NHU-601: INDUSTRIAL MANAGEMENT
LTP
200
Unit-I
Introduction: Concept, Development, application and scope of Industrial
Management.
Productivity: Definition, measurement, productivity index, types of
production system, Industrial Ownership.
Unit-II
Management Function: Principle of Management – Time and motion study,
work simplification – process charts and flow diagrams, Production Planning
Unit-III
Inventory Control: Inventory, Cost, Deterministic Models, Introduction to
supply chain management.
Unit-IV
Quality Control: Process control, SQC, Control charts, Single, Double and
Sequential Sampling, Introduction to TQM.
1
UNIT 1
2
MANAGEMENT
• Management is an art of getting things done through people
•
Management is a process of accomplishing certain objectives through the utilization of
human and other resources.
•
Management is the creation and maintenance of an internal environment in an enterprise
where individual, working in groups, can perform efficiently and effectively towards
attainment of group goals.
Management as a process
IMPORTANCE OF MANAGEMENT
• For the accomplishment of the goals.
• For effective utilization of the resources.
• Sound Organization.
• Providing vision &Foresight.
• For the harmony in work.
• To help employees in achieving personal objective.
• Development of the society and nation.
MEANING OF INDUSTRIAL MANAGEMENT
Industrial Management in Engineering
•Industrial management, as a branch of engineering facilitates creation of management systems
and integrates the same with people and their activities to productively utilize the resources.
•The subject emphasizes studying the performance of machines and so also the people.
•Industrial management, therefore, in the structured approach to manage the operational
activities of an organization.
Concept of Industrial Management
•Application of Management theories &concepts are now all pervasive and all encompassing.
•With Best engineering skills and knowledge, professional cannot just sustain
operational issues require application of management techniques.
since any
•Any engineer by professional so a manager, as engineers also qualify in the classical test of
managerial roles, interpersonal roles, and informational roles and decisional role


Industrial Management refers to the efforts of a group of individuals towards
achieving some common objective and goals of the industry in general and an
organization in particular. Industrial Management thus involves guidance, coordination and control or efforts of a group of individuals towards optimum utilization
of material, equipment and energy through improved design, analysis and
implementation in order to achieve common objectives of the industry.
OBJECTIVES OF INDUSTRIAL MANAGEMENT
The ultimate objective of industrial management is to produce the right quantity of right quality
goods at the right time. These are attained through :
(l) Manufacturing Costs: The unit cost of the product should be estimated carefully and
every effort should be made to stick to the cost standards. For this purpose, the efforts
should be made to segregate the costs into two-direct costs and variable costs. Efforts
should be made for the following:
(i) Reduction in the variable costs.
(ii) Reduction in the fixed costs.
(iii) Increase in the volume of production, so that the frxed costs may be
spread over more production resulting in the reduction in the per unit
absorption.
(iv) The allocation of the fixed overheads should be made on scientific basis.
(2) Machinery and Equipment : The objectives in the area of machinery and equipment are
divided into :
(i) Selection and acquisition of machinery and equipment according to
production process.
(ii) Utilization of machinery and equipment. The adequacy of the existing machinery should be
considered and proper additions and replacements should be made according to the requirements.
Efforts should also be made to increase the utilization rate of machinery through repair
maintenance and maximum occupancy of the machines
(3) Materials : The materials objectives must be prescribed in terms of units, rupee value and
space requirements. The per unit materials costs should be specifred and efforts should be made
to increase the inventory turnover of all types of inventories-raw materials, work-in-progress and
finished goods.
(4) Manpower: Manpower is an important as well as typical input in manufacturing activities.
So the objectives of the production activities are as regards manpower must be closely allied
with the objectives of selection, placement, training, rewarding and utilization of manpower.
3
Usually, these objectives are considered in terms of employee turnover rates, safety
measurements, industrial relations, absenteeism, etc.
(5) Manufacturing Services: The provision of proper and adequate services directly affects the
utilization of other inputs such as men, machines and materials. Proper objectives should be set
for the installation of important facilities such as power, water supply, material handling, etc. In
a condensed form, it can be stated that the objectives of the manufacturing activities are-to
manufacture a quality product on schedule, at the lowest possible costs, with maximum asset
turnover, to achieve consumer satisfaction. This statement is closely related to the ultimate and
intermediate objectives of the production function.
(6) Product Quality : Generally, the product quality standards are often established by the
product specifications or by the consumers. The manufacturing organization should try to
translate such quality prescriptions into some measurable objectives. It should be noted that the
product quality comes in conflict with the manufacturing cost objective and the manufacturing
time-schedule. The maintenance of the quality should not result in increase in manufacturing
costs or delay in the production. A proper balance must be maintained between quality and cost
as well as quality and time-schedule.
(7) Manufacturing Schedule: There are many forces which compel side-tracking in the
manufacturing activity. The time schedule should not be set for the shipment alone; it should be
broken up into all the sub-systems like operating cycle time, inventory turnover rate, machine
utilization rate, direct and indirect man-hours per unit, capacity utilization, machine and Iabour
idle time, set-up, repair and maintenance time, etc. Time schedule objective directly affects the
cost, quality and the goodwill of the business in terms of regularity of shipment.
APPLICATION & SCOPE OF INDUSTRIAL MANAGEMENT
•Initially the scope & application of industrial management was restricted to manufacturing
industry. Later on it spread to non-manufacturing activities such as construction &
transportation, farm and air-line operations and maintenance, public utilities govt. & military
operations.
•In an industry besides the production, other departments utilizing industrial management
concepts are Marketing, Finance, Purchasing, Industrial relations etc.
SCOPE
•
•
•
•
•
•
Industry Planning
Industry Organization
Factory Management
Materials Management
Labor Administration
Industry Control
4
Application
5
 Planning Function
•
For Designing Conversion System
•
For Scheduling Conversion System
 Organizing Function
•
Structuring of Operation Staffing
•
Job & Work Design.
•
For Production & Operation Standard.
•
For Payment system.
 Controlling Function
•
Quality
•
Quantity
•
Time
•
Inventory
•
Cost
•
Maintenance
NEED OF INDUSTRIAL MANAGEMENT
•
To ensure maximum output with minimum cost of production.
•
To ensure that activities of different individuals are coordinated to attain the common
purpose in the factory.
•
Goods are produced and delivered on the promised dates.
•
Goods are manufactured in strict specification of customer’s orders.
•
Proper accounting, reporting and controlling the operations in the factory.
•
To prevent wastage and losses.
•
Quality products.
•
Utilization of full capacity of the factory.
•
Innovation
IMPORTANCE OF INDUSTRIAL MANAGEMENT
(l) The Consumers.' The consumers benefits from higher productivity, better and
reliable quality, reasonable price, satisfactory service and timely delivery of goods.
(2) The Investors.' The investors get higher return on investment and their investments
obtain capital appreciation also. Market value of securities is governed by the earning
power and asset value ofthe business.
(3) The Community.' When all business which are operating in the community are
prosperous, due to industrial management, we have economic and social stability and
the citizens of that community have pride and satisfaction.
(4) The Suppliers.' Small or large companies depend upon other companies as
sources of raw materials, Components and services. We have effective co-operation,
best inter communication and mutual confidence between the business buyers and their
suppliers. The company and its suppliers can have enduring partnership for the
satisfaction ofboth.
(5') The Employees.' The employees including the management get higher
remuneration, stable employment, security of jobs, better working conditions and above
all enhanced personal satisfaction through joy of achievement. High employee morale
due to job satisfaction gives higher output.
(6) The Nation.. When all industries in the national economic system demonstrate
industrial management, the entire national economy wiil accomplish all round security
and prosperity.
DEVELOPMENT OF INDUSTRIAL MANAGEMENT.
6
7
Scientific
Management
1880 to 1940
period
1. In
1924,
W.A
Shewart
8
developed the concept of
Statistical Quality Control.
2. Ralph
M.
Barnes
submitted his Ph.D thesis
in 1933 on Work Study.
3. Dr. Lillian Gilbreth also
worked on human aspect
of engineering.
Operation Research & Quantitative
1950-1970
techniques in Management
1. Operation
Mathematical
tools
were
Research
&
used
,
statistical
in
the
production system.
2. 1961: Application of Robots
in manufacturing.
3. 1965: Flexible manufacturing
concept.
Automation & Computer Integrated
Manufacturing
1970-2000
1. EnterpriseResource Planning.
2. E-Commerce
3. Material Chain Management
Automated Factory of 21st Century
2001-till date
9
1. High
automation
and
completely robotics factory.
2. The
sub
system
of
a
production system will be
completely computerized.
3. Subsystem –
a) Product design
b) process Planning
c)
Machine
tool
operation
d) Material Handling
e) Inventory control &
Quality control
Three Basic Approaches :
•
Classical Approach
•
Neo Classical
•
System Approach
Classical Approach:Contributions
•
Emphasis on division of work, specialization and processes.
•
Efficiency of the organization can be increased by making each individual efficient.
•
Based on centralization of authority
Criticism
•
Ignores human relations
•
Strict rules and regulations
•
Closed system organization
Neo Classical Approach
Contributions
•
Social System
•
Social Environment
•
Leadership
•
Communication
Criticism
•
Limited Application
•
Lack of scientific Validity
•
Invalid Assumption
•
Fragmental Approach
Systems Approach
Contribution
•
Interacting Elements
•
Vulnerable to changes in the Environment.
Critics
•
Failed to specify the nature of Interaction and Interdependencies.
•
Does not apply tools and techniques for analysis.
10
 Bureaucratic Theory
•Max Weber had advocated the necessity of a formal organizational structure
with set rules and regulations. Weber’s concept Is intended to remove ambiguity,
inefficiencies, and patronage.
 Scientific Management Approach
•Taylor emphasized following points to achieve organizational efficiency
–Develop scientific way of performing jobs.
–Train and develop workers to perform the job.
–Establish harmonious relation between management and workers.
•Taylor suggested two important practices:
–Piece rate incentive system.
–Time and motion study.
Piece rate system rewards the workers who produce the maximum output.
Timestudy helps in determination of time required, recording analyzing and synthesizing the
time elements of each operation.
Motionstudy on the other hand involves study of movements in doing jobs in parts and
eliminates wasteful movements and retains only necessary movements. It makes a job simpler,
easier and better.
Time and motion study concepts were developed by F.W.Taylor in association with Frank and
Lillian Gilberth.
Gilberth conducted research on motion studies. They had classified 17 basic hand motions like
search, select, position, hold etc. They called this Therbligs. Their approach helps to analyse the
exact elements of a workers’ hand movement.
Henry gantt worked with Taylor. His contributions are introduction of task and bonus plan, and
gantt chart. As per his incentive plan worker gets daily wage even if he does not complete his
job , but gets bonus if the jobs is completed in less than normal time.
Gantt chart isused for production control indicating progress of production in terms of time.
Drawback of Scientific Management Approach
•Scientific Management principles revolve around operational level problems do not focus on
managerial issues essential for managing organization.
•This theory also ignores the human desire for job satisfaction.
11
 Administrative Theory
•Administrative Theory another part of classical school of thought focuses on principles to
coordinate the internal activities of the organization. Henry Fayolclassified business operations
into 6 activities.
–Technical:Activities relating to production and manufacturing.
–Commercial :Activities relating to buying selling and exchange.
–Financial:Activities ensuring optimal use of capital.
–Security:Activities to ensure protection to employees and property.
–Accounting:Activities concern with costs, profits, liabilities, balance sheet.
–Managerial:It is functional approach to management. i.e. planning,organizing, directing,
coordinating and controlling.
There are 14 Principles of Management described by Henri Fayol.
1. Division of Labor
a. Henri Fayol has stressed on the specialization of jobs.
b. He recommended that work of all kinds must be divided & subdivided and
allotted to various persons according to their expertise in a particular area.
c. Subdivision of work makes it simpler and results in efficiency.
d. It also helps the individual in acquiring speed, accuracy in his performance.
e. Specialization leads to efficiency & economy in spheres of business.
2. Party of Authority & Responsibility
a. Authority & responsibility are co-existing.
b. If authority is given to a person, he should also be made responsible.
c. In a same way, if anyone is made responsible for any job, he should also have
concerned authority.
d. Authority refers to the right of superiors to get exactness from their sub-ordinates
whereas responsibility means obligation for the performance of the job assigned.
e. There should be a balance between the two i.e. they must go hand in hand.
f. Authority without responsibility leads to irresponsible behavior whereas
responsibility without authority makes the person ineffective.
3. Principle of One Boss
a. A sub-ordinate should receive orders and be accountable to one and only one boss
at a time.
b. In other words, a sub-ordinate should not receive instructions from more than one
person because -
It undermines authority
Weakens discipline
Divides loyalty
Creates confusion
Delays and chaos
12
- Escaping responsibilities
- Duplication of work
- Overlapping of efforts
13
c. Therefore, dual sub-ordination should be avoided unless and until it is absolutely
essential.
d. Unity of command provides the enterprise a disciplined, stable & orderly
existence.
e. It creates harmonious relationship between superiors and sub-ordinates.
4. Unity of Direction
a. Fayol advocates one head one plan which means that there should be one plan for
a group of activities having similar objectives.
b. Related activities should be grouped together. There should be one plan of action
for them and they should be under the charge of a particular manager.
c. According to this principle, efforts of all the members of the organization should
be directed towards common goal.
d. Without unity of direction, unity of action cannot be achieved.
e. In fact, unity of command is not possible without unity of direction.
Basis
Unity of command
Unity of direction
Meaning
It implies that a sub-ordinate should
receive orders & instructions from only
one boss.
It means one head, one plan for a
group of activities having similar
objectives.
Nature
It is related to the functioning of
personnel’s.
It is related to the functioning of
departments, or organization as a
whole.
Necessity
It is necessary for fixing responsibility of
each subordinates.
It is necessary for sound organization.
Advantage
It avoids conflicts, confusion & chaos.
It avoids duplication of efforts and
wastage of resources.
Result
It leads to better superior sub-ordinate
relationship.
It leads to smooth running of the
enterprise.
Therefore it is obvious that they are different from each other but they are dependent on each
other i.e. unity of direction is a pre-requisite for unity of command. But it does not automatically
comes from the unity of direction.
5. Equity
a. Equity means combination of fairness, kindness & justice.
b. The employees should be treated with kindness & equity if devotion is expected
of them.
c. It implies that managers should be fair and impartial while dealing with the
subordinates.
d. They should give similar treatment to people of similar position.
e. They should not discriminate with respect to age, caste, sex, religion, relation etc.
f. Equity is essential to create and maintain cordial relations between the managers
and sub-ordinate.
g. But equity does not mean total absence of harshness.
h. Fayol was of opinion that, “at times force and harshness might become necessary
for the sake of equity”.
6. Order
a. This principle is concerned with proper & systematic arrangement of things and
people.
b. Arrangement of things is called material order and placement of people is called
social order.
c. Material order- There should be safe, appropriate and specific place for every
article and every place to be effectively used for specific activity and commodity.
d. Social order- Selection and appointment of most suitable person on the suitable
job. There should be a specific place for every one and everyone should have a
specific place so that they can easily be contacted whenever need arises.
7. Discipline
a. According to Fayol, “Discipline means sincerity, obedience, respect of authority
& observance of rules and regulations of the enterprise”.
b. This principle applies that subordinate should respect their superiors and obey
their order.
c. It is an important requisite for smooth running of the enterprise.
d. Discipline is not only required on path of subordinates but also on the part of
management.
e. Discipline can be enforced if - There are good superiors at all levels.
- There are clear & fair agreements with workers.
- Sanctions (punishments) are judiciously applied.
8. Initiative
a. Workers should be encouraged to take initiative in the work assigned to them.
b. It means eagerness to initiate actions without being asked to do so.
c. Fayol advised that management should provide opportunity to its employees to
suggest ideas, experiences& new method of work.
d. It helps in developing an atmosphere of trust and understanding.
e. People then enjoy working in the organization because it adds to their zeal and
energy.
f. To suggest improvement in formulation & implementation of place.
g. They can be encouraged with the help of monetary & non-monetary incentives.
14
9. Fair Remuneration
a. The quantum and method of remuneration to be paid to the workers should be
fair, reasonable, satisfactory & rewarding of the efforts.
b. As far as possible it should accord satisfaction to both employer and the
employees.
c. Wages should be determined on the basis of cost of living, work assigned,
financial position of the business, wage rate prevailing etc.
d. Logical & appropriate wage rates and methods of their payment reduce tension &
differences between workers & management creates harmonious relationship and
pleasing atmosphere of work.
e. Fayol also recommended provision of other benefits such as free education,
medical & residential facilities to workers.
10. Stability of Tenure
a. Fayol emphasized that employees should not be moved frequently from one job
position to another i.e. the period of service in a job should be fixed.
b. Therefore employees should be appointed after keeping in view principles of
recruitment & selection but once they are appointed their services should be
served.
c. According to Fayol. “Time is required for an employee to get used to a new work
& succeed to doing it well but if he is removed before that he will not be able to
render worthwhile services”.
d. As a result, the time, effort and money spent on training the worker will go waste.
e.
Stability of job creates team spirit and a sense of belongingness among workers which
ultimately increase the quality as well as quantity of work.
11. Scalar Chain
a. Fayol defines scalar chain as ’The chain of superiors ranging from the ultimate
authority to the lowest”.
b. Every orders, instructions, messages, requests, explanation etc. has to pass
through Scalar chain.
c. But, for the sake of convenience & urgency, this path can be cut shirt and this
short cut is known as Gang Plank.
d. A Gang Plank is a temporary arrangement between two different points to
facilitate quick & easy communication as explained below:
15
In the figure given, if D has to communicate with G he will first send the
communication upwards with the help of C, B to A and then downwards with the
help of E and F to G which will take quite some time and by that time, it may not
be worth therefore a gang plank has been developed between the two.
e. Gang Plank clarifies that management principles are not rigid rather they are
very flexible. They can be moulded and modified as per the requirements of
situations
12. Sub-Ordination of Individual Interest to General Interest
a. An organization is much bigger than the individual it constitutes therefore interest
of the undertaking should prevail in all circumstances.
b. As far as possible, reconciliation should be achieved between individual and
group interests.
c. But in case of conflict, individual must sacrifice for bigger interests.
d. In order to achieve this attitude, it is essential that - Employees should be honest & sincere.
- Proper & regular supervision of work.
- Reconciliation of mutual differences and clashes by mutual agreement.
For example, for change of location of plant, for change of profit sharing
ratio, etc.
13. Espirit De’ Corps (can be achieved through unity of command)
a. It refers to team spirit i.e. harmony in the work groups and mutual understanding
among the members.
b. Spirit De’ Corps inspires workers to work harder.
c. Fayol cautioned the managers against dividing the employees into competing
groups because it might damage the moral of the workers and interest of the
undertaking in the long run.
d. To inculcate Espirit De’ Corps following steps should be undertaken  There should be proper co-ordination of work at all levels
 Subordinates should be encouraged to develop informal relations among
themselves.
 Efforts should be made to create enthusiasm and keenness among
subordinates so that they can work to the maximum ability.
 Efficient employees should be rewarded and those who are not up to the
mark should be given a chance to improve their performance.
 Subordinates should be made conscious of that whatever they are doing is
of great importance to the business & society.
e. He also cautioned against the more use of Britain communication to the
subordinates i.e. face to face communication should be developed. The managers
should infuse team spirit & belongingness. There should be no place for
misunderstanding. People then enjoy working in the organization & offer their
best towards the organization.
14. Centralization & De-Centralization
16
a. Centralization means concentration of authority at the top level. In other words,
centralization is a situation in which top management retains most of the decision
making authority.
b. Decentralization means disposal of decision making authority to all the levels of
the organization. In other words, sharing authority downwards is decentralization.
c. According to Fayol, “Degree of centralization or decentralization depends on no.
of factors like size of business, experience of superiors, dependability & ability of
subordinates etc.
d. Anything which increases the role of subordinate is decentralization & anything
which decreases it is centralization.
e. Fayol suggested that absolute centralization or decentralization is not feasible. An
organization should strike to achieve a lot between the two.
Neo Classical School of Thought
•This school of thought lays emphasis on human elements in an organization.
•Max Parker Follett recognized the significance of human elements, attributed greater
significance to the functioning of groups in work place.
•Elton Mayo father of Human Relations Approach, conducted the study to evaluate the
attitudes and psychological reactions of workers in on the job situations.
•Maslow’s focus was on importance of human needs driving force for motivation.
•Mc Gregor has made assumption about people categorizing them as under
–Theory X People are by nature lazy, have little ambition, dislike work, avoid responsibility.
–Theory Y People are more positive, innovative, creative and do not dislike work. Chris
Argyris’s contributions are maturity–immaturity theory, integration of individual and
organizational goals.
Modern Approaches
•
These approaches are classified as
I.System Theory Approach.
II.The Contingency Theory.
System Theory Approach
17
•It considers organization as a whole because of interdependent nature of activities requiring
organization to interact with external environment factors.
Contingency Theory Approach
•
This Approach discards the concept of universality in management principles and determines
managerial decisions considering situational factors.
•Contingency theory and System theory together are classified as integrative school of
management thought because these two theories integrate the classical, behavioral and
quantitative theories and uses only the best of each approach in a given situation.
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.
Fig. Schematic production system
PRODUCTION SYSTEM
18
The production system of an organization is that part, which produces products of an
19
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. Production is an organized activity, so every production system has an objective.
2. The system transforms the various inputs to useful outputs.
3. It does not operate in isolation from the other organization system.
4. There exists a feedback about the activities, which is essential to control and improve
system performance.
Classification of Production System
Production systems can be classified as Job Shop, Batch, Mass and Continuous Production
systems.
Fig. Classification of production systems
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.
Characteristics
The Job-shop production system is followed when there is:
1. High variety of products and low volume.
2. Use of general purpose machines and facilities.
3. Highly skilled operators who can take up each job as a challenge because of uniqueness.
4. Large inventory of materials, tools, parts.
5. Detailed planning is essential for sequencing the requirements of each product, capacities
for each work centre and order priorities.
Advantages
Following are the advantages of job shop production:
1. Because of general purpose machines and facilities variety of products can be produced.
2. Operators will become more skilled and competent, as each job gives them learning
opportunities.
3. Full potential of operators can be utilised.
4. Opportunity exists for creative methods and innovative ideas.
Limitations
Following are the limitations of job shop production:
1. Higher cost due to frequent set up changes.
2. Higher level of inventory at all levels and hence higher inventory cost.
3. Production planning is complicated.
4. Larger space requirements.
BATCH PRODUCTION
Batch production is defined by American Production and Inventory Control Society (APICS) “as
a form of manufacturing in which the job passes through the functional departments in lots or
batches and each lot may have a different routing.” It is characterised by the manufacture of
limited number of products produced at regular intervals and stocked awaiting sales.
Characteristics
Batch production system is used under the following circumstances:
1. When there is shorter production runs.
2. When plant and machinery are flexible.
3. When plant and machinery set up is used for the production of item in a batch and change
of set up is required for processing the next batch.
4. When manufacturing lead time and cost are lower as compared to job order production.
Advantages
Following are the advantages of batch production:
1. Better utilisation of plant and machinery.
2. Promotes functional specialisation.
3. Cost per unit is lower as compared to job order production.
4. Lower investment in plant and machinery.
5. Flexibility to accommodate and process number of products.
6. Job satisfaction exists for operators.
Limitations
Following are the limitations of batch production:
20
1.
2.
3.
4.
Material handling is complex because of irregular and longer flows.
Production planning and control is complex.
Work in process inventory is higher compared to continuous production.
Higher set up costs due to frequent changes in set up.
MASS PRODUCTION
Manufacture of discrete parts or assemblies using a continuous process are called mass
production. This production system is justified by very large volume of production. The
machines are arranged in a line or product layout. Product and process standardization exists and
all outputs follow the same path.
Characteristics
Mass production is used under the following circumstances:
1. Standardization of product and process sequence.
2. Dedicated special purpose machines having higher production capacities and output rates.
3. Large volume of products.
4. Shorter cycle time of production.
5. Lower in process inventory.
6. Perfectly balanced production lines.
7. Flow of materials, components and parts is continuous and without any back tracking.
8. Production planning and control is easy.
9. Material handling can be completely automatic.
Advantages
Following are the advantages of mass production:
1. Higher rate of production with reduced cycle time.
2. Higher capacity utilization due to line balancing.
3. Less skilled operators are required.
4. Low process inventory.
5. Manufacturing cost per unit is low.
Limitations
Following are the limitations of mass production:
1. Breakdown of one machine will stop an entire production line.
2. Line layout needs major change with the changes in the product design.
3. High investment in production facilities.
4. The cycle time is determined by the slowest operation.
CONTINUOUS PRODUCTION
Production facilities are arranged as per the sequence of production operations from the first
operations to the finished product. The items are made to flow through the sequence of
operations through material handling devices such as conveyors, transfer devices, etc.
Characteristics
Continuous production is used under the following circumstances:
1. Dedicated plant and equipment with zero flexibility.
2. Material handling is fully automated.
21
3. Process follows a predetermined sequence of operations.
4. Component materials cannot be readily identified with final product.
5. Planning and scheduling is a routine action.
Advantages
Following are the advantages of continuous production:
1. Standardization of product and process sequence.
2. Higher rate of production with reduced cycle time.
3. Higher capacity utilization due to line balancing.
4. Manpower is not required for material handling as it is completely automatic.
5. Person with limited skills can be used on the production line.
6. Unit cost is lower due to high volume of production.
Limitations
Following are the limitations of continuous production:
1. Flexibility to accommodate and process number of products does not exist.
2. Very high investment for setting flow lines.
3. Product differentiation is limited.
PRODUCTION
Production is a process of creating or enhancing utility by transforming set of inputs
such as labor, materials, capital, information, knowledge & energy into a set of
output such as finished goods or services.
Productivity
•
It may be defined as the ratio between output & input
•
Output means the amount or numbers of items produces & inputs are the various
resources employed such as men machinery, material & money
•
It is the measure of the quantity of output per unit of input
Productivity = Amount of Output/Amount of Input
 It can be expressed as the ratio of output to inputs used in the production process, i.e.
output per unit of input. When all outputs and inputs are included in
the productivitymeasure it is called total productivity. Outputs and inputs are defined in
the totalproductivity measure as their economic values.
Productivity can be improved by:
22

Raising the skill level of the workers through training

Using more technologically advanced equipment in the production process.

Improving the motivation level of the employees

By managing the available resource in a more efficient way.
Features of Productivity Measurement system
Total Productivity of an enterprise is the sum of productivities of its component parts.
2. The procedure of calculation should be simple, easy & comparable with the accounting system
of an organisation.
3. The measurement should be realistic , accurate, cost effective & consistent with time.
4.The measurement should be independent of external changes , not within the control of the
firm.
5. Measurement should be associated with achievable objectives, should be practical & data
collection should be easy & understandable.
Productivity Index: it is used to compare the productivity during the current year with the
productivity during the base year. ( Base year is any year which the company uses for
comparative study)
Productivity Index= productivity during the current year
productivity during the base year
23
Factors affecting Productivity
 Factors affecting national productivity
1. Human resources
2. Technology and Capital Investment
3. Government Regulation
 Factors Affecting Productivity in organization:1. Product( or system ) design
2. Machinery and Equipment
3. Skill and Effectiveness of the worker
4. Production Volume
TYPE OF OWNERSHIP
SOLE PROPERIETORSHIP
An individual or sole proprietorship is a form of organization in which an individual introduces
his own capital, applies his own intelligence and skills in the business and remains entitled to all
the ensuing profit or losses thereon.
As Peterson and plowman state, “a sole proprietorship has no legal existence apart from the
proprietor himself. He is the firm”.
Advantages
a) Easiness information;
b) The owner’s complete control over the business;
c) A direct motivation to work hard and succeed;
d) Maintenance of absolute business secrecy;
e) Possibility of quick and timely decisions;
f) Personal contacts with employees, customers and others;
24
Disadvantages
a) Limited capital resources;
b) Limited managerial ability or technical expertise;
c) Limited avenues for diversification and growth;
d) Limited personal liability for business losses;
e) Uncertain life and lack of continuity
Suitability
An individual proprietorship is deemed to suitable in the following cases;
a) Where only a small trade is involved;
b) Where capital required is not much;
c) Where risk involved is not for bidding;
d) Where quick decisions are required;
e) Where personal supervision is merited.
PARTNERSHIP
A partnership has been defined by the Indian Contract Act as “the relationship which subsists
between persons, who have agreed to combine their property, labour or skill in some business
and to share the profits thereof between them.”
The Indian Partnership Act, 1932 has defined partnership as follows: “partnership is the relation
between persons who have agreed to share the profits of a business carried on by all or any of
them acting for all.”
W.R. spriegal notes that, “partnership has two or more members, each of whom is responsible
for the partnership.”
Characteristics of partnership
Thus, persons who enter into a partnership are individually called the partners, collectively
referred to as the partnership firm, and they conduct their business under a firm name.
Essential characteristics of a partnership may be briefly outlined as follows:
a) There should be two or more persons;
b) An agreement must have been entered into;
c) There must be a lawful business in existence;
d) Sharing of profit or losses is to be done;
e) Every partner is an agent of every other partner;
f) The management is to be done;
25
g) Every partner is an agent of every other partner;
h) The management is to be collective;
RIGHTS AND OBLIGATIONS OF PARTNERS
Rights of Partners
1) Right to take part in the conduct and management of the firm’s business.
2) Right to express his opinion on any matter related to firm.
3) Right to inspect and copy any books of accounts and records of the firm
4) Right to an equal share of profit unless otherwise agreed.
5) Right to receive interest on loans and advances made by him.
6) Right to indemnified for the expenses incurred and losses sustained by him
Duties of Partners
1) Must act diligently and honestly in the discharge of his duties.
2) Must act in a just and faithful manner towards each other.
3) Must act within the scope of his authority entrusted to him.
4) Every partner is bound to share the losses of the firm equally unless otherwise agreed.
5) Every partner must identify the firm against losses sustained due to his willful negligence.
6) Must maintain and render true and correct accounts.
Disadvantages of Partnership
a) Possibility of conflict:- The partners may disagree on various aspects of business, leading to
disharmony and conflict.
b) Risk of Implied Authority:- since the act of any partner is legally binding on the other
partners and the firm, every partner will have to pay the consequence for any partner’s
indiscretion or inefficiency.
c) Unlimited Liability:- the liability of the partners being unlimited, i.e. extending even into
their private estates, breeds an element of conservatism into the firm’s strategies and operations.
d) Instability:- a partnership is an appropriate form of ownership for medium sized business
involving limited capital, application of personal skill and judgment, diversified managerial
talents and moderate risk
JOINT HINDU FAMILY BUSINESS
The joint Hindu family form of business is one in which the undivided family possesses some
property and the ‘karta’, the head of the family, operates it.
The joint family business arises out of the provisions of the Hindu laws, and so is not governed
by the Indian Partnership Act, 1932.
The two forms of joint Hindu family business prevalent are follows:
26
a) The Mitakshara: in this mode, only the successive generation in the male line can
simultaneously inherit the ancestral property. This form is prevented in the whole of the country, 27
except West Bengal.
b) The Dayabhaga: in this form, females can also share the family property. This system
commonly prevails in West Bengal.
Advantages of Joint Hindu Family Business.
a) Continuity: It need not be dissolved on the insolvency or death of any member.
b) Centralized Management: the management being centralized in the hands of the ‘karta’ leads
to discipline and efficiency in the firm’s operations.
c) Unlimited Membership: this form is not limited in membership by law. Hence, a large family
would automatically mean moiré coparceners.
d) Limited Liability: the liability of all the coparceners being limited, with the exception of the
‘karta’, is a prime advantage of this form.
cooperative societies
The cooperative movement has been the outcome of the economic and social imbalances caused
by the Industrial Revolution. Cooperative societies have acquired significance in both capitalist
countries as the US and Japan, as well as in socialist countries.
International Labour Organization defines
“A cooperative is an association of persons (usually of limited means) who have voluntarily
joined together to achieve a common economic end, through the formation of a democratically
controlled business organization, making equitable contributions of risks and benefits of the
undertaking.”
Characteristics of Cooperative societies
1. A cooperative society is a voluntary association of persons.
2. Membership is not restricted on the basis of caste, sex, creed, colour or religion, but may be
limited to the employees of a particular company.
3. A cooperative undertaking must seek registration under the cooperative societies act,1912 or
under the relevant cooperative societies act of the state government.
4. A cooperative society, like a joint- stock company, has a separate legal existence, distinct from
its members.
5. The capital of a cooperative is raised from among its members in the form of share capital.
6. The primary aim of a cooperative is service to its members, though it may also in the process
happen to earn reasonable profits for itself.
7. The cooperative is managed by a managing committee, elected by its members.
Types of Cooperatives
Cooperative may be classified on the basis of the nature of services rendered by them. The 28
following are the main types of cooperatives:
a) Industrial cooperatives;
b) Consumer cooperatives;
c) Marketing cooperatives;
d) Thrift and credit societies;
e) Cooperative banks;
f) Cooperative farming societies; g) Cooperative housing societies;
h) Multipurpose cooperatives.
Advantages of Cooperatives
1. It is a voluntary organization that can flourish under both the capitalist and socialist economic
systems.
2. The management is democratic, based on the ‘one man, one vote’ precept.
3. The profit are distributed so as to prevent overconcentration of wealth in a few hands.
Moreover, the ceiling of 10 per cent on profits enables the remaining surplus to be ploughed
back for greater returns.
4. The value of shares of a cooperatives is generally low, enabling even persons of modest means
to benefit there from.
5. Cooperative are non- competitive organizations that aim to lead to overall prosperity, not at
the expense of any others.
6. Cooperatives provide a training ground to the people in the important art of self- government.
Disadvantages of Cooperatives
1. The cooperatives may be plagued by a lack of competitive spirit, and a corresponding
unenthusiasm in efforts.
2. Cooperatives may fail to mobilize adequate capital for business of a risky nature or that is on a
large scale, because the rate of interest offered on capital is limited.
3. The success of a cooperative depends on the loyalty of its members, something that is neither
assured nor can be enforced.
4. The management of a cooperative may not be particularly competent, because a cooperative
generally offers only low scales of remuneration to officers employed.
5. The cooperative is not a suitable form for organizing all types of economic activities,
particularly those on a large scale.
JOINT STOCK COMPANY
A joint stock company is an artificial person created by law with a perpetual succession and a
common seal. L.T. Lindley has defined it as “an association of many persons who contribute
money or money’s worth to a common trade or business and who share the profit or loss arising
there from.”
The capital of a company is divided into a number of shares of equal value. Members of the 29
company, holding one or more shares, are called the company’s shareholders.
Chief justice John Marshall has given definition of a company as “an artificial being, invisible,
intangible and existing only in contemplation of law; being the mere creature of law it possesses
only those properties which the charter of its creation confers upon it, either expressly or as
incidental to its very existence; and the most important of which are immortality and
individuality.” Thus a company is an artificial legal person having an independent legal entity.
Salient Features of a Company
i) Separate Legal Entity- A company has an existence entirely distinct from and independent of
its members
ii) Artificial Legal Person- A company is an artificial person created by law and existing only in
the contemplation of law. It is intangible and invisible having no body and no soul.
iii) Perpetual Succession- A company enjoys continuous or uninterrupted existence and its life
is not affected by the death, insolvency, lunacy, etc. of its member or directors.
iv) Limited Liability- Liability of the members of a limited company is limited to the value of
the shares subscribed to or to the amount of guarantee given by them.
v) Common Seal- A company being an artificial person cannot sign for itself. There fore the law
provides for the use of common seal as a substitute for its signatures.
vi) Transferability of Shares- The shares of a public limited company are freely transferable.
They can be purchased and sold through the stock exchange.
vii) Separation of Ownership and Management- The number of members in a public company
is generally very large so that all of them or most of them cannot take part in the day
management of the company.
viii) Incorporated Association of Persons- A company is an incorporated or registered
association of person, one person cannot constitute a company under law.
Type of Companies
i) Chartered company- Companies established by the royal charter or under a special order
granted by a king or queen. Such a company does not exist now-a-days.
ii) statutory company- such a company is established under a special Act passed by a
parliament or by a state legislature as the case may be. The objects and powers of such a
company are defined by the act constituting it. Examples- RBI, IDBI, LIC, UTI, etc.
iii) Registered Company- A company registered under the companies Act is called Registered
or Incorporated Company. Such companies are most common in practice.
These are classified as:
1) Private Company- It means a company which has a minimum paid up capital of one lakh
rupees or such higher capital as may be prescribed and which by its Articles of Association
a) Restrict the rights of its members to transfer shares if any;
30
b) Limits the number of its members to 50, excluding ex-employees;
c) Prohibits any invitation or acceptance of deposits from persons other than its member directors
or their relatives.
2) Public Company – A public company means a company which
a) Is not a private company;
b) Has a minimum paid up capital of five lakh rupees or such higher paid up capital as may be
prescribed;
c) Is a private company which is a subsidiary of a company which is not a private company
3) Government Company- it is a company in which 51% or more the paid up share capital is
held by the central and/or state government. It also includes subsidiary of a government
company. Examples- Hindustan steels Ltd. Hindustan Machine Tools Ltd.
iv) Unlimited Company- It is a company in which the liability of every member is unlimited
and extends to his personal property
.
v) Company Limited by Shares- In this type of company, the liability of members is limited to
the value of the shares held by them. In case the shares are fully paid, he owes no further liability
to the company.
vi) Company Limited by Guarantee- In such a company, the liability of members is limited to
such amount as they agreed to contribute to the assets of the company in the event of its being
wound up
vii) Holding Company- A company is known as a holding company when it controls the
management of and/or majority ownership in another company. A holding company may have
any number of subsidiaries.
viii) Subsidiary Company- it is a company in which another company (called holding)
1) Holds more than half of the nominal value of its equity share capital or voting power
2) Controls the majority composition of its board of directors
3) Is the subsidiary of another subsidiary company.
ix) National or Domestic Company- the operations of such a company are within the
boundaries of the country in which it is registered or incorporated.
x) Multinational Company- such a company carries on the business not only in the country of
its incorporation but also in one or more other countries.
Advantages of Company
1. Limited Liability: share holders of a company are liable only to the extent of the face value of
31
shares held by them.
2. Large Financial Resources: company form of ownership enables the collection of huge
financial resources. The capital of a company is divided into shares of small denomination so
that people with small means can also buy them.
3. Continuity: A company enjoys uninterrupted business life. As a body corporate, it continues
to exist even if all members die or desert it.
4. Transferability of Shares: A member of public limited company can freely transfer his
shares without the consent of other members.
5. Professional Management: Due to its large financial resources and continuity, a company
can avail of the services of expert professional managers.
6. Scope for growth and expansion: there is considerable scope for expansion of business in a
company because of its vast financial and managerial resources and limited liability.
Disadvantages of Company
1. Difficulty of Formation: It is very difficult and expensive to form a company. A number of
documents have to be prepared and filed with the Registrar of companies. Services of experts are
required. This is a time consuming process.
2. Excessive Government Control: a company is subject to elaborate statutory regulation in its
day-to-day operations. Periodical reports, audit and publications of accounts is obligatory.
3. Lack of Motivation and Personal Touch: there is a divorce between ownership and
management in large company. The affairs of the company are managed by the professional
manager who does not have a personal involvement and stake in the company. It results in lack
of initiative and responsibility.
4. Oligarchic Management: In theory, the management of a company is supposed to be
democratic but in actual practice company becomes an Oligarchy(rule by few). It is managed by
a small number of people.
5. Delay in Decision: too many levels of management in a company result in red-tape and
bureaucracy. A lot of time is wasted in calling and holding meeting and in passing resolutions.