Industrial Management and

Engineering Economy
By: Mehari B.(PhD)

(Text Book: Industrial Management and Engineering Economy:

An introduction to Industrial Engineering
Daniel Kitaw (Prof. Dr.-Ing.)

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Industrial Revolution
1st Industrial Revolution
 The use of steam power and mechanisation of production.
 The use of steam power for industrial purposes was the greatest
breakthrough for increasing human productivity.

2nd Industrial Revolution

 The discovery of electricity and assembly line production
 The idea of mass production by Henry Ford (1863-1947)
 Characterized by significantly faster production at lower cost.

3rd Industrial Revolution

 The partial automation using memory-programmable
controls and computers, followed by full automation of the entire
production
 E.g. Robotics

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4th Industrial Revolution
 The application of ICT to industry and is also known as "Industry 4.0“
 Production systems use a network connection and have a digital
twin on the Internet so to speak
 The networking of all systems leads to "cyber-physical production
systems"
 E.g. smart factories

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 Course Outline

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 Chapter One
Basic Management Concepts and
Industrial Organization
 Introduction:
Management Is…

Efficiency
Getting work done
through others
Effectiveness

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 Efficiency and Effectiveness

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 Functions of management

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 Planning and Decision Making
 Defining goals, establishing strategy
and developing sub plans to choose
alternatives and coordinate activities

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 In short planning is:
 Determining organizational goals
and means to reach them
 Managers plan for three reasons
1. Establish an overall direction for the
organization’s future
2. Identify and commit resources to achieving
goals
3. Decide which tasks must be done to reach those
goals
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 Organizing

Means assigning the planned tasks to various

individuals or groups within the organization
and creating a mechanism to put plans into
action.
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 …Organizing

Is a process of deciding:
 Where decisions will be
made
 Who will do what jobs and
tasks
 Who will work for whom
Includes creating departments and job descriptions

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 Leading/Directing

 Leading (Influencing) means guiding the

activities of the organization members in
appropriate directions.
 Its objective is to improve productivity.
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…Leading/Directing
Getting others to perform the necessary tasks by
motivating them to achieve the organization’s goals

Crucial element in all functions

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 Controlling
 Monitoring progress towards goal achievement
and taking corrective action when needed

1. Gather information that measures recent performance

2. Compare present performance to pre-established standards
3. Determine modifications to meet pre-established standards

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….Controlling

Process by which a person, group, or organization

consciously monitors performance and takes corrective
action

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 LEADERSHIP AND MANAGEMENT
 LEADERSHIP:- defined as speaking, listening and
acting in a way that mobilizes self and others to make
effective action to realize visions, possibilities and
dreams.
 is the ability to influence others, with or without
authority.
 the ability to influence others is a source of
 Interpersonal Communications
 Conflict Management

 Problem solving

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 Differences between Leadership and
Management
 There is a continuing controversy about the
difference between leadership and
management
 It is obvious that a person can be a leader
without being a manager
ex. an informal leader
 A person can be a manager without leading
ex. some people with the job title “manager” do
not have any subordinate

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  The most extreme distinction involves the
assumption that management and leadership
cannot occur in the same person
 In other words, some people are managers and
other people are leaders
 The definitions of leaders and managers
assume they have incompatible values and
different personalities
 Managers value stability, order, and efficiency,
whereas leaders value flexibility, innovation,
and adaptation

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  Managers are concerned about how things get
done, and they try to get people perform better
 Leaders are concerned with what things mean
to people, and they try to get people to agree
about the most important things to be done
 According to some writers, managers are
people who do things right and leaders are
people who do the right thing

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 The Differing Perspectives of Managers and
Leaders
Managers are concerned with Leaders are concerned with

The present The future

Plans Vision

Maintenance of systems The big picture

Maintaining the status quo Change

Feedback Inspiration

Objectives Outcomes
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Activities Undertaken by Managers and Leaders

Managers are concerned with Leaders are concerned with

Monitoring and control Exercising influence over

followers

Providing a sense of order Providing a sense of purpose and

direction for followers

Spreading organizational culture Building organizational culture

Doing things right Doing the right things

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 …con’d

Acting in accordance with Acting as the leading

managerial requirements. professional internally and
the chief executive
externally

Dealing with complexity Change and dealing with

within and around the the effects of change
organization

Producing order and Producing change and

consistency movement

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 …con’d

Planning and budgeting Vision building and

strategizing
Organizational structure and Aligning people behind
staffing. common objectives.

Problem solving Problem seeking

Economy and efficiency Effectiveness.

Staying on the right path Making new paths

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 SIMILARITIES B/N LEADERSHIP AND MANGT

Both leadership and

Management involve:
 Influence
 Working with people
 Working with effective goal
management

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Basic Levels of Management

Top
Managers

Middle Managers
First-Line Managers

Non-managers
Levels of Management
 First-line Managers: have direct responsibility for
producing goods or services Foreman, supervisors,
clerical supervisors
 Middle Managers:
 Coordinate employee activities
 Determine which goods or services to provide
 Decide how to market goods or services to customers
Assistant Manager, Manager (Section Head)
 Top Managers: provide the overall direction of an
organization Chief Executive Officer, President, Vice
President
Management Level and Skills
 Organizational structure
 Opportunity for change in organizational
structure is limited due to diversification or
amalgamation or merger.
 Stages in setting up effective organizational
structure:
Establish activities which achieve business
objective's
Group related activities together E.g
production, marketing

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 ……Con’d

Particular dept. activities further divided

into sections
Organizational chart developed
Based on work volume, stuff required
determined
Special talents or knowledge required at
each level must be identified
Establish effective communication system

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 Types of organizational structure
there are four types of Organizations
1. Line Organization:
Simplest & efficient in small and medium-size
enterprises
Also called military organization
 Because there is a clear ‘line’ of responsibility and
authority
Chain of command is direct and decisions made
quickly and implemented rapidly

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 President

Vice President

Plant Manager

Foreman A Foreman B Foreman C

Staff Staff
Staff

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2. Functional Organization:
 The function/type of activity determine area of authority
and responsibility.
 An expert or specialist placed in charge of each function
and will have direct control of each function
Eg.—personnel managers responsible for employees
in any dept.
-- office managers have authority over clerical &
secretarial staff in any dept.
 Give specialist freedom to concentrate on their particular
functions
 Limitation: difficult to control

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 Functional Managers

F G H

A B C D E

Operators
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3. Line and Staff Organization:
 A combination of line & functional organization
 Specialist act as advisers and have no executive authority
outside their dept.
 Ensures clear line of authority

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 Managing Director
Director

Operation Accounting Personnel

Sales Manager
Manager Manager Manager

Section Section Section

Managers, Managers, Managers,
supervisors & supervisors & supervisors &
operators salesmen clerks

Employment Training
L= line r/n, S= staff r/n officer officer
Responsibility & authority: _________
Staff advisory r/n: ………………………….
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4. Matrix Organization (Project Organization):
 Temporary organizational structure for specific project
within specific time period.
 When the project completed specialist go back to their
respective duties.
 Specialist selected based on task-related skills & expertise
 E.g. the renaissance dam

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 General
Manager

Technical
Labor Research Finance Personnel
service

Project A
Manager

Project B
Manager

Project C
Manager

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 Span of control
 Is the number of people reporting directly to one
supervisor.
 Also called span of management
 The main concern is to determine how many individuals
a manager effectively supervise
 It depends on:
 Similarity of function
 Geographic contiguity
 Complexity of functions
 Coordination
 planning

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 Chain of command
 A formal channel which determines authority,
responsibility and communication.
Top
Managers

Middle Managers
Authority
First-Line Managers

Non-managers

 Individual at the top posses the most authority and others

authority scales downward.
 The scalar r/nship concept is related to unity of command
(individual should have only one boss)

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 Basics of productivity
The word "productivity" has become such a
buzz word these days that it is almost rare not
to find it mentioned in some context or other-
in trade magazines, newspapers, management
briefs, shareholders' reports, political
speeches, TV news, consultants'
advertisements, conference proceeding's etc..

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 Definition's:
in 1883, Littre defined productivity as the "faculty to
produce," that is, the desire to produce.
In 1950, the Organization for European Economic
Cooperation (OEEC)
 Productivity is the quotient obtained by dividing
output by one of the factors of production.
 In this way it is possible to speak of the
productivity of capital, investment or raw
materials according to whether output is being
considered in relation to capital, investment or
raw materials, etc
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 Common misuse of the term
 "productivity" is often confused with the term
"production.“
 greater the production, is not necessarily the greater
the productivity.
 Example: Suppose that a company manufacturing
electronic calculators produced 10,000 calculators
by employing 50 people at 8 hours/ day for 25
days.

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  Then:
 Production = 10,000 calculators
Productivity (of labor) = (10,000 calculators)/(50 X
8 X 25 man-hour) = 1 calculator/man-hour
•If the company increased its production to 12,000
calculators by hiring 10 additional workers at 8
hours/day for 25 days.
 Production= 12,000 calculators
 Productivity (of labor) = (12,000 calculators
)/ (60 X 8 X 25 man-hour) = 1
calculator/man-hour
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Production: concerned with the activity of producing
goods and/or services.
Productivity: is concerned with the efficient
utilization of resources (inputs) in producing goods
and / or services (output)
In quantitative terms:
Production: quantity of output produced
Productivity: Ratio of the output produced to
the input(s) used.
The terms productivity, efficiency, and effectiveness are
confused with each other

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 Efficiency: ratio of actual output attained to standard
output expected.
 Effectiveness: degree of accomplishment of objectives.
In other words:
 how well a set of results accomplished reflects
effectiveness,
 how well the resources are utilized to accomplish the
results refers to the efficiency.
 Productivity is a combination of both effectiveness
and efficiency,

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  Mali [1978] brings together the terms productivity,
effectiveness, and efficiency in the following manner:

= = =

Limitation of this definitions:

1. Productivity index is a numerical value, but effectiveness is not.
2. Mali does not also define efficiency in a technical sense, that is,
as the ratio of actual output to expected or standard output.
Further, his definition implies that productivity can be increased
by reducing efficiency-something that does not seem logical at all.
But the confusion could have been avoided by expressing the productivity
index as follows:
( )
= ( )
where, f & F refers to some function
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 Basic Definitions of Productivity
 Partial Productivity
 Partial productivity is the ratio of output to one
class of input.
 E.g.
 labor productivity =the ratio of output to labor
input
 capital productivity = the ratio of output to capital
input
 material productivity = the ratio of output to
materials input.
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 Total-Factor Productivity
 is the ratio of net output to the sum of
associated labor and capital (factor) inputs.
 By "net output," we mean total output minus
intermediate goods and services purchased.
 Notice that the denominator of this ratio is
made up of only the labor and capital input
factors.

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 Total Productivity
 is the ratio of total output to the sum of all
input factors.
 Thus, a total productivity measure reflects the
joint impact of all the inputs in producing the
output.
 In all of the above definitions, both the output
and input(s) are expressed in "real" or
"physical" terms by being reduced to constant
dollars (or any other monetary currency) of a
reference period (often referred to as "base
period").
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 the effect of reducing the output and input(s) to a
base period is to eliminate the effects of price
variations, so that only the "physical" changes in
output and input(s) are considered in any of the
productivity ratios.

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 E.g. Consider the ABC Company. The data for output
produced and inputs consumed for a particular time
period are given below:
Output= $1000


 Human input= 300

 Material input= 200

 Capital input= 300

 Energy input= 100

 Other expense input= 50

 assume that these values are in constant dollars

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