UNIT-II

OPERATIONS MANAGEMENT
INTRODUCTION:
Operations management is an area of management concerned with overseeing, designing, and
controlling the process of production and redesigning business operations in the production of
goods and/or services. It involves the responsibility of ensuring that business operations
are efficient in terms of using as few resources as needed, and effective in terms of meeting
customer requirements. It is concerned with managing the process that converts inputs (in the
forms of materials, labor, and energy) into outputs (in the form of goods and/or services).
According to the U.S. Department of Education, operations management is
the field concerned with managing and directing the physical and/or technical functions of a firm
or organization, particularly those relating to development, production, and manufacturing.
CONCEPT OF OPERATION MANAGEMENT:
Operations management programs typically include instruction in principles of general
management, manufacturing and production systems, plant management, equipment
maintenance management, production control, industrial labor relations and skilled trade’s
supervision, strategic manufacturing policy, systems analysis, productivity analysis and cost
control, and materials planning.
Definitions of operation management:
The design, execution, and control of operations that convert resources into desired goods and
services, and implement companies business strategy.
By processing inputs to get our required product in one place known as plant and the process
done in the plant is known as “operational management”.
An operations system is defined as one in which
–several activities are performed
–to transform a set of inputs into useful output
–using a transformation process.
Examples of Types of operations:
Types of operations: Examples:
Goods producing …………….. Farming, mining, construction, manufacturing,
power generating.
Storage / transportation …………… Ware housing, trucking, mail service, moving
taxies, buses,
Exchange …………….. Retailing, wholesaling, financial advice,
renting / leasing, stock exchange.
Entertainment ……………… Films, radio and television, recording,
Communication ……………… News papers, internet, satellite, radio and TV
newscasts.
Importance of operations management:
Operations activity is core of all business organizations.
A large percentage of jobs in the field of operations.
All activities in the other areas of business are inter-related with operations management.
Responsible for a large portion of company’s assets.
It has a major impact on quality and is the face of the company to its customers.
Operations management is important. The decisions it makes have a major impact on both the
cost of producing products or services and how well the products and services are produced and
delivered which has a major impact on the revenue coming into the organization.
Production management:
Definition: Production Management is a function of management, related to planning,
coordinating and controlling the resources required for production to produce specified product
by specified methods, by optimal utilization of resources.
Definition of production and operations management:
Production and operations management is the conversion of inputs in to outputs in to using
physical resources, so as t provide the desired utility / facilities of form, place, possession or state
or a combination there of to the customer while meting the other organizational objectives of
effectiveness, efficiency and adaptability.
The set of inter related management activities, which are involved in
manufacturing certain products, is called as production management. If the same concept is
extended to service operations, then the corresponding set of management activities is called as
operations management.
Production/operations management
INPUTS OUTPUT

S C
U Men U
P Transformation (conversion process) S
Goods (tangible)
P T
Materials O
L
I M
Machines E
E
Plant and facilities R
R Management
S S
Services (intangible)
Land

Information

FEED BACK
PLANT LOCATION:
“Plant location is the function of determining where the plant should be located for maximum
operating economy and effectiveness”
- Prof. R.C.
Davis
Factors effecting (or) influencing plant location:
Nearness to raw material source (proximity to suppliers).
Nearness to potential market (proximity to markets).
Transportation facility (availability of all modes of transportation).
Availability of power, fuel, labour, and water.
Availability of land for present and future needs (cost, size, leveling etc).
 Supply of capital (availability of banks and financial institutions).
Government policy, legal requirements and taxation.
Integration with other group of companies (industrial atmosphere).
Community infrastructure and amenity (availability of good housing facilities, hospitals, market
centers, schools, and other recreational facilities).
PLANT LAYOUT: “Plant layout means planning for the location of all machines ,employee
work stations ,customer service areas ,and flow patterns of materials and people around, into, and
within buildings,” –Norman Galther.
Plant layout refers to the arrangement of physical facilities such as machines, equipment, tools,
furniture, etc. in such a manner so as to have quickest flow of material at the lowest cost and
with the least amount of handling in processing the product from the receipt of raw material to
the delivery of final product.
Objectives of Plant Layout:- The principal objective of a proper plant layout is to maximize the
production at the minimum of the costs. This objective should be kept in mind while designing a
layout for a new plant as well as while making the necessary changes in the existing plant.
1. Economies in handling of materials, work-in-progress and finished stock.
2. Ensuring optimum utilization of men, materials, equipment and space available.
3. Minimizing changes of delays and bottlenecks in production system. It ensures a good work flow
avoiding accumulation of work at vital points.
4. Ensuring efficient supervision and production control.
5. Ensuring satisfaction for the workmen by eliminating or at least minimizing the chances of
accidents.
DIFFERENT TYPES OF PLANT LAYOUT:
There are three basic types of plant layout: (i) Product or line layout, (ii) Functional or process
layout, and (iii) Stationary layout.
PRODUCT / LINE LAYOUT:
Product or line layout is the arrangement of machines and equipment in a line (not always
straight) or a sequence in which they would be used in the process of manufacture of the product
or group of related products. In this layout, materials are worked out into finished stock through
a series of integrated operations (operated one after the other in a sequence) that is arranged in a
line. The machines under this plan may be arranged either in U –shaped or in line ape as shown
below.
Ra Product X Department Fini
w shed
ma 1 2 3 4 6 goo
5
teri ds
al stor
sto Drill Bore Grind Mill Ream Inspect es
res
This layout is best suited to manufacturing units carrying out continuous mass production

where raw materials are fed at one end and the finished products are taken out at the other end.
There may be separate product line for each type of product using different types of machines or
using machines of the same type.
Advantages of Product or Line Layout:
 Ensures Smooth Flow of Production and finished products.
 Mechanization of Material Handling due to straight flow of materials.
 Easy and effective inspection of work.
 Economy in manufacturing due to large scale and continuous production.
 Effective utilization of available resources.
Disadvantages of product or line layout:
Expensive: This type of layout is costly because machines under this system are arranged in
sequence of operations and not according to functions.
Inflexible: The system is quite inflexible, as the operations are performed in sequence,
adjustment in the course of production cannot be made without much difficulty.
Difficulty in supervision: Since there are no separate departments for various types of work,
specialization in supervision is also difficult.
Difficult in Expansion: Under this type of layout, it is usually not possible to expand the
production beyond the capacity of each line of production.
Stoppage of Work through Breakdown: Any breakdown in any of the machines along the line
can disrupt the whole work of production.
FUNCTIONAL OR PROCESS LAYOUT:
This system is based on the functions performed by a department. Under this system of layout,
machines or equipment of the same functional type are grouped together in a separate
department. In other words, separate departments are established for each specialized operation
of production and machines relating to that function are assembled there. The specialized
department works for all the times of production. For example, welding equipment may be
placed in one department, i.e., welding department that will perform wilding function for the
benefit of all the lines of production.

Ra Forging sectionmilling sectionwelding sectionheat treatment section Fin

w turningsectiongrinding sectiondrilling sectioninspection department ish
mat 4 3 1 ed
1
erial go
stor ods
es Product P; Product Q; sto
Advantages of process layout: 2 3 res
2 5 6 7

M ore flexibility in production, a high degree of flexibility with regards to work distribution to
machines and workers.
 This layout provides Scope for Expansion.
 Maximum Utilization of Equipment
 Lower Financial Investment is required this type of layout.
 Here Better Working Conditions provided to the workers.
 Better Supervision: Under process layout, better and efficient supervision is possible because of
specialization in operation.
Disadvantages of process or functional layout:
Inefficient Material Handling: Efficient material handling is difficult to practice in process
layout because fixed path material handling equipment like conveyor belts, chutes etc. cannot be
possible to use.
 Diseconomy to Floor Space: Under this type of layout requires more floor spaces than the
product layout because a distinct department is established for each operation.
High Inventory Investment: Compared to line layout inventory investments are usually higher
in case of process layout. The materials have to be carried forward and backward very
frequently. This means both delay and waste. It increases the need of working capital in the form
of inventory.
 High Cost of Supervision.

STATIONARY / FIXED POSITION LAYOUT:

Under this type of layout, materials remain at a fixed place and the complete job is done at a
fixed station with materials.

Raw material
AIR CRAFT ASSEMBLY Finished product
Machines & Equipments (Aircraft)

Labour

Advantages of Stationary Layout:

 Flexibility for change in design, operation sequence, labour availability, etc. exists in this layout.
 Lower labour Cost and effective utilization of labour.
 Saving in time and lesser floor space.
 Movement of material is minimum.
 Easy for products which are difficult to move.
Disadvantages of stationary layout:
 Higher Capital Investment due to long production period and long duration to complete a
product.
 Highly skilled workers are required.
 Large space is required for storage of material and equipment ear the product.
Unsuitability: This type of layout is not suitable for manufacturing or assembling small products
in large quantities. It is suitable only in case where the product is big or the assembling process is
complex.
PRODUCTIVITY:
Introduction:-
Production is any process or procedure developed to transform a set of input element like
men, machines, money material, etc. into a specified set of output elements like finished and
services in proper quantity and quality, thus achieving the objectives of an enterprise. In short,
we can define the production as “an organized activity of transforming raw materials into
finished products”. Production can also be defined as “producing goods which satisfies some
human wants”.
 Methods of production:
There are three main methods of production:
 Job or Unit Production
 Mass or Continuous Production
 Batch or Quantity Production.
Job Production:
In this system, goods are produced according to the orders placed by the customers. With
this method, individual requirements of the consumers can be met. Each job order stands alone
and is not likely to be repeated. This type of production has a lot of flexibility of operation and
hence general purpose machines are required. Factories adopting this type of production, are
generally small in size (ship building is an exception).
This type of production is used for things which cannot be produced on a large scale,
things of high artistic nature requiring maximum attention, etc. Man working in unit production
gets an opportunity to produce large type of products, enhance his skills, and can become expert
in a very short time.
Advantages:
 It is the only method, which can meet the individual requirements.
 There is no managerial problem, because of very less number of workers, and small size of
concern.
 Such type of production requires less money and is easy to start.
 There is less risk of loss to the factory adopting this type of production.
Disadvantages:
 There is no scope for continuous production and demand.
 For handling different types of jobs, only skilled and intelligent workers are needed, thus labour
cost increases.
BATCH PRODUCTION:
Batch production process, identical goods are manufactured to meet the specification.
Requires more machines than job production and fewer machines that the of Mass production.
In this method two or more types of products are manufactured in lots (i.e., batched) at
regular interval, on this basis of customer’s order or with a hope of continuous demand of the
product. Most of the engineering concerns, pharmaceutical items are adopting Batch production.
In this type of production, different products are manufactured and stocked and then sold on
receipt of orders.
Advantages:
 While comparing with mass production, it requires less capital.
 If demand for one product decreases then production for another product may be increased, thus
the risk of loss is very less.
 Comparing with job production, it is more advantageous commercially.
Disadvantages:
 Comparing with mass production cost of scales and advertisement per unit is more.
 Raw material to be purchased is in less quantity than that in mass production. Therefore, it is
slightly costlier than that of mass production, because less quantity discount is available.
MASS PRODUCTION:
This method of production is used by concerns where manufacturing is carried on
continuously in anticipation of demand though demand of the product may not be uniform
throughout the year. Such type of production is useful for cement industry, fertilizer industry,
and etc.
Advantages:
 Mass production gives better quality and increased production.
 Wastage is minimum.
 As raw materials are purchased on a large scale and hence higher margin of profits can be made
while purchasing them.
 Only few skilled and rest semi- skilled workers are required hence labour cost is reduced.
Disadvantages:
 During the period of less demand, losses on the invested capital may take place.
 All the machines used in this method are one purpose machines.
 Most of the workers handle only particular operations. They may get skill in their job but after
some time they feel bored with the repetition of same type or work.
 As this type of production is on a large scale, therefore it cannot fulfill individual taste. It
produces things of standardized form which re demanded on a large scale.
WORK STUDY
Introduction
Work study is undertaken to find better ways of doing the job and have better control
over the output. It seeks to increase the productivity by improving ways and means of doing
work through the process of continuous innovation the benefits of which in turn are available to
employees, consumers and to society at large.
MEANING
Work study is the systematic examination of the methods of carrying out activities such as
to improve the effective use of resources and to setup standards of performance for the activities
carried out. It is an analysis of specific job in order to find most efficient method in terms of cost
and effort. Time study, method study and motion study are the components of work study.

Definition:
Work study may be defined as one of management techniques which can be applied to
achieve the optimum use of the resources available to an organization for the accomplishment of
the work, it is engaged in.
“Work Study is an organized continuous effort to improve productivity, quality and to
reduce costs within an organization”. For this purpose, a work study engineer must continue to
lead the way in “Resources utilization”.
 “Work study is defined as that body of knowledge concerned with the analysis of the
work methods and the equipment used in performing a job, the design of an optimum work
method and standardization of proposed work methods.
Objectives of Work Study:
Eliminate unnecessary and wasteful steps in work process.
Establishing best and economical way of doing at job.
Reduce the delays in work.
Increase the Productivity.
To save the time and cost
To improve the efficiency of work, so the resources plant and equipment can also be effectively
used.
COMPONENTS OF WORK STUDY
A work study will consist of the following two main components:
 Method study 1. Method study
 Time study- work measurement.
To simplify the job and develop more
economical method of doing work.

Work study

2. Work measurement

(Time study)
To determine the standard time for
doing an operation

Higher productivity

Benefits of Work Study:

 Reduce the cost and time for manufacturing of the product.
 Leads to the production of more qualitative product in turn more profits
 Improved layout
 Better working conditions to employees
 Basis of rewards
 Provide better control and performance.
 METHOD STUDY:
Method study is a technique which analyses each operation of a given piece of work very closely
in order to eliminate unnecessary operation. It includes the standardization of equipment,
methods and working conditions, and training of the operator to follow the standard method.
Definition:
Method study can be defined as “systematic recording and critical examination of
existing and proposed ways of doing work as a means of developing and applying easier and
more effective method and there by reducing cost”.
Objectives of method study:
To eliminate wastage of time and labour.
To reduce fatigue and boredom of work by avoiding unnecessary movements.
To find the best way of doing a job.
To have more effective utilization of materials, machines and workers.
To improve the design of work place layout.
To train the individual worker in its practice as per standardized method.
Disable possible hazards and dangers to safety.

Need for Method Study:

The need for methods analysis can come from a number of different sources:
 Changes in tools and equipment
 Changes in product design or new products
 Changes in materials or procedures
 Other factors (e.g. quality problems, accidents)
Procedure for Method Study: The process is often seen as a linear, described by its main
stages. They are explained in detail below as follows:
SELECT (the work to be studied):
Work is selected for method study on the basis of it being an identified problem
area or an identified opportunity. Identify the job for method study and specify the objectives,
related to cost, productivity and labour, to be achieved.
RECORD (all relevant information about that work):
Make a detailed list of all operations in the present method of detailed list of all
operations in the present method of manufacturing a job. All the material handling, machine
work, and hand work are also include in this detail and recorded by using process chart symbols,
simple charts and diagrams used to record and represent the situation.

s.no Event Symbol Description

 1. Operation represents an action.
Operation It involves change in the condition of a
product

2. Transport Transport indicates the movement of and

item from one location to another.

3. Storage represents a stage when a finished

Storage good or raw material waits for an action or
an item retained for some time for reference
purpose.

4. Delay Delay occurs when something stops the

process and a product waits for the next
event.

5. Inspection Inspection is the act of checking the quality

and quantity of product.

6. Operation cum Inspection during the production process.

inspection

7. Operation cum Operation during the transportation.

transportation

EXAMINE (the recorded information):

Following questions should be asked on himself by the motion study engineer
about the way in which these operations are to be performed, and about the tools and equipments
needed. The procedure of this questioning is known as ‘Cortical Examination’, questions are
asked on the following five points:
Purpose: What is the purpose of this operation? Does this fulfill the requirements? And whether
this can be eliminated?
Place: Where is the best place to do this operation?
Sequence: What is the best time to do this operation and whether it can be done at the same time
as before or at any other better time? When will it be more suitable and economical?
Person: Who will do this operation? Who can do it in a better way?
Means: How this operation can be performed, i.e., which machines and tools are to be used? Can
we make the work easier and safer for both worker and equipment?

Method study

Aim: to develop better working conditions

 DEVELOP (an improved way of doing things):
After considering the above questions, a new better method is developed.
Elimination: Every operation or detail of the job should be thought that whether it can be
eliminated without harm.
Combining: In this aspect, it is to be observed that whether two or more operations can be
combined any adverse effect to save operation time.
Rearrangement: If rearrangement in the sequence of operations help in simplification or in any
other aspect then it should be done.
Simplification: In simplification, it is found that if the operation is possible with any other easy,
safe and economical method that should be adopted. The work can also be simplified by:
(i) Placing the materials, tools and equipment at proper working area.
(ii) Using gravity feed hoppers and other material handling equipment.
(iii) Taking useful work by both hands.
(iv) Using special jigs and fixtures.
INSTALL/IMPLEMENT (the new method as standard practice):
After having developed the method, this is required to install. The new method
must first be got approved form the supervisors, workers and management. Then the workers
must be trained to work according to this new method and their habits must be developed to
follow the correct way. For sometime, close contacts must be maintained with the progress of the
job until it runs satisfactorily.
 MAINTAIN (the new standard proactive):
Once a method is installed, it should be maintained in its specified form, and is not
allowed to slip back to old form or introduction of any other unauthorized changes.
Advantages of method study:
 Better understanding of work performed
 Improved operator performance
 More safety less risks from hazards for health and assets
 Save the cost and time
Outcome of method study:
 Work instructions
 Systematic method description involving, operators, equipment, materials and procedures. These
can be of graphical or narrative nature.
 Flow charts
 Recommendations for improvement

WORK MEASUREMENT / TIME STUDY

Time study also called work measurement. Time study or work measurement is the application
of techniques designed to establish the time for a qualified worker to carry out a task at a defined
rate of working.
Objectives of Time Study:
 Establish standard times
 Rate operator performance
 Gain information to calculate overall production capabilities and data for capacity planning.
 Establish the total work content of finished goods.
 To develop incentive schemes.
 To compare the time taken by alternative methods of a given job.

Methods /Techniques of Time study:

 Stopwatch time study
 Using synthetic time standards
 Work sampling.
In first method, the actual performance is studied by collecting data while the workers are
working and the data so obtained are synthesized into the time standard, in the second work is
sub divided into certain standard components for which the standard times are available from
previously established time studies; and these predetermined times are totaled, with the
appropriate allowances to compute the standard time for the job as whole. In the third method
statistical sampling is used.

Procedure of work measurement:

Work Measurement

Aim: To develop time standard

 PROCEDURE

 DESCRIBE – the given work for measurement.

 BREAK – the job into elements.
 MEASURE – the performance of the operator.
 DETERMINE – the basic time.
 PROVIDE – time allowance for fatigue.
 DETERMINE – standard time.

RESULT

Increased efficiency and higher productivity through

(a) Scientific basis to develop incentive system.

(b) Maintain reasonable levels of employment.

(c) Reliable means of planning and control.

The essential prerequisite to carry out work measurement is to describe the method underlying
the job. In other words it is a logical sequence of method study where the focus is on proposing a
new method, which results in elimination of unnecessary motions. Having decided the new
method, the next step is find out how much time is taken for carrying out the new method. In
determine this, the following process involved.
Break the job in to elements which can be identified as distinct parts of an operation, capable of
being observed, measured analyzed.
Measure time taken to perform each element (ideally each element should not take time more
than 30 seconds) using a stop watch.
Add the time taken to do all the elements and arrive at the basic time (also called as normal time)
required to do entire job.
Advantages of Time Study:
 Knowledge about standard times to be expected.
 Ability to estimate total work content
 Operators can be appraised on factual grounds
 Some labour regulation might require standard times on the basis of solving labor disputes.
STATISTICAL QUALITY CONTROL
Introduction to quality control:
Quality of product is always a matter of concern for all manufacturing firms because in the
changing scenario need for quality control has taken a front seat. Traditional quality control was
designed to prevent the production of products that do not meet certain acceptance criteria. This
could be accomplished by performing inspection on products that, in many cases, have already
been produced. Action could then be taken by rejecting those products. Some products would go
on to be reworked, it is expensive, and time consuming. Then quality concept was introduced.
Definition: quality refers to the sum of the attributes or properties that describe a product. These
are generally expressed in terms of specific product characteristics such as length, width, colour,
and so on..,
 Quality as a concept can be subdivided into i) quality of design and ii) quality of conformance.
Quality of design is determined by the extent to which products and services are designed with
the needs and desires of the customers in mind.
Quality of conformance is determined by the extent to which the intent of the designer is
actually built into the product or service.
Statistical Quality Control (SQC) is concerned with quality of conformance. This term is often
used interchangeably with statistical process control (SPC), which involves using statistical
techniques to measures and analyze the variation in processes.
MEANING & DEFINITION of SQC:
Statistical Quality Control (SQC) is a method for achieving quality control in processes. It is
a set of methods using statistical tools such as mean, variance and others, to detect whether the
process observed is under control.
HISTORY OF SQC:
Dr.Walter shewart working laid the foundation for statistical quality control in the Bell
Telephone Laboratories in the 1920’s conducting research on methods to improve quality and
lower costs. He developed and introduced the concept of control in 1931 with regard to
variation, and came up with statistical process control charts which provides a simple way to
determine if the process is in control or not. Dr.W.Edwards Deming built upon shewart’s work
and took the concept to Japan following WWII. There, Japanese industry adapted the concepts
whole – heartedly. The resulting high quality of Japanese product is world – renowned.
Dr.Deming is famous throughout Japan as a “God of Quality”. Today, SPC is used in
manufacturing facilities around the world.
OBJECTIVES of statistical quality control:
The main objective of any SQC study is to reduce variations. Any process can be
considered a transformation mechanism of different input factors into a product or service. Since
inputs exhibit variations, the result is a combined effect of all variations. This, in turn, is
translated into the product.
 Common cause variation, which is intrinsic to the process and will always, be present.
Common causes of variation: chance causes of variation are inherent in the process. Chance
causes are reasons for minor variations in the quality characteristics that are inspected. The
causes do not cause the item to be rejected as the variations are with in the limits (i.e. tolerance
limit).
 Special cause variation, which stems from external sources and indicates that the process is out
of statistical control.
Techniques of SQC: Process Control through Control Charts, Acceptance sampling.
Quality Control Tools which include: Check sheet, Bar chart and other graphs, Histogram,
Control chart.
Procedure of SQC: Proper statistical process control starts with planning and data collection.
The steps followed in the statistical process control are explained with the help of PDSA cycle as
described by Walter Shewart.
PLAN: Identify the problem and the possible causes. The QC tools described in this manual can
help organizations identify problems and possible causes, and to prioritize corrective actions.
DO: Make changes designed to correct or improve the situation.
STUDY: Study the effect of these changes on the situation. This is where control charts are
used-they show the effects of changes on a process over time. Evaluate the results and then
replicate the change or abandon it and try something different.
 ACT: if the result is successful, standardize the changes and then work on further improvements
or the next prioritized problem. If the outcome is not yet successful, look for other ways to
change the process or identify different causes for the problem.
Benefits of SQC:
 Provides surveillance and feedback for keeping processes in control.
 Signals when a problem with the process has occurred.
 Detects assignable causes of variation
 Accomplishes process characterization
 Reduces need for inspection
 Monitors process quality
 Provides mechanism to make process changes and track effects of those changes.
STATISTICAL PROCESS CONTROL (SPC):
The purpose of SPC is to isolate the natural variation in the process from other sources of
variation that can be traced or whose causes may be identified. There are two different kinds of
variation that affect the quality characteristics of products.

Definition:
Statistical process control (SPC) is defined as “The application of statistical techniques to control
a process.”
Statistical process control is defined as use of tools to observe or monitor the
performance of the production or service process’s tendency to vary in order to predict an
outcome that if not corrected may later result in rejected product BEFORE IT HAPPENS. Thus
SPC is known as prevention and prediction tool for quality.
Tools of statistical process control:
Some of the common statistical process control tools are:
 Control charts.
 Flow charts.
CONTROLCHARTS:
Control chart (also called as process control chart or quality control chart) is an important
statistical tool used for the study and control of the repetitive processes. Control charts are the
tools to determine whether the process is under control or out of control. The charts were
developed by “W.A. Shewart”. The main objective of the control chart is to identify process
variation and help to reduce the same.
Control chart is a graphical representation of quality characteristics which indicates whether the
process is in under control or not. It shows whether a sample of data fall with in a common or
normal range of variation.
A control chart has upper, lower, and central control limits they are represented as follows:

Statistical Values Upper Control Limit (UCL)

Central / Control Line (CL)

Acceptable Region
 Lower Control Limit (LCL)
Sample Number

Types of control charts:

The control charts are mainly two types:
1. Control charts for variables (measurement charts): Variable control charts are used to
control measurable quality characteristics like hardness, thickness, length, and so on. Variable
control charts are of following types:
X chart (Mean chart):
An X chart is used if the quality of output is measured in terms of a variable such as length,
weight, temperature, and so on. X represents the mean value found in a sample of the output. a
mean control chart is often referred to as an X- bar chart.
Advantages:
 This chart shows graphically how a process varies with time. This has a good
motivational effect even if such a graph is not very useful as a control chart.
 This type of chart enables the state of a process evaluated rapidly and quick action to be
taken.
Disadvantages:
 The chart’s power of test is poor. This is because the ability of the X bar chart to detect
abnormalities generally deteriorates as the size of the subgroups (n) decreases.
 The most important feature of the control chart, rational subgrouping is unclear, and with
in subgroup variation is obscured.
R chart (range chart):
In addition to the central tendency in a sample, it is also required to monitor the amount of
variation from sample to sample. A range chart shows the variation in the sample ranges. It is
used to monitor the range of the measurements in the sample. If the points representing the
ranges fall between the upper and the lower limits it is concluded that the operation is in control.
2. Control charts for attributes:
Charts for attributes which are based on the distinction between defectives and defects. Control
charts for attributes are based on countable rather than measurable characteristics. These are
countable ones. The quality of attributes can be determined on the basis of ‘yes or no’. Control
charts in this category include P chart, C chart.
P – Chart (fraction defectives):
The P- Charts are used to measure the proportion that is defective in a sample and it is also used
where there is data about the no. of defectives per sample. It is also called fraction defective chat
or percentage defective chart. Here, each item is classified on ‘go or no go’ basis, that is good or
bad (defective). If the sample size is large it could be better.
Use of P- Charts:
 When observations can be placed into two categories.
 Good or bad.
 Pass or fail.
 Operate or don’t operate.
 When the data consists of multiple samples of several observations each.
 C- Charts (No. of defectives per piece):
The C- chart for no. of non conformities. c – Charts are used to monitor the number of defectives
per unit. Here the sample size should be constant. The c- bar chart plots the number of defectives
or failures per unit. It is useful when several independent defects may occur in every unit
produced, as in complex assemblies.
Ex: Number of printing errors in a book page, number of defective welds per mile of pipe line.
Use of c – charts:
 Used only when the number of occurrences per unit of measure can be counted; non-
occurrences cannot be counted.
 Calls, complaints, failure per unit of time.
 Cracks or faults per unit of distance.
Application of control charts:
Final assemblies (Attribute Charts).
Manufactured components such as balls, pin holes, slots etc (variable charts).
Bullets and shells (Attribute Charts).
Incoming materials (Attribute and Variable charts depending upon the type of material.
Advantages of Control Charts:
The control separate out the assignable causes and chance causes for variations and bring
substantial improvement in product quality.
Control carts indicate whether the process is in control or out of control.
It defects unusual variations taking place in the process.
The inspection work also reduces.
It ensures the product quality level.
Control charts can be applied to many businesses including manufacturing.
MATERIALS MANAGEMENT
Introduction:
Materials management plays a very significant role in controlling the costs and reducing the
wastage, particularly, in a manufacturing industry.
Materials refer to inputs into the production process, most of which are embodied in the finished
goods being manufactured. It may be raw materials, work-in-progress, finished goods, spare
parts and components, operating supplies such as lubricating oil, cleaning materials, and others
required for maintenance and repairs.
Definition:
Materials management is the process of planning, organizing and controlling the materials in a
given organization. Among some government organizations, it is better known as supply
management.
Material management as the management of the flow of materials in to an organization
to the point, where, those materials are converted in to the firm’s end product.
Objectives of material management: The objectives of material management are as follows.
1: Material selection: material selection includes correct specification of material. Material
requirements are decided with the help of sales programme. The standardization of raw material
ensures lower cost and ease in procurement, replacement etc.
2: Low cost: purchase of material required quality at reasonable cost is of greater importance.
Slight saving per unit cost of material can improve total profitability.
3: Receiving and controlling of material: Receiving and controlling of material in good
condition is very important. When material is received it is checked in terms of quality and
 quantity. Then it is stored at proper location so that it can be issued immediately whenever
necessary.
4: Issue of material: whenever there is requisition of material, it is immediately issued to the
concerned department.
5: Continuous supply: uninterrupted flow of material is necessary for smooth production. In
uncertainties in market can create shortage of material in the market if materials department has
good relations with the suppliers, in shortages suppliers can make materi8al available on priority
to the company.
6. Cordial and good relations with suppliers : there are various benefits of having good and
cordial relations with suppliers they inform about probable shortage of materials, new materials
and new substitutes etc. suppliers can offer greater credit period in situations of financial crisis.
7. New materials in product: material department should always in search of new materials
good relation with suppliers helps to get information about new materials.
8. Maintaining safety stock: safety stock of raw materials, parts and finished goods is
maintained to absorb uncertainties and supply of material and demand for finished products .if
demand for products excess this safety stock can be used.
9. Purchasing at competitive prices: materials department try to purchase best quality items at
competitive prices this needs constant contacts with suppliers and market. material manager
should always be in search of new source of supply new materials.
10. Inventory control: inventory control is absolutely necessary proper steps are taken to reduce
inventory level are over stocking. Inventory is properly maintained to reduce damages brekage,
deterioration of material.
INVENTORY MANAGEMENT
Meaning of inventory:
Inventory refers to all the physical stocks, which have economic value. It covers the items i.e.
own stores, in addition to the materials in transit and materials in process.
Need for inventory:
 Un interrupted supply of materials.
 Optimal stock (not too much, not too little).
 adequate control over materials used, un-used.
Definition of Inventory control:
Inventory control is defined as “the scientific method of providing the right type of material at
the right time in the right quantities and at right place to sustain the given production schedules”.
Inventory control is essentially concerned with two aspects:
 Minimizing investments for the organization in the materials, and
 Maximizing the service levels to the customers and its own operating departments.
Functions of inventory control:
 Ensures availability of raw material continuously with out causing any disturbance to the
production process.
 Manages stores of the organization effectively.
 Effective Stock control system: it includes physical verification, proper record maintenance of
stored raw materials, ordering policies & procedures for the purchase of the goods.
 Inventory is required to meet the anticipated demand of the company.
Inventory control tools and techniques:
 EOQ – Economic order quantity.
 ABC – Analysis (Always better control).
 Selective inventory controls such as ABC, HML, VED, FSN, SDE.
 Material requirement planning.

ECONOMIC ORDER QUANTITY (EOQ)

Economic order quantity is defined as that quantity of material, which can be ordered at one
time to minimize the cost of ordering and carrying the stocks. In other words, it refers to the size
of each order that keeps the total cost low.
Given the annual demand, the cost of acquisition, and carrying costs, what should be the size of
each order? This is EOQ. This concept is explained below:
Inventory costs:
The inventory costs can be classified into two categories: inventory ordering costs and
inventory carrying costs.
Inventory ordering costs refer to the costs incurred to procure the materials. Particularly in
large organizations, these costs are significant. Several departments such as purchasing and
stores department, engineering department, computing department, and others, are associated
with the procurement of inventory. It costs a lot to maintain these departments in terms of wages
and salaries, other operating expenses such as stationery and supplies, and the cost of services
such as computer time, telephone, fax, and so on.
Inventory carrying costs include insurance costs, property taxes (such as corporate tax for a
storage premises etc.), storage costs, cost of obsolescence and deterioration, and the opportunity
costs of invested funds. Normally, all these work out to 20 to 30 percent of the total value of
inventory. Carrying costs per year are computed as a percentage of average inventory value. The
more the inventory is, the more the inventory carrying costs.
The special feature of inventory costs is that they do not depend upon the volume of inventory.
They are the function of the number of orders placed during a given time period. The more the
number of orders, the more are the procurement costs.
Graphical representation of EOQ: Total cost (TC)

Carrying cost (C)

Annual cost

Order cost (O)

EOQ Order quantity.

Determining the Economic Order Quantity:

Given the annual requirement of inventory, the question-what should be the size of each order?-
is best addressed by the economic order quantity. The economic order quantity is that quantity of
the order, which minimizes the related material costs, the ordering costs, and the carrying costs.
Consider that the sum of ordering costs and carrying costs is the total cost. EOQ is that order
quantity at which the total cost is minimum. This is graphically represented in figure as shown
below
EOQ can be determined by the algebraic method also
Algebraic method of determining method of EOQ : Let us determined by the EOQ variables
as below
A=Annual demand
S=size of each order (units per orders)
O=ordering cost per unit
C=carrying cost per unit
Step-I: find out the total ordering cost per year
Total ordering cost per year= number of orders placed year X Ordering cost per order.
= A/S XO
Step- II: Find out the total carrying cost per year.
Total carrying cost per year= average inventory level X Carrying cost per year.
= S/2 X O
Step- III: Determining economic order quantity (EOQ).
A/S X O = S/2 X C
2AO = S square C
S square = 2AO / C
S = square root of 2AO / C.
Here, we assume that the material prices and transportation costs are constant for a given range
of order quantities. In other words, the quantity discounts, which are normally available for large
size orders, are not considered here.
A-B-C ANALYSIS
A-B-C analysis is an American terminology for selective control or selective or split inventory
management or proportional value analysis. It is the basic technique of materials management
and is the commencing event. annual consumption if itemized in rupee value consideration we
find that ground 10% of the items are contributing for about 70% of total annual consumption
cost. Around 20% will account for 25% of annual consumption cost while balance of 70% will
embrace only 5-10% of that cost. The small number of high consumption value items is called as
A items. The medium consumptions value items are B items while large number of items whose
annual consumption value is very low is C items.
The following table summarises the concept of ABC analysis.
Category Value (%) Volume (%) Desired degree of control
A 70 10 Strict
B 20 20 Moderate
C 10 70 Low

The purpose of A-B-C analysis must by now be quite clear. It is to separate predominant
few from the point of view annual consumption value. The methodological and systematic
approach by A-B-C analysis will assist to have more or less equal attention to all items. In the
absence of which; control will be too diffused and desultory to remain efficient .Selective
inventory control is the other name of A-B-C analysis. The estimate of requirement of A items
should be worked out more precisely. Critically on activities such as scheduling, safety stock
receiving and inspection be examined for a type of items .This pace substantial dividends way of
reduced costs.

100
 90
80 Low value High volume
70 Class C Items.
60 Mid value
50 mid
High value 40 Volume
Low volume 30 Class B
Class A items 20
10
0 10 20 30 40 50 60 70 80 90 100

Here ‘A’ refers to high value items.

‘B’ refers to medium items.
‘C’ refers to low value items.

A-B-C analysis is also symbolical of ALWAYS BETER CONTROL and HML for high,
medium and low value. To counteract the limitations; vital, essential and desirable analysis
should be computed together.

MARKETING MANAGEMENT
Introduction:
Marketing is an essential function of a modern organization whether it deals in products or
services. In other words, marketing constitutes an essential function of modern business
organizations to ensure that demand for a product or service persists along with customer
retention. It has become vital ingredient in the success of a business.
Market:
Market is a place where buyers and sellers gather to exchange goods and services.

Definition of Marketing:

Marketing is the performance of business activity that direct the flow of goods and services from
production centre to consumption centre.
- American Marketing Association.
Marketing as 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.
-Philip Kotler
Objectives of marketing:
 Ensuring profit to the manufacturers.
 Providing satisfaction to the consumers.
 To provide best solutions for the marketing problems.
 To develop the guiding policies and their implementation for good results.
 To review existing marketing functions.
MARKETING CONCEPT:
The marketing concept is the way of life in which all the resources of an organization are
mobilized to create, stimulate and satisfy the consumer at a profit. Here mainly we have to know
about two concepts namely: i) The selling concept. ii) The marketing concept.
The selling concept:
Selling refers to the act of transferring the ownership of the goods and services from the seller to
buyer. Selling is the term applied to the process of distributing goods from producer to
consumer. It is a function of marketing. The selling concept is practiced most aggressively with
unsought goods, goods that buyers normally don’t think of buying such as insurance,
encyclopedia etc.
Most of the firms practice the selling concept when they have over capacity. Their aim is to sell
what they make rather than make what they market wants.
The marketing concept:
The marketing concept holds that key to achieve its organizational goals consists of the company
being more effective and efficient in determining the needs, wants, interests of the target markets
and delivering the desired satisfactions than the competitors. It is a customer centric approach
which focuses on customer needs and wants and not on the product. “Marketing starts and ends
with the customer only the concept is shown in the diagram.
Starting
Market point Focus
Customer needs Meansmarketing
Integrated Ends
Profits through
Customer satisfaction

The marketing concept

The marketing concept resets on 4 pillars.
Target market: Companies do best when they choose their target markets carefully and prepare
marketing programmes according to their target market.
Customer needs: Understanding customer needs and wants is not always simple. It is important
to satisfy target customer because each company’s sales each period come from two groups, new
customer and repeat customers. Customer retention is more important than customer attraction.
Integrated marketing: When all departments in the company work together to serve the
customers interests, the result is integrated marketing. All the different functions of business
must be tightly integrated with one another because every function has a bearing on the customer
and all the functions make profitable impact on customer.
Profitability: The ultimate purpose of the marketing concept is to help organizations achieve
their objectives. Any company major objective is profit whether it is private company or in the
case of non private company. A company makes money by satisfying customer needs better than
its competitors.
Benefits of the marketing:
 Marketing concept benefits the organization:
The practice of the concept brings substantial benefits to the organization that practices. Any
organization which practices the concepts of marketing audit, market research and consumer
 testing, it can easily faces any changes regarding the buyer behavior, and capable to provide the
satisfaction to the customers then automatically the organization benefited.
 Marketing concept benefits the Consumer:
The consumer is in fact the major beneficiary of the marketing concept. the attempts of various
computing firms to satisfy the consumer put him in an enviable position. The concept prompts
the producers to constantly improve their products and to launch totally new products it is more
beneficiary to consumers.
 Marketing concepts benefits the society:
The concept guarantees that only products that are required by the consumers are produced and
thereby it ensures that the societies economic resources or channelized in the right direction. It
also makes economic planning more meaningful and relevant to the life of the people.

Marketing Functions
1. Gathering and Analysing Market Information:
Gathering and analyzing market information is an important function of marketing. Under it, an
effort is made to understand the consumer thoroughly in the following ways, What kind of
distribution system do they like? All the relevant information about the consumer is collected
and analysed. On the basis of this analysis an effort is made to find out as to which product has
the best opportunities in the market.
2. Marketing Planning:
In order to achieve the objectives of an organisation with regard to its marketing, the marketeer
chalks out his marketing plan. For example, a company has a 25% market share of a particular
product.
The company wants to raise it to 40%. In order to achieve this objective the marketer has to
prepare a plan in respect of the level of production and promotion efforts. It will also be decided
as to who will do what, when and how. To do this is known as marketing planning.
3. Product Designing and Development:
Product designing plays an important role in product selling. The company whose product is
better and attractively designed sells more than the product of a company whose design happens
to be weak and unattractive.
In this way, it can be said that the possession of a special design affords a company to a
competitive advantage. It is important to remember that it is not sufficient to prepare a design in
respect of a product, but it is more important to develop it continuously.
4. Standardisation and Grading:
Standardisation refers to determining of standard regarding size, quality, design, weight, colour,
raw material to be used, etc., in respect of a particular product. By doing so, it is ascertained that
the given product will have some peculiarities.
This way, sale is made possible on the basis of samples. Mostly, it is the practice that the traders
look at the samples and place purchase order for a large quantity of the product concerned. The
basis of it is that goods supplied conform to the same standard as shown in the sample.
5. Packaging and Labelling:
Packaging aims at avoiding breakage, damage, destruction, etc., of the goods during transit and
storage. Packaging facilitates handling, lifting, conveying of the goods. Many a time, customers
demand goods in different quantities. It necessitates special packaging. Packing material includes
bottles, canister, plastic bags, tin or wooden boxes, jute bags etc.
Label is a slip which is found on the product itself or on the package providing all the
information regarding the product and its producer. This can either be in the form of a cover or a
seal.
6. Branding:
Every producer/seller wants that his product should have special identity in the market. In order
to realise his wish he has to give a name to his product which has to be distinct from other
competitors.
Giving of distinct name to one’s product is called branding. Thus, the objective of branding is to
show that the products of a given company are different from that of the competitors, so that it
has its own identity.
7. Customer Support Service: Customer is the king of market. Therefore, it is one of the chief
functions of marketer to offer every possible help to the customers. A marketer offers primarily
the following services to the customers:
(i) After-sales-services
(ii) Handling customers’ complaints
(iii) Technical services
(iv) Credit facilities
(v) Maintenance services
8. Pricing of Products:
It is the most important function of a marketing manager to fix price of a product. The price of a
product is affected by its cost, rate of profit, price of competing product, policy of the
government, etc. The price of a product should be fixed in a manner that it should not appear to
be too high and at the same time it should earn enough profit for the organisation.
9. Promotion:
Promotion means informing the consumers about the products of the company and encouraging
them to buy these products. There are four methods of promotion: (i) Advertising, (ii) Personal
selling, (iii) Sales promotion and (iv) Publicity. Every decision taken by the marketer in this
respect affects the sales. These decisions are taken keeping in view the budget of the company.
10. Physical Distribution: Under this function of marketing the decision about carrying things
from the place of production to the place of consumption is taken into account. To accomplish
this task, decision about four factors are taken. They are: (i) Transportation, (ii) Inventory, (iii)
Warehousing and (iv) Order Processing. Physical distribution, by taking things, at the right place
and at the right time creates time and place utility.
11. Transportation:
Production, sale and consumption-all the three activities need not be at one place. Had it been so,
transportation of goods for physical distribution would have become irrelevant. But generally it
is not possible. Production is carried out at one place, sale at another place and consumption at
yet another place.
Transport facility is needed for the produced goods to reach the hands of consumers. So the
enterprise must have an easy access to means of transportation.
12. Storage or Warehousing: There is a time-lag between the purchase or production of goods
and their sale. It is very essential to store the goods at a safe place during this time-interval.
Godowns are used for this purpose. Keeping of goods in godowns till the same are sold is called
storage.
For the marketing manager storage is an important function. Any negligence on his part may
damage the entire stock. Time utility is thus created by storage activity.
 PRODUCT LIFE CYCLE
The term product life cycle refers to the length of time a product is introduced to consumers into
the market until it's removed from the shelves. This concept is used by management and by
marketing professionals as a factor in deciding when it is appropriate to increase advertising,
reduce prices, expand to new markets, or redesign packaging. The process of strategizing ways
to continuously support and maintain a product is called product life cycle management.

Introduction Stage
The introduction phase is the first time customers are introduced to the new product. A
company must generally includes a substantial investment in advertising and a marketing
campaign focused on making consumers aware of the product and its benefits, especially if it
broadly unknown what the good will do.
During the introduction stage, there is often little to no competition for a product as other
competitors may be getting a first look at rival products. However, companies still often
experience negative financial results at this stage as sales tend to be lower, promotional pricing
may be low to drive customer engagement, and the sales strategy is still being evaluated.
Growth Stage
If the product is successful, it then moves to the growth stage. This is characterized by
growing demand, an increase in production, and expansion in its availability. The amount of
time spent in the introduction phase before a company's product experiences strong growth will
vary from between industries and products.
During the growth phase, the product becomes more popular and recognizable. A company may
still choose to invest heavily in advertising if the product faces heavy competition. However,
marketing campaigns will likely be geared towards differentiating their product from others as
opposed to introducing their goods to the market. A company may also refine their product by
improving functionality based on customer feedback.
Financially, the growth period of the product life cycle results in increased sales and higher
revenue. As competition begins to offer rival products, competition increases, potentially
forcing the company to decrease prices and experience lower margins.
Maturity Stage
The maturity stage of the product life cycle is the most profitable stage, while the costs of
producing and marketing decline. With the market saturated with the product, competition now
higher than at other stages, and profit margins starting to shrink, some analysts refer to the
maturity stage as when sales volume is "maxed out".
Depending on the good, a company may begin deciding how to innovate their product or
introduce new ways to capture a larger market presence. This includes getting more feedback
from customers, their demographics, and their needs.
During the maturity stage, competition is now the highest. Rival companies have had enough
time to introduce competing and improved products, and competition for customers is usually
highest. Sales levels stabilize, and a company strives to have their product exist in this maturity
stage for as long as possible.
Decline Stage
As the product takes on increased competition as other companies emulate its success, the
product may lose market share and begin its decline. Product sales begin to decline due to
market saturation and alternative products, and the company may choose to not pursue
additional marketing efforts as customers may already have determined themselves loyal to the
company's products or not.
Should a product be entirely retired, the company will stop generating support for the good and
entirely phase out marketing endeavors. Alternatively, the company may decide to revamp the
product or introduce it with a next generation, completely overhauled item. If the upgrade is
substantial enough, the company may choose to re-enter the product life cycle by introducing
the new version to the market.
The stage of a product's life cycle impacts the way in which it is marketed to consumers. A new
product needs to be explained, while a mature product needs to be differentiated from its
competitors.

1.
CHANNELS OF DISTRIBUTION
Meaning: Distribution Channels are the paths that goods and title to them follow from producer
to consumer. They are the means by which all organization distribute the goods and services they
are producing and marketing.
Definition:
According to Philip Kotler- “A channel of distribution is a set of independent organization
involved in the process of marketing a product or service available for use or consumption.
Factors Affecting the Choice of Channel of Distribution:
There are several factors that affect the choice of a channel. Some of the factors are listed below.
The nature of company’s business: choose the channel according to the nature of business
activity such as agricultural products, industrial products, and soon.
The type of product sold: The goods may be consumer goods (such as bread), consumer
durable goods (TV or refrigerator), or producer or industrial goods (engines, bearings), and
others.
The price of unit of sale: If the price of one unit is as high as that of an aeroplane, the producer
can contact the consumer directly.
The profit margins and mark-ups: These, together with the extent of the seller’s product line,
play a role in attracting distributors to handle the goods.
Degree of competition: If the competition is intense, the manufacturer has to arrange for even
door-to-door selling or retail outlets such as automatic vending machines at prominent, busy, and
crowded places.
LEVELS/TYPES OF CHANNELS
There are mainly two types of distribution channels namely
i) Direct Market Channel ii) Indirect Market Channel
Direct Market Channel:
Direct Market Channel is the simplest and shortest channel through which goods reach the
ultimate consumer without the services of middlemen and it is highly applicable in the case of
industrial goods.
Ex: Amway Co. (Zero Level Channels)
0 Level Channel

Producer Consumer
Zero Level Channel

Indirect Marketing Channels:

In this channel the manufacturer doesn’t sell the goods directly to the consumer. He sells goods
to the middlemen, the middle men sells goods to consumers. Various types of indirect marketing
channels are in the distribution network they are as follows:
i) One- Level Channel: As can be seen from figure in this type of channel there is only one
intermediary between producer and consumer. This intermediary may be a retailer or a
wholesaler/distributor. This type of channel is used for specialty products like washing machines.
Refrigerators, televisions typewriters, and electric fans etc..,

One- Level channel

Producer Wholesaler / Distributor Consumer

Producer Retailer Consumer

ii) Two Level Channel: This type of channel has two intermediaries, namely,
wholesaler/distributor and retailer between producer and consumer. Under this method, the
producer sells the goods to the wholesaler, who in turn, sells to the retailers. The retailers in turn
sell the goods to the ultimate consumers. This channel is used for consumer durable products.
Two- Level Channel

Producer Wholesaler / Distributor Retailer Consumer

iii) Three-Level Channel: As shown in the figure this type of channel has three intermediaries
namely distributor, wholesaler and retailer. In this method, the producer sells his goods to the
distributors who sell them to the wholesalers who in turn sell them to the retailers and the
retailers sell them to the consumers. This pattern is used for convenience products.
 Three – Level Channel

Producer Distributor Wholesaler Retailer Consumer

iv) Four –Level Channel: This type of channel has four intermediaries, namely agent,
distributor, wholesaler and retailer. This type of channel is used for consumer durable products.
This type of channel is very popular in agricultural marketing and it is the longest route of
distribution.

Four – Level Channel

Producer Agent Distributor Wholesaler Retailer Consumer