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ManagementManagement is the process through which people are mobilized to achieve designated goals.

Importance of management1) Management helps in increasing the effectiveness and efficiency and thereby productivity of the enterprise

as well as the individual worker.

2) Management helps in development of full human potential.3) Management helps in raising the worker morale.4) Management helps in building mutual trust.5) Management helps developing teamwork.6) Management helps in providing a stable livelihood for all employees.7) Management helps in constantly and forever improving the system of production and service.

Characteristics of Management

1) Management applies to any kind of organization.2) Management applies to managers at all organizational levels.3) The aim of all managers is the same: to be productive.4) Managing as a practice is an art in which practitioners apply the underlying theory and science in light of

situations.

5) Management attempts to create a desirable future, keeping the past and present in mind.6) There are various approaches to management.

Contributions of Various Scholars Towards the Development of

Management TheoryFrederick W. TaylorFrederick W. Taylor (1856 1915) known as founder of scientific management rested his philosophy on four

basic principles:

1. Develop a science for each element of a mans work, which replaces the old rule of thumb method.2. Scientifically select and then train, teach, and develop the work man, where as in the past he chose his own

work and trained himself as best as he could.

3. Heartily cooperate with the men so as to ensure all of the work being done is in accordance with theprinciples of science, which has been developed.

4. There is an almost equal division of the work and responsibility between management and workmen. Themanagement takes over all work for which they are better fitted than the workmen, while in the past almost

all of the work and the greater part of the responsibility were thrown upon the men.

Taylor believed that management and labour had a common interest in increasing productivity and the

success of these principles required a complete mental revolution on the part of management and labour.

Taylor stressed the importance of time and motion study to increase efficiency of men and machines.

He introduced a wage incentive plan known as differential rate system, which involves payment of higher wages

to more efficient workers.

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Lecture Notes on Industrial Organization and Management

College of Engineering, Kallooppara

2

Henry L GanttHenry L Gantt (1861-1919) worked with Taylor on several projects and was his close associate. He improved

upon Taylors differential piece rate system and came up with a new idea. Every worker who finished a days

assigned workload would win a 50% bonus. The supervisor would also earn a bonus for each worker who

reached the daily standard, plus an extra bonus if all the workers reached it. This would motivate the

supervisors to train their workers to do a better job.

Gantt also devised a charting system for production scheduling, now known as Gantt chart. The Gantt

chart is still in use today. It also formed the basis for two charting devices which were developed to assist in

planning, managing and controlling complex organizations: the Critical path Method (CPM) and Program

Evaluation and Review Technique (PERT).

The GilbrethsFrank B and Lillian M Gilbreth (1868-1924 and 1878-1972) made their contribution to the scientific

management movement as a husband and wife team. They did a lot of research in order to improve work

methods and thus to discover one best way of accomplishing a task. Their main field of interest was fatigue and

motion studies and focused on ways of promoting the individual workers welfare. To them, the ultimate aim of

scientific management was to help workers reach their full potential as human beings.

In their conception, motion and fatigue were intertwined every motion that was eliminated reduced

fatigue. Using motion picture cameras, they tried to find the most economical ways of doing jobs. They

concluded that fatigue could be considerably reduced by lightening the load, spacing the work and by

introducing rest periods.

Henri FayolHenri Fayol (1841-1925) is known as the Father of principles of management. Fayol believed and prescribed

fourteen principles that would aid in setting up and managing organizations. These principles are listed below.

1.Division of workWork must be divided into tasks, sub-tasks and still smaller units till specialization is achieved.2.Authority and responsibilityA relationship must be established between the responsibility and the authority a manager exercises. If a

subordinate is given responsibility, he should also be given authority to go with it.

3.DisciplineThis principle deals with the sanction of rewards for good work or meeting standards and punishment for poor

work or failure to meet standards.

4. Unity of Command

Each employee must receive instructions from only one person. Fayol believed that when an employee reported

to more than one manager, conflicts in instructions and confusion of authority would result.

5. Unity of direction

Tasks must be regrouped by departmentalization under one head whose major responsibility is coordinating

activities.

6. Subordination to general interest

This principle is based on the idea that the whole is greater than the sum of its parts. General interest supercedes

the interests of individuals.

7. Remuneration

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Compensation for work done should be fair to both employees and employers.

8. Centralization

Decreasing the role of subordinates in decision-making is centralization; increasing their role is decentralization.

An optimal balance between centralization and decentralization exists for each situation. This balance must be

determined by taking the managers capabilities into consideration.

9. Scalar chain

This refers to a graded chain of managers from ultimate authority at the top to lowest ranks, resulting inhierarchical levels. This principle also states that authority and responsibility should flow in a direct line

vertically from top to bottom.

10. Order

This principle emphasizes the importance of arranging and organizing human and physical resources logically

and neatly.

11. Equity

Managers should be both friendly and fair to their subordinates.

12. Stability

In order to provide stability of an organization, long-term commitments must be encouraged.

13. InitiativeEmployees must be encouraged to think through and implement a plan of action.

14. Unity of effort

Coordination and unity are important to achieve the goals of an organization. To achieve unity and coordination

communication is essential.

Functions of ManagementThe managerial functions provide a useful framework for organizing management knowledge. Managerial

functions can be basically grouped under planning, organizing, motivating, controlling, coordinating and

decision-making.

PlanningPlans give the organization its objectives and set up the best procedures for reaching them. Plans made by top-

level management may cover periods as long as five or ten years. On the other hand, the middle and lower level

managers focus on short-range and day-to-day plans. The elements included in the planning function are:

1) The policies that will help to achieve objectives.2) The programmes that a manager will carry out.3) The time schedules that a manager will have to meet.4) The budgetary considerations that will be involved.

All the above elements are equally important and interact with all other elements.

Organizing

Organizing is the process of arranging and allocating work, authority, and resources among an organizations

members so that they can achieve organizations goals. Some authors include staffing function as a part of

organization function. Staffing involves filling, and keeping filled, the positions in the organization structure.

The elements included in organizing function are:

1) Grouping of activities necessary to accomplish organizations goals in the light of the human andmaterial resources available and the best way, under the circumstances, of using them.

2) Delegating to the head of each group the authority necessary to perform the activities.

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3) Establishing relationships that will provide each with the necessary information.4) Scrutinizing the relationships between various units and the effect of operation of these units on each

other.

Organizing is a never-ending process. All types of organizations are in a continual state of being

reorganized. When goals and programmes are redirected, activities also change.

MotivatingMotivation is a human psychological characteristic. It pertains to various drives, desires, needs, wishes and

other forces.

Motivation is not easy to achieve and what a manager can try to do is to create a working climate in

which all members may contribute to the limits of their ability. The key elements in such a work situation and

its effect on the employee are known to be:

1) The degree to which the employee feels his goals and those of the organization are similar.2) The employees relationships with his coworkers and especially with his supervisor.3) The way in which his job helps him meet his needs for present income and future security and does so

in a manner that seems fair.

4) The extend to which it enables him to feel adequate to his tasks and to gain a sense of accomplishmentfor jobs well done.

Motivational function provides a great deal of challenge to a manager. He must have the ability to

identify the needs of his subordinates and the methods and techniques to satisfy those needs. Motivation is a

continuous process as new needs and expectations emerge.

ControllingControlling is the process of ensuring that actual activities conform to plan activities. Through the controlling

function, the manager can keep the organization on the right track before it deviates too far from its goals. The

controlling function involves:

1) Establishing standards of performance.2) Measuring actual performance.3) Comparing actual performance to the established standards.4) Taking corrective action if deviations are detected.

For the control to be effective, a system of communications or reports is required to inform the

manager of the facts on which to base measurements, comparisons and corrective action. A great deal of the

managers time is involved in controlling.

CoordinatingCoordination is the process of integration of the activities of separate departments of an organization to

accomplish organizational goals. Coordination is needed both up and down the organization structure and

laterally as well. It can also occur among people working at different organizations. The extent of coordination

depends on the nature of activities performed and the type of organization structure.

Some authors consider coordinating as a part of organizing function as organizing involves a great deal

of coordinating effort.

Decision-making

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Decision-making is the process of identifying and selecting a course of action from among alternatives.

Decision-making is an important part of every managers job and it requires all the skill and judgment a

manager accumulates over the years.

The manager constantly seeks to make correct decisions involving the use of the various types of

resources at his disposal to attain the various objectives. A manger decides on the utilization of men, materials

and machines to achieve such goals as quality, low cost, quick delivery, safety and so on.

OrganizationOrganization is a pattern of relationships among the individuals working together for a common goal.

Types of OrganizationA few commonly known forms of organization structures or types of organization are:

(1) Line organization(2) Functional organization(3) Line and staff organization

Line Organization

Line structure is historically the oldest type, and all other kinds of structures are modifications of line structures.

Direct vertical authority characterizes line organization structure responsibility relationships which connect

jobs and positions at each level with those above and below it.

A simplified line organization structure is shown in the following figure.

Workers Workers Workers Workers

In this structure, the authority flows directly from the general manger to works manager to

superintendent to foremen and from them to workers.

Line organization is also called military or scalar organization

Advantages of Line structure

1. Simplicity and clarity2. Clear cut authority and responsibility3. Flexibility4. Strong discipline

General manager

Works manager

Superintendent 1Superintendent 2

Foreman Foreman Foreman Foreman

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5. Capable of developing all round executives at higher levels of authority.Disadvantages of Line structure

1. Neglects specialists.2. Lack of specialization may lead to wastage of materials as well as man and machine hours.3. Overloads a few important executives.4.

Encourages dictatorial way of working.

5. Limited to very small concerns.Applications of Line Organization

Line organization is suitable for small concerns and for automatic and continuous process industries such as

paper, sugar, cement, textile, etc.

Functional Organization

F. W. Taylor is the originator of functional organization. In functional organization, instead of one foreman as in

the case of a line organization, there are eight functional foremen; four of them located on the shop floor and the

remaining four in the office. Each functional foreman will be a specialist in an activity. Following figure shows

the Taylors functional organization.

Taylor suggested simultaneous instructions to workers by eight functional experts or specialists and they are:

1. Route clerk who issues work-orders and routes the job.2. Instruction clerk who prepares job instructions for the workers3. Time and Cost Clerk who is responsible for keeping records about the time spent by workers in

completion of jobs and calculation of wages and other related costs.

4. Disciplinarian who keeps personal records of the workers and handles cases of insubordination.5. Gang boss who is in charge of the preparation of all work up to the time the work piece is set in the

machine.

6. Speed boss who ensures that proper tools are being used and optimum speeds are being employed.He sees that the worker unnecessarily does not take excess time.

General manager

Works manager

Superintendent

(Office)

Superintendent

(Shop)

Route

clerkInstruct-

ion clerk

Time &cost clerk

Discipli-narian

Repair

boss

Gang

boss

Inspecti-

on boss

Speedoss

WORKERS OR OPERATORS

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7. Repair boss who is responsible for repairs and maintenance of equipment and machinery.8. Inspector or inspection boss who is responsible for the quality of the product.

Advantages of Functional Organization

1) Makes possible to have uniform policies systems and procedures throughout the organization.2) Makes use of specialists to give expert advice to workers.3)

Reduces the wastage of materials, man and machine hours.

4) Improved quality off work.Disadvantages of Functional Organization

1) Creates dual accountability and weakens the unity of command.2) Makes industrial relationships more complex.3) All round executives cannot be developed.4) Workers not given an opportunity to show their creativity.5) Poor discipline.Applications of Functional Organization

Applications are virtually nil. But in modified form the same is used in some most modern and advanced

concerns.

Line and Staff OrganizationLine and staff organization is a development of the line organization. In this type of structure, special

executives known as staff are employed to assist the line executives and they perform functions such as

planning, design, quality control, research, etc. Following figure shows a line and staff organization.

Manager sales

Manager

accounting Legal advisor

Safety officer Industrial engineer

Design engineer Stores officer

Workers Workers Workers Workers

Line relationship Staff relationship

The line executives have supervisory authority and control over the work of their subordinates, whereas

the staff executives do not have any authority to direct the lower level managers or workers. The nature of the

Superintendent 1Superintendent 2

Foreman Foreman Foreman Foreman

General manager

Works manager

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staff relationship is advisory and the function of staff executives is to investigate, research and give advice to

line managers.

Advantages of Line and staff organization

1) Specialization benefits of staff can be profitably utilized to have standard operations.2) Line executives are relieved of some of their workloads and are thus able to concentrate on other important

matters.3) Less wastage of material and labour.4) Improved product quality.5) Quick decisions and actions are possible.

Disadvantages of Line and staff organization

1) Staff may blame the line managers for all failures, but take credit for all successes.

2) Paper work may be increased very much (because staff men are fond of paper work).

3) Staff men may dominate over the lower the lower-level line managers.

4) Increased product cost because of high salaries of staff executives.

5) Too much staff activity may complicate a line executives job of

leadership and control.

Applications of Line and staff organization

Line and staff organization is suitable for medium and large industries.

Span of Management ControlSpan of management control (frequently shortened to span of control or span of management) refers to the

number of people a manager can effectively supervise.

Choosing an appropriate span of management control for an organizational hierarchy is important for

two reasons. First, the span can affect what happens to work relationships in one particular department. Toowide a span may mean that managers are over extended and subordinates receiving too little guidance. When

this happens, subordinates may start thinking that they are too remote from the point of control and may become

careless. Too narrow span, on the other hand, is inefficient because managers are under utilized.

Second, the span can affect the speed of decision making in situations where multiple levels in the

organizational hierarchy are involved. A narrow span of management results in many organizational levels and a

long chain of command slows decision-making. In contrast, wide spans results in few organizational levels.

Advantages of Narrow Spans

1) Close supervision.2) Close control.3) Little or no sub-ordinate training required.

Disadvantages of Narrow Spans

1) Managers under utilized.2) High costs due to many levels of management.3) Excessive distance between lowest level and top level.4) Slow decision-making.

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5) Superiors tend to get too involved in sub-ordinates work.Advantages of Wide Spans

1) Quick decision-making.2) Superiors are forced to delegate.3) Low costs due to few levels of management.Disadvantages of Wide Spans1) Managers are over extended.2) Requires exceptional quality of managers.3) Tendency of over loaded superiors to become decision bottlenecks.Note: There is no definite number of people a manager can effectively supervise; the number depends on several

underlying factors. These include nature of work and capability of managers and sub-ordinates, the degree of

sub-ordinate training required and possessed, the clarity of authority delegated, the clarity of objectives, plans

and policies, the effectiveness of communication techniques and the type of organization.

Authority and ResponsibilityAuthority means right to command and power to act. It is merely the discretion conferred on people to use their

judgment to make decisions and issue instructions. Everybody in the organization, from top level down wards

possesses some authority to secure cooperation from sub-ordinates.

Responsibility means accountability. It is the obligation towards the job.

People often seek authority, but fear responsibility.

DelegationDelegation is the assignment of formal authority and responsibility to another person for carrying specific

activities. The delegation of authority by managers to employees is necessary for efficient functioning of any

organization because no manager can personally accomplish or completely supervise all of what happens at an

organization.

The following are guidelines for effective delegation:1) Tasks should be assigned in terms of results expected from a position.2) There should be parity of authority and responsibility.3) There should be well-defined clarification of limits of authority.4) Command, orders or guidance should always flow to a sub-ordinate from one delegating superior.5) There should be open communication between sub-ordinate and delegating superior.Decentralization and Centralization

Decentralization is the tendency to disperse formal authority. Centralization, on the other hand, is the

concentration of authority. In a relatively decentralized organization, considerable authority and accountability

are passed down the organizational hierarchy. In a relatively centralized organization, considerable authorityand accountability remain at the top of the hierarchy.

Advantages of Decentralization

1) Unburdening of top managers.2) Better decision-making.3) Better training, morale, and initiative at lower levels.

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4) Promotes development of general managers.5) Facilitates product diversification.6) More flexibility.

Disadvantages of Decentralization

1)

Makes it more difficult to have a uniform policy.2) Extensive decentralization may lead to loss of control.3) Complexity of co-ordination of organizational units.4) Can be limited by the availability of qualified managers.5) Decentralization usually entails bringing in additional staff.6) More expensive.

Management Information Systems (MIS)Management information system (MIS) is a combination of human and computer based method of supplying

accurate and timely information to the management for decision making and to carry out the managerialfunctions effectively.

Need for MIS

1) Information flow is a must for economic and effective control of inventory, production cost, scheduling,

management decisions, etc.

2) Reduces uncertainty in decision-making. This is essential for survival of an organization in the present day

situation.

Business

Business may be defined as an activity in which different persons exchange something of value, whether goodsor service, for mutual gain or profit.

Forms of business OrganizationsThe organizational pattern of the firms on the basis of their ownership can be classified as follows:

1) Private sectora) Single ownershipb) Partnershipc) Joint stock companies

(i) Private limited companies(ii) Public limited companies

d) Co-operative organizations2) Public sector

a) Departmental organizationsb) Public corporationsc) Government companies

3) Joint sectorPrivate sectorPrivate sector organization, as the name indicates, are exclusively owned by private individuals. The efficiency

of the private sector organizations is usually very high compared to organizations from any other sector. The

important forms of the private sector organizations are:

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1) Single ownership2) Partnership3) Joint stock companies4) Cooperate organization

Single OwnershipSingle ownership is a form of business organization, which is owned and controlled by a single individual. Also

known as sole proprietorship, it is the oldest and simplest form of business organization. In this form of

organization, an individual introduces his own capital, uses his own skill and intelligence in the management of

its affairs and is solely responsible for the results of its operation. The sole proprietor may have any number of

persons working for him but they will be just paid employees or friends and relatives having no share in the

ownership of the business.

The sole proprietor enjoys full benefit in terms of profit earned by the business. However, he will be

personally liable for all kinds of risks attached to his business. His liabilities will be unlimited.

Advantages of Single ownership

1) Ease of formation and dissolution.2) Direct relationship between effort and reward serves as a powerful incentive to the proprietor to

manage the concern efficiently.

3) Ease of coordination.4) Promptness in decision-making.5) Flexibility in management.6) Secrecy of the affairs of business can be maintained.7) Freedom from government regulations.

Disadvantages of Single Ownership

1) The amount of capital that can be invested is limited, therefore, rendering it unsuitable for modernbusiness.

2) All the qualities required for success in business are rarely found in a single person.3) The liability of the sole proprietor will be unlimited.4) Uncertainty of duration as the firm may cease to exist with the death of the proprietor.

PartnershipIndian partnership act defines partnership as the relation between persons who have agreed to share profits of a

business carried on by all or any of them acting for all. The sharing of profits is the basis for defining

partnership. The contribution of the partners in running the business need not be same. The minimum number

of partners is two and the upper limit is ten for banking business and twenty for general business as per the

Indian Companies act. The partnership is created by mutual consent and voluntary agreement. Registration of a

business under partnership is essential under shops and establishment act in order to take legal help in enforcingthe terms of agreement on the partners. Every partner has an unlimited liability in respect of the firms debt and

limitation of the liability through mutual agreement is not possible legally under partnership.

There is a category of partnership, which is prevalent in western countries known as limited

partnership. In this case there are two classes of partners special and general. The liability of special (or

limited) partners is limited to the extent of his investment, and that of general partners is unlimited. In a limited

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partnership there must be at least one general partner whose liability is unlimited. In India the law does not

recognize this type of partnership.

There are many types of partners depending upon their specific role in business. There are active

partners who bring in capital and take active interest in the conduct of the business. There are sleeping partners

who bring in capital but do not take active interest in the conduct of the business. Such partners after

contributing their share of capital wake up only either to share the profits or to liquidate the business. There arenominal partners who lend their reputed name for the companys reputation without contributing any capital or

without any active interest in the conduct of the business. Legally, however, such partners are equally

responsible for the liabilities of the firm. There are secret partners who bring in capital and take part in the

conduct of the business but no where their names appear. There are minor partners who are below eighteen

years of age and associated with the business. Such partners have limited liability.

Advantages of Partnership

1) Ease of formation as there are very little legal formalities.2) Larger financial resources as compared to single ownership.3) Balanced judgment as the partners possesses various sorts of talent, expertise and experience.4) Adequate credit availability because of unlimited liabilities of the partners.5) Flexibility of operation.6) Secrecy in business.7) Losses, if any, are shared by the partners.

Disadvantages of Partnership

1) Unlimited liabilities of each partner.2) All partners suffer because of the wrong steps taken by any of the partners.3) Uncertain life as partnership may dissolve by death or insolvency of a partner.4) Lack of public confidence as the affairs of the business are kept secret and the accounts is not

published.

5) Non-transferability or restricted transferability of the partners interest in the business.Joint Stock CompanyThe joint-stock company is the most important form of business organization. It is a voluntary association of

individuals for profit, having a capital divided into transferable shares of different values. A joint stock

company is a legal entity with a perpetual succession.

The capital is raised by selling shares of different values and these shares are transferable. Persons who

purchase the shares are called shareholders and these shareholders elect the managing body known as board of

directors. The board of directors is responsible for policymaking, important financial and technical decisions

and efficient working of the company.

In this form of organization liability of the shareholder is limited to the amount of shares held by him

and he is free from the responsibility of the debts and claims of the company beyond the value of shares.

Because of this advantage all sections of the people are encouraged to contribute for the company. The shares

of a joins-stock company are transferable.

The Joint stock companies are of two main kinds: private limited company and public limited

company.

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Private Limited Company

A private limited company can be formed by a minimum of two persons and the maximum number of

membership is limited to fifty. Transfer of shares is limited to members only and general public cannot be

invited to subscribe the shares. Normally the members of a private limited company are friends and relatives.

A private limited company need not make the prospectus, accounts and other particulars open to public.

The members only are entitled to receive a copy of the balance sheet and profit loss accounts yearly along with

the auditors report. The government also does not interfere on the working of the company. A private limited

company, while conferring the advantage of limited liability, allows a business to be privately owned and

managed.

Public Limited CompanyA public limited company is one whose membership is open to general public. The minimum number of

shareholders required to from such a company is seven, but there is no upper limit.

The public limited companies can advertise to offer its share to general public through a prospectus and

there is no restriction on the transfer of shares. These companies are subjected to greater degree of legal control.

This control is necessary to protect the interest of the shareholders and the members of the public. The affairs of

the public limited company should be made open to public by publishing in leading newspapers.

Advantages of Joint Stock Companies

1) Availability of large capital.2) Limited liability.3) Not affected by the death or retirement.4) Risk of loss is divided among the shareholders.5) Ease of expansion.6) Services of specialists can be obtained.7) Cheaper and better production because of large-scale production with the use of modern technology,

which the company can afford.

Disadvantages of Joint-Stock Companies

1) Lack of personal interest on the part of the salaried manager can lead to inefficiency and waste.2) Board of directors and managers who have intimate knowledge of the financial position of the

company may purchase or sell the shares accordingly for their personal profits.

3) Requires a great deal of legal formalities to be observed.4) Difficult to maintain secrecy.5) Few shareholders having greater number of shares may secure control over the company6) Slow decision-making.

Cooperative Organization or Cooperative Society

A cooperative society is a form of organization where people associate voluntarily and on the basis of equality

for the furtherance of their common economic interest. Consumers cooperative societies, cooperative credit

societies, cooperative farming societies and cooperative housing societies are some examples of this type of

organizations.

The primary motive of a cooperative society is to provide maximum service to its members and not to

make profits. This does not, however, mean that a co-operative does not work for profit at all. There are several

societies engaged in business activities, which earn reasonably good profits while providing service to their

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members as well as to non-members. Whatever is the profit, it will be partly distributed as bonus to its

members.

A cooperative society raises its capital from its members in the form of share capital and a fixed rate of

return is paid on the capital subscribed by each members. The shares of a cooperative are not transferable. The

management of a cooperative is run by a managing committee elected by members on the basis of one member

one vote irrespective of the number of shares held by members. The general body of members decides the broadpolicy framework and guidelines, which the managing committee is required to follow.

A cooperative society is required to be registered under the cooperative societies act. It has a perpetual

succession, which is not affected by entry or exit of members.

Advantages of the Cooperative Society

1) Democratic management.2) Limited liability.3) The life of a cooperative society is not affected by the death or insolvency of a member.4) Ease of coordination because of the cooperation among the members of the society.5) Monetary help can be secured from government.6) Helps development of moral character.

Disadvantages of the Cooperative Society

1) Limitation of capital.2) Excessive government regulation.3) Lack of secrecy.4) Insufficient motivation.5) Inefficiency of management as the members generally lacks technical knowledge and may not be

competent enough.

Public Sector

Public sector companies are established by the government to produce and supply goods and services requiredby the society. Public sector prevents the economic unbalance in the nation. It also serves as a means to

obstruct the monopolistic tendencies. The important forms of public sector organizations are:

1) Departmental organizations2) Public corporations3) Government companies

Public sectors are accountable in terms of their results to parliament and state legislature.

Departmental OrganizationsDepartmental organizations are organized like any other government departments. A top executive

appointed by the ministry concerned will manage the organization. The Posts and Telegraphs, railways,

Defense industries, etc. are examples of this type of organization.

In certain organizations cooperation from several ministries may be required and in such cases a board

or committee of representatives from the ministries concerned will manage the organization. Chambal Control

Board, All India Handloom Board, etc. are examples of organizations managed by inter-departmental committee

or board.

Public Corporations

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A public corporation is usually established by a special act of the parliament or state legislature with internal

autonomy. Special statue also prescribes its management pattern, powers, duties and jurisdiction. Though the

total capital is provided by the government, they have separate entity and enjoy independence in matters related

to appointment, promotions etc. Public service rather than profit maximization becomes the main aim of such

corporations. The industrial finance corporation, the Life Insurance Corporation, etc are examples of public

corporations.Government CompaniesA government company, according to the Indian companies act, 1956, is any company in which not less than

51% of the share capital is owned by the Central Government or by any state government or governments, or

partly by the Central government and partly by one or more state governments. It is organized in the form of a

joint stock company. Hindustan machine tools ltd., Hindustan Aircrafts Ltd., Hindustan shipyard Ltd., etc are

examples of this type which are owned by the government and also be joint stock companies.

These companies are managed by elected board of directors. In its day-to-day working it is free from

government interference. However, bureau of public enterprises can issue guidance and directions.

Advantages of Public Sector

1) Helps for the betterment of the community and for the welfare of the people.2) Facilities like power, transport, credit, and insurance, etc are easily made available to public sector

units.

3) Because of the government control economical and social objectives can easily be achieved.4) Provides better working conditions to the employees and cheaper and better products and services to

the customers.

5) Encourages industrial growth of under-developed regions in the country6) Provides employment opportunities to all sections of the people.7) Prevents monopolistic tendencies and paves the way for equitable distribution of wealth among

different sections of the community

Disadvantages of Public Sector

1) Because of bureaucratic control generally timely decisions are not taken.2) Lack of initiative among workers because promotions are seniority based rather than merit based.3) Too much of interference by the political leaders and government in the internal affairs of public sector

units.

4) Misuse of excessive freedom (compared to private concerns) cannot be ruled out.5) Inadequate accountability.6) Government officials prefer to work according to certain rules and regulations and therefore lesser

flexibility.

7) Incompetent persons may occupy high levels.Joint SectorThe concept of joint-sector implies the participation of both the government and the private sector in the share

capital and general management of the business. It combines the best aspects of both private sector and public

sector organizations and aims at achieving the task of social justice through efficient use of resources.

Joint sector firms can be a pure Indian firm or an Indian firm with foreign collaboration. In the former case

the share capital by the government, private investor and the investing public including financial institutions

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should be in the ratio 26:25:49 and in the latter case the contribution of the government, private investor, foreign

collaborator and the investing public including financial institutions should be in the ratio 25:20:20:35. In either

case the government and financial institutions can own not more than 50% of the equity together, and a single

private investor is not allowed to hold more than 25% of the paid-up capital without the permission of the

government of India.

Advantages of Joint Sector1) Helps to foster the industrial development with social justice.2) Checks business malpractices.3) Antidose to monopoly and concentration of economic power.4) Combines the best aspects of both private sector and public sector organizations.5) Makes nationalization unnecessary.

Limitations of Joint Sector

1) Lack of confidence between two sectors.2) Managerial autonomy making the owners passive in business.3) Inadequate accountability.

SharesThe capital of a company will be divided into units called shares. The holders of shares in a public company are

entitled to transfer their shares in the manner prescribed by the articles of the company. There may be different

classes of shares with different rights, but all enjoying limited liability.

Types of Shares

A public company is entitled to issued two classes of shares. Viz. preference shares and Equity orOrdinary

shares.

1. Preference SharesPreference shares, as the name implies have some preferential rights over other types of shares. E.g., dividend is

first paid on Preference shares and then on ordinary shares. Preference shares are entitled to a fixed dividend

out of the profit.

Preference shares may be further classified as :

a) Cumulative Preference Shares: They are entitled to a fixed annual dividend. If this full dividendcannot be paid in any year (because of less profits to company), the rest or deficit can be paid out of

future profits.

b) Non Cumulative preference shares: They are entitled to a fixed annual dividend, but the share holderscannot ask for arrears from future profits if any year the company fails to make enough profits to pay

fixed dividends for the year.

c) Participating preference shares: In addition to the fixed dividend, preference share holders maysometimes have a right to participate in surplus profits of the company if provided by the Articles.

Such preference shares.

d) Redeemable Preference Shares: Ordinarily, the share capital of a company is not refunded except atthe time of winding up. But under section 80 of the companies act, Companies are given power,

subject to their articles, to issue a type of shares called Redeemable Preference Shares which are liable

to be redeemed or returned after the expiry of a stipulated period whether the company is to be wound

up or not.

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2. Equity or Ordinary SharesThese are shares having no special rights. The holders of equity shares participate in the profits available after

all preferential rights have been fully satisfied. They are not entitled to any fixed dividend and hence their

income varies from year to year. i.e., Ordinary share holders may get very high rewards in one prosperous year

of increased business and no dividend if the business encounters a difficult period.

DebenturesA debenture is an instrument issued under the seal of the company acknowledging its debt to the holder. A

public company may issue debentures when it wants to borrow money for extending its business without

increasing its share capital.

A debenture-holder differs from a share holder in various ways. A share holder is a part-owner of the

company; a debenture-holder is merely a loan creditor. A share holder gets a share in the profits, called

dividend, calculated on the capital invested by him; a debenture- holder receives interest on the money lent by

him (Interest is paid whether the company runs in profit or loss). In the event of winding up of the company the

debenture-holders are paid first. While the share holders get their dues after paying all the liabilities of the

company.

Classes of DebenturesDebentures may be of different types depending upon the terms and conditions of their issue:

a) Secured and Unsecured Debentures: Secured debentures are those which are issued with a specificcharge on the property or assets of the company. They may be called mortgage debentures in the sense

that the assets of the company remain mortgaged with the debenture holders. But there is not such

security in the case of unsecured or naked debentures. A holder of an unsecured debenture is merely an

ordinary creditor.

b) Redeemable and Irredeemable Debentures: Redeemable debentures are those which are repayable onor after a fixed date. The entire issue is either paid off in one installment, or by stages, drawings

number of debentures by lot. In the case of irredeemable debentures, however, no such provision is

made as to their redemption. But the company may redeem then whenever it is in a position to do so.

Otherwise they are irredeemable except in the event of a winding up or some serious default on the part

of the company.

c) Bearer and Registered debentures : Debentures fall into two broad categories on the basis of theirtransferability. The debentures which are transferable by simple delivery are called bearer debentures.

Registered debentures are those which are registered in the books of the company. They cannot be

transferred by simple delivery; every transfer must be registered with the company as in the case of

shares.

Break Even Analysis (for a single product)Any production activity consists of fixed cost F in the form of land, building, equipment etc. which is totally

independent of volume of production. This cost is always accompanied with a variable cost which roughly

varies in a direct proportion with Q (production level) and total cost is sum of these 2 components. The break-

even point corresponds to the production level at which the firm neither incurs a loss not enjoy a profit.

At break-even point,

Total cost = Revenue

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F + VQbep = PQbep= > Qbep = F / (P V) units

Always efforts must be made to keep the break-even production level as low as possible and this can be

achieved by 3 methods, namely (i) reducing fixed cost, F (ii) increasing selling price, P (iii) decreasing the

variable cost, V.

Revenue, R=PQ

Total Cost=F+VQ

F = fixed cost

cost V = variable cost per unit

Q = level of production in units

Bep P = selling price of each unit

R = revenue = PQ

Fixed Cost, F

QBep

Quantity, Q

Fixed Costs Variable Costs

Land

Building

Administrative cost

Staff salaries

Insurance

Material Cost

Labour cost

Spare parts cost

Depreciation

Problem :

The following data pertains to XYZ company.

Fixed cost for the year 1995 - `96 = 800000 Rs.

Variable cost per unit = 40 Rs.

Selling price of each unit = 200 Rs.

a) Find the break even pointb) If the likely sales turnover for the next budget period is 1600000 Rs. Calculate the estimated profit.c) If the profit target of Rs. 600000 has been budgeted, compute the sales turnover required.

Solution:

a) Qbep = F/ (P V) = 800000 / (200 40) = 5000 units.

Break-even point in terms of units is 5000 units and in terms of Rs. is

5000 x 200 = 1000000 Rs.

b) Sales turn over (or revenue) = PQ = 1600000 Rs.

=> Q = 1600000 / 200 = 8000 units.

Total cost = Fixed cost + variable cost = 800000 + 40 x 8000 = 1120000 Rs.

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Therefore, profit = 1600000 1120000 = 480000 Rs.

c) Profit = Revenue expenses = PQ (F + VQ)

= > Profit = Q (P V) F

= > Q = (Profit + F) / (P V)

= 1400000 / 160 = 8750 units

Therefore sales turnover = 8750 x selling price / unit = 8750 x 200 = 1750000 Rs.

Problem :

A company has an installed capacity to produce 20,000 units of a certain product. The fixed cost is Rs. 15 lakhs

and the variable cost is Rs. 100 per unit. What should be the selling price if it is to break-even at 50 % capacity?

What is the maximum profit that can be earned in a year? What will be the profit at 90 % capacity utilization?

Hint : (i) Taking F = 15 lakhs, V = Rs. 100 and Qbep = 10000 units. calculate P.(ii) Using the calculated value of P, F = 15 lakhs, V = Rs. 100 and Q = 20000 units, calculate the

maximum profit.

(iii) Repeat the step (ii) by taking Q = 18,000 units in place of 20000 and calculate the profit.Project Report or Feasibility Report

A project report or feasibility report is a written account of various activities to be undertaken by a firm and

their technical, financial, commercial and social viabilities. The preparation of such a statement serves three

important objectives:

(i) It facilitates planning of business by setting guidelines for future action.(ii) It helps in procuring finance from various financial institutions and banks which ask for such

detailed information before giving any assistance.

(iii) It provides a frame work for the presentation of the information regarding business, required bythe Government for granting licenses, etc.

A project report, in order to be useful, should contain the following information.(i) A brief description of the project as introduction.(ii) Details of product and process.(iii) Details of market potential and location of industry.(iv) Requirements of plant and machinery, raw material, power, water and other inputs.(v) Requirements of personnel.(vi) Estimation of Capital cost and working capital requirements.(vii) Nature of effluents and disposal.(viii) Analysis of profitability for the entire project.(ix) Implementation schedule.

Technical and Economic Feasibility

The primary task of a lending institution before granting a term loan is to assure itself that the

anticipated rise in the income of the borrowing unit would materialize, thus providing the necessary funds for

repaying the loans according to the terms and conditions. The two main aspects of appraisal are: (i) technical

feasibility and (ii) economic feasibility.

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Technical Feasibility

The examination of this aspect requires a detailed assessment of the goods and services needed for the project

land, housing, transportation, raw materials, supplies, fuel, power, water, etc. The financial institution has to

satisfy itself that these requirements are available. Where they are not domestically available and have to be

imported. Conditions in the foreign market as well as government policy at home in terms of foreign exchangecall for a review. The location of the project is highly relevant to its technical feasibility and hence special

attention is paid to this feature. In fact, the accessibility to the various resources has meaning only with

reference to location. Another important feature of technical feasibility relates to the type of technology to be

adopted foe the project. In case new technical processes are adopted from abroad, attention is paid to the

differences in conditions. The dangers of hasty adoption of new techniques are quite substantial in an

underdeveloped country. It is, therefore, desirable for lending institutions to make use of the services of

technical personnel.

Economic Feasibility

This aspect relates to the determination of the extent of demand of the new product (of the new unit). Possible

future changes in the volume and pattern of supply and demand will have to be estimated in order to assess the

long term prospects of the industry as well as earning capacity of the unit. Projection or forecasting of demand

is a complicated matter though of vital importance. In fact, the demand for a product is affected by a variety of

factors and estimations of demand can never be wholly accurate or absolutely reliable; they can at best be

considered as approximations.

Production Planning and ControlThe highest efficiency in production is obtained by manufacturing the required quantity of product, of

the required quality, at the required time by the best and cheapest method. To attain this target, management

employs production planning and control, the tool that coordinates all manufacturing activities.

Production planning and control may be defined as the direction and coordination of the firms material

and physical facilities toward attainment of pre-specified production goals, in the most efficient available way.

In its capacity as the brain and the central nervous system of the production program, production planning and

control is responsible for having available every part and assembly at the right time at the right place, in order to

ascertain progress of operations according to predetermined time and place schedule.

The functions of production, planning and control can be classified as follows:-

Forecasting Estimation of type, quantity and quality of the future work. Order writing Giving authority to one or more persons to undertake a particular job.

Product design collection of information regarding specifications, bill of materials, drawings, etc. Process planning and Routing Finding the most economical process of doing a work and deciding

how and where the work should be done.

Material control It involves determining the requirements and control of materials. Tool control It involves determining the requirements and control of tools used. Loading Assignment of work to manpower, machinery, etc.

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Scheduling It is the time phase of loading and determines when and in what sequence the work willbe carried out. It fixes the starting as well as the finishing time for the job.

Dispatching It is the transition from planning to action phase. In this phase the worker is ordered tostart the actual work.

Progress reporting (i) Data regarding the job progress is collected.(ii) It is compared with the preset level of performance.

Expediting Taking action if the progress reporting indicates a deviation of the plan from theoriginally set targets.

Replanning Replanning of the whole affair becomes essential, in case expediting fails to bring thedeviated plan to its actual path

I. Planning Phase

Prior planning Active planning

Forecasting Order writing Product design

Process planning Material Tool Loading Scheduling

& routing control control

II. Action phase

(Dispatching)

III. Control phase

Progress reporting (data processing) Corrective action

Expediting Replanning

Gantt chartsThese were developed by Henry L Gantt about half a century ago. Their purpose is to provide an

immediate comparison between schedule and reality and this is achieved simply by marking on the schedule the

actual progress of the work. There are several variations of Gantt charts, which can be adjusted to the specific

circumstances prevailing in the plant.

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Item Machine

No.

Jan 1 2 3 4 5 6 - - - -

Cutting CX3.

Drilling DK1

A Gantt chart is illustrated in the above figure. It shows a sequence of production operations on the left hand

side. Machines are identified by their code letters and numbers. Light bars show the scheduled starting and

completion time of each operation by dates indicated at the top of the chart. Heavy bar lines indicate the status

of progress on operations.

Basic Production Processes

The basic production processes may be classified as:

1. Continuous or mass production.2. Similar process or batch production.3. Job shop or Job-order production

Continuous or Mass Production Process.

Mass production means the production of items on large scale, employing very specialized machines and

processes. Examples of continuous or mass production processes are :

a) Automobile manufacturingb) Refiningc) Toy manufacturingd) Glass manufacturing

The characteristics which distinguish this process are as follows:1) The work performed is highly standardized.2) The quantity of work performed or product produced is large.3) The type of equipment used to perform the work is specially designed for that particular purpose.4) Machinery is laid as per the sequence of production.5) The materials handling equipment is usually built in to provide a smooth flow of work.6) The in-process inventory is usually small in relation to output.7) The workers skill is relatively low. In most activities only semi-skilled workers are required.8) Supervision is relatively easy.9) Job instructions are usually given only at the outset of the new job and few instructions are required

thereafter.

10) The unit cost of the service or product produced is relatively low.11) The initial planning must be extremely detailed and complete.12) The overall production cycle time is greatly reduced.13) Generally a higher equipment investment is required.14) There is a small degree of flexibility.

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Similar Process or Batch Production

In this method of operation, the work being performed is similar in nature from order to order, but not

identical. Examples of activities of this type are:

a) Shipping and receiving.b) Packaging and packing in a mail-order house.c)

Clothing manufacturing

d) Book printinge) Medical clinics.The characteristics which distinguish the similar process are as follows:

1) Process and product planning is done for every batch.2) The equipment is laid out by the type of end product.3) The end-product inventory is relatively low.4) Articles are manufactured in batches as per the specific order procured.5) The cycle time is relatively short.6) The materials handling equipment may be both mobile and permanent installation conveyor.7) The product or end result of the work is highly standardized.8) Relatively few job instructions are required because of the similarity of the work.9) Control of the process is relatively easy because of the repetitiveness.10) The balancing of the workload is relatively difficult because the work is laid out according to

the end product of the work.

Job Order Production

The job order (job shop or intermittent) production is characterized by a wide diversity of end products.

Examples of this type of activity are:

a) Machine tool manufacturingb) General Engineeringc) Aircraft manufacturing

The characteristics which distinguish the job order, job shop or intermittent type of process are as follows:

1) The product or end result of the activity is non standard.

2) The order or work unit quantity is generally small.3) The equipment, if any, is usually of the general purpose type. This permits its use for any job that

comes through the activity. The objective of this is to obtain greater utilization of the equipment.

4) The equipment is usually arranged according to the type of work that is performed and notaccording to the sequence of operations on specific products.

5) Materials handling equipment is of the mobile type which can be used in many locations.6) In-process inventory is relatively high.7) A much higher levels of worker skill is required.8) Supervision is generally difficult.9) Product design is time consuming10) Control of the work is relatively complex because every job must be individually controlled.11) The cycle time to complete an order is relatively long.12) Balancing the workload is relatively easier.

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13) The unit cost for the product or work produced is relatively high.14) High degree of control is essential.

Inventory Control (Material Control)Inventory is money kept in the store room in the form of raw material, in-process material and finished goods.

Most of the production activities are engaged in modifying the material to create an end product. Since

the material is the fundamental component of most activities it is extremely necessary for the production control

system to provide planning and control of material so that right material (a good quality one) is available in right

quantity at the right time. There are three major classes of inventory, namely

1) Raw materials and purchased spare parts.2) In-process material which means semi finished goods.3) Finished goods which are lying in stock room waiting for dispatch.

Although inventory is an idle resource (money blocking) it is a must for smooth running of the

organization.

Material management basically deals with the following two problems:

(i) The amount of material to be ordered (order quantity)(ii) When the material is to be ordered (ordering point).

Economic Order Quantity (EOQ)

The economic order quantity is the size of an inventory order which minimizes the inventory cost. The

inventory cost is the sum of procurement cost and carrying cost.

To determine EOQ two extreme views are encountered:

(i) Order for very large lots (Produce in very large lots) to minimize the procurement cost (tominimize set up cost).

(ii) Order for every small lots (produce in very small lots) to minimize the investment on stock(storage cost or carrying cost).

CminTotal Cost

Carrying Cost

Cost

Procurement Cost

EOQ

Order Quantity

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The variation of procurement cost and carrying cost with order quantity is shown in the above figure and from

the graph it can be seen that the condition for economical order quantity (EOQ), which minimizes the total

inventory cost is:

Procurement cost = Carrying cost.

Purchasing Model with No Shortage

Assumptions:

1) Fixed demand rate ( fixed production rate)2) Instantaneous replacement (Lead time = 0)3) No shortage is permitted.

q

Average

inventory=q/2

t t t t t

Let, C3 = procurement cost / order. (setup cost / order)

r = demand rate in units / year.

C1 = carrying cost / unit / year.

(C1 is generally expressed as a fraction of cost of unit)

q = quantity of units ordered at time t.

Note: One year is considered as the unit time.

No. of orders placed in a year = r / q.

procurement cost / year = ( r / q ) C3

Total carrying cost / year = ( q / 2) C1

Inventory cost/ year, C = procurement cost / year + carrying cost / year

= ( r / q ) C3 + ( q / 2) C1 - - - - (1)

To minimize C, dC / dq = 0.

=> - r (C3/ q2

) + C1 / 2 = 0

=> q = 2 C3 r / C1 = EOQ

Substituting the value of EOQ in eq.(1) we get the minimum inventory cost as :

Cmin = 2 C1C3 r

Problem :

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A manufacturer has to supply his customers with 600 units of his products per year. Shortages are not allowed

and the storage cost amounts to Rs. 0.60 / unit / year. The setup cost per run Rs. 80. Find the optimum run size,

its number and the minimum yearly cost of inventory.

Solution:C1 = Rs. 0.6/ unit/ year

C3 = Rs. 80 / setup.

r = 600 units / year.

optimum run size = EOQ =

2 C3 r / C1

= 400 units.

t = q / r = 400 / 600 = 2 / 3 year = 8 months

minimum inventory cost = Cmin = 2 C1C3 r

= Rs. 240 / year.

The manufacturer has to produce 400 units of his products once in 8 months and the minimum inventory cost

works out to be Rs. 240 / year.

Problem:

The storage cost of an item is Re.1 / month and the setup cost is 25 Rs. / run. If the production is instantaneous

and the demand is 200 units / month find the optimum size of the batch and the best time for replenishment ofinventory.

Solution:

C1 = Re. 1 / month

C3 = Rs. 25 / run

r = 200 units / month

EOQ = 2 C3 r / C1 = 100 units

t = q / r = 100 / 200 = month = 15 days

Minimum inventory cost = Cmin = 2 C1C3 r = Rs. 100 / month

The industry should replenish the inventory once in 15 days and the minimum inventory cost works out to be

Rs. 100 / month. The optimum size of the batch is 100 units.

Problem:

You have to supply your customer with 100 units of a product every Monday. You obtain the product from a

local supplier at Rs. 60 / unit. The cost of ordering and transporting is Rs. 150 per order. The cost of carrying

inventory is estimated at 15 % per year of the cost of the product carried. Find the lot size that will minimize

the cost of the system and determine the total cost that you incur per week.

Solution:

C 1 = 15 % of the cost of the product / year. = 0.15 x 60 = Rs. 9 / unit / year

= Rs. 9 / 52 / unit / week

C3 = Rs. 150 / orderr = 100 / week

Optimum lot size = EOQ = 2 C3 r / C1 = 416 units

Minimum inventory cost = Cmin = 2 C1C3 r = Rs.72 / week

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Total cost = inventory cost + demand rate x cost of the product / unit

= 72 + 100 x 60

= Rs. 6072 / week.

Problem:

Calculate EOQ from the following data:

Annual demand = 1600 units

Cost of materials / unit = Rs. 40 /-Cost of placing and receiving an order = Rs. 50

Annual carrying cost of inventory = 10 % of inventory value.

Hint: Here r = 1600 units / year.

C1 = 0.1 x 40 Rs./ unit / year

C3 = Rs. 50

Formula for EOQ = 2 C3 r / C1 .

Production Model With No Shortage

InventoryRate of Rate of

growing consumption

(k-r) r

Q

t1 t2 Timet t

The assumptions are the same as of the previous model except that replacement rate (manufacturing rate) is

finite and is greater than the demand rate. Here each production cycle time t consists of 2 parts t1 and t2

where t1 is the period during which the stock is growing up at a rate of (k-r) items / unit time and t 2 is the

period during which there is no production but there is only a constant demand at the rate of r.

Let Q be the stock available at the end of time t1 which is expected to be consumed during the remaining period

t2 at the demand rate r and q be the quantity produced during the time period t1.

Cost of inventory = (Q / 2) C1 + (r / q) C3 - - - - (1)

As the quantity produced during the production period t1 is q and the quantity which is consumed during the

same period t1 is rt1 , the remaining quantity which is stored during time t1 is given byQ = q rt1. - - - - (2)

Also from the above figure, k r = Q / t1

= > t1 = Q / (k - r) - - - - (3)

Substituting the expression for t1 from eq. (3) in eq. (2) we get,

Q = q - ( Q r )/(k r)

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Q = q (k r) / k - - - - (4)Substituting the expression for Q from eq. (4) in eq. (1) we get the cost of inventory as

C = q C1 (k - r) / 2 k + r C3 / q - - - - - (5)

To minimize C,

dC / dq = 0

=> (k r) C1 / 2 k - C3 r / q2

= 0

=> q = 2 k C3 r / (k r) C1 = EOQ.

Substituting the value of EOQ in Eq.(5) we get the minimum inventory cost

Cmin = 2 C1 C3 r ( 1 r / k)

Problem:The demand for an item in a company is 18,000 per year and the company can produce the item at the rate of

3000 per month. The cost of one set up is Rs. 500 and the holding cost of one unit per month is 15Ps.Determine (i) the optimum manufacturing quantity (ii) the inventory cost per year (iii) the total annual cost.

The cost of the item per unit is Rs.2.

Solution:r = 18000 per yeark = (3000 x 12 ) per year

C1 = (015 x 12) per unit per year

C3 = Rs. 500 per setup.

EOQ = optimum manufacturing quantity = 2 k C3 r / (k r) C1= 4470 units

Minimum inventory cost = Cmin = 2 C1 C3 r ( 1 r / k)

= Rs. 4024

Total annual cost = 18000 x 2 + 4024 = Rs. 40026

Problem:A contractor has to supply 10000 bearing per day to an automobile manufacturer. He finds that when he starts a

production run, he can produce 25000 bearing per day. The cost of holding a bearing in stock for 1 year is 20ps.

And setup cost of production run is Rs. 180. Find the optimum production run size, assuming number of

working days per year as 300.

Hint: Here r = 10000 x 300 bearings / yeark = 25000 x 300 bearing / year

C1 = Rs. 0.2 / bearing / year

C3 = Rs. 180 / run

Use the same formula as used in the above problem.

Stores Management

Stores management takes care

1. that the required material is never out of stock;2. to purchase materials on the principle of economic order quantity, so that the associated costs can be

minimized.

3. to protect stores against damage, theft, etc.

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Types of storesStores can be of two types, namely Decentralized and Centralized Stores.

In decentralized stores system, each section of the industry (e.g. foundry, machine shop, forging, etc.) has

separate store attached with it, whereas in centralized stores system, the main store located centrally fulfills the

needs for each and every department.

Advantages of Centralization of Stores

Better supervision and control It requires less personnel to manage and thus involves reduced related costs. Better layout of stores Minimum stores can be maintained Better security arrangements can be made

Advantages of Decentralization of Stores

Reduced material handling and the associated cost. Convenient for very department to draw materials,. Less chances of production stoppages owing to easy and prompt availability of materials.

Bin Cards

A bin is an open-mouth container made of steel or wood. A bin card is a card attached to each bin or rack or

shelf, used for storing materials and the like. The Bin Card shows details of quantities of each types of material

received, issued and on hand each day. The store-keeper maintains bin cards up to date. A bin card is not

considered as an accounting record; it simply informs store-keeper of the quantities of each item on hand.

Bin cards may be in duplicates. One card is attached to the bin containing materials. The duplicate card

remains with the store-keeper, on his table for ready reference. Bin card helps the store-keeper to know about

the details of the stock of materials. When the quantity reaches a minimum value, he can place orders or

requisitions for fresh supply of materials.

Bin card may also have the following details:

(a) The maximum and minimum quantity of each material to be carried out.(b) Normal quantity of each material to be ordered.(c) Ordering Level of the material.






(c) The maximum and minimum quantity of each material to be carried out.(d) Normal quantity of each material to be ordered.(c) Ordering Level of the material.

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Following figure shows a BIN (or STOCK) CARD.

BIN CARD

Bin No. ..

Material .Code No.

Stores Ledger Folio ..

Maximum Quantity .

Ordering Level Minimum Quantity .

Date Quantity received Quantity issued Balance Remarks






(e) The maximum and minimum quantity of each material to be carried out.(f) Normal quantity of each material to be ordered.(d) Ordering Level of the material.

Note: Stores Ledger is identical with Bin Card except that money values are shown

Human Resources Management (HRM)

Human Resources Management or Personnel Management is the management function that deals with

recruitment, placement, training and development of organization members.

Objectives of Human Resources Management

The following are the duties and responsibilities or objectives of Human Resources Management.

1. To make correct selection of employees and to fit right person in the job.2. To give opportunity for the maximum employee development.3. To achieve effective utilization of employees.4. To improve welfare of the employees.5. To maintain desirable working relations between employer and employees.6. To satisfy employees with good income, power, prestige etc.7. To ensure promotions to higher posts are given on merits and seniority.8. To preserve goodwill, morale and reputation of the organization.

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Functions of Human Resources Management

The following are the functions of human resources management.

a) Procurementb) Developmentc) Compensationd) Integration ande) Maintenance.

a) ProcurementThis refers to the hiring of personnel the right people, in the right place, at right time. This functions

deals with

Man power planning Recruitment and selection Merit rating Promotions, Transfers, Demotions and Separations.

b) DevelopmentThis refers to the education and training of personnel. This gives opportunity to acquire the knowledge

and skills.

c) CompensationThis deals with wage systems, monetary incentives and terms of employment. This function involves:-

Job Evaluation Profit sharing Gratuity Wages and rewards Pension Group Insurance.

d) Integration

This is concerned with reconciliation of individual and organization goals. It deals with

Handling of Grievances Negotiation with labour unions. Collective bargaining etc.

e) Maintenance

This aims at maintaining good working conditions and favorable attitudes towards organization. It

deals with

Maintaining employees health Maintaining employees safety Maintaining satisfactory personal contacts and employees relationship. Maintaining employees welfare activities.

Recruitment and Selection

Recruitment is concerned with developing a pool of job candidates in line with the human resource plan.

Candidates are usually located through newspaper and professional journal advertisements, employment

agencies, word of mouth and visits to college and University Campuses.

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Selection is the mutual process whereby the organization decides whether or not to make a job offer

and the candidate decides whether or not to accept it.

Steps in Selection Process

PROCEDURES PURPOSES ACTIONS AND TRENDS

1. Completed jobapplication

Indicates applicants desired position;provides information for interviews

Requests only information that predictssuccess in the job

2. Initial screening

interview

Provides a quick evaluation of

applicants suitability

Asks questions on experience, salary

expectation, willingness to relocate etc.

3. Testing Measures applicants job skills and the

ability to learn on the job.

May include computer testing software,

handwriting analysis, mental and physical

ability.

4. Background

investigation

Checks truthfulness of applicants

resume or application form

Calls the applicants previous supervisor (with

permission) and confirms information from

applicant.

5. In-depth

selection interview

Finds out more about the applicant as

an individual

Conducted by the manager to whom the

applicant will report.

6. Physical

examination

Ensures effective performance by

applicant; protects other employeesagainst diseases, establishes health

record on applicant; protects firm

against unjust workers compensation

claims.

Often performed by companys medical order.

7. Job offer Fills a job vacancy or position Offers a salary plus benefit package.

The standard hiring sequence is the seven-step procedure described in the above table. In practice,

however, the actual selection process varies with different organizations and between levels ion the same

organization.

Workers or Operators Training

Training enables a new employee to acquire necessary knowledge and skill to do the job effectively

and the most common types of training given to workers are: on the job training methods, including job

rotation, in which the employee, over a period of time, works on a series of jobs, there by learning a broad

variety of skills; internship in which job training is combined with related class room instructions and

apprenticeship in which the employee is trained under the guidance of a highly skilled co-worker.

Off the job training takes place outside the workplace but attempts to simulate actual working

conditions. This type of training includes vestibule training in which employees train on the actual equipment

and in a realistic job setting but in a room different from the one in which they will be working. The object is to

avoid the on the job pressures that might interfere with the learning process. In behaviorally experienced

training, activities such as simulation exercises, business games and problem-centered cases are employed so

that the trainee can learn the behavior appropriate for the job through role playing. Off the job training may

focus on the classroom with seminars, lectures and films or it may involve computer-assisted instruction (CAI),

which can both reduce the time needed for training and provide more help for individual trainees.

Management Development

Management development is a systematic, integrated and planned approach to improving the overall

effectiveness of managers in their present positions and to prepare them for greater responsibility when they are

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promoted. Management development programs enable the managers to cope with new demands, new problems

and new challenges.

Approaches to management Development: on-thejob methods

On-the-jobmethods enable the trainees to learn as they contribute to the aims of the enterprise.

There are four major formal on-the-job development methods.

1. Coaching

Coaching is the training of an employee by his of her immediate supervisor and is by far the most effective

management development technique. Effective coaches will develop the strengths and potentials of

subordinates and help them overcome their weakness.

2. Job Rotation

Job rotation involves shifting managers from position to position so that they can broaden the knowledge.

3. Creation of Assistant-to Positions

Assistant-to positions are frequently created to enable the trainees to work under experienced managers who

can give special attention to the developmental needs of trainees.

4. Planned work Activities

Trainees are given important work assignments to develop their experience and ability. Trainees may be asked

to head a task force or participate in an important committee meeting. Such experiences help them to

understand how organizations operate and also improve their human relations skill.

Approaches to Management Development: Off-the-job Methods

Off-the-job development techniques remove individuals from the stresses and ongoing demands of the

workplace, enabling them to focus fully on the learning experience. There are three common off-the-job

development methods:

1. Classroom Instructions

In this approach specialists from inside or outside the organization teach trainees a particular subject.

Classroom instruction is often supplemented with business games and experimental exercises.

2. University Management Programs

Besides offering undergraduate and graduate degrees in business administration many universities now conduct

management development programs. These programs may range in length from a week to three months or

more. Some universities also have full graduate curriculum or even programs custom-designed for the needs of

individual companies. These university programs expose managers to theories, principles and new

developments.

3. Planned Readings

Another approach to development is planned reading of relevant and current management literature. The

training department may aid a manger by providing a list of valuable books. This is essentially a self-

development.

Industrial Psychology

Industrial psychology is the study of men at work as individuals and in groups and of the relationship

between individuals and groups.

It is obvious that while enterprise objectives may differ somewhat in various organizations, the

individuals involved also have needs and objectives that are especially important to them. Through the function

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of leading, managers help people see that they can satisfy their own needs and utilize their potential and at the

same time contribute to the aims of an enterprise. Managers thus require an understanding of the roles assumed

by people, the individuality of people and the personalities of people.

Behavioral Models

In order to understand the complexity of people, writers on management have developed several

models. Managers, whether they consciously know it or not, have in mind a model of individual andorganizational behavior that is based on assumptions about people. These assumptions and their related theories

influence managerial behavior.

Mc Gregors Theory X and Theory YOne of the views about the nature of the people has been expressed in two sets of assumptions

developed by Douglas Mc Gregor and commonly known as Theory X and Theory Y. Managing , Mc

Gregor suggested, must start with the basic question of how managers see themselves in relation to others. This

view point requires some thought on the perception of human nature. Theory X and Theory Y are two sets of

assumptions about the nature of people. Mc Gregor chose these terms because he wanted neutral terminology

without any connotation of being good or bad.

Theory X assumptions.The traditional assumptions about the nature of people, according to Mc Gregor, are included in

Theory X as follows:

1. Average human beings have an inherent dislike of work and will avoid it if they can.

2. Because of this human characteristic of disliking work, most people must be coerced, controlled, directed and

threatened with punishment to get them to put forth adequate effort toward the achievement of organizational

objectives.

3. Average human beings prefer to be directed, wish to avoid responsibility, have relatively little ambition and

want security above all

Theory Y assumptionsThe assumptions under theory Y are seen by Mc Gregor as follows:

1. The expenditure of physical effort and mental effort in work is as natural as play or rest.

2. External control and the threat of punishment are not the only means for producing effort toward

organizational objectives. People will exercise self direction and self-control in the service of objectives to

which they are committed.

3. The degree of commitment to objec

IOM notes

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