Chapter- One

Industrial Management

Komah Birhanu (MSc)

Ethiopian Institute of Technology-Mekelle(EIT-M )

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Chapter one - basics of management
Topics to be covered
 Introduction to management
 Functions of management
• Planning
• Organizing
• Directing
• Controlling
 Managerial roles and skills
 Basics of Productivity

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 What is industrial management?
 Industrial Management is the combination of two word, industrial and

management.

 Industrial referring to industry. Application complex and sophisticated methods

to the production of goods and services. The complex and sophisticated

methods refer to the use of machines which improve the quantity and quality of

production.

 According to F.W. Taylor, “Management is an art of knowing what to do, when

to do and see that it is done in the best and cheapest way.

 Management is a process used to accomplish organizational goals.

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Continue..
 Management is a process involving planning, organizing, staffing,

directing and controlling human efforts to achieve stated objectives in an

organization
 Management means planning, organizing, coordinating ,controlling,

motivating and directing various activities in an organization.

 A set of activities (including planning and decision making, organising,

leading and control) directed at an organisation’s resources (human,

financial, physical and informational) with the aim of achieving
organisational goals in an efficient and effective manner.
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Continue…
 The creation of conditions that allow the effective use of resources (human,
financial, material, equipment, technical and etc.) to achieve a specified
goal.
 Organizational resources (5M): Men (human beings), Money, Machines,
Materials and Methods.
 Generally, management means planning, organizing,
coordinating ,controlling, motivating and directing various activities in an
organization.
 Industrial Management: The branch of engineering, that deals with the
creation
5 and management of systems that integrates people, materials and
 Management Challenges

 Market place changes rapidly (customer demand) affecting how

progressive companies will be organized.
 Engineering managers to lead by supervising complex teams,
innovating with vision for the future, designing global products,
and organizing supply chains.
 Implement projects/programs

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 Management Challenges
 Develop new product features to enhance company competitiveness;

 Define, control and reduce costs to improve profitability

 Identify best practices to improve engineering operations and
surpass them
 Create supply chain networks to derive speed, quality and cost
benefits.

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 Management challenge
 Do things right to keep company operating smoothly.

 Control costs and eliminate wastes to attain profitability in the

short-run.
 Create vision for the future related to technologies;

 Define what should be done for technology-based success in the

future.
 Utilize resources to best achieve company’s objectives.

 Unbalancing population growth and resources

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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”
e.g. we killed a sneak by bomb, is it efficient/effective?

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Functions of Management
 According to Henry Fayola, To manage is to forecast and plan, to
organize, to command, & to control.
 The most widely accepted functions of management are: planning,
Organizing, Staffing, Directing and Controlling

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Planning
 Planning is deciding in advance - what to do, when to do & how to

do.
 plan is a future course of actions and It bridges the gap from where

we are & where we want to be. It is an exercise in problem solving

& decision making.
 Thus, planning is a systematic thinking about ways & means for

accomplishment of pre-determined goals.

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Planning
 During planning one needs to ask oneself the
following:
 What am I trying to accomplish i.e. what is my

objective?
 What resources do I have?

 What are the methods and means to achieve the

objectives?
 Is this the optimal path or method?
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Steps in Planning
1. Determining the goals for the entire organization.

2. Making assumptions on various elements of the

environment.

3. Decide the planning period.

4. Examine alternative courses of actions.

5. Evaluating the alternatives.

6. Make derivative plans.

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Organizing
 Organizing is the process of dividing work into convenient tasks or

duties, grouping of such duties in the form of positions, grouping of

various positions into departments and sections, assigning duties to
individual positions, and delegating authority to each positions so that
the work is carried out as planned.

Organizing as a process involves:

 Determining, grouping and structuring the activities
 Creating rules for effective performance at work.
 Allocation necessary authority and responsibility.

 Delegation of authority and creation of responsibility.

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 Staffing
 Selecting and training individuals for specific job functions, and charging

them with the associated responsibilities.

 Determining the number of employed personnel in an organization or
program, Also called workforce.
 The main purpose of staffing is to put right man on right job. Staffing

involves:
 Manpower Planning(choose the person and giving the right
place).
 Recruitment, Selection & Placement.
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Training & Development.
Directing/Leading

 It is part of managerial function which actuates the organizational

methods to work efficiently for achievement of organizational

purposes .
 Direction deals directly with influencing, guiding, supervising,

motivating sub-ordinate for the achievement of organizational

goals. Direction has following elements
 Supervision and Motivation

 Communication.

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Controlling
 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.

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Steps in Controlling
1. Establish Standards of Performance.

2. Measure Actual Performance.

3. Compare Performance to Standards.

4. Take Corrective Action.

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 Levels of Manager’s

 First-line 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.

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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.)
 Decision making skills/ tools (what-if analysis, risk analysis, problem solving,
root cause analysis, decision tree, optimization, etc.)
 Technical skills

 Human skills

 Conceptual skills

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Technical Skills
 A skill that is required for the accomplishment of a specific task.

 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 e.g. Engineer, accountant, data entry operator, lawyer, doctor

etc.

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 Human Skills
 An individuals’ ability to cooperate with other members of the
organization and work effectively in teams.
 Communication.

 For e.g. Interpersonal relationships, solving people’s problem and

acceptance of other employees.

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Conceptual Skills
 Ability of an individual to analyze complex situations and to

rationally process and interpret available information.

 The ability to think creatively about, analyze and understand

complicated and abstract ideas.

 For e.g.: Idea generation and analytical process of information.

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Productivity

 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 simply defined as the ratio between output and input.
 According to Peter Drucker, “Productivity means a balance
between all factors of production that will give the maximum
output with smallest efforts”
Outputs
Productivity =
Inputs
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 Productivity

Then, Productivity is the relationship between the outputs generated

from a system and the inputs that are used to create those outputs.
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Basics of Productivity
 Labor Productivity
 Quantity (or value) of output / labor hrs

 Quantity (or value) of output / shift

 Machine Productivity
 Quantity (or value) of output / machine hrs

 Energy Productivity
 Quantity (or value of output) / kwh

 Capital Productivity
 Quantity (or value) of output / value of input
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Measures of Productivity
1. Partial = Output ; Output ; Output ; Output
measures Labor Machine Capital Energy

2. Multifactor = Output Output

measures Labor + Machine Labor + Capital + Energy

3. Total = Goods or Services Produced

measure All inputs used to produce them

N.B:
 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 of all
products.
 Usually, the numerator is the total $ value of all outputs. The denominator is 2total
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 Measures of Productivity

Example 1
Find the multi-factor productivity for a company which has the
following information.

Output =7040 Units, Cost of labor= $1,000,Cost of materials= $520,

Cost of overhead= $2000 and Sold for $1.10/unit.

= 2.20
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Measures of Productivity

Example 2
 5,500 Units Produced  The LP = 5,500 units/500 hours = 11
 Sold for $35/unit units/hour
 500 labor hours are used Or we can arrive at a unitless figure:
 Cost of labor: $25/hr
 (5,500 units*$35/unit)/(500 hours *
 Cost of raw material: $5,000
 Cost of overhead: 2 x labor cost $25/hr) =15.4
a. What is the labor productivity?
b. What is the multifactor productivity?

=4.52

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Measures of Productivity
Example 3
Assume that 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.
a. Which productivity measure should be used?
 Answer: Could be classified as a Partial Measure (labor productivity).

b. 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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Factors affecting productivity

 Methods
 Environmental influence
 Design of the workspace
 Labor turnover, new workers
 Incentive plans that reward
 Scrap rates
productivity
 Bottlenecks
 Capacity utilization
 Layout  Inadequate investment in

 Scheduling training & education of the

employees
 Part and material shortages
 Searching for lost or
misplaced items
 Equipment breakdowns
3  Technology
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Key Steps for Improving Productivity
 Develop productivity measures for all operations
 Determine critical (bottleneck) operations
 Develop methods for productivity improvements
 Establish reasonable goals
 Get management support (make it clear that management supports
and encourages productivity improvements.)
 Measure and publicize improvements

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 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/hrs 80 84
Workers 5 4
Wage $/hrs 10 10
Machine $/hrs 40 50
a) Compute labor productivity for both the Old System and the New System.
b) Compute all factor productivity(multi factor) 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
price3of $120. Compare total-factor productivity for the old and the new systems.
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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
3 1.6(labor cost) 1.6(labor cost)
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Price 31 31
 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.
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

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
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