UNIT – 3

Work Study: Introduction, definition, objectives, steps in work study, Method study:
definition, objectives, and steps of method study, Work Measurement: purpose, types of
study — stop watch methods — steps — allowances — standard time calculations — work
sampling, Production Planning and Control
Inventory Control: Inventory, Cost, Models of inventory control: EOQ, ABC, VED

Work Study
Work Study is the systematic examination of the methods of carrying out activities such as to
improve the effective use of resources and to set up standards of performance for the activities
carried out.

According to ILO — International Labour Organisation — work study is “a term used to

embrace the techniques of method study and work measurement which are employed to
ensure the best possible use of human and material resources in carrying out a specified
activity.” In other words, “work study is a tool or technique of management involving the

analytical study of a job or operation.” Work study helps to increase productivity.

According g to Brilish Standard Glossary “ Work study is a generic term for those techniques,

particularly method study and work measurement, which are used in the examination of human

work in aH its contexts, and which lead systematically to the investigation of all the factors

which affect the efficiency and economy of the situation being reviewed, in order to effect

improvement”

Work study is thus especially concerned with productivity. It is most frequently used to increase

the amount produced from a given quantity of resources without further capital investment

except, perhaps, on a very small scale. Work study was widely known for years as "time and

motion study", but with the development of the technique and its application to a very wide

range of activities it was felt by many people that the older title was both too narrow and

insufficiently descriptive. The term "work study" entered the English language only after the

Second World War, but it is now generally accepted; "motion and time study" is however still

used in the United States although the newer term is gaining currency there. The word

Arbeitsstudium, which has a similar meaning, has been used in Germany for many years.
Objectives of Work Study:
(i) Work study brings higher productivity;

(ii) Work study improves existing method of work for which cost becomes lower;

(iii) It eliminates wasteful elements;

(iv) It sets standard of performance;

(v) It helps to use plant and human more effectively;

(vi) It improves by saving in time and loss of material also.

Steps Involved in Work Study:

The steps of work study are:

1. Select the job or process to be studied.
2. Record from direct observation everything that happens, using the most suitable of the
recording techniques (to be explained later), so that the data will be in the most
convenient form to be analysed.
3. Examine the recorded facts critically and challenge everything that is done, considering
in turn: the purpose of the activity; the place where it is performed; the sequence in which
it is done; the person who is doing it; the means by which it is done.
4. Develop the most economic method taking into account all the circumstances.
5. Measure the quantity of work involved in the method selected and calculate a standard
time for doing it.
6. Define the new method and the related time so that it can always be identified.
7. Install the new method as agreed standard practice with the time allowed.
8. Maintain the new standard practice by proper control procedures.
Steps 1, 2 and 3 occur in every study, whether the technique being used is method study or work
measurement. Step 4 is part of method study practice, while step 5 calls for the use of work
measurement.
THE TECHNIQUES OF WORK STUDY AND THEIR RELATIONSHIP

Work study is encompassed by two techniques i.e. Method Study and Work measurement.

Method study is the systematic recording and critical examination of existing and proposed ways
of doing work, as a means of developing and applying easier and more effective methods and
reducing costs.

Work measurement is the application of techniques designed to establish the time for a qualified
worker to carry out a specified job at a defined level of performance.

There is a close link between Method Study and Work Measurement. Method study is concerned
with the reduction of the work content and establishing the one best way of doing the job where
as work measurement is concerned with investigation and reduction of any ineffective time
associated with the job and establishing time standards for an operation carries out as per
standard method.. The relationship of method study to work measurement is shown simply in the
figure given below.
 METHOD STUDY
To simplify the job and
develop more economical
methods of doing it.
WORK STUDY
WORK STUDY

WORK MEASUREMENT
To determine how long it
should take to carry out.

HIGHER
PRODUCTIVITY

METHOD STUDY:
According to ILO, method study is “the systematic recording, analysis and critical

examination of existing and proposed ways of doing work and the development and
application of easier and more effective method”. In short, it is a systematic procedure to

analyse the work to eliminate unnecessary operations.

Objectives:

The objectives of method study are:

1. The improvement of processes and procedures.

2. The improvement of factory, shop and workplace layout and of the design of plant and

equipment.

3. Economy in human effort and the reduction of unnecessary fatigue.

4. Improvement in the use of materials, machines and manpower.

5. The development of a better physical working environment.

There are a number of method study techniques suitable for tackling problems on all scales from

the layout of complete factories to the smallest movements of workers on repetitive work. In

every case, however, the method of procedure is basically the same and must be carefully

followed.

BASIC STEPS OF METHOD STUDY

In examining any problem there should be a definite and ordered sequence of analysis. Such a

sequence may be summarized as follows:

1. DEFINE the problem.

2. OBTAIN

3. all the facts relevant to the problem.

4. EXAMINE the facts critically but impartially.

5. CONSIDER the courses open and decide which to follow.

6. ACT on the decision.

7. FOLLOW UP the development.

SELECTING THE WORK TO BE STUDIED

2. Time And Motion Study:

According to ILO, Time Study means “a technique for determining as accurately as possible

from a limited number of observations the time necessary to carry out a given activity at a
different standard of performance”. In other words, “time study is the art of observing and

recording time required to do each detailed element of an individual operation.” Practically, it

studies the time taken on each element of a job.

Motion study, on the other hand, is the study of the body motion used in performing an

operation, with the thought of improving the operation by eliminating unnecessary motion and

simplifying necessary motion and thus establishing the most favourable motion sequence for

maximum efficiency.

So, in short, ‘Time Study’ means the determination of standard time that is taken by a worker of

average ability under normal working conditions for performing a job. But ‘Motion Study’

determines the correct method of doing a job to avoid wasteful movements, for which the
workers are unnecessarily tired.
Steps:
1. Time and Motion studies eliminate wasteful movements;

2. They examine the proposed method critically and determine the most effective one;

3. They determine for each element having a stop-watch;

4. They record all the parts of a job which are done by the existing method;

5. They install the method as standard one;

6. They critically observe the workers who are engaged with the work;

7. They assess the proper speed of the operator who is working.

INVENTORY CONTROL
The amount of material, a company has in stock at a specific time is known as inventory or in
terms of money it can be defined as the total capital investment over all the materials stocked in
the company at any specific time. Inventory may be in the form of,
(a) Direct Inventory (b) Indirect Inventory
 Raw Material Inventory -is the source material for a company's manufacturing process.
It can literally be "raw" materials that require considerable reconfiguration to become a
product (such as sheet metal) or it can be components purchased from a supplier, and
which can simply be bolted onto a product that is being assembled
 Work in process inventory -This is raw materials that are in the process of being
transformed into finished products through a manufacturing process. This can be quite a
small amount if the manufacturing process is short, or a massive amount if the item being
created requires months of work (such as an airliner or a satellite).
 Finished Goods Inventory -This is products that have successfully completed the
manufacturing process, and are ready for sale
As a lot of money is engaged in the inventories along with their high carrying costs,
companies cannot afford to have any money tied in excess inventories. Any excessive investment
in inventories may prove to be a serious drag on the successful working of an organization. Thus
there is a need to manage our inventories more effectively to free the excessive amount of capital
engaged in the materials.
Motives for Holding Inventories:

Why do firms hold inventories while it is expensive to hold inventories?

There are three major motives behind holding inventories in an enterprise:
1. Transaction Motive
2. Precautionary Motive
3. Speculative Motive
1. Transaction Motive:
According to this motive, an enterprise maintains inventories to avoid bottlenecks in its
production and sales. By maintaining inventories; the business ensures that production is not
interrupted for want of raw material, on the one hand, and sales also are not affected on account
of non-availability of finished goods, on the other.
2. Precautionary Motive:
Inventories are also held with a motive to have a cushion against unpredicted business. There
may be a sudden and unexpected spurt in demand for finished goods at times. Similarly, there
may be unforeseen slump in the supply of raw materials at some time. In both the cases, a
prudent business would surely like to have some cushion to guard against the risk of such
unpredictable changes.
3. Speculative Motive:
An enterprise may also hold inventories to take the advantages of price fluctuations. Suppose, if
the prices of raw materials are to increase rather steeply, the enterprise would like to hold more
inventories than required at lower prices.
FUNCTIONS OF INVENTORY MANAGEMENT
1. To meet anticipated demand.
2. To smooth production requirements.
3. To decouple operations.
4. To protect against stock-outs.
5. To take advantage of quantity discounts.
6. To permit operations.
7. To help hedge against price increases.
8. To take advantage of order cycle.
Benefits of Holding Inventories:

Holding inventories bears certain advantages for the enterprise.

The important advantages but not confined to the following only are as follows:
1. Avoiding Losses of Sales:
By holding inventories, a firm can avoid sales losses on account of non-supply of goods at times
demanded by its customers.
2. Reducing Ordering Costs:
Ordering costs, i.e., the costs associated with individual orders such as typing, approving,
mailing, etc. can be reduced, to a great extent, if the firm places large orders rather than several
small orders.
3. Achieving Efficient Production Run:
Holding sufficient inventories also ensures efficient production run. In other words, supply of
sufficient inventories protects against shortage of raw materials that may at times interrupt
production operation.
Costs of Holding Inventories:
However, holding inventories is not an unmixed blessing. In other words, it is not that everything
is good with holding inventories. It is said that every noble acquisition is attended with risks; he
who fears to encounter the one must not expect to obtain the other. This is true of inventories
also. There are certain costs also associated with holding inventories. Hence, it is necessary for a
firm to take these costs into consideration while planning for inventories.

OBJECTIVES OF INVENTORY MANAGEMENT:

There are two main objectives of inventory management:

1. Making Adequate Availability of Inventories:

The main objective of inventory management is to ensure the availability of inventories as per
requirements all the times. This is because both shortage and surplus of inventories prove costly
to the organization. In case of shortage of availability in inventories, the manufacturing wheel
comes to a grinding halt. The consequence is either less production or no production.
The either case results in less sale to less revenue to less profit or more loss.
2. Minimizing Costs and Investments in Inventories:
Closely related to the above objective is to minimize both costs as well as volume of investment
in inventories in the organization. This is achieved mainly by ensuring required volume of
inventories in the organization all the times.
This benefits organization mainly in two ways. One, cash is not blocked in idle inventories
which can be invested elsewhere to earn some return. Second, it will reduce the carrying costs
which, in turn, will increase profits. In lump sum, inventory management, if done properly, can
bring down costs and increase the revenue of a firm.

IMPORTANCE OF INVENTORY CONTROL

Inventories are needed because demand and supply cannot be matched for physical and
economical reasons. There are several other reasons for carrying inventories in any organization.
 To safe guard against the uncertainties in price fluctuations, supply conditions, demand
conditions, lead times, transport contingencies etc.
 To reduce machine idle times by providing enough in-process inventories at appropriate
locations.
 To take advantages of quantity discounts, economy of scale in transportation etc.
 To decouple operations i.e. to make one operation's supply independent of another's
supply. This helps in minimizing the impact of break downs, shortages etc. on the
performance of the downstream operations. Moreover operations can be scheduled
independent of each other if operations are decoupled.
 To reduce the material handling cost of semi-finished products by moving them in large
quantities between operations.
 To reduce clerical cost associated with order preparation, order procurement etc.
 COST ASSOCIATED WITH INVENTORY

1. Material Costs:
These include costs which are associated with placing of orders to purchase raw materials and
components. Clerical and administrative salaries, rent for the space occupied, postage, telegrams,
bills, stationery, etc. are the examples of ordering costs. The more the orders, the more will be
the ordering costs and vice versa.
1. Purchasing cost- This refers to the nominal cost of inventory, it is the purchased price for the
items that are bought from outside sources.
2.Ordering/Procurement cost- The ordering cost (also called setup costs, especially when
producers are concerned), or cost of replenishing inventory, covers the friction created by orders
themselves, that is, the costs incurred every time you place an order. These costs can be split in
two parts:
 The cost of the ordering process itself: it can be considered as a fixed cost, independent
of the number of units ordered. It typically includes fees for placing the order, and all kinds of
clerical costs related to invoice processing, accounting, or communication. For large businesses,
particularly for retailers, this might mainly boil down to the amortized cost of the EDI (electronic
data interchange) system which allows the ordering process costs to be significantly reduced
(sometimes by several orders of magnitude).
 The inbound logistics costs, related to transportation and reception (unloading and
inspecting). Those costs are variable. Then, the supplier’s shipping cost is dependent on the total
volume ordered, thus producing sometimes strong variations on the cost per unit of order.
3. Carrying/holding/storage cost- It is also known as holding cost , it is the cost associated with
storing an item in inventory .
These include costs involved in holding or carrying inventories like insurance charges for
covering risks, rent for the floor space occupied, wages to laborers, wastages, obsolescence or
deterioration, thefts, pilferages, etc. These also include opportunity costs. This means had the
money blocked in inventories been invested elsewhere in the business, it would have earned a
certain return. Hence, the loss of such return may be considered as an ‘opportunity cost’.
4. Stock out cost- This cost implies shortages, which means when the product is not available to
the customer.
Inventories are needed because demand and supply cannot be matched for physical and
economical reasons. There are several other reasons for carrying inventories in any organization.
 LEVELS OF INVENTORY
1. MINIMUM INVENTORY LEVEL- It represents the lowest quantity of a particular material
below which stock should not be allowed to fall. This level must be maintained at every time so
that production is not held up due to shortage of any material.
It is that level of inventories of which a fresh order must be placed to replenish the stock. This
level is usually determined through the following formula:
Minimum level= reordering level- ( normal consumption per day X Normal delivery period)
2. MAXIMUM INVENTORY LEVEL- Maximum level is the level above which stock should
never reach. It is also known as ‘maximum limit’ or ‘maximum stock’. The function of
maximum level is essential to avoid unnecessary blocking up of capital in inventories, losses on
account of deterioration and obsolescence of materials, extra overheads and temptation to thefts
etc.
It represent the largest quantity of a particular material which should be kept in stores at any one
time. This level can be determined with the following formula.
Maximum Stock level = Reordering level + Reordering quantity —(Minimum Consumption x
Minimum re-ordering period)
3. REORDERING LEVEL
It is also known as ‘ordering level’ or ‘ordering point’ or ‘ordering limit’. It is a point at which
order for supply of material should be made.
This level is fixed somewhere between the maximum level and the minimum level in such a way
that the quantity of materials represented by the difference between the re-ordering level and the
minimum level will be sufficient to meet the demands of production till such time as the
materials are replenished. Reorder level depends mainly on the maximum rate of consumption
and order lead time. When this level is reached, the store keeper will initiate the purchase
requisition.
It is the level of inventory at which purchase requisition should be issued and purchase order
made.
Reorder level= {maximum consumption during the time } X { maximum duration for delivery}
Example 1: ABC Ltd. is a retailer of footwear. It sells 500 units of one of a famous brand daily.
Its supplier takes a week to deliver the order.
ROL = 500 *7 = 3,500 Units.
The inventory manager should place an order before the inventories drop below 3,500 units in
order to avoid a stock-out.
4. DANGER LEVEL
Danger level is that level below which the stock should under no circumstances be allowed to
fall. Danger level is slightly below the minimum level, if it reaches the danger level at any point
of time urgent action for replenishment of stock must be taken to prevent stock out.
To avoid this situation purchases manager should make special efforts to acquire required
materials in stores.
This level can be calculated with the help of following formula:
Danger level = average consumption X maximum reorder duration for emergency purchase.

5. Average Stock Level:

Average stock level is determined by averaging the minimum and maximum level of stock.
The formula for determination of the level is as follows:
Average level =1/2 (Minimum stock level + Maximum stock level)
This may also be expressed by minimum level + 1/2 of Re-ordering Quantity.

MODELS OF INVENTORY CONTROL

1) Economic Order Quantity (EOQ):
A decision about how much to order has great significance in inventory management, the
quantity to be purchased should neither be small nor big because of buying and carrying cost of
materials are very high.
EOQ is the size of the lot to be purchased which is economically viable. This is the quantity of
material which can be purchased at minimum cost. Generally, EOQ is the point at which
inventory carrying costs are equal to order costs. In determining EOQ, it is assumed that cost of
managing inventory is made up solely of two parts, i.e., ordering cost and carrying costs.
(i) Ordering Cost:
These are the costs which are associated with the purchasing or ordering of materials. These
costs include:
(a) Costs of staff posted for ordering of goods. A purchase order is processed and then placed
with suppliers. The labour spent on this process is included in ordering costs.
(b) Expenses incurred on transportation of goods purchased.
(c) Inspection costs of incoming materials.
(d) Cost of stationery, typing, postage, telephone charges, etc.
These costs are also known as buying costs and will arise only when some purchases are made.
When materials are manufactured in the same concern then these costs will be known as set-up
costs. These costs will include costs of setting up machinery for manufacturing material, time
taken up in setting cost of tools, etc.
The ordering costs are totaled up for the year and then divided by the number of orders placed
each year.
(ii) Carrying Costs:
These are the costs for holding the inventories. These costs will not be incurred if inventories are
not carried. These costs include:
(a) The cost of capital invested in inventories. An interest will be paid on the amount of capital
locked up in inventories.
(b) Costs of storage which could have been used for other purposes.
(c) The loss of materials
(d) Insurance cost
(e) Cost of spoilage in handling of materials.
Ordering cost increases as the number of orders increases. Carrying cost decreases as the number
of orders increases. EOQ is that quantity where the total cost is minimum.
Assumptions of EOQ Analysis:
While calculating EOQ, the following assumptions are made:
1. Supply of goods is satisfactory. The goods can be purchased whenever these are needed.
2. The quantity to be purchased by the concern is certain.
3. The prices of goods are stable. It results to established carrying cost.
When the above mentioned conditions are satisfied, economic order quantity can be calculated
with the help of following formula:
Formula
Following is the formula for the economic order quantity (EOQ) model
:

Where Q = optimal order quantity

D = units of annual demand , can also be denoted through
S = cost incurred to place a single order or setup
H = carrying cost per unit
This formula is derived from the following cost function:
Total cost = purchase cost + ordering cost + holding cost
Example
ABC Ltd. is engaged in sale of footballs. Its cost per order is $400 and its carrying cost unit is
$10 per unit per annum. The company has a demand for 20,000 units per year. Calculate the
order size, total orders required during a year, total carrying cost and total ordering cost for the
year.
Solution
EOQ = SQRT(2 × 20,000 × 400/10) = 1,265 units
Annual demand is 20,000 units so the company will have to place 16 orders (= annual demand of
20,000 divided by order size of 1,265). Total ordering cost is hence $64,000 ($400 multiplied by
16).
Average inventory held is 632.5 ((0+1,265)/2) which means total carrying costs of $6,325 (i.e.
632.5 × $10).
Limitations of EOQ Model:
1. The demand for inventory is seldom constant. When demand fluctuates, the EOQ model will
give misleading results. In a period of rising demand, EOQ model based on historic demand
levels will suggest smaller inventory levels that are economical.
2. The lead time for any supplier is generally unpredictable. Therefore, buffer stocks are required
to ensure against changes in lead time. It is difficult to determine buffer stock as it depends upon
uncertainty in the lead time.
3. It is very difficult to determine carrying cost. Only a rough estimate can be made of
obsolescence and deterioration costs.
4. The EOQ formula is based on the assumption that no stock-outs will take place. In some
cases, an occasional stock-out position may be less costly than carrying excessively large stocks.
But it is not easy to determine the cost of stock-out.

Production Planning and Control

Introduction

For efficient, effective and economical operation in a manufacturing unit of an organization, it is

essential to integrate the production planning and control system. Production planning and
subsequent production control follow adaption of product design and finalization of a production
process.

Production planning and control address a fundamental problem of low productivity, inventory
management and resource utilization.

Production planning is required for scheduling, dispatch, inspection, quality management,

inventory management, supply management and equipment management. Production control
ensures that production team can achieve required production target, optimum utilization of
resources, quality management and cost savings.

Planning and control are an essential ingredient for success of an operation unit. The
benefits of production planning and control are as follows:

 It ensures that optimum utilization of production capacity is achieved, by proper

scheduling of the machine items which reduces the idle time as well as over use.
 It ensures that inventory levels are maintained at optimum levels at all time, i.e. there is
no over-stocking or under-stocking.
 It also ensures that production time is kept at optimum level and thereby increasing the
turnover time.
 Since it overlooks all aspects of production, quality of final product is always maintained.
Production Planning

Production planning is one part of production planning and control dealing with basic concepts
of what to produce, when to produce, how much to produce, etc. It involves taking a long-term
view at overall production planning. Therefore, objectives of production planning are as follows:

 To ensure right quantity and quality of raw material, equipment, etc. are available during
times of production.
 To ensure capacity utilization is in tune with forecast demand at all the time.

A well thought production planning ensures that overall production process is streamlined
providing following benefits:

 Organization can deliver a product in a timely and regular manner.

 Supplier are informed will in advance for the requirement of raw materials.
 It reduces investment in inventory.
 It reduces overall production cost by driving in efficiency.

Production planning takes care of two basic strategies’ product planning and process planning.
Production planning is done at three different time dependent levels i.e. long-range planning
dealing with facility planning, capital investment, location planning, etc.; medium-range
planning deals with demand forecast and capacity planning and lastly short term planning
dealing with day to day operations.

Production Control

Production control looks to utilize different type of control techniques to achieve optimum
performance out of the production system as to achieve overall production planning targets.
Therefore, objectives of production control are as follows:

 Regulate inventory management

 Organize the production schedules
 Optimum utilization of resources and production process

The advantages of robust production control are as follows:

 Ensure a smooth flow of all production processes

 Ensure production cost savings thereby improving the bottom line
 Control wastage of resources
 It maintains standard of quality through the production life cycle.

Production control cannot be same across all the organization. Production control is dependent
upon the following factors:

 Nature of production( job oriented, service oriented, etc.)

 Nature of operation
 Size of operation

Production planning and control are essential for customer delight and overall success of an
organization.
Characteristics of Production Planning and Control:

1. It is the planning and control of manufacturing process in an enterprise. The questions like—
what is to be manufactured? When it is to be manufactured? How to keep the schedule of
production etc.? —are decided and acted upon for getting good results.

2. All types of inputs like materials, men, machines are efficiently used for maintaining
efficiency of the manufacturing process.

3. Various factors of production are integrated to use them efficiently and economically.

4. The manufacturing process is organized in such a way that none of the work centres is either
overworked or under worked. The division of work is undertaken very carefully so that every
available element is properly utilized.

5. The work is regulated from the first stage of procuring raw materials to the stage of finished
goods.

Objectives of Production Planning and Control:

Planning of production precedes control. Whatever is planned needs to be controlled. The

ultimate objective of both planning and control is to use various inputs in an efficient way and to
have a proper control over various targets and schedules fixed earlier.

The following details will bring out the objectives of production planning and production
control:

Production Planning:

1. To determine the requirements for men, materials and equipment.

2. Production of various inputs at a right time and in right quantity.

3. Making most economical use of various inputs.

4. Arranging production schedules according to the needs of marketing department.

5. Providing for adequate stocks for meeting contingencies.

6. Keeping up-to-date information processes.

Production Control:

1. Making efforts to adhere to the production schedules.

2. Issuing necessary instructions to the staff for making the plans realistic.

3. To ensure that goods produced according to the prescribed standards and quality norms.

4. To ensure that various inputs are made available in right quantity and at proper time.

5. To ensure that work progresses according to the predecided plans.

Importance of Production Planning and Control

 Better Service to Customers: Production planning and control, through proper

scheduling and expediting of work, helps in providing better services to customers is
terms of better quality of goods at reasonable prices as per promised delivery dates.
Delivery in time and proper quality, both help in winning the confidence of customers,
improving relations with customers and promoting profitable repeat orders.
 Fewer Rush Orders : In an organization, where there is effective system of production
planning and control, production, operations move smoothly as per original planning and
matching with the promised delivery dates. Consequently, there will be fewer rush orders
in the plant and less overtime than, in the same industry, without adequate production
planning and control.
 Better Control of Inventory: A sound system of production planning and control helps
in maintaining inventory at proper levels and, thereby, minimizing investment in
inventory. It requires lower inventory of work-in-progress and less finished stock to give
efficient service to customers. It also helps in exercising better control over raw-material
inventory, which contributes to more effective purchasing.
 More Effective Use of Equipment: An efficient system of production planning and
control makes for the most effective use of equipment. It provides information to the
management on regular basis pertaining to the present position of all orders in process,
equipment and personnel requirements for next few weeks. The workers can be
communicated well in advance if any retrenchment, lay-offs, transfer, etc. is likely to
come about. Also, unnecessary purchases of equipment and materials can be avoided.
Thus, it is possible to ensure proper utilization of equipment and other resources.
 Reduced Idle Time: Production planning and control helps in reducing idle time i.e.
loss of time by workers waiting for materials and other facilities; because ensures that
material and other facilities are available to the workers in time as per the production
schedule. Consequently, less man-hours are lost, which has a positive impact on the cost
of production.
 Improved Plant Morale: An effective system of production planning and control co-
ordinates the activities of all the departments involved in the production activity. It
ensures even flow of work and avoids rush orders. It maintains healthy working
conditions in the plant thus, there is improve plant morale as a by-product.
 Good public image: A proper system of production planning and control is helpful in
keeping systematized operations in an organization. Such an organization is in a position
to meet its orders in time to the satisfaction of its customers. Customers satisfaction leads
to increased sales, increased profits, industrial harmony and ultimately good public image
of the enterprise.
 Lower capital requirements: Under a sound system of production planning and control,
everything relating to production is planned well in advance of operations. Where, when
and what is required in the form of input is known before the actual production process
starts. Inputs are made available as per schedule which ensures even flow of production
without any bottlenecks. Facilities are used more effectively and inventory levels are kept
as per schedule neither more nor less. Thus, production planning and control helps, in
minimizing capital investment in equipment and inventories.
Steps in Production Planning and Control:

Production control involves the following steps:

(i) Planning

(ii) Routing

(iii) Scheduling

(iv) Dispatching

(v) Follow-up or checking the progress

(vi) Inspection

Out of these six steps involved in production control, the first three steps relate to planning; the
fourth relates to execution of plan and the last two refer to the control aspect of planning.

The above idea is depicted by means of the following diagram:

(1) Planning:

For planning of productive operations in detail, the planning department will receive full
information from management about the quantity to be produced and the dates when delivery has
been promised to customers. The planning department will also get the necessary engineering
and drawing specifications from the engineering department.

Broadly, at the stage of planning the following issues are considered on which bases charts
and written plans are prepared:

(a) What work should be done?

(b) How shall the work be done?

(c) Where shall the work be done?

(d) When shall the work be done?

(2) Routing:

Routing involves the determination of the path that work shall follow and the order in which
various operations will be carried out. The objective of routing is to find out the best and the
cheapest sequence of operations. While preparing the route card, it must be kept in mind that
machines in the plant are operated at their full capacity; and manpower and other facilities are
best utilized.

(3) Scheduling:

Scheduling is the determination of the time that should be required to perform each operation
and also the time necessary to perform the entire series, as routed, making allowance for factors
concerned. It involves the preparation of a time-table, indicating the total time needed for the
manufacture of a product as also the time expected to be spent at each machine and process.

In preparing schedules, the persons concerned will have to take into consideration the various
types of orders on hand and the dates by which their completion has been promised. Some orders
may be such as will require over-time work; because completion is not possible according to the
delivery dates set for them, in the regular course of production.

(4) Dispatching:

Dispatching literally means sending something towards a particular destination. Here, it means
taking all such steps, as are necessary to implement the programme of production chalked out as
per routing and scheduling steps.

In particular, dispatching refers to:

1. Procurement of necessary tools, jigs and fixtures etc.; before they are actually required by the
workmen.

2. Giving workers the necessary work orders, instructions, drawings etc. for initiating the work.

(5) Follow-Up (or Checking the Progress):

Follow-up is the control aspect of production planning and control. It involves taking steps to
check up whether work proceeds according to plans and how far there are variances from
standards; and also taking necessary corrective steps to set things in order.

(6) Inspection:

Inspection is the quality control aspect of production planning and control. It ensures that goods
produced are of the right quality. The inspectors may inspect materials, semi-finished and
finished products either at the work bench or in special laboratories or testing rooms.

To ensure maintenance of high standards of quality, a programme of SQC (Statistical Quality

Control) may be fused with a system of production planning and control.
INVENTORY CONTROL TECHNIQUES

1.Economic Order Quantity (E.O.Q.):

One of the most important problems faced by the purchasing department is how much to order at
a time. Purchasing in large quantities involve lesser purchasing cost. But cost of carrying them
tends to be higher. Likewise if purchases are made in smaller quantities, holding costs are lower
while purchasing costs tend to be higher.

Hence, the most economic buying quantity or the optimum quantity should be determined by the
purchase department by considering the factors such as cost of ordering, holding or carrying.

This can be calculated by the following formula:

Q = √2AS/I

where Q stands for quantity per order ;

A stands for annual requirements of an item in terms of rupees;

S stands for cost of placement of an order in rupees; and

I stand for inventory carrying cost per unit per year in rupees.

2.VED Analysis:

VED analysis divides items into three categories in the descending order of their critically
as follows:

(1) ‘V’ stands for ‘vital items’ and their stock analysis requires more attention, because out-of-
stock situation will result in stoppage of production. Thus, ‘V’ items must be stored adequately
to ensure smooth operation of the plant.

(2) ‘E’ means ‘essential items’. Such items are considered essential for efficient running but
without these items the system would not fail. Care must be taken to see that they are always in
stock.

(3) ‘D’ stands for ‘desirable items’ which do not affect the production immediately but availabi-
lity of such items will lead to more efficiency and less fatigue.

VED analysis can be very useful to capital intensive process industries. As it analyses items
based on their importance and it can be used for those special raw materials which are difficult to
procure.

3.ABC Analysis:

In this technique, the items of inventory are classified according to value of usage. The higher
value items have lower safety stocks, because the cost of production is very high in respect of
higher value items. The lower value items carry higher safety stocks.
ABC analysis divides the total inventory list into three classes A, B and C using the rupee
volume, as follows:

(i) Items in class ‘A’ constitute the most important class of inventories so far as the proportion in
the total value of inventory. The ‘A’ items consist of approximately 15% of the total items,
accounts for 80% of the total material usage.

(ii) Items in class ‘B’ constitute an intermediate position, which constitute approximately 35% of
the total items, accounts for approximately 15% of the total material consumption.

(iii) Items in class ‘C’ are quite negligible. It consists remaining 50% items, accounting only 5%
of the monetary value of total material usage.

The numbers are just indicative and actual break up will vary from situation to situation.
The above categorization is represented in the table given below:

Figure 4.3 shows ABC analysis of inventory class ‘A’ is made up of inventory items which are
either very expensive or used in massive quantities. Thus these items, though few in number
contribute a high proportion of the value of inventories. Class ‘B’ items are not so few in
number, but also they are not too many either. Value wise also, they are neither very expensive
nor very cheap. Moreover, they are used in moderate quantities.

Class ‘C’ contains a relatively large number of items. But they are either very inexpensive items
or used in very small quantities so that they do not constitute more than a negligible fraction of
the total value of inventories.
The control of inventory through ABC analysis is exercised as follows:

i. ‘A’ class items merit a tightly controlled inventory system with constant attention by the
purchase and stores management. A larger effort per item on only a few items will cost only
moderately, but the effort can result in large savings.

ii. ‘B’ class items merit a formalized inventory system and periodic attention by the purchase and
stores management.

iii. For ‘C’ class items still relaxed inventory procedures are used.

The table given below shows how an organization treats the various class of items according to
their consumption value. For ‘A’ class items, the inventory policy, i.e., order quantity and
reorder point should be carefully determined and the close control over the usage of materials is
desirable.

For ‘B’ class items, the economic order quantities and reorder level calculations can be done and
larger stocks can be maintained. The review of these items may be done quarterly or half-yearly.
In case of ‘C’ class items, generally one year supply can be maintained. Periodic review once a
year may be sufficient.

The technique tries to analyse the distribution of any characteristics by stock values of
importance in order to determine its priority. This technique can be applied in all facets of
organization.

Many organizations are applying this technique in materials management and spare parts
management to identify the contribution made by the materials/spares in the total inventory
value. On the basis of stock value, materials procurement strategy and consumption strategy is
decided.