Methods of International Payment.

 Q. Explain different methods of International Payment.

Ans. There are various methods of settling transactions in international marketing. These methods involve different degrees of risk for exporter and importer. These methods differ in degree of flexibility in terms of payment schedules. Main methods of payment in international marketing are:

1. Cash in Advance: In this method, exporter asks the importer to make payment in advance before the shipment of goods. The exporter is relieved of the task of collection of funds from importer. The exporter has no risk of bad-debts as he receives due amount in advance and can also use these funds in business. For importer, payment in advance involves cash flow problem and risk. It is possible that the exporter may not send the goods, may make excessive delay in delivery of goods or may supply low quality goods. So, this method of payment is beneficial for exporter and to the disadvantage of importer. If the exporter is in dominating position due to his unique innovative products or due to good demand of his products then he will insist on the importer for making payment in advance. Further, if credit-worthiness of importer is less or there is political or/and economic crisis in importer’s nation then exporter will ask the importer to make payment in advance.

2. Letter of Credit (L/C): Letter of credit is issued by the importer’s bank on the demand made by importer. When importer sends an order with the exporter, then exporter will ask importer to send letter of credit. It is a sort of guarantee give by importer’s bank to exporter or his bank to pay the specified amount. As L/C is issued and signed by the importer’s bank, it creates trust in the mind of exporter and he feels secure regarding his payment. Importer’s bank will issue letter of credit to importer only after getting itself satisfied about the credit-worthiness of importer. The issuing bank of L/C will ask the importer to make some cash deposit or to pledge something as security and/or also ask for collateral security. The issuing bank of L/C will also charge some commission depending upon the value of L/C from the importer. The letter of credit also facilitates the exporter in getting pre-export finance against it. L/C is an obligation of the issuing bank but it is also treated as financial responsibility of the importer. 

Importer will request his bank to issue letter to credit. In this letter, importer’s bank promises to make payment to exporter’s bank on behalf of importer, subject to fulfilment of certain terms and conditions. Letter of credit is valid up to the date of expiry. If importer’s bank is not well known in the exporter’s country or there is economic or political crisis in the importer’s nation then exporter may insist on confirmed letter of credit.

● Types of Letter of Credit 

1. Revocable Letter of Credit: This letter of credit can be revoked or terms of letter of credit can be changed without consulting the exporter. It provides no protection to exporter as terms of such letter can be changed to the disadvantage of exporter. It is not a popular form of letter of credit as it can be invalidated at any time.

2. Irrevocable Letter of Credit: In this type of letter of credit, the terms and conditions can not be changed unless both parties agree to such change. It cannot be revoked by importer nor can its terms be changed to the disadvantage of exporter without his consent. It provides sense of security to the exporter regarding recovery of payment. This type of L/C is widely used.

3. Transferable Letter of Credit: This type of letter can be transferred to third party by exporter or holder of such letter. It is a negotiable instrument.

4. Non-Transferable Letter of Credit: This type letter of credit cannot be transferred by exporter to third party. It is non-negotiable. If exporter transfers it to third party then issuing bank will not be responsible for its payment.

5. Confirmed Letter of Credit: In some cases, issuing bank of importer may not be well known or political/economic situation of importing country may not be stable then exporter may require that the letter of credit should be confirmed by the designated bank in the exporter’s country. The exporter’s bank will despatch this L/C to the designated bank for its confirmation. On receiving confirmation from designated bank, the exporter is relieved and gets assurance about credit-worthiness of importer’s bank. Confirmed and irrevocable letter provides maximum security to the exporter.

6. Unconfirmed Letter of Credit: If letter of credit is not confirmed by designated bank of exporter’s natuon or exporter/exporter’s bank do not send L/C for confirmation, it is called unconfirmed L/C. If exporter and importer have long business relations or importer’s issuing bank is well known, then letter of credit is not sent for confirmation.

7. Ancillary/Back to Back Letter of Credit: It is a type of assisting L/C based on original L/C. The exporter in whose favour L/C has been issued, may request his bank, to issue another L/C, (on the security of original L/C) in favour of his supplier of raw material/components, etc. This type of L/C helps the exporter to get pre-shipment finance against the L/C received from the importer. If exporter has to purchase raw material/components from any supplier on credit then exporter can request his bank to issue L/C against the security of original L/C. This newly L/C helps the exporter in procuring raw material/components on credit.

8. With Recourse Letter of Credit: This letter of credit is issued with a condition that if exporter’s bank is not able to recover the amount from importer’s bank, but has already made payment to exporter, then exporter’s bank can demand the refund of already paid amount alongwith interest from exporter. The exporter’s bank, instead of taking action against importer’s bank, claims refund from exporter. So exporter does not feel secured in such case. Due to this reason, such letter of credit is not much popular.

9. Without Recourse Letter of Credit: In this type of letter of credit, if the exporter’s bank is not able to recover the amount from importer’s bank, but has already paid to the exporter then exporter’s bank cannot claim refund of money from exporter. The exporter’s bank can take legal action against importer’s bank for the recovery of amount already paid to exporter. In this type of L/C, exporter feels safe. 

10. Revolving letter of Credit: This type of L/C is popular among such exporters and importers who indulge in regular and continuous foreign trade transactions. Instead of providing letter of credit for each business transaction separately, importer provides a single letter of credit of large amount and of long duration. This large amount is like ceiling limit. With each business transaction, a separate L/C is not sent. Exporter bank makes payment to exporter for every business transaction till the ceiling or time period of L/C is exhausted. It makes payment in foreign trade transactions very convenient. If the individual trade transactions are of small amount but are very frequent then revolving L/C is very suitable.

● Advantages of Letter of Credit

(i) The exporter is relieved of risk of bad-debts.

(ii) The exporter gets the payment immediately after handing over shipment documents to his bank.

(iii) The exporter can arrange pre-shipment funds against the security of letter of credit.

(iv) It is more beneficial to importer in comparison to the method of advance payment.

(v) All terms and conditions are written in letter of credit. Exporter’s bank and importer’s bank also become party to this letter. So this document becomes more authentic and clear. Hence, chances of dispute are minimized.

(vi) Importer feels assured about timely delivery of goods as exporter is under obligation to despatch the goods for shipment before the expiry of validity period of letter of credit, otherwise the exporter cannot get amount against L/C.

(vii) Importer can get better terms by sending letter of credit.

(viii) The clearance from exchange control authorities becomes easier due to involvement of exporter’s bank and importer’s bank. The authorities feel that provisions of foreign exchange regulations have been duly compiled.

● Limitations of Letter of Credit 

(i) Validity period of letter of credit is very short.

(ii) It is complicated method of payment as it involves excessive formalities. The terms and conditions of trade have to be written in L/C in the initial stage only, which may be difficult for exporter and importer.

(iii) If there is any discrepancy in documents presented by exporter, i.e., these documents are not in confirmity with terms and conditions then importer’s bank can withhold the payment although goods have already been shipped by exporter.

(iv) Revocable letter of credit offers little security to exporter as it can be revoked anytime.

(v) Importer’s bank, exporter’s bank and confirmating bank (Designated Bank) make huge charges which inflates the transaction cost of foreign trade.

3. Bill of Exchange (Draft): It is an important instrument used in international trade to make or receive payment. In export-import transactions, exporter writes the bill instructing the importer or his agent (importer’s bank) to make specified payment on specified date. The exporter is drawer of the bill and importer/importer’s bank is drawee of the bill. The importer/importer’s bank accepts this bill by signing it and returns the accepted bill to the drawer of the bill. This bill is treated as Bill Receivable (B/R) for the exporter and Bill Payable (B/P) for the importer. The bill of exchange can be of two types — sight bill and time bill. Sight bill is different from time bill.

Sight bill is payable by the drawee on its presentation, while the time bill is payable after a specified time period. In case of time bill, it is payable on due date. Due date/maturity date of bill is computed by adding the specified time period and 3 grace days to the date of issue of bill. The drawer of bill (in case it is a time bill) can get it discounted from his bank. In this case, after deducting discount charges, bank will make immediate payment to the holder of the bill. If the bill is discounted from the bank, then the bank (holder of the bill on due date) will receive the payment of the bill from the drawee on its due date.

In case of sight bill, documents of title are handed over to importer only after receiving the payment, so exporter is secure in case of sight bill. Here, no credit period is allowed to importer. In case of time bill, documents of title are handed over to importer before receiving the payment. So, time bill is risky for exporter, but it is to the advantage of importer. Here, credit period is allowed by exporter to importer. If the bill is accepted by the importer, then it is called trade acceptance, and if the bill is accepted by the importer’s bank, then it is called banker’s acceptance. In international trade, generally exporters insist the importers for bank’s acceptance to generate more trust and to get secure about its payment.

4. Open Account: In case of open account method, exporter makes the shipment of goods, sends all documents to importer and allows credit for a specified period to importer. In the method, letter of credit or banker’s acceptance are not required. Title of goods is transferred from exporter to importer without receiving any assurance from importer. This method is used when importer enjoys good credit-worthiness, there is long trade relationship between exporter and importer, exporter is financially sound, and there is no economic/political crisis in importer’s nation. But this method is very risky for exporter, as in the absence of banking channel (Lack of L/C, banker’s acceptance) and trade acceptance (Bill of exchange), it is very difficult for exporter to recover the amount in the situation of default in payment. Exporter has no other way to recover his amount except to take legal action, which is generally costly, lengthy and cumbersome. When there is excessive competition in foreign market, the exporter has to sell goods through open account due to risk of losing the client.

5. Consignment Method: In this method, exporter makes shipment of goods to foreign consignee. These goods are shipped at the cost of consignor. The exporter retains the title of goods until these are sold and bear the whole risk. The consignee acts as agent of exporter and sells goods on behalf of exporter. The foreign consignee will make payment only when he has sold the goods and has recovered the amount. The foreign consignee will make payment only when he has sold the goods and has recovered the amount. The foreign consignee will remit the amount after deducting his expenses and commission. If goods remain unsold then foreign consignee may send the goods back to exporter at the exporter’s expense. So the exporter has to wait for payment for long time and further he may not get any payment if goods remain unsold. So this method involves huge risk to the exporter. The exporter sends goods on consignment only when the foreign consignee is very trustworthy and there is good demand for exporter’s products in foreign market.

6. Counter-trade: Counter-trade is a trade agreement that has a requirement to import as a condition to export. Counter-trade is a bilateral trade agreement between two nations, under which a nation imports from another country on the condition that other country will also imports products of same value from the first country. This type of trade agreement does not require foreign exchange, hence it does not put any burden on balance of payments of a country. It is a type of barter trade. 

Counter trade is a trade practice which is based on barter trade and is used by trading partners who lack in foreign exchange. In counter trade, exporter accepts goods or services from the importer in partial or full payment of his products. If the exchanged goods are not of equivalent value then balance is carried forward in the books of both parties and will be settled in future counter trade transactions. The payment in future trade transactions may involve some conflict between exporter and importer due to various reasons viz. fluctuations in exchange rate, delay in delivery, defective packaging, discrepancy in documents, change in regulations of exchange control, economic or political crisis, etc. The legal remedy for settlement of disputes is very complicated, costly and time consuming as both parties belong to different nations and have different legal set-up. Counter-trade does not involve any such problem. 

● Types of Counter-trade

(1) Barter Trade: It is the simplest form of counter-trade. In barter trade, direct exchange of goods/services takes place between two nations without cash. It can be at the same point of time or the two transactions can be at different points of time but within a specified time period.

(2) Counter-purchase: In this agreement, a firm agrees to purchase specific goods from the country to which sales are made. Suppose a US firm sells goods to Indian company. Indian company has to make payment in US dollars, but US firm instead of receiving the export proceeds in cash, agrees to spend the export proceeds on import of some specific commodity from Indian company in a specified time period. Money exchange takes place in accounting books only. In reality, money does not change hands.

(3) Switch Trading: In this type of counter-purchase agreement, exporter is given counter-purchase credits in consideration of goods sold by him. These counter-purchase credits can be sold/transferred to any third party. Suppose, exporter does not want to import any product against these counter-purchase credits, then he can sell these counter-purchase credits to any trading house, that wants to import goods from that nation. 

General Agreement on Tarrifs and Trade (GATT) and later World Trade Organisation (WTO) has criticised counter-trade as it restricts the free flow of goods from one country to another country. Under counter-trade, benefits of competition do not reach the ultimate consumers. 

7. Gold: In the past, payments in international trade transactions were made mainly through gold. But now gold as a mode of payment has only theoretical importance.

What is Bombay Stock Exchange (BSE)? State listing procedure in BSE

 Q. What is Bombay Stock Exchange (BSE) ? State in detail the procedure of listing of securities in BSE.

Ans. MEANING OF BOMBAY STOCK EXCHANGE (BSE): The brand name of Bombay Stock Exchange is BSE. It was established in 1875. It is the Asia’s first and fastest stock exchange. It was established as “The Native Share and Stock Brokers’ Association”. Now BSE is a corporatised and demutualised entity. The Deutsche Brouse and Singapore Exchange are its strategic partners. It is also known as world’s no. 1 exchange in terms of listed members. More than 5500 companies are listed on BSE. BSE is the first exchange in India and second in the world who obtained as ISO 9001-2000 certification. It has also received Information Security Management System Standard BS 7799-2-2002 certification for its On-Line Trading System (BOLT) and thus become India’s first and world’s second exchange for obtaining such certificate.

What BSE is today, it was not from the beginning. The brokers started meeting in natural environment under banyan tree in front of town hall. A decade later they shift their venue to meadows Street. That too was also under banyan trees. The number of brokers goes on increasing and they had to shift from place to place. In 1874, the brokers found a place which is now known as Dalal street.

LISTING PROCEDURE AT BSE: The listing procedure at BSE is as follows: 

1. Permission to Use the Name of BSE in an Issuer Company’s Prospectus: The companies desiring to list their securities offered through a public issue have to obtain prior permission from BSE to use the name of BSE in their prospectus or offer for sale documents before filling the same with the Registrar of companies. BSE  has a listing company which decides upon the matter of granting permission to companies. This Committee evaluates the promoters, company, project, financials, risk factors and several other aspects before reaching to any decision.

2. Submission of Letter of Application: The company seeking listing of its securities as per section 40(1) of Companies Act, 2013 is required to submit an application to all stock exchanges where it proposes to have its securities listed.

3. Allotment of Securities: As per listing agreement, a company is required to complete the allotment of securities offered to the public within 30 days of the date of closure of the subscription list. The basis of allotment should be approved by designated stock exchange. In case of Book Building issues, allotment should be made within 15 days from the date of closure of issue. Otherwise interest at the rate of 15 per cent shall be paid to investors.

4. Trading Permission: As per SEBI guidelines, an issuer company has to complete the formalities for trading within 7 working days of finalisation of the basis of allotment. A company has to complete all the formalities related to allotment of securities, dispatch of allotment letters, credit in depository accounts and refund orders for obtaining listing permissions.

5. Requirement of 1% Security: Companies making public or right issues are required to deposit 1% of the issue amount with the designated stock exchange before the issue opens. This amount is liable to be forfeited in the event of the company not resolving the complaints of investors regarding delay in sending refund orders, credit in depository accounts, non-payment of commission to brokers or underwriters, etc.

Types of audit programme. Points in modifying audit programme.

 Q. Discuss various types of audit programmes. What are the points to be kept in mind while modifying audit programme.

Ans. An Audit programme is a flexible, planned procedure of examination. Audit programme are of following two types.

(1) Standard Programme: An audit programme based on standard format is known as a standard auditing programme. This document is used uniformly in all audits, and there is no need for the auditor to prepare a separate audit programme for each audit. Such a programme is also referred to as fixed or predetermined or planned programme. Such a programme may be suitably modified in order to accommodate the specific problems of a particular business.

(2) Tailor-made Programme: A tailor-made programme is one which is prepared separately for each organisation keeping in mind the nature of business, nature of transactions, method of accounting, efficiency of internal control etc. Such a programme is more practical and flexible as compared to a standard programme.

Every auditor prepares an audit programme according to his convenience and keeping in mind the nature of business. The success of an efficient auditor depends largely upon the audit programme. Hence, the auditor should formulate the audit programme very carefully. While preparing an audit programme the following things must be kept in mind:

1. In Writing: The audit programme should always be in writing in order to avoid any misunderstandings between the auditor and his employees in the future. When there is a written audit programme the auditor’s staff need not enquire again and again about the work to be performed by them.

2. Clarity: While drafting the audit programme it should be ensured that it is simple and clear so that every person concerned with the programme can understand it easily. Ambiguity in the programme results in hindrances in the audit work and waste of the time and efforts.

3. Division of Work: The audit programme should be in accordance with the departments of the organisation so that work may be assigned and responsibility may be fixed among the staff on the same basis. While dividing the work the auditor should be completely aware the level of competence of his staff, since only then he will be able to assign work in accordance with the capabilities of the person. The division of work should be done keeping the business of the organisation and various other aspects of the work to be done in mind, so that the work may be completed successfully and no part of the work escapes examination by the auditor.

4. Flexibility: The audit programme should be flexible, so that in case of a change in circumstances, there is no problem in altering the programme. During the course of the audit, some circumstances do arise due to which work cannot be proceed according to the plan and minor deviation have to be made. Hence, the programme should be such that minor alterations can be made in it.

5. Policies and Provisions: While formulating the audit programme, the related policies and provisions having bearing on the audit work should be kept in mind, such as, Memorandum of Association and Articles of Association in the case of a company and the partnership deed in case of a partnership concern. In order to prepare a good audit plan it is necessary that the books of accounts being maintained by the organisation, the method of accounting being used, internal check system etc. be kept in mind and efforts should be made to reduce the deficiencies in the same. 

6. Object Oriented: The audit programme should be in accordance with the objectives of the organisation so as to maintain co-ordination in the work of the organisation and complete the audit smoothly and within the specified time. Unless the audit programme has these qualities, it is of no practical use.

7. Previous Reports: While drafting the audit programme the final accounts and auditors reports of past years should be looked into, since by doing so many facts which are important from the point of view of the audit will come to light.

8. Department–wise: A separate audit programme should be prepared for each department and sub-department of the organisation. Apart from this different audit programmes should also be prepared depending upon the nature of work. For example, different audit programmes should be prepared for cash, purchases, sales etc. By doing so one can obtain important information and explanations from the employees of the organisation in a smooth manner.

Define Budgetary Control. Objectives.

Q. Define Budgetary Control. Describe the objectives of budgetary control.

SBP

Ans. MEANING OF BUDGETARY CONTROL: Budgetary control is an important technique of control on business activities by management, in which business activities are operated on the basis of pre-prepared budget and thereafter actual results are evaluated in the light of budget estimates. 

DEFINITIONS OF BUDGETARY CONTROL: Important definitions of budgetary control are as follows:

1. According to Brown and Howard, “Budgetary control is a system of controlling costs which includes the preparation of budgets, co-ordinating the departments and establishing responsibilities, comparing actual performance with budgeted and acting upon results to achieve maximum profitability.”

2. According to J. Batty, “Budgetary Control is a system which uses budgets as a means of planning and controlling all aspects of productivity and/or selling commodities or services.”

In brief, budgetary control is a tool of management control and accounting which directs and co-ordinates the working operation on the basis of budgets. If there are variances in actual results, then they are corrected or budget is modified so that the objective of maximum efficiency as per the policy of management may be achieved.

OBJECTIVES OF BUDGETARY CONTROL: Budgetary control is essential for policy planning and control. It also acts as an instrument of co-ordination. The main objectives of budgetary control are as follows:

1. To assist in policy formulation on the basis of proper and reliable data.

2. To ensure planning for future by setting up various budgets.

3. To determine short-term and long-term financial and physical targets.

4. To operate various cost centres and departments with efficiency and economy.

5. To classify expenses according to their nature such as direct and indirect expenses; fixed, variable and semi-variable, etc.

6. To help administration as under this system, executives perform their functions according to pre-determined budgets.

7. To anticipate capital requirements and to make necessary arrangements for it.

8. To make cost accounting more reliable and systematic.

9. To promote research in order to bring down cost, to increase efficiency, and to achieve the targets of sales.

10. To develop co-ordination and co-operation among employees and executives.

11. To eliminate waste and profitability.

12. To correct the variations from the established standards.

13. To fix the responsibility of various individuals in the organisation.

VK

Ans. The main objective of budgetary control is to maximise the profits by proper use of limited business resources. It is an important tool for policy planning and control. The main objectives of budgetary control are as follows: 

1. To help in policy making.

2. To determine the capital requirement.

3. To coordinate the activities of different departments.

4. To control the costs of various departments.

5. To control research and development activities.

6. To eliminate the wastage and increase in profitability.

7. To anticipate capital expenditure for the future.

8. To bring economy in costs by classifying them into fixed and variable.

9. To increase the efficiency of production.

10. To help the management in administrative functions.

Codification of overheads: Meaning and Methods.

 Q. What do you mean by codification of overheads? Discuss the various methods of codification. 

Ans. Meaning of Codification of overheads: When the collected overheads are grouped according to their class it is known as classification of overheads. Each group or class is given a code number to help in maintaining mechanised accounting and secrecy in the system. This code allotment procedure is known as codification. Codification may be done by any of the following methods:

(i) Numbers

(ii) Alphabets

(iii) Combination of numbers and alphabets

(iv) Symbols

Methods of Codification: The various methods of codification are as follow:

(1) Numerical Numbers: Under this method the various groups are alloted numerical numbers so that one group of overhead may represent one standing order number. As for example 

No. 1 to 20 Indirect Material 

       21 to 30 Indirect Labour

       31 to 37 Idle Time

       38 to 43 Overtime 

       44 to 50 Insurance 

       51 to 54 Rent

       55 to 70 Depreciation 

       51 Rent of factory

       52 Rent of Office Building 

       53 Rent of Warehouse 

       54 Rent of Branch Office

(2) Alphabets: Under this method, alphabets are alloted to each overhead. These alphabets help in memory and identification of overheads. For example, 

PO – Power

RE – Repair

DE – Depreciation 

CA – Carriage

MA – Maintenance 

(3) Combination of Alphabets and Numericals: Under this method both of the above methods are combined into one. Under this method, alphabet stands for head of expenses and number shows further analysis of expenses. As for example,

RE1 = Repair to factory building

RE2 = Repair to office building 

RE3 – Repair to warehouse 

RE4 – Repair to vehicle

RE5 – Repair to furniture 

Again repair to furniture can be divided into further code number.

RE5.1 – Repair to factory furniture 

RE5.2 – Repair to office furniture 

RE5.3 – Repair to warehouse furniture and so on.

(4) Symbols: This method is used in those concerns which are working under mechanised system with punched card accounting. The nine digit punched card is divided into four parts.

00/000/00/00

The first part of two digits represents class of overhead i.e., fixed or variable. The second part of three digits represents head of overhead (i.e. idle time etc.), the third part of two digits signifies analysis of expenses (i.e. waiting for material). The fourth part of two digits represents the cost centre (i.e. assembly shop).

   For example symbol 10/120/01/07

Stands for 10 for variable cost, 120 for idle time, 01 for waiting of material, 07 for assembly shop.

Code.                       Stands

10/120/01/07.        Variable/Idle Time/Waiting for material/Assembly Shop

Training of Sales Force: Meaning and Methods

 Q. What do you mean by training of Sales force? Explain the various methods of training the sales force. 

Ans. Meaning of training of sales force: Industrial sales force training is a process of providing the sales force with specific skills for performing their task better and helping them to correct deficiencies in their sales personnel.

In modern industrial organization, the need of training of sales personnel is widely recognized so as to keep the sales personnel in touch with the new technological developments. Every company must have a systematic training program for the growth and development of employees. Training is one of the most important activities of management. The technological developments are taking place at much faster rate. Individual needs training to match him with the requirements of new changes. After recruitment and selection, the next step is training, which is required for all types of jobs in the organisation. New jobs require some sort of special training. Training is also valuable for sales personnel and the organization. It helps to reduce the cost. Training is thus no more a luxury but now it is considered as a necessity.

According to Jucius, “The term training is used here to indicate only process by which the aptitudes, skill and abilities of employees to perform specific jobs are increased.”

Methods of training the sales force: The various training methods adopted for the training of sales personnel are as follows: 

1. Orientation and Induction Training: This training is given to help new entrants for adapting themselves with the new environment. In this method, the new comer is taken around the organisation and informed about the location of various departments and offices. The employees are given a full description of the job they are expected to perform. Orientation training helps the new employees to acquaint themselves with their immediate boss and the persons who will work under their command. They are also informed about the policies, procedures and rules which are related to their assigned work. 

2. Refresher Training: Refresher training is helpful in acquainting personnel with latest improvements in their work. The changing technological methods require fresh training to existing employees even if they are well trained and qualified. Everybody requires attending refresher courses to know the the latest techniques of doing the work. Such training also helps in refreshing the memory of the sales personnel. The introduction of new products may also necessitate fresh training of sales personnel.

3. Case Study: In this method, the case is assigned to the trainees. The trainees learn analytical thinking and reasoning ability by discussing the case. This method improves the ability to evaluate facts and appreciate other’s view point. The trainees come to understand more than one way to analyze the problem.

4. Coaching: In this method, the immediate superior guides and instructs his subordinates as a coach. It is learning through on the job experience because a manager can learn when he is a put on a specific job. The immediate superior briefs the trainees what is expected from them and guides how to effectively achieve them. The coach or immediate superior watches the performance of their trainees and directs them in correcting their mistakes.

5. Special Projects Assignment: In this method a trainee is assigned a project which is closely related to his job. Further, sometimes the number of trainee executive is provided with the project assignment which is related to their functional area. This group of trainees is called project team. The trainee studies the assigned problem and formulates recommendation on it. These recommendations are submitted in the written form by the trainee to his superior.

6. Role Playing: In role playing, the conflicting situation is created and two or more trainees are assigned different roles to play on the spot. They are provided with the written or oral description of the situation and roles to play. The trainees are then provided with the sufficient time, they then have to perform their assigned roles spontaneously before the class. This technique is generally used for human relations and the leadership training. This method is used as a supplement to other methods.

7. Syndicate Method: Syndicate refers to the group of trainees and involves the analysis of the problem by different groups. Thus, in this method, 5 or 6 groups consisting of 10 members are formed. Each group works on the problem on the basis of the briefs and the backgrounds provided by the resource persons. Each group presents its view on the involved issues along with the other groups. After the presentation, these views are evaluated by the resource persons along with the group members. Such exercise is repeated to help the members to look into the right perspective of the problem. This method helps in the development of the analytical and the interpersonal skills of the managers.

8. Demonstration: In this method, the trainees are given the demonstration of the product. This method is appropriate for imparting training for technical and complex products. It demonstrates the features of the product, its uses, method of using it, its superiority over the competitirs’ product. The purpose of the training is to make the salesmen fully aware of the product so that they can effectively demonstrate the product to the prospective customer.

9. Sales Conference Method: In sales conference method, training is given in both formal and informal ways. These conferences are addressed by an expert or group of experts. Salesmen of the organization attend these conferences as participants. The experts give knowledge of new sales techniques to the participants. These conferences discuss specific sales related problems like how to redress consumer complaints, how to maximize consumer satisfaction, etc. The group discussion between the experts and the participants is organized at the end of the conference, thereby making it a two way communication.

What is Materials Management? Need and importance

 Q. Define Materials Management. Why is materials management important for an organisation ? Explain.

OR

What is materials Management ? What is the need of materials management in the present scenario ?

Ans. Meaning of Materials Management: Materials Management is a combination of two words – material and management. The term material refers to such commodities which are supplied to the manufacturing industry in the crude or original form which need to be processed further. Management is the process of dealing with or controlling things or people. Management is the organisation and coordination of the activities of a business in order to achieve objectives. Thus, materials management is a technique which is concerned with planning, organising and control of flow of materials from purchase of raw material to consumers. 

Materials management is a branch of logistics which deals with the tangible components of supply chain. The materials management is useful for manufacturing Industries. Materials Management is concerned with the planning, procuring, storing and providing the appropriate quality material at right time in right quantity and at right place.

Materials management is ideal for the industries who track the flow and manage the materials in their enterprises. It involves the purchase of material, inventory management and control. It is the integrated function of purchase. It has a very wide scope including purchase of material, planning of materials, maintenance of material and spare parts, obtaining quality material at right time and place, storing of material and issuing of material. There are 5 M’s which are critical for an organisation and out of these, the material is the most important. Thus, the materials management is very important for each such organisation which uses raw-material.

Definition: As per Bailey and Farmer, “Material management is the management of the flow of materials into an organisation to the point, where, those materials are converted into firm’s end product (s).”

Materials Management is important for an organisation for the following reasons.

1. Helps in reducing cost: Materials management helps in solving problems related to reducing the overall cost of product by purchasing materials at reasonable prices. Simultaneously it reduces costs by reducing wastage of material.

2. Improving material productivity: Productivity means quality of producing something. Materials management also solves problems related to standardisation and reduction methodologies for improving productivity. Improved productivity helps in decreasing the cost per unit and thus helps in increasing profitability.

3. Optimum Utilisation of Physical Resources: Materials Management provides adequate and timely material for production. Thus it helps in optimum utilisation of physical resources, and therefore helps in decreasing the cost.

4. Warehouse Management: Warehouse management is also the function of materials management. Through proper warehouse management, materials management helps in decreasing the wastage of material. Thus, indirectly it helps in improving the profitability.

5. Helps in solving Inventory Problem: It helps in solving problems of shortage or excess of inventory. It projects the demand of the material and accordingly arranges the materials. For exact requirement of materials in the stock, it uses various techniques such as EOQ, re-order level, etc. The overstocking of materials is undesirable as it increases the cost. Thus it helps in keeping the investment in materials to minimum.

So, The materials management is crucial for the success of an organisation because it involves a major part of the total cost of the product.