~~ _gu. manufacturing oper
ring operations flexible in
8. To mam t~m flex1b1hty '". to maintain manufactu
production planning and control opera ,s t· stem if required for example, production
d- t ents in the ,on sy
order to ma kea JUS m_ hich can be adjusted according to the requirement
machines are arranged ,n a sequence w
of work stations.
140. Produ ction Plann ing and Contr o/ {P
Pq
c To ensure effec tive cost reduction- Production planning and
. control
m~1
achieve ttw:, obJectwe as under :
\,' rr.Juct,on in scrao and re-work costs.
(11\ reduc tion in rrwentory costs
(111~ reduc tion m set-up costs . \-
{ i \ ·, reduct ion m indirec t costs etci) ~
·
10. To contr ibute to the ppt o(the ehter prise -The_ultima te
object ive of the
product-ion planni ng and control 1s to centrib ute to the . profit
of the enterprise. This
obJectrve 1s atta1~ ~ through prope r planni ng of production
and contro l of productio
The total cost of end result (production ) is kept under contro n.
l. This contri butes to the
profit of the enterp rises.

Fun ctio ns/ Elements of PPC <

The principle of produ ction planning and control lies in the
statem ent, "first plan
your work, then work your plan" . Production planning and contro
l consists of the following
steps or activit ies .

Fu nctions/Elements of PPG

Plannin g Funct ions Control Functions

Planning Despatching
Routing Follow-up
Loadin g Inspection
Scheduling

1. Plan ning -Before starting any work, it is necessary to plan

the things properly
for getting best results. Similarly for production, planning in advan
ce is very necessary
and if there is no planning then how shall we control? It is the planni
ng department,
w hich decides about each element of the job in anticipation that
what work shall be
done, where , how and when it shall be done. The functions of planni
ng are grouped as
unde r:
(i) Inves tigation about the complete details and requirements of
the product to be
manu factur ed.
(ii) Pre-d eterm ination of future achievements.
(iii) Plann ing the design of prod uct going to be manufactured.
(iv) Plann ing about the quant ity of materials which are to be
consumed.
(v) Plann ing about the standard of quality of products to be manuf
actured.
, ..

production Planning and Control [PPCJ 141

(vi) Planning about the sequence of operations.

(vii) Planning about the capacity of equipments .
(viii ) Planning about internal transportation.
Requirements of the Planning Department-Following information must be
available with the planning department for efficient working .
(i) Detailed drawing of components and their assembly.
(ii) Complete up-to-date information about the stores and delivery times.
{ iii} Complete information about the equipments, their capacities and specifications
etc.
(iv) Complete information regarding standard time allowed to workers for the jobs
being manufactured.
(v) Complete knowledge of market conditions.
(vi) Type of workers employed and their salaries.
2. Routing-Routing may be defined as the selection of path which each part of
the product will follow anc which is being transformed from raw material to finished
products. Path of the product will also give sequence of operations to be adopted while
being manufactured.
In other words, routing means determination of most advantageous path to be
followed from department to department and machine to machine till raw materials get
its final shape.
Routing determines the best and cheapest sequence of operations and.to see that
this sequence is rigidly followed.
Routing in Industries-Routing in industries depends' upon the nature and type
of industry, as explained below :
(a) Continuous Industry- As such industries are almost automatic, therefore,
the problem;bf routing in them is very simple. The plan of industry is laid during its
erection time for a particular sequence of operations. Therefore, raw-material once
enters the plant, it will automatically move through different processes till it gets final
shape. Once the route is decided in the beginning, generally, no further control over the
route is needed.
(b) Assembly Industry- Such industries require various components to be
assembled at a particular time. Therefore, it is necessary that no component should fail
to reach at the proper time and proper place in required quantity, otherwise whole of
the production line will be held up, resulting wastage of time and production delay.
The examples of such industries are cycle, scooter, car, radio, typewriter and watch
etc. These industries require much attention for routing .
In these industries, a work-flow sheet for every component is prepared. This gives
full particulars about the processes, machines, and the sequence in which parts will
reach at a particular place and time. As this type of routing requires good technical
knowledge, the staff of the production control department must be qualified and
experienced ones.
 "J

efor
142 h ·ndustries handle diffe ren t products, ther
are ea eh,
(c) Job Order Industrv-:-As sudc I the planning department has to prep c
· .. ufactunng or ers, pro per seq uen ce of rout es ~
Th ·s will indicate the
planning and control department should ~~
after recervrng the man .
time detailed draw ing and planning d. t1·on
1 ~
h · d stries the pro uc rece iving man ufac turin
the job. In sue ,n u ' b lk plan ning can be made a~er g
very exp ert in thei r wor k so that u

. . h cess of assigning specific jobs to men, machine s

orders. .. d. . d .
3 Loading-Load ing rs t e pro r relative capac1t1es. Loa 1ng 1s a eta1led exercise
· b . f thei . kI d .
and work centres on the asrs o tota l wor oa , cap acit y of each
. f e requ ired to do a Job, h .
. I d'
requiring data concerning rmilability of labour and machines. A oa mg c art rs prepared
. d ava . .
worker and machrne, an in the .plan t The purpose of ladin g
. h Iann ed ut,.li satio n of men and machine s . .. .
sho win g t e p of productive faol,tres and at the sam e trme
.,s to ach.reve max,·mum possible utilisati on .. . .
to
to avoid bottlenecks in producti on. Ove
rloading and underut1l1sat1on of capacrty are

be avoided.
jobs to specific machines Keeping in
Mac hine loading is the assignment of specific
s
Allocation of available work to the machine
view the priorities and machine utilisati on.
h operatio n by the specified date .
in a methodica l way helps to complete eac
the program me for the operations. In
4. Scheduling -Scheduling determi nes
is
ratio n and thei r starting and finishing time
scheduling, order of sequence of each ope
ided so the requ ired mat eria ls, mach ines etc., may be kept ready as per schedule.
dec
tion of time and date for each operation"
Th us, scheduling may be defi ned , as "the fixa
rations to be followed. This programme is
as well as it determines the sequence of ope
ass ign tim ings for vari ous operations or
prepared by the plann ing department and
processes.
ood by the exam ples on railways :
Routing and scheduli ng ca n be easily und erst
gers, whi ch the trains follow and the
A railway map shows the rou tes fo r passen
as 'Routing? Sim ilarly, Railway time table
stations on that route. Th is is what is known
s sta rt and the time they take to reach at
gives the exact timi ng at which all the train
e. It is known as 'Scheduling'.
various stat ions and how long they half ther
Types of Schedu fing s-Schedules are
the followi ng types :
s on wh ich important product ion items
(a) Master Sch edu le-I t shows the date
break-up of the production req uirements
are to be completed. It is a weekly or monthly
, it is accomm odated first in the master
for each product. Whenever any order is received
machines and labo ur.
schedule considering the availab ility of the
e planning and to have check over the
Thus, it helps Production Manager for advanc
production rate and efficiency. .
Alter prepar ing master schedu le, shop s
( b) Shop or Ma nuf acturing Schedu le-
~chedu les are prepared. It assigns a defi
nite per iod of time to a par ticu lar shop for
ntity. It shows how much prod ucts are
to be
manufacturing products in required qua
prepared and on what day or week etc.
Production Planning and Control [PPCJ
143
5. Despatching-It is concerned 'th .
. w1 starting the proce It .
authority to start a particular work wh· h h sses. gives necessary
'Scheduling'. For starting the work 'esse,ct· las already been planned under 'Routing' and
' n ia orders and instruction ·
the complete definition of despatching is "Releas s ar~ g1ven._Therefore,
0rd
starting of production for any item in d e of ers and instruction for the
Charts." accor ance with the Route Sheets and Schedule

Functions of Despatching-Followin .
(i) After despatching is d . g are some of the important functions :
one, required materials are mo d f .
and from operation to operation. ve rom stores to machines
(ii) Authorises to take work in hand as er s h d 1
( "111') 1io d'istn'bute machine loading andp hCdeI u e.h
necessary instructions and f sc e u e c arts, route sheets and other
. orms .
. (iv) To issue inspection orders, clearly stating the type of inspection required at
various stages. .
. (v) To order tools-section for issuing proper tools, jigs and fixtures and other essential
articles.
Forms used in despatching-Following are some of the more common forms
used in despatching :
(a) Work Orders-While starting the production, work orders are issued to
departments to commence the desired lot of products.
(b) Time Cards-Each operator is supplied with this card in which he mentions the
time taken by each operation and other necessary information. These are helpful for the
wage payments.
(c) Inspection Tickets-These tickets are sent to the inspection department, which
shows the quality of work required and stages at which inspection is to be carried out.
Afterwards these are returned with the inspection report and the quantity rejected.
(d) Move Tickets-These tickets are used for authorising over the movement of
the material from store to shops and from operation to operation.
(e) Tool and Equipment Tickets-It authorises the tool department that new
tools, gauges, jigs, fixtures and other required equipments may be issued to shops.
6. Follow-up-After despatching production orders to various shops, it is necessary
to regulate the progress of job through various processes. For this purpose, a follow-up
section is formed.
The Function of follow-up section is to report daily the progress of work in each
shop in a prescribed proforma and to investigate the causes of deviation from the
planned performance. This section sees that production is being performed as per
schedule and tries to boost it.
Functions-Follow-up is done for the following purposes:
(a) Material-Material should reach to shops in required time so that production
could be started as per schedule.
 14 4 . Production Planning and Control [,P
PC]
(b) Job Progress-Fo r this follow-up section sees that a particular product is pa .
through atl its operations from raw material to final shape as per schedule. ssing
There are more chances of delay, when one item which is completed in one sh
rnoves to the wrong shop, follow-up section tries to remove this delay. op
( c) Assembly-A ssembly shops are responsible for assembling the variou
components. Follow -up section sees that all the parts should remain ready for assemblin s
purpose in actual quantities at required time. 9
Causes of Delay-Following are various causes which are generally responsible
for delays and should be checked by follow-up section.
(i) Errors in routing, scheduling and despatching.
(ii) Shortage and delay of material.
(iii) Equ ipment breakdown.
(iv) Lack of proper tools, gouges, jigs and fixtures etc.
(v) More rej ections.
7. I nspection-I nspection is carried out for confirming that quality is of
predeterm ined standard. During inspection defective pars are rejected so that only
products of good quality should reach to the customers. To reduce rejections, inspection
is done at various stages starting from raw material to final shape (called quality control).
To produce products of good quality, tools and machines are also inspected.
production/ operating sysu~r 11 •
Advantages of Production Planning and Control
Production planning and control function is the heart of the production management
function. It co-ordinates all phases of the production system. An efficient production
planning and control function results in higher quality, better utilization of resources,
reduced inventories, reduced manufacturing cycle time, faster delivery, better customer
service, lower production costs and lower capital investment and higher customer
satisfaction. Efficient utilization of resources results in higher productivity and economy
of production, timely delivery and right quality of goods/services at the right cost will
improve customer satisfaction. Minimisation of break-down of machines, plant and
equipments minimises idle time of equipments and labour and ensures even flow of
work through the plant facilities. This will improve employee discipline and morale in
the organisation. An efficient production planning and control system enables the firm
to improve its sales turnover, market share and profitability.
Following are the benefits of production planning and control function :
1. It co-ordin_ates all phases of production- Production planning and control
department co-ordinates all phases of production i.e. planning phase, action phase and
control. phase. .Planning phase ·mvo1ves resources planning, . facilities plann;ng, plant
P1annmg, planning for location of plant and layout of the plant. Action phase (exeution
 147
production Planning and Control [PPCJ
control phase includes status,
or implementation phase) includes dispatching while
ty control and cost control.
material control, tool control, inventory control, quali
ing and control
2. It ensure~ _ be~er utilization of resources- Production plann
rials mechines and methods. It
ensures better utilization of resources i.e., man, mate
ation i; order to get desired output
puts all reso~r~es available to the best of their utiliz
(result) at minimum possible cost.
3. It ensures production of higher quality prod
ucts-Through proper planning
rtment facilitates the production of
and control, production planning and control depa
ced by maintaining quality of
higher quality products . Quality products may be produ
s such as quality of raw-materials
inputs to be converted into outputs. Quality of input
cts.
etc cont ributes to the production of higher quality produ
ion planning and control
4. It minimises manufacturing time-Product
Through proper routing scheduling
department min imises the manufacturing cycle time.
be reduced. Avoidance of men and
and dispatching the manufacturing cycle time can
rough put time.
machines idle time may lead to reduced product-th
tion planning and control
5. It facilities faster delivery of goods-Produc
the customers.
department ensures scheduled delivery of goods to
ry of goods at right time of
6. It provides higher customer satisfaction-Delive
the customers. Production planning
right quali ty and at right place provides satisfaction to
goods available to the customers
and cont rol department is responsible to making the
as per their req uirements.
of break-down of machines,
7. It enk"tr~~-minimum breakdowns-Minimisation
s and labour and ensures even
plant and equipments minimises idle time of equipment
improval employee discipline and
flow of work through the plant facilities. This will
morale in the organisation.
y-Production planning and
8. It ensures minimum investment in inventor
tory levels. In other words it al1ows
control department tries to maintain optimum inven
mum levels, minimum levels, re-
lower capital investment in inventories. By fixing maxi
control department minimises
order levels of inventory, production planning and
investment in inventory.
ing and control department
9. It ensures higher productivity-Production plann
This results in higher productivity
ensures efficient utilisation of all existing resources.
and economy of production.
over-An efficient production
10. It enables the firm to improve its sales turn
improve its sales turnover, market
planning and control system enables the firm to
ntage for the firm due to balanced
share and profi tability. It prov ides a competitive adva
and lower prices which are the
inventory levels and highe r quali ty, dependability
performance factors for the time.
concept of Inven tory Control
On account of high costs involved in inventories, their proper control assume
considerable importance. Invent~ry control mqy.. ~ def ifl~d _s a .fil'S~ ~ ~!2,n,
9
storage and r~~9r~ in_g of ..9.p_qd_?J~ ?uch a way that desired degr~e of service can be
• ,..., ._, ..... . .. "'•i...-·~
made to the operatm g sho~s at miQLmum cost
Accordin g ~Q Gordon B. Carson, "Inventorv control re.tees to the process whereby
J ~ p,:a... ¢2 w::s,c-n,;> .... - ~-~·-
the inventment 1n materials and pa~ c~rri~d in stock i~ r~gulated .Vi{.itbi.o__pre_det~J}l11!Jed
Nr,:. • • ~,.,..J'.... '"i•

limits set in accordance with the inventory policy established by management".

The above defi nition focuses on the following aspects of inventory control.
(a) I nventory control is concerned wit~ hu a~ _mat~rial~-.. anq purch,cased p a~s . ..
(b) Inventory control regulates the investments in ioventories.
(c) The investments are decided on the basis of predetermined limits, and
(d) These limits are prescribed by the inventory policy framed by the management.
Briefly speaking inventory control involves planning of
(i) What to purchase?
0

(ii) Ho~"'~LK hofthe i nventory is to be kept or ordered?

fu
(iii) WQ~n purctiase?- - · . · .~
 red uce suu , ,u;:,.:,-... ... ~~ - .J

Objectives of Inv en to ry Control fl>

central.
followin g are the major objectives of inventory
ure availability of ma ter ial- Th e first and
foremost objective of inventory
1 . To ens
nag em ent is to ma ke all type s of ma teri als available at all times whenever it
control ma
d by pro duc tion dep artm ent . This will ens ure manufacturing according to
is require
tion plan bas ed on sale s req uire me nts. Non -availability of materials may intrupt
produc
duc tion for the wan t of sup ply. It is the refo re advisable to maintain sufficient
flow of pro
tion schedule.
stock of essential items to move on the produc
min imi se the wa sta ge- Inv ent ory con trol aims at minimising the wastage
2. To
nto ry at all leve ls, i.e. dur ing its stor age in godown or at workplace in the factory.
of inve
e of ma teri al by leak age , the ft, em bez zlem ent and spoilage due to dust, rust or
wastag
uld be avo ided . Abn orm al was tag e sho uld not be permitted however, normal or
dirt sho
controllable wastage should be kept minimum.
3. To run the stores effectively-This incl
udes stores layout, storing media (bins,
lves , rack s, alm irah and ope n spa ce etc. ) utilization of storage space effectively,
she
ivin g and usin g pro ced ure s of ma teria ls etc. Inventory control facilitates the above
rece
t.
function efficiently to minimise the stroage cos
4. To ma int ain optimum lev els -Th e ma
nagement can procure the inventory in
iently, if regular and prompt information
time in order to run the production plan effic
It thus, helps management in maintaining
about availability of materials is provided to it.
operational requirements. Inventory
the inventory at optimum level keeping in view
control avoids the dangers of stockout.
entory control management keeps
5. To minimise investment in inv~nto!:!~s-Inv
rying costs and obsolesence losses to the
down investment ir. inventories, inventory car
minimum.
per inventory control brings several
6. To facilitate purchasing economies-A pro
ement makes every attemp to purchase
advantages and economies in purchasing. Manag
favourable market conditions. Thus, it
inventories in bulk to take the advantage of
asurement of requirements on the basis
facilitates purchasing economies through the me
of recorded experience.
avo id imp rop er ma ter ials han dlin g-I nve nto ry control protects the
7. To
nto ry from loss es due to imp rop er han dlin g of goods and unauthorised removal
inve
dling costs.
from stores. It, thus reduces the materials han t
·8. To fac ilita te cos t acc oun ting activities-Inventory control facilitates cos
__ •·,._k.
4 ng material costs to products. It
J · ·'· fcounting .9ctivities by providing a means for allocati
 u~~~xarnined for their alternative ~~~~•;~:: le Period) ite~-~~~;; :~i;~ ~:nd
ing obsolete
~heY must be disposed off. Mode of dispos~I could not be used anywhere i~:t
then be
( a) Sand it back on resale to the or"1g·1nal must be decided in following _e ~otyncern
( b) Sell them at the best possible pricesuppli
y', er ·f th pnon . :
t If 't . , ' ey are, interested or otherw ·
(c) Sell it at any available price even t. 1 is not possible then. ' ise.
at scrap value or at any other rate, then. a scrap value I
· n case, if it could not be sold
(d) Give away free, as there is no Use of .
the space. prese rving it y
ear after year and blocking

steps/Process in Inve ntor y Control ~

It is essential that necessary materials must b
. e on hand when r · d . . .
as essential that no more stores shall be carried th . equire
.. and ,t 1s Just
minimum quant1t1es of stores should therefore b f.an d 1s necessary Th
.
·
· e maximum and
involved in the pro~ess, viz; ' , e 1xe with much c F
are. our steps are
1. Determination of quan tity standards
2. Determination of degre e of control '
3. Inven tory system
4. Designing the inven tory control organisation
1. Quantity Standards-There are five quantity standards used as tool to contro
l
inventory. These are as follows :
(a) The Maximum Stores
(b) The Minimum Stores
(c) The Standard Order
( d) The Ordering Point
(e) i_ead or Procu remen t Time
(a) The Maximum Stores-This term is applied to designate the upper
limit of
the inventory and represents the largest quantity which in the intere
st of economy
should generally be kept in stores.
(b) The Minimum Stores-This term is applied to designate the lower
limit of the
inventory and represents a reserve or margin of safety to be used in case
of emergency.
When requirements have been abnormal it is intended that there must always
be atleast
this quantity available in stores.
(c) The Standard Orde r-It is the quant ity to be purchased at .any time.
Repeat
order for a given produ ct are always for this quant ity until this is revise
d.
( d) The Ordering Point-This represents the quantity required to ensur
e against
j. exhaustion of the supply durin g the interval between the placement
of an rd er and °
t

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 214 Inventory Control- Baalc Coni la
er•tlo,,,
<JPliv1~1y Wlwn the bolnnc:e fall!.. Lo thh l~vcd, ll 11, an lnd,r.atlon that. a nev,
order mu')t be pli.lc:od. ~ Purchi)~
(t~) Lead Time-It Is the t1rne which ta kes the stock to reach from Rc~order
Minimum Sl'ock level. rt rnay also be defined as the time that elapses h<!tw:lnt to
voicing of a need for anything and the time taken to satisfy the need. If on~ / .~
placed today and after 40 days It Is fulfilled, then 40 day-period Is lead time. He der ~
0

,,11ews tl1al the order should be placed 40 days earlier. Lead time determines the a nee, ~
of material to be kept in reserve. As the lead lime decreases the reserve tocmauni
. · ' s ka1~
decreases and vice versa. 1 herefore, the lead time analysis Is very necessa .....,
attempts should be made to reduce this period. nd
· ry, a the
Lead lime Includes :
1. Time to process the enquiries and to place the order
2. Time to deliver the order to supplier
3. Time for the supplier to fulfil the order
4. Tra nsportation time to reach the purchaser.
I n setting maximum, minimum, and order quantities each item should be considered
separately in terms of the following factors :
(a) Economic size of each purchase order.
(b) I ncreased lock-up of capital.
(c) The time required to receive the goods after requisitioning.
(d) The probable depreciation and obsolescence.
(e) The rate of demand etc.
2. Degree of Control-The second step in the process of inventory control is to
decide just how much control is needed to realise the objectives of inventory control.
The difficulty is best overcome by classification of inventory on the basis of value.
Popularly called ABC classification, this approach is useful in deciding the degree of
control. 'A' class items are 'high' in value but 'low' in quantity. 'C' class items are opposite
of 'A' group. 'B' class items are more or less equal in quantity and value. 'A' class items
need tight control through accurate records of receipts and issues. On the other hand,
'C' class items may simply be ordered in large quantities and no record is made of their
issue to manufacturing. 'B' class items need not so tight control.
.\ 3. Inventory System-Inventory system is responsible for ordering and receipt of
goods, timing the order of placement and keeping the track of what has been ordered, .
\ how much and from whom . Thus, an inventory system provides the organisational

\i
structure and the operating polices for maintaining and controlling goods to be
inventorised . .
4. Inventory control organisation-The last step in inventory control process 15
>

'. I I
to determine an organisation structure to handle inventory. This point has been discussed
earlier in this chapter.