MANAGEMENT SCIENCE UNIT-2

Plant Layout: Concept, Objectives, Principles and Types

Concept of Plant Layout:
The concept of plant layout may be described as follows:
Plant layout is a plan for effective utilization of facilities for the manufacture of products;
involving a most efficient and economical arrangement of machines, materials, personnel,
storage space and all supporting services, within available floor space.

Plant layout is a plan of optimum arrangement of facilities including personnel, equipment’s,

storage space, material handling equipment and all other supporting services along with the
decision of best structure to contain all these facilities.

Plant layout is very complex in nature; because it involves concepts relating to such fields as
engineering, architecture, economics and business management. Most of managers now realize
that after the site for plant location is selected; it is better to develop the layout and build the
building around it – rather than to construct the building first and then try to fit the layout into it.

Objectives/Advantages of Plant Layout:

Following are the objectives/advantages of plant layout:
(i) Streamline flow of materials through the plant

(ii) Minimize material handling

(iii) Facilitate manufacturing progress by maintaining balance in the processes

(iv) Maintain flexibility of arrangements and of operation

(v) Maintaining high turnover of in-process inventory

(vi) Effective utilization of men, equipment and space

(vii) Increase employee morale

(viii) Minimize interference (i.e. interruption) from machines

(ix) Reduce hazards affecting employees

(x) Hold down investment (i.e. keep investment at a lower level) in equipment.

Principles of Plant Layout:

While designing the plant layout, the following principles must be kept in view:
(i) Principle of Minimum Movement:
Materials and labour should be moved over minimum distances; saving cost and time of
transportation and material handling.

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(ii) Principle of Space Utilization:
All available cubic space should be effectively utilized – both horizontally and vertically.

(iii) Principle of Flexibility:

Layout should be flexible enough to be adaptable to changes required by expansion or
technological development.

(iv) Principle of Interdependence:

Interdependent operations and processes should be located in close proximity to each other; to
minimize product travel.

(v) Principle of Overall Integration:

All the plant facilities and services should be fully integrated into a single operating unit; to
minimize cost of production.

(vi) Principle of Safety:

There should be in-built provision in the design of layout, to provide for comfort and safety of
workers.

(vii) Principle of Smooth Flow:

The layout should be so designed as to reduce work bottlenecks and facilitate uninterrupted flow
of work throughout the plant.

(viii) Principle of Economy:

The layout should aim at effecting economy in terms of investment in fixed assets.

(ix) Principle of Supervision:

A good layout should facilitate effective supervision over workers.

(x) Principle of Satisfaction:

A good layout should boost up employee morale, by providing them with maximum work
satisfaction.

Types of Plant Layout:

Two basic plans of the arrangement of manufacturing facilities are – product layout and process
layout. The only other alternative is a combination of product and process layouts, in the same
plant.

Following is an account of the various types of plant layout:

(a) Product Layout (or Line Layout):
In this type of layout, all the machines are arranged in the sequence, as required to produce a
specific product. It is called line layout because machines are arrange in a straight line. The raw
materials are fed at one end and taken out as finished product to the other end.
Advantages:
1. Reduced material handling cost due to mechanized handling systems and straight flow

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2. Perfect line balancing which eliminates bottlenecks and idle capacity.
3. Short manufacturing cycle due to uninterrupted flow of materials

4. Simplified production planning and control; and simple and effective inspection of work.

5. Small amount of work-in-progress inventory

6. Lesser wage cost, as unskilled workers can learn and manage production.

Disadvantages:
1. Lack of flexibility of operations, as layout cannot be adapted to the manufacture of any other
type of product.

2. Large capital investment, because of special purpose machines.

3. Dependence of whole activity on each part; any breakdown of one machine in the sequence
may result in stoppage of production.

4. Same machines duplicated for manufacture of different products; leading to high overall
operational costs.

5. Delicate special purpose machines require costly maintenance / repairs.

Suitability of product layout:

Product layout is suitable in the following cases:
1. Where one or few standardized products are manufactured.

2. Where a large volume of production of each item has to travel the production process, over a
considerable period of time.

3. Where time and motion studies can be done to determine the rate of work.

4. Where a possibility of a good balance of labour and equipment exists.

5. Where minimum of inspection is required, during sequence of operations.

6. Where materials and products permit bulk or continuous handling by mechanical parts.

7. Where minimum of set-ups are required.

(b) Process Layout (or Functional Layout):
In this type of layout, all machines performing similar type of operations are grouped at one
location i.e. all lathes, milling machines etc. are grouped in the shop and they will be clustered in
like groups.
Advantages:
1. Greater flexibility with regard to work distribution to machinery and personnel. Adapted to
frequent changes in sequence of operations.

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 2. Lower investment due to general purpose machines; which usually are less costly than special
purpose machines.

3. Higher utilization of production facilities; which can be adapted to a variety of products.

4. Variety of jobs makes the work challenging and interesting.

5. Breakdown of one machine does not result in complete stoppage of work.

Disadvantages:
1. Backtracking and long movements occur in handling of materials. As such, material handling
costs are higher.

2. Mechanisation of material handling is not possible.

3. Production planning and control is difficult

4. More space requirement; as work-in-progress inventory is high-requiring greater storage

space.

5. As the work has to pass through different departments; it is quite difficult to trace the
responsibility for the finished product.

Suitability of process layout:

Process layout is suitable in the following cases, where:
1. Non-standardized products are manufactured; as the emphasis is on special orders.

2. It is difficult to achieve good labour and equipment balance.

3. Production is not carried on a large scale.

4. It is difficult to undertake adequate time and motion studies.

5. It is frequently necessary to use the same machine or work station for two or more difficult
operations.

6. During the sequence of operations, many inspections are required.

7. Process may have to be brought to work, instead of “vice-versa”; because materials or
products are too large or heavy to permit bulk or continuous handling by mechanical means.

Fixed plant layout:

In a fixed-position layout, the project remains in one place, and workers and equipment come to
that one work area. Examples of this type of project are a ship, a highway, a bridge, a house, and an
operating table in a hospital operating room.

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Other fixed-position layout examples include construction (e.g., buildings, dams, and electric or
nuclear power plants), shipbuilding, aircraft, aerospace, farming, drilling for oil, home repair, and
automated car washes.
In this type of layout, the product is kept at a fixed position and all other material; components,
tools, machines, workers, etc. are brought and arranged around it. Then assembly or fabrication is
carried out. The layout of the fixed material location department involves the sequencing and
placement of workstations around the material or product.

Advantages of Fixed Position Layout:

 Material movement is reduced

 Promotes pride and quality because an individual can complete the whole job
 Highly flexible; can accommodate changes in product design, product mix, and production
volume

Disadvantages of Fixed Position Layout:

 May result in increase space and greater work in process

 Requires greater skill for personnel
 Personnel and equipment movement is increased
 Requires close control and coordination in production and personnel scheduling

Combination Layout:

Many situations call for a mixture of the three main layout types. These mixtures are commonly
called combination or hybrid layouts.

For example, one firm may utilize a process layout for the majority of its process along with an
assembly in one area. Alternatively, a firm may utilize a fixed-position layout for the assembly of
its final product, but use assembly lines to produce the components and sub-assemblies that make
up the final product (e.g., aircraft).

Meaning of Work Study:

Work study is the investigation, by means of a consistent system of the work done in an
organization in order to attain the best utilization of resources i.e. Materials, Machines, Men and
Money. All the technologies and management systems are related with productivity.

Objectives of Work Study:

(i) Work study brings higher productivity;

(ii) Work study improves existing method of work for which cost becomes lower;

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 (iii) It eliminates wasteful elements;

(iv) It sets standard of performance;

(v) It helps to use plant and human more effectively;

(vi) It improves by saving in time and loss of material also.

(ii) Steps Involved in Work Study:

The steps of work study are:
(i) It selects the jobs which are to be studied;

(ii) It examines critically the recorded facts which are already done;

iii) It records from direct observations all the matters which are happened;

(iv) It defines new method;

(v) It also installs the new method;

(vi) It also maintains the new standard;

(vii) It develops most economic and appropriate methods;

(viii) It measures the work content in the method that is selected and computes a
standard time.

Types of Work Study:

1. Method Study:
According to ILO, method study is “the systematic recording, analysis and critical examination
of existing and proposed ways of doing work and the development and application of easier and
more effective method”. In short, it is a systematic procedure to analyse the work to eliminate
unnecessary operations.
Objectives:
The objectives of method study are:
(i) It improves the proper utilization of manpower, machine and materials;

(ii) It also improves the factory layout, work place, etc.;

(iii) It also improves the process and procedure;

(iv) It develops better physical working environment;

(v) It reduces undesirable fatigue.

The steps of method study are:

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 (i) At first select the proper works which are to be studied;

(ii) Record all the facts of existing method;

(iii) Examine the facts very critically;

(iv) Develop the most practical, economic, and effective method;

(v) Install the method and the same should be maintained.

2. Time And Motion Study:

According to ILO, Time Study means “a technique for determining as accurately as possible
from a limited number of observations the time necessary to carry out a given activity at a
different standard of performance”. In other words, “time study is the art of observing and
recording time required to do each detailed element of an individual operation.” Practically, it
studies the time taken on each element of a job.
Motion study, on the other hand, is the study of the body motion used in performing an
operation, with the thought of improving the operation by eliminating unnecessary motion and
simplifying necessary motion and thus establishing the most favourable motion sequence for
maximum efficiency.

So, in short, ‘Time Study’ means the determination of standard time that is taken by a worker of
average ability under normal working conditions for performing a job. But ‘Motion Study’
determines the correct method of doing a job to avoid wasteful movements, for which the
workers are unnecessarily tired.

Steps:
1. Time and Motion studies eliminate wasteful movements;

2. They examine the proposed method critically and determine the most effective one;
3. They determine for each element having a stop-watch;

4. They record all the parts of a job which are done by the existing method;

5. They install the method as standard one;

6. They critically observe the workers who are engaged with the work;

7. They assess the proper speed of the operator who is working.

Materials Management: Meaning, Importance and Functions:

Materials management is a crucial aspect of the supply chain and plays a significant role in the success
of businesses in the United States. In fact, according to the National Association of Purchasing
Management, materials management accounts for approximately 60% of a company's total costs.

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With such a high percentage of resources devoted to materials management, companies in the US must
understand the importance of this function and implement best practices to achieve success. Materials
management is an essential function within an organization that ensures the smooth flow of materials
from suppliers to production and eventually to customers. It involves the planning, procurement, and
control of materials to ensure that the right material is available at the right time, in the right quantity,
and at the right cost.

Materials management aims to balance the conflicting goals of ensuring material availability,
minimizing inventory costs, and maximizing customer satisfaction.

What Is Material Management?

Material Management is a system that effectively controls and manages materials and supplies used in
an organization. The goal of material management is to ensure that the right materials are available at the
right time and in the right quantities, to support the production process and meet customer demand.

Here are some key points to consider when exploring material management:

 Material management plays a crucial role in the success of an organization by ensuring that
materials are available when needed and in the right quantities.
 It helps to minimize waste and reduce costs by ensuring no over-stocking or under-stocking of
materials.
 It helps to improve customer satisfaction by ensuring that orders are delivered on time and with
the correct items.
 The critical components of material management include material planning, procurement,
inventory control, and distribution.
 Material planning involves forecasting demand, determining the materials needed, and
developing a plan to acquire those materials.
 Procurement involves sourcing and purchasing materials from suppliers.
 Inventory control involves managing the flow of materials into and out of the organization and
monitoring inventory levels to ensure they remain within acceptable limits.
 Distribution involves the physical movement of materials from the organization to the customer.

Types of Material Management

The following are the different types of material management:

 Inventory Management

Inventory management involves the maintenance of a company's stock of raw materials, semi-finished
goods, and finished products. It includes identifying the optimal inventory level to be maintained,
determining the reorder points, and ensuring that the inventory is stored correctly.

Inventory management aims to strike a balance between the costs of holding too much inventory and the
costs of running out of stock.

 Purchasing Management
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Purchasing management involves procuring raw materials, supplies, and services required for
production. It consists of the selection of suppliers, negotiation of prices, preparation of purchase orders,
and management of supplier relationships.

The objective of purchasing management is to buy the required materials at the best possible price and
quality while ensuring timely delivery.

 Warehouse Management

Warehouse management involves the storage and handling of materials, as well as the management of
the physical movement of goods within a warehouse. It includes receiving, storing, and shipping
materials, as well as managing inventory levels and the location of materials within the warehouse.

The goal of warehouse management is to optimize the use of space and minimize the cost of storing and
handling materials.

 Material Requirements Planning (MRP)

Material Requirements Planning (MRP) is a computer-based inventory management system used to plan
production schedules and manage the procurement of materials.

MRP considers the lead time for ordering materials, the time required for production, and the inventory
levels of materials. MRP aims to ensure that suitable materials are available at the right time and in the
correct quantity to meet production needs.

 Transportation Management

Transportation management involves the physical movement of materials from one location to another.
It includes the selection of carriers, negotiation of freight rates, preparation of shipping documents, and
management of delivery schedules. Transportation management aims to ensure that the materials are
delivered on time and at the lowest possible cost.

Objectives Of Material Management

The following are the five primary objectives of material management:

 Right Material

The first objective of material management is to ensure that suitable materials are available for
production. It involves identifying the materials required for production and ensuring that they are of the
correct quality, specification, and quantity.

By ensuring that the right materials are available, companies can minimize the risk of production delays
and ensure customer satisfaction.

 Right Time

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The second objective of material management is to ensure that the right materials are available at the
right time. It involves managing the movement of materials within the warehouse, reducing lead times,
and improving the efficiency of delivery processes.

 Right Amount

The third objective of material management is to ensure that the right amount of materials are available
for production. It involves determining the optimal inventory level to maintain and implementing
processes to manage the movement of materials within the warehouse.

By ensuring that the right amount of materials are available, companies can minimize the risk of stock
shortages, reduce the cost of storage and handling, and increase efficiency.

 Right Price

The fourth objective of material management is to ensure that materials are purchased at the right price.
It involves negotiating with suppliers to obtain the best possible prices and implementing cost-saving
measures, such as reducing waste, reducing lead times, and improving the efficiency of delivery
processes.

 Right Sources

The fifth objective of material management is to ensure that materials are sourced from the right sources.
It involves identifying reliable suppliers, developing partnerships with suppliers, and ensuring that
materials are purchased from approved suppliers only.

By sourcing materials from the right sources, companies can reduce the risk of defective materials,
minimize the risk of production delays, and ensure customer satisfaction.

Importance of Material Management

 Cost Reduction

One of the primary objectives of material management is to reduce the cost of materials. It includes
reducing the cost of purchasing materials, as well as reducing the cost of storing and handling materials.

Cost reduction can be achieved through effective planning, procurement, and storage processes, as well
as through implementing cost-saving measures such as reducing waste, reducing lead times, and
improving the efficiency of delivery processes.

 Improved Quality

Another objective of material management is to improve the quality of materials and products. This
includes ensuring that the materials and products used in the production meet specified standards of
quality and implementing processes to prevent defects.

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Improving the quality of materials and products can help ensure customer satisfaction, improve the
company's reputation, and reduce the cost of rework and warranty claims.

 Timely Delivery

A third objective of material management is to ensure the timely delivery of materials and products. This
includes ensuring that the right materials are available at the right time and in the right quantity to meet
production needs and implementing processes to prevent delays in the delivery of materials.

Timely delivery is critical to any business's success and can help improve customer satisfaction, reduce
inventory costs, and improve production process efficiency.

 Inventory Optimization

Another objective of material management is to optimize inventory levels. This includes determining the
optimal inventory level to maintain and implementing processes to manage the movement of materials
within the warehouse.

Inventory optimization can help to reduce the cost of storage and handling and minimize the risk of
stock shortages or obsolescence.

 Efficient Supply Chain

A final objective of material management is to ensure the efficiency of the supply chain. This includes
reducing lead times, improving the efficiency of delivery processes, and optimizing the movement of
materials within the warehouse.

An efficient supply chain can help to reduce the cost of materials, improve customer satisfaction, and
increase the competitiveness of the business.

Functions of Material Management:

Material management covers all aspects of material costs, supply and utilization. The functional
areas involved in material management usually include purchasing, production control, shipping,
receiving and stores.

The following functions are assigned for material management:

1. Production and Material Control:
Production manager prepares schedules of production to be carried in future. The requirements
of parts and materials are determined as per production schedules. Production schedules are
prepared on the basis of orders received or anticipated demand for goods. It is ensured that every
type or part of material is made available so that production is carried on smoothly.

2. Purchasing:
Purchasing department is authorized to make buying arrangements on the basis of requisitions
issued by other departments. This department keeps contracts with suppliers and collects
quotations etc. at regular intervals. The effort by this department is to purchase proper quality
goods at reasonable prices. Purchasing is a managerial activity that goes beyond the simple act of
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buying and includes the planning and policy activities covering a wide range of related and
complementary activities.

3. Non-Production Stores:
Non-production materials like office supplies, perishable tools and maintenance, repair and
operating supplies are maintained as per the needs of the business. These stores may not be
required daily but their availability in stores is essential. The non-availability of such stores may
lead to stoppage of work.

4. Transportation:
The transporting of materials from suppliers is an important function of materials management.
The traffic department is responsible for arranging transportation service. The vehicles may be
purchased for the business or these may be chartered from outside. It all depends upon the
quantity and frequency of buying materials. The purpose is to arrange cheap and quick transport
facilities for incoming materials.
5. Materials Handling:
It is concerned with the movement of materials within a manufacturing establishment and the
cost of handling materials is kept under control. It is also seen that there are no wastages or
losses of materials during their movement. Special equipment’s may be acquired for material
handling.

6. Receiving:
The receiving department is responsible for the unloading of materials, counting the units,
determining their quality and sending them to stores etc. The purchasing department is also
informed about the receipt of various materials.

The four types of inventory most commonly used are Raw Materials, Work-In-Process (WIP),
Finished Goods, and Maintenance, Repair, and Overhaul (MRO). You can practice better
inventory control and smarter inventory management when you know the type of inventory you
have.

Meaning of Inventory Management

Inventory Management techniques help in tracking and controlling the inventory orders, their
usage, and storage, along with the management of finished goods that are ready for sale.
Improper inventory management can increase storage cost, working capital crunch, wastage of
labor resources, increase in idle time, disruption of the supply chain, etc. All this leads to a
reduction in sales and unsatisfied customers. Therefore, inventory management is an important
aspect of the business that the management cannot afford to ignore. Effective and efficient
management of the same is a must .

ABC analysis

ABC analysis stands for Always Better Control Analysis. It is an inventory management
technique where inventory items are classified into three categories: A, B, and C. The items in
the A category of inventory are closely controlled as it consists of high-priced inventory, which
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 may be less in number but are very expensive. The items in the B category are relatively less
expensive than in the A category, and the number of items in the B category is moderate, so the
control level is also moderate. The C category consists of a high number of inventory items that
require lesser investments, so the control level is minimum.

A – Refers to high value item

B – Refers to medium value item
C – Refers to low value item
A category comprises of inventory, which is very costly and valuable. Normally 70% of the
funds are tied up in such costly stocks, which would be around 10% of the total volume of stocks.
Because the stocks in this category are very costly, these require strict monitoring on a day-to-day
basis.
B category comprises of inventory, which is less costly. Twenty percent of the funds are
tied up in such stocks and these accounts for over 20% of the volume of stocks. These items require
monitoring on a weekly or fortnightly basis.
C category consists of such stocks, which are of least cost. Volume wise,
they form 70% of the total stocks but value-wise, they do not cost more than 10% of the investment
in the stocks. This category of stocks can be monitored on a monthly or bi-monthly basis.

The following table summarizes the concept of ABC analysis;

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 Economic Order Quantity (EOQ) Model
Economic Order Quantity technique focuses on making a decision regarding how much quantity
of inventory the company should order at any point in time and when they should place the
order. In this model, the store manager will reorder the inventory when it reaches the reordering
level. EOQ model helps to save the ordering cost and carrying costs incurred while placing the
order. With the EOQ model, the organization is able to place the right quantity of inventory.

Inventory costs: The inventory costs can be classified into two categories,
1) Inventory ordering cost 2) Inventory carrying cost.
KEY TAKEAWAYS

 The economic order quantity (EOQ) is a company's optimal order quantity that meets
demand while minimizing its total costs related to ordering, receiving, and holding
inventory.
 The EOQ formula is best applied in situations where demand, ordering, and holding costs
remain constant over time.
 One of the important limitations of the economic order quantity is that it assumes the
demand for the company’s products is constant over time.
Formula for Economic Order Quantity (EOQ)
The formula for EOQ is:

Q= square root of 2DS/H

Where:
Q=EOQ units
D=Demand in units (typically on an annual basis)
S=Order cost (per purchase order)
H=Holding costs (per unit, per year)

Determine EOQ:
Step1:
Total Ordering cost per year = No. of orders placed per year x ordering cost
Per Order = (A/S) x O
A = Annual demand
S = Size of each order (units per order)
O = Ordering cost per order
Step2:
Total Carrying cost per year = Average inventory level x Carrying cost per
Year = (S/2) x C
A = Annual demand
S = Size of each order (units per order)
C = Carrying cost per unit

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The goal of the EOQ formula is to identify the optimal number of product units to order. If
achieved, a company can minimize its costs for buying, delivering, and storing units. The EOQ
formula can be modified to determine different production levels or order intervals, and
corporations with large supply chains and high variable costs use an algorithm in their computer
software to determine EOQ.
For many companies, inventory is its largest asset other than its human resources, and these
businesses must carry sufficient inventory to meet the needs of customers. If EOQ can help
minimize the level of inventory, the cash savings can be used for some other business purpose or
investment.
Limitations of Economic Order Quantity (EOQ)
The EOQ formula assumes that consumer demand is constant. The calculation also assumes that
both ordering and holding costs remain constant.

This fact makes it difficult or impossible for the formula to account for business events such as
changing consumer demand, seasonal changes in inventory costs, lost sales revenue due to
inventory shortages, or purchase discounts a company might realize for buying inventory in larger
quantities.

Purchasing procedure
1. Determining Purchase Budget:
Purchase Manager prepares a purchase budget for the forthcoming financial year. Purchase
budget is prepared with the help of production planning department. It contains detailed
information regarding quantity to be purchased, quality of materials, time of purchase and the
sources of procurement. A schedule of materials and components needed for various jobs, known
as bill of materials, is also prescribed for working out details of purchase budget. A bill of
materials is also useful in exercising control over the utilization of materials.

2. Receipt of Purchase Requisition:

The purchase officer initiates action for the purchase of materials only when he receives a
request for the same. The store-keeper and departmental heads send requisition slips to purchase
department giving details of materials required by their departments etc. A purchase requisition
is a form used as a formal request to the purchasing department to purchase materials.
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This form is prepared by the store keeper for regular stock materials and by the departmental
head for specific materials not stocked as regular items. The storekeeper knows when an action
or fresh procurements is to be initiated. He will send the requisition when materials reach re-
ordering level. He retains one copy of the requisition with him for future reference .It is on the
basis of purchase requisition that orders are placed for materials.

3. Determining Sources of Supply:

Purchase Manager remains in touch with various suppliers of materials. The quotations are
invited for the purchase of specific items. After receiving quotations a comparative study is made
regarding terms and conditions offered. The factors to be considered include price, quantity,
quality, time of delivery, terms of payment, trade discount and reputation of suppliers. After
looking at various factors a final decision is taken about the supplier of goods.

4. Placing Order:
After selecting a supplier a formal purchase order is sent for the supply of goods. A purchase
order is sent on a printed form and is duly authorized by the purchase manager. This order should
contain details about the quantity, quality, price, mode of delivery, terms of payment etc. The
purchase order authorizes the vendor to despatch goods specified in it. It establishes a contractual
relation between the buyer and the vendor.

5. Follow-Up of Purchase Order:

A purchase order normally bears a date by which the goods must be delivered It is in the interest
of the organization that goods are received in time for keeping uninterrupted flow of materials.
The suppliers may be reminded of the date of delivery of goods. A follow-up of purchase order is
necessary to receive stocks in time.

6. Receipt and Inspection of Materials:

In big concerns the task of receiving materials is assigned to the purchase department whereas in
small concerns this work is done by the store keeper. After unpacking goods their quantity is
compared to that given in delivery challans. Any discrepancy in items is reported to the purchase
department. The specifications and quality of goods is also checked at this stage.

7. Checking Invoices:
Lastly, purchase department checks the invoices supplied by the vendor with that of its own
records. The quantity, quality, price, terms etc. are compared with those given in purchase order.
After making full checking the invoices are sent to accounts department for payment.

Marketing definition

The American Association of Marketing define marketing management as "the process of

planning and executing the conception, pricing, promotion and distribution of ideas, goods and
services in order to create, exchange and satisfy individual and organizational objectives."
Concepts
Marketing concepts or marketing management philosophies are the philosophies used by the
businesses to guide their marketing efforts.
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In simple terms, marketing concepts relate to the philosophy a business use to identify and fulfil

the needs of its customers, benefiting both the customer and the company.

Same philosophy cannot result in a gain for every business, hence different businesses use
different marketing concepts (also called marketing management philosophies).

Marketing concepts are driven by clear objectives like cost efficiency, product quality,
customer’s need fulfilment etc.

Marketing Management Philosophies

There are five marketing concepts. A company should choose the right one according to their
and their customers’ needs.

1. Production Concept
2. Product Concept
3. Selling Concept
4. Marketing Concept
5. Social Marketing Concept
Production Concept

This concept works on an assumption that consumers prefer a product which is inexpensive and
widely available. This viewpoint was encapsulated in Says Law which states ‘Supply creates its
own demand’. Hence companies focus on producing more of the product and making sure that it
is available to the customer everywhere easily.

Increase in the production of the product makes the companies get the advantage of economies
of scale. This decreased production cost makes the product inexpensive and more attractive to
the customer.

A low price may attract new customers, but the focus is just on production and not on product
quality. This may result in a decrease in sales if the product is not up to the standards.

This philosophy only works when the demand is more than the supply. Moreover, a customer not
always prefers an inexpensive product over others. There are many other factors which influence
his purchase decision.

Examples of Production Concept of Marketing Management Philosophies

 Companies whose product market is spread all over the world may use this approach.
 Companies having an advantage of monopoly.
 Any other company whose product’s demand is more than its supply.

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Product Concept

This concept works on the assumption that customers prefer products of ‘greater quality’ and
‘price and availability’ doesn’t influence their purchase decision. Hence the company devotes
most of its time in developing a product of greater quality which usually turns out to be
expensive.

Since the main focus of the marketers is the product quality, they often lose or fail to appeal to
customers whose demands are driven by other factors like price, availability, usability, etc.

Product Concept

Examples of Product Concept of Marketing Management Philosophies

 Companies in the technology industry.

 Companies having an advantage of monopoly.
Selling Concept

Production and product concept both focus on production but selling concept focuses on making
an actual sale of the product. Selling Concept focuses on making every possible sale of the
product, regardless of the quality of the product or the need of the customer. The main focus is to
make money. This philosophy doesn’t include building relations with customers. Hence repeated
sales are very less. Companies following this concept may even try to deceive the customers to
make them buy their product.

Companies which follow this philosophy have a short-sighted approach as they ‘try to sell what
they make rather than what market wants’.

Selling Concept

Examples of Selling Concept of Marketing Management Philosophies

 Companies with short-sighted profit goals. This often leads to marketing myopia.
 Fraudulent companies.
Marketing Concept

Selling Concept cannot let a company last long in the market. It’s a consumers market after all.
To succeed in the 21st century, one has to produce a product to fulfill the needs of their
customers. Hence, emerged the marketing concept. This concept works on an assumption that
consumers buy products which fulfil their needs. Businesses following the marketing concept
conduct researches to know about customers’ needs and wants and come out with products to
fulfill the same better than the competitors. By doing so, the business establishes a relationship
with the customer and generate profits in the long run.

However, this isn’t the only philosophy that should be followed by all the businesses. Many
businesses still follow other concepts and make profits. It totally depends on the demand and
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supply and the needs of the parties involved.

Marketing Concept

Examples of Marketing Concept of Marketing Management Philosophies

 Companies in perfect competition.

 Companies who want to stay in the market for a long time.
Societal Marketing Concept

Adding to the marketing concept, this philosophy focuses on society’s well-being as well. The
business focuses on how to fulfil the needs of the customer without affecting the environment,
natural resources and focusing on society’s well-being. This philosophy believes that the
business is a part of the society and hence should take part in social services like the elimination
of poverty, illiteracy, and controlling explosive population growth etc.

Societal Marketing Concept

Many of the big companies have included corporate social responsibility as a part of their
marketing activities.

Holistic Marketing Concept

Holistic marketing is a new addition to the business marketing management philosophies which
considers business and all its parts as one single entity and gives a shared purpose to every
activity and person related to that business. A business, like a human body, has different parts,
but it’s only able to function properly when all those parts work together towards the same
objective. Holistic marketing concept enforces this interrelatedness and believes that a broad and
integrated perspective is essential to attain the best results.

Functions of Management - Planning, Organizing, Staffing, Directing & Controlling

1. Planning

It is the basic function of management. It deals with chalking out a future course of action
& deciding in advance the most appropriate course of actions for achievement of pre-
determined goals.

According to KOONTZ, “Planning is deciding in advance - what to do, when to do &

how to do. It bridges the gap from where we are & where we want to be”. A plan is a
future course of actions. It is an exercise in problem solving & decision making.

Planning is determination of courses of action to achieve desired goals. Thus, planning is

a systematic thinking about ways & means for accomplishment of pre-determined goals.
Planning is necessary to ensure proper utilization of human & non-human resources. It is
all pervasive, it is an intellectual activity and it also helps in avoiding confusion,
uncertainties, risks, wastages etc.

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2. Organizing

It is the process of bringing together physical, financial and human resources and
developing productive relationship amongst them for achievement of organizational
goals.

According to Henry Fayol, “To organize a business is to provide it with everything useful
or its functioning i.e. raw material, tools, capital and personnel’s”. To organize a business
involves determining & providing human and non-human resources to the organizational
structure. Organizing as a process involves:

 Identification of activities.
 Classification of grouping of activities.
 Assignment of duties.
 Delegation of authority and creation of responsibility.
 Coordinating authority and responsibility relationships.
3. Staffing
It is the function of manning the organization structure and keeping it manned. Staffing
has assumed greater importance in the recent years due to advancement of technology,
increase in size of business, complexity of human behavior etc.

The main purpose o staffing is to put right man on right job i.e. square pegs in square
holes and round pegs in round holes. According to Kootz & O’Donell, “Managerial
function of staffing involves manning the organization structure through proper and
effective selection, appraisal & development of personnel to fill the roles designed un the
structure”. Staffing involves:

 Manpower Planning (estimating man power in terms of searching, choose the

person and giving the right place).
 Recruitment, Selection & Placement.
 Training & Development.
 Remuneration.
 Performance Appraisal.
 Promotions & Transfer.
4. Directing

It is that part of managerial function which actuates the organizational methods to work
efficiently for achievement of organizational purposes. It is considered life-spark of the
enterprise which sets it in motion the action of people because planning, organizing and
staffing are the mere preparations for doing the work.

Direction is that inert-personnel aspect of management which deals directly with

influencing, guiding, supervising, motivating sub-ordinate for the achievement of
organizational goals. Direction has following elements:

 Supervision
 Motivation
 Leadership
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  Communication

Supervision- implies overseeing the work of subordinates by their superiors. It is the act
of watching & directing work & workers.

Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to

work. Positive, negative, monetary, non-monetary incentives may be used for this
purpose.

Leadership- may be defined as a process by which manager guides and influences the
work of subordinates in desired direction.

Communications- is the process of passing information, experience, opinion etc from

one person to another. It is a bridge of understanding.

5. Controlling
It implies measurement of accomplishment against the standards and correction of
deviation if any to ensure achievement of organizational goals. The purpose of
controlling is to ensure that everything occurs in conformities with the standards. An
efficient system of control helps to predict deviations before they actually occur.

According to Theo Haimann, “Controlling is the process of checking whether or not

proper progress is being made towards the objectives and goals and acting if necessary, to
correct any deviation”.

According to Koontz & O’Donnell “Controlling is the measurement & correction of

performance activities of subordinates in order to make sure that the enterprise objectives
and plans desired to obtain them as being accomplished”. Therefore controlling has
following steps:

Establishment of standard performance.

a. Measurement of actual performance.

b. Comparison of actual performance with the standards and finding out deviation if
any.
c. Corrective action.

Marketing Mix

The ―Four P‗s of marketing: product, price, placement, and promotion are all affected as a
company moves through the five evolutionary phases to become a global company.Ultimately,
at the global marketing level, a company trying to speak with one voice is faced with many
challenges when creating a worldwide marketing plan. Unless a company holds the same
position against its competition in all markets (market leader, low cost, etc.) it is impossible to
launch identical marketing plans worldwide.

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Product

Products (and services)-the primary marketing mix element that satisfied customer wants and
needs-provide the main link between the organization and its customers. Marketing
organizations must be ready to alter products as dictated by changes in competitive strategies
or changes in other elements of the organization's environment.

Many organizations have a vast array of products in their mix. Ideally, each of the products is
profitable. But this is often not the case, so some tough decisions must be made concerning
the length of time an unsuccessful product is kept on the market.

Place
How the product is distributed is also a country-by-country decision influenced by how the
competition is being offered to the target market. Using Coca-Cola as an example again, not
all cultures use vending machines. In the United States, beverages are sold by the pallet via
warehouse stores. In India, this is not an option. Placement decisions must also consider the
products position in the market place. For example, a high-end product would not want to be
distributed via a ―dollar store‖ in the United States. Conversely, a product promoted as the
low-cost option in France would find limited success in a pricey boutique.

The organization's distribution system moves the product to the final consumer. Because
there are many alternatives when selecting a distribution channel, marketing management
must have a clear understanding.
of the types of distributors, of the trends influencing those distributors, and of how those
distributors are perceived by customers.

Promotion

The product's benefits must be communicated to the distributors and to the final customers.
Therefore, the marketing organization must provide marketing information that is received
favorably by distributors and final customers. Marketing organizations, through promotion,
provide information by way of advertising, sales promotions, salespeople public relations, and
packaging.
Price

Finally, marketers must price their products in such a way that customers believe they are
receiving fair value. Price is the primary means by which customers judge the attractiveness
of a product or service. Moreover, price is a reflection of all the activities of an organization.
Finally, price is a competitive tool, in that it is used as a basis for comparison of product and
perceived value across different organizations.

Product Life Cycle

As consumers, we buy millions of products every year. And just like us, these products have
a life cycle. Older, long-established products eventually become less popular, while in
contrast, the demand for new, more modern goods usually increases quite rapidly after they
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are launched. Because most companies understand the different product life cycle stages, and
that the products they sell all have a limited lifespan, the majority of them will invest heavily
in new product development in order to make sure that their businesses continue to grow.

Product Life Cycle Stages

The product life cycle has 4 very clearly defined stages, each with its own
characteristics that mean different things for business that are trying to manage the
life cycle of their particular products.

Introduction Stage –

This stage of the cycle could be the most expensive for a company launching a new product.
The size of the market for the product is small, which means sales are low, although they will
be increasing. On the other hand, the cost of things like research and development, consumer
testing, and the marketing needed to launch the product can be very high, especially if it’s a
competitive sector.

Growth Stage –

The growth stage is typically characterized by a strong growth in sales and profits, and because
the company can start to benefit from economies of scale in production, the profit margins, as
well as the overall amount of profit, will increase. This makes it possible for businesses to
invest more money in the promotional activity to maximize the potential of this growth stage.

Maturity Stage –

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During the maturity stage, the product is established and the aim for the manufacturer is now
to maintain the market share they have built up. This is probably the most competitive time for
most products and businesses need to invest wisely in any marketing they undertake. They
also need to consider any product modifications or improvements to the production process
which might give them a competitive advantage.

Decline Stage –

Eventually, the market for a product will start to shrink, and this is what’s known as the
decline stage. This shrinkage could be due to the market becoming saturated (i.e. all the
customers who will buy the product have already purchased it), or because the consumers are
switching to a different type of product. While this decline may be inevitable, it may still be
possible for companies to make some profit by switching to less- expensive production
methods and cheaper markets.

Advertising
Advertising is the action of calling public attention to an offering through paid
announcements by an identified sponsor.

Advertising is any paid form of non-personal presentation & promotion of ideas, goods, or
services by an identified sponsor.

Characteristics of advertising

 Paid Form: Advertising requires the advertiser (also called sponsor) to pay to create an
advertising message, buy advertising media slot, and monitor advertising efforts.
 Tool for Promotion: Advertising is an element of the promotion mix of an organisation.
 One Way Communication: Advertising is a one-way communication where brands
communicate to the customers through different mediums.
 Personal Or Non-Personal: Advertising can be non-personal as in the case of TV, radio,
or newspaper advertisements, or highly personal as in the case of social media and other
cookie-based advertisements.

Types of advertising

 Above-the-line advertising includes activities that are largely non-targeted and have a
wide reach. Examples of above-the-line advertising are TV, radio, & newspaper
advertisements.
 Below-the-line advertising includes conversion-focused activities which are directed
toward a specific target group. Examples of below-the-line advertising are billboards,
sponsorships, in-store advertising, etc.

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  Through-the-line advertising includes activities which involve the use of both ATL &
BTL strategies simultaneously. These are directed towards brand building and conversions
and make use of targeted (personalised) advertisement strategies. Examples of through-
the-line advertising are cookie-based advertising, digital marketing strategies, etc.
Advertising activities can also be categorised into 5 types based on the advertising medium used.
These types of advertisements are:

 Print Advertising: Newspaper, magazines, & brochure advertisements, etc.

 Broadcast Advertising: Television and radio advertisements.
 Outdoor Advertising: Hoardings, banners, flags, wraps, etc.
 Digital Advertising: Advertisements displayed over the internet and digital devices.
 Product/Brand Integration: Product placements in entertainment media like TV shows,
YouTube videos, etc.

What Are The Objectives Of Advertising

There are 3 main objectives of advertising – to inform about the brand or offering, to persuade to
buy or perform a task and to remind and reinforce the brand message.

To Inform

Advertisements are used to increase brand awareness and brand exposure in the target market.
Informing potential customers about the brand and its products is the first step toward attaining
business goals.

To Persuade

Persuading customers to perform a particular task is a prominent objective of advertising. The

tasks may involve buying or trying the products and services offered, forming a brand image,
developing a favourable attitude towards the brand etc.

To Remind

Another objective of advertising is to reinforce the brand message and to reassure the existing
and potential customers about the brand vision. Advertising helps the brand to maintain top-of-
mind awareness and to avoid competitors stealing the customers. This also helps in the word of
mouth marketing.

Other objectives of advertising are subsets of these three objectives. These subsets are:

 Brand building
 Increasing sales
 Creating demand

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  Engagement
 Expanding customer base
 Changing customers’ attitudes, etc.

Importance Of Advertising

To The Customers

 Convenience: Targeted informative advertisements make the customer’s decision-

making process easier as they get to know what suits their requirements and budget.
 Awareness: Advertising educates the customers about different products available in the
market and their features. This knowledge helps customers compare different products
and choose the best product for them.
 Better Quality: Only brands advertise themselves and their products. There are no
advertisements for unbranded products. This ensures better customer quality and a
good business model as no brand wants to waste money on false advertising.
To The Business

 Awareness: Advertising increases brand and product awareness among the people
belonging to the target market.
 Brand Image: Clever advertising helps the business to form the desired brand image and
brand personality in the minds of the customers.
 Product Differentiation: Advertising helps the business differentiate its product from
competitors’ and communicate its features and advantages to the target audience.
 Increases Goodwill: Advertising reiterates brand vision and increases the brand’s
goodwill among its customers.
 Value For Money: Advertising delivers the message to a wide audience and tends to be
value for money when compared to other elements of the promotion mix.

What are the factors influencing plant layout (or) tools of plant layout:
Some of the major factors which affect plant layout are: (1) Policies of management (2) Plant
location (3) Nature of the product (4) Volume of production (5) Availability of floor space (6)
Nature of manufacturing process and (7) Repairs and maintenance of equipment and machines.

(1) Policies of management:

It is important to keep in mind various managerial policies and plans before deciding plant
layout.Various managerial policies relate to future volume of production and expansion, size of the
plant, integration of production processes; facilities to employees, sales and marketing policies and
purchasing policies etc. These policies and plans have positive impact in deciding plant layout.

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(2) Plant location:
Location of a plant greatly influences the layout of the plant. Topography, shape, climate
conditions, and size of the site selected will influence the general arrangement of the layout and the
flow of work in and out of the building.

(3) Nature of the product:

Nature of the commodity or article to be produced greatly affects the type of layout to be adopted.
In case of process industries, where the production is carried in a sequence, product layout is
suitable. For example, soap manufacturing, sugar producing units and breweries apply product type
of layout. On the other hand in case of intermittent or assembly industries, process type of layout
best suited. For example, in case of industries manufacturing cycles, typewriters, sewing machines
and refrigerators etc., process layout method is best suited.

Production of heavy and bulky items need different layout as compared to small and light items.
Similarly products with complex and dangerous operations would require isolation instead of
integration of processes.

(4) Volume of production

Plant layout is generally determined by taking into consideration the quantum of production to be
produced. There are three systems of production viz.
(a) Job production:
Under this method peculiar, special or non- standardized products are produced in accordance with
the orders received from the customers. As each product is non- standardized varying in size and
nature, it requires separate job for production. The machines and equipment’s are adjusted in such a
manner so as to suit the requirements of a particular job.

Job production involves intermittent process as the work is carried as and when the order is
received. Ship building is an appropriate example of this kind. This method of plant layout viz.,
Stationery Material Layout is suitable for job production.

(b) Mass production:

This method involves a continuous production of standardized products on large scale. Under this
method, production remains continuous in anticipation of future demand. Standardization is the

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basis of mass production. Standardized products are produced under this method by using
standardized materials and equipment. There is a continuous or uninterrupted flow of production
obtained by arranging the machines in a proper sequence of operations. Product layout is best
suited for mass production units.

(c) Batch production:

It is that form of production where identical products are produced in batches on the basis of
demand of customers or of expected demand for products. This method is generally similar to job
production except the quality of production.

Instead of making one single product as in case of job production a batch or group of products is
produced at one time, It should be remembered here that one batch of products has no resemblance
with the next batch. This method is generally adopted in case of biscuit and confectionary
manufacturing, medicines, tinned food and hardware’s like nuts and bolts etc.

(5) Availability of floor space:

Availability of floor space can be other decisive factor in adopting a particular mode of layout. If
there is a scarcity of space, product layout may be undertaken. On the other hand more space may
lead to the adoption of process layout.

(6) Nature of manufacturing process:

The type of manufacturing process undertaken by a business enterprise will greatly affect the type
of layout to be undertaken.

A brief mention of various processes is given us under:

(i) Synthetic process:

Under this process two or more materials are mixed to get a product. For example, in the
manufacture of cement, lime stone and clay are mixed.

(ii) Analytical process:

This is just the reverse of synthetic process. Under this method different products are extracted
from one material. For example, from crude oil, petroleum, gas, kerosene and coal tar etc. are
extracted.
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(iii) Conditioning process:
Under this process the original raw material is given the shape of different products and nothing is
added to it. Jute is an important example of this kind.

(iv) Extractive process:

This method involves the extraction of a product from the original material by the application of
heat or pressure. This involves the process of separation, for example, aluminum is separated from
bauxite.

(7) Repairs and maintenance of equipment and machines:

The plant layout should be designed in such a manner as to take proper care with regard to repairs
and maintenance of different types of machines and equipment being used in the industry. The
machines should not be installed so closely that it may create the problems of their maintenance
and repairs. It has been rightly said that “Not only should access to parts for regular maintenance
such as oiling, be considered in layout but also access to machine parts and components when
replacement and repair are fairly common”.

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