Addis Ababa Science and Technology

University College of Electrical & Mechanical Engineering

BSc Program in Electromechanical Engineering

Course Title: Industrial Management and Engineering Economy

By: Ephrem Gidey (Dr.)

Address: B-64, R-207
E-mail: [email protected], Mob. 0911002935

April, 2022

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 Objectives of the Course
The course enables students:
• To know basic principles/concepts of industrial organization and
management;
• To gain theoretical and analytical approaches for industrial plant layout
and design;
• To understand the significance of effective material management and
resource allocation methods for enhancing industrial productivity;
• To give prior due consideration for time value of money;
• To be familiar with methods of cost comparison for evaluating alternative
investment projects; and

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 CHAPTER ONE

Basic Management Concepts and Industrial

Organization

• Introduction to Management
• Functions of Management
• Organizational Structure
• Basics of Productivity
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 Introduction
• Organizations set a variety of goals and direct their energies and
resources to achieve them;

• Organizational Goals may include:

• Business firm (RoI);
• Hospital (Patient care);
• HEI (T-L, R, CS);

• All organizations have resources to meet these objectives;

• Such resources can be classified into two categories: human and
non-human resources;

• Therefore, management is the force that unifies these resources;

Management as a Unifying Force

Financial
Resources
Plant &
Employees Management Equipment

Land

Thus, management is the process of bringing human & nonhuman

resources together and coordinating them to accomplish
organizational goals. 5
 Organizational Resources

Human Non-Human
 Skills • Capital
 Knowledge • Land
 Attitude • Plant and Equipment
• Technology
• Time

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Definitions of Management

• It is the art of getting things done through people;

• It is the act of getting people together to accomplish

desired goals and objectives using available resources
efficiently and effectively;

• It is the process of getting activities completed efficiently

and effectively with and through other people;
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• Management is both science and art;

• It is a science in the sense, that it adopts a systematic

approach through knowledge acquired by continuous
and dynamic efforts;

• It is an art as it is an application of some skills to

achieve the desired results;
• Because it utilizes the talent of the people; and
• Because it manages human beings.
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 Basics to Industrial Management

• Industrial management deals with the creation and

management of systems that integrate people, materials,
and energy in a productive way for the production of
economic goods/ services.

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• Industries can be classified on the basis of size and
ownership.
• Size: based on amount of capital invested, no. of people
employed, or volume of production.
• Ownership: private, state owned or public, joint, or co-
operative;

• Industry is also often classified into three sectors: primary

or extractive, secondary or manufacturing, and tertiary or
services;
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Managerial abilities
• Ability to plan
• Integrity
(Honesty + Reliability)
• Technical skill
• Intelligence
• Judgment
• Initiative
• Resourcefulness • Ability to organize
• Tactfulness
• Reliability (consistency)
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Management applies to:

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Functions of Management

Functions of
Management

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• Planning is the process of setting objectives for the future
and developing courses of action to accomplish them.

• It is a systematic activity which determines when, how

and who is going to perform a specific job.

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• Top-level managers set plans for the entire company;

• Lower level managers prepare plans for their immediate areas

of responsibility;

• Planning is done in light of budgetary constraints, personnel

requirements, and other factors.

“Well plan is half done”

“Failing to plan means planning to fail”

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• Organizing is the process of arranging people and
physical resources to carry out plans and accomplish
organizational objectives.

• I.e., through organizing, managers must develop a

system in which people can perform tasks that lead to
the desired results.

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• Organizing by top-level executives includes the
following activities:
A. Creating job positions with defined duties,
responsibilities, & salary ranges based on job
requirements;
B. Arranging positions into a hierarchy by establishing
authority-reporting relationships;
C. Determining the no. of subordinates each manager
should have reporting (span of control or span of
management); 17
• Staffing is the process of matching jobs and people;
• It involves the recruitment, selection, development, and
retention of employees with appropriate qualifications;
• Staffing is the most important duty of managers as the
success of any firm depends on the quality of its
employees.
• Staffing includes: HR planning, announcing vacant
positions, receiving applications, preliminary and final
interviewing, testing, medical examination, and final
selection and orientation. 18
• Leading is the act of motivating or causing people to
perform certain tasks intended to achieve the specific
objectives.
• It is the act of making things happen.
• It is developing relationships that ensure adequate
communication with subordinates.

• It also includes managing personal conflict, helping

employees deal with changing conditions, and
disciplining employees.
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• Overall, leading involves developing a climate of
individual integrity, corporate honesty, and high
productivity.

• To be effective leaders, managers need to understand

individual and group behaviour, techniques of
motivation, and effective styles of leadership.

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• A manager to be effective leader:
• Objectives must be identifiable, measurable, and individually
attainable;

• Must recognize and reward outstanding performance;

• Must surround himself with competent employees and ask their

advice when making decisions; i.e.,

• A manager should use all the organizational resources

available-especially people;
• Controlling is the process by which managers determine
whether organizational objectives are achieved and
whether actual operations are consistent with plans.

• It is the continual comparison of performance with goals

and taking corrective action, if needed.

• Three things that require the most attention in controlling:

product quality, worker performance, & cost;

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Management Roles

Carrying out management functions requires a manager

to behave in a certain way- to fill certain management
roles.
1. Interpersonal Roles
1.1. Figurehead: All social, inspiration, legal and
ceremonial obligations. In this light, the manager is
seen as a symbol of status and authority (E.g. Dr.
Arega – Prior CEO, MIDROC Investment Group)

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 Management Roles

1.2. Leader: Duties are at the heart of the manager-

subordinate relationship and include:
• structuring and motivating subordinates, overseeing
their progress, promoting and encouraging their
development, and balancing effectiveness.
1.3. Liaison: representing their organization in different
occasions.
• Maintain information links both inside and outside
organization;

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2. Informational Roles
A second set of managerial roles relates to receiving
and transmitting information;
These informational roles require managers to serve
as:
• monitor,
• disseminator and
• spokespersons.

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3. Decision Roles
• The third set of managerial roles involves decision
making, or decisional roles;

• As decision maker, a manager becomes

 entrepreneur,
 disturbance handler,
 resource allocator, &
 negotiator.
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Management Hierarchy
• Although all managers may perform the same basic duties and
play similar roles, the nature and scope of their activities differ;
• Hence, three distinct levels of management are available;

Top Management
• A manager’s assigned job
duties and the authority
needed to fulfill those duties Middle Management
are what determine
management level.
Supervisory
Management
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1. Top Management
• Constitutes those who have the possibility/responsibility of
making decisions & formulating policies that affect all aspect of
the firm’s operations.
President
Vice President
Chief Executive Officers
Executive Vice President
General Manager/Deputy

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2. Middle Management
• Includes all managers above the supervisory level but below
the level where overall company policy is determined.

• Middle managers manage supervisors.

Regional Sales Manager
Academic Deans (Universities)
Production Manager (in an Industry/Factory)

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3. Supervisory Management
• At the base of the pyramid is supervisory management
• Supervisors manage workers who perform the most basic job
duties required in the business.
• Technically, supervisors are managers. As such, they must
reflect the company’s view to their subordinates.

• Because of the expectations placed on supervisors from above

and below, many people claim that ‘the person on the firing
line-the supervisor-has the toughest job in management.’

• Eg. Sales Manager, Academic department head (Universities)

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Management Skills

• Management success depends both on a fundamental

understanding of the principles of management and on
the application of management skills;

• Modern business organizations are dynamic and

complex, and competition in the market place is fierce.
Thus, managers must be highly skilled to succeed;

• The skills managers need can be classified as technical,

human relations and conceptual.

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 Management Skills

1. Technical Skills
• Are the specialized knowledge and abilities that can be
applied to specific tasks.
• Most important at lower level of management.
• In most cases, technical skills are important at this level
because supervisory managers should train their
subordinates in the proper use of work-related tools,
machines, equipment and Standard Operation
Procedure (SOP).
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 Management Skills

2. Human relation skills

• Human relations skills are the abilities needed to resolve
conflict, motivate, lead, and communicate effectively with
other workers.
• Because all work is done when people work together,
human relation skills are equally important at all levels
of management.
• it is cooperative effort; it is teamwork; it is about making
people to feel secure and free to express their opinions.
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3. Conceptual Skills

• Conceptual skills are the abilities needed to view the

organization from a broad perspective and to see the
interrelations among its components.
• Conceptual skills are most important in strategic (long-
range) planning, therefore these are more important
at top level executives.

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Management Skills

Top management

Middle
management

Supervisory
management

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 Management Styles
Description Advantages Disadvantages
Autocratic

Managers take all the Quick decision making No two-way communication so

important decisions can be de-motivating ; creates
with no involvement Effective when employing “them and us” attitude b/n
of workers many low skilled workers managers and workers

 Slows down decision making

Paternalistic

Managers make More two-way

decisions in best communication so motivating Still quite a dictatorial or
interests of workers Workers feel their social autocratic style of management
after consultation needs are being met

Workers allowed to Authority is delegated to

Democratic

Mistakes or errors can be made

make own decisions. workers which is motivating if workers are not skilled or
Some businesses Useful when complex experienced enough
run on the basis of decisions are required that
majority decisions need specialist skills
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 Organizational structure
• Activities such as task allocation, coordination and supervision
should be directed towards the achievement of organizational
goals;

• Organizational structure is the typical hierarchical arrangement of

lines of authority, communications, rights and duties of an
organization;

• It determines how the roles, power and responsibilities are

assigned, controlled, and coordinated, and how information flows
among the different levels of management;

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 Types of Organizational Structure
• There are three main types of organizational structure:
functional, divisional and matrix

a) Functional structure
• An organizational set up where
each portion is grouped according
to its purpose;

• Drawback – coordination &

communication among departments
is restricted by departmental
boundaries; 38
 b) Divisional structure

• Typically is used in larger companies

that operate in a wide geographic area;

• Ex. engine division, a compressor

division, a parts division, etc);

• Needs can be met rapidly & specifically;

• However, communication is inhibited
because employees in different divisions
do not work together;

• It is costly because of its size and scope.

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 c) Matrix structure

• Hybrid of divisional & functional stru.;

• Typically used in large multinational

companies;

• It allows the benefits of functional and

divisional structures;

• This can create power struggles

because most areas of the company
will have a dual management or
shared management responsibilities;
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41
 2. Plant Design
• Introduction
• Management decisions for effective plant design
• Plant Location
• Plant Location Techniques
• Transportation Method of Linear Programming
• Basics & Study of Plant Layout
• Types of Layout
• Internal Transport System
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Introduction
• Plant design is the planning of finance, plant location, and other
physical requirements of a plant
• Usually, takes place when establishing a new plant;

Figure: major milestones of plant design 43

• The basic decision that management must take for effective plant
design include the followings:
• Acquisition of Capital
• Product Design: {Design for: function, manufacturing, or selling}
• Sales Planning {considering seasonality}
• Determination of the Production Process
• Make or Buy Decision {reducing unit cost}
• Plant Size
• Product Price Range {volume vs. reputation}
• Plant Location {selecting a region & specific site}
• Plant Layout {good/workable disposition of industrial facilities
• Building Type Selection {concrete, high-rise metal structure}
• Diversification & Organization Development
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 Plant Location
• Conditions that lead to plant location analysis include: expansion
or other economic factors such as a shift of the market or an
inadequate labor supply.

• Systematic approaches to plant location are:

• Selection of general territory {market (concentrated/distributed), cost of
construction, wages & labor, raw material, transport, energy}; and

• Selection of specific site {community attitude, transport, water,

communication, wind direction (smoke, gas, odor), condition of the site
(load), future development (space availability), complementary plants}

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Plant Location Factors

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 Plant/Facility Location Techniques

• It involves both the location of the facility and internal layout of

the facility once located;
• Quantitative or qualitative or both
• Many different plant location problems can be defined based on
varying criteria/parameters;
• Usually, the criterion or objective is to minimize cost;
• Often, the distance traveled is chosen as cost function;
• Thus, the objective becomes minimizing total distance traveled.
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• The straight-line or Euclidean distance is more appropriate;

• If two facilities are located at points represented by (X1, Y1) & (X2, Y2) then
the Euclidean distance, D, between the two is:

D   X 1  X 2 2  Y1  Y2


 
2


1 2

• While the rectilinear distance, D, is

D  X1  X 2  Y1  Y2

• Rectilinear – street is laid out in grids in urban setting

• Euclidean – as in inter-state or inter-city travel
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 Transportation Method of Linear Programming

• Linear Programming (LP) is a mathematical means for resolving

complex operational alternatives;

• Formulating a plant location problem involves minimization of

total cost to distribute products;

• Transportation LP formulation is used to determine the best

distribution pattern for the plant in a certain location;

• Then, total cost can be calculated, various locations tried, & the
location with the least total cost chosen;

• Example
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• Suppose that a Metal Manufacturing Company has narrowed its
choice of locations to two plants, M3 or M4. Assume, the unit costs
of manufacturing and distribution to the various warehouses are
determined and given. Which manufacturing site is feasible?

Solution
• To formulate this as a transportation linear programming
problem, it has to be first realized that there are two alternatives:
• Locate the plant in Manufacturing region M3 or
• Locate the plant in Manufacturing region M4
Total Cost per unit  Cost of production  Cost of distributi on
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• Least Cost Assignment Method
1. Determine the total unit cost (production + distribution)
2. First, fill the warehouse with the minimum total unit cost
3. Search for the next minimum total unit cost, fill this warehouse
with the available capacity;
4. The iteration continues until all demand in all warehouses is
filled with the capacity of all production facility;

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Basics of Plant Layout

Plant layout – is the act of planning an optimum arrangement of

industrial facilities, including:
 personnel,
 operating equipment,
 storage space,
 materials handling equipment and
 all other supporting services along with the design of the best structure
to contain these facilities

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Locating all areas in and around buildings
• Machines
• Equipment
• Work stations
• Material storage
• Rest/break areas
• Utilities
• Dinning areas
• Aisles
• Offices
Considering the safety & comfort of employees and optimum use of other
resources;

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Types of Layout
a) Product Layout:
Only one type of product is produced in a workstation;

• The product must be standardized and manufactured in large quantities

so as to justify the product layout.

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b) Process Layout

Similar equipment and similar operations are grouped together in the

process or functional layout;

One machine is usually used for different operations;

It is particularly useful where low volume is required.

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c) Fixed-position Layout

• The product or major component remains in a fixed location;

and tools, machinery, & operators are brought to it;

• Example: ship building, construction industries, aircraft building;

• Not frequently used in industrial enterprises;

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Study of Plant Layout

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 The Need for Plant Layout
• To start a new product,
• To change the product design,
• To reduce the cost;
And when
• the market demand changes,
• the plant, the product, the building become obsolete,
• accidents occur frequently,
• the working environment is poor.

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The resulting problems of the study involve

• Planning a completely new plant,

• Re-arranging a presently installed layout,
• Making adjustments to existing layout.

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 Developing Layout Problems
Product Market Poor
New Obsolete Worker Market Cost
Design Demand
Change product Facility Environment Relocation Reduction
Change

Move to Rearrange Minor

Build New Existing changes
existing
Plant Plant
Plant

Class of layout problems

Relation between causes and classes of layout problems
Cause and result occur very frequently
Cause and result occur less frequently
Cause and result occur occasionally
No line Cause and result occur very seldom
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The objectives of a good study of plant layout are:

• ensure effective space utilization,

• minimize the cost of material handling (internal transports),

• foresee future developments of the plant according to a

rational master plan,

• improve workers convenience as well as safety and create job

satisfaction, and

• avoid unnecessary capital investment.

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Types of Machine Arrangements

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 Types of Machine Arrangements

a) IN PARALLEL

b) IN SERIES

c) COMBINED

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End of Chapter Two

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