Industrial Management and

Engineering Economics

Department Mechanical Engineering Program

By: Etafa.A
Why Industrial Management and Engineering Economics?
 Focusing on the issues of "quality – cost – delivery time", decisions made

during the engineering design phase of product development determine the

majority (some say 85%) of the costs of manufacturing that product.

 As a result, a competent engineer in the 21st century must have an

understanding of the principles of management, economics as well as

engineering.

 Thus, this course examines the most important management and economic

concepts that should be understood by engineers.

 1. Introduction
- Management
- Organizations
7. Basic - Productivity
Principles of 2. Plant Layout
Accounting - Plant Location
- Plant Layout
- Definitions and Types
- Ergonomics
- Accounting statements

6. Investment IMEE
Evaluation 3. Forecasting
- Financial Functions - Usages of Forecasting
- Financial Models - Techniques of Forecasting

5. Project Mgt 4. Materials Mgt

- Introduction - Introduction
- Functions of PM - Purchasing
- Risks Mgt - Inventory Control
 Chapter 1: Introduction
1.1 Introduction to Industrial Management
1.2 Organizations and Organizational Structure
1.3 Production and Productivity
1.1 Introduction to Industrial Management
 Management is the art of getting things done through people (Parker Follett
in Stoner and Freeman, 1992).
 Management is the process of getting activities completed efficiently and
effectively with and through the involvement other people.
 In general "management" identifies a special group of people whose job is to
direct the effort and activities of other people toward common objectives.
 Simply, management gets things done through other people by planning,
coordinating and directing the activities of an organization.
 The decisions and judgments made are normally oriented to the needs of the
organization.
 Thus, industrial management is a process of planning, staffing, organizing,
directing and controlling the activities of any industry.
 Management is the interaction between:

Predefined
technique of
accomplishment

tool

process

D
people D oe
r
s u et e s o f
C cce rmi the
m to
v e o le e

om s s n e
ha Wh erab is th

fai actio
co n
u t he

pe
th a n d ?

lu r n
eo w

tit
 l iv a t

ive e/
d e Wh

ed


ge
s

Interactions between management

Why Management?
The main three reasons behind the need of management are:
1. The industrial revolution brought about the emergence of large-scale
business and its need for professional managers.

1
Why Management?
The main reasons behind the need of management are:
2. Management became more important as the developments and
complexities of technology and human relationships get more
challenging to those who perform managerial functions.
2
Why Management?
The main reasons behind the need of management are:
3. Because of the scarcity/shortage of resources (i.e. facilities, raw
materials, machineries, technologies, human resources, land, budgets,
time, etc).

3
Functions of management
The subject of management can be considered a process involving certain functions
that a manager performs.
1. Decision making,
2. Planning,
3. Organizing,
4. Staffing,
5. Directing, and
6. Controlling.
1. Decision making
 Decision can be defined as an act involving mental process at a conscious level in
choosing a course of action from available alternatives for the purpose of
attaining a desired result.
Five steps of Decision Making:
1. Fact gathering for understanding the situation
2. Recognition of the right problem
3. Generate as many alternatives as possible
4. Select the best alternative
5. Communicate the decision to others
2. Planning
 Planning involves the predetermining of the course of action to be taken in
relation to the known event. It also includes anticipating the possibilities of
future problems that might appear. Failing to plan means planning to fail.
 It is a systematic activity which determines when, how and who is going to
perform a specific job. It is rightly said “Well plan is half done”.
 In general, the planning process may systematically be composed of five
elements:
 Setting Goals
 Search for Opportunities
 Formulation of Plans
 Target Setting
 Follow-up of Plans
3. Organizing
 Organizing may be defined as the structure and process by which a group
allocates its tasks among its members, identifies relationships and integrates
its activities toward common objectives
 The organizing function of management brings together human and
physical resources in an orderly manner and arranges them in coordinated
pattern to accomplish planned objectives.
 Each organizational resource (human, material, finance etc.) represent an
investment from which the management system must get the return.
 Therefore, these resources should be organized properly for efficient and
effective use of the same.
The steps that are important when organizing an enterprise:
Reflection on plans and objectives,
Establishing major tasks,
Dividing major tasks into subtasks,
Allocating resources and directives for subtasks, and
Evaluating the result of implemented organizing strategy
4. Staffing
 Staffing deals with the workers and is worker-oriented.
 This function includes the process of placing the right person in the right
organizational position.
 The process of matching the people and the jobs is done by careful
preparation of specifications necessary for positions and raising the
performance of personnel by training and retraining of people to fit the
needs of the organizational position.
5. Directing
For the same idea, different organizations use different terms such as:
 Leading
 Executing
 Supervising
 Ordering and
 Guiding
What ever terms are assigned to it, the idea of directing is to put into effect
the decisions, plans and programs that have been worked out.
6. Controlling
 Control is the process that measures current activities, quantitatively if
possible, and guides it toward some predetermined goal, plan, policy,
standard, norm, decision rule and criterion or yardstick.
 The essence of control lies in checking and correcting actions against
desired results in the planning process.
 Controlling includes ensuring that employees perform the work allocated
to them in the ways laid down, and with no wastage or duplication of
time, effort or materials.
 That involves much more than simply instructing a given number of
employees to perform work; they must be supervised and managed so
that their efforts achieve the desired results.
 This requires that they are motivated, checked, guided, taught and
encouraged.
There are seven principles of control:
1. Strategic Point Control
2. Feedback
3. Flexible Control
4. Organizational Stability
5. Self-Control
6. Direct Control
7. Human Factor
 Management Vs Administration
Management Administration
Process of planning the work as per the Process of determining the objective to be
objectives laid down by the administration achieved
Executes policies and programs Lays down policies and principles
Supervises and controls the execution of Prepares the framework under which one is
assigned work asked to work and execute
Co-ordinates activities Provides: direction, guidance and leadership
1.2 Organizations and Organizational Structure
Basic of Organizations:
• A group of two or more people working together in structured
fashion to attain a set of goals.
• Are social units /institutions deliberately constructed and
reconstructed to seek a set of specific goals (Skinner &
Ivancevich, 1992).
• Have several factors in common. Perhaps, the most common
element is a goal or purpose.
Organizational Structure:
 Planned organizational structure must not be overlooked in the
establishment of a new business.
 When setting up a new business, you should pay careful attention to
designing your company’s organizational structure. This should be decided
according to your company’s size, industry and aims.
 Poorly conceived organizational structures will result in sluggish,
inefficient communication in which managers at various levels are required
to deliver information to too many people for too many levels of approval.
 Well designed organizational structures will produce efficient
communication channels/flowcharts, and encourage fast and clean
decisions.
 From To the
WAREHOUSE OF RAW MATERIAL AND FINSHED GOOD customer
supplier

Raw Finished
materials Goods
There are four different types of organizations, namely:
i. Line/functional, Other types of Organizational Structure:
ii. Line and staff, and 1. Functional type,
iii. Matrix/project. 2. Divisional/product type, and
3. Matrix/project.
i. Line/functional organization
There is a clear 'line' of responsibility and authority right through the
management structure from the board to the lowest level of supervision, and
below. Line organization is simple and direct and is easy to understand. The
'chain of command' is direct and so decisions can usually be made quickly
and implemented rapidly, because of the directness of the control, the
coordination of the activities of all those employed in a department is
simplified.
Line/functional organizational structure
ii. Line and staff organization
In such a structure, the line managers control the primary functions, such as
marketing and production, which are directly concerned with achieving the
objectives of the business; whilst the staff managers are generally involved
with secondary functions which assist the smooth and efficient running of
the primary functions.
 MANAGING
DIRECTOR

L WORKS L SALES L ACCOUNTS S PERSONNEL

MANAGER MANAGER MANAGER MANAGER

L SECTION L SECTION L SECTION

MANAGERS MANAGERS MANAGERS
SUPERVISORS & SUPERVISORS & SUPERVISORS &
OPERATORS SALESMEN CLERKS

S EMPLOYMENT S TRAINING
OFFICER OFFICER
L – Line relationship: S – staff relationship
Responsibility and authority shown by_____
SUPERVISORS SUPERVISORS
Staff – Advisory relationship shown by ------- & CLERKS & CLERKS

Line and staff organizational structure

iii. Matrix organization
These are temporary organizational structures formed for specific projects for
a specific period of time and are dismantled, once the required goal is
achieved. The specialists are selected primarily on the basis of task-related
skills and expertise rather than decision making experience or planning ability.
In matrix organization, it is possible for the individual employee to have two
managers. However, proposers of matrix organization believe that it provides
an agency with the flexibility to work on critical projects.
This kind of organization occurs frequently in:
 Construction (e.g. building a bridge)
 Aerospace engineering (designing and launching weather satellite)
 Marketing (e.g. advertising company for new product)
 Installation of an electronic data processing system, etc.
 General Manager

Matrix organizational structure

1.3 Production and Productivity
Production
Production is defined as "the step-by-step conversion of one form of material
into another form through chemical or mechanical process to create or
enhance the utility of the product to the user." Thus production is a value
addition process. At each stage of processing, there will be value addition.
Production System
The production system of an organization is that part, which produces
products of an organization. It is that activity whereby resources, flowing
within a defined system, are combined and transformed in a controlled manner
to add value in accordance with the policies communicated by management.

Schematic production system

Classification of Production System
Production systems can be classified as Job Shop, Batch, Mass and
Continuous production systems.

Classification of production systems

1. Job Shop Production
Job shop production are characterized by manufacturing of one or few
quantity of products designed and produced as per the specification of
customers within prefixed time and cost. The distinguishing feature of this is
low volume and high variety of products. A job shop comprises of general
purpose machines arranged into different departments. Each job demands
unique technological requirements, demands processing on machines in a
certain sequence.
Characteristics
The Job-shop production system is followed when there is:
1. High variety of products and low volume.
2. Use of general purpose machines and facilities.
3. Highly skilled operators who can take up each job as a challenge because
of uniqueness.
4. Large inventory of materials, tools, parts.
5. Detailed planning is essential for sequencing the requirements of each
2. Batch Production
Batch production is defined by American Production and Inventory Control
Society (APICS) “as a form of manufacturing in which the job passes through
the functional departments in lots or batches and each lot may have a different
routing.” It is characterized by the manufacture of limited number of products
produced at regular intervals and stocked awaiting sales.
Characteristics
Batch production system is used under the following circumstances:
1. When there is shorter production runs.
2. When plant and machinery are flexible.
3. When plant and machinery set up is used for the production of item in a
batch and change of set up is required for processing the next batch.
4. When manufacturing lead time and cost are lower as compared to job
order production.
3. Mass Production
Manufacture of discrete parts or assemblies using a continuous process are
called mass production. This production system is justified by very large
volume of production. The machines are arranged in a line or product layout.
Product &process standardization exists and all outputs follow the same path.
Characteristics
Mass production is used under the following circumstances:
1. Standardization of product and process sequence.
2. Dedicated special purpose machines having higher production capacities
and output rates.
3. Large volume of products.
4. Shorter cycle time of production.
5. Lower in process inventory.
6. Perfectly balanced production lines.
7. Flow of materials, components and parts is continuous and without any
back tracking.
8. Production planning and control is easy.
9. Material handling can be completely automatic.
4. Continuous Production
Production facilities are arranged as per the sequence of production
operations from the first operations to the finished product. The items are
made to flow through the sequence of operations through material handling
devices such as conveyors, transfer devices, etc.
Characteristics
Continuous production is used under the following circumstances:
1. Dedicated plant and equipment with zero flexibility.
2. Material handling is fully automated.
3. Process follows a predetermined sequence of operations.
4. Component materials cannot be readily identified with final product.
5. Planning and scheduling is a routine action.
Productivity
It is a matter of common knowledge that higher productivity leads to a
reduction in cost of production, reduces the sales price of an item, expands
markets, and enables the goods to compete effectively in the world market. It
yields more wages to the workers, shorter working hours and greater leisure
time for the employees. In fact the strength of a country, prosperity of its
economy, standard of living of the people and the wealth of the nation are
very largely determined by the extent and measure of its production and
productivity. By enabling an increase in the output of goods or services for
existing resources, productivity decreases the cost of goods per unit, and
makes it possible to sell them at lower prices, thus benefiting the consumers
while at the same time leaving a margin for increase in the wages of the
workers.
Productivity can be defined in many ways. Some of them are as follows:
• Productivity is nothing but the reduction in wastage of resources such as
labor, machines, materials, power, space, time, capital, etc.
• Productivity can also be defined as human endeavor (effort) to produce
more and more with less and less inputs of resources so that the products can
be purchased by a large number of people at affordable price.
• Productivity implies development of an attitude of mind and a constant
urge to find better, cheaper, easier, quicker, and safer means of doing a job,
manufacturing a product, and providing service.
• Productivity aims at the maximum utilization of resources for yielding as
many goods and services as possible, of the kinds most wanted by
consumers at lowest possible cost.
. Productivity processes more efficient works involving less fatigue to
workers due to improvements in the layout of plant and work, better working
conditions and simplification of work. In a wider sense productivity may be
taken to constitute the ratio of all available goods and services to the
potential resources of the group.
Difference between Production and Productivity
Production is an organized activity of transforming raw materials into
finished products which have higher value. Production of any commodity or
service is the volume of output irrespective of the quantity of resources
employed to achieve the level of output. Production in an industry can be
increased by employing more labor, installing more machinery, and putting
in more materials, regardless of the cost of production.
But increase of production does not necessarily mean increase in
productivity. Higher productivity results when we put in production system
an element of efficiency with which the resources are employed. The
combined input of a number of factors such as land, materials, machines,
capital, and labor gives an output in an industry. The ratio between output
and one of these factors of input is usually known as productivity of the
factor considered. Productivity may also be considered as a measure of
performance of the economy as a whole.
Mathematically, Productivity = Output Value/Input Value
To illustrate the difference between production and productivity:
For instance, 50 persons employed in an industry may be producing the same
volume of goods over the same period as 75 persons working in another
similar industry.
Productions of these two industries are equal, but productivity of the former
is higher than that of the latter.
Key Elements of Productivity include:
1. Inventions - creation of basic technologies
2. Innovations - apply existing technologies to create new products/services
3. Investments - are made when acquiring resources/inputs
4. Integrations - the effective use of resources
5. Information - is the knowledge and data available to make the decisions

Productivity measurement is the ratio of organizational outputs to

organizational inputs. Thus productivity ratios can be:
Partial productivity measurement
Multi-factor productivity measurement
Total productivity measurement
Partial Productivity Measurement
Partial productivity measurement is used when the firm is interested in the
productivity of a selected input factor. It is the ratio of output values to one
class of input.

Multi-factor Productivity Measurement

This productivity measurement technique is used when the firm is interested
to know the productivity of a group of input factors but not all input factors.
Total (Composite) Productivity Measures
A firm deals about composite productivity when it is interested to know
about the overall productivity of all input factors. This technique will give us
the productivity of an entire organization or even a nation.

The above measurement techniques can be grouped into two popular

productivity measurement approaches the first uses a group-generated model
and is called normative productivity measurement methodology. The second
is less participative in that one model can be modified to fit any organization
scheme. It is called multi-factor productivity measurement model.
Effectiveness
It is the degree of accomplishment of the objectives that is: How well a set of
result is accomplished? How well are the resources utilized? Effectiveness is
obtaining the desired results. It may reflect output quantities, perceived
quality or both. Effectiveness can also be defined as doing the right things.
Efficiency
This occurs when a certain output is obtained with a minimum of inputs. The
desired output can be increased by minimizing the down times as much as
possible (down times are coffee breaks, machine failures, waiting time, etc).
But as we decrease down times the frequency of occurrence of defective
products will increase due to fatigue. The production system might
efficiently produce defective (ineffective) products. Efficiency can be defined
as doing things right. Operational efficiency refers to a ratio of outputs to
inputs (like land, capital, labor, etc.)
Example: Management of a hotel is concerned with labor efficiency,
especially when labor is costly. To determine how efficient labor is in a given
situation, management sets an individual standard, a goal reflecting an
average worker’s output per unit of time under normal working conditions.
Say that the standard in a cafeteria is the preparation of 200 salads per hour. If
a labor input produces 150 salads per hour, how efficient is the salad
operation ?

So, compared with the standard, this operation is 75% efficient in the
preparation of salads.

Growth Rate:

Present Productivity – Past Productivity

Growth Rate =
Past Productivity
 Questions:
Compare and contrast 'Management' Vs 'Administration'
Develop 'Organizational Structure of DADU'
Compare and contrast 'Production' Vs 'Productivity'
Describe production processes of a 'Sugar'

References:
• http://www.newagepublishers.com/samplechapter/002004.pdf
• http://www.newagepublishers.com/samplechapter/000951.pdf
• http://www.springer.com/cda/content/document/cda_downloaddocume
nt/9780387745237-c1.pdf?SGWID=0-0-45-1031738-p173925907.pdf
• http://www.newagepublishers.com/samplechapter/001029.pdf