Chapter 10

Codification, Standardization and Variety Reduction

Classification

The materials procured by a firm must be classified and coded before the materials are inspected, accounted in stores ledgers and binned and hence materials are broadly classified according to their nature, use and service before the job codification is taken up.

Codification

This is the system adopted for accurate identification of materials by allotting a numerical number for each item procured and stored.

Systematic grouping for correct identification of similar items.Avoids duplicate stocks of same itemsReduction in sizes and varietiesHelps in standardization of materialsEnsures accuracy in correspondence, records and postings of receipts and issues in appropriate records

Advantages of Classification and Codification

Principles of Classification and Codification

ConsistencyComprehensivenessMutual exclusivenessSimpleEasily adoptable

Groups of Materials Classification

Raw MaterialsComponentsConsumablesSpare PartsSuppliesToolsPacking MaterialsWork-in-progress itemsFinished Goods

Completely knocked down itemsHard ware itemsFastenersSubcontracted itemsWires and cablesPaints and chemicals

Systems of codification

Alphabetic systemSimple numeric systemAlpha-Numeric SystemBlock SystemDecimal SystemNumeric SystemMnemonic System

Objectives of Codification

To bring all similar items together under one classification or groupTo classify an item according to its nature or characteristicsTo avoid duplication and confusionTo fix essential parameters to specify an item

Steps involved in Codification System

The large number of items of different varieties comprising the inventory needs to be classified under major groups known as “Generic Groups”Further divide into distinct subgroups according to the type of materialFurther listed in alphabetical order and then according to the size.

Codification Systems

The Kodak SystemThe British System

Standardization

It is the process of establishing basic specifications for a set of commonly used characteristics of size, shape and performance for products.

Simplification

It is closely related concept or process which refers to the reduction in the number of different sizes and shapes of items produced or stocked.

Two Areas of Standardization

Industrial StandardizationManagerial Standardization

How Standardization Reduces Costs?

It enables a firm to purchase fewer items, in large quantities and at lower pricesDue to fewer items are processed and stocked reduces purchasing, receiving, inspection and payment costsInventory control becomes easier and less costly because of stocking of fewer items

Objectives of Standardization

To achieve maximum overall economyTo ensure maximum convenience in useTo ensure uniformity and reduction in varietyTo help in quality assurance by improving quality in every activity

Levels of Standards

Individual StandardCompany StandardIndustry StandardNational StandardInternational Standard

Advantages of Standardization

Fewer parts to deal with inventory and in manufacturingSimpler and more routine purchasing, handling and inspection proceduresFacilitates longer production runs and automationHelps in better understanding of customer requirements

Disadvantages of Standardization

Decreased variety of end products results in less consumer appeal and thereby affecting the competitive advantage for the firm. Designs may be frozen with too many imperfections remainingDesign changes involve high costs which will increase resistance to improvements in design

Objectives of Standardization Program

To standardize the materials used in firmTo bring the company standards in line with the industry standardsTo reduce the varieties of raw materials and components usedTo establish the specifications of materials to be purchased

Types of Standards

Product StandardsEngineering StandardsMaterial StandardsQuality StandardsProcess StandardsEquipment StandardsSafety StandardsAdministrative Standards

Simplification

It is defined as the elimination of superfluous varieties, sizes, dimensions, features etc., making the design, assembly or product simpler, less complex and less difficult to use.

Specification

A Specification is a detailed description of a material, component part or a product, including physical measures such as dimensions, volume, weight, surface finish etc.

Specification Types

Dimensional and Material SpecificationsPerformance Specifications

Kinds and Sources of Industrial Standards

International StandardsIndustry or National StandardsCompany Standards

Variety Reduction

The process of standardization logically leads to simplification and variety reduction. Variety reduction defined as a form of standardization consisting of the reduction of the number of types of products, or materials or parts within a definite range to a lesser number which is adequate to meet prevailing needs at a given time.

How to control Variety?

By SimplificationsBy StandardizationBy Specialization

Value Analysis

This is another approach to variety control and thereby cost reduction

Benefits of Variety Control

Better after sales serviceGreater technical productivityBetter understanding of technical problemsLesser set up timesHigher equipment utilization

Reduction in inventoryHigher equipment utilizationEasier inventory controlBetter use of storage spaceQuicker stock-checkingReduction in purchasing effort