NDUSTRIAL MANAGEMENT

UNIT – 5

MATERIALS MANAGEMENT

Men, Machine and Materials are three important inputs of any manufacturing organization. Material being an important and inevitable input, directly affects the profitability of any manufacturing organization. Irrespective of the size of organization, expenditure on and semi-finished goods are of great importance for the success of an enterprise. In many cases, material consumption varies from 25% to 75% of sales turnover. The expenditure made on materials is amount invested in inventories, cost of storage, transportation, insurance, wastage etc. Because of large amount related to material and its prime importance as a raw material in production, material management and its control is very important.

Because of magnitude of expenditure required in acquiring and controlling the materials and their impact on profitability, efficient materials management and control is essential. Even small saving in materials can reduce cost of production and improves total profitability. Material management is a function which adds directly to the product. With increased complexities of business and growth of specialized functions, materials management has been gaining importance.

DEFINITION AND CONCEPT

Materials Management is a term used to connote controlling the kind, amount, location, movement and timing of various commodities used in production by industrial enterprises”.

Materials Management is the Planning, directing, controlling and co-ordination those activities which are concerned with material and inventory requirements, from the point of their inception to their introduction into the manufacturing process”. It begins with the determination of material quality and quantity and ends with its issuance to production to meet customers demand as per schedule and at the lowest cost.

5.1. OBJECTIVES OF MATERIALS MANAGEMENT

I) 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.

II) Low Cost: Purchasing of material of required quality at reasonable cost is of greater importance. Slight saving in per unit cost of material can improve total profitability.

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III) 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.

IV) Issue of Material: Whenever there is requisition of material, it is immediately issued to the concerned department.

V) Continuous Supply: Uninterrupted flow of material is necessary for smooth production. Uncertainties in market can create shortage of material in the market. It materials department has good relations with their suppliers, suppliers inform company about probable shortages. In such shortages, suppliers can make material available of priority to the company.

VI) Cordial and good relations with suppliers: There are various benefits of having good and cordial relations with suppliers. Suppliers inform about new material, new substitute for present material etc.

VII) New Materials and Product: Materials department should always in search of new materials. Good relations with suppliers helps to get information about new materials, substitute for present materials etc.

VIII) Maintaining Safety Stock: Safety stock of raw material, parts and finished goods is maintained to absorb uncertainties in supply of material and demand for finished product. During situations of shortage of raw material or excess demand for products, these safety stock can be used.

IX) Purchasing at competitive prices:Materials department try to purchase best quality items at competitive prices. This needs constant contacts with suppliers and market. Materials manager should always being search of new source of supply, new materials, substitutes etc.

X) Inventory Control:As stated earlier, huge capital is locked up in inventory, therefore inventory control is absolutely necessary.

Organization of Material Management Department

There can be more subsections of the department but in general, material manager control the four major sections and is responsible for reporting to the president of the organization as shown in below

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5.2. INVENTORY FUNCTIONS

INVENTORY:

“Inventory is a list of names, quantities and/or monetary values of all or any group of items”. Inventory is a detailed list of those movable items which are necessary to manufacture a product and to maintain the equipment and machinery in good working order”. The quantity and value of every item is also mentioned in the list.

INVENTORY CONTROL:

“Inventory control is the technique of maintaining the size of the inventory at some desired level keeping in view the best economic interests of an organization”

FUNCTIONS OF INVENTORY

The main objective of inventory control is to achieve balance between losses due to non-availability of inventory and cost of carrying stocks of the items. Scientific inventory ensures maintaining optimum level of stick required by company at a minimum cost to the company.

1. Protection against fluctuations in demand: The demand forecast of any product can never be exact or accurate. There is likely gap between predicted demand and actual demand of the product. If sufficient amount of items are available in the inventory, then fluctuation in demand can be easily adjusted and organization can safe guard itself from losses.

2. Protection against fluctuation finished product: the function of inventory is to reduce the gap between actual and scheduled production. Production schedule cannot be maintained continuously because of factors like sudden breakdown of machinery, shortage of raw material, labour strike etc. In such case, inventory of finished products saves organization from financial losses. Sometime market demand for product increases suddenly which can be adjusted immediately if organization have stock of finished products.

3. Effective utilization of men, machines and material: If there is shortage of material, it affects production, men and machine remain idle. During the slack period, these resources are used to produce products for the stock. There will be no need of generating additional resources in the boom period as the inventory in slack period can be utilized. This leads to effective, uniform and proper utilization of resources.

4. To Achieve Production Economies: When the production policy is to produce for stock. Organization purchases in bulk to get benefit of discounts. This reduces carrying cost and ordering cost which in turn reduces cost of production.

5. Control of Stock: In built checks in the system enables management to reduce wastage and obsolescence of material. This in turn reduces risk of loss due to obsolescence and deterioration of material.

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6. Reduction in Administrative Work Load: Proper inventory control reduces work load of purchasing, receiving, inspection, stores, accounts and other departments.

7. To ensure against delays in deliveries: A batch of incoming material is intended to last for certain period of time. When an order for fresh stock is made supply is normally not immediately available but some time elapses before it arrives. This period is normally called as lead period. A manufacturing firm therefore must hold some reserve stocks to allow production operation to continuer, if delay in procurement occurs.

5.3. INVENTORY TYPES

There are Two of Types of Inventories:

1. Direct Inventory2. In-Direct Inventory

1. Direct Inventory: Direct inventory involves those materials and parts which becomes part of final product. Raw material, semi-finished goods and finished products supplied by other firm as which is a raw material for production are components of direct inventory.

2. In-Direct Inventory:In-Direct Inventory involves those items which are necessary for manufacturing but do now become part of final product. For Eg:- tools, Lubricants, oil, paints etc.(A) Fluctuation Inventory: - One cannot predict sales and production tie correctly,

Fluctuation inventories are nothing but reserve or safety stocks maintained to protect organization from fluctuations due to sales, lead time variation etc.

(B) Anticipation Inventory: - These inventories are built up in advance for a large sales, promotion programme and in case of plant shutdown period. It is the inventory for future period.

(C) Lot Size Inventory: - Practically, rate of consumption is rarely same as that of rate of production of purchasing, therefore items are purchased in larger quantities than

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Direct Inventory In-Direct Inventory

FluctuationInventory

Anticipation Inventory

Lot Size Inventory

TransportationInventory

they are required. Sometimes, to take advantage of discounts offered by supplier, large amount of material is purchased than required.

(D) Transportation Inventory: - Such inventory exists because the materials are required to move from one place to another. When transportation time is long enough, the items under transport cannot be served to customer. Thus transportation inventory is result of longer transportation time.

5.4. ASSOCIATED COSTS

1. Purchase Price: The purchase price of an item is important cost which is expressed in terms of per unit. This is very useful when price discount is offered.

2. Procurement cost (ordering cost): It is also known by replenishment cost or acquisition cost. Cost of procurement involves money spent to give order so that items will be available in inventory. The cost of placing an order varies from organization to organization. Generally, it is classified in following ways:

(a) Clerical and administrative cost: This involves clerical and administrative costs associate with purchasing like inviting renders(if any) through advertisement, placing order, follow-up through medias like personal visit, telephone, fax etc.

(b) Inspection: This involves cost of incoming raw material inspection and maintaining records of the receipts.

(c) Accounting: This involves cost associated with checking of each order and maintaining records of the receipts.

(d) Transportation Cost

3. Inventory Carrying Cost (holding cost): These are the costs associated with holding a given level of inventory. This cost vary in direct proportion to the amount of holding and period of holding the stock in the store. The holding cost includes:

1. Storage cost in terms of rent or depreciation, heating lighting etc.

2. Depreciation, deterioration and obsolescence costs.

3. Cost of record keeping.

4. Taxes and insurance (up to 1 to 2 % of invested capital).

5. Handling cost related to movement of stock such as cost of labour, overhead crains and other machinery required for this.

4. Shortage cost or stock out cost: Shortage cost is a penalty cost that are incurred as a result of shortage of material. These costs arises out of shortage of goods, loss of sales due to

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shortage. It also results in loss of customer goodwill. In case of shortage, organization may be forced to purchase material at a higher cost may be of poor quality. This is nothing but lost due to shortage. It also involves loss of profit contribution by lost sales revenue.

5.5. INVENTORY CLASSIFICATION TECHNIQUES

BASIC MODEL:

This is the most ideal system where organization is not worries about the replenishment of an inventory. There is no time lag betweenhe placement of an order and its supply. The items ordered are immediately supplied. It is also assumed that demand is uniform throughout the period. The inventory buildup is sudden while inventory is consumed gradually. It is graphically shown in

Inventory Built up

Lot Consumption

Size

t t t

Basic Model of Economic Lot Size

Assumptions

1. The items are consumed at a constant demand2. There is no lead time (i.e. Lead time is 0) and items ordered are immediately supplied3. The price of item remain fixed (i.e.no discounts are allowed)4. Ordering cost remain constant5. The inventory carrying charges vary directly and linearly with the size of inventory and are

generally expressed as a percentage of average inventory investment

ECONOMIC ORDER QUANTITY (EOQ)

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BASIC MODEL EOQ ABC ANALYSIS

Economic order quantity is the order quantity that minimizes total inventory holding costs and ordering costs. It is one of the oldest classical production scheduling models. The framework used to determine this order quantity is also known as Wilson EOQ Model orWilson Formula. The model was developed by Ford W. Harris in 1913, but R. H. Wilson, a consultant who applied it extensively, is given credit for his in-depth analysis

EOQ applies only when demand for a product is constant over the year and each new order is delivered in full when inventory reaches zero. There is a fixed cost for each order placed, regardless of the number of units ordered. There is also a cost for each unit held in storage, commonly known as holding cost, sometimes expressed as a percentage of the purchase cost of the item.

The required parameters to the solution are the total demand for the year, the purchase cost for each item, the fixed cost to place the order and the storage cost for each item per year. Note that the number of times an order is placed will also affect the total cost, though this number can be determined from the other parameters.

Assumptions

1. The ordering cost is constant.2. The rate of demand is known, and spread evenly throughout the year.3. The lead time is fixed.4. The purchase price of the item is constant i.e. no discount is available5. The replenishment is made instantaneously, the whole batch is delivered at once.6. Only one product is involved.

Variables

= purchase price, unit production cost = order quantity

= optimal order quantity = annual demand quantity = fixed cost per order, setup cost (not per unit, typically cost of ordering and shipping

and handling. This is not the cost of goods) = annual holding cost per unit, also known as carrying cost or storage cost (capital cost,

warehouse space, refrigeration, insurance, etc. usually not related to the unit production cost)

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ABC ANALYSIS (ALWAYS BETTER CONTROL)

The ABC Analysis is a business term used to define an inventory categorization technique often used in materials management. It is also known as Selective Inventory Control. Policies based on ABC analysis:

A ITEMS: very tight control and accurate records. B ITEMS: less tightly controlled and good records. C ITEMS: simplest controls possible and minimal records.

The ABC analysis provides a mechanism for identifying items that will have a significant impact on overall inventory cost,[1] while also providing a mechanism for identifying different categories of stock that will require different management and controls.

The ABC analysis suggests that inventories of an organization are not of equal value. [2] Thus, the inventory is grouped into three categories (A, B, and C) in order of their estimated importance.

'A' items are very important for an organization. Because of the high value of these ‘A’ items, frequent value analysis is required. In addition to that, an organization needs to choose an appropriate order pattern (e.g. ‘Just- in- time’) to avoid excess capacity.'B' items are important, but of course less important than ‘A’ items and more important than ‘C’ items. Therefore ‘B’ items are intergroup items.'C' items are marginally important.

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ABC analysis categories

There are no fixed threshold for each class, different proportion can be applied based on objective and criteria. ABC Analysis is similar to the Pareto principle in that the 'A' items will typically account for a large proportion of the overall value but a small percentage of number of items. Example of ABC class are

‘A’ items – 20% of the items accounts for 70% of the annual consumption value of the items.

‘B’ items - 30% of the items accounts for 25% of the annual consumption value of the items. ‘C’ items - 50% of the items accounts for 5% of the annual consumption value of the items.

Another recommended breakdown of ABC classes:

1. "A" approximately 10% of items or 66.6% of value2. "B" approximately 20% of items or 23.3% of value3. "C" approximately 70% of items or 10.1% of value

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5.6. STORES MANAGEMENT

INTRODUCTION

The Term Stores, Storehouse, Warehouse etc. refer to the physical place be it a building or a room etc., where materials of all variety are kept.

The function of stores is to receive, store and issue materials.

STORES ARE NORMALLY DIVIDED INTO VARIOUS SECTIONS SUCH AS –

1. Receiving Section2. Tool Stores3. Raw Materials Stores4. Finished parts stores

Stores plays a vital role in the operations of a company Stores networks are incredibly complex and therein lies the opportunity of

improvement.

Generally Stores Management including with 3 elements they are:

STORE KEEPING

Store Keeping is a service function which deals with the physical storage of goods under the custodianship of a person called ‘Store Keeper’ or ‘Store Controller’

Raw material are usually referred to as “stores” and the place where they are kept is known as “Store Room”. Finished products ready for shipment are called as ‘Stocks’ and are kept in a place called as “Stock Room”. Thus store keeping is related to the physical storage of the goods.

Store functions includes receiving, movement, storage and issue of the materials: raw material, parts, tools, spares and consumables etc., required for production, maintenance and operation. It also stores finished goods until its dispatch to customers.

DEFINITION

“Store Keeping is that aspect of material control which is concerned with the physical storage of the goods”.

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STORE KEEPING STORE LOCATION STORE LAYOUT

FUNCTIONS

1. Receiving: It receives the material from the supplier.2. Storage: It stores and preserves the inventory. It also takes care of inventory

from fire, spoilage, damage, breaking etc.3. Retrival: It helps easy accessibility to material and ensures optimum utilization of

space. Material can be located and retrived with ease.4. Issue: It promptly issue the material to consuming department on receiving

proper requisition for material.5. Record Keeping: It keeps the record of issue material and received material and

thus helps in ordering the material.6. Maintaining adequate stock: It maintains adequate stock of the material to

serve production needs.7. Housekeeping: The space is kept cleans and neat so that material handling,

preservation, storage, issue and receipt of material can be done easily.8. Surplus Management: Scrap and surplus disposal management is a function of

store keeping.9. Physical Management: Physical verification is done by store.

Needs or essentials of good store keeping:(i) To receive material from the suppliers.(ii) To issue material to concerned departments promptly after

requisition.(iii) Storage of the material, parts, tools and finished goods.(iv) To avoid wastage, breakage, spoilage of raw material, finished goods

from whether, fire etc.

STORE LOCATION

DEFINITION

Store location is the process of selecting the appropriate site for the store building in the organization and dealing how materials are to be placed inside the store so as to provide efficient and prompt service to the user department”.

Necessities of good store location:

1. Economy in cost of transportation: The store location should be such that unnecessary material handling is avoided

(a) Store should be located within the factory or near to theplace of work where materials are required.

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(b) While selecting store location, material handling facilities for transporting material from and to the store should be takeninto account.

(c) Proper transportation facilities like road, railway, and truck (if possible) should be madeavailable so that material can be brought directly to the store counter.

(d) Raw materials like coal, coke, manganese should be stored in open in such a way that they can be removed easily. Toad or railway facilities must be ensured for transportation of such bulky raw material.

2. Efficient Service:Location of store should be such that it should result in efficient service to the user department.

(a) Finished parts store should be located near to the assembly shop.(b) Raw material store-forging, casting etc. should be located near to the shops

where initial operations are performed.(c) Finished goods should be located near to shipping area.(d) Jigs and fixtures should be located near to the department where it is used.(e) Tools and measuring instruments which are used day to day should be stored

near the production shop.3. Reduced Fire Risks: Material should be stored in location which will minimize the fire

risk like:(a) Inflammable material like petrol should be stored separately.(b) Combusible material like paint, oils, kerosene, diesel etc. should be kept away

from general stores.(c) Oxidizing agents should be kept away from combustible materials.(d) An items which can be cause of fires must be stored carefully and separately.

4. Security: (a) Store room should be away from main gate of plant.(b) Store room should not be located near to factory wall which can be broken by

outsider.(c) Store location should be such that it will be easily accessible to outsiders like

suppliers, reporters, customers etc.5. Future Expansion: While selecting store location, future expansion requirements must

be considered to avoid possibility of congestion or shift of store location due expansion.

Type of Store Location

Centralized Store Location: In small factories, it is desirable to centralize the material so that they may be brought under control of one store keeper. Store room should be near to the place where material is to be used. When there are several

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Centralized Store Location Decentralized Store Location

manufacturingdepartments, the store room must be conveniently situated where it is near to all departments.

Advantages of Centralized Stores:

i) It requires less personnel to manage, thus reduces administration costs

ii) Better supervision and control.iii) Bulk buying in few orders results quantity discount and reduce the

transportation costs.iv) Reduction in administration costs.v) Reduced inventory.vi) Reduced storage space and other incidental expenses.vii) Greater safe guard against theft.

Disadvantages of Centralized Stores:

i) Possibility of bottlenecks and resultant delays.ii) Greater danger of by fire.iii) In the absence of proper design of routine work administrative

cost may go up.

Decentralized Store Location: In large factories, where there are different departments using different types of materials, it becomes beneficial to separate stores

Advantages of decentralized store location

i) Reduced material cost and associated cost.ii) Convenient for every department to draw material.iii) Less risk of fire.iv) Prompt availability of material.

Disadvantages of decentralized store location

i) Increased administrative cost due to increased number of store-keepers.ii) High inventory investment.iii) More storage space required.

STORE LAYOUT

Store layout means physical arrangement of space for storage, material movement, material handling equipment, its records and thereby provide most efficient, receipt, storage and issue of materials.

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Objectives of Store Layout

i) Easy receipt, storage and issue of materialii) Optimum utilization of space availableiii) Sufficient space for movement of men, material and material handling equipmentiv) Clear identification of materialv) Quick location of materialvi) Easy physical stockingvii) Protection against fire, theft, obsolenceviii) Better supervision and control

Factors Deciding Store Layout:

1. Flow of Material: Material movement should be minimum2. Nature of material: Material like cement, plaster etc. should be placed in dry place. Tools and

machines should be placed in dry places to protect it from resting. Bulky material should be placed near to issue counter andinlower racks.

3. Frequency of handling: Handling consists of reception, inspection, storage and issue of material therefore:(a) Layout is such that material maybe quickly received.(b) Unloading platform should be built of suitable height(c) It trucks are used for transportation, there should be enough parking space available(d) There should be internal transportation system for bulky items.

5.7. STORES RECORDS

Material represent the moneyt value. It is nothing but the application of financial resources and hence their proper records in the terms of quantity and money value is very important. Proper keeping is inevitable for accounting and costing

Bin Card:

Bin card or Stock Card is attached to each bin, shelf or other form of containers.A document that records the status of a good held in a stock room. A typical retailing business with a large stock room will use a bin card to record a running balance of stock on hand, in addition to information about stock received and notes about problems associated with that stock item.

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Bin Cards Store Ledger

Store Ledge:

The objective of the store ledger is to keep proper record of the material specifying its quantity as well as value. Generally store ledger is maintained on loose-leaf card basis and separate card is kept for each material item.

The Store ledger card specifies the account number, location, description of the material, unit measurement, maximum, minimum and reorder level, debt, credit and balance columns under the description of receipt, issue and balance specifying both the quantity and rupee value.

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When the store keeper issues materials to any department or job against the material requisition, a copy of material requisition is sent to the store ledger clerk. He makes entry in the issue selection of the card, date, requisition number, department or job, quantity, the unit cost and total cost. Finally new balance is calculated and entered in the balance column.

Store ledger may be designed without columns for “Ordered” “Reserved” and “StockVerified” but these columns consists of important information for future production.

Importance of Keeping Store Accounts

1) As material represents value and huge financial resources are locked up in a materials, hence proper record keeping of these material is very important.

2) Proper maintenance of record helps for fresh purchase of disposal of the materials.3) Up-ti-date record at stores helps for fresh purchase for accounting and costing purpose.

Importance of Keeping Store Accounts

i) As material represents value and huge financial resources re locked up in a materials, hence proper record keeping of these material is very important.

ii) Proper maintenance of record keeping becomes inevitable for accounting and costing purpose.

iii) It also helps in valuation of stock on any particular point of time representing the asset value locked up in a store items and provides the basis for charging the various production departments or jobs who have received the material from store room against material requisition.

5.8. PURCHASE MANAGEMENT

Purchasing is the first phase of material management. Purchasing means procurement of raw material and services from some external source. The object of purchasing department is to ensure supply of right material, spare parts and services or semi-finished goods required by organization to produce the desired product. Purchase department should ensure supply of right quality material well in time at competitive prices.

DEFINITION AND CONCEPT

“Purchasing is a managerial activity that goes beyond a routine act of buying and includes the planning and policy activities covering a wide range of related and complementary activities”.

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Purchasing is the function of buying Goods & Services from External Source to an Organization.

Purchase department buys Raw Materials, Spare parts, services etc. as required by the company or Organization.

Purchase management is one of the most Crucial Area of the Entire Organization. Thus, Needs Intensive management.

Purchase is the Main Activity in Area of Material management. Purchasing management is a department in an organization responsible for purchasing

activities. Purchase is Most Important Function in any Organization. Purchase is the first element which affects the product cost. Purchase management decides profitability of the Company. Purchasing management also covers the areas of outsourcing and insourcing. Purchasing management is the management of purchasing process, and related aspects in

an organization. Because of production companies purchase nowadays about70% of their turnover, and service companies purchase approximately 40% of their turnover

Objectives of Purchasing

To purchase the required material at minimum possible price by following the company policies.

To keep department expenses low. Development of good & new vendors (suppliers). Development of good relation with the existing suppliers. Training & development of personal employees in department. To maintain proper & up to date records of all transactions. Participating in development of new material and products. To contribute in product improvement. To take Economic "MAKE OR BUY" decisions. To avoid Stock- out situations. To develop policies & procedure.

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Methods of Purchasing

Scientific Purchasing: This is a difference between scientific purchasing and purchasing or buying. Purchasing is a general term, its meaning is going in the open market and buying a standard product which is at lowest possible price. Thus in purchasing, a standard product is purchased from a seller who is offering product at lowest possible price. But scientific purchasing is more than purchasing. It is an executive job. In scientific purchasing mere importance to lowest price is not given. The principles of scientific purchasing are right product of right quality and in right quantity, in right time from right source at right price.

Objectives:

(i) Procurement of material of given quality and in given quantity at reasonable price (not necessarily lowest price)

(ii) Procurement of material when needed to avoid disruption of production(iii) Procurement of material from right suppliers(iv) Procurement of material which best suit to the product to avoid wastages(v) Procurement of material in right quantity to avoid extra investment in

material(vi) Procurement of material in right quantity to avoid extra investment in

material(vii) To help to maintain quality of product by purchasing right quality material

Buying Methods: Different methods of purchasing are discussed below:

1. Buying according to requirement: This involves frequent purchase of an item in small quantities. Purchased are made only when demand arises. Purchases is made to cover immediate requirements. The terms of contract are negotiated.

2. Purchasing for Specific Period: In this method the material which is regularly used in purchase from suppliers for specific period.

3. Market Purchasing:The policy of marketing the purchase at a time when the fluctuation in price becomes advantages to the buyer is known as market purchasing. This method provides procurement at lower prices and savings in purchase expenses. Generally quantity purchased is large. The atmosphere is suitable for negotiation.

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Scientific Purchasing Buying Method Centralised Purchasing

Decentralised Purchasing

4. Speculative Buying: Here excessive purchasingis made when market prices are low to earn higher profit by selling the items purchased in excess at a higher price. Purchase are not related to company’s production programmme. Even an item which is not required for production is also purchased. The purchasing is large enough.

5. Contract Buying: Here purchase department enters into an agreement with various suppliers to supply the items at some future period or periodically. The organization tries to enter into an agreement when prices are comparatively low.

6. Blanket Order: this involves purchase of variety of items from a single source usually a useful for items which requires periodical service like typewriter, computer, air conditioners etc.

7. Tender Buying: Government departments andpublic undertaking in India used this method of buying. Private undertakings also adopt this method of buying if purchase value is above amount fixed by the management as a policy.

8. Seasonal Buying: This method is used for those items which are available only in particular seasons. Certain items like orange, mangoes, apples etc., are available in particular season only and hence need to bepurchased and stocked in sufficient quantities till the next season.

9. Group Purchasing: Items required in small qualities are classified into few basic groups. Basic groups are formed on the basis of source of purchase.

10. Sub -Contracting:In this method reduces clerical and delivery costs since on eorder is placed which consists of number of small items. This method is useful lfor stationary items.

Centralized Purchasing: In an organization can obtain quantity discounts, lower rate and better contract terms due to large products.

Decentralized Purchasing: In this purchasing, the authority of purchasing is delegated to various plants, divisions or department. Every department is responsible for purchasing its own requirement is terms of quality and

5.9. DUTIES OF PURCHASE MANAGER

A Purchasing Manager is an employee within a company, business or other organization who is responsible at some level for buying or approving the acquisition of goods and services needed by the company. The position responsibilities may be the same as that of a buyer or purchasing agent, or may include wider supervisory or managerial responsibilities. A Purchasing Manager may oversee the acquisition of materials needed for production, general supplies for offices and facilities, equipment, or construction contracts. A Purchasing Manager often supervises purchasing agents and buyers, but in small companies the Purchasing Manager may also be the

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purchasing agent or buyer. The Purchasing Manager position may also carry the title "Procurement Manager" or in the public sector, "Procurement Officer".

A Purchasing Manager's responsibilities may include:

seeking reliable vendors or suppliers to provide quality goods at reasonable prices

negotiating prices and contracts

reviewing technical specifications for raw materials, components, equipment or buildings

determining quantity and timing of deliveries (more commonly in small companies)

Forecasting upcoming demand.

Principles of Purchasing Department

1. Buying Material at right QUALITY.

2. In the right QUANTITY.

3. From the right SOURCE.

4. At the right PRICE.

5. Delivered at the right PLACE.

6. At the right TIME.

7. With right mode of TRANSPORT.

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UNIT – 7

INSPECTION AND QUALITY CONTROL

7.1. TYPES OF INSPECTIONS

INSPECTION

“Inspection is the process of examining and object for identification or checking it for verification of quality and quantity in any of its characteristics. It is an important tool for ascertaining and controlling the quality of theproduct”.

Objectives of Inspection

1. It maintains quality of final product by comparing raw material, semi-finished goods and finished product with pre-determined standards. It prevents further processing on semi-finished gods which are defective and thus avoids spoilage.

2. The defective items are located and reasons for such faulty products are detected. Corrective measures are taken in later stage to prevent occurrence of defects in theproduct.

3. Properly planned inspection reduces chances of rejection of product by customer. Thus it reduces extra cost required to spend on replacement, reworking etc., or defective product.

4. Maintenance of measuring instruments and tools.5. Some defective items can be reworked to good condition by minor working. Such

decisions about defective items are taken by inspecting defective items carefully.

Basic Elements of Inspection Planning

Inspection is the important function though it does not add any value to the product but helps to reduce cost of production. Inspection must be planned for better results. Too much or too little inspection is of no use. Too much inspection increases expenses. Too little inspection may not provide required results. Inspection planning consists of following elements.

i) Specifications (What to Inspect?)ii) Stages if Inspection (When to Inspect?)iii) Places of Inspection (Where to Inspect)iv) Extent of Inspection (How much to Inspect?)v) Who should Inspect?

Types of Inspection

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Vendor Inspection Process Inspection Final Inspection

Vendor Inspection:

Carefully selected production process cannot maintain high quality of the product if the incoming material is of the poor quality. Quality of raw material plays a very important role in the final product. Following aspects are necessary for maintaining quality of incoming raw material:

i) Defining right quality of the jobii) Selecting suppliers based on their past performance.iii) Take care that supplier will understand requirements correctly.iv) Monitoring quality of the purchased raw material and providing feedback.v) Periodic performance appraisal of vendors.vi) Taking action against non-confirming materials.

i) Defining right quality of the job: -It is necessary to define right quality of the job to avoid confusion while purchasing raw material and inspecting the raw material, semi-finished and finished goods.

ii) Selecting suppliers based onpast performance: - Generally company uses ‘inspection’ as a tool to segregate defective pieces from incoming material. Then such defective pieces are returned to vendor as a rejection. The Suppliers should be selected after careful analysis of the manufacturing facilities, quality control practices and the status of the quality control department in the organization.Following aspects must be considered while selecting suppliers:

a) Production facilitiesb) Maintenance of production facilitiesc) Testing and laboratory facilitiesd) Availability of measuring instruments, gaugese) Availability of quality assurance teamf) Use of statistical quality control techniquesg) Efforts in defect identification and defect preventionh) Efforts taken for deviation from standardi) Expertise in manufacturing productj) Quality of employeesk) Reputation of vendorl) Financial status of the vendor

All the above aspects may not be present in small firms. Small firms may not be even in aposition to employ full time quality control engineer.

iii) Take care that supplier will understand requirements correctly: The selection of quality supplier always does not assure supply of right quality material. Rejection can result from good supplier if he does not understand requirements correctly.

iv)Monitoring quality of the purchased raw material andproviding feedback:

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Inspection of incoming raw material is necessary for following reasons:

a) To ensure supplyof quality material for manufacturingb) To avoid defective items being further processed.c) Poor quality material increased wastage.d) To make supplier conscious of the quality and to exercise care while supplying the

materials.

v) Defect identification and defect prevention measures: The results of inspection must be documented properly by quality assurance department. Periodical review of such information must be taken and feedback must be given to vendor to take necessary steps to prevent rejection of items. The buyer’s quality assurance department must be always in touch with supplier’s representatives may be called for discussion id defects are increasing, A meeting of senior personnel of buyer and seller can be called to discuss chronic problems.

a) Defects in vendor’s supply may result in interruption of production

b) Defective material affect quality of final product

c) Defective material may require further in processing at buyer’s plant which restrict plant available capacity. More time and money is required to get defective material reworked.

d) If affects delivery dates when a lot is rejected.

e) Sometimes in urgency, defectives items are accepted. But company may require to sell final products at discounted rate. If final products are defective, company has to spend on rework, replacement etc.

f)Defective products defamed company images

Process Inspection:

Manufacturing process is the area where inspection is carried out to maintain quality of the product. Following principles should be applied in process inspection.

Sampling or cent percent sampling should be conducted on incoming material, semi-finished items which are brought out from outside before their use. This saves time and money which otherwise will be wasted on defective items. Such inspection can be carried out at vendors premised or at plant level.

i) First-Off Inspection:The first piece produced after machine is set up Is checked thoroughly against predetermined standards. The machine is handed over to operator for production if the first piece produced conforms to standards.

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ii) Trial-run Inspection: Here tool/machine is checked against its drawing before starting of operation. A trial run is taken with a single piece. If piece conforms to the standards, production is allowed. Otherwise corrective actions are taken. This method is used for mass which are arranged according to their function.

iii)Patrolling/Floor Inspection/Decentralized:Here semi-finished goods are inspected on the machines or inproduction line. Such inspection can be done by standing at one point or by roaming around the section under his charge in systematic way. The inspector gives necessary instructions to the workers if there is any defect located.

Final Inspection

In this stage, finished products are inspected and tested to verify the quality of the product. The product found defective are not marketed. The items of desired quality go to the market.

Thus there are more chances of scrap material as defective items are separated. Therefore this is the costlier method of inspection compared to the inspection at earlier stages.

Although this inspection does not give any valuable information for immediate corrective action or rework but it ensures that only quality products of predetermined quality are allowed in the market. Final inspection provides important information about extent of rejection and the reasons of rejection. Here producer risk is more and consumer risk is minimized.

7.2. DIFFERENCE BETWEEN INSPECTION & QUALITY CONTROL

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7.3. STATISTICAL QUALITY CONTROL TECHNIQUES

STATISTICAL QUALITY CONTROL Introduction: Quality is the determining factor the success of any product or service large resource are committed in every organization to ensure quality Definition: It is defined as customer satisfaction in general and fitness for use in particular. Both the external consumer who buy the product and services and the internal consumers that is, all divisions or departments of the business organization are equally interested in the quality.

Statistical quality control: The process of applying statistical principles to solve the problem of controlling the quality control of a product or service is called statistical quality control.

Quality elements: a) Quality design b) Quality conformance

a) Quality design: Quality of design refers to product feature such as performance, reliability durability, ease of use, serviceability

b) Quality conformance: Quality conformance means whether the product meets the given quality specification or not

VARIABLE CONTROL CHARTS

Control charts for variables:A variable is one whose quality measurement changes from unit to unit. The quality of these variables is measured in terms of hardness, thickness, length, and so on. The control charts for variables are drawn using the principles of normal distribution. There are two types of control charts for variables x and R chart.

X and R Chart:The X chart is used to show the process variations based on the average measurement of samples collected. It shows more light on diagnosing quality problem when read along with R chart. It shows the erratic or cyclic shifts in the manufacturing process. It can also focus on when to take a remedial measure to setright the quality problems. However, collecting data about all the variables involves a large amount of time and resources.

The R chart is based on the range of the items in the given ample. It highlights the changes in the process variability. It is a good measure of spread or range. It shows better results when read along with the X chart.

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R is the average of sample ranges (Ranges is the difference between the maximum variable and minimum variable)

EX: Construct x and R charts from the following information and state whether the process is in control for each of the following x has been computed from a sample of

5 units drawn at an interval of half an hour from an ongoing manufacturing process.

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ATTRIBUTES CONTROL CHARTS

Control charts for attributes: The quality of attributes can be determined on the basis of ‘Yes’ or ‘No’, ‘Go’ or ‘No go’. In other words, in case of a mirror glass, even if there is one scratch it is not considered to be a quality mirror, in such a case quality is decided base on whether the mirror has any scratch or not.

‘C’ Chart: ‘C’ chart is use where there a number defects per unit. This control charts controls the number of defects per unit. Here the sample size should be constant. This calculate as below.

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‘P’ Chart: ‘P’ Chart is used where there is date about the number of defectives per sample. It is also called fraction defective chart or percentage defectives chart. Here each item is classified on ‘go or no go’ basis that is good or bad. Hence if the sample size is larger, the results could be better.

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ASSIGNABLE AND NON ASSIGNABLE CAUSUES

Assignable causes of variation are present in most production processes. These causes of variability are also called special causes of variation (Deming, 1982). The sources of assignable variation can usually be identified (assigned to a specific cause) leading to their elimination. Tool wear, equipment that needs adjustment, defective materials, or operator error are typical sources of assignable variation. If assignable causes are present, the process cannot operate at its best. A process that is operating in the presence of assignable causes is said to be "out of statistical control." Walter A. Shewhart (1931) suggested that assignable causes, or local sources of trouble

7.5. ACCEPTANCE SAMPLING PLAN

Acceptance Sampling:

Acceptance sampling uses statistical sampling to determine whether to accept or reject a production lot of material. It has been a common quality control technique used in industry. It is usually done as products leave the factory, or in some cases even within the factory. Most often a producer supplies a consumer a number of items and a decision to accept or reject the lot is made by determining the number of defective items in a sample from the lot. The lot is accepted if the number of defects falls below where the acceptance number or otherwise the lot is rejected.

Acceptance sampling is a technique of decidingwhether to accept the whole lot or not based on the number of defectives from a random drawn sample.

It is widely use in buying food products, such as rice, wheat etc. Before buying the random samples drawn from the bags of say rice are tested. If the quality of sample drawn looks good or free from defects then according to the requirement the entire bag or part of it can be brought

The process of acceptance sampling through operating characteristic curve (OCC)

7.6. SINGLE SAMPLING AND DOUBLE SAMPLING PLANS

Single Sampling Plan:

One sample of items is selected at random from a lot and the disposition of the lot is determined from the resulting information. These plans are usually denoted as (n,c) plans for a sample size n, where the lot is rejected if there are more than c defectives. These are the most

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common (and easiest) plans to use although not the most efficient in terms of average number of samples needed.

Let N = lot Size n = Sample Size c = Acceptance Number r = c + 1 = rejection number

Procedure:

i) Collect random sample (n) from lot to be inspectedii) Inspect pieces in sample for required qualitiesiii) If Number of defectives is equal to or less than acceptance

number (c), accept the lotiv) If the number of defectives exceed acceptance number (or

equal or greater than rejection number, reject the lot.

E.g.:-Let N = 4000, Sample size = 75 Acceptance number = c = 2, Rejection number = r = c + 1 = 3

The plan suggest a lot of 4000 pieces from which select 75 pieces randomly. Inspect all pieces for given quality characteristics. If number of defectives are equal to 2 or less (i.e.0, 1, 2), accept the lot. If the number of defectives in the sample are greater than acceptance number (i.e. greater than 2) or equal or greater than rejection number (i.e. equal to 3 or above 3), reject the lot. It means that if defective items are equal or greater than 3, reject the lot.

Double Sampling Plan:

The double sampling plan is sampling plan in which decision to accept or reject the lot is based on at the most two samples. Sometimes it is difficult to decide on the basis of first sample, whether lot is good or bad. Number of defectives may be vary close to upper control limit. Under such circumstances, it is necessary to take another sample. A second sample is taken, inspected and added to first sample and then on the basis of combined result, decision regarding acceptance or rejection of the lot is taken.

Let N = Lot Size n1 = first sample size

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Select Random sample of size n

Inspect items for required quality characteristics

If defectives are equal or less than acceptance number ‘c’

If defectives are equal to or greater than rejection number ‘r’

Accept the lot Reject the lot

C1 = First acceptance number r1 = First rejection number

N2 = Second sample size c2 = Second acceptance number

Procedure:

7.7. OC CURVES

Operating characteristic curve (OCC): The graphical relationship between percentage defective in the lots being submitted for inspection and the probability acceptance is termed as “operating characteristic of a particular sampling plan”

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Select random sample size ‘n’

If defective items are equal to or less than c2

If defectives are equal to or less than acceptance number ‘c1’

Inspect items for required quality characteristics

Inspect all items for given characteristics

Select another sample of size ‘n2’

If defectives are equal to or greater than rejection number ‘r1’

Defective items more than ‘c1’ but leass than ‘r1’

Make the total of defectives from n1 and n2

If defective items are equal to or greater than r2

Accept the lot Reject the lot

It gives a clear picture about the probability of acceptance of lot for various values of percent defectives in the lot. The probability of acceptance of a lot is high for low values of actual percentage decrease and it is low for high values of actual percentage defectives.

Construction of OC curve: To develop a sampling plan for acceptance sampling, an appropriate O.C curve must be selected to construct an OC curve an agreement has to be reached between the producer and the consumer on the following four point.

1) Acceptable quality level(AQL): This is the maximum proportion of defectives that will make the lot definitely acceptable.

2) Lot tolerance percentage defective (LTPD): This is the maximum proportion of defectives that will make the lot definitely unacceptable.

3) Producers risk (α): This is the risk, the producer is willing to take that lots of the quality level AQL will be rejected, even though, they are acceptable usually α = 5%

4) Consumer risk (β): This is the risk, the consumer is willing to take that lots of the quality level LTPD will be accepted, event though, they are actually unacceptable usually β = 10%.

7.8.INTRODUCTION TO TQM

Total quality management (TQM): consists of organization-wide efforts to install and make permanent a climate in which an organizationcontinuously improves its ability to deliver high-quality products and services to customers. While there is no widely agreed-upon approach,

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TQM efforts typically draw heavily on the previously developed tools and techniques of quality control. TQM enjoyed widespread attention during the late 1980s and early 1990s before being overshadowed by ISO 9000, Lean manufacturing, and Six Sigma.

Features:

There is no widespread agreement as to what TQM is and what actions it requires of organizations,[8][9][10] however a review of the original United States Navy effort gives a rough understanding of what is involved in TQM.

The key concepts in the TQM effort undertaken by the Navy in the 1980s include:[11]

"Quality is defined by customers' requirements." "Top management has direct responsibility for quality improvement." "Increased quality comes from systematic analysis and improvement of work processes." "Quality improvement is a continuous effort and conducted throughout the organization."

The Navy used the following tools and techniques:

The PDCA cycle to drive issues to resolution Ad hoc cross-functional teams (similar to quality circles) responsible for addressing

immediate process issues Standing cross-functional teams responsible for the improvement of processes over the

long term Active management participation through steering committees Use of the Seven Basic Tools of Quality to analyze quality-related issues

7.9.QUALITY CIRCLES

A quality circle is a volunteer group composed of workers (or even students), who do the same or similar work, usually under the leadership of their own supervisor (or an elected team leader), who meet regularly in paid time who are trained to identify, analyze and solve work-related problems and present their solutions to management and where possible implement the solutions themselves in order to improve the performance of the organization, and motivate and enrich the work of employees. When matured, true quality circles become self-managing, having gained the confidence of management.

Quality circles are an alternative to the rigid concept of division of labor, where workers operate in a more narrow scope and compartmentalized functions. Typical topics are improving occupational safety and health, improving product design, and improvement in the workplace and manufacturing processes. The term quality circles was defined by Professor

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Kaoru Ishikawa in a journal entitled [title needed] [1] and circulated throughout Japanese industry by JUSE in 1960. The first company in Japan to introduce Quality Circles was the Nippon Wireless and Telegraph Company in 1962. By the end of that year there were 36 companies registered with JUSE by 1978 the movement had grown to an estimated 1 million Circles involving some 10 million Japanese workers. Contrary to some people's opinion this movement had nothing whatever to do with [Dr. Edwards Deming] or indeed Dr. Juran and both were skeptical as to whether it could be made to work in the USA or the West generally.

Benefits of Quality Circle:

Quality circle benefits both employer as well as employees.

A) Benefits to the Organizationi) It improves employer – employee relationshipii) It increases morale and team spirit of employees through their

participation in decision makingiii) It improves productivity by reducing work related errors and thus

reduces cost of productioniv) It helps to improve quality of the product and services offered by an

organizationv) It creates consciousness about quality, safety, productivity etc.

B) Benefits to the Employeesi) It gives opportunity in decision making related to work problems

through participation in quality circleii) It improves their morale and team spiritiii) It develops and improves problem solving capabilityiv) It also improves communication through participationv) It helps to improve working conditions and working methodsvi) It creates loyalty among workers through their participation

7.10.ISO 9000 SERIES PROCEDURES

ISO 9000 is a series of standards, developed and published by the International Organization for Standardization (ISO), that define, establish, and maintain an effective quality assurance system for manufacturing and service industries. The standards are available through national standards bodies. ISO 9000 deals with the fundamentals of quality management systems, including the eight management principles upon which the family of

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standards is based. ISO 9001 deals with the requirements that organizations wishing to meet the standard must fulfill.

Third-party certification bodies provide independent confirmation that organizations meet the requirements of ISO 9001. Over a million organizations worldwide are independently certified, making ISO 9001 one of the most widely used management tools in the world today. Despite widespread use, the ISO certification process has been criticized as being wasteful and not being useful for all organizations

Reasons for Use:

The global adoption of ISO 9001 may be attributable to a number of factors. A number of major purchasers require their suppliers to hold ISO 9001 certification. In addition to several stakeholders' benefits, a number of studies have identified significant financial benefits for organizations certified to ISO 9001, with a 2011 survey from the British Assessment Bureau showing 44% of their certified clients had won new business. [15] Corbett et al. showed that certified organizations achieved superior return on assets [16] compared to otherwise similar organizations without certification.[17] Heras et al. found similarly superior performance[18] and demonstrated that this was statistically significant and not a function of organization size. Naveha and Marcus claimed that implementing ISO 9001 led to superior operational performance in the U.S. automotive industry. Sharma identified similar improvements in operating performance and linked this to superior financial performance. Chow-Chua et al. showed better overall financial performance was achieved for companies in Denmark. Rajan and Tamimi (2003) showed that ISO 9001 certification resulted in superior stock market performance and suggested that shareholders were richly rewarded for the investment in an ISO 9001 system.

While the connection between superior financial performance and ISO 9001 may be seen from the examples cited, there remains no proof of direct causation, though longitudinal studies, such as those of Corbett et al. (2005) may suggest it. Other writers, such as Heras et al. (2002), have suggested that while there is some evidence of this, the improvement is partly driven by the fact that there is a tendency for better performing companies to seek ISO 9001 certification.

The mechanism for improving results has also been the subject of much research. Lo et al. (2007) identified operational improvements (e.g., cycle time reduction, inventory reductions) as following from certification. Internal process improvements in organizations lead to externally observable improvements. The benefit of increased international trade and domestic market share, in addition to the internal benefits such as customer satisfaction, interdepartmental communications, work processes, and customer/supplier partnerships derived, far exceeds any and all initial investment.

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UNIT – 8

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HUMAN RESOURCE MANAGEMENT

Human Resource Management:Human resourcemanagement is theprocess of managing the human resources of an organization in tune with the vision of the top management.

HRM is a function in organizations designed to maximize employee performance in service of their employer’s strategic objectives. HR is primarily concerned with how people are managed within organizations, focusing on policies and systems. HR departments and units in organizations are typically responsible for a number of activities, including employee recruitment, training and development, performance appraisal, and rewarding (e.g., managing pay and benefit systems) HR is also concerned with industrial relations, that is, the balancing of organizational practices with regulations arising from collective bargaining and governmental laws.

8.1. FUNCTIONS OF HRM

A typical Human Resource Department is carries out the following functions: Manpower PlanningIt involves the planning for the future and finding out how many employees will be needed in the future by the business and what types of skills should they possess.It depends on the following factors

The number of people leaving the job The projected growth in sales of the business Technological changes Productivity level of the workers

Job analysis and Job descriptionHR Department is also involved in designing the Job analysis and Job description for the prospective vacancies.A job analysis is the process used to collect information about the duties, responsibilities, necessary skills, outcomes, and work environment of a particular job.Job descriptions are written statements that describe the:

duties, responsibilities, most important contributions and outcomes needed from a position, required qualifications of candidates, and reporting relationship and co-workers of a particular job.

Determining wages and salariesHR Department is also involved in conducting market surveys and determining the wages and salaries for different position in an organization. These decision may be taken in consultation with top management and the Finance department.

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Recruitment and SelectionOne of the most important jobs HR department is to recruit the best people for the organization. This is of crucial importance as the success of any organization depend on the quality of its workforce. Details regarding the recruitment and selection procedure can be found here. Performance AppraisalOnce the employees are recruited, the HR Department has to review their performance on a regular basis through proper performance appraisals.Performance appraisal is the process of obtaining, analysing and recording information about the relative worth of an employee. The focus of the performance appraisal is measuring and improving the actual performance of the employee and also the future potential of the employee. Its aim is to measure what an employee does.On the basis of performance appraisal the HR Department will set up an action plan for each employee. If the employees needs any training then he provided that. Training and DevelopmentHR department is constantly keeping a watch over the employees of the organization. In order to improve the efficiency level of the employees they have go undergo regular trainings and development programmes. All trainings and development needs are carried out by this department. Training might include on the job or off the job training. Find more information on training here . Employee welfare and motivationHappy employees mean a healthy organization. HR Department conducts various employee welfare activities which might include employees get together, annual staff parties etc. HR department also reviews organizational policies and its impact on the motivation of the employees. Addressing employees grievancesHR department is the link between the workers and the management. Employee’s grievances related work environment are usually entertained and resolved by the HR Department. Labour management relationsFor the smooth operation of any organization, it is crucial to have good labour management relations. HR department has to ensure that these relations are cordial. In case of any labour-management conflict the HR Department will play a vital role in bringing both management parties to the negotiation table and resolving the issue. Implementing organizational policiesHR Department has to coordinate with line manager and see that the organizational policies are being implemented in a proper manner. Disciplinary action can be initiated against employees who are not following organizational rules and regulations. All these actions are conceived and implemented by the HR department.

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Dismissal and redundancyHR Department has to take firm actions against employees who are not following the organizational code of conduct, rules and regulations. This can result in the dismissal of the employee.Sometimes, an organization may no more require the services of an employee. The employee may be made redundant. HR Department has to see that organizational and government regulations are being followed in this process.

8.2. JOB EVALUATION

A job evaluation is a systematic way of determining the value/worth of a job in relation to other jobs in an organization. It tries to make a systematic comparison between jobs to assess their relative worth for the purpose of establishing a rational pay structure.

Job evaluation needs to be differentiated from job analysis. Job analysis is a systematic way of gathering information about a job. Every job evaluation method requires at least some basic job analysis in order to provide factual information about the jobs concerned. Thus, job evaluation begins with job analysis and ends at that point where the worth of a job is ascertained for achieving pay equity between jobs.

The process of job evaluation involves the following steps:

Gaining acceptance: Before undertaking job evaluation, top management must explain the aims) and uses of the programme to the employees and unions. To elaborate the program further, oral presentations could be made. Letters, booklets could be used to classify all relevant aspects of the job evaluation programme.

Creating job evaluation committee: It is not possible for a single person to evaluate all the key jobs in an organization. Usually a job evaluation committee consisting of experienced employees, union representatives and HR experts is created to set the ball rolling.

Finding the jobs to be evaluated: Every job need not be evaluated. This may be too taxing and costly. Certain key jobs in each department may be identified. While picking up the jobs, care must be taken to ensure that they represent the type of work performed in that department.

Analyzing and preparing job description: This requires the preparation of a job description and also an analysis of job needs for successful performance.

Selecting the method of evaluation: The most important method of evaluating the jobs must be identified now, keeping the job factors as well as organizational demands in mind.

Classifying jobs: The relative worth of various jobs in an organization may be found out after arranging jobs in order of importance using criteria such as skill requirements,

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experience needed, under which conditions job is performed, type of responsibilities to be shouldered, degree of supervision needed, the amount of stress caused by the job, etc. Weights can be assigned to each such factor. When we finally add all the weights, the worth of a job is determined. The points may then be converted into monetary values.

Benefits:

The pay offs from job evaluation may be stated thus:

It tries to link pay with the requirements of the job. It offers a systematic procedure for determining the relative worth of jobs. Jobs are ranked

on the basis of rational criteria such as skill, education, experience, responsibilities, hazards, etc., and are priced accordingly.

An equitable wage structure is a natural outcome of job evaluation. An unbiased job evaluation tends to eliminate salary inequities by placing jobs having similar requirements in the same salary range.

Employees as well as unions participate as members of job evaluation committee while determining rate grades for different jobs. This helps in solving wage related grievances quickly.

Job evaluation, when conducted properly and with care, helps in the evaluation of new jobs.

It points out possibilities of more appropriate use of the plant's labour force by indicating jobs that need more or less skilled workers than those who are manning these jobs currently.

8.3. DIFFERENT TYPES OF EVALUATION METHODS

Methods

There are three basic methods of job evaluation:

(1) Ranking method

(2) Classification method,

(3) Factor comparison method.

While many variations of these methods exist in practice, the three basic approaches are described here.

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Ranking method

Perhaps the simplest method of job evaluation is the ranking method. According to this method, jobs are arranged from highest to lowest, in order of their value or merit to the organization. Jobs can also be arranged according to the relative difficulty in performing them. The jobs are examined as a whole rather than on the basis of important factors in the job; the job at the top of the list has the highest value and obviously the job at the bottom of the list will have the lowest value. Jobs are usually ranked in each department and then the department rankings are combined to develop an organizational ranking. The variation in payment of salaries depends on the variation of the nature of the job performed by the employees. The ranking method is simple to understand and practice and it is best suited for a small organization. Its simplicity however works to its disadvantage in big organizations because rankings are difficult to develop in a large, complex organization. Moreover, this kind of ranking is highly subjective in nature and may offend many employees. Therefore, a more scientific and fruitful way of job evaluation is called for.

Classification method

According to this method, a predetermined number of job groups or job classes are established and jobs are assigned to these classifications. This method places groups of jobs into job classes or job grades. Separate classes may include office, clerical, managerial, personnel, etc. Following is a brief description of such a classification in an office.

Class I - Executives: Further classification under this category may be Office Manager, Deputy Office manager, Office superintendent, Departmental supervisor, etc.

Class II - Skilled workers: Under this category may come the Purchasing assistant, Cashier, Receipts clerk, etc.

Class III - Semiskilled workers: Under this category may come Steno typists, Machine-operators, Switchboard operator etc.

Class IV - Unskilled workers: This category comprises Daftaris, File clerks, Office boys, etc.

The job grading method is less subjective when compared to the earlier ranking method. The system is very easy to understand and acceptable to almost all employees without hesitation. One strong point in favor of the method is that it takes into account all the factors that a job comprises. This system can be effectively used for a variety of jobs. The weaknesses of the Grading method are:

Even when the requirements of different jobs differ, they may be combined into a single category, depending on the status a job carries.

It is difficult to write all-inclusive descriptions of a grade. The method oversimplifies sharp differences between different jobs and different grades.

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When individual job descriptions and grade descriptions do not match well, the evaluators have the tendency to classify the job using their subjective judgments.

Factor comparison method

A more systematic and scientific method of job evaluation is the factor comparison method. Though it is the most complex method of all, it is consistent and appreciable. Under this method, instead of ranking complete jobs, each job is ranked according to a series of factors. These factors include mental effort, physical effort, skill needed, responsibility, supervisory responsibility, working conditions and other such factors (for instance, know-how, problem solving abilities, accountability, etc.). Pay will be assigned in this method by comparing the weights of the factors required for each job, i.e., the present wages paid for key jobs may be divided among the factors weighted by importance (the most important factor, for instance, mental effort, receives the highest weight). In other words, wages are assigned to the job in comparison to its ranking on each job factor.

The steps involved in factor comparison method may be briefly stated thus:

Select key jobs (say 15 to 20), representing wage/salary levels across the organization. The selected jobs must represent as many departments as possible.

Find the factors in terms of which the jobs are evaluated (such as skill, mental effort, responsibility, physical effort, working conditions, etc.).

Rank the selected jobs under each factor (by each and every member of the job evaluation committee) independently.

Assign money value to each level of each factor (example: consider problem solving is one of the factor, what level of problem solving is required {basic, intermediate or advance}) and determine the wage rates for each key job.

The wage rate for a job is apportioned along the identified factors. All other jobs are compared with the list of key jobs and wage rates are determined. An

example of how the factor comparison method works is given below:

After the wage rate for a job is distributed along the identified and ranked factors, all other jobs in the department are compared in terms of each factor. Suppose the job of a 'painter' is found to be similar electrician in skill (15), fitter in mental effort (10), welder in physical effort (12) cleaner in responsibility! (6) Andlabourer in working conditions (4). The wage rate for this job would be (15+10+12+6+4) is47.j

Point method

This method is widely used currently. Here, jobs are expressed in terms of key factors. Points are assigned to each factor after prioritizing each factor in order of importance. The points are

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summed up to determine the wage rate for the job. Jobs with similar point totals are placed in similar pay grades. The procedure involved may be explained thus:

1. Select key jobs. Identify the factors common to all the identified jobs such as skill, effort, responsibility, etc.

2. Divide each major factor into a number of sub factors. Each sub factor is defined and expressed clearly in the order of importance, preferably along a scale.

The most frequent factors employed in point systems are (i) Skill (key factor); Education and training required, Breadth/depth of experience required, Social skills required, Problem-solving skills, Degree of discretion/use of judgment, Creative thinking (ii) Responsibility/Accountability: Breadth of responsibility, Specialized responsibility, Complexity of the work, Degree of freedom to act, Number and nature of subordinate staff, Extent of accountability for equipment/plant, Extent of accountability for product/materials; (iii) Effort: Mental demands of a job, Physical demands of a job, Degree of potential stress

The educational requirements (sub factor) under the skill (key factor) may be expressed thus in the order of importance.

3. Find the maximum number of points assigned to each job (after adding up the point values of all sub-factors of such a job).

This would help in finding the relative worth of a job. For instance, the maximum points assigned to an officer's job in a bank come to 540. The manager's job, after adding up key factors + sub factors points, may be getting a point value of say 650 from the job evaluation committee. This job is now priced at a higher level.

4. Once the worth of a job in terms of total points is expressed, the points are converted into money values keeping in view the hourly/daily wage rates. A wage survey is usually undertaken to collect wage rates of certain key jobs in the organization. Let's explain this:

8.4. JOB DESCRIPTION

A job description is a list that a person might use for general tasks, or functions, and responsibilities of a position. It may often include to whom the position reports, specifications such as the qualifications or skills needed by the person in the job, or a salary range. Job descriptions are usually narrative, but some may instead comprise a simple list of competencies; for instance, strategic human resource planning methodologies may be used to develop a competency architecture for an organization, from which job descriptions are built as a shortlist of competencies.

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Creating a Job Description:

A job description is usually developed by conducting a job analysis, which includes examining the tasks and sequences of tasks necessary to perform the job. The analysis considers the areas of knowledge and skills needed for the job. A job usually includes several roles. The job description might be broadened to form a person specification or may be known as Terms of Reference. The person/job specification can be presented as a standalone document though in practice, it is usually included within the job description. A job description is often used in employment (a new position that needs to be filled).

Roles and responsibilities

A job description may include relationships with other people in the organization: Supervisory level, managerial requirements, and relationships with other colleagues. :)

Goals

A job description need not be limited to explaining the current situation, or work that is currently expected; it may also set out goals for what might be achieved in the future.

Limitations

Prescriptive job descriptions may be seen as a hindrance in certain circumstances:

Job descriptions may not be suitable for some senior managers as they should have the freedom to take the initiative and find fruitful new directions;

Job descriptions may be too inflexible in a rapidly-changing organization, for instance in an area subject to rapid technological change;

Other changes in job content may lead to the job description being out of date; The process that an organization uses to create job descriptions may not be optimal.

8.5. MERIT RATING – DIFFERENCE WITH JOB EVALUATION

Merit Rating is a payment system in which the personal qualities of an employee are rated according to organizational requirements, and a pay increase or bonus is made against the results of this rating.

Merit Rating has been in use since the 1950s, and examines an employee’s input to the organization (for example, their attendance, adaptability, or aptitude) as well as the quality or quantity of work produced. In merit rating programs, these factors may be weighted to reflect their relative importance and the resultant points score determines whether the employee earns a bonus or pay increase.

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8.6. DIFFERENT METHODS OF MERIT RATINGS

Merit-rating Inventories developed to assist managers in appraising the performance of employees are explained below:

2. Graphic Rating Scales3. Check-Lists4. Grouping and Ranking5. Direct Appraisal6. Standards of Performance7. Critical Incident Method

1. Graphic rating scales

This method is widely used in merit- rating and is similar to the techniques in point-evaluation

plans.

This involves the supervisor to rate employee performance in terms of prescribed traits (e.g. quality of work, quantity of work, co-cooperativeness, initiative, dependability and knowledge of work.) Each trait is defined and various degrees of each are prescribed in some way. From the traits and degrees overall rating can be obtained.

2. Check-lists

In this technique a number of statements are prepared, each relating to employee

performance. The supervisor then checks-off those statements which apply to the employee

being rated. Under each rate, the check-list contains a number of questions which examine the

employee’s performance in far greater detail than the rating scale can. A check-list attempts to

indicate specific ways in which the employee is doing well or failing to measure up to a

satisfactory performance.

3. Grouping and ranking

It is the easiest and the most popular method of merit-rating. The supervisor evaluates

employee performance by simply grouping and ranking the employees.

Under this method employees are classified into broad categories of excellent, good, average,

fair and poor. Ranking is a simple matter of identifying the best performers in the group and

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then ranking all the member in order, down to the poorest. Although a crude technique, it can

help the supervisor to relate pay to performance.

4. Direct appraisal

Under this system an actual list of assigned duties is taken from each job description. Against

each duty assignment is a space for the supervisor to assess the performance of the employee.

5. Standards of performance

Under this system the supervisor determines in his own mind just what he reasonably expects

to be accomplished in each area of responsibility. He will be then in a better position to judge

performance by comparing actual accomplishments against the standards which have been

established.

6. Critical incident method

Although this is not a direct method of evaluating employee performance, this technique might

well be used by supervisors for merit-rating. A supervisor maintains a separate data sheet for

each employee. Incidents which illustrate, unusual accomplishment or particular job failures

can be noted.

Similarly, the supervisor can take notes on incidents, which illustrate particular characteristics

of the employee’s work at the time they occur. Such written case histories serve as invaluable

guides to the supervisor when preparing merit rating inventories.

8.7. WAGE INCENTIVES

Wage incentive is a policy in which a company pays a higher wage in exchange for greater productivity. For example, a company may pay $10 per hour most of the time, but if a worker's output exceeds a certain level, he/she may receive a temporary raise to $12 for as long as that level of productivity lasts.

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Wage Payment Systems are the different methods adopted by organizations by which they remunerate labour. There exist several systems of employee wage payment andincentives, which can be classified under the following names.

8.8. DIFFERENCT TYPES OF WAGE INCENTIVE SCHEMES

TYPES

Time Rate Systems

Time Rate System: Under this system, the worker is paid by the hour, day, week, or

month.

High Wage plan: Under this plan a worker is paid a wage rate which is substantially

higher than the rate prevailing in the area or in the industry. In return, he is expected to

maintain a very high level of performance, both quantitative and qualitative.

Measured day work : According to this method the hourly rate of the time worker

consists of two parts, namely, fixed and variable. The fixed element is based on the

nature of the job i.e. the rate for this part is fixed on the basis of job requirements. The

variable portion varies for each worker depending upon his merit rating and the cost-of-

living index.

Differential time rate: According to this method, different hourly rates are fixed for

different levels of efficiency.

Payment on Result

Piece Work

Straight piecework system: The wages of the worker depend upon his output and

rate of each unit of output; it is in fact independent of the time taken by him.

Differential piece work system: This system provide for higher rewards to more

efficient workers. For different levels of output below and above the standard,

different piece rates are applicable.

Taylor Differential Piece Work System

Merrick Differential Piece Rate System

Combination of Time and Piece Work

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Gantt task and bonus system: the system consists of paying a worker on time basis

if he does not attain the standard and on piece basis (high rate) if he does.

Emerson’s efficiency system: Under this system minimum time wages are

guaranteed, but beyond a certain efficiency level, bonus in addition to minimum

day wages is given.

Minimum Wage

Minimum wage is known the world over. It is a contentious issue in developing countries.

Living Wage

Living wages are currently being debated in developed countries, with implications in recent industrial disasters such as the Bangladesh factory collapses.

Professor Doug Miller of North Umbria University, UK has proposed using Industrial Engineering

techniques to determine living wages in his paper:

8.9. MARKETING

Marketing as a social process by which individuals and groups obtain what they need and want through creating, offering exchanging products and services of value with others.

Marketing can be looked at as an organizational function and a set of processes for creating, delivering and communicating value to customers, and customer relationship management that also benefits the organization. Marketing is the science of choosing target markets through market analysis and market segmentation, as well as understanding consumer behavior and providing superior customer value. From a societal point of view, marketing is the link between a society’s material requirements and its economicpatterns of response. Marketing satisfies these needs and wants through exchange processes and building long term relationships.

Marketing may be defined in several ways, depending on the role of the advertised enterprise in relation to the strategic role in positioning the firm within its competitive market. The main definition is often credited to Philip Kotler, recognized as the originator of the most recent developments in the field, for the works that appeared from 1967 to 2009, with the latest work born from the last economic crisis:

7 Functions of Marketing:

DistributionDistribution is about deciding how you'll get the goods or services you want to sell to the people who want to buy them. Having an idea for a product is great, but if you aren't able to get that product to the customers you aren't going to make money. Distribution can be as easy as setting up shop in the part of a city where your target customers are -- but in an increasingly

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interconnected world, distribution more often than not now means that you'll need to take your products or services to the customers.

FinancingIt takes money to make money. As a business owner, an important function of marketing a product is finding the money through investments, loans, or your personal capital to finance the creation and advertising of your goods or services.

Market ResearchMarket research is about gathering information concerning your target customers. Who are the people you want to sell to? Why should they buy from you as opposed to a rival business? Answering these questions requires that you do some on-the-ground observation of the market trends and competing products.

PricingSetting the correct price for your product or service can be a challenge. If you price it too high, you might lose customers -- but if you price it too low you might be robbing yourself of profits. The "right" price normally comes through trial and error and doing some market research.

Product and Service ManagementOnce you've determined the target market and set the price of your product or service, the goal becomes to effectively manage the product or service. This involves listening to customers, responding to their wants and needs, and keeping your products and services fresh and up to date.

PromotionMost business owners are familiar with the idea of promotion. Advertising your products and services is essential to attracting new customers and keeping existing customers coming back. As the marketplace changes, you'll want to respond appropriately by tailoring your promotion messages to new media (such as Facebook or Twitter), by sticking with more conventional outlets -- or by using a mix of the old and new.

SellingWhile we tend to think of selling and marketing as being closely linked, selling is last on the list of the seven functions of marketing. This is because selling can happen only after you've determined the wants and needs of your customer base and are able to respond with the right products at the right price point and time frame.

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8.10. MARKETING VS SELLING

Selling versus Marketing:Selling refers to the act of transferring the ownership of the goods and services from the seller to the buyer. Marketing refers to the whole process encompassing the entire range of activities starting from identifying the customers’ requirements to satisfying these in a mutually beneficial manner.

8.11. MARKETING MIX

Marketing Mix: It refers to the combination of four basic elements, viz., product, price, promotion and the place, known as the four P’s of marketing.

4 P’s

1. Price2. Product3. Place4. Promotion

Product Mix: It is used to describe the assortment of different product types

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(product lines) and their varieties (product depth). In addition, different tangible and intangible features of the product also form the product mix.

Price Mix: Price mix refers to the decisions relating to the price charged for the product, service or idea.

Promotion Mix: Refers to the activities relating to promotion of the product, service or idea.

Place Mix: Place or physical distribution mix refers to the activities that are involved in transferring ownership to consumers at the right time and price.

8.12. PRODUCT LIFE CYCLE

Product life cycle:

1. Products have limited life.

2. Products sales pass through distinct stages, each passing different challenges, opportunities and problems to seller.

3. Profits rise and fall at different stages of product life cycle.

Early growth: when the results of usage of product start flowing into the market and the results are encouraging, more and more buyers come forward to try. The sales revenue remains very low till this point of time. This is also a very critical stage, as the manufacturer cannot avail scale economies.

Rapid growth: A new product enters the stage of rapid growth when it satisfies the needs of the customers. The sales start picking up with repeat purchases and by word of mouth publicity, coupled with continued promotion outlay from the manufacturer’s side. As new

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customers get attracted to the product for the first time, sales soar, sales revenues increase faster than costs, and profits start accruing. This trend attracts the attention of the competitors who release a similar product copying the best features of the new product.

Maturity: when the product’s sales growth slows down, it is called maturity. Due to this slow down, the industry as a whole suffers from overcapacity. At this stage, firms tend to attract the customers away from their competitors through cheaper prices and larger promotional efforts and outlay. Those who cannot afford such large promotional outlay and woo customers of the competitors.

Saturation: When the sales growth slows down to zero, such a stage is called saturation. This size of the market does not increase beyond this stage. In other words, old customers who have stopped buying the product replace any new customer entering the market. All sales are simply replacement sales or repeat purchases by the same customers.

Decline: When sales of a product tend to fall, such a stage is called decline. When a product ceases to satisfy the customer’s needs in relation to those available in the market, it is no more preferred. As a result, its competing products offering superior benefits take over the market. This leads to weakened profitability.

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