Week 1

Introduction to Industrial
Management
 What is Industry?
Group or cluster of companies producing
similar products or delivering similar services
e.g. Automobile industry, cement industry,
pharma industry, etc.
What is Management?
Performing a task or group of tasks in an
effective and efficient manner.
 Aspects of an Industry

Human Resource Finance Operations Marketing Other

• Work norms • Track expenses • Create goods • Promotion
• Wages and incentives • Create budget or deliver • Sell
• Work environment and investment services • Revenue
• Etc. plan generation
 Areas of Study
• Process and Capacity Design • Work and Time Study
• Facility Location • Human Resource & Job
• Facility Layout Design Design
• Supply Chain Management • Ergonomics
• Production Planning • Value Engineering
• Inventory Management • Operations Research
• Quality Management • Service and Product
• Project Planning Design
• JIT/ Lean Practices • Scheduling
• Maintenance
 Industrial Engineering
Industrial engineering is concerned with the
design, analysis, and improvement of the
integrated system of men, material, and
equipment with an objective of increasing
productivity by eliminating waste and non
value adding operations and improving the
effective utilization of resources.
 Industrial Revolution
Industry 1.0 Industry 4.0
• Steam engine IoT, Cloud Computing
•
• Division of labor Coal and Virtual Reality
•
• Interchangeable parts Mechanization Machines can interact
•
High computational
•
power
Industry 2.0 Communication and Renewable energy
• Scientific Management
• Motion study
Electricity, Gas, Oil, telephone,
• Moving assembly line
Automation
• Charts for scheduling
• Internal combustion engines

Industry 3.0
• PLCs and Robots
• Computers
Nuclear energy and
• Automation
Telecommunication
 What Is Operations Management?
• Production is the creation of goods and
services
• Operations management (OM) is the set of
activities that creates value in the form of
goods and services by transforming inputs
into outputs
• OM is a systematic approach to addressing
issues in the transformation process that
converts useful inputs into useful revenue
generating outputs
What Is Operations Management?
• Operations and Supply Management (OM) is
defined as the design, operation, and
improvement of the systems that create and
deliver the firm’s primary products and
services
 Transformations

• Physical -- manufacturing

• Location--transportation

• Exchange--retailing

• Storage--warehousing

• Physiological--health care

• Informational--telecommunications
 Why Study OM?
• OM is one of three major functions
(marketing, finance, and operations) of any
organization
– We want (and need) to know how goods and
services are produced
– We want to understand what operations
managers do
– OM is such a costly part of an organization
Options for Increasing Contribution
Finance/
Marketing Accounting OM
Option Option Option

Increase Reduce Reduce

Sales Finance Production
Current Revenue 50% Costs 50% Costs 20%

Sales $100,000 $150,000 $100,000 $100,000

Cost of Goods Sold – 80,000 – 120,000 – 80,000 – 64,000
Gross Margin 20,000 30,000 20,000 36,000
Finance Costs – 6,000 – 6,000 – 3,000 – 6,000
SUBTOTAL 14,000 24,000 17,000 30,000
Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500
CONTRIBUTION $ 10,500 $ 18,000 $ 12,750 $ 22,500
 Operations and Supply Management
Supply Chain Processes

Manufacturing
Processes
Sourcing Distribution
Processes Processes
Logistics Logistics
Processes Processes

Service
Processes
Objectives of Operations Management
• Effectiveness objective
– Producing the right kind of goods & services
• Efficiency objective
– Maximizing output of goods & services
• Quality objective
– Ensuring that items conform to quality specifications
• Lead time objective
– Minimizing the time between the initiation and completion of a
production/service process.
• Capacity utilization objective
– Maximizing utilization of manpower, machines etc
• Cost objective
– Minimizing cost of producing goods or services
 What do customers want?
• High quality (Right quality)
• Low cost (Right cost)
• Shorter lead time (Right time)
• Right product 7 R of Logistic
• Right place
• Right customer
• Right quantity
• Post sell Service
• Maximum flexibility
 Goods Vs Service
• Production of Goods -- tangible
• Delivery of Services – an act
• Service job categories
– Government
– Wholesale/retail
– Financial service
– Healthcare
– Personnel services
– Business services
– Education
 Characteristics of Goods
• Tangible Products
• Consistent Product
definition
• Production is usually
separate from
consumption
• Can be inventoried
• Low customer interaction
 Characteristics of Services
• Intangible
• Produced and consumed
at same time
• Inconsistent Product
definition
• Often Unique
• Often knowledge based
• High customer interaction
 Goods Versus Services
Attributes of Goods Attributes of Services
(Tangible Product) (Intangible Product)
•Can be resold •Reselling unusual
•Can be inventoried •Difficult to inventory
•Some aspects of quality •Quality difficult to measure
measurable
•Selling is distinct from •Selling is part of service
production
•Product is transportable •Provider, not product, is
often transportable
•Site of facility important for cost •Site of facility important for
customer contact
•Often easy to automate •Often difficult to automate
•Revenue generated primarily •Revenue generated primarily
from tangible product from the intangible service
 Goods and Services
Automobile
Computer
Appliances
Fast-food meal
Auto repair
Hospital care
Advertising agency/
investment management

Teaching

Counseling
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |

Percent of Product that is a Good Percent of Product that is a Service

 Organizing to Produce
Goods and Services
• Essential business functions:
– Marketing – generates demand
– Production/operations – creates the product
– Finance/accounting – tracks how well the
organization is doing, pays bills, collects the
money
Business Functions – Manufacturer

Organizational Charts
Manufacturing

Marketing Operations Finance/

Accounting

Manufacturing Production Quality

Purchasing
Control Control
 Ten Critical Decision Areas
• Service and Product Design
• Quality Management
• Process and Capacity Design
• Location
• Layout Design
• Human Resources & Job Design
• Supply Chain Management
• Inventory Management
• Scheduling
• Maintenance
 The Critical Decisions
• Service and Product Design
– What good or service should we offer?
– How should we design these products and
services?
• Quality Management
– How do we define quality?
– Who is responsible for quality?
 The Critical Decisions
• Process and Capacity Design
– What process and what capacity will these
products require?
– What equipment and technology is necessary for
these processes?
• Location
– Where should we put the facility?
– On what criteria should we base the location
decision?
 The Critical Decisions
• Layout Design
– How should we arrange the facility and material
flow?
– How large must the facility be to meet our plan?
• Human Resources & Job Design
– How do we provide a reasonable work
environment?
– How much can we expect our employees to
produce?
 The Critical Decisions
• Supply-chain management
– Should we make or buy this component?
– Who are our suppliers and who can integrate into
our e-commerce program?
• Inventory, Material Requirements Planning,
and JIT
– How much inventory of each item should we
have?
– When do we re-order?
 The Critical Decisions
• Intermediate and short–term scheduling
– Are we better off keeping people on the payroll
during slowdowns?
– Which jobs do we perform next?
• Maintenance
– Who is responsible for maintenance?
– When do we do maintenance?
 Responsibilities of An Operations
Manager
• Meet target of production
• Devise efficient methods of manufacturing
• Reduce quality costs
• Reduce material handling costs
• Continually improve labor productivity
• Build team spirit &motivate workmen
 Sample Operations Strategies
Organizational
Strategy Operations Strategy Examples of Companies or Services
Low Price Low Cost U.S. first-class postage
Wal-Mart
Responsiveness Short processing times McDonald’s restaurants
On-time delivery FedEx
Differentiation: High performance design Sony TV
High Quality and/or high quality processing
Consistent Quality Coca-Cola
Differentiation: Innovation 3M, Apple
Newness
Differentiation: Flexibility Burger King (Have it your way”)
Variety Volume McDonald’s (“Buses Welcome”)
Differentiation: Superior customer service Disneyland
Service IBM
Differentiation: Convenience Supermarkets; Mall Stores
Location
 Productivity

• Productivity
– A measure of the effective use of resources,
usually expressed as the ratio of output to input
• Productivity measures are useful for
– Tracking an operating unit’s performance over
time
– Judging the performance of an entire industry or
country
 Productivity Measures
𝐎𝐮𝐭𝐩𝐮𝐭
𝐏𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐯𝐢𝐭𝐲 =
𝐈𝐧𝐩𝐮𝐭

𝐏𝐚𝐫𝐭𝐢𝐚𝐥 𝐌𝐞𝐚𝐬𝐮𝐫𝐞𝐬
𝐎𝐮𝐭𝐩𝐮𝐭 𝐎𝐮𝐭𝐩𝐮𝐭 𝐎𝐮𝐭𝐩𝐮𝐭 𝐎𝐮𝐭𝐩𝐮𝐭 𝐎𝐮𝐭𝐩𝐮𝐭
= ; ; ; ;
𝐒𝐢𝐧𝐠𝐥𝐞 𝐈𝐧𝐩𝐮𝐭 𝐋𝐚𝐛𝐨𝐫 𝐈𝐧𝐩𝐮𝐭 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐈𝐧𝐩𝐮𝐭 𝐌𝐚𝐭𝐞𝐫𝐢𝐚𝐥 𝐈𝐧𝐩𝐮𝐭 𝐄𝐧𝐞𝐫𝐠𝐲 𝐈𝐧𝐩𝐮𝐭

𝐎𝐮𝐭𝐩𝐮𝐭 𝐎𝐮𝐭𝐩𝐮𝐭 𝐎𝐮𝐭𝐩𝐮𝐭

Multifactor 𝐌𝐞𝐚𝐬𝐮𝐫𝐞𝐬 = 𝐌𝐮𝐥𝐭𝐢𝐩𝐥𝐞 𝐈𝐧𝐩𝐮𝐭 ; ;
𝐋𝐚𝐛𝐨𝐫1𝐌𝐚𝐜𝐡𝐢𝐧𝐞 𝐋𝐚𝐛𝐨𝐫1 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐈𝐧𝐩𝐮𝐭1𝐄𝐧𝐞𝐫𝐠𝐲

Goods or services produced

Total Measure
All inputs used to produce them
 𝑂𝑢𝑡𝑝𝑢𝑡 𝑜𝑓 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 𝑖 (𝑂! )
𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝑜𝑓 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 𝑖 (𝑇𝑃! ) = Eq(1)
𝐼𝑛𝑝𝑢𝑡 𝑓𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 (∑" 𝐼!" )

𝑂!
𝑃𝑎𝑟𝑡𝑖𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝑜𝑓 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 𝑖 𝑤𝑖𝑡ℎ 𝑟𝑒𝑠𝑝𝑒𝑐𝑡 𝑡𝑜 𝑖𝑛𝑝𝑢𝑡 𝑗 𝑃!" = ∀𝑗 Eq(2)
𝐼!"

Total productivity in terms of partial productivity

From Eq(1) 𝑂8 = 𝑇𝑃8 ∗ ∑9 𝐼89

From Eq(2) 𝑂8 = 𝑃89 ∗ 𝐼89 ∀𝑗

Where, Total Input for product i 𝐼8
Now, 𝑇𝑃! ∗ ∑" 𝐼!" = 𝑃!" ∗ 𝐼!"
= X 𝐼89
#!" 9
𝑇𝑃! = 𝑃!" ∗ ∑ ∀𝑗
" #!" :!"
Where, 𝑤89 = ∑" :!"
𝑇𝑃! = 𝑃!" ∗ 𝑤!" ∀𝑗
Ex. 1 Determine productivity of a company which produces 180 Kgs of a
quality product using three workers. Let’s assume 8 hours per shift.
%&&'()*+,' ./)(/)
𝑆𝑜𝑙: 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
0*+12 #3(/)

456 789
=
: ;12<'29 ∗5 >1/29/;12<'2

= 7.5 𝐾𝑔𝑠/ℎ𝑜𝑢𝑟

Ex. 2 Determine productivity of a company which produces 180 Kgs of a quality

product using 200 Kgs of material.
%&&'()*+,' ./)(/)
𝑆𝑜𝑙: 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
@*)'2!*, #3(/)

456 789
= = 0.9 =90%
A66 789
Material productivity is 90 percent
 Ex. 3 Determine productivity of a company with the given below output and
input:
Product 1:
Output: ₹ 20000
Material Input: ₹ 4000
Capital Input: ₹5000
Labor Input: ₹6000
Energy Input: ₹2000
Overhead Input: ₹1000
𝑆𝑜𝑙: 𝑷𝒂𝒓𝒊𝒕𝒂𝒍 𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒊𝒆𝒔:
20000
𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦(𝑃4@ ) = =5
4000
20000
Capital Productivity (𝑃4B ) = =4
5000
20000
Labor Productivity (𝑃40 ) = = 3.33
6000
20000
Energy Productivity (𝑃4C ) = = 10
2000
20000
Overhead Productivity (𝑃4. ) = = 20
1000
20000
Total Productivity (𝑇𝑃4 ) = = 1.11
4000+5000+6000+2000+1000
 4000
𝑊<= = 4000+5000+6000+2000+1000 = 0.222

5000
𝑊<> = = 0.278
4000+5000+6000+2000+1000

6000
𝑊<? = 4000+5000+6000+2000+1000 = 0.333

2000
𝑊<@ = = 0.111
4000+5000+6000+2000+1000

1000
𝑊<A = = 0.0555
4000+5000+6000+2000+1000

𝑇𝑃4 = 𝑃4@ ∗ 𝑤4@ = 5 ∗ 0.222 = 1.11

𝑇𝑃4 = 𝑃4B ∗ 𝑤4B = 4 ∗ 0.278 = 1.11

𝑇𝑃4 = 𝑃40 ∗ 𝑤40 = 3.33 ∗ 0.333 = 1.11

𝑇𝑃4 = 𝑃4C ∗ 𝑤4C = 10 ∗ 0.111 = 1.11

𝑇𝑃4 = 𝑃4. ∗ 𝑤4. = 20 ∗ 0.0555 = 1.11

 D.D%0 .EDFED (∑! .! )
TOTAL PRODUCTIVITY OF A FIRM (TPF) =
D.D%0 #IFED (∑! #! )

∑! .! ∑! DF! ∗∑" #!"

= ∑! ∑" #!"
= ∑! ∑" #!"
𝑆𝑢𝑏𝑠𝑡𝑖𝑡𝑢𝑡𝑖𝑛𝑔 𝑂! from Eq(1)

= ∑! 𝑤! ∗ 𝑇𝑃!

#!
where, 𝑤! = ,𝐼
∑! #! !
= ∑" 𝐼!" , and Total input for the firm = ∑! 𝐼!
Ex. 3 Determine productivity of a company with the given below output and input:
Product 1: Product 2:
Output: ₹ 20000 Output: ₹ 12000
Material Input: ₹ 4000 Material Input: ₹ 2500
Capital Input: ₹5000 Capital Input: ₹3000
Labor Input: ₹6000 Labor Input: ₹3500
Energy Input: ₹2000 Energy Input: ₹1000
Overhead Input: ₹1000 Overhead Input: ₹500
TPF = ∑8 𝑤8 ∗ 𝑇𝑃8

𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝑜𝑓 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 1 (𝑇𝑃< )= 1.11

: <BCCC
𝐼𝑛𝑝𝑢𝑡 𝑤𝑒𝑖𝑔ℎ𝑡 𝑓𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 1 (𝑤< )= ∑ !: = DBECC = 0.632
! !

12000
Total Productivity of product 2 (𝑇𝑃D ) = = 1.14
2500+3000+3500+1000+500
: <CECC
𝐼𝑛𝑝𝑢𝑡 𝑤𝑒𝑖𝑔ℎ𝑡 𝑓𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 2 (𝑤D )= ∑ ! = = 0.368
! :! DBECC

TPF = ∑8 𝑤8 ∗ 𝑇𝑃8 = 𝑤< ∗ 𝑇𝑃< + 𝑤D 𝑇𝑃D = 0.632* 1.11+ 0.368* 1.14 =1.12

FAFG? AHFIHF (∑! A! ) DCCCC1<DCCC

Also, TPF = FAFG? :LIHF (∑! :! )
= <BCCC1<CECC = 1.12
Brief History of Operations
Management
Significant Events in Operations
Management
 The Heritage of OM
• Division of labor (Adam Smith 1776; Charles
Babbage 1852)
• Standardized parts (Whitney 1800)
• Scientific Management (Taylor 1881)
• Coordinated assembly line (Ford/ Sorenson/Avery
1913)
• Gantt charts (Gantt 1916)
• Motion study (Frank and Lillian Gilbreth 1922)
• Quality control (Shewhart 1924; Deming 1950)
 The Heritage of OM
• Computer (Atanasoff 1938)
• CPM/PERT (DuPont 1957)
• Material requirements planning (Orlicky 1960)
• Computer aided design (CAD 1970)
• Flexible manufacturing system (FMS 1975)
• Baldrige Quality Awards (1980)
• Computer integrated manufacturing (1990)
• Globalization (1992)
• Internet (1995)
 Eli Whitney
• Born 1765; died 1825
• In 1798, received government contract to
make 10,000 muskets
• Showed that machine tools could make
standardized parts to exact specifications
– Musket parts could be used in any musket
 Frederick W. Taylor
• Born 1856; died 1915
• Known as ‘father of scientific management’
• In 1881, as chief engineer for Midvale Steel,
studied how tasks were done
– Began first motion and time studies
• Created efficiency principles
 Taylor’s Principles
• Management Should Take More Responsibility
for:
– Matching employees to right job
– Providing the proper training
– Providing proper work methods and tools
– Establishing legitimate incentives for work to be
accomplished
 Frank & Lillian Gilbreth
• Frank (1868-1924); Lillian (1878-1972)
• Husband-and-wife engineering team
• Further developed work measurement
methods
• Applied efficiency methods to their home and
12 children!
• Book & Movie: “Cheaper by the Dozen,”
book: “Bells on Their Toes”
 Henry Ford
• Born 1863; died 1947
• In 1903, created Ford Motor Company
• In 1913, first used moving assembly line to
make Model T
– Unfinished product moved by conveyor past work
station
• Paid workers very well for 1911 ($5/day!)
 W. Edwards Deming
• Born 1900; died 1993
• Engineer and physicist
• Credited with teaching Japan quality control
methods in post-WW2
• Used statistics to analyze process
• His methods involve workers in decisions
 Historical Summary of OM
Year Contribution/Concept Originator
1776 Division of labor Adam Smith
1790 Interchangeable parts Eli Whitney
1911 Principles of scientific management Frederick W Taylor
1911 Motion study: use of industrial psychology Frank and Lillian Gilbreth

1912 Chart for scheduling activities Henry Gantt

1913 Moving assembly line Henry Ford
1915 Mathematical model for inventory management F.W. Harris
1930 Hawthorne studies of on worker motivation Elton Mayo
1935 Statistical procedures for sampling and quality control H.F. Dodge, et al
1940 OR applications in warfare OR Groups
1947 Linear programming George Dantzig
1951 Commercial digital computers Sperry Univac
1950s Automation Numerous
1960s Extensive development of quantitative tools Numerous
1975 Emphasis on manufacturing strategy W. Skinner
1980s Emphasis on quality, flexibility, time-based competition, lean Toyota & Ohino
1990s Internet, supply chains Numerous
Thank You