Industrial Management and Engineering

Economics

Instructor: Alif Mohammed

Dept. of Mechanical & production Engineering
AMIT
 Chapter 1
Basics Management Concepts and
Industrial Organization

• Introduction to management
• Functions of management
• Organizational structure
• Basics of productivity
 1.1. Introduction To Management
• The theory of management goes back to the dawn of
human civilization, when human being started group
activities for the attainment of some common
objectives.
• Whenever a group is formed and a group activity is
organized to achieve certain common objectives,
management is needed to direct, coordinate and
integrate the individual activities of a group and secure
team work to accomplish organizational objectives.
• Management has been defined by different thinkers
in a number of ways. Some of the important
definitions of management are:

• is the art of getting things done through people

(Parker Follett in Stoner and Freeman, 1992).

• is the process of achieving results through efficient

utilization of human and material resources
(Bedeian, 1993).
• is also defined from the viewpoint of some
interrelated activities which make up the functions
of management.

• is defined as a process of planning, organizing,

leading, and controlling the work of organization
members and of using all available resources to
reach stated organizational goals.
Classification of Management Functions

management functions
Functions of management
 Planning Directing
Men
Materials
Machines
Money
Markets Goals
Transformation processes Outputs
Resources

Organizing Controlling

Fig. 1.1 Process of Management

• Planning: Planning is the most basic of all the
management functions.
• Planning is thinking before doing.
• Planning is the work done to predetermine a course of
action, in order to provide focus and direction for
enhancing the efficiency and effectiveness of the
company.

• Planning defines who, how, where, when and

using which resources to do the what work.
Managerial Functions and Sub functions
1. PLANNING - Forecasting, decision making ,strategy, formulation
policy- Making , programming , scheduling, budgeting problem
solving , innovation , investigation and research
2. ORGANIZING - Fictionalization, departments, decentralization ,
activity, analysis , task, span of management, task allocation
3. STAFFING - Manpower planning , recruitment , selection ,
training , placement , compensation , promotion ,appraisal
4. DIRECTING - Supervision , motivation , communication ,
leadership
5. CONTROLLING - Fixation of standards ,recording ,
measurement reporting , corrective action
Planning can be divided in to two as:
• Strategic planning, and Operational planning.
• Strategic planning is to define future activities
which are worth doing by the unit/company to
assure that the company applies its recourses
(skilled manpower, time, money, physical
resources, equipment, facilities, and business
relationships) effectively to achieve its short-term
and long-term goals.
• Operational planning is to define tasks/events to
be accomplished with the least amount of resources
within the shortest time, to assure that the company
applies its resources efficiently to achieve its short-
term and long-term goals.
Features of planning

• Planning seeks to achieve certain objectives

• Planning is oriented towards the future.

• Planning is a mental exercise.

• Planning involves choices from alternatives.

• Planning is the basics for all other functions

• It is a continuous function.

• Planning is directed towards efficiency

Steps in planning
• Collecting information about past
• Defining objectives
• Developing planning premises
• Discovering alternative courses of action
• Evaluating alternatives
• Choosing the best alternatives
• Defining additional plans
• Periodic revision and review of plans
Advantages of planning
• It focuses attention on desired objectives
• It helps to minimize risk
• It improve efficiency
• It avoid confusions
• It encourage innovation and creativity
• It enables co operation and group work
• It serves as the basis of control
Limitations of planning
• Lack of accurate information
• Time consuming
• Expensive
• Rigidity due to strict compliance with plans
• Unwillingness to people change
• External limitations (political)
How we overcome the limitations?
• Top management support
• Better forecasting
• Developing clear-cut objectives
• Participation of employees in planning
• Sound communication
• Overcoming resistance to change
• Scientific planning
• Well balanced keeping plans
• Organizing: After managers develop their plans,
they have to build an organization that can put these
plans into effect.
• Managers do this by designing organizational
structures to execute their plans (often building
organizational charts that divide an organization
into divisions, departments, and other parts
developing systems and processes to direct the
allocation of human, financial, and other resources.
Steps in organizing
1) Identifying the activities required for achieving
objectives.
2) Classifying these activities in to convenient groups.
3) Assigning the group of activities to appropriate
persons.
4) Delegating authority and fixing responsibilities.
5) Coordinating Authority Responsibility relationship
throughout the enterprise.
Staffing:
• According to koontz and O Donnel ―The managerial functions
of staffing involves managing the organizational structure
through proper and effective selection, appraisal and
development of personnel to fill the roles designed in to the
structure‘‘.
• It is concerned with the Human resources of the enterprise.
• It is concerned with acquiring, developing, utilizing, and
maintaining human resources.
• It is a process of matching jobs with individuals to ensure right
man for the right job.
Steps in staffing
1) Manpower planning
2) Recruitment, selection, placement
3) Training and development
4) Appraisal ,promotion and transfer
5) Employee remuneration
Features of staffing
 It is a function of management
 It is an integral part of the process of management.
 It is concerned with the human resources
 It is a pervasive function
 Aims at optimum utilization of human resources.
Importance of staffing
• It helps in discovering and obtaining competent
employees for various job.
• It improve the quantity and quality of output by
putting right man for right job.
• It improves job satisfaction of employees.
• It reduces cost of personnel by avoiding wastage of
human resource.
• It facilitates the growth and diversification.
• Leading/directing:
 Direction consist of the process and techniques
utilized in using instructions and making certain
that operations are carried out as planned‖

 It is concerned with the execution of plans through

organized action.

 It is also known as commanding or actuating

• Managers are expected to lead their employees,
that is, to motivate them to achieve the
organization‘s goals—quickly and efficiently.
• Great leaders can make great things happen,
inspiring their employees to do extraordinary things
and accomplish extraordinary goals.
• Controlling:
• To accomplish their goals and the goals of the
organization, managers must establish performance
standards based on the organization‘s goals and objectives,
measure and report actual performance, compare the two,
and take corrective or preventive action as necessary.

• The outcome of the control process is the ability to

measure performance accurately and regulate
organizational efficiency and effectiveness
• The new functions of management that tap into the
potential of all employees are:
• Energize: Today‘s managers are masters of making
things happen.
• The best managers create far more energy than they
consume. Successful managers create compelling
visions—visions that inspire employees to bring
out their very best performance—and they
encourage their employees to act on these visions
• Empower: Empowering employees doesn‘t mean
that you stop managing.

• Empowering employees means giving them the

tools and the authority to do great work.

• Effective management is the leveraging of the

efforts of your team to a common purpose.

• When you let your employees do their jobs, you

unleash their creativity and commitment.
• Support: Today‘s managers need to be coaches,
counselors, and colleagues instead of watchdogs or
executioners.
• The key to developing a supportive environment is
the establishment of a climate of open
communication throughout the organization.
• Employees must be able to express their
concerns—truthfully and completely—without fear
of retribution.
 What does organization mean?
• A group of two or more people working together in
structured fashion to attain a set of goals.

• are social units /institutions deliberately constructed

and reconstructed to seek a set of specific goals
(Skinner & Ivancevich, 1992)

• have several factors in common. Perhaps, the most

common element is a goal or purpose.
• have different purposes: Production Organizations-
established to provide goods and services to the
society.

(Manufacturing firms, dept. Stores, hospitals etc.)

• Are needed for several reasons:

-Serve society - Preserve knowledge

-Accomplish objectives - Provide career

 System Approach to Organization/S
• A System is a group of interrelated components (or
sub-systems) working together toward a common
goal.
• P/N System- is that part of an organization, which
produces products/ services of an organization.
Environment

Input Process Output

Feedback
Schematic production system
Administration, Management and Organization
• In the study of management there is a controversy
in using the terms administration and management.
• But it should be clear that administration,
management and organization are neither
synonymous nor interchangeable.
• They have their own field of operation.
• Administration determines the objectives and
policies of an enterprise.
• Management caries out these policies to achieve the
objectives of the enterprise.
• For administration and management to function effectively,
there must be proper structuring of the enterprise
(organization).
• Administration gives proper direction.
• Management properly executes, it is an execution function.
• Organization is an effective machinery to achieve
enterprise objectives in a team spirit.
• Management caries out the policies of administration
through the framework of an organization.
 Administration Management Organization

Process of determining the Process of planning the Process of dividing work in

work as per the objectives
objective to be achieved laid down by the to different duties and tasks
administration as planned

Lays down policies and Executes policies and It organizes the work
principles programs
Prepares the framework Supervises and controls the Draws the line of authority
under which one is asked execution of assigned work
to work and execute and determines the line of
action

Provides: direction, Co-ordinates activities It delegates the authority

guidance, & leadership
and fixes responsibility
Levels of Management
• In any organization all those are responsible for the
works of others are called managers.
• Though their primary task remains the same
getting the things done by other people, there is a
wide variation in their authorities and
responsibilities.
• These differences are mainly due to the levels of
management.
• Levels of management refers to a line of separation
between different positions drawn with a view to
distinguish each other in respect of their duties,
responsibilities, rights and authorities.
• The three levels of management that are commonly
found in organizations are:
a. Top management
b.Middle management
c. Lower level management
• Top management: top management constitutes
the highest level in the management hierarchy.

• This is the policy making level in any organization.

• This level consists of small group of executives,

board of directors, chairman, managing director,
personnel manager, chief executive etc.
• Middle order management: middle level occupies a
central place in the hierarchy.
• It is concerned with execution of the detailed policies and
plans determined by top management (Administration)
through the framework of the organization.
• Middle level management is answerable to top management.
• Its main functions are to plan, to guide, to supervise, to
coordinate, to exercise control over the lower level
management.
• Lower level management: this is the lowest level in the
hierarchy of management.

• Managers at this level function under the control and direction of

middle level management.

• Their functions are also to plan, to guide, to supervise, to coordinate,

to exercise control, but all these functions are performed to get work
done from the operating staff.

• This levels management takes orders from middle management and

explains to the workers at operating level.

• This level includes foreman, supervisor, superintendent, inspector

etc.
Organizational Structure
• The framework, typically hierarchical, within which an
organization arranges its lines of authority and
communications, and allocates rights and duties.
• Determines the manner and extent to which roles,
power, and responsibilities are delegated, controlled,
and coordinated, and how information flows between
levels of management.
• Depends entirely on the organization‘s objectives and
the strategy chosen to achieve them.
• Generally organizational structure can be
categorized as:
• Centralized structure: the decision making power
is concentrated in the top layer of the management
and tight control is exercised over depats and
divisions.
• Decentralized structure: the decision making
power is distributed & the depts. & divisions have
varying degrees of autonomy.
• There are three main types of organizational structure:
Functional structure, Divisional structure and Matrix
structure.

1. In the functional structure, the employees are

working in departments based on what they are doing
i.e. we have engineering department, maintenance
department, finance department, research department,
Warehouse department, purchasing department.
• This structure enhances the experience of each function.
• Strength: it‘s easy to understand, and keeps businesses
neatly compartmentalized. Enhances the experience of
each function
• Weakness: if a weak, poorly organized executive is at the
top, then cases where the right hand fails to talk to the left
will occur, causing frustrating problems.
- makes the coordination b/n different dept more difficult
than other structures.
- It also does not allow for flexibility because of the
centralization.
• Functional structure is a top down flowchart with a high
ranking executive at the top, with multiple middle
managers or dept.
• heads – all directly reporting to the top executive.

Functional Organizational Structure

2. Product/Divisional structure
• Divides the employees based on the
product/customer segment/ geographical location.
• i.e. a group of the highest executives sit at the top,
while different products are separated into mini-
companies.
• Each division is responsible for certain product and
has its own resources such as finance, marketing,
warehouse, maintenance. etc.
• Accordingly, this structure is a decentralized
structure and thus allows for flexibility and quick
response to environmental changes.
• It also enhances innovation and differentiation
strategies.
• This type of structure is designed for large
companies.
• So the two points mentioned above can be taken as
the strength of divisional structure.
• Weakness: results in duplication of resources because, for ex., we
need to have warehouse for each division. obviously, it does not
support the exchange of knowledge between people working in the
same profession because part of them are working in one division
and the others are working in other divisions.
3. Matrix structure
• Matrix structure combines both structures.
• For example, we can have a functional structure and then
assign a manager for each product.
• Some employees will have two managers: functional
manager and product manager.
• This type of structure tries to get the benefits of functional
structure and also of divisional structure; however, it is not
easy to implement because of the dual authority.
• This structure is very useful for multinational companies.
Matrix Organizational Structure
• The matrix structure is often used by video game
and movie companies, with various departments,
all equal, working in tandem to produce a single
final product.
• In this case, a strong manager at the top – such as a
video game publisher or movie director – acts as
a team leader to insure that each segment receives
the data they need to complete their separate task.
• 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.
• You should think of organizational structures as
communication flowcharts
.
Ways to structure a business
• By function: arranging the business according to what
each section or department does
• By product or activity: organising according to the
different products made
• By area: geographical or regional structure
• By customer: where different customer groups have
different needs
• By process: where products have to go through stages as
they are made
Basics of Productivity
• Implies development of an attitude of mind and a
constant urge to find better, cheaper, easier, quicker,
and safer means of doing a job, manufacturing a
product and providing service.
• It is a measure of how much input is required to
produce a given output, i.e, the ratio of output to input.
• Productivity of a production system is analogous to the
efficiency of a machine = O/I = the production
efficiency
• Efficient utilization of resources - It aims at the
maximum utilization of resources for yielding as
many goods and services as possible, of the kinds
most wanted by consumers at lowest possible cost.

• When O/I increases, there is an increase in

productivity.

• Productivity is closely linked with technology &

profitability.
Key elements of productivity
• Organizations will achieve productivity gains in a very
different ways depending on their specific situations.

I. Inventions - creation of basic technologies: wheel,

electricity, engine, tele., computer, & many materials.

- often introduce a much better way of doing

something. Hence, can have a huge impact on
productivity.
II. Innovations - apply existing technologies to
create new products or services. Ex. cars,
refrigerators, radios, cameras, and so forth.

• Innovations are much more prevalent than

inventions.

• Ex.- invention of the electric motor: the innovative

use of the motor in so many applications has had a
significant impact on productivity.
III. Investments - are made when acquiring
resources/inputs (land, facilities, energy, equipment,
tools, technology, and people).

• Making the right investments is paramount to

improving productivity.

• Making investments in resources that do not impact

productivity is pure waste and should be easy to
avoid.
IV. Integrations - the effective use of resources through
the use of processes, work methods, layouts, systems, and
so on.
• The effective integration of these resources can have a
dramatic impact on productivity.
V. Information - is the knowledge and data available to
make the decisions necessary to produce.
--Whether decisions are being made by people,
equipment, or systems, the information must be
correct to be productive.
Measurement of Productivity
• The basic objectives behind productivity
measurement (productivity index) are:

• To study the performance of a system over time

• To have a relative comparison of different systems

for a given level; and

• To compare the actual productivity of the system

with its planned productivity.
Productivity ratios/measurement
1.Partial Productivity Measurement

• Partial productivity/Factor productivity: when

productivity is measured separately for each input
resource (one class of input) to the production
process. (Firm level and industry level)

• PPM = Outputs/Labor Input Or

Outputs/Material Input Or Outputs/Capital
Kinds of Productivity Measurement
• Material productivity = No. of units produced/Cost
of material
• Labor productivity = Total revenue from
prodn/Expenditure on labor
• Capital productivity = Turn over/Capital employed
• Machine productivity = Output/Actual machine hr
utilized
2. Multi-factor productivity measurement
• When the firm is interested to know the productivity of a
group of input factors but not all input factors.
• MFPM = Outputs/(Labor + Capital) or Outputs/(Labor
+ Material)
3. Total/composite productivity
• When productivity is measured for all the factors of
production together. (Entire organization, at national and
int‘l level)
• TPM = Outputs/Inputs Or Goods and services
provide/All resources used
• A general measure of productivity:
• Aggregate productivity = Output/ Land + Labor + Material
+ Capital + Other inputs

• Productivity Growth Rate

• Can be used to compare a process‘ productivity at a given

time (P2) to the same process‘ productivity at an earlier
time (P1).
• Example: Last week a company produced 150
units using 200 hours of labor. This week, the
same company produced 180 units using 250 hours
of labor. What is GR?

• Solution:P1=150 units/200 hr=0.75 units/ hr

• P2=180 units/250 hr=0.72 units/hr

• GR=P2-P1/P1=0.72-0.75/0.75=-0.04 Or –ve 4%
growth rate.
Productivity and Production
• The concept of productivity and production are
totally different.
• Production refers to the absolute output while
productivity is a relative wherein output is always
expressed in terms of input.
• Production is an organized activity of transforming
raw materials into finished products which have
higher value of any product/service is the volume
of output irrespective of the quantity of resources
employed to achieve the level of output.
• It can be increased by employing more labor,
installing more machinery, and putting in more
materials, regardless of the cost of production.
Example:

• 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.
Means of Improving Productivity
• PI is the result of managing and intervening in transformation
or work processes.
1. Increasing the resources and thereby production (controlling
inputs)
2. Effective utilization of resources
3. Improving technology
• Productivity = O/I
• Increasing O from same I (improving process)
• Reducing I, for the same O
• By a small increase in I, achieving a substantial increase in O
• PI will occur if
Procedures to Improve Productivity
1. Improving the existing method of plant operation (necessary, tolerance,
material, machine & tools used, improvement in plant layout, reduction of
scrap and improvement in Q)
2. Determine the purpose of operation
3. Design of part
4. Tolerance and specifications
5. Effective utilization of materials
6. Process of manufacture
7. Set up and tools
8. Working conditions
9. Material handling
10.Plant layout
Productivity Analysis
For the purposes of studies of productivity for improvement ,
following types of analysis can be carried out:
1. Trend analysis: Studying productivity changes for the firm over a
period of time.
2. Horizontal analysis: Studying productivity in comparison with other
firms of same size and engaged in similar business.
3. Vertical analysis: Studying productivity in comparison with other
industries and other firms of different sizes in the same industry.
4. Budgetary analysis: Setting up a norm for productivity for a future
period as budget, based on studies as above, and planning
strategies to achieve it.
Factors Affecting Productivity
• Economists site a variety of reasons for changes in
productivity. However some of the principle factors
influencing productivity rate are:
1. Capital/labor ratio: It is a measure of whether enough
investment is being made in plant, machinery, and tools to
make effective use of labor hours.
2. Scarcity of some resources: Resources such as energy,
water and number of metals will create productivity
problems.
3. Work-force changes: Change in work-force effect
productivity to a larger extent, because of the labor
turnover.
4. Innovations and technology: This is the major cause of
increasing productivity.
5. Regulatory effects: These impose substantial constraints
on some firms, which lead to change in productivity.
6. Bargaining power: Bargaining power of organized labor
to command wage increases excess of output increases has
had a detrimental effect on productivity.
7. Managerial factors: Managerial factors are the ways an
organization benefits from the unique planning and
managerial skills of its manager.
8. Quality of work life: It is a term that describes the
organizational culture, and the extent to which it motivates
and satisfies employees.
 Chapter 2 Forecasting
• Forecasting is an important and essential part of
effective planning.
• It refers to a systematic analysis of past and present
circumstances.
• Forecasting is a tool used for predicting future demand
based on past demand information.
• The success of a business greatly depends on the
efficient forecasting and preparing for future events.
• Forecasting may be done in connection with sales,
production or any other type of business activities.
• Forecasting begins with the sales forecast and is followed
by production forecast and forecast for probable costs,
finance, purchases, profit or loss etc.
• Underlying basis of all business decisions

o Production

o Inventory

o Personnel

o Facilities
 Example

 Predict the next number in the pattern:

a) 3.7, 3.7, 3.7, 3.7, 3.7, ?

b) 2.5, 4.5, 6.5, 8.5, 10.5, ?

c) 5.0, 7.5, 6.0, 4.5, 7.0, 9.5, 8.0, 6.5, ?

 Answer

 Predict the next number in the pattern:

a) 3.7, 3.7, 3.7, 3.7, 3.7, 3.7

b) 2.5, 4.5, 6.5, 8.5, 10.5,12.5

c) 5.0, 7.5, 6.0, 4.5, 7.0, 9.5, 8.0, 6.5, 9.0

Why is forecasting important?
Demand for products and services is usually uncertain.

Forecasting can be used for…

• Strategic planning (long range planning)

• Finance and accounting (budgets and cost controls)
• Marketing (future sales, new products)
• In general, forecasts are almost always wrong. So, Production and
operations throughout the day we forecast very different things such
as weather, traffic, stock market, state of our company from different
perspectives.
Some general characteristics of forecasts
• Forecasts are always wrong

• Forecasts are more accurate for groups or families of items

• Forecasts are more accurate for shorter time periods

• Every forecast should include an error estimate

• Forecasts are no substitute for calculated demand.

Key issues in forecasting

1. A forecast is only as good as the information included in the

forecast (past data)

2. History is not a perfect predictor of the future (i.e.: there is no such

thing as a perfect forecast)
• Remember: Forecasting is based on the assumption
that the past predicts the future! When forecasting,
think carefully whether or not the past is strongly
related to what you expect to see in the future…
Some Important Questions
1. What is the purpose of the forecast?
2. Which systems will use the forecast?
3. How important is the past in estimating the future?
• Answers will help determine time horizons,
techniques, and level of detail for the forecast.
Types of Forecasts
1. Economic forecasts
• Address business cycle – inflation rate, money
supply, housing starts, etc.

2. Technological forecasts
• Predict rate of technological progress
• Impacts development of new products

3. Demand forecasts
• Predict sales of existing products and services
Types of forecasting Techniques
1. Qualitative methods
• Used when situation is vague and little data exist
-New products
-New technology
• Involves intuition, experience
• e.g. Forecasting sales on Internet
• Rely on subjective opinions from one or more experts.
• Judgmental methods
• Market research methods
2. Quantitative methods
• Used when situation is „stable‟ and historical data
exist
-Existing products
-Current technology
• Involves mathematical techniques
• e.g. forecasting sales of color televisions
• Rely on data and analytical techniques.
• Time series methods
• Casual methods
Qualitative forecasting methods
• Grass Roots: deriving future demand by asking the person closest to
the customer.

• Market Research: trying to identify customer habits; new product

ideas.

• Panel Consensus: deriving future estimations from the synergy of a

panel of experts in the area.

• Historical Analogy: identifying another similar market.

• Delphi Method: similar to the panel consensus but with concealed

identities.
Quantitative forecasting methods

• Time Series: models that predict future demand

based on past history trends

• Causal Relationship: models that use statistical

techniques to establish relationships between
various items and demand

• Simulation: models that can incorporate some

randomness and non-linear effects
How should we pick our forecasting model?
1. Data availability
2. Time horizon for the forecast
3. Required accuracy
4. Required Resources
 Time Series method
• Moving average
• Exponential smoothing
• Trend analysis
• Seasonality
 Develop seasonal forecast by applying seasonal index to base
forecast
Moving average

The moving average model uses the last t periods in

order to predict demand in period t+1.

There can be two types of moving average models:

simple moving average and weighted moving average

The moving average model assumption is that the most

accurate prediction of future demand is a simple
(linear) combination of past demand
Time series: simple moving average
• Assumes an average is a good estimator of future behavior
• Used if little or no trend

• In the simple moving average models the forecast value is

𝐴𝑡 + 𝐴𝑡−1 + 𝐴𝑡−2 … + 𝐴𝑡−𝑛+1

𝐹𝑡+1 =
𝑛

t is the current period.

Ft+1 is the forecast for next period

n is the forecasting horizon (how far back we look),

𝐴𝑡 is the actual sales figure from each period.

Example: forecasting sales at company A
company A sells bottled spring water
• What if we use a 3-month simple moving average?

𝐴𝑗𝑢𝑛 + 𝐴𝑚𝑎𝑦 + 𝐴𝑎𝑝𝑟

𝐹𝑗𝑢𝑙 = = 1227
3

• What if we use a 5-month simple moving average?

𝐴𝑗𝑢𝑛 + 𝐴𝑚𝑎𝑦 + 𝐴𝑎𝑝𝑟 + 𝐴𝑚𝑎𝑟 + 𝐴𝑓𝑒𝑏

𝐹𝑗𝑢𝑙 = = 1268
5

• What if we use a 5-month simple moving average?

𝐴𝑗𝑢𝑛 + 𝐴𝑚𝑎𝑦 + 𝐴𝑎𝑝𝑟 + 𝐴𝑚𝑎𝑟 + 𝐴𝑓𝑒𝑏 + 𝐴𝑗𝑎𝑛

𝐹𝑗𝑢𝑙 = = 1277
5

• In other words, because we used equal weights, a slight

downward trend that actually exists is not observed.
Weighted Moving Average
• Gives more emphasis to recent data

• Make the weights for the last three months more than
the first three months

• The higher the importance we give to recent data, the

more we pick up the declining trend in our forecast.

• Make the weights for the last three months more than the
first three months.
• Able to vary the effects of past data
• A method to assign weights (not the only method):
𝒘𝟏 > 𝒘𝟐 > … > 𝒘𝒏 > 0, weights sum to 1
• Sum-of-digits weights 𝒘𝟏 + 𝒘𝟐 + ... + 𝒘𝒏
• 𝑆 = 1 + 2 + ⋯+ 𝑛
• 𝒘𝟏 = 𝑛/𝑆, 𝒘𝟐 = (𝑛 − 1)/𝑆, ……, 𝒘𝒏 = 1/𝑆

year 2007 2008 2009 2010 2011 2012

total 1080 1190 1100 1220 1300 ?

𝒅𝟐𝟎𝟏𝟐 = (0.4* 𝒅𝟏𝟏 + 0.3* 𝒅𝟏𝟎 + 0.2* 𝒅𝟎𝟗 + 0.1* 𝒅𝟎𝟖 ) = 1225
How do we choose weights?

• Depending on the importance that we feel the past

data has.
• Depending on known seasonality (weights of past
data can also be zero).
• WMA is better than SMA because of the ability to
vary the weights!
 Exponential Smoothing (ES)
• Main idea: The prediction of the future depends mostly on the most
recent observation, and on the error for the latest forecast.

• Why use exponential smoothing?

1. Uses less storage space for data

2. Extremely accurate

3. Easy to understand

4. Little calculation complexity

5. There are simple accuracy tests

 Exponential Smoothing (ES)
• Assume that we are currently in period t. We calculated the forecast for
the last period (Ft-1) and we know the actual demand last period (At-1) …

• The smoothing constant α expresses how much our forecast will react to
observed differences…

• Larger 𝛼 values make forecast more responsive

• If α is low: there is little reaction to differences.

• If α=1, then the latest forecast would be equal to the previous period
demand value (naive model)
 Exponential Smoothing: Example
• A firm uses SES with α = 0.2 to forecast demand.
The forecast for the 1st week of Jan was 400 units,
where as actual demand turned out to be 450 units.
(a)Forecast the demand for the 2nd week of Jan
(b)Assume actual demand for 2nd week of Jan is 460
units. Forecast the demand up to Feb 3rd week,
assuming the subsequent demands as 465, 434, 420,
& 462 units.
• Solution: the forecast for the second week of
January is computed as;

𝐹𝑡 = 𝐹𝑡−1 + α(𝐷𝑡−1 − 𝐹𝑡−1 )

400 + 0.2(450 − 400)

• The working for the remaining weeks are

 Exponential Smoothing: Example….

• Initial forecast was available. If no previous forecast value is known,

the ‗Old forecast‘ starting point may be estimated or taken to be an
average of the values of some preceding periods.
Linear Regression Analysis/Least Square
• Functional relationship b/n two/more correlated variables.
• It is used to predict one variable given the other
• The data should be plotted 1st to see if they appear linear/at least
parts of the data are linear.
Y = a + bx
• For linear equations, the line of best fit is found by the simultaneous
solution for a and b of the following two normal equations:

• By using linear regression, we are trying to explore which

independent variables affect the dependent variable
• Used for long-term forecasting of major occurrences &
aggregate planning
 Forecast Errors
The difference b/n the forecast value & what actually occurred

Demand for a product is generated through the interaction of a no. of

factors too complex to describe accurately in a model.
•Therefore, all forecasts certainly contain some error.
–Variety of sources: unaware of is projecting past trends into the
future
–Bias : occurs when a consistent mistakes is made: Failure to include
right variable, use of wrong relationships among variables, etc
–Random: those that can‘t be explained by the forecast model being
used
Measures of Error: Example
 Chapter 3
Plant design

-Basics of Plant layout

-Ergonomics and Industrial Safety
At the end of this Chapter you can…
• Explain the meaning of Plant Layout.

• Differentiate between Horizontal Flows and Vertical Flows.

• Describe the symptoms of Bad Plant Layout?

• Explain the Principles of Plant Layout.

• Describe the various types of Plant Layout.

• Describe the Factors influencing Plant Layout.

• Explain the relationship between the Classification of

Production System and Plant Layout.
Basics of Plant layout
 Plant layout refers to a floor plan/the physical
arrangement of facilities (personnel, equipment, tools
and fixtures, storage space, MHE and services) in the
plant (James More)

 is defined as the most effective physical arrangement

of machines, processing equipment, and service
depts. to have the best co-ordination and efficiency of
man, machine and material in a plant.
Basics of Plant layout….
 Is the configuration of depts., work centers in the
conversion process (how the space needed for material
movement, storage, indirect labor, etc is arranged in a
factory).
• For a factory which is already in operation, this may
mean the arrangement that is already present.
• For a new factory this means the plan of how the
machines, equipment, etc will be arranged in the
different sections or shops.
Basics of Plant layout….
• These should be arranged in such a way that material
movement cost, cost of storage in between processes,
the investment on machines and equipment etc should
be optimal and the product is as cheap as possible.
• Plays an important role in production system.
• An important factor at the design stage in selection of
production process.
• May either evolve gradually, or it may be planned for
future operations.
• For an organization to have an effective and efficient
manufacturing unit, it is important that special
attention is given to facility layout.

• A facility layout is an arrangement of everything

needed for production of goods or delivery of services.

• Facility layout considers available space, final product,

safety of users & facility & convenience of operations.
• An effective facility layout ensures that there is a
smooth and steady flow of production material,
equipment and manpower at minimum cost.

• Facility layout looks at physical allocation of space

for economic activity in the plant.

• Therefore, main objective of the facility layout

planning is to design effective workflow as to make
equipment and workers more productive.
Objectives of a Good Plant Layout
 Integrate the p/n centers into a logical, balanced and effective
p/n unit.
 Reduce /Economic material handling
 Effective utilization of available space
 Minimize congestion of material, machinery, workers
 Worker convenience and job satisfaction/Improved work
conditions
 Better supervision
 Flexibility of plant & workspace design for expansion/to
changing production conditions
 Removal of bottlenecks
 Quick disposal of work
 Minimize accident
 Minimization in damage & spoilage
 Maintenance of decency and orderliness in the plant area
 Achieve the required output quality and quantity most
economically.
 Unidirectional workflow
 Provide a logical distribution of functional facilities in the
plant.
Situations in which Layout Problem may arise
• When starting a new plant
• Changes in the product design
• Necessity of introducing a new product
(Diversification)
• Changes in the volume of production
• Poor working conditions
• Frequent accidents
• Changes in location of the industry
 The Need for Layout Designs
Inefficient operations
For Example: Changes in the design
High Cost of products or services
Bottlenecks

The introduction of new Accidents

products or services
Safety hazards
 The Need for Layout Designs …
• Changes in • Changes in volume of
environmental or other output or mix of
legal requirements products

• Changes in methods • Morale problems

and equipment
• Levels of Factory Layout Planning
Problems
• Layout of ‗departments‘ within the site;

• Layout of ‗facilities‘ within the ‗departments‘

• Layout of individual ‗workplaces‘ (items in a

work area)
 Principles of Plant Layout
 Overall integration
 Minimum distance
 Cubic space utilization
 Smooth and continuous flow
 Maximum flexibility
 Safety, security and satisfaction
 Minimum handling
 Principles of Plant Layout…
1. Principle of integration: A good layout is one that integrates
human, materials, machines and supporting services and others
in order to get the optimum utilization of resources and
maximum effectiveness.
2. Principle of minimum distance: This principle is concerned
with the minimum travel (or movement) of human and
materials. The facilities should be arranged such that, the total
distance travelled by the men and materials should be
minimum and as far as possible straight line movement should
be preferred.
3.Principle of cubic space utilization: A good
layout is one that utilize both horizontal and
vertical space. It is not only enough if only the floor
space is utilized optimally but the third dimension,
i.e., the height is also to be utilized effectively.
4. Principle of flow: A good layout is one that makes
the materials to move in forward direction towards
the completion stage, i.e., there should not be any
backtracking.
5. Principle of maximum flexibility: A good layout is
one that can be altered without much cost and time,
i.e., future requirements should be taken into account
while designing the present layout.
6. Principle of safety, security and satisfaction: A good
layout is one that gives due consideration to workers
safety and satisfaction and safeguards the plant and
machinery against fire, theft, etc.
7. Principle of minimum handling: A good layout is
one that reduces the material handling to the minimum.
 Types of factory Layout
• From the point of view of factory layout, we can classify
business or units into three categories:
1.Manufacturing units
2.Traders
3.Service Establishments
Some Special Layouts
• Office
• Storage (Warehouse, distributor)
• Service/Retail (grocery, drug, dept. stores)
Types of Factory Layout: Manufacturing unit
• Product or line layout

• Process or functional/job layout

• Mixed/Combination layout

• Static layout/ Fixed position/Project

• Group layout
 Manufacturing unit: Product/Line Layout
• In this type of layout, only one product or one type of product is
produced in a given area.
• The product must be standardized and manufactured in large quantities
in order to justify the product layout.
• Machines, equipment and auxiliary services are located according to
the processing sequence of the product (cars, motor cycles assembly)
• suitable for continuous type of production
• Can employ one of the basic Horizontal flow lines.
• is selected when the volume of production of a product is high
• In a strict product layout, machines are not shared by different
products. Hence, high production volume
 Paper Mill: Product Layout

• Bamboos are
fed into the
machine at
one end and
paper comes
out at the
other end.
 Product/Line Layout…

• The raw material moves very fast from one workstation to

other stations with a min. work in progress storage &
material handling.
Some of the advantages Product Line Layout are:
• lower total material handling cost,
• lower total production time,
• less work in process,
• greater incentive for groups of workers to raise level of
performance,
• less floor area required per unit of production and
• greater simplicity of production control, fewer control
records needed and lower accounting cost.
• Disadvantages
• Change in work nature needs change in layout

• m/c utilisation may not be optimum;

• m/c breakdown delays work;

• work area expansion/m/c addition not possible

Product/Line Layout is useful under the following conditions

• Mass production of standardized products

• Simple and repetitive manufacturing process
• Operation time for different process is more or less
equal
• Reasonably stable demand for the product
• Continuous supply of materials
• Minimum of inspection is required during sequence
of operations
 2. Process/Functional/Job Layout
• All machines/facilities/performing similar type of operations are
grouped at one location/according to their functions.

e.g., all lathes, milling machines, etc. Turning, Welding, Presses, etc.

Hence, is recommended for batch production.

• is normally used when the production volume is not sufficient to

justify a product layout.

• Typically, job shops employ process layouts due to the variety of

products manufactured and their low production volumes.

• The flow paths of material through the facilities from one

functional area to another vary from product to product.

Process/Functional/Job Layout cont…
Process/Functional/Job Layout: work travels to
dedicated process centers
 Process /Functional/Job Layout con’t….
• Similar equipment & tasks grouped
• Useful for low volume, high variety jobs

• Advantages:
– low capital investment,
– fewer m/c;
– higher space utilization;
– flexibility in equipment allocation;
– workers gain expertise;
– problems localized;
– job variety
 Process /Functional/Job Layout con’t….

• Disadvantages:
– needs more space
– no mechanization
– high work in process
– work scheduling problems
– high set-up & inspection costs
 3. Mixed/Combination Layout
• Is a combination of process and product layouts combines
• the advantages of both types of layouts.
• is possible where an item is being made in different types
and sizes.
• Machines are arranged in a process layout but the
• process grouping is then arranged in a sequence to
• manufacture various types and sizes of products.
• It is to be noted that the sequence of operations remains
same with the variety of products and sizes.
Mixed/ Combination Layout for manufacturing different sized gears.
4. Static/Fixed/Project Layout
• the product or project remains stationary, and
workers, materials, and equipment are moved as
needed
Static/Fixed/Project Layout

• Advantages:

–Reduces movement of m/c & equipment

–Minimizes damage/cost of movement

–Continuity of assigned work force

–Layout capital investment is lower.

Static/Fixed/Project Layout
• Disadvantages:
– Skilled & versatile workers needed due to multiple
operations
– skill combination may be difficult to obtain
– higher pay
– movement of people/material may be expensive
– equipment utilization low as they are left at location for
subsequent usage instead of being moved as & where
needed
5. Group/Cellular Layout (GT)
• is the analysis and comparisons of items to group them into
families with similar characteristics.
• can be used to develop a hybrid b/n process and line (product)
layout.
• is very useful for companies that produce variety of parts in small
batches/product layout.
• The application of GT involves two basic steps;

1st - to determine component families or groups.

2nd - to arrange the plants equipment used to process a

particular family of components.
Group/Cellular Layout (GT)
• Group/Cellular Layout: Parts Families
 Group/Cellular Layout (GT) con’t…

• Advantages: it can increase

– Component standardization and rationalization.

– Reliability of estimates.

– Effective machine operation and productivity.

– Customer service.
 Group/Cellular Layout (GT) con’t…

• Disadvantages: It can decrease the

– Paper work and overall production time.
– Work-in-progress and work movement.
– Overall cost.
– This type of layout may not be feasible for all
situations.
– If the product mix is completely dissimilar, then we
may not have meaningful cell formation.
2. Traders
• When two outlets carry almost same merchandise,
customers usually buy in the one that is more
appealing to them.
• Thus, customers are attracted and kept by good layout
• –i.e. good lighting, attractive colors, good ventilation,
air conditioning, modern design and arrangement and
even music.
• All of these things mean customer convenience,
customer appeal and greater business volume.
 2. Traders . . .
• The customer is always impressed by service,
efficiency and quality.

• There are three kinds of layouts in retail operations

today.

1.Self service or modified self service layout

2.Full service layout

3.Special layouts
 3. Services Centers & Establishment
• In today‘s environment, the clients look for ease in
approaching different departments of a service organization

• Services establishments: Banks, Insurance, Motels, Hotels,

Restaurants, must give due attention to

• –client convenience, quality of service, efficiency in delivering

services and pleasing office ambience.

• the layout should be designed in a fashion, which allows

clients quick and convenient access to the facilities offered by
a service establishment.
Production type & their proposed plant layout
Volume Varity Characteristics & Layout types
 7 Fundamental Layout Strategies
1. Office layout: Positions workers, their equipment, & spaces/offices to provide
for movement of information.

2. Retail layout: Allocates shelf space and responds to customer behavior.

3. Warehouse layout: Addresses trade-offs between space & MH.

4. Fixed-position layout: Addresses the layout requirements of large, bulky

projects such as ships and buildings

5. Process-oriented layout: Deals with low-volume, high-variety production.

6. Work cell layout: Arranges machinery and equipment to focus on the

production of a single product or a group of related products

7. Product-oriented layout: Seeks the best personnel and machine utilization in

repetitive or continuous production.
 Factors influencing Plant Layout
1. Management policy
2. Manufacturing process
3. Nature of product
4. Volume of production
5. Type of equipment
6. Type of building
7. Availability of total floor area
8. Arrangement of Material Handling Eq.
9. Service facilities
10. Possibility of future expansion
Factors to be Considered in Planning Layout
(Type of layout, pattern of the flow lines and communication systems)
Hazards : moving parts, projecting machine elements, suspended weights, air
pollution, physical & chemical risks, safety of personnel & plant.
Type of Production : Job, batch or continuous or combinations
Type of Operation : Wet or dry, Light or heavy machines etc.
Sequence of Operations
- Integration of production : Single/Multi flow
- Type of Products : Weight, Volume, Physical state
- Type of Inspection : Centralised/Decentralised
: Frequency etc.
- Management policy: Plans for future expansion, changes in
product design & variety.
Symptoms of Bad Plant Layout
-Material congestion
- Excessive WIP
- Poor space Utilization
- Long transportation lines
- P/n bottlenecks at certain machines when some other
identical machines are idle.
- Excessive handling by skilled operators
- Long production cycles and delays in delivery
- Mental and/or physical strain on Operators
- Poor effective supervision and controls
- Higher rejections/damages
- Accidents
Flow Systems in Layouts
• Flow pattern means the system to be adopted for the
movement of raw materials, from the beginning up to
the end of manufacturing.
• Flow Systems:
Horizontal Flows
Vertical Flows
• Horizontal flow is adopted by on a shop flow while
• Vertical flow is adopted by where aerial has to move
in multi-store building.
 Horizontal Flow Systems/basic flow patterns
• Materials are fed at one end and
components/finished parts leave at
the other end

• Similar to I but adapted when I – line

cannot be accommodated in the
available space.

• has both feeding to and ejection from

the line at the same end. When the
line occupies the whole floor, a ‘U’
line is convenient – ease of
supervision
Horizontal Flow Systems/basic flow patterns con’t…
• For long production lines:
- Efficient floor utilisation
- Compact for effective supervision

• is used when operations are carried

out on a rotary table/handling
system.

• Components can be inspected before

these are passed on to a second ‗O‘
line or other\line for next operation
Combinations of
Horizontal
Flow Systems
 Horizontal Flow Systems/basic flow patterns con’t…
• Unidirectional Flow Systems: material
is transferred from one machine to
another without having to move again

• Repeated Flow Systems: the flow is

repeated, with one or more non
consecutive operation performed on the
same machine
- offers better m/c utilisation
- more settings
- intermittent halts for change
over of machine settings.
Vertical Flow Patterns
• This type of flow is for multistory buildings.

• Basic aspects of vertical flow systems are in use

- Processing downward or upward

- Centralized or decentralized

- Unidirectional or retraction

- Vertical or inclined flow

- Single or multi flow

Six Basic Aspects
of Vertical Flow
Systems
Flow patterns can affect
• Material handling

• Amount of work-in process

• Capital & space tied up by work-in-process.

• Length of total production time

• The rate of the performance & coordination of

operates.
factors governing flow pattern
• External transfer facilities • Necessary flow b/n

• No. of products to be handled work areas

• No. of ops on each product • Influence of process

• Type of layout
• No. of units to be processed
• Location of services
• No. of sub-assemblies made
area
up a head of assembly line
• Material storage
• Size & shape of available land
• Type of building
Layout Selection: Considerations
• Ease of future expansion,
• Adaptability and versatility,
• Flexibility of layout,
• Flow of materials effectiveness,
• Materials handling effectiveness,
• Storage effectiveness,
• Space utilization,
• Effectiveness of supporting service integration,
• Safety and housekeeping,
• Working conditions and employee satisfaction
 Layout Selection: Considerations….
• Ease of supervision and control,
• Appearance, promotions value, public or community relations,
• Quality of products,
• Maintenance problems,
• Fit with company organization structure,
• Equipment utilization,
• Utilization of natural conditions or surroundings ,
• Ability to meet capacity or requirements,
• Investment or capital required and
• Savings, payout, returns, profitability.
Building Layout: The design shall provide:
a. Adequate ventilation, lighting, heating & drainage;

b. Dehumidification equipment, if necessary;

c. Accessibility of equipment for operation, servicing, & removal;

d. Flexibility of operation;

e. Operator safety;

f. Convenience of operation;

g. Chemical storage and feed equipment in a separate room to reduce

hazards and dust problems;

h. Employee facilities per State Plumbing Code

Ergonomics and Industrial Safety
• Ergonomics is a concept, an idea.

• It is a way of looking at the world.

• A way of thinking about people at work .

• And how they cope with it.

• Their environment

• Their motions

• And their working equipment.

 HFs/Ergonomics defined, Cont’d
• Denotes the science of work. Greek ergon (work) & nomos (laws)

• Literal meaning ―the rules of work, ―the science of work”

• A systems-oriented discipline which now extends across all

aspects of human activity

• It is ―Designed for human use.‖

• ―Fit the task to the person, not the person to the task.‖

• ―About ´fit´ ―Ergonomics Society (Europe)

• Ergonomics focuses on changing things (tools, equipment,

facilities, etc.), not changing people.
 HFs/Ergonomics defined, Cont’d
• Its all about interaction b/n people and…

– the things they do, the objects they use & the env‘ts they
work, travel & play in.

• If good fit is achieved, the stresses on people are reduced.

– They are more comfortable,

– they can do things more quickly & easily,

– increase safety on the job, &

– they make fewer mistakes‖

HFs/Ergonomics defined, Cont’d
• is the science of adapting products & processes to
human characteristics & capabilities in order to
improve well-being & optimize productivity.
• is the scientific discipline concerned with
interactions among humans and other elements of a
system in carrying out a purposeful activity.
• aims to improve human well-being and overall
system performance by optimizing human-system
compatibility.
 HFs/Ergonomics defined, Cont’d

Ergonomics (or human factors)

• Human-system interaction design considerations
include physical, cognitive, social, organizational
and environmental factors."
• Contribute to the design & evaluation of tasks,
jobs, products, environments & systems in order to
make them compatible with the needs, abilities &
limitations of people.
Ergo. applied to the layout of workplaces

• Many of the problems encountered in the

ergonomic design of M & controls will be found in
the design of workplace layouts

• The efficiency of the operator will depend upon

how the work place is designed

• Knowledge of anatomy & anthropometry

 Ergo. applied to the layout of workplaces

Critical dimensions for seated male operator

Ergo. applied to the layout of workplaces

Normal working condition

Ergo. applied to the layout of workplaces
Bench & seat heights
Ergo. applied to the layout of workplaces
• The efficiency of the operator will depend upon how
the work places designed
• Knowledge of anatomy & anthropometry
Anthropometric Considerations
• The importance of designing the environment to fit the
operator‘s anthropometric dimensions.
• They are, perhaps Literally, the most basic
considerations for ensuring that a person is able to fit
into the working situation.
Human-system interaction design:considerations

– Physical factors

– Social factors

– Workstation factors: Sitting: chairs, work

benches, Displays,

– Environmental factors( heat, lighting, noise)

 WHY Ergonomics/HF?
• Basic HF that must be accounted for in the design of a system &
workplace:

1. People are different – shapes and sizes: tall, short; young, old
design premise “one size fits all”

2. People have limitations – physical and mental limits

3. People have certain expectations and predictable responses to given

situations (with certain signals, such as traffic light)

• If these factors are ignored, design consequences can be costly, both

financially & in terms of human discomfort & performance
 HF Vs Safety???
 HFs professionals are concerned with safety: H cause
accidents & injured
 HFs can help to reduce hazards:
1) Eliminate the hazard through design
- design controls & displays that are simple to
understand & operate
- plan activities in a system to reduce errors caused by
overwork
 HF Vs. Safety….
 HFs can help to reduce hazards:
2) Incorporate safety devices
- design & location of safety devices
• provide dimensions for proper fit of safety tools
3) Provide warning devices
- determine color, location & wording of warning devices, Vol. & pitch of
warning signals, & design of warning & caution markings & video
displays
4) Develop procedures & training
- establish criteria for personnel selection & devt. of safety training
programs
• Work space requirements . . . Safety
• Layout
–involves work space arrangement;

–determine the floor space that will be required by an operator.

• The study of floor space needed considers the following points:

–While at work, the operator's arms and hands should move as

easily as possible

• ought to reduce, to the minimum the movement of his/her

shoulders, his/her body and his/her person from one position to
another.
A good plant layout should consider the safety of all personnel.

Safety hazards to be watched for in plant layout are:

–inadequate passage and inadequate exits,

–insufficient storage space allowance for safe handling procedures,

–insufficient handling equipment capacity,

–floor load capacity and floor obstructions,

–slippery finish floors, inadequate stairs, ramps and ladders,

–inaccessible fire extinguisher and first aid boxes

–unguarded moving parts of equipment ,

–workers located under the above hazards and

–improper ventilation for removal of dangerous or toxic gases.

Thank you