Chapter 1

Introduction to Operations Management

Organizational Model
Finance
Sales HRM

PM
Marketing MIS QA

Engineering

Accounting

INTRODUCTION
Production/operations management is the process, which combines and transforms various resources used in the production/operations subsystem of the organization into value added product/services in a controlled manner as per the policies of the organization. Therefore, it is that part of an organization, which is concerned with the transformation of a range of inputs into the required (products/services) having the requisite quality level. The set of interrelated management activities, which are involved in manufacturing certain products, is called as production management. If the same concept is extended to services management, then the corresponding set of management activities is called as 3 operations management.

CONCEPT OF PRODUCTION
Production function is that part of an organization, which is concerned with the transformation of a range of inputs into the required outputs (products) having the requisite quality level. Production is defined as the step-by-step conversion of one form of material into another form through chemical or mechanical process to create or enhance the utility of the product to the user. Thus production is a value addition process. At each stage of processing, there will be value addition. Edwood Buffa defines production as a process by which goods and services are created. Some examples of production are: manufacturing custom-made products like, boilers with a specific capacity, constructing flats, some structural fabrication works for selected customers, etc., and manufacturing standardized products like, car, bus, motor cycle, radio, television, etc.
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SCHEMATIC DIAGRAM OF PRODUCTION MANAGEMENT

INPUT
Man Material Machines Information Capital

TRANSFORMATION PROCESS
Product Design Process Planning Production Control Maintenance

OUTPUT
Products Services

CONTINUOUS
Inventory Quality Cost

PRODUCTION SYSTEM
The production system of an organization is that part, which produces products of an organization. It is that activity whereby resources, flowing within a defined system, are combined and transformed in a controlled manner to add value in accordance with the policies communicated by management. A simplified production system is shown above. The production system has the following characteristics:
1.

2. 3. 4.

Production is an organized activity, so every production system has an objective. The system transforms the various inputs to useful outputs. It does not operate in isolation from the other organization system. There exists a feedback about the activities, which is essential to 6 control and improve system performance.

Objectives of Production Management

The objective of the production management is to produce goods services of right quality and quantity at the right time and right manufacturing cost. 1. RIGHT QUALITY
The quality of product is established based upon the customers needs. The right quality is not necessarily best quality. It is determined by the cost of the product and the technical characteristics as suited to the specific requirements.

2. RIGHT QUANTITY
The manufacturing organization should produce the products in right number. If they are produced in excess of demand the capital will block up in the form of inventory and if the quantity is produced in short of demand, leads to shortage of products.
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3. RIGHT TIME Timeliness of delivery is one of the important parameter to judge the effectiveness of production department. So, the production department has to make the optimal utilization of input resources to achieve its objective. 4. RIGHT MANUFACTURING COST Manufacturing costs are established before the product is actually manufactured. Hence, all attempts should be made to produce the products at pre-established cost, so as to reduce the variation between actual and the standard (pre-established) cost.
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Classification of Production System

Production systems can be classified as Job Shop, Batch, Mass and Continuous Production systems. CONTINUOUS PRODUCTION MASS PRODUCTION BATCH PRODUCTION JOB-SHOP PRODUCTION

JOB-SHOP PRODUCTION
Job shop production are characterised by manufacturing of one or few quantity of products designed and produced as per the specification of customers within prefixed time and cost. The distinguishing feature of this is low volume and high variety of products. A job shop comprises of general purpose machines arranged into different departments. Each job demands unique technological requirements, demands processing on machines in a certain sequence.

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BATCH PRODUCTION
Batch production is defined by American Production and Inventory Control Society (APICS) as a form of manufacturing in which the job passes through the functional departments in lots or batches and each lot may have a different routing. It is characterised by the manufacture of limited number of products produced at regular intervals and stocked awaiting sales.

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MASS PRODUCTION
Manufacture of discrete parts or assemblies using a continuous process are called mass production. This production system is justified by very large volume of production. The machines are arranged in a line or product layout. Product and process standardisation exists and all outputs follow the same path.

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CONTINUOUS PRODUCTION
Production facilities are arranged as per the sequence of production operations from the first operations to the finished product. The items are made to flow through the sequence of operations through material handling devices such as conveyors, transfer devices, etc.

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Today's Factors Affecting PM/OM

Global Competition Quality, Customer Service, and Cost Challenges Rapid Expansion of Advanced Technologies Continued Growth of the Service Sector Scarcity of Operations Resources

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Studying Production/Operations Management

Operations as a System Decision Making in OM

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Operations as a System
Production System Conversion Subsystem
Control Subsystem

Inputs

Outputs

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Inputs of an Production/Operations System

External Legal, Economic, Social, Technological Market Competition, Customer Desires, Product Info. Primary Resources Materials, Personnel, Capital, Utilities

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Conversion Subsystem

Physical (Manufacturing) Locational Services (Transportation) Exchange Services (Retailing) Storage Services (Warehousing) Other Private Services (Insurance) Government Services (Federal)

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Outputs of an Production/Operations System

Direct Products Services Indirect Waste Pollution Technological Advances

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Production as an Organization Function

Companies cannot compete with marketing, finance, accounting, and engineering alone. We focus on OM as we think of global competitiveness, because that is where the vast majority of a firms workers, capital assets, and expenses reside. To succeed, a firm must have a strong operations function teaming with the other organization functions.

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Decision Making in PM/OM

Strategic Decisions Operating Decisions Control Decisions

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Strategic Decisions

These decisions are of strategic importance and have long-term significance for the organization. Examples include deciding: the design for a new products production process where to locate a new factory whether to launch a new-product development plan

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Operating Decisions

These decisions are necessary if the ongoing production of goods and services is to satisfy market demands and provide profits. Examples include deciding: how much finished-goods inventory to carry the amount of overtime to use next week the details for purchasing raw material next month

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Control Decisions

These decisions concern the day-to-day activities of workers, quality of products and services, production and overhead costs, and machine maintenance. Examples include deciding: labor cost standards for a new product frequency of preventive maintenance new quality control acceptance criteria

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What Controls the Operations System?

Information about the outputs, the conversions, and the inputs is fed back to management. This information is matched with managements expectations When there is a difference, management must take corrective action to maintain control of the system

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End of Chapter 1

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CHAPTER 2 Distinction between Manufacturing Operations and Service Operations Following characteristics can be considered for distinguishing manufacturing operations with service operations: 1. Tangible/Intangible nature of output 2. Consumption of output 3. Nature of work (job) 4. Degree of customer contact 5. Customer participation in conversion 6. Measurement of performance. 27

Manufacturing is characterized by tangible outputs (products), outputs that customers consume overtime, jobs that use less labour and more equipment, little customer contact, no customer participation in the conversion process (in production), and sophisticated methods for measuring production activities and resource consumption as product are made.
Service is characterized by intangible outputs, outputs that customers consumes immediately, jobs that use more labour and less equipment, direct consumer contact, frequent customer participation in the conversion process, and elementary methods for measuring conversion activities and resource consumption. Some services are equipment based namely rail-road services, telephone services and some are people based namely tax consultant services, hair styling. 28

A Framework for Managing Operations

PLANNING Activities that establishes a course of action and guide future decisionmaking is planning. The operations manager defines the objectives for the operations subsystem of the organization, and the policies, and procedures for achieving the objectives. This stage includes clarifying the role and focus of operations in the organizations overall strategy. It also involves product planning, facility designing and using the conversion process. ORGANIZING Activities that establishes a structure of tasks and authority. Operation managers establish a structure of roles and the flow of information within the operations subsystem. They determine the activities required to achieve the goals and assign authority and responsibility for carrying them out.
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CONTROLLING Activities that assure the actual performance in accordance with planned performance. To ensure that the plans for the operations subsystems are accomplished, the operations manager must exercise control by measuring actual outputs and comparing them to planned operations management. Controlling costs, quality, and schedules are the important functions here. BEHAVIOUR Operation managers are concerned with how their efforts to plan, organize, and control affect human behaviour. They also want to know how the behaviour of subordinates can affect managements planning, organizing, and controlling actions. Their interest lies in decision-making behaviour.
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SCOPE OF PRODUCTION AND OPERATIONS MANAGEMENT

Production and operations management concern with the conversion of inputs into outputs, using physical resources, so as to provide the desired utilities to the customer while meeting the other organizational objectives of effectiveness and efficiency. It distinguishes itself from other functions such as personnel, marketing, finance, etc., by its primary concern for conversion by using 31 physical resources.

Following are the activities which are listed under production and operations management functions: 1. Location of facilities 2. Plant layouts and material handling 3. Product design 4. Process design 5. Production and planning control 6. Quality control 7. Materials management 8. Maintenance management.
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LOCATION OF FACILITIES
Location of facilities for operations is a long-term capacity decision which involves a long term commitment about the geographically static factors that affect a business organization. It is an important strategic level decision-making for an organization. It deals with the questions such as where our main operations should be based? The selection of location is a key-decision as large investment is made in building plant and machinery. An improper location of plant may lead to waste of all the investments made in plant and machinery equipments. Hence, location of plant should be based on the companys expansion plan and policy, diversification plan for the products, changing sources of raw materials and many other factors. The purpose of the location study is to find the optimal location that 33 will results in the greatest advantage to the organization.

1. 2.

3.

4.

5.

6.

PLANT LAYOUT AND MATERIAL HANDLING

Plant layout refers to the physical arrangement of facilities. It is the configuration of departments, work centers and equipment in the conversion process. The overall objective of the plant layout is to design a physical arrangement that meets the required output quality and quantity most economically.
According to James Moore, Plant layout is a plan of an optimum arrangement of facilities including personnel, operating equipment, storage space, material handling equipments and all other supporting services along with the design of best structure to contain all these facilities.

Material Handling refers to the moving of materials from the store room to the machine and from one machine to the next during the process of manufacture. It is also defined as the art and science of moving, packing and storing 34 of products in any form.

PRODUCT DESIGN
Product design deals with conversion of ideas into reality. Every business organization have to design, develop and introduce new products as a survival and growth strategy. Developing the new products and launching them in the market is the biggest challenge faced by the organizations. The entire process of need identification to physical manufactures of product involves three functions: 1. Marketing, 2. Product Development, 3. Manufacturing. Product development translates the needs of customers given by marketing into technical specifications and designing the various features into the product to these specifications. Manufacturing has the responsibility of selecting the processes by which the product can be manufactured. Product design and development provides link between marketing, customer needs and expectations and the activities required to manufacture the product. 35

PROCESS DESIGN
Process design is a macroscopic decision-making of an overall process route for converting the raw material into finished goods. These decisions encompass the selection of a process, choice of technology, process flow analysis and layout of the facilities. Hence, the important decisions in process design are to analyze the workflow for converting raw material into finished product and to select the workstation for each included in the workflow.
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PRODUCTION PLANNING AND CONTROL

Production planning and control can be defined as the process of planning the production in advance, setting the exact route of each item, fixing the starting and finishing dates for each item, to give production orders to shops and to follow up the progress of products according to orders. The principle of production planning and control lies in the statement First Plan Your Work and then Work on Your Plan. Main functions of production planning and control includes planning, routing, scheduling, dispatching and follow-up. Planning is deciding in advance what to do, how to do it, when to do it and who is to do it. Planning bridges the gap from where we are, to where we want to go. It makes it possible for things to occur which would not otherwise happen.
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Routing may be defined as the selection of path which each part of the product will follow, which being transformed from raw material to finished products. Routing determines the most advantageous path to be followed from department to department and machine to machine till raw material gets its final shape. Scheduling determines the programme for the operations. Scheduling may be defined as the fixation of time and date for each operation as well as it determines the sequence of operations to be followed. Dispatching is concerned with the starting the processes. It gives necessary authority so as to start a particular work, which has already been planned under Routing and Scheduling. Therefore, dispatching is release of orders and instruction for the starting of production for any item in acceptance with the route sheet and schedule charts. The function of follow-up is to report daily the progress of work in each shop in a prescribed Performa and to investigate the causes of deviations from the planned performance. 38

QUALITY CONTROL
Quality Control (QC) may be defined as a system that is used to maintain a desired level of quality in a product or service. It is a systematic control of various factors that affect the quality of the product. Quality control aims at prevention of defects at the source, relies on effective feed back system and corrective action procedure. The main objectives of quality control are:
To improve the companies income by making the production more acceptable to the customers i.e., by providing long life, greater usefulness, maintainability, etc. To reduce companies cost through reduction of losses due to defects. To achieve interchangeability of manufacture in large scale production. To produce optimal quality at reduced price. To ensure satisfaction of customers with productions or services or high quality level, to build customer goodwill, confidence and reputation of manufacturer. To make inspection prompt to ensure quality control. To check the variation during manufacturing. 39

MATERIALS MANAGEMENT
Materials management is that aspect of management function which is primarily concerned with the acquisition, control and use of materials needed and flow of goods and services connected with the production process having some predetermined objectives in view. The main objectives of materials management are: 1. To minimize material cost. 2. To purchase, receive, transport and store materials efficiently and to reduce the related cost. 3. To cut down costs through simplification, standardization, value analysis, import substitution, etc. 4. To trace new sources of supply and to develop cordial relations with them in order to ensure continuous supply at reasonable rates. 5. To reduce investment tied in the inventories for use in other productive purposes and to develop high inventory turnover ratios. 40

MAINTENANCE MANAGEMENT
In modern industry, equipment and machinery are a very important part of the total productive effort. Therefore, their idleness or downtime becomes are very expensive. Hence, it is very important that the plant machinery should be properly maintained.
The main objectives of maintenance management are: 1. To achieve minimum breakdown and to keep the plant in good working condition at the lowest possible cost. 2. To keep the machines and other facilities in such a condition that permits them to be used at their optimal capacity without interruption. 3. To ensure the availability of the machines, buildings and services required by other sections of the factory for the performance of their 41 functions at optimal return on investment.

SKILL DEVELOPMENT
Visit a fast food restaurant like Pizza hut, Pizza corner to understand the concept of this chapter by getting the information for the following questions. 1. Identify the type of production system followed. 2. Check how production system is managed. 3. Find out utilization of the resources namely manpower, capacity and material. 4. How the customer services is rendered [feedback system exist or not]

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End of Chapter 2

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PLANT LOCATION AND LAYOUT

Plant location or the facilities location problem is an important strategic level decision making for an organization. One of the key features of a conversion process (manufacturing system) is the efficiency with which the products (services) are transferred to the customers. This fact will include the determination of where to place the plant or facility. The selection of location is a key-decision as large investment is made in building plant and machinery. It is not advisable or not possible to change the location very often.

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Before a location for a plant is selected, long range forecasts should be made anticipating future needs of the company. The plant location are based on the companys 1. Expansion plan and policy, 2. Diversification plan for the products, 3. Changing market conditions, 4. The changing sources of raw materials and 5. Many other factors that influence the choice of the location decision. The purpose of the location study is to find an optimum location one that will result in the greatest advantage to the organization.
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NEED FOR SELECTING A SUITABLE LOCATION

The need for selecting a suitable location arises because of three situations. 1. When starting a new organization, i.e., location choice for the first time. 2. In case of existing organization. 3. In case of Global Location.

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I. In Case of Location Choice for the First Time or New Organisations Cost economies are always important while selecting a location for the first time, but should keep in mind the cost of long-term business / organizational objectives. The following are the factors to be considered while selecting the location for the new organizations: 1. Identification of region: The organizational objectives along with the various long-term considerations about marketing, technology, internal organizational strengths and weaknesses, region specific resources and business environment, legal-governmental environment, social environment and geographical environment suggest a suitable region for locating the operations facility.
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2. Choice of a site within a region: Once the suitable region is identified, the next step is choosing the best site from an available set. Choice of a site is less dependent on the organization's long-term strategies. Evaluation of alternative sites for their tangible and intangible costs will resolve facilities-location problem. When starting a new factory, plant location decisions are very important because they have direct bearing on factors like, financial, employment and distribution patterns. In the long run, relocation of plant may even 48 benefit the organization.

The existing firms will seek new locations in order to expand the capacity or to place the existing facilities. When the demand for product increases, it will give rise to following decisions: 1. Whether to expand the existing capacity and facilities. 2. Whether to look for new locations for additional facilities. 3. Whether to close down existing facilities to take advantage of some new locations.

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II. In Case of Location Choice for Existing Organisation

In this case a manufacturing plant has to fit into a multi-plant operations strategy. That is, additional plant location in the same premises and elsewhere under following circumstances: 1. Plant manufacturing distinct products. 2. Manufacturing plant supplying to specific market area. 3. Plant divided on the basis of the process or stages in manufacturing. 4. Plants emphasizing flexibility.
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1. Plants manufacturing distinct products:

Each plant services the entire market area for the organization. This strategy is necessary where the needs of technological and resource inputs are specialized or distinctively different for the different product-lines. Product specialization may be necessary in a highly competitive market. It may be necessary to exploit the special resources of a particular geographical area. The more decentralized these pairs are in terms of the management and in terms of their physical location, the better would be the planning and control and the utilization of the resources.
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2. Manufacturing plants supplying to a specific market area

Each plant manufactures almost all of the companys products. This type of strategy is useful where market proximity consideration dominates the resources and technology considerations. This strategy requires great deal of coordination from the corporate office. An extreme example of this strategy is that of soft drinks bottling plants.

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3. Plants divided on the basis of the process or stages in manufacturing:

Each production process or stage of manufacturing may require distinctively different equipment capabilities, labour skills, technologies, and managerial policies and emphasis. Since the products of one plant feed into the other plant, this strategy requires much centralized coordination of the manufacturing activities from the corporate office that are expected to understand the various technological aspects of all the plants.

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4. Plants emphasizing flexibility:

This requires much coordination between plants to meet the changing needs and at the same time ensure efficient use of the facilities and resources. Frequent changes in the long-term strategy in order to improve be efficiently temporarily, are not healthy for the organization. In any facility location problem the central question is: Is this a location at which the company can remain competitive for a long time?
1. Expansion of the facilities at the existing site: This is acceptable when it does not violate the basic business and managerial outlines, i.e., philosophies, purposes, strategies and capabilities. 2. Relocation of the facilities (closing down the existing ones): This is a drastic step which can be called as Uprooting and Transplanting. Unless there are very compelling reasons, 54 relocation is not done.

In Case of Global Location

A. Tangible Reasons The tangible reasons for setting up an operations facility abroad could be as follows: Reaching the customer: One obvious reason for locating a facility abroad is that of capturing a share of the market expanding worldwide. The phenomenal growth of the GDP of India is a big reason for the multinationals to have their operations facilities in our country. An important reason is that of providing service to the customer promptly and economically which is logistics-dependent. Therefore, cost and case of logistics is a reason for setting up manufacturing facilities abroad. By logistics set of activities closes the gap between production of goods/services and reaching of these intended goods/services to the customer to his satisfaction. Reaching the customer is thus the main objective.
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The other tangible reasons could be as follows:

1. The host country may offer substantial tax advantages compared to the home country. 2. The costs of manufacturing and running operations may be substantially less in that foreign country. This may be due to lower labour costs, lower raw material cost, better availability of the inputs like materials, energy, water, ores, metals, key personnel etc. 3. The company may overcome the tariff barriers by setting up a manufacturing plant in a foreign country rather than exporting the items to that country.
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Intangible Reasons
The intangible reasons for considering setting up an operations facility abroad could be as follows: 1. Customer-related Reasons With an operations facility in the foreign country, the firms customers may feel secure that the firm is more accessible. Accessibility is an important service quality determinant. The firm may be able to give a personal tough. The firm may interact more intimately with its customers and may thus understand their requirements better. It may also discover other potential customers in the foreign location.
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2. Organizational Learning-related Reasons

(a) The firm can learn advanced technology. For example, it is possible that cutting-edge technologies can be learn by having operations in an technologically more advanced country. The firm can learn from advanced research laboratories/universities in that country. Such learning may help the entire product-line of the company. (b) The firm can learn from its customers abroad. A physical location there may be essential towards this goal. (c) It can also learn from its competitors operating in that country. For this reason, it may have to be physically present where the action is. (d) The firm may also learn from its suppliers abroad. If the firm has a manufacturing plant there, it will have intensive interaction with the suppliers in that country from whom there may be much to learn in terms of modern and appropriate technology, modern management methods, and new trends in business worldwide.
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3. Other Strategic Reasons (a) The firm by being physically present in the host country may gain some local boy kind of psychological advantage. The firm is no more a foreign company just sending its products across international borders. This may help the firm in lobbying with the government of that country and with the business associations in that country. (b) The firm may avoid political risk by having operations in multiple countries. (c) By being in the foreign country, the firm can build alternative sources of supply. The firm could, thus, reduce its supply risks.

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FACTORS INFLUENCING PLANT LOCATION/FACILITY LOCATION It is the process of determining a geographic site for a firms operations. Managers of both service and manufacturing organizations must weigh many factors when assessing the desirability of a particular site, including proximity to customers and suppliers, labour costs, and transportation costs. Location conditions are complex and each comprises a different Characteristic of a tangible (i.e. Freight rates, production costs) and non-tangible (i.e. reliability, Frequency security, quality) nature.
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Location conditions are hard to measure. Tangible cost based factors such as wages and products costs can be quantified precisely into what makes locations better to compare. On the other hand non-tangible features, which refer to such characteristics as reliability, availability and security, can only be measured along with scales.
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It is appropriate to divide the factors, which influence the plant location or facility location on the basis of the nature of the organisation as 1. General locational factors, which include controllable and uncontrollable factors for all type of organizations. 2. Specific locational factors specifically required for manufacturing and service organizations.

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General Locational Factors

CONTROLLABLE FACTORS 1. Proximity to markets 2. Supply of materials 3. Transportation facilities 4. Infrastructure availability 5. Labour and wages 6. External economies 7. Capital UNCONTROLLABLE FACTORS 8. Government policy 9. Climate conditions 10. Supporting industries and services 11. Community and labour attitudes 12. Community Infrastructure 63

Proximity to markets
Every company is expected to serve its customers by providing goods and services at the time needed and at reasonable price organizations may choose to locate facilities close to the market or away from the market depending upon the product. When the buyers for the product are concentrated, it is advisable to locate the facilities close to the market. Locating nearer to the market is preferred if

The products are delicate and susceptible to spoilage.

After sales services are promptly required very often. Transportation cost is high and increase the cost significantly. Shelf life of the product is low. Nearness to the market ensures a consistent supply of goods to customers and reduces the cost of transportation. 64

Supply of raw material

It is essential for the organization to get raw material in right qualities and time in order to have an uninterrupted production. This factor becomes very important if the materials are perishable and cost of transportation is very high. General guidelines suggested regarding effects of raw materials on plant location are:
1.

2.

3. 4.

When a single raw material is used without loss of weight, locate the plant at the raw material source, at the market or at any point in between. When weight loosing raw material is demanded, locate the plant at the raw material source. When raw material is universally available, locate close to the market area. If the raw materials are processed from variety of locations, the plant may be situated so as to minimize total transportation costs. Nearness to raw material is important in case of industries such as sugar, cement, jute and cotton textiles. 65

Transportation facilities
Speedy transport facilities ensure timely supply of raw materials to the company and finished goods to the customers. The transport facility is a prerequisite for the location of the plant. There are five basic modes of physical transportation, air, road, rail, water and pipeline. Goods that are mainly intended for exports demand a location near to the port or large airport. The choice of transport method and hence the location will depend on relative costs, convenience, and suitability. Thus transportation cost to value added is one of the criteria for plant location.

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Infrastructure availability
1.

The basic infrastructure facilities like power, water and waste disposal, etc., become the prominent factors in deciding the location. Certain types of industries are power hungry e.g., aluminum and steel and they should be located close to the power station or location where uninterrupted power supply is assured throughout the year. The non-availability of power may become a survival problem for such industries. Process industries like paper, chemical, cement, etc., require continuous. Supply of water in large amount and good quality, and mineral content of water becomes an important factor. A waste disposal facility for process industries is an important factor, which influences the plant location.
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2.

3.

4.

Labour and Wages The problem of securing adequate number of labour and with skills specific is a factor to be considered both at territorial as well as at community level during plant location. Importing labour is usually costly and involve administrative problem. Productivity of labour is also an important factor to be considered. Prevailing wage pattern, cost of living and industrial relation and bargaining power of the unions forms in important considerations.
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External Economies of Scale

External economies of scale can be described as urbanization and locational economies of scale. It refers to advantages of a company by setting up operations in a large city while the second one refers to the settling down among other companies of related Industries. In the case of urbanization economies, firms derive from locating in larger cities rather than in smaller ones in a search of having access to a large pool of labour, transport facilities, and as well to increase their markets for selling their products and have access to a much wider range of business services.
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Capital
By looking at capital as a location condition, it is important to distinguish the physiology of fixed capital in buildings and equipment from financial capital. Fixed capital costs as building and construction costs vary from region to region. But on the other hand buildings can also be rented and existing plants can be expanded. Financial capital is highly mobile and does not very much influence decisions.

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UNCONTROLLABLE FACTORS

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Government policy
The policies of the state governments and local bodies concerning labour laws, building codes, safety, etc., are the factors that demand attention. In order to have a balanced regional growth of industries, both central and state governments in our country offer the package of incentives to entrepreneurs in particular locations. The incentive package may be in the form of exemption from a safes tax and excise duties for a specific period, soft loan from financial institutions, subsidy in electricity charges and investment subsidy. Some of these incentives may tempt to locate the plant to avail these facilities offered.
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Climatic conditions
The geology of the area needs to be considered together with climatic conditions (humidity, temperature). Climates greatly influence human efficiency and behaviour. Some industries require specific climatic conditions e.g., textile mill will require humidity.

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Supporting industries and services

Now a day the manufacturing organization will not make all the components and parts by itself and it subcontracts the work to vendors. So, the source of supply of component parts will be the one of the factors that influences the location. The various services like communications, banking services professional consultancy services and other civil amenities services will play a vital role in selection of a location.

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Community and labour attitudes

Community attitude towards their work and towards the prospective industries can make or mar the industry. Community attitudes towards supporting trade union activities are important criteria. Facility location in specific location is not desirable even though all factors are favouring because of labour attitude towards management, which brings very often the strikes and lockouts.

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Community infrastructure and amenity

All manufacturing activities require access to a community infrastructure, most notably economic overhead capital, such as roads, railways, port facilities, power lines and service facilities and social overhead capital like schools, universities and hospitals. These factors are also needed to be considered by location decisions as infrastructure is enormously expensive to build and for most manufacturing activities the existing stock of infrastructure provides physical restrictions on location possibilities.

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Specific Locational Factors for Manufacturing Organisation

DOMINANT FACTORS Factors dominating location decisions for new manufacturing plants can be broadly classified in six groups. They are listed in the order of their importance as follows. 1. Favourable labour climate 2. Proximity to markets 3. Quality of life 4. Proximity to suppliers and resources 5. Utilities, taxes, and real estate costs
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1. Favorable labour climate: A favorable labour climate may be the most important factor in location decisions for labour-intensive firms in industries such as textiles, furniture, and consumer electronics. Labour climate includes wage rates, training requirements, attitudes toward work, worker productivity, and union strength. Many executives consider weak unions or al low probability of union organizing efforts as a distinct advantage. 2. Proximity to markets: After determining where the demand for goods and services is greatest, management must select a location for the facility that will supply that demand. Locating near markets is particularly important when the final goods are bulky or heavy and outbound transportation rates are high. For example, manufacturers of products such as plastic pipe and heavy metals all emphasize proximity to 78 their

3. Quality of life: Good schools, recreational facilities, cultural events, and an attractive lifestyle contribute to quality of life. This factor is relatively unimportant on its own, but it can make the difference in location decisions. 4. Proximity to suppliers and resources: In many companies, plants supply parts to other facilities or rely on other facilities for management and staff support. These require frequent coordination and communication, which can become more difficult as distance increases. 5. Utilities, taxes, and real estate costs: Other important factors that may emerge include utility costs (telephone, energy, and water), local and state taxes, financing incentives offered by local or state governments, relocation costs, and land costs.
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SECONDARY FACTORS
There are some other factors needed to be considered, 1. Including room for expansion, 2. Construction costs, 3. Accessibility to multiple modes of transportation, the cost of shuffling people and materials between plants, 4. Competition from other firms for the workforce, 5. Community attitudes, and many others. For global operations, firms are emphasizing local employee skills and education and the local infrastructure.
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Specific Locational Factors for Service Organisation

DOMINANT FACTORS The factors considered for manufacturers are also applied to service providers, with one important addition the impact of location on sales and customer satisfaction. Customers usually look about how close a service facility is, particularly if the process requires considerable customer contact.

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PROXIMITY TO CUSTOMERS

Location is a key factor in determining how conveniently customers can carry on business with a firm. For example, few people would like to go to remotely located dry cleaner or supermarket if another is more convenient. Thus the influence of location on revenues tends to be the dominant factor.
TRANSPORTATION COSTS AND PROXIMITY TO MARKETS

For warehousing and distribution operations, transportation costs and proximity to markets are extremely important. With a warehouse nearby, many firms can hold inventory closer to the customer, thus reducing delivery time and promoting sales.

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LOCATION OF COMPETITORS One complication in estimating the sales potential at different location is the impact of competitors. Management must not only consider the current location of competitors but also try to anticipate their reaction to the firms new location. Avoiding areas where competitors are already well established often pays. However, in some industries, such as new-car sales showrooms and fast-food chains, locating near competitors is actually advantageous. The strategy is to create a critical mass, whereby several competing firms clustered in one location attract more customers than the total number who would shop at the same stores at scattered locations. Recognizing this effect, some firms use a follow the leader strategy when selecting new 83 sites.

SECONDARY FACTORS
Retailers also must consider the level of retail activity, residential density, traffic flow, and site visibility. Retail activity in the area is important, as shoppers often decide on impulse to go shopping or to eat in a restaurant. Traffic flows and visibility are important because businesses customers arrive in cars. Visibility involves distance from the street and size of nearby buildings and signs. High residential density ensures nighttime and weekend business when the population in the area fits the firms competitive priorities and target market segment.

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Factor rating method

The process of selecting a new facility location involves a series of following steps: 1. Identify the important location factors. 2. Rate each factor according to its relative importance, i.e., higher the ratings is indicative of prominent factor. 3. Assign each location according to the merits of the location for each factor. 4. Calculate the rating for each location by multiplying factor assigned to each location with basic factors considered. 5. Find the sum of product calculated for each factor and select best location having highest total score.
85

ILLUSTRATION 1: Let us assume that a new medical facility, Health-care, is to be located in Delhi. The location factors, factor rating and scores for two potential sites are shown in the following table. Which is the best location based on factor rating method? Sl. No. Location factor Factor Rating Location 1 Location 2 1. Facility utilization 8 3 5 2. Total patient per month 5 4 3 3. Average time per emergency trip 6 4 5 4. Land and construction costs 3 1 2 86 5. Employee preferences 5 5 3

PLANT LAYOUT Plant layout refers to the physical arrangement of production facilities. It is the configuration of departments, work centers and equipment in the conversion process. It is a floor plan of the physical facilities, which are used in production. According to Moore Plant layout is a plan of an optimum arrangement of facilities including personnel, operating equipment, storage space, material handling equipment and all other supporting services along with the design of best structure to contain all these facilities. 87

Objectives of Plant Layout

The primary goal of the plant layout is to maximize the profit by arrangement of all the plant facilities to the best advantage of total manufacturing of the product. The objectives of plant layout are:

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

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Principles of Plant Layout

1. Principle of integration: A good layout is one that integrates men, materials, machines and supporting services and others in order to get the optimum utilization of resources and maximum effectiveness. 2. Principle of minimum distance: This principle is concerned with the minimum travel (or movement) of man and materials. The facilities should be arranged such that, the total distance travelled by the men and materials should be minimum and as far as possible straight line movement should be preferred.

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3. Principle of cubic space utilization: The good layout is one that utilize both horizontal and vertical space. It is not only enough if only the floor space is utilized optimally but the third dimension, i.e., the height is also to be utilized effectively. 4. Principle of flow: A good layout is one that makes the materials to move in forward direction towards the completion stage, i.e., there should not be any backtracking. 5. Principle of maximum flexibility: The good layout is one that can be altered without much cost and time, i.e., future requirements should be taken into account while designing the present layout. 90

6. Principle of safety, security and satisfaction: A good layout is one that gives due consideration to workers safety and satisfaction and safeguards the plant and machinery against fire, theft, etc. 7. Principle of minimum handling: A good layout is one that reduces the material handling to the minimum.

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CLASSIFICATION OF LAYOUT
Layouts can be classified into the following five categories: 1. Process layout 2. Product layout 3. Combination layout 4. Fixed position layout

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Process Layout
Process layout is recommended for batch production. All machines performing similar type of operations are grouped at one location in the process layout e.g., all lathes, milling machines, etc. are grouped in the shop will be clustered in like groups. Thus, in process layout the arrangement of facilities are grouped together according to their functions. Process layout is normally used when the production volume is not sufficient to justify a product layout. Typically, job shops employ process layouts due to the variety of products manufactured and their low production volumes.
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Advantages
1. In process layout machines are better utilized and fewer machines are required. 2. Flexibility of equipment and personnel is possible in process layout. 3. Lower investment on account of comparatively less number of machines and lower cost of general purpose machines. 4. Higher utilization of production facilities. 5. A high degree of flexibility with regards to work distribution to machineries and workers. 6. The diversity of tasks and variety of job makes the job challenging and interesting. 7. Supervisors will become highly knowledgeable about the functions under their department.
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Process Layout of an automobile service station

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Product Layout
In this type of layout, machines and auxiliary services are located according to the processing sequence of the product. If the volume of production of one or more products is large, the facilities can be arranged to achieve efficient flow of materials and lower cost per unit. Special purpose machines are used which perform the required function quickly and reliably. The product layout is selected when the volume of production of a product is high such that a separate production line to manufacture it can be justified. In a strict product layout, machines are not shared by different products. Therefore, the production volume must be sufficient to achieve satisfactory utilization of the equipment.
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Advantages
1. 2. 3. 4. 5. 6. 7. The flow of product will be smooth and logical in flow lines. In-process inventory is less. Throughput time is less. Minimum material handling cost. Simplified production, planning and control systems are possible. Less space is occupied by work transit and for temporary storage. Reduced material handling cost due to mechanised handling systems and straight flow. 8. Perfect line balancing which eliminates bottlenecks and idle capacity. 9. Manufacturing cycle is short due to uninterrupted flow of materials. 10. Small amount of work-in-process inventory. 11. Unskilled workers can learn and manage the production.
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Combination Layout

A combination of process and product layouts combines the advantages of both types of layouts. A combination layout is possible where an item is being made in different types and sizes. Here machinery is arranged in a process layout but the process grouping is then arranged in a sequence to manufacture various types and sizes of products. It is to be noted that the sequence of operations remains same with the variety of products and sizes.
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Fixed Position Layout

This is also called the project type of layout. In this type of layout, the material, or major components remain in a fixed location and tools, machinery, men and other materials are brought to this location. This type of layout is suitable when one or a few pieces of identical heavy products are to be manufactured and when the assembly consists of large number of heavy parts, the cost of transportation of these parts is very high.

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MATERIAL HANDLING
Material handling embraces the basic operations in connection with the movement of bulk, packaged and individual products in a semi-solid or solid state by manually or power-actuated equipment. Material handling does not add any value to the product but adds to the cost of the product and hence it will cost the customer more. So the handling should be kept at minimum. Materials handling can be also defined as the function dealing with the preparation, placing and positioning of materials to facilitate their movement or storage. Material handling is the art and science involving the movement, handling and storage of materials during different 102 stages of manufacturing.

OBJECTIVES OF MATERIAL HANDLING

1. 2.

3.

4.

5. 6. 7.

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. 103 Lower investment in process inventory.

PRINCIPLES OF MATERIAL HANDLING

1.

2.

3.

4.

5.

Planning principle: All handling activities should be planned. Systems principle: Plan a system integrating as many handling activities as possible and co-ordinating the full scope of operations (receiving, storage, production, inspection, packing, warehousing, supply and transportation). Space utilisation principle: Make optimum use of cubic space. Unit load principle: Increase quantity, size, weight of load handled. Material flow principle: Plan an operation sequence 104 and equipment arrangement to optimise material flow.

1. Simplification principle: Reduce combine or eliminate unnecessary movement and/or equipment. 2. Safety principle: Provide for safe handling methods and equipment. 3. Mechanization principle: Use mechanical or automated material handling equipment. 4. Standardization principle: Standardize method, types, size of material handling equipment. 5. Flexibility principle: Use methods and equipment that can perform a variety of task and applications. 6. Equipment selection principle: Consider all aspect of material, move and method to be utilized.
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7. Motion principle: Equipment designed to transport material should be kept in motion. 8. Idle time principle: Reduce idle time/unproductive time of both MH equipment and man power. 9. Maintenance principle: Plan for preventive maintenance or scheduled repair of all handling equipment. 10. Obsolescence principle: Replace obsolete handling methods/equipment when more efficient method/equipment will improve operation. 11. Capacity principle: Use handling equipment to help achieve its full capacity. 12. Control principle: Use material handling equipment to improve production control, inventory control and other handling. 13. Performance principle: Determine efficiency of handling performance in terms of cost per unit handled which is the primary criterion.
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SELECTION OF MATERIAL HANDLING EQUIPMENTS

PROPERTIES OF THE MATERIAL Whether it is solid, liquid or gas, and in what size, shape and weight it is to be moved, are important considerations and can already lead to a preliminary elimination from the range of available equipment under review. Similarly, if a material is fragile, corrosive or toxic this will imply that certain handling methods and containers will be preferable to others.

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LAYOUT AND CHARACTERISTICS OF THE BUILDING Another restricting factor is the availability of space for handling. Low-level ceiling may preclude the use of hoists or cranes, and the presence of supporting columns in awkward places can limit the size of the material-handling equipment. If the building is multi-storeyed, chutes or ramps for industrial trucks may be used. Layout itself will indicate the type of production operation (continuous, intermittent, fixed position or group) and can indicate some items of equipment that will be more suitable than others. Floor capacity also helps in selecting the best material handling equipment.

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PRODUCTION FLOW If the flow is fairly constant between two fixed positions that are not likely to change, fixed equipment such as conveyors or chutes can be successfully used. If, on the other hand, the flow is not constant and the direction changes occasionally from one point to another because several products are being produced simultaneously, moving equipment such as trucks would be preferable.

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COST CONSIDERATIONS This is one of the most important considerations. The above factors can help to narrow the range of suitable equipment, while costing can help in taking a final decision. Several cost elements need to be taken into consideration when comparisons are made between various items of equipment that are all capable of handling the same load. Initial investment and operating and maintenance costs are the major cost to be considered. By calculating and comparing the total cost for each of the items of equipment under consideration, a more rational decision can be reached on the most appropriate choice.
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NATURE OF OPERATIONS Selection of equipment also depends on nature of operations like whether handling is temporary or permanent, whether the flow is continuous or intermittent and material flow patternvertical or horizontal. ENGINEERING FACTORS Selection of equipment also depends on engineering factors like door and ceiling dimensions, floor space, floor conditions and structural strength. EQUIPMENT RELIABILITY Reliability of the equipment and supplier reputation and the after sale service also plays an important role in selecting material handling equipments.
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MATERIAL HANDING EQUIPMENTS

Broadly material handling equipments can be classified into two categories, namely: (a) Fixed path equipments, (b) Variable path equipments. (a) Fixed path equipments which move in a fixed path. Conveyors, monorail devices, chutes and pulley drive equipments belong to this category. A slight variation in this category is provided by the overhead crane, which though restricted, can move materials in any manner within a restricted area by virtue of its design. Overhead cranes have a very good range in terms of hauling tonnage and are used for handling bulky raw materials, stacking and at times 112 palletizing.

(b) Variable path equipments have no restrictions in the direction of movement although their size is a factor to be given due consideration trucks, forklifts mobile cranes and industrial tractors belong to this category. Forklifts are available in many ranges, they are maneuverable and various attachments are provided to increase their versatility. Material Handing Equipments may be classified in five major categories. 1. Conveyors 2. Industrial Trucks 3. Cranes and Hoists 4. Containers 5. Robots
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GUIDELINES FOR EFFECTIVE UTILISATION OF MATERIAL HANDLING EQUIPMENTS 1. As material handling adds no value but increases the production cycle time, eliminate handling wherever possible. Ideally there should not be any handling at all! 2. Sequence the operations in logical manner so that handling is unidirectional and smooth. 3. Install a regular preventive maintenance programme for material handling equipments so that downtime is minimum. 4. In selection of handling equipments, criteria of versatility and adaptability must be the governing factor. This will ensure that investments in special purpose handling equipments are kept at a minimum. 5. Weight of unit load must be maximum so that each handling trip is 114 productive.

6. Work study aspects, such a elimination of unnecessary movements and combination of processes should be considered while installing a material handling system. 7. Location of stores should be as close as possible to the plant which uses the materials. This avoids handling and minimizing investment in material handling system. 8. Application of OR techniques such as queuing can be very effective in optimal utilization of materials handling equipments. 9. A very important aspect in the design of a material handling system is the safety aspect. The system designed should be simple and safe to operate. 10. Avoid any wasteful movements-method study can be conducted for this purpose. 11. 14. Ensure proper coordination through judicious selection of equipments and training of workmen.
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RELATIONSHIP BETWEEN PLANT LAYOUT AND MATERIAL HANDLING

There is a close relationship between plant layout and material handling. A good layout ensures minimum material handling and eliminates rehandling in the following ways:
1. Material movement does not add any value to the product so, the material handling should be kept at minimum though not avoid it. This is possible only through the systematic plant layout. Thus a good layout minimizes handling. The productive time of workers will go without production if they are required to travel long distance to get the material tools, etc. Thus a good layout ensures minimum travel for workman thus enhancing the production time and eliminating the hunting time and travelling time. Space is an important criterion. Plant layout integrates all the movements of men, material through a well designed layout with material handling system. Good plant layout helps in building efficient material handling system. It helps to keep material handling shorter, faster and economical. 116

2.

3. 4.

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

Materials management is defined as the function responsible for the coordination of planning, sourcing, purchasing, moving, storing and controlling materials in an optimum manner so as to provide a pre-decided service to the customer at a minimum cost.

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FUNCTIONS
From the definition it is clear that the scope of materials management is vast. The functions of materials management can be categorized in the following ways:
1. 2. 3. 4. 5. 6. 7. 8. 9. Material Planning and Control Purchasing Stores Management Inventory Control or Management Standardization Simplification Value Analysis Erogonomics Just-in-Time (JIT)
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Scope of materials management

1. Materials planning and control: Based on the sales forecast and production plans, the materials planning and control is done. This involves estimating the individual requirements of parts, preparing materials budget, forecasting the levels of inventories, scheduling the orders and monitoring the performance in relation to production and sales. 2. Purchasing: This includes selection of sources of supply finalization in terms of purchase, placement of purchase orders, follow-up, maintenance of smooth relations with suppliers, approval of payments to suppliers, evaluating 121 and rating suppliers.

3. Stores management or management: This involves physical control of materials, preservation of stores, minimization of obsolescence and damage through timely disposal and efficient handling, maintenance of stores records, proper location and stocking. A store is also responsible for the physical verification of stocks and reconciling them with book figures. A store plays a vital role in the operations of a company. 4. Inventory control or management: Inventory generally refers to the materials in stock. It is also called the idle resource of an enterprise. Inventories represent those items, which are either stocked for sale or they are in the process of manufacturing or they are in the form of materials, which are yet to be utilized.
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5. Other related activities (3S) (i) Standardization: Standardization means producing maximum variety of products from the minimum variety of materials, parts, tools and processes. It is the process of establishing standards or units of measure by which extent, quality, quantity, value, performance etc. may be compared and measured. (ii) Simplification: The concept of simplification is closely related to standardization. Simplification is the process of reducing the variety of products manufactured. Simplification is concerned with the reduction of product range, assemblies, parts, materials and design. (iii) Specifications: It refers to a precise statement that formulizes the requirements of the customer. It may relate to a product, process or a 123 service.

(b) Value analysis: Value analysis is concerned with the costs added due to inefficient or unnecessary specifications and features. It makes its contribution in the last stage of product cycle, namely, the maturity stage. At this stage research and development no longer make positive contributions in terms of improving the efficiency of the functions of the product or adding new functions to it. (c) Ergonomics (Human Engineering): The human factors or human engineering is concerned with man-machine system. Ergonomics is the design of human tasks, man-machine system, and effective accomplishment of the job, including displays for presenting information to human sensors, controls for human operations and complex manmachine systems. Each of the above functions are dealt in detail.
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MATERIAL PLANNING AND CONTROL

Material planning is a scientific technique of determining in advance the requirements of raw materials, ancillary parts and components, spares etc. as directed by the production programme. It is a sub-system in the overall planning activity. There are many factors, which influence the activity of material planning. These factors can be classified as macro and micro systems.
1. Macro factors: Some of the micro factors which affect material planning, are price trends, business cycles Govt. import policy etc. 2. Micro factors: Some of the micro factors that affect material planning are plant capacity utilization, rejection rates, lead times, inventory levels, working capital, delegation of powers 125 and communication.

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The basis for material planning is the forecast demand for the end products. Forecasting techniques such as weighted average method, exponential smoothening and time series models are used for the same. Once the demand forecast is made, it is possible go through the excercise of material planning. Bill of materials is a document which shows list of materials required, unit consumption location code for a given product.

An explosive chart is a series of bill of material grouped in a matrix form so that combined requirements for different components can be done requirements of various materials are arrives at from the demand forecast, using bill of materials, through explosion charts.
Thus material requirement plan will lead to be the development of delivery schedule of the materials and purchasing of those material 127 requirements.

PURCHASING
Purchasing is an important function of materials management. In any industry purchase means buying of equipments, materials, tools, parts etc. required for industry.
The importance of the purchase function varies with nature and size of industry. In small industry, this function is performed by works manager and in large manufacturing concern; this function is done by a separate department. The moment a buyer places an order he commits a substantial portion of the finance of the corporation which affects the working capital and cash flow position. 128

Objectives of Purchasing
1. To avail the materials, suppliers and equipments at the minimum possible costs. 2. To ensure the continuous flow of production through continuous supply of raw material. 3. To increase the asset turnover. 4. To develop an alternative source of supply. 5. To establish and maintain the good relations with the suppliers. 6. To achieve maximum integration with other department of the company 7. To train and develop the personnel 8. Efficient record keeping and management reporting.
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Parameters of Purchasing
The success of any manufacturing activity is largely dependent on the procurement of raw materials of right quality, in the right quantities, from right source, at the right time and at right price popularly known as ten Rs of the art of efficient purchasing. They are described as the basic principles of purchasing. There are other well known parameters such as right contractual terms, right material, right place, right mode of transportation and right attitude are also considered for purchasing.

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Purchasing Procedure

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Selection of Suppliers
Selection of the right supplier is the responsibility of the purchase department. It can contribute substantially to the fundamental objectives of the business enterprise. Different strategies are required for acquiring different types of materials.

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A. SOURCES OF SUPPLIER
The best buying is possible only when the decision maker is familiar with all possible sources of supply and their respective terms and conditions. The purchase department should try to locate the appropriate sources of the supplier of various types of materials. This is known as survey stage. A survey of the following will help in developing the possible sources of supply: 1. Specialized trade directories. 2. Assistance of professional bodies or consultants. 3. The buyers guide or purchase handbook. 4. The manufacturers or distributors catalogue. 5. Advertisements in dailies. 6. Advertisement in specialized trade journals. 134 7. Trade fair exhibitions.

B. DEVELOPMENT OF APPROVED LIST OF SUPPLIERS The survey stage highlights the existence of the source. A business inquiry is made with the appropriate supplier. It is known as Inquiry Stage. Here a short listing is made out of the given sources of suppliers in terms of production facilities and capacity, financial standing, product quality, possibility of timely supply, technical competence, manufacturing efficiency, general business policies followed, standing in the industry, competitive attitude, and interest in buying orders etc.
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C. EVALUATION AND SELECTION OF THE SUPPLIER The purchase policy and procedure differ according to the type of items to be purchased. Hence, evolution and selection of the supplier differ accordingly. The following variables to be considered while evaluating the quotations of the suppliers:
1. Cost Factors Price, transportation cost, installation cost if any, tooling and other operations cost, incidence of sales tax and excise duty, terms of payment and cash discount are considered in cost factor. 2. Delivery Routing and F.O.B. terms are important in determining the point at which the title to the goods passes from vendor to the buyer and the responsibility for the payment of the payment charges.
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3. Design and Specification Factors Specification compliance, specification deviations, specification advantages, important dimensions and weights are considered in line with the demonstration of sample, experience of other users, after sale services etc. 4. Legal Factors Legal factors include warranty, cancellation provision, patent protection, public liability, federal laws and reputation compliance.

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STORES MANAGEMENT
Stores play a vital role in the operations of company. It is in direct touch with the user departments in its day-to-day activities. The most important purpose served by the stores is to provide uninterrupted service to the manufacturing divisions. Further, stores are often equated directly with money, as money is locked up in the stores.

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FUNCTIONS OF STORES
The functions of stores can be classified as follows:
1. To receive raw materials, components, tools, equipments and other items and account for them. 2. To provide adequate and proper storage and preservation to the various items. 3. To meet the demands of the consuming departments by proper issues and account for the consumption. 4. To minimize obsolescence, surplus and scrap through proper codification, preservation and handling. 5. To highlight stock accumulation, discrepancies and abnormal consumption and effect control measures. 6. To ensure good house keeping so that material handling, material preservation, stocking, receipt and issue can be done adequately. 7. To assist in verification and provide supporting information for 139 effective purchase action.

Codification
It is one of the functions of stores management. Codification is a process of representing each item by a number, the digit of which indicates the group, the sub-group, the type and the dimension of the item. Many organizations in the public and private sectors, railways have their own system of codification, varying from eight to thirteen digits. The first two digits represents the major groups, such as raw materials, spare parts, sub-contracted items, hardware items, packing material, tools, oil, stationery etc. The next two digits indicate the sub-groups, such as, ferrous, non-ferrous etc. Dimensional characteristics of length, width, head diameter etc. constitute further three digits and the140 last digit is reserved for minor variations.

Objectives of Codification
The objectives of a rationalized material coding system are: 1. Bringing all items together. 2. To enable putting up of any future item in its proper place. 3. To classify an item according to its characteristics. 4. To give an unique code number to each item to avoid duplication and ambiguity. 5. To reveal excessive variety and promote standardization and variety reduction. 6. To establish a common language for the identification of an item. 7. To fix essential parameters for specifying an item. 8. To specify item as per national and international standards. 9. To enable data processing and analysis.
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Advantages of Codification
1. It enables systematic grouping of similar items and avoids confusion caused by long description of items since standardization of names is achieved through codification. 2. It serves as the starting point of simplification and standardization. 3. It helps in avoiding duplication of items and results in the minimization of the number of items, leading to accurate record. 4. Codification enables easy recognition of an item in stores, thereby reducing clerical efforts to the minimum. If items are coded according to the sources, it is possible to bulk the items while ordering. 5. To maximize the aforesaid advantages, it is necessary to develop the codes as concerned, namely, personnel from design, production, engineering, inspection, maintenance and materials.
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INVENTORY CONTROL OR MANAGEMENT

Inventory generally refers to the materials in stock. It is also called the idle resource of an enterprise. Inventories represent those items which are either stocked for sale or they are in the process of manufacturing or they are in the form of materials, which are yet to be utilized. The interval between receiving the purchased parts and transforming them into final products varies from industries to industries depending upon the cycle time of manufacture. It is, therefore, necessary to hold inventories of various kinds to act as a buffer between supply and demand for efficient operation of the system. Thus, an effective control on inventory is a must for smooth and efficient 143 running of the production cycle with least interruptions.

Reasons for Keeping Inventories

To stabilize production.
The demand for an item fluctuates because of the number of factors, e.g., seasonality, production schedule etc. The inventories (raw materials and components) should be made available to the production as per the demand failing which results in stock out and the production stoppage takes place for want of materials. Hence, the inventory is kept to take care of this fluctuation so that the production is smooth.

To take advantage of price discounts.

Usually the manufacturers offer discount for bulk buying and to gain this price advantage the materials are bought in bulk even though it is not required immediately. Thus, inventory is maintained to gain economy in purchasing.

To meet the demand during the replenishment period.

The lead time for procurement of materials depends upon many factors like location of the source, demand supply condition, etc. So inventory is maintained to meet the 144 demand during the procurement (replenishment) period.

To prevent loss of orders (sales).

In this competitive scenario, one has to meet the delivery schedules at 100 per cent service level, means they cannot afford to miss the delivery schedule which may result in loss of sales. To avoid the organizations have to maintain inventory.

To keep pace with changing market conditions.

The organizations have to anticipate the changing market sentiments and they have to stock materials in anticipation of non-availability of materials or sudden increase in prices.

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Meaning of Inventory Control

Inventory control is a planned approach of determining what to order, when to order and how much to order and how much to stock so that costs associated with buying and storing are optimal without interrupting production and sales. Inventory control basically deals with two problems: (i) When should an order be placed? (Order level), and (ii) How much should be ordered? (Order quantity).

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Objectives of Inventory Control

1. To ensure adequate supply of products to customer and avoid shortages as far as possible. 2. To make sure that the financial investment in inventories is minimum (i.e., to see that the working capital is blocked to the minimum possible extent). 3. Efficient purchasing, storing, consumption and accounting for materials is an important objective. 4. To maintain timely record of inventories of all the items and to maintain the stock within the desired limits. 5. To ensure timely action for replenishment. 6. To provide a reserve stock for variations in lead times of delivery of materials. 7. To provide a scientific base for both short-term and long-term 147 planning of materials.

Benefits of Inventory Control

It is an established fact that through the practice of scientific inventory control, following are the benefits of inventory control: 1. Improvement in customers relationship because of the timely delivery of goods and service. 2. Smooth and uninterrupted production and, hence, no stock out. 3. Efficient utilization of working capital. Helps in minimizing loss due to deterioration, obsolescence damage and pilferage. 4. Economy in purchasing. 148 5. Eliminates the possibility of duplicate ordering.

Techniques of Inventory Control

In any organization, depending on the type of business, inventory is maintained. When the number of items in inventory is large and then large amount of money is needed to create such inventory, it becomes the concern of the management to have a proper control over its ordering, procurement, maintenance and consumption. The control can be for order quality and order frequency.
The different techniques of inventory control are: 1. ABC analysis, 2. HML analysis, 3. VED analysis, 4. FSN analysis, 5. SDE analysis, 6. GOLF analysis and 7. SOS analysis. The most widely used method of inventory control is known as ABC analysis.

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STANDARDIZATION
Standardization means producing maximum variety of products from the minimum variety of materials, parts, tools and processes. It is the process of establishing standards or units of measure by which extent, quality, quantity, value, performance etc., may be compared and measured. Benefits to Manufacturing Department
1. Lower unit cost. 2. Better quality products. 3. Better methods and tooling. 4. Increased interchangeability of parts. 5. Better utilization of manpower and equipment. 6. Accurate delivery dates. 7. Better services of production control, stock control, purchasing, etc. 8. More effective training.

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SIMPLIFICATION
The concept of simplification is closely related to standardization. Simplification is the process of reducing the variety of products manufactured. Simplification is concerned with the reduction of product range, assemblies, parts, materials and design.

Advantages of Simplification
1. Simplification involves fewer, parts, varieties and changes in products; this reduces manufacturing operations and risk of obsolescence. 2. Simplification reduces variety, volume of remaining products may be increased. 3. Simplification provides quick delivery and better after-sales services. 4. Simplification reduces inventory and thus results in better inventory control. 5. Simplification lowers the production costs. 6. Simplification reduces price of a product. 7. Simplification improves product quality. 151

VALUE ANALYSIS
Value analysis is defined as an organized creative approach which has its objective, the efficient identification of unnecessary cost-cost which provides neither quality nor use nor life nor appearance nor customer features. Value analysis focuses engineering, manufacturing and purchasing attention to one objective equivalent performance at a lower cost. Value analysis is concerned with the costs added due to inefficient or unnecessary specifications and features. Value is not inherent in a product, it is a relative term, and value can change with time and place. It can be measured only by comparison with other products which perform the same function. Value is the relationship between what someone wants and what he is willing to pay for it. Value = Function Cost 152

Value Analysis Framework

The basic framework for value analysis approach is formed by the following questions, as given by Lawrence D. Miles: 1. What is the item? 2. What does it do? 3. What does it cost? 4. What else would do the job? 5. What would the alternative cost be? Value analysis requires these questions to be answered for the successful implementation of the technique.

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Steps in Value Analysis

Identifying the function: Any useful product has some primary function which must be identifieda bulb to give light, a refrigerator to preserve food, etc. In addition it may have secondary functions such as withstanding shock, etc. These two must be identified. Evaluation of the function by comparison: Value being a relative term, the comparison approach must be used to evaluate functions. The basic question is, Does the function accomplish reliability at the best cost and can be answered only comparison. Develop alternatives: Realistic situations must be faced, objections should overcome and effective engineering manufacturing and other alternatives must be developed.

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ERGONOMICS (HUMAN ENGINEERING)

The application of human biological sciences along with engineering sciences to achieve optimum mutual adjustment of men and his work, the benefits being measured in terms of human efficiency and well-being. The design of human tasks, man-machine system, and effective accomplishment of the job, including displays for presenting information to human sensors, controls for human operations and complex manmachine systems.
Human engineering focuses on human beings and their interaction with products, equipment facilities and environments used in the work. Human engineering seeks to change the things people use and the environment in which they use the things to match in a better way the capabilities, limitations and needs of people. 155

JUST-IN-TIME (JIT) MANUFACTURING

According to Voss, JIT is viewed as a Production methodology which aims to improve overall productivity through elimination of waste and which leads to improved quality. JIT provides an efficient production in an organization and delivery of only the necessary parts in the right quantity, at the right time and place while using the minimum facilities. The phase just in time is used to because this system operates with low WIP (Work-In-Process) inventory and often with very low finished goods inventory. Products are assembled just before they are sold, subassemblies are made just before they are assembled and components are made and fabricated just before subassemblies are made. This leads to lower WIP and reduced lead times. To achieve this organizations have to be excellent in other areas e.g. quality.
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Seven Wastes

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Benefits of JIT
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Product costis greatly reduced due to reduction of manufacturing cycle time, reduction of waste and inventories and elimination of non-value added operation. Qualityis improved because of continuous quality improvement programmes. DesignDue to fast response to engineering change, alternative designs can be quickly brought on the shop floor. Productivity improvement. Higher production system flexibility. Administrative and ease and simplicity.
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