Inventory Control Lecture Notes


INVENTORY CONTROL:
Inventory is a stock of physical goods held at a specific location and at a specific time. Each distinct item in the inventory at a location is termed stock keeping unit (SKU); and each skill has a number of units in stock. Each location is a stock point.

Inventory Control Techniques

In most manufacturing concerns, inventories are controlled through the following techniques:
(i) Economic Order Quantity
(ii) Determination of stock Levels (Min-Max Plan)
(iii) Inventory Control Ratios and Indexed
(iv) Ageing Schedule of inventory
(v) Input-Output Ratio Analysis
(vi) Perpetual and periodic stock taking systems
(vii) Order cycling system
(viii)Two Bin systems
(ix) Selective Inventory control
(x) Materials requirement planning
(xi) Just-in-Time
(xii) Value Analysis

Inventory Models
 One of the basic problems of inventory management is to find out the order quantity so that it is most economical from overall operational point of view. Here, the problem lies in minimizing the two conflicting costs, i.e., ordering cost and inventory carrying cost. Inventory models help to find out the order quantity which minimizes the total costs (Sum of ordering costs and inventory carrying costs). Inventory models are classified as shown in the following figure.




Costs Associated with Inventory Decisions
They are the four major costs, associated with inventory decisions. They are:

a) Material Cost:
It is the costs of material itself. It is the purchasing (or production) cost, i.e., the value of an item is its unit purchasing (production) cost. This cost becomes significant while availing price discount. This cost is expresses as Rs./Units.

Opportunity Cost:
The amount invested in an item, (Capital costs) is an amount of capital not available for other purposes. If money were invested somewhere else, a a return on the investment is expected.
A charge to inventory expenses is made to account for this return not received. The amount of charge reflects the percentage of return expected from other investment.

b) Ordering (Procurement) Costs:
These costs are Associated with the purchasing or ordering of materials, i.e., processing and generating an order with its related paper work. They consist of –

v    Rent for the space used by the purchase department.
v    Salaries payable to the purchasing staff.
v    Paper work i.e., stationery and other consumables required by the purchase department.
v    Cost of inviting quotations/tenders.
v    Costs of processing quotations/tenders.
v    Cost of placing the purchase order.
v    Postage, telegram, telex, fax, e-mail, etc., for expediting orders.
v    Traveling expenses.
v    Depreciation of furniture, etc., in the purchase department.
v    Entertainment and refreshment expenses to vendors.
v    Legal and court fee due to legal matters arising out of purchase, etc.,

Inventory carryings costs:
These costs are incurred for carrying the inventory i.e., maintaining a particular level of inventory. These costs consist of seven different elements:

1.      Financing cost (4 to 6%):
If the inventory is financed by bank borrowing, the interest paid on such bank loans is its financing costs.
2.      Insurance charges (1 to 2%):
These are incurred for protecting the company against loss of inventory due to fire, theft, etc.,
3.      Property taxes (1 to 2%):
As with insurance, property taxes are levied on the assessed value of a firm’s assets. The greater the inventory value, the greater the asset value, and consequently the higher the firm’s expenses on tax.




4.      Storage expenses (3 to 4%):
These includes salaries payable to store keeping staff, rent for space, cost of storage facility like bins, racks, etc., lighting, cooling and other expenses incurred where inventory is stored.
5.      Handling expenses (3 to 4%):
They are incurred for moving the inventory from stores to shops-floor and back. Certain handling expenses may become necessary for movement of inventory, especially work-in-process from one section to another on the shop floor.
6.      Cost of deterioration, spoilage, pilferage, etc., (2 to 4%):
For many items, there is usually a specified shelf-life such as drugs, chemicals, photo films, vulcanized rubber, etc.; If the expiry date is over for these products they become totally useless.
7.       Cost of obsolescence (3 to 5%):
Industries which are fashion-based such as readymade apparels or technology oriented such as manufacture of electronic calculators, incur a heavy loss if their products become obsolete and out of date.

c) Stock-out costs:
They are invisible, yet very important costs which a company has to incur if there is a stock-out, resulting in a loss of production. These costs are in the form of loss of profit on lost production, loss of good will, adverse impact on future orders, and adverse impact on machinery, etc., because of lack of use. Stock-out indicates poor service.
 The stock-out and the carrying costs are counter balancing. The larger the safety stock, the larger the carrying stock and vice versa. Conversely, t6he larger the stock, the smaller the stock-out costs. In other words, if the firm minimizes the carrying out costs, the stock–out costs are likely to raise. On the other hand, an attempt to minimize the stock-out costs implies increased carrying costs. The object of a materials manager should be to have the lowest total costs(i.e., carrying cost plus stock-out costs).In brief, the appropriate level of safety stock is determined by the trade-off between the stock-out costs and the carrying out costs.





Different Between excess stock and stock-outs

Cost of carrying
Cost of non carrying enough
  1. Interest on investment in inventory

Foregone quantity discounts
  1. Insurance charges

Disruption in production schedule
3.Warehousing and storage expenses

Inability to meet consumers’ requirements
  1. Material handling and clerical charges

Loss of profit on lost sales
  1. Deterioration and spoilage

Loss of consumers’ goodwill
  1. Obsolescence

Foregone fortuitous purchases
  1. Personal and property taxes

Emergency purchasing cost

ECONOMIC ORDER QUANTITY

The economic order quantity refers to the quantity ordered to be purchased at the lowest total costs. This is the most economical purchase quantity which maintained a balance between two opposing costs of procurement and carrying. The economic order quantity is also known as economic lot size. So, the quantity to be ordered at a time is determined by the cost of procurement and the cost of carrying the inventories. The economic order quantity will be the one where the cost of procurement and the cost of carrying are equal. At this point the total cost is minimum.



Bulk buying reduces the frequency of ordering and therefore, the ordering costs.
The determination of Economic Order Quantity(EOQ) is primarily intended to balance the ordering costs and the carrying costs.
EOQ can be determined with the help of the following formula:





BASIC ASSUMPTIONS OF EOQ MODEL

The basic EOQ model, like all fixed order quantity models, is based on a number of assumptions. If an organization’s inventory situation matches the model’s assumptions, the model’s results will be valid. The assumptions for the basic EOQ model include the following:
Ø  Annual carrying costs per unit and costs per order can be accurately estimated and are the only relevant costs.
Ø  Annual demand can be estimated and is linearly consumed by customers. This assumption requires the annual demand estimate to be known with certainty. We know that annual demand estimates can seldom be known with certainty.
Ø  Average inventory level is the order quantity ‘Q’ divided by 2. This safety stock is left over from a previous period, then average inventory would be greater then Q/2.
Ø  With demand linear and certain, their need not be any stock-out costs.
Ø  There are no quantity discounts on large orders.
Ø  Lead time is known, fixed and independent of demand.
Ø  Inventory has one stock point. Stock (Storage) point is a location of inventory.

Weakness of EOQ formulae:
i) Erratic usages:
            The formulae we have used assume that the usage of materials is both predictable and even disturbed. When this is not the case the formulae are useless. Different and far more complex formulae can be developed for wide swings in usage, so long as these swings can be predicted. But if usage varies unpredictably, as it often does, no formula will work well.
ii) Faulty basic information:
            EOQ calculations are only as accurate as the order cost and carrying cost information in which they are based.
iii) Costly calculations:
            It is a not an easy job to estimate the cost of acquisition and cost of possession accurately.  This requires hours of work by skilled cost accountants.  In many cases, the cost of estimating cost of possession and acquisition and calculating EOQ exceeds the savings made by buying that quantity.
iv) EOQ ordering must be tempered with judgment:
            Certain operating goals must be followed in managing an inventory sometimes; the guidelines provide a conflict in ordering. EOQ restriction might include the following:

Ø  Items purchased to order, and items subject to rapid product improvement will be restricted from EOQ use.
Ø  Shelf life items (goods to be consumed within a specific period of time) should be restricted to a limited quantity.
Ø  Items with unusual sales will be identified, with annual sales reduced by appropriate quantities, prior to calculating EOQ.
Ø  Critical supply items (those having most effect on customer’s service). The time of supply of quantities selected will over-ride EOQ.

Objectives of EOQ Models:
Some of the objection that are frequently heard about EOQ are as follows;
i.                    Often the inventory holding costs and the ordering costs cannot be accurately calculated and some times cannot even be identified properly.
ii.                  The EOQ calculated is often an inconvenient number.
iii.                The use of EOQ usually leads to random orders so that supplier receives an irregular stream of orders.
iv.                EOQ applied without due regard to the possibility of falling demand can lead to a high value of  obsolescent inventory.
v.                  EOQ may not be applicable when the requirements are irregular, or t where there is an impending price raise.

Limitation of EOQ:
Some of the limitations of EOQ are as follows;
      1. Ordering in package sizes:
Ordering to the nearest “Trade” quantities are or as per convenient packages. For e.g., Instead of ordering 11 dozens, the order may be for 1 gross.
      2. Economical Freight rate:
The saving in freight may more than compensate the extra inventory carrying costs.
  1. Simplification of routine:
Instead of ordering for e.g., 14 times a year, order may be placed every month.
  1. Perishables are articles having low shelf life:
In case of perishable or bulky items with diminishing consumption or for items whose market prices are likely to decline, it is better to order less than the theoretically worked out quantities.
  1. Seasonal articles:
Seasonal supply factors, market conditions, availability of transport facilities etc., may indicate purchase of larger or smaller quantities. In such situations, proper judgment alone helps.
  1. Consolidates discounts:
Liberal discount or concessional freight rates may suggest larger quantities. The “pros” and “cons” of such purchases should be weighed carefully before a decision is taken.
  1. Imports:
EOQ cannot be successfully applied in case of imports with attained problems of obtaining import license, and certain lead-times, etc.,

General Procedure for implementing ABC Techniques:

Given below are the various types of selective inventory control and their application criteria.

Classification
Criteria
ABC (sometime nick-named Always Better Control)
Annual value of consumption of the items concerned. (It has nothing to do with the unit value of the item)
VED (Vital, essential and desirable)   (Vir-Vital, important and routine)
By the Priority and critical nature of the components or material with respect to production.
FSN ( Fast moving, Slow moving and Non-moving)
Issues from stores (frequency of consumption)
XYZ analysis

The inventory value of items stored.

Control through ABC analysis

Different types of analysis, each having its own specific advantages and purposes, help in bringing a practical solution to the inventory control. The most important of all such analysis is ABC analysis which is believed to have originated in the General Electric Company of Unite States of America.
An effective inventory control system should classify inventories according to their values so that the most valuable items may be paid greater attention regarding the safety and care as compared to others. Hence, it is desirable to classify the production and supply items, both purchased and manufactured, depending upon their importance, each class or group of items to control commensurate with importance. This is the principles of Control by Importance and Expectations (CIE) or selective control as applied to inventories and the technique of grouping is termed as ABC analysis or classification which is said to be “Always Better Control”. As the items are classified in the importance of their relative values this approach is also known as proportional, Parts Value Analysis (PVA) or Annual Usage Value (AUV) Analysis.

General procedure for Implementing ABC techniques:
The general procedure for implementing the ABC techniques is as follows:
Ø  Classify the items of inventories.
Ø  Determine the expected use in (Physical) units over a give period.
Ø  Determine the price per unit of each item.
Ø  Determine the total cost of each item by multiplying the expected units by its unit price.
Ø  Rank the items in accordance with total cost, allotting first rank to the item with highest total cost and so on (i.e., Arrange in descending order).
Ø  Find out the total number of units i.e., total units of all items and calculate the percentage of each item.
Ø  Calculate the percentage of total cost of each item to total cost of all items.
Ø  Combine items on the basis of their relative value to form three categories-A, B and C e.g., classify the inventory as A, B or C. Class A items having high consumption 15%, class B items having moderate consumption 30% and class C items having low consumption value from the remaining 55%.
Ø  Decide cut-off points and methods of control.
Ø  Tag the inventory with A, B, C classification and record these classifications in the item inventory master record.

Control policy guidelines for class A items:

            Close control is required for inventory items that have high stock-out costs and those items that account for a large fraction of the total inventory value. Purchasing items may arrange for a contracts with vendors for the continues supply of these materials at rates that match usage rates. In such instances, the purchase of raw materials is not guided by either economical quantities or cycles. Changes in the flow are made periodically as demand and inventory position change. Minimum supplies are made to guard against demand fluctuations and interruptions of supply.

Control policy for guidelines for class B items:

These items should be monitored and controlled preferably by a computer based system, with periodic review by the management. Many of the models discussed in this chapter are relevant for these items. However, model parameters are reviewed less often for class A items. Stock-out costs for class B items should be moderate low, and buffer stocks provide adequate control for stock-outs, even though ordering occurs less often.

Control policy for guidelines for class C items:

Class C items account for the bulk of items, and carefully designed routine controls should be adequate. A recorder point system that does not require a physical stock evaluation such as “two bin system” will do. For each item, action is triggered off when inventories fall to the recorder point. If usage rate changes, orders will be sent earlier or later than average, providing the needed compensation. Semi-annual or annual reviews of the system parameters should be performed to update usage rates, estimates of supply lead times, and costs that might result in changes in EOQ.A periodic review at a long interval can also be used.

Sum up the type of control that is required on different types of items.


       Nature
Class A-items having high consumption value
Class B items having moderate consumption value
Class C –items having low consumption value
1. value(monetary)

High consumption
Moderate consumption
Low consumption
2. Subdivision helps the selective control-A1, A2, A3 and so on depending on the value of the items.
Further subdivision possible if necessary
Subdivision is however ,necessary

No subdivision
3. Extent of control.
Very strict control
Moderate control
Loose control
4. Frequency of order.
Frequent ordering
Once in 3 months
Once in 6 months
5.Lead time
Maximum time to reduce lead times
Moderate time to reduce lead times
minimum time to reduce lead time
6.Level of management
Should be taken care by the senior officers
Can be supervised by the middle management
Can be supervised by the clerical staff
7.Period review
Review of waste, obsolete and surplus items after a month or every 15 days.
Review of waste, obsolete and surplus items after every 3 months.
Annual review over obsolete and surplus items.
8.Sources of supply
As many sources as possible
Three or more reliable sources
Three reliable sources for each item
9.Follow up
Maximum follow up(attention)
Periodic follow up
Follow up only in exceptional cases
10.Safety stocks
Very low safety
Moderate safety stocks
High level of stocks
11.Centralisation (purchasing &storage)
Centralized purchasing
Combined i.e., centralized and decentralized purchasing
Decentralized
12.Value analysis
Rigorous
Moderate
minimum
13.Cotrol system
Weekly control statements
Monthly control statements
Quarterly control statements
14.Type of analysis (coding colour)
Rigorous value analysis colour-Red
Moderate value analysis colour-Pink
Minimum value analysis colour-Blue
15.Forecasting
Accurate forecasting in material planning
Estimated based on present plans
Rough estimates for planning
16.Posting in ledger

Individual posting

Small group postings
Group posting


Application of ABC analysis:
This approach helps the materials manager to exercise selective control and focus his\her attention only on a few items when he\she is confronted with thousands of stores items.
a)      Degree of control:
                A class items form a substantial part of total consumption in rupees .greater attention should be paid and accurate records maintained for those items. The inventory should be kept at a minimum by placing blanket orders, covering annual requirements and then arranging frequent deliveries from vendors.
                    ‘B’ class should have normal or moderate control made possible, by good records and regular attention.
                A little or no control is required for ‘C’ class items .Large inventories should be maintained to avoid stock-outs.
b)      ordering procedure:
                  ‘A’ class item requires careful and accurate determination of order quantities and order points based n exact requirements. they should be subjected to frequent reviews possibility of overstocking.
A reasonably good analysis for order quantities and order points is required for class ‘B’ class items but the stock may be reviewed less frequently or only when major changes occur.
          No such detailed records are necessary for the C class items.
   Any routine method that ensures good and accurate records is enough for ‘B’ class items.
c)      Stock records:
                    Detailed records of goods reserved, received, ordered, issued and on hand need to be maintained for ‘A’ class items. Tight and accurate controls are required for such items.
   No such detailed records are necessary for the ‘C’ class items.
  Any routine method that ensures good and accurate records is enough for ‘B’ class items.
d)     Priority treatment:
                Top priority may be accorded to A class items in all activities such as processing of purchase orders, receiving, inspection, movement on the shop floor, etc., with an object to reduce lead time and average inventory.
            No such priority is necessary for B class items. Normal plant procedures should take care of inward and outward flow of these items.
  No priority is assigned to C class items at all.
e)      Safety stock:
            All the three stocks of items are equally important from production point of view. For example, shortage of bolts may be one of the reasons for stopping the production process. Shortage may occur even when accurate and realistic order points have been compute. Safety stock is provided to safe guard against such shortages.
  Safety stock should be less for ‘A’ class items. The possibility of stock-outs can be cut down considerably by closer forecasting, frequent reviewing and more processing.
 The following may be the ideal safety stock for the 3 classes of items.
                         ‘A’ class items              :           1\2 month stock
                                ‘B’ class item               :            1 month stock
                                ‘C’ class item               :            2 month stock  
f)       Stores layout:
                       ABC analysis can be efficiently utilized for the stores layout as well. By storing the fast moving items near the points of issue, considerable time and effort can be saved, which otherwise is lost in locating such items. Most of ‘A’ class items belong to this category.
             ‘B’  and  ‘C’ class items which are less fast moving can be stored slightly further in less accessible area. ’C’ class items, because of there low unit price and not because of there low consumption, may be located readily accessible areas.

g)      Value analysis:
To secure maximum benefits, it is essential to select those items for the value analysis which offer the highest scope for cost reduction .The ABC analysis is a helpful step in this direction.
                    Purchasing policy and procedure should be so formulated that, for ‘A’ class items greater attention is paid to pre-design and pre-purchase value analysis, market research, source development and follow-up. Placing of order for source item should be based on ABC principle. Generally, ‘A’ class items are ordered more frequently in small quantities, while ‘C’ class item are ordered once or twice a year to obtain the entire years requirement.

Advantages of ABC analysis:
By concentrating on ‘A ‘class item the materials manager is able to control inventories and show ‘Visible’ results in a short span of time. By controlling the ‘A’ class item and doing a proper inventory analysis, absolute stocks are automatically pin pointed.
Many organizations have claimed that the ABC analysis has helped in reducing the clerical costs and resulted in better planning and improved inventory turnover.  ABC Analysis has to be restoring to because equal attention to ‘A’, ‘B’ and ‘C’ items is not worth while and would be very expensive. Concentrating on all items is likely to have a defused effect on all the items irrespective of their priorities.




Limitations of ABC analysis:
ABC analysis, in order to be fully expensive, should be carried out with standardization and codification. ABC analysis is based on grading the items according to the importance of the performance of an item, i.e., vital, essential and desirable analysis.
Some items, though negligible in monetary value may be very vital for running the plant, demanding constant attention.
The results of ABC analysis have to be reviewed periodically and updated. It is a common experience that a ‘C’ class item, like diesel oil in a firm, will become the most high-value item during a power crisis. However, ABC analysis is a powerful tool or approach in the direction of cost reduction as it helps to control items with a selective approach.

VED classification:

            VED stands for vital, essential and desirable. This type of classification is applicable mostly in the case of spare parts. The peculiarity about spare parts is that they do not follow a predictable demand pattern as in the case of raw-materials.
The result is that if we follow the usual method out lined earlier, we might get into difficulties when the demand pattern suddenly changes. For example, the older a machine gets, the greater will be the spares required for maintenance. Hence, past trends do throw much light on stocking policies. To get over this difficulty, VED classification is used. Here, the categorization is made in terms of importance or criticality of the part of the operation of the plant. It is very vital; it is given a ‘V’ classification.
If an item is important it is classified as ‘E’ item. If it is not so important, it is given a ‘D’ classification. How such a classification is done? This purely depends on the machinery or equipment involved and one’s own experience ease of availability of the parts, etc., for example, if some items are available off the self of the suppliers’ show room, there is no point, in categorizing them as ‘V’. On the other hand, a minor imported item automatically gets a ‘V’ classification. In other words, the classification is not purely in terms of the criticality of the items for proper working of the machine but it is a combination of several factors, including price, availability, etc.,




For ‘V’ items, a reasonably large quantum of stocks might be necessary,  while for ‘D’ items, no stocks are perhaps, required to be kept, especially if that item also happens to be in the ‘A’ or ‘B’ classification. For ‘V’ items of ‘A’ classification, a close control should be kept on stock levels, but if it is a ‘C’ item, then large quantities may be stored.
The whole objective is to select items for special control and thus expend time and effort in a prudent way.

FSN classification:
This classification takes into account the pattern of issues from stores. The three letters stands for fast-moving, slow-moving and non-moving. This classification comes in very handy when we desire to control obsolesce.  Items classified as ‘S’ and ‘N’ require attention. Especially ‘N’ items require greater attention.  They may be several reasons why an items has got into ‘N’ category there may have been a change in technology or change in the specification or a particular spare part. When a FSN classification is made, all such information standout prominently, enabling manages to act it in the best interests of the organization.


QUALITY CONTROL:

Definition of quality:
Quality may be defined as the sum total of all characteristics and attributes of a certain products are an object which go to make it to the people for whom it is meant, and it is the sum total of these characteristic an attributes that determine the demand or utility or price of a product or an object.
According to professors Wasting and zeno, “Quality is an expression of the measured properties, conditions or characteristic of a product or process, usually  stated in terms of grades, classes or specifications and determine by the application that is involved”.
Thus, quality of a product, object or a process refers to its,
Ø  Characteristics
Ø  Attributes
Ø  Properties and
Ø  Conditions
Which are stated either in terms of certain specification or gradation and is determined by the user by its application who ultimately determines the,
1.      Demand
2.                                                            utility
3.      Price of the product, object or process in terms of the quality when he/she receives from his/her use.

Definition of Quality Control:
“Quality Control may be defined as that industrial management technique is group of techniques by means of which products of uniform acceptable quality or manufacture”.
-Alford and Beatty.

 Objectives of Quality Control:
The following are the main objectives of a quality control programme:
Ø  To assess the quality of raw materials, semi-finished goods and finished products at various stages of production process.
Ø  To ensure whether the product conform the pre-determined standards and specifications and whether it satisfies the needs of the customers.
Ø  If the quality of the product deviates from the specifications, it should be possible to locate the reason for deviations and take necessary remedial steps so that the deviations do not recur.
Ø  To suggest suitable improvements in the quality or standard of goods produced without much increase or no increase in the cost of production.
Ø   To develop quality consciousness in the various sections of the manufacturing units.
Ø  To assess the various techniques of quality control, method and processes of production and suggest improvement in them to be more effective.
Ø  To reduce the wastage of raw materials, men an machines during the process of production.

Principles of Quality Control:
The principles that govern the quality control in manufacturing are the following:
  1. The quality of manufacture goods is a variable with an upward, trend under conditions of competitive manufacture.
  2. Control of quality increases out of saleable goods, decreases cost of production and distribution, and makes economic mass production possible.
  3. The conformance of finished products to its design specification and standards should be accomplished by avoiding the production of non-conforming material than by sorting the good from the bad after the manufacture is completed.

Importance and advantages of Quality Control system:
The programme of quality control is advantageous to both produces and consumers. On one hand, a quality product will satisfy the consumers’ needs and consequently the demand of the product will increase resulting in, large scale production. On the other hand, the good will of the firm increases as a producer of quality goods. The importance of quality control lies in the following facts;

Ø  Reduction in costs:
An efficient quality control system reduces the cost of production of the product due to,
1.      Reduction in wastage of raw-materials, semi-finished and finished goods.
2.      Large-scale production of standard quality product.
3.      Rework costs of a sub standard goods is minimum.
Ø  Improvement in the morale of employees:
By quality control programme, the employees become quality conscious. They understand the standards of the product well and try to improve them and produce quality goods to the best of their efforts. Thus, it improves the morale of the employees.
Ø  Maximum utilization of resources:
By establishing the quality control system, the necessary control over the machines, equipment, men and materials and all other resources of the company is exercised. The system will also control the misuse of facilities, waste age of all types and low standard production. Thus, the resources of the organization are put to maximum use.
Ø  Increase in sales:
            Increase in sales of the product is the main objective of the quality control system. By introducing quality control programme, in manufacturing process, a quality product is made available to the consumers and that too at lower rates because of lower costs of production. It, in turn increases there demands of company products.
Ø  Consumers  satisfaction:
            Consumers always get quality products of standard specifications to their utmost satisfaction.
Ø  Minimize variation:
            It is a well-known fact that some variations are born to exist in the nature of production in spite of careful planning. The magnitude of variations depends upon the production process, namely, machines, materials, operations, etc. The techniques of quality control help in the study of these variations in quality of the product and serves as a useful tool for the solution of many manufacturing problems which cannot be solved so well by any other method.

X Chart:
 

X chart is constructed to show the fluctuations of the means of samples about the mean of the process and can be used to determine whether are not the fluctuations are due to random causes or to an assignable cause.
It shows changes in process average and is affected by changes in process variability.
  1. It is a chart for the measure of central tendency,
  2. It shows a erratic or cyclic shifts in the process,
  3. It detects steady process changes like tool wear, and
  4. It is commonly used in variable charts.
(a) When used along with R chart, it tells when to leave the process along and when to chase and go for the cause for leading to variation.
(b) It secures information in establishing or modifying processes, specifications or inspection procedures and
(c) It can control the quality of incoming material. The control limits of X Chart or given as:
Upper control limit      =     X     +    A2 R

Central line                   =    X

Lower control unit        =      X    - A2   R

Where,       X   = Mean (average) of sample means               
                  R    = Mean of sample ranges                  
                  A2 = Control factor for mean chart.
(Value depends on the size of the sample and is available in standard tables)



  
                                                                                                                                             X
0      1       2     3     4     5      6    7    8    9    10    11    12   13    14     15      16   
Range chart (R chart):
It can be used to show fluctuations of the ranges of the samples about the average range      ( R) . This control general variability of the process and is affected by changes in varianilty. It is used along with X Chart.

The control limits for R chart are given as:


Upper control limit = D4 R


Lower control limit = D3 R


Where  R   =   Average of sample ranges.

             D4 = Control factor for UCL for R- Chart

              D3 = Control factor for LCL for R-Chart.
D4 and D3 depend on sample size chosen and their values are available from standard table.


QUALITY CIRCLE:
The quality control circle are more popularly known as quality circle concepts where formed in Japan in 1960 and in Unites States it started in 1977.

Definition
A Quality Circle is defined as a small group of employees who voluntarily cooperate to solve problems relating to:
  1. Production, wastage of materials,
  2. Quality of raw material, tool Semi-finished and finished goods,
  3. Work- environment, energy consumption,
  4. Scheduling, delay,
  5. Maintenance,
  6. Safety and anything that affect these factors.

Characteristic of Quality Circle:

The quality circle that has the following characteristic:
  1. A small group of people who do similar work:
The quality circle essentially consists of people who do similar wok.
  1. The members in the circle should not be many:
 It is argued that smaller the circle betters the coordination and homogeneity. The circle should look like a team and not a committee.
  1. Voluntarily meeting together:
People are invited to join the quality circle but they are not compelled. The members feel the need to meet together to discuss and devise ways to improve the functioning of their areas concerned. Hence, joining a quality circle is voluntary and not force upon.
  1. Meeting regularly every week:
The duration and frequency of meeting even vary in Japan ( Where this concept originated), It is favor to have meeting at least an hour every week. But actually, the frequency and duration of each meeting should be decided by the circle members who will take all factors into account such as the severity  of the problem, urgency of the problem, number of the problem etc.,
  1. Under the leader ship of the own supervisor:
The quality circle is purely concerned with work-related problems. Therefore, supervisors of the work area proved to be the best persons to lead the group, as they are thorough with the functioning or the department.
  1. Identification, Analysis and Solutions:
 The circle identifies their own problems in their own work area. The circle members are not encouraged to highlight the fault of others.
  1. Presenting solutions to management:
After collection of data, working out new ideas in consultation with all kinds of people, the members come to a conclusion which if implemented will deliver the goods. The final idea ( Solution) should be presented to the management together by the group members(not by the leader alone or any other member) interestingly the circle solutions(projects) are so meticulously thought out that their outright rejection (not favored for implementation) by the management is rare.

  1. Self implementation:
The qualities circles are made for implementation of their solutions as they deal with the problems over the fence in the next department are completely isolated from it. Only each department has to care for their babies.
  1. Meeting time any time:
The meeting of the circle members may not be arranged essentially during their normal working hours. As it may affect their working and thereby production. Also, if the work is done in shifts when the circle members may come different shift and a common free time for all may be difficult to spare within normal working period. Hence, such meeting could be held any time in a working day and holiday.

Advantages of Quality Circle:
1.      It infuses team sprit among the workers.
2.      It improves decision making ability.
3.      It improves employee communication at all levels of the organization.
4.      It improves problem solving ability.
5.      It improves leadership skill.
6.      It builds confidents/trust.
7.      It incorporates a sense of belonging to their organization.
8.      It creates a sense of corporate loyalty and corporate pride.
9.      It improves the relationship between managers and the work force.
10.  It improves quality, production and productivity.
11.  It improves the self-image of the employees.
12.  It reduces cost of production.
13.  It enhances customer satisfaction.
14.  It increases demand for production/services of the organization.
15.  There is greater job security and more employment opportunity.

Total Quality management:
There are four fundamental elements of Total Quality. These are:
1.      Processes
2.      People
3.      Systems
4.      Management

The four elements of Total Quality             
  1. Processes:
Look after the processes and the product looks after itself-a saying in Japan. As the saying goes, the processes are the most vital elements to achieve quality products. It is a fact that if the processes do not have requisite capability then it cannot be expected to deliver requisite quality. Hence, the processes should be continuously monitored and maintenance. Effort should be applied not only for process control but for process improvement too.
  1. People:
People run machines, people maintained machines and equipment. It should be inculcated into their minds that quality is everybody’s concern. They should be trained and educated in problem solving. It is said quality begin with education and end with education.


  1. Systems:
The principles of Quality Systems are prescribed in 1987 in various documents such as:
ISO 9000, British Standard (BS) 5750
Allied Quality Assurance Publications
Indian Standards (IS) etc.,
For example, ISO 9000 is a series of quality standards that outline the requirements for Quality Managements Systems.
  1. Management:
The style of functioning of a management could be authoritarian or participative. The authoritarian style of management functioning takes the following measures for achieving the goals.

INSPECTION :
Definition:
Inspection is the process of examining an object for identification or checking it for verification of quantity and quality in any of its characteristics. It is an important tool for ascertaining and controlling the quality of product.

In the words of Afford and BeatyInspection is the art of applying tests preferably by the aid of measuring appliances  to observe whether the given item or product is within the specified limits of variability or not.

Objectives of Inspection:
The objectives of the Inspection are as follows:
Ø  Inspection separates defective components from non-defective ones and thus ensures the adequate quality of the product.
Ø  Inspection identifies defects in raw materials and flows in processes which otherwise cause problems at the final stage.
Ø  To detect sources of weakness in the finished products.
Ø  Inspection prevents further work being done on semi-finished products already detected as spoiled.
Ø  Inspection builds up the reputation of the concern as it helps reducing the number of complaints from the customers.
Functions of inspections:
Ø  To determine whether the incoming goods are physically or chemically desire characteristics in accordance with specifications.
Ø  To determine whether a part is correctly formed and dimensioned in accordance with the specifications.
Ø  To determine if the patterns and tools which are purchased or are capable of producing the parts in accordance with specifications.
Ø  To determine if the metallic structure, hardness and other properties have been performed.
Ø  To assure management that product below the pre-determined quality specifications will not be dispatched to customers.
Ø  Reporting source of manufacturing difficulties to management.
Ø  Ensuring inspection equipment in good condition.
Ø  Employing best methods of inspection at lowest cost.

Kinds of inspection:
There are number of different kinds of inspection, each carried on because of the necessity for ensuring quality of work in the best possible manner and detecting spoilage as early as possible so that further, loss can be prevented.

1. Receiving Inspection:
Inspection while receiving the material-raw material or semi-finished is called receiving inspection. If the raw materials are not of acceptable quality, the output cannot be accrued. Receiving attains even more significant, when the organization is dependent upon vendors for final product. Inspection at vendors’ site can reduce congestion and delay.

2. Roving Inspection/Floor/Decentralised Inspection:
The inspector walk round on the shop floor from machine to machine and checks sample of the work of various machine operators or workers. In this type, the semi finished goods are inspected either on the machine or in the product line. It is also known as in-process inspection.  The possibility of handling the items is considerably reduced and the discrepancy or defects if any are located. Floor inspection ranges from mere patrolling supervision by keeping an eye on work at machine to careful testing by intricate measurement of products by means of measuring appliances.

Advantages of Decentralized Inspection
(a)    Production delays, scrap and defective work may be reduced.
(b)   Handling cost and time to bring materials/semi finished work at centre place from                      the work area will be reduced.
(c)    Promptness in inspection may result in increased rate of production. Decrease in     process inventories and utilizing better utilization of the production capacity.
(d)   This kind of inspection is more appropriate for product layout.
(e)    It is ideal for products very large in size which weigh more.

Disadvantage of decentralized inspection:
(a)    Less freedom of movement to the operator.
(b)   Sufficient space is not available for inspection work.
(c)    Floe of work from machine to machine is distributed on account of accumulation of work on the floor.
(d)   Work-in-progress is scattered resulting in inspection difficulties.
(e)    Dust, vibration, noise and other floor conditions are less suitable for close inspection.


3. Centralized or Crib Inspection:
Under this method, there will be single inspection unit for the whole plant or each section that will have its own inspection unit to inspect the components, produced by them. The components are shifted to the inspection unit for the necessary action. The inspection staff in each unit is likely to be more experienced and skilled in their work. Also they can use more sophisticated and reliable instruments and techniques to measure the item. Thus, centralized inspection is likely to be more reliable and accurate.
Advantages of Centralized Inspection:
Ø  No chances of collusion between production men and inspectors.
Ø  Machines sites are free from awaiting inspection, offering operators more freedom foe movement.
Ø  There is accurate counting for good and bad items.
Ø  Priorities of inspection may be planned to loads on the production department.
Ø  More sophisticated instruments for inspection can be used.

Disadvantages of centralized Inspection:
Ø  Errors are not resolved quickly.
Ø  Requires more material handling.
Ø  May result in bottlenecks due to delay in inspection of items.
Ø  There may be larger work-in-progress inventory.
Ø  Defect of a job are not known before it is completed. Thus, remedial measures cannot be taken on the spot.
Ø  Not suitable for heavy and unwieldy components.

Comparison between Centralized and Floor Inspection

Centralized Inspection
Floor Inspection

(i)           Definition:
Inspection is done at one place. All the items are brought at the centralized space for inspection.

Inspection is done on the machines or at shop floor. The measuring instruments are taken to the job.
(ii)    Material handling:
 More material handling is involved.

Very less material handling is involved.
Job is stationary and measuring instruments move.
(iii)   Detection of errors of products:
Difficult.

Very easy.
(iv) Collusion between production and inspection:
Very difficult


May be possible.
(v) Shop cleanliness:
Very good

Congested shops.
(vi) Remedial steps:
Possible but time-consuming

Easily and immediately done.
(vii) Inspection time:
More

Less
(viii) Skilled staff required

Moderately skilled staff is required.

(ix) Process inventory level:
High

Low
(x) Utility/Application:
For more accurate small jobs.


For heavy jobs.


4. Trail run Inspection:
In this type, the tool/machine is checked against its drawing and specifications before commencement of operations. A trail run is made with a single piece conforms with specifications, then the production is allowed to be carried on, othewrwise remedial measure are taken.

5. First off Inspection:
The items produced in the first production run are inspected and examined with respect to specifications thoroughly. The method is concerned with checking the set up of the machine. The reasons for discrepancy in actual and specified standards are located and corrected. This inspection reduces the chance of scrap at later stages.

6. Pilot-piece Inspection:
A further step beyond first-piece inspection is the runn ing of a part through its entire sequence of operations on a series of machines set up for its production, especially in the case of product layout or equipment. Each tool and each machine set-up is thus tested and all defective tools are replaced and all wrong adjustment line is releases for actual operation.

7. Tool Inspection:
Tool inspection is the application of inspection methods of tools, fixtures, jigs and gauges in advance of the work of production. If the tools are alright, the results will be satisfactory.

8. Working Inspection:
It means that the inspector should check the pieces at periodic intervals in order to ascertain that they are being produced according to specifications. Tools wear or break and the operator may neglect to grind or replace them.
Automatic Machinery requires that the same precaution be taken, periodic inspection during the run is necessary. Many automatic machines are now equipped with automatic signals or stops which act to shut down the machine when tool or machine develops trouble.



9. Operation Inspection:
This is done immediately after a critical or expensive operation, first to avoid doing expensive work on a part already not up to the standard and second to check the accuracy of critical work before proceeding with succeeding operations. It implies inspection at the completion of an operation before the work-in-progress passes along further.

10. Final Inspection:
It is concerned with inspection after an article has been completely manufactured and is ready to be sent to the stores. It is also known as finished goods inspection.

11. Inspection by Self Control
The operator himself inspects the item, controlling the operations at different levels of the production processes.

12. Percentage inspection:
Amount of inspection to be done is sometimes expresses in terms of percentage, for e.g., cent per cent, meaning inspection of each and every piece in the entire lot. Inspection may be in excess of 100% meaning each part is subject to inspection as it passes from one operator to the next.
Example: In assembly of time fuses for projectiles, each individual visually inspects each piece to see that the previous individual contributed his/her part before adding the next component. In this way, each assembler in turn becomes an inspector verifying the performance of the previous assembler.

13. Efficiency Inspection:
This inspection is synonymous with the trail run of a completed ship, locomotive, turbo,  turbo-generator, or other equipment, for the purposes of securing performance data to check against anticipated results.

14. Endurance Inspection:
This is given to assemblies to determine how much usage they can withstand and to locate weaknesses, if any, for rectification e.g., army rifles, etc.

15.Destructive Inspection
            It is carried on to determine the ultimate resistance of effectiveness of the objects tested. It is regularly carried on at firing to test guns, projectiles, and armour. Guns are sometimes tested. to destruction to check the factor of safety calculations. A few sheels are selected random from a lot and fired to determine fragmentation or ability to penetrate armour. Sample armour plate is used as a target to determine resistance to penetration. This kind of inspection differs from other inspection in that the specimen is destroyed.

16. Product Inspection:
Product inspection is the art of applying tests, by the aid of measuring appliances, to observe whether a given item of product is within the specified limits of variability.

17. Tests Allied to Completed Mechanism:
After parts of a mechanism have been assembled, a final operating test or series of tests should be made, stimulating maximum demands to be carried out on the mechanism after it is placed in service. Strength tests are in themselves the maximum limit.

18. Piecework Inspection:
Work produced on apiece work basis requires much more scrutiny than work produced on a straight line basis. Operators anxious to earn more become careless and a poor quality of work is the likely result. A change-over from a careless and poor quality of work is the likely result. A change-over from a time basis to a piece work basis generally requires an increase in inspection costs which must be offset by the advantages of the latter over the former system.


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