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Master of Business Administration

Semester III

Assignment Set – 1
Research Methodology-MB0050

Assignment Set – 1
Research Methodology-MB0050 Assignment Set 1 page:1 of 25
Q1. Why should a manger know about research when the job entails managing people,
products, events, environments, and the like?

The manager, while managing people, products, events, and environments will invariably
face problems, big and small, and will have to seek ways to find long lasting effective solutions.
This can be achieved only through knowledge of research even if consultants are engaged to
solve problems.

The primary purpose for applied research (as opposed to basic research) is discovering,
interpreting, and the development of methods and systems for the advancement of human
knowledge on a wide variety of scientific matters of our world and the universe. Research can
use the scientific method, but need not do so. The goal of the research process is to produce new
knowledge, which takes three main forms (although, as previously discussed, the boundaries
between them may be fuzzy): Exploratory research, which structures and identifies new
problems Constructive research, which develops solutions to a problem Empirical research,
which tests the feasibility of a solution using empirical evidence. The research room at the New
York Public Library, an example of secondary research in progress. Research can also fall into
two distinct types:

1) Primary research

2) Secondary research

In social sciences and later in other disciplines, the following two research methods can
be applied, depending on the properties of the subject matter and on the objective of the research:

Qualitative research

Quantitative research

Research is often conducted using the hourglass model Structure of Research. The
hourglass model starts with a broad spectrum for research, focusing in on the required
information through the methodology of the project (like the neck of the hourglass), then
expands the research in the form of discussion and results. Research and development is
nowadays of great importance in business as the level of competition, production processes and
methods are rapidly increasing. It is of special importance in the field of marketing where
companies keep an eagle eye on competitors and customers in order to keep pace with modern
trends and analyze the needs, demands and desires of their customers. Unfortunately, research
and development are very difficult to manage, since the defining feature of research is that the
researchers do not know in advance exactly how to accomplish the desired result. As a result,
higher R&D spending does not guarantee "more creativity, higher profit or a greater market
Research Methodology-MB0050 Assignment Set 1 page:2 of 25
Q 2. a. How do you evolve research design for exploratory research? Briefly analyze.
The central purpose is to formulate hypotheses regarding potential problems and
opportunities present in the decision situation. The hypotheses can be tested at a later phase with
a conclusive research design ( Leichardt and Leichardt, 1980).

Exploratory research design applies when the research objectives include the following:

a. Identifying problems (threats or opportunities)

b. Developing a more precise formulation of a vaguely identified problem(threat or
c. Gaining perspective regarding the breath of variables operating in a situation
d. Establishing priorities regarding the potential significance of various problems (threats
or opportunities)
e. Gaining management and researcher perspective concerning the character of the
problem situation
f. Identifying and formulating alternative courses of action; and
g. Gathering information on the problems associated with doing conclusive research.
h. Identification of problems (threats or opportunities) can be assisted through the

i) Searching secondary sources

ii) Interviewing knowledgeable persons
iii) Compiling case histories.

Q 2 b. Briefly explain Independent, dependent and extraneous variables in a research


Independent Variable:

A variable that you believe might influence your outcome measure. This might be a
variable that you control, like a treatment, or a variable not under your control, like an exposure.
It also might represent a demographic factor like age or gender. Contrast this with the definition
of the dependent variable. An independent variable is a hypothesized cause or influence on a
dependent variable. One way to distinguish these variables is to ask yourself what you are want
to learn from this research. The dependent variable is a variable you are trying to predict. Any
variable that you are using to make those predictions is an independent variable. A recently
published research study examined the relationship of dietary fat consumption and the
development of ischemic stroke in a cohort of 832 men who were free of cardiovascular disease
at baseline (1966-1969) and who were followed for a twenty year period. In this study, the
independent variables were:

• percentage of total fat in the diet,

• percentage of saturated fat, and
• the percentage of monounsaturated fat.

Dependent variable:

In a research study, the variable that you believe might be influenced or modified by
some treatment or exposure. It may also represent the variable you are trying to predict. Contrast
this with the definition of an independent variable. Sometimes the dependent variable is called
the outcome variable. This definition depends on the context of the study. In a study of prenatal
care, the birth weight is an outcome or dependent variable, but in neonatology, it is more likely
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to be an independent variable. A recently published research study examined the relationship of
dietary fat consumption and the development of ischemic stroke in a cohort of 832 men who
were free of cardiovascular disease at baseline (1966-1969) and who were followed for a twenty
year period. In this study, the dependent variable was:

• incidence of ischemic stroke.

Extraneous variable:

The independent variables which are not directly related to the purpose of the study but
affect the dependent variable are known as extraneous variables. For e.g,. if a researcher wants to
test the hypothesis that there is relationship between children’s school performance and their
self-concepts, in which case the latter is an independent variable and the former is the dependent
variable. In this context, intelligence may also influence the school performance. However, since
it is not directly related to the purpose of the study undertaken by the researcher, it would be
known as extraneous variable. The influence caused by the extraneous variable on the dependent
variable is technically called as an ‘experimental error’. Therefore, a research study should
always be framed in such a manner that the dependent variable completely influences the change
in the independent variable and any other extraneous variable or variables.

Q 3. a. Differentiate between ‘Census survey’ and ‘ Sample Survey’.

Difference between Census and Sampling

Practically every country in the world conducts censuses and sampling surveys on a
regular basis in order to get valuable data from and about their populations. This data is used by
the federal and state governments in making numerous decisions with regard to various health
care, housing, and educational issues, among others. While both these two data-gathering
methods essentially serve the same purpose, they have a number of differences with regard to
approach and methodology, as well as scope. These two methods may also differ in terms of the
variance in the data gathered, as you will see later.


A census involves the gathering of information from every person in a certain group. This
may include information on age, sex and language among others. A sample survey on the other
hand commonly involves gathering data from only a certain section of a particular group.

Sampling Variance

The main advantage of a census is a virtually zero sampling variance, mainly because the
data used is drawn from the whole population. In addition, more precise detail can generally be
gathered about smaller groups of the population.
As for sampling, there is a possibility of sampling variance, since the data used is drawn
from only a small section of the population. This makes sampling a much less accurate form of
data collection than a census. In addition, the sample may be too small to provide an accurate
picture of the population.
Research Methodology-MB0050 Assignment Set 1 page:4 of 25
Cost And Timetable

A census can be quite expensive to conduct, particularly for large populations. In most
cases, they are also a lot more time-consuming than sample surveys. Adding considerably to the
timetable is the necessity of gathering data from every single member of the population. The
huge scope of a census also makes it harder to maintain control of the quality of the data. For
instance, anyone who does not complete a census form will be visited by a government
representative who’s only job to is to gather census data.

A sample survey for its part costs quite a bit less than a census, since data is gathered
from a much smaller group of people. In addition, sample surveys generally take a much shorter
time to conduct, again given the smaller scope. This also means reduced requirements for
respondents, which in turn leads to better data monitoring and quality control.



• Gathers information from every individual in a certain group

• Since data from the entire population is used, there is no sampling variance
• Provides detailed information about smaller groups
• Can be quite costly, particularly for large populations, due to census tally workers as well
as hiring temporary census home visitors
• Includes an uncomfortable visit from a government worker if the census is not filled out
on time


• Gathers information from only a section of the population

• May have a significant degree of sample variance, since the data is derived from only a
small section of a population
• May not provide enough information about smaller groups or smaller geographical
sections of a place
• Costs much less than a census, since data is gathered from only a small section of a group

Q 3. b. Analyze multi-stage and sequential sampling.


Multistage sampling

Multistage sampling is a complex form of cluster sampling. Using all the sample
elements in all the selected clusters may be prohibitively expensive or not necessary. Under these
circumstances, multistage cluster sampling becomes useful. Instead of using all the elements
contained in the selected clusters, the researcher randomly selects elements from each cluster.
Constructing the clusters is the first stage. Deciding what elements within the cluster to use is the
second stage. The technique is used frequently when a complete list of all members of the
population does not exist and is inappropriate.
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In some cases, several levels of cluster selection may be applied before the final sample
elements are reached. For example, household surveys conducted by the Australian Bureau of
Statistics begin by dividing metropolitan regions into 'collection districts', and selecting some of
these collection districts (first stage). The selected collection districts are then divided into
blocks, and blocks are chosen from within each selected collection district (second stage). Next,
dwellings are listed within each selected block, and some of these dwellings are selected (third
stage). This method means that it is not necessary to create a list of every dwelling in the region,
only for selected blocks. In remote areas, an additional stage of clustering is used, in order to
reduce travel requirements.[1]

Although cluster sampling and stratified sampling bear some superficial similarities, they
are substantially different. In stratified sampling, a random sample is drawn from all the strata,
where in cluster sampling only the selected clusters are studied, either in single stage or multi

Sequential sampling

Sequential sampling is a non-probability sampling technique wherein the researcher picks

a single or a group of subjects in a given time interval, conducts his study, analyzes the results
then picks another group of subjects if needed and so on.

This sampling technique gives the researcher limitless chances of fine tuning his research
methods and gaining a vital insight into the study that he is currently pursuing.

Q 4. List down various measures of central tendency and explain the difference between

Arithmetic Mean

The arithmetic mean is the most common measure of central tendency. It simply the sum
of the numbers divided by the number of numbers. The symbol m is used for the mean of a
population. The symbol M is used for the mean of a sample. The formula for m is shown

where ΣX is the sum of all the numbers in the numbers in the sample and N is the number of
numbers in the sample. As an example, the mean of the numbers

regardless of whether the numbers constitute the entire population or just a sample from the

The table, Number of touchdown passes, shows the number of touchdown (TD) passes
thrown by each of the 31 teams in the National Football League in the 2000 season. The mean
number of touchdown passes thrown is 20.4516 as shown below.
Research Methodology-MB0050 Assignment Set 1 page:6 of 25

Although the arithmetic mean is not the only "mean" (there is also a geometric mean), it
is by far the most commonly used. Therefore, if the term "mean" is used without specifying
whether it is the arithmetic mean, the geometric mean, or some other mean, it is assumed to refer
to the arithmetic mean.


The median is also a frequently used measure of central tendency. The median is the
midpoint of a distribution: the same numbers of scores are above the median as below it. For the
data in the table, Number of touchdown passes, there are 31 scores. The 16th highest score
(which equals 20) is the median because there are 15 scores below the 16th score and 15 scores
above the 16th score. The median can also be thought
of as the 50th percentile.

Let's return to the made up example of the quiz on which you made a three discussed
previously in the module Introduction to Central Tendency and shown in Table 2.
Research Methodology-MB0050 Assignment Set 1 page:7 of 25

For Dataset 1, the median is three, the same as your score. For Dataset 2, the median is 4.
Therefore, your score is below the median. This means you are in the lower half of the class.
Finally for Dataset 3, the median is 2. For this dataset, your score is above the median and
therefore in the upper half of the distribution.

Computation of the Median: When there is an odd number of numbers, the median is simply
the middle number. For example, the median of 2, 4, and 7 is 4. When there is an even number
of numbers, the median is the mean of the two middle numbers. Thus, the median of the


The mode is the most frequently occurring value. For the data in the table, Number of
touchdown passes, the mode is 18 since more teams (4) had 18 touchdown passes than any
other number of touchdown passes. With continuous data such as response time measured to
many decimals, the frequency of each value is one since no two scores will be exactly the same.
Therefore the mode of continuous data is normally computed from a grouped frequency
distribution. The Grouped frequency distribution table shows a grouped frequency
distribution for the target response time data. Since the interval with the highest frequency is
600-700, the mode is the middle of that interval (650).
Research Methodology-MB0050 Assignment Set 1 page:8 of 25
Q.5. Select any topic for research and explain how you will use both secondary and
primary sources to gather the required information.

Primary Sources of Data

Primary sources are original sources from which the researcher directly collects data that
has not been previously collected, e.g., collection of data directly by the researcher on brand
awareness, brand preference, and brand loyalty and other aspects of consumer behavior, from a
sample of consumers by interviewing them. Primary data is first hand information collected
through various methods such as surveys, experiments and observation, for the purposes of the
project immediately at hand.
The advantages of primary data are –
It is unique to a particular research study
It is recent information, unlike published information that is already available

The disadvantages are –

It is expensive to collect, compared to gathering information from available
Data collection is a time consuming process
It requires trained interviewers and investigators

2 Secondary Sources of Data

These are sources containing data, which has been collected and compiled for another
purpose. Secondary sources may be internal sources, such as annual reports, financial statements,
sales reports, inventory records, minutes of meetings and other information that is available
within the firm, in the form of a marketing information system. They may also be external
sources, such as government agencies (e.g. census reports, reports of government departments),
published sources (annual reports of currency and finance published by the Reserve Bank of
India, publications of international organizations such as the UN, World Bank and International
Monetary Fund, trade and financial journals, etc.), trade associations (e.g. Chambers of
Commerce) and commercial services (outside suppliers of information).

Methods of Data Collection:

The researcher directly collects primary data from its original sources. In this case, the
researcher can collect the required data precisely according to his research needs and he can
collect them when he wants and in the form that he needs it. But the collection of primary data is
costly and time consuming. Yet, for several types of social science research, required data is not
available from secondary sources and it has to be directly gathered from the primary sources.

Primary data has to be gathered in cases where the available data is inappropriate,
inadequate or obsolete. It includes: socio economic surveys, social anthropological studies of
rural communities and tribal communities, sociological studies of social problems and social
institutions, marketing research, leadership studies, opinion polls, attitudinal surveys, radio
listening and T.V. viewing surveys, knowledge-awareness practice (KAP) studies, farm
management studies, business management studies etc.
There are various methods of primary data collection, including surveys, audits and panels,
observation and experiments.

1. Survey Research
A survey is a fact-finding study. It is a method of research involving collection of data
directly from a population or a sample at a particular time. A survey has certain characteristics:
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It is always conducted in a natural setting. It is a field study.
It seeks responses directly from the respondents.
It can cover a very large population.
It may include an extensive study or an intensive study
It covers a definite geographical area.

A survey involves the following steps -

 Selection of a problem and its formulation
 Preparation of the research design
 Operation concepts and construction of measuring indexes and scales
 Construction of tools for data collection
Field work and collection of data
 Processing of data and tabulation
Analysis of data
 Reporting

There are four basic survey methods, which include:

 Personal interview
 Telephone interview
Mail survey and
Fax survey

Personal Interview
Personal interviewing is one of the prominent methods of data collection. It may be
defined as a two-way systematic conversation between an investigator and an informant, initiated
for obtaining information relevant to a specific study. It involves not only conversation, but also
learning from the respondent’s gestures, facial expressions and pauses, and his environment.

Interviewing may be used either as a main method or as a supplementary one in studies

of persons. Interviewing is the only suitable method for gathering information from illiterate or
less educated respondents. It is useful for collecting a wide range of data, from factual
demographic data to highly personal and intimate information relating to a person’s opinions,
attitudes, values, beliefs, experiences and future intentions. Interviewing is appropriate when
qualitative information is required, or probing is necessary to draw out the respondent fully.
Where the area covered for the survey is compact, or when a sufficient number of qualified
interviewers are available, personal interview is feasible.

Interview is often superior to other data-gathering methods. People are usually more
willing to talk than to write. Once rapport is established, even confidential information may be
obtained. It permits probing into the context and reasons for answers to questions.

Interview can add flesh to statistical information. It enables the investigator to grasp the
behavioral context of the data furnished by the respondents. It permits the investigator to seek
clarifications and brings to the forefront those questions, which for some reason or the other the
respondents do not want to answer. Interviewing as a method of data collection has certain
characteristics. They are:

1. The participants – the interviewer and the respondent – are strangers; hence, the
investigator has to get himself/herself introduced to the respondent in an appropriate
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2. The relationship between the participants is a transitory one. It has a fixed beginning
and termination points. The interview proper is a fleeting, momentary experience for
3. The interview is not a mere casual conversational exchange, but a conversation with a
specific purpose, viz., obtaining information relevant to a study.
4. The interview is a mode of obtaining verbal answers to questions put verbally.
5. The interaction between the interviewer and the respondent need not necessarily be
on a face-to-face basis, because the interview can also be conducted over the
6. Although the interview is usually a conversation between two persons, it need not be
limited to a single respondent. It can also be conducted with a group of persons, such
as family members, or a group of children, or a group of customers, depending on the
requirements of the study.
7. The interview is an interactive process. The interaction between the interviewer and
the respondent depends upon how they perceive each other.
8. The respondent reacts to the interviewer’s appearance, behavior, gestures, facial
expression and intonation, his perception of the thrust of the questions and his own
personal needs. As far as possible, the interviewer should try to be closer to the
social-economic level of the respondents.
9. The investigator records information furnished by the respondent in the interview.
This poses a problem of seeing that recording does not interfere with the tempo of
10. Interviewing is not a standardized process like that of a chemical technician; it is
rather a flexible, psychological process.

3 Telephone Interviewing Telephone interviewing is a non-personal method of data collection.

It may be used as a major method or as a supplementary method. It will be useful in the
following situations:

11. When the universe is composed of those persons whose names are listed
in telephone directories, e.g. business houses, business executives, doctors and other
12. When the study requires responses to five or six simple questions, e.g. a
radio or television program survey.
13. When the survey must be conducted in a very short period of time,
provided the units of study are listed in the telephone directory.
14. When the subject is interesting or important to respondents, e.g. a survey
relating to trade conducted by a trade association or a chamber of commerce, a survey
relating to a profession conducted by the concerned professional association.
15. When the respondents are widely scattered and when there are many call
backs to make.

4. Group Interviews A group interview may be defined as a method of collecting primary data
in which a number of individuals with a common interest interact with each other. In a personal
interview, the flow of information is multi dimensional. The group may consist of about six to
eight individuals with a common interest. The interviewer acts as the discussion leader. Free
discussion is encouraged on some aspect of the subject under study. The discussion leader
stimulates the group members to interact with each other. The desired information may be
obtained through self-administered questionnaire or interview, with the discussion serving as a
guide to ensure consideration of the areas of concern. In particular, the interviewers look for
evidence of common elements of attitudes, beliefs, intentions and opinions among individuals in
the group. At the same time, he must be aware that a single comment by a member can provide
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important insight. Samples for group interviews can be obtained through schools, clubs and other
organized groups.

5. Mail Survey The mail survey is another method of collecting primary data. This method
involves sending questionnaires to the respondents with a request to complete them and return
them by post. This can be used in the case of educated respondents only. The mail questionnaires
should be simple so that the respondents can easily understand the questions and answer them. It
should preferably contain mostly closed-ended and multiple choice questions, so that it could be
completed within a few minutes. The distinctive feature of the mail survey is that the
questionnaire is self-administered by the respondents themselves and the responses are recorded
by them and not by the investigator, as in the case of personal interview method. It does not
involve face-to-face conversation between the investigator and the respondent. Communication
is carried out only in writing and this requires more cooperation from the respondents than verbal
communication. The researcher should prepare a mailing list of the selected respondents, by
collecting the addresses from the telephone directory of the association or organization to which
they belong. The following procedures should be followed –
a covering letter should accompany a copy of the questionnaire. It must explain to the
respondent the purpose of the study and the importance of his cooperation to the success of the
Anonymity must be assured.
The sponsor’s identity may be revealed. However, when such information may bias the
result, it is not desirable to reveal it. In this case, a disguised organization name may be used.
A self-addressed stamped envelope should be enclosed in the covering letter.
After a few days from the date of mailing the questionnaires to the respondents, the
researcher can expect the return of completed ones from them. The progress in return may be
watched and at the appropriate stage, follow-up efforts can be made.

The response rate in mail surveys is generally very low in developing countries like India.
Certain techniques have to be adopted to increase the response rate. They are:

1. Quality printing: The questionnaire may be neatly printed on quality light colored paper,
so as to attract the attention of the respondent.
2. Covering letter: The covering letter should be couched in a pleasant style, so as to attract
and hold the interest of the respondent. It must anticipate objections and answer them
briefly. It is desirable to address the respondent by name.
3. Advance information: Advance information can be provided to potential respondents by
a telephone call, or advance notice in the newsletter of the concerned organization, or by
a letter. Such preliminary contact with potential respondents is more successful than
follow-up efforts.
4. Incentives: Money, stamps for collection and other incentives are also used to induce
respondents to complete and return the mail questionnaire.
5. Follow-up-contacts: In the case of respondents belonging to an organization, they may be
approached through someone in that organization known as the researcher.
6. Larger sample size: A larger sample may be drawn than the estimated sample size. For
example, if the required sample size is 1000, a sample of 1500 may be drawn. This may
help the researcher to secure an effective sample size closer to the required size.
Research Methodology-MB0050 Assignment Set 1 page:12 of 25
Q 6. a. Explain the role of Graphs and Diagrams?

Roles of Graphs

Graph is a diagram, as a curve, broken line, or series of bars, representing various kinds
of quantitative information and relationships, such as the successive changes in a variable
quantity or quantities.

The graphs which are most commonly used in visual aids are Bar graphs, Pie Charts,
Line graphs and Scatter diagrams. Graphs play a very important role during presentations
because they make the data easier to understand and interpretations and comparisons can be
made quickly. They are useful in presentations also because they can summarize large amounts
of data and can convey the basic idea of the research.

Graphs really help the audience in absorbing the data as they are simple to interpret and
are appealing. By using graphs, variations and trends in data can be showed clearly and they
show how the values of particular variables change over time. Graphs also help in determining
the relationship between variables.

A graph is an abstract data structure that is meant to implement the graph and hyper
graph concepts from mathematics.

A graph data structure consists of a finite (and possibly mutable) set of ordered pairs,
called edges or arcs, of certain entities called nodes or vertices. As in mathematics, an edge
(x,y) is said to point or go from x to y. The nodes may be part of the graph structure, or may be
external entities represented by integer indices or references.

A graph data structure may also associate to each edge some edge value, such as a
symbolic label or a numeric attribute (cost, capacity, length, etc.).

Roles of Diagrams

Diagram is a graphic representation of an algebraic or geometric relationship. Role

Activity Diagrams (RADs) are a useful way of describing processes. They are valuable in
documenting processes as they are now, and as they might be in the future. The main part of the
SPRINT BPR Methodology describes the ways in which Role Activity Diagrams can be used
within a broader change project. This guide tells you how to draw Role Activity Diagrams.

The guide will show you that Role Activity Diagrams are a reasonably simple
diagramming technique. It is not difficult to learn how to draw them and it is not difficult for
most people to interpret them.

The guide progresses by introducing each of the main constructs of the Role Activity
Diagram. It describes these in turn, giving advice about the drawing conventions. This is
syntactic guidance. In addition to these syntactic skills, the creation of Role Activity Diagrams
relies upon an ability to scope a study, to decide on the level of interest and to determine the
boundaries of each role in a diagram. This is where the real skill of using Role Activity
Diagrams comes in but such issues are addressed only partially in this report. In reality the reader
will rely upon experience gained through using Role Activity Diagrams in projects. This
experience will teach how Role Activity Diagrams can best be used, and what they are most
useful for.
Research Methodology-MB0050 Assignment Set 1 page:13 of 25
Q.6. b. What are the Types and General rules for graphical representation of data?


Besides the tabular form, the data may also be presented in some graphic or
diagrammatic form.
“The transformation of data through visual methods like graphs, diagrams, maps and charts is
called representation of data.”

The need of representing data graphically:

Graphics, such as maps, graphs and diagrams, are used to represent large volume of data.
They are necessary:

If the information is presented in tabular form or in a descriptive record, it becomes difficult to

draw results.
Graphical form makes it possible to easily draw visual impressions of data.
The graphic method of the representation of data enhances our understanding.
It makes the comparisons easy.
Besides, such methods create an imprint on mind for a longer time.
It is a time consuming task to draw inferences about whatever is being presented in non–
graphical form.
It presents characteristics in a simplified way.
These makes it easy to understand the patterns of population growth, distribution and the density,
sex ratio, age–sex composition, occupational structure, etc.

General Rules for Drawing Graphs, Diagrams and Maps

1. Selection of a Suitable Graphical Method

Each characteristic of the data can only be suitably represented by an appropriate
graphical method. For example,

To show the data related to the temperature or growth of population between different periods in
time line graph are used.
Similarly, bar diagrams are used for showing rainfall or the production of commodities.
The population distribution, both human and livestock, or the distribution of the crop producing
areas are shown by dot maps.
The population density can be shown by choropleth maps.
Thus, it is necessary and important to select suitable graphical method to represent data.

2. Selection of Suitable Scale

Each diagram or map is drawn to a scale which is used to measure the data. The scale
must cover the entire data that is to be represented. The scale should neither be too large nor too

S 3. Design

The diagram or map should have following design:
Title: The title of the diagram/map must be clear and include -
• The name of the area,
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• Reference year of the data used and
• The caption of the diagram.
These are written with different font sizes and thickness. The title, subtitle and the corresponding
year is shown in the centre at the top of the map/diagram.
Legend or Index: The index must clearly explain the colours, shades, symbols and signs used in
the map and diagram. A legend is shown either at the lower left or lower right side of the map
Direction the maps should show the direction North and properly placed on the top.

Types of Diagrams

The diagrams and the maps is of following types:

(i) One-dimensional diagrams such as line graph, poly graph, bar diagram, histogram, age, sex,
pyramid, etc.;
(ii) Two-dimensional diagram such as pie diagram and rectangular diagram;
(iii) Three-dimensional diagrams such as cube and spherical diagrams.
The most commonly drawn diagrams and maps are:
• Line graphs
• Bar diagrams
• Pie diagram
• Wind rose and star diagram
• Flow Charts

1. Line Graph

The line graphs are usually drawn to represent the time series data related to the
temperature, rainfall, population growth, birth rates and the death rates.

Construction of a Line Graph

1st step: Round the data to be shown up to the 1 digit of even numbers.
2nd step: Draw X and Y-axis. Mark the time series variables (years/months) on the X axis and
the data quantity/value to be plotted on Y axis.
3rd step: Choose an appropriate scale to show data and label it on Y-axis. If the data involves a
negative figure then the selected scale should also show it.
4th step: Plot the data to depict year/month-wise values according to the selected scale on Y-
axis, mark the location of the plotted values by a dot and join these dots by a free hand drawn
Research Methodology-MB0050 Assignment Set 1 page:15 of 25
A line graph to represent the data

2. Polygraph

Polygraph is a line graph in which two or more than two variables are shown on a same
diagram by different lines. It helps in comparing the data. Examples which can be shown as
polygraph are:

The growth rate of different crops like rice, wheat, pulses in one diagram.

The birth rates, death rates and life expectancy in one diagram.

Sex ratio in different states or countries in one diagram. Construction of a Polygraph.

All steps of construction of polygraph are similar to that of line graph. But different lines are
drawn to indicate different variables.
A polygraph to compare the variables.
Research Methodology-MB0050 Assignment Set 1 page:16 of 25

3. Bar Diagram

It is also called a columnar diagram. The bar diagrams are drawn through columns of
equal width. Following rules were observed while constructing a bar diagram:

(a) The width of all the bars or columns is similar.

(b) All the bars should are placed on equal intervals/distance.
(c) Bars are shaded with colours or patterns to make them distinct and attractive.

Three types of bar diagrams are used to represent different data sets:
The simple bar diagram
Compound bar diagram
Polybar diagram.

Simple Bar Diagram

A simple bar diagram is constructed for an immediate comparison. It is advisable to
arrange the given data set in an ascending or descending order and plot the data variables
Accordingly. However, time series data are represented according to the sequencing of
the time period.

A simple bar diagram.

Construction Steps:
Draw X and Y-axes on a graph paper. Take an interval and mark it on Y-axis to plot data.
Divide X-axis into equal parts to draw bars. The actual values will be plotted according to the
selected scale..

4. Line and Bar Graph

The line and bar graphs as drawn separately may also be combined to depict the data
related to some of the closely associated characteristics such as the climatic data of mean
monthly temperatures and rainfall.
Research Methodology-MB0050 Assignment Set 1 page:17 of 25
A Line and bar Graph.

(a) Draw X and Y-axes of a suitable length and divide X-axis into parts to show months in a
(b) Select a suitable scale with equal intervals on the Y-axis and label it at its right side.
(c) Similarly, select a suitable scale with equal intervals on the Y-axis and label at its left side.
(d) Plot data using line graph and columnar diagram.

5. Multiple Bar Diagram

Multiple bar diagrams are constructed to represent two or more than two variables for the
purpose of comparison. For example, a multiple bar diagram may be constructed to show
proportion of males and females in the total, rural and urban population or the share of canal,
tube well and well irrigation in the total irrigated area in different states.

(a) Mark time series data on X-axis and variable data on Y-axis as per the selected scale.
(b) Plot the data in closed columns.
Research Methodology-MB0050 Assignment Set 1 page:18 of 25
6. Compound Bar Diagram
When different components are grouped in one set of variable or different variables of one
component are put together, their representation is made by a compound bar diagram. In this
method, different variables are shown in a single bar with different rectangles.

(a) Arrange the data in ascending or descending order.
(b) A single bar will depict the set of variables by dividing the total length of the bar as per

7. Pie Diagram
Pie diagram is another graphical method of the representation of data. It is drawn to depict the
total value of the given attribute using a circle. Dividing the circle into corresponding degrees of
angle then represent the sub– sets of the data. Hence, it is also called as Divided Circle Diagram.
The angle of each variable is calculated using the following formulae.
Research Methodology-MB0050 Assignment Set 1 page:19 of 25
If data is given in percentage form, the angles are calculated using the given formulae.

Calculation of Angles
(a) Arrange the data on percentages in an ascending order.
(b) Calculate the degrees of angles for showing the given values
(b) It could be done by multiplying percentage with a constant of 3.6 as derived by dividing the
total number of degrees in a circle by 100, i. e. 360/100.
(c) Plot the data by dividing the circle into the required number of divisions to show the share
different regions/countries Construction
(a) Select a suitable radius for the circle to be drawn. A radius of 3, 4 or 5 cm may be chosen for
the given data set.
(b) Draw a line from the centre of the circle to the arc as a radius.
(c) Measure the angles from the arc of the circle for each category of vehicles in an ascending
order clock-wise, starting with smaller angle.
(d) Complete the diagram by adding the title, sub – title, and the legend. The legend mark be
chosen for each variable/category and highlighted by distinct shades/colours.

(a) The circle should neither be too big to fit in the space nor too small to be illegible.
(b) Starting with bigger angle will lead to accumulation of error leading to the plot of the smaller
angle difficult.

8. Flow Maps/Chart
Flow chart is a combination of graph and map. It is drawn to show the flow of
commodities or people between the places of origin and destination. It is also called as Dynamic

Transport map, which shows number of passengers, vehicles, etc., is the best example of
a flow chart. These charts are drawn using lines of proportional width. Many government
agencies prepare flow maps to show density of the means of transportation on different routes.

The flow maps/ charts are generally drawn to represent two the types of data as given below:
1. The number and frequency of the vehicles as per the direction of their movement
2. The number of the passengers and/or the quantity of goods transported.
Requirements for the Preparation of a Flow Map:

(a) A route map depicting the desired transport routes along with the connecting stations.
(b) The data pertaining No. of trains of selected routes of to the flow of goods, Delhi and
Adjoining areas services, number of vehicles, etc., along with the point of origin and destination
of the movements.
(c) The selection of a scale through which the data related to the quantity of passengers
and goods or the number of vehicles is to be represented.
Research Methodology-MB0050 Assignment Set 1 page:20 of 25

(a) Take an outline map of Delhi and adjoining areas in which railway line and the nodal stations
are depicted.
(b) Select a scale to represent the number of trains. Here, the maximum number is 50 and the
minimum is 6. If we select a scale of 1cm = 50 trains, the maximum and minimum numbers will
be represented by a strip of 10 mm and 1.2 mm thick lines respectively on the map.
(c) Plot the thickness of each strip of route between the given rail route.
(d) Draw a terraced scale as legend and choose distinct sign or symbol to show the nodal
points (stations) within the strip.

Thematic Maps
Varieties of maps are drawn to understand the patterns of the regional distributions or the
characteristics of variations over space these maps are known as the distribution maps or
thematic maps.
Requirements for Making a Thematic Map
(a) State/District level data about the selected theme.
(b) Outline map of the study area along with administrative boundaries.
(c) Physical map of the region. For example, physiographic map for population distribution and
relief and drainage map for constructing transportation map.
Rules for Making Thematic Maps
(i) The drawing of the thematic maps must be carefully planned. The final map should properly
reflect the following components:
a. Name of the area
b. Title of the subject-matter
c. Source of the data and year
d. Indication of symbols, signs, colours, shades, etc.
e. Scale
(ii) The selection of a suitable method to be used for thematic mapping.
Classification of Thematic Maps based on Method of Construction
The thematic maps are generally, classified into quantitative and non-quantitative maps.
The quantitative maps are drawn to show the variations within the data. For example, maps
depicting areas receiving more than 200 cm, 100 to 200 cm, 50 to 100 cm and less than 50 cm of
rainfall are referred as quantitative maps. These maps are also called as statistical maps.
The non-quantitative maps, on the other hand, depict the non–measurable characteristics in the
distribution of given information such as a map showing high and low rainfall-receiving areas.
These maps are also called as qualitative maps.
The construction of quantitative maps: There are three types of quantitative maps -
(a) Dot maps
Research Methodology-MB0050 Assignment Set 1 page:21 of 25
(b) Choropleth maps
(c) Isopleths maps

9. Dot Maps
The dot maps are drawn to show the distribution of phenomena such as population, cattle, types
of crops, etc. The dots of same size as per the chosen scale are marked over the given
administrative units to highlight the patterns of distributions.


(a) An administrative map of the given area showing state/district/block boundaries.

(b) Statistical data on selected theme for the chosen administrative units, i.e., total population,
cattle etc.
(c) Selection of a scale to determine the value of a dot.
(d) Physiographic map of the region especially relief and drainage maps.

(a) The lines demarcating the boundaries of various administrative units should not be very thick
and bold.
(b) All dots should be of same size.
Research Methodology-MB0050 Assignment Set 1 page:22 of 25

(a) Select the size and value of a dot.
(b) Determine the number of dots in each state using the given scale. For example, number of
dots in Maharashtra will be 9,67,52,247/100,000 = 967.52. It may be rounded to 968, as the
fraction is more than 0.5.
(c) Place the dots in each state as per the determined number in all states.
(d) Consult the physiographic/relief map of India to identify mountainous, desert, and/or snow
covered areas and mark lesser number of dots in such areas.
Research Methodology-MB0050 Assignment Set 1 page:23 of 25
10. Choropleth Map
The choropleth maps are also drawn to depict the data characteristics as they are related to the
administrative units. These maps are used to represent the density of population, literacy/growth
rates, sex-ratio, etc.

Requirement for drawing Choropleth Map

(a) A map of the area depicting different administrative units.

(b) Appropriate statistical data according to administrative units.
Steps to be followed
(a) Arrange the data in ascending or descending order.
(b) Group the data into 5 categories to represent very high, high, medium, low and very low
(c) The interval between the categories may be identified on the following formulae i.e. Range/5
and Range = maximum value – minimum value.
(d) Patterns, shades or colour to be used to depict the chosen categories should be marked in an
increasing or decreasing order.


(a) Arrange the data in ascending order as shown above.

(b) Identify the range within the data. In the present case, the states recording the lowest and
highest literacy rates are Bihar (47%) and the Kerala (90.9%) respectively. Hence, the range
would be 91.0 – 47.0 = 44.0
(c) Divide the range by 5 to get categories from very low to very high. (44.0/ 5 = 8.80). We can
convert this value to a round number 9.0.
(d) Determine the number of the categories along with range of each category. Add 9.0 to the
lowest value of 47.0 as so on. We will finally get following categories:
47 – 56 Very low (Bihar, Jharkhand, Arunachal Pradesh, Jammu and Kashmir)
56 – 65 Low (Uttar Pradesh, Rajasthan, Andhra Pradesh, Meghalaya, Orissa, Assam, Madhya
Pradesh, Chhattisgarh)
Research Methodology-MB0050 Assignment Set 1 page:24 of 25
65 – 74 Medium (Nagaland, Karnataka, Haryana, West Bengal, Sikkim, Gujarat, Punjab,
Manipur, Uttaranchal, Tripura, Tamil Nadu)
74 – 83 High (Himachal Pradesh, Maharashtra, Delhi, Goa)
83 – 92 Very High (Mizoram, Kerala)
(e) Assign shades/pattern to each category ranging from lower to higher hues.
(f) Prepare the map as shown in Fig.
(g) Complete the map with respect to the attributes of map design.

11. Isopleth Map

Variations in the degrees of slope, temperature, occurrence of rainfall, may be
represented by drawing the lines of equal values on a map. All such maps are termed as Isopleths
Map. The word Isopleths is derived from ISO meaning equal and Plath means lines. Thus, an
imaginary line, which joins the places of equal values, is referred as Isopleths. The more
frequently drawn isopleths include Isotherm (equal temperature), Isobar (equal pressure),
Isohyets (equal rainfall), Isonephs (equal cloudiness), Isohels (equal sunshine), contours (equal
heights),Isobaths (equal depths), Isohaline (equal salinity), etc.

(a) Base line map depicting point location of different places.
(b) Appropriate data of temperature, pressure, rainfall, etc. over a definite period of time.
(c) Drawing instrument specially French Curve, etc.
Rules to be observed
(a) An equal interval of values be selected.
(b) Interval of 5, 10, or 20 is supposed to be ideal.
(c) The value of Isopleths should be written along the line on either side or in the middle by
breaking the line.

Interpolation is used to find the intermediate values between the observed values of at
two stations/locations. Generally, drawing of isopleths joining the places of same value is also
termed as interpolation..

Method of Interpolation: For interpolation, follow the following steps:

(a) Firstly, determine the minimum and maximum values given on the map.
(b) Calculate the range of value i.e. Range = maximum value – minimum value.
(c) Based on range, determine the interval in a whole number like 5, 10, 15, etc.
The exact point of drawing an Isopleths is determined by using the following formulae.

The interval is the difference between the actual value on the map and interpolated value. For
example, in an Isotherm map of two places show 28º C and 33º C and you want to draw 30ºC
isotherm, measure the distance between the two points. Suppose the distance is 1cm or 10 mm
and the difference between 28 and 33 is 5, thus, exact point of 30 will be plotted 4mm away from
28ºC or 6mm ahead of 33ºC.
Research Methodology-MB0050 Assignment Set 1 page:25 of 25
Legal Aspects of Business-

Assignment Set – 1
Legal aspects of Business-MB0051 Assignment Set 1 page:1 of 7
Q.1 Distinguish between fraud and misrepresentation.
Fraud means and includes any of the following acts committed by a party to a contract
with intent to deceive the other party thereto or to induce him to enter into a contract:
(i) the suggestion as a fact of that which is not true by one who does not believe it to be true;
(ii) active concealment of a fact by one having knowledge or belief of the fact;
(iii) promise made without any intention of performing it; (iv) any other act fitted to deceive;
(v) any such act or omission as the law specifically declares to be fraudulent.

Misrepresentation is also known as simple misrepresentation whereas fraud is known as
fraudulent misrepresentation. Like fraud, misrepresentation is an incorrect or false statement but
the falsity or inaccuracy is not due to any desire to deceive or defraud the other party. Such a
statement is made innocently. The party making it believes it to be true. In this way, fraud is
different from misrepresentation.

Difference between Fraud and Misrepresentation:-

The main difference in fraud and misrepresentation are,
1) In misrepresentation the person making the false statement believes it to be true. In fraud
the false statement is person who knows that it is false or he does not care to know whether it is
true or false.
2) There is no intention to deceive the other party when there is misrepresentation of fact.
The very purpose of the fraud is to deceive the other party to the contract.
3) Misrepresentation renders the contract voidable at the option of the party whose consent
was obtained by misrepresentation. In the case of fraud the contract is voidable It also gives rise
to an independent action in tort for damages.
4) Misrepresentation is not an offence under Indian penal code and hence not punishable.
Fraud, in certain cases is a punishable offence under Indian penal code.
5) Generally, silence is not fraud except where there is a duty to speak or the relations
between parties is fiduciary. Under no circumstances can silence be considered as
6) The party complaining of misrepresentation can’t avoid the contract if he had the means
to discover the truth with ordinary diligence. But in the case of fraud, the party making a false
statement cannot say that the other party had the means to discover the truth with ordinary

Q.2. What are the remedies for breach of contract.

When someone breaches a contract, the other party is no longer obligated to keep its end
of the bargain. From there, that party may proceed in several ways:
(i) the other party may urge the breaching party to reconsider the breach;
(ii) if it is a contract with a merchant, the other party may get help from consumers’
(iii) the other party may bring the breaching party to an agency for alternative dispute
(iv) the other party may sue for damages; or
(v) the other party may sue for other remedies.
Rescission of the contract: When a breach of contract is committed by one party, the
other party may treat the contract as rescinded. In such a case the aggrieved party is freed from
all his obligations under the contract.
Damages (Sec.75): Another relief or remedy available to the promise in the event of a
breach of promise by the promise is to claim damages or loss arising to him there from. Damages
Legal aspects of Business-MB0051 Assignment Set 1 page:2 of 7
under Sec.75 are awarded according to certain rules as laid down in Secs.73-74. Sec.73 contains
three important rules:
(i) Compensation as general damages will be awarded only for those losses that directly and
naturally result from the breach of the contract.
(ii) Compensation for losses indirectly caused by breach may be paid as special damages if
the party in breach had knowledge that such losses would also follow from such act of breach.
(iii) The aggrieved party is required to take reasonable steps to keep his losses to the
The most common remedy for breach of contracts: The usual remedy for breach of
contracts is suit for damages. The main kinds of damages awarded in a contract suit are ordinary
damages. This is the amount of money it would take to put the aggrieved party in as good a
position as if there had not been a breach of contract. The idea is to compensate the aggrieved
party for the loss he has suffered as a result of the breach of the contract.
In addition to the rights of a seller against goods provided in Secs.47 to 54, the seller has the
following remedies against the buyer personally.
(i) suit for price
(ii) damages for non-acceptance of goods
(iii) suit for interest
Suit for price
Where under a contract of sale the property in the goods has passed to the buyer and the
buyer wrongfully neglects or refuses to pay the price, the seller can sue the buyer for the price of
the goods. Where the property in goods has not passed to the buyer, as a rule, the seller cannot
file a suit for the price; his only remedy is to claim damages.
Suit for damages for non-acceptance
Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller
may sue him for damages for non-acceptance. Where the property in the goods has not passed to
the buyer and the price was not payable without passing of property, the seller can only sue for
damages and not for the price. The amount of damages is to be determined in accordance with
the provisions laid down in Sec.73 of the Indian Contract Act, 1872. Thus, where there is an
available market for the goods prima facie, the difference between the market price and the
contract price can be recovered.
Suit for interest
When under a contract of sale, the seller tenders the goods to the buyer and the buyer
wrongfully refuses or neglects to accept and pay the price, the seller has a further right to claim
interest on the amount of the price. In the absence of a contract to the contrary, the court may
award interest at such rate as it thinks fit on the amount of the price. The interest may be
calculated from the date of the tender of the goods or from the date on which the price was
payable. It is obvious that the unpaid seller can claim interest only when he can recover the price,
i.e., if the seller’s remedy is to claim damages only, then he cannot claim interest.
Buyer’s remedies against seller
The buyer has the following rights against the seller for breach of contract: (i) damages
for non-delivery; (ii) right of recovery of the price; (iii) specific performance ; (iv) suit for
breach of condition; (v) suit for breach of warranty ; (vi) anticipatory breach; (vii) recovery of
interest .)
Legal aspects of Business-MB0051 Assignment Set 1 page:3 of 7
Q.3 Distinguish between indemnity and guarantee.
Indemnity:- For a contract of indemnity provides that a contract of indemnity is a contract
whereby one party promises to save the other from loss caused to him (the promise) by the
conduct of the promise himself or by the conduct of any other person. A contract of insurance is
a glaring example of such type of contracts.
A contract of indemnity may arise either by (i) an express promise or (ii) operation of
law, e.g. the duty of a principal to indemnify an agent from consequences of all lawful acts done
by him as an agent. The contract of indemnity, like any other contract, must have all the
essentials of a valid contract. These are two parties in a contraction of indemnifier and
indemnified. The indemnifier promises to make good the loss of the indemnified (i.e. the
In law and common usage: A promise to answer for the payment of some debt, or the
performance of some duty, in case of the failure of another person, who is, in the first instance,
liable to such payment or performance, an engagement which secure or insures another against a
contingency, a warranty, a security. Same as guaranty.
Difference between indemnity and guarantee:-
There are distinguishing differences between Indemnity and Guarantee in the Indian Contract
Section 124 of the Indian Contract Act, 1872 defines the "Contract of Indemnity". It is a
contract by which one party promises to save the other from loss caused to him by the contract of
the promissory himself, or by the conduct of any other person. 'A' contracts to indemnify B
against the consequences of any proceedings which C may take against B in respect of a certain
sum of 20000 rupees. This is a contract of indemnity.
A contract of guarantee is defined in Section 126 of the Act. It is a contract to perform
the promise, or discharge the liability, of a third person in case of his default. The person who
gives the guarantee is called the surety; the person in respect of whose default the guarantee is
given is called the principal debtor and the person to whom the guarantee is given is called the
In contract of indemnity there are only two parties viz the indemnifier or provisory and
the indemnity holder or promise. In contract of guarantee there are three parties viz the creditor,
principal debtor and surety.
In indemnity, there is primary and independent liability. In guarantee the surety has
collateral liability.
There is no existing debt generally in the case of contract of indemnity where there is
existing debt in the case of guarantee.
There are two contracts in a contract of indemnity where there are three contracts in the
case of guarantee.
In Indemnity the promissory is discharged by payment. In guarantee the surety is
discharged by payment made by principal debtor.
Indemnifier may have some interest in the transaction where the surety will not have any
connection with the transaction.

Q.4 What is the distinction between cheque and bill of exchange.

Bill of exchange
A ‘bill of exchange’ is defined by Sec.5 as ‘an instrument in writing, containing an unconditional
order, signed by the maker, directing a certain person to pay a certain sum of money only to or to
the order of, a certain person, or to the bearer of the instrument’.
A cheque is the usual method of withdrawing money from a current account with a banker.
Savings bank accounts are also permitted to be operated by cheques provided certain minimum
balance is maintained. A cheque, in essence, is an order by the customer of the bank directing his
Legal aspects of Business-MB0051 Assignment Set 1 page:4 of 7
banker to pay on demand, the specified amount, to or to the order of the person named therein or
to the bearer. Sec.6 defines a cheque. The Amendment Act 2002 has substituted new section for
Sec.6. It provides that a ‘cheque’ is a bill of exchange drawn on a specified banker and not
expressed to be payable otherwise than on demand and it includes the electronic image of a
truncated cheque and a cheque in the electronic from.

Cheque Bill of Exchange

It is drawn on a banker It may be drawn on any party or
It has three parties - the drawer, the drawee, It has three parties - the drawer, the drawee,
and payee. and payee.
It is seldom drawn in sets Foreign bills are drawn in sets
It does not require acceptance by the drawee. It must be accepted by the drawee before he
can be made liable to pay the bill

Days of grace are not allowed to a banker to Three days of grace are always allowed
the drawee.
No stamp duty is payable on checks Stamp duty has to be paid on bill of exchange.
It is usually drawn on the printed It may be drawn in any paper and need
not necessarily be printed.

Q.5 Distinguish between companies limited by shares and companies limited by guarantee.
A company limited by guarantee is normally incorporated for non-profit making
functions. The company has no share capital. A company limited by guarantee has members
rather than shareholders. The members of the company guarantee/undertake to contribute a
predetermined sum to the liabilities of the company which becomes due in the event of the
company being wound up. The Memorandum normally includes a non-profit distribution clause
and these companies are usually formed by clubs, professional, trade or research associations.
The main difference between a company limited by guarantee and a company limited by
shares is that the company has no share capital.
A Company limited by guarantee is a lesser known type of business entity which is
generally formed by non-profit purposes and has members instead of shareholders. There are
both some similarities and differences between the two groups.
Members and shareholders enjoy limited liability, however in cases where a share based
company is liquidated; the latter might be required to pay all amounts of unpaid monies relating
to the shares they hold.
For example, if an individual shareholder holds 100 shares of Rs.100 each, all of which
remains unpaid at the time of dissolution, then they would be required to pay Rs.10000 to the
Most companies limited by guarantee have a constitution which states that each member is only
required to pay Rs.100 should it be dissolved.
Assuming that an average shareholder holds more than one share in a company, members
in a business limited by guarantee do appear to have less risk attached to their positions.
Legal aspects of Business-MB0051 Assignment Set 1 page:5 of 7
Q.6 what is the definition of cyber crime.
Computer crime, or cyber crime, refers to any crime that involves a computer and a
network. The computer may have been used in the commission of a crime, or it may be the
target. Net crime refers, more precisely, to criminal exploitation of the Internet. Issues
surrounding this type of crime have become high-profile, particularly those surrounding hacking,
copyright infringement, child pornography, and child grooming. There are also problems of
privacy when confidential information is lost or intercepted, lawfully or otherwise.
Cyber crime includes anything from downloading illegal music files to stealing millions
of dollars from online bank accounts. Cyber crime also includes non-monetary offences, such as
creating and distributing viruses on other computers or posting confidential business information
on the Internet.
Perhaps the most prominent form of cyber crime is identity theft, in which criminals use
the Internet to steal personal information from other users. Two of the most common ways this is
done is through phishing and pharming. Both of these methods lure users to fake websites, where
they are asked to enter personal information. This includes login information, such as usernames
and passwords, phone numbers, addresses, credit card numbers, bank account numbers, and
other information criminals can use to "steal" another person's identity. For this reason, it is
smart to always check the URL or Web address of a site to make sure it is legitimate before
entering your personal information.
Cybercrime is defined as crimes committed on the internet using the computer as either a
tool or a targeted victim. It is very difficult to classify crimes in general into distinct groups as
many crimes evolve on a daily basis. Even in the real world, crimes like rape, murder or theft
need not necessarily be separate. However, all cybercrimes involve both the computer and the
person behind it as victims, it just depends on which of the two is the main target.
Hence, the computer will be looked at as either a target or tool for simplicity’s sake. For
example, hacking involves attacking the computer’s information and other resources. It is
important to take note that overlapping occurs in many cases and it is impossible to have a
perfect classification system.
• Computer as a tool
When the individual is the main target of Cybercrime, the computer can be considered as
the tool rather than the target. These crimes generally involve less technical expertise as the
damage done manifests itself in the real world. Human weaknesses are generally exploited. The
damage dealt is largely psychological and intangible, making legal action against the variants
more difficult. These are the crimes which have existed for centuries in the offline. Scams, theft,
and the likes have existed even before the development in high-tech equipment. The same
criminal has simply been given a tool which increases his potential pool of victims and makes
him all the harder to trace and apprehend.
• Computer as a target
These crimes are committed by a selected group of criminals. Unlike crimes using he
computer as a tool, these crimes requires the technical knowledge of the perpetrators. These
crimes are relatively new, having been in existence for only as long as computers have - which
explains how unprepared society and the world in general is towards combating these crimes.
There are numerous crimes of this nature committed daily on the internet. But it is worth
knowing that Africans and indeed Nigerians are yet to develop their technical knowledge to
accommodate and perpetrate this kind of crime.
Cyber crime encompasses any criminal act dealing with computers and networks (called
hacking). Additionally, cyber crime also includes traditional crimes conducted through the
Internet. For example; hate crimes, telemarketing and Internet fraud, identity theft, and credit
card account thefts are considered to be cyber crimes when the illegal activities are committed
through the use of a computer and the Internet. Crime committed using a computer and the
Legal aspects of Business-MB0051 Assignment Set 1 page:6 of 7
internet to steal a person's identity or sell contraband or stalk victims or disrupt operations with
malevolent programs

Cyber crime refers to all the activities done with criminal intent in cyberspace or using
the medium of Internet. These could be either the criminal activities in the conventional sense or
activities, newly evolved with the growth of the new medium. Any activity, which basically
offends human sensibilities, can be included in the ambit of Cyber crimes.
Because of the anonymous nature of Internet, it is possible to engage in a variety of
criminal activities with impunity, and people with intelligence, have been grossly misusing this
aspect of the Internet to commit criminal activities in cyberspace. The field of cyber crime is just
emerging and new forms of criminal activities in cyberspace are coming to the forefront each
day. For example, child pornography on Internet constitutes one serious cyber crime. Similarly,
online pedophiles, using Internet to induce minor children into sex, are as much cyber crimes as
any others.
Categories of cyber crimes:
Cyber crimes can be basically divided in to three major categories:
1. Cyber crimes against persons;
2. Cyber crimes against property; and
3. Cyber crimes against government.

1. Cyber crimes against persons: Cyber crimes committed against persons include various
crimes like transmission of child-pornography, harassment of any one with the use of a computer
and cyber stalking. The trafficking, distribution, posting, and dissemination of obscene material
including pornography, indecent exposure, and child pornography constitute the most important
cyber crimes known today. These threaten to undermine the growth of the younger generation
and also leave irreparable scars on the minds of the younger generation, if not controlled.
Similarly, cyber harassment is a distinct cyber crime. Various kinds of harassments can
and do occur in cyberspace, or through the use of cyberspace. Harassment can be sexual, racial,
religious, or of any other nature. Cyber harassment as a crime also brings us to another related
area of violation of privacy of citizens. Violation of privacy of online citizens is a cyber crime of
a grave nature.
Cyber stalking: The Internet is a wonderful place to work, play and study. The net is
merely a mirror of the real world, and that means it also contains electronic versions of real life
problems. Stalking and harassment are problems that many persons especially women, are
familiar within real life. These problems also occur on the Internet, in the form of “cyber
stalking” or “online harassment”.

2. Cyber crimes against property: The second category of Cyber crimes is Cyber crimes
against all forms of property. These crimes include unauthorized computer trespassing through
cyberspace, computer vandalism, and transmission of harmful programs and unauthorized
possession of computerized information.
3. Cyber crimes against Government: The third category of Cyber crimes is Cyber crimes
against Government. Cyber Terrorism is one distinct kind of crime in this category. The growth
of Internet has shown that individuals and groups to threaten international governments as also to
terrorize the citizens of a country are using the medium of cyberspace. This crime manifests
itself into Cyber Terrorism when an individual “cracks” into a government or military
maintained website, for the purpose of perpetuating terror.
Since Cyber crime is a newly emerging field, a great deal of development has to take
place in terms of putting into place the relevant legal mechanism for controlling and preventing
cyber crime. The courts in United States of America have already begun taking cognizance of
various kinds of fraud and cyber crimes being perpetrated in cyberspace. However, much work
has to be done in this field. Just as the human mind is ingenious enough to devise new ways for
Legal aspects of Business-MB0051 Assignment Set 1 page:7 of 7
perpetrating crime, similarly, human ingenuity needs to be canalized into developing effective
legal and regulatory mechanisms to control and prevent cyber crimes. A criminal mind can
assume very powerful manifestations if it is used on a network, given the reachability and size of
the network.
Legal recognition granted to Electronic Records and Digital Signatures would certainly
boost E – Commerce in the country. It will help in conclusion of contracts and creation of rights
and obligations through electronic medium. In order to guard against the misuse and fraudulent
activities over the electronic medium, punitive measures are provided in the Act. The Act has
recognized certain offences, which are punishable. They are:
Tampering with computer source documents
Any person, who knowingly or intentionally conceals, destroys or alters or intentionally or
knowingly causes another person to conceal, destroy or alter any -
i. Computer source code when the computer source code is required to be kept by law for
the time being in force,
ii. Computer programme,
iii. Computer system and
iv. Computer network.
- Is punishable with imprisonment up to three years, or with fine, which may extend up to
two lakh rupees, or with both.
Hacking with computer system:
Hacking with computer system is a punishable offence under the Act. It means any
person intentionally or knowingly causes wrongful loss or damage to the public or destroys or
deletes or alters any information residing in the computer resources or diminishes its value or
utility or affects it injuriously by any means, commits hacking.
Such offenses will be punished with three years imprisonment or with fine of two lakh
rupees or with both.
Publishing of information which is obscene in electronic form (Sec 67): Whoever
publishes or transmits or causes to be published in the electronic form, any material which is
lascivious or appeals to prurient interest or if its effect is such as to tend to deprave and corrupt
persons who are likely, having regard to all relevant circumstances, to read, see or hear the
matter contained or embodied in it shall be punished on first conviction with imprisonment for a
term extending up to 5 years and with fine which may extend to one lakh rupees. In case of
second and subsequent conviction imprisonment may extend to ten years and also with fine
which may extend up to two lakh rupees.
Operations Management-
OM 0010

Assignment Set – 1
Operations Management-OM 0010 Assignment Set 1 page:1 of 13
Q1. What are the emerging opportunities and challenges that confront Operations
Management in India? List the important differences between Service and

Ever since 1992, when the Chelliah committee put up its proposals in respect of import tariffs,
the need for changing Operations Management practices in the country has been felt. The
committee recommended:

· Reduction in tariff levels.

· Simplification in slab rates of tariffs.

· Removal of differences between rate and materials.

· Intermediates and finished goods.

· Efficient administration.

Advantages and disadvantages of Indian Manufacturing Organisations

Indian industry enjoyed undue advantages due to high import tariffs. Another advantage enjoyed
by the Indian industry was ‘Licenses’ determined the availability of products and services – their
quality, price, etc. in the market.

One of the serious drawbacks of Indian manufacturing organisations operating in a controlled

economy was the ‘predominant’ domestic focus in their approach to business. In contrast,
manufacturing organisations in small countries such as Japan and Korea developed good
international focus, which helped them set tough targets and high standards for operations
system performance.

Quality Management Issues

Reports have brought to light India’s poor performance with respect to customer care and
quality. Indian organisations have fared badly on the customer orientation and Total Quality
Management (TQM) drive when compared to other countries. It is interesting to note that in the
1996 ratings, China was ranked 16th with respect to customer orientation while India was placed
at 43rd rank.

Lead Time Issues

Reports also put India almost at the bottom of the list with respect to time to market. Long lead
time forces organisations to either carry large inventories or produce ‘some’ plan, which may
more or less be different from what the market wants. Further, bringing in new variations of the
product to the market will also be delayed. All this will result in high cyst, large non-moving
inventory, poor delivery reliability and eroded market share.

Labour Productivity Issue
The 1997 rating, points to several labour issues in India. While India is ranked 3rd on ‘abundance
of labour force’, it occupies 46th position in ‘employee training’ and 50th position in ‘labour
productivity’. Several other studies have also indicated that low productivity levels largely offset
the advantage of low labour cost. Therefore, improving productivity is a major concern.
Operations Management-OM 0010 Assignment Set 1 page:2 of 13

Difference between services & manufacturing

The following Table depicts the differences between the service and manufacturing

Table :

Q2. Explain Order Winner, Order Qualifier and Kano Model. List out the Universal

Order Winner

A useful way to examine a firm's ability to be succesful in the market is to identify the order
winners. An order winner is a criterion that customers use to differentiate the services or
products of one firm from those of another.

Order Qualifier

Performance dimensions on which customers expect a minimum level of performance. Superior

performance on an order qualifier will not, by itself, give a company a competitive advantage.

Kano Model

The Kano model is a theory of product development and customer satisfaction developed in the
80s by Professor Noriaki Kano which classifies customer preferences into five categories:

• Attractive
• One-Dimensional
• Must-Be
• Indifferent
• Reverse
These categories have been translated into English using various different names
(delighters/exciters, satisfiers, dissatisfiers, etc.), but all refer to the original articles written by
Operations Management-OM 0010 Assignment Set 1 page:3 of 13
Attractive Quality These attributes provide satisfaction when achieved fully, but do not
cause dissatisfaction when not fulfilled. These are attributes that are not normally expected, For
example, a thermometer on a package of milk showing the temperature of the milk. Since these
types of attributes of quality unexpectedly delight customers, they are often unspoken.

One-dimensional Quality These attributes result in satisfaction when fulfilled and

dissatisfaction when not fulfilled. These are attributes that are spoken of and ones which
companies compete for. An example of this would be a milk package that is said to have ten
percent more milk for the same price will result in customer satisfaction, but if it only contains
six percent then the customer will feel misled and it will lead to dissatisfaction.

Must-be Quality These attributes are taken for granted when fulfilled but result in
dissatisfaction when not fulfilled. An example of this would be package of milk that leaks.
Customers are dissatisfied when the package leaks, but when it does not leak the result is not
increased customer satisfaction. Since customers expect these attributes and view them as basic,
then it is unlikely that they are going to tell the company about them when asked about quality

Indifferent Quality These attributes refer to aspects that are neither good nor bad, and
they do not result in either customer satisfaction or customer dissatisfaction.

Reverse Quality These attributes refer to a high degree of achievement resulting in

dissatisfaction and to the fact that not all customers are alike. For example, some customers
prefer high-tech products, while others prefer the basic model of a product and will be
dissatisfied if a product has too many extra features.

The Kano model offers some insight into the product attributes which are perceived to be
important to customers. The purpose of the tool is to support product specification and
discussion through better development team understanding. Kano's model focuses on
differentiating product features, as opposed to focusing initially on customer needs. Kano also
produced a methodology for mapping consumer responses to questionnaires onto his model.
Operations Management-OM 0010 Assignment Set 1 page:4 of 13

Universal Principles

We have seen the variations in processes, automation and scheduling in the volume variety and
product process matrix. You could ask if there are principles of operations management that
apply across the entire product process matrix.

Schonberger and Knod (1994) present one of the most useful lists of principles, applicable both
to service and manufacturing operations. They challenged that these principles can make a
massive difference to any operations-based organisation. They compiled a list of principles.
According to them, organisations involved in the service and manufacturing sector should:

· Get to understand and team up with the next and last customer

· Become committed to repeated, quick improvement in quality, cost, lead time, flexibility,
inconsistency, and service
· Accomplish unfilled purpose via shared information and team participation in forecasting and
implementation of change
Operations Management-OM 0010 Assignment Set 1 page:5 of 13
· Get to understand the competition and the world-class leaders

· Cut the number of product or service components or operations and number of suppliers to a
few good ones

· Arrange resources into multiple chains of customers, each focused on a product, service or
customer family; create cells, flow lines and plants-in-a-plant

· Constantly invest in human resources through cross training, education, job and career path
rotation, and improved health, safety and security

· Preserve and improve present equipment and human work before thinking about new
equipment; mechanize incrementally when process inconsistency cannot otherwise be reduced

· Look for simple, flexible, movable, low-cost equipment that can be acquired in multiple copies,
each assignable to focused cells, flow lines and plants-in-a-plant

· Make it easier to make/provide goods or services without error or process variation

· Cut flow time (waiting time), distance and inventory all along the chain of customers

· Cut set-up, changeover, get-ready and start-up times

· Function at the customer’s rate of use, reduce cycle interval and lot size

· Trace and own quality, process and problem data at the workplace

· Make sure that front line improvement teams get first chance at problem solving before staff

· Cut transactions and reporting

Q3. What are Opportunity Costs and Ownership Costs, and how are they relevant to
investment decisions?

Opportunity Costs

In economic terms, the opportunities forgone in the choice of one expenditure over others. For a
consumer with a fixed income, the opportunity cost of buying a new dishwasher might be the
value of a vacation trip never taken or several suits of clothes unbought. The concept of
opportunity cost allows economists to examine the relative monetary values of various goods and


Let us understand this concept through a more individual-based example of a person owning a
motor car whose value in the market is Rs. 2 lakhs, which becomes the economic value of the
car. The person can either sell the car for its value or retain the car. In case he sells the car, the
Rs. 2 lakhs can earn interest over a period of one year. By retaining the car, the person foregoes
the interest, which is the opportunity cost of ownership. Besides, by retaining the car for one
year, the sale value of the car gets diminished. This loss in the resale value is the second
opportunity cost. So, the total opportunity cost is the loss of interest earnings plus the loss in sale
Operations Management-OM 0010 Assignment Set 1 page:6 of 13


Estimate of all direct and indirect costs associated with an asset or acquisition over its entire life


In the above example, in order to keep the car running for one more year, some
capital/maintenance expenses would need to be incurred on the car. So the cost of continued
ownership is the opportunity cost, plus the capital additions or renewals to keep the car running.

The above logic applies to any asset whether belonging to an individual or an organisation. Thus,
an asset may indicate reducing opportunity cost over the years, but the cost of running and
maintenance will progressively increase.


We have seen that one of the major decisions in business which especially concerns operations is
pertaining to investments in plant and equipment. While making such decisions, the costs of such
investments have to be calculated precisely, so that decisions are made on sound and rational

The cost of an investment is not merely the cost of acquiring the assets, which could be equated
to the landed price of the assets plus the installation and running in costs. The cost of an
investment forms one of the elements of the overall ownership costs. The concept of ‘ownership’
cost adequately addresses the need to look at the costs more comprehensively.

Q4. What is Economies of Scale? Illustrate with an example. How is

it different from Economies of Scope?

The increase in efficiency of production as the number of goods being produced
increases. Typically, a company that achieves economies of scale lowers the average cost per
unit through increased production since fixed costs are shared over an increased number of

There are two types of economies of scale:

-External economies - the cost per unit depends on the size of the industry, not the firm.
-Internal economies - the cost per unit depends on size of the individual firm.
Operations Management-OM 0010 Assignment Set 1 page:7 of 13

It should be appreciated that even before the first unit is produced, the company is incurring
certain costs such as rent for the premises, the fixed portion of salaries, usage of electricity and
power for general lighting, air-conditioning and running of equipments such as compressors,
filters, etc. These generate the fixed costs of operations. Let us say that such an expenditure of
fixed nature is Rs. ‘F’ per day.

Now, consider the situation when the plant reaches a stage of producing 10 units of product per
day. If the variable cost (cost of material + cost of direct labour + cost of power + others) per
unit of production is ‘v’, then the total cost of producing 10 units (on any particular day) works
out to be:

Total Cost = (F + 10 x v) / 10 = F/10 + ‘v’

If after some time, the plant manufactures 40 units of product in a day, then the total cost of
producing those 40 units would be:

Total Cost = F/40 + ‘v’

Thus, we see that as the production level increases during a particular time period, the Unit Cost
of producing a product reduces. In other words, if the scale of operations increases, then the unit
cost of manufacture comes down. This aspect is referred to as the ‘Economies of Scale’. This
phenomenon is contributed by more than one factor:

· The Fixed Costs get distributed over a larger number of products produced, thus bringing down
the unit cost of production.

· With higher scale of operations, the workmen would become more adept at manufacturing –
thus increasing productivity, which in turn, reduces the unit cost further.

· In view of high level of operations, the volumes of purchases of both products and services will
be high, and consequently procurement costs will come down.


Generally speaking, economies of scale is about the benefits gained by the production of large
volume of a product, while economies of scope is linked to benefits gained by producing a wide
variety of products by efficiently utilising the same Operations. Each of these business strategies,
their strengths and weaknesses, will be discussed in details in this paper.

"Economies of scale" has been known for long time as a major factor in increasing profitability
and contributing to a firm's other financial and operational ratios. Mass production of a mature,
standardised product can apply the most efficient line-flow process and standard inputs for
reducing the manufacturing cost (per unit). Mass manufacturing is also associated with a
significant market-share, and a tight supply-chain management (up to vertical integration with
suppliers and retailers). To maintain the market-share, the market leader should come with
continuous product improvements, so to sustain demand and avoid its dropping, following the
product's maturity in the Product Life-Cycle (PLC).
"Economies of scope" is relatively a new approach to business strategy, and is heavily based on
the development of high technology. Economies of scope, as defined by using same processes
for producing similar products, can fit the batch-flow or group-technology processes;
Operations Management-OM 0010 Assignment Set 1 page:8 of 13
nevertheless, for best results the flexible-manufacturing should be adopted. Computer Integrated
Manufacturing (CIM) allows lowering the setup-time and required tuning between products, so
to be economically efficient for small batches of non-standardised products. In other words,
companies can compete on product customisation and short lead-time.
A case study at GM shows that new competition can reduce firm's market share and its benefits
from economies of scale (Howell, 2003). The author argues that the main problem was the
neglect of innovation, as a side-effect of GM's strategy (until the Japanese cars entered the US
market, in the late 1970s). Cachon and Harker (2002) found that scale economies are so powerful
that to provide a strong motivation for outsourcing, too; even though the outsourcing contractors
are not allowed reaching the same scale as the outsourcer. Dobson and Yano's (2002) article is an
in-dept scholarly analysis of the factors associated with economies (and diseconomies) of scale
and economies (and diseconomies) of scope. The authors argue that mass-customisation, which
means broader product lines, "may help to increase market share and may allow higher prices to
be charged, but they also cause challenges associated with diseconomies of scope" such as setup
Ang and Lin (2001) bring a case study from the financial industry, and the ways economies of
scope and economies of scale work for mutual fund offerings. At Fidelity, an example of
economies of scope at work, investors had the option for high diversified portfolio at the same
institution. But aiming at cost reduction (which is of interest to clients and investors), the
economies of scope did not provide the desired objectives, while economies of scale did, in the
case of mutual funds. Trying to find the ideal conditions for economies of scale and economies
of scope, the authors say that a single-product firm should pursue the economies of scale.
However, economies of scope for a two-product firm is said to exist "if the cost of producing the
two products jointly is less than producing the same products separately". When it comes to three
or more products, the number of production combinations increases, so evaluation of the
economies of scope becomes more complicated and requires more data to analyse.

Advocating for a different view of the economies of scope and scale, Peppers and Rogers (1995)
put the customers under the spotlight. They argue that market share can be seen as share of
customer, pursuing customer differentiation rather than product differentiation, managing
customers and not only products and more emphasis on economies of scope at the expense of

As expected, between these two approaches there is a "grey area", in which firms found a way to
enjoy both worlds of economies of scale and scope. Mass-customisation, I believe, provides few
similar customised products (the concept behind economies of scope) along with operating mass-
production and controlling large market-share for each of these products.

Q5 .Explain the importance of location decisions and the decision-

making process for making location decisions.


Location decisions are also strategically important due to many reasons. They generally involve
long-term commitment and are difficult or expensive to change. Location decisions also tend to
have significant impact on subsequent investment requirements, operating costs and revenues
and on operations themselves. A poor choice of location may add to transportation costs or result
in difficulty in obtaining required skilled levels in people, or they may make access to raw
materials more difficult. In short, for both manufacturing and services operations, the decision on
location is bound to have impact on the company’s competitive advantage.
Operations Management-OM 0010 Assignment Set 1 page:9 of 13

Profit-based organisations make most of their decisions on the resultant profit potential, while
non-profit organisations generally tend to seek a balance between their ability to serve their
customers and the costs they incur. However, it can be said that there is no ‘ideal’ location for
any company. There may be many acceptable locations for a company. Sometimes, the options
may be so many as to make it very difficult to make a choice. Thus, practically, most companies
identify only the acceptable locations from which to make the final choice.

Choice of a location can often depend on the position of a company in its ‘supply chain’.
Considering the extreme ends of a typical chain, a retailer may focus on accessibility to a
customer and seek to locate the business nearer the market, while at the beginning of a supply-
chain; a supplier of raw materials may attempt to locate the main facility near the source of raw

Four possible options exist in case of decision on location. They are:

· To expand an existing facility: This pre-supposes that there is scope for expansion in the
existing facility. Such an option is considered if there are sufficient advantages in the existing
location that are not available in other options. This option generally entails less cost than other

· Add more locations to existing ones: Generally, this happens in retail operations. The basic
concept would be to weigh the resultant impact of the total system – in other words, the company
should examine whether addition of locations would result in a net improvement in business,
which would also be cost-beneficial. Sometimes, this option is resorted to pre-empt competitors
from entering the market.

· Move from existing location to a new one: In this option also, a cost-benefit analysis of moving
to a new location should be assessed carefully before taking a decision. Shift in the market,
running out of raw material supplies or required manpower, etc. are some of the typical reasons
for considering this alternative.

· Status Quo: This option may be forced on a company if the latter is unable to identify any
better potential location.


The approach to location decisions by different companies depends on the company’s size and
geographical scope of its operations. Small companies adopt an informal approach. New and
small firms may locate their facility at a certain place just because the owner lives there or close-
by, and look for only local alternatives in case of expansion or adding new facilities. Large
companies, on the other hand, use a more formal approach, considering a wider range of options,
and subjecting the process to a detailed and rational analysis.

The procedure of making a decision on location in case of a formal approach may be described
as follows:
1. Decide on the criteria to be used for evaluating different location alternatives. For example,
increased revenue, or cost saving, or community service.
Operations Management-OM 0010 Assignment Set 1 page:10 of 13
2. Identify important factors that influence the calculations – for example location of markets or
of raw materials.

3. Develop location alternatives:

a. Identify a general location.

b. Identify a small number of area alternatives.

c. Identify site alternatives within the area chosen.

d. Evaluate the alternatives and make the selection.

Step ‘a’, is a matter of managerial decision.

Step ‘b’, factors affecting Location decisions.

Amongst the many factors that may influence the location decision, a few may be more
significant. For example, for a nuclear power plant, proximity to abundant water supply for
cooling is very important, while for a steel plant, proximity to iron ore mines and to coal pits
would be top priority. A company would need to identify such important factors and narrow the
search for suitable options in a particular geographical area.


There are several regional factors that affect Location Decision. Some of them are:

· Market location

· The location of Raw Materials

· Labour issues like ( wage rates in that particular area, labour productivity and commitment
towards work)

· Taxes and climate also affect the Location Decision in any particular region.

Location of raw materials

The logic for locating a facility near the source of raw materials may be either ‘necessity’ or
‘perish ability’ or ‘transportation costs’. For example, mining operations, has to be located near
the mines. Facilities for food processing or canning of fruits may warrant proximity to raw
material because of ‘perish ability’. In case of certain products such as finished steel, there is a
considerable reduction in the weight / volume during the process of conversion from raw
material to finished goods, making transportation of raw materials a key element in production
costs, and hence the facility location may be closer to the supply of iron ore due to
‘transportation costs’.

Location of markets
Location of markets influence location decisions since in many cases, profit-oriented companies
tend to locate their facilities near the market as a part
Operations Management-OM 0010 Assignment Set 1 page:11 of 13
of their competitive strategy. Retail sales and service organisations, typically, are found in the
centre of the markets they serve; example – fast-food restaurants, supermarkets, dry-cleaners,
etc. Since in most cases, the products of different competitors are not much differentiated,
‘convenience’ to the customer becomes a key attribute. This is so even in case of banks,
drugstores, etc.

Some firms need to locate their facilities near their markets in view of the perish ability of their
products such as bakery products, flowers, fresh food stores. For some other firms, physical
distribution costs may become the key criterion. In some other cases, proximity to customers is
sought because of the need for close customer contacts.

Labour factors

In arriving at a decision on the location of a facility, labour factors also play a key part. This is
particularly so for labour-intensive organisations. Some

of the factors considered are labour cost, labour productivity, tendency to form unions and
generally, workers’ attitude towards work.

Climate and taxes

In some cases, extreme climatic conditions may be avoided by some companies since it may
affect worker attendance or create road blocks thus hampering delivery schedules.

Taxes are also a major consideration, especially if different states / regions have a totally
different tax regime.

Community Considerations

Communities tend to attract businesses due to creation of employment, or because tax collections
can be better. However, certain communities may

be sensitive to disturbance of ecology, and may go out of the way to discourage certain types of
businesses from setting shop in their area.

In some cases, while the community as a whole may hold a favourable view about location of a
business, individual families or residents may have serious objections to certain businesses
locating or expanding their facility

in the sites next to theirs, due to objection to possible increase in noise levels, traffic or
pollution. Examples of such businesses are: airports, nuclear facilities, high-way construction,

From a company’s view-point, a community can be attractive as a place for its workers and
managers to live in view of superior facilities of education, health-care, shopping, transportation
and religious worship.
Operations Management-OM 0010 Assignment Set 1 page:12 of 13
Site-Related Factors

The other important factor which has to be considered in Location Decision is Site-Related
Factors. These are important because only if the site and soil condition is good, the construction
will be strong enough. Even the cost of the land and its future accessibility also matters a lot.

The main considerations in case of site-related factors are:

· Land

· Transportation

· Access and zoning or other restrictions

In certain cases, sites may need to be evaluated with the help of engineers or technical experts in
case of heavy manufacturing units, erection of

large buildings or facilities with special requirements. Soil conditions, load bearing capacity and
drainage rates can be critical and may need careful

and expert evaluation.

In view of the fact that decisions on site are long-term, factors such as scope for future
expansions, current utility such as sewer connections, sufficient parking space, access to main
roads, etc. have predominance

over land cost. From this point of view, Industrial Parks could be ideal locations, but on the flip
side would be restrictions on certain types of industries inside an industrial park.

Q6. Explain the terms: Operations Mission, Distinctive Competence

Operation Objectives and Operation Policies.


Operations mission

Every business operations should have an articulated ‘Mission’ along with other functional
strategies that is connected to the business strategy as well. For example, if the business strategy
is product leadership, the operations mission should focus on new product introduction and
develop the needed flexibility to adapt product to the changing needs of the market. If the
company chooses to follow other strategies – such as market or price leadership – the
corresponding operations missions would be different.

Thus, the operations mission is derived from the business strategy adopted.

Distinctive competence

Distinctive competence refers to the company’s ability to carry out a (business) process better
than the competitors. The competence could be derived either from ‘unique’ resources (capital or
human) or from ‘unique’ capabilities (sometimes leading to a patent).
Operations Management-OM 0010 Assignment Set 1 page:13 of 13
The distinctive competence of the company should be commensurate with the ‘mission’ of
operations. Developing the distinctive competence refers to developing a business process in an
area (for example, in quality assurance) which is different from the mission of the operations
(say, excelling in new-product innovation). Similarly, the distinctive competence must be valued

by other functional areas such as marketing, finance, etc., so that it gets all-round support from
the entire cross-section of the business, as a basis for obtaining competitive advantage.

Sometimes, a business strategy may be derived from a company’s distinctive competence

(existing or planned) and the company may work towards matching the market to it. A company,
in order to compete effectively – would need not only a suitable market segment but also a
unique capability to service the market segment. Thus, it is seen that ‘distinctive competence’ is
an essential pre-requisite for working on a successful business strategy.

Operations objectives

The third element of Operations Strategy is operations objectives. There

are four common objectives, they are:

· Cost

· Quality

· Delivery

· Flexibility

The company’s ‘Mission’ is logically converted into objectives in the above mentioned areas. To
be strategic in nature, these objectives should be

long-term (5 to 10 years).

Operations policies

This relates is the fourth element of the Operations Strategy. Policies are normally broad
guidelines that the company develops in keeping with their strategies and value systems. These
policies assist decision-makers (including the senior most management levels) in arriving at
decisions. Operations policies should generally be developed for each decision categories
(process, quality systems, capacity, and inventory), and should be integrated with other
functional decisions and policies.
Enterprise Resource Planning
OM 0011

Assignment Set – 1
Enterprise Resource Planning OM 0011 Assignment Set 1 page:1 of 17

Q1.Why are ERP systems said to be flexible? Explain with an example.

A flexible ERP system can bring consistency and profitability to your company. A flexible ERP
system allows your business to respond rapidly to any changing condition - it lets your business
provide any company department or employee with the data required to improve decision-
making, regardless of whether data is needed from one or several systems.

ERP System Flexibility Benefits

Choosing the right ERP system allows you to transfer your business processes onto your
business systems, offering the consistency and timeliness to manage variability. This eliminates
the need and high cost of integrating your existing systems.

Also with effective ERP systems manual processes are eliminated as there’s no need for time-
consuming and unreliable paper-based procedures. ERP systems allow data to flow easily
throughout your operations the moment it appears in your systems. This provision of timely
information allows for a quick and efficient response from every employee in your company.

With ERP systems manual, makeshift processes are replaced with well-organized ones allowing
for overall business flexibility and effectiveness. ERP systems allow increased visibility into
real-time processes which enables prompt ordering of the right goods and materials.

Choosing an ERP system that allows you to deal with changes to your business will prove a
valuable investment well into the future. See our free white paper on 9 Things to Consider When
Selecting an ERP System.


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On The Hotseat and find out more on what your peers are facing with their current ERP systems
and how your peers are tackling the questions that matter now. Business is all about being
Enterprise Resource Planning OM 0011 Assignment Set 1 page:2 of 17
prepared for the tough questions. Ensure that you are looking at the right ERP systems for your

Accounting and Operations

The most successful companies today are those that excel at managing their finances, their
operations, and their customers. At its core, Sage Accpac Extended Enterprise Suite provides
you the tools to outperform your competition in these areas, and more .

Q2. Explain with an example the concept of supply chain management?

A supply chain is a network of facilities and distribution options that performs the functions of
procurement of materials, transformation of these materials into intermediate and finished
products, and the distribution of these finished products to customers. Supply chains exist in both
service and manufacturing organizations, although the complexity of the chain may vary greatly
from industry to industry and firm to firm.

Below is an example of a very simple supply chain for a single product, where raw material is
procured from vendors, transformed into finished goods in a single step, and then transported to
distribution centers, and ultimately, customers. Realistic supply chains have multiple end
products with shared components, facilities and capacities. The flow of materials is not always
along an arborescent network, various modes of transportation may be considered, and the bill of
materials for the end items may be both deep and large.

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organizations

along the supply chain operated independently. These organizations have their own objectives
and these are often conflicting. Marketing's objective of high customer service and maximum
sales dollars conflict with manufacturing and distribution goals. Many manufacturing operations
are designed to maximize throughput and lower costs with little consideration for the impact on
inventory levels and distribution capabilities. Purchasing contracts are often negotiated with very
little information beyond historical buying patterns. The result of these factors is that there is not
a single, integrated plan for the organization---there were as many plans as businesses. Clearly,
there is a need for a mechanism through which these different functions can be integrated
together. Supply chain management is a strategy through which such an integration can be

Supply chain management is typically viewed to lie between fully vertically integrated firms,
where the entire material flow is owned by a single firm, and those where each channel member
operates independently. Therefore coordination between the various players in the chain is key in
its effective management. Cooper and Ellram [1993] compare supply chain management to a
well-balanced and well-practiced relay team. Such a team is more competitive when each player
knows how to be positioned for the hand-off. The relationships are the strongest between players
Enterprise Resource Planning OM 0011 Assignment Set 1 page:3 of 17
who directly pass the baton, but the entire team needs to make a coordinated effort to win the

We classify the decisions for supply chain management into two broad categories -- strategic and
operational. As the term implies, strategic decisions are made typically over a longer time
horizon. These are closely linked to the corporate strategy (they sometimes {\it are} the
corporate strategy), and guide supply chain policies from a design perspective. On the other
hand, operational decisions are short term, and focus on activities over a day-to-day basis. The
effort in these type of decisions is to effectively and efficiently manage the product flow in the
"strategically" planned supply chain.

There are four major decision areas in supply chain management: 1) location, 2) production, 3)
inventory, and 4) transportation (distribution), and there are both strategic and operational
elements in each of these decision areas.

Q3.Differentiate between open Source and commercial ERP. Briefly explain the key
principles to a proper ERP system selection process.

Here is the comparison between Commercial and Open Source ERP software systems. This
study has been made considering different parameter. Study concludes commercial erp softwares
are suitable only for big corporations and open source business software should be the choice of
small and medium scale industries.Know what is open source ERP before proceeding with this

Study has been made on following 10 factors while comparing commercial and open source ERP









Ease of integration with current systems

Most open source software is freely distributed with no up-front licensing fees. Further savings
Enterprise Resource Planning OM 0011 Assignment Set 1 page:4 of 17
come from ease of deployment, training and integration. Companies that implement open source
ERP solutions often report a 50% savings over proprietary systems. With free systematic open
source ERP training methodology like SOSE! site you can own your software for no cost.

Commercial ERP is an expensive package and suitable only for bigger corporations. The prices
do vary significantly but according to the size of the company and volume of business. In any
cases they have been found to be extremely costly irrespective of the quantum in which they are
purchased. These packages are not subject to flexibility and molding. Their usage modalities are
rarely liberal and cause troubles when they are modified. Hence the deployments also turn out to
be costly and inconvenient due to the procedures involved, in the future. Another major
allegation against the package is that they consist of lot of hidden costs.

When you compare commercial and open source ERP, commercial systems are not flexible in
nature. They let business with no other choice but to change their way of business. However
when it comes to open source ERP everything was decided by the code .Therefore companies
can do the necessary modifications in code and without much support from the vendor. Another
advantage of open source is that it does not interfere with the regular schedule of the company
during the implementation stage. This is a major difference between commercial and open
source ERP applications. You should use business software for your needs, you should not
change the way of your business to fit into software needs.

When you study commercial and open source ERP,The time allotted for implementing open
source ERP is very less when compared with commercial ERP. The innumerable number of
complexions in commercial ERP calls for longer time span. It consumes a lot of time not only
during implementation but in every stage of ERP process due to the nature of work involved.
With use of SITE ERP implementation methodology you can reduce time required for open
source ERP to the minimum.

When it comes to the question of relying on the vendor the open source ERP owners enjoys a
considerable edge than the commercial ERP. Since open source is license free users have full
freedom for taking care of needs by themselves. The productivity is also high in open source
ERP systems and the failure rates are very low.

Success rate of open source ERP are considerably more compare to proprietary ERP softwares.
Read open source ERP success stories for more details.
Lots of training is required for using commercial ERP. It calls for lots of investments in terms of
time and money. If they don't give the necessary impetus the results will be poor. Similarly
Enterprise Resource Planning OM 0011 Assignment Set 1 page:5 of 17
validity of training sessions designed and handled exclusively by the ERP vendor is also

On the other hand Open Source ERP does not require much training. The results are also bound
to be effective because the user gets to learn through the process of self training. The company
need not spend much on training and makes a minimal utilization of the resources. This is
another way of reducing the level of dependence on the ERP vendor. You can get free online
ERP training with SOSE!.

On comparing commercial and open source ERP applications, Commercial ERP systems are less
secure. They are by and large prone to the traps and pitfalls of hackers. Even though open source
ERP makes everything transparent and available in the public domain it bring into the notice of
user whenever something goes wrong.

Few end users change the underlying code of an open source application. But when the need
arises, open source provides access to the code to make changes to suit each distributor’s unique
business needs. Open source customers enjoy a refreshing level of transparency from their
vendors around activities such as bug reporting and fixing and road map planning.

Ease of integration with current systems

ERP solutions touch every aspect of a company, from warehousing to accounting. As such, a
company’s ERP solution should easily integrate with existing IT infrastructure components, such
as application servers, directory services and storage arrays. Open source solutions are
compatible via standards-based interfaces with multiple technologies, including support for
lowest-cost commodity operating systems, databases, utilities and hardware.

Virtually any ERP solution will work well when initially deployed, but time is the true test of
every ERP solution and vendor. Unforeseen opportunities will likely drive changes to a business’
objectives and necessitate changes to its ERP solution. Independently, a vendor’s commitment to
supporting a solution could change over time. An open source solution with a flexible foundation
addresses today’s needs and safeguards the solution’s future. Because the user has the source
code, a solution can never be bought or merged out of existence, meaning the investment lasts as
long as needed. Independent services for ERP implementation support is also available for free
with open source ERP.

Functionality is the top consideration when reviewing ERP solutions, but it should be closely
linked with evaluating open source and proprietary options. The demonstrable benefits of open
source products reach deep into a company’s infrastructure. You can evaluate and select business
ERP software which give functionality you need.
Enterprise Resource Planning OM 0011 Assignment Set 1 page:6 of 17
The differences between commercial and open source ERP show the Edge enjoyed by open
source ERP players. And independent free ERP trainer like SOSE! will help open source ERP to
reach people.

Q4. What is ATO and how is it different from ETO? List the advantages of CAD/CAM.

Assemble-to-Order (ATO)

A business production strategy where products ordered by customers are produced quickly and
are customizable to a certain extent. The assemble-to-order (ATO) strategy requires that the
basic parts for the product are already manufactured but not yet assembled. Once an order is
received, the parts are assembled quickly and sent to the customer.

ATO Different from ETO

CAD stands for Computer Aided design.

CAM stands for Computer Aided Manufacturing

Advantages of CAD/CAM are
1.Higher Productivity
2. Reduced Design Time
3. More Accurate Designs
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4. Less Time Required for Modifications
5. Repeatability

Q5. How does the plant maintenance module help in achieving competitiveness? Write a
note of Quality Management.

The achievement of outstanding performance demands delivery of quality products expeditiously

and economically. Organisations simply cannot achieve excellence with unreliable equipment.
The approach towards maintenance management has changed as a result of quick response
manufacturing. Just-in-Time (JIT) reduction of work in process inventory and the elimination of
wasteful manufacturing practices. Before breakdown in machine and idle time for repair was
once an accepted practice. Times have changed. Today, when there is a break down in a
machine, it can shut down the production line and the customer’s entire plant. The Preventive
Maintenance (PM) module provides an integrated solution for supporting the operational needs
of an enterprise-wide system. The Plant Maintenance module includes an entire family of
product; covering all aspects of plant/equipment maintenance. It becomes vital to the
achievement of process improvement. The major subsystems of a Plant Maintenance module are:

· Preventive Maintenance Control

· Equipment Tracking

· Component Tracking

· Plant Maintenance Calibration Tracking

· Plant Maintenance Warranty Claims Tracking

5.6.1 Preventive Maintenance Control

Preventive Maintenance Control (PMC) provides planning, scheduling, and control of facilities
and equipment. Equipment lubrication, component replacement and safety inspection can be
planned, scheduled, and monitored. Maintenance tasks can be tracked for each piece of
equipment or machine, by two user-defined modes, as well as calendar day frequency. These
modes include tracking by hours of operation, units of production produced, gallons of fuel
consumed, or the number of days in operation since the last service interval. Preventive
Maintenance Control enables organisations to lower repair costs by avoiding downtime, machine
breakage, and process variability. Companies achieve higher machine utilisation and improved
machine reliability and tolerance control, along with higher production yields.

Equipment Tracking

Equipments are an asset that needs to be protected and monitored. In many situations, costs of
equipment maintenance constitute the single largest controllable expenditure of an organisation.
All facets of plant location history and utilisation history are described and tracked. This history
includes acquisition of disposition information and associations between different pieces of
Enterprise Resource Planning OM 0011 Assignment Set 1 page:8 of 17
equipment to pinpoint operational dependencies. Running totals for operation units to date
(miles, hours, days, units of production, and so on.) are also provided. Each piece of equipment
is defined by, a serial number and model. User-defined data sheets are developed, which allow
for the grouping of user data into formats that can be linked to equipment records. All of this
information can be used to create equipment stipulation, which provide detailed information for
technical specialists working in equipment operations, maintenance, and transportation control.

Component Tracking

Components are subsets of larger equipment and deserve the same amount of cost controlling
scrutiny. Component Tracking helps equipment managers to; identify components with chronic
repair problems. They can determine if either repair or replacement must be covered by
warranty. Planning component replacements, rather than waiting for component failures to
occur, reduces unscheduled equipment downtime. Component tracking includes repair/exchange
history and component service life.

Plant Maintenance Calibration Tracking

Plant Maintenance Calibration Tracking (PMCT) allows organisations to leverage their

investment in the Plant Maintenance module by, providing for the tracking of equipment
calibration in support of ISO 9000 requirements.

Plant Maintenance Warranty Claims Tracking

Plant Maintenance Warranty Claims Tracking (PMWCT) is an administrative system designed

to, provide control of all items covered by manufacturer and vendor warranties. It helps plant
management to recover all of the warranty; reimbursements to which they are entitled but have
not been able to recover in the past. Features include the ability to establish the length and type
of warranty. For example, elapsed day, months, operating units, or mileage stipulation. A
complete history review is performed for each item covered by the warranty and complete
information regarding the warranty service provider is generated.

Quality Management

Basics and Overviews About Quality Management includes many links about basics and
overviews of quality management.

Benchmarking is the use of standard measurements in a service or industry for comparison to

other organizations in order to gain perspective on organizational performance.

Continuous Improvement, in regard to organizational quality and performance, focuses on

improving customer satisfaction through continuous and incremental improvements to processes,
including by removing unnecessary activities and variations.
Failure Mode and Effects Analysis is an approach that helps identify and prioritize potential
equipment and process failures.
Enterprise Resource Planning OM 0011 Assignment Set 1 page:9 of 17
ISO9000 is an internationally recognized standard of quality, and includes guidelines to
accomplish the ISO9000 quality standard. Organizations can be optionally audited to earn
ISO9000 certification.

Lean Management is a process of maximizing customer value while reducing waste. Any
activity or process that consumes resources, adds cost or time without creating value becomes
the target for elimination.

Total Quality Improvement (TQM) is a set of management practices throughout the organization,
geared to ensure the organization consistently meets or exceeds customer requirements. TQM
places strong focus on process measurement and controls as means of continuous improvement.

Six Sigma is a quality management initiative that takes a very data-driven, methodological
approach to eliminating defects with the aim to reach six standard deviations from the desired
target of quality. Six standard deviations means 3.4 defects per million.

Q6. Explain the working of Warehouse Management and Purchase department with an

The evolution of warehouse management systems (WMS) is very similar to that of many other
software solutions. Initially a system to control movement and storage of materials within a
warehouse, the role of WMS is expanding to including light manufacturing, transportation
management, order management, and complete accounting systems. To use the grandfather of
operations-related software, MRP, as a comparison, material requirements planning (MRP)
started as a system for planning raw material requirements in a manufacturing environment.
Soon MRP evolved into manufacturing resource planning (MRPII), which took the basic MRP
system and added scheduling and capacity planning logic. Eventually MRPII evolved into
enterprise resource planning (ERP), incorporating all the MRPII functionality with full financials
and customer and vendor management functionality. Now, whether WMS evolving into a
warehouse-focused ERP system is a good thing or not is up to debate. What is clear is that the
expansion of the overlap in functionality between Warehouse Management Systems, Enterprise
Resource Planning, Distribution Requirements Planning, Transportation Management Systems,
Supply Chain Planning, Advanced Planning and Scheduling, and Manufacturing Execution
Systems will only increase the level of confusion among companies looking for software
solutions for their operations.

Even though WMS continues to gain added functionality, the initial core functionality of a WMS
has not really changed. The primary purpose of a WMS is to control the movement and storage
of materials within an operation and process the associated transactions. Directed picking,
directed replenishment, and directed putaway are the key to WMS. The detailed setup and
processing within a WMS can vary significantly from one software vendor to another, however
Enterprise Resource Planning OM 0011 Assignment Set 1 page:10 of 17
the basic logic will use a combination of item, location, quantity, unit of measure, and order
information to determine where to stock, where to pick, and in what sequence to perform these

At a bare minimum, a WMS should:

Have a flexible location system.

Utilize user-defined parameters to direct warehouse tasks and use live

documents to execute these tasks.

Have some built-in level of integration with data collection devices.

Do You Really Need WMS?

Not every warehouse needs a WMS. Certainly any warehouse could benefit from some of the
functionality but is the benefit great enough to justify the initial and ongoing costs associated
with WMS? Warehouse Management Systems are big, complex, data intensive, applications.
They tend to require a lot of initial setup, a lot of system resources to run, and a lot of ongoing
data management to continue to run. That’s right, you need to "manage" your warehouse
"management" system. Often times, large operations will end up creating a new IS department
with the sole responsibility of managing the WMS.

The Claims:

WMS will reduce inventory!

WMS will reduce labor costs!

WMS will increase storage capacity!

WMS will increase customer service!

WMS will increase inventory accuracy!

The Reality:

The implementation of a WMS along with automated data collection will likely give you
increases in accuracy, reduction in labor costs (provided the labor required to maintain the
system is less than the labor saved on the warehouse floor), and a greater ability to service the
customer by reducing cycle times. Expectations of inventory reduction and increased storage
Enterprise Resource Planning OM 0011 Assignment Set 1 page:11 of 17
capacity are less likely. While increased accuracy and efficiencies in the receiving process may
reduce the level of safety stock required, the impact of this reduction will likely be negligible in
comparison to overall inventory levels. The predominant factors that control inventory levels are
lot sizing, lead times, and demand variability. It is unlikely that a WMS will have a significant
impact on any of these factors. And while a WMS certainly provides the tools for more
organized storage which may result in increased storage capacity, this improvement will be
relative to just how sloppy your pre-WMS processes were.

Beyond labor efficiencies, the determining factors in deciding to implement a WMS tend to be
more often associated with the need to do something to service your customers that your current
system does not support (or does not support well) such as first-in-first-out, cross-docking,
automated pick replenishment, wave picking, lot tracking, yard management, automated data
collection, automated material handling equipment, etc.

Purchasing refers to a business or organization attempting for acquiring goods or services to

accomplish the goals of the enterprise. Though there are several organizations that attempt to set
standards in the purchasing process, processes can vary greatly between organizations. Typically
the word “purchasing” is not used interchangeably with the word “procurement”, since
procurement typically includes Expediting, Supplier Quality, and Traffic and Logistics (T&L) in
addition to Purchasing.


Purchasing managers/directors, and procurement managers/directors guide the organization’s

acquisition procedures and standards. Most organizations use a three-way check as the
foundation of their purchasing programs. This involves three departments in the organization
completing separate parts of the acquisition process. The three departments do not all report to
the same senior manager to prevent unethical practices and lend credibility to the process. These
departments can be purchasing, receiving; and accounts payable or engineering, purchasing and
accounts payable; or a plant manager, purchasing and accounts payable. Combinations can vary
significantly, but a purchasing department and accounts payable are usually two of the three
departments involved.

When the receiving department is not involved, it's typically called a two-way check or two-way
purchase order. In this situation, the purchasing department issues the purchase order receipt not
required. When an invoice arrives against the order, the accounts payable department will then
go directly to the requestor of the purchase order to verify that the goods or services were
received. This is typically what is done for goods and services that will bypass the receiving
department. A few examples are software delivered electronically, NRE work (non reoccuring
engineering services), consulting hours, etc.
Enterprise Resource Planning OM 0011 Assignment Set 1 page:12 of 17
Historically, the purchasing department issued Purchase Orders for supplies, services, equipment,
and raw materials. Then, in an effort to decrease the administrative costs associated with the
repetitive ordering of basic consumable items, "Blanket" or "Master" Agreements were put into
place. These types of agreements typically have a longer duration and increased scope to
maximize the Quantities of Scale concept. When additional supplies are required, a simple
release would be issued to the supplier to provide the goods or services.

Another method of decreasing administrative costs associated with repetitive contracts for
common material, is the use of company credit cards, also known as "Purchasing Cards" or
simply "P-Cards". P-card programs vary, but all of them have internal checks and audits to
ensure appropriate use. Purchasing managers realized once contracts for the low dollar value
consumables are in place, procurement can take a smaller role in the operation and use of the
contracts. There is still oversight in the forms of audits and monthly statement reviews, but most
of their time is now available to negotiate major purchases and setting up of other long term
contracts. These contracts are typically renewable annually.

This trend away from the daily procurement function (tactical purchasing) resulted in several
changes in the industry. The first was the reduction of personnel. Purchasing departments were
now smaller. There was no need for the army of clerks processing orders for individual parts as
in the past. Another change was the focus on negotiating contracts and procurement of large
capital equipment. Both of these functions permitted purchasing departments to make the biggest
financialcontribution to the organization. A new terms and job title emerged – Strategic sourcing
and Sourcing Managers. These professionals not only focused on the bidding process and
negotiating with suppliers, but the entire supply function. In these roles they were able to add
value and maximize savings for organizations. This value was manifested in lower inventories,
less personnel, and getting the end product to the organization’s consumer quicker. Purchasing
manager’s success in these roles resulted in new assignments outside to the traditional
purchasing function – logistics, materials management, distribution, and warehousing. More and
more purchasing managers were becoming Supply Chain Managers handling additional
functions of their organizations operation. Purchasing managers were not the only ones to
become Supply Chain Managers. Logistic managers, material managers, distribution managers,
etc all rose the broader function and some had responsibility for the purchasing functions now.

In accounting, purchases is the amount of goods a company bought throughout this year. it is
also refers to information as to the kind ,quality,quantity and cost of goods bought that should be
maintained. They are added to inventory. Purchases are offset by Purchase Discounts and
Purchase Returns and Allowances. When it should be added depends on the Free On Board
(FOB) policy of the trade. For the purchaser, this new inventory is added on shipment if the
policy was FOB shipping point, and the seller remove this item from its inventory. On the other
hand, the purchaser added this inventory on receipt if the policy was FOB destination, and the
seller remove this item from its inventory when it was delivered.
Enterprise Resource Planning OM 0011 Assignment Set 1 page:13 of 17
Goods bought for the purpose other than direct selling, such as for Research and Development,
are added to inventory and allocated to Research and Development expense as they are used. On
a side note, equipments bought for Research and Development are not added to inventory, but
are capitalized as assets.


Acquisition Process

The revised acquisition process for major systems in industry and defence is shown in the next
figure. The process is defined by a series of phases during which technology is defined and
matured into viable concepts, which are subsequently developed and readied for production,
after which the systems produced are supported in the field.[1]

Model of the Acquisition Process.

The process allows for a given system to enter the process at any of the development phases. For
example, a system using unproven technology would enter at the beginning stages of the process
and would proceed through a lengthy period of technology maturation, while a system based on
mature and proven technologies might enter directly into engineering development or,
conceivably, even production. The process itself includes four phases of development:[1]

Concept and Technology Development: is intended to explore alternative concepts based on

assessments of operational needs, technology readiness, risk, and affordability.

Concept and Technology Development phase begins with concept exploration. During this stage,
concept studies are undertaken to define alternative concepts and to provide information about
capability and risk that would permit an objective comparison of competing concepts.
Enterprise Resource Planning OM 0011 Assignment Set 1 page:14 of 17
System Development and Demonstration phase. This phase could be entered directly as a result
of a technological opportunity and urgent user need, as well as having come through concept and
technology development.

The last, and longest, phase is the Sustainment and Disposal phase of the program. During this
phase all necessary activities are accomplished to maintain and sustain the system in the field in
the most cost-effective manner possible.

Selection of Bidders

This is the process where the organization identifies potential suppliers for specified supplies,
services or equipment. These suppliers' credentials and history are analyzed, together with the
products or services they offer. The bidder selection process varies from organization to
organization, but can include running credit reports, interviewing management, testing products,
and touring facilities. This process is not always done in order of importance, but rather in order
of expense. Often purchasing managers research potential bidders obtaining information on the
organizations and products from media sources and their own industry contacts. Additionally,
purchasing might send Request for Information (RFI) to potential suppliers to help gather
information. Engineering would also inspect sample products to determine if the company can
produce products they need. If the bidder passes both of these stages engineering may decide to
do some testing on the materials to further verify quality standards. These tests can be expensive
and involve significant time of multiple technicians and engineers. Engineering management
must make this decision based on the cost of the products they are likely to procure, the
importance of the bidders’ product to production, and other factors. Credit checks, interviewing
management, touring plants as well as other steps could all be utilized if engineering,
manufacturing, and supply chain managers decide they could help their decision and the cost is

Other organizations might have minority procurement goals to consider in selection of bidders.
Organizations identify goals in the use of companies owned and operated by certain ethnicities
or women owned business enterprises. Significant utilizing of minority suppliers may qualify the
firm as a potential bidder for a contract with a company or governmental entity looking to
increase their minority supplier programs.

This selection process can include or exclude international suppliers depending on organizational
goals and criteria. Companies looking to increase their pacific rim supplier base may exclude
suppliers from the Americas, Europe, and Australia. Other organizations may be looking to
purchase domestically to ensure a quicker response to orders as well as easier collaboration on
design and production.
Organizational goals will dictate the criteria for the selection process of bidders. It is also
possible that the product or service being procured is so specialized that the number of bidders
are limited and the criteria must be very wide to permit competition. If only one firm can meet
Enterprise Resource Planning OM 0011 Assignment Set 1 page:15 of 17
the specifications for the product then the purchasing managers must consider utilizing a “Sole
Source” option or work with engineering to broaden the specifications if the project will permit
alteration in the specifications. The sole source option is the part of the selection of bidders that
acknowledges there is sometimes only one reasonable supplier for some services or products.
This can be because of the limited applications for the product cannot support more than one
manufacturer, proximity of the service provided, or the products are newly designed or invented
and competition is not yet available.

Bidding Process

This is the process an organization utilizes to procure goods, services or equipment. Processes
vary significantly from the stringent to the very informal. Large corporations and governmental
entities are most likely to have stringent and formal processes. These processes can utilize
specialized bid forms that require specific procedures and detail. The very stringent procedures
require bids to be open by several staff from various departments to ensure fairness and
impartiality. Responses are usually very detailed. Bidders not responding exactly as specified
and following the published procedures can be disqualified. Smaller private businesses are more
likely to have less formal procedures. Bids can be in the form of an email to all of the bidders
specifying products or services. Responses by bidders can be detailed or just the proposed dollar

Most bid processes are multi-tiered. Acquisitions under a specified dollar amount can be “user
discretion” permitting the request or to choose who ever they want. This level can be as low as
$100 or as high as $10,000 depending on the organization. The rationale is the savings realized
by processing these request the same as expensive items is minimal and does not justify the time
and expense. Purchasing departments watch for abuses of the user discretion privilege.
Acquisitions in a mid range can be processed with a slightly more formal process. This process
may involve the user providing quotes from three separate suppliers. Purchasing may be asked or
required to obtain the quotes. The formal bid process starts as low as $10,000 or as high as
$100,000 depending on the organization. The bid usually involves a specific form the bidder fills
out and must be returned by a specified deadline. Depending of the commodity being purchased
and the organization the bid may specify a weighted evaluation criterion. Other bids would be
evaluated at the discretion of purchasing or the end users. Some bids could be evaluated by a
cross-functional committee. Other bids may be evaluated by the end user or the buyer in
Purchasing. Especially in small, private firms the bidders could be evaluated on criteria or
factors that have little if anything to do with the actual bid. Examples of these factors are history
of the bidder with the company, history of the bidder with the company’s senior management at
other firms, and bidder’s breadth of products.
Enterprise Resource Planning OM 0011 Assignment Set 1 page:16 of 17
Technical evaluation

Technical evaluations, evaluations of the technical suitability of the quoted goods or services, if
required, are normally performed prior to the commercial evaluation. During this phase of the
procurement process, a technical representative of the company (usually an engineer) will review
the proposal and designate each bidder as either technically acceptable or technically

Commercial evaluation

Payment Terms

Cost of Money is calculated by multiplying the applicable currency interest rate multiplied by
the amount of money paid prior to the receipt of GOODS. If the money was to have remained in
the buyer's account, interest would be drawn. That interest is essentially an additional cost
associated with such Progress or Milestone payments.

The manufacturing location is taken into consideration during the evaluation stage primarily to
calculate freight costs and regional issues which may be considered. For instance, in Europe it is
common for factories to close during the month of August for Summer holiday. Labor
agreements may also be taken into consideration and may be drawn into the evaluation if the
particular region is known to frequent labor unions.

The manufacturing lead-time is the time from the placement of the order (or time final drawings
are submitted by the Buyer to the Seller) until the goods are manufactured and prepared for
delivery. Lead-times vary by commodity and can range from several days to years.

Transportation time is evaluated while comparing the delivery of goods to the Buyer's required
use-date. If Goods are shipped from a remote port, with infrequent vessel transportation, the
transportation time could exceed the schedule and adjustments would need to be made.

Delivery Charges - the charge for the Goods to be delivered to a stated point. Bid Validity
Packing Bid Adjustments Terms and Conditions Seller's Services Standards Organizations
Financial Review Payment Currency Risk Analysis - market volatility, financial stress within the
bidders Testing


Negotiating is a key skillset in the Purchasing field. One of the goals of Purchasing Agents is to
acquire goods per the most advantageous terms of the buying entity (or simply, the "Buyer").
Purchasing Agents typically attempt to decrease costs while meeting the Buyer's other
requirements such as an on-time delivery, compliance to the commercial terms and conditions
(including the warranty, the transfer of risk, assignment, auditing rights, confidentiality,
remedies, etc).
Enterprise Resource Planning OM 0011 Assignment Set 1 page:17 of 17
Good negotiators, those with high levels of documented "cost savings", receive a premium
within the industry relative to their compensation. Depending on the employment agreement
between the Purchasing Agent (Buyer) and the employer, Buyer's cost savings can result in the
creation of value to the business, and may result in a flat-rate bonus, or a percentage payout to
the Purchasing Agent of the documented cost savings.

Purchasing Departments, while they can be considered as a support function of the key business,
are actually revenue generating departments. For example, if the company needs to buy $30
million USD of widgets and the Purchasing Department secures the widgets for $25M USD, the
Purchasing Department would have saved the company $5M USD. That savings could exceed
the annual budget of the department, which in effect would pay the department's overhead - the
employee's salaries, computers, office space, etc.

Post-Award Administration

Post-award administration typically consists of making minor changes, additions or subtractions,

that in some way change the terms of the agreement or the Seller's Scope of Supply. Such
changes are often minor, but for auditing purposes must be documented into the existing
agreement. Examples include increasing the quantity of a Line Item or changing the metallurgy
of a particular component.

Order Closeout

Is the closing of order.
Supply Chain Management
OM 0012

Assignment Set – 1
Supply Chain Management OM 0012 Assignment Set 1 page:1 of 10
Q1. How has the concept of Supply Chain Management evolved over the years? Depict in
chronological order.:

The evolution of the SCM has moved from disparate functions of logistics, transportation,
purchasing and supplies and physical distribution to focus on integration, visibility, cycle time
reduction and streamlined channels. The new integration has a variety of activities such as,
Integrated Purchasing Strategy, Supplier Integration, Buyer-Supplier Partnerships, Supply Base
Management, Strategic Supplier Alliances, Supply Chain Synchronization, and finally simply
SUPPLY CHAIN MANAGEMENT. The success of these activities lie in having a corporate
vision that drives change throughout a firm's internal and external linkages or interfaces.

The activities of logistics are centuries old as discussed earlier. In early 1900s, the farm products
distributors realized the importance for providing time and place utility. The word logistics was
first associated with the military in 1905 as a branch of war that pertains to the movement and
the supply for armies. During World War II, military forces made effective use of logistics
models and forms of systems analysis to ensure that the required material was at the right place
on time every time. An indication of the increased use of the term logistics during that time
could be noticed in the statement of the Chief of Naval Operations, who reportedly said that he
did not know what logistics was, however, he certainly wanted it to be used. The term logistics is
widely used in military and military type applications even today.

Until about mid 1950's, the field of supply chain management was in a state of dormancy. The
piecemeal and isolated fragmented set of activities was rampant. Production and manufacturing
were given uppermost attention. The inventory was the responsibility of the marketing,
accounting and/or production areas and order processing was an accounting or sales
responsibility. This fragmented way resulted in a great deal of friction on account of the
conflicting objectives between production, marketing, accounting and finance.

This led to the assertion in the early 1960's that logistics was one of the real frontiers of
opportunity for enterprises to improve their corporate efficiency. Initial focus and emphasis was
on the internal front, limited to productivity within the four walls of the factory or manufacturing
till the 1970's. During the Ethiopian famine relief efforts of the 1980's, the term logistics was
applied to the food-supply activities. World Vision International, one of the many relief
organizations at work there, produced a manual entitled Getting It There- A Logistics Handbook
for Relief and Development. The 1980's stressed the need for quality, whereas the 1990's have
seen the emergence of the supply chain management and the millennium trends on e-business or
IT enabled supply chains.

SCM formerly known as logistics management now includes more aspects apart from tthe
logistics function. SCM is one of the most powerful engines of business transformation that
basically means delivering the right product to the right place at the right time and at the right
price. SCM is the one area wherein much operational efficiency can be gained, thereby reducing
organizations costs and enhancing customer service. The evolution is towards internet-based
application for SCM.

Gradually, the marketing people started giving greater emphasis to distribution, giving rise to
physical distribution management or in today's parlance 'outbound transportation'. This was
different from the demand creation side of marketing.
In 1991, the international Council of Logistics Management (CLM), defined logistics as "the
process of planning, implementing, and controlling the efficient, effective flow and storage
of goods, services, and related information from the point of origin to the point of
Supply Chain Management OM 0012 Assignment Set 1 page:2 of 10
consumption for the purpose of conforming to customer requirements".

Some of the terms like logistics, inbound logistics, materials management, physical distribution,
supply chain management seem to be used interchangeably. Very briefly, inbound logistics
covers the movement of material, components and products received from the suppliers.
Materials management describes the material handling part of the movement of the material and
components within the factory or firm. Physical distribution, refers to the movement of the
finished goods outward from the end of the assembly line from the shipping or dispatch
department. Logistics describes the entire process of material and products moving into, through,
and out of a firm. Finally as of today, it is the Supply Chain Management that is conceptualized
as something even larger than logistics, that links logistics more directly with the user's total
communications network and with the firm's engineering staff. It is sufficient to know this much
at the present juncture on supply chain management, as in the chapter Process View of SCM
where we will explore different views on supply chain management.

A supply chain is, in fact, a network of facilities and distribution options that necessarily
performs the functions of procurement and acquisition of material, processing and
transformation of the material into intermediate and finished tangible products and finally the
physical distribution of the finished tangible products to the customers, whether intermediate or
final ones. As already indicated, supply chains exist in both manufacturing as well as in service

Supply Chain Management is a set of approaches utilized to efficiently integrate suppliers,

manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the
right quantities, to the right locations, and at the right time, in order to minimize system wide
cost while satisfying service level requirements.

Duration Events in SCM Evolution

Ancient Times The Barter System evolved as an answer to the trading requirements. This was
the first supply chain.
300 BC Caesar made trading posts in East Asia to grow his trade. This was the first
retailer supplier relationship.Establishment of the silk route to India.
1151 First known fire and plague insurance offered in Iceland.
1305 House of Taxis operated courier messenger service for the rich European
clients. (A kind of primitive Outsourcing)
1621 Dutch West India Co. formed to trade with America and West Africa.
(A pseudo third party logistics (3PL) by the Dutch Companies.)
1904 Charles S. Rolls became selling agent for cars made by F. Henry Royce. (The
first traces of outsourcing).
1956 Warren Buffet started investment partnership in Omaha with money from
family and friends and he went on to become a billionaire. (An overseas 3PL)
1960-1975 The essence of SCM understood. This first phase is characterized as an
inventory 'push' era that focused primarily on physical distribution of finished
1975-1990 The earlier approach changed. Companies began migrating from an inventory
push to a customer pull channel as power began to move the downstream to the
1980 In the last phase, companies realized that the productivity could be increased
significantly by managing relationships, information and material flow across
enterprise borders. This resulted in the present concept of supply chain
Supply Chain Management OM 0012 Assignment Set 1 page:3 of 10
1981 IBM outsourced almost all of its activities and built a full computer.
1985 Wal-Mart introduced the concept of Cross Docking and replaced K-Mart as the
leader in retail stores.
1985- Cisco removed itself from the supply chain by providing to the customer
directly from the vendor.
1990 Computer changed the way business is done.
1996- Internet revolutionized the information pathway and the distribution system of
the business.
1998- The concept of e-commerce changed the definition of business itself.
2000- Currently concepts like t-commerce and digital TV are beginning to take shape.

Q2. Customer service is vital for Logistics operations. Discuss.

Logistics is a process which interfaces and interacts with the entire company and with external
companies, vendors, customers, carriers and more. Logistics is responsible for the movement of
products from your vendors right through to the delivery at your customer's door, including
moves through manufacturing facilities, warehouses, third-parties, such as repackagers or
distributors. It is not shipping and receiving, nor is it traffic or warehousing. It is more.

Logistics must make work effectively. This is required by your customers and, in turn, by your
company. For effective logistics, there are five key issues--

• Movement of product. This is often the way that logistics is viewed in many companies.
Rush ship an order. Expedite in a component. But there is more. Products moves should
complement the corporate strategy. If the emphasis is on cost reduction, lower inventories,
customer service or whatever, then products must move in a way that is consistent with the
emphasis. Product must also flow, not just move, from, to, between and among vendors,
manufacturing sites, warehouses and customers. If it does not flow, then there is not a supply
pipeline. Instead there are imbalances in inventories with components and finished goods not
being where they should be.

The movement may be extremely broad in geographical scope. Raw materials and completed
units can move between and among all regions of the world. While other departments in the
company may focus on select geographical regions for sourcing, manufacturing or sales,
logistics must deal with all of these. Everything must move.

The movement plan must be flexible. Forecasting may be the weak link in all corporate
planning and execution. So the movement must be able to adjust and deal with the swings in
business activity. This may require a multi-mode, and/or a multi-carrier and/or multi-level
service program to keep the global supply chain moving smoothly. For example, it may
require a mix of ocean and air modes to keep a smooth pipeline, especially if there are
significant swings in volumes and requirements. Or a mix of fast-boat and slow-boat transit
time ocean carriers, trading off transit time and freight costs for sea freight service. Or, if the
destination is on the East Coast, a mix of MLB service and all-water, similar to the multi-
carrier approach but staying, perhaps, with the same steamship line.
• Movement of information. It is not enough to move product and materials. You must
know where they are. You must know what inventories are where and if critical action is
Supply Chain Management OM 0012 Assignment Set 1 page:4 of 10
required. You must know what orders are coming in and when they must be delivered.
Information--timely and accurate-- is vital for sound decision-making.

The information must flow between the company and its suppliers, carriers, forwarders,
warehouses and customers. It must also move internally among purchasing, customer service,
logistics, manufacturing, sales, marketing and accounting. And doing this goes beyond Email,
faxes and phone calls. Investment in information technology is not an alternative anymore; it
is a requirement for logistics and corporate effectiveness.

Systems should exist at the macro or corporate level and view. Since logistics is a process
which interacts with many other groups in the company, it is fundamental that a corporate
system be in place. It has to be dynamic for handling customer orders, production planning,
material requirements planning, distribution requirements planning, finance and sales
forecasting. It must be able to receive orders via EDI, transmit Advance Ship Notices,
accommodate multiple warehouse and plant locations in both a single site and aggregated
views, track inventories at various levels, such as eaches and cases, and more.

There must also be systems at the micro, or logistics level and view. Programs are needed for
warehouse management, cross-docking, shipment tracking for example. Each in turn takes
technology, with bar-coding and scanning. These satisfy the operations/reactive and the
planning/anticipatory needs.

• Time/service. The ability to respond to the dynamics of the global marketplace--changing

forecasts, customer requirements, new product introductions, new sourcing, and how to
manage all these changes--must be done quickly. Raw materials and components must be
ordered and arrive completely, accurately and quickly. Orders must be filled completely,
accurately and quickly. It is no longer months or weeks for lead times. It may not even be
days. Hours may decided customer service, competitiveness and value-added. Back orders are
not tolerated. If your company cannot properly respond, your customers will look for those
who can.

Service is more than having to expedite a shipment. Time/service is a factor of competition,

customer requirements, your company's position in the industry, your corporate culture, how
well everyone in the global supply chain works together, and how well everyone works
together in your company. Logistics is the link among all this. And the more diverse the
geographical scope of vendors, manufacturing, warehouses and customers, the more critical is
time. Distance means time. Yet time delays are not acceptable. Movement of product and
movement of information show their impact here.

• Cost. Cost is the key measure by which logistics effectiveness is often measured. Freight,
warehouse labor, public warehouse charges and other items on the P&L. Or inventory, a
balance sheet item. Cost control, containment, and management is important for corporate
profitability. Fiscal stewardship is a duty of all managers. The highest price does not mean the
best service, and it may not be the service you need. Nor does the lowest price necessarily
meet your needs.

There is no doubt about how important costs are. But the company must be careful.
Minimizing the cost of the various logistics elements, such as freight and warehousing, can
suboptimize the effectiveness of the logistics group and of the company in satisfying its
Supply Chain Management OM 0012 Assignment Set 1 page:5 of 10
Cost has a relation to service. They go hand in hand. As you define your service against your
costs or costs against service, the give and take develops into your operating costs and
budgets. Then you have to make sure that the cost can be managed. Otherwise costs can go
out of control, or seem to.

However, there is no ready mechanism which really makes proper recognition in costs for
time/service or for adjustments in any part of the company plan. There is no item in the P&L
or balance sheet for Time/Service, which is the driver of a company's logistics efforts.
Logistics cost measurement is a shortcoming in the present accounting systems. There were
designed when the Model A was being built and are not adequate in today's competitive
business world. They make discreet cost buckets in a weak attempt to measure a dynamic,
global logistics process.

In addition there may be other issues such as currency conversion and fluctuations. Air freight
is quoted in the currency of the origin country. Ocean terminal and other accessorial origin
charges are also in origin country currency. Warehouses in other countries will invoice in
origin currencies. Currency conversion and dynamics can create unfavorable or favorable cost
variances which have nothing to do with logistics performance.

• Integration--within your company, between you and your customers and between you
and your vendors. Integration--bringing it all together--within your company is vital.
Logistics is a process. Effectiveness requires that each relevant element of the organization do
its part. However there is a problem with doing this. The organization chart. The traditional
organization with its boxes and defined responsibilities is a collection of functional silos.
Each silo segments and collects different parts of the vendor purchase/manufacturing/sales
activity and stores it. Hence there is no process. There is a compartmentalization, a
fragmenting of the process. This creates an anti-process effect.

In addition to internal integration, you must bring together and work with the external players.
Your vendors, including your carriers and warehouses, must understand what you are doing
and why. You must share your logistics vision and plan with them. This sharing and
understanding will better enable them to cooperate with and assist you. They may be able to
offer ideas and gainsharing to further improve the logistics effectiveness and the key issues
with it.

Integration with customers is important. You and everyone in your company must be working
and satisfy your customers. You should review written customer requirements with everyone
in the logistics department and with everyone in the company. It is not enough to a company
to tear apart the written requirements and hand them to various departments. That is not
integration. That is functional silos.

Meeting with key customers is very good. A face-to-face discussion with him about his
requirements and how you will meet them is important. This shows how much you value him
and want to work with him. What does he need? How does he need it? Why does he need it?
When does he need it? The more you know about your customer and his needs, the more
valued of a supplier you are to him. This is a competitive advantage. Partnerships and
alliances can be developed or enhanced.

Conclusion. Logistics is a process which runs from the vendor's door through to the customer's.
It interacts with almost every group within the company and with many companies outside the
company, including its customers. Effective logistics revolves around five key issues--movement
of product, movement of information, time/service, cost and integration. Each of this is critical to
Supply Chain Management OM 0012 Assignment Set 1 page:6 of 10
the success of logistics and to creating value-added to the company and improving

Q3. “The utility of forecasts can be enhanced through collaborative forecasting among
supply chain partners.” Explain?

Supply chain management covers a multitude of tasks ranging from procurement of

materials to transformation of these materials into intermediate and finished products and
the distribution of these finished products to customers. The objective is to manage and
control the material and information flow along the whole supply chain, so that the right
products can be delivered in the right quantities at the right places at the right time at
minimal cost. Demand forecasting is an important task in the management and
optimization of supply chains that has a huge impact on a firm's profitability under
uncertain business environment. Since the party closest to the market has most
information, system-wide information asymmetry exists in the supply chain. A well-
known phenomenon, known to researchers and practitioners in operations management for
many years is the "bullwhip" effect [2], which refers to amplified demand fluctuation from
downstream to upstream trading partners caused by multi-point forecasting at each
echelon of a supply chain. The bullwhip effect has caused supply chains in the retail
industry as a whole and in textile retail in particular, to lose billions of dollars every year
in lost revenues and inventory cost. Lack of information sharing has been identified as one
of the major reasons leading to SCM inefficiency. Many organizations have realized that
sharing information with other supply chain partners can lead to significant cost reduction.
Collaborative planning, forecasting and replenishment (CPFR) is a relatively new
approach aimed at achieving accurate demand forecasts and improving supply chain
operations by sharing demand relevant information between trading partners in the supply
chain. The key information includes point-of-sales (POS) data, future planned sales
promotions, or inventory adjustments that would not have been known to the upstream
partners if not shared. With the enhanced information visibility into the replenishment
planning processes beyond the usual order cycle, demand forecast accuracy can be greatly
improved. The reduction in forecast error across the supply chain improves operational
efficiency among the supply chain partners and, therefore, yields mutual benefits.
Although conceptually attractive, a major challenge is the trading partners' unwillingness
to share detailed information with the perception that other parties can unfairly exploit the
information for their own benefits. Private information is normally viewed as a source of
competitive advantage and is not freely shared among supply chain entities without a
proper incentive mechanism. Due to firms' unwillingness to disclose proprietary demand
information, credible information sharing is always viewed as a big obstacle in effective
number of suppliers and manufacturers must work together to manage the flow of material
and information. Without proper streamlining of the information and material flow in this
highly complex supply chain, billions of dollars can be lost in the form of stockouts,
defects, mark-downs, and inventory costs. While the above sequence of business
processes describes a supply chain, supply chain management refers to planning, design,
and control of the flow of information and materials along the supply chain in order to
meet customer requirements in an efficient manner. In traditional supply chain
management, distributors play an important role in providing a shipment
consolidation/integration function. Distributors collect orders from the retailers, fill the
orders from their own warehouse inventory, and order products with the manufacturers.
Since out-of-stock merchandise results in lost sales and possibly lost customers,
distributors must be able to supply retail product demands quickly from inventory on
hand. Thus, distributors have to maintain large inventories in warehouses as a buffer
against demand uncertainty and possible product delivery delays by manufacturers.
Supply Chain Management OM 0012 Assignment Set 1 page:7 of 10
Accurate forecasts on both the retailers' orders and the end consumer market demand have
an effect on the distributors' efficient inventory management. Distributors usually adopt a
periodic review inventory policy. When the inventory level is lower than a specific
amount, distributors order products from manufacturers. Distributors place orders with
manufacturers based on two important criteria: the retail demand and the wholesale price.
Thus, distributors must forecast both future demand and future manufacturer pricing
levels. Generally, distributors order products from manufactures in full truckload
quantities to minimize shipping costs. There is also a processing cost for a purchase
transaction. These factors contribute to orders in large batch sizes that do not reflect real
demand. To take advantage of the trade promotions (i.e., wholesale price discounts)
provided by the manufacturer during a short period of time, strategic distributors tend to
order with a deviation from actual demand. The distorted demand information can be a
problem to the manufacturers, as it leads to uneven production schedule and unnecessary
inventory cost. This can cause one of the biggest problems in traditional supply chain
management, termed the "bullwhip effect" [2], a phenomenon that creates fluctuation of
order information and is amplified from downstream to upstream in the supply chain.
Sharing POS data, exchange of inventory status information, order coordination, and
simplified pricing scheme can help mitigate the bullwhip effect. However, it remains a
challenging question as to why the downstream players in the supply chain would provide
upstream partners with the necessary but possibly sensitive data.

Q4. Lack of co-ordination in a Supply Chain leads to deterioration of service and an

increase in cost within the Supply Chain.” Explain

Lack of co-ordination in a Supply Chain leads to deterioration of service and an increase

in cost within the Supply Chain. Supply Chain co-ordination improves if all stages of the
Supply Chain put effort together to increase total Supply Chain profits. For this, it is
necessary that each stage of the Supply Chain take into account the impact of its action on
other stages of the Supply Chain
A lack of co-ordination results either because of different stages of Supply Chain with
conflicting objectives or because information flows between different stages is distorted. When a
different owner owns each stage of the Supply Chain then each stage tries to maximise its own
profits resulting in actions that often diminish total Supply Chain profits. Supply Chain often
consists of stages with a large number of different owners. For example, a large automobile
manufacturing firm may have thousands of suppliers and each of these suppliers may have
several other suppliers in turn.
Many firms have experienced an effect which is called “Bullwhip effect” or “Whiplash
effect” in which fluctuations in orders increase as they move up the Supply Chain from
retailers to wholesalers and to manufacturers to their suppliers. The Bullwhip effect
distorts the demand information within the Supply Chain by means of different stages
which have a very different estimation of what demand looks like. The Bullwhip effect
results in a loss of Supply Chain co-ordination.
It is difficult to achieve co-ordination within a Supply Chain if each stage of the Supply
Chain optimises its local objective without considering the impact on the entire Supply
Chain. Proper co-ordination would increase the total Supply Chain profits. Information
distortion is another reason for lack of co- ordination. For example, availability in the
estimation of demand at various stages in the Supply Chain due to Bullwhip effect has an
impact on various measures of performance in a Supply Chain. These measures of
performance are:
• Manufacture cost
• Inventory cost
Supply Chain Management OM 0012 Assignment Set 1 page:8 of 10
• Replenishment lead time
• Transport cost
• Labour cost for shipping and receiving
• Level of product availability and
• Relationships across the Supply Chain

Q5. Elaborate the concept of „Supply Chain Management and its integration with
the 'quality consciousness movement'.

The whole concept of 'Supply Chain Management' has undergone a recent metamorphosis. Over
the years, it has become highly integrated with the 'quality consciousness movement' starting
with quality control in 1960s, quality assurance in 1970s, quality systems in 1980s, and total
quality management during the 1990s. The impact of Supply Chain Management is found in
such processes as Just In Time (JIT), Product Chain Partnership, and benchmarking. The Internet
and subsequent growth of e-commerce over the last couple of years have revolutionised our daily
life personally and business wise. The Internet has refurbished the existing business practises and
it continues to evolve the new ones.
CPFR is the most comprehensive and extensive model of Supply Chain Management. It
integrates the entire process rather than targeting specific areas. It also ensures a higher
achievement of customer satisfaction by bridging the gap between the supply and demand
processes throughout the organisation. This reduces the cycle time and increases customer
Steps in implementing CPFR
There are nine steps in CPRF implementation. They are:
1. Develop front-end agreement: The parties involved establish the procedures and rules for the
collaborative relationship.
2. Create joint business plan: The parties involved create a business plan that takes into account
their individual corporate strategies and defined category roles, objectives, and tactics.
3. Create sales forecast: One party to create an initial sales forecast uses retailer Point of Sales
data, causal information, and information on planned events. This forecast is then communicated
to the other party and it is used as a baseline for the creation of an order forecast.
4. Identify exceptions for sales forecast: Products that fall outside the sales forecast constraints,
set the front-end agreement are identified.
5. Resolve/Collaborate on exception items: The parties discuss and produce an adjusted forecast.
6. Create order forecast: Causal information and inventory strategies are combined to generate a
specific order forecast that supports the shared sales forecasts and joint business plan.
7. Identify exceptions for order forecast: Products that fall outside the order forecast constraints,
set jointly by the parties involved are identified.
8. Resolve/Collaborate on exception items: The parties negotiate again (if necessary) to produce
an adjusted order forecast.
9. Order generation: One of the parties involved will get a firm order from the order forecast.
Supply Chain Management OM 0012 Assignment Set 1 page:9 of 10

Q6.Give a brief introduction on all steps involved in Procurement process?

1. Need for Procurement Strategy: An appropriate strategy for procurement and

supply management should be formulated before initiating the procurement
process. It is considered essential for meeting the aims and objectives of the
project, and to bring efficiency to the system. Key factors influencing the
procurement strategy relate to the degree of complexity and uncertainty about the
requirement, together with the time needed to achieve a successful outcome.
2. Requirements of a Good Strategy:
• The foremost requirement of the strategy should be to ensure adherence to
the norms laid down by the Government of India and the Development
Partners. It should essentially take into account the broad parameters of
public procurement, viz:
• Transparency of the process
• Equality of opportunity
• Accountability
• Equitable treatment to the suppliers , contractors and service
• Dispute Resolution System
• The second requirement should be capacity building for procurement and
supply chain management operations and to decide on appropriate level of
purchasing and supply chain activities at central, state and district levels.
• Supply of goods under NACP II had been out sourced to PSUs. It has now
be decided to shift this responsibility to a qualified procurement agent
selected through QCBS under World Bank guidelines, and till such time
that a qualified procurement agent has been appointed, urgent
procurement will be handled by EPW under an oversight arrangement
agreed by NACO with the pooling partners.
Methods of procurement to be adopted as well as procurement reviews by the
World Bank will be decided based on the total value of the tender rather than the
value of each individual contract/ schedule/ lot/ slice.
3. Deciding on Procurement Strategy:
It is important to agree on the procurement strategy before initiating the tendering
process. For example, purchase of drugs having limited shelf life shall require
different procurement strategy than purchase of other durable goods. Similarly for
Procurement Manual for NACP - III 8
civil works, options like work contract on lump-sum basis or based on bill of
quantities could be explored. The procurement strategy should cover:
• key objectives of the procurement for the project;
• chosen procurement option;
• chosen procurement route (Open, Restricted/limited);
• key milestones (check that enough time will be allowed for various procurement
• key documents e.g. requirements specification.
Key factors influencing the procurement strategy relate to the degree of complexity,
innovation and uncertainty about the requirement, together with the time needed to
achieve a successful outcome.
II. Procurement Plan and Procedures
While resorting to procurement, specific budget provision should be available for
Supply Chain Management OM 0012 Assignment Set 1 page:10 of 10
meeting the expenditure in the financial year in which it is to be incurred.
a) Procurement Plan
• Preparation of a procurement plan is an essential requirement.
Procurement plan covering civil works, equipment, goods, consultancy
services and resource support shall be prepared on a firm basis for first 18
months of the programme and on a tentative basis for the subsequent
• Procurement plan shall be prepared every year for proper monitoring and
• Procurement plan shall be prepared contract wise.
• Method of purchase shall primarily be based on the value of the contract
(or tender as applicable). Other relevant factors are urgency of the
demand, type of goods/services and availability of different sources of
supply etc
• Limit of value per contract (or tender as applicable) applicable to the
particular procurement procedure shall be strictly adhered to.
• It shall be ensured that the procurement is based strictly on actual need.
Procurement Manual for NACP - III 9
b) Procurement Procedure
The procurement procedure broadly consists of the following steps*:
1. Assessment of requirement
2. Deciding procurement strategy including technical specifications*
3. Mode of procurement
4. Preparation of tender document*
5. Advertisement of the tender*
6. Issue of tender documents
7. Opening of the tender
8. Evaluation of the tender*
9. Award of contract*
10. Notification of delivery to consignee
11. Pre-dispatch Inspection and testing
12. Receipt of consignment
13. Acceptance, storage and use (or issue) of the material.
14. Resolution of disputes, if any
15. Feedback to the purchasing authority on performance of the supplier.
Advanced production and
operations management
OM 0013

Assignment Set – 1
Advanced production & operations management OM0013 page:1 of 21
Assignment Set 1
Q 1 Explain with an example the impact of product or service life cycle on operation

The late 1970s and the early 1980s saw the development of the manufacturing strategy paradigm
by researchers at the Harvard Business School. This work carried out by professors William
Abernathy Kin clerk, Robert Hayes, and Steven wheel Wright emphasised on how
manufacturing executives could use their factories’ capabilities as strategic competitive weapons.
Their main theme was concerned with the idea of factory focus and manufacturing tradeoffs.
They knew that a factory cannot excel in all performance measures. Its management must device
a focused strategy, creating a focused factory that performs a limited set of tasks efficiently. This
required tradeoffs among such performance measures as low cost, high quality, and high
flexibility in designing and managing factories.
Operations as a Service
The emerging model in industry focuses on the service business. This model always holds true,
whether the organisation develops airplanes or computers. In the manufacturing sector, such
services can be divided into care and value-added services that are provided to internal and
external customers of the factory. The core services customers, or the external customers, want
the products that are customised to their needs, delivered on time, and priced competitively.
These are commonly summarised as the major performance objectives of the operations
functions: quality, flexibility, speed and price (cost of production)[1]. Value added services
simply make the external customers size easier or in the case of internal customers, help them
carry out their particular functions efficiently. Value added factory services can be classified into
four broad categories, they are:
· Information: It is the ability to furnish critical data on product performance, process parameters
and cost to internal groups (such as Research and Development) and to external customers, who
then use the data to improve their own operation or products. For example, many companies
provide quality data sheets documenting actual product testing and field quality performance to
field sales and service personnel.
· Problem solving: It is the ability to help internal and external groups solve problems especially
in quality. For example, a metal and fabricator company sends factory workers out with sales
people to troubleshoot quality problems. This helps them join with shop floor personnel on
remedial efforts.
· Sales support: It is the ability to enhance sales and marketing efforts by demonstrating the
technology, equipment, or production system the company is trying to sell. For example, Eureka
Forbes organises Kiosks in busy area to demonstrate its water purifier, vacuum cleaner and other
· Field support: It is the ability to replace defective parts quickly (for example, Caterpillar
promises to make repair parts available anywhere in the world within 48 hours) or to replenish
stocks quickly to avoid downtime or stock outs (for example, a retail chain is linked to its Hong
Kong textile mills via a sophisticated computer system that signals factories to begin producing
fast selling items as soon as weekly sales figures are collected).
Value added services provided to external customers yield two benefits. Firstly, it helps them to
differentiate the organisation from the competition. Indeed in many cases it is easier to copy a
firm’s product than to create the value added service infrastructure to support. Secondly, these
services build relationships that bind customers to the organisation in a positive way.
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The design and ongoing management of a firm’s operation have a significant impact on the
financial success of the firm. The firm’s strategy is implemented with a design that is portrayed
financially in the assets of the firm. Each asset - be it a plant, a warehouse, an operations centre,
or the inventory carried in these facilities is owned by the firm and requires a significant
investment. The firm’s owners and shareholders want a return on this investment. Decisions such
as how big a plant should be, how many plants there should be and where to locate them and
whether or not certain operations should be outsourced are major topics of operations
management. Other decisions such as how much inventory is needed to meet required service
levels, relate directly to the asset investment. Figure 2.1 shows the competitive dimensions of a

Figure 2.1: Competitive Dimensions of a Firm

Many of the costs that affect the firm’s profitability are incurred by the operations of the firm.
Deciding on an appropriate number of workers, scheduling these workers, and deciding whether
over time or multiple work shifts should be employed directly relate to the strategy and
competitiveness of the firm. Operations management is dynamic and challenges posed by global
enterprises present new issues for operations managers. The major issues are:
Coordinating Relationships in Outsourcing and Contracts
Recently, there has been a huge surge in the outsourcing of parts and services that had previously
been produced internally. This has been made possible by the availability of fast and inexpensive
There are a number of contract manufactures who specialise in performing focused
manufacturing activities. The success of outsourcing has led companies to consider outsourcing
major corporate functions such as information systems, product development and design
engineering services, packaging, testing and distribution. The ability to coordinate these
activities is a significant challenge for modern operations managers.
Optimisation of Global Supplier, Production and Distribution Networks
The implementation of global Enterprise Resource Planning (ERP) systems has challenged
managers to use all of this information. This requires careful understanding of where autonomy
is important. Companies have only begun to take advantage of the information from these
systems to optimally control such resources as inventory transportation and productions
Increased Co-production of Goods and Services
The internet has opened new ways for the customer to interact directly with a firm. Simple direct
entry and monitoring of orders is only the first step in ensuring value to the customer through
information sharing. Intelligent use of information technology allows the shedding of entire
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layers of inefficient customer oriented functions within a firm, resulting in dramatic reductions in
cost while actually improving service to the customer.
Managing Customer Touch Points
As companies strive to be more efficient, customer support and training become the first areas to
take cost cutting. This will eliminate customer frustration and results in avoidable frustration to
the customers and results in implied costs in the form of litigations and lost customers.

Q 2 Explain the types of value added factory services. Explain the major competitive
dimensions of operations strategy.

Operations as a Competitive Weapon

In addition to developing the organisations strategy, each functional unit within the organisation
should establish a strategy and work to achieve its goals. Traditionally, the organisation
strategies of most companies focused on the marketing function – which products to make,
which market to penetrate etc. However, most aspects of the marketing function affect the
operation function to some degree. Every time a product is introduced or revised, or the product
promotion is changed, the production system feels the effect. This is especially true for services,
where the service system is the product.
The following example shows how operational strengths can be used effectively as competitive
· Product / process expertise: A company can have special expertise in making certain
products. For example, Sharp Corporation has prospered in consumer electronics - thanks to its
dominance in producing liquid crystal displays.
· Quick delivery: A company can have a production process and capacity, enabling it to produce
and satisfy a customer’s request quickly. Some examples are one hour eyeglass manufacturing,
one hour photo developing and same day dry cleaning and shoe repair.
· Short product cycle: Research has shown that the first company to enter a market gains a
significant market share advantage over subsequent competitors. A market entry study by AMC
Kinsey showed that a delay of six months in bringing a product to market can cost a company
one-third of the products life time project potential. The study showed that companies which are
able to put new products into production quickly are at an advantage. For example, Hewlett
Packard (HP) has dominated the larger printer industry because it was the first to enter the
market in that sector, and it has continued to bring out new products regularly, thus keeping itself
ahead of its competitors.
· Prediction flexibility: Some companies specialise in having highly flexible and responsive
operations Celestica, a Canadian computer component manufactures uses equipment that is not
bolted to the floor so that production lines can be reconfigured within hours or days to make new
and different products. This flexibility has allowed Celestica to expand from making a few
products for only customer (IBM) to making hundred of products for over 40 different
companies. Likewise Dell Computer established itself initially by using a build to order
production system that promised delivery of customised personal computers within five days of
· Low cost process: A company with a special efficient production system or access to a low
cost resource is able to make standard products at lower cost than its competitors. For example,
steel companies such as Nucor have competed successfully on price against larger integrated
steel producers by using processes called mini mills. Mini mills gain their price advantage by
processing scrap steel rather than producing primary steel from iron ore and by producing a
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limited set of commodity products. In the service sector, south most airlines in the US, Rayon
Air in Europe and Air Deccan, Indigo and Spice Jet in India have established themselves as pure
low cost players.
· Convenience and location: Facility location can provide substantial competitive advantages
especially when it is interwoven with the marketing strategy. For example, American Express
Corporation competes primarily based on location convenience. It has more offices located
throughout the world to replace lost or stolen travellers cheques and to provide other travel
services than its competitors. This convenience allows American Express to charge higher fees
for many of its services.
· Product variety and facility size: In some industries, the variety of products offered and the
size of operations can provide a competitive advantage. For example, Crockery stones and super
store retailers increasingly compete by having larger stores that carry a larger inventory of
products and offer additional services, such as video rental and banking services.
· Quality: A company that can produce a project of higher quality than its competitors can
increase its sales volume while commanding a higher price. Toyota motors and Mc Donald’s are
two examples of companies that have used quality as a competitive weapon. Both companies
initially used low price as their primary order – winning dimension, and they developed
production processes that allowed them to be low cost producers. But each company worked
hard on its production processes to develop a reputation for high quality as well. Toyota is able
to outsell competitors consistently while being priced higher because of its higher perceived
quality. One component of product quality, especially for restaurants, is product consistency. Mc
Donald’s restaurant has been especially successful at achieving consistency with respect to food
quality, quick service, and cleanliness of facilities.
There are ten principles which may guide a firm in the choice of key aspects of competitive
strategy. They are:
· Process driver across all organisational functions
· Total employee involvement
· Good labour management relations
· Effective leadership and cross communication
· Adaptability to a changing environment
· Visibility and control of all processes
· Reducing waste
· Customer orientation
· Standardisation
· Quality awareness and quality control
The applicability of these principles depends on the market characteristics and nature and extent
of competition.
Competition and Its Forces
There is competition when different organisations supply similar products to satisfy customers in
the same market sector. In such scenarios the customer demands products in preference to
similar products from competitors. To achieve this, the organisation must have some kind of
competitive advantage over its competitors to make it the supplier of choice. There are many
ways of achieving this competitive advantage – low price, high quality, product features
innovation, availability, convenient location, customised products, reliability customer services,
guarantees and so on. The difficulty of actually gaining this advantage depends on the
performance of competitors – and when competition is weak, it is relatively easy to gain a
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competitive advantage; it is very difficult when competition is fierce. But the level of
competition depends on the market features, including its size, growth potential, stability,
profitability, significant trends, risks, number competitors, relative size of competitors, barriers
to entry and exit, etc.
Porter’s Five Forces of Competition
Porter[2] summarises the forces of competition in his model of five forces of competition which is
shown in figure 2.2.

Porter’s Five Forces Model

Rivalry among organisations
This is usually the strongest of the five forces, and originates from every organisation’s desire to
gain a competitive advantage. This competition becomes stronger with:
· A number of organisations of smaller size and capabilities supplying the market.
· No single organisation dominating the market or controlling the market conditions
· Organisations that use diverse strategies to improve their market position.
· High exit barriers so it costs more to get out of a market than to stay in and complete
· Customers who have no loyalty to a particular supplier and can change to another supplier with
little cost or inconvenience.
Suppliers of key inputs
Every organisation needs reliable suppliers for its materials such as raw materials, resources,
services, utilities etc. These suppliers can play a direct role in competitiveness. At a basic level,
an unreliable supplier can reduce the availability of some key resource making it impossible for
an organisation to compete customer orders thereby reducing its competitiveness. On a broader
level suppliers affect the cost of operations, quality, performance of products, production
quantities, delivery times, terms and conditions of supply and the very feasibility of an
organisation. This effect is particularly strong when:
· Reliable advertise are critical for smooth operations.
· Materials have a major affect on the final quality of products.
· Purchased materials account for a large part of operating costs.
· It is cheaper for an organisation to buy materials than make them itself.
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· There are no substitute materials.
· It is difficult or expensive for an origination to change suppliers.
· A few suppliers dominate the industry.
· There is little fear of backward integration.
· The industry is not an important customer of the suppliers.
· Most organisations prefer to develop long-tern supplier relationship.
Customers prefer competitive markets, which offer the best deals. In general, customers are in a
strong position when:
· Their numbers are big and they buy in large quantities.
· They buy a large proportion of a particular organisation’s output.
· Products are standardised, with little to differentiate between them.
· There are many competing suppliers of the same product or service, and customers can shift
between them with little cost or inconvenience.
· There are low cost substitutes or alternative products.
· Customers can integrate backward and established their own services of supply.
· The materials are relatively expensive, making customers more careful in their choices.
Potential new entrants
As the market widens there is always an opportunity for new entrants into the market. If
conditions are in place, they bring extra capacity, in either building new facilities or acquiring
and reorganising operations that already supply the market. And they typically adopt strategies
of aggressive competition to build market share at the expense of existing suppliers.
Potential new entrants to a market usually face some kind of entry barrier, which consists of the
obstacles that put them at a disadvantage compared with organisations already in the market. The
sources of these barriers include:
· The need for large initial investments.
· Economics of scale that make it difficult for new entrants to start small and build up their
· Effects of experience and the learning curve.
· Need to access specialised knowledge or technology.
· Customer loyalty and brand preferences.
· Access to logistic channels that might be reluctant to take on new products.
· Vertically integrated competitors that limit access to parts of the supply chain.
· Regulatory barriers such as heresies, tariffs and international trade restrictions.
· The threat from new entrants is increasing.
When entry barriers are low, the industry is attractive and there are many potential new entrants.
The existing players in the industry find it difficult to compete when the entrants bring in new
operations, technologies that make the existing competitors obsolete.
Substitute products
These situations occur when customers can replace one product by another that comes from
organisations in a different industry. For example, a mail service can substitute printed letters by
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telephone email or text messages. Similarly, customers can substitute contact lenses for glasses,
artificial sweetness for sugar, and internet news services for newspapers. Substitute products are
a strong force when:
· They are relatively cheaper compared with the existing price of the product.
· Other costs of moving to the substitute are low.
· They are readily available.
· They have equivalent performance and features.
· Producers of substitutes are keen to increase their sale.
· Producers of the substitute can easily add new capacity.
Value addition through operations
All the operations contributing to a process must add value to the final product. Rotter says that
“an organisation adds value by performing both primary and support activities.” The primary
activities are:
· In bound logistics: Moving all the inputs from suppliers into the operations.
· Operations: Transforming activities from inputs to outputs.
· Outbound logistics: Moving outputs to their destinations, including finished products to
· Marketing and sales: Promoting the product and providing the means of buying it.
· Service: Enhancing the value of the product (through installation, maintenance, repair, etc).
Support activities are those that are still essential, but are not linked directly to operations, such
as human resource management, public relations, technology development and organisational
Competitive Dimensions of Operations
The operations strategy of an organisation has to be able to align the operational goals to that of
the organisational goals. However, the organisational objectives change over time. Thus, the
operations strategy of an organisation must include provisions to anticipate the organisation’s
future needs. Figure 2.3 shows the sources of competitive advantages.

Sources of Competitive Advantage

The keys to competitive success for the operations strategy lie in:
· Understanding target markets
· Identifying the priority choices
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· Understanding the consequences of each choice
· Appreciating the various trade offs.
Thus, the starting point of any competitive analysis must be a basic understanding of the
organisation’s markets and then the choices that customers face when deciding which product or
service to buy.
The following are the main steps necessary to perform a competitive analysis:
1. Stage 1: Developing properly defined corporate objectives.
2. Stage 2: Determining marketing strategies to meet those objectives.
3. Stage 3: Appreciating the operational implications for the markets in which firm operates.
4. Stage 4: Understanding the essential attributes of product and service combinations.
5. Stage 5: Establishing operations strategy competitive priorities using the main building blocks
of the operations strategy (tactical and support activities, core competencies and processes,
resources and technologies).
6. Stage 6: Analysing how the strategies are interconnected, how they will affect the market, and
customer choices with respect to a particular product or service.
7. Stage 7: Developing a strategy for operations.
8. Stage 8: Executing the operations strategy.
Different customers are attracted by different attributes[3]. Some customers are interested
primarily in the cost of a product or service and hence some companies attempt to position
themselves to offer the lowest prices. The major competitive dimensions of operations strategy
include the following:
Cost or price
In any market, there is always a segment of the market that buys solely on the basis of low cost.
To successfully complete in this inch, a firm must be the low cost producer, but even this does
not always guarantee profitability and success products and services sold strictly on the basis of
cost are typically commodity like the customer do not differentiate the product or service of one
company from that of the others. This segment of the market is usually quite large and many
companies are lured by the potential for significant profits, which they associate with the large
hint volumes. Competition in this segment is fierce and so is the failure rate. Ultimately, there
can be only one low cost producer, who usually establishes the selling price in the market.
There are two characteristics of a product or service that define quality: design quality and
process quality. Design quality relates to the set of features the product or service contains. This
relates directly to the design of the product or service. The goal in establishing the proper level
of design quality is to focus on the requirements of the customer.
Process quality, the second characteristic of quality, is critical because it relates directly to the
reliability of the product or service. The goal of process quality is to produce defect free products
and services. Product and service specifications, given in dimensional tolerances and/or service
error rates define how the product or service is to be made. Adherence to these specifications is
critical to ensure the reliability of the product or service as defined by its intended use.
Delivery speed
In some markets a firm’s ability to deliver more quickly than its competitions may be critical. A
company that can offer an on-site repair service in only 1 or 2 hours has a significant advantage
over a competing firm that guarantees service only within 24 hours.
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Delivery reliability
This dimension relates to the firm’s ability to supply the product or service on or before a
promised delivery due date. For an automobile manufacture, it is very important that its supplier
of tyres provide the needed quantity and types for each day’s car production. If the tyre needed
for a particular car is not available when the car reaches the point on the assembly line where the
tyres are installed, the whole assembly hire may have to be shutdown until they arrive.
Coping with changes in demand
In many markets, a company’s ability to respond to increase and decrease in demand is
important to its ability to complete. When demand is strong and increasing, costs are continually
reduced due to economies of scale, and investments in new technologies can be easily justified.
But scaling back when demand decreases, the company has to take many difficult decisions
about laying-off employees and related reduction in assets. The ability to deal with dynamic
market demand over the long term is an essential element of operations strategy.
Flexibility and new product introduction speed
Flexibility from a strategic prefecture refers to the ability of a company to offer a wide variety of
products to its customers. The critical feature of operations strategy is the ability of the company
to turn out new products in the shortest possible time span.
The concept of “Trade off” in Operations Strategy
The underlying logic of the concept of “Trade off” in Operations Strategy is that an operation
cannot excel simultaneously on all competitive dimensions, Consequently, management has to
decide which parameters of performance are critical to the firm’s success and then concentrate
the resources of the firm on these particular characteristics. For example, if a company wants to
focus on speed of delivery, it cannot afford to be very flexible in its ability to offer a wide range
of products. Similarly, a low cost strategy is not compatible with either speed of delivery or
flexibility. High quality is also viewed as a trade off to low cost.
A strategic position is not sustainable unless there are compromises with other positions.
Tradeoffs occur when activities are in compatible so that more of one thing necessitates less of
The Marketing – Operations link
It is necessary for an organisation to understand its markets from both marketing and an
operations perspective. Terry Hill, a professor at Oxford University, has coined the terms ‘order
winner’ and ‘order qualifier’ to describe marketing oriented dimensions that are key to
competitive success. An order winner is a criterion that differentiates the product or services of
one firm in from other. Depending on the situation, the order winning criterion may be the cost
of the product (price) product quality and reliability or any of the other dimensions developed
earlier. An order qualifier is a screaming criterion that permits a firm’s products even be
considered as possible candidates for purchase.
When Japanese companies entered the world of automobile markets in the 1970s, they changed
the way these products respond to orders, from predominantly price to product quality and
reliability. American automobile producers were losing orders through quality to the Japanese
companies. By the late 1980s, the product quality was improved by Ford, General motors and
Chrysler and hence they became ‘qualified’ to be in the market. Consumer groups continually
monitor the quality and reliability criteria, thus pre-qualifying the top performing companies.
Current Trends in Operations Management
In recent years many significant trends in operations management have continued to bring
change. Radical changes have been brought into the business world due to key changes in
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process in operations management. Some of these key developments and concepts are listed
· Global operations: With organisations trading in a single world marker, and competition, not
limited to other local organisations but appearing from anywhere in the world.
· Mass customisation: Bring a combination if high volume operations and flexibility to meet
individual customer demands.
· Lean operations: Remove all waste from operations.
· Agile operations: Use the ability to change quickly from one type of produce or market section
to another.
· Integration of operations: Extend co-operation and manage operation for the whole process
rather than dividing it into separate bits.
· E-business: Improve communications allowing all kinds of electronic business particularly
B2B and B2C.
· Just In Time (JIT) operations: Which has every operation done just at the right time, thereby
reducing stocks and improving flows through the process.
· Total quality management (TQM): Where products are made with guaranteed perfect quality.
· Quick response or efficient customer response: Pulling materials quickly through supply
· Out sourcing: What organisations concentrate on their core operations and use other
organisation to do the periphery operations.
· Strategic view: Emphasising the importance of setting long term directions.
· Time based competition: Reducing delays throughout the process and rapidly delivering new
products to customers.
The importance of these trends is that they show the directions in which operations are moving
and the likely shape of operations in the future. Operations managers must take this changing
environment into accounting when making their decisions. For example, it might take several
years before this expansion is complete – so their decisions must be based on likely conditions in
several years time. During this period, operations have to become more international;
communicators have to be improved; the service sector and automation have to be increased;
more money has to be spent on e-business; manufacturing will become more productive;
operations will be more flexible; materials will move faster through the process. Only then the
operations managers will be able to meet increasing customer expectations.

Q 3. What is the meaning of performance measure? Explain with an example. List the
different types of benchmarking?

The concept of performance measurement is straightforward: you get what you measure; and
can’t manage
a project unless you measure it.
From Performance-Based Management: Eight Steps to Develop and
Use Information Technology Performance Measures Effectively
General Services Administration
The purpose of this section is to give you an understanding of performance measurement. It’s not
to be an in-depth look at the subject, only a briefing for the not-so-experienced business person.
For more
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information, please see the PBM SIG’s first handbook, How To Measure Performance—A
Handbook Of
Techniques And Tools. Also, please refer to Appendix C, ?References/Suggested Reading,” for a
list of useful
documents and Web sites.

What is Performance Measure?

In Performance Measurement and Evaluation: Definitions and Relationships (GAO/GGD-98-
26), the U.S.
General Accounting Office (GAO) provides the following definition:
Performance measurement is the ongoing monitoring and reporting of program
particularly progress towards preestablished goals. It is typically conducted by program or
management. Performance measures may address the type or level of program activities
(process), the direct products and services delivered by a program (outputs), and/or the results
of those
products and services (outcomes). A ?program” may be any activity, project, function, or policy
that has an
identifiable purpose or set of objectives.
What are performance Measure?
Performance measures quantitatively tell us something important about our products, services,
and the
processes that produce them. They are a tool to help us understand, manage, and improve what
organizations do. Effective performance measures can let us know:
• How well we are doing,
• If we are meeting our goals,
• If our customers are satisfied,
• If our processes are in statistical control, and
• If and where improvements are necessary.
They provide us with the information necessary to make intelligent decisions about what we do.
A performance measure is composed of a number and a unit of measure. The number gives us a
(how much) and the unit gives the number a meaning (what). Performance measures are always
tied to a goal
or an objective (the target). Performance measures can be represented by single-dimensional
units like hours,
meters, nanoseconds, dollars, number of reports, number of errors, number of CPR-certified
length of time to design hardware, etc. They can show the variation in a process or deviation
from design
specifications. Single-dimensional units of measure usually represent very basic and fundamental
of some process or product.
More often, multidimensional units of measure are used. These measures are expressed as ratios
of two or
more fundamental units. They may be units such as miles per gallon (a performance measure of
fuel economy), number of accidents per million hours worked (a performance measure or the
companies safety
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program), or number of on-time vendor deliveries per total number of vendor deliveries.
measures expressed this way almost always convey more information than the single-
dimensional or singleunit
performance measures. Ideally, performance measures should be expressed in units of measure
that are
the most meaningful to those who must use or make decisions based on those measures.
Most performance measures can be grouped into one of the following six general categories.
However, certain
organizations may develop their own categories as appropriate depending on the organization’s
1. Effectiveness: A process characteristic indicating the degree to which the process output
(work product)
conforms to requirements. (Are we doing the right things?)
2. Efficiency: A process characteristic indicating the degree to which the process produces the
output at minimum resource cost. (Are we doing things right?)
3. Quality: The degree to which a product or service meets customer requirements and
4. Timeliness: Measures whether a unit of work was done correctly and on time. Criteria must be
established to define what constitutes timeliness for a given unit of work. The criterion is usually
on customer requirements.
5. Productivity: The value added by the process divided by the value of the labor and capital
6. Safety: Measures the overall health of the organization and the working environment of its

Why Measure Performance?

Why measure performance? Many authorities on the subject have provided answers to this
question. Several
of them are quoted below.
National Performance Review
In their benchmarking study report, Serving the American Public: Best Practices in Performance
Measurement (1997), the National Performance Review (NPR) notes that:
• Performance measurement yields many benefits for an organization. One benefit is that it
a structured approach for focusing on a program’s strategic plan, goals, and performance.
benefit is that measurement provides a mechanism for reporting on program performance to
General Services Administration
The General Services Administration’s (GSA’s) Performance-Based Management: Eight Steps
Develop and Use Information Technology Performance Measures Effectively states that:
• Measurement focuses attention on what is to be accomplished and compels organizations to
concentrate time, resources, and energy on achievement of objectives. Measurement provides
feedback on progress toward objectives. If results differ from objectives, organizations can
gaps in performance and make adjustments.
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U.S. Department of Energy
In DOE G 120.1-5, Guidelines for Performance Measurement (1996), the U.S. Department of
proposes that:
• Performance measurement improves the management and delivery of products and services. A
recent opinion poll asked a group of adults what they thought the Federal government’s top
should be. Almost half wanted emphasis put on better management. In a world of diminishing
resources, improving management of programs and services is critical.
Volume 2 Establishing an Integrated Performance Measurement System
The Performance-Based Management Handbook 5
How Is Performance Measurement Used?
• Performance measurement improves communications internally among employees, as well as
externally between the organization and its customers and stakeholders. The emphasis on
measuring and improving performance (i.e., ?results-oriented management”) has created a new
climate, affecting all government agencies, and most private sector and nonprofit institutions as
A results-oriented organization requires timely and accurate information on programs and
services, whether at headquarters, field elements, or contractor locations. Collecting and
accurate information depends on the effective communication of mission-critical activities.
• Performance measurement helps justify programs and their costs. The public, Congress, and
of Management and Budget are increasingly taking a more ?results-oriented” look at government
programs, and the cost-effectiveness of program expenditures is increasingly being called into
question. In an era of shrinking federal budgets, demonstration of good performance and
sustainable public impacts with positive results help justify programs and their costs.
• Performance measurement demonstrates the accountability of Federal stewardship of taxpayer
resources. Federal employees and contractors want their day-to-day activities to contribute to a
better society. Performance measurement can show that we are addressing the needs of society
by making progress toward national goals.
• Performance measurement is mandated by the Government Performance and Results Act
of 1993 and is central to other legislation and Administration initiatives. In addition to holding
agencies accountable for achieving program results, GPRA also promotes a focus on service
and customer satisfaction, and seeks to improve executive and Congressional decision making by
clarifying and stating organizational performance expectations, measures, and program costs ?up
front.” The Government Management Reform Act of 1994 gives additional impetus to improve
management of government performance by requiring, among other things, annual audited
statements. Agencies must include performance information (programmatic and financial) in the
overview to their financial statements.
Mark Graham Brown
Noted performance measurement expert, Mark Graham Brown, points out that:
• Measurement reduces emotionalism and encourages constructive problem solving.
provides concrete data on which to make sound business decisions, thus reducing the urge to
manage by ?gut feeling” or intuition.
• Measurement increases one’s influence. Measurement identifies areas needing attention and
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enables positive influence in that area. Also, employees ?perform to the measurement,” an
of how measurement influences employee performance.
• Improvement is impossible without measurement. If you don’t know where you are, then you
know where you’re going and you certainly can’t get to where you want to be. It’s akin to
in unknown territory without a compass or a map. You’re totally lost.
Another way of asking this question is, ?What are the benefits of performance measurement?”
The answer
is that performance measurement has many beneficial uses. For example, it can be used to:
• Set goals and standards.
• Detect and correct problems.
• Manage, describe, and improve processes.
• Document accomplishments.
Establishing an Integrated Performance Measurement System Volume 2
6 The Performance-Based Management Handbook
What Performance Measures Won’t Tell You
• Gain insight into, and make judgments about, the effectiveness and efficiency of programs,
and people.
• Determine whether organizations are fulfilling their vision and meeting their customer-focused
• Provide measurable results to demonstrate progress towards goals and objectives.
• Determine the effectiveness of your part of your group/department/division/organization.

Bench Marking:-- It is a method of measuring a company’s processes, methods, procedures and

in a
way all functions in great detail. Benchmarking is used to understand how these got into the
and what circumstances brought them about. It is a learning process with a few to find out
some of the reasons have changed and bring in new processes for improvement.. The metrics that
could be used are – number of pieces per hour, cost per unit, number of breakdowns per week.,
customer alienation during a week, return on investment, number of returns from customers in a
month, inventory turnover, and many others. As can be seen the figures as found above
determine the
efficiency of the organisation. To keep focused, many organizations, especially the large ones,
select a
few processes for purposes of benchmarking. This helps in ensuring constant and deep attention
those aspects which are to be dealt with. The following are the types of benchmarking firms
Types of benchmarking:-

Process benchmarking - the initiating firm focuses its observation and investigation of
business processes with a goal of identifying and observing the best practices from one or
more benchmark firms. Activity analysis will be required where the objective is to benchmark
cost and efficiency; increasingly applied to back-office processes where outsourcing may be a
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Financial benchmarking - performing a financial analysis and comparing the results in an
effort to assess your overall competitiveness and productivity.

Benchmarking from an investor perspective- extending the benchmarking universe to also
compare to peer companies that can be considered alternative investment opportunities from
the perspective of an investor.

Performance benchmarking - allows the initiator firm to assess their competitive position by
comparing products and services with those of target firms.

Product benchmarking - the process of designing new products or upgrades to current ones. This
process can sometimes involve reverse engineering which is taking apart competitors products to
find strengths and weaknesses.

Strategic benchmarking - involves observing how others compete. This type is usually not
industry specific, meaning it is best to look at other industries.

Functional benchmarking - a company will focus its benchmarking on a single function to
improve the operation of that particular function. Complex functions such as Human
Resources, Finance and Accounting and Information and Communication Technology are
unlikely to be directly comparable in cost and efficiency terms and may need to be
disaggregated into processes to make valid comparison.

Best-in-class benchmarking - involves studying the leading competitor or the company that
best carries out a specific function.

Operational benchmarking - embraces everything from staffing and productivity to office flow
and analysis of procedures performed.

Q 4. What is Flexible Manufacturing System? How does it help in improving the

manufacturing process?
A Flexible Manufacturing System (FMS) is a production system consisting of a set
of identical and/or complementary numerically
controlled machine which are connected through an automated transportation system

Competitive business environment offers new pressures to be confronted by the manufacturing

systems, such as tailored product (increasing variety) with delivery on time along with
emphasize conventional requirements of quality and competitive cost. Therefore, to sustain in
the global scenario, the focus is to develop a manufacturing system that can fulfil all the
demanded requirements within due dates at a reasonable cost. The introduction of Flexible
manufacturing System (FMS) facilitates manufacturing industries to improve their performance
along with the flexibility to make the customized product with medium volume. A Flexible
manufacturing System (FMS) can be defined as a computer-controlled configuration of semi-
dependent workstations and material-handling systems designed to efficiently manufacture
various part types with low to medium volume. It combines high levels of flexibility with high
productivity and low level of work- in-process inventory (Jang & Park, 1996). The exquisiteness
of FMS is that it gleaned the ideas both from the flow shop and batch shop manufacturing system
and is designed to imitate the flexibility of job shops while maintaining the effectiveness of
dedicated production systems. Such FMS should be designed to improve productivity while
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fulfilling the demand with decreasing makespan time. A generic FMS is able to handle a variety
of products in small to medium sized batches simultaneously. The flexibility of a flexible
manufacturing system (FMS) has enabled it to become one of the most suitable manufacturing
systems in the current manufacturing scenario of customized and varied products with shorter
life cycles.

With the aim of combining production flexibility and productivity, the design of flexible
manufacturing system (FMS) is subject of high investments. Deterministic models based on
discrete-event simulation can be utilized to design production systems such as FMSs.
Distinctively these are used to design and size the hardware requirements of a FMS (buffer
capacity, layout design, material handling layout design, and number of workstations with
respect to the projected production) with an objective to raise the utilization of resources.
However these decisions of FMS design are strategic and to be taken in initial phase with
extreme care ensuring that the designed FMS will successfully fulfill the demands of fluctuating
market. The design decisions of FMS must be based on the justification of performance
improvement. In recent environment where a manager can make use of easily available
computing power along with the various commercial tools and techniques,

it is quite reasonable to estimate some performance issues of existing and proposed FMS and
subsequently suggest the design decisions. The employment of above mentioned tools and
models to judge the FMS performance could be very useful to evaluate the system parameters
like production rate, resource utilization, make span time etc. at a beginning stage of design
decision making. The company selected for the case was under pressure from the market and
was ready with the funds to introduce some major modifications in their existing system to
improve the productivity along with the flexibility to survive in the competitive working domain.

This paper presents a study performed for performance evaluation of an existing system with the
objective to improve the performance by designing a new FMS. The case company is located in
National Capital Region of India and was striving to improve the performance of existing
flexible system and setting up to make some investment decisions for up-gradation.

The remainder of this paper is described as following: Section 2 gives an overview of the
literature surveyed to conduct the research; subsequently section 3 delineates the problem
definition along with the objectives of the case and the data collection. Section 4 includes the
design and simulation of new FMS while section 5 analyses and compares the results of the
study. In section 6, the paper has been concluded with some issues and future intensions of the

How does it help in improving the manufacturing process?

If you have implemented lean manufacturing into your company, you have most likely adopted
flexible system manufacturing. Flexible system manufacturing helps you to get more use out of
your equipment. You no longer need to have one machine for one job as each machine will serve
multiple purposes within the organization. The equipment can be changed by hand to make one
part and then changed to make a completely different part. By doing this, you are using flexible
system manufacturing. Most companies have a complete automated system as computers control
the entire thing, making it easier and more efficient for your company.
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Flexible system manufacturing is to be used quickly as you need to change the speed of your
manufacturing lines in a hurry if you are to adjust for an influx of sales or changing market
conditions. Some companies alter their equipment in order to get it to make more than one
product where others will simply take the time to buy the right type of equipment in the first
place in order to provide a better output for your manufacturing plant in the first place.

If you need to go out and buy new equipment, doesn't negate the purpose of lean manufacturing,
which is to save money? While you need to spend money to make money, buying equipment that
serves multiple purposes is ideal for your company because it will help to reduce expenses. You
will reduce expenses because you only have one machine that is doing multiple jobs. In the past,
you probably needed 2-3 machines to make the products that one machine can easily pump out
in half that time.

The start-up costs initially will be higher but they will pay themselves off in a timely manner.
Companies that produce automobiles commonly use flexible manufacturing because with a small
adjustment they can easily create products for 2-3 different vehicles that they are producing. The
switchover is simple to do and it will take just a few moments for the machine to make the
change and start producing a completely different product.

Still don't see the value in flexible system manufacturing? Here's an impressive statistic for you
to dwell on, in 2004 Ford Motor Company released a report pertaining to flexible system
manufacturing and how it has aided their company to produce better products and services. How
much money did Ford Motor Company save? They added up the costs and found that they saved
over $2.5 billion once they implemented flexible system manufacturing at about 5 different
facilities. Smaller organizations aren't just saving thousands of dollars, many of them are saving
millions of dollars.

Like any system you will have some initial adjustments to make but with the right type of
equipment and employees that are willing to make adjustments, it will be easy for your company
to forge ahead with the new manufacturing system. The only problem you will face is when you
get customers that want custom orders. You need to set a limit on how many custom orders you
are willing to take on in order to get the right response from your customers and to actually make
a profit on the custom orders.

Improving efficiency is the main aspect of using flexible system manufacturing. When you make
the switchover you do need to take a look at your products in order to make sure they don't have
any defects. This can be common in the beginning as you are getting used to the new system and
the manufacturing equipment is learning the changes and understands what it needs to change.
Overall flexible system manufacturing is one of the best systems to implement, especially if your
overhead costs are incredibly high
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Q5 Name and explain the different types of plant layouts by providing examples for each

The following are some important factors, which influence the planning of effective layout to a
significant degree.
1. Nature of the product: The nature of the product to be manufactured will significantly affect
the layout of the plant. Stationary layout will be most suitable for heavy products while line
layout will be best for the manufacture for the light products because small and light products
can be moved from one machine to another very easily and, therefore, more attention can be paid
to machine locations can be paid to machine locations and handling of materials.
2. Volume of production: Volume of production and the standardization of the product also
affect the type of layout. If standardized commodities are to be manufactured on large scale, line
type of layout may be adopted.
3. Basic managerial policies and decisions: The type of layout depends very much on the
decisions and policies of the management to be followed in producing the commodity with
regard to the size of plant, kind and quality of the product, scope for expansion to be provided
for, the extent to which the plant is to be integrated, amount of stocks to be carried at anytime,
the kind of employee facilities to be provided etc.
4. Nature of plant location: The size shape and topography of the site at which the plant is
located will naturally affect the type of layout to be followed in view of the maximum utilization
of the space available .For e.g., if a site is near the railway line the arrangement of general layout
for receiving and shipping and for the best flow of production in and out the plant may be made
by the side of the railway lines .If space is narrow and the production process is lengthy, the
layout of plant may be arranged on the land surface in the following manner:

5. Type of industry process: This is one of the most important factors influencing the choice of
type of plant layout. Generally the types of layout particularly the arrangement of machines and
work centers and the location of workmen vary according to the nature of the industry to which
the plant belongs. For the purpose of lay out, industry may be classified into two broad
(i) Intermittent and (ii) continuous. Intermittent type of industries is those, which manufacture
different component or different machines.
Such industries may manufacture the parts, when required according to the market needs.
Examples of such industries are shipbuilding plants. In this type of industry functional layout
may be the best. The second type of industry in ‘continuous industry. in this type of industry raw
material are fed at one end and the finished goods are received at another end. A continuous
industry may either be analytical or synthetic . A analytical industry breaks up the raw material
into several parts during the course of production process or changes its form, e.g. oil and sugar
refineries. A synthetic industry on the other hand mixes the two or more materials to
manufacture one product along with the process of production or assembles several parts to get
finished product. Cement and automobiles industries are the examples of such industry. Line
layout is more suitable in continuous process industries.
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6. Types of methods of production: Layout plans may be different according to the method of
production proposed to be adopted. Any of the following three methods may be adopted for
production- (1) Job order production, (2) batch production, and (3) mass production. Under job
production goods are produced according to the orders of the customers and therefore,
specification vary from customer to customer and the production cannot be standardized. The
machines and equipment can be arranged in a manner to suit the need of all types of customers.
Batch production carries the production of goods in batches or group at intervals. In this type of
manufacturing the product is standardized and production is made generally in anticipation of
sales. In such cases functional or process layout may be adopted. In case of mass production of
standardized goods, line layout is most suitable form of plant layout.
7. Nature of machines: Nature of machines and equipment also affects the layout of plants. If
machines are heavy in weight or create noisy atmosphere, stationery layout may reasonably be
adopted. Heavy machines are generally fixed on the ground floor. Ample space should be
provided for complicated machines to avoid accidents.
8. Climate: Sometimes, temperature, illumination and air are the deciding factors in the location
of machines and their establishments. For example, in lantern manufacturing industry, the spray-
painting room is built along the factory wall to ensure the required temperature control and air
expulsion and the process of spray painting may be undertaken.
9.Nature of material: Design and specification of materials, quantity and quality of materials
and combination of materials are probably the most important factors to be considered in
planning a layout. So, materials storage, space, volume and weight of raw materials, floor load
capacity, ceiling height ,method of storing etc. should be given special consideration. This will
affect the space and the efficiency of the production process in the plant. It will facilitate
economic production of goods and prompt materials flow and soundly conceived materials
handling system.
10. Type of machine: Machines and equipment may be either general purpose or special
purpose. In addition certain tools are used. The requirements of each machine and equipment are
quite different in terms of their space; speed and material handling process and these factors
should be given proper consideration while choosing out a particular type of layout. This should
also be considered that each machine and equipment is used to its fullest capacity because
machines involve a huge investment. For instance, under product layout, certain machines may
not be used to their full capacity so care should be taken to make full use of the capacity of the
machines and equipment.
12.Human factor and working conditions: Men are the most important factor of production
and therefore special consideration for their safety and comforts should be given while planning
a layout, specific safety items like obstruction-free floor, workers not exposed to hazards, exit
etc. should be provided for. The layout should also provide for the comforts to the workers such
as provision of rest rooms, drinking water and other services etc. sufficient space is also to be
provided for free movement of workers.
13. Characteristics of the building: Shape of building, covered and open area, number of
storeys, facilities of elevators, parking area and so on also influence the layout plan. In most of
the cases where building is hired, layout is to be adjusted within the spaces available in the
building. Although minor modification may be done to suit the needs of the plants and
equipment. But if any building is to be constructed, proper care should be given to construct it
according to the layout plan drawn by experts. Special type of construction is needed to
accommodate huge or technical or complex or sophisticated machines and equipment.
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6.Explain the ingredients of a Business Process

Some people believe that only business start-ups need funding and that only large companies
need business plans. But the truth is that every business needs a 'blueprint' - not just for the
benefit of potential investors, but so that the people who work in the business can have a clear
idea of its direction, and can commit to a plan.

A good business plan serves various functions, but it must have a practical structure. Here are
five essential ingredients:

1. A business description and mission statement.

Every business needs a clear declaration of why it exists, and a basic description of how it
intends to meet its primary objective.

If you look at a good company website, it will often include elements of the mission statement in
an 'About Us' section. It need only be a few sentences, and might be something like "Our
company aims to provide outstanding solutions and service to the x industry in and around the
area of y". Think of your mission statement as the heart of your business plan. All your goals and
activities should flow from it.

Having prepared your mission statement, you next need to comprehensively describe your
company. Provide a brief history and then explain what it does, identify the marketplace niche it
fills and assert why you and the business will succeed. You may also wish to reveal why your
business chose its location and how you will benefit the local community.

2. A management profile
In business, as in any walk of life, people matter. Potential investors, lenders and even
employees are not interested in a faceless, soulless corporate entity. They need to know that
competent, experienced people are steering the ship.

Provide an outline of your organisational structure and management team, giving solid reasons
why your staff are competent to succeed. A chart illustrating the roles and relationships of key
employees can work particularly well, and if you are a small company you may even be able to
include every single employee.

3. A financial portrait and strategy

Prospective investors and lenders need a good idea of the financial aspects of your business.
Include basic data such as current and projected balance sheet, a profit and loss account and an
analysis of cash flow. If you are a start-up, project this information as accurately as possible. It is
important not to cut corners with these calculations and do ask for our assistance with this.

Above all, make sure your numbers demonstrate that you and your management team have
considered the key 'drivers' that will determine your success or failure. Don't fill the business
plan with overly optimistic financial projections that could ultimately depict your company in a
bad light.

4. Sales and marketing objectives

Expertise and past success mean little without an up-to-date strategy for bringing your products
or services to market. Describe your intended market, giving specific details on its size and how
much of it you intend to serve. What is your market's growth potential? What specific
geographic and economic factors play a role?
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Competitor intelligence is another crucial factor. Name your five largest competitors and explain
why you can serve your market better than these rivals. Do not conceal your weaknesses:
recognising the challenges you must overcome shows that you are realistic.

5. An executive summary
The likelihood is that many potential lenders will initially only read an executive summary.
That's not to say they'll never read your entire business plan - but it does mean that a concise,
readable executive summary may be necessary to get your 'foot in the door'.

An executive summary should show the highlights of each section of the business plan,
providing a clear synopsis of who you are, what you do and where you're heading.

An Ongoing Process
Like keeping a 'To Do' list, writing a business plan is an ongoing process. Yours must adapt to
changes in your company, its market and the economy - and that means regular reviewing and