MMPC-009 Solved Question Paper

Question 1

Why can product development and product design be treated as research-and-development (R&D) activities? Explain with examples.

When an organisation works on a new or improved product, it is not just “drawing a shape” or “deciding the colour”. Product development and design involve systematic investigation, experimentation and learning – exactly what we mean by research and development.

1. Research side of product development

• Understanding customer needs: Before a new product is even sketched, the organisation has to find out what users really need, what problems they face, how they use existing products, and what they are willing to pay. This involves market surveys, interviews, user observation and analysing complaints – all of which are research activities.
• Exploring technology and materials: Engineers and scientists examine alternative materials, new technologies and different processes. For example, they may compare different alloys, plastics or software architectures to see which combination gives the desired performance, safety and durability at a reasonable cost.
• Studying feasibility: The team tests whether the idea is technically possible, whether it meets regulatory norms, and whether it can be produced with available facilities. This may involve lab experiments, computer simulation, small trials and pilot runs.

2. Development and design side

• Translating ideas into specifications: Product design converts a concept into detailed specifications – dimensions, tolerances, materials, quality standards, packaging requirements and so on. These specifications become the basis for process selection and facilities planning in operations.
• Prototyping and testing: A prototype (or several variants) is built and tested under different conditions. Failures and weaknesses are identified, and the design is modified. This cycle of “design–test–redesign” is a typical development activity.
• Designing for manufacture and maintenance: The design team ensures that the product can be produced economically (design for manufacture), assembled easily, serviced and repaired without difficulty (design for maintenance), and disposed of safely at the end of its life.
• Locking in cost and quality: A large portion of the life-cycle cost of a product is “decided” at the design stage itself – through choices of material, tolerances, level of standardisation, complexity of assembly, etc. The designer’s decisions therefore have long-term impact on cost, quality, reliability and flexibility of operations.

3. How product development and design link with R&D in practice

• Smartphone example: A smartphone manufacturer’s R&D team may research new display technologies, battery chemistry or camera sensors. Based on these findings, product designers decide the screen size and shape, camera module layout, body thickness, and even how the phone will be assembled on an automated line. The final product reflects both research knowledge and design choices.
• Pharmaceutical product: For a new medicine, research scientists work for years on discovering and testing a molecule. Development teams then design the dosage form (tablet, injection, syrup), packaging (blister packs, vials), labelling and storage conditions. Production facilities and quality control procedures are also designed. Without this strong R&D foundation, the product cannot enter the market safely.
• Automobile model: In an automobile company, research may focus on fuel-efficient engines or electric powertrains. Development and design convert these ideas into a specific car model – deciding engine configuration, body shape, seating layout, dashboard design and thousands of parts. Prototypes are then road-tested, fine-tuned and finally released as a new variant.

4. Why operations managers must see product design as R&D

• Process decisions depend on design: Whether the organisation chooses a job shop, batch, mass or project type process depends heavily on the product’s design and expected volume.
• Early involvement reduces future problems: If R&D and design teams work closely with operations, many production problems – excessive material wastage, difficult assembly, frequent breakdowns – can be avoided at the drawing-board stage itself.
• Continuous improvement: Feedback from operations (scrap levels, rework, delays) and from customers (complaints, service issues) feeds back into R&D and design. Thus product development becomes a continuous R&D cycle throughout the product’s life.

In this way, product development and design are not isolated artistic exercises. They are organised research-and-development activities that integrate market research, scientific and technical investigation, and systematic design work to create products that can be produced and delivered efficiently.

Question 2

How do mass production and batch production differ? Under what conditions is batch production appropriate?

1. Meaning of mass and batch production

• Mass production: A system where a highly standardised product is made in very large quantities using a continuous or nearly continuous flow. The layout is usually a product (line) layout – machines are arranged according to the sequence of operations. Special-purpose machines, high degree of automation and detailed work standards are common.
• Batch production: A system where a variety of products (or variants of the same product) are produced in batches or lots. One batch of a given item is processed, then the facilities are changed over to another item. Machines are usually general-purpose, and the layout is more of a process (functional) layout.

2. Key differences between mass and batch production

• Volume and variety:
  Mass production deals with very high volume and low variety – for example, millions of identical bottled soft drinks. Batch production handles moderate volume and moderate to high variety – for example, different models of shirts or machine parts produced in lots.
• Product design stability:
  Mass production is suitable when product design is stable for a long period; frequent design changes would disturb the line. Batch production can tolerate more frequent design or model changes because set-ups and changeovers are anyway part of the system.
• Layout and equipment:
  Mass production uses a line layout with special-purpose or dedicated machines, conveyors and automatic material handling. Batch production uses functional layout (e.g., all drilling machines together, all milling machines together) with general-purpose equipment; jobs move according to their individual routing.
• Work force and skill level:
  In mass production, tasks are broken into small, repetitive elements; workers often perform narrowly defined jobs with relatively lower skill requirements but high pace. In batch production, workers usually require broader skills because they handle different products, set-ups and routings.
• Planning and control:
  Mass production planning focuses on line balancing, capacity planning and maintaining continuous flow. Batch production planning is more complex – it requires routing, detailed scheduling, set-up planning and priority rules for different jobs and batches.
• Cost structure and flexibility:
  Mass production typically has high fixed cost (heavy investment in specialised facilities) and low variable cost per unit, giving low unit cost if volume is high. Flexibility is limited. Batch production has lower fixed cost but higher variable cost per unit; however, it offers much greater flexibility in variety and adjustment to demand changes.

3. When is batch production justified?

Batch production becomes an appropriate choice in the following situations:

• Demand is moderate and not continuous: If the demand for a particular item is not high enough or steady enough to justify a dedicated mass production line, it is economical to produce that item periodically in batches. For example, a component needed periodically as spares for industrial machinery.
• There is product variety: When the organisation must supply many models, sizes or variants, batch production allows switching from one variant to another by changing settings, tools or fixtures. A garment factory producing different sizes and colours of shirts in lots is a common example.
• Design is still evolving: If the product design is likely to change due to technological progress or changing customer preferences, heavy investment in a rigid mass production line may be risky. Batch production provides room for modifications without huge write-offs.
• Resources are shared: In many medium-sized organisations, the same set of machines and workers must serve multiple products. Batch production helps in sharing facilities and utilising general-purpose machines effectively.
• Seasonal or irregular demand: Where demand is seasonal (e.g., certain festival products, agriculture-related equipment), production can be done in batches ahead of the season and then switched to other items during off-season.
• Economic lot considerations: Set-up times and costs may be significant. Producing in batches allows the organisation to balance set-up cost against carrying cost and find an economical lot size, instead of running small quantities every day.

In summary, mass production is ideal for a few highly standardised products with stable, high demand, whereas batch production is justified when an organisation must handle a range of products with moderate demand, frequent changes and the need for flexibility.

Question 3

Projects as non-repetitive large tasks – why is describing them through activities and inter-relationships so important?

1. Nature of projects as non-repetitive large tasks

• Unique objective: A project is undertaken to achieve a specific, one-time goal: building a bridge, installing an ERP system, constructing a hospital, organising a large event, etc. Once completed, it is not repeated in exactly the same form.
• Large scale and complexity: Projects typically involve substantial investments, many activities, multiple agencies and a wide variety of resources – engineers, contractors, equipment, materials, regulators and so on.
• Defined start and finish: Unlike routine operations, projects have a clear beginning and end. There is a target completion date and often penalties for delay.
• Changing resource needs over time: At the start, only a few people may be involved (survey, design), but as work progresses, resource requirements build up sharply (civil works, installation), and finally taper off as the project is commissioned.

Because of these features, managing projects purely by intuition or daily firefighting is risky. There is a need for a more systematic way to plan and control them.

2. Why describe a project through activities and their inter-relationships?

The statement in the question highlights the core idea of modern project management: before executing a project, we should break it down into manageable activities and identify how these activities depend on each other.

• Breaking complexity into smaller parts: Each project is decomposed into activities such as “design foundation”, “order major equipment”, “construct building”, “install machinery”, “test equipment”, etc. This is usually done through a Work Breakdown Structure (WBS). Each activity has a clear start and finish, responsible person, required resources and estimated duration.
• Identifying precedence relationships: Some activities can only start after others are finished (you cannot start roof work before columns are ready), while others can proceed in parallel. By identifying these “precedence relationships”, we understand which activities are critical for the overall project completion date.
• Creating a project network: Network diagrams such as CPM and PERT represent activities as nodes or arrows, connected according to their precedence. This network gives a visual picture of the project and forms the basis for computing earliest and latest start/finish times, floats and the critical path.
• Time and cost control: Once the network is prepared and activity durations are estimated, the critical path (the longest chain of dependent activities) determines the project completion time. Any delay on this path delays the entire project. Managers can then focus their attention and resources on critical activities, and examine time–cost trade-offs where necessary.
• Resource planning and coordination: Knowing which activities run in parallel helps in planning the use of labour, equipment and materials. For example, for a construction project it becomes clear when extra cranes or skilled welders are required, and for how long.
• Monitoring and control: As the project executes, actual start/finish times are compared with planned values on the network. Delays are traced to specific activities and corrective actions (crashing, re-sequencing, resource reallocation) can be taken.

3. Practical illustration

Consider the construction of a new hospital building:

• Major activities may include land acquisition, soil investigation, architectural design, structural design, tendering and award of contracts, foundation work, superstructure, plumbing, electrical work, HVAC, medical equipment installation, testing and commissioning.
• Architectural design must finish before detailed structural drawings, which must finish before foundation and column work. However, procurement of some long-lead items (e.g., generators, lifts) can be started in parallel once specifications are frozen.
• Representing this logic in a PERT/CPM network allows the project manager to see that delays in soil investigation and structural design may push the entire schedule, while minor delays in landscaping may not affect the opening date.

Thus, the view that projects are non-repetitive large tasks emphasises their uniqueness and scale, and representing them through activities and inter-relationships gives managers a powerful tool for planning, scheduling and controlling time, cost and resources.

Question 4

What is job design? How has management’s view of job design evolved since the industrial revolution, and what key factors should be considered in designing jobs?

1. Meaning of job design

Job design refers to the way tasks, responsibilities, methods and relationships are structured for an individual job so that organisational objectives (productivity, quality, cost) and human needs (safety, satisfaction, growth) are both met. It specifies what a worker will do, how it will be done, with what tools, and under what conditions.

2. How management’s view of job design has changed over time

• Early industrial period – mechanistic and efficiency-driven view:
  After the industrial revolution, with the growth of factories, the dominant focus was on output and efficiency. The scientific management movement led by F.W. Taylor broke jobs into very small, repetitive tasks, each to be performed in the “one best way” determined by time and motion studies. Workers were treated almost like extensions of machines – expected to follow instructions rather than think or innovate. This approach raised productivity but also created monotony, fatigue and alienation.
• Human relations period – attention to social and psychological needs:
  Studies like the Hawthorne experiments highlighted that workers are not motivated only by money and that informal groups, recognition and a sense of belonging strongly affect performance. As a result, management started paying some attention to job satisfaction, communication, supervision style and group dynamics. This led to ideas like job enlargement (widening the range of tasks) and job rotation (periodically shifting workers across tasks) to reduce boredom.
• Modern socio-technical and behavioural view:
  In more recent decades, job design is seen as part of a socio-technical system – a combination of technology, work processes and human needs. Concepts like job enrichment, autonomous work groups, participative management, ergonomics and quality of work life have emerged. The emphasis is on balancing efficiency with creativity, learning, responsibility and well-being. Teams may be given greater autonomy to plan their work, solve problems and improve methods.

3. Important factors to be addressed in job design

While designing or redesigning jobs, managers must consider multiple dimensions:

• Task-related factors:
  • Skill variety: Jobs that use a range of skills are generally more satisfying than those with a single repetitive element.
  • Task identity and significance: Workers should be able to see a complete or meaningful piece of work and understand its importance for the customer or the next process.
  • Task feedback: The job should provide clear information about performance, either from the work itself (e.g., a good weld is visible) or from measurement systems.
• Authority and responsibility:
  • Jobs should give appropriate decision-making freedom (job autonomy) so that employees feel responsible for outcomes and can show initiative.
  • Responsibility must be matched with the authority to act; otherwise frustration increases.
• Physical and ergonomic factors:
  • Posture, reach distances, lifting requirements, repetitive movements and visual demands should be analysed to minimise fatigue and health risks.
  • Tools, controls, displays and workplace layout should suit the capabilities and limitations of human beings.
  • Noise level, lighting, temperature, ventilation and cleanliness also influence job performance and comfort.
• Work-flow and organisational factors:
  • Jobs must fit logically into the overall process flow and not create bottlenecks.
  • Coordination with upstream and downstream jobs, clarity of reporting relationships and communication channels are important.
  • Team structure – whether work is done individually, in pairs or in groups – affects job content and needed skills.
• Human and social needs:
  • People look for fair wages, job security, recognition, opportunities to learn, and advancement.
  • Interaction with colleagues, participation in improvement activities and a sense of contribution to organisational goals make jobs more meaningful.

4. Practical illustration

Take a call centre job. A narrowly designed job may require the agent only to read a script, repeatedly answer the same queries and follow a fixed sequence on the screen. Redesigning the job could involve giving the agent more authority to resolve issues, training them to handle multiple categories of calls, improving the ergonomics of the workstation (chair, screen height, acoustic panels) and creating small teams responsible for service quality. This redesign can improve customer satisfaction as well as the agent’s motivation and health.

Thus, job design has moved from a narrow efficiency orientation to a more balanced view where technological, organisational and human factors are jointly considered.

Question 5

Who should be responsible for inventory control? Discuss from both departmental and top management perspectives.

1. Why inventory control is a shared concern

Inventory is often described as a “usable but idle resource” and a “necessary evil”. It is necessary because it protects the organisation against uncertainties of demand and supply, and links different sub-systems (purchasing, production, distribution). At the same time, excessive inventory blocks capital and hides underlying inefficiencies.

Different departments view inventory differently, which can lead to conflicting objectives. Therefore, responsibility for inventory control cannot lie with a single function alone – it must be both a departmental and a top management concern.

2. Departmental perspectives on inventory responsibility

• Production / Operations:
  • Wants sufficient raw materials, components and work-in-process to avoid machine idle time and disruptions.
  • Prefers larger safety stocks and longer production runs, which may increase overall inventory levels.
  • Is responsible for planning production, following schedules and ensuring materials are issued and used economically.
• Marketing / Sales:
  • Focuses on product availability and quick delivery to customers.
  • Favourably views higher levels of finished goods inventory to promise shorter lead times and avoid stock-outs.
• Purchasing:
  • Negotiates with suppliers on price, quantity and delivery schedules.
  • May prefer larger order quantities to obtain quantity discounts or to reduce ordering frequency, which can again increase inventory.
  • Is responsible for supplier performance and timely replenishment.
• Stores / Warehouse:
  • Has physical custody of inventory and maintains stock records.
  • Is directly responsible for correct receipt, storage, preservation, issue and stock verification.
• Finance / Accounts:
  • Views inventory as blocked capital and a source of carrying costs (interest, storage, insurance, obsolescence).
  • Prefers lower inventory levels and higher inventory turnover to improve return on investment.
• Materials / Inventory Control department (where it exists):
  • Coordinates purchasing, stores and sometimes production planning.
  • Designs inventory policies (e.g., ABC classification, reorder levels, safety stocks) and monitors implementation.

In day-to-day working, therefore, inventory control is primarily a line responsibility of the materials/inventory control function and the stores, with active involvement from production, purchasing and marketing.

3. Role of top management

Because inventory decisions affect profitability, risk and customer service, top management cannot leave them entirely to individual departments.

• Setting overall inventory policy: Top management decides acceptable service levels (probability of not facing stock-out), maximum investment in inventory, and broad policies regarding centralised vs decentralised storage, make-to-stock vs make-to-order strategy, etc.
• Providing an integrated systems view: Since different managers may push for higher or lower inventories based on their own objectives, an integrated systems approach is required to balance these conflicting interests so that total cost is minimised at the organisational level, not just within a department.
• Approving major structural decisions: Decisions like creating a unified materials management department, introducing ERP-based inventory systems, establishing new warehouses or adopting just-in-time (JIT) purchasing require top management support.
• Review and control: Top management should periodically review key indicators like inventory turnover, stock-out frequency, obsolete stock levels and overall materials cost as a percentage of sales. This ensures that departmental actions remain aligned with strategic goals.

4. Conclusion – who is responsible?

Operationally, inventory control is managed by the materials/inventory control group and the stores, with active participation from production, purchasing and marketing. However, final responsibility for inventory strategies and for resolving inter-departmental conflicts rests with top management. Only when both levels – departmental and top – work together in a coordinated way can inventory be kept at an economic level while still providing the desired service to customers and to internal users.

Question 6

Why do organisations classify, codify and standardise materials? What are the advantages and possible disadvantages of codification?

1. Reasons for classifying materials

Most organisations handle thousands of different items – raw materials, components, spares, tools, consumables and so on. If each item is treated separately without any system, planning and control become extremely difficult. Classification groups items with similar characteristics into classes so that they can be handled in a coordinated way.

• Simplifying planning and control: Items with similar nature (e.g., all fasteners, all chemicals) can be planned and controlled together. Similar purchasing procedures, storage methods, inspection procedures and accounting rules can be applied to all items in a class.
• Improving coordination: Different departments (design, production, stores, accounts) may all need information about materials. Classification makes it easier to share and analyse this information.
• Supporting selective control: Classification based on value, criticality or usage (e.g., ABC, VED, FSN analysis) allows managers to focus attention on the most important items rather than treating all items with the same effort.

2. Reasons for codification of materials

Codification means representing each item by a short code (numbers, letters or a combination) instead of a long verbal description. The code is structured to convey important information such as group, sub-group, dimensions, quality and sometimes storage location or user department.

Organisations adopt codification for several reasons:

• Accurate and unique identification: A code uniquely identifies each item even if different departments or suppliers use different names for it. This avoids confusion and miscommunication.
• Prevention of duplication: When each item has a unique code, the chances of ordering the same item under different descriptions are reduced. This prevents overstocking and unnecessary variety.
• Ease of recording and accounting: Codes are easier to handle in stores records, stock ledgers and computer systems than long textual descriptions. This makes data entry, retrieval and analysis faster and more accurate.
• Improved purchasing: Purchase requisitions and orders become clearer when codes are used. Suppliers can be informed precisely what is required, reducing the risk of wrong supplies.
• Better storage and inspection: Items can be located and grouped in stores according to codes, making storage and stock verification more systematic.
• Support for computerisation: Modern inventory and ERP systems work best with coded items, enabling quick processing, standard reports and decision-support analyses.

3. Reasons for standardisation of materials

Standardisation means limiting the variety of items and establishing common specifications, sizes, grades and performance requirements for materials and components.

• Reduction in variety: Many items differ only marginally in dimensions or characteristics. Standardisation eliminates unnecessary varieties, leading to lower inventory investment and easier control.
• Assured quality and safety: Standards define acceptable ranges for performance, tolerances and safety requirements. This protects both the user and the organisation.
• Interchangeability and easier maintenance: When parts are standardised, replacements are easier to obtain and maintain. Multiple suppliers can provide items conforming to the same standard.
• Economies in purchasing and production: With fewer varieties and larger quantities of standard items, organisations can obtain better prices, plan for bulk purchases and simplify production processes.
• Support for national and international trade: Conformity to recognised standards (such as BIS or international standards) builds confidence among customers and facilitates exports.

4. Advantages of codification

Many of the reasons for adopting codification also show its benefits:

• Clarity and precision: Codes give a precise, concise representation of items, reducing ambiguity in communication inside the organisation and with suppliers.
• Reduced duplication and variety: When items are carefully coded, duplicates and near-duplicates are identified, which helps in variety reduction and standardisation.
• Efficient stores operations: Location, issuing, stock-taking and inspection are all simplified when items are stored and referred to by codes.
• Stronger control and analysis: Codes make it easier to apply ABC analysis, VED analysis and other selective control techniques, and to generate meaningful reports for management.
• Better fit with computers: Computerised inventory systems operate more reliably with coded data than with long textual descriptions, leading to fewer errors and faster information processing.

5. Possible disadvantages and limitations of codification

Despite these advantages, codification also has some practical difficulties that must be recognised and managed.

• Complex or non-intuitive codes: If the code structure becomes too long or complicated, it may be difficult for users to understand and remember. This can lead to errors in recording and retrieval.
• Difficulty in coding certain attributes: Some characteristics, such as surface finish, tolerance level or degree of automation, are not easy to capture in a simple code.
• Risk of misreading characters: Certain letters and numbers (e.g., I and 1, O and 0, S and 5, B and 8) can be easily confused when written or read quickly, causing identification mistakes.
• Vendor confusion: Suppliers dealing with multiple organisations may find it confusing to handle different coding systems for similar items, which may lead to mis-supplies unless communication is very clear.
• Initial cost and effort: Designing, implementing and maintaining a good coding system requires careful thought, training and continuous updating, which require time and resources.

On balance, however, the advantages of a well-designed coding system generally far outweigh its disadvantages, especially in organisations handling a large number of materials.

Question 7

Write brief explanatory notes on the following concepts.

1- Product design

Product design is the activity of converting a product idea or market need into a clear set of specifications that can guide manufacturing, purchasing and quality control. It defines what the product will look like, how it will function, which materials will be used, what tolerances will be allowed and how the product will be packaged and serviced.

• Balancing multiple requirements: Good product design balances performance, quality, cost, reliability, safety, maintainability, environmental impact, productivity, appearance, timing and accessibility. For example, the design of a mixer-grinder must consider motor power, blade shape, noise level, safety of the jar lid, ease of cleaning and appearance on the kitchen counter.
• Link with process selection: The design strongly influences which processes will be used – casting, machining, welding, assembly, software development, etc. Design for manufacture and assembly (DFMA) aims to reduce the number of parts, simplify operations and choose dimensions and tolerances that are easy to achieve.
• Impact on life-cycle cost and quality: Many quality and cost issues (frequent breakdowns, excessive service calls, high scrap) trace back to poor design decisions. Therefore product design is a critical phase where most of the life-cycle cost is actually determined.
• Integration with value engineering: Value engineering techniques are often applied to product design to ensure that each feature and component contributes to the required function at the lowest overall cost, without sacrificing quality or reliability.

2- Features of a mass production system

Mass production systems are designed to manufacture a standard product in very large quantities. Their main features include:

• High volume, standard product: The system produces a single product or a few standard variants repeatedly over a long time horizon, such as cars of a particular model or packaged beverages.
• Product (line) layout: Machines and workstations are arranged according to the sequence of operations required by the product. Material flows in a line, often on a conveyor.
• Special-purpose equipment and automation: Dedicated machines and tools are used to perform specific operations at high speed. Automation and material handling systems are common.
• Short, repetitive work cycles: Jobs on the line are broken into small, standardised tasks. Each worker often performs the same set of motions repeatedly, guided by detailed work instructions.
• High initial investment but low unit cost: Capital cost is high due to specialised equipment and line balancing. However, if the line runs at high capacity, the unit cost of output is low.
• Rigid but efficient: The system is highly efficient for the designed product but does not easily handle frequent design changes or a wide variety of items.

3- Work design

Work design is concerned with how work is done – the methods, motions, tools and time standards used to perform tasks. It aims at making the work efficient, safe and satisfying. It includes both method study (examining and improving the way tasks are done) and work measurement (setting time standards).

• Analysing existing methods: The way a job is presently carried out is studied using process charts, flow diagrams, motion study and other tools. Unnecessary movements and steps are identified.
• Developing improved methods: The designer then eliminates wasteful motions, rearranges tasks, improves workplace layout, selects better tools and designs more logical sequences of work.
• Setting work standards: Using time study, predetermined motion time systems or work sampling, standard times are established. These help in planning capacity, scheduling, costing and performance appraisal.
• Considering human factors: Work design incorporates ergonomic principles to reduce fatigue and the risk of injury, and aligns job demands with human capabilities. It is not restricted to factories; it is equally applicable to office work, service operations and knowledge work.

4- Historical perspective of value engineering

Value Engineering (VE), also known as Value Analysis (VA), arose during the Second World War when many materials were in short supply. At the General Electric Company (GEC) in the USA, L.D. Miles and his colleagues were asked to find material substitutes without sacrificing quality or performance.

• Origin at General Electric: Miles developed a systematic method in which a team analysed the functions of a product and explored alternative ways of performing those functions at lower cost while maintaining performance. This approach was named Value Analysis, and Miles is recognised as the father of Value Engineering.
• Spread in the USA and other countries: The first formal VE programme was started by the US Navy Bureau of Ships in 1954. In 1959, the Society of American Value Engineers (SAVE) was created to promote VE. Many organisations in the USA, UK, Japan and other countries adopted VE as a formal cost-improvement technique.
• Development in India: In India, VE/VA has been applied in public and private sector organisations, including railways, power plants and manufacturing companies. The Indian Value Engineering Society (INVEST) was formed to spread awareness through journals, conferences and training.
• Present position: Today VE is recognised as a systematic and creative approach to improving the value of products, systems and procedures by focusing on their functions and costs, and is considered a powerful tool for cost reduction and performance improvement.

5- Concept of inventory

Inventory may be described as a “usable but idle resource” held by an organisation for future use. In the context of materials management, it includes raw materials, components, work-in-process, finished goods and spare parts that are stored at various points in the supply chain.

• Why inventory is held:
  • To absorb uncertainties in demand and supply, by maintaining safety (buffer) stocks.
  • To cover the time lag between placing an order and receiving the material (lead time).
  • To take advantage of economies of scale in purchasing or production (cycle stock).
  • To handle seasonal demand by producing in advance.
  • To hedge against price increases or possible future non-availability of materials.
• Inventory as a “necessary evil”: Inventory is “necessary” because it permits the various sub-systems (purchasing, production, distribution) to operate in a decoupled and reasonably smooth manner. At the same time it is an “evil” because it ties up capital and incurs carrying costs (interest, storage, insurance, obsolescence, deterioration).
• Indicator of performance: Inventory level and inventory turnover ratio (annual demand divided by average inventory) are often used as indicators of how effectively materials are being managed.

Thus, the concept of inventory is central to materials management and operations planning, and requires careful balancing between service level and cost.