Materials management

'Materials management is a core supply chain function and includes supply chain planning and
supply chain execution capabilities. Specifically, materials management is the capability firms use to
plan total material requirements. The material requirements are communicated to procurement and
other functions for sourcing. Materials management is also responsible for determining the amount
of material to be deployed at each stocking location across the supply chain, establishing material
replenishment plans, determining inventory levels to hold for each type of inventory (raw material,
WIP, Finished Goods), and communicating information regarding material needs throughout the
extended supply chain.
Typical roles in Materials Management include: Materials Manager, Inventory Control Manager,
Inventory Analyst, Material Planner, Expediter and emerging hybrid roles like "buyer planner".
The primary business objective of Materials Management is assured supply of material, optimum
inventory levels and minimum deviation between planned and actual results.

Supply chain materials management areas of concentration[edit]

Goals[edit]
The goal of materials management is to provide an unbroken chain of components for production to
manufacture goods on time for customers. The materials department is charged with releasing
materials to a supply base, ensuring that the materials are delivered on time to the company using
the correct carrier. Materials is generally measured by accomplishing on time delivery to the
customer, on time delivery from the supply base, attaining a freight, budget, inventory shrink
management, and inventory accuracy. The materials department is also charged with the
responsibility of managing new launches.
In some companies materials management is also charged with the procurement of materials by
establishing and managing a supply base. In other companies the procurement and management of
the supply base is the responsibility of a separate purchasing department. The purchasing
department is then responsible for the purchased price variances from the supply base.
In large companies with multitudes of customer changes to the final product there may be a separate
logistics department that is responsible for all new acquisition launches and customer changes. This
logistics department ensures that the launch materials are procured for production and then
transfers the responsibility to the plant materials management
Materials management[edit]
The major challenge that materials managers face is maintaining a consistent flow of materials for
production. There are many factors that inhibit the accuracy of inventory which results in production
shortages, premium freight, and often inventory adjustments. The major issues that all materials
managers face are incorrect bills of materials, inaccurate cycle counts, un-reported scrap, shipping
errors, receiving errors, and production reporting errors. Materials managers have striven to
determine how to manage these issues in the business sectors of manufacturing since the beginning
of the industrial revolution.

Without the materials management process, products are not able to adequately receive the parts that
are needed in order to complete the product. Materials management can efficiently source, purchase,
store, and utilize materials within their supply chain and production timeline, which can optimize
overall production within your manufacturing operation.
 Materials Management - Functions and
Objectives
Basic functionality of materials management includes various factors such as supply, material
pricing, and usage. Taking a more in-depth look at the functions of materials management and how it
is advantageous to your supply chain can enable your production facility to locate areas where aid is
needed. Various functions of materials management include the following:
 Production Control - As production schedules are generated through demand analysis, the materials that are needed are
determined. It is important to find readily available materials to make sure that production flows smoothly.

 Purchasing - As production management hands off the materials that are needed, the parts are then purchased from
various and frequent suppliers. Locating quality materials at a reasonable price can reduce overall cost within the materials
management process.

 Transportation - Arrangement of transportation has to be done in a quick and efficient manner. The type of transportation
can vary based off of the operation, depending on how frequently materials are bought.

 Receiving - This area of materials management takes the initiative in unloading and counting materials. This is where the
parts are distributed to the correct locations and where the process ends.

Along with the functionality within materials management, the objects within the process are the
following:
 Material Cost Reduction

 Accurate Machinery Utilization

 Labor Depletion Averting

 Material Investment Control

 Bottleneck Avoidance

Materials management has successfully optimized production in various facilities, but the process
cannot effectively stand alone. Implementing an advanced planning and scheduling system (APS) is
the next step in overall cost reduction, inventory reduction, and material flow enhancement.

Benefits of Material Management in ERP

Material Management is an important process in Supply Chain Management which is essential to
transform inputs into outputs. It is the process of planning, organizing, staffing, directing and controlling
the flow of materials from their initial purchase to destination. It is at this stage that a lot of wastage
happens in terms of inventory and money. Mismanagement of inventory, even if they are in small
numbers, is a loss for the company. Hence, for this reason, there is a supply chain management personnel
designated who has the authority and the responsibility for all the activities mainly concerned with the
flow of materials into an organization- purchasing, production, planning, scheduling, incoming traffic,
inventory control, receiving and stores.
 While the supply chain manager does use Inventory management software, there might be a lot of
processes which might be needed to be done manually. An ERP solution for material
management provides the flexibility and out of the box approach to handle material management under
one roof.

Advanced planning and scheduling (APS) software offers as an extension of the materials
management process. Through master and material planning, easily be able to up your production
and material flow process with various capabilities such as:
 Flexible Accommodations

 Fast, Flexible Optimization

 Adaptive Factory Modeling

 Multi-User Capabilities

Integration of an advanced planning and scheduling (APS) system will efficiently enhance your
manufacturing operation through increased revenue and reduced production time. Separate yourself
from the competition and turn your factory into a profit center.
Store-Keeping: Meaning, Types, Objectives Functions and Working
of the Stores!
Meaning:
After the completion of purchase procedure, the next important aspect Of
materials management is storekeeping.

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A storehouse is a building provided for preserving materials, stores and

finished goods. The in-charge of store is called storekeeper or stores manager.
The organisation of the stores department depends upon the size and layout of
the factory, nature of the materials stored and frequency of purchases and
issue of materials.
According to Alford and Beatty “storekeeping is that aspect of material control
concerned with the physical storage of goods.” In other words, storekeeping
relates to art of preserving raw materials, work-in-progress and finished goods
in the stores.

Types:
Stores may be centralised or decentralised. Centralised storage means a single
store for the whole organisation, whereas decentralised storage means
independent small stores attached to various departments. Centralised
storekeeping ensures better layout and control of stores, economical use of
storage space, lesser staff, saving in storage costs and appointment of experts
for handling storage problems. It further ensures continuous stock checking.

It suffers from certain drawbacks also. It leads to higher cost of materials

handling, delay in issue of materials to respective departments, exposure of
materials to risks of fire and accident losses are practical difficulties in
managing big stores.

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On the other hand, decentralised stores involve lesser costs and time in
moving bulky materials to distant departments and are helpful in avoiding
overcrowding in central store. However, it too suffers from certain drawbacks
viz., uniformity in storage policy of goods cannot be achieved under
decentralised storekeeping, more staff is needed and experts may not be
appointed.

Objectives of storekeeping:
Following are the main objectives of an efficient system of
storekeeping:
1. To ensure uninterrupted supply of materials and stores without delay to
various production and service departments of the organisation.

2. To prevent overstocking and understocking of materials,

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3. To protect materials from pilferage, theft fire and other risks.

4. To minimise the storage costs.

5. To ensure proper and continuous control over materials.

6. To ensure most effective utilisation of available storage space and workers

engaged in the process of storekeeping.

Functions of Storekeeping:
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In the light of above objects, the functions performed by the stores

department are outlined below:
1. Issuing purchase requisitions to Purchase Department as and when
necessity for materials in stores arises.

2. Receiving purchased materials from the purchase department and to

confirm their quality and quantity with the purchase order.

3. Storing and preserving materials at proper and convenient places so that

items could be easily located.

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4. Storing the materials in such a manner so as to minimise the occurrence of

risks and to prevent losses due to defective storage handling.
5. Issuing materials to various departments against material requisition slips
duly authorized by the respective departmental heads.

6. Undertaking a proper system of inventory control, taking up physical

inventory of all stores at periodical intervals and also to maintain proper
records of inventory.

7. Providing full information about the availability of materials and goods etc.,
whenever so necessary by maintaining proper stores records with the help of
bin cards and stores ledger etc.

Working of the stores:

There are four sections in the process of storekeeping viz.

(a) Receiving section,

(b) Storage section,

(c) Accounting section, and

(d) Issue section.

These are explained as under:

(a) Receiving Section:
There are four kinds of inventories received by stores viz., (i) raw materials,
(ii) stores and supplies, (iii) tools and equipments, (iv) work-in- progress or
semi-finished goods.

Following procedure is followed in receiving these inventories:

(i) Receiving these incoming materials in stores.

(ii) Checking and inspection of these incoming materials and stores etc.
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(iii) Recording the incoming materials in goods received book.

(iv) Preparing and forwarding goods inwards note to purchasing section.

(v) Informing the purchase department about damaged and defective goods
and surplus or deficit supplies etc. along with rejection forms and notes.

(vi) Returning damaged or defective goods to the suppliers in accordance with

the instructions of the purchase department.

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(vii) Forwarding the materials to respective stores and locations where these
are to be stored or preserved.

(b) Storage Section:

The store room should be located at a convenient and appropriate place. It
should have ample facilities to store the materials properly viz. bins, racks and
shelves etc. There can be a single store room in case of a small organisation,
but a large scale concern can have different or multiple stock rooms in
addition to general or main store.

The separate stockrooms may be used for different classes of inventories. The
material should be stored in such a manner as to protect it against the risks of
damage, destruction and any kind of loss. Each article should have identifying
marks viz., stamping, embossing, colour, coding and painting etc. These risks
are very useful in locating or identifying an article in the stores.
(c) Accounting Section:
This section is concerned with keeping proper records with regard to receipt
and issue of materials. The primary task of this section is to undertake the
process of inventory control.

(d) Issue Section:

The materials should be issued to respective departments on receiving duly
authorised requisition slips. An entry should be made immediately on the bin
card attached with the bin from where the material has been issued.

Bin cards contain valuable information with regard to receipt and issue of
materials, which is greatly helpful in exercising a system of inventory control.
These cards are further helpful in determining various levels of materials viz.,
maximum, minimum, and re-ordering level.

STORE KEEPING, ITS FUNCTION &

OBJECTIVES
by Priyanka Anand • August 17, 2018 • Comments Offon STORE KEEPING, ITS FUNCTION & OBJECTIVES

Storekeeper is a service function. Store keeping is the function of receiving materials, storing them and issuing
these to workshops and departments in order to maintain demand and supply.

The stores department is under the control of person known as storekeeper. The storekeeper is the custodian
of all the items kept in the store. The store should be spacious, well lit and well equipped so that cost can be
minimised and service can be provided effectively.

Objectives of storekeeping are:

1. To protect stores against losses of goods and in turn help in profit making.
2. To keep goods always ready for delivery/issue in any circumstances.
3. To provide maximum service at reasonable cost.
4. To avoid over stocking and under stocking and maintain demand and supply.
5. To facilitate perpetual inventory.

Function of storekeeping:

 Receipt of material into storage: when materials come for storage then storekeeper has to unload it,
inspect it and then move materials to stores. The storekeeper has to classifies the materials, stores at
appropriate places and record the receipts in proper books in order to remove errors.
 Record keeping:The stores records should be maintained in an efficient and orderly manner so that
materials can be easily located and information can be obtained for various departments.
 Storage of materials: The stores should provide maximum protection and safety and accessibility and
utilise minimum space. Suitable storage device should be installed.
 Maintaining stores: To keep the stores in the desired condition over a period of time depends on the
nature of the materials, length of time in storage, rates of deterioration. Special covering or periodic
lubrication is necessary to prevent damage due to atmospheric conditions.
 Issuing stores: This function should be performed most efficiently, promptly and accurately. All issues
should be properly recorded. All issues should be duly authorised and procedures laid down should be
duly followed.
 Co-ordination with material control: The storekeeper is partly responsible for such co-ordination. Much
depends on the type of production, size of the company, the organisation structure, etc.
 Ensure that all transaction is ensured in the Bin Card and that the Bin Card is up to date.
 All items should keep in its proper place.
 Maintenance of stores at required levels.
 Neatness in stores to facilitate physical verification.
 Co-ordination and supervision of staff in the stores department.
 Periodic review of various scales, measuring instruments, conversion ratios etc.
 Protect stores from fire, rust, erosion, dust, theft, weather, heat, cold, moisture and deterioration et
 What is Store keeping accounting? Types of store
keeping and Objective of store keeping
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 What is Store Keeping?

What is Store keeping accounting? Types of store
keeping and Objective of store keeping?
 Store keeping

 Meaning of store keeping

 Store keeping is a specialized and important function of materials control that is especially

concerned with the physical storage of goods. The storekeeper is responsible for safeguarding

and keeping the materials and suppliers in proper place unit required in production


 . It is service function and the store keeping is the in-charge of store keeping. He is the

warden of the service and the store and maintains a record of all movements of materials.

Storekeeper is in fact a connecting like between planning and the production department.

Purchase control must be effective stores control to avoid losses from damage, deterioration

and carelessness.

 Objective of store keeping

 Store keeping involves handling and recording of materials. Following are the main objective

of store keeping:

 i. Effective use of available store space.

 ii. It avoid over and under stocking of materials.

 iii. Efficient and economical receiving, handling and issuing of stores.

 iv. Protecting goods stores against fire, loss, theft, and obsolescence.

 v. Ensuring adequate and timely supply of store under proper requisition and authorization.

 Types of stores
 Although there are various types of store, following are the commonly used by manufacturing

company. Basically, there are three types of store as follow:

 • Centralized stores

 • Decentralized stores

 • Centralized stores with sub-stores.

 Centralized stores
 If there is only one store to receive and issue materials to all department of a concern, such

store is called entertained stores. In this type of store, all materials are kept at one central

store. Materials are received by and issued from stores department in centralized stores. This

type of store is used by most of the manufacturing company. The main objective of centralized

store is to purchase and issue all the materials required by the entire department.

 Advantage of centralized stores

 i. There is a better control over store under centralized stores since all the material are stored

centrally. This enables effective supervision of stores.

 ii. There is minimum investment since it is not necessary to establish separate store for each

department.

 iii. Centralized stores achieve economy die to less administrative and supervision costs.

 iv. The layout of stores can be made simple and scientific.

 v. It helps to gain expertise in store management.

 Disadvantage of centralized stores

 i. There is a very high risk under centralized store in case of theft, fire etc.

 ii. It increases transportation cost because of the distance to other departments.

 iii. It also increases the materials handing cost.

 iv. It requires high supervision cost.

 v. It needed more space for storing materials.

 Decentralizes stores
 This store has been emerged due to disadvantages of centralized stores. It is a just reverse

system of centralized stores. Under this system of store, there is an independent or separated

store in each department. Each department has to make a separate store for recording the

materials en each department. Each department has to make a separate store for recording

the materials they required. It is not so popular because it requirement more cost to set up a

separate store in each department.

 Advantages of decentralized stores

 i. Internal transportation cost can be saved.

 ii. Material handling process is rapid in this system.

 iii. Controlling systems is more better.

 iv. Loss can be minimized in this system.

 Disadvantages of decentralized stores

 i. More storekeepers are needed.

 ii. More cost for staff and administration are required.

 iii. Each department needs separate location for store.

 iv. More investment in needed.

 Centralized stores with sub-

stores
 In this store, the implores system of stores is used where each sub-store is given some

beginning stock. In big organization, the central store is far from production department and

due to which transportation cost increases. To reduce the cost of handing and transportation,

a sub-store is maintained nearby production department. Sub-store is managed by central

store. Sub-store gets materials from central store.

 Advantages of central stores with sub-

stores
 i. It facilitated for control and supervision.

 ii. It solved the problem of space availability.

 iii. It reduces the transportation cost.

 iv. There will be minimum loss in case of accident.

 Disadvantages of central stores with sub-
stores
 i. Store control is being difficult and complex.

 ii. Fixed cost will increase due to extra staffs.

 iii. Required more investment is stores.

 iv. Stock checking will be time consuming.

 Location of store
 Place is also known as location. So location of store means the place where the store is

situated. While selecting the location of store, purchase department must be careful in various

facts. Because location of store at proper place helps to minimize the cost of handling

materials. The layout of the store must be considered. The store should be divided into racks

which should be future sub-divided into small spaces. This space is knows as bin.

 Factors to be consider for selecting location of stores

 i. It should be located at a central and safe place.

 ii. It must be located near to production department.

 iii. It must have enough space to keep the purchase materials.

 iv. It should be easily accessible to the other entire department.

 v. It must be equipped with enough bins and racks.

 Storekeeper
 Storekeeper is a person appointed for taking care of store. He is in-charge of the store and

responsible for the control of store. Normally, all the big manufacturing concern appoints a

storekeeper. He has a important role in store keeping. The storekeeper must have some

technical knowledge and experience is store routine. Except this, he should be trained, honest,

loyal and responsible. Storekeeper is also called store manager or store superintendent.

 Duties and responsibilities of storekeeper

 A storekeeper should be responsible for the following functions:

 i. Avoiding damage and deterioration of goods.

 ii. Providing security against loss, fire and accident.

 iii. Performing checking function on work completed.

 iv. Protecting against the consequences of non-availability of materials.

 v. Recording and receiving of materials in store.

 vi. Classification and codification of items which is received by store.

 vii. Prohibited unauthorized persons from entering inside the store.

 Store keeping procedure or

store routine
 After receiving materials by receiving or store keeping department, store keeping has to

perform various activities relating to materials. It is known as store keeping procedures or

store routing under store routine, following procedure has to be done:

 i. Classification and codification of materials.

 ii. Recording of materials received

 iii. Issuing of materials

 Classification and codification

of materials
 Classification and codification of materials facilitates prompt identification of the materials in

storage when they are being issued to production departments. All items in the stores should

properly be classified and codified. Goods which are received by store must be scientifically

classified and coded.

 Classification of materials

 As per the nature of materials, it must be classified in various groups of goods. Materials are

classified to make issuing, storing and identifying materials easily and quickly. So materials

are first classified on the basis of their nature and types. It may be classified as construction

materials, consumable store, spare parts, lubricating etc.

 Codification of materials
 After classification of materials in various groups, they are codified again. Coding means to a

numbers or distinctive symbols to a specific materials of stores with a arrangement for prompt

identification. It is procedure for assigning symbols for each item in properly with proper

arrangements to facilitate storing. The symbol allotted to the materials is known as 'code'.

 They are three method of codification of materials:

 a. Alphabetical: alphabets are used for codification of each group of material e.g. A,

B, C…

 b. Numerical: Numbers are used for codification of each group of materials e.g. 101,

102…
  c. Alpha-numeric: both alphabets as well as numeric are used for codification of each

group of material e.g. A-101, A-102…

 Advantages of classification and

codification of materials:
 i. It helps to maintain secrecy of materials.

 ii. It facilitators to locate and identified the materials.

 iii. It avoids duplication of multiple names of materials.

 iv. A coding system helps in the maintenance of mechanized accounts.

 Recording of materials received

 After classification and coding of materials, next step on store route is recording of materials

received by store department. Following are the two system of material recording received by

store:

 • Bin card
 • Store ledger
 Bin card
 Bin card term used o symbolize the place or shelf or rack or pigeon-holed or even a big room

where materials are stored and the card attached to the bin or tag hung up there is known as

bin card. Bin card shows quantitative details of receipts, issue and balance of materials in the

bin. This card also shows the maximum level, minimum level and re-orders level of the

materials. It helps the storekeeper to control materials. Bin card is used by the storekeeper to

keep only quantities record for all items of materials in store remember that, it does not

record the value of materials.

 Store ledger
 Store ledger is maintained by costing department. This ledger shows the information for the

pricing of materials issued and the money value at any time of each items of store. Store

ledger contains and account for every item of stores and makes a record of the receipts, issue

and the balance, both in quantity and value. It contains the name, part number of the items,

and bin number.

What is Store keeping accounting? Types of store keeping

and Objective of store keeping
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Methods of Pricing Material Issues:
11 Methods | Costing
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The important methods followed in pricing of issue of materials are:- 1. Actual

Cost Method 2. First-In First-Out (FIFO) Method 3. Last-In First-Out (LIFO)
Method 4. Highest-in First-Out (HIFO) Method 5. Simple Average Cost
Method 6. Weighted Average Cost Method 7. Periodic Average Cost Method 8.
Standard Cost Method 9. Replacement Cost Method 10. Next in First Out
(NIFO) Method 11. Base Stock Method.

1. Actual Cost Method:

Where materials are purchased specially for a specific job, actual cost of
materials is charged to that job. Such materials will normally be stored
separately and issued only to that particular job.

2. First-In First-Out (FIFO) Method:

CIMA defines FIFO as “a method of pricing the issue of material
using, the purchase price of the oldest unit in the stock”. Under this
method materials are issued out of stock in the order in which they were first
received into stock. It is assumed that the first material to come into stores
will be the first material to be used.
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Advantages:
(a) It is easy to understand and simple to price the issues.

(b) It is a good store keeping practice which ensures that raw material leave
the stores in a chronological order based on their age.

(c) It is a straight forward method which involves less clerical cost than other
methods of pricing.
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(d) This method of inventory valuation is acceptable under standard

accounting practice.

(e) It is a consistent and realistic practice in valuation of inventory and

finished stock.

(f) The inventory is valued at the most recent market prices and it is near to
the valuation based on replacement cost.

Disadvantages:
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(a) There is no certainty that materials which have been in stock longest will
be used, if they are mixed up with other materials purchased at a later date at
different price.

(b) If the price of the materials purchased fluctuates considerably, it involves

more clerical work and there is possibility of errors.

(c) In a situation of rising prices, production cost is understated.

(d) In inflationary market, there is a tendency to under-price material issues.

In deflationary market, there is a tendency to overprice such issues.

(e) Usually more than one price has to be adopted for a single issue of
materials.

(f) The method makes cost comparison difficult of different jobs when they are
charged with varying prices for the same materials.

This method is more suitable where the size of the raw materials is large and
bulky and its price is high and can be easily identified in the stores separately.
This method is useful when the frequency of material receipts is less and the
market price of the material are stable and steady.
3. Last-In First-Out (LIFO) Method:
Under this method most recent purchase will be the first to be issued. The
issues are priced out at the most recent batch received and continue to be
charged until a new batch received is arrived into stock. It is a method of
pricing the issue of material using the purchase price of the latest unit in the
stock.

Advantages:
(a) Stocks issued at more recent price represent the current market value
based on the replacement cost.

(b) It is simple to understand and easy to apply.

(c) Product cost will tend to be more realistic since material cost is charged at
more recent price.

(d) In times of rising prices, the pricing of issues will be at a more recent
current market price.

(e) It minimizes unrealized inventory gains and tends to show the conservative
profit figure by valuation of inventory at value before price rise and provides a
hedge against inflation.

Disadvantages:
(a) Valuation of inventory under this method is not acceptable in preparation
of financial accounts.

(b) It is an assumption of a cash flow pattern and is not intended to represent

the true physical flow of materials from the stores.

(c) More than one price may have to be adopted for an issue.

(d) It renders cost comparison between jobs difficult.

(e) It involves more clerical work and sometimes valuation may go wrong.

(f) In times of inflation, valuation of inventory under this method will not
represent the current market prices.
4. Highest-in First-Out (HIFO) Method:
Under this method, the materials with highest prices are issued first,
irrespective of the date upon which they were purchased. The basic
assumption is that in fluctuating and inflationary market, the cost of material
are quickly absorbed into product cost to hedge against risk of inflation. This
method is used when the material is in short supply and in execution of cost
plus contracts. This method is not popular and not acceptable under standard
accounting practices.

5. Simple Average Cost Method:

Under this method all the materials received are merged into existing stock of
materials, their identity being lost. The simple average price is calculated
without any regard to the quantities involved. The simple average cost is
arrived at by adding the different prices paid during the period for the batches
purchased by dividing the number of batches. For example, three batches of
materials received at Rs. 10, Rs. 12 and Rs. 14 per unit respectively.

The simple average price is calculated as follows:

Rs. 10 + Rs. 12 + Rs. 14/3 batches = Rs. 36/3 batches = Rs 12 per unit

This method is not popular because it takes into consideration the prices of
different batches but not the quantities purchased in different batches. This
method is used when prices do not fluctuate very much and the stock values
are small in value.

6. Weighted Average Cost Method:

It is a perpetual weighted average system where the issue price is recalculated
every time after each receipt taking into consideration both the total quantities
and total cost while calculating weighted average price. For example, three
batches of material received in quantities of 1,000 units @ Rs. 15, 1,300 units
@ Rs. 16 and 800 units @ Rs. 14.

The weighted average price is calculated as follows:

(1,000 units x Rs. 15) + (1,300 units x Rs. 16) + (800 units x Rs. 14)/1,000
units + 1,300 units + 800 units
= Rs. 15,000 + Rs. 20,800 + Rs. 11,200/3,100 units = Rs. 47,000/3,100 units
= Rs. 15.16 per unit

This method tends to smooth out the fluctuations in price and reduces the
number of calculations to be made, as each issue is charged at the same price
until a fresh batch of material is received.

This method is easier as compared to FIFO and LIFO, as there is no necessity

to identify each batch separately. But this method increases the clerical work
in calculation of new average price every time a new batch is received. The
issue price calculated rarely represents the actual purchase price.

7. Periodic Average Cost Method:

Under this method, instead or recalculating the simple or weighted average
cost every time there is a receipt, an average for the accounting period as a
whole is computed.

The average price for all the materials issued during the period is
computed as follows:

8. Standard Cost Method:

Under this method, material issues are priced at a predetermined standard
issue price. Any variance between the actual purchase price and standard issue
price is written off to the Profit and Loss Account. Standard cost is a
predetermined cost set by the management prior to the actual material costs
being known and the standard issue price is used for all issues to production
and for valuation of closing stock.

If initially the standard price is set carefully then it reduces all the clerical
work and errors tremendously and the stock recording procedure is simplified.
The realistic production cost comparisons can be made easier by eliminating
fluctuations in cost due to material price variance. In a situation of fluctuating
prices, this method is not suitable.
9. Replacement Cost Method:
This method is also called as ‘market price method’. The replacement cost is a
cost at which material identical to that can be replaced by purchasing at the
date of pricing material issues; as distinct from the actual cost price at the date
of purchase. The replacement price is the price of replacing the material at the
time of issue of materials or on the date of valuation of closing stock.

This method is not acceptable for standard accounting practice, since it

reflects a cost which has not really been paid. If stocks are held at replacement
cost, for balance sheet purposes when they have been bought at a lower price,
an element of profit which has not yet been realized will be built into the Profit
and Loss Account.

This method is advocated by charging the market price of material to the job
or process, make it easier to determine the profitability of the job or process.
This method is suitable particularly in the inflationary tendency of market
prices of materials. Where there is no precise market for particular materials,
it would be difficult in ascertainments of replacement prices for the material
issues.

Types of Material Losses (With

Accounting Treatment) | Cost
Accounting
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The material requirements of production are issued on the basis of material

requisitions. The output is obtained along with wastage, scrap, spoilages and
defectives. The accurate cost of output can be computed after taking the losses
into account.
Losses in the form of waste, scraps, spoilage and defectives are inherent and
inevitable with any manufacturing activity. These losses can be controlled
through adequate reporting and responsibility accounting. Standard for each
type of loss is fixed. Actuals are compared and action is to be taken by the
management to control the abnormal losses, based on the variances.
The different types of material losses are discussed below:
1. Waste:
ADVERTISEMENTS:

Waste is inherent in any manufacturing activity. Waste is a part of raw

material lost in the process of production having no recoverable value. Waste
occurs invisibly in the form of evaporation or shrinkage. It can be visible and
solid also. Examples of visible wastes are gases, dust, valueless residue, etc.
Sometimes disposal of waste entails additional expenditure. Example- atomic
waste. Loss in the form of waste increases the cost of production.
Control of Waste:
A waste report is prepared periodically. The actual waste is compared with
standard waste and remedial action is taken to control abnormal waste.
Accounting Treatment:
ADVERTISEMENTS:

Waste has no value. The accounting treatment differs according to waste being
normal or abnormal.
i. Normal Waste:
This is the inherent waste while manufacturing. It is in the form of
evaporation, deterioration etc. The total cost of normal waste is distributed
among the good units of output.
ii. Abnormal Waste:
ADVERTISEMENTS:

The abnormal waste is transferred to costing profit and loss A/c to avoid
fluctuation in production cost.
2. Scrap:
Scrap, is the residue from certain manufacturing activities usually having
disposable value. It can also be the discarded materials which can fetch some
income. Examples of scrap are outlined material from stamping operations,
filings, Saw dust, short lengths from wood working operations, sprues and
‘flash’ from foundry and moulding processes. Scrap may be sold or reused.
Control of Scrap:
Scrap is controlled by fixation of standards for scrap, fixation of department
wise responsibilities for scrap, etc. Keeping up proper records of scrap and
periodical reporting helps in control of scrap. Actual scrap is compared with
standard scrap. Suitable action is taken for excessive actual scrap over
standard scrap.
Accounting Treatment:
(a) Sale Value of Scrap Credited to Profit and Loss A/c:
The sale value is credited to profit and loss account as other income. The cost
of output is inclusive of scrap cost. This method of accounting treatment is
adopted when the value is negligible.
(b) The Sale Value Credited to Overhead or Material Cost:
The sale value is reduced with selling cost of scrap and the net sale value is
deducted from factory overhead or from material cost. This method is adopted
when several jobs are done simultaneously and it is not possible to segregate
the scraps jobwise.
(c) Crediting the Sale Value to the Job or Process in which Scrap
Arises:
The sale value of scrap is credited to the job or process concerned from which
the scrap has arisen. This method is followed when identification of scrap with
specific jobs or processes is easy.
3. Spoilage:
Spoilage occurs when goods are damaged beyond rectification. Spoilage is
disposed off without further processing. Spoilage cost is the cost upto the
point of rejection less sale value.
The method of sale of spoilage depends on the extent of spoilage. Some of the
spoilage is sold as seconds if the extent of damage is less; rest may be sold as
scrap or treated as waste.
Control of Spoilage:
Spoilage is controlled through proper reporting about the extent of spoilage.
Standards are fixed as a percentage on production. Actual spoilage is
compared with standard and variance is recorded. If the actual spoilage is
more than the standard, suitable action is suggested to control it.
Accounting Treatment of Spoilage:
Accounting treatment depends on whether the spoilage is normal or
abnormal. Normal spoilage is borne by good units of output since it is inherent
with production and it happens even under efficient conditions. Abnormal
spoilage is avoidable under efficient conditions. The cost of abnormal spoilage
is charged to profit and loss account.

4. Defectives:
It is a part of production which can be rectified and made into good units with
additional cost. The defective work occurs due to raw materials of inferior
quality, bad planning and poor workmanship. Defective units are rectified
with additional cost of material, labour and overheads and sold as ‘first
quality’ or ‘seconds’.
(a) Control of Defectives:
As in the case of other losses, defectives are controlled by accurate and
periodical reports. Standards are fixed for defectives. Actual defective work is
compared with standards. If actuals are more than the standards remedial
action is taken to control it.
(b) Accounting Treatment of Defectives:
The accounting treatment depends on the extent of defectives production. If it
is normal being inherent with production, it is identified with specific jobs.
The cost of rectification is charged to specific jobs. If the cost is not traced with
a job, the cost of rectification is treated as factory overhead.
If the defective work is out of abnormal circumstances the cost of rectification
is transferred to profit and loss account.

5. Obsolete, Slow Moving and Dormant Stocks:

These items are part of inventory. They need suitable and timely action on the
part of the management to avoid occurrence of loss in due course and to
prevent locking up of working capital.
(a) Obsolete Stocks:
They are those stocks in the inventory which have been lying unused due to
change in product process and design or method of manufacturing. They are
generally out of date.
(b) Slow Moving Materials:
They are items in stock used at long intervals and thus lying idle for long
periods.
(c) Dormant Stocks:
They are items in stock not at all in use for a significant period of time.
The store keeper should highlight such items in his periodical reports so that
the management may try- (a) to dispose them off at any price or (b) clear them
out to save space in the stores (c) exercise caution in future purchase of such
items of materials.
Classifications of Losses of Material in an Organization are(i) wastage, (ii)
spoilage, (iii) scrap and (iv) defectives.
(i) Wastages:
Wastage of materials can be either normal or abnormal, normal
wastage is unavoidable and occurs on account of the following
reasons:
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(a) Evaporation of oil, chemicals and paints, etc.

(b) Leakage of certain liquid materials.

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(c) Natural decay or deterioration of materials e.g., rusting etc.

(d) Breakage in case of delicate material items.

Normal wastages are not separately recorded in costing books but are covered
by enhancing the production cost by increasing the unit price of materials
Issued for recovering the total cost out of a quantity which is actually used.
Abnormal wastages occur when normal limits of wastage are crossed. It is
transferred to Costing Profit and Loss account so as to avoid fluctuations in
production costs. Following reasons are responsible for such losses, viz.,

ADVERTISEMENTS:

(a) Accidents, fire and earth-quake etc.

(b) Defective and careless storage and handling of materials.

(c) Pilferage.

(d) Mischief on account of deliberate destruction and spoilage of materials.

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(e) Obsolescence of materials due to improper and irregular issue of materials

i.e., issuing fresh supplies earlier than old ones.

With certain care and caution, abnormal wastages can be minimised by

controlling certain controllable causes viz., pilferage, defectives and careless
handling and resorting to proper method of material issues to different jobs or
departments, etc,.

For apprising the authorities with regard to occurrence of wastage and

suggesting proper ways and means to control the same, a Waste Report is
prepared by the foreman or inspector concerned with the inspection of the job.

A specimen of Waste Report is given as under:

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(ii) Spoilage:
Spoilage refers to the deterioration of goods beyond rectification and is sold
out without any further processing. Spoilage is of two types. The first is
normal spoilage which occurs due to inherent nature of the manufacturing
operations.

Such spoilage is uncontrollable. Like normal wastage it is not recorded in the

books of cost accounts but its cost is spread over the remaining units.

The second type is abnormal spoilage which takes place due to certain
avoidable causes as explained while discussing abnormal wastage. It. is
debited to Costing Profit and Loss Account.

A specimen of spoilage report is given below.

(iii) Scrap:
Scrap may be defined as “the incidental residue from certain types of
manufacture usually of small amount and low value, recoverable without
further processing.” For example, outlined metal from turnings, borings, saw
dust, short lengths from wood work operations and iron dust from machines
and foundry works, etc.

The difference between scrap and waste is that the former is always available
after the completion of a particular production operation while the latter may
or not be available in the residue form.

For controlling or minimising scrap, proper standards for scrap should be

fixed in advance of actual operations and records in the form of Scrap Reports
should be prepared and preserved for future references.
Scrap can be of three types viz.,

(a) Pre-determined or Anticipated Scrap is fixed in advance at the time of

anticipation of costs.

(b) Administrative Scrap occurs due to obsolete design of a product.

(c) Defective Scrap takes place due to basic defects in raw materials,
production processes and other discrepancies leading to unsaleable products.

Accounting Treatment of Scrap:

ADVERTISEMENTS:

Under the first method, the realisable value of scrap is credited to Costing
Profit and Loss Account and termed as abnormal gain. The unit cost of the
product includes the value of scrap.

This method of recording scrap value is quite simple and can be employed
very successfully where the quantum of scrap is negligible. Effective control
over scrap lacks under this method as detailed records of scrap values are not
preserved and are un-identified to different jobs and processes.

Under the second method, the net sale proceeds of scrap (obtained after
deducting selling and distribution costs) is deducted from material cost or
factory overheads, thereby reducing the overall cost of materials and
overheads.

This method is most suitable where several production orders are undertaken
simultaneously and scrap values are not worked out for each order. Again this
method is very suitable in exercising control over scrap arising in different
processes and jobs.

ADVERTISEMENTS:
Under the third method, which is an improvement over the first two methods,
the scrap values realised are credited to each job, process or operation. This is
a detailed method and is immensely helpful in identifying scrap values in case
of every job, process or operation.

(iv) Defectives:
‘Defectives’ signify units or portion of production which can be rectified and
turned out as good units by the application of additional materials, labour or
other services. Defectives arise due to sub-standard materials, inadequate
equipment, inefficient supervision, defective planning and poor workmanship,
etc.

Usually, it is possible to avoid defects in the units produced but to some extent
defectives may be unavoidable. The basic difference between ‘defectives’ and
‘spoilages’ is that the former can be sold after rectifying them whereas the
latter has got to be rejected or sold as sub-standard or rejected articles.

A “Defective Work Report” is prepared by the inspector specifying information

pertaining to defective units, normal defectives, abnormal defectives, and cost
of rectification, disposal value of defectives and reasons and actions suggested.

Following is the specimen of defective work report.

Advantages of Material Handling Equipment

 POSTED ON 31ST JANUARY 2018 BY SOLUTIONS4U-ADMIN

Material handling equipment (MHE) is equipment used to transport, store or

control material within various facilities. These facilities can include the
manufacturing plants where the material is produced or the disposal sites
where it ends up. Large material handling equipment includes cranes, trucks
and lifts. Smaller equipment includes things such as storage bins, dollies and
even cartons. The purpose of material handling equipment is to quickly, safely
and more easily move material when compared with doing it manually.

Transportation

Transportation refers to any type of material handling equipment that moves

material from one spot to another. This can be from one facility to another,
from one end of the facility to the other or simply from a docking platform to a
storage area. Industrial trucks, haulers, cranes, conveyer belts and lifts are
types of transportation equipment. Cranes are used to move material but are
limited to certain zones. Lift trucks can move material just about anywhere,
and conveyor belts move material along a designated path.

Positioning

Positioning equipment is used to ensure that material is passed along safely.

This can entail pivoting, turning or stacking the material. The equipment that
handles positioned material can be transportation or storage equipment.
Positioning equipment is mainly used to cut down on worker fatigue, ensure
safer handling if the equipment is difficult to move manually, and move
equipment that is unsafe for human hands.

Unit Loads

Unit loads are equipment that stabilises or holds equipment to prevent

movement during transportation or storage. Pallets, skids, bags, cartons, load
containers, crates, straps, wrapping, bins, baskets and racks are some of the
various kinds of loading equipment. This equipment also allows more than
one item of the same material to be held by one unit load. For example, an
egg carton can carry a dozen eggs at once.

Storage

Storage allows material to sit in a facility, site or container for a long time until
it is needed. Racks, bins, frames and shelves are common examples.
However, there are many types of racks, including pallet racks, push-back
racks, sliding racks and cantilever racks. The purpose of storage is to allow
production to continue without having to stop because of an excess of the
product being produced. Storage is also useful for keeping surpluses in case
of a sudden demand or shortage elsewhere.

Control

In large-scale manufacturing, storage, and disposal facilities, having a way to

keep track of all of the material is important. Although it can be done manually
on a smaller scale, large facilities rely on control and identification equipment.
Items such as bar codes, radio frequency tags and magnetic strips make up a
majority of control equipment.

With an extensive 20 years of experience in the materials handling field, from

product solutions to the best practice guide, Solutions 4u is a group of
companies that offers to solve a number of challenges with one solution. We
supply racking order picking trolleys, cages, battery bay set up and material
handling equipment including forklifts, reach trucks, power pallet trucks, dock
levellers, high speed doors, industrial batteries and chargers.

What Are the Different Types of Material Handling

Equipment?

The term ‘material handling equipment’ is a pretty broad

one. There’s plenty of situations where it’s critical to move large and often heavy materials in a production
environment. Any piece of equipment that helps with this process could be labeled ‘material handling
equipment’.
Plenty of items fall under this definition, from tools and storage units to vehicles and major appliances. Anything
that deals with the transportation, storage and control at any stage of the processing of materials can be
classified as material handling equipment.

4 Main Categories of Material Handling Equipment

There are 4 main categories of material handling equipment:

 Bulk material handling

 Engineered systems
 Industrial trucks
 Storage and handling equipment

Bulk Handling Material Equipment

The term ‘bulk handling equipment’ refers to the storage, control and transportation of materials by bulk, and in
loose form. There are plenty of examples of this application – the handling of food, beverages, liquids, metal
items (such as screws and nails) and minerals are just a few.

In general terms, these pieces of equipment primarily handle these items when they are loose. One example is
a conveyor belt that is used to move items from one part of the production process to another. Drums and
hoppers may be used as well, to ‘funnel’ these loose items into a stage where they can be more easily
manipulated, or packaged.

Conveyor belts are used for horizontal transportation. For vertical transportation, elevators are most commonly
used.

Types of bulk handling material equipment

 Bucket and grain elevators

 Conveyor belts
 Hoppers and silos
 Reclaimers
 Stackers

Engineered Systems
An engineered system is one that is typically automated. Such systems are also usually created from a variety
of units. When combined, they work to enable both storage and transportation.

An ‘Automated Storage and Retrieval System’ (or a AS/RS for short) is one example of a system that is
engineered. This is a large, automated device that comes complete with racks, shelves and aisles. These
storage solutions are accessed by a ‘shuttle’ – a mechanized device that’s similar to a cherry picker. This
device can be used by the system operator to manually select the items as needed, or the entire system can be
computerized and automated.

An AS/RS can be integrated with a production facility’s existing computer network to keep on top of stock
control, plus other logistical systems. It can also be integrated with other stages of the production process, so
that as much automation can be offered as possible.

Types of engineered systems

 Automated guided vehicles (AGVs)

 Conveyor systems
 Robotic delivery systems
Industrial Trucks
This term is another broad definition that can be applied to many different types of equipment. Such pieces of
equipment do have one thing in common, though – they all provide transportation.

The scope of this term can include both small, hand-operated devices, and large-scale motorized vehicles.
Some items can be driven, while others – such as pallet trucks – simply add mobility to the materials that are
being handled.

Many of these types of trucks have useful characteristics such as forks or a flat surface that can be inserted
under pallets or other types of storage platforms. Other trucks need a separate item of equipment to use for
lifting.

Trucks have the capability to lift via powered or manual means, and can be ridden upon in a driver’s cab, or
simply power-assisted when pushed. Such tucks can also be steered by human intervention, or can be
completely automated, following a pre-defined track on the production floor, sunken or raised tracks, or colored
strips that are laid out and sensed by optical sensors. Such automated industrial trucks also have anti-collision
technology that senses when an employee or other obstacle is near.

Stacking trucks are used to stacks items, while a non-stacking truck is just used for transportation, and not for
product loading.

Types of industrial trucks:

 Automated guided vehicles (AGVs)

 Hand, platform and pallet trucks
 Order pickers
 Pallet jacks
 Side-loaders
 Walking stackers

Storage and Handling Equipment

Equipment that is used for storage usually only encompasses items that are not automated. Storage and
handling equipment that is automated falls under the term ‘engineered systems’

Storage equipment is equipment that is used to hold products and materials when they are not being used, or
when they are waiting to enter or leave the production process. These periods could be long-term, or short-
term in order to allow a suitable build-up of stock or finished items.

Most items that can be described as storage and handling equipment refers to pallets, racking or shelves.
Materials are stored in a neat and convenient manner to await transportation, or their entry into the production
process if necessary.

Having suitable storage equipment will add to any company’s production efficiency. The efficiency of any
production system is maximized by the ease at which each stage of the entire system operates. Any inefficient
section creates a bottleneck that will have an effect on all other sections of the system further down the
production line.

Space is also at a premium if you run a production environment. The better utilized your available space is, the
more items you’ll be able to store. This means you can keep your workflow in operation for much longer without
worrying about re-stocking. This helps further increase your efficiency.

Types of storage and handling equipment

 Drive-through or drive-in racks

 Pallet racks
  Push-back racks
 Shelving
 Sliding racks
 Stacking frames

At Douglas Equipment We Stock all Types of Material Handling Equipment

When working with our team at Douglas Equipment, you can be assured you’ll receive the best products from
top manufacturers. We stock all types of material handling equipment – bulk material handling, engineered
systems, industrial trucks, and storage and handling equipment.

Warehousing: Functions and Types of Warehouses!

A warehouse may be defined as a place used for the storage or accumulation of
goods. The function of storage can be carried out successfully with the help of
warehouses used for storing the goods.

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Warehousing can also be defined as assumption of responsibility for the

storage of goods. By storing the goods throughout the year and releasing them
as and when they are needed, warehousing creates time utility.

Functions of Warehousing:
Following important functions are performed by warehouses:
(1) Storage:
ADVERTISEMENTS:

This is the basic function of warehousing. Surplus commodities which are not
needed immediately can be stored in warehouses. They can be supplied as and
when needed by the customers.

(2) Price Stabilization:

Warehouses play an important role in the process of price stabilisation. It is
achieved by the creation of time utility by warehousing. Fall in the prices of
goods when their supply is in abundance and rise in their prices during the
slack season are avoided.
(3) Risk bearing:
ADVERTISEMENTS:

When the goods are stored in warehouses they are exposed to many risks in
the form of theft, deterioration, exploration, fire etc. Warehouses are
constructed in such a way as to minimise these risks. Contract of bailment
operates when the goods are stored in warehouses.

The person keeping the goods in warehouses acts as bailor and warehouse
keeper acts as bailee. A warehouse keeper has to take the reasonable care of
the goods and safeguard them against various risks. For any loss or damage
sustained by goods, warehouse keeper shall be liable to the owner of the
goods.

(4) Financing:
Loans can be raised from the warehouse keeper against the goods stored by
the owner. Goods act as security for the warehouse keeper. Similarly, banks
and other financial institutions also advance loans against warehouse receipts.
In this manner, warehousing acts as a source of finance for the businessmen
for meeting business operations.

ADVERTISEMENTS:

(5) Grading and Packing:

Warehouses now-a-days provide the facilities of packing, processing and
grading of goods. Goods can be packed in convenient sizes as per the
instructions of the owner.

Types of Warehouses:
Warehouses can be classified into four groups viz:
(a) Private warehouses
ADVERTISEMENTS:

(b) Public warehouses

(c) Bonded warehouses

(d) other type of warehouses

(a) Private Warehouses:

Private warehouses are constructed and owned by the business enterprises in
order to store the products produced by them. These are exclusively owned
and used by the producers themselves and are not meant for other
manufacturing or business units.

On account of heavy cost of construction and maintenance of these

warehouses, there number is quite small. Only big business houses can afford
to have such type of warehouses.

(b) Public Warehouses:

These are also known as duty paid warehouses. A public warehouse or duty
paid warehouse is one which is open for public at large. Most of the business
organisations, especially small and medium scale, can’t afford to have their
own warehouses on account of large financial investment in their construction
and maintenance.

They make use of these types of warehouses, which may be owned by an

individual or some agency whose main object is to provide storage facilities to
people for certain fees or charges. These warehouses operate within rules and
regulations formed by the government.

Public warehouses are very useful to businessmen. These warehouses are

usually situated near railway lines or main roads, so as to provide quick
transportation services. Goods lying in the warehouse can be hypothicated to
banks and other financial institutions for getting loan and financial assistance.

Public warehouses ensure greater security and handling of goods on account

of latest mechanical devices used in handling and preserving the goods. Goods
can be branded, graded and packed in desired sizes in the warehouses.

(C) Bonded Warehouses:

Bonded warehouses are used for imported goods which are not granted
clearance on account of non-payment of custom duty by the importer of these
goods. Such warehouses are situated near the ports. Goods can’t be removed
from these warehouses until the custom duties are paid.

Bonded warehouses may be run by the government or private agencies (when

granted licenses to operate such warehouses). In both the cases there is a strict
control and supervision imposed by custom authorities on their operation and
functioning.

ADVERTISEMENTS:

Importer of the goods has some control over his goods and he can inspect and
check the goods as and when he wants. After making part payment of the
custom duty, goods can be proportionately withdrawn from these warehouses.

Goods kept in these warehouses can be branded, packed, graded, labeled and
canned in the warehouse itself. Bank loans can be raised with the help of
receipt issued by these warehouses by giving that receipt as collateral security.

There is a least possibility of goods being exposed to any risk of theft, damage
and deterioration. The entrepot trade i.e., re-export of imported goods is
greatly facilitated as the importer can have the delivery of goods without
paying any custom duty.
Other type of Warehouses:
These include:
ADVERTISEMENTS:

(a) Special Commodity Warehouses.

(b) Cold Storages or Refrigerated Warehouses.

(c) Institutional Warehouses.

(A) Special Commodity Warehouses:

These warehouses are constituted for storing a particular type of commodity,
e.g., tobacco, cotton, wheat etc. Mature of commodity is important in selecting
the type of warehouse. For storing petrol, storage tanks are needed and for
storing agricultural products, godowns are needed.

(B) Cold Storage or Refrigerated Warehouses:

These are the warehouses which are used for storing perishable commodities
like eggs, butter, fruits, vegetables, fish, fresh meat etc. Goods stored in cold
storages can be held for longer time. Infact, cold storages have made possible
the regular supply of certain commodities throughout the year.

For example, fruits and vegetables of all types can be made available to the
people throughout the year. Refrigerated warehouses have greatly improved
the modern way of life.

(C) Institutional Warehouses:

Different institutions and bodies have their own warehouses on account of the
nature of their operations. For example, Banks, Railways, Food Corporation of
India etc. has their own warehouses for conducting their activities. Banks keep
the stock of the parties in these warehouses as security against the loans
advanced.
 Railways maintain warehouses to store large quantity of goods. Goods to be
dispatched to different parts of the country are kept in warehouses before they
are sent. Similarly, goods received for the purpose of delivery are kept till they
are disbursed to the claimant.

Various transport agencies also maintain warehouses for storing the goods
which are to be dispatched and received. Food Corporation of India has built
many big warehouses throughout the country for storing agricultural
products.

What is Warehousing?
Warehousing is the act of storing goods that will be sold or distributed later. While a
small, home-based business might be warehousing products in a spare room,
basement, or garage, larger businesses typically own or rent space in a building that
is specifically designed for storage.

Warehouse vs. Distribution Center

You might hear “warehouse” and “distribution center” used interchangeably, but
technically, a warehouse provides nothing more than storage. A distribution center,
on the other hand, stores product but also fulfills orders.

Warehousing Elements
Whether the purpose is strictly storage or storage plus order fulfillment, warehouses
use specific elements that help manufacturers, distributors, and retailers monitor
inventory and store it safely. An overview of basic elements includes:

 Shelving and rack systems that offer maximum storage capacity and easy product
access.
 A climate control system for the product being stored. This is particularly important
for frozen products or those requiring refrigeration, including certain
pharmaceutical or laboratory products, and others that degrade if exposed to too
much heat.
  Inventory control software that tells the product owner – who isn’t necessarily the
building owner – where all individual units are in the system at all times.
 Equipment that can move products from point A to point B – forklifts, pallet jacks,
bins that hold products for orders, and conveyor belts, for example.
 Shipping supplies for order fulfillment.
 People who load products into a warehouse and others (“pickers”) who fill orders
in a true distribution center, plus those who manage the facility and operation.
 Security to protect stored products.
 Access to cost-effective transportation to bring products in or move them out as
orders are fulfilled. That often means easy access to interstates, rail lines, or
airports.

The Business of Warehousing

Warehousing and all that goes along with it is part of a sophisticated industry known
as logistics management. Logistics includes procurement, inventory management,
and distribution. It falls under the supply chain umbrella, which also includes product
development, marketing, sales, and other product-related disciplines.

Seven Quality Management Principles behind ISO 9001

requirements
Mark Hammar | February 4, 2014

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Have you ever wondered why the ISO 9001 standard has some of the requirements that it does? Or have you wondered
why a requirement is worded the way it is? By understanding the main principles behind the writing of the standard you
can not only understand the requirements better, but you can also work on a more successful implementation of the
requirements into your Quality Management System.
There are seven Quality Management Principles upon which the ISO 9001 requirements for Quality Management Systems
are based. These are not presented in any order, as they are all seen as equally important to running a good quality
management system. They are equally applicable to product- or service-based organizations, and they are important
organizational ideas behind any system for quality management.
QMP1 – Customer Focus
Since the whole goal of a company is to provide products or services to customers, it makes sense that there is a focus on
customers as a main element. This starts with knowing your customer and their requirements, ensuring there is
communication with customers throughout the process, and measuring the satisfaction of your customer as a way of
measuring if the requirements, spoken or unspoken, have been met.

QMP2 – Leadership Importance of Top Management

It has been said many times that if the top levels of management are not behind the implementation of any QMS, it is
bound to fail. While this may not always be a fact, it is true that the more involved the top levels of management are in the
QMS, the better the chance of success, and the better implemented the end result. If top management – who is responsible
for controlling the cash flow of the organization – can see the benefit of the system, it is much more likely to be used to its
fullest advantage.

QMP3 – Engagement of People

It is important that people throughout the organization create value, especially in our ever-growing competitive world. To
ensure this, the QMS must focus on the competence of people to help them become engaged in the processes to build
value in them. By having empowered and engaged people in the organization, this can become a driving force behind
meeting the objectives of the organization.

QMP4 – The Process Approach

Trying to understand, control and improve an overall system can often be complicated, which can make any efforts
doomed to failure. However, by looking at the overall system as smaller interrelated processes you can focus your efforts
toward more consistent and predictable results on the individual processes of the system. Controlling and improving the
individual processes can be a much easier and more effective way to control and improve the entire system.

QMP5 – Improvement
 Companies that stay stagnant in an ever-more-competitive market will quickly be overtaken by their competition, and in
order to counteract this pressure the company must improve in order to drive down cost and maintain market share. This
allows the company to react to changes in internal or external conditions to create new opportunities. The whole idea of
having a quality policy, with objectives that are consistent with this policy, works toward improvement. Objectives need to
be planned and SMART (Specific, Measurable, Attainable, Realistic, Time-based), and will not work without commitment
to change.

QMP6 – Evidence-based decision making

It is said that you are more likely to get the desired results by basing decisions on analysis and evaluation of data rather
than a gut instinct of the situation. This is why there is a focus on monitoring & measurement in the ISO 9001
requirements (in fact, 4 of 6 mandatory documented procedures are from this section). In order to know that a process is
functioning properly we need adequate data, and in order to plan and assess improvements this data is even more
important. Because of this, maintaining good records becomes crucial to facilitate many of the other Quality Management
Principles.

QMP7 – Relationship Management

Because the interaction with interested parties such as customers, employees and suppliers can influence the performance
of an organization, it is critical to manage these relationships. The focus is often on managing the relationships with the
supplier network, but maintaining the relationships of all parties is important to optimize their impact on the organization
and make sustained success more likely. Successful companies see these relationships as partnerships rather than strictly
customer/supplier interactions.

How to use the Quality Management Principles in your QMS

By understanding these overall principles, and putting a focus on them into your QMS, you will find it easier to implement
the requirements and find that the end result will be more focused to your needs as a company. If you are aligning your
Quality Management System to the requirements of ISO 9001, how much simpler will the implementation be if you also
ensure that your processes focus on the same principles as the requirements, and how much more effective will your
system be? How can you ignore the principles behind the system if you want to ensure that your QMS will function so that
you see the most benefit?

What is Quality Control and Quality Control Charts?

In all production processes, we need to monitor the extent to which our products meet specifications. In the most

general terms, there are two "enemies" of product quality:

 deviations from target specifications

 excessive variability around target specifications
General Approach
The general approach to on-line quality control is straightforward: We simply extract samples of a certain size

from the ongoing production process. We then produce line charts of the variability in those samples and consider

their closeness to target specifications. If a trend emerges in those lines, or if samples fall outside pre-specified

limits, we declare the process to be out of control and take action to find the cause of the problem. These types

of charts are sometimes also referred to as Shewhart control charts (named after W. A. Shewhart, who is generally

credited as being the first to introduce these methods; see Shewhart, 1931).

Interpreting the chart. The most standard display actually contains two charts (and two histograms); one is called

an X-bar chart, the other is called an R chart.

In both line charts, the horizontal axis represents the different samples; the vertical axis for the X-bar chart

represents the means for the characteristic of interest; the vertical axis for the R chart represents the ranges. For

example, suppose we want to control the diameter of piston rings that we are producing. The center line in the X-

bar chart would represent the desired standard size (e.g., diameter in millimeters) of the rings, while the center

line in the R chart would represent the acceptable (within-specification) range of the rings within samples; thus,

this latter chart is a chart of the variability of the process (the larger the variability, the larger the range). In

addition to the center line, a typical chart includes two additional horizontal lines to represent the upper and

lower control limits (UCL, LCL, respectively); we will return to those lines shortly. Typically, the individual points

in the chart, representing the samples, are connected by a line. If this line moves outside the upper or lower

control limits or exhibits systematic patterns across consecutive samples (see Runs Tests), a quality problem may

potentially exist.

Acceptance sampling is a form of testing that involves taking random samples of “lots,” or batches, of

finished products and measuring them against predetermined standards.

• A “lot,” or batch, of items can be inspected in several ways, including the use of single, double, or

sequential sampling.
 • double sampling ------------------Two numbers specify a single sampling plan: They are the number of

items to be sampled (n) and a pre specified acceptable number of defects (c). If there are fewer or equal

defects in the lot than the acceptance number, c, then the whole batch will be accepted. If there are

more than c defects, the whole lot will be rejected or subjected to 100% screening.

• Often a lot of items is so good or so bad that we can reach a conclusion about its quality by taking a

smaller sample than would have been used in a single sampling plan. If the number of defects in this

smaller sample (of size n1) is less than or equal to some lower limit (c1), the lot can be accepted. If the

number of defects exceeds an upper limit (c2), the whole lot can be rejected. But if the number of

defects in the n1 sample is between c1 and c2, a second sample (of size n2) is drawn. The cumulative

results determine whether to accept or reject the lot. The concept is called double sampling.

To index

Sequential Sampling
• Multiple sampling is an extension of double
sampling, with smaller samples used
sequentially until a clear decision can be
made. When units are randomly selected from
a lot and tested one by one, with the
cumulative number of inspected pieces and
defects recorded, the process is called
sequential sampling.

• The
operating characteristic (OC) curve describes how well an acceptance plan
discriminates between good and bad lots. A curve pertains to a specific plan, that is,
a combination of n (sample size) and c (acceptance level). It is intended to show the
probability that the plan will accept lots of various quality levels.

How to Handle ERP Negotiations and

Find a Negotiation Expert
by Panorama Consulting Group | Jul 1, 2019
 ERP software can be a multi-million-dollar investment, but companies often don’t invest the
same time, expertise and resources into negotiating these deals as they do negotiating other
major capital outlays.
This is not to say that companies aren’t concerned about the cost of ERP softwareor of
implementing ERP software, but they do tend to overlook certain cost variables. Companies,
often, are most concerned about the obvious variables: software costs, maintenance costs,
hourly rates and scope of services.
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While these are all important, they typically are not the things with the most impact on total
cost of ownership. Instead, it’s the things lurking beneath the surface that make a difference.
Contents
1. 9 Tips for ERP Negotiation
2. The Unintended Consequences of Fixed-Cost Contracts
3. Are Fixed-bid Contracts Always Bad?
4. Qualities to Look for in a Software Sales Rep
5. What is Your ERP Consultant’s ERP Contract Negotiation Methodology?
6. Conclusion
9 Tips for ERP Negotiation
Below are nine tips for identifying hidden costs and negotiating with ERP vendors:

1. Understand Roles and Responsibilities

Some of our clients go into vendor negotiations ready to beat up their vendor on cost.
However, negotiating a contract with your software vendor isn’t just about minimizing cost.
It’s also about managing risk and clarifying roles and responsibilities.
A low-cost deal isn’t going to do you much good if the vendor has shifted all the risk to you
to help get to the desired number. Fortunately, most vendors are willing to negotiate roles
and responsibilities.
Here are some questions to ask yourself as you’re reviewing the vendor contract and
statement of work:

 Who is responsible for training end users?

 Who is responsible for data cleansing and migration? How much historical data will be
converted?
 Who will handle overall project management of internal and external resources?
 What are the assumptions surrounding changes to the configuration of the software? This is
especially pertinent if you have been sold an “industry pre-configured” solution.
 How many internal resources does the vendor assume you will dedicate to the project?
 Who is responsible for system testing, business process testing and integration?
 Who will create system and security profiles in the system?
 Who will handle Sarbanes-Oxley, FDA, system validation and other regulatory compliance
requirements?
2. Understand the Scope of Modules and Functionality
Constant updates to software versions, multiple variations of available modules and
disconnects between the demo and proposal cycle can create ambiguities.
For example, not all ERP vendors group functionality within the same modules. While a
customer relationship management (CRM) module for one system may include a robust way
to convert a lead into a customer with a corresponding order, other systems may require use
of an order entry module.
Companies also may experience confusion when sales teams demo one version of a product,
while the proposal team assumes a different version of the software without explaining the
difference.
3. Consider Annual Maintenance Costs
This is where vendors make their real profit. As such, vendors will usually hold the line on
this annual fee, especially if you’ve negotiated an aggressive deal on software licenses.
At the very least, you should remember to include a maximum amount that vendors can raise
their annual maintenance fee. Asking if the vendor can hold the price steady for at least three
years is a good way to control costs.
4. Don’t Assume the First Offer is the Best Offer
As with any negotiation, vendors typically start by offering software at their list price and
reducing from there.
Don’t be afraid to ask your vendor to reduce their software pricing, particularly as it relates
to license costs. Vendors typically are flexible in their software pricing because they have
several other ways to make money, whether it be through ongoing maintenance, professional
services or training.
5. Review the Contract Terms and Conditions
Some common things to look for include payment terms (you don’t want to pay for
everything up front), and what happens if you don’t like the vendor’s technical
implementation resources.
In general, you want to look for other conditions that can be more advantageous to the
vendor than to your company.
6. Don’t Buy More Software Than You Need
One common pitfall is purchasing more software than you need, whether it be in terms of
unnecessary modules or too many users. For example, we recently worked with a mid-size
manufacturing company that estimated it had purchased $600,000 of licenses that were not
going to be used by the company anytime in the near future.
 It’s always easier to add to your purchase over time, but nearly impossible to scale back on
licenses you’ve already committed to. Even if your ERP vendor is offering you a “once-in-a-
lifetime” deal on software licenses, you likely are going to overcompensate for the cost
savings by purchasing software you don’t need.
Don’t let these “time-sensitive” discounts create a sense of urgency. Most sales reps will
continue to honor discounted pricing after the discount period.
We recommend purchasing what you need when you need it and pre-negotiating the price on
future purchases to avoid license cost increases. When we negotiate deals for clients, they’re
able to purchase additional licenses, modules or users at pre-defined costs for three years or
more.
7. Distinguish Between FUD (Fear, Uncertainty, Doubt) and
Reality
One of the most common sales tactics in any industry is to create fear, uncertainty and doubt
in the minds of potential buyers. Buyers of ERP solutions face similar tactics, whether it’s
being told that only the vendor’s direct professional services group is able to handle the
implementation, or that the maintenance contract will be void if a non-certified consultant
installs and configures the software.
The key is to understand which messages are real versus FUD. This is a skill that comes with
extensive knowledge and experience in the industry.
8. Benchmark Against Other Deals
Here are some questions you can ask yourself to help identify points of negotiating leverage:
 What is the vendor offering companies that are similar to yours?
 What are competing vendors offering?
 Does your incumbent vendor provide some additional leverage via upgrade or migration
credits that may put cost pressure on other vendors?
We see too many companies zero in on one vendor without receiving proposals from and
conducting an evaluation of other vendors. If you have competing offers, you can ask your
preferred vendor to meet the pricing offered by a lower-cost vendor. You also can make
concessions based on any functionality gaps or concerns.
9. Consider People and Processes
It’s amazing how often vendors’ project plans do not assign critical project activities to either
the vendor or customer but completely omit them.
For example, most change management activities are not included in the project plan, aside
from basic end-user training. In addition, business process management is oversimplified to
entail the adoption of the software workflows out of the box with no modifications.
We recommend improving and documenting your processes before issuing a request for
proposal (RFP). This ensures the vendor understands your unique processes and doesn’t
assume you’ll implement everything out of the box.
While this tip may seem unrelated to traditional contract negotiations designed to pinch
project costs, the long-term cost savings of realistic expectations can be just as significant as
the direct cost savings you negotiate.
You don’t want to come out of negotiations thinking you’ve scored a great deal only to find
you’ve merely shifted your costs to other budget categories, incurred greater costs in the
future or elevated your implementation risk.
With that said, companies should not enter into fixed-cost contracts without completely
understanding them . . .
The Unintended Consequences of Fixed-cost Contracts
On paper, it’s a brilliant idea: 100-percent cost predictability and shifting the risk from your
own company to your ERP vendor. However, fixed-bid contracts have some potentially
disastrous consequences that are even more destructive than the problems they were intended
to address.
In our experience serving as software expert witnesses for many failed ERP projects, we
have found that fixed-bid contracts are often the root cause of ERP failure. It’s never a good
idea to enter into a fixed-cost contract without fully understanding the costs and risks.
Here are three consequences of entering into a fixed-bid contract with your ERP vendor or
systems integrator:
1. Incentives are Misaligned
In fixed-bid arrangements, you know exactly what you’re going to pay, but you’re not
always getting what you need to make the project successful. In fact, the vendor is
financially incentivized to provide a bare-bones scope and provide cheaper, less experienced
resources.

2. Your Company Takes no Responsibility for the Project’s

Success
Executives typically don’t understand the complexity and magnitude of a successful ERP
project, so they lean on their ERP vendor to guide them. However, only internal executives
and management team members can provide the direction, resources, operational decisions
and oversight required to make an ERP project successful.
In fact, the way the non-technical aspects are managed will ultimately determine the success
of your project. These non-technical aspects include activities such as business process
reengineering and organizational change management. No vendor is going to magically
improve your processes and gain employee buy in without involvement from your executive
team.
3. The Fixed-bid Buffer can be More Costly Than Managing
Time and Materials
When we advise clients in their ERP software selection initiatives and contract negotiations,
it is rare to see vendors fix-bid a proposal without including a buffer – often ranging from
30- to 40-percent. In other words, they will take their estimated time and hourly rates and add
a buffer to insulate them from the risk of overruns.
In addition, as noted in point #1, they will at the same time reduce their scope, leaving more
the more costly and time-consuming activities for the client to manage.
At the end of the day, this doesn’t reduce cost, it simply shifts costs from the vendor to the
implementing company. To add insult to injury, most companies don’t fully understand the
 magnitude of the costs being shifted from one party to the other, so they end up having
extremely unrealistic expectations.
Are Fixed-bid Contracts Always Bad?
You can definitely leverage the potential benefits of fixed-cost contracts without running into
the challenges outlined above. Here are some tips for making the most of fixed-bid contracts:
1. Ensure You Have a Solid Contract Review and Negotiation
Process
The fine print and details around scope and responsibilities of each party in the contract can
be the silent killers of an ERP project, so make sure you have an experienced team helping
you. Investing in this due diligence early on ensures you have realistic expectations of what it
takes to get your ERP project done right, rather than cheaply and quickly.

2. Invest in Project Auditing

Independent ERP consultants, like Panorama, can ensure you are tightly managing scope,
milestones, budget and vendor activities. Our project auditing services will help you maintain
an on-time and on-budget project.
3. Don’t Forget About the Non-technical Aspects of Your
Project
This is true of any ERP project, but it is especially true for fixed-bid engagements. Make sure
you’ve designated enough time and resources for business process management and
organizational change management. Odds are your vendor will not include these in their
scope.
Qualities to Look for in a Software Sales Rep
The overwhelming majority of ERP vendor sales reps are good people. In fact, it’s in their
best interest to give you a good rate because the idea behind making a sale is to turn you into
a long-term customer. Vendors want long-term revenue streams that are predictable.
How do you tell if your sales rep is one of the good ones? Look for the following signs:

 Sells you the modules you absolutely need and never encourages you to purchase everything
at once
 Includes hardware costs, project resources, integration, customization and other hidden costs
in the total cost of ownership
 Includes all critical project activities in proposal and contract
 Estimates a deployment time based on the scope of all critical project activities
 Knows how to differentiate between processes that add value and competitive edge to your
company and those that don’t
What is Your ERP Consultant’s ERP Contract
Negotiation Methodology?
 During the ERP selection process, many companies struggle to understand and compare
vendors’ statements of work. Some of these companies hire ERP consultants to help them
navigate the cost variables and negotiate favorable terms.
However, choosing the right ERP consultant can be just as confusing as selecting an ERP
system. Any ERP consultant can claim to deliver vendor negotiation services, but not all
consultants have an effective methodology. When evaluating an ERP consultant’s vendor
negotiation methodology, consider whether it includes these four activities and deliverables:
1. Strategy Development
An ERP consultant should collaborate with you to develop an ERP contract
negotiation strategy. Ideally, they’ll ask you about your goals and priorities. For example, is
it more important for you to reduce operational expenses or reduce capital expenditures?
They’ll also help you determine which contract terms are most important to you. These may
include terms, such as:

 Licensing payments should be spread over deliverables.

 Organization will spend x amount per year.
 Subscription costs will not be increased for x years.
2. In-depth Price Comparisons
You may have found that vendors’ quotes are not easy to compare. As such, the most
valuable deliverable an ERP consultant can provide is a negotiation workbook showing
apples-to-apples comparisons of your top contenders.
This is valuable because there is no universal standard for how ERP software
solutions should be priced. For example, some vendors price their software with named
users, while others price with concurrent users.
Apples-to-apples comparisons are also helpful due to the fact that vendors’ statements of
work make various assumptions, such as:
 You’ll use all software functionality right away
 You’ll use x amount of out-of-the-box functionality
 You’ll need x amount of customization
 You’ll take x implementation approach
 You’ll use mostly internal resources
 You’ll be responsible for all ERP data migration
A negotiation workbook helps you understand statements of work based on your unique
requirements and digital strategies instead of vendors’ assumptions. Your ERP
consultant should help you understand your requirements by facilitating activities, such as:
 Determining an ideal level of software customization, and ensuring you’re only customizing
when absolutely necessary (i.e., to improve your competitive advantage)
 Understanding how many internal full-time resources you can reasonably dedicate to the
project and how many vendor resources you’ll need
 Understanding how long it takes to automate workflows in the system and how complicated
it is, as well as who will be configuring workflows
 Determining which activities should be included in each project phase
Below is a sample negotiation workbook. The spreadsheet allows “what if” scenarios (i.e.,
what if you get a 30% discount):

3. Total Cost of Ownership Analysis

A long-term view of cost is just as important as a short-term view. The ideal ERP consultant
will provide a three-year total cost of ownership analysis – or use whatever timeframe makes
sense for the length of your ERP implementation.
This analysis should be included as part of the negotiation workbook. The analysis considers
factors, such as:

 Payback Period – Panorama clients typically recoup the cost of their ERP project within
three years.
 Benefits Realization Timeframe – Panorama clients typically realize full ERP business
benefits from out-of-the-box functionality within 9-12 months of go-live.
 Deployment Model – Most ERP vendors encourage a cloud-hosting model and a SaaS
licensing model. If you’re considering SaaS licensing, you may incur escalating annual
charges for additional functionality, data or transactions.
 Licensing Structure – The number of users and types of users will affect your cost if you
choose a user-based pricing model. Many ERP vendors underestimate the number of users to
make their system seem less expensive.
 Implementation Approach – Will you use a phased, big bang or hybrid approach? If
phased, will you phase per function or per module? Make sure your ERP vendor doesn’t
expect you to buy all licenses upfront.
 Software Costs vs. Service Costs – You should aim for a ratio of 2:3 for software costs to
service costs.
 Software Configuration – How long will it take you to configure each of your business
processes? Are there any process dependencies (processes that need to be set up before other
processes)?
 Resource Rates – Panorama clients typically pay $175-225 per vendor resource. If you
negotiate this too low, you may end up with rookies on your ERP project team.
4. ERP Negotiation Guidance and Coaching
Your team has made large purchases in the past, and you don’t want ERP consultants taking
control. The ideal ERP consultant will take a collaborative approach and be flexible enough
to respond to your unique needs: they can negotiate on your behalf, prepare you for
negotiating with ERP vendors yourself or attend calls with you.
 Whichever method you choose, you should aim for cost savings of 30-60%. Your savings
will vary depending on your organization size and your chosen ERP vendor. Some vendors
don’t go below a 20% discount. You can achieve additional cost savings overtime by
ensuring maintenance costs are based on purchase price rather than list price.
Panorama clients typically go through three to four rounds of negotiation, which can last
anywhere from three weeks to several months.
Conclusion
It’s not easy finding an ERP consultant that focuses on all four of these activities. Panorama
is one of the few that does.
If you’re not convinced these activities will save you money, take a look at these case
studies:
 Panorama recently negotiated more than $15 million in savings on licensing costs alone for a
large, multi-national client.
 Panorama negotiated cost savings for a client that could not afford their top-choice vendor
and was about to settle for their second choice.
 Panorama saved a city government more than $500,000 in negotiations. The vendor was able
to provide a lower price due to well-defined ERP requirementsand expectations.

THE OPERATING-CHARACTERISTIC (OC)

CURVE

• For a given a sampling plan and a specified true fraction

defective p, we can calculate
– Pa -- Probability of accepting lot

• If lot is truly good, 1 - Pa = a (Producers' Risk)

• If lot is truly bad, Pa = b (Consumer ‘s Risk)

• A plot of Pa as a function of p is called the OC curve for a

given sampling plan

Elementary
Concepts discusses the concept of the sampling distribution and the characteristics of
the normal distribution. The method for constructing the upper and lower control limits is a
straightforward application of the principles described there.
Establishing Control Limits
 Even though we could arbitrarily determine when to declare a process out of control (that is, outside the UCL-LCL

range), it is common practice to apply statistical principles to do so.

Example. Suppose we want to control the mean of a variable, such as the size of piston rings. Under the

assumption that the mean (and variance) of the process does not change, the successive sample means will be

distributed normally around the actual mean. Moreover, without going into details regarding the derivation of this

formula, we also know (because of the central limit theorem, and thus approximate normal distribution of the

means; see, for example, Hoyer and Ellis, 1996) that the distribution of sample means will have a standard

deviation of Sigma (the standard deviation of individual data points or measurements) over the square root

of n (the sample size). It follows that approximately 95% of the sample means will fall within the limits

± 1.96 * Sigma/Square Root(n) (refer to Elementary Concepts for a discussion of the characteristics of the normal

distribution and the central limit theorem). In practice, it is common to replace the 1.96 with 3 (so that the

interval will include approximately 99% of the sample means) and to define the upper and lower control limits as

plus and minus 3 sigma limits, respectively.

General case. The general principle for establishing control limits just described applies to all control charts. After

deciding on the characteristic we want to control, for example, the standard deviation, we estimate the expected

variability of the respective characteristic in samples of the size we are about to take. Those estimates are then

used to establish the control limits on the chart.

To index

Common Types of Charts

The types of charts are often classified according to the type of quality characteristic that they are supposed to

monitor: there are quality control charts for variables and control charts for attributes. Specifically, the following

charts are commonly constructed for controlling variables:

 X-bar chart. In this chart, the sample means are plotted in order to control the mean value of
a variable (e.g., size of piston rings, strength of materials, etc.).
 R chart. In this chart, the sample ranges are plotted in order to control the variability of a
variable.
 S chart. In this chart, the sample standard deviations are plotted in order to control the
variability of a variable.
 S**2 chart. In this chart, the sample variances are plotted in order to control the variability
of a variable.
For controlling quality characteristics t