Unit 4 Production and Operation Management

Introduction
The functions of procurement of material, transformation of material to intermediate and finished
products, and distribution of finished products to customers in an important aspect. It depends
upon the managers about how they can be successful in maintaining the flow of materials to the
production process on time. This chapter deals with all the aspects related to material.
Meaning of Materials Management
It deals with many important aspects connected with materials such as purchasing, storage,
inventory control, material handling etc.,
It is an approach for planning, organizing and controlling all those activities concerned with the
flow of materials into an organization.
Definition of Materials Management
According to Bailey and farmer, "Material management is the management of the flow of
materials into an organization to the point where those materials are connected into the end
products.
Scope of materials management
Materials planning and programming: Based on the sales forecast and production plans, the
materials planning and control is done. This involves estimating the individual requirements of
parts, preparing materials budget, forecasting the levels of inventories, scheduling the orders and
monitoring the performance in relation to production and sales.
Store-keeping: A store is also responsible for the physical verification of stocks and reconciling
them with book figures. A store plays a vital role in the operations of a company.
Purchasing: This includes selection of sources of supply finalization in terms of purchase,
placement of purchase orders, follow-up, maintenance of smooth relations with suppliers,
approval of payments to suppliers, evaluating and rating suppliers.
Inventory system: Inventory generally refers to the materials in stock. It is also called the idle
resource of an enterprise. Inventories represent those items, which are either stocked for sale or
they are in the process of manufacturing or they are in the form of materials, which are yet to be
utilized.
Simplification, codification and standardization in stores: Simplification is the process of
reducing the variety of products manufactured. It is concerned with the reduction of product
range, assemblies, parts, materials and design.
Standardization: Standardization means producing maximum variety of products from the
minimum variety of materials.
Specifications: It refers to a precise statement that formulizes the requirements of the customer.
It may relate to a product, process or a service.
Materials handling: It is a function which deals with the preparation, placing and positioning of
materials to facilitate their movement or storage.
Objectives of Materials Management
Reduce material cost
Uniform flow of material for production Ensure right quality at right price
Establish and maintain good relations with the suppliers and customers Economy in using
imported item and to find their substitutes
Helps in using working capital Decision for buy or making
Importance of Materials Management
Lower prices for materials and equipment: The material cost content of total cost is kept at a
reasonable level. Scientific purchasing helps in acquiring materials at reasonable prices. Proper
storing of materials also helps in reducing their wastages.
Helps to ensure the continued supply of raw materials: The equipment is properly utilized
because there are no break downs due to late supply of materials.
Helps to faster inventory turnover: The cost of indirect materials is kept under check.
Sometimes cost of indirect materials also increases total cost of production because there is no
proper control over such materials.
Reduce lead time: The equipment is properly utilized because there are no break downs due to
late supply of materials.
Less transportation cost – If the flow of materials are maintained properly on time near to the
production process the transportation cost could be managed well.
Reduce duplication of efforts – The movement of materials can be reduced if the materials
are maintained unidirectional. The duplication efforts of the labour can be reduced in moving the
material from one place to another place.
Reduce materials obsolescence – The materials can be protected from being obsolete if the
materials are used on time before it becomes out dated in the market.
Functions of Materials Management
Material management covers all aspects of material costs, supply and utilization. The functional
areas involved in material management usually include purchasing, production control, shipping,
receiving and stores.
The following functions are assigned for material management:
1. Production and Material Control: Production manager prepares the schedules of production
to be carried in future. The requirements of parts and materials are determined as per production
schedules. It is ensured that every type or part of material is made available so that production is
carried on smoothly.
2. Purchasing: Purchasing department is authorized to make buying arrangements on the basis
of requisitions issued by other departments. The effort by this department is to purchase proper
quality goods at reasonable prices. Purchasing is a managerial activity that goes beyond the
simple act of buying and includes the planning and policy activities covering a wide range of
related and complementary activities.
3. Non-Production Stores: Non-production materials like office supplies, perishable tools and
maintenance, repair and operating supplies are maintained as per the needs of the business. These
stores may not be required daily but their availability in stores is essential. The non-availability
of such stores may lead to stoppage of work.
4. Transportation: The transporting of materials from suppliers is an important function of
materials management. The traffic department is responsible for arranging transportation service.
The vehicles may be purchased for the business or these may be chartered from outside. The
purpose is to arrange cheap and quick transport facilities for incoming materials.
5. Materials Handling: It is concerned with the movement of materials within
a manufacturing establishment and the cost of handling materials is kept under control. It is also
seen that there are no wastages or losses of materials during their movement. Special equipment's
may be acquired for material handling.
6. Receiving: The receiving department is responsible for the unloading of materials, counting
the units, determining their quality and sending them to stores etc. The purchasing department is
also informed about the receipt of various materials.
Purchasing
Meaning
It refers to the activity of acquiring goods or services to accomplish the goals of an organization.
It is the procurement of materials and other requirements from certain external agencies.
It includes activities like deciding what to buy, where to buy, when to buy, how much to buy and
at what prices to buy.
Definition
According to Westing, Fine and Zenz "Purchasing is a managerial activity that goes beyond the
simple act of buying. It includes research and development for the proper selection of materials
and sources, follow-up to ensure timely delivery; inspection to ensure both quantity and quality;
to control traffic, receiving, storekeeping and accounting operations related to purchases.
Material purchasing
Purchasing is the first phase of Materials Management. Purchasing means procurement of goods
and services from some external agencies. ... It was experienced that by giving the purchase
responsibility to a specialist, the firm can
obtain greater economies in purchasing. It is the act of buying materials for the factory at a given
price.
Scientific purchasing
It is the procurement by purchase of the proper materials, machinery, equipment and supplier or
store used to manufacture of a product and market it at the proper quantity and quality and at
proper time.
Importance of Purchasing
1. Purchasing function provides materials to the factory without which wheels of machines
cannot move.
2. A one percent saving in materials cost is equivalent to a 10 percent increase in turnover.
Efficient buying can achieve this.
3. Purchasing manager is the custodian of his firm's purse as he spends more than 50 per cent of
his company's earnings on purchases.
4. Increasing proportion of one's requirements are now bought instead of being made as was the
practice in the earlier days. Buying, therefore, assumes significance.
5. Purchasing can contribute to import substitution and save foreign exchange.
6. Purchasing is the main factor in timely execution of industrial projects.
7. Materials management organizations that exist now have evolved out or purchasing
departments.
Objectives of purchasing department
1. To avail the materials, suppliers and equipments at the minimum possible costs - These
are the inputs in the manufacturing operations. The minimization of the input cost increases the
productivity and resultantly the profitability of the operations.
2. To ensure the continuous flow of production through continuous supply of raw
materials, components, tools etc. with repair and maintenance service.
3. To increase the asset turnover: The investment in the inventories should be kept minimum
in relation to the volume of sales. This will increase the turnover of the assets and thus the
profitability of the company.
4. To develop an alternative source of supply: Exploration of alternative sources of supply of
materials increases the bargaining ability of the buyer, minimization of cost of materials and
increases the ability to meet the emergencies.
5. To establish and maintain the good relations with the suppliers: Maintenance of good
relations with the supplier helps in evolving a favorable image in the business circles. Such
relations are beneficial to the buyer in terms of changing the reasonable price, preferential
allocation of material in case of material shortages, etc.
6. To achieve maximum integration with other department of the company: The purchase
function is related with production department for specifications and flow of material,
engineering department for the purchase of tools, equipments and machines, marketing
department for the forecasts of sales and its impact on procurement of materials, financial
department for the purpose of maintaining levels of materials and estimating the working capital
required, personnel department for the purpose of manning and developing the personnel of
purchase department and maintaining good vendor relationship.
7. To train and develop the personnel: Purchasing department is managed with varied types of
personnel. The company should try to build the imaginative employee force through training and
development.
8. Efficient record keeping and management reporting: Paper processing is inherent in the
purchase function. Such paper processing should be standardized so that record keeping can be
facilitated. Periodic reporting to the management about the purchase activities justifies the
independent existence of the department.
Functions of Purchase Department Procurement of stores through indigenous and foreign
sources as required in accordance with the rules in force.
Checking of requisitions/purchase indents.
Selection of suppliers for issue of enquiries.
Issuing enquiries/tenders and obtaining quotations.
Analyzing quotations and bids etc., and preparation of comparative statement (quotation charts).
Consultation with the Indent or for selection and approval of quotations and with Accounts
Officer for pre-audit.
Negotiating contracts.
Checking legal conditions of contracts. Consulting Administrative Officer or Secretary, if
necessary.
Issue of Purchase Orders.
Follow-up of purchase orders for delivery in due time Verification and passing of suppliers? bills
to see that payments are made promptly.
Correspondence and dealing with suppliers, carriers etc., regarding shortages, rejections etc.,
reported by the Stores Department.
Maintenance of purchase records.
Maintenance of progressive expenditure statement, sub-head wise. Maintenance of vendor
performance records/data. Arrangement for Insurance Surveys, as and when necessary.
Clearance of foreign consignments. Keeping various Departments/Divisions informed of the
progress of their indents in case of delay in obtaining supplies. Serving as an information centres
on the materials? knowledge i.e. their prices, source of supply, specification and other allied
matters. Development of reliable and alternate sources of supply.
Steps in material purchasing processing
Step 1: Need Recognition The business must know it needs a new product, whether from
internal or external sources. The product may be one that needs to be reordered, or it may be a
new item for the company.
Step 2: Specific Need
The right product is critical for the company. Some industries have standards to help determine
specifications. Part numbers help identify these for some businesses. Other industries have no
point of reference. The company may have ordered the product in the past. If not, then the
business must specify the necessary product by using identifiers such as color or weight.
Step 3: Source Options
The business needs to determine where to obtain the product. The company might have an
approved vendor list. If not, the business will need to search for a supplier using purchase orders
or research a variety of other sources such as magazines, the Internet or sales representatives.
The company will qualify the suppliers to determine the best product for the business.
Step 4: Price and Terms
The business will investigate all relevant information to determine the best commodities (readily
available products) or specialized materials. Usually the business will look into three suppliers
before it makes a final decision.
Step 5: Purchase Order
The purchase order is used to buy materials between a buyer and seller. It specifically defines the
price, specifications and terms and conditions of the product or service and any additional
obligations.
Step 6: Delivery
The purchase order must be delivered, usually by fax, mail, personally, email or other electronic
means. Sometimes the specific delivery method is specified in the purchasing documents. The
recipient then acknowledges receipt of the purchase order. Both parties keep a copy on file.
Step 7: Expediting
Expedition of the purchase order addresses the timeliness of the service or materials delivered. It
becomes especially important if there are any delays. The
issues most often noted include payment dates, delivery times and work completion.
Step 8: Receipt and Inspection of Purchases
Once the sending company delivers the product, the recipient accepts or rejects the items.
Acceptance of the items obligates the company to pay for them.
Step 9: Invoice Approval and Payment
Three documents must match when an invoice requests payment - the invoice itself, the
receiving document and the original purchase order. The agreement of these documents provides
confirmation from both the receiver and supplier. Any discrepancies must be resolved before the
recipient pays the bill. Usually, payment is made in the form of cash, check, bank transfers,
credit letters or other types of electronic transfers.
Step 10: Record Maintenance
In the case of audits, the company must maintain proper records. These include purchase records
to verify any tax information and purchase orders to confirm warranty information. Purchase
records reference future purchases as well.
Methods of purchasing
 Centralized purchasing- One department located as head or main office purchases the
requirements of all the units which belongs to the company. This is known as Centralized
buying.
 Decentralized buying: Every unit of the company has an independent purchase department
located locally which carriers out the purchasing function for that particular unit.
Factors influencing purchasing policy
 Economic condition
 Regulatory changes
 Political environment
 Social environment
 Competition
 Organization goals and objectives
 Organizational structure
 Policies and procedures
 Technologies levels
 Manpower skills
 Time factor
 Current financial situation
Principles of purchasing
 Principle of right price
 Principle of right quality
 Principle of right time
 Principle of right source
 Principle of right quantity
 Principle of right attitude
 Principle of right contracts
 Principle of right material
 Principle of right transportation
 Principle of right place of delivery
Selection of suppliers
It helps to have a quality inputs and also to offer quality products with less cost. It is required to
get all the information from them to evaluate according to specific criteria and select the best
providers for company.

Factors considered for selection of suppliers

 Sources of suppliers
 Development of approved list of suppliers
 Evaluation and selection of the suppliers
There are eight common supplier selection criteria which includes
 Cost.
 Quality & Safety.
 Delivery.
 Service.
 Social Responsibility.
 Convenience/Simplicity.
 Risk.
 Agility.
Selection of Suppliers
Selection of the right supplier is the responsibility of the purchase department. It can contribute
substantially to the fundamental objectives of the business enterprise. Different strategies are
required for acquiring different types of materials. The selection of supplier for standardized.
Products will differ from non-standardized products. Following factors are considered for the
selection of suppliers:
A. Sources of Supplier
The best buying is possible only when the decision maker is familiar with all possible sources of
supply and their respective terms and conditions. The purchase department should try to locate
the appropriate sources of the supplier of various types of materials. This is known as survey
stage?. A survey of the following will help in developing the possible sources of supply:
1. Specialized trade directories.
2. Assistance of professional bodies or consultants.
3. The buyer's guide or purchase handbook.
4. The manufacturer's or distributor's catalogue.
5. Advertisements in dailies.
6. Advertisement in specialized trade journals.
7. Trade fair exhibitions.
B. Development of approved list of suppliers
The survey stage highlights the existence of the source. A business inquiry is made with the
appropriate supplier. It is known as Inquiry Stage?. Here a short listing is made out of the given
sources of suppliers in terms of production facilities and capacity, financial standing, product
quality, possibility of timely supply, technical competence, manufacturing efficiency, general
business policies followed, standing in the industry, competitive attitude, and interest in buying
orders etc.
C. Evaluation and Selection of the Supplier
The purchase policy and procedure differ according to the type of items to be purchased. Hence,
evolution and selection of the supplier differ accordingly. In the Purchasing Handbook? edited
by Aljian, the following variables to be considered while evaluating the quotations of the
suppliers have been described
1. Cost Factors
Price, transportation cost, installation cost if any, tooling and other operations cost, incidence of
sales tax and excise duty, terms of payment and cash discount are considered in cost factor.
2. Delivery
Routing and F.O.B. terms are important in determining the point at which the title to the goods
passes from vendor to the buyer and the responsibility for the payment of the payment charges.
3. Design and Specification Factors
Specification compliance, specification deviations, specification advantages, important
dimensions and weights are considered in line with the demonstration
of sample, experience of other users, after sale services etc.
4. Legal Factors
Legal factors include warranty, cancellation provision, patent protection, public liability, federal
laws and reputation compliance.
5. Vendor Rating
The evaluation of supplier or vendor rating provides valuable information which help in
improving the quality of the decision. In the vendor rating three basic aspects are considered
namely quality, service and price. How much weight should be given to each of these factors is a
matter of judgment and is decided

Inventory Management
Meaning
It is a stock of physical goods that contain economic value and held in various forms by an
organization in its custody awaiting packing, processing, transformation, sale in future. It
includes raw materials, work-in-progress,
finished goods and inventory of suppliers etc.,
Definition
Inventory, often called merchandise, refers to goods and materials that a business holds for sale
to customers in the near future.
Inventory Management
It is defined as the systematic location of storage and recording of goods. It is the control
program which allows the management of sales, purchases and payments.
It helps to create invoices, purchase orders, receiving list, and payment receipts and bar coded
labels.
Benefits of Inventory Management
 Inventory balance
 Inventory turnover
 Repeat customer
 Accurate planning
 Warehousing organization
 Employee efficiency
 Inventory orders
 Inventory tracking
 Time saving
 Cost cutting
Inventory Control
Meaning Inventory control refers to all aspects of managing a company's inventories:
purchasing, shipping, receiving, tracking, warehousing and storage,
turnover, and reordering. It is a system which ensures the provision of the required quantity of
inventories of right quality and at right time.
Definition
It is defined as Coordination and supervision of the supply, storage, distribution, and recording
of materials to maintain quantities adequate for current needs without excessive oversupply or
loss.
Techniques of Inventory control
1. Economic order quantity (EOQ): One of the most important problems faced by the
purchasing department is how much to order at a time. Purchasing in large quantities involve
lesser purchasing cost. But cost of carrying them tends to be higher. Likewise if purchases are
made in smaller quantities, holding costs are lower while purchasing costs tend to be higher.
Hence, the most economic buying quantity or the optimum quantity should be determined by the
purchase department by considering the factors such as cost
of ordering, holding or carrying.
This can be calculated by the following formula:
Q = √2AS/I
where Q stands for quantity per order ;
A stands for annual requirements of an item in terms of rupees; S stands for cost of placement of
an order in rupees; and I stand for inventory carrying cost per unit per year in rupees.
2. ABC analysis: In order to exercise effective control over materials, A.B.C. (Always Better
Control) method is of immense use. Under this method materials are classified into three
categories in accordance with their respective values. Group A? constitutes costly items which
may be only 10 to 20% of the total items but account for about 50% of the total value of the
stores.
3. VED analysis: VED Analysis attempts to classify the items used into three broad categories,
namely Vital, Essential, and Desirable. The analysis classifies items on the basis of their
criticality for the industry or company.
Vital: Vital category items are those items without which the production activities or any other
activity of the company, would come to a halt, or at least be drastically affected.
Essential: Essential items are those items whose stock – out cost is very high for
the company.
Desirable: Desirable items are those items whose stock-out or shortage causes only a minor
disruption for a short duration in the production schedule. The cost incurred is very nominal.
4. FSN analysis: In FSN analysis, items are classified according to their rate of consumption.
The items are classified broadly into three groups: F – means
Fast moving, S – means Slow moving, N – means Non-moving.
5. Stock levels: There are four major types of stock levels of inventory.
a. Minimum Level: This represents the quantity which must be maintained in hand at all times.
If stocks are less than the minimum level, then the work will stop due to shortage of materials.
b. Maximum Level: It is the quantity of materials beyond which a firm should not exceed its
stocks. If the quantity exceeds maximum level limit then it will be termed as overstocking. A
firm avoids overstocking because it will result in high material costs.
c. Danger Level: It is the level below which stocks should not fall in any case. If danger level
approaches then immediate steps should taken to replenish the stocks even if more cost is
incurred in arranging the materials.
d. Average Stock Level: The Average stock level is calculated such as: Average Stock Level =
Minimum stock Level + 1/2 of Reorder
Q6. Just in time (JIT): Just-in-time production or the Toyota Production System (TPS), is a
methodology aimed primarily at reducing times within production system as well as response
times from suppliers and to customers. Its origin and development was in Japan, largely in the
1960s and 1970s and particularly at Toyota.
7. HML analysis: H-M-L analysis is similar to ABC analysis except the difference that instead
of Annual Inventory Turnover=, cost per unit criterion is used. The items under this analysis are
classified based on their unit prices.
8. SDE analysis: The SDE analysis is based upon the availability of items and is very useful in
the context of scarcity of supply. In this analysis, refers to scarce? items, generally imported,
and those which are in short supply. refers to difficult items which are available indigenously
but are difficult items to procure. Items which have to come from distant places or for which
reliable
suppliers are difficult to come by fall into category. refers to items which are easy to acquire and
which are available in the local markets.
9. Perpetual inventory system: Perpetual inventory or continuous inventory
describes systems of inventory where information on inventory quantity and
availability is updated on a continuous basis as a function of doing business.
Generally this is accomplished by connecting the inventory system with order
entry and in retail the point of sale system.
Materials handling system
Meaningas the function dealing with the preparation, placing and positioning of materials to
facilitate their movement or storage?.
It is a system or combination of methods, facilities, labor and equipment for moving, packaging
and storing the materials to meet specific objectives. It involves movement of materials from one
place to another place for the purpose of processing.
Factors influencing materials handling
Equipment factors to be taken into consideration may well include the following:
1. Adaptability: The load carrying and movement characteristics of the
equipment should fit the materials handling problem.
2. Flexibility: Where possible the equipment should have flexibility to handle more than one
material, referring either to class or size.
3. Load capacity: Equipment selected should have great enough load carrying
characteristics to do the job effectively, yet should not be too large and result in excessive
operating costs.
4. Power: Enough power should be available to do the job.
5. Speed: Rapidity of movement of material, within the limits of the production process or plant
safety, should be considered
6. Space requirements: The space required to install or operate materials handling equipment is
an important factor in its selection.
7. Supervision required: As applied to equipment selection, this refers to the degree of
automaticity designed into the equipment.
8. Ease of maintenance: Equipment selected should be easily maintained at reasonable cost.
9. Environment: Equipment selected must conform to any environment regulations.
Objectives of material handling:
1. Minimize cost of material handling.
2. Minimize delays and interruptions by making available the materials at the point of use at
right quantity and at right time.
3. Increase the productive capacity of the production facilities by effective utilization of capacity
and enhancing productivity.
4. Safety in material handling through improvement in working
condition.
5. Maximum utilization of material handling equipment.
6. Prevention of damages to materials.
7. Lower investment in process inventory.
Principles of materials handling
Following are the principles of material handling:
1. Planning principle: All handling activities should be planned.
2. Systems principle: Plan a system integrating as many handling activities as possible and co-
coordinating the full scope of operations (receiving, storage, production, inspection, packing,
warehousing, supply and transportation).
3. Space utilization principle: Make optimum use of cubic space.
4. Unit load principle: Increase quantity, size, weight of load handled.
5. Gravity principle: Utilize gravity to move a material wherever practicable.
6. Material flow principle: Plan an operation sequence and equipment arrangement to optimize
material flow.
7. Simplification principle: Reduce combine or eliminate unnecessary movement and/or
equipment.
8. Safety principle: Provide for safe handling methods and equipment.
9. Mechanization principle: Use mechanical or automated material handling equipment.
10. Standardization principle: Standardize method, types, size of material handling equipment.
11. Flexibility principle: Use methods and equipment that can perform a variety of task and
applications.
12. Equipment selection principle: Consider all aspect of material, move and method to be
utilized.
13. Dead weight principle: Reduce the ratio of dead weight to pay load in mobile equipment.
14. Motion principle: Equipment designed to transport material should be kept in motion.
15. Idle time principle: Reduce idle time/unproductive time of both MH equipment and man
power.
16. Maintenance principle: Plan for preventive maintenance or scheduled repair of all handling
equipment.
Materials handling in different industries and fields
 Manufacturing
 Processing
 Construction
 Mining
 Power
 Machine tools
 Truck building
 Rail road car builders
 Ship building
 Aircraft
Selection of material handling equipments
Selection of Material Handling equipment is an important decision as it affects both cost and
efficiency of handling system. The following factors are to be taken into account while selecting
material handling equipment.
1. Properties of the material
Whether it is solid, liquid or gas, and in what size, shape and weight it is to be moved, are
important considerations and can already lead to a preliminary elimination from the range of
available equipment under review. Similarly, if a
material is fragile, corrosive or toxic this will imply that certain handling methods
and containers will be preferable to others.
2. Layout and characteristics of the building
Another restricting factor is the availability of space for handling. Low-level ceiling may
preclude the use of hoists or cranes, and the presence of supporting
columns in awkward places can limit the size of the material-handling equipment.
If the building is multi-storied, chutes or ramps for industrial trucks may be used. Layout itself
will indicate the type of production operation (continuous, intermittent, fixed position or group)
and can indicate some items of equipment that will be more suitable than others. Floor capacity
also helps in selecting the
best material handling equipment.
3. Production flow
If the flow is fairly constant between two fixed positions that are not likely to change, fixed
equipment such as conveyors or chutes can be successfully used.
If, on the other hand, the flow is not constant and the direction changes occasionally from one
point to another because several products are being produced simultaneously, moving equipment
such as trucks would be preferable.
4. Cost considerations
This is one of the most important considerations. The above factors can help
to narrow the range of suitable equipment, while costing can help in taking a final
decision. Several cost elements need to be taken into consideration when comparisons are made
between various items of equipment that are all capable
of handling the same load. Initial investment and operating and maintenance costs are the major
cost to be considered. By calculating and comparing the total cost for each of the items of
equipment under consideration, a more rational decision can be reached on the most appropriate
choice.
5. Nature of operations
Selection of equipment also depends on nature of operations like whether handling is temporary
or permanent, whether the flow is continuous or intermittent and material flow pattern-vertical or
horizontal.
6. Engineering factors
Selection of equipment also depends on engineering factors like door and ceiling dimensions,
floor space, floor conditions and structural strength.
7. Equipment reliability
Reliability of the equipment and supplier reputation and the after sale service also plays an
important role in selecting material handling equipments.
Economic Considerations in Material handling
(i) Initial cost of the equipment required.
(ii) Cost of installation, rearrangement and alterations to utilize
equipment and building etc.
(iii) Cost of repair and maintenance of the equipment used.
(iv) Cost of power/fuel required for operation.
(v) Rate of obsolescence of handling equipment.
(vi) Depreciation rate.
(vii) Probable salvage value of equipment at the end of its useful life.
(viii) Labour cost for operation of equipment.
(ix) Cost of necessary auxiliary equipment (such as chargers for batteries
etc.).
(x) Interest on investment made for purchasing equipment.
(xi) Taxes and insurance charges on equipment procured.
(xii) License fees (for vehicles that may operate outside the factory or on
highways).
(xiii) Rent charges for space needed for parking of vehicles.
(xiv) Cost of supervision of the equipment.
(xv) Increased production expected by use of handling equipment.
Savings that the equipment shall bring about in direct labour cost or other allied costs.