Manage Materials Effectively

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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.

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

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.

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 Inventory
2. 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.
Direct Inventory In-Direct Inventory
Fluctuation
Inventory
Anticipation
Inventory
Lot Size
Inventory
Transportation
Inventory

(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
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
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 demand
2. There is no lead time (i.e. Lead time is 0) and items ordered are immediately supplied
3. The price of item remain fixed (i.e.no discounts are allowed)
4. Ordering cost remain constant
5. The inventory carrying charges vary directly and linearly with the size of inventory and are
generally expressed as a percentage of average inventory investment
BASIC MODEL EOQ ABC ANALYSIS

ECONOMIC ORDER QUANTITY (EOQ)
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 available
5. 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)

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.

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 value
2. "B" approximately 20% of items or 23.3% of value
3. "C" approximately 70% of items or 10.1% of value

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 Section
2. Tool Stores
3. Raw Materials Stores
4. 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”.
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.

(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
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.

Objectives of Store Layout
i) Easy receipt, storage and issue of material
ii) Optimum utilization of space available
iii) Sufficient space for movement of men, material and material handling equipment
iv) Clear identification of material
v) Quick location of material
vi) Easy physical stocking
vii) Protection against fire, theft, obsolence
viii) Better supervision and control
Factors Deciding Store Layout:
1. Flow of Material: Material movement should be minimum
2. 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.
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.

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”.

 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.

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
Scientific Purchasing Buying Method Centralised
Purchasing
Decentralised
Purchasing

provides procurement at lower prices and savings in purchase expenses. Generally
quantity purchased is large. The atmosphere is suitable for negotiation.
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
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.

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

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 job
ii) 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 facilities
b) Maintenance of production facilities
c) Testing and laboratory facilities
d) Availability of measuring instruments, gauges
e) Availability of quality assurance team
f) Use of statistical quality control techniques
g) Efforts in defect identification and defect prevention
h) Efforts taken for deviation from standard
i) Expertise in manufacturing product
j) Quality of employees
k) Reputation of vendor
l) 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.
Vendor Inspection Process Inspection Final Inspection

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:
Inspection of incoming raw material is necessary for following reasons:
a) To ensure supplyof quality material for manufacturing
b) 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.
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

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.

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.

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.

‘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.

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

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 inspected
ii) Inspect pieces in sample for required qualities
iii) If Number of defectives is equal to or less than acceptance
number (c), accept the lot
iv) 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
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”
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,

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

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 Organization
i) It improves employer – employee relationship
ii) It increases morale and team spirit of employees through their
participation in decision making
iii) It improves productivity by reducing work related errors and thus
reduces cost of production
iv) It helps to improve quality of the product and services offered by an
organization
v) It creates consciousness about quality, safety, productivity etc.
B) Benefits to the Employees
i) It gives opportunity in decision making related to work problems
through participation in quality circle
ii) It improves their morale and team spirit
iii) It develops and improves problem solving capability
iv) It also improves communication through participation
v) It helps to improve working conditions and working methods
vi) 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
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.

UNIT – 8
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 Planning
It 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 description
HR 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 salaries

HR 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.
Recruitment and Selection
One 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 Appraisal
Once 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 Development
HR 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 motivation
Happy 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 grievances
HR 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 relations
For 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 policies

HR 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.
Dismissal and redundancy
HR 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,
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.
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.
 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
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.
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.
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 Scales
3. Check-Lists
4. Grouping and Ranking
5. Direct Appraisal
6. Standards of Performance
7. 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
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.
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
 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:
Distribution
Distribution 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
interconnected world, distribution more often than not now means that you'll need to take
your products or services to the customers.
Financing
It 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 Research
Market 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.
Pricing
Setting 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 Management
Once 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.
Promotion
Most 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.
Selling
While 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.

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. Price
2. Product
3. Place
4. Promotion

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