Plant Location and Layout:

PLANT LOCATION:
1) Concept of Plant Location
Plant location is a location where a plant should be located while determining the maximum
effectiveness and operating economy. The place of the plant should offer the lowest cost when the cost
of production and delivering the goods to consumers have been calculated. Plant location consists of
picking a region for the plant, as well as the selection of the locality and the site. Plant location is
needed when a brand new plant is being started or when an old plant is being expanded. Sometimes
old locations are unable to renew a lease and the plant needs to find a new location within that area.
OR
A plant layout study is an engineering study used to analyze different physical configurations for an
industrial plant. Plant location refers to the choice of region and the selection of a particular site for
setting up a business or factory. The selection of location is an important phenomenon for the success
of an enterprise and requires thorough analysis.
What is an ideal Location?
An ideal location is one where the cost of the product is kept to minimum, with a
large market share, the least risk and the maximum social gain. It is the place of
maximum net advantage or which gives lowest unit cost of production and
distribution. For achieving this objective, small-scale entrepreneur can make use
of locational analysis for this purpose.
OR
An ideal location is one where the cost of the product is kept to minimum, with a large market share,
the least risk and the maximum social gain. It is the place of maximum net advantage or which gives
lowest unit cost of production and distribution. The decision of plant location should be based on nine
M's, namely Money, Material, Manpower, Market, Motive power, Management, Machinery, Means of
communication and Momentum to an early start. In general, a plant should be located at a place
where the inhabitants are interested in its success, the product can be sold profitable and the
production cost is minimum.
Importance of Plant Location :
Importance of Plant Location The location choice is vital for any new firm for its success. Because
fundamental objective of an enterprise is to maximize its profits which can be done either by increasing
sales or by decreasing cost of production. The location of a plant is an important entrepreneurial
decision because it influences the cost of production and distribution to a great extent. In some cases,
you will find that location may contribute to even 10% of cost of manufacturing and marketing.
Therefore, an appropriate location is essential to the efficient and economical working of a plant. A firm
may fail due to bad location or its growth and efficiency may be restricted. The selection of location is
of paramount importance both for new and already established enterprises. If an enterprise is located
near its potential market then the organization can have better and upto date understanding of the
market and thus can formulate more effective production and marketing strategies to increase sales.
The reduction in cost of production is possible when a firm is located at a place where all kinds of
production economies w.r.t. input factors are available. The relocation of already existing enterprises
may be necessary due to dynamic nature of plant location.
Factors Affecting Plant Location:
Factors Affecting Plant Location The physical factors associated with the location of an enterprise can
have a significant impact on its operations and its cost structure. Suitability of land and climate.
Transport and communication facilities Supply of labour Location should be near to the source of
operating power Nearness to the potential market Availability of Raw material Environmental Impact,
and Effluent Disposal Political and strategic considerations.
Location Analysis:
Location Analysis The selection of appropriate location depending on the size of the industry can be
done in two stages: (i) Evaluation of various geographic areas and the selection of an optimum area. (ii)
Within each area there is a choice of proper site which can be urban, sub-urban or rural are generally
 known as industrial zone. Thus in the process of location analysis, firstly some appropriate geographical
area is selected and form that area a proper site is selected for the establishment of the plant.The
analysis for the choice of appropriate area and corresponding site is based on a number of measures
described below. Measures for the selection of location : The fundamental objective of location analysis
is to maximize the profits by minimizing the total cost of production associated with the production
process. Total costs = Fixed costs + Operational costs Fixed costs include expenditure on land, building,
machines and other equipments etc. Operational costs are the expenditure incurred on inputs,
transformation process and the distribution of output. The contribution of various factors to the total
cost will vary from place to place e.g a possible advantage of cheap labour at some place may be offset
by more expenditure on fuel, power, taxes etc.
Reasons for Selection of Appropriate Plant Location:
Reasons for Selection of Appropriate Plant Location The location of the plant can have a crucial effect
on the profitability of a project, and the scope for future expansion Location of plant determines
operating and capital costs. It determines the nature of investment costs to be incurred and also the
level of many operating cost Each prospective location implies a new allocation of capacity to respective
market area Location fixes some of the physical factors of the overall plant design e.g. heating and
ventilation requirements, storage capacity for raw material taking into consideration their local
availability, transportation need for raw materials and finished goods; power needs; costs of labour,
taxes, land construction, fuel etc. The Government also plays an important role in the choice of the
location keeping in view the national benefits The proposed plant must fit in with and be acceptable to
the local community. Full Consideration must be given to the safe location of the plant so that it does
not Impose a significant additional risk to the community.Industries like nuclear power stations, process
explosive in nature, chemical process likely to pollute the atmosphere should be located in remote area
Population in area should not face health issues. It means the industrial waste must not be hazardous
to health and must be properly disposed off with the work of the associated establishments These
factors can be qualitative as well as quantitative. Qualitative factors can be measured in terms of some
qualitative criteria namely adequate, good, significant etc.Quantitative factors can be measured on cost
or some other quantitative basis viz, labours, material, housing, land, transport etc.
Raw Material Market Labour Climate Environmental Factors Transportation Political Power, Fuel &
Water Government and Economical Policies Scope of expansion Special Zones Technology Transfer
Industrial Colony
2) Factors affecting Plant Location

Law and order situation,

Availability of infrastructure facilities,
Good industrial relations
Availability of skilled workforce
Social infrastructure
 Investor friendly attitude
Nearness to market
Nearness to raw-materials' source
Nearness to supportive industries and services, and
Must meet safety requirements
1. Law and order situation
Plant location must be at that place where law and order situation is in control. Entrepreneurs give a lot of
importance to this factor while locating a business unit in any state or region. If a state has bad law and order
situation, then the business must not be located within that state, unless it has other important factors such as
availability of heavy or bulky raw materials.
2. Availability of infrastructure facilities
Plant location which is selected must have proper infrastructure facilities. Without good infrastructure facilities, it
will be difficult to do business efficiently. The infrastructure facilities are the backbone of all industries. Without it,
business cannot be done
Crucial infrastructure facilities that help industries to grow
Transport and communications
Banking and insurance services
Regular fuel supply
Continuous supply of electricity and water, etc
3. Good industrial relations
Plant location must be at those places where good industrial-relations are maintained. Industrial relations become
bad, because of militant and selfish trade unions. Entrepreneurs do not want to locate their business at places
where anti-social elements are rampant, although there are other favorable factors such as good infrastructure
facilities, cheap labor, etc.
4. Availability of skilled workforce
Plant location must be convenient and easily accessible to skilled workforce. Most businesses require skilled-labor
force such as engineers, management experts, computer programmers, etc. The entrepreneurs must consider the
availability of competent and skillful-workforce at a particular place to locate their business
5. Social infrastructure
Plant location must have good a social infrastructure. There is a need for social-infrastructure not only for
employees but also for the development of their families. The availability of social-infrastructure will increase the
employees' welfare
There must be suitable social infrastructure facilities like;
Education institutions
Hospitals and health centers
Community centers like worship place, garden, meditation center, etc
Recreation facilities like theaters, clubs, communication facilities, etc
6. Investor friendly attitude
Plant location must be in those states whose governments have an investor-friendly attitude. Government must
give attractive incentives and concessions to those who start business units in their states. There must not be any
bureaucratic control for starting a business
An investor-friendly attitude will not only attract investment, but will also result in the overall development.
7. Nearness to market
Plant location must be near a market. Every business unit depends on a market for selling its goods and services.
The goods and services must reach the market on time, and it must be available to the consumers at a low price.
Therefore, this factor is given importance while selecting location of a plant
Locating a plant near the market is preferred, when the product is fragile (easily breakable), perishable, heavy or
bulky and when quick service is required
8. Nearness to raw-materials' source
Plant location must be usually near to the source of raw-material. Raw-materials' costs are about 50% of the total
cost. So, it is important in the business to get the raw materials in time and at a reasonable price. Therefore, a
business must be located close to the source of raw material, especially in the case of Gross Materials
Gross Materials are those which lose weight in the production process. Examples of Gross Materials are
sugarcane, iron ore, limestone, so on
However, if the raw material is a Pure Material, then the business may be located away from the source of raw
materials
Pure Materials are those which add their weight to the finished product. Examples of Pure materials are cotton
textiles, bakeries, silk fabrics, etc
9. Nearness to supporting industries
Plant location must be near its supporting industries and services. If it purchases spare parts from an outside
agency, then these agencies must be located very close to the business. If not, the business will have to spend a lot
of extra money on transport. It will also be difficult, to control the quality of the spare parts because of the distant
location.
10. Must meet safety requirements
Plant location must meet all essential safety requirements. Due to air, water and sound pollution, some factories
have a bad effect on the health of the people. Therefore, these factories must be located away from residential
areas. Safety of environment must also be given priority in this regards.
11. Miscellaneous factors
Following miscellaneous factors also affect a plant location
Availability and cost of land
Suitability of land - soil and topography
Climatic conditions
Location of a similar unit, etc
Plant Layout
Definition: Plant layout refers to the arrangementof physical facilities such as machines, equipment,
tools, furniture etc. in such a manner so as to have quickest flow of material at the lowest cost and with the least
amount of handling in processing the product from the receipt of raw material to the delivery of the finalproduct.
Objectives of good Plant Layout:
A well designed plant layout is one that can be beneficial in achieving the following objectives:
Proper and efficient utilization of available floor space
Transportation of work from one point to another point without any delay
Proper utilization of production capacity.
Reduce material handling costs
Utilize labour efficiently
Reduce accidents
Provide for volume and product flexibility
Provide ease of supervision and control
Provide for employee safety and health
Allow easy maintenance of machines and plant.
Improve productivity
TYPES OF LAYOUT:
There are mainly four types of plant layout:
(a) Product or line layout
(b) Process or functional layout
(c) Fixed position or location layout
(d) Combined or group layout
PRODUCT OR LINE LAYOUT:
In this type of layout the machines and equipments are arranged in one line depending upon the sequence of
operations required for the product. It is also called as line layout. The material moves to another machine
sequentially without any backtracking or deviation i.e the output of one machine becomes input of the next
machine. It requires a very little material handling.It is used for mass production of standardized products.
 Advantages of Product layout:
Low cost of material handling, due to straight and short route and absence of backtracking
Smooth and continuous operations
Continuous flow of work
Lesser inventory and work in progress
Optimum use of floor space
Simple and effective inspection of work and simplified production control
Lower manufacturing cost per unit
Disadvantages of Product layout:
Higher initial capital investment in special purpose machine (SPM)
High overhead charges
Breakdown of one machine will disturb the production process.
Lesser flexibility of physical resources.
PROCESS LAYOUT:
In this type of layout the machines of a similar type are arranged together at one place. This type of layout is
used for batch production. It is preferred when the product is not standardized and the quantity produced is
very small.

Advantages of Process layout:

Lower initial capital investment is required.
There is high degree of machine utilization, as a machine is not blocked for a single product
The overhead costs are relatively low
Breakdown of one machine does not disturb the production process.
Supervision can be more effective and specialized.
Greater flexibility of resources.
Disadvantages of Process layout:
Material handling costs are high due to backtracking
More skilled labour is required resulting in higher cost.
Work in progress inventory is high needing greater storage space
More frequent inspection is needed which results in costly supervision
COMBINED LAYOUT:
A combination of process & product layout is known as combined layout .
Manufacturing concerns where several products are produced in repeated numbers with no like
continuous production, combined layout is followed
FIXED POSITION OR LOCATION LAYOUT:
Fixed position layout involves the movement of manpower and machines to the product which remains stationary.
The movement of men and machines is advisable as the cost of moving them would be lesser. This type of layout is
preferred where the size of the job is bulky and heavy. Example of such type of layout islocomotives, ships, boilers,
generators, wagon building, aircraft manufacturing, etc.

Advantages of Fixed position layout:

The investment on layout is very small.
 The layout is flexible as change in job design and operation sequence can be easily incorporated.
Adjustments can be made to meet shortage of materials or absence of workers by changing the sequence
of operations.
Disadvantages of Fixed position layout:
As the production period being very long so the capital investment is very high.
Very large space is required for storage of material and equipment near the product.
As several operations are often carried out simultaneously so there is possibility of confusion and conflicts
among different workgroups.
Flow Pattern
Patterns of flow may be viewed from the perspective of flow within workstations,
within departments, and between departments.
Flow Within Workstations
Motion studies and ergonomics considerations are important in establishing the flow
within workstations. For example, flow within a workstation should be simultaneous,
symmetrical, natural, rhythmical, and habitual.
Flow Within Departments

The flow pattern within departments is dependent on the type of department. In a

product and/or product family department, the flow of work follows the product flow.
Figure 1. Flow within production departments. (a) End-to-end. (b) Back-to-back. (c)
Front-to-front. (d) Circular. (e) Odd angle.
End-to-end, back-to-back, and odd-angle flow patterns are indicative of product
departments where one operator works at each workstation. Front-to-front flow
patterns are used when one operator works on two workstations and circular flow
patterns are used when one operator works on more than two workstations.
In a process department, little flow should occur between workstations within
departments. Flow typically occurs between workstations and aisles. Flow patterns are
dictated by the orientation of the workstations to the aisles.

Figure 2.Flow within process departments. (a) Parallel. (b) Perpendicular. (c) Diagonal
Diagonal flow patterns are typically used in conjunction with one-way aisles. Aisles
that support diagonal flow pattern often require less space than aisles with either
parallel or perpendicular workstation-aisle arrangements. However, one-way aisles
also result in less flexibility. Therefore, diagonal flow patterns are not utilized often.
Work Study, Method Study, Time study, Work Measurement
Subjecting each part of a given piece of work to close analysis to eliminate every
unnecessary element or operation, as a means of approaching the quickest and best method of performing the
work. It also includes formulation of incentive schemes,
and improvement and standardization of equipment, methods, operator training, working conditions, etc.
Also called methods engineering.
OR
Work Study is systematic study of methods of work in order to improve effective use of its resources and set
standards of performance. It can be applied where a set of processes is involved.
Work Study introduces the most effective method of working. It is the most efficient tool in the hands of
management to improve efficiency at all levels of the organization. Work study helps to reduce waste through
standardization of element of the job.
Work study is conducted in order to identify the current situation in the organization and to find the opportunities
of improvement. This will help organizations become more systematic and profitable.
the objective of work study is to assist the management to obtain the optimum use of the human and material
resources available to the organization for the accomplishment of the work for which, it is engaged.

Advantages & Need for work study

Increase in Productivity
Increase in efficiency
Improved work flow
Improved work layout
Improved standards
Work Study is carried out in two stages.
Method Study -Here we study the method and find out the improved method.
Work Measurement -Here we determine the standard time required to complete improved method.
Improsys is one of the leading solution provider company. We provide solutions to different problems on global
delivery format
Improsys has expertise in conducting the work study, critically analyze them and provide a best solution for
improvement of the organization.
Using our vast experience, professional skills and real-world experience, we have developed the capabilities and
processes not merely to satisfy our clients but to impress them with the added-value services we provide.
Break Even Point (B.E.P)
In general, the point at which gains equal losses.
OR
Point in time (or in number of units sold) when forecasted revenue exactly equals the estimated total costs;
where loss ends and profit begins to accumulate. This is the point at which a business, product, or project becomes
financially viable.
OR
It is used to mean to neither gain nor lose money; To stay the same; to neither advance nor regress. It is used in
business to mean making neither profit nor loss or when you attain a level at which there is neither gain nor los
OR
Break-even analysis is a method used in business to calculate the the total or number of items that
needs to be sold during a specific period (monthly or annually) so that you are
To calculate your break-even you will need to have a good understanding of your fixed costs, your
variable costs and your gross profit %.
Gross Profit % is the difference between your selling price and your purchase price divided by your
selling price. In another words, the % of your selling prices that represents profit. (i.e. if you sold a
products for 100 and it cost you 60 to buy, then the gross profit % = (100-60)/100 = 40%). Note:
purchase price could also be substituted for production cost in a manufacturing business.
Fixed costs are all those costs that DON'T vary in relation to changes in the volume of enterprise
activity (i.e. costs that stay the same regardless of sales volumes - like rent, insurance, equipment
hire). Fixed costs are typically expressed as per month. (i.e. 2,500 per month)
Variable costs are those other costs, apart from purchases, that DO vary in relation to the volume
of enterprise activity (i.e. costs that will increase in direct proportion to increases in sales - like
casual wages, packaging, telephone). Variable costs are typically expressed as a % of sales or a %
of the selling price. (i.e. 15% of the selling price covers the variable costs associated with each sale)
The formula then for calculating your:
Break-even in unit sales = (Fixed costs per month) (Unit Contribution Margin) where the Unit
Contribution Margin = (Unit selling price x (Gross profit % - Variable costs %). Using the numbers
given above = 2,500 (100 x (40% - 15%) = 2,500 25 = 100 units sold per month to break-even.
Break-even on sales volume = (Fixed costs per month) (Gross profit % - Variable cost %). Using the
example above = 2,500 (40% - 15%) = 2,500 25% = 10,000 in sales per month are needed to break-
even.
In the linear Cost-Volume-Profit Analysis model (where marginal costs and marginal revenues are constant, among
other assumptions), the break-even point (BEP) (in terms of Unit Sales (X)) can be directly computed in terms of
Total Revenue (TR) and Total Costs (TC) as:

TFC is Total Fixed Costs,

P is Unit Sale Price, and
V is Unit Variable Cost.

The Break-Even Point can alternatively be computed as the point where Contribution equalsFixed Costs.

The quantity , is of interest in its own right, and is called the Unit Contribution Margin (C): it is the
marginal profit per unit, or alternatively the portion of each sale that contributes to Fixed Costs. Thus the
break-even point can be more simply computed as the point where Total Contribution = Total Fixed Cost:

To calculate the break-even point in terms of revenue (a.k.a. currency units, a.k.a. sales proceeds) instead
of Unit Sales (X), the above calculation can be multiplied by Price, or, equivalently, the Contribution
Margin Ratio (Unit Contribution Margin over Price) can be calculated:

Margin of safety
Margin of safety represents the strength of the business. It enables a business to know what is
The exact amount it has gained or lost and whether they are over or below the break-even point.[4]

Margin of safety = (current output - breakeven output)

Margin of safety% = (current output - breakeven output)/current output 100
When dealing with budgets you would instead replace "Current output" with "Budgeted output." If P/V ratio is
given then profit/PV ratio.
Forecasting
To calculate or predict (some future event or condition) usually as a result of study and analysis of available
pertinent data.
OR
A planning tool that helps management in its attempts to cope with the uncertainty of the future, relying mainly
on data from the past and present and analysis of trends.
Forecasting starts with certain assumptions based on the management's experience, knowledge, and judgment.
These estimates are projected into the coming months or years using one or more techniques such as Box-Jenkins
models, Delphi method, exponential smoothing, moving averages, regression analysis, and trend projection. Since
any error in the assumptions will result in a similar or magnified error in forecasting, the technique of sensitivity
analysis is used which assigns a range of values to the uncertain factors (variables). A forecast should not be
confused with a budget.
OR
What is Forecasting? Meaning
Forecasting is a process of predicting or estimating the future based on past and present data. Forecasting
provides information about the potential future events and their consequences for the organisation. It may not
reduce the complications and uncertainty of the future. However, it increases the confidence of
the management to make important decisions. Forecasting is the basis of premising. Forecasting uses many
statistical techniques. Therefore, it is also called as Statistical Analysis
Features of Forecasting
Peculiarities, characteristics or features of forecasting are as follows;-
Forecasting in concerned with future events.
It shows the probability of happening of future events.
It analysis past and present data.
It uses statistical tools and techniques.
It uses personal observations.

Steps in Forecasting
Procedure, stages or general steps involved in forecasting are given below
Analysing and understanding the problem : The manager must first identify the real problem for which the
forecast is to be made. This will help the manager to fix the scope of forecasting

Developing sound foundation : The management can develop a sound foundation, for the future after considering
available information, experience, type of business, and the rate of development

Collecting and analysing data : Data collection is time consuming. Only relevant data must be kept. Many
statistical tools can be used to analyse the data.

Estimating future events : The future events are estimated by using trend analysis. Trend analysis makes provision
for some errors.

Comparing results : The actual results are compared with the estimated results. If the actual results tally with the
estimated results, there is nothing to worry. In case of any major difference between the actuals and the
estimates.it is necessary to find out the reasons for poor performance

Follow up action : The forecasting process can be continuously improved and refined on the basis of past
experience. Areas of weaknesses can be improved for the future forecasting. There must be regular feedback on
past forecasting

Importance of Forecasting
Merits, significance or importance of forecasting involves following points:
Forecasting provides relevant and reliable information about the past and present events and the likely
future events. This is necessary for sound planning
It gives confidence to the managers for making important decisions
It is the basis for making planning premises
 It keeps managers active and alert to face the challenges of future events and the changes in the
environment

Limitations of Forecasting
Demerits, criticism or limitations of forecasting involves following points
The collection and analysis of data about the past, present and future involves a lot of time and money.
Therefore, managers have to balance the cost of forecasting with its benefits. Many small firms don't do
forecasting because of the high cost.
Forecasting can only estimate the future events. It cannot guarantee that these events will take place in
the future. Long-term forecasts will be less accurate as compared to short-term forecast.
Forecasting is based on certain assumptions. If these assumptions are wrong, the forecasting will be
wrong. Forecasting is based on past events. However, history may not repeat itself at all times.
Forecasting requires proper judgement and skills on the part of managers. Forecasts may go wrong due to
bad judgement and skills on the part of some of the managers. Therefore, forecasts are subject to human
error.

Delphi method
Delphi method in the 1950s, originally to forecast the impact of technology on warfare. The method entails a
group of experts who anonymously reply to questionnaires and subsequently receive feedback in the form of a
statistical representation of the "group response," after which the process repeats itself. The goal is to reduce the
range of responses and arrive at something closer to expert consensus. The Delphi Method has been widely
adopted and is still in use today.Delphi method solicits the opinions of experts through a series of carefully
designed questionnaires interspersed with information and opinion feedback in order to establish a convergence
of opinion.
OR
A systematic forecasting method that involves structured interaction among a group of experts on a subject. The
Delphi Technique typically includes at least two rounds of experts answering questions and giving justification for
their answers, providing the opportunity between rounds for changes and revisions. The multiple rounds, which
are stopped after a pre-defined criterion is reached, enable the group of experts to arrive at a consensus
forecast on the subject being discussed.

SIMPLE MOVING AVERAGE (SMA)

The simple moving average (SMA) is the most basic of the moving averages used for trading. The simple moving
average formula is calculated by taking the average closing price of a stock over the last x periods
Lets
28.93+28.48+28.44+28.91+28.48 = 143.24
To calculate the simple moving average formula you divide the total of the closing prices and divide it by the
number of periods.
To calculate the simple moving average formula you divide the total of the closing prices
and divide it by the number of periods
5-day SMA = 143.24/5 = 28.65
Exponential smoothing is a technique that can be applied to time series data, either to produce smoothed data for
presentation, or to make forecasts. The time series data themselves are a sequence of observations. The observed
phenomenon may be an essentiallyrandom process, or it may be an orderly, but noisy, process. Whereas in
the simple moving average the past observations are weighted equally, exponential smoothing assigns
exponentially decreasing weights over time.
Exponential smoothing is commonly applied to financial market and economic data, but it can be used with any
discrete set of repeated measurements. The raw data sequence is often represented by {xt}, and the output of the
exponential smoothing algorithm is commonly written as {st}, which may be regarded as a best estimate of what
the next value of x will be. When the sequence of observations begins at time t = 0, the simplest form of
exponential smoothing is given by the formulae:

where is the smoothing factor, and 0 < < 1

Regression Method
Statistical approach to forecasting change in a dependent variable (sales revenue, for example) on the basis of
change in one or more independent variables (population and income, for example). Known also as curve fitting or
line fitting because a regression analysis equation can be used in fitting a curve or line to data points, in a manner
such that the differences in the distances of data points from the curve or line are
minimized. Relationships depicted in a regression analysis are, however, associative only, and any cause-effect
(causal) inference is purely subjective. Also called regression method or regression technique.

Suppose there are n data points {yi, xi}, where i = 1, 2, , n. The goal is to find the equation of the straight line

which would provide a "best" fit for the data points. Here the "best" will be understood as in the least-
squares approach: such a line that minimizes the sum of squared residuals of the linear regression model. In other
words, numbers (the y-intercept) and (the slope) solve the following minimization problem:

By using either calculus, the geometry of inner product spaces or simply expanding to get a quadratic in and , it
can be shown that the values of and that minimize the objective function Q are

where rxy is the sample correlation coefficient between x and y, sx is the standard deviation of x, and sy is
correspondingly the standard deviation of y. Horizontal bar over a variable means the sample average of that

variable. For example:

Substituting the above expressions for and into

yields

This shows the role plays in the regression line of standardized data points.
Linear regression without the intercept term
Sometimes, people consider a simple linear regression model without the intercept term: y = x. In such a case,

the OLS estimator for simplifies to .

Personnel management
Administrative discipline of hiring and developing employees so that they become more valuable to
the organization. It includes (1) conducting job analyses, (2) planning personnel needs, and recruitment, (3)
selecting the right people for the job, (4) orienting and training, (5) determining and managing wages and salaries,
(6) providing benefits andincentives, (7) appraising performance, (8) resolving disputes, (9) communicating with all
employees at all levels.
OR

Personnel management can be defined as obtaining, using and maintaining a satisfied workforce. It is a significant
part of management concerned with employees at work and with their relationship within the organization.
According to Flippo, Personnel management is the planning, organizing, compensation, integration and
maintainance of people for the purpose of contributing to organizational, individual and societal goals.
According to Brech, Personnel Management is that part which is primarily concerned with human resource of
organization.
Nature of Personnel Management
1. Personnel management includes the function of employment, development and compensation- These
functions are performed primarily by the personnel management in consultation with other departments.
2. Personnel management is an extension to general management. It is concerned with promoting and
stimulating competent work force to make their fullest contribution to the concern.
3. Personnel management exist to advice and assist the line managers in personnel matters. Therefore,
personnel department is a staff department of an organization.
4. Personnel management lays emphasize on action rather than making lengthy schedules, plans, work
methods. The problems and grievances of people at work can be solved more effectively through
rationale personnel policies.
5. It is based on human orientation. It tries to help the workers to develop their potential fully to the
concern.
6. It also motivates the employees through its effective incentive plans so that the employees provide
fullest co-operation.
7. Personnel management deals with human resources of a concern. In context to human resources, it
manages both individual as well as blue- collar workers.

Role of Personnel Manager

Personnel manager is the head of personnel department. He performs both managerial and operative functions of
management. His role can be summarized as :
1. Personnel manager provides assistance to top management- The top management are the people who
decide and frame the primary policies of the concern. All kinds of policies related to personnel or
workforce can be framed out effectively by the personnel manager.
2. He advices the line manager as a staff specialist- Personnel manager acts like a staff advisor and assists
the line managers in dealing with various personnel matters.
3. As a counsellor,- As a counsellor, personnel manager attends problems and grievances of employees and
guides them. He tries to solve them in best of his capacity.
4. Personnel manager acts as a mediator- He is a linking pin between management and workers.
5. He acts as a spokesman- Since he is in direct contact with the employees, he is required to act as
representative of organization in committees appointed by government. He represents company in
training programmes.
 Functions of Personnel Management
Follwoing are the four functions of Personnel Management:
1. Manpower Planning
2. Recruitment
3. Selection
4. Training and Development

Industrial Psychology
Industrial organizational psychology is the branch of psychologythat applies psychological theories and principles
to organizations. Often referred to as I/O psychology, this field focuses on increasing workplace productivity and
related issues such as the physical and mental well being of employees. Industrial organizational psychologists
perform a wide variety of tasks, including studying worker attitudes and behavior, evaluating companies, and
conducting leadership training. The overall goal of this field is to study and understand human behavior in the
workplace.

The Two Side of Industrial Psychology

You can think of industrial organizational psychology as having two major sides. First, their is the industrial side,
which involves looking at how to best match individuals to specific job roles. This segment of Industrial psychology
is also sometimes referred to aspersonnel psychology. People who work in this area might assess employee
characteristics and then match these individuals to jobs in which they are likely to perform well. Other functions
that fall on the industrial side of Industrial psychology include training employees, developing job performance
standards, and measuring job performance.
The organizational side of psychology is more focused on understanding how organizations affect individual
behavior. Organizational structures, social norms, management styles, and role expectations are all factors that
can influence how people behavior within an organization. By understanding such factors, Industrial psychologists
hope to improve individual performance and health while at the same time benefiting the organization as a whole.

How is Industrial Psychology Different?

While industrial organizational psychology is an applied field, basic theoretical research is also essential. With roots
in experimental psychology, Industrial psychology has a number of different sub-areas such as human-computer
interaction, personnel psychology, and human factors.

Six Key Areas of Industrial Psychology

According to Muchinsky (2000), most industrial organizational psychologists work in one of six major subject areas:
Training and development: Professional in this area often determine what type of skills are necessary to
perform specific jobs as well as develop and evaluate employee training programs.
Employee Selection: This area involves developing employee selection assessments, such as screening tests to
determine if job applicants are qualified for a particular position.
Ergonomics: The field of ergonomics involves designing procedures and equipment designed to maximize
performance and minimize injury.
Performance Management: I/O psychologists who work in this area develop assessments and techniques to
determine if employees are doing their jobs well.
Work Life: This area focuses on improving employee satisfaction and maximizing the productivity of the
workforce. I/O psychologists in this area might work to find ways to make jobs more rewarding or design
programs that improve the quality of life in the workplace.
Organizational Development: Industrial psychologists who work in this area help improve organizations, often
through increasing profits, redesigning products, and improving the organizational structure.
 Who Should Study Industrial Psychology?
Students who are interested in applying psychological principles to real-world setting should consider industrial
organizational psychology. If you have a strong interest in psychology as well as related subjects such as
product design, computers, statistics and engineering, this may be the ideal field for you.
Major Topics in Industrial Psychology
Product design
Employee testing
Leadership
Workplace diversity
Workplace performance
Employee motivation
Important People in the History of Industrial Psychology
Hugo Mnsterberg
Frederick W. Taylor
Robert Yerkes
James McKeen Cattell
Elton Mayo
Kurt Lewin

Micro & Macro Economics Economics comes from Greek word Oikonomia. Adam smith explained the
definition of economics in his famous Wealth of Nations that Economics is a science which enquires the cause
of wealth.
Prof. Marshall said, A study of mans action in the ordinary business of life.

Difference between microeconomics and macroeconomics

Microeconomics
Those who have studied Latin know that the prefix micro- means small, so it shouldnt be surprising that
microeconomics is the study of small economic units. The field of microeconomics is concerned with things like:
Consumer decision making and utility maximization
Firm production and profit maximization
Individual market equilibrium
Effects of government regulation on individual markets
Externalities and other market side effects
Macroeconomics
Macroeconomics can be thought of as the big picture version of economics. Rather than analyzing individual
markets, macroeconomics focuses on aggregate production and consumption in an economy. Some topics that
macroeconomists study are:
The effects of general taxes such as income and sales taxes on output and prices
The causes of economic upswings and downturns
The effects of monetary and fiscal policy on economic health
How interest rates are determined
Why some economies grow faster than others

The Relationship Between Microeconomics and Macroeconomics

There is an obvious relationship between microeconomics and macroeconomics in that aggregate production and
consumption levels are the result of choices made by individual households and firms, and some macroeconomic
models explicitly make this connection.
Most of the economic topics covered on television and in newspapers are of the macroeconomic variety, but its
important to remember that economics is about more than just trying to figure out when the economy is going to
improve and what the Fed is doing with interest rates.
Microeconomics
Microeconomics is the study of particular firm, particular household, individual prices, wages, incomes,
individual industries, and individual commodities.
Micro means very small or millionth part.
The subject or example of microeconomics is about person, an investor, a producer.
As it analyzes individually it provides a partial concept or partial figure of a country.
Micro economics is concerned with the individual entities.
Macroeconomics
Macroeconomics deals not with individual quantities as such but with aggregates of these quantities not with
individual income but with national income, not with individual prices but with the price level not with
individual output but with national output.
Macro means large or whole.
The subject of macro economics is about national production, national income, income level.
As it analyzes overall it provides full figure or complete reflection of a country.
Macroeconomics is concerned with the overall performance of the economy.
OR
DIFFERENCE BETWEEN MICRO AND MACRO ECONOMICS
MICRO ECONOMICS:-
1.Evolution of micro economics took place earlier than macro economics.
2.It is branch of economics,which studies individual economic variables like demand,supply,price etc.
3.It has a very narrow scope i.e. an individual,a market etc.
4.Demand,supply,market forms etc.relate to micro economics.
5.It is helpful in analysis of an individual economics unit like firm.
6.Theory of demand,theory of production,price determination theory etc.develop from micro economics.

MACRO ECONOMICS:-
1.It evolved only after the publication of keynes'book.Genral.theory of employment,interest and money.
2.It is a branch of economics which studies aggregate economic variables,like aggregate demand,aggregate
supply,price level etc.
3.It has a very wide scope i.e. a country.
4.Aggregate demand aggregate supply,national income etc.relate to macro economics.
5.It is helpful for analysing the level of employment,income,economic growth etc.
6.Theory of national income,theory of employment,theory of money,theory of genral price level etc.develop from
macro economics.

PLANNING & CONTROLING

Planning is the determinative phase of production management. It figures out what is to be done. Production
planning translates sales forecasts into master production schedules, takes off material, personnel & equipment
requirements & prepares detailed area or department schedules. It also determines the maintaining of raw
materials & finished goods at proper levels. Also, it prepares alternative plans of action as a means of meeting
emergencies. Control balances production & inventories apart from the determinative phase of planning.
Production control supervises the execution of production schedules so that work flows through the
manufacturing departments on time & without interruptions. Control also maintains raw material inventories at
levels that neither tie-up excessive amounts of working capital nor lead to shortages that interrupt production. At
the same time, finished goods inventories are regulated so that they neither become excessive nor fall so low that
they fail to meet demands & so cause back orders to accumulate.
Functions/scope of production planning & control
1. Materials: Materials should be made available at the right quality, right quantity, right price & right price.
Inventory control & regular supply of materials should be guaranteed.
2. Manpower: It is important to carry out manpower planning to maintain operational & managerial staff
possessing requisite skills & expertise.
3. Methods: It is always desirable to consider all the available alternatives & select the best method of processing.
Simultaneously, to plan for tooling, jigs & fixtures & to determine the best sequence of operations.
4. Machines & equipments: The choices of manufacturing methods depend on available production facilities &
utilization of plant, machines equipments.
5. Routing: The routing function specifies what work is to be done where & when it is to be performed.
6. Estimating: it involves establishing performance standard of each work after duly analyzing operation sheets.
These sheets indicate feeds, speeds, depth of cuts, use of special attachments & methods.
7. Loading & scheduling: Loading & scheduling machines have to be made as per the production requirements.
Machine loading generates accurate information on work standard, scrap allowances, machine-time requirements
& machine capacities. Scheduling is a time-table for performing the job on the available machines so that delivery
dates are maintained.
8. Dispatching: Dispatching is the release of orders & instructions to start production as per the route sheets &
schedule charts.
9. Expediting: It refers to follow-up which is done after the dispatching function.
10. Inspection: It is related to maintenance of quality in production & processes, methods labour so that
improvements can be made to achieve the quality standards.
11. Evaluating: It provides a feedback mechanism on a long term basis so that past experience can be used to
improve upon use of methods, facilities & resources in future period.
12. Cost control: In manufacturing products, costs can be kept within control through wastage reduction, value
analysis, inventory control & efficient use of resources.
Objectives of production planning & control
1. To make all preparations to manufacture goods within specified time & cost.
2. To make available supply of materials, parts & components at the right time.
3. To ensure most economical use of plant & equipment by scheduling best machine utilization.
4. To provide information for production management & distribution of goods.
5. To issue relevant orders to production personals to implement the production plan.
6. To make available materials, machines, tools, equipment & manpower in the required quality & quantity & at
the specified time.
7. To ensure production of goods in the required quantities of the specified quality at the pre-determined time.
8. To keep the plant free from production bottleneck.
9. To maintain spare capacity to deal with rush orders.
10. To maintain cordial industrial relations.

Organization of Production planning & control

Activities in Production planning section includes:
1. Production budget office: In this office, incoming orders are recorded in order book. Budget allocation is done to
execute each order. In case the customer gives a required date of delivery, the date is noted for further action.
2. Material Requirement planning: No sooner the planning engineer receives the product to be produced, the
production planning department prepares material requirement plan. Material can be applied either internally
from the store or ordered from outside.
3. Methods planning office: The responsibility of this office is to assess the potentialities of available methods & to
select the best method for producing components.
4. Capacity planning office: This office checks the status of each of the facility & allocates them as per requirement
of jobs.
5. Tool & jig design office: The planner tries to provide simple & cost effective tools & jigs for performing the
operation. The selection of suitable tool & jig is advised by industrial engineers.
6. Operation layout & routing office: The responsibility of this office is to prepare several forms & documents so
that the production people can work with ease.
7. Scheduling office: The planner is excepted to prepare a time table of machine allocation for different jobs.
Individual capacity of the machine indicates to the planner that with the existing number of machines how much
work can be cleared & time taken to complete the work.
Activities of Production Control section:
1. Dispatching office: This office releases production orders & instructions to those who are expected to carry out
production activities.
2. Expediting centre: This centre implements the plan. The centre maintains an effective communication with help
from expeditor, between shop floor & the scheduling office.
3. Transportation office: It looks after movement of men & materials within the factory premises.
4. Stores & inspection section: This section assumes the materials management & control functions.
Principles of Production Planning & Control
1. The kind of production planning & the control system required in a factory is determined by the type of
production.
2. The operation of production planning & control department is influenced by the number of parts involved in
manufacturing the product.
3. The complexity of production planning & control function varies with the number of assembles involved.
4. The scheduling activities must be carried out strictly as per time table.
5. A sound production planning & control system works on the same principle for both small & large plants.
6. An effective production planning & control function brings about cost control.
7. Production planning & control allows management by exception.
8. Production planning & control is a tool to coordinate all manufacturing activities in a product system.
Phases of PPC
1. Planning phase: It has two categories of planning ,
a. Prior planning is pre-production planning &
b. Active planning is actual production planning.

Prior planning refers to all the planning efforts that take place prior to active planning. The modules of prior
planning are: product development & design, forecasting, aggregate planning, master scheduling etc. Active
planning includes various activities directly related to the production. The modules of active planning are: process
planning & routing, material planning, tools planning, loading, scheduling etc.

2. Action phase: Action phase directly deals with dispatching. Dispatching is the transition from planning phase to
action phase. The employee is ordered to start manufacturing the product. The tasks that are included in
dispatching are: job order, store issue order, tool order, time ticket, inspection order, move order etc.
3. Control phase: Control phase includes (a) progress reporting & (b) corrective action. Progress reporting helps to
make comparison with the present level of performance. Corrective action makes provisions for an unexpected
event e.g., capacity modifications, schedule modifications etc.
Steps in production planning & control
The production planning & control department has thus to initiate the following steps.
1. Routing i.e. determination of the manufacturing path.
2. Scheduling i.e. establishing time for starting & finishing each operation or job.
3. Despatching i.e. issue of orders.
4. Follow-up i.e. ensuring that work proceeds according to plans & there is no variation. This means to ensure
smooth flow of work.
Routing
Routing is one important step in production planning & control. It is useful for smooth & efficient working of the
whole plant or factory. Production planning starts with routing. It decides the path of work & the sequence of
operations. The demand for a more systematic method of carrying the work through the shop gave rise to the
practice of routing. In fact, production planning starts with routing which includes the following activities:
a. Determining the quality of the product to be manufactured;
b. Determining the men, machines & materials to be used;
c. Determining the types, number & sequence of manufacturing operations; &
d. Determining the place of production.
Routing has the following objectives:
1. It determines the sequence of manufacturing operations.
2. It ensures the strict adherence to the sequence so determined.
3. It strives for the best possible & cheapest sequence of operations.
4. It influences the design & layout of the factory building with a view to get quick & better production results.
5. It also influences the installation of plants & factory for better results.
Advantages of routing:
1. Well chalked out division of labour.
2. Production of goods according to schedule.
3. Maximization of productivity.
4. Interruption free production.
5. Reduction in cost of production.
6. Optimum use of all factors of production.
7. scientific layout of the plant.
Scheduling
Scheduling is next to routing & is concerned with timetable of production. Scheduling arranges the different
manufacturing operations in order of priority, fixing the time & date for the commencement & completion of each
operation. It includes all requisites of production like scheduling of parts, materials, machines, etc. perfect
coordination must exist between operation so that parts that are separately produced are brought to the final
assembly in right time. In brief, scheduling means fixing or deciding the amount of work to be done & fixing the
time for starting & finishing each operation. It is like a timetable of the production plan.
Essentials of master scheduling:
1. Inventory policy & position.
2. Procurement including subcontract.
3. Sales forecast.
4. Departmental manufacturing capacities.
5. Operations required & operations schedule.
6. Specific operations presenting critical path or imbalance of production flow.
7. Specific customer demands or delivery requirements.
8. Alternative delivery schedules.
9. Production plan including quantitative data.
10. Production standards.
11. Demand for finished products.

Uses of scheduling:
1. Scheduling is certainly a necessity in a large setup which produces a variety of products with numerous
components. The time within which products must be manufactured forms an important element in production
control.
2. Scheduling also determines the total time required to perform a given piece of work or assembly.
3. Time & motion study helps standardization of methods of work after a careful analysis of all the vital factors
surrounding the manufacturing processes.
Dispatching
Dispatching is concerned with starting the processes & operations of production. Dispatching is based on the route
sheets & schedule sheets. Dispatching provides the necessary authority to start the routed & schedule work. It is
similar to putting oneself into the train after deciding the route of the particular train & the destination.
Functions of dispatching:
1. To ensure that the right materials are moved from stores to machines & from operation to operation.
2. To distribute machine loading & schedule charts, route sheets, operation instruction cards & identification tags
for each works order.
3. To instruct tools department to issue the right tools, accessories & fixtures in time.
4. To authorize the work to be taken in hand as per the predetermined dates & time.
5. To direct inspection at various stages of production for inspection report.
6. To maintain proper report of the various subsidiary orders issued with each production order, for filing &
reference.
7. To inform the follow-up section that production is starting.
Follow-up
This is the last function of production control. It expedites the movement of materials & production process as a
whole. It looks into determination of the present situation expediting the department lagging behind & removing
the bottleneck in the production line. Once production commences it is necessary to check that it is proceeding
according to plan. Before dispatching new orders to the manufacturing department the progress of outstanding
orders must be known. There are certain factors over which the manufacturing department has no control &
hence follow-up is necessary. The production schedule is likely to suffer even if slight irregularity is caused by one
or more of these factors. The most important factors causing disturbances in production schedule are: excessive
labour, absenteeism, machine breakdown, errors in drawings, strikes, late delivery of materials etc. the function of
follow-up is to maintain proper records of work, delays & bottleneck. Such records can be used in future to control
production.
Follow-up Documents:
Follow-up documents are prepared with the objective to identify the products. They also help to check completion
dates with due dates. They vary greatly according to the type of production. These documents include the
following information:
1. Labels with part numbers.
2. Order numbers mentioned on the article.
3. Number of products or batches of products.
4. Daily progress sheets showing the position of every order in process.
5. Reports showing orders behind schedule.
Inventory Management
In any business or organization, all functions are interlinked and connected to each other and are often
overlapping. Some key aspects like supply chain management, logistics and inventory form the backbone of the
business delivery function. Therefore these functions are extremely important to marketing managers as well as
finance controllers
Inventory management is a very important function that determines the health of the supply chain as well as
the impacts the financial health of the balance sheet. Every organization constantly strives to maintain optimum
inventory to be able to meet its requirements and avoid over or under inventory that can impact the financial
figures.
Inventory is always dynamic. Inventory management requires constant and careful evaluation of external and
internal factors and control through planning and review. Most of the organizations have a separate department
or job function called inventory planners who continuously monitor, control and review inventory and interface
with production, procurement and finance departments.
Defining Inventory
Inventory is an idle stock of physical goods that contain economic value, and are held in various forms by an
organization in its custody awaiting packing, processing, transformation, use or sale in a future point of time.
Any organization which is into production, trading, sale and service of a product will necessarily hold stock of
various physical resources to aid in future consumption and sale. While inventory is a necessary evil of any such
business, it may be noted that the organizations hold inventories for various reasons, which include speculative
purposes, functional purposes, physical necessities etc.
From the above definition the following points stand out with reference to inventory:
All organizations engaged in production or sale of products hold inventory in one form or other.
Inventory can be in complete state or incomplete state.
Inventory is held to facilitate future consumption, sale or further processing/value addition.
All inventoried resources have economic value and can be considered as assets of the organization.
Different Types of Inventory
Inventory of materials occurs at various stages and departments of an organization. A manufacturing organization
holds inventory of raw materials and consumables required for production. It also holds inventory of semi-finished
goods at various stages in the plant with various departments. Finished goods inventory is held at plant, FG Stores,
 distribution centers etc. Further both raw materials and finished goods those that are in transit at various locations
also form a part of inventory depending upon who owns the inventory at the particular juncture. Finished goods
inventory is held by the organization at various stocking points or with dealers and stockiest until it reaches the
market and end customers.
Besides Raw materials and finished goods, organizations also hold inventories of spare parts to service the
products. Defective products, defective parts and scrap also forms a part of inventory as long as these items are
inventoried in the books of the company and have economic value.
Need Of Inventory Management
Meet variation in Production Demand
Cater to Cyclical and Seasonal Demand
Take advantage of Price Increase and Quantity Discounts

Economies of Scale in Procurement

Reduce Transit Cost and Transit Times
Long Lead and High demand items need to be held in Inventory
Types of Inventory by Function

INPUT PROCESS OUTPUT

Raw Materials Work In Process Finished Goods

Consumables required for processing. Eg :
Fuel, Stationary, Bolts & Nuts etc. required
in manufacturing
Semi Finished Production in various Finished Goods at Distribution
stages, lying with various departments Centers through out Supply Chain
like Production, WIP Stores, QC, Final
Assembly, Paint Shop, Packing,
Outbound Store etc.

Maintenance Items/Consumables Production Waste and Scrap Finished Goods in transit

Packing Materials Rejections and Defectives Finished Goods with Stockiest and
Dealers

Local purchased Items required for Spare Parts Stocks & Bought Out
production items

Defectives, Rejects and Sales

Returns

Repaired Stock and Parts

Sales Promotion & Sample Stocks