UNIT-III

PRODUCTION AND
OPERATIONS
MANAGEMENT
 SUMMARY

 INTRODUCTION TO STUDY METHODS

 WORK STUDY
 TIME STUDY AND METHOD STUDY
 WORK MEASUREMENT
 EVOLUTION OF STANDARD/NORMAL TIME
 JOB DESIGN AND RATING
 MATERIAL MANAGEMENT AND CONCEPT
 INVENTORY CONTROL AND INVENTORY MODELS
 ABC, VED, FSN ANALSIS
 STANDARDISATION, SIMPLIFICATION, VARIETY REDUCTION AND
CODIFICATION
INTRODUCTION TO STUDY METHODS
 Method study is the process that specifies the methods and
activities considered in a job through an operations chart and
eliminates unnecessary elements of operations to obtain the
fastest and the best method of performing a specific job.
 Method study includes the study or critical examination of the
existing way of doing the work.
 The reason behind this study is to find, develop, and apply the
easier and effective method of doing the work.
 It helps in reducing cost and unnecessary activity. In other words,
it is a process of examining all the activities to find a simple way
of doing it.
METHOD STUDY
 Method Study is the study of work (method) for a job to
achieve process improvement, improve layout, improve design,
better working environment, and reducing fatigue.
 Method study is more of a systematic approach to job design
than a set of techniques
 It is defined as the systematic recording and critical examination
of existing and proposed methods of doing work
 It is one of the keys to achieving productivity improvement in
garment industry
 Method study is essentially used for finding better ways of doing
work
 It is also a technique for cost reduction in garments
manufacturing
Objectives of Method Study
 Improvement of processes and procedures
 Improvement in the design of plant and equipment
 Improvement of layout
 Improvement in the use of men, materials and machines
 Economy in human effort and reduction of unnecessary fatigue
 Improvement in safety standards
 Development of better working environment
METHOD STUDY
FLOW CHART

There are some steps

that constitute the logical
procedure that a work-
study specialist could
normally apply. In
practice, however, the
procedure is not as
straightforward as it is
presented here.
CONTINUED…
 Select
Work selected for method study may be an identified problem area or an
identified opportunity. It may be identified through a systematic review
of available data, normal monitoring or control processes, high levels of
dissatisfaction and complaint or as part of a change in management
policy, practice, technology or location, and usually because it meets
certain conditions of urgency and/or priority.
 Record
The Record stage of method study involves gathering sufficient data (in
terms of both quality and quantity) to act as the basis of evaluation and
examination. A wide range of techniques are available for recording; the
choice depends on the nature of the investigation.
CONTINUED…
 Examine
Examining the way, the job is being performed and challenge its purpose,
place, sequence and method of performance.
 Evaluate
Evaluate different alternatives to develop a new improved method
comparing the cost-effectiveness of the selected new method with the
current method performance.
 Define
Define a new method, as a result in a clear manner, and present it to those
concerned, i.e. management, supervisors and workers.
CONTINUED…
 Develop
The Examine stage merges into the Develop stage of the investigation as
more thorough analysis leads automatically to identify areas of change.
The aim here is to identify possible actions for improvement and to
subject these to evaluation in order to develop a preferred solution.
 Install
The success of any method study project is realised when actual change is
made ‘on the ground’ – change that meets the originally specified terms
of reference for the project. Thus, the Install phase is very important.
 Maintain
Sometime after the introduction of new working methods, it is necessary to
check that the new method is working, that it is being properly followed,
and that it has brought about the desired results.
Symbols Used in Method Study
 TRANSPORTATION STOARGE
Graphical method of recording was originated by Gilberth, in order to
make the presentation of the facts clearly without any ambiguity and to
enable to grasp them quickly and clearly. It is useful to use symbols
instead of written description.
 Method study symbols:

OPERATION INSPECTION

DELAY
Operation
 An operation occurs when an object is intentionally changed in
one or more of its characteristics (physical or chemical). This
indicates the main steps in a process, method or procedure. An
operation always takes the object one stage ahead towards
completion.
Examples of operation are:
 Turning, drilling, milling, etc.
 A chemical reaction
 Welding, brazing and riveting
 Lifting, loading, unloading
 Getting instructions from supervisor
 Taking dictation
Inspection
 An inspection occurs when an object is examined and compared
with standard for quality and quantity.
 The inspection examples are:
 Visual observations for finish
 Count of quantity of incoming
material
 Checking the dimensions
Transportation
 A transport indicates the movement of workers, materials or
equipment from one place to another.
Example:
 Movement of materials from one work station to another
 Workers travelling to bring tools
Delay (Temporary Storage)
 A delay occurs when the immediate performance of the next planned
thing does not take place.
Example:
 Work waiting between consecutive operations
 Workers waiting at tool cribs
 Operators waiting for instructions from supervisor
STAORAGE
Storage occurs when the object is kept in an authorized custody and
is protected against unauthorized removal.
For example, materials kept in stores to be distributed to various work
Scope Of Method Study:
The task of work simplification and compatible work system design
concerns the followings:
 Layout of shop floor and working areas or work stations
 Working conditions i.e. Ergonomics etc
 Handling distances (material movement)
 Tooling and equipment used
 Quality standards to be achieved
 Operators and operations in achieving the production targets
 Materials to be used
 Power required and available
 Work cycle time
 Working processes
 Economy in human effort and reduction of unnecessary fatigue
 Improvement in safety standards and procedures
 Development of better working environment
Objectives of Method Study

The following are the objectives of Method Study:

 Analysis of the movement of the men and material.
 Subdividing the activity into smaller parts
 Simplify or modify the task to improve the workflow.
 reduce unnecessary activity to increase productivity.
 Ensure effective material handling to reduce wasteful activity.
 Improvement of manufacturing processes and methods
 Improvement of working conditions by reducing the human effort and fatigue
 Improvement to plant layout and work place layout
 Reduced health hazards and safety
 Reducing material handling
 Improvement of plant and equipment design
 Improvement in the utility of materials, machines and man power
Advantage Of Method Study
 Work simplification
 Improved working method (cheaper method)
 Better product quality
 Improved workplace layout
 Improved equipment design
 Better working conditions\environment
 Better materials handling and lesser material handling cost
 Improved work flow
 Less fatigue to worker
 Optimum utilization of resources
 High safety to workmen
Factors Facilitating Method Study
 High operating cost
 High wastage and scrap
 Excessive movement of materials and workmen
 Excessive production bottlenecks (congestion point)
 Excessive rejections and rework
 Complaints about quality
 Complaints about poor working conditions
 Increasing number of accidents
 Excessive use of overtime
Time Study
 To determine amount of time required to perform a unit of work.
 A time study is an important observed time measurement, as it gives
you baseline metrics and data points for your business. In addition, this
process helps you learn more about the operational efficiency of your
production lines using clear time standards.
Definition of Time Study:
 Time study may be defined as “the art of observing and recording
the time required to do each detailed element of an industrial
activity/operation.”
 Time study is a work measurement technique for recording times and
rate of working for the elements of the specified job carried out under
specified condition and for analyzing. The data so as to obtain the time
necessary for carrying out the job at defined level of performance.
Objectives Of Time Study
 To furnish a basis of comparison for determining operative efficiency
 To set labor standard for satisfactory performance
 To compare alternative methods in method study in order to select the
best method
 To determine standard costs
 To determine labor and equipment costs
 To determine basic\normal times
 To determine the number of machines operator can handle
 To balance the work of operators in production and assembly lines
 To provide the basis for setting piece rate or incentive wages
 To determine the cycle time for completing of job
Job To Be Studied
 New job taken for production
 Change in manufacturing method
 Design change
 Change in raw materials or component
used for a job
 Complaint about inadequacy of allowed time
 For bottleneck operations
 When labor cost is high
 To establish standard time “ a basis for incentive scheme”
 When new tools, jigs and fixtures are fixed
How to conduct time study???
Advantages of Time Study:
(1) Estimation of equipment or machinery requirements.
(2) Estimation of production cost per unit in order to determine/fix selling
price.
(3) Estimating manpower requirements.
(4) Taking makes or buys decisions.
(5) Balancing the work of operators constituting a group.
(6) Estimating delivery dates.
(7) Estimating times required for a specified inventory level generation.
(8) Estimation of labor costs.
(9) Making alternative investment decision in purchasing
machines/equipment.
(10) Developing efficient plant layout and material handling arrangement.
Limitations of Time Study:
 Standards cannot be established by this technique on jobs which are
not well defined.
 In situations where it is difficult to define quality precisely standards
and production incentives may cause deterioration in quality levels.
 It is not possible to maintain standards where piece rate system of
wage payment exists.
 Labor unions may oppose the application of time study where they are
strong.
 Time study is applicable only where the work is visible. So it can be
applied only in manual job and not for thinking portions of the job.
 Only specific type of jobs which have identifiable starting and ending
points can be timed accurately.
Work Study
 Work-study involves analyzing and evaluating the best method of doing
the work and then develop a standard for performing the job. It helps in
dividing the work into small parts and then tries to complete the work in
the shortest time with maintaining the quality of the product. It will
increase the productivity of the company.
 Work study is a means of enhancing the production efficiency or
productivity of the firm by elimination of waste and unnecessary
operations. It is a technique to identify non-value adding operations by
investigation of all the factors affecting the job.
 Work study on one hand examines the method of doing the work and on
the other hand determines the time required to do the work. There are
two branches of work study-
A) method study (motion study )
B) work measurement (time study).
What to study in working conditions??
Aims Of Work Study
 To analyze the present method of doing job, systematically in order to develop a
new and better method
 To measure the work content of the job by measuring the time required to do the
job for a qualified worker and hence to establish standard time
 To increase the productivity by ensuring the best possible use of human , machine
and material resources and to achieve best quality product \service at a minimum
possible cost
 To improve operational efficiency
 Optimum utilization of resources.
 To achieve the best quality product and service at the minimum possible cost.
 Identification of wasteful activity.
 Creating coordination among different factors of production.
 Smooth production process and enhance job satisfaction of the workforce.
Benefits Of Work Study
 Increased productivity and operational efficiency
 Reduced manufacturing cost
 Improved work place layout
 Better manpower planning and capacity planning
 Fair wages to employees
 Better working conditions to employees
 Improved work flow
 Reduced material handling cost
 Better industrial relations and employee morale
 Provides better job satisfaction to employees
 Basis for sound incentive scheme
Work Measurement
This is done to achieve higher labor productivity.
Application of technique designed to establish the work content of a
specified task by determining the time required for carrying out the task
at a defined standard of performance by a qualified worker.
QUALIFIED WORKER:
One who is accepted as having the necessary physical attributes, required
intelligence, education skill, knowledge to carry work in hand to
satisfying standard of safety, quality and quantity defined by ILO
(International Labor Organization)
Objectives Of Work Measurement
 Improved planning and control of activities or operations
 More efficient way to provide labor in a plant
 Reliable ideas for labor performance
 Reliable basis for labor cost control
 Basis for sound, incentives scheme
BENEFITS OF WORK MEASUREMENT:
To develop a basis for comparing alternative methods
To prepare realistic work schedules
To set standard of performance for labor utilizations
To compare actual time taken by the worker with the allowed time
To assist in labor cost estimation
STEPS IN WORK MEASUREMENT
BREAK THE JOB INTO ELEMENTS

RECORD THE OBSERVED TIME ESTABLISH ESSENTIAL TIME

FOR EACH ELEMENT VALUES

ASSESS DETERMINE
RELAXATION THE
ALLOWANCE FREQUENCY ADD CONTINGENCY
FOR OF ALLOWANCE, IF ANY
PERSONAL OCCURENCE
NEEDS S
What is Material Management??
Material Management
 Materials management uses inventories and production requirements
for planning and control to ensure materials are available as required to
meet production schedules. This material planning includes managing
logistics, stock levels, materials quality, cost and more.
 Materials management is the process of planning and controlling
material flows. It includes planning and procuring materials, supplier
evaluation and selection, purchasing, expenditure, shipping, receipt
processes for materials (including quality control), warehousing and
inventory, and materials distribution.
 For example, an organization that manufactures cars needs to purchase
wheels, engines, and windows. The process by which these materials are
sourced, purchased, stored, and utilized is materials management.
Key Points To Remember
 Material management plays a crucial role in the success of an organization by
ensuring that materials are available when needed and in the right quantities.
 It helps to minimize waste and reduce costs by ensuring no over-stocking or
under-stocking of materials.
 It helps to improve customer satisfaction by ensuring that orders are delivered
on time and with the correct items.
 Material planning involves forecasting demand, determining the materials
needed, and developing a plan to acquire those materials.
 Procurement involves sourcing and purchasing materials from suppliers.
 Inventory control involves managing the flow of materials into and out of the
organization and monitoring inventory levels to ensure they remain within
acceptable limits.
 Distribution involves the physical movement of materials from the
organization to the customer.
Types of Material Management

INVENTORY PURCHASING
MANAGEMENT MANAGEMENT

MATERIAL
WAREHOUSE
REQUIREMENT
MANAGEMENT
PLANNING
Types Of Material Management
Inventory Management
 Inventory management involves the maintenance of a
company’s stock of raw materials, semi finished goods and
finished products. It includes identifying the optimal inventory
level to be maintained, determining the recorder points and that
the inventory is stored correctly.
Purchasing Management
 Purchasing management involves procuring raw materials,
supplies, and services required for production. It consists of the
selection of suppliers, negotiation of prices, preparation of
purchase orders, and management of supplier relationships.
CONTINUED…
Warehouse Management
 Warehouse management involves the storage and handling of
materials, as well as the management of the physical movement
of goods within a warehouse. It includes receiving, storing, and
shipping materials, as well as managing inventory levels and the
location of materials within the warehouse.
Material Requirements Planning (MRP)
 MRP considers the lead time for ordering materials, the time
required for production, and the inventory levels of materials.
MRP aims to ensure that suitable materials are available at the
right time and in the correct quantity to meet production needs.
CONTINUED…
Transportation Management
 Transportation management involves the physical movement of
materials from one location to another. It includes the selection
of carriers, negotiation of freight rates, preparation of shipping
documents, and management of delivery schedules.
Transportation management aims to ensure that the materials
are delivered on time and at the lowest possible cost.
Objectives Of Material Management

RIGHT TIME

RIGHT
RIGHT AMOUNT
MATERIAL

RIGHT PRICE RIGHT SOURCES

Importance Of Material Management
Cost Reduction
 One of the primary objectives of material management is to reduce the
cost of materials. It includes reducing the cost of purchasing materials,
as well as reducing the cost of storing and handling materials.
Improved Quality
 Another objective of material management is to improve the quality of
materials and products. This includes ensuring that the materials and
products used in the production meet specified standards of quality and
implementing processes to prevent defects.
Timely Delivery
 Timely delivery is critical to any business's success and can help
improve customer satisfaction, reduce inventory costs, and improve
production process efficiency.
CONTINUED…
Inventory Optimization
 Another objective of material management is to optimize inventory
levels. This includes determining the optimal inventory level to maintain
and implementing processes to manage the movement of materials
within the warehouse.
Efficient Supply Chain
 A final objective of material management is to ensure the efficiency of
the supply chain. This includes reducing lead times improving the
efficiency of delivery process and optimizing the movement of materials
within the warehouse.
 An efficient supply chain can help to reduce the cost of materials,
improve customer satisfaction, and increase the competitiveness of the
business.
What Does Material Manager Do?
Facility Management
 A material manager is also responsible for managing the facilities
used for storing and handling materials. This includes ensuring
that storage areas are secure, accessible, and compliant with
safety regulations.
Inventory Management
 A material manager is also responsible for managing the
movement and storage of materials within the warehouse. This
involves determining the optimal level of inventory to be
maintained, monitoring stock levels, and ensuring that materials
are stored safely and efficiently.
CONTINUED…
Operations Management
 A material manager ensures that operations are running smoothly and
efficiently. This involves coordinating with production and logistics
teams, monitoring performance metrics, and ensuring that materials are
delivered to production on time and in the correct condition.
Production Planning
 A material manager is also responsible for supporting
production planning by ensuring materials are available when needed.
This involves managing inventory levels, monitoring lead times, and
ensuring that materials are delivered to production in the proper
condition.
Cost Management
 A material manager is responsible for managing the cost of materials,
including reducing the cost of purchasing materials and reducing the
cost of storage and handling. This involves negotiating prices with
suppliers, reducing lead times, and improving the efficiency of delivery
processes.
Challenges in Material Management
Supply Chain Management
 One of the biggest challenges in materials management is managing the
complex supply chain. This involves coordinating with suppliers, logistics
providers, and production teams to ensure that materials are delivered
on time and to the correct specifications.
Cost Control
 Cost control is another major challenge in materials management. A
material manager must be able to negotiate prices with suppliers,
manage logistics costs, and ensure that materials are purchased at the
best possible prices.
Quality Control
 Ensuring materials meet the required quality standards is another key
challenge in materials management.
Future Trends in Material Management
Digital Transformation
 Digital transformation is one of the most critical trends in
material management. This involves using new technologies
such as artificial intelligence, machine learning, and the Internet
of Things to automate and streamline materials management
processes.
Sustainability (using available resources optimally)
 Sustainability is another key trend in materials management.
This involves reducing the environmental impact of materials
management processes and ensuring that materials are sourced,
manufactured, and delivered environmentally and sustainably.
CONTINUED…
Collaboration
 Collaboration is another significant trend in materials management. This
involves working more closely with suppliers, logistics providers, and
production teams to ensure that materials are delivered on time and to
the correct specifications.
Predictive Analytics
 Predictive analytics is another key trend in materials management. This
involves using data to predict future demand and adjust materials
management processes accordingly.
Blockchain
 Blockchain is another trend in materials management. This involves
using blockchain technology to create a secure and transparent supply
chain. Blockchain is helping materials managers to reduce costs,
increase transparency, and improve the security of the supply chain.
Job Design
DEFINITION:
 It involves systematic attempt to organize tasks, duties and
responsibilities into a unit of work to achieve certain objectives.
 Job design is a logical sequence of job analysis
 Job analysis provides the job related data as well as the skills and
knowledge expected of the incumbent (one who holds position) to
discharge the job.
 Job design involves certain steps that determine content of the job and
how the work shall be performed.
 A successful job designing lies in balancing the requirement of the
organization and job holder.
3 Steps In Job Design
Job design involves three steps:
 Identification of individual task
 Specification of methods to carry out the job
 Combination of task into specific jobs to be assigned to individuals
OBJECTIVES OF JOB DESIGN
 Business purpose
 People capability
 Quality
 Speed
 Health and safety
 Productivity
 Sustainability
Techniques of Job Design
Job Simplification
Job Enlargement
 Job enlargement means where two or more simple tasks are
combined and allotted to an employee
Eg: A in the case of vehicle driver , apart from driving he can
undertake the job of maintenance of the vehicle
Key Features:
 More variety to job
 Acquiring additional responsibilities
 Dissatisfaction of employees cannot be avoided after a long
period due to boredom
 Increases job range, but not depth
Job Enrichment
 The concept of job enrichment was designed by Fredrick Herzberg in
1950
 Job enrichment involves providing an employee with more
responsibility and variety for a job and challenges the individual skill at
work
 Enrichment involves increasing the decision making authority and
encouraging the employees with their work.
Features of Job Enrichment
 Nature of a job-Job enrichment is a vertical expansion of the job
 The objective of job enrichment is to make the job more lively and
challenging
 Job enrichment gives positive results if the workers are highly skilled
 Job enrichment encourages self discipline

Merits of Job Enrichment

 Useful to both worker and organization
 Worker gets recognition, achievement and self actualisation
 Worker finds the job meaningful
 Reduces absenteeism, labour turnover and grievances
 Motivates the worker to give best performance
 Worker gets a sense of belongingness in an organization
Limitations of Job Enrichment
The shortcoming or demerits of job enrichment are:
 Additional workload
 Insufficient skills
 Fear of underperformance
 Micromanagement
 Miscommunication
 Increase in job responsibility
 Incapability
 Unfavourable for the employees
 Lack of training
Job Rotation
Job rotation is the practice of
moving employees between jobs in
an organization.
These rotations are
predominantly lateral, meaning that
they happen between jobs on the
same level and are not considered
promotions.
They are also often
temporary with people moving
back to their original job after a
certain time.
Mechanism of Job Design
Impact of Technology on Job Design
Inventory Control
 Inventory control is the process of tracking stock levels while monitoring
customer demand. This allows businesses to ensure they have the
products people want at the time in the correct quantities.
 The quantities part is the most important because it helps businesses
avoid over or under stocking a certain product. Knowing the quantities
of products also helped prevent theft and damage.
 Having the right stock at the right time means businesses adequately
manage their supply chains and customer service operations. All this
improves efficiency and profitability.
Key points of Inventory Control
 Inventory control is a scientific systems which indicates what to order,
when to order, how much to order and how much to stock so that
purchasing cost and storing cost are kept as low as possible.
 Inventory is the list of movable items which are required to manufacture
a product or to maintain equipment. Inventory is a unique item having
identification number, nomenclature and specification.
 Inventory control is the process by which inventory is measured and
regulated according to pre determined norms such as economic lot size
for order or production, safety stock, minimum level, maximum level,
order level etc.
 Inventory means the amount or value of inventory in hand including raw
materials, work-in process, finished goods and stores and spares.
Objectives Of Inventory Control
 To meet unforeseen future demand due to variation in forecast figures and
actual figures.
 To average out demand fluctuations due to seasonal or cyclic variations
 To meet the customer requirement timely, effectively, efficiently, smoothly
and satisfactory
 To smoothen the production process
 To gain economy of production or purchase in lots
 To reduce loss due to change in prices of inventory items
 To meet the time lag for transportation of goods
 To meet the technological constraints of production\process
 To minimize loss due to deterioration, obsolescence, damage, pilferage etc.
 Ta balance various cost of inventory such as set up cost, order cost etc.
Type Of Inventory
 Inventory is the broad term and includes the elements whose
value are always very high in industrial units. It may be held for a
variety of purposes. The term inventory can be classified into two
types:

DIRECT INDIRECT
INVENTORIES INVENTORIES
CONTINUED…
 Direct inventories includes the items which are directly contributed in
manufacturing and becoming major parts of finished goods. It can be
classified into 3 types:
 Raw materials
 Work-in-progress
 Finished goods
 Indirect inventories are those items which are necessary for
manufacturing but do not become the major components of finishing
output e.g. Grease, oil, petrol, lubricant tools and the maintenance
material etc.
Benefits Of Inventory Control
 Ensure an adequate supply of material
 Minimizes inventory cost
 Facilitate purchasing economies
 Eliminates duplication in ordering
 Better utilization of available stocks
 Provides a check against the loss of material
 Facilitates cost accounting activities
 Enables management in cost comparison
 Locate and disposes inactive and obsolete store items
 Consistent and reliable basis for financial statement
FACTORS INFLUENCING INVENTORY
 Type of Product: If the materials used in the manufacture of the
product have high unit value when purchased, a much closer control is
usually in order. Jewellers are much more careful of their stock of
diamonds than they are with display cases full of low priced costume
jewellery.
 Type of Manufacture: This also influences inventory management and
control. Where continuous manufacture is employed the rate of
production is the key factor. Here inventory control is of major
importance and in reality controls the production of the product.
 Volume of Production: This may have the little effect on the
complexity of the inventory problem. Literally, millions of brass bases for
light bulbs are manufactured each month involving the control of
thousands of items of inventory.
 Inventory Control Techniques
 Inventory control techniques are employed by the inventory control
organization within the framework of one of the basic inventory models,
viz, fixed order quantity system or fixed order period system. This
technique represent the operational aspect of inventory management
and help realise the objectives of inventory management and control.
ALWAYS
TWO BIN MAX MINIMUM BETTER
SYSTEM SYSTEM CONTROL
(ABC)
ECONOMIC
HIGH, MEDIUM VITAL, ESSENTIAL AND
ORDER
AND LOW (HML) DESIRABLE (VED)
QUANTITY (EOQ)

FAST MOVING, SLOW SCARCE, DIFFICULT

MOVING AND NON AND EASY TO
MOVING (FSN) OBTAIN (SDE)
ABC ANALYSIS
ABC ANALYSIS
 ABC Analysis helps make better decisions about which items to stock
and how to manage them
 It can be used to prioritize inventory items for ordering and recording to
reduce stock outs and improve customer satisfaction
 The challenges of ABC Analysis include difficulty in classifying items and
obtaining up-to-date data on items
 ABC Analysis is a popular inventory optimization technique used by
businesses to prioritize inventory items. It helps businesses identify the
items that are most and least valuable and focus on managing those
items accordingly.
 ABC Analysis can also be used to prioritize inventory items for
reordering. By focusing on the A items, businesses can ensure that they
are always stocked and that their stock levels are not too low. This helps
to reduce the risk of stock outs and improve customer satisfaction
Advantages of ABC Analysis
 It allows businesses to focus attention on the most important items. By
focusing on A items, businesses can ensure that they are properly
managed and stocked. This helps to ensure that the business has the
items it needs when it needs them.
 It helps businesses save money. By focusing on the A items, businesses
can save money by not wasting resources on managing and stocking
unimportant items.
 ABC analysis provides businesses with greater control over their
inventory. By focusing on the A items, businesses can better manage
their inventory levels and avoid stock outs.
 It helps businesses make better decisions. By understanding which
items are more important, businesses can make better decisions about
which items to stock and how to manage them.
VED ANALYSIS
VED analysis is a valuable method for inventory management because it
helps businesses to prioritize their inventory levels and focus their
resources on the most important items.
 Vital (V) items are required to the business’s operations and would
cause a major disruption if they were to run out. Examples of vital items
include raw materials and finished goods that are in high demand.
 Essential (E) items are important to the business’s operations, but they
are not as critical as vital items. Examples of essential items include
maintenance supplies, spare parts, and office supplies.
 Desirable (D) items are not essential to the business’s operations, but
they are still important to have in stock. Examples of desirable items
include promotional items, seasonal items, and low-volume items.
Introduction to VED Analysis
Important Terms
Vital Items:
Vital items are inventory items that are required to a business’s operations
and would cause a major disruption if they were to run out. Examples of
vital items include:
 Raw materials
 Critical components
 Finished goods that are in high demand
 Spare parts for important equipment
 Safety supplies
Vital items should be prioritized in inventory management.
Examples of Vital Items
Some specific examples of vital items in different industries:
 Manufacturing: Raw materials, critical components, spare parts for
important equipment
 Retail: Finished goods that are in high demand, perishable items
 Healthcare: Pharmaceuticals, medical devices, medical supplies
 Transportation: Fuel, spare parts for vehicles and equipment
 Food and beverage: Raw materials, perishable items
 Construction: Raw materials, spare parts for equipment
Identifying and prioritizing vital items is required for any business that
wants to avoid disruptions to its operations.
Essential Items
Essential items are inventory items that are important to a business’s
operations, but they are not as critical as vital items. Examples of
essential items include:
 Maintenance supplies
 Office supplies
 Backup supplies for critical items
 Promotional items
 Seasonal items
 Low-volume items
Essential items should also be prioritized in inventory management, but not
to the same extent as vital items. Businesses should keep a
moderate safety stock level of essential items and use standard
shipping procedure.
Some Examples of Essential Items
Here are some specific examples of essential items in different industries:
 Manufacturing: Maintenance supplies, office supplies, backup supplies
for critical items
 Retail: Promotional items, seasonal items, low-volume items
 Healthcare: Office supplies, backup supplies for critical items
 Transportation: Office supplies, backup supplies for critical items
 Food and beverage: Maintenance supplies, office supplies, backup
supplies for critical items
 Construction: Maintenance supplies, office supplies, backup supplies
for critical items
By identifying and prioritizing essential items, businesses can ensure that
they have the supplies they need to keep their operations running
smoothly.
 Some tips for managing essential
items:
Keep a moderate safety stock level of essential items.
 Use standard shipping procedures for essential items.
 Develop contingency plans in case essential items run out.
 Monitor inventory levels of essential items on a regular basis.
 Use inventory management software to track essential items and
automate tasks.
 By following these tips, businesses can ensure that they have enough
essential items in stock to meet their needs without overstocking and
wasting money.
Desirable Items
Desirable items are inventory items that are not essential to a business’s
operations, but they are still important to have in stock. Examples of
desirable items include:
 Promotional items
 Seasonal items
 Low-volume items
 Luxury items
 Convenience items
 Impulse purchase items
Desirable items should be managed differently than vital and essential
items. Businesses should keep a low safety stock level of desirable and
order them on an as needed basis.
Examples of Desirable items
Here are some specific examples of desirable items in different industries:
 Manufacturing: Promotional items, seasonal items, low-volume items
 Retail: Promotional items, seasonal items, low-volume items, luxury
items, convenience items, impulse purchase items
 Healthcare: Luxury items, convenience items, impulse purchase items
 Transportation: Luxury items, convenience items, impulse purchase
items
 Food and beverage: Luxury items, convenience items, impulse
purchase items
 Construction: Luxury items, convenience items, impulse purchase
items
TIPS FOR MANAGING DESIRABLE ITEMS
Here are some tips for managing desirable items:
 Keep a low safety stock level of desirable items.
 Order desirable items on an as-needed basis.
 Use standard shipping procedures for desirable items.
 Promote desirable items to customers.
 Use inventory management software to track desirable items and
automate tasks.
By following these tips, businesses can ensure that they have enough
desirable items in stock to meet their customers’ needs without
overstocking and wasting money.
Industries Using VED Analysis

MANUFACTURING

FOOD AND
TRANSPORTATION
BEVERAGE
CONSTRU HEALTHC
CTION
RETAIL
ARE
Benefits of Using VED Analysis
 Improved inventory visibility and control: VED analysis helps
businesses to better understand their inventory and identify which items
are the most important.
 Reduced risk of stock outs: VED analysis helps businesses to ensure
that they have enough of the most important items in stock at all times.
 Optimized inventory costs: VED analysis helps businesses to
optimize their inventory costs by allocating resources to the most
important items.
 Improved customer satisfaction: By reducing the risk of stock outs
and ensuring that customers have access to the products they want,
VED analysis can help to improve customer satisfaction.
 Increased profitability: VED analysis can help businesses to increase
their profitability by improving inventory management and reducing
costs.
FSN Analysis
FSN analysis is an inventory management technique. It is an important
aspect in logistics. The items are classified according to their rate of
consumption. The items are classified broadly into three groups: F –
means Fast moving, S – means Slow moving, N – means Non-
moving.
 The inventory analysis classification is done based on how soon the
product moves out of the inventory. It is one of the most commonly used
inventory control method used by businesses. The inventory turnover
ratio(ITR) is calculated for each product to classify inventory items for it
under the FSN category accurately.
Why should I be using FSN analysis?
 If you want to know which items are moving quickly and which items are
dead stock, then an FSN analysis can help you categorize your inventory
stock. The classification helps derive a pattern of issues from stores. It
will help shape decisions around what items are becoming redundant
and sitting there, costing you money.
Meaning of FSN
Fast-moving inventory
 In the fast-moving inventory, the products are moved in limited
quantities and immediately become out of stock. So these items
have the highest replenishment rate. So in this category, the
items comprise less than 20%.
Slow-moving inventory
 This category includes about 35% of the inventory. Here, the
item moves very slowly and has the lowest replenishment rate.
Non-moving inventory
 The items that aren’t moving or least moving are classified under
this category. It also contains dead stock. It covers almost 50-
55% of the items stored in the inventory.
Parameters of FSN Analysis

In the FSN Analysis Inventory Management technique, the main goal is to

reduce material costs, labor costs and turnover costs. And here are
some parameters of the FSN analysis :
 The consumption rate of a product – In a given period, the
percentage consumption rate, at which stocks get expended or
replenished.
 The average stay in inventory – The average percentage stay of
each item in the inventory, till the time it is sold.
 Period of analysis – Specify when you are conducting inventory
analysis, whether in six months or in a year.
Inventory Model
Inventory model is a mathematical model that helps business in
determining the optimum level of inventories that should be
maintained in a production process, managing frequency of
ordering, deciding on quantity of goods or raw materials to be
stored, tracking flow of supply of raw materials and goods to
provide uninterrupted service to customers without any delay in
delivery.
There are two types of Inventory model widely used in business.
 Fixed Reorder Quantity System
 Fixed Reorder Period System.
Fixed Reorder Quantity System.
Fixed Reorder Quantity System is an Inventory Model, where an alarm is
raised immediately when the inventory level drops below a fixed
quantity and new orders are raised to replenish the inventory to an
optimum level based on the demand. The point at which the inventory is
ordered for replenishment is termed as Reorder Point. The inventory
quantity at Reorder Point is termed as Reorder Level and the quantity of
new inventory ordered is referred as Order Quantity.

 Fixed Reorder Period System

Fixed Reorder Period System is an Inventory Model of managing
inventories, where an alarm is raised after every fixed period of
time and orders are raised to replenish the inventory to an optimum
level based on the demand. In this case replenishment of inventory is a
continuous process done after every fixed interval of time.
Inventory Control
 Inventory control is the process or action taken to ensure that a company’s
inventory is properly maintained and managed. It enables organizations to
meet customer demands without delay while lowering the cost of holding
and storing items. To summarize, inventory control is
resource management.
Why are inventory control models important?
Effective inventory control models are essential for the survival and success
of any supply chain. Without the proper inventory control models, supply
chains can experience stock outs, overstocking, and other inventory-
related issues that can negatively impact the business’s bottom line.
 Better cash flow management
 Improved customer satisfaction
 Increased efficiency
 Visibility and better decision making
Common Inventory Control Mistakes To Avoid

While effective inventory control models can provide many benefits, there
are also several common mistakes that your supply chain should avoid.
These mistakes include:
– Lack of proper analysis
– Failing to prioritize inventory management based on the importance
– Ignoring Scalability
– Overcomplicating the system
– Neglecting technology integration
– Neglecting real-time data
By avoiding these mistakes, you will be able to optimize your inventory
control model practices for success.
Standardization
 Standardization is a powerful technique in production and
operations management. Eli Whitney introduced the concept as a
part of engineering operations in the 18th century. In the 19th century, it
became a powerful tool among countries with strong arms in
industrialization to increase productivity.
 By the 20th century, there was a high spike in the industry, with plenty
of corporations indulging in the standardization work, and it became a
routine.
 Standardization refers to designing protocols and policies for creating
products or conducting certain activities based on the stakeholders’
consensus.
 In simple terms, in a business environment, the process creates a
framework and set of guidelines for entities to follow and deliver
products and services with a consistent standard and quality.
Why Standardization is important?
 Standardization is important in business since it helps ensure safety in
the products being created. It also helps ensure consistent quality and
compatibility in products. This creates uniformity in a set of practices
within an industry.
For instance, companies follow a standardization when preparing their
annual financial statements to help improve the clarity of their financial
information for the public. Some benefits of using standardization in
business include:
 Increasing productivity
 Eliminating confusion and guesswork in processes
 Improving customer service quality
 Reducing operational costs
 Using resources more efficiently
Simplification
Simplification is—simply—the process of streamlining systems. By removing
barriers, integrating applications and eliminating redundancies, simplification
makes internal operations less complex and more efficient. This can lower costs,
speed processes, decrease error rates and improve client service.
Process simplification takes a complex process and splits it up into more simple
tasks. Each task is studied and any confusing, unnecessary, or wasteful steps are
changed.
Advantages of Simplification
1. Use of special purpose machines and tools is possible.
2. Less capital is blocked in raw materials, finished products, jigs, dies and other
tools.
3. Less supervision is required.
4. Less chances of errors.
5. Manufacturing cost decreases.
6. Correct estimate is possible.
Variety Reduction
Variety reduction can be defined as the process of reducing the number of types,
size or grades of a product that are purchased, made or stocked.
E.g. 33 different lengths and 44 different heights of hospital beds were replaced
by 3 types of beds of standard length and height and 40 different varieties of
milk bottles were reduced to 4.
 Better after sales service
 Greater technical productivity
 Lesser set up time
 Higher equipment utilization
 Reduction in inventory
 Easier inventory control
 Better usage of storage space
 It reduces wastage of labour and materials.
Codification
 Codification is the process of assigning a number or symbol to each
store item, along with a name, in order to make it easy and convenient
to identify. The codification of store items thus leads to time-saving and
labor efficiencies.
 Therefore, codification is a process of representing each item by a
number, the digits of which indicate the group, the subgroup, the type
and the dimension of item.
 There are several common methods used to codify materials. These
methods include alphabetical, mnemonic, numerical, decimal,
alphanumeric, and color codification.
Advantages of Codification
 As a result of rationalized codification, many firms have reduced the
number of items.
 It enables systematic grouping of similar items and avoids confusion
caused by long description of the items.
 Since standardization of names is achieved through codification, it
servers as the starting point of simplification and standardization.
 It helps in avoiding duplication of items and results in the minimization
of the number of items, leading to accurate records.
 Codification enables easy recognition of an item in stores, thereby
reducing clerical efforts to be minimum.
 If items are coded according to the sources, it is possible to bulk the
items while ordering.