This document provides an overview of industrial management and engineering economics. It discusses key topics such as the definition of industrial management, its functions, organizational structures, production systems, and productivity. Industrial management involves planning, organizing, staffing, directing, and controlling activities to efficiently use resources to achieve goals. The main organizational structures described are line/functional, line and staff, and matrix/project. Production systems range from job shops with low volume/high variety to continuous production. Productivity is measured as the ratio of outputs to inputs, and improving productivity increases efficiency.

1. Industrial Management and
Engineering Economics
(MEng5202)
School of Mechanical, Chemical and Materials Engineering
Mechanical Design and Manufacturing Engineering
Program

2. Chapter 1: Introduction
1.1 Introduction to Industrial Management
1.2 Organizations and Organizational Structure
1.3 Production and Productivity

3. 1.1 Introduction to Industrial Management
 Management is process of getting things/activities done through
people.
 Management is the process of getting activities completed efficiently
and effectively with and through the involvement people.
 Industrial Management is a process of planning, staffing, organizing,
directing and controlling the activities of any industry.
 Industrial Management involves the creation of certain conditions
that allow the effective and efficient usage of resources (human,
financial, material and technology) to achieve a goal.

4. Management concerns
 Efficiency: is getting the most output from the least amount of
inputs in order to minimize resource costs.
 “Doing things right”
 Effectiveness: is completing activities so that organizational
goals are attained.
 “Doing the right things”

5. 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.

6. 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
challenging to those who perform managerial functions.

7. 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).

8. Functions of management
 The subject of management can be considered a process involving
certain functions that a manager performs.
1. Planning,
2. Organizing,
3. Staffing,
4. Directing, and
5. Controlling.

9.  Planning is determining objectives and formulating methods to
achieve them.
 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 “A job well planned is half done”.
 Forecasting, setting objectives, action planning, administering
policies, establishing procedure.
1. Planning

10.  In general, the planning process may systematically be composed
of five elements:
1. Setting Goals
2. Search for Opportunities
3. Formulation of Plans
4. Target Setting and Follow-up of Plans
 During planning one needs to ask oneself the following:
 What to accomplish i.e. Objective?
 What resources are available?
 What are the methods and means to achieve the objectives?
 Is this the optimal path or method?
1. Planning

11.  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.
 Organizing is about selecting organizational structure, delegating, and
establishing working relationship in an industry.
2. Organizing

12. 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
2. Organizing

13.  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.
3. Staffing

14.  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.
4. Directing

15.  Controlling is a three-step process of measuring progress toward an
objective, evaluating what remains to be done, and taking the
necessary corrective action to achieve or exceed the objectives.
 Measuring: determining through formal and informal reports the
degree to which progress toward objectives is being made.
 Evaluating: determining cause of and possible ways to act on
significant deviations from planned performance.
 Correcting: taking control action to correct an unfavorable trend
or to take advantage of an unusually favorable trend.
5. Controlling

16. 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
5. Controlling

17. Levels of Management
 First-level (lower) Managers: often called supervisors stand at
the base of the managerial hierarchy.
 Middle Managers: heads of various departments and organize
human and other resources to achieve organizational goals.
 Top Managers: set organizational goals, strategies to implement
them and make decisions.

18. Managerial Skills
 A manager is someone skilled in knowing how to analyze and
improve the ability of an organization to survive and grow in a
complex and changing world.
 Management knowledge and skills (operational, strategic,
financial/accounting, interpersonal skills/communications, etc.)
 Technical skills
 Human skills
 Conceptual skills

19. 1. Technical Skills
 Technical skill involves understanding and demonstrating
proficiency in a particular workplace activity.
 A persons’ knowledge and ability to make effective use of any
process or technique constitutes his technical skills.
 For example: Engineer, accountant, data entry operator, lawyer,
doctor etc.
2. Human Skills
 An individuals’ ability to cooperate with other members of the
organization and work effectively in teams.
 Communication.
 For example: Interpersonal relationships, solving people’s
problem and acceptance of other employees.

20. 3. Conceptual Skills
 Ability of an individual to analyze complex situations and to
rationally process and interpret available information.
 For example: Idea generation and analytical process of
information.

21.  A collection of people working together in a coordinated and structured
fashion to achieve one or more goals.
 In other words the process of organization implies the arrangement of
human & nonhuman resources to make a meaningful whole that
accomplishes organizational objectives.
 Characteristics: (1) each has a distinct purpose; (2) each is composed of
people; and (3) each develops some deliberate structure so members can
do their work.
1.2 Organizations and Organizational Structure

22.  Formal relationship between people in various positions in the
organization.
 They show who supervises whom & how various jobs & departments
are linked together to make and achieve coordinated system.
 Main channels of communication:
 Downward
 Upward
 Horizontal
 Diagonal
Organizational Structure

23.  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.
Organizational Structure

24. There are four different types of organizations, namely:
i. Line/functional,
ii. Line and staff, and
iii. 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.
Other types of Organizational Structure:
1. Functional type,
2. Divisional/product type, and
3. Matrix/project.

25. Line/functional organizational structure

26. 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/support the smooth and
efficient running of the primary functions.

27. EMPLOYMENT
OFFICER
MANAGING
DIRECTOR
WORKS
MANAGER
SALES
MANAGER
ACCOUNTS
MANAGER
PERSONNEL
MANAGER
SECTION
MANAGERS
SUPERVISORS &
OPERATORS
SECTION
MANAGERS
SUPERVISORS &
SALESMEN
SECTION
MANAGERS
SUPERVISORS &
CLERKS
TRAINING
OFFICER
SUPERVISORS
& CLERKS
SUPERVISORS
& CLERKS
L L S
L L
S
L – Line relationship: S – staff relationship
Responsibility and authority shown by_____
Staff – Advisory relationship shown by -------
L
Line and staff organizational structure
S
L

28. iii. Matrix/Project 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.

29. Matrix/Project organizational structure
General Manager

30. 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.

31.  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
Production System

32.  Classification of Production System
 Production systems can be classified as Job Shop, Batch, Mass
and Continuous production systems.
Classification of production systems
4
3
2
1

33.  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.
1. Job Shop Production

34.  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
each product, capacities for each work centre and order priorities.
1. Job Shop Production

35.  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
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 plant and machinery are flexible.
2. 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.
3. When manufacturing lead time and cost are lower as compared to job
order production.
2. Batch Production

36.  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.
3. Mass Production

37. 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. Flow of materials, components and parts is continuous and without
without any back tracking.
7. Production planning and control is easy.
8. Material handling can be completely automatic.
3. Mass Production

38.  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.
4. Continuous Production

39.  Productivity is a common measure of how well resources are
being used or a measure of the efficient use of resources
usually expressed as the ratio of output to input.
 Productivity, the relative efficiency of economic activity—that
that is, the amount of products or services produced
compared to the amount of goods and labor used to produce
produce them.
 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
Productivity

40.  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

41. Money Inputs Process Outputs Outcomes
Economy Efficiency Effectiveness
Where,
• Economy – reducing the cost of inputs (input oriented)
• Efficiency – reducing time and cost of production (process
oriented)
• Effectiveness – increasing value added to the customers
(goal oriented)
Productivity
Productivity improvement:

42.  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.
 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.
 Higher productivity results when we put in production system
an element of efficiency with which the resources are employed.
Productivity

43.  Difference between Production and Productivity
 The combined input of a number of factors such as land,
materials, machines, capital, and labor gives an output in an
industry.
Mathematically, Productivity = Output Value/Input Value
 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.
Productivity

44.  Key Elements of Productivity include:
• Inventions : creation of basic technologies
• Innovations: apply existing technologies to create new
products/services
• Investments: are made when acquiring resources/inputs
• Integrations: the effective use of resources
• Information: is the knowledge and data available to make
the decisions.
Productivity

45.  Partial Productivity Measurement
 Partial productivity measurement is used when the firm is interested in
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.
Productivity

46.  Total (Composite) Productivity Measures
 A firm deals about composite productivity when it is interested to know
know about the overall productivity of all input factors. This technique
will give us the productivity of an entire organization or even a nation.
Productivity
If we produce only one product, the numerator can be either the
total units of product or total $ value of the product.
If we produce several products, the numerator is the total $ value
value of all products.
Usually, the numerator is the total $ value of all outputs.
The denominator is total $ value of all inputs.

47. Exercise 1
1. A company that makes shopping carts for supermarkets recently
purchased new equipment, which reduced the labor content needed to
produce the carts. Information concerning the old system (before adding the
new equipment) and the new system (after adding the new machines)
includes:
Old System New System
Output/hr 80 84
Workers 5 4
Wage $/hr 10 10
Machine $/hr 40 50
a) Compute labor productivity for both the Old System and the New
System.
b) Compute total factor productivity for both the Old System and the New
System.
c) Suppose production with old equipment was 30 units of cart A at a price
of $100 per cart, and 50 units of cart B at a price of $120. Also suppose
that production with new equipment is 50 units of cart A, at a price of
$100 per cart, and 30 units of cart B at a price of $120. Compare total-
factor productivity for the old and the new systems.

48. Exercise 2
2. A company has introduced a process improvement that reduces the
processing time for each unit and increases output by 25% with less material
but one additional worker.
Under the old process, five workers could produce 60 units per hour. Labor
costs are $12/hour, and material input was $16/unit.
For the new process, material input is now $10/unit and overhead is charged
at 1.6 times direct labor cost. Finished units sell for $31 each.
a) Compute single factor productivity of labor in the old system. (Compute
it in four possible ways.)
b) Compute all factor productivity for both old and new systems.
Factor Old System New System
Output 60 60(1.25) = 75
# of workers 5 6
Worker cost $12/hr $12/hr
Material $16/unit $10/unit
Overhead 1.6(labor cost) 1.6(labor cost)
Price $ 31 $ 31

49. Exercise 3
3. A milk factory seeks advice from an external consulting company
concerning its business and production processes. The final consulting
report describes several steps to increase productivity including
implementation of cutting-edge processing techniques through more
powerful filtering systems.
a) Calculate the labor productivity for the existing as well as the proposed
system.
b) Find the Total-Factor Productivity for both systems.
c) Assume that current processing includes 700 gallons of Grade-A milk
sold at $2.40/gallon and 300 gallons of Grade-B milk at $1.90/gallon.
Furthermore, assume that under the proposed system, processing will
include 600 gallons of Grade-A milk at $2.40/gallon and 400 gallons of
Grade-B milk at $1.90/gallon. Compare all-factor productivity for both
the existing and the new system. Is the proposed system acceptable?
Existing System Proposed System
Workers 12 9
Milk Output/hour 1,000 gallons 1,400 gallons
Wage Rate/hour $12 $12
Filtration Cost/hour $120 $170