Subject
: Production and Materials Management
Unit I
Production management- functions – scope- plant location – factors –site location – plant layout
– principles – process – product layout for production planning and control- principlesinformation flow – routing – scheduling – dispatching – control.
Section A
1. Important aims of production management are : efficiency, effectiveness and consumer
satisfaction
2. For a production manager, the product is : combination of surfaces
3. The method used in scheduling a project is : pert and cpm
4. One of the principles of scheduling is : principle of optimal operation sequence
5. Scheduling shows: which resource should do which job and when
6. One of the aims of loading is : to keep operator idle time, material waiting time and
ancillary machine time at minimum
7. Fixing the follow lines of materials in production is known as : routing
8. The act of releasing the production documents to the production department is known as :
dispatching
9. Routing and scheduling becomes relatively complicated in : batch production
10. Proximity to markets is important factors for : selection of the locality
11. Scheduling is actually time phasing of : loading
12. Product layout is also referred as: line layout
Section B
1. Define production management and its functions.
Production management deals with decision making related to production process of that
the resulting goods and services is produced according to specifications in the amount and at the
scheduled demand and at minimum cost.-elwood butta.
Functions
A. Production planning
B. Production control
C. Factory building
D. Provisions of plant services
E. Plant layout
F. Physical environment
G. Method study
H. Inventory control
I. Quality control
J. Product department.
2. Explain the scope of production management.
1. Designing the product and conceive the idea about its production.
2. Deciding upon the organization which will carry out the managerial and production function
within the enterprise.
3. Selection of the appropriate location for the production.
4. Determination of the production process which is most relevant and efficient in the given state
of affairs.
5. Planning the production and its various aspects how, when and where producing a particular
product or its assembly will be done.
6. Deciding upon the machines, equipment and necessary devices which could lead to effectual
and desired production in the most economic way. Preparation of plan layout for the
establishment of machines in the required sequence.
7. Preparation of the time schedule to ensure the production in accordance with the prescribed
performance standards.
8. Procurement of the raw material, fuel, spare parts and other supplement material as per
required quantity and at desired time.
9. Storage of material and handling it in most effective way to avoid the wastage and delivery at
the work centres as and when required.
10. Controlling the production and ensuring the quality by setting the check points and taking
the periodic measurements of the current performance. Analysing the deviations and formulating
the corrective measures to stay in track with planned quality, time-schedule and predetermined
cost schedules.
11. Managing the inventories of raw material, semi-finished and finished goods in a way that
neither excessive money may block in this non-productive operation nor the required material
Section c
1. Plant location and lay out.
The location of the plant can have a crucial effect on the profitability of a project, and
the scope for future expansion. Many factors must be considered when selecting a suitable
site, and only a brief review of the principal factors will be given in this section. The principal
factors to be considered are:
o Location, with respect to the marketing area.
o Raw material supply.
o Transport facilities.
o Availability of labour.
o Availability of utilities: water, fuel, power.
o Availability of suitable land.
o Environmental impact, and effluent disposal.
o Local community considerations.
o Climate.
o Political strategic considerations.
Marketing area
For materials that are produced in bulk quantities: such as cement, mineral acids and
fertilizers, where the cost of the product per ton is relatively low and the cost of transport
a significant fraction of the sales price, the plant should be located close to the primary
market. This consideration will be less important for low volume production, high-priced
products; such as pharmaceuticals. In an international market, there may be an advantage
to be gained by locating the plant within an area with preferential tariff.
.
Raw materials
The availability and price of suitable raw materials will often determine the site
location. Plants producing bulk chemicals are best located close to the source of the major
raw material; where this is also close to the marketing area.
Soda ash
plant should be located near the salt lakes or near sea, where sodium
chloride is available abundantly.
Transport
The transport of materials and products to and from plant will be an overriding
consideration in site selection. If practicable, a site should be selected that is close at least two
major forms of transport: road,
rail, waterway or a seaport. Road transport is being
increasingly used, and is suitable for local distribution from a central warehouse. Rail transport
will be cheaper for the long-distance transport of bulk chemicals.
Air transport is convenient and efficient for the movement of personnel and
essential equipment and supplies, and the proximity of the site to a major airport should be
considered.
Availability of labour
Labour will be needed for construction of the plant and its operation. Skilled
construction workers will usually be brought in from outside the site, but there should be
an adequate pool of unskilled labour available locally; and labour suitable for training to
operate the plant. Skilled tradesmen will be needed for plant maintenance. Local trade union
customs and restrictive practices will have to be considered when assessing the availability
and suitability of the labour for recruitment and training.
Utilities (services)
The word “utilities” is now generally used for the ancillary services needed in the operation
of any production process. These services will normally be supplied from a central facility;
and will include:
•
electricity:
-
power
required
for
electrochemical
processes,
motors,
lightings, and general use
• steam for process heating: - the steams required for the process are generated
in the tube boilers using most economic fuel.
• cooling water: - natural and forced draft cooling towers are generally used to
provide the cooling water required on site.
•
water for general use: - the water required for the general purpose will be
taken from local water supplies like rivers, lakes and seas. Because of this
reason all the plants located on the banks of river.
•
dematerialized water: - dematerialized water, from which all the minerals
have been removed by ion-exchange is used where pure water is needed for
the process use, in boiler feed water.
• refrigeration: - refrigeration is needed for the processes, which require
temperatures below that are provided by the cooling water.
•
inert-gas supplies.
• compressed air: - in an ethylene oxide plant compressed air is one of the raw
materials. It is also needed for pneumatic controllers etc.
• effluent disposal facilities: - facilities must be provided for the effective
disposal of the effluent without any public nuisance.
Environmental impact, and effluent disposal
All industrial processes produce waste products, and full consideration must be given to
the difficulties and coat of their disposal. The disposal of toxic and harmful effluents will be
covered by local regulations, and the appropriate authorities must be consulted during the
initial site survey to determine the standards that must be met.
Local community considerations
The proposed plant must fit in with and be acceptable to the local community. Full
consideration must be given to the safe location of the plant so that it does not impose a
significant additional risk to the community.
Land (site considerations)
Sufficient suitable land must be available for the proposed plant and future expansion.
The land should be ideally flat, well drained and have load-bearing characteristics. A full
site evaluation should be made to determine the need for piling or other foundations.
Climate
Adverse climatic conditions at site will increase costs. Abnormally low temperatures will
require the provision of additional insulation and special heating for equipment and
piping. Stronger locations will be needed at locations subject to high wind loads or
earthquakes.
Political and strategic considerations
Capital grants,
tax concessions,
and other inducements are often given by
governments to direct new investment to preferred locations; such as areas of high
unemployment. The availability of such grants can be the overriding consideration in site
selection.
Plant layout
The economic construction and efficient operation of a process unit will depend on how
well the plant and equipment specified on the process flow sheet is laid out. The principal
factors are considered are:

Economic considerations: construction and operating costs.

The process requirements.

Convenience of operation.

Convenience of maintenance.

Safety.

Future expansion.

Modular construction.
Costs
The cost of construction can be minimized by adopting a layout that gives the shortest
run of connecting pipe between equipment, and at least amount of structural steel work.
However,
this
will not
necessarily be
the
best
arrangement
for
operation and
maintenance.
Process requirements
An example of the need to take into account process consideration is the need to elevate the
base of columns to provide the necessary net positive suction head to a pump or the
operating head for a thermosyphon reboiler.
Operations
Equipment that needs to have frequent attention should be located convenient to the
control room. Valves, sample points, and instruments should be located at convenient
positions and heights. Sufficient working space and headroom must be provided to allow easy
access to equipment.
Maintenance
Heat exchangers need to be sited so that the tube bundles can be easily withdrawn for
cleaning and tube replacement. Vessels that require frequent replacement of catalyst or
packing should be located on the out side of buildings. Equipment that requires
dismantling for maintenance, such as compressors and large pumps, should be places under
cover.
Safety
Blast walls may be needed to isolate potentially hazardous equipment, and confine the
effects of an explosion.
At least two escape routes for operators must be provided from each level in process
buildings.
Plant expansion
Equipment should be located so that it can be conveniently tied in with any future
expansion of the process.
Space should be left on pipe alleys for future needs, and service pipes over-sized to allow for
future requirements.
Modular construction
In recent years there has been a move to assemble sections of plant at the plant
manufacturer’s site. These modules will include the equipment, structural steel, piping and
instrumentation. The modules are then transported to the plant site, by road or sea. The
advantages of modular construction are:

Improved quality control.

Reduced construction cost.

Less need for skilled labour on site.
Some of the disadvantages are;
1. Higher design costs & more structural steel work.
2. More flanged constructions & possible problems with assembly, on site.
2. Explain production planning and production control?
Once the entrepreneur has taken the decisions regarding the product design
and production
processes and system, his next task is to take steps for
production planning and control, as this function is essentially required for
efficient and economical production. One of the major problems of small scale
enterprises is that of low productivity small scale industries can utilise natural
resources, which are otherwise lying.
Small scale sector can play an important role, similar to the one played by
small scale industries in other developed countries.
Planned production is an important feature of the small industry. The
small entrepreneur possessing the ability to look ahead, organize and coordinate
and having plenty of driving force and capacity to lead and ability to supervise
and coordinate work and simulates his associates by means of a programme of
human relation and organization of employees, he would be able to get the best out
of his small industrial unit.
Gorden and carson observe production; planning and control involve
generally the organization and planning of manufacturing process. Especially it
consists of the planning of routing,
scheduling, dispatching inspection, and
coordination, control of materials, methods machines, tools and operating times.
The ultimate objective is the organization of the supply and movement of materials
and labour, machines utilization and related activities, in order to bring about the
desired manufacturing results in terms of quality, quantity, time and place.
Production planning without production control is like a bank without a
bank manager, planning initiates action while control is an adjusting process,
providing corrective measures for
planned development. Production control
regulates and stimulates the orderly how of materials in the manufacturing process
from the beginning to the end.
Production planning and control (ppc) is a process that comprises the
performance of some critical; functions on either side, viz., planning as well as
control.
Production planning: production planning may be defined as the technique of
foreseeing every step in a long series of separate operations, each step to be taken
at the right time and in the right place and each operation to be performed in
maximum efficiency. It helps entrepreneur to work out the quantity of material
manpower, machine and money requires for producing predetermined level of
output in given period of time.
Routing: under this, the operations, their path and sequence are established. To
perform these operations the proper class of machines and personnel required are
also worked out. The main aim of routing is to determine the best and cheapest
sequence of operations and to ensure that this sequence is strictly followed. In
small enterprises, this job is usually done by entrepreneur himself in a rather
adhoc manner. Routing procedure involves following different activities.
(1)
an analysis of the article to determine what to make and what to buy.
(2)
to determine the quality and type of material
(3)
determining the manufacturing operations and their sequence.
(4)
a determination of lot sizes
(5)
determination of scrap factors
(6)
an analysis of cost of the article
(7)
organization of production control forms.
Scheduling: it means working out of time that should be required to perform each operation and
also the time necessary to perform the entire series as routed, making allowances for all
factors concerned. It mainly concerns with time element and priorities of a job. The pattern
of scheduling differs from one job to another which is explained as below:
Production schedule: the main aim is to schedule that amount of work which
can easily be handled by plant and equipment without interference. Its not
independent decision as it takes into account following factors.
1. Physical plant facilities of the type required to process the material
being scheduled.
2. Personnel who possess the desired skills and experience to operate
the equipment and perform the type of work involved.
3. Necessary materials and purchased parts.
Master schedule: scheduling usually starts with preparation of master schedule
which is weekly or monthly break-down of the production requirement for each
product for a definite time period, by having this as a running record of total
production requirements the entrepreneur is in better position to shift the
production from one product to another as per the changed production
requirements. This forms a base for all subsequent scheduling acclivities. A
master schedule is followed by operator schedule which fixes total time required
to do a piece of work with a given machine or which shows the time required to
do each detailed operation of a given job with a given machine or process.
Manufacturing schedule: it is prepared on the basis of type of manufacturing
process involved. It is very useful where single or few products are manufactured
repeatedly at regular intervals. Thus it would show the required quality of each
product and sequence in which the same to be operated scheduling of job order
manufacturing: scheduling acquires
greater importance
in
job
order
manufacturing. This will enable the speedy execution of job at each center point.
As far as small scale industry is concerned scheduling is of utmost importance as it
brings out efficiency in the operations and s reduces cost price. The small
entrepreneur should maintain four types of schedules to have a close scrutiny of all
stages namely an enquiry schedule, a production schedule, a shop schedule and an
arrears schedule out of above four, a shop schedule is the most important most
suited to the needs of small scale industry as it enables a foreman to see at a
glance.
1.
The total load on any section
2.
The operational sequence
3.
The stage, which any job has reached.
Loading: the next step is the execution of the schedule plan as per the route
chalked out it includes the assignment of the work to the operators at their
machines or work places. So loading determines who will do the work as routing
determines where and scheduling determines when it shall be done. Gantt charts
are most commonly used in small industries in order to determine the existing
load and also to foresee how fast a job can be done. The usefulness of their
technique lies in the fact that they compare what has been done and what ought to
have been done.
Most of a small scale enterprise fail due to non-adherence to delivery schedules
therefore they can be successful if they have ability to meet delivery order in time
which no doubt depends upon production of quality goods in right time. It makes
all the more important for entrepreneur to judge ahead of time what should be
done, where and when thus to leave nothing to chance once the work has begun.
Production control: production control is the process of planning production in
advance of operations, establishing the extract route of each individual item part
or assembly, setting, starting and finishing for each important item, assembly or
the finishing production and releasing the necessary orders as well as initiating the
necessary follow-up to have the smooth function of the enterprise. The production
control is of complicated nature in small industries. The production planning and
control department can function at its best in small scale unit only when the work
manager, the purchase manager, the personnel manager and the financial
controller assist in planning production activities. The production controller
directly reports to the works manager but in small scale unit, all the three
functions namely material control, planning and control are often performed by
the entrepreneur himself production control starts with dispatching and ends up
with corrective actions.
Dispatching: dispatching involves issue of production orders for starting the
operations. Necessary authority and conformation is given for:
1. Movement of materials to different workstations.
2. Movement of tools and fixtures necessary for each operation.
3. Beginning of work on each operation.
4. Recording of time and cost involved in each operation.
5. Movement of work from one operation to another in accordance with the
route sheet.
6. Inspecting or supervision of work
Dispatching is an important step as it translates production plans into production.
Follow up: every production programme involves determination of the progress
of work, removing bottlenecks in the flow of work and ensuring that the
productive operations are taking place in accordance with the plans. It spots
delays or deviations from the production plans. It helps to reveal detects in routing
and scheduling, misunderstanding of orders and instruction, under loading or
overloading of work etc. All problems or deviations are investigated and remedial
measurer are undertaken to ensure the completion of work by the planned date.
Inspection: this is mainly to ensure the quality of goods. It can be required as
effective agency of production control.
Corrective measures: corrective action may involve any of those activities of
adjusting the route, rescheduling of work changing the workloads, repairs and
maintenance of machinery or equipment, control over inventories of the cause of
deviation is the poor performance of the employees. Certain personnel decisions
like training, transfer, demotion etc. May have to be taken. Alternate methods may
be suggested to handle peak loads.
Subject
: Production and Materials Management
UNIT II
Materials Handling - Importance – Principles – Criteria for selection of materials
Handling equipments. Maintenance – Types – Breakdown – Preventive – Routine.
Methods study – Time Study – definition – Motion study – principles - work
measurement.
SECTION A
1. Corrective maintenance is also known as: Breakdown Maintenance
2. Handling of material is an integral part of : Production Process
3. Work Sampling is also known as: Ration Delay, Observation Ratios, Activity
Sampling
4. Lillian and Frank Gilbreth are responsible for principles of :Motion Study
5. Time Study was mainly used for determining: Time Standard
6. Motion Study was mainly used for determining: Motion economy
7. Stop watch study is also referred as: Time Study
8. Equipment break sown leads to loss of :Productivity
9. “Reduction in Time” consumed principally three things: Waiting, Loading and
unloading, Travel time
10. The Movement of material may be: Combination of vertical and horizontal
11. It is defined as the handling of raw materials, semi-finished and finished and finished
products: Material handling
12. What is the process of preventive maintenance for lubrication : Slow down the process
of deterioration
SECTION B
1. Define Material Handling and its importance.
Expressed in simple language, materials handling is loading, moving and unloading of
materials. To do it safely and economically, different types of tackles, gadgets and equipment are
used, when the materials handling is referred to as mechanical handling of materials.
One of the definition adopted way back by the American Materials Handling Society is:
Materials handling is the art and science involving the moving, packaging and storing of
substances in any form.
Importance
In a manufacturing concern the product are received, stored to the production departments,
moved from machine to machine and processing form dept. To dept. and further moved to final
assembly section. The final products are then moved to inspection dept. and then to dispatch
section.
Thus in every manufacturing organization material handling, place an important role. Every
where there is movement of either material, work in progress or finished product.
It is highly pointed out that the cost material handling involves 40% to 50% of total production
cost. Therefore considerable attention must be taken in the material handling. Improved material
handling system not only save time and cost reduction but also ensure the following:

Reduction in accidents.

Greater job satisfaction.

Reduction in inventory or & work in progress.

Increasing production.

Saving time.
2. Maintenance and its types
Maintenance refers to the act of maintaining or keeping in existence or continuation.
Additionally, it means to keep in appropriate condition and generally refers to a form of upkeep
whereby someone or something is kept in functioning order through a series of actions.
Types of Maintenance
1.Breakdown maintenance
It means that people waits until equipment fails and repair it. Such a thing could be used when
the equipment failure does not significantly affect the operation or production or generate any
significant loss other than repair cost.
2. Preventive maintenance ( 1951 )
It is a daily maintenance ( cleaning, inspection, oiling and re-tightening ), design to retain the
healthy condition of equipment and prevent failure through the prevention of deterioration,
periodic inspection or equipment condition diagnosis, to measure deterioration. It is further
divided into periodic maintenance and predictive maintenance. Just like human life is
extended by preventive medicine, the equipment service life can be prolonged by doing
preventive maintenance.
2a. Periodic maintenance ( Time based maintenance - TBM)
Time based maintenance consists of periodically inspecting, servicing and cleaning equipment
and replacing parts to prevent sudden failure and process problems.
2b. Predictive maintenance
This is a method in which the service life of important part is predicted based on inspection or
diagnosis, in order to use the parts to the limit of their service life. Compared to periodic
maintenance, predictive maintenance is condition based maintenance. It manages trend values,
by measuring and analyzing data about deterioration and employs a surveillance system,
designed to monitor conditions through an on-line system.
3. Corrective maintenance ( 1957 )
It improves equipment and its components so that preventive maintenance can be carried out
reliably. Equipment with design weakness must be redesigned to improve reliability or
improving maintainability
4. Maintenance prevention ( 1960 )
It indicates the design of a new equipment. Weakness of current machines are sufficiently
studied ( on site information leading to failure prevention, easier maintenance and prevents of
defects, safety and ease of manufacturing ) and are incorporated before commissioning a new
equipment.
SECTION C
1. Explain Method Study, Time Study and Motion Study
Method Study
Method study is the process of subjecting work to systematic, critical scrutiny to make it more
effective and/or more efficient. It is one of the keys to achieving productivity improvement.
It was originally designed for the analysis and improvement of repetitive manual work but it can
be used for all types of activity at all levels of an organisation.
The process is often seen as a linear, described by its main steps of:

Select (the work to be studied);

Record (all relevant information about that work);

Examine (the recorded information);

Develop (an improved way of doing things);

Install (the new method as standard practice);

Maintain (the new standard proactive).
Although this linear representation shows the underlying simplicity of method study, in practice
the process is much more one of repeated passes through the sequence of steps with each
dominating at a different stage of the investigation.
The cyclic process often starts with a quick, rough pass in which preliminary data are collected
and examined before subsequent passes provide and handle more comprehensive and more
detailed data to obtain and analyse a more complete picture.
Select
Work selected for method study may be an identified problem area or an identified opportunity.
It may be identified through a systematic review of available data, normal monitoring or control
processes, high levels of dissatisfaction and complaint or as part of a change in management
policy, practice, technology or location, and usually because it meets certain conditions of
urgency and/or priority.
Define
Before any method study investigation is begun, it is necessary to establish clear terms of
reference which define the aims, scale, scope and constraints of the investigation. This should
also include an identification of who "owns" the problem or situation and ways in which such
ownership is shared. This may lead to a debate on the aims of the project, on reporting
mechanisms and frequencies, and on the measures of success. This process is sometimes
introduced as a separate and distinct phase of method study, as the "Define" stage. It leads to a
plan for the investigation which identifies appropriate techniques, personnel, and timescale.
Record
The Record stage of method study involves gathering sufficient data (in terms of both quality
and quantity) to act as the basis of evaluation and examination. A wide range of techniques are
available for recording; the choice depends on the nature of the investigation; the work being
studied; and on the level of detail required. Many of the techniques are simple charts and
diagrams, but these may be supplemented by photographic and video recording, and by computer
based techniques.
Especially with "hard" (clearly defined) problems, method study often involves the construction
and analysis of models, from simple charts and diagrams used to record and represent the
situation to full, computerised simulations. Manipulation of and experimentation on the models
leads to ideas for development.
Examine
The recorded data are subjected to examination and analysis; formalised versions of this process
are critical examination and systems analysis. The aim is to identify, often through a structured,
questioning process, those points of the overall system of work that require improvements or
offer opportunity for beneficial change.
Develop
The Examine stage merges into the Develop stage of the investigation as more thorough analysis
leads automatically to identified areas of change. The aim here is to identify possible actions for
improvement and to subject these to evaluation in order to develop a preferred solution.
Sometimes it is necessary to identify short-term and long-term solutions so that improvements
can be made (relatively) immediately, while longer-term changes are implemented and come to
fruition.
Install
The success of any method study project is realised when actual change is made 'on the ground' change that meets the originally specified terms of reference for the project. Thus, the Install
phase is very important. Making theoretical change is easy; making real change demands careful
planning - and handling of the people involved in the situation under review. They may need
reassuring, retraining and supporting through the acquisition of new skills. Install, in some cases
,will require a parallel running of old and new systems, in others, it may need the build-up of
buffer stocks, and other planning to manage the change. what matters is that the introduction of
new working methods is successful. There is often only one chance to make change!
Maintain
Some time after the introduction of new working methods, it is necessary to check that the new
method is working, that it is being properly followed, and that it has brought about the desired
results. This is the Maintain phase. Method drift is common - when people either revert to old
ways of workin, or introduce new changes. Some of these may be helpful and should formally be
incorporated; others may be inefficient or unsafe. A methods audit can be used to formally
compare practice with the defined method and identify such irregularities.
Time study is a direct and continuous observation of a task, using a timekeeping device (e.g.,
decimal minute stopwatch, computer-assisted electronic stopwatch, and videotape camera) to
record the time taken to accomplish a task and it is often used when:

there are repetitive work cycles of short to long duration,

wide variety of dissimilar work is performed, or

process control elements constitute a part of the cycle.
The Industrial Engineering Terminology Standard defines time study as "a work measurement
technique consisting of careful time measurement of the task with a time measuring instrument,
adjusted for any observed variance from normal effort or pace and to allow adequate time for
such items as foreign elements, unavoidable or machine delays, rest to overcome fatigue, and
personal needs."
Like time study, motion study is also useful tool to increase the efficiency. Here, we are defining
it. You know that workers can do any work with many ways or method. But to choose the best
way out of alternatives is called motion study. For this, cost accountant has to maintain the data
of all the activities of workers. With this study, productivity can be enlarged and inefficiency
and wastage can be diminished.
In motion study, we first of all, note the activities of laborers in work place. With the help of stop
watch equipment, spending time on per activity is noted. After this, we have to take decision of
activities which we have to stop. This study or analysis determines prime method of doing any
activity in factory. Sometime software engineer can make the work design relating to workplace
arrangement and adjustable chair for workplace.
Benefits of Motion Study
1. It grows the ability of workers because apply of good methods, using of good tools and
stopping of unnecessary activities.
2. Life of machine can be increased.
3. It reduces exhaustion of workers.
4. It decreases labor cost due to less wastage in factory or plant.
2. Work Measurement
Work Measurement is a term which covers several different ways of finding out how long a job
or part of a job should take to complete. It can be defined as the systematic determination,
through the use of various techniques, of the amount of effective physical and mental work in
terms of work units in a specified task. The work units usually are given in standard minutes or
standard hours.
Why should we need to know how long a job should take? The answer to this question lies in the
importance of time in our everyday life. We need to know how long it should take to walk to the
train station in the morning, one needs to schedule the day's work and even when to take out the
dinner from the oven.
In the business world these standard times are needed for:
planning the work of a workforce,
manning jobs, to decide how many workers it would need to complete certain jobs,
scheduling the tasks allocated to people
costing the work for estimating contract prices and costing the labour content in general
calculating the efficiency or productivity of workers - and from this:
providing fair returns on possible incentive bonus payment schemes.
On what are these standard times set? They are set, not on how long a certain individual would
take to complete a task but on how long a trained, experienced worker would take to do the task
at a defined level of pace or performance.
Who sets these standard times? Specially trained and qualified observers set these times, using
the most appropriate methods or techniques for the purpose i.e. "horses for courses".
How it is done depends on circumstances that obtain. The toolkit available to the
comprehensively trained observer is described below.
Selecting the most appropriate methods of work measurement
The method chosen for each individual situation to be measured depends on several factors
which include:
(a) the length on the job to be measured in time units
(b) the precision which is appropriate for the type of work in terms of time units (i.e. should
it be in minutes, hundredths or thousandths of a minute)
(c) the general cycle-time of the work, i.e. does it take seconds, minutes or days to complete
The length of time necessary for the completion of the range of jobs can vary from a few seconds
in highly repetitive factory work to several weeks or months for large projects such as major
shutdown maintenance work on an oil refinery. It is quite clear that using a stop-watch, for
example, on the latter work would take several man-years to time to measure! Thus, more
"overall" large-scale methods of timing must be employed.
The precision is an important factor, too. This can vary from setting times of the order of "to the
nearest thousandth of a minute" (e.g. short cycle factory work) to the other end of the scale of "to
the nearest week" (e.g. for large project work).
These are the dominant factors that affect the choice of method of measurement.
The methods
PMTS.
At the "precision" end of the scale is a group of methods known as predetermined motion time
systems that use measurement units in ten thousandths (0.0001) of a minute or hundredthousandths of an hour (0.00001 hour).
The resulting standard times can be used directly, for very short-cycle work of around one
minute total duration such as small assembly work. However, they often are used to generate
regularly used basic tasks such using assembling or disassembling nuts and bolts, using a
screwdriver and similar. Tasks of this type are filed as standard or synthetic data-banks.
Estimating.
At the other end of the scale (long-cycle and project work) we need something which is quick to
use. Such a method is estimating. This can exist in three main forms.
(a) Analytical estimating relies on the experience and judgement of the estimator. It is just of
case of weighing up the work content and, using this experience, stating a probable time
for completion, such as "this job will take about eight days to complete".
(b) Category estimating. This is a form of range estimating and requires a knowledge of the
work. Estimators may not feel comfortable with overall, analytical estimates upon which
may depend the outlay of a great deal of money. They often prefer giving a range
estimate such as "this job should take between 12 weeks and 14 weeks to complete",
which provides a safety net should things go wrong. Such ranges are not just picked upon
at random but are statistically calculated and based on probability theory.
(c) Comparative estimating. This is another example of range estimating. Again, estimators rely
on experience of the work in order to produce estimates. This experience can be augmented by
the provision of each time-range with a few typical, descriptive, jobs that would guide estimators
to the most appropriate range. The estimator would compare the work to be estimated with those
in the various ranges until the most appropriate fit is found.
Timing.
The intermediate method between the two groups above, is timing the work in some way, usually
with a stop-watch or computerised electronic study board. This method is retrospective in that
the job must be seen in action in order to be timed whereas the other methods are prospective
and can be used for timing jobs before they start.
The observer times each element of the work and obtains times that the observed operator takes
to do the elements. Each timing is adjusted (rated) by the pace at which the operator was
working as assessed by the observer. This produces basic times for the elements and hence the
whole job, which are independent of the operator and can be used as the time for a trained,
experienced worker to carry out the same elements.
Another method of assessing the work is using activity sampling and rated activity sampling.
This is a method based on the observer making snap observations at random or systematic
sample times, observing what the operator is (or operators are) doing at the times of those
observations
Models:
A most useful method for standard or synthetic data-banks of job or element times is using
computer models of the jobs. These are generated as mathematical formulae in which the
observed data are inserted to compile a time for completion of the task or project. It is a useful
method for recycling time standards for elements of basic work over and over again, only
changing the values of the variables to suit each project.
UNIT III
Organisation of Materials Management - Fundamental Principles - Structure – Integrated
materials management - Purchasing – procedure - principles - import substitution and import
purchase procedure - Vendor rating - Vendor development
SECTION A
1. The request for tenders should contain: Quality of items, Quantity to be purchased,
period of delivery
2. “Hand-to-mouth buying” is also referred as: Purchasing by requirements
3. Each branch or department buys its own materials and equipment: Decentralized
purchasing
4. This technique heavily relies on the judgment and experience of the decision-maker:
Categorical plan
5. Vendor Management consists of vendor rating: Vendor development
6. Selection of acceptable suppliers is the main activities of: Purchasing
7. Materials management as an : Operating function
8. Value analysis is also one of the : Purchasing Policies
9. The first phase of materials management: Purchasing
10. For efficient purchasing: Five ‘R’s are required.
SECTION B
1. Explain the basic principle of Material Management.
Material management is a scientific technique, concerned with Planning, Organizing
&Control of flow of materials, from their initial purchase to destination.
Principles
Effective management & supervision

It depends on managerial functions of Planning, Organizing, Staffing, Directing,
Controlling, Reporting, Budgeting

Sound purchasing methods

Skillful & hard poised negotiation

Effective purchase system

Should be simple

Must not increase other costs

Simple inventory control programme
2.Define Integrated Material Management.
All the materials related activities such as material planning & indenting, purchase systems &
procedure, variety reduction through standardization & rationalization, reducing uncertainties in
demand & supply, handling & transportation, inspection, proper storage & issue of materials to
the internal customers, inventory management, vendor management & finally disposal of
obsolete, surplus & scrap materials etc. taken together is termed as “INTEGRATED
MATERIALS MANAGEMENT”
.
To carry out these functions efficiently, it is essential to have a very good supplier base, order
booking process & inventory management system as well as expert MATERIALS
MANAGEMENT (MM) professionals
3.Explain Vendor Rating.
Vendor Rating is a system used by buying organizations or industry analysts to record,
analyze, rank and report the performance of a supplier in terms of a range of predefined criteria,
which may include such things as:

Quality of the product or service

Delivery performance and reliability

Cost, price

Capabilities

Service

Financial continuity of the firm
The method includes defining the criteria and the weight each criterion receives in the overall
result, development of the questions and questionnaires, actually carrying out the measurements,
and finally interpreting the results. If vendor ratings are carried out periodically or even ongoing,
the
results
(per
vendor)
can
be
analyzed
and
compared
over
time.
Benefits of Vendor Rating

Clear and objective overview of performance of suppliers

Enables better vendor management

Incidents and escalations can be monitored earlier

Suppliers are stimulated to improve their performance

In the case of periodical vendor rating: analyze trends in vendor performance
If vendor rating is carried out before the placement of an order, it is also known as Supplier
Evaluation. When undertaken after order fulfillment, it is also referred to as Supplier Rating.
SECTION C
1. Explain Import Substitution.
Import substitution industrialization or "Import-substituting Industrialization"
(called ISI) is a trade and economic policy that advocates replacing imports with domestic
production.
[1]
It is based on the premise that a country should attempt to reduce its foreign
dependency through the local production of industrialized products. The term primarily refers to
20th century development economics policies, though it was advocated since the 18th century.
It has been applied to many countries in Latin America, where it was implemented with
the intention of helping countries to become more self-sufficient and less vulnerable by creating
jobs and relying less on other nations. The ISI is based primarily on the internal market. The ISI
works by having the state lead economic development through nationalization, subsidization of
vital industries (including agriculture, power generation, etc.), increased taxation to fund the
above, and highly protectionist trade policy. Import substitution industrialization was gradually
abandoned by developing countries in the 1980s and 1990s due to disappointment with the
results.
Adopted in many Latin American countries from the 1930s until around the 1980s, and in
some Asian and African countries from the 1950s on, ISI was theoretically organized in the
works of Raúl Prebisch, Hans Singer, Celso Furtado and other structural economic thinkers, and
gained prominence with the creation of the United Nations Economic Commission for Latin
America and the Caribbean (UNECLAC or CEPAL). Insofar as its suggestion of state-induced
industrialization through governmental spending, it is largely influenced by Keynesian thinking,
as well as the infant industry arguments adopted by some highly industrialized countries, such as
the United States, until the 1940s. ISI is often associated with dependency theory, though the
latter adopts a much broader sociological outlook which also addresses cultural elements thought
to be linked with underdevelopment.
2.Explain Purchasing Procedure
Purchasing is the formal process of buying goods and services. The Purchasing Process can
vary from one organization to another, but there are some common key elements.
The process usually starts with a 'Demand' or requirements – this could be for a physical part
(inventory) or a service. A requisition is generated, which details the requirements (in some cases
providing a requirements speciation) which actions the procurement department. A Request for
Proposal (RFP) or Request for Quotation (RFQ) is then raised. Suppliers send their quotations in
response to the RFQ, and a review is undertaken where the best offer (typically based on price,
availability and quality) is given the purchase order.
Purchase orders (PO) can be of various types including:

Standard - a one time buy;

Planned - an agreement on a specific item at an approximate date; and

Blanket - an agreement on specific terms and conditions: date and quantity and amount
are not specified.
Purchase Orders are normally accompanied by Terms and Condition which form the contractual
agreement of the Transaction. The Supplier then delivers the products/service and the customer
records the delivery (in some cases this goes through a Goods Inspection Process. An invoice is
sent by the supplier which is cross-checked with the Purchase Order and Document which
specifying that the goods received. The payment is made and transferred to Goods supplier.
Purchasing Procedures
The specifications and number/quantity and delivery of
equipment, devices and materials are determined by the
department(s) that will be using the product(s) or materials. The
Purchasing Department conducts purchase activities based on
purchase requests submitted by the/these department(s).
The Purchasing Department, at its sole discretion, selects
companies from which estimates will be sought. Suppliers are
selected from the files of "Companies with Previously
Established Business Relationships", "Companies from Which
Estimates Can Be Requested" and "Products and Suppliers".
Selection is made by comprehensivly evaluating such factors as
the quality and performance of the equipment, device(s) or
materials to be purchased, compatibility with existing facilities,
degree of reliability, product requirements including safety,
delivery time, the scale of the order, after-sale service and the
company's previous business record. As a rule, Osaka Gas asks
several companies to submit estimates. However, only one
company may be specified for estimate submission in such
special cases as those concerned with industrial property rights,
those requiring maximum levels of safety that only one specific
supplier can ensure, cases where only one specific supplier can
assure compatibility with existing facilities, or in case of urgency.
As a rule, when requesting an estimate from a company that it has
selected, Osaka Gas will set out a specification from listing Osaka
Gas's requirements in respects of quality, performance standard,
size, inspection and method of inspection. The selected
companies will be asked to submit cost estimates and
specifications to Osaka Gas prior to a specified date.
Specification sheets submitted by potential suppliers at their own
expense are checked by the Purchasing Department and the
department(s) that will be using the product(s), in order to
determine whether the required standards are met by the
product(s). All products must pass this examination. During this
process, Osaka Gas may request additions or changes to the
specifications.
After valid cost estimates and specifications have been
comprehensively evaluated in respect of price, technical
requirements, etc. Osaka Gas will commence negotiation with the
company with the most attractive proposal to discuss the amount
of the contract and other terms and conditions. The selection of
such a company shall be made by Osaka Gas at its sole discretion.
Contract terms and conditions will be decided upon mutual
agreement.
The business will be established upon conclusion of a contract, in
the form of a written document if necessary. The obligations and
liabilities of Osaka Gas arise only when such contract is
concluded.
Delivery dates specified in the contract must be strictly observed.
Precise details of the delivery schedule will be agreed between
the supplier and the relevant department(s) of Osaka Gas.
Delivered
equipment,
device(s)
or
materials
must
pass
inspections conducted by the relevant department(s) of Osaka
Gas. When deemed significant, an interim inspection may be
conducted during the manufacturing process.
Payment will be made according to the payment terms specified
in the contract
UNIT IV
Function of Inventory - Importance - Tools - ABC, VED, FSN Analysis - EOQ – Reorder point Safety Stock - Lead time Analysis Store keeping - Objectives - Functions – Store keeper - Duties
- Responsibilities - Location of store - Stores Ledger - Bin card.
SECTION A
1. The basis for ABC Analysis is: Pareto’s 80-20 rule
2. The rent for the stores where materials are stored falls under: Inventory carrying cost
3. The VED analysis depends on: Criticality of materials
4. Procurement cost may be clubbed with: Ordering cost
5. As the order quantity increases, this cost will reduce: Ordering cost
6. In FSN analysis the letter N stands for: Non-Moving materials
7. The Lead-Time is the time: Time between placing the order and receiving the materials
8. The penalty for not having materials when needed is: Stock out cost
9. It is attached to each bin, rack, shelf or a container used for storing the materials: Bin card
10. Losses due to deterioration, theft and pilferage comes under: Inventory carrying charges
11. FSN analysis depends on: Consumption pattern
12. As the volume of inventory increases, the cost will increase: Inventory carrying cost
SECTION B
Explain the functions of Inventory
Decoupling inventory:
You find this predominantly in ‘Batch’ where this decouples one process from the next. The
emphasis is on the material waiting for the process so that the process itself is most efficiently
used.
Cycle inventory:
This function relates to the decision to manufacture a quantity of products (like in a lot/batch
size) The mainspring is to reduce set-up costs and avoid the loss of process capacity
Capacity-related inventory:
The general idea is to stock-pile inventories in the low sales period for selling in the high sales
period (such as producing skates in summer time for the winter period)
Pipeline inventory:
We are dealing with ‘pipe-line inventory’, when a company decides to subcontract one process
to an outside supplier at some time during the total process lead time.
Buffer inventory:
The basic problem of average demand, by definition, is that it varies around the average. To
master this problem, the company may hold higher levels of inventory. So the general idea of
‘buffer inventory’ is to (help to) protect against unpredictable variations in demand or supply.
2. Store keeper Duties and Responsibility and Bin card
Store keeper duties and Responsibility
The Store Keeper Meaning and Responsibility.
Store keeper is the important person for the store. He is the in charge of the store department and
also responsible for store control. He must be a skilled person and takes care of the store. He
keeps a watch full eye on the movement of the materials with a view to control the materials in
the store. He is known as chief-store keeper or store superintendent. A store keeper should have
technical knowledge and experience in the maintenance of the store. He should have organizing
ability and undoubted integrity.
Duties and responsibility: The primary duties of the store keeper is various and varied
according to the organisation structure. A store keeper is being the head of a store dept. He is
entrusted the following duties & responsibility.
Receiving material: The primary duty of the store keeper is to receive the material from the
supplier. At the time of receipt of material, he has to see that the materials have been sent by the
supplier on the basis of purchase order.
Arranging materials: The materials received by the store keeper must be arranged in a proper
manner. Bins should be allotted to each and every item.
Preservation of the material: After the receipt of material they are to be preserved properly. It
is the duty of the store-keeper to keep the material in store on safe custody. Unless the quality
may deteriorate loss of material may be possible.
Recording: It is the duty of the store keeper to record the receipt and issue of material in the
respective bin card regularly. It will indicate the quantity of stock held by the store every time.
For recording, the store keeper maintains store ledger and bin cards.
Issue of material: The store keeper issues the material as per the requisition of the production.
When store keeper received requisition he issues material from the store.
Issuing purchasing requisition: When the stock reaches at ordering level the store keeper sends
purchase requisition to the purchasing department for the fresh purchase of the materials.
Accordingly, the purchasing departments purchases materials as per quantity and quality stated
there in.
Supervision: The store keeper must be coordinate and supervise the duty of the staff under his
control. As he is the head of the store department, he manages the entire department
Bin card:
Bin card is a record of receipt and issue of materials Quantity of store received is entered with
receipt column and the quantity of store issued is recorded in the issue column of Bin Card.
Balance of quantity of stores is ascertained after every receipt or issue. It shows the balance of
the stock at any moment of time. Bin Card is maintained by the store-keeper. He is answerable
for any difference between physical store and the balance shown by the Bin Card. Thus Bin Card
does not only records the receipt an issue of the stores but also assist the store keeper for control
of the stock. For each item of stores minimum level maximum level, and ordering level are
shown in the part of the Bin Card. By seeing the Bin Card the store keeper sends the material
requisition for the purchase of materials from time to time.
A bin card is also known as bin tag or stock card and is usually hung up or placed in shelf, rack
or bin where the material has been kept. Bin cards can also be in the form of loose sheets which
can be maintained in a ledger kept in the stores.
3. Explain Safety Stock and Lead time Analysis
Safety Stock
Extra units of inventory carried as protection against possible stockouts. The safety stock must
be carried when the firm is not sure about either the demand for the product or lead time or both.
In the case where demand is uncertain, safety stock is the difference between the maximum
usage and the average usage multiplied by the lead time. For example, assume that a store is
faced with an uncertain usage for its baseballs. Lead time is constant at two weeks. Normal
weekly usage is 700 dozen but it can go as high as 850 dozen. The store would compute the
safety stock as follows:
Lead time Analysis : Total time required to complete one unit of a product or service
Lead time
Start
Finish
Purpose of Lead Time Analysis
To document all steps in a process

To quantify the time and distance of each step in a process

To identify where value is being added to the process

To understand how non-value added activities drive cost in a process

To learn that reducing Lead Time contributes directly to improving Q,S,T, P and
Customer Satisfaction
SECTION C
1. Explain the ABC, VED, FSN Analysis
The ABC classification process is an analysis of a range of objects, such as finished
products ,items lying in inventory or customers into three categories. It's a system of
categorization, with similarities to Pareto analysis, and the method usually categorizes inventory
into three classes with each class having a different management control associated :
A - outstandingly important; B - of average importance; C - relatively unimportant as a basis for
a control scheme. Each category can and sometimes should be handled in a different way, with
more attention being devoted to category A, less to B, and still less to C.
Popularly known as the "80/20" rule ABC concept is applied to inventory management as a ruleof-thumb. It says that about 80% of the Rupee value, consumption wise, of an inventory remains
in about 20% of the items.
This rule , in general , applies well and is frequently used by inventory managers to put their
efforts where greatest benefits , in terms of cost reduction as well as maintaining a smooth
availability of stock, are attained.
.
The ABC concept is derived from the Pareto's 80/20 rule curve. It is also known as the 80-20
concept. Here, Rupee / Dollar value of each individual inventory item is calculated on annual
consumption basis.
Thus, applied in the context of inventory, it's a determination of the relative ratios between the
number of items and the currency value of the items purchased / consumed on a repetitive basis :

10-20% of the items ('A' class) account for 70-80% of the consumption

the next 15-25% ('B' class) account for 10-20% of the consumption and

the balance 65-75% ('C' class) account for 5-10% of the consumption
'A' class items are closely monitored because of the value involved (70-80% !).
High value (A), Low value (C) , intermediary value (B)

20% of the items account for 80% of total inventory consumption value (Qty consumed
X unit rate)

Specific items on which efforts can be concentrated profitably

Provides a sound basis on which to allocate funds and time

A,B & C , all have a purchasing / storage policy - "A", most critically reviewed , "B"
little less while "C" still less with greater results.
ABC Analysis is the basis for material management processes and helps define how stock is
managed. It can form the basis of various activity including leading plans on alternative stocking
arrangements (consignment stock), reorder calculations and can help determine at what intervals
inventory checks are carried out (for example A class items may be required to be checked more
frequently than class stores
.
Inventory Control Application: The ABC classification system is to grouping items according
to annual issue value, (in terms of money), in an attempt to identify the small number of items
that will account for most of the issue value and that are the most important ones to control for
effective inventory management. The emphasis is on putting effort where it will have the most
effect.
All the items of inventories are put in three categories, as below :
A Items : These Items are seen to be of high Rupee consumption volume. "A" items usually
include 10-20% of all inventory items, and account for 50-60% of the total Rupee consumption
volume.
B Items : "B" items are those that are 30-40% of all inventory items, and account for 30-
-40% of the total Rupee consumption volume of the inventory. These are important, but not
critical, and don't pose sourcing difficulties.
C Items : "C" items account for 40-50% of all inventory items, but only 5-10% of the
total Rupee consumption volume. Characteristically, these are standard, low-cost and readily
available items. ABC classifications allow the inventory manager to assign priorities for
inventory control. Strict control needs to be kept on A and B items, with preferably low safety
stock level. Taking a lenient view, the C class items can be maintained with looser control and
with high safety stock level. The ABC concept puts emphasis on the fact that every item of
inventory is critical and has the potential of affecting ,adversely, production, or sales to a
customer or operations. The categorization helps in better control on A and B items.
In addition to other management procedures, ABC classifications can be used to design cycle
counting schemes. For example, A items may be counted 3 times per year, B items 1 to 2 times,
and C items only once, or not at all
.Suggested policy guidelines for A , B & C classes of items
A items (High cons. Val)
B items (Moderate cons.Val)
C item (Low cons. Val)
Very strict cons. control
Moderate control
Loose control
No or very low safety stock
Low safety stock
High safety stock
Phased delivery (Weekly)
Once in three months
Once in 6 months
Weekly control report
Monthly control report
Quarterly report
Maximum follow up
Periodic follow up
Exceptional
As many sources as possible
Two or more reliable
Two reliable
Accurate forecasts
Estimates on past data
Rough estimate
Central purchasing /storage
Combination purchasing
Decentralised
Max.efforts to control LT
Moderate
Min.clerical efforts
To be handled by Sr.officers
Middle level
Can be delegated
VED ANALYSIS
VED Analysis can be defined as the analysis of maintenance spares in to
V Items – Items of vital importance,
E Items – Items of essential importance,
D Items – Items of desirable importance.

Vital importance in the way of indicating the fact that m/c can’t run without ‘V’ Item.

Essential importance in the sense impart that m/c can run but without parameters as such
efficiency, noise reduction etc.

Desirable importance in the way denotes m/c can run but factor of safety, industrial
formalities can’t be satisfied.(ie) wearing ear protection aid
In contrast to your imagination the VED analysis is complex and it needs deliberate
discussions to fix the item whether it is V item or E item or D item. So the VED analysis
stands above the ground work every maintenance worker of the Industry .
F-S-N analysis
F-S-N analysis is based on the consumption figures of the items. The items under this analysis
are class consumed
Tags: F-S-N Analysis, fast moving, non-moving, slow moving into three groups: F (fast
moving), S (slow moving) and N (non-moving).
To conduct the analysis, the last date of receipt or the last date of issue whichever is later is taken
into account and the period, usually in terms of number of months, that has elapsed since the last
movement is recorded.
Such an analysis helps to identify: Active items which require to be reviewed regularly
Surplus items whose stocks are higher than their rate of consumption; and Non-moving items
which are not being consumed
2. Explain EOQ And Reorder point
Economic order Quantity (EOQ)
Economic order quantity is the level of inventory that minimizes the total inventory holding
costs and ordering costs. It is one of the oldest classical production scheduling models. The
framework used to determine this order quantity is also known as Wilson EOQ Model or
Wilson Formula. The model was developed by F. W. Harris in 1913, but R. H. Wilson, a
consultant who applied it extensively, is given credit for his early in-depth analysis
Overview
Assume that the demand for a product is constant over the year and that each new order is
delivered in full when the inventory reaches zero. There is a fixed cost charged for each order
placed, regardless of the number of units ordered. There is also a holding or storage cost for each
unit held in storage (sometimes expressed as a percentage of the purchase cost of the item).
We want to determine the optimal number of units of the product to order so that we minimize
the total cost associated with the purchase, delivery and storage of the product
The required parameters to the solution are the total demand for the year, the purchase cost for
each item, the fixed cost to place the order and the storage cost for each item per year. Note that
the number of times an order is placed will also affect the total cost, however, this number can be
determined from the other parameters
Underlying assumptions
1. The ordering cost is constant.
2. The rate of demand is constant
3. The lead time is fixed
4. The purchase price of the item is constant i.e no discount is available
5. The replenishment is made instantaneously, the whole batch is delivered at once.
EOQ is the quantity to order, so that ordering cost + carrying cost finds its minimum. (A
common misunderstanding is that the formula tries to find when these are equal.)
Variables

Q = order quantity

Q * = optimal order quantity

D = annual demand quantity of the product

P = purchase cost per unit

S = fixed cost per order (not per unit, in addition to unit cost)

H = annual holding cost per unit (also known as carrying cost or storage cost) (warehouse
space, refrigeration, insurance, etc. usually not related to the unit cost)
The Total Cost function

The single-item EOQ formula finds the minimum point of the following cost function:

Total Cost = purchase cost + ordering cost + holding cost

- Purchase cost: This is the variable cost of goods: purchase unit price × annual demand
quantity. This is P×D

- Ordering cost: This is the cost of placing orders: each order has a fixed cost S, and we
need to order D/Q times per year. This is S × D/Q

- Holding cost: the average quantity in stock (between fully replenished and empty) is
Q/2, so this cost is H × Q/2

.

To determine the minimum point of the total cost curve, set its derivative equal to zero:


.
The result of this derivation is:


.
Solving for Q gives Q* (the optimal order quantity):



Therefore:

Note that interestingly, Q* is independent of P; it is a function of only S, D, H.
.
Extensions

Several extensions can be made to the EOQ model, including backordering costs and
multiple items. Additionally, the economic order interval can be determined from the
EOQ and the economic production quantity model (which determines the optimal
production quantity) can be determined in a similar fashion.

A version of the model, the Baumol-Tobin model, has also been used to determine the
money demand function, where a person's holdings of money balances can be seen in a
way parallel to a firm's holdings of inventory
Example
Economic order quantity =
Economic order quantity = 500 units
Number of order per year (based on EOQ)
Number of order per year (based on EOQ) = 20
Total cost = CU * AR + CO(AR / EOQ) + CC(EOQ / 2)
Total cost = 8 * 10000 + 2(10000 / 500) + 0.16(500 / 2)
Total cost = $80080
If we check the total cost for any order quantity other than 500(=EOQ), we will see that the cost
is higher. For instance, supposing 600 units per order, then

Total cost = Suppose annual requirement (AR) = 10000 units

Cost per order (CO) = $2

Cost per unit (CU)= $8

Carrying cost %age (%age of CU) = 0.02

Carrying cost Per unit = $0.16
8 * 10000 + 2(10000 / 600) + 0.16(600 / 2)
Total cost = $80081
Similarly, if we choose 300 for the order quantity then
Total cost = 8 * 10000 + 2(10000 / 300) + 0.16(300 / 2)
Total cost = $80091
This illustrates that the Economic Order Quantity is always in the best interests of the entity
Reorder Point
Inventory level at which it is appropriate to replenish stock. The calculation is as follows:
Reorder Point = Average Usage Per Unit of Lead Time x Lead Time + Safety Stock
First, multiply average daily (or weekly) usage by the lead time in days (or weeks) yielding the
lead time demand. Then add safety stock to this to provide for the variation in lead time demand
to determine the reorder point. If average usage and lead time are both certain, no safety stock is
necessary and should be dropped from the formula.
UNIT V
Quality control - Types of Inspection - Centralised and Decentralised. TQM: Meaning Objectives - elements - Benefits - Bench marking: Meaning - objectives - advantages -ISO:
Features - Advantages - Procedure for obtaining ISO.
SECTION A
1. It is graphical representation of discrete groups or categories of data: Bar chart
2. Seven quality control tool includes: Pareto analysis
3. Sample inspection also known as: Acceptance sampling
4. Inspection is a part of: Quality control
5. ISO is located in: Geneva
6. ISO refers to International organization for: Standardization
7. Performance benchmarking is also known as: Competitive benchmarking
8. A flow chart is a: Pictorial representation
9. Floor inspection means inspection on the point of: Production
10. Centralized inspection is performed at on: Central location
11. Devices used for quality control: Acceptance sampling
12. The term quality control consists of two words quality and: Control
SECTION – B
1. TQM
There are many definitions of total quality management around. Some define total quality
management in a way different to some others. But in general definition of total quality
management should contain the following characteristics.

TQM is a customer focused approach

Aims at satisfying the customer or delighting them

Provides best quality product at lowest possible price

It is companywide strategy

Involves everyone in the organization

Prevention of defects is the way and the target is zero defects

Total quality management is methodical

It makes moves based on information

It is a continuous process
“TQM is a process and philosophy of achieving best possible outcomes from the inputs, by
using them effectively and efficiently in order to deliver best value for the customer, while
achieving long term objectives of the organization”
PRINCIPAL OBJECTIVES OF TQM
A Total Quality oriented organization must have at least following principal objective.
Organization should have many more additional specific objectives.

Customer focus, customer delight/satisfaction.

Continuous improvement as a culture of the organization, which must be the way of life.

Focused, continuous and relentless cost reduction.

Focused, continuous and relentless quality improvement.

To create an organization whereby everyone is working towards making their
organization the best in its business, and to capitalize on the sense of achievement and
working in a world-class organization.
2. Bench Marking
Benchmarking is the process of comparing one's business processes and performance metrics to
industry bests and/or best practices from other industries. Dimensions typically measured are
quality, time and cost. In the process of benchmarking, management identifies the best firms in
their industry, or in another industry where similar processes exist, and compare the results and
processes of those studied (the "targets") to one's own results and processes. In this way, they
learn how well the targets perform and, more importantly, the business processes that explain
why these firms are successful.
The term benchmarking was first used by cobblers to measure people's feet for shoes. They
would place someone's foot on a "bench" and mark it out to make the pattern for the shoes.
Benchmarking is used to measure performance using a specific indicator (cost per unit of
measure, productivity per unit of measure, cycle time of x per unit of measure or defects per unit
of measure) resulting in a metric of performance that is then compared to others.
Also referred to as "best practice benchmarking" or "process benchmarking", this process is used
in management and particularly strategic management, in which organizations evaluate various
aspects of their processes in relation to best practice companies' processes, usually within a peer
group defined for the purposes of comparison. This then allows organizations to develop plans
on how to make improvements or adapt specific best practices, usually with the aim of increasing
some aspect of performance. Benchmarking may be a one-off event, but is often treated as a
continuous process in which organizations continually seek to improve their practices.
SECTION – C
1. Types of Inspection
The three most common types of quality inspections
There are mainly three tools at the disposal of buyers, to check on the quality of their suppliers'
products. Each buyer should try to choose the solution(s) that best fit(s) her needs.
Pre-production inspection (a.k.a. "initial production inspection")
"Garbage in, garbage out": a factory usually cannot turn defective inputs (components, or raw
materials) into good products. And the problems are much harder to detect once the materials are
embedded in the final product.
Thus, to decrease quality risks, the inputs can be inspected prior to production. Some samples
can be taken randomly and checked visually (or sent to a laboratory for tests). Also, the buyer
should clearly define what inputs are acceptable, before he gives any order.
An experienced inspector can also examine the making of a prototype/sample, to make sure of
two things:

Has the factory understood the technical files? Do they know what product the client
wants?

Has the development team clearly communicated the requirements to the manufacturing
team? Is the equipment for mass production similar to that used for making prototypes?
Usually, production has already started when a pre-production inspection takes place. It
allows the inspector to examine the process, and sometimes to check a few finished products.
However, in this case, the factory might refuse to stop production (to avoid disruption of the
lines), even though the inputs are not conform or the process is not satisfactory.
Generally speaking, pre-production inspections are adapted to customized and complex products.
More standard items should be inspected during production (see below).
During production inspection (a.k.a. "in-line" or "in-process" inspection)
Should a buyer wait until the end of production, before doing an inspection? In case products are
defective, the following problems might arise:

The factory has to rework (loss of time).

If the products cannot be repaired, the factory should re-order components, and reproduce (which means long delays, and a financial loss for the factory).

The supplier might refuse to repair or re-produce, particularly if the previously-agreed
specifications are ambiguous.
Typically, in an in-line inspection, the first products that got out of the line are inspected for
conformity. If issues are raised at this stage, the factory can immediately take some corrective
actions and avoid delays.
Also, based on the production start date and the number of products already finished, the buyer
can have a fair idea about the shipment schedule.
A third advantage of in-line inspections is that the buyer knows where the goods are produced.
Some suppliers show a factory to a buyer, and then sub-contract the production in another
workshop (this happens every day in China).
Note: some companies make a distinction between inspections performed at the beginning of
production and inspections during production. I pasted below an extract of a brochure from the
industry leader (SGS) for illustration:
'Initial Production Check' permits timely corrections of any non-conformities detected.
'During Production Check' allows evaluation of the average product quality during
manufacturing.
What it means is that third-party inspectors can either check the first finished products getting
out of the line, or come in at a later stage and select samples from a larger pool of finished
goods.
In any case, in-process products are rarely checked. It takes a technician to reliably detect errors
on unfinished products.
Final random inspection (a.k.a. "pre-shipment inspection")
This is the most popular type of quality inspection for importers. It takes place once all the
products are finished and ready for shipment.
Note: A "packed product" is ready for shipment (i.e. in a closed export carton with full shipping
marks). In many cases, the inspector accepts up to 20% of unpacked products per reference. This
way, the inspection can often take place without delaying the shipment.
The conformity of the products is checked against a list of criteria defined by the buyer (product
quantity, workmanship, function, safety, aspect, size, packing...).
Buyers are advised to ask their inspectors to keep track of which cartons were opened. This way,
a 2nd "spot" inspection can give an idea of how seriously the control was performed.
Of the three inspections presented in this article, this is the only one where the total quantity of
products can be counted, and where samples of finished products can be drawn in a truly
random manner--and thus be representative of the whole batch.
As a result, the results of final inspections are more reliable. And some buyers assume that the
inspectors should "guarantee" the quality of the whole order quantity, when the inspection is
passed. Unfortunately, it is impossible for several reasons:

After the inspection is done, and before shipment, many things can happen. A dishonest
factory can ship a smaller quantity, substitute the content of the cartons, etc. There is a
solution to avoid this: a container-loading supervision.

An inspection result (pass/fail) is not 100% reliable: even a random sample might be
better than the average products; the inspector might make a mistake; an inspector might
get bribed by the supplier, etc.

An inspection fee (usually USD300 for one day) is totally out of proportion with the total
value of the goods at stake (sometimes over USD100,000).
2. ISO
ISO (International Organization for Standardization) is the world's largest developer and
publisher of International Standards.
ISO is a network of the national standards institutes of 162 countries, one member per country,
with a Central Secretariat in Geneva, Switzerland, that coordinates the system.
ISO is a non-governmental organization that forms a bridge between the public and private
sectors. On the one hand, many of its member institutes are part of the governmental structure of
their countries, or are mandated by their government. On the other hand, other members have
their roots uniquely in the private sector, having been set up by national partnerships of industry
associations.
Therefore, ISO enables a consensus to be reached on solutions that meet both the requirements
of business and the broader needs of society.
Because "International Organization for Standardization" would have different acronyms in
different languages ("IOS" in English, "OIN" in French for Organisation internationale de
normalisation), its founders decided to give it also a short, all-purpose name. They chose "ISO",
derived from the Greek isos, meaning "equal". Whatever the country, whatever the language,
the short form of the organization's name is always ISO.
Standards make an enormous and positive contribution to most aspects of our lives.
Standards ensure desirable characteristics of products and services such as quality,
environmental friendliness, safety, reliability, efficiency and interchangeability - and at an
economical cost.
When products and services meet our expectations, we tend to take this for granted and be
unaware of the role of standards. However, when standards are absent, we soon notice. We soon
care when products turn out to be of poor quality, do not fit, are incompatible with equipment
that we already have, are unreliable or dangerous.
When products, systems, machinery and devices work well and safely, it is often because they
meet standards. And the organization responsible for many thousands of the standards which
benefit the world is ISO.
When standards are absent, we soon notice.
ISO standards:

make the development, manufacturing and supply of products and services more
efficient, safer and cleaner

facilitate trade between countries and make it fairer

provide governments with a technical base for health, safety and environmental
legislation, and conformity assessment

share technological advances and good management practice

disseminate innovation

safeguard consumers, and users in general, of products and services

make life simpler by providing solutions to common problems
ISO standards provide technological, economic and societal benefits.
For businesses, the widespread adoption of International Standards means that suppliers can
develop and offer products and services meeting specifications that have wide international
acceptance in their sectors. Therefore, businesses using International Standards can compete on
many more markets around the world.
For innovators of new technologies, International Standards on aspects like terminology,
compatibility and safety speed up the dissemination of innovations and their development into
manufacturable and marketable products.
For customers, the worldwide compatibility of technology which is achieved when products and
services are based on International Standards gives them a broad choice of offers. They also
benefit from the effects of competition among suppliers.
For governments, International Standards provide the technological and scientific bases
underpinning health, safety and environmental legislation.
For trade officials, International Standards create "a level playing field" for all competitors on
those markets. The existence of divergent national or regional standards can create technical
barriers to trade. International Standards are the technical means by which political trade
agreements can be put into practice.
For developing countries, International Standards that represent an international consensus on
the state of the art are an important source of technological know-how. By defining the
characteristics that products and services will be expected to meet on export markets,
International Standards give developing countries a basis for making the right decisions when
investing their scarce resources and thus avoid squandering them.
For consumers, conformity of products and services to International Standards provides
assurance about their quality, safety and reliability.
For everyone, International Standards contribute to the quality of life in general by ensuring that
the transport, machinery and tools we use are safe.
For the planet we inhabit, International Standards on air, water and soil quality, on emissions of
gases and radiation and environmental aspects of products can contribute to efforts to preserve
the environment.
1. How to Obtain ISO Certification

Make sure the decision to obtain an ISO 9000 certification is made by the
person who is in charge of all manufacturing processes in your business.
Management should determine whether or not this person should go
through with the process of obtaining the certification. Once it is
determined that the certification process should be undertaken you can
begin to obtain the ISO 9000 certification.

Determine the roles for those in management and manufacturing to record
all of the procedures, policies and requirements for the systems of your
company. Also, job descriptions and functions should be recorded. All
process information and documents should be organized before continuing
with the certification process.

Implement the documentation into your business through training and
through step-by-step procedures. A technical writer may be helpful for
implementing the documents to your employees. Make sure that the
employees know the importance of understanding all process information
that has been documented and that they know the importance of obtaining
ISO certification.

Perform audits internally to make sure all of the employees understand the
documentation and successfully follow the procedures. If there are any
errors found during the audits, make sure to create corrective actions so
there are no recurrences.

Apply for certification by contacting an ISO representative (see
Resources). A representative may come to your business to observe the
procedures in action and to give you a chance to discuss the success of
your implementation process.