business management and administration - … management and administration ... 1.7 business ethics...

Business Management & Administration

( MG 11 513) Electrical Engineering

Department

3/22/2016

Dr. Mahesh S Narkhede, LEE,

GP Mumbai 1

Business Management and Administration

Mahesh S Narkhede

LEE GP Mumbai

MG 11 513

1

Contents: Hours Marks

01 BUSINESS

1.1 Definition

1.2 Characteristics

1.3 Classification

1.4 Objectives

1.5 Types of Business organizations

1.6 Business environment

1.7 Globalization and its effects on Indian economy

1.7 Business Ethics and Social Responsibility

1.8 Major areas of Indian industry

6 10

2



Department

3/22/2016


GP Mumbai 2

Contents: Hours Marks

02 ORGANIZATION.

2.1 Definition, Need.

2.2 Essentials

2.3 Types of organization Structures ( line,

functional, line & staff)

2.4 Forms of organizations (Proprietorship,

partnership, joint stock companies, Govt.

Enterprises, co-operative enterprises)

8 12

3

Business

Business is defined as“an activity , in which different persons exchangesomething of value whether goods or service formutual benefit or profit

It is also defined as“an enterprise engaged in production anddistribution of goods for sale in market or renderingservices for a price”

4



Department

3/22/2016


GP Mumbai 3

Business Characteristics

1) Business activities are directly or indirectlyconcerned with the transfer or exchange of goodsand services for value.

2) Business consists of dealings in goods andservices.

3) Business means exchange of goods and servicesundertaken continually or at least recurrently.

4) Business is a human activity directed towards theacquisition of wealth.

5) Element of risk, that is possibility of loss arising outof the uncertainty that goes with the profitexpected from a business activity.

5

Business Classification1) Industry : This is a business activity which

concerns itself with the production , processing orfabrication of products.

The industries may be either of these 4 types –a) Extractive (Fishing, mining, agriculture etc).b) Genetic (breading farms, poultry farms, selling of

horticulture plants etc)c) Construction (buildings, bridges, roads, dams,

canals etc)d) Manufacturing (analytical, synthetic, processing

and assembly line industries etc)e) IT industry .2) Commerce: Commerce is an activity whereby

goods are transferred to those who need them.3) Trade 6



Department

3/22/2016


GP Mumbai 4

BASIS FOR

COMPARISONTRADE COMMERCE

Meaning Trade means the

exchange of goods and

services between two

or more parties in

consideration of money

or money’s worth.

Commerce means

exchange of goods and

services between the

parties along with the

activities such as

insurance,

transportation,

warehousing,

advertising etc that

completes that

exchange.

Scope Narrow Wide

Type of Activity Social Activity Economic Activity

Frequency of

Transactions

Isolated Regular

7

BASIS FOR

COMPARISONTRADE COMMERCE

Employment

opportunities

No Yes

Link Between buyer and

seller

Between producer and

consumer

Demand and supply

side

Represents both Represents only the

demand side

Capital requirement More Less

8



Department

3/22/2016


GP Mumbai 5

Objectives of Business

1) Organic Objectives : To try for survival, and then togain prestige and win recognition from the societyand thus try to grow.

2) Economic Objectives : To earn as much profit aspossible.

3) Social Objectives : Business must fulfil itsobligations to society , by way of supply of qualitygoods, avoidance of profiteering and anti socialpractices , and providing employment.

4) Human Objectives : These are (a) fair deal toemployees, (b) development of small enterprises,(c) production according to national priorities, (d)self sufficiency and export development and (e)development of skill of personnel.

9

Types of Business Organizations

1) Private Sectora) Individual Ownership or Sole Proprietorshipb) Partnership Organizationsc) Joint Stock companies e.g. ABB, CGLd) Cooperative Organizations e.g.AMUL. Mahila

Griha Udyog Lijjat papad, KRIBHCOe) Joint Hindu Family Firm e.g Haldiram

2) Public Sector ( State Ownership and Control)a) Departmental Organizationsb) Public Corporations (or Statutory Companies)c) Government Companies3) Joint Sector :Ownership and Control shared by privateentrepreneur, state and public

10



Department

3/22/2016


GP Mumbai 6

Individual Ownership

Such business is owned by a single man / woman.This is the oldest and simplest form of business.

Applications : Such form of business is mostsatisfactory in following cases.1) In small enterprises requiring small capital which

can be spared by a owner.2) Where risk required is not too heavy.3) Where management by one man/ woman is

possible.

11

Individual Ownership Advantages :.1) Such individual enterprises can be easily formed

and simple to run. The owner is free form all legalrestrictions.

2) His interest, care and efficiency directly effects theprofit of business. Hence efforts and rewards aredirectly related.

3) Owner is in directly touch with the customer andhence can know their likings.

4) Since this is supervised by the proprietor himself,the overloads are very less and products can besold cheaply.

5) Most of the business have their monopoly becauseof secrecy in their functioning.

6) It offers full freedom for work.7) Proprietor can act promptly.

12



Department

3/22/2016


GP Mumbai 7

Individual Ownership Disadvantages :.1) Amount of capital that can be invested is limited,

therefore modern factory can not be run with thissystem of organization.

2) Owner cannot be master of all techniques likemanagement, sales, engineering, processes etc.Hence work suffers.

3) Due to unlimited liability owner can not take risk tostart a big industry.

13

Partnership Organizations

Partnership is the relationship between the personsdesirous of starting a business and they combine orinvite together to increase their resources i.e. capital,labour, skill and ability.Advantages:1) Can be formed without much legal formalities and

heavy expenditure of organization and stamp duty.2) It is not subject to strict Government supervision.3) Due to more numbers of owners the capital that

can be collected is much more than proprietaryorganization.

4) Persons having different skills come together sobetter management then proprietary organization.

5) The affairs of the firm can be kept secret.14



Department

3/22/2016


GP Mumbai 8

Partnership Organizations

Disadvantages:1) Due to unlimited liability risk involved is more.2) After the death or retirement of a partner the

partnership can come to end.3) It can raise much less capital in comparison to joint

stock company.4) Sometimes due to misunderstanding between

partners may arise.5) All the partners are jointly and severally liable for

the acts of a partner, who is placed in charge ofmanagement . Thus sometimes mistakes of onepartner may cause a big loss to all the partners.

15

Partnership OrganizationsTypes of Partners:1) General Partners : All the partners who are in

partnership are called as general partners.2) Active Partners: The partners who take active role

in management and help to formulate the policies.These are also called as working or managingpartners.

3) Sleeping Partners: These are the partners who justinvest money and do not take any part inmanagement.

4) Nominal Partners: Partners who do not investmoney & do not take part in management but theylend their reputed name for company’s reputation.

5) Secret Partners: Take part in the managementsecretly.

6) Minor Partners: Those having age <18 16



Department

3/22/2016


GP Mumbai 9

Joint Stock CompaniesIn this system capital is contributed by large nos. ofpersons. As a result there are unlimited financialresources. The capital is raised by selling shares ofdifferent values. Persons who purchase the sharesare called as share holders.The managing body is known as Board of Directors iselected by these shareholders. The board of directorsis responsible for policy making, important financialand technical decisions and efficient working of anenterprise.The liability of share holder is limited to the extent ofthe amount of shares held by him.Types of joint stock companies :a) Private Limited Companyb) Public Limited Company

17

Joint Stock Companies

Private Limited Company:

This type of company can be formed by two or morepersons. The maximum number of membership islimited to 50. In this , transfer of shares is limited tomembers only and general public can not be invited tosubscribe the shares. Normally the members arerelatives or friends.

The balance sheet need not to be kept open to public.It is circulated to the partners only. Government alsodoes not interfere with the activity.

18



Department

3/22/2016


GP Mumbai 10

Joint Stock Companies

Public Limited Company:

It is one whose membership is open to general public.The minimum number required to form such acompany is seven , but there is no upper limit.

Such companies can advertise to offer its shares togeneral public through a prospectus. These aresubjected to greater control and supervision of thegovernment. This control is required to protect theinterest of shareholders and the members of public.The shares are transferrable . The affairs of thecompany are managed by an elected body, known as‘Board of Directors”. The number of members in theboard of directors is limited to seven.

19

Joint Stock CompaniesLiquidation:

It becomes difficult to run company if liability becomesmuch more than assets and when creditors press forpayments of loan etc. At this time the company has tobe dissolved or wind up . This is known as liquidation.

Liquidation may be compulsory or voluntary or underthe supervision of court.

If the resources do not permit the payment , thenassets of the company have to be sold and then theamount is paid to the creditors in proportion. If someamount is left then it is distributed amongst the shareholders.

20



Department

3/22/2016


GP Mumbai 11

Joint Stock CompaniesAmulgamation:

It is joining together of two business. It usually resultsin more efficient operation because of economics oflarge sales, administrative and marketing etc.

e.g. iGate and Patni Computers, Mahindra andMahindra and Ssangyong (Soutch Korean AutoIndustry)

21

Raising Finance:The required capital is supplied by individuals,societies and associations. Funds can also be takenfrom banks. Following are the sources from wheremoney can be taken for an enterprise.1) Issue of Shares : A portion of money is collected

in the form of shares.2) Issue of Debentures : When company desires to

raise the required finance through loans instead ofshares,then debentures are issued. Debentureholder can not claim for ownership and he is paidinterest.

3) Loan advances form banks , and other financialinstitutions , like L.I.C and U.T.I.

4) State loans from industrial Corporations, StateFianance Carporation or through IndustgrialDevelopment Carporation. 22



Department

3/22/2016


GP Mumbai 12

Joint Stock CompaniesAdvantages:1) The liability being limited, the shareholder bear no

risk and therefore , more and more persons areengaged to invest capital.

2) Because of large number of investors the risk ofloss is divided. So average person can contributewithout much hesitation.

3) The work is divided among different groups ofpersons, hence better work can be done.

4) It can bear the high salaries of the managingagents and Managers.

5) Not affected by retirement or death of shareholders.

6) Great potential for expansion.

23

Joint Stock CompaniesDisdvantages:1) Lack of personal interest on part of the salaried

managers because there is no relation betweeneffort and income for them and this leads toinefficiency and waste.

2) This form of organization offers sufficient scope tothe Directors and other members for their personalprofit because they have intimate knowledge of thefinancial position of the company, therefore theycan purchase or sell the shares accordingly.

3) Shareholders are scattered all over the countrywho rarely attend the general body meeting orexercise any check. Due to which cautiouspersons secure control over companies anddeceive the innocent share holders.

24



Department

3/22/2016


GP Mumbai 13

Joint Stock CompaniesDisdvantages:4)It requires large number of legal formalities to beobserved.5)It is difficult to preserve secrecy in these companies.

25

Co-operative SocietiesThe previous forms of organizations neglect theinterest of consumers and employees. The co-operative business organization is the mostdemocratic form of business organization for thebetterment of the general public. They protect theinterest of the consumers, small and independentproducers , and of the workers while fighting againstthe monopolists and capitalists. Members supplycapital , mange the business and share all its profitsand losses.It is defined as “Voluntary organization” of personswith unrestricted membership and collectivelyowned fund, consisting of wage earners and smallproducers, united on a democratic basis for theestablishment of enterprises under jointmanagement for the purpose of improving theirhousehold or business economy. 26



Department

3/22/2016


GP Mumbai 14

Co-operative SocietiesTo start a co-operative society an application issubmitted to the registrar of co-operative societies.The officials of this department will attend the firstgeneral body meeting in which bye-laws are framed togovern the society and the directors are elected by theshareholders. Then if the authorities are satisfiedabout its soundness , a license will be issued by theregistrar and thus the company is formed. Board ofDirectors meet at least once in three months.In order to protect the interest of small consumersIndian government is encouraging the co-operativemovement and provides loan through financialcorporations, banks etc.The accounts of the enterprise are audited by stategovernment. Despite of this the co-operativemovement has failed to achieve the objectives.

27

Co-operative SocietiesObjectives:1) It is a voluntary organization. A member can

continue his membership as long as he desires,and can by giving a notice, withdraw his capitaland cease to be a member.

2) There is no any limit to its membership. Sharevalue mostly Rs. 10/-.

3) The management is based on democratic basis ofequality . Therefore , every member can cast onlyone vote, whatsoever the numbers of shares hehas.

4) Its objective is to serve the members and to earnthe profit.

28



Department

3/22/2016


GP Mumbai 15

Co-operative SocietiesTypes:1) Producers‘ or Manufacturer’s co-operative society.2) Consumer’s co-operative society.3) Housing co-operative society.4) Co-operative farming.5) Co-operative credit society.

29

Co-operative Societies1) Producers‘ or Manufacturer’s co-operative

society.

Here persons combine to form a society for themanufacturing goods. It is useful where neither largecapital is necessary nor much technical and expertknowledge of management is needed.

e.g. Agriculture and cottage industries, Sugar mills,Rice mills, Ginning mills etc.

30



Department

3/22/2016


GP Mumbai 16

Co-operative Societies2) Consumer’s co-operative society.

This has got some popularity. Its objective is toeliminate the middle man’s profit by directlypurchasing the things from manufacturers anddistributing among the members and non – membersat reasonable pricee.g. Students co-operative society

31

Co-operative Societies3) Housing co-operative society.

These are formed for the purpose of gettingplots or houses for the needy persons.

32



Department

3/22/2016


GP Mumbai 17

Co-operative Societies4) Co-operative farming.

The objective is to enlarge the size of agricultureland by forming co-operative groups of the cultivators.Thus it makes possible the use of modernimplements, science and technology in agriculturewhich in turn increase the yield.

Not that much popular in India.

33

Co-operative Societies5) Co-operative credit society.

Its objective is to finance the poor cultivators byadvancing loans for the development of land andpurchase of machinery etc.

34



Department

3/22/2016


GP Mumbai 18

Co-operative SocietiesAdvantages1) It sells the products at cheaper rate since money

required to spent on advertisement and publicity isnot needed.

2) Expenses for book keeping, auditing andmanagement task are kept minimum, as membersprovide honorary service for such tasks.

3) It offers to its employees better wages andreasonable conditions of service.

4) There is no question of profiteering , hoarding andblack marketing type of evils as the aim is to servethe community.

5) Middlemen’s profit is eliminated as purchasing isdirectly made from manufacturer’s.

35

Co-operative SocietiesAdvantages6)It suits well to Indian cultivators in improving theproblems if mechanised farming, warehousing andcredit etc.7)Profits are shared equally and , the balance goes forsocial causes and development of locality such asmedical aid, education, playgrounds and childrengardens etc.8)It tries to equalise money distribution.9)It benefits general public.10)It provides sense of co-operation among themembers.11)It is possible to take large amount of capital in theform of loans (8 times the subscribed capital) from thegovernment.

36



Department

3/22/2016


GP Mumbai 19

Co-operative SocietiesLimitations1) As its members come mostly from the working

class and middle class, its capacity to raise capitalis limited. Therefore suitable only for small andmedium sized undertakings.

2) Due to limited financial resources services of highlyqualified persons cannot be utilized.

3) Although it trades for the benefit of members onlyat the same time it can not refuse to trade with nonmembers.

4) Mostly inefficient management and sometimesfound that the management is inexperienced andcorrupt.

5) Members usually try to make undue advantage.6) It requires better and strict supervision.

37

Joint Hindu Family FirmsAncestral property inherited by a Hindu from his greatfather to grandfather, and by grandfather to father tohim. The female members do not have any claim inthis firm.e.g. Reliance by Dhirubhai Ambani, Tata by JN Tata,Mahindra and Mahindra by JC and KC Mahindra,HaldiramAdvantages:1) These are not dissolved on the death of a member.2) It has no binding of Company’s Act 1956.Drawbacks1) Continuity of firm depends upon the continuity of

joint family itself. e.g. Reliance.2) Resources are limited compared to Joint Stock

company.. 38



Department

3/22/2016


GP Mumbai 20

Joint Hindu Family FirmsDrawbacks

1) Continuity of firm depends upon the continuity ofjoint family itself. e.g. Reliance.

2) Resources are limited compared to Joint Stockcompany.

3) Since the management of this type of firm is in thehands of eldest male member, there is generallylack of management skill or adequate businessknowledge.

4) Business is looked after by the active member(s)but the profit is shared by all. This affects hisinterest and efforts for the growth and efficeintrunning of the firm.

39

Joint Hindu Family Firms Vs partnership Firms

1) This is creation of Hindu law, hence there is nocontract. Partnership firm is formed under thecontract.

2) This is a continuous firm and does not dissolve onthe death of a member, but ceases if the jointfamily member breaks down. Whereas partnershipfirm gets dissolve in the event of death of apartner.

3) This does not have female as members, where aspartnership firm can have female partners.

40



Department

3/22/2016


GP Mumbai 21

STATE OWNERSHIP (PUBLIC SECTOR ORGANIZATIONS)

This form is most suitable for the establishment anddevelopment of modern industries, because facilitieslike power, transport, credit , insurance etc are easilyavailable to them.The private and joint stock companies give rise toexploitation of labour and of consumers. This gaveidea of state ownership.Government either starts or nationalises (acquires)certain industries to prevent economic unbalance inthe nation. It also serves as a means to obstruct themonopolistic tendencies.e.g. Railways, Post and Telegraph, currency notepress etc.Ship building, electricity generation (Govt +stock) 41

Forms of Public Sector Organizations

1) Departmental Organizations2) Public Corporations3) Government Companies

42



Department

3/22/2016


GP Mumbai 22

Government Departmental Organizations

These are managed in two ways.

1. Management through the concerned ministryIt is managed by the officials of the government underthe charge of the secretary of the concerned ministry.e.g. Posts & Telegraphs, Railways, DefenceIndustries, Broadcastings etc.

43


2. Management by Inter – Department committeeor BoardWhen cooperation from different departments isrequired then this board or committee is formed forco-operation, quick decisions and consultations canbe done.e.g. Bhakra Control Board, Chambal Control Board,All India Handloom Board

44



Department

3/22/2016


GP Mumbai 23


Characteristicsa) Financed out of government budgetb) Revenue go to publicc) All rules and regulations of government are

applicabled) Direct control of concerned ministrye) Employees are government servants.

45


Meritsa) Because of Government control it is easy to

achieve its economical , political, and socialobjectives.

b) Such organisations are suitable for public utilityservices and defence industries.

c) Because of the government control, completesecrecy is possible like in ordinance factories etc.

46



Department

3/22/2016


GP Mumbai 24


Demeritsa) Because of bureaucratic control, generally timely

decisions are not taken.b) Government officials prefer to work according to

certain rules and regulations and thus it becomesdifficult to bring about major modifications andinnovations etc.

c) Because of red tapism , officers are discouragedfrom taking quick and independent decisions.

d) Lack of initiative because promotions are senioritybased rather than merit based.

47

Public Corporations

A Public corporations is wholly owned by theGovernment - Centre or State. These corporationshave no profit motive and work for maximization ofsocial welfare.e.g. MSRTC (Maharashtra State Road TransportCorporation) (ST)

48



Department

3/22/2016


GP Mumbai 25

Public CorporationsMerits1) These are supposed to be better managed. These

are expected to provide better working conditionsto the employees and cheaper and better productsto the consumers.

2) Quick decisions can be possible , because ofabsence of red-tapism and bureaucratic control.

3) More flexibility as compared to departmentalorganizations

4) Because of absence of profit motive ,these aremost suitable for managing public utilities at areasonable cost to the people.

5) Since the management is in the hands ofexperienced and capable directors and managers,these are managed more efficiently thengovernment departments. 49

Public CorporationsDemerits1) Any alteration in the power and constitution of

corporation requires an amendment in theparticular Act, which is difficult and timeconsuming.

2) The autonomy of the corporations is only onpapers whereas in reality , there are lot ofinterference by the political and governmentofficers.

3) Public corporations causes monopoly and in theabsence of competition , these are not interested inadopting new techniques and making improvementin their working.

50



Department

3/22/2016


GP Mumbai 26

Government CompaniesA state enterprise is organized in the form of a Jointstock Company under Companies Act. Here 51 %shares are held by central / state government. eg.NEPA Paper MillMerits1) It is easy to form and have more efficiency.2) The directors of government company are free tol

take decisions and are not bound by certain rigidrules and regulations.

3) They always try to satisfy their customers becauseotherwise they might loose to their competitors.

Demerits1) Misuse of excessive freedom can not be ruled out.2) Inadequate accountability3) Directors are placed by govt so they spend time on

pleasing political masters & officials.51

OrganizationDefinitionOrganization can be defined in many ways1) Organization is a mechanism or structure that

enables living things to work effectively together.2) Organization may be defined as the process of (i)

identifying and grouping the work to be performed,(ii) defining and delegating responsibility andauthority and (iii) establishing the relationships forthe purpose of enabling people to work mosteffectively together in accomplishing objectives.

52



Department

3/22/2016


GP Mumbai 27

OrganizationImportance (Need) of Organization1) Sound organization can contribute greatly to the

continuity and success of the enterprise.2) A properly designed and balanced organization

facilitates both management and operation of theenterprise.

3) Sound organization permits organizationalelaboration.

4) The organization structure can profoundly affectthe people of the enterprise.

5) Proper organization facilitates the effective use ofthe manpower.

6) Sound organization stimulates independent ,creative thinking and initiative by providing welldefined areas of work with broad latitude of thedevelopment of new and improved ways of doingthings.

53

OrganizationImportance (Need) of Organization7)Sound organization permits optimum use oftechnical and human resources.8)A sound organization leads to specialization.9)A sound organization minimizes corruption andinefficiencies10)A sound organization does not generate confusion.11)A sound organization facilitates the training andmanagerial development of personnel.

54



Department

3/22/2016


GP Mumbai 28

OrganizationEssentials (Elements) of OrganizationThe main components of the organization are1) Well defined objectives.2) Well organised and coordinated group of people.3) Proper division of work and labour.4) Clear and well defined policies and procedures.5) Proper division and of Authority and Responsibility.6) An effective system of communication.

55

OrganizationForms of OrganizationThe main forms of the organization are1) Line, Military or Scalar Organization.2) Functional Organization.3) Line and Staff Organization.

56



Department

3/22/2016


GP Mumbai 29

OrganizationLine, Military or Scalar Organization.• It is the simplest form of organization.• It resembles to Military Organization.• It is based upon relative authority and responsibility.• The authority flows directly from the Works

Manager(W/M) to Superintendent (Suptd) toForeman (F/M) and from them to workers.

• Line organization is direct and people at differentlevels know to whom they are accountable.

• The immediate superior (or Boss) gives orders tothe subordinates , assigns duties, dismisses andtakes disciplinary action against them.

• Any enterprise that starts small possibly starts withsuch organization

57

OrganizationLine, Military or Scalar Organization.

W/M

Suptd-1

F/M

Worker Worker

F/M

Worker Worker

Suptd-2

F/M

Worker Worker

F/M

Worker Worker

58



Department

3/22/2016


GP Mumbai 30

OrganizationLine, Military or Scalar Organization.Advantages• It is simple and easy to understand.• It is flexible, easy to expand and contract.• It makes clear division of authority.• There is clear channel of communication , with no

confusion at all.• It encourages speedy action.• It is strong in discipline as it fixes responsibility on

as individual.• It is capable of developing the all-round executive at

the highest levels of authority.

59

OrganizationLine, Military or Scalar Organization.Disadvantages• It neglects specialists.• It overloads a few key executives.• It requires a high type of supervisory personnel to

meet the challenges imposed in the absence ofspecialists as advisors.

• It is limited to very small concerns.• It encourages dictatorial way of working.• In line organization provisions are seldom made to

train, develop and replace top executives.• Due to lack of specialization perhaps there is more

wastage of materials and man-hours.Applications• Small companies, automatic and continuous

process industries such as paper, sugar, textile etc60



Department

3/22/2016


GP Mumbai 31

OrganizationLine, Military or Scalar Organization.Disadvantages• It neglects specialists.• It overloads a few key executives.• It requires a high type of supervisory personnel to

meet the challenges imposed in the absence ofspecialists as advisors.

• It is limited to very small concerns.• It encourages dictatorial way of working.• In line organization provisions are seldom made to

train, develop and replace top executives.• Due to lack of specialization perhaps there is more

wastage of materials and man-hours.

61

OrganizationFunctional Organization.• F.W.Taylor suggested this type as it is difficult to

find all round persons qualified to work at middlemanagement levels in the line organization.

• It is also a line organization with the difference thatinstead of one Forman (which being master orspecialist of everything and therefore hard to find)there are eight functional foreman: four of themlocated on the shop floor and remaining four inoffice, but everyone has direct and equal authorityover the workers.

• Each functional foreman who is a specialist in anactivity is in charge of one function, e.g.

62



Department

3/22/2016


GP Mumbai 32

OrganizationFunctional Organization.

63

OrganizationFunctional Organization.• Route clerk or order of work and route clerk was in

charge of issuing work orders and routing the jobs.• Instruction clerk would issue specifications and

instructions related to jobs to the workers.• Time and Cost clerk keeps records pertaining to the

time (the workers have spent in doing work) andcost (i.e. worker’s wages etc)

• Disciplinarian keeps personnel records of theworkers and handles cases of insubordination.

• Gang boss has the charge of the preparation of allwork up to the time that the work piece is set in themachine.

• Speed boss ensures that proper cutting tools arebeing used , cut is started at right place in the workpiece and the optimum speeds, feeds and depths ofcut are being employed.

64



Department

3/22/2016


GP Mumbai 33

OrganizationFunctional Organization.• Repair boss is responsible for adequate repairs and

maintenance of equipment and machinery.• Inspector or Inspection boss looks after and is

responsible for the quality of product.

65

OrganizationFunctional Organization.Advantages• Since foreman is responsible for one function, he

can perform his duties in a better manner.• Functional organization makes use of specialists to

give expert advice to workers.• It relieves line executives of routine , specialised

decisions.• Expert guidance reduces the number of accidents

and wastage of materials, man and machine hours.• It relieves pressure of need to search a large

number of all round executives.• Quality of work is improved.

66



Department

3/22/2016


GP Mumbai 34

OrganizationFunctional Organization.Disadvantages• Coordination of the efforts of various functional

foremen is difficult.• It is difficult to maintain discipline as each worker is

responsible to eight foreman.• It is very difficult to fix up the responsibility to any

one foreman in case something goes wrong.• Workers always remain confused about the

authority and activity of each foremen.• It makes industrial relationship much complex.• Workers are not given opportunities to make use of

their ingenuity, initiative and drive.• All round executives can not be devloped

67

OrganizationFunctional Organization.Applications• Due to disadvantages cited in previous slide , the

functional organization as such is obsolete howeverin the modified form , employing the principlesexplained above, it is frequently used in some mostmodern and advanced concerns.

68



Department

3/22/2016


GP Mumbai 35

OrganizationLine and Staff Organization.• The line organization gradually developed to shape

as the line and staff organization.• As the industry grew in size and complexity , the line

executives could not perform properly all otherfunctions ( besides looking at production) such asR&D , planning, distribution , legal, public relationsetc. This necessitated the employing of specialexecutives to assist line executives and they wereknown as staff as they were recruited to performstaff or special functions.

• The line executives retain supervisory authority andcontrol over the work of their subordinates whereasthe staff executives relive line executives of certainspecialised work and advise them on mattersreferred to them.

69

OrganizationLine and Staff Organization.• The final decision whether to accept and implement

the recommendations of the staff executive remainin the hands of the line executive.

• As shown in the figure , the line executives aremarked vertically whereas staff executives areplaced horizontally.

70



Department

3/22/2016


GP Mumbai 36

OrganizationLine and Staff Organization.

71

OrganizationLine and Staff Organization.Advantages• Expert advice from specialist staff executives can be

made use of.• Line executives are relived of some of their loads

and are thus able to devote more attention towardsproduction.

• Less wastage of material, man and machine hours.• Quality of product is improved.• There is no confusion as exists in functional

organization.• Line and staff organization possesses practically all

the advantages of both the line and functionalorganizations.

72



Department

3/22/2016


GP Mumbai 37

OrganizationLine and Staff Organization.Disadvantages• Product cost will increase because of high salaries

of staff executives.• Staff department may weaken the line organization.• Staff and line organization may get confusion in

case functions are not clear.• Frictions and Jealousies if developed between two

them enterprise is at harm.• If line executives depend upon staff executives ,

they may loose their initiative, drive and ingenuity.Applications• Most common among the medium and large

enterprise.

73

What Is Ethics?

Ethics is the set of moral principles by

which people conduct themselves

personally, socially, or professionally.

74



Department

3/22/2016


GP Mumbai 38

What Is Ethics?

Business ethics is a set of laws about

how a business should conduct itself.

In general, for any business to be

successful, it must operate legally and

humanely.

75

Ethics is the set of

principles by which

you conduct yourself in

society.

How often do you help

the environment?

What do you do?

ENVIRONMENTALLY FRIENDLY

76



Department

3/22/2016


GP Mumbai 39

Ethics as Good Business

Unethical business practices can affect

your business indirectly.

The amount you make in profits from

one unhappy customer can translate

into a lot more lost because of missed

repeat business.

77

Ethics as Good Business

Treating employees unethically can

also backfire.

Mistreating employees leads to a high

turnover rate. This increases the cost

of hiring and training new employees.

78



Department

3/22/2016


GP Mumbai 40

Important Ethical Questions

When considering a questionable

course of action, you have to ask

yourself these important questions:

• Is it against the law? Does it violate

company or professional policies?

continued79

Important Ethical Questions

• What if everyone did this? How

would I feel if someone did this to

me?

• Am I sacrificing long-term benefits for

short-term gains?

80



Department

3/22/2016


GP Mumbai 41

Making Decisions on Ethical Issues

Here are some steps if you find

yourself in an ethical dilemma:

1. Identify the ethical dilemma.

2. Discover alternative actions.

continued81

Making Decisions on Ethical Issues

3. Decide who might be affected.

4. List the probable effects of the

alternatives.

5. Select the best alternative.

82



Department

3/22/2016


GP Mumbai 42

Graphic OrganizerImportant Ethical Questions

Graphic Organizer

Does it violate the law or policies?

ETHICAL DECISION

Would this sacrifice long-term benefits for short-term gain?

What if everyone did this, but it’s bad?

UNETHICAL

NO

NO

NO

YES

YES

YES

MAY BE

UNETHICAL

UNETHICAL

83

Social Responsibility

Social responsibility is the duty to do

what is best for the good of society.

84



Department

3/22/2016


GP Mumbai 43


The ethical obligations of a business

are to:

• Provide safe products

• Create jobs

• Protect the environment

• Contribute to the standard of living in

society85


A conflict of interest is when a

business is tempted to put profits

before social welfare.

86



Department

3/22/2016


GP Mumbai 44

Responsibility to Customers

The Food and Drug Administration (FDA), a government agency, protects

consumers from dangerous or falsely

advertised products.

87

OVER-THE-COUNTER MEDICINE LABEL

The FDA governs

advertising and

labeling of over-

the-counter

medicines.

Analyze why the

FDA officials might

feel that regulation

of advertising and

packaging labels is

necessary.88



Department

3/22/2016


GP Mumbai 45


Fair competition between businesses

is healthy for the marketplace, but

some companies don’t always play

reasonably.

89


Some companies use unethical means

to eliminate competition.

One of the most common means is to

conspire with other companies to

control the market for a product.

90



Department

3/22/2016


GP Mumbai 46

Responsibility to Employees

Businesses have a social responsibility

to create jobs.

They are expected to provide

employees with safe working

conditions, equal treatment, and fair

pay.

91


The Equal Pay Act (passed in 1964)

requires that men and women be paid

the same wages for doing equal work.

92



Department

3/22/2016


GP Mumbai 47


The Disabilities Act bans

discrimination against persons with

physical or mental disability.

93


It’s in a company’s best interest to

treat its workers fairly otherwise low

morale, poor productivity, and a high

turnover rate are its troubles.

94



Department

3/22/2016


GP Mumbai 48

Responsibility to Society

Businesses have responsibilities not

only to customers and to employees

but also to society as a whole.

95

Responsibility to Society

Many businesses plan for their social

responsibilities just like planning for

production and sale of their products.

96



Department

3/22/2016


GP Mumbai 49

Globalization and Its effect on Indian Economy

Globalization.• Globalization (or globalization) describes a process

by which regional economies, societies, andcultures have become integrated through a globalnetwork of communication, transportation, andtrade.

• Globalization can also be defined as “theintensification of worldwide social relations whichlink distant locations in such a way that localhappenings are shaped by events occurring manymiles away and vice – versa.”

• Globalization generally means integrating economyof our nation with the world economy.

97


After suffering a huge financial and economic crisisDr. Man Mohan Singh brought a new policy which isknown as Liberalization, Privatization andGlobalization Policy (LPG Policy)The following measures were taken to liberalize andglobalize the economy:

98



Department

3/22/2016


GP Mumbai 50


Devaluation : To solve the balance of paymentproblem Indian currency were devaluated by 18to19%.

Disinvestment: To make the LPG model smooth manyof the public sectors were sold to the private sector.

Allowing Foreign Direct Investment (FDI): FDI wasallowed in a wide range of sectors such as Insurance(26%), defense industries (26%) etc.

NRI Scheme: The facilities which were available toforeign investors were also given to NRI's.

99

Consequences of Globalization

The implications of globalisation for a nationaleconomy are many. Globalisation has intensifiedinterdependence and competition between economiesin the world market. This is reflected inInterdependence in regard to trading in goods andservices and in movement of capital. As a resultdomestic economic developments are not determinedentirely by domestic policies and market conditions.Rather, they are influenced by both domestic andinternational policies and economic conditions..

Now for Further analysis let us take Impact ofGlobalization on various sector of Indian Economy.

100



Department

3/22/2016


GP Mumbai 51

Impact of Globalization on Agricultural Sector:

Agricultural Sector is the mainstay of the rural Indianeconomy .The liberalization of India’s economy wasadopted by India in 1991. Facing a severe economiccrisis, India approached the IMF for a loan, and theIMF granted what is called a ‘structural adjustment’loan, which is a loan with certain conditions attachedwhich relate to a structural change in the economy.Essentially, the reforms sought to gradually phase outgovernment control of the market (liberalization),privatize public sector organizations (privatization),and reduce export subsidies and import barriers toenable free trade (globalization).

101

Impact of Globalization on Agricultural Sector:

Globalization has helped in:

a) Raising living standards,b) Alleviating poverty,c) Assuring food security,d) Generating buoyant market for expansion of

industry and services, ande) Making substantial contribution to the national

economic growth.

102



Department

3/22/2016


GP Mumbai 52

Impact of Globalization on Industrial Sector:

Globalization of the Indian Industry took place in itsvarious sectors such as steel, pharmaceutical,petroleum, chemical, textile, cement, retail, and BPO.

Globalization means the dismantling of trade barriersbetween nations and the integration of the nationseconomies through financial flow, trade in goods andservices, and corporate investments between nations.Globalization has increased across the world in recentyears due to the fast progress that has been made inthe field of technology especially in communicationsand transport.

103


The government of India made changes in itseconomic policy in 1991 by which it allowed directforeign investments in the country.The benefits of the effects of globalization in theIndian Industry are that many foreign companies setup industries in India, especially in thepharmaceutical, BPO, petroleum, manufacturing, andchemical sectors and this helped to provideemployment to many people in the country.This helped reduce the level of unemployment andpoverty in the country.The foreign companies brought in highly advancedtechnology with them and this helped to make theIndian Industry more technologically advanced.

104



Department

3/22/2016


GP Mumbai 53


The negative Effects of Globalization on IndianIndustry are that with the coming of technology thenumber of labor required decreased and this resultedin many people being removed from their jobs. Thishappened mainly in the pharmaceutical, chemical,manufacturing, and cement industries.

105

Impact of Globalization on Financial Sector:

The recent economic liberalization measures haveopened the door to foreign competitors to enter intoour domestic market. Innovation has become a mustfor survival.Financial intermediaries have come out of theirtraditional approach and they are ready to assumemore credit risks. As a consequence, manyinnovations have taken place in the global financialsectors which have its own impact on the domesticsector also.The emergences of various financial institutions andregulatory bodies have transformed the financialservices sector from being a conservative industry to avery dynamic one.

106



Department

3/22/2016


GP Mumbai 54


In this process this sector is facing a number ofchallenges.In this changed context, the financial services industryin India has to play a very positive and dynamic role inthe years to come by offering many innovativeproducts to suit the varied requirements of the millionsof prospective investors spread throughout thecountry.Reforms of the financial sector constitute the mostimportant component of India’s programme towardseconomic liberalization.

.

107


Growth in financial services (comprising banking,insurance, real estate and business services), afterdipping to 5.6% in 2003-04 bounced back to 8.7% in2004-05 and 10.9% in 2005-06. The momentum hasbeen maintained with a growth of 11.1% in 2006-07.

108



Department

3/22/2016


GP Mumbai 55

Impact of Globalization on Import and Export:

Marine products in recent years have emerged as thesingle largest contributor to the total agricultural exportfrom the country accounting for over one fifth of thetotal agricultural exports. Cereals (mostly basmati riceand non-basmati rice), oil seeds, tea and coffee arethe other prominent products each of which accountsfro nearly 5 to 10% of the countries total agriculturalexports.

109

Merits of Globalizationa) There is an International market for companies and

for consumers there is a wider range of products tochoose from.

b) Increase in flow of investments from developedcountries to developing countries, which can beused for economic reconstruction.

c) Greater and faster flow of information betweencountries and greater cultural interaction hashelped to overcome cultural barriers.

d) Technological development has resulted in reversebrain drain in developing countries.

110



Department

3/22/2016


GP Mumbai 56

Demerits of Globalizationa) The outsourcing of jobs to developing countries

has resulted in loss of jobs in developed countries.b) There is a greater threat of spread of

communicable diseases.c) There is an underlying threat of multinational

corporations with immense power ruling the globe.d) For smaller developing nations at the receiving

end, it could indirectly lead to a subtle form ofcolonization.

e) The number of rural landless families increasedfrom 35 %in 1987 to 45 % in 1999, further to 55%in 2005. The farmers are destined to die ofstarvation or suicide.

111

Administrationa) Any organization whether it is run for profit or not

need to be controlled.b) The control of the enterprise is effected through

Administration and Management.c) Administration is concerned mainly with decision

making and making necessary adjustments.d) It is defined as “the activities that relate to running

of companies or organization”e) “Universal process of organizing people and

resources so as to direct activities toward commongoals and objectives”

112



Department

3/22/2016


GP Mumbai 57

Difference between Management and Administration

a) Administration determines the objectives andpolicies of the enterprise , Management carries outthese policies to achieve objectives of theenterprise.

b) Administration gives proper direction, it is directingfunction. Management properly executes, it is anexecuting function.

c) In brief Management carries out the policies ofAdministration.

113

Types of Administration

Centralized Administration – In this case the control isat center of power. This administrator has power toaccess or interfere any process of the organization.Advantages of Centralized Administrator -a) Company does not need multiple administrators.b) It is easier to ensure that schedule does not

conflict.Disadvantages of Centralized Administratora) Centralized Administrator shall have knowledge of

all process.

114



Department

3/22/2016


GP Mumbai 58

Types of Administration

Individual Administration – In this case the control isdistributed at different stages.Advantages of Individual Administrator -a) Each Administrator is responsible for his/her

decisions.Disadvantages of Centralized Administratora) Each stage needs a separate Administrator.b) Communication between the different individual

administrator may be a problem.

115

Role, Responsibilities and functions of Administrator

Role of Administrator –

• As a student to understand general concepts of Administration

• As a catalyst to enhance the office staff’s ability to manage and organize office effectively and professionally

• As a organizer to file in the proper way and filing standard

• As a strategist to develop an appropriate office management strategy

116



Department

3/22/2016


GP Mumbai 59


Role of Administrator –

• As an Asset Manager to develop an appropriate assets management strategy

• As a planner to to develop administrative procedures and to plan and control administrative budget

117


Responsibilities of Administrator –

1. Administer and monitor the financial system in order to ensure that the municipal finances are maintained in an accurate and timely manner

• Main Activities -Assist with preparation of the budget

• Implement financial policies and procedures

• Reconcile the general ledger

• Prepare and reconcile general bank statements118



Department

3/22/2016


GP Mumbai 60



• Establish and maintain supplier accounts

• Ensure data is entered into the system

• Ensure transactions are properly recorded and entered into the computerized accounting system

• Prepare income statements

• Prepare balance sheets

• Assist with the annual audit

• Maintain financial files and records

119



2. Oversee the accounts payable and accounts receivable systems in order to ensurecomplete and accurate records of all moneys

Main ActivitiesEnsure the safeguarding of all municipal funds

Issue, code and authorize purchase orders

Reconcile the accounts payable

Reconcile the accounts receivable

Reconcile weekly deposits

Manage distribution of utilities bills and collections of accounts 120



Department

3/22/2016


GP Mumbai 61



3. Administer employee files and records in order to ensure accurate payment of benefits and allowances

Main ActivitiesAdminister employment agreements

Verify and report on benefits payments

Maintain the leave management system

Review remittances

Supervise completion of the payroll

Review payroll reports121


Responsibilities of Administrator –4. Supervise administrative services within the

municipal office

Main Activities

Manage the filing, storage and security of documents

Respond to inquiries

Manage the repair and maintenance of computer and office equipment

Maintain insurance coverage’s

Issue permits and licenses 122



Department

3/22/2016


GP Mumbai 62


Responsibilities of Administrator –Supervise the lands program

Supervise customer services and respond to customer inquiries

Assist with preparation of Bylaws

Assist with preparation and advertising of contract documents

Administer contracts

5. Perform other related duties as required.123


Functions of Administrator –1) Planning2) Organizing3) Staffing4) Directing5) Controlling

124



Department

3/22/2016


GP Mumbai 63

125

126



Department

3/22/2016


GP Mumbai 64

127

128



Department

3/22/2016


GP Mumbai 65

129

Problems Associated with Administration

Problems :

130



Department

3/22/2016


GP Mumbai 66

5. Management

131

Concept and Definition of Management

1) Management is labeled as the art of getting workdone through people, with satisfaction foremployer, employees and the public.

2) The goals of the enterprise are fulfilled through theresources like men, money, material andmachines.

3) Management is also called am Art as well asScience.

a) Management has a scientific basis becausemanagement techniques are susceptible tomeasurement and factual determination.

b) Management is an Art because Management meanscoordinating and getting work done through others.

132



Department

3/22/2016


GP Mumbai 67

Concept and Definition of Management

4) Management is an executive function which actively directs human efforts towards common goal.

5) Management does not frames the policies . It only implements / executes the policies laid down by the Administration

6) Management is the servant of Administration. It gets salary or a part of profit in lieu of its services.

7) Planning, organizing, Staffing, motivation, directing, coordination and control are all functions of Management.

133

Scientific Management1) F.W.Taylor is known as a father of Scientific

Management. He wrote a book on “ The Principles of Management “ in the year 1911.

2) The primary emphasis of scientific management was on Planning , standardizing and improving human efforts at the operative level in order to maximize output with minimum input.

3) Scientific Management is the result of applying scientific knowledge and scientific methods in the various aspects of management and the problems that arise from them.

4) Taylor thought that by maximizing the productive efficiency of each worker , scientific management would also maximize the earnings of the employees and employer. 134



Department

3/22/2016


GP Mumbai 68

Scientific Management1) F.W.Taylor is known as a father of Scientific

Management. He wrote a book on “ The Principles of Management “ in the year 1911.

2) The primary emphasis of scientific management was on Planning , standardizing and improving human efforts at the operative level in order to maximize output with minimum input.

3) Scientific Management is the result of applying scientific knowledge and scientific methods in the various aspects of management and the problems that arise from them.

4) Taylor thought that by maximizing the productive efficiency of each worker , scientific management would also maximize the earnings of the employees and employer. 135

Basic Approaches of Scientific Management

1) Analyze work scientifically . Investigate all aspects of work on a basis rather than using rules of thumb.

2) Proper specific guidelines for worker performance.3) Develop one best way of doing a job ( using Time

and Motion Studies)4) Select workers best suited to perform the specific

tasks.5) Train and develop each workman in the most efficient

method for doing the job.6) Divide the work so that workmen and Management

share almost equally in the daily performance of each task, workers do their jobs as per the standards laid down and Management does planning and makes sure that all aspects are ready at the right time so that the resultant efficiency is high. 136



Department

3/22/2016


GP Mumbai 69

Basic Approaches of Scientific Management

7) Achieve support and coordination form workmen by arranging conditions, services, guidance and by giving them greater economic rewards which in turn are obtained through increased efficiency and productivity.

137

Levels of Management and Their Duties

1) Top Management2) Upper Middle Management3) Middle Management4) Lower Management (Foreman)5) Operating Force or Rank and File Workmen

138



Department

3/22/2016


GP Mumbai 70

Levels of Management and Their DutiesTop Management – It includes1) Board of Directors2) Managing Directors3) Chief Executives4) General Managers5) Owners6) Share holders/ FinanciersIts functions are –1) Setting basic goals and objectives2) Expanding or contracting the activities3) Establishing the policies4) Monitoring the performances5) Designing / Redesigning organization systems6) Shouldering financial responsibilities etc. 139

Levels of Management and Their DutiesUpper Middle Management – It includes1) Sales Executive (Manager)2) Production Executive3) Finance Executive4) Accounts Executive5) R&D ExecutiveIts functions are –1) Establishment of the organization2) Selection of staff for lower levels of Management3) Installing different departments4) Designing operating policies and routines5) Assigning duties to their sub ordinates etc.

140



Department

3/22/2016


GP Mumbai 71

Levels of Management and Their DutiesLower Management – It includes1) Foreman2) Supervisors3) Office Superintendent4) InspectorsIts functions are –1) Direct supervision of workers and their work2) Developing and improving work methods and

operations and Inspection functions3) Imparting instructions to workers and to give

finishing touch to the plans and policies of Top Management

4) To act as a link between top management and operating force.

5) To communicate the feelings of workers to the top management.

141

Levels of Management and Their DutiesOperating Force– It includes1) Workers (skilled, semi-skilled and unskilled )Its functions are –1) To do work on machines or manually using tools etc.2) To work independently (In case of skilled worker) or

under guidance of supervisor.

142



Department

3/22/2016


GP Mumbai 72

Management Strategies

• Management By Objective (MBO)• Management By Participation (MBP)• Management By Exception (MBE)

143

MBO

• Management By Objective (MBO) –• Management by Objectives is a style of managing an

organization which emphasizes the achievements or results expressed in terns of objectives. The objectives must be specific , time bound, realistic and quantitative or measurable.

144



Department

3/22/2016


GP Mumbai 73

MBOM.B.O. is the process whereby the superior and subordinate jointly (a) identify common goals and (b) define individual’s responsibilities in terms of results expected from him.Steps in setting up M.B.Oa) Identify common goals of the organizationb) IN order to achieve the goals make the changes in

the organization structure, duties, relationship, authority, span of control, responsibility etc,

c) Superior and sub-ordinate jointly decide about growth, greater efficiency , productivity, profitability, elimination of wastage problems etc while deciding sub-ordinated goals about his job.

d) Continuous monitoring is done for the achievement , and necessary adjustments are done if required

145

MBOClasses of Objectivesa) Objectives of industry or business firm, which

ultimately meant to maximize the production and profits (Performance), These are measured in terms of quality and Quantity of output.

b) Individual , personal objectives, which are concerned for the aspirations and goals of individual employee and includes financial or non-financial incentives.These pertain to the characteristics of Manager it self. These are related to his technical or administrative skills, his personal traits and behaviour. Indirect objectives include his attitudes, his motivations, his leadership qualities, his health and his stamina.

146



Department

3/22/2016


GP Mumbai 74

MBOTypes of Objectivesa) Routine Objectivesb) Innovative Objectivesc) Improvement Objectives

The Objectives must bea) Consistentb) Specificc) Measurabled) Related to timee) Attainablef) incentives

147

MBOAdvantages of M.B.O.a) M.B.O. keeps a constant watch over company’s

objectives or targets.b) It is easy to understand by the persons who are to

perform the taskc) It motivates the people, because they work on the

objectives decided with their own consent.d) It provides a better co-ordination among various

departments of the organizationse) It identifies the point where more emphasis is to be

given.f) It leads to better understanding between superiors

and subordinates.

148



Department

3/22/2016


GP Mumbai 75

MBOProblems in the approach of M.B.O.a) Mis-direction by the Boss. The whole process of

M.B.O. is based on pleasing the boss, therefore, sometimes the interest of the enterprise and the self-interst of the boss pull in opposite directions.

b) Different angel of vision. Same business is seen from different angles of vision by various level of management (production, finance, marketing, personal).

c) Decentralization of Decision making powers and delegation of authority. M.B.O. necessitates decentralization of decision making powers and delegation of authority so as to fulfill the objectives. Too much decentralization is also problematic.

149

MBOProblems in the approach of M.B.O.d) Professional Specialization. More and more

specialization is leading towards more and more departmentalization and creates problems of integration of various efforts. Hence functional manager measures his performance by his own professional criteria, instead of measuring his contribution to the enterprise.

e) Lack of financial benefits. If the reward, promotion or increments are not allowed for good performance , then with the passage of time, consistent good performance cannot be maintained.

f) Self control through management. In M.B.O , Manager controls his own performance. The managers may put the data and other information in distorted way to show good performance on papers only.

150



Department

3/22/2016


GP Mumbai 76

MBP (Management by Participation)a) Modern Management emphasizes the need for

participation by workers and managers in the task of finding the best solution to the problems faced by the business .

b) For higher productivity and sound industrial relations it is considered necessary to give the workers and managers the places of partners in the industry.

c) By this the workers and managers are associated with the management so that they feel that they have a positive contribution to make in the operation of their own concern.

d) It also meets the psychological needs of the workers, bring them closure to the management and gives them an actual knowledge about economic and technical position

151

Methods of Worker’s participation in Management

a) Co-partnership – Workers are made shareholders of the organization. They are able to elect their representatives to the Bard of Directors to participate in the management.

b) Suggestion scheme – By this scheme employee takes positive interest in the affairs of the company. In the performance of task, the employees have bright ideas about the way in which the things would or could be done. If the workers are given the opportunities to put these ideas forward, a valuable ideas may be received. The employees giving valuable suggestions may be awarded to encourage the persons to take more interest in the scheme.

152



Department

3/22/2016


GP Mumbai 77

Methods of Worker’s participation in Management

c) Joint Committees - Joint committees comprising the representations of the management and workers are set up to discuss the various matters. Although the decisions of these committees are advisory, the management have little reason to reject the advice. Generally matters related to wages, bonus and price rates are not assigned to such committees.

153

MBP

Types of Committeesa) Budget Committeeb) Cost Reduction Committeec) Workers committee to increase the productivity and

to deal with matters related to accidents and safety.d) Advisory development and production committeee) Job evaluation committeef) Canteen managing committeeg) Housing allotment committee

154



Department

3/22/2016


GP Mumbai 78

MBPAdvantages of Committeesa) Co-ordination between the work of a number of

related functions is possible.b) Being useful channel of communication these help in

maintaining harmonial relations.c) Full advantage of specialization can be obtained.d) Good ideas can be pooled and used for the benefit of

the concern and its employees.e) The responsibility is shared rather than borne by one

man.f) Problems can be solved through discussions by the

committees.Disadvantages of Committeesa) Committees are very time consumingb) Divided responsibility sometimes causes lack of

sincerity in decision making155

MBE (Management by Exception)

a) It is a system of identification and communication that signals the manager as to when and where his attention is needed.

b) The main object of this system is to enable the manager to identify and isolate the problems that call for decision and action and avoid or ignore or pay less attention to less critical problems which better be handled by his subordinates.

c) In this system, the manager receives only condensed , summarized and invariable comparative reports.

d) He should have all the exceptions to the past averages or standards pointed out, both specially good and bad.

156



Department

3/22/2016


GP Mumbai 79

MBE

Advantages of MBE a) It saves time. Manager attends to real

problems at a particular point of time.b) Concentrated efforts are possible, as this

system enables the manger to decide when and where he should pay his attention. It identifies crisis and critical problems.

c) Lesser number of decisions are required to be taken, which enables the manager to go into detail.

d) This enables to increase span if control and increase the activities for a manager.

e) Use of past trends, history and available data can be made fully.

157

MBE

f) It alarms the management about the good opportunities as well as difficulties.

g) Qualitative and quantitative yardsticks are provided for judging the current position.

h) It prevents management from over managing,

Limitations1) It requires a comprehensive observing and

reporting system.2) It increases paper work3) The system is silent till the problem becomes

critical4) Some important factors like huyman behaviour

are difficult to measure.158



Department

3/22/2016


GP Mumbai 80

MBE

Evolution of MBE 1) Measurement Phase – Facts @ situation are

collected.2) Projection Phase – Analysis of measurement

which are important to the organization is carried out.

3) Selection Phase – Vital and economical measures are selected.

4) Observation Phase – Current status of performance is periodically observed.

5) Comparison Phase – Comparison is done between the actual and expected performance.

6) Action Phase – Decisions are taken

159

Total Quality Management

160



Department

3/22/2016


GP Mumbai 81

TQMConcepts– In Total Quality Management the word Quality has a wider meaning and means Quality of output of every department and by every employee , cleanliness, orderliness, punctuality, customer service , standardization of works and continuous efforts for their improvement.

Effective T.Q.M. results in greater customer satisfaction , fewer defects, less waste, reduced costs, improved profitability and increased productivity .

161

Definitions related to T.Q.M.Definitions related to the various terms used in T.Q.M. are standardized by International Organization for Standardization (I.S.O.) vide their I.S.O. 8402:19861) Product or Service : may be either (a) the result

of activities or processes (tangible product: intangible product , such as a service, a computer programme , a design, direction for use) or (b) an activity or process (such as the provision of a service or the execution of a production process)

2) Quality : The totality of features and characteristics of a product or service that on itsability to satisfy stated or implied needs.

3) Quality Policy : The overall quality intentions and direction of an organization as regards quality, as formally expressed by top management. 162



Department

3/22/2016


GP Mumbai 82

Definitions related to T.Q.M.4) Quality Management :It is that aspect of the

overall management function that determines and implements the quality policy.

5) Quality Assurance : All those planned and systematic actions necessary to provide adequate confidence that a product or service will satisfy given requirements for quality.

6) Quality Control : The operational techniques and activities that are used to fulfill requirements for quality . The quality control involves operational techniques and activities aimed both at monitoring a process and at eliminating causes of unsatisfactory performance at relevant stages in order to result in economic effectiveness

163

Definitions related to T.Q.M.7) Quality System : The organizational structure ,

responsibilities, procedures, processes and resources for implementing quality management, The quality system should be only as comprehensive as needed to meet the quality objectives.

8) Quality Plan : A document setting out the specific quality practices, resources and sequence of activities relevant to a particular product ,service, contract or project.

9) Quality Audit : A systematic and independent examination to determine whether quality activities and related results comply with planned arrangements and whether these arrangements are implemented effectively and suitable to achieve objectives.

164



Department

3/22/2016


GP Mumbai 83

Definitions related to T.Q.M.10)Quality System Review: A formal evaluation by

top management of the status and adequacy of the quality system in relation to quality policy and new objectives resulting from changing circumstances.

11) Design Review : A formal documented, comprehensive and systematic examination of a design to evaluate the design requirements & the capacity of design to meet these requirements & to identify problems and propose solutions.

12) Inspectiion : Activities such as measuring, examining, testing, guaging one or more characteristics of the product or service and comparing these with specified requirements to determine conformity.

13)Reliability : The ability of an item to perform a required function under stated condition for a stated period of time. 165

Definitions related to T.Q.M.14) Non conformity : The non fulfillment of specified

requirements and covers the departure or absence of one or more quality characteristics or quality systems elements from specified requiremetns.

15) Defect : The non fulfillment of intended usage requirements and covers the departure or absence of one or more quality characteristics from intended usage requirements.

16)Specification : The document that prescribes the requirements with which the product or service has to confirm.

166



Department

3/22/2016


GP Mumbai 84

Tools for Quality Control

1) Brain Storming : 2) Data collection3) Data analysis4) Pareto analysis which means identification of vital

few from the many at a glance. This is used for fixing the priorities in tackling a problem

5) Cause and effect analysis6) Line diagram, graphs or histograms7) Control techniques including Statistical Quality

Control and Control Charts.

167

A Pareto analysis in a diagram showing which cause should be addressed first.

Pareto Analysis (80/20 rule)

168



Department

3/22/2016


GP Mumbai 85

Cause and Effect Analysis

169

Cause and Effect Analysis

170



Department

3/22/2016


GP Mumbai 86

Histograms

171

Elements of TQM

1) Customer satisfaction2) Employees involvement3) Morale of employees4) Quality Control Circles and suggestion systems5) Higher Revenue6) Lower Cost7) Quality Control8) Control of Production9) Quality Planning10) Quality improvement11) Quality Implementation12) Quality Assurance System

172



Department

3/22/2016


GP Mumbai 87

Elements of TQM

13) Vendor control and quality in procurement14) Customer relationship management15) Total organization involvement16) Measurement information analysis17) Quality education and training18) Strategic quality management19) Leadership

173

Requirements of TQM

1) Sound Foundation2) Sound Infrastructure3) Use of specific tools and techniques

174



Department

3/22/2016


GP Mumbai 88

Aims of TQM

1) Conformance to customer requirements2) Prevention of producing bad quality3) Ideal of zero defect as the performance standard4) Measurement of cost of quality

175

Ways to TQM (How to achieve TQM)

1) Adopt new philosophy of refusing to allow defects.2) Create consistency of purpose for improvement3) Improving production and serviced quality should

be a continuous process.4) Cease dependence on mass inspection and adopt

SQC.5) Insist quantifiable evidence from the suppliers

about their products6) All employees should be trained, retained and

refresher course should be arranged.7) Provide proper tools to employees8) Adopt proper communication system9) Encourage productivity

176



Department

3/22/2016


GP Mumbai 89

Ways to TQM (How to achieve TQM)

10) Encourage coordination between departments11)Permanent commitment of top management to

quality.12)Respect towards ‘work’ and ‘humanity’13)Adopt consumer orientation and not the product

orientation.14)Objective should be ‘Quality first and not the short

term profits’15)Use facts and data

177

Introduction to Financial Management

178



Department

3/22/2016


GP Mumbai 90

Financial Objectives

Financial Management is concerned with the acquisition (investment) , financing ( arranging funds), and management of assets with some overall goal in mind.In making financial decisions , it is important to set out clear objectives.Following are the basic financial objectives.a) Profit Maximizationb) Maximization of shareholder’s / owner’s wealth.

179

Functions of Financial Management

a) Identifying the present strengths and weakness of the organization and the scope for improvement, by conducting the financial analysis,

b) Planning the financial strategies. This involves the consideration of methods and levels of funds raising, profitability and the financing of expansion plan of the organization.

c) Arranging the funds when required, in the form needed in most economical way.

d) Conducting financial appraisal of the possible courses of action.

e) Advising about capital structure.f) Consideration of an appropriate level for drawings

by dividends to the owners/ shareholders.180



Department

3/22/2016


GP Mumbai 91

Functions of Financial Management

g) Ensuring that assets are controlled and used in efficient manner.

h) Cash Management: Preparation of detailed cash budgets and / or forecast funds flow statement so that future problems can be foreseen and remedial measures taken in advance.

181

Types of Capital

� Fixed or Block Capital – This is associated with long term assets. Like Land, Building, Equipment and Machinery, Tools and Furniture etc.

� Working or Current Capital – This pertains to current operations. Like purchase of raw materials, payment of employees , storage costs, Advertisement and selling expenses, Equioemtn and plant maintenance costs, transportation and shipping expenses.

182



Department

3/22/2016


GP Mumbai 92

Sources of Finance

� Internal Sources –1) Retained Equity earnings2) Depreciation provisions3) Deferred Taxation4) Peraonal funds saved or inherited� External Sources –a) Permanent / long term sources of financeb) Medium term sources of financec) Short term sources of financed) Specialist Institutions

183

Sources of Finance

a) Permanent / long term sources of finance –1) Savings2) Loans3) Share Capital4) Debentures5) Corporate bonds6) Public deposits7) Taking in partners

184



Department

3/22/2016


GP Mumbai 93

Sources of Finance

b) Medium term sources of finance1) Bank loans2) Hire purchase3) Sale and lease back4) Equipment leasing5) Profit plow back

185

Sources of Finance

c) Short term sources of finance1) Credit facilities2) Trade credit

186



Department

3/22/2016


GP Mumbai 94

Sources of Finance

d) Specialist Institutions1) Industrial financial corporations2) State financial corporations3) Industrial development corporations

187

Break Even Analysis

188



Department

3/22/2016


GP Mumbai 95

Break Even Analysis

1) Breakeven analysis is used to determine when your business will be able to cover all its expenses and begin to make a profit. It is important to identify your startup costs, which will help you determine your sales revenue needed to pay ongoing business expenses.

189

Profit and Loss Account

• Profit and Loss Account is an account in the books of an organization to which incomes and gains are credited and expenses and losses debited, so as to show the net profit or loss over a given period.

190



Department

3/22/2016


GP Mumbai 96

Balance Sheet

The balance sheet is an accounting statement that

summarises the various assets, liabilities and

equities held by a company on a specific date. The

equities are usually considered as part of the

liabilities. The balance sheet is always drawn up at

the close of business day, but is most relevant on the

last day of the company's accounting period (the

balance sheet date).

Balance sheet is an important documents not only for

bank managers who sanction loan but is equally

important to others who give credits and invest in

equity etc191

Balance Sheet

All creditors and investors all need to familiarize

themselves with the assets, liabilities, and equity of a

company. The balance sheet is the best place to find all

information at one place. The reason as to why balance

sheet is so called is that it is statement where,

Assets = Liabilities + Equity

Major Heads of Balance Sheet :

Assets which are likely to be collectible in the short

term (usually within 12 months) are considered a

current" asset, while anything owed by the company in

the same time frame is considered as a current liability.

192



Department

3/22/2016


GP Mumbai 97

193

Taxation

194



Department

3/22/2016


GP Mumbai 98

• Taxation in India

• Taxes are the government’s way of earning an income which can then be used for various projects that the government needs to indulge in to help boost the country’s economy or its people.

• Taxes in India are decided on by the central and state governments with local governments, such as municipalities.

195

• Types of Taxes:

• Taxes are of two distinct types, direct and indirect taxes. The difference comes in the way these taxes are implemented. Some are paid directly by you, such as the dreaded income tax, wealth tax, corporate tax etc. while others are indirect taxes, such as the value added tax, service tax, sales tax, etc.

196



Department

3/22/2016


GP Mumbai 99

• 1) Direct tax : as stated earlier, are taxes that are paid directly by you. These taxes are levied directly on an entity or an individual and cannot be transferred onto anyone else. Some of these acts are:

• Income Tax Act:

• This is also known as the IT Act of 1961 and sets the rules that govern income tax in India. The income, which this act taxes, can come from any source like a business, owning a house or property, gains received from investments and salaries, etc. Other taxes are Wealth Tax Act, Gift Tax Act, Expenditure Tax Act, Interest Tax Act, etc.

197

• 2) Indirect Tax:

• By definition, indirect taxes are those taxes that are levied on goods or services. They differ from direct taxes because they are not levied on a person who pays them directly to the government, they are instead levied on products and are collected by an intermediary, the person selling the product. The most common examples of indirect tax can be VAT (Value Added Tax), Taxes on Imported Goods, Sales Tax, etc. These taxes are levied by adding them to the price of the service or product which tends to push the cost of the product up.

198



Department

3/22/2016


GP Mumbai 100

• Examples of Indirect Taxes:

• These are some of the common indirect taxes that you pay.

• Sales Tax:

• As the name suggests, sales tax is a tax that is levied on the sale of a product. This product can be something that was produced in India or imported and can even cover services rendered. This tax is levied on the seller of the product who then transfers it onto the person who buys said product with the sales tax added to the price of the product. The limitation of this tax is that it can be levied only ones for a particular product, which means that if the product is sold a second time, sales tax cannot be applied to it.

199

VAT• Value Added Tax

• What is Value Added Tax or VAT?

• VAT is a kind of tax levied on sale of goods and services when these commodities are ultimately sold to the consumer. VAT is an integral part of the GDP of any country.

• It is an indirect form of tax which is paid to the government by customers but via producers of goods and services.

200



Department

3/22/2016


GP Mumbai 101

VAT• VAT is a multi-stage tax which is levied at each

step of production of goods and services which involves sale/purchase. Any person earning an annual turnover of more than Rs.5 lacs by supplying goods and services is liable to register for VAT payment. Value added tax or VAT is levied both on local as well as imported goods.

201

VAT• Features of Value Added Tax in India:

• Similar goods and services are taxed equally. So a similar television from all brands will be taxed the same

• VAT is levied at each stage of production and hence makes the taxation process easier and more transparent

• VAT reduces chances of tax evasion and fosters compliance

• Encourages transparency in sale of goods and services at the tiniest level

202



Department

3/22/2016


GP Mumbai 102

VAT• Calculation of VAT:

• VAT is actually calculated as the difference between input tax and output tax.

• VAT = Output Tax – Input Tax

• Where output tax is the tax received by the seller for sale of his goods and services and input tax is the tax paid by the seller for raw materials required to manufacture his goods and services.

203

VAT• VAT Example:

• Suppose Ram owns a restaurant and spends Rs.50,000 towards obtaining raw materials. Input tax is 10%, so input tax becomes 10% of Rs.50,000 = Rs.5,000

• Now after selling the food made by using the purchased raw materials, Ram was able to make Rs.1,00,000. Supposing 10% output tax, output tax becomes Rs.10,000

• So, final VAT payable by Ram comes out to be Rs.10,000 – Rs.5,000 = Rs.5,000

204



Department

3/22/2016


GP Mumbai 103

VAT• Why is VAT required and How is it useful?

• India was one of the last few countries to introduce VAT as a form of tax. Taxation process in India was believed to be exploited the most by businessmen and enterprises which had found loopholes for evading taxes. VAT was introduced to minimize this evasion and render transparency and uniformity to the tax payment process.

• Value Added Tax is levied in multiple stages of production of goods and services and comes under the purview of various state governments. Hence, VAT in India might slightly differ from one state to another.

205

Excise • Excise Duty

• Excise Duty falls under the Central Government of India.This tax is levied on certain goods for their production or sale catering or on licenses on specific services and activities.

• The excise duty falls under the Excise Duty Act, 1944. The State Government charges them on certain goods such as narcotics, alcohol or alcoholic products, the duty charges on other goods are collected by the Central Government, hence the term, ‘Central Excise Duty’. The tax is however, collected by the Government when the good are being removed from the factory and dispatch.

206



Department

3/22/2016


GP Mumbai 104

Excise

• Acts and Rules For The Collection of Excise Duty:

• Under the authority of the Central Excise Act, 1944, the taxes are levied on manufacturing or production of goods. The rates for the taxes are specified under the Central Excise Tariff Act, 1985. This duty is chargeable on certain textile products such as yarn, fiber, etc. also excluding the Additional Excise Duty under Additional Duties of Excise (Textiles and Textile Articles) Act, 1975, which are also charged.. Excise Act, 1944.

207

Personal Management

208



Department

3/22/2016


GP Mumbai 105

• Personal Management ( Staffing function of Management) , is also known as Human Resource Management.

• Personal Management is concerned with the proper use of human factors.

• It may be defined as that part of the management process, which is primarily concerned with the human constituents of an organization.

Introduction

209

• Recruiting

• Placement training

• Compensation ( pay, fringe, benefits etc.) and maintenance

• Human Resource and Management

• Forecasting and Planning the personal needs of the organization

• Maintaining an adequate and satisfactory workforce

• Controlling the personal policies and programmes of the organization

Functions of Personal Management

210



Department

3/22/2016


GP Mumbai 106

• Providing equal employment opportunities

• To maintain occupational safety and health

• To provide employment retirement income security

• Upliftment of affected classes a social responsibilities.

Functions of Personal Management

211

• Manpower planning may be defined as the scientific process of allocating the right quantity of right men to be required in future at right time on the right job.

Major activities of Manpower planning are :

• Forecasting future manpower requirements

• Inventorying present manpower resources and analyzing the degree to which these are optimally employed

• Anticipating manpower shortages

• Planning the programmes for recruitment , selection, training, development, motivation and compensation so that future manpower requirements will be met.

Manpower Planning

212



Department

3/22/2016


GP Mumbai 107

• For the purpose of manpower planning , job is studied carefully regarding activities involved in the job (Job Analysis)

• With the help of Job Analysis, job description is set down which gives details about the capacity and skill required for performing the job.

Manpower Planning

213

• To ensure optimum use of human resources

• To forecast future requirements

• To ensure that necessary human resources are available as and when required.

• To link manpower planning with organizational planning

• To determine recruitment levels

• To determine optimum training levels

• To provide a basis for management development programmes

• To anticipate redundancies

Objectives of Manpower Planning

214



Department

3/22/2016


GP Mumbai 108

• It should be done sufficiently in advance.

• Is should be reviewed periodically

• The planning should have top management support

• It should be need based.

• Is should be economic in nature.

• It should incorporate the elements of flexibility and elasticity.

• It should be efficient and effective in nature.

• Is should be simple and easy to understand

• Is should provide definite instructions and methods.

Requirements of Manpower Planning

215

• Working hours

• Number of shifts

• Nature of production

• Product mix

• Performance rate

Factors affecting Manpower Planning

216



Department

3/22/2016


GP Mumbai 109

• It is the process by which manpower is discovered and then encouraged to apply for employment. The purpose of recruitment is to collect sufficient number of applicants for each job , so that selection can be made.

Sources of Man power

• Through existing manpower

• Employment exchange.

• Advertisements

• Schools, colleges and Technical Institutions.

• Through contractors ( For unskilled labours)

• Application at the gate

• Recommended candidates

Recruitment

217

• The vacancies are intimated to Employment Department or advertisement is given.

The personal Department must mention the following facts while advertising.

• Number of vacancies

• Grade of vacancies

• General nature and special feature of duties

• The quality of literacy and accuracy expected for the job

• Whether previous experience is absolutely necessary ?

• Last date of submitting the applications.

• Basic salary and other allowances

Recruitment Procedure

218



Department

3/22/2016


GP Mumbai 110

• Selection is the process of examining the applicants with regard to their suitability for the given job(s), and choosing best from them.

• Thus selection is essentially a process of picking out the man best suited for the organization’s requirements.

• Selection process involves rejection of unsuitable or less suitable applicants.

Selection

219

Vocational Guidance and Selection :

• This is a scientific method of selecting workers.

• Guidance aims at finding out what type of job will suit a particular worker

• Selection aims at searching out what type of workers from various applicants will fit the job.

• Workers are selected based on health standard, level of intelligence, mental skill, personal qualities (Obedience, honesty, good temperament, sincerity and willingness to co-operate etc.) After this with the aid of Vocational Guidance jobs are assigned to them.

Selection

220



Department

3/22/2016


GP Mumbai 111

Selection Process :

• Initial screening

• Employment tests

– Achievement or intelligence tests

– Aptitude or potential ability tests

– Personality tests

– Interests test

• Comprehensive Interviews including group discussions

• Background investigations

• Physical examinations

• Final employment decision

Selection

221

• Interview

• Tests

– Psychological Test

– Aptitude Test

– Trade Test

– Medical Test

Techniques and Methods used for Selection

222



Department

3/22/2016


GP Mumbai 112

Training

223

• Definition :

• Training is a process of learning, in which emphasis is given for job instruction, job relation and job knowledge programmes in addition to managerial skills

Training

224



Department

3/22/2016


GP Mumbai 113

• To increase productivity

• To make first line supervisors a more effective tool of management.

• To bring out more cordial relations i.e. employee and employer relations

• To increase morale and team spirit among the workers

• To increase effective co-operation and co-ordination at all levels.

• To impart various social and supervisory skills

• To develop the individual to utilize the knowledge and experience and inherent abilities for higher performance

Objectives of Training

225

• To accept more shop floor responsibility

• To increase knowledge (Technical know-how) and economical use of resources.

Objectives of Training

226



Department

3/22/2016


GP Mumbai 114

Training can be imparted in several ways depending upon the requirement. Various types of trainings can be classified as follows.

• Purpose of Training : Orientation, Technical, Attitude Modification

• Location of Training : On the job , Class room

• Level of Trainees : Workmen, Supervisors, Executive, Senior Executive trainings

• Training Characteristics : Apprentice, Refresher, Extensive

• Number of Trainees : Individual, Group

• Technique of Training : Formal, Discussions, Models, Role playing, Group Discussions.

Types of Training

227

Materials Management

228



Department

3/22/2016


GP Mumbai 115

• Purchasing is the activity responsible for getting the right material to the right place at the right time in the right quantity at the right price.

Introduction to Materials Management

229

• After receiving the purchase requisition forms, exact quantity of material to be purchased and its specification is decided.

• Prepare list of suppliers who deal with the business of the articles to be purchased and are reliable.

• If the material to be purchased is of small amount and required urgently , it may be purchased locally.

• If necessary , prepare and issue N.I.T. (Notice Inviting Tenders) to the concerning suppliers, mentioning different terms, conditions, date and tine of opening tenders.

• Open the tenders at prescribed time on the prescribed date.

Purchase Procedure

230



Department

3/22/2016


GP Mumbai 116

• Prepare a comparative statement of the rates , terms and conditions mentioned in the tender and then study them.

• If required samples may be received from the firms, who have quoted the lowest rates.

• Place the purchase order, to the firm selected after the study of samples , rates, terms and other conditions, mentioning the date by which the material must be received.

Purchase Procedure

231

• Copy of the purchase order must be spent to stores, to the department who has sent the requisition, to accounts section and to inspection department.

• A detailed inspection is carried out after the material is received . If the material is found to be satisfactory , the bill of the supplier is passed and the payment is made to the firm.

Purchase Procedure

232



Department

3/22/2016


GP Mumbai 117

• Inventory is a detailed list of movable goods such as raw materials, materials in process, finished products, general supplies and equipments etc. and gives the quantity and value of each item.

• It can also be defined as “ The systematic location storage and recording of goods in such a way that desired degree of service can be made to the operating shops at minimum ultimate cost”.

• Types of Inventories

• 5 Basic types of inventories are raw materials, work-in-progress, finished goods, packing material and MRO (Maintenance ,Repairs and Operations) supplies.

Inventory

233

• ABC Analysis is meant or relative inventory control in which maximum attention can be given to items which consume more money and a fair attention can be given to medium value items, while the attention for low value can be reduced to routine procedure only.

• It will be found that nearly 10 % of the items are responsible for about 70 % of total annual consumption cost , about 20 % items will require about 25 % of total consumption cost and rest 70 % of the items require only 5 % of the total annual consumption cost.

ABC Analysis

234



Department

3/22/2016


GP Mumbai 118

• The first category , small number of high consumption items are called as A items.

• Second category of medium consumption value items are known as B items.

• Third category with large number of items with small annual consumption cost are C items

• A-B-C analysis does not depend upon the unit cost of the items but on its annual consumption.

• Further it do not indicate importance of any item or category, and every item is equally important.

ABC Analysis

235

Control policies for A,B, and C items are based on two principles only, namely

• To keep capital ties inventories as low as possible

• To ensure that all materials would be available when required.

ABC Analysis

236



Department

3/22/2016


GP Mumbai 119

Policies for A items

• Since these items account for 70 % of the total value , they should be ordered more frequently, nut in small quantities in order to reduce capital locked up at any time.

• The requirements of such items must be planned in advance for expected future, so that only the required quantities arrive a little before they are required for consumption.

• Purchase of A items should be stocked as minimum as possible maximum efforts should be made.

•

ABC Analysis

237

Policies for A items

• Two or more suppliers for each item may be engaged.

• Ordering quantities, re-order point and minimum stock should be revised frequently.

ABC Analysis

238



Department

3/22/2016


GP Mumbai 120

Policies for B items

• The order for such items should be placed less frequently than for A items.

• Mostly 3 to 6 orders per year.

ABC Analysis

239

Policies for C items

• The order for such items may be kept liberally since capital involved is not too much.

ABC Analysis

240



Department

3/22/2016


GP Mumbai 121

• VED – Vital ,essential , Desirable

• SDE- Scarce, Difficult, Easily available

• MNG- Moving, Non moving, Ghost items (NIL Balance)

Another Types of Analysis

241

Economic Ordering Quantity

• Evaluation of this consists of calculation of following two types of costs

A) Procurement cost or buying cost or set up cost

B) Inventory carrying cost

A)Procurement Cost – It consists of following costs-

• Calling quotations

• Processing quotations

• Placing Purchase orders

• Receiving and inspecting

• Verifying and payment of bills

• Other incidental charges

EOQ

242



Department

3/22/2016


GP Mumbai 122

B) Inventory carrying cost

– It consists of following costs-

• Insurance

• Storage and Handling

• Obsolescence and Depreciation

• Deterioration

• Taxes

• Interests etc

EOQ

243

Let A= Total item consumed per year

B= Procurement cost per order

C= Annual Inventory carrying cost per item

Q= Economic Order Quantity

Then,

Procurement cost/year = No. of orders placed in a year * cost per order

= A*P/Q

Inventory carrying cost / year = Avg value of inventory in a year * Annual inventory carrying cost / item

= Q*C/2

EOQ

244



Department

3/22/2016


GP Mumbai 123

Therefore Total Cost = [ A*P/Q ] + [Q*C/2]

This total cost will be minimum when,

[ A*P/Q ] = [Q*C/2]

Therefore Q= [2AP/C]½

EOQ

245

246



Department

3/22/2016


GP Mumbai 124

References

1. Industrial Engineering and Management,

Author – Dr. O.P.Khanna , Publisher –

Dhanpat Rai & Sons New Delhi.

2. Industrial Engineering & Management,

Author – Banga and Sharma, Publisher –

Khanna Publication

3. Internet

And many more ………

247

business management and administration - … management and administration ... 1.7 business ethics...

Documents