Production and Material Management Notes for Unit 1

Product:- Product is any item or service your sell to serve a customer;s need or want. A
Product is a bundle of benefits that satisfy the customer’s need. A Product have some physical
identity. When raw materials get processed and it become the finished goods is known as
Product.
E.g. Food and beverages, cloths, furnitures etc

Characteristics of Product:-
● Intended for customer.
● Created to provide benefits to customers or consumers.
● Exchanged to value.
● Time and Place of Product.

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Production Management:- Production management is the process of Planning, Organizing,
Directing and Controlling the activities of Production Function.

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OR
Production Management refers to the application of management features in Producing goods

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and services is known as Production Management.
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Functions of Production Management:-
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❖ Design and development of Production Process.
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❖ Production Planning and Control.

❖ Implementation of the plan and related activities to produce desired output.
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❖ Administration and coordination of the activities of various components and department.

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Stages of Production Management:-

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Production function analysis.

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Cost Analysis.
Economies of scale.
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Technology Adoption and Innovation.

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Production Optimization an Efficiency improvement.

Decision making strategy.

Importance of Production Management:-

➔ Efficient Resource Allocation.
➔ Cost Management.
➔ Optimization of Production Processes.
➔ Strategic Decision Making.
➔ Industry competitiveness and Economic Growth.
➔ Sustainable Resource Management.

Importance of Production Management to business firm:-

 ★ Accomplishment of firm’s objectives.
★ Reputation, goodwill and image.
★ Helps to introduce new product.
★ Supports other functional areas such as finance and marketing.
★ Helps to face competition
★ Optimum utilisation of resources.
★ Minimise cost of production.
★ Expansion of the firm.

. Importance of Production Management to Customers:-

★ Higher standard of living.
★ Generate employment.
★ Provide quality product.

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★ Creates Utilisation.
★ Boost economy.

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Objectives of Production Management:-
(A) Long Term Objectives.

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(B) Short Term Objectives.
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(A) Long Term Objectives:-
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1. Produce at pre-established cost.
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2. Produce according to pre-decided quality standards.

3. Produce at minimum cost.
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4. Produce as pre decided schedule.

5. Provide product at a right place and right time.
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6. Quality control and improvement.

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(B) Short Term Objectives:-

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1. Acquisition of Raw Materials.

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2. Acquisition of machine and equipment.

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3. Optimum utilization of machine.

4. Provide proper and adequate support.
5. Control reserves and reduce wastage.
6. Competitive edge.

Scope of Production Management:-

1. Selection of plant.
2. Plant layout activity.
3. Designing production system.
4. Production planning and control.
5. Inventory control.
6. Quality control.
7. Work structure.
 8. Maintenance and replacement.
9. Production control.
10. Process design.

Difference between Product and Service:

Product v/s Service
People require different Product and Services to satisfy their needs. In this regard, marketers
play a vital role in marketing different products and services to targeted customers.
However,some people often confuse these two terms and often use them interchangeably. The
major difference between these two things are:-

Key features of a Product:

● The main key feature that the Product is physical an also tangible.It means a Product

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can be seen, touch, smelled etc.
● A Product might be damaged, it can be returned to the Producer.

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● A product have some physical and intrinsic value.

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● Due to tangibility of the product it have some rightsanbd authority also. Whose
ownership can be transferred in selling and buying process.

Key feature of a Service: l Si

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● A service is work done by a person for another person.
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● The billing process of service is also different form the product. It can be in the form of
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subscription also; i.e. Monthly, Quarterly, Yearly etc.

● Services are in the form of intangibles it can be feel or being benefited with them.
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● Services can be tailored at any point of time according to the need of customer. Some
services are Hospitals, Restaurants, Cinemas, Gym etc.
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Difference between Product and Services

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S.N Basis of Products Services

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o. Comparison

01 Tangibility Products are tangible Services are intangible.

02 Perishability Products are perishable Services are not perishable but

are obsolete by time.

03 Quantification Products are quantifiable. Services are not quantifiable.

04 Quality It is easy to compare the quality Services cannot be compared

of two products. easily.

05 Returnability Products can be returned when Services can not be returned.

not in use.
 06 Capital v/s Products are capital intensive. Services are labor intensive.
Labour

07 Inventory Product can be stocked as Services cannot be stocked as

inventory. inventory.

08 Contacts Products have sometimes little Services are always provide to

contract with final consumers. final clients.

09 Economies of Economies of scale concept is Economies of scale is not

scale being followed in Product. followed here.

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Production Management Decision:-

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The decision making process in a production system deals with a lot of problems and
opportunities. We have to make a choice of best use of available resources to make product at

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lowest cost.

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The decision making process involves some basic steps:-
● Clearly recognise the problem.

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● Collect the information and possible use of alternatives.
● Choose and implement most feasible alternative.
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A) Strategic Decision or Long term decision:-
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● Product Selection.
● Process Selection.
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● Plant Location.
● Facility or plant layout.
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● Capacity planning.
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B) Operating Decision or Short Term Decision:-

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● Production Planning and Scheduling.

● Inventory Planning.
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● Quality Assurance.
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● Work and Job design.

● Maintenance and replacement.
C) Controlling Decision:-
● Cost Control.
● Productivity.

Plant Location:- Plant location decisions are strategic, Long-term and non-repetitive in nature.
It is the function of determining where the plant should be located. Suitable location for the plant
is most challenging decision which has to be face by entrepreneur. Location decisions are
affected by many factors i.e. internal and external.
A selection on pure economic considerations will ensure an easy an regular supply of Raw
material, Labour force,Layout of facility and cost reduction etc.
 Need for selection of a location:-
1. It may rise whena new plant is to be established.
2. When the existing plant needs expansion.
3. New economic, social, legal, or political factor could suggest.
4. When lease expires and land lord does not renew it.
5. When decentralisation of industry is fruitful from a specific area.

Steps in Selection of a Location:-

➔ Domestic or International.
➔ Selection of Region:- Availability ofof Raw Material, Nearness to market, Availability of
power, Transport facility and Govt. Policy.

Evaluating different locations / Location Methods:-

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❖ Factor Rating Method.
❖ Point Rating Method.

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❖ Qualitative factor Analysis.

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❖ Locational Break-Even Analysis.
❖ Center of Gravity Method.

(1) Factor Rating Method:- l Si

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● List out most relevant factors.
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● Rate each factor (1 is for low and 5 is for high.)
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● Rate each location (1 is for low and 10 is for best.)

● Compute product of rating.
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Factor Rating Method

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Factor Factor Rating Location Rating Product Rating

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X Y X Y
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Raw Material available 5 10 8 50 40

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Skilled Labour 4 7 6 28 24

Proximity of supplier 5 3 4 15 20

Water Available 1 9 6 9 6

Quality of education 3 6 7 18 21

Suitability to climate 2 7 3 14 6

Total Score 134 117

 (2) Point Rating Method:- Here points are assigned to each alternative location.

Factor Max. Possible Points Points Assigned to Location

A B

Availability of fuel 100 70 30

Transportation 100 50 50

Pollution Rules 100 40 60

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Soil and topography 100 20 80

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Living Conditions 100 40 60

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Total Score 500 220 280
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(3) Qualitative Factor Analysis:-
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Factor Assigned Weight Score for Location Weighted Score of Location

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A B A B
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Raw Material available 0.35 50 40 17.5 14

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Production Cost 0.25 70 80 17.5 20

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Environment 0.20 60 70 12 14
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Market reach 0.10 50 60 5 6

Cost of living 0.10 70 90 7 9

Total Score 59 63
 (4) Locational Break-Even Analysis:- The conversion process from inputs and output
involves two types of cost i.e. Fixed Cost an Variable Cost. the fixed cost remain
constant irrespective of the volume of production. As the Production increases the
variable cost also increases.

When FC+VC it becomes TC.

Total Revenue (TR) is the money that comes by selling of the product.

The point where TR=TC it becomes BEP

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If TR>TC= Profit If TR<TC = Loss

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Total Cost (TC) = Fixed cost per annum + Variable Cost x Quantity

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Location FC/Year VC/Year
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X 20000 35
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Y 40000 25

Z 80000 20
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Selling Price = Rs.100, Quantity Produced = 1000 Units

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Total cost of location X Total cost of location Y Total cost of location Z

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= 20000+35*1000 =40000+25*1000 =80000+20*1000

=20000+35000 =40000+25000 =80000+20000
=55000 =65000 =100000
Location X is preferable.

#Geographical Representation of Locational Break-Even Analysis:-

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Location FC/Annum VC/Annum Selling Price/Unit

A 30000 75 120

B 60000 45 120
 C 120000 25 120
Quantity Produced = 2000 units/year.
Ans.
TC of A=FC of A+VC of A*Q TC of B=FC of B+VC of B*Q TC of C=FC of C+VC of C*Q
= 30000+75*2000 =60000+45*2000 =120000+25*2000
=30000+150000 =60000+90000 =120000+50000
=180000 =150000 =170000

Location Level of Production at 0 T.C. for 2000 Units

A 30000 180000

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B 60000 150000

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C 120000 170000

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TC of A = TC of B TC of B = TC of C

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30000 + 75x = 60000+45x 60000+45y = 110000+25y
75x-45x = 60000-30000 l 45y-25y = 110000-60000
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30x = 30000 20y = 50000
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X = 30000/30 = 1000 Units Y = 50000/20 = 2500 Units
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Center of Gravity Method:- In this method we analyse that our plant should at that proper
location from where we can easily get or reach the required market or raw material or any other
factor which we require.
Note:- No numerical required for this method.