Definition of Industrial Engineering

Industrial engineering is an engineering profession that is

concerned with the optimization of complex processes,
systems or organizations by developing, improving, and
implementing integrated systems of people, money,
knowledge, information and equipment.

Industrial engineers use specialized knowledge and skills in

the mathematical, physical and social sciences, together with
the principles and methods of engineering analysis and
design to specify, predict and evaluate the results obtained
from systems and processes.

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PRODUCTIVITY

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 The Economic System Transforms
Inputs to Outputs
Inputs Process Outputs

Land, Labor, The economic system Goods and

Capital, transforms inputs to outputs at Services
Management about an annual 2.5% increase
in productivity (capital 38% of
2.5%), labor (10% of 2.5%),
management (52% of 2.5%)

Feedback loop
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 Measures of Competitiveness
 Productivity
 GDP (Gross domestic product) growth
 Market capitalization
 Technological infrastructure
 Quality of education
 Efficiency of government

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 What is Productivity?
Productivity is a common measure of how well resources
are being used or a measure of the effective use of
resources usually expressed as the ratio of output to input

Output
Productivity =
Input
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Productivity measures are useful for
• Tracking an operating unit’s performance over time
• Judging the performance of an entire industry or country

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 Why Productivity Matters
High productivity is linked to higher standards of living
As an economy replaces manufacturing jobs with lower
productivity service jobs, it is more difficult to maintain high
standards of living
Higher productivity relative to the competition leads to
competitive advantage in the marketplace
Pricing and profit effects
For an industry, high relative productivity makes it less
likely it will be supplanted by foreign industry
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 Typical Impacts of Productivity
Improvement

As productivity improved Costs were decreased Wages increased

Parts per man hour Cost per unit decreased Average worker's annual cash
compensation increased
$2.25
115

110 $2.00 27000

105 26000
$1.75
100 25000
95 $1.50 24000
Year A Year B Year C Year A Year B Year C Year A Year B Year C

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 Measures of Productivity

Partial Output Output Output Output

measures Labor Machine Capital Energy

Multifactor Output Output

measures Labor + Machine Labor + Capital + Energy

Total Goods or Services Produced

measure All inputs used to produce them

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 Examples of Partial Productivity Measures
Labor Productivity Units of output per labor hour
Units of output per shift
Value-added per labor hour

Machine Productivity Units of output per machine hour

Value-added per machine hour

Capital Units of output per dollar input

Productivity Dollar value of output per dollar input

Energy Units of output per kilowatt-hour

Productivity Dollar value of output per kilowatt-hour
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 Typical Measures of Productivity in Different
Organizations
Restaurant Customers (meals) per
labor hour
Retail store Sales per square foot

Chicken farm Lbs of meat per lb. of feed

Utility plant Kilowatts per ton of coal

Paper mill Tons of paper per cord of

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wood
 Example 1
7040 Units Produced
Which productivity
Sold for $1.10/unit measures can be
calculated?
Cost of labor : $1,000
What is the
Cost of materials: $520 multifactor
productivity?
Cost of overhead: $2000
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 Solution 1

MFP = Output
Labor + Materials + Overhead

MFP = (7040 units)*($1.10)

$1000 + $520 + $2000

MFP = 2.20

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 Example 2
5,500 Units Produced
Sold for $35/unit
500 labor hours are used
Cost of labor: $25/hr
Cost of raw material: $5,000
Cost of overhead: 2 x labor cost
What is the labor productivity?
What is the multifactor
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 Solution 2: Labor Productivity
 5,500 units/500 hours = 11 units/hour

Or we can arrive at a unitless figure:

 (5,500 units*$35/unit)/(500 hours * $25/hr) =15.4

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 Solution 2: Multifactor Productivity
MFP = Output
Labor + Materials + Overhead

MFP = (5,500 units)*($35)

(500hrs.)*$25/hr. + ($5000) + 2*(500hrs.)*$25/hr.

MFP = 4.52

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 Example 3
 You have just determined that your service employees
have used a total of 2400 hours of labor this week to
process 560 insurance forms. Last week the same crew
used only 2000 hours of labor to process 480 forms.
 Which productivity measure should be used?
 Answer: Could be classified as a Partial Measure.
 Is productivity increasing or decreasing?
 Answer: Last week’s productivity = 480/2000 = 0.24,
and this week’s productivity is = 560/2400 = 0.23. So,
productivity has decreased slightly.
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