MET 305

INDUSTRIAL & SYSTEMS

ENGINEERING

Prepared by
Sarath Babu Ramachandran
Assistant Professor
Department of Mechanical Engineering
Vidya Academy of Science and Technology

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Syllabus
Module 1
Introduction to Industrial Engineering - Evolution of modern Concepts in Industrial
Engineering -Functions of Industrial Engineering - Field of application of Industrial
Engineering - Design function- Objectives of design- Development of designs- prototype,
production and testing - Human factors in design - Principles of good product design- tolerance
design- quality and cost considerations- product life cycle- standardization, simplification,
diversification- concurrent engineering- comparison of production alternatives - Economic
aspects- C-V-P analysis – simple problems.
Module 2
Introduction to materials management – objectives – Types of material handling equipment’s
-principles of material handling –Material selection – value analysis – make or buy decisions-
Purchasing and procedures. Basic inventory management - Inventory -Functions, Costs,
Classifications - EOQ Models- Assumptions- Quantity discount model- Q system- P system-
Reorder level - Simple problems- Concept of JIT manufacturing system.
Module 3
Industrial relations- Psychological attitudes to work and working conditions - fatigue- Methods
of eliminating fatigue- Effect of Communication in Industry-Industrial safety-personal
protective devices-, causes and effects of industrial disputes- Collective bargaining- Trade
union – Worker’s participation in management.
Module 4
Principles of Lean Manufacturing (LM) – Basic elements of LM– Introduction to LM Tools-
Concept of wastes in LM and their narration - stages of 5S and waste elimination –
Conventional Manufacturing versus Lean Manufacturing - Need for LM. Agile manufacturing
- Definition, business need, conceptual frame work, characteristics, and generic features -
Approaches to enhance ability in manufacturing - Managing people in agile organization
Module 5
Introduction of enterprise resource planning (ERP)- Concept of Enterprise, ERP Overview -
Integrated information system - Myths about ERP – Evolution of ERP- Benefits of ERP
implementation - Success and failure factors of ERP implementation - small, medium and large
enterprise vendor solutions- ERP and related technology: Business intelligence (BI), E-
Commerce and E-Business, Business Process Reengineering (BPR), Data warehousing, Data
mining, Online Analytical Processing(OLAP), Product lifecycle management(PLC), Supply
chain management(SCM), Customer relationship management (CRM)- ERP implementation
challenges -Emerging trends on ERP

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MODULE -1
Industrial Engineering
Industrial engineering is the applied science that deals with the design, improvement and
installation of production systems. These are integrated systems of people, materials,
equipment’s and energy for the production and delivery of goods and services. (The American
Institute of Industrial Engineers).
Evolution of modern Concepts in Industrial Engineering
The history of Industrial engineering is considered to start with the industrial revolution in the
eighteenth century. During the late nineteenth century, the impetus for the development of
industrial engineering was primarily provided by engineers/managers in the United States.
During this period the most significant contribution to the discipline of industrial engineering,
perhaps, came from Frederick W Taylor, who was a mechanical engineer. He initiated the
concept of time study applied to production operations. He used the term ‘scientific
management’ for his planned approach to improving production and shop management. Then
the World War II demands for increased production provided further stimulus to industrial
engineering development.
The modern industrial engineering techniques had their origin during the period between 1940
and 1946.the development of the techniques as listed below took place during that time.
• Value engineering
• Operations research
• CPM and PERT
• Ergonomics or human engineering
• System analysis
• Advances in IT and computer packages
• Mathematical and statistical tools
Thus, industrial engineering has taken a firm position in the organization and it is contributing
maximum towards increasing productivity and efficiency in particular and quality of work-life
in general.
Functions of an Industrial Engineer
Industrial engineering activities span the entire enterprise. The most common functions of an
Industrial Engineer are:
1. Developing the simplest work methods and establishing the one best way of doing work
(standard method)
2. Establishing the performance standards as per the standard methods (standard time)
3. Developing a sound wage and incentive scheme
4. Assisting in the design of a sound inventory control, determination of economic lot size
for production
5. Preparing a detailed job description and job specification for each job and evaluating
them
6. Establishing a sound cost system and developing cost control programmes

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7. Sound selection of site and developing an optimal layout for smooth flow of work
8. Developing standard training programmes for various levels in the organization
Different Roles of an Industrial Engineer
The different roles an industrial engineer may need to take on are:
1. Adviser/Consultant for interpretation of data, review, etc.
2. Advocate/Activist to promote actively a process or approach
3. Analyst to analyse a problem to obtain insights
4. Liaison agent to interface between company and customer/user
5. Motivator to provide stimulus/skills
6. Decision-maker to select a preference from alternatives
7. Designer/Planner to produce solutions, specifications
8. Expert to provide high level knowledge, experience, skills
9. Coordinator/Integrator to achieve the defined goals
10. Innovator/Inventor to produce creative solutions
11. Measurer to obtain data and facts
12. Project Manager to operate, supervise, evaluate projects
13. Trainer/Educator in the skills and knowledge of industrial engineering
14. Negotiator/Conflict manager for proper workplace relation
Applications of Industrial Engineering
In the early years industrial engineering was primarily applied to manufacturing
industries for improving the production processes. After 1940 the following developments
took place: Development of applied mathematics leading to industrial application of
operations research techniques like linear programming, simulation and statistical sampling
Development of industrial psychology for business applications. Development of
computers and various software packages for industrial application of electronic data
processing. These developments widened the scope of industrial engineering and its
application spread to other fields.
Industrial engineering techniques are now applied in non-manufacturing sectors such as:
• Construction and transportation
• Farming and business
• Airline operations and maintenance
• Public utilities and hospitals
• Government and armed forces
Even though it is applied in many varied sectors, industrial engineering still finds major
applications in manufacturing plants and industries. In an industry, besides production,
other departments utilizing industrial engineering concepts and techniques are: marketing,
finance, purchase and industrial relations.

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Engineering Design
Engineering design is a systematic, intelligent process in which engineers generate,
evaluate, and specify solutions for devices, systems, or processes whose form(s) and
function(s) achieve clients’ objectives and users’ needs while satisfying a specified set of
constraints. In other words, engineering design is a thoughtful process for generating plans
or schemes for devices, systems, or processes that attain given objectives while adhering to
specified constraints.
Objectives of Design
• To ensure growth of the organization
• To utilize the surplus capacity of the organization, such as physical facility, man power,
etc.
• To utilize the surplus fund of the organization
• To meet new requirement of the customers
• To increase company’s market share and to target new market segment
• To ensure complete product range in company’s portfolio
Steps of Product Design
1. Synthesis: Try to develop different alternatives
2. Sketching: Draw sketches in exact scale for different alternatives
3. Analysis: Analysis different alternatives with respect to operability, maintainability,
inspection, assembling and dismantling issues, cost parameters, production methods,
etc.
4. Selection: Select the best alternative
5. Basic engineering: Prepare layout in exact scale, calculate strength of components,
select proper cost-effective material.
6. Detail design: Prepare detail engineering drawing for each component
7. Prototype: If option is there, then prepare prototype and test it
8. Manufacturing: If prototype is not made, then follow manufacturing steps and solve
manufacturing problems and assembly problems.
9. Operation: collect feedback during actual operation of the new product. If any problem
exists, try to provide design-based solution. Also, implement lessons in the future
design.
10. Product development: If any modification can be done, implement the same in the next
generation product
Prototyping
Prototype is the first fully functional model of a design. This is not a model but a full-
fledged product made as per the design. Models are used in certain designs to understand
the specific performance of that part or product. (Aircraft, buildings, ships, rockets etc.).
Prototyping is done using the materials specified so that their performance is also taken
into account. Conventionally few prototypes are made for a planned evaluation of the
product from various angles. Producing a prototype is a costly procedure as the
requirements are limited. Regular prototyping is done by making the design through

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conventional approaches. Currently 3D printing technologies have shown their worth in

this.
Testing And Evaluation of Design
• Evaluation is done to confirm whether the design intent/criteria is satisfied.
• List of important attributes to be tested
• Set of experiments that test those attributes
• Recording of test data
• Identify major areas of concern for any redesign work.
Reason for Testing and Evaluation of Design
• To assess the viability of a design
• To identify potential faults and to make improvements.
• To identify safety issues
• To scrutinize costs
• Evaluating the manufacturing process to design in an efficient and cost-effective
production line.
• For providing user instructions
• Comparison of tests conducted on similar design may lead to improvement.
Human Factors in Design
Considering information about human behavior, abilities, characteristics and physical
limits. Ensuring that the final product can be effectively utilized by the end user, without
exceeding their capabilities. ‘Fitting the Job to the Men’ rather than ‘Fitting the Man to the
Job’. Optimizing efficiency, health safety and comfort of people through better designs
Forms of Human Factors
1. Anthropometric (Human interaction in static sense; dimensions of body)
2. Ergonomics (Human interaction in dynamic sense; repeated tasks)
3. Physiological (Human interaction with body characteristics)
4. Psychological (Human interaction with mental activities)
Anthropometric Factors
Anthropometric human factors are related to the physical size of humans; it is man-machine
interaction in static sense. Adequate attention to the nature of physical dimensions of
human
Ergonomic Factors
Greek Words: Ergon = work, Nomikos = law. Ergonomics = Study of work laws. The three
aspects of ergonomic factors: safety, comfort and efficiency Importance when the human
is involved with the machine in a dynamic sense. A human is required to exert a force or
supply work to the machine. The effective operations of a machine over long periods will
depend up on the matching of requirements to human capability.

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Physiological Factors
Factors dealing with human sensations. These involve the neurological, muscular,
respiratory, vascular and sensory systems They can be grouped according to the response
to various inputs such as
• Visual
• Auditory
• Tactile (the sense of touch)
• Taste senses
• Environment
Psychological Factors
They are concerned with mental activity of the human during the use of the product. This
involves:
• Interpretation of information
• Motivation and fatigue
• Decision making
• Aesthetics
Principles of a Good Product Design
1. Functionality: The product must function properly for intended purpose.
2. Reliability: The product must perform properly for the designated period of time.
3. Productivity: The product must be produced with a required quantity and quality at a
defined and feasible cost.
4. Quality: The product must satisfy customer’s stated and unstated needs.
5. Standardization: The product should be designed in such a fashion so that most of the
components are standardized and easily available in the market
6. Maintainability: The product must perform for a designated period with a minimum
and defined maintenance. Adequate provision for maintenance should be kept in the
product.
7. Cost effectiveness: The product must be cost effective. The must be manufactured in
the most cost-effective environment.
Tolerance Design
The tolerances on the product design parameters are determined considering the loss that
would be caused to society when the performance deviates from the target. Once the system
has been designed along with the values for parameters, the designer has to set the tolerance
of the parameters. The environmental factors along with system parameter must be
considered. In tolerance design, the manufacturing tolerances that minimize the effect of
noise factors and manufacturing costs are determined. The objective in tolerance design is
to achieve a judicious trade-off between quality loss attributable to performance variation
and any increase in manufacturing cost.

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Product Life-Cycle (PLC)

The product once introduced into the market will undergo definite phases. The demand for
a product generally tends to follow a predictable pattern called product life cycle (PLC).
Products go through a series of stages beginning with start-up or introduction of product
followed by rapid growth, maturity or saturation and finally the decline of demand.
1. Introduction Stage
This stage marks the introduction of the product into the market. It may be an entirely new
product in the market or old product to the new market. The demand is low as customers
do not know much about the product. The organisations have to invest heavily in
advertisement to make the product familiar to the customer. The volume of sales will be
low and if proper care is not taken, the chances of product failures are high.
2. Growth
Once the product passes through the introduction stage, the sales starts increasing because
of the acceptability of the product by the customer. The sales growth rate is high because
of limited or no competition.
3. Maturity (Saturation)
The sales growth reaches a point above which it will not grow. This is due to the market
share taken by the competitor's products. Thus, the sales will be maintained for some
period.
4. Decline
The competitors will enter the market with better product features, advanced technology
and reduced prices. This is a threat to the very existence of product and sales start declining.
If proper care like addition of special features, design changes are not incorporated there
comes a time when the products are to be taken back from the market.

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Standardisation
Standardization is a process of defining and applying the conditions necessary to ensure
that given range of requirements can normally be met with a minimum of variety and in a
reproducible and economic manner on the basis of the best current techniques
Objectives of Standardization
• Interchangeability of parts, components, etc.
• Keeping the variety minimum.
• Helps to achieve a better control due to reduced variety.
Advantages of Standardization
• Reduction of waste and obsolescence.
• Reduction in inventory.
• Reduced effort in book keeping and accounting.
• Standardization reduces the price because of economy of scale.
• Ease in procurement because of availability.
• Reduction in maintenance and repair costs
Simplification
The concept of simplification is closely related to standardization. Simplification is the process
of reducing the variety of products manufactured. Simplification is concerned with the
reduction of production range, assemblies, parts, materials and design. Simplification makes a
product, assembly or design, simpler, less complex or less difficult. A production line is
generally simplified when it possesses unnecessary complexity and confusion. Variety
reduction will reveal that a subassembly or components needs simplification.
Advantages of Simplification
• Reduce inventories of materials and component parts.
• Reduced investments in plant and machinery.
• Reduced space requirements of storage.
• Ease of planning and control.
• Reduction in selling price.
• Simplification of inspection and control.
Diversification
Diversification is contrary to simplification. Diversification means (i) addition of new products
(ii) introduction of established products into new markets. This tends to increase complexity
of the methods of manufacturing, because, sometimes consumers like to have variety in type,
size, colour and quality of products being manufactured. This adds to the cost characteristic of
the production which is of varied nature. The extent to which diversification programme can
be carried out must be determined by market analysis of probable volume at varying levels of
diversification compared with production cost of the volume obtainable at those various levels.
Diversification adds to the classes of consumers served, by developing new technical
knowledge.

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Reason for Diversification

1. Survival
2. Stability
3. Productive utilization of resources
4. Adaption to changes costumer needs
5. Growth
6. Miscellaneous
• To maintain reputation for industrial leadership
• To realize maximum advantages from the tax structure
• To comply with the desires of owners or management
Concurrent Engineering
Concurrent engineering or Simultaneous Engineering is a methodology of restructuring the
product development activity in a manufacturing organization using a cross-functional team
approach and is a technique adopted to improve the efficiency of product design and reduce
the product development cycle time. This is also sometimes referred to as Parallel Engineering.
Concurrent Engineering brings together a wide spectrum of people from several functional
areas in the design and manufacture of a product. Representatives from R & D, engineering,
manufacturing, materials management, quality assurance, marketing etc. develop the product
as a team. Everyone interacts with each other from the start, and they perform their tasks in
parallel. The team reviews the design from the point of view of marketing, process, tool design
and procurement, operation, facility and capacity planning, design for manufacturability,
assembly, testing and maintenance, standardization, procurement of components and sub-
assemblies, quality assurance etc. as the design is evolved Concurrent engineering.
Alternative Comparisons
The majority of engineering economic analysis problems are alternative comparisons. In these
problems, two or more mutually exclusive investments compete for limited funds. A variety
of methods exists for selecting the superior alternative from a group of proposals. Each method
has its own merits and applications.
Present Worth Analysis
When two or more alternatives are capable of performing the same functions, the economically
superior alternative will have the largest present worth. The present worth method is restricted
to evaluating alternatives that are mutually exclusive and that have the same lives. This method
is suitable for ranking the desirability of alternatives.
Annual Cost Analysis
Alternatives that accomplish the same purpose but that have unequal lives must be compared
by the annual cost method. The annual cost method assumes that each alternative will be
replaced by an identical twin at the end of its useful life (i.e., infinite renewal). This method,
which may also be used to rank alternatives according to their desirability, is also called the
annual return method or capital recovery method

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Rate of Return Analysis (ROR)

The rate of return (ROR) is the effective annual interest rate at which an investment accrues
income. That is, the rate of return of an investment is the interest rate that would yield identical
profits if all money was invested at that rate. Although this definition is correct, it does not
provide a method of determining the rate of return. The company can establish a minimum
level of economic performance that it would like to realize on all investments. This criterion is
known as the minimum attractive rate of return, or MARR. Once a rate of return for an
investment is known, it can be compared with the minimum attractive rate of return. If the rate
of return is equal to or exceeds the minimum attractive rate of return, the investment is qualified
(i.e., the alternative is viable).
C-V-P ANALYSIS
CVP analysis is the analysis of three variable viz. cost, volume and profit. An Industry is faced
with a number of uncertainties 1. Demand (consumer behavior), 2. Nature of competition, 3.
Cost (control over wages, raw materials, Indirect taxation) and 4. Technology. Unless a firm is
prepared to face the uncertainties created by these risks, its profits would be left to chance.
Under such circumstances, a thorough understanding of the relationship of cost, price and
volume is helpful. Method of determining this relationship is Break Even Analysis,
The basic formula used in CVP Analysis is derived from profit equation:
𝐏𝐱=𝐕𝐱+𝐅𝐂+𝐏𝐫𝐨𝐟𝐢𝐭
Where P = price per unit
V = variable cost per unit
x = total number of units produced and sold
FC= total fixed cost
Fixed Cost
The costs which do not change for a given period in spite of change in volume of production.
This cost is independent of volume of production. Examples of fixed costs are rent, taxes,
salaries of supervisors, depreciation, insurance, etc. Fixed costs are normally expressed in
terms of time period.
Variable Cost
These vary directly and proportionately with output. There is a constant ratio between the
change in the cost and change in the level of output. Direct material cost and direct labour costs
are generally variable costs. Variable costs result from the utilization of raw material and direct
labour in production departments.
Contribution Margin (CM)
Contribution Margin (CM) is equal to the difference between total sales (S) and total variable
cost or, in other words, it is the amount by which sales exceed total variable costs (VC). In
order to make profit the contribution margin of a business must exceed its total fixed costs
CM = S – VC

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Unit Contribution Margin (Unit CM)

Contribution Margin can also be calculated per unit which is called Unit Contribution Margin.
It is the excess of sales price per unit (p) over variable cost per unit (v).
Unit CM = p – v
Contribution Margin Ratio (CM RATIO)
Contribution Margin Ratio is calculated by dividing contribution margin by total sales or unit
CM by price per unit.
Margin of Safety
The margin of safety is the excess of budgeted (or actual) sales over the break-even volume of
sales. It is the amount by which sales can drop before losses begin to be incurred.
Margin of safety = Total Sales – Break even sales
Break Even Analysis
Break-even analysis establishes the relationship among the factors affecting profit. It indicates
at what level cost and revenue are in equilibrium. It is a simple method of presenting to
management the effect of changes in volume on profit. The detailed analysis of break-even
data will help the management to understand the effect of alternative decisions that convert
costs from variable to fixed, the costs which increase sales volume and revenue. It is a powerful
tool in evaluating alternative course of action.
Assumptions
• Selling prices will remain constant at all sales levels (Quantity discounts are not available)
• There is a linear relationship between sales volume and costs.
• The costs are divided into two categories-Fixed costs, those costs which does not vary with
volume (quantity) and variable costs will be varying in direct proportion to quantity.
• Production and sales quantities are equal.
• No other factors will influence the cost except the quantity.
Break-Even Point
Break-even point refers to the level of sales (sales volume) at which the sales income (revenues)
equals the total costs. It is a point at which the profit is zero. The quantities produced (sold)
above break-even point result in profits and quantity below break-even point result in losses.
The break-even point is reached when the fixed costs are completely recovered

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Break-Even Chart

Let F = Fixed cost.

Q = Quantity produced and sold.
b = Sales price per unit.
a = Variable cost per unit.
bQ= Total income (revenue).
aQ= Total variable cost
Total costs = Fixed cost + variable cost = F + aQ
At BEP, Total costs equal total income
Therefore, Total cost = Total income.
F + aQ = bQ
Q = F/(b−a)
Contribution = Sales - Variable cost = b – a

Break-even Quantity (units) = Fixed cost

Contribution

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Numerical
1. A manufacturing firm incurs a fixed cost of Rs. 18000.The variable cost accounts Rs.8
per unit and selling price is Rs.13. Find the number of pieces to be produced to break-
even.
Given data
Fixed cost, F = 18000
Variable cost, a = 8
Selling price, b = 13
Fixed cost F 18000
Break-even Quantity (units) = = = = 3600
Contribution b−a 13−8

2. ABC company plans to sell an article at a local market. The articles are purchased at
Rs. 5 on the condition that all unsold articles shall be returned. The rent for the space is
Rs. 2000. The articles will be sold at Rs. 9. Determine the number of articles which must
be sold (a) To break-even, (b) To earn Rs. 400 as profit, (c) If the company sells 750
articles. Calculate margin of safety and profit.
Fixed cost F 2000
(a) Break-even Point (BEP)= = = = 500
Contribution b−a 9−5
(b) To earn a profit of Rs. 400
Fixed cost+Profit F+Profit 2000+400
Number of articles to be sold= = = = 600
Contribution b−a 9−5
Sales−Sales at BEP 750−500
(c) Margin of safety = × 100 = × 100 = 33.33%
Sales 750
Profit at 750 units.
Profit = Total revenue — Total cost
= Total contribution — Fixed cost
= 3000 - 2000 = Rs.1000

3. Determine the amount of fixed cost from the following information:

Sales = 2,40,000
Direct material = 80,000
Direct labour = 50,000
Variable overheads = 20,000
Profit = 50,000
Variable cost = Direct Material + Direct labour + Variable Overhead
= 80,000 + 50,000 + 20,000

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= 1,50,000
Sales - variable cost = Fixed cost + profit.
2,40,000 - 1,50,000 = F + 50,000
F = 40,000

4. From the following particulars, calculate:

(i) Break-even point in terms of sales value and in units.
(ii) Number of units that must be sold to earn a profit of Rs 90,000.
Fixed factory overhead cost = Rs 60,000
Fixed selling overhead cost = Rs 12,000
Variable manufacturing cost per unit = Rs 12
Variable selling cost per unit = Rs 3
selling price per unit = Rs 24
(i) Variable cost per unit = 12+3 = Rs 15
Total fixed cost = 60000+12000 =Rs 72000
Fixed cost 60000+12000
Break-even point= = = 8000 units
Contribution 24−15
(ii) Number of units that must be sold to earn a profit of Rs 90,000 =
Fixed cost+Profit
=
Selling price per unit−Variable cost per unit
72000+90000
=
24−15
18,000 units

5. Consider the following data of a company:

Sales = Rs. 40,000;
Fixed cost = Rs. 7500;
Variable cost = Rs. 17,500;
Find the following: (a) Contribution (b) Profit (c) BEP
Given Data:
Sales = Rs 40,000
Fixed cost = Rs 7,500
Total variable cost = Rs 17,500

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(a) Contribution = Sales – Total variable costs

= 40,000 - 17,500
= 22,500
(b) Profit = Contribution - Fixed cost
= 22,500 - 7,500
= 15,000
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡
(c) Break-even point (BEP) = 𝑃
⁄𝑉 𝑟𝑎𝑡𝑖𝑜

P Contribution 15000
ratio = = = 0.5625
V sales 40000
7500
Break-even point (BEP) = = 13,333.33
0.5625

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MODULE- 2
Material Handling
Material handling (MH) is an activity that uses the right method to provide the right amount of
the right material at the right place, at the right time, in the right sequence, in the right position,
and at the right cost. MH system is responsible for transporting materials between workstations
with minimum obstruction and joins all the workstations and workshops in a manufacturing
system by acting as a basic integrator. The MH task accounts for 30-75% of the total cost of a
product, and efficient MH can be responsible for reducing the manufacturing system operations
cost by 15-30%. An efficient MH system greatly improves the competitiveness of a product
through the reduction of handling cost, enhances the production process, increases production
and system flexibility, increases efficiency of material flow, improves facility utilization,
provides effective utilization of manpower, and decreases lead time.
Objectives of Material Handling
• Minimize cost of material handling.
• Minimize delays and interruptions by making available the materials at the point of use at
right quantity and at right time.
• Increase the productive capacity of the production facilities by effective utilization of
capacity and enhancing productivity.
• Safety in material handling through improvement in working condition.
• Maximum utilization of material handling equipment.
• Prevention of damages to materials.
• Lower investment in in process inventory.
Types of Material Handling Equipment’s
The material handling equipment are classified based on:
Types of services required: (1) Lifting, (2) Moving, (3) Stacking, and (4) Positioning
Types of equipment
Relative mobility of equipment: (a) Travel between fixed points, and (b) Travel over wide areas
Movement of equipment.
(i) On the floor.
(ii) Above the floor.
(iii) Overhead.
(iv) Underground.
Categories of equipment
(i) Conveyers:
(ii) Cranes and hoists.
(iii) Industrial trucks.

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Conveyors
They are employed to transport material over a fixed path which may be horizontal or inclined
(up or down), to different locations in the factory. They prove economical if the flow of
material is continuous. In a belt conveyor, the belt may be flat or trough shape to hold (granular)
materials which may tend to fall from the flat belt. The belt material may be rubber covered
canvas, steel, plain fabric or woven wire. A fixed conveyor is used on mass production shop
floor whereas portable conveyors are preferred for intermittent job.
Types Of Conveyors
1. Belt conveyers.
2. Roller conveyers.
3. Screw conveyers.
4. Pipeline conveyers.
5. Monorail.
6. Trolley conveyers.

Belt conveyers Roller conveyers

Screw conveyers Monorail

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Belt Conveyors
In a belt conveyor, the belt may be flat or trough shape to hold (granular) materials which may
tend to fall from the flat belt. The belt material may be rubber covered canvas, steel, plain fabric
or woven wire. A fixed conveyor is used on mass production shop floor whereas portable
conveyors are preferred for intermittent job.
Roller Conveyors
They may be gravity aided or powered and are employed for transporting products having flat
bottoms. Small items are put in boxes, tins or ballots before being transferred. Roller conveyors
can move the material along straight or curved path. Gravity type conveyors should be
preferred as compared to line conveyors wherever practical.
Cranes

Cranes are overhead devices capable of moving materials vertically and laterally in area of
limited length and width and height. Cranes are employed for lifting and lowering heavy
objects and moving them from one point to another. Cranes find their application in heavy
engineering industries and in intermittent type of production.
Types of cranes are:
(a) Overhead travelling cranes.
(b) Jib crane.
(c) Gantry crane.

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Hoists

Hoists are used for loading and unloading of heavy objects and they are also used for raising
and lowering heavy and long objects.
Type of hoists are:
(a) Chain hoists.
(b) Pneumatic hoists.
(c) Electric hoists.
The hoists and cranes are most commonly used when -
• Movement is within fixed area.
• Moves are intermittent.
• Loads vary, in size and weight.
• Loads handled are not uniform.
Industrial Trucks

Hand or powered vehicles are used for movement of mixed or uniform loads intermittently
over varying paths which have suitable running surfaces and clearances and where the primary
function is transporting.

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Types of industrial trucks are:

(a) Forklift truck.
(b) Platform truck.
(c) Tractor trailer.
Industrial trucks are generally used when:
• Materials are moved intermittently.
• Movement is through changing routes and distances.
• Loads are uniform mixed is size and weight.
• Materials can be put into unit loads.
Principles of Material Handling
1. Planning Principle: All handling activities should be planned.
2. Systems Principle: Plan a system integrating as many handling activities as possible and
coordinating the full scope of operations (receiving, storage, production, inspection,
packing, warehousing, supply and transportation).
3. Space Utilisation Principle: Make optimum use of cubic space.
4. Unit Load Principle: Increase quantity, size, weight of load handled.
5. Gravity Principle: Utilise gravity to move a material wherever practicable.
6. Material Flow Principle: Plan an operation sequence and equipment arrangement to
optimize material flow.
7. Simplification Principle: Reduce combine or eliminate unnecessary movement and/ or
equipment.
8. Safety Principle: Provide for safe handling methods and equipment.
9. Mechanisation Principle: Use mechanical or automated material handling equipment.
10. Standardizations Principle: Standardise method, types, size of material handling
Equipment.
11. Flexibility Principle: Use methods and equipment that can perform a variety of task and
applications.
12. Equipment Selection Principle: Consider all aspect of material, move and method to be
utilised.
13. Motion Principle: Equipment designed to transport material should be kept in motion.
14. Idle Time Principle: Reduce idle time/unproductive time of both MH equipment and
manpower.
15. Maintenance Principle: Plan for preventive maintenance or scheduled repair of all handling
equipment

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Selection of Material Handling Equipment’s

Selection of MH equipment is an important decision as it affects both cost and efficiency of
handling system
1. Nature of operations
(i) Whether handling is temporary or permanent.
(ii) Whether the flow is continuous or intermittent.
(iii) Material flow pattern - vertical or horizontal
(iv) Type of layout - process layout, product layout or combination layout

2. Material to be handled
(i) Size and shape of the material
(ii) quantity and weight of the material
(iii) Material characteristics
(iv) Susceptibility to damage during handling.
3. Distance over which the material is to be moved
(i) Fixed distance
(ii) Long distance
(iii) work station.

4. Installation and operating costs

(i) Initial investment
(ii) Operating and maintenance costs.

5. Plant facilities
(i) Types of buildings
(ii) Floor load capacity

6. Safety considerations

7. Engineering factors
(i) Door and ceiling dimensions.
(ii) Floor conditions and structural strength
(iii) Traffic safety.

8. Equipment reliability
(i) Use of standard components
(ii) Service facilities
(iii) Supplier reputation.

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Value Analysis
Value is an abstract concept. It is related to the qualities of the product. The qualities may be
subjective (shape, styling) or objective (performance, durability). A product or service is
generally considered to have good value if it has the appropriate performance and cost. These
are the major factors determining value. There are many other factors which contribute towards
the value like durability, reliability, aesthetics, timeliness, etc. Thus, value can be written as
(𝐏𝐄𝐑𝐅𝐎𝐑𝐌𝐀𝐍𝐂𝐄 + 𝐎𝐓𝐇𝐄𝐑 𝐑𝐄𝐐𝐔𝐈𝐑𝐄𝐌𝐄𝐍𝐓𝐒)
VALUE = 𝐂𝐎𝐒𝐓
Value analysis is the systematic application of recognized techniques which identify the
function of a product or service, establish a monetary value for the function, and provide the
necessary function reliably at the lowest overall cost.
Types of Values
1. Use Value is the value provided by the properties, features and qualities which accomplish
the use, work or service causing the item to perform the intended function.
2. Esteem Value is the customer’s emotional regard for the item. This is provided by the
properties, features and attractiveness which make one to yearn for its possession. The esteem
value is the perceived value of an item over and above its use value.
3. Exchange Value causes goods and services to be exchanged with others of equal value. This
value depends on the demand and supply position of items exchanged
4. Cost Value is the total cost of material, labour and others that have to be incurred to produce
an item or to provide a service. It gives the basic worth of the product or service. Other types
of values are added to it to get its full value.
Make or Buy Decision
The make or buy decision refers to the problem encountered by an organisation when deciding
whether a product or service should be purchased from outside sources or manufactured
internally. The majority of the make or buy decisions are made on the basis of price. Many
noncost factors encourage long-term contracts with the suppliers to aid in the achievement of
production and quality levels and encourage investments in appropriate resources and new
ideas. Most of the make or buy decisions are complex, time consuming and affect many parts
of the organisation. Senior management involvement is required in a number of the stages of
this strategic decision.
Make or Buy Decision When?
The following situations demand for the evaluation of make or buy decisions:
1. When the organisation introduces new products.
2. The fluctuating demand for the company's products.
3. When the organisation carries out value analysis or cost reduction programs.
4. Deteriorating quality and delivery commitment of the supplier if presently the item is
bought.
5. The scarcity of funds for investment in additional plant and equipment.

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Factors Influencing Make or Buy Decision

1. Volume of Production: The quantity or volume of production affects the make or buy
decision to the greater extent. If the volume of production is high, it favours the make
decision and low volume favours buy decisions.
2. Cost Analysis: The cost analysis refers to the determination of costs to make an item as
well as the cost to buy it
3. Utilisation of Production Capacity: The organisation which has created large production
capacity favours the decision to make.
4. Integration of Production System: The vertical integration favours the make decision
whereas horizontal integration favours buy decision.
5. Availability of Manpower: Availability of skilled and competent manpower favours make
decision whereas scarce manpower prefers buy decision.
6. Secrecy or Protection of Patent, right: This condition favours the make decision.
7. Fixed Cost: A lower fixed cost favours the decision to make and higher fixed cost the buy
decision
8. Availability of Competent Suppliers or Vendors.
9. Quality and Reliability of Vendors
Purchasing
Purchasing is the first phase of materials management. Procurement is a function responsible
for getting the materials, supplies and equipment's of right quality, in right quantities from right
source, at the right prices and the right time popularly known as the five R’s of the art of
efficient purchasing
A company’s procurement function becomes particularly important when:
• Its purchased items account for a high proportion of unit cost of the product.
• When the price fluctuates widely.
• When numerous diverse items are needed and
• When the quality of material appreciably influences the cost of manufacturing
Classification of Purchases
• Raw materials
• Components
• Consumable stores and supplies
• Office supplies
• Spares and tool
• Machines and equipment's

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Purchase Cycle

The basic elements in purchasing are:

• The origin of demand for materials and components based upon' the requisitions made to
purchase department by user departments with all the details like descriptions, quantity and
quality specifications.
• Specifications are checked and verified and purchase plan is made for items demanded.
• Selection of source of supply.
• Preparation of purchase order by supplier (order acceptance) and acceptance of terms and
conditions.
• Follow up to ensure prompt delivery of right quality and quantity of materials.
• Incoming inspection of materials (both to check quality and quantity) to ensure correct
material as per specification.
• Checking supply invoice against purchase order and goods received and payments are
made.
Inventory
Inventory generally refers to the materials in stock. It is also called the idle resource of an
enterprise. Inventories represent those items which are either stocked for sale or they are in the
process of manufacturing or they are in the form of materials which are yet to be utilised.

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Types of Inventories
• Raw materials inventory –purchased but not processed
• WIP (work in progress) inventory – partially completed goods or goods that undergone
some change but not completed.
• Finished-goods inventory – completed products for delivery or shipment
• Pipeline inventory - Goods-in-transit to warehouses or customers
• MRO (Maintenance, Repairs, and operating Supplies) inventory – Replacement parts, tools
and supplies necessary to keep machinery and processes productive
• Buffer inventory or safety stock- any amount held on hand that is over and above that
currently needed to meet demand.
• Seasonal inventory- firms will purchase and hold inventory that is in excess of their current
need in anticipation of a possible future event. Such events may include a price increase, a
seasonal increase in demand, or even an impending labour strike.
• Decoupling Inventory- serves as a shock absorber, cushioning the system against
production irregularities
• Cyclic Inventory- cycle inventory results from ordering in batches or lot sizes rather than
ordering material strictly as needed
Functions of Inventory
• To meet anticipated customer demand - Anticipation stocks
• To smooth production requirement - Seasonal inventory
• To decouple operation - Decouple inventory
• To protect against stock out - Safety stock
• To take advantages of order cycle- Cycle inventory
• To hedge against price increases - Safety stock
• To take advantage of quantity discount
Cost Associated with Inventory
Unit Cost Cu (Cost / unit)
▪ Direct cost for getting an item
▪ Purchasing cost for outside orders
▪ Manufacturing cost for internal orders
Holding cost or Carrying cost Cc (Cost / unit / period)
▪ Cost related to carrying an item in inventory
Ordering or Setup cost Co (Cost / order)
▪ Cost associated with placing an order
▪ Setup cost for internal orders
Shortage cost Cs (Cost / unit / period)
▪ Cost associated with not having an enough inventory to meet
demand
Inventory Control Terminology
Demand – number of items required per unit time
Order cycle- Time period between two orders
Lead time – The length of time between placing and receiving an order
Re-order level (ROL) – It is the point at which the replenishment action is initiated.
Re-order quantity – Quantity to be ordered at ROL

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Economic Order Quantity (EOQ)

Procurement cost (ordering cost) and inventory carrying cost are the two major costs associated
with inventory. Annual procurement cost varies with the number of orders. This implies that
the procurement cost will be high, if the item is procured frequently in small lots. The annual
inventory carrying cost (Product of average inventory x Carrying cost) is directly proportional
to the quantity in stock. The inventory carrying cost decreases, if the quantity ordered per order
is small. The two costs are opposite to each other. The right quantity to be ordered is one that
strikes a balance between the two opposing costs. This quantity is referred to as "Economic
order quantity" (EOQ).

Inventory Models
A model of an object is a physical representation that shows what it looks like or how it works.
Mathematical modelling is a process of representing the real-world problem using various
mathematical structures such as graphs, equations, diagrams, scatter plots, tree diagram, etc.
Inventory Model is a mathematical model representing the inventory process following in an
organization aims at minimizing the total cost by finding optimum order quantity and when to
order.
Economic Order Quantity with Instantaneous Stock Replenishment
Assumptions
• Demand is deterministic, constant and it is known.
• Stock replenishment is instantaneous (lead time is zero)
• Price of the materials is fixed (quantity discounts are not allowed)
• Ordering cost does not vary with order quantity
Basic Inventory Model

Let D = Annual Demand

Co = Ordering Cost
Ch = Inventory carrying cost
C = Price per unit
𝑄 = Order quantity (no of units ordered per order)
Q∗ =Economic order quantity

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N = Number of orders placed per annum

Tc =Total cost per annum
Annual ordering cost = No. of orders × Odering cost/order
Annual demand
= Order Quantity × Odering cost/order
D
= Q × Co
Annual inventory carrying cost
= Average inventory investment × inventory carrying cost
Max. inventory + Min. inventory
= ( ) × inventory carrying cost
2
𝑄𝐶
= 2ℎ
Annual total cost(Tc ) = Annual ordering cost + Annual inventory cost
DC QC
= Qo + 2 h
To minimize total cost differentiating w.r.to Q and equating to zero
dTc −DC C
= Q2 o + 2h = 0
dQ
√𝟐𝐃𝐂𝐨
𝐐∗ =
𝐂𝐡
The optimal number of orders placed per annum
Annual Demand 𝐃
𝐍∗ = = ∗
Economic order quantity 𝐐
Optimal time interval between two orders
𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐰𝐨𝐫𝐤𝐢𝐧𝐠 𝐝𝐚𝐲𝐬 𝐢𝐧 𝐚 𝐲𝐞𝐚𝐫
𝐓∗ =
𝐍∗
Minimum total yearly inventory cost
DCo Q∗ C h DCo 2DCo Ch
Tcm = + = +√ ×
Q∗ 2 2DCo Ch 2
√ C
h

𝐓𝐜𝐦 = √𝟐𝐃𝐂𝐨 𝐂𝐡

Numerical
1.A manufacturer has to supply his customers 3600 units of his product per year.
Shortages are not permitted. Inventory carrying cost amounts Rs.1.2 per unit per annum.
The set-up cost per run is Rs.80. Find:
(i) Economic order quantity.
(ii) Optimum number of orders per annum.
(iii) Average annual inventory cost (minimum)
Given data
Annual demand (D) = 3600 units
Inventory carrying cost (Ch ) = Rs.1.2 / unit /annum.
Ordering cost (Co ) = Rs.80 /order.

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2𝐷𝐶𝑜 2×3600×80
(i) Q∗ = √ =√ = 692.82 = 693 units
𝑐ℎ 1.2

(ii) Optimum number of orders per annum.

𝐷 3600
N∗ = 𝑄∗ = = 5.19 = 5 orders
693

(iii) Average annual inventory cost (minimum)

Tcm = √2DCo Ch = √2 × 3600 × 80 × 1.2 = Rs.831.38

2. ABC Corporation has got a demand for particular part at 10,000 units per year. The
cost per unit is Rs.2 and it costs Rs.36 to place an order and to process the delivery. The
inventory carrying cost is estimated at 9 per cent of average inventory investment.
Determine
(i) Economic order quantity.
(ii) Optimum number of orders to be placed per annum.
(iii) Minimum total cost of inventory per annum.
Given data
Annual demand (D) = 10,000 units
Cost per unit (Cp ) = Rs.2 / unit

Ordering cost (Co ) = Rs.36 /order

Inventory carrying cost (I) = 0.09

2𝐷𝐶𝑜 2×10,00×36
(i) Q∗ = √ =√ = 2000 units
𝐶𝑝 𝐼 2×0.09

(ii) Optimum number of orders

𝐷 10,000
N∗ = 𝑄∗ = = 5 orders
2000

(iii) Total Annual inventory cost

Tcm = Ordering cost + inventory carrying cost
= 2 x Ordering cost (at EOQ, order cost equals carrying costs)
= 360 Rs/annum

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Inventory Model with Quantity Discounts

Assumptions
• Demand occurs at a constant rate of D items per year.
• Ordering Cost is Co per order.
• Holding Cost is Ch = C × I per item in inventory per year (note holding cost is based on the
cost of the item, C).
• Purchase Cost is Cu1 per item if the quantity ordered is between 0 and b1 , Cu2 if the order
quantity is between b1 and b2 , etc.
• Delivery time (lead time) is constant.

When there is only one price break (one quantity discount), the situation may be as follows:

Range of quantity Purchase cost per unit

0 ≤ Q1 ≤ b1 Cu1
b1 ≤ Q2 ≤ b2 Cu2

Where b is that quantity at and beyond which the quantity discount applies and Cu12 ≤ Cu11
Procedure to take decision
Step 1: calculate Q2 i.e., optimum order quantity for the lowest price (highest discount) i.e.,
Cu12 and compare it with the quantity b1
Step 2: If Q2 > b1 , then optimum order quantity will be Q2 , i.e., Q2 = Qo
Step 3: If Q2 < b1
In order to obtain the optimum order quantity, compare the total inventory cost for Q = Q2 (for
price Cu1 ) with Q = b1
IfTc (Q1 ) > Tc (b1 ), then Qo = b1 otherwise Qo = Q1

Numerical
3. ABC manufacturing company requires special involute gears at a rate of 300 numbers
per year. Each gear costs Rs.36. The procurement cost and inventory carrying cost are
estimated at Rs.30 and 20% respectively. If the supplier offers a discount of Rs.2 per gear
or an order of 200 or above, will it be advisable to purchase higher quantity?
Annual demand (D) = 300 units
Ordering cost (Co ) = Rs.30
Basic price per unit (Cu1 ) = Rs.36
Discount price per unit (Cu2 ) = Rs.34
Inventory carrying unit cost, I =0.20

Price/unit Range of quantities

Rs.36 0≤ q1 < 200

Rs.34 200 ≤ q 2

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The optimum order quantity q 2 based on price Cu2

2DCo 2 × 300 × 30
q2 = √ =√ = 51.44 = 51 units
Cu2 I 34 × 0.2

Since q 2 is not equal to 200 or not more than 200, therefore calculating q1

2DCo 2 × 300 × 30
q1 = √ =√ = 50 units
Cu1 I 36 × 0.2

Calculating annual total cost for quantity to be purchased at the two price levels

Cost Order quantity 50 Order quantity 200

(a) Annual cost of material 300×36 = 10,800 300×34 = 10,200

(b) Annual ordering cost 300 300
× 30 = 180 × 30 = 45
50 200

(c) Annual inventory carrying 1 1

× 50 ×36×0.2 = 180 × 200 ×34×0.2 = 680
2 2
cost
Annual total cot = a+b+c Tc1 = 11160 Tc2 = 10925

Since Tc1 < Tc2 , optimal order quantity = 200 units

4. A company requires 50000 units per year which costs Rs.10 per unit. Ordering cost is
estimated to be Rs.100 per order, carrying costs are 15% per annum of average inventory.
The supplier is ready to give 2% discount in price of the original value of the company
purchases 10,000 units or more but less than 20000 lot size. A further discount of 1% in
price of original value is available on the orders of 20000 or more units. Find economical
lot size and minimum total cost.
Price/unit Range of quantities

Rs.10 0≤ q1 < 10000

Rs.9.80 10000≤ q 2 < 20000
Rs.9.70 20000 ≤ q 3

Given Data
Annual demand (D) = 50000 units
Ordering cost (Co ) = Rs.100
Basic price per unit (Cu1 ) = Rs.10
Discount price per unit (Cu2 ) = Rs.9.8

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Discount price per unit (Cu3 ) = Rs.9.7

Inventory carrying unit cost, I =0.15
The optimum order quantity q 3 based on price Cu3

2DCo 2 × 50000 × 100

q3 = √ =√ = 2621.61 = 2622 units
Cu3 I 9.70 × 0.15

Since q 3 is not equal to 20000 or not more than 20000, therefore calculating q 2

2DCo 2 × 50000 × 100

q2 = √ =√ = 2608.20 = 2608 units
Cu2 I 9.80 × 0.15

Since q 2 is not equal to 10000 or not more than 10000, therefore calculating q1

2DCo 2 × 50000 × 100

q1 = √ =√ = 2581.99 = 2582 units
Cu1 I 10 × 0.15
Calculating annual total cost for quantity to be purchased at the three quantity levels

Cost Order quantity 2582 Order quantity 10000 Order quantity 20000

(a) Annual 50000×10 = 50,0000 50000×9.80 = 49,0000 50000×9.70 = 48,5000

cost of
material

(b) Annual 100

× 50000 =
100
× 50000 = 500
100
× 50000 = 250
2582 10000 20000
ordering
1936.50
cost
(c) Annual 1
× 2582 ×10 ×0.15 =
1
× 10000 ×9. 80 ×0.15 =
1
× 20000 ×9. 70 ×0.15 =
2 2 2
inventory 1936.50 7350 14550
carrying cost
Annual total Tc1 = 503873 Tc1 = 497850 Tc1 = 499800
cot = a+b+c
EOQ =10000 and minimum cost = Rs.497850
Inventory Control System
The inventory systems are developed to cope with the situations where the demand' or lead time
or both will fluctuate. The basic approach to all stock control methods is to establish a reorder
level which, when reached would indicate the signal for the replenishment action. Thus, the
replenishment of the inventory means determining the quantity to be ordered and the time of
ordering.
There are two types of replenishment systems.
1. Fixed quantity system (Q-system)
2. Fixed period system (P-system)

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Fixed Order Quantity System

This is also called perpetual inventory system or Q-system. In this system, the order quantity is
fixed and ordering time varies according to the fluctuation in demand
The characteristics of this system are:
• Re-order quantity is fixed and normally it equals Economic order quantity (EOQ).
• Depending upon the demand, the time interval of ordering varies.
• Replenishment action is initiated when stock level falls to Re-order level (ROL).
• Safety stock is maintained to account for increase in demand during lead time.
Parameters to Operate the System
1. Re-order level (ROL)
This equals the sum of safety stock and lead time consumption.
R. O. L = m + L × C
where m = The minimum, or safety stock.
L = Lead time
C = Consumption rate.
2. Re-order quantity (0)
This normally equals Economic order quantity (EOQ)
3. Maximum stock level (M)
It equals the safety stock + order quantity
M = m + Qo
where Qo = Quantity
m = Safety stock
M = Max. stock
4. Average inventory
1
Average inventory = 2 (Min. stock + Max. stock)
1 1 𝑄
= 2 (m +M) = 2 (m + m + Qo ) = m + 2𝑜

Advantages
• Simple and cheaper to operate.
• Stock control will be accurate as the replenishment action is initiated soon after the stock
reaches R.O.L.
• Suitable for low value items.
• Appropriate for variety of inventory maintained within the organisation.
Limitations
• In this inventory system, there will be a load on the re-ordering system if many items reach
R.O.L. at the same time.
• The stock level records and usage rate data are to be maintained

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Two Bin System

The oldest and most commonly used inventory control system. In this the stock location of
each item is divided in two sections (bins). The first bin holds the normal issue stock and it is
intended for satisfying current demand. The second bin holds the reserve supply of materials
equal to the amount that will be consumed during the lead time plus safety stock if any. The
second bin comes into use only after the first bin is emptied. Therefore, when the first piece is
withdrawn from the second bin, the purchasing order is to be initiated. When the fresh stock is
received, the level of the second bin is restored to its original high value and the balance is put
in the first bin from which current demand is now supplied.
Numerical
5. A pharmaceutical company has a demand for 10,00,000 bottles. Each empty bottle costs
the company Rs.1. Empty bottles are supplied by ABC Glass Ltd. The R.O.L. system of
stock replenishment is followed. Ordering cost is Rs. 12.5/order and inventory carrying
cost is 25 percent of cost per bottle. The demand is constant throughout the year. The lead
time is 15 days.
Determine
1. Economic order quantity.
2. Lead time consumption.
3. Re-order level.
4. Average inventory.
Annual demand (D) = 10,00,000 units
Cost per unit (Cp ) = Rs.1 / unit

Ordering cost (Co ) = Rs.12.5 /order

Inventory carrying cost (I) = 0.25
2DCo 2×10,00,000×12.5
(i) Q∗ = √ =√ = 10000 units
Cp I 1×0.25
ii. Lead time consumption = Lead time (in months) x monthly consumption
15 10,00,000
= 30 × 12 = 41667
iii. Safety stock is assumed equal to lead time consumption.
Re-order level =Safety stock + Lead time consumption
= 41667 + 41667 = 83334
Max. inventory + Min. inventory (41667 +10000)+(41667)
iv. Average inventory = =
2 2

= 46667

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6. A firm uses every year 12,000 units of raw materials costing Rs.1.25 per unit. Ordering
cost as Rs.15 per order and the holding cost is 5% per year of average inventory.
(i) Find the economic order quantity
(ii) The firm follows EOQ purchasing policy. It operates for 300 days per year.
Procurement time is 14 days and safety stock are 400 units. Find the re-
order point, the maximum inventory and the average inventory
Given data
Annual demand (D) = 12,000 units
Cost per unit (Cp ) = Rs.1.25 / unit

Ordering cost (Co ) = Rs.15 /order

Inventory carrying cost (I) = 0.05
Safety stock (m) = 400 units
Procurement time (L) = 14 days
2DCo 2×12000×15
i) Q∗ = √ =√ = 2400 units
ch 0.05×1.25
12000
ii) Requirement per day, C = = 40
300

Lead time consumption= L × C = 14×40 = 560 units

R. O. L = m + L × C = 400 + 560 = 960 units
Maximum inventory, M = m + Q∗ = 400+ 2400 = 2800 units
Q∗ 2400
Average inventory = m + = 400 + = 1600 units
2 2
7. A company uses 60,000 units of an item annually each cost Rs.2.40. Each order costs
Rs.50 and inventory carrying costs are 10% of the annual average inventory value.
Determine (i) EOQ (ii) if the company operates 300 days a year, the procurement time is
12 days and safety stock is 600 units. Find reorder level, maximum, minimum and average
inventory.
Given data
Annual demand (D) = 60,000 units
Cost per unit (Cp ) = Rs.2.40 / unit

Ordering cost (Co ) = Rs.50 /order

Inventory carrying cost (I) = 0.10
Safety stock (m) = 600 units
Procurement time (L) = 12 days

2𝐷𝐶𝑜 2×60000×50
i) Q∗ = √ =√ = 5000 units
𝑐ℎ 0.1×2.40

60000
Requirement per day, C = = 200
300

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Lead time consumption= L × C = 12×200 = 2400 units

R. O. L = m + L × C = 600 + 2400 = 3000 units
Maximum inventory, M = m + Q∗ = 600+ 5000 = 5600 units
Minimum inventory = Safety stock, m = 600 units
Q∗ 5000
Average inventory = m + = 600 + = 3100 units
2 2

8. The average monthly consumption for an item is 600 units and the normal lead time is
one month. If the maximum consumption has been up to 670 units per month and
maximum lead time is 1.5 months, what should be the buffer stock for the item?
Normal lead time demand = Normal demand × Normal lead time
= 600 × 1 = 600 units
Maximum lead time demand = Maximum demand × Maximum lead time
= 670 × 1.5 = 1005 units
Buffer stock = Maximum lead time demand - Normal lead time demand
= 1005 – 600 = 405 units
9. For a fixed order quantity system find out (i) EOQ, (ii) optimum buffer stock, (iii) Re-
order level (iv) Maximum inventory (v) Average inventory for an item with the following
data: Annual consumption = 10000, cost of one unit = Rs.1, Set up cost = Rs. 12 per
production run, Carrying cost = 24%, Past lead time = 15,25,13,14,30,17 days
Given data
Annual demand (D) = 10,000 units
Cost per unit (Cp ) = Rs.1 / unit

Ordering cost (Co ) = Rs.12 /order

Inventory carrying cost (I) = 0.24

2𝐷𝐶𝑜 2×10000×12
(i)Q∗ = √ =√ = 1000 units
𝑐ℎ 0.24×1

15+25+13+14+30+17
(ii) Normal lead time= = 19 days
6

Optimum buffer stock = (Maximum lead time - Normal lead time) ×monthly demand
(30−19) 10000
= × = 305.55 = 306 units
30 12

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Periodic Review System

It is also called fixed period system or P-system. This system has a fixed ordering interval but
the size of the order quantity may vary with changes in demand. The Inventory position is
verified at prefixed interval, then depending upon the situation replenishment action is initiated.
The characteristics of the system are:
• Order interval is fixed for individual item or group of items.
• Stock is reviewed at periodic interval and the quantity (Q) which will bring the inventory
to maximum level is ordered.

Parameters to Operate the System

1. Maximum level (M)
It is sufficient to satisfy demand during review period and lead time.
Max. level (M) = Min. stock + Consumption during review period and lead time.
M = m + C (R + L)
2. Re-Order Quantity
(i) when lead time is less than review period,
Q = Maximum stock - stock actually held at the time of review.
(ii) when lead time is more than review period.
Q = Max. Stock — (Stock on hand + Stock on order)
This system is suitable for high value items which require strict control on stock levels.

Just in Time (JIT) Manufacturing

Just in time manufacturing is a philosophy rather than a technique. By eliminating all waste
and seeking continuous improvement, it aims at creating a manufacturing system that is
responsive to the market needs. The phrase just in time is used because this system operates
with very low WIP (work in process) inventory and often with very low finished goods
inventory. Products are assembled just before they are sold, subassemblies are made just before
they are assembled and components are made and fabricated just before sub-assemblies are
made. This leads to lower WIP and reduced lead times. To achieve this organizations, have to
be excellent in other areas e.g., quality.
JIT is a manufacturing system whose goal is to optimise processes and procedures by
continuously pursuing waste reduction. JIT provides for the cost-efficient production in an
organisation and delivery 'of only the necessary parts in the right quantity at the right time and
place while using the minimum facilities. JIT enables one to conceive, design, implement and
operate a manufacturing and supporting systems, as an integrated whole based on the principles
of continuous improvements and elimination of all kinds of waste.
Objectives of JIT
JIT Manufacturing tries to streamline flow of materials from the suppliers to the customers,
thereby increasing the speed of the manufacturing process. The objectives of JIT are to change
the manufacturing system gradually rather than drastically:
1. To be more responsive to customers,
2. To have better communication among departments and suppliers,
3. To be more flexible,

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4. To achieve better quality,

5. To reduce product cost.
Basic Elements of JIT
1. Flow Layout - The physical layout of production facilities is arranged, so that the
process flow is streamlined i.e., for each component, the proportion of value-added time
should be more, there should be minimum queuing and non-value-added times.
2. Smoothed Build Up Rate - The buildup rate should be smooth over a monthly cycle.
To achieve this, under capacity scheduling is resorted to so that they can respond to
demand changes.
3. Mixed Model Scheduling - JIT objective is· to match the production rate to demand
as closely as possible. One way of doing this is to increase the flexibility of production
lines to allow concurrent assembly of different models on the same line.
4. Small Lots and Minimum Set-up Time - The objective of minimising set-up times is
to reduce the batch sizes to the minimum possible. This reduces the manufacturing cycle
time and inventory.
5. Buffer Stock Removal - Constant elimination of buffer stocks is emphasised to
highlight production problems scheduled by high inventory levels.
6. Kanban Card - It is a pull system of managing material movement comprising of
"Kanban card" based on information system. It helps to trigger the movements of
material from one operation to another.
7. Quality- The achievement of high-quality levels is a prerequisite of successful JIT.
Zero defect, statistical process control, process data collection and worker central
quality are commonly used quality programmes.
8. Product and Process Simplification
This is achieved through
(i) Rationalisation of product range
(ii) Simplification of methods of manufacture
9. Simplification through component item standardisation.

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MODULE- 3
Industrial Relations
Industrial relations represent the relationship that exists between the employer and employees
in an industrial undertaking. If these relations are strained, industrial disputes occur and the
industrial work suffers. The employer suffers losses, the worker does not get wages and there
is shortage of goods and services for the community. Hence, it is the interest of both the
employer and employees as well as for the society in general that industrial relations should be
cordial and harmonious.
Objectives of Industrial Relations
• To safeguard the interests of labour as well as that of the management.
• To avoid industrial conflicts and develop harmonious relations.
• To raise productivity.
• To bring down strikes, lockouts and gheraos.
• Provide an opportunity to the workers to participate in management and decision-making
process.
• Establish industrial democracy based on labour partnership in the sharing of profits and of
managerial decisions.

Factors Affecting Industrial Relations

1. Institutional factors - these include policy of the organization, work environment, work
(workers having same purpose or objective), labour laws, collective agreements,
motivation, etc.
2. Economic factors – these includes type of ownership, individual, nature and composition
of workforce, disparity of wages between groups, etc.
3. Technological factors – these include methods, type of technology used, rate of
technological change, etc. These factors considerably influence the patterns of industrial
relations as they are known to have direct influence on employment status, wage level, and
collective bargaining process in an organisation.
Industrial Psychology
Psychology means science of mind i.e., accurate and systematic knowledge about mind and its
work. Industrial psychology is the study of men at work as individuals and in groups and of the
relationship between individual and groups. Industrial psychology is concerned with the study
of human behaviour in different aspects of industry and business, e.g., production, distribution
and use of the goods and services of the civilization. Industrial psychology (application of
principles to industry) is mainly concerned with human happiness and welfare.

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Scope of Industrial Psychology

The application of industrial psychology involves four kinds of inter-personal relationships:
(i) Relation between the worker and his work.
(ii) Relation between the worker and his immediate superior.
(iii) Relation between the worker and his fellow workers.
(iv) Relation between the worker and management.
Industrial psychology aims at acquiring better understanding of individual and group behaviour
at work and better control of the above-mentioned relationship. If these relations are good,
workers are satisfied and it results in high employ moral.
Individual Behaviour
There are three M’s of production: Men, Materials and Machines. Each individual may behave
in different manner because of the differences in their skill, experience, attitude, character, etc.
The individual differs from each other in certain aspects termed as individual variables.
Individual variables play major role and influence the performance of an employee at work.
Individual variables are: physical characteristics (weight, height and strength), intelligence
factors, interest and motivation, temperament, character, aptitude, personality characteristics,
education, skill, experience, age, sex, etc.
There are some situational variables also which influence the performance (behaviour) of an
employee on a given job
Situational variables are: physical environment, work space and layout, design and condition
of work, equipment, etc. and method of work
Group Behaviour
Formal group: A group formed to achieve some specific purposes, goals or objectives. Many
jobs in industries such as repairs and maintenance works, fabrication of large units, line
assemblies, etc. requires collective efforts on the part of employees. This leads to the formation
of formal groups in an industry.
Informal groups: Individuals because of their social needs, common interests, security and
some psychological factors may also form groups.
Characteristics of Group Behaviour
• A group is a collection of two or more individuals with common goals, common aspirations
and who interact with one another
• It has been observed that an employee behaves differently when acting as an individual,
then when as a member of a group
• Every group develops over a period of time certain conventions and traditions or culture
pattern.
• Group influences and changes attitude and behaviour of an individual towards work and
towards the organisation.
• Each group has its organisation
• Each member of the group should have affinity for the group.

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• The feeling of uniqueness or isolated entity generate group cohesiveness.

• The members must show a sense of belongingness.
Aims & Objectives of Industrial Psychology
• To select right men for right jobs and to develop them as an efficient labour force.
• Planning the work.
• Employee training and development.
• Effective Utilisation of human resources
• To maintain suitable/safe working conditions.
• To minimize, settle industrial disputes.
• For deciding wages and incentive schemes.
• To develop effective communication system.
Industrial Fatigue
Working conditions of physical nature and those related to time, influence employee fatigue to
considerable extent. For practical purpose, fatigue may be defined as negative appetite for
activity; and a reduction in the ability to do work as a consequence of previous work. Nature
of Fatigue includes both mental and physical reaction as well as the phenomenon of monotony
and boredom. Monotony is the state of mind caused by performing repetitive tasks. Boredom
or lack of interest, is characterized by depression and a desire for change of work or activity.
Effect of Fatigue
• Affects badly the muscles, nerves and mind of the workers;
• Decreases a worker’s capacity to do more work;
• Results in loss of worker’s efficiency;
• Introduces a feeling of tiredness and weakness;
• Create disinterest in the work;
• Disturbs chemical, psychological and physiological equilibrium;
• Give rise to monotony and boredom
• Increases tendency towards making accidents; and
• Increases absenteeism and labour turn-over rate
Causes & Elimination of Fatigue
1. Hours of work
The highest productivity per hour and less fatigue is achieved with small number of
working hours per day. Perhaps an eight-hour day with a lunch break of 45 to 60
minutes is a good solution.
2. Working days of a week
A five-day week with 40 working hours showed the highest hourly output.
3. Nature of work
Complex muscular work may preferably be done with the help of suitable material
handling devices. Minute and precise work impart more fatigue. Mental task requiring
continuous attention adds to fatigue rapidly. Works involving standing and abnormal
posture tends to increase fatigue.

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4. Working conditions
Improper working conditions such as
• Improper light (illumination)
• Too cold or too hot atmosphere
• Insufficient ventilation
• Presence of bad smell, fumes, dust, smoke and flash
• Noise
5. Heavy protective clothing, etc., add to fatigue of the worker.
6. Rest pauses
Suitable and well-planned rest pauses within the work-hours tends to reduce the build-
up fatigue. The duration of rest pause should be anywhere from 5 to 20 minutes, with
heavier work requiring the upper limit.
Communication in Industry
The subject of communication is one of the broadest in the field of personnel management. It
encompasses a consideration of the subjects to be communicated, media, channels,
communicators and the symbols of communication. Communication is the process of
conveying messages. For communication to take place, messages must be composed,
transmitted and understood. Communication is the process of transmitting ideas or thoughts
from one person to another, for the purpose of creating understanding in the thinking of the
person receiving the ideas or information.
Formal Communication
A formal communication is official that is a part of recognized system involved in the
successful operation of a concern. Information passed on from the supervisor to a worker to do
a particular work is an example of formal communication. Formal communication may be
written, or oral. Formal communication may be a
Vertical communication, downward from top management to workers to do a job, a praise or
a reprimand; or upward from workers to higher management levels giving work
accomplishment report or other feed-back information.
Horizontal communication, the transmission of information from and to, to positions of the
same level, e.g., Manager production informing manger maintenance regarding a machine
break down.

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Informal Communication
An informal communication is one that is outside the formal, recognized communication
system, such as conversations between and among workers. A person is motivated to
communicate naturally. Informal communication arises from social interactions.
Informal communications are
• Is a natural and normal activity of a person and arises out of social relationships of people.
• Works like a cluster chain in which each link (i.e., person) associates and communicates to
a cluster of the other links (i.e., persons) Spreads fast,
• Is a good method of vertically upward or downward communication
• Involves feeling, facts, rumours, etc.

Industrial Safety
Industrial safety is mainly concerned with minimising hazards in industries. Hazard is a state,
physical or chemical having potential to injure the person or impairment of health. Risk or
danger arises out of hazards. Safety is freedom from risk to the level desired. Risk is the product
of two functions that is probability of an event which might occur and severity of the event if
it occurs. Hazard refers to a potential condition which might be converted into an accident.
Hazards may be broadly grouped under the following head: (i) Nuclear (ii) Chemical (iii)
Mechanical (iv) Electrical (v) Constructional (vi) Fire Industrial safety management is a branch
of management which is concerned with reducing, controlling and eliminating hazards from
the industries Industrial safety is of prime importance in any organisation because if safety
measures are not taken chances of industrial accidents are definitely going to be increased.
Personal Protective Devices
Personal protective devices are designed to interpose an effective barrier between a person and
harmful objects, substance or radiation. The device should meet the following requirement
• Adequate protection against hazards to which the worker will be exposed
• Maximum comfort and minimum weight.
• No restriction on essential movements of the worker.
• Durability and easy maintenance.
• Economical.
Types of Personal Protective Devices
Personal protective devices may be divided into two broad categories
i. Non-respiratory protective devices
ii. Respiratory protective devices

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Non-respiratory Protective Devices

1. Head Protection
2. Eye-and-Face Protection
3. Hand and Arm Protection
4. Foot and Leg Protection
5. Body Protection
Head Protection
Personal protective equipment's used for protecting head include helmets, hats and caps. These
are made of aluminium, PVC, fibre glass, laminated plastic or vulcanized fibre. Helmets must
be strong, sturdy enough to save workers from head injury. Soft caps are used for protection
against heat, spark and other dangerous materials. Protective head wears should be fire-
resistant. In case of electrical hazards are present they should be made of non-conductive
materials or should be electrically insulated.
Eye & Face Protection
Eye injuries are caused by dust, flying particles, splashes and harmful radiation. Device used
for eye protection may be safety spectacles, mono-goggles, impact goggles, welding goggles,
foundry goggles, chemical goggles, gas tight goggles, welding helmet, etc. Devices used for
face and eye protection are face shield and hood.
Hand & Arm Protection
Protection of hands and arm become necessary when workers have to handle materials having
sharp ends, sharp edges or when hot and molten metals, chemical corrosive substances have to
be handled. Gloves are used for complete protection of hand and usually provided with wrist
bands to ensure snug fit. Sleeves are meant for protection to arms against injuries.
Foot & Leg Protection
Common foot and leg protective devices are safety shoes, boots, foot-guards, leg guards etc.
Safety shoes may be meant for protection against toe injuries, crushing of feet, etc. Boot usually
of rubber or extensively used to provide protection against chemicals, slush, etc.
Foot –guard is a protective device meant to protect the toes up to ankles from injuries due to
falling or striking objects.
Body Protection
Apron
Aprons made of different materials are extensively used as protective clothing in various
industries (welding, smithy, moulding) in particular. The selection of type of apron depends
upon the nature of hazard arising out of radiation, acid, alkali and heat exposure, etc.
Suits
Suits are specially designed for use in extremely hazardous situation to provide complete body
protection. Rubber suits are used for body protection in hazardous chemicals plants while
asbestos suits are suitable in case of fire hazards.

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Respiratory Protective Equipment’s

Airline Respirator
Airline respirator consists of a face-piece (half or full mask or a loose-fitting helmet or hood)
to which air is supplied through a small diameter hose. It may be continuous flow type or a
demand type. In a demand type airline respirator, air from an air compressor is supplied to the
face-piece through a demand valve which is actuated by slight negative pressure created when
inhales. On exhalation the demand valve closes and exhaled air escapes to the surrounding
atmosphere through exhalation valve.
Industrial Disputes
Industrial disputes may be defined as any dispute (conflicts) or differences between employer
and workers or between workers. A dispute or conflict means a struggle or clash between the
interest of the employer and the worker.
Industrial disputes cause losses to workers, management and nation as a whole:
1. Workers lose their wages
2. Management loses its profit
3. Public suffers due to shortage of goods in the market.
4. Nation suffers due to loss of production.
Causes of Industrial Disputes
1. Low Wages. Trade unions always demand for higher wages whereas the tendency of the
employer is to pay low wages and make higher profit. This conflicting interest leads to
dispute.
2. Non-payment of Bonus & Dearness Allowance. If bonus and other incentive schemes are
not properly implemented and D.A is not paid at correct rate, workers become unhappy.
3. Hours of Work and Leave. Workers struggle for reduction in hours of work whereas the
employers try to extract work for few more hours besides the hours fixed by the laws.
Sometimes even the leave due to the workers is denied or leave rules are not applied strictly.
4. Non-payment of Overtime. Non-payment of overtime at the rates admissible by laws also
leads to dispute between workers and employers
5. Adverse Working Conditions. Poor working conditions such as too hot, too cold, noisy,
dirty, poor illumination, improper ventilation, etc. may cause industrial disputes
6. Retrenchment and Victimization of Workers. The retrenchment of workers because of
bad relations with the employers, business depression, installation of automatic and labour-
saving machine may cause dispute
7. Favourism. Favourism in employment, promotion, rewards and allotment of work may
cause frustration and disappointment of other workers.
8. Exploitation. Exploitation of workers by owners may leads to dispute.
9. Lack of Pride in Work. The workers do not feel any pride in their work. If they are
properly motivated or ill-treated by employers, they may become discontent.
10. Lack of Personal Contact. Lack of personal contact between employers and employees
may create misunderstanding in the minds of workers.
11. Political Causes
12. Non-redressal of Grievances

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13. Non-recognition of Labour Union

Effect of Strike
1. Loss of income to workers.
2. Decreased output and profits to industry.
3. Creation of mental strain, tension in the minds of workers, management and industry
owners.
4. Strike may turn violent and may cause loss of life and damage to property.
5. Shortage of products in market, which may cause inconvenience to the costumers.
6. Strike results in mass unemployment
7. It involves loss of valuable man hours
Methods of Settling Industrial Disputes
There are two broad categories for setting industrial disputes between labour and management:
Self-settlement
Assisted (External) settlement
i. Collective Bargaining
ii. Mediation
iii. Conciliation
iv. Arbitration
v. Investigation
Collective Bargaining
Collective bargaining is a method by direct negotiations between the representatives of the
employers and the employees. It is a process of negotiations between company and union
representatives in an attempt to reach agreement on the terms and conditions of employment
such as wages, working conditions, bonus, health, safety, employee welfare, etc. Collective
bargaining is essentially a complimentary process. It gives opportunity to both the sides to
express their problems, difficulties and views. Collective bargaining can serve its useful
purpose only when it is realized as a two-way process or ‘give and take’ approach by both the
management as well as the workers.
Steps in Collective Bargaining
Steps involved in collective bargaining are:
1. Putting up before management (by the employees) their demands and grievances
collectively.
2. Discussing and negotiating with the management representatives, with a view to settle the
dispute issues
3. Drafting and signing the agreement mutually arrived at.
The agreement reached between the two parties in the form of written contract which is legally
binding on them. The following details should be included in the agreement: Rights and
responsibilities of the management and of the union, wages, bonus, production norms, leave,

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retiring benefits, other benefits and terms and conditions, grievance procedure, methods and
machinery for settlement of possible future disputes, termination clauses, etc.
Essentials For Collective Bargaining
i. There should be strong representative trade union which should have a faith in
constitutional means and fair play.
ii. The recognition of workers’ union by the management and acceptance of their rights to
negotiate through bargaining.
iii. Flexible attitude of both parties is essential for settlement of industrial disputes.
iv. Sufficient authority with participating representatives, to form and get agreement
implemented by their parties.
v. The parties should have a sound faith in the process of collective bargaining as an
institution.
vi. The purpose of collective bargaining should be quite clear.
vii. Mutual trust and confidence of the negotiating parties among themselves is essential
viii. There should be no external pressure either on the employer or the workers to come to
an agreement desired by the authority exerting the pressure.
ix. The final decision taken should be binding upon both the parties.
Advantages of Collective Bargaining
i. Collective bargaining results in the joint decision by the management and
representatives of workers to regulate working conditions and wages, etc. These joint
decisions establish a kind of rule of law in labour management relations and remove or
discourage arbitrariness on the part of employer or excessive demands on the part of
the workers.
ii. It results in better understanding between the management and workers.
iii. It is a flexible method of adjustment to economic and technical changes in an industry,
with the knowledge and consent of employer and employees.
iv. It is a moderate and constructive response to industrial conflicts as it reflects willingness
to co-operate, remove conflicts by mutual understanding. It results in increased
productivity with better industrial relations
Limitations Of Collective Bargaining
i. The major objective of trade union relates to monetary gain through collective
bargaining. This is possible only when the organisation is making profits and the
employer has capacity to pay more.
ii. The multiplicity of trade union and intense union related rivalries defeat the purpose of
bargaining by making conflicting demands
Conciliations
In this method third outside party indirectly helps the disputing parties to come to the
settlement. The third party is either a conciliator or a conciliation board which sympathetically
interprets one party’s view to the other and skilfully manages to bring them together so that the
settlement is reached.

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Mediation
In conciliation the conciliator works indirectly. His participation is to direct in mediation third
party or mediation actively participates to get the settlement reached between the disputing
parties. The mediator even suggests his compromise scheme. There is no legal compulsion
for the acceptance of mediator’s views.
Arbitration
It is the semi-judicial type of assisted settlement in which the third parties, i.e., the arbitrator’s
decision has legal compulsion. It has to be accepted and implemented by the disputing parties.
The third person arbitrator is chosen by agreement between the employer and employees. In
Indian Industrial Dispute Act passed in 1947, main object of this Act is to secure industrial
peace by settling the industrial disputes through negotiations and conciliations rather than on
the strength of strikes and lock-outs.
Investigation
Investigation of any dispute may be conducted by a board or a court of enquiry appointed by
the government. There is voluntary investigation or compulsory investigation. In voluntary
investigation, consent of the parties to the dispute is necessary. In compulsory investigation no
consent is necessary.
Trade Unions
Trade unions are voluntary organisations of workers formed to protect and promote the
interests and welfare of their members. A trade union is a continuous association of wage
earners for the purpose of maintaining or improving the condition of their employment. Indian
Trade Union Act, 1926 Section 2(b) has defined trade union as “Any combination, whether
temporary or permanent, formed primarily for the purpose of regulating the relations between
workmen and employers, or between workmen and workmen or for imposing restrictive
conditions on the conduct of any trade or business”. It is a powerful instrument to promote and
safeguard the interest of workers.
Need for Trade Unions (Objectives)
1. To safeguard the legitimate rights of workers
2. To improve the collective bargaining power of workers
3. To ensure healthy and safe working conditions for workers
4. To unite the workers and create the spirit of brotherhood among them
5. To protect the workers from exploitation by employers
6. To improve the employee-employer relations
7. To assist the workers in case unemployment, accidents, and sickness, etc.
8. To provide job security and proper justice to its members against layoffs and retrenchment
9. To provide legal assistance to workers in connection with work affairs
10. To improve social and political status, living standards of its members
11. To ensure participation of workers in management decision making

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Functions of Trade Union

The activities of the trade union may be broadly divided into three categories:
i. Industrial activities
ii. Social activities
iii. Political activities
Industrial activities. Industrial activities are those which are directed towards the betterment
of employment conditions of the workers and to safeguard their legitimate rights
These are carried out to ensure the following
• Fair wages to the workers
• Better working and living conditions
• Shorter periods of work
• Better social security
• Bonus profits
• Dignity of labour
Social activities. The activities which are directed towards helping the workers in times of
need and improving their efficiency are called social activities
Political activities. The activities which are directed towards capturing political power or to
influence the national political affairs are called political activities. Efforts are made to send
representatives of trade unions to government bodies for promoting their cause.
Merits of Trade Union
• It is a powerful instrument to promote and safeguard the interests of workers and to achieve
economic, psychological and social objectives of workers
• A strong trade union runs on democratic principles alone affords adequate protection to
workers against exploitation
• Trade union promote industrial peace and stability
• Trade union improve the working and leaving conditions and wages of workers, create a
sense of self-respect and confidence among them and consequently lead to better efficiency
• Trade unions help to bring general awareness among the workers about their rights
• It creates sense of brotherhood amongst the workers and promote team spirit
• Trade unions are of vital importance in developing an industrial society based on justice
and equality in the interest of industrial peace and in increasing the industrial productivity
Demerits of Trade Union
• Trade unions often do not welcome improved production methods for the fear that some of
the workers may be retrenched. This retards the pace of industrial growth
• Trade unions are sometimes exploited by political parties for the selfish means which
hinder industrialization
• They sometimes create artificial scarcity of labour by demanding the only union personnel
should be employed
• Their attitude is mostly anti-employer and they indulge mainly in militant activities

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• Lack of education makes the workers narrow-minded and they lack in foresightness. They
sometimes go on strikes on pretty grounds which results loss to workers, employers and to
the community in general
• The benefits of the union activities are restricted to union members only
• A powerful trade union in an industry pressurizes the employers to accept their
unreasonable demands
Workers’ Participation in Management
A principle of democratic administration of industry sharing the decision-making power by the
ranks of an industrial organisation, through their proper representatives, at all appropriate levels
of management, in the entire range of managerial action. Participation means co-functioning,
playing one’s part in an integrative unity, contributing all that one is capable of to the good of
the organisation.
Objectives of Participation in Management
1. Recognition of human factor and human relation in industry for achieving higher
productivity, ensuring greater employee morale and harmonious industrial relation
emphasizes the need for growing workers participation in management and greater
association of labour at all levels of management, particularly at the plant level
2. Worker’s participation in the management helps to satisfy their higher-level needs.
Satisfaction of these higher levels needs acts as a motivator of the higher efficiency and
productivity
3. Principles of industrial psychology and the new trends in personnel management have also
stressed the importance and need of labour participation in management.
4. Labour at present in many countries is literature, educated and well-informed and it wants
to be treated by the management and employers as person capable of assuming greater
responsibilities showing initiative and creative ideas.
5. There is now growing consciousness of labour’s right to participate in management and
secure industrial democracy as advocated by socialist pattern of ideology.
6. To avoid labour unrest and develop mutual understanding so that workers do not resist a
change for the betterment of the enterprise
7. It also helps to maintain industrial discipline, reduces labour turnover, absenteeism, etc.
8. It uses creativity of employees and encourages them to accept responsibility.
Forms of Workers’ Participation in Management
• Consultative management partnership. In this form the executive or supervisor calls a
meeting of his sub-ordinates whenever a situation requires to obtain a group idea towards
the solution of operating problems.
• Making the labour shareholders. In this method, the workers are made the shareholders of
the companies in which they are working
• Democratic supervision or management. Under this type of participation responsibility is
given to the entire group and the manager merely acts as a conference leader or chairman
• Work committees. It is a form of workers’ participation in management as laid down under
the Industrial Dispute Act, 1947.It is more or less advisory in nature. It consists of equal
number of representatives of workers and management
• Joint Management Councils (JMC). Consultation on matters

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MODULE- 4
Lean Manufacturing (LM)
The core idea of lean manufacturing is simple i.e., relentlessly work on eliminating waste from
the manufacturing process. Waste is defined as any activity that does not add value from the
customer's perspective. Lean manufacturing basically involves the assessment of each of the
company’s activities - the efficiency and effectiveness of its various operations, the reason for
retaining specific operations and manpower, the efficiency of equipment and machinery in the
operation, number of people involved in particular operation and detailed analysis of costs
associated with each activity including both productive and non-productive operations and
taking appropriate steps to improve operations by eliminating unnecessary operations.
Objective of Lean
• Lean manufacturing is a production strategy that aims at high levels of production using
lesser effort, time and materials
• It is an integrated business approach adopted to eliminate non-value-added activities from
the customer delivery cycle in the operations.
• This approach enables companies to respond quickly and profitability to changes in
customer demands
• The technique of lean manufacturing can be applied to every situation in a company by
finding out what the customer wants, eliminating waste from processes and making flow
continuously according to customer pull.
• The objective is to create a culture in which people-at various levels of an organization are
continuously improving their productivity every day in every way
Principles of Lean Manufacturing
1. Value
The value a customer places upon products and services determines how much money they are
willing to pay for them. Lean philosophy insists on understanding exactly what drives customer
value, including understand in what problem they are trying to solve.
2. Value Streams
A value stream includes all the processes, steps, and materials necessary to place the product
(or service) in the hands of the customer. Lean organizations seek to document and understand
every aspect of their value streams. This analysis will usually reveal time delays, activities that
create value, activities that don't create value but can't be eliminated due to current technical or
production limitations, and activities that create no value, making them wastes that become
improvement opportunities.
3. Flow
Anything that interrupts the flow of value contributes to the Lean and decreases value to the
customer. Maintaining flow requires careful synchronization of each aspect of production and
delivery.

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4. Pull
Another waste that lean manufacturing attempts to eliminate is excess work-in-progress
inventory. Rather than "pushing" production based on a forecast or schedule, those who take
the pull approach ideally don't make anything until the customer (internal or external) orders
it. Visualization tools like Kanban signboards help to provide a mechanism for informing each
step in the chain what they need to produce to meet the customer's needs.
5. Perfection
The final Lean manufacturing principle from Lean Thinking is the relentless pursuit of
perfection. Lean thinkers implement systems and measurements that continuously seek
opportunities to improve, speed, and reduce the cost of each step of the value stream.
Tools of Lean Manufacturing
1. Cellular Manufacturing
Cellular manufacturing is an approach in which all equipment and workstations are arranged
based on a group of different processes located in close proximity to manufacture a group of
similar products. The primary purpose of cellular manufacturing is to reduce cycle time and
inventories to meet market response times.
2. Takt Time
This is the "heartbeat" of the customer. Takt time is the average rate at which a company must
produce a product or execute transactions based on the customer's requirements and available
working time.
Takt= T/D
Where T is Time available for product/ service.
D is a demand for the number of units
T gives information on production pace or units per hours.
3. Standardized Works
A process of methods, materials, tools, and processing times required to meet Takt time for
any given job. This aids in standardizing the tasks throughout the value stream.
4. One Piece Flow or Continuous Flow
This concept emphasizes reducing the batch size in order to eliminate system constraints. A
methodology by which a product or information is produced by moving at a consistent pace
from one value-added processing step to the next with no delays in between.
5. Pull Systems and Kanban
A methodology by which a customer process signals a supplying process to produce a product
or information or deliver product/information when it is needed. Kanban is the signals used
within a pull system through scheduling combined with travelling instruction by simple visual
devices like cards or containers.

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6. Five Why's
A thought process by which the question "why" is asked repeatedly to get to the root cause of
a problem.
7. Quick Changeover/ SMED (Single Minute Exchange of Die)
A methodology developed which reduces the time to changeover a machine by streamlining
steps. Shorter changeover times are used to reduce batch sizes and produce just-in-time. This
concept aids in reducing the setup time to improve flexibility and responsiveness to customer
changes.
8. Mistake Proofing / Poka Yoke
A methodology that prevents an operator from making an error by incorporating preventive in-
built responsiveness within the design of product or production process.
9. Heijunka / Levelling the Workload
The idea that, even though customer order patterns may be quite variable, all processes should
build consistent quantities of work over time (day to day, hour to hour). This strategy is adopted
by intelligently planning different product mix and its volumes over period of times.
10. Total Productive Maintenance (TPM)
A team-based system for improving Overall Equipment Effectiveness (OEE), which includes
availability, performance, and quality. This aids in establishing a strategy for creating
employee ownership autonomously for maintenance of equipment. The goal of the TPM
program is to markedly increase production while at the same time increasing employee morale
and job satisfaction.
OEE (Overall Equipment Efficiency):
OEE=A×PE × Q
A -Availability of the machine.
PE - Performance Efficiency.
Q- Quality rate.
11. Five S
5S is a five-step methodology aimed at creating and maintaining an organized visual
workplace. This system aids in organizing, cleaning, developing, and sustaining a productive
work environment
12. Problem Solving/ PDCA/ PDSA
The PDCA cycle is a graphical and logical representation of how most individuals have already
solved problems. It helps to think that every activity and job is part of a process, that each
stage has a customer and that the improvement cycle will send a superior productor service to
the final customer. PLAN: establish a plan to achieve a goal, DO: enact the plan, CHECK:
measure and analyse the results and ACT: implement necessary reforms if results are not as
expected.

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Concept of Wastes in Lean Manufacturing

Lean manufacturing, a management philosophy primarily derived from the Toyota Production
System, focuses on eliminating waste—called “Muda”— within a manufacturing system. It
takes into account many kinds of waste, including the waste of excessive human motion, and
aims to integrate each step of production into a holistic, efficient process that reduces cost and
improves overall revenue. Under the lean manufacturing system, seven wastes are identified:
overproduction, inventory, motion, defects, over-processing, waiting, and transport.
Overproduction
The most serious of the wastes, overproduction can cause all other types of wastes and results
in excess inventory. Stocking too much of a product that goes unused has obvious costs:
storage, wasted materials, and excessive capital tied up in useless inventory. More raw
materials than necessary are consumed; the product may spoil or become obsolete, which
requires that it be tossed; and, if the product involves hazardous materials, more hazardous
materials than necessary are wasted, resulting in extra emissions, extra costs of waste disposal,
possible worker exposure, and potential environmental problems resulting from the waste.
Inventory
Inventory waste refers to the waste produced by unprocessed inventory. This includes the
waste of storage, the waste of capital tied up in unprocessed inventory, the waste of transporting
the inventory, the containers used to hold inventory, the lighting of the storage space, etc.
Having excess inventory can hide the original wastes of producing said inventory.
Motion
Wasteful motion is all of the motion, whether by a person or a machine, that could be
minimized. If excess motion is used to add value that could have been added by less, than that
margin of motion is wasted. Motion could refer to anything from a worker bending over to pick
something up on the factory floor to additional wear and tear on machines, resulting in capital
depreciation that must be replaced.
Defects
Defects refer to a product deviating from the standards of its design or from the customer’s
expectation. Defective products must be replaced; they require paperwork and human labour
to process it; they might potentially lose customers; the resources put into the defective product
are wasted because the product is not used. A defective product implies waste at other levels
that may have led to the defect to begin with; making a more efficient production system
reduces defects and increases the resources needed to address them in the first place.
Over-Processing
Over-processing refers to any component of the process of manufacture that is unnecessary.
Painting an area that will never be seen or adding features that will not be used are examples
of over-processing. It refers to adding more value than the customer requires.

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Waiting
Waiting refers to wasted time because of slowed or halted production in one step of the
production chain while a previous step is completed. To take the classic example, the
production line, if one task along the chain takes longer than another, than any time the
employee in charge of the next task spends waiting is wasted. The task that takes more time
must be made more efficient, other employees must be hired to help, or the workflow must be
better coordinated or scheduled in order to make up for this wasted time.
Transport
Transport is moving materials from one position to another. The transport itself adds no value
to the product, so minimizing these costs is essential. This means having one plant closer to
another in the production chain, or minimizing the costs of transportation using more efficient
methods. Resources and time are used in handling material, employing staff to operate
transportation, training, implement safety precautions, and using extra space. Transport can
also cause the waste of waiting, as one part of the production chain must wait for material to
arrive.
The 5S System
The 5S tool is a structural system to organize any type of business or operation, and it represents
five steps such as, sort, set in order or place, shine or scrub, standardize and sustain. All these
steps must be followed to have success with a 5S event or for an operation to say that they are
5S. The second and third step, set in order and shine, may be switched depending on the needs
of the organization using 5S.
Sort
The first step, 'sort' means to simply separate what is needed and necessary in the workplace-
or station. Sorting reduces problems and annoyances in the workflow, improves
communication between workers, increases product quality, and enhances productivity.
Anything that is not used or needed in the workplace gets in the way of the actual work being
done there. An area should be set aside nearby to put these unnecessary. This area is called a
red tag area where the items in the area have red tags or the area is marked off in red. The
items should be kept in this area for a short period of time, which serves as an evaluation period.
Set in Place
The second step, 'set in place,' is a storage principle in which everything in the work area has a
place and is always stored there when not in use. This makes the tools easy to find and anyone
should be able to find them and then replace them after use. Using or creating tools with
multiple functions can eliminate a variety of tools. Properly setting things in order can eliminate
a variety of waste in the workplace including motion, searching, human energy, excess
inventory, unsafe working conditions, and using the wrong tools. The signboard is a strategy,
which identifies what, where and how many items should be stored. Item indicators, which
show what specific items go in those places, and Amount indicators, which show how many of
these items, belong in those places.

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Shine
The third step is 'shine' or 'scrub' to keep the work place clean by eliminating all forms of dirt,
dust, grease and grime. This builds a sense of pride in the employees, improves the work
environment, provides for a safer workplace, and helps maintain equipment value. Cleaning
can also be used as a form of inspection. While in the process of cleaning a piece of equipment,
a problem can be noticed that would not have been seen in passing.
Standardize
The fourth step, 'standardize,' is where working conditions are implemented to maintain sort,
set in place, and shine. Standardization creates a consistent way in which tasks and procedures
are carried out so that absolutely anyone can understand the work.
Sustain
The last and fifth step is 'sustain,' making a habit of properly following the correct procedures
and continuously repeating all the steps of the 5S process. By sustaining all of the 5S steps,
many problems in the work place can be avoided including unneeded items piling up as soon
as the sorting process is completed. Tools being put in the wrong place after use. No one ever
cleaning equipment or picking up after themselves. Items being left in walkways. Dark, dirty
work environments which lower morale of employees, and dirty machines which start to
malfunction and/or produce defects.
Agile Manufacturing
Agile manufacturing system means using man, machine, material and some of other vital
resources in such a way that the entire system can be switched over or changed quickly and
cost effectively to another project or product that too in unpredictable or indeterminate ways.
Agile manufacturing is a word which has been recently coined to indicate the use of principles
of lean production on a broader scale. The principle underlying agile manufacturing is ensuring
agility and hence flexibility in the manufacturing organization so that it can quickly respond to
changes in product demand and customer needs. Agile manufacturing approach requires that
manufactures benchmark their operations. This means understanding the competitive position
of other manufactures with respect to theirs and setting ambitious still realistic goals for the
future.
Agile manufacturing proved its effectiveness because of the following reasons or facts:
1. Customers get fascinated to one; who satisfies them instantly and they are always ready to
pay for it.
2. Customers love choices as many as the manufacturer could provide them, varieties of the
product for choosing best for them out of many and they also want their product to be exactly
matching to their demand without any compromise.
3. Customers are transient one they always used to change, switch over their interests, demands
in the unpredictable manner.

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Approach of Agile Manufacturing

Agile manufacturing is defined as the capability of surviving and prospering in a competitive
environment of continuous and unpredictable change by reacting quickly and effectively to
changing markets, driven by customer-designed products and services. Critical to successfully
accomplishing AM are a few enabling technologies such as the standard for the exchange of
products (STEP), concurrent engineering, virtual manufacturing, component-based
hierarchical shop floor control system, and information and communication infrastructure,
etc.us of current fluctuations in the market scenario. In agile manufacturing, manufacturers use
highly integrated technology and communication systems to develop excellent quality products
that are made quickly and cost-effectively. The idea is to impress customers with both
production speed and product quality.
Key Elements
There are four key elements for agile manufacturing:
1. Modular Product Design (designing products in a modular fashion that enables them to serve
as platforms for fast and easy variation)
2. Information Technology (automating the rapid dissemination of information throughout the
company to enable lightning-fast response to orders)
3. Corporate Partners (creating virtual short-term alliances with other companies that enable
improved time-to-market for selected product segments)
4. Knowledge Culture (investing in employee training to achieve a culture that supports rapid
change and ongoing adaptation)
Agile Manufacturing Framework
Agile manufacturing integrates key functions and disciplines involved in creating, designing,
making, selling/servicing products. It encompasses not only the critical operations like
technology, product and process engineering, administration and marketing /sales/services
within an organization but also venders/suppliers, community and government. Agile
Manufacturing (AM) is the science of business system that integrates management, technology
and workforce making the system flexible enough for manufacturing to switch over from one
product (that is being produced) to another product (desired to be produced) in a cost-effective
manner within the framework of the system. Agile Manufacturing encompasses entire business
process commencing from planning, finance and process design, tooling, layout, materials and
inventory, cost specifications, pricing, marketing, sales and service.

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Management with Technology and Workforce

In order to provide flexibility to agile manufacturing, the traditional management accounting
should be replaced by Activity Based Costing (ABC). As the technology that is adopted is to
be user oriented, it is essential that the user must have control over the technologies adopted.
This can be brought about effectively by organizing the interactions between the user and the
workforce in an industry. The training of entire workforce is essential. Organizational pattern
must be flexible enough to provide perfect co-operation between the three components of agile
manufacturing - manufacturing, technology and work force.
Technology with Management and Workforce
In order to achieve a balanced integration of management, technology and workforce, an
interdisciplinary design methodology must be adopted to bring the concept of total enterprise
design. Strategies must be directed to enhance skill and knowledge of work force and not on
replacing the old technology by new one. Research in technology must involve all the three
components to arrive at an appropriate technology most suitable for the system.
Workforce with Management and Technology
The workforce must be built up to produce products that would satisfy the customers.
Innovative skills should be rewarded and encouraged. The communication which us vital for
success of the organization must be given the proper importance.

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Effectiveness Of Agile Manufacturing

Why is agile manufacturing considered is an effective strategy cause of the following reasons?
1. Consumers love instant gratification. They are increasingly getting used to it and they are
often willing to pay for it. For example, have you ever ordered a product with overnight
shipping ... waiting in eager anticipation?
2. Consumers love choice. They prefer to get a product exactly as they want it ... without
compromise.
3. Consumers are fickle minded. Their interests shift and move in unpredictable ways. Agile is
effective because it directly addresses these issues. It acknowledges the realities of the modern
marketplace and transforms them into a competitive advantage.
Characteristics of Agile Manufacturing System
1. Rapid response: capability to start operating quickly once it is planned to launch new
product, the must be started working in the least time possible.
2. Modularity: approaches depend on the distributed modules or building blocks which are
gathered to execute certain functionality.
3. Autonomy: building blocks or the modules which are developed are independent to each
other and assigned to the self-contained functionality.
4. Interaction/Cooperation: each module must communicate based on the standardized rules to
execute a functionality which will be combination of individual contributions. The principle
underlying is that the entire modules as unit must exhibit A functionality that is larger than sum
of parts.
5. Structure: all the modules play a certain vital role which may be pre assigned in the system.
The definition of the structure supports the progressive encapsulation of complexities.
6. Dynamics: the systems often are not statics entities, most of them support idea of evolution,
innovation either by varying in environment or learning.
7. Robustness: It should not be blocked by uncertainty.
8. Heterogeneity: though they are heterogeneous entities but it requires a careful interface
between them in the environment.

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MODULE- 5
Enterprise Resource Planning (ERP)
ERP is a process of managing all resources and their use in the entire enterprise in a coordinated
manner.
What Is ERP?
The practice of consolidating an enterprise’s planning, manufacturing, sales and marketing
efforts into one management system. Combines all databases across departments into a single
database that can be accessed by all employees. ERP automates the tasks involved in
performing a business process.
Major Reasons for Adopting ERP
Integrate financial information's.
Integrate costumer order information’s.
Standardize and speed up operations/processes
Reduce inventories.
Standardize human resources (HR) information’s.
Before ERP

Typical Business Process: Key Observations

A typical enterprise has many departments / business units (BU). These departments/ BU
continuously communicate and exchange data with each other. The success of an organization
lies in effective communication and data exchange within the departments/BU as well as

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associated third party such as vendors, outsourcers and costumers. Also known as
Decentralized system.
Problems with Decentralized System
• Numerous disparate information systems are developed individually over the time.
• Integrating the data becomes time and money consuming.
• Inconsistencies and duplication of data.
• High inventory, material and human resource cost.
Centralized System: ERP Example

Centralized System: Key Observations

• Data is maintained at central locations and is shared with various departments.
• Departments have access on information/data of the other departments/BU
Benefits of Centralized System
• Eliminate the duplication, discontinuity and redundancy in data.
• Provide information across departments in real time.
• Provides control over various business processes.
• Increase productivity, better inventory management, promotes quality, reduced materials
cost, boosts profits.
• Better customer interaction, increased throughput, improves costumer services.

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Myths about ERP

There are number of myths that surround the concept, infrastructure, implementation, and
practice of ERP. Very often people are hesitant to adopt ERP because of these misconceptions.
1. ERP Means More Work and Procedures
Proper implementation and management of an ERP system is not an easy task. The transition
period from the traditional system or manual processing to ERP is difficult as new skills have
to be acquired new procedures and processes have to be followed, and so on. If the management
and the implementation team do their job correctly, ensuring that the employees are told what
to expect and give them proper training, then the transition can be smooth.
2. ERP will Make Many Employees Redundant and Jobless
Another popular misconception about ERP systems is that its implementation will make many
jobs redundant (because of the automation), and hence many employees will lose their jobs. A
properly implemented ERP system will automate many tasks in the organization, but it does
not mean that the ERP systems will make people redundant. There will be changes in job
descriptions and job responsibilities. Tasks will be automated and the jobs that people were
doing will become redundant, but ERP systems will also create new job opportunities and the
same people whose jobs were automated could be used to fill the new positions after giving
them proper training on the new tasks.
3. ERP is the Sole Responsibility of the Management
Making an ERP system successful is the responsibility of all the employees. It involves
virtually every department and every employee within the company. The management is not
responsible for the day-to-day operation of the ERP system. Their main job is to create an
organizational environment in which ERP can thrive—give ERP the full backing of the
management. The management should monitor the implementation and operation of the
system, review the progress and status periodically, and take necessary corrective action, if
required.
4. ERP is for the Managers/Decision-makers Only
The managers and decision-makers are the major users of the ERP system. They are the people
who benefit the most from a suitable ERP system. They will have all the information they need
at their fingertips for making informed decisions. The quality of the decisions and the speed
with which the decisions are made are improved as the ERP systems provide high-quality,
timely, and relevant information. Every employee in an organization will benefit from the ERP
system. But for making the best use of the information processing power of an ERP system,
the users should be trained to apply the available features to its maximum.
5. ERP is for the ERP Implementation Team only
The ERP implementation team usually consists of external consultants, vendor representatives,
and select group of employees. But once the implementation and user training is over, the
consultants and vendor representatives will leave. Thereafter it is the responsibility of each
and every employee of the company to use the ERP system effectively and to optimize the new
features and facilities to their advantage.

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6. ERP Slows down the Organization

Before the advent and popularity of ERP tools, most business tasks were performed manually
and this was a time-consuming process. Often lots of efforts were duplicated. The ERP systems
automated the information flow across departments thereby eliminating duplication of work
and providing faster and accurate results.
7. ERP is Meant Just to Impress Customers
It is true that a properly implemented ERP system can help in serving the customers better as
it helps the organizations to react faster, respond better, and deliver high quality products and
services at astonishing speeds. This improved efficiency and quality will go a long way in
improving customer goodwill and customer relations.
8. ERP Package will Take Care of Everything
ERP is not a silver bullet or a panacea. Of course, an appropriately implemented, operated, and
maintained ERP system can dramatically improve productivity, automate tasks, reduce
wastages, and increase profits. But an ERP system needs people to operate, use, and maintain
it.
9. ERP is Very Expensive
ERP packages come in all shapes and sizes. The sophisticated and high-end ERP tools are very
expensive. ERP system needs people to manage it. Thus, implementing and managing an ERP
system is an expensive affair. But these expenses should be weighed against the benefits of
the ERP system.
Evolution of ERP
In the manufacturing industry, MRP became the fundamental concept of production
management and control in the mid-1970s. At this stage, Bill of Materials(BOM), which is
purchase order management that utilizes parts list management and parts development, was the
mainstream this concept unfolded from order inventory management of materials to plant and
personnel planning and distribution planning, which in turn became MRP-II. This incorporated
financial accounting, human resource management functions, distribution management
functions, and management accounting functions came to globally cover all areas of enterprise
mainstay business and eventually came to be called ERP.
Material Requirements Planning (MRP)
MRP is an evolved version of the BOM processing. MRP began its life in the 1960s and gained
popularity in the 1970s.
MRP answers the following questions:
1. What products are going to make?
2. What are the materials needed to make the products?
3. What are the materials that we have in stock?
4. What are the items that need to be purchased?
MRP uses the master production schedule (MPS) to find out the answer to the first question. It
gets the details of the materials required to make the products from the BOM. It searches the

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inventory records to find out what items are in stock. It then calculates the items that need to
be purchased for producing the goods.
Closed-Loop MRP
Closed-loop MRP is not planning for the material requirements but involves a series of
functions for automating the production process. It contains tools and techniques to address
both priority and capacity and supports both planning and execution. It has provisions for
accepting feedback from the execution functions back to the planning function thus enabling
the plans to be revised and updated depending on the actual execution or changes in priorities.
Manufacturing Resource Planning (MRP II)
MRP II is a methodology adopted for effective planning of all the resources of a manufacturing
company. It addresses operational planning in units, financial planning in rupees, and has a
simulation capability to answer “what if” questions. MRP II comprises a variety of functions,
all of them interlinked: planning for business, sales and operations, production, material
requirements, and capacity requirement; master scheduling; demand management; and the
execution support systems for capacity and material. Output from these systems is integrated
with financial reports such as the business plan, purchase commitment report, shipping budget,
inventory projections, and so on.
Enterprise Resource Planning (ERP)
The fundamentals of ERP are the same as that of MRP II. The enterprise software makes ERP
a set of business processes that is broader in scope, is capable of dealing with more business
functions, and has a better and tighter integration with the finance and accounting functions.
The ERP system is also capable of integrating with other tools like customer relationship
management, supply chain management, and so on, thereby supporting businesses across
company boundaries. ERP predicts and balances demand and supply.
Its goals include high levels of customer service, productivity, cost reduction, and inventory
turnover, and it provides the foundation for effective supply chain management and e-
commerce. It does this by developing plans and schedules so that the right resources—
manpower, materials, machinery, and money—are available in the right amount at the right
time. ERP is a direct outgrowth and extension of MRP and, as such, includes all of MRP II’s
capabilities. The primary purpose of implementing ERP is to run the business efficiently and
effectively in this brutally competitive and rapidly changing business environment.
Basic ERP Concepts
ERP is a set of tools and processes that integrates departments and functions across a company
into one computer system. ERP runs off a single database, enabling various departments to
share information and communicate with one another. ERP systems comprise function-specific
modules designed to interact with the other modules, e.g., accounts receivable, accounts
payable, purchasing, etc. ERP software is designed to function as a system for operating and
managing a business. ERP is an enterprise reengineering solution that uses new business
computing paradigms to integrate IT processes across the company’s divisions and
departments. ERP offers a means of effectively increasing and managing the required resources
(materials, equipment, tools, labour, money, etc.). For each of these resources, ERP can

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identify what is needed, when it is needed, and how much is needed, thus making the operation
of the organization efficient and effective.
ERP Implementation
• Biggest IT project that most companies ever handle.
• Change the entire company.
• Has repercussions in all departments and divisions of the organisation.
• It is essential that all the key players understand the scope of the project.
• This is an IT related project.
ERP Implementation Phases
4 major phases
1. Concept /Initiation
2. Development
3. Implementation
4. Closeout/ operation and maintenance
Hidden Costs of ERP
1. Training
2. Integration and testing
3. Data conversion
4. Data analysis
5. Consultants
6. Replacing best and brightest staff after implementation
7. Implementation teams can never stop
8. Waiting for ROI (Return on Investment)
ERP: Small, Medium and Large Enterprise Vendor Solutions
SME stands for “small, medium enterprises”. Most of the MNCs and big size companies have
already implemented ERP solution from one of the top three vendors: SAP, Oracle and
Microsoft. Enterprise software beneficial to large- and mid- sized companies in a wide range
of environment from manufacturing to distribution and engineering and service. Small sized
were not ready to invest a large amount for buying software.
ERP Systems Implementations Barriers for SME’s
1. Costs
2. Time
3. People (resources)
4. User trainings and system friendliness
5. Business process management
6. IT department and IT infrastructure

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Benefits of ERP
ERP systems integrate all business management functions including planning,
inventory/materials management, engineering, order processing, manufacturing, purchasing,
accounting and finance, human resources, etc. ERP system has many advantages—both direct
and indirect. The direct advantages include improved efficiency, information integration for
better decision-making, faster response time to customer queries, etc. The indirect benefits
include better corporate image, improved customer goodwill, customer satisfaction, and so on.
1.Information Integration: The reason ERP systems are called integrated is because they have
the ability to automatically update data between related business functions and components.
2. Reduction of lead-time: The elapsed time between placing an order and receiving it is
known as the lead-time. It plays a significant role in purchasing and inventory control. ERP
systems help in automating the task and thus make inventory management more efficient and
effective. ERP system is integrated and the materials management module is integrated with
other modules like sales, marketing, purchasing, manufacturing, and production planning, the
demand for a particular item can be known as early as an order is received
3. On-time Shipment: Integrating the various business functions and automating the
procedures and tasks, the ERP system ensures on-time delivery of goods to the customers
4. Reduction in Cycle time: Cycle time is the time between placement of the order and
delivery of the product. The cycle time can be reduced by the ERP systems, but the time will
be saved more in the case of make-to-order systems. In the case of make-to-stock, the items
are already manufactured and kept in warehouses or with distributors for sales.
5. Improved Resource Utilization: ERP systems offer both rough-cut and detailed capacity
planning. The system loads each resource with production requirements from master
production scheduling, material requirements planning, and shop floor control (detailed
capacity planning).
6. Better Customer Satisfaction: Customer satisfaction means meeting or exceeding
customers’ requirements for a product or service. ERP systems have proved that they can
produce goods at the flexibility of make-to-order approach without losing the cost and time
benefits of made-to-order operations.
7. Improved Supplier Performance: The quality of the raw materials or components and the
capability of the vendor to deliver them on time are of critical importance for the success of
any organization. ERP systems provide vendor management and procurement support tools
designed to coordinate all aspects of the procurement process.
8 Increased Flexibility: Flexibility is a key issue in the formulation of strategic plans in
companies. Sometime flexibility means quickly changing something that is being done or
changing completely to adjust to new product designs. At other times, flexibility is the ability
to produce in small quantities in order to obtain a product mix that may better approximate
actual demands and reduce work-in-progress inventories. ERP systems not only improve the
flexibility of the manufacturing operations, but also the flexibility of the organization as a
whole. A flexible organization is one that can adapt to any changes in the environment, rapidly.

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9. Reduced Quality Costs: Quality is defined in different ways—excellence, conformance to

specifications, fitness for use, value for the price, and so on. While manufacturing and design
engineers typically are responsible for some of the technological issues in quality assurance for
products, operations managers often conduct the analysis of quality-related costs. The quality
management systems in ERP packages support the benchmarking and use of optimal product
design, process engineering, and quality assurance data by all functional departments within
the manufacturing enterprise, thereby facilitating definition of repeatable processes, root cause
analysis, and the continuous improvement of manufacturing methods.
10. Better Analysis and Planning Capabilities: Another advantage provided by ERP systems
is the boost to the planning functions. By enabling the comprehensive and unified management
of related business functions (such as production, production planning, finance, inventory
management, plant maintenance, etc.) and their data, it becomes possible to utilize fully many
types of decision support systems and simulation functions.
ERP Implementation Issues
The major implementation issues are:
1. Project size
2. Lengthy implementation time
3. High initial investment
4. Unreasonable deadlines
5. Insufficient funding
6. Interface
7. Organizational politics
8. Scope
9. Unexpected gaps
10. Configuration difficulties
1. Project Size: The scope and size of the ERP implementation project is one factor that
differentiates it from other projects. ERP implementation involves hundreds of people,
encompasses the entire organization, affects all the employees, and lasts years. Managing a
project of such magnitude handling the uncertainties and coordinating the activities of so many
people is a very tough task and involves considerable amount of risk.
2. Lengthy Implementation Time: ERP implementations are very lengthy projects. A typical
ERP implementation takes anywhere between 1 and 4 years depending upon the size of the
organization and the methodology.
3. High Initial Investment: ERP implementation involves huge initial investment and only
after successful completion and operation of the system, the costs are recovered. If the
implementation fails or falls short of expectations, the company will incur huge losses and can
go bankrupt.
4. Unreasonable Deadlines: Management can sometimes insist on unreasonable deadlines for
the ERP implementation project. If the project implementation is not done properly and proper
procedures are not followed in order to save time, it can result in more delays and project
failure.

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5. Insufficient Funding: One of the most common reasons for the failure of the ERP
implementation is lack of sufficient funds. There are a lot of hidden costs in an ERP
implementation.
6. Interface: An ERP system typically becomes the ‘center of the universe’ for the organization
when it is implemented. The interfaces must have the ability to handle complex data sources
and legacy data types. Other client/server systems must also exchange data with the ERP
system.
7. Organizational Politics: Every organization has some amount of internal politics. If the
external consultants, vendor representatives and the implementation team members are caught
between these internal fights, it can affect the successful implementation of the project.
8. Scope: The scope of an ERP project has several components. The ERP project team must
decide which business processes will be included in the implementation. This choice of the
business processes decides the ERP functional modules that are to be implemented.
9. Unexpected Gaps: The gap between the promise of an ERP system and the business value
actually delivered once the project has been deployed is great. Enormous cost overruns,
deadlines missed in some cases by years, and even abandoned implementations make clear that
managing ERP projects is a complex task.
10. Configuration Difficulties: The ERP system is re-configured or customized in a number
of ways—customization (changes made to ERP functionality via internal configuration
switches), custom-code ‘add-ons’. ERP systems are not fully customizable. There are many
areas that cannot be customized or are very difficult to customize. These aspects add to the risk
of the ERP implementation.
Business Intelligence (BI)
Business intelligence (BI) is a new field of in the application of human cognitive faculties and
artificial intelligence technologies to support the management and decision-makers in different
business problems. It relates to intelligence as information valued for its currency and
relevance. It is expert information, knowledge, and technologies efficient in the management
of organizational and individual business. BI is a broad category of applications and
technologies for gathering, providing access to, and analysing data for the purpose of helping
organizations make better business decisions
Reasons for BI
BI enables organizations to make well-informed business decisions and thus can be the source
of competitive advantages
BI reveals
• The position of your firm in comparison to its competitors
• The changes in customer behavior and spending patterns
• The capabilities of your firm
• The market conditions, future trends, demographic and economic information
• The social, regulatory and political environment
• The status of other firms in the market

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Benefits of BI
• BI can eliminate a lot of the guesswork within an organization, enhance communication
among departments while coordinating activities and enable companies to respond quickly
to changes in financial conditions, customer preferences, and supply chain operations. BI
improves the overall performance of the company using it.
• BI also expedites decision-making, as acting quickly and correctly on information before
competing businesses do can often result in competitively superior performance.
• BI can improve customer experience, allowing for timely and appropriate response to
customer problems and priorities.
E-commerce
Electronic commerce integrates communications, data management, and security services to
allow business applications within different organizations to automatically interchange
information. Communications systems transfer information from the originator to the recipient.
Data management services define the interchange format of the information. E-commerce
applies and integrates these infrastructure services to support business and commercial
applications including financial transactions such as electronic bidding, ordering and payments,
and exchange of digital product specifications, and design data.
E-commerce is a multi-disciplinary field that includes technical areas such as networking and
telecommunications, security and storage and retrieval of multimedia information, business
areas such as procurement, purchasing, production, marketing, billing and payment, and supply
chain management. It includes legal aspects like information privacy, intellectual property,
taxation, contractual obligations, etc. It includes financial aspects like EDI transactions, credit
card payments and credit card processing, etc.
E-business
E-business is the convergence and fusion of business process, enterprise applications, business
infrastructure, technology, information and organizational structure (people) necessary to
create a high-performance business. It is not possible for an organization to execute e-
commerce transactions efficiently and effectively without first transforming to the e-business
model. It involves fundamental restructuring and streamlining of the business using
technology. It includes enterprise resource planning (ERP) systems, supply chain
management, customer relationship management (CRM), data warehousing, data marts, data
mining, on-line analytical processing (OLAP), geographical information systems (GIS), etc. to
name a few.
E-business, in addition to encompassing e-commerce, includes both front and back-office
applications that form the engine for modern business. E-business is not just about e-commerce
transactions; it’s about re-defining old business models, with the aid of technology, to
maximize customer value. E-business is the overall strategy and e-commerce is an extremely
important facet of e-business.

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Business Process Reengineering (BPR)

Business Process Reengineering (BPR) involves the radical redesign of core business processes
to achieve dramatic improvements in productivity, cycle times, and quality. A successful BPR
can result in dramatic performance improvements, increase in profits, better business practices,
enormous cost reductions, dramatic improvements in productivity, and so on. It can also create
substantial improvements in quality, customer service, employee satisfaction, profitability, and
other business goals.
BPR: The Different Phases
1. Begin organizational change
2. Build the reengineering organization
3. Identify BPR opportunities
4. Understand the existing process
5. Reengineer the process
6. Blueprint the new business system
7. Perform the transformation
Phase 1: Begin Organizational Change
The main activities in this step are:
• Assess the current state of the organization
• Explain the need for change
• Illustrate the desired state
• Create a communications campaign for change
Phase 2: Build the Reengineering Organization
The major activities of the second phase are given below:
• Establish a BPR organizational structure
• Establish the roles for performing BPR
• Choose the personnel who will reengineer
Phase 3: Identify BPR Opportunities
This phase consists of the following activities:
• Identify the core/high-level processes
• Recognize potential change enablers
• Gather performance metrics within industry
• Gather performance metrics outside industry
• Select processes that should be reengineered
• Prioritize selected processes
• Evaluate pre-existing business strategies
• Consult with customers for their desires

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• Determine customer’s actual needs

• Formulate new process performance objectives
• Establish key process characteristics
• Identify potential barriers to implementation
Phase 4: Understand the Existing Process
The main activities of the fourth phase are:
• Understand why the current steps are being performed
• Model the current process
• Understand how technology is currently being used
• Understand how information is currently being used
• Understand the current organizational structure
• Compare current process with the new objectives
Phase 5: Reengineer the Process
The major activities are:
• Ensure the diversity of the reengineering team
• Question current operating assumptions
• Brainstorm using change levers
• Brainstorm using BPR principles
• Evaluate the impact of new technologies
• Consider the perspectives of stakeholders
• Use customer value as the focal point
Phase 6: Blueprint the New Business System
The activities of Phase 6 are the following:
• Define the new workflow
• Model the new process steps
• Model the new information requirements
• Document the new organizational structure
• Describe the new technology specifications
• Record the new personnel management systems
• Describe the new values and cultures required
Phase 7: Perform the Transformation
The activities of this last phase are:
• Develop a migration strategy
• Create a migration action plan
• Develop metrics for measuring performance during implementation
• Involve the affected staff
• Implement in an iterative fashion
• Establish the new organizational structures

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• Assess current skills and capabilities of workforce

• Map new tasks and skill requirements to staff
• Reallocate workforce
• Develop a training curriculum
• Educate the staff about the new process
• Educate the staff about the new technology used
• Educate management on facilitation skills
• Decide how new technologies will be introduced
• Transition to the new technologies
• Incorporate process improvement mechanisms
Data Warehousing
The primary concept of data warehousing is that the data stored for business analysis can most
effectively be accessed, by separating it from the data in the operational systems.
The primary goals of a data warehouse are the following:
• Provide access to the data of an organization
• Data consistency
• Capacity to separate and combine data
• Inclusion of tools set up to query, analyze, and present information
• Publish used data
• Drive business re-engineering
Data in the Data Warehouse
The collection of data used by a data warehouse may be characterized as subject-oriented,
integrated, non-volatile, and time variant.
Subject-oriented—The data warehouse is oriented toward those major subject areas of the
organization, which have been defined in the data model.
Integrated—The data warehouse potentially can receive data from a number of sources. Each
of these sources has an application designer(s), each freely encoding, naming conventions,
physical attributes, and measurement of attributes.
Non-volatile—While it is common in the operational environment for data to be updated and
therefore, changed, the same is not true in a data warehouse. Data is loaded and accessed, but
not changed.
Time variant—The following table compares the time horizon, valuation, and presence of the
time element of an operational system to that of a data warehouse

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Data Mining
Data mining tools predict future trends and behaviours, allowing businesses to make proactive,
knowledge-driven decisions. The automated, prospective analyses offered by data mining
move beyond the analyses of past events provided by retrospective tools typical of decision
support systems. Data mining tools can answer business questions that traditionally were too
time-consuming to resolve. They scour databases for hidden patterns, finding predictive
information that experts may miss because it lies outside their expectations Data mining
techniques can be implemented rapidly on existing software and hardware platforms to enhance
the value of existing information resources, and can be integrated with new products and
systems as they are brought on-line.
On-Line Analytical Processing (OLAP)
OLAP is now acknowledged as a key technology for successful management. It describes a
class of applications that require multi-dimensional analysis of business data. OLAP systems
enable managers and analysts to rapidly and easily examine key performance data and perform
powerful comparison and trend analyses, even on very large data volumes. They can be used
in a wide variety of business areas, including sales and marketing analysis, financial reporting,
quality tracking, profitability analysis, manpower and pricing applications, and many others.
OLAP is a method of analysing data in a multi-dimensional format, often across multiple time
periods, with the aim of uncovering the business information concealed within the data. OLAP
enables business users to gain an insight into the business through interactive analysis of
different views of the business data that have been built up from the operational systems. This
approach facilitates a more intuitive and meaningful analysis of business information and
assists in identifying important business trends.
Product Life Cycle Management (PLM)
Integrated product life cycle management (PLM) software solution for collaborative
engineering, product development, and management of projects, product structures,
documents, and quality. The PLM software should provide an information backbone to help
you access relevant information anywhere, anytime. The PLM application should provide
integrated PLM software—a single source of all product-related information needed for
collaborating with business partners and supporting processes including product innovation,
design and engineering, quality and maintenance management, and control of environmental
issues.
Supply Chain Management (SCM)
Supply chain management (SCM), the management of the flow of goods and services, between
businesses and locations, and includes the movement and storage of raw materials, of work-in-
process inventory, and of finished goods as well as end to end order fulfilment from point of
origin to point of consumption. Interconnected, interrelated or interlinked networks, channels
and node businesses combine in the provision of products and services required by end
customers in a supply chain SCM encompasses the integrated planning and execution of
processes required to optimize the flow of materials, information and capital in functions that
broadly include demand planning, sourcing, production, inventory management and logistics
or storage and transportation.

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Customer Relationship Management (CRM)

Customer relationship management (CRM) is a process in which a business or other
organization administers its interactions with customers, typically using data analysis to study
large amounts of information. CRM systems compile data from a range of different
communication channels, including a company's website, telephone, email, live chat,
marketing materials and more recently, social media. They allow businesses to learn more
about their target audiences and how to best cater for their needs, thus retaining customers and
driving sales growth.
Emerging Trends on ERP
1. More Buyers Move to the Cloud
The benefits of cloud-based ERP are numerous and often provide the most help to small
businesses. Cloud-based solutions make it so small businesses don’t have to maintain their
own systems, drastically reducing the need for in-house IT. These software types make it
possible for small companies with just one or two IT employees to take advantage of an ERP
system they otherwise wouldn’t be able to afford to maintain.
2. Integration and The Internet of Things (IoT)
The Internet of Things (IoT)refers to the connectivity between computers and other devices.
IoT provides improved asset management, greater efficiency, improved forecasting, real-time
business insights, enhanced communication, improved business intelligence and more. It also
supports autonomous vehicles, real-time analytics, AI, e-commerce retail and more.
3.Vendors Offer More Personalized Solutions
4. Heightened Need for Advanced Technologies
5. Digital Transformation and E-Commerce
6. Two-Tier ERP
Two-tier ERP is a concept where mid-sized and small companies run two merged solutions
simultaneously. It’s also accessible to companies that have multiple locations or subsidiaries.
What is Two-Tier ERP?
Two-tier ERP is an approach to enterprise resource planning technology that uses two systems
to address the needs of large businesses with multiple locations and/or subsidiaries. Under this
strategy, headquarters will use a Tier 1 ERP that’s highly customized and has the functionality
to run a large, global company, while subsidiaries or smaller business units use a less resource-
intensive Tier 2 ERP that better suits their needs.
With two-tier ERP, the business integrates the two ERP systems so information automatically
flows from Tier 2 to Tier 1. This allows for master data management, or a single source of
accurate data for the entire enterprise. Although the responsibilities of each system can vary,
the Tier 1 software often handles core business functions like finance, human resources and
procurement. The Tier 2 system manages activities, like sales, marketing or manufacturing
processes, that are more specific to each subsidiary or location. This ERP strategy became
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alternatives to legacy ERP systems that burdened companies with long, expensive, and usually
on-premises implementations and extensive configuration requirements. Many companies
realized a two-tier approach was far more economical and less work than replacing the Tier 1
ERP or moving a new subsidiary or acquired company onto its enterprise software.
Tier 1 vs. Tier 2 ERP
There are two distinct categories of ERP systems with different capabilities, each designed for
businesses of a certain size.
Tier 1
A Tier 1 ERP is built for the world’s largest businesses that have operations around the globe.
These systems are very expensive to install, maintain and upgrade. Customizing them to meet
the business’ vast requirements takes a lot of effort, which leads to long implementation times.
Companies typically have an IT team dedicated to managing this software.
Tier 2
A Tier 2 ERP is designed for midsize companies and small enterprises. This type of ERP is
usually much less expensive and easier to launch than Tier 1 software. Some solutions in this
category target specific industries, like manufacturing or retail, and come with more out-of-
the-box functionality for accounting, sales, human resources and supply chain (including order
and inventory management). One software vendor could offer both Tier 1 and Tier 2 ERP
solutions.

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