Industrial Management-1

Industrial Engineering Management
BASRA UNIVERSITY FOR OIL AND GAS – OIL AND GAS ENGINEERING COLLEGE
3rd YEAR BY: M.SC. ISMAEIL R. ALNAAB
INDUSTRIAL ENGINEERING MANAGEMENT BY: M.SC. ISMAEIL R. ALNAAB
Course Topics:
• Introduction and History
• Company, Organization, Foundation and Organizational Chart
• Facility Location and Layout Planning
• Marketing and Distribution
• Project Management, Planning, Operation and Control.
• Linear optimization
• Maintenance Management
• Total Quality Management
• QA/QC
• Financial Management
• Human Resources
Course Objectives:
The objectives of the industrial engineering and engineering management program are
to produce students who:
• Contribute to the success of companies through effective problem solving.
• Design, develop, implement, and improve integrated systems that include people,
materials, information, equipment, and environments
• Effectively manage business operations and project management teams
• Continue to develop holistically, including the personal and professional skills
necessary to adapt to our changing societal, technological, and global environments
• Students who finish this course are expected to meet the challenges for modern
professional practice; be able to adapt and solve the increasingly complex problems
faced by industry; embrace innovation through intellectual diversity and creative
problem solving; and continue to develop holistically as a learner to become leaders
of tomorrow.
INTRODUCTION AND HISTORY:
Engineering management is a career that brings together the technological problem-solving ability of
engineering and the organizational, administrative, legal and planning abilities of management in order
to oversee the operational performance of complex engineering driven enterprises.
Industrial engineering is a branch of engineering which deals with the optimization of complex processes,
systems or organizations. Industrial engineers work to eliminate waste of time, money, materials, man-
hours, machine time, energy.
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.
Depending on the sub-specialties involved, industrial engineering may also overlap with, operations
research, systems engineering, manufacturing engineering, production engineering, supply chain
engineering, management science, management engineering, financial engineering, ergonomics or
human factors engineering, safety engineering, logistics engineering or others, depending on the
viewpoint or motives of the user.
There are several industrial engineering principles followed in the manufacturing industry to ensure the
effective flow of the systems, processes and operations. This includes Lean Manufacturing, Six Sigma,
Information Systems, DMAIC and DMADV. These principles allow the creation of new systems, processes or
situations for the useful coordination of labor, materials and machines and also improve the quality and
productivity of systems, physical or social.
Lean manufacturing is a production process based on an ideology of maximizing productivity while

simultaneously minimizing waste within a manufacturing operation. The lean principle sees waste is
anything that doesn’t add value that the customers are willing to pay for.
Six Sigma (6σ) is a set of techniques and tools for process improvement. It was introduced by American
engineer Bill Smith while working at Motorola in 1986.
Information System (IS) is a formal, sociotechnical, organizational system designed to collect, process,
store, and distribute information. From a sociotechnical perspective, information systems are composed
by four components: task, people, structure (or roles), and technology.
DMAIC is used for projects aimed at improving an existing business process.

DMADV is used for projects aimed at creating new product or process designs.
The DMAIC project methodology has five phases:
• Define the system, the voice of the customer and their requirements, and the project goals, specifically.
• Measure key aspects of the current process and collect relevant data; calculate the "as-is" process capability.
• Analyze the data to investigate and verify cause and effect. Determine what the relationships are, and attempt to
ensure that all factors have been considered. Seek out the root cause of the defect under investigation.
• Improve or optimize the current process based upon data analysis using techniques such as design of experiments
or mistake proofing.
• Control the future state process to ensure that any deviations from the target are corrected before they result in
defects. Implement control systems such as statistical process control, production boards, visual workplaces, and
continuously monitor the process. This process is repeated until the desired quality level is obtained.
The DMADV
Also known as DFSS ("Design For Six Sigma"), the DMADV methodology's five phases are
• Define design goals that are consistent with customer demands and the enterprise strategy.
• Measure and identify CTQs (characteristics that are Critical To Quality), measure product capabilities,
production process capability, and measure risks.
• Analyze to develop and design alternatives.
• Design an improved alternative, best suited per analysis in the previous step.
• Verify the design, set up pilot runs, implement the production process and hand it over to the process
owner(s).
There is a general consensus among historians that the roots of

the industrial engineering profession date back to the Industrial
Revolution. The technologies that helped mechanize traditional
manual operations in the textile industry including the flying
shuttle, the spinning jenny, and perhaps most importantly the CHARLES
steam engine generated economies of scale that made mass BABBAGE
production in centralized locations attractive for the first time.
The concept of the production system had its genesis in the
factories created by these innovations. It has also been
suggested that perhaps Leonardo da Vinci was the first Industrial
Engineer, because there is evidence that he applied science to
the analysis of human work, by examining the rate at which a
man could shovel dirt around the year 1500. Others also state
that the IE profession grew from Charles Babbage’s study of
factory operations and specifically his work on the manufacture
of straight pins in 1832 . However, it has been generally argued
that these early efforts, while valuable, were merely LEONARDO
observational and did not attempt to engineer the jobs studied
DA VINCI
or increase overall output.
A company, abbreviated as co., is a legal entity representing an association of people,

whether natural, legal or a mixture of both, with a specific objective. Company members
share a common purpose and unite to achieve specific, declared goals. Companies take various
forms, such as:
• voluntary associations, which may include nonprofit organizations

• business entities, whose aim is generating profit
• financial entities and banks
• programs or educational institutions.
A company can be created as a legal person so that the company itself has limited liability as
members perform or fail to discharge their duty according to the publicly declared
incorporation, or published policy. When a company closes, it may need to be liquidated to
avoid further legal obligations.
Companies may associate and collectively register themselves as new companies; the resulting
entities are often known as corporate groups.
Organization: is a group of people working together in an organized manner to reach a

particular goal called a product.
Organizations may also operate secretly or illegally in the case of secret societies, criminal
organizations and resistance movements. And in some cases may have obstacles from other
organizations, but what makes an organization an organization is not the paperwork that
makes it official but to be an organization there must be four things:
A goal in mind
A leader or committee making the decision
Action involved
Communication and members.
Foundation:
In the nonprofit sector, the term
foundation has no precise meaning.
The Council on Foundations defines a
foundation as an entity that supports
charitable activities by making grants
to unrelated organizations or
institutions or to individuals for
scientific, educational, cultural,
religious, or other charitable
purposes. While foundations are often
primarily engaged in grantmaking
activities, some may engage in their
own direct charitable activities or
programs.
Organizational chart, also called

Organizing Board, organigram,
organogram, or organizational
breakdown structure (OBS) is a
diagram that shows the
structure of an organization and
the relationships and relative
ranks of its parts and
positions/jobs.
Without an Org. Board there is

no group product, there is only
a mob (large disorderly crowd)
Task Group:
Task groups are groups of individuals brought together to accomplish a specific action or produce a product. If you
have participated in an educational planning meeting, been a member of a committee, attended a treatment team
meeting, been elected to student government, or joined a social movement group, you have already experienced a
task group in action.
Group A Group B Group C Group D

Task No. 1 (First Week)
A group has to design and create a

non particular thing from ice cream
sticks.
All groups has to demonstrate their
product in front of a judgement
Commission.
The group that gets more votes from
the judges is the winner.
• Facility Location and Layout

Planning
Facility Location is the right location

for the manufacturing facility, it will
have sufficient access to the
customers, workers, transportation,
etc.
Facility location is a scientific Overall objective of an organization is to

process utilizing various techniques. satisfy and delight customers with its product
and services. Therefore, for an organization it
Facility location determination is a becomes important to have strategy
business critical strategic decision. formulated around its manufacturing unit.
A manufacturing unit is the

place where all inputs such as
raw material, equipment,
skilled labors, etc. come
together and manufacture
products for customers.
One of the most critical
factors determining the
success of the manufacturing
unit is the location.
There are several factors, which determine the

location of facility among them competition,
cost and corresponding associated effects.
Location Selection Factors

For a company which operates in a global
environment; cost, available infrastructure,
labor skill, government policies and
environment are very important factors.
A right location provides adequate access to
customers, skilled labors, transportation, etc. A
right location ensures success of the
organization in current global competitive
environment.
Errors in Location Selection

Facility location is critical for business continuity and
success of the organization. So it is important to avoid
mistakes while making selection for a location. Errors in
selection can be divided into two broad categories
behavioral and non-behavioral.
Behavioral errors are decision made by executives of the

company where personal factors are considered before
success of location, for example, movement of personal
establishment from hometown to new location facility.
Non-behavioral errors include lack of proper
investigative practice and analysis, ignoring critical
factors and characteristics of the industry.
Location Strategy
The goal of an organization is customer delight for that it needs access to the customers
at minimum possible cost. This is achieved by developing location strategy. Location
strategy helps the company in determining product offering, market, demand forecast
in different markets, best location to access customers and best manufacturing and
service location.
Factors Influencing Facility Location

If the organization can configure the right location for the manufacturing facility, it will
have sufficient access to the customers, workers, transportation, etc.
For commercial success, and competitive advantage following are the

critical factors:
1. Customer Proximity: Facility locations are selected closer to the customer as to reduce transportation
cost and decrease time in reaching the customer.
2. Business Area: Presence of other similar manufacturing units around makes business area conducive
for facility establishment.
3. Availability of Skill Labor: Education, experience and skill of available labor are another important,
which determines facility location.
4. Free Trade Zone/Agreement: Free-trade

zones promote the establishment of
manufacturing facility by providing
incentives in custom duties and levies.
On another hand free trade agreement is
among countries providing an incentive
to establish business, in particular,
country.
5. Environmental Policy: In current
globalized world pollution, control is very
important, therefore understanding of
environmental policy for the facility
location is another critical factor.
6. Suppliers: Continuous and quality supply of the raw materials is another critical factor in determining
the location of manufacturing facility.
Facility Layout - Objectives, Design and Types of Facility Layout
For an organization to have an effective and efficient manufacturing unit, it is important

that special attention is given to facility layout.
Facility layout is an arrangement of different aspects of manufacturing in an appropriate

manner as to achieve desired production results.
Facility layout considers available space, final product, safety of users and facility and
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.
Facility Layout Objectives:

• To provide optimum space to organize equipment and facilitate movement of goods and to create
safe and comfortable work environment.
• To promote order in production towards a single objective
• To reduce movement of workers, raw material and equipment
• To promote safety of plant as well as its workers
• To facilitate extension or change in the layout to accommodate new product line or technology
upgradation
• To increase production capacity of the organization
An organization can achieve the above-mentioned objective by ensuring the following:
• Better training of the workers and supervisors.

• Creating awareness about of health hazard and safety standards.
• Optimum utilization of workforce and equipment.
• Encouraging empowerment and reducing administrative and other indirect work.
Design of Facility Layout

Principles which drive design of the facility
layout need to take into the consideration
objective of facility layout, factors
influencing facility layout and constraints of
facility layout. These principles are as
follows:
Flexibility: Facility layout should provide

flexibility for expansion or modification.
Space Utilization: Optimum space utilization reduces the time in material and people
movement and promotes safety.
Capital: Capital investment should be minimal when finalizing different models of facility
layout.
Design Layout Techniques:

There are three techniques of design layout, and they are as follows:
• Two or Three Dimensional Templates: This technique utilizes development of a

scaled-down model based on approved drawings.
• Sequence Analysis: This technique utilizes computer technology in designing the
facility layout by sequencing out all activities and then arranging them in circular or
in a straight line.
• Line Balancing: This kind of technique is used for assembly line.
2D or 3D Templates Sequence Analysis Line Balancing

Types of Facility Layout:

There are six types of facility layout, and they are as follows:
1. Line Layout (Product layout) (assembly line)

2. Functional Layout (Process layout) (Sequence layout)
3. Combined Layout (Product layout and Process layout together)
4. Fixed Position Layout (Product is fixed & Equipment moves around it)
5. Cellular Technology Layout (The goal of cellular manufacturing is to move as quickly as possible,
make a wide variety of similar products, while making as little waste as possible).
6. Computerized Relative Allocation of Facility Technique
Line Layout (Product layout) (Assembly line)
Functional Layout (Process layout) (Sequence layout)

Cellular Layout Fixed Position Layout

• Marketing and Distribution

A channel of distribution
comprises a set of institutions
which perform all of the
activities utilized to move a
product and its title from
production to consumption
Bucklin - Theory of Distribution

Channel Structure
• Tasks of Intermediaries - Wholesalers

1. Break down ‘bulk’
2. Buys from producers and sell
small quantities to retailers
3. Provides storage facilities
4. Reduces contact cost between
producer and consumer
5. Wholesaler takes some of the
marketing responsibility e.g sales
force, promotions
• Tasks of Intermediaries - Retailer

1. Much stronger personal
relationship with the consumer
2. Hold a variety of products
3. Offer consumers credit
4. Promote and merchandise
products
5. Price the final product
6. Build retailer ‘brand’ in the high
street
What is an agent?
An agent is an intermediary involved in making a contract between the principal
(supplier) and the principal’s customer. Where goods are being sold, there are two kinds
of agent; a sales agent and a marketing agent.
A sales agent has the authority to enter into agreements with the customer on the
supplier’s behalf. The agent can therefore bind the supplier to a contractual agreement.
A marketing agent, unlike a sales agent, does not have authority to bind the supplier,
but can market and promote the supplier’s product to prospective customers. When a
customer wishes to make a purchase it is the supplier who completes the contract.
Agents are paid commission on the sales they make, usually on a percentage basis.
What is a distributor?
Unlike agents, distributors purchase products from the supplier and then resell them to
customers in a particular territory on their own account, thereby taking control of
pricing and the ensuing profit.
Types of Distributions:
• Intensive Distribution: the use of all suitable outlets to sell a product.
• Selective Distribution: a limited number of outlets in a given geographical area are
used to sell the product.
• Exclusive Distribution: protected territories for distribution of a product in a given
geographic area; business maintains tight control over a product.
• Integrated Distribution: Manufacturer acts as wholesaler and retailer for its own
products.
• Dual distribution: A manufacturer may sell its products through multiple outlets at
the same time: Toll-free phone system, Company website and Multiple retailers.
Intensity of Channel Structure

Channel intensity: the number of intermediaries at each
level of the marketing channel.
Intensive Selective Exclusive
All Possible Relatively Few Just One

Intermediaries Intermediaries Intermediary
• Channel design/structure: form or shape that a marketing channel takes to perform

the tasks necessary to make products available to consumers.
Channel length = Number of levels in a distribution channel
2 level 3 level 4 level 5 level

Manufacturer Manufacturer Manufacturer Manufacturer
Agent
Wholesaler Wholesaler
Retailer Retailer Retailer
Consumer Consumer Consumer Consumer

• In general, the shorter the channel structure, the higher the degree of control,
and vice versa.
• The lower the intensity of distribution, the higher the degree of control, and
vice versa.
• Actions to Facilitate Order Processing

Call
Center
Inventory
Customer Warehouse
Check
Online
Order
Yes, Item Packed Items
for Shipment in Stock?
No, Customer
Accounts Receivable
Item Shipped Notified of
Processes Payment Backorder
• Use of Technology in Distribution

1. e-commerce: Products are sold to customers and industrial buyers through the
Internet.
2. Satellite tracking, a dispatcher has current knowledge of a delivery truck’s location
and destination. Examples: (DHL and UPS)
How it works:
A. Bar coding on package
B. Package scanned at transition points in
distribution chain
C. Customer uses internet to follow
package along distribution chain; e-
mail may be used
D. Global distribution: in some countries
the postal service is not reliable;
package tracking facilitates global trade
• Project Management, Planning, Operation and Control.
Project management: is the process of leading the work of a team to achieve

all project goals within the given constraints.
The primary constraints are: scope, time, and budget.
The secondary challenge is: to optimize the allocation of necessary inputs

and apply them to meet pre-defined objectives.
The objective of project management is to produce a complete project

which complies with the client's objectives.
A 2017 study suggested that the

success of any project depends on
how well four key aspects are
aligned with the contextual
dynamics affecting the project,
PLAN PROCESS
these are referred to as the four
SUCCESSFUL
P's. PROJECT
4 P’S
• Plan: The planning and
forecasting activities.
• Process: The overall approach to PEOPLE POWER
all activities and project
governance.
• People: Including dynamics of

how they collaborate and
communicate.
• Power: Lines of authority,
PLAN PROCESS
decision-makers, organograms,
SUCCESSFUL
policies for implementation and PROJECT
the like. 4 P’S
Aim & Expectations: What are the PEOPLE POWER

aims & expectations of the project.
• Project Lifecycle:
There are five phases to a project
lifecycle; known as process groups.
Each process group represent a
series of inter-related processes to
manage the work through a series of
distinct steps to be completed. This
type of project approach is often
referred to as "traditional" or
"waterfall".
The five process groups are:

Initiating, Planning, Executing
Monitoring and Controlling and
Closing
• Types of Feasibility Study

A feasibility analysis evaluates the project’s potential for success; therefore,
perceived objectivity is an essential factor in the credibility of the study for
potential investors and lending institutions.
1. Technical Feasibility
2. Economic Feasibility
3. Legal Feasibility
4. Operational Feasibility
5. Scheduling Feasibility
1. Technical Feasibility
This assessment focuses on the technical
resources available to the organization. It
helps organizations determine whether the
technical resources meet capacity and
whether the technical team is capable of
converting the ideas into working systems.
Technical feasibility also involves the
evaluation of the hardware, software, and
other technical requirements of the proposed
system. As an exaggerated example, an
organization wouldn’t want to try to put Star
Trek’s transporters in their building—currently,
this project is not technically feasible.
2. Economic Feasibility
This assessment typically involves a

cost/ benefits analysis of the project,
helping organizations determine the
viability, cost, and benefits associated
with a project before financial resources
are allocated. It also serves as an
independent project assessment and
enhances project credibility—helping
decision-makers determine the positive
economic benefits to the organization
that the proposed project will provide.
3. Legal Feasibility
This assessment investigates whether any

aspect of the proposed project conflicts with
legal requirements like zoning laws, data
protection acts or social media laws. Let’s
say an organization wants to construct a new
office building in a specific location. A
feasibility study might reveal the
organization’s ideal location isn’t zoned for
that type of business. That organization has
just saved considerable time and effort by
learning that their project was not feasible
right from the beginning.
4. Operational Feasibility
This assessment involves undertaking

a study to analyze and determine
whether—and how well—the
organization’s needs can be met by
completing the project. Operational
feasibility studies also examine how a
project plan satisfies the
requirements identified in the
requirements analysis phase of
system development.
5. Scheduling Feasibility
This assessment is the most

important for project success; after
all, a project will fail if not completed
on time. In scheduling feasibility, an
organization estimates how much
time the project will take to
complete.
• Feasibility Study:
1. Invested capital , includes: (The cost of production machines and equipment, Spear
parts and backup tools, Buildings of all kinds)
2. Working capital , includes: ) The cost of raw, auxiliary and supplementary materials
necessary for manufacturing operations, Manpower wages(
3. Total cost of production = 𝑽𝒂𝒓𝒊𝒂𝒃𝒍𝒆 𝒄𝒐𝒔𝒕𝒔 + 𝐅𝐢𝐱𝐞𝐝 𝐂𝐨𝐬𝐭𝐬

• Variable costs are expenses that change with production volume; these costs rise
when production increases and fall when it decreases. (utilities, Employees salary,
direct labor, raw materials, and commissions).
• Fixed costs do not fluctuate with production volume; these costs remain the same
whether there is zero production or running at full capacity. (Annihilations and
maintenance of Machines, buildings and equipment, Rent and leased equipment).
4. Annual Profit = Total Sales Value - Total cost of production
5. Total added value = Wages and guarantee + Annihilations (extermination) +

Interest + Insurance + profits
• Net added value = Total added value - Annihilations
𝑜𝑢𝑡𝑝𝑢𝑡 𝐴𝑛𝑛𝑢𝑎𝑙 𝑃𝑟𝑜𝑓𝑖𝑡

6. The percentage of profitability of the project = = ∗ 100%
𝑖𝑛𝑝𝑢𝑡 𝐼𝑛𝑣𝑒𝑠𝑡𝑒𝑑 𝑐𝑎𝑝𝑖𝑡𝑎𝑙
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠
7. Break-even point size =
𝑈𝑛𝑖𝑡 𝑝𝑟𝑖𝑐𝑒 − 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡𝑠 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠
8. Break-even point value = 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡𝑠
1−
𝑎𝑛𝑢𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 𝑣𝑎𝑙𝑢𝑒
𝐴𝑐𝑡𝑢𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 − 𝐵𝑟𝑒𝑎𝑘−𝑒𝑣𝑒𝑛 𝑃𝑜𝑖𝑛𝑡 𝑉𝑎𝑙𝑢𝑒

9. Percentage of safety limit = ∗ 100%
𝐴𝑐𝑡𝑢𝑎𝑙 𝑆𝑎𝑙𝑒𝑠
𝐼𝑛𝑣𝑒𝑠𝑡𝑒𝑑 𝑐𝑎𝑝𝑖𝑡𝑎𝑙
10. Project shutdown time =
𝐴𝑛𝑛𝑢𝑎𝑙 𝑃𝑟𝑜𝑓𝑖𝑡 + 𝐴𝑛𝑛𝑖ℎ𝑖𝑙𝑎𝑡𝑖𝑜𝑛𝑠
A project is considered as a profitable project or (Economically feasible) if:
• The percentage of profitability of the project >25%

• Project shutdown time is less than 4 years
Example:
A cake factory produces 100

high quality cake pieces per
day. The selling price of one
cake equals to 15 $. Given the
following factory data table (1),
drive a full Economic
Feasibility study for this factory
and its production. (240
working days in a year)
Invested capital Working Capital

Name Price Name Price
Grinding Machines 1000 $ Raw Materials
Separation Machines 800 $ Flour, eggs, sugar,
cooking oil, baking 12,000 $
Mixing Machines 1500 $ soda, cake mix,
Motors and Belts 3000 $ flavors, fruits, etc.
Nozzles and Valves 500 $ 8900 $ Annual Salaries of 20
120,000 $
employees
Cake Equipment 500 $
Industrial expenses
Cake Molds 300 $
Water, electricity,
Decoration Molds 300 $ 5000 $
lubricating oil and
Spear Parts 1000 $ diesel
Buildings and Stores 60,000$ TOTAL 137,000
70,000 $
Selling area 10,000 $
TOTAL 78,900 $
Total cost of production
Variable Costs Fixed Costs

Name Price Name Percentage Price
Raw Materials 12,000 $ Annihilations of Machines and tools 10% 890 $
Industrial expenses 5000 $ Maintenance of Machines and tools 5% 445 $
TOTAL 17,000 Annihilations of Buildings 5% 3500 $
Maintenance of Buildings 2% 1400 $
Guarantees and Insurances of Machines and
1% 89 $
Tools
Annual Salaries 120,000 $
TOTAL 126,324 $
Total cost of production = 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡𝑠 + Fixed Costs = 17,000 + 126,324 = 143,324
Annual Profit = Total Sales Value - Total cost of production
𝑈𝑛𝑖𝑡 𝑝𝑟𝑖𝑐𝑒 = 15 $
𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 𝑉𝑎𝑙𝑢𝑒 = 15 $ ∗ 100 ∗ 240 = 360,000 $
𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 143,324
𝑈𝑛𝑖𝑡 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑃𝑟𝑖𝑐𝑒 = = =6$
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑈𝑛𝑖𝑡𝑠 24,000
Annual Profit = 360,000 $ − 143,324 $ = 216,676 $
Total added value = Wages and guarantee + Annihilations (extermination) + Interest + Insurance + profits
Total added value = 120,000 + 3500 + 890 + 89 + 216,676 = 341,155
Net added value = Total added value – Annihilations = 120,000 + 89 + 216,676 = 336,765
𝑜𝑢𝑡𝑝𝑢𝑡 𝐴𝑛𝑛𝑢𝑎𝑙 𝑃𝑟𝑜𝑓𝑖𝑡

The percentage of profitability of the project = = ∗ 100%
𝑖𝑛𝑝𝑢𝑡 𝐼𝑛𝑣𝑒𝑠𝑡𝑒𝑑 𝑐𝑎𝑝𝑖𝑡𝑎𝑙
216,676 $
= ∗ 100% = 275 %
78,900 $
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 126,324

Break-even point size (quantity) = = 17,000 = 8839
𝑈𝑛𝑖𝑡 𝑝𝑟𝑖𝑐𝑒 − 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡𝑠 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 15−24,000
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 126,324

Break-even point value = 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡𝑠 = 17,000 = 132585
1− 𝑎𝑛𝑢𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 𝑣𝑎𝑙𝑢𝑒 1−360,000
𝐴𝑐𝑡𝑢𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 − 𝐵𝑟𝑒𝑎𝑘−𝑒𝑣𝑒𝑛 𝑃𝑜𝑖𝑛𝑡 𝑉𝑎𝑙𝑢𝑒

Percentage of safety limit = ∗ 100% =
𝐴𝑐𝑡𝑢𝑎𝑙 𝑆𝑎𝑙𝑒𝑠
360,000 − 132585
∗ 100% = 63 %
360,000
𝐼𝑛𝑣𝑒𝑠𝑡𝑒𝑑 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 78,900

Project shutdown time = = = 0.36
𝐴𝑛𝑛𝑢𝑎𝑙 𝑃𝑟𝑜𝑓𝑖𝑡 + 𝐴𝑛𝑛𝑖ℎ𝑖𝑙𝑎𝑡𝑖𝑜𝑛𝑠 216,676 + 3500+890
Break-even analysis example:
Sara has dreams of opening a cupcake store.

She does a break-even analysis to determine
how many cupcakes she’ll have to sell to break
even on her investment. She’s done the math, so
she knows her fixed costs for one year are
$10,000 and her variable cost per unit is $.50.
She’s done a competitor study and some other
calculations and determined her unit price to be
$6.00.
$10,000 / ($6 – $0.50) = 1,819 cupcakes that

Sara must sell in one year to break even
Example:
Company Bag Ltd. produces and sells the bags in the market and wants to conduct the break-even
analysis of its business. The accountant in charge of the company determined that the fixed cost of the
company consisting of salaries of the employees, rent cost, property tax, etc. will remain the same at $
1,000,000. The variable cost, which is associated with the production of one unit of the bag, will come to
$ 20. The bag is sold in the market at a premium price of $ 120. Prepare the break-even chart for
Company Bag Ltd.
Solution:
Given,
Fixed Cost: $ 1,000,000
Variable cost: $ 20 per unit
Sales price: $ 120 per unit
Contribution per unit = Sales price per unit – Variable cost per unit
Contribution per unit = $ 120 – $ 20
Contribution per unit = $ 100
Given,
Fixed Cost: $ 1,000,000
Variable cost: $ 20 per unit
Sales price: $ 120 per unit
Contribution per unit = Sales price per unit – Variable cost per unit
Contribution per unit = $ 120 – $ 20
Contribution per unit = $ 100
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 1,000,000

Break-even point size (quantity) = = = 10,000 𝑢𝑛𝑖𝑡 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
𝑈𝑛𝑖𝑡 𝑝𝑟𝑖𝑐𝑒 − 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡𝑠 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 120−20
It shows that the company Bag Ltd. would be required to sell the 10,000 units of bags to achieve the
break-even at the given fixed cost, selling price, and the variable cost of the bag.
Graphical Representation of Break-Even Chart

Calculation of Different Costs for Bag Ltd for Different Number of Units Sold
No of Units sold per year Fixed Cost Total Variable Cost Total Cost (Variable + Fixed) Total Revenue
0 1,000,000.00$ 0.00$ 1,000,000.00$ 0.00$
2000 1,000,000.00$ 40,000.00$ 1,040,000.00$ 240,000.00$
4000 1,000,000.00$ 80,000.00$ 1,080,000.00$ 480,000.00$
6000 1,000,000.00$ 120,000.00$ 1,120,000.00$ 720,000.00$
8000 1,000,000.00$ 160,000.00$ 1,160,000.00$ 960,000.00$
10000 1,000,000.00$ 200,000.00$ 1,200,000.00$ 1,200,000.00$
12000 1,000,000.00$ 240,000.00$ 1,240,000.00$ 1,440,000.00$
14000 1,000,000.00$ 280,000.00$ 1,280,000.00$ 1,680,000.00$

$1,800,000.00
$1,600,000.00
$1,400,000.00
$1,200,000.00
Total Revenue
$1,000,000.00
$800,000.00
$600,000.00
$400,000.00
$200,000.00
$0.00
0 2000 4000 6000 8000 10000 12000 14000 16000
No of Units sold per year
Total Revenue Fixed Cost Total Variable and Fixed Costs Variable Cost

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Industrial Engineering Management

INTRODUCTION AND HISTORY:

Lean manufacturing is a production process based on an ideology of maximizing productivity while

DMAIC is used for projects aimed at improving an existing business process.

The DMAIC project methodology has five phases:

There is a general consensus among historians that the roots of

A company, abbreviated as co., is a legal entity representing an association of people,

• voluntary associations, which may include nonprofit organizations

Organization: is a group of people working together in an organized manner to reach a

Organizational chart, also called

Without an Org. Board there is

Group A Group B Group C Group D

Task No. 1 (First Week)

A group has to design and create a

• Facility Location and Layout

Facility Location is the right location

Facility location is a scientific Overall objective of an organization is to

A manufacturing unit is the

There are several factors, which determine the

Location Selection Factors

Errors in Location Selection

Behavioral errors are decision made by executives of the

Factors Influencing Facility Location

For commercial success, and competitive advantage following are the

4. Free Trade Zone/Agreement: Free-trade

Facility Layout - Objectives, Design and Types of Facility Layout

For an organization to have an effective and efficient manufacturing unit, it is important

Facility layout is an arrangement of different aspects of manufacturing in an appropriate

An effective facility layout ensures that

Facility Layout Objectives:

An organization can achieve the above-mentioned objective by ensuring the following:

• Better training of the workers and supervisors.

Design of Facility Layout

Flexibility: Facility layout should provide

Design Layout Techniques:

• Two or Three Dimensional Templates: This technique utilizes development of a

2D or 3D Templates Sequence Analysis Line Balancing

Types of Facility Layout:

1. Line Layout (Product layout) (assembly line)

Line Layout (Product layout) (Assembly line)

Functional Layout (Process layout) (Sequence layout)

Cellular Layout Fixed Position Layout

• Marketing and Distribution

Bucklin - Theory of Distribution

• Tasks of Intermediaries - Wholesalers

• Tasks of Intermediaries - Retailer

Intensity of Channel Structure

Intensive Selective Exclusive

All Possible Relatively Few Just One

• Channel design/structure: form or shape that a marketing channel takes to perform

Channel length = Number of levels in a distribution channel

2 level 3 level 4 level 5 level

Retailer Retailer Retailer

Consumer Consumer Consumer Consumer

• Actions to Facilitate Order Processing

• Use of Technology in Distribution

• Project Management, Planning, Operation and Control.

Project management: is the process of leading the work of a team to achieve

The primary constraints are: scope, time, and budget.

The secondary challenge is: to optimize the allocation of necessary inputs