The document discusses operations and production management. It covers several topics: 1. Module I discusses production management concepts like types of manufacturing systems and plant location factors. 2. Module II covers inventory management concepts like inventory types and control techniques. 3. Module III discusses production planning and control techniques as well as quality control tools. The document provides an overview of the key topics that will be covered in an operations and production management course. It outlines the modules and some of the main concepts that will be discussed in each module.

1. Operations & Production Management
Unit one.

2. Syllabus!!!
Module - I
Production Management: Nature and Significance of Production Management; Types of
manufacturing systems: project, jobbing, batch, line, and mass, continuous Production; Plant
location; factors affecting plant location; location theories; Plant Layout: Meaning,
definition and scope; Factors influencing layout; Principles of layout; Layout types.
Module - II
Inventory Management: Meaning, Definition and Objectives of Inventory management, Types
of inventories. Inventory management and control, process of inventory management and
control, Techniques of Inventory Control.
Module - III
Production Planning & Control: Need and objectives of Production Planning & Control,
Techniques of production control, routing, scheduling, dispatching and follow-up. Quality
Control: Meaning, Need and objectives of quality control, Tools and techniques for quality
improvement and control.

3. Production: concept
Production: the process of converting raw materials into finished goods for consumption.
Also used interchangeably with Manufacture. However, most of the time, the term
manufacture is used to refer to the process of creating only tangible goods, while as
production includes the creation of but tangible as well as intangible goods (services).
There are Four Functional areas in any business organization: Marketing, Production,
Finance And Personnel.
Production is the nucleus around which all the other activities revolve. How we market?
what we market? How much finance do we need? What would be our needs in terms of
personnel? All these decisions revolve majorly around the production function, I.e. what
we produce in the organisation.
Basic inputs are Men, Machinery, Plant, Services, and Methods.
The Raw Materials are from Mine, Sea, Farm and Forest. The end product is for the
satisfaction of human wants.

4. Production: concept
Production is an organized activity. It transforms a variety of unusable inputs, into
various useful outputs while adding some value along the way.
Production is a step by step process with some value being added at each step along the
way to final product.
A feedback and feed-forward mechanism about the activities in a production system
exists. The mechanism is essential for control and improved performance.
The study of P/OM is the study of operations and processes leading to the creation of
goods and services.

5. Production: concept
 All operations management and production systems involve transformation.
 The goal of the production/operations department is to transform the inputs (using
labor, machines, and materials) into desired qualities of goods and services at the mini-
mum cost.
 Alteration of materials and components adds value and changes them into goods and
services that customers want to own. The raw materials and components before
transformation could not be used—and therefore had no utility—for the customer.
Service conversions have customer utility even if no transfer of goods takes place. The
conversion may be a change of location or related to the customer’s state of well-being
(e.g., visiting the doctor, the repairperson fixes the air conditioner on a hot summer
day, or a rescue from a disaster area during a flood).

6. Production: Graphical process

7. Production management.
Q: So, what is production management?
A: the process of planning, organizing, directing, and controlling the activities in the
production function.
P/OM is the systematic planning, execution, and control of operations.
This definition implies that management is needed to ensure that actions are purposeful—
designed to achieve practical goals and targets.
P/OM makes sure that the work is done methodically, that is, characterized by method and
order. The fact that a process is used suggests the presence of management to install a
procedure for working systematically.

8. Production management: functions/objectives.
a. Selection of product& design
b. Selection of process for production. Developing flexible production systems to enable mass
customization of products.
c. Selecting right production capacity
d. Production planning
e. Production control. Achieving high quality quickly and keeping it up on the face of restructuring.
f. Inventory control
g. Cost & quality control. Conforming to environmental constraints, ethical standards and
government regulations.
h. Maintenance & replacement of machinery.
i. Speeding up the time to get new products into production.
j. Managing global production networks. Developing and integrating new process technologies into
existing production system.
k. Managing a diverse work force.
l. Social responsibility is one of the prime duty

9. Production systems.
An organisation can choose any one out of the following manufacturing
systems that suits its needs:
a. Job Shop Production system
b. Batch Production system
c. Mass Production system
d. Continuous Production system
e. Project based production system

10. Production systems: Job Shop
• Job shop production are characterised by manufacturing of one or few quantity
of products designed and produced as per the specification of customers within
prefixed time and cost.
• The distinguishing feature of this is low volume & high variety of products.
• A job shop comprises of general purpose machines arranged into different
departments.
• Each job demands unique technological requirements, and demands processing
on machines in a certain sequence.

11. Production systems: Job Shop
Characteristics:
 High variety of products and low volume.
 Use of general purpose machines and facilities.
 Highly skilled operators who can take up each job as a challenge because of uniqueness.
 Large inventory of materials, tools, parts.
 Detailed planning is essential for sequencing the requirements of each product,
capacities for each work center and order priorities
Limitations:
 Higher cost due to frequent set up changes.
 Higher level of inventory at all levels and hence higher inventory cost.
 Production planning is complicated.
 Larger space requirements.

12. Production systems: Batch
Batch production system is resorted to when a variety of products are to be manufactured &
the volumes are not large enough to demand a separate line for each product. In this
method, general machines are used to turn out different products.
Batch production is defined “as a form of manufacturing in which the job passes through
the functional departments in lots or batches and each lot may have a different
routing.”
Advantages:
 Better utilization of plant and machinery.
 Promotes functional specialization.
 Cost per unit is lower as compared to job shop production.
 Lower investment in plant and machinery (compared to job shop).
 Flexibility to accommodate and process number of products.
 Job satisfaction exists for operators.

13. Production systems: Batch
Limitations:
 Material handling is complex because of irregular and longer flows.
 Production planning and control is complex.
 Work in process inventory is higher compared to continuous production.
 Higher set up costs due to frequent changes in set up.

14. Production systems: Mass or Line
Manufacture of discrete parts or assemblies using a continuous process is called mass
production.
This production system is justified by a very large volume of production.
The machines are arranged in a line or product layout.
Product and process standardization exists and all outputs follow the same path.
Features:
 The line moves the product from each work station to the next. With no build-up of stock
between stages, managers look to achieve line balance.
 Manufacturing cost per unit is low with higher capacity utilization.
 Each work station fulfills only a small part of the complete task. The plant layout is
dedicated to one product or a small family.
 Scheduling is simple in principle, but the line is sensitive to the absence of a key component.
Managers monitor flows carefully.
 High investment in production facilities is needed.
 The cycle time is determined by the slowest operation in the production line.

15. Production systems: continuous
In contrast to the previous systems producing integral products, continuous production
means high volumes of dimensional products. E.g. Chemical plants producing soap, salt
etc.
Production facilities are arranged as per the sequence of production operations from the
first operations to the finished product. The items are made to flow through the sequence
of operations through material handling devices such as conveyors, transfer devices, etc.
Characteristics:
 Dedicated plant and equipment with zero flexibility.
 Material handling is fully automated.
 Process follows a predetermined sequence of operations.
 Component materials can’t be readily Identified with final product.
 Planning and scheduling is a routine action.
 Person with limited skills can be used on the production line.
 Product differentiation is limited.

16. Production systems: Project
This kind of production system is used to manufacture goods that are difficult to move during
assembly or after they have been completed.
Features:
 Different people and equipment at different times.
 Specialist staff.
 Special equipment.
 Task sequencing over a long period.
 Quality depends on many factors.
 Planning takes place under much uncertainty.

17. Production systems: Round-up
 Jobbing: wide range of small contracts.
 Batch: narrower range; larger jobs.
 Line: dedicated production system.
 Continuous: dimensional products.
 Project: one-off, large scale contracts.

18. Production management: Next Up?
Plant location…

19. Plant Location
Meaning: the establishment of an industry at a particular place.
Need for location?
 While starting a new factory.
 During expansion of an existing plant.
 When existing plant is to be re-located to some other place.
Plant location can be based on the either of the two principles:
 Localization /centralization: means concentration of similar type of industries
at some particular place.
 Delocalization /Decentralization: means spreading of similar type of industries
at different places.

20. Plant Location: Introduction.
 A good location will reduce the cost of production & distribution to a large
extent. The reduction of cost of distribution helps in elevating either the
competitive strength or the profit margin of business.
 Locating of business involves large & relatively permanent investment.
 If the site selection is not done properly, all the money spent on factory
building, machinery & their installation will be wasted & the owner will have to
suffer great losses. Therefore, the site for factory should be selected very
carefully.
 While selecting a site it is necessary to consider technical, commercial,
&financial aspects & then select a site that may provide maximum profit.
 An ideal location is one where the cost of the product is kept to minimum, with
large market share, the least risk and the maximum social gain.
 It is the place of maximum net advantage or which gives lowest unit cost of
production and distribution.

21. Plant Location: Factors
Primary factors:
 Supply of raw materials.
 Nearness to market.
 Transportation facilities.
 Supply of labour, power.
Secondary factors:
 Facilities, govt. subsidies.
 Natural resources.
 Political factors.
 Goodwill, and initial place of production.
 Miscellaneous factors.

22. Plant Location: Affecting Factors.
 Availability of raw material.
 Nearness to the potential market.
 Near to the source of operating requirements like electricity, disposal of waste,
drainage facilities.
 Supply of labor.
 Transport & communication facilities.
 Integration with other group of companies.
 Suitability of land & climate.
 Availability of housing, other amenities & services.
 Local building & planning regulations.
 Safety requirements.
 Others like low interest on loans, special grants, living standards.

23. Factors That Affect Location Decisions
 Labor productivity
 Wage rates are not the only cost
 Lower productivity may increase total cost
Labor cost per day
Productivity (units per day)
= cost per unit
Location A
= 8.75per unit
350
40 units
Location B
= 10 per unit
200
20 units

24. Factors That Affect Location Decisions
 Exchange rates and currency risks
 Can have a significant impact on cost
structure
 Rates change over time
 Costs
 Tangible - easily measured costs such as
utilities, labor, materials, taxes
 Intangible - less easy to quantify and
include education, public transportation,
community, quality-of-life

25. Factors That Affect Location Decisions
 Attitudes
 National, state, local governments toward
private and intellectual property, zoning,
pollution, employment stability
 Worker attitudes towards turnover, unions,
absenteeism
 Globally cultures have different attitudes
towards punctuality, legal, and ethical issues

26. Factors That Affect Location Decisions
 Proximity to markets
 Very important to services
 JIT systems or high transportation costs may
make it important to manufacturers
 Proximity to suppliers
 Perishable goods, high transportation costs,
bulky products

27. Factors That Affect Location Decisions
 Proximity to competitors
 Called clustering
 Often driven by resources such as natural,
information, capital, talent
 Found in both manufacturing and service
industries

28. Plant Location: Theories
Alfred weber, in 1909, classified locational factors into two broad categories:
Primary, or agglomerating factors: materials, and labour.
These factors help in concentration of industrial units in one place.
Secondary or deagglomerating factors: banking, insurance, communication, etc.
These factors help in dispersal of industries from their original places, spreading them
over a large area.
Organisations can be:
a. Materials oriented, or,
b. Market oriented.
Weber has classified raw materials into:
a. Gross raw materials (or weight loosing materials).
b. Pure raw materials (or non-weight loosing materials).

29. Plant Location: Models? Methods?
Factor-Rating Method:
 Popular because a wide variety of factors can be included in the analysis.
 Six steps in the method:
1. Develop a list of relevant factors called critical success
factors.
2. Assign a weight to each factor.
3. Develop a scale for each factor.
4. Score each location for each factor.
5. Multiply score by weights for each factor for each location.
6. Recommend the location with the highest point score.

30. Plant Location: Location Break-Even Analysis
 Method of cost-volume analysis used for industrial
locations
 Three steps in the method
1. Determine fixed and variable costs for each location
2. Plot the cost for each location
3. Select location with lowest total cost for expected
production volume

31. Plant Location: Transportation Model
 Finds amount to be shipped from
several points of supply to several
points of demand
 Solution will minimize total
production and shipping costs
 A special class of linear programming
problems

32. Plant Location: Center-of-Gravity Method
 Finds location of distribution center
that minimizes distribution costs
 Considers
 Location of markets
 Volume of goods shipped to those
markets
 Shipping cost (or distance)

33. Plant Location: Center-of-Gravity Method
 Place existing locations on a
coordinate grid
 Grid origin and scale is arbitrary
 Maintain relative distances
 Calculate X and Y coordinates for
‘center of gravity’
 Assumes cost is directly proportional
to distance and volume shipped

34. Plant Location: Center-of-Gravity Method
North-South
East-West
120 –
90 –
60 –
30 –
–| | | | | |
30 60 90 120 150
Arbitrary
origin
Chicago (30, 120)
New York (130, 130)
Pittsburgh (90, 110)
Atlanta (60, 40)

35. Plant Location: Center-of-Gravity Method
Number of Containers
Store Location Shipped per Month
Chicago (30, 120) 2,000
Pittsburgh (90, 110) 1,000
New York (130, 130) 1,000
Atlanta (60, 40) 2,000
x-coordinate =
(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)
2000 + 1000 + 1000 + 2000
= 66.7
y-coordinate =
(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)
2000 + 1000 + 1000 + 2000
= 93.3

36. Plant Location: Models.
Comparative cost chart analysis:
 Is appropriate where the location problem concerns the placement of a single
plant. This is based on location cost summary chart. A comparative chart of
total costs involved in setting up a plant of desired size is prepared.
Ranking & weight method:
 Various locations are ranked acc. To their contribution
 Various factors are assigned weights acc. To their importance
 Weights are then multiplied with rank assigned
 Total of these products for each location is calculated
 Location having max. total is then selected

37. Advantages &disadvantages of urban, rural & sub-urban
sites for a plant:
urban rural Sub-urban
Better
transportation
More water Planned industrial
Large labor supply Cheaper land Larger area
Big local market Lower taxes Labor stability
Easy finance Few ordinances
Municipal services Lack of skilled
Better civil attitude

38. Plant layout OR Facilities layout…
 The physical arrangement of machinery, equipment, and other industrial
facilities, for the purpose of achieving the quickest and smoothest production at
the least/optimal cost.
 Aims at permitting the quickest flow of material at the lowest cost and with the
least amount of handling.
 an arrangement of different aspects of manufacturing in an appropriate manner
as to achieve desired production results.
 Plant layout decisions are taken at the time of setting up of a plant, and/or
expansion of the existing facilities.
 Facility layout considers available:
a. space,
b. final product,
c. safety of users and facility, and
d. convenience of operations.

39. Plant Layout: Major Objectives…
1. To improve Productivity and efficiency.
2. Proper & efficient utilization of available floor space.
3. To avoid congestion & bottlenecks.
4. Provision of better supervision & control of operations.
5. Careful planning to avoid frequent changes in layout which may result in undue
increase in cost of production, and stoppages.
6. To provide adequate safety to the workers from accidents.
7. To meet the quality & capacity requirements in the most economical manner.
8. Provision of medical & recreational facilities at suitable & convenient places.
9. To provide efficient material handling system.
10. To provide scope for future improvements in production processes & work methods.

40. Plant Layout: features & advantages.
 Optimum use of available area.
 Savings in handling costs.
 Remove bottlenecks.
 Quick execution of orders.
 Better quality control.
 Improved Production control.
 Improved employee control.
 Limited investment.
 Best use of labour.
 Improved supervision.

41. Plant Layout: Affecting Factors?
1. Materials
2. Products
3. Workers
4. Machinery
5. Type of industry
6. Location
7. Managerial policies

42. Plant Layout: principles
 Principle of Minimum Movement: There must be minimum movement of men &
materials so that wastage of labor & time be avoided.
 Principle of Sequence: Men, materials & operational activities must be arranged
in a sequential way.
 Principle of Security: There must be provision for security, safety & healthy
working conditions in the layout.
 Principle of Utilization of Space: This principle emphasized on the effective
utilization of available space.
 Principle of Flexibility: There must be enough flexibility in the layout, so that
there may be no difficulty in revisions.
 Principle of Minimum Investment: The layout should secure savings in fixed
capital investment.
 Principle of Integration: The layout must be well integrated and coordinated.

43. Plant Layout: Types…
The following are the major types of plant layouts:
a. Process layout.
b. Product layout.
c. Fixed position or static layout.
d. Cellular layout, or group technology layout.
e. Hybrid layout.

44. Plant Layout: Process layout.
 It is also called job shop or functional layout.
 The machines and equipment of similar type are grouped together and placed in
one location in the process layout.
 Example: all metal cutting equipment like hack saw, circular sewing machines,
lathe and turning machines, milling machines
 Sequencing of the shops is generally as per a typical product.
 The product here is given secondary consideration.
 The layout can produce different variety of products in relatively small batches.
 Here the workers and supervisors are skilled and trained.

45. Plant Layout: Process layout.

46. Plant Layout: Process Layout.
Advantages:
1. Can handle a variety of processing requirements
2. Wide flexibility in production facilities as a machine is not blocked for a single product.
3. Each production unit of system works independently.
4. Lower initial capital investment is required.
5. The overhead costs are relatively low.
6. Breakdown of one machine does not disturb the production process.
7. Supervision can be more effective and specialized.
Disadvantages:
1. Material handling costs are high due to backtracking.
2. More skilled labor is required resulting in higher costs.
3. Work in progress inventory is high needing greater storage space.
4. More frequent inspection is needed which results in costly supervision.

47. FIXED POSITION OR LOCATION LAYOUT
Raw Material
Air Craft Assembly
Finished Product
(Aircraft)
Machines
& Equipment
Labor

48. Advantages
 The investment on layout is very small.
 The layout is flexible as change in job design and
operation sequence can be easily incorporated.
 Adjustments can be made to meet shortage of materials
or absence of workers by changing the sequence of
operations.

49. Disadvantages
 As the production period being very long so the
capital investment is very high.
 Very large space is required for storage of material
and equipment near the product.
 As several operations are often carried out
simultaneously so there is possibility of confusion
and conflicts among different workgroups

50. COMBINED LAYOUT
 A combination of process & product layout is known as combined layout.
 Manufacturing concerns where several products are produced in repeated
numbers with no likelihood of continuous production, combined layout is
followed

51. The End
of unit One.

52. Operations & Production Management
Unit two.

53. Inventory management.
Meaning, Definition and Objectives of Inventory management, Types
of inventories. Inventory management and control, process of inventory
management and
control, Techniques of Inventory Control.

54. Inventory: Definition.
Inventory, literal, linguistic meaning of the word is “a list of things found.”
A stock of items held so as to meet demand.
A list for goods and materials, or those goods and materials themselves, held available in
stock by a business.
Inventory includes raw materials, work in progress, finished goods, spares, and other
stocked items needed to meet expected and unexpected demand or distribution in
future.

55. Inventory: Types.
The term inventory usually involves the following types of materials:
1. Production inventories, the raw materials, parts, and components which
enter the firm’s product in the production process. These may consist of
general purpose items manufactured specially to org. specifications, and/or
standard industrial items.
2. WIP and finished goods.
3. Spares, or MRO inventories.

56. Inventory: why???
Inventories are kept usually for the following reasons:
a. To meet both expected, and unexpected demand.
b. To keep a continuous supply of all the materials for smooth production
processes.
c. To reduce the dependencies of the production line (suppliers.. Transporters
etc) on one another. To decentralise the production function with respect to
control.
d. Provides the organisation with a wider market reach.
e. Understanding the seasonal availability of some items and their pricing and
arranging the right quantity, of right quality, at right price.

57. Inventory: Costs.
Inventory costs consist of several components, each of which has to be given due
consideration while making a decision.
Some of the costs involved are:
a. Ordering costs: the costs that are incurred while obtaining the materials from the
vendor.
b. Carrying costs: the costs that are incurred after the order is obtained and the
materials are with the organisation. These include costs for obsolescence,
deterioration, taxes, storage, insurance, pilferage etc.
c. Capital costs: the costs involved with the money that was used in the production
process, e.g. interest on the money invested in inventory, lease/rent/hire charges.
Some of the other costs that we have to take into consideration in inventory
management are: stock-out costs, capacity shortfall, or idle-time costs.

58. Inventory: Costs.
Some of the aspects of inventory costs are conflicting and therefore a
balance has to be struck between the various costs involved to achieve the
minimum/optimum limit possible.
e.g. ordering costs and inventory costs may conflict with each other. If the
ordering costs are less, carrying costs may be more and vice versa.

59. Inventory Management
 Scientific method of finding out how much stock should be maintained in order
to meet the production demands and be able to provide right type of material
at right time, in right quantities and at competitive prices.
Objectives:
 To maintain a optimum size of inventory for efficient and smooth production
and sales operations
 To maintain a minimum investment in inventories to maximize the profitability
 Effort should be made to place an order at the right time with right source to
acquire the right quantity at the right price and right quality
 To store just enough quantity in view of inventory carrying cost.
 Number of orders to be such that ordering cost also is reduced.

60. Inventory Management: why???
 Economics involved in producing or purchasing in batches.
 Uncertainty in both demand and supply.
 Seasonality in demand pattern.
 Availability of different Transportation and Distribution modes.
 Constitute significant part of current assets.
 Effective and efficient management is imperative to avoid unnecessary investment.
 Improper inventory management affects long term profitability.

61. Inventory: Management & Control.
Inventory management is important due to the high cost involved.
The kind of Inventory management and control system used depends upon a variety of factors,
such as:
 The type of product: Materials M&C is important in items of high value. If the product’s
supply is rationed by the govt. or any other agency/factor, it may influence the purchase
and usage pattern of the product.
 The type of manufacture: in case of continuous manufacture, inventory control is
paramount as it decides the rate of production.
The manufacturing processes can’t be allowed to slow down for the lack of materials.
On the other hand, intermittent manufacture allows for a flexible inventory control
mechanism.
 Volume of production and the kinds (types) of materials used: the number of materials,
parts that go into the manufacturing process also determines the kind of inventory M&C
system used…
Contd. Ahead…

62. Inventory: Management & Control.
e.g. the manufacture of nut bolts requires the M&C of only a few types of materials.
The manufacture of locomotives on the other hand requires the M&C of literally,
1000’s of types of parts. The M&C system would be more complex in the latter case.
Other factors that influence the kind of M&C system to be used are:
 The skill level of the personnel responsible for manging the system on a
continuing basis.
 The actual savings accruing from an advanced M&C system.
 The future objectives of the company (strategic overlook).

63. Inventory: Management & Control: Process.
The process of inventory M&C involves the following steps:
 Determination of optimum inventory levels and procedures of their review and
adjustment: the inventory level has to be determined after taking into account the rate
of consumption, sales trends, past usage, stock-out costs etc.
 Determination of the appropriate degree of control needed for the best results: the
level of control can be decided based on the value of the products, their role in the
production system, their availability in the market, the variance between the available
substitutes etc.
 Planning and designing the actual inventory system: the inventory system needs to be
thorough, adaptable, and long lasting at the same time. The two general approaches to
inventory systems are:
a. Fixed quantity order system, and
b. Fixed period order system.

64. Inventory: Management & Control: Process.
Fixed quantity order system: In this system, a fixed quantity of materials is ordered
whenever the stock in hand reaches a certain pre-specified level. The level fixed is nothing
but the EOQ.
Pros and Cons:
a. Each material can be procured in the most economical quantity.
b. The checks are only needed intermittently while the inventory level remains within the
pre-specified min. and max. levels.
c. The orders are procured at irregular intervals and thus problems in procurement may
occur for the suppliers.
d. The EOQ may be below the supplier minimum for discounts and rebates and thus the
organisation might lose out on possible savings.
e. Assumes stable levels of usage and procurement.

65. Inventory: Management & Control: Process.
Fixed Period order system: Under this system, the stocks of materials are replenished
after pre-specified times. The period for re-orders may be set at weeks or months
depending upon the consumption pattern of the materials. The stocks are reviewed
continuously and once it reaches the level unsustainable for production, a new order is
put in.
Pros and cons:
a. The system works well for items with irregular consumption pattern.
b. The known period gives the suppliers enough time to procure the materials for the
buyer, negating the effect of possible shortfalls to some extent.
c. The periodic review may result in shortage or surplus of materials during the non-
review period.
d. Carrying costs, risk of obsolescence, deterioration, and even stock-outs may increase
substantially.

66. Inventory: Management & Control: Process.
 Determining the organisational arrangement structure and actually
implementing the Inventory M&C system: The last aspect of inventory M&C is
to determine the responsibilities- authorities structure. Whose job is it really
to implement the M&C structure, policies etc.
It depends on whether the product is technical (in which case the inventory dept.
may report directly to production), or fast moving (mass produced, in which case
it might be feasible for it to be linked with purchases).

67. Inventory Control: Techniques.
 ABC Classification
 HML Classification
 XYZ Classification
 VED Classification
 FSN Classification
 SOS Classification
 SDE Classification
 GOLF Classification

68. Inventory Control: Techniques: ABC Analysis.
Pareto’s Principle.
ABC analysis, or Always Better Control.
Classifies items based on their estimated annual consumption value.
List each item in the inventory.
Determine the usage volume, and rupee value, and multiply them.
Compute each items percentage of total inventory value (in rupees)
Top 10% items are classified under category A.
Next 20% of items are classified under category B.
The rest of the items (70%) ae classified under category C.
The items under category A are put under strict control, the items under category C under
the least control, and Category B falls somewhere in between.

69. Inventory Control: Techniques: XYZ and HML Analysis
Whereas ABC was on the basis of actual consumption value, the XYZ analysis classifies
materials on the basis of the actual value of the inventory stored at a given time.
X – High Value, contribute to 10% of inventory but to 70% of value.
Y – Medium value, contribute to 20% of inventory but to 20% of value.
Z – Least value, contribute to 70% of inventory but to 10% of value.
Aims at identifying the items which are extensively stocked.
HML Classification: On the basis of unit value of item
H – High per unit value items.
M- Medium per unit value items.
L – Low per unit value items.
Aimed at controlling the purchase of raw materials.

70. Inventory Control: Techniques: VED analysis
Criticality to the manufacturing process is the basis for classification in VED
analysis.
Mainly for spare parts because their consumption pattern is different from raw
materials.
V – Vital,
E – Essential,
D – Desirable
Therefore V Category items have to be stocked more, and D category Items can
be less stocked (at the min. inventory level).

71. Inventory Control: Techniques: FSN & SOS Analysis.
FSN, i.e. Fast moving, Slow moving, and Non-moving Classification
separates items based on their rate of consumption in the production process.
FSN analysis is helpful in identifying the items that need to be reviewed regularly,
and the items which can be reviewed after longer stretches of time.
SOS Analysis, on the other hand, classifies items based on their availability
throughout the year or not…
S – Seasonal.
OS – Off seasonal.
Raw materials especially for agriculture units.

72. Inventory Control: Techniques: SDE & GOLF Analysis.
Based on the sources of procurement.
S – Scarce, D- Difficult, E- Easy.
G – Government, O – Ordinary, L – Local, F – Foreign.
Generally, helps in determining the lead-time and in deciding
on alternative procurement strategies.

73. Inventory Control: Techniques: EOQ
Economic Order Quantity.

74. Inventory Control: Techniques: ABC Analysis.