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INDUSTRIAL MANAGEMENT
(MEM 575)
Topic 1: Basic Concepts In Production
Management
Lecturer: Pn. Wan Mazlina Wan Mohamed
Office: T1-A11-11A
Outline
! What Is Industrial Management?
! Organizing to Produce Goods and Services
! Why Study IM?
! What Industrial/Operations Managers Do?
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What Is Industrial/Operations
Management?
Production is the creation of goods and
services

Industrial/Operations management is the set
of activities that creates value in the form of
goods and services by transforming inputs
into outputs
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Organizing to Produce Goods and
Services
! Essential functions:
! Marketing generates demand
! Production/operations creates the product
! Finance/accounting tracks how well the
organization is doing, pays bills, collects the
money
Organizational Charts
Operations
Teller Scheduling
Check Clearing
Collection
Transaction
processing
Facilities design/
layout
Vault operations
Maintenance
Security
Finance
Investments
Security
Real estate
Accounting
Auditing
Marketing
Loans
Commercial
Industrial
Financial
Personal
Mortgage
Trust Department
Commercial Bank
Figure 1.1(A)
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Organizational Charts
Operations
Ground support
equipment
Maintenance
Ground Operations
Facility
maintenance
Catering
Flight Operations
Crew scheduling
Flying
Communications
Dispatching
Management science
Finance/ accounting
Accounting
Payables
Receivables
General Ledger
Finance
Cash control
International
exchange
Airline
Figure 1.1(B)
Marketing
Traffic administration
Reservations
Schedules
Tariffs (pricing)
Sales
Advertising
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Marketing
Sales
promotion
Advertising
Sales
Market
research
Organizational Charts
Operations
Facilities
Construction; maintenance
Production and inventory control
Scheduling; materials control
Quality assurance and control
Supply chain management
Manufacturing
Tooling; fabrication; assembly
Design
Product development and design
Detailed product specifications
Industrial engineering
Efficient use of machines, space,
and personnel
Process analysis
Development and installation of
production tools and
equipment
Finance/ accounting
Disbursements/
credits
Receivables
Payables
General ledger
Funds Management
Money market
International
exchange
Capital requirements
Stock issue
Bond issue
and recall
Manufacturing
Figure 1.1(C)
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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
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What Operations
Managers Do
! Planning
! Organizing
! Staffing
! Leading
! Controlling
Basic Management Functions
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Ten Critical Decisions
Ten Decision Areas Chapter(s)
! Design of goods and services 5
! Managing quality 6, Supplement 6
! Process and capacity 7, Supplement 7
design
! Location strategy 8
! Layout strategy 9
! Human resources and 10, Supplement 10
job design
! Supply chain 11, Supplement 11
management
! Inventory management 12, 14, 16
! Scheduling 13, 15
! Maintenance 17
Table 1.2
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The Critical Decisions
! Design of goods and services
! What good or service should we offer?
! How should we design these products and
services?
! Managing quality
! How do we define quality?
! Who is responsible for quality?
Table 1.2 (cont.)
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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 strategy
! Where should we put the facility?
! On what criteria should we base the location
decision?
Table 1.2 (cont.)
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The Critical Decisions
! Layout strategy
! How should we arrange the facility?
! How large must the facility be to meet
our plan?
! Human resources and job design
! How do we provide a reasonable work
environment?
! How much can we expect our employees
to produce?
Table 1.2 (cont.)
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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?
Table 1.2 (cont.)
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The Critical Decisions
! Intermediate and shortterm
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?
Table 1.2 (cont.)
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Where are the OM Jobs?
Figure 1.2
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Feedback loop
Outputs
Goods
and
services
Processes
The U.S. economic system
transforms inputs to outputs
at about an annual 2.5%
increase in productivity per
year. The productivity
increase is the result of a
mix of capital (38% of 2.5%),
labor (10% of 2.5%), and
management (52% of 2.5%).
The Economic System
Inputs
Labor,
capital,
management
Figure 1.7
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Measuring Productivity
Productivity is a measure of how efficiently inputs are
converted to outputs
Productivity = output/input

Total Productivity Measure
Total Productivity = $sales/inputs $
Partial Productivity Measure
Partial Productivity = cars/employee

Multifactor Productivity Measure
Multi-factor Productivity = sales/total $costs

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! Measure of process improvement
! Represents output relative to input
! Only through productivity increases
can our standard of living improve
Productivity
Productivity =
Units produced
Input used
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Productivity Calculations
Productivity =
Units produced
Labor-hours used
= = 4 units/labor-hour
1,000
250
Labor Productivity
One resource input ! single-factor productivity
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Multi-Factor Productivity
Output
Labor + Material + Energy
+ Capital + Miscellaneous
Productivity =
! Also known as total factor productivity
! Output and inputs are often expressed
in dollars
Multiple resource inputs ! multi-factor productivity
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
=
Old labor
productivity
8 titles/day
32 labor-hrs
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
8 titles/day
32 labor-hrs
=
Old labor
productivity
= .25 titles/labor-hr
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
32 labor-hrs
=
Old labor
productivity
=
New labor
productivity
= .25 titles/labor-hr
14 titles/day
32 labor-hrs
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
32 labor-hrs
=
Old labor
productivity
= .25 titles/labor-hr
14 titles/day
32 labor-hrs
=
New labor
productivity
= .4375 titles/labor-hr
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
=
Old multifactor
productivity
8 titles/day
$640 + 400
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old System:
14 titles/day Overhead = $800/day
New System:
8 titles/day
$640 + 400
=
Old multifactor
productivity
= .0077 titles/dollar
14 titles/day
$640 + 800
= .0097 titles/dollar
=
New multifactor
productivity
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Measurement Problems
! Quality may change while the quantity of inputs
and outputs remains constant
! External elements may cause an increase or
decrease in productivity
! Precise units of measure may be lacking
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Productivity Variables
! Labor - contributes about 10%
of the annual increase
! Capital - contributes about
38% of the annual increase
! Management - contributes
about 52% of the annual
increase
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Key Variables for Improved Labor
Productivity
! Basic education appropriate for the labor
force
! Diet of the labor force
! Social overhead that makes labor available
! Maintaining and enhancing skills in the midst
of rapidly changing technology and
knowledge