Islamic Banking: Basic Concepts and Principles

Islamic banking (or participant banking) is banking or banking activity that is consistent with the principles of sharia law and its practical application through the development of Islamic economics. Sharia prohibits the fixed or floating payment or acceptance of specific interest or fees (known as riba, or usury) for loans of money.

Shariah concepts in Islamic banking

The common Shariah concepts are as follows:

Wadiah (Safekeeping)

Wadiah means custody or safekeeping. In a Wadiah arrangement, you will deposit cash or other assets in a bank for safekeeping.The bank guarantees the safety of the items kept by it.

Here is how it works:

1) You place money in a bank and the bank guarantees to return the money to

    you.

2) You are allowed to withdraw the money anytime.

3) Bank may charge you a fee for looking after your money and may pay hibah  

    (gift) to you if it deems fit.

4) This concept is normally used in deposit-taking activities, custodial services   

    and safe deposit boxes.

Mudharabah (Profit sharing)

Mudharabah is a profit sharing arrangement between two parties, that is, an investor and the entrepreneur.  The investor will supply the entrepreneur with funds for his business venture and gets a return on the funds he puts into the business based on a profit sharing ratio that has been agreed earlier.

The principle of Mudharabah can be applied to Islamic banking operations in 2 ways: between a bank (as the entrepreneur) and the capital provider, and between a bank (as capital provider) and the entrepreneur. Losses suffered shall be borne by the capital provider.

Here is how it works:

1) You supply funds to the bank after agreeing on the terms of the Mudharabah   

    arrangement.

2) Bank invests funds in assets or in projects.

3) Business may make profit or incur loss.

4) Profit is shared between you and your bank based on a preagreed ratio.

5) Any loss will be borne by you.This will reduce the value of the assets/  

    investments and hence, the amount of funds you have supplied to the bank.

Bai’ Bithaman Ajil – BBA (Deferred payment sale)

This refers to the sale of goods where the buyer pays the seller after the sale together with an agreed profit margin, either in one lump sum or by instalment.

Here is how it works:

1) You pick an asset you would like to buy.

2) You then ask the bank for BBA and promise to buy the asset from the bank   

    through a resale at a mark-up price.

3) Bank buys the asset from the owner on cash basis.

4) Ownership of the goods passes to the bank.

5) Bank sells the goods, passes ownership to you at the mark-up price.

6) You pay the bank the mark-up price in instalments over a period of time.

Murabahah (Cost plus)

As in BBA, a Murabahah transaction involves the sale of goods at a price which includes a profit margin agreed by both parties. However, in Murabahah, the seller must let the buyer know the actual cost for the asset and the profit margin at the time of the sale agreement.

Musyarakah (Joint venture)

In the context of business and trade, Musyarakah refers to a partnership or a joint business venture to make profit. Profits made will be shared by the partners based on an agreed ratio which may not be in the same proportion as the amount of investment made by the partners. However, losses incurred will be shared based on the ratio of funds invested by each partner.

Ijarah Thumma Bai’ (Hire purchase)

Ijarah Thumma Bai’ is normally used in financing consumer goods especially motor vehicles.There are two separate contracts involved: Ijarah contract (leasing/renting) and Bai’ contract (purchase).The contracts are made one after the other.

Here is how it works:

1) You pick a car you would like to have.

2) You ask the bank for Ijarah of the car, pay the deposit for the car and     

    promise to lease the car from the bank after the bank has bought the car.

3) Bank pays the seller for the car.

4) Seller passes ownership of the car to the bank.

5) Bank leases the car to you.

6) You pay Ijarah rentals over a period.

7) At end of the leasing period, the bank sells the car to you at the agreed sale  

    price.

Wakalah (Agency)

This is a contract whereby a person (principal) asks another party to act on his behalf (as his agent) for a specific task.The person who takes on the task is an agent who will be paid a fee for his services.

Example

A customer asks a bank to pay someone under certain terms.The bank is

therefore the agent for carrying out the financial transaction and the bank

will be paid a fee for its services.

Qard (Interest-free loan)

Under this arrangement, a loan is given for a fixed period on a goodwill basis and the borrower is only required to repay the amount borrowed. However, the borrowe may, if he so wishes, pay an extra amount (without promising it) as a way to thank the lender.

Example

A lender who lent RM5,000 to a borrower on Qard will expect the borrower to return exactly RM5,000 to him at a later date.

Hibah (Gift)

This refers to a payment made willingly in return for a benefit received.

Example

In savings operated under Wadiah, banks will normally pay their Wadiah depositors hibah although the accountholders only intend to put their savings in the banks for safekeeping.

Good and service tax (GST)

  

One of the biggest taxation reforms in India -- the Goods and Service Tax (GST) -- is all set to integrate State economies and boost overall growth.

GST will create a single, unified Indian market to make the economy stronger.

Finance Minister Pranab Mukherjee while presenting the Budget on July 6, 2009, said that GST would come into effect from April 2010.

(The date of implementation of GSTN is set on August 2012. GST might not be implemented before 1 April 2013.)

The implementation of GST will lead to the abolition of other taxes such as octroi, Central Sales Tax, State-level sales tax, entry tax, stamp duty, telecom licence fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services, et cetera, thus avoiding multiple layers of taxation that currently exist in India.

But just what is GST all about and how will it impact you?

What is GST?

Goods and Services Tax -- GST -- is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level.

Through a tax credit mechanism, this tax is collected on value-added goods and services at each stage of sale or purchase in the supply chain.

The system allows the set-off of GST paid on the procurement of goods and services against the GST which is payable on the supply of goods or services. However, the end consumer bears this tax as he is the last person in the supply chain.

Experts say that GST is likely to improve tax collections and boost India's economic development by breaking tax barriers between States and integrating India through a uniform tax rate.

What are the benefits of GST?

Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by increasing the tax base and minimizing exemptions.

It is expected to help build a transparent and corruption-free tax administration. GST will be is levied only at the destination point, and not at various points (from manufacturing to retail outlets).

Currently, a manufacturer needs to pay tax when a finished product moves out from a factory, and it is again taxed at the retail outlet when sold.

How will it benefit the Centre and the States?

It is estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth. It will divide the tax burden equitably between manufacturing and services.

What are the benefits of GST for individuals and companies?

In the GST system, both Central and State taxes will be collected at the point of sale. Both components (the Central and State GST) will be charged on the manufacturing cost. This will benefit individuals as prices are likely to come down. Lower prices will lead to more consumption, thereby helping companies.

What type of GST is proposed for India?

India is planning to implement a dual GST system. Under dual GST, a Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST) will be levied on the taxable value of a transaction.

All goods and services, barring a few exceptions, will be brought into the GST base. There will be no distinction between goods and services.

Which other nations have a similar tax structure?

Almost 140 countries have already implemented the GST. Most of the countries have a unified GST system. Brazil and Canada follow a dual system where GST is levied by both the Union and the State governments.

France was the first country to introduce GST system in 1954.

Will this be an extra tax?

It will not be an additional tax. CGST will include central excise duty (Cenvat), service tax, and additional duties of customs at the central level; and value-added tax, central sales tax, entertainment tax, luxury tax, octroi, lottery taxes, electricity duty, state surcharges related to supply of goods and services and purchase tax at the State level.

What will be the rate of GST?

The combined GST rate is being discussed by government. The rate is expected around 14-16 per cent. After the total GST rate is arrived at, the States and the Centre will decide on the CGST and SGST rates.

Currently, services are taxed at 10 per cent and the combined charge indirect taxes on most goods is around 20 per cent.

Will goods and services cost more after this tax comes into force?

The prices are expected to fall in the long term as dealers might pass on the benefits of the reduced tax to consumers.

Why are some States against GST; will they lose money?

The governments of Madhya Pradesh, Chhattisgarh and Tamil Nadu say that the information technology systems and the administrative infrastructure will not be ready by April 2010 to implement GST. States have sought assurances that their existing revenues will be protected.

The central government has offered to compensate States in case of a loss in revenues.

Some States fear that if the uniform tax rate is lower than their existing rates, it will hit their tax kitty. The government believes that dual GST will lead to better revenue collection for States.

However, backward and less-developed States could see a fall in tax collections. GST could see better revenue collection for some States as the consumption of goods and services will rise.

How will GST be implemented?

The empowered committee is likely to finalize the details of GST by August. But States have to sort out several issues like agreement on GST rates, constitutional amendments and holding talks with industry associations. Experts feel the drafting of legislation and the implementation of law will take time.

What are the items on which GST may not be applied?

Alcohol, tobacco, petroleum products are likely to be out of the GST regime.

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New Direct Tax Code

New Direct Tax Code

The New Direct Tax Code (DTC) of India is expected to substitute the Income Tax Act of 1961 that is presently in operation. The bill had been presented at the Parliament on August 30th, 2010. According to experts, the new code has lesser benefits compared to the Income Tax Act of 1961.

The Union Finance Minister Pranab Mukherjee had reiterated while presenting the 2010 Union Budget, that he will ensure the new DTC came into force on April 1st, 2011. 

Direct Tax Code Highlights

1. The new DTC does away with majority of the categories that were earlier exempted from taxes such as Unit Linked Insurance Plans (ULIPs), Long term infrastructure bonds, Equity Mutual Funds (ELSS), repayment of house loan principal, Term deposits, stamp duties, National Savings certificates (NSC), and registration fees for buying residential properties.
2. There will be no tax exemption for leave travel allowances.
3. The upper limit for tax saving investments will be INR 100,000. But in case of pure life insurance there will be an addition of 50,000 rupees – the sum of insurance should be, at the minimum, 20 times more than the premium. This facility will also be available for health insurance, tuition fees of children, and mediclaim policies. Tax payers will be able to make tax saving investments up to 1 lakh rupees in provident funds, gratuity funds, superannuation funds, and new pension schemes.
4. Tax exemptions provided for education loans will remain the same as earlier.
5. As before, tax exemption will remain the same in case of the interest paid for home loans – INR 1.5 lakhs per year.
6. Corporate taxes have been reduced to 30 percent from 34%. This will be inclusive of the education surcharge and cess.
7. Short term capital gains will be taxed at 50 percent. Long term capital gains such as equity mutual funds and equities, where STT is being paid, will be exempted from taxes.
8. The upper limit for medical repayments has been increased from INR 15,000 per year to 50,000 rupees per year.
9. Tax exemption will be provided for savings, withdrawals and accretions of GPF, PPF, and EPF. This benefit will also be applicable for the New Pension Scheme being managed by the PFRDA, pure life insurance products, and retirement benefits such as leave encashment and gratuity, and annuity schemes.
10. Equity mutual funds will be subjected to a dividend distribution tax (DDT) rate of 5 percent. DDT from non equity funds will be taxed as per the yearly income of the concerned investor. If dividend from non-equity funds exceeds INR 10 thousand the TDS will be 10 percent. In case of companies and NRIs this rate will go up to 20%.
11. Education cess and surcharge have been removed.
12. In case an NRI stays in India for a minimum of 60 days he will be required to pay a tax on his aggregate income. 
13. Deductions for rent and maintenance will be brought down to 20 percent from 30% of the gross rent. Interest paid for house loans in case of a rented property will now be deducted from the rent.

Direct Tax Code – Slabs

The following table shows the new income tax rates to be applicable from April 1st, 2012 onwards:

Yearly income	Tax rates
More than 10 lakh rupees	30 percent
Within 5 lakh and 10 lakh rupees	20 percent
Within 2 lakh and 5 lakh rupees	10 percent
Up to 2 lakh rupees (in case of senior citizens this amount will go up to INR 250,000)	Exempted

Direct Tax Code – Capital Gains from Property Sales

As per the new direct tax code, in case of properties sold within a year the income will be added to the taxable salary. For long term gains, like in case of properties sold after more than one year of buying them, the gains will be added to the taxable income after indexation.The tax will be deducted as per the annual income of the concerned tax payer. The base date for calculating the acquisition costs has been changed to April 1, 2000 from April 20, 1980.

Factor affect business environment

The business environment or the external forces acting on the business consists of a large number of forces.

These are.

     1.     Demographic

     2.     Economic

     3.     Geographical

     4.     Ecological

     5.     Social and Cultural

     6.     Political & Legal

     7.     Technological

1. Demographic Factors:

Demography is a study of human population with reference to its size, density, distribution and other connected vital statistics. This information is very essential in modern days for planning and development and also for framing laws relating to society and business. The density of population, the extent of their standard of living, the level of their education and the nature of their occupation etc., greatly influence the type of business the entrepreneurs could undertake. The business units require customers for its survival and growth; naturally business can thrive in populace regions, though now-a day’s transportation helps a lot in bringing the commodities to the scarcely populated areas.

2. Economic Factors:

The business enterprise is affected by various economic forces which cannot be controlled by the business. These economic forces, can be divided into two categories, ie. Demand Force and Competitive Force. For a business firm to survive and thrive, it should have adequate demand for its products. At the same time, the firm has to complete with the rival firm producing similar products or substitute products.

Economic forces affecting demand:

For customers to buy the commodity of the firm, they should have the ability to buy and willingness to buy. The ability to buy a commodity depends on the income of the customer, to be very precise, the disposable income of the customer. Out of the total income, the individual has to pay taxes due to the government and the disposable income will be less if the taxes are high. Secondly, if the individual wants to save more, the amount for spending will be less. Thus, the ability to buy a commodity depends on the a) Total income earned out of the employment of the individual b) The taxes of the government and c) The savings of the individual.

An increase in tax will reduce the demand for the commodity. The attitude of the individual towards ‘Saving’ will affect the demand. A change in ‘Price’ of the commodity will affect the demand. Expectation of a further change in price or change in taxes will also affect the demand.

 Competitive forces: The competitive tools are price cutting, advertisement, product     

  differentiation, marketing strategies and consumer service.

     Price cutting: Price cutting or price reduction is a method which has to be adopted very cautiously, as it may ultimately lead to price-war between firms competing, resulting in reduction of profits.

   Advertisement: Advertisements in modern days have become a very powerful tool in persuading the consumers of a product to a particular brand. In monopolistic competition, a large share of the market is entrenched by firms making effective and aggressive advertisement.

      Product differentiation: A firm tries to get competitive strength by differentiating its product from those of its rivals. By having special design, colour, packing and features, the firm tries to get competitive edges.

   Marketing strategies and Consumer Service: Modern firm adopt various types of marketing strategies to create market for their products. Installment system, credit system, hire-purchase, etc., are the prominent ways by which firms try to cut through the poor segments of the society and convert them their customers. Besides customer service like, free door delivery, quick service, after sales service, guarantee from defects up to a certain period are adopted to have more and more demand for their commodities.

3. Geographical and Ecological Environment:

·     Geographical conditions, to a greater extent, influence the type of industries and business in a region. Generally, the people of a particular geographical region will have similar tastes, preferences and requirements. The geographical situation, the physical feature, the climate, rainfall, humidity, the vegetation, etc., decide the type of living in a particular region and only those industries which could cater to the needs of the people, could develop. In other words, geographical conditions exert profound influence on the location of the business.

·     Ecological is a study “dealing with the interaction of living organism with each other and with their non-living environment”. It is a science telling about the relationship of all living beings. (ie., human beings, animals, plants) with non- living beings (air, water, soil represented by atmosphere, rivers, lakes, mountains and land).

4. Social and Cultural Environment:

Social and Cultural attitudes of a region influence the business organizations of the region influence the business organizations of the region in a verity of ways. The business practices and the management technique of the organization should cope with the social and cultural attitudes of the people.

The modern business is a social system in itself, but it is also part of a larger social system represented by society in general. Clearly, there should be some reciprocal relationship between business and this larger society. To put it shortly, the business should adopt itself to the social and cultural environment.

It is the class structure of the society. It tells about the social roles and organizations and the development of social institutions. The class-structure depend upon the occupation of the people, their education, income level, social status, their mobility, their attitude towards living, work and social relationship and above all, their attitude towards business.

Every society develops its own ‘culture’ which means how the members of that society behave and interact with each other in society, as well as outside society. The term culture includes values, norms, customs, ethics, goals and other accepted behaviour patterns.

5. Political and Legal Environment:

Political Environment:

All business firms are directly affected to a greater or lesser degree by the government and its programmes. Political forces will decide the nature of business, programmes and projects to be undertaken for the development of the country. These political forces can be classified as long term forces, quick changes, cyclical changes and regional factors.

  Long term forces denote the secular trends in business activities due to the political conditions prevailing and the adoption of a particular line of policy in business.

    Quick Changes consist of sudden political changes due to army coup or revolt or capturing of the government machinery by the dissident group. The quick change may also be the result of proclamation of ‘emergency’ or ‘Martial Law’ due to sudden outbreak of war with a belligerent nation. In all these cases, the business manager has to take quick decisions to adopt his business to the changed environment.

   Cyclical Changes denote periodical anticipated changes like ’General Election’ which may change the government and consequent change in plans and programmes as well as priorities by the new Government.

Regional Factors the regional consideration may dominate the political scene. Development of agricultural or development of an industrially backward region may draw the attention of politicians and government. Consequently, special legislations or policies will be framed to help the backward regions or sector. In such changes, the business has to adopt itself by studying and estimating the risks and dangers involved in taking decisions.

Legal Environment:

Business in a country can be started and nurtured to grow into big business only within the legal system of the country. In this connection, all countries of the word have a separate set of laws for the control and direction of business. The business law of the country is a complex system of regulations and intervention that form the legal environment of the business. All business managers should have the knowledge of business law for taking management decision.

6. Technological Environment

Technology means “the systematic knowledge of the industrial arts”. ‘Technique’ denotes the method of performance. These two are increasingly used in modern literature on industrial production. The present age is the age of technology. Technology affects the business in two ways.

    Its impact on the society and

    Its impact on business operation.

Corporate Social Responsibility

                                      

Every business enterprise is an integral part of the society. It uses the scarce resources of the society to continue and grow. Hence, it is important that no activity of business is injurious to the long run interests of the society. However, it is observed that, in practice, there are a few socially undesirable aspects of business such as, polluting the environment, non-payment of taxes, manufacturing and selling adulterated products, giving misleading advertisement and so on. This has resulted in the development of the concept of social responsibility of business whereby the owners and managers of business are made conscious about the responsibilities of their business towards the community and its customers, workers etc.

MEANING OF SOCIAL RESPONSIBILITY

Social responsibility of business refers to the obligation of business enterprises to adopt policies and plans of actions that are desirable in terms of the expectation, values and interest of the society. It ensures that the interests of different groups of the public are not adversely affected by the decisions and policies of the business.

SOCIAL RESPONSIBILITIES TOWARDS DIFFERENT GROUPS

It needs to be noted that the responsibilities of those who manage the business cannot be limited to the owners. They have to take into account the expectations of other stakeholders like the workers, the consumers, the government and the community and public at large.

Let us now look at the responsibilities of the business towards all these groups.

(a) Responsibility towards the shareholders or owners: The shareholders or owners are those who invest their money in the business. They should be provided with a fair return on their investment. You know that in case of companies it takes the form Business dividends. It has to be ensured that the rate of dividend is commensurable with the risk involved and the earnings made. Besides dividends, the shareholders also expect an appreciation in the value of shares. This is governed primarily by company’s performance.

(b) Responsibility towards the Employees: A business enterprise must ensure a fair wage or salary to the workers based on the nature of work involved and the prevailing rates in the market. The working conditions must be good in respect of safety, medical facilities, canteen, housing, leave and retirement benefits etc. They should also be paid reasonable amount of bonus based on the business earnings. Preferably, there should also be a provision for their participation in management

(c) Responsibility towards the Consumers: A business enterprise must supply quality goods and services to the consumers at reasonable prices.  It should avoid adulteration, poor packaging, misleading and dishonest advertising, and ensure proper arrangement for attending to customer complaints and grievances.

(d) Responsibility towards the Government: A business enterprise must follow the guidelines of the government while setting up the business. It should conduct the business in lawful manner, pay the taxes honestly and on time. It should not indulge in any corrupt practices or unlawful activities.

(e) Responsibility towards the Community:  Every business is a part and parcel of our community. So it should contribute towards the general welfare of the community.

It should preserve and promote social and cultural values, generate employment opportunity and contribute towards the upliftment of weaker sections of the society. It must take every step to protect the physical and ecological environment of the society. It should contribute to the community development programmers like public health care, sports, cultural programmers.

Business Environment

Meaning

Understanding the environment within which the business has to operate is very important for running a business unit successfully at any place. Because, the environmental factors influence almost every aspect of business, be it its nature, its location, the prices of products, the distribution system, or the personnel policies. Hence it is important to learn about the various components of the business environment, which consists of the economic aspect, the socio-cultural aspects, the political framework, the legal aspects and the technological aspects etc. In this chapter, we shall learn about the concept of business environment, its nature and significance and the various components of the environment. In addition, we shall also acquaint ourselves with the concept of social responsibility of business and business ethics.

The term ‘business environment’ connotes external forces, factors and institutions that are beyond the control of the business and they affect the functioning of a business enterprise. These include customers, competitors, suppliers, government, and the social, political, legal and technological factors etc.  While some of these factors or forces may have direct influence over the business firm, others may operate indirectly. Thus, business environment may be defined as the total surroundings, which have a direct or indirect bearing on the functioning of business. It may also be defined as the set of external factors, such as economic factors, social factors, political and legal factors, demographic factors, technical factors etc., which are uncontrollable in nature and affects the business decisions of a firm.

Feature of business environment

features of business environment can be summarized as follows.

(a) Business environment is the sum total of all factors external to the business firm and that greatly influence their functioning.

(b) It covers factors and forces like customers, competitors, suppliers, government, and the social, cultural, political, technological and legal conditions.

(c) The business environment is dynamic in nature, that means, it keeps on changing.

(d) The changes in business environment are unpredictable. It is very difficult to predict the exact nature of future happenings and the changes in economic and social environment.  .

(e) Business Environment differs from place to place, region to region and country to country. Political conditions in India differ from those in Pakistan. Taste and values cherished by people in India and China vary considerably.

Importance of business environment

There is a close and continuous interaction between the business and its environment. This interaction helps in strengthening the business firm and using its resources more effectively.

As stated above, the business environment is multifaceted, complex, and dynamic in nature and has a far-reaching impact on the survival and growth of the business. To be more specific, proper understanding of the social, political, legal and economic environment helps the business in the following ways:

(a) Determining Opportunities and Threats: The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business enterprises for meeting the challenges successfully.

(b) Giving Direction for Growth: The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities.

(c) Continuous Learning: Environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding and skills to meet the predicted changes in realm of business.

(d) Image Building: Environmental understanding helps the business organisations in improving their image by showing their sensitivity to the environment within which they are working. For example, in view of the shortage of power, many companies have set up Captive Power Plants (CPP) in their factories to meet their own requirement of power.

(e) Meeting Competition: It helps the firms to analyse the competitors’ strategies and formulate their own strategies accordingly.

(f) Identifying Firm’s Strength and Weakness: Business environment helps to identify the individual strengths and weaknesses in view of the technological and global developments.

Read More:
Factor affect business environment 
Corporate Social Responsibility

Manufacturing Process

The nature of the process of production required by these three different types of production system are distinct and require different conditions for their working. Selection of manufacturing process is also a strategic decision as changes in the same are costly. Therefore the manufacturing process is selected at the stage of planning a business venture. It should meet the basic two objectives i.e. to meet the specification of the final product and to be cost effective.

Type of manufacturing process

The manufacturing process is classified into four types.

(i) Jobbing production

(ii) Batch production

(iii) Mass or flow production

(iv) Process Production

(i) Jobbing Production:  Herein one or few units of the products are produced as per the requirement and specification of the customer. Production is to meet the delivery schedule and costs are fixed prior to the contract.

(ii) Batch Production: In this, limited quantities of each of the different types of products are manufactured on same set of machines. Different products are produced separately one after the other.

(iii) Mass or flow production: Under this, the production run is conducted on a set of machines arranged according to the sequence of operations. A huge quantity of same product is manufactured at a time and is stocked for sale. Different product will require different manufacturing lines. Since one line can produce only one type of product, this process is also called as line flow.

(iv) Process Production: Under this, the production run is conducted for an indefinite period.

Factors affecting the choice of manufacturing process

Following factors need to be considered before making a choice of manufacturing process.

(a) Effect of volume/variety: This is one of the major considerations in selection of manufacturing process. When the volume is low and variety is high, intermittent process is most suitable and with increase in volume and reduction in variety continuous process become suitable. The following figure indicates the choice of

process as a function of repetitiveness. Degree of repetitiveness is determined by dividing volume of goods by variety.

(b) Capacity of the plant: Projected sales volume is the key factor to make a choice between batch and line process. In case of line process, fixed costs are substantially higher than variable costs. The reverse is true for batch process thus at low volume it would be cheaper to install and maintain a batch process and line process becomes economical at higher volumes.
(c) Lead time: The continuous process normally yields faster deliveries as compared to batch process. Therefore lead-time and level of competition certainly influence the choice of production process.

(d) Flexibility and Efficiency:The manufacturing process needs to be flexible enough to adapt contemplated changes and volume of production should be large enough to lower costs.

Hence it is very important for entrepreneur to consider all above mentioned factors before taking a decision regarding the type of manufacturing process to be adopted as for as SSI are concerned they usually adopt batch processes due to low investment.

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Production Planning and Control

Product Design