Project Management and

Quality Control
Module 3
 Inventory
◈ Inventory refers to the stock of raw materials, work-in-progress goods, and
finished goods that a company keeps for production and sales.
◈ Types of Inventory:

Type Meaning Example

Basic materials used to produce
Raw Materials Steel, wood, cotton
goods
Semi-finished goods under
Work-in-Progress (WIP) Half-assembled car
production
Finished Goods Completed goods ready for sale Mobile phones
Spare Parts / MRO Maintenance and repair items Machine spare parts
Objectives of Inventory
◈ Ensure continuous production
◈ Meet customer demand on time
Example
◈ Avoid stock shortages
A car manufacturing company keeps
◈ Maintain smooth production flow inventory of:
• Steel sheets (raw material)
◈ Reduce ordering and purchasing costs • Engine parts (components)
• Half-assembled cars
(work-in-progress)
Importance of Inventory • Completed cars ready for sale
◈ Maintains production continuity (finished goods)
Proper inventory management ensures
◈ Helps in meeting market demand smooth production and timely
delivery to customers .
◈ Protects against supply uncertainty
◈ Allows bulk purchasing discounts
◈ Improves customer satisfaction
 Types of Inventory Costs
◈ Inventory cost refers to the total cost associated with ordering, storing, managing, and
handling inventory in a business . Proper control of inventory costs is important to
maximize profit and reduce wastage .
Types of Inventory Costs
1. Ordering Cost
◈ Ordering cost is the cost incurred when placing and receiving orders for inventory .
Includes:
◈ Cost of preparing purchase orders

◈ Administrative expenses

◈ Transportation charges

◈ Inspection of goods

◈ Example:
If a company orders raw material 20 times a year, each order involves paperwork,
transportation, and inspection cost.
2. Carrying Cost (Holding Cost)
◈ Carrying cost refers to the cost of storing and maintaining inventory in a warehouse .
Includes:
◈ Storage cost
◈ Insurance cost
◈ Damage or deterioration
◈ Obsolescence cost
◈ Capital cost (money invested in inventory)
◈ Example:
If a company stores 500 units in a warehouse, it must pay rent, insurance, and handling charges.
3. Shortage Cost (Stock-out Cost)
◈ Shortage cost occurs when inventory is not available when needed .
Effects:
◈ Loss of sales
◈ Production stoppage
◈ Customer dissatisfaction
◈ Loss of goodwill
◈ Example:
A car manufacturer stops production because engine parts are unavailable.
4. Purchase Cost
◈ Purchase cost refers to the actual price paid to buy inventory .
◈ Example:
If the price of raw material is ₹50 per unit and the firm buys 1000 units, the
purchase cost is ₹50,000.
◈ A car manufacturer stops production because engine parts are unavailable.
 Inventory Control
◈ Inventory control refers to the process of managing inventory levels to ensure
the right quantity of materials is available at the right time while minimizing
costs .
◈ It helps in avoiding overstocking and stock shortages .
Objectives of Inventory Control
◈ Maintain continuous production
◈ Avoid excess inventory
◈ Reduce inventory costs
◈ Ensure timely availability of materials
◈ Improve operational efficiency
 Techniques of Inventory Control
(Deterministic Models and Techniques)
Deterministic models assume that demand, cost, and lead time are known with
certainty .

1. Economic Order Quantity (EOQ)

◈ EOQ determines the optimal quantity of inventory to be ordered to minimize
total inventory cost .
2. ABC Analysis
◈ ABC analysis classifies inventory into three categories based on value and
importance .
Category Importance Example
A High value, low quantity Expensive machinery parts
B Medium value Electrical components
C Low value, high quantity Screws, nuts

3. Just-in-Time (JIT)
◈ JIT is an inventory system where materials are ordered only when needed for
production , reducing storage costs.
◈ Example:
Toyota uses JIT to reduce warehouse inventory.
 Supply Chain Management
◈ Supply Chain Management refers to the coordination of activities involved in the flow of goods,
information, and services from suppliers to customers .
Supply Chain Flow
◈ Supplier → Manufacturer → Distributor → Retailer → Customer
Objectives of SCM
◈ Reduce operational cost
◈ Improve efficiency
◈ Ensure timely delivery
◈ Enhance customer satisfaction
Components of SCM
◈ Procurement
◈ Production
◈ Warehousing
◈ Distribution
◈ Customer Service
Example: Amazon uses SCM to manage inventory, warehouses, and deliveries efficiently .
 Quality Control
◈ Quality Control refers to techniques used to ensure products meet required standards and
specifications .
Objectives of Quality Control
◈ Maintain product quality
◈ Reduce defects
◈ Improve customer satisfaction
◈ Reduce production costs
Techniques of Quality Control
◈ Inspection
◈ Statistical Quality Control (SQC)
◈ Control Charts
◈ Acceptance Sampling
Example: A smartphone company checks battery life and screen quality before shipping .
 Statistical Quality Control (SQC)

◈ Statistical Quality Control (SQC) is a method of using statistical techniques to monitor

and control the quality of products during the production process .
◈ It helps organizations detect variations in production and maintain consistent
product quality .
◈ In simple terms, SQC uses statistical tools and data analysis to control quality .
Objectives of SQC
◈ Maintain consistent product quality
◈ Detect defects during production
◈ Reduce wastage and rework
◈ Improve production efficiency
◈ Maintain customer satisfaction
 Types of SQC
Basis Process Control Product Control
Monitoring and controlling the production Inspecting the finished products to
Meaning
process to maintain quality ensure they meet quality standards
To detect defective products after
Purpose To prevent defects during production
production
Method Used Control charts and statistical techniques Inspection and acceptance sampling
Focus Production process Final product
Checking machine performance during Inspecting finished goods before
Example
manufacturing delivery
 Total Quality Management
◈ Total Quality Management (TQM) is a management approach that focuses on
continuous improvement in products, services, and processes by involving all
employees in an organization to achieve customer satisfaction.
◈ In simple words, TQM aims at improving quality in every aspect of an
organization .
Objectives of TQM
◈ Improve product and service quality
◈ Increase customer satisfaction
◈ Reduce defects and wastage
◈ Promote continuous improvement
◈ Enhance employee participation
◈ Principles of TQM

Principle Explanation
Customer Focus Meeting customer needs and expectations
Continuous Improvement Regular improvement in processes and products
Employee Involvement Participation of employees in quality improvement
Process Approach Managing activities as processes
Fact-Based Decision Making Decisions based on data and analysis

Benefits of TQM
◈ Better product quality

◈ Higher customer satisfaction

◈ Reduced production costs

◈ Improved efficiency

◈ Better teamwork in the organization

 Project Management
◈ Project Management is the process of planning, organizing, directing, and
controlling resources to achieve specific project objectives within a defined
time, cost, and scope .
◈ In simple terms, it is the management of activities required to complete a
project successfully .
Characteristics of a Project
◈ Temporary – Has a fixed start and end time
◈ Unique Objective – Designed to achieve a specific goal
◈ Limited Resources – Uses limited manpower, money, and materials
◈ Defined Scope – Clear project activities and outcomes
◈ Time-bound – Must be completed within a given deadline
Objectives of Project Management
◈ Complete the project within the specified time
◈ Complete the project within the allocated budget
◈ Maintain required quality standards
◈ Ensure efficient use of resources
◈ Achieve project goals successfully

◈ Stages of Project Management

Stage Explanation
Project Planning Defining goals, resources, and schedule
Project Scheduling Organizing tasks and timeline
Project Execution Carrying out project activities
Project Monitoring and Control Tracking progress and correcting deviations
Project Completion Final delivery and evaluation
Tools Used in Project Management
◈ Gantt Charts – Visual representation of project schedule
◈ CPM (Critical Path Method) – Determines the longest path of activities
◈ PERT (Program Evaluation Review Technique) – Used when activity time is
uncertain
◈ Network Diagrams – Show sequence of project activities

◈ Example
◈ Construction of a bridge, building, or highway is a project. It requires proper
planning of materials, labor, time, and budget to ensure successful completion.
 Project Network Analysis
◈ Project Network Analysis is a technique used in project management to plan,
schedule, and control project activities by representing them in the form of a
network diagram .
◈ It helps managers identify the sequence of activities and determine the
minimum time required to complete a project .
◈ Elements of Project Network:
Element Meaning
Activity A task that requires time and resources
Event (Node) Starting or finishing point of an activity
Path Sequence of activities from start to end

Critical Path Longest path in the network determining project duration

 Techniques of Project Network Analysis
◈ 1. Critical Path Method (CPM)
◈ 2. Program Evaluation and Review Technique (PERT)

◈ PERT is used when project time is uncertain .

◈ CPM is used when project time is predictable and fixed .
 CPM vs PERT
PERT (Program Evaluation and Review
Basis CPM (Critical Path Method)
Technique)

Technique used for planning and controlling Technique used for planning and controlling
Meaning
projects where activity time is uncertain projects where activity time is known

Nature of Time Probabilistic (time estimates are uncertain) Deterministic (time estimates are fixed)

Uses three time estimates (Optimistic, Most Likely,

Time Estimates Uses single time estimate
Pessimistic)

Focus Focuses on time management Focuses on time and cost management

Suitable for construction and production

Type of Projects Suitable for research and development projects
projects
To estimate project completion time under To identify critical path and reduce project
Objective
uncertainty cost/time

Example Space research projects, new product development Construction of buildings, highways
 Project Crashing
◈ Project crashing is a project management technique used to reduce the total
project completion time by adding additional resources to certain activities .
◈ It means completing a project faster by spending extra cost or resources .

Objectives of Project Crashing

◈ To reduce project completion time
◈ To meet strict deadlines
◈ To avoid penalties for late completion
◈ To increase project efficiency
Important Points in Project Crashing
◈ Only critical path activities are crashed.
◈ Crashing usually increases project cost .
◈ The objective is to minimize the total project cost while reducing time .

Steps in Project Crashing

◈ Identify the critical path in the project network.
◈ Select activities that can be shortened .
◈ Calculate the cost of reducing time (crash cost) .
◈ Reduce the duration of activities with the lowest crash cost first .
◈ Continue until the desired project duration is achieved .

◈ Example
◈ A construction project is planned to be completed in 10 months .
If the company hires extra workers and machinery , the project may be completed in 8 months ,
but the cost will increase.
◈ This process of reducing project duration by adding resources is called project crashing .
 Resource Leveling
◈ Resource leveling is a project management technique used to adjust the project
schedule so that resources (such as labor, machines, and materials) are used
evenly and efficiently throughout the project .
◈ It balances the use of resources to avoid overloading or underutilization .
Objectives of Resource Leveling
◈ To balance the use of resources during the project
◈ To avoid overuse of manpower or equipment
◈ To reduce idle time of resources
◈ To improve project efficiency
Example
◈ In a construction project, if 10 workers are required on the same day but only 6
are available , the project manager may reschedule some activities to another
day.
◈ This adjustment to balance the use of workers is called resource leveling .