industrial management and engineering economy

1

Industrial Management and

Engineering EconomyBy:- Ermias Tesfaye

Addis Ababa University

Addis Ababa Institute of Technology (AAiT) Mechanical Engineering Department

2

What is Management?

3

The verb manage comes from the Italian maneggiare (to handle — especially a horse)

Which in turn derives from the Latin manus (hand)

The French word mesnagement (later ménagement) influenced the development in meaning of the English word management in the 15th and 16th centuries

4

Definition of management

Management is the art of getting things done through people

Management is the process of getting activities completed efficiently and effectively with and through other people

5

What is this little lad doing?Do you know where he is going?Can you see where he is going?Do you know what could happen if he falls in the water?Can you really see what the consequences are going to be?Have you got the big picture in mind?With anything that one does in life you start with the end in mind. You decide what you want to achieve and then you decide how you will work towards achieving it. This is what management is.

6

VisionReality

Courage

Greatness

manage the creative tension between current reality and Future reality

NOW FUTURE

7

Chart the Path

Put Stepping Stones in Place

So That You and Your Followers Can Reach

Our Vision

8

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

9

Why Management?

The Industrial Revolution brought about the emergence of large-scale business and its need for professional managers

Management became more important as the developments and complexities of technology and human relationships get more challenging to those who perform managerial functions

10

Shorter life-cycles for innovative technologies

Source: The Economist, February 20, 1999

•Water power•Textiles•Iron

•Steam•Rail•Steel

•Electricity•Chemicals•Internal-combustionengine

•Petrochemicals•Electronics•Aviation

•Digital networks•Software•New media

1785 1845 1900 1950 1990 1999 2020

60 yrs 55 yrs 50 yrs 40 yrs 30 yrs

1st Wave 2nd Wave 3rd Wave 4th Wave 5th Wave

11

What managements strives for? 'Management strives involving a group of

people work together in the most effective and efficient manner to achieve stated goals in the best and most economical way'.

12

Functions of management The subject of management can be

considered a process involving certain functions that a manager performs

1. Decision making 2. Planning3. Organizing4. Staffing5. Directing

13

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

14

Five steps of Decision making1. Fact gathering process to lay a solid

foundation for understanding the situation

2. Recognition of the right problem3. Generate as many alternatives as

possible4. Select the best alternative5. Communicate the decision to others

15

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.

16

Cont’d… 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”.

17

Cont’d… The increased importance of planning in a

business enterprise results from various changes in the environment like

changes in technology, government policy, overall economic activity, in the nature of competition and in social norms and attitudes.

18

Cont’d…

There are different planning executed in different level of an organization

Strategic planning Tactic planning Operational planning

19

Cont’d…

In general, the planning process may systematically be composed of five elements:

I. Setting Primary & Intermediate Goals

II. Search for Opportunities III. Formulation of PlansIV. Target SettingV. Follow-up of Plans

20

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

21

Cont’d…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.

22

Cont’d…A sound organization is necessary because it brings many benefits to the management of an enterprise. Some of the benefits are:

Good communication between the management and employees,

Sound basis to evaluate the performance of individuals and groups,

Well defined areas of works for each employee, Coordination of activities of various individual, groups, etc., Effective delegation and decentralization, Adequate and effective control, Difficulty in empire building in any segment of the

enterprise, and Stimulation of independent, creative thinking and initiative

on the part of the employees.

23

Cont’d…

There are some principles of organization which are guide lines for thought to operating managers and researchers in an organization

1. Unity of Command 2. Exception Principle 3. Span of Control 4. Scalar Principle5. Departmentalization 6. Decentralization

24

Cont’d…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.

Cont’d…

25

Reflecting on plans

and objectives

Establishing major tasks

Dividing major tasks

into subtasks

Allocating resources

and directives

for subtasks

Evaluating results for organizing strategy

26

Staffing Staffing deals with the workers and is worker-oriented This function includes the process of placing the right person in the right organiza tional positionThe 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

27

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

28

Cont’d… 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.

29

Cont’d…

There are seven principles of control. I. Strategic Point ControlII. FeedbackIII. Flexible ControlIV. Organizational Stability V. Self-ControlVI. Direct ControlVII. Human Factor

30

Communication It serves as a linkage by which the other

functions explained are tied together There are three types of communications

in an organization 1. Organization charts show the flow of authority and the

channels through which the vertical and downward communication flows

2. Horizontal type whereby, managers on the same level of an organization coordinate their activities without referring all matters to their superior

3. The informal type

32

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.

33

There are four types of leadership styles The dictatorial leader maintains a highly critical and

negative attitude in his relation with subordinates and advocates the accomplishment of tasks through fear of penalties

The benevolent - autocratic leader assumes a paternalistic role which forces the workers to rely on him for satisfaction. This type of leader must be exceptionally strong and wise individual, so that his personality generates respect and allegiance. The subordinates develop dependence on the leader to the extent that they have very little chance of developing leadership qualities.

34

The democratic leader suggests better methods and tries to improve the worker's attitude. Unlike the others, not only he depends on his capabilities but encourages consultation with subordinates in planning, decision making and organizing. With this type of leadership satisfaction is gained through a feeling of group accomplish ments.

The fourth type of leadership style is a laissez - faire type where the leader assumes the role of just another member of the group and depends completely on subordinates to establish their own goals and make their own decision

35

Characteristics of a Good ManagerThe Dual Aspects of any Manager's Job The modern 'world of industry' is very complex, and

this very complexity has led to what is called “specialization” and to the "division of labor” by which different people specialize in performing − and become specialists in − different types of work.

It follows, therefore, that the “technical” or "functional”, i.e. the specific work of different managers can and does vary enormously.

36

Cont’d… Nevertheless, all those different types of

managers, and all others, should have considerable knowledge of the technical aspects of their jobs in addition to being proficient ‘managers of people’.

It is, in any case, not easy to train, supervise and control the work of others without knowing what they are or should be doing.

37

Cont’d… So the duties of any manager or supervisor

comprise two quite different aspects:1) The technical or functional aspect which is

concerned with the work to be performed by his enterprise or department or section; and

2) The managerial aspect which is concerned with the people who are to perform that work in his enterprise or department or section.

38

Cont’d… Some estimates show that a managing director may

spend between 80% and 90% of his working hours on managerial matters and only 10% to 20% of his time on the technical activities. whilst senior managers may spend approximately 50% of their work time on managerial activities and 50% on technical activities; and supervisors and foremen may spend some 70% to 75% of their time on technical activities and only 25% to 30% of their time at work on the supervision of their subordinates

39

Cont’d…

40

Personal Qualities Needed for Managerial Success Some of the more important personality traits of a

successful manager are the following:Ability to Think Clearly and Logically: A manager needs to be able, as the result of training, to approach each situation and problem positively and objectively, without prejudgment or being distracted by irrelevancies. This requires him to think in a clear, orderly fashion and to marshal and arrange logically in his mind all the facts and information available to him.

41

Cont’d…2. The Abilities to Make Decisions and to

Act Decisively: These follow on from the foregoing, and also require a measure of self-confidence; a belief in one's own ability to succeed in solving problems in the right way, and in one's own ability to deal effectively with different situations and sets of circumstances.

42

Cont’d…1. Defining as accurately as possible the problem

which needs to be solved.2. Obtaining all relevant information about the

problem3. Breaking down the problem into parts − very often

the solution to one part is obvious and leads, logically, to the solving of other parts or the whole problem.

4. Comparing and judging the probability of success of any possible different solutions to the same problem, and their possible consequences on other areas.

5. Selecting the most attractive solution − making the decision

43

Cont’d… The Ability to Use Initiative: from time to time a

manager is bound to come across problems or situations which are outside his range of experience or outside the normal scope of his responsibly; the latter can, perhaps, arise when a senior is away or is unavailable for some reason. In such circumstances, particularly if action is urgently needed, the manager must not simply leave the matter until his senior is available or wait to be told what to do, but must initiate - that is, lead the action without waiting to be prompted.

44

Cont’d… Ability to Handle Conflict: A good manager is

calm, able to listen, is positively responsive to criticism and is able to handle conflicts and differences in a constructive manner. In order to handle conflicts well, a manager must be confident, self-assertive, fair and dominant. He should be highly tolerant of stress, as conflicts generally lead to stress and tension. This would require a sound mind in a sound body.

45

Cont’d… Ability to Adapt Change and be Flexible: Any

manager must be able to adapt to changes and, if necessary, to cope with changed circumstances, and ensure that his subordinates also do so.

Adaptability to different situations and flexibility of mind are also necessary in the routine, day-to-day running of a section, department or an entire enterprise.

46

Cont’d… Ability to Be Emotionally Stable: In dealing with

different problems and situations, some of which might be irritating, annoying, worrying or heated − or include emotional displays (e.g. tearful women, angry voices, etc.) by others − a manager must be sufficiently mature to keep calm and collected. He must be able to keep control over his own emotions and his temper whatever may the provocation be, and be able to concentrate his attention on the matter in hand, thinking clearly, logically, and avoiding hasty reactions.

47

Cont’d… Stamina and Concentration: mental fitness to

work long and hard without undue stress or strain. Besides mental alertness, a manager needs to be

able to concentrate his mind on the matter in hand even under the most tiring circumstances and/or when he is under pressure; to focus or keep one's mind intently fixed over a long period can be tiring, particularly as there will be many different matters requiring attention and concentration during a manager's working day.

48

Cont’d…

Drive and Determination: A manager needs the urge and enthusiasm to stimulate action, not only by himself, but by other people as well. He also needs the determination to keep going whatever the difficulties, adapting his actions and decisions to overcome problems encountered, and pressing on to a successful conclusion.

49

Cont’d… Leadership: Leadership is the ability of a person to

exert a positive influence over the thoughts, behavior and actions of others, and then to direct their thoughts, behavior and actions towards a common goal or objective.

50

Organization Structure planned organizational structure must not be

overlooked in the establishment of a new business. The stages in the setting up of an effective organizational structure are The activities which will be necessary to achieve the

objectives of the business must be established. The various related activities should be grouped

together into departments; the most logical grouping is by 'function', that is, by type of activity: production, marketing, finance, etc.

The activities of a particular department will be further divided, and grouped together into sections;

51

Cont’d… An organization chart should be produced to depict

the proposed organization Based on estimates of the volume of work, which

will be performed by each section, the number of staff required must be determined. Depending on the type of work to be performed and on other factors, the numbers of supervisors, junior and middle managers per section and department must be given thought

52

Cont’d… The special knowledge or talents required by

departmental and sectional managers must be laid down. Coupled with this is the necessity to lay down the extent and the limits of authority and tile duties of all those who will hold managerial positions and the authority to delegate must be provided.

The equipment necessary for the proper functioning of each section and department must be decided upon, and provision made for its positioning when considering the layout of the accommodation for each unit.

To ensure effective coordination of all parts of the enterprise, effective procedures and systems of communication must be devised and installed.

53

Types of Organizational Structure There are four different types of organizations,

namely I. line, II. functional, III. line and staff, and IV. matrix organization.

54

I. Line Organization sometimes called 'military organization',

because it is how the armed forces are organized.

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.

55

Cont’d… 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.

The position (and status) of all the different people working in a department can be easily seen, and so the extent of their responsibilities, authority and duties can, be clearly defined and understood, making disputes less likely.

56

Cont’d…

57

II. Functional Manager it is the function (the type of activity), which

determines the areas of authority and responsibility.

An expert or specialist is placed in charge of each function, and will have direct control of that function wherever it is undertaken within the enterprise.

58

Cont’d… As the functional specialists are not involved in the day-

to-day running of the enterprise (which is the domain of the line managers) they are free to the concentrate on their particular functions that produce many benefits for the enterprise.

However, this form of organization makes control difficult as there are no clear lines of authority and it is similarly difficult to establish responsibility when things do not go right.

Furthermore, staff as well as supervisors and junior managers become confused at being subject to the authority of more than one superior.

59

Cont’d…

60

III. 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.

61

Cont’d…MANAGING DIRECTOR

DIRECTOR

WORKSMANAGER

SALESMANAGER

ACCOUNTS MANAGER

PERSONNELMANAGER

SECTION MANAGERS

SUPERVISORS & OPERATORS

SECTION MANAGERS SUPERVISORS &

SALESMEN

SECTION MANAGERS

SUPERVISORS &CLERKS

EMPLOYMENT OFFICER

TRAININGOFFICER

SUPERVISORS & CLERKS

SUPERVISORS & CLERKS

L L L S

LL L

S S

L – Line relationship: S – staff relationship Responsibility and authority shown by .Staff. Advisory relationship shown by ---------------

62

IV. Matrix Organization (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.

A typical example for this kind of organizational structure can be the goal to design

The specialists are selected primarily on the basis of task-related skills and expertise rather than decision making experience or planning ability.

63

Cont’d… These structures are very useful when:

The project is clearly defined in terms of objectives to be achieved and the target date for completion of the project.

The project must be separate and unique and not be a part of daily work routine of the organization.

There must be different types of activities which require skills and specialization and must be coordinated to achieve the desired goal.

The project must be temporary in nature and not extended into other related projects.

64

Cont’d… This kind of organization occurs frequently

in: Construction ( e.g. building a bridge) Aerospace engineering ( i.e. designing and

launching weather satellite) Marketing( e.g. advertising company for new

product) Installation of an electronic data processing

system, etc.

65

Cont’d…General Manager

Labor Research Finance Personnel Technical Services

Project A Manager

Project B Manager

Project C Manager

66

Cont’d… In matrix organization, it is possible for the

individual employee to have two managers. However, proponents of matrix organization believe that it provides an agency with the flexibility to work on critical projects.

Matrix organization also brings together the specialized talent that is often necessary to complete a project

67

Cont’d… Other advantages of matrix organization:

Decision making is decentralized to a level where information is processed properly and relevant knowledge is applied.

Extensive communications networks help to process large amount of information.

With decisions delegated to appropriate levels, higher management levels are not over loaded with operational decisions.

68

Cont’d… Resource utilization is efficient, because key

resources are shared across several important programs or products at the same time.

Employee learns the collaborative skills needed to function in an environment characterized by frequent meeting and more informal interactions.

69

Cont’d… disadvantages include:

Reporting for two supervisors which creates confusion The design encourages managers who share

subordinate to jockey for power. The mistaken belief can arise that matrix management

is the same thing as group decision making − in other words every one must be consulted for every decision.

Too much democracy can lead to not enough action.

© 2006 Prentice Hall, Inc. 12 – 70

Productivity


The Basics of Productivity

In most businesses, competition for the available market, forces the management of each enterprise to seek competitive advantage through the use of:

product improvements lower costs lower selling prices for the same or better

quality and better service to customers

Productivity is defined as the ratio of value of output to the value of input


Cont’d…

input of valueoutput of value =ty Productivi


Cont’d…

An increase in production does not necessarily by itself indicate an increase in productivity.

If the input of resources goes up in direct proportion to the increase in output the productivity remains the same


Cont’d…

If input increases by a greater percentage than output, higher products will be achieved at the expense of reduction in productivity


Cont’d…

In short higher productivity means to produce more with the same expenditure, or with a minimum increase in expense, or the same amount is produced at less cost in terms of resources


Cont’d…

The outputs may be products or services and the inputs or resources may be land, materials, plant machineries, tools and a series of man


Cont’d…

Land Productivity: Better seed, fertilizer and better method of cultivation may increase the yield from two quintals to three quintals. Hence land productivity has increased by 50 percent.


Cont’d…

• Material Productivity: If a skillful worker is able to produce 300 formworks from 400 pieces of 2m 1m sheet metal, while an unskillful worker can only produce 250 out of the same material, then with the skillful worker the material was used with 20 percent greater productivity


Cont’d…

Machine Productivity: If a machine tool has been producing 100 pieces per a working day, and through the use of improved cutting tool and/or proper maintenance procedure its output in the same period is increased to 120 pieces, the productivity of that machine has been increased by 20 percent.


Cont’d…

Productivity of Man: If a shoe maker has been producing 30 pieces of leather parts per hour, and if improved methods of work enable him to produce 40 pieces per hour the productivity of that man has increased by 33.3 percent


Cont’d…

To sum up, a low level of productivity implies a low growth of economy. A low growth of economy meant, low income leading to low standard of living and a low level of savings, resulting in low level of investment and low productivity


Higher productivit

y

Higher competitivene

ss

Export

International

multinational

Global

Higher Qualit

y


Standard of living

Economic Growth

Productivity Growth

Employment Growth

TFP Growth Capital Intensity Growth

+

+


Productivity Improvement Productivity is affected by many

external and internal factors. Some of the external factors, influencing productivity to mention are:

the national and international policies infrastructure supports cultural practices the availability of technology and

natural resources organizational policies climate incentives and information


Cont’d…

Examples of internal factors that are identified to as hindering the rise of productivity are: unsuitable personnel policies leading

to a low level of satisfaction and involvement;

poor maintenance system and low level of maintenance awareness;

improper selection and training of personnel;


Cont’d… inappropriate choice of design, tools, material and equipment; undefined standardization and quality

policies; inadequate plant layout and materials

handling systems; poor planning, controlling and

communication systems; unsafe and unhealthy working

environment


Productivity Improvement Strategy

A. Short term Strategy

• The first strategy is improving organizational

planning and control, to implement planned

maintenance of machinery and effective

production system in plants would show an

increase in machine productivity and

reduction in maintenance cost.


Cont’d…

– The second action is increasing

manpower efficiency and effectiveness

at all levels. Effectiveness and efficiency

are the main tools of productivity.


Cont’d…

– Effectiveness is a function of decision

making resulting in a setting up of aims,

goals, objectives and plans.

– Efficiency is concerned with how well the

assigned task, as set out in the

objectives, is being carried out.


Cont’d…

• To be able to increase manpower

efficiency and effectiveness at all

levels of an organization what is

required is motivation, training and

education. This method has proved

itself successful in Japan.


Cont’d…

• The third short term line of attack is improving operation methods. The techniques of method study involve breaking a process into detailed components.

• The study may result in elimination of an activity, combination of several activities, change of sequence of activities, shortening duration of activities etc.


Cont’d…

• As Frederik Taylor said "Most of us can do three or four times as much as we ordinarily do without lengthening working hours or even driving ourselves to exhaustion by the day's end".

• In fact, to achieve this, effective implementation of method engineering is required.


Cont’d…B. Medium Term Strategy• At this stage the firm may require capital

to simplify and improve the products, and reduce variety. The analysis consists of common sense questions to come up with effective solutions like substitution of alternative materials, elimination of parts where special designs have been specified, redesign, etc.


Cont’d…

C. Long Term Strategy• Properly selected new machineries,

well organized departments and proper layout will undoubtedly contribute to an increase in productivity.

• Furthermore, research and development is the backbone for productivity increment.


PRODUCTIVITY IMPROVEMENTTECHNIQUES

MaterialBased

Techniques

TechnologyBased

TechniquesInvestment

BasedTechniques

EmployeeBased

Techniques

ManagementBased

Techniques

ProductBased

Techniques

TaskBased

Techniques

Reducing

administrative

cost

Increasing

value addedIncreasing

contributionIncreasing profit

Maintenance

planning and

control Layo

ut

Grou

p te

chno

logy

CAD,

CAM

, CI

M, C

APP

Com

pute

r ap

plica

tions

Inven

tory

contr

ol

MRP

Quality

control

Material

handling

improvem

ent

Material reuse

and recycling

Work study

J ob evaluation

Scheduling

Ergonomics

J ob safety

Computer Aided

data processingProduct

design

R & D

Product

standardization

Product

reliability

improvem

ent

Value engineering

Com

mun

icat

ion

impr

ovem

ent

Job

rota

tion

Wor

k co

nditi

on

impr

ovem

ent

Brains

torming

Qualit

y circ

lesTraining an

d

education

Financial

Incentives

Resource

Mgt.Material

Mgt.Maintenance Mgt.Cost Mgt.

Production Mgt.

Marketing Mgt.

Productivity improvement techniques


Functions of an Industrial Enterprise

Manufacturing functions Engineering Functions Control Functions Support Functions


Manufacturing Function Receiving: has the

responsibility for accepting raw material from the carrier, presenting for inspection, and getting it to the plant

Warehousing (or storing): has the responsibility for storing raw material until needed for production, and storing finished goods until ready to be shipped to the customers.


Cont’d… Transportation: has the

responsibility for moving all types of materials within the plant area and from the suppliers.

Production: has the responsibility for transforming the raw material into an acceptable and economical finished product.

Shipping: has the responsibility for packing and delivering the finished goods to customers.


Engineering Function Product Design: has the

responsibility for the development of new and salable products and preparation of product description, product drawings and product specifications.

Process Design: has the responsibility for the development of efficient processes for the manufacture of the products developed by the product design unit.


Cont’d…

Plant Engineering: has the responsibility for the design and installation of new facilities and ensuring that proper working conditions are maintained.

Cost Estimation: has the responsibility for determining costs involved on product manufacture. This includes design and development cost of the product prior to manufacture.


Control Function

Production Control: has the responsibility for establishing forecasts, production plans, inventory levels and product distribution.


Control Function

Quality control: has the responsibility for establishing and maintaining the necessary control of quality for raw materials, intermediate products, and finished goods. It is also responsible for the inspection of raw materials and finished products for conformity to quality specifications.


Control Function

Cost Control: has the responsibility for determining and reporting the design cost, the manufacturing cost and comparing these costs with the amounts allocated in the budgets.


Support Function

Purchasing: has the responsibility of buying the necessary materials of the proper quality and quantity at the most favorable price and securing deliveries on time according to schedules established.

Sales: has the responsibility for selling the company's product and for liaison after material has been delivered


Cont’d…

Maintenance: has the responsibility for the execution of preventive maintenance, repair of old equipment, installation of new equipment and provision of facilities.

Personnel: has the responsibility for hiring, administering and training workers; and for the termination of employments.

industrial management and engineering economy

Documents

people management

organizationwhy management

general management

english word management

special group of people

engineering economyby

current reality

creative tension