UNIT –IV

STATISTICAL QUALITY CONTROL

Introduction: Quality is the determining factor the success of any product or service large
resource are committed in every organization to ensure quality

Definition: It is defined as customer satisfaction in general and fitness for use in particular.
Both the external consumer who buy the product and services and the internal consumers
that is, all divisions or departments of the business organization are equally interested in the
quality.

Statistical quality control: The process of applying statistical principles to solve the problem
of controlling the quality control of a product or service is called statistical quality control.

Quality elements: a) Quality design b) Quality conformance

a) Quality design: Quality of design refers to product feature such as performance,

reliability durability, ease of use, serviceability.

b) Quality conformance: Quality conformance means whether the product meets the given
quality specification or not.

Inspection: The process of measuring the out put and comparing it to check whether it
meets the given specified requirements or not, is called inspection.

Inspection Methods: The following are the methods of inspection based on merits

1) Incoming inspection: In this method, the quality of the goods and services arriving into
the organization is inspected. This ensures that the material suppliers adhere to the given
specifications with this defective material cannot enter into the production process. This
focuses on the vendor’s quality and ability to supply acceptable raw materials.

2) Critical point inspection: Inspecting at the critical points of a product manufacture gives
valuable insight into the completely functional process. At the points of manufacture that
involve high costs or which offer no possibility for repair or rework, inspection is crucial
further operation depend on these results critical point inspection helps to drop the
defective production, and thereby, facilitate avoiding unnecessary further expenditure on
them.

3) Process inspection: This is also called patrolling inspection or floor inspection or roving
inspection. Here the inspector goes around the manufacturing points in the shop floor to
inspect the goods produced on random sample basis from time to time.

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4) Fixed inspection: It provides for a centralized and independent where work is brought for
inspection from time to time. This method is followed where the inspection equipment
cannot be moved to the points of productions.

5) Final inspection: This is centralized inspection making use of special equipment. This
certifies the quality of the goods before they are shipped.

Elements of statistical Quality Control: The technique under SQC can be divided in to two
parts a) Process control b) Acceptance sampling

a) Process control: Process control is a technique of ensuring the quality of the products
during the manufacturing process itself. If a process consistently produces items with
acceptable or tolerable range of specification. It is said to be statically under control.
Process control is achieved through control charts. Process control aims to control and
maintain the quality of the products in the manufacturing process.

Statistical control charts: A control chart compares graphically the process performance
data to computed statistical control limits. These control limits act as limit lines on the chart
control chats are the tools to determine whether the process is under control or not.

The quality of the production process may be affected by chance cause or assignable cause.

Chance cause: such causes, which may or may not affect the manufacturing process are
called chance cause, chance cause cannot even be identified. It is not possible to always
maintain the given specification.

Assignable Cause: Assignable causes affect the quality of the production process. These
causes can be identified and specified. Causes such as change in the labour shift, power
fluctuations, or excessive tool wear are said to be assignable causes as they affect the
quality of manufacturing process in different ways.

Process capability: Process capability refers to the ability to achieve measurable results
from a combination of machines, tools, methods, materials and people engaged in
production.

X and R Chart: The X chart is used to show the process variations based on the average
measurement of samples collected. It shows more light on diagnosing quality problem
when read along with R chart. It shows the erratic or cyclic shifts in the manufacturing
process. It can also focus on when to take a remedial measure to set.right the quality
problems. However, collecting data about all the variables involves a large amount of time
and resources. The R chart is based on the range of the items in the given ample. It
highlights the changes in the process variability. It is a good measure of spread or range. It
shows better results when read along with the X chart.

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Acceptance Sampling: Acceptance sampling is a technique of deciding whether to accept
the whole lot or not based on the number of defectives from a random drawn sample. It is
widely use in buying food products, such as rice, wheat etc. Before buying the random
samples drawn from the bags of say rice are tested. If the quality of sample drawn looks

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good or free from defects then according to the requirement the entire bag or part of it can
be brought The process of acceptance sampling through operating characteristic curve
(OCC)

Operating characteristic curve (OCC): The graphical relationship between percentage

defective in the lots being submitted for inspection and the probability acceptance is termed
as “operating characteristic of a particular sampling plan”.

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Material management

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 Material management is the planning, organizing and controlling the flow of material
from their initial purchase, through their internal operations, to the distribution of finished
products. Thus material management has wide scope and it involves pre-production as well
as post production activities. Several activities like purchasing, stores management,
inventory management, transportantion, material function. As stated earlier it constitutes
huge investment and hence material management becomes a very important strategic
activity.

Materials refer to inputs into the production process, most of which are embodied in the
finished goods being manufactured. It may be raw materials, work-in-progress, finished
goods, spare parts and components, operating supplies such as lubricating oil, cleaning
materials, and others, required for maintenance and repairs.

Objectives of materials management

1. To ensure smooth and continuous supply of items so that machine and labour
utilization is kept high and production activities are carried as per the preprepared
schedules.
2. To procure the materials at the lowest cost and improve the profitability of the
organisation.
3. To efficiently manage the inventories by achieving high inventory turnover ratio.
4. To enuse that supplies are of very high quality and meets the specifications of the
products and services.
5. To select best suppliers and maintain cordial relations with all the suppliers.
6. To maintain proper record for the various items available in the organisation.
7. To train manpower for better management of stores, ensure effective purchases and
inventory management.
8. To help the organisation in making decisions on when to buy a component and when
to manufacture in house.

INVENTORY
Inventory: it is defined as a stock or store of goods. These goods are maintained on hand at
or near a business location so that the firm may meet demand and fulfil its reason for
existence.

Types of inventory
1. Raw material: raw material is inventory items that are used in the maufacture’s
conversion process to produce components, subassemblies, or finished products.
These inventory items may be commodities or extracted materials that the firm or its
subsidiary has produced or extracted.
2. Working in process: it is made up of all the materials, parts assemblies, and
subassemblies that are being processed or are waiting to be processed within the
system.
3. Finished goods: a finished good is a completed part that is ready for a customer
order. Therefore, finished goods inventory is the stock of completed products these

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 goods have been inspected and have passed final inspection requirements so that
they can be transferred out of work in process and into finished goods inventory.

Inventory Control: The systematic location, storage and recording of goods in

such a way the desired degree of service can be made to the operating shops
at minimum ultimate cost.
Objectives of Inventory Control:
1. To support the production departments with materials of the right
quality in the right quantity, at the right time and the right price, and
from the right supplier

2. To minimize investments in the materials by ensuring economies of

storage and ordering costs
3. To avoid accumulation of work in process
4. To ensure economy of costs by processing economic order quantities
5. To maintain adequate inventories at the required sales outlets to meet the market
needs promptly, thus avoiding both excessive stocks or shortages at any given time
6. To contribute directly to the overall profitability of the enterprise

INVENTORY ASSOCIATED COSTS:

1. Holding cost: tax and insurance on equipment, cost of maintenance and repairs.
2. Ordering cost: cost of placing an order with a vendor of materials, preparing a
purchase order, processing payment, receiving and inspecting the materials.
3. Carrying cost: cost connected directly with materials, obsolescence , depreciation,
4. Financials costs: taxes, insurances, storage,
5. Capital cost: interest on money invested in inventory, interest on money invested in
land and building to holding inventory.

INVENTORY techniques

ABC Analysis: ABC analysis is a technique of controlling inventories based on their value
and quantities. It is more remembered as an analysis for ‘Always Better Control’ of
inventory. Here all items of the inventory are listed in the order of descending values,
showing quantity held and their corresponding value. Then, the inventory is divided into
three categories A, B and C based on their respective values.

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 A category comprises of inventory, which is very costly and valuable. Normally 70% of
the funds are tied up in such costly stocks, which would be around 10% of the total volume
of stocks. Because the stocks in this category are very costly, these require strict monitoring
on a day-to-day basis.

B category comprises of inventory, which is less costly. Twenty percent of the funds are tied
up in such stocks and these accounts for over 20% of the volume of stocks. These items
require monitoring on a weekly or fortnightly basis.
C category consists of such stocks, which are of least cost. Volume-wise, they form 70% of
the total stocks but value-wise, they do not cost more than 10% of the investment in the
stocks. This category of stocks can be monitored on a monthly or bi-monthly basis.

The following table summarizes the concept of ABC analysis;

Desired Degree
Category Value (%) Volume (%)
of Control

A 70 10 STRICT

B 20 20 MODERATE

C 10 70 LOW

Economic Order Quantity (EOQ): Economic order quantity is defined

that quantity of materials, which can be ordered at one time to minimize
the cost of ordering and carrying the stocks. In other words, it refers to
size of each order that keeps the total cost low.
Inventory costs: The inventory costs can be classified into two
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categories, 1) Inventory ordering cost 2) Inventory carrying cost.

Carrying Cost
Annual Cost

Ordering Cost

Ordering Quantity

Inventory Ordering Costs (Co):

The cost refer to the cost incurred to procure the materials particularly in large
organizations, these cost are significant. This is also called as procurement cost.
Definition: It is the cost of placing an order from a vendor. This includes
all costs incurred from calling for quotation to the point at which the item
is taken into stock.
Ex: Receiving quotations, Processing purchase requisition, Receiving
materials and then inspecting it , Follow up and expediting purchase
order, Processing sellers invoice.

Ordering Cost

Ordering Cost

Ordering Quantity

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Inventory Carrying cost:
Carrying cost which are also known as holding costs are the costs incurred in
maintaining the stores in the firm. They are based on average inventory and consist
of:
Ex: Storage cost includes: Rent for storage facilities, Salary of
person and related storage expenses, Cost of insurance, Cost of
capital.

Annual Cost
Carrying
Cost

Ordering Quantity
Determine EOQ:
Step1:
Total Ordering cost per year = No. of orders placed per year x ordering
cost per
Order = (A/S) x O
A = Annual demand
S = Size of each order (units per order)
O = Ordering cost per order
Step2:
Total Carrying cost per year = Average inventory level x Carrying cost per
year
= (S/2) x C
A = Annual demand
S = Size of each order (units per order)
C = Carrying cost per unit

Step3:
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EOQ is one where the total ordering is equal to total carrying cost

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VED ANALYSIS
VED Analysis attempts to classify the items used into three broad categories, namely
Vital, Essential, and Desirable. The analysis classifies items on the basis of their criticality for
the industry or company.
1. Vital: Vital category items are those items without which the production activities or
any other activity of the company, would come to a halt, or at least be drastically
affected.
2. Essential: Essential items are those items whose stock – out cost is very high for the
company.
3. Desirable: Desirable items are those items whose stock-out or shortage causes only a
minor disruption for a short duration in the production schedule. The cost incurred is
very nominal.

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Continuous Inventory Systems:

In a continuous inventory system (also referred to as a perpetual system and

a fixed-order-quantity system), a continual record of the inventory level for every item is
maintained. Whenever the inventory on hand decreases to a predetermined level, referred
to as the reorder point, a new order is placed to replenish the stock of inventory. The order
that is placed is for a fixed amount that minimizes the total inventory costs. This amount,
called the economic order quantity, is discussed in greater detail later.

A positive feature of a continuous system is that the inventory level is continuously

monitored, so management always knows the inventory status. This is advantageous for
critical items such as replacement parts or raw materials and supplies. However,
maintaining a continual record of the amount of inventory on hand can also be costly.

A simple example of a continuous inventory system is a ledger-style checkbook that

many of us use on a daily basis. Our checkbook comes with 300 checks; after the 200th
check has been used (and there are 100 left), there is an order form for a new batch of
checks. This form, when turned in at the bank, initiates an order for a new batch of 300
checks. Many office inventory systems use reorder cards that are placed within stacks of
stationery or at the bottom of a case of pens or paper clips to signal when a new order
should be placed. If you look behind the items on a hanging rack in a Kmart store, there will
be a card indicating it is time to place an order for the item for an amount indicated on the
card.

Periodic Inventory Systems

In a periodic inventory system (also referred to as a fixed-time-period system or

a periodic review system), the inventory on hand is counted at specific time intervals; for
example, every week or at the end of each month. After the inventory in stock is
determined, an order is placed for an amount that will bring inventory back up to a desired
level. In this system the inventory level is not monitored at all during the time interval
between orders, so it has the advantage of little or no required record keeping. The
disadvantage is less direct control. This typically results in larger inventory levels for a
periodic inventory system than in a continuous system to guard against unexpected
stockouts early in the fixed period. Such a system also requires that a new order quantity be
determined each time a periodic order is made.

An example of a periodic inventory system is a college or university bookstore.

Textbooks are normally ordered according to a periodic system, wherein a count of
textbooks in stock (for every course) is made after the first few weeks of a semester or
quarter. An order for new textbooks for the next semester is then made according to
estimated course enrolments for the next term (i.e., demand) and the amount remaining in
stock. Smaller retail stores, drugstores, grocery stores, and offices sometimes use periodic
systems--the stock level is checked every week or month, often by a vendor, to see how
much should be ordered.

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Stores Management: It deals with planning, coordination and control of various activities
pertaining or effective efficient and economic storage and store keeping.
 Store: Generally, un worked material is known as store
 Storage: The store room is the place where stores are housed
 Storage: Storage is meant holding in custody all kinds of stores and materials semi-
processed and fully processed products.
 Store Keeping: It may be defined as that aspect of materials control concerned with
physical storage of goods.

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PURCHASE MANAGEMENT: purchasing the process of buying goods or services required for
the organization. It is the process of acquiring necessary supplies in exchange of funds.
Purchasing department has to buy various items like raw materials, components, machinery,
tools, supplies and services required for producing the goods or services.

Objectives:
1. To procure right material
2. To procure materials in desired quantities
3. To procure material of desired quality
4. Purchasing from reliable source
5. To pay less for materials purchased
6. To receive and deliver materials at right place and time.
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Purchasing process:
The following are the logical steps in the purchasing process:
1. Requisitioning purchases
2. Exploring sources of supply
3. Issuing of tenders and obtaining quotations
4. Opening of tenders and quotations and preparation of comparative statement
5. Negotiating over the purchase price and terms of supply
6. Placing purchase order
7. Receiving of materials along with the invoice
8. Checking inward invoice
9. Inspecting and testing materials
10. Forwarding the materials to stores
11. Checking invoice and passing of bills for payments

HUMAN RESOURCE MANAGEMENT (HRM) is a relatively new approach to managing

people in any organisation. People are considered the key resource in this approach. it is
concerned with the people dimension in management of an organisation. Since an
organisation is a body of people, their acquisition, development of skills, motivation for
higher levels of attainments, as well as ensuring maintenance of their level of commitment
are all significant activities.

FUNCTIONS OF HUMAN RESOURCE MANAGEMENT

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OPERATIVE FUNCTIONS:
The operative function are the function related to the particular department or section. It is
depending on the nature of department with other department.
1. job analysis: a job analysis is the process used to collect information about the
duties, responsibilities, necessary skills, outcomes, and work evvironment of a
particular job.
2. Human resource planning: Human Resource planning is the process by which a
management determines how an organisation should move from its current
manpower position to its desired manpower position. Through planning a
management strives to have the right number and the right kinds of people at the
right places, at the right time, to do things which result in both the organisation and
the individual receiving the maximum long-range benefit.
3. Staffing : Staffing refers to the managerial function of employing and developing
human resources for carrying out the various managerial and non-managerial
activities in an organisation. This involves determining the manpower requirement,
and the methods of recruiting, selecting, training and developing the people for
various positions created in the organisation. Staffing is the process of filling
positions or posts in the organisation with adequate and qualified personnel. Staffing
is the process of acquiring, deploying, and retaining a workforce of sufficient
quantity and quality to create positive impacts on the organisation effectiveness
4. RECRUITMENT: Recruiting involves attracting candidate to fill the positions in the
organization structure. Before recruiting, the requirement of positions must be
cleared identified. It makes easier to recruit the candidates from the outside.
Enterprises with a favourable public image find it easier to attract qualified
candidates.
5. SELECTION: Human resource selection is the process of choosing qualified individuals
who are available to fill positions in an organization. In the ideal personnel situation,
selection involves choosing the information about the applicants with a view to
matching these with the job requirements. It involves a careful screening and testing
of candidates who have put in their applications for any job in the enterprise. It is
the process of choosing the most suitable persons out of best applicant to fill a
position. Selection is the process of choosing people by obtaining and assessing all
the applicants. The purpose of selection is to pick up the right person for every job.
6. PLACEMENT: If the selected candidate decides to join the organisation, he/she has
to report to the concerned authority and formally joins the organisation by giving his
consent in writing. Then he/she is placed to perform specific job. Thus, placement
refers to selected candidate’s joining the positions in the organisation for which they
have been selected.

7. INDUCTION: Induction is the process of introducing new employees to the

organisation. The new employees should know under whom and with whom he/she
is to work, get acquainted and adjusted to the work environment, get a general idea
about the rules and regulations, working conditions etc. Usually the immediate
supervisor of the new employee introduces him to his work environment. A proper
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 induction programme is likely to reduce his anxiety on how to cope with the work
and how to become part of the organisation and helps in development of a
favourable attitude towards the organisation and the job.
8. PROMOTION ;When an employee is assigned a job involving greater responsibilities,
more pay, higher status and prestige than his/her present job, it is known as
promotion.
9. Transfer: Transfer refers to a type of job change where any employee is assigned a
different job of the same rank and pay, or when an employee is assigned a similar
job in another unit of the firm.
10. Demotion: When the performance of an employee is not satisfactory and it cannot
be improved, he may be assigned a job of lower rank carrying lower status and pay.
This is known as ‘demotion’.

Development: it is the process meant to improve the knowledge, skill, attitude and values of
employees so that they can better contribute to their job.

1. PERFORMANCE APPRAISAL: Performance appraisal or Performance evaluation is a

method of evaluating the behaviour of employees in a work place, normally
including both the quantitative and qualitative aspect of job performance.
Performance here refers to the degree of accomplishment of the tasks that makeup
an individual‘job.

2. TRAINING: Training is an instrument of developing the employees by increasing their

skills and improving their behavior. Technical, managerial skills are needed by the
employees for performing the jobs assigned to the. Training is required to be given
to new employees as well as existing employees.

3. Career planning : it is a deliberate process of knowing who you are so that you can
be sure of where you want to go or what you want to be at some defined point in
the future.

4. Career development : Skill Development means developing yourself and your skill
sets to add value for the organization and for your own career development.
Fostering an attitude of appreciation for lifelong learning is the key to workplace
success. Continuously learning and developing one's skills requires identifying the
skills needed for mobility at Cal, and then successfully seeking out trainings or on-
the-job opportunities for developing those skills.

5. Collective bargaining: it is constitutes the negotiation between management and

union with the ultimate objective of the agreeing on a written contract covering with
term and conditions of the settlement of disputes issues.

6. Integration: it is the process of reconciling and reuniting the organisational goals

with is members.
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 7. Motivation: it is the act of stimulating and inspiring the subordinates to achieve the
goals of the organisational.

8. Job satisfaction: it is the result of various attitudes the employes holds towards his
related factors.

9. Grievances handling: It any discontent or dissatisfaction, whether expressed or not,

whether valid or not, arising out of anything connected with the company which an
employee thinks believes or even feels to be unfair, unjust or inequitable.

10. Employee participation: it is the involvement of employees in organization for

decision making and problem solving of the workers.

MAINTENANCE: it includes the following activities

1. Organizational Health: it is defined as an organization’s ability to function effectively,

to cope adequately, to change appropriately, and to grow from within.

2. HR AUDIT: The human resource audit is based on the premise that human resource
processes are dynamic and must continually be redirected and revitalized to remain
responsive to the ever changing needs. Human Resource Audits are not routine
practices aimed at problem solving. Instead of directly solving problems, HR audits,
like financial audits, help in providing insights into possible causes for current and
future problems.

3. Hr accounting: Human resources are considered as important assets and are

different from the physical assets. Physical assets do not have feelings and emotions,
whereas human assets are subjected to various types of feelings and emotions. In
the same way, unlike physical assets human assets never gets depreciated.

Compensation:

It includes the determination of wages and salaries matching with contribution made by the
employees to achieve organisational goals.

1. Job evaluation: it is the process of determining the relative worth of the job.

2. Wages: it is paid with in one day or 21 days. It also paid with in one month.

3. Salaries: it is paid after one month in the organisation.

4. Incentives: it is the additional payment to regular wages and salaries.

5. Bonus: it is also additional payment of statutory bonus according to the payment of

bonus act 1965.

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MANAGERIAL FUNCTION

1. Planning : It is the basic function of management. It deals with chalking out a future
course of action & deciding in advance the most appropriate course of actions for
achievement of pre-determined goals. According to KOONTZ, “Planning is deciding in
advance - what to do, when to do & how to do. It bridges the gap from where we are
& where we want to be”. A plan is a future course of actions.
2. Organizing : It is the process of bringing together physical, financial and human
resources and developing productive relationship amongst them for achievement of
organizational goals.

3. Staffing: It is the function of manning the organization structure and keeping it

manned. Staffing has assumed greater importance in the recent years due to
advancement of technology, increase in size of business, complexity of human
behavior etc.

4. Directing : It is that part of managerial function which actuates the organizational

methods to work efficiently for achievement of organizational purposes.

5. Controlling : It implies measurement of accomplishment against the standards and

correction of deviation if any to ensure achievement of organizational goals.

Job Description: Job description is an accurate and concise description of (a) the overall
purposes of the job (b) the principal duties of the person doing this job. The job description
emphasizes the job requirements. Clear job description constitutes the basis for advertising
the vacancy positions and for drawing up job specifications. Once individuals are selected to
the posts, job description allows them to know exactly what their roles are and what is
expected of them.

Job Evaluation: An attempt to determine and compare the demands which the normal
performance of particular job makes on normal workers without taking account of the
individual abilities or performance of workers concerned.
It rates the job not the rank.

Merit Rating: Merit rating is the process of evaluating the relative merit of the person on a
given job. It is an essential task of the personnel manager to distinguish the meritorious
employees from the other. The data collected from this task is used for strategic decisions
such as releasing an increment in pay, promotion, transfer, and transfer on promotion to a
critical assignment or even discharge.

1. Paired comparison method: Here, every employee is compared with all others in a
particular cadre in the department. By comparing each pair of employees, the ratter
can decide which of the employees is more valuable to the organization.

2. Rating scale: Here, the factors dealing with the quantity and quality of work are
listed and rated. A numeric value may be assigned to each factor and the factors
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 could be weighed in the order of their relative importance. All the variables are
measured against a three or five point scale.

3. Forced distribution method: Here, employees are given a set of alternatives and they
have to choose one, which reflects their understanding of the true nature of the job.
Their thinking is conditioned by the given set of answers.

4. Narrative or essay method: Here, the candidate is required to narrate in an essay

format his/her strengths, weaknesses, and potential to perform. Here, the candidate
is not restricted by any given set of alternatives. The candidate is free to decide what
to furnish or what not to furnish.

Management by objectives (MBO): The short-term objectives mutually agreed upon by the
management and the employees are used as performance standards. This method considers
the actual performance as the basis for evaluation. It is a systematic method of goal setting.
In addition, it provides for reviewing performance based on results rather than personality
traits or characteristics. However, this is not practical at all levels and for all kinds of work in
the organizations.

WAGES: wages is the return given to workers for their mental and physical efforts which
they put into the production process.

Elements of an ideal wages system

 Guarantee of minimum wages
 Based on ability of the workers
 Simple
 Motivating
 Flexible
 Regular payment
Types of wages
 Time wages system: in this system, the workers are paid wages according to the time
spent at the work place. E.g. a day, a week, a month etc.
 Piece wage system: in this system, wages are paid to workers according to their
output. This wage system is directly related to the skill, production capacity, speed
and precision of the worker.

Marketing: Marketing as a social process by which individuals and groups obtain what they
need and want through creating, offering exchanging products and services of value with
others.

Selling versus Marketing:

Selling refers to the act of transferring the ownership of the goods and services from
the seller to the buyer. Marketing refers to the whole process encompassing the entire
range of activities starting from identifying the customer’s requirements to satisfying these
in a mutually beneficial manner.

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Marketing Function:
1. Buying: Buying involves both the marketing and the customers. The marketing
manager must know about the type of customers, their consuming habits demands
and buying pattern.
2. Selling: It creates a demand for a product selling function involves.
 Product planning and development Finding
 out or locating buyers
 Demand creation through salesmanship, advertising and sales promotion
 Negotiation of terms of sales such as price, quantity and quality etc.
3. Transporting: It involves the creation of place utility. In order to have value goods
must first be transported from the place they are produced to the place where they
are needed.
4. Storage: It concerned with storing finished products properly without any damage,
until they are dispatched to the customers it is also concerned to the customers it is
also concerned with maintaining stock of raw materials with maintaining stock of
raw materials, components etc. to meet production schedules.
5. Finance: Finance is the life blood of business value of goods is expressed is money
and it donated by price to be paid by buyer to seller credit is necessary in marketing
it plays all important role in retail trade particularly in the sales of costly consumer
goods.
6. Marketing research: The marketing personnel must study the trends in market
demand, supply prices and related market information. The knowledge about the
latest market information may help the firm to reduce risk loss in purchasing, in
pricing, in forecasting market demand and in facing competition in the market.

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Marketing Mix: It refers to the combination of four basic elements, viz., product, price,
promotion and the place, known as the four P’s of marketing.
1. Product Mix: It is used to describe the assortment of different product types
(product lines) and their varieties (product depth). In addition, different tangible and
intangible features of the product also form the product mix.
2. Price Mix: Price mix refers to the decisions relating to the price charged for the
product, service or idea.
3. Promotion Mix: Refers to the activities relating to promotion of the product, service
or idea.
4. Place Mix: Place or physical distribution mix refers to the activities that are involved
in transferring ownership to consumers at the right time and price.

Product life cycle:

1. Early growth: when the results of usage of product start flowing into the market and
the results are encouraging, more and more buyers come forward to try. The sales
revenue remains very low till this point of time. This is also a very critical stage, as
the manufacturer cannot avail scale economies.
2. Rapid growth: A new product enters the stage of rapid growth when it
satisfies the needs of the customers. The sales start picking up with repeat purchases
and by word of mouth publicity, coupled with continued promotion outlay from the
manufacturer’s side. As new customers get attracted to the product for the first
time, sales soar, sales revenues increase faster than costs, and profits start accruing.
This trend attracts the attention of the competitors who release a similar product
copying the best features of the new product.
3. Maturity: when the product’s sales growth slows down, it is called maturity. Due to
this slow down, the industry as a whole suffers from overcapacity. At this stage,
firms tend to attract the customers away from their competitors through cheaper
prices and larger promotional efforts and outlay. Those who cannot afford such large
promotional outlay and woo customers of the competitors.
4. Saturation: When the sales growth slows down to zero, such a stage is called
saturation. This size of the market does not increase beyond this stage. In other
words, old customers who have stopped buying the product replace any new

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 customer entering the market. All sales are simply replacement sales or repeat
purchases by the same customers.
5. Decline: When sales of a product tend to fall, such a stage is called decline. When a
product ceases to satisfy the customer’s needs in relation to those available in the
market, it is no more preferred. As a result, its competing products offering superior
benefits take over the market. This leads to weakened profitability.

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