Reports: PRODUCTIVITY IMPROVEMENT PRACTICES

PRODUCTIVITY BOARD FOR INDUSTRIAL MACHINERY
(National Productivity Council)

PRODUCTIVITY IMPROVEMENT PRACTICES

TASK-FORCE REPORT

H. C. PAREKH
General Manager
LARSEN & TOUBRO LIMITED

TASK FORCE CO-ORDINATOR

PRODUCTIVITY IMPROVEMENT PRACTICES

TASK-FORCE REPORT
JUNE 1986

FOREWORD

The Central Advisory Council for Industries in its meeting held on August 23, 1982 observed that the status of productivity and growth in some of the key sectors of industrial activity such as Machine Tools, Industrial Machinery, Power Equipment, Cement etc., has a vital role to play in national economic development. It therefore recommended that the Government of India set up industrywise Productivity Boards. Accordingly, in August 1983, at the instance of the Union Minister for Industry and President of the National Productivity Council, Shri N. D. Tiwari, seven industrywise Productivity Boards were constituted by the Ministry of Industry — the Secretariat for the Boards being provided by the National Productivity Council.

The objectives set for the Productivity Boards are as follows:

-- To prepare plans incorporating technology, manpower, energy and marketing for achieving higher productivity and to integrate the same with the national economic plans.

-- To identify productivity constraints, with a view to advising the government, industry and trade unions on the measures to be taken to overcome the bottlenecks.

-- To monitor the implementation of productivity plans, to evaluate the actual results achieved and to identify the specific factors that have helped or hindered realisation of higher productivity.

-- To advise the Government on policy issues such as establishing industrywise norms for major inputs or factors affecting production, linking wages with productivity, instituting productivity awards for higher performance, etc.

-- To establish a standard data base for evaluating productivity performance and to promote participative culture, environment-conscious management, harmonious labour-management relations and productivity agreements.

The Membership of the Boards has a tripartite character and includes representatives of the Government, the Public/Private Sectors and the Trade Unions.

In April 1984, the Board for Industrial Machinery, set up a Central Task Force to study in depth the problems faced by the enterprises in the Industrial Machinery Sector and to collect enterprise level data on productivity norms and indicators used in the industry.

The report prepared by the Task Force was presented to Shri Veerendra Patil, the then Minister for Industry in September 1985.

Furthermore, it was decided that some of the good practices followed by professionally managed Companies should be compiled and given wide publicity. This, the Board felt, would induce others to follow these practices and spread the productivity culture. The following pages contain these practices.

The Task Force is to be congratulated on its valuable work.

N. M. DESAI
Chairman
Productivity Board for Industrial Machinery

June – 1986

LIST OF BOARD MEMBERS AND CO-OPTED MEMBERS

NAME — ADDRESS

1. Shri N. M. Desai (Chairman)
Chairman & President
Larsen & Toubro Limited
L&T House, Ballard Estate
Bombay – 400 038.

2. Dr. A. N. Saxena
Director General
National Productivity Council
Lodi Road, New Delhi – 110 003.

3. Shri P. R. Latey
Director General, DGTD
Udyog Bhavan
New Delhi – 110 011.

Alternate:
Shri Laxman Misra – Industrial Adviser
Shri A. K. Sen – Industrial Adviser

4. Shri K. R. Parmesvar
Adviser (I & M)
Planning Commission
Yojana Bhavan
New Delhi – 110 001.

5. Shri S. C. Dhingra
Adviser (Tech.) & Ex. Officio Joint Secretary
Department of Heavy Industry
Udyog Bhavan
New Delhi – 110 011.

6. Shri A. K. Srivastava
Director, Ministry of Labour
Shram Shakti Bhavan
Rafi Marg
New Delhi.

Alternate:
Shri A. Gupta – Jt. Secretary

7. Shri G. Raman
Industrial Adviser
Office of DCSSI
Nirman Bhavan
Maulana Azad Road
New Delhi – 110 011.

Alternate:
Shri A. N. Ghosh – Industrial Adviser

8. Shri S. R. Chaudhary
Chairman & Managing Director
Jessop & Co. Ltd.
63, Netaji Subhas Road
Calcutta – 700 001.

9. Shri M. R. Naidu
Chairman & Managing Director
Bharat Heavy Plate & Vessels Ltd
Visakhapatnam – 530 012.

10. Shri Sumant J. Patel
Vice Chairman & Managing Director
New Standard Engg. Co. Ltd.
NSE Estate, Goregaon East
Bombay – 400 063.

11. Shri S. N. Vajpai
Chairman & Managing Director
Heavy Engineering Corpn. Ltd
Ranchi – 834 084 (Bihar)

12. Dr. N. A. Kalyani
Chairman
Bharat Forge
Mundhwa, Pune Cantt.
Pune – 411 036.

13. Shri V. L. Doshi
Chief Executive
Walchandnagar Industries Ltd
Construction House
Ballard Estate
Bombay – 400 038.

14. Shri Ram Sen
11/5 Andul 2nd bye-lane
P.O. Botanical Gardens
Howrah – 711 103.

15. Shri T. D. Singh
General Secretary
Heavy Electricals Shramik Trade Union
Qr. No. 812/N/2 Sector K
Piplani, Bhopal.

16. Shri Lal Bahadur Singh
General Secretary
INTUC Bengal Branch
177/B Acharya Jagdish Bose Road
Calcutta – 700 014.

17. Shri K. J. Thakkar
General Secretary
BMS, Gujarat State
Shastri Pole
Vadodra – 390 001.

18. Shri S. A. Khader
Director (Productivity Planning)
National Productivity Council
Lodi Road
New Delhi – 110 003.

CO-OPTED MEMBERS

1. Shri R. K. Daga
Vice President
Hindustan Motors Ltd
Earth Moving Equipment Divn.
P.O. Melanallathur – 602 004
Tiruvallur (Tamil Nadu)

2. Shri S. K. Bijlani
Managing Director
Molins India Ltd
A/7 Ind. Estate
Mohale, Chandigarh
Punjab – 160 051.

3. Shri R. N. Prasad
Asst. General Manager
Tata Engg. & Loco. Co. Ltd.
21 Karkai Road (Nildih)
Jamshedpur – 830 190

4. Shri A. V. Dandekar
Group General Manager
Jyoti Ltd
P.O. Chemical Industries
Baroda – 390 003.

5. Shri H. C. Parekh
General Manager
Larsen & Toubro Limited
Powai Works
P.O. Box No. 8901
Saki Vihar Road
Bombay – 400 072.

6. Dr. D. F. Pereira
Jt. General Manager
Larsen & Toubro Limited
Powai Works
P.O. Box No. 8901
Saki Vihar Road
Bombay – 400 072.

TASK FORCE MEMBERS

Shri H. C. Parekh — L&T (Co-ordinator)
Dr. A. N. Saxena — NPC
(Represented by Shri S. A. Khader — NPC)
Shri Ram Sen — AITUC
Shri K. R. Parmesvar — Planning Commission
Shri Vinod Doshi — AIEI

ACTIVITIES OF THE PRODUCTIVITY BOARD

In pursuance of the objectives, the Productivity Board for Industrial Machinery has so far met 11 times and planned and executed the following tasks:

It has been able to generate considerable productivity awareness and consciousness in the industry by organising the following four National Workshops. In particular, it has been able to focus attention on specific problems of Industrial Machinery Sector namely Technology Upgradation and Motivation for Productivity. In all, over 500 delegates from Industrial Machinery Sectors have participated in the Workshops.

S. No.	Theme	Date & Place
1	Improving Industrial Productivity	16–17 Dec. 1983, Bombay
2	Productivity Improvement in Industrial Machinery Sector	23 May, 1984, New Delhi
3	Motivation for Productivity	21–22 Jan. 1985, Madras
4	Technology Innovation and Modernisation	23–24 Sept. 1985, New Delhi

The Board constituted a task force to study in depth the problems faced by the enterprises in this sector and to collect enterprise level data on Productivity Norms and Productivity Indicators used in the industry. This study covered over 60 undertakings that analysed the problems faced in respect of productivity improvement at the shopfloor level. A report entitled “Inter-firm productivity Survey” was brought out by the task force and submitted to the Government. The recommendations that are evolved in this report have emanated from this task force study.

The Board brought out a report on the “Status of Productivity in the Industrial Machinery Manufacturing Sector” through a research team for submission to the Government.

d) Other Activities:

The Board discussed a model of productivity-linked reward scheme for wider propagation.

The Board plans to bring out:
(a) some case-studies in the form of success stories and booklets for the propagation of the message of productivity, based on the experience of the units in the industry,
(b) films and audio-visual aids for the purpose.

Towards this, the expertise of the well-known management specialist Shri M. K. Rustomji has been sought and an abridged version of the book “The Incredible Japanese” is being brought out in regional languages for the benefit of Indian workers.

CONTENTS

Section	Page
Foreword	V
List of Board Members	VII
Activities of the Board	XI

ENTERPRISE LEVEL PRODUCTIVITY PRACTICES

Chapter 1: Manufacturing and Engineering

Designer–Process Engineer Interaction — 1
Productivity Indicators — 1
Fixing of Targets — 2
Low Cost Automation — 2
Methods Time Measurement (MTM) and Predetermined Motion Time Standards (PMTS) — 2
Computer Aided Design and Manufacture — 2

Chapter 2: Manufacturing Services

Quality Assurance — 5
Organisation & Methods (O&M) — 5
Computer Applications — 10
Safety — 11
House-keeping — 12

Chapter 3: Infrastructure

Plant Layout & Material Handling System — 13
Transport — 13

Chapter 4: Marketing

Sales Network — 15
Loyalty to Stockists — 15

Chapter 5: Finance

Timely Payment to Suppliers — 17
Management Planning & Control Systems — 18
Transfer Pricing — 19
Capital Expenditure – Budgeting & Control — 21

Chapter 6: Materials & Ancillary

Inventory Control — 23
Vendor Rating — 23
Source Development — 23
All India Inventory Reporting — 23
Standardization within Industry — 24
Codification — 24
Value Engineering — 25
Packaging — 26

Chapter 7: Human Resource

Human being – The central figure — 27
Recruitment Policy — 27
Training Schemes for Engineers — 27
Training Schemes for Trade Apprentices — 29
Training Scheme for Welders — 29
Other Training Schemes — 30
Workers’ Education Scheme — 31
Manpower Information System (MIS) — 31
Performance Appraisal — 32
Industry–Institute Interaction — 32
Suggestion Scheme — 33
Employee Welfare — 34
Housing Scheme — 35
Community Welfare — 35
Credit Society — 36
Culture & Values — 36
Strategies for the Next Decade — 37
Project “WARM” — 38

LIST OF ANNEXURES

Production/Productivity Linked Wage Scheme — 41
Productivity Measurement Ratios — 45
Extract from Statement of Policy — 53
Vendor Registration Application — 55
Approved Revised Syllabus for Workers’ Education Programme — 59
Performance Appraisal Form — 63
The New Horizon “The Warm” — 67

ENTERPRISES LEVEL PRODUCTIVITY PRACTICES

1. MANUFACTURING AND ENGINEERING

1.1 Designer–Process Engineer Interaction

To improve manufacturing productivity, it is not enough if manufacturing methods alone are made productive. The engineering must also be continuously updated and improved upon.

Before a product is released for manufacture (i.e., a product of one's own design or a product with foreign know-how), structured meetings should be held to discuss the manufacturability, marketability, cost aspect, etc. The concerned personnel should take part in the discussions and any changes necessary to suit manufacturability and aid productivity should be incorporated. A continuous interaction between product designers and process engineers should be maintained right from the conceptual stage of the product.

1.2 Productivity Indicators

All efforts to improve productivity will be meaningless if there are no means of measuring productivity. Some of the important productivity indicators are:

1.2.1 Labour Productivity Index

This is measured in terms of performance index which is a ratio of output in terms of standard hours to clocked time. This index is calculated for every production workman on a daily basis and weekly or monthly summaries are made for various production shops. This system necessarily calls for a good work measurement system and fixing of standard time for every job. A model of productivity-linked rewards is given in Annexure – I.

1.2.2 Indirect Labour

For indirect workmen like those in stores, maintenance etc., there are indirect indicators of productivity in terms of value of goods despatched, number of cases packed, etc.

1.2.3 Down-time

Considerable amount of useful production hours could be lost due to machine breakdown, tool-settings, non-availability of materials, etc. These factors are, by and large, controllable by the staff and not by direct production workmen. These are measured in terms of what is known as “Coverage Factor”. This is the ratio of man-hours covered by production jobs to actual clocked man-hours. This index is calculated for each production centre on a weekly/monthly basis.

1.2.4 Utilisation of Expensive Capital Equipment

Utilisation of expensive capital equipment is an important aspect of productivity. This is measured in terms of the number of operating hours available on the machine. This machine utilisation statement is prepared every month.

Some of the productivity measurement ratios being used in a large scale multi-unit corporation are given in Annexure – II.

1.3 Fixing of Targets

The targeted figures for all the above performance indicators should be fixed a priori for the budget year. These figures should generally have at least 5% improvement factor built upon the previous year’s performance. In one of the organisations, most of these data are computerised and made available to the operating personnel on a continual basis. For example, the labour productivity figures for the day are made available to the shop foreman in the following day.

1.4 Low Cost Automation

Another important method by which productivity can be improved is through the adoption of “Low Cost Automation”. Low Cost Automation in an engineering industry includes adoption/simplification methods such as pneumatic circuits, automatic feeding/loading and unloading devices for machine tools, on-line conveyors in the assembly line, etc.

1.5 Method-Time-Measurement (MTM) and Predetermined Motion Time Standards (PMTS)

Effective implementation of MTM techniques can be brought about by:

Presentation of PMTS concepts to Senior Engineers
Exposure of PMTS techniques to middle and junior level engineers
Intensive training of 5–6 weeks in PMTS and related subjects to participants drawn from various engineering functions
Encouragement to workers for participation in this area
Facilities provided for training such as laboratory, library, etc.

1.6 Computer-Aided Design and Manufacture

An outline of the programmes covering mechanical, structural and thermal design, interactive graphics applications, NC-programming for computer-aided manufacturing that are adopted in a multi-unit corporation are listed on the following page:

1.6.1 Computer-Aided Design (CAD)

Design of multi-chamber tower subject to wind and seismic loading
Beam loads in multiplanes
Single phase, multipass heat exchangers

1.6.2 Interactive Graphics

Interpenetration curve development
Optimum hole layout on heat exchanger tube sheets
Stress analysis by Finite Element method
Plant piping and equipment layouts
Computer-aided drafting – heat exchanger tube sheets
General arrangement and scheme drawings for switchboards
PCB layouts and wire harness charts

1.6.3 Computer-Aided Manufacturing (CAM)

Optimum multi-spindle operation on CNC drilling machine
Nesting of varied shapes within a given plate size – CNC gas cutting machine
Sheet metal blanking – Amada Turret Punching Machine

2. MANUFACTURING SERVICES

2.1 Quality Assurance

Quality Assurance programme is established to ensure the desired product quality and reliability at every stage of manufacture from concept to commissioning. It also provides assurance that quality functions are continuously and effectively performed by all concerned. It recognizes the importance of normally ignored areas like engineering, design, material planning and control, procurement etc., in product quality. Quality Assurance System formalises the organisation's responsibilities and conventions through a written manual.

The Quality Assurance Manual emphasizes the policy of the Management regarding Quality Assurance. It spells out the organisation and demarcation of responsibilities along with detailed systems and procedures related to key areas such as engineering and design, material control, welding, inspection, non-destructive examination, calibration, product control, field performance feedback, documentation and quality audit. An extract from the statement of policy of a leading engineering company is given in Annexure – III.

2.2 Organisation and Methods (O&M)

2.2.1 Systems and Procedures

The aim is to lay down suitable procedures for various office functions for smooth flow of work. O&M Department introduces company-wide procedures for various functions being followed in the various offices of the company. It also lays down departmental procedures based on requests.

The methodology adopted in formulating company-wide departmental procedures is as follows:

a) O&M Dept. defines the scope and terms of reference of the procedure.
b) It collects all details relevant to the existing practice.
c) It records them in the form of a flow process chart.
d) It analyses the data collected, proposes alternatives and discusses proposals with the operating personnel. It selects the most suitable alternative within the framework of the company’s policies.
e) It obtains approval of all concerned departments on the final procedure.
f) It issues the final procedure jointly signed by the O&M Manager and the concerned departmental manager.
g) It also follows up for implementation of the procedure and approves any changes that may be necessary later on.

2.2.2 Form Design and Control

The aim is to reduce clerical work by controlling information in the office.

The design and printing of all forms are the responsibilities of the O&M department.

The operations are carried out as follows:

a) Requisitions for printing of new forms or repeat printing are sent to O&M Dept.
b) O&M Dept. maintains a functional and numerical index of all forms used in the company.
c) It vets each form and decides on the need for the form, or its revision.
d) It improves the design of the forms so as to take care of both the users’ needs and computerisation requirements, if any.
e) It provides specifications for printing and checks proofs as well as the final form.
f) It works out the retention plan for various copies.

As reported by a large machinery manufacturing unit, the usefulness of such a system is reflected in the fact that about 50 printing requests are cancelled each year and substantial savings in clerical work are effected.

2.2.3 Filing Systems and Record Retention

The aim is to maintain a Central Record room for storing semi-active records required for statutory or administrative purposes.

Filing and record retention systems should include:

taking inventory of all files kept in the record room
scrutinizing them
removing files for destruction
weeding out unwanted papers from the files
preparing an index for files
laying down procedures for referring to the files in the record room and for setting aside new files for storing

As reported by a large organisation, such a systematic study resulted in the destruction of 70% of the files and 60% of storage space being relieved.

2.2.4 Operation “Paper Destruction” – A Case

The aim of this exercise is to destroy unwanted papers and utilise valuable office space for better purpose.

Steps taken:

Formation of an office productivity committee with the General Manager as President and O&M head as Secretary
Brainstorming sessions with all departmental managers
Target of 30% paper reduction fixed
Formation of sub-committees at departmental levels
Committees scrutinised and decided on papers to be destroyed
Departmental heads approved destruction
Collection of unwanted papers arranged and ceremonially disposed

Results:

Destruction of about 50 tonnes of unwanted papers
Release of 300 sq. metres of office space
Emptying of 15 filing racks

2.2.5 Central Word Processing

One of the important uses of word processors is to reduce typing load of various departments.

Ways in which the Word Processing Centre helps:

a) Typing voluminous documents requiring repetitive typing
b) Maintaining separate libraries for each department
c) Storing documents for future use or reference

The facility ensures full utilisation of machines and timely service to departments.

2.2.6 Microfilming of Documents

The main aims of microfilming are to reduce storage space and maintain confidentiality of documents.

The system consists of:

Microfilming reports and drawings
Arranging them in microforms (fiche roll, etc.)
Preparing a microfilm index
Sending duplicate microfilm reports to users
Retaining negatives at a different location for safety

Result: Storage space can be reduced by 80%.

2.2.7 Electronic Card Attendance System

The objective is to reduce clerical work of transferring attendance data manually from punched cards to computer inputs.

A microprocessor-based card attendance system can be introduced.

Working:

Read stations installed across departments
Employees use coded cards at entry and exit
System records time automatically
The system identifies the employee’s pay sheet number and sends the input to a central unit.
The central unit transfers this data to the computer to which it is connected.
This input data is taken directly for attendance, salary and other data processing calculations.
Advantages:
a) Savings in clerical work
b) Immediate access to attendance data pertaining to employees
2.2.8 Communicating for Cost Saving
In order to make the staff aware and conscious of the cost involved in various operations, pamphlets/booklets can be released from time to time.
This involves the following preparatory work:
a) Identifying areas where there is scope for cost savings by any office staff
b) Collecting all relevant details
c) Analysing them and working out various proposals
d) Discussing them with all concerned
e) Preparing a suitable pamphlet/booklet
f) Arranging to issue them by the General Manager
Examples of pamphlets:
“Talk is not cheap” – referring to telephone conversation
“Reduce your Stationery Cost”
“Cut your Telex Cost”
2.2.9 Training Programme on Office Methods
The objectives are to appraise staff of office systems, modernisation, computerisation, etc., so that they can identify possible areas for improvement.
Coverage includes:
Oral communication
Office correspondence
Office aids
Record keeping and filing systems
Form design and control
Office work measurement
Office work simplification
Systems charting and office productivity
2.3 Computer Applications
Computer applications are legion. A wide variety of functional areas can be covered through computerisation:
2.3.1 Finance
Payroll accounting system
Marketing information system
Invoicing system for standard products
Customer outstanding system
Suppliers’ payment and accounting system
Capital assets accounting system
Fixed deposit accounting system
2.3.2 Materials
Materials planning and reservation system
Online inventory system for standard products
Inventory stock and replenishment system
Finished goods inventory system
Requirement planning system
Vendor master
2.3.3 Planning and Costing
Job costing
Shop performance reporting system
Project management and control system
2.3.4 Human Resources
Manpower information system
Training requirements planning
2.4 Safety
Three main functions:
Accident prevention
Fire prevention
Creating safety consciousness
2.4.1 Engineering
Survey, recommend and implement safety systems at plant inception
Conduct periodic safety audits
Recommend safe protective measures
2.4.2 Enforcement
Ensure compliance with statutory rules (Factories Act, Insurance Rules, Explosive Rules, Gas Cylinder Rules, Petroleum Rules, Municipal Acts, etc.)
2.4.3 Education
Classroom training
First-aid training
Traffic safety training
Sign boards
Safety posters
Articles in newsletters
Fire-fighting demonstrations
2.4.4 Enthusiasm
Safety contests
Slogan and essay competitions
Safety day celebrations
2.4.5 Safety Committee
A Safety Committee with union representatives should be formed.
2.5 House Keeping
Good housekeeping is a matter of attitude and awareness.
2.5.1 Culture
Housekeeping is everybody’s responsibility. Benefits include:
Improved efficiency
Safer working conditions
Lower operating costs
Better use of floor space
2.5.2 Responsibilities
Each person is accountable for housekeeping in their work area. Supervisors must lead by example.
2.5.3 Making it Easy
Provide waste baskets
Provide cleaning tools
Provide storage space
2.5.4 Prevention
Fix leaks
Provide trays to collect waste
2.5.5 Participation
Encourage suggestions and organise housekeeping contests.

Up-to-date position of pending bills, Goods Receipt Notes, etc., are to be made available so that whenever any supplier turns up to enquire about his payment, he can be attended to immediately.

5.1.2 Meeting the Suppliers

Regular meetings with suppliers to understand and sort out their problems can create confidence in them. This will also serve as feedback on how the computerised system is working in achieving the objective of making timely payments.

5.2 Management Planning & Control System (MPCS)

5.2.1 Aims of the System

The budgeting and performance reporting system (MPCS) is a primary management tool for ensuring optimal corporate performance.

It aims at:

Ensuring top management involvement in budgeting to guide organisational direction
Providing a platform for lower management to set and commit to budgets
Ensuring all assumptions behind targets are clearly articulated
Monitoring performance continuously and triggering corrective actions

👉 Every manager should include productivity improvement targets in budgets.

5.2.2 The Budgeting Process

Starts with Corporate Policy Guidelines from President/Chairman
Budgets developed at operating levels and consolidated upward
Reviewed at each stage and finalized at corporate “Settlement Sessions”
Approved budgets communicated to all units
Broken down month-wise for performance comparison

3. INFRASTRUCTURE

3.1 Plant Layout & Material Handling System

Systematic layouts from raw material to finished goods
Integration of all activities
Functional + aesthetic plant design
Compliance with statutory requirements

Infrastructure includes:

Power, water, drainage, effluent treatment
Fuel, communication, ventilation, lighting
Security, roads, medical, welfare facilities
Fire-fighting, recreational facilities

👉 All must be integrated with manufacturing operations.

3.2 Transport

Providing transport facilities improves efficiency and ensures timely reporting. It reduces employee hardship and saves productive time.

4. MARKETING

4.1 Sales Network

Own sales network to support dealers/stockists
Sales engineers + supervisors across regions
Key roles:

Identify customer needs
Promote products
Assist stockists
Resolve customer issues
Provide market feedback

4.2 Loyalty to Stockists

Company must show loyalty to stockists
Avoid direct competition with them
Provide technical support
Ensure fair distribution of business
Discourage inter-stockist competition

👉 Stockists should be treated as an extension of the company.

5. FINANCE

5.1 Timely Payment to Suppliers

Payments may include:

Advance payments
Delivery-based payments
Bank/document payments
Credit notes

👉 System should be computerised

Requirements:

a) Documents (PO, Bills, GRN) must be verified before input
b) Computer cell to validate correctness

5.1.1 Bill Passing

Computer processes bills
Verified against GRN + Purchase Order
Generates:

Purchase register
Sales-tax register
Suppliers ledger

👉 Faster and more accurate than manual systems

Cheques printed via system for timely payments
Tax certificates generated automatically
Accounts, trial balance etc. generated quickly

👉 Prompt payment builds supplier confidence

During the year, performance against budget is reviewed every month in meetings of the Budget Committees comprising:

Vice-President/Director (Operations)
Vice-President/Director (Finance)
General Manager (Finance)
Concerned Group General Manager

👉 These meetings help identify problem areas and decide corrective action.

5.3 TRANSFER PRICING SYSTEM

5.3.1 Concept

Factory makes no profit / no loss
Only Marketing Division earns profit

👉 Total factory cost = Transfer Price

Factory manufactures goods
Passes them to Marketing Division at transfer price

5.3.2 Contents of Transfer Price

Transfer Price includes:

A. Product Cost

Direct Material
Direct Labour
Direct Expenses
Material Overheads
Shop Overheads

B. Service Departments Overheads

Production Planning & Control
Work Study
R&D
Purchase
Accounts
Labour

5.3.3 Transfer Price Formation

Based on budgeted factory costs before year begins
Discussed between:

Factory Manager
Marketing Manager

👉 Marketing can challenge cost assumptions

5.3.4 Revision

Reviewed quarterly
Revised if cost changes > 3%

5.3.5 Cost Variance

Actual cost vs Transfer Price comparison
Under/over recovery = performance indicator

Key principles:

Break into controllable vs uncontrollable
Inefficiencies tracked at operating level
Not passed to Marketing Division

👉 Includes:

Micro-job variance analysis
Department-wise expense tracking
Budget vs actual comparison

5.3.6 Profit

Marketing Division buys at Transfer Price
Sells → earns margin

👉 Profit calculation:

Sales Price – Transfer Price = Margin
Margin – Marketing Overheads = Contribution

👉 Company Profit:

= Total Contribution (all divisions) – Corporate Overheads

5.4 CAPITAL EXPENDITURE BUDGETING & CONTROL

5.4.1 Stages

Decide total capital budget
Compile appropriation list
Quarterly sanctioning
Execution
Control
Monthly reporting

5.4.2 Quarterly Sanction

Proposals evaluated by Capital Budget Committee
Includes:

Manufacturing
Finance
Top Management

👉 Based on:

Technical feasibility
Economic viability
Phase-wise cash flow must be indicated

5.4.3 Commitment of Funds

Prepare purchase requisition
Include specifications, timelines

👉 For civil projects:

Detailed quantity schedules
Tendering

👉 Purchase department:

Negotiates
Issues purchase order / contract

5.4.4 Execution of Sanction

Equipment:

Inspection before & after installation
Must meet purchase specifications

Civil Work:

Executed as per drawings
Certified by architect/consultant

5.4.5 Control on Capital Expenditure

(a) Equipment:

Budget approval before order
Post-commissioning utilisation review (6 months)

(b) Civil Projects:

Bi-monthly cost vs progress review

👉 If cost overrun:

Investigation
Corrective action

5.4.6 Monthly Reporting

Report includes:

Actual commitments
Cash flow
Planned vs actual progress

👉 Submitted to Capital Budget Committee

Purpose:

Monitor cash flow
Ensure funding for rest of year

6. MATERIALS & ANCILLARY

6.1 Inventory Control

Inventory should be categorized using ABC analysis
Norms should be defined for each category
Indenting should follow these norms

👉 Monthly review of ‘A’ category items is critical

6.2 Vendor Rating

Vendors should be scientifically rated every 6–12 months

Criteria:

Rejection frequency
Delivery adherence
Quantity accuracy

👉 Vendor registration formats standardized (Annexure IV)

6.3 Source Development

Identify need for new/better vendors
Engineers should:

Locate new vendors
Develop them into long-term suppliers

👉 Vendors treated as partners

Additional Innovation:

Quarterly publication “Source Seeker”

Lists new products
Lists new vendors
Reduces search time

6.4 All India Inventory Reporting

Annual budgets prepared & approved
Monthly:

Actual inventory computed
Compared with budget
Reported to management

👉 Accountability:

Materials Manager → Raw materials
Production Manager → WIP
Divisional Manager → Finished goods

6.5 Standardization within Industry

Objectives:

Reduce material overheads
Improve procurement reliability
Improve quality
Reduce unit cost
Improve supplier communication

Productivity Impact:

Time saved = productivity gain
Tool standardization reduces man-hours

👉 Examples:

Tool bits → material, hardness, geometry
Hacksaw blades → TPI, width
Grinding wheels → grit, bond, speed

👉 Also applicable to:

Electrical items
Packaging materials
Cleaning supplies

6.6 Codification

Materials = ~60% of production cost

👉 Key principle:
Reduce variety → Reduce cost

Solution:

👉 Material Codification System

Example: 10-digit code structure

1st digit → Category

Capital goods
Spare parts
Raw materials
Consumables

2nd–3rd → Material type

Structural steel
Carbon steel
Alloy steel
Copper
Plastics

4th–5th → Form

Round
Square
Hexagon
Flat

6th–7th → Specification

Structural quality
Commercial quality

8th–10th → Size

6.7 Value Engineering

Materials = ~60% of cost
Inventory = ~90% of working capital

👉 Value analysis = critical tool

Process:

Analyze functional utility
Measure value
Improve value via:

Cost reduction
Performance improvement
Material substitution

👉 In India:

Focus on import substitution
Conservation of scarce materials

6.8 Packaging

Objective:

👉 Effective packaging at low cost

Methods:

Proper material selection
Standardization of sizes
Waste reduction
New applications
Unitisation

👉 Packaging teams must stay updated with new materials

7. HUMAN RESOURCE

7.1 HUMAN BEING – THE CENTRAL FIGURE

Though productivity means and includes various factors of production, no other factor has assumed as much importance as Human Resources.

It is common knowledge that man can increase his effectiveness in a given situation provided he can concentrate fully, devoid of all troubles that might hinder his performance. This philosophy underlines various measures taken by an organisation to clear all obstacles in his path, so that he can concentrate on his job and thereby also derive greater job satisfaction.

In order to achieve this twin objective i.e., of improving job performance and job satisfaction, the following blueprint is suggested for adoption by industrial organisations.

7.2 RECRUITMENT POLICY

Recruitment policy spells out clearly the norms for selecting people who will meet the job requirements with commensurate qualifications, experience and ability. The corner stone of a selection procedure is elimination of element of subjectivity (influence). It should ensure proper screening of applications with the help of Psychological, I.Q. and Trade Tests.

Advertisements must specify clearly the job profile and/or the incumbent's profile. Applications received should be rated separately by two agencies, of which one is the initiating department that has a vacancy. The interview panel should consist of concerned departmental representatives and representatives from the Personnel Department. Maintaining objectivity through the selection process is the hall mark of a good selection procedure.

7.3 TRAINING SCHEME FOR ENGINEERS

The aim of training should be to develop the performance of the organization as a whole by providing trained man-power at its various levels of operation.

The training imparted should be basically on-the-job with the right amount of guidance and other inputs given to the trainees to facilitate the learning process. Stress should be laid on learning by doing and not on teaching or spoon-feeding.

After an initial period of induction, the trainees should be given direct job responsibilities. By coping with the challenges of real life situations, they can develop self confidence and derive the necessary job satisfaction. Classroom lecture programmes are to be conducted on a wide range of subjects, including behavioural sciences, for developing their leadership and managerial skills.

The Graduate Engineer Trainee (GET) Scheme for fresh graduate engineers in one of the large organisations surveyed is of 2 years' duration and is an important source for filling positions in the Company's middle management cadre.

The graduate engineer trainees are trained according to either the Rotational (R) scheme or the Specific (S) scheme.

The GET (R) Training scheme:
Those under the (R) scheme receive planned and systematic on-the-job training according to a structured programme of rotation involving all the major disciplines i.e., manufacturing, marketing and design.

The GET (S) training scheme:
Those under the Specific (S) scheme receive on-the-job training in the department of their placement. However, they are given limited rotation in related functional areas. Thus, under the guidance of senior engineers, they learn to take up independent responsibilities by the end of their training period.

Appreciation programme:

Classroom lecture programmes by in-company and external faculties, to supplement the on-the-job training are organised on a wide range of subjects which are important for the trainees' career development. About 20 such programmes on subjects like Communication skills, Value engineering, Labour legislation, Materials Management etc., are conducted during the 2-year training period.

Quarterly Appraisals:

Regular and systematic evaluation of all supervisory trainees through quarterly appraisals by the concerned departmental heads, can help one in keeping track of their progress and render them timely assistance through counselling, guidance, change of assignments, etc.

The Post Graduate Engineer Trainee (PGET) Scheme for fresh post graduates in engineering, technology or management, is of one year duration. The trainees receive on-the-job training in a specific department according to their specialisation, with limited exposure to functional areas related to the department where they are placed.

The Shop Supervisory Trainee (SST) Scheme is of 2 years' duration for training fresh diploma engineers for holding responsible supervisory positions on the shop floor. The training is on-the-job, supplemented by classroom lecture programmes for improving their supervisory and leadership skills and thereby contributing to their career development.

The Diploma Engineer Trainee (DET) Scheme also of 2 years' duration, is for training fresh diploma engineers for holding supervisory positions in technical functions in office areas such as Design and Development, Estimation, Planning, Technical Buying, Source Development, Production Engineering, Welding Engineering, Plant Engineering, Industrial Engineering, Servicing and Marketing. On-the-job training is supplemented by classroom lecture programmes on a wide range of subjects for the trainees' career development.

7.4 TRAINING SCHEME FOR TRADE APPRENTICES

Trade Apprentices in various designated trades whose minimum educational qualification is SSC or equivalent should be given basic off-the-job initial training, depending on the nature of their trade, followed by on-the-job shop floor practice. The basic training and shop floor practice should be supported by related classroom instructions imparted by qualified instructors.

In some of the technical trades, for which the required basic training facilities may not be available, the apprentices should be selected from amongst those who have successfully completed their basic training from one of the recognized Industrial Training Institutes. Consequently the duration of their training should be reduced by the period of their basic training (1 or 2 years according to the trade) in these Institutes.

At the end of their shop floor training, the duration of which is stipulated under the act, the apprentices appear for an All India Trade Test conducted by the National Council for Vocational Training (NCVT) and those successful are awarded the National Apprentice Certificate.

Trade Apprentices in the Commercial Trades should be imparted training in order to discharge industry's statutory obligation under the Apprentices Act. The minimum qualification at entry is a good degree in Commerce, Arts or Science.

The trades for which these CTAs are trained are Clerical (general), Book-keeping and Accountancy and Store-keeping.

7.5 TRAINING SCHEME FOR WELDERS

As part of the overall efforts to provide increased opportunities to workmen for growth, a 'Welder Training Scheme' for small tool operators (STOs) was introduced in one of the large organisations surveyed. The details of the scheme are given below:

a) Eligibility: Workmen, fulfilling the following requirements are eligible.

i) Existing grade – should be semi-skilled A
ii) Minimum educational – should have passed VIII Std. qualification
iii) Length of Service – Minimum 7 years in the present organisation

b) Selection:
Selection to be decided by a panel. Criteria for selection will also include service record, adaptability and aptitude for training.

c) Training:
Selected candidates will be given training as stated below:

i) Practical training for approx. 1½ hours (average) per day over a period of 3 months.

ii) Training will be after working hours, i.e., in the employees' own time.

iii) Workmen once selected, will have to attend the training punctually and regularly, as otherwise their training is liable to be terminated prematurely.

iv) Training will also include instructions in the theory of welding of carbon steel, gas cutting and basic trade.

After a period of 3 months, the performance of workmen will be reviewed and only those who have made sufficient progress will be retained in the training scheme. Those who are selected for further training may continue in the welding school as before for a further period of upto 6 months.

After this training and successful completion of welding tests, the workmen will be assigned welding tasks in the shop as and when suitable work is available and shop conditions permit their being spared from their normal work. After attaining sufficient welding experience, skill and reliability, the workmen will be redesignated as Welders in the same Grade, depending upon the vacancies at that point of time.

Later, depending upon their performance and training, these workmen will be sent for advanced training in welding.

7.6 OTHER TRAINING SCHEMES

Other training schemes being followed in the same organisation referred to above are as follows:

The Personnel Training Scheme for those with fresh post graduate qualifications in personnel management, labour welfare, industrial relations or social work is of 1½ years' duration.

The trainees should go through a structured on-the-job training to give them a thorough understanding of the nature of line and departmental operations.

Schemes for promoting collaboration with educational and professional institutions and industrial training institutes:

a) Vacation and In-plant Training schemes for students of Polytechnics, Engineering colleges and Management Institutes.

b) Industrial Training for technical teachers from Polytechnics.

c) Field work Training for Post Graduate students in Social Science.

d) Industrial Training for students of the Institute of Chartered Accountants of India.

e) Scholarship Scheme for students of Engineering colleges.

f) Scheme for sponsoring candidates for the 2-year advanced technology course in Tool Engineering at Shri Bhagubhai Mafatlal Polytechnic, Bombay.

g) Industrial visits of college students.

7.7 WORKERS' EDUCATION SCHEME

In order to develop a disciplined, mature and enlightened work force in the Company, instil organisational loyalty in them and to mould them into law-abiding Corporate citizens, the Workers' Education Scheme should be implemented with all seriousness.

Batches of workers from all departments should be enrolled in the classes. The curriculum for the classes should be as given in Annexure - V.

7.8 MANPOWER INFORMATION SYSTEM (MIS)

This system provides timely information on the existing manpower and assists Management in decision making. MIS could be manual or computerised based on the specific needs and size of the organisation. However, a computerised MIS is more advisable since our objective is to increase efficiency.

The system should be capable of storing and updating manpower information on an on-going basis by incorporating the changes in employees' records. The information could be categorised as under:

a) Personal history and social characteristics.

b) Personnel Administration – Wages/Increments/Transfers.

c) Performance Appraisal Objective – Reward/Punishment system, Training & Development Programme.

d) Manpower Planning and Budgeting.

e) Leave and Disciplinary action.

f) Changes in personal information.

g) Separations.

Involvement of all the user departments is a must for the effective design and implementation of MIS.

Since availability of information is not an end in itself, a culture will have to be developed to take relevant decisions based on the data so available.

7.9 PERFORMANCE APPRAISAL

The Performance Appraisal system, based on the objectives set jointly by the superior and the subordinate, is recommended for assessing the performance of employees. In addition, the system facilitates identifying:

a) his/her strengths and weaknesses
b) his/her potential for future growth
c) his/her training/developmental needs

To make this system effective, it is necessary that all the supervisors/managers be equipped emotionally and technically to operate it. They must be trained periodically to receive and give feedback, since proper feedback is the soul of this system.

The Performance Appraisal, based on Management by results, will help the Organisation weed out non-performers, and pave way for improved Organisational efficiency and effectiveness. A specimen copy of the Performance Appraisal form used in a large organisation is given in Annexure - VI.

7.10 INDUSTRY–INSTITUTE INTERACTION

In spite of the tremendous growth in Industry and educational institutions in our country, there still remains a wide chasm between them. The meeting ground is only occasional seminars and conferences. This unhealthy situation is mainly due to lack of understanding of the strength of the other partner. By coming closer, both industry and the institutes can benefit greatly.

The benefits to the students are that:

they will find more interest in their curriculum
it will improve their application ability
it will help them in running industry better

The benefits to industry are that:

'Staff' capacity and 'Consultancy Service' can be easily available
elaborate training investment will not be required
the process of recruitment can be simplified and the need for 'Management Training' reduced
the pace of innovation can be accelerated

The benefits to the faculty are that:

they will get a good feel of industry and can build up useful case studies for improving quality of teaching

they will be able to identify research problems of industrial importance

Areas of interaction between industry and institutes:

For Students

Live projects for students (B.Tech/M.Tech/Ph.D).
Practical training during vacation for undergraduates.
Career guidance for students.
Specialists from industry to participate in teaching.

For Industrial Staff

Sponsoring employees for post graduate education.
Continuing education programmes for industry staff.

For Faculty

Sponsored projects for faculty.
Faculty serving in industry.
Consultancy assignments.

Miscellaneous

Preparation of Text/reference books.
Curriculum development.
Creation of chairs and centres at the Institutes.

Other avenues of interaction with industry:

Practical training during vacation for undergraduates.
Career guidance for students.
Sponsoring employees for post graduate education.
Continuing education programmes for industry staff.
Sponsored projects for faculty.
Faculty serving in industry.

7.11 SUGGESTION SCHEME

A good suggestion scheme emerges only in an environment of good communication between workmen and management at all levels. There should be a feeling of involvement and a sense of belonging and pride in achievement of the organisation for the success of such a scheme.

Competition in the market is increasing and becoming fierce. Organisations can counter this only by reducing costs of production, improving quality, adhering to delivery schedules and offering better after-sales service.

To achieve this, all areas of operations need to be improved through efficient working and in this, the suggestion scheme has a very vital role to play.

A good suggestion scheme should activate workmen to make suggestions towards enhancing work efficiency.

The important thrust of the Suggestion Scheme is the method of awarding and recognizing the suggestions made. In short, direct benefits of the Scheme will result in:

boosting morale
making workmen think
effecting better communication between Management and workmen
improving human relations
improving employee involvement
making identification of the problems easier

7.12 EMPLOYEE WELFARE

In an under-developed economy with low productivity, mass poverty and heavy unemployment, the Corporate social responsibilities for welfare of the employees increase manifold.

Most of the labour welfare activities today are prompted and reinforced by legislations. Their aims are to improve health, safety and efficiency of the workmen in the work setting. A time has come to widen the scope of labour welfare to cover the all-round well-being of the employees not only as members of industrial and commercial undertakings but also as members of society at large.

It is recommended that the welfare facilities to be extended to the employees be promoted by scientific assessment of needs of the employees and not merely by spirit of philanthropy and charity.

The welfare benefits suggested are as under:

Medical services to employees and their families
Co-operative Credit Societies
Consumers' Co-operative Societies
Transport
Canteen

Protective safety gear & uniforms
Libraries
Recreational and cultural activities like sports, picnics for small groups etc.
Workers' Education Classes
Counselling and guidance services to employees by trained counsellors
Rehabilitation of widows through a co-operative society, etc.

The list is only illustrative. It is expected that the organisation's interests and investment in employees through Welfare schemes will yield rich dividends in terms of improved industrial relations and promotion of Company loyalty. Besides, it will enable employees to function more efficiently.

7.13 HOUSING SCHEME

Provision of housing will be the most emotive issue in the Management–Union equation in times to come.

In the already established urban centres where land prices are phenomenal, it will not be possible for organisations to provide housing to their employees. In such cases, the organisations should provide all assistance in terms of procurement of land, services of architects, etc.

In the new set-up, housing colonies with recreational facilities, fair price shops and medical centres should be provided and the cost towards these should become part of the project cost.

7.14 COMMUNITY WELFARE

Industries should not only concentrate on the narrow aspect of Labour Welfare, but should also cover the community at large by extending various welfare schemes. They can do this by assisting Voluntary Social Welfare Organisations, by sponsoring fund raising programmes or by giving monetary grants.

Industries can also sponsor sports activities for the handicapped, etc.

Sponsoring of the destitute children through Community Aid and Sponsorship programme is another way of discharging the Industries' Social obligations. Industries may extend medical and allied services to the public, including Family Planning.

Industries setting up units in the interior parts of the country should anticipate the social change that it is likely to bring about and draw up an integrated social welfare programme for the village around the new factory, in consultation with local welfare agencies. This can include starting of primary and secondary schools, provision of medical centres, starting of Balwadis for children, etc.

7.15 CREDIT SOCIETY

To promote thrift and the saving habit amongst employees in the organisation and also to help out employees who are in need of emergency loans, the Company should:

a) form a Co-operative Credit Society, registered under the Co-operative Societies Act.

b) encourage employees to become members of the Credit Society.

Working of the Societies should be totally independent of the Company. It must be viewed as an avenue for training of workmen in the areas of management. The Credit Society should be entirely managed by workmen. This offers scope for worker participation.

Since the Co-operative Society is recommended to form part of an integrated welfare programme for the workers, industries should provide space, furniture/fixtures to the society and encourage the process of office mechanisation leading to computerisation.

7.16 CULTURE & VALUES

No modern society can survive or sustain itself unless it is an industrial society, employing modern industrial technology. Industrial organisations have today become representatives of society. They have become institutions that set standards of our social life. They lead, mould and also direct the mode of living of our society. Our social problems and social tensions are woven round industrial organisations. Though in the minority, their wage scales influence the national wages levels, their work ethos represents the national work ethos. They have, in short, become the symbols of our social organisation.

As social institutions, they are a product of our social needs and pressures. They are responsive and adaptive organisms. The basic change from an industrial organisation to an industrial institution takes place due to infusion of values. The following are certain values that each organisation must try to nurture:

Pragmatism
Co-operation
Sensitivity
Adaptability
Fairness
Loyalty and dedication
Entrepreneurship
Consistency
Self-sufficiency
Discipline

Clarity
Credibility
Adherence to law

Only through the infusion of such values in its various activities can a good industrial organisation claim to be a social organisation. This could be illustrated by two simple examples:

a) Industrial Organisation must create a culture amongst its employees that no bribe will be given to anyone to cover up any irregularities. This will ensure spreading of a value which is socially desirable.

b) So also, industrial organisation must create a sense of social commitment in the areas of pollution, family planning, etc.

7.17 STRATEGIES FOR THE NEXT DECADE

Each industrial organisation would do well to study its own evolution and growth in terms of:

geographical spread of its activities
range of products
manufacturing processes
its strengths and weaknesses in various aspects of management
profile of its employees and their skills, etc.

It should then look at its future more objectively, examine new geographical areas to be entered, new products to be manufactured, new technologies to be adopted and the market segments to be catered to. On the basis of such examination, a decision should be taken as to:

whether new factories are to be set up in new locations
whether any merger or amalgamation with the existing set-up is desirable
whether any sick units are to be taken over
whether any joint ventures are to be floated, etc.

On the basis of such an analysis, every organisation must prepare itself for a change in the coming decade. The change is to be expected mainly in the area of man-management. Organisations will have to tackle the following problems connected with personnel:

Eroding work ethics
Stagnation of employees

Declining productivity
Changing skill requirements
Rising wages
Surplus manpower and ‘dead-wood’
Flexible job classification
Militancy among workmen

A suggested model for new locations is as follows:

OLD MFG. UNITS	NEW MFG. UNITS
1. Labour Intensive	Capital Intensive
2. Obsolete Technology	New Technology
3. Eroded Work-ethics	Farmer’s Work-ethics
4. Emphasis on ‘Rights’	Emphasis on ‘Duties’
5. Highly centralised decision-making	Decentralised decision-making
6. System/procedure oriented	Action/Result oriented
7. Many levels of hierarchy	Few levels of hierarchy
8. Impersonal Industrial relations	Personalised Industrial relations
9. Consultative style	Participative style
10. Fat, Sluggish, Slow response	Lean, Alert, Quick-on-the-Draw
11. Input oriented	Output oriented

The suggested strategies to counter these problems are:

a) Decentralised personnel set-up
b) Employee involvement
c) Change in the management attitude
d) Emphasis on Workers’ Education
e) Better communication

7.18 PROJECT “WARM”

It is general experience that industrial organisations that have been in existence for about 25 years now, are characterised by high wages, general lethargy, erosion of work ethics, low morale and excessive job security. This invariably results in the total stagnation of such organisations as also of the employees and leads to the organisation losing its competitive spirit and edge over others.

New and modern industries with younger work force, with a set of modern values and new work culture pose a serious threat to such old, established organisations.

In order to keep the industrial organisations trim and fit and more cost effective, it is recommended that Project “WARM” be adopted by all the Industrial Organisations. (Refer Annexure–VII). The contents may vary slightly, depending upon the needs of the individual organisation.

Annexure Page

ANNEXURES

ANNEXURE – I

(Refer Page 1)

PRODUCTION / PRODUCTIVITY LINKED WAGE SCHEME

In order to motivate the employees to achieve better production/productivity that will enable the Company to maintain its leading position in the market, the following schemes for additional payment are recommended. These schemes form part of an "agreement" between Union and Management in one of the large organisations surveyed.

1. QUARTERLY EX-GRATIA LUMPSUM PAYMENT (PRODUCTION RELATED)

It is agreed that each employee (confirmed and probationary) will be paid an ex-gratia lumpsum, linked to his basic wage/salary after achieving the base output for the previous quarter. (Rs. 500/Q. to Rs. 550/Q. depending on basic wages – in this Company).

The Base output will increase progressively each year, for the following three years.

The Base output is worked out in terms of a standard machine manufactured in the unit and includes a certain predetermined percentage of spares and accessories.

The Agreement also includes the following clause:

"In view of the introduction of this scheme of quarterly ex-gratia lumpsum payment, the Association/employees shall not demand payment of ex-gratia lumpsum which was being paid annually hitherto before or demand any other payment, for the period covered by this settlement."

2. MONTHLY INCENTIVE PAYMENT (PRODUCTIVITY RELATED)

It is agreed that if the employees achieve production output in excess of the base output for the month, the employees will be paid monetary incentive for each such additional equivalent unit as follows:

a) Incentive base rate for direct workmen
→ Rs. 75/- per equivalent unit

b) Incentive base rate for indirect workmen
→ Rs. 65/- per equivalent unit

Direct workmen means workmen engaged in direct production work.

Indirect workmen means all workmen employed in Stores, Inspection, Plant maintenance, offices and Security Services.

Formula for Incentive Calculation:

Actual applicable rate for each unit =

EXAMPLE

1. When:

Base output (month) = 16 units
Actual production = 18 units

a) For Direct Workmen

Applicable rate for 17th unit:

Applicable rate for 18th unit:

Total Incentive earned during the month = Rs. 164.10

b) For Indirect Workmen

Applicable rate for 17th unit:

Applicable rate for 18th unit:

Total Incentive earned during the month = Rs. 142.10

Additional Condition:

"If the employees have been paid production incentive for any month in a quarter and if the production output falls below the Base output in any month in that quarter, the production incentive already paid will be deducted at 50% of the applicable incentive rate for the units from the ex-gratia lumpsum amount payable for that quarter."

EXAMPLE (Continued Incentive Scheme)

EXAMPLE

Let the Base output be 16 units per month (48 units per quarter).
Let the applicable rate for:

1st unit = Rs. 79.70
2nd unit = Rs. 84.40
Let the ex-gratia payable for the quarter be Rs. 500/-

Case – 1

Month	Base Output	Actual Output	Remarks
October	16	18	Incentive payable for 2 units = Rs. 164.10
November	16	17	Incentive payable for 1 unit = Rs. 79.70
December	16	15	Incentive not payable

Total:
Base Output = 48
Actual Output = 50

Although December output is less than the base output, the cumulative output in the quarter is more than the base output by 2 units.

👉 Therefore, ex-gratia (Rs. 500) will be reduced by 50% of applicable incentive rate for 1st unit:

50% of Rs. 79.70 = Rs. 39.85

Final Calculation:

Ex-gratia = Rs. 500.00
Less = Rs. 39.85
Net amount = Rs. 460.15

Case – 2

Month	Base Output	Actual Output	Remarks
October	16	18	Incentive payable = Rs. 164.10
November	16	14	Incentive not payable
December	16	14	Incentive not payable

Total:
Base Output = 48
Actual Output = 46

👉 Since cumulative output is less than base output,

Ex-gratia is not payable
Incentive already paid cannot be deducted

ANNEXURE – II

PRODUCTIVITY MEASUREMENT RATIOS

1. PRODUCTION MANAGEMENT

1.1 ENGINEERING WORKSHOPS

1.1.1 Fabrication Shops

Standard Time ÷ Actual Time
(for Fabricators on jobs for which standard times are established)
Estimated Time ÷ Actual Time
(for Fabricators / Welders / Small Tool Operators where standard times are not available)
Allowed Time ÷ Actual Time
(based on foreman judgment and time standards, wherever available)
Number of electrodes burnt per shift per welder
(adjusted for machine breakdown, leaves, welding position, electrode gauge, etc.)
X-ray defects (%)
(defective shots per total shots per welder/shop)

1.1.2 Machine Shops

Actual Time ÷ Standard Time
(for drilling section)
Actual Time ÷ Allowed Time
(based on foreman judgment and time standards)
Machine Utilisation Ratio:
Actual time machines are used ÷ Total available machine time
Spare Consumption Ratio:
Value of spares consumed ÷ Cumulative depreciation of machines
(used for high-value machines)

1.2 SWITCHGEAR MANUFACTURING

1.2.1 Switchboard Manufacturing

1.2.1.1 Link Shop

Kgs processed/sheared per man-hour

1.2.1.2 Fabrication Shop

Sheet steel kgs sheared per man-hour
Output in Standard man-hours ÷ Input in Actual man-hours
(This ratio is worked out for each group of fabrication shops separately as well as combined)

1.2.1.3 Paint Shop

Area painted (in sq. meters) per man-hour

1.2.1.4 Module Assembly Shop

Man-hours per equivalent panel

1.2.1.5 Non-standard Shops

Man-hours per equivalent panel

1.2.1.6 Final Assembly Shops

Man-hours per equivalent panel

1.2.1.7 Packing Shops

Man-hours per equivalent loose box packed
Man-hours per equivalent case packed

NOTE:
All the ratios mentioned under 1.2.1 above are compared with the corresponding standards to measure productivity level.

1.2.2 Assembly, Components & Finishing Shops

Output in Standard Man-hours ÷ Input in Actual Man-hours

1.2.3 Static Control Shops

Output in Standard Man-hours ÷ Input in Actual Man-hours

1.3 EARTHMOVING MACHINERY MANUFACTURING

1.3.1 Base Hours ÷ Actual Hours

Base hours represent actual work content of the job, calculated using time standards
Actual hours represent real time spent including operational, setup, and non-productive time

1.3.2 Hourly Hours ÷ Base Hours

Hourly hours = total labour hours (direct + indirect)
Derived from attendance records
Represents total labour required to manufacture

👉 This ratio indicates total man-hours required per base hour

1.3.3 Direct Labour Yield (%)

Scrap hours = loss due to rejection/spoilage
50% of total base hours per finished part taken as scrap benchmark
Used to normalize discrepancies

👉 Represents true performance efficiency

1.3.4 Spoilage Ratio

1.4 WELDING ELECTRODE MANUFACTURING

1.4.1 Electrode Shop

Kgs of electrodes produced per man-hour worked
Output in Standard Hours ÷ Input in Actual Hours

1.4.2 Melting Shop

Number of heats per shift
Compared with past performance benchmarks

2. SERVICE MANAGEMENT

2.1 MAINTENANCE DEPARTMENT

2.1.1 Air Conditioning & Refrigeration Section

Tonnage of AC & Refrigeration maintained per person

2.1.2 Power Supply & Generations

% Power cut
Units purchased
Fuel cost per kWh of generated power

Direct cost per unit of:

Purchased power
Generated power
Weighted average of purchased and generated power

2.1.3 Estate Maintenance

Total floor area ÷ Total number of persons engaged in maintenance work
Total floor area ÷ Total number of sweepers and cleaners (including contractors)
Total garden area ÷ Total number of gardeners

2.2 COMPUTER CENTRE

Computer utilization =
Total uptime hours ÷ Total available hours
Progress of systems development/programming work against targets

2.3 O&M SECTION

Annual recurring savings for implemented proposals
(for this month, last month, cumulative)
Number of procedures introduced/revised
Number of forms introduced/revised
Number of forms improved through scrutiny of printing requisitions

2.4 TRANSPORT

Number of accidents for transport vehicles

Vehicle-days lost in repairs in garage
Fuel consumption of buses (litre/100 km)
Cost of bus maintenance per km run
Number of buses reaching late to work
Number of instances where breakdown time > 8 hours
Number of breakdowns on road

2.5 SAFETY

2.5.1 Frequency Rate

2.5.2 Severity Rate

2.6 CANTEEN

Total number of persons fed ÷ Total number of employees
Food sale at constant price per canteen employee

2.7 SECURITY

Number of thefts and value of thefts

Break-up:

Reported to security department
Detected by security department (against reported cases)
Detected by security department on its own
(for the month and cumulative)

2.8 OVERALL SERVICE

Expenses of service departments ÷ Production (at sales value)
Production at constant price ÷ Number of employees in service departments
Number of employees in service departments ÷ Total number of employees

3. MATERIALS MANAGEMENT

3.1 INVENTORY

3.1.1 Manufacturing Materials Inventory

Value and in terms of DOC (Actual vs Budget)

3.1.2 Work-in-Progress Inventory

Value and in terms of Days of Production (Actual vs Budget)

3.1.3 Finished Goods Inventory

Value and in terms of Days of Sales at Cost (Actual vs Budget)

3.2 PURCHASE

3.2.1 Purchase Requests (PRs)

Number of PRs received
Number of PRs pending (Total and over one month)

3.2.2 Purchase Orders (POs)

Normal POs – Number & Value
Rush Orders – Number & Value
Cash Purchase – Number & Value
Amendments – Number & Value

3.2.3 Savings

Difference between PR & PO value
Overtime hours (Actual vs Budget)

3.3 MATERIAL CONSUMPTION

Quantity scrapped (Actual vs Budget/Target)

3.4 STORES

3.4.1 Receiving Section

3.4.1.1
Delay in preparation of Goods Receipt Note (GRN), measured by % of GRNs prepared within 2 days and 5 days from receipt of materials

3.4.1.2
Delay in release of GRNs, measured by % of GRNs released within 2, 5 and 10 days from receipt

3.4.2 Warehouse

3.4.2.1
Delay in collection of finished goods against Stores Credit Notes, measured by % collected within 2 and 5 days

3.4.2.2
Delay in issue of materials against Material Requisitions (MRs), measured by % issued within 2 and 5 days

3.4.3 Despatch Section

Delay in dispatch measured by % of consignments dispatched within 1, 2, 3, 4 and 5 days

3.4.4 Material Handling & Goods Traffic Section

Delay in collection of consignments measured by % collected within 1–5 days

NOTE:
All parameters under 3.4.1 to 3.4.4 are compared with targets to measure efficiency

3.4.5 Disposal Section

3.4.5.1

Value of disposal requests pending at month-end (compared with previous months)

3.4.5.2

Recovery against original value of disposal requests (surplus/obsolete items)
Monthly tracking and trend analysis

4. FINANCE MANAGEMENT

4.1 WORKING CAPITAL

Customer outstanding
Customer advances
Finished goods inventory

(All measured in value and Days of Sales, Actual vs Budget, for each regional sales section)

4.2 ASSETS

Inventory Turnover Ratio
Fixed Assets Turnover Ratio
Total Assets Turnover Ratio
Sales value of production at constant prices per 100 sq. meters of space

5. MARKETING MANAGEMENT

5.1 MARKETING

Order-booking per person in Sales Departments
Order-booking, sales, and order-backlog
for each Regional Sales section separately
(Actual vs Budget)

Page 53

ANNEXURE III (Refer Page 5)

EXTRACT FROM STATEMENT OF POLICY

“IT IS OUR ENDEAVOUR TO ENGINEER AND MANUFACTURE PRODUCTS WITH A LEVEL OF IN-BUILT QUALITY WHICH WILL RESULT IN THEIR SAFE AND RELIABLE PERFORMANCE AND WHICH WILL BE RECOGNISED BY OUR CUSTOMERS AS BEING SURPASSED BY NONE OF OUR COMPETITORS.

THE QUALITY ASSURANCE PROGRAM HAS BEEN DESIGNED TO ACHIEVE THIS OBJECTIVE. THIS PROGRAM COVERS THE ENTIRE RANGE OF ACTIVITIES RELATED TO THE ENGINEERING AND MANUFACTURING OF OUR PRODUCTS SUCH AS HEAT EXCHANGERS, CHEMICAL REACTORS, PRESSURE VESSELS, STORAGE TANKS, ETC.

THE MANAGEMENT OF LARSEN & TOUBRO LIMITED EXTENDS ITS FULL SUPPORT TO THIS PROGRAM AND EXPECTS ALL EMPLOYEES TO BE STRICTLY GUIDED BY THE SYSTEMS AND PROCEDURES LAID DOWN IN THIS QUALITY ASSURANCE MANUAL.

THE MANAGER – QUALITY & INSPECTION IS IN-CHARGE OF THIS PROGRAM AND HAS FREEDOM TO IDENTIFY QUALITY CONTROL PROBLEMS AND TO INITIATE, RECOMMEND AND PROVIDE SOLUTIONS.

IF THERE IS A CONFLICT, THE MATTER SHOULD BE BROUGHT TO THE ATTENTION OF THE GROUP GENERAL MANAGER FOR A FINAL DECISION.”

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Thursday, 3 March 2016

PRODUCTIVITY IMPROVEMENT PRACTICES

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