Units 1 To 4

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: Concepts of Management and Organization ± Nature and
Importance of Management, Functions of Management, Taylor¶s Scientific Management Theory, Fayol¶s Principles
of Management, Maslow¶s Theory of Human Needs, Douglas McGregor¶s Theory X and Theory Y, Herzberg¶s
Two-Factor Theory of Motivation, Systems Approach to Management, Leadership Styles, Social Responsibilities of
Managementèc

Definitions:
(1)c To manage is to forecast and plan, organize, to command, to coordinate and control´. (Henri Fayol)
(2)c Management is concerned with the systematic organization of economic resources and its task is to make
these resources productive´. (Peter Drucker)
(3)c Management is a social process. The process consists of planning, control, coordination, and motivation´.
(E.F.L. Brech)
(4)c Management is the effective utilization of human and material resources to achieve the enterprise
objectives´. (W.F.Glueck)
(5)c µManagement is an operational process that can be dissected into five essential management functions.
They are planning; organizing; staffing; directing and leading; and controlling´. (Koontz and O¶Donnel)
(6)c Management is the process of designing and maintaining an environment in which individuals, working
together in groups, accomplish selected aims effectively´. (Koontz and Weihrich)
The above definitions cover four important aspects of management.
(1)c Management is a social process of all functions ± planning, organizing, commanding, coordinating and
controlling.
(2)c Its ultimate purpose is to achieve organizational goals.
(3)c These goals are achieved using limited resources efficiently and effectively.
(4)c These goals are achieved by working with and through people.

c ! "#!: Management is a process of certain managerial functions in every
organization. It is a social process in particular because managers, at all levels, work with and through
people.
$c "%$&##"' ("( ! ) : When an organization is
well run, it is said that the management of that organization takes personal interest in that organization.
Here, management denotes a group of people involved in decision-making.
!c # ("Successful organizations show that management principles
apply to every kind of organization and also to every level in it.
c !#"*Management functions are complex. They call for a fairly professional approach
to manage a given situation or organization.
c " The same style of management cannot work for the same situation
every time. The change in the situation may call for a change in the style of functioning of the manager.
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Similarly, at different points of time also, the style of functioning may have to be different for the same
organization.
c "! !:
ć An art is a personal skill. Art is characterized by practical knowledge, personal creativity and skill.
The more one practices an art, the more professional one becomes. Management can be considered
as an art because it satisfies all these criteria of art. Management skills are highly individual
oriented and can be sharpened with more training and practice. There is a lot of scope to apply
creativity in the context of managing the affairs of a business organization. ^!+
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ć A science is a systematized body of knowledge of facts. It can establish cause-and-effect
relationships among various factors. It involves basic principles, which are capable of universal
application. It also helps to predict the future events. Management satisfies all these criteria to be
considered as a µscience¶. It is a systematized body of knowledge; its principles are universally
acceptable. It stands for logical reasoning, scientific testing and inquiry. It also establishes cause-
and effect relationships between the given factors. ^!+ ! !,
c *!! !Management principles, unlike those in physics or mathematics, are
not exact. Hence, they cannot be generalized precisely.
-c # A profession refers to a vocation or a branch of advanced learning such as
engineering or medicine. The managers are professional in their approach and are governed by a code of
ethics.
(i)c . ! #" & The subject of management draws from other disciplines.
The techniques of management are built around the techniques drawn from these subjects. The manager
uses extensively :
ć the theories of consumption and production from á ;
ć linear programming, PERT and CPM from O ;
ć probability theories, correlation and regression techniques from ;
ć theories of group behavior from
;
ć theories of individual behavior from 0
; and
ć the tools of decision-making such as matrices, and calculus from .

/c &#!Manpower, money, materials and machines (the four M¶s) are the
four types of resources that the managers use.
#!
(a)c ! " -!- ("--" !: The resources an

organization possesses are limited and hence they have to be effectively allocated and utilized in an
optimum manner. This is possible only through management.
(b)c - " ! !" Management guides an organization,
especially when it is in trouble. In case of a crisis, it is the management which ensures a smooth sailing by
anticipating problems and by making necessary changes in the organization to achieve the targeted results.
(c)c ! & - 0 Continuity is very important in organizations.
Management provide for continuity in organizations by ensuring that proper guidelines, systems and
procedures are in place.
(d)c !& ! !& The managers plan, coordinate, and monitor the progress
of work and suggest whether the work is satisfactorily done or not. In case of shortfall, it is the managers
who help the employees to perform better. Thus, organizational costs can be minimized through sound
management practices.
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(e)c !# If each individual is allowed to plan and organize his work
independent of what others are doing, there would be nothing but chaos. Therefore, management is needed
to guide and direct group efforts.
c -)&-! !1-The economic development of a country largely
depends on the quality of management of its resources. By producing wealth, managers facilitate the
increase in national income, and thus, the standard of living of the people.

There are three schools of thought to explain what administration means in relation to management:
(1)c The school of thought pioneered by Oliver Sheldon, Florence and Tead etc., says that administration and
management are two different functions. According to this view,
ć Administration is concerned with (a) formulation of corporate policy; (b) the coordination of other
functional areas such as finance, production etc, (c) placing the organization under the ultimate
control of the Chief Executive.
ć Management is concerned with (a) the execution of a policy, within the limits set up by the
administration; (b) creating an organization to achieve the given objectives.
Administration is viewed here as a broader function and management as a subset of administration.
(2)c The school of thought propagated by Brech, says that management is broader and includes administration.
According to this view,
ć Management constitutes the entire executive control.
ć Administration is that part of management which deals with (a) the formulation of policies and
procedures; (b) carrying out these procedures and (c) measurement of performance as against
these plans.
Management is viewed here as a broader function and administration as a subset of management.
(3)c The school of thought led by Fayol explains that the terms management and administration are both one
and the same and are therefore interchangeable.
It is common to find that the term µadministration¶ is used to refer to higher executive functions in Government
circles, while the term µmanagement¶ is used for the similar functions in the business world.
2
An organization refers to a social group designed to achieve certain goals.
Definitions:
(1)c Organizations are intricate human strategies designed to achieve certain objectives´. (Argyris)
(2)c Organization is the framework of management process´. (Brech)
(3)c Organizations are systems of behavior created for better results. So an organization form must be a joint
function of human characteristics and the nature of the task environment´. (Simon)
(4)c Organizations are systems of interdependent human beings´. (Pugh)
(5)c Órganizations facilitate cohesive performance directed towards achievement of goals. Organizations are
known for their complexity. (Stewart)
The above definitions reveal that:
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ć An organization is a social group designed to achieve certain goals.
ć People form the back bone of the organization. Human needs must be considered first before the
organizational issues such as structure, authority levels etc.
ć .An organization is run through a defined structure, supported by organization charts and organization
manuals.
ć Organizations have to consider a wide variety of both internal and external factors to strike a balanced
strategy to achieve their goals. The internal factors include formal and informal organizations, span of
control, degree of centralization/decentralization etc. The external factors include customers, competitors,
government, creditors, impact of technology etc.
!! 0
(a)c ! " : When organization structures are created, organizational procedures are
developed, lines of communication are established, and therefore, the task of administration is made easier.
In other words, the top management decisions can be put into practice with ease.
(b)c ! " 1- ( ! : The organizations can grow and diversify only when their
internal organizations are strong and result-oriented.
(c)c ! ( " 0 #1: The organization structure forms the basis to identify,
recruit and effectively utilize manpower at different levels in the organization.
(d)c "! ( &: Progressive organizations grant full freedom to the staff members to be more
creative and enterprising. Organizations emerge stronger when their employees are highly productive,
independent and empowered.
(e)c # " 0 !: Organizations are well thought out outfits which deploy
resources strategically to achieve the given goals in an optimum manner.

Different view points

(1)c Planning, organizing, staffing and directing are functions of management´. (Koontz)
(2)c Planning, organizing, staffing, directing, coordinating, reporting and budgeting (POSDCORB) are the
functions of management´. (Gullick)
(3)c Planning, organizing, commanding, coordinating, and controlling´ (Fayol)
(4)c Motivation, leadership and communication´. (Mayo, McGregor and Barnard)
(5)c Planning, organizing, staffing, directing, coordinating, reporting, budgeting, innovation and
representation´ (Classical thinkers)
The functions of management may be classified as:

(a)c Planning,
(b)c Organizing,
(c)c Staffing,
(d)c Directing, and
(e)c Controlling.
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Planning is concerned with the determination of the objectives to be achieved and the course of action to be
followed to achieve them. It is the process of deciding in advance what is to be done, when and where it is to be
done, how it is to be done and by whom´. Thus planning involves decision-making. Planning helps in achieving the
objectives efficiently and effectively. Planning involves selecting of objectives and strategies, Policies and
programmes and procedures for achieving them.
For any business activity, planning is a prerequisite for doing anything and also to ensure the proper utilization of
the resources of the business concern to achieve the desired goals.
Plans can be classified into standing plans and single-use plans. Standing plans include Objectives, Policies,
Procedures, methods and rules and single-use plans include Budgets, Programmes, Strategies and Projects.
From the analysis:-
÷c Planning is concerned with future and its essence is looking ahead;

÷c It involves thinking and analysis of information;
÷c It involves predetermined course of action;
÷c It is concerned with the establishment of objectives to be attained in the future;
÷c It is fundamentally a problem of choosing after a careful study of alternative courses;
÷c It involves decision-making;
÷c Its objectives is to achieve better results;
÷c It is a continuous and integrated process;
#!3 -#" .
,c " ! & !- A business concern has to work in an environment
which is uncertain and ever-changing. Planning helps the manager in carving out the future course of action
and this brings a higher degree of certainty and order into the organization than would be present without
planning.
4,c !)" ! !#"* & $ To run a modern business undertaking, there is a
need for a large number of people with different specialization and complex machines. This makes it
necessary for the management to depend on planning to get a clear idea of what is to be done, when it is to
be done, where it is to be done and how it is to be done.
5,c -"# ! Planning, through its defined objectives, well-publicised policies, programmes
and procedures helps the management in the co-ordination process.
6,c -"# *! ! (!"Planning involves the determination in advance of the work to be
done, the person responsible to do it, the time to be taken to do that work and the performance with the
planned one. In the case of deviations, steps may be taken to find out the reasons for such deviations. Thus
planning helps in exercising effective control.
7,c -"# ## " 0 -!#&'!As planning involves deciding in advance of
what is to be done, when, when and by whom is to be done, etc., there is a possibility for the proper
utilization of company¶s resources and for the achievement of company¶s objectives at the cheapest and the
best manner.
8,c ! " &! Under planning, policies, procedures and programmes are predetermined and
every decision and action should be within the framework of predetermined policies and procedures and
programmes. This facilitates unity of action and also avoids confusion or misunderstanding at any level.
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,c -"# ( $ " As planning involves the selection of best objectives, unity of
action, co-ordination of activities, economy in operation and offsetting of future uncertainty and change,
there is a great possibility of avoiding business failures.
0
Organizing is concerned with the arrangement of an organisation¶s resources- People, Materials, Technology and
finance in order to achieve enterprise objectives. It involves decisions about the division of work, allocation of
authority and responsibility and the coordination of tasks. The function increases in importance as a firm grows. A
structure is created to cope with problems created by growth. Through this formal structure, the various work
activities are defined, classified, arranged and coordinated. Thus organizing refers to certain dynamic ascepts:
÷c What tasks are to be done?

÷c Who is to do them?
÷c How the tasks are to be grouped?
÷c Who is to report to whom?
÷c Where the decisions have to be made?
#! 0
,c Organisation aids management in accomplishing enterprise objectives. It helps

management in performing other management functions such as planning, direction, delegation, control,
etc. it increases management¶s efficiency and promptness, avoids delay and duplication of work and
motivates the employees to perform their job efficiently. It lays solid ground work for focusing the
attention and action of management on the accomplishment of the objectives of an enterprise.
4,c ! " 1- # An organization is concerned with activities such as recruitment of
staff, delegation of authority, assignment of responsibility, co-ordination and control of activities at
different work centres etc. with these activities, the organization provides a framework within which the
company grows. Thus, organization facilitates growth of enterprise.
5,c # ^! Organisation affects human resources in a number of ways
such as recruitment, training, placement of workers, bringing harmony in their efforts, improving the
communication network and motivating them to improve their efficiency. All these ensure an optimum use
of human resources of enterprise.
6,c " ! ( & Sound organization stimulates creative thinking and initiative on the part of
employees. Delegation of authority provides sufficient freedom to supervisors and this encourages
initiative, creative thinking, resourcefulness, independent thinking, spirit of innovation and enterprise
among them.
7,c # 1!-"& A sound organization structure facilitates the optimum use of technological
improvements such as automatic techniques of Production, Control devices, Computer system, etc.
8,c ! ^ ^ ! A sound organization provides for job rotation and job
enlargement and makes jobs meaningful and interesting. It also provides for efficient methods in selection,
training and promotion of employees. Further it encourages people to work in a team and as human beings
and not as machines. Thus, it facilitates human use of human beings.
,c ! " $ " & # A sound organization has flexibility to adjust to the changes in the
conditions, promotes effective leadership, promotes employee morale, provides for delegation of authority
and develops co-ordination, co-operation and communication. All these factors assure stability to the
enterprise.
9,c *! (("# A sound organization by providing for training of staff at different levels and by
proper delegation and decentralization, helps development of managers.
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Staffing is the function of employing suitable persons for the enterprise. It may be defined as an activity where
people are recruited, selected, trained, developed, motivated and compensated for manning various positions. It
includes not only the movement of individuals into an organization, but also their movement through (promotion,
job rotation, transfer) and out (termination, retirement) of the organization. Staffing involves selection of right man
for the right job. The various sub- functions of staffing are:
1.c Manpower Planning: It has two aspects, short-term and long-term. While short-term manpower planning is
concerned with matching organizational jobs and individuals, long-term manpower planning is concerned
with the estimation of work force in future.
2.c Development: This is concerned with the development of employees through training and development
programmes. This also involves appraisal of performance of employees.
3.c Determination of employment standards: This involves job specification and job description so as to enable
the management select and train the employees scientifically.
4.c Determining the sources: This is concerned with determining the sources of personnel.
5.c Selection and placement: This is involves selection of workers and their placement.
6.c Training: This is concerned with providing training to the different types of personnel.
7.c Other functions: Other sub- functions of staffing include co-ordination, promotion and transfers,
maintaining of records relating to employees, employees¶ rating, motivating employees, etc.
!
Directing means telling people what to do and seeing that they do it as per the plan. It includes assignment of jobs,
issuing of instructions and orders supervising the subordinates and rectifying the errors in time.
Directing consists of process and techniques utilized in issuing instructions and making certain that operations are
carried on as originally planned.
The directing has the following components:
(a)c Issuing of instructions and orders to the subordinates for getting the work done;
(b)c Guiding subordinates in the proper methods of work.
(c)c Supervising subordinates to ensure that their performance conforms to the plans and contributes effectively
to the attainment of enterprise objectives.
Directing involves:
i.c Leadership: Leadership is the process of influencing the actions of a person or a group to attain desired
objectives. A manager has to get the work done with and through people. The success of an organization
depends upon the quality of leadership shown by its managers.
ii.c Motivation: Motivation is the work a manager performs to inspire encourages and impels people to take
required action. It is the process of stimulating people to take desired courses of action. In order to motivate
employees, manager must provide a congenial working atmosphere coupled with attractive incentives.
iii.c Communication. Communication is the transfer of information and understanding from one person to
another. It is a way of reaching others with ideas, facts and thoughts. Significantly, communication always
involves two people; a sender and a receiver. Effective communication is important in organization because
managers can accomplish very little without it.
iv.c Supervision: In getting the work done it is not enough for managers to tell the subordinates what they are
required to do. They have also to watch and control the activities of the subordinates. Supervision is seeing
that subordinates do their work and do it as directed. It involves overseeing employees at work.
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Control is the process to find out whether actions are being taken as planned and taking corrective actions to make
them conform to plans and then to take necessary
steps to prevent the occurrence of variations in future.
Controlling is determining what is being accomplished, that is, evaluating the performance and, if necessary,
applying corrective measures so that the performance takes place according to plans´.
The important features of controlling are:
(a)c It is an important managerial function.

(b)c It is concerned with setting standards.
(c)c It involves the measurement of actual performance.
(d)c It brings to light the variations, if any, from the standards set.
(e)c Its object in checking the variations is to rectify them and prevent their recurrence.
(f)c It is a continuous process.
(g)c It operates on everything, i.e. things, people and actions.
Scope or areas of control:
(a)c Control over Policies of an enterprise.

(b)c Control over Organization.
(c)c Control over personnel employed in a concern.
(d)c Control over wages and salaries paid to the employees.
(e)c Control over costs of material, labour, overheads etc.
(f)c Control over capital expenditure.
(g)c Control over Production.
(h)c Overall control.
:; ' ^ :
Frederick Winslow Taylor (1856-1915) who is the father of scientific management worked as a chief engineer in the
Midvale steel works where he joined as a worker. Afterwards, he worked in the Bethlehem steel works and after
retirement from this concern, he worked as a consultant.
Taylor the founder of the scientific management movement states that the object of management should be to secure
the maximum prosperity for each employer, coupled with the maximum prosperity of each employee.
Taylor¶s scientific management, in its essence, consists of a certain philosophy which results in the combination of
four great principles of management, viz.,
ëc the development of true science,

ëc the scientific selection of workers,
ëc their scientific selection and development and intimate,
ëc Friendly co-operation between the management and their workmen.
When management of a business unit is based on the systematic study and analysis of various aspects of work
involved, with a view to finding out the best way of doing things, we call it scientific management of business.
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Broadly speaking scientific management is the art of knowing exactly what is to be done and the best way of doing
it.
Taylor observed that inefficiency prevails n the organization because of three causes, viz.,
(a)c Workers feel that any increase in output would lead to unemployment.
(b)c Defective systems of management and because of these, each worker restricts his output in order to
safeguard his interests and
(c)c Inefficient rule of thumb efforts and wasting methods of work.
The elements of scientific management are:
1)c Determination of the task

2)c Planning of Industrial operations
3)c Proper selection and training of workers
4)c Improvement in methods of work
5)c Modification of Organization
6)c Mental revolution.

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Determination of tasks or work-load to each employee is on the basis of method study, routing, motion study, time
study, fatigue study and differential piece-wage system.
After setting the task to the workers the next step is to plan production which requires the planning of industrial
operations. This involves four considerations, viz.,
a)c What work shall be done?

b)c How the work shall be done?
c)c Where the work shall be done?
d)c When the work shall be done?.
Proper selection and training of workers and also their correct placement have to be done by the management; there
is need for improvement in the methods of work. This involves the standardization of tools and equipment, speed,
condition of work and materials.
Taylor also suggested modification of organization. This involves introduction of µFunctional foremen ship¶,
According to this, two functions of planning and doing are divided. He has also suggested eight functional foremen,
viz.,
a)c Route clerk; (b) Instruction card clerk; (c) Time and cost clerk; (d) Gang Boss; (e) Speed boss; (f) Repair
boss; (g) Inspector and (i) Shop disciplinarian
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For the success of scientific management, there should be a thorough change in the mental outlook of both the
employees and the employer and their hostility and suspicion give place to mutual co-operation and goodwill.
^ :;' ;

Henri Fayol, the Father of Management Science, has evolved fourteen principles of management which may be
briefly stated as:
,c ( <) This is the principle of specialization which applies to all kinds of work. The more
people specialize, the more efficiently they can perform their work. Specialization increases output by
making employees more efficient.
4,c - & # $ " & Authority is the right to give orders and the power to obtain obedience. A
manager might use both his official authority and personal authority while getting things done. O
is derived from the manager¶s position and is derived from personal qualities
such as intelligence, experience, past services, etc. responsibility arises out of assignment of an activity. An
individual, to whom authority is given to exercise power, must also be prepared to bear responsibility to
perform the work in a satisfactory manner.
5,c ! #" Employees must obey and respect the rules that govern the enterprise. Good discipline is the
result of effective leadership, a clear understanding between management and workers regarding the
organisation¶s rules and the judicious use of penalties for violation of the rules.
6,c
& ! An employee should receive commands from only one superior. Dual command, as
advocated by Taylor in his principle of functional foremanship where a worker receives orders from a
number of functional specialists, undermines authority and puts discipline in jeopardy. Fayol believed that
when an employee reported to more than one superior, conflict in instructions and confusion of authority
would result.
7,c
& ! This principle calls for µone manager one plan¶ for all operations having the same
objective. For example, the personnel department in a bank should not have two directions, each with a
different requirement policy. The unity of direction principle, when applied properly, ensures unity of
action and facilities coordination.
8,c $. ( " " In a business concern, the interest of one
employee or group of employees should not prevail over the common interest or should not block the
fulfillment of general goals of the business concern. If there is disagreement among the two superiors on
any matter, the management should reconcile the differences so as to conduct the overall operations of the
enterprise smoothly.
,c The remuneration that is paid to the personnel of the firm should be fair and as far as
possible, afford satisfaction both to the personnel and the firm. Employees who are paid decent wages or
salary will have a high morale and their efficiency will be high. Further, contented staff is an asset to the
firm and also there will be good relationship between the management and the employees. The rate of
remuneration paid should be based on general business conditions, cost of living, and productivity of the
concerned employees and the capacity of the firm to pay.
9,c " If subordinates are given more role and importance in the management and organization of
the firm, it is decentralization whereas if they are given less role and importance, it is centralization.
Management has to decide the degree of centralization and decentralization of decisive authority on the
basis of the nature of circumstances, size of undertaking, the type of activities and the nature of
organizational structure. The objective should be the optimum utilization of all faculties of the personnel.
=,c !"!- The graded chain of authority from top to bottom through which all communications flow is
termed as µscalar chain¶. However, if following the chain creates communication delays, cross-
communication can
be permitted, if agreed to by all parties and superiors are kept informed.
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>,c Management should obtain orderliness in work through suitable organization of men and materials.
The principle of µright place for everything and for every man¶ should be observed by the management. To
observe this principle, there is need for scientific selection of competent personnel, correct assignment of
duties to the personnel and good organization.
,c ? & Managers should be fair in dealing with employees. Equity is the combination of justice and
kindness. The application of equity requires good sense, experience, and good nature for soliciting loyalty
and devotion from subordinates.
4,c $ " &#"Stability of tenure is essential because time is required for an employee
to get used to new work and succeed in doing it well. Management must, therefore, implement practices
which encourage long-term commitment of employees. Instability of tenure can significantly affect the
fortunes of a company.
5,c ( Employees must be encouraged to think through to implement a plan of action, even though
some mistakes may result. The opportunity to perform independently is an essential component of
employee growth and development.
6,c # # Since µUnion is strength¶, the management should create team spirit among the
employees. Only when all the personnel pull together as a team, there is scope for realizing the objectives
of the concern. Harmony and unity of the staff of a concern is a great source of strength to the undertaking.
The management should not follow the policy of divide and rule´ and it should strive to maintain unity
among the staff. If there are any differences or misunderstandings or symptoms of distrust, the management
should take timely steps to eliminate them.
"1'-&^ !-&
According to Maslow, human needs form a hierarchy, starting at the bottom with the physiological needs and
ascending to the highest need of self-actualization as shown. He says when one set of needs are satisfied they no
longer work as motivators as a man seeks to satisfy the next higher level needs.
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,c -& " !"These are the basic necessities of human life- food, water, warmth, shelter and sexual
satisfaction. Maslow says that until these needs are satisfied to the required level the man does not aim for
the satisfaction of the next higher level needs. As far as work organization is concerned these needs include
basic needs like pay, allowance, incentives and benefits.
,c ! &@& These refer to the need to be free of physical danger or the feeling of loss of food,
job or shelter. When the physiological needs are satisfied man starts thinking of the way by which he can
continue to satisfy these physiological needs. Security needs spring up the moment the makes an effort in
the direction of providing himself the source of continuity of physiological needs. This is exactly the reason
why attitude toward security is an important consideration in choosing the job. These needs as far as work
organization is concerned include: Conformity, Security plans, Membership in unions, Severance pay etc.
,c ! " (Affiliation or Acceptance needs) When the physiological and security needs are satisfied
these social needs begin occupying the mind of a man. This is exactly why he looks for the association of
other human beings and strives hard to be accepted by its group. Social needs at work place include:
Human relations, formal and informal work groups.

(,c These needs are power, prestige, status and self-confidence. Every man has a feeling of
importance and he wants others to regard him highly. These needs make people aim high and make them
achieve something great. These needs for employees include status symbols, awards, promotions, titles etc.
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(,c ". !" This is the highest need in the hierarchy. This refers to the desire to become
what one is capable of becoming. Man tries to maximize his potential and accomplish something, when this
need is activated in him.

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Elton Mayo, who is considered to be the founder of human relations movement and his associates, conducted the
Hawthorne studies in the Hawthorne plant of western electric company, USA, between 1927 and 1932. They stated
that the employees¶ morale has great influence on productivity and the manager should treat them as social beings
instead of economic being or simply as cogs in a machine. For solving any management problem, the manager
should understand group attitudes and psychology as employees are members of a group.
The purpose of the experiment was to determine the effects of different levels of illumination on workers¶
productivity. The intensity of light under which one group was systematically varied (test group) while the light was
held constant (control group) for the second group. The productivity of the test group increased each time the
intensity of the light increased. However, productivity also increased in the control group which received no added
light. The researchers felt that something besides lighting was influencing the workers participation.
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! !($&^1-*#
Ôc Social system defines individual roles and establishes norms. These roles and norms of the social system
differ from those of the formal organization.
Ôc Workers follow the social norms rather than achieving the goals.
Ôc Non economic rewards and social sanctions, in addition to economic rewards play a vital role in guiding
the human behavior at work.
Ôc Perception of the workers of the situations rather than of the management matters much.
Ôc Workers fear retaliation for violating the group norms and therefore, they are motivated by group norms
much rather than economic incentives.
Ôc Individual worker¶s attitudes and performance are shaped and determined by the groups. Workers mostly
react as members of groups but not as individuals. Workers prefer to change their behavior based on the
changes in group behavior.
Ôc Informal leader sets and enforces group norms. Official leader proves himself ineffective unless he
confirms to the group norms.
Ôc Workers have need for communication, participation and involvement in decision- making and democratic
leadership. Lower level workers are informed of the decisions and the process which affect them.
Ôc High level job satisfaction leads to high level organization effectiveness.
Ôc Managers should have social skills in addition to technical skills and
Ôc Motivating the workers is possible by fulfilling not only lower level needs but also by higher level needs.

"!' ( -&A-&:
Douglas McGregor, an American social psychologist, proposed famous X-Y theory in 1960, Douglas McGregor
made his mark on the history of organizational management when he proposed the two theories of motivation by
which managers view employee motivation. He referred to these nearly opposite theories as -&A and -&
:. Both of these theories assume that management's role is to organize resources, including people, to best benefit
the organization.
( -&A
A Theory X manager makes the following general assumptions:
Ôc Work is inherently distasteful to most people, who will attempt to avoid work whenever possible.
Ôc Most people are not ambitious, have little desire for responsibility, and prefer to be directed.
Ôc Most people have little capacity for creativity in solving organizational problems.
Ôc Motivation occurs only at the physiological and security levels of Maslow's Hierarchy of Needs
Ôc Most people are self-centered. As a result, they must be closely controlled and often coerced to achieve
organizational objectives
Ôc Most people resist change.
Ôc Most people are gullible and not particularly intelligent.
Essentially, Theory X assumes that the primary source of most employee motivation is money, with security as a
strong second.
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-$"1 --&A
Drawing on Maslow's Needs Hierarchy, McGregor argues that a need, once satisfied, no longer motivates. Under
Motivation Theory X, the firm relies on money and benefits to satisfy employees' lower needs, and once those needs
are satisfied the source of motivation is lost. Theory X management styles, in fact, hinder the satisfaction of higher-
level needs. Consequently, the only way that employees can attempt to satisfy their higher level needs in their work
is by seeking more compensation, so it is quite predictable that they will focus on monetary rewards. While money
may not be the most effective way to self-fulfillment, in a Theory X environment it may be the only way. Under
Theory X, people use work to satisfy their lower needs, and seek to satisfy their higher needs in their leisure time.
Unfortunately, employees can be most productive when their work goals and higher level needs are in alignment.
McGregor makes the point that a command and control environment is not effective because it relies on lower needs
as levers of motivation, but in modern society those needs already are satisfied and thus no longer motivate. In this
situation, one would expect employees to dislike their work, avoid responsibility, have no interest in organizational
goals, resist change, etc., thus creating a self-fulfilling prophecy. From this reasoning, McGregor proposed an
alternative: Theory Y.
( "-&:
The higher-level needs of esteem and self-actualization are continuing needs in that they are never completely
satisfied. As such, it is these higher-level needs through which employees can best be motivated.
In strong contrast to Theory X, a Theory Y manager makes the following general assumptions:
Ôc Work can be as natural as play if the conditions are favorable.

Ôc People will be self-directed and creative to meet their work and organizational objectives if they are
committed to them.
Ôc People will be committed to their quality and productivity objectives if rewards are in place that addresses
higher needs such as self-fulfillment.
Ôc The capacity for creativity spreads throughout organizations.
Ôc Most people can handle responsibility because creativity and ingenuity are common in the population.
Ôc Under these conditions, people will seek responsibility.
Under these assumptions, there is an opportunity to align personal goals with organizational goals by using the
employee's own need for fulfillment as the motivator. McGregor stressed that Theory Y management does not imply
a soft approach. McGregor recognized that some people may not have reached the level of maturity assumed by
Theory Y and therefore May need tighter controls that can be relaxed as the employee develops.
##"& -&:.3 #" !
If Theory Y holds true, an organization can use these principles of scientific management to improve employee
motivation:
Ôc Decentralization and Delegation - If firms decentralize control and reduce the number of levels of
management; managers will have more subordinates and consequently will be forced to delegate some
responsibility and decision making to them.
Ôc ùob Enlargement - Broadening the scope of an employee's job adds variety and opportunities to satisfy ego
needs.
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Ôc Participative Management - Consulting employees in the decision making process taps their creative
capacity and provides them with some control over their work environment.
Ôc Performance Appraisals - Having the employee set objectives and participate in the process of evaluating
how well they were met.
If properly implemented, such an environment would result in a high level of motivation as employees work to
satisfy their higher level personal needs through their jobs.
^0$'1.!-& (

Maslow¶s theory has been modified by Herzberg and he is called it two-factor theory of motivation. According to
him the first groups of needs are such things as company policy and administration, supervision, working conditions,
Interpersonal relations, salary, status, job security and personal life. Herzberg called these factors as µDissatisfiers¶
and not motivators. By this he means that their presence or existence does not motivate in the sense of yielding
satisfaction, but their absence would result in dissatisfaction. These are also referred to as µhygiene¶ factors.
In the second group are the µsatisfiers¶, in the sense that they are motivators, which are related to µjob content¶. He
included the factors of achievement, recognition, challenging work, advancement and growth in the job. He says that
their presence will yield feelings of satisfaction or no satisfaction, but not dissatisfaction.

! ! ^& ( "!
!
ùob context ùob content

Extrinsic factors Intrinsic factors
Company policy and Administration Achievement
Quality of supervision Recognition
Relations with supervisors Advancement
Peer Relations Work itself
Relations with subordinates Possibility of growth
Pay Responsibility
ùob security
Work conditions
Status

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& ##!-
Systems Approach tries to solve problems by diagnosing them within a framework of inputs, transformation
processes, outputs and feedback.
It attempts to view the organization as a single unified, purposeful entity, composed of interrelated parts. Rather than
dealing separately with the various parts of an organization, the systems theory gives managers a way of looking at
an organization as a whole and as a part of the larger, external environment. The job of manager is to ensure that all
parts of the organization are coordinated internally so that the goals can be achieved.
& "&
& A set of inter-related parts (sub-systems). Each part may have various sub-parts. These parts are mutually
related to each other. Usually a change in one part would lead to a change in other parts.
$.&The parts that make up the whole of a system are called sub-systems. And each system may, in turn, be
a sub-system of a still larger whole. Thus, a department may be a sub-system of a plant, which may be a sub-system
of a company, which may be a sub-system of an industry, etc. there are five sub-systems within an organization:
(1)c Goal sub-system (individual and group goals)
(2)c Technical sub-system (tools, equipment, employee skills, knowledge)
(3)c Structural sub-system (authority layers and relationships)
(4)c Managerial sub-system (managers who plan, lead and control)
(5)c Psychosocial sub-system (psychological and social factors influencing people at work).
&& Synergy means that the whole is greater than the sum of its parts. When the parts of an organization are
properly interrelated (such as an assembly line), the output is much greater than it would otherwise be. Synergy
represents one of the basic challenges of management, getting all of the elements of an organization functioning
together so that output is optimal.
# " & A system is considered an open system if it interacts with its environment; it is
considered a closed system if it does not. An organization that is not adaptive and responsive to its environment
would not survive or grow in any extended period of time. It has to be responsive to demands placed on it by both its
internal and external environments.
& $& Each system has a boundary that separates it from its environment. In a closed system, the
system boundary is rigid; in an open system, the boundary is more flexible. The system boundaries of many
companies have become more flexible in recent times. For example, oil companies wishing to engage in offshore
drilling have increasingly had to consider public relation to the potential environmental harm.
"1 An open system receives inputs form its environment which are transformed into outputs in interaction with
environmental variables. For a business firm inputs would be material, labour and capital. The transformation
process would turn these inputs into finished products and services. The system¶s success depends on successful
interactions with its environment; these might include suppliers, unions, financial institutions, government agencies
and customers. The sale of output generates revenue, which can be used to pay wages and taxes, buy inputs, repay
loans, and generate profits for shareholders.
$!)Feedback is central to system controls. As operations of the system proceed, information is fed back to
the appropriate people or perhaps to a computer so that the work can be assessed, and if needed, corrected. Feedback
provides warning signals regarding impending dangers. For example, customer complaints may demand attention to
product improvement, customer service etc.

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;("
All managers¶ positions involve performance of management functions (Planning, Organizing, Directing, Staffing,
and Controlling). But there are differences among managerial jobs. The differences arise because of the existence of
various levels of management. The levels of management are usually identified in three levels
a)c Top level management
b)c Middle level management
c)c Lower level management

c #"("

Uc Determines objectives and policies.
Uc Designs the basic operating and financial structure of an organization.
Uc Provides guidance and direction
Uc Lays down standards of performance.
Uc Maintains good public relationsè

&'"

"

' "

$c ""("
Uc Interprets and explains the policies framed by the top.
Uc Issues detailed instructions.
Uc Participates in operating decisions.
Uc Trains other managers.

!c ;1"("
Uc Plans day-to-day operations.
Uc Assigns jobs to workers
Uc Provides supervision and control over work.
Uc Arranges material tools and equipment.
Uc Maintains discipline.
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;- #&"
The behavioural pattern which a leader adopts to direct the behavior of members in an enterprise for achieving the
organization goals is known as the style of leadership.
Different leadership styles may be adopted by the leaders at different times and in different circumstances. Among
the different leadership styles, the three important leadership styles are:
(1)c Autocratic or Authoritarian leader

(2)c Participative or Democratic leader
(3)c Laissez faire or free-rein style
c ! ! - "The autocratic leader is one who centralizes decision-making power in
himself and gives orders to his employees and also insists that they should be obeyed. He decides policies for
the group without consulting the group and also asks the group to take steps as per policies determined by
him. He does not delegate authority and runs the whole show by himself. He does not inform the employees
the purpose of the plans. He expects his employees to obey him blindly and without asking the questions and
has no regard for them and does not like to seek their suggestions or advice. Such leadership is negative
because the followers are uninformed, insecure and afraid of leader¶s authority.
Autocratic leadership can be of two types.
a)c Strict autocrat: A strict autocrat is one who relies on negative influences and gives orders which must
be obeyed by the subordinates without questions being asked. His method of influencing subordinate
behavior is through negative motivation, that is, by imposing penalty, criticizing subordinates, etc.
b)c Benevolent autocrat: A benevolent autocrat is one who uses a positive motivation style. He disperses
rewards to his group. This type is effective in getting higher productivity and in developing good
human relationships.
( ! !
(a)c Some employees get satisfaction by working under centralized authority situation and strict discipline.
(b)c As the decisions are taken by a single person, it permits quick decision.
( ! !
(a)c Because of the strictness and negative motivational style the employees dislike it;
(b)c Lack of motivation, low morale, frustration and insecurity affect the organizational efficiency;
(c)c There is no scope for individuality and initiative;
(d)c Future leaders in the organization do not develop.
4c ! # (! !"A democratic leader is one who takes decisions in consultation with his
subordinates. He emphasizes consultation with and participation of his subordinates and encourages initiative
from them. He also seeks their advice and opinions on matters which affect them and their jobs.
He does not take a unilateral decision and decentralizes his decision-making process and also authority.
Participative leaders have a high concern for people and work.
(! !
(a)c It increases the acceptance of management¶s ideas and reduces resistance to

change.
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(b)c As the ideas and suggestions of employees are considered for decision-making they are highly motivated
and their morale also is high.
(c)c The decisions are implemented whole-heartedly and the employees¶ productivity is increased.
(d)c It reduces the number of grievances of employees
(e)c It seeks to evolve a self-regulation and self-discipline mechanism.
(f)c As the subordinates are involved in the decision-making process, there is a possibility for making better
decision.
(g)c Good relationship between the leader and the followers can take place.
As the advantages are more than the disadvantages, most employees prefer this style of leadership.
5c ; 0 . &" Under this style of leadership, the leader entrusts the decision-making
authority to his subordinates. He does not direct and hardly makes any contribution to overall effort. He
avoids using power and leaves it to his subordinates to establish the goals and work out the plan to attain the
goals. While the group members provide their own motivation, the manager usually contacts the outside
sources and brings information and material which the members of the group require to perform their job.
This style of leadership can be adopted only if the subordinates have a sincere desire to discharge their
responsibilities, and are highly competent and duty conscious and motivated to do the job even without any direction
by the manager. Such instances, of course, either do not exist or are found to be rare.
! " # $ "

The social responsibility of business refers to such decisions and activities of a business firm which provide for the
welfare of the society as a whole along with the earning of profit for the firm. The business firm functions and acts
in such a way that it will accomplish social gains (social output) along with the traditional economic gains
(economic output) in which the business firm is interested.
Social responsibility refers to´ The businessman¶s decisions and actions taken for reasons at least partially beyond
the firm¶s direct economic or technical interest´.
The social responsibilities are obligations to pursue those policies, to make those decisions or to follow those lines
of action which are desirable in terms of the objectives and values of our society.´
The nature of social obligations to be discharged by the businessmen to the various sections of the society.
# $ " &1
Uc Utilising funds in best possible manner.

Uc Ensure a fair rate of return regularly.
Uc Fair and honest reporting of business operations from time to time.
# $ " &#"&
Uc Recognise the social needs of workers and provide adequate participation to employees in matters affecting
their life.
Uc Fair and reasonable rates of pay
Uc Creating a healthy work climate, improving working and living conditions and making the work place safe
and pleasant.
Uc Improving the quality of working life of employees.
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# $ " & ##"
Uc Provide accurate information regarding the financial health of the organization.

Uc Ensure a reasonable price for the articles supplied, and make prompt repayments (involving interest on
borrowings); there should be fairness in transactions.
Uc Promote a healthy atmosphere where creditors, suppliers and other interest groups are treated as partners in
a cooperative Endeavour.
# $ " &(
Uc Follow fair trade policies and practices.

Uc Pay taxes to the government honestly
Uc Obey the laws
Uc Discourage unhealthy practices like bribing the government officials to curry favours, obtain licences in
order to kill the competition, etc.
# $ " &
Uc Providing goods of superior quality at reasonable prices.

Uc Avoiding deceitful, false and highly exaggerated advertisements and high pressure publicity gimmicks
aimed at wooing the customers away from competitors.
Uc Management should not indulge in anti-social activities like black marketing, hoarding, etc.
# $ " &! &
Uc Elimination of poverty and provision of quality health care.

Uc Preservation of the environment by reducing the level of pollution
Uc Providing equal employment and educational opportunities to all, regardless of race, colour, cred or sex.
Uc Providing sufficient number of jobs and career opportunities and facilities to all members of society.
Uc Improving the physical environment and developing human resources fully.
# $ " & &
Uc Develop constructive relationship with members of the community.

Uc Participate in community activities and promote community welfare. Renovating neighbourhoods
surrounding the company¶s headquarters, building public parks with playground equipment, and granting
employees paid leave of absence to work in social programmes.
Uc Offer good housing and efficient transportation to own employees and to poorer sections of the community.
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2 ;

Basic Concepts related to Organization ±
Departmentation and Decentralization, Types of mechanistic and organic structures of organization (Line
organization, Committee organization, Matrix organization, Virtual organization, Cellular organization, Team
structure, Boundary less organization, Inverted pyramid structure, Lean and Flat organization structure) and their
merits, demerits and suitability.

0 0
ć Organizing is a process of (a) determining, grouping and structuring the activities; (b) creating roles for
effective performance at work; (c) allocating necessary authority and responsibility for results; and (d)
determining detailed procedures and systems for different problem areas such as coordination,
communication, decision-making, motivation, conflict resolution etc. The ultimate result of organizing
is an organization.
ć If the entire organization is viewed as a system, its sub-systems are the departments of production,
marketing, finance etc.
ć Organizations may be formal, informal or both.
Uc A formal organization is a structure of relationships which enables persons in official capacity
(a) are able to communicate with one another; (b) are willing to act in an atmosphere of
cooperation; and (c) share a common explicit performance.
Uc An informal organization is a network of relationships, which develop because of common
interests existing among the members but not because of any official proclamation. The likes
and dislikes of the members, not the rules and regulations, bind the informal organization.
Informal organizations do not appear on the organization charts. However, the informal
organizations ensure the success of the formal organization. It is so because the rules and
regulations of the organization do not yield results. The degree of participation and
involvement of people in the organization yield results. Informal organizations such as week-
end meets, cultural meets, sports meets etc., develop bonds which in turn, strengthen the
degree of participation and involvement of people in the organizations.

3 ; 2
0 "- !-&

ć Organizational hierarchy refers to the layers of management from top management down to
managers/supervisors of the lowest rank.
ć In a small organization, there are very few layers of hierarchy. In sole trader type of organizations, the
owner makes and implements the decisions.
ć In large organizations, there are many levels of hierarchy. Employees have varying degrees of authority in
such hierarchies. The top management, consisting of the Board of Directors and the Chief Executive, is
concerned with formulation of strategic long-term plans and policy decisions. It is their responsibility to
ensure that the subordinates implement these plans and decisions.
c
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ć Orders pass through a clear chain of command running from the top level to the lowest level, in the
organization. The data such as sales, revenues, output, staff turnover etc. are forwarded to the top
management through periodical reports to enable them to take decisions.
- & # $ " &

ć Authority is the power to give commands and to use discretion vested in that particular position/job. If
a person is removed from the job or if he leaves the job, he loses the authority.
ć Responsibility is the obligation to accomplish the goals related to the position and the organizationèc
Authority can be transferred to lower levels but not responsibility.
ć Managers, at no matter what level of the organization, typically have the same basic responsibilities
when it comes to managing the work force: Directing employees toward objectives, oversee the work
effort of employees, deal with immediate problems, and report on the progress of work to their
superiors. Managers' primary responsibilities are to examine tasks, problems, or opportunities in
relationship to the company's short-and long-range goals. They must be quick to identify areas of
potential problems, continually search for solutions, and be alert to new opportunities and ways to take
advantage of the best ones.
ć Authority and responsibility should always be commensurate and coexistent with each other. Where
authority exceeds responsibility, it may lead to misutilisation of authority. Where responsibility exeeds
authority, it leads to frustration as he is not given the authority to get the tasks completed.
" - &

ć In order for managers to achieve goals in an efficient manner, part of their work may be assigned
to others. When work is delegated, tasks and authority are transferred from one position to another
within an organization.
ć In order to effectively delegate work, some guidelines should be followed:
(a)c Determine what each worker can most effectively accomplish;
(b)c decide whether the worker should just identify a problem or also propose a solution;
(c)c consider whether the person can handle the challenge of the task;
(d)c be clear in the objectives of the task;
(e)c encourage questions; explain why the task is important;
(f)c determine if the person has the appropriate resources²time, budget, data, or
equipment²to get the job done on a deadline;
(g)c create progress reviews as part of the project planning; and be prepared to live with
less than perfect results.
ć Some employees resist delegation for a variety of reasons. Initiative and responsibility involve risk that
they try to avoid. People tend to play it safe if risk results in criticism. Those who feel they already
have more work than they can also avoid new assignments. Some people doubt their own abilities and
lack the self-confidence to tackle new assignments.
ć Delegation is an excellent professional development tool so long as it expands a worker's expertise and
growth. Delegation can also compensate for a manager's weakness. A successful team is developed by
building on the strengths of its members.
ć People develop most when stimulated to broaden themselves²when challenged. More authority can
add challenge; too much challenge, however, can frustrate people and cause them to avoid new
responsibilities. Delegation should involve acceptable challenge²enough to motivate but not so much
as to frustrate.
" @!"
ć Centralisation is the process by which the activities of an organisation, particularly those regarding
planning and decision-making, become concentrated within a particular location and/or group.
ć In political science, this refers to the concentration of a government's power - both geographically and
politically, into a centralised government. In neuroscience, centralization refers to the evolutionary trend of
the nervous system to be partitioned into a central nervous system and peripheral nervous system.
c
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c
ć In Management Studies, centralisation and decentralisation refer to where decisions are taken in the chain
of command. An organization is said to be centralized when the authority to take decisions is held by the
corporate office. If the authority to take decisions is delegated to regional offices, then the organization is
said to be decentralized.
! !" 0
c # If the top management wants all the decision-making authority to be

confined to itself and to a few key executives, it may prefer centralization. On the other hand, if the top
management wants to have only overall control over the organization and prefers decision-making
authority to be dispersed at different levels of the organization, it may prefer the idea of
decentralization.
4c 0-# @!"# If the size of the concern or the scale of its operations is
small, centralization can prove to be effective. On the other hand, if there are a number of operations to
be performed through many departments or divisions, decentralization can be ideal.
5c ! In a manufacturing concern, production and marketing are the basic functions.
Such basic functions may be decentralized for better results. Functions such as personnel and finance,
meant to facilitate the performance of the basic functions, may be centralized to derive greater
efficiency.
6c * ( ! If the business enterprise is producing and marketing different types of
products, decentralization will be more beneficial.
7c ( "$ " &!#$" The decision on decentralization is very much influenced by the
availability of efficient managers. In fact, decentralization will be successful only if the top
management is able to find capable managers to effectively manage the different departments or
divisions of the enterprise.
8c !!-! : If the decision to be taken is very significant and costly, the decision
may be taken at top management level. If the decisions to be taken are insignificant, then the decision-
making may be decentralized.
c #- ! !"!- ?: If the control techniques (such as statistical devices, accounting
controls, usage of computers) are sophisticated, the organization could be directed towards
decentralization.
9c - - "*"( : If the changes in the organization¶s environment
are very fast, the top management cannot continue to take decisions both at the macro level and at the
micro level. The only alternative is to encourage the managers at lower to use their discretion and take
calculated risks.
=c "!*"!: If the external factors such as government control over matters relating
to price, working conditions and taxes etc. have a lot of influence on the business undertaken, the
decision-making cannot be left to the managers at the department level. The top management would
continue to take decisions.
#"
ć Span of control or span of management is a dimension of organizational design measured by the number of
subordinates that report directly to a given manager. This concept affects organization design in a variety of
ways, including speed of communication flow, employee motivation, reporting relationships, and
administrative overhead. Span of management has been part of the historical discussion regarding the most
appropriate design and structure of organizations.
ć A small, or narrow, span of control results in each manager supervising a small number of employees,
while a wide span of management occurs when more subordinates report directly to a given manager.
ć A small span of management would make it necessary to have more managers and more layers of
management to oversee the same number of operative employees than would be necessary for an
organization using a wider span of management.
ć The narrower span of management would result in more layers of management and slower communications
between lower level employees and top level managers of the firm. Recent moves to downsize
.c
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c
organizations and to eliminate unnecessary positions has resulted in many organizations moving to wider
spans of management and the elimination of layers of middle-level managers.
ć An argument for a narrow span of control was presented by V.A. Gaicunas, who developed a formula
showing that an arithmetic increase in the number of a manager's subordinates resulted in a geometric
increase in the number of subordinate relationships that a manager had to manage. According to Gaicunas,
managers must manage not only one-to-one direct reporting relationships, but also relationships with
various groups of subordinates and the relationships that exist between and among individual subordinates.
The formula is shown below:
Number of all kinds of relationships B4. C.
where N is the total number of interactions and n is the number of subordinates.

Therefore, if a manager has two subordinates, there are 6 potential relationships to manage. However, if the
manager's subordinates are increased to three, then the number of relationships is increased to 18. As the number of
relationships increased, Gaicunas argued, the sheer number of interactions would exceed the abilities of the
manager.
ć Researchers generally argue that a small span of management and a "tall" organization structure will be
more expensive to operate because of the large number of managers and it may have communication
problems resulting from the multiple levels of management. Such organizations are often seen as well
suited for a stable, certain type of environment. A "flat" organization design resulting from a wider span of
management would require managers to assume more administrative duties since those activities would be
shared by fewer employees. It will also result in more employees reporting to each manager, increasing the
managers' supervisory responsibilities. However, some research also suggests the wider span of
management may cause employees to feel greater ownership of their work and increase their motivation,
morale, and productivity. This type of organization design is often seen as effective in more uncertain
environments.
^ ;
While early discussions of span of control often centered on pinpointing the optimal number of subordinates, a
number of factors may influence the span of control most appropriate for a given management position. Assuming
that all other aspects of a manager's job are the same, these factors would likely alter the span of management as
follows:
1.c ù$!#"* &. Subordinate jobs that are complex, ambiguous, dynamic or otherwise complicated will
likely require more management involvement and a narrower span of management.
2.c " &$ /$. The more similar and routine the tasks that subordinates are performing,
the easier it is for a manager to supervise employees and the wider the span of management that will likely
be effective.
3.c -& !"#* &$ . The more geographically dispersed a group of subordinates the more
difficult it is for a manager to be in regular contact with them and the fewer employees a manager could
reasonably oversee, resulting in a narrower span of management.
4.c $ " #"&. Managers who supervise employees that lack ability, motivation, or confidence
will have to spend more time with each employee. The result will be that the manager cannot supervise as
many employees and would be most effective with a narrower span of management.
5.c $ " -. Some managers are better organized, better at explaining things to subordinates,
and more efficient in performing their jobs. Such managers can function effectively with a wider span of
management than a less skilled manager.
6.c T!-"&. Cell phones, email, and other forms of technology that facilitate communication and the
exchange of information make it possible for managers to increase their spans of management over
managers who do not have access to or who are unable to use the technology.
c
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ccc
c
The trend in recent years has been to move toward wider spans of control to reduce costs, speed decision making,
increase flexibility and empower employees. However, to avoid potential problems of wide spans of control,
organizations are having to invest in training managers and employees and in technology enabling the sharing of
information and enhancing communication between and among managers and employees.
""
In its simplest form a tall organisation has many levels of management and supervision. There is a long chain of
command´ running from the top of the organisation eg Chief Executive down to the bottom of the organisation eg
shop floor worker. The diagram below neatly captures the concept of a tall structure.
However, tall structures rarely exceed 8 levels of management. This is firstly because the number of layers (i.e.
management levels) decreases the span of control. Secondly the disadvantages of the tall structure begin to outweigh
the advantages of a tall structure.
("" (""

Ôc There is a narrow span of control ie each Ôc The freedom and responsibility of employees
manager has a small number of employees (subordinates) is restricted.
under their control. This means that
employees can be closely supervised.
Ôc There is a clear management structure. Ôc Decision making could be slowed down as

approval may be needed by each of the layers
of authority.
Ôc The function of each layer will be clear and Ôc Communication has to take place through
distinct. There will be clear lines of many layers of management.
responsibility and control.

*c
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"
In contrast to a tall organisation, a flat organisation will have relatively few layers or just one layer of management.
This means that the Chain of Command´ from top to bottom is short and the span of control is wide´. Due to the
small number of management layers, flat organisations are often small organisations.
(" ("

Ôc More/Greater communication between Ôc Workers may have more than one
management and workers. manager/boss.
Ôc Better team spirit. Ôc May limit/hinder the growth of the

organisation.
Ôc Less bureaucracy and easier decision making. Ôc Structure limited to small organisations such
as partnerships, co-operatives and some
private limited companies.
Ôc Fewer levels of management which includes Ôc Function of each department/person could be

benefits such as lower costs as managers are blurred and merge into the job roles of others.
generally paid more than worker.
:

2
One of the most challenging tasks of a business may be organizing the people who perform its work. A business
may begin with one person doing all the necessary tasks. As the business becomes successful and grows, however,
there is generally more work, and more people are needed to perform various tasks. Through this division of work,
individuals can become specialists at a specific job. Because there are several people²often in different locations²
working toward a common objective, "there must be a plan showing how the work will be organized. The plan for
the systematic arrangement of work is the organization structure.
; 2
ć It is the oldest and simplest method of administrative organization.

ć According to this type of organization, the authority flows from top to bottom in a concern.
/c
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c
ć The line of command is carried out from top to bottom. This is the reason for calling this organization as
scalar organization which means scalar chain of command is a part and parcel of this type of administrative
organization.
ć In this type of organization, the line of command flows on an even basis without any gaps in
communication and coordination taking place.
; 0
1.c It is the simplest form of organization.

2.c Line of authority flows from top to bottom.
3.c Specialized and supportive services do not take place in these organization.
4.c Unified control by the line officers can be maintained since they can independently take decisions in their
areas and spheres.
5.c This kind of organization always helps in bringing efficiency in communication and bringing stability to a
concern.
; 0
1.c #". It is the simplest and oldest method of administration.

2.c
&. In these organizations, superior-subordinate relationship is maintained and scalar
chain of command flows from top to bottom.
3.c 3 ! #" . The control is unified and concentrates on one person and therefore, he can
independently make decisions of his own. Unified control ensures better discipline.
4.c *# $ " &. In this type of organization, every line executive has got fixed authority, power and
fixed responsibility attached to every authority.
5.c "* $ " &. There is a co-ordination between the top most authority and bottom line authority. Since the
authority relationships are clear, line officials are independent and can flexibly take the decision. This
flexibility gives satisfaction of line executives.
6.c #! . Due to the factors of fixed responsibility and unity of command, the officials can take
prompt decision.
; 0
1.c (" !. The line executive¶s decisions are implemented to the bottom. This results in over-relying
on the line officials.
2.c ;!)#! " 0 . A line organization flows in a scalar chain from top to bottom and there is no
scope for specialized functions. For example, expert advices whatever decisions are taken by line managers
are implemented in the same way.
3.c ?! ! . The policies and strategies which are framed by the top authority are carried
out in the same way. This leaves no scope for communication from the other end. The complaints and
suggestions of lower authority are not communicated back to the top authority. So there is one way
communication.
4.c ;!). . Whatever decisions are taken by the line officials, in certain situations wrong
decisions, are carried down and implemented in the same way. Therefore, the degree of effective co-
ordination is less.
5.c - &"- #. The line officials have tendency to misuse their authority positions. This leads to
autocratic leadership and monopoly in the concern.
0c
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(2) ; 2
ć Line and staff organization is a modification of line organization and it is more complex than line
organization.
ć According to this administrative organization, specialized and supportive activities are attached to the line
of command by appointing staff supervisors and staff specialists who are attached to the line authority.
ć The power of command always remains with the line executives and staff supervisors guide, advice and
counsel the line executives. Personal Secretary to the Managing Director is a staff official.
MANAGING DIRECTOR
ß ß ß
Production Manager Marketing Manager Finance Manager
ß ß ß
Plant Supervisor Market Supervisor Chief Assistant
ß ß ß
Foreman Salesman Accountant
; 0
1.c There are two types of staff :

a.c Staff Assistants- P.A. to Managing Director, Secretary to Marketing Manager.
b.c Staff Supervisor- Operation Control Manager, Quality Controller, PRO
2.c Line and Staff Organization is a compromise of line organization. It is more complex than line concern.
3.c Division of work and specialization takes place in line and staff organization.
4.c The whole organization is divided into different functional areas to which staff specialists are attached.
5.c Efficiency can be achieved through the features of specialization.
6.c There are two lines of authority which flow at one time in a concern :
a.c Line Authority
b.c Staff Authority
7.c Power of command remains with the line executive and staff serves only as counselors.
; 0
1.c " " *! (. In a line and staff organization, the advice and counseling which is provided to
the line executives divides the work between the two.The line executive can concentrate on the execution
of plans and they get relieved of dividing their attention to many areas.
2.c *#( !. The line and staff organization facilitates expert advice to the line executive at the time of
need. The planning and investigation which is related to different matters can be done by the staff specialist
and line officers can concentrate on execution of plans.
3.c 3 #! " 0 . Line and staff through division of whole concern into two types of authority
divides the enterprise into parts and functional areas. This way every officer or official can concentrate in
its own area.
4.c 3!. . Line and staff organization through specialization is able to provide better decision
making and concentration remains in few hands. This feature helps in bringing coordination in work as
every official is concentrating in their own area.
+c
c
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ccc
c
5.c 3 !-("#. Through the advice of specialized staff, the line executives, the
line executives get time to execute plans by taking productive decisions which are helpful for a concern.
This gives a wide scope to the line executive to bring innovations and go for research work in those areas.
This is possible due to the presence of staff specialists.
6.c . Due to the presence of staff specialists and their expert advice serves as ground for training to
line officials. Line executives can give due concentration to their decision making. This in itself is a
training ground for them.
7.c 3"!! . The factor of specialization which is achieved by line staff helps in bringing co-
ordination. This relationship automatically ends up the line official to take better and balanced decision.
8.c
&! . Unity of action is a result of unified control. Control and its effectivity take place when
coordination is present in the concern. In the line and staff authority all the officials have got
independence to make decisions. This serves as effective control in the whole enterprise.
; 0
1.c ;!) . In a line and staff organization, there are two authority flowing at one time. This
results in the confusion between the two. As a result, the workers are not able to understand as to who is
their commanding authority. Hence the problem of understanding can be a hurdle in effective running.
2.c ;!)( !. The line official get used to the expertise advice of the staff. At times the staff
specialist also provide wrong decisions which the line executive have to consider. This can affect the
efficient running of the enterprise.
3.c ; !" !. Line and staff are two authorities which are flowing at the same time. The factors
of designations, status influence sentiments which are related to their relation, can pose a distress on the
minds of the employees. This leads to minimizing of coordination which hampers a concern¶s working.
4.c "&. In line and staff concern, the concerns have to maintain the high remuneration of staff specialist.
This proves to be costly for a concern with limited finance.
5.c # - &. The power of concern is with the line official but the staff dislikes it as they are
the one more in mental work.
6.c "--1. In a line and staff concern, the higher returns are considered to be a product of staff
advice and counseling. The line officials feel dissatisfied and a feeling of distress enters a concern. The
satisfaction of line officials is very important for effective results.
5
; 2
ć The ! "! groups positions into work units based on similar activities, skills, expertise, and
resources. Production, marketing, finance, and human resources are common groupings within a functional
structure.
1c
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! "!
(i) As the simplest approach, a functional structure features well-defined channels of communication and
authority/responsibility relationships.
(ii) Not only can this structure improve productivity by minimizing duplication of personnel and
equipment, but it also makes employees comfortable and simplifies training as well.
! "!
(i) The functional structure can result in narrowed perspectives because of the separateness of different
department work groups. Production managers may have a hard time relating to marketing, for example,
which is often in an entirely different grouping.
(ii) As a result, anticipating or reacting to changing consumer needs may be difficult. In addition, reduced
cooperation and communication may occur.
(iii) Decisions and communication are slow to take place because of the many layers of hierarchy.
Authority is more centralized.
(iv) The functional structure gives managers experience in only one field²their own. Managers do not
have the opportunity to see how all the firm's departments work together and understand their
interrelationships and interdependence. In the long run, this specialization results in executives with narrow
backgrounds and little training handling top management duties.
6 2
ć A committee is formed when two or more persons are appointed to work as a team to arrive at a decision on
matters referred to it. It is intended to utilize the knowledge, skills and experience of all the members of the
committee.
ć In an industrial organization, several committees such as production committee, purchase committee,
finance committee, welfare committee, discipline committee, grievance handling committee are formed
with directors and senior executives as members to coordinate the functioning of the departments
concerned.
ć In an educational institution such as a university, committees such as purchase committee (to decide which
equipment is to be purchased), selection committee (to recruit teaching and non-teaching staff members),
Board of studies (a committee to prescribe the syllabus for various courses offered), and discipline
committee are formed.
ć Conceptually, the committee is intended to gain the cooperation of all the parties, coordinate the necessary
efforts, and utilize the resources of all members associated with the committee.
ć At times, whenever any problem arises, the management of an organization may choose to appoint a
committee to look into the situation. A time frame is fixed for submitting its recommendations. Within this
time limit, the committee members consult, coordinate and deliberate to stimulate necessary ideas to
resolve the conflict. The committee studies the nature of the problem by carefully scrutinizing the office
records, rules, precedents etc.
.c
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ccc
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! 0
(i) It pools up the organizational resources in terms of knowledge, skills and experience.
(ii) It represents all interested groups and thus facilitates group decision.
(iii) It minimizes the fear of too much authority vested in one person.
(iv) It motivates all concerned to or affected groups to participate.
! " 0
(i) Responsibility for decisions cannot be fixed on a particular person.
(ii) It calls for a high degree of coordination.
(iii) It involves a high cost in terms of time and money.
7 A 2
ć The matrix structure combines functional specialization with the focus of divisional structure. This
structure uses permanent cross-functional teams to integrate functional expertise with a divisional focus.
ć Employees in a matrix structure belong to at least two formal groups at the same time²a functional group
and a product, program, or project team. They also report to two bosses²one within the functional group
and the other within the team.
ć This structure not only increases employee motivation, but it also allows technical and general management
training across functional areas as well.
* 0
(i) Better cooperation and problem solving.
(ii) Increased flexibility.
.c
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c
(iii) Better customer service.
(iv) Better performance accountability.
(v) Improved strategic management.
* 0 :
(i) The two-boss system is susceptible to power struggles, as functional supervisors and team leaders vie with one
another to exercise authority.
(ii) Members of the matrix may suffer task confusion when taking orders from more than one boss.
(iii) Teams may develop strong team loyalties that cause a loss of focus on larger organization goals.
(iv) Adding the team leaders, a crucial component, to a matrix structure can result in increased costs.
2 ;^
An 0 "!- is a diagram that shows the structure of an organization and the relationships and relative
ranks of its parts and positions/jobs.
An organization structure is comprised of functions, relationships, responsibilities, authorities, and communications

of individuals within each department. The typical depiction of structure is the organizational chart. The formalized
organizational chart has been around since 1854, when Daniel McCallum became general superintendent of the New
York and Erie Railroad²one of the world's longest railroads. According to McCallum, since the railroad was one of
the longest, the operating costs per mile should be less than those of shorter railroad lines. However, this was not the
case. To remedy management inefficiencies, McCallum designed the first organizational chart in order to create a
sense of structure. The organizational chart has been described as looking like a tree, with the roots representing the
president and the board of directors, while the branches symbolize the various departments and the leaves depict the
staff workers. The result of the organizational chart was a clear line of authority showing where subordinates were
accountable to their immediate supervisors.
An organizational chart of a company usually shows the managers and sub-workers who make up an organization. It
also shows the relationships between the organization's staff members which can be one of the following:
Ôc ; - direct relationship between superior and subordinate.

Ôc ;" - relationship between different departments on the same hierarchical level.
Ôc - relationship between a managerial assistant and other areas. The assistant will be able to offer
advice to a line manager. However, they have no authority over the line manager actions.
Ôc ! " - relationships between specialist positions and other areas. The specialist will normally have
authority to insist that a line manager implements any of their instructionsèc
.c
c
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c
ć The above diagram is an example of a simple hierarchical organizational chart.

ć An example of a 'line relationship' in this chart would be between the general and the two colonels. These
two colonels are directly responsible to the general.
ć An example of a 'lateral relationship' in this chart would be between "Sergeant A", and "Sergeant B" who
both work on level and both report to the "Captain A".
ć Various shapes such as rectangles, squares, triangles, circles etc. can be used to indicate different roles.
Colour can be used both for shape borders and connection lines to indicate differences in authority and
responsibility, and possibly formal, advisory and informal links between people. A department or position
yet to be created or currently vacant might be shown as a shape with a dotted outline. Importance of the
position may be shown both with a change in size of the shape in addition to its vertical placement on the
chart.
; 0 "!-
There are several limitations with organizational charts:
(i) Organization charts will very quickly become out-of-date, especially in large organizations that change
their staff regularly.
(ii) It only shows 'formal relationships' and tells nothing of the pattern of human (social) relationships
which develop.
-1- $- "&"#,,! ! or democratic).
(iv) When starting a business, or when changing from one organizational structure to another, it's
appropriate that owners consider advantages and disadvantages of each structure in meeting business,
personal and family goals.
(v) The best structure for one type of business may not be the best for another. The best structure for a new
business may not be suitable as the business expands.

..c
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c
2 ;

D " 0
ć More and more organizations are looking at virtual organizations to address critical resource, personnel and
logistical issues.
ć There are many definitions of virtual organizations (VOs) , including:
(1) A flexible network of independent entities linked by information technology to share skills, knowledge
and access to others' expertise in nontraditional ways
(2) A form of cooperation involving companies, institutions and/or individuals delivering a product or
service on the basis of a common business understanding. The units participate in the collaboration and
present themselves as a unified organization.
ć Virtual organizations do not need to have all of the people, or sometimes any of the people, in one
place to deliver their service. The organization exists but you cannot see it. It is a network, not an
office.
ć Attributes of VOs include:
(i)c A dispersed network of skills and capabilities--The structure of a VO is distributed among
multiple locations resulting in the capacity of bringing in a wider pool of skills and capabilities.
(ii)c The use of telecommunications and computing technologies--These technologies serve as the
enabler that makes a VO exist. One could argue that VOs have always existed--traveling sales
staff, outsourced staff and staff working at home. However, what is new is that technology has
made it much easier to support distributed work teams. Barriers of distance and time have been
overcome by technology.
(iii)cFlexible, dynamic, restless--Organizations no longer are constrained by traditional barriers of
place and time. VOs support dynamic changes to the organization including employee work
environments and processing structures. Restlessness refers to the attitude to willingly change
products and services, geographic dispersion, communication patterns. This has the potential of
leading toward higher levels of innovation and creativity.
(iv)cIntegration--When different individuals, groups and organizations get together in a VO, they need
to interact collectively to achieve success. This implies greater levels of collaboration, cooperation
and trust. Integration leverages the synergy of individuals.
Situations that are driving many organizations to examine and implement VOs include:
(i)c A need for process innovation--This is often motivated by competitive pressures, stakeholder demands and
other factors to achieve increased productivity and quality. There is typically a 30 to 50 percent increase in
productivity as result of implementing VOs.
(ii)c Sharing of core competencies--VOs help address the voids in an organization resulting from starting up,
turnover and retirements.
(iii)cGlobalization--Many organizations are finally realizing there is a vast pool of untapped skills, knowledge
and abilities throughout the world.
(iv)cMobile workers--VO concepts can help the numerous companies employing mobile workers such as
auditors, consultants, salespersons and service technicians.
(v)c Cost reduction--Improving efficiency often means reducing overhead, such as physical assets used to
support traditional work environments or redistributing costs over several physical locations.
(vi)cChanges in employee values and attitudes toward work--Quality of life is a major factor particularly in
attracting and retaining quality employees. Employers have realized that a balance of work and personal
life, family requirements, personal fulfillment and flexibility are important considerations among
employees.
(vii)cCosts and problems of traveling--VOs address transportation issues, such as unproductive commute time,
traffic hassles, the cost of fuel and environmental impact of commuting vehicles.
. c
c
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ccc
c
Typical approaches in implementing VOs include:
ć Telecommuting--Employees work at a location away from the usual workplace, but not necessarily at
home. Computers and telecommunications equipment are used to maintain contact between the
telecommuter and the home office.
ć Telecenters--These satellite offices typically are located in communities outside of major cities and provide
space and equipment for employees commonly not available in the telecommuter's home.
ć Mobile working--This refers to the working environment of mobile workers who require tools such as cell
phones, e-mail wireless devices, pagers and laptops.
ć Hot desking--This arrangement is for offices in which staff members spend a significant amount of time on
customer premises. It involves the removal of permanently assigned desks to all or some of the employees.
When they arrive, they are assigned a computer workstation where they can access their documents, files,
applications and e-mail.
ć Hoteling--This is when the client provides a hot desk for the VO's employees.
ć Virtual teams--Employees collaborate from remote locations using e-mail, groupware, the Intranet and/or
video conferencing.
4""" 0
ć In modern organizations, cellular production systems have been replacing the continuous line or linear
production process systems.
ć An organization structured around the units/cells that complete the assembly process is called a cellular
organization.
ć In a cellular organization, workers manufacture sub-assemblies in teams (cells). Every team (cell) of
workers has the responsibility to improve or maintain the quality and quantity of its products.
ć Each team is free to reorganize itself to improve performance and product quality. These cells comprise
self-managed teams. They monitor and correct themselves, if necessary.
ć A cellular organization is a lean and flat structure. It is characterized by very less staff with the reduced size
of middle and top management.
5!
Team structure organizes separate functions into a group based on one overall objective .These !.! "
are composed of members from different departments who work together as needed to solve problems and
explore opportunities. The intent is to break down functional barriers among departments and create a more effective
relationship for solving ongoing problems.
.*c
c
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c
!
(i) Intradepartmental barriers break down.
(ii) Decision-making and response times speed up.
(iii) Employees are motivated.
(iv) Levels of managers are eliminated.
(v) Administrative costs are lowered.
!
(i) Conflicting loyalties among team members.
(ii) Time-management issues.
(iii) Increased time spent in meetings.
Managers must be aware that how well team members work together often depends on the quality of interpersonal
relations, group dynamics, and their team management abilities.
63&" 0
ć As the name indicates, a boundary less organization eliminates internal boundaries (among sub-systems)
and external boundaries (with external environment). It is a combination of team and network structures
with the addition of temporariness.
ć Such a type of organization structure is characterized by spontaneous team-work and communication,
which replace the formal chain of command. It is an organization structure wherein the organizational
needs are met through a judicious mix of out-sourcing contracts and alliances as and when needed.
ć The key features of a boundary less organization include knowledge sharing; absence of hierarchy and
bureaucracy; empowerment of employees; voluntary participation of experts; technology utilization and
temporariness.
ć The focus is on mustering necessary talent and competencies required for the achievement of a task without
the bureaucratic restrictions. Creativity, quality, timeliness, increase in speed and flexibility are the benefits
the boundary less organization yields. It also reduces inefficiencies.
7(#&
ć An inverted pyramid form of organization structure is the alternative to the traditional chain of command.
ć This simple organization chart has the senior most executive at the bottom of the chart and then the rest of
the executives at the next level up. Only names and areas of focus are displayed. This chart places the
customers at the top of the chart, with the employees directly under the customer. Directly under the names
of the employees are the team leaders or managers. The concept is that the leaders are there to support
those closest to the customer. The same concepts apply whatever level of chart is being produced. This can
be enhanced with a matrix flavor that includes multidimensional (cross functional or lateral) teams based
on strategic imperatives.
./c
c
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ccc
c
ć Leaders can be initially uncomfortable with the model. The senior leadership team often struggle
with this supporting role being reflected in the organization chart.
ć Not all the executives and managers will support the new structure. The usual destructive politics
will occur. Claims that the structure is not right for the organization are raised. However the
concern is usually centered on the fact that they believe the new structure is not right from their
own individual power, status and control perspective. They worry about their own roles and their
place on the visual organization chart. Also the optical view that the inverted pyramid gives the
customers and front line employees new found status can rub some leaders the wrong way.
ć The staff as a whole loves the simplicity and additional status of the inverted pyramid model. They
are a little suspicious at first that this is a gimmick. However as they start to see executives and
managers acting differently over time, they begin to believe it was for real.
ć As the numerous structure issues are being addressed, the senior leaders begin feeling that they are
truly setting up a flexible, responsive and customer centric organization. This flexibility, speed
and focus on the customer are the key to success.
.0c
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c
Principles and Types of Plant Layouts ± Methods of production
(ùob, Batch and Mass production), Work Study ± Basic procedure involved in Method Study and Work
Measurement, Statistical Control ± Process control (X bar chart, R chart, c chart, p chart), Acceptance Sampling
(Single sampling plan , Double sampling plan), Deming¶s contribution to quality.

!
ć Plant location decisions deal with where the plant is to be located.
ć Plant layout refers to the method in which the machinery is laid out within a given plant area.
ć Both these decisions are taken at the top management level as they affect the cost of production
significantly.
!! ";!
(1)c "1 "
ć If the plant is located close to the source of raw materials, the cost of transporting the raw material
can be reduced.
ć The location of the plant should be such that the supply of raw material is continuous and
uninterrupted.
ć If the material is fragile, perishable, bulky, or heavy, it is easy to transport it if the plant is located
close to the source of raw materials.
ć If the raw material is imported from other countries, it is advisable to locate the plant near the
ports.
(2)c -):
ć If the plant is close to the markets, the cost of transportation of finished goods can be minimized.
ć If the plant is located near to the market, there will be a better knowledge about the customers¶
tastes and preferences. Further, the customers¶ profiles in terms of age, gender, income group etc.,
and the type of households and the number of households can be collected. This enables the
organization to mould its sales strategies accordingly.
(3)c ( "$ " &"#1:
ć If the factory is dependent on a particular fuel (like coal), it is preferable if the plant is located
close to the source of power.
ć It is better to locate the plant at a location with less frequent power break-downs.
6c 3!!#
ć It is advantageous to locate a plant at such a place, which is well connected by different
modes of transport.
ć It would help in transporting products and employees well.
(5)c ( "$ " &) """$:
ć Availability of skilled labour reduces the need for training to an extent, thus reducing the cost
of production.
8c " ! !
ć If the plant is located in an industrial area, it can avail certain special benefits such as better
infra structure, transportation facilities, banking& communication facilities.
ć The employees of the organization could also benefit from common facilities such as canteen,
industrial housing, community halls, schools and colleges, hospitals etc.
c " ! !!:
ć Some crops grow in certain climates only. If the firm is an agro-based one, it may have to be
located closer to the location where the crops grow. For instance tea grows in Assam,
Darjeeling and Ooty in India. Tea manufacturing plants are therefore located in such areas.
(8)c ( ! (:
ć The Government of India and some state governments offer incentives to organizations
setting up factories in certain backward areas. These incentives include free power, free water,
sales tax exemption for a period of 15 years etc.
ć These incentives may motivate organizations to set up factories in these areas.
(9)c " !"
ć Many a time, politicians apply pressure on organizations, especially those in the public sector,
to set up plants in their constituencies so that the employment potential can be improved.
.+c
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c
ć In such situations, political considerations over ride economic rationale in assigning an
industry to a particular location.
(10)cOther considerations:
(i)c Pollution levels
(ii)c Safety factors.
; ; :

c
c

c
A plant layout refers to the arrangement of physical facilities such as machinery, equipment, furniture etc. within the
factory building in such a manner so as to have the quickest flow of material at the lowest cost and with the least
amount of handling in processingcthe product from the receipt of material to the shipment of the finished product.
c
#!#""&
A plant layout is an important decision as it represents a long-term commitment.
ć An ideal plant layout should provide the optimum relationship among output, floor
area and manufacturing process.
ć It facilitates the production process, minimizes material handling time and cost, and allows
flexibility of operations, easy production flow, makes economic use of the building, promotes
effective utilization of manpower, and provides for employee¶s convenience, safety,
comfort at work, maximum exposure to natural light and ventilation c
ć Plant layout is also important because it affects the flow of material and processes, labour
efficiency, supervision and control, use of space and expansion possibilities etc c

$/! (#""&
An efficient plant layout is one that can be instrumental in achieving the following objectives:
(a) Proper and efficient utilization of available floor space
(b) To ensure that work proceeds from one point to another point without any delay
(c) Provide enough production capacity
(d) Reduce material handling costs
(e) Reduce hazards to personnel
(f) Utilize labour efficiently
(g) Increase employee morale
(h) Reduce accidents
(i) Provide for volume and product flexibility
(j) Provide ease of supervision and control
(k) Provide for employee safety and health
(l) Allow ease of maintenance
(m) Allow high machine or equipment utilization
(n) Improve productivity.
:; :

Plant layouts are of four types
(a) Product or line layout
(b) Process or functional layout
(c) Fixed position or location layout
(d) Combined or group layout.

.1c
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c

;; :

ć Under this type of layout, machines and equipments are arranged in one line depending upon the
sequence of operations required for the product. The materials move from one workstation to
another sequentially without any backtracking or deviation. Under this, machines are grouped in
one sequence. Therefore materials are fed into the first machine and finished goods travel
automatically from machine to machine, the output of one machine becoming input of the next,
e.g. in a paper mill, bamboos are fed into the machine at one end and paper comes out at the other
end.cThe raw material moves very fast from one workstation to other stations with a minimum
work in progress storage and material handling.
ć The grouping of machines should be done keeping in mind the following general principles.
a) All the machine tools or other items of equipments must be placed at the point
demanded by the sequence of operations
b) There should be no points where one line crossed another line.
c) Materials may be fed where they are required for assembly but not necessarily
at one point.
d) All the operations including assembly, testing and packing must be included in the
line.
(!"&
c
(a) Low cost of material handling, due to straight and short route and absence of
backtracking
(b) Smooth and uninterrupted operations
(c) Continuous flow of work
(d) Lesser investment in inventory and work in progress
(e) Optimum use of floor space
c
c
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ccc
c
(f) Shorter processing time or quicker output
(g) Less congestion of work in the process
(h) Simple and effective inspection of work and simplified production control
(i) Lower cost of manufacturing per unit.
(!"&
(a) High initial capital investment in Special Purpose Machines
(b) Heavy overhead charges
(c) Breakdown of one machine will hamper the whole production process
(d). Lesser flexibility as it is specially laid out for a particular product.
$ " &!"&

A product layout is useful under following conditions:
1) Mass production of standardized products
2) Simple and repetitive manufacturing process
3) Operation time for different process is more or less equal
4) Reasonably stable demand for the product
5) Continuous supply of materials
Therefore, the manufacturing units involving continuous manufacturing process, producing a few standardized
products continuously on the firm¶s own specifications and in anticipation of sales would prefer product layout.
Examples: Chemicals, sugar, paper, rubber, refineries, cement, automobiles, food processing and electronics etc.

;; :

c
ć In this type of layout, machines of a similar type are arranged together at one place .Example: Machines
performing drilling operations are arranged in the drilling department, machines performing casting
operations be grouped in the casting department.
ć Hence, such layouts typically have drilling department, milling department, welding department, heating
department, painting department etc.
ć The process or functional layout is followed from historical period. It evolved from the handicraft method
of production. The work has to be allocated to each department in such a way that no machines are chosen
to do as many different jobs as possible i.e. the emphasis is on general purpose machine.
ć Hence, such layouts typically have drilling department, milling department, welding department, heating
department and painting department etc.
ć The process or functional layout is followed from historical period. It evolved from the handicraft method
of production. The work has to be allocated to each department in such a way that machines are chosen to
do as many different jobs as possible i.e. the emphasis is on general purpose machine.
ć The work, which has to be done, is allocated to the machines according to loading schedules with the object
of ensuring that each machine is fully loaded.
ć The grouping of machines according to the process has to be done keeping in mind the following principles
(a) The distance between departments should be as short as possible for avoiding long distance movement
of materials
(b) The departments should be in sequence of operations
(c) The arrangement should be convenient for inspection and supervision
c %%c 2&c cc c %%c 2&c c 3c 2&c
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(a) Lower initial capital investment in machines and equipments. There is high
degree of machine utilization, as a machine is not blocked for a single product
(b) The overhead costs are relatively low
(c) Change in output design and volume can be more easily adapted to the output
of variety of products
(d) Breakdown of one machine does not result in complete work stoppage
(e) Supervision can be more effective and specialized
(f) There is a greater flexibility of scope for expansion.
c
(!"&
(a) Material handling costs are high due to backtracking
(b) More skilled labour is required resulting in higher cost.
(c) Time gap or lag in production is higher
(d) Work in progress (WIP) inventory is high needing greater storage space
(e) More frequent inspection is needed which results in costly supervision
c
cc
ccc
(1) Products are not standardized
(2) Quantity produced is small
(3) There are frequent changes in design and style of product
(4) ùob shop type of work is done
(5) Machines are very expensive.
Thus, process layout or functional layout is suitable for job order production involving non-repetitive processes and
customer specifications and non-standardized products, e.g. tailoring, light and heavy engineering products, made
to order furniture industries, jewelry.
A ; ; :

ć In this type of layout, the major product being produced is fixed at one location.
ć Equipment labour and components are moved to that location.
ć All facilities are brought and arranged around one work center. This type of layout is not relevant for a
small scale entrepreneur.
( *# "&

(a) It saves time and cost involved on the movement of work from one
workstation to another.
(b) The layout is flexible as change in job design and operation sequence can be
easily incorporated.
(c) It is more economical when several orders in different stages of progress are
being executed simultaneously.
(d) Adjustments can be made to meet shortage of materials or absence of workers
by changing the sequence of operations.
c
c
( *# "&cc
(a) Production period being very long, capital investment is very heavy
(b) Very large space is required for storage of material and equipment near the
product.
(c.) As several operations are often carried out simultaneously, there is possibility
of confusion and conflicts among different workgroups.
c

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$ " &- *# "&

(1)c Manufacture of bulky and heavy products such as locomotives, ships, boilers,
generators, wagon building, aircraft manufacturing, etc.
(2) Construction of building, flyovers, dams.
(3) Hospital, the medicines, doctors and nurses are taken to the patient (product).
c
c
3; :

ć Certain manufacturing units may require all three processes namely intermittent process (job shops), the
continuous process (mass production shops) and the representative process combined process [i.e.
miscellaneous shops].
ć In most of industries, only a product layout or process layout or fixed location layout does not exist. Thus,
in manufacturing concerns where several products are produced in repeated numbers with no likelihood of
continuous production, combined layout is followed. Generally, a combination of the product and process
layout or other combination are found, in practice, e.g. for industries involving the fabrication of parts and
assembly, fabrication tends to employ the process layout, while the assembly areas often employ the
product layout.
ć In soap manufacturing plant, the machinery manufacturing soap is arranged on the product line principle,
but ancillary services such as heating, the manufacturing of glycerin, the power house, the water treatment
plant etc. are arranged on a functional basis.
-!
The methods of production can be of the following types:
(a)c Intermittent (interrupted) production which includes:

(i)c ùob production
(ii)c Batch production
(b)c Mass and flow line production
ù
ć In this method of production, every job is different from the other in terms of type, cost, efforts,
consumption of materials, or its specifications. As a result, product design could consume a lot of time.
ć The quantity of each job could be small and hence, the large scale economies cannot be realized.
ć This method involves special machinery and special training for the labour. Mechanization and divinization
of labour cannot be advantageously employed in view of the wide differences in specification of each job.
ć Because of the above reasons, it can be seen that the job-production method is the costliest.
ć Examples of products manufactured under job production include: Large turbo-generators, special purpose
machines, special heat treatment furnace etc.
r
ć Here, all the products manufactured under a batch are similar in terms of type, cost, efforts, consumption of
materials or their specifications.
ć Though the product design consumes a lot of time, the cost of product design per unit comes down. The
economies of production can be realized relatively better than in job production. Thus, when compared to
the costs in job production, the cost of production per unit in batch production could be lower.
.c
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c
ć In this method, process layout can be advantageously used. Automation and mechanization may be
advantageously employed. This method calls for efficient maintenance of equipment and production
control systems.
ć Examples of products manufactured under batch production include: pharmaceuticals, readymade
garments, sheet-metal presses, paints and many consumer products such as mineral water bottles etc.

ć This is also called flow production. Here, the production is undertaken on large and specialized machines
and processes.
ć In mass production, the following factors can be advantageously applied:
(i)c Mechanisation and division of labour;
(ii)c Large-scale economies;
(iii)c Sophisticated material handling systems to minimize the material handling costs;
(iv)c Work study techniques and sophisticated quality control techniques.
ć Mass production calls for certain special care:
(i)c The production processes have to be carefully monitored as idle machinery results in wastage of
resources.
(ii)c The plant layout should be designed to suit the requirements of various stages in the manufacture
of the product. Methods, tools and material handling need special monitoring.
ć The main advantage of the mass production process is the lowest unit cost of production.
ć Examples of products manufactured under batch production include products such as TVs, air conditioners,
cars, scooters etc.

:^

S No. Description ù$! 3!- !
!
(1) Number of units produced Every time, only one Every time, a few, It is a continuous
product or service can say 100 or 1000 production
be produced are produced process
(2) Design From product to From batch to There is no
product, the design batch, the design change in design.
differs differs. Every All units produced
batch has identical are based on one
products particular design
(3) Cost per unit Cost per unit changes Cost per unit is Cost per unit is
from job to job relatively lower the lowest of all
when compared to methods
job production.
But changes with
batch to batch
(4) Material/equipment Every job requires Moderately lower Significantly
handling costs different materials lower
and/or equipment and
hence handling costs are
likely to be significant
(5) Plant layout Process type Process type Product type
(6) Work In Progress Likely to be large Likely to be high Likely to be less
c
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ccc
c
(7) Time required to set up Every time job changes, Relatively less Once the
machine setting up machines time machines are set,
may also change. production
Hence, time required continues
for setting up machines
is more
(8) Degree of planning Moderate degree of Larger degree of Meticulous degree
planning is required planning is of planning is
required required
(9) Degree of control Control needs to be Control needs to Simplified to a
exercised in a greater be exercised at large extent
detail every critical
point in
manufacturing
(10) Accuracy of product quality Tends to be satisfactory Likely to be good Likely to be very
high
< E
:
ć Work study is the discipline of industrial engineering that uses various techniques to quantitatively measure
or estimate work to increase the amount produced from a given quantity of resources, by improving the use
of existing resources.
ć In the process, work study establishes the time that a given task would take when performed by a qualified
worker working at a defined level of performance, called the standard time. Work study, not only measures
but also provides information about the processes involved.
ć The primary objective of work study is the elimination or reduction of ineffective production time. It uses
work measurement as the basis to eliminate or reduce the ineffective use of productive resources.
ć Properly executed, work study results in improvements in productivity without further large capital
investments.
Work Study is divided into two areas:
(i)c -& (or) Motion Study, whose purpose is to simplify the job and to develop better methods
of working; and
(ii)c <) (or) Time study, whose purpose is to quantitatively measure work.
^
:
Method Study is the systematic recording and critical examination of existing and proposed ways of doing work
as a means of developing and applying easier and more effective methods and reducing costs.
!-&
There are six steps in the process of method study:
(1)c SELECT
(2)c RECORD
(3)c EXAMINE
(4)c DEVELOP
(5)c INSTALL
(6)c MAINTAIN
*c
c
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ccc
c
;
(i)c Here, the job be studied is selected. Economic and technical considerations are the basic criteria to be
taken into account while selecting a job for method study.
(ii)c Using these as the guidelines, one should first examine µbottle-neck¶ operations such as operations
involving movement of material over long distances and operations involving repetitive tasks.

4
(i)c The next step, after selecting the job to be studied, is to record all the facts relating to the existing job,
by direct observation.
(ii)c Using recording techniques, commonly known as charts and diagrams, the facts are recorded. The
recording may trace the movement of men, material or details of various processes.
(iii)c The success of the whole procedure depends upon the accuracy with which facts are recorded. Records
must, therefore, be clear, concise and correct.
5A
This step aims to:
(i)c eliminate the activity altogether if it is unnecessary;

(ii)c combine with other activities; and
(iii)c change the sequence of activities so that work delay is reduced and the activity is simplified to reduce
the work content or time consumed.
Here, the following questions are asked:
(a)c
: What is the purpose of this activity? Why is it necessary? What else could be done?
(b)c ; : Where does the activity take place? Why there? Where else could it be done?
(c)c F
: When does it occur? Why then? When else could it be done?
(d)c : Who carries out the work? Why that person? Who else could do it?
(e)c : How is the purpose achieved? Why that particular way? How else could it be done?

6D;
ć Based on the questions asked in the examine stage and the subsequent examination, number of alternatives
would emerge. The final alternative, which gives the best answers to the following questions, is chosen:
Purpose: What should be done?
Place: Where should it be done?
Sequence: When should it be done?
Person: Who should do it?
Means: How should it be done?
7 ;;
ć After the system is developed, the management is apprised of the costs and benefits of the new system.
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ć After the management is convinced, the system is installed. The employees are trained in the running or
functioning of the system.
8
ć The newly installed system is maintained. Periodical preventive maintenance measures for the
equipment and machinery are undertaken. Employees are encouraged to make the most of the new
system.

^ G

Charts Information Recorded

(1) Operations flow chart Activities of men, materials or equipment are analyzed into
operation, inspection, transportation, temporary storage (delay),
(2) Flow process chart permanent storage and recorded
(3) Two-handed process chart Movement of two hands of the operator
(4) Multiple activity chart Simultaneous / Inter-related activities of operators and / or
(5) Man-machine chart machines on a common time-scale
Diagrams Information Recorded

(1) Flow diagram Path of men, materials and equipment on a scale model
(2) String diagram Same as the flow diagram except for the variation that it uses a
string to trace the path
Photographic Aids Information Recorded

Cycle graph and chrono- cycle graph Movement of hand obtained by exposing a photographic plate
to the light emitted from small bulbs attached to operator¶s
fingers
On a process chart, facts about a job or operation are recorded using five symbols which together serve to represent
all types of activity.
:3; D:

Operation Indicates that the material, part or product concerned is
(Action Step) modified or changed during the operation
Inspection Indicates an inspection for quality and/or check for
(Decision required) quantity
Transport Indicates either transportation of material or movement of
the employee from one location to another
Temporary Storage Indicates a delay in the sequence of events such as jobs
D (Delay) waiting between consecutive operations or any object laid
aside temporarily
Permanent Storage Indicates a storage activity such as storing raw material
that is brought into the factory, storing a sub-assembly
during the manufacturing process.
This symbol represents non-value added activity. So, it
should be the focus of any streamlining efforts

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##" ! -&
(1) Improved layout of office, working areas of factories.
(2) Improved design of plant and equipment.
(3) Improved use of materials, plant, equipment and manpower.
(4) Most effective handling of material.
(5) Improved flow of work.
(6) Standardization of methods and procedures.
(7) Improved safety standards.
(8) Better working conditions.
< E

Work measurement is the application of techniques designed to establish the work content of a #! ) by
determining the ? for carrying out the task at a of performance by a ?"
worker.
ć The amount of time that a job is expected to take is expressed as time standard, work standard, labour
standard, production standard or standard time.
ć The standard time is the amount of time a qualified worker, working at a normal rate of speed, will
require to perform the specified task. It may be expressed as minutes/unit of output or units of
output/hour.
ć A qualified worker is one who is accepted as having the necessary physical attributes, possessing the
required intelligence and education, and having acquired the necessary skill and knowledge to carry
out the work in hand to satisfactory standards of safety, quantity and quality.
3 1)
Work measurement helps:
(1) To develop a basis for comparing alternate methods developed in method study by establishing the work content
in each method;
(2) To prepare realistic work schedules by accurate assessment of human work;
(3) To set standards of performance for labour utilization by establishing labour standards for an element of work,
operation or product under ordinary working conditions;
(4) To compare actual time taken by the worker with the allowed time (standard time) for proper control of labour;
(5) To assist in estimation of labour cost; and
(6) To provide information related to estimation of tenders, fixation of selling price and assessment of delivery
schedule.
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^< E

:
In this method, the actual time taken by the operator to perform each element of the job is measured using a stop-
watch.
Procedure for measuring the time
STEP 1:
ć Select the job to be studied.

ć Breakdown the work content of the job into smallest possible elements.
ć Inform the worker and define the best method.
STEP 2:
ć Observe the time for appropriate number of cycles (such as 25 to 50 cycles) using a stop-watch.
STEP 3:
ć Determine the average cycle time (CT)

CT = (Times) / Number of cycles.
STEP 4:
ć Determine normal time (NT)

NT = CT X PR where PR = Performance Rating
STEP 5:
ć Determine standard time (ST)

ST = NT X AF where AF = Allowance factor
AF = 1/ (1 - % allowance)
ć Here, allowance factor is to be calculated taking the following allowances into consideration:
(a) "* ""1!: Time needed for physical needs and physical and mental fatigue involved (10 to
15 %)
(b) !&""1!: Time needed for non-repetitive activities such as sharpening of tools, getting
materials from stores etc. (5 %)
(c) #! """1!: Interference allowance is given when a worker is looking after 2 or 3 machines.
(d) !! ( &""1!: Time needed for setting up a tool on a machine.
#.<!-
The stop-watch used to measure the time in the above method can be of two types:
(i) In the &&##.1!-, there is a long hand, which makes one revolution per minute. The small hand
makes one revolution in 30 minutes. When it is pressed once, both hands start moving. When it is pressed a second
time, both hands stop.
(ii) When two elements are to be timed successively, the #" .-&##1!- is used. This watch has two
hands. As one element is completed, pressing the knobs makes one hand to stop while the other hand keeps moving.
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After the time taken for the first element is recorded on the observation sheet, a second pressing of the knob restarts
the stopped hand and the two hands move together.
*#" &
The following are the cycle times observed:
&!" $$(

20 6
24 8
29 10
32 1
", 47
$(
The worker is rated at 120%. Allowance = 15 %. Determine the standard time.
Cycle Time = CT = (Times) / Number of cycles
= (20X 6 + 24 X 8 + 29 X 10 + 32 X 1) / 25
= 25.36 minutes.
Normal Time = NT = CT X PR where PR = Performance Rating
= 25.36 X 120 % = 30.432 minutes.
Standard Time = ST = NT X AF where AF = Allowance factor
AF = 1/ (1 - % allowance)
= 30.432 X 1 / (1-0.15) = 35.80 minutes.
*c
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4:^^
Synthesis is a technique of work measurement for building up the time required to do a job at a defined level of
performance by synthesizing or totalling elemental time values obtained from previous time studies on other jobs
containing similar job elements or from standard data.

ć Standard data is a catalogue of normal time values for different elements of jobs.
ć This catalogue is prepared by compiling the timings of a number of standard elements.
ć Since many similar elements or movements are involved in many jobs, it is always economical to use the
standard data.
ć Once the standard data catalogue is built up, one requires to list the job elements of an operation, refer to
the standard data catalogue and obtain the normal time for each element and add (= synthesize) them up.
ć The standard time is then determined by multiplying normal time with the allowance factor.

5 ;: ; ^
ć Here, the estimator must have adequate experience of estimating, motion study, time study and the use of
standard data.
#
(1) Find out the job details such as:
(i) ùob duration;
(ii) Standard procedure to do the job;
(iii) ùob conditions:
Illumination ± Poor / Bright
Temperature - High / Low
Environment ± Hazardous / Safe
Availability of tools
(2) Break the job into elements.
(3) Select time values from standard data catalogue for as many elements as possible.
(4) Estimate the time values for the remaining elements from past knowledge and experience.
(5) Add the time values obtained in steps (3) and (4) to get normal time.
(6) The standard time is then determined by multiplying normal time with the allowance factor.
*c
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6 :
ć In this system, work measurement is based on the analysis of work into basic human movements such as:
See, find, select, grasp, hold, transport (loaded), transport (empty), position, use, disassemble,
inspect, preposition, release load, unavoidable delay, avoidable delay, plan, rest
ć Tables of data provide a time, at a defined rate of working for each classification of each movement.
ć Depending upon the movements in the job whose work is being measured, the times are noted and then
added to come up with the normal time.
ć The standard time is then determined by multiplying normal time with the allowance factor.

7< E ;
ć Work sampling does not involve stop-watch measurements. But it is based on simple random sampling
techniques derived from sampling theory.
ć It provides an estimate of what proportion of a worker¶s time is devoted to work.

# $&<)#"
(1) Decide what activities are defined as working´.
(2) The worker is observed at selected intervals, recording whether he/she is working or not.
(3) Proportion of a time a worker is working is calculated as follows:
p = [number of observations during which working¶ occurred]/ (Total number of observations)
(4) Normal Time = (p X Total Shift Time X PR) / (Units produced)
(5) The standard time is then determined by multiplying normal time with the allowance factor.
*#"
Total number of observations = 400.
Number of observations of µworking´ = 350.
Number of working hours in the shift = 8 hours = 480 minutes.
Number of units produced = 60 units.
Performance rating = PR = 120%.
Allowance factor = 15%.
Solution:
p = [number of observations during which working¶ occurred] /(Total number of observations)=
[350/400] = = 0.875

*c
c
c c cccc c
ccc
c
Normal Time =(p X Total Shift Time X PR)/(Units produced) = 0.875 X 480/60 X 120% = 8.4 minutes
Standard Time = Normal Time X Allowance factor = 8.4 X 1/ (1-0.15) = 9.88 minutes.
;F
;: ;
<- F" &H
ć Quality is defined as µcustomer satisfaction¶ in general and µfitness for use¶ in particular.
ć The external consumers who buy the products and services as well as the internal consumers (the other
divisions of the organization which use the output of a division) are interested in the quality.
ć Quality is of two types:
(i) Quality of design, which refers to product features such as performance, reliability, durability, ease of
use, serviceability etc., and
(ii) Quality of conformance , which refers to whether the product meets the given specifications or not.
ć In Statistical Quality Control, we are concerned with the quality of conformance.
!"F" &"
ć Statistical quality controlis designed to prevent the production of products that do not meet certain
acceptance criteria. This could be accomplished by performing inspection on products that, in many cases,
have already been produced. Action could then be taken by rejecting those products. Some products would
go on to be reworked, a process that is costly and time consuming. In many cases, rework is more
expensive than producing the product in the first place. This situation often results in decreased
productivity, customer dissatisfaction, loss of competitive position, and higher cost.
ć To avoid such results, quality must be built into the product and the processes. Statistical quality control
(SQC), involves the integration of quality control into each stage of producing the product.
ć In fact, SQC is a powerful collection of tools that implement the concept of prevention as a shift from the
traditional quality by inspection/correction.
ć SQC is achieved through two steps: (1) Process Control and (2) Acceptance Sampling
;
ć Process control is a technique of ensuring the quality of the products during the manufacturing process
itself. It aims to control and maintain the quality of the products in the manufacturing process.
ć If a process consistently produces items with acceptable or tolerable range of specifications, it is said to be
statistically under control. Else, it is said to be out of control.
ć Process control is achieved through control charts.
(
The main objective of any process control is to reduce variation. Any process can be considered a transformation
mechanism of different input factors into a product or service. Since inputs exhibit variation, the result is a
combined effect of all variations. This, in turn, is translated into the product. The purpose of SPC is to isolate the
natural variation in the process from other sources of variation that can be traced or whose causes may be identified.
As follows, there are two different kinds of variation that affect the quality characteristics of products.
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^
D ,
Variations due to common causes are inherent in the process; they are inevitable and can be represented by a normal
distribution. A stable process exhibits only common causes of variation. The behavior of a stable process is
predictable or consistent, and the process is said to be in statistical control.
; 3;

D ,
Special causes, also called assignable causes of variation, are not part of the process. They can be traced, identified,
and eliminated. Control charts are designed to hunt for those causes as part of process control efforts to improve the
process. A process with the presence of special or assignable cause of variation is unpredictable or inconsistent, and
the process is said to be out of statistical control.
;^
The types of charts are often classified according to the type of quality characteristic that they are supposed to
monitor: there are quality control charts for º and control charts for
The following charts are commonly constructed for controlling variables:
Ôc A.$!-,In this chart the sample are plotted in order to control the mean value of a variable
(e.g., size of piston rings, strength of materials, etc.).
Ôc !-,In this chart, the sample
are plotted in order to control the variability of a variable.
For controlling quality characteristics that represent of the product, the following charts are commonly
constructed:
Ôc !-,In this chart we plot the º (per batch, per day, per machine, per 100 feet of
pipe, etc.). This chart assumes that defects of the quality attribute are , and the control limits in this
chart are computed based on the 0 distribution (distribution of rare events).
Ôc !-,In this chart, we plot the percent of defectives (per batch, per day, per machine, etc.) as in the U
chart. However, the control limits in this chart are not based on the distribution of rare events but rather on
the binomial distribution (of proportions). Therefore, this chart is most applicable to situations where the
occurrence of defectives is not rare (e.g., we expect the percent of defectives to be more than 5% of the
total number of units produced).
A$!-+
UCL = X (double bar) + A2 R (bar)
LCL = X (double bar) - A2 R (bar)
!-+
UCL = D4 R (bar)
LCL = D3 R (bar)
* c
c
c c cccc c
ccc
c
n A2 D3 D4
2 1.880 0 3.268
3 1.023 0 2.574
4 0.729 0 2.282
5 0.577 0 2.114
6 0.483 0 2.004
7 0.419 0.076 1.924
8 0.373 0.136 1.864
9 0.337 0.184 1.816
10 0.308 0.223 1.777
!!-
UCL =
LCL =
#!-
UCL =
LCL =
;

ć Acceptance Sampling is used to make decisions on accepting or rejecting a lot (or batch) of
product that has already been produced.
ć A sample of the product is used to determine acceptability.
ć It is most often used to evaluate products that are received from outside sources and where it is
not possible to implement Statistical Process Control.
ć Acceptance Sampling should be considered when the testing required is
(i) destructive,
(ii) 100% inspection isn¶t feasible due to the cost or time involved,
(iii) there is a high probability of errors from 100% inspection, or
(iv) if the supplier has a strong history of supplying acceptable products.
ć An Acceptance Sampling Plan is created to define how many samples must be taken to verify the lot.
ć Acceptance Sampling is not to be considered a replacement or alternative to Process
Control. Process Control focuses on improving the process in order to improve future
product, while acceptance sampling focuses on evaluation of products that have already been
produced to ensure their quality.

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ccc
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' ;F
;:
< "" 1 (October 14, 1900 ± December 20, 1993) was an American statistician, professor,
author, lecturer, and consultant. He is best known for his work in ùapan. There, from 1950 onward, he taught top
management how to improve design (and thus service), product quality, testing and sales (the last through global
markets) through various methods, including the application of statistical methods.
Deming made a significant contribution to ùapan's later reputation for innovative high-quality products and its
economic power. He is regarded as having had more impact upon ùapanese manufacturing and business than any
other individual not of ùapanese heritage.
Deming advocated that all managers need to have what he called a System of Profound Knowledge, consisting of
four parts:
1.c 2
: understanding the overall processes involving suppliers, producers, and
customers (or recipients) of goods and services ( );
2.c ü

: the range and causes of variation in quality, and use of statistical sampling in
measurements;
3.c R
: the concepts explaining knowledge and the limits of what can be known
4.c ü
: concepts of human nature.
' 6 ! #"F" &
1.c !&##: Create constancy of purpose for continual improvement of products and service to
society, allocating resources to provide for long range needs rather than only short term profitability, with a
plan to become competitive, to stay in business, and to provide jobs.
2.c #1#- "#-&: We are in a new economic age. We can no longer live with commonly accepted
levels of delays, mistakes, defective materials and defective workmanship.
3.c #! #! : Eliminate the need for mass inspection as the way of life to
achieve quality by building quality into the product in the first place. Require statistical evidence of built in
quality in both manufacturing and purchasing functions.
4.c "1!!: End the practice of awarding business solely on the basis of price tag.
Instead require meaningful measures of quality along with price. Reduce the number of suppliers for the
same item by eliminating those that do not qualify with statistical and other evidence of quality. The aim is
to minimize total cost, not merely initial cost, by minimizing variation. This may be achieved by moving
toward a single supplier for any one item, on a long term relationship of loyalty and trust. Purchasing
managers have a new job, and must learn it.
5.c #((&#!: Improve constantly and forever every process for planning, production, and
service. Search continually for problems in order to improve every activity in the company, to improve
quality and productivity, and thus to constantly decrease costs. Institute innovation and constant
improvement of product, service, and process. It is management's job to work continually on the system
(design, incoming materials, maintenance, improvement of machines, supervision, training, retraining).
6.c -/$: Institute modern methods of training on the job for all, including
management, to make better use of every employee. New skills are required to keep up with changes in
materials, methods, product and service design, machinery, techniques, and service.
7.c "- #: Adopt and institute leadership aimed at helping people do a better job. The
responsibility of managers and supervisors must be changed from sheer numbers to quality. Improvement
of quality will automatically improve productivity. Management must ensure that immediate action is taken
on reports of inherited defects, maintenance requirements, poor tools, fuzzy operational definitions, and all
conditions detrimental to quality.
8.c (: Encourage effective two way communication and other means to drive out fear throughout
the organization so that everybody may work effectively and more productively for the company.
9.c 3)1$ : Break down barriers between departments and staff areas. People in different areas,
must work in teams to tackle problems that may be encountered with products or service.
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10.c " *- : Eliminate the use of slogans, posters and exhortations for the work force,
demanding Zero Defects and new levels of productivity, without providing methods. Such exhortations
only create adversarial relationships; the bulk of the causes of low quality and low productivity belong to
the system, and thus lie beyond the power of the work force.
11.c " $ & !": Eliminate work standards that prescribe quotas for the work force
and numerical goals for people in management. Substitute aids and helpful leadership in order to achieve
continual improvement of quality and productivity.
12.c # 1)- #: Remove the barriers that rob hourly workers, and people in management,
of their right to pride of workmanship. This implies, among other things, abolition of the annual merit
rating (appraisal of performance) and of Management by Objective. Again, the responsibility of managers,
supervisors, foremen must be changed from sheer numbers to quality.
13.c !! : Institute a vigorous program of education, and encourage self improvement for
everyone. What an organization needs is not just good people; it needs people that are improving with
education. Advances in competitive position will have their roots in knowledge.
èc #! ! : Clearly define top management's permanent commitment to
ever improving quality and productivity, and their obligation to implement all of these principles. Indeed, it
is not enough that top management commit themselves for life to quality and productivity. They must know
what it is that they are committed to-that is, what they must do. Create a structure in top management that
will push every day on the preceding 13 Points, and take action in order to accomplish the transformation.
Support is not enough: action is required!c

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ć Studying marketing through its functions is called the functional approach to study of marketing.
ć The functions of marketing are classified as:
(1) Functions of exchange: (a) Buying and assembling, (b) Selling;
(2) Functions of physical supply: (a) Transportation, (b) Storage and warehousing;
(3) Facilitating functions: (a) Financing, (b) Risk-taking, (c) Standardization and grading, (d) Market
Information & Research.
(1) ! *!-
(a) Buying and assembling:

ć Buying raw materials as required to manufacture the product or assembling the spare parts as per
the specifications of the customers¶ requirements is an essential step in marketing process.
ć Different intermediaries carry out this function till the product reaches the customer.
ć The producer buys raw materials, the wholesaler buys finished goods from the producer, the
retailer buys from the wholesaler etc.
ć At times, the raw materials or spares are brought from different suppliers and from different
places.
ć Maintaining a data base relating to the prices and the suppliers is a crucial aspect of the buying
function.
(b) Selling
ć Selling involves transfer of title to goods. It is a highly specialized job.
ć Selling may be of two types: personal and impersonal. In personal selling, one finds a sales person
speaking about a product and trying to convince a customer to buy the product. In the case of
impersonal selling, advertisements, hoardings etc. talk about the characteristics of the product and
trying to convince a customer to buy the product.
ć It is only through selling and realizing revenues (and thus profits) that the organization survives.
(2) ! -& !"##"&
Transportation
ć Transportation provides place utility for the products by transporting them to the places where
they are required.
ć The efficiency of the transportation depends on many factors such as the quality of roads,
availability of diesel/power etc.
ć The developments in communication technology have strengthened the efficiency of
transportation systems. The movements of cargo vehicles can be monitored on the personal
computer and the seller and the buyer can be informed accordingly about the movement of goods
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and the approximate loading/unloading time. Thus the transportation function creates time utility
also.
ć Improvements in the means of transport have led to low costs and efficient services to the
customer.

(b) 1-
ć Storage function tends to adjust supply to the demand so as to equalize it in the best interest of the
producer, middle man and the customer.
ć The storage and warehousing function becomes very essential when the production is seasonal or
when the consumption is seasonal but the product is continuous. Here, it is necessary for the
products to be stored during the year and released as per the demand in the market. This function
thus provides time utility by storing the goods and releasing and utilizing them as and when the
markets need them.
ć Warehousing makes the storage function more effective. Warehouses can be set up near the places
of production and the stored produce can be transported to the places of consumption as and when
required,
(3) ! " !
(a) Financing
ć The marketing/production activity may be financed by own funds or borrowed funds. Without
finance, the entire marketing activity comes to a standstill. The producers, wholesalers, retailers
and even customers need finance to buy.
ć Nowadays, many financing companies offer credit facility to different segments of the society to
buy goods and services. Credit facilities enhance the volume of sales, the goodwill of consumers,
and spread sales throughout the month or the year.
ć The finance requirements of the manufacturers may be for a short-term, medium period or for a
long-term period. Many financial institutions (such as commercial banks, private lending
organizations and cooperative banks) have specialized schemes for agricultural finance, working
capital finance, seed capital finance, venture capital finance etc,
(b) Risk-taking
ć Risk is an integral part of business. The marketer attempts to minimize the risk associated with the
business activity, particularly when the business is associated with innumerable risks.
ć Risks are of the following types:
(i)c Social risks due to social hazards such as theft, burglary, bad debts, war etc.
(ii)c Transport risk, during transportation.
(iii)c Physical risk due to spoilage due to decay, deterioration, or accidents.
(iv)c Economic risk due to the fluctuations in the prices of commodity caused by the changes
in demand and supply or in the currency rates.
ć The businesses try to protect themselves against some of these risks by taking insurance policies
such as theft insurance, fire insurance, transport insurance, accident insurance etc. Even the
economic risks can be shared or offset by entering into µhedging contracts¶, where a buyer and a
seller enter into a contract with each other to buy/sell goods at a given price at a future date. The
physical risks are taken care of by careful handling of goods.
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(c) Standardization and grading
ć A standard is a measure of fixed value. The standard could be based on colour, weight, quality,
number of items, price, or any other parameter. Grading is the process of sorting the goods into
various grades based on their standard. The price varies with the grade.
ć The standardization and grading function enables the marketer to fix a uniform price for a given
grade of the goods.
ć Standardization and grading also relieves the customer from the burden of examining the goods.
Thus, it adds time utility to the marketing process.

(d) Market Information and Research
ć Modern marketing requires a lot of information accurately, adequately, and promptly.
Strategically, this information becomes the basis for any decision-making.
ć Where to sell, how much to sell, when to sell, at what price to sell, in what form to sell, and how
competitors are selling- all these are strategic issues, which need to be decided based on authentic
information not only about the organization but also of its competitors. This has led to the need for
market research. It is through marketing research that the producer can keep abreast with ever-
changing customer needs, tastes and preferences, competitors¶ strategies etc.

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EA
The major marketing management decisions can be classified in one of the following four categories:
(1)c Product
(2)c Price
(3)c Place (distribution)
(4)c Promotion
These variables are known as the marketing mix or the 4 P's of marketing. They are the variables that marketing
managers can control in order to best satisfy customers in the target market. The marketing mix is portrayed in the
following diagram:

! "!

)

!

The firm attempts to generate a positive response in the target market by blending these four marketing mix
variables in an optimal manner.
!
The product is the physical product or service offered to the consumer. In the case of physical products, it also refers
to any services or conveniences that are part of the offering. Product decisions include aspects such as function,
appearance, packaging, service, warranty, etc.
!
Pricing decisions should take into account profit margins and the probable pricing response of competitors. Pricing
includes not only the list price, but also discounts, financing, and other options such as leasing.
"!
Place (or placement) decisions are those associated with channels of distribution that serve as the means for getting
the product to the target customers. The distribution system performs transactional, logistical, and facilitating
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functions. Distribution decisions include market coverage, channel member selection, logistics, and levels of
service.

Promotion decisions are those related to communicating and selling to potential consumers. Since these costs can be
large in proportion to the product price, a break-even analysis should be performed when making promotion
decisions. It is useful to know the value of a customer in order to determine whether additional customers are worth
the cost of acquiring them. Promotion decisions involve advertising, public relations, media types, etc.
Summary of Marketing Mix Decisions
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A new product progresses through a sequence of stages from introduction to growth, maturity, and decline. This
sequence is known as the product life cycle and is associated with changes in the marketing situation, thus impacting
the marketing strategy and the marketing mix.
The product revenue and profits can be plotted as a function of the life-cycle stages as shown in the graph below:
Product Life Cycle Diagram
!
In the introduction stage, the firm seeks to build product awareness and develop a market for the product. The
impact on the marketing mix is as follows:
Product branding and quality level is established and intellectual property protection such as patents and trademarks
are obtained.
Pricing may be low penetration pricing to build market share rapidly, or high skim pricing to recover development
costs.
Distribution is selective until consumers show acceptance of the product.
Promotion is aimed at innovators and early adopters. Marketing communications seeks to build product awareness
and to educate potential consumers about the product.
1-
In the growth stage, the firm seeks to build brand preference and increase market share.
Product quality is maintained and additional features and support services may be added.
Pricing is maintained as the firm enjoys increasing demand with little competition.
Distribution channels are added as demand increases and customers accept the product.
Promotion is aimed at a broader audience.
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At maturity, the strong growth in sales diminishes. Competition may appear with similar products. The primary
objective at this point is to defend market share while maximizing profit.
Product features may be enhanced to differentiate the product from that of competitors.
Pricing may be lower because of the new competition.
Distribution becomes more intensive and incentives may be offered to encourage preference over competing
products.
Promotion emphasizes product differentiation.
!"
As sales decline, the firm has several options:
Maintain the product, possibly rejuvenating it by adding new features and finding new uses.
Harvest the product - reduce costs and continue to offer it, possibly to a loyal niche segment.
Discontinue the product, liquidating remaining inventory or selling it to another firm that is willing to continue the
product.
The marketing mix decisions in the decline phase will depend on the selected strategy. For example, the product
may be changed if it is being rejuvenated, or left unchanged if it is being harvested or liquidated. The price may be
maintained if the product is harvested, or reduced drastically if liquidated.
E^ ;
A marketing channel is a set of practices or activities necessary to transfer the ownership of goods, and to move
goods, from the point of production to the point of consumption and, as such, which consists of all the institutions
and all the marketing activities in the marketing process. A marketing channel is a useful tool for management.
Roles of marketing channel in marketing strategy:
(i)c Links producers to buyers.

(ii)c Performs sales, advertising and promotion.
(iii)c Influences the firm's pricing strategy.
(iv)c Affecting product strategy through branding, policies, willingness to stock and customizes profits,
install, maintain, offer credit, etc.
ć An alternative term for marketing channel is distribution channel. It is a 'path' or 'pipeline' through
which goods and services flow in one direction (from vendor to the consumer), and the payments
generated by them flow in the opposite direction (from consumer to the vendor). A marketing
channel can be as short as being direct from the vendor to the consumer or may include several
inter-connected (usually independent but mutually dependent) intermediaries such as wholesalers,
distributors, agents, retailers. Each intermediary receives the item at one pricing point and moves
it to the next higher pricing point until it reaches the final buyer.
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ć Distribution channels can have a number of levels. Kotler defined the simplest level, that of a
direct contact with no intermediaries involved, as the 'zero-level' channel.
ć The next level, the 'one-level' channel, features just one intermediary; in consumer goods a
retailer, for industrial goods a distributor. In small markets (such as small countries) it is practical
to reach the whole market using just one- and zero-level channels.
ć In large markets (such as larger countries) a second level, a wholesaler for example, is now mainly
used to extend distribution to the large number of small, neighborhood retailers or dealers.
ć In IT and Telecom industry levels are named "tiers". A one tier channel means that vendors IT
product manufacturers (or software publishers) work directly with the dealers. A one tier / two tier
channel means that vendors work directly with dealers and with distributors who sell to dealers.
But the most important is the distributor or wholesaler.
ć Activities involved in the channel are wide and varied such as: (i) Receiving orders; (ii) Handling
and shipping ; (iii) Storage ; (iv) Display; (v) Promotion ; (vi) Selling ; (vii) Information feedback
3 $&-"$
When choosing a distribution strategy a marketer must determine what value a channel member adds to the firm¶s
products. Customers assess a product¶s value by looking at many factors including those that surround the product
.Several surrounding features can be directly influenced by channel members, such as customer service, delivery,
and availability. Consequently, for the marketer selecting a channel partner involves a value analysis in the same
way customers make purchase decisions. That is, the marketer must assess the benefits received from utilizing a
channel partner versus the cost incurred for using the services.
These benefits include:
(1) Cost Savings in Specialization ± Members of the distribution channel are specialists in what they do and can
often perform tasks better and at lower cost than companies who do not have distribution experience. Marketers
attempting to handle too many aspects of distribution may end up exhausting company resources as they learn how
to distribute, resulting in the company being a jack of all trades but master of none.´
(2) Reduce Exchange Time ± Not only are channel members able to reduce distribution costs by being experienced
at what they do, they often perform their job more rapidly resulting in faster product delivery. For instance, consider
what would happen if a grocery store received direct shipment from EVERY manufacturer that sells products in the
store. This delivery system would be chaotic as hundreds of trucks line up each day to make deliveries, many of
which would consist of only a few boxes. On a busy day a truck may sit for hours waiting for space so they can
unload their products. Instead, a better distribution scheme may have the grocery store purchasing its supplies from a
grocery wholesaler that has its own warehouse for handling simultaneous shipments from a large number of
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suppliers. The wholesaler will distributes to the store in the quantities the store needs, on a schedule that works for
the store, and often in a single truck, all of which speeds up the time it takes to get the product on the store¶s shelves.
(3) Customers Want to Conveniently Shop for Variety ± Marketers have to understand what customers want in their
shopping experience. Referring back to our grocery store example, consider a world without grocery stores and
instead each marketer of grocery products sells through their own stores. As it is now, shopping is time consuming,
but consider what would happen if customers had to visit multiple retailers each week to satisfy their grocery needs.
Hence, resellers within the channel of distribution serve two very important needs: 1) they give customers the
products they want by purchasing from many suppliers (termed accumulating and assortment services), and 2) they
make it convenient to purchase by making products available in single location.
(4) Resellers Sell Smaller Quantities ± Not only do resellers allow customers to purchase products from a variety of
suppliers; they also allow customers to purchase in quantities that work for them. Suppliers though like to ship
products they produce in large quantities since this is more cost effective than shipping smaller amounts. For
instance, consider what it costs to drive a truck a long distance. In terms of operational expenses for the truck (e.g.,
fuel, truck driver¶s cost) let¶s assume it costs (US) $1,000 to go from point A to point B. Yet in most cases, with the
exception of a little decrease in fuel efficiency, it does not cost that much more to drive the truck whether it is filled
with 1000 boxes containing the product or whether it only has 100 boxes. But when transportation costs are
considered on a per product basis ($1 per box vs. $10 per box) the cost is much less for a full truck. The ability of
intermediaries to purchase large quantities but to resell them in smaller quantities (referred to as bulk breaking) not
only makes these products available to those wanting smaller quantities but the reseller is able to pass along to their
customers a significant portion of the cost savings gained by purchasing in large volume.
(5) Create Sales ± Resellers are at the front line when it comes to creating demand for the marketer¶s product. In
some cases resellers perform an active selling role using persuasive techniques to encourage customers to purchase a
marketer¶s product. In other cases they encourage sales of the product through their own advertising efforts and
using other promotional means such as special product displays.
(6) Offer Financial Support ± Resellers often provide programs that enable customers to more easily purchase
products by offering financial programs that ease payment requirements. These programs include allowing
customers to: purchase on credit; purchase using a payment plan; delay the start of payments; and allowing trade-in
or exchange options.
(7) Provide Information ± Companies utilizing resellers for selling their products depend on distributors to provide
information that can help improve the product. High-level intermediaries may offer their suppliers real-time access
to sales data including information showing how products are selling by such characteristics as geographic location,
type of customer, and product location (e.g., where located within a store, where found on a website). If high-level
information is not available, marketers can often count on resellers to provide feedback as to how customers are
responding to products. This feedback can occur either through surveys or interviews with reseller¶s employees or
by requesting the reseller allow the marketer to survey customers.

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A product line is a group of products that are closely related because they function in a similar manner, are sold to
the same customer groups, are marketed through the same types of outlets, or fall within given price ranges. For
example, Nike produces several lines of athletic shoes, and Nokia produces several lines of telecommunications
products
! *
Ôc A product mix (or product assortment) consists of all the product lines and items that a particular
seller offers for sale. Avon¶s product mix consists of four major product lines: cosmetics, jewelry,
fashions, and household items. Each product line consists of several sub lines.
Ôc A product mix may also be referred to as a range of products sold by a firm. For example, a
supermarket sells food, but it may also sell clothes, electrical equipment, beauty products, and
stationery; an electrical appliance manufacturer may sell washing machines, dishwashers,
refrigerators, and televisions.
Ôc A firm may expand its product mix by offering different products for sale; for example, a clothes
shop may add neck ties to its range. It may extend existing ranges; for example, a car
manufacturer may bring out a special edition of an existing car model. It may change existing
products; for example, a washing powder manufacturer may add more blue flakes to an existing
brand and declare it to be µnew¶ and µimproved¶, or a food company may repackage a product.
Ôc A company¶s product mix has four important dimensions: width, length, depth, and consistency.
(a)c Product mix width refers to the number of different product lines the company carries. For
example, Hindustan Unilever markets a fairly wide product mix consisting of many product
lines, including paper, food, household cleaning, medicinal, cosmetics, and personal care
products.
(b) Product mix length refers to the total number of items the company carries within its product
lines. Hindustan Unilever typically carries many brands within each line. For example, it sells
eleven detergents, eight toilet soaps, and six shampoos.
(c) Product mix depth refers to the number of versions offered of each product in the line. Thus,
Hindustan Unilever¶s Close-up toothpaste comes in three sizes and two formulations (paste and
gel).
(d) Consistency of the product mix refers to how closely related the various product lines are in
end use, production requirements, distribution channels, or some other way. Hindustan Unilever¶s
product lines are consistent insofar as they are consumer products that go through the same
distribution channels. The lines are less consistent insofar as they perform different functions for
buyers.
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ć Materials refer to inputs into production process, most of which are embodied in the finished goods being
manufactured.
ć They may be raw materials, work-in-progress, finished goods, spare parts and components, operating
supplies such as lubricating oil, cleaning materials, etc. required for maintenance and repairs.
"!
ć Materials management is the process of planning, organizing, and controlling the materials in a given
organizations.
ć Among some government organizations, this process is referred to as supply management.
ć The armed forces refer to it as logistics management.
D : ;
ć Materials is a broad term, which includes inventory and stores. Inventory refers to all the idle physical
stocks, which have economic value.
ć In other words, inventory covers the items in stores, in addition to the materials in stores and materials in
process. Stores include materials, supplies, and finished goods not required immediately for use or dispatch
to customers.
ć
Inventory control is defined as the scientific method of providing the -&# " at the -
in the -? and at -# !to sustain the given production schedules.
ć Inventory control is essentially concerned with two aspects: minimizing investments in materials for the
organization and maximizing the service levels to the customers and its own operating departments.
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(a) To support production departments with the right type of material at the right time in the right quantities
and at the right price from the right supplier;
(b) To minimize investments in the materials by ensuring economies of storage and ordering costs;
(c) To avoid accumulation of work in process;
(d) To ensure economy of costs by processing Economic Order Quantities (EOQ);
(e) To maintain adequate inventories at the required sales outlets to meet the market needs promptly, thus
avoiding both excessive stocks or shortages at any given time;
(f) To contribute directly to the overall profitability of the enterprise.
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Inventory control function gets increasingly complex due to trhe following factors:
ć Sudden changes in production plans

ć Increases in prices of the materials
ć Excessive storage costs
ć Stock-out costs (Cost of breakdown in the production line as a result of non-availability of inventory)
ć Increasing lead time (lead time = the time interval between the point of placing order and the time of
receipt of stocks).
-!(&"
The following are the stages in the process of inventory control:
(1) Formulate a clear-cut purchase procedure.
(2) Classify, in a comprehensive manner, the items of inventory and codify the same.
(3) Maintain store records to ensure continuous stock taking.
(4) Minimize the costs of each order by determining Economic Order Quantity (EOQ).
(5) Monitor each category of stocks through ABC analysis.
(6) Set stock levels for different items.
(7) Replenish the stocks as and when required.
Inventory control is an ongoing process that is rarely, if ever, executed perfectly. Experience, expertise, and practice
help people to make the best decisions regarding stock, but there are always unknown circumstances and variables.
Stores can make good estimates about how many of a specific product they will sell, but they get things wrong from
time to time. This is unavoidable. Inventory control can break a business if it is executed poorly, because either
expenses will be too high or customers will get tired of dealing with shortages and find another place to spend their
money.

^

In many large organizations, such as multi-nationals, purchasing is viewed as a strategic function affecting directly
the corporate profitability. A significant volume of funds is committed to purchase of materials. The purchasing
decisions
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(1) To purchase the right quantity and quality of materials at the most economical rate at the proper time.
(2) To ensure continuous flow of supplies by maintaining effective relationships with the existing suppliers.
(3) To explore and develop other sources of supply
(4) To obtain the best value for the money spent.
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(5) To maintain functional relationships with other departments and provide up-to-date information and advice about
the availability of alternate materials.
(6) To train staff, make policies and procedures, and thus evolve a sound organization to achieve the above
objectives.
" 0(!" 0!- !
ć The purchasing function is said to be !" 0 when the entire responsibility of procurement of
inventory lies with one person (or one department). This person is held responsible / accountable by the top
management for proper performance of purchasing activities.
ć The purchasing function is said to be !" 0 when personnel from functional areas of business say
production, engineering, marketing, finance, and personnel decide on sources of supply, negotiate with
vendors directly or perform any of the other major functions of buying inventories.
"" 0!" 0!- !
" 0!- !" 0!-

(1) Responsibility Unified responsibility Multiple responsibilities
(2) Buying systems Standardized Can be customized to suit to the respective
departments
(3) Buying efforts Avoids duplication Special efforts can be made to
(4) Quantity Large scope to obtain quantity discounts Very less scope to obtain quantity discounts as
discounts as purchasing is done in bulk for the purchasing is done in small quantities by each
whole organization department
(5) Services of Can be availed Less scope to avail the services of buying
buying specialists specialists; consequently the buying practices may
end up being haphazard
(6) Transportation Results in savings in transportation costs Transportation costs are likely to be higher
costs through consolidation of orders and
delivery schedules
(7) Inventory control Inventory can be controlled more Control of inventory is less effective as the
effectively as the stock levels, material professional touch is missing
usage, lead time and prices for the entire
company are known clearly
(8) Attention of line Line managers can concentrate on their The attention of line managers gets disturbed, as
managers main activity as the material purchase they have to concentrate on issues related to
function is being looked after by other materials also
professionals
(9) Number of orders For the same quantity of goods bought, Relatively larger number of orders which means
processed fewer orders are processed resulting in more expenses in terms of purchasing, receiving,
savings in expenses for purchasing, inspection and accounts payable.
receiving, inspection and accounts
payable
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The following are the steps in the purchasing process:
(1) ? #!-: The purchase department collects the requisition of materials from all departments.
(2) *#" -!##"& The purchase department maintains the list of suppliers of every type of
material. The purchase department is also expected to explore alternate materials that involve lower costs and
additional functional benefits.
(3) ? The purchase department issues tenders to invites quotations from the selected
suppliers. The tender mentions the particulars of details to be submitted in the quotation. The details include: price
per unit, quantity to be supplied, time of delivery, discount, the terms of payment etc.
(4) # @? On a date specified earlier, all the quotations are opened a comparative
statement is prepared.
(5) The buyer and the seller negotiate to arrive at a consensus regarding the purchase price and terms
of delivery.
(6) "! #!- Once there is a consensus between the buyer and the seller on matters relating to price
and the terms of delivery, the buyer releases the purchase order.
(7) ! ( - " The goods are received with an inward invoice. The invoice is a statement showing
the particulars of the supplier, the buyer of the goods supplied, the details of the materials supplied, and the amount
payable after adjusting for the advance paid and the discounts allowed.
(8) #! " The purchasing department links up with the stores department to check the
physical condition, quality and quantity of the materials received. In case of any shortage or damage, the fact should
be informed to the supplier.
(9) 1 ": After inspection, the goods received are forwarded to the stores.
3 "&
ć 3"& is a business term used to define an inventory categorization technique often used in
materials management. It is also known as ºº .
ć ABC analysis provides a mechanism for identifying items that will have a significant impact on overall
inventory cost, while also providing a mechanism for identifying different categories of stock that will
require different management and controls.]
ć When carrying out an ABC analysis, inventory items are valued (item cost multiplied by quantity
issued/consumed in period) with the results then ranked. The results are then grouped typically into three
bands. These bands are called ABC codes.
1.c ÈA class" inventory will typically contain items that account for 80% of total value, or 20% of total items.
2.c "B class" inventory will have around 15% of total value, or 30% of total items.
3.c "C class" inventory will account for the remaining 5%, or 50% of total items.
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F
:F
Economic Order Quantity (EOQ) is defined as that quantity of material, which can be ordered at one time to
minimize the cost of ordering and carrying the stocks. In other words, it refers to the size of each order that keeps
the total cost low.
Given the annual demand, the cost of acquisition, and carrying costs, the EOQ is determined.
F #
c Known & constant demand
c Known & constant lead time
c Instantaneous receipt of material
c No quantity discounts
c Only order (setup) cost & holding cost
c No stock outs

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(1) (&-" ! (&!& !

These are the costs of holding goods in stock. Expressed usually as a percentage of the inventory value and includes
cost of capital, warehousing, depreciation, insurance, taxation, obsolescence, and shrinkage.
(2) !
These are the costs incurred in connection with the placing of the purchase order such as the cost of stationery and
supplies, and the cost of services such as computer time, telephone, fax etc. The more frequently the orders are
placed, the more is the ordering cost.
D $"
Let
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The EOQ formula finds the minimum point of the following cost function:
Total Cost = purchase cost + ordering cost + holding cost
- Purchase cost: This is the variable cost of goods: purchase unit price × annual demand quantity.
This is P×D
- Ordering cost: This is the cost of placing orders: each order has a fixed cost S, and we need to
order D/Q times per year. This is S × D/Q
- Holding cost: the average quantity in stock (between fully replenished and empty) is Q/2, so
this cost is H × Q/2
0.c
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To determine the minimum point of the total cost curve, set the ordering cost equal to the holding
cost:
Solving for Q gives Q* (the optimal order quantity):
: .
Note that interestingly, Q* is independent of P; it is a function of only S, D, H.

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A very popular method used by companies for pricing the inventory is called the FIFO Method (first-in, first-out).
Under FIFO, it is assumed that the oldest inventory²i.e., the inventory first purchased²is always sold first.
Therefore, the inventory that remains is from the most recent purchases. Under FIFO, a company always assumes
that it sells its oldest inventory first and that ending inventories include more recently purchased merchandise.
Companies selling perishable goods such as food and drugs tend to use this method, because cash flow closely
resembles goods flow with this method.
½è
Another method of pricing inventories that some companies use is the LIFO Method (last-in, first-out). Under LIFO,
it is assumed that the most recent purchase is always sold first. Therefore, the inventory that remains is always the
oldest inventory. Under LIFO, a company always assumes that it sells its newest inventory first. Nevertheless, this
method represents the true flow of goods for very few companies.

Under the Weighted Average Method, a company would determine the weighted average cost of the inventory. This
weighted average would remain unchanged until the next purchase occurs, which would result in a new weighted
average cost to be calculated. This inventory pricing method is used primarily by companies that maintain a large
supply of undifferentiated inventory items such as fuels and grains.
0*c
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3 E
1.c Define Management. Explain its nature and features.
2.c Explain the different functions of management in detail.
3.c Explain Frederick Taylor¶s Scientific Management Theory. What were its directions
to workers? What were the benefits that accrued from Scientific Management?
4.c Explain (a) Abraham Maslow¶s Hierarchy of Needs Theory; (b) Douglas McGregor¶s
Theory X and Theory Y.
5.c Discuss Henri Fayol¶s 14 Principles of management.
6.c Evaluate (a) Line and Staff Organization; (b) Committee organization; (c) Matrix
organization.
7.c Discuss the factors affecting plant location.
8.c Define work study. Explain the procedure of method study.
9.c Identify and briefly discuss the functions of marketing.
10.cDiscuss various stages in Product Life cycle (PLC). Why is it essential for the
marketer to know about the stages in PLC?
0/c
c

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The above definitions cover four important aspects of management.

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