Industrial Management

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This section covers the evolution of management theory, decision making, leadership and communication, production/operations management and the systems concept, the marketing management process and strategies, customer analysis, organisational behaviour and basic psychology in organisations, and motivation.

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Management — Meaning, Functions and Levels • Management is the process of planning, organising, staffing, directing (leading) and controlling the use of people, money, machines, materials and information to achieve organisational goals efficiently (doing things right) and effectively (doing the right things). • Levels: top (strategic), middle (tactical), first-line/supervisory (operational).

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Katz's skills: technical skill (most needed at the lower level), human skill (needed at all levels) and conceptual skill (most needed at the top).

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Mintzberg's roles: interpersonal (figurehead, leader, liaison), informational (monitor, disseminator, spokesperson) and decisional (entrepreneur, disturbance handler, resource allocator, negotiator). • Productivity = output ÷ input (partial, multi-factor or total factor) — the central measure of managerial performance in industry.

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Evolution of Management Theory School Main contributors and ideas Classical — scientific management F.

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Taylor (1911): science not rule of thumb, time and motion study, standardisation, scientific selection and training, differential piece rate, functional foremanship, mental revolution;

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Frank & Lillian Gilbreth (motion study, therbligs, fatigue study);

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Gantt (Gantt chart, task-and-bonus wage) Classical — administrative Henri Fayol: functions of management and 14 principles (division of work, authority and responsibility, discipline, unity of command, unity of direction, subordination of individual interest, remuneration, centralisation, scalar chain (gang plank), order, equity, stability of tenure, initiative, esprit de corps) Bureaucracy Max Weber: rules, hierarchy, division of labour, impersonality, selection and promotion on merit, written records Behavioural / human relations Elton Mayo — Hawthorne studies (1924–32): social factors, group norms and attention to workers affect output more than physical conditions; later Maslow, Herzberg, McGregor, Argyris, Likert (behavioural science) Quantitative (management science) Operations research, linear programming, queuing, simulation, decision models, MIS — grew from the Second World War (see Chapter 7) Modern Systems approach (organisation as an open system of interacting sub-systems with inputs, transformation, outputs and feedback), contingency (situational) approach ('it depends'), TQM and Japanese practices, learning organisation, knowledge management, business process re-engineering Decision Making • Steps: define the problem → identify criteria and constraints → develop alternatives → evaluate alternatives → choose → implement → follow up and evaluate. • Types: programmed (routine, by rules and procedures) and non-programmed (novel, unstructured, strategic); by level — strategic, tactical, operational; conditions of certainty, risk and uncertainty (models in Chapter 7). • Rationality: the rational (economic man) model assumes complete information;

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Herbert Simon's bounded rationality and satisficing describe real managers who choose a good-enough option; intuition and judgement supplement analysis. • Group decision techniques: brainstorming, Delphi (anonymous expert rounds), nominal group technique, committees — better acceptance and more information, but slower and risk of groupthink.

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Leadership and Communication • Leadership theories: trait theory; behavioural — autocratic, democratic/participative, laissez-faire;

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Ohio State (initiating structure vs consideration) and Michigan studies;

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Blake and Mouton's Managerial Grid (concern for production vs people;

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9,9 = team management); contingency — Fiedler (leader-member relations, task structure, position power), Hersey-Blanchard situational (telling, selling, participating, delegating according to follower maturity), House's path-goal; transactional vs transformational leadership; servant leadership. • Sources of power (French and Raven): legitimate, reward, coercive, expert, referent. • Communication process: sender → encoding → message → channel → decoding → receiver → feedback, with noise at every stage.

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Formal channels: downward (instructions), upward (reports, suggestions), horizontal/lateral (coordination), diagonal; informal: the grapevine. • Barriers: physical/noise, semantic (language, jargon), psychological (perception, emotion, distrust), organisational (long scalar chain, status), information overload, poor listening — overcome by clarity, feedback, appropriate channel, active listening and simple structure.

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Production/Operations Management and the Systems Concept • Operations management designs, operates and improves the system that converts inputs (men, machines, materials, money, methods, information) into goods and services; the conversion is monitored by feedback and control — the systems view. • An organisation is an open system exchanging with its environment; it has interdependent sub-systems (production, marketing, finance, HR), and synergy means the whole is greater than the sum of its parts; entropy is resisted by feedback and adaptation. • Operations decisions: product and process design, capacity, location, layout, quality, scheduling, inventory, maintenance and supply chain — the subject of Chapters 5–9.

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Marketing Management • Marketing management process: analysis of market opportunities (market research, environment, competitor and customer analysis) → selecting target markets (segmentation, targeting, positioning — STP) → designing the marketing mix (4 Ps: product, price, place, promotion;

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7 Ps for services adding people, process, physical evidence) → implementation → control (annual plan, profitability, efficiency and strategic control/audit). • Marketing concepts (philosophies): production concept → product concept → selling concept → marketing concept (customer needs first) → societal marketing (customer + society's long-run welfare) and relationship marketing. • Marketing strategies:

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Porter's generic strategies — cost leadership, differentiation, focus;

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Ansoff matrix — market penetration, market development, product development, diversification;

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BCG matrix — stars, cash cows, question marks, dogs; competitive positions — market leader, challenger, follower and nicher; strategies along the product life cycle (introduction, growth, maturity, decline). • Customer analysis: who buys, what, why, when and how — needs and buying motives, buying decision process (need recognition → information search → evaluation → purchase → post-purchase behaviour), consumer vs industrial (B2B) buying, customer satisfaction and loyalty, lifetime value, CRM, market research and demand forecasting (Chapter 7).

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Organisational Behaviour, Psychology and Motivation • OB studies individual, group and organisational behaviour: personality (Big Five), perception (and errors — halo effect, stereotyping, attribution), attitudes and job satisfaction, learning and reinforcement, values, stress, group dynamics and teams, conflict and negotiation, power and politics, organisational culture and change management (Lewin: unfreeze → change → refreeze; resistance to change and how to overcome it). • Content theories of motivation:

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Maslow (physiological → safety → social → esteem → self-actualisation);

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Herzberg's two factors — hygiene (pay, policy, supervision, conditions — prevent dissatisfaction) vs motivators (achievement, recognition, work itself, responsibility, growth — give satisfaction);

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McClelland (need for achievement, affiliation, power);

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McGregor's Theory X and Y;

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Ouchi's Theory Z. • Process theories:

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Vroom's expectancy (motivation = expectancy × instrumentality × valence), Adams' equity theory (comparison of one's input-outcome ratio with others), Locke's goal-setting (specific, difficult, accepted goals with feedback), reinforcement theory. • Application in industry: job design — job rotation, job enlargement (horizontal) and job enrichment (vertical, adding responsibility);

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Hackman-Oldham job characteristics model (skill variety, task identity, task significance, autonomy, feedback); financial and non-financial incentives, wage-incentive plans, participation, quality circles and empowerment.

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This section covers the importance and evolution of enterprises, theories and themes of entrepreneurship development, identification of viable business ventures, small and medium enterprises and women entrepreneurs in Nepal, and the procedure and requirements of initial environmental examination (IEE) and environmental impact assessment (EIA).

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Entrepreneur and Entrepreneurship • An entrepreneur identifies an opportunity, organises resources, bears the risk and uncertainty of a venture and innovates to earn profit; entrepreneurship is the process of creating and growing such a venture.

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An intrapreneur does this inside an existing organisation; a manager runs an enterprise for a salary and bears no ownership risk. • Functions: opportunity identification, innovation, risk and uncertainty bearing, organising and combining the factors of production, decision making, growth and expansion. • Importance: employment generation, capital formation, use of local resources, import substitution and export promotion, balanced regional development, innovation and technology diffusion, government revenue, and (in Nepal) reduction of out-migration for work.

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Theory / theme Main idea Schumpeter — innovation theory The entrepreneur is an innovator who carries out new combinations: new product, new method, new market, new source of supply, new organisation — 'creative destruction' McClelland — need for achievement (n-Ach) Entrepreneurs have a high need for achievement; it can be developed through training and motivation Knight — risk and uncertainty bearing Profit is the reward for bearing uninsurable uncertainty Kirzner — alertness Entrepreneurship is alertness to profit opportunities in an imperfect market Sociological (Hagen, Weber, Cochran) Social status withdrawal, religious and cultural values, and social sanctions shape entrepreneurial supply Psychological / trait theories Risk taking, internal locus of control, self-confidence, perseverance, tolerance of ambiguity, leadership Modern themes Technology and start-up entrepreneurship, social entrepreneurship, green entrepreneurship, women and youth entrepreneurship, family business, incubators, angel and venture capital, start-up funds Evolution of Enterprises and Identification of Viable Ventures • Enterprises evolve from self-employment and cottage units → small enterprise → medium enterprise → large corporate enterprise, with corresponding changes in capital, technology, organisation structure and professional management; ownership forms — sole proprietorship, partnership, private/public limited company, cooperative, public enterprise. • Identifying a viable venture:

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(1) idea generation (own skills, market gaps, imports, local resources, government priorities, franchising, technology);

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(2) screening against personal competence, capital and legal restrictions;

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(3) feasibility study — market (demand, competition, price, distribution), technical (process, machinery, location, utilities, raw material), managerial and organisational, financial (project cost, sources of funds, cash flow, break-even, NPV/IRR/payback — Chapter 10.2), economic and social, and environmental (IEE/EIA);

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(4) risk and sensitivity analysis;

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(5) preparation of the business plan / project report. • Business plan contents: executive summary, promoter and company profile, product/service description, market analysis and marketing plan, technical/production plan, organisation and manpower plan, financial plan and projections, risk analysis, implementation schedule and appendices.

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SWOT analysis supports strategy formulation.

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SMEs in Nepal • The Industrial Enterprises Act, 2076 (2020) classifies industries by size as micro, cottage, small, medium and large, based on fixed capital (with additional conditions for micro and cottage enterprises such as employment, power used and annual turnover), and by nature as energy, manufacturing, agro and forest based, mineral, construction, tourism, information technology/communication, and service industries.

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(Capital thresholds are revised from time to time — verify the current Act and its amendments.) • Contribution: micro, cottage and small enterprises make up the large majority of registered industries in Nepal and provide most industrial employment — agro-processing, handicrafts, textiles, furniture, food, construction materials and services. • Constraints: limited access to finance (collateral-based lending, high interest), weak technology and skills, small and scattered markets, poor infrastructure (power, roads, industrial land), supply-chain dependence on imports, informal competition, complex procedures, and vulnerability to shocks. • Support system:

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Department of Industry, Cottage and Small Industries Offices and provincial industry offices, Federation of Nepalese Cottage and Small Industries (FNCSI), FNCCI, Nepal Rastra Bank's directed/concessional lending and refinance, Youth and Small Entrepreneur Self-Employment Fund, business incubators, skill training (CTEVT), Nepal Bureau of Standards and Metrology certification, and the provisions of the Industrial Enterprises Act.

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Women Entrepreneurs in Nepal • Women-owned enterprises are concentrated in small and micro units — food processing, handicrafts, garments and pashmina, beauty and wellness, retail, homestay and tourism, agriculture and dairy. • Constraints: limited access to credit (property and collateral usually registered in male names), household responsibilities and mobility limits, lower access to networks, markets and technical training, and social attitudes. • Support:

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FWEAN (Federation of Woman Entrepreneurs' Associations of Nepal) and district associations, women entrepreneurship development funds and concessional loans without heavy collateral, training and market-linkage programmes, cooperatives, and legal incentives — the Industrial Enterprises Act provides a rebate on industry registration fees for industries registered in a woman's name and other facilities; tax and exemption details should be checked in the current Act and Finance Act.

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IEE and EIA Procedure • Environmental assessment in Nepal is governed by the Environment Protection Act, 2076 (2019) and the Environment Protection Rules, 2077 (2020), which provide for a Brief Environmental Study (BES), Initial Environmental Examination (IEE) and Environmental Impact Assessment (EIA); the schedules of the Rules list which proposals fall in which category by type and size.

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A proposal requiring assessment cannot be implemented until its report is approved. • IEE (for smaller projects with limited impacts): prepare terms of reference and get it approved → carry out the study with public notice and collection of opinions from the affected ward/local level → prepare the IEE report → submit through the concerned body → approval by the concerned ministry/authority (as provided in the Act). • EIA (for large projects with significant impacts): scoping document and terms of reference approval → detailed study (baseline, alternatives, impact prediction and evaluation, mitigation measures, environmental management plan, monitoring plan) → public hearing and 15-day public notice in the affected area → report submission and review, including by an expert committee → approval by the Ministry of Forests and Environment → implementation of the environmental management plan, monitoring and environmental auditing after operation begins. • Contents of a report: description of the proposal, existing environment (physical, biological, socio-economic and cultural), alternatives, impacts (direct/indirect, short/long term, reversible/irreversible, cumulative), mitigation and benefit-enhancement measures, environmental management and monitoring plan, cost-benefit of mitigation, and public consultation record. • Procedures, approving authorities and thresholds have changed with recent amendments — check the latest Act and Rules.

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This section covers industrial laws in Nepal and the international perspective, capital and assets of industry, industry registration rules and process in Nepal, facilities and exemptions for different types of industries, labour relations with ILO and UN provisions, and intellectual property rights.

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Main Laws Affecting Industry in Nepal Law Subject Industrial Enterprises Act, 2076 (2020) Classification, registration, facilities, concessions and obligations of industries;

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Industry and Investment Promotion Board; one-stop service Companies Act, 2063 (2006) Incorporation and governance of private and public limited companies (Office of Company Registrar) Foreign Investment and Technology Transfer Act (FITTA), 2075 (2019) Foreign investment approval, minimum investment threshold, technology transfer, repatriation; negative list of restricted sectors Labour Act, 2074 (2017) and Labour Rules, 2075 Employment, working hours, wages, leave, safety, dispute settlement Trade Union Act, 2049, Bonus Act, 2030 Trade unions, collective bargaining, profit bonus to employees Contribution Based Social Security Act, 2074 Social Security Fund — contributions by employer and employee for medical, accident, dependant and old-age protection Environment Protection Act, 2076 BES/IEE/EIA, pollution control, environmental standards Special Economic Zone Act, 2073;

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Public Private Partnership and Investment Act, 2075 Export-oriented zones and facilities; large project investment Patent, Design and Trade Mark Act, 2022 (1965);

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Copyright Act, 2059 Intellectual property registration and protection Consumer Protection Act 2075, Competition Promotion and Market Protection Act 2063, Income Tax Act 2058, VAT Act 2052, Customs Act 2064 Product quality, fair trade, taxation and customs • International perspective:

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WTO (Nepal joined in 2004) with agreements on tariffs, TBT, SPS and TRIPS;

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ILO conventions on labour; multilateral environmental agreements (Montreal Protocol, Kigali Amendment, Paris Agreement, Basel Convention);

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SAFTA and BIMSTEC trade arrangements;

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UN Sustainable Development Goals and the UN Global Compact for responsible business.

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Capital and Assets of Industry • Fixed capital — investment in land, buildings, plant and machinery, equipment, vehicles, furniture and other long-life assets (the basis of industry classification by size); working capital — funds for raw materials, work in process, finished goods, receivables, wages and other running expenses. • Assets: fixed (tangible — land, building, machinery; intangible — patents, goodwill, software) and current (inventory, receivables, cash); liabilities — equity and debt; depreciation of fixed assets is claimed by the pooling system under the Income Tax Act (Chapter 10.2). • Total project cost = fixed capital + preliminary and pre-operative expenses + margin money for working capital; financing by promoter's equity, bank loans, foreign investment, leasing, or capital markets.

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Registration of Industry in Nepal • Typical sequence:

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(1) decide the ownership form and register the firm/company — private firm at the Department/Office of Industry or local body, company at the Office of the Company Registrar;

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(2) register the industry — large and medium industries and foreign investment projects at the Department of Industry; small, cottage and micro industries at the provincial industry office or Cottage and Small Industries Office;

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(3) obtain PAN/VAT registration at the Inland Revenue Office;

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(4) obtain environmental clearance (BES/IEE/EIA) where required;

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(5) obtain sector-specific approvals and local-level permissions (land use, building, ward recommendation, fire and electricity connection);

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(6) register for the Social Security Fund and labour-related obligations;

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(7) report the commencement of commercial production and renew/report annually. • Foreign investment additionally requires approval under FITTA, foreign-currency and repatriation approvals through Nepal Rastra Bank, and a visa/work permit process; a one-stop service centre at the Department of Industry/Investment Board coordinates approvals for larger projects.

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Facilities and Exemptions • The Industrial Enterprises Act and the annual Finance Act provide incentives that vary by industry type, location and employment: income-tax rebates for special (manufacturing) industries, industries in remote/undeveloped areas, industries providing large employment and those exporting; customs and VAT concessions on plant and machinery and on raw material for exports (duty drawback, bonded warehouse); tax holidays/concessions in Special Economic Zones; deductions for investment in pollution-control equipment, R&D and technology, and for employee skill training; extra deduction for employing Nepali workers including women, Dalit and disabled persons; registration-fee rebate for industries registered in a woman's name; protection against nationalisation and facilities for repatriation of foreign investment. • Rates, thresholds and eligibility change every year with the Finance Act — always verify current provisions.

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Labour Relations (Labour Act, 2074) Provision Summary Types of employment Regular, work-based, time-based, casual and part-time; probation up to 6 months; employment contract in writing Working hours 8 hours a day and 48 hours a week, with a weekly day off; rest/refreshment period; overtime at 1.5 times the basic rate, with statutory daily/weekly limits Wages Minimum wage fixed by the Government on the recommendation of the Minimum Wage Fixation Committee (reviewed periodically); payment at least monthly; equal pay for equal work without gender discrimination Leave Weekly holiday, public holidays, annual (home) leave, sick leave, mourning leave, maternity leave (with a paid portion) and paternity leave, as specified in the Act Social security and benefits Social Security Fund contribution by employer and employee, gratuity/provident fund, medical and accident insurance, bonus under the Bonus Act Occupational safety and health Employer must ensure a safe workplace, safety policy and committee (in larger enterprises), PPE, machine guarding, accident reporting and compensation Discipline and termination Misconduct and punishment, natural justice (notice and hearing), retrenchment procedure with compensation, prohibition of forced and child labour Industrial relations Registered trade unions, collective bargaining committee, collective agreement; dispute settlement: negotiation → mediation/conciliation → arbitration → Labour Court; strikes and lock-outs only after fulfilling legal requirements (majority approval and notice); essential services restricted • ILO: founded in 1919 (Treaty of Versailles), became the first specialised agency of the UN in 1946; unique tripartite structure — governments, employers and workers.

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Fundamental principles cover freedom of association and collective bargaining, elimination of forced labour, abolition of child labour, elimination of discrimination in employment, and (added in 2022) a safe and healthy working environment; key conventions include C29 and C105 (forced labour), C87 and C98 (association and bargaining), C100 and C111 (equal remuneration and discrimination), C138 and C182 (child labour), C155 and C187 (OSH).

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Nepal is a member and has ratified a number of these conventions; the Decent Work Agenda (employment, rights, social protection, social dialogue) and SDG 8 guide labour policy.

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(Check which conventions Nepal has currently ratified.) Intellectual Property Rights Right Protects Nepal / international position Patent New invention — product or process Registered at the Department of Industry under the Patent, Design and Trade Mark Act, 2022 (1965); granted for 7 years, renewable twice for 7 years each;

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TRIPS standard is 20 years from filing Industrial design Shape, configuration, pattern or ornament of an article Registered at the Department of Industry; term of 5 years, renewable (twice) as provided in the Act Trade mark Sign, word or logo distinguishing goods/services Registered at the Department of Industry; renewable periodically; protects goodwill and prevents passing off Copyright Literary, artistic, musical works, software, databases Copyright Act, 2059 (2002); automatic on creation, registration at the Nepal Copyright Registrar's Office; life of the author plus 50 years Trade secret / geographical indication / layout design Confidential business information; origin-linked products (e.g., tea, handicrafts) Weak or developing protection in Nepal; covered internationally by TRIPS and WIPO treaties • IPR encourages innovation by granting a limited monopoly in exchange for public disclosure; industrial engineers meet IPR in licensing, technology transfer, R&D, branding and in avoiding infringement.

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WIPO administers international IP treaties; the TRIPS agreement sets minimum standards for WTO members.

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This section covers supply chain stages and decision phases, the process view of a supply chain, competitive supply-chain strategies and strategic fit, drivers of supply-chain performance, distribution networks, facility location and capacity allocation models, transportation network design and modes, revenue management, coordination and the bullwhip effect, and the supply-chain IT framework — CRM, internal SCM and SRM.

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Supply Chain — Stages and Flows • A supply chain includes all parties involved in fulfilling a customer request: suppliers → manufacturers → warehouses/distributors → retailers → customers, together with transporters and service providers.

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Three flows move in both directions: material (product), information and funds. • The objective is to maximise supply-chain surplus = customer value − total supply-chain cost; performance is judged by cost, responsiveness, quality and asset utilisation, not by any single stage's profit.

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Decision phase Horizon and content Supply-chain strategy (design) Years: configuration of the chain — where to make, where to store, outsourcing vs in-house, distribution and transport modes, information systems Supply-chain planning Quarter to a year: markets supplied from which location, inventory and subcontracting policies, promotions, aggregate planning, allocation of capacity to demand Supply-chain operation Days/weeks: order allocation, pick lists, delivery schedules, replenishment, truck loading • Cycle view: customer-order cycle, replenishment cycle, manufacturing cycle and procurement cycle — each with ordering, fulfilment and receiving stages.

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Push/pull view: pull processes execute in response to a customer order (reactive), push processes execute in anticipation of demand (speculative); the push-pull boundary is a key design choice (e.g., build-to-order computers push components, pull assembly).

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Competitive Strategy and Strategic Fit • Strategic fit means the competitive strategy (what customers want — cost, variety, speed, quality) and the supply-chain strategy (how the chain is designed) must be aligned, and every function must support the same priorities. • Steps:

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(1) understand customer and supply-chain uncertainty — quantity, response time, variety, service level and innovation give the implied demand uncertainty;

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(2) understand supply-chain capabilities on the responsiveness-efficiency spectrum;

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(3) achieve fit — high implied uncertainty (fashion, new products) needs a responsive chain, low uncertainty (staples, commodities) an efficient chain (the zone of strategic fit). • Functional vs innovative products (Fisher): functional products (stable demand, long life, low margin) suit physically efficient chains; innovative products (unpredictable demand, short life, high margin) suit market-responsive chains. • Scope of strategic fit extends from intra-operation to the whole chain; it must be revisited as the product moves along its life cycle.

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Drivers of Supply-Chain Performance Driver Trade-off it controls Facilities (plants, warehouses) Number, location, capacity and flexibility: many facilities → responsive but costly; few large facilities → efficient (economies of scale) Inventory Cycle, safety and seasonal inventory: more inventory → higher availability/responsiveness but higher holding cost Transportation Mode and route: fast modes (air) → responsive and costly; slow modes (sea, rail) → efficient Information Accurate, shared and timely information improves both responsiveness and efficiency — the key enabler Sourcing In-house vs outsourcing, supplier selection and number, procurement process Pricing Differential pricing, discounts and promotions shape demand and hence the cost to serve Distribution Networks and Facility Location • Distribution network options:

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(1) manufacturer storage with direct shipping (drop-shipping);

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(2) manufacturer storage with in-transit merge;

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(3) distributor storage with package-carrier delivery;

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(4) distributor storage with last-mile delivery;

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(5) manufacturer/distributor storage with customer pickup;

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(6) retail storage with customer pickup (the traditional shop).

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They are compared on response time, product variety and availability, customer experience, order visibility, returnability, and on inventory, transportation, facility/handling and information costs. • Facility location and capacity allocation models: qualitative factor-rating method; centre-of-gravity (load-distance) method for a single facility — x* = Σ(dixi)/Σdi, y* = Σ(diyi)/Σdi; break-even (cost-volume) comparison of sites; transportation model / linear programming and network optimisation to allocate demand to plants and warehouses; capacitated plant-location models with fixed plus variable costs; in practice also considering taxes, tariffs, exchange rates, infrastructure, labour, and political risk. • Transportation network design: direct shipping; direct shipping with milk runs; all shipments via a central DC (with storage) or via a cross-dock (no storage, immediate transfer); shipping via DC with milk runs; and tailored networks combining these by product value and volume.

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Mode Characteristics Road (truck) Door-to-door, flexible, moderate cost — dominant in Nepal (a landlocked country dependent on road links with India) Rail Low cost per tonne-km for heavy bulk over long distances, slow, needs terminals Water (sea/inland) Cheapest for international bulk, slowest;

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Nepal's sea freight uses Kolkata/Haldia and Visakhapatnam ports and inland container depots (e.g., Birgunj ICD) Air Fastest, most expensive — high-value, low-weight, urgent goods (electronics, pharmaceuticals, perishables, garments) Pipeline Continuous flow of liquids/gas at low operating cost (e.g., the Motihari-Amlekhgunj petroleum pipeline) Intermodal Containers moved by two or more modes — combines cost and reach Revenue Management, Coordination and the Bullwhip Effect • Revenue management uses pricing and capacity allocation to increase the surplus from existing assets: charging different prices to different segments (advance vs spot), managing perishable/seasonal capacity (hotel rooms, airline seats, transport fleets), bulk contracts vs spot market, and quantity discounts — most valuable when capacity is fixed, demand varies and the product is perishable. • Bullwhip effect: demand variability is amplified as orders move upstream from retailer to manufacturer to supplier, causing excess inventory, poor service, high costs and unstable production. • Causes: local demand forecast updating, order batching (economies in ordering/transport), price fluctuations and promotions (forward buying), rationing and shortage gaming (inflated orders during shortage), long lead times, lack of information sharing and multiple echelons. • Remedies: share point-of-sale demand data (EDI, collaborative planning — CPFR), vendor-managed inventory (VMI), single-point forecasting, smaller and more frequent orders, stable everyday low pricing instead of promotions, allocation based on past sales, lead-time reduction, and building trust and long-term partnerships. • Coordination is improved by aligning goals and incentives, improving information visibility, improving operational performance (smaller lots, shorter lead time) and designing pricing to stabilise orders.

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Supply-Chain IT Framework • Three macro-processes over a foundation of transaction management (ERP) and analytics: • CRM — Customer Relationship Management (the interface with customers): marketing, pricing, selling, order management and call/service centre. • ISCM — Internal Supply Chain Management: demand planning, supply planning (production and inventory), fulfilment and field service. • SRM — Supplier Relationship Management: design collaboration, sourcing, negotiation, buying and supply collaboration. • Enabling technologies:

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ERP, EDI, bar codes and RFID, warehouse and transport management systems (WMS/TMS), GPS tracking, e-procurement and e-commerce platforms, cloud, analytics and (increasingly) blockchain for traceability. • Benefits: visibility, faster response, lower inventory and better coordination — but require data accuracy, process discipline and trust between partners.

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This section covers material requirement planning, safety stock and reorder point, quantitative inventory models for continuous and discrete demand situations, dependent and independent demand items, just-in-time inventory management, store management, and inventory evaluation and stock verification.

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Purposes, Types and Costs of Inventory • Types by stage: raw material, work-in-process (WIP), finished goods, MRO (maintenance, repair and operating supplies), spares, packing material.

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Types by function: cycle (lot-size) stock, safety (buffer) stock, pipeline (transit) stock, anticipation/seasonal stock, decoupling stock, dead/obsolete stock. • Why hold inventory: absorb demand and supply variability, gain quantity and transport discounts, decouple operations, cover lead time, protect against price rise and shortage, smooth seasonal production. • Costs: ordering/set-up cost per order; carrying (holding) cost ≈ 15–25% of item value per year (interest, storage, insurance, obsolescence, pilferage); shortage/stock-out cost (lost sales, idle plant, expediting); purchase cost. • Independent demand — finished goods and spares whose demand comes from the market and must be forecast (EOQ/ROP systems); dependent demand — components and materials whose demand is calculated from the demand for the parent item (MRP).

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Deterministic (known) vs probabilistic demand; continuous (steady) vs discrete/lumpy demand.

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Quantitative Inventory Models Model Result Basic EOQ (Wilson) — constant demand, instant replenishment, no shortage EOQ = √(2DS/H); total relevant cost TC = (D/Q)S + (Q/2)H, minimum TC = √(2DSH); number of orders = D/EOQ; cycle time = EOQ/D; at optimum, ordering cost = carrying cost EPQ / production (gradual replenishment) model Q* = √[2DS/(H(1 − d/p))] where p = production rate, d = demand rate; maximum inventory = Q*(1 − d/p) EOQ with planned shortages (backorders) Q* = √(2DS/H)·√((H + B)/B), with B = backorder cost per unit per year Quantity discount model Compute EOQ at each price break, adjust infeasible quantities up to the break point, compare total cost including purchase cost Single-period (newsvendor) model — perishable/one-off items Order up to the quantity where service level = Cu/(Cu + Co) (underage and overage costs) Safety Stock and Reorder Point • Reorder point ROP = d̄ × L + SS (d̄ = average demand per period, L = lead time in the same units). • Safety stock SS = z × σL, where z is the standard normal value for the required cycle-service level (z = 1.28 for 90%, 1.65 for 95%, 2.33 for 99%) and σL = σd√L for variable demand with constant lead time; when lead time also varies, σL = √(L σd² + d̄²σL,t²). • Safety stock rises with demand variability, lead time and the service level required — so reducing lead time and its variability is the cheapest way to cut inventory. • Review systems: continuous review (Q system, fixed order quantity) — order EOQ whenever stock falls to ROP (needs perpetual records; used for A items); periodic review (P system, fixed interval) — at fixed intervals order up to a target level (simpler, suits many items from one supplier, needs more safety stock); two-bin system as a simple visual Q system. • Selective control:

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ABC (value), VED (criticality), FSN (movement), HML (price), SDE (availability), XYZ (value of stock held).

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Material Requirement Planning (MRP) • MRP converts the production plan for finished products into time-phased requirements of components — suitable for dependent demand. • Inputs:

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(1) Master Production Schedule (MPS) — what end items are to be made and when;

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(2) Bill of Materials (BOM) — the product structure with quantities per assembly and low-level codes;

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(3) inventory records — on-hand stock, scheduled receipts, lead times, lot sizes, safety stock. • Logic for each item, level by level (explosion): gross requirements → subtract scheduled receipts and projected on-hand → net requirements → apply lot sizing (lot-for-lot, EOQ, period order quantity, least unit cost) → offset by lead time to get planned order releases, which become the gross requirements of the next level. • Outputs: planned order releases (purchase and work orders), rescheduling notices, exception reports;

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CRP (capacity requirement planning) checks feasibility; regenerative vs net-change processing. • Benefits: lower inventory of dependent items, fewer shortages, better delivery and planning; requirements: accurate BOM and inventory records (> 98%), realistic MPS and stable lead times.

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MRP II extends MRP to capacity, finance and marketing;

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ERP integrates the whole enterprise.

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Just-in-Time (JIT) Inventory Management • JIT (Toyota Production System) produces and delivers the right item, in the right quantity, at the right time — treating inventory as waste that hides problems; the opposite philosophy to holding buffer stocks. • Elements: pull system with kanban cards/containers, small lot sizes with set-up time reduction (SMED), level (mixed-model) scheduling — heijunka, standardised work, cellular layout and multi-skilled workers, total productive maintenance, jidoka (stop-the-line on defects) and poka-yoke, frequent deliveries from few, nearby, certified suppliers (JIT purchasing), and kaizen. • Number of kanbans:

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N = D·L(1 + α)/C, where D = demand rate, L = lead time, α = safety factor, C = container capacity. • Benefits: much lower inventory and space, shorter lead time, quicker defect detection, lower cost, higher flexibility.

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Limitations/risks: vulnerable to supply disruption, transport delays, strikes and demand spikes; needs reliable suppliers and stable schedules — in Nepal, long import lead times and road disruptions limit pure JIT, so firms keep strategic buffer stock.

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Store Management, Valuation and Stock Verification • Store functions: receiving and inspection (GRN), storage in identified bins/racks, preservation, issue against material requisition, record keeping (bin card, stores ledger), return and scrap handling, and stock reporting.

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Good practice: codification of items (numeric/alphanumeric/decimal), fixed or random location with computer records, FIFO issue, safety and fire protection, limited access, housekeeping (5S) and material-handling equipment. • Store layout considers flow (receiving → storage → issue), aisle width, heavy/fast-moving items near the issue point, hazardous material separation, and use of racking/AS-RS in modern warehouses. • Inventory valuation:

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FIFO (issues priced at the oldest cost — closing stock at current prices), LIFO, weighted average, standard cost, and (for accounts) the lower of cost or net realisable value; the method affects reported profit when prices change. • Stock verification: periodic (annual) physical verification — all items counted at once, usually with operations stopped; continuous/perpetual verification (cycle counting) — items counted throughout the year by a schedule, A items most often; spot checks.

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Discrepancies are investigated (recording errors, pilferage, evaporation/breakage, wrong issue) and adjusted with approval. • Performance measures: inventory turnover ratio = cost of goods used ÷ average inventory; days of supply; stock-out/fill rate; percentage of non-moving and obsolete stock; inventory carrying cost as a percentage of sales.

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This section covers new product development, production and operations strategy and its interfaces, the production function and the organisation, the relationship between operations and financial management, operations in manufacturing and service environments, lean manufacturing and six sigma, principles of quality management, statistical quality control and process control, and ISO 9001 and ISO 14001 certification.

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New Product Development (NPD) • Stages: idea generation (customers, R&D, competitors, employees, suppliers) → idea screening → concept development and testing → business analysis (demand, cost, profitability, break-even) → product and process development and prototyping → test marketing → commercialisation and launch → review. • Tools and approaches: concurrent (simultaneous) engineering with cross-functional teams (shortens development time and reduces changes later), QFD (house of quality) to translate the voice of the customer into design characteristics, DFM/DFA (design for manufacture and assembly — fewer parts, standard parts, easy assembly), value engineering, modular design and standardisation, rapid prototyping/3-D printing, FMEA for reliability, and life-cycle/eco-design. • About 70–80% of the product's cost is committed at the design stage, so early manufacturing input is the cheapest way to reduce cost.

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The product life cycle (introduction, growth, maturity, decline) also drives process choice and capacity decisions.

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Production/Operations Strategy • Strategy flows from corporate → business → functional (operations) strategy, which must support the competitive priorities: cost, quality, delivery (speed and reliability), flexibility (volume and variety), innovation and service/sustainability.

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Order qualifiers are the minimum requirements to be considered; order winners decide the sale. • Structural decisions: capacity (lead, lag or match strategy), facilities and location, process technology, vertical integration and outsourcing (make or buy).

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Infrastructural decisions: workforce, quality system, production planning and control, organisation, performance measurement. • Process choice and the product-process matrix: project (unique, one-off) → job shop (high variety, low volume, functional layout, general-purpose machines, skilled labour) → batch → mass/assembly line (low variety, high volume, product layout, special-purpose machines) → continuous (cement, chemicals, power); as volume rises, unit cost and flexibility fall. • Interfaces: with marketing (forecasts, delivery promises, product range), with finance (capital investment appraisal, working capital tied in inventory, cost of quality, budgets, ROI and cash flow), with HR (skills, incentives, safety) and with engineering (design and maintenance).

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Operations typically controls most of an industrial firm's assets and costs, so its decisions dominate profitability. • Production planning and control (PPC) functions: forecasting and aggregate planning → routing (sequence of operations) → loading (assigning work to machines) → scheduling (when) → dispatching (authorising work) → expediting/follow-up and corrective control (Chapter 7 covers scheduling and line balancing techniques).

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Manufacturing vs Service Operations Aspect Manufacturing Service Output Tangible, storable Intangible, perishable — cannot be inventoried Customer contact Low — customer not in the system High — customer often participates (co-production) Quality measurement Objective, measurable dimensions Subjective, perception-based (SERVQUAL: reliability, assurance, tangibles, empathy, responsiveness) Capacity and demand Buffered by finished-goods inventory Must match demand in real time (queues, appointments, yield management) Location Near materials, labour or transport Near customers Productivity measurement Straightforward Difficult; heterogeneous output Lean Manufacturing and Six Sigma • Lean (from the Toyota Production System) maximises customer value while eliminating waste (muda).

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The classic wastes are transport, inventory, motion, waiting, overproduction (the worst), over-processing and defects — with unused talent as the eighth; also mura (unevenness) and muri (overburden). • Five lean principles: specify value → map the value stream → create flow → let the customer pull → pursue perfection.

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5S, value stream mapping, kanban/pull, takt time = available time ÷ customer demand, cellular manufacturing and one-piece flow, SMED, poka-yoke, jidoka and andon, standard work, TPM and OEE (availability × performance × quality), kaizen events, visual management. • Six Sigma reduces variation so that defects fall to 3.4 defects per million opportunities (DPMO) — a process mean within ±6σ of the specification limits (allowing a 1.5σ shift).

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DMAIC (Define, Measure, Analyse, Improve, Control) for existing processes and DMADV/DFSS for new ones; organisation of champions, master black belts, black belts and green belts; tools:

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SIPOC, CTQ trees, measurement-system analysis, capability studies, hypothesis testing, DOE, control charts. • Lean Six Sigma combines lean's speed and waste removal with six sigma's variation reduction; both need management commitment, data and trained teams.

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Quality Management Principles • Quality = fitness for use (Juran), conformance to requirements (Crosby), meeting or exceeding customer expectations; dimensions (Garvin): performance, features, reliability, conformance, durability, serviceability, aesthetics, perceived quality. • Gurus:

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Deming (14 points, PDCA cycle, 85–94% of problems are due to the system not the worker, chain reaction);

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Juran (quality trilogy — planning, control, improvement;

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Crosby (zero defects, quality is free, cost of non-conformance);

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Ishikawa (cause-and-effect diagram, quality circles, 7 QC tools);

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Taguchi (robust design, loss function);

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Feigenbaum (total quality control). • TQM: customer focus, total employee involvement, process approach, continuous improvement (kaizen), fact-based decisions, supplier partnership and leadership.

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The seven quality management principles of ISO 9000:2015 are customer focus, leadership, engagement of people, process approach, improvement, evidence-based decision making and relationship management. • Cost of quality: prevention (training, planning, design), appraisal (inspection, testing, calibration) and failure — internal (scrap, rework, downtime) and external (warranty, returns, complaints, loss of reputation — the most expensive).

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Statistical Quality Control (SQC) and SPC • Variation comes from common (chance/random) causes — inherent in the process, requiring management action on the system — and special (assignable) causes — identifiable and removable by local action.

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A process with only common causes is in statistical control (stable); being in control is not the same as being capable. • Control charts (Shewhart): centre line and 3σ control limits.

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X̄ chart (UCL/LCL = X̄̄ ± A2R̄) with R chart (UCL = D4R̄, LCL = D3R̄) or s chart.

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Attribute charts: p (fraction defective, variable sample size), np (number defective, constant sample), c (defects per unit/constant area) and u (defects per unit, variable area).

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Out-of-control signals: a point beyond the limits, runs of 7, trends, cycles or hugging the centre line. • Process capability:

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Cp = (USL − LSL)/6σ (potential) and Cpk = min[(USL − μ), (μ − LSL)]/3σ (actual, accounts for centring);

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Cp ≥ 1.33 is commonly required, Cp = 2 corresponds to six sigma.

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Control limits come from the process; specification limits come from the customer — they must never be drawn on a control chart. • Acceptance sampling: single/double/multiple sampling plans defined by sample size n and acceptance number c; the OC curve shows the probability of acceptance against incoming quality;

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AQL with producer's risk (α) and LTPD with consumer's risk (β);

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AOQ and AOQL. • Seven basic QC tools: check sheet, histogram, Pareto chart (80/20 — the vital few), cause-and-effect (Ishikawa/fishbone) diagram, scatter diagram, control chart, stratification (or flow chart).

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ISO Certification — ISO 9001 and ISO 14001 • ISO 9001:2015 (Quality Management System): requirements built on the high-level structure — context of the organisation, leadership, planning (including risk-based thinking), support, operation, performance evaluation and improvement — operating on the PDCA cycle with a process approach.

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It certifies the management system, not the product. • ISO 14001:2015 (Environmental Management System): identification of environmental aspects and impacts, compliance obligations, objectives and programmes, operational control and emergency preparedness, monitoring, internal audit, management review and continual improvement, with a life-cycle perspective (Chapter 9). • Certification process: management commitment and gap analysis → documentation (policy, objectives, procedures, work instructions, records) → implementation and training → internal audit and management review → certification body Stage 1 (documentation) and Stage 2 (implementation) audits → correction of non-conformities → certificate (normally valid 3 years) with annual surveillance audits and recertification. • Benefits: systematic processes, fewer defects and complaints, market access and customer confidence (often a contractual requirement for exports), better documentation and training.

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Criticisms: paperwork, cost, and the risk of becoming a certificate-collecting exercise if not driven by genuine improvement.

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ISO 45001 (occupational health and safety), ISO 50001 (energy management), ISO 22000 (food safety), ISO/IEC 17025 (testing and calibration laboratories).