B.

S ANANGPURIA INSTITUTE OF
TECHNOLOGY AND MANAGEMENT
FARIDABAD

Operation management Notes

BBA FSB 3rd Sem

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 INDEX
Sr Topics Page No.
No.
1. UNIT-1 4-14
2. UNIT-2 15-35
3. UNIT-3 36-57
4. UNIT-4 58-92

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 OPERATIONS MANAGEMENT
Paper Code: BBA/II/302
Unit –I
Operations Management – An overview, objectives and functions, Production Cycle,
Classification of operations, New Product Development, Product Design, Plant
Location, Layout Planning.
Unit –II
Forecasting as a planning tool, Forecasting types and methods, Exponential
smoothening, Measurement of errors, Monitoring and Controlling forecasting models,
Box- Jenkins Method. Productivity and Work study, Method study, Work
Measurement. Basic Concept and Philosophy of Supply Chain Management; Essential
features, various flows (cash, value and information)
Unit-III
Recent Issues in SCM: Role of Computer / IT in Supply Chain Management, CRM Vs
SCM, Benchmarking concept, Features and Implementation, Outsourcing-basic
concept, Value Addition in SCM-concept of demand chain management. Production
Planning techniques, Routing Decisions, Line of Balance, Scheduling types and
principles, master production schedule.
Unit-IV
Inventory Management – Objectives, Factors, Process, Inventory control techniques-
EOQ model, ABC, VED, EOQ, SED, FSN analysis. Basic concepts of quality,
dimensions of quality, Juran’s quality trilogy, Deming’s 14 principles, PDCA cycle,
Quality circles, Quality improvement and cost reduction- 7QC tools and 7 new QC
tools, ISO 9000-2000 clauses and coverage. Six Sigma, Total Productive Maintenance
(TPM) Logistics Management: Logistics as part of SCM, Logistics costs, different
models, logistics subsystems, inbound and outbound logistics, Distribution and
warehousing management.
Text Books:
1. Production and Operations Management, K. Aswathappa& K. Shridhara Bhatt,
Himalaya Publishing House
2. Operations Management – Theory and Practice, B. Mahadevan, Pearson Education
Suggested Reading:
1. Star M.K. - Production Management System And Synthesis
2. Buffa E.S. - Modern Production Management
3. Mayer - Production And Operations Management

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 UNIT-1
Definition: Operations Management can be understood as an area of management
which is concerned with the government of system, processes and functions that
manufacture goods and renders services to the end user, to provide desired utilities to
them.
Operations management functions:
1. Location of facilities 2. Plant layouts and material handling
3. Product design 4. Process design
5. Production and planning control 6. Quality control
7. Materials management 8. Maintenance management.
1. Location of facilities Location of facilities for operations is a long-term capacity
decision which involves a long term Commitment about the geographically static
factors that affect a business organization. It is an Important strategic level decision-
making for an organization. It deals with the questions such as ‘Where our main
operations should be based?’ The selection of location is a key-decision as large
investment is made in building plant and Machinery. An improper location of plant
may lead to waste of all the investments made in plant And machinery equipment’s.
Hence, location of plant should be based on the company’s expansion.
2. Plant layout and material 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 output quality and quantity most Economically.
3. Product design:- Product design deals with conversion of ideas into reality. Every
business organization have to Design, develop and introduce new products as a
survival and growth strategy. Developing the New products and launching them in the
market is the biggest challenge faced by the organizations. The entire process of need
identification to physical manufactures of product involves three Functions:
marketing, product development, manufacturing. Product development translates the
Needs of customers given by marketing into technical specifications and designing the
various Features into the product to these specifications. Manufacturing has the
responsibility of selecting the processes by which the product can be manufactured.
Product design and development provides link between marketing, customer needs
and expectations and the activities required to manufacture the product.
4. Process design& Process design is a macroscopic decision-making of an overall
process route for converting the Raw material into finished goods. These decisions
encompass the selection of a process, choice of technology, process flow analysis and
layout of the facilities. Hence, the important decisions In process design are to

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analysethe workflow for converting raw material into finished product And to select
the workstation for each included in the workflow.
5. PRODUCTION PLANNING AND CONTROL Production planning and control
can be defined as the process of planning the production in advance, setting the exact
route of each item, fixing the starting and finishing dates for each item, to give
production orders to shops and to follow up the progress of products according to
orders. The principle of production planning and control lies in the statement ‘First
Plan Your Work and then Work on Your Plan’. Main functions of production
planning and control includes Planning, routing, scheduling, dispatching and follow-
up.
6. 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. Quality control can also be defined as ‘that industrial management
technique by means of which Product of uniform acceptable quality is manufactured’.
It is the entire collection of activities which ensures that the operation will produce the
optimum quality products at minimum cost.
7. MATERIALS MANAGEMENT Materials management is that aspect of
management function which is primarily concerned with The acquisition, control and
use of materials needed and flow of goods and services connected with the production
process having some predetermined objectives in view.
8. MAINTENANCE MANAGEMENT In modern industry, equipment and machinery
are a very important part of the total productive Effort. Therefore, their idleness or
downtime becomes are very expensive. Hence, it is very Important that the plant
machinery should be properly maintained.
OBJECTIVES OF OPERATIONS MANAGEMENT
Objectives of operations management can be categorized into customer service and
resource Utilization.
Customer service: - The first objective of operating systems is the customer service to
the satisfaction of customer Wants. Therefore, customer service is a key objective of
operations management. The operating System must provide something to a
specification which can satisfy the customer in terms of cost and timing. Thus,
primary objective can be satisfied by providing the ‘right thing at a right price at the
right time’.
Resource utilization: - Another major objective of operating systems is to utilize
resources for the satisfaction of Customer wants effectively, i.e., customer service
must be provided with the achievement of Effective operations through efficient use

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of resources. Inefficient use of resources or inadequate Customer service leads to
commercial failure of an operating system.
Definition of Production Cycle

The production cycle is the sequence of production steps that a product or service goes
through from its planning to its delivery to the customer. It includes the steps of product
design, production planning, raw material sourcing, manufacturing, quality control,
packaging, and distribution.

Stages of the Production Cycle

The stages of the production cycle in manufacturing can vary significantly from one
business to another depending on the type of products and services being produced, the
complexity of the production process, and the scale of the operation.

For example, a company producing a single product may only have a few stages in the
production cycle, such as design, fabrication, assembly, testing, and packaging. A company
with multiple product lines may have a much longer production cycle with additional
stages, such as quality control, inventory management, and distribution.

Yet, certain types of businesses may require additional stages, such as marketing and
customer service.

The different stages of the production cycle can be described as follows:

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Designing

The Designing Stage of the Production Cycle in manufacturing is the initial step in the
creation of a product. This stage involves creating product specifications, choosing
materials and components, and developing a plan for the production process. It also
includes creating a prototype and testing it to ensure that the product meets the
requirements established in the design specifications.

Planning

Planning is the next step in the production cycle. This involves determining the product’s
design, materials, and other requirements. It also includes setting production timelines,
budgets, and goals.

It also involves organizing resources, equipment, facilities, and personnel to create a plan
for producing goods and services. It involves the mapping out all the steps necessary to
complete the production process, from raw materials to finished goods.

Procurement

The procurement stage of the production cycle in manufacturing is the process of buying
the necessary materials, components, and services needed to complete the production
process. This includes locating vendors and suppliers, issuing purchase orders, negotiating
prices, and ensuring that the materials, components, and services meet quality standards.

The procurement stage also involves tracking and monitoring the delivery of the materials,
components, and services to ensure that they are received on time and in good condition.
This stage of the production cycle is critical for ensuring that the production process runs
smoothly and without delays.

Sourcing Materials

Once the product design is finalized, materials must be sourced from suppliers. This
involves researching the best quality and most cost-effective materials and negotiating with
suppliers.

The sourcing stage also involves procuring the necessary raw materials, components, and
other resources that are needed for the manufacturing process.

This stage aims to identify the suppliers and vendors, negotiate for the best cost and quality,
and establish a reliable supply chain.

Manufacturing

During the manufacturing phase, the materials are transformed into the finished product.
This includes machining, assembly, and any other processes required for production.

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During this stage, the materials are transformed into usable products by way of various
processes such as cutting, molding, assembling, and welding. Depending on the product,
these processes may involve the use of specialized equipment, machines, tools, and even
robotics.

Quality Control

Quality control is an essential step in the production cycle. This involves inspecting the
product to ensure it meets the specifications and is free from defects.

This is the last stage before the product is released to the public. During this stage, the
product is tested and inspected to ensure that it meets the desired quality standards of the
company.

Quality control can be done through a variety of methods such as visual inspection,
dimensional measurements, functional testing, and laboratory testing. It is important to
have an effective quality control process in place in order to ensure that the products being
released are safe and of the highest quality.

Packaging and Shipping

The packaging and shipping stage of the production cycle in manufacturing is the final step
in the production process. At this stage, the finished product is prepared for shipping to the
customer. This includes packaging the product into boxes or other containers, labeling the
product, and arranging for its transportation.

The product must meet all the necessary regulations, such as product safety requirements,
and be ready for shipment. During this stage, the necessary paperwork is also completed to
ensure that the product is delivered on time.

The packaging and shipping process must be done correctly to ensure that the product is not
damaged during transit and that the customer receives the product in a timely manner.

Distribution

The Distribution stage of the Production Cycle in manufacturing includes the activities
necessary for getting the finished product from the production facility to the customer. This
includes activities such as inventory control, packaging, shipping, and transportation.

During this stage, manufacturers must ensure that the product is properly packaged and
labeled, and that it is shipped to the customer in a timely manner.

Customer Service

Once the product is delivered, customer service is essential. This includes providing
technical support, handling customer complaints, and resolving any issues with the product.
This stage typically involves customer service representatives who are responsible for

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 providing technical assistance to customers, handling customer inquiries, and resolving any
issues that may arise during the installation process.

New Product Development (NPD) is the a set of design, engineering, and research
processes which combine to create and launch a new product to market. Unlike
regular product development, NPD is specifically about developing a brand new idea
and seeing it through the entire product development process.
In today's competitive market, the ability to offer products that meet customers' needs
and expectations has never been more important.
The 7 stages of new product development

1. Idea generation
Idea generation involves brainstorming for new product ideas or ways to improve an
existing product. During product discovery, companies examine market trends,
conduct research, and dig deep into users' wants and needs to identify a problem and
propose innovative solutions.
A SWOT Analysis is a framework for evaluating your Strengths, Weaknesses,
Opportunities, and Threats. It can be a very effective way to identify the problematic
areas of your product and understand where the greatest opportunities lie.
There are two primary sources of generating new ideas. Internal ideas come from
different areas within the company—such as marketing, customer support, the sales
team, or the technical department. External ideas come from outside sources, such as
studying your competitors and, most importantly, feedback from your target audience.
Some methods you can use are:
 Conducting market analysis
 Working with product marketing and sales to check if your product's value is being
positioned correctly
 Collecting user feedback with interviews, focus groups, surveys, and data analytics
 Running user tests to see how people are using your product and identify gaps and
room for improvement
Ultimately, the goal of the idea generation stage is to come up with as many ideas as
possible while focusing on delivering value to your customers.

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 2. Idea screening
This second step of new product development revolves around screening all your
generated ideas and picking only the ones with the highest chance of success.
Deciding which ideas to pursue and discard depends on many factors, including the
expected benefits to your consumers, product improvements most needed, technical
feasibility, or marketing potential.
The idea screening stage is best carried out within the company. Experts from
different teams can help you check aspects such as the technical requirements,
resources needed, and marketability of your idea.
3. Concept development and testing
All ideas passing the screening stage are developed into concepts. A product concept
is a detailed description or blueprint of your idea. It should indicate the target market
for your product, the features and benefits of your solution that may appeal to your
customers, and the proposed price for the product. A concept should also contain the
estimated cost of designing, developing, and launching the product.
Developing alternative product concepts will help you determine how attractive each
concept is to customers and select the one that would provide them the highest value.
Once you’ve developed your concepts, test each of them with a select group of
consumers. Concept testing is a great way to validate product ideas with users before
investing time and resources into building them.
Concepts are also often used for market validation. Before committing to developing a
new product, share your concept with your prospective buyers to collect insights and
gauge how viable the product idea would be in the target market.
4. Marketing strategy and business analysis
Now that you’ve selected the concept, it’s time to put together an initial marketing
strategy to introduce the product to the market and analyze the value of your solution
from a business perspective.
 The marketing strategy serves to guide the positioning, pricing, and promotion of your
new product. Once the marketing strategy is planned, product management can
evaluate the business attractiveness of the product idea.
 The business analysis comprises a review of the sales forecasts, expected costs, and
profit projections. If they satisfy the company’s objectives, the product can move to
the product development stage.
5. Product development
The product development stage consists of developing the product concept into a
finished, marketable product. Your product development process and the stages you’ll
go through will depend on your company’s preference for development, whether
it’s agile product development, waterfall, or another viable alternative.
This stage usually involves creating the prototype and testing it with users to see how
they interact with it and collect feedback. Prototype testing allows product teams to
validate design decisions and uncover any flaws or usability issues before handing the
designs to the development team.
6. Test marketing
Test marketing involves releasing the finished product to a sample market to evaluate
its performance under the predetermined marketing strategy.
There are two testing methods you can employ:

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 Alpha testing is software testing used to identify bugs before releasing the product to
the public
 Beta testing is an opportunity for actual users to use the product and give their
feedback about it
The goal of the test marketing stage is to validate the entire concept behind the new
product and get ready to launch the product.
7. Product launch
At this point, you’re ready to introduce your new product to the market. Ensure your
product, marketing, sales, and customer support teams are in place to guarantee a
successful launch and monitor its performance.
To better understand how to prepare a go-to-market strategy, we spoke
to GannaKryklii, Senior Product Marketing Manager at Typeform. Here are some
essential elements to consider.
 Customers: Understand who will be making the final purchasing decisions and why
they will be purchasing your product. Create buyer personas and identify their roles,
objectives, and pain points.
 Value proposition: Identify what makes you different from the competition and why
people should choose to buy your product
 Messaging: Determine how you will communicate your product’s value to potential
customers
 Channels: Pick the right marketing channels to promote your products, such as email
marketing, social media, SEO, and more.

Product Design
Product design as a verb is to create a new product to be sold by a business to its
customers. Designing a product is a very broad concept, it is essentially the efficient
and effective generation and development of ideas through a design process that leads
to new products. When considering high-quality products or features, designers must
understand business objectives, know the elements of a good design, and be able to
answer the following questions:

1. What problem are we solving?

2. Who has this problem?
3. What do we want to achieve?

Finding a solution to a problem includes the following five basic phases:

1. Research: In order to develop a deeper understanding of your consumer

audience, you must conduct and gather research to cater to the people for
whom you are designing your product/service for. This is crucial.
2. Define: Create a point of view that is based on user needs and insights.
3. Brainstorm: In order to generate a wide range of potential solutions, design
thinking and brainstorming sessions are required during this phase of product
development.

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 4. Prototype: After narrowing down design concepts, build a prototype (or series
of prototypes) to test your hypothesis. Creating a prototype allows the designer
to discover if they’re on the right track, and it often sparks different ideas that
you wouldn’t have come up with otherwise to further streamline product
development. However, depending on the product, physical prototyping tools
can be very expensive so digital design can be significantly more cost-effective
in the beginning stages of product design and problem-solving pain points
within the design.
5. Test: Return to your users for feedback.

PLANT LOCATION

Plant Location is the right location for the manufacturing facility, it will have
sufficient access to the customers, workers, transportation, etc.

FACTORS AFFECTING PLANT LOCATION DECISION:

 INPUT CONSIDERATIONS

o Material- Quantity, quality, cost and regular supply.

o Land- Site availability and cost, cost of construction, constructional
regulations.
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 
o Equipment- Cost and availability.

o Plant utilities- Water, electricity, gas, coal etc.

o Labor- Availability, skill, wage rates etc.

 PROCESSING CONSIDERATIONS

o Production analysis

o Process analysis

o Forecasting and scheduling

o Production control

o Maintenance

o Cost control

 OUTPUT CONSIDERATIONS

o Distribution- Distribution and storage facilities

o Transportation- Facilities and cost

o Present and future market potential

o Local rates

o Local taxes

 OTHER CONSIDERATIONS

o Community attitude towards industry and company

o Public and community services

o Stockholder interests

o Organizational decentralization policies.

o Political situation

o Environmental standards
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 Layout planning
Plant layout is simply a mechanism which involves knowledge of the physical
arrangement of every component of the production Process for the facilities to
additional space efficiency for manufacturing cost reduction to continuous and steady
movement of the production cycle.
This arrangement includes the space needed for material movement, storage, indirect
labour and all other supporting activities or services.
Plant Layout is a master blueprint which provides for the most effective utilisation of
machine, manpower, materials for coordinating all operations performed inside the
factory to increase overall productivity.

CHARACTERISTICS OF LAYOUT PLANNING :

 Provide space for machine / materials / storage / etc.
 Flexible for future changes in capacity / Design / Process etc. ( Cellular
design).
 Accommodate future expansion.
 Deals with government rules & regulations ( Municipal corporation / Labor law
& rules).
 Safety of employees / visitors / vendors is prime concern.
 Achieve economy in operation.
OBJECTIVE OF LAYOUT PLANNING
 Effective Utilisation of Cubic Area in the factory
 Effective Utilisation of installed machinery and Manpower
 Minimization of Material Handling
 Elimination of Bottlenecks through the Line balancing
 Elimination of physical efforts with Low Cost Automation
 High turnover with reduction in Delivery Failure
 WIP(Work in progress) reduction between processes
 Natural light,Ventilation,Control of noise and vibrations for better Ergonomics
and Energy Cost reduction
 Sufficient work space for a better Work Environment
 Aisle and Gangways planning for better Accessibility and Monitoring
 Store designed based on better Flow, Accessibility, Capacity of storage and
Traceability of materials
 Reduction in changeover time through SMED (Single Minute Exchange of Die)
 Dust control based on different types of Clean rooms/ ISO norms
 Distance travel reduction of Material and Manpower etc
 Reduction in Labour cost
 Reduction in manufacturing time
 Future Expansion

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 UNIT-2
Forecasting

Forecasting refers to the practice of predicting what will happen in the future by
taking into consideration events in the past and present. Basically, it is a decision-
making tool that helps businesses cope with the impact of the future’s uncertainty by
examining historical data and trends. It is a planning tool that enables businesses to
chart their next moves and create budgets that will hopefully cover whatever
uncertainties may occur.

Features of Forecasting

Here are some of the features of making a forecast:

1. Involves future events

Forecasts are created to predict the future, making them important for planning.

2. Based on past and present events

Forecasts are based on opinions, intuition, guesses, as well as on facts, figures, and
other relevant data. All of the factors that go into creating a forecast reflect some
extent what happened with the business in the past and what is considered likely to
occur in the future.

3. Uses forecasting techniques

Most businesses use the quantitative method, particularly in planning and budgeting.

The Process of Forecasting

Forecasters need to follow a careful process in order to yield accurate results. Here are
some steps in the process:

1. Develop the basis of forecasting

The first step in the process is investigating the company’s condition and identifying
where the business is currently positioned in the market.

2. Estimate the future operations of the business

Based on the investigation conducted during the first step, the second part of
forecasting involves estimating the future conditions of the industry where the
business operates and projecting and analyzing how the company will fare in the
future.

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 3. Regulate the forecast

This involves looking at different forecasts in the past and comparing them with what
actually happened with the business. The differences in previous results and current
forecasts are analyzed, and the reasons for the deviations are considered.

4. Review the process

Every step is checked, and refinements and modifications are made.

Sources of Data for Forecasting

1. Primary sources

Information from primary sources takes time to gather because it is first-hand

information, also considered the most reliable and trustworthy sort of information.
The forecaster does the collection, and may do so through things such as interviews,
questionnaires, and focus groups.

2. Secondary sources

Secondary sources supply information that has been collected and published by other
entities. An example of this type of information might be industry reports. As this
information has already been compiled and analysed, it makes the process quicker.

Types of Forecasting Methods

There are basic 3 types of forecasting methods

 Qualitative techniques
 Time Series Analysis
 Causal models

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 Five famous techniques are discussed below

 Qualitative Methods - Where historical evidence is unavailable, qualitative techniques

are sufficient. They are subjective, based on the opinion and judgement of consumers
and experts. They are typically used to make moderate or long-term decisions.
 Quantitative Methods - Its future data as a result of historical data is done using
quantitative forecasting method. If historical numerical evidence is available and it is
fair to conclude that any of the characteristics in the data will persist into the future,
they are suitable to use.
 Moving Average - All future values are predicted to be equal to the mean of the
previous data.
 Naive Method - The previous month's actuals are used as the projection for this
period without any adjustments or attempts to identify causal factors,. Naive Method
is used for economic and financial time series.
 Drift Method - Allowing predictions to rise or decrease over time is a variant on the
nave process, with the amount of change over time (called the drift) fixed to the
average change observed in the historical records

Forecasting as a Planning Tool: -

Being able to accurately predict future trends and events is useful in many contexts,
including business management. Forecasting is important because it can be used for:

Estimating the success of a new business venture

When starting a new business, proper forecasting can reveal crucial information that
may determine the company's future success. Forecasting reveals some of the risks
and uncertainties that a new business faces and can offer an entrepreneur the right
tools to anticipate elements such as the strength of the competition, demand potential
for a product or service and future industry development.Estimating financial
necessities

Estimating a company's future financial requirements is one of the most important

uses of forecasting. It can help a company determine its financial future by estimating
future sales, the capital needed for future product development, the costs of future
expansions and other estimated expenses that are used to estimate future costs.

Ensuring the company's operational consistency

Proper forecasting can reveal important information regarding future earnings and
spending. By having an estimate of the funds going in and out of the organization over
a certain period of time, the company's management can make more efficient and
accurate plans for the future.

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Helping managers make the right decisions

A significant proportion of management decisions are made by relying on accurate

forecasting. Most businesses, regardless of size, face several potential uncertainties —
such as seasonal rises and falls in sales, changes in personnel and changes in raw
material prices — depending on the exact nature and purpose of the organization.
Forecasting plays a major role in providing managers with the information they need
to make informed decisions regarding the company's future.

Increasing a business venture's odds of success

The success of a business often depends on fine margins and correct fund allocation.
Forecasting can predict important metrics, like the amount of needed raw materials,
the right budget for each company department and the number of future sales. These
figures help management allocate funds and resources and prioritize one product or
service over another, depending on the type of company and the forecasted data.

Formulating effective plans for the future

All planning implies the use of forecasts, making forecasting a very important element
of formulating realistic and helpful plans. Any form of planning, from short-term to
long-term, is heavily reliant on forecasting, creating a direct link between accurate
forecasting and adequate planning.

Promoting workplace cooperation

Gathering and analyzing the data required for forecasting typically requires
coordination and collaboration between all the company's department managers, as
well as other employees. This makes the whole process a collaboration, increasing
team spirit and cohesion.

Helping an organization improve

Forecasting gives managers information that they can use to spot any weakness in the
organization's processes. By discovering potential shortcomings ahead of time, the
company's managers have the proper tools to correct any weakness before they affect
the profits.

Exponential smoothing

Exponential smoothing was first suggested in the statistical literature without

reference to previous work by Robert Goodell Brown in 1956 and then expanded by
Charles C. Holt in 1957. Exponential smoothing is a broadly accurate principle for
smoothing time series data using the exponential window function. The controlling

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input of the exponential smoothing calculation is defined as the smoothing factor or
the smoothing constant.

As we know that, in the simple moving average, the past observations are weighted
equally, exponential functions are used to assign exponentially decreasing weights
over time. It is an easily learned and easily applied method for making some
determination based on prior assumptions by the user, such as seasonality.
Exponential smoothing is generally used for the analysis of time-series data.

Exponential Smoothing Formula

The simplest form of an exponential smoothing formula is given by:

st = αxt+(1 – α)st-1= st-1+ α(xt – st-1)

Here,

st = smoothed statistic, it is the simple weighted average of current observation xt

st-1 = previous smoothed statistic

α = smoothing factor of data; 0 < α < 1

t = time period

If the value of the smoothing factor is larger, then the level of smoothing will reduce.
Value of α close to 1 has less of a smoothing effect and give greater weight to recent
changes in the data, while the value of α closer to zero has a greater smoothing effect
and are less responsive to recent changes.

There is no official accurate procedure for choosing α. The statistician’s judgment is

used to choose an appropriate factor sometimes. Otherwise, a statistical technique may
be used to optimize the value of α. For example, the method of least squares can be
used to determine the value of α for which the sum of the quantities is minimized.

Exponential Smoothing Forecasting

Exponential smoothing is generally used to make short term forecasts, but longer-term
forecasts using this technique can be quite unreliable. More recent observations given
larger weights by exponential smoothing methods, and the weights decrease
exponentially as the observations become more distant. When the parameters

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describing the time series are changing slowly over time, then these methods are most
effective.

Exponential Smoothing Methods

There are three main methods to estimate exponential smoothing. They are:

 Simple or single exponential smoothing

 Double exponential smoothing
 Triple exponential smoothingndom Errors
Measurements are an integral part of living; we measure time, measure steps walked
to know the calories burnt, measure the materials added for cooking, and measure the
size of clothes to know whether it fits perfectly. Sometimes we fail to know the exact
measurement, and the values vary, leading to errors. In this article, let us learn about
measurement, errors in measurement, types of errors and how to avoid the errors.

Measurement
Measurement is the foundation for all experimental science. All the great
technological development could not have been possible without ever-increasing
levels of accuracy of measurements. The measurement of an amount is based on some
international standards, which are completely accurate compared with others. Just like
your vegetable vendors, measurements are taken by comparing an unknown amount
with a known weight. Every measurement carries a level of uncertainty which is
known as an error. This error may arise in the process or due to a mistake in the
experiment. So 100% accurate measurement is not possible with any method.

An error may be defined as the difference between the measured and actual values.
For example, if the two operators use the same device or instrument for measurement.
It is not necessary that both operators get similar results. The difference between the
measurements is referred to as an ERROR.

To understand the concept of measurement errors, you should know the two terms that
define the error. They are true value and measured value. The true value is impossible
to find by experimental means. It may be defined as the average value of an infinite
number of measured values. The measured value is a single measure of the object to
be as accurate as possible.

Types of Errors

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There are three types of errors that are classified based on the source they arise from;
They are:

 Gross Errors
 Random Errors
 Systematic Errors

Gross Errors
This category basically takes into account human oversight and other mistakes while
reading, recording, and readings. The most common human error in measurement falls
under this category of measurement errors. For example, the person taking the reading
from the meter of the instrument may read 23 as 28. Gross errors can be avoided by
using two suitable measures, and they are written below:

 Proper care should be taken in reading, recording the data. Also, the calculation
of error should be done accurately.
 By increasing the number of experimenters, we can reduce the gross errors. If
each experimenter takes different readings at different points, then by taking
the average of more readings, we can reduce the gross errors

Random Errors
The random errors are those errors, which occur irregularly and hence are random.
These can arise due to random and unpredictable fluctuations in experimental
conditions (Example: unpredictable fluctuations in temperature, voltage supply,
mechanical vibrations of experimental set-ups, etc, errors by the observer taking
readings, etc. For example, when the same person repeats the same observation, he
may likely get different readings every time.

This article explored the various types of errors in the measurements we make. These
errors are everywhere in every measurement we make. To find more articles, visit
BYJU’S. Join us and fall in love with learning.

Systematic Errors:
Systematic errors can be better understood if we divide them into subgroups; They
are:

 Environmental Errors
 Observational Errors
 Instrumental Errors

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Environmental Errors: This type of error arises in the measurement due to the effect of
the external conditions on the measurement. The external condition includes
temperature, pressure, and humidity and can also include an external magnetic field. If
you measure your temperature under the armpits and during the measurement, if the
electricity goes out and the room gets hot, it will affect your body temperature,
affecting the reading.

Observational Errors: These are the errors that arise due to an individual’s bias, lack
of proper setting of the apparatus, or an individual’s carelessness in taking
observations. The measurement errors also include wrong readings due to Parallax
errors.

Instrumental Errors: These errors arise due to faulty construction and calibration of the
measuring instruments. Such errors arise due to the hysteresis of the equipment or due
to friction. Lots of the time, the equipment being used is faulty due to misuse or
neglect, which changes the reading of the equipment. The zero error is a very common
type of error. This error is common in devices like Vernier callipers and screw gauges.
The zero error can be either positive or negative. Sometimes the scale readings are
worn off, which can also lead to a bad reading.

Instrumental error takes place due to :

 An inherent constraint of devices

 Misuse of Apparatus
 Effect of Loading

Box-Jenkins Model

The Box-Jenkins Model is a mathematical model designed to forecast data ranges

based on inputs from a specified time series. The Box-Jenkins Model can analyze
several different types of time series data for forecasting purposes.

Its methodology uses differences between data points to determine outcomes. The
methodology allows the model to identify trends using autoregresssion, moving
averages, and seasonal differencing to generate forecasts.

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Definition of Productivity

Productivity is simply defined as ‘the ratio of output to a given input’, and

represented as follows: Productivity = output input This definition can be applied to
an enterprise, a sector of economic activity or the economy as a whole. The term
‘productivity’ is useful to assess or measure the extent to which a certain output can
be extracted from a given input.

Types of Productivity

There are mainly two types of productivity:

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Partial Factor Productivity

Partial Factor Productivity measures the ratio of total output to a partial or single
input. This type of productivity is used to measure the productivity of each unit factor
compared to the production of output.

Partial factor inputs can be categorized as labor, capital, machinery, material, etc.

Production Managers usually use partial productivity measures due to readily

available and accessible data.

Multifactor or Total Productivity

Multifactor productivity is a measure of the ratio of total output and total input. It
denotes the combined effect of all resources used in generating the total output units.

Why is Productivity Important?

Increased productivity indicates greater output from the same amount of input. It
means higher efficiency with which a company or economy can transform resources
into goods. Thus, productivity growth is our opportunity to create more from less.

Increased productivity drives economic growth, meaning an economy can produce

and consume more and more goods and services for the same amount of work. Every
section of society, viz., consumers, workers, employers, can benefit from a
productivity increase. It is vital to individuals, businesses, and analysts.

By being more productive, individuals can complete their work efficiently, tackle jobs
quicker, and enjoy more free time. Productivity can help maintain a healthy work/life
balance, and some people even enjoy their work more and feel less stressed when
they're productive.

Now, let us look at the benefits derived from increased productivity at workplace.

 Effective utilization of resources

 Reduced cost of production
 Reduced price of goods and services
 Increased wages to workers
 Lower overhead costs

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  Higher profits for businesses
 Higher per capita income
 Overall prosperity and growth

Meaning of Work Study:

Work Study forms the basis for work system design. The purpose of work design is to
identify the most effective means of achieving necessary functions. Work study aims
at improving the existing and proposed ways of doing work and establishing standard
times for work performance. Work design involves job design, work measurement and
the establishment of time standards and worker compensation. Work Study is
encompassed by two techniques -method study and work measurement (time study):

1. Method study is the systematic recording and critical examination of existing and
proposed ways of doing work, as a means of developing and applying easier and
methods and reducing costs.
2. Work measurement (or Time study) is the application of techniques designed to
establish the time for a qualified worker to carry out a specified job at a defined level
of performance.

Work study is the investigation, by means of a consistent system of the work done in
an organization in order to attain the best utilisation of resources i.e. Materials,
Machines, Men and Money.

Objectives of Work Study:

The following are the objectives of work study:

1. Increased efficiency,

2. Better product quality,

3. To choose the fastest method to do a job,

4. To improve the working process,

5. Less fatigue to operators and workers,

6. Effective labour control,

Advantages of Work Study:

The advantages of work study are the following:

1. Work study ensures higher productivity,

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 2. Better working conditions with less fatigue,

3. Higher wages to workers,

4. Uniform production flow,

5. Job satisfaction and job security to workers,

6. Reduction in unit cost of production,

7. Quality products to consumers,

Method Study

Method Study is a technique which analyses each operation of a given piece of work
very closely in order to eliminate unnecessary operations and to approach the quickest
and easiest method of performing each necessary operation; it includes the
standardization of equipment, method and working conditions; and training of the
operator to follow the standard method.

Objectives of Method Study

The following are the objectives of Method Study:

 Improvement of manufacturing processes and methods

 Improvement of working conditions
 Improvement to plant layout and work place layout
 Reducing the human effort and fatigue
 Reduced health hazards
 Reducing material handling
 Improvement of plant and equipment design
 Improvement in the utility of materials, machines and man power and
 Ensuring safety

Method Study Procedure

The following are the procedures and steps in Method Study.

1. Select the work worth studying and define the objectives to be achieved. An
objective may be to reduce the manufacturing cost or to reduce bottleneck or to reduce
fatigue incurred by the workers in order to increasing their efficiency.

2. Record all the relevant information pertaining to the existing method in details and
in the form of a chart to obtain a clearer picture about the same. Recording can be
done with the help of the following aids:

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 Process Charts,
 Diagrams,
 Motion and Film Analysis, and
 Models.

3. Examine the recorded events critically and in sequence. It involves answer to a

number of questions. An activity can be eliminated, simplified or combined with
another. The likely questions to be asked are:

 Purpose – What is done?

 Person – Who does it?
 Place – Where it is done?
 Means – How is it done?
 Sequence – When is it done?

4. Develop the best method as resulted form critical examination and record it. The
developed method should be practical, safe effective and economical.

5. Installation of the (best) developed method or the improved method. It involves

planning, arranging and implementing. During planning and arranging, necessary
arrangements of resources, equipments, tools and instruction to workers overtime etc.
are made. The actual installation involves the introduction of developed method as
standard practice.

6. Maintain the new method. We should ensure the proper functioning of the installed
method by periodic checks and verifications. If there are any deviations, the reasons
for deviation should be explored and corrected. Views of the workers, supervisors and
other person related with the authorize method can be of immense help in exploring
further improvements.

Work measurement

Work measurement involves estimating how long a qualified worker would take to
perform a given task at a defined proficiency level.

Here are five reasons why you should measure your work:

1. Enables your growth and development:

Measurement and management of employee performance are important since they

allow businesses to determine how efficient workers are.

The measurement of work by itself will not enable growth. It can, however, be
combined with continuous feedback to enable employees to self-assess and improve
their skills.

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2. Ensure alignment of goals and growth of the company

Employee performance measurement can determine those goals by identifying areas

where someone is doing well and could be stretched and areas where they are not yet
strong.

3. Better understand your company’s performance.

Your company’s performance can be predicted by knowing how well you perform
through work measurement.

4. Create a fair culture of recognition

Equal treatment of employees is ensured by work measurement. Employees who are

good performers and those who are procrastinators are distinguished, which creates a
fair recognition culture.

5. Identifying and eliminating wasted or ineffective time.

Work measurement eliminates wasted or ineffective time. Measuring work is

concerned with reducing and ultimately removing unproductive time, i.e., a time when
no effective work is being done.

Objectives of work measurement are given below:

 To standardize efficient methods for completing tasks.

 A realistic schedule and workforce requirements can be prepared by estimating
the target time for each job.
 Analysing alternative methods to compare performance times.
 Preparation of a realistic schedule of work.
 Identifying unnecessary activities related to a career to reduce or eliminate
them.
 Assist in the organization of labour by comparing the actual performance daily.
 A logical comparison can be made when alternative methods are compared
based on their basic times.
 To standardize the efficient process of performing operations.
 Establish supervisory objectives and measure supervisor performance based on
those objectives.
 Work measurement is used in determining machine effectiveness.

Steps Involved in Work Measurement

Work measurement involves analyzing the size of a task, its method of performance,
and production efficiency.

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 1. Decompose the job into its components.
2. Measure the elapsed time on the various elements using either time studies,
synthesis, analytical estimation, or other methods.
3. To set up elemental time values, take the observed time and convert it into
normal time using the rating factor.
4. Evaluate the amount of relaxation, physical and mental exhaustion involved in
carrying out each element.
5. Count the time allotted for relaxation when arriving at the work content for
each element.
6. Identify the number of times each element occurs in the job, multiply each
element’s work content by its frequency (i.e., how often it appears in the
position), and add all the times together.
7. Contingency allowances should be added if necessary to arrive at the standard
time to complete the work.

Measurement of work helps estimate labor costs. Moreover, it provides information

on the estimation of tenders, the assessment of delivery schedules, and the fixing of
selling prices.

Benefits of Work Measurement

Organizations determine whether work programs, investments, and acquisitions

achieve their objectives in work measurement.

A good work measurement system has the following benefits.

 A better understanding of work measurements enables better control over work

methods and processes.
 Evaluate the suitableness of the workforce assigned to an organization.
 A good management system reduces labor costs, increases productivity, and
improves performance appraisal, planning, and scheduling.
 Work measurement enables the development of realistic work schedules
through an accurate assessment of human work compared to plant capacity for
production and maintenance planning.
 Detailed instructions are provided on how to prepare estimated selling prices
and delivery schedules for tenders.
 The effectiveness of work planning can be determined.
 Prevents backlogs of work.
 Streamline work processes.
 Simplifies workforce planning through an analysis of actual and standard time.

What is Supply Chain Management?

Supply chain management is the process of integrating the supply and demand
management, not only within the organization, but also across all the various members

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and channels in the supply chain so they work together most efficiently and
effectively.

There are five basic components in a supply chain management system:

1. Planning

To meet customer demands, supply chain managers have to plan ahead. This
means forecasting demand, designing the supply chain intentionally, and determining
how the organization will measure the supply chain to ensure it is performing as
expected in terms of efficiency, delivering value for customers and helping to achieve
organizational goals.

2. Sourcing

Selecting suppliers who will provide the goods, raw materials, or services that create
the product is a critical component of the supply chain. Not only does this include
creating the contracts that govern the suppliers, but also managing and monitoring
existing relationships. As part of strategic sourcing, supply chain managers must
oversee the processes for ordering, receiving, managing inventory and authorizing
invoice payments for suppliers.

3. Making

Supply chain managers also need to help coordinate all the steps involved in creating
the product itself. This includes reviewing and accepting raw materials, manufacturing
the product, quality testing and packaging. Generally, businesses evaluate the quality,
production output and employee productivity to ensure overall standards are upheld.

4. Delivering

Ensuring the products reach the customers is achieved through logistics and it’s
fundamental to supply chain success. This includes coordinating the orders,
scheduling delivery, dispatching, invoicing, and receiving payments. Generally, a fleet
of vehicles must be managed to ship the products—from tankers bringing product
manufactured overseas to fleet trucks and parcel services handling last mile delivery.
In some cases, organizations outsource the delivery process to other organizations
who can oversee special handling requirements or home delivery.

5. Returning

Supply chain managers also need to develop a network that supports returning
products. In some cases, this may include scrapping or re-producing a defective
product; in others, it may simply mean returning a product to the warehouse. This
network needs to be responsible and flexible to support customer needs.

Benefits of Supply Chain Management?

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Effective supply chain management provides three primary benefits:-

1. Lowered Costs

By integrating suppliers and applying technology, organizations can lower operating

costs by responding more dynamically to customer needs. For example, managing
based on demand keeps organizations from over-producing, which not only reduces
labor and raw materials costs, but also cuts down on inventory management costs and
transportation costs.

2. Increased Revenue

When organizations use technology to stay closer to customer demand and respond
more quickly (as in the Walmart example keeping shelves stocked), it’s more likely
products remain available for customers to purchase. When manufacturing is
streamlined to produce just enough, labor and materials can be devoted to developing
new items to offer the customer and expand the product mix. Outside the product
realm, this may mean offering additional services customers.

3. Asset Utilization

With effective supply chain management, organizations can use capitol assets, like
production or transportation equipment, most effectively. Rather than adding wear and
tear to manufacturing equipment needlessly, businesses can produce to the need.

Supply chain management allows organizations to deliver more quickly, ensure

products are available, reduce quality issues, and navigate returns with ease,
ultimately improving value, both within the organization and for the customers.

5 Parts of SCM

The supply chain manager tries to minimize shortages and keep costs down. The job
is not only about logistics and purchasing inventory. According to Salary.com, supply
chain managers “oversee and manage overall supply chain and logistic operations to
maximize efficiency and minimize the cost of organization's supply chain."

Features of Supply Chain Mangement

Management of Inventory
Supply chain management focuses on maintaining an optimum inventory always in
organisation. It keeps records and tracks supply of raw materials, spare parts and
finished goods. Management of supply chain ensures that all inventories are available
in right quantity at right time. It frames proper strategies for procuring and
maintaining all inventories as per requirements. Supply chain management avoids any
situations like understocking or overstocking.

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Processing Customer Requirements
Supply chain management accelerates the production processes of organisation. It
monitors all activities starting from purchase of raw materials for producing goods till
final delivery. It ensures that all sales order are timely completed and handed to
logistic team for delivering them on time. All this is done by creating and tracking
orders of purchase, scheduling of suppliers deliveries, and also developing product
and price configurations.

Forecasting of Demand
Anticipation of customer demands is necessary for every business. It can help them in
fulfilling customers need efficiently and timely. All production activities are initiated
in accordance with demand which helps in avoiding wastages. Through proper
anticipation, business does not need to invest money in unnecessary raw materials and
hold on excess finished goods. All goods are produced in accordance with
requirements of customers thereby improving their confidence.

Supplier Relationship Management

Maintaining of better relations with suppliers is crucial for uninterrupted continuity of
business. Supply chain management helps in properly managing all interactions with
suppliers. It develops a proper network between suppliers and business through which
they can easily interact. Proper supply chain enables timely procurement of all
required raw materials from suppliers. Supply chain management solutions provides
self-service portal through which suppliers can contact company in case of any issues
or problems.

Managing Logistics And Shipping

Supply chain management helps in enhancing the delivery performance of business. It
ensures that products are delivered faster and timely to all customers. It coordinates
well with all transportation channels and warehouses. By supply chain management,
companies can faster their delivery process and provide on-time delivery. This will
help in improving the satisfaction of customers.

Return Management
Proper handling and inspection of damaged or defective goods is another important
function of supply chain management. It accelerates the return mechanism through
automated process on both buy and sell side of business. Businesses are able to faster
initiate the process of refund or claims with distributors, suppliers and insurance
companies.

In SCM, the supply chain manager coordinates the logistics of all aspects of the
supply chain which consists of the following five parts.

Planning
To get the best results from SCM, the process usually begins with planning to match
supply with customer and manufacturing demands. Firms must predict what their
future needs will be and act accordingly. This relates to raw materials needed during

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each stage of manufacturing, equipment capacity and limitations, and staffing needs
along the SCM process. Large entities often rely on ERP system modules to
aggregate information and compile plans.

Sourcing
Efficient SCM processes rely very heavily on strong relationships with suppliers.
Sourcing entails working with vendors to supply the raw materials needed throughout
the manufacturing process. A company may be able to plan and work with a supplier
to source goods in advance. However, different industries will have different
sourcing requirements. In general, SCM sourcing includes ensuring:

 the raw materials meet the manufacturing specification needed for the
production of goods.
 the prices paid for the goods are in line with market expectations.
 the vendor has the flexibility to deliver emergency materials due to unforeseen
events.
 the vendor has a proven record of delivering goods on time and in good
quality.

Supply chain management is especially critical when manufacturers are working with
perishable goods. When sourcing goods, firms should be mindful of lead time and
how well a supplier can comply with those needs.

Manufacturing
At the heart of the supply chain management process, the company transforms raw
materials by using machinery, labor, or other external forces to make something new.
This final product is the ultimate goal of the manufacturing process, though it is not
the final stage of supply chain management.

The manufacturing process may be further divided into sub-tasks such as assembly,
testing, inspection, or packaging. During the manufacturing process, a firm must be
mindful of waste or other controllable factors that may cause deviations from original
plans. For example, if a company is using rawer materials than planned and sourced
for due to a lack of employee training, the firm must rectify the issue or revisit the
earlier stages in SCM.

Delivering
Once products are made and sales are finalized, a company must get the products into
the hands of its customers. The distribution process is often seen as a brand image
contributor, as up until this point, the customer has not yet interacted with the
product. In strong SCM processes, a company has robust logistic capabilities and
delivery channels to ensure timely, safe, and inexpensive delivery of products.

This includes having a backup or diversified distribution methods should one method
of transportation temporarily be unusable. For example, how might a company's
delivery process be impacted by record snowfall in distribution centre areas?

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Returning
The supply chain management process concludes with support for the product and
customer returns. It’s bad enough that a customer needs to return a product, and it’s
even worse if its due to an error on the company's part. This return process is often
called reverse logistics, and the company must ensure it has the capabilities to receive
returned products and correctly assign refunds for returns received. Whether a
company is performing a product recall or a customer is simply not satisfied with the
product, the transaction with the customer must be remedied.

Many consider customer returns as an interaction between the customer and the
company. However, a very important part of customer returns is the intercompany
communication to identify defective products, expired products, or non-conforming
goods. Without addressing the underlying cause of a customer return, the supply
chain management process will have failed, and future returns will likely persist.

Benefits of supply chain management

Supply chain management creates a number of benefits that translate to higher profits,
better brand image and greater competitive advantage. These include the following:

 better ability to predict and meet customer demand;

 better supply chain visibility, risk management and predictive capabilities;

 fewer process inefficiencies and less product waste;

 improvements in quality;

 increased sustainability, both from a societal and an environmental standpoint;

 lower overhead;

 improvements in cash flow; and

 more efficient logistics.

Supply chain management is the management of these three flows:

1. Material (Product) Flow

2. Information Flow

3. Financial Flow

 Material (Product) flow:

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This is the flow of the physical product from the supplier to the customer.

This flow is usually uni-directional, that is, it only flows in one direction from
supplier to the customer; however, in certain instances, when the customer returns the
product, the flow occasionally goes in the other direction.

A typical flow of materials usually begins with the raw materials suppliers to
manufacturers to warehouses and distribution to the final customer.

 Information flow

This is the flow of information from supplier to customer and from customer back to
supplier. This flow is bi-directional, that is, it goes both in directions in the supply
chain.

The types of information that flows between customers and suppliers are quotations,
purchase orders, delivery status, invoices and,customer complaints. In order to have a
successful supply chain, you must have a constant interaction between supplier and
Customer.

 Financial flow

Financial flow involves the movement of money from the customer to the supplier.
When the customer receives the product and verifies it, the customer pays and the
money travels back to the supplier. Sometimes the finances flow in the other direction
(from supplier to customer) in form of debit.

Finally, For an efficient and effective supply chain, it is important that all three flows
are managed properly with minimal effort.

By understanding your supply chain and how products,information, and money flows
through it ,then you will be in a good position to find several inefficiencies and figure
out how to significantly improve your business.

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 UNIT-3
Recent Issues in Supply Chain Management

A supply chain refers to the entire process of manufacturing and selling goods.
Ranging from the supply of raw materials and using them to manufacture products to
the distribution and sale to consumers. It is a network of companies, counting
suppliers, manufacturers, shippers, distributors, and retailers. Moreover, these all are
working together to make stuff like logistics, inventory management, transportation,
and so forth go as smoothly as possible.
Globally, supply chains have faced headwinds from unforeseen demand and limited
logistics capacity. The key challenges faced in supply chain management include:
• Rising risks in the supply chain
Risks in the supply chain primarily arise from volatility in the markets. Changing
consumer demand, trade wars, raw material shortages, climate change, stricter
environmental regulations, economic uncertainties and policy changes, industrial
unrest, etc., contribute to supply chain management risks and challenges.
• Unexpected delays
Global supply chains inevitably involve large distances and many steps, making them
vulnerable to delays. Long lead times for goods make the shipments susceptible to
unexpected delays.
• Cost control
Costs of raw materials, energy, freight, and labor have seen a spike around the globe.
To ensure operations without production interruptions and continued delivery of
quality goods at reasonable rates - businesses must tighten cost control.
• Collaboration and syncing of data across the supply chain
Access to supply chain data is key to the efficient management of supply chains. Due
to the multitude of data points in global supply chains, data management is a key
challenge in supply chain management.
• Increasing freight prices
The rise in energy prices and the increased demand for container shipping have
pushed freight prices. Container shipping demand experienced an increase from the e-
commerce surge seen during the pandemic.
• Difficult demand forecasting
The pandemic and the consequent supply chain disruption made demand forecasting
difficult and nearly impossible to estimate numbers for manufacturing and the
inventory to be stocked.
• Digital transformation
Digital transformation through adopting technologies such as IoT, AI, drones and
robotics is necessary to improve supply chain operations. However, the major
challenge of supply chain management lies in implementing these technologies across
existing supply chain operations.

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• Port congestion
The pandemic led to restricted freight loading/unloading operations, causing port
congestion. This, in turn, led to delayed dispatches and deliveries.
Supply chain challenges in the recent past have compelled businesses of all sizes to
redesign their operational strategies to maintain healthy bottom lines and retain their
customer base.
The critical challenges that global supply chains must contend with include:
 Navigating an environment of persistent unpredictability
 Labor shortages
 Ripple effects of global bottlenecks
 Equipment availability

Role of IT in SCM

A supply chain refers to the entire process of manufacturing and selling goods.
Ranging from the supply of raw materials and using them to manufacture products to
the distribution and sale to consumers. It is a network of companies, counting
suppliers, manufacturers, shippers, distributors, and retailers. Moreover, these all are
working together to make stuff like logistics, inventory management, transportation,
and so forth go as smoothly as possible

It is leaving a mark everywhere. No wonder each aspect of a business is now under its
command! The role of IT in SCM is emphasized in the following.

1. Integrated and Coordinated Supply Chain

A supply chain can work efficiently when it is properly integrated and well-
coordinated. IT is performing this important task by bringing in multiple technologies
and combining them to optimize the supply chain. These technologies are making data
collection possible and much easier and more accurate. Ultimately, this is allowing
precise and detailed data analysis leading to sound business decisions.

2. Increased Productivity

A smooth flow of information, new technologies, and effective communication

increases the productivity of all entities in the supply chain. It is like an initiation for
product movement. Additionally, IT is building the link that passes the needed
information continuously.

3. Cost Reduction

It permits the optimum utilization of assets and resources. Previous data is used to
study the trends. And technology is used to analyze it for refining performance. When
resources are being used optimally, they result in cost reduction.

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The role of IT in SCM becomes more prominent as it motivates all parties to use their
respective resources in the most cost-efficient approach. When IT is used as it should
be, there is a dramatic decrease in overall expenses.

4. Product Improvement

Furthermore, IT is consisting of tools and applications which can be used to attain

early awareness. In a market where customers always want something new, the
product will either have to evolve or else it will go out of demand. Therefore, to
remain in business, you must present product improvement and innovation sooner
rather than later.

5. Supply Chain Visibility

Consequently, information builds the whole supply chain visible to supply chain
managers. How the information flows from one collaborator to the other and the effect
it has on others is used by the managers in creating strategic decisions.

CRM v/s SCM

What is a CRM?
Customer relationship management, or CRM software, is a type of software used by
businesses to manage their customers. Companies use CRM software to keep track of
all the interactions they have with their customers. This includes how people find out
about their business, how often they buy from them, and what types of marketing
materials work best for them.

CRMs also help businesses organize information about their current and past
customers so that salespeople can better target potential buyers based on what kind of
information they have on each person.

What is an SCM
The supply chain management system (SCM) is a software application that helps
businesses maintain their supply chain processes. The SCM allows a company to track
the movement of raw materials, finished goods, and other materials from suppliers to
customers. It’s important for businesses to have an effective method of tracking their
supply chains because it allows them to improve efficiency and cut costs.

Supply chain management (SCM) is the process of managing the flow of goods and
services from a supplier to a customer. Supply chain software is used to manage this
flow, and it can help you plan your supply chain, manage inventory, and track
shipments.

For example: If you’re an online retailer that needs to order 2,000 units of product A
for delivery on Monday morning at 10 am, SCM software would enable you to see
which suppliers have those items in stock so that you can get them delivered on time.

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Benchmarking

Benchmarking is defined “as the continuous, systematic process of measuring

ones output and/or work processes against the toughest competitors or those
recognized best in the industry.”

A “benchmark” is a reference or measurement standard used for comparison.

In simple words, benchmarking is an approach of setting goals and measuring
productivity based on best industry practices.
Example – A customer support engineer of LG (a television manufacturing
company) attends a call within forty-eight hours. If the industry norm is that all
calls are attended within twenty-four hours, then the twenty-four hours can be a
benchmark.
Key reasons for benchmarking are as follows:

1. Defining Customer Requirements:

It is not based on history or gut feeling, perception and low fit but on the basis of
market reality, objective evaluation and high conformance.

2. Establishing Effective Goals and Objectives:

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It is not on the basis of lacking external focus, reactive response, and lagging
industry but on the basis of credibility, inarguable, proactive and leading industry
goals and objectives.

3. Developing True Measures of Productivity:

Without benchmarking this may be done by pursuing pet projects, strengths and
weaknesses not understood on-route of least resistance. But with benchmarking
this is carried out by solving real problems and understanding outputs of each
decision based on the best industry practices.

4. Becoming Competitive:

This is not carried out on internally focused, evolutionary change, and low
commitment. But it is done on the basis of concrete understanding of competition,
new ideas of proven practices, technology and high commitment.

5. Industry Best Practices to be Achieved:

This is also not done on methods not invented here, few solutions, average of
industry progress and frantic catch up activity. But it is done on the basis of
proactive search for change, many options, business practice breakthrough and
superior performance.

Features of Benchmarking:

Benchmarking has various features that contribute a lot overall to the organization in

terms of growth, development of new divisions, new technology adaptations and

many more.

Here are the few features of benchmarking which makes it a successful method.

1. Good impact on customer’s needs:

Feedback is always important for any organization. By using various benchmarking
methods, the organization gains good customer feedback.
This is because it helps to improvise the needs of the customer, meet the quality
level expectancy and better delivery speed.

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2. Helps in raising company standards:
Benchmarking contributes to raising the company standards by comparing it with
various performers in the market.
For example, by the process of benchmarking the organization might be able to raise
the overall standard of the equipment used in production, etc.

3. Betterment in learning methodologies:

Benchmarking works towards the improvement in various learning methodologies
adopted by the organization. It helps the organization to learn new methods, adopt
new ideas, and new work model, etc.

4. Get inspirations from the pioneers:

Benchmarking gives inspiration from various pioneers of the market.
For example, it the various inspirational stories of the leaders in the market and
encourages the employees to do bigger innovations.

5. Strengthening the weakness:

When something is not appropriate or up to the mark, benchmarking helps the
organization to recover from the mistake that happened by throwing some light on the
areas which have to be altered, and new ideas to improve the losses occurred.

6. Enhances the learning experience:

Benchmarking gathers information about the educational standards of the other
organizations and new learning techniques followed.
By this, it motivates the employees of the organization to get a better education.

7. Keeps in pace with new technology:

Benchmarking helps the organization to adopt new technologies which is prevailing in

the market and which is successfully adopted by many organizations.

8. Strives for the organization’s force on success:

Benchmarking helps the organization to stay focused on the overall well being of the
organization by displaying the various market demands, customer expectations and
the net profit gained by other organizations.

By this, it will make the employees force externally and not only about the internal
factors.

9. Works for employees career growth:

Benchmarking not only does welfare for the organizational growth but also
encourages employees career growth by supporting and encouraging them in bringing

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better outputs, and also helping them in eradicating the mistakes committed by them
in their previous product developments.

Benchmarking Implementation :-

(1) Planning
Prior to engaging in benchmarking, it is imperative that corporate stakeholders
identify the activities that need to be benchmarked.
For instance, the processes that merit such consideration would generally be core
activities that have the potential to give the business in question a competitive edge.
Such processes would generally command a high cost, volume or value. For the
optimal results of benchmarking to be reaped, the inputs and outputs need to be
redefined; the activities chosen should be measurable and thereby easily comparable,
and thus the benchmarking metrics needs to be arrived at.
(2) Collection of Information
Information can be broadly classified under the sub texts of primary data and
secondary data.
To clarify further, here, primary data refers to collection of data directly from the
benchmarked company/companies itself, while secondary data refers to information
garnered from the press, publications or websites.
Exploratory research, market research, quantitative research, informal conversations,
interviews and questionnaires, are still, some of the most popular methods of
collecting information.
When engaging in primary research, the company that is due to undertake the
benchmarking process needs to redefine its data collection methodology.

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Drafting a questionnaire or a standardized interview format, carrying out primary
research via the telephone, e-mail or in face-to-face interviews, making on-site
observations, and documenting such data in a systematic manner is vital, if the
benchmarking process is to be a success.
(3) Analysis of Data
Once sufficient data is collected, the proper analysis of such information is of
foremost importance.
Data analysis, data presentation (preferably in graphical format, for easy reference),
results projection, classifying the performance gaps in processes, and identifying the
root cause that leads to the creation of such gaps (commonly referred to as enablers),
need to be then carried out.
(4) Implementation
This is the stage in the benchmarking process where it becomes mandatory to walk the
talk. This generally means that far-reaching changes need to be made, so that the
performance gap between the ideal and the actual is narrowed and eliminated
wherever possible.
A formal action plan that promotes change should ideally be formulated keeping the
organization's culture in mind, so that the resistance that usually accompanies change
is minimized.
Ensuring that the management and staff are fully committed to the process and that
sufficient resources are in place to meet facilitate the necessary improvements would
be critical in making the benchmarking process, a success.
(5) Monitoring
As with most projects, in order to reap the maximum benefits of the benchmarking
process, a systematic evaluation should be carried out on a regular basis.
Assimilating the required information, evaluating the progress made, re-iterating the
impact of the changes and making any necessary adjustments, are all part of the
monitoring process.
Outsourcing
Outsourcing is when a company hires a third party to perform their task; in other
words, when a company employs another company to fulfilling its tasks, it is termed
outsourcing.
Reasons for Outsourcing

The most basic answer to ‘why do companies outsource?’ is because outsourcing

benefits the company in some way or the other. Some of the reasons why company
outsource are:

 Growth Opportunities: Often, limited resources limit the growth of a

business. Outsourcing helps overcome such limitations.

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  Temporary Processes: Outsourcing temporary processes helps the business
focus more on core tasks that drives long-term revenues.
 High Costs: There are times when performing a task in-house prove to be
costlier than getting it done somewhere else. In such cases, outsourcing proves
to be a better option.
 Benefit From Other’s Experience: Usually, processes are outsourced to third-
party service providers who provide their expertise to the business after signing
the outsourcing contract.
 Better Focus: By outsourcing, the business shifts its focus to the processes that
matter more.
Outsourcing Advantages

 Reduced Costs: Outsourcing, especially offshoring, helps the company reduce

its costs.
 Better Focus: By making others do the non-core tasks, businesses focus better
on the profit-driving core tasks.
 Increased Efficiency: Outsourcing involves handing the work to the experts.
This results in more efficiency.
 Better Innovation: With more people comes new and innovative ideas.
 Shared Risks: Risks are shared between two parties through a contract.
 Targeted Efforts: Outsourcing also helps in targeted efforts as the tasks are
handed to the experts.
Outsourcing Disadvantages

 Lack Of Control: Since outsourcing companies operate on their own, there’s a

lack of control.
 Communication Problems: Usually, there’s a communication problem when
the two companies operate in different time zones.
 Security Risks: Outsourcing involves the sharing of sensitive information.
Since the other company is an independent body, there’s always a risk of
security.
 Financial Risks: Often, when important tasks are handed to a third-party
service provider, any failure to perform the task or other problem may pose
financial risks to the business.
Value addition in supply Chain management
Value Addition in Supply Chain Management is about processes and activities that
enables products (goods or services) to be more desirable by the customer - it has
nothing to do with price or cost of production.

When you undergo a thorough analysis of supply chain systems (processes and
activities) and you identify those that are not directly linked to ensure customer
satisfaction and you remove such from the system, you are doing Value Addition.

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What is a demand chain?
Definition: A demand chain is that part of the value chain which is responsible for
driving demand. The sales, marketing, and customer service departments of a firm’s
value chain are referred to as the demand chain.

The demand chain along with the supply chain creates the value chain. While the
demand chain focuses on driving consumer demand for a product or service, the
supply chain revolves around manufacturing, shipping, and receiving the product or
service.

The demand chain is the other half of the company’s products and services. It includes
the decision makers who use or purchase the company’s products or services. The
demand chain also includes the technology that the company uses to produce or
deliver its products or services.

Meaning of a Demand Chain

The demand chain is an important part of a company’s overall operations because it is

responsible for generating revenue. If the demand chain is not effective, a company
will have difficulty generating sales and may eventually go out of business.

Demand Chain Management

Demand chain management (DCM) is the process of managing the flow of goods and
services from suppliers to customers. It includes the coordination and integration of all
activities involved in the planning, procurement, production, and delivery of goods
and services.

DCM includes both operational and strategic elements. The operational elements
involve the day-to-day management of demand chains, while the strategic elements
involve long-term planning and decision-making. DCM is a key part of supply chain
management (SCM) and is often used interchangeably with SCM.

A Demand Chain Management System

A demand chain management system (DCMS) is a software application that supports

the planning, execution, and monitoring of demand chains. A DCMS typically
includes a Demand Planning module that forecasts customer demand and translates it
into production plans.

The Production Planning module creates production schedules based on the demand
forecast, while the Inventory Management module tracks inventory levels and
manages stock replenishment.

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The Transportation Management module plans and executes the transportation of
goods between locations, and the Warehouse Management module manages the
storage and retrieval of goods in warehouses.

A DCMS may also include modules for order management, supplier management,
customer relationship management, and analytics.

Pros of using Demand Chain

1. Helps you anticipate and respond to changes in customer demand

2. Allows you to optimize inventory levels and transportation routes
3. Helps you improve quality and reduce costs
4. Can be used to improve all aspects of the Demand Chain

Cons of using Demand Chain

1. Requires a deep understanding of customer needs and preferences

2. Can be difficult to implement without the right tools and resources
3. Requires coordination between all departments and functions involved in the
Demand Chain
4. Can be time-consuming and resource-intensive to manage.

Production Planning Techniques:-

The following are the techniques of production planning and control:
A. Planning

B. Routing

C. Scheduling

D. Despatching

E. Follow-up and Expediting

F. Inspection.

A. Planning:
It is the first element of production planning and control. Planning is given an
important role in every business. A separate department is set up for this work.

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Planning is deciding in advance what is to be done in future. Control devices are also
decided in advance so that all activities are carried on properly. An organizational set
up is created to prepare plans and policies. Various charts, manuals and production
budgets are also prepared. If production planning is defective then control will also be
defective. Planning provides a sound base for control.

B. Routing:
It is determining the exact path or route which will be followed in production. The
stages from which goods are to pass are decided after a proper thought. Routing may
be compared to a train journey for reaching a particular place. If a passenger is to
reach Delhi from Ambala Cantt then he has the option of going via Panipat and via
Saharanpur. Both the routes will take him to Delhi.

The question is— which route will be economical in time and money? The passenger
will decide the route only after taking into consideration various factors affecting his
journey. Similar is the case with production routing. It is the selection of the path from
where each unit have to pass before reaching the final stage. The path must have the
best and cheapest sequence of operations. Some definitions are given to explain
routing in more detail.

Objects of Routing:
The main object of routing is to determine the best and cheapest sequence of
operations to be followed. In case of continuous manufacturing units where
standardized products are produced routing becomes automatic. In case of job order
and batch production every product requires different design and varying sequence of
operations, another object of routing is to help in determining proper tools and
equipment’s and the number of workers required for carrying out the work.

Routing Procedure:
Routing procedure needs a careful analysis.

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The following steps are taken for a routing procedure:
1. Deciding what Part to be made or Purchased:
The product is thoroughly analyzed to find out which parts are required for it. The
second decision is taken regarding the production or purchase of various components.
Some components may be manufactured by the firm and others may be procured from
the market. During slack periods most of the components may be manufactured by the
firm but when industrial activity is at its peak then supplies from outside may be
contracted.

These decisions are taken after considering factors such as:

(a) The relative cost involved;

(b) Purchase policies of the firm;

(c) Technical considerations; and

(d) Availability of equipment and personnel.

2. Determining Materials Required:

The analysis of the product will enable us to know the type of materials required for
producing various components. The right type of quality, quantity, and time when
needed should also be decided in advance.

3. Determining Manufacturing Operations and Sequences:

The manufacturing operations and their sequences can be determined from technical
experience and layout of machines. A sound and economical operation is selected for
manufacturing various components.

4. Determining of Lot Sizes:

A decision has to be taken about the number of units to be produced in one lot. If
production is carried on the basis of orders then size of the lot depends upon the

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quantity ordered plus some units for possible rejections during the process. When
production is done for the stock then lot is decided by considering various economies
which may accrue.

5. Determining of Scrap Factors:

There may be some scrap during the course of manufacture. The finished products are
generally less than the units introduced at the beginning. The scrap during
manufacturing should be anticipated so that routing is facilitated. If products pass
through three processes and a normal scrap is 5% of input at every stage then it will be
easy to anticipate the units entering various processes and arrange equipments and
manpower.

6. Analysis of Cost of the Product:

The determination of cost of products may be the duty of cost department but still
production department makes records of direct materials, labour, direct and indirect
expenses. These estimates are greatly useful to costing department also.

7. Preparation of Production Control Forms:

The carrying out of routing will be facilitated if forms are prepared to collect
information for control purpose. The requirements are: job cards, inspection cards,
move tickets, labour cards, tool tickets, etc.

C. Scheduling:
Scheduling is the determining of time and date when each operation is to be
commenced and completed. It includes the scheduling of materials, machines and all
other requisites of production. A number of components are required to manufacture a
product. The time and date of manufacturing each component is fixed in such a way
that assembling for final product is not delayed in any way.

Scheduling can be compared to a railway time table which informs a passenger about
his journey schedule. This time table shows the time when the train will start from a

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particular place, the time of its arrival at different stations and the time when it will
reach its destination. Scheduling also gives exact information about the time-table of
manufacturing process at all the stages.

Types of Schedules:
Following are the three types of scheduling:
1. Master Scheduling

2. Manufacturing or Operation Scheduling

3. Retail Operation Scheduling.

1. Master Scheduling:
Scheduling starts with the master schedule. This schedule is prepared by keeping in
view the order or likely sales order in near future. Master scheduling is the breakup of
production requirements. This may be prepared for a week, a fortnight, a month etc. If
only one product is manufactured then scheduling is easy but it becomes complex
when more products are required to be produced.

Master schedule has to be adjusted as per the new order received. If plant capacity is
available then new requirements may be adjusted in the same schedule but in case new
orders may not be adjustable at present capacity then either the schedule may be
redrawn or new plant and equipment may be acquired. No definite pattern may be
suggested for master schedules because these may differ from industry to industry or
in the same industry.

However, the following information is provided in them:

(a) The number of personnel available and the projected man hours in various shifts
etc.

(b) The estimated requirements in man-hours per product.

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(c) The requirements of direct materials for the projected production.

(d) The amount of normal overhead expenses required at the projected work-load.

2. Manufacturing or Operation Scheduling:

Manufacturing schedule is used where production process is continuous. When same
product is produced repeatedly or comparatively small number of products are
required then operation schedules are useful. The name and number of the product and
the quantity to be produced in a given time are required to prepare a manufacturing
schedule. If the product to be produced is in a variety of sizes, colours, weights, types
etc. then these things should also be mentioned in the schedule. The order of
preference for the manufacture is also mentioned in the schedule for a systematic
production planning.

3. Detail Operation Scheduling:

It indicated the time required to perform each and every detailed operations of a given
machine or process.

D. Despatching:
The term despatching refers to the process of actually ordering the work to be done. It
involves putting the plan into effect by issuing orders. It is concerned with starting the
process and operation on the basis of route sheets and schedule charts. A practical
shape is given to the production plan. To bring in the analogy of train, despatching
means putting oneself into train when the route to be followed and the train to be
boarded have been selected.

Steps Followed in Dispatching:

The following steps are involved in despatching function:
1. The issuing or moving of materials from stores to first production process or from
process to process.

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2. Assigning of work to machines or work centres.

3. The issuing of required tools and equipment to production departments.

4. Issuing of job orders, authorizing operations in accordance with dates and times as
per route sheet and schedule charts.

5. Issuing of time tickets and instruction cards to the persons involved in the work.

6. Recording of time taken from starting to completion of each job and also the total
production time.

7. After the completion of work it should be ensured that all drawings, plans and tools
are returned to their correct location of issuing departments.

8. Ensuring necessary changes in scheduling, etc. if changed situations so demand.

9. Having proper liaison with routing and scheduling sections for effective
performance.

Meaning of Routing:
“Routing means determination of the route to be followed by each
part/component being transformed from input/raw material into final product.”
Functions of Routing:
In all engineering industries, the steps in the direction of preparation for
production of a product are more or less the same and occur as follows:
(i) The future product exists only as an idea in the mind of the inventor and he draws
the sketch.

(ii) The possible product is deeply analysed, studied and developed to prepare the
drawings.

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(iii) The next step is preparation of working drawings which may include the parts and
assembly’s drawings.

(iv) Blue prints of the drawings with necessary technical details are prepared.

E. Follow Up and Expediting:

Follow-up and expediting is related to evaluation and appraisal of work performed.
This is an important function of production control. If goods are to be produced as per
the plans, then a proper follow-up of work is essential to see whether production
schedule is properly adhered to or not.

In case there are any bottlenecks then these must be removed in time. In the words of
Bather and his associates, “follow up or expediting is that branch of production
control procedure which regulates the progress of materials and part through the
production process.” Follow up procedure. Progress may be assessed with the help of
routine reports or communication with operating departments.

The following procedure is used for expediting and checking the progress:
(i) The progress should be checked continuously.

(ii) In case there are deviations between planned and actual work then the causes for
these differences should be ascertained.

(iii) Helping in removing the causes of deviations.

(iv) Having a report with departments supplying materials and equipment to

production centres.

F. Inspection:
Inspection is also an important function of control. The purpose of inspection is to see
whether the products manufactured are of requisite quality or not. It is carried on at
various levels of production process so that pre-determined standards of quality are

53
achieved. In case the products are not of proper quality then immediate steps are taken
to correct the things. If inspection is not regularly undertaken, then there may be a
possibility of more rejections.

Routing

Routing lays down the flow of work in the plant. It determines what work is to be
done and where and how it will be done. Taking from raw material to the finished
product, routing decides the path and sequence of operations to be performed on the
job from one machine to another.

Routing determines the path raw materials flow within the factory. Using the
sequence, raw materials are transformed into finished goods.
Coordinating every production process and scheduling every step is important to
measure the production process duration. Routing shows the quantity and quality of
materials and resources needed. It also shows the operations used and the place of
production.
Routing manages the “How”, “What”, “How much”, and “Where” of production. It
systematizes the process and optimizes resources for the best results.

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Line of Balance (LOB) is a management control process for collecting, measuring,
and presenting facts relating to time (see Schedule Control), cost, and accomplishment
– all measured against a specific plan. It shows the process, status, background,
timing, and phasing of the project activities, thus providing management with
measuring tools that help:
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1. Comparing actual progress with a formal objective plan.
2. Examining only the deviations from established plans and gauging their degree
of severity with respect to the remainder of the project.
3. Receiving timely information concerning trouble areas and indicating areas
where appropriate corrective action is required.
4. Forecasting future performance.
Purpose of Line of Balance (LOB)

The purpose of a LOB is to enable a program manager to see at a single glance which
activities of an operation are “in balance” – i.e., whether those which should have
been completed at the time of the review actually are completed and whether any
activities scheduled for future completion are lagging behind schedule. The LOB chart
comprises only one feature of the whole philosophy: numerous danger signal controls
for all the various levels of management.

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 Benefits of Utilizing Line of Balance (LOB)

The benefits of using the LOB technique are:

 A better understanding of the amount of work taking place at a certain time in a

specific place.
 Optimized resources for a large number of repeated work activities.
 Allows easier cost and time optimization analysis.
 Easy to modify, update and change the schedule.
 Better management of subcontractors and resources.
 Identifies issues in advance.

Scheduling

Scheduling can be defined as “prescribing of when and where each operation

necessary to manufacture the product is to be performed.” It is also defined as
“establishing of times at which to begin and complete each event or operation
comprising a procedure”. The principle aim of scheduling is to plan the sequence of
work so that production can be systematically arranged towards the end of completion
of all products by due date.

Principles of Scheduling
1. The principle of optimum task size: Scheduling tends to achieve maximum
efficiency when the task sizes are small, and all tasks of same order of magnitude.
2. Principle of optimum production plan: The planning should be such that it
imposes an equal load on all plants.
3. Principle of optimum sequence: Scheduling tends to achieve the maximum
efficiency when the work is planned so that work hours are normally used in the
same sequence.
Types of Scheduling in Production Planning and Control

1) Master Production Scheduling

Master Production Scheduling (MPS) is a scheduling strategy that dictates when and
how much of each product is going to be produced based on criteria such as demand,
capacity, and inventory availability.

This type of scheduling focuses on a planning horizon that is divided into equal time
period (called ‘time buckets’). It includes a plan for the production of certain products
and defines resources, staffing, inventory, etc required for the allotted time period.

MPS aids in decision making by generating a set of output data based on inputs such
as:

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 1. Forecasted demand
2. Production costs
3. Inventory costs
4. Customer needs
5. Production lead time
6. Capacity

The resulting output information includes:

1. The amounts to produce

2.Staffing requirements
3.Quantity of products Available to Promise
4.Projected available funds for production

It also sets the expectations of the revenue that the business is likely to generate.
These outputs can then be used to create a Material Requirements Planning (MRP)
schedule.

2) Manufacturing and Operation Scheduling

Manufacturing Scheduling (also called ‘Detailed Scheduling’ or ‘Production

Scheduling’) focuses on a shorter horizon than MPS.

This type of scheduling fixes a time and a date to each operation in a continuous
timeline rather than in time buckets. Each process can then be visualized in terms of
its start time and completion time-frame. The subsequent stages of production
planning and control depend on this timeline.

Scheduling looks to optimize the use of time in each step of the production process,
from raw or intermediate materials to the delivery of the finished good to the
customer.

The goal is to maximize throughput (output) and on-time delivery within the
constraints of equipment, labor, storage, and inventory capacity. This usually involves
maximizing the utilization of critical bottleneck resources by:

1. Minimizing changeovers
2. Minimizing cleanout intervals
3. Avoiding material starvation

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 UNIT-4
Inventory Management

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:

Objectives of Inventory management

 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.

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  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.

the main factors that can affect inventory processes.

1. Financial Factors
Getting financials right is important, as every step of the process involves a
great deal of financial risk.

By planning the spending of each inventory management task such as item

ordering, tax costs associated with stocks, transportation, storage, etc.
strategically you’ll be able to handle your inventory management process
smoothly reducing major cash flow problems.

2. Consumer Demand
Consumer demand is important for inventory management, too, as our main
goal is to have satisfied customers. Imagine, customers buy a huge amount of
toothpaste, but minimal amount of toothbrush. It means that, in case of
stocking equal amounts of both, will bring to a shortage of toothpaste, excess
inventory of toothbrush, or both. To avoid negative financial effects on your
59
business – you have to track customer demands and product s ales, and order
inventory accordingly.
3. Suppliers
Partnering with the right suppliers is crucial, as suppliers are one of the most
influential factors, affecting inventory management. Managing supply chains
can be difficult for business, particularly if you cannot rely on suppliers to
meet deadlines and deliver quality products.

The following questions are important if you want to choose the right
suppliers.

 Should You Partner with Multiple Suppliers?

It is often said that placing all your eggs in one bas ket can be risky, which is
something to consider in making a decision between single and multiple
supplier sourcing. If something happens to your supplier, whether it be
financial insolvency, a physical setback (such as a fire in the supplier’s main
warehouse), or just a period of poor material-availability, you will find
yourself unable to keep your promises to your customers.

Whereas, there are benefits in working with two or more suppliers. For
instance:

1. If a competitor buys one of your suppliers , or ru ns into financial or

business difficulties, you have at least one another supplier to fall back on.
2. Demand fluctuations can be more manageable if you have a choice of
suppliers with whom to adjust order volumes.
3. Having two or more suppliers will increase your company’s ability to
circumvent supply disruptions.
 Should You Focus On Price?
Although price is not a major factor affecting inventory management, it is a
key consideration for most businesses. As a growing business, lower
procurement costs allow you to invest more money elsewhere within your
business. Identifying a supplier who is able to offer a special price is
therefore of significant benefit to many businesses.

4. Product Type
Inventory management must take into account the different types of prod ucts
in stock. For example, some products may be unstable and therefore have a
shorter shelf life than others. In this case inventory must be managed to
ensure that these items are rotated in line with expiration dates.

5. Managing tools and technology

Another factor affecting inventory management is technology. Modern
technology can save both time and money as well as improve the efficiency of
inventory management processes. With the right managing tools you’ll be

60
able to streamline your inventory management process further. Tools like
barcode scanners, label printers, mobile computers, etc. along with a good
inventory management software can double or even triple the speed of your
inventory processes. Also, the new technologies will help you to implement
counting, recounting, receiving, picking and other processes more efficiently.
6. Lead Time
Lead time in inventory management is the lapse in time between when an
order is placed to replenish inventory and when the order is received. It
directly affects your total inventory levels. The longer your lead time the
more stock you will need to hold in your inventory. Longer lead times makes
deliveries more unpredictable and forces a company to rely heavily on
demand forecasts to make orders.

The 5 step inventory management process

Before being able to optimise your inventory management process it's important to
ensure you have the basic steps covered. Below we've broken down five essential
steps required for any inventory management process:

1. Receive and inspect products

The first step in the inventory management process includes receiving your order from
the supplier. Getting this part right is crucial for the following steps to function as
efficiently as possible. The first thing that should be done after the order arrives it to
inspect the products. It's important to check that the quantity product code and serial
code are all correct. You should also ensure handling conditions such as temperature
are accurate for perishables and that all products are in good condition.

2. Sort and stock products

After inspecting the products, they must be properly stored in the warehouse and
inputted into your leave management system. At this stage it is a good idea to be
strategic about how products are stored. Warehouse slotting techniques such as
organising products based on SKU and product type can be beneficial. It is also
important to minimise the distance to bestselling products by storing them where they
are most accessible.

3. Accept customer order

The next step in the inventory management process involves accepting customer
orders. The orders will typically go through a point of sale system (POS) which
processes the orders and accepts payments. The POS system will either have a built-in
inventory management feature or be integrated with an inventory management
software that will enable the order details to be viewed by the warehouse staff.

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4. Fulfil package and ship order
Once a customer has placed an order the next step is to accurately and expediently
fulfil package and ship the order. If the second step in the process was optimised
searching for and selecting the products in the warehouse should be relatively
straightforward. Some important aspects to consider when packaging the product are
the customer experience durability and sustainability. When shipping the product be
sure to send the customer a confirmation email with tracking information.

5. Reorder new stock

When reordering new stock it is crucial to ensure the timing of new orders and amount
of goods are correct. By leveraging the reorder point formula you can minimise the
risk of both stockouts and deadstock - two problems that negatively impact your
bottom line. Certain inventory management systems automate the process of
reordering which saves time and prevents any mistakes from human error.

Inventory Control Techniques

Inventory control involves various techniques for monitoring how stocks move in a
warehouse. Four popular inventory control methods include ABC analysis; Last In,
First Out (LIFO) and First In, First Out (FIFO); batch tracking; and safety stock.
This section explains how each of these methods functions and how they can support
your business.

Inventory Control Techniques

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 ABC Analysis
ABC analysis in inventory control classifies stocks based on their importance, price,
and sales volume. These criteria determine the number of items a company will bring
to the market.

Just as its name suggests, it consists of the following categories:

 A class – expensive, high-class items with tight controls and small inventories
 B class – average-priced, mid-priority items with medium sales volume and stocks
 C class – low-value, low-cost items with high sales and huge inventories
Applying the ABC analysis of inventory control allows businesses to minimize the
costs of carrying products while maximizing their stock returns.

LIFO and FIFO

Both inventory control techniques organize how inventory items move in and out of
the warehouse based on their arrival date. Priority will depend on the type of products
available in the storage facility.

Using the LIFO method, the warehouse puts out the most recent batch of items to the
customers first. Doing so prevents products from going bad when delivered to the
market.
But with the FIFO technique, the warehouse prioritizes older stocks for processing
and shipping. This way, they can keep the products fresh when the customer receives
them.
Batch Tracking
Batch tracking is also a great way of organizing stock items in a warehouse facility. In
this method, goods of the same production date and materials are grouped together.
Doing this helps warehouse managers keep track of the following information:

 Where the items come from

 Where the goods are heading
 When the items might expire
Safety Stock
Safety stock involves having an additional set of goods on hand as a preventive
measure for the market’s volatility. The amount should be over the average demand or
use of the product.

It acts as a safety net, should customer demand go above the projected amount. It also
covers them for any uncertainty in supply performance, such as shipping delays.

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 Benefits of Inventory Management
The two main benefits of inventory management are that it ensures you’re able to
fulfill incoming or open orders and raises profits. Inventory management also:

 Saves Money:
Understanding stock trends means you see how much of and where you have
something in stock so you’re better able to use the stock you have. This also allows
you to keep less stock at each location (store, warehouse), as you’re able to pull from
anywhere to fulfill orders — all of this decreases costs tied up in inventory and
decreases the amount of stock that goes unsold before it’s obsolete.

 Improves Cash Flow:

With proper inventory management, you spend money on inventory that sells, so cash
is always moving through the business.

 Satisfies Customers:
One element of developing loyal customers is ensuring they receive the items they
want without waiting.

Inventory Management Challenges

The primary challenges of inventory management are having too much inventory and
not being able to sell it, not having enough inventory to fulfill orders, and not
understanding what items you have in inventory and where they’re located. Other
obstacles include:

 Getting Accurate Stock Details:

If you don’t have accurate stock details,there’s no way to know when to refill stock or
which stock moves well.

 Poor Processes:
Outdated or manual processes can make work error-prone and slow down operations.

 Changing Customer Demand:

Customer tastes and needs change constantly. If your system can’t track trends, how
will you know when their preferences change and why?

 Using Warehouse Space Well:

Staff wastes time if like products are hard to locate. Mastering inventory management
can help eliminate this challenge.

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EOQ

Economic order quantity (EOQ) refers to a formula used to determine the optimal
quantity of goods to order, minimizing the total cost of storing and maintaining
inventory.

Calculating Economic Order Quantity (EOQ)

Calculating economic order quantity requires some math that might seem complicated
at first, however once you get the variables from your inventory management system,
it’s easy to plug in the numbers and calculate EOQ. When you use a robust ERP, these
calculations may all be handled for you, including order costs like inventory ordering
costs, holding costs and stockout costs.

Three Variables Used to Calculate EOQ

There are several variations of the formula used to calculate EOQ. One popular EOQ
formula is based on these variables, also called inputs:
1. D = Annual Demand in units
2. S = Order cost
3. H = Holding costs (per unit, per year)

Economic Order Quantity (EOQ) Formula

EOQ = √ [2DS/H]
Ordering cost

In any cost accounting system, the total number of annual orders is calculated by
dividing the yearly demand (D) by the quantity per order (Q). Each purchase order has
a fixed cost (S) that is independent of the number of ordered units. Based on this, the
annual ordering cost is then calculated in the following manner:

Ordering cost= DQ x S

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 Holding cost
The holding cost is the direct cost incurred by the inventory financing or the
opportunity cost of holding the inventory stocks. Hence, the holding cost per unit (H)
is calculated as the cost per unit (C) multiplied by the interest rate (i). Here is the
formula:

Holding cost=i x C

The annual holding cost is calculated as the product of the available inventory (at any
time) with the holding cost per unit. Here is the formula:
Annual holding cost= Q2 x H
ABC Analysis
ABC analysis is an inventory management technique that determines the value of
inventory items based on their importance to the business. ABC ranks items on
demand, cost and risk data, and inventory mangers group items into classes based on
those criteria. This helps business leaders understand which products or services are
most critical to the financial success of their organization.

ABC Analysis Benefits

A long list of benefits can result from applying ABC analysis to inventory
management, including:

 Increased Inventory Optimization: The analysis identifies the products that are in
demand. A company can then use its precious warehouse space to adequately stock
those goods and maintain lower stock levels for Class B or C items.
 Improved Inventory Forecasting: Monitoring and collecting data about products
that have high customer demand can increase the accuracy of sales forecasting.

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 Managers can use this information to set inventory levels and prices to increase
overall revenue for the company.
 Better Pricing: A surge in sales for a specific item implies demand is increasing and
a price increase may be reasonable, which improves profitability.
 Informed Supplier Negotiations: Since companies earn 70% to 80% of their revenue
on Class A items, it makes sense to negotiate better terms with suppliers for those
items. If the supplier will not agree to lower costs, try negotiating post-purchase
services, down payment reductions, free shipping or other cost savings.
 Strategic Resource Allocation: ABC analysis is a way to continuously evaluate
resource allocation to ensure that Class A items align with customer demand. When
demand lowers, reclassify the item to make better use of personnel, time and space for
the new Class A products.
 Better Customer Service: Service levels depend on many factors, like quantity sold,
item cost and profit margins. Once you determine the most profitable items, offer
higher service levels for those items.
 Better Product Life Cycle Management: Insights into where a product is in its life
cycle (launch, growth, maturity or decline) are critical for forecasting demand and
stocking inventory levels appropriately.
 Control Over High-Cost Items: Class A inventory is closely tied to a company’s
success. Prioritize monitoring demand and maintaining healthy stock levels, so there’s
always enough of the key products on hand.
VED Analysis:
VED stands for vital, essential and desirable. This analysis relates to the classification
of maintenance spare parts and denotes the essentiality of stocking spares.

The spares are split into three categories in order of importance. From the view-points
of functional utility, the effects of non-availability at the time of requirement or the
operation, process, production, plant or equipment and the urgency of replacement in
case of breakdown.

Therefore, it is necessary to classify the spares in the following categories:

V:
Vital items which render the equipment or the whole line operation in a process totally
and immediately inoperative or unsafe; and if these items go out of stock or are not
readily available, there is loss of production for the whole period.

E:

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Essential items which reduce the equipment’s performance but do not render it
inoperative or unsafe; non-availability of these items may result in temporary loss of
production or dislocation of production work; replacement can be delayed without
affecting the equipment’s performance seriously; temporary repairs are sometimes
possible.

D::
Desirable items which are mostly non-functional and do not affect the performance of
the equipment.

As the common saying goes “Vital Few — trivial many”, the number of vital spares in
a plant or a particular equipment will only be a few while most of the spares will fall
in ‘the desirable and essential’ category.

However, the decision regarding the stock of spares to be maintained will depend not
only on how critical the spares are from the functional point of view (VED analysis)
but also on the annual consumption (user) cost of spares (ABC — analysis) and,
therefore, for control of spare parts both VED and ABC analyses are to be combined.

SDE Analysis:
The criterion for this analysis is the availability of the materials in the market. In
industrial situations where certain materials are scarce (specially in a developing
country like India) this analysis is very useful and gives proper guideline for deciding
the inventory policies.

The characteristics of the three categories – SD and E – are:

S:
Refers to scarce items, items which are in short supply. Usually these are raw
materials, spare parts and imported items.

D:

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Stands for difficult items, items which are not readily available in local markets and
have to be procured from faraway places, or items for which there are a limited
number of suppliers; or items for which quality suppliers are difficult to get.

E:
Refer to items which are easily available in the local markets.

FSN Analysis:
Here the items are classified into fast-moving (F), slow-moving (S) and Non-moving
(N) items on the basis of quantity and rate of consumption. The non-moving items
(usually, not consumed over a period of two years) are of great importance. It is found
that many companies maintain huge stocks of non-moving items blocking quite a lot
of capital.

8 Dimensions of Quality Measurement

There are different dimensions of measuring the quality of goods or services. These
dimensions help to increase the satisfaction of customers.

8 dimensions of the quality measurement of goods or services suggested by David A.

Garvin are the most common in the business realm. They are:

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Performance

This dimension focuses on the primary operating characteristics of products. Such

characteristics may relate to size, model, color, design, structure, and operating
outcomes. For example, Sony TV reaches in color, sound system, picture quality, etc.

Features

It involves specific or extra characteristics of the product as compared to others. Such

features may relate to quality, price, operating cost, or extra service, etc.

For example, the Nano car of TATA Company is the cheapest among the cars, Hyatt
Regency Hotel’s complimentary breakfast facility to customers, etc.

Reliability

This dimension involves the consistent performance of products within a specified

period. There is a minimum probability of defects or breakdown of products within a
specified period. The rate of repair and maintenance of such products is rare.

Suppliers provide a warranty for the repair and maintenance of such products for a
specified period such as the dealer of Honda Motorcycle provides six months’ free
service facility.

Conformance

Conformance involves the degree to which the design and characteristics of products
and services meet the specific standards of the customers. Based on the level of
income and desire, different customers may have different degrees of standards.

For example, middle-class customers of Nepal prefer LG, Samsung, and similar types
of products for electronic products.

Durability

The length of the useful life of products or services is another of important dimension
of measuring quality. Some products provide service for a long period of time whereas
some products become useless within a short period of time.

For example, Japanese cars are more durable as compared to Indian and Chinese cars.

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Serviceability

Courtesy, competence, and easy availability of repair and maintenance services are
other important dimensions. In the service sector, courtesy and competent services to
customers facilitate earning of reputation and prestige in society.

Similarly, in the manufacturing sector, the easy availability of repair and maintenance
services helps to draw the attention of customers. For example, in Nepal, Maruti-
Suzuki cars have easy availability of spare parts and maintenance facilities.

Aesthetics

Aesthetics is a subjective dimension of quality. It involves the looks, taste, feel,

sound, and smell of products or services. It is a matter of personal judgment and a
reflection of individual preference. For example, the flavor texture of Baskin Robbin’s
ice cream.

Perceived Quality

It is concerned with how the customers perceive the product or service. Quality is
conveyed through market standing, brand name, and reputation of the product.

Long-term standing in the market and service to the customers supports earning brand
reputation and prestige in the market. For example, among the cars, the Toyota brand
has distinct perceived qualities.

Juran

Dr. Joseph Juran (1904-2008)

Dr. Joseph Juran was one of the foremost experts in the area of quality. Juran believed
that to achieve quality, you must start with organizational goals, policies, and vision.
Converting organizational goals into results is accomplished through three managerial
processes called the JURAN TRILOGY: Quality Planning, Quality Control, and
Quality Improvement (The Juran Institute, 2016). To learn more about Juran, visit
the Juran Institute.

Quality Planning

“Quality does not happen by accident; it must be planned.” Quality planning is the
structured process of designing products and services to meet new goals and ensure
that customer needs are met.

Quality Planning Steps:

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 1. Establish the project.
2. Identify customers.
3. Discover the customer’s needs.
4. Develop the product.
5. Develop the process.
6. Develop the controls and transfer to Operations.
Quality Control

Quality control is a universal managerial process for conducting operations to provide

stability, to prevent adverse change, and to "maintain the status quo." Quality control
can also be described as "a process for meeting the established goals by evaluating
and comparing actual performance and planned performance and taking action on the
difference."

The quality control process:

1. Choose a control subject.

2. Establish Measurement.
3. Establish Standards of Performance.
4. Measure Actual Performance.
5. Compare to Standards (interpret the difference).
6. Act on the difference.
Quality Improvement

"All improvement takes place project by project." Quality improvement is the process
of creating breakthrough levels of performance by eliminating wastes and defects to
reduce the cost of poor quality.

Steps to Quality Improvement:

1. Prove the need for improvement.

2. Identify the improvement projects.
3. Establish project improvement teams.
4. Provide project teams with resources.

Juran’s Fitness for Use

Quality begins with whom, how, and why customers will use a product; all
improvement activities should be customer-focused. Juran’s fitness for use definition
of quality means the product should be a good price, work well for the customer, be
distributed efficiently from the producer to the customer, and be supported efficiently
by the company. Juran’s four components of product fitness:

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 1. Quality of Design: A successful company conducts market research and
creates satisfied customers by building their needs into the product design. The
quality of design must also consider the intended functions of the product and
the type of conditions in which it will perform. Another consideration affecting
the quality of the design is cost. How much will it cost to make the product?
2. Quality of Conformance: Does the manufacturing process adhere to
specifications? Attention to conformance can be a vital tool and decrease the
cost of manufacturing as it reduces the likelihood of these types of catastrophic
failures.
3. Availability: In the customer's view, availability and reliability are often
synonymous. For example, if a customer attempts to order a laboratory
instrument only to find out that the product is out-of-stock and will be on
backorder for a month, his level of customer satisfaction goes down. Quality,
as it relates to availability, can be a matter of maintaining inventory and
ensuring availability as in the above example, and it can also be an issue of
speedy shipping and have a good distribution infrastructure.
4. Field Service: Field service personnel are, typically, the technicians who
deliver, install, and set up products, providing training to the customer on
proper use and maintenance.

Deming's 14 Points

W. Edwards Deming was educated as electrical engineer, but also did work as a
statistician, professor, author, lecturer, and management consultant. It was this
combination of skills that allowed him to be one of the most influential management
thinkers.

Deming became interested in how statistical analysis could be used to achieve better
quality control in the 1930s. His quality-control methods helped post-World War
II Japan rebuild its devastated economy.

1. Create a constant purpose toward improvement.

 Plan for quality in the long term.
 Resist reacting with short-term solutions.
 Don't just do the same things better – find better things to do.
 Predict and prepare for future challenges, and always have the goal of
getting better.
2. Adopt the new philosophy.
 Embrace quality throughout the organization.
 Put your customers' needs first, rather than react to competitive pressure
– and design products and services to meet those needs.
 Be prepared for a major change in the way business is done. It's about
leading, not simply managing.
 Create your quality vision, and implement it.
3. Stop depending on inspections.

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  Inspections are costly and unreliable – and they don't improve quality,
they merely find a lack of quality.
 Build quality into the process from start to finish.
 Don't just find what you did wrong – eliminate the "wrongs" altogether.
 Use statistical control methods – not physical inspections alone – to
prove that the process is working.
4. Use a single supplier for any one item.
 Quality relies on consistency – the less variation you have in the input,
the less variation you'll have in the output.
 Look at suppliers as your partners in quality. Encourage them to spend
time improving their own quality – they shouldn't compete for your
business based on price alone.
 Analyze the total cost to you, not just the initial cost of the product.
 Use quality statistics to ensure that suppliers meet your quality
standards.
5. Improve constantly and forever.
 Continuously improve your systems and processes. Deming promoted
the Plan-Do-Check-Act approach to process analysis and improvement.
 Emphasize training and education so everyone can do their jobs better.
 Use kaizen as a model to reduce waste and to improve productivity,
effectiveness, and safety.
6. Use training on the job.
 Train for consistency to help reduce variation.
 Build a foundation of common knowledge.
 Allow workers to understand their roles in the "big picture."
 Encourage staff to learn from one another, and provide a culture and
environment for effective teamwork.
7. Implement leadership.
 Expect your supervisors and managers to understand their workers and
the processes they use.
 Don't simply supervise – provide support and resources so that each
staff member can do his or her best. Be a coach instead of a policeman.
 Figure out what each person actually needs to do his or her best.
 Emphasize the importance of participative management and
transformational leadership.
 Find ways to reach full potential, and don't just focus on meeting targets
and quotas.
8. Eliminate fear.
 Allow people to perform at their best by ensuring that they're not afraid
to express ideas or concerns.
 Let everyone know that the goal is to achieve high quality by doing
more things right – and that you're not interested in blaming people
when mistakes happen.
 Make workers feel valued, and encourage them to look for better ways
to do things.

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  Ensure that your leaders are approachable and that they work with teams
to act in the company's best interests.
 Use open and honest communication to remove fear from the
organization.
9. Break down barriers between departments.
 Build the "internal customer" concept – recognize that each department
or function serves other departments that use their output.
 Build a shared vision.
 Use cross-functional teamwork to build understanding and reduce
adversarial relationships.
 Focus on collaboration and consensus instead of compromise.
10. Get rid of unclear slogans.
 Let people know exactly what you want – don't make them guess.
"Excellence in service" is short and memorable, but what does it mean?
How is it achieved? The message is clearer in a slogan like "You can do
better if you try."
 Don't let words and nice-sounding phrases replace effective leadership.
Outline your expectations, and then praise people face-to-face for doing
good work.
11. Eliminate management by objectives.
 Look at how the process is carried out, not just numerical targets.
Deming said that production targets encourage high output and low
quality.
 Provide support and resources so that production levels and quality are
high and achievable.
 Measure the process rather than the people behind the process.

12. Remove barriers to pride of workmanship.

 Allow everyone to take pride in their work without being rated or
compared.
 Treat workers the same, and don't make them compete with other
workers for monetary or other rewards. Over time, the quality system
will naturally raise the level of everyone's work to an equally high level.
13. Implement education and self-improvement.
 Improve the current skills of workers.
 Encourage people to learn new skills to prepare for future changes and
challenges.
 Build skills to make your workforce more adaptable to change, and
better able to find and achieve improvements.
14. Make "transformation" everyone's job.
 Improve your overall organization by having each person take a step
toward quality.
 Analyze each small step, and understand how it fits into the larger
picture.
 Use effective change management principles to introduce the new
philosophy and ideas in Deming's 14 points.
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PDCA Cycle
PDCA stands for Plan-Do-Check-Act. It is an iterative technique or we can say a
process which is generally considered as a cycle acts as a management method for
various business purposes like improvement, controlment and continuation of
processes and products. In more simple words it is a cycle for solving the problems
and improving the processes. Originally it was developed by America Physicist
Walter during 1920s.
This PDCA is also called as Plan–Do–Study–Act (PDSA). But in general it is known
by a number of names like Deming circle/cycle/wheel, control cycle, Stewart Cycle.
They are continuous loop of planning, doing, checking and acting.
PDCA consists four steps which are explained below :

1. PLAN: Identify the problem. Establishes objective and delivers product

according to desired results and also works as per required processes, recognizes
an opportunity and changes plan accordingly.
2. DO: Tests the changes and potential solutions. Carryout the plan. Document
problems and unexpected observations.
3. CHECK: During the check phase, the data and results are evaluated means study
the results. Reviews tests, analyzes result.
4. ACT: Actions are taken from the knowledge gained. The changes are adopted
and the best solution is implemented by running through the cycle again.
Benefits of PDCA cycle:
When PDCA cycle is followed number of benefits we get from it. Some of them are
highlighted below.
 Start of new improvement project
 Works on the Developing some new or improved design of a process, product or
service.
 Defines repetitive work process.
 Helps in planning data collection and analysis in order to verify and prioritize
problem with root causes.

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 Implements changes and recurs mistakes.
 Works always on continuous improvement.
 Increases efficiency and effectiveness
 Continuous process improvement
 Eases decision making by managers easier
 Lowers project management risks
 Prevents waste of time
 Overcomes problems internally with lower cost.
 Requires less instructions
Uses of PDCA:
The plan-do-check-act cycle understands the framework for iterative development.
Which depends on real life experiments. This leads to reduction in waste and
increase in productivity in long run also the continuous loop makes it ideal for new
project implementation.
Quality Circles
Quality Circles can be described as a small group of employees of the same work
area, doing similar work that meets voluntarily and regularly to identify, analyse
and resolve work related problems.
Characteristics of Effective Quality Circles:
1. The atmosphere should be informal, comfortable and relaxed. The members
should feel involved and interested.
2. Everyone should participate.

3. The objectives should be clear to the members.

4. The members should listen to each other.

5. The group should feel comfortable even when there are disagreements.

6. The decisions should generally be taken by a kind of consensus and voting

should be minimum.

7. When an action is required to be taken, clear assignments should be made and

accepted by all the members.

8. The leader should not dominate the group. The main idea should not be as to
who controls but how to get the job done.

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Process of Quality circles

Objectives of Quality Circles:

Some of the broad objectives of the Quality Circle are:

(i) To improve quality, productivity, safety and cost reduction.

(ii) To give chance to the employees to use their wisdom and creativity.

(iii) To encourage team spirit, cohesive culture among different levels and
sections of the employees.

(iv) To promote self and mutual development including leadership quality,

(v) To fulfill the self-esteem and motivational needs of employees.

(vi) To improve the quality of work-life of employees.

Quality Improvement

Quality refers to the degree of excellence of something. The definitions of quality can
vary across industries and it’s typically defined from the perspective of the end user.
Improvements can be characterised as changes that make something faster, easier,
more efficient, more effective, less expensive, safer, or a change that improves end-
user satisfaction.

quality improvement (QI) is the framework used to systematically improve

processes and systems. Just as it sounds, the goal of QI is to continuously look for
ways to improve the quality of your organization’s outputs, which could be products,
services, or outcomes.

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 The Model for Improvement

The Model for Improvement is a framework for implementing the five fundamental
principles of improvement:

1. Knowing why you need to improve

2. Having a feedback mechanism to tell you if the improvement is happening
3. Developing an effective change that will result in improvement
4. Testing a change before attempting to implement
5. Knowing when and how to make the change permanent (implementing the
change)

The Model for Improvement in centered on making small, incremental improvements

over time using the PDSA Cycle, and tracking your progress towards a clearly defined
aim

Benefits of a Quality Improvement Process

A quality improvement process can offer organizations the following benefits:

 Solutions that focus on failures in processes, not flaws in people

 A reliance on objective, data-driven solutions, rather than subjective opinions, to
identify inefficiencies, preventable errors, and inadequate processes
 Improvements that provide better customer service, increased efficiency, greater
safety, and higher revenues
 A localized focus on testing small, incremental improvements that is less risky than a
focus on making changes at one time
 Data collection to monitor improvement efforts, which can provide the basis for
reimbursement and certification programs, particularly in healthcare organizations

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Cost Reduction of Quality
So how can you deliver on that high-quality solution while reducing your total overall
COQ and thereby improving your bottom line? Here’s a look at some strategies:
Focus on Prevention
Like we noted in the COQ model, prevention costs are associated with good quality,
so investing money in this part of your quality management process can be a big
boost. This is accomplished by identifying preventative indicators that demonstrate
where your company is likely to fail both internally and externally, and then taking
this information and learning from it moving forward.
Train Workers on Quality Standards
What are your company’s goals and objectives as it pertains to quality? Define them
and give your workers something to strive toward. Empower your workers with the
information on what to do and how to act in certain situations and if quality isn’t up to
expectations. By investing in training, your workforce can share in your
organization’s goals of improving quality while reducing COQ so it operates better
overall.
Invest in Software that Focuses on Quality
Finally, the right software solution can go a long way toward decreasing the COQ.
The ideal software solution can monitor conditions on the floor in real-time to better
ensure that procedures are followed, workers are supported, and products and
solutions offered are up to quality standards. Software can also support operational
efficiency, increase productivity and ensure process compliance. Capturing this data
and assessing the issues that are commonly faced can go a long way toward helping
improve productivity as well as overall quality, and reduce the number of defects or
issues that a product may face to increase overall customer satisfaction, and reduce
internal and external failure costs.

7QC Tools
7 QC Tools are also known as Seven Basic Quality Tools and Quality Management
Tools. These graphical and statistical tools are used to analyze and solve work-related
problems effectively.
The 7 Quality Tools are widely applied by many industries for product and process
improvements, and to solve critical quality problems.

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1. Check Sheet:- The check sheet is used for collecting, recording, and analyzing the
data. Data collection is an important activity in the problem-solving process as it
provides a basis for further action. Data may be numerical, observations and opinions,
etc.

2. Fishbone diagram is also called as Cause and Effect diagram and Ishikawa
diagram. It helps to Identify all possible potential causes and select the real/best
potential cause which contributes to the problem/effect. The brainstorming technique
is used for potential cause identification.

3. A Histogram is a pictorial representation of a set of data, and the most commonly

used bar graph for showing frequency distributions of data/values. Histogram
frequency distribution chart is widely used in Six Sigma problem solving process.

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4. The Pareto chart helps to Narrow the problem area or prioritize the significant
problems for corrective measures. The pareto principle is based on the 80-20 rule. It
means that 80 percent of the problems/failures are caused by 20 percent of the few
major causes/factors which are often referred to as Vital Few.
And the remaining 20 percent of the problems are caused by 80 percent of many
minor causes which are referred to as Trivial Many. Hence, it gives us information
about Vital few from Trivial many.

5. A Scatter diagram is also known as Correlation Chart, Scatter Plot, and Scatter
Graph. A Scatter graph is used to find out the relationship between two variables. In
other words, it shows the relationship between two sets of numerical data. Scatter
graph shows a Positive or Negative correlation between two variables.
Independent variable data and dependent Variable data are customarily plotted along
the horizontal X-axis and Vertical Y-axis respectively. Independent variable is also
called controlled parameters.

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6.A technique used to analyze and divide a universe of data into homogeneous groups
is called -Strata. Stratification tools are used when the data come from different
sources or conditions, such as data collected from different shifts, machines, people,
days, suppliers and population groups, etc.

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What Is Six Sigma?

Six Sigma is a methodology for process improvement developed by a

scientist at Motorola in the 1980s.

The Five Steps of Six Sigma

The Six Sigma method uses a step-by-step approach called DMAIC, an

acronym that stands for define, measure, analyze, improve, and control.
According to Six Sigma adherents, a business may solve any seemingly
unsolvable problem by following these five steps:

Define
A team of people, led by a Six Sigma expert, chooses a process to focus
on and defines the problem it wishes to solve.

Measure
The team measures the initial performance of the process, creating a
benchmark, and pinpoints a list of inputs that may be hindering
performance.

Analyze
Next the team analyzes the process by isolating each input, or potential
reason for any failures, and testing it as the possible root of the problem.

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 Improve
The team works from there to implement changes that will improve system
performance.

Control
The group adds controls to the process to ensure it does not regress and
become ineffective once again.

Six Sigma Certification and Belt Rankings

Individuals can obtain Six Sigma certification to attest to their

understanding of the process and their skills in implementing it. These
certifications are awarded through a belt system similar to karate training.
The belt levels are:2

 White belt. Individuals with a white belt have received some

instruction in the basics of Six Sigma, but have not yet gone through
any formal training or certification program. This gives them enough
knowledge to become team members.
 Yellow belt. This level can be attained after several training
sessions, and equips participants with the knowledge to lead small
projects and assist managers who hold more advanced belts.
 Green belt. To achieve this level, individuals take a more
comprehensive course that prepares them to become project
leaders.
 Black belt. After reaching the green belt level, participants can
move on to black belt certification, preparing them for leadership
roles in larger and more complex projects.

People with black belts can become masters and champions. Someone
with a master black belt is considered an expert and strong leader with
excellent problem-solving skills. A champion is a lean Six Sigma leader
trained in maximizing profits through the elimination of waste and defects.

WHAT IS TPM?

TPM (Total Productive Maintenance) is a holistic approach to equipment

maintenance that strives to achieve perfect production:

 No Breakdowns

 No Small Stops or Slow Running

 No Defects

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 In addition it values a safe working environment:

 No Accidents

TPM emphasizes proactive and preventative maintenance to maximize

the operational efficiency of equipment. It blurs the distinction between
the roles of production and maintenance by placing a strong emphasis
on empowering operators to help maintain their equipment.

The Eight TPM Pillars

The eight pillars of TPM are mostly focused on proactive and
preventative techniques for improving equipment reliability.

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 What Does Logistics Management?

Logistics management is a supply chain management component that is used to meet

customer demands through the planning, control and implementation of the effective
movement and storage of related information, goods and services from origin to
destination. Logistics management helps companies reduce expenses and enhance
customer service.

Logistics management is a process in the supply chain system that majorly focuses on
moving goods to different locations in order to meet the requirements of the
customers.

Logistics management involves numerous elements, including:

 Selecting appropriate vendors with the ability to provide transportation facilities

 Choosing the most effective routes for transportation
 Discovering the most competent delivery method
 Using software and IT resources to proficiently handle related processes

Types of Logistics

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Since you have known the meaning and definition, now you should also know what
are the types of logistics. Following are the major types of logistics-

 Inbound Logistics
 Outbound Logistics
 Reverse Logistics
 Third-Party Logistics (3PL)
There are many more types apart from these also but the most used ones are these
four.

Inbound Logistics
It is one of the primary types of Logistics. Basically, inbound logistics means
transportation, storage, and the receiving of the incoming resources (such as raw
material or other goods) that you require to manufacture a product.

Moreover, it can be the delivery of goods that you will procure in your inventory.

The below diagram shows the placement of inbound as well as outbound logistics in
an organization. For example- If you are dealing in footwear, then the inbound
logistics in your company will be the rubber for your shoes, the thread to be used for
knitting the shoes, etc.

Outbound Logistics
Outbound logistics is a process of delivering the product to the customer on the
committed time.

Customer satisfaction is the main objective here and the logisticians take care that the
product should reach the customer safely in minimum cost

For example- If you are dealing in footwear, then the outbound logistics in your
company will be the shipping of the final product which are shoes, sandals, slippers
etc to your customers.

Reverse Logistics
Reverse logistics is a process of transporting product from the end customer to the
seller. It includes the collection, inspection, sorting, refurbishing android distribution.

You have undoubtedly faced it at least once that you have ordered a product online
and it did not match your requirements. Then you raise a request for a replacement or
refund regarding the product.

The company picks up that product from your address. So, the process of reaching the
product from your side to the company is reverse logistics.

Third-Party Logistics (3PL)

The third-party logistics are focused only on the transportation of products from one
end to another end and nothing else.
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It doesn’t matter whether it’s a seller to consumer or consumer to the seller. They take
the responsibility of delivering the products two right places at the right time.

It helps the businesses to focus on their primary operations instead of engaging their
time in monitoring the delivery services.

Logistics as a part of SCM: -

Supply Chain Management encompasses, planning, design, control and

implementation of all business processes related to procurement, manufacturing,
distribution and sales order fulfillment functions of a business.

Logistics is the backbone on which Supply Chains are driven. Logistics refers to the
management of the flow of goods and supplies involving information, data and
documentation between two entities or points.

Logistics plays important role in post procurement function of delivery of raw

material from the supplier to the point of production and Finished Goods Supply chain
management from the point of dispatch from factory to the point of delivery to the
customer.

Logistics therefore is an integral component of Supply Chain Management.

Origin of Logistics as a recognized discipline is attributed to military and defense

organizations. Defense departments make use of detailed and extensive planning to
gather supplies and move men and materials to various locations and bases. The
success of any military exercise depends upon the ability of the establishment to be
able to gather information, analyze, assimilate and take appropriate logistical
measures to support their units continuously.

Similarly in any business organization, the successful operations depend upon

visibility and control over the logistics process managed through and with excellent
logistics service provider backbone and network.

Logistics cost
Cost accounting is a very relevant field when it comes to deciding the selling price of
a product and therefore the profit margin.

The cost of producing or delivering a service is known as Cost of Goods Sold or more
popularly, COGS. It does not factor in costs incurred on shipping or other such related
expenses.

What is Logistics Cost?

Logistics cost may be explained as all the costs incurred by an organization in moving
a product. It would include the cost of moving raw materials from the supplier, storing

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them in a warehouse for release at an appropriate time, moving the finished products
to the customer, and all activities associated with these activities.

Components of logistics cost

Transportation
Transportation is the moving of goods between locations. It could be from the supplier
to the buyer, where the buyer could be a distributor or a retailer. It can also be moving
the goods from the distributor or retailer to the customer.

These parties may be located in different countries or they could be within a country.
Typically, transportation cost forms a chunk of any logistics cost.

Warehouse Rent
Warehouse space is much in demand these days. Most goods require to be stored
somewhere during their movement from the manufacturer to the distributor or retailer.
Goods are usually stored and released according to demand.

Staff and Labor

Just like in all other industries, automation and robotics are gaining prominence in the
logistics field too. However, the human element or the human workforce, to a certain
extent, is unavoidable.

Logistics as Revenue Centers

Traditionally, logistics operations were considered cost centres or simply operations
that attracted costs without any profit. However, these days, the logistics industry has
successfully come out of this doldrum, and logistics operations are proving to be high-
grossing cost centres. But, how does it achieve this?

Cost reduction is considered the key factor in increasing the profits of a logistics
organization. Factors such as bulk handling of goods, purchasing the necessary
materials in bulk, consolidation of cargo, and provision of value-added services are
also important here. Let us take a look at some of these.

Selection of Mode of Transport and Carrier

Typically, logistics organizations decide on the mode of transport that is suited to
them as well as the customer. In doing this, they go for a preferred carrier who will
provide them with rate discounts without compromising on the quality of their
services.

Bulk Handling of Cargo

Bulk cargo usually gets bulk discounts from carriers and other operators. To make use
of this situation, logistics organizations often prompt their customers to deal in bulk.

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Customers also benefit from ordering in bulk as they can avail of bulk discounts from
their suppliers.

Packing and labelling materials that may be required are often purchased in bulk by
logistics companies, availing bulk discounts offered by their suppliers.

Consolidation of Cargo
Consolidation is the transportation of several small cargo shipments from a location,
in a single container as Full Container Load (FCL). Besides protecting the cargoes
from damage, it helps to avail of full container load discounts from the carrier or
operator.

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