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Difficulties or Problems in Measuring Productivity

2013-03-06T07:47:00.001+05:30

Problems in measuring productivity

Following image lists main difficulties or problems in measuring productivity.

Image credits © Prof. Mudit Katyani.

Important challenges or difficulties in measuring productivity:

Difficulty in measuring output,
Difficulty in measuring inputs,
Factorial productivity,
Changing prices of inputs and outputs,
Intangible output of service sector,
Comparison of productivity of different periods,
Difficulty in measuring man-hours, and
Changes in technology.

Now let's discuss these constraints in measuring productivity.

Difficulty in measuring output : The output of an industry may be measured in terms of volume (units) or value (dollars). It is very difficult to combine both these factors.
1. If the output is homogeneous (similar), then the productivity can be measured in terms of volume.
2. If the output is not homogeneous, then the productivity can be measured in terms of value.
3. However, if some units are homogeneous and other non-homogeneous, then the industry will face difficulties in measuring productivity.
Similarly, it is very difficult to find out whether the by-products and work-in-progress should be included in output or not. If it is included, then it is very hard to find its value.
Difficulty in measuring inputs : Most industries do not have proper records of the inputs of land, labor, capital and machines. Even if such records are available, it is very difficult to calculate the exact number of man hours worked i.e. the input of labor.
Factorial productivity :
- Factorial Productivity means to calculate the productivity of different factors of production separately.
- Some management experts say that a single factor of production cannot produce anything by itself. Therefore, it has no productivity. A single factor of production has productivity only if it is combined with other factors of production.
- Therefore, according to these management experts, the concept of factorial productivity is meaningless.
Changing conditions : There is a continuous change in the price of inputs and outputs, quality of raw-materials, machines and tools, quality of labor, etc. All this creates difficulties in measuring productivity.
Service sector : It is very difficult to measure the productivity of service sectors like Banking, Insurance, Education, etc. This is because the output of the service sector is intangible.
Different periods : It is very difficult to compare the productivity of two different periods. For example, comparison of productivity during a war period with a peace period is meaningless.
Difficulty in measuring man-hours : It is difficult to find out the exact number of productive man-hours. This is because wages paid to the employees also includes the cost of idle time.
Technological change : Changes in technology will cause a change in the nature and quality of output. Therefore, measurement of productivity will become difficult.

Nine Main Benefits of Higher Productivity

2013-03-06T07:07:00.000+05:30

Benefits of higher productivity

The following image depicts a list of nine benefits of higher productivity.

Image credits © Prof. Mudit Katyani.

The nine main benefits of higher productivity are:

Higher profit,
Employees welfare,
Better return
Nice relations,
Customer satisfaction,
Good credit rating,
Goodwill,
Better credit terms, and
Low turnover.

Now let's discuss briefly these important benefits of higher productivity.

Higher profit : Higher productivity enables the company to produce more output. This results in more profit to it. This profit can be used for expansion and other activities.
Employees welfare : Higher productivity brings more profit to the company. This profit can be used to provide better facilities and working conditions to the employees. So, it results in welfare of the employees.
Better return : The company gets better return on investment due to higher productivity. So, they pay a better dividend (share of profit) to the shareholders. The market price of the share will also increase.
Nice relations : Higher productivity results in nice relations between the management and the employees. Good working conditions, facilities and incentives motivates employees to give their best to the organization.
Customer satisfaction : Higher productivity results in better customer satisfaction. This is because customers are provided with good-quality products at low prices. Satisfaction of customers will result in their loyalty towards the company.
Good credit rating : Higher productivity results in a good credit rating by financial institutions. This will enable the company to get cheap funds from the market to meet working and fixed capital requirements.
Goodwill : Due to higher productivity, the company will have a good corporate image (goodwill) in the minds of social entities. This includes: The shareholders, government, suppliers, financial institutions, customers, etc.
Better credit terms : Higher productivity helps the company to get better terms from the suppliers. The suppliers may give better credit terms due to its goodwill.
Low turnover : Higher productivity enables the company to provide better facilities and working conditions to the employees. This will make the employees loyal. Hence, employee turnover and absenteeism will reduce.

Explain Need or Importance of Location Planning

2013-03-06T06:11:00.001+05:30

Importance of location planning

Location planning decisions are very important for all types of business units. This is because it affects the cost, selling price, and demand of the product. It is a non-recurring heavy expenditure. Large companies take the help of different professionals like lawyers, accountants, environmentalist, etc. for selecting the proper location of plant.

Following image lists 8 points that bring out importance of location planning.

Image credits © Prof. Mudit Katyani.

There is a need or importance of location planning because it aids in:

Expansion,
Cost advantages,
Discovery of raw-material,
Additional facilities,
Mergers,
Political and social changes,
Increasing product demand, and
Avail tax benefits.

Now let's discuss above points highlighting importance of location planning.

Expansion : If the company wants to expand and diversify its activities, it will have to search for a new-location for setting up its new business unit. In this case, it will need a location planning.
Cost advantages : If an existing plant is not near a market place, it will increase the transport cost. This will also increase the cost of the product. So, to avoid this, the company will search for a new plant location which is near the market. Such location of plant must be convenient to the employees and must have a regular supply of water and electricity. Overall, this will result in reduction of the cost of production.
Discovery of raw-material : Generally, a plant must be located at a place where raw-material is available. For example, if oil and gas are found at some place, then a new petrochemical plant has to be set up there for processing purpose.
Additional facilities : Plant location-related decisions will have to be taken if the organization wants additional facilities. New facilities may be necessary to improve the quality of work, to meet rising demands, etc.
Mergers : Mergers, joint-ventures, and Amalgamations may lead to start a new unit at a new-location. It may even require closure of an existing plant unit. In mergers, production is mostly started at a new place as per the new-agreement.
Political and social changes : Each political party has its own philosophy. Political changes can lead to changes in economic policies of the government. This may make the existing location unattractive for doing business. Social changes may require production of eco-friendly goods. This may require a change in location.
Increasing product demand : Demand for the company's product may increase at other places, especially in abroad countries. So, the company will have to start a branch in another state or in foreign countries. This would lead to a search for new location of plant.
Avail tax benefits : Government may announce some tax benefits for starting a business in rural areas. This may motivate entrepreneurs to start their business units in remote areas.

Eight Important Factors that Affect Productivity

2013-03-06T05:20:00.000+05:30

Factors that affect productivity

The following chart shows eight factors that affect productivity.

Image credits © Prof. Mudit Katyani.

The eight main factors that affect productivity are:

Technical factors,
Production factors,
Organizational factor,
Personnel factors,
Finance factors,
Management factors,
Government factors, and
Location factors.

Now let's discuss briefly above listed important factors that affect productivity.

Technical factors : Productivity largely depends on technology. Technical factors are the most important ones. These include proper location, layout and size of the plant and machinery, correct design of machines and equipment, research and development, automation and computerization, etc. If the organization uses the latest technology, then its productiveness will be high.
Production factors : Productivity is related to the production-factors. The production of all departments should be properly planned, coordinated and controlled. The right quality of raw-materials should be used for production. The production process should be simplified and standardized. If everything is well it will increase the productiveness.
Organizational factor : Productivity is directly proportional to the organizational factors. A simple type of organization should be used. Authority and Responsibility of every individual and department should be defined properly. The line and staff relationships should also be clearly defined. So, conflicts between line and staff should be avoided. There should be a division of labor and specialization as far as possible. This will increase organization's productiveness.
Personnel factors : Productivity of organization is directly related to personnel factors. The right individual should be selected for suitable posts. After selection, they should be given proper training and development. They should be given better working conditions and work-environment. They should be properly motivated; financially, non-financially and with positive incentives. Incentive wage policies should be introduced. Job security should also be given. Opinion or suggestions of workers should be given importance. There should be proper transfer, promotion and other personnel policies. All this will increase the productiveness of the organization.
Finance factors : Productivity relies on the finance factors. Finance is the life-blood of modem business. There should be a better control over both fixed capital and working capital. There should be proper Financial Planning. Capital expenditure should be properly controlled. Both over and under utilization of capital should be avoided. The management should see that they get proper returns on the capital which is invested in the business. If the finance is managed properly the productiveness of the organization will increase.
Management factors : Productivity of organization rests on the management factors. The management of organization should be scientific, professional, future-oriented, sincere and competent. Managers should possess imagination, judgement skills and willingness to take risks. They should make optimum use of the available resources to get maximum output at the lowest cost. They should use the recent techniques of production. They should develop better relations with employees and trade unions. They should encourage the employees to give suggestions. They should provide a good working environment, and should motivate employees to increase their output. Efficient management is the most significant factor for increasing productiveness and decreasing cost.
Government factors : Productivity depends on government factors. The management should have a proper knowledge about the government rules and regulations. They should also maintain good relations with the government.
Location factors : Productivity also depends on location factors such as Law and order situation, infrastructure facilities, nearness to market, nearness to sources of raw-materials, skilled workforce, etc.

Difference Between Intermittent & Continuous Production System

2013-02-27T03:05:00.000+05:30

Difference between Intermittent and Continuous Production System

Difference between intermittent and continuous production system; based on 10 points.

Image credits © Prof. Mudit Katyani.

Nature of product.
Flexibility of process.
Scale of production.
Per unit cost.
Range of products.
Instructions.
Staff.
Storage of final products.
Location change.
Capital invested.

Now let's distinguish intermittent and continuous production system.

Nature of product :
1. In intermittent production system, goods are produced based on customer orders and not for stocking.
2. In continuous production system, goods are produced based on demand forecast and for stocking.
Flexibility of process :
1. In intermittent production system, production process is flexible. The product design goes on changing.
2. In continuous production system, production process is not flexible. It is standardized. The same product is manufactured continuously.
Scale of production :
1. In intermittent production system, goods are produced on a small scale, so there is no economies of scale.
2. In continuous Production System, goods are produced on a large scale, so there are economies of large-scale production.
Per unit cost :
1. In intermittent production system, cost per unit may be higher because production is done on a small-scale.
2. In continuous production system, cost per unit may be lower because production is done on large-scale.
Range of products :
1. In intermittent production system, wide ranges of products are manufactured.
2. In continuous production system, normally one particular type of product is manufactured.
Instructions :
1. In an intermittent production system, many detailed instructions must be provided depending upon the customer's specification.
2. In continuous production system, single set of instructions is sufficient for operation. Here, there is no need to repeat the instructions.
Staff :
1. Intermittent production system requires staff with high technical skills and abilities.
2. Continuous production system requires more managerial skills and less technical skills.
Storage of final products :
1. In an intermittent production system, there is no need to store and stock the final products, because items are produced as per customer's orders.
2. In a continuous production system, there is a need to store and stock the final products until they are demanded in the market.
Location change :
1. In an intermittent production system, change in location is easy.
2. In a continuous production system, change in location is difficult.
Capital invested :
1. In an Intermittent production system, capital invested is small.
2. In a continuous production system, capital invested is very huge.

Steps Procedure of Routing in Production

2013-02-27T01:33:00.001+05:30

Steps or Procedure of Routing in Production

Following image depicts main steps or procedure of routing in production.

Following important steps are involved in the procedure of routing:

Product analysis determines what to manufacture and purchase.
Product-analysis is done again to determine materials required for production.
Fix the manufacturing operations and their sequences.
Decide the number of units to be manufactured in a batch (lot).
Estimate the margin of scarp in each lot of production.
Analyze the production cost.
Prepare production control forms for effective routing.
Prepare a separate route-sheet for each order.

Now let's discuss above steps in routing.

1. Product analysis

Product analysis is the first step in the routing procedure. This is done to find out what parts (goods) should be manufactured and what parts should be purchased. This depends mainly on the relative cost. It also depends on other factors such as technical consideration, purchase policies, availability of personnel, availability of equipment, etc. Generally, during less-busy periods; most of the parts are manufactured in the factory. However, during the busy period, many parts are purchased from outside.

2. Determine required materials

Product-analysis is done again to find out what materials are required for production and their quantity and quality.

3. Fix manufacturing operations

The next step in the routing procedure is to fix (decide) the manufacturing operations and their sequences. The detailed production procedure is then scheduled (planned). Information required for this is derived from technical experience and by analyzing the machine capacity.

4. Determine size of batch

The number of units to be manufactured in any one lot (group or batch) should be decided. This is done concerning customers' orders. Necessary provision should also be made for rejections during the production process.

5. Estimate margin of scrap

The amount of scrap in each lot, should be estimated. Generally, a scrap margin is between 2% to 5% of production.

6. Analyze the production cost

Estimating the cost of manufactured goods is actually the function of costing department. However, the routing section provides necessary data to the costing department that enables it to analyze the production cost.

7. Prepare production control forms

Production Control forms such as Job Cards, Inspection Cards, Tool Tickets, etc. should be prepared. These forms should contain complete information for effective routing.

8. Prepare route sheet

Route sheet is prepared on a production control form. It shows the part number, description of the part and the materials required. It is prepared by a route clerk. Separate route-sheet is required for each part of a customer's order.

Stages Steps in Production Planning and Control

2013-02-27T01:00:00.001+05:30

Steps in Production Planning and Control

According to the British Standards Institute, there are four stages, steps, techniques or essentials in the process of production planning and control.

The four stages or steps in production planning and control are:

Routing,
Scheduling,
Dispatching, and
Follow-up.

Initial two steps i.e. Routing and Scheduling, relate to production planning.

Last two steps i.e. Dispatching and Follow-up, relate to production control.

Now let's continue our discussion further to understand each step in detail.

1. Routing

Routing is the first step in production planning and control.

Routing can be defined as the process of deciding the path (route) of work and the sequence of operations.

Routing fixes in advance:

The quantity and quality of the product.
The men, machines, materials, etc. to be used.
The type, number and sequence of manufacturing operations, and
The place of production.

In short, routing determines ‘What’, ‘How much’, ‘With which’, ‘How’ and ‘Where’ to produce.

Routing may be either very simple or complex. This depends upon the nature of production. In a continuous production, it is automatic, i.e. it is very simple. However, in a job order, it is very complex.

Routing is affected by the human factor. Therefore, it should recognize human needs, desires and expectations. It is also affected by plant-layout, characteristics of the equipment, etc.

The main objective of routing is to determine (fix) the best and cheapest sequence of operations and to ensure that this sequence is followed in the factory.

Routing gives a very systematic method of converting raw-materials into finished goods. It leads to smooth and efficient work. It leads to optimum utilization of resources; namely, men, machines, materials, etc. It leads to division of labor. It ensures a continuous flow of materials without any backtracking. It saves time and space. It makes the work easy for the production engineers and foremen. It has a great influence on design of factory's building and installed machines.

So, routing is an important step in production planning and control. Production planning starts with it.

Read article on procedure of routing in production.

2. Scheduling

Scheduling is the second step in production planning and control. It comes after routing.

Scheduling means to:

Fix the amount of work to do.
Arrange the different manufacturing operations in order of priority.
Fix the starting and completing, date and time, for each operation.

Scheduling is also done for materials, parts, machines, etc. So, it is like a time-table of production. It is similar to the time-table, prepared by the railways.

Time element is given special importance in scheduling. There are different types of schedules; namely, Master schedule, Operation schedule and Daily schedule.

Scheduling helps to make optimum use of time. It sees that each piece of work is started and completed at a certain predetermined time. It helps to complete the job systematically and in time. It brings time coordination in production planning. All this helps to deliver the goods to the customers in time. It also eliminates the idle capacity. It keeps labor continuously employed.

So, scheduling is an important step in production planning and control. It is essential in a factory, where many products are produced at the same time.

3. Dispatching

Dispatching is the third step in production planning and control. It is the action, doing or implementation stage. It comes after routing and scheduling.

Dispatching means starting the process of production. It provides the necessary authority to start the work. It is based on route-sheets and schedule sheets.

Dispatching includes the following:

Issue of materials, tools, fixtures, etc., which are necessary for actual production.
Issue of orders, instructions, drawings, etc. for starting the work.
Maintaining proper records of the starting and completing each job on time.
Moving the work from one process to another as per the schedule.
Starting the control procedure.
Recording the idle time of machines.

Dispatching may be either centralized or decentralized:

Under centralized dispatching, orders are issued directly by a centralized authority.
Under decentralized dispatching, orders are issued by the concerned department.

4. Follow-up

Follow-up or Expediting is the last step in production planning and control. It is a controlling device. It is concerned with evaluation of the results.

Follow-up finds out and removes the defects, delays, limitations, bottlenecks, loopholes, etc. in the production process. It measures the actual performance and compares it to the expected performance. It maintains proper records of work, delays and bottlenecks. Such records are used in future to control production.

Follow-up is performed by ‘Expediters’ or ‘Stock Chasers’.

Follow-up is necessary when production decreases even when there is proper routing and scheduling. Production may be disturbed due to break-downs of machinery, failure of power, shortage of materials, strikes, absenteeism, etc.

Follow-up removes these difficulties and allows a smooth production.

Functions of Production Planning and Control - Importance

2013-02-27T00:34:00.002+05:30

Functions of Production Planning and Control

Functions of production planning and control are listed and explained below.

The importance or functions of production planning and control:

Utilizes resources effectively.
Makes flow of production steady.
Estimates production resources.
Maintains necessary stock levels.
Coordinates departmental activities.
Minimizes wastage of resources.
Improves labor efficiency.
Helps to face competition.
Provides better work environment.
Facilitates quality improvement.
Customer satisfaction.
Reduces production costs.

Now let's discuss above listed functions of production planning and control.

1. Utilizes resources effectively

Production planning and control result in effective utilization of plant capacity, equipment and resources.
It results in low-cost and high-returns for the organization.

2. Makes flow of production steady

Production planning and control ensure a regular and steady flow of production.
All machines are put to their optimum use.
This helps in achieving a continuous production of goods.
This also helps to provide a regular supply of goods to consumers.

3. Estimates production resources

roduction planning and control help to estimate the resources like men, materials, machines, etc.
The estimate is made based on sales forecast.
So, production is planned to meet sales requirements.

4. Maintains necessary stock levels

Production planning and control prevent over-stocking and under-stocking of materials.
Necessary stocks are maintained.
Stock of raw-material is maintained at a proper level in order to meet production demands.
Stock of finished goods is also maintained to meet regular demands from customers.

5. Coordinates departmental activities

Production planning and control helps to co-ordinate the activities of different departments.
Consider, for an example, the marketing department co-ordinates with production department to sell the goods.
This results in profit to the organization.

6. Minimizes wastage of resources

Production planning and control ensure proper inventory of raw-materials and effective handling of materials.
This helps to minimize the wastage of raw materials.
It also ensures production of quality goods. This results in minimal rejects.
So, it results in minimum wastage.

7. Improves labor efficiency

There is maximum utilization of manpower.
Training is provided to the workers.
The profits are shared with the workers in form of increased wages and other incentives.
Workers are motivated to perform their best. This results in improved labor efficiency.

8. Helps to face competition

Production planning and control help to give delivery of goods to customers in time.
This is because of regular flow of quality production.
So, the company can face competition effectively, and it can capture the market.

9. Provides better work environment

Production planning and control provide a better work environment to workers.
They get better work facilities, proper working hours, leave and holidays, increased wages and other incentives.

10. Facilitates quality improvement

Production planning and control facilitate quality improvement because the production is checked regularly.
Quality consciousness is developed among the employees through training, suggestion schemes, quality circles, etc.

11. Customer satisfaction

Production planning and control help to give a regular supply of goods and services to consumers at competitive market price.
This results in customer satisfaction.

12. Reduces production costs

Production planning and control make optimum utilization of resources, and it minimizes wastage.
It also maintains an optimal level of inventories.
Overall, this reduces the production costs.

Relationship Between Production Planning and Control

2013-02-27T00:26:00.000+05:30

Relationship Between Production Planning and Control

Production planning and control are closely related to one another. They go hand in hand and are supplementary in character.

Ten points explain the relationship between production planning and control:

Image credits © Prof. Mudit Katyani.

Meaning.
Goals.
Course of action.
Work performance.
Operations.
Resources.
Directions.
Weaknesses.

Let's discuss “How production planning and control are related?”

1. Meaning

According to Ray Wild,

“Production planning is concerned with the determination, acquisition and arrangement of all facilities necessary for future operations.”

Fixing goals of production and estimating resources required to achieve this goal is called production planning. It forecasts individual step in the production process. It helps to achieve production goals effectively, promptly and economically.

According to James Lundy,

“The production control function involves the co-ordination and integration of the factors of production for optimum efficiency.”

Production control is done after production planning. It implements the production plan. It directs, co-ordinates and controls the production. It helps to achieve the production goals. It helps to have maximum production at minimum cost. It also helps to have timely delivery of goods.

2. Goals

Production planning fixes the goals for production.
Production control achieves these goals.

3. Course of action

Production-planning fixes the plans, strategies, etc.
Production control puts these plans, strategies, so on; into action, i.e. it implements the plans, strategies, etc.

4. Work performed

Production planning decides who should do the work and when.
Production control ensures that each department complete its work on schedule.

5. Operations

Production planning decides the operations which are required for production.
Production control regulates and supervises the operations required for production.

6. Resources

Production planning estimates the resources that are required for production.
Production control makes available resources that are required for production.

7. Directions

Production planning shows the directions.
Production control follows these directions.

8. Weaknesses

Production-planning makes modifications (changes) in the production plans to remove the weakness in the production process.
Production control collects information about the production process. It finds out the weaknesses in the production process and informs the production planners about it.

Conclusion

The process of production planning and control is a continuous one. Since, control starts where planning ends and planning starts where control ends.

What is Productivity? Definition Meaning

2013-02-26T20:18:00.001+05:30

What is Productivity? Definition ↓

According to Peter Drucker,

“Productivity means the balance between all factors of production that will give the greatest output for the smallest effort.”

The meaning of productivity is shown in the following diagram.

Image credits © Prof. Mudit Katyani.

Meaning of Productivity ↓

Productivity is the relationship between output and input. It is expressed or measured as a ratio of output and input.

Productivity equals output divided by input.

Two simple examples of productivity measurement:-

Productivity of a manufacturing unit can be measured in terms of the number of goods-produced in some fixed amount of time (usually in hours).
Generally, in service industry, productivity is measured in terms of income generated by an employee for his or her's organization.

Nowadays, organizations give more importance to productivity and less importance to efficiency.

Higher productivity indicates the following:-

Best utilization of the available human and material resources.
Minimum wastage and losses of materials.
Quantitative and qualitative production of goods at lower cost.

Guidelines for Determining Performance Dimensions

2013-02-09T20:05:00.002+05:30

Guidelines for determining performance dimensions

Guidelines for determining performance dimensions are depicted below.

The dimensions of performance must be as follows:

Performance dimensions (Quantity & Quality) must be fixed in advance.
Dimensions must be clearly defined and easily understood by employees.
They must be consistent with the image or goodwill of the company.
Quality standards must be laid down even for inputs.
Workers must be properly trained about performance dimensions of company.
Mission statement and philosophy of an organization must include it.

Now let's discuss guidelines for determining performance dimensions.

1. Fixed in advance

Performance dimensions about quality and quantity must be specified or fixed in advance. This will guide the employees because they know exactly how much quality and quantity of output they have to produce individually and collectively, before they start making the goods.

2. Clear and easy to understand

The shape, size, quality, weight, etc. must be clearly defined. It must be simple and easy to understand for the employees who will implement it. Implementation will be effective only if the employees understand the performance dimension.

3. Consistent with image

Performance dimensions, whether quantity or quality depends on the image or goodwill of the company.

For example, a mineral water company focuses on quality by highlighting the seal of the cap nf the bottle to remove doubts that the bottle may be refilled.

4. Quality standards for inputs

If the performance dimensions for output have to be achieved it is necessary to fix standards for inputs. The suppliers must be informed about the quality standard for raw material.

5. Training of performance dimensions

It is necessary to train the workers about performance dimensions of the company. This will help them to work effectively towards achieving organizational and individual goals.

6. Must be in mission statement

Performance dimensions must be included in the mission statement and philosophy of the organization.

For example, a mission statement of a college can focus on providing good quality of education. This must be shown in the policies, programs, courses, etc. of the college.

Classification of Performance Dimensions - Quantity Quality

2013-02-09T20:03:00.000+05:30

Classification of Performance Dimensions

A dimension is a measurable extent of any kind. It is usually measured in terms of various extends like shape, size, quality and quantity.

The performance dimensions can be classified into following:

Quantity - which is the primary dimension of performance.
Quality - which is the secondary dimension of performance.

Image below depicts this classification of performance dimensions.

Image credits © Prof. Mudit Katyani.

1. Quantity is Primary Dimension of Performance

Quantity of output is the primary dimension of performance.

Examples of “How primary dimension (Quantity) is measured?”:

Manufacturing unit : A primary dimension for a manufacturing unit is the quantity of output produced within a given time period. Higher the output more is the efficiency of workers.
Company : A primary dimension of quantity can also be applied to a measure company’s efficiency. For example, a car manufacturing company may fix the performance dimension of producing at least 10 cars in a day. If the output is more than 10 cars, then the company is considered to be operating efficiently.
Service sector : In a service sector, it is difficult to fix such a standard because here it is hard to measure performance in terms of quantity. However, it can be expressed as the number of customers served. For example, a hotel can measure its performance by finding out how many customers it serves daily.

2. Quality is Secondary Dimension of Performance

Quality of output is the secondary dimension of performance.

If most of the output is made as per the quality standards, then the quality of output is good.

Quality standards are expressed as a percentage of units that are allowed as defective.

Companies that want a Six Sigma standard must see that not even three units in a million are defective.

With competition increasing day by day, companies are giving a lot of importance to the quality of the product. By giving warranty/guarantee for their products, companies are using quality as a sales promotion tool.

Companies must use modern techniques to improve their product quality. They must provide better value for the consumer's money by focusing on the quality of their products.

Advantages and Disadvantages of Work Sampling Method

2013-02-09T19:59:00.001+05:30

Advantages of Work Sampling

The benefits or advantages of work sampling method are as follows:

Image credits © Prof. Mudit Katyani.

Work sampling gives an unbiased result since workmen are not under close observation.
A work sampling study may be interrupted at any time without affecting the results.
Work sampling can be conducted by anyone with limited training. There is no need to have experts.
Team work can be studied by work sampling and not by the time-study.
Work sampling is economical and less time-consuming than time study. This is because more than one worker can be studied at the same time. Secondly, observer needs not to be present himself for a long time.

Disadvantages of Work Sampling

The limitations or disadvantages of work sampling method are as follows:

Image credits © Prof. Mudit Katyani.

Work sampling is not economical for short cycle jobs. It is also uneconomical to study a single worker or even small group of workers.
Unlike time study, it does not allow a small breakdown of activities and delays.
Working men may change their normal method of working when they see an observer. Therefore, the results from the work study may not be accurate.
In work sampling method, the observations are limited or insufficient. So, the results may not be accurate.
This method normally does not record the workers' speed of working.

Work Measurement Techniques Methods Types

2013-02-09T19:55:00.001+05:30

Work Measurement Techniques

Image depicts different work measurement techniques, methods or types.

Work measurement techniques are listed below:

Historical data method - It uses the past performance data to set performance standards.
Time study - It uses stop watch and is best suited for short-cycle repetitive jobs.
Work sampling - Here, workers are observed many times at random.
Synthesis method - Here, the full job is divided into element or parts.
Predetermined motion time system (PMTS) - Here, normally, three times are fixed for one job namely; normal, fast, and very-fast.
Analytical estimating - It is used for fixing the standard time for jobs, which are very long and repetitive.

Now let’s discuss more above techniques of work measurement.

1. Historical data method

Historical data method uses the past-performance data. Here, past performance is used as a guideline for setting work performance standards. The main advantage of this technique is that it is simple to understand, quicker to estimate and easier to implement. However, past performance is not the best basis for fixing performance standards. This is because there may be many changes in technology, employees’ behavior, abilities, etc.

2. Time study

Time study with the help of a stop watch is the most commonly used work measurement method. This technique was developed by Frederick Winslow Taylor (1856-1915).

Time study is best suited for short-cycle repetitive jobs. Most of the production jobs can be easily timed by a time-study.

Time study procedure consists of the following steps:

Select the job to be timed.
Standardize the method of doing the job.
Select the worker to be studied.
Record the necessary details of the job and conditions of work.
Divide the job into elements. Here, ’element’ is a part of the job.
Find out the time taken to do every single element.
Keep provisions for relaxation, etc.
Fix the standard time for doing the job.

3. Work sampling

Work sampling method was original developed by Leonard Henry Caleb Tippett (1902-1985) in Britain in 1934. In this technique, the workers are observed many times at random. It is done to find out for how much time the worker is actually on the job. It checks how long he is working and how much time he is not working (idle time).

Work sampling method does not involve stop watch measurement. The purpose of work sampling technique is to estimate what proportion of a worker’s time is devoted to work-related activities.

Work sampling method involves following three main steps:

Deciding what activities are defined as ’working’. Non-working are those activities which are not defined as working.
Observe the worker at selected intervals and record (write down) whether he is working or not.
Calculate the portion of time (P), a worker is working.

A portion of time (P) a worker is working equals to ’Number of observations during which working occurred’ divided by ’Total Number of observations.’

The above calculation is used as a performance standard.

To know more, read advantages and disadvantages of work sampling.

4. Synthesis method

In synthesis method, the full job is first divided into elements (parts). Then the time taken to do each element of the job is found out and synthesized (totaled). This gives the total time taken for doing the full job. In this technique, the time taken to do each element of the job is found out from previous time studies. So, this technique gives importance to past-time studies of similar jobs. It also uses standard data.

Standard-data is the normal time taken for doing routine jobs. Standard data is easily available for routine-jobs like fitting screws, drilling holes, etc. So there is no need of calculating these times repeatedly. Most companies use Standard-data. They do not waste time doing studies for all elements of the job. This is because standard time is already available for most elements of a job.

For example, a job of publishing a book contains four elements viz; typing, editing, printing and binding. The time taken for doing each element is first found out. Suppose, typing takes 40 days, editing takes 30 days; printing takes 20 days and binding takes 10 days. Then the time taken to do all the elements are totaled. That is, it takes 40 + 30 + 20 + 10 = 100 days to publish a book. This information is taken from previous time studies of other printing jobs or from the standard data.

Synthesis technique also considers the level of performance. Level of performance refers to the speed of performance, which is either, normal, fast, or very-fast.

The benefits or advantages of synthesis method:

It provides reliable information about standard time for doing different jobs. This is because it is based on many past time studies.
It is economical because there is no need to conduct new time studies.

5. Predetermined motion time system

In ’Predetermined Motion Time System’ method or simply PMTS technique, the normal times are fixed for basic human motions. These time values are used to fix the time required for doing a job. Normally, three times are fixed for one job. That is, one time is fixed for each level of performance. The level of performance may be normal, fast and very-fast.

PTMS is better than motion studies because it gives the detailed analysis of the motion, and it fixes the standard time for doing that motion.

PTMS technique is used mostly for jobs, which are planned for future. However, it can also be used for current jobs as an alternative to time study.

The benefits or advantages of PMTS method:

It is a very accurate method. It avoids subjective judgement or bias of rater.
It is an effective and economical method for repetitive jobs of short duration.
There is no interference in the normal work routine, and so it does not face any resistance from the employees.
It helps to improve the work methods because it gives a detailed analysis of the motions.
It is more economical and fast compared to normal time studies.

6. Analytical estimating

Analytical estimating method or technique is used for fixing the standard time for jobs, which are very long and repetitive. The standard-time is fixed by using standard-data. However, if standard data is not available, then the standard time is fixed based on the experience of the work-study engineer.

The benefits or advantages of analytical estimating technique:

It helps in planning and scheduling the production activities.
It provides a basis for fixing labor rate for non-repetitive jobs.
It is economical because it uses standard data for fixing the standard time of each job.

One disadvantage or limitation of analytical estimating method:

When standard-data is not available for a job, then the standard time is fixed by the work-study engineer. He uses his experience and judgement for estimating the standard-time. This is not accurate compared to a scientific time study.

So, these are different techniques of work measurement.

Work Measurement - Definition Meaning Purpose Objectives

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Definition of Work Measurement

According to International Labour Organization

“Work measurement is the application of techniques designed to establish the time taken for a qualified worker to carry out a specified job (task) at a defined level (rate) of performance.”

International Labour Organization (ILO) stated this important definition of work measurement in its publication.

Now let's proceed to know the meaning of work measurement.

Meaning of Work Measurement

The meaning of work measurement is mainly based on three key steps.

Work measurement means to:

Find out the different elements (parts) of the production process (job).
Find out the time taken by each element.
Fix the standard time for performing the production process.

For example, publishing a book is a production process. There are many elements, which are involved in the publication of a book. In other words, book publication involves production steps like typing a manuscript, editing the written matter, proof reading it, followed by printing and binding.

Work measurement involves finding out the time taken for doing each element. The time taken for each element is totaled. This is the standard time for publishing the book. Here, provisions are also made for relaxation, breakdown of machines, etc.

Purpose of Work Measurement

The uses, importance, objectives or purpose of work measurement data:

The main purpose of work measurement:

Manpower planning.
Production planning and scheduling.
Estimating productions costs.
Cost reduction and control.
Rational basis for incentives.
Performance appraisal.
Training of employees.
Comparing alternative methods.
Accepting new orders.
Fixing the selling cost.

Now let's discuss, "What work measurement is used for?"

1. Manpower planning

Work measurement data is used for manpower planning. This is because it gives information about the total hours required to perform the job. This helps to estimate the number and type of employees who are required to do the job. It ensures that there will not be any excess staff.

Work measurement data also helps to estimate the number of machines and equipment that will be required in the future. This helps to find out the number of employees who will be required to handle these machines and equipment.

2. Production planning and scheduling

Work measurement data is used for production planning and scheduling. This is because this data is used for making production standards. This data is also used for scheduling. Scheduling means to fix starting and finishing time for each job. This cannot be done without work measurement data.

3. Estimating productions costs

Work measurement data helps to estimate the production cost. This is because it gives management accurate data about production time. This data helps to estimate the labor costs. Secondly, indirect costs such as fuel and power consumption, rent and salaries of staff, etc. also depends on the production time factor.

4. Cost reduction and control

Work measurement data is used to reduce and control costs. It helps to reduce the labor cost. This is because it provides a guideline to the employees to work efficiently and effectively. This helps to make optimum use of the available manpower. So the labor cost will reduce.

Work measurement data helps to reduce material costs. It also helps to increase machine productivity. All these steps help to reduce and control production costs.

5. Rational basis for incentives

Work measurement data is used for making incentive schemes for the employees. Incentive schemes motivate employees to work hard. The efficient employees are rewarded by giving them a higher wage rate.

Work measurement fixes the standard-time for doing the work. Those who complete their work within a standard time or faster than the standard-time are rewarded with higher wages. This encourages all employees to work fast and efficiently.

6. Performance appraisal

Performance appraisals are done to find out whether the employees are efficient or not. It is done to find strengths & weaknesses of employees.

Work measurement helps to do performance appraisals. This is because it fixes the standard-output and standard-time for each employee. The employees who produce the standard-output within the standard-time are efficient and vice versa. Thus, it also helps to find out the strengths and weaknesses of the employees.

7. Training of employees

Work measurement helps to train the employees, especially the new employees. It divides the full job into small elements (parts). It gives complete details about each element of the job. It gives details about; how to do each element, the time taken for each element, the machines and tools involved in each element, etc. These details are used for training the employees.

8. Comparing alternative methods

There are many methods for doing a job. Work measurement data helps to choose the best method for doing a job.

9. Accepting new orders

Work measurement data tells us when will each job be completed. So, it helps the company to decide whether to accept new orders or not. In other words, it helps to find out whether the new-order will be completed within a specific time limit.

10. Fixing the selling cost

Work measurement data also helps to fix the selling cost of product. This is because it estimates the cost of production, especially the labor cost. Selling cost is decided after fixing the estimated production cost.

Standards Required at Various Levels of Production

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Standards Required at Various Levels of Production

Standards are fixed at various levels of production. This is done to ensure some minimum expected output in the production process. Standards are established to maintain a production efficiency. These help to optimally utilizing various factors of production and achieve some fixed amount of output in terms of both; quality and quantity.

Important standards required at various levels of production are listed below.

Individual Standards.
Departmental Standards.
Plant Standards.

Following points discuss these standards in detail.

1. Individual Standards

Individual standard is the output expected from an average-worker under average working conditions for a given period of time.

Generally, individual standards are fixed for all employees in the organization, especially at the lowest level.

The individual standard of a worker is the output which he must produce in a fixed period of time. In other words, it is the time given to him for producing one unit of output.

For example, a performance standard may be four units per hour or 15 minutes per unit. Both are the same. So, a worker who is doing packing-work may be asked to pack four products per hour. In other words, he is given 15 minutes to pack a single product.

Therefore, an individual standard is a fixed number of products, which must be generated by a worker in a fixed-period. That is, it is the fixed-output of the worker per unit of time.

Individual standard also has other names like labor standard, employee standard, employee time standard, or time standard.

The concept of individual standards in terms of production is depicted below.

Image credits © Prof. Mudit Katyani.

2. Departmental Standards

The company is divided into different departments. Each department is given a specific function or work to do. Standards are fixed for each department. Here, standards are fixed for quantity of output, quality of output, costs of output, etc.

A department consists of some individuals. Departmental standards are fixed by adding individual standards of each member of the department. A department's performance is judged based on these fixed standards.

For example: Assume, the standard output of the production department is 1000 units per day. If the production department produces exactly 1000 units per day, then it is 100% efficient. If it produces more than 1000 units, its efficiency is greater than 100%. If it produces less than 1000 units, then its efficiency is below 100%.

The manager of the department is responsible for getting the work done from his workers. He must see that all the work is done in accordance with departmental standards. He must see that all his department's objectives are achieved. He must try his level best to improve the team spirit in his department. He must also improve the co-ordination and co-operation in his department.

Concept of departmental standards in production terms is depicted below.

Image credits © Prof. Mudit Katyani.

3. Plant Standards

Plant standards are fixed for an entire plant or a factory. A plant is a place or location where goods are produced and/or assembled. It consists of that place where machines, equipments, materials and workers interact with each other, directly or indirectly, with an intention to produce goods.

Plant standards are fixed for:

Total output in quantitative and qualitative terms.
Various cost in the production process.

The output depends on the level of technology, the type of employees and the estimated demand for the product.

Plant standards mean to fix the output to be produced for a given period. Here, both quantitative and qualitative output is fixed. The pant standard must be realistic. In other words, it must not be very high or too low. Generally, it is based on the output produced in the past. However, necessary adjustments are made for future demand of the product.

Various costs are involved in the production of goods, namely;

Labor costs.
Material costs.
Overhead costs.

Plant-standards also mean to fix the standard labor, material and overhead costs. After manufacturing a product, the actual labor, material and overhead-costs are compared with the standard-costs. After comparison, the difference found is noted down. Further, the reasons why this difference occurred are also looked upon. After this, the difference is corrected to minimize the cost in the future. Every organization wants to reduce its costs. However, costs reduction must never be done by compromising the quality of the produced goods.

The concept of plant standards in terms of production is depicted below.

Image credits © Prof. Mudit Katyani.

Methods of Conducting a Marketing Audit

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Methods of Conducting a Marketing Audit

Marketing audit is an examination of the marketing activities of company. It must be conducted by impartial persons.

Auditors must be properly qualified, trained and experienced enough to do the audit. They must have a complete knowledge and exposure of marketing.

Image below depicts the methods of conducting a marketing audit.

Following methods are used to conduct a marketing audit:

Outside auditor : Company appoints an outside auditor to conduct a marketing audit.
Task force audit : Company selects a team of its own senior executives to conduct a marketing audit.
Self audit : In this method, marketing manager of a company conducts a marketing audit.
Audit from above : Here, a senior executive of company (for example, a Director) is appointed to conduct a marketing audit.

Now let's discuss, “How is marketing audit conducted?”

1. Outside auditor

In this method, the company can appoint an outside auditor to conduct a marketing audit. An outside-auditor must be professional, a consultant or an agency.

Outside auditors conduct marketing audits for many companies. They have enough skills and experience. They are also more independent, impartial and objective oriented. They give good suggestions for improvement.

Therefore, it is better to use an outside auditor.

Auditor studies information and submits a report to the company. The company has to pay him fees for his services.

2. Task force audit

In ‘Task Force Audit’ method, the company appoints a team of its own executives for conducting a marketing audit. These executives are highly experienced. They conduct the marketing audit independently. They submit their report to the top level of management.

3. Self audit

In ‘Self Audit’ method, the company appoints the marketing manager to conduct a marketing audit. Here, the marketing manager has to conduct a marketing audit himself. This is called self-audit. He has to critically-examine the marketing performances. He has to find out the plus and minus points. Then he has to submit his report to top level of management.

Self audit must be conducted impartially by the marketing manager.

4. Audit from above

In ‘Audit From Above’ method, the company appoints a senior executive to conduct a marketing audit. This executive is mostly a director or a person who has complete knowledge about marketing. This is a type of internal audit.

It is always better to use an outside auditor for conducting a marketing audit. Internal methods have many limitations and hence must be avoided.

Scope, Areas or Types of Marketing Audit

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Scope, Areas or Types of Marketing Audit

There are no fixed guidelines regarding the scope, areas or types of marketing audit. In other words, the scope of marketing audit is not fixed. It changes from company to company. Each company can make its own marketing audit plan. However, the scope of marketing audit must include the following areas or types:

The six important types of marketing audit are:

Marketing Environment Audit.
Marketing Strategy Audit.
Marketing Organization Audit.
Marketing Systems Audit.
Marketing Productivity Audit.
Marketing Function Audit.

Now let's discuss each main area or type of marketing audit.

1. Marketing Environment Audit

Marketing Environment Audit consists of the external environment of company. It includes natural environment, economic environment, political environment, demographic environment, etc. The marketing audit analyses the marketing consumer, competitors, suppliers, so on. This audit helps the company to make marketing strategies.

2. Marketing Strategy Audit

Marketing Strategy Audit is a critical analysis of marketing objectives and strategies. It finds out whether the company's marketing objectives are clear and proper. It also examines the marketing strategies of the company. This audit is done to find out the utility of the marketing strategies.

3. Marketing Organization Audit

Marketing Organization Audit is a systematic study of the company's organizational resources like manpower, organization, structure, employee training and development, Research and Development facilities, motivation, communication and working relations.

4. Marketing Systems Audit

Marketing Systems Audit finds out the company's ability of collecting and analyzing data. It looks for the company's ability to plan and control the marketing activities. It also studies the company's marketing information system, planning and control system, etc.

5. Marketing Productivity Audit

Marketing Productivity Audit finds out the profitability of the company's products. It examines the markets. It also examines the measure to improve cost-effectiveness.

6. Marketing Function Audit

Marketing Function Audit is a complete study of marketing functions in relation to the product, price, promotion and place of distribution. So, it is an audit of the marketing mix (4 P's) of the company.

Explain the Characteristics of Marketing Audit

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Explain the Characteristics of Marketing Audit

The eight important characteristics of marketing audit are depicted below.

The salient features or characteristics of marketing audit are as follows:

Marketing audit is a comprehensive study of all marketing activities.
It is a systematic-process that follows a step-by-step procedure.
It is a periodic activity and must be conducted regularly.
It is conducted by an independent person who is not from company.
It is a critical review of marketing activities of company.
It is an evaluation of marketing activities of company.
It finds out marketing opportunities and weaknesses of company.
It is a preventative and curative marketing medicine.

Now let's briefly discuss or explain each characteristic of marketing audit.

1. Comprehensive study

Marketing audit is a comprehensive or complete study of all the marketing activities of company. It studies the marketing environment, marketing objective, marketing plans, policies and strategies, etc.

2. Systematic process

Marketing audit is a systematic process. It follows a step-by-step procedure.

It studies marketing environment.
It studies the internal marketing system.
It examines the marketing activities.
It finds out the problems.
It makes an action plan to remove the problems.

The main aim of marketing audit is to improve the effectiveness of marketing.

3. Periodic activity

A company must conduct a marketing audit regularly or periodically. It must conduct the marketing audit even if it has no problems. This is because it helps the company to analyze the post performance and to make future marketing strategies.

A company must not conduct a marketing audit only if it has problems or when it suffers a loss. It must be a compulsory and not an optional activity.

Marketing audit is like a postmortem of failure.

4. Independently conducted

Marketing audit is independent. That is, it is conducted by an autonomous person. It is not conducted by a person who is working in the marketing department. Mostly, it is conducted by an outside agency.

5. Critical review of marketing activities

Marketing audit is a critical review of marketing activities of the company. It finds out the defects, deficiencies, problems and weakness in company's marketing activities. It also gives suggestions about how to remove these defects or deficiencies.

6. Evaluates marketing activities

Marketing audit is an explanation or evaluation of marketing activities of company. It evaluates company's objective, plans, policies, programs, etc.

7. Finds out opportunities and weaknesses

Marketing audit finds out the marketing opportunities and weakness of the company. It helps the company to take advantage of the marketing objectives. It also helps the company to remove all its weakness.

8. Preventative and curative marketing medicine

Marketing audit is a preventative and curative marketing medicine. It prevents marketing problems. It also cures (solves) marketing problems.

Production Standards Meaning Definition Advantages Demerits

2013-01-29T01:16:00.000+05:30

Meaning of Production Standards

Production standard is a criterion or yardstick or benchmark. It is used for measuring the production of the company.

Production standards are fixed for raw materials, production process, tools and equipment, workers, conditions of work, speed of work, quantity of output, quality of output, etc.

Production standards are mostly expressed in quantitative terms. That is, it is expressed in terms of units of output, units of time, kilograms, plant capacity, so on.

Production standards give direction and guidance to the production department. It is also used for controlling the production activities. That is, the actual production can be compared with the production standards, and the difference can be found out and corrected. It is a point of reference. It helps to find out whether the work was done as per plan.

Definition of Production Standards

According to Adam and Elbert, production standard is defined as follows:

"Production standard is a quantitative criterion established as a basis for comparison in measuring or judging output."

Advantages of Production Standards

The merits, benefits, or advantages of production standards are as follows:

Optimum use of labour.
Fixing wages.
Basis for promotion and training.
Customer satisfaction.
Less wastage.
Budgeting possible.
Effective planning.

Now let's discuss each advantage of production standards one by one.

1. Optimum use of labour

If production standards are fixed beforehand, then all the work will be planned in advance So, everyone will know exactly what to do, how much to do, how to do it, etc. The performance of the workers can be evaluated. Their mistakes, if any, can be corrected in time. There will be no wastage of labour. So, production planning helps to make optimum use of labour.

2. Fixing wages

Production standards help to fix the wages, salaries, bonus, perks, etc. of the workers and managers. The performance of each person can be evaluated with the help of production standards. So, each person will be paid according to his performance.

3. Basis for promotion and training

Production standards can be used as a basis for giving promotion, transfers, training, etc., to the employees and managers. This is because it helps to evaluate their performance. The employees having the best performance can be given promotions. The employees whose performance is bad can be sent for training to improve their performance.

4. Customer satisfaction

Production standards help to give satisfaction to the consumers. This is because production standards are fixed for quantity, quality, time, cost, etc. So, the consumers will get a regular supply of good-quality products at low prices. This will give satisfaction to the customers and profits to the company.

5. Less wastage

Production standards help to reduce the wastage of human, material and financial resources in the company. This is because standards are fixed for almost everything in the production department. There are standards for raw materials, workers, speed of work, quantity of work, quality of work, production process, etc. These standards guide the workers. It helps them to avoid mistakes. After they complete their work, it is compared with the standards. The mistakes, if any, are found out and corrected in time. Production standards help to avoid wastage of investment in unwanted machines and raw materials. It also helps to avoid having more employees than necessary. All this helps to reduce wastage in the company.

6. Budgeting possible

Production standard makes budgeting possible. That is, the production manager can prepare a budget for all the production expenses. He can prepare a budget for the materials' costs, labour costs, machine costs, repair and maintenance costs, etc. This will help to avoid wastage and to reduce the production cost. It will also reduce financial problems in the organization.

7. Effective planning

Production standards are the base of production planning. It helps to have effective production planning. Production planning helps the production to run smoothly. It sees that all the machines are utilized fully. It helps over and under stocking of materials and finished goods. It helps to deal with emergencies like the breakdown of machines.

Demerits of Production Standards

The limitations, disadvantages, or demerits of production standards are:

Limiting factor.
No improvement.
Individual difference not considered.
Difference in job methods.
Rigidity.

Now let's discuss each demerit of production standards one by one.

1. Limiting factor

Some experts feel that a standard is a limiting factor. A standard is a quantitative goal. Once the employee achieves this goal he will be satisfied. He will not try to work more than the standard. He will not try to increase the standard. After some time, he will become lazy.

2. No improvement

Standard are fixed for quantity, time, costs, etc. These standards are not changed for a long period of time. So, during this time the quantity of output, quality of output, speed of work, cost of production, etc., will remain the same. There will be no improvement. This is against Kaizan. Kaizan is a Japanese concept. According to this concept, there must be continuous improvements in the organisation.

3. Individual difference not considered

Standards do not consider individual difference in doing work. The same standard is made for all the employees. However, all the employees are not equally efficient in their work. So, if the standard is made too high, then the less-efficient employees will not be able to complete their work in time. Similarly, if the standards are low, efficient employees will complete their work before time.

4. Difference in job methods

Methods of doing the job are not always standardized. Most companies change their methods according to change in machines. It is difficult to fix standards if the job methods go on changing. Even if standards are fixed, comparisons become hard due to change of methods.

5. Rigidity

Standards are not changed regularly. This results in rigidity. However, flexibility is required to face competition. The product must be changed regularly as per the varying needs and wants of the consumers.

What is Marketing Audit? Definition Meaning

2013-01-24T05:05:00.000+05:30

Definition of Marketing Audit

The definition of marketing audit as stated by Abe Schuchman is as follows:

“Marketing audit is a systematic, critical and impartial review and appraisal of the total marketing operation: of the basic objectives and polices and the assumptions which underlie them as well as the methods, procedures, personnel and organization employed to implement the policies and achieve the objectives.”

Abe Schuchman gave this definition of marketing audit in his writings on its first extended discussions. He wrote this discussion for the American Marketing Association (AMA) in 1951.

Meaning of Marketing Audit

The meaning of marketing audit is depicted in the following chart.

Marketing audit is an analysis, examination, review or evaluation of marketing activities of a company. It evaluates marketing environment, objectives, plans, policies and strategies of a company. After evaluation, it identifies various defects, vulnerabilities, deficiencies, problems, and other weaknesses encountered in the company's marketing activities. It suggests measures and/or recommendations to overcome, solve or remove these limitations. It also seeks out new marketing opportunities for a company. Overall, it tries to enhance (improve) the marketing performance of a company.

Marketing audit is an extensive, systematic, independent and regular examination process of a company's marketing activities.

It is an extensive or comprehensive process because it covers all (entire) marketing activities of a company.
It is a systematic or methodical process since it strictly follows all involved steps or procedures properly.
It is an independent or autonomous process conducted by an external person. This person is not from the marketing department of a company.
It is a periodic process because it is conducted continuously after some fixed interval of time.

Marketing audit is very beneficial for the success of a company. It examines, “How well the marketing department of a company works or functions.” It compares the marketing plans of a company with its actual marketing performance. It finds out the strengths and weaknesses of a company's product. It suggests measures to remove the product's weaknesses. It guides a company to adapt its marketing strategies with the changing marketing environment. It helps a company to update its marketing strategies and control its marketing expenses. In short, a company cannot survive without conducting a proper marketing audit.

Additional topics on marketing audit are continued in the following articles:

Marketing audit evaluates the following three main (key) responsible areas:

External marketing environment : Here, the marketing audit mainly focuses on customers and competition in the business.
Internal marketing environment : Here, the marketing audit studies the structure of company's marketing team and its effectiveness.
Evaluation of current marketing strategy : Here, the marketing audit continuously reviews current marketing strategy of a company. It also takes help of lessons learned from its past marketing plans.

Distinguish Between MIS and Marketing Research (MR)

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Distinguish Between MIS and Marketing Research (MR)

Following image depicts the ten main points which are used to make a comparison or distinction between MIS and Marketing Research (MR).

Difference between MIS vs MR is based on the following ten points:

Meaning of MIS and MR.
Their basic or main purpose.
Wide or narrow scope.
General or specific nature.
Number of reports provided.
Future or past orientation.
Frequency of data collection.
Number of problems to solve.
Continuous or non-continuous operational method.
Based on use of computers or not.

Now let's distinguish MIS and Marketing Research (MR) on above points.

Meaning :
1. MIS means to collect, analyze and supply relevant marketing information to the marketing managers. The marketing managers use this information for taking effective marketing decisions. It is a permanent and continuous process.
2. Marketing Research (MR) is a systematic process of collecting and analyzing information to solve a specific marketing problem.
Purpose :
1. The main purpose of MIS is to provide relevant information to marketing managers and enable them to make effective marketing decisions.
2. However, the main purpose of Marketing Research (MR) is to solve a specific marketing problem.
Scope :
1. The scope of MIS is wide. Marketing Research (MR) is one of its component. It is not only used to solve problems but also helps to prevent problems in the future.
2. The scope of Marketing Research (MR) is narrow. It is one small part of MIS. It solves a specific present marketing problem.
Nature :
1. MIS is more nonspecific or general in nature. It can solve many types of marketing problems.
2. Marketing Research (MR) is more specific or particular in nature. At one time, it can only solve a single type of marketing problem.
Reports :
1. MIS gives four types of reports namely, plan-reports, periodic-reports, triggered-reports and demand reports.
2. Marketing Research (MR) provides only one report called as ‘MR Report.’
Orientation :
1. Orientation of MIS is more future-oriented when compared to MR.
2. However, the orientation of Marketing Research (MR) is more past and present one when compared to MIS. It concentrates more on earlier and latest information. It uses this information to solve a current marketing problem.
Problems :
1. MIS deals with and attempts to solve many different marketing problems at one time. For this, it collects, stores, analyze and supply relevant market information to the marketing managers.
2. Marketing Research (MR) only deals with a single marketing problem at one time. It doesn't solve multiple marketing problems simultaneously.
Data :
1. In MIS, the data is collected more frequently, usually almost daily. This is a must for every company.
2. In Marketing Research (MR), the data is not collected as frequently as MIS. It is collected on a required basis.
Operation :
1. MIS is a permanent and continuous system. Here, the inflow of market information never stops. Data is constantly collected and stored for further analysis. It is properly analyzed, studied and well-organized before supplying to the marketing managers. MIS has a starting but no ending point.
2. Marketing Research (MR) is not a continuous system. Here, data is collected only when a company faces a specific marketing problem. It has a starting and ending point.
Computers :
1. MIS is heavily based on the use of computers. Here, computing technologies are widely used to ease and facilitate data collection, its storage, analysis, retrieval and supply of relevant information to marketing managers of the company.
2. Unlike MIS, Marketing Research (MR) hardly makes use of computers. It uses computers only for analyzing some information and is not entirely based on computing technologies.

Essential Requisites of a Good MIS

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Essential Requisites of a Good MIS

The following image depicts the eight essential requisites of a good MIS.

The essentials of a good Marketing Information System (MIS) is listed below:

MIS must be unified and centralized.
It must facilitate decision making.
It must provide quick and accurate information.
It must be economical.
It must be selective.
It must be future oriented.
It must supply information regularly.
It must use new techniques.

Now let's discuss and find out, “How a good MIS must be?”

Unified and centralized : MIS must be unified and centralized. It collects and stores different types of market information. All of this information must be unified and centralized. That is, all the marketing information must be brought together (unified) and kept at one central place (centralized). So, it must be at the central-office. This will result in easy access and quick reference. The managers will be able to find all the required information at one place.
Facilitate decision making : MIS must facilitate decision making. That is, it must guide the marketing managers in decision making. It must provide required information to the managers to help in taking decisions. This information must be of a good quality. That is, it must be relevant, reliable, and up-to-date. This will result in an accurate decision-making process. So, it must not only be a data bank. It must play a positive role in the decision-making process.
Quick and accurate information : MIS must provide quick and accurate information. Today, managers have to take quick-decisions because the marketing is moving very fast. If they don't take quickest decisions, then they will lose many marketing opportunities. Therefore, it must provide quick information to the managers. This information must also be accurate, regular and continuous. It must be a user-oriented one. It must collect, classify, verify, store and supply information quickly and accurately.
Economical : MIS must be economical. That is, it must not be very costly. The expenditure on it must be minimum. It must not exceed its value. It must give maximum benefits to the company at a minimum cost. It will be economical only if it is selective. It must be particular in collecting, analyzing, storing and supplying information. It must use a minimum number of employees in its operation. It must be economical because it is not directly productive. It is a service and support function.
Selective : MIS must be selective. That is, it must not collect all the market information. It must only collect relevant information. It must collect information, which is very essential and useful for decision making. If it is not selective there will be a waste of time, energy, storage space and money.
Future oriented : MIS must be forward looking i.e. future-oriented. It must not be a past-oriented one. It must give more importance to future-oriented information. It must provide information for solving problems, which may come up in the future. The company will be successful if their marketing managers are future-oriented. The marketing managers can be so only if the MIS is also future oriented.
Supply information regularly : MIS must supply information regularly. The business environment is changing constantly. So, the marketing managers have to take marketing decisions continuously. Therefore, they require a regular and continuous flow of market information. This information must be provided by MIS. So, it must supply information regularly to the marketing managers.
Use new techniques : MIS must use new techniques for collecting, analyzing, storing and supplying information. It must use computers and micro-films. It must use new communication techniques. It must also make the use of the Internet and latest software programs. These newer techniques will increase the efficiency and accuracy of MIS. MIS will also become more economical by using new techniques.

4 Main Components of Marketing Information System (MIS)

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Components of Marketing Information System MIS

Marketing Information System (MIS) collects, analyses, and supplies a lot of relevant information to the marketing managers. It is a valuable tool for planning, implementing and controlling the marketing activities.

The role of MIS is to identify (find out) what sort of information is required by the marketing managers. It then collects and analyzes the information. It supplies this information to the marketing manager at the right time. MIS collects the information through its subsystems. These subsystems are called components.

The four main components of Marketing Information System (MIS) are:

Internal Records,
Marketing Intelligence,
Marketing Research (MR), and
Marketing Decision Support System.

The basic components of MIS are depicted and explained below.

Internal records : The first component of MIS is ‘Internal Record’. Marketing managers get lots of information from the internal-records of the company. These records provide current information about sales, costs, inventories, cash flows and account receivable and payable. Many companies maintain their computerized internal records. Inside records help marketing managers to gain faster access to reliable information.
Marketing intelligence :
1. The second component of MIS is ‘Marketing Intelligence’. It collects information from external sources. It provides information about current marketing-environment and changing conditions in the market. This information can be easily gathered from external sources like; magazines, trade journals, commercial press, so on. This information cannot be collected from the Annual Reports of the Trade Association and Chambers of Commerce, Annual Report of Companies, etc. The salesmen’s report also contains information about market trends.
2. The information which is collected from the external sources cannot be used directly. It must be first evaluated and arranged in a proper order. It can be then used by the marketing manager for taking decisions and making policies about marketing.
3. So, marketing intelligence is an important component of MIS.
Marketing research : The third important component of MIS is ‘Marketing Research’. MR is conducted to solve specific marketing problems of the company. It collects data about the problem. This data is tabulated, analyzed and conclusions are drawn. Then the recommendations are given for solving the problem. Marketing research also provides information to the marketing managers. However, this information is specific information. It can be used only for a particular purpose. MIS and MR are not substitutes of each other. The scope of MIS is very wide. It includes ‘MR’. However, the scope of MR is very narrow.
Marketing decision support system : The fourth component of MIS is ‘Marketing Decision Support System’. These are the tools which help the marketing managers to analyze data and to take better marketing decisions. They include hardware, i.e. computer and software programs. Computer helps the marketing manager to analyze the marketing information. It also helps them to take better decisions. In fact, today marketing managers cannot work without computers. There are many software programs, which help the marketing manager to do market segmentation, price fixing, advertising budgets, etc.

Features of Marketing Information System MIS

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Features of Marketing Information System MIS

The main characteristics or features of Marketing Information System (MIS):

Continuous system : MIS is a permanent and continuous system of collecting information. It collects information continuously.
Basic objective : The basic objective of MIS is to provide the right-information at the right-time to the right-people to help them take right decisions.
Computer based system : MIS is a computer-based system. It uses computers for storing, analyzing and supplying information. It also uses micro-films for storing information. Therefore, it is very quick and accurate.
Future-oriented : MIS is future-oriented. It provides information for solving future problems. It is not past-oriented.
Used by all levels : MIS is used by all three levels of management, i.e. top, middle and lower. It is used for making marketing plans, policies and strategies. This is used to solve marketing problems and to take advantage of business opportunities.
Sources : MIS collects information from both, internal and external sources. For example, information is collected from company records, publications, etc.
Collects marketing information : MIS collects all types of marketing information. It collects information about the consumer competition, marketing environment, government policies, etc. It supplies this information to the marketing managers.
Helps in decision making : MIS supplies up-to-date and accurate information. It helps marketing managers to take quick and right decisions.