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1. PRODUCTION MANAGEMENT
Ravish Yadav

2. IMPORTANCE OF PLANT LOCATION:
The selection of appropriate location is important due to the following reasons :-
• Location of plant partially determines operating and capital costs. It determines
the nature of investment costs to be incurred and also the levels of operating
costs.
• Location fixes some of the physical factors of the overall plant designs. e.g.
heating and ventilation requirements, storage capacity of raw material taking into
consideration their local availability, transportation need for raw materials and
finished goods, power needs, cost of labours, taxes, land construction, fuel, etc.
• Each prospective location implies a news allocation of capacity to respective
market area.
• Government sometimes plays an important role in the choice of location keeping
in view the national benefits.

4. FACTORS RESPONSIBLE FOR THE PLANT LOCATION CHOICES:
The choices of the plant location is based on the following factors :-
• Availability of Raw material: An ideal location is one where the main raw
material required to manufacture the product is adequately available. This will
ensure regular supply of the material and will reduce the transportation costs.
• Nearness to the potential market: marketing of finished goods efficiently is
an important function of an enterprise. If the plant is located near the market,
then the management can keep close touch with their changes in market
environment and formulate its production policies accordingly. Moreover, the
transportation and other overhead expenses are reduced.
• Location should be near to source of operating power: in some industries,
continuous and adequate power supply is needed. There are certain industries
for which cheap electricity may be very important. In such situation, location
of the plant near to the hydel-power situation will provide cheap electricity.
• Supply of labour: labour is one of the most important inputs in any industrial
enterprise. There should be regular and cheap supply of labour, specifically
the unskilled labour. If there is adequate supply of local labour near the plant,
then naturally it will be available at cheaper rates.

5. • Transport and communication facilities: Transport is very important for
bringing raw materials, fuel from different places, marketing of finished products
etc. The region well connected with rail, road, water and air transport system is
considered to be more appropriate for the location of the plants.
Similarly good communication facilities, such as, postal and telecommunication
links are of great significance towards the success of an enterprise. Regions with
good communication system should be given priority for the selection of the sites.
Similarly, industries producing goods for exports may be located near ports or
airports.
• Suitability of land and climate: sub-soil of the location should be able to
support the load likely to be placed on it. Similarly, climatic conditions viz
humidity, temperature and other atmospheric conditions should be favourable for
the plant. For the example, humid atmosphere is not suitable for the formation of
pharmaceuticals.
• Integration with other group of companies: new enterprise owned or operated
by a single group of companies should be so located that its work can be
integrated with the work of the associated establishments.

6. • Availability of housing, other amenities and services: good housing facility,
adequate shopping centre, theatres, cinema halls, restaurants, local transport
facilities, rail services and sufficient availability of gas, water supply, drainage,
disposal of waste, can easily attract good staff.
• Local building and planning regulations: proposed location should not be
infringe local regulations and bye-laws. A discussion with survey department of
the local authority is most desirable. Laws for the construction of buildings, local
taxes etc. should be taken into consideration for the selection of site.
• Safety requirements: industries likely to cause pollution or processes explosives
in nature should be located in remote areas.
• Miscellaneous considerations: The consideration like low interest on loans,
special grants, low rentals, attitude of residents, towards the industry, living
standards etc. helps in locating in the site of plants.

8. Material
management

9. • Definition
• It is concerned with planning, organizing and controlling the flow of
materials from their initial purchase through internal operations to the
service point through distribution.
• OR
• Material management is a scientific technique, concerned with
Planning, Organizing &Control of flow of materials, from their initial
purchase to destination.

10. Primary
•Right price
•High turnover
•Low procurement
•& storage cost
•Continuity of supply
•Consistency in quality
•Good supplier relations
•Development of personnel
•Good information system
Objective of material management
Secondary
•Forecasting
•Inter-departmental harmony
•Product improvement
•Standardization
•Make or buy decision
•New materials & products
•Favorable reciprocal
relationships

11. CALL FOR
OFFERS
CALL FOR
OFFERS
YES
YES
DETERMINE DRUGS & DRUG
REQUIREMENTS
DETERMINE DRUGS & DRUG
REQUIREMENTS
DRUG REQUIREMENTSDRUG REQUIREMENTS
DONATION
SOURCE
DONATION
SOURCE
GOVERNMENT
PRODUCTION
GOVERNMENT
PRODUCTION
DETERMINE DRUGS & DRUG
REQUIREMENTS
DETERMINE DRUGS & DRUG
REQUIREMENTS
PURCHASE
REQUIREMENTS
PURCHASE
REQUIREMENTS
OPEN TENDEROPEN TENDER RESTRICTED
TENDER
RESTRICTED
TENDER
NEGOTIATED
TENDER
NEGOTIATED
TENDER
DIRECT
PURCHASE
DIRECT
PURCHASE
REQUEST OFFERS FROM
ELIGIBLE SUPPLIERS
REQUEST OFFERS FROM
ELIGIBLE SUPPLIERS
LOCATE
RELIABLE
SUPPLIERS
LOCATE
RELIABLE
SUPPLIERS
CONTACT
RELIABLE
SUPPLIER
CONTACT
RELIABLE
SUPPLIER
EVALUATE &
SELECT SUPPLIER
EVALUATE &
SELECT SUPPLIER
EVALUATE OFFERS
& SELECT
SUPPLIERS
EVALUATE OFFERS
& SELECT
SUPPLIERS
NEGOTIATE PRICE &
SUPPLY CONDITIONS
NEGOTIATE PRICE &
SUPPLY CONDITIONS
ESTABLISH
PRICE
ESTABLISH
PRICE
PURCHASE ORDER
/ CONTRACT
PURCHASE ORDER
/ CONTRACT
PURCHASE ORDER /
CONTRACT
PURCHASE ORDER /
CONTRACT
PURCHASE
ORDER /
CONTRACT
PURCHASE
ORDER /
CONTRACT
PURCHASE
ORDER /
CONTRACT
PURCHASE
ORDER /
CONTRACT
DRUGS RECEIVED, CHECKED AGAINST PURCHASE ORDER / CONTRACT SPECIFICATIONS & CLEARED
FOR DISTRIBUTION
DRUGS RECEIVED, CHECKED AGAINST PURCHASE ORDER / CONTRACT SPECIFICATIONS & CLEARED
FOR DISTRIBUTION
ADJUST
QUANTITIES
ADJUST
QUANTITIES
ADJUST
QUANTITIES
ADJUST
QUANTITIES
YES
NO
YES
NO
NO NO NO
YES YES
FLOW OF PROCUREMENT DECISIONSFLOW OF PROCUREMENT DECISIONS

12. Four basic needs of Material
management
1.To have adequate materials on hand when needed
2.To pay the lowest possible prices, consistent with quality and value
requirement for purchases materials
3.To minimize the inventory investment
4.To operate efficiently

13. Open tender
•Public bidding, resulting in low prices
•Published in newspapers
•Term - 4 weeks
•Quotations must be sent in the specific forms that are sold, before the
time &date mentioned in the tender form
•In technical items, ‘two packets or two bins’ system is followed. Offers are
given in two separate packets.
•Technical bid
•Financial bid

14. •First technical bid is opened & short listed
•Then financial bid of selected companies are opened & lowest is
selected
•Delayed tenders & late tenders are not accepted. But if, in case of
delayed tenders, if the rate quoted is very less, then it can be accepted.
•Quotations are opened in presence of indenting department, accounts
& authorized persons of party
•Validity of tenders – generally 90 days

15. Points to remember while purchasing
• Proper specification
• Invite quotations from reputed firms
• Comparison of offers based on basic price, freight & insurance, taxes and levies
• Quantity & payment discounts
• Payment terms
• Delivery period, guarantee
• Vendor reputation(reliability, technical capabilities, Convenience, Availability,
after-sales service, sales assistance)
• Short listing for better negotiation terms
• Seek order acknowledgement

16. Storage
•Store must be of adequate space
•Materials must be stored in an appropriate place
• in a correct way
•Group wise & alphabetical arrangement helps in
•identification & retrieval
•First-in, first-out principle to be followed
•Monitor expiry date
•Follow two bin or double shelf system, to avoid
•Stock outs
•Reserve bin should contain stock that will cover
•lead time and a small safety stock

17. •Inventory control
• It means stocking adequate number and kind of stores, so that the
materials are available whenever required and wherever required.
Scientific inventory control results in optimal balance

18. •Functions of inventory control
•To provide maximum supply service, consistent with maximum
efficiency & optimum investment.
•To provide cushion between forecasted & actual demand for a material

19. Economic order of quantity
EOQ = Average Monthly Consumption X Lead Time [in months] + Buffer Stock
– Stock on hand
CARRYING
COST
PURCHASING
COST
ECONOMIC ORDER OF
QUANTITY(EOQ)

20. •Re-order level: stock level at which fresh order is placed.
•Average consumption per day x lead time + buffer stock
•Lead time: Duration time between placing an order & receipt of material
•Ideal – 2 to 6 weeks.

21. ABC ANALYSIS
(ABC = Always Better Control)
• This is based on cost criteria.
• It helps to exercise selective control when confronted with large number of
items it rationalizes the number of orders, number of items & reduce the
inventory.
• About 10 % of materials consume 70 % of resources
• About 20 % of materials consume 20 % of resources
• About 70 % of materials consume 10 % of resources

22. 20000050020
19950050019
19900050018
19850050017
19800050016
19750050015
19700050014
19650050013
196000150012
194500150011
193000175010
19125027509
18850040008
18450045007
18000050006
17500075005
16750075004
160000200003
140000500002
90000900001
CUMMULATIVECUMMULATIVE
COSTCOST [Rs.]
ANNUAL COSTANNUAL COST
[Rs.]
ITEMITEM COST %COST %ITEM %ITEM %
70 %70 %
20 %20 %
10 %10 %
10 %10 %
20 %20 %
70 %70 %
ABC
A
N
A
L
Y
S
I
S
WORK
SHEET

23. Sales forecasting

25. First order equation
smoothing constant

27. Mean absolute deviation

31. Economic order quantity (EOQ)

32. MATERIAL REQUIREMENT PALNNING

33. THREE ELMENTS OF COST
• MATERIAL
• LABOR
• BURDON / OVERHEAD