Commmerce-Papre-IV-English-Version (1).pdf

31 S.Y.B.COM. SEMESTER - IV (CBCS) COMMERCE - IV SUBJECT CODE : UBCOMFSIV.3  © UNIVERSITY OF MUMBAI Prof. Suhas Pednekar Vice-Chancellor, University of Mumbai Prof. Ravindra...

31 S.Y.B.COM. SEMESTER - IV (CBCS) COMMERCE - IV SUBJECT CODE : UBCOMFSIV.3  © UNIVERSITY OF MUMBAI Prof. Suhas Pednekar Vice-Chancellor, University of Mumbai Prof. Ravindra D. Kulkarni Prof. Prakash Mahanwar Pro Vice-Chancellor, Director, University of Mumbai IDOL, University of Mumbai Programme Co-ordinator : Prof. Rajashri Pandit Asst. Prof. in Economic, Incharge Head Faculty of Commerce, IDOL, University of Mumbai, Mumbai Course Co-ordinator : Mr. Sambhaji Shivaji Shinde Assistant Professor, IDOL, University of Mumbai, Mumbai Course Editor : Mr. Saurabh Mukund Panchamia Assistant Professor, SVKM’s Mithibai College of Arts, Chauhan Institute of Science And Amrutben Jivanlal College of Commerce And Economics, Vile Parle (W) Mumbai 400056 Course Writer : Dr. V. N. Yadav Principal, S.N. College of Arts & Commerce, Bhyander (E) Thane- 401105 : Dr. B.B. Kamble Shri Chinai College of Commerce & Economics, Andheri (E), Mumbai - 400069 : Dr. S.G. Sagar Principal, S.B. College, Shahapur, Dist. Thane : Dr. Vinita Pimple R.A. Podar College of Commerce & Economics, Matunga, Mumbai - 400090 March 2022, Print - 1 Published by : Director, Institute of Distance and Open Learning , University of Mumbai, Vidyanagari, Mumbai - 400 098. DTP Composed & : Mumbai University Press Printed by Vidyanagari, Santacruz (E), Mumbai  CONTENTS Unit No. Title Page No. MODULE - I 1. Production Planning and Control 01 2. Inventory Control 18 MODULE- II 3. Quality Management 28 4. Contemporary Trends in Quality Management 38 MODULE - III 5. Indian Financial System -I 55 6. Indian Financial System -II 73 MODULE- IV 7. Contemporary Practices in Financial Markets 95   Revised Syllabus of Courses of B.Com. Programme at Semester IV with Effect from the Academic Year 2021 - 22 Elective Courses (EC)- 1B Discipline Related Elective (DRE) Courses 3. Commerce – IV (Management: Production & Finance) Course Objectives: - 1. To acquaint the learners with the basic concepts of Production Management, Inventory Management &Quality Management. 2. To provide basic knowledge about Indian Financial Systems. 3. To update the learners with the recent trends in Finance. Sr. Modules No. of No. Lectures 1 Production & Inventory Management 11 2 Quality Management 10 3 Indian Financial System 12 4 Recent Trends In Finance 12 Total 45 Sr. No. Modules 1 Production & Inventory Management x Production Management: Objectives, Scope Production Planning &Control : Steps, Importance x Production Systems: Concept, Types - Continuous and Intermittent. Productivity: Concept, Factors Influencing Productivity, Measures for improving Productivity. x Inventory Management- Objectives, Inventory Control- Techniques. Scientific Inventory Control System - Importance 2 Quality Management x Introduction to Quality: Dimensions of Quality, Cost of Quality: Types – Internal Failure Cost, External Failure Cost, Appraisal Cost, Prevention Cost, Quality Circle: Features. x Quality Management Tools: TQM – Importance, Six Sigma – Process, ISO 9000 – Certification Procedure, Kaizen – Process x Service Quality Management: Importance, SERVQUAL Model,Measures to improve service quality. 3 Indian Financial System x Indian Financial Market: Structure, Primary Market – IPO Procedure Dematerialisation: Process, Role of Depositories : NSDL and CDSL x SEBI: Functions of SEBI, Investors protection measures of SEBI. Stock Exchange – Functions, Speculators. x Credit Rating: Advantages, Credit Rating Agencies in India - CRISIL, CARE, and ICRA. Recent Trends In Finance 4 x Mutual Funds- Advantages and Limitations, Types, Factors responsible for growth of mutual funds – Systematic Investment Plan. x Commodity Market: Categories, Derivatives Market: Types, Participants, Types of Derivative Instruments. x Start-up Ventures –Concept, Sources of Funding, Micro Finance – Importance, Role of Self Help Groups.  SEMESTER – IV REFERENCE BOOKS: REFERENCES 1. Production and Operations Management –ProfL.C.Jhamb, Event Publishing House. 2. Production Planning & Control- ProfL.C.Jhamb, Event Publishing House 3. Production & Operation Management (Text & Cases)- K.Ashwathappa&G.Sudeshana Reddy, Himalaya Publication. 4. Launching New Ventues : An EnterpreneurialApproach-KathleenR.Allen, Cengage Learning 5. Essentials of Inventory Management-MaxMuller,Amacon Publishes 6. Indian Financial System—BharathiPathiak, Pearson Publication 7. Financial Institutions and Markets : Structure Growth& Innovations – L.M.Bhole , Jitendra Mahakad, Tata McGraw Hill. 8.The IndianFinancial System and Financial Market Operator-VasantDesai, Himalaya Publishing 9. Indian Financial System – M.Y.Khan, Tata McGraw –Hill 10.Production and Operations Management –Anandkumar Sharma, Anmol Publication 11. Mutual Funds in India: Emerging Issues-NaliniPravaTripathy, Excel Books New Delhi. 12. Start up Stand up: A step by stepguide to Growing your Business,NandiniVaidyanathan, Jaico Publishing House,Mumbai 13. A Trades Guide to Indian Commodities Market-Vijay L. Bhambwani, Network 18 Publication Ltd.  PAPER PATTERN COMMERCE PAPER I & II SEMESTER - III & IV W.E.F. 2017-2018 Q.1 Multiple Choice Questions (A) Select the most appropriate answer from the option given below 10 (Any Ten out of Twelve) (B) State whether the following statements are True or False 10 (Any Ten out of Twelve) Q.2 Answer Any Two of the following Out of Three questions - Module - I 15 a. b. c. Q.3 Answer Any Two of the following Out of Three questions - Module - II 15 a. b. c. Q.4 Answer Any Two of the following Out of Three questions - Module - III 15 a. b. c. Q.5 Answer Any Two of the following Out of Three questions - Module - IV 15 a. b. c. Q.6 Write notes on Any Four out of Six  1 PRODUCTION PLANNING AND CONTROL Unit Structure 1.0 Objectives 1.1 Introduction 1.2 Production Management 1.3 Production Planning and Control 1.4 Steps in production planning and control 1.5 Production system 1.6 Productivity 1.7 Summary 1.8 Exercise 1.0 OBJECTIVES After studying the unit the students will be able to:  Know the concept of production planning and control.  Understand the definition and objectives of production planning and control.  Study the various steps in production planning and control.  Explain the production system and its types.  Evaluate the term productivity and the factors influencing productivity. 1.1 INTRODUCTION Production is a process of combining various material inputs and immaterial inputs (plans, know-how) to make something for consumption (output). It is the act of creating output, a good or service that has value and contributes to the utility of individuals. Since the primary purpose of economic activity is to produce utility for individuals, we count as production during a period of all activity that either creates utility during the period or which increases the ability of the society to create utility in the future. 1 Commerce Production is the center of the entire business organization. Production planning and control functions look after the complete manufacturing activity. In the management of any task planning and control are the two basic and interrelated and managerial functions. Planning is a pre- operation activity while control is the post-operation function and involves initiating production comparing it with standard, finding out the variation if any, and taking necessary corrective measures. 1.2 PRODUCTION MANAGEMENT 1.2.1 Meaning Production is the first and primary function of management because unless goods are produced, they can not be marketed. Production management includes planning, organizing, staffing, directing, and controlling the activities of the production function. It involves taking all the decisions which are required to be taken for producing goods or services according to specifications at the right time and costs. 1.2.2 The objective of the Production Management So the objective of production management is to produce goods and services of the right quality and quantity at the right time and right manufacturing cost. 1. Right quality Product quality is a relative term. The objective of production management is to produce goods of the quality which is required by the customers. The right quality is not necessarily the best. 2. Right Quantity The quantity of production should be decided after forecasting the demand for the product. The decision on the size of production should be the right decision to avoid both excess or deficit production. 3. Right Time The goods should be produced and supplied when they are required by the customers. 4. Right manufacturing cost The cost of manufacturing is decided before actually producing the product. This cost can be considered as a standard or pre-established cost. An attempt should be made to produce the product at this standard cost. 1.2.3 Scope of production management The scope of production management involves taking various decisions related to the production activities. These decisions are of two types. 2 A. Strategic decisions Production Planning and Control These decisions are taken for deciding the product and production system and time taken for Production. The strategic level decisions are 1) New Product Identification and Design Constant changes take place in consumer likes & dislikes tastes, expectations. The organization may require introducing a new product or innovating or modernizing the existing one to meet the changing needs and demands of the consumers so identifying and designing the new product is the strategic decision of production management. 2) Process Design / Layout and Planning It involves taking decisions as regards the use of the appropriate technology for conversion of raw materials into products and planning of the process of production which can include deciding process design, determining the work stations, and the flow of work. 3) Deciding Location for the production process Deciding the location for the manufacturing unit is a very crucial one. It is taken after considering factors like the supply of raw materials, nearness to market, availability of transportation facilities, and labor, climatic conditions, and so on. 4) Design of Material Handling System Material handling systems should be such as to minimize the cost and time and labour involved in material handling. The material handling system is decided after considering various factors such as the distance between the work stations, intensity of flow or traffic and shape and nature of materials to be handled. 5) Capacity Planning Deciding the size of production should be done after considering various factors such as demand forecasting, availability of resources, Government regulations, economies of large scale, and so on. B. Operating decisions These decisions are short-term and are acquired to be taken for a smooth production process. The operational level decisions are 1) Production Planning It relates to taking production-related decisions on day to day basis such as allocation of work among the workers, repairs, and maintenance of machinery, fixing quotas and targets for the workers, and so on. 3 Commerce 2) Production Control The use of production control techniques aims at finding out whether the activities are carried out as per the plan. It involves comparing actual output with the standard output and if the actual output is less than the standard output, then measures are taken to increase the output. 3) The other activities The other activities include inventory control, repairs, and maintenance and replacement of machinery, cost reduction and cost control, time and motion study providing proper working conditions, and so on. 1.3 PRODUCTION PLANNING ANDCONTROL 1.3.1Definitions According to Alford and Breatty, "production planning and control comprise the planning, routing, scheduling, dispatching and follow up functions in the production process so organized that movements of material are directed and co-ordinate as to the quantity, quality, time and place". Production planning and controlling are concerned with planning and controlling production activities. The following are the main objectives of production planning and control. 1.3.2 Objectives of Production Planning and Control a) Continuous flow of production Production planning and control facilitate continuous production as per the production plan. This is possible as all operations are planned properly and also well in advance. Since all the machines are put to maximum use, there is regular production. This helps to provide a regular supply of goods to the customers. b) Optimum utilisation of plant capacity Proper production planning and control ensure effective utilization of plant capacity. All the resources i.e. men, materials, machines, etc. are put to maximum use. This results in reduced cost and higher returns to the organization. c) Estimate of resources Production planning and control help to estimate required resources. Production is planned according to the sales forecast. Based on this forecast proper quantity and quality of resources are decided. Thus, it avoids excess or shortage of resources. 4 d) Minimising wastages Production Planning and Control Because of the proper inventory of raw materials, there is proper material handling. This helps in minimizing wastages of raw material. Also because of effective control, there is the production of quality goods. This results in minimum rejects. Thus, proper production planning and control result in minimum wastage. e) Teamwork Proper production planning facilitates teamwork among various departments. The production department works in close cooperation with other departments such as purchase, marketing, finance, etc. f) Achieve goals The objective of production planning and control is to achieve the goals of the firm quickly. The resources of the organization are scarce so it is necessary to plan properly as it will facilitate the achievement of goals. Production goals are generally qualified which facilitates achievement. g) Improvement in labour productivity There is maximum utilization of manpower. If requires training is provided to the labour. Benefits of profitable operations are passed on to the workers in the form of increased wages and incentives. Workers are motivated to perform the best. This increases labour productivity. h) Efficient service to customers As there is a regular flow of production, it is possible to fix delivery dates as production proceeds in time. Therefore, the company can supply the goods in the market on time. This brings goodwill and customer satisfaction. i) Facilitates quality improvement Proper production planning and control facilitate quality improvement as necessary checks are undertaken at regular intervals. Quality can be upgraded through training sessions, suggestions, schemes, quality circles, etc. j) Better work environment Proper production planning and control provide a better work environment by providing better working conditions, proper working hours, leaves and holidays, increased wages and incentives, etc. 1.3.3 Importance of Production Planning and Control Production Planning and control is the managerial function which includes deciding various issues related to the production process such as the use of the human resource, raw materials, machines working conditions, training 5 Commerce to workers, supervision, fixing of targets, etc. It is the technique to plan every step in a long series of the production process. Importance of Production Planning and Control can be given with the help of the following points - 1) Better service to customers It helps in providing better services to customers in terms of a better quality of goods at reasonable prices and timely delivery of goods. It helps in improving customer relations. 2) It helps in a smoother, timely, and efficient production process and helps in maintaining necessary stock levels. 3) It facilitates effective use of resources such as labour, machinery & equipment, raw materials and thereby reducing the cost of production and requirement of working capital. 4) Improvement in the morale of the workers Efficient production planning & control helps the workers to do their jobs efficiently. It improves job satisfaction and thereby the morale of the workers. 5) Image of the organization A proper system of production planning and control helps in smooth production operations in an organization. It helps in the timely delivery of standard quality goods and improving customer satisfaction. Improved customer satisfaction results in increased sales, increased profits, and ultimately good public image of the organization. 6) Coordinates departmental activities Proper production planning and control help in coordinating the activities of the production dept with other departments such as finance, marketing, human resource departments. 7) Helps to face competition With improved performance of production dept, the organization can improve marketing performance and thereby can face market competition effectively. 8) Provides better work environment Production planning and control help in providing better work conditions to the workers to improve their efficiency such as proper lighting, ventilation, canteen facility, safety measures and so on. 6 1.4 STEPS IN PRODUCTION PLANNING AND Production Planning and Control CONTROL The production department has to follow the following steps in respect of production planning and control. These steps are shown in the following diagram. 1 2 Routing Scheduling Production Planning and Control 3 4 Follow up Dispatching 1. ROUTING a) Meaning Routing is the first step in production planning and control. It involves the selection of the path of work and the sequence of operations for the completion of the production process in an orderly manner. b) Objective The basic objective of routing is to move the work through a variety of combinations of machines capable of performing the operations required. It determines the best and the cheapest sequence of operations. c) Procedure 1. Determining what to make and what to purchase. 2. Determining the material required. 3. Determining the manufacturing operations and their sequences. 4. Determining scrap factor. 5. Preparation of production control forms. 6. Determining lot sizes. 7. Preparation of route sheets. 7 Commerce 2. SCHEDULING: a) Meaning Schedule means a plan for carrying out a task. It includes a list of intended events and times. Scheduling refers to deciding the starting and the finishing date and time of each operation in the manufacturing process. It involves the preparation of time table of production activities. Scheduling aims at achieving the required output with a minimum of delay and disturbance in the production process. b) Objective The main objective of scheduling is to ensure the completion of each operation or activity on time. Scheduling ensures continuity in the production process. c) Procedure 1. Preparation of timetable. 2. Listing out all production activities. 3. Finalizing a list of all production activities. 4. Determining starting time of every activity. 5. Determining the finishing time of every activity. 6. Availability of plant capacity, number of operators, and materials required. 3. DISPATCHING a) Meaning Dispatching is concerned with the execution of the production plan. It is based on the route sheets and schedule sheets. Production orders are issued to the factory or department and instructions are issued to execute the planned production. Dispatching is the action element of production planning and control. b) Objective The purpose of dispatching orders and instructions is to see that the machine operators understand what is expected of them and that they do not right things at the right time and complete the production on time. c) Procedure 1. Arranging machines and tools in a proper manner. 2. Procuring raw materials as per the requirement. 3. Assigning work to the machine operators and others. 8 4. Issuing orders and instructions to the workers. Production Planning and Control 5. Maintaining a proper record of the start time and finish time of each operation. 6. Dispatching procedure may be centralized or decentralized. 7. Expediting work as per original plan. 8. Control of the progress of all operations. 4. FOLLOW-UP a) Meaning Follow-up refers to the monitoring of actual performance. It helps in taking the necessary corrective measures to obtain the right quality and quantity of production. b) Objective The basic objective of follow-up is monitoring actual work in the production process and to introduce remedial measures. c) Procedure 1. Measuring actual production. 2. Comparing actual production with planned targets. 3. Finding out causes of deviations, if any. 4. Listing out various corrective measures to correct deviations. 5. Studying or analyzing the corrective measures. 6. Selecting the best corrective measures. 7. Implementation of corrective measures. 8. Review of corrective measures. 1.5 PRODUCTION SYSTEM 1.5.1 Concept Production is a process by which goods and services are produced for consumption. A typical production system comprises three main components i.e. inputs, conversion process, and output. A combination of various production operations employed to produce goods and services is known as a production system. A production system is a group of subsystems. Each sub-system performs a distinct function. 9 Commerce According to Buffa and Sarin,a production system may be defined as "the means by which we transform resource inputs to create useful goods and services as outputs". 1.5.2 Types of Production Systems The production systems can be broadly divided into two groups: Types of Production System Intermittent Systems Continuous Systems Job Production Mass production Batch Production Process production Project Production Assembly production 1. INTERMITTENT SYSTEMS In this system, goods are manufactured to supply the customers as per their orders. In this case, there is an intermittent flow of materials. a) Job production In jobbing production, one or few units of a product are produced to the consumer's requirement within the given date. The price is fixed before the contract. Here, the manufacturer accepts and executes customer's orders e.g. printing of visiting cards, calendars, diaries, key chains, etc. b) Batch production Batch production is the production of several identical units according to specific orders or based on demand forecasts. The items are produced in batches or lots. There exists more standardization and generally, there are repeat orders. Products are demanded in fairly large quantities e.g. manufacturing of medicines, chemicals, lubricants, etc. c) Project production In project production, a single assignment of complex nature is undertaken for completion within the given period and within the estimated expenditure. For example, construction of the building, roads, dams, shipbuilding, etc. 2. CONTINUOUS SYSTEM Continuous production is a method used to manufacture, produce, or process materials without interruption. Here, goods are produced 10 constantly as per demand forecast. Goods are produced on a large scale for Production Planning and stocking and selling. They are not produced on consumer's order. The Control inputs and outputs are standardized along with the production process and sequence. a) Mass production In mass production, items are produced on a large scale and are stocked in warehouses till they are demanded in the market. The items are manufactured with the help of a single operation or a series of operations. Examples of mass production systems include the manufacture of toothpaste, soaps, dairy products, textile units, etc. b) Process production System In-process production system, a single product type is produced and stocked in warehouses till it is demanded in the market. The flexibility of such a plant is almost zero as only one product can be produced. Examples of process production systems include steel, cement, paper, sugar, electronic items, toys, etc. c) Assembly production Assembly production system developed in the automobile industry in the USA. A manufacturing unit prefers to use an assembly line as it helps to improve the efficiency of production. Production cost comes down due to the use of flow production methods. Assembly line production system is convenient when a limited variety of similar products is to be manufactured on a mass scale or in large batches continuously. The assembly production system is employed in the manufacturing of automobiles, radios, T.V., and other electronic products. Check Your Progress 1. Define the following terms: a. Production Planning and Control b. Routing c. Scheduling d. Dispatching e. Follow up f. Intermittent Systems g. Continuous system 2. Enlist the objectives of Production Planning and Control. 3. Draw the chart showing the steps of Production Planning and Control. 4. Give the examples of the following production systems: a. Job Production b. Batch production c. Project production d. Mass production e. Assembly production 11 Commerce 1.6 PRODUCTIVITY Productivity is the ratio of output to inputs. It refers to the volume of output produced from a given volume of inputs or resources. It is the amount of output per unit of input. Productivity reflects the amount of product created by one unit of a factor of production over a specific period. Productivity expresses the relationship between the outputs from a system and the inputs which go in its creation. Productivity can be found out by the following formula Output Productivity = Input According to Peter Drucker, "productivity means that the balance between all factors of production that will give the greatest output for the smallest effort". 1.6.1 Factors Influencing Productivity The factors influencing productivity is shown in the following diagram: The factors influencing productivity are explained below: a) Technological factors The technological factor is the most important. It includes proper location, layout, and size of the plant and machinery, the correct design of machines and equipment, research and development, automation, and computerization, etc. If the organization uses the latest technology then its productivity will be high. 12 b) Production factors Production Planning and Control The production of all departments should be properly planned, coordinated, and controlled. The right quantity and quality of raw materials should be used for production. The production process should be simplified and standardized. All this will increase productivity. c) Organisational factors A simple type of organization should be used. The Authority and responsibility of each individual and department should be clearly defined. The line and staff relationships should also be clearly defined. So, conflicts between line and staff should be avoided. There should be a division of labour and specialization as far as possible. All this will increase productivity. d) Human factors The right men should be selected for the right posts. They should be given proper training and development. They should be provided with very good working conditions and working environment. They should be properly motivated by financial, non-financial, and positive incentives; Incentive wage policies should be introduced. Job security should be given. Workers should be given importance. There should be proper transfer, promotion demotions, and other personnel policies. All this will increase the productivity of the organization. e) Financial factors Finance is the lifeblood of modern business. There should be proper control over both fixed and working capital. There should be proper financial planning. Capital expenditure should be properly controlled. Both over and under capitalization should be avoided. The management should see that they get proper returns on the capital which is invested in the business. If the finance is managed properly the productivity of the organization will increase. f) Managerial Factors The management should be scientific, professional, enlightened, future- oriented sincere, and competent. They should possess organizational capacity, imagination, judgment, and willingness to take a risk. They should make optimum use of the available resources to get maximum output at the lowest cost. They should use the recent techniques of management and production. They should develop better relations with the employees and the trade unions. They should encourage the employees to give suggestions. They should provide a very good working environment and they should motivate the employees to increase their productivity. Efficient management is the most significant factor in increasing productivity and decreasing cost. 13 Commerce g) Governmental factors The management should have a piece of proper knowledge about the government rules and regulations. They should also maintain good relations with the government monetary facilities, tax concessions for research and development activities, subsidies, facilities for technology transfer,etc should be provided by the government. Government has to provide encouragement and facilities to make the productivity movement popular in the country. h) Sociological factors Productivity also depends on sociological factors such as the attitude and behavior of investors, customers, suppliers, etc. The attitude of workers and society towards new inventions, social values of the society, community differences, caste, race, and religion, etc. i) Natural factors Productivity also depends on natural factors such as geographic locations, climatic conditions availability of different kinds of natural resources, etc. 1.6.2 Measures for improving Productivity Improving productivity is essential for earning more profits and being competitive in the business. Productivity in manufacturing is the result of efficient employees, proper tools, equipment and machinery, and processes so the management has to look into these areas for improving productivity. For this, the following measures can be suggested: 1. Study and analysis of the existing system The management has to identify study and analyze the weak areas as for as the employees, technology, and processes are concerned. 2. Improvement in the production process The production process can be improved by making proper utilization of resources such as workers, technology, materials, floor space and time available, and so on. 3. Providing training to workers Training has to be provided to workers from time to time to enhance their skills knowledge and attitudes with proper training, the workers can do their jobs efficiently and can get job satisfaction. 4. The setting of realistic targets To improve worker efficiency it’s important to set realistic, clearly defined objectives. It improves the sense of responsibility and loyalty and job satisfaction of the workers. 14 5. Use of modern technology Production Planning and Control In mechanical production, it is important to update technology, to improve productivity and competitiveness in an ever-changing business environment. 6. Repairs and maintenance Tools, equipment, and machinery are required to be repaired and maintained periodically to maintain a smooth flow of the production process and to ensure industrial safety. 7. Optimum utilization of resources The managers have to ensure the proper use of resources such as manpower, money, material, and machinery. Wastage or misuse of any kind should be avoided. 8. To encourage team spirit The manpower should develop proper coordination and communication among the workers so that they work as a team towards the achievement of common goals and targets. 1.7 SUMMARY From the above discussion, it is clear that production management is one of the important aspects of management, especially in a manufacturing organization. It is also clear that productionplanning and control are used in manufacturing organizations. It covers the objectives and steps of production planning and control. We also understood the types of production systems and the concept of productivity. As well as how the different factors are influencing productivity. 1.8 EXERCISE Multiple Choice Questions 1. ___________is a process of combining various material inputs and immaterial inputs a) Production b) Finance c) Selling d) Departmentation 2. Unless goods are ____________, they cannot be marketed a) Produced b) Sold c) Purchased d) Advertised 3. ___________decisions are taken for deciding the product and production system and time taken for Production a) Strategic b) Operating c) Non-Operating d) Non-Strategic 4. ______________ decisions are short-term and are acquire to be taken fore smooth production process a) Strategic b) Operating c) Non-Operating d) Non-Strategic 15 Commerce 5. Production Planning and control is the managerial function that includes deciding various issues related to the ________process a) Production b) Finance c) Selling d) Departmentation 6. ___________ Is the first step in Production Planning & Control a) Scheduling b) Followup c) Dispatching d) Routing 7. ___________ Is the first step in Production Planning & Control a) Scheduling b) Followup c) Dispatching d) Routing 8. A combination of various production operations employed toproduce goods and services is known as a __________ a) Production System b) Purchase System c) Selling System d) Marketing System 9. __________is a Intermittent system in types of Production system a) Mass Production b) Process Production c) Job Production d) Assembly Production 10. __________is a Intermittent system in types of Production system a) Mass Production b) Process Production c) Batch Production d) Assembly Production 11. __________is a Continuous system in types of Production system a) Mass Production b) Job Production c) Batch Production d) Project Production 12.__________is a Continuous system in types of Production system a) Process Production b) Job Production c) Batch Production d) Project Production 13. Productivity is the ratio of output to________ a) Input b) Output c) Production d) None of the above 14.___________ reflects the amount of product created by one unit of a factor of production over a specific period. a) Elasticity b) Selling activity c) Productivity d) None of the above 15.______________ expresses the relationship between the outputs from a system and the inputs. a) Elasticity b) Selling activity c) Productivity d) None of the above Theory Questions a) Explain the objectives of production planning and control. b) Discuss the steps in production planning and control. c) What are the different types of production systems? Explain it. d) What is productivity? Discuss the factors influencing productivity. e) Explain the types of intermittent systems. f) Explain the meaning and scope of production management. 16 g) Explain the Measures to be taken for improving Productivity. Production Planning and h) Discuss the types of continuous systems. Control i) Write short notes a. Production planning and control b. Production system c. Productivity d. Objectives of the production management e. Strategic decisions f. Operating decisions g. Importance of Production Planning and control j) Explain the terms a. Operating decisions b. Strategic decisions  17  2 INVENTORY CONTROL Unit Structure 2.0 Objectives 2.1 Introduction 2.2 Meaning and Objectives of Inventory Control 2.3 Techniques of Inventory Control 2.4 Methods/Types of Inventory Control System 2.5 Scientific Inventory Control System 2.6 Summary 2.7 Exercise 2.0 OBJECTIVES After studying the unit the students will be able to-  Understand the concept of Inventory Control.  Define the meaning of Inventory Control.  Know the objectives of Inventory Control.  Make the students aware of the techniques of Inventory Control.  Elaborate methods/types of Inventory Control System. 2.1 INTRODUCTION Inventory control is very important in product or service-oriented business. It is necessary to have the right quantity of material. Overstocking as well as under stocking is bad. While overstocking can lead to the blockage of funds, under stocking can lead to a shortage of supply and may even result in the stoppage of production. In the end, it may result in improper service to the customer and have an adverse effect on the goodwill of the organization. Production managers are responsible for controlling the costs of operations. Inventory cost includes amount invested in raw materials, supplies, work in process, and finished goods. High investment can increase operating costs and decrease production efficiency. Inventory control is necessary as actual performance may not conform to planned performance due to changing environmental variables. Inventory control includes location, stores, and recording of inventories. It supplies these inventories to the different departments whenever required. It keeps 18 a record of each item of inventory. It gives quick and quality service to all Inventory Control the departments. It not only maintains inventories at the lowest costs but also avoids overstocking and under stocking of materials. 2.2 MEANING AND OBJECTIVES OF INVENTORY CONTROL "Inventory control is the process whereby the investment in materials and parts carried in stocks is regulated within the pre-determined limits set asper the inventory policy established by the management". 2.2.1 OBJECTIVES: The main objectives of inventory control are as follows, a) Protection of Stores: Inventory control is directed towards protecting stores against theft, unauthorized use, and wastage. This can be done by making it difficult for employees to gain unauthorized possession of materials. b) Better service to customers: If the company maintains a proper inventory of raw materials, then it can deliver its products in time. So, it can deliver the finished goods to the customers in time. Similarly, if the company has a proper inventory of finished goods then it can satisfy the additional demand of the customer. c) Continuity of production operations: Proper inventory control helps to maintain continuity of production operations. This is because it maintains a smooth flow of raw materials. So, there are no shortages of raw materials. d) Better returns on investment: Shareholder's wealth can be maximized and a better return on their investment is possible if the inventory is at an optimum level. Inventory control ensures the proper use of limited funds. e) Buffer to reduce uncertainty: There can be an irregular supply of raw materials due to transportation problems or even due to natural causes. In such a scenario there arises a need to have a buffer stock to protect against such vagaries. Buffer stock maybe even sometimes necessary to meet the unexpected surge in demand. f) Ensures continuity of supply: Inventory control explains when to order and how much to order. It ensures continuity of supply of uniform quality of goods at the lowest cost. It is possible to calculate fluctuations in the supply of new materials and take preventive steps to build the inventories. 19 Commerce g) Useful during peak season: Some companies adopt a strategy of producing during the slack season when the cost of production is less. This excess stock can be effectively sold at a higher price during peak season, The reduced cost during the slack season more than offsets the cost of maintaining inventory. h) Avoid duplication in ordering: Inventory control avoids duplication in the ordering of stock. This is done by having a separate purchase department. This department will do all the purchasing for the organization. No other department is allowed to do purchasing. i) Focus on Inventory: In a production unit, inventory control focuses on materials control because the main concentration is on the physical product. In the service sector, the focus is on service which is consumed promptly. The main concentration is more on the supply of service and less on materials. For example banks, transport companies, educational institutions, etc. j) Avoid wastage: Inventory control helps to maintain a check on the loss of materials due to carelessness or pilferage. If there is no proper inventory control, then there are more chances of carelessness and pilferage by the employees, especially in the store-keeping departments. 2.3 TECHNIQUES OF INVENTORY CONTROL There are several techniques of inventory control. Some of the commonly used techniques are as follows. a) ABC Analysis: ABC (Always Better Control) analysis is a basic technique of inventory control. This technique can be used for all aspects of materials management such as verification of bills, purchasing, receiving, inspection, store-keeping, issue of stores, inventory control, etc. ABC analysis classifies all the items in the inventory into three groups i.e. A group, B group, and C group A group of items hasa high value although their number may be low. B group of items are in between with average value and number. C group of items has very low value but their number may more. ABC analysis provides a basis for selective inventory to a small number of items which account for most of its inventory costs. So, it can concentrate on controlling these items, on the other hand, low cost, and high volume items need not be closely controlled. 20 b) Economic Order Quantity (EOQ): Inventory Control In Economic order Quantity, the fixed order quantity of materials is ordered when the stock on hand reaches the re-order point. The re-order point is the inventory level at which the stock should be re-ordered for the smooth flow of production. c) Just-in-Time (JIT): The Just-in-Time technique was started by a Japanese company. Here the company does not have a warehouse and it does not maintain any inventories at any stage of production. The exact quantities of materials are purchased at the right time at each stage of production. A truck delivers raw materials at one gate at the same time truck will take finished goods from another gate to the market. This system can't be used by all companies for all materials. However, in India, Maruti Udyog Ltd, and Food specialist Ltd have successfully used the JIT technique. d) CARDEX system: In the Cardex system, cards are vertically arranged in a tray and kept in cabinets. Posting in this card may be done manually. However, nowadays computers are taking over the place of manual posting. The cards are known as 'stock control cards' are of different types, sizes, and colors. The cards indicate the position of stock which includes stock of items ordered, stock items received from suppliers, stock of items issued, the balance of stock, etc. e) The maximum-minimum system: It refers to the maximum, minimum quantity of inventory. Maximum inventory is that quantity which the company must keep in stock, when the stock reaches its minimum quantity, an order is placed to bring the stock up to the maximum level. f) Two-Bin system: Here the materials are kept in twobins. The first bin is locked and kept as reserve stock. The second bin is kept open, materials are used from the second bin for the production process. When the material from this bin is over, an order is placed for purchasing more materials. Then the first bin is opened and the materials are used from this bin. g) MAPICS (Manufacturing Accounting and Production Information Control System): MAPICS is a computerized common data-based system for manufacturing information and control. In simple words, entire data relating to manufacturing i.e. the inventory required, the production schedule, type of stock, the cost involved,etcare stored in the computer. Control over stock 21 Commerce becomes easy as any information relating to stock level is readily available. In this system, there are various modules for control. Modules can be relating to product data management, material requirements planning, inventory management, and so on. h) Inventory turnover ratio (ITR): This technique of inventory control uses accounting ratios such as Inventory Turnover Ratio. This technique establishes the relationship between average inventory and cost of inventory consumed or sold during a fixed period. The following formula is used to calculate the inventory turnover ratio. Cost of goods consumed or sold during the year ITR = Average inventory during the year When consumption is made between current years inventory ratio with those of past years, it will reveal information such as obsolete, fast- moving items, and slow-moving items. Check Your Progress 1. Enlist the objectives of Inventory Control. 2. Define the following terms. a. Inventory control b. EOQc.JIT d. Cardex System e. ABC analyses f. MAPICS g. ITR 2.4 METHODS/TYPES OF INVENTORY CONTROL SYSTEM While designing an inventory control system, three questions are taken into account namely: - 1) How often the assessment of stock should be made? 2) When should the replenishment order be placed? 3) What should be the size of the order? 22 The following are the methods/types of the inventory control system. Inventory Control a) The two-bin system: The two-bin system is one of the oldest systems of inventory control. It provides an answer to two questions i.e. 1) when the order should be placed? 2) How much quantity should be ordered? This system is illustrated as follows: Bin No. 1 Bin No. 2 Use Bin No. 1 Use Bin No. 2 Till it is empty when Bin No. 1 is empty In this system, two bins are used and the stock is divided into two bins. The first one is used for satisfying current demand and the second one is used during the replenishment period. The second bin is used only when the first bin is empty and the replenishment order is placed. When the replenishment order is received, first the second bin is filled and then the balance is put in the first bin. b) Open-access Bin System: Open-access Bin System, the operators access the material directly without maintaining any records. This saves their time which can be used productively for the production purpose. It is the organization several such open access bins are used, a store vehicle can move around these bins at fixed intervals to replenish the stock. In this method, the quantity replenished is assumed to be the quantity consumed. c) Re-order Level System: In this system, the maximum level and minimum level are fixed. Here re- ordering is done after a period of review and order or re-order is placed when the quantity reaches a certain level. The following graph shows a typical stock replenishment system. 23 Commerce The above diagram represents an average rate of consumption of 100 units per month. The supplies are purchased once in three months (300units). The minimum level/Buffer stock is maintained at 100 units i.e. equivalent to one month's consumption. The lead time, in this case, is 45 days. This means that when the stocks reach a level equal to 45 days consumption above the minimum level, a replenishment order is placed. The re-order level is at 250 units. The maximum stock held is 400 units. In reality, it is not necessary that the consumption curve may be as smooth as illustrated above. To assess the consumption level it is necessary to take into account the sales forecast and experience to arrive at a monthly consumption pattern. The above system is also referred to as a maximum-minimum reorder system or fixed quantity system. d) Fixed Time system: In this method, instead of considering the stock level, the time factor is taken into account. Here, orders are placed at regular intervals of time say15th of March, June, etc. This method is also called the constant cycle system. The time for replenishment order is chosen purely from the point of view of administrative convenience. The number of orders to be placed is determined based onthe EOQ formula. e) Imprest stock control: This is the simplest method of inventory control and here the maximum level for the bin is determined and periodic inspection of stock level in the bin is undertaken. As and when the stock is used the bin is replenished immediately to the maximum level. This method is restricted to material of low value (classification 'C' material). A stock-out situation can be easily rectified as the stock is easily available. 24 2.5 SCIENTIFIC INVENTORY CONTROL SYSTEM Inventory Control The purpose of the Scientific Inventory Control system is to avoid the dangers of overstocking and under stocking of materials, work-in- processes, and finished products. 2.5.1 Importance of Scientific Inventory Control System: 1. It ensures smooth flow of production processes by making the right quality of materials at right time. 2. It reduces ordering cost There are certain overhead costs involved in ordering supplies. It is possible to avoid frequent ordering of requirements if the organization has a scientific inventory control system. 3. It minimizes locking up of working capital in inventories With a proper inventory control system, it is possible to minimize the locking up of working capital in excess inventories and to improve the liquidity position of the firm. 4. It helps in the supply of goods as per the market demand If there is sufficient stock of goods in hand, it is possible to supply goods as per the demand. It helps to satisfy customers and improve the market image. 5. It helps in getting quantity discounts For bulk orders, the organization gets the benefits of trade discounts from the suppliers. These discounts can reduce the cost of goods and increase profits. 6. It helps in taking the advantage of price fluctuations The firm can make purchases in bulk lots, when the prices of raw materials are low, thereby reducing the cost of raw materials. The firm can also take the benefit by marketing goods when the prices are higher. Thus, by taking the advantage of price fluctuations, the firm can maximize profits. 7. It helps in deciding timely replenishment of stocks A proper inventory control system helps in keeping up-to-date records of the inventories. It helps the firm to avoid thefts, wastages, and leakages of inventories. These records also help in deciding about the timely ordering of stocks. 2.6 SUMMARY Inventory control has been a must in running a business or an organization. Inventory management is primarily about specifying the size 25 Commerce and placement of stocked goods. The scope of inventory management also concerns the fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, replenishment, returns, and defective goods and demand forecasting. Balancing these competing requirements leads to optimal inventory levels, which is an ongoing process as the business needs shift and react to the wider environment. Inventory management functions techniques related to the tracking and management of material. This would include the monitoring of material moved into and out of stock room locations and reconciling the inventory balances. Also may include ABC analysis, JIT, lot tracking, cycle counting support, etc. Management of the inventory, with the primary objective of determining/controlling stock levels within the physical distribution function to balance the need for product availability against the need for minimizing stock holding and handling costs. Therefore design an inventory control system by the way i.e. the Two-bin system, open access Bin system, Re-order level system, Fixed time system, and Impress stock control. 2.7 EXERCISE Multiple Choice Questions 1. ___________managers are responsible for controlling the costs of operations. a) Production b) Finance c) Selling d) Purchase 2. __________ means ABC Control a) Always Better Control b) Any Body Control c) Always Best Control d) Anyways better cost 3. ABC analysis classifies all the items in the inventory into ____________ groups a) Three b) Two c) One d) One 4. In ______________ technique the company does not have a warehouse and itdoes not maintain any inventories at any stage of production a) ABC Analysis b) Just in Time c) CARDEX System d) Two Bin 5. In Two bin System the __________bin islocked and kept as reserve stock a) First b) Second c) Third d) Fourth 26 6.In Two bin System the __________bin is kept open,materials are used Inventory Control from the second bin for the production process a) First b) Second c) Third d) Fourth Theory Questions 1) Define inventory control. Explain the objectives of inventory control. 2) Discuss the techniques of inventory control. 3) What are the methods/types of inventory control systems? Explain it. 4) Write short notes i) Inventory control ii) ABC Analysis iii) JIT iv) The Two-Bin system v) Re-order level System vi) Scientific Inventory Control system  27  3 QUALITY MANAGEMENT Unit structure 3.0 Objectives 3.1 Introduction 3.2 Introduction to Quality 3.3 Quality Control 3.4 Quality Circle 3.5 Summary 3.6 Exercise 3.0 OBJECTIVES After studying the unit the students will be able to  Know the concept of quality management  Understand the concept of quality control  Makes the students aware of the techniques of quality control.  Study the concept quality circle.  Evaluate the process of a quality circle. 3.1 INTRODUCTION Quality management takes measures to control the quality of the future output. ISO 9000 is the only internationally accepted standard for quality management. The development of quality management has seen four phases i.e. a) quality planning b) quality control c) quality assurance and d) quality improvement. Quality management improves the competitiveness and reputation of the firm. It ensures satisfaction to customers through the guarantee of goods, safe performance, efficient service, and prompt delivery. Quality management is concerned with quality production through regular inspection during the process of production. Quality is a combination of characteristics of the manufacture of the product and control is the correction in the quality of the product as and when the deviations in the product are more than expected. A good quality item confirms some standard specifications. These specifications are determined by the expectations of consumers and also by the availability of processes and materials. 28 Definition of Quality Management: Quality Management "Quality management uses quality assurance and control of processes as well as products to achieve more consistent quality". 3.2 INTRODUCTION TO QUALITY Quality is the degree to which a product, process, or service satisfies a specified set of attributes or requirements. It is a relative term because specifications or requirements differ from person to person or organization to organization. 3.2.1 Dimensions of Quality The following are the dimensions of quality that can be used to determine/decide the quality characteristics. 1. Performance: Performance of a product/service refers to a product's primary operating characteristics. It decides whether it can perform well to fulfill the need or requirements of the consumer. 2. Features: Features are additional or supplementary characteristics that enhance the utility or performance of the product/service. These features supplement the basic functioning of the product/service. 3. Reliability: Reliability indicates the specified working life of the product, and it’s a kind of assurance that the product can be used for the specified period without fail. 4. Conformance: The dimension of conformance refers to the degree to which a product design and operating characteristics meet established standards. It is a kind of quality assurance given by the organization to the customers. 5. Durability: Durability refers to the length of a product’s life. With proper handling, repairs, and maintenance, the product’s life can be increased to a certain limit. 6. Serviceability: Serviceability refers to how efficiently the organization can provide repairs and maintenance service to the customers if the product fails to operate. 29 Commerce 7. Aesthetics: Aesthetics is the relative / subjective term and it refers to how the product looks, feels, sounds, tastes, and smells. It is a matter of personal performance a judgment. 8. Perceived Quality: Very often consumers do not get or have complete information about a product’s or service’s attributes. They may select the particular brand based on other factors such as the organization’s and brand’s image, advertising message, feedback from the customers, and so on. 3.2.2 Cost of quality : Meaning Cost of quality refers to the cost involved in activities and resources for preventing detecting and remediating manufacturing of poor quality of goods/services. Quality costs are categorized / Types into four main types and they are - 1. Prevention Costs: It is always better to take measures to prevent defects in manufacturing products. The costs which are incurred to avoid or minimize the defects in manufacturing costs are known as prevention costs. Such costs can include costs incurred for improvement of manufacturing processes, training to workers, repairs, and maintenance of machinery, etc. 2. Appraisal Costs: Appraisal or Inspection costs are those costs that are incurred to identify defective products before they are sold to customers. These costs include supervision or inspection costs for maintaining a team of inspectors. It helps to ensure the production of products with required quality standards. 3. Internal failure costs: Internal failure costs are those costs that are incurred to remove defects from the products before selling them to customers. They include the cost of rework, rejected products, scrap, etc. 4. External failure costs: External failure costs are incurred if the defective goods are sold to customers. They include the costs like warranties replacements, sales returns, etc. It also covers the damages such as spoiling of market reputation & goodwill unsatisfied customers reduced sales and profits. 30 3.3 QUALITY CONTROL Quality Management In every manufacturing concern, quality control plays a very important role. In most organizations, there isa separate quality control division with well-equipped tools, machines, etc. Before producing the actual product its design has to be prepared. Product quality is the degree to which such actual output conforms to the design. It is physically impossible to make all the items alike. There is always variability in the product. When variability becomes noticeable its results in scraps, rework, and losses, thus adding to the cost. Quality control takes measures to control the quality of the future output. Quality control is concerned with quality production through regular inspection during the process of production. 3.3.1 DEFINITION OF QUALITY CONTROL: According to Alford and Beatty, "Quality control is those techniques by which products of uniform acceptable quality are manufactured". 3.3.2 Techniques of Quality Control The following are the techniques of quality control a) Inspection: Inspection is an important technique of quality control. It means testing a product to ensure that it meets its design specifications. It involves critical appraisal involving examination, measurement, testing, gauging, and comparison of materials or items. An inspection determines if the material or item is in proper quantity and condition and if it conforms to the applicable or specified requirements. Inspection can be defined as "an act of monitoring or observing a process, procedure or service to ensure compliance with the operational definition and to ensure that all customer requirements or internal prerequisites are met. b) Just-In-Time (JIT): Just-In-Time is an important technique of quality control. The quality of finished products depends on the quality of raw materials. Manufacturers enter into a contract with the suppliers to supply raw materials Just in time and enable to manufacture quality products in time and economically. Just-in-time assumes the use of sophisticated technology to maintain a high quality of production. Just-in-time supports the adoption of preventive maintenance of the plant to avoid machine breakdowns. Preventive maintenance goes a long way to ensure continuous production. Due attention should be given to train and develop employees who are largely responsible to provide quality goods and services. 31 Commerce c) Total Quality Management (TQM): Total Quality Management (TQM) is a management approach that originated in the 1950s and has steadily become more popular since the early 1980s. It is an integrated organizational effort designed to improve quality at every level. In a TQM effort, all members of an organization participate in improving processes, products, services, and the culture in which they work. At its core, TQM is a management approach to long-term success through customer satisfaction. It seeks to improve quality and performance which will meet or exceed customer expectations. This can be achieved by integrating all quality-related functions and processes throughout the company. TQM looks at the overall quality measures used by a company including managing quality design and development quality control and maintenance, quality improvement, and quality assurance. TQM takes into account all quality measures taken at all levels and involving all company employees. TQM is undertaken continuously. TQM can be defined as "an integrative philosophy of management for continuously improving the quality of products and processes". d) Quality at the source: Under quality at the source technique, each employee is made responsible to produce quality parts before they are given to the next operation. Each employee is expected to conduct self-appraisal of work. He should evaluate his performance, note defects, and introduce corrective actions. In case the defect in the product continues, he is allowed to stop his part of the work rather than continue to make defective parts. In situations of this nature, the quality circle is of great help to mutually work out suitable solutions. e) Statistical Quality Control (SQC): In today's economic activity, the need to make the optimal use of resources for the manufacture of goods and services of high quality at a low cost and to market them at a competitive price has acquired great significance. Consequently, there has been a growing demand for persons trained in the techniques and approach of quality control. The Statistical Quality Control (SQC) process relates to the use of statistical methods of monitoring and control to reduce wastes in the production activity and make sure that confirming goods are being produced. Although this process has been mostly applied in the control of manufacturing lines, its applicability can be extended to any process with a measurable output. SQC evaluates the quality of a product, service, or process. It is used to analyze quality problems and solve them. It is used by quality professionals. 32 f) Quality circles: Quality Management Quality circle is based on the concept of participative management. It assumes that quality improvement is possible by uplifting morale and motivation through consultation and discussion in informal groups. The circle consists of operators, supervisors, and managers who come together to improve ways to make quality products or deliver the service. Members are trained in problem-solving techniques. Members forward recommendations to the management for implementation. Check Your Progress 1. Define the following terms: a. Quality management b. Quality control c. Inspection d. JIT e. TQM f. Quality at the source g. SQC 3.4 QUALITY CIRCLE This concept was first introduced in Japan by Mr. Kaoru Ishikawa. The quality circle was formed to promote the concept of quality. The concept of quality control is based on the management's faith in the capabilities of employees. Quality control is a small voluntary group of people from the same work area who meet regularlyto identify, select, analyzing and solving work-related problems of quality, productivity, cost reduction, safety, customer service, etc. The Quality circle members select problems in their immediate work environment through the process of discussion and deliberation to identify possible solutions for the same. Quality circle is a people-building philosophy, providing self-motivation and happiness in an improving environment without any compulsion or monetary benefits. 3.4.1 Meaning: A quality circle is a small group of volunteered employees from the same work area, doing similar work, who meet regularly to identify, analyze and solve problems in their work field. 3.4.2 Process of Quality Circle Quality circle is teamwork for quality improvement. It is a voluntary and self-service activity useful to the company, employees, and the national economy. This concept has its philosophy with wide meaning and significance. The quality circle needs a suitable organizational structure for effective internal communication and efficient functioning. Quality circles are not merely for studying, analyzing, and suggesting solutions but for the implementation of concrete results about quality, cost, and 33 Commerce productivity. Quality circle is based on workers' initiative. Strictly, it is a participative program on a purely voluntary basis. The following are the process of the Quality circle a) Listing of problems: The first step in the process of the quality circle is the listing of problems. It means list out the problems. Such listing of problems can be done by management or employees. b) Selection of problem: The second step in the process of the quality circle is a selection of problems. It involves discussion over the list of problems. The quality circle members select one problem at a time to work on. c) Analysis of the problem: The problem selected by the members is thoroughly analyzed. The quality circle can approach management with a request to provide an expert or consultant so that the analysis gets professional touch. d) Generating Solutions: As members of the quality circle discuss only quality matters it is possible to arrive at a workable solution. Sometimes technical issues may drag on and the solution is obtained in more than one sitting. The circle is allowed to work out more than one solution. Alternative solutions need to be evaluated in the light of specified objectives. Compare costs and benefits of each solution and the quality circle should recommend the best solution to top management. e) Recommendations: As a practice, the quality circle recommends the solution to its departmental head which finally reaches the top management. The decision of top management will be final. Top management will also consider the recommendation of the quality circle. Nowadays the quality circle provides audio-visual presentation. The presentation should be self- explanatory. Nothing is left to the imagination of top management and every point is well illustrated and explained. f) Acceptance of Recommendations: The management will closely scrutinize the solution. They will consider the pros and cons of the solution. They will also evaluate its practical utility. If the management is convinced about the soundness of the solution it will approve the project and sanction the requisite amount. g) Implementation: The management then implements the decision. Implementation often requires help from other workers who are not members of the quality 34 circle. The team spirit among the workforce ensures proper Quality Management implementation of the decision. h) Rewarding the employees: The quality circle member is recognized and rewarded for their positive and fruitful recommendations. 3.4.3 Features / Characteristics of quality Circles: A quality circle is a small group of employees who voluntarily join hands to solve day-to-day work-related problems such as wastage of materials, quality of raw materials, tools, semi-finished and finished goods, work environment, scheduling, maintenance of machinery, safety measures, and so on. They solve the problems with the guidance and advice of their supervisor. The following are the characteristics/features of the quality circle: 1. It is a group of workers/employees doing a similar kind of job. 2. It is a group of few members maybe three to ten to achieve better communication and coordination. 3. Members join the circle voluntarily. They feel the need to identify and solve work-related problems. 4. Generally, meetings of the circle take place for at least an hour every week at a time suitable to all members. 5. The quality circle is formed basically to find out solutions to the work- related issues/problems. So the supervisor, who is in charge of the work, generally acts as a leader of the group. 6. The members of the group are concerned only about the issues related to their work area only. 7. After studying and analyzing the problem related to the work, the members collectively find out the solutions for the problems and they are forward to the management for their approval. After the management’s approval, the circle members can implement the measures for overcoming the problems. 3.5 SUMMARY Quality management is concerned with controlling activities to ensure that products and services are fit for their purpose and meet the specifications. Quality control takes measures to control the quality of the future output. Quality control is concerned with the quality of production through regular inspection, Just-in-time, total quality management, quality at the source, statistical quality control, and quality circle techniques during the process of production. The main objective of quality control is to ensure that the 35 Commerce business is achieving the standards it sets for itself. Quality circles are designed to improve employee morale, Job efficiency, management procedures, and the quality of a firm's products. Although most commonly found in manufacturing environments, quality circles apply to a wide variety of business situations and problems. They are based on two ideas, that employees can often make better suggestions for improving work processes than management, and that employees are motivated by their participation in making such improvements. 3.6 EXERCISE 3.6.1Multiple Choice Questions 1. ___________ takes measures to control the quality ofthe future output. a) Quality Management b) Inventory Management c)Financial Management d) None of the Above 2. __________is concerned with quality productionthrough regular inspection during the process of production a) Quality Management b) Inventory Management c)Financial Management d) None of the Above 3. ____________refers to the cost involved in activities and resources for preventing detecting and remediatingmanufacturingof poor quality of goods/services. a) Cost of Quality b) Cost of Quantity c) Cost d) Quality 4_____________ is thosetechniques by which products of uniform acceptable quality aremanufactured a) ABC Analysis b) Quality Control c) Quality Management d) Cost of Quality 5. _____________process relates to the use of statistical methods of monitoring andcontrol to reduce wastes a) Statistical Quality Control b) Quality Control c) Statistical Process d) None of the above 6. ______________ is based on the concept of participativemanagement a) Cost of Quality b) Quality Circles c) Quality Management d) Quality Management 7. ____________assumes that quality improvement is possible byuplifting morale and motivation through consultation and discussionin informal groups a) Cost of Quality b) Quality Circles c) Quality Management d) Quality Management 36 8. A ___________ is a small group of volunteered employeesfrom the Quality Management same work area, doing similar work, who meet regularly toidentify, analyze and solve problems in their work field a) Cost of Quality b) Quality Circles c) Quality Management d) Total Quality Management Theory Questions a) Explain the techniques of quality control. b) Discuss the process of the quality circle. c)Explain the term Quality Circles and its Characteristics d) What are the dimensions of Quality e) What are the types of Quality f) Write short notes i) Quality management ii) Quality control iii) Quality at the source iv) Inspection v) Total Quality Management (TQM) vi) Just-In-Time (JIT) vii) Statistical quality control (SQC) viii) Quality circle  37  4 CONTEMPORARY TRENDS IN QUALITY MANAGEMENT Unit structure 4.0 Objectives 4.1 Total Quality Management (TQM ) 4.2 Six Sigma 4.3 Steps in Six Sigma 4.4 International Standards Organisation (ISO 9000) 4.5 Procedure to Obtain Iso 9000 4.6 Kaizen 4.7 Service Quality Management 4.8 Summary 4.9 Questions 4.0 OBJECTIVES After studying this chapter the students will be able to-  Understand the meaning and features of total quality management.  Know the meaning and features of six sigma as well as the steps in six sigma.  Bring out the meaning and procedure of ISO 9000.  Elaborate on the kaizen process.  Evaluate service quality management and its importance. 4.1 TOTAL QUALITY MANAGEMENT (TQM ) Total Quality Management is a comprehensive concept and not related only to the quality of goods and services. It is a wide term that is concerned with an overall improvement of the system, techniques, and staff of the organization. Total quality management is a preventive approach and not a corrective one. It aims at producing the best possible product and service through regular innovation. It believes in doing the right things the first time. TQM is a strategic approach to produce the best possible product and service through constant innovation and timely action. It is always focused on the requirements of the customers both internal and external. 38 TQM is a management philosophy the places emphasis on continuous Contemporary Trends in improvement in quality in the interest of the organization and that of its Quality Management customers. Definition: According to prof K.K.Chaudhari "TQM represents a customer- oriented, quality-focused management philosophy". 4.1.1 FEATURES OF TOTAL QUALITY MANAGEMENT The following are the main features of Total Quality Management a) Continuous process: Total Quality Management is a continuous process. The managers are continuously trying to find out new methods and techniques for improving the quality. They also encourage the employees to give their ideas and suggestions for improving the quality. Quality improvement helps the organization to face the challenges of the competitors and to meet the requirement of the customers. b) Customer Focus: TQM gives great importance to customers. It tries to give maximum satisfaction to the customers. TQM tries to give the customers a regular supply of good quality goods and services at a low cost. It tries to avoid wastage, rejection, etc. It tries to protect the customers in all ways. TQM believes that if the organization cannot satisfy and protect the customers, then the customers will be attracted by the competitors. c) Defect-free Approach: TQM emphasizes defect-free work most of the time. It follows a zero- defect approach. i.e., It tries to produce goods with zero (no) defects. TQM aims for perfection. It works hard to achieve perfection. It gives more importance to prevention and less importance to rectification. i.e., it tries to prevent errors and mistakes. It tries to be "right first time" and all times. d) Employees Involvement: TQM is possible only through participative management. Under TQM, employees will be motivated to participate actively in the process of quality improvement through incentives, rewards, and recognition. TQM creates teamwork where workers are trained and motivated properly. In TQM everyone is involved in the process from the managing director to the junior clerk or worker in the organization. e) Linkage of quality and productivity: TQM technique is useful for improving quality as well as productivity. The method used in TQM programs, for example, zero-defect production 39 Commerce makes all employees responsible for quality maintenance and improvement. It also leads to higher productivity. f) Recognition and Rewards: In TQM, the employees are encouraged to improve the quality. They are encouraged to give suggestions about how to improve the quality. TQM offers recognition and rewards to the employees for improving quality. Recognition means encouraging individuals and groups by giving them letters of thanks, merit certificates, inviting them for lunches, dinners, etc. Rewards mean to encourage individuals and groups by giving them financial benefits such as merit pay, promotion with higher status and pay, etc. g) Synergy in Team Work: The Japanese are great believers in Synergy. Synergy means to work together. In Japan, there is no status difference between an engineer and an ordinary worker. Both are treated equally by each other. They work side by side as a team. So, TQM gives importance to teamwork. Without teamwork, we can't have TQM. h) Techniques: TQM needs the use of various techniques such as quality circles, value engineering, statistical process control, quality assurance, etc. With the help of such techniques, it is possible to improve the quality and reduce time-consuming low-value activities. i) Management involvement: TQM is a systematic approach for managing business and improving performance. Management participation is necessary for the success of TQM. It requires total commitment from the top management to provide good leadership to the whole approach. 4.1.2 IMPORTANCE OF TOTAL QUALITY MANAGEMENT The following is the importance of Total Quality Management a) Cost Reduction & Increased Profitability: TQM helps reduce total quality costs. In other words, it aims to produce superior quality products and services so that no additional costs are borne later. Many companies like Apple, Microsoft, etc. implemented TQM techniques to reduce manufacturing costs, saving billions of dollars. b) Enhanced Productivity: Some organizations offer superior quality resources, high-end infrastructure and excellent technology—all of which are instrumental in 40 motivating employees. With improved standards of work and better Contemporary Trends in working conditions, employees are encouraged to maximize their output. Quality Management c) Lesser Redundancy: Every organization aims at improving productivity and profitability. TQM uses a systematic approach to reduce any duplication of tasks, therefore saving time and fully utilizing available resources. d) Improved Innovation Process: As we’ve already established, TQM includes a research phase. Organizations collect data about any current challenges or problems to devise effective solutions. Some organizations rely on unique strategies to get to the root of a problem. For example, businesses often use the A/B testing method to compare two versions of the same strategy and implement the one that produces better results. e) Continual Improvement: As we’ve already established, TQM includes a research phase. Organizations collect data about any current challenges or problems to devise effective solutions. Some organizations rely on unique strategies to get to the root of a problem. For example, businesses often use the A/B testing method to compare two versions of the same strategy and implement the one that produces better results. f) Effective Communication: TQM techniques push individuals to collaborate and support each other for the greater benefit of an organization. Increased teamwork and cross- functional collaboration prompt everyone to strive for continuous improvement. For example, clear communication enables a production chain that functions seamlessly because everyone is on the same page. g) Holistic Approach To Management: Many organizations struggle with low employee engagement. TQM helps workplaces bring behavioral changes by facilitating self-development, teamwork and improved employee engagement. Individuals show more interest in their roles because the organization prioritizes their well-being and job satisfaction. h) Increased Goodwill: Organizations can establish quality standards for goods/services using TQM. Internal stakeholders (employees and investors) get lucrative incentives and profitable return on investment. External stakeholders (customers and clients) get superior quality products and services. The result: positive brand image and goodwill in the long-run. 41 Commerce i) Satisfied Customers: High-quality products that meet customers’ needs results in higher customer satisfaction. High customer satisfaction, in turn, can lead to increased market share, revenue growth via upsell and word-of-mouth marketing initiated by customers. j) Well-defined cultural values: Organizations that practice TQM develop and nurture core values around quality management and continuous improvement. The TQM mindset pervades across all aspects of an organization, from hiring to internal processes to product development. 4.2 SIX SIGMA In 1986, Bill Smith, a Motorola engineer, developed the six sigma program. Six Sigma is a set of tools, techniques, and strategies designed for process improvement. Six Sigma attempts to improve the quality of process output by identifying and removing the cause of defects or errors. It minimizes variability in manufacturing and business processes. Under six Sigma Motorola defined six standard deviations of variation which could be squeezed within the limits defined by their customer's specification. 4.2.1 Features of Six Sigma The following are the main features of Six Sigma. a) Problem-solving approach: Six Sigma adopts a structured approach towards problem-solving. The most commonly used version of the problem-solving methodology is known as DMAIC. It stands for D-Define M-Measure A-Analysis I- Improve C-Control an acronym for the phases of Six Sigma improvement. This methodology defines a problem and works to find a solution. b) Reduced process variation: Process variation takes up when the production activities are uneven, To maintain uniformity in production firms use Six Sigma. It brings about stable and predictable process results. As a consequence, process variation gets reduced. c) Based on Factual Data: There is no place for assumptions and guesswork in Six Sigma. The entire operation of Six Sigma is based on factual data and statistical methods. All decisions are taken only when reliable data is collected, analyzed, and interpreted. Such finding must reflect the ground reality. Only then it can be put into practice. 42 d) Team-Based: Contemporary Trends in Quality Management Six Sigma is team-based and the structured nature of this approach required extreme discipline within the organization which includes time management and pro-active leadership but the real challenge lies in the ability to plan and execute projects which deliver specified financial benefits. e) Improved market Image: As quality products are rolled out consumers get money's worth and they continue their patronage for the same product. Moreover, the name of the company gets established in the market as the maker of quality products. The improved market image continues to rope in new customers. f) Customer Focus: Six Sigma has a very strong customer focus. The targets are set keeping in mind the requirements of the customers. The customer focus is fundamental to the Six Sigma approach. The quality improvement and control standards are based on explicit customer requirements. g) Organisational commitment: Six Sigma should not be used as a decorative piece. It must be based on the active support, involvement, and commitment of management and employees. Top management is committed to improving quality. The managers must display their capabilities from planning to work to plan for the accomplishment of