HRM: HRM stands for Human Resource Management.

It refers to the practices, policies, and

activities involved in managing an organization's workforce, including:

1. Recruitment and selection

2. Training and development
3. Performance management
4. Employee relations
5. Compensation and benefits
6. Talent management
7. Succession planning
8. Employee engagement
9. Diversity, equity, and inclusion
10. HR analytics

HRM can be defined as a process of procuring, developing and maintaining competent resources in
the organization so that goals of an organization are achieved in an effective and efficient manner. In
other words HRM is an art of managing people at work in such a manner that they give best to the
organisation.

According to Flippo, ‘Personnel Management, or say, human resources management is the planning,
organizing, directing and controlling of the procurement, development, compensation, integration,
maintenance, and separation of human resources to the end that individual, organisational and social
objectives are accomplished”.
HRM aims to maximize employee performance, satisfaction, and well-being, while aligning with the
organization's strategic objectives. Effective HRM practices can lead to:

- Improved productivity
- Enhanced employee experience
- Better retention rates
- Increased job satisfaction
- Stronger organizational culture

HRM involves various functions, such as:

- HR generalists
- Recruiters
- Talent acquisition specialists
- Learning and development professionals
- Compensation and benefits specialists
- HR business partners
- HR analysts

Significance of HRM
Organizational significance
i. Effective utilization of human resources to motivate them and to change their attitudes to work and
the organization.
ii. To develop personnel to meet the demands of the work effectively; and
iii. To ensure proper recruitment and to retain the personnel in the organization so that right people
are available.
Social significance
This aspect aims in achieving the need satisfaction of personnel in the organisation. It is often said
that a happy worker is not only happy in his work place but also at home and in society also.
Hence HRM seeks to achieve the following
1. Maintaining balance between jobs and job-seekers, taking into consideration job requirements,
job seekers’ abilities and aptitudes
2. Providing most productive employment from which socio-psychological satisfaction can be
derived.
3. Utilizing human capabilities effectively and matching with government rewards.
4. Eliminating wasteful organizational and individual practices.

Professional Significance
This aspect involves developing people and providing appropriate environment for effective
utilization of their capabilities and involves the following.
1. Developing people on a continuous basis to meet the challenges of their jobs.
2. Maintaining the dignity of personnel at the work place.

3. Providing proper physical and social environment at the work place to create a congenial
working atmosphere.

HRP
HRP stands for Human Resource Planning. It's a strategic process that identifies an organization's
current and future human resource needs to achieve its objectives. HRP involves:

1. Workforce analysis: Assessing the current workforce's skills, abilities, and demographics.
2. Job analysis: Identifying the tasks, duties, and requirements for each job.
3. Forecasting: Predicting future labor demand and supply.
4. Gap analysis: Identifying the difference between current and required workforce capabilities.
5. Action planning: Developing strategies to address gaps and meet future needs.

HRP aims to ensure the right people, with the right skills, are in the right place, at the right time.
Effective HRP helps organizations:

- Meet changing business needs

- Improve productivity
- Enhance employee engagement
- Reduce turnover and recruitment costs
- Develop a competitive advantage

HRP is an ongoing process that involves:

- HR professionals
- Line managers
- Senior leadership
- External partners (e.g., recruitment agencies)
HRP is a crucial process that helps organizations prepare for future workforce needs. Here are some
additional aspects of HRP:
1. Strategic alignment: HRP ensures that workforce planning aligns with the organization's overall
strategy and objectives.
2. Workforce analytics: HRP uses data and analytics to forecast labor demand, identify trends, and
measure workforce performance.
3. Talent management: HRP informs talent management strategies, such as succession planning,
leadership development, and employee engagement.
4. Diversity, equity, and inclusion: HRP considers diversity, equity, and inclusion goals to ensure a
diverse and inclusive workforce.
5. Risk management: HRP identifies potential workforce risks, such as skill gaps, turnover, and
retirement, and develops mitigation strategies.
6. Budgeting and cost management: HRP informs budgeting and cost management decisions related
to workforce expenses.
7. Technology integration: HRP leverages HR technology, such as HRIS and workforce planning
tools, to streamline processes and improve accuracy.

By considering these aspects, organizations can develop a comprehensive HRP process that drives
business success.

The six parts of the HRM plan include the following:

1. Determine human resource needs. This part is heavily involved with the strategic plan. What
growth or decline is expected in the organization? How will this impact your workforce? What is the
economic situation? What are your forecasted sales for next year?
2. Determine recruiting strategy. Once you have a plan in place, it’s necessary to write down a strategy
addressing how you will recruit the right people at the right time.
3. Select employees. The selection process consists of the interviewing and hiring process.
4. Develop training. Based on the strategic plan, what training needs are arising? Is there new software
that everyone must learn? Are there problems in handling conflict? Whatever the training topics are,
the HR manager should address plans to offer training in the HRM plan.
5. Determine compensation. In this aspect of the HRM plan, the manager must determine pay scales
and other compensation such as health care, bonuses, and other perks.
6. Appraise performance. Sets of standards need to be developed so you know how to rate the
performance of your employees and continue with their development.

Recruitment
Recruitment is defined as, process to discover the source of manpower to meet the requirement
of staffing scheduled and to employ effective measures for attracting that manpower in adequate
number to facilitate effective selection of an efficient workforce.

Edwin B Flippo defined recruitment as, "the process of searching for prospective employee and
stimulating them to apply for jobs in the organization."

Nature
Recruitment involves the following features:
1. Recruitment is first step of appointment.
2. It is a continuous process.
3. It is a process of identifying sources of human force, attracting and motivating them to
apply for the jobs in organisations.
4. It is development man power or to be works at last stage.
5. It is a positive process.
6. It fulfills needs, both present and the future.
Purpose
1. Finding out and developing the source here required number and kind of employees are/ will be
available.
2. Developing suitable techniques to attract the desirable candidate.
3. Employing the technique to attract the employees.
4 Stimulating as many candidate as possible and asking them to apply for jobs irrespective of number
of candidate required in order to increase the selection ratio (i.e., number of application per one job
vacancy) due to lower yield ratio.

Recruitment Process
The major steps of the recruitment process are stated hereunder:
1. Job Design: The job design is the most important part of the recruitment process. The job design
is a phase about design of the job profile and a clear agreement between the line manager and the
HRM Function. The Job Design is about the agreement about the profile of the ideal job candidate
and the agreement about the skills and competencies, which are essential. The information gathered
can be used during other steps of the recruitment process to speed it up.
2. Opening Job Position: The Opening of the Job Position is generally the job of the HR Recruiter.
Skilled and experienced HR Recruiter should decide about the right mix of the recruitment sources
to find the best candidates for the job position. This is another key step in the recruitment process.
3. Collecting and Presenting Job Resumes: The next step is collecting of job resumes and their
preselection. This step in the recruitment process is very important today as many organization lose
a lot of time in this step. Today, the organization cannot wait with the preselection of the job resumes.
Generally, this should be the last step done purely by the HRM Function.
4. Job Interviews: The job interviews are the main step in the recruitment process, which should be
clearly designed and agreed between HRM and the line management. The job interview should
discover the job candidate, who meets the requirements and fits best the corporate culture and the
department.
5. Job Offer: The job offer is the last step of the recruitment process, which is done by the HRM
Function, it finalizes all the other steps and the winner of the job interviews gets the offer from the
organization to join.

Recruitment Techniques
Recruitment techniques are the means or media by which management contacts prospective
employees or provide necessary information or exchange ideas or stimulate them to apply for
jobs. Recruitment techniques are:
Internal Methods: They are for recruiting internal candidate. These include methods like:
1. Promotion & Transfers
2. Job Posting
3. Employee Referrals
Direct Methods: These include sending traveling recruiters to educational and professional
institutions and employees' contacts with public.
Campus Recruitment

Indirect Methods
1. Advertisement: Advertising is the most common method of attracting candidates. Consideration
should be given to other sources of recruitment such as agency or selection consultant. The objective
of using advertisement should be to:
(a) Attract attention: It must compete for the interest of potential candidates with other employers.
(b) Create and maintain interest: It has to communicate in an attractive and interesting way and give
needful information about terms and conditions of employment and qualification required.
(c) Stimulate action: The massage will be effective only if it encourages for prompt replies from the
eligible employees.
2. Newspaper Ads
3. Television & Radio Ads

E-Recruitment Notes
The term e-recruitment means using Information Technology (IT) to speed up or enhance parts
of the recruitment process. It ranges from the applicant interface for advertising vacancies and
making job applications, to the back office processes, which allow a liaison between human resources
(HR) and line managers to set up a talent pool or database of potential recruits.
Used correctly e-recruitment can:
enhance the applicant experience
communicate the employer's image and culture better
make the recruitment process faster, more accountable and standardised
increase the diversity of applicants
provide better management information on applicants
find the right candidate for the job.

Selection
Selection process leads to creation of a contractual relation between employer and the employee.

Definition
It is a process of differentiating between applicants in order to identify (& hire) those with a greater
likelihood of success in a job.
It involves steps leading to employment of persons who possess the ability and qualifications to
perform the jobs which have fallen vacant in the organization.
It is basically a matching process, that is finding "FIT" between person and job.

Differences between Recruitment and Selection

1. Recruitment means searching for sources of labour and stimulating people to apply for job, whereas
selection means selection of right kind of people for various jobs.
2. Recruitment is a positive process whereas selection is a negative process.
3. It creates a large pool of applicants whereas selection leads to screening of unsuitable candidate.
4. Recruitment is a simple process, it involves contracting the various sources of labour whereas
selection is a complex and a time consuming process. The candidate have to clear a number of hurdles
before they are selected for a job.
Selection Process: Steps in Selection Procedure
1 Preliminary Interview or Screening
When large number of applicants are available, the preliminary interview is desirable for both
the company and the applicant. The main objective of such interview is to screen out undesirable/
unqualified candidate at the very outset. Care should be taken to ensure that the "weeding out" process
does not lead to the elimination of desirable workers. Six items have been suggested as knock-out
factors in the preliminary screening programme of sales executives. They include:
1. Instability of residence
2. Failure in business within two years
3. Divorce or separation within two years
4. Excessive personal indebtedness
5. Too high a standard of living
6. Unexplained gap in the employment record.
This is also known as courtesy interview.

2 Application Form
It is traditional & widely accepted for serving information from the prospective candidate. Many
companies formulate their own style of application form depending upon the requirement They also
formulate different application form for different job at level. It includes following items:
1. Biographical Data: It includes name, present and permanent address, gender, date of birth, marital
status, nationality, height, weight and number of dependents. They provide information regarding
applicants socio-economic background, family status & its impact on employee's behavior. This
information can be used by the management to know the suitability of the candidate.
2. Educational Attainments: Education (subjects offered and grades secured) training acquired
in special fields & knowledge gained from professional/technical institute or evening classes or
through correspondence courses.
3. Work Experience: Previous experience, number of job held, nature of duties & responsibilities,
duration of various assignments, reason for leaving the previous employer.
4. Salary: Demanded & other benefits expected.
5. Personal Items: Association membership, personal likes & dislikes, hobbies.
6. References: Name & address of previous employer & references.

3 Employment Test
They are used to get information about the candidate, which are not available from application
blank or interview. They help in matching the characteristics of individuals with the vacant job
so as to employ right type of personnel.
Following type of test are used:
1. Intelligence test
2. Achievements tests
3. Aptitude test
4. Personality test
5. Assessment centre
6. Graphology tests
7. Polygraph tests
8. Integrity tests

4 Standards for Selection Tests

1. Reliability: Test scores should not vary widely under repeated conditions.
(a) Test-retest reliability: techniques giving same results when repeated on the same person.
(b) Inner-rater reliability: giving same results, when used by two or more different rates.
(c) Intra rater reliability: technique which gives the same results, when repeatedly used by the same
rater to rate the same behaviour or attitudes at different times.
2. Validity: is the extent to which an instrument measures what it intends to measure. Example typing
speed.
(a) Content validity: is the degree to which the content of the test represent the actual work situation.
Example, Typing test has high content validity for typist.
(b) Construct validity: is the degree to which specific trait is related to successful job performance.
Example, Honesty would be important for bank cashier.
3. Qualified people
4. Preparation
5. Suitability

5 Employment Interview
It is the oral examination of candidates for employment. In this step the interviewer matches the
information obtained about the candidate through various means to the job requirements and to the
information obtained through his own observations during the interview.
It gives opportunity to recruiter to:
1. To ask questions that are not covered in the tests.
2. To make judgments on the candidates enthusiasm and intelligence.
3. To assess facial expressions, appearance, nervousness.
4. To give the facts to the candidate regarding the company policies, programmes and promote
goodwill of the company.

The coverage of the interview may include:

1. Experience and education
2. Previous employment
3. Gaps in employment history
4. Information on health, financial & domestic matters
5. Marital status
6. Likes & dislikes
7. Expected level of achievement
8. Extracurricular activities.

Marketing
The American Marketing Association offers the following formal definition: Marketing is the
activity, set of institutions, and processes for creating, communicating, delivering, and exchanging
offerings that have value for customers, clients, partners, and society at large.
Marketing is a societal process by which individuals and groups obtain what they need and want
through creating, offering, and freely exchanging products and services of value with others.

Marketing Mix
According to Philip Kotler “Marketing Mix is the set of controllable variables that the firm can use
to influence the buyer’s response”. The controllable variables in this context refer to the 4 ‘P’s
[product, price, place (distribution) and promotion]. Each firm strives to build up such a composition
of 4‘P’s, which can create highest level of consumer satisfaction and at the same time meet its
organisational objectives. Thus, this mix is assembled keeping in mind the needs of target customers,
and it varies from one organisation to another depending upon its available resources and marketing
objectives. Let us now have a brief idea about the four components of marketing mix.
Product: Product refers to the goods and services offered by the organisation. A pair of shoes, a plate
of dahi-vada, a lipstick, all are products. All these are purchased because they satisfy one or more of
our needs. We are paying not for the tangible product but for the benefit it will provide. So, in simple
words, product can be described as a bundle of benefits which a marketeer offers to the consumer for
a price. While buying a pair of shoes, we are actually buying comfort for our feet, while buying a
lipstick we are actually paying for beauty because lipstick is likely to make us look good. Product
can also take the form of a service like an air travel, telecommunication, etc. Thus, the term product
refers to goods and services offered by the organisation for sale.
Price: Price is the amount charged for a product or service. It is the second most important element
in the marketing mix. Fixing the price of the product is a tricky job. Many factors like demand for a
product, cost involved, consumer’s ability to pay, prices charged by competitors for similar products,
government restrictions etc. have to be kept in mind while fixing the price. In fact, pricing is a very
crucial decision area as it has its effect on demand for the product and also on the profitability of the
firm.
Place: Goods are produced to be sold to the consumers. They must be made available to the
consumers at a place where they can conveniently make purchase. Woollens are manufactured on a
large scale in Ludhiana and you purchase them at a store from the nearby market in your town. So, it
is necessary that the product is available at shops in your town. This involves a chain of individuals
and institutions like distributors, wholesalers and retailers who constitute firm’s distribution network
(also called a channel of distribution). The organisation has to decide whether to sell directly to the
retailer or through the distributors/wholesaler etc. It can even plan to sell it directly to consumers.
The choice is guided by a host of factors about which you will learn later in this chapter.
Promotion: If the product is manufactured keeping the consumer needs in mind, is rightly priced and
made available at outlets convenient to them but the consumer is not made aware about its price,
features, availability etc, its marketing effort may not be successful. Therefore promotion is an
important ingredient of marketing mix as it refers to a process of informing, persuading and
influencing a consumer to make choice of the product to be bought. Promotion is done through means
of personal selling, advertising, publicity and sales promotion. It is done mainly with a view to
provide information to prospective consumers about the availability, characteristics and uses of a
product. It arouses potential consumer’s interest in the product, compare it with competitors’ product
and make his choice. The proliferation of print and electronic media has immensely helped the
process of promotion.

functions of marketing
A)Function of exchange
1.Buying
2.Assembling
3.Selling
B)Function of physical
1. Transportation
2. Storage
3. Warehousing
C)Function of facilitating
1. Financing
2. Risk-tasking
3. Standardizing
4. Grading
5. Market information
A) Function of exchange
1. Buying
2. Assembling
3. Selling
1.Buying
Buying of goods or services is the first and important function of marketing process. Producers,
intermediaries, wholesalers and retailers do this function. Producers buy raw materials or semi-
finished goods to produce finished and intermediaries buy goods to resell.
Factors to be considered in buying:
1. Quality
2. Quantity
3. Timing
4. Price
5. Source of supply
2.Assembling
Assembling means to purchase necessary component and to fit them together to make a products .
Assembly line indicates a production line made up of purely assembly operation. The assembly
operation involves the arrival of individual component parts at the work place and issuing of these
parts to be fastened together in the form of an assembly or sub-assembly.
Advantage of assembling
1. A manufacture it ensures availability of raw materials and avoids shortage of stock.
2. A trader, who buys from different manufacture, is able to offer choice to his consumed.
3. It results in savings in transportation costs and handing changes for a manufacture as the frequency
of buying is reduced.
4. The production of certain goods is seasonal but their consumption is parental.
Disadvantage of assembling
1. Assembling depends much on the avaibility of storage facilities. But proper storage may not allow
the performance of assure function.
2. The perishable nature of certain goods may not provide scope for assembling.
3. The certain goods have a tendency to become outdated quickly. The keeping stock of such goods
may only result in loss.
4. The quality of certain goods deteriorates with the effetely of time. One their expire date loses.
3.Selling
The process of transferring ownership of goods from the seller to the buyer is called selling. Selling
starts after production and the philosophy of selling is profit maximization.
Steps of the selling
1. Finding a buyer
2. An agreement between the seller and the buyer on quality, quantity, price, plant of delivery of
goods and also the mode of payment.
3. The contract of sale provides for certain condition and warranties to be fulfilled by the seller.
B) Function of physical supply
The term physical distribution is used, generally to describe a series of interrelated activities. It was
described as the other hall of marketing. This function is merely one of a number of sub-system that
comprise the total business activities.
1. Transportation
2. Storage
3. Warehousing
1.Transportation
The goods produced in a particular placed are not consumed there itself. From the place of production
the goods need to be taken to the various consumption centres. It creates place, utility transportation
is essential from the procurement of raw material to the delivery of finished products to the customer’s
places. Marketing relies mainly on railroads, trucks, waterways, pipelines and air transport.
Function of transportation
1. It helps the business to carry the goods to the various consumption centres.
2. It makes available goods at the doorstep of the consumer.
3. The market for the goods by catering to buyer in different regions
4. It helps those business are easily perishable goods in nature by carrying these to the market at right
time.
5. It creates place utility by bridging the gab between the production and consumption centres.
6. It is only development of the transportation system that has given the buyers access to international
brands of goods.
7. It also offers employment opportunities to many.
Classification of transport:
1. Road transport
2. Rail transport
3. Sea transport
4. Air transport
The type of transportation is chose on several considerations such as suitability, speed and cost.
Transportation may be performed either by the buyer or by the seller. The nature and kind of the
transportation facilities determine the extend of the marketing area, the regularity in supply uniform
price maintenance and easy access to supplier or seller.
Storage
Storage is major marketing function which involves the utilization of substantial manpower and
capital resources. The ultimate consumer finds it necessary to purchase some goods in advance of
needs and to store them for the future use. The maintenance of stock of raw materials and finished
products call for storage.
Functions of storage
1. To preserve goods that is produced only during a particular season, but demand throughout the
year (agricultural goods).
2. To preserve goods that is produced throughout the year. The demand during a particular season
(crackers, umbrellas)
3. To enable businessmen to make speculative gain and to wait and sell at a higher price.
Warehousing
Goods may be stored in various warehouse situated at different places, which is popularly known as
warehousing. Warehouses are required to store the goods for the adjustment of supply to demand.
Different kinds of warehouse:
1. private warehouse (own use)
2. public warehouse (any individual or business units and controlled by the govt.)
3. bonded warehouse (it is located near by ports)
C) Function of facilitating:
There are different facilitating functions of marketing:
1. Financing
2. Risk- talking
3. Standardizing and grading
4. Market information
1. Financing
The whole modern production and marketing mechanism is based on credit and money. No person
can think of conducting business without sufficient finance. The business needs finance for various
purpose, one such purpose for marketing. There is wide gap between the production of goods and
consumption of goods. So the product, distributing and consuming require large funds.
2. Risk – taking (insurance)
When the goods are sent by the seller to the buyer through rail, road and ship, there may be risk of
loss. the goods may be lost or damaged or destroyed by sea perils, flood, fire, theft, storm and change
in the temperature. So insurance provides safely against any unforeseen circumstances and ways to
the business people to cover losses or dangers.
3. Standardizing and grading
A standard provides the basis that credit enables the consumers to make a comparison between
goods. Whether a product conforms to the expected quality and the price paid is justified.
Standardization is relevant for consumer and industrial goods.
Grading is a reality a part of standardization. It is process which tests the conformity of
commodities to standards that have been previously set up. Product of agriculture and the extractive
industries are usually graded according to general standard. Grading may be based on shape, size,
colour, strength, appearance, specified gravity and chemical contents.
Advantage of standardization and grading
1. Standardization and grading facilitate buying and selling of goods by sample or description. When
goods are of standardization quality, customers do not insist on detailed inspection.
2. Standardization goods sell better and fetch a better price to seller because customers have more
faith in them.
3. Transportation, storage and advertising expenses can be reduced by handing different grades or
lots.
4. Standardization goods enjoy a wider market.
5. Standardization and grading facilitate trading of goods on the commodity exchange. Hedging
future trading and price comparisons become easy.
Market information
The marketer requires lot of information about the market. Such information helps him taking certain
important decisions, “information generally requires “.
1. Substitutes available
2. Demand
3. Taste and preference of the customer
4. Positive and negative aspects of the product
5. Views of the retailers.

What is a Marketing Strategy?

At its core, a marketing strategy is a comprehensive plan that outlines the steps a company will take
to promote its products or services to its target market. It involves a careful analysis of the market,
understanding customer needs and preferences, and formulating tactics to achieve the company’s
marketing goals. A well-defined marketing strategy acts as a roadmap, guiding the company’s
marketing efforts and ensuring that resources are used efficiently.
Importance of Marketing Strategy in Business
In the ever-evolving business landscape, having a solid marketing strategy is more crucial than ever.
A well-crafted marketing strategy provides several key benefits to a business:

1. Market Penetration: By understanding the market and its dynamics, a marketing strategy
helps businesses identify opportunities to expand their reach and gain a larger market share.
2. Competitive Advantage: A well-executed marketing strategy allows a company to
differentiate its products or services from competitors, creating a unique selling proposition that
attracts customers.
3. Resource Allocation: Effective marketing strategies help allocate resources wisely, ensuring
that marketing efforts are focused on activities that yield the highest return on investment.
4. Brand Building: A consistent and well-communicated marketing strategy contributes to
building a strong brand identity, which is essential for customer loyalty and trust.
5. Adaptability: Market conditions are subject to change, and a marketing strategy provides a
framework for adapting to new trends, technologies, and customer behaviors.

Defining Marketing Strategy

A well-defined marketing strategy serves as a roadmap for businesses to achieve their marketing
objectives effectively. It involves a series of carefully planned actions to reach target customers and
create a sustainable competitive advantage. In this section, we will explore the core components of a
marketing strategy and its relationship with overall business objectives.

Core Components of a Marketing Strategy

1. Market Analysis: Before crafting a marketing strategy, it is essential to conduct a thorough

analysis of the market, including customer needs, competitors, and industry trends. Understanding
the market dynamics helps in identifying opportunities and challenges.
2. Target Audience Identification: Defining the target audience is crucial for tailoring marketing
efforts to specific customer segments. Understanding the preferences, behaviors, and pain points of
the target audience allows for more effective communication and engagement.
3. Value Proposition Development: A strong value proposition outlines the unique benefits and
value that a product or service offers to customers. It helps in differentiating the brand from
competitors and capturing the attention of potential customers.
4. Marketing Mix Strategy: The marketing mix consists of the four Ps: Product, Price, Promotion,
and Place. Crafting the right marketing mix ensures that the product or service meets customer needs,
is priced competitively, reaches the target audience through effective promotions, and is available
through appropriate distribution channels.

Relationship between Marketing Strategy and Business Objectives

A well-crafted marketing strategy aligns with the overall business objectives of a company. The
marketing strategy should support and contribute to achieving the broader goals of the organization.
By establishing clear connections between marketing initiatives and business objectives, companies
can ensure that marketing efforts are directed toward growth and profitability.

Aligning Marketing Strategy with Overall Company Goals

To achieve successful alignment between marketing strategy and business objectives, consider the
following steps:
 1. Collaboration with Key Stakeholders: Engage with key stakeholders, such as company
executives and department heads, to understand the company’s long-term goals and vision.
This collaboration ensures that marketing efforts are in line with the overall business direction.
2. Defining Specific Marketing Goals: Set specific and measurable marketing goals that
contribute to achieving broader business objectives. For example, increasing sales by a certain
percentage, expanding market share, or entering new markets could be specific marketing
goals.
3. Regular Performance Evaluation: Continuously monitor and evaluate the performance of
marketing initiatives against set goals. This assessment allows for adjustments and
optimizations to keep marketing efforts on track.

Types of Marketing Strategies

In the dynamic business landscape, various marketing strategies exist to help companies achieve their
unique goals and objectives. Understanding the different types of marketing strategies enables
businesses to select the most suitable approach for their specific needs. Let’s explore some commonly
used marketing strategies:
1. Differentiation Strategy
A differentiation strategy focuses on making a product or service distinct from competitors’ offerings.
Companies employing this strategy emphasize unique features, superior quality, exceptional
customer service, or brand reputation to attract customers willing to pay a premium for the added
value.
2. Cost Leadership Strategy
A cost leadership strategy aims to be the low-cost producer in the industry. By offering products or
services at a lower price than competitors, companies can appeal to price-sensitive customers and
gain a competitive advantage.
3. Niche Marketing Strategy
Niche marketing involves targeting a specific segment of the market with specialized products or
services. By focusing on a narrow and well-defined customer group, companies can tailor their
offerings to meet specific needs, build brand loyalty, and reduce competition.
4. Growth Strategies (Market Penetration, Market Development, Product Development,
Diversification)
Growth strategies involve expanding a company’s market presence or product offerings to drive
business growth. These strategies include:

 Market Penetration: Increasing market share through aggressive marketing efforts to attract
more customers from existing markets.
 Market Development: Expanding into new geographic regions or untapped market segments
with existing products.
 Product Development: Introducing new products or product variations to meet evolving
customer needs or preferences.
 Diversification: Entering new markets or industries unrelated to the company’s current
offerings, either through related or unrelated diversification.

Segmentation, Targeting, and Positioning (STP)

Segmentation, Targeting, and Positioning (STP) is a fundamental marketing concept that involves a
customer-centric approach to tailor marketing efforts effectively. Let’s explore each component of
STP:
Understanding Market Segmentation
Market segmentation involves dividing the broad market into distinct customer groups based on
common characteristics, needs, or behaviors. By segmenting the market, businesses can target
specific customer segments with customized marketing strategies.

Selecting Target Market Segments

After segmenting the market, businesses must identify which customer segments are the most viable
and relevant for their offerings. Target market selection ensures that marketing efforts are directed
toward customers most likely to engage and convert.

Creating a Unique Market Positioning

Market positioning involves how a company positions its products or services in the minds of
customers relative to competitors. Effective positioning communicates a unique value proposition
and addresses the specific needs or desires of the target market. By establishing a distinct market
position, businesses can differentiate themselves and build a strong brand identity.

Philip Kotler’s Framework for Developing Marketing Strategy

The 5 Product Levels
Philip Kotler also introduced the concept of the 5 product levels, which represent the different levels
of a product that customers perceive. Understanding these levels can help businesses develop
comprehensive marketing strategies to meet customer needs effectively. Let’s explore each of the
product levels:

Core Product
The core product represents the essential benefit or value that the customer receives from using the
product. For example, when purchasing a smartphone, the core product is the ability to communicate
and access information conveniently.
Generic Product
The generic product refers to the basic features and functions that the product provides. In the case
of a smartphone, it includes features like a camera, internet access, and messaging capabilities.
Expected Product
The expected product includes the attributes and features that customers expect from a product in a
particular category. For a smartphone, customers may expect a high-quality display, reliable
performance, and long battery life.
Augmented Product
The augmented product encompasses additional features or services that go beyond customer
expectations. These features add value and differentiate the product from competitors. For a
smartphone, augmented product features might include extended warranties, customer support, or
exclusive software applications.
Potential Product
The potential product represents the future improvements or innovations that a company plans to
introduce to the product. It includes possible enhancements and advancements that may be introduced
to stay ahead of the market and meet future customer needs.
By understanding and incorporating the 4 Ps of marketing and the 5 product levels into their
marketing strategy, businesses can develop comprehensive and customer-focused approaches to
effectively position and promote their products in the market.
 FINANCIAL MANAGEMENT

We will like to explain Financial Management by giving a very simple scenario. For the purpose
of starting any new business/venture, an entrepreneur goes through the following stages of
decision making:-

Stage 1 Stage 2 Stage 3 Stage 4

Decide which Determining Apart from buying The next stage is to
assets what is total assets the decide what all sources,
(premises, investment entrepreneur would does the entrepreneur
machinery, (since assets also need to need to tap to finance
equipment cost money) determine how the total investment
etc.) to buy. required for much cash he would (assets and working
buying need to run the daily capital). The sources
assets. operations (payment could be Share Capital
for raw material, (Including
salaries, wages etc.). Entrepreneur’s own
In other words this funds) or Borrowing
is also defined as from Banks or
Working Capital Investment from
requirement. Financial Institutions etc.

Thus, financial management is concerned with efficient acquisition (financing)and allocation (investment
in assets, working capital etc.) of funds with an objective to make profit (dividend) for owners. In other
words, focus of financial management is to address three major financial decision areas namely,
investment, financing and dividend decisions.
Any business enterprise requiring money and the 3 key questions being enquired into
1. Where to get the money from? (Financing Decision)
2. Where to invest the money? (Investment Decision)
3. How much to distribute amongst shareholders to keep them satisfied? (Dividend Decision)
MEANING OF FINANCIAL MANAGEMENT
Financial management is that managerial activity which is concerned with planning and
controlling of the firm’s financial resources. In other words it is concerned with acquiring,
financing and managing assets to accomplish the overall goal of a business enterprise (mainly to
maximise the shareholder’s wealth).
In today’s world where positive cash flow is more important than book profit, Financial Management
can also be defined as planning for the future of a business enterprise to ensure a positive cash
flow. Some experts also refer to financial management as the science of money management. It
can be defined as:
“Financial Management comprises of forecasting, planning, organizing, directing, co-ordinating
and controlling of all activities relating to acquisition and application of the financial resources
of an undertaking in keeping with its financial objective.
Another very elaborate definition given by Phillippatus is:
 “Financial Management is concerned with the managerial decisions that result in the
acquisition and financing of short term and long term credits for the firm.”
There are two basic aspects of financial management viz., procurement of fundsand an effective
use of these funds to achieve business objectives.
Procurement of FundsSince funds can be obtained from different sources therefore their procurement is
always considered as a complex problem by business concerns. Some of the sources

Procurement of
funds
Aspects of Financial
Management
Utilization of Fund

Debentures and
Bonds

Owner's Funds Angel Financing

Commercial Banks
(Short, Medium & Venture Capital
Long)

for funds for a business enterprise are:

FUNCTIONS OF FINANCIAL MANAGEMENT/ FINANCE DECISION

Value of a firm will depend on various finance functions/decisions. It can be expressed
as :

V = f (I,F,D).

The finance functions are divided into long term and short term functions/decisions
Long term Finance Function Decisions.
(a) Investment decisions (I): These decisions relate to the selection of assets in which funds will be
invested by a firm. Funds procured from different sources have to be invested in various kinds of assets.
Long term funds areused in a project for various fixed assets and also for current assets. The investment of
funds in a project has to be made after careful assessment of the various projects through capital budgeting. A
part of long term funds is also to be kept for financing the working capital requirements. Asset management
policies are to be laid down regarding various items of current assets. The inventory policy would be determined
by the production manager and the finance manager keeping in view the requirement of production and the
futureprice estimates of raw materials and the availability of funds.
(b) Financing decisions (F): These decisions relate to acquiring the optimum finance to meet
financial objectives and seeing that fixed and working capital areeffectively managed. The financial manager
needs to possess a good knowledgeof the sources of available funds and their respective costs and needs to
ensurethat the company has a sound capital structure, i.e. a proper balance between equity capital and debt.
Such managers also need to have a very clear understanding as to the difference between profit and cash flow,
bearing in mindthat profit is of little avail unless the organisation is adequately supported by cashto pay for assets
and sustain the working capital cycle. Financing decisions also callfor a good knowledge of evaluation of risk, e.g.
excessive debt carried high risk foran organization’s equity because of the priority rights of the lenders. A major
areafor risk-related decisions is in overseas trading, where an organisation is vulnerableto currency fluctuations,
and the manager must be well aware of the various protective procedures such as hedging (it is a strategy
designed to minimize, reduce or cancel out the risk in another investment) available to him. For example,someone
who has a shop, takes care of the risk of the goods being destroyed byfire by hedging it via a fire insurance
contract.
(c) Dividend decisions(D): These decisions relate to the determination as to howmuch and how
frequently cash can be paid out of the profits of an organisation as income for its owners/shareholders. The
owner of any profit- making organization looks for reward for his investment in two ways, the growthof the
capital invested and the cash paid out as income; for a sole trader this income would be termed as drawings and
for a limited liability company the termis dividends.
The dividend decision thus has two elements – the amount to be paid out and the amount to be retained to
support the growth of the organisation, the latter being also a financing decision; the level and regular growth
of dividends represent a significant factor in determining a profit-making company’s market value, i.e. the
value placed on its shares by the stock market.
All three types of decisions are interrelated, the first two pertaining to any kind of organisation while the third
relates only to profit-making organisations, thus it can be seen that financial management is of vital importance
at every level ofbusiness activity, from a sole trader to the largest multinational corporation.
Short- term Finance Decisions/Function.
Working capital Management (WCM): Generally short term decision are reduced to management of
current asset and current liability (i.e., working capital Management).

OBJECTIVES OF FINANCIAL MANAGEMENT

Efficient financial management requires the existence of some objectives or goals because judgment as to
whether or not a financial decision is efficient must be made in the light of some objective. Although
various objectives are possible butwe assume two objectives of financial management for elaborate
discussion. These are:
Profit Maximisation

Objectives of
Financial
Management

Profit Wealth / Value

Maximisation Maximisation

It has traditionally been argued that the primary objective of a company is to earn profit; hence the objective of
financial management is also profit maximisation.This implies that the finance manager has to make
his decisions in a manner sothat the profits of the concern are maximised. Each alternative, therefore, is
to beseen as to whether or not it gives maximum profit.
However, profit maximisation cannot be the sole objective of a company. It is atbest a limited objective.
If profit is given undue importance, a number of problems can arise. Some of these have been discussed
below:
(i) The term profit is vague. It does not clarify what exactly it means. It conveys a different
meaning to different people. For example, profit may bein short term or long term period; it may be total
profit or rate of profit etc.
(ii) Profit maximisation has to be attempted with a realisation of risks involved. There is a
direct relationship between risk and profit. Many risky propositions yield high profit. Higher the risk, higher is
the possibility of profits. If profit maximisation is the only goal, then risk factor is altogether ignored. This
implies that finance manager will accept highly risky proposals also, if they give high profits. In practice,
however, risk is very important consideration and has to be balanced with the profit objective.

(iii) Profit maximisation as an objective does not take into account the time pattern of returns. Proposal
A may give a higher amount of profits as compared to proposal B, yet if the returns of proposal A begin to
flow say10 years later, proposal B may be preferred which may have lower overallprofit but the returns
flow is more early and quick.
(iv) Profit maximisation as an objective is too narrow. It fails to take intoaccount the social considerations
as also the obligations to various interestsof workers, consumers, society, as well as ethical trade practices.
If these factors are ignored, a company cannot survive for long. Profit maximizationat the cost of social
and moral obligations is a short sighted policy.

Wealth / Value Maximisation

We will first like to define what is Wealth / Value Maximization Model. Shareholders wealth are the result
of cost benefit analysis adjusted with their timing and risk i.e. time value of money.
So,

Wealth = Present value of benefits – Present Value of Costs

It is important that benefits measured by the finance manager are in terms ofcash flow. Finance manager
should emphasis on Cash flow for investment or financing decisions not on Accounting profit. The shareholder
value maximization model holds that the primary goal of the firm is to maximize its market value and implies
that business decisions should seek to increase the net present value ofthe economic profits of the firm.
So for measuring and maximising shareholders wealth finance manager should follow:
 Cash Flow approach not Accounting Profit
 Cost benefit analysis
 Application of time value of money.
How do we measure the value/wealth of a firm?
According to Van Horne, “Value of a firm is represented by the market price of the company's common stock.
The market price of a firm's stock represents the focal judgment of all market participants as to what the value
of the particular firm is. It takes into account present and prospective future earnings per share, the timing
and risk of these earnings, the dividend policy of the firm and many other factorsthat bear upon the
market price of the stock. The market price serves as a performance index or report card of the firm's
progress. It indicates how wellmanagement is doing on behalf of stockholders.”
Why Wealth Maximization Works? Before we answer this question it is importantto first understand and
know what other goals a business enterprise may have. Some of the other goals a business enterprise may
follow are:-
 Achieving a higher growth rate
 Attaining a larger market share
 Gaining leadership in the market in terms of products and technology
 Promoting employee welfare
 Increasing customer satisfaction
 Improving community life, supporting education and research, solving societal problems, etc.
Though, the above goals are important but the primary goal remains to be wealth maximization, as it is
critical for the very existence of the business enterprise. Ifthis goal is not met, public/institutions would
lose confidence in the enterprise and will not invest further in the growth of the organization. If the growth
of the organization is restricted than the other goals like community welfare will not get fulfilled.

Value of a firm (V) = Number of Shares (N) × Market price of shares (MP)Or

V = Value of equity (Ve ) + Value of debt (Vd )

Concept of Operations Management: Explained

The concept of Operations Management can be broken down into three main components:

1. Inputs: these are the raw materials, labour, technology, and other resources needed to produce the end
product or service.

2. Processes: these are the activities and tasks involved in transforming the inputs into outputs. This
includes everything from design and development to manufacturing and delivery.

3. Outputs: these are the end products or services that are produced as a result of the inputs and
processes.

Operations Management meaning is quite important in the business world as it stands to optimise each of these
components to achieve the best possible results. This involves establishing processes and workflows that are
efficient, effective, and flexible enough to adapt to changing market conditions and customer demands.

Operations management is the management of that part of an organization that is responsible for producing
goods and/or services.

OBJECTIVES OF OPERATIONS MANAGEMENT

Objectives of operations management can be categorized into customer service and resource
Utilization.
Customer service
The first objective of operating systems is the customer service to the satisfaction of customer Wants.
Therefore, customer service is a key objective of operations management. The operating System must
provide something to a specification which can satisfy the customer in terms of cost And timing.
Thus, primary objective can be satisfied by providing the ‘right thing at a right price At the right
time’.
Resource utilization
Another major objective of operating systems is to utilize resources for the satisfaction of Customer
wants effectively, i.e., customer service must be provided with the achievement of Effective
operations through efficient use of resources. Inefficient use of resources or inadequate Customer
service leads to commercial failure of an operating system. Operations management is concerned
essentially with the utilization of resources, i.e., obtaining Maximum effect from resources or
minimizing their loss, underutilization or waste. The extent Of the utilization of the resources’
potential might be expressed in terms of the proportion of Available time used or occupied, space
utilization, levels of activity, etc. Each measure indicates The extent to which the potential or capacity
of such resources is utilized. This is referred as the Objective of resource utilization.

Operations management functions:

1. Location of facilities
2. Plant layouts and material handling
3. Product design
4. Process design
5. Production and planning control
6. Quality control
7. Materials management
8. Maintenance management.

1. Location of facilities
Location of facilities for operations is a long-term capacity decision which involves a long term
Commitment about the geographically static factors that affect a business organization. It is an
Important strategic level decision-making for an organization. It deals with the questions such as
‘Where our main operations should be based?’
The selection of location is a key-decision as large investment is made in building plant and
Machinery. An improper location of plant may lead to waste of all the investments made in plant And
machinery equipment’s. Hence, location of plant should be based on the company’s expansion.
2. Plant layout and material handling
Plant layout refers to the physical arrangement of facilities. It is the configuration of
departments, Work centers and equipment in the conversion process. The overall objective of the
plant layout Is to design a physical arrangement that meets the required output quality and quantity
most Economically.
3. Product design
Product design deals with conversion of ideas into reality. Every business organization have to
Design, develop and introduce new products as a survival and growth strategy. Developing the New
products and launching them in the market is the biggest challenge faced by the
organizations. The entire process of need identification to physical manufactures of product involves
three Functions: marketing, product development, manufacturing. Product development translates the
Needs of customers given by marketing into technical specifications and designing the various
Features into the product to these specifications. Manufacturing has the responsibility of selecting the
processes by which the product can be manufactured. Product design and development provides link
between marketing, customer needs and expectations and the activities required to manufacture the
product.
4. Process design
Process design is a macroscopic decision-making of an overall process route for converting the Raw
material into finished goods. These decisions encompass the selection of a process, choice Of
technology, process flow analysis and layout of the facilities. Hence, the important decisions In
process design are to analyze the workflow for converting raw material into finished product And to
select the workstation for each included in the workflow.
5. PRODUCTION PLANNING AND CONTROL
Production planning and control can be defined as the process of planning the production in
advance, setting the exact route of each item, fixing the starting and finishing dates for each item, to
give production orders to shops and to follow up the progress of products according to orders. The
principle of production planning and control lies in the statement ‘First Plan Your Work And then
Work on Your Plan’. Main functions of production planning and control includes Planning, routing,
scheduling, dispatching and follow-up.
Planning is deciding in advance what to do, how to do it, when to do it and who is to do
It. Planning bridges the gap from where we are, to where we want to go. It makes it possible
For things to occur which would not otherwise happen.
Routing may be defined as the selection of path which each part of the product will follow,
Which being transformed from raw material to finished products. Routing determines the most
Advantageous path to be followed from department to department and machine to machine till Raw
material gets its final shape. Scheduling determines the programmed for the operations. Scheduling
may be defined as ‘the fixation of time and date for each operation’ as well as it determines the
sequence of operations to be followed.
Dispatching is concerned with the starting the processes. It gives necessary authority so As to start a
particular work, which has already been planned under ‘Routing’ and ‘Scheduling’.
Therefore, dispatching is ‘release of orders and instruction for the starting of production for any Item
in acceptance with the route sheet and schedule charts’. The function of follow-up is to report daily
the progress of work in each shop in a prescribed Preform and to investigate the causes of deviations
from the planned performance.
6. QUALITY CONTROL
Quality Control (QC) may be defined as ‘a system that is used to maintain a desired level of
Quality in a product or service’. It is a systematic control of various factors that affect the quality Of
the product. Quality control aims at prevention of defects at the source, relies on effective Feedback
system and corrective action procedure.
Quality control can also be defined as ‘that industrial management technique by means of which
Product of uniform acceptable quality is manufactured’. It is the entire collection of activities which
ensures that the operation will produce the optimum quality products at minimum cost.
The main objectives of quality control are:
To improve the companies income by making the production more acceptable to the
Customers i.e., by providing long life, greater usefulness, maintainability, etc.
To reduce companies cost through reduction of losses due to defects.
To achieve interchangeability of manufacture in large scale production.
To produce optimal quality at reduced price.
To ensure satisfaction of customers with productions or services or high quality level, to
Build customer goodwill, confidence and reputation of manufacturer.
To make inspection prompt to ensure quality control.
To check the variation during manufacturing.
7. MATERIALS MANAGEMENT
Materials management is that aspect of management function which is primarily concerned with The
acquisition, control and use of materials needed and flow of goods and services connected With the
production process having some predetermined objectives in view.
The main objectives of materials management are:
To minimize material cost.
To purchase, receive, transport and store materials efficiently and to reduce the related
cost.
 To cut down costs through simplification, standardization, value analysis, import
substitution, etc.
To trace new sources of supply and to develop cordial relations with them in order to
Ensure continuous supply at reasonable rates.
To reduce investment tied in the inventories for use in other productive purposes and to
Develop high inventory turnover ratios.
8. MAINTENANCE MANAGEMENT
In modern industry, equipment and machinery are a very important part of the total productive Effort.
Therefore, their idleness or downtime becomes are very expensive. Hence, it is very Important that
the plant machinery should be properly maintained.
The main objectives of maintenance management are:
1. To achieve minimum breakdown and to keep the plant in good working condition at the
Lowest possible cost.
2. To keep the machines and other facilities in such a condition that permits them to be used
At their optimal capacity without interruption.
3. To ensure the availability of the machines, buildings and services required by other sections Of the
factory for the performance of their functions at optimal return on investment.

Meaning & Types of Inventory

Inventory is an asset that is owned by a business that has the express purpose of being sold to a
customer. Inventory refers to the stock pile of the product a firm is offering for sale and the
components that make up the product. In other words, the inventory is used to represent the aggregate
of those items of tangible assets which are –
Held for sale in ordinary course of the business.
In process of production for such sale.
To be currently consumed in the production of goods or services to be available for sale.
The inventory may be classified into three categories:
Raw material and supplies: It refers to the unfinished items which go in the production process.
Work in Progress: It refers to the semi-finished goods which are not 100% complete but some
work has been done on them.
Finished goods: It refers to the goods on which 100% work has been done and which are ready
for sale.

Meaning of Inventory Management

Inventory management is the practice overseeing and controlling of the ordering, storage and use of
components that a company uses in the production of the items it sells. A component of supply chain
management, inventory management supervises the flow of goods from manufacturers to warehouses
and from these facilities to point of sale. Inventory control means efficient management of capital
invested in raw materials and supplies, work- in – progress and finished goods.

Objectives of Inventory Management

The objective of inventory management is to maintain inventory at an appropriate level to avoid
excess or shortage of inventory. Inventory management systems reduce the cost of carrying
inventory and ensure that the supply of raw material and finished goods remains continuous
throughout the business operations. The objectives specifically may be divided into two categories
mentioned below:
A. Operating objectives: They are related to the operating activities of the business like purchase,
production, sales etc.
a. To ensure continuous supply of materials.
b. To ensure uninterrupted production process.
c. To minimize the risks and losses incurred due to shortage of inventory.
d. To ensure better customer services.
e. Avoiding of stock out danger.
B. Financial Objectives:
a. To minimize the capital investment in the inventory.
b. To minimize inventory costs.
c. Economy in purchase.
Apart from the above objectives, inventory management also emphasize to bring down the adverse
impacts of holding excess inventory. Holding excess inventory lead to the following consequences:
Unnecessary investment of funds and reduction in profit.
Increase in holding costs.
Loss of liquidity.
Deterioration in inventory.

Techniques of inventory control

Inventory control refers to a process of ensuring that appropriate amount of stock are maintained by
a business, so as to be able to meet customer demand without delay while keeping the costs associated
with holding stock to a minimum. Inventory control signifies a planned approach of finding when to
shift, what to shift, how much to shift and how much to stock so that costs in buying and storing are
optimally minimum without interrupting production or affecting sales. To solve these problems of
inventory management various techniques are there. These techniques are divided into two categories
– modern techniques and traditional techniques.
(1) MODERN TECHNIQUES
(a) Economic Order Quantity (EOQ)
(b) Re-Order Point (ROP)
(c) Fixing Stock Levels
(d) Selective Inventory Control
(i) ABC Analysis
(ii) VED Analysis
(iii) SDE Analysis
(iv) FSN Analysis
(2) TRADITIONAL TECHNIQUES
(a) Inventory Control Ratios
(b) Two Bin System
(c) Perpetual Inventory System
(d) Periodic Order System
Modern Techniques
Modern techniques of inventory control refers to those techniques which are evolved through a
scientific process. These techniques involve the use of a formula or a method which is logically
derived to keep control on the inventory levels. These techniques are explained as below:
(a) ECONOMIC ORDER QUANTITY (EOQ)
The optimal size of an order for replenishment of inventory is called economic order quantity.
Economic order quantity (EOQ) or optimum order quantity is that size of the order where total
inventory costs (ordering costs + carrying costs) are minimized. Economic order quantity can be
calculated from any of the following two methods:
Formula Method
Graphic Method
Formula Method: It is also known as ‘SQUARE ROOT FORMULA’ or ‘WILSON FORMULA’ as
given below:
Where, EOQ = Economic Order Quantity
R = Annual Requirement or consumption in units
O = Ordering Cost per order
C = Carrying Cost per unit per year
No. of orders = R/EOQ
Time gap between two orders = No. of days in a year/No. of orders
Total Cost = Purchase Cost + Carrying Cost + Order Cost
= (R x Unit Price) + (EOQ/2 x C) + (R/EOQ x O)
Graphic Method
The economic order quantity can also be determined with the help of graph. Under this method,
ordering costs, carrying costs and total inventory costs according to different lot sizes are plotted on
the graph. The intersection point at which the inventory carrying cost and the ordering cost meet, is
the economic order quantity. At this point the total cost line is also minimum.

Assumptions: The following assumptions are made:

The rate of consumption of inventory is assumed to be constant.
Costs will not change over time.
Lead time is assumed to be known and constant.
Per order cost, carrying cost and unit price are constant.
Carrying or holding costs are proportionate to the value of stock held.
Ordering cost varies proportionately with the price.
(b) RE-ORDER POINT
After determining the optimum quantity of purchase order, the next problem is to specify the point
of time when the order should be placed. Re-order level is that level of inventory at which an order
should be placed for replenishing the current stock of inventory. The determination of re-order point
depends upon the lead time, usage rate and safety stock. These terms are explained below:
1. Lead Time: Lead time refers to the time gap between placing the order and actually receiving the
items ordered.
2. Usage Rate: It refers to the rate of consumption of raw material per day.
Usage Rate = Total annual consumption / No. of days in a year
3. Safety Stock: It is the minimum quantity of inventory which a firm decides to maintain always to
protect itself against the risk and losses likely to occur due to stoppage in production and loss of sale,
due to non- availability of inventory.
Formulae:
Re Order Point = (Lead Time x Usage Rate) + Safety Stock or
Re Order Point = Maximum usage x Maximum Re Order Period
Safety Stock = Usage Rate x Days of safety
Usage Rate = Annual Consumption/No. of days in a year.
(c) Fixing Stock Levels
Fixing of the stock levels is necessary to avoid increased cost on account of high inventory levels and
to avoid loss of sales or stoppage of production due to low level of inventory. Therefore, efforts
should be made to keep the inventory level within the specified minimum and maximum limits. The
maximum & minimum stock levels are fixed after considering the following factors:
Availability of ample storage space.
Lead time involved i.e. time required in receiving the goods ordered.
Availability of working capital to meet the routine expenses.
Average rate of consumption of material
Cost of storage and insurance of inventory.
Risk of obsolescence and deterioration of the inventory.
Economy in prices such as making bulk purchases during period of low prices.
Re-order level.
Formulae
Maximum Level = (ROL + ROQ) – (Minimum Usage x Minimum Re Order Period) or Maximum
Level = Safety Stock + EOQ
Minimum Level = Re-order level – (Normal Usage Rate x Normal Re-order period) = Re Order Level
– (Normal Usage x Average Re Order Period)
Average stock level = (Maximum level + Minimum level) / 2 or
Average stock level = (Minimum level + 1/2 Re- order Quantity)
Note: ROL – Re Order Level
ROQ – Re Order Quantity
ROQ is also known as EOQ (Economic Order Quantity)
DANGER LEVEL
Danger level refers to the level below the minimum stock level. The following factors should be
considered to determine the danger level:
Causes for failure of regular supplies
Easy and quick sources of supply
Rescheduling of work- order in the light of such exigencies
Quickest means of transportation
Emergency period of procurement
Formula
Danger Level = Minimum rate of consumption x Emergency delivery period.
Danger Level = Maximum rate of consumption x Emergency delivery period.
(d) SELECTIVE INVENTORY CONTROL
Controlling all inventory in the stock is a very difficult task especially where huge inventories are
maintained of variety of items. In such circumstances, following smart techniques for managing and
controlling the different types of inventories held are as follows:
(i) ABC Analysis: ABC analysis may be defined as a technique where inventories are analyzed with
respect to their value so that costly items are given greater attention and care by the management.
Three categories are created namely A, B and C. Following table represents the approximate
classification of items along with their value and quantity.

Category % of Total Value % of Total Quantity

A 70-80 5-10
B 20-25 20-30
C 5-10 60-70
(ii) VED Analysis: VED stands for Vital, Essential and Desirable. Highest control is over vital items,
medium control is exercised over essential items and least control is inferred over desirable items.
(iii) SDE Analysis: SDE stands for Scarce, Difficult and Easy. Highest control is over scarce items,
medium control is exercised over difficult items and least control is inferred over easily available
items.
(iv) FSN Analysis: FSN stands for Fast Moving (F), Slow Moving (S) and Non Moving (N). Highest
control is kept over fast moving items, medium control is exercised over slow moving items and least
control is inferred on non-moving items.