Sri Vidya Mandir Arts and Science College

(Autonomous)
Katteri – 636 902, Uthangarai, Krishnagiri District, Tamil Nadu
(An Autonomous College Affiliated to Periyar University, Salem)
(Recognized under Status 2(f) & 12(B) of the UGC Act 1956)
(Accredited by NAAC with ‘A’ Grade [3.27/4.00])

Department of Management Studies

Production and Materials Management

(Study Material)

Prepared by
Dr.N.Ramesh Kumar
Assistant Professor
Department of Management Studies

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 1

 Core – VII Course Code: 20UBA4C07
Course Title: Production and Materials Management
UNIT – I
Production Management – Definitions – Functions & Scope – Plant Location – Factors – Plant
Layout Principles – Types – Importance – Routing – Scheduling – Dispatching – Types of
Production System.
UNIT – II
Production Planning & Control – Principles – Elements of PPC-Functions PPC – Plant
Maintenance – Meaning – Types of Maintenance – Fundamentals of Reengineering.
UNIT – III
Materials Management – Meaning, Definition Importance – Functions – Integrated Materials
Management – Advantages – Store Keeping – Meaning – Functions – Store Keeper – Duties –
Responsibilities – Stores Ledge – Bin Card.
UNIT – IV
Management of Materials – Techniques of Materials Planning – Inventory Control – Meaning &
Importance – Tools of Inventory Control – ABC, VED, FSN Analysis – EOQ.
UNIT – V
Purchasing – Procedure – Principles – Purchase Parameters – 8 R’s – Vendor Rating – Vendor
Development – Store Keeping & Materials Handling – Objectives – Functions – Types of
Modern Material Handling Equipment – Just in Time (JIT) – Definition – Process.

Text Books
1. Saravanavel. P & Sumathi. S, Production & Material Management, Margham
Publications, 2011.
2. Gopalakrishnan & Sundaresan, Materials Management, PHI, 2004.

Reference Books
1. R. Paneer Selvam, Production & Material Management, Hall of India, Pvt. Ltd., 2006.
2. Opendra Kachru, Production & Material Management, Excel Books, 2007.
1. K. Aswathappa & K. Shridhara Bhat, Production & Material Management Himalaya
Publishing House, 2010.
3. M.M. Varma, Materials Management, Sultan Chand & Sons, 2012.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 2

 UNIT – I
Production Management – Definitions – Functions & Scope – Plant Location – Factors –
Plant Layout Principles – Types – Importance – Routing – Scheduling – Dispatching –
Types of Production System.

Production Management

Introduction
The very essence of any business is to cater needs of customer by providing services and goods,
and in process create value for customers and solve their problems. Production and operations
management talks about applying business organization and management concepts in creation of
goods and services.
1. Production: Production is a scientific process which involves transformation of raw
material (input) into desired product or service (output) by adding economic value.
Production can broadly categorize into following based on technique:
2. Production through separation: It involves desired output is achieved through
separation or extraction from raw materials. A classic example of separation or extraction
is Oil into various fuel products.
3. Production by modification or improvement: It involves change in chemical and
mechanical parameters of the raw material without altering physical attributes of the raw
material. Annealing process (heating at high temperatures and then cooling), is example
of production by modification or improvement.
4. Production by assembly: Car production and computer are example of production by
assembly.

What is Production Management? Meaning

Production management means planning, organising, directing and controlling of production

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

Production management also deals with decision-making regarding the quality, quantity, cost,
etc., of production. It applies management principles to production.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 3

Production management is a part of business management. It is also called "Production
Function." Production management is slowly being replaced by operations management.

The main objective of production management is to produce goods and services of the right
quality, right quantity, at the right time and at minimum cost. It also tries to improve the
efficiency. An efficient organisation can face competition effectively. Production management
ensures full or optimum utilisation of available production capacity.

Definition: 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 while adhering to other
objectives of the concern, i.e. efficiency, effectiveness, and productivity.

E.S.Buffa defines production management as follows: ‘Production management deals with

decision-making related to production processes so that the resulting goods or services are
produced according to specifications, in the amount and by the schedule demanded and out of
minimum cost’.

Joseph G. Monks defines Operations Management as the process whereby resources, flowing
with in a defined system, are combined and transformed by a controlled manner to add value in
accordance with policies communicated by management.

Objectives of Operations Management

1. Customer Service: The primary objective of operations management, is to utilize the
resources of the organization, to create such products or services that satisfy the needs of
the consumers, by providing “right thing at the right price, place and time”.
2. Resource Utilization: To make the best possible use of the organisation’s resources to
satisfy the wants of the consumers, is another important objective of the operations
management.
In operations management, the formation of goods or services encompasses conversion of
inputs into outputs, wherein different inputs such as capital, labour, material, machinery and
information are combined and used to create output, by using the conversion process. For this
purpose, the organization measures different points in the process and then compares the
same with the set standards, to ascertain whether corrective action is required or not.

Nature and Scope of Operations Management

 Location of Facilities: The most important decision with respect to the operations
management is the selection of location, a huge investment is made by the firm in acquiring
the building, arranging and installing plant and machinery. And if the location is not suitable,
then all of this investment will be called as a sheer wastage of money, time, and efforts.
 Product Design: Product design is all about an in-depth analysis of the customer’s
requirements and giving a proper shape to the idea, which thoroughly fulfils those
requirements. It is a complete process of identification of needs of the consumers to the final
creation of a product which involves designing and marketing, product development, and
introduction of the product to the market.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 4

 Process Design: It is the planning and decision making of the entire workflow for
transforming the raw material into finished goods, It involves decisions regarding the choice
of technology, process flow analysis, process selection, and so forth.
 Plant Layout: As the name signifies, plant layout is the grouping and arrangement of the
personnel, machines, equipment, storage space, and other facilities, which are used in the
production process, to economically produce the desired output, both quality wise and
quantity wise.
 Material Handling: Material Handling is all about holding and treatment of material within
and outside the organisation. It is concerned with the movement of material from one good
own to another, from godowns to machine and from one process to another, along with the
packing and storing of the product.
 Material Management: The part of management which deals with the procurement, use and
control of the raw material, which is required during the process of production. Its aim is to
acquire, transport and store the material in such a way to minimize the related cost. It tends to
find out new sources of supply and develop a good relationship with the suppliers to ensure an
ongoing supply of material.
 Quality Control: Quality Control is the systematic process of keeping an intended level of
quality in the goods and services, in which the organization deals. It attempts to prevent
defects and make corrective actions (if they find any defects during the quality control
process), to ensure that the desired quality is maintained, at reasonable prices.
 Maintenance Management: Machinery, tools and equipment play a crucial role in the
process of production. So, if they are not available at the time of need, due to any reason like
downtime or breakage etc. then the entire process will suffer.

Functions of Production Management

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 5

The components or functions of production management are as follows:
• Selection of Product and Design,
• Selection of Production Process,
• Selecting Right Production Capacity,
• Production Planning,
• Production Control,
• Quality and Cost Control,
• Inventory Control, and
• Maintenance and Replacement of Machines

• Selection of Product and Design: Production management first selects the right product for
production. Then it selects the right design for the product. Care must be taken while
selecting the product and design because the survival and success of the company depend on
it. The product must be selected only after detailed evaluation of all the other alternative
products. After selecting the right product, the right design must be selected. The design must
be according to the customers' requirements. It must give the customers maximum value at
the lowest cost. So, production management must use techniques such as value engineering
and value analysis.
• Selection of Production Process: Production management must select the right production
process. They must decide about the type of technology, machines, material handling system,
etc.
• Selecting Right Production Capacity: Production management must select the right
production capacity to match the demand for the product. This is because more or less
capacity will create problems. The production manager must plan the capacity for both short
and long term's production. He must use break-even analysis for capacity planning.
• Production Planning: Production management includes production planning. Here, the
production manager decides about the routing and scheduling.
 Routing means deciding the path of work and the sequence of operations. The main
objective of routing is to find out the best and most economical sequence of operations to
be followed in the manufacturing process. Routing ensures a smooth flow of work.
 Scheduling means to decide when to start and when to complete a particular production
activity.
• Production Control: Production management also includes production control. The
manager has to monitor and control the production. He has to find out whether the actual
production is done as per plans or not. He has to compare actual production with the plans
and finds out the deviations. He then takes necessary steps to correct these deviations.
• Quality and Cost Control: Production management also includes quality and cost control.
Quality and Cost Control are given a lot of importance in today's competitive world.
Customers all over the world want good-quality products at cheapest prices. To satisfy this
demand of consumers, the production manager must continuously improve the quality of his
products. Along with this, he must also take essential steps to reduce the cost of his products.
• Inventory Control: Production management also includes inventory control. The production
manager must monitor the level of inventories. There must be neither over stocking nor
under stocking of inventories.
•If there is an overstocking, then the working capital will be blocked, and the materials may
be spoiled, wasted or misused.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 6

 •If there is an under stocking, then production will not take place as per schedule, and
deliveries will be affected.
• Maintenance and Replacement of Machines: Production management ensures proper
maintenance and replacement of machines and equipments. The production manager must
have an efficient system for continuous inspection (routine checks), cleaning, oiling,
maintenance and replacement of machines, equipments, spare parts, etc. This prevents
breakdown of machines and avoids production halts.

Plant Location
Plant location refers to the choice of the region where men, materials, money, machinery and
equipment are brought together for setting up a business or factory.
Identifying an ideal location is very crucial, it should always maximize the net advantage, must
minimize the unit cost of production and distribution. Plant location decisions are very important
because once the plant is located at a particular site then the organization has to face the pros and
cons of that initial decision.

Definitions
Some of the renowned definitions on plant Location are given below:
“The function of determining where the plant should be located for maximum operating economy
& effectiveness”-R.C. Davis

“That spot where, in consideration of the business as a whole, the total cost of production &
delivering goods to all the consumers is the lowest.”-Bethel Smiths & Atwater

Factors affecting the plant location

Decisions regarding selecting a location need a balance of several factors.
• Primary factors
• Availability of raw materials: Availability of raw materials is the most important factor
in plant location decisions. Usually, manufacturing units where there is the conversion of
raw materials into finished goods is the main task then such organizations should be
located in a place where the raw materials availability is maximum and cheap.
• Nearness to the market: Nearness of market for the finished goods not only reduces the
transportation costs, but it can render quick services to the customers. If the plant is
located far away from the markets, then the chances of spoiling and breakage become
high during transport. If the industry is nearer to the market, then it can grasp the market
share by offering quick services.
• Availability of labor: Another most important factor which influences the plant location
decisions is the availability of labor. The combination of the adequate number of labors
with suitable skills and reasonable labor wages can highly benefit the firm. However,
labor-intensive firms should select the plant location which is nearer to the source of
manpower.
• Transport facilities: In order to bring the raw materials to the firm or to carrying the
finished goods to the market, transport facilities are very important. Depending on the
size of the finished goods or raw materials a suitable transportation is necessary such as
roads, water, rail, and air. The transportation costs must be kept low.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 7

 • Availability of fuel and power: Unavailability of fuel and power is the major drawback
in selecting a location for firms. Fuel and power are necessary for all most all the
manufacturing units, so locating firms nearer to the coal beds and power industries can
highly reduce the wastage of efforts, money, and time due to the unavailability of fuel
and power.
• Availability of water: Depending on the nature of the plant firms should give
importance to the locations where water is available. For example, power plants that use
water to produce power should be located near the water bodies.
• Secondary factors
• Suitability of climate: Climate is really an influencing factor for industries such as
agriculture, leather, textile, etc. For such industries extreme humid or dry conditions
are not suitable for plant location. Climate can affect the r efficiency and productivity.
• Government policies: While selecting a location for the plant, it is very important to
know the local existed Government policies such as licensing policies, institutional
finance, Government subsidies, Government and benefits associated with establishing
a unit in the urban areas or rural areas, etc.
• Availability of finance: Finance is the most important factor for the smooth running
of any business; it should not be far away from the plant location. However, in the
case of decisions regarding plant location, it is the second asecondant factor because
financial needs can be fulfilled easily if the firm is running smoothly. But it should be
located nearer to the areas to get the working capital and other financial needs easily.
• Competition between states: In order to attract the investment and large-scale
industries various states offer subsidies, benefits, and sales tax exemptions to the new
units. However, the incentives may not be big but it can help the firms during its
startup stages.
• Availability of facilities: Availability of basic facilities such as schools, hospitals,
housing and recreation clubs, etc. can motivate the workers to stick to the jobs. On the
other hand, these facilities must be provided by the organization, but here most of the
employees give preference to work in the locations where all these benefits/facilities
are available outside also. So while selecting plant location, organizations must give
preference to the location where it is suitable for providing other facilities also.
• Disposal of waste: Disposal of waste is a major problem particularly for industries
such as chemical, sugar, and leather, etc. So that the selected plant location should
have provision for the disposal of waste.

Plant Layout: Concept

Plant layout is a plan for effective utilisation of facilities for the manufacture of products;
involving a most efficient and economical arrangement of machines, materials, personnel,
storage space and all supporting services, within available floor space.
Definition of Plant Layout
According to Moore “Plant layout is a plan of optimum arrangement of facilities including
personnel, equipment’s, storage space, material handling equipment and all other supporting
services along with the decision of best structure to contain all these facilities.”
Objectives of Plant Layout
The primary goal of the plant layout is to maximise the profit by arrangement of all the plant
Facilities to the best advantage of total manufacturing of the product.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 8

The objectives of plant layout are:
1. Streamline the flow of materials through the plant.
2. Facilitate the manufacturing process.
3. Maintain high turnover of in-process inventory.
4. Minimise materials handling and cost.
5. Effective utilisation of men, equipment and space.
6. Make effective utilisation of cubic space.
7. Flexibility of manufacturing operations and arrangements.
8. Provide for employee convenience, safety and comfort.
9. Minimize investment in equipment.
10. Minimize overall production time.
11. Maintain flexibility of arrangement and operation.
12. Facilitate the organizational Structure

Principles of Plant layout

While designing the plant layout – the following principles must keep in view:
• Movement: Materials and labor should move over minimum distances – saving cost and
time of transportation and material handling.
• Space Utilization: All available cubic space should effectively utilize – both horizontally
and vertically.
• Flexibility: Layout should be flexible enough to be adaptable to changes required by
expansion or technological development.
• Interdependence: Interdependent operations and processes should locate near each
other; to minimize product travel.
• Overall Integration: All the plant facilities and services should fully integrate into a
single operating unit – to minimize the cost of production.
• Safety: There should be an in-built provision in the design of the layout – to provide for
comfort and safety of workers.
• Smooth Flow: The layout should so design to reduce work bottlenecks and facilitate the
uninterrupted flow of work throughout the plant.
• Economy: The layout should aim at effecting economy in terms of investment in fixed
assets.
• Supervision: A good layout should facilitate effective supervision over workers.
• Satisfaction: A good layout should boost up employee morale – by providing them with
maximum work satisfaction.

Factors Affecting the Plant Layout Decision

The decision of the plant layout is affected by the following factors:

• Type of production: The layout for an engineering unit will be quite different from that
of a flour factory, similarly layout of a paper mill will be different from a tool room and
layout of an engine assembly line is different from the toy-making facility.
• Production System: The plant layout in a continuous production system will be totally
different from the intermitted production system.
• Scale of Production: The plant layout and material handling equipment in the large scale
organization will be different from that in the small scale manufacturing activity.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 9

 • Type of Machines: The use of single-purpose and multipurpose machines substantially
affects the plant layout. Similarly, noisy and vibrating machines require special attention
in the plant layout decision.
• Type of building facilities: The plant layout in a single story building will be different
from that in a multi-story building.
• Availability of Total Floor Area: The allocation of space for machines, workbenches
sub stores, aisles, etc. is made on the basis of the available floor area. Use of overhead
space is made in case of shortage of space.
• Possibility of Future Expansion: Plant layout is mad in the light of the future
requirements and installation of additional facilities.
• Arrangement of Material Handling Equipment: The plant layout and the material
handling services are closely related and the latter has a decisive effect on the
arrangement of the production process and plant services.

Types of Plant layout:

There are four types of Plant layout -
• Process Layout.
• Production Layout.
• Combination Layout.
• Fixed position Layout.

• Process Layout: In Process, layout keep similar machines and similar operations in one
place. In other words, machines are arranged according to their function.
That means all lathe should be in one place, all milling at another and so on. Process layout
generally employed for industries engaged in job order production and non-repetitive kind
of maintenance or manufacturing activities.

Process layout showing product movements

1.Storeroom, 2. Inspection department, 3. Broaching section, 4. Milling section,
5. Lethe section, 6. Shaper section, 7. Drill section, 8. Stock room.
Advantages of Process layout:
• Better utilization of available equipment.
• Less number of machines is required to do the operation.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 10

 • Workers are dealing with only one type of machines, so product quality will be better.
• Workers in one section are not affected by the operation carried out in another
section.
Disadvantages of Process Layout:
• For the same amount of production, the process layout needs more space.
• Automatic material handling is difficult.
• Production control becomes difficult.
• Raw material has to travel a longer distance for being processed to finished goods.
• This increases material handling and associated costs.
• It needs more inspection and efficient co-ordination.
• Product Layout: Product Layout is also known as line layout. Various operations on raw
material are performed in a sequence and machines are placed accordingly the production
flow line.
This type of layout is preferable for continuous production, that is, involving a continuous
flow of in-process material towards the finished product stage.

Advantages of Product Layout:

• Less space required for the same volume of production.
• Material handling is lesser, which reduces time and cost.
• Co-ordination will be better, production planning, and control will easier.
• Fewer skill workers maybe do the work.
Disadvantages of Product Layout:
• In process layout Specified product determines the layout, a change in product
involves major change in layout, thus flexibility in the layout is reduced.
• Rate of production depends upon the output rate of the slowest machine; this leads
to excessive idle time of another machine if the production line is not balanced.
• It is difficult to increase production beyond the capacities of the production line.
• Combination Layout: A combination layout combines the advantages of both process
layout and product layout. These days’ pure process and product layouts are rare.
A combination layout is possible where the item is made in different types and size. In
such case machinery arrange in a process layout but process grouping is then arranged in
the sequence of various types and sizes of the products.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 11

Advantages of combination layout:
• It combines the advantages of both process and product layout.
• Combination layout can be useful when a number of items are produced in the same
sequence but in small numbers and no item justified for individual production line.
Disadvantages of Product Layout:
• In process layout Specified product determines the layout, a change in product
involves major change in layout, thus flexibility in the layout is reduced.
• Rate of production depends upon the output rate of the slowest machine; this leads to
excessive idle time of another machine if the production line is not balanced.
• It is difficult to increase production beyond the capacities of the production line.
• Fix Position Layout: In other types of layouts, the product moves past the stationary
production equipment, but in fixed position layout, product kept stationary, and equipment
moves around it. Fixed-position layout is applicable in shipbuilding, aircraft manufacturer,
etc.

Advantages of Fixes Position layout:

• It is possible to assign one or more skilled workers from the start of a project to
finish in order to ensure continuity of work.
• Involves the least movement of materials, manufacturing of large size product
is possible.
• A number of quite different projects can be taken with the same layout.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 12

 Disadvantages of Fixed position layout:
• It involves a low content of work in progress.
• It involves high equipment handling costs.

Need or importance of plant location

• Expansion,
• Cost advantages,
• Discovery of raw-material,
• Additional facilities,
• Mergers,
• Political and social changes,
• Increasing product demand, and
• Avail tax benefits.
• Expansion: If the company wants to expand and diversify its activities, it will have to search
for a new-location for setting up its new business unit. In this case, it will need a location
planning.
• Cost advantages: If an existing plant is not near a market place, it will increase the transport
cost. This will also increase the cost of the product. So, to avoid this, the company will
search for a new plant location which is near the market. Such location of plant must be
convenient to the employees and must have a regular supply of water and electricity. Overall,
this will result in reduction of the cost of production.
• Discovery of raw-material: Generally, a plant must be located at a place where raw-material
is available. For example, if oil and gas are found at some place, then a new petrochemical
plant has to be set up there for processing purpose.
• Additional facilities: Plant location-related decisions will have to be taken if the
organization wants additional facilities. New facilities may be necessary to improve the
quality of work, to meet rising demands, etc.
• Mergers: Mergers, joint-ventures, and Amalgamations may lead to start a new unit at a new-
location. It may even require closure of an existing plant unit. In mergers, production is
mostly started at a new place as per the new-agreement.
• Political and social changes: Each political party has its own philosophy. Political changes
can lead to changes in economic policies of the government. This may make the existing
location unattractive for doing business. Social changes may require production of eco-
friendly goods. This may require a change in location.
• Increasing product demand: Demand for the company's product may increase at other
places, especially in abroad countries. So, the company will have to start a branch in another
state or in foreign countries. This would lead to a search for new location of plant.
• Avail tax benefits: Government may announce some tax benefits for starting a business in
rural areas. This may motivate entrepreneurs to start their business units in remote areas.

Routing
Routing may be defined as the selection of path which each part of the product will follow while
being transformed from raw materials to finished products. Path of the product will also give
sequence of operation to be adopted while being manufactured.
In other way, routing means determination of most advantageous path to be followed from
department to department and machine to machine till raw material gets its final shape, which

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involves the following steps:
(a) Type of work to be done on product or its parts.
(b) Operation required to do the work.
(c) Sequence of operation required.
(d) Where the work will be done.
(e) A proper classification about the personnel required and the machine for doing the work.

For effective production control of a well-managed industry with standard conditions, the routing
plays an important role, i.e., to have the best results obtained from available plant capacity. Thus,
routing provides the basis for scheduling, dispatching and follow-up.

Techniques of Routing
While converting raw material into required goods different operations are to be performed and
the selection of a particular path of operations for each piece is termed as ‘Routing’. This
selection of a particular path, i.e., sequence of operations must be the best and cheapest to have
the lowest cost of the final product. The various routing techniques are:
• Route card: This card always accompanies with the job throughout all operations. This
indicates the material used during manufacturing and their progress from one operation to
another. In addition to this the details of scrap and good work produced are also recorded.
• Work sheet: It contains:
• Specifications to be followed while manufacturing.
• Instructions regarding routing of every part with identification number of
machines and work place of operation.
This sheet is made for manufacturing as well as for maintenance.
• Route sheet: It deals with specific production order. Generally made from operation
sheets. One sheet is required for each part or component of the order. These includes the
following:
• Number and other identification of order.
• Symbol and identification of part.
• Number of pieces to be made.
• Number of pieces in each lot—if put through in lots.
• Operation data which includes:
• List of operation on the part.
• Department in which operations are to be performed.
• Machine to be used for each operation.
• Fixed sequence of operation, if any.
• Rate at which job must be completed, determined from the operation
sheet.
• Move order: Though this is document needed for production control, it is never used for
routing system. Move order is prepared for each operation as per operation sheet. On this
the quantity passed forward, scrapped and to be rectified are recorded. It is returned to
planning office when the operation is completed.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 14

Scheduling in Production Management
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
• 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.
• Principle of optimum production plan: The planning should be such that it imposes an
equal load on all plants.
• 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.

Inputs to Scheduling
• Performance standards: The information regarding the performance standards (standard
times for operations) helps to know the capacity in order to assign required machine
hours to the facility.
• Units in which loading and scheduling is to be expressed.
• Effective capacity of the work centre.
• Demand pattern and extent of flexibility to be provided for rush orders.
• Overlapping of operations.
• Individual job schedules.

Scheduling Strategies
Scheduling strategies vary widely among firms and range from ‘no scheduling’ to very
sophisticated approaches. These strategies are grouped into four classes:
• Detailed scheduling: Detailed scheduling for specific jobs that are arrived from
customers is impracticable in actual manufacturing situation. Changes in orders,
equipment breakdown, and unforeseen events deviate the plans.
• Cumulative scheduling: Cumulative scheduling of total work load is useful especially
for long range planning of capacity needs. This may load the current period excessively
and under load future periods. It has some means to control the jobs.
• Cumulative detailed: Cumulative detailed combination is both feasible and practical
approach. If master schedule has fixed and flexible portions.
• Priority decision rules: Priority decision rules are scheduling guides that are used
independently and in conjunction with one of the above strategies, i.e., first come first
serve. These are useful in reducing Work-In-Process (WIP) inventory.

Types of Scheduling
Types of scheduling can be categorized as forward scheduling and backward scheduling.
• Forward scheduling: is commonly used in job shops where customers place their orders
on “needed as soon as possible” basis. Forward scheduling determines start and finish
times of next priority job by assigning it the earliest available time slot and from that
time, determines when the job will be finished in that work centre. Since the job and its

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 15

 components start as early as possible, they will typically be completed before they are
due at the subsequent work centers in the routing. The forward method generates in the
process inventory that are needed at subsequent work centers and higher inventory cost.
Forward scheduling is simple to use and it gets jobs done in shorter lead times, compared
to backward scheduling.
• Backward scheduling: is often used in assembly type industries and commit in advance
to specific delivery dates. Backward scheduling determines the start and finish times for
waiting jobs by assigning them to the latest available time slot that will enable each job to
be completed just when it is due, but done before. By assigning jobs as late as possible,
backward scheduling minimizes inventories since a job is not completed until it must go
directly to the next work centre on its routing.

What is Dispatching?
Dispatching in production management run planning function. This is related to the start of work.
Dispatching to ensure that the plan is implemented correctly.
Dispatching is the physical delivery of the manufacturing orders to facilities operation (workers)
through the release of orders and instruction following the activity plan developed earlier (time
and sequence) defined by the scheduling of the production planning and control.

Dispatch Procedure
The product is broken into different components and components into operations.
• Store Issue Order: Authorize stores (department) to deliver required raw material.
• Tool Order: Authorize tool store to release the necessary tools. The tools can be
collected by the tool room attendant.
• Job Order: Instruct the worker to proceed with the operation.
• Time Ticket: It records the beginning and ending time of the operations and forms the
basis for worker’s pay.
• Inspection Order: Notify the inspectors to carried out necessarily inspections and report
the quality of the component.
• Move Order: Authorize the movement of materials and components from one facility
(machine) to another for further operations.

Types of Dispatching
There are two different kinds of dispatching:
• Centralized dispatching: Order dispatching takes place from a centralized location that
has complete view of capacities across production department and maps order to the
worker based on the requirement of individual order. It has greater control, greater
flexibility and effective co-ordination among several facilities. It also has effective
utilization of man power and other resources.
• De-centralized dispatching: It’s done at the shop floor level. It reduces communication
gap and time to solve day to day problems. As shop floor person has better knowledge
about local operation, he dispatches accurately and intuitively. It also reduces duplication
of dispatching of same order.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 16

Types of Production Systems
A production system can be defined as a transformation system in which a saleable product or
service is created by working upon a set of inputs. Inputs are usually in the form of men,
machine, money, materials etc.

• Job Shop Production: Job shop production are characterized by manufacturing of one or
few quantities of products designed and produced as per the specification of customers
within prefixed time and cost. The distinguishing feature of this is low volume and high
variety of products.
A job shop comprises of general-purpose machines arranged into different departments.
Each job demands unique technological requirements, demands processing on machines
in a certain sequence.
Characteristics
The Job-shop production system is followed when there is:
• High variety of products and low volume.
• Use of general purpose machines and facilities.
• Highly skilled operators who can take up each job as a challenge because of
uniqueness.
• Large inventory of materials, tools, parts.
• Detailed planning is essential for sequencing the requirements of each product,
capacities for each work centre and order priorities.
Advantages
Following are the advantages of job shop production:
• Because of general purpose machines and facilities variety of products can be
produced.
• Operators will become more skilled and competent, as each job gives them
learning opportunities.
• Full potential of operators can be utilized.
• Opportunity exists for creative methods and innovative ideas.
Limitations
Following are the limitations of job shop production:
• Higher cost due to frequent set up changes.
• Higher level of inventory at all levels and hence higher inventory cost.
• Production planning is complicated.
• Larger space requirements.
• Batch Production: Batch production is defined by American Production and Inventory
Control Society (APICS) “as a form of manufacturing in which the job passes through
the functional departments in lots or batches and each lot may have a different
routing.”It is characterized by the manufacture of limited number of products produced
at regular intervals and stocked awaiting sales.
Characteristics
Batch production system is used under the following circumstances:
• When there is shorter production runs.
• When plant and machinery are flexible.
• When plant and machinery set up is used for the production of item in a batch and
change of set up is required for processing the next batch.

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 • When manufacturing lead time and cost are lower as compared to job order
production.
Advantages
Following are the advantages of batch production:
• Better utilization of plant and machinery.
• Promotes functional specialization.
• Cost per unit is lower as compared to job order production.
• Lower investment in plant and machinery.
• Flexibility to accommodate and process number of products.
• Job satisfaction exists for operators.
Limitations
Following are the limitations of batch production:
• Material handling is complex because of irregular and longer flows.
• Production planning and control is complex.
• Work in process inventory is higher compared to continuous production.
• Higher set up costs due to frequent changes in set up.
• Mass Production: Manufacture of discrete parts or assemblies using a continuous
process are called mass production. This production system is justified by very large
volume of production. The machines are arranged in a line or product layout. Product and
process standardization exists and all outputs follow the same path.
Characteristics
Mass production is used under the following circumstances:
• Standardization of product and process sequence.
• Dedicated special purpose machines having higher production capacities and
output rates.
• Large volume of products.
• Shorter cycle time of production.
• Lower in process inventory.
• Perfectly balanced production lines.
• Flow of materials, components and parts is continuous and without any back
tracking.
• Production planning and control is easy.
• Material handling can be completely automatic.
Advantages
Following are the advantages of mass production:
• Higher rate of production with reduced cycle time.
• Higher capacity utilization due to line balancing.
• Less skilled operators are required.
• Low process inventory.
• Manufacturing cost per unit is low.
Limitations
Following are the limitations of mass production:
• Breakdown of one machine will stop an entire production line.
• Line layout needs major change with the changes in the product design.
• High investment in production facilities.
• The cycle time is determined by the slowest operation.

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• Continuous Production: Production facilities are arranged as per the sequence of
production operations from the first operations to the finished product. The items are
made to flow through the sequence of operations through material handling devices such
as conveyors, transfer devices, etc.
Characteristics
Continuous production is used under the following circumstances:
• Dedicated plant and equipment with zero flexibility.
• Material handling is fully automated.
• Process follows a predetermined sequence of operations.
• Component materials cannot be readily identified with final product.
• Planning and scheduling is a routine action.
Advantages
Following are the advantages of continuous production:
• Standardization of product and process sequence.
• Higher rate of production with reduced cycle time.
• Higher capacity utilization due to line balancing.
• Manpower is not required for material handling as it is completely automatic.
• Person with limited skills can be used on the production line.
• Unit cost is lower due to high volume of production.
Limitations
Following are the limitations of continuous production:
• Flexibility to accommodate and process number of products does not exist.
• Very high investment for setting flow lines.
• Product differentiation is limited.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 19

Multiple Choice Questions
1. Which of the following describes a process layout?
a. Equipment is general purpose and workers are highly skilled
b. Equipment is specialized and workers are unskilled
c. Equipment is general purpose and workers are unskilled
d. Equipment is specialized and workers are highly skilled
2. Which of the following statements is true?
a. Product layouts are flexible while process layouts are efficient
b. Product layouts are efficient while process layouts are flexible
c. Both product and process layouts are efficient but not flexible
d. Both product and process layouts are flexible but not efficient
3. The process of dealing with production orders to initiate operations under the Production
Planning and Control starts with ________.
a. Dispatching
b. Routing
c. Expediting
d. Estimating
4. _______ is the process by which raw materials and other inputs are converted into
finished goods.
a. Inventory
b. Logistics
c. Production
d. Supply chain
5. Production system model comprises of _______.
a. Production system
b. Conversion subsystem
c. Control subsystem
d. All of the above
6. _______is to convert a set of inputs into a set of desired outputs.
a. Production system
b. Conversion subsystem
c. Inventory subsystem
d. Control subsystem
7. A production system model consists of ______.
a. Inputs & Outputs
b. Conversion subsystem
c. Control Sub System
d. All of the above
8. ______ are required to make a series of decisions in the production function.
a. Personnel managers
b. Marketing managers
c. HR managers
d. Operation managers
9. Shop floor planning and control is ______.
a. Strategic decision
b. Operating decision

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 c. Control decision
d. All of the above
10. Production management refers to the application of management principles to the ______
in a factory.
a. Production function
b. Inventory function
c. Marketing function
d. Supply chain function
11. _____ is the process in which resources or inputs are converted into more useful
products.
a. Inventory management
b. Materials management
c. Operations management
d. Logistics management
12. ______industries include processing industries for industrial metals such as steel and
copper.
a. Heavy processing
b. Light processing
c. Surface processing
d. Medium fabrication
13. In Production Management, at every next level some _______ is added to the previous
level.
a. Income
b. Profit
c. Loss
d. Value
14. ___________ is one of the objective of Production Management.
a. Right person
b. Right cost
c. Right quantity
d. Continuous process
15. _________ is one of the qualities of Production Manager.
a. Quickness
b. Sympathy
c. Timeliness
d. Integrated
16. Factors affecting Product Design includes _______ and ______ perspectives.
a. Customer & price
b. Customer & production
c. Customer & organization
d. Quality & quantity
17. The advantage of locating a plant in urban (city) side is __________. A. cheap
a. Ail ability of land.
b. Disposal of waste is easy.
c. Cost of operation is low.
d. Large markets for finished products.

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 18. The objective of a good layout is to _____.
a. Reduce production.
b. Reduce wastage.
c. Reduce productivity.
d. Reduce labor.
19. __________ Type of layout is also called as functional layout.
a. Process.
b. Product.
c. Line.
d. Matrix.
20. Grouping together of like machines in one department is in _______ layout.
a. Product.
b. Process.
c. Group.
d. Parallel.
21. Product layout is also called as ________ layout.
a. Line
b. Cellular.
c. Process.
d. Functional.
22. ______________ Type of layout are suitable for non-repetitive or standard types of
production .
a. Process.
b. Product
c. Group.
d. Matrix.
23. Ship Building and Aircraft manufacturing is an example of ________ type of layout.
a. Combined.
b. Matrix.
c. Fixed.
d. Group.
24. Product layout is suitable for _________ type of production.
a. Small.
b. Mass.
c. Less.
d. Medium.
25. The products are produced for stock purpose in _____________.
a. Continuous production system.
b. Assembly production system.
c. Intermittent production system.
d. Analytic production system

Short Questions (5 Marks)

1. What are the Objectives of Operations Management?
2. Explain the product layout advantages and Disadvantages.

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 3. Explain the process layout advantages and Disadvantages.
4. Explain the Combined layout advantages and Disadvantages.
5. Explain the fixed layout advantages and Disadvantages.
6. Explain the Need or importance of plant location.
7. Explain the Techniques of Routing.
8. What are the Scheduling Strategies?
9. What are the procedure for dispatching?
Long Questions (09 Marks)
1. Explain the Nature and Scope of Operations Management.
2. Explain the Functions of Production Management.
3. Explain the Factors affecting the plant location.
4. Explain the objectives of plant layout.
5. Explain the Principles of Plant layout.
6. Discuss the Factors Affecting the Plant Layout Decision.
7. Discuss the Types of Plant layout.
8. Explain the Types of Production Systems.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 23

 UNIT – II
Production Planning & Control – Principles – Functions PPC – Plant Maintenance –
Meaning – Types of Maintenance – Fundamentals of Reengineering.

Production Planning and Control

Meaning:
Production planning and control is an important task of Production Manager. It has to see that
production process is properly decided in advance and it is carried out as per the plan. Production
is related to the conversion of raw materials into finished goods. This conversion process
involves a number of steps such as deciding what to produce, how to produce, when to produce,
etc. These decisions are a part, of production planning. Merely deciding about the task is not
sufficient.

Definition:
“Production planning and control is the coordination of a series of functions according to a plan
which will economically utilize the plant facilities and regulate the orderly movement of goods
through the entire manufacturing cycle, from the procurement of all materials to the shipping of
finished goods at a predetermined rate.”- Charles A. Koepke

What is production planning?

Production planning helps manufacturers work smarter by efficiently managing internal
resources to meet customer orders or demand. It solves what, when, and how much to produce. It
establishes production capacity and identifies what raw materials, bill of materials, or alternate
bill of materials are needed to meet demand. Then it prepares a workable production plan.

What is production control?

Production control monitors production and measures performance, providing visibility and
reporting. If any corrective action is needed it gets initiated. It includes different control
techniques to achieve optimal levels of production performance.

Objectives of Production Planning and Control

Planning of production precedes control. Whatever is planned needs to be controlled. The
ultimate objective of both planning and control is to use various inputs in an efficient way and to
have a proper control over various targets and schedules fixed earlier.

The following details will bring out the objectives of production planning and production
control:

Production Planning:
1. To determine the requirements for men, materials and equipment.
2. Production of various inputs at a right time and in right quantity.
3. Making most economical use of various inputs.
4. Arranging production schedules according to the needs of marketing department.
5. Providing for adequate stocks for meeting contingencies.
6. Keeping up-to-date information processes.
DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 24
Production Control:
1. Making efforts to adhere to the production schedules.
2. Issuing necessary instructions to the staff for making the plans realistic.
3. To ensure that goods are produced according to the prescribed standards and quality norms.
4. To ensure that various inputs are made available in the right quantity and at the proper time.
5. To ensure that work progresses according to the predecided plans.

What are the benefits of production planning and control?

Some of the many benefits to production planning and control include:
• Optimized manufacturing capacity: ensures machines and employees work to capacity.
That keeps costs down, increases efficiency, and provides greater profitability. It helps to
identify areas of improvement and to plan for growth.
• Reduced inventory costs: allows manufacturers to only hold the necessary inventory.
The software can predict demand and have a Just-in-Time scheduling strategy. Without a
surplus of inventory, costs are kept low.
• On-time deliveries: helps to ensure production optimization and prompt deliveries.
Getting products to their destination on time improves customer satisfaction. That
increases customer retention and referrals.
• Better procurement of materials: shows when materials should get purchased for
production. Having this information helps to know when to order and what is needed to
meet customer and production demand. Knowing when to order lets procurement buy in
advance to find the best deal. This also helps to save money and improves relationships
with suppliers.
• Streamlined production processes: ensures that materials and internal resources for
production are ready when needed and what capacity is available, and when. This keeps
production running smoothly. It also helps employee satisfaction as it eliminates
frustration from interruptions in production and workflows.
• Minimal resource waste: eliminates material shortages or surpluses for less resource
waste. This lessens employee time wasted. Capital is not tied up in inventory that is not
used. There is less production waste because delays that cause discarded materials get
eliminated.

Main elements of Production Planning & Control

The following are main elements of Production Planning and Control.
• Routing
• Loading
• Scheduling
• Dispatching
• Follow up
• Inspection
• Corrective
• Routing: It is about selection of path or route through which raw materials pass in order to
make it into a finished product. The points to be noted while routing process are – full
capacity of machines, economical and short route and availability of alternate routing. Setting
up time for the process for each stage of route is to be fixed. Once overall sequence are fixed,
then the standard time of operations are noted using work measurement technique.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 25

• Loading and scheduling: Loading and Scheduling are concerned with preparation of
workloads and fixing of starting and completing date of each operation. On the basis of the
performance of each machine, loading and scheduling tasks are completed.
• Dispatching: Dispatching is the routine of setting productive activities in motion through the
release of orders and instructions, in accordance with previously planned time and sequence,
embodied in route sheet and schedule charts. It is here the orders are released.
• Expediting / Follow-up: It is a control tool which brings an idea on breaking up, delay,
rectifying error etc., during the progress of work.
• Inspection: Inspection is to find out the quality of executed work process.
• Corrective: At evaluation process, a thorough analysis is done and corrective measures are
taken in the weaker spots.

Principles of Production Planning and Control

• Customer Demand: Customer demand is the first principle of production planning. One
must know what quantity of the product must be manufactured for the customer. The
production should be planned in a way so that the requirements of the customer are met
evenly, considering the market demand rates. Also, the manufacturer should be ready to
comply with the variations in demand of the targeted customer and should be able to
efficiently manage the production process during this period. The entire focus of this is to
give a forecast to the manufacturer about the multiple situations that may arise during the
production process.
• Materials: Raw materials must be available in adequate quantity with the manufacturer
to ensure the timely and complete production of the client’s orders and demands. A
clever and efficient production planner keeps the minimum materials required in his store
as his inventory. People responsible for designing the entire production plan should be
able to evaluate the amount of materials that will be required in the production of the
product for its timely delivery.
• Equipments: The production planner considers the capabilities of the equipment used to
produce the output. The actual capabilities of the equipment can be predicted by
considering the previous production rates and combining it with the safety factors that are
required. Basic stability of equipment comprising of availability (A), performance (P)
and quality (Q) parameters can be determined by Overall Equipment Effectiveness
(OEE).
• Manpower: Manpower planning is also the key elements of production planning. The
estimation of the amount of workforce required to complete the production process on
time is one of the most important forecasts the planner must make. It also includes the
requirement of workers to do overtime or laying them off to assure the variations that
might fall upon in the midway of the production process. One must also keep in mind that
the competence of workforce should match the capabilities of the machinery to achieve
the highest efficiency during production. Manpower planning can make use of previous
projects’ data to calculate the capabilities of the workforce.
• Processes: Effective production planning makes sure that the processes used for the
output continue to operate efficiently and safely. It takes care of the facts that a new
process does not affect the ongoing production processes. It also keeps a check on the
processes and assists them with any requirements ranging from labor to resources. Often

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 26

 the normal operation of a process requires occasional testing and adjustments. This
ensures that the new operation has a floor ready to roll when the process starts.
• Controls: Including this principle in production, planning is very important. Keeping this
on the list puts controls on various platforms that detects the problems or any obstacles
that might arise at any moment during the manufacturing process. Verification of
inventory, use of qualified suppliers and personnel, standardization wherever possible
and regular tests of products and processes can help the manufacturer in containing the
defects and delays. It also allows the people responsible for production planning take a
holistic approach towards the problems and deploy precise corrective measures to
minimize the damage and bring the production back on track. Such inclusion of controls
can really prove to be beneficial to the producers.

Production Planning and Control Functions

• Pre-planning function
• Planning function
• Control function

The functions of production planning and controlling are depicted in the following figure.

• Pre-Planning Function: Pre-planning is a macro level planning and deals with analysis
of data and is an outline of the planning policy based upon the forecasted demand,
market analysis and product design and development. This stage is concerned with
process design (new processes and developments, equipment policy and replacement
and work flow (Plant layout). The pre-planning function of PPC is concerned with
decision-making with respect to methods, machines and work flow with respect to
availability, scope and capacity.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 27

 • Planning Function: The planning function starts once the task to be accomplished is
specified, with the analysis of four M’s, i.e., Machines, Methods, Materials and
Manpower. This is followed by process planning (routing). Both short-term (near
future) and long-term planning are considered. Standardization, simplification of
products and processes are given due consideration.
• Control Function: Control phase is effected by dispatching, inspection and expediting
materials control, analysis of work-in-process. Finally, evaluation makes the PPC
cycle complete and corrective actions are taken through feedback from analysis. A
good communication, and feedback system is essential to enhance and ensure
effectiveness of PPC.

What is Plant Maintenance?

Plant maintenance is the application of best practices to increase equipment up time in
manufacturing facilities. This helps plants avoid unplanned downtime and ensures production
stays on schedule. Understanding plant maintenance will help ensure your employees are
protected from injury and your products are safe for the end-user

Maintenance –Definition
Maintenance is the process of keeping the machine and equipment in good working condition so
that the efficiency of machine is retained and its life is increased.

Functions of Plant Maintenance

The basic function of any maintenance activity is to maintain the facility and its equipment in a
condition to meet normal operating requirements. The basic function of maintenance are as
follows

a) Inspection
b) Repair
c) Overhaul
d) Lubrication
e) Salvage

• Inspection: Inspection involves periodic checking of machines and equipment to ensure

safe and efficient operation, making certain that equipment requiring work at specified
periods receives proper attention, determination of repair feasibility and control of the
quality of work accompanied by maintenance group, Inspection implies detection of
faults before they develop in to breakdown of the equipment.
• Repair: When any item or components fails or breakdown , then the process of repairing
the component or replacing the item or part by another item to restore the item in working
order is known as repair.
• Overhaul: This is another routine and regular maintenance function falling under
preventive maintenance. The frequency of overhauling is for less than lubrication and
inspection. In overhauling, the machine is stripped and the various parts are cleaned and
oiled and components are replaced.
• Lubrication: Proper lubrication plays a vital role in maintaining the machine accuracy
and increasing its life. Lubrication of machinery should be considered as important as

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 28

 blood circulation in the human body. The cleaning and lubrication of the machine is
normally done by the operator itself. From the suppliers document, lubricating
instructions showing the daily/ weekly/fortnightly/monthly/ Yearly lubricating points and
grades of lubricants to be used should be prepared. These are tabulated in a chart and
explained to the operator
For the convenience of the operator, it is advisable to paint the lubricating points on the
machine. Grade of lubricant and the lubricating schedule may be indicated there itself.
• Salvage: Any equipment is said to be salvage when it cannot be repaired or cannot be
brought to desired level of performance. In that case the item is to be replaced by new
one to bring back the system into operation.

 Types of Plant Maintenance.

• Breakdown Maintenance: This is also called corrective maintenance it occurs when

work gets stopped because of a machine breakdown. In this sense, maintenance becomes
repair work. Repairs are made after the equipment is out of order
For e.g.- A electric motor will not start if the conveyor belt is ripped or shaft has broken.
In this case, the maintenance department checks into difficulty and makes the necessary
repairs
• Preventive Maintenance: In contrast to corrective maintenance, preventive maintenance
is undertaken before the need arises and aims to minimize the possibility of un-
anticipated production interruptions or a major breakdown, preventive maintenance
consists of,
• Proper design and installation of equipment.
• periodic inspection of plant & equipment.
• Repetitive servicing of types of machinery.
• Adequate lubrication, cleaning, and painting of the building.
• Predictive Maintenance: One of the new types of maintenance that may be anticipated
to gain increasing attention. In this sensitive instrument are used to predicting trouble

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 conditions can be measured on a continuous basis and this enables the maintenance of
people to plan for an overhaul.
• Routine Maintenance: This includes activities such as periodic inspection cleaning,
lubrication& repair of production equipment. This can be classified into two types,
• Running maintenance: In this, the maintenance work is carried out while the
equipment is in the operating conditions.
• Shutdown maintenance: Here the maintenance work is carried out when the
machine or equipment is out of service.
• Planned Maintenance: The breakdown of a machine does not occur in a planned
manner but maintenance work can be planned well in advance. Planned maintenance is
also known as scheduled maintenance it involves inspection of all plants & equipment,
machinery, building according to a predetermined schedule.

Reengineering
BPR (Business Process Reengineering) is defined as the fundamental rethinking and radical
redesign of business processes to achieve dramatic improvements in critical, contemporary
measures of performance, such as cost, quality, and service.

Six phases of the Reengineering (Hammer and Champy methodology)

• Introduction into business reengineering: The “case for action” is a description of the
organisation’s business problem and current situation; it justifies the need for change.
The “vision statement” describes how the organisation is going to operate and outlines
the kind of results it must achieve. The top management should inform other employees
about the visions.
• Identification of business processes: In this step, the most important business processes
are identified and are described from a global perspective using a set of process maps.
Process maps give a picture of the workflows through the company. The output of this
phase is a number of process maps reflecting how these high-level processes interact
within the company and in relation to the outside world.
• Selection of business processes: Candidates for reengineering are the most problematic
processes, those with great impact on customers, processes with more chances to be
successfully re-engineered or processes that contribute to the organisation’s objectives.
According to an organisation’s strategic objectives, more criteria could be defined for
selecting processes for redesign, such as increased customer value.
• Understanding of selected business process: The reengineering team needs to gain a
better understanding of the existing selected processes. The objective is the provision of a
high-level view of the process under consideration, for the team members to have the
intuition and insight required to create a totally new and superior design.
• Redesign of the selected business processes: This is the most creative phase of the
methodology because new rules and new ways of work should be invented. Imagination
and inductive thinking should characterise this phase. Redesigning a process is not
algorithmic or routine.
• Implementation of redesigned business processes: The last phase covers the
implementation phase of the BPR project. Hammer and Champy believe that the success
of the implementation depends on whether the five previous phases have been properly
performed

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Multiple Choice Questions

26. Which of the following functions of Production Planning and Control is related to the
timetable of activities?
a. Scheduling
b. Dispatching
c. Expediting
d. Routing
27. Which of the following processes is not a part of the Production Planning and Control
system?
a. Integration of processes
b. Routing
c. Expediting and follow up
d. All of the above
28. The objectives of Production Planning and Control are ______.
a. Timely delivery of goods and services
b. Improving customer satisfaction
c. Coordinating all departments
d. All of the above
29. The correct sequence of operations in the Production Planning and Control process is
________.
a. Routing – Scheduling – Follow up – Dispatching
b. Scheduling – Follow up – Dispatching – Routing
c. Routing – Scheduling – Dispatching – Follow up
d. Dispatching – Routing – Scheduling – Follow up
30. Production Planning and Control function is crucial for ensuring cost savings and
efficiency in ___________.
a. Planning
b. Production
c. Promotion
d. None of the above
31. The control activity in Production Planning and Control is performed ________ of the
plan.
a. Before execution
b. After execution
c. During execution
d. None of the above
32. _______ involves anticipating bottlenecks in advance and identifying steps that will
ensure a smooth flow of production.
a. Production planning
b. Production control
c. Production audit
d. None of the above

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33. Regulating the production process to ensure an orderly flow of materials is the objective
of _________.
a. Production planning
b. Production control
c. Production audit
d. None of the above
34. When the size of an organization increases, the functions under production control should
___________.
a. Get more decentralized
b. Get more centralized
c. Stay the same
d. None of the above
35. Production planning is essential for ________.
a. Inventory management
b. Quality management
c. Supply management
d. All of the above
36. Production control within a company depends on _______.
a. Nature of production activities within the organization
b. Nature of the organization
c. Size of the organization
d. All of the above
37. ________ is responsible for the order of processing each activity under Production
Planning and Control.
a. Loading
b. Sequencing
c. Routing
d. Scheduling
38. ________ is concerned with the time required to perform each activity under the
Production Planning and Control process.
a. Loading
b. Sequencing
c. Routing
d. Scheduling
39. Procurement cycle time calculates the total duration for ________.
a. Inspecting the purchased components
b. Receiving raw materials
c. Inspection of raw materials
d. All of the above
40. Material Requirement Planning (MRP) is a computerised system to plan the requirements
for _________.
a. Finished goods
b. Raw materials
c. Work in progress
d. All of the above

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 32

41. The functions of Material Requirement Planning include ______.
a. Schedule materials
b. Looking at present orders
c. Determine the timing of material requirements
d. All of the above

42. Material Requirement Planning is useful for all except ________.

a. Discrete demand items
b. Dependent demand items
c. Erratic orders
d. Independent demand items
43. The process of Production Planning and Control starts with ________.
a. Expediting
b. Scheduling
c. Estimating
d. Routing
44. The machines used for mass production are ___________.
a. Special purpose
b. General-purpose
c. Manually operated
d. Semi-automatic
45. What is the definition of loading?
a. It is the process of assigning work to the facilities
b. It is the process of sending the raw material to machines for production
c. It is the process of uploading the software to the machine control panel
d. It is the process of sending the finished material to the store
46. Dispatching authorizes the start of production operations by_________.
a. Releasing the material and components from stores to the first process
b. Issuing of drawing instruction sheets
c. Releasing the material from process to process
d. All of the above
47. The purpose of preparing a master schedule is to oversee ___________.
a. Multi-product batch production
b. Single product batch production
c. Single product continuous production
d. Assembly product continuous production
48. __________ is the probability of a product operating efficiently within an estimated time
frame.
a. Reliability
b. Durability
c. Serviceability
d. Performance
49. Which of the following two techniques are used for designing process layouts?
a. Block diagramming and assembly line balancing
b. Block diagramming and relationship diagramming
c. Relationship diagramming and assembly line balancing

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 33

 d. None of the above
50. Which of the following is not an input in the Material Requirement Planning process?
a. The item master file
b. The product structure file
c. The master production schedule
d. The planned order report
51. Which of the following is not the primary function of statistical process control?
a. To establish control limits
b. To detect particular cause variations
c. To identify specification limits
d. To determine when a process is not in control
52. ______ is the probability of rejecting a lot that has an acceptable quality level.
a. Producer’s risk
b. Consumer’s risk
c. Both a and b are incorrect
d. Both a and b are correct
53. Total productive maintenance aims at
a. Less idle time
b. Increase in productivity
c. Zero downtime
d. None of the above
54. Maintenance consists of the following action(s)
a. Replace component
b. Repair of component
c. Service of component
d. All of the above
55. Downtime time in hours / Available hours) =
a. Maintenance effectiveness
b. Frequency of breakdown
c. Effectiveness of maintenance planning
d. None of the above
56. Downtime me cost consists of
a. Loss of production
b. Wages paid to the workers
c. Reduction in sales
d. All of the above
57. A systematic approach for maintenance is
a. Problem – Cause – Diagnosis – Rectification
b. Problem– Diagnosis – Cause – Rectification
c. Problem – Measure – Diagnosis – Rectification
d. Problem– Diagnosis – Measure – Rectification
58. The following is not a classification of maintenance
a. Corrective maintenance
b. Timely maintenance
c. Scheduled maintenance
d. Preventive maintenance

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 34

 59. The ____ goes on increasing with the increase in degree of maintenance efforts.
a. Cost of down time
b. Cost of spares and maintenance
c. Labor and Overhead Cost
d. All of the above
60. The following is not a classification of maintenance
a. Timely maintenance
b. Corrective maintenance
c. Scheduled maintenance
d. Preventive maintenance
61. With the increase in preventive maintenance cost, breakdown maintenance cost
a. Increases
b. Decreases
c. Remain same
d. Any of the above

Short Questions (5 Marks)

1. What are the objectives of production planning?

2. What are the objectives of production control?
3. What are the benefits of production planning and control?
4. Explain the Principles of Production Planning and Control.
5. Explain the Production Planning and Control Functions.
6. Explain the Functions of Plant Maintenance.
7. Explain the Six phases of the Reengineering.

Long Questions (09 Marks)

1. Explain the Types of Plant Maintenance.

2. What are the Main elements of Production Planning & Control

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 35

 UNIT – III
Materials Management – Meaning, Definition Importance – Functions – Integrated
Materials Management – Advantages – Store Keeping – Meaning – Functions – Store
Keeper – Duties – Responsibilities – Stores Ledger – Bin Card.

Materials Management

Meaning
Materials management is a function, which aims for integrated approach towards the
management of materials in an industrial undertaking. Its main objective is cost reduction and
efficient handling of materials at all stages and in all sections of the undertaking. Its function
includes several important aspects connected with material, such as, purchasing, storage,
inventory control, material handling, standardisation etc.

Definition
“Material management is the planning, directing, controlling and co-ordination of all those
activities concerned with material and inventory requirements, from the point of their inception
to their introduction into manufacturing process.”- L.J. De Rose

“Material management is the integrated functioning of the various sections of an organization

dealing with the supply of materials and allied activities in order to achieve maximum co-
ordination.”- N.K. Nair

Functions and Scope of Material Management

The functions of materials management can be categorized in the following ways:
•Material Planning and Control
•Purchasing
•Stores Management
•Inventory Control or Management
•Standardization
•Simplification
•Value Analysis
•Ergonomics
•Just-in-Time (JIT)
All the above-mentioned functions of materials management has been discussed.
•Materials planning and control: Based on the sales forecast and production plans, the
materials planning and control is done. This involves estimating the individual
requirements of parts, preparing materials budget, forecasting the levels of inventories,
scheduling the orders and monitoring the performance in relation to production and sales.
•Purchasing: This includes selection of sources of supply finalization in terms of purchase,
placement of purchase orders, follow-up, maintenance of smooth relations with suppliers,
approval of payments to suppliers, evaluating and rating suppliers.
•Stores management or management: This involves physical control of materials,
preservation of stores, minimization of obsolescence and damage through timely disposal
and efficient handling, maintenance of stores records, proper location and stocking. A

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 36

 store is also responsible for the physical verification of stocks and reconciling them with
book figures. A store plays a vital role in the operations of a company.
•Inventory control or management: Inventory generally refers to the materials in stock. It
is also called the idle resource of an enterprise. Inventories represent those items, which
are either stocked for sale or they are in the process of manufacturing or they are in the
form of materials, which are yet to be utilized. The interval between receiving the
purchased parts and transforming them into final products varies from industries to
industries depending upon the cycle time of manufacture. It is, therefore, necessary to
hold inventories of various kinds to act as a buffer between supply and demand for
efficient operation of the system. Thus, an effective control on inventory is a must for
smooth and efficient running of the production cycle with least interruptions.
•Other related activities
•3S
• Standardization: Standardization means producing maximum variety of products
from the minimum variety of materials, parts, tools and processes. It is the process
of establishing standards or units of measure by which extent, quality, quantity,
value, performance etc. may be compared and measured.
• Simplification: The concept of simplification is closely related to standardization.
Simplification is the process of reducing the variety of products manufactured.
Simplification is concerned with the reduction of product range, assemblies, parts,
materials and design.
• Specifications: It refers to a precise statement that formulizes the requirements of
the customer. It may relate to a product, process or a service.
Example: Specifications of an axle block are Inside Dia. = 2 ± 0.1 cm, Outside
Dia. = 4 ± 0.2 cm and Length = 10 ± 0.5 cm.
•Value analysis: Value analysis is concerned with the costs added due to inefficient or
unnecessary specifications and features. It makes its contribution in the last stage of
product cycle, namely, the maturity stage. At this stage research and development no
longer make positive contributions in terms of improving the efficiency of the functions
of the product or adding new functions to it.
•Ergonomics (Human Engineering): The human factors or human engineering is concerned
with man-machine system. Ergonomics is “the design of human tasks, man-machine
system, and effective accomplishment of the job, including displays for presenting
information to human sensors, controls for human operations and complex man-machine
systems.” Each of the above functions is dealt in detail.

Importance of Materials Management

• Low price of materials and equipment
• Fast inventory turnover
• Continuity of supply`
• Reduced transportation cost
• Reduced materials obsolesce
• Improved and better suppliers’ relationship
• Better interdepartmental co-operations, with in the factory.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 37

Objectives of Materials Management
• Primary and
• Secondary Objectives
The objectives of material management can be classified into two categories viz; primary
objectives and secondary objectives.

• Primary Objectives:
The following are the primary objectives:
• Low Prices: If materials department succeeds in reducing the price of items it buys, it
contributes in not only reducing the operating cost but also in enhancing the profits.
• Lower Inventories: By keeping inventories low in relation to sales, it ensures that less
capital is tied up in inventories. This increases the efficiency with which the capital of the
company is utilized resulting in higher return on investment. Storage and carrying costs
are also lower.
• Reduction in Real Cost: Efficient and economical handling of materials and storage
lowers the acquisition and possession cost resulting in the reduction in the real cost.
• Regular Supply: Continuity of supply of materials is essential for eliminating the
disruption in the production process. In the absence of regular supply of materials,
production costs go up.
• Procurement of Quality Materials: Materials department is responsible for ensuring
quality of materials from outside suppliers. Therefore, quality becomes the single most
objective in procurement of materials.
• Efficient handling of Materials: The effective material control techniques help the
efficient handling of materials resulting in the lowering of production cost.
• Enhancement of firm’s goodwill: good relations with the suppliers of materials enhance
the company’s standing in the society as well as in the business community.
• Locating and developing future Executives: Materials manager must devote special
effort to locate men at lower position who can take up the executive posts in future. It
helps in developing talented personnel who are ready to undertake future responsibilities
of the business relating to materials management.
• Secondary Objectives:
The following are the important secondary objectives of materials management.
• Reciprocity: The purchase of raw materials from the organisations/customers by the
concern and in turn, sale of finished products to the above customers is known as
reciprocity. It serves the twin purpose of increasing purchasing as well as sales.
• New Developments: The staff of the materials department deals regularly with the
suppliers responsible for new developments in material handling. These developments
can be successfully applied in material handling and management.
• Make or Buy Decisions: The material manager with regular reviews of cost and
availability of materials can safely conclude that whether the material is to be purchased
or developed in the organisation itself.
• Standardisation: Standardisation of materials is greatly helpful in controlling the
material management process. With regular stock-taking, the non-standardised items can
be rejected and standard components may be brought into product designs to reduce the
cost of production. It is further helpful in promoting the standardisation with suppliers.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 38

 • Assistance to Production department: By supplying the standardised materials or
components to the production department, quality products can be assured. It is helpful in
imparting the economic knowledge in bringing about the desired improvement in the
product.
• Co-operation with other departments: Successful management of materials department
contributes to the success of every other department in the organisation. At the same time
the success of materials department depends on how successful it is in getting the co-
operation of the staff of the other departments.
• Conception of future outlook: The materials manager must have some conception of
future outlook for prices, cost and general business activity. Forecasting can be made
about the future trends in materials. The materials manager should be able to foresee the
prices and costs of the raw materials and general business conditions through their daily
contracts with the suppliers.

Classification of Materials
The basis for the classification of materials involves several aspects, including nature,
manufacturing process, and value.
• Basis of Nature: Based on their nature, materials can be divided into:
• Direct Materials: Direct materials are items that can be identified with a product or a
group of products and can be easily measured and charged directly into the product.
These materials are part of the finished product (e.g., timber in furniture).
• Indirect Materials: These are materials that cannot be traced to a specific product or be
charged directly to various products. Indirect materials do not form part of the product.
Examples include repair and maintenance stores, lubricating oils, and cleaning materials.
• Basis of Manufacturing Process: Based on the manufacturing process, stores are divided
into:
• Pre-process Stock: These are items that are yet to be used in the manufacturing process
and are obtained prior to the start of production. They include raw materials, bought-out
parts and assemblies, and stock in the pipeline of materials in transit.
• Intermediate Stock: Intermediate stock comprises the parts or assemblies that are
manufactured within the factory for use in the final product.
• Finished Goods or Finished Products: As the name indicates, finished goods are the
items that have been duly manufactured in the factory and are ready for shipment or sale
to the customers.
• Basis of Value: Based on value, stores may be divided into:
• Category A: Category A consists of materials which constitute 5% to 10% of the total
items in the stores and represents 70% to 85% of the total stores value.
• Category B: This category consists of materials which constitute 10% to 20% of the total
items in the stores and represents 10% to 20% of the total stores value.
• Category C: This category consists of cheap materials which constitute 70% to 85% of
the total items in the stores and represents 5% to 10% of the total stores value.
Category A items are costly items, calling for a greater level of control to preserve them. A
reasonable degree of care may be taken to control category B items, while a routine type of
care may be applied to control C category (or residuary) items.
• Basis of Movement of Stores: Based on the movement of stores (i.e., rate of consumption),
stores items may be divided into:

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 39

 • Fast Moving Stock: Fast moving stock is exhausted rapidly due to high demand from
production departments.
• Slow Moving Stock: This category consists of stores or materials that are consumed or
exhausted slowly due to limited demand from the production departments.
• Dormant Stock: This category consists of items that are not in demand at present and
may regain demand in the future. This category includes seasonal materials, which are
only required during specific seasons.

Integrated Material Management

Meaning
“An integrated material management is co-ordination of various department of a company”
Integrated material management is the co-ordination of various department of a company like
purchase department is closely associated with product design and research dept and so on.
Hence all the department should operate integrated manner. It is known as integrated material
management.

Objectives of Integrated Material Management

The fundamental objectives of an integrated material management approach can be viewed as:
• Procuring better value
• Obtaining better yield
• Reducing investments in stock through Inventory control and material flow.

Advantages of Integrated Material Management

Following are some of the advantages of Integrated Materials Management:
• Better Accountability: By effective centralisation of authority and responsibility for all
aspects of materials function, a clear-cut accountability is established. This helps in
evaluating the performance of materials management in an objective manner.
• Better Co-Ordination: When the materials manager is responsible for all functions it results
in better support and co-operation in the accomplishment of the materials function. Better co-
ordination creates an atmosphere of trust and better relation between the user departments
and the materials management department.
• Improved Performance: As all the inter-related functions are integrated organisationally,
better performance and effectiveness is achieved. The need for materials is promptly brought
to the notice by materials planning and purchase department is supplied with stock levels and
orders status by stores department.
• Adaptability to Computerisation: The Centralisation of materials functions has made it
possible to design data processing systems. The integrated materials management facilitates
the collection, process and analysis of data, leading to better decisions. Computerisation can
be economically introduced under an integrated set-up.

Store-Keeping: Meaning
Store keeping is the task of maintaining safe custody of all items of supplies, raw materials,
finished parts, purchased parts, and other items. These items are held in a storeroom for which a
storekeeper acts as a trustee.
Definition

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 40

According to Alford and Beatty, “storekeeping is that aspect of material control concerned with
the physical storage of goods.”

“Storekeeping is the physical storage of materials carried into the store-room in a scientific and
systematic manner with a view to (i) saving them from all kinds of damages and losses, and (ii)
exercising overall control over their movement.”- Wheldon.

Objectives of Store Keeping

• Minimizing the cost of production by minimizing the cost of materials
• Maintaining the value of materials
• Services to User departments
• Establishing Co-ordination with other Departments
• Advising Materials managers

Functions of Store Keeping

• Receipt: It receives and accounts for inventories.
• Storage: It stores and preserves the inventories protecting them from damage, pilferage,
and deterioration.
• Retrieval: It helps easy access to materials and ensures optimum space utilization.
Materials can be located and retrieved with ease.
• Issue: It satisfies the demands of consuming departments by the proper issue of
inventories on receiving the requisitions.
• Records: It keeps proper records of the issue and receipts.
• House Keeping: Space is kept neat and clean so that material handling, preservation,
storage, issue, and receipt is done satisfactorily.
• Surplus Stock: Scrap and surplus disposal management is a function of stores.
• Verification: Physical verification and purchase initiation to avoid stock-outs.
• Co-ordination and Co-operation: To interface with the production and inspection
department.

Types of Stores
• Main or Centralized Stores: A central store is generally a ‘wholesale’ supplier to other
units, departments, or sub-stores that operate on a retail basis issuing goods directly to
users. All material is received and issued by one central store.
• Branch or Decentralized Stores: Decentralized or branch stores are provided in
considerably large plants and where one main store cannot meet the requirements of the
plant without a waste of time and inconvenience.
• Central store with sub-stores: A very big factory having a large number of product
lines may have this type of storage system. It has a main store that can serve as a base
with sub-stores for each unit of production, preferably located as near the unit as possible.
The sub-stores draw their requirements from the main store for a certain period, say, a
fortnight or a month. This fixed quantity of material to the particular department is
known as Float or impress. After the completion of the determined period, the
storekeeper of the sub-store will describe the material consumed and will issue the
quantity of material equal to the material consumed to bring the level to the

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 41

 replenishment level. This system of issuing and controlling materials is known as a
periodic system of store control.
• Warehouse: Warehouses are the godowns that take the responsibility of keeping and
storing goods and providing ancillary services to help the small and medium-size traders
and manufacturers who, because of technical and economic reasons, may not like to have
their storehouses. These warehouses undertake to preserve the goods scientifically and
systematically to maintain their original value, quality, and usefulness. They charge a
certain prescribed rent at a fixed rate in advance.
• Tools and Miscellaneous Stores: Tools and miscellaneous stores are equipped with all
the necessary tools needed by the productions and other shops. The stock of tools must be
maintained with due regard to the requirements of the work. This store is responsible for
issuing tools, spare parts, and other accessories to different departments.

Store Keeper – Duties – Responsibilities

Meaning
Storekeeper is a person who is responsible for goods in a store. Storekeeper is very important
person for the store. He is the In Charge of store department and also responsible for store
control.

Duties / Functions of Store Keeper

The major functions and duties of a store keeper are listed below.
• Identification of all materials stored
• Inspection of all receipts
• Receipts of incoming goods
• Stored and preservation
• Material handling
• Packing
• Maintenance of stored record
• Issue and dispatch
• Store Accounting
• Inventory control
• Identification of All Materials Stored: The primary functions of a store keeper should
identify all the materials where it is stored in the store room. Then only he can identify
the materials easily.
• Inspection of All Receipts: All receiving materials should be verify the store keeper
physically. To know the receiving items whether in good condition (or) bad condition.
• Receipts of Incoming Goods: Another functions of store keeper is after inspection
process completed, store keeper has to receive all the incoming materials.
• Stored and Preservation: After receipts of incoming materials store keeper should store
all the materials and preserve them in proper condition.
• Material Handling: Material handling involves movement of materials by manually (or)
mechanical from one place to another place.
• Packing: Packing the goods to dispatch for customers. Package may be done for the
group of products by the use of wooden and paper.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 42

 • Maintenance of Store Records: A good store keeper should maintain records for every
transaction like receipts, issue and balance documents should maintain by the store
keeper.
• Issue and Dispatch: Issuing materials to the production dept. as well as dispatching
goods to marketing region (or) customer place.
• Store Accounting: Storekeeper should maintain accounting for the process of materials
in financial value. Sometimes it may be done by accounts dept.
• Inventory Control: Store keeper should control over all inventory level, based on the
nature of products, he stored it and he have to concentrate on safety of stored materials.

Storekeeper Responsibilities
• Receive and forward all types of goods and deliveries in and out of the hotel to the
correct point of storage area.
• Follow all standards for issuing and receiving stock within the store's area of
operation.
• Monitor and take inventory on regular basis to compile orders based on par levels or
needs.
• Maintain clear and organized records to ensure all reports and invoices are filed and
stored properly.
• Monitor Periodic Automatic Replacement levels for all food items to ensure proper
levels.
• Responsible to verify all goods arrived as per the agreed purchase, delivery note and
agreed quantity has been received.
• Responsible for storage of both food & beverage and operational stock.
• Responsible for the day-to-day check on the storage facilities of upkeep and hygiene.

What is Stores Ledger?

Stores Ledger refers to a document or statement that keeps the records of the value and quantity
of different stock items issued, received and their closing balance. It is often compared with Bin
Cards as both of these statements are used to record stock materials.

Purpose of Stores Ledgers

Stores Ledgers, in general, are used for managing inventory transactions. However, if one may
ask about their specific purposes, the following will be identified under the list:
• Maintenance of Stores Ledgers helps get an idea of the quantity and value of a business’s
stock items.
• They help the business owners to decide whether additional stock materials are required
or not.
• Stores Ledgers help the accounting and auditing staff to compute the concluding value of
the available stock materials.

How to maintain a Stores Ledger?

Stores Ledgers are generally assigned for each component of a particular material. When the
costing staff simply records the stock items’ quantities, the resultant statement is referred to as
the Bin Card. However, what distinguishes a Stores Ledger from a Bin Card is the presence of
some extra columns.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 43

 • The columns that make up a Stores Ledger include:
• The cost or value of the stock items.
• Inventory items received.
• Inventory items issued.
• Minimum stock items.
• Maximum stock items.
Advantages of Stores Ledger
Management of Stores Ledgers helps the business owners in a variety of ways. Some of the
significant advantages of Stores Ledgers include:
• They help in knowing the quantity as well as the value of available stock materials.
• Internal control in the management of inventory items can be established using stores
ledgers.
• They facilitate calculating the cost and quantity of the actually available inventory items
during annual counts and audits.
• The company owners become alert when the number of stock items falls below the
minimum level as per the Stores Ledgers.
Disadvantages of Stores Ledger
Even though Stores Ledgers have several benefits, they are not really without any limitations.
Some of the principal shortcomings of Stores Ledgers include:
• The large number of columns found in the stores ledgers make the computing process
complicated.
• There are chances of clerical errors, as too many columns have to be filled during the
updating process.
• The records found in store ledgers are not detailed. They are mere summarizations of the
actual transactions.

What Is a Bin Card?

Bin Card also is known as Stock Card or Bin Tag, is the summary of inventory movement and
the remaining balance. It is the movement that includes beginning balance, stock receipt, stock

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 44

issue, and the ending quantity. It is very important for the warehouse to know how many stock
remains just by looking at this report.

Advantage of Bin Card

• Be aware of inventory level: It will help the stock keeper to keep track of each inventory
or material level and propose any purchase if necessary. There is the minimum level of
each material on the card bin which will help the staff to alert to their supervision.
• Internal Control in warehouse: It will help the staff to identify the correct material
quicker, it will be beneficial when all the items are very similar. The risk of issue wrong
items also reduces.
• Reduce the chance of miss record: Every new receipt or issue, the staff will require to
update immediately in this report where it keeps next to the item. It will help to reduce
the risk of error or forget.
• Assist during the inventory count: During annual count, it will help the auditor and
responsible person to identify the material from list to floor and vice versa. Moreover, it
also helps the auditor to verify inventory quantity during the count as well.

Disadvantage of Bin Card

• Require more time: The warehouse officers require to spend time on updating the bin
card. Moreover, the staffs are able to check the stock level by checking the report rather
than this card.
• Duplicate work: During the inventory receipt and issue, we require to update both in bin
card and report (Excel or other control systems). And this report will be used during the
counting which is more reliable.
• Require warehouse space: The bin card will take warehouse space which can use for
storing other items. The more detail we require, the more space it takes.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 45

Difference Between Bin Card and Stores Ledger

Basis for comparison Bin card Stores ledger

Meaning Bin Card implies a quantity Stores ledger alludes to a subsidiary
record of the receipts, issue ledger, that keeps track of each and
and balance of materials in every transaction relating to
stores. materials in the stores.
What is it? It is a recording document. It is an accounting record.
Responsibility Storekeeper Cost accounting department
Location Kept inside the stock room. Kept outside the stock room.
Details Contains quantitative details Contains both quantitative and
only. monetary details.
Interdepartmental Are not shown in bin card. Indicated in stores ledger.
transfer
Entries Entries are posted when Entries are posted after transaction
transaction takes place. took place.
Recording Transactions are recorded Summarized transactions are
individually. recorded.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 46

Multiple Choice Questions
1. What is the main objective of material management?
(a) To minimize the material cost
(b) To procure and provide desired quality materials when required.
(c) To reduce the transportation cost of materials
(d) All of the above
2. Which of the following is not a function of material management?
(a) Material Planning
(b) Material Production
(c) Procurement
(d) Materials accounting
3. Which of the following is a function of material management?
(a) Transportation
(b) Computerization
(c) Source development
(d) All of the above
4. Material wastage analysis can be done through which function of material management?
(a) Material Planning
(b) Material Production
(c) Materials accounting
(d) Procurement
5. Main cause of material wastage during procurement is __________.
(a) Untimely buying of short life materials
(b) Wastage during transportation
(c) Failure to return unused surplus materials
(d) All of the above
6. Raw Materials and WIP can be classified under ________
(a) Indirect Material
(b) Direct Material
(c) Finished Material
(d) Standard Parts
7. _________ are the basic materials that have not undergone any conversion since their
receipt from suppliers.
(a) WIP
(b) Raw Material
(c) Finished Parts
(d) Work Made Parts
8. Materials Management has an important role in ______ management.
(a) Production
(b) Supply chain
(c) Operations
(d) All of the above
9. Materials management mainly focuses on _______
(a) management of raw materials or components required for continuous
production
(b) production of finished goods and their sale in the appropriate market
DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 47
 (c) management of logistics and supply chain activities for timely market reach

(d) distribution of materials to the seller and distributor for smooth functioning of the
market activities
10. Material is issued by storekeeper against _____________
(a) material requisition
(b) purchase requisition
(c) material order
(d) goods received notes
11. FIFO means
(a) First inside, first outside
(b) Further in, further out
(c) First into, first out
(d) First in, first out
12. Bin card is a document that records _______.
(a) Quantities only
(b) Value only
(c) Quantities
(d) Values both.
13. Stores ledger is maintained in the:
(a) Sales department
(b) Store department
(c) Cost accounting department
(d) Admin department

Short Questions (5 Marks)

1. Explain the functions and scope of materials management.
2. What are the Advantages of Integrated Materials Management?
3. What is meant by Store? Explain its types.
4. Define Storekeeping. And explain its objectives.
5. Who is Store Keeper?
6. What are the advantages of Stores Ledger?
7. What are the advantages and disadvantages of Bin Card?
8. How to maintain a Stores Ledger?
9. Explain the Importance of Materials Management.
10. Explain the Responsibilities of the storekeeper.

Long Questions (09 Marks)

1. Explain the Objectives of Materials Management.
2. Discuss the Classification of Materials.
3. Explain the Functions of Store Keeping.
4. Explain the Duties / Functions of Store Keeper.
5. Explain the Difference Between Bin Card and Stores Ledger.
6. Explain the advantages and disadvantages of Stores Ledger.
7. Explain the advantages and disadvantages of bin card.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 48

 8. Explain the advantages and disadvantages of Stores Ledger.

UNIT – IV
Management of Materials – Techniques of Materials Planning – Inventory Control –
Meaning & Importance – Tools of Inventory Control – ABC, VED, FSN Analysis – EOQ.

Meaning of Materials Planning

Materials Planning has been defined as the scientific way of determining the requirements of raw
materials, components and other items needed for production within the economic investment
policies. It is rather a subsystem in the overall planning activity. There are many factors, which
influence the activity of material planning. These factors can be classified as macro and
microsystems.
• Macro factors: Some of the micro factors which affect material planning are price
trends, business cycles Govt. import policy, etc.
• Micro factors: Some of the micro factors that affect material planning are plant capacity
utilization, rejection rates, lead times, inventory levels, working capital, the delegation of
powers and communication.

Techniques of Materials Planning

The techniques of materials planning are:
• Bill of Materials Explosion and
• Past Consumption Analysis.
Bills of materials explosion: The planning for materials management is aimed at determining
the demand for the end-products. This is possible only through farsightedness or forecasting.
Therefore, forecasting forms “the basis for materials planning. There are various techniques for
forecasting. These techniques are equally applicable to demand to forecast.
The techniques are:
• Moving averages method.
• Exponential smoothing and
DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 49
• Time series.
• Moving Averages Method: A moving average is a technique to get an overall idea of the
trends in a data set; it is an average of any subset of numbers. The moving average is
extremely useful for forecasting long-term trends.
• Exponential Smoothing: This method is suitable for forecasting data with no trend or
seasonal pattern. It does not display any clear trending behavior or any seasonality,
although the mean of the data may be changing slowly over time.
• Past Consumption Analysis: For continuously needed materials and the materials where
no bill of materials is possible, this technique of analysis is adopted- The past
consumption data is analyzed and a projection for the future on the basis of past
experience and future need is made. To prepare such a projection, “average” or “mean”
consumption and the “standard deviation” are taken as bases and as guidelines for each
item.

Inventory Control: Concept, Importance and Methods

What Is Inventory?
Inventory is the raw materials, components and finished goods a company sells or uses in
production. Accounting considers inventory an asset. Accountants use the information about
stock levels to record the correct valuations on the balance sheet.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 50

Concept of Inventory Control
Inventory control is the process of optimizing inventory storage to ensure a business has the ideal
inventory levels needed to fulfill customer orders on time. The goal of inventory control is for
brands to keep only the necessary units on hand without spending too much money upfront or
sacrificing customer satisfaction.

Accounting control of inventories is concerned with the proper recording of the receipt and
consumption of the material as well as the flow of goods through the plant into finished stock
and eventually to customers.

Considerations in Inventory Control

There are four major considerations for businesses looking to take control of their inventory.
These considerations will help determine the best control methods and inventory management
programs to use.
• Inventory analysis and purchasing: Inventory must be tracked and evaluated regularly
to ensure your supply can meet demand. It also advises the manager on what and when to
replenish stock.
• Product distribution: The ways products are categorized for distribution can make
recording inventory much easier. This can also allow you to discover discrepancies like
dead stock more quickly.
• Production evaluation: Production costs and efficiency need to be considered regularly
for any manufacturer. This will let you make any necessary adjustments and increase
sales.
• Tracking and inventory forecasting: Inventory tracking and forecasting will ensure you
can meet demand and avoid issues like the infamous backorder. This is done through the
creation of algorithms and constant vigilance by the order processing team (see what does
order processing mean).

Importance of Inventory Control

The aim of holding inventories is to allow the firm to separate the process of purchasing,
manufacturing, and marketing of its primary products. Inventories are a component of the firm’s
working capital and as such represent a current account.
Inventories are also viewed as a source of near all cash. The purpose is to achieve efficiencies in
areas where costs are involved. The scientific inventory control results in the reduction of stocks
on the one hand and substantial decline in critical shortages on the other.
In the following paragraph we can specify the various importance’s that accrue from holding
inventories:
• Reducing Risk of Production Shortages: Firms mostly manufacture goods with
hundreds of components. The entire production operation can be halted if any of these are
missing. To avoid the shortage of raw material the firm can maintain larger inventories.
• Reducing Order Cost: Where a firm places an order, it incurs certain expenses.
Different forms have to be completed. Approvals have to obtained, and goods that arrive
must be accepted, inspected and counted. These costs will vary with the number of orders
placed. Smaller the inventories lesser the capital needed to carry inventories.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 51

 • Minimise the Blockage of Financial Resources: The importance of inventory control is
to minimise the blockage of financial resources. It reduces the unnecessary tying up of
capital in excess inventories. It also improves the liquidity position of the firm.
• Avoiding Lost Sales: Most firms would lose business without goods on hand. Generally
a firm must be prepared to deliver goods on demand. By ensuring timely availability of
adequate supply of goods, inventory control helps the firm as well as consumers.
• Achieving Efficient Production Scheduling: The manufacturing process can occur in
sufficiently long production runs and with preplanned schedules to achieve efficiencies
and economies. By maintaining reasonable level of inventory production scheduling
becomes easier for the management.
• Gaining Quantity Discounts: While making bulk purchases many suppliers will reduce
the price of supplies and component supplies will reduce the price of supplies and
component parts. The large orders may allow the firm to achieve discounts on regular
basis. These discounts in turn reduce the cost of goods and increase the profits.
• Taking the Advantage of Price Fluctuations: When the prices of the raw materials are
low the firm makes purchases in economic lots and maintains continuity of operations.
By reducing the cost of raw materials and procuring high prices for its goods the firm
maximises profit. This with the help of inventory control the firm takes advantage of
price fluctuations.
• Tiding over Demand Fluctuations: Inventory control also helps the firm in tiding over
the demand fluctuation. These are taken care of by keeping a safety stock by the firm.
Safety stock refers inventories carried to protect against variations in sales rate,
production rate and procurement time. Inventory control aims at keeping the cost of
maintaining safety stock minimum.
• Deciding timely Replenishment of Stocks: Inventory control results in the maintenance
of necessary records, which can help in maintaining the stocks within the desired limits.
With the help of adequate records, the firm can protect itself against thefts, wastes and
leakages of inventories. These records also help in deciding about timely replenishment
of stocks.

Objectives of Inventory Control

• To minimise capital investment in inventory by eliminating excessive stocks;
• To ensure availability of needed inventory for uninterrupted production and for meeting
consumer demand;
• To provide a scientific basis for planning of inventory needs;
• To tiding over the demand fluctuations by maintaining reasonable safety stock;
• To minimise risk of loss due to obsolescence, deterioration, etc.;
• To maintain necessary records for protecting against thefts, wastes leakages of
inventories and to decide timely replenishment of stocks.

Tools of Inventory Control

• Always Better Control (ABC)
• Very Essential Desirable (VED)
• Fast moving Slow moving Nonmoving (FSN)
• Economic Order Quantity (EOQ)

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 52

ABC Analysis
What is ABC Analysis in Inventory Management?
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.

(Annual number of items sold) x (Cost per item) = (Annual usage value per product)

Classes in ABC Inventory Management

Type Importance Percentage of Annual Control Records
Total Consumptio s
Inventory n Value
Class A High value 10% – 20% 70% – 80% Tight High
Accuracy
Class B Medium value 30% 15% – 20% Medium Good
Class C Low value 50% 5% Basic Minimal

The ABC analysis can be shown on a graph too. For this purpose, the cumulative percentages of
the number of items are shown on X-axis and percentage of values on F-axis. Where the plotted
curve takes a sharp turn, a point is marked.

Each such point indicates one category of items. For example, in Fig. 6.1-point P on the curve
indicates 20% of item; with 60% usage value. This category can be called A. Point Q shows 30%
items with 20% usage value. This category is B. Point R reflects 50% items with 20% usage
value which is category C.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 53

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. 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.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 54

 • Sensible Stock Turnover Rate: Maintain the stock turnover rate at appropriate levels
through methodical inventory control and data capture.
• Reduced Storage Expenses: By carrying the correct proportion of stock based on A, B
or C classes, you can reduce the inventory carrying costs that come with holding excess
inventory.
• Simplified Supply Chain Management: Use an ABC analysis of inventory data to
determine if it’s time to consolidate suppliers or shift to a single source to reduce carrying
costs and simplify operations.

ABC Analysis Limitations

ABC analysis, despite all its benefits for inventory maintenance and management, is not a one-
size-fits-all inventory management solution. Every organization has specific customer demand
patterns, classifications, systems and other issues that affect the usefulness of an ABC analysis.
The disadvantages of ABC analysis stem from two issues: an emphasis on the dollar value of
inventory and the significant amount of time and discipline it takes to apply the method. Here are
a few more challenges:
• Parameter Instability: ABC analysis often results in managers assigning up to 50% of
items to a new category every quarter or year. Often, companies are not aware of the
changes until there is a problem with demand, and the need to reassess may take up
valuable time and jeopardize customer satisfaction.
• Limited Pattern Consideration: The standard ABC method will not account for factors
like new product introductions or product seasonality. For example, a new product may
have low sales volume because it has no buying history. ABC analysis has a somewhat
static perspective on demand and will generate inventory inefficiencies whenever demand
is shifting or unclear.
• Low Information Extraction: ABC class information may not provide all the statistical
data or detail needed to make informed, strategic management decisions.
• High Resource Consumption: Giving disproportionate weight to trivial issues is known
as bike shedding, which can be an unfortunate consequence of ABC analysis. Since ABC
analysis is easy to grasp, staff may inject their opinions or request their own variants
making ABC analysis a resource-consuming process rather than a time-saving tool.
• Value Blindness: ABC analysis ascribes product importance based on revenue or
frequency of use, but some items may not hold to this paradigm. For example, a retail
display item may rarely sell but may attract a lot of customers (who will buy other
products) based on its novelty. In aerospace, a specific part for a plane may not be used
often and have little market value, but it may be a fundamental safety function.
• System Incompatibility: ABC inventory analysis conflicts with traditional costing
systems and is out of compliance with generally accepted accounting principles (GAAP)
requirements. If you must run multiple costing systems, labor costs will rise alongside
inefficiency.
• Undersupply or Oversupply Issues: One ABC analysis disadvantage is it looks at
dollar-based values, rather than the volume that cycles through inventory, so there is a
risk of running out of Class B or C items. The opposite can occur, too. You may have
excess low-class items that accumulate in inventory if you reorder them without regular
reviews.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 55

 • Loss Risk: Just because B and C items do not have as high a value as Class A products
does not mean they no value. One of the limitations of ABC analysis is that excess stocks
are always in jeopardy of obsolescence or damage. Therefore, the inventory that
habitually goes uncounted or unmonitored may be subject to theft.
• Mandatory Standardization: The ABC method is only successful if every item is
subject to the standardization of materials, which includes how they are named, stored,
and consistently rated and monitored.
• Arbitrary Categorization: Without preset boundaries or agreed-upon standards for each
category, classifying goods depends on the manager's professional judgment. So this can
be a relatively subjective process.
• Business Limitations: ABC analysis is not useful for companies that have an equable
annual consumption value of inventory items by type. For instance, a company that sells
the same version of an item like candy, nails or socks, may not be able to sort stock based
on the Pareto Principle.
• High Resource Consumption: Companies with a significant number of inventory items
will have to hire additional staff or buy special equipment to control inventory using
ABC categorization.

How to Perform ABC Analysis

A thorough ABC analysis begins with identifying the objective you’re trying to reach. Once you
have that, collect the necessary information to categorize the items. Once the classes are in
place, closely track and make decisions based on the resulting data.
Here’s how to perform an ABC analysis step-by-step:
• Identify the Objective: An ABC analysis can help you meet one of two targets: lower
procurement costs or raise cash flow by optimizing inventory levels of the right items
based on customer sales or production.
• Collect Data: The most common data to collect is the annual spend on each item. This
data is in raw purchase dollars. If it’s easy to calculate, you can gather the weighted cost,
including gross profit margin, ordering and carrying cost data.
• Sort by Decreasing Order of Impact: Use the ABC analysis formula to rank each
inventory item’s order by cost — from highest to lowest impact.
• Calculate the Sales Impact: For each inventory item, calculate its impact on sales as a
percentage by dividing the annual item cost by the aggregated total of all items spent.
This number is the percent, or fraction, that you will use to compare items in the list.
Here’s the formula: % Impact = (annual item cost) / (aggregated total of all items
spent) x 100
• Sort Items into Buy Classes: Once you define the classes, work on contract
renegotiation, vendor consolidation, shifting strategic sourcing methodology or
implementing e-procurement. Making changes in these areas can provide significant
savings or ensure the in-stock availability of Class A items. Take a holistic view rather
than being strict about the 80/20 rule.
• Analyze Classes: Once categories and strategic cost management are defined, schedule
reviews to monitor the success or failure of decisions.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 56

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 viewpoints 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.
Some spares are so important that their non-availability renders the equipment or a number of
equipment in a process line completely inoperative, or even causes extreme damage to plant,
equipment or human life.
On the other hand, some spares are non-functional, serving relatively unimportant purposes and
their replacement can be postponed or alternative methods of repair found. All these factors will
have direct effects on the stocks of spares to be maintained.

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: 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 whiles most of the spares will fall in ‘the desirable and
essential’ category.

What is FSN analysis?

FSN Analysis is an inventory management technique which is based on the rate of consumption
of spares and goods in an organization. This analysis divides the inventory into three categories
based on their speed or rate of utilization, their consumption rate, and average stay.

FSN stands for

F-Fast-moving,
S-Slow-moving, and
N-Non-moving.
• Fast-moving inventory: Fast-moving inventory comprises of inventory, which moves in
and out of stock fastest and most often. Therefore, these goods have the highest
replenishment rate. Items in this category generally comprise less than 20% of the total
inventory.
• Slow-moving inventory: Items in this category move slower, and hence, their
replenishment is also slower. This category comprises of around 35% of the total
inventory in an organization.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 57

 • Non- moving inventory: The last category of this analysis is the least moving portion of
the inventory and also includes the dead stock. Replenishment of such inventory may or
may not take place at all after utilization. This category can go as high as 55%-60% of the
total inventory in organizations.

Interpretation
As per Cumulative average stay, FSN analysis goods have three categories as:
• Fast-moving goods comprise of 10% or lesser of the average cumulative stay calculated.
• Slow-moving goods comprise of 20% or lesser of the average cumulative stay calculated.
• Non-moving goods comprise of 70% or lesser of the average cumulative stay calculated.

The FSN analysis is based on the following parameters mentioned below:

• The consumption rate of a product: The average quantity of an item consumed or
expended during a given time interval.
• The average stay in inventory: Reflects how long a specific product took to get sold in
a given period.
• Period of analysis: Define when you are conducting the analysis, in a year, 6 months,
etc.

FSN Analysis and calculation

FSN analysis makes use of a few parameters to arrive at the three categories of goods in the
inventory. Since it is a scientific analysis and not based on the judgment of a few individuals,
formulas are used to arrive at figures which tell us if a good belongs to a fast-moving or slow-
moving or non-moving category.
• Average Stay: Number of cumulative days inventory is held/ (Opening Balance of the
good + Number of goods received during the period)
• Consumption Rate:  Total number of goods issued/ Total period
• The next step is to calculate the Cumulative average stay and Cumulative consumption
rate.
• Cumulative average stay: Average stay of the item + Average stay of all goods having
an average stay more than itself
• Cumulative consumption rate: Consumption rate of the item + Consumption rate of all
goods that are consumed faster

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 58

 • Percentage average stay: (Cumulative average stay of the item/ Cumulative average
stay of all goods) x 100
• Percentage consumption rate: (Cumulative consumption rate of the item/ Cumulative
consumption rate of all goods) x 100

Economic Order Quantity (EOQ)

Meaning
Economic Order Quantity (EOQ) is a production formula used to determines the most efficient
amount of goods that should be purchased based on ordering and carrying costs. In other words,
it represents the optimal quantity of inventory a company should order each time in order to
minimize the costs associated with ordering and holding inventory.

Benefits of Economic Order Quantity (EOQ)

The main benefit of using EOQ is improved profitability. Here’s a list of benefits that all add up
to savings and improvements for your business:
• Improved Order Fulfillment: When you need a certain item or something for a
customer order, optimal EOQ ensures the product is on hand, allowing you to get the
order out on time and keep the customer happy. This should improve the customer
experience and may lead to increased sales.
• Less Over ordering: An accurate forecast of what you need and when will help you
avoid over ordering and tying up too much cash in inventory.
• Less Waste: More optimized order schedules should cut down on obsolete inventory,
particularly for businesses that hold perishable inventories that can result in dead stock.
• Lower Storage Costs: When your ordering matches your demand, you should have less
products to store. This can lower real estate, utility, security, insurance and other related
costs.
• Quantity Discounts: Planning and timing your orders well allows you to take advantage
of the best bulk order or quantity discounts offered by your vendors.

Challenges of Economic Order Quantity (EOQ)

While many businesses want to use EOQ to determine order sizes, it isn’t always easy to
achieve. When determining EOQ, you may run into these challenges:
• Poor Data: One of the biggest challenges of determining EOQ is access to accurate and
reliable data. Manual or spreadsheet-driven systems may provide low-quality or outdated
information, which can lead to inaccurate calculations.
• Outdated Systems: Old and outdated systems may have incomplete data and lead to
missing out on potential savings. An inventory management system or cloud-based ERP
can solve this problem.
• Business Growth: The EOQ formula is ideal for businesses with consistent inventory
needs. With a fast-growing business, relying on EOQ can lead to inventory shortages.
• Inventory Shortages: If you’re just starting to use this method, it often generates smaller
orders. If you are too conservative with your calculations, you could wind up under-
ordering.
• Seasonal Needs: Seasonality can make EOQ more challenging, but not impossible. This
is because there could be major changes in customer demand throughout the year.
DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 59
Assumptions:
• Constant or uniform demand.
• Independent orders.
• Instantaneous delivery.
• Constant ordering costs.
• Constant carrying costs.
• Constant unit price.

The economic order quantity formula

The formula for economic order quantity is:

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 60

Multiple Choice Questions
1. Which of these is not an advantage of inventory management?
(a) It protects against lead time and demand uncertainty
(b) It protects against price changes
(c) It protects against contingencies.
(d) All of the above
2. Which of these is not a method of inventory control?
(a) ABC Analysis
(b) MEP Analysis
(c) FSN Analysis
(d) VED Analysis
3. In selective inventory control which method is based on rate of material consumption?
(a) ABC Analysis
(b) MEP Analysis
(c) FSN Analysis
(d) VED Analysis
4. In selective inventory control which method is based on material’s opportunity cost?
(a) ABC Analysis
(b) MEP Analysis
(c) FSN Analysis
(d) VED Analysis
5. In selective inventory control which method is based on material’s significance with
respect to other materials?
(a) ABC Analysis
(b) MEP Analysis
(c) FSN Analysis
(d) VED Analysis
6. Which of these is not a policy for inventory control?
(a) Two bin system
(b) Material type replacement policy
(c) Lot size reorder point policy
(d) Fixed order interval scheduling policy
7. Which policy of inventory control requires maximum inventory storage?
(a) Two bin system
(b) Optimal replacement policy
(c) Lot size reorder point policy
(d) Fixed order interval scheduling policy
8. _________ is the primary factor considered while implementing inventory control policy.
(a) Maximum inventory
(b) Reorder point
(c) Lead time
(d) Minimum stock level
9. In material management EOQ stands for __________.
(a) Economic Option Quantity
(b) Economic Order Quality
DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 61
 (c) Early Order Quantity
(d) Economic Order Quantity
10. Which of the following is not an inventory?
(a) Machines
(b) Raw material
(c) Finished products
(d) Consumable tools
11. In the ABC Analysis system the B category stands for___.
(a) Outstanding importance in value
(b) Comparatively unimportant in value
(c) Comparatively important in value
(d) Average importance in value
12. The economic order quantity formula is taken using ___.
(a) Differential calculus
(b) Integral calculus
(c) Vector calculus
(d) Multivariate analysis
13. Which among the following components is calculated as the sum of the fixed costs that
happen each time an item is ordered?
(a) Carrying cost
(b) Order cost
(c) Holding cost
(d) Storing cost
14. A company that maintains a sufficient safety margin by having extra inventory against
certain situations is termed as ___.
(a) Inventory
(b) Lot size
(c) Safety stock
(d) Lead

Shor Questions (5 Marks)

1. Explain the Techniques of Materials Planning.
2. What are the Considerations in Inventory Control?
3. Explain the Objectives of Inventory Control.
4. What are the ABC Analysis Limitations?
5. How to Perform ABC Analysis?
6. Explain the Benefits of Economic Order Quantity (EOQ).
7. What are the Challenges of Economic Order Quantity?
8. Explain the assumptions of EOQ.

Long Questions (09 Marks)

1. Explain the Importance of Inventory Control.
2. Discuss the Tools of Inventory Control.
3. Explain the advantages of ABC analysis.
4. Explain the disadvantages of ABC analysis.
5. Briefly explain the FSN analysis.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 62

 6. Explain the challenges and benefits of Economic Order Quantity.

UNIT – V
Purchasing – Procedure – Principles – Purchase Parameters – 8 R’s – Vendor Rating –
Vendor Development – Store Keeping & Materials Handling – Objectives – Functions –
Types of Modern Material Handling Equipment – Just in Time (JIT) – Definition –
Process.

Meaning of purchasing

Procuring goods & services from external source

Purchasing means it is a functions of procuring goods services from the sources of external to the
organization

Definition of purchasing

According to al ford and Beary defines,” purchasing is the procuring of materials and machine
tools and services required for the equipment maintenance as operation of the manufacturing.

Method of Buying / Purchasing:

1. Hand –to-mouth buying: Buying goods when need axises at small quantity
2. Scheduled purchasing: Buyer will prepare a schedule based on the schedule buyer buy
thing a goods
3. Market purchasing: When the prices are low in the market for a product that time we
will buy that product.
4. Speculative purchasing: When the prices are lower in the market. A Buyer will buy and
the prediction / expecting its price will get increased that time can earlier profit selling.
5. Contract purchasing: Buyer and seller mutually make an agreement based on the
agreement sellers will supply goods to the buyer
6. Blanket orders purchasing: A Buyer will buy variety of goods from single sellers
7. Tender purchasing: The public are under taking in India follows this kind of tender
taking method.
8. Seasonal purchasing: Buying on goods in the market when it is available and buying it
in large quantity for the purpose of continuous production all over the year
9. Group purchasing: A buyer will buy variety of materials and goods from the sellers by
paying variety of price.
10. Sub contract purchasing: Price is fixed by the main contractor but delivery the goods
from the sellers by paying variety of prices.
11. Purchase by Requirement: When need arises that time buying the goods at required
Qualities
12. Purchase for a specific future period: This method is suitable when the goods at
required Qualities

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 13. Just in Time purchasing(JIT): While buying items should consider at eliminating
wastages in buying process and also minimiying cost like orders processing cost,
transportation cost, and packaging cost material handling cost.

What is Purchasing Management?

Purchasing is an important function of materials management. In any industry purchase means
buying of equipments, materials, tools, parts etc. required for industry. The importance of the
purchase function varies with nature and size of industry. In small industry, this function is
performed by works manager and in large manufacturing concern; this function is done by a
separate department.

Purchasing Management Objectives

1. To avail the materials, suppliers and equipments at the minimum possible costs:
These are the inputs in the manufacturing operations. The minimization of the input cost
increases the productivity and resultantly the profitability of the operations.
2. To ensure the continuous flow of production through continuous supply of raw
materials, components, tools etc. with repair and maintenance service.
3. To increase the asset turnover: The investment in the inventories should be kept
minimum in relation to the volume of sales. This will increase the turnover of the assets
and thus the profitability of the company.
4. To develop an alternative source of supply: Exploration of alternative sources of
supply of materials increases the bargaining ability of the buyer, minimisation of cost of
materials and increases the ability to meet the emergencies.
5. To establish and maintain the good relations with the suppliers: Maintenance of good
relations with the supplier helps in evolving a favourable image in the business circles.
Such relations are beneficial to the buyer in terms of changing the reasonable price,
preferential allocation of material in case of material shortages, etc.
6. To achieve maximum integration with other department of the company: The
purchase function is related with production department for specifications and flow of
material, engineering department for the purchase of tools, equipments and machines,
marketing department for the forecasts of sales and its impact on procurement of
materials, financial department for the purpose of maintaining levels of materials and
estimating the working capital required, personnel department for the purpose of manning
and developing the personnel of purchase department and maintaining good vendor
relationship.
7. To train and develop the personnel: Purchasing department is manned with varied
types of personnel. The company should try to build the imaginative employee force
through training and development.
8. Efficient record keeping and management reporting: Paper processing is inherent in
the purchase function. Such paper processing should be standardised so that record
keeping can be facilitated. Periodic reporting to the management

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Purchasing Procedure
The procedure describes the sequence of steps leading to the completion of an identified specific
task. The purchasing procedure comprises the following steps.

1. Recognition of the Need: The initiation of procedure starts with the recognition of the
need by the needy section. The demand is lodged with the purchase department in the
prescribed Purchase Requisition Form forwarded by the authorized person either directly
or through the Stores Department. The purchase requisition clearly specifies the details,
such as, specification of materials, quality and quantity, suggested supplier, etc.
Generally, the low value sundries and items of common use are purchased for stock while
costlier and special items are purchased according the production programmes.
Generally, the corporate level executives are authorized signatories to such demands.
Such purchases are approved by the Board of Directors. The reference of the approval is
made on requisition and a copy of the requisition is sent to the secretary for the purpose
of overall planning and budgeting.
2. The Selection of the Supplier: The process of selection of supplier involves two basic
aspects: searching for all possible sources and short listing out of the identified sources.
The complete information about the supplier is available from various sources, such as,
trade directories, advertisement in trade journals, direct mailing by the suppliers,
interview with suppliers, salesmen, suggestions from business associates, visit to trade
fair, participation in industries convention, etc. Identification of more and more sources
helps in selecting better and economical supplier. It should be noted that the low bidder is
not always the best bidder. When everything except price is equal, the low bidder will be

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 selected. The important considerations in the selection are the price, ability to supply the
required quantity, maintenance of quality standards, financial standing etc. It should be
noted that it is not necessary to go for this process for all types of purchases. For the
repetitive orders and for the purchases of low-value, small lot items, generally the
previous suppliers with good records are preferred.
3. Placing the Order: Once the supplier is selected the next step is to place the purchase
order. Purchase order is a letter sent to the supplier asking to supply the said material. At
least six copies of purchase order are prepared by the purchase section and each copy is
separately signed by the purchase officer. Out these copies, one copy each is sent to
store-keeper, supplier, accounts section, inspection department and to the department
placing the requisition and one copy is retained by the purchase department for record.
4. Follow Up of the Order: Follow-up procedure should be employed wherever the costs
and risks resulting from the delayed deliveries of materials are greater than the cost of
follow-up procedure, the follow-up procedure tries to see that the purchase order is
confirmed by the supplier and the delivery is promised. It is also necessary to review the
outstanding orders at regular intervals and to communicate with the supplier in case of
need. Generally, a routine urge is made to the supplier by sending a printed post card or a
circular letter asking him to confirm that the delivery is on the way or will be made as per
agreement. In absence of any reply or unsatisfactory reply, the supplier may be contact
through personal letter, phone, telegram and/or even personal visit.
5. Receiving and Inspection of the Materials: The receiving department receives the
materials supplied by the vendor. The quantity are verified and tallied with the purchase
order. The receipt of the materials is recorded on the specially designed receiving slips or
forms which also specify the name of the vendor and the purchase order number. It also
records any discrepancy, damaged condition of the consignment or inferiority of the
materials. The purchase department is informed immediately about the receipt of the
materials. Usually a copy of the receiving slip is sent to the purchase department.
6. Payment of The Invoice: When the goods are received in satisfactory condition, the
invoice is checked before it is approved for the payment. The invoice is checked to see
that the goods were duly authorized to purchase, they were properly ordered, they are
priced as per the agreed terms, the quantity and quality confirm to the order, the
calculations are arithmetically correct etc
7. Maintenance of the Records: Maintenance of the records is an important part and parcel
of the efficient purchase function. In the industrial firms, most of the purchases are repeat
orders and hence the past records serve as a good guide for the future action. They are
very useful for deciding the timings of the purchases and in selecting the best source of
the supply.
8. Maintenance of Vendor Relations: The quantum and frequency of the transactions with
the same key suppliers provide a platform for the purchase department to establish and
maintain good relations with them. Good relations develop mutual trust and confidence in
the course of the time which is beneficial to both the parties. The efficiency of the
purchase department can be measured by the amount of the goodwill it has with its
suppliers.

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Principles and Parameters of Purchasing
The success of any manufacturing activity is largely dependent on the procurement of raw
materials of right quality, in the right quantities, from right source, at the right time and at right
price popularly known as ten ‘R’s’ of the art of efficient purchasing. They are described as the
basic principles of purchasing. There are other well-known parameters such as right contractual
terms, right material, right place, right mode of transportation and right attitude are also
considered for purchasing.

1. Right Price: It is the primary concern of any manufacturing organization to get an item
at the right price. But right price need not be the lowest price. It is very difficult to
determine the right price; general guidance can be had from the cost structure of the
product. The ‘tender system’ of buying is normally used in public sector organizations
but the objective should be to identify the lowest ‘responsible’ bidder and not the lowest
bidder. The technique of ‘learning curve’ also helps the purchase agent to determine the
price of items with high labor content. The price can be kept low by proper planning and
not by rush buying. Price negotiation also helps to determine the right prices.
2. Right Quality: Right quality implies that quality should be available, measurable and
understandable as far as practicable. In order to determine the quality of a product
sampling schemes will be useful. The right quality is determined by the cost of materials
and the technical characteristics as suited to the specific requirements. The quality
particulars are normally obtained from the indents. Since the objective of purchasing is to
ensure continuity of supply to the user departments, the time at which the material is
provided to the user department assumes great importance.
3. Right Time: For determining the right time, the purchase manager should have lead time
information for all products and analyze its components for reducing the same. Lead time
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 is the total time elapsed between the recognition of the need of an item till the item
arrives and is provided for use. This covers the entire duration of the materials cycle and
consists of pre-contractual administrative lead time, manufacturing and transporting lead
time and inspection lead time. Since the inventory increases with higher lead time, it is
desirable to analyze each component of the lead time so as to reduce the first and third
components which are controllable. While determining the purchases, the buyer has to
consider emergency situations like floods, strikes, etc. He should have ‘contingency
plans’ when force major clauses become operative, for instance, the material is not
available due to strike, lock-out, floods, and earthquakes.
4. Right Source: The source from which the material is procured should be dependable and
capable of supplying items of uniform quality. The buyer has to decide which item
should be directly obtained from the manufacturer. Source selection, source development
and vendor rating play an important role in buyer-seller relationships. In emergencies,
open market purchases and bazaar purchases are restored to.
5. Right Quantity: The right quantity is the most important parameter in buying. Concepts,
such as, economic order quantity, economic purchase quantity, fixed period and fixed
quantity systems, will serve as broad guidelines. But the buyer has to use his knowledge,
experience and common sense to determine the quantity after considering factors such as
price structure, discounts, availability of the item, favorable reciprocal relations, and
make or buy consideration.
6. Right Attitude: Developing the right attitude, too, is necessary as one often comes
across such statement: ‘Purchasing knows the price of everything and value of nothing’;
‘We buy price and not cost’; ‘When will our order placers become purchase managers?’;
‘Purchasing acts like a post box’. Therefore, purchasing should keep ‘progress’ as its key
activity and should be future-oriented. The purchase manager should be innovative and
his long-term objective should be to minimize the cost of the ultimate product. He will be
able to achieve this if he aims himself with techniques, such as, value analysis, materials
intelligence, purchases research, SWOT analysis, purchase budget lead time analysis, etc.
7. Right Contracts: The buyer has to adopt separate policies and procedures for capital and
consumer items. He should be able to distinguish between indigenous and international
purchasing procedures. He should be aware of the legal and contractual aspects in
international practices.
8. Right Material: Right type of material required for the production is an important
parameter in purchasing. Techniques, such as, value analysis will enable the buyer to
locate the right material.
9. Right Transportation: Right mode of transportation has to be identified as this forms a
critical segment in the cost profile of an item. It is an established fact that the cost of the
shipping of ore, gravel, sand, etc., is normally more than the cost of the item itself.
10. Right Place of Delivery: Specifying the right place of delivery, like head office or
works, would often minimize the handling and transportation cost.

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Who is vendor?
A vendor, also known as a supplier, is an individual or company that sells goods or services to
someone else in the economic production chain.
A person or company that supplies goods or services to a business.
The person selling, especially in the case of real property. The term seller is more frequently
used when referring to transactions involving personal property.

Selection of Suppliers/Vendor
• Supplier Selection Scorecard: The first step in the supplier selection process is to create a
supplier selection scorecard. The supplier selection scorecard contains all the important
elements you require in a supplier. It has long been stated, “That which does not get
measured, does not get done”.
Your scorecard should be quantifiable and include:
• Supplier characteristics
• The important strategic alignment factors you value
• Applicable business policies
• Any constraints – management directives, government regulations, contracts already in
place, and other commitments
• Identify Suitable Suppliers: Once you have the selection criteria in place, you must create
the pool from which you will select a supplier. During this part of the process you will want
to consider:
• Current suppliers: Starting with suppliers you have experience with and established
relationships is generally a good idea
• Past suppliers: Depending upon the reasons why they are ‘past’ and not ‘current’
• Competitors: You may be in a position to buy from a competitor if it is ethical and low-
risk
• Industry groups: many of which are non-profit and maintain data bases of member
companies
• Recommendations and prior business relationships: perhaps created while working at
other companies
• Internet: which offers myriad opportunities to find, research, and contact potential
suppliers
• Scorecard Ranking: Next, gather information from the identified suitable suppliers –
perhaps in the form of a Request for Quote (RFQ) or Request for Proposal (RFP). Tabulate
the information you collect and use the scorecard to rank the potential suppliers.
• Select the highest ranking supplier: Recognize that while you are not required to pick
the top scorer, moving too far down the list is a red flag, indicating the process was
flawed
• Choose more than one for further qualification: May include interviews, site visits,
etc.
• Negotiate: After you have narrowed the list to a manageable number of best options,
possibly just one, let the negotiations begin. Depending on the critical good or service, you
may negotiate with just the top supplier on your scorecard, even if others remain on the list of
potentials.
• Create Contract: Once an agreement is reached, a contract is created and signed. For many
transactions, the purchase order is the contract. For complex situations, you may have a

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 contract and then create a separate purchase order. Creating the purchase order will include
activating your procurement system. This should be a standard operating procedure and
include getting your accounts payable process ready to process the supplier invoice.

What is vendor management?

Vendor management is a term that describes the processes organizations use to manage their
suppliers, who are also known as vendors. Vendor management includes activities such as
selecting vendors, negotiating contracts, controlling costs, reducing vendor-related risks and
ensuring service delivery.

Benefits of Vendor Management

By having proper vendor management in place, an organization can experience the following
benefits:
1. Better Selection: By implementing appropriate vendor management in place, your
organization can benefit from a larger selection of vendors, resulting in more choices and
ultimately better costs. Your organization can benefit from a bidding war between
vendors while ensuring that you get your money’s worth.
2. Better Contract Management: In a multi-vendor scenario, lack of vendor management
system elevates the issue of managing contracts, documentation and other vital
information in your organization.
3. Better Performance Management: An integrated view of the performance of all the
vendors can be achieved through the implementation of a vendor management system.
This can give your organization a clear understanding of what is working and what is not!
This ultimately leads to improved efficiency, which in turns improves the overall
performance of the organization.
4. Better Vendor Relationship: It is never easy to manage multiple vendors at the same
time. While some vendors may prove really fruitful, others may not. But managing
relationship among the vendors is the key to successful project completion. By getting all
vendor related information in a single place, you benefit from getting all required
information at once and it can influence your decision-making process, thereby
simplifying it!
5. Better Value: Ultimately the goal of a vendor management system is to get the most
value for your buck. So, implementation of a vendor management system, when done
properly can result in long-term savings as well as improved earnings over a period of
time.

Challenges in Vendor Management

Although there are many benefits, some challenges need to be overcome to ensure the smooth
functioning of the organization.
There are many challenges that an organization may face if vendor management is not
implemented correctly. They are as follows:
1. Vendor Compliance Risk: Setting standards before dealing with vendors can save you
loads of time and money spent. Not all vendors may perform as per your standards. It is
important to choose the right vendor from multiple vendors, who meet your
organizational standards and criteria while promising excellent performance.

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 2. Vendor Reputation Risk: Dealing with multiple vendors is not an easy task. Also, the
quality of work has to be gauged upfront before getting into a contract, which makes the
process more complicated.
3. Lack of Visibility: While it is really important to have a centralized data storage solution
for managing vendor data, it also benefits the organization from a centralized view and
improved visibility, which can lead to better resource allocation and improved efficiency.
4. Vendor Data Storage: As your organization grows, it becomes essential to have a
vendor data storage solution in place. In the absence of a vendor management system,
storing and retrieving data might prove to be really tough, considering the fact that you
may be dealing with multiple vendors for multiple projects at the same time.
5. Vendor Payment Risk: Some vendors may have different payment terms, while some
may adhere to industry standard terms. Figuring out the terms and ensuring that the
payment is always made on time is one of the major issues, especially while dealing with
multiple vendors at the same time.

What is Vendor Rating?

Vendor rating is the process of assessing a potential vendor’s capabilities and determining their
suitability for your needs.

Vendor rating is a process where the suppliers are provided with a status or a title based on
several factors.

Factors could be credibility, delivery time, price, quality of the goods supplied, and a set of such
mixed variables.

The vendor ratings are based on the vendor’s performance. They can have several levels: good,
average to best, or anything that the firm decides.

Criteria for vendor rating

We know that some factors or parameters affect the supplier rating. For example, while
evaluating suppliers, buyers usually consider the following things.
• Quality: The quality of the products or goods vendor supplies is the main factor. The
vendor can maintain good quality by improving production having quality planning in the
supply chain. Quality factor consists following things.
• The supplier should obey and follow the terms and conditions mentioned in the
purchase order.
• The vendor’s products or services must meet the specifications mentioned in the
request for proposal and purchase order.
• The product failure rate should be within the appropriate limit.
• The vendor should do proper repair or rework.
• He should provide an adequate time duration for replacement.
• Price: A company always wants to get the materials at less expense to reduce its
manufacturing cost to increase its profit. Hence the vendor needs to set a competitive
price for his products. It includes the following things.
• Stable price: The price of the product or service must be stable over some time.

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 • Accurate price: There should not be much difference between the purchase order
price and invoice price.
• Prior notice about price changes: He should inform about price changes in advance.
• Billing: He must provide easily readable and understandable bills.
• Delivery: The supplier has to develop the ability to deliver the goods on a scheduled
date. This factor consists following things.
• Lead time: Lead time is the time between the actual delivery day and order
placement day. The shortest lead time helps to get a good impression on the supplier.
The vendor should deliver products on or before the promised date.
• Quantity: He must deliver the correct amount of products as mentioned in the
contract.
• Packing and documentation: Packing of the products must be suitable, study, and
undamaged. The vendor should provide proper documents along with the delivered
products.
• Emergency delivery: The vendor must have the ability to deliver products in case of
some emergency requirements.
• Service: It is one of the crucial criteria for the supplier. He has to provide good service
by providing an updated catalog, pricing information, technical information, and the
following things. Vendor must have the ability to handle complaints effectively.
The vendor should provide technical support for installation, maintenance, and repair.
• Emergency support: Supplier should support in the emergency condition of product
failure or repair.
• Resolve the problems: Supplier should find the solution for the problem on time.

Supplier evaluation or methods of vendor rating

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 • Categorical plan: Managers from various verticals make a list of factors that are crucial
for a vendor to own based on their personal experiences, and vendors are compared based
on the same.
• Weighted point plan: Factors are categorized, and weight is assigned to each factor
based on vendor performance. An example is given below for calculating the same.
• Cost ratio plan: Supplier rating is done based on different costs incurred for procuring
the materials from different suppliers. The cost ratios are ascertained for the various
rating variables such as quality, price, and timely delivery. The cost ratio is calculated in
percentage based on the total individual cost and the total value of the purchase.
• Eavastons’s vendor selection: previous performances of the vendor are considered for
choosing them.
• Forced decision matrix: the attributes of rating like quality, service, price, reliability of
the vendor, lead time of supply are identified first. Then these factors are compared
between themselves. If something is more important, it will be assigned with one’s
weight, and the other will be zero for evaluation.
• Service cost ratio: subjectively measuring other intangible aspects of a supplier’s
services. Aspects to consider could be Labour stability, financial stability, flexibility in
production for rush orders, research, and development (R&D).
• Bell quality rating system: This is developed by the bell helicopter company, Lot
Quality Index(LQI). It assesses lots received against lots rejected. LQI is given by X/L.
Where, L = total number of lots received during the period, X = (L1 x 1.00) + (L2 x 2.10)
+ (L3 x 2.90) + (L4 x 3.10)+ (L5 x 3.90)
• L1 = Number of lots acceptable as received.
• L2 = Number of lots rejected by sampling inspection but labeled.
• L3 = Number of lots rejected and dispositioned, rework at supplier’s end.
• L4 = Number of lots rejected and dispositioned, returned not usable.
• L5 = Number of lots rejected and dispositioned rework at Bell helicopter company.
This formula can be modified easily to suit the needs of a particular company.
• IBM quality rating system: It uses quality costs as the basis for rating vendors. The
formula is VGR= ((Desired cost of inspection)/(Actual cost of inspection)) x 100

Vendor Development
The vendor development process refers to an organization's efforts to develop and to provide a
network or linkage of qualified vendors who can meet short-term and also long-term needs. This
significantly helps in identifying an effective, reliable and also in the selection of most profitable
vendors for raw materials supply which is necessary for outsourcing. The selection of vendors
for raw materials and production decisions is equally important.

Vendor development is one of the popular techniques of strategic sourcing, which improves the
value we receive from suppliers. Vendor Development can be defined as any activity that a
Buying Firm undertakes to improve a Supplier's performance and capabilities to meet the Buying
Firms' supply needs.

Process of Vendor-Development
The nine main steps required for vendor development process. Some of the steps are:

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 1. Identify critical commodities for development: This is a portfolio analysis which states
that not all organisation required to go for vendor development which are already using
sourcing facilities from word-class vendors or the outsourcing ratio is very small to total
cost or total sales so that investment in vendor is neither strategically nor financially
justifiable.
2. Identify vendors for critical commodity development: After identifying commodities
for development next step is to identify group of vendors of that particular critical
commodity needed to be developed. A very well-known approach is parcto-analysis of
existing Vendor performance.
3. Formation of internal team: Before approaching vendors and asking for improvements,
it is important to develop internal cross-functional team for the initiative. Team members
come from different departments like design, engineering, quality control.
4. Meeting with top-management of vendor: After identify the suitable vendor for
development and establishing a team, a team should approach the top management of
vendor and establish key area decision related to strategic alignment, measurement and
professionalism.
5. Identify opportunities for development: At meetings with top management of vendor
executive should identify area for improvement. Such areas are formed on the basis of
customer’s expectations needs.
6. Define feasibility and viability: After identifying the key areas for development
opportunities should be evaluated in terms of feasibility and viability and it should
include resources and time-requirements for carrying out the project and potential
outcomes of this investment.
7. Joint agreement of project: Once a potential improvement project is selected, both
buyer and vendor must reach an agreement related to the specific measures that will
indicate success. These measures may include percentage of quality improvement,
percentage of cost saving shared, percentage of delivery or cycle time improvement,
technology availability and system implementation stage. Once an agreement is reached,
the project is rolled out hopefully according to schedule.
8. Monitoring progress of project: Once a vendor development project has been initiated,
progress must be monitored and tracked over time. This can be achieved by creating
different monitoring means, process and standards for objectives, updating progress and
in turn creating new or revised objectives based on progress till date.
9. Follow-up and modification: By continuing the step (viii) we have required continuous
follow-up and accordingly it may require modification in the original plan, additional
resources, information or priorities depending upon the current situation at that time.

Store-Keeping: Meaning

A storehouse is a building provided for preserving materials, stores and finished goods. The in-
charge of store is called storekeeper or stores manager. The organisation of the stores department
depends upon the size and layout of the factory, nature of the materials stored and frequency of
purchases and issue of materials.

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According to Alford and Beatty “storekeeping is that aspect of material control concerned with
the physical storage of goods.” In other words, storekeeping relates to art of preserving raw
materials, work-in-progress and finished goods in the stores.

According to Maynard "Store management is to receive materials, to protect them while in

storage from damage and unauthorized removal, to issue the materials in the right quantities, at
the right time to the right place and to provide these services promptly and at least cost”.

Objectives of Store Management

1. Minimizing the cost of production by minimizing the cost of materials
2. Maintaining the value of materials
3. Services to User departments
4. Establishing Co-ordination with other Departments
5. Advising Materials managers

Functions of Store Department

1. Receipt: It receives and accounts for inventories.
2. Storage: It stores and preserves the inventories protecting them from damage, pilferage,
and deterioration.
3. Retrieval: It helps easy access to materials and ensures optimum space utilization.
Materials can be located and retrieved with ease.
4. Issue: It satisfies the demands of consuming departments by the proper issue of
inventories on receiving the requisitions.
5. Records: It keeps proper records of the issue and receipts.
6. Housekeeping: Space is kept neat and clean so that material handling, preservation,
storage, issue, and receipt is done satisfactorily.
7. Surplus Stock: Scrap and surplus disposal management is a function of stores.
8. Verification: Physical verification and purchase initiation to avoid stock-outs.
9. Co-ordination and Co-operation: To interface with the production and inspection
department.

Types of Stores
1. Main or Centralized Stores: A central store is generally a ‘wholesale’ supplier to other
units, departments, or sub-stores that operate on a retail basis issuing goods directly to
users. All material is received and issued by one central store.
2. Branch or Decentralized Stores: Decentralized or branch stores are provided in
considerably large plants and where one main store cannot meet the requirements of the
plant without a waste of time and inconvenience.
3. Central store with sub-stores: A very big factory having a large number of product
lines may have this type of storage system. It has a main store that can serve as a base
with sub-stores for each unit of production, preferably located as near the unit as possible.
The sub-stores draw their requirements from the main store for a certain period, say, a
fortnight or a month. This fixed quantity of material to the particular department is
known as Float or impress. After the completion of the determined period, the
storekeeper of the sub-store will describe the material consumed and will issue the
quantity of material equal to the material consumed to bring the level to the

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 replenishment level. This system of issuing and controlling materials is known as a
periodic system of store control.
4. Warehouse: Warehouses are the godowns that take the responsibility of keeping and
storing goods and providing ancillary services to help the small and medium-size traders
and manufacturers who, because of technical and economic reasons, may not like to have
their storehouses. These warehouses undertake to preserve the goods scientifically and
systematically to maintain their original value, quality, and usefulness. They charge a
certain prescribed rent at a fixed rate in advance.
5. Tools and Miscellaneous Stores: Tools and miscellaneous stores are equipped with all
the necessary tools needed by the productions and other shops. The stock of tools must be
maintained with due regard to the requirements of the work. This store is responsible for
issuing tools, spare parts, and other accessories to different departments.

Material Handling: Definition, Objectives, Functions, Principles.

Material handling is an activity that involves movement of material or products within an

organization from one place to another place or the flow of material or products to vehicles or
from vehicles. The activities are usually confined within the boundaries of an organization. The
movement of material from one organization to another is categorized as transportation work,
which is not part of material handling activities.

“Material handling” refers to the movement of materials from the store room to the machine and
from one machine to the next machine or work station during the process of manufacture.

Functions of Material Handling

Material handling embraces three functions namely;
1. Moving: It includes movement between machines or workstations, between departments,
between buildings, the loading and unloading of carrier’s, as well as much of more
handling done at work place.
2. Storage: It includes storage of material and tools and supplies between and around all of
the above location, including finishing good, warehousing, and the other storage related
activities that lie between the producer and consumer.
3. Selection:
• To choose production machinery and assist in plant layout so as to eliminate as far as
possible the need of material handling; and
• To choose most appropriate material handling equipment which is safe and can fulfill
material handling requirement at the minimum possible overall cost.

Objectives of a proper materials handling

• Reduction in Cost: Reduction in total cost of production can be achieved by either
reducing materials handling or by improved handling procedure or both. The objective of
reduction in cost of production through improved materials handling can be achieved by:
• Reducing material handling labour.
• Material handling work should not be assigned to skilled or semi-skilled labour.
• Reducing indirect labour expenses on activities connected with storage, inspection,
quality control, repair, tool room, shipping etc.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 76

 • Reducing damage of materials during handling.
• Better utilisation of space.
• Reducing in process storage.
• Increasing productivity.
• Reducing expenditure on packaging and other protective devices.
• Decreasing inventory.
• Improved flow of material: A smooth flow of material is when material enters the
company in raw material form at the time when it is required and exits the organization in
the form of final goods. The flow of material gets disturbed when the material is not
available when it is needed for the production or gets damaged rather than being used for
the production process.
• Increase in Capacity: Improved materials handling system results in increase of ca-
pacity by better utilisation of space. Improved handling system can increase the capacity
in the following ways:
• By better utilisation of space: Racks or containers that stacks item upon each other
making full use of air space should be preferred. From this point of view use of over-
head cranes, conveyors, lift trucks etc., are very suitable.
• By reducing travel space or excessive wastage of space: For this purpose a study of
flow of materials between operations should be done considering the flow paths,
volume of material, timing etc. This study may help in reducing travel time and space
requirements.
• By improving equipment utilisation: This can be achieved by ensuring regular
supply and distribution of material. This will reduce the idling of machine.
• By faster loading or unloading: This can be achieved by employing conveyor
system, cranes, loaders, rail road cars, tipping trucks etc.
• Improvement in Working Conditions:
• Safety aspects: Safety of men, material and associated equipment not only prevents
loss of money but also enhances the moral of workers.
• Easy working: By using proper handling equipment heavy jobs can be handled with
ease, faster speed and at a constant rate throughout the period of production. This
enables high morale and lower workers turnover.
• Foolproof operation: Due to absence of manual handling, there are no chances of
confusion resulting in placing of material at wrong location or disruption of
production.
• Reduced waste of material: Another significant concern of an organization is to
minimize material waste. Sometimes, the material gets wasted because of poor storage, or
sometimes it gets wasted while moving it from one place to another.
• Optimized warehouse capacity: Warehouse cost also adds to the price of the final
product. Warehouse capacity means the ability for storing goods. It is essential to take
care of the layout of the warehouse, flooring of the warehouse, and aisle space in the
warehouse to have optimized warehouse capacity.
• Improved Customer Service: Customer’s service will be improved by following proper
and improved materials handling system which will enable regular and timely market
supply by avoiding disruption in production schedule. These are the main sources of good
customer service.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 77

 • Workers’ safety: The last but not least objective is the safety of workers. Poor material
handling can result in accidents in the factory, which are very risky for workers working
there.

Principles of Material Handling

The material handling methods are designed based on the principles that you are going to learn in
this section. The followings are the principles:
1. Cost principle: To encourage minimum expenditure while materials handling.
2. Computerization principle: To encourage maximum use of computers and automation
as materials.
3. Energy principle: This principle is concerns about the consumption of energy.
4. Ergonomic Principle: To identify the human limitations and capabilities to do the work.
5. Ecology principle: To ensure the least impact on the ecological system because of
material handling work.
6. Flexibility Principle: To encourage the use of tools and methods which can be used in
different types of work conditions.
7. Gravity Principle: To promote the consideration of gravity principle in materials
handling.
8. Layout Principle: The layout principle is concerned with the sequential order of material
handling operations.
9. Maintenance principle: The maintenance principle is for regular maintenance and repair
of machinery and device in materials handling.
10. Mechanization principle: Mechanization principle is concerned with the deployment of
mechanization methods to speed up the work and reduce the efforts of humans.
11. Orientation principle: To study the existing processes and problems before getting into
preliminary planning.
12. Planning principles: To plan by including basic requirements and alternative approaches
in materials handling.
13. Standardization principle: The standardization principle encourages the standardization
of tools and techniques.
14. Simplification principle: The simplification principle is concerned with making the
process of material handling as simple as possible.
15. Space utilization principle: The space utilization principle encourages the optimized use
of available space.
16. Systems Principle: The system principle is concerned with material and storage
activities in materials handling.
17. System flow principle: The system flow principle is concerned with the integration of
physical material flow with the data flow.
18. Safety principle: The safety principle is concerned with the rules and regulations related
to the safety of workers working in materials handling.

Types of Materials Handling Equipment

Material handling equipment usually falls under four main categories: bulk handling material
equipment, engineered systems, storage and handling equipment and industrial trucks.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 78

• Bulk Handling Material Equipment: Bulk handling material handling equipment
covers equipment that transports, stores and controls bulk materials. Generally,
manufacturers design bulk handling material equipment to move and store materials in a
loose form. You can find these pieces of equipment handling food, liquid, metal items
and minerals.
• Hoppers: Hoppers are large funnel-shaped objects with openings that close.
Companies use hoppers to pour loose materials into containers.
• Reclaimers: Reclaimers are large machines designed to pick up loose materials from
a company’s stockpile.
• Conveyor belts: Conveyor belts are an essential part of a conveyor system. They use
drums or pulleys to rotate their belts and move materials in bulk from one location to
another.
• Stackers: Stackers are key to bulk material handling. This automated equipment can
move loose materials to stockpiles on their own.
• Bucket and grain elevators: Sometimes referred to as grain legs, bucket elevators
vertically move bulk materials. They’ll transport these materials on a production
pathway and sometimes store them.
• Engineered Systems: Otherwise known as automated systems, engineered systems refer
to automated bulk material handling equipment made to help transport and store
materials. Usually, automated systems feature several pieces of equipment. They’re very
popular since they remove the need for manual labor to complete various tasks. Here are
some of the primary kinds of engineered systems:
• Automated Storage and Retrieval Systems (AS/RS): An AS/RS is a very popular
type of engineered system, as it can handle lots of work. It utilizes a shuttle to pick up
loose materials and then place them on needed parts of the system, and the picking
process can be manually operated or automated. These systems also feature racks,
shelves and aisles for easy processing. They can also be connected to a company’s
network, making it easy for managers to monitor their stock.
• Robotic delivery systems: Many facilities utilize automated robotic delivery systems
to transport materials. Companies typically use these systems to transport materials
on an assembly line.
• Conveyor systems: Conveyor systems feature several devices and mechanical
assemblies that automatically transport materials throughout a facility. These
conveyor systems come in multiple varieties, like apron, cleated, chain, overhead and
vehicle conveyor systems. Manufacturers craft side loaders to fit between narrow
aisles.
• Industrial Trucks: Industrial trucks cover a wide swath of equipment, and they’re all
designed to assist with material transportation. These industrial trucks can range from
small, hand-operated equipment to large, drivable equipment. Generally, you can break
industrial trucks down into two main categories: non-stacking and stacking trucks. Non-
stacking trucks are solely designed for transportation while stacking trucks can also load
materials and stack them.
• Hand trucks: Hand trucks are commonly called dollies, and they’re a simple piece of
equipment designed to give operators the leverage they need to roll heavy materials to
new locations.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 79

 • Side loaders: Manufacturers craft side loaders to fit between narrow aisles, easily
picking up items on either side of them.
• Pallet trucks: Otherwise known as forklifts, pallet trucks are machines operators can
use to lift heavy pallets. They feature forks designed to slip under the pallet, lift it up
and then secure it as the operator takes it to a new location. You can find manual and
electrical forklifts in various warehouses around the country.
• Order pickers: When operators need to access materials stored up high, they use
order pickers. These machines safely lift operators, allowing them to access hard-to-
reach materials.
• Storage and Handling Equipment: Storage and handling equipment helps safely store
and organize materials while they await another stage in the production or distribution
process. Depending on a company’s needs, they may use this storage equipment to hold
materials for short or long periods. Generally, storage and handling equipment is
stationary, not automated, but companies often use it with automated systems and
equipment.
• Drawers, bins and shelves: You can find shelving used to store and organize basic
materials. Bins and drawers are more popular when a company needs to organize
smaller materials that could be easily lost otherwise.
• Mezzanines: A mezzanine refers to a raised indoor platform that creates another
storage area above the ground. These mezzanines help companies store items
vertically and free up space on their warehouse floor. They come in modular, rack
supported, movable, free-standing and building supported forms.
• Racks: Racks help companies store their materials in accessible locations and save
floor space. You can find racks designed for various uses, such as sliding racks,
drive-in or drive-through racks, pallet tracks and push-back racks.
• Stacking frames: Manufacturers design stacking frames to easily stack on top of one
another. They’re one of the main types of storage equipment in material handling, as
they safely store pallets filled with fragile equipment, saving space as a result.

What is Just-in-Time (JIT)?

Just-in-time, or JIT, is an inventory management method in which goods are received from
suppliers only as they are needed. The main objective of this method is to reduce inventory
holding costs and increase inventory turnover.

JIT Process and Steps

1. Design: The JIT process begins with a review of the essential manufacturing building
blocks: product design, process design, personnel and manufacturing planning. Then
plans are put into place to eliminate disruption, minimize waste and build a flexible
system.
2. Manage: A Total Quality Management (TQM) review ensures there is continuous
improvement throughout the process. A management review defines workers’ roles and
responsibilities, defines and measures statistical quality control, stabilizes schedules, and
checks out load and capacity schedules and levels.
3. Pull: Educate the team on production and withdrawal methods using signaling methods
like Kanban. Review lot size policies and reduce lot sizes.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 80

 4. Establish: Vendor relationships are vital to the success of JIT. Review vendor lists.
Settle on preferred suppliers, negotiate contracts, and discuss lead times, delivery
expectations and usage metrics and measures. Learn how to make the most of them in the
supply chain.
5. Fine-tune: Determine inventory needs, policies, and controls and reduce inventory
movements.
6. Build: Inform your team about the skills and capabilities it needs to complete its work
and conduct team education and empowerment sessions to educate them.
7. Refine: Reduce the number of parts and steps in production by refining, standardizing
and reviewing the entire process.
8. Review: Define and implement quality measures and metrics and conduct a root cause
analysis of any problems. Emphasize improvements and track trends to improve every
aspect of JIT.

Advantages of JIT Inventory Management

JIT inventory management boosts a company’s ROI by lowering inventory carrying costs,
increasing efficiency and decreasing waste.
• Waste Reduction: The JIT inventory management model eliminates over ordering and
excess of all kinds.
• Reduce Obsolete Inventory and Dead Stock: Low inventory levels significantly
reduce the risk of inventory going unsold and sitting in the warehouse obsolete.
• Reduce Defective Product Loss: Defective inventory items are easier to identify and
fix when production levels are low, which reduces scrap costs.
• Improved Efficiency: JIT eliminates the costs that come with extra raw materials,
unneeded inventory and product storage.
• Raise Inventory Turnover Ratios: Greater efficiency brings higher inventory
turnover.
• Minimal Inventory Obsolescence: The high inventory turnover rate keeps items
from sitting in your facility for too long and becoming obsolete.
• Minimize Raw Materials on Hand: Receiving deliveries in the smallest possible
quantities—sometimes multiple times per day—virtually eliminates raw material
inventories.
• Local Sourcing: When suppliers are located near a company's production facility, the
shortened distances contribute to timely deliveries. On-time, reliable delivery of
goods reduces the need for safety stock.
• Greater Productivity: JIT enhances productivity by reducing the time and resources
involved in manufacturing processes.
• Faster Product Turnaround: Manufacturers can more quickly produce products.
• Shorter Production Runs: With JIT, manufacturers can deliver new products more
quickly and easily.
• Simplify Change Orders: Having less raw material stock to draw down before
product changes makes it easier to implement engineering change orders to existing
products.
• Smoother Production Flow: JIT can eliminate bottlenecks and delays across the entire
production process.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 81

 • Shorter Production Cycles: JIT shortens manufacturing time, which decreases lead
times for customers.
• Reduce Product Defects: Production mistakes can be spotted faster and corrected,
which results in fewer defective products.
• Shorter Production Runs: Fast equipment setup times reduce production runs,
lowering investment in finished goods.
• More Functional Production Cells: Employees walk individual parts through the
processing steps in a work cell, which reduces scrap levels. Cell models also
eliminate work-in-process queues that build up at more specialized workstations.
• Compressed Operations: Arranging production work cells near each other limits the
amount of work-in-process inventory moving between cells.
• Lower Costs: Receiving goods on an as-needed basis reduces inventory costs.
• Reduce Working Capital: The low inventory levels that come with JIT limit the
amount of working capital needed.
• Lower Holding Costs: Inventory holding costs (like those for warehousing) are
minimal because less space is used.
• Lower Cash Investment: Companies invest less cash in inventory because JIT
doesn’t require having a lot of stock on hand.
• Reduce Large Raw Material Spends: In JIT, businesses order raw material when
needed, so cash is available for other uses that could be more valuable to the
company.
• Reduce Labor Costs: Labor expenses are lower since the number of person-hours
required to fulfill orders is usually fewer than full-time production.
• Improve Quality: A flexible workforce can focus on making quality products with lower
defect rates. Better outcomes increase customer satisfaction and reduce the cash outlay
for production.
• Reduce Work-in-Progress Goods: Fewer items moving on the shop floor allows
teams to focus on building high-quality products.
• Less Damage: Since minimal inventory is on hand, storage-related accidents decline.
• Certified Quality: Suppliers guarantee quality in advance. So, deliveries go straight
to production areas instead of being held in receiving to await inspection.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 82

Multiple Choice Questions
1. Buying according to the requirements is called ________
a. Seasonal Buying
b. Hand to mouth buying
c. Scheduled Buying
d. Tender Buying
2. Which is not a part of 5R’s of buying?
a. Right Quality
b. Right Quantity
c. Right Source
d. None of the above
3. The first activity of purchasing cycle is _____________
a. Communicating requirements for the purchase
b. Source Selection and development
c. Recognizing the need for procurement
d. Inspection of goods
4. _________ is the task of buying goods of the right quality, in the right quantities, at the
right time, and at the right price.
a. Supplying
b. Purchasing
c. Scrutinizing
d. None of the above
5. Procuring an item in staggering deliveries according to the delivery schedule finished to
the supplier by the buyer.
a. Seasonal Buying
b. Hand to mouth buying
c. Scheduled Buying
d. Tender Buying
6. Purchase Orders include all of the following organization data except.
a. Company Code
b. Purchasing Group
c. Purchasing Organization
d. General Data
7. During the Invoice Verification process, the user can use the following document as a
reference.
a. Purchase Requisition
b. Purchase Order
c. Inquiry
d. Accounting Document
8. Invoice verification is the final step in the procurement cycle
a. (True/False).
9. Upon invoice verification, the system automatically carries out the payment process
a. (True/False).

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 83

10. The vendor rating is the process of rating the ______.
a. Suppliers
b. Buyers.
c. Manufacturers.
d. Sellers.
11. The supplier selection process is followed by a supplier certification process.
a. True
b. False
12. The supplier selection process is followed by the supplier certification process.
a) True
b) False
13. In ________detailed analysis of the vendor is made after raw information is acquired
from the survey stage.
a. Survey stage
b. Enquiry stage
c. Negotiation and selection stage
d. Experience stage
14. Which of the following is not a benefit of the supplier certification process?
a. Elimination of receiving inspection
b. Creation of a customer-supplier partnership
c. Reduces the number of suppliers
d. Increases the number of suppliers
15. Which of the following is not a factor involved in supplier rating?
a. Quality
b. Price
c. Performance
d. Performance Incapability
16. Supplier rating system is also known as _________
a. Scorecard system
b. Score system
c. Card system
d. Score and Card system
17. Supplier rating provides overall rating of _________
a. Supplier performance
b. Supplier contact details
c. Number of products delivered
d. Number of products rejected
18. Material handling consists of the movement of material from
a. One machine to another
b. One shop to another shop
c. Stores to shop
d. All of the above
19. Forklift truck is used for______
a. Lifting and lowering
b. Vertical transportation
c. Both ‘a’ and ‘b’

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 84

 d. None of the above

20. Wheelbarrows is used for__________

a. Lifting and lowering
b. Vertical transportation
c. Both ‘a’ and ‘b’
d. None of the above
21. Cranes are used for______
a. Lifting and lowering
b. Vertical transportation
c. Both ‘a’ and ‘b’
d. None of the above
22. The following is used to transport materials having flat bottoms
a. Belt conveyor
b. Roller conveyor
c. Chain conveyor
d. None of the above
23. Special purpose material handling equipment are used in
a. Process layout
b. Line layout
c. both ‘a’ and ‘b’
d. None of the above
24. Just-in-Time was successfully implemented by
a. Toyota
b. Honda
c. Suzuki
d. Volkswagen
25. In the Just-In-Time system
a. There is no delay
b. Conveyance times are balanced
c. Both (A) and (B)
d. There is unequal production in different places
26. Such setups which have single digit (in minutes) setup times are called
a. Single setups
b. One-touches setups
c. Minute setups
d. None of the above
27. POK stands for______
a. Product ordering Kanban
b. Process Ordering Kanban
c. Production Ordering Kanban
d. Plan Ordering Kanban
28. In Just-In-Time the vendor is to be viewed by the company as a
a. Manager
b. Worker

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 85

 c. Partner
d. None of the above
29. Just-In-Time is____________
a. Single unit production
b. Big lot size production
c. Both (A) and (B)
d. None of the above
30. MRP is different from JIT in terms of
a. Inventory
b. Quality
c. Human orientation
d. All of the above
31. The following is (are) the prerequisite(s) for JIT.
a. Multi-skilled workers
b. Vendor should produce defect-free
c. Worker should be empowered with his own decision
d. All of the above
32. Just-In-Time aimed at
a. Zero inventories
b. Reduced manpower
c. Overproduction
d. All of the above
33. Just-In-Time (JIT) combines the benefits of
a. Job order production and Line production
b. Batch Production and Line production
c. Job order production and Batch production
d. None of the above
34. JIT does not believe in
a. Quality
b. Overproduction
c. Human relations
d. All of the above

Short Questions (5 Marks)

1. How to Selection of Suppliers/Vendor.
2. What are the benefits of vendor management?
3. What are the Challenges in Vendor Management?
4. Explain the objectives of store management.
5. Explain the types of stores.
6. What are the Functions of Material Handling?
7. Explain the Bulk Handling Material Equipment.
8. Explain the Industrial Trucks Equipment.
9. Explain the Storage and Handling Equipment
10. Write any five objectives of material handling.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 86

Long Questions (09 Marks)
1. Explain the methods of purchasing.
2. Explain the Purchasing Management Objectives.
3. Explain the Purchasing Procedure
4. Explain the Principles and Parameters of Purchasing
5. Explain the Criteria for vendor rating.
6. Explain the Supplier evaluation or methods of vendor rating.
7. Explain the Process of Vendor-Development.
8. Discuss the Objectives of a proper materials handling.
9. What are the Principles of Material Handling?
10. Explain the Types of Materials Handling Equipment.

DR.N.RAMESH KUMAR., MBA., PH.D., ASSISTANT PROFESSOR, SVM College 87