1.2PRODUCTION MANAGEMENT 1.2.

1 Meaning Production is the first and primary function

of management because unless goods are produced, they can not be marketed. Production
management includes planning, organizing, staffing, directing, and controlling the activities
of the production function. It involves taking all the decisions which are required to be taken
for producing goods or services according to specifications at the right time and costs. 1.2.2
The objective of the Production Management So the objective of production management is
to produce goods and services of the right quality and quantity at the right time and right
manufacturing cost. 1. Right quality Product quality is a relative term. The objective of
production management is to produce goods of the quality which is required by the
customers. The right quality is not necessarily the best. 2. Right Quantity The quantity of
production should be decided after forecasting the demand for the product. The decision on
the size of production should be the right decision to avoid both excess or deficit
production. 3. Right Time The goods should be produced and supplied when they are
required by the customers. 4. Right manufacturing cost The cost of manufacturing is
decided before actually producing the product. This cost can be considered as a standard or
pre-established cost. An attempt should be made to produce the product at this standard
cost.
1.3 PRODUCTION PLANNING ANDCONTROL 1.3.1Definitions According to Alford and Breatty,
"production planning and control comprise the planning, routing, scheduling, dispatching
and follow up functions in the production process so organized that movements of material
are directed and co-ordinate as to the quantity, quality, time and place". Production
planning and controlling are concerned with planning and controlling production activities.
The following are the main objectives of production planning and control.
1.3.3 Importance of Production Planning and Control Production Planning and control is the
managerial function which includes deciding various issues related to the production
process such as the use of the human resource, raw materials, machines working conditions,
training Commerce 6 to workers, supervision, fixing of targets, etc. It is the technique to
plan every step in a long series of the production process. Importance of Production
Planning and Control can be given with the help of the following points - 1) Better service to
customers It helps in providing better services to customers in terms of a better quality of
goods at reasonable prices and timely delivery of goods. It helps in improving customer
relations. 2) It helps in a smoother, timely, and efficient production process and helps in
maintaining necessary stock levels. 3) It facilitates effective use of resources such as labour,
machinery & equipment, raw materials and thereby reducing the cost of production and
requirement of working capital. 4) Improvement in the morale of the workers Efficient
production planning & control helps the workers to do their jobs efficiently. It improves job
satisfaction and thereby the morale of the workers. 5) Image of the organization A proper
system of production planning and control helps in smooth production operations in an
organization. It helps in the timely delivery of standard quality goods and improving
customer satisfaction. Improved customer satisfaction results in increased sales, increased
profits, and ultimately good public image of the organization. 6) Coordinates departmental
activities Proper production planning and control help in coordinating the activities of the
production dept with other departments such as finance, marketing, human resource
departments. 7) Helps to face competition With improved performance of production dept,
the organization can improve marketing performance and thereby can face market
competition effectively. 8) Provides better work environment Production planning and
control help in providing better work conditions to the workers to improve their efficiency
such as proper lighting, ventilation, canteen facility, safety measures and so on.
1.4 STEPS IN PRODUCTION PLANNING AND CONTROL The production department has to
follow the following steps in respect of production planning and control. These steps are
shown in the following diagram. 1. ROUTING a) Meaning Routing is the first step in
production planning and control. It involves the selection of the path of work and the
sequence of operations for the completion of the production process in an orderly manner.
b) Objective The basic objective of routing is to move the work through a variety of
combinations of machines capable of performing the operations required. It determines the
best and the cheapest sequence of operations. c) Procedure 1. Determining what to make
and what to purchase. 2. Determining the material required. 3. Determining the
manufacturing operations and their sequences. 4. Determining scrap factor. 5. Preparation
of production control forms. 6. Determining lot sizes. 7. Preparation of route sheets.
Commerce 8 2. SCHEDULING: a) Meaning Schedule means a plan for carrying out a task. It
includes a list of intended events and times. Scheduling refers to deciding the starting and
the finishing date and time of each operation in the manufacturing process. It involves the
preparation of time table of production activities. Scheduling aims at achieving the required
output with a minimum of delay and disturbance in the production process. b) Objective
The main objective of scheduling is to ensure the completion of each operation or activity
on time. Scheduling ensures continuity in the production process. c) Procedure 1.
Preparation of timetable. 2. Listing out all production activities. 3. Finalizing a list of all
production activities. 4. Determining starting time of every activity. 5. Determining the
finishing time of every activity. 6. Availability of plant capacity, number of operators, and
materials required. 3. DISPATCHING a) Meaning Dispatching is concerned with the execution
of the production plan. It is based on the route sheets and schedule sheets. Production
orders are issued to the factory or department and instructions are issued to execute the
planned production. Dispatching is the action element of production planning and control.
b) Objective The purpose of dispatching orders and instructions is to see that the machine
operators understand what is expected of them and that they do not right things at the right
time and complete the production on time. c) Procedure 1. Arranging machines and tools in
a proper manner. 2. Procuring raw materials as per the requirement. 3. Assigning work to
the machine operators and others. Production Planning and Control 9 4. Issuing orders and
instructions to the workers. 5. Maintaining a proper record of the start time and finish time
of each operation. 6. Dispatching procedure may be centralized or decentralized. 7.
Expediting work as per original plan. 8. Control of the progress of all operations. 4. FOLLOW-
UP a) Meaning Follow-up refers to the monitoring of actual performance. It helps in taking
the necessary corrective measures to obtain the right quality and quantity of production. b)
Objective The basic objective of follow-up is monitoring actual work in the production
process and to introduce remedial measures. c) Procedure 1. Measuring actual production.
2. Comparing actual production with planned targets. 3. Finding out causes of deviations, if
any. 4. Listing out various corrective measures to correct deviations. 5. Studying or analyzing
the corrective measures. 6. Selecting the best corrective measures. 7. Implementation of
corrective measures. 8. Review of corrective measures
2.2 MEANING AND OBJECTIVES OF INVENTORY CONTROL "Inventory control is the process
whereby the investment in materials and parts carried in stocks is regulated within the pre-
determined limits set asper the inventory policy established by the management". 2.2.1
OBJECTIVES: The main objectives of inventory control are as follows, a) Protection of Stores:
Inventory control is directed towards protecting stores against theft, unauthorized use, and
wastage. This can be done by making it difficult for employees to gain unauthorized
possession of materials. b) Better service to customers: If the company maintains a proper
inventory of raw materials, then it can deliver its products in time. So, it can deliver the
finished goods to the customers in time. Similarly, if the company has a proper inventory of
finished goods then it can satisfy the additional demand of the customer. c) Continuity of
production operations: Proper inventory control helps to maintain continuity of production
operations. This is because it maintains a smooth flow of raw materials. So, there are no
shortages of raw materials. d) Better returns on investment: Shareholder's wealth can be
maximized and a better return on their investment is possible if the inventory is at an
optimum level. Inventory control ensures the proper use of limited funds. e) Buffer to
reduce uncertainty: There can be an irregular supply of raw materials due to transportation
problems or even due to natural causes. In such a scenario there arises a need to have a
buffer stock to protect against such vagaries. Buffer stock maybe even sometimes necessary
to meet the unexpected surge in demand. f) Ensures continuity of supply: Inventory control
explains when to order and how much to order. It ensures continuity of supply of uniform
quality of goods at the lowest cost. It is possible to calculate fluctuations in the supply of
new materials and take preventive steps to build the inventories. Commerce 20 g) Useful
during peak season: Some companies adopt a strategy of producing during the slack season
when the cost of production is less. This excess stock can be effectively sold at a higher price
during peak season, The reduced cost during the slack season more than offsets the cost of
maintaining inventory. h) Avoid duplication in ordering: Inventory control avoids duplication
in the ordering of stock. This is done by having a separate purchase department. This
department will do all the purchasing for the organization. No other department is allowed
to do purchasing. i) Focus on Inventory: In a production unit, inventory control focuses on
materials control because the main concentration is on the physical product. In the service
sector, the focus is on service which is consumed promptly. The main concentration is more
on the supply of service and less on materials. For example banks, transport companies,
educational institutions, etc. j) Avoid wastage: Inventory control helps to maintain a check
on the loss of materials due to carelessness or pilferage. If there is no proper inventory
control, then there are more chances of carelessness and pilferage by the employees,
especially in the store-keeping departments
2.3 TECHNIQUES OF INVENTORY CONTROL There are several techniques of inventory
control. Some of the commonly used techniques are as follows. a) ABC Analysis: ABC
(Always Better Control) analysis is a basic technique of inventory control. This technique can
be used for all aspects of materials management such as verification of bills, purchasing,
receiving, inspection, store-keeping, issue of stores, inventory control, etc. ABC analysis
classifies all the items in the inventory into three groups i.e. A group, B group, and C group A
group of items hasa high value although their number may be low. B group of items are in
between with average value and number. C group of items has very low value but their
number may more. ABC analysis provides a basis for selective inventory to a small number
of items which account for most of its inventory costs. So, it can concentrate on controlling
these items, on the other hand, low cost, and high volume items need not be closely
controlled. Inventory Control 21 b) Economic Order Quantity (EOQ): In Economic order
Quantity, the fixed order quantity of materials is ordered when the stock on hand reaches
the re-order point. The re-order point is the inventory level at which the stock should be re-
ordered for the smooth flow of production. c) Just-in-Time (JIT): The Just-in-Time technique
was started by a Japanese company. Here the company does not have a warehouse and it
does not maintain any inventories at any stage of production. The exact quantities of
materials are purchased at the right time at each stage of production. A truck delivers raw
materials at one gate at the same time truck will take finished goods from another gate to
the market. This system can't be used by all companies for all materials. However, in India,
Maruti Udyog Ltd, and Food specialist Ltd have successfully used the JIT technique. d)
CARDEX system: In the Cardex system, cards are vertically arranged in a tray and kept in
cabinets. Posting in this card may be done manually. However, nowadays computers are
taking over the place of manual posting. The cards are known as 'stock control cards' are of
different types, sizes, and colors. The cards indicate the position of stock which includes
stock of items ordered, stock items received from suppliers, stock of items issued, the
balance of stock, etc. e) The maximum-minimum system: It refers to the maximum,
minimum quantity of inventory. Maximum inventory is that quantity which the company
must keep in stock, when the stock reaches its minimum quantity, an order is placed to
bring the stock up to the maximum level. f) Two-Bin system: Here the materials are kept in
twobins. The first bin is locked and kept as reserve stock. The second bin is kept open,
materials are used from the second bin for the production process. When the material from
this bin is over, an order is placed for purchasing more materials. Then the first bin is
opened and the materials are used from this bin. g) MAPICS (Manufacturing Accounting and
Production Information Control System): MAPICS is a computerized common data-based
system for manufacturing information and control. In simple words, entire data relating to
manufacturing i.e. the inventory required, the production schedule, type of stock, the cost
involved,etcare stored in the computer. Control over stock Commerce 22 becomes easy as
any information relating to stock level is readily available. In this system, there are various
modules for control. Modules can be relating to product data management, material
requirements planning, inventory management, and so on. h) Inventory turnover ratio (ITR):
This technique of inventory control uses accounting ratios such as Inventory Turnover Ratio.
This technique establishes the relationship between average inventory and cost of inventory
consumed or sold during a fixed period. The following formula is used to calculate the
inventory turnover ratio. Cost of goods consumed or sold during the year ITR = Average
inventory during the year When consumption is made between current years inventory
ratio with those of past years, it will reveal information such as obsolete, fastmoving items,
and slow-moving items.
4.6.1 Kaizen Process: The following are the steps in the Kaizen process a) Define the
problem: Kaizen is of utility only when, at the initial stage, the problem is correctly defined.
When defining the problem we often notice a performance gap. It means there is a
difference between the ideal situation and the current level of performance. In the process
of defining the problem, we may notice a deviation in performance. b) Document the
current situation: The management must analyze the current situation in terms of
organization structure, Superior-Subordinate relationships, employee selection procedures,
training policies and practices, the production facilities, corporate culture, technology,
production process, and so on. A proper analysis of the current situation may enable the
management to have a re-look at the causes of the problem. To solve the problem, it is
important to correctly assess the current situation. Commerce 48 c) To find the root cause:
Kaizen is built on the premise that it is vital to locate the root cause to rightly solve the
problem. Root cause analysis is the central theme of Kaizen. Once the cause of the problem
is identified, under Kaizen, it is not accepted instantly but several efforts are made to
confirm that the cause thus established is the real one. Root cause analysis uses problem-
solving techniques. d) Define measurement Targets: There is a need to define measurement
targets at which the outcomes or results can be compared. For example, the measurement
target for complaints of the customer can be stated as Reduction in customer. Customers
from the current level of 60 per month to 15 in the first month of the implementation and
finally to near zero at the end of three month period. e) Brainstorm Solutions to the
problem: The management needs to generate ideas to develop an effective solution to the
problem. As far as possible, multiple solutions need to be generated. This can be done
through various techniques i.e. obtaining suggestions from the employees, analysis of
solutions for a similar problem and adopted by other organizations, organizing
brainstorming sessions involving representatives of the management and the employees,
etc. The knowledgeable people call to find the solution. f) Develop Kaizen plan: There is a
need to prepare a Kaizen plan to bring continuous improvement in the organization at all
levels and in all departments. Kaizen plan includes the areas or activities, responsible
persons, period, process, and the number of funds that can be utilized for improvements
during the plan period, etc. g) Implement plan: Once the solution is selected, and the plan is
prepared to implement the solution, the management needs to implement the solution.
Implementation of the solution would involve i.e. arrangement of resources, directing the
employees, and motivating the employees. h) Measurement of outcomes: The management
must measure the outcomes of the solution. The actual outcome needs to be recorded and
compared against the set targets. The comparison is required to find out whether the
organization is on the right track to achieve Kaizen success. i) Review: Regular review of the
implementation of the measures needs to be done. This will establish if implementation was
done correctly and the problem Contemporary Trends in Quality Management 49 solved.
The review will indicate that implementation was so done that it solved the problem in
totality. The results can be found out because of the organizational goals. j) To establish a
new standard: A standard is a specification by which results are measured, when the
problem is solved and the system is working well, the next step is to establish a new
standard. Once the problem is solved or the desired objective is achieved, the new standard
will deliver the expected results.
4.7.1 Importance of Service Quality Management (SQM) The importance of Service quality
management is as follows a) Customer Satisfaction: Service quality management leads to
improvement in the quality of services. Therefore, Service quality management leads to
customer satisfaction. Customer satisfaction takes place when service performance meets
customer expectations. At times, service quality management may lead to customers'
delight. Customer delight takes place when service performance is much more than
customer expectation. Service providers prosper on the continued support of customers. b)
Earning goodwill: Service quality management offering high-quality service earns goodwill in
the market. They retain a competitive advantage in the marketplace. Goodwill is not earned
overnight but over a long period. These SQM's offer consistently high-quality service which
ensures consumer loyalty. c) Efficiency: Efficiency is the ratio of returns to costs. A service
organization would be more efficient when it gets higher returns at lower costs than before.
Service quality management helps to reduce internal costs, and at the same 4.7 SERVICE
QUALITY MANAGEMENT Commerce 50 time, the organization is likely to get a higher return
due to the efforts of trained and motivated employees. d) Premium price: Customers
looking for reliable and satisfactory service are prepared to pay a higher price provided the
quality of service is as per their expectations. In services like medical, travel and tourism,
entertainment, etc. customers want better service and show readiness to pay the premium
price. e) Corporate Image: Service quality management helps to improve the image of the
organization. Due to good quality services, the organization may get higher performance, on
account of higher performance,the image of the organization improves in the mind of
various stakeholders i.e. customers, employees, shareholders, and others. f) Commitment of
top management: Service quality must be based on active support, involvement, and
commitment of top management to accomplish specific goals. Top management must not
restrict its prosperity in terms of profits but must also give equal importance to service
performance to keep the customers loyal to the business. g) Economies of Scale: Service
quality management may also generate economies of scale. The service organization may
adopt the latest technology for its operations. The use of technology reduces the need for
more manpower as it expands. Therefore, the service firm may get economies of large-scale
operation. h) Self-Service: Service quality management helps to make service transactions
prompt, convenient, and accurate with the help of advanced technology. Because of the use
of advanced technology customers have preferred self-service. For example, ATMs of banks,
automatic vending machines at railway stations, online purchase of tickets, and hotel
booking. They make service transactions prompt, convenient, and accurate. i) Expansion of
business: Service quality management facilitates the expansion of business. Due to higher
performance, and corporate image, a service organization can enter into new markets. This
means a service organization can expand from local level to regional level to national level
and national level to international level.

1.What is cost of qualities what are its types

It seems like you're asking about the cost of qualities and the types associated with them.
However, your question is a little unclear. If you're referring to costing in the context of
business or commerce, it might relate to costing methods or the costs associated with the
production or sale of goods.
Here’s a breakdown of costing types in business and commerce:

Types of Costs in Business:

1. Fixed Costs:
o These are costs that do not change with the level of output or sales.
o Examples: Rent, salaries, insurance premiums.
2. Variable Costs:
o These costs vary with the level of production or sales.
o Examples: Raw materials, direct labor, utilities based on usage.
3. Semi-Variable Costs:
o These costs have both fixed and variable components.
o Examples: Utilities (a fixed basic charge with additional usage cost),
maintenance costs.
4. Direct Costs:
o These are costs directly attributable to the production of goods or services.
o Examples: Direct labor, raw materials, manufacturing costs.
5. Indirect Costs:
o These are costs that cannot be directly traced to a specific product or service.
o Examples: Administrative salaries, office rent, utilities.
6. Operating Costs:
o These are the costs associated with running the daily operations of the
business.
o Examples: Rent, wages, utilities, and materials.
7. Capital Costs:
o Long-term investments in assets like machinery, equipment, and buildings.
o Examples: Purchase of equipment, construction of factories.
8. Opportunity Costs:
o The cost of choosing one option over another, reflecting the potential benefits
that are lost.
o Example: The cost of not investing in one project because resources were
allocated elsewhere.
9. Overhead Costs:
o These are the general costs required to run a business, but not directly tied to
production.
o Examples: Administrative expenses, office supplies, marketing.

It seems like you're asking about the cost of qualities and the types associated with them.
However, your question is a little unclear. If you're referring to costing in the context of
business or commerce, it might relate to costing methods or the costs associated with the
production or sale of goods.

Here’s a breakdown of costing types in business and commerce:

Types of Costs in Business:

1. Fixed Costs:
o These are costs that do not change with the level of output or sales.
o Examples: Rent, salaries, insurance premiums.
 2. Variable Costs:
o These costs vary with the level of production or sales.
o Examples: Raw materials, direct labor, utilities based on usage.

3. Semi-Variable Costs:
o These costs have both fixed and variable components.
o Examples: Utilities (a fixed basic charge with additional usage cost), maintenance
costs.

4. Direct Costs:
o These are costs directly attributable to the production of goods or services.
o Examples: Direct labor, raw materials, manufacturing costs.

5. Indirect Costs:
o These are costs that cannot be directly traced to a specific product or service.
o Examples: Administrative salaries, office rent, utilities.

6. Operating Costs:
o These are the costs associated with running the daily operations of the business.
o Examples: Rent, wages, utilities, and materials.

7. Capital Costs:
o Long-term investments in assets like machinery, equipment, and buildings.
o Examples: Purchase of equipment, construction of factories.

8. Opportunity Costs:
o The cost of choosing one option over another, reflecting the potential benefits that
are lost.
o Example: The cost of not investing in one project because resources were allocated
elsewhere.

9. Overhead Costs:
o These are the general costs required to run a business, but not directly tied to
production.
o Examples: Administrative expenses, office supplies, marketing.

If you meant something else by "cost of qualities," could you please clarify?
I’ll be happy to provide more details based on what you're specifically looking
for.

You said:
1./what is PQM ? explan importants

ChatGPT said:

PQM stands for Product Quality Management. It refers to the process of managing and
ensuring the quality of products in manufacturing, production, and service industries. The
goal of PQM is to ensure that products meet customer expectations, regulatory standards, and
internal specifications, while minimizing defects and improving overall quality.

Key Elements of Product Quality Management (PQM):

1. Quality Planning:
o Identifying customer needs and expectations.
o Setting quality objectives.
o Developing strategies and processes to meet these objectives.

2. Quality Control (QC):

o Monitoring and measuring the quality of products during production.
o Ensuring the products meet predefined quality standards by testing and inspecting
products.

3. Quality Assurance (QA):

o Ensuring that the processes used to produce the product are effective and efficient.
o Involves audits, training, and process improvement to prevent defects and
deviations from quality standards.

4. Continuous Improvement:
o Involves using data-driven approaches to continuously improve quality over time.
o Methods like Total Quality Management (TQM), Six Sigma, and Lean are often used.

Importance of PQM:

1. Customer Satisfaction:
o PQM helps ensure that products meet or exceed customer expectations, leading to
higher customer satisfaction and loyalty.

2. Consistency:
o By managing quality consistently, companies can ensure that all products meet the
same standards every time, reducing variability and defects.

3. Cost Reduction:
o Effective PQM reduces waste, rework, and defects, ultimately lowering the cost of
production.
o Preventing quality issues before they occur is more cost-effective than dealing with
them afterward.

4. Compliance:
o In many industries, products must meet certain regulatory standards. PQM ensures
that products comply with legal and industry standards.

5. Market Reputation:
o A commitment to quality management builds a strong reputation for the company,
leading to greater trust and a competitive edge in the market.

6. Improved Efficiency:
 o Through continuous improvement processes and optimized quality control
measures, PQM can help companies streamline operations and reduce inefficiencies.

7. Increased Profitability:
o High-quality products lead to fewer returns, higher sales, and better customer
retention, which directly impacts profitability.

8. Employee Involvement:
o PQM often involves training and empowering employees at all levels to contribute
to maintaining and improving product quality, fostering a quality-oriented culture.

what is the kizan ?explan its prosizer

ChatGPT said:

It seems like you're referring to Kaizen, a Japanese term that means "continuous
improvement" or "change for the better." Kaizen is a philosophy and practice that focuses on
small, incremental changes over time to improve efficiency, quality, and overall performance
in both business and personal contexts.

What is Kaizen?

Kaizen is based on the idea that small, consistent improvements lead to significant long-term
gains. This philosophy is often applied in business management, particularly in lean
manufacturing and total quality management (TQM) systems. The word "Kaizen" is a
combination of two Japanese words:

 Kai (change)
 Zen (good)

The practice of Kaizen involves everyone in the organization, from top management to the
workers on the shop floor, working together to identify areas for improvement and
implementing small, effective changes to achieve better results.

Principles of Kaizen:

1. Continuous Improvement: Focus on making small, consistent improvements over time.

2. Employee Involvement: Encourage all employees to contribute ideas for improvement,
ensuring that everyone is engaged in the process.
3. Standardization: After improvements are made, standardize the best practices to ensure
they are followed.
4. Waste Reduction: Eliminate waste (whether in time, materials, or labor) by streamlining
processes and improving efficiency.
5. Respect for People: Kaizen is about improving processes, but it also emphasizes respecting
the contributions of all individuals involved.
6. Incremental Change: Small changes, rather than drastic changes, are often more effective
and easier to implement.

Kaizen Process (Kaizen Cycle):

The Kaizen process typically follows a cycle of steps that include:

1. Identify the Problem: Look for inefficiencies or issues within the current processes.
This could involve bottlenecks, waste, or quality issues.
2. Analyze the Problem: Investigate the root causes of the issue. Use tools like the 5
Whys (asking "Why?" five times to get to the root cause) or Fishbone Diagram
(Ishikawa) to uncover underlying problems.
3. Develop Solutions: Brainstorm potential solutions to address the problem. Solutions
should be small and manageable improvements that can be implemented quickly.
4. Implement the Solution: Put the solution into practice. This could be in the form of
process adjustments, training, or new methods.
5. Evaluate Results: After implementation, measure the effectiveness of the solution.
Check if the change improved the process and addressed the problem.
6. Standardize: If the solution is successful, standardize it so that it becomes part of the
regular workflow.
7. Repeat the Cycle: Kaizen is an ongoing process, so once one cycle is complete, the
process starts again with identifying the next area for improvement.

Benefits of Kaizen:

1. Improved Efficiency: By focusing on incremental improvements, businesses can

streamline processes and reduce unnecessary steps, resulting in greater productivity.
2. Cost Reduction: Continuous improvements help identify waste, allowing businesses
to cut unnecessary expenses and reduce operational costs.
3. Enhanced Quality: Small, consistent improvements in processes often lead to better-
quality products or services.
4. Employee Engagement: Since Kaizen encourages involvement from everyone,
employees feel valued and empowered to suggest improvements.
5. Better Customer Satisfaction: As processes improve and waste is reduced, products
and services become more reliable, leading to greater customer satisfaction.
6. Fostering a Culture of Improvement: Kaizen creates a culture where continuous
improvement becomes part of the organizational mindset. Everyone constantly seeks
better ways to do things.

Examples of Kaizen in Action:

 Manufacturing: A company might use Kaizen to reduce downtime in production by

implementing minor adjustments to machines, improving workflow, and eliminating
bottlenecks.
 Healthcare: A hospital may use Kaizen to improve patient wait times by streamlining
the check-in process, optimizing staff schedules, or reducing unnecessary steps in
procedures.
 Office or Business Process: A company could apply Kaizen to improve
administrative processes, such as reducing paperwork or optimizing communication
channels between departments.

Kaizen vs. Other Approaches:

 Kaizen is different from large-scale, disruptive changes. It's about gradual improvement
rather than sudden transformation.
  It contrasts with the Big Bang Approach, where businesses try to make huge changes at
once, which may lead to greater risks and higher resistance.

Challenges with Kaizen:

1. Resistance to Change: Some employees or managers may resist even small changes, making
it hard to implement Kaizen effectively.
2. Lack of Time: Constant small changes may be hard to implement in companies where there
is a lack of time for improvement activities.
3. Short-Term Focus: Sometimes, small changes might not seem impactful immediately,
making it hard for companies to see the long-term benefits.

5.5 FINANCIAL MARKETS The financial market is an important

component of the Indian Financial System. Efficient financial markets are
essential for speedy economic development. The vibrant financial
market enhances the efficiency of capital formation. It facilitates the
flow of savings into investment. Financial markets bridge one set of
financial intermediaries with another set of players. Financial markets
are the backbone of the economy. This is because they provide
monetary support for the growth of the economy. The growth of the
financial markets is the barometer of the growth of a country’s
economy. Financial market deals in financial securities (or financial
instruments) and financial services. Financial markets are the centers or
arrangements that provide facilities for buying and selling of financial
claims and services. These are the markets in which money, as well as
monetary claims, is traded in. Financial markets exist wherever financial
transactions take place. Financial transactions include the issue of equity
stock by a company, purchase of bonds in the secondary market, a
deposit of money in a bank account, transfer of funds from a current
account to a savings account, etc. The participants in the financial
markets are corporations, financial institutions, individuals, and the
government. These participants trade in financial products in these
markets. They trade either directly or through brokers and dealers. In
short, financial markets are markets that deal in financial assets and
credit instruments.

6.2.4 FUNCTIONS OF SEBI The SEBI performs functions to meet its objectives.
To meet three objectives SEBI has three important functions. These are: 1.
Protective Functions: These functions are performed by SEBI to protect the
interest of the investor and provide safety of the investment. As protective
functions SEBI performs the following functions: a. It Checks Price Rigging:
Price rigging refers to manipulating the prices of securities with the main
objective of inflating or depressing the market price of securities. SEBI
prohibits such practice because this can defraud and cheat the investors. b. It
Prohibits Insider trading: Insider is any person connected with the company
such as directors, promoters, etc. These insiders have sensitive information
which affects the prices of the securities. This information is not available to
people at large but the insiders get this privileged information by working
inside the company and if they use this information to make a profit, then it is
known Commerce 76 as insider trading, e.g., the directors of a company may
know that company will issue Bonus shares to its shareholders at the end of
the year and they purchase shares from market to make profit with bonus
issue. This is known as insider trading. SEBI keeps a strict check when insiders
are buying securities of the company and takes strict action on insider trading.
c. It prohibits fraudulent and Unfair Trade Practices: SEBI does not allow the
companies to make misleading statements that are likely to induce the sale or
purchase of securities by any other person. SEBI undertakes steps to educate
investors so that they can evaluate the securities of various companies and
select the most profitable securities. d. SEBI promotes fair practices and code
of conduct in the security market by taking the following steps: SEBI has issued
guidelines to protect the interest of debenture-holders wherein companies
cannot change terms in a midterm. SEBI is empowered to investigate cases of
insider trading and has provisions for stiff fines and imprisonment. SEBI has
stopped the practice of making preferential allotment of shares unrelated to
market prices. 2. Developmental Functions: These functions are performed by
the SEBI to promote and develop activities in the stock exchange and increase
the business in the stock exchange. Under developmental categories following
functions are performed by SEBI: a. SEBI promotes the training of
intermediaries of the securities market. b. SEBI tries to promote activities of
stock exchange by adopting a flexible and adaptable approach in the following
way: c. SEBI has permitted internet trading through registered stock brokers. d.
SEBI has made underwriting optional to reduce the cost of the issue. e. Even an
initial public offer of the primary market is permitted through the stock
exchange. 3. Regulatory Functions: These functions are performed by SEBI to
regulate the business in the stock exchange. To regulate the activities of the
stock exchange following functions are performed: Indian Financial System -II
77 a. SEBI has framed rules and regulations and a code of conduct to regulate
the intermediaries such as merchant bankers, brokers, underwriters, etc. b.
These intermediaries have been brought under the regulatory purview and
private placement has been made more restrictive. c. SEBI registers and
regulates the working of stockbrokers, subbrokers, share transfer agents,
trustees, merchant bankers, and all those who are associated with the stock
exchange in any manner. d. SEBI registers and regulates the working of mutual
funds etc. e. SEBI regulates the takeover of the companies. f. SEBI conducts
inquiries and audits of stock exchanges
6.3.1 Definitions of Stock Exchange: According to Husband and Dockerary,
“Stock exchanges are privately organized markets which are used to facilitate
trading in securities.” The Indian Securities Contracts (Regulation) Act of 1956,
defines Stock Exchange as, “An association, organization or body of individuals,
whether incorporated or not, established to assist, regulate and controlling
business in buying, selling and dealing in securities.”  Stock Exchange plays an
important role in the capital market. Stock exchanges serve as: 1. Primary
markets where corporations, governments, municipalities, and other
incorporated bodies can raise capital by channeling savings of the investors
into productive ventures; and 2. Secondary markets where investors can sell
their securities to other investors for cash. On modern exchange trades are
conducted over the telephone or online. Almost all exchanges are ‘auction
exchanges’, where buyers enter competitive bids and sellers enter competitive
orders through a trading day. Some European exchanges, however, use the
'periodic auction' method in which round-robin calls are made once a trading
day. The first stock exchange was opened in Amsterdam in 1602. The three
largest exchanges in the world are (in descending order) New York Stock
Exchange (NYSE), London Stock Exchange (LSE), and the Tokyo Stock Exchange
(TSE). A stock exchange does not own shares. Instead, it acts as a market
where stock buyers connect with stock sellers. Stocks can be traded on one or
more of several possible exchanges such as the Bombay Stock Exchange (BSE).
Although you will most likely trade stocks through a broker, it is important to
understand the relationship between exchanges and Indian Financial System -II
79 companies, and how the requirements of different exchanges protect
investors. To be traded, every stock must list on an exchange where buyers
and sellers meet. The two big U.S. exchanges are the BSE and NSE. Companies
listed on either of these exchanges must meet various minimum requirements
and baseline rules concerning the "independence" of their boards. But these
are by no means the only legitimate exchanges. Electronic communication
networks are relatively new, but they are sure to grab a bigger slice of the
transaction pie in the future. Finally, the OTC market is a fine place for
experienced investors with an itch to speculate and the know-how to conduct
a little extra due diligence. The primary function of an exchange is to help
provide liquidity; in other words, to give sellers a place to "liquidate" their
shareholdings. Stocks first become available on an exchange after a company
conducts its initial public offering (IPO). In an IPO, a company sells shares to an
initial set of public shareholders (the primary market). After the IPO "floats"
shares into the hands of public shareholders, these shares can be sold and
purchased on an exchange (the secondary market). The exchange tracks the
flow of orders for each stock, and this flow of supply and demand sets the
stock price. Depending on the type of brokerage account you have, you may be
able to view this flow of price action. For example, if you see that the "bid
price" on a stock is Rs.200, this means somebody is telling the exchange that
he or she is willing to buy the stock for Rs.200. At the same time, you might see
that the "ask price" is Rs.200, which means somebody else is willing to sell the
stock for Rs.210. The difference between the two is the bid-ask spread.
6.5 DEMATERIALISATION During the late eighties, the common man used to
stay away from the stock market because of the sheer complexity of the
paperwork involved in trading at the market. This resulted in a very low
mobilization of funds in the market. Besides this, the paper-based system also
gave rise to several problems duplication of shares, fake shares, fake
signatures, signature mismatches, and transfer problems. Stock certificates
became the major reason for rising arbitration cases and investor disputes.
This fact created a need for a more technologically advanced system to
maintain records of all the transactions. The government of India decided to
bring a fully automated system for book-keeping, to eliminate all the risks that
came along with the paper-based certificates. The depository system was
introduced by the Depository Act, 1996 which helped in Commerce 84
eliminating the paper-based system and made way for the safer electronic
system in which every investor made transactions using a DEMAT Account. A
concept of reducing the number of materials required to serve economic
functions. Signifies conversion of a share certificate from its present physical
form to electronic form for the same number of holding. It attempts to avoid
the time-consuming and complex process of getting shares transferred in the
name of the buyers. Dematerialization of shares is optional and an investor can
still hold shares in physical form. However, he/she has to DEMAT the shares if
he/she wishes to sell the same through the Stock Exchanges. Similarly, if an
investor purchases shares, he/she will get delivery of the shares in DEMAT
form only. It offers scope for paperless trading through state-of-the-art
technology, whereby share transactions and transfers are processed
electronically without involving any share certificate or transfer deed after the
share certificates have been converted from physical form to electronic form .
7.1.3 Advantages of Mutual Funds An investor must be aware of the
advantages and limitations of mutual funds to choose the best fund for
investment. The advantages of Mutual Funds are as follows: 1. Diversification
of risks: Mutual fund managers invest the funds in different sectors and thus
the risks of investing in securities get reduced or diversified. 2. Professional
Management: Investing in securities is not an easy task many factors are
required to be studied and analyzed before making an investment decision.
The advantage of mutual funds is that they are managed by professional
experts who can make the right investment decisions. 3. Simplicity: Mutual
fund dealers make available the required information about the funds easily
such as level of risk, return on investment, and the price so the investor can
choose the right type of mutual fund very easily. 4. Liquidity: Liquidity refers to
the ability to convert your assets to cash with relative ease. An investor can get
money by exiting the mutual fund very easily and quickly. 5. Cost: Mutual
funds are one of the best investment options considering the costs involved. A
Portfolio Management Service may charge 2% to 3% of the total investment
per year as its management fees. They may deduct a share from your profit.
Mutual funds are relatively cheaper and deduct only 1% to 2% of the expense
ratio. Debt mutual funds usually deduct even lesser. 6. Tax efficiency: Mutual
funds are relatively more tax-efficient than other types of investment. Long-
term capital gain tax on equity mutual funds is zero. For debt funds, long-term
capital gains apply when you hold them for 3 years. Contemporary Practices in
Financial Markets 101 7. Availability of more options: Mutual funds are of
different types based on the period of investment and also sector-wise. This
allows investors to invest in particular types of funds, depending on their goals.
8. Requirement of a small amount: Mutual Funds allow you to begin with as
small as Rs. 500 or Rs. 1000/- so a common man can also invest in mutual
funds. 9. Automated Investment: In a Systematic Investment Plan or SIP, the
money gets automatically debited from the investor’s account. So it is a very
convenient way of investing in mutual funds. 10. Safe and Transparent:
Investments in mutual funds are very transparent. All mutual funds are
regulated by SEBI and they need to make necessary disclosures. 11. Option to
choose SIP or Lumpsum mutual funds also give you the flexibility to invest
through SIP or lump sum
7.1.2 Types of Mutual Funds: There are 3 principal types of mutual funds are:
Open-end funds, unit investment trusts (UITs), and closed-end funds.
Exchange-traded funds (ETFs) are open-end funds or unit investment trusts
that trade on an exchange; they have gained popularity recently. While the
term "mutual fund" may refer to all three types of registered investment
companies, it is more commonly used to refer exclusively to the open-end
type. 1. Open-end fund: Open-end mutual funds must be willing to buy back
their shares from their investors at the end of every business day at the net
asset value computed that day. Most open-end funds also sell shares to the
public every business day; these shares are also priced at net asset value. A
professional investment manager oversees the portfolio, buying and selling
securities as appropriate. The total investment in the fund will vary based on
share purchases, share redemptions, and fluctuation in market valuation.
There is no legal limit on the number of shares that can be issued. 2. Closed-
end funds: Closed-end funds generally issue shares to the public only once,
when they are created through an initial public offering. Their shares are then
listed for trading on a stock exchange. Investors who no longer wish to invest
in the fund cannot sell their shares back to the fund (as they can with an open-
end fund). Instead, they must sell their shares to another investor in the
market; the price they receive may be significantly different from net asset
value. It may be at a "premium" to net asset value (meaning that it is higher
than net asset value) or, more commonly, at a "discount" to net asset value
(meaning that it is lower than net asset value). A professional investment
manager oversees the portfolio, buying and selling securities as appropriate. 3.
Unit investment trusts: Unit investment trusts or UITs issue shares to the
public only once, when they are created. UITs generally have a limited life
span, established at creation. Investors can redeem shares directly with the
fund at any time (as with an open-end fund) or wait to redeem upon the
termination of the trust. Less commonly, they can sell their shares in the open
market. Unit investment trusts do not have a professional investment
manager. Their portfolio of securities is established at the creation of the UIT
and does not change. 4. Schemes according to the investment objective
Besides these, there are other types of mutual funds also to meet the
investment needs of several groups of investors. Some of them include the
following: Commerce 98 a) Income oriented schemes: The fund primarily offers
fixed income to investors. Naturally enough, the main securities in which
investments are made by such funds are the fixed income yielding ones like
bonds. b) Growth-oriented schemes: These funds offer growth potentialities
associated with an investment in the capital market namely: 1) high source of
income by way of dividend and 2) rapid capital appreciation, both from holding
good Quality scrips. These funds, to satisfy the growth needs of investors,
primarily concentrate on the low risk and high yielding spectrum of equity
scrips of the corporate sector. c) Hybrid schemes: These funds cater to both
the investment needs of the prospective investors- namely fixed income as
well as growth orientation. Therefore, investment targets of these mutual
funds are a judicious mix of both the fixed income securities like bond and
debentures and also sound equity scrip’s. These funds utilize the concept of
balanced investment management. These funds are thus, also known as
“balanced funds”. d) High Growth Schemes: As the nomenclature depicts,
these funds primarily invest in high risk and high return violate securities in the
market and induce the investors with a high degree of capital appreciation.
Aggressive investors willing to take excessive risks are the normal target group
of such funds. e) Capital Protection Orientated Scheme: It is a scheme that
protects the capital invested in the mutual fund through a suitable orientation
of its portfolio structure. f) Tax Saving Schemes: These schemes offer tax
rebates to the investors under tax laws as prescribed from time to time. This is
made possible because the government offers a tax incentive for investment in
specified avenues. For example, Equity Linked Saving Schemes (ELSS) and
pension scheme. g) Special Schemes: This category includes index schemes
that attempt to replicate the performance of a particular index such as BSE,
Sensex, or the NSE-50 or industry-specific scheme (which invest in specific
industries) or sectoral schemes (which exclusively in the segment such as ‘A’
group or initial public offering). Index und schemes are ideal for investors who
are satisfied with a return approximately equal to that of an index. Sectoral
fund schemes are ideal for investors who have already decided to invest in a
particular sector or segment. Contemporary Practices in Financial Markets 99
h) Real Estate Funds: These are close-ended mutual funds that invest
predominantly in real estate and properties. i) Off-shore Funds: Such funds
invest in securities of foreign companies with RBI permission. j) Leverage
Funds: Such funds, also known as borrowed funds, increase the size and value
of the portfolio and offer benefits to members from out of the excess of gains
over the cost of borrowed funds. They tend to indulge in speculative trading
and risky investment. k) Hedge Funds: They employ only their funds for
speculative trading i.e., for buying shares whose prices are likely to rise and for
selling shares whose prices are likely to dip. l) Fund of Funds: They invest only
in units of other mutual funds. Such funds do not operate at present in India.
m) New Direction Funds: They invest in companies engaged in scientific and
technological research such as birth control, anti-population, oceanography,
etc. n) Exchange Traded Funds: A relatively recent innovation, the exchange-
traded fund or ETF is often structured as an open-end investment company,
though ETFs may also be structured as unit investment trusts, partnerships,
investments trust, grantor trusts, or bonds (as an exchange-traded note). ETFs,
combine characteristics of both closed-end funds and open-end funds. Like
closedend funds, ETFs are traded throughout the day on a stock exchange at a
price determined by the market. However, as with open-end funds, investors
normally receive a price that is close to the net asset value. To keep the market
price close to net asset value, ETFs issue and redeem large blocks of their
shares with institutional investors. o) Money Market Funds: These funds invest
in short-term debt securities in the money market like a certificate of deposit,
commercial papers, government treasury bills, etc. Owing to their large size,
the funds normally get a higher yield on such short-term investments than on
an individual investor. Commerce 100 p) Infrastructure Debt Fund: They invest
primarily in the debt securities or securitized debt investment of infrastructure
companies
7.1.6 Systematic Investment Plan (SIP): The terms SIP and mutual fund
schemes are not synonymous. A SIP is only a scheme that helps the investor to
invest regularly in mutual fund schemes. Thus, SIP or systematic Investment
Plan is a scheme in which an investor invests a fixed amount of money
regularly in a mutual fund, generally an equity mutual fund scheme. An
investor can start investing in a mutual fund scheme with a minimum of Rs.
500. He can invest a fixed amount of money monthly, bi-monthly, or
forthrightly, according to his convenience. In a step-up SIP scheme, an investor
can increase the SIP amount periodically. In Alert SIP, the mutual fund
management sends an alert to the investor to increase his investment when
the markets are down. In perpetual SIP; the investor can continue to invest
periodically, without any end date. He can exit the scheme as his
requirements. The following are the benefits of investing in mutual funds by
using a SIP scheme. 1. It is very convenient and time-saving as money gets
automatically debited from an investor’s account. 2. It helps to average
purchase cost and maximize returns when an investor invests regularly over a
period of time irrespective of the market conditions, he gets more units when
the market is down and fewer units when the market is up. This averages out
the purchase cost of mutual fund units. Commerce 104 3. It helps to build the
habit of saving and invest regularly among the people. 4. When an investor
continues to invest over a long period, his returns get compounded. After the
expiry of a long period, he can accumulate a large sum of money which
ultimately helps him to achieve his longterm financial goal. Check Your
Progress 1. Define the following terms: a. Operating Leasing b. Financial
Leasing c. Sale of Leaseback d. Leverage lease e. Mutual Fund f. ETF g. Open-
end fund h. Closed-end fund 2. Enlist the types of mutual funds which meet
the investment needs of several groups of investors. 3. Write the points of
advantages of lease financing
7.3 START-UP VENTURES Startup capital is what entrepreneurs use to pay for
any or all of the required expenses involved in creating a new business. This
includes paying for the initial hires, obtaining office space, permits, licenses,
inventory, research and market testing, product manufacturing, marketing, or
any other expense. In many cases, more than one round of startup capital
investment is needed to get a new business off the ground. The majority of
startup capital is provided to young companies by professional investors such
as venture capitalists and/or angel investors. Some startups may also receive
startup capital from banks and other financial institutions. Considering the
sources of startup capital, it's no surprise that companies may receive large
amounts of money from their investors. Since investing in young companies
comes with a great degree of risk, these investors often require a solid
business plan in exchange for their money. They usually get an equity stake in
the company for their investment.
7.4.2 Importance Of Microfinance:- Microfinance institutions are those which
provide credit and other financial services and products of very small amounts
to the poor in rural, Contemporary Practices in Financial Markets 113 semi-
urban, and urban areas for enabling them to raise their income and improve
their standard of living. 1. Credit to Rural Poor: Usually, the rural sector
depends on non-institutional agencies for their financial requirements.
Microfinancing has been successful in taking institutionalized credit to the
doorstep of the poor and has made them economically and socially sound. 2.
Poverty Alleviation: Due to microfinance poor people get employment. It also
helps them to improve their entrepreneurial skills and encourages them to
exploit business opportunities. Employment increases income level which in
turn reduces poverty. 3. Women Empowerment: Normally more than 50% of
SHGs are formed by women. Now they have greater access to financial and
economical resources. It is a step towards greater security for women. Thus
microfinance empowers poor women economically and socially. 4. Economic
Growth: Finance plays a key role in stimulating sustainable economic growth.
Due to microfinance, the production of goods and services increases which
increase GDP and contribute to the economic growth of the country. 5.
Mobilisation of Savings: Microfinance develops saving habits among people.
Now poor people with meager income can also save and are bankable. The
financial resources generated through savings and microcredit obtained from
banks are utilized to provide loans and advances to its members. Thus
microfinance helps in the mobilization of savings. 6. Development of Skills:
Microfinancing has been a boon to potential rural entrepreneurs. SHGs
encourage its members to set up business units jointly or individually. They
receive training from supporting institutions and learn leadership qualities.
Thus microfinance is indirectly responsible for the development of skills. 7.
Mutual Help and Co-operation: Microfinance promotes mutual help and
cooperation among members. The collective efforts of the group promote
economic interest and help in achieving socio-economic transition. Commerce
114 8. Social Welfare: With employment generation the level of income of
people increases. They may go for better education, health, family welfare, etc.
Thus microfinance leads to social welfare or betterment of society