Module 4

Production in MSME , Optimum Size of plant, Factors affecting

production process, Production planning, Marketing and channel
selection, control, product mix, DIN,TIN,PAN, GST Monitoring and
evaluation of enterprise, Reasons for failures, Sickness in Small
Scale Industries. Rehabilitation of sick units, Effective management
of the enterprise.
 Production in SSI
• Small scale production refers to
the production of a commodity with
a small plant size firm.
• It requires less amount of capital and is labor
intensive in nature.
• The investment in machinery is lower when
compared to large scale units.
 DISADVANTAGES OF SMALL SCALE
PRODUCTION
1. Outdated technology
2. Low levels of mechanization
3. Low innovation capacity
4. Less scope for division of labor:
5. High overhead charges:
6. Difficult to survive during depression:
7. Difficulty of finance:
8. Difficulty of attracting talent:
9. Inability to compete:
10. Wastage of by-products:
11. High cost of purchase:
12. Difficulty in marketing:
13. Limited growth
 DISADVANTAGES OF SMALL SCALE PRODUCTION

• 1. Outdated technology: Small scale producers run their business

with limited capital. They do not have sufficient funds to invest in
latest technology. Technology used in many small scale enterprises is
outdated.
• 2. Low levels of mechanization: In small scale units, the use of
modern machinery is very less. They continue to depend on their
labor force. They do not have sufficient funds to invest in modern
machinery.
• 3. Low innovation capacity: A small scale producer has limited funds.
He cannot afford to invest money on research and development.
Therefore the innovation capacity of small units is very less. They are
not able to come out with new products or modify their products
according to current requirements.
• 4. Less scope for division of labor: Division of labor can be practiced when
there are high levels of mechanization and more workers. In small scale units
the level of mechanization is less and therefore division of labor cannot be
implemented. Small scale units are denied the advantages of division of labor
such as high productivity, better quality and reduced time for production.
• 5. High overhead charges: The number of units produced is less. Fixed costs
are spread over a limited number of units. Therefore the overhead cost per
unit is high.
• 6. Difficult to survive during depression: A large scale enterprise would be
able to survive in adverse economic conditions. A small scale entrepreneur
would find it very difficult to survive during periods of recession and
depression. Many small scale units face closure during adverse economic
situations.
• 7. Difficulty of finance: A small scale entrepreneur faces great
difficulty in sourcing the required finance. Banks are reluctant to fund
small enterprises because of the high rates of default and failure.
Investors may not be interested to invest in small firms.
• 8. Difficulty of attracting talent: Small scale enterprises find it
difficult to attract talent. They do not have the financial capacity to
pay high levels of salary and provide other benefits. Therefore they
are not able to attract talented employees.
• 9. Inability to compete: Small scale units are not able to compete
with large scale units in terms of costs or quality. Large scale units use
the latest technology, employ skilled workers and enjoy the
advantages of specialization. These advantages are not available to
small scale units.
• 10. Wastage of by-products: Since scale of production is small, the quantity of by-
products generated is less. Therefore they are not able to use their by-products in
a productive manner.
• 11. High cost of purchase: Small scale units buy raw materials and other
components in small quantities. Therefore they are not able to enjoy quantity
discounts. The credit period allowed to them is also less. Therefore their cost of
purchases is higher.
• 12. Difficulty in marketing: The ultimate objective of production is to place the
product in the hands of the consumer. Small scale units are not able to effectively
market their products. They do not have sufficient funds to spend on sales
promotion and advertising. Therefore it is difficult to build a strong brand image
and attract customers.
• 13. Limited growth: Small scale enterprises are not able to grow beyond a certain
level. Limited resources and skills and lack of a strong brand hinder further
expansion or diversification.
 Role of Small Scale Industries in the Indian Economy

Total Production
• These enterprises account for almost 40% of the total
goods and services produced in the Indian economy. They
are one of the main reasons for the growth and
strengthening of the economy.
Employment
• These small scale industries are a major source of
employment in the country. The whole labour force cannot
find work in the formal sector of the economy. So these
labour-intensive industries provide a livelihood to a large
portion of the workforce.
Contribution to Export
• Nearly half of the goods (45-55%) of the goods that are exported
from India are produced by these small enterprises. About 35% of
direct exports and 15% of the indirect exports are from the small
scale industries. So India’s export industry majorly relies on these
small industries for their growth and development.
Welfare of the Public
• Other than economic reasons, these industries are also important for
the social growth and development of our country. These industries
are usually started by the lower or middle-class public. They have an
opportunity to earn wealth and employee other people. It helps with
income distribution and contributes to social progress.
Optimum Size of Plant
 What it means?
• Best or ideal size of the firm.
• A plant with lowest possible cost
Optimum Plant
• “an optimum firm is the one which operates at
the scale at which, in the existing conditions of
technique and organizing ability, has the
lowest average cost of production when all
those costs which must be covered in the long
run are included” - E.A.G. Robinson
 Factors affecting production process

• Factors of production means the inputs used

in the production of goods or services in order
to make an economic profit. Land, labour,
capital and entrepreneurship are some of the
factors of production.
1. Policies of Management
• Type of product, quality, scale of production,
level of plant integration, type of production,
possibility of future expansion etc., are some
of the policies of the management which
influence the type of layout to be adopted.
2. Capital
• Capital is a produced means of production. A
means of production as it helps in the
production of wealth. Examples of capital are
buildings, raw materials, machines, highways,
posts, etc.
3. Land
• One of the important factors of production is
land and this is a free gift of nature. Land in
every day usage means the surface of the
earth. Land has a special meaning in
economics. Land is of course surface of earth
and also includes free gift of nature like forest
resources, mineral resources or anything which
help in carrying our production of goods and
services and nature provides it free of cost.
4. People
• Workers or people who are directly involved in the
manufacturing process directly affect the process in
many ways. To prevent a negative impact on
manufacturing sick days and vacations must be
taken into account during manufacturing process.
Human error is one of the tangible factors which is
often dealt with. Human insight into a
manufacturing process leads to more labor efficient
and cost effective methods of production affecting
the manufacturing process in a positive way.
 5. Organization or Entrepreneurship

• Organization is a specialized human element

related to production. An entrepreneur plays
an important role as it is the entrepreneur
who takes up the risks and sets the entire
productive machinery into motion. 
6. Safety of Employees
• The safety of employees is given prior
importance while deciding a particular type of
production layout unit. The layout should
provide for obstruction free floors, non-
slippery floors, protection against dangerous
fumes, strong odors, excess heat, etc.
7. Supplies
• Manufacturers rely on raw materials supplied
from outside sources. Problems with
transportation or unconditional weather can
delay or hamper the delivery schedule like
problems with weather and unconditional
weather. If there is no continuous supplies
then the manufacturing process will
slowdown.
8. Equipment
• Manufacturing process involves complex machines
to complete production and any temporary
breakdown in the equipment will affect the
manufacturing process. By finding out the means of
improving efficiency of all working parts of
production helps in more continuous and efficient
operation. Production is also affected the position
of equipment and the personnel needed to operate
machines. Sometimes machines fail to operate due
to lack of cleaning.
9. Factory Overhead
• In factories, manufacturers depend on utilities
to power machines, cool equipment and light
in workspace. The production process can be
affected by temporary shutdown of the power
supply or lack of proper water supply. Besides
management style can have a significant
impact in both negative and positive ways on
production
10. Special Parts
• An unforeseen change will have a significant
impact on the manufacturing process in case
they are shipped over long distances from
offsite. Inequality in quality may require
multiple orders for the same inventory
resulting in delays and temporary slowdowns
or shutdowns of the same manufacturing
process. 
 Production planning and control can be defined as the “direction
and coordination of firms’ resources towards attaining the
prefixed goals.” Production planning and control helps to
achieve uninterrupted flow of materials through production line
by making available the materials at right time and required
Thequantity
four stages or steps in production planning and control are:
Routing,
Scheduling,
Dispatching, and
Follow-up.
1. Routing

Routing is the first step in production planning and control.

Routing can be defined as the process of deciding the path (route) of
work and the sequence of operations.
2. Scheduling

Scheduling is the second step in production planning and control. It

comes after routing.
Scheduling means to:

Fix the amount of work to do.

Arrange the different manufacturing operations in order of priority.
Fix the starting and completing, date and time, for each operation.
3. Dispatching

It is the action, doing or implementation stage.

Dispatching means starting the process of production. It provides the
necessary authority to start the work. It is based on route-sheets and
schedule sheets.

4. Follow-up

Follow-up is the last step in production planning and control. It is a

controlling device. It is concerned with evaluation of the results.
PRODUCT MIX
DIN,TIN,PAN
 DIRECTOR IDENTIFICATION NUMBER (DIN)
Director Identification Number.
Allotted by central government to any person intending
to be a director or to an existing director of a company.
An 8 digit unique identification number that has life
time validity.
Specific to a person.
Whenever a return or application or any information
related to a company submitted under law, the director
has to sign it and must mention his DIN below his
signature.
DIN APPLICATION PROCEDURE AND RELEVENT FORMS

SPICe FORM: Application for allotment of DINs to the proposed

first directors in respect of new companies shall be made in this
form only.
DIR-3 Form: Any person intending to become a director in an
already existing company shall have to make an application in
eForm DIR-3 for allotment of DIN.
DIR-6 Form: Any changes in the particulars of the directors shall
be filed in form DIR-6.
The above forms are to be filed electronically and has to be
digitally signed and then uploaded on the MCA21 portal.
DOCUMENTS TO BE ATTATCHED WITH THE FORMS

Atachments
Documents to be attested by a CA or CS or
CMA
Generation of DIN
Intimating DIN to company
Taxpayer Identification Number (TIN)
 A taxpayer identification number (TIN) is a unique nine-digit
number
 Identify an individual, business, or other entity in tax returns
and other documents filed with the Internal Revenue Service
 (IRS)
 For most individual taxpayers and many sole proprietors, their
Social Security number is their taxpayer identification number.
There
 Tax filers must include their are different types
tax identification numberof on
taxtax-
related documents and identification
when claimingnumbers,
benefits. such as the
employer identification number, individual
tax identification number, and adoption
tax identification number.
Documents for TIN Registration
 PAN CARD
 ADHAR CARD/VOTER
ID/PASSPORT (any one)
 RENT
 PHOTO AGREEMENT
 CANCEL CHEQUE
 NOC

 ELECTRICITY BILL
Types of Tax Identification Numbers (TIN)

Social Security Employer Identificati Individual Taxpayer Adoption Tax

Identification Number Identification Number
Number (SSN) on Number (EIN)
(ITIN) (ATIN)

•SSNs are issued to •The IRS issues the •The ATIN only
•The IRS uses
individuals Individual Taxpayer applies to
•The SSN is the Employee Identification
Identification domestic
required to secure Number (ITIN) to adoptions when
legal employment Number to certain
the adoptive
in the U.S. and to identify nonresident and
resident aliens,
parents cannot
receive social corporations,
security benefits their spouses, and obtain the child's
trusts, and SSN to complete
and other their dependents
estates that when ineligible for their tax returns
government
must pay taxes.  SSNs. promptly.
services.
Permanent Account Number (PAN)
Permanent Account Number (PAN)
 Permanent Account Number (PAN) is a ten-digit alphanumeric
number, issued in the form of a laminated tamper proof card, by the
Income Tax Department of India.
 A typical Permanent Account Number is would look like AFZPK7190K..
The logic behind the array of numbers and alphabets is as follows:

First three characters i.e. "AFZ" in the above PAN are alphabetic series runnin

Fourth character i.e. "P" in the above PAN represents the status of the

"P" stands for Individual.

"F" stands for Firm.
"C" stands for Company.
"H" stands for HUF.
"A" stands for AOP.
"T" stands for TRUST etc.
Permanent Account Number (PAN)
DOCUME
•NTS
Photo
• Proof Of Residence
• Proof Of Identity
Is PAN Mandatory?
• The Income Tax Department has mandated the use of PAN on
the return of income on all tax-related transactions. PAN is an
integral aspect when it comes to tracking the transactions and
monitoring the inflow and outflow of an individual’s money.
• Also, the government has mandated the linking of PAN with
Aadhaar. 
Differences between TIN and PAN
PARAMETER TIN PAN

Commercial Tax Income Tax

Issuing Agency Department of Department
respective state
11 digit numeric 10 digit
Code type code (first 2 digits alphanumeric code
are the state code)
Code content A TIN is composed The first 5 digits are
of 11 numbers alphabets
representing various
information,
followed by 4
numbers and an
alphabet
Purpose PAN acts as a
Track VAT related universal
activities in the identification code
country for financial
 Sickness In Small Scale
Industries
Industrial sickness is defined all over the world as "an industrial
company (being a company registered for not less than five
years) which has, at the end of any financial year, accumulated
losses equal to, or exceeding, its entire net worth and has also
suffered cash losses in such financial year and the financial year
immediately preceding such financial year"
 Symptoms of Industrial sickness
1. Decline in capacity of utilization.
2. Non-submisson of data to banks and financial
institutions.
3. Frequent turnover of personal in the industry.
4. Irregularity in maintaining bank aacounts.
5. Frequent break downs in plants and equipment.
6. Decline in quantity of product manufactured or
service rendered.
Major Causes Of Sickness In Small Scale Industries

1. Inadequacy of working capital

2. Non-availability of credit
3. Poor and obsolete technology
4. Non availability of raw material
5. Marketing problems
6. Erratic power supply
7. Labour problems
8. Poor management
9. Globalization
10. Dispute among partners
Remedial Messures To Overcome Sickness

1. Identifying sickness at initial stage

2. Financial assistance
3. Improving infrastructure
4. Technology up-gradation
5. Marketing assistance
6. Liquidation
7. Government interventions
8. Training
9. Rehabilitation
 Rehabilitation Of Sick Units
Rehabilitation Process can be termed as measures taken for
recovery / retrieval of industrial unit / liabilities and become
profitable.
Step 1: Operational Study:
Step 2: Rectification Measures
Step 3: Sustainability / Control Measures
 Effective Management Of The Enterprise
Effective management refers to the extent to
which managers achieve their targets with the assistance of
organisational resources. 
1. Ensure your employees feel valued:
2. Work smart:
3. Ensure your sales reps spend time and resources on the
right customer.
4. Make fact based decisions.
5. Always stay on top trends in your business.
 Sickness in SSI
1. Inadequacy of working capital
2. Non-availability of credit
3. Poor and Obsolete technology
4. Non availability of raw materials
5. Marketing problems
6. Shortage in power supply
7. Labour problems
8. Poor management
9. Inadequate attention to R&D
10.Diversion of resources
11.Globalisation
12.Dispute among partners
Remedial measures to overcome Sickness

Identifying sickness at initial stage

Financial assistance
Improving Infrastructure
Technology Up-gradation
Marketing assistance
Liquidation
Govt interventions
Training
Rehabilitation