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Syllabus MODULE -1 7. Sound selection of site and developing an optimal layout for smooth flow of work
8. Developing standard training programmes for various levels in the organization
Module 1 Industrial Engineering
Different Roles of an Industrial Engineer
Introduction to Industrial Engineering - Evolution of modern Concepts in Industrial Industrial engineering is the applied science that deals with the design, improvement and
Engineering -Functions of Industrial Engineering - Field of application of Industrial installation of production systems. These are integrated systems of people, materials, The different roles an industrial engineer may need to take on are:
Engineering - Design function- Objectives of design- Development of designs- prototype, equipment’s and energy for the production and delivery of goods and services. (The American 1. Adviser/Consultant for interpretation of data, review, etc.
production and testing - Human factors in design - Principles of good product design- tolerance Institute of Industrial Engineers). 2. Advocate/Activist to promote actively a process or approach
design- quality and cost considerations- product life cycle- standardization, simplification,
Evolution of modern Concepts in Industrial Engineering 3. Analyst to analyse a problem to obtain insights
diversification- concurrent engineering- comparison of production alternatives - Economic
4. Liaison agent to interface between company and customer/user
aspects- C-V-P analysis – simple problems. The history of Industrial engineering is considered to start with the industrial revolution in the 5. Motivator to provide stimulus/skills
Module 2 eighteenth century. During the late nineteenth century, the impetus for the development of 6. Decision-maker to select a preference from alternatives
industrial engineering was primarily provided by engineers/managers in the United States. 7. Designer/Planner to produce solutions, specifications
Introduction to materials management – objectives – Types of material handling equipment’s During this period the most significant contribution to the discipline of industrial engineering, 8. Expert to provide high level knowledge, experience, skills
-principles of material handling –Material selection – value analysis – make or buy decisions- perhaps, came from Frederick W Taylor, who was a mechanical engineer. He initiated the 9. Coordinator/Integrator to achieve the defined goals
Purchasing and procedures. Basic inventory management - Inventory -Functions, Costs, concept of time study applied to production operations. He used the term ‘scientific 10. Innovator/Inventor to produce creative solutions
Classifications - EOQ Models- Assumptions- Quantity discount model- Q system- P system- management’ for his planned approach to improving production and shop management. Then 11. Measurer to obtain data and facts
Reorder level - Simple problems- Concept of JIT manufacturing system. the World War II demands for increased production provided further stimulus to industrial 12. Project Manager to operate, supervise, evaluate projects
Module 3 engineering development. 13. Trainer/Educator in the skills and knowledge of industrial engineering
The modern industrial engineering techniques had their origin during the period between 1940 14. Negotiator/Conflict manager for proper workplace relation
Industrial relations- Psychological attitudes to work and working conditions - fatigue- Methods
of eliminating fatigue- Effect of Communication in Industry-Industrial safety-personal and 1946.the development of the techniques as listed below took place during that time. Applications of Industrial Engineering
protective devices-, causes and effects of industrial disputes- Collective bargaining- Trade • Value engineering In the early years industrial engineering was primarily applied to manufacturing
union – Worker’s participation in management. • Operations research industries for improving the production processes. After 1940 the following developments
Module 4 • CPM and PERT took place: Development of applied mathematics leading to industrial application of
• Ergonomics or human engineering operations research techniques like linear programming, simulation and statistical sampling
Principles of Lean Manufacturing (LM) – Basic elements of LM– Introduction to LM Tools- • System analysis Development of industrial psychology for business applications. Development of
Concept of wastes in LM and their narration - stages of 5S and waste elimination –
• Advances in IT and computer packages computers and various software packages for industrial application of electronic data
Conventional Manufacturing versus Lean Manufacturing - Need for LM. Agile manufacturing
• Mathematical and statistical tools processing. These developments widened the scope of industrial engineering and its
- Definition, business need, conceptual frame work, characteristics, and generic features - application spread to other fields.
Approaches to enhance ability in manufacturing - Managing people in agile organization Thus, industrial engineering has taken a firm position in the organization and it is contributing
maximum towards increasing productivity and efficiency in particular and quality of work-life Industrial engineering techniques are now applied in non-manufacturing sectors such as:
Module 5
in general.
• Construction and transportation
Introduction of enterprise resource planning (ERP)- Concept of Enterprise, ERP Overview -
Functions of an Industrial Engineer • Farming and business
Integrated information system - Myths about ERP – Evolution of ERP- Benefits of ERP
• Airline operations and maintenance
implementation - Success and failure factors of ERP implementation - small, medium and large Industrial engineering activities span the entire enterprise. The most common functions of an
enterprise vendor solutions- ERP and related technology: Business intelligence (BI), E- • Public utilities and hospitals
Industrial Engineer are:
Commerce and E-Business, Business Process Reengineering (BPR), Data warehousing, Data • Government and armed forces
1. Developing the simplest work methods and establishing the one best way of doing work
mining, Online Analytical Processing(OLAP), Product lifecycle management(PLC), Supply Even though it is applied in many varied sectors, industrial engineering still finds major
(standard method)
chain management(SCM), Customer relationship management (CRM)- ERP implementation applications in manufacturing plants and industries. In an industry, besides production,
2. Establishing the performance standards as per the standard methods (standard time)
challenges -Emerging trends on ERP other departments utilizing industrial engineering concepts and techniques are: marketing,
3. Developing a sound wage and incentive scheme
4. Assisting in the design of a sound inventory control, determination of economic lot size finance, purchase and industrial relations.
for production
5. Preparing a detailed job description and job specification for each job and evaluating
them
6. Establishing a sound cost system and developing cost control programmes

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Engineering Design conventional approaches. Currently 3D printing technologies have shown their worth in Physiological Factors
this.
Engineering design is a systematic, intelligent process in which engineers generate, Factors dealing with human sensations. These involve the neurological, muscular,
evaluate, and specify solutions for devices, systems, or processes whose form(s) and Testing And Evaluation of Design respiratory, vascular and sensory systems They can be grouped according to the response
function(s) achieve clients’ objectives and users’ needs while satisfying a specified set of to various inputs such as
constraints. In other words, engineering design is a thoughtful process for generating plans • Evaluation is done to confirm whether the design intent/criteria is satisfied.
or schemes for devices, systems, or processes that attain given objectives while adhering to • List of important attributes to be tested • Visual
specified constraints. • Set of experiments that test those attributes • Auditory
• Recording of test data • Tactile (the sense of touch)
Objectives of Design • Identify major areas of concern for any redesign work. • Taste senses
• To ensure growth of the organization • Environment
Reason for Testing and Evaluation of Design
• To utilize the surplus capacity of the organization, such as physical facility, man power, Psychological Factors
etc. • To assess the viability of a design
• To utilize the surplus fund of the organization • To identify potential faults and to make improvements. They are concerned with mental activity of the human during the use of the product. This
• To meet new requirement of the customers • To identify safety issues involves:
• To increase company’s market share and to target new market segment • To scrutinize costs • Interpretation of information
• To ensure complete product range in company’s portfolio • Evaluating the manufacturing process to design in an efficient and cost-effective • Motivation and fatigue
production line.
Steps of Product Design • Decision making
• For providing user instructions
• Aesthetics
1. Synthesis: Try to develop different alternatives • Comparison of tests conducted on similar design may lead to improvement.
2. Sketching: Draw sketches in exact scale for different alternatives Principles of a Good Product Design
Human Factors in Design
3. Analysis: Analysis different alternatives with respect to operability, maintainability, 1. Functionality: The product must function properly for intended purpose.
inspection, assembling and dismantling issues, cost parameters, production methods, Considering information about human behavior, abilities, characteristics and physical 2. Reliability: The product must perform properly for the designated period of time.
etc. limits. Ensuring that the final product can be effectively utilized by the end user, without 3. Productivity: The product must be produced with a required quantity and quality at a
4. Selection: Select the best alternative exceeding their capabilities. ‘Fitting the Job to the Men’ rather than ‘Fitting the Man to the defined and feasible cost.
5. Basic engineering: Prepare layout in exact scale, calculate strength of components, Job’. Optimizing efficiency, health safety and comfort of people through better designs 4. Quality: The product must satisfy customer’s stated and unstated needs.
select proper cost-effective material. 5. Standardization: The product should be designed in such a fashion so that most of the
Forms of Human Factors
6. Detail design: Prepare detail engineering drawing for each component components are standardized and easily available in the market
7. Prototype: If option is there, then prepare prototype and test it 1. Anthropometric (Human interaction in static sense; dimensions of body) 6. Maintainability: The product must perform for a designated period with a minimum
8. Manufacturing: If prototype is not made, then follow manufacturing steps and solve 2. Ergonomics (Human interaction in dynamic sense; repeated tasks) and defined maintenance. Adequate provision for maintenance should be kept in the
manufacturing problems and assembly problems. 3. Physiological (Human interaction with body characteristics) product.
9. Operation: collect feedback during actual operation of the new product. If any problem 4. Psychological (Human interaction with mental activities) 7. Cost effectiveness: The product must be cost effective. The must be manufactured in
exists, try to provide design-based solution. Also, implement lessons in the future the most cost-effective environment.
Anthropometric Factors
design.
10. Product development: If any modification can be done, implement the same in the next Anthropometric human factors are related to the physical size of humans; it is man-machine Tolerance Design
generation product interaction in static sense. Adequate attention to the nature of physical dimensions of The tolerances on the product design parameters are determined considering the loss that
human would be caused to society when the performance deviates from the target. Once the system
Prototyping
Ergonomic Factors has been designed along with the values for parameters, the designer has to set the tolerance
Prototype is the first fully functional model of a design. This is not a model but a full- of the parameters. The environmental factors along with system parameter must be
fledged product made as per the design. Models are used in certain designs to understand Greek Words: Ergon = work, Nomikos = law. Ergonomics = Study of work laws. The three considered. In tolerance design, the manufacturing tolerances that minimize the effect of
the specific performance of that part or product. (Aircraft, buildings, ships, rockets etc.). aspects of ergonomic factors: safety, comfort and efficiency Importance when the human noise factors and manufacturing costs are determined. The objective in tolerance design is
Prototyping is done using the materials specified so that their performance is also taken is involved with the machine in a dynamic sense. A human is required to exert a force or to achieve a judicious trade-off between quality loss attributable to performance variation
into account. Conventionally few prototypes are made for a planned evaluation of the supply work to the machine. The effective operations of a machine over long periods will and any increase in manufacturing cost.
product from various angles. Producing a prototype is a costly procedure as the depend up on the matching of requirements to human capability.
requirements are limited. Regular prototyping is done by making the design through

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Product Life-Cycle (PLC) Standardisation Reason for Diversification

Standardization is a process of defining and applying the conditions necessary to ensure 1. Survival
that given range of requirements can normally be met with a minimum of variety and in a 2. Stability
reproducible and economic manner on the basis of the best current techniques 3. Productive utilization of resources
4. Adaption to changes costumer needs
Objectives of Standardization
5. Growth
• Interchangeability of parts, components, etc. 6. Miscellaneous
• Keeping the variety minimum. • To maintain reputation for industrial leadership
• Helps to achieve a better control due to reduced variety. • To realize maximum advantages from the tax structure
• To comply with the desires of owners or management
Advantages of Standardization
Concurrent Engineering
• Reduction of waste and obsolescence.
• Reduction in inventory. Concurrent engineering or Simultaneous Engineering is a methodology of restructuring the
• Reduced effort in book keeping and accounting. product development activity in a manufacturing organization using a cross-functional team
• Standardization reduces the price because of economy of scale. approach and is a technique adopted to improve the efficiency of product design and reduce
• Ease in procurement because of availability. the product development cycle time. This is also sometimes referred to as Parallel Engineering.
The product once introduced into the market will undergo definite phases. The demand for Concurrent Engineering brings together a wide spectrum of people from several functional
• Reduction in maintenance and repair costs
a product generally tends to follow a predictable pattern called product life cycle (PLC). areas in the design and manufacture of a product. Representatives from R & D, engineering,
Products go through a series of stages beginning with start-up or introduction of product Simplification manufacturing, materials management, quality assurance, marketing etc. develop the product
followed by rapid growth, maturity or saturation and finally the decline of demand. as a team. Everyone interacts with each other from the start, and they perform their tasks in
The concept of simplification is closely related to standardization. Simplification is the process
parallel. The team reviews the design from the point of view of marketing, process, tool design
1. Introduction Stage of reducing the variety of products manufactured. Simplification is concerned with the
and procurement, operation, facility and capacity planning, design for manufacturability,
reduction of production range, assemblies, parts, materials and design. Simplification makes a
This stage marks the introduction of the product into the market. It may be an entirely new assembly, testing and maintenance, standardization, procurement of components and sub-
product, assembly or design, simpler, less complex or less difficult. A production line is
product in the market or old product to the new market. The demand is low as customers assemblies, quality assurance etc. as the design is evolved Concurrent engineering.
generally simplified when it possesses unnecessary complexity and confusion. Variety
do not know much about the product. The organisations have to invest heavily in reduction will reveal that a subassembly or components needs simplification. Alternative Comparisons
advertisement to make the product familiar to the customer. The volume of sales will be
low and if proper care is not taken, the chances of product failures are high. Advantages of Simplification The majority of engineering economic analysis problems are alternative comparisons. In these
problems, two or more mutually exclusive investments compete for limited funds. A variety
2. Growth • Reduce inventories of materials and component parts.
of methods exists for selecting the superior alternative from a group of proposals. Each method
• Reduced investments in plant and machinery. has its own merits and applications.
Once the product passes through the introduction stage, the sales starts increasing because
• Reduced space requirements of storage.
of the acceptability of the product by the customer. The sales growth rate is high because
• Ease of planning and control. Present Worth Analysis
of limited or no competition.
• Reduction in selling price. When two or more alternatives are capable of performing the same functions, the economically
3. Maturity (Saturation) • Simplification of inspection and control. superior alternative will have the largest present worth. The present worth method is restricted
The sales growth reaches a point above which it will not grow. This is due to the market Diversification to evaluating alternatives that are mutually exclusive and that have the same lives. This method
share taken by the competitor's products. Thus, the sales will be maintained for some is suitable for ranking the desirability of alternatives.
period. Diversification is contrary to simplification. Diversification means (i) addition of new products
(ii) introduction of established products into new markets. This tends to increase complexity Annual Cost Analysis
4. Decline of the methods of manufacturing, because, sometimes consumers like to have variety in type, Alternatives that accomplish the same purpose but that have unequal lives must be compared
The competitors will enter the market with better product features, advanced technology size, colour and quality of products being manufactured. This adds to the cost characteristic of by the annual cost method. The annual cost method assumes that each alternative will be
and reduced prices. This is a threat to the very existence of product and sales start declining. the production which is of varied nature. The extent to which diversification programme can replaced by an identical twin at the end of its useful life (i.e., infinite renewal). This method,
If proper care like addition of special features, design changes are not incorporated there be carried out must be determined by market analysis of probable volume at varying levels of which may also be used to rank alternatives according to their desirability, is also called the
comes a time when the products are to be taken back from the market. diversification compared with production cost of the volume obtainable at those various levels. annual return method or capital recovery method
Diversification adds to the classes of consumers served, by developing new technical
knowledge.

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Rate of Return Analysis (ROR) Unit Contribution Margin (Unit CM) Break-Even Chart
The rate of return (ROR) is the effective annual interest rate at which an investment accrues Contribution Margin can also be calculated per unit which is called Unit Contribution Margin.
income. That is, the rate of return of an investment is the interest rate that would yield identical
It is the excess of sales price per unit (p) over variable cost per unit (v).
profits if all money was invested at that rate. Although this definition is correct, it does not
provide a method of determining the rate of return. The company can establish a minimum Unit CM = p – v
level of economic performance that it would like to realize on all investments. This criterion is
known as the minimum attractive rate of return, or MARR. Once a rate of return for an Contribution Margin Ratio (CM RATIO)
investment is known, it can be compared with the minimum attractive rate of return. If the rate Contribution Margin Ratio is calculated by dividing contribution margin by total sales or unit
of return is equal to or exceeds the minimum attractive rate of return, the investment is qualified CM by price per unit.
(i.e., the alternative is viable).
Margin of Safety
C-V-P ANALYSIS
The margin of safety is the excess of budgeted (or actual) sales over the break-even volume of
CVP analysis is the analysis of three variable viz. cost, volume and profit. An Industry is faced sales. It is the amount by which sales can drop before losses begin to be incurred.
with a number of uncertainties 1. Demand (consumer behavior), 2. Nature of competition, 3.
Cost (control over wages, raw materials, Indirect taxation) and 4. Technology. Unless a firm is Margin of safety = Total Sales – Break even sales
prepared to face the uncertainties created by these risks, its profits would be left to chance. Break Even Analysis
Under such circumstances, a thorough understanding of the relationship of cost, price and Let F = Fixed cost.
volume is helpful. Method of determining this relationship is Break Even Analysis, Break-even analysis establishes the relationship among the factors affecting profit. It indicates
at what level cost and revenue are in equilibrium. It is a simple method of presenting to Q = Quantity produced and sold.
The basic formula used in CVP Analysis is derived from profit equation: management the effect of changes in volume on profit. The detailed analysis of break-even b = Sales price per unit.
𝐏𝐱=𝐕𝐱+𝐅𝐂+𝐏𝐫𝐨𝐟𝐢𝐭 data will help the management to understand the effect of alternative decisions that convert
costs from variable to fixed, the costs which increase sales volume and revenue. It is a powerful a = Variable cost per unit.
Where P = price per unit tool in evaluating alternative course of action. bQ= Total income (revenue).
V = variable cost per unit Assumptions aQ= Total variable cost
x = total number of units produced and sold • Selling prices will remain constant at all sales levels (Quantity discounts are not available) Total costs = Fixed cost + variable cost = F + aQ
FC= total fixed cost • There is a linear relationship between sales volume and costs.
At BEP, Total costs equal total income
• The costs are divided into two categories-Fixed costs, those costs which does not vary with
Fixed Cost volume (quantity) and variable costs will be varying in direct proportion to quantity. Therefore, Total cost = Total income.
The costs which do not change for a given period in spite of change in volume of production. • Production and sales quantities are equal.
F + aQ = bQ
This cost is independent of volume of production. Examples of fixed costs are rent, taxes, • No other factors will influence the cost except the quantity.
salaries of supervisors, depreciation, insurance, etc. Fixed costs are normally expressed in Q = F/(b−a)
Break-Even Point
terms of time period.
Contribution = Sales - Variable cost = b – a
Break-even point refers to the level of sales (sales volume) at which the sales income (revenues)
Variable Cost equals the total costs. It is a point at which the profit is zero. The quantities produced (sold) Break-even Quantity (units) = Fixed cost
These vary directly and proportionately with output. There is a constant ratio between the above break-even point result in profits and quantity below break-even point result in losses. Contribution
change in the cost and change in the level of output. Direct material cost and direct labour costs The break-even point is reached when the fixed costs are completely recovered
are generally variable costs. Variable costs result from the utilization of raw material and direct
labour in production departments.
Contribution Margin (CM)
Contribution Margin (CM) is equal to the difference between total sales (S) and total variable
cost or, in other words, it is the amount by which sales exceed total variable costs (VC). In
order to make profit the contribution margin of a business must exceed its total fixed costs
CM = S – VC

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Numerical = 1,50,000 (a) Contribution = Sales – Total variable costs

1. A manufacturing firm incurs a fixed cost of Rs. 18000.The variable cost accounts Rs.8 Sales - variable cost = Fixed cost + profit. = 40,000 - 17,500
per unit and selling price is Rs.13. Find the number of pieces to be produced to break-
even. 2,40,000 - 1,50,000 = F + 50,000 = 22,500

Given data F = 40,000 (b) Profit = Contribution - Fixed cost

Fixed cost, F = 18000 = 22,500 - 7,500

Variable cost, a = 8 4. From the following particulars, calculate: = 15,000

(i) Break-even point in terms of sales value and in units.
(ii) Number of units that must be sold to earn a profit of Rs 90,000. 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡
Selling price, b = 13 (c) Break-even point (BEP) = 𝑃
⁄𝑉 𝑟𝑎𝑡𝑖𝑜
Fixed cost F 18000 Fixed factory overhead cost = Rs 60,000
Break-even Quantity (units) = = = = 3600 P Contribution 15000
Contribution b−a 13−8
Fixed selling overhead cost = Rs 12,000 ratio = = = 0.5625
V sales 40000
Variable manufacturing cost per unit = Rs 12 Break-even point (BEP) =
7500
= 13,333.33
2. ABC company plans to sell an article at a local market. The articles are purchased at 0.5625
Rs. 5 on the condition that all unsold articles shall be returned. The rent for the space is Variable selling cost per unit = Rs 3
Rs. 2000. The articles will be sold at Rs. 9. Determine the number of articles which must selling price per unit = Rs 24
be sold (a) To break-even, (b) To earn Rs. 400 as profit, (c) If the company sells 750
articles. Calculate margin of safety and profit. (i) Variable cost per unit = 12+3 = Rs 15
Fixed cost F 2000
(a) Break-even Point (BEP)= = = = 500
Total fixed cost = 60000+12000 =Rs 72000
Contribution b−a 9−5
(b) To earn a profit of Rs. 400
Fixed cost 60000+12000
Fixed cost+Profit F+Profit 2000+400 Break-even point= = = 8000 units
Contribution 24−15
Number of articles to be sold= = = = 600
Contribution b−a 9−5
(ii) Number of units that must be sold to earn a profit of Rs 90,000 =
Sales−Sales at BEP 750−500 Fixed cost+Profit
(c) Margin of safety = × 100 = × 100 = 33.33% Selling price per unit−Variable cost per unit
=
Sales 750
Profit at 750 units. 72000+90000
=
24−15
Profit = Total revenue — Total cost
18,000 units
= Total contribution — Fixed cost
= 3000 - 2000 = Rs.1000
5. Consider the following data of a company:
Sales = Rs. 40,000;
3. Determine the amount of fixed cost from the following information:
Fixed cost = Rs. 7500;
Sales = 2,40,000
Variable cost = Rs. 17,500;
Direct material = 80,000
Find the following: (a) Contribution (b) Profit (c) BEP
Direct labour = 50,000
Given Data:
Variable overheads = 20,000
Sales = Rs 40,000
Profit = 50,000
Fixed cost = Rs 7,500
Variable cost = Direct Material + Direct labour + Variable Overhead
Total variable cost = Rs 17,500
= 80,000 + 50,000 + 20,000

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MODULE- 2 Conveyors Belt Conveyors

Material Handling They are employed to transport material over a fixed path which may be horizontal or inclined In a belt conveyor, the belt may be flat or trough shape to hold (granular) materials which may
(up or down), to different locations in the factory. They prove economical if the flow of tend to fall from the flat belt. The belt material may be rubber covered canvas, steel, plain fabric
Material handling (MH) is an activity that uses the right method to provide the right amount of material is continuous. In a belt conveyor, the belt may be flat or trough shape to hold (granular) or woven wire. A fixed conveyor is used on mass production shop floor whereas portable
the right material at the right place, at the right time, in the right sequence, in the right position, materials which may tend to fall from the flat belt. The belt material may be rubber covered conveyors are preferred for intermittent job.
and at the right cost. MH system is responsible for transporting materials between workstations canvas, steel, plain fabric or woven wire. A fixed conveyor is used on mass production shop
with minimum obstruction and joins all the workstations and workshops in a manufacturing floor whereas portable conveyors are preferred for intermittent job. Roller Conveyors
system by acting as a basic integrator. The MH task accounts for 30-75% of the total cost of a
product, and efficient MH can be responsible for reducing the manufacturing system operations Types Of Conveyors They may be gravity aided or powered and are employed for transporting products having flat
cost by 15-30%. An efficient MH system greatly improves the competitiveness of a product bottoms. Small items are put in boxes, tins or ballots before being transferred. Roller conveyors
through the reduction of handling cost, enhances the production process, increases production 1. Belt conveyers. can move the material along straight or curved path. Gravity type conveyors should be
and system flexibility, increases efficiency of material flow, improves facility utilization, 2. Roller conveyers. preferred as compared to line conveyors wherever practical.
provides effective utilization of manpower, and decreases lead time. 3. Screw conveyers.
4. Pipeline conveyers. Cranes
Objectives of Material Handling 5. Monorail.
6. Trolley conveyers.
• Minimize cost of material handling.
• Minimize delays and interruptions by making available the materials at the point of use at
right quantity and at right time.
• Increase the productive capacity of the production facilities by effective utilization of
capacity and enhancing productivity.
• Safety in material handling through improvement in working condition.
• Maximum utilization of material handling equipment.
• Prevention of damages to materials.
• Lower investment in in process inventory.
Types of Material Handling Equipment’s
The material handling equipment are classified based on:
Types of services required: (1) Lifting, (2) Moving, (3) Stacking, and (4) Positioning
Types of equipment
Cranes are overhead devices capable of moving materials vertically and laterally in area of
Relative mobility of equipment: (a) Travel between fixed points, and (b) Travel over wide areas Belt conveyers Roller conveyers limited length and width and height. Cranes are employed for lifting and lowering heavy
Movement of equipment. objects and moving them from one point to another. Cranes find their application in heavy
engineering industries and in intermittent type of production.
(i) On the floor.
Types of cranes are:
(ii) Above the floor.
(a) Overhead travelling cranes.
(iii) Overhead.
(b) Jib crane.
(iv) Underground.
(c) Gantry crane.
Categories of equipment
(i) Conveyers:
(ii) Cranes and hoists.
(iii) Industrial trucks.
Screw conveyers Monorail

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Hoists Types of industrial trucks are: Selection of Material Handling Equipment’s

(a) Forklift truck. Selection of MH equipment is an important decision as it affects both cost and efficiency of
handling system
(b) Platform truck.
1. Nature of operations
(c) Tractor trailer.
(i) Whether handling is temporary or permanent.
Industrial trucks are generally used when:
(ii) Whether the flow is continuous or intermittent.
• Materials are moved intermittently.
• Movement is through changing routes and distances. (iii) Material flow pattern - vertical or horizontal
• Loads are uniform mixed is size and weight. (iv) Type of layout - process layout, product layout or combination layout
Hoists are used for loading and unloading of heavy objects and they are also used for raising • Materials can be put into unit loads.
and lowering heavy and long objects. Principles of Material Handling
Type of hoists are: 2. Material to be handled
1. Planning Principle: All handling activities should be planned.
(a) Chain hoists. 2. Systems Principle: Plan a system integrating as many handling activities as possible and (i) Size and shape of the material
coordinating the full scope of operations (receiving, storage, production, inspection, (ii) quantity and weight of the material
(b) Pneumatic hoists. packing, warehousing, supply and transportation).
(c) Electric hoists. 3. Space Utilisation Principle: Make optimum use of cubic space. (iii) Material characteristics
4. Unit Load Principle: Increase quantity, size, weight of load handled.
The hoists and cranes are most commonly used when - (iv) Susceptibility to damage during handling.
5. Gravity Principle: Utilise gravity to move a material wherever practicable.
6. Material Flow Principle: Plan an operation sequence and equipment arrangement to 3. Distance over which the material is to be moved
• Movement is within fixed area.
optimize material flow. (i) Fixed distance
• Moves are intermittent. (ii) Long distance
7. Simplification Principle: Reduce combine or eliminate unnecessary movement and/ or
• Loads vary, in size and weight. (iii) work station.
equipment.
• Loads handled are not uniform.
8. Safety Principle: Provide for safe handling methods and equipment.
9. Mechanisation Principle: Use mechanical or automated material handling equipment. 4. Installation and operating costs
Industrial Trucks
(i) Initial investment
10. Standardizations Principle: Standardise method, types, size of material handling
(ii) Operating and maintenance costs.
Equipment.
11. Flexibility Principle: Use methods and equipment that can perform a variety of task and 5. Plant facilities
applications. (i) Types of buildings
12. Equipment Selection Principle: Consider all aspect of material, move and method to be (ii) Floor load capacity
utilised.
13. Motion Principle: Equipment designed to transport material should be kept in motion. 6. Safety considerations
14. Idle Time Principle: Reduce idle time/unproductive time of both MH equipment and
manpower.
7. Engineering factors
15. Maintenance Principle: Plan for preventive maintenance or scheduled repair of all handling (i) Door and ceiling dimensions.
equipment (ii) Floor conditions and structural strength
(iii) Traffic safety.
Hand or powered vehicles are used for movement of mixed or uniform loads intermittently
8. Equipment reliability
over varying paths which have suitable running surfaces and clearances and where the primary
(i) Use of standard components
function is transporting. (ii) Service facilities
(iii) Supplier reputation.

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Value Analysis Factors Influencing Make or Buy Decision Purchase Cycle

Value is an abstract concept. It is related to the qualities of the product. The qualities may be 1. Volume of Production: The quantity or volume of production affects the make or buy
subjective (shape, styling) or objective (performance, durability). A product or service is decision to the greater extent. If the volume of production is high, it favours the make
generally considered to have good value if it has the appropriate performance and cost. These decision and low volume favours buy decisions.
are the major factors determining value. There are many other factors which contribute towards 2. Cost Analysis: The cost analysis refers to the determination of costs to make an item as
the value like durability, reliability, aesthetics, timeliness, etc. Thus, value can be written as well as the cost to buy it
(𝐏𝐄𝐑𝐅𝐎𝐑𝐌𝐀𝐍𝐂𝐄 + 𝐎𝐓𝐇𝐄𝐑 𝐑𝐄𝐐𝐔𝐈𝐑𝐄𝐌𝐄𝐍𝐓𝐒)
3. Utilisation of Production Capacity: The organisation which has created large production
VALUE = 𝐂𝐎𝐒𝐓 capacity favours the decision to make.
Value analysis is the systematic application of recognized techniques which identify the 4. Integration of Production System: The vertical integration favours the make decision
function of a product or service, establish a monetary value for the function, and provide the whereas horizontal integration favours buy decision.
necessary function reliably at the lowest overall cost. 5. Availability of Manpower: Availability of skilled and competent manpower favours make
decision whereas scarce manpower prefers buy decision.
Types of Values
6. Secrecy or Protection of Patent, right: This condition favours the make decision.
1. Use Value is the value provided by the properties, features and qualities which accomplish 7. Fixed Cost: A lower fixed cost favours the decision to make and higher fixed cost the buy
the use, work or service causing the item to perform the intended function. decision
8. Availability of Competent Suppliers or Vendors.
2. Esteem Value is the customer’s emotional regard for the item. This is provided by the
9. Quality and Reliability of Vendors
properties, features and attractiveness which make one to yearn for its possession. The esteem
value is the perceived value of an item over and above its use value. Purchasing
3. Exchange Value causes goods and services to be exchanged with others of equal value. This Purchasing is the first phase of materials management. Procurement is a function responsible
value depends on the demand and supply position of items exchanged for getting the materials, supplies and equipment's of right quality, in right quantities from right
source, at the right prices and the right time popularly known as the five R’s of the art of
4. Cost Value is the total cost of material, labour and others that have to be incurred to produce
efficient purchasing
an item or to provide a service. It gives the basic worth of the product or service. Other types
of values are added to it to get its full value. A company’s procurement function becomes particularly important when:
Make or Buy Decision • Its purchased items account for a high proportion of unit cost of the product.
• When the price fluctuates widely. The basic elements in purchasing are:
The make or buy decision refers to the problem encountered by an organisation when deciding
• When numerous diverse items are needed and
whether a product or service should be purchased from outside sources or manufactured • The origin of demand for materials and components based upon' the requisitions made to
internally. The majority of the make or buy decisions are made on the basis of price. Many • When the quality of material appreciably influences the cost of manufacturing
purchase department by user departments with all the details like descriptions, quantity and
noncost factors encourage long-term contracts with the suppliers to aid in the achievement of Classification of Purchases quality specifications.
production and quality levels and encourage investments in appropriate resources and new • Specifications are checked and verified and purchase plan is made for items demanded.
• Raw materials
ideas. Most of the make or buy decisions are complex, time consuming and affect many parts • Selection of source of supply.
of the organisation. Senior management involvement is required in a number of the stages of • Components
• Preparation of purchase order by supplier (order acceptance) and acceptance of terms and
this strategic decision. • Consumable stores and supplies conditions.
• Office supplies • Follow up to ensure prompt delivery of right quality and quantity of materials.
Make or Buy Decision When?
• Spares and tool • Incoming inspection of materials (both to check quality and quantity) to ensure correct
The following situations demand for the evaluation of make or buy decisions: • Machines and equipment's material as per specification.
1. When the organisation introduces new products. • Checking supply invoice against purchase order and goods received and payments are
2. The fluctuating demand for the company's products. made.
3. When the organisation carries out value analysis or cost reduction programs. Inventory
4. Deteriorating quality and delivery commitment of the supplier if presently the item is
bought. Inventory generally refers to the materials in stock. It is also called the idle resource of an
5. The scarcity of funds for investment in additional plant and equipment. 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 utilised.

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Types of Inventories Economic Order Quantity (EOQ) N = Number of orders placed per annum
Procurement cost (ordering cost) and inventory carrying cost are the two major costs associated Tc =Total cost per annum
• Raw materials inventory –purchased but not processed with inventory. Annual procurement cost varies with the number of orders. This implies that Annual ordering cost = No. of orders × Odering cost/order
• WIP (work in progress) inventory – partially completed goods or goods that undergone the procurement cost will be high, if the item is procured frequently in small lots. The annual Annual demand
= Order Quantity × Odering cost/order
some change but not completed. inventory carrying cost (Product of average inventory x Carrying cost) is directly proportional D
• Finished-goods inventory – completed products for delivery or shipment to the quantity in stock. The inventory carrying cost decreases, if the quantity ordered per order = Q × Co
• Pipeline inventory - Goods-in-transit to warehouses or customers is small. The two costs are opposite to each other. The right quantity to be ordered is one that Annual inventory carrying cost
• MRO (Maintenance, Repairs, and operating Supplies) inventory – Replacement parts, tools strikes a balance between the two opposing costs. This quantity is referred to as "Economic = Average inventory investment × inventory carrying cost
order quantity" (EOQ). Max. inventory + Min. inventory
and supplies necessary to keep machinery and processes productive
= ( ) × inventory carrying cost
• Buffer inventory or safety stock- any amount held on hand that is over and above that 2
Inventory Models 𝑄𝐶ℎ
currently needed to meet demand. = 2
A model of an object is a physical representation that shows what it looks like or how it works.
• Seasonal inventory- firms will purchase and hold inventory that is in excess of their current Mathematical modelling is a process of representing the real-world problem using various Annual total cost(Tc ) = Annual ordering cost + Annual inventory cost
DC QC
need in anticipation of a possible future event. Such events may include a price increase, a mathematical structures such as graphs, equations, diagrams, scatter plots, tree diagram, etc. = Qo + 2 h
seasonal increase in demand, or even an impending labour strike. Inventory Model is a mathematical model representing the inventory process following in an To minimize total cost differentiating w.r.to Q and equating to zero
• Decoupling Inventory- serves as a shock absorber, cushioning the system against organization aims at minimizing the total cost by finding optimum order quantity and when to dTc −DC C
= Q2 o + 2h = 0
production irregularities order. dQ
• Cyclic Inventory- cycle inventory results from ordering in batches or lot sizes rather than √𝟐𝐃𝐂𝐨
Economic Order Quantity with Instantaneous Stock Replenishment 𝐐∗ =
ordering material strictly as needed 𝐂𝐡
Assumptions The optimal number of orders placed per annum
Functions of Inventory Annual Demand 𝐃
• 𝐍∗ = =
• To meet anticipated customer demand - Anticipation stocks Demand is deterministic, constant and it is known. Economic order quantity 𝐐∗
• To smooth production requirement - Seasonal inventory • Stock replenishment is instantaneous (lead time is zero) Optimal time interval between two orders
• Price of the materials is fixed (quantity discounts are not allowed) 𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐰𝐨𝐫𝐤𝐢𝐧𝐠 𝐝𝐚𝐲𝐬 𝐢𝐧 𝐚 𝐲𝐞𝐚𝐫
• To decouple operation - Decouple inventory 𝐓∗ =
• Ordering cost does not vary with order quantity 𝐍∗
• To protect against stock out - Safety stock Minimum total yearly inventory cost
• To take advantages of order cycle- Cycle inventory Basic Inventory Model DCo Q∗ C h DCo 2DCo Ch
• To hedge against price increases - Safety stock Tcm = + = +√ ×
Q∗ 2 2DCo Ch 2
√ C
• To take advantage of quantity discount h

𝐓𝐜𝐦 = √𝟐𝐃𝐂𝐨 𝐂𝐡
Cost Associated with Inventory
Unit Cost Cu (Cost / unit) Numerical
▪ Direct cost for getting an item
▪ Purchasing cost for outside orders 1.A manufacturer has to supply his customers 3600 units of his product per year.
▪ Manufacturing cost for internal orders Shortages are not permitted. Inventory carrying cost amounts Rs.1.2 per unit per annum.
Holding cost or Carrying cost Cc (Cost / unit / period) The set-up cost per run is Rs.80. Find:
▪ Cost related to carrying an item in inventory (i) Economic order quantity.
Ordering or Setup cost Co (Cost / order)
▪ Cost associated with placing an order (ii) Optimum number of orders per annum.
▪ Setup cost for internal orders
(iii) Average annual inventory cost (minimum)
Shortage cost Cs (Cost / unit / period)
▪ Cost associated with not having an enough inventory to meet Given data
demand
Inventory Control Terminology Let D = Annual Demand Annual demand (D) = 3600 units
Demand – number of items required per unit time Co = Ordering Cost Inventory carrying cost (Ch ) = Rs.1.2 / unit /annum.
Order cycle- Time period between two orders Ch = Inventory carrying cost
Lead time – The length of time between placing and receiving an order C = Price per unit Ordering cost (Co ) = Rs.80 /order.
Re-order level (ROL) – It is the point at which the replenishment action is initiated. 𝑄 = Order quantity (no of units ordered per order)
Re-order quantity – Quantity to be ordered at ROL Q∗ =Economic order quantity

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2𝐷𝐶𝑜 2×3600×80 Inventory Model with Quantity Discounts The optimum order quantity q 2 based on price Cu2
(i) Q∗ = √ =√ = 692.82 = 693 units
𝑐ℎ 1.2
Assumptions
2DCo 2 × 300 × 30
(ii) Optimum number of orders per annum. • Demand occurs at a constant rate of D items per year. q2 = √ =√ = 51.44 = 51 units
• Ordering Cost is Co per order. Cu2 I 34 × 0.2
𝐷 3600
∗
N = 𝑄∗ = 693
= 5.19 = 5 orders • Holding Cost is Ch = C × I per item in inventory per year (note holding cost is based on the
Since q 2 is not equal to 200 or not more than 200, therefore calculating q1
cost of the item, C).
(iii) Average annual inventory cost (minimum) • Purchase Cost is Cu1 per item if the quantity ordered is between 0 and b1 , Cu2 if the order
quantity is between b1 and b2 , etc. 2DCo 2 × 300 × 30
Tcm = √2DCo Ch = √2 × 3600 × 80 × 1.2 = Rs.831.38 q1 = √ =√ = 50 units
• Delivery time (lead time) is constant. Cu1 I 36 × 0.2

2. ABC Corporation has got a demand for particular part at 10,000 units per year. The When there is only one price break (one quantity discount), the situation may be as follows: Calculating annual total cost for quantity to be purchased at the two price levels
cost per unit is Rs.2 and it costs Rs.36 to place an order and to process the delivery. The
inventory carrying cost is estimated at 9 per cent of average inventory investment. Range of quantity Purchase cost per unit
Determine Cost Order quantity 50 Order quantity 200
0 ≤ Q1 ≤ b1 Cu1
(i) Economic order quantity.
b1 ≤ Q2 ≤ b2 Cu2 (a) Annual cost of material 300×36 = 10,800 300×34 = 10,200
(ii) Optimum number of orders to be placed per annum.
(b) Annual ordering cost 300
× 30 = 180
300
× 30 = 45
50 200
(iii) Minimum total cost of inventory per annum.
Where b is that quantity at and beyond which the quantity discount applies and Cu12 ≤ Cu11 (c) Annual inventory carrying 1 1
× 50 ×36×0.2 = 180 × 200 ×34×0.2 = 680
Given data Procedure to take decision cost 2 2
Step 1: calculate Q2 i.e., optimum order quantity for the lowest price (highest discount) i.e.,
Annual demand (D) = 10,000 units Annual total cot = a+b+c Tc1 = 11160 Tc2 = 10925
Cu12 and compare it with the quantity b1
Cost per unit (Cp ) = Rs.2 / unit Step 2: If Q2 > b1 , then optimum order quantity will be Q2 , i.e., Q2 = Qo
Step 3: If Q2 < b1 Since Tc1 < Tc2 , optimal order quantity = 200 units
Ordering cost (Co ) = Rs.36 /order In order to obtain the optimum order quantity, compare the total inventory cost for Q = Q2 (for
price Cu1 ) with Q = b1
Inventory carrying cost (I) = 0.09
IfTc (Q1 ) > Tc (b1 ), then Qo = b1 otherwise Qo = Q1 4. A company requires 50000 units per year which costs Rs.10 per unit. Ordering cost is
2𝐷𝐶𝑜 2×10,00×36 estimated to be Rs.100 per order, carrying costs are 15% per annum of average inventory.
(i) Q∗ = √ =√ = 2000 units Numerical The supplier is ready to give 2% discount in price of the original value of the company
𝐶𝑝 𝐼 2×0.09
purchases 10,000 units or more but less than 20000 lot size. A further discount of 1% in
(ii) Optimum number of orders 3. ABC manufacturing company requires special involute gears at a rate of 300 numbers price of original value is available on the orders of 20000 or more units. Find economical
per year. Each gear costs Rs.36. The procurement cost and inventory carrying cost are lot size and minimum total cost.
𝐷
N∗ = 𝑄∗ =
10,000
= 5 orders estimated at Rs.30 and 20% respectively. If the supplier offers a discount of Rs.2 per gear
2000 or an order of 200 or above, will it be advisable to purchase higher quantity? Price/unit Range of quantities
(iii) Total Annual inventory cost Annual demand (D) = 300 units Rs.10 0≤ q1 < 10000
Tcm = Ordering cost + inventory carrying cost Ordering cost (Co ) = Rs.30 Rs.9.80 10000≤ q 2 < 20000
= 2 x Ordering cost (at EOQ, order cost equals carrying costs) Basic price per unit (Cu1 ) = Rs.36 Rs.9.70 20000 ≤ q 3
= 360 Rs/annum Discount price per unit (Cu2 ) = Rs.34
Inventory carrying unit cost, I =0.20 Given Data
Annual demand (D) = 50000 units
Price/unit Range of quantities Ordering cost (Co ) = Rs.100
Rs.36 0≤ q1 < 200 Basic price per unit (Cu1 ) = Rs.10
Rs.34 200 ≤ q 2 Discount price per unit (Cu2 ) = Rs.9.8

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Discount price per unit (Cu3 ) = Rs.9.7 Fixed Order Quantity System Two Bin System
Inventory carrying unit cost, I =0.15 This is also called perpetual inventory system or Q-system. In this system, the order quantity is The oldest and most commonly used inventory control system. In this the stock location of
fixed and ordering time varies according to the fluctuation in demand each item is divided in two sections (bins). The first bin holds the normal issue stock and it is
The optimum order quantity q 3 based on price Cu3
intended for satisfying current demand. The second bin holds the reserve supply of materials
The characteristics of this system are:
equal to the amount that will be consumed during the lead time plus safety stock if any. The
2DCo 2 × 50000 × 100
q3 = √ =√ = 2621.61 = 2622 units • Re-order quantity is fixed and normally it equals Economic order quantity (EOQ). second bin comes into use only after the first bin is emptied. Therefore, when the first piece is
Cu3 I 9.70 × 0.15 withdrawn from the second bin, the purchasing order is to be initiated. When the fresh stock is
• Depending upon the demand, the time interval of ordering varies.
• received, the level of the second bin is restored to its original high value and the balance is put
Since q 3 is not equal to 20000 or not more than 20000, therefore calculating q 2 Replenishment action is initiated when stock level falls to Re-order level (ROL).
• Safety stock is maintained to account for increase in demand during lead time. in the first bin from which current demand is now supplied.
2DCo 2 × 50000 × 100 Parameters to Operate the System Numerical
q2 = √ =√ = 2608.20 = 2608 units
Cu2 I 9.80 × 0.15
1. Re-order level (ROL) 5. A pharmaceutical company has a demand for 10,00,000 bottles. Each empty bottle costs
This equals the sum of safety stock and lead time consumption. the company Rs.1. Empty bottles are supplied by ABC Glass Ltd. The R.O.L. system of
Since q 2 is not equal to 10000 or not more than 10000, therefore calculating q1 stock replenishment is followed. Ordering cost is Rs. 12.5/order and inventory carrying
R. O. L = m + L × C cost is 25 percent of cost per bottle. The demand is constant throughout the year. The lead
where m = The minimum, or safety stock. time is 15 days.
2DC 2 × 50000 × 100
o
q1 = √ =√ = 2581.99 = 2582 units L = Lead time
Cu1 I 10 × 0.15 C = Consumption rate. Determine
Calculating annual total cost for quantity to be purchased at the three quantity levels 2. Re-order quantity (0)
This normally equals Economic order quantity (EOQ) 1. Economic order quantity.
Cost Order quantity 2582 Order quantity 10000 Order quantity 20000 3. Maximum stock level (M) 2. Lead time consumption.
It equals the safety stock + order quantity
(a) Annual 50000×10 = 50,0000 50000×9.80 = 49,0000 50000×9.70 = 48,5000 M = m + Qo 3. Re-order level.
cost of where Qo = Quantity
material 4. Average inventory.
m = Safety stock
100 100 100
M = Max. stock Annual demand (D) = 10,00,000 units
(b) Annual × 50000 = × 50000 = 500 × 50000 = 250
ordering 2582 10000 20000 4. Average inventory Cost per unit (Cp ) = Rs.1 / unit
1936.50 1
cost Average inventory = 2 (Min. stock + Max. stock)
1 1 𝑄
Ordering cost (Co ) = Rs.12.5 /order
(c) Annual 1
× 2582 ×10 ×0.15 =
1
× 10000 ×9. 80 ×0.15 =
1
× 20000 ×9. 70 ×0.15 = = 2 (m +M) = 2 (m + m + Qo ) = m + 2𝑜
inventory 2 2 2 Inventory carrying cost (I) = 0.25
1936.50 7350 14550 Advantages 2DCo 2×10,00,000×12.5
carrying cost (i) Q∗ = √ =√ = 10000 units
Cp I 1×0.25
Annual total Tc1 = 503873 Tc1 = 497850 Tc1 = 499800 • Simple and cheaper to operate. ii. Lead time consumption = Lead time (in months) x monthly consumption
cot = a+b+c • Stock control will be accurate as the replenishment action is initiated soon after the stock 15 10,00,000
reaches R.O.L. = × = 41667
30 12
EOQ =10000 and minimum cost = Rs.497850 Safety stock is assumed equal to lead time consumption.
• Suitable for low value items. iii.
Inventory Control System • Appropriate for variety of inventory maintained within the organisation. Re-order level =Safety stock + Lead time consumption
The inventory systems are developed to cope with the situations where the demand' or lead time Limitations = 41667 + 41667 = 83334
or both will fluctuate. The basic approach to all stock control methods is to establish a reorder Max. inventory + Min. inventory (41667 +10000)+(41667)
• In this inventory system, there will be a load on the re-ordering system if many items reach iv. Average inventory = 2
= 2
level which, when reached would indicate the signal for the replenishment action. Thus, the
R.O.L. at the same time.
replenishment of the inventory means determining the quantity to be ordered and the time of = 46667
ordering. • The stock level records and usage rate data are to be maintained

There are two types of replenishment systems.

1. Fixed quantity system (Q-system)
2. Fixed period system (P-system)

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6. A firm uses every year 12,000 units of raw materials costing Rs.1.25 per unit. Ordering Lead time consumption= L × C = 12×200 = 2400 units Periodic Review System
cost as Rs.15 per order and the holding cost is 5% per year of average inventory.
(i) Find the economic order quantity R. O. L = m + L × C = 600 + 2400 = 3000 units It is also called fixed period system or P-system. This system has a fixed ordering interval but
(ii) The firm follows EOQ purchasing policy. It operates for 300 days per year. the size of the order quantity may vary with changes in demand. The Inventory position is
Procurement time is 14 days and safety stock are 400 units. Find the re- Maximum inventory, M = m + Q∗ = 600+ 5000 = 5600 units verified at prefixed interval, then depending upon the situation replenishment action is initiated.
order point, the maximum inventory and the average inventory Minimum inventory = Safety stock, m = 600 units The characteristics of the system are:
Given data Q∗ 5000
Average inventory = m + = 600 + = 3100 units • Order interval is fixed for individual item or group of items.
2 2
Annual demand (D) = 12,000 units • Stock is reviewed at periodic interval and the quantity (Q) which will bring the inventory
8. The average monthly consumption for an item is 600 units and the normal lead time is to maximum level is ordered.
Cost per unit (Cp ) = Rs.1.25 / unit one month. If the maximum consumption has been up to 670 units per month and
maximum lead time is 1.5 months, what should be the buffer stock for the item? Parameters to Operate the System
Ordering cost (Co ) = Rs.15 /order
Normal lead time demand = Normal demand × Normal lead time 1. Maximum level (M)
Inventory carrying cost (I) = 0.05 It is sufficient to satisfy demand during review period and lead time.
= 600 × 1 = 600 units Max. level (M) = Min. stock + Consumption during review period and lead time.
Safety stock (m) = 400 units
Maximum lead time demand = Maximum demand × Maximum lead time M = m + C (R + L)
Procurement time (L) = 14 days 2. Re-Order Quantity
2DCo 2×12000×15 = 670 × 1.5 = 1005 units (i) when lead time is less than review period,
i) Q∗ = √ =√ = 2400 units
ch 0.05×1.25 Q = Maximum stock - stock actually held at the time of review.
12000 Buffer stock = Maximum lead time demand - Normal lead time demand
ii) Requirement per day, C = = 40 (ii) when lead time is more than review period.
300
= 1005 – 600 = 405 units Q = Max. Stock — (Stock on hand + Stock on order)
Lead time consumption= L × C = 14×40 = 560 units This system is suitable for high value items which require strict control on stock levels.
9. For a fixed order quantity system find out (i) EOQ, (ii) optimum buffer stock, (iii) Re-
R. O. L = m + L × C = 400 + 560 = 960 units order level (iv) Maximum inventory (v) Average inventory for an item with the following
data: Annual consumption = 10000, cost of one unit = Rs.1, Set up cost = Rs. 12 per Just in Time (JIT) Manufacturing
Maximum inventory, M = m + Q∗ = 400+ 2400 = 2800 units production run, Carrying cost = 24%, Past lead time = 15,25,13,14,30,17 days
Just in time manufacturing is a philosophy rather than a technique. By eliminating all waste
Q∗ 2400 Given data
Average inventory = m + = 400 + = 1600 units and seeking continuous improvement, it aims at creating a manufacturing system that is
2 2
Annual demand (D) = 10,000 units responsive to the market needs. The phrase just in time is used because this system operates
7. A company uses 60,000 units of an item annually each cost Rs.2.40. Each order costs with very low WIP (work in process) inventory and often with very low finished goods
Rs.50 and inventory carrying costs are 10% of the annual average inventory value. Cost per unit (Cp ) = Rs.1 / unit inventory. Products are assembled just before they are sold, subassemblies are made just before
Determine (i) EOQ (ii) if the company operates 300 days a year, the procurement time is
12 days and safety stock is 600 units. Find reorder level, maximum, minimum and average Ordering cost (Co ) = Rs.12 /order they are assembled and components are made and fabricated just before sub-assemblies are
inventory. made. This leads to lower WIP and reduced lead times. To achieve this organizations, have to
Inventory carrying cost (I) = 0.24 be excellent in other areas e.g., quality.
Given data
2𝐷𝐶𝑜 2×10000×12 JIT is a manufacturing system whose goal is to optimise processes and procedures by
Annual demand (D) = 60,000 units (i)Q∗ = √ =√ = 1000 units
𝑐ℎ 0.24×1 continuously pursuing waste reduction. JIT provides for the cost-efficient production in an
Cost per unit (Cp ) = Rs.2.40 / unit 15+25+13+14+30+17 organisation and delivery 'of only the necessary parts in the right quantity at the right time and
(ii) Normal lead time= = 19 days place while using the minimum facilities. JIT enables one to conceive, design, implement and
6
Ordering cost (Co ) = Rs.50 /order operate a manufacturing and supporting systems, as an integrated whole based on the principles
Optimum buffer stock = (Maximum lead time - Normal lead time) ×monthly demand
Inventory carrying cost (I) = 0.10 of continuous improvements and elimination of all kinds of waste.
(30−19) 10000
Safety stock (m) = 600 units = × = 305.55 = 306 units Objectives of JIT
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Procurement time (L) = 12 days JIT Manufacturing tries to streamline flow of materials from the suppliers to the customers,
thereby increasing the speed of the manufacturing process. The objectives of JIT are to change
i) Q∗ = √
2𝐷𝐶𝑜
=√
2×60000×50
= 5000 units the manufacturing system gradually rather than drastically:
𝑐ℎ 0.1×2.40
1. To be more responsive to customers,
60000
Requirement per day, C = 300
= 200 2. To have better communication among departments and suppliers,
3. To be more flexible,

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4. To achieve better quality, MODULE- 3 Scope of Industrial Psychology

5. To reduce product cost.
Industrial Relations The application of industrial psychology involves four kinds of inter-personal relationships:
Basic Elements of JIT
Industrial relations represent the relationship that exists between the employer and employees (i) Relation between the worker and his work.
1. Flow Layout - The physical layout of production facilities is arranged, so that the in an industrial undertaking. If these relations are strained, industrial disputes occur and the (ii) Relation between the worker and his immediate superior.
process flow is streamlined i.e., for each component, the proportion of value-added time industrial work suffers. The employer suffers losses, the worker does not get wages and there (iii) Relation between the worker and his fellow workers.
is shortage of goods and services for the community. Hence, it is the interest of both the
should be more, there should be minimum queuing and non-value-added times. employer and employees as well as for the society in general that industrial relations should be (iv) Relation between the worker and management.
2. Smoothed Build Up Rate - The buildup rate should be smooth over a monthly cycle. cordial and harmonious. Industrial psychology aims at acquiring better understanding of individual and group behaviour
To achieve this, under capacity scheduling is resorted to so that they can respond to
Objectives of Industrial Relations at work and better control of the above-mentioned relationship. If these relations are good,
demand changes.
workers are satisfied and it results in high employ moral.
3. Mixed Model Scheduling - JIT objective is· to match the production rate to demand • To safeguard the interests of labour as well as that of the management.
as closely as possible. One way of doing this is to increase the flexibility of production Individual Behaviour
lines to allow concurrent assembly of different models on the same line. • To avoid industrial conflicts and develop harmonious relations.
4. Small Lots and Minimum Set-up Time - The objective of minimising set-up times is There are three M’s of production: Men, Materials and Machines. Each individual may behave
• To raise productivity. in different manner because of the differences in their skill, experience, attitude, character, etc.
to reduce the batch sizes to the minimum possible. This reduces the manufacturing cycle
time and inventory. • To bring down strikes, lockouts and gheraos. The individual differs from each other in certain aspects termed as individual variables.
5. Buffer Stock Removal - Constant elimination of buffer stocks is emphasised to Individual variables play major role and influence the performance of an employee at work.
• Provide an opportunity to the workers to participate in management and decision-making
highlight production problems scheduled by high inventory levels. process. Individual variables are: physical characteristics (weight, height and strength), intelligence
6. Kanban Card - It is a pull system of managing material movement comprising of factors, interest and motivation, temperament, character, aptitude, personality characteristics,
"Kanban card" based on information system. It helps to trigger the movements of • Establish industrial democracy based on labour partnership in the sharing of profits and of education, skill, experience, age, sex, etc.
material from one operation to another. managerial decisions.
7. Quality- The achievement of high-quality levels is a prerequisite of successful JIT. There are some situational variables also which influence the performance (behaviour) of an
Zero defect, statistical process control, process data collection and worker central employee on a given job
Factors Affecting Industrial Relations
quality are commonly used quality programmes. Situational variables are: physical environment, work space and layout, design and condition
8. Product and Process Simplification 1. Institutional factors - these include policy of the organization, work environment, work
of work, equipment, etc. and method of work
This is achieved through (workers having same purpose or objective), labour laws, collective agreements,
(i) Rationalisation of product range motivation, etc. Group Behaviour
(ii) Simplification of methods of manufacture 2. Economic factors – these includes type of ownership, individual, nature and composition
of workforce, disparity of wages between groups, etc. Formal group: A group formed to achieve some specific purposes, goals or objectives. Many
9. Simplification through component item standardisation. jobs in industries such as repairs and maintenance works, fabrication of large units, line
3. Technological factors – these include methods, type of technology used, rate of
technological change, etc. These factors considerably influence the patterns of industrial assemblies, etc. requires collective efforts on the part of employees. This leads to the formation
relations as they are known to have direct influence on employment status, wage level, and of formal groups in an industry.
collective bargaining process in an organisation. Informal groups: Individuals because of their social needs, common interests, security and
Industrial Psychology some psychological factors may also form groups.

Psychology means science of mind i.e., accurate and systematic knowledge about mind and its Characteristics of Group Behaviour
work. Industrial psychology is the study of men at work as individuals and in groups and of the • A group is a collection of two or more individuals with common goals, common aspirations
relationship between individual and groups. Industrial psychology is concerned with the study and who interact with one another
of human behaviour in different aspects of industry and business, e.g., production, distribution • It has been observed that an employee behaves differently when acting as an individual,
and use of the goods and services of the civilization. Industrial psychology (application of then when as a member of a group
principles to industry) is mainly concerned with human happiness and welfare. • Every group develops over a period of time certain conventions and traditions or culture
pattern.
• Group influences and changes attitude and behaviour of an individual towards work and
towards the organisation.
• Each group has its organisation
• Each member of the group should have affinity for the group.

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• The feeling of uniqueness or isolated entity generate group cohesiveness. 4. Working conditions Informal Communication
• The members must show a sense of belongingness. Improper working conditions such as
An informal communication is one that is outside the formal, recognized communication
• Improper light (illumination)
Aims & Objectives of Industrial Psychology system, such as conversations between and among workers. A person is motivated to
• Too cold or too hot atmosphere
communicate naturally. Informal communication arises from social interactions.
• To select right men for right jobs and to develop them as an efficient labour force. • Insufficient ventilation
• Planning the work. • Presence of bad smell, fumes, dust, smoke and flash Informal communications are
• Employee training and development. • Noise • Is a natural and normal activity of a person and arises out of social relationships of people.
• Effective Utilisation of human resources 5. Heavy protective clothing, etc., add to fatigue of the worker.
• Works like a cluster chain in which each link (i.e., person) associates and communicates to
• To maintain suitable/safe working conditions. 6. Rest pauses
a cluster of the other links (i.e., persons) Spreads fast,
• To minimize, settle industrial disputes. Suitable and well-planned rest pauses within the work-hours tends to reduce the build-
• Is a good method of vertically upward or downward communication
• For deciding wages and incentive schemes. up fatigue. The duration of rest pause should be anywhere from 5 to 20 minutes, with
• Involves feeling, facts, rumours, etc.
• To develop effective communication system. heavier work requiring the upper limit.

Industrial Fatigue Communication in Industry

Industrial Safety
Working conditions of physical nature and those related to time, influence employee fatigue to The subject of communication is one of the broadest in the field of personnel management. It
considerable extent. For practical purpose, fatigue may be defined as negative appetite for encompasses a consideration of the subjects to be communicated, media, channels, Industrial safety is mainly concerned with minimising hazards in industries. Hazard is a state,
activity; and a reduction in the ability to do work as a consequence of previous work. Nature communicators and the symbols of communication. Communication is the process of physical or chemical having potential to injure the person or impairment of health. Risk or
of Fatigue includes both mental and physical reaction as well as the phenomenon of monotony conveying messages. For communication to take place, messages must be composed, danger arises out of hazards. Safety is freedom from risk to the level desired. Risk is the product
and boredom. Monotony is the state of mind caused by performing repetitive tasks. Boredom transmitted and understood. Communication is the process of transmitting ideas or thoughts of two functions that is probability of an event which might occur and severity of the event if
or lack of interest, is characterized by depression and a desire for change of work or activity. from one person to another, for the purpose of creating understanding in the thinking of the it occurs. Hazard refers to a potential condition which might be converted into an accident.
person receiving the ideas or information. Hazards may be broadly grouped under the following head: (i) Nuclear (ii) Chemical (iii)
Effect of Fatigue Mechanical (iv) Electrical (v) Constructional (vi) Fire Industrial safety management is a branch
Formal Communication
of management which is concerned with reducing, controlling and eliminating hazards from
• Affects badly the muscles, nerves and mind of the workers;
A formal communication is official that is a part of recognized system involved in the the industries Industrial safety is of prime importance in any organisation because if safety
• Decreases a worker’s capacity to do more work;
successful operation of a concern. Information passed on from the supervisor to a worker to do measures are not taken chances of industrial accidents are definitely going to be increased.
• Results in loss of worker’s efficiency;
a particular work is an example of formal communication. Formal communication may be
• Introduces a feeling of tiredness and weakness; Personal Protective Devices
written, or oral. Formal communication may be a
• Create disinterest in the work;
Personal protective devices are designed to interpose an effective barrier between a person and
• Disturbs chemical, psychological and physiological equilibrium; Vertical communication, downward from top management to workers to do a job, a praise or
harmful objects, substance or radiation. The device should meet the following requirement
• Give rise to monotony and boredom a reprimand; or upward from workers to higher management levels giving work
• Increases tendency towards making accidents; and accomplishment report or other feed-back information. • Adequate protection against hazards to which the worker will be exposed
• Increases absenteeism and labour turn-over rate Horizontal communication, the transmission of information from and to, to positions of the • Maximum comfort and minimum weight.
same level, e.g., Manager production informing manger maintenance regarding a machine • No restriction on essential movements of the worker.
Causes & Elimination of Fatigue
break down. • Durability and easy maintenance.
1. Hours of work • Economical.
The highest productivity per hour and less fatigue is achieved with small number of
Types of Personal Protective Devices
working hours per day. Perhaps an eight-hour day with a lunch break of 45 to 60
minutes is a good solution. Personal protective devices may be divided into two broad categories
2. Working days of a week
i. Non-respiratory protective devices
A five-day week with 40 working hours showed the highest hourly output.
ii. Respiratory protective devices
3. Nature of work
Complex muscular work may preferably be done with the help of suitable material
handling devices. Minute and precise work impart more fatigue. Mental task requiring
continuous attention adds to fatigue rapidly. Works involving standing and abnormal
posture tends to increase fatigue.

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Non-respiratory Protective Devices Respiratory Protective Equipment’s 13. Non-recognition of Labour Union
1. Head Protection Airline Respirator Effect of Strike
2. Eye-and-Face Protection
Airline respirator consists of a face-piece (half or full mask or a loose-fitting helmet or hood) 1. Loss of income to workers.
3. Hand and Arm Protection
to which air is supplied through a small diameter hose. It may be continuous flow type or a 2. Decreased output and profits to industry.
4. Foot and Leg Protection
demand type. In a demand type airline respirator, air from an air compressor is supplied to the 3. Creation of mental strain, tension in the minds of workers, management and industry
5. Body Protection
face-piece through a demand valve which is actuated by slight negative pressure created when owners.
Head Protection inhales. On exhalation the demand valve closes and exhaled air escapes to the surrounding 4. Strike may turn violent and may cause loss of life and damage to property.
atmosphere through exhalation valve. 5. Shortage of products in market, which may cause inconvenience to the costumers.
Personal protective equipment's used for protecting head include helmets, hats and caps. These
6. Strike results in mass unemployment
are made of aluminium, PVC, fibre glass, laminated plastic or vulcanized fibre. Helmets must Industrial Disputes
7. It involves loss of valuable man hours
be strong, sturdy enough to save workers from head injury. Soft caps are used for protection
Industrial disputes may be defined as any dispute (conflicts) or differences between employer
against heat, spark and other dangerous materials. Protective head wears should be fire- Methods of Settling Industrial Disputes
and workers or between workers. A dispute or conflict means a struggle or clash between the
resistant. In case of electrical hazards are present they should be made of non-conductive
interest of the employer and the worker. There are two broad categories for setting industrial disputes between labour and management:
materials or should be electrically insulated.
Industrial disputes cause losses to workers, management and nation as a whole: Self-settlement
Eye & Face Protection
1. Workers lose their wages Assisted (External) settlement
Eye injuries are caused by dust, flying particles, splashes and harmful radiation. Device used
2. Management loses its profit
for eye protection may be safety spectacles, mono-goggles, impact goggles, welding goggles, i. Collective Bargaining
3. Public suffers due to shortage of goods in the market.
foundry goggles, chemical goggles, gas tight goggles, welding helmet, etc. Devices used for ii. Mediation
4. Nation suffers due to loss of production.
face and eye protection are face shield and hood. iii. Conciliation
Causes of Industrial Disputes iv. Arbitration
Hand & Arm Protection
v. Investigation
1. Low Wages. Trade unions always demand for higher wages whereas the tendency of the
Protection of hands and arm become necessary when workers have to handle materials having
employer is to pay low wages and make higher profit. This conflicting interest leads to Collective Bargaining
sharp ends, sharp edges or when hot and molten metals, chemical corrosive substances have to
dispute.
be handled. Gloves are used for complete protection of hand and usually provided with wrist Collective bargaining is a method by direct negotiations between the representatives of the
2. Non-payment of Bonus & Dearness Allowance. If bonus and other incentive schemes are
bands to ensure snug fit. Sleeves are meant for protection to arms against injuries. employers and the employees. It is a process of negotiations between company and union
not properly implemented and D.A is not paid at correct rate, workers become unhappy.
representatives in an attempt to reach agreement on the terms and conditions of employment
Foot & Leg Protection 3. Hours of Work and Leave. Workers struggle for reduction in hours of work whereas the
such as wages, working conditions, bonus, health, safety, employee welfare, etc. Collective
employers try to extract work for few more hours besides the hours fixed by the laws.
Common foot and leg protective devices are safety shoes, boots, foot-guards, leg guards etc. bargaining is essentially a complimentary process. It gives opportunity to both the sides to
Sometimes even the leave due to the workers is denied or leave rules are not applied strictly.
Safety shoes may be meant for protection against toe injuries, crushing of feet, etc. Boot usually express their problems, difficulties and views. Collective bargaining can serve its useful
4. Non-payment of Overtime. Non-payment of overtime at the rates admissible by laws also
of rubber or extensively used to provide protection against chemicals, slush, etc. purpose only when it is realized as a two-way process or ‘give and take’ approach by both the
leads to dispute between workers and employers
management as well as the workers.
Foot –guard is a protective device meant to protect the toes up to ankles from injuries due to 5. Adverse Working Conditions. Poor working conditions such as too hot, too cold, noisy,
falling or striking objects. dirty, poor illumination, improper ventilation, etc. may cause industrial disputes Steps in Collective Bargaining
6. Retrenchment and Victimization of Workers. The retrenchment of workers because of
Body Protection bad relations with the employers, business depression, installation of automatic and labour- Steps involved in collective bargaining are:
Apron saving machine may cause dispute 1. Putting up before management (by the employees) their demands and grievances
7. Favourism. Favourism in employment, promotion, rewards and allotment of work may collectively.
Aprons made of different materials are extensively used as protective clothing in various cause frustration and disappointment of other workers. 2. Discussing and negotiating with the management representatives, with a view to settle the
industries (welding, smithy, moulding) in particular. The selection of type of apron depends 8. Exploitation. Exploitation of workers by owners may leads to dispute. dispute issues
upon the nature of hazard arising out of radiation, acid, alkali and heat exposure, etc. 9. Lack of Pride in Work. The workers do not feel any pride in their work. If they are 3. Drafting and signing the agreement mutually arrived at.
Suits properly motivated or ill-treated by employers, they may become discontent.
10. Lack of Personal Contact. Lack of personal contact between employers and employees The agreement reached between the two parties in the form of written contract which is legally
Suits are specially designed for use in extremely hazardous situation to provide complete body may create misunderstanding in the minds of workers. binding on them. The following details should be included in the agreement: Rights and
protection. Rubber suits are used for body protection in hazardous chemicals plants while 11. Political Causes responsibilities of the management and of the union, wages, bonus, production norms, leave,
asbestos suits are suitable in case of fire hazards. 12. Non-redressal of Grievances

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retiring benefits, other benefits and terms and conditions, grievance procedure, methods and Mediation Functions of Trade Union
machinery for settlement of possible future disputes, termination clauses, etc.
In conciliation the conciliator works indirectly. His participation is to direct in mediation third The activities of the trade union may be broadly divided into three categories:
Essentials For Collective Bargaining party or mediation actively participates to get the settlement reached between the disputing
i. Industrial activities
parties. The mediator even suggests his compromise scheme. There is no legal compulsion
i. There should be strong representative trade union which should have a faith in ii. Social activities
for the acceptance of mediator’s views.
constitutional means and fair play. iii. Political activities
ii. The recognition of workers’ union by the management and acceptance of their rights to Arbitration
Industrial activities. Industrial activities are those which are directed towards the betterment
negotiate through bargaining.
It is the semi-judicial type of assisted settlement in which the third parties, i.e., the arbitrator’s of employment conditions of the workers and to safeguard their legitimate rights
iii. Flexible attitude of both parties is essential for settlement of industrial disputes.
decision has legal compulsion. It has to be accepted and implemented by the disputing parties.
iv. Sufficient authority with participating representatives, to form and get agreement These are carried out to ensure the following
The third person arbitrator is chosen by agreement between the employer and employees. In
implemented by their parties.
v. The parties should have a sound faith in the process of collective bargaining as an
Indian Industrial Dispute Act passed in 1947, main object of this Act is to secure industrial • Fair wages to the workers
institution.
peace by settling the industrial disputes through negotiations and conciliations rather than on • Better working and living conditions
the strength of strikes and lock-outs. • Shorter periods of work
vi. The purpose of collective bargaining should be quite clear.
vii. Mutual trust and confidence of the negotiating parties among themselves is essential Investigation • Better social security
viii. There should be no external pressure either on the employer or the workers to come to • Bonus profits
an agreement desired by the authority exerting the pressure. Investigation of any dispute may be conducted by a board or a court of enquiry appointed by • Dignity of labour
ix. The final decision taken should be binding upon both the parties. the government. There is voluntary investigation or compulsory investigation. In voluntary
investigation, consent of the parties to the dispute is necessary. In compulsory investigation no Social activities. The activities which are directed towards helping the workers in times of
Advantages of Collective Bargaining consent is necessary. need and improving their efficiency are called social activities
i. Collective bargaining results in the joint decision by the management and Trade Unions Political activities. The activities which are directed towards capturing political power or to
representatives of workers to regulate working conditions and wages, etc. These joint influence the national political affairs are called political activities. Efforts are made to send
decisions establish a kind of rule of law in labour management relations and remove or Trade unions are voluntary organisations of workers formed to protect and promote the representatives of trade unions to government bodies for promoting their cause.
discourage arbitrariness on the part of employer or excessive demands on the part of interests and welfare of their members. A trade union is a continuous association of wage
earners for the purpose of maintaining or improving the condition of their employment. Indian Merits of Trade Union
the workers.
Trade Union Act, 1926 Section 2(b) has defined trade union as “Any combination, whether
ii. It results in better understanding between the management and workers. • It is a powerful instrument to promote and safeguard the interests of workers and to achieve
iii. It is a flexible method of adjustment to economic and technical changes in an industry, temporary or permanent, formed primarily for the purpose of regulating the relations between
economic, psychological and social objectives of workers
workmen and employers, or between workmen and workmen or for imposing restrictive
with the knowledge and consent of employer and employees. • A strong trade union runs on democratic principles alone affords adequate protection to
iv. It is a moderate and constructive response to industrial conflicts as it reflects willingness conditions on the conduct of any trade or business”. It is a powerful instrument to promote and
workers against exploitation
safeguard the interest of workers.
to co-operate, remove conflicts by mutual understanding. It results in increased • Trade union promote industrial peace and stability
productivity with better industrial relations Need for Trade Unions (Objectives) • Trade union improve the working and leaving conditions and wages of workers, create a
Limitations Of Collective Bargaining sense of self-respect and confidence among them and consequently lead to better efficiency
1. To safeguard the legitimate rights of workers
2. To improve the collective bargaining power of workers • Trade unions help to bring general awareness among the workers about their rights
i. The major objective of trade union relates to monetary gain through collective • It creates sense of brotherhood amongst the workers and promote team spirit
bargaining. This is possible only when the organisation is making profits and the 3. To ensure healthy and safe working conditions for workers
4. To unite the workers and create the spirit of brotherhood among them • Trade unions are of vital importance in developing an industrial society based on justice
employer has capacity to pay more. and equality in the interest of industrial peace and in increasing the industrial productivity
ii. The multiplicity of trade union and intense union related rivalries defeat the purpose of 5. To protect the workers from exploitation by employers
bargaining by making conflicting demands 6. To improve the employee-employer relations Demerits of Trade Union
7. To assist the workers in case unemployment, accidents, and sickness, etc.
Conciliations 8. To provide job security and proper justice to its members against layoffs and retrenchment • Trade unions often do not welcome improved production methods for the fear that some of
9. To provide legal assistance to workers in connection with work affairs the workers may be retrenched. This retards the pace of industrial growth
In this method third outside party indirectly helps the disputing parties to come to the
10. To improve social and political status, living standards of its members • Trade unions are sometimes exploited by political parties for the selfish means which
settlement. The third party is either a conciliator or a conciliation board which sympathetically
11. To ensure participation of workers in management decision making hinder industrialization
interprets one party’s view to the other and skilfully manages to bring them together so that the
• They sometimes create artificial scarcity of labour by demanding the only union personnel
settlement is reached.
should be employed
• Their attitude is mostly anti-employer and they indulge mainly in militant activities

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• Lack of education makes the workers narrow-minded and they lack in foresightness. They MODULE- 4 4. Pull
sometimes go on strikes on pretty grounds which results loss to workers, employers and to
Lean Manufacturing (LM) Another waste that lean manufacturing attempts to eliminate is excess work-in-progress
the community in general
inventory. Rather than "pushing" production based on a forecast or schedule, those who take
• The benefits of the union activities are restricted to union members only The core idea of lean manufacturing is simple i.e., relentlessly work on eliminating waste from the pull approach ideally don't make anything until the customer (internal or external) orders
• A powerful trade union in an industry pressurizes the employers to accept their the manufacturing process. Waste is defined as any activity that does not add value from the it. Visualization tools like Kanban signboards help to provide a mechanism for informing each
unreasonable demands customer's perspective. Lean manufacturing basically involves the assessment of each of the step in the chain what they need to produce to meet the customer's needs.
company’s activities - the efficiency and effectiveness of its various operations, the reason for
Workers’ Participation in Management 5. Perfection
retaining specific operations and manpower, the efficiency of equipment and machinery in the
A principle of democratic administration of industry sharing the decision-making power by the operation, number of people involved in particular operation and detailed analysis of costs The final Lean manufacturing principle from Lean Thinking is the relentless pursuit of
ranks of an industrial organisation, through their proper representatives, at all appropriate levels associated with each activity including both productive and non-productive operations and perfection. Lean thinkers implement systems and measurements that continuously seek
of management, in the entire range of managerial action. Participation means co-functioning, taking appropriate steps to improve operations by eliminating unnecessary operations. opportunities to improve, speed, and reduce the cost of each step of the value stream.
playing one’s part in an integrative unity, contributing all that one is capable of to the good of
Objective of Lean Tools of Lean Manufacturing
the organisation.
Objectives of Participation in Management • Lean manufacturing is a production strategy that aims at high levels of production using 1. Cellular Manufacturing
lesser effort, time and materials
1. Recognition of human factor and human relation in industry for achieving higher • It is an integrated business approach adopted to eliminate non-value-added activities from Cellular manufacturing is an approach in which all equipment and workstations are arranged
productivity, ensuring greater employee morale and harmonious industrial relation the customer delivery cycle in the operations. based on a group of different processes located in close proximity to manufacture a group of
emphasizes the need for growing workers participation in management and greater • This approach enables companies to respond quickly and profitability to changes in similar products. The primary purpose of cellular manufacturing is to reduce cycle time and
association of labour at all levels of management, particularly at the plant level customer demands inventories to meet market response times.
2. Worker’s participation in the management helps to satisfy their higher-level needs. • The technique of lean manufacturing can be applied to every situation in a company by 2. Takt Time
Satisfaction of these higher levels needs acts as a motivator of the higher efficiency and finding out what the customer wants, eliminating waste from processes and making flow
productivity continuously according to customer pull. This is the "heartbeat" of the customer. Takt time is the average rate at which a company must
3. Principles of industrial psychology and the new trends in personnel management have also • The objective is to create a culture in which people-at various levels of an organization are produce a product or execute transactions based on the customer's requirements and available
stressed the importance and need of labour participation in management. continuously improving their productivity every day in every way working time.
4. Labour at present in many countries is literature, educated and well-informed and it wants
Principles of Lean Manufacturing Takt= T/D
to be treated by the management and employers as person capable of assuming greater
responsibilities showing initiative and creative ideas. 1. Value Where T is Time available for product/ service.
5. There is now growing consciousness of labour’s right to participate in management and
The value a customer places upon products and services determines how much money they are D is a demand for the number of units
secure industrial democracy as advocated by socialist pattern of ideology.
6. To avoid labour unrest and develop mutual understanding so that workers do not resist a willing to pay for them. Lean philosophy insists on understanding exactly what drives customer T gives information on production pace or units per hours.
change for the betterment of the enterprise value, including understand in what problem they are trying to solve.
7. It also helps to maintain industrial discipline, reduces labour turnover, absenteeism, etc. 3. Standardized Works
2. Value Streams
8. It uses creativity of employees and encourages them to accept responsibility. A process of methods, materials, tools, and processing times required to meet Takt time for
A value stream includes all the processes, steps, and materials necessary to place the product any given job. This aids in standardizing the tasks throughout the value stream.
Forms of Workers’ Participation in Management
(or service) in the hands of the customer. Lean organizations seek to document and understand
• Consultative management partnership. In this form the executive or supervisor calls a every aspect of their value streams. This analysis will usually reveal time delays, activities that 4. One Piece Flow or Continuous Flow
meeting of his sub-ordinates whenever a situation requires to obtain a group idea towards create value, activities that don't create value but can't be eliminated due to current technical or This concept emphasizes reducing the batch size in order to eliminate system constraints. A
the solution of operating problems. production limitations, and activities that create no value, making them wastes that become methodology by which a product or information is produced by moving at a consistent pace
• Making the labour shareholders. In this method, the workers are made the shareholders of improvement opportunities. from one value-added processing step to the next with no delays in between.
the companies in which they are working 3. Flow 5. Pull Systems and Kanban
• Democratic supervision or management. Under this type of participation responsibility is
given to the entire group and the manager merely acts as a conference leader or chairman Anything that interrupts the flow of value contributes to the Lean and decreases value to the A methodology by which a customer process signals a supplying process to produce a product
• Work committees. It is a form of workers’ participation in management as laid down under customer. Maintaining flow requires careful synchronization of each aspect of production and or information or deliver product/information when it is needed. Kanban is the signals used
the Industrial Dispute Act, 1947.It is more or less advisory in nature. It consists of equal delivery. within a pull system through scheduling combined with travelling instruction by simple visual
number of representatives of workers and management devices like cards or containers.
• Joint Management Councils (JMC). Consultation on matters

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6. Five Why's Concept of Wastes in Lean Manufacturing Waiting

A thought process by which the question "why" is asked repeatedly to get to the root cause of Lean manufacturing, a management philosophy primarily derived from the Toyota Production Waiting refers to wasted time because of slowed or halted production in one step of the
a problem. System, focuses on eliminating waste—called “Muda”— within a manufacturing system. It production chain while a previous step is completed. To take the classic example, the
takes into account many kinds of waste, including the waste of excessive human motion, and production line, if one task along the chain takes longer than another, than any time the
7. Quick Changeover/ SMED (Single Minute Exchange of Die)
aims to integrate each step of production into a holistic, efficient process that reduces cost and employee in charge of the next task spends waiting is wasted. The task that takes more time
A methodology developed which reduces the time to changeover a machine by streamlining improves overall revenue. Under the lean manufacturing system, seven wastes are identified: must be made more efficient, other employees must be hired to help, or the workflow must be
steps. Shorter changeover times are used to reduce batch sizes and produce just-in-time. This overproduction, inventory, motion, defects, over-processing, waiting, and transport. better coordinated or scheduled in order to make up for this wasted time.
concept aids in reducing the setup time to improve flexibility and responsiveness to customer
Overproduction Transport
changes.
The most serious of the wastes, overproduction can cause all other types of wastes and results Transport is moving materials from one position to another. The transport itself adds no value
8. Mistake Proofing / Poka Yoke
in excess inventory. Stocking too much of a product that goes unused has obvious costs: to the product, so minimizing these costs is essential. This means having one plant closer to
A methodology that prevents an operator from making an error by incorporating preventive in- storage, wasted materials, and excessive capital tied up in useless inventory. More raw another in the production chain, or minimizing the costs of transportation using more efficient
built responsiveness within the design of product or production process. materials than necessary are consumed; the product may spoil or become obsolete, which methods. Resources and time are used in handling material, employing staff to operate
requires that it be tossed; and, if the product involves hazardous materials, more hazardous transportation, training, implement safety precautions, and using extra space. Transport can
9. Heijunka / Levelling the Workload materials than necessary are wasted, resulting in extra emissions, extra costs of waste disposal, also cause the waste of waiting, as one part of the production chain must wait for material to
The idea that, even though customer order patterns may be quite variable, all processes should possible worker exposure, and potential environmental problems resulting from the waste. arrive.
build consistent quantities of work over time (day to day, hour to hour). This strategy is adopted Inventory The 5S System
by intelligently planning different product mix and its volumes over period of times.
Inventory waste refers to the waste produced by unprocessed inventory. This includes the The 5S tool is a structural system to organize any type of business or operation, and it represents
10. Total Productive Maintenance (TPM) waste of storage, the waste of capital tied up in unprocessed inventory, the waste of transporting five steps such as, sort, set in order or place, shine or scrub, standardize and sustain. All these
A team-based system for improving Overall Equipment Effectiveness (OEE), which includes the inventory, the containers used to hold inventory, the lighting of the storage space, etc. steps must be followed to have success with a 5S event or for an operation to say that they are
availability, performance, and quality. This aids in establishing a strategy for creating Having excess inventory can hide the original wastes of producing said inventory. 5S. The second and third step, set in order and shine, may be switched depending on the needs
employee ownership autonomously for maintenance of equipment. The goal of the TPM of the organization using 5S.
Motion
program is to markedly increase production while at the same time increasing employee morale Sort
and job satisfaction. Wasteful motion is all of the motion, whether by a person or a machine, that could be
minimized. If excess motion is used to add value that could have been added by less, than that The first step, 'sort' means to simply separate what is needed and necessary in the workplace-
OEE (Overall Equipment Efficiency): margin of motion is wasted. Motion could refer to anything from a worker bending over to pick or station. Sorting reduces problems and annoyances in the workflow, improves
OEE=A×PE × Q something up on the factory floor to additional wear and tear on machines, resulting in capital communication between workers, increases product quality, and enhances productivity.
depreciation that must be replaced. Anything that is not used or needed in the workplace gets in the way of the actual work being
A -Availability of the machine. done there. An area should be set aside nearby to put these unnecessary. This area is called a
Defects
PE - Performance Efficiency. red tag area where the items in the area have red tags or the area is marked off in red. The
Defects refer to a product deviating from the standards of its design or from the customer’s items should be kept in this area for a short period of time, which serves as an evaluation period.
Q- Quality rate. expectation. Defective products must be replaced; they require paperwork and human labour
Set in Place
11. Five S to process it; they might potentially lose customers; the resources put into the defective product
are wasted because the product is not used. A defective product implies waste at other levels The second step, 'set in place,' is a storage principle in which everything in the work area has a
5S is a five-step methodology aimed at creating and maintaining an organized visual that may have led to the defect to begin with; making a more efficient production system place and is always stored there when not in use. This makes the tools easy to find and anyone
workplace. This system aids in organizing, cleaning, developing, and sustaining a productive reduces defects and increases the resources needed to address them in the first place. should be able to find them and then replace them after use. Using or creating tools with
work environment multiple functions can eliminate a variety of tools. Properly setting things in order can eliminate
Over-Processing
12. Problem Solving/ PDCA/ PDSA a variety of waste in the workplace including motion, searching, human energy, excess
Over-processing refers to any component of the process of manufacture that is unnecessary. inventory, unsafe working conditions, and using the wrong tools. The signboard is a strategy,
The PDCA cycle is a graphical and logical representation of how most individuals have already Painting an area that will never be seen or adding features that will not be used are examples which identifies what, where and how many items should be stored. Item indicators, which
solved problems. It helps to think that every activity and job is part of a process, that each of over-processing. It refers to adding more value than the customer requires. show what specific items go in those places, and Amount indicators, which show how many of
stage has a customer and that the improvement cycle will send a superior productor service to these items, belong in those places.
the final customer. PLAN: establish a plan to achieve a goal, DO: enact the plan, CHECK:
measure and analyse the results and ACT: implement necessary reforms if results are not as
expected.

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Shine Approach of Agile Manufacturing

The third step is 'shine' or 'scrub' to keep the work place clean by eliminating all forms of dirt, Agile manufacturing is defined as the capability of surviving and prospering in a competitive
dust, grease and grime. This builds a sense of pride in the employees, improves the work environment of continuous and unpredictable change by reacting quickly and effectively to
environment, provides for a safer workplace, and helps maintain equipment value. Cleaning changing markets, driven by customer-designed products and services. Critical to successfully
can also be used as a form of inspection. While in the process of cleaning a piece of equipment, accomplishing AM are a few enabling technologies such as the standard for the exchange of
a problem can be noticed that would not have been seen in passing. products (STEP), concurrent engineering, virtual manufacturing, component-based
hierarchical shop floor control system, and information and communication infrastructure,
Standardize
etc.us of current fluctuations in the market scenario. In agile manufacturing, manufacturers use
The fourth step, 'standardize,' is where working conditions are implemented to maintain sort, highly integrated technology and communication systems to develop excellent quality products
set in place, and shine. Standardization creates a consistent way in which tasks and procedures that are made quickly and cost-effectively. The idea is to impress customers with both
are carried out so that absolutely anyone can understand the work. production speed and product quality.

Sustain Key Elements

The last and fifth step is 'sustain,' making a habit of properly following the correct procedures There are four key elements for agile manufacturing:
and continuously repeating all the steps of the 5S process. By sustaining all of the 5S steps,
1. Modular Product Design (designing products in a modular fashion that enables them to serve
many problems in the work place can be avoided including unneeded items piling up as soon
as platforms for fast and easy variation)
as the sorting process is completed. Tools being put in the wrong place after use. No one ever
cleaning equipment or picking up after themselves. Items being left in walkways. Dark, dirty 2. Information Technology (automating the rapid dissemination of information throughout the
work environments which lower morale of employees, and dirty machines which start to company to enable lightning-fast response to orders)
malfunction and/or produce defects.
3. Corporate Partners (creating virtual short-term alliances with other companies that enable
Agile Manufacturing improved time-to-market for selected product segments)
Management with Technology and Workforce
Agile manufacturing system means using man, machine, material and some of other vital 4. Knowledge Culture (investing in employee training to achieve a culture that supports rapid
resources in such a way that the entire system can be switched over or changed quickly and change and ongoing adaptation) In order to provide flexibility to agile manufacturing, the traditional management accounting
cost effectively to another project or product that too in unpredictable or indeterminate ways. should be replaced by Activity Based Costing (ABC). As the technology that is adopted is to
Agile Manufacturing Framework
Agile manufacturing is a word which has been recently coined to indicate the use of principles be user oriented, it is essential that the user must have control over the technologies adopted.
of lean production on a broader scale. The principle underlying agile manufacturing is ensuring Agile manufacturing integrates key functions and disciplines involved in creating, designing, This can be brought about effectively by organizing the interactions between the user and the
agility and hence flexibility in the manufacturing organization so that it can quickly respond to making, selling/servicing products. It encompasses not only the critical operations like workforce in an industry. The training of entire workforce is essential. Organizational pattern
changes in product demand and customer needs. Agile manufacturing approach requires that technology, product and process engineering, administration and marketing /sales/services must be flexible enough to provide perfect co-operation between the three components of agile
manufactures benchmark their operations. This means understanding the competitive position within an organization but also venders/suppliers, community and government. Agile manufacturing - manufacturing, technology and work force.
of other manufactures with respect to theirs and setting ambitious still realistic goals for the Manufacturing (AM) is the science of business system that integrates management, technology
Technology with Management and Workforce
future. and workforce making the system flexible enough for manufacturing to switch over from one
product (that is being produced) to another product (desired to be produced) in a cost-effective In order to achieve a balanced integration of management, technology and workforce, an
Agile manufacturing proved its effectiveness because of the following reasons or facts:
manner within the framework of the system. Agile Manufacturing encompasses entire business interdisciplinary design methodology must be adopted to bring the concept of total enterprise
1. Customers get fascinated to one; who satisfies them instantly and they are always ready to process commencing from planning, finance and process design, tooling, layout, materials and design. Strategies must be directed to enhance skill and knowledge of work force and not on
pay for it. inventory, cost specifications, pricing, marketing, sales and service. replacing the old technology by new one. Research in technology must involve all the three
components to arrive at an appropriate technology most suitable for the system.
2. Customers love choices as many as the manufacturer could provide them, varieties of the
product for choosing best for them out of many and they also want their product to be exactly Workforce with Management and Technology
matching to their demand without any compromise.
The workforce must be built up to produce products that would satisfy the customers.
3. Customers are transient one they always used to change, switch over their interests, demands Innovative skills should be rewarded and encouraged. The communication which us vital for
in the unpredictable manner. success of the organization must be given the proper importance.

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Effectiveness Of Agile Manufacturing MODULE- 5 associated third party such as vendors, outsourcers and costumers. Also known as
Decentralized system.
Why is agile manufacturing considered is an effective strategy cause of the following reasons? Enterprise Resource Planning (ERP)
Problems with Decentralized System
1. Consumers love instant gratification. They are increasingly getting used to it and they are ERP is a process of managing all resources and their use in the entire enterprise in a coordinated
often willing to pay for it. For example, have you ever ordered a product with overnight manner. • Numerous disparate information systems are developed individually over the time.
shipping ... waiting in eager anticipation? • Integrating the data becomes time and money consuming.
What Is ERP?
2. Consumers love choice. They prefer to get a product exactly as they want it ... without • Inconsistencies and duplication of data.
compromise. The practice of consolidating an enterprise’s planning, manufacturing, sales and marketing • High inventory, material and human resource cost.
efforts into one management system. Combines all databases across departments into a single
3. Consumers are fickle minded. Their interests shift and move in unpredictable ways. Agile is Centralized System: ERP Example
database that can be accessed by all employees. ERP automates the tasks involved in
effective because it directly addresses these issues. It acknowledges the realities of the modern performing a business process.
marketplace and transforms them into a competitive advantage.
Major Reasons for Adopting ERP
Characteristics of Agile Manufacturing System
Integrate financial information's.
1. Rapid response: capability to start operating quickly once it is planned to launch new
product, the must be started working in the least time possible. Integrate costumer order information’s.

2. Modularity: approaches depend on the distributed modules or building blocks which are Standardize and speed up operations/processes
gathered to execute certain functionality. Reduce inventories.
3. Autonomy: building blocks or the modules which are developed are independent to each Standardize human resources (HR) information’s.
other and assigned to the self-contained functionality.
Before ERP
4. Interaction/Cooperation: each module must communicate based on the standardized rules to
execute a functionality which will be combination of individual contributions. The principle
underlying is that the entire modules as unit must exhibit A functionality that is larger than sum
of parts.
5. Structure: all the modules play a certain vital role which may be pre assigned in the system.
The definition of the structure supports the progressive encapsulation of complexities.
6. Dynamics: the systems often are not statics entities, most of them support idea of evolution,
innovation either by varying in environment or learning.
7. Robustness: It should not be blocked by uncertainty. Centralized System: Key Observations

8. Heterogeneity: though they are heterogeneous entities but it requires a careful interface • Data is maintained at central locations and is shared with various departments.
between them in the environment. • Departments have access on information/data of the other departments/BU
Benefits of Centralized System
• Eliminate the duplication, discontinuity and redundancy in data.
• Provide information across departments in real time.
• Provides control over various business processes.
• Increase productivity, better inventory management, promotes quality, reduced materials
Typical Business Process: Key Observations
cost, boosts profits.
A typical enterprise has many departments / business units (BU). These departments/ BU • Better customer interaction, increased throughput, improves costumer services.
continuously communicate and exchange data with each other. The success of an organization
lies in effective communication and data exchange within the departments/BU as well as

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Myths about ERP 6. ERP Slows down the Organization inventory records to find out what items are in stock. It then calculates the items that need to
be purchased for producing the goods.
There are number of myths that surround the concept, infrastructure, implementation, and Before the advent and popularity of ERP tools, most business tasks were performed manually
practice of ERP. Very often people are hesitant to adopt ERP because of these misconceptions. and this was a time-consuming process. Often lots of efforts were duplicated. The ERP systems Closed-Loop MRP
automated the information flow across departments thereby eliminating duplication of work
1. ERP Means More Work and Procedures Closed-loop MRP is not planning for the material requirements but involves a series of
and providing faster and accurate results.
functions for automating the production process. It contains tools and techniques to address
Proper implementation and management of an ERP system is not an easy task. The transition
7. ERP is Meant Just to Impress Customers both priority and capacity and supports both planning and execution. It has provisions for
period from the traditional system or manual processing to ERP is difficult as new skills have
accepting feedback from the execution functions back to the planning function thus enabling
to be acquired new procedures and processes have to be followed, and so on. If the management It is true that a properly implemented ERP system can help in serving the customers better as
the plans to be revised and updated depending on the actual execution or changes in priorities.
and the implementation team do their job correctly, ensuring that the employees are told what it helps the organizations to react faster, respond better, and deliver high quality products and
to expect and give them proper training, then the transition can be smooth. services at astonishing speeds. This improved efficiency and quality will go a long way in Manufacturing Resource Planning (MRP II)
improving customer goodwill and customer relations.
2. ERP will Make Many Employees Redundant and Jobless MRP II is a methodology adopted for effective planning of all the resources of a manufacturing
8. ERP Package will Take Care of Everything company. It addresses operational planning in units, financial planning in rupees, and has a
Another popular misconception about ERP systems is that its implementation will make many
simulation capability to answer “what if” questions. MRP II comprises a variety of functions,
jobs redundant (because of the automation), and hence many employees will lose their jobs. A ERP is not a silver bullet or a panacea. Of course, an appropriately implemented, operated, and
all of them interlinked: planning for business, sales and operations, production, material
properly implemented ERP system will automate many tasks in the organization, but it does maintained ERP system can dramatically improve productivity, automate tasks, reduce
requirements, and capacity requirement; master scheduling; demand management; and the
not mean that the ERP systems will make people redundant. There will be changes in job wastages, and increase profits. But an ERP system needs people to operate, use, and maintain
execution support systems for capacity and material. Output from these systems is integrated
descriptions and job responsibilities. Tasks will be automated and the jobs that people were it.
with financial reports such as the business plan, purchase commitment report, shipping budget,
doing will become redundant, but ERP systems will also create new job opportunities and the
9. ERP is Very Expensive inventory projections, and so on.
same people whose jobs were automated could be used to fill the new positions after giving
them proper training on the new tasks. ERP packages come in all shapes and sizes. The sophisticated and high-end ERP tools are very Enterprise Resource Planning (ERP)
expensive. ERP system needs people to manage it. Thus, implementing and managing an ERP
3. ERP is the Sole Responsibility of the Management The fundamentals of ERP are the same as that of MRP II. The enterprise software makes ERP
system is an expensive affair. But these expenses should be weighed against the benefits of
a set of business processes that is broader in scope, is capable of dealing with more business
Making an ERP system successful is the responsibility of all the employees. It involves the ERP system.
functions, and has a better and tighter integration with the finance and accounting functions.
virtually every department and every employee within the company. The management is not
Evolution of ERP The ERP system is also capable of integrating with other tools like customer relationship
responsible for the day-to-day operation of the ERP system. Their main job is to create an
management, supply chain management, and so on, thereby supporting businesses across
organizational environment in which ERP can thrive—give ERP the full backing of the In the manufacturing industry, MRP became the fundamental concept of production company boundaries. ERP predicts and balances demand and supply.
management. The management should monitor the implementation and operation of the management and control in the mid-1970s. At this stage, Bill of Materials(BOM), which is
system, review the progress and status periodically, and take necessary corrective action, if purchase order management that utilizes parts list management and parts development, was the Its goals include high levels of customer service, productivity, cost reduction, and inventory
required. mainstream this concept unfolded from order inventory management of materials to plant and turnover, and it provides the foundation for effective supply chain management and e-
personnel planning and distribution planning, which in turn became MRP-II. This incorporated commerce. It does this by developing plans and schedules so that the right resources—
4. ERP is for the Managers/Decision-makers Only
financial accounting, human resource management functions, distribution management manpower, materials, machinery, and money—are available in the right amount at the right
The managers and decision-makers are the major users of the ERP system. They are the people functions, and management accounting functions came to globally cover all areas of enterprise time. ERP is a direct outgrowth and extension of MRP and, as such, includes all of MRP II’s
who benefit the most from a suitable ERP system. They will have all the information they need mainstay business and eventually came to be called ERP. capabilities. The primary purpose of implementing ERP is to run the business efficiently and
at their fingertips for making informed decisions. The quality of the decisions and the speed effectively in this brutally competitive and rapidly changing business environment.
Material Requirements Planning (MRP)
with which the decisions are made are improved as the ERP systems provide high-quality,
Basic ERP Concepts
timely, and relevant information. Every employee in an organization will benefit from the ERP MRP is an evolved version of the BOM processing. MRP began its life in the 1960s and gained
system. But for making the best use of the information processing power of an ERP system, popularity in the 1970s. ERP is a set of tools and processes that integrates departments and functions across a company
the users should be trained to apply the available features to its maximum. into one computer system. ERP runs off a single database, enabling various departments to
MRP answers the following questions: share information and communicate with one another. ERP systems comprise function-specific
5. ERP is for the ERP Implementation Team only
1. What products are going to make? modules designed to interact with the other modules, e.g., accounts receivable, accounts
The ERP implementation team usually consists of external consultants, vendor representatives, 2. What are the materials needed to make the products? payable, purchasing, etc. ERP software is designed to function as a system for operating and
and select group of employees. But once the implementation and user training is over, the 3. What are the materials that we have in stock? managing a business. ERP is an enterprise reengineering solution that uses new business
consultants and vendor representatives will leave. Thereafter it is the responsibility of each 4. What are the items that need to be purchased? computing paradigms to integrate IT processes across the company’s divisions and
and every employee of the company to use the ERP system effectively and to optimize the new departments. ERP offers a means of effectively increasing and managing the required resources
features and facilities to their advantage. MRP uses the master production schedule (MPS) to find out the answer to the first question. It (materials, equipment, tools, labour, money, etc.). For each of these resources, ERP can
gets the details of the materials required to make the products from the BOM. It searches the

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identify what is needed, when it is needed, and how much is needed, thus making the operation Benefits of ERP 9. Reduced Quality Costs: Quality is defined in different ways—excellence, conformance to
of the organization efficient and effective. specifications, fitness for use, value for the price, and so on. While manufacturing and design
ERP systems integrate all business management functions including planning,
engineers typically are responsible for some of the technological issues in quality assurance for
ERP Implementation inventory/materials management, engineering, order processing, manufacturing, purchasing,
products, operations managers often conduct the analysis of quality-related costs. The quality
accounting and finance, human resources, etc. ERP system has many advantages—both direct
• Biggest IT project that most companies ever handle. management systems in ERP packages support the benchmarking and use of optimal product
and indirect. The direct advantages include improved efficiency, information integration for
• Change the entire company. better decision-making, faster response time to customer queries, etc. The indirect benefits
design, process engineering, and quality assurance data by all functional departments within
• Has repercussions in all departments and divisions of the organisation. the manufacturing enterprise, thereby facilitating definition of repeatable processes, root cause
include better corporate image, improved customer goodwill, customer satisfaction, and so on.
• It is essential that all the key players understand the scope of the project. analysis, and the continuous improvement of manufacturing methods.
• This is an IT related project. 1.Information Integration: The reason ERP systems are called integrated is because they have
10. Better Analysis and Planning Capabilities: Another advantage provided by ERP systems
the ability to automatically update data between related business functions and components.
ERP Implementation Phases is the boost to the planning functions. By enabling the comprehensive and unified management
2. Reduction of lead-time: The elapsed time between placing an order and receiving it is of related business functions (such as production, production planning, finance, inventory
4 major phases known as the lead-time. It plays a significant role in purchasing and inventory control. ERP management, plant maintenance, etc.) and their data, it becomes possible to utilize fully many
systems help in automating the task and thus make inventory management more efficient and types of decision support systems and simulation functions.
1. Concept /Initiation
2. Development effective. ERP system is integrated and the materials management module is integrated with
ERP Implementation Issues
3. Implementation other modules like sales, marketing, purchasing, manufacturing, and production planning, the
4. Closeout/ operation and maintenance demand for a particular item can be known as early as an order is received The major implementation issues are:

Hidden Costs of ERP 3. On-time Shipment: Integrating the various business functions and automating the 1. Project size
procedures and tasks, the ERP system ensures on-time delivery of goods to the customers 2. Lengthy implementation time
1. Training 3. High initial investment
2. Integration and testing 4. Reduction in Cycle time: Cycle time is the time between placement of the order and
4. Unreasonable deadlines
3. Data conversion delivery of the product. The cycle time can be reduced by the ERP systems, but the time will
5. Insufficient funding
4. Data analysis be saved more in the case of make-to-order systems. In the case of make-to-stock, the items
6. Interface
5. Consultants are already manufactured and kept in warehouses or with distributors for sales.
7. Organizational politics
6. Replacing best and brightest staff after implementation 5. Improved Resource Utilization: ERP systems offer both rough-cut and detailed capacity 8. Scope
7. Implementation teams can never stop planning. The system loads each resource with production requirements from master 9. Unexpected gaps
8. Waiting for ROI (Return on Investment) production scheduling, material requirements planning, and shop floor control (detailed 10. Configuration difficulties
ERP: Small, Medium and Large Enterprise Vendor Solutions capacity planning).
1. Project Size: The scope and size of the ERP implementation project is one factor that
6. Better Customer Satisfaction: Customer satisfaction means meeting or exceeding differentiates it from other projects. ERP implementation involves hundreds of people,
SME stands for “small, medium enterprises”. Most of the MNCs and big size companies have
already implemented ERP solution from one of the top three vendors: SAP, Oracle and customers’ requirements for a product or service. ERP systems have proved that they can encompasses the entire organization, affects all the employees, and lasts years. Managing a
produce goods at the flexibility of make-to-order approach without losing the cost and time project of such magnitude handling the uncertainties and coordinating the activities of so many
Microsoft. Enterprise software beneficial to large- and mid- sized companies in a wide range
benefits of made-to-order operations. people is a very tough task and involves considerable amount of risk.
of environment from manufacturing to distribution and engineering and service. Small sized
were not ready to invest a large amount for buying software. 7. Improved Supplier Performance: The quality of the raw materials or components and the 2. Lengthy Implementation Time: ERP implementations are very lengthy projects. A typical
capability of the vendor to deliver them on time are of critical importance for the success of ERP implementation takes anywhere between 1 and 4 years depending upon the size of the
ERP Systems Implementations Barriers for SME’s
any organization. ERP systems provide vendor management and procurement support tools organization and the methodology.
1. Costs designed to coordinate all aspects of the procurement process.
3. High Initial Investment: ERP implementation involves huge initial investment and only
2. Time
8 Increased Flexibility: Flexibility is a key issue in the formulation of strategic plans in after successful completion and operation of the system, the costs are recovered. If the
3. People (resources)
companies. Sometime flexibility means quickly changing something that is being done or implementation fails or falls short of expectations, the company will incur huge losses and can
4. User trainings and system friendliness
changing completely to adjust to new product designs. At other times, flexibility is the ability go bankrupt.
5. Business process management
6. IT department and IT infrastructure to produce in small quantities in order to obtain a product mix that may better approximate
4. Unreasonable Deadlines: Management can sometimes insist on unreasonable deadlines for
actual demands and reduce work-in-progress inventories. ERP systems not only improve the
the ERP implementation project. If the project implementation is not done properly and proper
flexibility of the manufacturing operations, but also the flexibility of the organization as a
procedures are not followed in order to save time, it can result in more delays and project
whole. A flexible organization is one that can adapt to any changes in the environment, rapidly.
failure.

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5. Insufficient Funding: One of the most common reasons for the failure of the ERP Benefits of BI Business Process Reengineering (BPR)
implementation is lack of sufficient funds. There are a lot of hidden costs in an ERP
implementation. • BI can eliminate a lot of the guesswork within an organization, enhance communication Business Process Reengineering (BPR) involves the radical redesign of core business processes
among departments while coordinating activities and enable companies to respond quickly to achieve dramatic improvements in productivity, cycle times, and quality. A successful BPR
6. Interface: An ERP system typically becomes the ‘center of the universe’ for the organization to changes in financial conditions, customer preferences, and supply chain operations. BI can result in dramatic performance improvements, increase in profits, better business practices,
when it is implemented. The interfaces must have the ability to handle complex data sources improves the overall performance of the company using it. enormous cost reductions, dramatic improvements in productivity, and so on. It can also create
and legacy data types. Other client/server systems must also exchange data with the ERP • BI also expedites decision-making, as acting quickly and correctly on information before substantial improvements in quality, customer service, employee satisfaction, profitability, and
system. competing businesses do can often result in competitively superior performance. other business goals.
7. Organizational Politics: Every organization has some amount of internal politics. If the • BI can improve customer experience, allowing for timely and appropriate response to BPR: The Different Phases
external consultants, vendor representatives and the implementation team members are caught customer problems and priorities.
1. Begin organizational change
between these internal fights, it can affect the successful implementation of the project. E-commerce
2. Build the reengineering organization
8. Scope: The scope of an ERP project has several components. The ERP project team must Electronic commerce integrates communications, data management, and security services to
decide which business processes will be included in the implementation. This choice of the allow business applications within different organizations to automatically interchange 3. Identify BPR opportunities
business processes decides the ERP functional modules that are to be implemented. information. Communications systems transfer information from the originator to the recipient.
4. Understand the existing process
9. Unexpected Gaps: The gap between the promise of an ERP system and the business value Data management services define the interchange format of the information. E-commerce
actually delivered once the project has been deployed is great. Enormous cost overruns, applies and integrates these infrastructure services to support business and commercial 5. Reengineer the process
deadlines missed in some cases by years, and even abandoned implementations make clear that applications including financial transactions such as electronic bidding, ordering and payments,
6. Blueprint the new business system
managing ERP projects is a complex task. and exchange of digital product specifications, and design data.
7. Perform the transformation
10. Configuration Difficulties: The ERP system is re-configured or customized in a number E-commerce is a multi-disciplinary field that includes technical areas such as networking and
of ways—customization (changes made to ERP functionality via internal configuration telecommunications, security and storage and retrieval of multimedia information, business Phase 1: Begin Organizational Change
switches), custom-code ‘add-ons’. ERP systems are not fully customizable. There are many areas such as procurement, purchasing, production, marketing, billing and payment, and supply
The main activities in this step are:
areas that cannot be customized or are very difficult to customize. These aspects add to the risk chain management. It includes legal aspects like information privacy, intellectual property,
of the ERP implementation. taxation, contractual obligations, etc. It includes financial aspects like EDI transactions, credit • Assess the current state of the organization
card payments and credit card processing, etc. • Explain the need for change
Business Intelligence (BI) • Illustrate the desired state
E-business
Business intelligence (BI) is a new field of in the application of human cognitive faculties and • Create a communications campaign for change
artificial intelligence technologies to support the management and decision-makers in different E-business is the convergence and fusion of business process, enterprise applications, business
infrastructure, technology, information and organizational structure (people) necessary to Phase 2: Build the Reengineering Organization
business problems. It relates to intelligence as information valued for its currency and
relevance. It is expert information, knowledge, and technologies efficient in the management create a high-performance business. It is not possible for an organization to execute e- The major activities of the second phase are given below:
of organizational and individual business. BI is a broad category of applications and commerce transactions efficiently and effectively without first transforming to the e-business
technologies for gathering, providing access to, and analysing data for the purpose of helping model. It involves fundamental restructuring and streamlining of the business using • Establish a BPR organizational structure
organizations make better business decisions technology. It includes enterprise resource planning (ERP) systems, supply chain • Establish the roles for performing BPR
management, customer relationship management (CRM), data warehousing, data marts, data • Choose the personnel who will reengineer
Reasons for BI mining, on-line analytical processing (OLAP), geographical information systems (GIS), etc. to
name a few. Phase 3: Identify BPR Opportunities
BI enables organizations to make well-informed business decisions and thus can be the source
of competitive advantages E-business, in addition to encompassing e-commerce, includes both front and back-office This phase consists of the following activities:

BI reveals
applications that form the engine for modern business. E-business is not just about e-commerce • Identify the core/high-level processes
transactions; it’s about re-defining old business models, with the aid of technology, to • Recognize potential change enablers
• The position of your firm in comparison to its competitors maximize customer value. E-business is the overall strategy and e-commerce is an extremely • Gather performance metrics within industry
• The changes in customer behavior and spending patterns important facet of e-business. • Gather performance metrics outside industry
• The capabilities of your firm • Select processes that should be reengineered
• The market conditions, future trends, demographic and economic information • Prioritize selected processes
• The social, regulatory and political environment • Evaluate pre-existing business strategies
• The status of other firms in the market • Consult with customers for their desires

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• Determine customer’s actual needs • Assess current skills and capabilities of workforce Data Mining
• Formulate new process performance objectives • Map new tasks and skill requirements to staff
Data mining tools predict future trends and behaviours, allowing businesses to make proactive,
• Establish key process characteristics • Reallocate workforce knowledge-driven decisions. The automated, prospective analyses offered by data mining
• Identify potential barriers to implementation • Develop a training curriculum move beyond the analyses of past events provided by retrospective tools typical of decision
• Educate the staff about the new process support systems. Data mining tools can answer business questions that traditionally were too
Phase 4: Understand the Existing Process
• Educate the staff about the new technology used time-consuming to resolve. They scour databases for hidden patterns, finding predictive
The main activities of the fourth phase are: • Educate management on facilitation skills information that experts may miss because it lies outside their expectations Data mining
• Decide how new technologies will be introduced techniques can be implemented rapidly on existing software and hardware platforms to enhance
• Understand why the current steps are being performed
• Transition to the new technologies the value of existing information resources, and can be integrated with new products and
• Model the current process
• Incorporate process improvement mechanisms systems as they are brought on-line.
• Understand how technology is currently being used
• Understand how information is currently being used Data Warehousing On-Line Analytical Processing (OLAP)
• Understand the current organizational structure
The primary concept of data warehousing is that the data stored for business analysis can most OLAP is now acknowledged as a key technology for successful management. It describes a
• Compare current process with the new objectives
effectively be accessed, by separating it from the data in the operational systems. class of applications that require multi-dimensional analysis of business data. OLAP systems
Phase 5: Reengineer the Process enable managers and analysts to rapidly and easily examine key performance data and perform
The primary goals of a data warehouse are the following:
powerful comparison and trend analyses, even on very large data volumes. They can be used
The major activities are:
• Provide access to the data of an organization in a wide variety of business areas, including sales and marketing analysis, financial reporting,
• Ensure the diversity of the reengineering team • Data consistency quality tracking, profitability analysis, manpower and pricing applications, and many others.
• Question current operating assumptions • Capacity to separate and combine data OLAP is a method of analysing data in a multi-dimensional format, often across multiple time
• Brainstorm using change levers • Inclusion of tools set up to query, analyze, and present information periods, with the aim of uncovering the business information concealed within the data. OLAP
• Brainstorm using BPR principles • Publish used data enables business users to gain an insight into the business through interactive analysis of
• Evaluate the impact of new technologies • Drive business re-engineering different views of the business data that have been built up from the operational systems. This
• Consider the perspectives of stakeholders approach facilitates a more intuitive and meaningful analysis of business information and
Data in the Data Warehouse
• Use customer value as the focal point assists in identifying important business trends.
The collection of data used by a data warehouse may be characterized as subject-oriented,
Phase 6: Blueprint the New Business System Product Life Cycle Management (PLM)
integrated, non-volatile, and time variant.
The activities of Phase 6 are the following: Integrated product life cycle management (PLM) software solution for collaborative
Subject-oriented—The data warehouse is oriented toward those major subject areas of the
engineering, product development, and management of projects, product structures,
• Define the new workflow organization, which have been defined in the data model.
documents, and quality. The PLM software should provide an information backbone to help
• Model the new process steps Integrated—The data warehouse potentially can receive data from a number of sources. Each you access relevant information anywhere, anytime. The PLM application should provide
• Model the new information requirements of these sources has an application designer(s), each freely encoding, naming conventions, integrated PLM software—a single source of all product-related information needed for
• Document the new organizational structure physical attributes, and measurement of attributes. collaborating with business partners and supporting processes including product innovation,
• Describe the new technology specifications design and engineering, quality and maintenance management, and control of environmental
Non-volatile—While it is common in the operational environment for data to be updated and
• Record the new personnel management systems issues.
therefore, changed, the same is not true in a data warehouse. Data is loaded and accessed, but
• Describe the new values and cultures required
not changed. Supply Chain Management (SCM)
Phase 7: Perform the Transformation
Time variant—The following table compares the time horizon, valuation, and presence of the Supply chain management (SCM), the management of the flow of goods and services, between
The activities of this last phase are: time element of an operational system to that of a data warehouse businesses and locations, and includes the movement and storage of raw materials, of work-in-
process inventory, and of finished goods as well as end to end order fulfilment from point of
• Develop a migration strategy
origin to point of consumption. Interconnected, interrelated or interlinked networks, channels
• Create a migration action plan and node businesses combine in the provision of products and services required by end
• Develop metrics for measuring performance during implementation customers in a supply chain SCM encompasses the integrated planning and execution of
• Involve the affected staff processes required to optimize the flow of materials, information and capital in functions that
• Implement in an iterative fashion broadly include demand planning, sourcing, production, inventory management and logistics
• Establish the new organizational structures or storage and transportation.

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 MED VAST MED VAST

Customer Relationship Management (CRM) alternatives to legacy ERP systems that burdened companies with long, expensive, and usually
on-premises implementations and extensive configuration requirements. Many companies
Customer relationship management (CRM) is a process in which a business or other
realized a two-tier approach was far more economical and less work than replacing the Tier 1
organization administers its interactions with customers, typically using data analysis to study
ERP or moving a new subsidiary or acquired company onto its enterprise software.
large amounts of information. CRM systems compile data from a range of different
communication channels, including a company's website, telephone, email, live chat, Tier 1 vs. Tier 2 ERP
marketing materials and more recently, social media. They allow businesses to learn more
There are two distinct categories of ERP systems with different capabilities, each designed for
about their target audiences and how to best cater for their needs, thus retaining customers and
businesses of a certain size.
driving sales growth.
Tier 1
Emerging Trends on ERP
A Tier 1 ERP is built for the world’s largest businesses that have operations around the globe.
1. More Buyers Move to the Cloud
These systems are very expensive to install, maintain and upgrade. Customizing them to meet
The benefits of cloud-based ERP are numerous and often provide the most help to small the business’ vast requirements takes a lot of effort, which leads to long implementation times.
businesses. Cloud-based solutions make it so small businesses don’t have to maintain their Companies typically have an IT team dedicated to managing this software.
own systems, drastically reducing the need for in-house IT. These software types make it
Tier 2
possible for small companies with just one or two IT employees to take advantage of an ERP
system they otherwise wouldn’t be able to afford to maintain. A Tier 2 ERP is designed for midsize companies and small enterprises. This type of ERP is
usually much less expensive and easier to launch than Tier 1 software. Some solutions in this
2. Integration and The Internet of Things (IoT)
category target specific industries, like manufacturing or retail, and come with more out-of-
The Internet of Things (IoT)refers to the connectivity between computers and other devices. the-box functionality for accounting, sales, human resources and supply chain (including order
IoT provides improved asset management, greater efficiency, improved forecasting, real-time and inventory management). One software vendor could offer both Tier 1 and Tier 2 ERP
business insights, enhanced communication, improved business intelligence and more. It also solutions.
supports autonomous vehicles, real-time analytics, AI, e-commerce retail and more.
3.Vendors Offer More Personalized Solutions
4. Heightened Need for Advanced Technologies
5. Digital Transformation and E-Commerce
6. Two-Tier ERP
Two-tier ERP is a concept where mid-sized and small companies run two merged solutions
simultaneously. It’s also accessible to companies that have multiple locations or subsidiaries.
What is Two-Tier ERP?
Two-tier ERP is an approach to enterprise resource planning technology that uses two systems
to address the needs of large businesses with multiple locations and/or subsidiaries. Under this
strategy, headquarters will use a Tier 1 ERP that’s highly customized and has the functionality
to run a large, global company, while subsidiaries or smaller business units use a less resource-
intensive Tier 2 ERP that better suits their needs.
With two-tier ERP, the business integrates the two ERP systems so information automatically
flows from Tier 2 to Tier 1. This allows for master data management, or a single source of
accurate data for the entire enterprise. Although the responsibilities of each system can vary,
the Tier 1 software often handles core business functions like finance, human resources and
procurement. The Tier 2 system manages activities, like sales, marketing or manufacturing
processes, that are more specific to each subsidiary or location. This ERP strategy became
popular as vendors developed less expensive suites with more prebuilt functionality as

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